Tuesday, May 22, 2007

Leaving The BLog Up

Yes indeed - for as long as blogger permits.

Monday, May 21, 2007

The Last Wrap

As they say - all good things must come to an end and most bad ones too. I've been putting this off for a few days and I can no longer delay the inevitable.

When I retired I never stopped working I just did some other things such as trading full time. I've made a living trading on a daily basis, I've learned over the several years that I've done it how to do it. In the beginning I made every mistake known to man and a few more besides. What I've learned is that a couple of simple approaches done over and over again will make a lot of money in today's market. Cross overs, BOBs, pivot points, RSI(2), and ATR(10) have been my life for several years now.

I spent my working years in the service of my country – first because I didn’t know what I wanted to be when I grew up (still don’t) but then, eventually, because it became important. The result of that misspent youth is that I possess some skills that are not that readily available among the general population and because of that I have been called once more to serve my country.

Oh - how I wish it were that noble. Truth of the matter is a friend of mine has a unique job that I can do and I said yes. The hours are long, the work is excruciatingly boring, the rewards are great, and the pay is excellent. Hey – that sounds like trading! It isn’t.

The problem is I have to discontinue Filteringwallstreet. That’s because the nature of the job doesn’t provide the time to do the background work necessary to write the posts.

I'm going to miss this. Trade smart and always remember Rule 1 – nobody knows nothing – including me.

Goodbye friends.

Sunday, May 20, 2007

NR 7

The NR 7 is a very potent candlestick - what NR 7 means is narrowest bar in last 7. And that means that the trading community will probably change directions on the next bar.

Here is SAI from Friday -

Many of the packages on the market that will observe intraday candles will pick out the NR 7 candle for you and send you an alert. For that reason those particular packages are probably worth their weight in gold.

I don't particularly play that trade unless it pops up on one or more of the stocks that I follow regularly - then I will take it. The reason for that is that I feel more comfortable with my farm than I do with new candidates that I haven't observed in action.

The way to play an NR 7 is simple - if the stock has been declining (and it can be used in the Return to 4 method) buy the stock on the breakout of the next bar and put your stop below the NR 7. If you see it form an NR 7 and you own the stock it is probably time to sell.

That's Strange

I just noticed that comments are not turned on for the post "Is Technical Analysis Worthwhile?" - I don't know why that is or how to correct it - so if you want to comment to that post - comment here

Testing - Composite Cross Over II

In the previous post I combined linear regression slope with the cross over filter to see what would happen. Recently stockfetcher added fundamental analysis features to their filtering capabilities and I tried combining Beta with the cross over filter v6.

Beta is the amount the stocks price varies from a baseline index. If the price has more momentum than the baseline then beta is greater than 1, if it has less then the beta is less than 1.

I had always thought that high beta were better stocks to buy. And they are but only when the stock is ascending. In general though low beta stocks have the best returns. The test was simple - back test stocks where beta > 1 and where beta < 1. Here are the results.

One day I intend to run this test over a number of different periods, but for the current period these results are just fine.

I then added a line to the cross over v6 filter that said "and Beta < 1" and tested that. Then I change the line to greater than 1 and test that. Here are those results

Once again the original filter is the better filter but cross over candidates where the beta is < 1 seem to have a better ROI and 30 day net than those where the beta is greater than 1.

So that is one more way that you can look at composite results - using the results to inform between selections if you have a lot of selections on any given day.

Now I haven't tried a linear regression slope plus beta filter - maybe I will someday.

Testing - Composite Cross Over

Many times I like to add some complexity to my simpler filters to see what would happen if...

Today I was looking at the cross over filter v6. That looks like this -
show stocks where close is between 15 and 35
and average volume(90) > 500000
and open < ema(21)
and open < ema(8)
and open < ema(4)
and close > ema(21)
and close > ema(4)
and close > ema(8)
and close > open
and close 3 days ago < ema(21)
and close 5 days ago < close 3 days ago
and close 5 days ago < ema(90)

And I added a line to the filter which contained a constraint for the linear regression slope - that looked like this

and linear regression slope(45) < 0

After testing the 45 day version I tried the linear regression slope less than 0 for a 15 day period and a 30 day period. And then I changed the less than 0 to greater than 0 -
and linear regression slope(45) > 0

And tested every version in that configuration and here are the results

What this shows is that the original cross over v6 has a good win percentage, a good short term (4 day) ROI and a good 30 day net change. It also has a good number of selections. None of the other filters quite matched or exceeded these results in total. But there are some things to learn from this.

If you want a filter that doesn't pick many stocks but those that it picks have a high probability of winning with a great reward to risk factor and a super ROI then you would use the linear regression slope for 30 days greater than 0.

On the other hand while the filters where the linear regression slope was less than 0 did not match the original, they weren't too awfully bad either. That suggests that maybe combining the LRS with the cross over isn't such a good idea but maybe the LRS less than 0 has some promise either on its own or combined with another good filter.

Something to think about - something to look into.

Is Technical Analysis Worthwhile?

As we've already noted in this BLog the global answer to that question is - oh hell no - but, and there is always a "but" - any trader who is making a living at trading who can't look at three candlesticks and "guess" the direction of the market for the next three candlesticks with at least 65% accuracy isn't going to continue making money. And 65% accuracy is better than "guessing" and 65% accuracy over a stream of 3 discrete events is far better than guessing.

For example here is SBUX and my guess today is that SBUX has had enough of the down side and will, market forces permitting, turn up for the next three weeks at least.

What does "market forces permitting" mean? It means if the market as a whole goes up then SBUX should go up.

And where is the market as a whole going? According to SPY - up

Why am I guessing "up" - because there is only one other way to guess and it has more letters in it.

No - not really - I'm guessing up because the SPY weekly chart shows a return to 4 over the past 4 weeks. You can see that 4 weeks ago the open was above EMA 4 and the close was above the open. The following week repeated that pattern. The following week moved sideways and last week the open hit right on the EMA 4. That is a return to 4 pattern and that pattern always means that with a 65% probability the market will be higher three weeks from now. Which means SBUX will, with 65% probability be higher three weeks from now.

CROX on the other hand will not be.

Oh my God, Amy, I can hear you blubbering over here. But, but, but, but - you sound like an old motor boat - just look at the chart and tell me what you see --- that's right a stock that has run away from its base - the EMA 4. So my guess is that CROX needs a rest and will go sideways-down for the next three weeks (return to 4) - after that - who knows - those candlesticks haven't been printed yet.

The CROX chart has a lot of interesting items on it. First is the cross over back in July '06 and if you bought it there as I would have advised at the time (had I seen it then) you would be several hundred percent to the good right now.

It did a return to 4 in Oct and posted a "cathedral of dead money" in the second week of November. (The Japanese literature calls that an evening star). Regardless of what it is called - that that would have been a good place to sell because that's when the funds did. This would have been followed by a reacquisition in the first week of January off the BOB that formed in December.

In November/December do you think that was basing, consolidating, or resting? I'm going to opt for the "Christmas-holidays-end-of-the-year-mutual-fund-tape- painting-and-reacquisition-because-we-must-have-CROX-in-our-fund-
going-into-the-New-Year" formation that is so popular among the TA crowd. (Although I'm pretty sure it isn't called that).

It did another run away from the 4 in February (a crummy month for many stocks) with the end of February general market melt-down and then received new life in the second week of March. Whenever your stock is down on the 21 EMA and pulls back and leaves a long tail - buy it - put your stop under the tail and have no fear. You can see this also on the CROX chart back in May and June '06 - so you wouldn't have had to waitfor the cross over. And remember - the cross over is a very conservative entry - the move has begun by then.

So for about a year or so you could have bought and sold CROX from just technical analysis with no regard to fundamentals, product roll outs or any of the other nonsense that the analysts like to jibber-jabber about. And the only two things that mattered: was anyone else buying/selling the stock which the candlesticks make abundantly clear; and, what is the overall market doing?

So is technical analysis worthwhile? Forget the global answer (remember rule 1) and just learn it and do it. What works works.

Saturday, May 19, 2007

To Each His Own

TradingMarkets is a source of a lot of trading ideas. Here's one that was published this morning in Yahoo Finance. The premise of the article is that you should wait at least 15 minutes after the opening before day trading and that is always a good idea. Now I don't think I would just willy-nilly throw money at a stock as is suggested but if after the first 15 minutes it was bouncing off the S1 or S2 I might take a shot at it - as readers of this log well know and I would probably make some good coin - which you also know.

The one thing however that these guys insist on is that you always trade stocks above the 200 MA. I say that is an interesting idea but not necessarily appropriate to the current market - in other words - bullsnot.

In a recent article (not the one cited above) they describe a 5 day down system where you bought the sixth day after 5 lower lows in a row. We looked at similar methods many years ago and in fact wrote about a couple here in this BLog last year - they don't test very high so I've sort of rejected the whole idea. But TradingMarkets goes on to say (as they always do) to only use this method when the close is above the 200 MA. I say only use it when the close is below the 200 MA. Who's right - who's wrong - two men enter Thunderdome and only one leaves ....

Unlike TradingMarkets who uses a hundred years of data to prove their contention I use only 80 days. The fact that my 80 days just happened and their hundred years happened - oh a hundred years ago must have some bearing on the results of my tests because -

Greater Than MA 200 = 53% win rating, .89 reward/risk, -9.73% ROI
Less than MA 200 = 56% win rating, 1.96 reward/risk, 85.92% ROI

I win. That's significant and case closed. The reason why stocks below the MA 200 do so well is because all stocks that are trading above their MA 200 now once traded below their MA 200. This absolutely incontrovertible fact leads me to think that somebody, somebody really, really, really smart, must have bought them below their MA 200 or they wouldn't be trading above the MA 200 today.

So it's up to you - the TradingMarkets way (above MA 200) or the really, really, really smart way (below MA 200) - your choice.

Here Come The Homies

The other day we had the economic report regarding the lowest number of building permits being issued in 17 years. I said - that's the bottom - apparently a lot of hedge funds read me because -


That's the homie sector ETF and, yes that's a cross over. What I like about this cross over and I don't like about the one several days ago on 05/09 is that this one was preceded by a BOB formation too. And that is an excellent entry into the cross over.

Here's a couple of builders and guess what

And my favorite - DHI

I'm not suggesting that you run out and get some - but I'd certainly keep an eye on XHB for awhile and if you get a weekly cross you might want to get real re: real estate.

Comparing Data Streams

I don't know whether you like ratio charts like this - I don't.

That's because I'm kind of a dull boy and I can never understand them as well as I should at first glance - in other words - I have to interpret what they are trying to tell me before I understand what they are trying to tell me and in the end I'm no more informed than at the beginning. Because - truthfully - the fact that DIA:IWM is currently 1.66+ is absolutely meaningless to me regarding either DIA or IWM.

That's why I invented Marlyn's Curve. The curve represents the same concept except in more quickly understood gaudy colors.

This is the exact same 200 days and I can easily see that, first, the large cap as indicated by DIA is running away from the small cap as indicated by IWM, and second that the DIA is rolling over - which is something you don't catch on the abc:xyz charts.

Now comes performance charts and while not exactly the same as Marlyn's Curve (not as smoothed) they tell basically the same story for less work

John Murphy (stockcharts founder and guru) has hit another home run. Of course this doesn't measure the momentum (which is why I smooth the Curve) so you don't get that but if you want a quick, smart, and low work comparison - performance charts is the place to go.

Wrapping Friday

A little late but it is the weekend and no blood no foul. I didn't observe the market yesterday on my usual, up-to-the-minute basis but I can say this - it wasn't pretty. Only the small caps showed any real spirit. The roller coaster ride yesterday just yields chop chop and that will chop chop a trader's account to pieces. I find yesterday's small cap trace most interesting - is it possible that we will see a rotation out of large and mid back into small? Something to watch for.

I let JNPR go to a very generous stop and picked up two new ones off the new weekly cross over filter - CNO and KTC. CNO is an insurance company that I think will probably return back below the EMA 21 soon and KTC is the Korean telephone company - one of the top 5 Korean companies listed on the NYSE. One lost about 14 cents and the other made about 14 cents and that's how I know that the market is running on empty. If every share isn't participating there is a reason and when two profitable companies don't participate the reason isn't good.

I monitor the three stocks that I call the "three amigos" to stay abreast of technology by watching the three "must-have" stocks of the past 5 years. They are currently telling a story about a market in distress. AAPL made 58 cents, GOOG lost 64 cents and MSFT lost 15 cents. This suggests that the market is drying up and losing momentum.

This also suggests, in a more visual manner, the lack of momentum

The market, regardless of what the indices do, is made up of thousands of individual stocks and a lack of buying or selling causes momentum to dry up. Without buying or selling there is no market and generally speaking a dull market drifts down. That's because in tough times there is always a seller willing to cut his price just enough to entice a buyer.

The INDU ATR went up to 100.18 and that continues to confirm the rally. I'm disappointed that the last sub-80 event was a one day drop that flopped but we take what we can get.

The model portfolio gained 1.26 to 18.07 and the benchmark gained .87 to 8.71. The rate of change in these two components also leads to back to market health. The fact that the model portfolio ran out of gas a week ago and can't seem to get back in the game even though the benchmark is advancing nicely suggests that buyers are running out of liquidity.

The VIX remains in neutral but the up/down ratio printed 68% and I go with the up/down ratio (especially the Monday following expiry). I'm calling Monday down.

The coin is calling Monday ... heads - an up day - we'll see.

I won the contest Friday and the coin missed that makes the score Marlyn 37 - 29 and 15 and the coin is 38 - 27 and 15.

Friday, May 18, 2007

Easy Swing Trading - The ETFs

Exchange Traded Funds (ETF) are yet another way in which you can swing trade - either by trading the funds themselves or, by going into the funds and trading the components after a weekly cross over.

Here are a few of the SPDRs which are probably the best sector funds to watch -

Energy - XLE

You can pick out the cross overs for yourself - you can see - once you get the cross over in most instances it would be a good idea to start picking up some of the underlying stocks.

Here's XLF

This one had a long run after the composite cross over last July.

And finally XHB - the homebuilders

Last November there was that brief flurry of activity that lasted for several months. You can bet I'll be watching this one for the next cross over.

That will do it for now in our easy swing trading series - the point and objective is to get you thinking in different time frames in order to make better profits.

Easy Swing Trading - The Filter

I wrote a filter that will help find weekly cross overs. It is pretty simple and seems to work - at least to the point of getting candidates. After that you are pretty much on your own - the weekly filters don't back test well in stockfetcher.

show stocks where close is between 15 and 35
and average volume(90) > 500000
and weekly open < weekly ema(21)
and weekly open < weekly ema(8)
and weekly open < weekly ema(4)
and weekly close > weekly ema(21)
and weekly close > weekly ema(4)
and weekly close > weekly ema(8)
and weekly close > weekly open
and chart-display is weekly
and add column weekly atr(10)
and sort on column 5

Easy Swing Trading

The best way to select stocks for a swing trade that will last a couple of weeks is to use the weekly charts and watch for cross overs. Here is an example - NTRI

You can see that there were two on this chart - the effect lasted for several weeks each time - and you would have made a couple of dollars on each trade.

Of course you could have a farm - GIFI

With 10 events in 4 years - every couple of months it hits again. Once more some real money is possible.

And still some more examples - these are from the IBD top 10 that I talked about the other day. ARGN

July 05, Feb 06, Sep 07 and continuing. Here's AZZ

How can you not love a stock named "AZZ" - what were they thinking! - Jan 06, Jun 06, March 07. And now BTJ -

Jun 05, March 06, Aug 06 (but that one failed), Oct 06, and Jan 07.

And finally one that Dogwood picked up off a daily cross (which means a short term play), Ruby Tuesday (RT) -

A nice composite (candletrick) Oct/Nov 05, and then a clean cross in Aug 06, and another one in Jan 07.

How do you find these? Put up a weekly chart pattern in just about any package and start filling in stocks that you might want to buy. If you use a price range that will permit you to buy in bulk you will be better off and, when in doubt between several stocks pick the one with the lower ATR(10).

There, almost anyone would have paid $60 for a book containing that information (everyone else would have bought it used on Amazon for $30) - and speaking of AMZN

July 05, Nov 05, a failed one Jun 06, Sep/Oct 06, Feb 07, and Mar 07 it's a gusher!.

Thursday, May 17, 2007

Wrapping Thursday

Played golf again today and am planning to play again tomorrow. Can't shake the spring fever and sitting behind a computer screen all day is not the cure.

And then there were two - I'm down to GGB and JNPR and I will stay in this holding pattern for awhile longer. The model portfolio lost again today to 16.60 and the benchmark printed 7.77. But the IBD Top Ten actually gained a bit to finish at -1.72. Almost all of the action has been in one stock, TNH, which has both dropped 5 points and gained 5 points in the last three days. So for all practical purposes, remove that stock and it is printing -3.02. So you take out a break even stock and the top ten are busy slipping away. I won't report it for a few days now - we'll check back in next week.

The three Amigos are back to normal - AAPL is advancing, GOOG is declining, and MSFT is going sideways having lost 9 cents today. You can have your investments in all three of them - they, to put it plainly, suck.

The VIX remains in neutral, the up/down ratio is at 44% which is also neutral, and the NewMoMo is also at neutral -

The INDU ATR went up a couple of points to 97.55 which means that the rally will continue and despite the neutrality in everything else tomorrow might be an up day.

I'm looking for an up day tomorrow. The coin is looking for an ... tails - down day tomorrow.

I hit today and the coin missed that makes the score Marlyn 36 - 29 and 15 and the coin is 38 - 26 and 15.

See you tomorrow.

ATR Testing

We've covered some of this before but I like to revisit favorite themes every now and again to ensure that new readers have a chance to understand what we do here.

Today I'll discuss the advantage of using the average true range which I use as a 10-period averaged value or, ATR(10). I have reasons for using the 10-period - first it is the one most commonly defaulted on the various software packages I access but second - I've tested other lengths and the 10 always comes up the winner.

When I'm day trading from the minute charts and I have a couple of different selections I always like to use the one(s) with the highest ATR(10). However, when swing trading and trying to select between stocks I like to go with the lowest ATR(10).

The ATR is an excellent proxy for volatility and if you are looking for a quick 50 cent jump you want high volatility. On the other hand if you want a sustained rise over several days you want to start from a low volatility position.

This can be proven and I wrote a simple test to do so. I tested the 4 day to 30 day returns of stocks trading between 15 and 35 dollars with a moderate 90-day average volume of 500000 shares for each of the two following conditions -

ATR(10) reached a new 26-week high = 49% win percentage, .63 Reward/Risk, and -62% ROI;
ATR(10) reached a new 26-week low = 62% win percentage, 1.52 R/R, and 49.74% ROI.

While the low model achieved a much better return than the high model it really isn't anything to cheer about.

But I did capture this low method in the previous filter post - A New Way to Look at RSI(2) and ATR(10). And while I'm not using a 26-week low I am using a low reading that is unbounded.

A Good Day Trade Method

I've always liked the counter trade where the stock opens and then begins dropping and then reverses. For years I played this based on tweezer bottoms, 15-minute BOB's and other indicators - many of which were good, some not so good. But the best way that I have found to play the counter trade is with pivot points.

Here is BGG as an example

At 11 A.M. BGG dropped through the S1 point (green on my display) after bouncing off of it twice before (15-minute charts). As far as I'm concerned it is a high probability point to buy off the 11 A.M. candle just as it transitions to the 11:15 candle and set your stop just below the 11 A.M. candle's low. At 12 A.M. it met resistance at the day's pivot point but based on the thrusting action ahead of this I I decided to keep it and see what happened next. This could also be considered a Return to 4 move which it turned out to be. Once more it went back through the pivot point and finally hit R1. At R1 you got a decisive move down at 14:00 and that would have been a great time to exit this trade. Actually there is no fault in exiting when the stock breaches R1 at 13:15 because the move would be exhausted by that time.

One thing that you might want to do is to examine this chart in the context of the candle's body and the EMA 4. One of the reasons that I use EMA 4 is that it seems to act as an immediate attractor for the stock price. And when the candle's body leaves contact with the EMA 4 either high or low there is almost an immediate attempt by the price to reestablish contact. Now I'm not suggesting that all of the trader's in the stock follow the EMA 4 - they don't but what I am suggesting is that stocks become locally oversold or overbought and the EMA 4 seems to monitor that condition.

The end of the day saw the stock go into an interesting situation - a pivot retest, a crossover, and a tweezer bottom coming off an RSI(2) < 2 all at once. Had this occurred earlier in the day it might have been actionable but I never carry over 15-minute charts from one day to the next.

Wednesday, May 16, 2007

A New Way to Look at RSI(2) and ATR(10)

This was the lead paragraph of today’s economic blockbuster - Home building posted a small gain in April, but permits for future construction plunged by the largest amount in 17 years, a sign the nation's housing industry is still in a deep slump.

When is the best time to buy something? I’ll give you a hint “buy low - sell high.” That’s right – when it is hitting record lows and it is something that you are pretty sure will recover, eventually.

Today’s filter is a new one and once again is a very simple one –
show stocks where close is between 15 and 35
and average volume(90) > 500000
and rsi(2) reached a new 4 week low
and atr(10) reached a new 4 week low

You really can’t get much simpler than that can you?

It tests very nice too both in the short term (4 day swing) and in the mid term (30 day trades).

Short term – 69% win rate, 2.30 reward/risk ratio and a 95% ROI that’s compared to an SPX ROI of 1.54% for the same period. In other words, the market was depressed when this filter was tested.

The net change over 20 and 30 days was 3.56 and 3.63 respectively so this filter has some legs as they say.

The interesting thing about this filter is that as I go back through the previous day’s selections it shows a significant number of wins. Sometimes it takes a couple of days, sometimes a few weeks, but eventually the stocks selected seem to turn up. The best selections however are those that have the highest volume and that are beginning to ascend on the day after the filter finds them.

Here are a couple of examples.

and this one

Now why do you think that this filter is so appropriate to today’s blockbuster? Because this report means that the crisis is nearly over and any small increase in housing permits next month will make the housing stocks go boom. Bank on it.

Wednesday Wraps

I think I'll just burn it from now on - absolutely nothing takes - I get on board and it goes up 20 cents and then bang - crash - smash - gone to hell. It's part of the general malaise of the season - that and hay fever run amok. Fortunately my burn rate is small and I'm making more than I'm losing. Blessed steel - it made Andrew Carnegie and now it is making me.

The headline excuse for this morning's drop is the "mixed housing data" which longtime readers of this site know I would consider to be absolute bullsnot of the finest kind. Bullsnot because this isn't news - it is expected - it is known - and if it didn't affect the markets yesterday it shouldn't affect them today. But it does because the moron money managers out there live in fear. I think most of those guys, no - all of those guys and most of the women bring a change of undies to work every day because every day at least one or more expected news stories will get them crapping their pants. Dumbasses - one and all. It must be awful to go through life being compared to a mindless index which is affected by everything you and every one of your dumbass peers does.

Well there, I got that off my chest and I sure feel better. I think the world would be better off if the stock market only operated on Tuesdays and Thursdays and the rest of the time was devoted to meditation and self-evaluation. Anyway we did make some money today and I think everyone did so I guess once the money managers changed their dainties they came to the rational conclusion that nothing had changed. Morons.

I'm holding GGB, a very small portion of BGG (only because it hasn't hit the stop yet) and a moderate portion of JNPR. Everything else is gone, gone with the wind, gone with the rain, gone to hell. Doesn't matter - I plan to double up on GGB and start looking for some other commodities to buy (not gold or silver).

AAPL actually lost some today and I'm trying to figure out what that has to do with new construction permits but I can't. GOOG made a bunch today and I suppose that's because everyone is doing a search on "housing permits" and MSFT, good old MSFT rewarded its loyal followers with another 17 cents - coin of the realm - better than gold (at least I can take it down to the gas station and add another lot of money to it and get a gallon of gas - let's see you do that with a gold bar).

The model portfolio is starting to mature - it only went up .68 today to 17.66 and the benchmark also went up .68 to 7.98. The IBD Top Ten went up .86 to -2.43. I wonder if today's top ten did any better.

The VIX is back in neutral the up/down ratio printed 58% so that means a moderate to down day tomorrow and the INDU ATR is at 95.74 which means the rally can continue.

This guy pulled into the neutral zone too

The coin is calling for a ... heads - up day - what do you know - the coin disagrees with me. Based on its record vs mine - I'd go with the coin.

We both hit it today so the score stands at Marlyn 35 - 29 and 15 and the coin is 38 - 25 and 15.

I've got a whole bunch of new posts planned including a new way of looking at the RSI and ATR. Stay tuned and if I can find the energy I'll get them out.

Summertime and the Living is Easy

I have the worst case of spring fever ever known to man both physically in all of its manifestations and mentally and spiritually. Consequently it is taking just about every ounce of effort I can muster to post anything - even though I love it so.

That said here is an education in a chart. Listen and learn.

As normal I haven't a clue what this company does or how well they do it - all I see is blips on a screen. Here is what the blips from the past told me - on 3/07 a BOB completed. The blowoff in this instance was so obvious that only a moron could have missed it. Then the traders in this stock kind of swapped shares back and forth for awhile (and yes after the fact we can call that a "base" because it is so obvious) but more important it never went below the low of the second BOB bar. It took about 8 days to break out of the "base" and once that breakout occurred it was full steam ahead for a few weeks.

On 4/24 you got the kiss of death - the "cathedral of dead money" - a gap up away from the EMA 4 that it had been riding and a failure to advance. Sell, Sell, Sell, Sell as my BFF Jimmy Crack Corn Pone would scream. And don't buy back until it breaks 30.60 decisively (that was me - not Jimmy). It didn't. Instead it hit a slide and now look at it. Once more "consolidating" or "basing" or whatever you want to call it (I prefer "not trending" because that is descriptive and actually means something) and there is a good possibility that it is poising for another upward move. Especially since it printed another BOB on 5/14.

I say you could buy it now with a stop just below 25.20 or wait for it to break above 26.10 and take a shot there. Either way it is an impressive chart and might even return a couple of bucks before its next alarming drop.

Of course if it breaks below 25.20 you may want to ignore it and go on to something else.

Tuesday, May 15, 2007

Wrapping Tuesday

I went out to play golf - much better use of my time - of course my holdings all went to hell as a result. But that's the price you pay. If we don't get some recovery tomorrow I might be completely in cash by this time tomorrow evening.

I detailed all my trades this morning so I won't recap them here. I'll just go to the numbers.

The INDU ATR went up to 95.80 today which permits the rally to continue. The model portfolio lost .61 today to 16.86 while the benchmark gained .03 to 7.25. Of course the IBD Top 10 went down 3.27% most of that due to a major loss in TNH. We'll keep track of it.

Both AAPL and GOOG lost money today but the owners of MSFT are singing - "We're in the money" based on that massive 3 cent gain today.

The NewMoMo slipped down a bit more which is good

and the VIX is actually 5% over its 10-period MA. The up/down ratio is printing 35% which is also good.

I'm calling for another up day tomorrow and I hope it isn't another tie day like today.

Coin says ... heads - also an up day.

Another tie so the score stands at Marlyn 34 - 29 and 15 and the coin is 37 - 25 and 15. All of this market chaos has got to come to an end sooner or later - I find it interesting that the broad market (SPX) and the NASDAQ (COMPQ) are both losing while the INDU gains new records. Doesn't make sense.

See you tomorrow with more astonishing information and data.

Tuesday Morning

Can't fool the market - at least not the NASDAQ - watch them tech shares go down. The other thing that was going down was BGG and I should have sold it out two days ago on the hanging man on 5/11 but I didn't. Arrogant fool that I am I believed - so much for believing. I sold most of it and am keeping a handful of shares just in case it might resume the march. I still don't trust this market and I think that that we need a 4 or 5 day correction.

I added to USU on a 15-minute bar cross over at the open and I added onto AV on an S1 hit and bounce on the open. Both those trades appear to be working out.

ANO continues to do nothing and GGB is now my only steel stock and so I'm going to hang on to it for a bit. I think it is getting ready to breakout.

Other than that I think I'm done for the day so I'll see you tonight at the Wrap.

Update - I just can't get enough of it - sold off ANO because it isn't participating (have I ever mentioned that I hate cheap stocks?) for an $86 loss and bought JNPR in its place. JNPR is one of the stocks from my must buy list ("must" in the sense of when you need a quick lift). I'm planning on dumping out of AV too - but I need another 2 cents to cover the round trip commissions. I'm fairly certain I'm not going to get it today.

Update 2 - I dumped out of AV for a $40 loss - didn't get the 2 cents and in fact lost another 2 cents - decided to let it go before it got the best of me. I just couldn't believe.

The Double Cross

Last week I posted this chart and I said at that time it didn't look like it was a good thing -

Apparently it isn't

I think I'll wait for the next cross over.

Tuesday Morning - CPI Day - HooRay! HooRay!

I don't know what to say about this - it hit the expected target but the "12-month rate is lowest in a year" - that's good news and good news and the FOREX market said -

Which is about a benign as you can get in the face of the CPI announcement. The NASDAQ market began pulling up instantly and the futures fair value indicator went green.

We might have a good day after all.

IBD Top 10 Part II

Bullish Jim put a good comment on the first post in this series and it is worth your effort to take a look. And now. as Paul Harvey says, for the rest of the news.

I went through the 10 charts and made an astounding discovery - every one of these signaled its current break out via a crossover of one kind or another. Most were clearcut, a couple were the "candletrick" kind that I wrote about previously.

Check out ARGN - it had two -

One on 3/29, and another really good one on 4/19.

The list goes like this -

AZZ - 3/26
BTJ - 3/06
BWLD - 1/2 and again 2/29
CYNO - 3/07
GSOL - 4/02 + 4/03 (combined candletrick)
MTOX - 2/27
EDU - 3/14, and again 4/3 and 4/4 and 4/5 (in case you didn't get the message)
SYNL - 3/7 + 3/8 (candletrick) and again 3/15
TNH - 3/5 + 3/6 (candletrick)

So there really wasn't any reason why we couldn't have found these stocks on our own without the IBD subscription. Of course you will only read about cross overs here at Marlyn's place.

IBD Top 10

Wandering around the YHOO financial site yesterday evening and I came across an article regarding the IBD Top 10 stocks. I'm always interested in such things and so I took a look and found these ten stocks listed.


Now it is possible that I missed the memo because I don't normally read the IBD propaganda but looking at the charts for each of these stocks led me to two thoughts - thought 1 - well. yes, they do deserve to be on a top 10 list, and, thought 2 - when were they put on the list?

For example let's take ARGN. Was it put on the top 10 list yesterday or on 4/30 which would have been in front of the current move or on 2/20 which would have caught a super move?

And how about BWLD - same questions - same dates -

Needless to say these are hot stocks but will they remain so? My thinking is if this is the first time they've been exposed to the public then there should be a bit of a rush to get on board even at this late date. You know how sheep-like the general retail crowd is - ring a bell and they'll follow anything - including the wolf.

Anyway - I put these 10 stocks in a portfolio and will check back every day for the next week or so and we'll see how well the "IBD Top 10 of 5/15" is doing. It is possible that this is a good screen for a quick in and out swing trade - you never know.

Monday, May 14, 2007

Wrapping Monday

What a boring day. The market is waiting for the CPI data - the market already knows that there will be inflation in it so why it is waiting I don't know but that's the headline story so it's what we'll go with. Maybe there will be a CPI surprise but I doubt it - I smell inflation in the air. But if it comes in .0001% less than the expected then watch out above. To business -

I bought and sold and re-bought USU today. Once this morning and once this afternoon. I sold of AKS and I'm done with it. I'll wait for the next major pullback - I think that stock is finished. I bought (only once) ANO and even though it lost 6 cents on me I'll hold it for awhile. I managed to round out GGB to a full position and now I'm done with that one. If it doesn't continue to rise I'll sell it just as quickly as I bought it back.

There isn't much in the market any more that looks very appealing. I'm still holding BGG and AV and the latter went up today and the former didn't.

At one time today the VIX was actually more than 10% over its 10 day MA and now it is back to neutral.

The model portfolio lost 1.88 to 17.63 and the benchmark lost .21 to 7.24. The benchmark is doing a lot better in a down market than the model. That is to be expected because the model has a lot of high beta stocks in it and they will gain quickly and lose quickly too. It is not a balanced portfolio only a growth portfolio.

AAPL continues the march forward, GOOG continues the retreat, and MSFT continues to go sideways.

The INDU ATR printed 91.23 and that means that the rally will continue (after a small pause).

This guy went down some more -

and that is goodness because what it is showing is a coiling action in preparation of an explosive move up. Well I think so, anyway.

The up/down ratio printed 33% which is in the oversold territory.

As always I'll go with the up/down ratio and call tomorrow an up day.

The coin follows my lead although I don't know why and also calls for an up day.

This was one more split day - they are becoming routine and that has to mean something although what I don't know. Anyway the score stands at Marlyn 34 - 29 and 14 and the coin is 37 - 25 and 14.

See you tomorrow.

Looking At A Couple Of New Stocks

I've got two on the radar this morning. Both are from the Industrial Metals and Minerals group as found on the Leading and Laggard site from Yahoo Finance.

The first of these is USU which has a nice pivot point profile -

and the second is ANO which is a real cheapie but also with a nice profile -

And I intend to take a position in both of these today.

Sunday, May 13, 2007


A reader, Tom, just reminded me of another post I've been meaning to write and just haven't gotten around to - the concept of "basing". I'll start right in with the controversy - there is no such thing as "basing" because it can't be defined, quantified or otherwise measured. The only way a person can know if a stock was "basing" is after the fact.

Here is a picture of INTC - pick out bases -

I'll help

Ok - at what point can we say that the stock is basing? Take "a" for example - do we say it is basing after the second week or the third or the fourth - even though the fourth is actually the first week of the breakout and new trend?

Is "b" really a base and if it isn't, why not? Where did the "c" base begin and what do we call the period between "c" and "c'" - a "hump"? Was there a base between "c'" and "d" - in September? Is "d" really a base and if it isn't what should we call it - a "plateau"? But would we know that before it ended?

Here's GOOG - again with some help -

Again - is "a" a base and are "b", "c", and "d" or only "e"? And how long should a base last?

I'm not picking on you Tom I'm just suggesting that the concept of "basing" is faulty at best and because it can't be measured I never use it. I prefer to say that a stock is trending or not trending. And the only stocks I'm interested in are those in a trend.

And the other thing that I've noticed over 40 some odd years of watching the stocks is that the longer a stock "bases" the higher the probability that it goes down. The reason for that is - most people are only interested in stocks that trend and they grow tired of those that don't.

I'm probably 100% wrong about GOOG because unlike my wiser brethren I freely admit that I don't know anything. And I prove it daily in this BLog.

Supply and Demand

I just read an article in Seeking Alpha by a guy who will never manage any of my cash.

Google: Believe It or Not, The Stock Looks Cheap

He says -
I have been warming up to shares of Google (GOOG) more and more as of late because the stock has been dead money while the company's impressive growth continues. The result of that dichotomy has been a share price that is getting more reasonable on a valuation basis. On Thursday, I began initiating Google positions in some of my accounts that had sizable cash reserves

This guy's thesis is that the market is oversold and one has to be careful where one puts one's money in an oversold market. So he is going to park his client's money in GOOG to protect it. That's not moronic - that's almost criminal.

Here is a chart of GOOG

Now keep in mind that I am not the sharpest tool in the shed - but if the company's impressive growth continues why hasn't the impressive growth in its share price continued as well? In fact, how can a company with such a amazing future predicted growth have shares that are decreasing in value?

There can only be one answer to that question. There are too many shares for sale at ever lower prices.

That is such an important concept that I will repeat it - there are TOO MANY SHARES available FOR SALE at EVER LOWER PRICES. Sorry but I had to shout those words so the hard of learning would get the message too.

The stock market is a world of supply and demand. When there buyers (demand) price goes up until it hits a level where someone is willing to sell. If the demand continues then the price will continue to rise. When there are sellers (supply) price goes down until someone is willing to buy and price will continue to drop as long as no buyers are willing to take the offer.

What stimulates buying (demand)? The perception that the stock will be going up in price. What stimulates selling (supply)? The perception that the stock will be going down in price. Note that I said "perception" - there is no reality more powerful than the "perception" of a move in a stock's price and the perception for GOOG just doesn't exist.

So if that's the case what is the case for GOOG to go up? Oh that's right I remember now - it's done nothing for so long it has to do something - someday.

Saturday, May 12, 2007

I Like This Guy

I'm adding a new BLog to my list. I don't have many and those that I do have I visit frequently because I find them interesting, encouraging, educational and many times - fun.

I have taken several BLogs off my list - sometimes the BLog authors are just wannabe Cramer's and send out 5 or 10 new stock picks every day and that's just stupid. Others become so impressed with their own selves that they feel that you "deserve" to read them. Others just don't publish enough, or whine too much, or are on their own crazy mission to save the world. These guys don't last long around here.

This guy tells it like it is and doesn't give a damn what you think.


And one of my all time favorite posts is

Are you a trader or a rule maker

Remember - there is only one rule - and that rule is - Nobody knows nothing - including me.

Short QID or Long QLD?

A reader wrote (a long time ago) asking my opinion regarding whether it was better to short QID rather than go long QLD.

I've done some thinking about this and a couple of studies and we will get to the math in a minute. The most exciting news is that Proshares seems to have worked out their problems with these two ETF's and they have established the mirror image that they are supposed to have.

Even the most casual observer will see that these two funds were skewed early in their history but now they are achieving that most wonderful moment of all - symmetry. Of course that's because of the averaging that we go through in Marlyn's Curve. We would expect to see symmetry if the funds were supposed to be symmetrical.

But are the results of each fund symmetrical as well? Over 178 days during which there were 102 days when you could have bought QLD or sold QID the average returns were 1.01248% (QLD) vs 1.01286% (QID). Which is not much variance on a share by share basis - but over thousands of shares and hundreds of transactions it could add up to a significant amount of money.

But sometimes percentages are not all they are cracked up to be. Sometimes you need to go into the numbers to get the real story. And that is what I did - Instead of looking at raw percentages I looked at the dollar rate of return for each transaction. And then I summed that value and took an average across all of the transactions. Needless to say on that basis QLD came out the best ($1.02 to .70) but ... and there's always a "but" ... I failed to normalize the prices one to another - in other words I needed to make them equivalent money-wise. Once I did that here is what I found.

In the first half of the 178 day period the return was $1.201 per basis for QID vs.
$1.125 per basis for QLD. Over the entire period the return per basis for QID was 1.078 vs. 1.026 for QLD.

On Friday for example had you shorted 1.95 shares for every one share you could have purchased of QLD you would have made $2.38 vs $2.14 per transactional basis. But (another "but") that's an awful lot of math for a simple stock transaction so lets look at it another way.

Had you just shorted 1000 shares of QID you would have made $1220 and had you bought a 1000 shares of QLD you would have made $2140. But you would have had to have put up over 90 thousand dollars in the QLD transaction and a minuscule percentage of that in the QID transaction.

So my thinking is this. On days when you can be pretty sure that the market is going up (and Friday would have been a good one) shorting the QID model seems to be the better idea if you can get the shares - and that might be the only difficulty with this whole idea.

Of course if you want a technical reason to buy or short either of the products you would put up a four-minute chart of either or both of them with an EMA 90 and wait for the cross.

Here is QID on Friday -

And here is QLD -

You can see how once the stocks crossed the EMA 90 the die was cast and it was an easy trade to make either way.

Friday, May 11, 2007

AV - A Trading Lesson

Some readers wanted to know how I use QuoteTracker in my daily activities so given that a picture is worth a thousand words I present AV on the 15-minute charts.

I filtered AV out the other day on a new, simple minded filter called 12 to 18 and rising which is looking for stocks that fall in the 12 to 18 price range and are rising over time. It was a good trade and when I find a good trade I tend to watch them for several days afterward. As a result AV was in my queue this morning.

It opened gap down and then dropped for another 15 minutes or so. I have QuoteTracker (QT) set up to show the bar in purple when the RSI(2) is less than 2. This is a critical point and generally is followed by a rebound.

Instead of rebounding the stock price fell through Pivot Support Point 1 (green line on QT). At this point I switched to the 4-minute charts in order to catch the turn.

This shows the 2 hours that surrounded the turn - as you can see the price bounced off the S1 several times and at 10:14 printed a green stick.

The green stick signaled the time to buy the stock which I did. It then climbed up to the pivot point. If I were day trading this stock I would have sold it here - instead I wanted to swing trade it so I set my stop at 13.70 (S1) and held the trade through the close.

Going back to the first chart you can see that it rebound off of the pivot point and went back down. Then at 12:15 it printed yet another RSI(2) < 2 signal - and a cross over (light blue bar) on the next candle.

And that is how I use QT - the pivot points are extremely crucial to my trading and the ability to flag the candles when they meet certain conditions enables me to make informed trades.

Friday Wraps

OMGIF! A nice recovery was had by all and right off the bat I want to show you something you might have missed. Here is the INDU over the past two days - can anyone spot the common feature?

That's right - both days began with a cross over! Yesterday the cross over said - "going down" - today it said - "going up". Could anything be more obvious?

I sold KNOT for a small profit, a bit more than a happy meal but I'm not going to eat at Ruth's Chris tonight either. Actually the Bride is in the kitchen whipping up her famous Italian sausage, meatballs and spaghetti, and the entire house is in a garlic stupor.

Anyway I'm back in AKS because it seems to want to continue to go up from here and the bulk up in GGB and BGG yesterday afternoon paid dividends today and then some more. I also made a play in AV again and I'll share that with you in a separate post. We'll run through that trade for you and I'll show the new folks how I use QuoteTracker in my daily business. Not that you would do it the same way but it might get you started on an easy path.

The three Amigos are signaling that all is right with the tech world. GOOG made 5 and change, AAPL made 1 and some and MSFT, the most loved stock of all time, second only to GM, returned 31 cents for its loyal followers. I'm not sure who doesn't own MSFT who needs to own MSFT and why they would pay 31 cents more than the going price for the privilege but as Barnum said - there's a sucker born every minute...

The INDU ATR made a beeline back into the 90's today and that is goodness because it means - all together now - the rally will continue.

My model portfolio started a nice recovery and brought back 2.17% to close at 19.89% and the benchmark still lags at 7.39. For those of you who don't have calculators that's 12.50% in alpha off a portfolio that I threw together on February 28th in about 15 minutes time without regard to fundamentals, sector analysis or anything other than pure TA. I gotta ask - did your mutual fund make 12.5% alpha in the last 2 and a half months? Or was it closer to the benchmark?

This guy remains below -0.005% and that is OK - and even though I sound all chipper and happy I was kind of hoping for another down day or two.

The VIX remains in neutral and the up/down ratio printed 68%.

I think yesterday was an aberration, today is just an aftershock, and all of this means we probably go down now for a couple of days. Don't be surprised.

The coin says ... tails - down also - wiseass coin is reading this and then making its predictions - that's just not right.

And again we both hit it today so the score is now Marlyn 34 - 29 and 13 and the coin is 37 - 25 and 13.