Mar
12
Market Higher 12% from the lows – Hope Springs Eternal When the Weather Gets Nice
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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
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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".
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Mar
7
Trading Stocks In An Uncertain Environment – To Say The Least
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Hello again to our loyal followers and long-time good friends. Many readers may not be familiar with Investing Systems so let’s bring you up to speed. We have been in the Stock Market business for just over 10 years. Our focus has always been to create unconventional tools that would empower the individual investor and help traders make better decisions.
We started near the ascent of the .com mania in spring of 1998. Wow, interesting times. Remember the Super Bowl pets.com commercial? Remember CMGI? Remember QCOM at $400? Remember trading via touch-tone phone? Rember Datek?
I’m coming to realize that smart traders endure and persevere over long periods of time and if you possess the inner aptitude for trading, you are still here and the market is still your mistress as she is ours.
Certain concepts and rules have been our mantra for all these years and we haven’t been afraid to mention them over and over.
Being involved with the stock market is pure "speculation". Never have money in stocks that you can’t afford to lose.
The stuffy arrogant Wall Street types that have taken themselves too serious over all these years are the ones that led the uninformed investor over the cliff. The buy and hold, put your retirement in equities, accumulate blue-chip stock guys. It is a travesty that the conventional wisdom of saving and investing for retirement turned out to be a disaster for a large group of baby-boomers who find themselves at a particular age in their life-cycle where that isn’t going to work out.
We always took a different approach. We suggested trading stocks rather than investing was the way to go. We suggested using technical analysis for the most part because the fundamentals are just a story (which may or may not be true) and the chart tells all. Where geometry meets price data and where numbers and indicators can be analyzed, that’s where we have always advocated focusing attention.
Our long-time followers are very familiar with some of our immutable rules and hopefully over all these years our constant ranting and raving have at least reinforced them subconsciously. For instance the golden rule, buy some gold and think of gold as the base of any investing pyramid. I became a gold bug in 1990 when I bought that first ounce at $365. That’s the law of gold. It maintains fairly constant purchasing power across geography and time. We have been pounding the table to accumulate gold seriously for about 9 years now, for a number of reasons which I won’t go into, but the main one being the gold is the only real money on the planet. It is the only guaranteed way to preserve excess capital that is guaranteed. Have you ever seen this – REAL MONEY. In 1905 you could exchange that $20 for an ounce of gold. How’s that ratio holding up for us now? Any time you exchange some FRN’s for gold or silver you are converting it to the real money of Planet Earth. We have suggested for many years that the bedrock of any investment plan starts with physical gold and silver. One day I will devote an entire tyrade to my 20 year relationship with investing in gold. I know a few of our close friends reading this will be smiling.
Besides being debt-free and having a year’s pay in the bank, we suggest at that point one might consider creating a BANKROLL allocated specifically for speculating in stocks. Trading stocks for fun and profit is the best business in the world as far as I’m concerned. It is a very personal endeavor and those with aptitude and perseverance can turn it into a worthy profession. Once acquired, the skill to be able to consistently take profits out of the market is the pinnacle of achievement. As we have all seen the ability to adapt to changing market environments is a must. We did things different when stocks traded in fractions. Good traders know they always must change with the times and adjust strategies to keep the edge.
Here’s my favorite article for anyone new to this game: Stock Trading 101.
Moving on. Hey, remember how we have been saying for a long time how you can bet either way? You can easily bet on the market to go up OR down. You can bet on stocks to go up OR down. The stuffed shirts that told everyone that you only buy stocks let them down the wrong path. True speculators know that you can make money either way. It is much easier these days with the inverse ETF’s than it ever was. We introduced a lot of people to the concept when the inverse ETF’s were first launched.
One other rule I should mention here that we have always advocated is using STOP-LOSSES. It goes without saying but just in case someone is not as informed on these matters as they should be you have to always use stops. With all the turmoil out there these days, the one simple rule of investing that would have saved a lot of misery would have be to use stop-losses. Are you kidding me? People actually HELD some of these stocks all the way down? I can’t believe that all these gurus and talking heads and Wall Street types didn’t first and foremost mention setting a stop-loss on every stock they recommended in case the stock went down. When they ecommended GS at $175, and GOOG at $650 all they had to do was say, "but if it goes down 10%, sell it all and ask questions later". Our good friends at IBD have been teaching this as long as we remember. Seven to eight percent is their rule. Never lose more than that. You can always buy it back. I can’t tell you how many times I have been stopped out as a trader and in a bear market you have to expect to get stopped out because that is how it works. Once you are ok with getting stopped out and get your head around the concept the fog is lifted and you see clearly how good money-management can get you through any market cycle.
If you have not seen the segment of John Stewart making fun of CNBC here it is:
As a guy that has watched CNBC since the .com days and views it as more of a contrary indicator I think that’s the best parody I have ever seen.
I was just getting warmed up here but I ran out of time so I will take up in a few days where I left off.
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