Wednesday, February 28, 2007

Wednesday Wraps

As dumb as it gets. Bernake, in an effort to appear a lot smarter than he is, said, "there is no one cause for yesterday's meltdown" and the market responded nicely and went up a hundred points to finish up 52 or so. Marlyn, in an effort to keep from blowing the coffee that he just drank out of his nose, gargled out a strangled, "Bull Snot"! Which caused his Bride to ask if he were OK. Marlyn then attempted to explain what an idiot Bernake is and his Bride just patted him on the head and said, there, there dear - go make us some money. Leave it to the Bride to keep things in perspective - that's why I love her so.

Girls and boys I hope you were all elbows deep today - I know I was - this was truly amazing especially the last hour or so. Everything just turned glorious and life doesn't get any better than this.

I grabbed up a couple of stocks I've been waiting for a pullback to buy - RIO and AKS first thing out of the box this morning. I got into RIO a little early but AKS came along just fine. Both in the green in my account now but it was touch and go for awhile there with RIO. I didn't mind since I'm pretty sure it is going to continue to climb for the next whatever. I'm planning on holding these two for awhile - if they continue to go up.

Also picked up GGB and that was just because it was on my list of 12 candidates. At the end of the day I added TIE to my trading portfolio.

The model portfolio that I spoke about in this morning's post gained 3.18% and SPY (the benchmark) gained 1.48%.

I didn't do any day trading today although it would have been a perfect day for it. I wanted to concentrate on getting some things in place going forward - this kind of opportunity doesn't happen only so often (according to Dr. Brett 5 times going back to '98) and you have to take advantage of the good fortune when you stumble on to it or it stumbles on to you.

I did watch the market though and I tried to learn everything I could about the day after chaos that was possible to learn. That's how you stay prepared learn something new every day. Another thing I did was to build a Proshares inverse ETF list for use in Quote Tracker. Next time the market starts to fall I'll bring that out and watch those charts for day trades.

The three pals (GOOG, MSFT, AAPL) all went up, of course, but GOOG only made 68 cents. If that doesn't throw some warning signs up I don't know what will. AAPL was only a cent behind at 67 cents and MSFT did the best of all with 30 cents (based on percentage gained). I'm not sure if I were holding GOOG that I'd wait much longer for it to hit 520. It probably will but you wasted a lot of trading capital today on a stock that may or may not go anywhere. Now that's not a recommendation to sell GOOG just something to consider when you are making your decision.

I saw a bunch of this today -

That little DOJI suggests caution. And after the smack down yesterday one would expect traders to be a bit cautious. Of course I also saw a lot of this -

- which reader's of this BLOG will quickly identify as a BOB!. The part I like about this BOB is the volume. That suggests some conviction in the move. So we have caution and conviction - I wonder which way it's going to go tomorrow.

The four indices that we follow - DIA, IWM, SPY, and Q's all printed a black/red candle in the last hour. GS printed a DOJI. That is good - shows traders taking a breath. Of course the VIX began its trek back to low-number-land but remains more than 10% greater than its 10-period moving average. And this indicator continues to go down.

That's expected of course because all indicators based on price take a little while to work - if the market goes up again tomorrow - and I don't know why it wouldn't - we will see it turn at that time. And that will be the major indicator to begin buying stocks.

Of course the up/down ratio recovered too and output a 54% or neutral reading.

Given all of the positives I'm calling tomorrow for the bulls - an up day.

The coin meanwhile, fresh off an amazing win today calls tomorrow ... tails - bear coming. Dumb coin, bad coin, stupid coin.

Having nailed today, and who couldn't, the score now stands at Marlyn 16 - 12 and 5 and the coin is 13 - 15 and 5.

I think this is the last post for February - I just noticed that it will be number 113. There are entire BLOGs out there that don't have 113 posts in their entire existence. At any rate that is a record for me and it is unintentional I just have a lot to say. But as long as I continue to enjoy doing this I will continue to attempt to amuse, confuse, but never abuse, you my dear readers. See ya's tomorrow.

Wednesday Trades

I bought RIO, AKS and GGB. Lost LQDT to a stop and sold WLT for a small profit.

I'm profitable in all of the trades but I did buy RIO too soon - I could have been a lot more profitable in it. But I'm holding all of these for several days to several weeks because I'm trying to take advantage of the opportunity.

The Gurus Have Gone Crazy

Reading through Seeking Alpha this morning I ran across the usual suspects - a bunch of doom and gloomers and others who while not D&G just can't believe that some Chinese Bureaucrat caused all of the carnage. I don't know what part of chaos theory some of these folks don't understand but yes, sweet cheeks - one Chinese Bureaucrat given the correct starting conditions can initiate a world-wide avalanche.

Why Americans just can't believe that there is a world out there beyond our borders is beyond me also. The economy is global - there are no more national economies - just because NASCAR wants to pretend that those Fords and Mercury muscle cars are built in Detroit just doesn't make it so. They are built from parts brought in from around the world. In fact the most American Car in the Datona-500 were the four Toyota's. NASCAR nation indeed. If it weren't for China the NFL couldn't play - they buy all their footballs and uniforms from the Commies.

Barry Ritholz says - oh yeah - well look at Japan - why'd they only have their sell-off tonight - to which Marlyn replies - read my post about the Yen, Barry - for a high-powered, TV appearing, whatever you do in the real-world kind of guy you sure don't know much about international markets. I don't know or care what Cara is saying because he is almost always wrong on everything anyway - and besides he's a Canadian and who cares what Canada thinks.

Point being the markets were oversold, everyone knew they were oversold, everyone wanted to have a fire sale but no one wanted to start it for fear they'd be the only one selling. It is truly that simple folks.

Now enjoy the day and trade like you meant it - and if you ever have the chance to sit it out or dance - I hope you dance.

QID - RT 4

Thanks to Proshares even in a down market there are opportunities - I didn't see this one yesterday but if I had I would have jumped on it (I can't look at everything all the time).

You can see the 5th candle coming back to the EMA 4 and then the 6th candle takes off.

That would have been a great trade - sorry I missed it.

Did The Yen Try To Warn Us?

This is interesting -

What's going on here was the Japanese Yen became much much stronger against the US dollar in one single day. But you can see that half of the move occurred before the U.S. market even opened on the 27th. In fact that green candle between those two red ones just above the dotted line is where the market opened. So the speculators were already anticipating a major sell off of everything U.S. before the market opened. If the dollar weakens then the Yen strengthens.

The problem is a major move such as this has serious impact on the Japanese economy because it makes their goods more expensive world-wide. Consequently the Nikkei 225 went down strong last night not because it was following U.S. Markets or acknowledging some fantasy economic issues but because its currency tightened up so quickly.

Still - it is interesting to see the currency impact ahead of the U.S. market. On the other side of the world the EURUSD picture is much the same except for one significant factor - the Euro round tripped on the dollar in the 24 hour period.

This suggests that all is well once more in the world. We'll see.

Charts from FXSTREET.COM

This Is What I'm Talking About

Notable Calls reports -

Focus Media (NASDAQ:FMCN) had the unfortunate timing of reporting solid 4Q results and good FY07 guidance just as the China A share market fell on speculative concerns. Bad for Focus, but a better opportunity for investors to buy Focus at a price below the recent secondary with a far better risk-reward

Read your Notable Calls

Economics? Economics?

Bull Snot! If yesterday's wacking had anything to do with inflation, recession or anything else dealing with economics then why does this chart look like all the rest?

Gold - the "safe haven" during times of trouble - right GoldBugs - tell me another story.

Personally I think the "safe haven" is Radio Shack as this chart clearly shows -

I'm going to start a "cult of Radio Shack" and its members will be known as RashBugs and I will be called "the Big Tube" - Hmmm - maybe not but look at the two charts and and try to figure it out - I can't.

The Edge

Let's say that the fundamental nature of most of the stocks that were crushed yesterday had nothing to do with their crushing - just that when a beat-down happens during a riot everything gets beat and names are taken afterward.

Let's also posit that the crushing was a bit overdone - as seems to be the sober consensus this morning.

And even though Europe and Asia are still being crushed - Europe is looping back up and the futures are massive green. What does that leave us?

Well let's say that you were to write a filter and what you would look for were stocks that up until Monday had appreciated more than 25% in the past 66 days and dropped more than 5% yesterday. (All of these numbers are totally arbitrary). And if you did that what do you think you would find? A long list of stocks that up until yesterday most every body wanted to own.

Then let's say you then went through these stocks looking for ones with smooth, ever-rising closing prices for the past 6 months or so in the range of 15 to 35 dollars with high average volume and ones that you'd want to own too or maybe even ones you'd owned once in the past - what do you think you'd get out of that? About 30 matches among which we find -


And I'm calling this short list "my recovery portfolio" and let's see where it goes.

And if you think I am the only person who is doing this at this time of the morning (4:30 A.M. EST) you are nuts. There are 8500 fund managers out there who have ordered their minions to do the same thing - because we are all after the same thing - the edge.

Tuesday, February 27, 2007

Wrapping Tuesday

Wow! Well I've been saying that we needed a blow-out and I think we got one. Now, of course, the question is what's going to happen tomorrow?

Given my aversion to losses I sold everything off except for LQDT. I doubled up on it this morning and managed to make up a lot of my losses when it peaked out around 20.80 or so. I sold shortly thereafter and doubled up again this afternoon at 19.98. I reacquired WLT on the bounce for tomorrow. I need 12 cents from it to get a break even on today. I need about 30 cents from LQDT to cover everything else for good.

What happened? Well what always happens - an oversold market started falling and the hedge funds panicked and like a herd of crazy steers just stampeded it down. Why the hedge funds? Because that wasn't retail traders. They sit around and wait. Funds move quickly and program trades start the avalanche.

But this is the view you need to see -

I first started showing this view in December and at that time I said it looked like we were getting too far away from the EMA 90 and a correction was needed. Since then it's only become worse.

It's also pretty obvious that we're still oversold and we could go down quite a few hundred points more. I don't know if that's what will happen but you can see from this chart that we are overdue a visit to the 90 EMA and it might take a couple of weeks to get there. Now that can happen just as a matter of "swup" (sideways-up) but I think a couple of more blow-offs are needed. Once there it will be time to start making some real money once more.

And while this indicator looks pretty oversold -

You can see here from last year that it can go a bit further down -

Point 155 is in August and 177 is in June. If you look at the chart above you can see what was going on at that time. So it can go a bit more - but not much. The key is the rollover - when it changes direction again we will go up for awhile again.

The important thing to remember about markets like this - if you don't short - your best effort is to take a break and let it sort things out on its own. Normally such a large drop happens over days to weeks - not in one day. But the fact that it did is not unprecedented. I'm going to watch WLT and LQDT and if we get the bounce tomorrow well and good - if not I'll sell off - go flat and wait for NewMoMo to turn around.

I've been doing the up/down ratio for many months now and it is at 9% which is the lowest I've seen it. The VIX went up 7+ points today to 18.31 which puts it at 39% over its 10-period moving average. Last July it spiked to 14.9% which is less than half of today's by a bunch. All 4 indices that we follow and GS - the proxy for the market forever - finished the last hour with deep red/black candles. These are all excellent indicators for tomorrow. Along with these the INDU ATR is an amazing 126 and the RSI(2) is 0.31. Severe drops in the market are always accompanied by huge ATR and an ATR of that level is unsustainable.

I am forecasting an up day tomorrow.

The magic coin is saying ... heads - also calling for an up day.

Having missed today by a country mile or two the score now stands Marlyn 15 - 12 and 5 and the coin is 12 - 15 and 5.

Shuda Picked "Crash"

But I said "We are going to have a boomer tomorrow or a crash - I'll go with an up day."

That was after I said that the INDU ATR had slipped below 80 again. Now there was no reason for that to happen unless ...

Oh well - the first thing I saw as TLB drop to 20.24 from 25.90. I instantly tried to buy every share available - but - guess what - nobody was really selling at that price so now we have a false spike in the data and that just screws up the charting.

But I did double up on LQDT and am already showing profit there. The market is settling and even coming back - the Q's are already 27 cents higher than the low of the day and going up.

My worst holding right now is WIT and I'm probably going to dump that one later today if it doesn't recover some.

I said we needed a nice blow off and with any luck plus some perseverance on the part of the bears this might be it.

LQDT just flashed green after being down 90 cents. (10:17).

What a day its going to be - a lot of opportunity for the day traders and not on the short side - everything is so overblown it's cherry pickin' time.

Monday, February 26, 2007

Wrapping Monday

I did well today - I got rid of all of my dead wood including TLB on its initial pop. LQDT went up for as much an unknown a reason as it went down the other day and I bought back TLB, CRI, and WLT. Kept WIT that I bought this morning and doubled up on it this afternoon. It didn't go anywhere today but I'm thinking that is because the market didn't go anywhere either and tomorrow will be an up day. Unless ...
Dow Finishes Down 15 at 12,632, Nasdaq Finishes Down 11 at 2,505 on Market Correction Concerns

Let's parse that headline - the market went down because the market participants are afraid that the market is going to go down.

It's a shame that America has lost its ability to have a laugh without a lot of foul language or sexual innuendo because that. is. hilarious.

What else did we learn today? The Tres Amigo were down some, down a bit and up a little. GOOG was down some and that makes sense since I think the shine is off that apple - AAPL on the other hand only dropped a bit and MSFT finished the day with an unexpected gain. I don't know how anyone can invest in MSFT these days - talk about a company that is used up. They are probably going to stay in this range for the rest of their existence - and if you don't think that is possible - trust me it is. The only way Gates or whomever is going to change that is with a massive share buy back and that is probably not going to happen. And even if it did it would only move them to another range where they will be locked.

MSFT is a commodity and it will trade like a commodity with the only problem being it will never be in short supply like a real commodity so it will never go up as a result of demand. There is absolutely no product that MSFT can come up with short of a cure for AIDS or Black Lung that will get them any momentum. And I'm not talking about the odd buck and a half here and there I'm talking about the kind of stooch that makes something like this happen -

Another Seattle firm - well - formerly of Seattle. ("stooch" is an old New York word that means whatever you want it to mean that is big and hairy with cajones that drag along the ground when it moves. I'm not even sure what language it comes from).

The best thing that can happen to MSFT is a correction that takes it back down into the teens so it can come back up to 30 again.

Anyone catch the HPQ and DGX action - today would have been the day to back up the truck and do the triple buy. Of course you could have done that on FRO at 2 P.M. and made some before close. I shouldn't pick on Jimmy Crack Corn Pone - there are like 800 web sites out there that specialize in it but I'm still waiting for that GOOG short squeeze - and I'm not kidding - One would think that GOOG would be shorted to a how d'ya do but it would only take 1 day to cover. Contrast that with TRLG which would take 16 days to cover - absolutely nobody expects that one to go up. FRO also has a heavy short interest (9 days) so who knows.

Cost Of Talent Skyrockets In India

WIT is an Indian company and I saw this headline under its summary on YHOO finance. I'm not sure what people expected - once labor becomes educated enough to be able to use the internet they find out how cheap they are and guess what - they don't stay cheap. Apparently they don't have enough IT workers in India so they're outsourcing the work to the United States to meet their contracts. Kids - you can't make this stuff up.

SSCC shot up out of the gate and then dropped back into a dull sideways move and I couldn't find a reason to buy it.

The up/down ratio stayed the same as the other day at 41%, the VIX is over 5% away from its 10-day moving average, the INDU ATR slipped back below 80 and the INDU RSI is below 5. And this indicator is massively oversold

We are going to have a boomer tomorrow or a crash - I'll go with an up day.

Meanwhile, the coin sat quietly by all day today waiting for its magic moment and the coin says ... heads - up day tomorrow.

The coin won today's race and the score is Marlyn 15 - 11 and 5 and the coin is 12 - 14 and 5.

Monday Monday

Bought WIT and CRI - sold WLT and SYNA - the latter two I sold for not doing anything other than moving sideways. Sold TTI - earnings are coming Wednesday and I really liked the pop I got this morning. I'm in WIT off the RSI 2 filter and CRI because it looks like it might go up a few cents before noon.

I'm 19 cents away from breakeven on LQDT and 19 cents away from stop loss on LQDT - every time it hits 19.30 a bunch of sell orders hits the wire and it can't get by that spot.

These are the days I hate the most - market explodes up in the first five minutes comes back and then sits.

Well I can sit too.

Update - And of course as soon as I sell WLT it takes off for parts unknown. I knew it would I just had to sell it in order to induce it to move.

RSI Selections

Well I spent some time looking at RSI(2)<5 selections over the last month or so and of the top 5 each day 3 were winners and 2 were losers on average - But that begs the issue of how did they do when the market was down and in the last 18 trading days the market was down twice and both times the filter outputs did very well.

I did find that if the filter picked a stock below the lower donchian band it did better than one that was coming off the top band. This would probably work the same with bollinger bands too - so maybe a two parter is a better way to go.

At any rate the market is down as of Friday, is probably going to go up today and my top 5 selections are - WIT, LYV, EXR, ANW, and MHO.

I'm going to put these on the watch list and if they start stirring I might take some day trades in them.

Not an invitation to speculate in the stock market - just an observation.

Humana - Bouncing?

Notable Calls says - CBO devotes a section to potential Medicare savings, including Medicare Advantage. This caused a sell-off of managed care stocks late Friday, particularly Humana (NYSE:HUM) (stock dropped 3% in 8 mins & closed -2.3%); however, the Medicare Advantage savings options are no different from those that were contained in the CBO report two years ago.

Firm thinks sell-off on HUM was over-done. They expect a rebound on Monday when investors realize there is nothing new here. Reiterates Buy on HUM as the stock is trading at a forward P/E at the low-end of its historical range.

Read your Notable Calls

SPX RSI(2) < 5 -

Red Hue mentioned another bit of research on Trading Markets regarding the best time to buy stocks being from the 23rd of the month to the 1st.

I agree with this. I've done similar research and discovered that market, in very large generalities, is lower towards the end of the month and higher in the first couple of weeks. It has to do with supply and demand - demand is higher in the beginning of the month because of the retirement fund money (billions) pouring in and option manipulation money (that's a joke for Jimmy Crack Corn Pone) and when these two things run out the market quiets down, generally, and stocks, in the absence of demand, fall.

I don't think you could design a viable system around time of the month (Ms Market has PMS - run! run!) (that ought to fix me right up with my female fan) (George Clooney has female fans - I've got fan). The reason being too many moving parts - too many economic announcements and earnings announcements and just the world situation in general.

But the idea did get me thinking. What if you designed a method that relied on the market being below 5 on the RSI(2)? So you would only buy when the market, as represented by the SPX or other derivative, was down and you only sold (short) when the market was up.

It makes more sense to go with the flow of the market than go against it. I'm going to try to program that into my filter model and see what happens. Dogwood - if you are reading this might be something more easily done in wealth-lab so maybe you could give it a try.

Sunday, February 25, 2007

Cramer Speaks - Again

Seeking Alpha - Miriam Metzinger

Hewlett-Packard (HPQ): 'I know a lot of people are saying, 'Jim, shouldn't you run tail; shouldn't you just admit that HPQ wasn't a good quarter?...' No! HPQ was a good quarter. The guidance was good. Mark Hurd has done a great job ... I am telling you to back up the truck HPQ - right here at $40. I see good quarters out for the next 8 quarters ... triple buy!'

He must be taking peyote to be able to see that far. I see a stock that is poised to drop - it's a 60% probability of 36 before 46. If you "triple buy" I'd keep a tight stop.

Quest Diagnostics (DGX): 'People think the margins are bad ... The quarter is going to be good! The margins are good! The stock is cheap! I would buy, buy, buy DGX!'

Another triple buy. This stock isn't cheap - and it is being run out of Dodge by the insurance companies who can't take its charges any longer. That's the problem with a company that relies on insurance to get its bills paid - they tell you how much you can make.

Here's their main competitor - which chart looks better?

Frontline (FRO): 'I say ix-nay on the FRO.'

I don't know why. I doubt that he knows why. Something to say I guess - here's the pivot picture

The guy is a menace and someday someone is going to sue his butt off and win. And it won't be someone who bought one of his recommendations and lost money because he always covers it there - but someone who lost a bundle because of one of his throwaway lines - I say ix-nay on the FRO.

I want you to remember I didn't recommend any stocks to buy in this post - I only reprinted what Jimmy Crack Corn Pone said to do. Do your own due diligence and always keep in mind - Jimmy is at best a 50-50 picker - proven.

Williams %R

There are many ways to skin the technical analysis cat and two of them are the Relative Strength Index (RSI) and the Williams %R.

First the RSI. TAZ Trader reports on a six rule method from Trading Markets that is an "improved RSI(2)" method. Because I am always interested in any method that can be programmed into my modeler I adapted their method to my own. Their method exclusively followed the SPX or its derivatives while mine selected individual stocks. Now that isn't necessarily the same but for all practical purposes I don't buy the market so if it doesn't work on individual stocks I don't want to fool with it.

TAZ Trader then goes on to talk about his method that uses Williams %R. Apparently he prefers a three period Williams %R to the RSI(2).

So I wrote a couple of filters and here are my results -

The Trading Markets method output a 65% win ratio with a 105% ROI - this isn't bad.
The Williams %R(3) method output a 62% win ratio with a 150% ROI - this is just fine.
The RSI(2) method output a 72% win ratio with 162% ROI - that is excellent.

Here is the RSI(2) method -

show stocks where close is between 15 and 35
and average volume(90) < 500000
and rsi(2) < 5
and volume 1 day ago > volume 2 days ago
and volume > volume 1 day ago

Now I tried including a volume statement in both the Williams and the Trading Markets methods (although it isn't called for) and it only lessened their efficiency and effectiveness.

But here is an interesting aside - even though these are supposed to be extremely short term filters - if you hold the stocks you select using them you will hit some home runs in the next 20 days. The Williams %R filter had a whopping 6.58% net change over 20 days and the RSI(2) turned in a respectable 4.31. The Trading Markets method was a more pedestrian 2.5 not bad but nothing to get excited about.

I'm going to stay with the RSI(2) < 5 method as it seems to be better on the individual stock basis. But there is nothing wrong with using either the Williams %R or the Trading Markets methods if that's what you want to do.

SSCC Setting Up?

We've been working with the monthly charts this morning and I happened to notice a couple of charts that appear very similar (fooled by randomness?) in SIAL and SSCC.

First SIAL

and then SSCC

You can see how SIAL set up many months ago so I'm wondering - is SSCC setting up now in the same manner? SSCC is a paper and paper products company not hardly in the league with WY or IP but it has been around for a long time. What intrigues me about this stock is the fact that the insider activity is a constant barrage of acquiring stock (directly at no charge) and selling it off immediately. In the past 12 months there have been 98(!) insider transactions but the net effect was to increase their holdings and there were more buys than sells in a ratio of 2 to 1 both during that time and in the past 3 months.

I've followed SSCC for a number of years and every once in awhile take a piece of it. It never did much so I never held it for long but this looks like a good opportunity to buy some for a bit more than a couple of days hold. If I decide to do so on Monday I'll let you know.

If you decide to buy some of this stock you will do so on your own - not as a result of anything I've said.

Monthly Charts - Blow Off Bottom

I often say that you can find a blow-off bottom (BOB) on every chart frequency from minute to monthly - here are some monthly charts proving the contention.

These are all past of course - I've gone through a number of charts and the only one I could find that is current is this one -

And, of course, this is not an invitation to speculate in the stock market - as always do your own due dilligence. More importantly get several hundred charts, set up a two-year monthly view and see how many BOBs you can identify and then make note of how many BOBs failed. It might be the most important thing you do (stock market wise) this month.

Inquiring Minds Want To Know

Bullish Jim asks the question - why would anyone buy YHOO over GOOG? And then he makes a fundamental case for GOOG versus YHOO and GOOG wins hands down.

I say if I look at these two charts side by side it is obvious which one I'm going to buy - I'm going to buy the one with the most momentum. The trade for the last 18 months has been buy the dips - sell the rips and until that changes that's how you should play.

GOOG looks like it is flattening out after its recent move to 500. Of course after a strong down month it usually has a strong up month so March may be a lot better for it. Another thing to look at is the way the volume is just dropping off so severely. I think everyone who needs to own GOOG owns GOOG and there is very little retail or wholesale interest at this time.

YHOO on the other hand is just coming out of a dip and is now showing a cross over formation. There's a good possibility that YHOO might pull back after two strong months so be ready if that starts happening. Notice that the volume in YHOO, while not as large as GOOG stays relatively stable.

Monthly Charts

Why would a day trader look at monthly charts? To find candidates for day trades, of course. Everyone should use the monthly charts to inform them of the trades they are about to take. Let's look at an example - BEAS - here is its chart from Friday

That's one massive haircut but it came from a news story that said that BEAS was going to buy a brand new but 5 years vacant office building and move its headquarters staff there. Obviously Mr. Market said "not a good idea" - but, what does Mr. Market know? Nothing - that's right - nothing.

If you look at BEAS on the monthly charts what do you see?

A stock coming down from a peak with a four month decline. Let's say that in the next several days BEAS recovers a bit more of the hair cut it took on Friday - what would you see then? Two spinning tops in a row. Which would suggest a stock poised to recover. So I would put that stock on my day trading watch list and on my swing trading watch list and if it began looking better I'd get some.

Saturday, February 24, 2007

RSI Revisited

A number of trading posts talk about the RSI(2) as a means to quick profit and for all practical purposes I believe it to be so. I did a post some time back that got good results from an RSI(8) but I think that if you adapt to the techniques that other traders are using you are probably better off in the long run. This is because you can exploit their weaknesses - and that is what you want to do.

This morning I read an article published by Trading Markets and reprinted in Yahoo Finance regarding several ways that they select stocks for trading.

One of these was using the RSI(2) and I quote - 2-Period RSI Below 2: These are stocks that have a 2-period RSI reading below 2 and are trading above their 200-day moving average. Our research shows that stocks trading above their 200-day moving with a 2-period RSI reading below 2 have shown positive returns, on average, 1-day, 2-days and 1-week later. Historically, these stocks have provided traders with a significant edge.

Needless to say in my never ending quest to rid the world of Simple Moving Averages this one caught my eye. I said - well - I have to test this theory out - so I wrote a filter.

It's a simple filter as filters go -

show stocks where close is between 15 and 85
and average volume(90) < 500000
and rsi(2) < 2

And I back tested it. I got some pretty nice results - 68% win percentage and 129.73 ROI. This is not too shabby.

Then I modified the filter to add a line - and close > ma(200) and back tested that. My results were 64% win percentage and 51% ROI. Wow - talk about a fall off in profit potential.

I modified it once more to change the line to close > ema(90) - the results were even worse - 55% win percentage, 44% ROI.

One more modification to close < ma(200). This time the results were almost the same as they were with no moving averages involved at all - 68 and 131 (a little improvement in the ROI).

A final modification just to close the loop to close < ema(90) and that improved the ema results to 66% and 127% ROI.

Bottom line - the moving average doesn't matter - RSI(2) < 2 with a play on the highest volume output that day is a good short term winner without considering a moving average. But if you are going to use a moving average of any kind - go low not high - in other words - below is better than above. Which just serves to reinforce our common refrain - distressed stocks do better than high flyer's in the short term.

Traders Action Zone

Everyone who reads this BLOG recognizes this as what I call the Return to 4 (which can also be a return to 8 or a return to 21) -

And I'm deliberately using this particular stock because I wanted to show that you don't have to have a gap-up to obtain the same basic results from the same basic rules. But this guy, Taz Trader, calls it the Traders Action Zone and describes it thoroughly in this post - Trading Pullbacks.

So go read about it on his BLOG because he has some interesting things to say and shows a neat idea using the 10 SMA with the 30 EMA. And there is nothing wrong with that.

This is not an endorsement of TAZ trader's commercial site - just some good ideas my readers should know about.

But be careful waiting for pullbacks because sometimes this is what happens -

And you miss most if not all of the move. But if you came upon this in late June let's say you would be hard pressed not to say to yourself - Hmmm - 10 SMA crossed the 30 EMA, last two weeks pulled back to touch the 30 EMA - I think I'll take a flyer - and voila - profit. (CRVL had a 3 for 2 split so the prices shown are not the prices you would have gotten at the time).

Four Charts

Wanted to show you this from yesterday morning - sometimes things come together in strange and mysterious ways. I think I mentioned once that I sometimes watch the 4-minute charts for turnarounds and I especially do that during the periods when the market is declining. I've noticed that I can occasionally scalp a pretty good return if I keep my eyes open for traders trying to sneak in some cheap buys. Anyway this set of charts was on my screen yesterday -

And they were sitting together just like you see them here. All of a sudden tweezer bottoms started coming up. And, as you can see - there were reversals occurring as a result.

These charts are from Quote Tracker - they don't know me over there so it doesn't make a difference to me if you sign up or not. I like the fact that I can customize the charts to any frequency and time span and that they lock together like this on the screen (takes up less space that way). Of course you can layer the charts on top of one another so only the most recent candles are visible. And then if one of your indicators lights up you can hit that chart with the cursor and see what is going on.

Again - only hardcore chart watchers need apply - if you don't have charts up all day long it probably isn't worth the time and effort to set it up.

Is CRVL Ready - Finally?

CRVL is a stock on the decline - it hit a wall several weeks ago right after announcing. There is no apparent reason for this swoon except that it made its number and then some (double) but didn't announce another stock buy back program. At least that's my guess. Of course it is possible that people started to notice that there were 45 insider transactions in the last 12 months and 41 of those were sales - or that of the 21 insider transactions in the past 3 months 21 were sales - I don't know what is going on there but it looks like a lot of insider folks are taking advantage of the huge run up in price to finally buy that double-wide they always lusted after down in the trailer-park.

Anyway it formed a nice DOJI star on the weekly charts which is otherwise known as a "dummy spot" so it might be a good stock to watch for a reversal.

The fact that this was a gap down following a red candle makes it a set-up for a morning star. If next week's candle is white/green then it will be a morning star or as they say down on the farm - ake no myojyo doji bike - easy for you to say. At any rate - a reversal signal.

Friday, February 23, 2007

Wrapping Friday

Excellent day - I was hoping for yet another down day and we got it. This should be it for awhile - the INDU dropped through the 21 and then came back up to sit on it - that's generally a good sign.

I'm still holding LQDT, about 21 cents down, SYNA, about 51 cents down (4 cents higher than my planned stop - if it opens down on Monday it's gone), TLB, I'll talk about this one later, TTI, today's success story, and WLT, 19 cents down.

I lost TLB to a stop early this morning but I reacquired using the 4-minute charts and tweezer bottoms - see if you can guess the four places where I reacquired this stock from this chart -

This chart is from Quote Tracker and I set up a filter that watches in real time for tweezer bottoms on the 4-minute charts. Tweezer bottoms are very efficient on the low frequency charts and I bought it each time the arrow popped up on the screen.

The three Amigos, AAPL, GOOG, and Mr. Softy dropped today and that is a good sign too. The market is desperately in need of a blow-off to get the pressure out and provide some buying opportunity. The last several days have provided that.

Bubblevision was talking about a 5 to 10% correction and you know that I don't even think in those terms - I believe that I showed you in my recession post that this market was turning up and it has a long way to go yet before we get to a 5 to 10% correction (he says - I'll probably eat those words on Monday evening but I feel good about it right now).

This indicator suggests that we have gone down far enough and will be turning around fairly soon.

And the up/down indicator says 41% which is lower than yesterday (yesterday's post contained a typo on this indicator - it actually was 49% and I typed 40%). That drop is significant even if the VIX remains neutral - stupid VIX. The best indicator - the last hour of the indices are all black/red and that is always a bullish indicator. The INDU ATR remains above 80 at 83 and change so put it all together and Monday - we are going up.

The coin says --- we are going down - well - it's a race.

Marlyn wins this leg and the score is Marlyn 15 - 10 and 5 and the coin is 11 - 14 and 5. I'm doing a lot better than luck now - and that's pretty good.

Bought TTI

I bought TTI, an oil equipment firm that is going to report earnings next Wednesday. I doubt I will hold it through earnings even though I believe it will be reporting good values and give good guidance. We'll see and I'll let you know.

The rest of the market is in chop mode and I believe I will take another day off - or at least until this afternoon. Just don't feel like chasing today.

Thursday, February 22, 2007

What's A Recession Daddy?

Your kid ever ask you that? Probably not - if it isn't a video game they don't want to know anything about it. Even if they did up till now you'd probably only give them the official Government crapola:

(from Wikipedia) A recession is traditionally defined in macroeconomics as a decline in a country's real Gross Domestic Product (GDP) for two or more successive quarters of a year (equivalently, two consecutive quarters of negative real economic growth).

Multiple guess - this definition is used by the Government because it is: a) widely accepted by all the bobbleheads on bubblevision; b) politically correct; or, c) absolute bullsnot designed to keep the masses under control.

The correct answer is - d) all the above.

There is another definition (also from Wikipedia) The National Bureau of Economic Research defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." The National Bureau of Economic Research is not a government agency - figure that.

Note the careful wording by the author - "ambiguous". Please tell me what is ambiguous about "a significant decline in economic activity..." In other words if it can be accurately measured it is, to that author, ambiguous - must be a CNBC writer.

Obviously I prefer the second definition because GDP which is the most politically manipulated load of datacrap ever perpetrated on mankind does not appear anywhere in it.

Given the real definition I will now show you a couple of charts - these charts have annotated on them all of the recessions dating back to the end of the Eisenhower administration. I am showing that "a significant decline in economic activity spread across the economy, lasting more than a few months" is measurable. For this I selected the SPX because it is a bit more stable than the Dow, I am using a monthly basis, and of course Marlyn's amazing Curve.

We first have the period from 11/58 through 12/82. I selected this period because it contains the beginnings of the "great society", the start and end of the Vietnam conflict, and the absolute worst period of inflation the country has ever known since the end of WW II. You will note carefully that this period also contained a massive recession that finally bottomed in 3/75 and despite the fact that growth was robust from then out, Jimmy Carter was still elected president. So apparently at that time it wasn't "the economy, stupid".

The second period covers from 1/83 to the present time. You will note that the greatest economic expansion in the history of the country occurred during the Clinton Administration and the worst recession occurred during the Bush administration and neither president had anything at all to do with either event.

Kids, Presidents and political parties do not cause nor cure recessions - recessions are caused as a result of a slowing down of the economy and they are cured by the economy heating up again. It is known as the business cycle. It is as old as time and there ain't no repealing it or legislating it away. And despite the blah blah blah of useless politicians who exceed their Constitutional reach each and every time they attempt to do something about it - it can't be changed. Nor can the Federal Reserve even using all of their Harry Potter like magic spells will it out of existence - why - because it has to do with consumption.

In the past 46 years there have been 14 recessions of varying depth and severity. We are obviously either entering into a recession or exiting from a recession. You see there is no one place in time when there is a recession - the economy is either receding or expanding - there is no stasis. Stasis in an economy is death and you don't want that.

You could say they occur about every 4 years on average but that would be too simple. They occur when they occur and they are a direct reflection of the strength of the previous recovery. We just came out of one last year which was a reflection of the weakness of the recovery from the great depression of 6/98 to 3/03. And you didn't even know that a recession took place - did you?

Well it did - these charts don't lie. They reflect the strength of the returns of the stock market. And what do we know about returns? Returns go up when the stock market goes up and the stock market goes up when businesses report - what? - That's right - great earnings. And when businesses report crappy earnings the market goes down - i.e. returns diminish.

And earnings are directly related to what? That's right - income. And income is related to spending and when people really feel crappy they spend.

What - you didn't know that? You didn't know that people spend more money when they feel bad than when they feel good. Of course you did - you do it yourself - we all do - buying things makes us feel better. Why do you think automobile sales pick up at the bottom of these cycles?

And when do people feel worst of all? At the bottom of a recessionary trough. And what happens at the bottom of a recessionary trough? Companies reduce prices to entice people to spend money. And then they spend and then the economy grows again and then the earnings go up and then returns increase and companies report good earnings and then and then .... it happens all over again.

Now if you don't believe me about this business cycle stuff here are the two periods end to end - the period with the absolutely worst inflation known to America and today where we talk about inflation as if it were important - if you can't see any difference - well, guess what - neither can I.

I know - it's a little hard to comprehend and certainly contrary to everything you ever learned in ECON 101 but if you think about it you will have to agree with me - neither the Government nor the Fed has anything to do with any of this - it is people spending money that makes all the difference. And they bought us out of a really mean recession back in the 70's when interest rates were going up by deciles and not quarter points because people could care less about interest rates. People also do not care about inflation. People only care about themselves and about feeling better.

It is that simple. Of course - you'll never see it in a text book because if it were ever proven a half a million economists would be looking for work and they really aren't qualified to do anything - I mean look how they defined recessions - in a way that requires them to identify one.

Thursday Wraps

Well I did it - I took a day off and didn't miss it. I said in my post this morning that I had bought SYNA, WLT, LQDT and sold half of my TLB. Of these LQDT was in the money all day and the other three just drifted. Some action late took them all up to near where they were purchased with WLT poking above break even.

I said if the market was going to be down I would buy them at the close but I didn't know at the time if I were going to be here for the close so I bought them early.

What a day - AAPL finished up 30 cents, GOOG finished where it started and MSFT made all of its millions upon millions of happy owners - 3 cents. Once again tech was up with the semis (I know - I pronounced them DOA a week ago or so) leading the way. Somehow none of that makes sense nor does it fit with the news reports regarding the glut in semis. But if the three Amigos couldn't make a score today I'm telling you something is rotten in this story and we haven't heard the end of it yet.

Of course I forecast a down day today because the various indicators that I look at pointed in that direction. And for tomorrow - I think we have one more down day into the weekend. We just aren't set yet and most of the indicators remain neutral or bearish.

The up/down ratio is close at 40% but the VIX remains neutral. The INDU ATR is at 86 which suggests that it is coming time for the market to turn. But the NewMoMo indicator hasn't broken below -.005% yet and that will be the real deal when it does. That's the direction of the momentum so one more day should do it.

Meanwhile the coin says ... heads - bull market coming tomorrow - stay tuned.

Despite the fact that tech went up the broader market went down so I'm calling it a down day - too many ties lately.

So we both got it and the score is Marlyn 14 - 10 and 5 and the coin is 11 - 13 and 5.

Bruce Lee and Trading?

Go read about Bruce Lee and Trading.

Taking the Day Off

I decided to take a day completely off - I bought SYNA, WLT, and LQDT and sold half of the TLB. And that's where we are staying for now.

See you this evening with the wrap.

You Can't Make This Up

Stock Futures Rise After Inflation Fears

That is the headline in Yahoo Finance at this very moment - are these people real? Do they think? Obviously they don't - but they have to write something and that is what they write.

At this moment (8 A.M. EST 22 February) Asia boomed - Europe is booming - the futures are booming - GOOG and AAPL are both up well in the ECN pre-market - NASDAQ pre-market is booming and ...

What happened to the inflation? Is it gone? Did I miss the announcement - where was I? Was I in the can again? Oh come on - was there a party? Hats and whistles and balloons ... Oh man I miss all the fun.

What a bunch of dogblend.

Later - after I finish it I'll show you what a recession really looks like - it is nothing like what the Government thinks it looks like. My way of looking at recessions is actually real and not political - won't that be exciting? I doubt it but at least you'll have a clue.


Another good hit from Notable Calls - NMTI, a drug company, has a new wonder drug that is moving along the trials nicely. Here is the chart and it is nice too - a breakout - unless these old eyes deceive me.

Now go read the article.

Not an endorsement of NMTI - just an endorsement of one of my favorite, information sources - Notable Calls.

Two Fer Thursday

I'm going to take introductory positions in WLT and SYNA today - and depending on the mode of the market at 10 A.M. I'll take the position either this morning or at COB. By that I mean if the market (SPY) is going up at 10 I'll buy then if not I'll wait till close. This helps get a better price on the day of purchase.

Why WLT and SYNA? They popped out of my "three month low" filter (which is still bring home winners) and I had enough time this morning to do some due dilligence - at least Marlyn style. As you know I'm not that interested in what they do only how well they do it and apparently both these companies are in good hands management-wise. Institutional holdings are in the 90's so there is a low supply and both companies are distressed and coming off the bottom.

Here is SYNA


WLT insiders are buying with both hands but SYNA is kind of a mixed bag - the institutions are buying but some of the insiders are selling. I'm not too concerned with that for the moment.

I'm targeting SYNA for 1.25 up or .65 down (1 ATR). After it hits the 1.25 up that will be the new stop and I'll take it day by day after that. WLT's target is 2.00 up or .87 down (1 ATR).

As you know I am a proponent of pivot points and I have learned to use the pivot point method as kind of a moving average. Using that method I produce these kinds of charts -

This is WLT and what you do is fairly simple - when the red line crosses the blue line you buy. The method is a bit slow - in other words the move is under way when the cross occurs but I like that because it reduces the number of switchbacks. As you can see in this example sometimes the red line sits on the blue for awhile and sometimes it just takes off. I prefer it when it just takes off - naturally.

Again this is not an invitation to invest in any stock, bond, mutual fund, or your Aunt Nellie's latest get-rich-quick scheme involving alligators and barbecue sauce (although you might stand a better chance with Auntie than with the "uncles" down in the pits - wink wink).

Wednesday, February 21, 2007

Do You Believe This BullSnot?

From The indices finished mixed Wednesday as a modest warning signal about a potential firming in inflation rates weighed on sentiment and exacerbated the temptation to take some money off the table.

That is so freaking laughable I'm not even going to provide a link - if you really want to read more of this crap you'll have to find it for yourself.

Six years ago there were about 8,500 funds registered to do business in the U.S. That number is now about 12,500. They probably have several hundred thousand individuals working for them. In addition there are probably 1 to 2 million (or more) active traders in the world all trading the U.S. stock market.

Do you think that those several million people were all simultaneously concerned about a modest warning signal about a potential firming in inflation rates that their sentiment was affected and they decided to ???. I haven't got a clue what they all decided to do in concert and neither do you. Here is the definition of exacerbate:

–verb (used with object), -bat·ed, -bat·ing.
1. to increase the severity, bitterness, or violence of (disease, ill feeling, etc.); aggravate.
2. to embitter the feelings of (a person); irritate; exasperate.

In what regard does that fit with: the temptation to take some money off the table

Aggravated the temptation - increased the severity, bitterness, or violence of the temptation - embittered the feelings of the temptation - - - This is enough to make your head explode.

And if the temptation was to take some money off the table don't you think that the one area where the money was greatest would be the place to remove it - i.e. the small caps? But the small caps went up. So apparently they took money off the table out of the loser caps and put it into the winner caps because they were afraid of a modest amount of inflation. That doesn't make sense.

And you wonder why I pay absolutely no attention to that garbage - and you know what else - people actually pay for that crap.

Wrapping Wednesday

I got my rest - didn't do much but play with my new toy - Quote Tracker. I'm pretty pleased with it so far and I think that once I have it completely set-up to my way of doing things I'll be a lot happier with it.

I did manage to double up on TLB and I sold off SOFO for a small loss. I just can't stand cheap stocks - they only go one direction rapidly and that is down. I published my whine about CRI this morning, at one time it was up over 2 bucks and finished the day about 70 cents to the good. The three Amigos, GOOG, MSFT, and AAPL were all up strong today as was small cap in general. But I'm still confused with the Q's - I don't think that spike down yesterday in the last minute was real - I'm wondering what's going to happen once the settlements start coming in. Aside from the tech most of the more mundane stocks didn't do much except bounce around all day.

For tomorrow I think we stay down. Even though the up/down ratio is at 42% that still isn't low enough to make a real difference - the INDU ATR is 80.48 so it is sliding out from below the 80 barrier for the first time in several days. This is consistent with this indicator as you may recall from the chart - there is always a delayed reaction to its going under 80 and then it always pulls out a day or two ahead of the market resuming the upward direction. I wouldn't be surprised to have another 30 or 40 points down tomorrow before resuming the upward trajectory on Friday.

The NewMOMO indicator continues to suggest a down market (except for small caps)

Because the market was so solidly mixed today I'm calling it yet one more tie - and this gets more and more bizarre as we go along. The possibility of a mixed market really doesn't exist up until this year when we seem to be having one every week or so. I'm not sure what that means but I'm not sure I like it - either the market as a whole goes up or the market as a whole goes down - this part up - part down doesn't make a lot of sense. I'll discuss this in more depth in another post and I think you will agree with me.

The coin is calling for a down day tomorrow also. So that makes two of us in the universe.

The score is Marlyn 13 - 10 and 5 and the coin is 10 - 13 and 5. Too many ties.

Quote Tracker

As promised here is a review of Quote Tracker. If what you do all day is sit around watching a screen you can do far worse than Quote Tracker but not much better - especially when you like to "roll your own" as I do.

As I mentioned yesterday the interface takes a bit of getting used to and the help panels could be a little less detailed and a little bit more helpful (I think a deeper level of indexing would help) but the service department is quick to respond and although I managed to solve most of the problems on my own they did provide some help. (I don't think they are used to dealing with old folks so you kids shouldn't have too much trouble).

But once you are through the basics (which takes far less time than I'm making it out to be) it is a wonderful piece of software and for 60 bucks a year it's a bargain. And if you decide not to keep it they promise a refund of the unused value. There really isn't any reason not to try it.

So if you have a data stream that you already pay for either separately or through a brokerage account you won't have any problems getting up and running with their software. If you don't have a data stream it is easy enough to get one and the instructions are on their site.

Now I wouldn't recommend this for people who don't sit and watch charts because it really isn't necessary for the casual trader - but if you have nothing to do all day but trade - this might be a good application for you.

What I'm showing here is a chart that I use - this one is for QLGC. On this chart you can see that two of the candles have a little widget drawn underneath them - that is what I use to indicate a "dummy spot" and the 11:30 candle is colored purple - that's a completed BOB.

Quote Tracker also permits alarms to be set up but I haven't done that yet so that will be the subject of another post in the future - I'm just pretty pleased with my progress to date.

Nobody Knows Nothing III

Including - or maybe - especially - me.

I give you CRI - A company that took a huge beat down last week - a company that I was invested in and took the beat down with - a company that I said would never recover to where it was -

And don't I feel stupid this morning? Oh well - live and learn - next time I'll hold the piece of crap all the way to 0 (not).

Wheelies and Hole-ies

And of course we are speaking of HLYS and CROX. Over the past couple of weeks I have seen dozens of kids in stores all over the place rolling around on their Heelies and I've actually seen two people wearing Crox shoes. CROX reported very strong earnings last night and targets on them are being raised even as we speak. (Notable Calls). But this isn't the chart of a company where the investors expected a good story -

Of course it will get better today.

HLYS also had a bad looking chart - up till a week ago.

I'm not sure why HLYS is suddenly catching fire but I'm not going to invest in either one of them. I think that once a fad reaches the East Coast from California - it is over.

What Are The Cyclicals Telling Us?

I read an article via Seeking Alpha by Eddy Elfenbein that Cyclical Stocks are Soaring and Eddy suggests that this means that the economy is doing great. The fact that I just read this same idea by Cramer suggests to me that Cramer is writing under a different name - or we have finally found out what Cramer's name in the States was. (Back in the ancient times - when Marlyn was but a child there were only a handful of States and when people went out into the territories to search for gold and other treasure they often changed their names - and not to protect the innocent - if you get my drift).

Anyway. Eddy says: I like to track the CYC/S&P ratio, which often gives us a better reading on the economy’s health than any government report. The ratio increases when cyclicals outperform, and decreases when cyclicals underperform. Eddy has a couple of other things to say about this and it is probably worth the read.

So I pulled up a picture of the ratio done from the basis of Marlyn's Curve and guess what I see - we are reaching a turning place. Eddy sees that too - Cramer doesn't - so maybe they aren't the same guy or maybe this is just standard Cramer calling an up in one venue and a down in another. I don't know, I don't care - but if you look at the chart you will see volatility decreasing and that the turn point is very near.

This chart is on a weekly basis and shows the last 8 years or so of the ratio. That puts it back into boom time, through the last recession of 2001 - 2003 (boxed in on the chart) and into the current times.

Now here is Marlyn's curve - this chart shows how these two indices play together - but the one thing you can't help but notice is that the SPX turns first - both down and up. Very seldom do the "cyclicals" lead. The second thing I noticed was the same thing I noticed on the other chart and indicated with the arrows and lines - volatility is disappearing even in the cyclicals. This chart is the same basis as the last.

The last thing I want you to make note of - the SPX is rolling over. Now that doesn't mean that it has to go down very far and in fact it doesn't anymore but it is going to take a rest in the near future so be prepared for it when it comes.