BIDU Continues to be a Model Position

BIDU is one of the Core shorts in the equity model portfolio. I remember right when we had made plans for how, when and where we would enter BIDU, we had a new member join us and he was long BIDU on its breakout from a large triangle, this was the same area we were expecting (a head fake move as the triangle was already showing a large negative divergence) and the same area we entered BIDU short. I think maybe he might have been a little surprised, but I believe I told him, "Just give it some time and you'll see why we are short BIDU", I believe he's still with us and if anyone ha been paying attention to BIDU, you can understand the method to our madness. Shorting BIDU at breakout highs is 180 degrees opposite what Technical Analysts would be doing and most would have a hard time following us on this trade, but BIDU is already at a 25% gain and as a short equity position, I just added to BIDU as being short a real equity rather than being long a bear ETF has some real advantages, such as, YOU CAN MAKE MORE THAN 100% IN A SHORT and my recent add to was following in that method of making more than 100% in a short (see linked article I wrote some years back at www.Trade-Guild.net).

BIDU made another move today, down 3.25%, while that's great for the core short, it's not what I was hoping for as I closed BIDU puts last week for more than 100% gain in days as it was clear BIDU was about to consolidate/bounce; had I held the BIDU puts through the consolidation it is likely they'd b worth less right now even though price is lower because of the time decay on options. I went from consistently losing money on options to fairly consistently making money with options by understanding that options are a Wall Street derivative product set up so the House eventually wins just like Vegas, but play by different rules, do what instinct tells you not to do and you can make good money with options. However if you play by their rules and you use options in a way that seems to make sense to you and you'll either have worthless options or options worth a lot less than they could have been. True to our motto, "Wall Street is full of sheep, be the wolf!", we do everything, including options a little different. Our trades don't make emotional sense, they aren't usually emotionally easy to enter and exit, but since when have emotions served us well in the market?

 To the left is our original entry in the $150 area, this is now at a 25% gain, the newer positions added at $134 give us about a 16% gain, but the profits from BIDU were used to add to the position which is a benefit of being short, you don't have to sell first like you have to with a long to put profits to work for you, ultimately making that 25% original gain on the original position worth even more.

Here's something to remember, there are two mechanisms that drive price, most people would say supply and demand, but this is much more fundamental, plus supply and demand don't take a 24 day uptrend and tear it apart in 7 days. The mechanisms that move the market are Fear and Greed and as you can see with the latest cycle up and down, FEAR IS STRONGER THAN GREED. Need more evidence? Look at the last true bull market in the SPX from 2002-2007 (5 years); from 10/9/2002 to 10/11/2007 the SPX gained about 100% in 5 years. From 10/9/2007 to 3/6/2009 the SPX took back the entire rally plus another 110 S&P points and that took 17 months vs 60 months and took back even more! 

So do you think that was driven by supply and demand or Fear? This is how you understand the market when looking at historical charts, not with moving averages and fancy indicators. I see people with so many indicators on a chart that I can't make heads or tails of it, but if you look back at historical charts and PUT YOURSELF IN THE MOMENT EMOTIONALLY, you will learn more about the market than 10 Technical Analysis books combined.

As for BIDU...

 Here's the daily 3C chart with 2009 accumulation and 2011-2012 distribution, BIDU HASN'T EVEN BROKEN THE TOP YET! From a simple price-pattern measured target implication, we get a target on BIDU of about $45 and in my experience, these measured moves usually are more extreme than you think, so from our opening position that's about a 70% gain, consider the profits used to add and the original invested amount will probably gain more than 100%/, if we keep pyramiding BIDU, who knows!

 The 60 min chart clearly suggests BIDU has already entered a primary downtrend and this last move up was nothing more than what we originally thought it would be, a counter-trend rally and it's on these rallies that we want o use BIDU profits to add to the position, try that with a long position!

 Again, we are seeing this EVERYWHERE, BIDU sees distribution once it breaks a resistance level, in this case June resistance and the psychological $125 level, the psychological $130 level which is also 2012 top former support and finally, a break above local resistance formed above the yellow trend line at another whole number-$132. My put position that made over 100% in 4 days was entered on 8/16 which was also the breakout day to new counter-trend rally highs. How many retail traders do you think would short a new breakout high on a move of 2.74% (3% intraday)? Emotionally it's not something we are programmed to be comfortable with, but that was the day to enter Puts as they were cheap, even though the next day closed 0.24% higher, Puts were cheaper on the bigger price move on the 16th. This also was the least risky entry available (inside the yellow box).

 The 5 min chart shows the same theme that we see over and over, slight accumulation to push the stock through resistance and distribution on that move higher as demand increased on the breakout.

I wanted to enter a new put position on price strength, we saw 2 days of bounce, but it wasn't enough for me to take the risk of 10x leverage so I waited. It looks like the 5 min chart is suggesting there's still another move up coming and hopefully we can use that.

 Even though we saw a 3.25% slide today, the 1 min chart is also positive in to that move.

 The 2 min chart is leading positive today as well.

 So is the 3 min chart.

With the 1, 2, 3, and 5 min charts all positive intraday on today's price weakness, I'm willing to wait for a move higher to enter a new put position, hopefully it will cross the $125 area, but if it doesn't I still have the core short. Either the Put trade comes to me or I look for a new one, but I'm not chasing price. Technical traders chase price on confirmed breakouts and breakdowns and with this market's volatility, they usually get knocked out of the position.

Using the Swing Trading "Clear Method", the recent low (at the red arrow) was not taken out today so today' move, as impressive as it was, is still considered a noise candle. Patience also does not come naturally to most traders, emotionally we want to make something happen, we want to make up for losing trades and often we want to make the money back in the stock we lost it is, even if it's not the best place to do it.

Patience, letting the trade come to you on your terms, deploying capital only when the probabilities are highly in your favor are all advantages YOU have over Wall Street. YOU DON'T HAVE TO BE IN THE MARKET EVERY DAY, YOU CNA PICK AND CHOOSE YOUR BATTLES,  that's your advantage over Wall Street, use it, make it work for you. We don't have many edges over Wall Street, but patience is one of them, USE IT!