FullyInformed.com

Market Direction Portfolio – Stop-Loss, Futures, Entry Points, Confidence

Oct 17, 2013 | Stock Market Outlook

This is a FullyInformed members strategy article. Yesterday I picked up 1500 shares of UDOW ETF for $87.62. This morning the futures pointed to a much lower open due to IBM facing another quarter of declining revenue. This is getting to be a habit with IBM and shows the growing weakness within the PC and Enterprise markets as well. This may catch up with Microsoft and Intel next. Intel already reported their recent earnings which were decent but still reflected continued weakness within the overall PC and Smartphone markets. A recent email from an investor regarding the Market Direction Portfolio was filled with questions that needed answers. I felt her questions are probably being asked by other investors and completed this article for her. Here are her many questions

“I know you mentioned trying to avoid getting stopped out with an opening gap down in the morning if the market direction is still trending up. With a probable gap down tomorrow (Oct 17), based on current futures (of course that can change overnight) and IBM earnings causing them to trade down 5%+ after hours, would you expect to

  • remove your stop for the open tomorrow and replace at the same  or a lower level later in the day
  • loosen (ie lower) it substantially right off the bat
  • or just leave it and honor the current stop?

My difficulty with this strategy, (and one reason why I have tried and failed in the past) is not having a decent enough entry to quickly get a floor under my cost to put in a stop at, ie not having as favorable an entry as you did, due to factors you talked about in your article – lack of confidence in the early part of the trading session, forcing me to then wait for a pullback to get in later. I waited until a pullback today (Oct 16) (around 2:10 PM when DJIA pulled back from its 15374 high to around 15340, where I got a UDOW buy at $89.22, but unfortunately, had I waited another ½ hour I would have had a more advantageous entry point with UDOW around $0.50 lower.

End result – although I was not stopped out at my $88.50 stop and I ended the day up $0.42/share, I am concerned that with a gap down, or even a slow decline over the next day or two, could easily take me out at $88.50 even if the upward overall market trend stays intact. But I am hesitant to lower the stop too much lower, (in fact I originally was hoping to be able to raise it tomorrow) as I believe part of the success in this strategy seems to be strictly limiting the losses. (I had violated that rule in  the past and as a result I am still holding a few hundred UDOW shares I bought in August at $93, which really should have been sold when the market trend changed to down!)

I am determined not to make that same mistake again, but hate to be shaken out of shares, only to have the trend continue up the same day. I have a hard time making the call, when stopped out, to get back in again. Would you always wait until the end of the day you get stopped out to look again at the indicators to see if the trend is still intact before re-buying in, even if you may lose some more upside that day?

Sorry for the long post, just wanted you to understand my difficulty and frustrations with trying to get this strategy right. I have read your current and Doug’s past member articles on this – they are very helpful – and am getting a better feel for it, but still could use a little guidance on the initial stages of building that floor underneath me. On that note, it would help me a lot if I understood your take on how you plan to handle any morning gap down and/or reflexive pullback in UDOW tomorrow (but not necessarily change in overall upward trend) after today’s big rally. I know we are in different circumstances, since your entry position leaves you with a small gain while mine would result in a loss, but any advice you have would be greatly appreciated. Thanks Betty”

My reply to her many questions is lengthy and detailed. It is 2900 words and FullyInformed members following the market direction portfolio will require 7 pages of paper to print this article. To read this strategy discussion FullyInformed Members can login directly through this link or Members can sign in here. For those investors who are not a member here are some of the benefits of becoming a member.

Internal Market Direction Links

Understanding The Market Direction Portfolio – Good Place To Start – members only

Market Direction Portfolio Articles Listing – members only

Market Direction Portfolio Trades for 2012 – members only

Market Direction Portfolio Trades for 2012 – members only

Profiting From Understanding Market Direction (Articles Index)

Market Timing Articles Index

How I Use Market Timing

Understanding Short-Term Signals

Various Market Timing Systems

Search

Select to view all results...

Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors

Recent Outlooks

Stock Market Outlook for Thu Mar 28 2024 – Choppy – Dips Likely – But Higher

Prior Trading Day Summary: On Wednesday investors returned and snapped up stocks that had drifted lower. The SPX bounced at the open and by the close it was up 45 points to close at 5248. The NASDAQ rose 83 points …

Morning Investing Strategy Notes for Wed Mar 27 2024

For FullyInformed Members the morning Investing Strategy Notes for Wed Mar 27 2024 discuss the outlook for Wednesday and comments on a possible correction and what it might entail. There are a number of trade ideas outlined including FedEx Stock …

Stock Market Outlook for Wed Mar 27 2024 – Unconfirmed MACD Down Signal

Prior Trading Day Summary: I lost my power shortly after the markets closed. Articles this evening will be shorter if I can post any. On Tuesday trading volume picked up as stocks fell for another day. The SPX closed near …

Morning Investing Strategy Notes for Tue Mar 26 2024

For FullyInformed Members the morning Investing Strategy Notes for Tue Mar 26 2024 discuss the outlook for Tuesday. As well there are comments on support levels to watch in the SPX for the week. There are a number of trade …

Stock Market Outlook for Tue Mar 26 2024 – Still Bullish

Prior Trading Day Summary: On Monday low trading volumes hindered the chance of a positive close. The SPX saw just 3.4 billion shares traded. This matches the volume on last Friday. While poor , it is also bullish as it …

Morning Investing Strategy Notes for Mon Mar 25 2024

For FullyInformed Members the morning Investing Strategy Notes for Mon Mar 25 2024 discuss the outlook for Monday and the shortened week ahead of the Easter holiday. There are a number of trade ideas outlined including FedEx Stock (FDX), Nike …

Stock Market Outlook for Mon Mar 25 2024 – Dip Likely But Higher Close

Prior Trading Day Summary: On Friday investors took profits ahead of the upcoming shortened Easter week with indexes sitting at all-time highs. On Friday the SPX closed down just 7 points to 5234. For the week the index was up …

Morning Investing Strategy Notes for Fri Mar 22 2024

For FullyInformed Members the morning Investing Strategy Notes for Fri Mar 22 2024 discuss the outlook for Friday. There are a large number of trade ideas outlined including FedEx Stock (FDX), Nike Stock (NKE), Lululemon Athletica Stock (LULU),  and more …

Stock Market Outlook for Fri Mar 22 2024 – Choppy – Dips Possible But Still Up

Prior Trading Day Summary: On Thursday all 3 indexes closed at new all-time highs for a second straight day. Volumes remained decent but stocks are seeing some selling as investors are taking a few profits with the indexes at new …

Morning Investing Strategy Notes for Thu Mar 21 2024

For FullyInformed Members the morning Investing Strategy Notes for Thu Mar 21 2024 discuss the outlook for Thursday following Wednesday’s FOMC interest rate decision and Fed Chair Powell’s news conference. There are a large number of trade ideas outlined including …

Stock Market Outlook for Thu Mar 21 2024 – Higher Still

Prior Trading Day Summary: On Wednesday the SPX, Dow Jones and NASDAQ indexes all closed at new all-time highs. Comments from Fed Chair Powell reaffirming 3 rate cuts in 2024 were still “on the table” was all that investors needed …

Morning Investing Strategy Notes for Wed Mar 20 2024

For FullyInformed Members the morning Investing Strategy Notes for Wed Mar 20 2024 discuss the outlook for Wednesday and the latest FOMC interest rate decision. There are also a number of trade ideas outlined including Chewy Stock (CHWY), SPY ETF, …

Stock Market Outlook for Wed Mar 20 2024 – All About The Fed – Bullish

Prior Trading Day Summary: On Tuesday the morning started with a dip down to 5131 but buyers were waiting for the dip and volumes picked up. Deep dips in a number of big caps like NVIDIA Stock (NVDA) found ready …

Morning Investing Strategy Notes for Tue Mar 19 2024

For FullyInformed Members the morning Investing Strategy Notes for Tue Mar 19 2024 discuss the outlook for Tuesday following Monday’s rally and before Wednesday’s latest FOMC interest rate decision. There are also a number of trade ideas outlined including Chevron …