Thursday, February 26, 2009

Today's Mover

Today's top mover ETF in my universe is RXD, the Proshares UltraShort Healthcare Fund. I am curious, why is healtcare 10% more depressed than the market in general?

Hmm... Hasn't healthcare been in the news a lot lately? It seems to me that somebody is interested in monkeying around with it. In a quick check of the news, I see that COBRA is being provided to the unemployed, that should help healthcare industry earnings. Hmmm, the National Institute of Health got billions and billions in the stimulus package and we are doubling their usual cancer research funding, that should help earnings.

Oops, "Reforming the way doctors are paid will also eventually lower costs..." That sounds pretty broad-reaching and vague, it could inject a bunch of fear into the market. Ouch! Here we go: "The budget includes a controversial $1.1 billion measure for the federal government to get into the business of comparing medical treatments." That sounds like the government hopes to be more medically qualified then the medical professionals. That's definitely enough to send waves of fear into the markets.

SO, I guess FAS/FAZ may be be replaced by RXD, and its' mate RXL, in market volitility and savvy trader profitability. Be warned, the average trading volume is lower than I'd like, but, today's charts look to be tradable on the 15 minute and slower timeframes.

Tuesday, February 24, 2009

A Standing O goes out to Bernanke

Fed. Chairman Bernanke said at least two things of note today:

1) The recession might end this year
2) Regulators are not going to nationalize the banks

Bernanke gave some details and also outlined some serious risks. The markets loved his news and approach, responding with a huge rally.
The Dow gained 3.32% and many other important indexes gained over 4%.

Being contrary to the major trend, that rally was difficult to trade, but is was enough to get excited about.

A large end-of-day sell off wouldn't have surprised me since there is a big political speech scheduled for tonight. Happily, that didn't happen.

Who knows what will happen tomorrow? All we can do is be nimble and able to trade what we see, rather than what we expect.

Since the market is so choppy, there is no need to review the four ETF pairs tonight; no trend is in place.

Monday, February 23, 2009

What Can Turn This Market?

Much of my trading day is spent intermittently chating with trading friends.
One friend in particular draws me into lengthy conversations so we jump over to a private chat room. In one of those conversations, she asked "What can turn this market around?"

Well, it seems to me that the market, on average, grows at a rate of about 8% per year. It really wants to go up!

That in mind, one has to ask "What turned the market so sour?"

The S&P (broad market index) and the Dow Jones Industrial index have not been at these levels since 1997. Many parts of the market were in a confirmed rally just a week ago.

" ...but no, its curious that every time the government says 'we're stepping in because otherwise the market will collapse' they step in and the market collapses?" - Ann Coulter quoted earlier today

- FAS/FAZ, Financial Sector: FAZ, up 9.67% today
- ERX/ERY Energy Sector: ERY, up 12.24% today
- TNA/TZA Small Cap Sector: TZA, up 11.7% today
- BGU/BGZ Large Cap Sector: BGZ, up 9.39% today

All these bear funds are in huge up-trends. All would be good to buy and maybe even hold for a while. Compare those gains to alternative investments: Savings Accounts, CD's, Real Estate. We are sitting on a huge pile of gold. Well, gold was down today -- this is better than gold!

Have fun!

Friday, February 20, 2009

Cabella did a beautiful thing

For some reason, CAB exploded today!
To get the background info, see my post from 7 days ago: Cabella's in a bullish trend





This chart shows a full two weeks of stock non-performance... until today.
The explosion you see represents 35.23% gain; I hope you enjoyed the fireworks display!

It goes like that (Market-Tao!). The market shows some strength after considerable short selling, then a few traders buy to cover their position and take profits. After a bit of buying volume, Price rises and other short sellers cover. Volume increases more. Price rises more and nobody wants to sell. Then Price can rocket to the moon.

Today's Price action was also spurred by last nights earnings report. That must have been a doozie.

CAB is now quite oversold and will likely pull back a bit.

This is definitely one to keep an eye on for further growth since I am expecting an eventual return to $25 at the minimum. Remind me!

Is it a failure?

First there is:
“The cost of our debt is one of the fastest growing expenses in the federal budget. This rising debt is a hidden domestic enemy, robbing our cities and states of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on. . . . If Washington were serious about honest tax relief in this country, we'd see an effort to reduce our national debt by returning to responsible fiscal policies." undated
http://whitehouse.gov /

Than there is:
"Today, I signed the American Recovery and Reinvestment Act into law.
This is a historic step — the first of many as we work together to climb out of this crisis — and I want to thank you for your resolve and your support." 2-17-9
http://trackobama.wordpress.com/2009/02/18/obama-signs-american-recovery-and-reinvestment-act-into-law/
----

First there is:

Obama, who inherits a global financial crisis and wars in Iraq and Afghanistan, has vowed to work with Republicans to try to overcome the bitter partisan divisions that have marked Washington-style politics, including the current standoff over proposals to bail out the failing auto industry. - 11-21-8
http://www.reuters.com/article/newsOne/idUSTRE4AK6DW20081121


Then there is:
"Obama preparing to work around Republican obstructionism, aides say" 2-18-09
http://www.nwprogressive.org/weblog/2009/02/obama-preparing-to-work-around.html

----
First there is:
To reduce bills rushed through Congress and to the president before the public has the opportunity to review them, Obama "will not sign any non-emergency bill without giving the American public an opportunity to review and comment on the White House website for five days." 2-4-9
http://www.politifact.com/truth-o-meter/promises/promise/234/allow-five-days-of-public-comment-before-signing-b/

Then there is:
"When President Obama signed his first bill without posting it to the Web for five days of public comment, we gave him his first Promise Broken." 2-4-9 (Emphasis added)
http://www.politifact.com/truth-o-meter/promises/promise/234/allow-five-days-of-public-comment-before-signing-b/
----

First there is:

"Reform the Political Appointee Process: FEMA Director Michael Brown was not qualified to head the agency, and the result was a disaster for the people of the Gulf Coast. But in an Obama-Biden administration, every official will have to rise to the standard of proven excellence in the agency's mission." undated
http://www.barackobama.com/issues/ethics/

Then there is:
Tax time is right around the corner and I vote we follow the lead of President Barack Obama's Cabinet picks and avoid paying our taxes. I'm truly disgusted at how Timothy Geitner and Tom Daschle avoided paying taxes and Obama stood behind these men with "absolute support," even though Daschle removed himself from consideration for the job of health-care czar on Tuesday. 2-9-09 http://mycentraljersey.com/article/20090209/OPINION02/902090301/1061
----

So...
These days, politics are more a market driver than stock fundamentals; well... that's not completely rite... current politics ARE the stock fundamentals. This condition opens up a significant level of fear into the market. The result naturally is: eliminate risk... sell!

Compound that with the increasing losses observed daily (its mostly a confirmed bear market) many many people just want to get out. Even Warren Buffet, a huge liberal supporter, whose corporate value is now at an all-time low, (ticker: BRK/A) has sold out a lot of stocks and moved to fixed investments.

In comparing the new guy's words with his results (only a few of the ouchies listed above), one is now in a position to judge for themselves whether the administration is a flaming failure or not, whether America has been deceived or not. From there, one might consider the implications on the next three years and eleven months. Will business be in an environment suitable for the creation of earnings?

Party on!

Thursday, February 19, 2009

Market Update

Let's see how today's activity affected our favorite ETF's:
- FAS/FAZ, Financial Sector: FAZ, Every day is a higher high
- ERX/ERY Energy Sector: ERY, Confirmed bull market
- TNA/TZA Small Cap Sector: TZA, Confirmed bull market
- BGU/BGZ Large Cap Sector: BGZ, Every day is a higher high

From the list above, ERY and TZA should be the best choices since the trend has been confirmed by a pull-back and resumption. Funny though, BGZ, instead of pulling back, consolidated. I am not sure what that means except dig deeper!

So, dig we shall
FAZ: Weak resistance to break before Jan. 20 high. Expect some difficulty in making the next $17.
ERY: January 20th resistance not broken yet. Smooth sailing for two dollars gain.
TZA and BGZ: January 20th resistance has been broken. Should be smooth sailing for at least the next five dollars.

Which is best? Nobody has a crystal ball. I plan to hold at least two of them for at least a few days.

Introduction:
The Dow closed at 7466 which is lower than recent lows. In fact, one has to look back seven years to find a lower close. The Dow, the Transports, the S&P, and the Nasdaq are all officially bear markets.

Conclusion:
Ten long days ago, in my post bulls-are-running-nasdaq, I reported that the Nasdaq was in a confirmed bull market. I had over time documented the bullishness of FAS and CAB. That is all gone now, they are all in confirmed bear trends. The bear ETF's are outrageously profitable in this time of "change you can believe in." I am a believer!

Wednesday, February 18, 2009

Afraid To Trade?

Corey maintains a really fantastic blog called Afraid To Trade.
http://blog.afraidtotrade.com/
Tonight's posts include a hot stock tip (complete with technical proof) and a link to a free Andy Horwitz eBook. Since the ebook and stock tip are limited time offers, I recommend you pop on over soon and regularly.

Thanks to the New Guy!

"I'm here to talk about a crisis larger than one we have ever known" - President Obama 2-18-9

I agree and thanks for your part in intensifying it Mr. President! I'd like to take a minute to offer my personal gratitude.

When he signed the spending bill, I expected the markets to drop; it was obvious and inevitable in my humble opinion. As a candidate, he "ripped outgoing President George W Bush for "irresponsibly" doubling the federal debt, then warned that he could preside over trillion-dollar-a-year deficits for "years to come." Now, as President, in demonstrating this repugnance to the Bush deficit, he signs a controversial and partisan spending bill that will cost America over a trillion dollars. Wow! What can we expect him to do in his second month in office?.

Ooh! He is on tv now! The crowd is cheering, they are out of minds in excitement at his presence.

OK. Back to work...

Obviously, the federal debt must be paid some day. The cost of its interest is a crushing expense. Since the government's only source of income is tax, our taxes will have to be increased some day, or the government will have to learn to operate on a much tighter budget. Since taxes move money away from the private sector, taxpayers will suffer burden by having less expendable income. People having less spendable cash will spend less at the mall, thus, business earnings will have to decline. Since stock price fundamentals consider earnings, this bill reduced the value of every business in the market, and the expendable cash of everyone with an income.

Hmm... business values going down... what to do? I took a huge position in a bear market ETF (FAZ) and watched the dollars roll in. In fact, I made about 10% on my investment in less than one day!

Very happy!

And now, he is on TV again, the market is falling again, I bought FAZ again.
Party on!

Update:
That was a quick 3% gain! Many thanks to the new guy!

OBTW: in the name of "transparency" and "full disclosure," what is the plan to re-pay the federal debt?

Sunday, February 15, 2009

Nutrition and Hydration

The only thing I can offer to my in-laws in this trying time, is an ear and a meal. Often, during periods of business and stress, people skip meals and then gorge on anything handy.

While staying on the sidelines, I load the table buffet style with healthy breads and meats, tasty cheeses, lots of fruits, vegetables, and condiments. These are then ready to assemble a feast to their suiting just as fast as they can grab. We are enjoying avocado, tomato, alfalfa sprouts, various lettuces, carrots, broccoli, cauliflower, and whatever else looks fresh and fast at the local market. These goodies, are being eaten out of hand, dipped in dressing, or assembled on a wrap, bun, or slices of bread. Combined with slices of salami, ham, turkey, roast beef, peperoni, and various cheeses, a sandwich is less boring. Now we top with various mustard's, mayo's, hot sauces, a squirt of fresh lime juice, and that wonderful Asian peanut sauce, a sandwich comes alive with flavor and rib-sticking nutrition. With a variety of fruits available on the side, everyone is well fed and happy.

In writing this, I have to laugh at myself. While watching the market each day, I am having periods of business and stress. When I eventually take a break, I grab whatever is fast and get back to work.

Methinks that its time to... well... find a team of attractive volunteer cheerleaders who can can maintain a spread of fresh healthy food. Short of that, I'll have to plan ahead a little, dedicate some storage containers, and keep some of my fav's in easy reach.

Oh, I should also keep a fresh glass of some tasty low-cal beverage or just plain water always available too. Eureka! I can even drink well water if it has a bit of fresh lime juice in it.

A good self-check resource

While researching a topic for km, I discovered a stale blog called Forex Technical Analysis. While he has several very good articles, This One seems to be pertinent to my life; sometimes a succession of bad trades lead to destructive behaviors.

Saturday, February 14, 2009

In Sickness and In Health

Today is Valentines Day. I am not in Indianapolis, I am at my in-laws home. My wife and I have no time for concerns about romantic holidays, work, ourselves, or what's for dinner. My mother-in-law, who has been in and out of the hospital, is on her way back in. The full-time nurse just told us to call 911. The medics arrived and carted a very important person away.

All that to say, if your stock wins, forget about it! If your stock looses, try to learn something from the mistake if there was one, then, forget about it. Move on.

I hope this message reminds y'all of a bigger picture, (hint: it ain't the market). Please remember this, especially when you loose big.

Now go give someone a Happy Valentines Day.

Friday, February 13, 2009

Cabella's in a bullish trend

In my post "boy did I goof" earlier this month, I discussed that stocks can both have a Price and an intrinsic value. One of the three intrinsic value categories is "short interest." High levels of short interest can cause Price to rocket, therefore I hold a longer term investment in Cabella's, ticker symbol CAB.

Cabella's is a huge sporting goods store chain spread across America. Since their stores are spread widely across the country, they also have a huge mail-order program. Their customers include most sports enthusiasts, wanna-be's, and customers who wish to buy high quality clothing, outerwear, and footwear. Their stores are large, well lit, and often include a food court, thus offering a welcomed rest stop from a long drive. I love the stores, the catalogs, and I love the stock right now.

ShortSqueeze.com is a wonderful site to research CAB's short interest.

Short Interest (Shares Short) 9,892,500
Days To Cover (Short Interest Ratio) 27.2
Short Percent of Float 22.76 %
Short Interest - Prior 9,984,200
Short % Increase / Decrease -0.92 %

From this information, we can see that there are almost 10 million shares, or almost 23% of all the stocks shares are being shorted. That means that there is a guarantee that these shares will eventually be purchased.

At average volume, it would take over 27 days of continuous buying to satisfy that debt, and buying has begun reducing the burdon by almost a percent.

This is HUGE!

As I analyze Cabella's daily chart, I can see a 32 day bull market, therefore, I am in! I currently hold a small position and plan to add more as politics and consumer sentiment become more favorable.

It's just good Market-Tao.

Thursday, February 12, 2009

Daily wrap up

What a freaky day!

While the fear and selling volume indexes were increasing, so were some of the major indexes. Overall, the day was very napish until 2:30 when the days low was breached. From there, sell volume increased and Price dropped rapidly, but only for a few minutes. Once a line in the sand (support) was reached, a fantastic buying spree happened. Of course, my friend IIC at sharptraders.com was nimble enough to profit from it.

Let's see how today's activity affected our favorite ETF's:
- FAS: essentially flat since Jan 20, briefly tested an all-time low
- ERX: bouncing off the range lows
- TNA: choppy. going nowhere since Jan 23
- BGU: choppier. bouncing off the Jan low

Not yet time to become comitted to the stock market. Staying in cash removes all risk.

Begin Market Awareness

OK. We are getting close to an overall trading plan. Based on previous posts, here is the general direction of my thinking: (For the background of these concepts, read all the post in this blog.)

We need a better rate of return than checking accounts, savings accounts, and CD's. Bonds might be suitable but we don't understand enough about them and their risks yet. The stock market grows at an average of about 8% per year when measured from its inception, so it has sufficient potential. It is suitable only if we carefully trade the better winners and quickly exit our trades to protect profits.

The Foolish Four trading paradigm can often beat the market's 8% rate of return. The Foolish people now recommend trading the new index funds for an even better rate of return. Three X leveraged funds offer much better rate of return than basic index funds and are beneficial in bullish and bearish markets.

From the first post in the blog we know that Price goes up and down. From another post, we know that Price is what we care about because it is the only thing that puts money in the bank. Also from that post, we know that there is an underlying intrinsic price that has been deeply violated by our current recession. Recessions last on average 18 months so this one should be in its final throes.

Whew!

Now, all we have to do is look once each day at four investment vehicles for signs of being bullish. I can do this! If they take a bearish direction, (who knows, since politics are at least as important as stock fundamentals rite now) I can profitably trade that too.

So, here is the first instalment:
- FAS: essentially flat since Jan 20
- ERX: was in a bull rally but now testing lows
- TNA: choppy. going nowhere since Jan 23
- BGU: choppier. testing Jan low. falling with momentum

So there we have it! A simple long-term plan to trade on the daily chart to gain from the markets inevitable recovery. We expect to reap almost three dollars for every dollar of the market recovery. This is HUGE!

Wednesday, February 11, 2009

The Foolish Four

Once upon a time, there was a trading strategy called... well... the Foolish Four. Trust me, it was not intended as a foolish strategy. The trading paradigm was actually proven very successful (compared to the broad market index) over the back-testing period.

Now, since the invent of indexed funds, the strategy has been outclassed. ETF's Spyders, Holdrs, ETN's, and probably other oddly named vehicles are expected to surpass this success proven strategy.

I like these vehicles for a number of reasons: built in diversification, fantastic liquidity, news isolation, and more. My fav's are: BGU, TNA, ERX, FAS, and their bear market counterparts: BGZ, TZA, ERY and FAZ. (See my article about FAZ below.)

My picks, being leveraged by three, can be expected to outpace the broad market quite handily. Will you pick them in the next bear or bull market?

Update: I don't want to loose this article... people shorting the bull and bear pair and making $$$ on the slippage!

Market is choppy

The fall yesterday was very powerful. Today, the market has yet to pick a direction; it goes up, it goes down, it pauses, it makes me dizzy.

This is not a good place for position traders, swing traders, or even those who plan to hold for most of the day. My friend IIC at sharptraders.com (see link in sidebar) is totally in his element. He is sufficiently nimble to get in and stay in while the getting is good, then be done with it. His success rate in trading the one minute chart is phenominal, 46 wins in 51 trades (and counting). Mine is not.

Ya might want to visit his stock trade chat room. From time-to-time, Doug offers lists of potentially active stocks in the room. Further, his newsletter offers stock pick suggestions based on longer time-frames.

I have placed two trades this morning and they both resulted in losses.

Thats the point
Since I now have made two losses, I am done for the day. I am confident that my next trade will also result in a loss. It has happened many times in the past; I get to the point where I don't like myself and my thinking becomes clouded - bad Market-Tao.

Are you the fast and nimble type? Today is made for you.

I will wait for the market to become unified in a direction and resume normal trading where I am confident that I will prosper.

I conclude that I am able to prosper when trading a ten or 30 minute chart. Bigger chart are too choppy in today's market, quicker charts are too (IMHO).

Here is probably the simplest trading strategy: Buy a stock that is above the 20 day Moving Average and check it daily. When it closes below that line, sell it. As it runs, it will pull the MA line up as a boat rises with the tide. That same strategy works on faster and slower timeframes as well.

Tuesday, February 10, 2009

NASDAQ fails

Well, that was fast.

In the name of "...We need to stabilize/repair our financial systems. We need to get credit flowing again. To families and businesses. We need to stem the spread of foreclosures. That are sweeping our country..." The spending bill passed the Senate.

In reaction, stock values dropped. As I write, the markets are still open. Here is the current data:

- The VIX (fear index) is up 8.43%
- The TRIN (bearish trade volume indicator) is up 515.63%
- The Dow index is down 4.78%
- The Financial Sector ETF, FAS, is down 4.3%
- The NASDAQ is down 4.13%

All of these numbers are continuing to worsen. I will quit watching them so I can conclude this post...

Here is the point
I mentioned yesterday that the NASDAQ was in a confirmed rally. In light of today's news and market reaction, that is no longer true; the rally lasted 11 days and has now ended prematurely. Further, the Dow is so devastated, it has fallen lower than recent lows and might be reaching out to test the two month low.

To my friend Brian, and other position trade readers, you will only want to make longer term trades in a bull market. Yesterday, we had that in the NASDAQ. Today, everything has changed.

Since business is being devalued and personal wealth is reduced, financial market stability is now much more at risk. I hope that your mortgage payment is not placed at risk by renewed stock market losses, I know that many are.

Many people (weather they know it or not) are depending on the success of the stock market. Businesses, IRA's, 401K's, and even some seemingly unrelated investments (i.e. insurance annuities) are all tied to the success of the stock market. It seems to me that this spending bill has already done a lot of harm to to America and nobody, (even those who voted in support of it) has taken the time to read it.

Monday, February 9, 2009

Bulls are running the NASDAQ

The economic down-trend is very much in the news but the current confirmed recovery is not. In my little piece of the internet, I plan to inform readers of the truth. (I'm venting)

OK... here's the data:
The global economy went into a recession (duh). Since this hampers business profits and thus earnings, the markets responded with a sell-off. Looking at the charts, one sees that the NASDAQ formed a bottom on November the 21st. at 1295.48. From there, it went into a bull market and recovered over 22%.

On January the 6th, the day we voted to select a new President, the NASDAQ continued its gains and closed at 1652.38. The next day, markets knew the new Presidents name. NASDAQ sold off all day and closed at 1599.06. That's a bit over 3% loss for the day. The selling continued for 9 days and formed a bottom at 1440.86. In deciding what to do next, the market chopped a lot; fear and indecision ruled.

Since that day, the market retested this bottom and then form a new high. Then a higher low and yesterday, an even higher high. (THIS IS HUGE!)

Higher highs and higher lows is the definition of a bull market my friends, and in the NASDAQ, we now have it!

Bigger Picture Stuff
The S&P broad market index also bottomed on Jan the 21st, recovered, and then tanked after the election. It eventually bottomed and is again reaching for the heavens. Since we lack a higher high, the bull market is not yet confirmed.

Ditto that for the Dow Jones Industrial index.

A Dow theorist will also be interested in the transportation index, so here we go: DJT did form a lower low than Jan. 21 yet is in a confirmed bull market.

Next Step
The NASDAQ index is said to be a "leading indicator" which means that the other indexes should follow its lead. (It seems to be lagging by only a day or two.)

The S&P is said to be a six month leading indicator of the economy; if business recovers, within 6 months, people will be working, companies will be profiting, the economy can be expected to recover.

The Final Step
The final question is on the status of the recession. I am not bold enough to make a prediction. There is so much politics involved that we don't know which way it could go. Oops. the market still contains an unhealthy amount of fear and indecision.


Higher highs and higher lows are, by definition, bullish. This market has confirmed its bullish trend. The worst is behind us if politicians don't muck up the work that millions of smart and energetic Americans are investing in this country's economic future.

Saturday, February 7, 2009

Off To The Races!

Home for me is a little town called Indianapolis Indiana. You may have heard of it, its been in the news. Indy is the home of the Indianapolis 500, the "Greatest Spectacle in Racing".

I have never driven on the track but I hear that driving our main streets and expressways are pretty similar. That same competitive spirit carries over in our hearts and results in our competitive street driving skills.

It struck me the other day (while driving) that sometimes, to get ahead, I will get out of the lane that I am in and then get into another lane. That way, I believe that my results will improve. Sometimes I proceed with caution, other times, when the road ahead is clear, I am able to really go for it. Sometimes, I take a pit stop when the car doesn't feel rite or I need a break.

This driving paradigm is very similar to the way that I am learning to trade. Sometimes, to get ahead, I will sell a stock and buy a different one. That way, I believe that my results will improve. Sometimes I proceed with caution by buying just a few shares, other times, when the road ahead is clear, I am able to really go for it. Sometimes, I take a pit stop when the my spirit doesn't feel rite or I need a break.

Could I some day become the "Greatest Spectacle in Trading?" Could you?

Friday, February 6, 2009

Boy did I goof!

My reader, km703, pointed out yesterday that my sale of RTP might be premature. Let's see the end of day data. Price opened at $109.02. With the market now closed, Price is 113.82. I missed out on over 11 percent of gain. Obviously, km has acheived a level of Market-Fu mastery that earns my respect and encourages me to press on in my quest.

km 703, my friend, I hope you invested in the stock and kept every penny of that gain.

As I analyse my mistake, I see that I put more faith in the indicators, than in Price.

Ya might have noticed that throughout this blog, I capitalize Price. That is purposefully. In stock trading, Price is king. Whatever Price says is rite. If price is in an uptrend then there is no reason to sell.

On the other hand
When is Price not king? Is that even possible? Yes!
Before my readers think I am contradicting myself, let me explain.

I am holding several positions that are currently Priced below my entry point. There must be a reason that I am holding. That reason is intrinsic value. In my opinion, these stocks are likely to become profitable so the intrinsic value is greater than the actual value.

This can happen in many scenarios, I'll list a few that come to mind.

Fundamentally Undervalued: A companies potential to earn money is the basis of stock Price. If earnings and sales are good, and debt is reasonable and controlled, then there is a chance that current Price is below a fair value for the company.

Fundamental traders look for these gems and buy knowing that some day, Price will catch up.

Book Value: A companies book value is defined as the intrinsic value of the machines, real estate, warehoused stock, and such. Sometimes Book Value Per Share (BVPS) is below the actual stock Price. It can take a while, but sometimes Price catches up.

Short Interest: A company has been doing poorly in a poor market and Price has declined. Short traders have entered postions which, by definition, will have to be re-purchased some day. This short selling drives Price down even further.

There are stocks out there that would require days and sometimes weeks of buying (at average volume levels) just to cover the short positions.

I have made a lot of money on thess paradigms. and hope my readers do also. Especially you.
This one looks a lot like the RTP discussed yesterday. Its symbol is FAS.




FAS is a really fast investment vehicle; a three x leveraged ETF.

What does that mean? Glad you asked! One might on average, expect a stock to move several percentage points each day. A very low Beta stock will move precious little, a high Beta stock will move a lot. My experience with a few favourites indicates about 4% is the most one might expect on an average day.

An ETF is a somewhat diversified collection of stocks, therefore again, a 4% move is what I can reasonably hope for. Since an ETF is a collection of things, and some will move up while some will move down, 4% might be a bit aggressive. (Beginning to sound boring?)

To make this ETF more exciting, it has a leverage of times three. For every dollar moved, the ETF gains three. That in mind, on an average day, we can now hope to see a 12 perscent movement of FAS. On fantastic days, I have seen twice that.

Looking at the chart, we can see that familiar saucer pattern, and, it is within a W pattern. For that reason, I own this vehicle in two different accounts and plan to hold for up to several weeks.

FAS is a financial sector ETF, and that whole industry has been badly beaten up. Even more bad news came out earlier today, so there is substantial risk in the investment. Politics plays a big part in that risk, in fact, the current value of this ETF and the underlying stocks are probably as politically weighted as the underlying fundamentals.

Last night, the news indicates a lean towards changing the spending bill into a bail out bill. If that holds true, this investment could be a very good thing indeed!

Risk is mitigated by the fact that this ETF is diversified across the sector. Some of the holdings are not affected by housing market and credit problems. Those financial instututes should be enjoying the low cost of credit and customers who realize their inherent stability and strong management teams.

Another thing
While studying any chart, it is also important to look at volume. The attached chart indicates lots of traders becoming VERY interested. That's a good thing.

Since most of the volume looks like strong buyers, the pattern is being confirmed!

More options
The ETF that trades under the symbol XLF enjoys the same pattern but is only leveraged once.

UYG is the ProShares offering and is leveraged by a power of two.

Thursday, February 5, 2009

Here is a new chart for us to discuss... RTP

This recent pattern is called a saucer. I used well understood pattern power to take some good profits. I managed to buy my shares during the low part and ride it up until today. Life is good!





Actually, it wasn't entirely a bed of roses. I was very busy trading the shorter time frames and not focusing on the bigger picture. When the market took a dive, I would sell, even if at a loss, just to protect the principal. Then, when the market completed its little tizzy fit, Price would improve and I'd get back in, often at a higher Price. This is called buying high and selling low.

More recently, I decided that a Market Fu master would not behave like that. With my long term goal of Mastering Market Fu in mind, I began to do some mental exercises. When the mind is not focused on a bigger picture, it is justifiable to exit a winner early. When the mind is calm, little turns inside of a powerful up-trend are easily recognised as noise.

While I have not yet perfected mental stillness, I have been well rewarded for the progress made.

Oh, by the way, I'll be keeping an eye on this stock for another reason... another chart pattern.

I am expecting a small Price pull back tomorrow for reasons discussed in my future Bollinger Bands article(s). I am not expecting Price to fall below today's open. If Price falls below $100 and closes, then something very very bad must have happened. Once Price has recovered from this pull-back, I'll be looking for at least a week of raging bulls running and crashing through anything that resists them.

The larger picture, just barely visible in the accompanying chart, is possibly the formation of a "W" pattern. W's (more-so than the saucer) are well know patterns. Since this current saucer represents... ummm... 119 - 79 = 40 dollars of movement, (wow) The completed pattern should be at about.... ummm... 119 + wow = 160 dollars! Another $40 dollars of up-age could be possible.

Now, lets check that... On a larger time-frame, has the stock ever been that high before? On the four year, weekly chart, we see that in May of 2008, Price was a whopping $558 and change. So, is it possible to make $40 on this one trade? Easy! I'll take a bunch of those please.

I'll be looking to re-enter tomorrow or Monday. Then I'll try my best to stay calm and focused on the bigger picture through the little setbacks the market occasionally experiences.

Monday, February 2, 2009

Here comes another chart.... this time, it is a big kahuna, the S&P 500, which is represented in its trade-able form, the SPY.



We can see a brutal down trend that began on January the 28th.

Today, February the Second, we can see a glimmer of hope, the downtrend momentum seems to be breaking up; the mid-day high was a pretty strong bounce. The bounce actually popped up to the 20 period Moving Average (ma) before retreating.

This is exciting for several reasons:
1) Price has not touched the falling 60 minute 20 ma for a couple of days
2) The mini rally broke the momentum of the downtrend

Sidenote:
Since momentum has been broken, we can expect some chop while waiting for Price to indicate a new direction. It could go either way but the bigger picture is down.

All of that to say, more than Price can serve as support and resistance; often certain indicators will have that effect. In this case the 20 ma did the trick. It is a major psychological barrier and a powerful tool that we can use. I like to watch that ma line for market direction (is it generally heading up or down?) and, of course, support/resistance. The 50 ma is also very powerful. More on that later!