Market Discussion

[Ramsburg]

In what stage of the cycle are we now ?

[soxguy]

I don't know exactly where we are, but I'm anything but euphoric. Euphoria,can't even remember what that feels like. Anyway,love the chart...puts things in perspective.

[basanlas]

well I am depressed so may be there is good news on the horizon

[Rmagos]

Hi everybody
Now we (the community) are posting again... that`s nice
By the way Rams, can you take a look at UYG, just in case if we are in a rebound, the financials I think, will be the first in the bandwagon!!!
We need to be psycologicaly strong ang supportive each another!!!

[berloga]

I believe I am past despondency myself. :-) SPY seems to have retested the double bottom and rebounded on a greater than average volume. Remember? Speculation. Big guys need to make money, stock exchange is their pasture. I think our stops have been executing due to the market negativity. If, on the other hand, the market were moving up, the stops would only be upgraded in most cases.

[AussieTrader]

History Repeating Itself - An interesting look back on Energy Promises for the US - Source Navellier & Assoc.

The current spike in oil prices have policymakers calling for new initiatives in order to eventually reduce energy prices.  Sadly, past political rhetoric does not seem to offer much encouragement in terms of lasting solutions.  Note below:

"Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving."
Richard Nixon
State of the Union
January 30, 1974

"A massive program must be initiated to increase energy supply, to cut demand, and provide new standby emergency programs to achieve the independence we want by 1985. The largest part of increased oil production must come from new frontier areas on the Outer Continental Shelf and from the Naval Petroleum Reserve No. 4 in Alaska. It is the intent of this Administration to move ahead with exploration, leasing, and production on those frontier areas of the Outer Continental Shelf where the environmental risks are acceptable."
Gerald Ford
State of the Union
January 15,1975

"The need has never been more urgent. At long last, we must have a clear, comprehensive energy policy for the United States........ But Congress must act promptly now to complete final action on this vital energy legislation. Our Nation will then have a major conservation effort, important initiatives to develop solar power, realistic pricing based on the true value of oil, strong incentives for the production of coal and other fossil fuels in the United States and our Nation's most massive peacetime investment in the development of synthetic fuels."
Jimmy Carter
State of the Union
January 23, 1980

"Our progress should not be lost. We must rely on and encourage multiple forms of energy production—coal, crude oil, natural gas, solar, nuclear, synthetics—and energy conservation. The framework put in place over the last four years will enable us to do this."
Jimmy Carter
State of the Union
January 16,1981

[la-onda]

Market update

Old Fool:
Old Fool Notes – 07/06/08

Friday was a short day but potentially an important day.  You will note that we had a split day with the Dow up nicely, the SPX up tiny and the NAZ down tiny.  Volume was 1.4 billion – which doesn't tell us much – while the ratio was 1.85 to 1 in favor of the bears.  About right for 6 points.  I like to see split days after a long run up or down because they suggest some indecision and the possibility of a bounce. I am not going into detail on the normal chart list because all look terrible and all are in oversold territory.  That's about all that needs to be said.  The more important charts are the ones that I posted yesterday.  The first one is most interesting because if you look at it closely, the lowest dip was in January – well before the March bottom.  Right now we are below where we were in March and, with the exception of January, lower than at any time since mid-2001.

Yes Matilda – it is time for a move up.  The grand question is – can they hold it even if they kick it up for a few days.  I don't know the answer to that question.  Like many here, I have noted the hysterical bashing of the markets by the media.  I have noticed the downgrades by the brokers.  I have also noted frantic profit taking in coals, utilities and commodities.  The former darlings, the ag play are getting smashed.  I am also not seeing traders rushing for the door with 3 billion share days.

Well – what does all this mean?  I believe it means two things.  First, folks are worried about the present – the bank/mortgage fiasco, the astronomical price of energy, auto makers and airlines on the verge of bankruptcy so they are backing out of the market.  I also believe that it means that the BIG money boys have been selling and talking us down so that they get some real bargains when they do decide to buy.  Basically, they have been refilling the money bags.  You must remember that BIG money like pension funds, mutual funds and the big brokers are in control.  We go down when they want us to and we go up when they want us to.

So our job is to decide when they change their mind and then ride their coat tails.  That's why you hear me continually preaching – follow the ball – because we have no other choice if we want to make a buck or two.  The other thing you need to understand is that the BIG boys also follow the ball – they do not pick fights with their peers.  If Joe is selling slowly, Bill knows it and he is selling too.  Vice-versa. I had a couple of trades on Thurs – I sold off about 20% of my hedges.  I have been about 120% hedged for the past few weeks – not intentionally, it just happened that way.  Anyway, I decided to drop back to 100%.  There are two reasons – that first chart I posted yesterday and because I will not be here for the first part of next week.  So I have to go on autopilot for a few days.  I will be in tomorrow morning and will set up buy/sell orders, if appropriate, based on what I see at the open.

Charts link below:

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2071209

Shadowtrader Video:
http://www.shadowtrader.net/videos/sunday070608st.html

DK Charts:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2287993&cmd=show[s141074907]&disp=O

Happy trading this week for all 3SoF Members !!

[AussieTrader]

Trading - Taking Loss to Take Profits

The current market situation is very difficult right now for any type of trader / investor. The very best time for profit is when a market trends over a given timeframe (in either direction). That is when the biggest profits can be accumulated, because you can position, follow and take advantage of trends that develop and remain in place. Right now the overall market is undecided on its direction, trading is volatile. The balance of probability suggests the overall trend being developed is downwards.

Here at 3Stocks we have moved our approach to a trading style focused on technical analysis combined with fundamental analysis and professional risk management. And we are extremely confident in our approach.

Robust risk management allows you to protect capital and take strings of losing trades without impacting your ability to continue trading. Let's look at an example of that risk structure (using average numbers from the past few weeks):

Diversified Portfolio
Capital: $300,000
Position Size %: 6.66%
Position Size $: $20,000
Stop Size %: 12%
Stop Size $: 2,400
Stop as % of Capital: 0.8%

So, that means (on average) when we take a losing trade we are losing a maximum 0.8% of our capital. We could take 20 losers straight (at the max loss) and only incur a 16% drawdown on overall capital. That means you stay well and truly in the game even when the market just doesn't want to play ball!!

This is 'Cutting our losers quickly' The flip side to this is 'Letting our winners run' so that you ensure you offset the value of your losers by the winners. Ultimately the number of losing trades v's winning trades is not the key parameter, it is the relationship of the $ value of those trades that determines overall profit or loss. Based on the above analysis, just 1 winner at lets say 50% gain offsets more than 4 losing trades.

As a trader you don't make money all the time, it just doesn't happen. There will be barren periods and there will be bounty periods, our job, by controlling risk enables us to ride out barren periods so that we are positioned and able to take advantage of bounty periods.

Stock markets go up, down and sideways. So does a traders capital.  You have to ensure you structure your approach to allow your capital (and psychology) to go up, down and sideways as well.

The most successful market participants manage loss first. This allows them to be around to enjoy profit later. Right now we are enjoying (NOT!) drawdown on our capital (as many of you will be too). At some point in the near future we will be enjoying profit.

[AussieTrader]

Market and Strategy Discussion:

Markets continue to get hit by continued financial woes and escalating oil price. Friday saw huge speculation surrounding Fredie Mac and Fannie Mae insolvency rumours, plus the collapse of Indy Mac (the 3rd largest bank failure in US history) leading to super high volume and selling.
Financials face further uncertainties, write downs and negativity moving forwards and will continue to be a huge drain on the markets.   

We have now moved into Q2 earnings season and we are likely to see disappointing numbers from many affected sectors resulting from high energy costs. The flipside to that however being energy related companies could and should surprise to the upside. Further, we need to be on the lookout for potential longer term market bottoming and not be afraid to try and buy longer term potential future leading stocks at decent prices. Remember our approach is multi-dimensional, meaning we can hold, long or short the market and have different trade length timeframes in the same portfolio, thus diversifying trading style.

The diversified portfolio is over-weight in cash (less than 40% invested, some of that being legacy positions CIMT and CHME which are under review). The Speculative portfolio only has 1 open position.
This has been a natural consequence of stops being hit and lack of long sided positions of any note to add.

So, I thought it time to share our strategic thoughts on our trading and investing direction in this very challenging environment.

Overview on Strategy:

Long Side: Primarily looking to add 2 types of positions:

1) Longer term current or future leading stocks in pullback to support mode in high growth sectors with proven and existing up trends.
2) Shorter term momentum positions, again in strength sectors.

Selection of stocks matching these criteria: AAPL, KOG, NOG, POT, CF, AGU, DBA, ASTI, LDK, SOL, YGE, GDI, TTES

Short Side: Primarily looking for medium term to longer term trend following positions to take advantage of expected overall continued market decline, most likely vehicles being inverse index or sector ETF's (such as our current QID position). Plus weak sector stocks / ETF's breaking long term support zones.

Selection of stocks matching these criteria: DXD, SDS (index ETF's), SKF, SCC (sector ETF's).

This is a very challenging market for everyone. Our aim is to build a portfolio approach that will offer you guidance and choice taking into account market direction, sector strengths and varying time horizons.
We are confident that this will lead to a long term performance in excess of the general indexes.

Good Trading

[la-onda]

Thanks for your update Aussie !
I am fully agreeing with your analysis, just holding VPHM, GST and QMNM (as speculative play)

looking forward to the next recommendations from 3SoF

cheers
Oliver

[berloga]

Good strategy outline, Aussie. Thanks. How the portfolio performs in the tough times on the market will be an excellent test to predict its performance when the market takes the upside.

I do keep the oil stocks still (OIS and MUR), but my VPHM position was closed as a result of some freak trade several days ago. I placed stop higher than yours though... Don't want to get back in now.

I hope you guys have solved the issue that realcoolhead had had. He seemed rather upset. I believe one of the reasons is that this year has been especially frustrating due to the 3SOF underperformed by a wide margin and moreover the strategy and management have been inconsistent.

I am willing to give Aussie and Rams the time they need to re-establish the reputation of this service.

[AussieTrader]

The Markets and Strategy

Well first of all, it is really tough out there and I am first to admit I am not at all happy with the current performance of our portfolios. We have been attempting to build an approach that is based on our thoughts that the markets are still very much in decline mode whilst at the same time taking selective long positions in stocks with strong fundamental opportunities and sectors of strength.

Yesterday I commented in my QID / DXD updates that I was continuing to hold those positions as my sentiment was looking for rally failure and continued selling. The past 2 days have seen a tremendous market rally from significant lows / support levels which could either be signalling turn-round or bear rally about to fail. This rally had good volume and broad participation, but a lot of it was fuelled by the worst sector out there (financials). Largely on the back of news relating to short selling control, FNM / FRE intervention, Wells Fargo results (they are a conservative company and less exposed to the subprime mess) etc. The pullback in oil also contributed and our energy plays suffered accordingly. Anyway all that said, the rally looks (looked) convincing, and we saw drawdown against our open inverse index ETF positions and energy stocks.

After the market closed we had Merril Lynch report earnings with a further $9.75B of write downs and selling their Bloomberg stake for $4.6B to raise cash. Google also reported less than expectations although they showed net growth. Microsoft also fell short of expectations and gave cautious forward looking commentary (as you would expect). All 3 stocks trading significantly lower after hours. Citigroup report before market open today, don't expect much upside surprise from them, I expect a Merril like report which will further dampen the rally continuation prospects.

So the market offers hope and rallies a couple days and gives the impression of breakout and follow through being possible, then very quickly it would seem takes it away again. I think Financials still have a huge sorry story to unwind in the coming months which will prevent any bull rally from gaining decent traction. But at some point a bull rally will materialse, just a question of when.

Contintuing to keep confidence, discipline and being open to being wrong and acting on that will see us through what is a very turbulant and difficult period.

[guitarman]

Hi All
It's been a long time since I've posted here but being down more than half in my portfolio (not at all 3 SOF's fault as I still have previous positions and have been dabbling in other stocks) has me a bit apathetic and ready to sit on the sidelines.
However, I keep reading and absorbing information.
What I've been able to piece together is that you will see a rally to 12,000 12,500 this month and next +/- and then you'll see the bear slide again.
After all it is an election year in the states! (I've read Iran and US will settle over Iraq and Israel and Syria will come to a peace agreement. That'll drive oil prices down and stocks up temporarily but I still believe inflation will continue to roar and you'll see more mortgage related write downs).
I also see there is a huge Naked Short mess that is set to unfold (check out www.deepcapture.com)
I saw a great article on denial and how the 29 crash took 3 years with mini bear rallies on the way down.
All said, I am going to wait for the rally to get out of some bear sensitive positions and possibly get into QID, MZZ, SKF and various junior gold or silver stocks.
Hell I might even park some $ into a TIF for inflation.
GLTA
G-Man

[AussieTrader]

Market and Strategy:

Market bottoms can and do happen at times when you might least expect them. When the news is SO bad that it seems the downwards slide will continue forever.

On July 15th the major indexes were breaking to new lows DJIAA closed below 11,000, the SPX below 1,220, COMP at 2,200, RUT made new low at 650. Also on that day Oil was right around the highs just shy of $150 a barrel. The SEC had just announced  new rules to address rampant short selling especially that in the financial sectors. Fannie and Freddie were top of the
headlines - bailout plans, capital needed to continue etc. Leading up to that consumer sentiment had hit an all time low, unemployment in the US was heading to 6%........

Obviously I could go on, but you get the picture, the sky was definitely falling in, things were (are) SO bad the market can only do 1 thing...drop further.

What we have seen though is the exact opposite, Oil has pulled back hugely, most indexes have rallied on good volume, consolidated a  couple days and then continued upwards breaking significant downtrends and resistance areas (NDX stands out as the weakest). In the same timeframe the $ has found a bit of relative strength and now Gold / Silver have given back significant gains.

So, what conclusion to draw. Well we could have seen a genuine market bottom signalled with bullish follow through which could well lead to a new bull market being established. Yes even though sentiment and commonsense say otherwise, historically this is when bottoms occur. Or we could just be seeing a fast and furious bear rally in an otherwise downwards continuation and oil will stabilise and go back up and equities down.

I am not 100% sure. Our stance has been more to the bear side than bull, but being very selective on either side. I am fully open to the bull argument here and all we can do is watch closely the next few days action and continue to try and find the right direction. AAPL is an interesting barometer, after their results they got hit opening at $150, but buyers stepped in and closed the stock only 2% or so down from the previous day.

If I had to make a call here (which I don't) I would perhaps be getting a bit
more bullish again. But then what do I know

[AussieTrader]

Market Watch:

Lets look at the main indices and very quickly we can see the current market is still undecided in overall direction, trying to establish a bottom, running into resistance, showing bullish signs one day, reversing those signs the next. All in all hard to trade those conditions, that is why we only have a few open trades and have more focus on standby plans.

Chart 1 DJIAA - stopped at the 50ema and recent swing high, now looking to test ascending support.
Chart 2 COMP - Stopped at longer term resistance (red line on chart) still above decent support, in better shape than other indices.
Chart 3 SPX - Stopped at the 50ema and recent highs resistance. Very similar to the DJIAA.

Over the weekend I will look more closely at these indexes and probably construct some breakout / breakdown standby trade plans using ETF's. I think if we get a decisive move in either direction we will see some worthwhile positions to take.