Dec

31

2012 Begins–Investing Systems Research Lab Blog for Week of January 2nd, 2012

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I am going to go out on a limb with a 2012 prediction: The S&P will NOT close flat at the end of 2012.

Ponder for a moment the odds that the S&P would close the last trading day of 2011 at literally the same price it started the year…

2011 was the Doji Year as you can see on this yearly chart:

That was not “typical”. I don’t want to get into the “odds” of this happening or the things that come to mind that would explain this unusual occurrence. I really just wanted to get a picture up to gaze upon occasionally in the New Year. A Doji candle indicates “indecision and equilibrium” and can be a reversal candle after a run-up…hmm.

The first analogy that came to mind was this was the Roulette wheel landing on Green 00. The house wins and all the LEAP put/call buyers lose…hmm.

It was an interesting year…

I am looking forward to the New Year with a positive attitude and optimistic outlook. While nothing can ever be guaranteed when it comes to trading stocks, and the market, the New Year presents everyone with an opportunity to start fresh, cast aside bad trades and bad habits.

If you have been joining us for the live shows in the morning in the Research Lab, you know that MNTA was the last official trade of the 2011. When I sold it my trading account was all cash and I planned to kick back and enjoy the Holidays. I intended to sit on the sidelines and avoid the uncertain, low-volume chopfest .

I wanted to use the Holidays to “get my head on straight”. Re-evaluate everything and prepare for 2012. I had a lot of thinking to do…take some downtime to spend reflecting and planning.

It’s tough for a full-time trader to “sit on your hands” when the market is open. “Everyday is a trading day, but not every day is necessarily a good day to trade.”

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As many of you know we have been watching JRCC for some time. I’ve been following it closely for over a month now. We originally had it staged as a Waiting Trade Plan on November 29th, with an entry at 7, but it gapped-up way over the entry. Since then I have been waiting for another cycle that presented an opportunity to get in.

Keep your eye on JRCC and the other coal stocks in the New Year. I like JRCC around these levels and was planning to make it the first Trade Plan for 2012, however I wanted to get you in around 6.50 with a stop at 6.

I did not want to set it up as a Trade Plan right before the Holiday because I mentioned several times that we wouldn’t have any new trades until January. I know many of you weren’t checking the Waiting Trade Plans page because you didn’t expect any new ones.

Here is the 60-minute chart.

During the holidays I made a couple trades in JRCC and I’ve decided to make a sort of “strategy lesson” out of the trade, with hopes that you might be able use it in the future. We have talked about this strategy for a long time and discuss it occasionally on the shows.

It’s a sort of scale-trading strategy where you make multiple trades in the same stock, planning to procure a “low-cost basis” in a stock you think has great potential. As we have discussed, this can be used with dividend paying stocks or high-yield Closed End funds.

The example I will show you is perfect in it’s simplicity. Over the years I have traded the same stock a dozen times, and that gets more complex, but here’s what I did with this one.

I bought JRCC at 6.60, then sold it the next day at 6.98. Then I bought it back at 6.30 and am still holding it.

Now I could consider this 2 separate trades, but for illustration purposes I am lumping together the two buys and subtracting the one sell, doing the math to see where I stand with the stock now.

Typically the trades would not have been in this odd order, but the concept is the same. I make multiple buys and multiple sells, but keep some of the shares. The idea is to reduce the cost-basis of the shares you hang on to.

We will do some more involved explanations down the road, but the main point is the concept.

Two buys gave me 1k shares with an average cost of 6.47 a share. I sold 1/2 the shares at 6.98, leaving me with 500 shares with a “cost-basis” of 5.98.

With the stock closing at 6.92 and my stop at 6.00 (or even 5.98) you see that this is pretty much a “no-lose” situation at this point. (Unless of course the stock opens at five bucks Tuesday morning).

So…in this position, going forward I can hang on for a longer ride perhaps, as long as it never drops below six bucks. The Targets in my spreadsheet are not necessarily the targets I will use, but show potential percent gains, should the stock do well in the future.

Another interesting point about this strategy is that I reduced my risk significantly by reducing my exposure. I got half my cash back to use to add to the position perhaps on the break above 7.20.

I want to point out again that normally I would not take the trades “out of order” like this, I would have bought all 1k shares at once, then sold 500 or I would have made 2 buys at 500 each, then one sell.

It’s important when you trade the same stock multiple times that you track your “real-life” cost basis. If you buy 1000 shares of a stock, it goes up 10% and you sell 900 shares, you have 100 free shares.

I don’t want to take too much time on this right now. Over the next year we will discuss this strategy plenty of times and perhaps do a video about it. We’ll continue to talk about using this technique with dividend stocks as we go. Perhaps I’ll bring you a few actual setups here we can trade.

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I can’t do a Year-end/New Year blog post without reviewing our track record for 2011.

The Trade Plans in the Investing Systems Research Lab gave you a 40% return in 2011.

Here’s how it looks “ on the inside”.

I’m calling this 40% gain in 2011 a “win” considering the market was unchanged for the year and a lot of “big money” and institutions did a lot worse.

It was quite an improvement from the 29% return we did in 2010.

One of the interesting things about the 2011 Trade Plans was that we averaged just under 5 per month. However there were probably on average another 4-5 per month that never filled. They were staged on the “waiting” page, but did not trade at the exact entry price and were deleted automatically by the system. Some gapped over the entry and soared without us and some drifted down to the stop and we’re glad we weren’t in. The activity was a bit less than the previous year, but in retrospect, choosing to “not trade” when the market environment was not conducive turned out well.

When you are inside the Research Lab be sure to click around the different pages of the stats and check out the month-by-month stats and charts. Also check out the variation of the returns selling at different targets.

Sure 80% of the trades hit Target 1, but you were taking much smaller gains.

Here are the “fixed targets” we use.

So there’s the review of our track record. All the charts and other details can be found in the Closed Trade Plans section of the Research Lab.

2011 is history and as they say in the business “you are only as good as your next trade”.

You can rest assured that we will do everything we can in the future to beat the market and we will work constantly to find new “high-probability trade setups”.

The great thing about being a Research Lab Member is that you have me here, looking through thousands of charts daily, running scans and working tirelessly and constantly to bring good ideas to your attention.

And…consistently bringing you my thoughts here each week along with tips, tricks, analysis and of course good trade setups. If you look over on the left side of this page you will see the archive that goes back to July of 2008, not one week missed.

So, what do I see going into the New Year?

Well that depends on whether we are talking about the macro picture or the charts. The macro picture always makes me nervous in the long-run, but the charts tell the story for today.

Last week I pointed out that the S&P was approaching an area of heavy resistance. (shown here in the green zone).

Here’s how it looks right now on the 60-minute chart.

As I mentioned earlier, I am entering the New Year with an optimistic approach, but I am also a realist.

I know for a fact that in order for the market to make a “significant” move up, it must first pass through and clear the resistance zone I have on the chart above.

You might notice I have tweaked the zone a bit and moved the downward-sloping trendline to form a slightly different triangle than we have been watching in the past. As the market changes I like to adjust the patterns to reflect the new “best fit” I see on the chart.

Since 1928, the S&P 500 has averaged again of 0.61% in the first week of the year with positive returns 65% of the time.

However we can not assume that any “seasonal or historic” pattern will hold true “this time around”.

Unless and until I see the market move into the green area and actually “clear it”, I will still be cautious.

Overhead supply and overhead resistance do not care about the calendar…

One thing we will pay very close attention to in the next few week is “where is the new money going?”. Generally there is a lot of “positioning” that goes on in the New Year by institutions and the big money. We want to keep a close eye out for stocks and sectors that seem to be attracting new buyers.

Last year we had the coffee trade and the pizza trade. Stocks in those sectors had huge runs during certain times where they lead the “popularity contest”. This is an important part of what we do. We try to keep our finger on the pulse of the market, paying close attention to sector rotation. You might have heard me comment recently that the most common theme in the past couple months has been the “pharma” stocks. Both the big cap drug stocks and the smaller ones with the word “pharmaceutical” in the name have been frequent picks on the Live Grid and on our radar screens.

On the last trading day of the year for 2011 I noticed AUXL, ARIA, VRX, ALXN, SLXP and CBST on the Grid. Every one of these stocks has “pharmaceuticals” in the name…hmm.

On last Wednesday’s show I mentioned that “energy and oil-related stocks may be one of the sectors that offer good potential in 2012.” Many of these stocks are beat down below where they were when oil was $75 a barrel. Some look good for rebounds. Some will make for great Trade Plans. There will be TONS of great opportunities as we go forward.

Hit and run trading is our business…

5%-7%-9% are our targets…

While this weekly blog is an integral part of the research Lab, the best stuff happens on the Live shows in the morning. We can cover a lot more ground, discuss things in great detail, and dig into various topics that are timely.

Rather than make the weekly blog a “novel”, I encourage you to join us and participate in the live shows because that’s where the real magic happens.

If you have been with us for a while, you know I like to use this blog to offer up some good trade setups I’m watching. When I’m going through charts and running scans and doing analysis, I run across a lot of stocks that are “setting up”. Way too many to introduce into the Trade Plans. So I choose to use this blog as a place to provide you with some good ideas and a glimpse at some patterns that interest me.

Here are some setups to watch going forward – Notes on the Charts.

That’s just a sample of the types of great setups I will post here over the coming year…

Remember, some will break-out, others won’t. Some will fill and some will drop, never breaking the trendline. Some may make false moves, then reverse. Be careful as always…

Do not forget that our number one rule is to always use stop=losses and always be quick to sell when a trade moves against you.

Cash is king in the trading account and every time we buy a stock we are looking to sell it and move the money back to cash.

I think a good combination of daytrading and swingtrading will work well for us in 2012, just like it did last year.

We are entering our 4th year of having the Research Lab open and we sincerely appreciate all our members. Some of you have been with us since the beginning and are still here. Some of you are new here and anxious to get started.

I want you to know that we will do our best to help each one of you in any way we can and we are always available to answer questions and give our opinions.

Besides the trades, the charts, the scans, the blog, and the shows, it’s nice to know that we are doing all this with you in mind – with the goal of helping you be a better trader and make money in the stock market.

We hope you have a Healthy, Happy and Prosperous 2012.

Since Monday is a Holiday and the market is closed, we will see you Wednesday morning before the market open in the Research Lab on the Live Broadcast in our trading room. We look forward to it.

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Dec

24

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

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First of all I want to wish you and your family a Merry Christmas and a Happy Holiday Season.

As the year winds down it’s always a good idea to review and reflect on prior trades to see what we can learn from both the winners and the losers.

Since I posted the last open Trade Plan of the year here last week, I thought it would be nice to see how it played out.

I like using the 60-minute chart because it gives a good zoomed-in view.

You can see where I marked the Entry, initial stop and the three targets as well as the green circles that mark the spots behind the strategy on this trade. If you didn’t read last weeks post you can scroll down and review the thinking behind the trade. This is a case where everything lined up just right on multiple timeframes (and of course the market cooperated last week as well).

Speaking of which, we have some positive developments in the overall market.

The S&P-500 rallied up to close above the 200-day moving average, which was a big feat considering last week we were right in the middle of no-man’s land, smack in the center of the triangle we had been watching.

Here’s a look at the daily chart.

As you can see, Friday the market was able to peek it’s head above both the 200-day moving average and the downward-sloping trendline that we have been discussing here for several weeks.

This does not necessarily mean that we are “off to the races” just yet. As I have been saying, the market needs to clear the 200-day and start using it for support. You can see back in October we broke above it briefly a couple times and then got turned back. Also on December 5th, 6th, and 7th, the market poked above it all three days then got turned back as well.

So it’s important here that we actually “surmount” the 200-day and get a weekly close above it.

Then, the “zone” where I have the green arrow might come into play. Also note that the trendline that forms the top of the inner-triangle should act as support on any throw-back. It’s very typical for a breakout to retest the trendline from above.

Before we get too optimistic on the overall market we have to consider that there is still a band of significant overhead resistance just above which I have marked on the 60-minute chart below.

With the market closed Monday the 26th, there are only 4 trading days left in the year and it will be interesting to see if we can push up further and make it into that overhead resistance.

We also want to keep in mind that there are a lot of extraneous forces at work this time of year like strong seasonals and year-end positioning. So while it will be interesting to see if the momentum can continue into this week, I am still approaching everything with a bit of skepticism. (don’t I always?)

I mentioned a few week ago that for me to get “constructive” on the overall market I would have to see three things.

A trendline break out of the upper part of the triangle, a move above the 200-day and a move above the recent highs. Two of these three conditions literally happened in the last couple hours of Friday’s session, but just by “barely”.

Next week will be the important test.

I am going to say that the area between 1250 and 1300 on the S&P is the most important zone we have seen in quite some time.

I wouldn’t be surprised if that is the area a lot of traders are looking to get short and it presents a huge wall of resistance.

If and when we see the market break above the top of that green shaded area I drew above on the chart, then it will be “game on” and a significant move up could be underway.

If you go back up to the daily chart, you see I have drawn another downward-sloping trendline. This is a very important major trendline as it’s drawn from the all-time high way back in October, 2007 down across the high of May of this year.

That trendline will be the ultimate target of the current move, if it proves to be sustainable.

Next week we will look at that on the weekly chart.

For now, I am going to get back to enjoying my Holiday weekend and spending time with family, obviously the most important thing to do this weekend.

Again, I hope all of you have a nice, relaxing Holiday weekend and spend it enjoying the things in life that money can’t buy.

Since the market is closed Monday, we will see you Wednesday morning at the open. I hope everyone can join us, especially the new members.

We sincerely appreciate your support and look forward to a great 2012. As we demonstrated this year, no matter what the overall market does, we can make money trading stocks short-term.

That my friends, is the key – and why we are here…

Cheers!

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