12.14.10 Back to the Drawing Board

Of the 4 recs made over the weekend, no trades. 3 were down Monday, so didn't trigger the parameters I had set up. The other one, MIPS, was the one I said was the last one of the four I would buy because it was already extended over 5% past its good buy point. It gapped up Monday and at mid-morning was up over 10% on the day, so that was definitely a no go for a stock that was already extended.
So I'm going to hold off on the model portfolio until I come up with something that will be more timely and still be fairly verifiable to anyone taking a look at it.
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As for the market itself, there are warning signs flashing. Yesterday was another distribution day, the 5th one in the past month - and by my figuring, so was today, even though volume was down on the S&P 500 from yesterday. Both the S&P 500 and the Nasdaq closed lower than they opened, and that is usually distribution in my opinion.
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I did put on a position in ENDP at 35.97 Monday. It has been basing the past few weeks, and is also right at its 50 MA, which should act as support if the trade works. Putting a stop below yesterday's low, because if it takes out that low that will mean that the 50 MA isn't holding either and those distribution days are making me wary.
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Market 12.12.10

Using the S&P 500:
Overall: Still up. Pr>50>200 (Price above 50 day Moving Average (MA), 50 day MA above 200 day MA.
Short Term: Daily S&P chart. Still up. Short term high 1240, short term low 1219, 50 MA 1217. 1220 is a solid support/resistance line, area of November highs and short term lows established in the past week or so.
Intermediate Term: Weekly S&P chart. Still up. Short term high 1240, short term low 1173, 10 wk MA 1199. The weekly chart is a nice cup and handle formation. The 1173 referenced here is the bottom of the handle.
Accumulation/Distribution days (by my count) in the past month (rolling number):
Accumulation: 1 day: 11/23
Distribution: 4 days: 11/16; 11/29; 11/30; 12.7.
Summary: Have to remain in the bullish camp, like it or not, until proven otherwise. The 4 distribution days are a concern. I am bearish in my own opinions on the market, but I work on making my system more objective. I try to trade my systems, not my opinions - it tends to work better that way.
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Model Portolio: Starting with $100,000.
Disclaimers: Nothing on this site is to be taken as recommendations or advice. This is for fun only. It is an attempt to demonstrate that little guys can be overall profitable with simple strategies, if they think for themselves and put in their homework. All decisions you make in your real-life trading are yours - you own them whether good or bad. Any buys/sells in this portfolio may or may not match anything I do in my real life trading. To illustrate this, in my real life trading I currently don't own any of the stocks being recommended to start this model portfolio. This is an exercise only.
Rules: I will attempt to publish the buy/sell strategies ahead of time. I find it irritating when folks talk about all their past brilliance and there is no way to prove it one way or the other. The stock boards I have run across are dominated in general by people who I think would lose their shirts if they were trading with real money. On one site I frequent, one of the self-proclaimed great traders had a business idea but needed someone on the board to come up with $10,000 to get it off the ground! - and he has been a prolific contributor and supposed great stock trader on that board for years.
I will try to give specifics as to what conditions will exist when a trade is entered or not. For example, I might say that I will enter the trade if the market is up and the stock is up, or if they are at certain points during the day. If those conditions are met during the trading day, the assumption is that the trade was put on at the best price that existed when those conditions were fulfilled. I think that is fair, and once again, is another reason why what I do in real-life trading may or may not match anything that may be going on in the model portfolio. In real life I am not trying to prove anything to anyone but myself, and do not have to operate under artificial constraints in order to make the results more verifiable. The bottom line in my trading account is verification, good or bad.
All that said, here is the basic starting strategy - although I reserve the right to change the strategies as my systems may change and as the markets change - different horses for different courses.
These initial potential trades in the Model Portfolio (MP) are intended to be trend trades. When Pr>50>200, we will normally be looking for trending trades with the intention of staying in them as long as possible until one of our exit criteria hits. When Pr>50>200 is not in place, swing trades are on the menu.
Anyway, here's the picks:
ENDP - If the market is up Monday, and is trading at 10:40 a.m. above the open, and ENDP is up, buy 200 shares. Initial stop point is 35.52, the last short term low. Unless stopped out by the initial stop, our exit point will be when the stock violates the low point of the previous week.
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DLTR - This stock has been on a consistent run for quite a while. Normally, a stock that has been running for weeks would look too extended to take a position, but in this case, DLTR has been basing for about a month. Same entry criteria as ENDP, for 100 shares in this case.
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MIPS - Lower priced than most stocks I trade and more volatile, but it looks to me like this is definitely being accumulated. Same entry criteria, 300 shares. This would also be my last choice out of these four stocks, since by my system it is extended about 5% from where it should have been bought.
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PCLN - Same entry criteria as above, 23 shares. This is a stock I have never owned, and is not at all the kind of stock I usually follow. But I am attempting to get outside my comfort zones in my trading, and this stock also looks like it is being accumulated. This appears to be at a good buying point. To me, a good buying point is when a stock has found a short term bottom. (Normally for me, a short term bottom is defined as a weekly low that has a higher weekly low immediately on both sides. That middle low then becomes a verifiable bottom and can be used as a logical stop. It is a three week pattern. If the stock has been in a clear uptrend and I like it, sometimes I won't wait for the 3rd week confirmation. I'll go ahead and make the buy, since I believe that the low of week 2 is a short term bottom. I use this tactic a lot more in swing trading than in trend trading.) The buy point in the three week pattern is when the stock trades above the high of the 3rd week. If I'm more aggressive, as explained above, sometimes I'll make the buy during the 3rd week when the stock trades above the high of the middle week. (And sometimes, more often in swing trading than trend trading, I'll make that buy during the 2nd week because I feel the bottom is in unless proven otherwise.)
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Other housekeeping chores: We will assume a $7 flat commission on trades. When we exit the trade, we will assume that we had an order in with our broker and got a good fill, so the trade was executed a tick below the point where the exit criteria was reached.
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Dylan Ratigan on Banks and High Frequency Trading, Says Stock Market Is An 'Obviously Corrupt' Fraud

Dylan Ratigan's take on high frequency trading:

"Seventy percent of the volume is computers that are run by the banks playing ping pong with stocks for 10 seconds at a time."

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That's a quote from an informative article in Raw Story regarding high frequency trading (HFT). HFT is a major reason for the overall wackiness in the markets on a daily basis. According to the article, the banks see trades an instant before they are consumated by the exchanges and this gives them the opportunity to front run the trades.

...Cramer was right about the danger of HFT the other day, but he was trying to blame it on a million little guys sitting in their underwear in the bedrooms of their world headquarters. Laughable. All the little guys in the country are no match for the banks and their supercomputers. Where's the SEC taking care of the little guy on this issue?

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Paul Farrell on the MarketWatch website has run a series of articles in the past year or so regarding the corruption on Wall Street. The markets are flat to down over the past decade, yet the big Wall Street houses have made billions. But people still listen to the 'experts' and don't think for themselves. Most people, when it comes to investing, or more specifically trading, which is where my main interests lie, won't give themselves a chance to win.

...They're too smart for their own good. They hear about PE ratios and fundamentals, look for market niches, etc etc. They watch a guest on one of the talking head shows extol the virtues of a stock and run out and buy it. What I would like to see the host of one of those shows ask just once, when they show the now obligatory disclosure screen, is "If this stock is such a good candidate for a buy, why don't you, your family, or your company own any of it?"

...The more you try to figure everything out and step into the big boys arena, the less likely you are to succeed, imo. They are bigger, smarter (maybe not smarter than you, but certainly smarter than me), have better equipment, the brightest minds from Ivy League schools working for them, and better information.

...The field is tilted. It is not fair. But you can win. You have weapons, but you have to think for yourself and use them. Probably the single best advantage that little guys have is that the big guys are too big to hide their true intentions. Tune out all the garbage you hear from them. Their job is not to help you make money. Their job is to help themselves and their companies make money, and those are two entirely different things.

...The market moves in unexplainable ways on a daily basis - unexplainable, that is, if you think everything has to be logical, and those efficient markets are just doing their job. But it is explainable if you realize that the big guys push stocks around during the day many times just because they can.

...But over a longer period of time, it is much harder for them to disguise what they really think. You can find out what they really are thinking by watching price and volume on the markets themselves, and on leading stocks, and on the stocks you follow.

...For instance, if the recovery is in place and the worst is behind, why are the markets selling off? Why is the volume on the down days generally higher than the volume on the up days? Why are there more down days? Seems simple enough, but people still seem to latch on to every expert pronouncement and not see what is right there in front of them if they would just look.

Things That Make You Go Hmmm....

This story from last year with Goldman Sachs in court due to a former employee allegedly having stolen GS software...Assistant U.S. Attorney Joseph Facciponti told a federal judge that the theft poses a threat to U.S. markets. Here's the fun quote from the article:
"The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways," Mr. Facciponti said, according to a recording of the hearing.
Good thing we can trust GS not to use it to manipulate markets unfairly, eh?
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In a completely unrelated story from this year, Goldman Sachs Has First Perfect Quarter With Zero Loss. Imagine that, they didn't have one losing day the entire quarter! Of course, when the Fed lends money to banks at 1/4% interest, and banks use supercomputers that get data a split second before it is released to the general public (see link below), that probably doesn't hurt, either.
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According to this article by Sol Palha that I ran across on Financial Sense, "...firms...gain advantage by buying data from stock exchanges and feeding it into supercomputers that calculate stock prices a fraction of a second before most other investors see the numbers. That lets these traders shave pennies per share from trades, which when multiplied by thousands of trades can earn the firms big profits. Critics call the practice the modern day equivalent of looking at share prices listed in tomorrow's newspaper stock tables today."
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I caught a little bit of Mad Money a week or so ago. I normally don't watch it much. In the episode I watched, Mr. Cramer opened the show wearing pajamas, blaming all the little guys who sit at home in their PJs for the craziness in the high frequency trading that is seen in the markets. That is laughable. For one thing, it would assume that all those little guys really could move markets. It would also require that they be working enmasse in order to do so. Didn't hear him utter a peep about banks and their high frequency trading using their supercomputers.
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My trading account is in cash. I exited the last week in April after the 2nd big distribution day (verifiable...this time I sent an email to a friend who had requested that I let him know when I was no longer long this market....but you can believe it or not, doesn't matter to me. Consider it luck if you wish.) The big down day 4/16 got my attention, and the one on 4/27 on big volume put me out. Normally, I would have gone short right then. But I guess it's me getting old and having a day job again, I just went to cash and have been there ever since. Hasn't been nearly as much fun since then, but it has been rather peaceful just looking on from the outside.
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At this point the trend is down, regardless of what you hear from the talking heads. The weekly charts already have a death cross, and the dailies should have it soon, as the 50 and 200 day moving averages are converging. Stocks closed below the 10 month moving average in May, which is a long term sell signal, and are still trading below the 10 month average here in late June.
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I almost put on a couple of swing trades today, but did not. With the main trend being down, they would both have been countertrend trades, and that is something that I have been trying to avoid. When the market was in its uptrend, I had a tendency to put on swing trades on the short side, and it cost me overall. Now that the worm has turned, I was tempted to put on swing trades in two of my favorites on the long side, PWE and ENB. Both are still in uptrends and are in excellent niches, in my opinion. I am also looking closely at DVN. They are looking brilliant right now, in my opinion, selling off their international assets and their holdings in the Gulf of Mexico, and concentrating on their business on the North American continent. They also recently put a cool $500 million into Canadian oil sands....don't know whether it was prescience or luck, but they have my attention.
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Portfolio results thru August

It has been a rough stretch for the model ports. Although they are still largely beating the overall market averages, they are in the red, and that is never good. The OOP and NoTouch portfolios have never had a losing year, but they are in real danger of that happening this time. Real life results are still good, as my selling disciplines took me out of everything but my small core positions that I hold through thick and thin, and have had long enough that my cost bases are low.
...For the most part, I use either a new 10 day low, or a violation of the second lower low on the stock chart as an exit point. For longer term positions, I use a violation of a major low point. XTO, my all-time favorite and most core holding, violated its long term low, but I held on to it anyway. Not good. I used to trade in and out of XTO, including core positions, as it has been my overall favorite performer for years. But it periodically can get slaughtered and I would sometimes miss the rebound. I made a decision years ago that I would always keep a core position in it no matter what, which is why I stayed in it this time, too. I did bail on my trading position in it long ago, though.
...I honored all other stops, though, and as a result, went mostly to cash, since I was so heavily overweight in commodities and resource stocks. So the balances for the year still are good.
...Anyway, here are the results year to date for the model portfolios vs the overall market averages:
NoTouch Portfolio: -4.3%.
OOP Portfolio: -3.9%.
Dividend Portfolio: -5.7%.
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Overall market averages:
Dow: - 13.0%.
S&P 500: -12.6%.
Nasdaq Composite: -10.7%.
Wilshire 5000: -11.4%.
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Commodities are the baby being thrown out with the bath water right now. There is economic warfare being waged between the biggest powers on earth. All weapons are being unleashed by the powers that be to preserve our markets and our way of life in this country.
...For some time, there has been a war going on between the nations that have the resources and the nations that consume them. Not coincidentally, many of the resource producing nations are not friendly to us, and they now see us as vulnerable. We have become the largest debtor nation in the history of civilization, and our military is overstretched as we try to police the world.
...If you recall a couple of months ago, our President went to our supposed allies in the Mideast asking for relief at the pumps. He was sent packing. He then issued a blunt warning to those people. Since then, commodities and oil have been dumping, even with the best efforts of the Russians, who have tried to stir the pot with their saber rattling.
...In the longer run, I still believe that the bulls cannot have it both ways. If commodities and oil are truly in trouble, then so is the economy. Demand destruction means that people don't need the commodities because they are not doing enough business to warrant their use. As it is, corrections tend to feed on themselves. There is no doubt that there was speculative money in the commodity and oil plays, but there always is. Now those areas will likely correct too far to the downside, setting up a terrific buying opportunity - unless we really are going into the dumper.
...Short term, I am looking at getting back into a fertilizer trade. POT, MOS, and AGU all show signs of having bottomed. POT is my favorite. If I do get back in, it will be a trading position with a stop below the latest low. Stops preserve capital, and keep one in the game.
...I have a book in my library, How I Trade For A Living, by Gary Smith (not the one on tv). He traded for 19 years with basically break even results. Money management made it possible for him to remain in the game that long, even though he was not successful. When he had his epiphany and finally found out what his game was, he then proceeded to lose on 23 trades in a row! I have always found that remarkable. I do not know how one could figure he was on the right track after 23 consecutive beats. That is confidence. It is also a lesson in using stops.
...For my part, I once went through a period of 12 consecutive losing trades in the midst of a 20 losses in 22 trades streak. That is my all time worst. But, as was the case with Mr. Smith, I have been a fanatic about using stops, and I was able to stay in the game and come back.

06.30.08 Bookmarking Some Articles

Ran across some fascinating articles over the weekend that I want to bookmark here for future reference. They are bearish in nature. I admit that is an easier argument for me to buy into. These are definitely opinions that you will not be hearing much from in the MSM or on your favorite financial tv channel. But you should.
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...The first is actually a blog named The Market Ticker, by Karl Denninger. I had never heard of this blog or Mr. Denninger until this weekend, but this article posted 6/29 on his blog is compelling. If you think the worst is over in the markets, please do yourself a favor and read this article. He has a lot to say about oil, the Fed, bonds, housing, all of it looks well reasoned to me. He also details his six month scorecard from his beginning of the year predictions, and that is impressive as well. I also found it interesting that Mr. Denninger is not a gold bug as so many other bears are. In fact, he expects the metals to get pounded. I agree.
...Mr. Denninger also notes that a third major financial institution, all outside of the U.S., not coincidentally, has warned of an impending stock market crash. His conclusion? The credit crunch is not over; it is not contained; and it cannot be contained!
...And talk about disclaimers. I followed a link to a forum on his site. It is blunt, brutal, honest, not for the faint of heart or for those with delicate dispositions. But it is good advice for traders. Don't read if you are offended by strong language.
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...The second is an article with the stark headline 'Stock Market Crash Alert'. This article is posted on the Spirit of Truth website. This article is extremely detailed. There is a lot of outstanding technical data presented from several viewpoints, including Dow Theory and Elliott Wave, along with other indicators. I'm bookmarking the article for further study because the detail and data presented are so compelling. I'm reserving judgment on the website as a whole until I can check them out further. I'm not sure what spirit they are talking about at this point. They quote the Bible on the site, but also seem to be into astrology at the same time. I am not sure what to make of the site at this point. But that article is outstanding and a must read, imo.
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I consider, at this point, both of these articles to be important. They both present an almost overwhelming amount of data points that I am still digesting. They also are a nice contrast to the cheerleaders on tv who are always trying to figure out what we should be buying now, as opposed to ever asking the question, should we be buying anything at all? Much of their analysis seems to be cheerleading on the one hand, and ridicule and namecalling of bears on the other hand. But one should remember that they are working for multinational corporations and that their shows are sponsored by other multinationals and big houses. They are only doing their job, same as many other salespeople.
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JUNE 2008 RESULTS AND OUTLOOK

Note: I'm closing the books out a day early on these model portfolios, since it is all just for fun anyway. I may not be able to get back to it Monday night/Tuesday morning, and if I don't, then it becomes much more difficult to go back and reconstruct the numbers to see where they were at the close 6/30. Doing it on the weekend, when I sometimes have a little more time, is more convenient, so I'm doing it that way this time. That said, let's get to the year-to-date numbers through the end of June, henceforth known as the June 29 close.
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Model Portfolios year-to-date numbers:
NoTouch Portfolio: +2.0%.
OOP Portfolio: -0.8%.
Dividend Portfolio: +10.0%.
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All the model portfolios continue to compare very favorably to the market averages:
Dow: -14.5%.
S&P 500: -12.9%.
Nasdaq: -12.7%.
Wilshire 5000: -11.7%.
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There were no changes made to any of the model portfolios during the month. Following are six month checkup notes on the model portfolios. For more complete details regarding each portfolio, please review the January 2008 blog entries.
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NoTouch Portfolio:
Here's the mix of the funds that make up this port:
ACTIX 10%
PEMDX 10%
PSAFX 15%
TGLDX 5%
UMESX 5%
ICENX 10%
OAKBX 30%
OAKGX 15%
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UMESX has been the outstanding performer so far, both in percentage and in actual dollars, even though it comprises only 5% of the asset mix. It focuses on natural resource stocks and they have had a bang up first half. The worst performer has been OAKGX, which is down 11% on the year. My all-time stalwart favorite OAKBX is up 2% so far.
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OOP Portfolio:
OAKBX 33.3%
OAKGX 33.3%
PSAFX 33.3%
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This port has also been hurt by OAKGX, Oakmark's global stock fund. PSAFX is up 7% on the year, which has helped keep this portfolio around breakeven. This port has never returned less than 8% going back through 2000, so it is going to have to make up a lot of ground quickly to keep that streak intact, and frankly, I do not expect that to happen. The only previous year since 2000 when both OAKBX and OAKGX had negative returns, PSAFX did 29% that year to rescue the mix. I still like this mix for its diversification using only three funds, the potential for gain, and the ability to sleep at night.
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Dividend Portfolio:
At a 10% return so far this year, the Dividend Portfolio has been a pleasant surprise. It will be interesting to see what it does over the last half of the year. I suspect it will be under considerably more pressure, as several of these high yield stocks are in the energy/resource sectors and are likely to get hit as we move forward. The best performer has been HGT, which is up an incredible 60% this year. The worst has been ACAS, which is down a miserable 24%. I eliminated ACAS several months ago from my real life portfolio and removed them from my watch list, so that I wouldn't be further tempted by their terrific dividend yields.
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It was another solid month in my real life accounts, although I did lighten up some more. I'm now over 30% in cash and I do not recall the last time that happened. I dumped the RIO, which I should have done earlier, as mentioned in last month's update. I also got rid of GLW, my only tech stock. I currently have four small trading positions open in the trading portfolio: BHP, SDS, SRS and TWM. You can see from that bizarre mix how I feel about this market, but I'm also ready to drop any of those bearish positions quickly. New short term highs in the markets would take me out of alll those short ETFs. I have a broader stop under BHP. I still like it going forward, as long as the powers that be are able to keep things together.
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OUTLOOK:
The oil/resource wars continue between the countries that consume the resources versus the ones that produce them. I expect that will be a continuing theme as we stumble into the last days before the return of Jesus Christ. The end time Biblical scenarios are shaping up and the players are taking the stage, though not many people seem to notice.
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It is no coincidence that oil is of such importance in these days, and that the majority of oil is controlled by Islamic nations and others who would enjoy seeing us toppled.
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Our profligate policies here in the U.S. have made us increasingly vulnerable to threats from some of the folks who hate us the most, but at the same time control the resources we need and also finance our deficits. It is not a pretty picture, and given the lack of leadership in Washington and the continued outlook for that, does not look likely to change in our favor any time soon. I sincerely hope that I am wrong regarding all of this.
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The markets are in serious trouble, as most anyone with a 401k plan or IRA can attest. Buy and hold will become a discredited scenario in the years ahead, imo, as helpless shareholders watch their retirement savings dwindle. The trillions currently in those accounts will likely be largely confiscated (Losses are confiscation, imo - someone is gaining from the losses in those accounts.) one way or another, directly or indirectly, by government action/inaction, and ruthless funds and trading houses. That much money always attracts the sharks. The love of money is a root of all evil. Be careful out there.
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As always, this page is just for fun (Hasn't this been fun?) and is not intended as advice. You own your own decisions. If you feel you cannot make those decisions, then you should get professional help. Until next time. :)
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