Thursday, May 05, 2011

The Plan

We tweeted our day but in case you were not following:   we bought the basket GDX GDXJ SIL SLV in the morning and sold everything save SLV (scratched) for nice gains.  We wrote that there could be a head fake and thus the aggressive selling.   We then went flat and wrote several times that we were staying away from SI_F /SLV as the USD rip was too much of a weight on the commodities.  We wanted to get involved in the miners, but not the underlying commodities.   Later in the afternoon we started a small swing position in the miners making clear size was small and it was for a swing and not bottom catching.   We’re currently underwater in all three:  GDX 56.48, GDXJ 36.52, and SIL 24.50.    We’ve being very careful with adds as we think we could easily see another round of sell-off.
Basically this is the plan: buy the overshoot for a target back into primary support.   It might take a few hours or a few days or more but we like the trade.   We’re again staying away from SI_F/SLV (even at 34 support which had interested us before) and focusing on the miners.  We believe the miners will bottom before the commodity.

We had a trend day down which is good– as our readers know, the sell-off after a trend-day down in an oversold sector is usually the sweet spot for buying the bounce.   This is our plan going forward:  add on overshoot, take partials on bounce back to support.   Absolute key to executing such a plan is scaling in slowly at different prices.   You add too fast and you will not be able to execute the trade properly.  Don’t worry about catching the exact bottom, this is not what the trade is about (unlike previous daytrades where that actually was our intention).

There are two scenarios that we like and would make most likely make the trade work:   1)  of course the easy one is  we gap up and we go green, that would be nice but not counting on it.   2) on the anniversary of the flash crash, things get, well flash-crashy, and the rubber band stretches even more.   We would be buyers of the next level of support (for example SLW 32.8).  The last scenario is the one that would make us take losses.  No rubber band stretching, small bounce, and then we just base at the lows.   We would probably the loss on this scenario.

GDX 57 we traded yesterday for a great daytrade but went flat before the close.  We’re again in the ETF but lower price (56.50) and much smaller size.   Our plan is to add on overshoot and sell at least partial back into 57.

IVN at 200SMA, again watch for overshoot and then rally back to 200SMA.
PAAS at 200SMA, same plan.
We bought and sold SLW near the close for a quick gain — we like the stock again on overshoot to 200SMA with target back to trend-line.

GDXJ we’re already in — will add on 200SMA.

Already in SIL,  will add on 200 SMA.
AG held 100 SMA into the close, again watch for overshoot and bounce.
SLV to 100 SMA,  again, overshoot and trade back to 100SMA.    As we noted, more volume today in SLV (all time high volume) than in SPY.    30 level big support.

EXK held on 100 SMA, again overshoot and bounce back.

What do all the following charts have in common?  They’re all at or over support.   When a whole sector hits support like this often two things happen:  1) it bounces or 2) panic overshoots and then bottom forms and stocks run back into primary support.
We can’t remember the last time we saw so many stocks hit support at the same time — we think a bounce is coming soon and are positioning ourselves to take advantage of it.   If you’re following us in please be careful with your adds.   Many times traders get the idea right but are not able to enjoy the fruits of the trade due to using too much of their buying power too early.