Chris — Page 19

Calling Tops and Bottoms: Trend Changes

April 10, 2009 by Chris 2 Comments

Every once in a while you like to look back and review your notes to locate where your research was right and where it was wrong. The simple technique of following stock market leaders and the NH-NL ratio nailed the period of time when the market transitioned from an up-trend to churning to the “Big Decline”. We nailed it here on this blog and every reader was prepared for the imminent decline. No one can dispute that. Readers of this blog were told to move to cash to preserve capital in late 2007 and early 2008. Now, I am not talking about day traders but longer term traders or investors that work full time and do what I do.

The chart highlights in red where I was making the sell posts (the articles are listed below):
041009_trend_change

Anyway, I have been posting twits about the strengthening of the NH-NL ratio which is starting to tell me that the newest trend change is beginning. Yes, this is my first major blog post saying that my screens (market tools) are telling me to wake up because things are starting to change. It’s not time to jump in with both feet and buy every stock that’s up on above average volume but it’s time to sharpen the skills and be ready. We may look back and point to March and April of 2009 as the bottom of the market or at least the start of the changing trend.

We don’t have market leaders yet but when they appear, I will locate them, post up charts and talk about them nightly on twitter (twitter.com/cperruna). Too many stocks still have their 50-d moving averages below their longer term 200-d moving averages and new highs are still limited. However, new lows have dried up considerably and the NH-NL ratio has a moving average that is trending higher for about a month now. That’s the most sustainable trend for this ratio since the big decline started.

Stay tuned to the blog and my twits for follow-ups to my research on individual stocks and the overall trend.

In the meantime, take a look back at the numerous blog articles I posted in 2007and 2008 talking about a market decline, shorting stocks and selling in general. Learn from what the simple tools were telling us. I am far from a market genius and far from rich but I can make a few dollars following the leaders and the NH-NL ratio.

A Review of Articles Pointing to a Stock Market Decline in early 2008:

May 23, 2008: Smelling Trouble

The bottom line or point of today’s rant is the fact that I still feel that the market is headed for a decline or as I phrased it a couple weeks ago: The Big Decline (long term perspective of course).
May 8, 2008: Market Distribution

I originally started to point out market troubles back on March 14, 2008 in a post titled Snapshot Friday; I highlighted both the Dow Jones and NASDAQ with clear yellow shaded areas showing the 200-day moving averages pointing down for the first time since 2003 (that’s huge if you ask me).
May 7, 2008: The Big Decline

I am a positive person by nature and I prefer to buy stocks going up but I am starting to see several leading stocks struggle to hold new highs or fail to challenge recent highs. These patterns are familiar and they are suggesting that the recent bounce is the final stage before a possible market decline.
January 23, 2008: Setups for Selling Stocks Short

I wrote an article on October 15, 2007 titled How to Make Money Selling Short, precisely when the general market indexes were topping. I am not going to take full credit but subconsciously my charts were giving me signals that the market was showing the major red flags and signals of what we are seeing today.

A Review of Articles Talking about Selling, Profit Taking and Market Distribution in late 2007:

10/03/07: Is Shanghai a Nasdaq Déjà vu

Well, the current two year rise of the Shanghai Stock Exchange Composite Index looks remarkably similar to the rise of the NASDAQ of the late 1990’s and the charts below explain better than I can!
10/04/07: A Technique for Profit Taking

What do you do in a market like today when you have profits in multiple positions but you don’t want to give it all back? You want to continue to ride the winners but at the same time, you want to maintain the unrealized gains in your account. HOW?
10/12/07: Distribution Day

This was the largest showing of volume in two months and is not healthy because it was pure distribution. It was only the second distribution day over the past month so we can’t call this a bear run but please be on the lookout for a possible correction of 5%-10%. Technology stocks led the decline as BIDU gave back 10% of its amazing run.

New High New Low (NH-NL) Chart

April 6, 2009 by Chris Leave a Comment

This chart explains what I have been talking about on twitter.
Follow my nightly tweets at twitter.com/cperruna.

As I said in a recent response to a blog comment by Jeff: “The NH-NL ratio is showing some up-tick from the brutal beating it has taken recently. A positive shift will peak my interest. Not there yet.” I am keeping better watch lists because of the slow trend change in the chart below. We have a ways to go before we can start buying shares but very subtle changes are taking place.

Recent Tweets:

The 10-d m.a for NYSE NH-NL ratio is now -3.4, highest it has been all year. Was -338.6 to start March & peaked at -478.5 six days later 35 minutes ago from StockTwits
CXO – One to watch if this industry starts to move. Buy at 200d ma; 50d ma must cross above 200d – very positive. about 22 hours ago from StockTwits
STAR – decent risk/reward to add shares near 200d ma. Keep an eye on accumulation vs. distribution (weekly). Short term target $18. about 23 hours ago from StockTwits
V jumped into $57-$60 buy zone that I mentioned Tuesday. Resistance here at 200-d ma; 50-d ma still below 200-d ma – this must change 3:49 PM Apr 3rd from StockTwits

040609_nh_nl

*Chart courtesy of DecisionPoint.com

Filed Under: NH-NL Ratio

Follow my Stock Analysis on Twitter

April 2, 2009 by Chris 8 Comments

I miss blogging but now you can follow my stock ideas and research on twitter (I use stocktwits to post the information). Due to time constraints that prohibit me from posting high quality blog analysis, I have decided to use the great technology of tweets to write my thoughts each night. I don’t believe in half-hearted blog posts so Twitter is a perfect compliment while I continue my daily blog hiatus.

My goal is to target a few stock ideas and/or quick research snapshots that are crossing my screens. These are the same ideas that I log in my own notebook for potential trades or future reference. Now I can share my ideas again and not take up too much time formatting a blog post.

Follow me here:

twitter.com/cperruna

Here’s a sample of the tweets I have listed over the past few nights:

We had 12 new highs and 2 new lows on the NYSE today – compare that to 3 NH’s and 705 NL’s on 3/3/09 – the trend is changing $$ – less than 20 seconds ago from StockTwits
RVBD – nice recovery of the 200-d m.a. – longer term play with healthy market. Short term target is $18 (52-wk high area)…8 minutes ago from StockTwits
APEI – triple top breakout on point & figure above $45 (short term buy). 50-d ma. must cross above 200-d m.a. before longer term buy…15 minutes ago from StockTwits
VMW up on volume 135% larger than average; trading in range, $20 to $27 – short term buy above $27. 200-d MA may provide resistance…7:58 PM Apr 1st from StockTwits
V in a trading range, EPS still solid, RS steady – $57-$60 is buy zone; it goes to $100 when the market moves but when is that…7:07 PM Mar 31st from StockTwits
HTS is an interesting young stock, decent chart, volume up 180% today, not a buy yet (especially in this market)…6:52 PM Mar 31st from StockTwits
DXO is dropping back to the moving average – watch it for setup…8:59 PM Mar 30th from StockTwits

The charts of the stocks covered so far are listed below. So sign up for twitter and join me as I talk stocks. You can get it on your phone, facebook and many other places.

twitter.com/cperruna

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Filed Under: Blogs, Twitter Updates

The Daily Trading Coach

March 23, 2009 by Chris 1 Comment

The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist
by Brett N. Steenbarger

I am very pleased to announce that Dr. Brett Steenbarger’s new book can be ordered through Amazon. What makes this book even more interesting than most is that fact that I helped contribute to Chapter Nine, along with 17 other online professionals (bloggers I have followed and known for some time). Clearly, I consider the other 17 contributors more professional than me but I can’t discount what I have learned and have shared over the years.

I’ve been very quiet on the blog but that’s because my basic trading philosophy is buying long (stocks making new highs) which isn’t such a great idea right now and the fact that my baby is due to arrive in less than 6 weeks (priorities change). I hope to jump back in and get this blog going again when my screens show breakouts and positive risk/ reward setups. Until then, I’ll sit tight and be patient!

Remember:

“But careful timing is essential…impatience is costly” – Jesse Livermore, 1940
“Whenever I have had the patience to wait for the market to arrive at what I call a “Pivotal Point” before I started to trade; I have always made money in my operations” – Jesse Livermore, 1940
“The big money is made in the first one or two years of a normal bull market cycle” – William O’Neil

Back to the book, I highly recommend it, as well as Brett’s past books; he’s such a great contributor to the trading world and an even more important fixture and influential contributor to the online investing community.

Brett’s TraderFeed Blog

From the Inside Flap:

Every trader is an entrepreneur. And just as a new business must capitalize upon the strengths of its founders, a career in the markets crucially hinges upon the assets—personal and monetary—of the trader. As an active trader and a coach of traders in hedge funds, proprietary trading groups, and investment bank settings, author Brett Steenbarger has helped others see the personal assets they have possessed all along: those that can pay a lifetime of dividends. In The Daily Trading Coach, he provides the tools to help you prioritize both your trading goals and your life—and become your own trading psychologist.

There are 101 lessons in The Daily Trading Coach, each averaging several pages in length. Each lesson follows the same general format: identifying an everyday challenge that traders face, an approach to meeting that challenge, and a specific suggestion for implementing that approach. The lessons cover a range of topics relevant to trading psychology and trading performance, including detailed instruction for utilizing psychodynamic, cognitive, and behavioral brief therapy methods to change problematic behavior patterns and instill new, positive ones. The chapters are independent of one another, so that you can read them in order or you can use the Table of Contents or Index to read, each day, the lesson that most applies to your current trading. In addition, the book includes insightful self-coaching perspectives from eighteen successful trading professionals who share their work online.

While the aim of the book is to help you become your own trading coach, its broader purpose is to help you coach yourself through life. The challenges and uncertainties you face in trading—the pursuit of rewards in the face of risks—are just as present in careers and relationships as in markets. The Daily Trading Coach provides a road map, and a practical set of insights and tools, for discovering and implementing the best within you.

Click here for a complete linkable list of Contributors to The Daily Trading Coach

Thank you Dr. Brett!

Filed Under: Blogs, Books

The Pareto Principle: 80/20 Rule

February 18, 2009 by Chris 7 Comments

As a trend trader, it is likely that 20% of your trades will result in 80% of your profits so focus on riding winners and cutting losers. Learn to implement a proper position sizing methodology to your trading, ensuring that you can withstand a string of consecutive losses without going bust. A lot of people are going bust in many aspects of their lives because they are not focusing on the 20% that matters most. Forget the useless 80%, it’s bringing you down. Less is more, a popular aphorism coined by the famous architect , Ludwig Mies van der Rohe, is something I truly believe in.

It’s times like these when trend traders grow impatient and fail to cut losers and then impatiently take profits too soon (most likely shorts in early 2009). It doesn’t matter if you have multiple losing trades over the past several months as long as your overall risk on each trade is less than 2%. The Pareto Principle will even out your results in due time, assuming you have developed a known expectancy on your system and employ risk management (position sizing).

You may have an expectancy of 40% winning trades but I can almost guarantee that 80%-90% of your year-end profits come from 10%-20% of your successful trades. For example, you may have 4 winning trades out of every 10 but only 2 of those trades will supply you with at least 80% of your profits. The other two winners will be minimal or cancelled-out by commissions, slippage and taxes.

On the other hand, it’s probably likely that 90% of your losses will result from 10% of your trades because you ignored sell rules, threw good money after bad or had stops jumped. One or two in ten trades will be the culprit(s) for bringing on the most damage to your portfolio. The other losing trades will be minimal and cut quickly as you realize that they are not working out as expected.

So what is the Pareto Principle?
“The Pareto principle (also known as the 80-20 rule, the law of the vital few and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

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Filed Under: Expectancy, Position Sizing