One Hell of a Market Cross-Roads

So here's the scoop.  A nice brief article.  No mention of gold (except to mention that I'm not mentioning it right here), or the USD.  I'll stay away from individual stocks and commodities today.

No, dear reader, my concern lies with something I brought to your (and my) attention back on September 14th.

Remember when I said that the most likely place the S&P500 would rally to was 1,132, according to a fibonacci retracement calculation that was further strengthened by that nice downward trend line dating right back to the all-time market top in October of 2007?

I present for you, the updated version:

As you can see here (by clicking the chart), the major downshift in sentiment has a nice trend-line dating all of the way back to the all-time market top.

This is the point where anyone still invested long in stocks should really consider pulling out the majority (if not all) of these holdings and sitting in cash to ride out the next leg of this long-term bear market.

Going short isn't such a bad idea either (and probably 3 or 4 times more profitable than cash), if you are the type - just make sure that your brokerage or trading firm isn't one of the weaker ones as many will be blown away by the sheer volume that is going to come into this decline.  Not to mention some might have a hard time, you know, existing with those awesome capital rations of theirs!

As always, stay safe out there.  The next leg down should break far below that lower trendline in the downward channel and we probably won't see a total low for the market for up to 12 months.  The lower part of the channel should act as overhead resistance for the trendline.

My suspicions, however, (and coincided with studying the market moves of the Great Depression and other market bubbles) is that we won't see that lower trendline for some time once we break through it.

Of course, the unthinkable could happen and we could have a mad dash to new heights first.  However, I'm just not seeing it as the DSI is hovering around 90% or more on practically every market that has be making new highs for weeks!  And the DSI is 93% bearish on the dollar for a MONTH.  Yikes.  Feels like sentiment is way too stretched.

Happy Investing.  Remember Mark Twain's sage advice for these times:

"I am more concerned with the return of my capital than the return on  my capital."  

Truly coined for the depression era.  Sock away every penny folks, save as much cash as you can and be ready for those once-a-century buying opportunities not-too-far down the road. 

Derek.

Overview - My First 2 Published Positions

A recap of the positions I took today:

SCSS Long at 6.25/share for 500 shares. + .36/share end of day 1 for $180.00 profit. Will continue to hold until SCSS reaches price target I for first sell and price target II for second sell (see "A Risky Endeavor?")

DUG - UltraShares Pro Short Oil & Gas - Long at $39.34/share for 300 shares. + 1.15/share for $345 profit. Will continue to hold to reach sell off goal by tracking oil price movements and using technical analysis on the charts for DUG

So far off to a jump start because I picked some good entry points for $525 profit the first day of trading. These two trades have grossed me a 3.52% gain on the first day. My general goal is a 3% gain minimum per month on my overall portfolio, so I'm off to a good start.

I will be doing more extensive research on two other positions I'm attracted to as well as writing down some notes on something I call the tug-of-war which deals with general market perspectives.

Thanks to my readers so far. I've already received 2 emails and I 'm very excited to hear from more of you! Have a good evening.

A Risky Endeavour?

Well it is the morning of Day 2. My second post, and so soon. I guess I'm just excited about today. Last night after I finished posting I still couldn't find it in myself to sleep, so I decided to do a little more poking around for stocks.

I am taking up a few positions on the short-term, meaning typically around a week to one month. I basically do these to catch one or two trend swings then cash out my profits. When I trade short-term trends I set very tight stops on my trades using a volume-related price target. (i.e. I won't sell my position if there is an odd print in trading that is $.75 out of the money from an ECN. I set a minimum requirement of transactions and avg volume per transaction that triggers my stop-loss sell or buy point)

The first position I am taking is in Select Comfort, which just lost about 40% of its share value, declining from about $10.50/share all of the way down to $6.21/share on yesterday's close. The reason: SCSS posted a management update about slowing profit levels in a time when they thought they would be experiencing moderate sales growth. The result, by looking at the MASSIVE volume of the last few days, is that a good chunk of the shareholders are dumping off their shares because of a 2.00 gap down and a subsequent 1.00 + decline over the following day.

What I like about this is that the company is still in the black, and they have always had excellent cash-flow. The second is that as of November 27 they have a 30% short ratio. After this huge decline a large majority of the short position holders will be eager to cash in their profits.

I will demonstrate on the following chart why I want to buy into this stock now and where I am putting in my stop-loss points.



Now you can see on the chart that my hopes are obviously that this gap will close in sometime in the near future. I am anticipating a gap-fill for this morning (.12) and I am going to take up a position around 6.25/share for 500 shares. My stop-loss point will be a solid break through of yesterday's support and a loss of $.50/share, so I am setting my stop-loss point at $5.60 /share on appropriate volume and transactions.

My first sell point is at $7.00. I will sell 200 shares of my 500.00 share position, and reset my stop-loss points accordingly when it reaches that point. My full sell point is a retraction to the point where the gap initial starting trading, around $8.00

So I am basically risking a maximum $.70/share loss for a potential gain of $.80 on 200 shares and $1.80 on 300 shares. As always with investing there is risk. The most important thing about risk is your ability to control it, and to dictate how much of it you are willing to put up with.

I have taken up a 300 share position of UltraShort Oil and Gas Proshares as I said I was going to do last night, and I have made short gains of almost $2.00/barrel of oil. Of course this is just the first day and I am talking about several months of investing, but it always feels good to pick a good entry point. - you can view the chart on Crude Oil prices HERE.

If any of my readers have stock picks of their own they would like me to check out please feel free to post here or email me at any time. Otherwise I will be back with more portfolio positions.

First Post: My First Investment Position.

This is my first post as a blogger. I'm very new to this side of the blog concept but I have been an avid blog reader for some years (my RSS feed has about 145 of them). I love the idea of the blog, the unedited rawness that you find on the internet.

There's no need for the politically-correct softening down of certain topics. No need for the approval of a publishing manager then his manager and finally the general manager to get an article put through. There is just me, the writer, you the reader, and the medium; the blog.

I also love that the responsibility of editing lies solely on the writer. There is no team of proof-readers spilling drops of coffee and cigarette ashes across the pages of my work. In fact, there are no pages period. Just the clean desk.

Not my desk, though. My desk as always is cluttered even as I type this. A box of matches, an ash tray, a fresh pack of cigarettes with only one missing. One empty paper cup and another full of coffee. Speakers, monitor, telephone, and a few scribbled notes. But these are just the things that keep me going, the fuel. The stuff that really matters is slid into 8 Firefox tabs, a word document, a spreadsheet, and a picture viewer.

Which brings me to why I am here. I have thought about blogging for a few years now, but there were first of all several mental obstacles I needed to overcome.

The first was the easiest: Dare I put my thoughts out into the universe of billions of clicking surfers and reviewers? Dare I test my wit and intelligence against the masses? What if I am ripped apart by the old veterans of the roller-coaster landscape of online publishing?

Thankfully I have just come out the other side of a rather distasteful employment experience. To work for some people there just isn't enough money in the world. But that isn't my point. What I learned, the most relevant to this anyway, is that I no longer care. Either way it doesn't affect who I am as a person if someone is interested or disinterested in what I have to say. If they see my insight as valuable or invaluable.

The ball is in your court after today. I am only the referee, calling the plays as I see them.

The second and far more challenging thing was the topic for me to blog about. I don't want to be one of these universal bloggers who grab at everything around them or narrate their own lives to the general public. A reality television book.

This problem arises from the fact that I have many interests, and some of those interests I consider myself fairly knowledgeable. I am a jazz drummer of 13 years, I have played poker profitably both online and in B&M casinos for some years, I am working on a novel that I have several publishers interested in, I have run three successful businesses and sold them since I turned 17 years old.

And I have a profound love for the world of stocks, commodities, and all things investing-related.

That is the topic I chose and it is for one reason. The very same reason that I would never take a job at a bank or large financial institution.

The many resources out there for making profitable investments are almost all there for one thing: to make themselves money. Whether it be a large brokerage house that profits whether or not you make a cent or lose half of your holdings, a subscription-based advisory service, a black-box system that will only work until the market makes a single significant change - if at all, and the many other ways average investors try to make sense of the endless ocean that is the financial world.

The first thing I would like to demonstrate to my readers is that the markets all and one are driven by a singular thing. I will deal primarily with that in my next post. The second thing I will be doing is simply posting the exact positions I will be taking in my portfolio and the reason for taking my position. That is all.

You as a reader can choose to take this advice, ignore it, laugh at it, ponder it, write it down, anything you like. I am simply opening my own portfolio to the eyes of the public.

Right now I am researching several positions that I will be taking in the next 5 trading days. The first position I have solidified is in Crude Oil. Here is the link for the charts on light crude traded on Nymex

Crude Oil Charts

I will be taking up a short position on futures contracts for April 2008. I will also be using the Proshares Ultrashort Oil and Gas ETF found HERE, which is an excellent resource for people who don't trade in commodities options or futures. Proshares offers the only Short ETFs in North America and holds $9 Billion in equity. They are a very reputable firm and only charge a .95% annual handling fee (the average fee is around 2% so they are very inexpensively priced).

There are several reasons that I am taking a short position :

1. Timing: Oil prices generally take a 5-10% decline from January through May due to decreases in volume because the weather is warming across North America.
2. BIGGEST REASON: Oil prices have reached a top, which I will show in the following chart, and have formed a head-and-shoulders pattern coming down the other side. This generally means that a large crash-down in price will be occurring in or over the next 5-15 trading days. I am very excited to take this position.
3. Higher uses of coal in the last 3 years due to high-sulfur emissions has taken a chunk out of the oil market and OPEC is currently keeping demand levels at an inflated amount to cash in for a while. Once this "oil bubble" bursts the price will slide down.

My estimate is that the price of crude oil will be somewhere in the mid-high 70's by April giving me a tidy 20%+ gain. I will show you what I am talking about on this chart, and introduce you to a few of my cardinal rules.

RULE 1 - ALWAYS take a position you are at least 75% sure will run your way.

RULE 2 - ALWAYS set a stop-loss on your position that only risks a portion of your potential investment. In this case I am risking a loss of roughly $2.50/barrel versus a potential and projected gain of $14.00 - $20.00/barrel.

RULE 3 - Pick you entry Point - I will enter this position immediately as it has already hit its third top of the new downtrend. I did decide, when I started considering this position, that I would wait for a strong indicator in my favor. If you go to the charts for this stock and notice over the last month you will see that a clear head-and-shoulders pattern is formed and oil prices are poised on the brink of a decline. I chose my entry point at my estimated half-decline on the right shoulder to catch immediate gains and ride out profits.

This chart without revisions is provided by TradingCharts

This about sums up my first post. I would like to thank in advance anybody who takes the time to read what I have to say, and especially thank any of those who would like to add input to my posts. I greatly appreciate it.

Enjoy the holidays everyone. I will post another position very soon!