Lower Lows, Lower Highs

Lower lows, lower highs is the definition of a downtrend. ACOM and LOW have been making lower lows and highs so they are trending down even if they are slow to do it. Of course as the stocks trend lower the put options' values rise. Even on a morning like this morning when the market is over 200 points lower these stocks opened lower and then have proceeded to go up. But because the stocks are making lower lows and lower highs they are still in a downtrend. I'm trading in the direction of their trend and also in the direction of the market which has been in a downtrend this past month. The old axiom still holds true: "Sell in May and go away."

Of course LOW popped up as soon as I bought the second set of puts and the value of them fell to about 20 cents at one point. This morning the puts are about 50 cents so they have only about 35 cents to get back to where I bought them about 85 cents average price. The stock will have to move to below $25 for these $26 puts to be worth much. LOW seems to be headed downward in a stubborn manner. I'd like to at least double my money on these puts before June expiration (Option expiration is the third Friday of every month). That gives them 2 more weeks to do something before becoming worthless. The stock is at about $26.60 this morning.

ACOM is in the money by approximately $3 so the puts are valued about $3.50 which is what I paid for them. I'd like to double my money on these, too. The stock will have to move $3.50 below where it is,$21.75 this a.m., for that to happen. So far no go. However, you can bet if I sell them in order to bail out the stock would then go down as expected! So far this spring only one stock I picked failed to perform and that was ESRX that I thought would go up but it never did. I did take a loss on it of about $14 on a $1900 long position in the stock itself, not the options. Not too bad for a loss. My point being: so far it has paid to be patient as the stocks generally will do what is expected. I lost money a couple of times earlier this spring because I was not patient and bailed out like a chicken when the stocks went the other way (which they almost always do). Then the stocks/options did what I was expecting once I had sold them of course!

That illustrates the need for a strategy to trade by instead of trading based on emotional reactions to the market. So, on breakouts from a "cash in the box" a la Gary B. Smith's method I aim for 5% gains or 6% losses before selling. See my earlier posts regarding the Chartman's method for trading these breakouts. His average was 80% gains and 20% losses. I was doing better than that with them. Approximately 90% wins if I hadn't bailed on a couple of them it would have been even better.

ACOM and LOW however are Breakaway Gaps. These are basically a targeted trade based on the distance the stock will fall based on the width of the triangle's base they fell out of or where previous support is located, etc. See Steve Wirrick's book, High Octane Trading, see chapter 14. Whether they will achieve their targets before expiration day when their June put options expire who knows. I'm betting they will at least get part way there and perhaps double my money or better. I could be wrong of course!

A gamble! I hear someone say . It's a chance based on logic and probabilities. It's no more of a gamble than any business I've ever been in. Farming is a gamble (though maybe not as much as it was in my grandfather's day with all the government subsidies that he so hated and refused to participate in based on his principles and belief in freedom). But publishing and advertising were a gamble for my parents and me, as was the retail business we purchased and were defrauded out of. True freedom requires a willingness to take some chances. With your faith in Christ you will never lose because even if you lose everything here on earth you will still have the true riches, the pearl of great price, Jesus the Messiah as your Savior and life. You can't get any richer than a personal intimate relationship with the Creator of the universe. Everything else is garbage by comparison.