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Shorting American Express (AXP)

By Joe McHugh On May 20, 2009NO COMMENTS

Today, the House and Senate agreed to pass a Credit Card Holder’s “Bill of Rights” to the President for signing by Memorial Day. Key provisions include:

No over-the-limit fees may be charged unless the consumer has asked for the account to be set up
to allow transactions that will exceed the credit limit.
Due dates will be on the same day each month.
Issuer must provide 45-day written notice before raising APR or make any other significant change to the card agreement.

My take on the bill: Good for consumers, not good for the credit industry. They’re already suffering from increasing defaults and now have to contend with tighter regulation which will result in lower revenues, at least in the short term.

From a trading standpoint, AXP has been on the verge of breaking out to the downside on speculation defaults were on the rise. This bill adds to the downward pressure weighing on stock and industry as a whole. To that end, I’m opening a short position on AXP tomorrow around $24. The target is around $18, a 25% loss on the stock, gain for us. Stop loss set at $28.50, 18%. If the market breaks up instead of down, we’ll cut losses sooner. [STOP LOSSES MAY NOT NECESSARILY PREVENT LOSSES.] Sign up for twitter (cell phone) updates here: twitter.com/mchughfinancial.

Trade: Sell Short AXP around $24. Stop loss at $28.50. Target gain of 25% at $18.

Read below or here for more details on the bill.

First year of new card
The bill prevents credit card issuers from raising interest rates in the first year after a credit card account is opened, except:

When the increase is under a variable interest rate.
At the end of the promised time period for a promotional rate. For example, the issuer can offer 3 percent for six months and then 12 percent after that. (The promotional period must be at least six months.)
If the required minimum payment is not received within 60 days after the due date.

Existing balances
Credit card issuers cannot raise interest rates on existing balances unless:

The increase is under a variable interest rate.
It is the end of a promised time period for a promotional rate.
The required minimum payment is not received within 60 days after the due date.

Notice of future rate hikes
After the first year, the card issuer can raise the rate on future purchases with 45 days notice. No notice is required for increases due to one of the reasons stated above.

Paying off on old terms
Card issuers can’t change the terms for repaying a balance, except that the issuer may give the cardholder either:

Five years to pay off the outstanding balance at the old rate; or
An increased minimum payment that has no more than twice as much of a contribution to paying down the balance as the old minimum payment.

Limits on fees and penalties

If the interest rate increases because the minimum payment is not received within 60 days after the due date, the rate must go back to the original, lower rate if the consumer makes on-time minimum payments for six months.
No over-the-limit fees may be charged unless the consumer has asked for the account to be set up to allow transactions that will exceed the credit limit.
An over-the-limit fee may be imposed only once per billing cycle if the balance is above the limit on the last day of the cycle.
No fees can be charged to make a payment except for expedited payments arranged through a service representative.
A card issuer who increases the interest rate must review the account every six months and decrease the rate if indicated by the review.
Penalty fees (late fee, over-the-limit fee, etc.) must be reasonable and proportional to the omission or violation. The Federal Reserve Board must issue rules to set standards to decide what fee levels are reasonable.
Two-cycle billing is prohibited. An issuer cannot reach back to an earlier billing cycle when calculating the amount of interest charged in the current cycle.

Ability to pay
Card issuers must consider the consumer’s ability to make the required payments under the credit card’s terms before raising limits or issuing a new card.

Fair application of payments
Amounts in excess of the minimum payment must be applied to the highest interest rate, except in the last two months before a deferred interest balance is due.

Sensible due dates, time to pay

Credit card issuers cannot set early deadlines for payments. Payments must be received by 5 p.m. at a location set by the issuer.
Due dates will be on the same day each month.
Card issuers must deliver the bill at least 21 days before the due date.

Young consumers

Before issuing a card to a person under 21, the issuer must obtain an application which contains either the signature of a co-signer over 21 or information indicating an independent means of repaying any credit extended.
Card issuers may not raise the credit limit on accounts held by a person under 21 who has a co-signer without written permission from the co-signer.
No prescreened card offers can be made to people under 21 unless they have consented to receive such offers.
Card issuers cannot provide tangible gifts to students on campus in exchange for filling out a credit card application.
Colleges must publicly disclose any marketing contracts made with a card issuer.

Credit reports
Advertisements for free credit reports must disclose that free credit reports are available under federal law at: AnnualCreditReport.com.

Issuance fees
Issuers cannot finance fees and charges for opening a credit card where the fees and charges total more than 25 percent of the credit limit.

Enhanced disclosures

Issuers must disclose the period of time and total interest it will take to pay off a card balance if only minimum monthly payments are made.
Issuer must provide 45-day written notice before raising APR or make any other significant change to the card agreement.
Periodic statements must clearly state the required due date and late payment penalty.
Credit card agreements will be posted online and the Fed must keep a public Web site providing them to the public.

— Consumers Union

Recent Posts

Tracking Treasuries

By Joe McHugh On April 4, 2009 NO COMMENTS

As you're aware, the economy isn't doing so hot and our President believes that we need to infuse the economy with new cash to stimulate growth. (I also agree on that basic premise, although I'd target spending and policy to encourage urban renewal and sustainability… More on that at commonsensefreshideas.com.) With new cash comes devaluation of our USD and a correlating drop in the value of US Treasuries. Hence, the following trade alert.

We're tracking treasury tickers TBT and TLT, both of which are treasury ETFs. TLT, however, is an ultra-short treasury ETF, which rises in value as the underlying security, treasuries, decline in value. During times in which the treasury market is taking a hit and may continue to do so, if you're not approved to short stocks or simply prefer to go long (buy side), then play TLT. As treasuries go down in value, TLT will go up.

Here are the triggers:

TBT closes above $49.56 to upside, buy
TLT breaks below $100.46, sell short

Weekly Preview 20080901-05

By Joe McHugh On September 1, 2008 NO COMMENTS

Last week’s price action broke below the 1.8500 level mentioned in the prior week’s Weekly Recap. In doing so, we held on for big gains. If you did that, there were 500 pips up for grabs in a single direction, which makes for a great series of trades.

We’ve already seen a big move this week with a 200 pip move on Labor Day, unfortunately many of us took yesterday off. That’s ok. Keep in mind that the market and opportunity is ever present. Last months heavy move south on higher volume is indicative of a continued move south barring a bounce. With that in mind, the monthly breakout projects to a minimum move of 1.7275 to 1.5769. There will be some fluctuation in during the move, but I expect the pair to hit the minimum threshold.

For the week ahead, look for a break of the daily pivots downward. On the monthly and weekly, we’re in Wave 3 of the Elliot Wave cycle. We should get a capitulation or volume dry up before the pair reverses into Wave 4. Look for a the reversal candle on the daily chart. On the daily chart, it looks like we’re just starting Wave 3, which means we should be in for an extended run down.

For tomorrow, I will look for a move lower to S1 at 1.7802 from the Pivot at 1.7964. Currently, the pair is hovering just above 1.7900 and it’s looking pretty heavy. Because GBP/USD remains in a sustained and heavy move south, I’ll employ break even stop losses and profit targets at the next pivot point. Entries will be within 5 pips of daily pivot points with a downward bias.

GBP/USD Short at 1.8308

By Joe McHugh On August 29, 2008 NO COMMENTS

FUTURES & FOREX TRADING INVOLVES SUBSTANTIAL RISK OF LOSS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

FOR QUESTIONS REGARDING TRADING SPECIFIC TERMINOLOGY, REFER TO THE “TRADING TERMS & GLOSSARY” SECTION OF THIS WEBSITE.

I placed two trades placed this morning so far with the first one a small 5 pip loss. The second one, which I’m in right now, is running in favor. The stop loss is set to break even and the profit target is set to one hour support just above S1. I feel confident that this will hit the target, but if it doesn’t we’ve lost nothing and will try again on Monday. [STOP LOSSES MAY NOT NECESSARILY PREVENT LOSSES.]

Position 1

Entry Time: 12:36am EST
Pair: GBP/USD
L/S: Short
Formation: Reversal above Daily Pivot at 1.8309
Time Frame: All
Entry: 1.8520 (Entry after 5 min reversal and determining short daily trend.)
Profit Target: Not in long enough to set target.
Stop Loss: 1.8330, 10 pips, 1 min upside resistance
Exit Time: 1:00am
Take Profit: 1.8330, stopped at 10 pip loss
Percent Gain: -5.1%

Position 2

Entry Time: 1:44am EST
Pair: GBP/USD
L/S: Short
Formation: Reversal above Daily Pivot at 1.8332
Time Frame: All
Entry: 1.8308 (Entry 1 pip below Daily Pivot for confirmation of downward move.)
Profit Target: 1.8242, 23 pips above S1, but at 1 hour support
Stop Loss: 1.8330, moved to BE at 1.8308, 1.8285 5 min upside resistance, 23 pip locked in gain
Exit Time: 3:25am
Take Profit: 1.8285, 23 pips
Percent Gain: +12.34%

Update: After seeing the waves develop and the downward momentum slow, I opted to preserve some profit by moving the stop loss to 5 min upside resistance just above the high point of the last upward wave. [STOP LOSSES MAY NOT NECESSARILY PREVENT LOSS.] This locked in 23 pips of profit and guarded against a potential loss of all profit. Of course, only time will tell if I exited early as it’s entirely possible that the pair was simply retracing before its next big move down. In any case, we’re up for the day and I’m going to bed.

Daily Recap 20080828

By Joe McHugh On August 28, 2008 NO COMMENTS

I’m experiencing the greatest success when trading during London hours at the pivots with a trailing stop. Today, I had a few trades in non-London hours that didn’t pay off, but I took them because they were near the pivot. I need to take special precaution to secure a quality entry which can best be achieved with limit orders at the pivot after determining direction.

Additionally, after studying up some Marine Corps materials yesterday, it dawned on me that without a specific mission, victory or in the case of trading, closing a profitable trade is not easy to do. So, the mission will vary depending on market conditions, but the basic mission will always be the same: to secure 20 pips per day.

In today’s trading, after a series of minor plays, I timed an entry perfectly with a sell limit order at the pivot and ran the price down 30 pips. Unfortunately, that turned out to be about 40 pips too early. I didn’t use the trailing stop on this one and wanted to close out an undisciplined trading day with a profit. I closed up 1 pip. Hooray.

Finally, this computer game called Civilization has been throwing off my routine which leads me to make poor choices in trading due to lack of sleep and proper planning. To that end, there will be no more Civ during the week. None. That way, I can properly plan my day the night before with an appropriate mission according to the Marine Corps acronym METT-T which stands for: Mission, Enemy, Terrain, Troops & Timing.

Trading Recap 20080825-26

By Joe McHugh On August 26, 2008 NO COMMENTS

Yesterday I had a breakthrough day. I managed to go up 20% on two separate trades without giving away gains on trades away from the daily pivots and 4 hour marks. Today, I started the day well with a 24 pip trade, placed an ill-timed trade for a 22 pip loss, placed two trades for gains and the last one closed too early for a slight loss. Total tally is a 1 pip loss on the day.

The second trade was on an upside break of S1, but it turned out to be, to use the technical term, a fakey breaky or more commonly called a false breakout. The latter three trades should have be just one, but I got out too early on each one. The first was a take profit to get out profitable, which it did just as it was breaking out. The second was a trailing stop out after being up 18 pips and the third was an early close after a false breakout to the upside and I just wanted out of the market.

All in all, if I stick to trading the daily pivots and breakouts around those pivots, especially close to the 4 hour mark, we’ll get this turned around.

Close CERP for losses

By Joe McHugh On August 22, 2008 NO COMMENTS

CERP traded down to 24.5 cents this week, failing to break upside resistance. The lower close came on much higher volume with downside support at 23 cents and the MACD showing the beginning of a down trend. If you can short this one, set a sell stop at 22.5 cents, half a cent below support. I’m not going to play this though. I’m going to wait for an entry, long or short, into USO, United States Oil Fund.

8/11/08 – Buy CERP @ $0.28
8/21/08 – Sell CERP @ $0.245
Trade +/- = – 12.5%

Account Total +/- = +11.9%

Price Target Test Trade

By Joe McHugh On August 22, 2008 NO COMMENTS

Position 7

Entry Time: 11:17am EST
Pair: GBP/USD
L/S: Short
Formation: Break of S2 at 1.8536
Time Frame: All
Entry: 1.8533 (Entry upon close of 1 & 5 min candle at 1.8533.)
Profit Target: 1.8468, 65 pips, no trailing stop, testing profit stop at S3, stop loss at break even
Stop Loss: 1.8533, 0 pips – break even, 7 pips below S2 (3 pips below plus pip spread)
Exit Time: 11:41am
Take Profit: 1.8533, stopped at break even
Percent Gain: 0%

Trade Recap

Had I used a 15 pip trailing stop, I would have locked in 8 pips rather than winning none. Since this was the third break of a daily pivot point on the day, it would have been more prudent to take the trailing stop since the pair would seem likely to lose steam. Based on this, if we get a break south on the weekly support line of 1.8508 next week, I’ll target the next line of support rather than use a 15 pip trail simply because the move is bound to be significant. Otherwise, I’ll use the trailing stop to lock in gains.

GBP/USD Trend Analysis Week of 20080825

By Joe McHugh On August 22, 2008 NO COMMENTS

The last four weeks have continued the downtrend for the GBP/USD.Had I done the trend analysis earlier, I would have known to trade the short and generally not to play long as the short moves would have more momentum since that’s the direction of the prevailing trend.

For next week, we closed at a significant line of support; last week’s low of 1.8508 and more significantly, the low from October of 2006. A break of this line will lead to significant gains as there are at least 8 bounces off this line in the last 5 years. That’s a big deal support line. In other words, the Dollar hasn’t been this strong since 2006 and based on the hanging candle, looks to go even lower (since the pair is denominated in Pounds). Of course, it’s important to note that this week’s downward move was on lower volume than the last, but by no means was it a volume dry up. We should see a capitulation before we get a reversal candle. So long as we use take profit stops and/or trailing stops on breaks of daily pivot points, we’ll be fine.

The daily chart shows that yesterday’s upside breakout on higher volume wasn’t sustained and followed by today’s reversal through the daily pivot, S1 and S2 with a close at the very bottom of the trading range albeit on lower volume. It’s a tough call as to what we’ll see next week. The weekly charts portends another potential move lower as does the formation of the daily candle, but we’ll need some volume to break through this line of support. Keep a close eye on it. If it breaks, enter. If we bounces, make a conservative play…and be sure to use those stops. We very well may simply get low volume consolidation at this point before a strong move in either direction. It’s also the completion of the fifth wave on the hour chart.

Based on the hour and the 30 minute charts, with a volume dry up, I’ll look for a break of the pivots and a possible upside move. Play conservatively unless we get a break south of 1.8508 in which case hang on for big gains.

Price Target Update, Test Trade

By Joe McHugh On August 22, 2008 NO COMMENTS

The break of S1 with a target of S2 is now complete. Had we not used a 15 pip trailing stop, it would have taken 6 hours and 45 minutes, but the price reached the profit target and never reversed to touch the the entry. Same goes for the break of the Pivot to S1. A strong directional trend may be the key to using the pivots as profit targets or perhaps it’s simply the willingness to gamble the gains for more gains, set the stop loss to break even and the profit target to the next pivot point and walk away. [STOP LOSSES MAY NOT NECESSARILY PREVENT LOSSES.]

Ironically enough, while writing this at 11:26am, my alarm sounded indicating that the price had moved to within 5 pips of S2. It hovered above the line for a bit and then broke through. My entry, because by now London is closed and the pair moves much more slowly, was only 3 pips below S2, a quality entry. The pair has already moved in favor enough to move the stop loss to break even and the profit target is S3. I’m not using a trailing stop on this one. We’ll either gain 65 pips or lose none. I’ll take those odds. Then again, a trailing stop of 15 pips would lock in some profit. It’ll be interesting to see how this one plays out.

Position 7

11:36am Update: A 15 pip trailing stop would have stopped out already for an 8 pip gain. Let’s see if the pair hits the target.

11:41am Update: Stopped out for no gain. For this trade, a trailing stop would have been profitable by 8 pips.

Analysis: On the initial moves of the day, I would assume this strategy to be more effective since a pair will reach S1 or R1 more frequently than S3 or R3, same for S2 and R2. That being said, it’s probably a draw in terms of effectiveness although assessing the data certainly would be a help. With that in mind, it comes down to which I’ll be happier with, small consistent gains or large gains with lots of no gains. It’s a personality thing.

GBP/USD Short at 1.8715

By Joe McHugh On August 22, 2008 NO COMMENTS

FUTURES & FOREX TRADING INVOLVES SUBSTANTIAL RISK OF LOSS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

FOR QUESTIONS REGARDING TRADING SPECIFIC TERMINOLOGY, REFER TO THE “TRADING TERMS & GLOSSARY” SECTION OF THIS WEBSITE.

Position 1

Entry Time: 3:31am EST
Pair: GBP/USD
L/S: Short
Formation: Break of Daily Pivot at 1.8721
Time Frame: All
Entry: 1.8715 (Entry upon close of 1 & 5 min candle at 1.8715.)
Profit Target: 1.8755, 60 pips, 15 trailing stop
Stop Loss: 1.8726, 15 pips, 5 pips above daily pivot, moved to break even upon confirmation
Exit Time: 3:38am
Take Profit: 1.8685, +30 pips (trailing stopped)
Percent Gain: +11.8%

Position 2

Entry Time: 3:56am EST
Pair: GBP/USD
L/S: Long
Formation: Played the reversal candle, attempted to play the retracement/reversal
Time Frame: 5 min
Entry: 1.8690 (Entry at peak of reversal.)
Profit Target: 1.8721, 31 pips, 15 trailing stop
Stop Loss: None. Got out on completion of 5 min reversal candle in opposite direction at 1.8678
Exit Time: 3:59am
Take Profit: 1.8678, -12 pips
Percent Gain: -4.35%

Trade Recap

With the discovery of audible price alarms, I am able to set the platform to alert me when the pair moves to within trading range, which in this case, was just above the daily pivot. The alarm sounded at 3:30am, 30 minutes before I usually rise to check the chart, but definitely worth it. Trading the break made for a strong move and a safe trade.

In my usual manner however, I managed to give back 12 of the 30 pips in a subsequent and very unnecessary trade. Trying to time the retracement for greater gains is a difficult proposition, much more challenging than simply playing the break of a line of resistance like the daily pivot.

Overall, it was a good play: safe, effective and profitable. Simply not taking the 5 and 15 minute plays and waiting for a break either of resistance or pattern breakout will ensure more profitable plays as a result of providing enough room for my 15 pip trailing stop to activate.

Regarding a pattern breakout, before heading to bed last night, there were a series of reversal candles that indicated a 20 pip drop to the daily pivot. I could have taken that play and set the alarm for the daily pivot with a tight stop just above entry. Had I done that, my 30 pip initial trade would have been a 50 play since I would have been up to monitor the trade and watch it run through the pivot. (My trailing stop would have activated, but not have stopped me out of the trade.)

While sitting here typing up the trade record, a second line of support was broken, S1, and entered upon. See below:

Position 3

Entry Time: 4:30am EST
Pair: GBP/USD
L/S: Short
Formation: Break of S1 at 1.8649
Time Frame: All
Entry: 1.8639 (Entry upon close of 1 & 5 min candle at 1.8639.)
Profit Target: 1.8541, 98 pips, 15 trailing stop
Stop Loss: 1.8649, 15 pips, 5 pips above daily pivot, moved to break even upon confirmation
Exit Time: 4:38am
Take Profit: 1.8609, +30 pips (trailing stopped)
Percent Gain: +11.7%

Position 4

Entry Time: 4:51am EST
Pair: GBP/USD
L/S: Short
Formation: Poor Entry – No reversal candle, not near support or resistance
Time Frame: n/a
Entry: 1.8592
Profit Target: 1.8541, 51 pips, 15 trailing stop
Stop Loss: 1.8607, 7 pips, just above resistance on 5 min
Exit Time: 4:52am
Take Profit: 1.8608, -16 pips
Percent Gain: -5.2%

Position 5 – Sell Stop Experiment

Entry Time: 5:02am EST

Pair: GBP/USD

L/S: Short

Formation: Break of 5, 15, 30 min support at 1.890

Time Frame: 5, 15, 30 min

Entry: 1.8585

Profit Target: 1.8541, 44 pips, 15 trailing stop

Stop Loss: 1.8607, 22 pips, just above resistance on 5 min

Exit Time: 4:21am

Take Profit: 1.8609, -24 pips

Percent Gain: -8.3%

Position 6 – Chasing the Move

Entry Time: 6:02am EST

Pair: GBP/USD

L/S: Short

Formation: Chased the break at 1.8585
Time Frame: 5, 15, 30 min

Entry: 1.8565

Profit Target: 1.8541, 44 pips, 15 trailing stop

Stop Loss: 1.8607, 22 pips, just above resistance on 5 min

Exit Time: 6:28am

Take Profit: 1.8586, -21 pips

Percent Gain: -7.9%

Daily Recap

Based on the idea of capturing 25-30% of a move, placing a trailing stop equal to 33% of the target gain seems reasonable. In this case, that would have been a 35 pip trail. This move would have stopped out after a 35 pip retracement to what seems like it may be the very top of the retracement. In either case, as I write this, I recognized the absurdity of trying to put together a system that will be on target all the time. It just won’t happen that way. However, I can consistently hit 15-30 pip singles with a 15 pip trail on the break of key support or resistance on the daily pivots.

Positions 2, 4, 5 & 6 were secondary, unwarranted and ill-advised positions of which all turned out negative more than completely negating all of today’s gains on the responsible, safe breaks of daily pivot points. That works out to 2 gains and four losses with another tie (break even). Had I not been greedy and stuck to the plan, I would have captured 60 pips with zero against for a 25% gain. Instead, I have a 13 pip loss.

Today’s trading, had I not experimented and taken trades in the middle of pivot points, would have been hugely profitable. Instead, my experiments caused another albeit minor loss. The profitable trades were made possible as a result of analyzing the monthly, weekly, daily and 4 hour charts to get a bearing for general trend. After doing so, I waited for a break of key support lines according to daily pivot points. Entering upon the close of the 5 minute candle worked because there was a definite directional trend down. Without the directional trend, I probably would’ve been shaken out for a loss. To that end, assessing general trend before entry is key to setting targets and expectations.

The last experiment of the day was the use of a Sell Stop below support to act as early entry on expected confirmation. I can see how this can work for and against me. The Stop entry will provide a better price, but on those trades that do not confirm or reverse, well actually, my losses will be less too because on a short I’ll have entered higher so the stop will be tighter. So based on that logic, I should use a Sell Stop entry below support (or Buy Stop above resistance) and wait for the 5 minute confirmation. Move the stop loss to break even as soon as the trade has enough room to breathe and place the 15 pip trailing stop with the next pivot point as the profit target.

Position 5 was a test of the Sell Stop entry. Unfortunately, when trading in the middle of a trading range, i.e. not nearly one of the daily pivot points, it’s difficult to set a tight and accurate stop loss on which to increase the probability of a profitable trade. [STOP LOSSES MAY NOT NECESSARILY PREVENT LOSSES.] As a result, I took losses before gains materialized. So, we’ll use the Sell Stop entry around daily pivot points and breakouts, but none other.

Position 6 was placed to capture the gains lost from Position 5, not a good reason to place a trade. Moreover, a sell stop was not used leaving me with a worse entry by 20 pips and a larger than comfortable stop loss of 35 pips; proof that sell stops are effective at improving price for both gains and losses and further proof that it doesn’t pay to play in between pivot areas. [STOP LOSSES MAY NOT NECESSARILY PREVENT LOSSES.]

The only other experiment that I have in mind right now is targeting the take profit at the pivot points rather than using the trailing stop. Today’s first trade would have ran for 70 pips from the Pivot to S1 and closed with a Buy Stop (take profit stop) although the Buy Stop would have had to be placed slightly above S1 to increase the probability that the target would be hit. A Sell Stop entry below support would have opend a second trade, which would still be open at this point. This one could run 98 pips which the stop entry and close would target about 70 of the 98. Let’s see how they play out.

As of writing this paragraph at 6:37am, the latter position still would not have closed and appears to be reversing. We’ll have to check on this one later. The first one would have closed profitable because of that strong directional trend. Without that, a trailing stop is the better way to go.

Next entries

FX Money Management

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