3SOF

According to the article Riding the Storm I will sell the S&P500 tracking stock around tomorrow's open, 6.66% of the 3 Stocks on Fire Portfolio, as always.

As I was searching for stocks that met my short and long criteria I got more convinced that my bear case is correct. Why?

Because home construction, mortgage, consumer and oil related stocks are trading at a deep discount to the market's multiple. This means stocks are already starting to discount an economic slowdown, although you still can't see it in the averages.

As for gold stocks, they seem to be trading at very high multiples. This means gold is going up, almost for sure.

Anyway, this short on SPY is fully explained on the article on the link above. The change from an expected 3 - 4% GDP growth to an economic recession in late 2006 can produce a steep decline at this point.

The plan is to hold this short position for as long as the SPY is set to close below the blue descending trendline on the chart below, which for tomorrow stands at $126.07.

Did I not understand your trading instructions on this trade. You indicated to hold unless SPY is set to close above 126.07. That tells me I should have covered on the close. This morning you say continue to hold.

SPY also at breakout from short term sideways channel, basically it just made a quick trip from bottom bollinger to top bollinger band (with the help of 50sma) and now sits right at resistance 127.50. Again just like QQQQ will it breakout here or be sent back. Right now I don't know, we have ascending averages, decent volume and retail exuberance for the New Year, which suggest continuation,  but resistance is resistance  will trade accordingly once the chart shows its hand.
Good luck

Thanks Aussietrader. Now I've got a clear plan

Quote from: 1reilly on January 04, 2006, 08:49:40 AM
Did I not understand your trading instructions on this trade. You indicated to hold unless SPY is set to close above 126.07. That tells me I should have covered on the close. This morning you say continue to hold.

I also want to thank Aussietrader for his analysis.

1reilly, things change, and the trading plan may change from one day to another. Initially my plan was to cover on a close above $126.07, but then it changed to hold whatever happened.

This was because I don't see much validity to the current rally, only due to seasonal factors as the beginning of the year, news that were no news and short covering. In fact, these type of strong rallies is what one should expect as a bear market behavior (if you go back to see the biggest advance days, they were all during bear markets).

The chart below isn't my best SPY chart, but I see the current situation as distribution, building a top for a steep decline that will follow.

I'll continue holding SPY short.

The market is heating up for what maybe a hot December jobs report. I would like the market to  open gap higher and then close at the low of the day, completely engulfing the previous day candle.

The best scenario was that the number was a bit on the light side, but futures rally because that would mean not much more rate hikes from the FED.

Personally I think everybody knows the FED is about to stop raising rates and that there will be an economic slowdown. On the magnitude of the slowdown is where I differ from the majority.

I think everything is in place for a consumer recession (there wasn't any for the past 15 years) and most investors think there will only be just a modest slowdown.

There's a reason the FED says it will pause, it is looking at new trends emerging in the housing market and consumer spending.

Anyway, I feel free to change my opinion if the market proves I'm wrong. Unfortunately that won't happen until the SPY's close above $130, so I have a potential loss of about 3.8% on this trade, nothing special.

I'll continue holding SPY SHORT.

Is this a closed trade now!!!

I'm still holding this short and don't see anything about buynig to cover.

Please advise.


Thx...Jody

The SPY held, albeit just barely, the $143.7 support level on close yesterday and futures at this time of the day are sharply positive:



This tells me we'll probably bounce off support and the short term low was made yesterday. Since it is my belief that the SPY is in a lateral trend I expect an upward movement between now and the end of 2007.

This lateral trend will be resolved when investors get a better feel of which is more important, the credit troubles in the US or the unprecedented growth and participation in the global economy.

I believe the growth experienced by major countries like China, India, Russia and Brazil can only be compared to the Industrial Revolution in Britain in the late XVIII century and the post-War economic miracle of Japan. In my humble opinion this growth isn't likely to stop before the GDP per capita in these countries achieves at least 1/3 of the US GDP per capita.

US GDP per capita currently is $41,889. China's is $1,712, India's is $736, Russia is $5,336 and Brazil is $4,270. So I think we're still a very long way to go before the economic growth in these countries reaches a plateau. And this is good for the US and European economies too, very good, especially for the companies with the ability to export.

From these comments you know how I think the long term will play out, but of course the market will have the ultimate word. We'll see what happens next.

From now on I'll use this thread to write comments on the general market.

After a lot of turbulence, like it usually happens at market bottoms, the SPY managed to close the day above the "crucial" $143.7 technical support.

The market started the day higher, but then the FED minutes came out with the FED forecasting slower growth in 2008 and the market tanked to new lows.

But, by the close, the Big Boys (or, another expression I like to use, the "Men of the System") showed up to buy the market on one of the heaviest volume days of the year.

I'm aware that today futures are sharply negative, so we'll have a lower open. The SPY is trading at $143.06 in the pre-market as I write this, after closing at $144.64 yesterday. Gee, we knew the Thanksgiving week would be volatile, but this much?

I believe today's open is being influenced by generally the same factors which made people sell yesterday, and the Men of the System already responded to that information by buying, so I think this sharp fall at the open is a buying opportunity.

Of course, I can be wrong, but so far everything is playing out like we're at the bottom (usually I'm one or two days early on these short term timing forecasts).

However, even though the market ended in positive territory yesterday, that didn't help the Main Portfolio, which closed down 3.7% and now it is up just 8.34% for the year, down from a 37% gain just about a month ago. Nobody feels more sorrow than I for this sharp correction.

A similar situation also happened at the August 16th bottom, I remember clearly that on the day the SPY made its low the Main went down 4% plus and it lagged in the first days of recovery. But then it caught up with the SPY and surpassed its performance by a wide margin. I believe this happens because the Main is essentially a small cap portfolio and investors' attention and cash takes a bit longer to get there, but when it does it has a big impact.

Anyway, I invest using a microeconomic approach which tends to ignore the general market fluctuations. I believe my stocks are very attractive from a fundamental standpoint and will surely go up over the long term. Peter Lynch used to say that most people fail to make money in stocks because they're always getting scared out of them. I want to invest in stocks for the upcoming 30 to 40 years until I retire and I'm not planning to cyclically get out of the market because I sense a Bear Market can happen, because I believe I will, like most if not all people, fail in my market timing efforts over the long term. If I get just two or three tenbaggers and the others compensate each other that will make a stellar long term performance over the next three years or so (three to five years is the expected time frame of my current holdings).

I plan to just sit tight throughout the current storm and don't think all that much, because thinking too much may make me lose my long term focus. Six months down the road I believe we'll see the benefits of this attitude.

Happy Thanks Giving

Thank you for your contribution, David.

I appreciated a lot!

David,
I know from reading the boards that you used to be a short term trader and have now changed to a long term investor but I was thinking maybe we need a couple of short term trades that would help the main get back some of the lost profits rather quickly.
Although I was not able to participate in the GOAM trade earlier this year, I think we need a couple of short term trades like that, that could help the Main Portfolio in the short term and so help the main in the long term over all performance.
what do you guys think?

I am all for it. I think Stocky had a great idea too.

Stocky's post:
http://www.3stocksonfire.org/trading/index.php?topic=10059.msg109095#new

Thanks for the analysis David. I'm still a bull as well but these past days have been very hard to watch!

Quote from: ygtrdr on November 21, 2007, 09:41:51 AM
Thanks for the analysis David. I'm still a bull as well but these past days have been very hard to watch!

how can you be a bull after 5 year bullmarket and its obvious that a recession will hit the usa....plus high oil next year probably 120-140 dollar a barrel....dont forget al kaida ...weak dollar and and and....the credit crisis will hit stronger than anyone thinks.

Plus a Dow Jones that had it s top....sell off with big volume = distribution...the weekly looks ugly we broke the trendline. There is strong resistence about 13400....

so now telll me a reason to be a bull next year...he?

(not bashing just my meaning)

good luck bulls

Hi ket130.

I'm a bull because I feel overall the positives outweight the negatives. I've yet to see any news come out that signals a severe slowdown is in the works for our country or the world for that matter. Now I could always turn out to be wrong at any day and I remain vigilant for news that will change my mind because in this environment that sort of thing is very possible. Housing is surely in a recession but housing only makes up a small percentage of our GDP and other sectors of our economy are expanding, like exports for example.

The pundits have been screaming about Oil causing a recession since it was at 40. Here we are at 100 and the economy has absorbed every price increase well. I think this is chiefly because consumers buy gasoline and not oil by the barrel. Gasoline has remained relatively inexpensive to date.

I want to see the S&P confirm the Dow before I become bearish. The S&P is a much broader average and therefore a more reliable indicator. As well the Nasdaq has not confirmed a bearish signal either. So we have two index's that are broader than the Dow that have not turned bearish yet. I'm not putting all my bets on the Dow.

I think the worry over the dollar is overdone. Really, a weak dollar isn't that bad for Americans. Who it really hurts are the export nations we purchase goods from. Overall though the dollar's weakness hasn't impacted the day to day living of  most Americans. I  think it's more an issue of  national pride than anything.

Al-Qaida. We have been fighting them since the inception of this bull market. I don't see why I would be shorting stocks on the odd chance that they do something. Risk reward isn't worth it at all.

Lastly the Fed has shown itself to be market friendly. Don't bet against the fed and they're lowering rates. I remain bullish until something comes out that tips the balance for me but until then I will not be shorting more than just for hedges.

Good luck.