Mar

Market Higher 12% from the lows – Hope Springs Eternal When the Weather Gets Nice

The gloom and doom economic and market rhetoric reached a virtual crescendo Monday March 9th, marking the bottom of the near-term cycle. Never say Never in these interesting times however with two trading days to go this week I suspect we will not take out the lows. I won’t even hazard a guess on the magnitude or duration of the bounce just yet, but as much as I want to say I’m cautiously pessimistic, "A" Market Low is not the same as "The" Market Low. The glass half empty crowd will start to spin glass half full rhetoric just as the weather turns to beautiful springtime in the next few weeks. We’ve been pounded with negative news since last Thanksgiving and we wonder if sentiment will shift a bit with the change in season. People might just turn off the fear-mongering media and realize it’s gorgeous outside and "maybe things ain’t so bad after all". Lets get some fresh air…maybe check out the beach.

I went to Standard and Poor’s website and downloaded the S&P 500 constituent stocks. Sorting them by price I noticed 48 of them under Five Bucks, and roughly 100 of them (20%) trading under Ten Bucks, wow. There are some big name companies in the S&P "low-priced" 100, see for yourself. It is interesting because as numbers get lower, percentage moves and volatility get higher. C was trading for $1 a share last week , (same price as a lottery ticket) but closed up 77% in a few days to $1.77 tonight. Conversely holders of C at $4.35 suffered a 77% decline when it hit a buck. So if you started at 4.35, lost 77% then gained 77% you are far from even. It is imperative a trader understands the scientific laws of numbers, compounding, exponential and percentage moves. Especially with the advent of the Leveraged ETF’s. Are you kidding me? "ETF’s of Mass Destruction" await the novice at this game and perhaps a math test should be required before trading them, but I sense the Wall St. sharks prefer the casino crowd learn the hard way. When the 3x long is $12 and the 3x short is $110, you better get your head around a 12% move in the indexes. The TNA and TZA crowd knows what I’m talking about.

During a conversation with a fellow trader the topic of well-behaved charts vs. erratic unpredictable patterns came up. He asked for an example of what I would consider to be more predictable stock behavior verses the heart-attack chart he was asking me about, I remembered eyeballing NSC the night before. Just so happens when I pulled it up during the conversation I noticed a trend-line break, a cross above the 5/8-day SMA’s at the same time we see a spiked-low. If you were to look at a longer-term chart you would notice the last time these events occurred the stock made a nice counter-trend move up. Target 1 was hit the same day as the entry and it closes only fifty cents away from Target 2. I mentioned that "trading in a bear market you have to almost expect to get stopped out". So the approach is to take smaller position trades and lock-in those profits as quickly as possible at each target. If perhaps this week turned out to be the low in the market (haha, bottom-callers crawling out of the woodwork), this could prove to be the "buying opportunity of a lifetime" (sarcasm). We have some good choice of strategies for taking profits while perhaps maintaining a partial position in something like NSC. Splitting the position into quarters would allow one to to sell 1/4 position at each of the 3 targets, then holding low-cost shares with the last 1/4 with a stop-loss that would guarantee profits. Ahh, nothing better then getting stopped out with a nice profit. Here’s the mock-up for non members.

Trendline-Break Trade in NSC – Norfolk Southern Railroad

Just a few random thoughts I wanted to jot down. I have a lot of reading to do and I am much better at it than writing. Actually I always tell people "I can talk a hell of a lot faster than I type". With so many incredible writers out there (click through the blogroll), I am not going to attempt to be a noted author. The tone of the posts will either be casual or very formal depending on which one of my personalities is in control at any given time.

With that said for those of you that wish to read something really interesting, here is a document that offers "independent-thinking" and analysis of how to solve many of our Nations problems:

Objectives to get America back on course:

http://www.maxliferesearcher.com/

Get ready to enjoy Spring and GET OUTSIDE and get some fresh air. Like I told my cat, "Trade the hell out of this bear market bounce, but don’t get caught napping in the hammock when it comes unraveled again".