ShadowTraderPro Focus Report for February 1, 2008

The ShadowTraderPro Focus Report is your every morning dose of market reality brought to you from the resident geniuses at ShadowTrader. Overseen by Chief Equity Strategist, Peter Reznicek, each issue contains a full report on the prior day's action, including market internals, technicals, and what sectors were hot and cold. Each issue also includes the ShadowTraderPro Model Portfolio, which updates members on what stock plays STPro is currently engaged in officially, as well as provide a daily list of long and short setups for more self-directed traders and investors.

If you have any questions regarding commentary or plays in this newsletter, please email to focusreport@shadowtrader.net.

The Big Picture

Good Morning, Traders. Considering how the market crumbled into the close on Wednesday, the already fragile investor psyche was put to test immediately on the open yesterday, as major indices gapped down more than one percent to start the session. Indices held their 15-minute lows and quickly reversed, pushing higher the rest of the session.

The following is a detailed example of the wide range of emotions that traders experience when they deviate from a plan..based loosely on Wednesday's close and Thursday's open.

Opening Scene - Trader X goes long ABC at 50.00 (stop 48.00) just after the Fed cut rates on Wednesday afternoon. Right out of the gate his is proven correct as the market rips, sending his stock up to 54 in less than one hour. He is absolutely euphoric and feels that he could have a ten bagger on his hands and is prepared to stay the course to see this through.

Scene 2 The Trade Turns Sour - While he is pondering what type of laptop he will buy with these profits the market beings begins to fall apart and quickly melts down into the close. During this time, stock ABC completely reversed and gave back all of X's gains and more, finding support around 49.00 with a few minutes left in the session.

Scene 3 The Blame Game - Trader X is now furious with himself and wonders why he didn't sell the stock when he had monster profits (though he never set out to do so). He then begins to ponder whether or not he should just sell ABC now, ahead of the stop due to the weak action in the market. While he decides to hang on to the hope that it will bounce higher in the final minutes of trading, ABC unexpectedly plummets and blows through Trader X's stop at 48.00.

Scene 4 The Downward Spiral - Trader X is now stunned and paralyzed. ABC is now trading at 47.20 but he doesn't want to exit the position because that wouldn't be wise to do just before the close. This stock could easily gap up tomorrow on the open, allowing him to sell it near his original stop. So......X takes his blown stop of a position overnight and wakes up to a gap down in the futures. His pre-market quote of ABC shows it trading 2 pts lower than the prior day's close at 45.20 (original stop was 48.00). "!@*&@!", Trader X says. The pre-market quotes have rattled him senseless, so all he wants to do is exit his position as quick as he can and forget that it ever happened.

Scene 5 The Meltdown - So ABC opens at 45.20 and rips immediately to 46.20...now Trader X is pumped up and rejuvenated, so he decides to hold becuase this baby is going back to the highs! Two minutes later ABC sells off to the lows and undercuts the morning low of 42.20. This time Trader X is exhausted from the emotional rollercoaster so he cries out uncle, selling his position at 45.10 around 9:33 am. Finally....... he breathes a sigh of relief, as this position is erased off his P&L monitor never to be seen again.

Scene 6 The Torture - Around 9:40 am stock ABC bottoms out only 20 cents beneath Trader X's exit price, holding the 15-minute low. Out of nowhere it begins to catch a ton of bids and rips higher off the lows. Trader X happens to catch this action out of the corner of his eye on a chart he forgot to close and he can't believe what he is seeing, XYZ has rallied back to his original stop at 48.00! "#&$*%!" he says "Should I get back in?". He doesn't, however, he is now glued to the monitor as he watches ABC push higher all morning behind furious buying. During lunch the stock pulls back a bit, as good 'ole X starts screaming at the monitor "Die, stock, Die". But this just isn't X's day as ABC recovers from a 'lil sandwich time pullback and thrusts to new highs in the afternoon, closing near the prior days high at 53.50. Poor X is sick to his stomach and vows to never trade this stock again. Finally he cries out, "Why didn't I get back in as it started going higher?"

The End

So this is the detailed analysis of a trader spiraling out of control when he allows himself to give into emotions rather than follow a simple plan of action. What did he do wrong? He does not involve himself in the trade from the start. He is worried about where he will spend his money when he should be thinking about what he will do if his stocks sells off with the market. Focusing on different scenarios and game-planning for them allows a trader to react to the situation properly, rather than staring at the monitor in disbelief. He rationalized and deviated from his plan, rather than setting a hard stop. Traders tend to make poor decisions while they are in a trade gone sour. Finally, his biggest error after blowing his stop was not using a 15-minute gap rule when the stock opened 2 points lower. The trader that acts on impulse, with no direction, can do anything he wants at anytime. There are no rules or guidelines. Had Trader X subscribed to the Focus Report he would have known to set a stop beneath the 15-minute low, rather than panic and sell out at some random price.

Under The Hood

When we say "under the hood" we mean market internals, ie: what was really happening behind the scenes. ShadowTraders who listen to our daily broadcast every day live on the thinkorswim platform know that all closing figures on the major averages should only be interpreted in the context of market internals. Look for convergences and divergences in the breadth, a/d line, and trin figures below to either confirm or cast doubt on what all those talking heads on TV are telling you.

Dow Jones Industrial Average	12,560.36	+207.53	+1.67%
S&P 500	1,378.50	+22.71	+1.68%
Nasdaq Composite	2,389.86	+40.86	+1.74%
Nasdaq 100	1,841.42	+32.91	+1.82%
Russell 2000	713.30	+17.73	+2.55%
Spot Gold	$928.00/oz.	+1.70	+0.18%
Crude Oil	$91.75/bbl.	-0.58	-0.63%
NYSE Overall Volume	2,115,170K	n/a	+23%
Nasdaq Overall Volume	2,872,760K	n/a	+11%
NYSE Breadth	4 : 1	positive
Nasdaq Breadth	2.5 : 1	positive
NYSE Breadth Ratio	82.63
Nasdaq Breadth Ratio	77.57
NYSE Advancers/Decliners	+1,591
Nasdaq Advancers/Decliners	+1,045
NYSE Trin	.75
NASDAQ Trin	.83
$VIX	26.20	-1.42
Strongest Groups:	Homebuilders	Retail	Banks
Weakest Groups:	Gold	Oil Service	Semiconductors

Heads Up

Up and coming economic and corporate data that may move markets this week:

Friday: 08:30am EST - Nonfarm Payrolls; 08:30am EST - Unemployment Rate; 08:30am EST - Hourly Earnings; 10:00am EST - Construction Spending; 10:00am EST - ISM Index; 10:00am EST - Mich Sentiment
Reporting earnings before the open: ACI, CVX, CMI, XOM

Bulls and Bears

This section is for self-directed traders and investors who like to "do it themselves". Every trading day, Bulls and Bears will list long and short equity setups with defined entries and stops. Note: A listing in this section does NOT necessarily mean that the stock will end up as a part of the ShadowTraderPro Model Portfolio. Plays listed here change daily and are not managed or tracked by ShadowTrader unless traded via e-mail alert.

Long Ideas

Symbol	Trigger Price	Stop Price	Notes
DBC	32.80	31.49	breakout from tight consolidation at the highs
AEM	65.15	61.49	breakout from bull flag
VNO	92.33	89.28	breakout from tight range above the 50ma

Short Ideas

Symbol	Trigger Price	Stop Price	Notes

ShadowTrader Model Portfolio

The matrix below shows all current ShadowTrader Pro plays in the Model Portfolio. The Model Portfolio contains only those plays that are sent out in real-rime via email. Bulls and Bears plays above are not actively managed or tracked. Current open positions are on top, with positions that were closed in the current calendar week on the bottom. Closed positions are moved out of the matrix on Monday mornings and posted in our performance page here.
To get the most out of your subscription and for detailed instructions on how to structure your own portfolio, read our Focus Report User's Guide

sym	dir	size	date entered	entry price	date closed	exit price	target	stop	status	mark to market	p&l points	p&l capital	capital commit
OPEN POSITIONS - week of 1/28 - 2/1
UTHR	short	150	1/31/08	84.12	n/a	n/a	75.00	88.00	open	83.98	0.14	$21	12,597
	comments: showing extreme relative weaknes
SLV	long	50	1/28/08	164.53	n/a	n/a	175.00	160.00	open	168.18	3.65	$183	8,409
	comments: conitunes to push higher
ABX	long	50	1/22/08	48.17	n/a	n/a	52.00	49.50	open	51.44	3.23	$162	2,570
	comments: sold 2/3 position at 53.20
GLD	long	350	12/21/07	85.64	n/a	n/a	100.00	85.50	open	91.40	5.76	$2,016	31,990
	comments: still holding 100 shares from original entry at 80.57, re-entered 250 more at 87.67
CLOSED POSITIONS - week of 1/28 - 2/1
AVB	long	100	1/29/08	96.20	1/30/08	93.50	n/a	n/a	closed	n/a	-2.70	($270)	n/a
	comments: stopped out on a wild shakeout in the first 15-minutes of trading
ABX	long	100	1/22/08	48.17	1/28/08	53.20	n/a	n/a	closed	n/a	5.03	$503	n/a
	comments: sold 2/3 position for a 5 point gain
CPHD	long	100	1/24/08	32.62	1/28/08	30.50	n/a	n/a	closed	n/a	-2.12	($212)	n/a
	comments: stopped out using 5-minute rule with smaller than average loss
HUM	short	125	1/28/08	77.35	1/28/08	78.53	n/a	n/a	closed	n/a	-1.18	($148)	n/a
	comments: sharp reversal after entry cut for small loss
	TOTALS:	600	open shares (open capital committed doesn't include closed trades)										$55,566

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All content © 2007 by ShadowTrader Technologies, LLC. All rights reserved.

Disclaimer and Waiver of Claims: Disclaimer and Waiver of Claims: The ShadowTraderPro Focus Report is a newsletter service, designed as supplemental material for the ShadowTraderPro Newsletter subscription service and it is not intended to be a stand alone newsletter. The risk of loss in the trading of any securities products can be substantial. The strategies mentioned here are active trading strategies, therefore you should carefully consider whether such trading is suitable for you in light of your personal investment objectives and financial resources. This material is for information purposes only and should not be construed as an offer or solicitation of an offer to buy or sell any securities. Past performance of any trades mentioned never guarantees future results.

Securities and options involve risk and are not suitable for all investors. See the characteristics and risks of standardized options.