Stock Saturday (2nd week beta test)

Delayed and probably half assed, here is my list of IBD top 50 stocks that are in a tradable set up.

The most important thing in the world, AAPL…we have a 3 bar set up, along with a weekly buy above the all time high. I’ve also highlighted the last 4 set ups in AAPL for this. 3 were right, the other (circled) was wrong twice before it was right (hey, its not always a straight path to heaven–or profits)

AAPL http://awesomescreenshot.com/0c23jk4d0

Self explanatory almost, MA is in rising flag. trade it how you see fit (id short a breakdown of it and cover below the 50 DMA)

MA http://awesomescreenshot.com/0ce3jkdd1

INVN three days within the range of the previous day. below the 50, id look to be a buyer above this range, ESPECIALLY if monday trades within this range and it breaks out later in the week

INVN http://awesomescreenshot.com/0a13jkib3

SLXP similar set up but also within a larger pattern. still a buy above the red line, which will also be right about where the 50 day sits

SLXP http://awesomescreenshot.com/0e93jkp14

FOSL 3 bar set up, buy above red line, stop below lower. if it trades below just continue to roll down the buy point.

FOSL http://awesomescreenshot.com/0723jkra5

CF continues in its triangle. an interesting trade should come within this week. use stops, watch for false moves because they become fast moves

CF http://awesomescreenshot.com/0933jl110

Overall, quite a few stocks in the market have moved into buy set ups. This doesn’t mean you go out and buy the next day. As i have and continue to emphasis you want to identify set ups so you know what to watch. THEN, you wait for clear and definable signals. Much of the market is now set up properly, including almost all major averages, now we must wait for proper signals.

 

Rotten Apple, the update

ah you’ve got to love those moments when you point out how dumb you’re going to look, then do it anyway. That being said, this exercise goes a long way to prove another point:

Calling tops and bottoms is a fools game

Its just so damn hard to do, even with proper analysis the ability to say humans will stop doing what has worked for them and others–is too difficult to do. Often an amateur speculator will make these calls and indeed follow through on them, thinking–well, hoping–to strike it rich. Not only financial profits but perhaps even more importantly praise for their genius.

Another point that i often make that i would like to hit on the head again is;

a divergence is only evidence of a strong trend until trendlines break

APPL is a perfect example of this. One cannot just say “i see a divergence so I’m going to short the crap out of this bubble.” well, to be practical, you can do this, you’ll just lose more times than you win and end up psychologically worn down. I see far too many traders doing this to spite evidence that it is not a profitable venture.

Ranting aside, lets look again at the beast that is AAPL

As we can see, divergences continue while trend lines continue to stay in tact. This three pronged trend line set up is part of our series on defining parabolic moves. For those of you thinking of shorting this strong stock, might i remind you i gave some pretty great analysis on how AAPL looked ready to break down–at $550. At 633 i still say this looks like a castle made of sand.

You know what I’m going to do with that belief? exactly what i did last time–just watch. Buy dips in bull markets, sell rips in bear markets and you live to fight another day. doing otherwise is to chase glory with a heart filled with greed.

 

Housing Charts…yeah, again

weekend Barry Ritholtz wrote a great op-ed on the housing “recovery”, which can be seen here. Im going to post a few of his charts and add to my comments from previous posts.

The first chart is what i consider the most important chart of all in the world of housing. this compares the ratio of home prices to incomes. Its my view that this is the missing link to why the housing recovery has been so delayed relative to past recessions. As noted in a previous post, price/rent ratio has come back into its own, and the typical RE cycle is in the first stages of a bottoming process.

All this being said, BR makes some great points in his op-ed. There is plenty of inventory still to be realized (shadow inventory), and consumers don’t have the cash to put down payments on current prices. Furthermore, bubbles don’t end the way chart one currently looks, but rather look much more like the second chart titled “The Collapse of Home Equity.

The collapse of home equity is of course, by and large, due to the bubble and a refinancing craze that left what should have been individuals owning their homes outright instead in the category of the indebted at the height of the bubble.

Moreover, the housing market should correct further either through price or time. that being said i stand by the previous post that i believe for those of us in a situation of being able to buy, that the next two years should provide a solid buying opportunity. If/when we get another recession, that will take a solid opportunity and turn it into a great one.

 

Stock Saturdays (beta)

Prelude

A new series I’m going to try out is to take IBD’s (Investors Business Daily) top 50 stocks list which is done every Saturday. These are selected by using their growth fundamentals along with some technical analysis. I will scan through this list and look for what i believe is in a set up where one can look to make a purchase. I will be using a combination of my own techniques along with some of IBD and/or William O’Niels techniques.

By the very nature of the IBD screening, these will be high growth stocks. To that end, they will most likely be high momentum stocks. Initial protective stops must be used. adding to losing positions in momentum stocks is not something i will advise on here. IBD states that one should use 8% or less as a protective stop and in many of these set ups i will post where i would place a stop. Whatever number you use, just use a friggin’ stop!

Stock Sautrday 4/7/12

Starting off the series is CF which is in a consolidation that looks to be a symmetrical triangle. According to wave theory it should have at least 5 waves within it. that being said, i would look to trade a breakout/down either way http://awesomescreenshot.com/0e02zdm5f

WXS is also consolidating, though not in a discernible and tradable pattern (that I’m aware of) http://awesomescreenshot.com/0722zdsf9

TDG consolidating, one could say a rectangle but i believe that would be pushing the boundaries of the definition in a tradable fashion. http://awesomescreenshot.com/06e2zdyba

INVN trades below the 50 and 20 day MA’s. i would look to buy this above thursdays high and, if such a move happens, place a stop slightly below thursdays low.

SIMO trades below the 50 and 20 day MA’s. the strategy is not as clear cut here.  I would look for a clean break of the resistance line. one could wait for 19.95 and place a stop below 18.25http://awesomescreenshot.com/0cb2ze777

For the quick draw stock traders, FRAN and SLPX both trade below their 20 DMA’s and provide us with 3 consecutive price declines that meet the screening criteria. buy above thursdays high, stop below thursdays lows

http://awesomescreenshot.com/0b12zea59

http://awesomescreenshot.com/0a42zecd3

 

Expect More of Yourself and Others

Not the biggest fan of doing carbon copies of other peoples blog posts, but this is good. picked it up from Richard Branson 

“its better to aim high and miss, than to aim low and hit.”

 

Real Estate Rebound

“its always darkest before the dawn.”

Though I’m by far not the first to write on Real Estate cycles but i believe this is an opportune time to discuss it with a few charts.

To spite my intense aggravation that this ratio has come in line due to an increase in rental prices vs a decrease in home values, i have come to grips with the fact that the motto is to save the old and screw the young (after all, who votes?).

Price/Rent is in line. not saying this ratio can’t go lower, only that it has found its way back to planet earth. So have home prices

Inflation adjusted home prices have as well. My hope is that they we will get to mid 1990′s levels, however this may not happen. The reason i say it might not happen is the long prevailing 8-9 year cycle in real estate is nearing a bottom on a cyclical basis.

If you’re unconvinced by these charts, i was able to take a few photos from Ken Fishers book “Wall St. Walts”, found on pages 134-135. This cycle has indeed been with us a long, long time.

Unfortunately of course the photo causes it to come out backwards! lol but i figured id show it just so everyone doesn’t think I’m pulling this out of my ass. This cycle has been with us since the 1870′s (and thats just what we have charts for).

Moreover, the time component of this cycle is almost up. Price to rent, prices, and price to income have come back within a “normal” range. It is not uncommon for bubbles to correct further to the downside but it is my belief we have seen the bulk of this move not only in price but in time. It would be beneficial to younger generations if there was a further correction in price–that doesn’t mean we are going to get it. Within the next two years should be the time to buy.

 

 

 

 

 

 

 

(charts provided by Calculated Risk and Ken Fisher)

 

Rotten Apple

see that? thats my neck OUT there. probably soon to be in the graveyard of fools who called tops in AAPL, I’m going to point out a few things that i find troubling.

Notice the divergences across indicators, trend line established–and to boot two distribution days as defined by IBD, where you get selling pressure with volume greater than the day before. If the rising trend line is broken, an aggressive trader would either exit a long or get short. Confirmation would be to do so when the 5 day channel breaks.

i will not be trading this–im simply pointing it out for those that may be interested. 

 

Some Trades

 

 

 

 

 

 

 

 

 

A lot of markets are starting to set up this way. AUDUSD just happens to be a chart i selected as ideal. nice double top set up, commercials opposed to speculators, with a low range and ADX. Starting to see the Russell and transports roll over as well. Sector ETFs like SMH and XLI have also rolled over and are in correction phase now. i look for the overall market place to follow this path within the next two weeks.

i will reiterate that in all probability these will be buying opportunities more than long term short opportunities.

 

A Speculators Heart

“Another lesson i learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills.”

“Ignorance at 22 isn’t a structural defect.”

- Reminiscences of a Stock Operator

in a nod to the the greatest book in the history of markets, i will attempt to share a story of what i think traps a lot of young speculators and haunts many experienced speculators.

For my twenty eight birthday i briefly visited a casino with my younger cousin, who is 22 years of age. He wanted to take $20 and turn it into some quick profits at the blackjack table, to which i was amused. He throws down a $10 bet and pushes with the dealer. He follows it with a few wins, continuing to throw down $10 bets. as he gets to $50 total i suggest he pocket the initial $20 and bet $10-15 per hand. Following a loss, two wins, a loss, and one more win he sat with $45 dollar profit. Of course as an ‘old’ speculator, i felt over 2x the initial line was a great position to be in. No risk.

As soon as i thought that last line i smirked, as there is no such thing as NO risk. What followed was all too familiar to a trader. He counted his chips–first warning shot–and felt good, so he threw down a $35 bet. What else could happen? He lost the hand. The ego had entered the building. i suggested pocketing the $10 gain and getting out but, “thats only a ten dollars, thats nothing.” To me i saw a 50% gain, he saw a lousy ten dollars. So he reached for the initial 20, and laid down a $30 bet.

A frustrated speculator, making justifications initially that it was only a $20 loss, then cursing himself for betting small when he was on a hot streak and going big when he got cold. The ego had won and the bank account had lost.

We have all done this as speculators at some moment or another. for the market participant the number just has a few more zeros attached, but the driving forcers are always the same. Similar to the art of chasing, the speculator loses discipline, and breaks her pre-set rules (if she has any). The allure of fast gains and the excitement of a winning streak have a talent for eating away at the heart of a speculator.

In the end these are the enemies we have to fight when in a winning position. We must fight them with rules and experience. The rules of money management and the experience to fight our natural instincts of hope and fear. With these tools we can be confident and level headed speculators.

“if a man didn’t make mistakes he’d own the world in a month. But if he didn’t profit by his mistakes he wouldn’t own a blessed thing.”

- Reminiscences of a Stock Operator

 

3 Consecutive Months Advanced

Once upon a time i wrote about what i deemed the “three month rule” (see bottom of the post) and noted that if a qualified bull market is taking place–defined as 5/13 MA cross being bullish–that if you see three consecutive months up in a row you need to be bullish, not bearish. Also, that you will look for every month thereafter being up roughly 70% of the time with the qualifiers being;

1. the previous month was positive (green candle)

2. you do not take out the previous months low

The folks at Bespoke also expounded upon this, with this brilliant research

 

 

 

 

 

 

 

 

 

Ill take this a bit further and filter out bear markets; you go from 77% odds of being positive to 83%. not a huge edge, which goes somewhat to prove the point that when you get three aggressive months up in a row–youve got to look to be a buyer. other than 1931-32 and 2001 you did good to start buying as far as I’m concerned. in all of those events the 5/13 cross was bearish.

If history holds true in this matter, dip buyers will be rewarded in March and quite probably for the majority of 2012.

“extreme overboughtness is the sign of a young bull market”