We beat the S&P 500 Index again by my reckoning. We were up 14% for the year while the S&P 500 Index was up 12.8% for the year. (And for those naughty Club members who didn't sell out of the C Fund, you are up even more since August 25, 2010!)
We should all be pleased and happy. We avoided the Flash Crash in May. We waited patiently until the end of August when the decline in the market was unsustainable. We pulled the trigger and rode most of the uptrend. And we displayed flexibility on December 1. Great investing and trading means reacting to what the market is doing in real time. You must have the courage to put aside your best laid plans if the market is saying "Going Up!" The ability to recognize on a dime when the market is going up has taken me years of trial and error to develop. I'm glad that I have the confidence to size up these opportunities in real time. The market will not wait if it is going up! You must follow along. I am also pleased that I followed my rules. Sure, we could have done better than 14% but at what risk? I would rather beat the S&P 500 Index and keep my money than overreach and lose my money.
UP 2100% THIS MONTH IN MY PERSONAL ACCOUNT
I called my broker an hour ago. I confirmed that I was up 2100% for the month of December in my personal account. All praise goes out to countless years of study, homework and research. On Wednesday, December 22, I saw that REE was poised to go alot higher than 14. Mind you, REE was barely trading above 10 at the time. But I knew that it was a fast money stock. I saw the MACD Histogram turning positive and the MACD lines about to cross up above the 0 line. The stochastic lines were pointed upwards. The time of the year was right. And the stock was in a strong up trend that reminded me of my Yahoo/Juniper Networks days.
There was no interest in the January 14 calls on Wednesday, December 22. Only 2 contracts had traded at 0.10. But I knew that this stock was going up. It had spent two months correcting and formed a nice Bull Flag. Higher prices were ahead! I bought my January 14 calls for 0.10 and waited for the inevitable. Thursday, December 23, was a down day. But my experience said that this was a buying opportunity, not cause for fear or panic. The price of the January 14 calls remained unchanged @ 0.10.
This week, things started to happen as I thought they would. When a stock behaves as it should, it is a good feeling. By Wednesday, REE was the talk of the CNBC crowd and the trading community. Thousands of contracts were being traded. I had company/smile. Yesterday, I decided that 2.30 was a fair price for my January 14 calls.
Even though this blog is about the TSP Retirement Account, I wanted my readers to see how an experienced trader can scope out an exceptional opportunity in real time. It is possible to beat the S&P 500 Index by a mile. You just have to do your home work, recognize the signs, trust your signals, feel good when the stock is behaving as it should, and bank your profits. Pigs get slaughtered.
Am I Looking At Other Opportunities for My Personal Account?
Yes, I am but I am reluctant to go into much detail because I don't want this blog to become a stock pickers blog. My goal is to help educate the average investor so that crashes can be avoided and opportunities seized. Mastering general market conditions is a better way to accomplish this goal than cherry picking 23 to 1 market returns.
So, that's all I will say about options.
Please have good cheer in your hearts this evening!We had a great year, a splendid year
Happy New Year!!!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Friday, December 31, 2010
Thursday, December 30, 2010
Closed Out REE Calls @ 2.30
I closed out my REE calls @ 2.30 this morning. REE hit resistance. Rather than be greedy, I decided to book my profits and wait for other opportunities. So, my purchase price was 0.10 on Wednesday, December 22. My sale price was 2.30 on Thursday, December 30. Not bad work for 5 trading days.
Later.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Later.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
A Year End Recap
Tomorrow, I will provide a year end review of 2010. And I will offer thoughts on how 2011 might play out. I hope everyone is enjoying the holidays. Happy New Year!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Monday, December 27, 2010
Giving the Fisherman His Due
I hope everyone had a great holiday season!
This post is about giving the fisherman his due. On Thanksgiving Day, the La Jolla Fisherman called the Santa Claus rally. I demurred. Well, Christmas came and the S&P 500 Index had gone up from the 1176 to the 1257 level. That's a Santa Claus rally. I tip my hat to the Fisherman. Well done. I am also pleased that we in the TSP Club went long the C Fund @ 1215 and exited @ 1240.
Some bloggers are reluctant to tip their hat to a good call. I'm not. Maybe, some day I will run into the La Jolla Fisherman again and we can swap market tales over Alaska salmon.
What are my thoughts tonight about the market?
Today was a low volume day. Most major traders are away for the holidays. As a result, there just isn't much activity going on. It is noteworthy that the S&P 500 Index has stalled out at 1257. I view the 1257 level as a serious resistance level. I do not think the S&P will smash through this level on the first attempt. It is also interesting that the trend of volume has been down since the beginning of December. This means that higher prices are no longer supported by volume. It is not a good time to buy. Better buying opportunities are ahead of us in January, I suspect. I have been looking at the December 1990 stock market as a rough model for what might lie ahead. Similar to December 1990, the market surged up this month and then stalled out in the final week of December at resistance. What followed December 1990 was a sharp decline into support by January 14. History doesn't repeat itself but human behavior never changes. I will be looking to see whether resistance @ 1257 produces a decline into January 14 next year.
Do I have any open positions at this time?
Normally, 75% of stocks follow the general market. So, if the S&P 500 Index has stalled out, most stocks will stall out as well. There are exceptions to this rule, however. I am reluctant to talk about individual stocks because one must be careful and cautious, particularly when a stock is bucking the market trend. One stock that has intrigued me since the summer is REE, a rare earth element stock. The stock has gained 1,000% since July 1. Any stock that rises that much catches my attention. I also noticed that the uptrend remained intact despite a 2-month correction. This pattern immediately said to me that REE might go much higher. I also noticed that the MACD line was trending upwards, that the MACD Histogram reading was turning positive, and that the slow stochastics lines were all pointed upwards. I became convinced that I should take a position. For confirmation that a position would be a smart move, I checked out the seasonal cycle and whether the speculative community was hot on the stock. These items also checked out with REE.
Last Wednesday (December 22, 2010), I purchased January 14 calls on REE for 0.10. I was fairly confident that I would see a profit. After years of investing and trading, one can sense that a stock is headed higher based on clues like support holding in an uptrend, MACD lines turning positive, MACD Histogram turning positive, slow stochastics pointed upward, seasonal cycles, speculative chatter, etc. REE closed down on Thursday, December 23 but I saw this as a harbinger of higher prices ahead. (Down days are great times to buy in an uptrend) My January 14 calls closed @ 0.10. No change. Today, REE broke out of its trading range and made a high of 12.05. My January 14 calls traded as high @ 0.35 before closing @ 0.24. REE should go much higher this week and, probably, make a final thrust higher on the first trading day in January 2011. I plan to close out the trade on the first trading day in January 2011. My thought is that REE might go as high as 17.50 - 21.00 by the first trading day in January. This price target would make for a nice profit on my January 14 calls.
Note that I am ever flexible. Even though I believe the general market has stalled out at 1257 and I am happy to be 100% in the G Fund, I also recognize that a minority of stocks may still present opportunities. REE is an opportunity this week. The price is going higher.
Here's to the fisherman and a jolly good call,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
This post is about giving the fisherman his due. On Thanksgiving Day, the La Jolla Fisherman called the Santa Claus rally. I demurred. Well, Christmas came and the S&P 500 Index had gone up from the 1176 to the 1257 level. That's a Santa Claus rally. I tip my hat to the Fisherman. Well done. I am also pleased that we in the TSP Club went long the C Fund @ 1215 and exited @ 1240.
Some bloggers are reluctant to tip their hat to a good call. I'm not. Maybe, some day I will run into the La Jolla Fisherman again and we can swap market tales over Alaska salmon.
What are my thoughts tonight about the market?
Today was a low volume day. Most major traders are away for the holidays. As a result, there just isn't much activity going on. It is noteworthy that the S&P 500 Index has stalled out at 1257. I view the 1257 level as a serious resistance level. I do not think the S&P will smash through this level on the first attempt. It is also interesting that the trend of volume has been down since the beginning of December. This means that higher prices are no longer supported by volume. It is not a good time to buy. Better buying opportunities are ahead of us in January, I suspect. I have been looking at the December 1990 stock market as a rough model for what might lie ahead. Similar to December 1990, the market surged up this month and then stalled out in the final week of December at resistance. What followed December 1990 was a sharp decline into support by January 14. History doesn't repeat itself but human behavior never changes. I will be looking to see whether resistance @ 1257 produces a decline into January 14 next year.
Do I have any open positions at this time?
Normally, 75% of stocks follow the general market. So, if the S&P 500 Index has stalled out, most stocks will stall out as well. There are exceptions to this rule, however. I am reluctant to talk about individual stocks because one must be careful and cautious, particularly when a stock is bucking the market trend. One stock that has intrigued me since the summer is REE, a rare earth element stock. The stock has gained 1,000% since July 1. Any stock that rises that much catches my attention. I also noticed that the uptrend remained intact despite a 2-month correction. This pattern immediately said to me that REE might go much higher. I also noticed that the MACD line was trending upwards, that the MACD Histogram reading was turning positive, and that the slow stochastics lines were all pointed upwards. I became convinced that I should take a position. For confirmation that a position would be a smart move, I checked out the seasonal cycle and whether the speculative community was hot on the stock. These items also checked out with REE.
Last Wednesday (December 22, 2010), I purchased January 14 calls on REE for 0.10. I was fairly confident that I would see a profit. After years of investing and trading, one can sense that a stock is headed higher based on clues like support holding in an uptrend, MACD lines turning positive, MACD Histogram turning positive, slow stochastics pointed upward, seasonal cycles, speculative chatter, etc. REE closed down on Thursday, December 23 but I saw this as a harbinger of higher prices ahead. (Down days are great times to buy in an uptrend) My January 14 calls closed @ 0.10. No change. Today, REE broke out of its trading range and made a high of 12.05. My January 14 calls traded as high @ 0.35 before closing @ 0.24. REE should go much higher this week and, probably, make a final thrust higher on the first trading day in January 2011. I plan to close out the trade on the first trading day in January 2011. My thought is that REE might go as high as 17.50 - 21.00 by the first trading day in January. This price target would make for a nice profit on my January 14 calls.
Note that I am ever flexible. Even though I believe the general market has stalled out at 1257 and I am happy to be 100% in the G Fund, I also recognize that a minority of stocks may still present opportunities. REE is an opportunity this week. The price is going higher.
Here's to the fisherman and a jolly good call,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sunday, December 19, 2010
Market Conditions: A Developing Top
We have hit the 1246/45 level on the S&P 500 Index for three times last week. If we hit this level again and if the market fails to go higher, then we probably have a top in place. A reversal of trend and decline should follow. Its a good time to sell, IMHO, contrary to holiday sentiment and dreams of a Santa Claus rally.
Consider this timeless observation from W.D. Gann in 1942:
FOURTH TOP SAME LEVEL. This is something that very seldom occurs, but when a top is made around the same level for the FOURTH TIME and wheat, cotton or soy beans fail to go through this level, it means a big REVERSAL AND RAPID DECLINE.
Source: W.D. Gann, How to Make Profits Trading in Commodities: A Study of the Commodity Market, p. 43 (1942)
Q: Might these market principles apply to the stock market? Human behavior doesn't change, whether one is investing in S&P 500 futures or trading soybeans. Fear and greed reign.
If everyone is positioned for a Santa Claus rally, will the market accommodate everyone? Just something to think about.
Happy Holidays!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Consider this timeless observation from W.D. Gann in 1942:
FOURTH TOP SAME LEVEL. This is something that very seldom occurs, but when a top is made around the same level for the FOURTH TIME and wheat, cotton or soy beans fail to go through this level, it means a big REVERSAL AND RAPID DECLINE.
Source: W.D. Gann, How to Make Profits Trading in Commodities: A Study of the Commodity Market, p. 43 (1942)
Q: Might these market principles apply to the stock market? Human behavior doesn't change, whether one is investing in S&P 500 futures or trading soybeans. Fear and greed reign.
If everyone is positioned for a Santa Claus rally, will the market accommodate everyone? Just something to think about.
Happy Holidays!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Saturday, December 18, 2010
Saturday Homework
The market continued to move sideways along resistance @ the 1240 level on the S&P 500 level. For the day, Friday, the open was 1243.63. The high was 1245.81. The low was 1239.87. The close was 1243.91. The close was higher than the open by a margin. For the week, the open was 1242.52. The high was 1246.73. The low was 1232.85. The close was 1243.91. The close was higher than the open.
Last week, I was looking for scenario number 3 to develop; i.e. a high made on December 13 or Mutual Fund Monday followed by a drop. Instead, the market moved sideways for the week. The Relative Strength Index (RSI) coasted along and closed @ the 66.77 level. This close was lower than the RSI reading earlier this week. So, we have a potential setup for negative divergence between the RSI and the price action on the S&P. However, I want to see a higher price action on the S&P 500 and a lower peak on the RSI before calling a top. I see some similarities between the price action this week and the price action during the week of January 11, 2010. During the week of January 11, the market had advanced on six days of up volume the previous week. Investors and traders might have projected those six days of gains during the week of January 1 into the week of January 11. Instead the market stalled out @ 1150 while the RSI made three lower peaks. This sideways price action on declining RSI readings was followed by a three-day drop during the week of January 19.
Because of this past pattern, I will be watching for the market on Monday and/or Tuesday to hit 1246 and record a third lower RSI reading. If I see this behavior, then I will be confident that the market will drop. Clearly, the outlandish bullish readings among investors suggest a correction is near.
The only wrinkle in this line of thinking is the season. We are approaching the traditional time for the Santa Claus rally. Because of those expectations, I am biased towards the market rocketing higher into the New Year. I have seen it happen before. But normally, the market rockets up from oversold conditions, not overbought conditions. We are arguably in the fifth Elliott Wave up. Rather than an up move, a decline is more logical.
Anyway, that's the tension between what I see (a drop ahead) and what I am biased to see (a crazy rocket move higher). Q: Will Santa come this year? Ho! Ho! Ho! I don't know. But I do know one thing--it is not a good time to buy right now. Nothing that I see in the market conditions says, "this market is going up, now!"
That's my story this morning. Happy Holidays!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Last week, I was looking for scenario number 3 to develop; i.e. a high made on December 13 or Mutual Fund Monday followed by a drop. Instead, the market moved sideways for the week. The Relative Strength Index (RSI) coasted along and closed @ the 66.77 level. This close was lower than the RSI reading earlier this week. So, we have a potential setup for negative divergence between the RSI and the price action on the S&P. However, I want to see a higher price action on the S&P 500 and a lower peak on the RSI before calling a top. I see some similarities between the price action this week and the price action during the week of January 11, 2010. During the week of January 11, the market had advanced on six days of up volume the previous week. Investors and traders might have projected those six days of gains during the week of January 1 into the week of January 11. Instead the market stalled out @ 1150 while the RSI made three lower peaks. This sideways price action on declining RSI readings was followed by a three-day drop during the week of January 19.
Because of this past pattern, I will be watching for the market on Monday and/or Tuesday to hit 1246 and record a third lower RSI reading. If I see this behavior, then I will be confident that the market will drop. Clearly, the outlandish bullish readings among investors suggest a correction is near.
The only wrinkle in this line of thinking is the season. We are approaching the traditional time for the Santa Claus rally. Because of those expectations, I am biased towards the market rocketing higher into the New Year. I have seen it happen before. But normally, the market rockets up from oversold conditions, not overbought conditions. We are arguably in the fifth Elliott Wave up. Rather than an up move, a decline is more logical.
Anyway, that's the tension between what I see (a drop ahead) and what I am biased to see (a crazy rocket move higher). Q: Will Santa come this year? Ho! Ho! Ho! I don't know. But I do know one thing--it is not a good time to buy right now. Nothing that I see in the market conditions says, "this market is going up, now!"
That's my story this morning. Happy Holidays!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Monday, December 13, 2010
Market Conditions
Today was a bearish day. The market made a high of 1246 during the mid-day. However, it dropped abruptly into the close. The close @ 1240 was the low of the day. Selling into the close reflects institutional selling. The close @1240 was below resistance @ 1241.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sunday, December 12, 2010
Michael Burry: A Profile in Courage
If you want to understand the perils of being right but much too early, then there is no better place to start than Michael Burry. His story inspires me and warrants constant re-reading. I can't do justice to his tale but here's my best attempt:
THE CINDERELLA MOMENT
The son of a former Marine, Michael Burry lost his left eye to cancer at the age of two. The loss affected his depth perception and invited derision from classmates in grade school. It is little wonder that he had few friends growing up.
One day, Burry noticed the stock quotations section in the newspaper. He asked his father what did it mean. His father, no fan of the stock market, explained that the quotes would go up and down. Fortunes were made and lost as the numbers went up and down. It occurred to Burry that one could make money in the market. He saved his money, invested in a mutual fund, and promptly saw the funds drop sharply. "I told you so, I told you," his father said. "They're going to take all your money." Gregory Zuckerman, The Greatest Trade Ever, page 75.
As a UCLA premed student, Burry returned to his obsession with the market. He was drawn to the objective criteria for success. If you produced good returns for the year, no one cared that you did not enjoy parties. It wouldn't matter if your social graces were below par. You just had to produce. He opened up a brokerage account with his summer earnings and began to focus on his portfolio more than his studies. His father died unexpectedly. Burry used the inheritance to make more investments. I imagine that Burry found profitable investing soothing and relaxing.
Headstrong in his views and with profits to back up his opinions, Burry took to the internet. He would discuss stocks and post essays several times a week. Readers were drawn to his analysis. He had insight. He had passion. He had profits to show for his efforts.
During the 1999 stock market bubble, Burry would see his fellow doctors cheerleading various high tech stocks. In the evenings, he would argue that all of these stocks were overpriced. "This isn't going to end well. Sell! Sell!" Sell!" Zuckerman at page 78. When the market did bust in 2000, Burry saw in real time how markets could go to extremes. He continued to post essays in the evenings after work.
When his residency ended, Burry decided it was time to leave medicine and pursue his passion for the market and investing. Burry didn't have personal connections in the world of hedge funds. But he knew that Warren Buffet had created a partnership for investment. Burry pulled together small amounts of money from family members. His wife contributed her retirement account. And Burry set up shop for investment on a professional basis.
Now, this is my favorite Cinderella part of the story....
"Two weeks later, a New York investor named Joel Greenblatt called Burry..."
"Michael, I've been reading your work for a while, and I read that you're leaving medicine," Greenblatt said. It tuned out that Greenblatt had been monitoring Burry's web site. "You're a really talented analyst. My firm would like to make money from your ideas." Zuckerman at page 79.
This is the moment that all budding entrepreneurs dream of. You are doing your thing, you are consistently right, and you are discovered by the universe (or at least, Joel Greenblatt/smile).
Greenblatt offered Burry a million dollars "after tax" in exchange for a 22.5 percent interest in Burry's Fund. And that is how Scion Capital was born.
THE MORGAN FREEMAN MOMENT
Burry wasn't worth a damn as a gladhander. But it didn't matter--he produced consistent results.
"In his first full year, 2001, the S&P 500 fell 11.88 percent. Scion was up 55 percent. The next year, the S&P 500 fell again, by 22.1 percent, and yet Scion was up again: 16 percent. The next year, 2003, the stock market finally turned around and rose 28.69 percent, but Mike Burry beat it again--his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million and turning money away." Michael Lewis, The Big Short, page 42.
While strolling through a bookstore one day, Burry decided to thumb through a massive book on Credit Derivatives & Synthetic Structures: A Guide to Instruments and Applications. It all seemed very complex but it seemed like a nice hedge against future troubles. He made a mental note. (In my opinion, the best investors and traders are never off the clock. They are always thinking about the big picture and trying to fit pieces of the puzzle together. Bruce Kovner has talked about this inner drive. So has Jim Rogers.)
A while later, Burry got the thought that housing seemed headed for a fall. This was the year 2003. Curious as always, he researched the historical patterns of cycles in housing. The more he thought he about it, the more he came to the realization that storm clouds were ahead. I call this moment the Morgan Freeman Moment, the point of realization that the unthinkable lies away. No one else sees it yet. But you do. The realization is stunning. It reminds me of the moment in the movie The Sum of All Fears when Morgan Freeman realizes that the unthinkable, denotation of a nuclear device at the Super Bowl in Baltimore, is moments away. Jim Rogers has talked about his moment of realization when the fundamentals have changed and the trend will be changing. He is often early but he is often right.
Burry began to sound the alert but he was early, too early. It was still the middle of 2003. The Bull Market in housing was raging. The psychology was wildly bullish. But Burry stuck to his guns. He put two and two together and decided that those complex credit derivatives might be a good way to profit from the future crash in housing prices. The ability to take two unrelated pieces of the puzzle and put them together in a profitable way is a sign of gifted investor and trader, in my humble opinion.
Burry called his broker and said that whenever Deutesche Bank started to sell credit derivatives on housing mortgages and securities he wanted a call right away. "It's going to be huge." Zuckerman at page 84.
[Note: In a later posting, I will conclude the story of Michael Burry: A Profile in Courage.]
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
THE CINDERELLA MOMENT
The son of a former Marine, Michael Burry lost his left eye to cancer at the age of two. The loss affected his depth perception and invited derision from classmates in grade school. It is little wonder that he had few friends growing up.
One day, Burry noticed the stock quotations section in the newspaper. He asked his father what did it mean. His father, no fan of the stock market, explained that the quotes would go up and down. Fortunes were made and lost as the numbers went up and down. It occurred to Burry that one could make money in the market. He saved his money, invested in a mutual fund, and promptly saw the funds drop sharply. "I told you so, I told you," his father said. "They're going to take all your money." Gregory Zuckerman, The Greatest Trade Ever, page 75.
As a UCLA premed student, Burry returned to his obsession with the market. He was drawn to the objective criteria for success. If you produced good returns for the year, no one cared that you did not enjoy parties. It wouldn't matter if your social graces were below par. You just had to produce. He opened up a brokerage account with his summer earnings and began to focus on his portfolio more than his studies. His father died unexpectedly. Burry used the inheritance to make more investments. I imagine that Burry found profitable investing soothing and relaxing.
Headstrong in his views and with profits to back up his opinions, Burry took to the internet. He would discuss stocks and post essays several times a week. Readers were drawn to his analysis. He had insight. He had passion. He had profits to show for his efforts.
During the 1999 stock market bubble, Burry would see his fellow doctors cheerleading various high tech stocks. In the evenings, he would argue that all of these stocks were overpriced. "This isn't going to end well. Sell! Sell!" Sell!" Zuckerman at page 78. When the market did bust in 2000, Burry saw in real time how markets could go to extremes. He continued to post essays in the evenings after work.
When his residency ended, Burry decided it was time to leave medicine and pursue his passion for the market and investing. Burry didn't have personal connections in the world of hedge funds. But he knew that Warren Buffet had created a partnership for investment. Burry pulled together small amounts of money from family members. His wife contributed her retirement account. And Burry set up shop for investment on a professional basis.
Now, this is my favorite Cinderella part of the story....
"Two weeks later, a New York investor named Joel Greenblatt called Burry..."
"Michael, I've been reading your work for a while, and I read that you're leaving medicine," Greenblatt said. It tuned out that Greenblatt had been monitoring Burry's web site. "You're a really talented analyst. My firm would like to make money from your ideas." Zuckerman at page 79.
This is the moment that all budding entrepreneurs dream of. You are doing your thing, you are consistently right, and you are discovered by the universe (or at least, Joel Greenblatt/smile).
Greenblatt offered Burry a million dollars "after tax" in exchange for a 22.5 percent interest in Burry's Fund. And that is how Scion Capital was born.
THE MORGAN FREEMAN MOMENT
Burry wasn't worth a damn as a gladhander. But it didn't matter--he produced consistent results.
"In his first full year, 2001, the S&P 500 fell 11.88 percent. Scion was up 55 percent. The next year, the S&P 500 fell again, by 22.1 percent, and yet Scion was up again: 16 percent. The next year, 2003, the stock market finally turned around and rose 28.69 percent, but Mike Burry beat it again--his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million and turning money away." Michael Lewis, The Big Short, page 42.
While strolling through a bookstore one day, Burry decided to thumb through a massive book on Credit Derivatives & Synthetic Structures: A Guide to Instruments and Applications. It all seemed very complex but it seemed like a nice hedge against future troubles. He made a mental note. (In my opinion, the best investors and traders are never off the clock. They are always thinking about the big picture and trying to fit pieces of the puzzle together. Bruce Kovner has talked about this inner drive. So has Jim Rogers.)
A while later, Burry got the thought that housing seemed headed for a fall. This was the year 2003. Curious as always, he researched the historical patterns of cycles in housing. The more he thought he about it, the more he came to the realization that storm clouds were ahead. I call this moment the Morgan Freeman Moment, the point of realization that the unthinkable lies away. No one else sees it yet. But you do. The realization is stunning. It reminds me of the moment in the movie The Sum of All Fears when Morgan Freeman realizes that the unthinkable, denotation of a nuclear device at the Super Bowl in Baltimore, is moments away. Jim Rogers has talked about his moment of realization when the fundamentals have changed and the trend will be changing. He is often early but he is often right.
Burry began to sound the alert but he was early, too early. It was still the middle of 2003. The Bull Market in housing was raging. The psychology was wildly bullish. But Burry stuck to his guns. He put two and two together and decided that those complex credit derivatives might be a good way to profit from the future crash in housing prices. The ability to take two unrelated pieces of the puzzle and put them together in a profitable way is a sign of gifted investor and trader, in my humble opinion.
Burry called his broker and said that whenever Deutesche Bank started to sell credit derivatives on housing mortgages and securities he wanted a call right away. "It's going to be huge." Zuckerman at page 84.
[Note: In a later posting, I will conclude the story of Michael Burry: A Profile in Courage.]
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sunday Homework
I use Sundays to do my homework on the market. I think about the past week and try out alternative scenarios for the coming week.
Last week's behavior is consistent with scenario #3. (See my Interview with "Shelby Aldrich," Part III) From a low of 1176 on November 30, the market has gone up non-stop to 1240 on December 10. As a result the retail public is happy. They will review the week's performance and, I suspect, project last week into the future. Anything can happen in the market but I don't think the market will accommodate this point of view. We stopped dead @ resistance at 1240. There is multi-year resistance @ 1257. In my experience, resistance is not taken out on the first drive. The market will retreat and then try again later. It is the third attempt that succeeds. I also was looking for the market to close @ a round number and it did so @ 1240. Round number closings on Friday provide maximum hope to the public of further advances. In my experience, they are a better sign of a decline ahead by Monday's close. In the market, professionals expect that strong Fridays will be followed by strong Mondays. When this pattern is broken (i.e. Monday closes lower), this is an important flag to professionals that the short-term trend has changed. So, I will be particularly interested in the close on Monday and whether it is lower than the open and/or Friday's low.
There tends to be a large inflow of money into the market on Mondays. As a result, Mondays are now given the nickname "Mutual Fund Monday." So, the expectation is the market would go up on Monday. If the market doesn't go up and acts contrary to the expectation for Mutual Fund Monday, then this would be another sign that the short-term trend has changed.
In my mind's eye, I can imagine an open @ 1240, the market drifts up to around 1249 based on the flow of Mutual Fund money in the first hour of the trading day. I am thinking a day that begins like June 21. Then, the market sells off after the first hour of the trading day. The Trin reading is heading higher, which suggests a bearish tone to the day. Professionals (who don't have to slep off to work at 7:30 a.m.) are watching and waiting for the opening price of 1240 to be breached. That will be the sign for the more aggressive traders to start shorting the market. When Friday's low is breached, then the short-term reversal in trend is evident to all.
Even if I am Bullish on the ultimate direction of the market into the end of the year, a Friday close @ overhead resistance is bearish in the short-term.
***********
There is a book that I'm going to read over my Christmas break. According to the Stock Trader's Almanac 2011, the best investment book of the year is Far From Random: Using Investor Behavior and Trend Analysis to Forecast Market Movement by Richard Lehman. Lehman argues that "the stock market is not entirely random" and its patterns, cycles, and trends "can be explained within certain parameters." That sounds like a good argument to me.
Have a pleasant Sunday!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Last week's behavior is consistent with scenario #3. (See my Interview with "Shelby Aldrich," Part III) From a low of 1176 on November 30, the market has gone up non-stop to 1240 on December 10. As a result the retail public is happy. They will review the week's performance and, I suspect, project last week into the future. Anything can happen in the market but I don't think the market will accommodate this point of view. We stopped dead @ resistance at 1240. There is multi-year resistance @ 1257. In my experience, resistance is not taken out on the first drive. The market will retreat and then try again later. It is the third attempt that succeeds. I also was looking for the market to close @ a round number and it did so @ 1240. Round number closings on Friday provide maximum hope to the public of further advances. In my experience, they are a better sign of a decline ahead by Monday's close. In the market, professionals expect that strong Fridays will be followed by strong Mondays. When this pattern is broken (i.e. Monday closes lower), this is an important flag to professionals that the short-term trend has changed. So, I will be particularly interested in the close on Monday and whether it is lower than the open and/or Friday's low.
There tends to be a large inflow of money into the market on Mondays. As a result, Mondays are now given the nickname "Mutual Fund Monday." So, the expectation is the market would go up on Monday. If the market doesn't go up and acts contrary to the expectation for Mutual Fund Monday, then this would be another sign that the short-term trend has changed.
In my mind's eye, I can imagine an open @ 1240, the market drifts up to around 1249 based on the flow of Mutual Fund money in the first hour of the trading day. I am thinking a day that begins like June 21. Then, the market sells off after the first hour of the trading day. The Trin reading is heading higher, which suggests a bearish tone to the day. Professionals (who don't have to slep off to work at 7:30 a.m.) are watching and waiting for the opening price of 1240 to be breached. That will be the sign for the more aggressive traders to start shorting the market. When Friday's low is breached, then the short-term reversal in trend is evident to all.
Even if I am Bullish on the ultimate direction of the market into the end of the year, a Friday close @ overhead resistance is bearish in the short-term.
***********
There is a book that I'm going to read over my Christmas break. According to the Stock Trader's Almanac 2011, the best investment book of the year is Far From Random: Using Investor Behavior and Trend Analysis to Forecast Market Movement by Richard Lehman. Lehman argues that "the stock market is not entirely random" and its patterns, cycles, and trends "can be explained within certain parameters." That sounds like a good argument to me.
Have a pleasant Sunday!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Saturday, December 11, 2010
100 Tips for Investing and Trading
These tips all come from Market Wizards by Jack D. Schwager:
1. You've got to learn how to fall, before you learn to fly. -- Paul Simon
2. One man's ceiling is another man's floor. -- Paul Simon
3. If I wanted to become a tramp, I would seek information and advice from the most successful tramp I could find. If I wanted to become a failure, I would seek advice from men who had never succeeded. If I wanted to succeed in all things, I would look around me for those who are succeeding and do as they have done. -- Joseph Marshall Wade
4. Any common denominator among the traders I interviewed had more to do with attitude than approach. -- Jack D. Schwager
5. Trading provides one of the last great frontiers of opportunity in our economy. -- Jack D. Schwager
6. When I was starting out, I found biographies and interviews of successful traders particularly helpful. -- Unknown Trader
7. The traders themselves have not a glimmer of doubt that, over the long run, the question of who wins and who loses is determined by skill, not luck. -- Jack D. Schwager
8. Risk control was absolutely essential to successful trading. -- Jack D. Schwager
9. Ironically, the trade that I consider my turning point and one of my best trades ever was actually a loss. -- Jack D. Schwager
10. Although I usually found my own analysis more persuasive when we disagreed, Marcus ultimately proved right about the direction of the market. -- Jack D. Schwager
11. As soon as it knew that I was in, the market took that as a signal to start descending. -- Michael Marcus
12. I guess I had good instincts even then, because I immediately said to John, "We're not doing too well, let's get out!" -- Michael Marcus
13. I learned that if you shoot for what you want, you stand a better chance of getting it because you care much more. -- Michael Marcus
14. The trend is down, and I'm going to stay short until the trend changes. -- Ed Seykota
15. I wasn't patient enough to wait for a clearly defined situation. -- Michael Marcus
16. The markets were so fertile for trading then that I could make plenty of mistakes and still do well. -- Michael Marcus
17. I was trying to hit the crest of the wave just at the right moment. But if it didn't work, I just got out. -- Michael Marcus
18. The secret is cutting down the number of trades you make. -- Michael Marcus
19. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. -- Michael Marcus
20. A bull market should shrug off bearish news and respond vigorously to bullish news. -- Michael Marcus
21. When a trade met all of my criteria, I would enter five to six times the position size I was doing on other trades. -- Michael Marcus
22. I knew that the big money was going to be made on the trades that met my criteria. -- Michael Marcus
23. Now you almost have to be contrary. You have to ask, "Isn't it true that all my fellow professional traders are already in, so who is left to buy?" -- Michael Marcus
24. Once you have defined a trend and taken a position, everyone else has taken a position as well. Since there is no one left to buy, the market swings around in the other direction and gets you out. -- Michael Marcus
25. The big players, including the governments, would always tip their hand. If we saw a surprise price move against us that we didn't understand, we often got out and looked for the reason later. -- Michael Marcus
26. I believe, as a courtesy, the European central banks are notified about major changes we are going to make, and they often act ahead of U.S. policy announcements. Consequently, the price move shows up in Europe first, even if it is because of something we initiate. -- Michael Marcus
27. One of my rules was to get out when the volatility and the momentum became absolutely insane. -- Michael Marcus
28. I think to be in the upper echelon of successful traders requires an innate skill, a gift. -- Michael Marcus
29. Always use stops. -- Michael Marcus
30. If a position doesn't feel right as soon as you put it on, don't be embarrassed to change your mind and get right out. -- Michael Marcus
31. If you become unsure about a position, and you don't know what to do, just get out. You can always come back in. -- Michael Marcus
32. Hold on to your winners and cut your losers. Both are equally important. -- Michael Marcus
33. You also have to follow your own light. -- Michael Marcus
34. Every trader has strengths and weaknesses. -- Michael Marcus
35. In the final analysis, you need to have the courage to hold the position and take the risk. -- Michael Marcus
36. You need to be very aware that the world is very sophisticated and always ask yourself: "How many people are left to act on this particular idea?" You have to consider whether the market has already discounted your idea. -- Michael Marcus
37. How many days has the market been down or up in a row? What is the reading on the sentiment indexes? -- Michael Marcus
38. When the news is wonderful and a market can't go up, then you want to be sure to be short. -- Michael Marcus
39. The leading cause of financial disablement is the belief that you can rely on the experts to help you. -- Michael Marcus
40. Your average broker couldn't be a trader in a million years. More money is lost listening to brokers than any other way. -- Michael Marcus
41. Trading requires an intense personal involvement. You have to do your homework, and that is what I advise people to do. -- Michael Marcus
42. A good trader can't be rigid. -- Michael Marcus
43. If you can find someone who is really open to seeing anything, then you have found the raw ingredient of a good trader. -- Michael Marcus
44. Gut feel is very important in trading. --Michael Marcus
45. Being a successful trader also takes courage: the courage to try, the courage to fail, the courage to succeed, and the courage to keep on going when the going gets tough. -- Michael Marcus
46. Albert Einstein said that the single most important question is whether the universe is friendly. -- Michael Marcus
47. I think it is important for everybody to come to a point where they feel inside that the universe is friendly. -- Michael Marcus
48. If trading is your life, it is a torturous kind of excitement. -- Michael Marcus
49. In the end, losing begats losing. -- Michael Marcus
50. When you start losing, it touches off negative elements in your psychology; it leads to pessimism. -- Michael Marcus
51. I am very open-minded. -- Michael Marcus
52. I am willing to take in information that is difficult to accept emotionally, but which I recognize to be true. -- Michael Marcus
53. When a market moves counter to my expectations, I have always been able to say, "I had hoped to make a lot of money in this position, but it isn't working, so I'm getting out." -- Michael Marcus
54. If the trend in your equity is down, that is a sign to cut back and reevaluate. Or if you see that you are losing money a lot faster than you made it, that would be a warning. -- Michael Marcus
55. I really feel that if you can trade one market, you can trade them all. -- Michael Marcus
56. Trading is emotion. It is mass psychology, greed, and fear. It is all the same in every situation. -- Michael Marcus
57. For most great traders, early failure is more the rule than the exception. -- Jack D. Schwager
58. Early trading failure is a sign that you are doing something wrong; it is not necessarily a good predictor of ultimate potential failure or success. -- Jack D. Schwager
59. Taking advantage of potential major winning trades is not only important to the mental health of the trader, but is also critical to winning. --Jack D. Schwager
60. Letting winners ride is every bit important as cutting losses short. -- Jack D. Schwager
61. If you don't stay with winners, you are not going to be able to pay for the losers. -- Michael Marcus
62. It is important to commit to an exit point on every trade. -- Michael Marcus
63. Protective stops are very important because they force this commitment on the trader. -- Michael Marcus
64. Liquidate positions to achieve mental clarity when one is losing money and is confused regarding market decisions. -- Michael Marcus
65. It is necessary to follow your own mind as a trader. -- Michael Marcus
66. Be restrictive in selecting trades. -- Michael Marcus
67. Wait for those trades in which all the key elements line up in one direction. By doing so, you greatly enhance the probability of success on each trade. -- Michael Marcus
68. Making lots of trades when the conditions appear to be only marginally in favor of the trade idea has more to do with entertainment than trading success. -- Michael Marcus
69. I would wait until the market moved up to a certain level and then retraced by a specified amount before adding another unit. -- Bruce Kovner
70. At that moment, I realized that the markets were truly capable of taking money away every bit as fast as they gave it to you. That made a very strong impression on me. -- Bruce Kovner
71. To this day, when something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event. -- Bruce Kovner
72. The first rule of trading--there are probably many first rules--is don't get caught in a situation in which you can lose a great deal of money for reasons you don't understand. -- Bruce Kovner
73. If you apply yourself, great things can happen. -- Bruce Kovner
74. It is very easy to miss the point that you really can do it. -- Bruce Kovner
75. If you take a position and use discipline, you can actually make it. -- Bruce Kovner
76. You have to be wiling to make mistakes regularly; there is nothing wrong with it. -- Bruce Kovner
77. Michael Marcus taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money. -- Bruce Kovner
78. I have the ability to imagine configurations of the world different from today and really believe it can happen. -- Bruce Kovner
79. I can imagine that soybean prices can double or that the dollar can fall to 10 yen. -- Bruce Kovner
80. I stay rational and disciplined under pressure. -- Bruce Kovner
81. Trading skills can be taught only to a limited extent. -- Bruce Kovner
82. Distinguishing traits of trainees who made it as traders are that they are strong, independent, and contrary in the extreme. They are able to take positions others are unwilling to take. -- Bruce Kovner
83. A greedy trader always blows out. -- Bruce Kovner
84. I almost always trade on a market view; I don't trade simply on technical information. -- Bruce Kovner
85. I use technical analysis a great deal and it is terrific, but I can't hold a position unless I understand why the market should move. -- Bruce Kovner
86. Technical analysis can often clarify the fundamental picture. -- Bruce Kovner
87. When the market moved, I was prepared to go with that movement because we had a conjuction of two important elements: a major change in fundamentals (although I wasn't smart enough to know in which direction it would impact the market), and a technical price breakout on the upside. -- Bruce Kovner
88. There are well-informed traders who know much more than I do. -- Bruce Kovner
89. I simply put things together. -- Bruce Kovner
90. The market usually leads because there are people who know more than you do. -- Bruce Kovner
91. There are thousands of difficult-to-understand mechanisms that lead the market, which come into play before the news reaches some poor trader sitting at his desk. But the one thing that does hit the market is a huge sale or purchase. -- Bruce Kovner
92. Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo. -- Bruce Kovner
93. Technical analysis tracks the past; it does not predict the future. - - Bruce Kovner
94. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders. -- Bruce Kovner
95. You want to know everything you can about the market to give you an edge. -- Bruce Kovner
96. Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behavior. -- Bruce Kovner
97. By definition, anything that creates a new chart pattern is something unusual. -- Bruce Kovner
98. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. -- Bruce Kovner
99. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes. -- Bruce Kovner
100. Tight congestions in whch a breakout occurs for reasons that nobody understands are usually good risk/reward trades. -- Bruce Kovner
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
1. You've got to learn how to fall, before you learn to fly. -- Paul Simon
2. One man's ceiling is another man's floor. -- Paul Simon
3. If I wanted to become a tramp, I would seek information and advice from the most successful tramp I could find. If I wanted to become a failure, I would seek advice from men who had never succeeded. If I wanted to succeed in all things, I would look around me for those who are succeeding and do as they have done. -- Joseph Marshall Wade
4. Any common denominator among the traders I interviewed had more to do with attitude than approach. -- Jack D. Schwager
5. Trading provides one of the last great frontiers of opportunity in our economy. -- Jack D. Schwager
6. When I was starting out, I found biographies and interviews of successful traders particularly helpful. -- Unknown Trader
7. The traders themselves have not a glimmer of doubt that, over the long run, the question of who wins and who loses is determined by skill, not luck. -- Jack D. Schwager
8. Risk control was absolutely essential to successful trading. -- Jack D. Schwager
9. Ironically, the trade that I consider my turning point and one of my best trades ever was actually a loss. -- Jack D. Schwager
10. Although I usually found my own analysis more persuasive when we disagreed, Marcus ultimately proved right about the direction of the market. -- Jack D. Schwager
11. As soon as it knew that I was in, the market took that as a signal to start descending. -- Michael Marcus
12. I guess I had good instincts even then, because I immediately said to John, "We're not doing too well, let's get out!" -- Michael Marcus
13. I learned that if you shoot for what you want, you stand a better chance of getting it because you care much more. -- Michael Marcus
14. The trend is down, and I'm going to stay short until the trend changes. -- Ed Seykota
15. I wasn't patient enough to wait for a clearly defined situation. -- Michael Marcus
16. The markets were so fertile for trading then that I could make plenty of mistakes and still do well. -- Michael Marcus
17. I was trying to hit the crest of the wave just at the right moment. But if it didn't work, I just got out. -- Michael Marcus
18. The secret is cutting down the number of trades you make. -- Michael Marcus
19. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. -- Michael Marcus
20. A bull market should shrug off bearish news and respond vigorously to bullish news. -- Michael Marcus
21. When a trade met all of my criteria, I would enter five to six times the position size I was doing on other trades. -- Michael Marcus
22. I knew that the big money was going to be made on the trades that met my criteria. -- Michael Marcus
23. Now you almost have to be contrary. You have to ask, "Isn't it true that all my fellow professional traders are already in, so who is left to buy?" -- Michael Marcus
24. Once you have defined a trend and taken a position, everyone else has taken a position as well. Since there is no one left to buy, the market swings around in the other direction and gets you out. -- Michael Marcus
25. The big players, including the governments, would always tip their hand. If we saw a surprise price move against us that we didn't understand, we often got out and looked for the reason later. -- Michael Marcus
26. I believe, as a courtesy, the European central banks are notified about major changes we are going to make, and they often act ahead of U.S. policy announcements. Consequently, the price move shows up in Europe first, even if it is because of something we initiate. -- Michael Marcus
27. One of my rules was to get out when the volatility and the momentum became absolutely insane. -- Michael Marcus
28. I think to be in the upper echelon of successful traders requires an innate skill, a gift. -- Michael Marcus
29. Always use stops. -- Michael Marcus
30. If a position doesn't feel right as soon as you put it on, don't be embarrassed to change your mind and get right out. -- Michael Marcus
31. If you become unsure about a position, and you don't know what to do, just get out. You can always come back in. -- Michael Marcus
32. Hold on to your winners and cut your losers. Both are equally important. -- Michael Marcus
33. You also have to follow your own light. -- Michael Marcus
34. Every trader has strengths and weaknesses. -- Michael Marcus
35. In the final analysis, you need to have the courage to hold the position and take the risk. -- Michael Marcus
36. You need to be very aware that the world is very sophisticated and always ask yourself: "How many people are left to act on this particular idea?" You have to consider whether the market has already discounted your idea. -- Michael Marcus
37. How many days has the market been down or up in a row? What is the reading on the sentiment indexes? -- Michael Marcus
38. When the news is wonderful and a market can't go up, then you want to be sure to be short. -- Michael Marcus
39. The leading cause of financial disablement is the belief that you can rely on the experts to help you. -- Michael Marcus
40. Your average broker couldn't be a trader in a million years. More money is lost listening to brokers than any other way. -- Michael Marcus
41. Trading requires an intense personal involvement. You have to do your homework, and that is what I advise people to do. -- Michael Marcus
42. A good trader can't be rigid. -- Michael Marcus
43. If you can find someone who is really open to seeing anything, then you have found the raw ingredient of a good trader. -- Michael Marcus
44. Gut feel is very important in trading. --Michael Marcus
45. Being a successful trader also takes courage: the courage to try, the courage to fail, the courage to succeed, and the courage to keep on going when the going gets tough. -- Michael Marcus
46. Albert Einstein said that the single most important question is whether the universe is friendly. -- Michael Marcus
47. I think it is important for everybody to come to a point where they feel inside that the universe is friendly. -- Michael Marcus
48. If trading is your life, it is a torturous kind of excitement. -- Michael Marcus
49. In the end, losing begats losing. -- Michael Marcus
50. When you start losing, it touches off negative elements in your psychology; it leads to pessimism. -- Michael Marcus
51. I am very open-minded. -- Michael Marcus
52. I am willing to take in information that is difficult to accept emotionally, but which I recognize to be true. -- Michael Marcus
53. When a market moves counter to my expectations, I have always been able to say, "I had hoped to make a lot of money in this position, but it isn't working, so I'm getting out." -- Michael Marcus
54. If the trend in your equity is down, that is a sign to cut back and reevaluate. Or if you see that you are losing money a lot faster than you made it, that would be a warning. -- Michael Marcus
55. I really feel that if you can trade one market, you can trade them all. -- Michael Marcus
56. Trading is emotion. It is mass psychology, greed, and fear. It is all the same in every situation. -- Michael Marcus
57. For most great traders, early failure is more the rule than the exception. -- Jack D. Schwager
58. Early trading failure is a sign that you are doing something wrong; it is not necessarily a good predictor of ultimate potential failure or success. -- Jack D. Schwager
59. Taking advantage of potential major winning trades is not only important to the mental health of the trader, but is also critical to winning. --Jack D. Schwager
60. Letting winners ride is every bit important as cutting losses short. -- Jack D. Schwager
61. If you don't stay with winners, you are not going to be able to pay for the losers. -- Michael Marcus
62. It is important to commit to an exit point on every trade. -- Michael Marcus
63. Protective stops are very important because they force this commitment on the trader. -- Michael Marcus
64. Liquidate positions to achieve mental clarity when one is losing money and is confused regarding market decisions. -- Michael Marcus
65. It is necessary to follow your own mind as a trader. -- Michael Marcus
66. Be restrictive in selecting trades. -- Michael Marcus
67. Wait for those trades in which all the key elements line up in one direction. By doing so, you greatly enhance the probability of success on each trade. -- Michael Marcus
68. Making lots of trades when the conditions appear to be only marginally in favor of the trade idea has more to do with entertainment than trading success. -- Michael Marcus
69. I would wait until the market moved up to a certain level and then retraced by a specified amount before adding another unit. -- Bruce Kovner
70. At that moment, I realized that the markets were truly capable of taking money away every bit as fast as they gave it to you. That made a very strong impression on me. -- Bruce Kovner
71. To this day, when something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event. -- Bruce Kovner
72. The first rule of trading--there are probably many first rules--is don't get caught in a situation in which you can lose a great deal of money for reasons you don't understand. -- Bruce Kovner
73. If you apply yourself, great things can happen. -- Bruce Kovner
74. It is very easy to miss the point that you really can do it. -- Bruce Kovner
75. If you take a position and use discipline, you can actually make it. -- Bruce Kovner
76. You have to be wiling to make mistakes regularly; there is nothing wrong with it. -- Bruce Kovner
77. Michael Marcus taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money. -- Bruce Kovner
78. I have the ability to imagine configurations of the world different from today and really believe it can happen. -- Bruce Kovner
79. I can imagine that soybean prices can double or that the dollar can fall to 10 yen. -- Bruce Kovner
80. I stay rational and disciplined under pressure. -- Bruce Kovner
81. Trading skills can be taught only to a limited extent. -- Bruce Kovner
82. Distinguishing traits of trainees who made it as traders are that they are strong, independent, and contrary in the extreme. They are able to take positions others are unwilling to take. -- Bruce Kovner
83. A greedy trader always blows out. -- Bruce Kovner
84. I almost always trade on a market view; I don't trade simply on technical information. -- Bruce Kovner
85. I use technical analysis a great deal and it is terrific, but I can't hold a position unless I understand why the market should move. -- Bruce Kovner
86. Technical analysis can often clarify the fundamental picture. -- Bruce Kovner
87. When the market moved, I was prepared to go with that movement because we had a conjuction of two important elements: a major change in fundamentals (although I wasn't smart enough to know in which direction it would impact the market), and a technical price breakout on the upside. -- Bruce Kovner
88. There are well-informed traders who know much more than I do. -- Bruce Kovner
89. I simply put things together. -- Bruce Kovner
90. The market usually leads because there are people who know more than you do. -- Bruce Kovner
91. There are thousands of difficult-to-understand mechanisms that lead the market, which come into play before the news reaches some poor trader sitting at his desk. But the one thing that does hit the market is a huge sale or purchase. -- Bruce Kovner
92. Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo. -- Bruce Kovner
93. Technical analysis tracks the past; it does not predict the future. - - Bruce Kovner
94. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders. -- Bruce Kovner
95. You want to know everything you can about the market to give you an edge. -- Bruce Kovner
96. Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behavior. -- Bruce Kovner
97. By definition, anything that creates a new chart pattern is something unusual. -- Bruce Kovner
98. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. -- Bruce Kovner
99. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes. -- Bruce Kovner
100. Tight congestions in whch a breakout occurs for reasons that nobody understands are usually good risk/reward trades. -- Bruce Kovner
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Market Conditions: A Nagging Concern
I keep worrying that readers saw my December 1 suggestion to buy and assumed it was a repeat of August 25. If you have been reading my blog every day, you have seen that December 1 is not a repeat of August 25. I have also changed my projections for how high the market would rise this week. In fact, I was happy to get out of the C Fund at a closing price of 1240 yesterday. Please remember that market conditions are ever changing. A good time to buy for a two month period might be different from a good time to buy for a week. It depends on what the market has to offer up at the time.
I just wanted to make that clear.
I bought the Stock Traders Almanac for 2011 yesterday. It is a wonderful road map, however,it sometimes creates an expectation among investors that can be faded. There are many gems of patterns and cycles that can be put to good use. I used to review the Almanac with Joel at the Main Street Casino buffet in the good old days.
One handy feature is a daily probability rate of a gain and a loss. The authors, Jeffrey Hirsch & Yale Hirsch, have reviewed the historical records of market movements dating back to 1900. What they have found is that the odds of the market going up for each of the days between now and December 20 are as follows: December 13, 57.1 percent; December 14, 42.9 percent; December 15, 38.1 percent; December 16, 57.1 percent; December 19, 52.4 percent; December 20, 38.1 percent. These are probabilities, of course. If you combine these probabilities together, do you see a bullish trend or a bearish trend? I leave that determination up to you.
The authors also have researched the probability of gains in the market based on the trading day's location in the market. They have found that the average daily point gain for the first days of the month would be 33.81. For the other days of the month, the average daily point gain would be -0.54. "Over the last 13 years, the Dow Jones Industrial Average has gained more points on the first trading days of all months than all other days combined. While the Dow has gained 3529.41 points between September 2, 1997 (7622.42) and May 3, 2010 (11151.83), it is incredible that 5173.23 points were gained on the first trading days of these 153 months. The remaining 3034 trading days combined lost 1643.82 points during the period. This averages out to gains of 33.81 points on first days, in constrast to a loss of 0.54 points on all others....S&P 500 first days track the Dow's pattern closely...." 2011 Almanac at page 62.
Institutions tend to buy at the close of the month in anticipation of a strong month. So, mull over this insight. If the institutions are like the Fisherman and they are anticipating a strong close to December, would they be buying or selling on December 10? I think the probabilities are higher that they were selling.
Anyway, these are just a few factors along with my gut that moved me to move 100% out of the C Fund yesterday. Our strategy is to be 100% in the G Fund when the market is going down. I believe the market will be taken down next week in order to create a buying opportunity for institutions and hedge funds and wealthy individuals.
We will see.
Have a great Saturday!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
I just wanted to make that clear.
I bought the Stock Traders Almanac for 2011 yesterday. It is a wonderful road map, however,it sometimes creates an expectation among investors that can be faded. There are many gems of patterns and cycles that can be put to good use. I used to review the Almanac with Joel at the Main Street Casino buffet in the good old days.
One handy feature is a daily probability rate of a gain and a loss. The authors, Jeffrey Hirsch & Yale Hirsch, have reviewed the historical records of market movements dating back to 1900. What they have found is that the odds of the market going up for each of the days between now and December 20 are as follows: December 13, 57.1 percent; December 14, 42.9 percent; December 15, 38.1 percent; December 16, 57.1 percent; December 19, 52.4 percent; December 20, 38.1 percent. These are probabilities, of course. If you combine these probabilities together, do you see a bullish trend or a bearish trend? I leave that determination up to you.
The authors also have researched the probability of gains in the market based on the trading day's location in the market. They have found that the average daily point gain for the first days of the month would be 33.81. For the other days of the month, the average daily point gain would be -0.54. "Over the last 13 years, the Dow Jones Industrial Average has gained more points on the first trading days of all months than all other days combined. While the Dow has gained 3529.41 points between September 2, 1997 (7622.42) and May 3, 2010 (11151.83), it is incredible that 5173.23 points were gained on the first trading days of these 153 months. The remaining 3034 trading days combined lost 1643.82 points during the period. This averages out to gains of 33.81 points on first days, in constrast to a loss of 0.54 points on all others....S&P 500 first days track the Dow's pattern closely...." 2011 Almanac at page 62.
Institutions tend to buy at the close of the month in anticipation of a strong month. So, mull over this insight. If the institutions are like the Fisherman and they are anticipating a strong close to December, would they be buying or selling on December 10? I think the probabilities are higher that they were selling.
Anyway, these are just a few factors along with my gut that moved me to move 100% out of the C Fund yesterday. Our strategy is to be 100% in the G Fund when the market is going down. I believe the market will be taken down next week in order to create a buying opportunity for institutions and hedge funds and wealthy individuals.
We will see.
Have a great Saturday!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Friday, December 10, 2010
Why the Rear View Mirror is Dangerous
I have jokingly referred to Joel's rear view mirror but I am very serious about the point.
Every night, millions of investors and traders around the globe look at the same chart patterns. We see that the market is in an uptrend since July 1. If we believe in the Elliott Wave approach, we see a beautiful Wave I, Wave II, Wave III, Wave IV and (cresting?) Wave V. If we are trend followers, we see that the 13-day moving average is above the 50-day moving average and the 50-day moving average is above the 200-day moving average. If we are technical traders, the negative divergence between the Relative Strength Index (RSI) and the price action is a constant reminder that there will be a price to be paid for rampant bullishness. Who knows when but the price will be paid.
A chart of the S&P 500 Index is simply a snapshot in time of the past. It is history. Because we are human, we have a natural tendency to look at the past and try to fit it into the future. You know you do it. If you are bullish, you look at the price action in early September and try to envision if the December price action is a repeat performance. If you conclude that the past will repeat itself, then you are hoping and anticipating a non-stop bullish December, just like September. The problem is the rule of alternation. The market never exactly repeats itself. If it did, then everyone would game the patterns and get rich. In fact, I would think December will unfold unlike September because of the alternation rule.
If you bought the S&P 500 Index today @ 1240, then I was selling to you, my friend. Now, someone will be right. Someone will be wrong. The odds are against December repeating the past month of September if for no other reason than millions of investors and traders are drawing the same conclusions from the same chart. See my point? The market will do what it can to hurt the most people, not accommodate the most people.
Throw away the rear view mirror. You will not see the road up ahead. You will only see the past.
Try this experiment. If you were looking in the rear view mirror on June 21 would you have anticipated the drop into July 1? No. You might have foreseen a slight correction but not a non-stop drop into July 1. That drop was not in your rear view mirror on June 21. Your rear view mirror showed a constant market rise as if the market were levitating. I recall June 21. I was astonished how the market continued to rise in the first hour of the trading day even though there was negative divergence between the stochastic reading and the price action up to 1131 on a daily chart. The rear view mirror failed me. Or, what about July 1 when the stochastics embedded for a third consecutive day? Seemingly, we were positioned for a sharp drop if we looked in the rear view mirror over the previous 9 days. Instead, we got a busted chart pattern and a powerful start of Wave I. What about August 27 when the S&P 500 Index dipped below 1140? I was afraid and I was bullish! A glance in the rear view mirror showed nothing but three weeks of declining prices. And you know what? That was the birth of this powerful rally and a wonderful September!
Tonight, the Bulls look in the rear view mirror. They see seven days of consecutive gains, including today's close at the highs of the day. The rear view mirror, if projected into the future, says higher prices are ahead. I am more sober. I look at the road ahead and what do I see? I see resistance @1240. I see multiyear resistance @ 1257. I see a suspicious Friday close @ a round number, 1240. It is easy for the retail investor to project 1240 into 1250 and 1260. Didn't the JP Morgan guy say that we are headed to 1425? LOL. Didn't Cramer say "you ain't seen nothing yet!" LOL.
When I look at the road up ahead, I see storm clouds. That's your edge. Be in the tiny club of investors and traders who are watching the road ahead, not the price action receding in the distance.
Have a good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Every night, millions of investors and traders around the globe look at the same chart patterns. We see that the market is in an uptrend since July 1. If we believe in the Elliott Wave approach, we see a beautiful Wave I, Wave II, Wave III, Wave IV and (cresting?) Wave V. If we are trend followers, we see that the 13-day moving average is above the 50-day moving average and the 50-day moving average is above the 200-day moving average. If we are technical traders, the negative divergence between the Relative Strength Index (RSI) and the price action is a constant reminder that there will be a price to be paid for rampant bullishness. Who knows when but the price will be paid.
A chart of the S&P 500 Index is simply a snapshot in time of the past. It is history. Because we are human, we have a natural tendency to look at the past and try to fit it into the future. You know you do it. If you are bullish, you look at the price action in early September and try to envision if the December price action is a repeat performance. If you conclude that the past will repeat itself, then you are hoping and anticipating a non-stop bullish December, just like September. The problem is the rule of alternation. The market never exactly repeats itself. If it did, then everyone would game the patterns and get rich. In fact, I would think December will unfold unlike September because of the alternation rule.
If you bought the S&P 500 Index today @ 1240, then I was selling to you, my friend. Now, someone will be right. Someone will be wrong. The odds are against December repeating the past month of September if for no other reason than millions of investors and traders are drawing the same conclusions from the same chart. See my point? The market will do what it can to hurt the most people, not accommodate the most people.
Throw away the rear view mirror. You will not see the road up ahead. You will only see the past.
Try this experiment. If you were looking in the rear view mirror on June 21 would you have anticipated the drop into July 1? No. You might have foreseen a slight correction but not a non-stop drop into July 1. That drop was not in your rear view mirror on June 21. Your rear view mirror showed a constant market rise as if the market were levitating. I recall June 21. I was astonished how the market continued to rise in the first hour of the trading day even though there was negative divergence between the stochastic reading and the price action up to 1131 on a daily chart. The rear view mirror failed me. Or, what about July 1 when the stochastics embedded for a third consecutive day? Seemingly, we were positioned for a sharp drop if we looked in the rear view mirror over the previous 9 days. Instead, we got a busted chart pattern and a powerful start of Wave I. What about August 27 when the S&P 500 Index dipped below 1140? I was afraid and I was bullish! A glance in the rear view mirror showed nothing but three weeks of declining prices. And you know what? That was the birth of this powerful rally and a wonderful September!
Tonight, the Bulls look in the rear view mirror. They see seven days of consecutive gains, including today's close at the highs of the day. The rear view mirror, if projected into the future, says higher prices are ahead. I am more sober. I look at the road ahead and what do I see? I see resistance @1240. I see multiyear resistance @ 1257. I see a suspicious Friday close @ a round number, 1240. It is easy for the retail investor to project 1240 into 1250 and 1260. Didn't the JP Morgan guy say that we are headed to 1425? LOL. Didn't Cramer say "you ain't seen nothing yet!" LOL.
When I look at the road up ahead, I see storm clouds. That's your edge. Be in the tiny club of investors and traders who are watching the road ahead, not the price action receding in the distance.
Have a good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
On Being Confounded
[This essay was inspired by Charles, a thoughtful commentator.]
What does it mean to be "confounded?"
According to my oversized dictionary, "confounded" means "confused," "perplexed," "damned," "cursed," or "blasted."
Lets' work with the definition "confused," for a moment. There are a thousand and one reasons to be confused by the market. It doesn't reflect fundamental conditions. It goes north when I was thinking south. It seems rigged (damn those floor specialists who stole my 0.05 JNPR January 20 calls/smile). It blows hot and cold. Black Swans strike out of nowhere like the Flash Crash. JP Morgan is wildly bullish but my gut is wildly bearish. I could go on and on and on.
It is ok to feel confounded by the market. You are not alone. No one has the right answer all of the time.
Our job as investors and traders is bring order to the chaos. It doesn't matter whether you are a hard-core fundamentalist like Jim Rogers or a hard-core technical trader like Mark Weinstein or a fundamental/technical investor like Las Vegas dancer Nicholas Darvas. There is order in the chaos that can bring dollars into your purse. Your job is to discern the best tools for you that help you bring order to the madness.
For example, alot of investors and traders were thrown for a loop on December 1. Get over it. Accept it as a part of doing business. I chose to bring order and understanding by committing to memory busted chart patterns. So, I see the signal. I feel comfortable (and not anxious) because I recognize the signal. I can then see the opportunity ("this market is going up NOW!) and not the fear that I was wrong on the direction. Its about personal psychology. Had I frozen in place, I would have left 25 points (1215 - 1240) on the table. Life is a game of inches, you know.
Legendary trader Marty Schwartz said that he turned from loser to winner when he decided it was more important to make money than to be right. Think about that.
Another way to bring order to the market is to think in terms of waves. Life is about waves. Keep it simple. Wave I catches everyone by surprise. Whenever that happens, you are in an opportunity moment in real time!! You are because four waves will follow wave I. This is how you make money. You bring order to the chaos by immediately positioning yourself in the direction of Wave III and Wave V. See how the order gives you supreme confidence? You know when to buy ("My lord, what a gift!"). You know when to sell ("Its time to go. No regrets.")
Another way to bring order to the market is to think in terms of Contrary Opinion and the Fear Factor. When you turn on CNBC and you hear analysts braying to the moon that the market might go up some preposterous amount next year and they work for JP Morgan, it is a good time to sell! When you flip to Jim Cramer and the first words out of his mouth are, "You ain't seen nothing yet!" you grab your phone, call the Thrift Savings Plan, and transfer 100% to the G Fund until the storm has passed. This knowledge will give you the confidence to fade the so-called experts-the JP Morgan analysts and Jim Cramers-of the world.
Remember, cash is a respectable position to be in.
So, those are my thoughts on being confounded. Bring order to the market. It doesn't matter what tool you choose. I could have a long discussion about the pros and cons of various tools. Ultimately, its an art form.
Have a good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
What does it mean to be "confounded?"
According to my oversized dictionary, "confounded" means "confused," "perplexed," "damned," "cursed," or "blasted."
Lets' work with the definition "confused," for a moment. There are a thousand and one reasons to be confused by the market. It doesn't reflect fundamental conditions. It goes north when I was thinking south. It seems rigged (damn those floor specialists who stole my 0.05 JNPR January 20 calls/smile). It blows hot and cold. Black Swans strike out of nowhere like the Flash Crash. JP Morgan is wildly bullish but my gut is wildly bearish. I could go on and on and on.
It is ok to feel confounded by the market. You are not alone. No one has the right answer all of the time.
Our job as investors and traders is bring order to the chaos. It doesn't matter whether you are a hard-core fundamentalist like Jim Rogers or a hard-core technical trader like Mark Weinstein or a fundamental/technical investor like Las Vegas dancer Nicholas Darvas. There is order in the chaos that can bring dollars into your purse. Your job is to discern the best tools for you that help you bring order to the madness.
For example, alot of investors and traders were thrown for a loop on December 1. Get over it. Accept it as a part of doing business. I chose to bring order and understanding by committing to memory busted chart patterns. So, I see the signal. I feel comfortable (and not anxious) because I recognize the signal. I can then see the opportunity ("this market is going up NOW!) and not the fear that I was wrong on the direction. Its about personal psychology. Had I frozen in place, I would have left 25 points (1215 - 1240) on the table. Life is a game of inches, you know.
Legendary trader Marty Schwartz said that he turned from loser to winner when he decided it was more important to make money than to be right. Think about that.
Another way to bring order to the market is to think in terms of waves. Life is about waves. Keep it simple. Wave I catches everyone by surprise. Whenever that happens, you are in an opportunity moment in real time!! You are because four waves will follow wave I. This is how you make money. You bring order to the chaos by immediately positioning yourself in the direction of Wave III and Wave V. See how the order gives you supreme confidence? You know when to buy ("My lord, what a gift!"). You know when to sell ("Its time to go. No regrets.")
Another way to bring order to the market is to think in terms of Contrary Opinion and the Fear Factor. When you turn on CNBC and you hear analysts braying to the moon that the market might go up some preposterous amount next year and they work for JP Morgan, it is a good time to sell! When you flip to Jim Cramer and the first words out of his mouth are, "You ain't seen nothing yet!" you grab your phone, call the Thrift Savings Plan, and transfer 100% to the G Fund until the storm has passed. This knowledge will give you the confidence to fade the so-called experts-the JP Morgan analysts and Jim Cramers-of the world.
Remember, cash is a respectable position to be in.
So, those are my thoughts on being confounded. Bring order to the market. It doesn't matter what tool you choose. I could have a long discussion about the pros and cons of various tools. Ultimately, its an art form.
Have a good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Barbara, Its Time to Sell
The following is a fictional interview with Barbara. We are in her office at the end of the day. Las Vegas Boulevard is in the distance.
Barbara: Hi, Wink. Come on in and have a seat.
Wink: Thanks, Barbara. How are things?
Barbara: You know how things are in [insert the city of your choice]. More craziness.
Wink: Same old story, huh?
Barbara: That's right.
Wink: Its time to sell.
Barbara: It is?
Wink: I moved out of the C Fund this morning and into the G Fund (essentially a cash position). I got the top price of the day at the close, 1240.
Barbara: But we just moved into the C Fund. Are you sure?
Wink: Pretty sure. Things are not always what they seem in the marketplace. When the market is performing well and as it should, I don't give it a second thought. I forget about the market. This September, I had totally forgotten about the market until I got that celebratory e-mail from you about our monthly performance. It was the best September in 79 years, remember?
Barbara: Yeah, what would we do without you?
Wink: Well, there's always Joel's rear view mirror. (Just teasing, Joel/smile) Seriously, I have found that when I forget about the market, it is a good sign. It is a sign that the market is behaving as it should. Back in 2001 or maybe 2002 in the heart of the Bear Market, I bought a stock, Paradigm Genetics (PDGM), based solely on technicals. There was a triple positive divergence between the price action and the underlying indicator. (Barbara's eyes glaze over) Anyway, I bought the stock with pure faith that it must work out because of the powerful positive divergence. I completely forgot about PDGM because it had to go up. One year later, my wife opened up a brokerage statement and said to me, "Have you seen this?" I took a look at the statement. PDGM had gone up like 1400%! At that instant, I knew that the character of the market had changed. In fact, those were the first words out of my mouth.
Barbara: You know, Wink, you really have a passion for this stuff.
Wink: Yeah, its how I relax. Well, my point is that I forgot about PDGM because it ran like it should. Livermore, the famous trader, remembered observing stocks and whether he had clocked their performance. Nicholas Darvas talked about forgetting his best performing stocks during his gambling phase. I kept thinking about the S&P 500 Index since December 2. I knew the market was going up but I also knew that institutions were selling into strength, so I didn't want our Club to be left holding the bag. Besides, there are always better opportunities to buy later on.
Barbara: Well, I trust you since I really do not understand the nitty gritty and I should have listened to you back in 2008. I still regret not doing anything.
Wink: You have to remember that institutions sell into strength. We have to do the same. Did you know that the best days to buy tend to be clustered around the end of the month and the first part of the new month? We saw a high on August 9. That was near the first of the month. We saw a high on November 5. That was near the first of the month. And December 2 came in like gang busters. I want to avoid the mid-month slump, if I can. December 15/16 has a reputation for being a difficult time.
But what do you think is the biggest reason why I wanted out?
Barbara: Why?
Wink: I turned on Jim Cramer after the closing bell. The first words out of his mouth were "You ain't seen nothing yet?" LOL! I swear he was looking at me through the tv. Smile. When I heard those words out of Cramer's mouth, I knew it was time to sell and leave the C Fund for now. Let's see how the rest of December shapes up.
Barbara: Ok, Wink.
Wink: Later, Barbara.
Barbara: Later, Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Barbara: Hi, Wink. Come on in and have a seat.
Wink: Thanks, Barbara. How are things?
Barbara: You know how things are in [insert the city of your choice]. More craziness.
Wink: Same old story, huh?
Barbara: That's right.
Wink: Its time to sell.
Barbara: It is?
Wink: I moved out of the C Fund this morning and into the G Fund (essentially a cash position). I got the top price of the day at the close, 1240.
Barbara: But we just moved into the C Fund. Are you sure?
Wink: Pretty sure. Things are not always what they seem in the marketplace. When the market is performing well and as it should, I don't give it a second thought. I forget about the market. This September, I had totally forgotten about the market until I got that celebratory e-mail from you about our monthly performance. It was the best September in 79 years, remember?
Barbara: Yeah, what would we do without you?
Wink: Well, there's always Joel's rear view mirror. (Just teasing, Joel/smile) Seriously, I have found that when I forget about the market, it is a good sign. It is a sign that the market is behaving as it should. Back in 2001 or maybe 2002 in the heart of the Bear Market, I bought a stock, Paradigm Genetics (PDGM), based solely on technicals. There was a triple positive divergence between the price action and the underlying indicator. (Barbara's eyes glaze over) Anyway, I bought the stock with pure faith that it must work out because of the powerful positive divergence. I completely forgot about PDGM because it had to go up. One year later, my wife opened up a brokerage statement and said to me, "Have you seen this?" I took a look at the statement. PDGM had gone up like 1400%! At that instant, I knew that the character of the market had changed. In fact, those were the first words out of my mouth.
Barbara: You know, Wink, you really have a passion for this stuff.
Wink: Yeah, its how I relax. Well, my point is that I forgot about PDGM because it ran like it should. Livermore, the famous trader, remembered observing stocks and whether he had clocked their performance. Nicholas Darvas talked about forgetting his best performing stocks during his gambling phase. I kept thinking about the S&P 500 Index since December 2. I knew the market was going up but I also knew that institutions were selling into strength, so I didn't want our Club to be left holding the bag. Besides, there are always better opportunities to buy later on.
Barbara: Well, I trust you since I really do not understand the nitty gritty and I should have listened to you back in 2008. I still regret not doing anything.
Wink: You have to remember that institutions sell into strength. We have to do the same. Did you know that the best days to buy tend to be clustered around the end of the month and the first part of the new month? We saw a high on August 9. That was near the first of the month. We saw a high on November 5. That was near the first of the month. And December 2 came in like gang busters. I want to avoid the mid-month slump, if I can. December 15/16 has a reputation for being a difficult time.
But what do you think is the biggest reason why I wanted out?
Barbara: Why?
Wink: I turned on Jim Cramer after the closing bell. The first words out of his mouth were "You ain't seen nothing yet?" LOL! I swear he was looking at me through the tv. Smile. When I heard those words out of Cramer's mouth, I knew it was time to sell and leave the C Fund for now. Let's see how the rest of December shapes up.
Barbara: Ok, Wink.
Wink: Later, Barbara.
Barbara: Later, Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Thursday, December 9, 2010
Move 100% into the G Fund
I'm done with the C Fund for now. There will be better buying opportunities in the future. Tomorrow morning, I will move into the G Fund. I would rather watch the rest of December develop from the sidelines. Tomorrow's closing price should show a profit since December 2. I entered the C Fund at 1215 on the S&P 500 Index.
Later.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Later.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Wednesday, December 8, 2010
The Storm Ahead
Tonight, I will have a lengthy post. Market conditions appear very bullish on the surface. The close was higher than the open. Check. The Chaiken Money Flow turned back up. Check. Support @ 1219 on the S&P 500 Index held. Check. So far, so good. My worst fears were not realized for a weak day. Check. If the market lets you off the mark, then there are probably fundamental reasons behind the move. I agree. Check.
And yet I see a storm ahead. Its an unpleasant truth. It is not pleasing to the ear on this bullish evening but my job has been to avoid the drops as well as ride the rallies. Plus I am a natural-born contrarian. So, what am I seeing this evening when all seems sunny and bright?
Signs of an approaching storm:
1. The Bullish Percent Index on the S&P 500 Index stands at 81.00. 81.00!!! Come on, people. There are way too many bulls out there. That reading is not sustainable. I know it. You know it. But we don't want to think about it because the market is going up. It is interesting how herd psychology works. When the market approaches a good time to sell, lopsided readings of bullish sentiment are discounted or ignored.
2. There is negative divergence between the 81.00 reading and the Relative Strength Index (RSI). The RSI has made a lower high and now stands at 79.30. At the same time, the 81.00 reading represents a new high. This divergence portends lower prices ahead. It is a sign of an approaching storm.
3. There is also negative divergence between the MACD lines and the 81.00 reading. The MACD lines have made a lower high and do not support the high 81.00 reading.
4.There is also negative divergence between the MACD Histogram and the 81.00 reading. Once again, we have another sign that the storm is near.
5.Let's look at a daily chart of the S&P 500 Index and what do we see. We see a lower high on the RSI indicator. It is not supporting this recent breakout to new highs on the S&P 500 Index. Negative divergence is also present on the MACD lines.
6. We see an ascending triangle breakout that is paltry. If the market were vibrant and alive, we should be at 1272 levels by now. We are not.
7. Master trader George Angell has documented the existence of a three-day cycle in the financial markets. Actually, the path breaking research was conducted by a little-known grain trader named George Douglas Taylor but Angell expanded upon the idea and made it accessible to the trading community. Taylor observed that there existed a three-day cycle in financial markets. The rallies and declines fooled traders into "buying when they should be selling and vice versa." George Angell, Winning in the Futures Market: A Money-Making Guide to Trading Hedging and Speculating, page 251. The powers that be would create a decline so as to provide a buying opportunity for themselves. And they would create a short-term top three days later so as to provide a selling opportunity. Three days later. Hmmn. Might it be that today's low @ 1219 was a manufactured decline so that the powers that be could buy the S&P on the cheap? And, if so, might this project a short-top three days later this Friday? I wouldn't bet against it.
8.What about a Bull Trap? The market is not a nice place. Everyone is scheming to take money away from everyone else. Did you know that sometimes breakouts fail? And when they do, the declines can be sharp because the bulls who bought the breakout were wrong on the price direction? Bull traps are not announced in advance. You have to watch and observe and assess whether market conditions are supportive of the break out or not.
Listen to Jesse Livermore smoke out a Bear Trap in real time (He was all of 15 years old at the time):
"According to my dope Sugar should have broken 103 by now. The engine wasn't hitting right. I had the feeling that there was a trap in the neighbourhoood. At all events, the telegraph instrument was now going like mad and I noticed that Tom Burnham, the clerk, had left my tickets unmarked where I laid them, and was listening to the clicking as if he were waiting for something. So I yelled at him: "Hey, Tom, what are you waiting for? Mark the price on these tickets--103! Get a gait on!"
Closed at 103, said Tom.
The next quote on Sugar was 108! Livermore just laughed and called over to Tom, "It didn't work that time, did it, old boy?" Edwin Lefevre, Reminiscences of a Stock Operator, pages 18-19.
9. My gut is telling me to sell. Livermore would listen to his instincts. They served him well. Here's an example of market intuition from a successful trader in Market Wizards by Jack D. Schwager:
"In 1980, the year when corn set its record high, I was long the position limit. One night I had the following dream. I'm talking to myself and I say, "Hey Jerry, where is corn going?" "To $4.15.""Where is corn now?" "$4.07." "You mean you are taking all that risk for an extra eight cents? Are you crazy?" I woke up in a flash. I knew I had to get out of my entire corn position as soon as the market opened the next day.
"The next morning, the market opened up a little higher, and I started selling. The market moved a little higher, and I sold more heavily. The market moved up some more. For a minute, I thought the floor broker had executed my order backwards. He hadn't.
"It might have gone up another day, but that was just about the high. Once it started falling, I could never have unloaded a position of my size."
Source: Jack D. Schwager, Market Wizards: Interview with Top Traders, pages 437-38.
Conclusion: There is a storm ahead. I know it. I will act accordingly.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
And yet I see a storm ahead. Its an unpleasant truth. It is not pleasing to the ear on this bullish evening but my job has been to avoid the drops as well as ride the rallies. Plus I am a natural-born contrarian. So, what am I seeing this evening when all seems sunny and bright?
Signs of an approaching storm:
1. The Bullish Percent Index on the S&P 500 Index stands at 81.00. 81.00!!! Come on, people. There are way too many bulls out there. That reading is not sustainable. I know it. You know it. But we don't want to think about it because the market is going up. It is interesting how herd psychology works. When the market approaches a good time to sell, lopsided readings of bullish sentiment are discounted or ignored.
2. There is negative divergence between the 81.00 reading and the Relative Strength Index (RSI). The RSI has made a lower high and now stands at 79.30. At the same time, the 81.00 reading represents a new high. This divergence portends lower prices ahead. It is a sign of an approaching storm.
3. There is also negative divergence between the MACD lines and the 81.00 reading. The MACD lines have made a lower high and do not support the high 81.00 reading.
4.There is also negative divergence between the MACD Histogram and the 81.00 reading. Once again, we have another sign that the storm is near.
5.Let's look at a daily chart of the S&P 500 Index and what do we see. We see a lower high on the RSI indicator. It is not supporting this recent breakout to new highs on the S&P 500 Index. Negative divergence is also present on the MACD lines.
6. We see an ascending triangle breakout that is paltry. If the market were vibrant and alive, we should be at 1272 levels by now. We are not.
7. Master trader George Angell has documented the existence of a three-day cycle in the financial markets. Actually, the path breaking research was conducted by a little-known grain trader named George Douglas Taylor but Angell expanded upon the idea and made it accessible to the trading community. Taylor observed that there existed a three-day cycle in financial markets. The rallies and declines fooled traders into "buying when they should be selling and vice versa." George Angell, Winning in the Futures Market: A Money-Making Guide to Trading Hedging and Speculating, page 251. The powers that be would create a decline so as to provide a buying opportunity for themselves. And they would create a short-term top three days later so as to provide a selling opportunity. Three days later. Hmmn. Might it be that today's low @ 1219 was a manufactured decline so that the powers that be could buy the S&P on the cheap? And, if so, might this project a short-top three days later this Friday? I wouldn't bet against it.
8.What about a Bull Trap? The market is not a nice place. Everyone is scheming to take money away from everyone else. Did you know that sometimes breakouts fail? And when they do, the declines can be sharp because the bulls who bought the breakout were wrong on the price direction? Bull traps are not announced in advance. You have to watch and observe and assess whether market conditions are supportive of the break out or not.
Listen to Jesse Livermore smoke out a Bear Trap in real time (He was all of 15 years old at the time):
"According to my dope Sugar should have broken 103 by now. The engine wasn't hitting right. I had the feeling that there was a trap in the neighbourhoood. At all events, the telegraph instrument was now going like mad and I noticed that Tom Burnham, the clerk, had left my tickets unmarked where I laid them, and was listening to the clicking as if he were waiting for something. So I yelled at him: "Hey, Tom, what are you waiting for? Mark the price on these tickets--103! Get a gait on!"
Closed at 103, said Tom.
The next quote on Sugar was 108! Livermore just laughed and called over to Tom, "It didn't work that time, did it, old boy?" Edwin Lefevre, Reminiscences of a Stock Operator, pages 18-19.
9. My gut is telling me to sell. Livermore would listen to his instincts. They served him well. Here's an example of market intuition from a successful trader in Market Wizards by Jack D. Schwager:
"In 1980, the year when corn set its record high, I was long the position limit. One night I had the following dream. I'm talking to myself and I say, "Hey Jerry, where is corn going?" "To $4.15.""Where is corn now?" "$4.07." "You mean you are taking all that risk for an extra eight cents? Are you crazy?" I woke up in a flash. I knew I had to get out of my entire corn position as soon as the market opened the next day.
"The next morning, the market opened up a little higher, and I started selling. The market moved a little higher, and I sold more heavily. The market moved up some more. For a minute, I thought the floor broker had executed my order backwards. He hadn't.
"It might have gone up another day, but that was just about the high. Once it started falling, I could never have unloaded a position of my size."
Source: Jack D. Schwager, Market Wizards: Interview with Top Traders, pages 437-38.
Conclusion: There is a storm ahead. I know it. I will act accordingly.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Storm Clouds Are Ahead
Sleep is a good tonic. Sleep allows one to mull over market conditions in the solitude of slumber. Yesterday after the closing bell, I was disappointed. The breakout of the ascending triangle pattern did not power us up to the 1272 level. This was a red flag. On the other hand, volume was tremendous and out of the ordinary. The volume was the greatest since the July 1 bottom. You want to see tremendous volume to support an ascending triangle breakout.
But I quickly checked the Chaiken Money Flow indicator. This indicator tells me how much money is flowing into the market versus out of the market. Now, on a valid ascending triangle breakout, we should see the money flow go up! Instead, the money flow has dropped rapidly since last week. That's disturbing. It shows a higher level of institutional selling then I was anticipating.
When the market is behaving well, then the pieces fall into place. I forget about the market to be honest with you. During the month of September, I didn't give the market a second thought.
When the market is not behaving as it should, then it is a sign that storm clouds are ahead. One should prepare to exit and sell into strength. That was the game plan anyway but yesterday's price action confirmed the misbehavior of the market.
The period between December 11 and December 22 should be a seasonally weak period. If I know that the road ahead after December 11 will be weak, why stay in the C Fund?
I am expecting a weak day in the market today. If today is a weak day in the market, then I will be prepared to move 100% into the G Fund on Friday morning before December 11. December 11 is the key date for me, depending upon today's market action.
Institutions are selling into strength. I certainly expect to do the same. But I am now targeting 1253 as an exit price on Friday's close. This would give the Club a 3% rate of return for the month of December.
Two final points--If you are not already 100% in the C Fund, it is too late now in my opinion. Just wait until December 22 weakness. We are clawing for inches here while trying to avoid a Bull Trap.
Later.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
But I quickly checked the Chaiken Money Flow indicator. This indicator tells me how much money is flowing into the market versus out of the market. Now, on a valid ascending triangle breakout, we should see the money flow go up! Instead, the money flow has dropped rapidly since last week. That's disturbing. It shows a higher level of institutional selling then I was anticipating.
When the market is behaving well, then the pieces fall into place. I forget about the market to be honest with you. During the month of September, I didn't give the market a second thought.
When the market is not behaving as it should, then it is a sign that storm clouds are ahead. One should prepare to exit and sell into strength. That was the game plan anyway but yesterday's price action confirmed the misbehavior of the market.
The period between December 11 and December 22 should be a seasonally weak period. If I know that the road ahead after December 11 will be weak, why stay in the C Fund?
I am expecting a weak day in the market today. If today is a weak day in the market, then I will be prepared to move 100% into the G Fund on Friday morning before December 11. December 11 is the key date for me, depending upon today's market action.
Institutions are selling into strength. I certainly expect to do the same. But I am now targeting 1253 as an exit price on Friday's close. This would give the Club a 3% rate of return for the month of December.
Two final points--If you are not already 100% in the C Fund, it is too late now in my opinion. Just wait until December 22 weakness. We are clawing for inches here while trying to avoid a Bull Trap.
Later.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Tuesday, December 7, 2010
Points of Concern - A Weak Ascending Triangle Breakout
I did not like the ascending triangle breakout today.
We had a throwback to the support level @ 1223 by the close. While this can be normal, my expectations were for a healthier breakout. We had tremendous volume which is what you would want to see with an ascending triangle breakout. However, I checked the Chaiken Money Flow and the money flow was in serious decline this week. Hmmn. That doesn't make sense with an ascending triangle breakout unless the institutions were selling. Hmmn.
I am also mindful that we are approaching a seasonally weak period of December (December 11 - December 22). When I combine these factors together, I have to say that my anxieties are peaking.
I will have a more extensive posting tomorrow evening.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
We had a throwback to the support level @ 1223 by the close. While this can be normal, my expectations were for a healthier breakout. We had tremendous volume which is what you would want to see with an ascending triangle breakout. However, I checked the Chaiken Money Flow and the money flow was in serious decline this week. Hmmn. That doesn't make sense with an ascending triangle breakout unless the institutions were selling. Hmmn.
I am also mindful that we are approaching a seasonally weak period of December (December 11 - December 22). When I combine these factors together, I have to say that my anxieties are peaking.
I will have a more extensive posting tomorrow evening.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
S&P Futures Are Up 11.80 Points
The ascending triangle pattern broke to the up side overnight. Today should be a bullish day. The market will gap up at the open in 1 hour. The gap is most likely a continuation gap. A third gap up lies out there in the future. That will probably mark a top to this move. Q: Is it now a good time to buy? No. The time to buy was December 1. It is too late to buy. A wise investor and trader would be watching the market action and 1272 on the Standard & Poor's 500 Index.
Have a great day!
Standard Disclaimers: See previous posts.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Have a great day!
Standard Disclaimers: See previous posts.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Monday, December 6, 2010
Ascending Triangle Chart Pattern Now Forming....
For those readers who want fast action, I just checked an hourly chart of the S&P 500 Index. There is an Ascending Triangle pattern forming as clear as the nose on my face. An Ascending Triangle is a very bullish formation. I have made good coin on Ascending Triangles in the past. All it means is that the buyers are more aggressive than the sellers. As a result of this imbalance, the price action keeps hitting a certain level (seller supply) while the buyers are willing to buy higher and higher prices (buyer demand). The lower trend line rises higher and higher until the level of selling is breached. Prices then move explosively upwards (think November 30 through December 3).
Higher prices are ahead!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Higher prices are ahead!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
A Narrow Range Day
Today was a narrow range day. To be more precise, it was a narrow range 7 (NR7) day. This means that the day's trading range was the smallest of the past seven (7) days. Narrow range days represent a pause in the market's action before the next wave of wide ranging days. In and of itself, the narrow range day doesn't tell you which direction the next move will take. But a narrow range day alerts you that a big move is directly ahead.
Thus, all three alternative scenarios for the rest of December are in play. I favor a thrust up to at least the 1270 range by December 16. If this thrust does not happen, it would call into question the Bull case.
Have a good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Thus, all three alternative scenarios for the rest of December are in play. I favor a thrust up to at least the 1270 range by December 16. If this thrust does not happen, it would call into question the Bull case.
Have a good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sunday, December 5, 2010
Any Given Sunday
I can't say much today. My daughter turns eight years old in one hour/smile.
Professor Peter Navarro wrote an interesting essay posted at Market Oracle UK. Navarro is going to cash because he doesn't feel the risk of a few extra percentage points is worth the gain. Navarro is a fellow San Diegan who has run for political office in the past. I voted for him for Mayor years ago.
I respect his analysis. We live in a dog-eat-dog world, as he suggests, of institutions and hedge funds and professional money managers. I think Navarro is on the mark. If someone wanted to follow his advice, you would get no argument from me.
But life is a game of inches. Winning is about moving the football towards the goal line, inch by inch. You claw for those inches (to paraphrase Al Pacino in Any Given Sunday). You fight for that inch. At the end of the day, that's what football is all about. That's what winning is all about That's what investing and trading is all about.
I tip my hat to Navarro for fine analysis.
Meanwhile, we in our Club will claw for that inch. The market is going up. We are positioned for those points to flow into our accounts. We are 100% in the C Fund.
Any Given Sunday....
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Professor Peter Navarro wrote an interesting essay posted at Market Oracle UK. Navarro is going to cash because he doesn't feel the risk of a few extra percentage points is worth the gain. Navarro is a fellow San Diegan who has run for political office in the past. I voted for him for Mayor years ago.
I respect his analysis. We live in a dog-eat-dog world, as he suggests, of institutions and hedge funds and professional money managers. I think Navarro is on the mark. If someone wanted to follow his advice, you would get no argument from me.
But life is a game of inches. Winning is about moving the football towards the goal line, inch by inch. You claw for those inches (to paraphrase Al Pacino in Any Given Sunday). You fight for that inch. At the end of the day, that's what football is all about. That's what winning is all about That's what investing and trading is all about.
I tip my hat to Navarro for fine analysis.
Meanwhile, we in our Club will claw for that inch. The market is going up. We are positioned for those points to flow into our accounts. We are 100% in the C Fund.
Any Given Sunday....
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Saturday, December 4, 2010
Can A Good Investor Be Flexible?
Can A Good Investor Be Flexible?
I got this idea for a posting from Charles, a recent commentator. Thank you, Charles, for the idea.
Can a good investor be flexible? When we are in school, we are accustomed to advancing by getting the question right. We want to provide the right answer to the teacher. If we get the answer wrong, then we feel less competent. We feel less knowledgeable. These skills will stand us in good stead as we travel from grade school to college and beyond. These skills are made for the classroom. I appreciated these skills as a former law professor a long, long time ago.
However, investing is not a classroom setting. Market conditions are always changing. Opportunities are fluid. The experienced investor, with an embrace of Contrary Opinion, will learn to think in terms of probabilities. You see a market setup. You dig into your memory bank of experiences and observations. You retrieve a past memory of this pattern happening before. If the past outcome was good and other indicators support a similar outcome this time, you go with the flow. The goal as an investor is always to buy low and sell high.
Now think about that idea for a moment: Buy Low, Sell High.
There are infinite variations on that theme. You could buy really, really low and sell at the tippy top. Few, if any investors, do that. That's just reality. You could buy high with the expectation of selling higher based upon market conditions. William O'Neil believes in this approach to investing. It is the breakout approach to investing. It is very common among investors. Now, suppose you were wedded to the right answer; i.e., the market must touch 1130 before I will buy. Ok, that's cool. Everyone is an adult in this chat room. But are you so wedded to your position that you will close your eyes to a more immediate opportunity to buy high and sell even higher?
Its a different world from the classroom. No one will give you a blue ribbon if you keep waiting for 1130 to come around and it doesn't. But you will earn a good grade as an investor if you buy high @ 1215 and sell higher @ 1272. See the point? Investing is graded by gains, not the academic rightness of one's well-thought out position.
Now, I love a good ole' debate about the market any time. Bring it on! (smile) However, like the famous trader Marty Schwartz realized, its really about the bank account at the end of the day, not whether your analysis was right. Schwartz continued to lose and lose until he got over the impulse to be proven right and learned that the market is always right. As investors, we will gain if we embrace the idea that the market is always right. Imposing our preconceptions on the market might earn us an A in market analysis but not add a dollar to our retirement account.
Don't get me wrong. I love market analysts. I am a natural analyst myself. But there is a season for analysis. And there is a season for making money. December 1 was a good time to buy.
That's my thought about flexibility and the good investor.
Good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
I got this idea for a posting from Charles, a recent commentator. Thank you, Charles, for the idea.
Can a good investor be flexible? When we are in school, we are accustomed to advancing by getting the question right. We want to provide the right answer to the teacher. If we get the answer wrong, then we feel less competent. We feel less knowledgeable. These skills will stand us in good stead as we travel from grade school to college and beyond. These skills are made for the classroom. I appreciated these skills as a former law professor a long, long time ago.
However, investing is not a classroom setting. Market conditions are always changing. Opportunities are fluid. The experienced investor, with an embrace of Contrary Opinion, will learn to think in terms of probabilities. You see a market setup. You dig into your memory bank of experiences and observations. You retrieve a past memory of this pattern happening before. If the past outcome was good and other indicators support a similar outcome this time, you go with the flow. The goal as an investor is always to buy low and sell high.
Now think about that idea for a moment: Buy Low, Sell High.
There are infinite variations on that theme. You could buy really, really low and sell at the tippy top. Few, if any investors, do that. That's just reality. You could buy high with the expectation of selling higher based upon market conditions. William O'Neil believes in this approach to investing. It is the breakout approach to investing. It is very common among investors. Now, suppose you were wedded to the right answer; i.e., the market must touch 1130 before I will buy. Ok, that's cool. Everyone is an adult in this chat room. But are you so wedded to your position that you will close your eyes to a more immediate opportunity to buy high and sell even higher?
Its a different world from the classroom. No one will give you a blue ribbon if you keep waiting for 1130 to come around and it doesn't. But you will earn a good grade as an investor if you buy high @ 1215 and sell higher @ 1272. See the point? Investing is graded by gains, not the academic rightness of one's well-thought out position.
Now, I love a good ole' debate about the market any time. Bring it on! (smile) However, like the famous trader Marty Schwartz realized, its really about the bank account at the end of the day, not whether your analysis was right. Schwartz continued to lose and lose until he got over the impulse to be proven right and learned that the market is always right. As investors, we will gain if we embrace the idea that the market is always right. Imposing our preconceptions on the market might earn us an A in market analysis but not add a dollar to our retirement account.
Don't get me wrong. I love market analysts. I am a natural analyst myself. But there is a season for analysis. And there is a season for making money. December 1 was a good time to buy.
That's my thought about flexibility and the good investor.
Good evening!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
An Interview with "Shelby Aldrich" - Part III
[This posting is my final interview with fictional reporter "Shelby Aldrich."]
Shelby: Good morning, Wink.
Wink: Hi, Shelby.
Shelby: The market flipped on Wednesday, November 30. Let's spend our final session talking about the market from now until the end of the year. Our readers are more interested in what's going to happen right now for understandable reasons.
Wink: I agree. We are in an opportunity moment. Anyone interested in my past decisions can read my blog.
Shelby: Now, Wink. I'm pulling my hair out this week. Remember your posting about Contrary Opinion and the Fisherman?
Wink: Of course.
Shelby: Well, what happened? Is the Fisherman right after all?
Wink: (Assuming my best Jim Rogers impersonation) Well,it depends, Shelby. Where was the value in real time? Where is the hysteria in real time? One of my favorite blog guys is Corey Rosenbloom. I like Rosenbloom because he lays out the case for making money in clear Elliott Wave terms.
Shelby: And what is the Elliott Wave approach again?
Wink: Sure. Markets don't go up in a straight line (although it might feel like it sometimes/LOL). There is a five wave pattern. The market goes up and everyone is caught off guard. That is Wave I. Then, the market corrects, reacts or consolidates. That is Wave II. If the market is really strong, Wave II will not react much at all. It will just be a sideways consolidation. This is the prime opportunity to buy! This is your well defined opportunity. Why? Because another wave, Wave III, will follow Wave II. This is where you make your money in powerful terms. Then, there is Wave IV. Wave IV will likely be a correction or reaction. Then, there is a final Wave V higher. This is the final high. You must sell and get out of the market at this point. Have no regrets about selling. The view will be sunny and bright but you must get out. No hesitation.
Shelby: But I read your blog on December 2. You were looking for a reaction to 1192.
Wink: Yes, I was. And if the market had reacted to 1192, that would have been the buy of the month. However, when the character of the market has changed from sideways to up, then you must read your dashboard and make your best judgment in real time. You take the pulse of the market by reviewing the Trin, the market's reaction to bad news, whether its the first hour of the trading day or the last hour of the trading day, etc. There is an artistry to the process. You're looking at your indicators and digging into your experience database. I'm asking myself if I have seen this movie before. I'm remaining flexible because I have learned that being flexible is more important than being right.
Let me repeat that. Being flexible is more important than being right.
Shelby: But how do you know when to stay the course and when to be flexible? Throughout the month of November, you made the case for lower prices. And from November 5 to November 30 you were right. If I were preparing a brief, for example, for the Bearish case, I would cite many of the points you raised in your blog: too many bullish investors, contrary opinion, stochastic reading failing to breach the oversold line, etc. Aren't you afraid that your original analysis was right?
Wink: The master trader Ed Sekoyta said that you must know the rules. And you must know when to break the rules. Elliott Waves keep you flexible and on the right side of the market. It also helps that I have seen past examples of a chart pattern that fails. Bulkowski (I can't recall his first name right now) has done important research in this regard. The most powerful moves happen when the market goes up contrary to expectations. So, when I saw the price action on December 1, I knew from experience, observation, and research that I was looking at a busted chart pattern in real time. These conditions are real money makers because the market tends to go a ways in the opposite direction of the market's expectation.
Shelby: Is that a plug for Contrary Opinion?
Wink: Yes. Contrary Opinion on November 30 was to be long the market. And Contrary Opinion has been proven right.
Shelby: Let's return to the La Jolla Fisherman. Was the fisherman a contrarian on Thanksgiving morning?
Wink: No, he was not. His views are part of the dominant bullish sentiment.
Shelby: But he's making money right now because he was right.
Wink: But for how long? I would always say to Joel in my office that you had to look at the road ahead, not the rear view mirror.
Shelby: And what do you see up ahead for the rest of December?
Wink: I see emotion. I see pitched battles between fear and greed. Did you see Art Hogan (a major money manager)yesterday morning on CNBC? He was emotional in my opinion. You could hear it in his voice. He was urging investors to get out of bonds and move into equities. Maybe, he's long on the market. Maybe, he's short on the market and expecting lower prices. Maybe, Hogan is long the market and trying to sell out his positions. Maybe, he's behind in his performance for the year and is chasing the market. I don't know.
But what I do know is that one of the top professional money managers in the country, in my humble opinion, had emotion in his voice yesterday morning. That got my attention.
Shelby: How so?
Wink:There are three ways to think about the market this weekend. The market can keep going up into January. We will have limited reactions and corrections. The Santa Claus rally will be long and strong. My Fisherman will be vindicated. That's way number one. The market could drop like a stone Monday morning and continue to drop. Remember that I believe there is strong resistance @ 1257. This is a multi year level of resistance, not the garden variety resistance. This scenario is the sum of all fears for buy and hold investors. That's way number two.
I don't think life is that easy. Life is not that easy.
Then, there's a third more complex way for things to develop. This way would frustrate both bulls and bears. The market could keep going up into Mutual Fund Monday on December 13. I can see this because retail investors will read the newspapers this weekend and get very excited about the market. Their buying pressure will push the market higher up to the 1272 level. The following weekend, the last mom and pop will drop their coin into the slot machine. I'm thinking that will raise the market to the 1289 level on Monday morning, December 13. At that point, I'm out.
Shelby: Of the C Fund?
Wink: That's correct. Out of all stocks.
Now, the Fisherman is very, very happy at 1289. He is counting his money. His last thought is of selling. He has projected past gains into the future. We all do it. I do it. But understanding waves and cycles protects you from warm and fuzzy feelings at the top.
Anyway, the Fisherman's last thought will be of selling. My first thought will be of selling.
The market then drops of its own weight into December 22. This drop produces panic among Fishermen worldwide/smile. What happened to the Santa Claus rally? Is this just a normal reaction?
The market then confounds the bears by bouncing into December 31 on light volume.
Shelby: I'm guessing you favor scenario number 3.
Wink: Life is not simple. If it were, everyone would be rich. My gut tells me that,at these lofty levels, no one will be right. Just follow the trend. Have the patience to wait for the well-defined situation. Sell hysteria. Repeat as necessary.
Shelby: Any final thoughts this morning?
Wink: These are exciting, and perilous, times in the market. Back in August, one could kick back and let the market do its thing. That was Wave III. We are now in Wave V up. Profits will be quick but you must be nimble as greed remains your greatest enemy.
I think long term buy and holders who want to retire before 2012 should just move 100% into the G Fund when the market hits 1272. You can then re-assess market conditions in 2011. Things are crazy now because professional money managers have incentives to jam the market higher. But the market is most at risk of dropping when its being manipulated. Be profitable. Be prudent. Be cautious.
Shelby: Thank you Wink for your insights over the past three weeks.
Wink: You're welcome. And I want to thank Barbara and the gang for their support over the years. And Joel, throw away that rear view mirror! (smile)
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Shelby: Good morning, Wink.
Wink: Hi, Shelby.
Shelby: The market flipped on Wednesday, November 30. Let's spend our final session talking about the market from now until the end of the year. Our readers are more interested in what's going to happen right now for understandable reasons.
Wink: I agree. We are in an opportunity moment. Anyone interested in my past decisions can read my blog.
Shelby: Now, Wink. I'm pulling my hair out this week. Remember your posting about Contrary Opinion and the Fisherman?
Wink: Of course.
Shelby: Well, what happened? Is the Fisherman right after all?
Wink: (Assuming my best Jim Rogers impersonation) Well,it depends, Shelby. Where was the value in real time? Where is the hysteria in real time? One of my favorite blog guys is Corey Rosenbloom. I like Rosenbloom because he lays out the case for making money in clear Elliott Wave terms.
Shelby: And what is the Elliott Wave approach again?
Wink: Sure. Markets don't go up in a straight line (although it might feel like it sometimes/LOL). There is a five wave pattern. The market goes up and everyone is caught off guard. That is Wave I. Then, the market corrects, reacts or consolidates. That is Wave II. If the market is really strong, Wave II will not react much at all. It will just be a sideways consolidation. This is the prime opportunity to buy! This is your well defined opportunity. Why? Because another wave, Wave III, will follow Wave II. This is where you make your money in powerful terms. Then, there is Wave IV. Wave IV will likely be a correction or reaction. Then, there is a final Wave V higher. This is the final high. You must sell and get out of the market at this point. Have no regrets about selling. The view will be sunny and bright but you must get out. No hesitation.
Shelby: But I read your blog on December 2. You were looking for a reaction to 1192.
Wink: Yes, I was. And if the market had reacted to 1192, that would have been the buy of the month. However, when the character of the market has changed from sideways to up, then you must read your dashboard and make your best judgment in real time. You take the pulse of the market by reviewing the Trin, the market's reaction to bad news, whether its the first hour of the trading day or the last hour of the trading day, etc. There is an artistry to the process. You're looking at your indicators and digging into your experience database. I'm asking myself if I have seen this movie before. I'm remaining flexible because I have learned that being flexible is more important than being right.
Let me repeat that. Being flexible is more important than being right.
Shelby: But how do you know when to stay the course and when to be flexible? Throughout the month of November, you made the case for lower prices. And from November 5 to November 30 you were right. If I were preparing a brief, for example, for the Bearish case, I would cite many of the points you raised in your blog: too many bullish investors, contrary opinion, stochastic reading failing to breach the oversold line, etc. Aren't you afraid that your original analysis was right?
Wink: The master trader Ed Sekoyta said that you must know the rules. And you must know when to break the rules. Elliott Waves keep you flexible and on the right side of the market. It also helps that I have seen past examples of a chart pattern that fails. Bulkowski (I can't recall his first name right now) has done important research in this regard. The most powerful moves happen when the market goes up contrary to expectations. So, when I saw the price action on December 1, I knew from experience, observation, and research that I was looking at a busted chart pattern in real time. These conditions are real money makers because the market tends to go a ways in the opposite direction of the market's expectation.
Shelby: Is that a plug for Contrary Opinion?
Wink: Yes. Contrary Opinion on November 30 was to be long the market. And Contrary Opinion has been proven right.
Shelby: Let's return to the La Jolla Fisherman. Was the fisherman a contrarian on Thanksgiving morning?
Wink: No, he was not. His views are part of the dominant bullish sentiment.
Shelby: But he's making money right now because he was right.
Wink: But for how long? I would always say to Joel in my office that you had to look at the road ahead, not the rear view mirror.
Shelby: And what do you see up ahead for the rest of December?
Wink: I see emotion. I see pitched battles between fear and greed. Did you see Art Hogan (a major money manager)yesterday morning on CNBC? He was emotional in my opinion. You could hear it in his voice. He was urging investors to get out of bonds and move into equities. Maybe, he's long on the market. Maybe, he's short on the market and expecting lower prices. Maybe, Hogan is long the market and trying to sell out his positions. Maybe, he's behind in his performance for the year and is chasing the market. I don't know.
But what I do know is that one of the top professional money managers in the country, in my humble opinion, had emotion in his voice yesterday morning. That got my attention.
Shelby: How so?
Wink:There are three ways to think about the market this weekend. The market can keep going up into January. We will have limited reactions and corrections. The Santa Claus rally will be long and strong. My Fisherman will be vindicated. That's way number one. The market could drop like a stone Monday morning and continue to drop. Remember that I believe there is strong resistance @ 1257. This is a multi year level of resistance, not the garden variety resistance. This scenario is the sum of all fears for buy and hold investors. That's way number two.
I don't think life is that easy. Life is not that easy.
Then, there's a third more complex way for things to develop. This way would frustrate both bulls and bears. The market could keep going up into Mutual Fund Monday on December 13. I can see this because retail investors will read the newspapers this weekend and get very excited about the market. Their buying pressure will push the market higher up to the 1272 level. The following weekend, the last mom and pop will drop their coin into the slot machine. I'm thinking that will raise the market to the 1289 level on Monday morning, December 13. At that point, I'm out.
Shelby: Of the C Fund?
Wink: That's correct. Out of all stocks.
Now, the Fisherman is very, very happy at 1289. He is counting his money. His last thought is of selling. He has projected past gains into the future. We all do it. I do it. But understanding waves and cycles protects you from warm and fuzzy feelings at the top.
Anyway, the Fisherman's last thought will be of selling. My first thought will be of selling.
The market then drops of its own weight into December 22. This drop produces panic among Fishermen worldwide/smile. What happened to the Santa Claus rally? Is this just a normal reaction?
The market then confounds the bears by bouncing into December 31 on light volume.
Shelby: I'm guessing you favor scenario number 3.
Wink: Life is not simple. If it were, everyone would be rich. My gut tells me that,at these lofty levels, no one will be right. Just follow the trend. Have the patience to wait for the well-defined situation. Sell hysteria. Repeat as necessary.
Shelby: Any final thoughts this morning?
Wink: These are exciting, and perilous, times in the market. Back in August, one could kick back and let the market do its thing. That was Wave III. We are now in Wave V up. Profits will be quick but you must be nimble as greed remains your greatest enemy.
I think long term buy and holders who want to retire before 2012 should just move 100% into the G Fund when the market hits 1272. You can then re-assess market conditions in 2011. Things are crazy now because professional money managers have incentives to jam the market higher. But the market is most at risk of dropping when its being manipulated. Be profitable. Be prudent. Be cautious.
Shelby: Thank you Wink for your insights over the past three weeks.
Wink: You're welcome. And I want to thank Barbara and the gang for their support over the years. And Joel, throw away that rear view mirror! (smile)
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Friday, December 3, 2010
If I Were a Supercomputer
To repeat the obvious, the market is going up. Every point up is an additional dollar in your retirement account. That's our position with our Club.
Now, if I were a supercomputer employed by Goldman Sachs, where would I set my sell programs? It is a rule of thumb that institutions sell into strength, so we know that they are selling behind the scenes. As long as we are gaining, we don't care.
But we have to recognize that supercomputers are being programmed as I type.
So, if I were a supercomputer, where would I set my sell programs?
Here are some thoughts:
1. The move down from 1227 (November 5 high) to 1173 (November 16 low) is 54 points on the S&P 500 Index. Remember that under Elliott Wave theory, up waves have five parts (Wave 1, Wave 2, Wave 3, Wave 4, Wave 5). The move up since November 30 was Wave 1. It was impulsive. It caught everyone by surprise. That is the nature of the beast. Wave 3 is where the real money is made. That's why I told Barbara on December 1 after the close that it was time to buy. If the upcoming Wave 3 up equals the length of Wave 1, then 1221 plus 54 = 1275. I would expect the S&P 500 Index to reach 1275 at a minimum in Wave 3.
2. I would not set my supercomputer at 1275 to sell. Why? Because that would just be the end of Wave 3. Remember that there are Waves 4 and 5 after Wave 3.
3. The final wave, wave 5 higher, should come in after wave 3. Wave 5 should crest higher than wave 3 @ 1275. But where? Look for a natural resistance level. Look for a place where the market has topped out in the past.
4. Fear and Greed come together at the very top of Wave 5. The buying and selling reaches a climax. Remember how psychological round numbers matter? 1290 is a round number above 1275. But I wouldn't set my supercomputer at a round number if I were an institution. I would set it a tad lower to fake out the last people to the party.
5. So, given market conditions @ 12:40 p.m. on Friday, December 3, 2010 and assuming I had the job of programming a sell order for a major institution like Goldman Sachs, I would set my sell order @ 1289, one point below the psychological round number of 1290. 1289.
We'll see what happens.
Enjoy the ride. The market is going up as I type. We in the Thrift Savings Investment Club are making money.
Love out to you, Barbara!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Now, if I were a supercomputer employed by Goldman Sachs, where would I set my sell programs? It is a rule of thumb that institutions sell into strength, so we know that they are selling behind the scenes. As long as we are gaining, we don't care.
But we have to recognize that supercomputers are being programmed as I type.
So, if I were a supercomputer, where would I set my sell programs?
Here are some thoughts:
1. The move down from 1227 (November 5 high) to 1173 (November 16 low) is 54 points on the S&P 500 Index. Remember that under Elliott Wave theory, up waves have five parts (Wave 1, Wave 2, Wave 3, Wave 4, Wave 5). The move up since November 30 was Wave 1. It was impulsive. It caught everyone by surprise. That is the nature of the beast. Wave 3 is where the real money is made. That's why I told Barbara on December 1 after the close that it was time to buy. If the upcoming Wave 3 up equals the length of Wave 1, then 1221 plus 54 = 1275. I would expect the S&P 500 Index to reach 1275 at a minimum in Wave 3.
2. I would not set my supercomputer at 1275 to sell. Why? Because that would just be the end of Wave 3. Remember that there are Waves 4 and 5 after Wave 3.
3. The final wave, wave 5 higher, should come in after wave 3. Wave 5 should crest higher than wave 3 @ 1275. But where? Look for a natural resistance level. Look for a place where the market has topped out in the past.
4. Fear and Greed come together at the very top of Wave 5. The buying and selling reaches a climax. Remember how psychological round numbers matter? 1290 is a round number above 1275. But I wouldn't set my supercomputer at a round number if I were an institution. I would set it a tad lower to fake out the last people to the party.
5. So, given market conditions @ 12:40 p.m. on Friday, December 3, 2010 and assuming I had the job of programming a sell order for a major institution like Goldman Sachs, I would set my sell order @ 1289, one point below the psychological round number of 1290. 1289.
We'll see what happens.
Enjoy the ride. The market is going up as I type. We in the Thrift Savings Investment Club are making money.
Love out to you, Barbara!
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Thursday, December 2, 2010
The Gospel Truth About Pulling the Trigger
This evening, I'll let trader Gary Smith speak the gospel truth about times when the market is just going up:
"So just before the 4:00 p.m. closing bell, I phoned my broker to place a trade. But I blew it. I got cold feet and hung up before I could place my order. My usual quickness just wasn't there on that day.
"Too bad I hadn't been able to pull the trigger on March 3, since on March 4 the market rallied strongly and closed up 190 points...I was unable to buy because my flexibility wasn't there. I was worried about the employment report to be released on March 5, even though I knew in my heart it was a win-win situation. This means that there had already been such negative expectations built into the report that, even if it was negative, the market would have a relief rally. And, of course, if it came out positive, the market would soar.
"Much to my dismay, the employment report on March 5 was a positive surprise and the Dow skyrocketed 268 points. My lack of quickness caused me to miss the 190-point move in the Dow on March 4 and my lack of flexibility caused me to miss the 268-point move the following day. So I did the only thing a good trader could do under the circumstances: I plowed back into the market before the close of March 5.
"Now stop right here and think about what I did on March 5, and ask yourself if you could do likewise. I went into the market after a 459-point, two-day rise. Most traders find that too difficult to do. They fear it's too risky to chase the market after such a rise because some type of setback is inevitable. The real risk, though, is not to be in the market after such extreme momentum." Gary Smith, How I Trade for a Living, pages 139-40
In our TSP Investment Club, we want to be 100% in the C Fund when the market is going up. Why hesitate if the market is going up? That's how money is made. That's how winning is done.
When its time for the market to go down again, we will go 100% into the G Fund.
We react to the changing character of the market. Sure, we can have our predictions, our anticipations. But when the market is going up, that's all I need to know.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
"So just before the 4:00 p.m. closing bell, I phoned my broker to place a trade. But I blew it. I got cold feet and hung up before I could place my order. My usual quickness just wasn't there on that day.
"Too bad I hadn't been able to pull the trigger on March 3, since on March 4 the market rallied strongly and closed up 190 points...I was unable to buy because my flexibility wasn't there. I was worried about the employment report to be released on March 5, even though I knew in my heart it was a win-win situation. This means that there had already been such negative expectations built into the report that, even if it was negative, the market would have a relief rally. And, of course, if it came out positive, the market would soar.
"Much to my dismay, the employment report on March 5 was a positive surprise and the Dow skyrocketed 268 points. My lack of quickness caused me to miss the 190-point move in the Dow on March 4 and my lack of flexibility caused me to miss the 268-point move the following day. So I did the only thing a good trader could do under the circumstances: I plowed back into the market before the close of March 5.
"Now stop right here and think about what I did on March 5, and ask yourself if you could do likewise. I went into the market after a 459-point, two-day rise. Most traders find that too difficult to do. They fear it's too risky to chase the market after such a rise because some type of setback is inevitable. The real risk, though, is not to be in the market after such extreme momentum." Gary Smith, How I Trade for a Living, pages 139-40
In our TSP Investment Club, we want to be 100% in the C Fund when the market is going up. Why hesitate if the market is going up? That's how money is made. That's how winning is done.
When its time for the market to go down again, we will go 100% into the G Fund.
We react to the changing character of the market. Sure, we can have our predictions, our anticipations. But when the market is going up, that's all I need to know.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Developing Market Conditions - Quick Profits
Strike while the iron is hot.
We have entered a new phase in the market. There is fear but it is the fear of shorts covering and losing their money. It is the fear of professional money managers under performing the market for the year. It is the fear of missing out on the rally. The market blew through resistance @ 1206. The Trin has not moved strongly higher this morning. Together, these conditions will produce a final fifth wave up in the market. These are the times when you can make the quickest profits in your retirement accounts. But you have to be nimble and quick to move aside when there are signs that the market advance has stopped.
I am 100% in the C Fund and have been so since 1215.
The daily trend is about to turn up.
The trend is your friend.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
We have entered a new phase in the market. There is fear but it is the fear of shorts covering and losing their money. It is the fear of professional money managers under performing the market for the year. It is the fear of missing out on the rally. The market blew through resistance @ 1206. The Trin has not moved strongly higher this morning. Together, these conditions will produce a final fifth wave up in the market. These are the times when you can make the quickest profits in your retirement accounts. But you have to be nimble and quick to move aside when there are signs that the market advance has stopped.
I am 100% in the C Fund and have been so since 1215.
The daily trend is about to turn up.
The trend is your friend.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Move 100% into the C Fund
It is a good time to buy.
Having said that it is a good time to buy, there are three ways to play the opportunity. One could move 100% into the C Fund today. End of story. Another approach would be to wait until Friday morning and move 100% into the C Fund.
Why wait a day?
Even if the market is going up, there will be a down day. Markets don't go straight up. They first surprise everyone by going up (yesterday). This move is known as the impulse wave or Wave I. Then, the market steps back a bit to gather strength for the next move higher. Nicholas Darvas talked about this behavior back in the 1950s. Remember, there is nothing new in the market. Two nights ago, I was showing my daughter a chart of the Euro Dollar. She is all of seven years old. I asked her what did she see. She said, up, down, up, down, up. I pulled up a 5-minute, hourly, daily, and weekly chart of the Euro and she said she saw the same thing. And that was the essence of successful trading and investing. Yesterday was the up. Waiting for the down is smart. I think it will be tomorrow but it might be today. These are quibbles in the long run.
A final strategy would be to buy when the S&P 500 Index hits 1192 or thereabouts. 1192 is solid support. The market will not hang around that level for long. So, be prepared to move 100% into the C Fund without delay as the market approaches support @ 1192.
There is a technical reason for anticipating a down day today or tomorrow. Remember how we had a super low trin reading yesterday? The closing trin was 0.26. In 80% of the cases where the trin closes below 0.65, the following day is down. There is a slight halt to the rally and a slight reversal. This pattern only makes sense since a closing trin of 0.26 meant that everyone was all in, as they say in Vegas. The market is primed for a subtle move lower.
Remember these are probabilities. Given market conditions, you can make your move today, tomorrow morning, or when you see the S&P 500 Index hit the 1192 level. The choice is yours.
I would be remiss if I did not put on my worry hat. I continue to nurse the contrarian opinion. I am cautious because of the behavior of Commercial Hedgers. Commercial Hedgers are institutions. They are in the business. They are the ultimate Smart Money. Since the August 25 rally, the Commercials have been showing less and less interest in this market. The Commercials will be proven right, ultimately. If the market continues to rally while Commercial interest declines, we know that the time to sell and go short is in the future. But that's the future.
For now, its a good time to buy.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Having said that it is a good time to buy, there are three ways to play the opportunity. One could move 100% into the C Fund today. End of story. Another approach would be to wait until Friday morning and move 100% into the C Fund.
Why wait a day?
Even if the market is going up, there will be a down day. Markets don't go straight up. They first surprise everyone by going up (yesterday). This move is known as the impulse wave or Wave I. Then, the market steps back a bit to gather strength for the next move higher. Nicholas Darvas talked about this behavior back in the 1950s. Remember, there is nothing new in the market. Two nights ago, I was showing my daughter a chart of the Euro Dollar. She is all of seven years old. I asked her what did she see. She said, up, down, up, down, up. I pulled up a 5-minute, hourly, daily, and weekly chart of the Euro and she said she saw the same thing. And that was the essence of successful trading and investing. Yesterday was the up. Waiting for the down is smart. I think it will be tomorrow but it might be today. These are quibbles in the long run.
A final strategy would be to buy when the S&P 500 Index hits 1192 or thereabouts. 1192 is solid support. The market will not hang around that level for long. So, be prepared to move 100% into the C Fund without delay as the market approaches support @ 1192.
There is a technical reason for anticipating a down day today or tomorrow. Remember how we had a super low trin reading yesterday? The closing trin was 0.26. In 80% of the cases where the trin closes below 0.65, the following day is down. There is a slight halt to the rally and a slight reversal. This pattern only makes sense since a closing trin of 0.26 meant that everyone was all in, as they say in Vegas. The market is primed for a subtle move lower.
Remember these are probabilities. Given market conditions, you can make your move today, tomorrow morning, or when you see the S&P 500 Index hit the 1192 level. The choice is yours.
I would be remiss if I did not put on my worry hat. I continue to nurse the contrarian opinion. I am cautious because of the behavior of Commercial Hedgers. Commercial Hedgers are institutions. They are in the business. They are the ultimate Smart Money. Since the August 25 rally, the Commercials have been showing less and less interest in this market. The Commercials will be proven right, ultimately. If the market continues to rally while Commercial interest declines, we know that the time to sell and go short is in the future. But that's the future.
For now, its a good time to buy.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Wednesday, December 1, 2010
Barbara, It's Time to Buy
I have my bearish opinions but our point is to make money.
The most bullish thing a market can do is go up contrary to expectation. The drop in November paved the way for a stunning rise in the market today. These rises are likely to continue. Logic and reason do not matter The character of the market has changed.
One of the lessons I learned from trader Gary Smith is that you have to respond to market action. Today, the market gapped up and never looked back. It had the look and feel of a breakaway gap. That just means that the market may not return to yesterday's close of 1180. There was extreme enthusiasm as reflected in the Trin reading. The Trin measures the flow of money into securities. The close today was 0.29. I cannot recall a closing Trin reading that low before. Normally, that would spell a drop in the market but it is more likely a sign of rampant bullishness. Also, many traders and investors had to turn tail when the market failed to drop below 1173. (For those readers in the know, I am tipping my hat to the Busted Chart Pattern.)
Our strategy is to be 100% in the C Fund when the market is going up. The market is going up.
Barbara will be receiving her e-mail from me tomorrow.
To quote Smith about his market experience in January 1999, "I was very bearish because of my perceptual filters. The Investors Intelligence reading of bullish advisors went above 60 percent, a level not seen since before the great crash in October 1987... It's a good thing I'm not one for trading my opinions, but, instead let the market tell me what to do." How I Trade for a Living by Gary Smith, page 134.
It is a good time to buy.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
The most bullish thing a market can do is go up contrary to expectation. The drop in November paved the way for a stunning rise in the market today. These rises are likely to continue. Logic and reason do not matter The character of the market has changed.
One of the lessons I learned from trader Gary Smith is that you have to respond to market action. Today, the market gapped up and never looked back. It had the look and feel of a breakaway gap. That just means that the market may not return to yesterday's close of 1180. There was extreme enthusiasm as reflected in the Trin reading. The Trin measures the flow of money into securities. The close today was 0.29. I cannot recall a closing Trin reading that low before. Normally, that would spell a drop in the market but it is more likely a sign of rampant bullishness. Also, many traders and investors had to turn tail when the market failed to drop below 1173. (For those readers in the know, I am tipping my hat to the Busted Chart Pattern.)
Our strategy is to be 100% in the C Fund when the market is going up. The market is going up.
Barbara will be receiving her e-mail from me tomorrow.
To quote Smith about his market experience in January 1999, "I was very bearish because of my perceptual filters. The Investors Intelligence reading of bullish advisors went above 60 percent, a level not seen since before the great crash in October 1987... It's a good thing I'm not one for trading my opinions, but, instead let the market tell me what to do." How I Trade for a Living by Gary Smith, page 134.
It is a good time to buy.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
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