Tuesday, July 15, 2008
Bank Index Flirts With Stop Level
Woah, what a mess. Financial stocks are caving again in this morning. On top of yesterday's disaster, today's selloff put the BKX U.S. Bank Index briefly below its stop level for my trading setup this morning. That level is set at the past largest drawdown that the setup has seen since 1995 - or 14 percent. Based on the $54.60 entry price at Monday's open on July 14, that would mean the stop price is $46.95. However, I traded this signal with the 200-percent leveraged UYG ProShares Ultra Financials Fund, which has yet to fall below the stop level and hasn't fallen proportionally as much as BKX because of the vagaries of leveraged ETFs. The UYG entry price was $18.26 and, since it's a leveraged play, I adjust my position size so that my stop is 28 percent below the entry price (two times 14 percent). So that gives me a stop price of $13.14. The price right now is holding well above that level. The last few BKX trades have mostly gone in my favour and done really well, but alas you can't win every time. Welcome to trading. I'll be watching these levels closely in coming days.