Sep

24

Investing Systems Research Lab Blog for Week of September 26th, 2011

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If you are holding a bunch of stocks right now, then you are doing it all wrong.

First of all, you had stops under any and all open positions and got taken out most likely before Thursday. However any positions that might have been holding up probably got stopped out Thursday.

No one should have “had the boat loaded” to begin with. If you spent 1 hour reading back sequentially through this blog you would know why.

Anyone still holding stocks violated rule number one, always use stops. You will find dozens of reiterations of that on past posts. If a stock gaps down below your stop, what are you supposed to do? Sell it and ask questions later.

You might recall we discussed the “Bear Flag” here a while back. Here is the standard technical pattern and what to expect when the markets breaks down from it.

Here’s a chart of the SPY – see if you recognize the pattern.

In addition, if you look closely, you see a break-down from a head and shoulders pattern – a double-whammy. Last week I mentioned that the “clues” to watch out for was a higher-high and a move above the 20-day moving average. That didn’t materialize so we find ourselves with the dreaded “gargoyle” pattern. As a market “detective”, I like to look for clues to gauge the environment so I can make sound decisions.

The two chart patterns I mention above are just the latest clues to watch.

I have been documenting the clues here all along.

The major trendline break – July 2011 trendline break alert on the S&P

Here was the view on the Weekly – July 29th, 2011 Weekly S&P

Our Long-term market timing strategy flashed a sell signal August 29th. The Buy and Hold portfolio sold stocks and moved to cash (view chart in RL).

One of the subtle yet interesting clues was presented way back in May - "Here’s how you get out near the top"

I could go on, but there’s little point – that’s all in the past. Since we are primarily in cash, the world is our oyster, however the “environment” as I described above, is looking abysmal.

The primary risk at this juncture is to the downside. (Funny, I remember using those exact words here several moons ago.)

At this moment I am not ruling out a bounce next week because “everyone knows the market is going down”. But as I step back and look at the monthly chart along with the clues I have been gathering, it’s very likely we test at least 1000.

It almost looks like the market has a “999” plan.

There will be hell to pay at the lower red line. That will be the time to invest in a retail chain of “pitchforks and torches” stores. Imagine, if you will, the Pension Funds that are assuming they can make 8% a year compounded over the long-term in order to stay solvent. Unless they are daytrading the TZA, SKF and SDS, they would likely be in serious trouble down there in those “danger zones”.

“Global Financial Armageddon” – coming to a planet near you.

Just kidding, it will probably be more like a run-of-the-mill Economic Apocalypse. But don’t worry, I don’t really expect that this week, however the possibility is always in the back of my mind. Heck, I said years ago on one of our shows “we have crossed the event horizon and the law of exponential numbers guarantees collapse at some point”. We are closer to that point than when I said it, but it’s always worth repeating. (Some of you haven’t been with us for all these years)

I know a lot of you are option traders and I’m interested to hear your thoughts on some small position LEAP Puts that can pay off big, should the wheels really come off the bus before the world ends on 12/21/2012.

Now here comes the fun part!

Regardless of what the overall market does or even the environment, we can still trade individual stocks and have profitable trades. I see the potential for bounces all over the charts and some of these stocks are so decimated and so oversold, there’s going to be plenty of opportunity for hit and run trades coming up. And if the bottom falls out, no big deal because we won’t be holding any of them as the stops will have taken us out.

So for your viewing pleasure, I have personally eyeballed 1000 charts, run all sorts of scans and managed to find a handfull that actually look worth following. I will find you more as the week wears on…

I can tell you that looking through the charts made the hair on the back of my neck stand up. The landscape is littered with “busted blue chips” and all the stocks people bought for “the business and the story”. The losses are staggering if you simply peruse the carnage on the charts of the DOW stocks. Imagine the poor people that “bought more every five bucks down”, they are indeed poorer.

We just experienced one of the worst weeks in history. I read on Bloomberg that 3.7 Trillion of Global equity value just evaporated.

As I’ve mentioned before, in a “liquidation environment” nothing is safe. Geez, that’s practically all we talked about through most of 2008. That was the lesson for those that haven’t been in the market since 2000. Remember what happened to gold and gold stocks in 2008? yep, and you thought it was different this time?

Be very scared – just look at the bank stocks.

Looking out to the foreseeable future, it’s hard to imagine anything that can actually turn the Global Titanic Economy around. It’s going to take real leadership, real intelligence, hard work, collaboration and ethical behavior among all the world leaders and people in positions of power, just to start steering the ship away from the iceburg.

Do you think they are up to the task?

Be nimble my friends…

Join us M-W-F Live in the Research Lab as we navigate rough waters and actually catch some fish in this storm.

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Sep

17

Investing Systems Research Lab Blog for Week of September 19th, 2011

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“I hate to make predictions – especially about the future” –Yogi Berra

I really went out on a limb the past few weeks here on this blog. Predicting the Weekly trading range of the S&P 500 is usually the job of quant departments at major Wall St. firms like Goldman “Alpha” Sacks, or 7 dollar Merrill Lynch or even UBS (U blew-it son).

The idea of Bill from Investing Systems, trying to predict the market range a week in advance is sheer audacity. Hence this week I will not attempt what amounts to lunacy– market predictions….haha.

But since I did go out on a limb, let’s see how the prediction played out. The weakness from the previous Fridays 300 point meltdown did indeed carry over into Monday and the market came within a very reasonable margin of the lower range. As indicated on the chart, we had a “buy the panic” zone, which it never quite reached, but that’s actually positive in the big scheme of things…

The Weekly SPX chart below shows the price action that actually occurred contained within the predicted range from last weeks blog post, 1125-1220

If you will recall the negative sentiment going into the week, the idea that market could actually rallly all the way back up to 1220 was a bold call, but remember what I said about the sentiment:

As the “pessimism” , negative news flow and “bad sentiment” on CNBC reaches a crescendo, that’s when we look to buy”

Fading the sentiment is one of the useful tools in our trading arsenal, and it has served us well in the past.

A great example is the March 2009 Blog Post here in the Research Lab. This was written March 12th 2009, right when the 666 low was hit.

http://blog.investingsystems.com/date/2009/03/

Back to the present day…

So last week pretty much played out as we hoped – the market tested the lower trendline of the channel and bounced as you will see on the daily chart below. But first let’s look at the first 2 Trade Plans for September. They filled on Tuesday, and by Thursday, both had hit Target 3.

CBOU + 7% (click image to expand)

STAA + 9%

Remember I said something about “Get while the gettins’ good?” Well I actually had a couple others, but like to keep the Trade Plans “actionable”.

One another item about the Trade Plans, based on suggestions from you, our valued “Research Partners”, we are working on an “alert indicator” to show you if there is a Trade Plan “on Deck”, right on the Homepage of the Research Lab. That way, each morning it saves you the step of checking the Waiting trades page. It’s a time-saver, especially in this choppy market where we tend to focus on quality over quantity in the swing trade plans.

Here’s a look at the current stats for Trade Plans starting in January of 2010.

	Stocks under $10	Stocks over $10
Target 1	3%	2.5%
Target 2	6%	5%
Target 3	9%	7%

We are averaging about 7 trades a month over the last 21 months. The level of activity in the Trade Plans as always, will be based on the market environment. Look through some charts at the first two weeks of September and you will appreciate the fact that we didn’t get you “chopped to pieces” like everyone else holding stocks did. NOT losing money by being out at the right time was the key.

“Every day is a trading day but not every day is a good day to trade” and that especially applies with swing trades.

Speaking of action, did you see the rally in the market last week? Wow.

Funny to think how bearish everyone was just one short week ago. Now we find ourselves right smack-up against heavy resistance. It will take quite the “invisible hand” to push this thing higher now, however almost magical market levitation is a phenomena we are quite familiar with. The acronyms behind prior mysterious strength in the market are plentiful. POMO, PPT, ETC.

I read somewhere that someone was anticipating a whole new round of “making the purchasing power of your dollars less”. Boy, I hope they don’t do that again. Last time gold went from 1000 to 1800…geez. What are the people on fixed-incomes supposed to to in that environment? It’s tough enough out there as it is.

As far as the daily S&P chart, we are still in the upward-sloping channel as you see on the chart below.

I think the S&P will find heavy resistance between the 20-day moving average and the top of the channel, indicated on the chart.

So while we might get a little follow-through and perhaps take out the 20-day, but the most important thing to watch is this. Can the market exceed the prior high on this “cycle up”?. That will essentially put it at the top of the channel, which may or may not be “a reach”. We will have to watch and see because we are sure that after it happens there will have “been a reason”.

It would really not surprise me to see this rally run out of steam early in the week, NOT hit the upper end entirely, and start to roll over. I guess the news cycle will once again dictate the price action.

Unlike the past few weeks, when the market is right-smack in the middle of the range, as it is now – sort of in no-mans land, I won’t be so bold as to make any predictions, especially about the future.

After all, how can you predict anything based on the chart below?

As the Tape Speaks, we will listen.

We will see you fellow Research Lab Partners at the opening bell on the Live Broadcast. Bring your favorite stocks, ideas and questions and as always, we will be happy to share our humble opinions.

Cheers!

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