Jul
10
Investing Systems Research Lab Blog for Week of July 12th, 2010
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Last week we got the tradeable bounce we have been discussing. The market was quite oversold and the pessimism had gotten pretty extreme, so it was definitely due.
Part of the reason for all the bearishness was the fact that everyone’s long-term signals flashed a sell, including ours at the end of June.
Even though last weeks rally may carry into this week a bit, there is a ton of overhead resistance on the charts.
On the Monthly chart we see that the SPY is still below the 10-month and 30-month moving averages.
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While we managed to rally out of the Danger Zone for now, we are clearly not out of the woods and expect to revisit this area in the future.
The Weekly chart shows that we are well below the 30-week moving average, which is the main one to watch on the weekly. The 10-week has crossed down through the 30-week, which is not a good sign. It’s similiar to the “death cross” you hear so much about where the 50-day crosses the 200-day moving average to the downside. Decision Point actually used that as their “long-term sell signal” last week.
Here’s what they had to say about the current environment:
Bottom Line: A new long term stocks SELL signal has been generated based upon a “death cross” (opposite of “golden cross”) of the 50- and 200-EMAs. Decisions in the intermediate and short term now need to take this into account. Nevertheless, short term indicators continue to be bullish and and there are now positive divergences on medium-term indicators. So we have a positive theme developing in a negative longer-term context, but we should consider it to be a temporary development.
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On the daily chart we can see we are right up against the 20-day moving average. While we might get some follow-through, we expect the rally to get turned back at the trendline.
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So we expect the next couple weeks to be fairly choppy as we head into the beginning of earnings season.
In earning season, rather than focusing on the overall market, it will be more important to see the numbers and guidance from individual companies.
It should truly be a stock pickers market as they say over the next few weeks.
Any stocks you are holding or trading, be sure you are aware of the earnings date so there are no surprises.
Here are some stocks we will be watching this week.
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Join us Monday morning at the market open in the Research Lab as we take the stock picks and mark up the charts.
Have a great weekend.
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Jul
3
Investing Systems Research Lab Blog for Week of July 6th, 2010
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On the last day of June, our long-term monthly market timing indicator gave a sell signal. Widows and Orphans were advised to move buy and hold indexed investments to the sidelines.
The stop-loss “line in the sand” mentioned over and over was breached and the final confirmation was the closing price in June.
To review:
The S&P closed greater than 1% below the 10-month moving average on the last day of the month, hence the sell signal. In the near term we are likely to get an oversold rally, but if you only check your investments once a month, you want to be in “capital preservation” mode.
If the indicator were to reverse and signal a buy in August, the proverbial whipsaw, that’s absolutely fine. I kind of doubt it but it can happen. The beauty of the indicator is that it prevents catastrophic losses in a “liquidation environment” and keeps you on the correct side of the long-term trend. The inevitable whipsaws have little effect in the big scheme of things.
We discuss long-term investing, money-management and offer the details of our proven strategy on the Wednesday show. If you are not familiar with it or have questions on the 10-month moving average asset allocation strategy please feel free to ask Wednesday.
Right now the indicator says that passive, long-term buy and hold investors should be on the sidelines in June and we will check back on it next month.
So here is the good news…
July 2010 is going to be a traders market and a speculators dream.
The dream starts with an all-cash trading account of “risk-capital”. Any trading account should be mostly cash at this point, due to the number one rule of always using a stop-loss order on every open position. At some point in the near future we expect one of those “tradeable bounces”. (even if the market collapses first) Many stocks are extremely oversold right now. While it seems we can go down a lot further (and we expect that in due time), we hope for a short-term counter-trend cycle.
We will approach this as a speculators market and trade small positions with a stop under every trade.
Here’s some bad news. Typically we like to see potential swing trade candidates in primary uptrends on the chart. But that is not the case at this time. Each potential trade is a “counter-trend” trade right now, so it will be imperative that we are selective and take profits quickly and move stops up at each level.
So here are the details of this month’s experiment.
First, we ran a basic swing-trade scan which produced the following stocks.
Here is the logic we used in the scan:
5 consecutive closes below the 5-day SMA and 5 lower lows. Today’s close was up from yesterday. Stochastics <20
Stocks between 10 and 60 with average daily vol >500k
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The logic for the scan is consistent with the Training Lesson titled “How to Campaign Your Swing-Trades”, available in the archives of the Saturday training in the Research Lab.
Next, we loaded the list into the Pivot Trader software and got the following signals for potential trades:
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Out of 41 results from the scan, 29 fired a Pivot Low signal. That seems consistent with the scan.
We have narrowed these potential trades down to 8, which seems to present the most opportunity based on the chart.
Out of these we will load a few into the Trade Plans so we can watch them play out as well as others that may give signals mid-week.
Be sure to check the Waiting Plans page Tuesday morning before the open to see which few get selected.
IMPORTANT: The trades above are computer generated. If this market tanks next week, we would expect most won’t even get filled, but those that do have a high chance of hitting the stop-loss subsequently. Watch carefully for green-candle entries and use a shorter timeframe to evaluate the price action around the entry level. This is a risky time to be trading to say the least, but a great time for this experiment.
By the way, May was a horrendous stop-loss fest in our Trade Plans for a couple of reasons. One was the overall market conditions, where there were days when 90% of stocks were down, the market leaders got crushed, and 8 days in a row of cascading stock prices across the board. Some of the plans filled on red candles which we know is a bad omen.The second reason is that we were “flying blind”, to a large degree as the main system we use to generate trades trades was out-of-order.
We had to wing it rather than just saying “it’s a bad time to be trading”. While we had been cautious, we certainly didn’t expect such a brutal sell-off starting with the huge gap up on the 21st of June . We expected it might a good time for the market to have have a bit of sideways action, but it was a straight down cascade from that gap . We really miss a bit of sideways action, as the market has been making dramatic and schizophrenic moves up and down with little consolidation. The market needs to stabilize somewhere and establish a new trading range before we characterize it as anything but a gamble.
Never underestimate the possibility of a “liquidation environment” like we had in 2008. Don’t hold individual stocks if the overall market is getting liquidated.
In reasonable market conditions we prefer “break-out” stocks in solid uptrends, but as you have seen, it’s been a game of “whack-a-mole” with any stocks that dared an attempt to move up to a higher trading range. Buying breakouts from traditional patterns hasn’t been working, but stop-losses prevented catastrophic drawdown on any one position.
The good news is that this month’s experiment is nailed-down as you see above We will be using the swing-scan in combination with the Pivot Trader to uncover trades and measure the results.
The key going forward, no matter what, will still be stops. As you gaze at the charts for the trades above, be sure to take note of the stop price.
In this environment we still expect many long trades to get stopped-out, however we can’t catch an up-cycle if we don’t trade. It’s imperative also to trade with smaller positions at this point in time. Until things stabilize or improve we are calling this a “speculators-only market”.
Everyone seems to be so gloomy and bearish at this point, and we certainly don’t blame them. Heck, our long-term indicator just gave the sell.
Before the market opens Tuesday, peruse the potential trades above and see which look good to you. Then check the Trade Plans to see which look good to us and join us on the Live Broadcast as we watch these trades and the picks from the daily scans.
By the way gold and silver closed well above the sell signal. The portion of investment capital allocated to gold is invested and has been since January 2009 at about 860.
Personally, I’m not sure that the indicator should be applied to gold or silver. To each their own opinion. We see all major pulllbacks as buying opportunities, and suggest that “precious metals” allocated capital remain invested at all times. We recommend a long-term accumulation strategy for physical gold and silver, beginning at an early age, in which you use any huge spike down to buy more. I have fond memories of last summer when they took silver down into the 12’s and I scored. If they can repeat it this summer, I’m a buyer in the 15’s. Wish me luck…
I have a lot to say about gold and silver but will save that for another time.
Enjoy the long 4th of July weekend and take some time to contemplate it’s true meaning.
We will see you Wednesday at the open.
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