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Monday, Oct. 4 Today we had a 128-point rally as I predicted. The pressure might come off the market tomorrow if the Fed stands pat on interest rates. Tomorrow is the last day before J.C. Penney (JCP) goes ex-dividend. It was up about 3/4 of a point early on, and then large selling came in. A rally is often used by institutions to "sell into strength" to unload a position. They also were using the dividend lift to unload shares. Anadarko (APC) was also down. Hard to understand since it actually snowed in New York State near the Canadian border, not to mention other places in the country. Our high temperatures through Wednesday are in the low 50s. Lows at night in the upper 30s. Even with all the early cool weather, oil dropped about 70 cents. The oil stock index was down almost five points. Gold is going through the roof. Tonight as of 8 p.m., we are up another $8 to $326 an ounce after a big day today. I believe that a good number of the people who were playing oil have sold that commodity and are buying gold. I regret selling my gold fund Friday, but feared that gold would drop as we approached the Fed meeting tomorrow. Also, I smelled a rally coming, and gold usually goes down when the market goes up. The fact that gold has gone up today with this rally tells me that you have to believe this is a gold rally. Either that, or half the world might be short this commodity and trapped below. I have often played the gold stocks for quick trades and watched for many years as these stocks were destroyed -- $20 stocks that went to 20 cents. There is still a lot of room to make money on this sector. I think a number of people don't want to believe the rally. The same thing that happened to oil at the $10-$13 dollar level. I believe Merrill's man was calling for $7-$8 oil. My current problem is that I am fully invested. Otherwise, I would be aboard NEM. I have decided not to use the Gold Fund because you have to wait for end-of-day prices. If this is just short-covering, you might need a quick-exit option. Tomorrow, the American Petroleum Institute statistics come out after 5 p.m. It is possible that it might help oil for Wednesday. One thing to watch is the momentum in the gold rally. At some point this might spook the stock market. I still see heavy-duty tax selling everywhere. This worries me since most "value" stocks are at the bottom of their price range and may not rise until it stops. The market broke a key resistance level to the upside at 10,400. If we can hold this, we may go higher. Today, I sold half of my Coeur d'Alene Mines (CDE) for a small profit. The liquidity in this stock is getting better, but I want to raise some cash for better opportunities. I still do not like the way this market acts. There are too many people "standing by the door." My gut feeling: The decline is not over. Wednesday, Oct. 6 Big rally today. However, it did not spread to my areas of investment. Anadarko (APC) was up 5/8, and J.C. Penney (JCP) was up 5/16. It is important to always be watching the size of the "bid" and "ask" prices on the stocks that you are trading. An opportunity could pop up at any time. Today, J.C. Penney (JCP) was trading in the 35 to 35 3/16 range for most of the day. The size of the bid and ask was usually very small, no more than 10,000 shares on either size. The stock however couldn't break 35 1/4. Someone kept throwing in stock for sale. Late in the day, the true reason for the sluggish behavior became apparent. Suddenly, a 50,000-share block appeared on the "ask" side. From my experience, I realized that this stock was about to go lower quickly. Most traders would have immediately sold out their positions and taken their losses. I look at it differently, that being, an opportunity to buy a cheap stock even cheaper. It's kind of like being in Kmart (in the old days) when you were looking at some merchandise (already on sale) when the manager wheels up the "blue light cart" in front of the goods which you were about to buy. You get a sudden rush of excitement. First, I checked the news on JCP to make sure that something fundamental to the company had not changed. Then, I quickly sold another stock on which I was even in order to have money for the purchase. Big question, however, was how low would the stock go before it turned? I wanted to be buying at the turn. It didn't take long before the action began. Whoever had this 50,000 block for sale either had more stock to sell than he was showing or had other friends who also wanted to sell and RIGHT NOW. LOTS OF URGENCY! In less than a minute, we went from 35 to 34. Sell orders everywhere! This large 50,000-share block was now being offered at 34. I watched for about three minutes as large buy orders started to hit (eat up) the 50,000 share block offered. As the size offered dropped under 18,000, I entered buy order for 900 shares at 34 and was executed. In less than two minutes JCP started to move up slowly. I entered my order to sell at 34 15/16 (thinking to avoid a crowd at the whole number 35). JCP moved up to my lone 900 shares being offered at 34 15/16, there was just my 900 shares showing for sale. This lasted for about a minute before someone placed a 10,000 share block for sale with me. I never received an execution at 15/16 and the stock started to fall. I decided to go out at 34 3/4, making a profit of $653. JCP closed at 34 15/16. The entire event from start to finish took about five minutes. Also, the low for the day was 33 15/16, 1/16 below my purchase. My methodology differs in that most traders will not buy a weak stock in the first place. However, since I already feel that the stock is on sale, I can't resist a blue-light special. I also sold my Rydex Energy Services fund purchased yesterday for a gain of about $426. This made the total tally for the day of about $1,075. I now have freed up some cash for day trading again, and my positions in APC and JCP remain intact. Tomorrow I'll be looking for a day trade. Possible areas include gold, airlines if oil stays weak, energy service if oil is strong, or something from my morning scans. Thursday, Oct. 7 Had a busy day-trading session today. Trying to get some of the mud off my face. It had gotten so bad that I could hardly see! Oil was down again. It seems that OPEC is doing a little cheating (seems like I am being the one cheated). It's down another 23 cents tonight, to almost $22 a barrel. I think that we must be getting close to the bottom of the pullback in oil. Anadarko (APC) was actually up today. When trading commodity-related stocks, the security (stock) tends to turn before the commodity. Anyway, there seemed to be a big and persistent buyer in APC today. JCP reported same-store sales down a fraction of 1%. Total sales were up about 8%. Didn't matter: Tax-selling and stock down. Almost a repeat of yesterday. This morning I decided to stick with what I had been trading most recently, my badly beaten up friends, JCP, APC, and a new one, Halliburton (HAL). I figured that I had to watch them all suffer anyhow, so why put any new symbols (blood) on my screen. My strategy for the day was to be very nimble and be out by closing. I had about $32,000 in buying power. I ate my Wheaties and went to work. Did a total of nine round-trip trades for the day. Five trades of JCP, two of APC and two of HAL. All nine trades were profitable. Total profit for the day was $1,221. Believe it or not, that is 3.8% on the money in one day. I wonder if they would put my picture on the Wheaties box? (This is the final installment of Diary of a Day Trader. We'll be publishing readers' letters about the diary next week.) Barker covers personal finance in his weekly column, The Barker Portfolio, for Business Week from Melbourne Beach, Fla. And he appears every Friday on Business Week Online
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