CTMPR

I’ve been trading futures for 23 and in the early years I often complained of getting stopped out of trades. It’s incredibly frustrating to be stopped out of a trade only to watch the trade go the way you thought, but you are no longer on board. Many people will say the answer is to not use stops…. but if you are a futures trader that is ridiculous unless you spend the whole day monitoring the markets.

Here is a perfect example why. Silver broke above it’s 200 day simple moving average about a week ago. The market then set back slightly and for a short term trade I bought the futures at $35.45. The hard part about this trade was that we were quite a bit above the 10 day moving average which always makes me nervous. However when the market blasted higher yesterday I thought maybe I was worrying for nothing. Here is what the chart looked like at the end of the day:

In my early years of trading I would’ve simply been excited about a winning trade but it kept bothering me that realistically my stop had remain way down at about $33.65 in order to be safe. A $3.50+ stop might be fine if you are in a silver etf but not when you are in the futures, that’s ridiculous. So following my gut alone I exited the trade at $37.19 for a nice one day gain. I decided I was going to wait for a test of the 10 day moving average and if I missed the boat it wouldn’t bother me.

Well, the following day my gut instinct was validated when Bernanke made a few minor comments during a congressional testimony and it triggered a massive sell off in gold and silver. Here is the hourly chart of silver following the comments.

As you can see anything above $33.50 would’ve been stopped out and I probably would’ve been stopped out at the low of the day. Now the question is whether or not it was the right move to get out based on my gut? It’s not what I normally do but over the years I’ve learned to always follow my gut.

What I normally do is move my stop up to break even after a big move like yesterday. Then each day I wait for the morning lows to be made and then I move the stop up. Alternatively, if the market the market is getting over heated I normally get out at the end of the day like I did yesterday. With all the leveraged ETFs in the market that need to reset their position at the end of the day the markets seem to close frequently on the high or low. So it’s the best time of the day to exit a trade.

By the way, silver wasn’t alone in the sell off today. Gold actually broke down worse (chartwise) than silver. I’m going to simply sit back and let the dust settle…. enjoying my cash position!

The moral of this story is that if you are trading futures on a short term basis like I do, it’s important to continuously protect gains by aggressively moving stops up or down. Metals tend to move fast and hard so when they do you want to “lock in” your gains and protect against big losses. The only ways to do this is to remain glued to your screen or use stops. For me…. stops are the only way to go!

Here are some numbers from a recent speech given by Tim Cook.

It Apple 22 years to sell 55 million Macs
It took them 5 Years to sell 55 million iPods
It took them 3 Years to sell 55 million iPhones
It took less than 1 3/4 Years to sell 55 million iPads!

Isn’t it amazing that 10 years ago Apple was struggling to survive?  I remember buying Apple stock at $22 (which would be $11 split adjusted) because I really liked the first iPod.  Later that year I got stopped out of it when it dove below $20 during the tech meltdown.  At that time people were convinced that Apple was dead money (similar to Microsoft in recent years).  Sure people thought the iPod was a nice gadget but no one saw the incredible opportunity that was about to unfold before our eyes.

Looking at the overnight success of the iPad it’s easy to see in hindsight why this type of success is now possible.  Today consumer sentiment is exactly opposite of what it was 10 years ago and Apple is widely regarded as the most successful tech company in the world.  Consumers assume that each new product released will be more amazing than the last.

iTunes has created a steady stream of small, recurring sales for Apple and now with multiple devices (iPod, iPhone & iPad) all buying music and apps it seems that Apple is untouchable.  The only question I have going forward is how others will be able to compete?  The only two companies right now that are in a position to compete with Apple are Google and Amazon.  Each of those companies are also positioning themselves to have a steady stream of consumer payments (via Android and Kindle) and both are going full steam into cloud services.

All I can say is I sure wish I still had 200 shares of Apple stock, today it would be worth $102,000!  Not bad considering it only cost $2200 to buy a decade ago……  hmmm.

See the latest iPads:

I have always loved trading precious metals because they are very technically oriented (especially silver) and you can often find patterns that consistently work. However, there are times when they become so volatile that it’s best just to get out of the way. This year we have had several examples of that type of volatility.

Silver went parabolic in March blasting to it’s all time high at nearly $50. At the time I heard of several people putting up to 50% of their retirement accounts into the silver etf (SLV). I felt sorry for them when the market turned and plunged to $30 giving back almost all of the gain in a matter of days. The entire “giveback” was completed recently in the massive “Risk Off” liquidation sending silver futures back to their January low of $26.

Next it was gold’s turn to go parabolic (in July) blasting to new all time highs, making a double top and giving then retracing most of it in a few days. Gold is still up significantly on the year but I’m not so sure we are completely out of the woods yet.

The biggest loser so far in 2011 has been copper & especially copper stocks. In fact, if you look at the following chart of copper futures you can see that it’s down nearly 25% since the beginning of the year. Copper prices are the most economically sensitive of the 3 so it makes sense that it’s had a tough year. If we actually slide into another recession there is probably another 25% downside in copper.

If you look at the daily chart of the most popular copper etf (COPX) which is made up of copper stocks you can see the carnage is even more severe. COPX was down nearly 50% for the year before the reversal on Monday.

We are in an environment where the short term pressures are deflation and recession but everyone expects monetary lead inflation in the long term. This leads to a very volatile environment. This is why it’s best to limit metals to about 10% of your overall investment portfolio, otherwise volatility can keep you up at night!