Market Talk with Piranha

My Latest Blog Entries

2007-01-13T21:16:00.000-05:00

If you don't know by now - Market Talk with Piranha is now located at www.chrisperruna.com

Here are a few of my latest blog posts:

Intercontinental Exchange (ICE) is HOT

Iconix Brand Group (ICON)

Apple Inc. is Still Green

Medical Properties Trust Inc. (MPW)

Silver Wheaton Corporation (SLW)

The Holy Grail of Weight Loss

Wall Street does Create Something

See you on the other side,
Piranha

Latest Articles uploaded on New Blog

2006-12-12T08:51:00.000-05:00

Latest Posts added to chrisperruna.com:

ICE, BOT and ISE Updated

Super Speculation – Yes – Tips are for Suckers:

2006-12-06T12:21:00.000-05:00

Many of you may have heard of Calpine and how they went into bankruptcy and how they are selling various parts of their business. I was recently having a conversation with someone in the industry (hedge fund) and they mentioned how several traders are going long Calpine (CPNLQ) on pure speculation based on rumors that the company may restructure and move forward. I don’t know if it is true but I took a look at the chart after his request and see that the stock is up several hundred percent on very heavy volume since late October but is extremely extended above the major moving averages for the first time in years. It closed at $0.91 on Tuesday (down from the $1.23 peak) as some people believe it is worth $6 per share.

I have no idea if this is true and I have always been taught that TIPS ARE FOR SUCKERS so please beware if you decide to speculate with extreme risk. I take this information as a tip even though my friend is a childhood buddy but I am curious to watch what will happen.

Again – this is by no means a recommendation to buy and major losses could occur if you were to speculate in this stock (I must make these statements to protect the legal aspect of my words). None of the stocks on this blog are buy or sell recommendations; just equity research based on specific criteria as noted in my disclaimers!

I prefer to buy stocks making new highs and I am not a bottom fisher. The only reason I even present this stock is because a very good friend of mine asked me to look at the chart and I thought I would share since I did the analysis.

Disclosure: I do not own any shares in Calpine (CPNLQ)!

-Chris

Moving to WordPress

2006-12-05T11:16:00.000-05:00

I am finally making the change and it is painful at times, especially since there is no import from blogger beta to WordPress (I should have stayed on the regular blogger platform). I used my RSS feed to get my text over to my new WordPress blog but most of the images and charts do not show up. The charts and images occasionally show through IE7 but not through Firefox 2.0. It looks like I will have to re-enter my 238 posts with images from my new server (MY OWN SERVER –finally) or I can wait for a more advanced import tool from WP. My other problem will be the links to blogger titles in many of my posts. I will keep the blogger blog for a while but don’t want duplicate content on two sites as it will hurt the page ranking of both (from what I understand).

In any event, please bear with me over the next couple of weeks as I make the full transition from Blogger to WP as I am just learning the software and will be testing tools and widgets, etc…

My new blog and future home will be at http://www.chrisperruna.com/. I will continue to blog primarily about the stock market but will add a few more subjects that may interest my readers. Take a look and let me know what you think.

Thanks,Chris

New High - New Low Ratio

2006-12-01T10:15:00.000-05:00

Here’s the latest NH-NL ratio chart with weekly numbers updated to the week prior to the Thanksgiving holiday. I excluded the short week so it wouldn’t skew the chart. Although the week ending on Saturday, November 18, 2006 had the highest average number of new highs (541) for the year, the strength calculation ranked it tenth in 2006 behind many of the readings from January and October. New highs were greater during the week of 11/13-11/17 but the strength was less than three of the weeks in October which saw the number of new lows 30%-50% lower. Both sets of numbers play an equal role in the calculation of this NH-NL strength ratio.

Yesterday saw a reading of 525-35 which equals an 87% rating but the readings were weaker earlier in the week so the total won’t make the top 10 (as long as today is quiet). In addition to the NH-NL chart, I wanted to post the chart of the number of stocks on the S&P 500 that are trading above their 50-d m.a. because it has slipped to its lowest level since August.

To calculate the percentage correctly, use this formula:
(New Highs – New Lows) / (New Highs + New Lows) * 100 = X%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 - 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42
Saturday, September 9, 2006: 143-60
Saturday, September 16, 2006: 244-75
Saturday, September 23, 2006: 206-83
Saturday, September 30, 2006: 251-75
Saturday, October 7, 2006: 301-92
Saturday, October 14, 2006: 412-40
Saturday, October 21, 2006: 442-29
Saturday, October 28, 2006: 480-40
Saturday, November 4, 2006: 251-57
Saturday, November 11, 2006: 388-48
Saturday, November 18, 2006: 541-55 - most new highs in 2006 (weekly average)

Piranha

Baby Boomer Bust is BULL

2006-11-29T19:39:00.000-05:00

This article was originally written last summer but I wanted to bring it to the top of the blog after reading Bill's lastest post over at No DooDahs.
“Boomer Bust?” I Don’t Think So!

I couldn't agree more and can't wait to read his full argument!

July 14, 2006:
I want to post about a subject that frequently appears in discussions online in recent years (especially over the past several months). It's about authors and their sheep followers that continue to predict these great depressions and crashes. I am not saying that it can't happen but their readers sure make them rich by reading most of their negative crap. What happened to the predictions from the books in the late 1970’s and early 1980’s? Read the book titles from the 1970’s and 1980’s and then read the book titles from today (listed below). Are you seeing a pattern? I didn’t go back to the 50’s or 60’s but I could find similar titles and then many more in the 1930’s. My point is: don’t believe everything you read and stop panicking by reading books from theorists (talkers, not doers). I must give credit to many of the books listed by Martin Schwartz and his book Pit Bull. I enjoyed reading it over my last vacation as it was very funny and educational (not a “how to” book).

Theorists make money selling books that sell fear while investors and entrepreneurs make money by following their ideas with money and hedging against a possible crisis. I learn from history and history shows us that these “crisis” books will always sell during tough times. Readers eat up this garbage because most people are trapped in the rat race working their asses off just trying to stay afloat. Their attitudes are typically piss-poor and they love to read about huge negative events (especially a crash that may hurt others).

Also notice how the same authors try to write books when the market starts to go back up again. For example, Howard J Ruff was writing about the crisis in 1979 through 1982 but then started to write about how to invest as a serious investor in 1987. Guess what: he was on the wrong end of the crisis in 1982 (the tail end) and the wrong end of the boom in 1987 (crash later that year). These “fools” are always late to the party and sell millions of books to the “average” person that engrosses themselves in fear!

These people, both now and then are not very accurate, they sell garbage in my opinion and I ignore it at all costs! I just hope many of you can do the same and make decisions based on what “YOU” see and not based on book sellers! Invest for now, ignore the garbage but be prepared for worst case scenarios by taking necessary steps but don’t radically change your life based upon the writings of a few authors that probably don’t invest themselves.

Books from the Past:
Crisis Investing: Opportunities and Profits in the Coming Great Depression by Douglas Casey (Hardcover - Jul 1980)

Crisis Investing for the Rest of the 90's by Douglas Casey (Hardcover - Oct 1993) - WOW was this wrong in 1993!

What the smart money is betting on in 1985: By Doug Casey by Douglas R Casey (Unknown Binding - Jan 1, 1985)

The Coming Currency Collapse and What You Can Do About It by Jerome F. Smith (Hardcover - Sep 1980)

Profits from silver by Jerome F Smith (Unknown Binding - 1983)

How you can profit from the coming devaluation by Harry Browne (Unknown Binding - 1970)

You can profit from a monetary crisis by Harry Browne (Unknown Binding - Jan 1, 1975)

How to Prosper During the Coming Bad Years - A Crash Course on Personal and Financial Survival by Howard J. Ruff (Mass Market Paperback - 1979)

How to Prosper in the Coming Bad Years by Howard J. Ruff (Mass Market Paperback - Jul 1981)

Making money: Winning the battle for middle-class financial success by Howard J Ruff (Paperback - 1986)

Howard Ruff's crash course for the serious investor by Howard J Ruff (Unknown Binding - Jan 1, 1987)

How to Prosper During the Coming Bad Years by Howard J. Ruff (Paperback - April 1984)

Books from Today:
The Coming Collapse of the Dollar and How to Profit from It : Make a Fortune by Investing in Gold and Other Hard Assets by James Turk and John Rubino (Hardcover - Dec 28, 2004)

The Coming Economic Collapse : How You Can Thrive When Oil Costs $200 a Barrel by Stephen Leeb and Glen Strathy (Hardcover - Feb 21, 2006)

Defying the Market: Profiting in the Turbulent Post-Technology Market Boom by Stephen Leeb and Donna Leeb (Hardcover - Jun 3, 1999)

Empire of Debt : The Rise of an Epic Financial Crisis (Hardcover) by William Bonner, Addison Wiggin (November 11, 2005)

The Great Bust Ahead: The Greatest Depression in American and UK History is Just Several Short Years Away. This is your Concise Reference Guide to Understanding Why and How Best to Survive It (Paperback) by Daniel A. Arnold (November 25, 2002)

Image courtesy of http://mirrorimageorigin.collegepublisher.com/media/paper144/stills/x5jf138r.jpg

Piranha

Make Money Selling Short

2006-11-28T14:51:00.000-05:00

The headline may sound weak but I borrowed it from the book “How to make Money Selling Stocks Short” By William J. O’Neil. It’s not a book your typical day trader or professional scalper will be interested in reading but it’s ideal for people like me that still trade longer term trends and don’t necessarily do this for a profession. I intend to travel that road one day but now is not my time so I must stick with techniques I believe work and have “actually” worked for me in the past (and present).

I jumped on the potential band wagon early and started to screen for shorts back in early October and I was wrong. More recently, I placed a few positions and was both right and wrong as the market trend was still moving higher and I knew this but I was conquered by human emotion to make the short trades anyway. Luckily for me, two of the trades show a profit while three losers kicked me quickly for smaller losses.

What do I look for when searching for shorts in what I consider reverse CANSLIM? It’s simple; I read the book by O’Neil, study the charts from the past and look for those same characteristics in stocks trading today.

Many traders believe that the most obvious area to place a short would be near the peak of stock’s trading range but I have found this to be untrue.

Characteristics of Longer Term Trend Shorts

Most ideal longer term “trend” shorts take four to twelve months after the peak price to setup on the weekly chart with the majority of these shorts triggering between six to nine months.
Look for stocks that had prior up-trends and support levels that can now act as downward resistance or entry areas.
Once a stock tops and starts to consolidate, you want it to slice through the 50-d moving average and then the 200-d moving average.
A crossover between the 50-d m.a. and the 200-d m.a. is ideal and is graphically presented on each chart in this post
The odds of success increase with each failed attempt for the stock price to recover these major long term moving averages.
Head and shoulder tops can also serve as ideal setups for potential shorts if they take at least five months to develop.
A decreasing relative strength line and a negative pattern on the point and figure chart can also confirm that the stock is rolling over and setting up an ideal short.
Finally, volume should be increasing and the stock should be under distribution as it violates the major moving averages and starts to break former support levels.

No one knows when this market will roll over so study the ideal characteristics now so you are prepared to recognize them when they appear. I have screened about two dozen potential shorts in November on MSW with several of them working while the others have failed. I was early with my analysis but more stocks seem to be building bases like the ones from the bubble burst in late 1999 and early 2000. Compare the three examples from today that I have posted to the four shorts from the past that setup perfectly if you would have recognized them six years ago.

For further reading, see my two part article on shorting and the book by O’Neil – the charts alone are worth the price!

Shorting Stocks – The Basics, Part I of II

Shorting Stocks – The Basics, Part II of II

Piranha

Top 10 Financial Blogs

2006-11-24T13:23:00.000-05:00

This is a list of the top financial blogs I visit each week! They may not be your top picks but they entertain me most and I seem to click on them first. And yes, they are in order of how I click each week! List is strictly blogs!

Trader Mike
Trader Mike trading Diary

The Kirk Report
One pro's view of the stock market

Brett Steenbarger Weblog
In this weblog, I follow research and trading ideas designed to catch short-term moves in the S&P futures market.

Howard Lindzon
TRENDS - Find them, ride them and get off! Stocks, venture and civilization.

Taz Trader Blog
The Swing Trading Guide

BillCara.com
Capital Markets & Social Equity

TraderFeed
Exploiting the edge from historical market patterns

Tale of the Tape
This site is all about moolah, dinero, bread, cheese, cheddar, coin, loot, and bounty. In other words --- MONEY!!!

NYSE Scalper’s Tale
Currently scalp NYSE stocks (hold stocks anywhere from a few seconds to a few minutes) and do not hold positions overnight.

Ticker Sense
Ticker Sense is a blog about everything financial by Birinyi Associates!

Ok, I can’t limit this to just ten; honorable mentions that I always visit each week (multiple times):

Yaser Anwar
Analyzing Investment Ideas that would Outperform the Market. My approach is to dissect Macro Economic Trends, Market Psychology alongside Fundamental & Technical Analysis that shape underlying values of investments from time to time.

Self Investors
Empowering the Self Investor - Growth Stock & Market analysis

Trader-X
Views from a distorted mind. Charts and more charts. Plus sporadic thoughts on the stock market, trading, politics, entertainment, sports, and everything else.

Uglychart
Ugly is doing what many traders would love to do - trade for a living. He trades with a proprietary trading firm (or “prop firm” for short). A prop firm gives you several times your money to trade and then you keep part of the profits.

StockTicker
Stocktickr is free "social investing" site and it's the easiest way to store a watchlist on the web.

Many more excellent blogs live on my blogroll, so take a look as a few of these may move into my top 10 in the future!

Piranha

Listen to your Wife, KNOT

2006-11-22T09:23:00.000-05:00

The next time your wife is so engrossed into something, pay more attention. I was married in 2004 and my wife planned basically everything on The Knot.com and was addicted to the site (the same way I am addicted to the market – ok, she's not as bad as me). If you speak to my wife, I am actually addicted to the computer; not the market.

Anyway, she used The Knot every day and told all of her friends how great the site was and they too started to use it (many of them became addicted). I am not embellishing the story as they were all extremely addicted to the tools, gadgets and services that The Knot had to offer.

I realized that the company had public stock after if popped up on a CANSLIM screen in 2005 (long after we were married) so I started to study the chart and the financials. Everything looked great and I was ready to buy but am skeptical of stocks trading below $10 per share. To me, I wanted the stock to prove itself before I could place a sizeable position when it was still trading below $20 per share without much institutional attention. I told my wife that I would use some of our speculation dollars to place a position for her. We would essentially call it her stock. She agreed but isn’t very interested in the market so I put it on the backburner but started to cover the stock heavily on MSW. Financials were and still are solid, the chart was and still is trending higher and it kept making new 52-week highs – my bread and butter (the CANSLIM way).

So what is The Knot? (from their site):

The Knot (http://www.theknot.com/) is the most comprehensive resource for couples seeking information and services to help plan their weddings and their future lives together.

The Knot Inc., Weddings for the Real World, is one of the world's leading wedding media and services companies, providing today's to-be-weds with comprehensive wedding planning information, interactive tools, and resources. With a fresh voice and real-world sensibility, The Knot has extended its brand to every venue brides and grooms turn to plan their weddings -- online at the #1 wedding website, TheKnot.com, and on newsstands and in bookstores nationwide.

Shortly after securing seed financing from America Online, The Knot Inc. secured additional rounds of funding from industry giants Hummer Winblad Venture Partners and QVC, Inc. In December 1999, The Knot raised $35 million in its initial public offering. And in February 2002 The Knot received additional backing from The May Company.

With over 2 million unique members and more than 4,200 new members a day, The Knot has the largest audience -- bar none -- of wedding-obsessed, cash-wielding brides.

Each year approximately 2.4 million couples get married in the United States, generating approximately $70 billion in retail sales annually. Presumed to be a once-in-a-lifetime occasion, a wedding is a major milestone and, therefore, consumers tend to allocate significant budgets to their weddings and related purchases.

The average amount spent on a wedding is approximately $20,000, excluding the honeymoon. (I wish my wedding only cost $20k; I could have taken the other half and placed it into The Knot and paid for everything and then some, all for a long term capital gain.)
*********End************

Since my initial coverage in August 2005, I actually placed the KNOT onto the MSW Index on 10/28/05 at $11.37 for a current 13 month gain of 142%. The stock is up 192% from August 11, 2005, the first official day I studied the stock and placed it on a MSW daily screen. I never bought the shares for my wife and regret every minute of the decision because I was only using speculation dollars and the risk wasn’t too bad as the stock was trending higher. I admit that I am uncomfortable buying low priced stocks and could have cut it if it reversed but it never violated the 200-d moving average so I would have held the entire time (for her).

She found and used a great service, a product that makes brides-to-be extremely addicted and I missed the opportunity when it stared me in the face! I knew it, I talked about it and even recommended it to a community of hundreds of investors but didn’t pull the ultimate trigger myself. The stock hit an all-time high yesterday at $27.53 and has been increasing volume since early 2005 as I would assume that institutional investors are finally jumping into a stock that makes money from a cash happy demographic. They fill a niche and turn a healthy profit so I consider them a solid stock. It is currently extended for an entry but I will continue to monitor the shares into the future.

Listen to your wife, especially when everything makes complete sense (it’s not too good to be true)!

Here are some of the analysis entries from MSW in 2005:

8/11/05:
Interesting Stocks forming bases:
KNOT – 9.41, deep cup shaped base that has shot up over 20% in the past two weeks. I was married not too long ago and I’m familiar with this company, due to my wife. Look for a handle to form on the right side of the base.

9/26/05:
KNOT – 11.30, the Knot has made five daily screens and I told many of the husbands or husbands to be to ask their significant others about this website and company. They are creating quite the buzz in the wedding world, especially here in the metro NY area. The stock is not perfect but the company is starting to turn a nice profit on brides-to-be. Up 20% since our first Daily screen on 8/11/05 at $9.41.

10/24/05:
KNOT – 13.50, up 4.09% on volume 220% larger than the 50-d m.a. We have been screening the Knot Inc. since it crossed $10 per share. It is now extended but it is still in a solid up-trend.

10/25/06:
KNOT – 13.84, up another 2.52% on volume 126% above the average but I do see a pullback in the near future. The stock is moving up too high too fast to sustain this type of advance. A pullback should present a new buying opportunity back near $11.50 to $12.

10/29/05 – Weekly Screen Debut
KNOT – 11.37, I have been following the stock on the daily screens for two months as the stock became extended. With the recent move back to the 50-d m.a., the stock is now on our watch list.

11/17/05:
KNOT – 12.35, I have screened the stock several times over the past two months as it holds the 50-d m.a. support. Today’s move on volume 158% larger than the average shows that this small company has some punch. Trust me guys (that aren’t married), brides to be can spend a lot of money and the industry seems to be recession proof for the most part. Today was a triple top breakout on the P&F.

Removed on 1/7/06 from the weekly screen! – What a mistake (it wasn’t too good to be true)!

Blog Mentions in 2006:

7/17/06:
http://marketstockwatch.blogspot.com/2006/07/msw-market-overview.html
Looking at the MSW Watch list from last week, we see one solid stock:
KNOT: -1.29% (down less than the major averages)

1/26/06:
http://marketstockwatch.blogspot.com/2006/01/mini-daily-screen.html
KNOT – 14.44, as you know, we cut the stock from the MSW Index when it fell below the 50-d m.a. but it has since reversed, gathered strength and moved to new highs. It will not be back on the Index but I thought it deserved some notice.

1/8/06:
http://marketstockwatch.blogspot.com/2006/01/recent-msw-index-results.html
Another stock has been removed (KNOT) but it was showing a 2% gain when it was cut yesterday. I decided to remove the stock before the very small gain turned into a loss.

12/4/05:
http://marketstockwatch.blogspot.com/2005/12/using-stock-research-and-stock.html
Our double digit gainers over the past two weeks include: AAPL, NWRE, CUTR, ESRX, OXPS, KNOT, HANS, & LMS. Three of them were priced within the $60-$100 range as these impressive gains accumulated over the Thanksgiving holiday.

Piranha

Secondary Indicators telling Stories

2006-11-20T16:03:00.000-05:00

The New High – New Low ratio (NH-NL) had its highest average number of new highs last week with a final tally of 541-55. It was only the fifth week of the year that had new highs average 500 or more stocks per day. It was also the highest new highs weekly average since the spring of 2005 (prior to me publishing the breakdown with the NH-NL chart). Daily new highs topped 613, 756 and 620 during the middle of last week for the best three day run of 2006 with Wednesday, November 15, 2006 giving us the strongest one day total since Wednesday, April 19, 2006 when the ratio finished at 759-61.

That was the second strongest week of the year with an average ratio of 540-75, just one new high per day less than this past week (new lows averaged 20 less last week than they did during that week in April). Even though the market averaged more than 500 new highs per day, the weakest total came on Friday as new highs dropped considerably as you can see in the table below:

New Highs vs. New Lows - Daily Breakdown, 11/13/06-11/17/06:
Monday showed a ratio of 423-59
Tuesday showed a ratio of 613-71
Wednesday showed a ratio of 756-58
Thursday showed a ratio of 620-40
Friday showed a ratio of 291-46

The accompanying chart shows us the up-trending fashion of new highs on the NASDAQ over the past six months. June and July were very sloppy with mixed results as separation became very clear in mid-August as new highs accelerated their advance while new lows decreased considerably and maintained a low profile.

The NASDAQ completed the 100% retracement that I have been following since August here on the blog and has blasted higher on above average volume. As you can see, the index stalled briefly at each retracement level before moving higher and did so in perfect Fibonacci fashion. I am not a complete Fibonacci buff but I do watch for these levels as they seem to apply in longer term weekly charts more often than not.

Viewing the daily chart, we can see that the NASDAQ is still trending above the support line that dates back to early August with one slight violation earlier this month. I thought that was the trend reversal but the market quickly proved me wrong and forced me to cover a couple short positions. I also covered a few long positions that actually went higher but I can’t complain because getting out on top is not the objective when trading. Trading the signals and making a profit is my sole objective (picking bottoms and tops are great for blog stories but don’t translate well to portfolios – at least not mine).

The number of stocks trading above their 50-d moving average in the chart titled $SPXA50R is flirting around the extended area of 80 for the first time since November and December of last year. The lesson we can learn here is the fact that the market didn’t roll over until May of 2006 which means that this secondary indicator is a warning of what may come in the future. I can say this with confidence because the indicator also bottomed a full month in advance of the NASDAQ bottom in July but predicted the move perfectly. Again, this is only a secondary indicator but we are now one month removed from the first peak above the 80% level which could be the start of the warning bells and red flags that the up-trend is winding down. The last topping warning took almost five months to materialize so keep that in mind.

Another of the interesting secondary indicators we have been following on this blog is the relationship between large cap and small cap stocks. Small caps have been beating up larger caps in terms of performance since June 2000 with a few slight down trends from time to time. This was a year where large caps took the lead and were outperforming their smaller cap peers until the past two months. Small caps started to gain strength heading into the election and bounced off of the imaginary trendline on the chart below and have started to catch up in gains with their large cap friends. Many of these smaller cap growth stocks can capture sizable gains in shorter periods of time versus their large cap peers and this is why the overall trend has been higher for the greater part of this century. I wrote about the strength among large caps several times this year but I am firmly invested in smaller cap companies such as the ones listed on the MSW Index.

Some of the recent top performers from the MSW Index are listed below. As you can see from the numbers posted at the end of the day last Friday, the NASDAQ is quickly catching up to the performance of the DOW and S&P 500 in 2006. The NASDAQ was once down about 10% for the year and is now up over 10% and only 5% behind the DOW. How quickly things can change.

Where do the Major Indexes stand in 2006?
NASDAQ: +10.91%
DOW: +15.16%
NYSE: +14.74%
S&P 500: +12.25%

Top Performing MSW Index Stocks last week:
ICE: 18.90%
LRCX: 8.46%
ISE: 5.09%
LVS: 3.91%
JLL: 3.39%
GILD: 3.10%
AB: 2.28%

Here are the total gains of the current crop of MSW Longs:
LRCX: 19.88%, since 9/30/06
BLKB: 34.52%, since 8/5/06
LVS: 59.99%, since 4/1/06
GILD: 11.12%, since 7/29/06
ICE: 37.33%, since 9/23/06
EZPW: 29.39%, since 6/24/06
AB: 16.23%, since 7/29/06
ISE: 17.31%, since 8/19/06
JLL: 9.29%, since 9/9/06
NEU: 32.66%, since 7/29/06
DIOD: -5.75%, since 10/21/06 *currently the only down stock among longs

*11 Stocks (longs) have been cut for slight gains and/or small losses over the past couple of months which gives the index a 56% win-loss ratio in 2006. Twelve short candidates live on the MSW Index with two of them recently covered for losses.

Piranha

Tuesday's MSW Daily Screen

2006-11-15T10:59:00.000-05:00

Since I posted my first completely positive (longs only) screen last night (in November), I decided to share it with everyone on the blog. I still view the market as extended but it is trending higher and until that trend is snapped, shorting stocks will carry risk (at least shorting them the way I do – following the O’Neil approach from his book on shorting). I will post a list of stocks with charts tomorrow that show similar characteristics to the ones highlighted in O’Neil’s book on shorting.

Many of the market’s leading stocks powered higher Tuesday including several MSW Index members such as:
LVS, ICE, ISE, LRCX, JLL

As explained below, a couple of these MSW Index stocks clearly vaulted past their pivot points which were highlighted on the weekly screen over the weekend. The NASDAQ is now up 1.71% for the week and is far above the former 100% retracement level that was established back in April 2006. If you pull out on the charts and look at a two year weekly view of the NASDAQ, you will see the deep v-shaped pattern with handle and pivot point breakout to new highs (the highest point since 2001). The NASDAQ daily chart clearly shows how the index is climbing along the trend-line I have highlighted in red. Remember, I have been screening shorts over the past several weeks but none of the major indexes have reversed the trend even though they are all extended. Until the trend snaps, we must tread carefully when placing shorts. Due to the extended nature of the market, we must also tread carefully when placing longs or adding shares to current positions.

All major indexes moved higher in above average volume as the recently weak retail sector decided to take some leadership. Looking at my charts through the link below, we can see that small caps are gaining strength versus their larger cap peers. Along with these small caps, many growth stocks are starting to come to the head of the class and flex their muscle just as IBD stresses in tonight’s eIBD edition. IBD mentions how the S&P 600, the small cap index, is within 1% of an all-time high. One of the most impressive numbers of the day was the NH-NL ratio finishing at 613-71 as advancing issues beat declining issues (6,314 to 3,657).

REMEMBER THE ‘M’ IN CANSLIM!
Current Environment: Short term plays (long or short)! The market is extended but trending higher.

Interesting Stocks making New Highs:

ICE – 96.55, the MSW Index stock blasted 9.10% higher today on big volume and now has a 31% gain on MSW since 9/23/06. I called for a new buy above $88 this past weekend
LVS – 92.00, up another 4.75% today for a 62% gain on the MSW Index since April of this year. The stock is now up almost 30% in the past two weeks. Now in the final stage of the $60-$100 run (lock in all gains above $89 or 75% of the run)
TM – 124.82, a six month cup shaped pattern that should form a handle before grabbing new shares. Toyota was screened daily several times near the 200-d m.a. above $100 earlier this year
NTY – 33.19, a double top breakout on the P&F chart on above average volume (a 12.32% gain today)
EDU – 31.85, an interesting young stock that is trending higher that may be entering extended territory. The support/resistance zone stands at $28
CTSH – 79.55, a gap-up to new highs that almost erased during the day before trending higher during the afternoon. The ideal trend buy is still near the 50-d m.a.
GROW – 39.64, now up over 8% this week as the stock continues to make new highs. “stocks that make new highs typically continue to make new highs until the major trend is snapped”.
NICE – 32.58, the second consecutive gap-up for a total weekly gain of 9.18%. The previous triple top breakout took the stock from $29 to $33 which now acts as the ceiling for the potential double top breakout
LRCX – 55.04, up 3.36% today for a total weekly gain of 9.86% on above average volume. The stock blasted past our pivot point of $52.53 and is now up 21.42% on the MSW Index since 9/30/06
CTRP – 58.88, the former MSW Index stock is making new highs after becoming a 200-d m.a. play last month. It is up over 20% since mentioned as a 200-d m.a. play in October.

Interesting Stocks within 15% of New Highs:

FFIV – 72.07, a very deep seven month base without a handle formation at this point in time. An ideal pivot point will develop after the proper handle formation
WCG – 62.20, a trading range between $57 and $64 will determine a buy or sell but note that some heavy distribution weeks cast a dark cloud near new highs
ISE – 50.49, the stock has formed the handle to the long term cup shaped base and has a pivot point of $55.23 and support above the 50-d m.a. Up over 4.51% for the week and up almost 17% on the MSW Index
TWGP – 33.56, the former MSW Index stock is back above the 50-d m.a. on strong volume. The 200-d m.a. is still the long term support and the up-trend indicator
ININ – 18.75, the stock is approaching the $20 level which typically acts as resistance when making new highs so be careful not to chase it into extended territory
RVSN – 21.20, a nine month cup shaped base that has completed the right side as it is within cents of the 52-week high (the left side of the base). Look for a handle to form with a pivot point before grabbing shares
HWCC – 23.78, a double top breakout has setup on the P&F chart with a short term entry above $25

Piranha

How the Poker Craze can Help you Trade

2006-11-10T09:07:00.000-05:00

As promised, I have uploaded the excerpt of my article from the latest edition of The Trader’s Journal.

The article explains on the basis of position sizing and expectancy and how poker has made me a better trader.

Enjoy:

How the Poker Craze can Help you Trade

Piranha

Wall Street Journal Online Mention

2006-11-06T22:36:00.000-05:00

I noticed that my traffic was up today but the source was new:
The Wall Street Journal Online edition.

I was mention by David A. Gaffen in the Market Beat section at 10:30am this morning. Market Talk with Piranha was added to the box “Blogs We’re Reading” at online.wsj.com. I am honored to be mentioned by such a large publication and thank David for following my analysis. I also want to thank Yaser for the screenshot!

Piranha

Market Snapshot

2006-11-06T09:43:00.000-05:00

I will start with the NASDAQ and will focus on the Fibonacci Retracement chart as the Index is having trouble moving through the 100% retracement level. The index has reversed from highs over the past three weeks but did not flash distribution (as a week) this past week. The NASDAQ has flashed four distribution days over the past month which is enough to signal a major market reversal according to CANSLIM rules.

One could also view the weekly chart of the NASDAQ as a deep six month V-shaped pattern with a handle formation. As humans, we can’t argue which chart is correct (the Fibonacci or V—shaped) so we must focus on signals and trade according to those signals. If the market breaks out above the handle, it is telling us to place long positions just as it is giving us the green light to place shorts or buy put options with a continued Fibonacci reversal.

Take a look at the second Fibonacci chart provided which shows where the NASDAQ may reverse if it can’t regain its footing. The logical area would be near the 200-d moving average which is also near the first 38.2% retracement level of 2,239. This same area also serves as the original drop back in May 2006 near the 200-d m.a. Nothing is guaranteed but the signals and setups are there so trade them and cut a loss if you are wrong. It’s not very difficult.

Please remember that Fibonacci retracements are still secondary indicators when compared to price and volume; so don’t make your ultimate decision on a secondary tool. The daily chart of the NASDAQ still shows a trading zone between 2,325 and 2,375 as highlighted in blue on the charts provided. The trend line was snapped as the index is moving sideways with the recent distribution days. Price and volume along with several secondary indicators now point down for the NASDAQ.

The DOW has gained more than 12% over the past four months with an almost straight-up pattern without many breathers. The index reversed from its highs two weeks ago and dropped 0.86% last week on below average volume. The S&P 500 is following the same pattern as it too trades near all-time highs but the weekly down volume continues to come on less than average volume. I have added a Fibonacci graphic on the DOW chart to give you an idea where this tool believes the market will correct. Ironically, the first 38.2% retracement level sits exactly where a handle should have formed before the index moved higher (according to CANSLIM setups).

Other secondary indicators that tell us that the market wants to move lower is the NH-NL ratio which has weakened considerably for the first time in five week as new highs dropped below an average of 300 per day for the first time since late September as new lows have increased to their highest total in a month. We had 688 new highs and only 46 new lows two weeks ago Thursday but had a completely different story told this past Thursday with only 148 new highs and 87 new lows. That’s a 78% decrease in new highs and a 90% increase in new lows. Subtle clues like this can and will paint the picture of what’s going on with the strongest stocks in the market (the leaders). I use the NH-NL ratio as my number one secondary indicator and actually consider it my 1a indicator since it has proven to be so reliable after basic price and volume.

Another indicator is the percentage of stocks trading above their 50-d moving average which spent the past several weeks in overbought territory but has dropped considerably over the past five days (down 13.40% for the week). It took the NASDAQ three months to reverse after this specific indictor gave its signal earlier in the year but the market wasn’t climbing at the extreme angle it is today. It only took the market one month to reverse to the up-side after this indicator gave the over sold indicator in June. Look at the charts page and focus on the light purple line that is plotted behind the chart to see when the NASDAQ was making its move up and down in 2006.

Crude oil is still trading in the range highlighted on the weekly chart and is actually showing more weakness but I have been saying that the elections would probably hold the price down. Gold broke out successfully above the triangular formation that I highlighted last month on the weekly chart and was up over 4.5% for the week as it is trading back at its highest level in two months.

Piranha

Published for the First Time

2006-11-02T22:11:00.000-05:00

I am proud to say that I will be published for the first time next week in a magazine titled:
The Trader’s Journal

"Asia Pacific's Pre-eminent Trading Magazine is a product of DPR International Pte Ltd based in Singapore and distributed to Hong Kong, Malaysia, and Australia. Our primary focus is to research and educate you. It can be easily argued that it is the educated trader that will survive in the markets and we want to be a large part of your education.

The publisher, Dickson Yap, has a long history in the industry. Prior to launching the Trader’s Journal magazine, he worked in the Dow Jones Singapore office doing advertising and circulation. His businesses serve thousands of customers around the world in every time zone."

Some very prominent authors, traders and educators have contributed and still contribute to the magazine so I am honored that they published my article. Here are some of the names you may be familiar with:

Van Tharp
In the unique arena of professional trading coaches and consultants, Van K. Tharp stands out as an international leader in the industry. Helping others become the best trader or investor that they can be has been Tharp's mission since 1982. Dr. Tharp offers very unique learning strategies, and his techniques for producing great traders are some of the most effective in the field. Over the years Tharp has helped people overcome problems in areas of system development and trading psychology, and success related issues such as self-sabotage. http://www.iitm.com/

Tom Bulkowski
Thomas Bulkowski is an author and private investor. Before earning enough from his investments to “retire” at age 36, he was a hardware design engineer working at Raytheon on the Patriot air defense system and a senior software engineer for Tandy Corporation. http://mysite.verizon.net/resppzq7/

John F. Carter
John F. Carter grew up the son of Morgan Stanley stockbroker, and was introduced into trading as a sophomore in high school, and has been trading actively for the past 19 years. He studied international finance at the University of Cambridge in England before graduating from the University of Texas at Austin. In 1999, he launched www.tradethemarkets.com to post his daily trade setups in futures and equities. More recently he launched www.razorforex.com to focus on forex trading research and trading strategies. He’s a Commodity Trading Advisor with Razor Trading, and manages a futures and a forex fund.

Brett N. Steenbarger
Brett N. Steenbarger, Ph.D. is Associate Clinical Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). As Director of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored numerous professional traders and coordinated a training program for traders. An active trader of the stock indexes, Brett utilizes statistically-based pattern recognition for intraday trading. http://www.brettsteenbarger.com/

NOTE:
Brett has just released his latest book which I have not read (yet) but have provided a link since he will also be published in the November issue of The Traders Journal.

Enhancing Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology (Wiley Trading) (Hardcover)
by Brett N. Steenbarger

http://traderfeed.blogspot.com/2006/10/finding-your-performance-niche.html

Price Headley
Price Headley is the founder of BigTrends.com, which provides investors with specific real-time stock and options strategies and investment education to profit from significant market trends. He has appeared on CNBC, Fox News, CNNfn, Bloomberg Television and a variety of print and online financial news outlets, including The Wall Street Journal, Barron's, Forbes, Investor's Business Daily, USA Today, and Bloomberg Personal. http://www.bigtrends.com/

Jim Wyckoff
Jim Wyckoff has been involved with the stock, financial and futures markets for more than 20 years. He was born and raised in Iowa, where he still resides. Wyckoff became a financial journalist with Futures World News for many years, cutting his teeth as a reporter on the futures trading floors in Chicago and New York, where he covered every futures market traded in the United States at one time or another. http://www.tradingeducation.com/

Robert W. Colby
Robert W. Colby is managing director of Colby Research in New York and the author of The Encyclopedia of Technical Market Indicators, which has become the standard reference work throughout the world for technical indicators and trading systems design http://www.tradingeducation.com/

For a complete list of contributors, visit their site: http://www.traders-journal.com/issues/contributors.html

Piranha

p.s. - So what am I writing about?

How the Poker craze can Help you Trade
It’s a 2,800 word article that compares the detailed similarities between trading and poker which have helped me become better at both. I will upload the entire article to this blog after it has been released in the magazine.

What is a Point and Figure Chart?

2006-10-30T09:53:00.000-05:00

According to Investopedia, a point and figure chart is:
“A chart that plots day-to-day price movements without taking into consideration the passage of time. Point and figure charts are composed of a number of columns that either consist of a series of stacked Xs or Os. A column of Xs is used to illustrate a rising price, while Os represent a falling price. This type of chart is used to filter out non-significant price movements, and enables the trader to easily determine critical support and resistance levels. Traders will place orders when the price moves beyond identified support/resistance levels.

Additional points are added to the chart once the price changes by more than a predefined amount (known as the box size). For example, if the box size is set to equal one and the price of the asset is $15, then another X would be added to the stack of Xs once the price surpasses $16. Each column consists of only one letter (either X or O) - never both. New columns are placed to the right of the previous column and are only added once the price changes direction by more than a predefined reversal amount.” - Investopedia

I couldn’t have written a better definition myself so I feel comfortable using the one from Investopedia.com. I use point and figure analysis every night while scanning my charts because I can easily determine important support and resistance levels. As with any type of chart, many indicators can setup to offer buy and sell signals but I stick to the basics and only trade a few patterns that the point and figure charts offer.

Please understand that I use point and figure charts as a secondary technical analysis tool behind candlestick charts (both daily and weekly). When I find an interesting stock that has already passed my fundamental criteria and peeked my interest on the candlestick chart, I then view the point and figure chart (will be referred to as a P&F from this point forward). Support and resistance levels can be found using basic candlestick and bar charts but P&F charts eliminate the unimportant noise by setting-up the critical levels and breakouts or breakdowns with the more important (larger) moves.

My favorite pattern setup is the Triple Top Breakout which occurs when a stock hits a certain level of resistance on three separate occasions, telling me that a move above this zone has some meaning. Not every triple top breakout will be successful but the odds of a breakout above this setup increase dramatically. As with all trading, you must take the signal with proper position sizing and set your stops without thinking like a human. Become mechanical and trade the setups; don’t trade your thoughts and don’t ever trade for pure money. You will be a lot more successful if you learn to trade the setups rather than everything else. The NASDAQ recently broke out of a triple top breakout but has since reversed (near the 100% retracement level on my Fibonacci chart – seen in other posts on this blog). Tower Group (TWGP), a long time favorite of MSW has recently confirmed another triple top breakout and has successfully moved higher since forming the resistance.

So what is the true definition of a triple top breakout?
According to StockCharts.com

A triple top breakout occurs when prices rise to a certain level and then retreat because the supply outstripped the demand at that level. Prices must rise back to the level on two additional occasions at which they retraced before. If prices continue to carry through that level, a triple top breakout has succeed and given a buy signal. Since this level previously acted as resistance, we now know that demand is currently exceeding supply and an entry area is born.

A triple bottom breakdown is similar to a triple top breakout except we reverse the rules and look for a breakdown where the price has retraced from the same area two times before (see the example of RHAT). This implies that the price level is a significant area of support and is an area where buyers are willing to buy the stock and create demand that outstrips supply. The breakdown below this level implies that the sellers are now creating more supply than there is demand and therefore the prices are breaking down.

A quadruple top breakout is similar to a triple top breakout, except that the prices break out after retracing from the same level three times. The fourth time the demand was able to outstrip the supply at the price level, and prices broke out with a quadruple top breakout. I have provided an example of this breakout with the chart of FDS (it actually setup five levels of resistance instead of four).

A quadruple bottom breakdown is similar to a triple bottom breakdown, except that the prices break down after retracing from the same level three times. The fourth time the supply was able to outstrip the demand at the price level, and prices broke down with a quadruple bottom breakdown.

Now let’s look to some further basics of the P&F chart (all explainations are provided by StockCharts.com):

Point & Figure charts consist of columns of X's and O's that represent filtered price movements over time. Their distinctive look may be alien at first to people who are more familiar with traditional price bar charts but once people learn the basics of P&F charts they usually become hooked.

There are several advantages to using P&F charts instead of the more traditional bar or candlestick charts. P&F charts automatically
Eliminate the insignificant price movements that often make bar charts appear 'noisy,'
Remove the often misleading effects of time from the analysis process,
Make recognizing support/resistance levels much easier,
Make trend line recognition a 'no-brainer',
Help you stay focused on the important long-term price developments,

On a P&F chart price movements are combined into either a rising column of X's or a falling column of O's. If you are familiar with standard chart analysis, you can think of each column as representing either an uptrend or a downtrend. Each X or O occupies what is called a box on the chart. Each chart has a setting called the Box Size that is the amount that a stock needs to move above the top of the current column of X's (or below the bottom of the current column of O's) before another X (or O) is added to that column. Each chart has a second setting called the Reversal Amount that determines the amount that a stock needs to move in the opposite direction (down if we are in a rising column of X's, up for a column of O's) before a reversal occurs. Whenever this reversal threshold is crossed, a new column is started right next to the previous one, only moving in the opposite direction.

It sounds much more complex than it is, trust me!

In a nutshell, as long as a stock is in an uptrend and it doesn't move down more than the 'reversal distance' (i.e., the box size multiplied by the reversal amount), the P&F chart will show a growing column of X's. Similarly, a stock in a downtrend will cause a descending column of O's to appear. Only when the stock changes direction by more than the reversal distance will a new column be added to the chart.

Traditionally, the box size is set to 1 and the reversal amount is 3 (this is exactly what I use when viewing my charts each night)

It is important to remember that a P&F Box does not represent a single value. Instead, it represents a range of values that is equal to the box size. The number on the vertical axis represents the value of the "floor" of the box. The "ceiling" of the box is equal to the floor plus the box size. If prices move anywhere inside that range of values, the box is filled in with an "X" or and "O" (keep reading for details).

It is important to remember that P&F charts do not show time in a linear fashion. Each column can represent one day, or many days, depending on the price movement. Because P&F charts filter out the noise associated with more traditional charting methods, every mark on the chart is significant. The spacing between months, for example, will not be the same from month to month. Numbers and letters inside the chart itself indicate when a new month has begun. For instance, the number '2' shows where February started. The letters 'A', 'B', and 'C' are used to indicate October, November, and December. (I highlighted the months on the FDS chart where the number 5 is May and the letter A is October).

One of the best places to visit to start learning about P&F charts is through this link at StockCharts.com:
Understanding Point & Figure Charts

I also recommend the book Point and Figure Charting: The Essential Application for Forecasting and Tracking Market Prices, 2nd Edition by Thomas J. Dorsey

It was expensive in the past but the price has come down on Amazon to $37.77 but I would recommend buying it used for $19.99 or visit your local book store. The book is not on my recommendations page due to its former price of $59.95 which I felt was not worth my value. However, at $20, I highly recommend the book to anyone interested in learning about P&F charts.

Piranha

YTD Performances

2006-10-24T16:27:00.000-04:00

In the charts below, I have grouped together the performance in 2006 of the three main indexes, major world currencies, commodities, specific industries and some sector spdrs in the charts below. I have always found it interesting and sometimes useful to watch the performance of major market indexes, sectors and industries. Charts like these can serve as macro views of the general market but don’t ever use these types of charts to pinpoint potential market tops and bottoms. I use them to help confirm action among the individual stocks that I am looking to buy or sell. Secondary indicators is all they are in my opinion.

Major Indexes:
$INDU – Dow Jones Indu., 13.16%
$SPX – S&P 500, 10.33%
$COMPQ – NASDAQ, 6.35%

Commodities:
$GYX - GSCI Industrial Metals, 57.87%
$GPX - GSCI Precious Metals, 14.35%
$GOLD – Gold, 12.74%
$WTIC - Crude Oil, -3.65%
$GJX - GSCI Energy, -8.06%

Currencies
$XBP - British Pound, 8.97%
$XEU – Euro, 6.09%
$XSF - Swiss Franc, 3.88%
$XJY - Japaneese Yen, -1.82%
$USD - US Dollar, -4.85%

US Industries
$XOI – Oil, 14.96%
$DRG – Drugs, 12.73%
$RLX – Retailers, 9.45%
$HCX - Health Care, 6.69%
$TRANQ – Transport, 6.42%
$SOX – Semiconductors, -7.31%

Select Sector SPDRs
XLU – Utilities, 16.25%
XLF – Financial, 13.39%
XLB – Materials, 11.77%
XLI – Industrial, 10.97%
XLK – Technology, 9.12%
XLV - Health Care, 7.66%

Piranha

Strongest NH-NL Ratio Reading in Months

2006-10-23T09:17:00.000-04:00

The NH-NL ratio surpassed its strongest weekly level since May 6, 2006 when it closed at 503-74. This was the tenth consecutive positive weekly ratio with new highs closing at 442 and new lows dropping below 30 for the first time in 2006. The weekly lows averaged 29 per day which gives us the lowest reading since the week ending July 30, 2005 when the market averaged exactly 28 new lows per day. The NH-NL ratio chart shows that last week gave us the highest reading (87.69%) since the week ending January 14, 2006 (87.97%). The past two weeks have spent time above the positive 80% calculation that I have explained on past blog entries (links below). The NH-NL ratio has gained strength for the past 10 weeks according to the number of new highs versus the number of new lows and is looking like a similar pattern to 2005.

Monday had a total of 636 new highs, the most new highs in one day since Monday, May 5, 2006 when the daily ratio closed at 745-38. The ratio continues to gain strength and individual leaders are moving higher (stocks on our MSW Index and the IBD 100) but many secondary indicators are suggesting that the market is still extended. The main secondary indicator that I follow is the number of stocks trading above their 50-day moving average on the S&P 500. It closed at 80.80% after reaching an intra-week high of 85.20%, the highest reading since the January 2006. The market didn’t peak for another four months after reaching the level above 80% in January and this is why the indicator remains secondary. When the NASDAQ finally turned, the percentage of stocks above their 50d- m.a. was closer to 65% in early May (it dropped below 50% the following week while the market took a plunge).

To calculate the percentage correctly, use this formula:
(New Highs – New Lows) / (New Highs + New Lows) * 100 = X%

Where do the Major Indexes stand in 2006?
NASDAQ: +6.21%
DOW: +11.99%
NYSE: +12.23%
S&P 500: +9.64%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 - 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42
Saturday, September 9, 2006: 143-60
Saturday, September 16, 2006: 244-75
Saturday, September 23, 2006: 206-83
Saturday, September 30, 2006: 251-75
Saturday, October 7, 2006: 301-92
Saturday, October 14, 2006: 412-40
Saturday, October 21, 2006: 442-29 - This Week

Tuesday, September 19, 2006
NH-NL Ratio still Neutral

Monday, September 04, 2006
Looking at the Market through the NH-NL Ratio

Monday, August 14, 2006
New Highs and New lows telling a Story

Piranha

Comeback Kids?

2006-10-20T10:37:00.000-04:00

Due to last night’s loss by the Mets, I am going to call today’s screen the comeback kids. I am disappointed today as a baseball fan but I will get over it and look forward to next season with a young group of comeback kids (I also have my Giants playing the Cowboys this Monday night).

Are the stocks below a bunch of comeback kids?

Many of them are only a few years old and are gathering some support near their 200-d m.a. as the market looks to be forming its first pull-back or high handle. The market is overbought and extended so I am cautious with this type of a screen but it is important to look for stocks that can gain support above their 200-d moving average.

Many of these stocks are recovering or gaining price strength above their 200-d moving averages but their volume is not cooperating on the weekly chart which does raise a red flag. The stocks screened are ones that made positive gains yesterday, have respectable relative strength ratings and earnings ratings greater than 70% of their peers. Keep in mind that I may have left some solid candidates off of the list because the screen was only looking for stocks making gains during the day Thursday. All prices quoted are from the end of day Thursday.

Comeback Kids?

STLD – 58.69, nice support along the 200-d m.a. with increases in volume. The next short term buy is a move above $60
DRQ – 37.84, back above the 200-d m.a. as the stock is gaining some support with increased volume on the daily chart
FTI – 60.25, this chart is very similar to the first two stocks listed today as the 200-d m.a. recovery is underway but weekly volume is not above average
BRG – 65.84, after five months of consolidation back to the 200-d m.a., the stock is moving higher on increased volume. Could be a $60-$100 setup
GPI – 50.16, the stock corrected about 30% from its high and is now trending back above its long term moving average. Short term buy is a move above $52
BUCY – 49.40, the recent and former MSW Index stock is back above the 200-d m.a. but volume is lower than the distribution weeks.
ANDE – 38.30, the stock has corrected by 50% since its high above $62 and is now gaining support along the 200-d m.a. with a possible deep cup pattern forming
EXPD – 48.11, another one of those CANSLIM type stocks that corrected to the 200-d m.a. after a nice run and is now trending higher. The trend buy is along the moving averages
VMC – 84.20, building a five month cup shaped pattern with recent support at and above the 200-d m.a. Volume has been light so be skeptical.
AEM – 33.25, riding the 200-d m.a. with a short term entry on a move above $34. Once again, I would like to see volume increases to confirm the move
NTG – 32.72, the stock fell below the 200-d m.a. for the first time in years but is fighting to get back above (volume has been light)
OXPS – 30.19, the former MSW Index stock is back above both moving averages and is gaining volume strength on the daily chart but not the weekly chart.
DB – 123.58, a cup with handle base above the 200-d m.a. with a pivot point of $125.42
MDR – 44.36, a long time superstar that has been riding above the 200-d m.a. for the past couple of years with its first challenge of support in September. The stock caught support and is looking to recover its 50-d m.a. but daily volume is low. I would wait for a new 52-week high before becoming interested.
DAKT – 22.42, the stock took a hard fall in August back down to the 200-d m.a. but has since caught its footing. The trend buy would be now with proper sell stops in place
TTI – 25.95, the stock has consolidated through out 2006 with recent support near the 200-d m.a. and is now attempting to stay above the long term average. Volume has dried up, so watch the RS line carefully
HSC – 82.20, a strong stock from 2005, Harsco has consolidated in 2006 and is looking to gain some strength here above the 200-d m.a.
ADM – 37.90, a great stock from late 2005 until mid-2006 with a recent correction back to the 200-d m.a. It seems to be getting some support at the long term support line but must recover back above the 50-d m.a.
TS – 37.71, one of the top performing stocks on the MSW Index in 2005 and early 2006 but was recently removed due to lack of strength and a declining RS line. It has since recovered the 200-d m.a. and will stay on my radar.

Piranha

Let's GO Mets GO!

2006-10-19T08:55:00.000-04:00

Game 6 was awesome (almost as good as game 7 of 1986, I was there) - now we need a big win in game 7 of the NLCS!

LET'S GO METS!

Piranha

Is BOT the Next CME? - March 1, 2006

2006-10-17T16:20:00.000-04:00

I wrote a blog post one week ago today reviewing the CBOT case study I did back in March 2006 which was originally titled:

Is BOT the next CME

After today, BOT is now part of the Chicago Mercantile Exchange Holdings Inc. (CME)!

The world's biggest financial exchange announced on Tuesday it would acquire rival CBOT Holdings, Inc. (BOT) for more than $8 billion in a deal that would combine the two largest U.S. futures exchanges.

It’s funny and ironic that I also just posted up a thread on Tuesday, October 10, 2006 titled: Exchange Stocks: ISE w/ ICE & BOT

When your hot, your HOT!

Piranha

p.s. - This could be a great story over at WallStrip - What do you think guys and gals?

Calling the NASDAQ Bottom

2006-10-17T08:29:00.000-04:00

I‘ve had a question through e-mail about my Fibonacci retracement charts and how they were late to calling the bottom of the NASDAQ market. That is fine because I don’t need to spot the "exact" bottom of a market, I just need to spot the reversal and hop on. Those of you that follow MSW and this blog on a weekly basis do know that one of my strongest talents is nailing market reversals when they happen because it’s something I have done for years while investing in CANSLIM type stocks.

So, I invite everyone to visit this post titled: Déjà vu on the NASDAQ? posted up on Wednesday, July 26, 2006 and determine for yourself if I did see the bottom developing.

Here is some of the text from that blog entry and the chart I posted almost three months ago (July 26, 2006) and an updated chart from my annotated stockcharts file:

7/26/06: “As I was researching my archives on MSW (the archives from 2004 and 2005 are open to everyone) I found some interesting data that correlates the NASDAQ in 2004 and 2006. So far in 2006, we have had 15 down weeks and 14 up weeks. At this time in 2004, we had 19 down weeks and 10 up weeks and the NASDAQ was at a nine month low (very similar to now as we are near 10 month lows). In 2004, my daily and weekly screens started to turn south on May 9th; in 2006, they started to turn south on May 15th (about the same time).

If you look at the two charts presented in this blog entry, you will notice how the market started to weaken in May and June and with a bottom near the end of July into early August. This summer is not over but I am wondering if the pattern will turn out to be similar to the one from 2004. The old saying: “sell in May and go away” has held up over the past couple of year with opportunities resenting themselves during the fall (towards the end of October).

Several of things I was saying back in 2004 are very similar to what I have been saying over the past two months. The similarities are amazing and the current NASDAQ chart may be forming a pattern that could take a similar route as it did in August of 2004. Only time will tell but history repeats and traders are always learning from history.

NOTE: when I say history repeats; I am not saying that it repeats exactly but the charts do resemble similar formations and seasoned traders and investors can capitalize on these situations.”

Click the link for the rest of the post! Déjà vu on the NASDAQ?
Piranha

NASDAQ followed the Fibonacci Levels

2006-10-16T08:31:00.000-04:00

While doing my research this week, I really highlighted how the NASDAQ weekly chart has briefly stalled for one week at each of the three Fibonacci retracement levels. I have been covering the chart since mid-August here on the blog as the index has continued to push higher and stall briefly at the 38.2%, 50.0% and 61.8% levels. With the next recognizable level at 100%, the index has moved higher for three consecutive weeks without a stall.

Is this coincidence or is this human nature in action?

I have highlighted the three brief resistance weeks in color while the NASDAQ regrouped before moving higher. It’s an interesting chart that shows how the market corrected at each level on lower volume than the previous week which gave us a clue that the NASDAQ wanted to move higher.

Let’s wait and see what will happen when it reaches the 100% level. Will this be the final push higher and the first major signal of a market reversal?

I covered the chart on the blog in these posts as it materialized in real-time:

8/16/06:
NASDAQ looking for Retracements

8/17/06:
NASDAQ creating Trading Opportunities

8/24/06:
Using Fibonacci Retracements

8/31/06:
Current Market Temperature

9/15/06:
Weekly Market Review

10/04/06:
Talking Heads at it Again!

Piranha

Am I a Stock Picker?

2006-10-12T10:49:00.000-04:00

I’m a little late to this party but I was reading the blogs debating the issue of posting stock picks and not posting stock picks. My thoughts on the subject tend to agree and disagree with some of the points and comments on those blogs but I can only explain what I do.

Here were the original blogs to debate the subject:

Taz Trader Blog: 6 Reasons Why There Are No Stock Picks

FallondStockPicks.com: Why stock selection *is* important

I write this Market Talk with Piranha blog as an add-on to my main equity research site MarketStockWatch.com. I don’t provide “stock picks” at MSW but I do supply my members with daily and weekly screens and an MSW Index. Maybe I am taking the easy way out but my screens are designed to do the actual research work for investors that don’t have the time to compile the research or some members that are just learning to invest. I integrate specific screens with educational aspects that I have learned while trading my own accounts. I do list individual stocks and I place pivot points, entry areas and sell stop areas but I don’t highlight specific stock picks for them to buy (that is up to each individual investor). One of my main goals is to teach novice investors how to develop their own method of screens by using some of the things I currently do. This will enable them to invest for themselves for the rest of their life and become their own “stock pickers”.

A typical daily screen may contain anywhere from 5 to 20 stocks in one night that meets the criteria of the screen. A couple of my favorite and most successful screens for finding winners is “Interesting Stocks making New Highs” and “Strong Stocks within 15% of a New High”. I run several computerized fundamental screeners to narrow down approximately 7,000 stocks to about 100 candidates and then perform the technical analysis. My service derived from the actual research I performed for myself each night when trading my own account using a modified CANSLIM approach. I shared this research on a weekly basis for a couple years on several free internet forums and then decided to format it and charge a fee for doing all the tedious work (after the idea was given to me by a reader). I trade and we all know that trader’s income isn’t consistent so a research service made complete sense since the work was already done each night for me. I am also an entrepreneur so the idea of an additional income stream made complete sense for me and my family and I did not feel selfish for charging a price. I perform work while filling a niche and I do expect to be paid as long as it benefits the people using it. They wouldn’t pay me if it didn’t benefit them and I would close shop if the service was no longer in demand.

However, I am seriously considering moving to a free platform in 2007 while using advertisements in the form of Google Adsense and the like to cover my expenses and time for formatting my research. This would eliminate charging members and would allow me to expose my work (which I feel is excellent) to a wider audience. Over 600 people have signed-up for MSW since officially opening in January 2005 and I am extremely proud of the fact that I created this business from thin air. Whether I charge membership fees or post up my work for everyone, I don’tmake specific stock picks for anyone. I give them research based on a set of criteria that includes fundamental and technical analysis.

Essentially, I make stock picks each night but its’ up to each individual member and investor to make their own choices based on the stocks presented. I will not and do not form an opinion or bias towards any one stock (at least I try). Members ask me questions and I tell them what I see based on my own beliefs about the market. One of the most important rules I teach to my community is the use of money management rules and the fact that many of the trades they put on will actually be losers. I do have a section titled “All-star stocks” to help promote the service (it is a business) but that by no means indicates that I only screen winners. I always admit when I am wrong and eliminate losers on a monthly (and sometimes) weekly basis and explain why they are being removed. The toughest aspect to teach new investors is the fact that they will have to accept losers. This is by far the toughest idea for novice investors to comprehend and integrate into their system. By teaching position sizing techniques and expectancy, most people come to realize that it is okay to lose but you will always find a few people that want winners at all times and always want to be invested.

So, do I support stock picks?

What ever floats your boat! Do what you love to do and do what you feel help others. Some people like stock picks and some don’t. I like to provide researched screens that take both fundamental and technical criteria into consideration and I love the fact that every stock that ever makes one of my screens was studied by my own eyes on the charts.

My modified CANSLIM screening strategy can be found though this link:
Buying and Screening Strategy

I’ll attempt to teach you about investing and provide you with opportunities you wouldn’t otherwise find!

I guess I am a stock picker but I will never tell you what to buy or sell.

Piranha

Can CANSLIM be Programmed?

2006-10-11T15:32:00.000-04:00

What exactly is CANSLIM? And can it be mechanically programmed?

Here is the brief definition from their website:

C= Current earnings per share should be up 25% or more and in many cases accelerating in recent quarters. Quarterly sales should also be up 25% or more or accelerating over prior quarters.

A= Annual earnings should be up 25% or more in each of the last three years. Annual return on equity should be 17% or more.

N= A company should have a new product or service that's fueling earnings growth. The stock should be emerging from a proper chart pattern and about to make a new high in price.

S= Supply and demand. Shares outstanding can be large or small, but trading volume should be big as the stock price increases.

L= Leader or laggard? Buy the leading stock in a leading industry. A stock's Relative Price Strength Rating should be 80 or higher.

I= Institutional sponsorship should be increasing. Invest in stocks showing increasing ownership by mutual funds in recent quarters. IBD's Accumulation/Distribution Rating gauges mutual fund activity in a stock.

M= The market indexes, the Dow, S&P 500 and Nasdaq, should be in a confirmed up trend since three out of four stocks follow the market's overall trend.

So, can this be programmed? Sure it can but I would urge some changes to fit exactly what you are looking for! Here is how I would simply break CANSLIM down to enter it into a mechanical system:

C= quarterly earnings 25%+ versus last quarter, sales should also be up 25%+ versus last quarter
A= Annual earnings 25%+ for three consecutive years, ROE must be 17%+
N= within 15% of new high
S= minimum daily trading volume is set to 40,000 shares*
L= RS rating of 80+
I= Increased institutional support along with net positive shares**
M= NH-NL ratio must be positive for longs (my criteria)

This can be programmed (of course itis still simplified)!

*Volume should exceed 150% average volume on breakout days and strong accumulation days (up-days)

**Just because more institutions own the stock doesn't mean that the net number of shares bought versus sold was positive! Criteria can be set for this level (maybe you want an increase by 5% or 10%)

Piranha

Exchange Stocks: ISE w/ ICE & BOT

2006-10-10T13:30:00.000-04:00

Case Study
10/10/2006
ISE – International Securities Exchange Holdings Inc.

Industry: Financial Services

The company provides a fully electronic securities exchange for listed equity and index options. Sister stocks such as ICE, BOT and CME have been gaining strength over the past month as several of them are members on the MSW Index so I thought it would be a good time to write a case study and give them all the kiss of death (a joke of mine). I have had a history of writing case studies for stocks I own and cover that were performing nicely only to see them decline after the analysis. For example, I wrote a very detailed case study on BOT back in March (near the peak) which was uploaded to this blog earlier today. The stock corrected before rebounding over the summer and has recently blasted to new highs on above average volume. If all things hold true, this should be the top for ISE as I have just jinxed the beautiful cup shaped pattern.

Sister Stocks:
IntercontinentalExchange - ICE
Chicago Mercantile Exchange – CME (P/E: 48)
CBOT Holdings – BOT (P/E: 62)
Cash America Intl Inc. - CSH
First Marblehead Corp - FMD

Key Ratings:
Overall Rating in IBD: A+
EPS Rating: 95
Relative Price: 97
Industry Group Rank: 52 (of 197)

3-Year EPS Rate: 28%
3-Year Sales Rate: 24%

ROE: 26.53%
PEG: 1.87 (too high for my tastes!)
P/E: 36.3

EPS Analysis (yearly):
2002: 0.04
2003: 0.60
2004: 0.77
2005: 0.93
2006: 1.33 (estimate)
2007: 1.59 (estimate)

Revenue (in millions):
2002: 73.41
2003: 100.5
2004: 125.4
2005: 155.9

Net Income (in millions):
2002: 0.80
2003: 20.2
2004: 26.1
2005: 35.3

Pretax Income (in millions):
2002: 3.60
2003: 36.0
2004: 51.7
2005: 65.1

Cash (in millions):
2003: 92.9
2004: 171

Cash Flow (in millions):
2003: 21.6
2004: 30.1
2005: 41.4

Number of Institutions (last reporting period):
% Shares held by Institutions: 62%
Total Institutions: 295
Money Market: 114
Mutual Funds: 172
Other: 9

Top Institutional Holder: Bamco, Inc. (3.5 million shares) 0.02% of portfolio

Some of the fundamental causes for concern are the above average price earnings ratio versus the entire industry and the S&P 500 and the high price to book value which almost doubles the industry standard and triples the average on the S&P 500. The current price of the company must be considered a premium when compared to the industry and the market.

Does this matter?

According to William O’Neil, strong stocks must be bought at premiums just as luxury items in life are bought at premiums. Competition is moving in on the company as the profit margins are shrinking within the industry.

Moving to technical analysis, we can see that most of the stocks in the industry are moving higher and ISE is forming a beautiful cup shaped pattern that has formed over the past seven months. The top of the right side of the pattern should come to a close near $50-$52 and then form a handle in order to shake out weak holders. The 200-d m.a. has been acting as support while the right side of the base forms so look to this area as a fall-back zone if the stocks decides to correct.

Both ICE and BOT have moved on to new 52-weeks highs so ISE may be seen as the laggard but the base is great. As long as a handle forms and a pivot point is established, I will enter at the ideal time only if the “M” in CANSLIM is cooperating. The major indexes are extended so I am not sure if this will all come together at the proper time but it is a very interesting development to watch. The stock is already up over 15% in six weeks on the MSW Index so we can always take profits if things turn badly!

Piranha

Review: CBOT Holdings Case Study (March 2006)

2006-10-10T09:59:00.000-04:00

I wrote a detailed case study on CBOT Holdings back in March 2006 and wrote a brief blog post titled Is BOT the next CME? but I picked the stock near its peak and was forced to sell. It rebounded over the summer months after it’s collapse and has recently blasted to new highs. The entire sector is acting with strength so I have decided to write another case study about ISE which will be uploaded later in the day. Note one major thing about institutional holdings: 3% of the shares were held back in March for a total of 138 institutional investors; that number has increased to 16% held with 204 institutional investors now owning shares (Scout Capital Management is now the top holder with more than 1 million shares).

Here is what I was looking at back in March 2006 with BOT:

CASE STUDY – Another successful Exchange Stock?

3/1/2006
BOT – CBOT Holdings Inc. CL A

Industry: Financial Services

Company Profile:
Cbot Holdings, Inc.. The Group''s principal activities is to derive exchange based on contract volume with global listed futures and options on futures contracts. The Group operates in two reportable segments: Exchange Trading and Real Estate Operations. The exchange trading segment primarily consists of revenue and expenses from both the electronic trading and open-auction platforms, as well as from the sale of related market data to vendors and from clearing services. The real estate operations segment consists of revenue and expenses from renting and managing our real estate. We allocate indirect expenses to each operating segment. – profile published by Ameritrade

Analysis from the first week it was added to the MSW Index (2/25/06):

Price on 2/25/06: $116.35
Buy Point: $122.00
Support: $105.00

The stock looks expensive but the market is in favor of financial stocks and especially exchanges (take a look at CME – I missed that one on the move from $60 to $425 over the past two years). The recent IPO is about to challenge the 52-week highs as it sits 13.5% from that high. I found it through a search for stocks within 15% of a new high with solid fundamentals. My Target is $175 for the next 6-12 months.

Sister Stocks:
Chicago Mercantile Exchange - CME
International Securities Exchange – ISE
Asta Funding – ASFI
Global Payments – GPN
Euronet Worldwide - EEFT

Key Ratings:
Overall Rating in IBD: A+
EPS Rating: 98
Relative Price: 87
Industry Group Rank: 27 (of 197)

3-Year EPS Rate: 25%
3-Year Sales Rate: 12%
ROE: 15.98%
PEG: 2.88 (very high)
P/E: 108.95 (cause for concern)

EPS Analysis (yearly):
2004: 0.80
2005: 1.53
2006: 2.53 (mean estimate)
2007: 3.09 (mean estimate)

Revenue: (in thousands)
2002: 308,273
2003: 381,302
2004: 380,193
2005: 466,573

Net Income: (in thousands)
2002: 34,311
2003: 30,707
2004: 41,985
2005: 76,543

Pretax Income (in thousands):
2002: 59,033
2003: 116,814
2004: 74,223

Total Assets (in millions):
2003: 483,981
2004: 460,416

Long Term Debt:
2004: 31,074
2005: 10,716

Number of Institutions (last reporting period):
% Shares held by Institutions: 3%
Total Institutions: 69
Money Market: 49
Mutual Funds: 19
Other: 1

Top Institutional Holder: Mazama Capital Management, Inc. (606,932 shares) 0.01% of portfolio

Chart Legend:

The stock debuts with an IPO in October 2005 and quickly reverses from an intra-week high.

A two month downtrend ensues as the stock drops on decreasing volume.

The stock bottoms in early January, 2006 as volume dries to it’s smallest weekly level ever

The next four weeks tick up with increasing volume (several accumulation weeks can clearly be seen)

The former resistance set near the IPO stops the stock in its track below $120.

A buy will take place on a strong move above $120-$122 (note how the RS line is reaching new highs)

Piranha

Talking Heads at it Again!

2006-10-04T09:20:00.000-04:00

As we all know the DOW set a new record close by finishing at 11,727.34, surpassing the prior closing high of 11,722.98 set back on January 14, 2000. The index was up 0.5% or 56 points as crude oil fell to a 14-month low based on assumptions that lower energy prices may boost consumer spending and hold off an economic slowdown. The NASDAQ was up 0.3% to close at 2,243.65 as it is still miles away from all time high that was set back in 2000 at 5,132.50. The S&P 500 closed at 1,334.11, up 0.2%, as it is within a short distance of its all-time high of 1,553.11.

With all of the excitement surrounding the new closing high, I would like to focus on what the “Talking Heads” are saying. What is a talking head? Please see a post I wrote years ago titled: Ignore “Talking Heads” because they are usually wrong!

Here are some quotes from talking heads today:

“Now that you have a definitive new all time high, the fact that it is the Dow and the most recognized index, that is the type of thing that will shine the spotlight on the market,” said Charles Carlson, who oversees $105 million at Horizon Investment Services LLC in Hammond, Indiana, and who wrote “Winning With the Dow's Losers,'' published in 2004. “This could get people interested in stocks.”

Read that last quote! “This could get people interested in stocks”. The only people that get interested at this point in time is dumb money! When “people” such as your mother-in-law, the barber and the taxi driver start talking about the DOW and its all-time high; it’s probably time to get ready for a huge blow-out where smart money takes advantage of dumb money and laughs all the way to the bank. Be careful out there because the wheels will fall off when “people” get interested in stocks.

Another ‘talking head” on a major financial site:

"Investors are concluding that the economy is in for a soft landing," said Hugh Johnson, chairman of Johnson Illington Advisors. "They expect the good news about the decline in oil prices to offset the negative impact of a deteriorating housing market."
“What's most interesting”, Davidson said, “is not that the Dow has broken through to a new record, but that it has taken the market this long to get to a point at which stocks seem to be fairly valued relative to earnings expectations.”

Who cares, analysts were saying Enron was a buy and fairly valued at $60 before its infamous decline. By the way, talking heads recommended Enron all the way to $12 per share from $60.

Scott Wren, senior equity strategist at AG Edwards was cautious about the importance of the Dow’s milestone. “It’s probably of more significance to the retail investment community than it is to the professionals,” he said.
“But I do think its a psychological plus and one that could spark some interest and maybe bring a little bit of sideline money into the market.”

From MSW Money:
Twenty-three of 30 stocks in the Dow were higher on the day along with 304 S&P 500 stocks.

The rally is a reflection of investor "belief in the sustainability of growth," Maury Harris of UBS Securities told CNBC's "Power Lunch." While the economy may be slowing, it will be a modest pullback at worst, he said. And, added Peter Hooper of Deutsche Bank Securities, investors believe the Fed won't be cutting interest rates but will step in to support the economy.

When I hear things like this, I start to lick my chops and get ready to short the hell out of the market. These talking heads don’t know what is going on and continue to pump a market and economy that is extremely extended and due for a pull-back. I really don’t know when that correction will start but it will and I am jumping on at the first signal. To be honest, it could take, three days, three weeks or even three months – I don’t know but when it does happen, I put my cash to use!

As many traders have noted, such as Trader Mike, the $SOX or semiconductor index is performing poorly which usually casts some foreshadowing of what’s to come. In addition to the $SOX acting poorly, small caps and other bull market leaders are not stepping to the plate to propel the indexes higher. The NH-NL ratio is weak and is not participating in this rally run and that sends the largest red flag in my opinion. Without the support of small cap growth stocks, you wouldn’t expect this rally to continue. I have been bearish on the Ticker Sense Blogger Sentiment Poll for the past four weeks as the market has moved higher and remain that way.

Some sectors acting poorly on Tuesday were energy stocks, computer hardware and gold stocks. Sectors moving higher Tuesday included airlines (they typically move higher when oil stocks move lower), brokers and some medicals.

Marvel Technology (MRVL) led the semiconductor group lower as it gapped-down and closed with a 12% loss on the largest daily volume in months. The stock is back below its 50-d moving average and is well below its 200-d moving average. The proper CANSLIM short should have come when the stock failed to recover the 200-d m.a. back in mid-June. Similar to the stocks listed on last night’s MSW screen, MRVL can be a poster stock for what to look for in possible shorts.

I have included some charts of the major indexes which shows why I am looking for a pullback and why my screens are focusing on potential shorts.
Piranha

Buy and Hold CANSLIM?

2006-09-29T09:50:00.000-04:00

Today’s blog post is going back in time to look at a weekly screen I posted on MSW exactly two years ago to the week. My screens and research have evolved since 2004 but anyone can access the archives of MSW for free if the date is prior to the current year (2006). So what benefit does looking back two years give any of us? I don’t know if it will benefit anyone but it is rather interesting to view the performances of the stocks without considering any money management or sell rules.

As a group, the 25 stocks are up 58% if you held each one to today (no rules). Of the 25 stocks listed (the stocks that still trade under that ticker), 20 of them are currently showing a profit if you were a buy and hold investor. If you only purchased the stocks that I highlighted in blue (details below), you would currently have an 89% gain and every one of the stocks would be in positive territory (UPL, HGT, GDP, TS, ELOS, PMTI, AH). The best performing stock from the screen is Tenaris (TS) as it has a current gain of 309% and a peak gain of 450% (from earlier in 2006). The combined peak gains for this weekly screen average 125% while the combined peak gain of the blue stocks average 230%. Not bad if you like to buy and hold without lifting another finger. I have owned several of these stocks over the past two years but I do not own any of the original shares from 2004.

The screen was based purely on CANSLIM methods that focused on earnings, relative strength and my own ability to read charts. That’s it – very simple. Three stocks have changed ticker symbols or no longer exist from the screen: (PKZ, DDN, LIFE).

What you may find very interesting is the fact that I was using the NH-NL ratio to gauge the market back then and it was working beautifully just as it does today. The catch phrase “Sell in May and Go away” was also prevalent in 2004. I was also looking for opportunities in specific sectors just as Energy stocks and Metal stocks were topping my list. The maximum peak gains are rather hefty from these two sectors and I enjoyed some of the gains. I still hear market “talking heads” pump these same sectors today as they seem to be extremely late to the party. No matter what anyone says, CANSLIM works and works very well when integrated with proper money management techniques.

Here was the general analysis from the screen and an excel spreadsheet highlighting the gains and losses. Please note the “split-adjusted” column as several stocks have split one or more times.

Weekly Screen for 9/27/04 – 10/01/04
Strong Sectors: Energy, Transports & Metals/Steel

Market Overview: The markets are starting to show signs of life. My research is starting to tell a story. The NASDAQ gained 2.4% on Friday to end the week. Volume turned higher on Friday as the NASDAQ showed the most conviction in months. New highs, a key to my research, are starting to ramp up.

Let’s look at the story deeper by using hard data to support strength:
Monday showed New Highs (NH) vs. New Lows (NL) at 171-124, not very healthy.
Friday Showed the NH vs. NL ratio at 498-33.
We have not had strength like this since April 5, 2004 when the market flashed a new high vs. new low ratio of 553-14. We have not had new highs top 500 since that day in April, about the same time the market was starting to go to sleep.

I wrote this entry on my Weekly Screens on April 19, 2004:
“Market Overview: The market is still in a confirmed rally according to rules but we are seeing many stocks hesitate and undecided about their direction. The world situation has been a big influence on the general market conditions. Speculation of an interest rate hike has kept the market in flux.
My screens showed bad news last week with the daily new highs and lows. For the first time since posting my screens in November, the daily new highs were lower than the daily new lows. I haven’t seen action like this since the bear market.”

My screens told a story then as they are telling a story now!

I have a new format for my weekly screens as the legend below will explain. Enjoy the work in the coming weeks as I post my weekly screens on this website. I have my own website that will launch in the coming weeks with daily screens, weekly screens and corresponding case studies that relate directly to the screens. On top of these features, I have an entire educational section for both fundamentals and technicals including top quality graphics (charts). Stay posted.

Legend:
Green Stocks: Excellent patterns, strong up-trends, supporting heavy volume, prime buying opportunities and solid RS lines.

Blue Stocks: Solid up-trends, nice volume, may be slightly extended, buying opportunity may still exist (refer to pivot and support levels).

Black Stocks: Confirmed up-trend, some sloppiness in pattern, extended from support areas, pattern may show weakening or slowing of advance, volume may be shrinking as stock advances, Stock may be a late stage base.

Red Stocks: Possible red flag in pattern.

Piranha
p.s. - one last thing; I am not a buy and hold investor but the "blast from the past" was fun!

Big Caps still moving after 3 Months

2006-09-27T09:18:00.000-04:00

Howard Lindzon made a blog post yesterday titled “New Highs are THICK and BIG BIG BIG CAPS in nature”

He goes on to write that companies such as American Express, Banc of America, McDonalds, Harley Davidson, International Game Technology, American Eagle, Autozone, Allstate, Nike, & Verizon are all looking good on the charts (possible breakout heaven).

I agree and have been writing about large caps making a move since July with my first major post highlighting McDonalds and the chart of the S&P 100 Index/S&P 600 Small Cap Index. TraderMike brought this chart to my attention earlier in the summer from his own blog post.

Here are the links to my original posts highlighting the gaining strength among BIG CAP stocks:

July 18, 2006
Large Caps Gaining Strength
"The chart associated with this post is telling us that Large Caps are gaining strength versus Small Caps. Time will tell but yesterday could have been the first round of confirmation."

July 17, 2006
MSW Market Overview
" tend to rely on the NASDAQ more so than the DOW but it is interesting to see that large caps are gaining some steam while small caps are getting trounced."

July 21, 2006
Ten Stocks to Watch
"The S&P 100 Index/S&P 600 Small Cap Index that I track is up over 6% this week for its largest gain in years, confirming that large caps are moving to the head of the class."

Piranha

Las Vegas Sands - LVS

2006-09-25T13:43:00.000-04:00

I am sure many of you have seen the latest Forbes 400 list by now but if you haven’t, take the time to read over the list and pay careful attention to an article titled :
Another Hour, Another Million

The article is about Sheldon Adelson, the owner and CEO of Las Vegas Sands, LVS, a long time favorite of the MSW screens in 2006. The man was worth approximately $3 billion just two years ago but his wealth has skyrocketed to more than $20 billion since taking LVS public. According to the article’s calculations, Mr. Adelson, could surpass Bill Gates as the richest man on the planet by 2012 if all variables remain relatively equal. He has earned about $23.6 million per day and almost $1 million per hour over the past two years.

Why does this interest me? Because I have owned shares earlier in 2006 and currently own new shares in his public company: LVS. I bought shares back in the first week of April and sold them in July as the stock took out the 50-d moving average. After catching support near $60 in July (above the 200-d m.a.), I entered once again in August but have not profited this second go-around (at this point in time). I am now even with my latest position and have become concerned with the CEO making headlines with his own article in Forbes. I have learned from past market experts such as William O’Neil, Bernard Baruch and Gerald Loeb that headlines could be the sign of trouble ahead, at least for the stock.

Looking at the charts, my stop is near (slightly below) the support level of $60 so I will monitor the situation closely to make sure a loss doesn’t grow. I have already told a few people that a hedge to protect the down side may be warranted but the most important thing is to follow your rules and original objectives in the trade.

I have provided some of the analysis I have posted to the MSW Index over the past six months. I selected a couple entries from each month as selecting all would take up too much space on the blog. When listed on April 1, 2006, support was placed at the 50-d m.a. with an entry at $58. This was triggered the following week and away we went! The stock was up over 37% within three months on the MSW Index before topping and consolidating over the summer with support near $60. The stock was originally added as a $60-$100 candidate and was off to the races but hit a dead summer dry spell and corrected. Time will tells us when this stock is headed!

4/1/06: LVS makes its first MSW Index
LVS - 56.66, The stock has been screened many times (daily) over the past several weeks so I have decided to add it after further research. The stock comes to the Index as a possible $60-$100 candidate over the next twelve months. The strong 8% move this past week gives us the feeling that the young stock is ready to move. I am also looking at the September call options (in the money calls).

4/8/06:
LVS - 61.41, I said I felt the stock was ready to move and I was right as I added it to the MSW Index last week. The stock gained 8.38% on above average volume as it entered the $60 trading range. I see the stock settling down and pulling back a bit before resuming the advance. Rating: Hold

4/15/06:
LVS - 64.10, The stock continues to move higher and maintain its quick success on the MSW Index. This was a $60-$100 play so give it time to work out and stay patient. Rating: Hold

4/22/06:
LVS - 63.97, A break from the action this week as the stop slipped slightly as volume was near average. The stock is extended from the 200-d m.a. so look for a new entry to form. Rating: Hold

4/29/06:
LVS - 64.81, Earnings come out this Thursday so be ready for that up or down swing. If numbers keep in-line with past reports, I expect the stock to beat expectations and move higher (a hard stop is advisable to protect from bad news). Rating: Hold

5/6/06:
LVS - 71.32, Up over 7% on Friday, bringing the weekly gain to 10% after earnings came out positive. The move was anticipated if earnings stayed in line with the past (as I noted last week). The stock is up 26% in one month on the Index. Rating: Hold

5/13/06:
LVS - 68.12, Down 4.49% this week as the stock holds a RS rating of 95 and remains above the most recent breakout area of $65 (our first level of support) Rating: Hold

6/10/06:
LVS – 65.50, The stock is trading on the 50-d m.a. and managed to gather some support when it violated the line on Thursday. The market is weak but I still have the stock targeted for the run from $60 to $100. Rating: Hold

6/24/06:
LVS – 66.87, Still trading along the 50-d m.a. with an upward bias. This is the type of stock that I like to buy longer term options for the possible $60-$100 run. I would look at December or January options (in the money options are best IMO). The market is weak but I still have the stock targeted for the run from $60 to $100. Rating: Entry is now for $60-$100 run

7/01/06:
LVS – 77.86, What can I say - the stock broke out and is powering through the $60-$100 run regardless of the overall market environment. It traded sideways for seven weeks before making a huge move this week - signs of a great stock. Rating: Final entry passed last week

7/08/06:
LVS – 73.81, A pullback after the breakout last week. The stock is showing support above the short term $73 level. A break below $73 will probably bring the stock back towards $70. Rating: Wait to see if it will continue pullback towards $70

7/29/06:
LVS – 62.77, Last week I said: "The weekly chart shows strong support near $65 as a drop below this level will bring the stock back down near $60." As I said, the stock visited $60 and managed to close slightly above the area. Rating: the $60-$100 run has been hurt with major distribution in July but I am keeping the stock around for another week. It is does close below $60 and stay there, LVS is gone from the MSW Index.

8/12/06:
LVS – 60.33, Six consecutive down weeks but the weekly chart is still suggesting that buyers are starting to step back into the stock above $60. If it does close below $60 and stays there, LVS is gone from the MSW Index. Three weeks of distribution during the recent slide but a support area may be forming. Rating: Hold at current level with a sell below the 200-d m.a.

8/26/06:
LVS – 66.27, The stock is meeting resistance once again but has setup a double top breakout above $69 on the P&F chart. The decline last week did not qualify as distribution since the volume was below average. Still a hold in my book with the $60-$100 advance remaining a possibility as long as it trades above $60. Rating: Hold at current level with a sell below the 200-d m.a.

9/9/06:
LVS – 69.26, Clinging above the 50-d m.a. but volume was lighter on Friday as it moved forward by 2%. If LVS starts to struggle making higher highs, holders should become concerned. Institutional support is there but they can bail and the volume will be the story teller. Rating: Hold at current level with a sell below the 200-d m.a.

9/23/06:
LVS – 65.27, Sheldon Adelson has been making the news everywhere this weekend after his making a splash on the latest Forbes 400 richest list. He is the owner of LVS and has allegedly made just under $1 million per hour over the past two years. I am going to write a lengthy blog post about LVS and the appearance of the CEO all over the news. Could this be the start to a long slide? You heard it here first as I am now concerned. We all know that many stocks collapse when their CEO's make the major news networks and magazines. Rating: Hold at current level with a sell below the 200-d m.a. I may short sell if it closes below the 200-d m.a.

Piranha

CLB was my Home Run

2006-09-21T08:50:00.000-04:00

On August 30, 2006, I posted up a few short opportunities based on a strategy I have started to study and use. Similar to baseball, low averages can still make you a lot of money. What do I mean?

A player that hits .300 for a career or records an out 70% of the time has a good chance to make the hall of fame. The same holds true for stocks because a couple home runs here or there can make your entire year.

Core Laboratories will not make my year but it is one short that has made quite the impression my new technique. The stock is now down over 20% since I caught the short setup in late August. Yes, I am gloating but it’s because I am excited to see a home run so early while trading these new setups (new for me at least).

A CANSLIM investor may toss aside a 20% gain as average but this is not a CANSLIM tactic, it’s a short term strategy that is supposed to be closed within days and sometimes hours. CLB is still an open winning trade from a couple weeks ago as the stock has traded down 9 of the past 11 days but has never closed higher than the previous day’s high.

Volume has been larger on down days and the RSI has completely broken down. John Carter recommends that a trader should start watching intraday charts as the trade becomes extended so you can close out with a solid profit. However you setup your stop; DO NOT let the profit erode as that could be devastating to your emotional balance. Of the four stocks selected in late August, one worked in the short term, one failed miserably, one broke even and one was a home run. The losers or break-even stocks were cut short with minimal losses so they don’t matter to the overall portfolio. You can win 30% of the time in the market and still be very profitable! Here I recorded a 25% win ratio but the winner was big so it eclipsed the other trades and puts me in the green!

The original post can be found though this link:
Possible Short Setups

One last thing: you will notice that the gap-up from late July has been filled and it has taken two months.

Piranha

NH-NL Ratio still Neutral

2006-09-19T09:41:00.000-04:00

After a great response to the weekly market review I added on Friday, I felt it was necessary to update the NH-NL ratio chart to show how this indicator feels about the market. We have had five consecutive positive weeks for the first time since April 2006 but we are hovering in a neutral zone near 40% with a brief spike above 70% a couple weeks back. The month of April 2006 averaged 64% while the first week was in bullish territory above 80%, something we haven’t seen since.

I often get a question about the difficulty of this calculation to stay above 80% and I respond with the ratios from 2003 and 2004. Below is a sample of the data extracted from January 2004 when the ratio averaged 97% for the entire month. The readings were as follows (chart below):

Sunday, January 4, 2004: 892-10 (97.78%)
Sunday, January 11, 2004: 792-7 (98.25%)
Sunday, January 18, 2004: 896-6 (98.67%)
Sunday, January 25, 2004: 505-8 (96.88%)

Where do the Major Indexes stand in 2006?
NASDAQ: +1.38%
DOW: +7.81%
NYSE: +8.21%
S&P 500: +5.84%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 - 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42
Saturday, September 9, 2006: 143-60
Saturday, September 16, 2006: 244-75 - This Week

Piranha

Interesting Gaps from Friday

2006-09-18T09:14:00.000-04:00

I will be watching a few gaps from Friday to see how they play out this week:

Interesting Gap Ups:
ADBE - $37.00 (gap near $33.65)
FMD - $61.45 (gap near $52.35)

Interesting Gap Downs:
AHG – $19.92 (gap near $22)
CVTI - $11.99 (gap near $12.75)
DCX - $49.36 (gap near $52.50)
LNCR - $36.02 (gap near $37.50) – already filled a $2.50
PEG - $62.00 (gap near $66)

Piranha

Weekly Market Review

2006-09-15T09:50:00.000-04:00

The NASDAQ is up almost 3% for the week as it has traveled from the 38.2% retracement level, thru the 50% retracement level to slightly below the 61.8% level. The highest retracement level is not important as I have been focused more on the 200-day moving average and the support/resistance level at 2,200. The NASDAQ is trading above the 200-d m.a. for the first time since May hence the statement “Sell in May and go Away”. I have been discussing and studying the markets around that statement strategy for three years now. It’s been very accurate since the bubble burst in 2000.

Looking at a daily chart, we can see the index is now trading between an upper and lower channel range with current prices touching the upper side. A move above this level will alert me that a short opportunity may become possible as the index would be too extended. Since today is options expiration day, I wouldn’t advise too much intraday activity.

Gold continuous contracts are forming a triangle pattern as noted on the chart with red lines. The former trading range between $600 and $650 no longer applies as we are now below $600 for the first time in months. This will be an interesting play but don’t jump the gun and enter before a signal to either side.

Crude oil contracts are trading at their lowest levels since March and are in a clear downtrend with 17 of the last 27 days giving us a loss. If you look at the weekly chart, you can see that Crude has violated the 200-d m.a. in the past and recovered so I am not sure if it is ready to turn over yet. I don’t suggest a long position until the contracts can recover their 200-d m.a. and the former support line which now acts as resistance. It is very important to wait for the signal before entering a trade because the market doesn’t follow what you “think may happen”. Let the market show you what it wants to do and then trade what it is saying.

Due to the weakness in crude, the NASDAQ-Crude combo index is now above the long term down trend line for the first time in years. We have rallied several times over the past five years when October shows its face and this year could be similar. I don’t know if this is the start to a further rally or just another head fake in 2006. This combo index is purely a secondary indicator so don’t make any decisions based solely from this chart. This chart is here to confirm your beliefs from other front line indicators such as price and volume and that’s it.

Moving on to the DOW and S&P 500, we can see clear cup shaped bases that are currently building the right side. The S&P 500 base is a bit more rounded than the DOW as I would like to see handle formation before a move to new highs. I know the market doesn’t care what I want but both indexes are up about 10% since their bottoms from earlier in the year so we need to shake out the weak holders before making new highs.

Speaking of highs, the DOW can attempt to make an all-time high if it continues to push north. If we really want to dissect this chart, we can say that a seven year cup shaped base has formed as we are about to close the right side of that pattern and possibly form a handle. I don’t typically look at bases in yearly terms but I couldn’t ignore what I see.

Finally, all of this means nothing to me if the New High – New Low (NH-NL) ratio can’t confirm the action. As a CANSLIM trend trader, I am not prepared to make any long commitments until I can see the NH-NL ratio consistently reach 500 news highs per day and individual leaders making new highs on above average volume. Some individual stocks are acting this way but many more are still reversing after their false breakouts.

Trust me, when the NH-NL ratio starts to record 500-800+ new highs per day, we will be well on our way to the next sustainable bull market. Until then, play the short term moves and always employ solid money management techniques and always sell losses short!

Have a great weekend,
Piranha

Did CXW Work?

2006-09-14T16:50:00.000-04:00

I don’t even know if I followed the correct rules but I made a small profit so I’ll take it and review what I did. Here’s the updated chart of CXW. See my last post from earlier in the week to understand what I was looking at.

Piranha

A New Short Candidate & Updates

2006-09-12T07:49:00.000-04:00

I wrote a post prior to the market open on August 31, 2006 and uploaded four charts of stocks that may be showing a possible short based on a simple bearish divergence technique I have been studying. Three of the four stocks have showed profits with CLB breaking down with the largest profit opportunity.

Based on that blog entry, I have decided to update what has happened over the past couple of weeks and present a new opportunity from my research tonight.

Corrections Corp. of America:
CXW – 66.18, a 4.38% gain on volume only 36% larger than the average. I see a huge bearish divergence on the charts with a short setup. The entry is the day after the stock closes below the previous high which is $65.

As you can see, each stock did make a gain on the short side but the charts show why a couple of them didn’t set up properly. I would also suggest to use an intraday chart to close the position rather than a daily chart. Please see the original post to understand what I was looking for: Possible Short Setups

The stocks listed on 8/30/06:
PSPT - 16.92 (low 15.45 9/7/06) – 8.69%
CLB - 73.00 (low 67.00 9/11/06) – 8.22%
CTSH - 70.60 (low 68.09 9/11/06) – 3.56%
BMC - 26.97 (low 26.16 9/7/06) – 3.00%

I am new to short term trading (long time CANSLIM trend trader/swing trader) and will continue to use the blog to post up what I am looking at with equities.

Piranha

Never Forget

2006-09-11T00:00:00.000-04:00

Born and raised in NY, I will never forget!

On September 4, 2001, I slipped a quarter into a machine atop the observation deck of the Liberty Science Center and zoomed into the beautiful buildings across the river. I was spending an extended Labor Day weekend with my future wife as we decided to go to the museum in New Jersey. We took pictures and viewed the two massive towers and Statue of Liberty on a beautiful Tuesday afternoon; exactly one week prior to the tragic events of 9-11-2001.

Little did I know that I would stand in horror watching those towers burn and fall exactly one week later from my office parking lot north of Manhattan in Westchester county (just up the Hudson River, the same Hudson River that separated me from the towers seven days earlier).

I was working for a historic preservation architectural firm at the time and we decided that we needed to contribute to the possible rebuilding of the site. We entered as one of the thousands of members into the World Trade Center Site Memorial Competition. You are welcomed to view our submission through this link or by searching for #790898 on the official site.

I am proud to be a “New Yorker” at heart even though I currently reside in New Jersey and I will never forget because so many heroes died and were born at the same time that day.

Chris Perruna

Crude Oil Opportunity?

2006-09-08T11:20:00.000-04:00

Oil has recovered every time at the 200-d m.a. Is this a buying opportunity?

We see five opportunities in the past two years at this long term moving average.

Take the trade (buy options if you want leverage or use futures contracts). What ever you do, sell a small loss and move on if it doesn't work. Investing is that simple.

Taking trades with a favorable risk to reward ratio. It seems to me that a long position would be ideal even if I am wrong because the reward could take us back towards $80. I am looking at a 2-3 point loss for a possible 10 point gain (minimum 3-to-1 odds with a possible 5-to-1 pay out).

Cut all losses short if the trade fails! (In December 04, crude cut the 200-d m.a. sharply only to recover).

It’s not about being right or wrong; it’s about being able to push the odds in your favor, take the trade and follow the rules. If it doesn’t work – OH WELL! Move on!

Piranha

InstantBull has caught my Attention

2006-09-06T21:55:00.000-04:00

This blog entry is going to focus on a recommendation for one site and I don’t normally do this but I have been using the features of InstantBull more and more over the past few weeks and have become hooked. The speed of finding information on the web while staying at one internet address is amazing. I can find general market analysis from seven or eight main sites while searching under the summary section or I can go directly to the blogs tag and search 40 of the top financial blogs without much effort or any pop-ups.

Finding news, key stats, sec filings, earnings, ratings, historical numbers, options or any other relevant information is at my finger tips like my own favorites list through my browser. The technology that has been developed by InstantBull is excellent in my opinion and that is why I am making a single post to promote the service. It is free and I am not getting any benefits in return (I swear). It helps that my blog is listed at number eleven but that didn’t influence me to write this article. I have pumped other sites in the past solely because I use them on a daily basis and that is the same reason why I point out this new site (many of you may have not heard of it). It’s not very often that a site is born that I start to use every day but InstantBull has fell into that category.

It is not limited to financial information as it also has a general web tab and news tab. I liked it from day one but it has grown on me even more over the past couple of weeks as I prepare my research each night for the MSW screens. By the way, if you like message boards, they have a great feature that allows you to search topics from several sites on your favorite stocks while staying in one place. Without stretching the blatant endorsement of the site, take the time to visit it yourself and start using their great portal.

Check it out!

Here are two other sites I use each night along with InstantBull:
Stockcharts.com
Investors.com (for eIBD and Daily Graphs)

Piranha

Looking at the Market through the NH-NL Ratio

2006-09-04T22:45:00.000-04:00

My first topic of discussion is the NH-NL ratio, something I ignored for the majority of the week. As you can see on the list below, we had our third consecutive positive week, the first time since late April and early May and we had the best ratio with the largest number of new highs since the week ending May 13, 2006. Every day was consistent this week without any one day skewing the numbers. The strength wasn’t overwhelming but it wasn’t weak either as the number of new lows fell to the lowest weekly average since the week ending April 1, 2006. The ratio percentage number ended at 74.31%, the highest reading since the week ending May 6, 2006 (74.36%). Notice the higher highs and higher lows on the chart.

Looking back at last year’s numbers, we can see that the entire month of September (2005) was positive with the monthly ratio coming in at 280-85. The largest weekly new highs average was 375 while the largest weekly new lows average was 157 (the final week of the month). The first week of October was positive but we then slipped into three consecutive negative weeks before heading back to positive territory for the next 28 weeks (starting November 5, 2006 and ending May 20, 2006). The phrase “Sell in May and go away” couldn’t have been more appropriate based on this real time data collected on MSW weekly screens. November through April are supposed to be the best months to invest according to historical data provided by the Stock Traders Almanac and this NH-NL ratio data over the past twelve months has proven it to be 100% correct!

As I have mentioned many times in the past, big time Wall Street fund managers and institutional traders go on vacation to the Hamptons, upstate lake side homes and international destinations. While these investors leave, they sell their weak holdings and have their staff sell anything that becomes weak while they are gone. They basically clean house and sell any investments that can’t survive while that are not at the helm. This results in the thin volume that we see year in and year out from June to August. When they get back in September, they continue to clean house and look to revamp their funds and close on a positive note, heading into the New Year. This is not rocket science; look at historical charts for the DOW and NASDAQ and you will see that September and October have provided many lows in the markets over the past few decades. More recently, it has happened in 2001, 2002, 2004 and 2005 (2006?).

Mentioned in the past and according to Elizabeth Thompson’s article ‘Gone away for the Summer? It’s Time to Come Back’, she states, “that the financial world encourages investments in the November through April period more so than in the May through October period.” She further states that January is the month that employees sign up for 401(k) plans while IRA’s have an April deadline which requires investors to place more money in their stock related retirement funds. This type of setup brings an influx of money to the table during the beginning of each year and naturally pushed prices higher before the flat summer months when they typically correct.

September is historically one of the worst performing months in American stock market history but it can also present an ideal opportunity to place positions on stocks that are showing excellent relative strength. Typically, these stocks go on to be market leaders and breakout after Halloween and into the New Year. November through February are some of the best performing months in Wall Street history but if you wait to place positions at the end of this range, you may be buying extended stocks that are poised to drop as the spring ends, creating losses in your portfolio. There are always exceptions to historical data and the rules so we want you to follow the daily and weekly action of the market before buying and selling. History is great but it doesn’t mean the market will always follow the script (if you know what I mean).

Another study suggests that the market will continue do trade the way it has traded for the first five months of the year. If this scenario holds true to 2006, we will be stuck in a sideways market for another four months. Regardless, I will be here researching the leaders and trends and will give you my best analysis outside of predictions and historical data. I feel that this historical data can help some investors realize that the market does work in predictable ways from a long term macro view.

Follow my three most important Indicators:
1. The price and volume of the major indexes (currently moving higher)
2. The action on the NH-NL ratio (3 positive weeks but lacking overwhelming strength)
3. The action among leading individual stocks (very solid week: 3.55% MSW Index gain)

Where do the Major Indexes stand in 2006?
NASDAQ: -0.55%
DOW: +6.97%
NYSE: +8.79%
S&P 500: +5.02%

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 - 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210
Saturday, August 19, 2006: 178-96
Saturday, August 26, 2006: 140-74
Saturday, September 2, 2006: 285-42 - This Week

New highs vs. new lows from last week:
Monday showed a ratio of 221-52
Tuesday showed a ratio of 260-59
Wednesday showed a ratio of 351-39
Thursday showed a ratio of 293-25
Friday showed a ratio of 299-35

Piranha

Current Market Temperature

2006-08-31T19:21:00.000-04:00

The NASDAQ is following the Fibonacci plan of action to a ‘T’! It retraced to the 38.2% level and then consolidated for a week as I noted and is now hitting resistance near the 50% retracement level. It wasn’t really a question of if but when the NASDAQ would reach to the 50% retracement level. The index faces a decision once again: to consolidate one more time before attempting to move to the next retracement level or pull back and gain some support near the 50-d moving average. I still suspect a pull-back to the 50-d m.a. as the index still needs to fill a gap-down in that area (see the NASDAQ daily chart provided). I will not guess what the index will do and will only trade the signals.

Looking at the daily chart of the NASDAQ, we can see that the index is now trending higher and has been since it started to retrace. Volume has been weak but that can be attributed to end of summer conditions. Volume should start to pour back into the market as September carries on and institutional investors return from vacation.

A closer look at the weekly chart will show you that the NASDAQ is now testing long term resistance just below the 2,200 level (very similar to the Fibonacci retracement level of 50%). Again, volume is weak so I am not sure if the index will have the power to overtake this area but I will watch to see if a trading range forms between 2,100 and 2,200. Look back exactly one year to see what I am taking about.

The percentage of stocks making new highs on the S&P 500 is still near four month highs so I am not concerned about any weakening of the potential individual leaders. The NH-NL ratio has been positive for the most part but not overwhelming with strength. As long as it stays positive, we don’t have too much worry about.

The Gold chart is similar to the NASDAQ retracements as I wanted to point out how the commodity is using the Fibonacci levels as support and resistance. Currently, the commodity is using the 38.2% retracement level as support as it trades in a sideways range between $600 and $650 with larger support below near the 200-d m.a. Notice how Gold reached the third retracement level and then sold off to consolidate into its current range. The move could be considered textbook to some.

Both the DOW and S&P 500 are forming cup shaped patterns with support below at their respective moving averages. I am interested to see what will happen as they approach all-time highs (if they can in the next couple of months). When they approach these highs, study the RSI chart to see if the buying is coming in with strength. As a follower of CANSLIM, I would love to see both indexes form a cup with handle pattern and then break-out with powerful volume along with individual leaders. That type of action could start a rally.

Finally, I will focus on the crude oil contracts as we can see that they are testing support near $70 with more support at the 200-d m.a. (slightly higher than $68). I would not become concerned with crude oil until it sold below the 200-d m.a. on heavy volume which could and most likely would propel stocks in the opposite direction. The combination index I have uploaded shows the relationship between crude oil and the NASDAQ and the current short term trend is higher while the longer term trend is still lower.

Enjoy and click on each chart for a larger view!
Piranha

Possible Short Setups

2006-08-31T09:05:00.000-04:00

I will start by saying that I am not a professional "day" trader but I am looking to move in that direction and will start to test out my skills with basic technical analysis setups. I figured I would start with the first setup explained in John Carter’s book, Mastering the Trade; see my post from Monday.

I am posting up four charts of stocks making new 52-week highs but have made these highs on lighter volume and with a weaker RSI. The RSI is actually making lower highs as the stock moves to higher highs which creates a bearish divergence.

Comment on my charts and give me your thoughts. I will disclose that I have already established a position in at least one stock and may establish another position today. The name of the stock is not important as I am just testing some strategies.

Click the charts to enlarge them!

Enjoy,
Piranha

Mastering the Trade, quotes by John F. Carter

2006-08-28T23:24:00.000-04:00

The quotes below are provided by John F. Carter, master day trader; pulled directly from his new book Mastering the Trade.

This may be the best quote of all:
“The financial markets are naturally set up to take advantage of and prey upon human nature. As a result, markets initiate major intraday and swing moves with as few traders participating as possible. A trader who does not understand how this works is destined to lose money”

“The financial markets are truly the most democratic places on earth. It doesn’t matter if a trader is male or female, white or black, American or Iraqi, Republican or Democrat. It’s all based on skill.”

“A trader, once in a position, can deceive himself or herself into believing anything that helps reinforce the notion that he or she is right”

“…professional traders understand this all too well, and they set up their trade parameters to take advantage of these situations, specifically preying on the traders who haven’t figured out why they lose”

“…markets don’t move because they want to. They move because they have to.”

“After all, the money doesn’t just disappear. It simply flows into another account – an account that utilizes setups that specifically take advantage of human nature.”

“As soon as Wall Street announces a special vehicle for trading a particular market or strategy, then that market or strategy is done for.”

“Remember, the markets are set up to naturally take advantage of and prey upon human nature, moving sharply only when enough people get trapped on the wrong side of a trade.”

“In casinos, as in trading, it takes only one stupid bet to blow the whole wad”

“Casino owners know this, and this is why they sell the strategy books right there on the property, prominently displayed in their own gift shops”

“This is the biggest poker game on the planet, and the money flowing into your account isn’t appearing as if by magic. It’s coming from someone who is still learning how the markets work, and who most likely followed his or her gut and got suckered into taking the wrong side of the trade.”

“The problem is that tactics an individual uses to achieve his or her goals in everyday life do not work in trading, and in fact are one of the main reasons for failure.”

“The determination, positive thinking, and stubbornness that made people a success in one area of their life simply sets them up for slaughter in the markets”

“The markets thrive on taking the rules and ideals that govern general society, wadding them up into a ball, lighting them on fire, and then shoving them down a new trader’s throat.”

And Finally

“The only people who understand traders are other traders”

The book is full of excellent quotes such as these but it goes even deeper into how to trade like a professional and why the markets prey upon human nature. It was an excellent read and I will be going through it several more times to pick up everything I missed on the first go-around!

Piranha

Using Fibonacci Retracements

2006-08-24T12:13:00.000-04:00

I was asked this question in my recent comments after posting a NASDAQ chart with Fibonacci retracement levels:

“How do you find the fibonacci levels of a stock? Is it part of your screening tools or?

I ask as i've never tried to implement fibonacci analysis in my swing/day trades, however of late since i've been following your blog, you seem to talk quite a bit about it”

I answered the question with a quick link to a Fibonacci calculator I use and then realized that I don’t have a blog entry for understanding Fibonacci numbers. So instead of rewriting what has already been done, I have decided to point you all to a great blog entry titled How to Use Fibonacci Retracements To Trade Stocks by Craig over at the Swing Trading Guide or better know as the Taz Trader Blog

I use Fibonacci retracements for longer term outlooks for major indexes but sometimes use them for individual stocks that may be catching solid support along the 200-d moving average. The most important thing to know is that it is only a secondary indicator in my arsenal, not a front line tool.

If you look at the attached NASDAQ chart, you can see how the index has stalled near the first retracement level as I indicated last week prior to the advance. I suggested a brief consolidation before the NASDAQ looks to move towards the 50% retracement level near 2,195.

By the way, Stockcharts.com has a built-in Fibonacci tool that allows me to draw the levels within seconds. A great tool for their annotated charts!

Piranha

Will the NASDAQ be 50% higher in 6-12 months?

2006-08-23T17:33:00.000-04:00

I posted up a chart looking at the relationship between the NASDAQ and crude oil contracts a couple months back in an entry titled “Can the NASDAQ – Crude Oil Index predict Bulls & Bears”.

The combo index highlighted the relationship of the two indexes and actually told us on a higher level when and where the market was making rallies or starting major down trends over the past 10 years. Visit the link above for a further description of the actual combo index.

As this year moves on, I have noticed that the combo index continues to reach new multi-year lows while traveling below its 200-d moving average. Recently, it started to move north but still lives beneath the moving average and long term trend-line or resistance. I am still wondering if this index is useful and if it can confirm a sustainable rally if it crosses back above the 200-d m.a. and multi-year resistance line.

While reviewing the three year chart, I noticed the spikes in October and was wondering if it will do the same this year since the action is starting to resemble previous years (post bubble burst era). Whatever the case, it will be very interesting to see many indicators move to the positive side simultaneously all confirming a possible rally towards the end of this year. The Stock Trader’s almanac states that mid-term election year lows usually peak 50% higher in the following 6-12 months. We are now in a mid-term election year and several indicators look to be hitting bottoms with an urge to move higher.

So I ask:
Will the NASDAQ be 50% higher in six to twelve month from this year’s bottom?

Only time will tell and I will not know the answer until my most important indicators give me the green light signal to buy heavy on the long side!

Piranha

NewMarket Corp. (NEU)

2006-08-22T10:17:00.000-04:00

NewMarket Corp was up almost 9% on Monday at $62.98 on volume 260% larger than the 50-day average as it closed at a new 52-week high for the first time since May. I started to screen NEU in July on the daily screens and added it to the MSW Index on July 29, 2006 at $48.84. I have pasted my analysis below from the past several weeks while on the MSW index. As you can see, my ideal entry was a move above $53 where the stock filled the previous gap-down from early May. The setup was perfect and the breakout was text-book on heavier volume.

As I just noted, the breakout came earlier this month on heavier volume as featured on the daily and weekly screens. I don’t want to scare holders out of the stock but please remember that EZPW was up over 26% in a few short weeks and has now fallen back to even on the MSW Index. I warned to take profits in that stock and warned to never let a profit dip below 20% once it has surpassed 25% (especially in 2006). Place your hard stops in NEU so you can realize the gain if it starts to form a handle or consolidation. I wanted a new handle to form before looking for the next entry area at the new pivot disclosed this past weekend at $60.43. The stock triggered this new pivot point but did so without the handle I was looking for so I did not add new shares. I am actually looking to take profits and protect myself from any pull-back.

I still like the chances for a possible $60-$100 run later in the year (after October) but I am wary about the action in September (a historically weak month). Looking at the institutional holdings, I can see that 113 money managers (13F), 136 mutual funds and three other holders currently own shares in the company. During the latest reporting period; 45 money markets, 32 new mutual funds and 2 banks placed new positions while only 13 institutional investors sold out. This all sounds great but the number of shares sold was basically even with the number of shares bought even though new positions eclipsed sold-out positions. The top holder during the latest reporting period was Dimensional Fund Advisors with 698,190 shares, a 13F institution (money market).

Earnings per share have grown from $1.92 in 2004 to $2.45 in 2005 with slowing projections this year and next.

Analysis from MSW Index:
7/29/06
NEU- 48.84, The stock is holding the support area noted on the watch list from two weeks ago. The buy would be a move above $53 which serves as the gap-down area. Just as stocks pull back to fill gap-ups, they breakout to fill previous gap-downs. This is the #4 rated stock on the IBD 100 Index. Rating: Buy above $53

8/05/06:
NEU – 53.07, The stock broke above the gap-down buy area of $53 on Thursday buy dropped on Friday to close at the level. If $53 is held early next week, this will be the ideal short term entry area (right now). The decline on Friday came on volume less than Thursday's advance but it was slightly above the 50-day average. Rating: Buy above $53

8/7/06: (daily screen)
NEU – 57.50, the buy was a move above $53 as indicated on recent daily and weekly screens. The stock was up more than 8% today on volume 133% larger than the 50-d m.a. NewMarket was originally screened at $48.84 on July 29, 2006 for a current MSW gain of 18% (a total of 6 trading days)

8/12/06:
NEU – 56.40, The stock made the breakout from last week but did reverse near $60 on Wednesday. The strongest stock on the index at this time as it could become stronger with a move to new highs. I made a test buy last week but I didn't buy many shares. I will sell with a move below or near $50, otherwise, I will hold. I will look to add shares on a move to new highs. Rating: Buy was above $53, more shares can be purchased on a move to new highs

8/19/06:
NEU – 57.94, The stock has completed the four month cup shaped pattern and should develop a handle over the next couple of weeks. I encourage a handle to form for several weeks before the next advance into the possible $60-$100 run. Rating: I am a buyer if a nice downward sloping handle forms (the pivot point is now $60.43)

Piranha

Excellent Quotes of Time

2006-08-19T16:33:00.000-04:00

THINK IT

"What the mind of man can Conceive and Believe, it can Achieve." - Napoleon Hill

"You become what you think about all day long" - Ralph Waldo Emerson

“You are today where your thoughts have brought you, you will be tomorrow where your thoughts take you.” - James Allen

“Do not think of knocking out another person’s brains because he differs in opinion from you. It would be as rational to knock yourself on the head because you differ from yourself 10 years ago.” - Horace Mann, educator - How many traders feel this way?

BELIEVE IT

“You can have anything you want. There are no limits to your possibilities.” - unknown

“Whether you believe you can do a thing or not, you are right.” – Henry Ford

“One of the greatest discoveries a man makes, one of his great surprises, is to find he can do what he was afraid he couldn’t do.” – Henry Ford

"We must walk consciously only part way toward our goal and then leap in the dark to our success." — Henry David Thoreau

SEE IT

"If one advances confidentially in the direction of his dreams, and endeavors to live the life he has imagined, he will meet with a success unexpected in common hours." – Henry David Thoreau

“Your biggest competitor is your own view of your future.” - Jim Taylor

“A person is limited only to his or her reality of what is possible financially. Nothing changes until that person’s reality changes. And a person’s financial reality will not change until he or she is willing to go beyond the fears and doubts of her own self-imposed limits.” – Robert T. Kiyosaki

WORK IT

"Time is more valuable than money. You can get more money, but you cannot get more time." – Jim Rohn

"Time is our most valuable asset, yet we tend to waste it, kill it, and spend it rather than invest it." -Jim Rohn

“You can’t build a reputation on what you’re going to do” – Henry Ford

"Everything comes to him who hustles while he waits." – Thomas Edison

"I buy when other people are selling.” – J. Paul Getty

“There was no such thing as half-trying. Whether it was running a race or catching a football, competing in school - we were to try. And we were to try harder than anyone else. We might not be the best, and none of us were, but we were to make the effort to be the best.” - Senator Robert F. Kennedy, in a tribute to his father, Joseph P. Kennedy

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” – Aristotle

"Do not confuse motion and progress. A rocking horse keeps moving but does not make any progress." Alfred A. Montapert, American Author

"Don't measure yourself by what you've accomplished, but rather by what you should have accomplished with your abilities." - John Wooden

“An Entrepreneur's income generation is different than someone that worked at a job. Income generation for a person working was LINEAR. Entrepreneur income generation is EXPONENTIAL. Basically, very, very slow to begin, then as time progresses, explosive.” - Michael John

DON’T STOP

“When one door closes, another door opens: but we so often look so long and so regretfully upon the closed door that we do not see the ones which open for us” - Alexander Graham Bell

"A window of opportunity won't open itself.” - Dave Weinbaum

“Destiny is not a matter of chance, it is a matter of choice; it is not a thing to be waited for, it is a thing to be achieved. - William Jennings Bryan

"The quality of a person's life is in direct proportion to their commitment to excellence, regardless of their chosen field of endeavor." -Vince Lombardi

“I wasn’t going to be one of those people who died wondering, what if? I would keep putting my dreams to the test – even though it meant living with uncertainty and fear of failure. This is the shadow land of hope, and anyone with a dream must learn to live there.” - Alex Haley, writer

STAY THE COURSE

"There are no secrets to success. It is the result of preparation, hard work, learning from failure.” - General Colin Powell

“Many of life’s failures are people who did not realize how close they were to success when they gave up.” – Thomas Edison

“People are always blaming their circumstances for what they are. I don't believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and, if they can't find them, make them.” - George Bernard Shaw

"Every worthwhile accomplishment, big or little, has its stages of drudgery and triumph; a beginning, a struggle and a victory." - Ghandi

LOVE IT

"The average person puts only 25 percent of his energy and ability into his work. The world takes off its hat to those who put in more than 50 percent of their capacity, and stands on its head for those few and far between souls who devote 100 percent." — Andrew Carnegie

"You have to find something that you love enough to be able to take risks, jump over the hurdles and break through the brick walls that are always going to be placed in front of you. If you don't have that kind of feeling for what it is you're doing, you'll stop at the first giant hurdle." – George Lucas"

"If all you're receiving for your work is money you're being grossly underpaid." -Alan Cohen

GIVE IT

"If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability." — Henry Ford

"The man who will use his skill and constructive imagination to see how much he can give for a dollar, instead of how little he can give for a dollar, is bound to succeed." — Henry Ford”

“Time and money spent in helping men do more for themselves is far better than mere giving.” - Henry Ford

"What you put out is what you get back and the reason so many are so short of money is that they put little or nothing out." --Stuart Wilde

“The mediocre teacher tells. The good teacher explains. The superior teacher demonstrates. The great teacher inspires.” - William Ward, Texas Wesleyan University administrator

LIVE THE LIFE YOU’VE IMAGINED

CONCEIVE IT
BELIEVE IT
ACHIEVE IT

“You can have anything you want -- if you want it badly enough. You can be anything you want to be, do anything you set out to accomplish if you hold to that desire with singleness of purpose.” - Abraham Lincoln

"He who wishes to be rich in a day will be hanged in a year" Leonardo da Vinci

"I hear and I forget. I see and I remember. I do and I understand" Confucius

"As you make your rise to the top, never forget about the important things, especially you most important “true love”." – Christopher Perruna

-Put together by Chris Perruna "Piranha"

Ten Stocks under $10

2006-08-18T11:58:00.000-04:00

I’ve had several requests to do a special screen that locates interesting stocks under $10. As you know, I am not a big fan of stocks trading below $10 but I will perform a screen with this criteria about three or four times per year (to feed the craving).

Humans and their psychological minds love to dream about picking that one big winner from a low place and then ride it to riches. It does happen but not very often so don’t build your trading system from this type of thinking.

The last big winner on MSW from the sub $10 area was Forward Industries (FORD) in 2005 but this stock has since turned into a short in 2006. FORD etched the classic chart pattern that Stan Weinstein talked about in his excellent book Secrets For Profiting in Bull and Bear Markets (stage 1, stage 2, stage 3 and stage 4 bases). Actually, I think I will save this chart and add it to my technical analysis page on MSW as the “textbook” example of a four stage Stan Weinstein pattern.

Now, let’s have some fun and screen some stocks below $10 that present potential opportunities for those of you that can stomach buying these candidates. The stocks below do have decent relative strength ratings and earnings per share ratings.

Interesting Stocks under $10 – A screen for Fun:
*All prices from the close on 8/17/06

NXG – 3.86, catching support near the 50-d m.a. as it trades in a range between $3 and $4 over the past 14 weeks.
SLW – 9.45, the young stock is catching support at its new 200-d m.a. as it starts to build momentum to test all-time highs above $12. A move above $12 shows strength.
JSDA - 7.80, risky as it tests its 200-d m.a. The sister stock of HANS may have downward pressure if Hansen Natural continues to stumble below its 200-d m.a. Stocks move in packs so be wary if HANS breaks down further
Q - 8.59, nice strength with confirming volume over the past couple of weeks as the stock continues to tread higher. It has a long history of higher prices so it could be a longer term winner.
STKL - 8.53, the stock advanced more than 100% earlier in the year and is now correcting but the interesting thing I notice on the chart is the decrease in volume while consolidating the former gains. Support at the 200-d m.a. may provide a nice opportunity but wait for the move (don’t enter early)
GNA - 9.58, a trading range has developed between $8 and $11 but the most recent high in July could not surpass the prior high from April which is typically negative. A move above $11 would grab my attention.
NSSC - 9.65, seems to be catching support at the 200-d m.a. with a trading range between $8 and $12. It must move above $12 to prove the potential advance.
DTLK - 9.13, the stock is EXTENDED at current prices but it can become a buy opportunity if it falls back towards the 200-d m.a. and catches support. I wouldn’t consider a position until it at least pulls back to the 50-d m.a. just above $7 and fills the gap from last month.
GIGM - 8.58, building a 14-week base with support near $7 and resistance at $11. A double top breakout will confirm on the point and figure chart above $10.50 and a new high above $11.
CUP – 4.22, low priced risky stock that is looking to catch some support near $4 and the area above the 200-d m.a. With stocks gaining strength, commodity related stocks are declining but if Gold regained its footing, Peru Copper could continue the advance from its 2005 IPO. The original pivot point breakout in May was above $4.05 so look for the stock to hold this area.

I wanted to screen one last stock for pure fun: MSW
MSW – 10.79, Mission West Properties is above $10 but only slightly. I don’t know much about this company but it is gaining some strength near the 200-d m.a. as it consolidated from the prior run earlier in the year. The stock has not trended much over the past several years but I thought it would be fun to check the chart.

I have also included a chart of the NASDAQ which shows the breather that I indicated in yesterday’s blog entry. The index is pulling back today (expiration day) while some investors ell at this first Fibonacci retracement level. I also included a chart of the crude oil contracts as they are crashing down through the 50-d moving average. Major support is still owner near $69-$70. It will be interesting to see crude challenge this area; territory it hasn’t seen in two months.

Piranha

NASDAQ creating Trading Opportunities

2006-08-17T10:57:00.000-04:00

The NASDAQ has reached level one (38.2%) of the Fibonacci retracements with a 4.57% advance this week. The index may take a breather since we have made gains the past three days with a gap-up yesterday. However, if the strength in the market is true, the 50% retracement level should be the next target for the NASDAQ after a slight breather.

The 50% retracement level (2,195) is where I can see the index hitting stronger resistance since several factors come into play. The first is the actual Fibonacci retracement itself, the former breakdown from late May to early June and the longer term resistance and support line near 2,200 which dates back to the start of 2005.

If resistance is met, a short term short play may be in store for the NASDAQ; take a look at the QQQQ for a possible option play. You could also play the SPY as it is moving in stride with the NASDAQ this week.

Finally, the percentage of stocks above the 50-d m.a. on the S&P 500 have reached their highest levels in more than four months as indicated on the chart below. This market move is showing strength as several secondary indicators are confirming such as the stocks above their 50-d m.a., the NH-NL ratio and the action among individual stocks.

Keep in mind that September is the poorest performing month in recent history so a reversal is not out of the question. Protect your positions and don’t get emotional with this recent burst of strength. It can turn on a dime and you must be ready to act. Remember, the NASDAQ is still trading below its 200-day moving average (a negative in my book for a sustainable rally).

Piranha

NASDAQ looking for Retracements

2006-08-16T09:31:00.000-04:00

Several things happened with the NASDAQ during the trading day on Tuesday:

The NASDAQ clearly broke above the down-trend line noted on the chart I have featured several times on this blog while also recovering the 50-d m.a. and the 2,100 resistance level. I spoke at length this past weekend on my weekly analysis over at MSW about these resistance levels and I made an in-depth argument as to why the NASDAQ can reach the retracement levels or re-visit lows set back near 1,900.

Volume was higher on Tuesday than Monday’s action but still light compared to the average since we are in the middle of August (summer volume is always weak).

The new highs topped new lows on Tuesday as most of the positive news could be attributed to the inflation report (the first positive day in more than a week).

Here is some of my commentary from the MSW weekly analysis from this past Sunday:
From 8/13/06:
“Now, if the NASDAQ were to breakout above all three of these levels (speaking about the down-trend line, the 50-d m.a. and the 2,100 resistance level) and individual stocks confirmed, it would be a major short term buy signal, one that I am watching very closely. On the downside; if the NASDAQ were to make a weekly close below the previous low near 2,020, we could be visiting areas between 1,900 and 2,000.

Where do I see this?

Take a look at the weekly of the NASDAQ and the next level of support near 1,900, set back in April 2005. September is the weakest month of trading for the market over the past decade so I would not be surprised to see this level revisited with a close below 2,000. But…

Using 1,900 as the low level of the most recent advance of 2,350 as the peak, we have retracement levels of 2,178, 2,125 and 2,071. With the NASDAQ closing at 2,057 this week and an intra-week low of 2,012 a few weeks back we might expect a rally as a temporary bottom may be developing since all three retracement levels have been met and then some. The Fibonacci retracements suggest that the market is over-sold and could have a short term bounce.

Using 2,378 at the high value and 2,012 as the low value on the daily chart, we can now see that a possible positive retracement can take place to any these three levels:
38.2%: 2,151
50%: 2,195
61.8%: 2,238

Based on recent NASDAQ action, I could see the index reaching the 50% retracement since the most recent peak was set at 2,190 at the end of June and early July (this peak materialized at the 50-d m.a. and the down-trend line found using the daily chart).

I hope I haven’t confused you yet! To recap, I have talked about a possible drop to 1,900 and a possible retracement rally between 2,151 and 2,238. I can’t tell you which one is more likely to happen but that is not my job. My job is to point out possible scenarios and give you an adequate chance to capitalize on the move and be prepared for the possible move. Now that you know what type of moves can happen, you can get yourself ready for possible trades that will allow you to make a profit in either direction (only if you are comfortable trading in both directions). This is how traders make money; they assess the situation and then look for possible trades that can benefit in either direction and they do all of this during their off hours (not during the trading day). Since the work will be done prior to the move, your setups and triggers will be set prior to the action so you will be able to make an unemotional decision in the “heat-of-the-action”.”

MSW members were privy to this market analysis prior to Tuesday’s move!
With yesterday’s move, we will now see if the first retracement level will be hit and then the possibility of a run to the 50% retracement level (see the attached chart).

Piranha

New Highs and New lows telling a Story

2006-08-14T13:47:00.000-04:00

A few months back I asked if the New High – New Low Ratio (NH-NL ratio) was reliable. Take a look at the chart and the numbers and tell me what you think.

The chart in this blog entry was calculated using the simple math explained in an entry I wrote earlier in the year, which can be found here: Is the NH-NL ratio Reliable?

To calculate the percentage correctly, use this formula:
(New Highs – New Lows) / (New Highs + New Lows) * 100 = X%

The one thing I would like to stress is the huge drop from borderline "strength ratios" in April to negative weakness in May (just the time the market started to tell us all to get out and head for the sidelines and lock in gains).

Brett Steenbarger talks briefly about his findings while studying the new highs and new lows in the market. Take a moment to visit his “Market Context” for August 14, 2006 to see what he has to say.

I will conclude by saying that the NH-NL ratio is extremely reliable (lagging but reliable)!

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273
Saturday, July 22, 2006: 66 - 307
Saturday, July 29, 2006: 163-151
Saturday, August 5, 2006: 194-132
Saturday, August 12, 2006: 88-210 - This Past Week

New highs vs. new lows from last week (we were negative all week):
Monday showed a ratio of 83-147
Tuesday showed a ratio of 114-187
Wednesday showed a ratio of 126-235
Thursday showed a ratio of 62-281
Friday showed a ratio of 53-198

Piranha

Thinking instead of Acting

2006-08-11T08:55:00.000-04:00

I was reading another post on a forum and came across another interesting topic. The guy making the post responded to my piece on the TICKS and said this:

"One big problem with technical analysis and the use of indicators is that it confuses causes and effects. The move of the NASDAQ is the cause, the movement of the indicator is the effect. The NASDAQ doesn't fall because the indicator says so. The indicator says so because the NASDAQ has fallen (please note the past tense). Nature works in a very predictable way: you cannot manage the effect (investing based on the indicators) without first managing the cause (figuring out why the NASDAQ moves in a certain way)."

Here is how I answered this person:
You are correct that technical analysis is the effect but I am not trying to get in at the bottom or out at the top. I catch the trend and technical analysis will always give you the underlying trend and that is where my money is made.

Using the indicators (lagging or not), I always know the trend and will place my trades with that trend. I am not always right but I use several position sizing strategies to hold my risk to a minimum which allows me to capitalize on my winning trades and cut the losers quickly.

By trading with the trends, I could care less what the “true” cause is for the movement (that is a waste of time). All I need to know is the direction the market is moving in. Nature may be predictable but the market is not so knowing the cause is useless because causes are always priced into a market in advance. I buy the trend and look for the cause in the news in the following days, weeks or even months. In my opinion, causes are old news by the time they become known!

Too many times, I see people think too deeply into the market and always miss the move because they need to know the reason why the market is moving. I don’t care why it is moving, I only care to know if and when it is moving so I can get in or out of my positions. As I said above, I will look for the “cause” or reason when it hits the headlines in the future!

Piranha

Discovering the TICKS

2006-08-09T23:35:00.000-04:00

I was reading through Trader Mike’s blog Wednesday night and came across a very interesting indicator that can be studied on a chart. In his post, Review of “Mastering the Trade” by John Carter, I was reminded about an indicator I have seen on several occasions but have never taken the time to research because I am not a day trader (yet).

Before going further; have you ever been in a situation where you see or hear something once but pay no attention, see it a second time and possibly take a deeper look but then see it a third time and really jump into the concept. I first heard about the indicator TICK or $TICK on stockcharts.com when reading through SFO magazine. I don’t remember the author’s name but I will assume it was John Carter and will take a look later this morning as I save every edition of SFO. The second time I saw TICK was during my 4th of July vacation while reading Martin Schwartz’s Pit Bull as he explained how the indicator is a must for his system. Schwartz said exactly what John Carter’s article states about the levels of TICK so I must assume that many great traders use this indicator. Wednesday was the third time I came across this indicator and the second time in one month so it must be something that my subconscious wants me to look into further (yes, I believe in the subconscious and the idea that the proper tools are presented to a student when they are ready for them). I hope that doesn’t scare anyone away but read Napoleon Hill or watch The Secret and you will understand where I am coming from.

What is a TICK?
The TICKS ($TICK for NYSE or $TICKQ for NASDAQ) summarize the number of stocks on the NYSE that are increasing in price versus those that are decreasing in price from the previous price quote.

Anyway, after reading the blog post and then re-reading John Carter’s article, I started to play with the chart and overlay market information. What was really interesting was the $TICKQ which represents the NASDAQ and how it predicted the top in the market today. While doing my research tonight, I realized that the NASDAQ peaked just before noon (approximately 11:45am) and then headed down for the day. This happened at the exact same time that the $TICKQ reached an intraday high above +800 and then reversed during the 5-minute candlestick. The actual candlestick closed below +600 for the timeframe and then quickly dropped by 50% over the next five minutes which should have told day traders that the market was turning down with heavy selling pressure.

Looking at the chart posted in the blog entry, you can see how the purple line (representing the price of the NASDAQ) topped at the peak of the $TICKQ and then went south for the remainder of the afternoon. The indicator attempted to cross above +500 a few times during the afternoon but was quickly turned sideways or in the opposite direction, confirming the weakness and selling pressure. By 2:30, the indicator was staring to violate -600 and the NASDAQ was reaching intraday lows as most stocks were starting to turn from green to red on my computer screen.

I admit that I don’t know much about this indicator and only started to research it today but I can already see its power and understand how it may help me with my current and future trading systems. I understand charts and this chart was amazingly accurate today so it has caught my interest. I was already interested when great traders such as Martin Schwartz consider it a must and then it is confirmed by John Carter in SFO and then one of my favorite stock bloggers in Trader Mike. I read about indicators and oscillators every day but I toss most of them aside because they have no value to me at this time with my current trading style but I knew within minutes of studying my charts today that this indicator will be added to my arsenal. As I continue to study the indicator and eventually use it with my trading, I will report back on this blog if it has helped or hindered or has done nothing at all.

Piranha

Simple Thinkers

2006-08-08T15:43:00.000-04:00

Have you ever been on a message board, forum or in a discussion where a person tells you that earning ‘X’% per month would make you the richest person alive in ‘X’ number of years. For instance, I recently read a post by a forum writer that said:

“If you ever find such an investment you should immediately reinvest all got.

Month 2 you would have $20K producing $20K a month.

By the end of your first year you'll have over 20 millions bucks and at the end of year two you will be by far the richest man alive.”

The question posed earlier in the thread said:
“Are there any ways that could earn $10K per month consistently”

To some people, $10,000 per month is peanuts but to others, it is a large sum of money; something so inconceivable that they bark about all the reasons why making this type of money is impossible. To be honest, it's only $120k per year; not that impressive in New Jersey anymore!

What struck me the most about this post was the fact that the responder was using such elementary thinking when answering the question. By using proper money management techniques, an investor would never risk their entire stake on one investment because it was returning a specified amount or percentage each month. If I am trading with a positive expectancy system that is averaging a return of $10,000 per month, why would I double, triple or quadruple my risk just so I could make more money. Non-investors are always thinking about the up-side potential and never worrying about the downside. Maybe the person earning $10,000 per month has formulated a system with positive expectancies and a quality position sizing technique that allows them to make this sum without risking too much of their original capital.

If the investor were to double the size of their bet or increase it even further, they run the risk of ruin on one bad transaction; therefore, becoming the richest “person” in the world in not an option by doubling-down the size of the specific bet or business strategy. It sounds to me that the person responding to this post is a roulette player that believes that doubling each bet after a loss will allow them to break even which couldn’t be further from the truth.

Be aware of the “talkers” on the web and don’t buy into everything they say because much of the crap I come across is that: “crap”! Just because someone has an investment strategy that pulls in $10,000 per month does not mean it is as simple to double up on the original investment in order to bring in $20,000 per month and then repeat the process to bring in $40,000 per month (eventually making you the richest person alive in a few years). I highly doubt the responder in this post has ever studied probabilities, risk, reward, expectancy or any other mathematical logic before giving his two cents. I will also assume that he is the type of investor (or gambler) that always has a hot tip and will bet the farm on that tip because he sees the potential of profit on the other side of the fence rather than the possible loss (risk of ruin) by risking too much.

Try out this logic: Ask 10 friends or family members which situation they would choose if given the opportunity:

Risk 90% of their net worth for a 5% chance of multiplying it 50 fold
or
Risk 1% of their net worth for a 70% chance of doubling it.

What would you choose? And Why?

I think many of you know which number I would select based on my past blog entries and my investing style.

Steer clear of internet TALKING HEADS & SIMPLE THINKERS!

If you are interested in reading high quality material on the web, take the time to visit my blogroll and links section on each sidebar. No talking heads here!
Piranha

Image provided by: http://www.scholarnet.co.nz/flo/savings_item1.php

Interesting Stocks to Watch

2006-08-04T12:00:00.000-04:00

The NASDAQ is trading near the 50-day moving average today and has actually pushed above the down-trend line placed on my chart. If the index can follow through and close above both the moving average and the trend line, I consider this a successful week. I voted neutral on the latest Ticker Sense Blogger Sentiment Poll after voting negative the past couple of weeks (I hate to be on the fence but I am). If the NASDAQ can trade above these areas and the NH-NL ratio can continue to stay positive, I will start to get more of a positive feel for the overall health of the market.

The S&P 500 is forming a cup shaped pattern and has overtaken the 50-d and 200-d moving averages and has moved higher in above average volume the past three weeks. Earlier this week, we had our strongest daily NH-NL ratio in months which tells me that some institutional buying is taking place as the summer heads down the home stretch. In any event, don’t rush to buy stocks on the long side until we get a market breakout and a strong weekly confirmation with the NH-NL ratio. Another important aspect to the market possibly gaining strength will be the health among the individual market leaders. Until they can gain their footing and move higher with volume support, we can continue to be skeptics (protecting our capital).

Below are a few stocks that interest me at this time along with a couple of lists highlighting the action from Thursday’s market (similar to a typical daily screen I run each night).

Some Interesting Stocks to Watch:

CELG – 46.95, a move above $50 is a buy signal on the P&F chart as the stock has a strong long term trend above the 200-d m.a. (since February 2005)
GILD – 62.07, buying above the moving averages as the stocks qualifies for a possible $60-$100 run
BOT – 127.06, a stock I profiled earlier in the year on this blog that actually corrected but is now challenging all-time highs. I am slightly skeptical of the long term move but the trend has been higher for the past couple of months (especially since it recovered the 50-d m.a. near $105 in June
EZPW – 38.82, could this be the handle formation to the 15-week cup shaped pattern? A move to new highs is very positive especially if volume increased above average
CMI – 119.28, up and down as buyers and seller struggle to take control of the direction of this stock. Buyers have a slight advantage at this point in time
TWGP – 29.37, trading in a consolidation range between $26 and $32. A buy happens above $32 with a triple top breakout on the P&F chart
AB – 66.04, the MSW Index stock continues to make the 200-d m.a. play successful as it also qualifies for a possible $60-$100 run

A Few Interesting Stocks making New Highs Thursday (8/3/06):

OMX – 44.42, first double top breakout yesterday above $44, another will qualify above $45 as a spread point and figure breakout
GES – 48.41, a 14% breakout above $47 this week with Thursday’s gain coming on volume 282% larger than the 50-d m.a. (50-day moving average)
CTSH – 70.31, a solid 10% move this week to breakout above $70 on above average volume (RSI line at all-time high)
EME – 54.26, the 200-d moving average play has now gained 22% over the past two weeks. Do not chase at this point but keep an eye open for a future consolidation

A Few Interesting Stocks within 15% of a New High (Thursday’s Market – 8/3/06):

ANSS - 50.39, a strong rebound with support at the 200-d m.a. Volume was up over 219% yesterday, signifying institutional buying power
NEU - 53.97, an MSW Index stock forming a nice basing pattern with a possible $60-$100 run in the future.
GIL - 47.32, another 200-d m.a. play with solid support from institutions as volume was up more than 280% on Thursday
PSA - 83.40, a 21-week cup shaped pattern with heavier buying over the past week or so. I prefer to see a handle form before takeoff so be careful with any entries in this area.
PVA - 71.28, the daily chart is somewhat sloppy but the weekly chart shows support at the 200-d m.a., a support line it has held over the past couple of years
TRMB - 49.05, reaching a new 52-week high in the early morning hours of trading on Friday (slightly extended from the major moving averages but it is gaining momentum)
PZZA - 33.95, I don’t like their pizza but the stock is gaining support at the 200-d m.a. in the midst of an eight month consolidation. Breakout to new highs is an entry signal (above $36 on the P&F chart)

Piranha

Tropical Storm “Chris” affecting Market

2006-08-02T10:28:00.000-04:00

Crude oil topped $76 earlier today as Tropical storm CHRIS (what a name) gathers strength in the Caribbean and heads towards the Gulf of Mexico and possibly the Gulf Coast. Investors fear that the storm could grow into a hurricane and possibly disrupt oil output from the rigs in the Gulf area (similar to Katrina and Rita from last year).

As an article by Simon Webb stated: “Last year's hurricanes shut a quarter of U.S. crude and fuel output and sent oil to record highs. Around 12 percent of the U.S. Gulf of Mexico's 1.5 million barrels per day (bpd) oil output is still offline.”

As you can see on the chart, crude oil has been trading in a range over the past couple of months with a support line near $70 and a shorter term support/resistance line near $75.

With the crisis in the Middle East and the threatening storm, oil related stocks and futures will be hot short term plays!

Piranha

Listen to Martin "Buzzy" Schwartz The Interview

2006-07-31T09:22:00.000-04:00

I found an interesting interview of Martin “Buzzy” Schwartz while searching the web last night. It is provided by a site named annonline.com and can be found through this address: The Interview

I mentioned that I read the book Pit Bull: Lessons from Wall Street's Champion Day Trader by Martin Schwartz over my last vacation and enjoyed it very much since it is very different than most stock market books. He tells his story and gives some advice at the same time but I viewed the read as entertaining and extremely insightful.

I enjoyed the interview even though I would have asked different questions so now I want to share it with you. First I will recap some important facts that I wrote down while listening:

I believe the interview took place in the summer of 1998 prior to the 2,000 point drop on the DOW in the fall of that same year. The October 1998 low near 7,300 pushed towards a record high just below 12,000 in January 2000.

He mentions that the DOW is trading near 9200 during the interview and says “I have trouble understanding how we can march unabated.”

The market is “selling at 5.3 times book value – record high…”

This great trader knows that things are not right and that the market is overdue for a correction but he specifically states that you must follow the trend and avoid picking a top. This is supreme emotional and psychological control by one of the best traders of our generation.

He is quoted as saying: “Don’t fight the trend despite the fact that we are at historical highs.”

Buzzy goes on to say “we are at the high end of the valuation spectrum” and “difficulty is that we can be hit with something from left field and we are overdue for that.”

As a trader and not an investor, he points out that the market was better suited for his style of trading during the 1980’s when it moved back and forth (taking advantage of the long and short side). He doesn’t like the constant push higher that everyone witnessed in the late 1990’s.

He talks briefly about his methods and says that he’s not in the business of giving advice and doesn’t feel comfortable giving advice to other traders. But, he mentions that he uses a 10 day exponential moving average with red light and green light signals (above the moving average is a positive green light and below is negative or a red light).

He uses his own type of money management with a risk parameter set in dollars. He will cut a trade when the dollar figure is violated.

Ann goes on to ask him if he ever breaks rules and as expected (we are all human), he says yes and blames it on emotions and stubbornness.

As many traders already know, the bulk of your profits are made on a minimum number of days throughout the year. Schwartz says: “200 days per year are about even. About 50 days per year is where my big money is made.”

Ann asks him what’s the most he has made in one day and he responds: “several million”. At one point in the early 1980’s, he was making $70,000 per day trading the S&P’s. In 2006, $70,000 a year is still considered a good salary!

Finally, he talks a bit about setting up a plan and putting it on paper before quitting your job and aspiring to become a full time trader. There’s more detail in the interview and in the book so I’ll let you find out for yourself.

He ends the interview by answering this question:
Ann: Can anyone do what you have done?
Martin: “Few can do what I have done” “rare set of skills and honesty, along with intelligence”

Publisher’s weekly describes the book as such:
After working several years in what he considered to be a dead-end job as a financial analyst at E.F. Hutton, Schwartz quit the firm, accumulated a nest egg of $100,000 and on August 13, 1979, bought a seat on the American Stock Exchange where he began trading stocks, options and futures. He quickly became an expert at trading S&P futures, and in his first full year as an independent trader made $600,000 and a year later earned $1.2 million. Schwartz's style was to get in and out of positions in a hurry; he rarely held on to any financial instrument for more than a day. As his success on Wall Street grew, he began his own fund in which he would manage other people's money as well as his own, a move he would regret. The stress of running the fund contributed to his developing pericarditis, which nearly killed him. His doctors advised him to slow down his lifestyle, so at the age of 48, Schwartz, along with his wife and two children, moved to Florida where he took up golf and developed a daily routine that allowed him to keep trading, but at a more relaxed pace. This is one of those rare autobiographies where the subject unintentionally portrays himself in an unfavorable light. As he grew ever richer, Schwartz became consumed with generating even more money and prestige so that he could "run with the top dogs." Inadvertently, he has written a cautionary tale on the dangers of being addicted to money and power.

Piranha

The Dog Days of Summer

2006-07-28T13:34:00.000-04:00

You can really tell that my trading has come to a halt. I added my dog into the poker picture below! Now, that’s what I call a good looking lab! By the way, I used Photoshop, one of the best programs ever.

The original:

Piranha
What can I say, I love dogs and poker!

Listen to your System

2006-07-27T12:03:00.000-04:00

As I highlighted in the blog post yesterday, my system alerted me that the market was going to take a turn south in the summer of 2004 and it did (May, June and July). It is important for every trader to have your own system that alerts you of moves which allows you to profit. It can be short term, long term or anything in between but you must understand what it is saying. I depend on the price and volume of the major indexes, the NH-NL ratio and the action among the individual leaders to determine if the market is strong or weak. Since I have studied these patterns for years, I know when the market is moving higher or lower based on the confirmations each of these indicators give me. Nothing is exact but they are extremely accurate as they guide me with test buys, position sizing my trades and moving me to the sidelines.

Take a look at how these three major indicators got me in and out of the market in 2004 (and keep in mind that I am not a day trader – I was momentum trading, trend trading and swing trading in 2004 – which ever you would like to call it).

I wrote this entry on my Weekly Screens on April 19, 2004 (the highs on the NASDAQ in April 2004 were not revisited until November of that year):

“Market Overview: The market is still in a confirmed rally according to rules but we are seeing many stocks hesitate and undecided about their direction. The world situation has been a big influence on the general market conditions. Speculation of an interest rate hike has kept the market in flux.

My screens showed bad news last week with the daily new highs and lows. For the first time since posting my screens in November (2003), the daily new highs were lower than the daily new lows. I haven’t seen action like this since the bear market.”

I posted a weekly screen insert in yesterday’s blog post from July 2004 which warned that the market was still heading lower. The MSW screens turned negative in May 2004 and stayed that way until late August 2004 as you will read below.

WEEKLY OVERVIEW of 8/16/04 to 8/20/04:

“…However, I am possibly seeing a new trend that may be starting to form in the indexes. You heard it here first. I may be early but I am seeing a change in my screens. (Please note, I saw the trend in March of 2003, especially April of 2003 – I posted in real time on this breakout simultaneous with IBD). I was tipped off by the “new highs vs. new lows” combined with the huge institutional sponsorship that was sending stocks to new highs.

The DOW was up just short of 3% from Friday (13th) to this past Friday (20th)
The NASDAQ was up 4.5% in the same time period
I have noted that volume was extremely weak.

The New Highs vs. New Lows picture looked different than past weeks.
We had 3 days out of 5 that had more new highs.

On 8/13, we had – NH-37, NL-304
On 8/20, we had – NH-128, NL-53

I know this is minor but it may be the first signs of a changing atmosphere. Stayed tuned as I will keep a close eye on this change in my screens. (I have done my daily analysis for Monday, August 23, and I see more encouraging signs in the NH vs. NL list: 131 vs. 46). Again, volume was weak. When the charts and volume cooperate with the new highs list, we may be half way to a new up-trending market.”

Looking at the chart from 2004, I guided traders out near the top of the early summer decline and I guided them back in at the beginning of the late summer/ fall advance.

More recently, I took investors out of the market in mid May 2006 and hope to have them back in when my screens confirm the rally in the future. When will that be? I don’t know but my research will tell me as it has every time in the past.

If you would like to review my work on the MSW screens, I invite you to explore my past archives from 2004 and 2005 as they are open to the public. You can review a chart as you read everything I have written over the past two years. The archives for 2006 are for members only but will open to the public when the year ends. Using my three main indicators, I have been very successful by getting in and out of the market since late 2002. Prior to 2002, my system was not as strict as it is today but I learned my lesson by getting slammed in 2001.

Develop a system, hone that system and understand what it is trying to tell you and you will come out with a profit. Every trade can’t be a winner but you won’t be fighting the trend because your overall system will tell you what side of the market to trade.

Piranha

Déjà vu on the NASDAQ?

2006-07-26T15:12:00.000-04:00

As I was researching my archives on MSW (the archives from 2004 and 2005 are open to everyone) I found some interesting data that correlates the NASDAQ in 2004 and 2006. So far in 2006, we have had 15 down weeks and 14 up weeks. At this time in 2004, we had 19 down weeks and 10 up weeks and the NASDAQ was at a nine month low (very similar to now as we are near 10 month lows). In 2004, my daily and weekly screens started to turn south on May 9th; in 2006, they started to turn south on May 15th (about the same time).

If you look at the two charts presented in this blog entry, you will notice how the market started to weaken in May and June and with a bottom near the end of July into early August. This summer is not over but I am wondering if the pattern will turn out to be similar to the one from 2004. The old saying: “sell in May and go away” has held up over the past couple of years with opportunities presenting themselves during the fall (towards the end of October).

Several of things I was saying back in 2004 are very similar to what I have been saying over the past two months. The similarities are amazing and the current NASDAQ chart may be forming a pattern that could take a similar route as it did in August of 2004. Only time will tell but history repeats and traders are always learning from history.

NOTE: when I say history repeats; I am not saying that it repeats exactly but the charts do resemble similar formations and seasoned traders and investors can capitalize on these situations.

Here is my exact analysis from July 2004, very similar to things I am saying today (2 years later).

“WEEKLY OVERVIEW of 7/19/04 to 7/23/04:

I am starting to sound like a broken record. The Dow was down for the 5th consecutive week. The NASDAQ is now at a nine month low.

Quote from IBD regarding the NASDAQ:
“Out of 29 weeks of trade this year, excluding the week ended Jan. 2, 19 have been down.”

I ran my screens this past week with a few stocks making some daily cut offs – barely. When I ran my final weekly screens last night, I came up empty. Not one possible candidate that legitimately makes my watch list. I must scratch my head when I see people listing dozens of stocks for potential buys in this type of environment.

Anyway, I have my own system and that is all I can talk about right now and this system is telling me to be patient, be very patient. Every red flag has been raised over the past 3-4 months.

Anyone that has followed my screens would have noticed that things were going south when I stopped posting individual stock lists after May 9th. How could I, quality stocks were not around. I would be doing an injustice to the people that follow my screens if I just posted any old crap for the sake of posting.

Now, let’s be patient – patience is one of the most sacred virtues of a stock market investor. Jesse Livermore once said: “It’s not your thinking that makes you money, it’s your sitting”.

Here are some insight about market corrections:
Market corrections are healthy, allowing it to breathe. Corrections allow stocks to shake out weak holders and allow stocks to form proper bases. Corrections allow stocks to resemble their actual value more closely. Market corrections and flat markets allow intelligent investors to study conditions carefully while they sit on the sideline patiently awaiting the defining trend. Money is made on the big moves, not the minor day to day moves. Corrections allow big moves to establish themselves.

During bear markets or general market corrections, it is essential to keep up your watch list as many future high flyers are building bases during these times. Stocks that correct the least and sport the highest relative strength lines tend to be the leaders of the next bull market. Take note of all stocks that are base building during corrections, a cup with handle or flat base are the most popular.

How can you spot a correction or bear market on the horizon
• The major indexes will advance on below average volume.
• Stocks making new 52-week highs will be limited.
• Stocks making new lows will increase.
• Major indexes will fall below the 50-day MA and/or the 200-day MA.
• Index averages will start to under perform. Relative strength lines will head south.
• Major publications will tout hot stocks at key market reversals (market tops).
• Smart money will bail in huge volume. Down days on excessive volume above average.

NO STOCKS LISTED THIS WEEK, REFER TO PREVIOUS WEEKS”
-7/26/04

Just a note: I didn’t add any new stocks to the MSW index last week (7/26/06)!

Piranha

Ticker Sense Sentiment Poll

2006-07-24T09:01:00.000-04:00

I want to draw everyone’s attention to the Ticker Sense Sentiment Poll since I am now a participant.

What is this poll?

The Ticker Sense Blogger Sentiment Poll is a survey of the web's most prominent investment bloggers, asking "What is your outlook on the US stock market for the next 30 days?" Conducted on a weekly basis, the poll is sent to participants each Thursday, and the results are released on Ticker Sense each Monday. The goal of this poll is to gain a consensus view on the market from the top investment bloggers -- a community that continues to grow as a valued source of investment insight. © Copyright 2006 Ticker Sense Blogger Sentiment Poll.

Justin Walters and Paul Hickey co-founded and developed Ticker Sense in the fall of 2005 in hopes of providing more and more individuals with the type of research that they produce at Birinyi Associates, a financial research and money management firm.

It will be interesting to see how accurate this poll will be moving forward as compared to other major polls. Most of the bloggers included would call the main stream analysts “talking heads” as I already do but are we becoming “talking heads” by developing this poll. I’ll say no for now! In any event, bookmark their blog because they produce excellent material.

Piranha

Ten Stocks to Watch

2006-07-21T16:34:00.000-04:00

The NH-NL ratio finished at 97-182 on Thursday, staying on the negative side, reminding us that a rally is not taking place. Sellers continue to have their way with a 3-to-1 advantage during Thursday’s session as the NASDAQ gave back 2% (all of Wednesday’s gain) but volume was lighter. Staying on the topic of “large caps”, I noticed that Apple gained 12% after reporting bullish sales, Google fared better than Yahoo but is only up 0.49% heading into the final hour of trading on Friday (under both the 50-d m.a. and 200-d m.a.).

The S&P 100 Index/S&P 600 Small Cap Index that I track is up over 6% this week for its largest gain in years, confirming that large caps are moving to the head of the class. Investor’s Business Daily pointed out how CBOT (a stock I have highlighted on this blog in the past) blew past expectations but couldn’t gain much ground throughout the day after reaching a high of $126. The stock is actually down 3% today, telling us that buyers don’t have a chance, at least not now. The stock has formed a V-shaped cup with handle with a pivot point of $124.58 (breakout volume should reach 600k shares).

If the NASDAQ closes where it is right now, it will have its lowest close of the year (the lowest since May 2005). The S&P 500 index challenged its former support (now resistance) of 1,245 earlier in the week but looks set to close below this level within the next hour. Crude has dropped the past four days and attempted to climb back above $75 earlier in the day but looks like it too will close below former support (now acting as resistance).

So, are there any stocks out there to consider for a watch list?

Here are 10 to Take a Look at:

ADS – the stock has been falling for three straight weeks but I told MS members that this could be the case since it had to fill the gap from April, something it may be doing (down to $47.50). If it bases here (or gets support), I am buying several calls to speculate on my idea of a bounce.
GRMN – down over 2% for the week but the stock continues to hold the 50-d m.a. as support while maintaining a presence near the psychological triple digit threshold. I still like the stock in a rallying market (could make a nice option play for a solid run).
LVS – the stock is trading between a range of $65 and $74 (with some higher ticks) but it still sports a solid relative strength rating and solid fundamentals. The $60-$100 run is still a strong possibility
ZUMZ – trading in a range of $30 and $37.50 for the past 12 weeks with some minor intra-week movements above and below the major range. The most recent breakout of $36 was reversed but who can blame the stock in this type of market.
EZPW – filled the gap back down to $38 and is now trading between this level and the high above $45. I would consider this a handle to a longer pattern that could give us a nice run if the market were to breakout.
ARP – trading in a range between $32 and $39 for the past 18 weeks, all above the 200-d m.a. The stock has a supporting relative strength rating that suggests it can move higher in the next rally.
MAA – an 18 week base that has held up for the most part during the past two months as its relative strength rating continue to soar. A breakout to new highs is a buy point on the point and figure chart ($58).
ORB – the stock has been acting very well this week amid the negative tone among the other leaders and the major indexes. It managed to gain more than 5% during a weak of turmoil and it did so on heavier volume (above average). With the strong moves above $16, the stock is now slightly extended but one to continue to watch.
MED – the speculative stock that made us money earlier in the year is now forming a sideways consolidation base, one that has lasted for seven weeks. The support seems to step in near $16 with the weekly breakout above $20. Of all the stocks listed, this may become the best play for pure traders.
CSH – the stock has formed an 11-week cup shaped base without a handle. It attempted to breakout over the past two weeks but has not succeeded due to the weak market but this could be beneficial as it might form a proper handle. With today’s intraday low, the stock has basically filled the two gaps from earlier in the month.

Piranha

Large Caps Gaining Strength?

2006-07-18T09:12:00.000-04:00

McDonalds made it’s first ever MSW daily screen last night after it said that second quarter earnings should jump by 60%. For the day, the fast food company was up over 5% while other large cap stocks also gave the street solid earnings reports. Apple moved more than 3% after comments were made by a “talking head” over at Piper Jaffray prior to an earnings release on Wednesday. IBM, Microsoft and Yahoo are all expected to report results in the coming days. The chart associated with this post is telling us that Large Caps are gaining strength versus Small Caps. Time will tell but yesterday could have been the first round of confirmation.

I thank Trader Mike for bringing this chart to my attention!

Some familiar "Large" names expected to report today:
KO – Coca-Cola
JNJ – Johnson & Johnson
IBM – International Business Machines
USB – U.S. Bancorp
YHOO – Yahoo, Inc.

Piranha

MSW Market Overview

2006-07-17T08:34:00.000-04:00

This post contains a portion of the general analysis from the MarketStockWatch.com Weekly Screen: 7/10/2006 to 7/14/2006

Said on last week’s Weekly Screen Analysis (7/8/06):
“I still have doubt in my mind about this rally because it didn’t confirm within seven days.”

I want to start by stressing the importance of paying attention to the overall market (a statement I made to start last week’s analysis). If the market starts to pullback, so will the majority of stocks (another repeat statement). It will be very important to watch the leading stocks to see how they react to any corrections and/or pullbacks (a third statement from last week – this statement told us to sell test positions turning against us as noted on the daily screen on Wednesday and Thursday). So what do we do and how can we gauge what’s going on in the market?

I am looking for stocks that are holding up better than the major indexes. Stocks that fall less than the overall averages is a good place to start. My first list to check is the MSW Index, then the MSW watch list and finally I will search the daily screens and overall market for stocks that look like leaders based on their recent relative strength (when I say recent, I mean the past 5-8 trading days).

To start; how much did the major indexes fall?
NASDAQ: -4.4%
DOW: -3.2%
NYSE: -2.5
S&P 500: -2.3

Looking at the MSW Index, we see that every stock fell for the week, so which ones dropped the least?

GRMN: -1.75%
TS: -2.71%

These were the only qualifying stocks from the MSW Index that fell less than the major indexes. Garmin (GRMN) fell less than every major market index and found support near $95 and the 50-day moving average. It did qualify for distribution, the first in 13 full weeks. TS was strong but the stock has formed a trend line that is pointing down (I will add this trend line to the weekly chart; it can be seen best on the daily chart).

Looking at the MSW Watch list from last week, we see one solid stock:
KNOT: -1.29% (down less than the major averages)

With this in mind, we see that only two stocks maintained their leadership status based on this analysis but several of them are still above key support levels and will remain on the MSW Index because they are still better than most of the options out there. Only two stocks on the MSW Index contain RS ratings less than 90 (CME and ADVS with 89 and 88 respectively). Only one stock from the watch list last week currently holds a RS rating less than 90 (BLKB with an 86 – no longer listed).

Last week I said this: “Although the ratio turned positive, we ended on a sour note with the only negative daily reading of the week on Friday. We had our fewest new highs of the week and our most new lows for one day of action. Sprinkle in the fact that both the DOW and the NASDAQ fell 1.2% on slightly higher volume and we can start to become concerned if we have open positions.”

The foreshadowing was written on the wall with new lows expanding as the week wore on. We logged another negative NH-NL ratio with the weakest rating since the week ending June 17, 2006. We also witnessed the second most new lows logged in one week for the entire year of 2006 with only June 17 higher with 310 (the only week above 300 since October 15, 2005). With the market breaking down and the NH-NL ratio confirming, we are in some serious trouble. I have closed my test buys and moved back to cash (except for several long term option positions) and I advise that you all take serious looks at any stocks you may currently own. The sharp reversal in the market was not a surprise and I was not hurt much at all since I was only placing positions about 1/3rd my typical position size. This is the exact reason why I place test buys; all indicators weren’t in sync (specifically the NH-NL ratio).

Follow our three most important Indicators:
1. The price and volume of the major indexes
2. The action on the NH-NL ratio
3. The action among leading individual stocks

As we already know, all three indicators are extremely weak and all three indicators are heading down! The NASDAQ is at a nine month low and has violated all recent support; starting with 2,200, then 2,100 and then 2,050. The relative strength rating is at multi-year lows and is pointing straight down (a very steep drop over the past two months). The next low would be near 1,900 which was set back in April 2005. Looking at the retracement levels, we see that the NASDAQ has violated the 61.8% level of 2,178, the 50% level of 2,125 and the 38.2% which sits at 2,071.9. Based on all the information at hand, I would expect some type of bounce on Monday but that’s not a given especially since the Trader’s Almanac states that most Mondays are down after a negative Friday. We are definitely in a correction because the NASDAQ is down 14.2% since its 52-week high and 7.6% since January 1, 2006.

The DOW and S&P 500 have also violated all support levels but are in much better shape than the NASDAQ. The S&P 500 is only down 1% for the year and 6.8% since its 52-week high. I tend to rely on the NASDAQ more so than the DOW but it is interesting to see that large caps are gaining some steam while small caps are getting trounced. I have two charts posted on page two of my charts link that show the transfer of strength going from small caps to larger caps.

The larger story lies with crude oil as it hit an intra-week high of $79.86 while closing at $78.71. Crude showed a large intraday reversal on Friday but still closed with a slight gain for the day. It broke out above the $75 resistance this week and was helped by the tensions in the Middle East and growing tensions with Korea. As long as missiles are being fired in the Middle East (outside of Iraq), crude and gold will travel higher while stocks struggle to hold their ground.

Gold reached a low near $550 but has now retraced about 62% and is trading back within the channel lines that date to 2005. Using retracement level logic, we would think that gold would pullback at this time but world tensions may change the formula and change human psychology.

All in all, we had a very negative week and I have no idea what next week will bring but I do know that I can’t lose much money because I don’t have much of it risked at this point in time. With that in mind, I am able to sleep at night without worrying if my account will be slaughtered tomorrow or the next day. I have moved portions of my cash to alternate investments while the market is taking its sweet old time to rally higher and urge you all to speak with your accountants and/or financial planners to do the same. These are not high interest investments but slightly better than the basic money market rates available. I have also been researching housing prices here in NJ because I know that the big builders are having trouble selling their back-log of homes. It’s still early in my opinion but I look to purchase several properties over the next few years to build an additional investment patch and/or income stream (this idea is still in the works).

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238
Saturday, July 01, 2006: 127-198
Saturday, July 08, 2006: 143-95
Saturday, July 15, 2006: 74-273 - This Week

As for new highs vs. new lows – here are the facts:
Monday showed a ratio of 102-147
Tuesday showed a ratio of 99-193
Wednesday showed a ratio of 90-185
Thursday showed a ratio of 43-386
Friday showed a ratio of 34-455

Piranha

A Picture is Worth a Thousand Words

2006-07-14T15:34:00.000-04:00

Need I say more?

‘Crisis Authors’ feed on people’s Fears!

2006-07-14T08:33:00.000-04:00

I want to post about a subject that frequently appears in discussions online in recent years (especially over the past several months). It's about authors and their sheep followers that continue to predict these great depressions and crashes. I am not saying that it can't happen but their readers sure make them rich by reading most of their negative crap. What happened to the predictions from the books in the late 1970’s and early 1980’s? Read the book titles from the 1970’s and 1980’s and then read the book titles from today (listed below). Are you seeing a pattern? I didn’t go back to the 50’s or 60’s but I could find similar titles and then many more in the 1930’s. My point is: don’t believe everything you read and stop panicking by reading books from theorists (talkers, not doers). I must give credit to many of the books listed by Martin Schwartz and his book Pit Bull. I enjoyed reading it over my last vacation as it was very funny and educational (not a “how to” book).

Theorists make money selling books that sell fear while investors and entrepreneurs make money by following their ideas with money and hedging against a possible crisis. I learn from history and history shows us that these “crisis” books will always sell during tough times. Readers eat up this garbage because most people are trapped in the rat race working their asses off just trying to stay afloat. Their attitudes are typically piss-poor and they love to read about huge negative events (especially a crash that may hurt others).

Also notice how the same authors try to write books when the market starts to go back up again. For example, Howard J Ruff was writing about the crisis in 1979 through 1982 but then started to write about how to invest as a serious investor in 1987. Guess what: he was on the wrong end of the crisis in 1982 (the tail end) and the wrong end of the boom in 1987 (crash later that year). These “fools” are always late to the party and sell millions of books to the “average” person that engrosses themselves in fear!

These people, both now and then are not very accurate, they sell garbage in my opinion and I ignore it at all costs! I just hope many of you can do the same and make decisions based on what “YOU” see and not based on book sellers! Invest for now, ignore the garbage but be prepared for worst case scenarios by taking necessary steps but don’t radically change your life based upon the writings of a few authors that probably don’t invest themselves.

Books from the Past:
Crisis Investing: Opportunities and Profits in the Coming Great Depression by Douglas Casey (Hardcover - Jul 1980)

Crisis Investing for the Rest of the 90's by Douglas Casey (Hardcover - Oct 1993) - WOW was this wrong in 1993!

What the smart money is betting on in 1985: By Doug Casey by Douglas R Casey (Unknown Binding - Jan 1, 1985)

The Coming Currency Collapse and What You Can Do About It by Jerome F. Smith (Hardcover - Sep 1980)

Profits from silver by Jerome F Smith (Unknown Binding - 1983)

How you can profit from the coming devaluation by Harry Browne (Unknown Binding - 1970)

You can profit from a monetary crisis by Harry Browne (Unknown Binding - Jan 1, 1975)

How to Prosper During the Coming Bad Years - A Crash Course on Personal and Financial Survival by Howard J. Ruff (Mass Market Paperback - 1979)

How to Prosper in the Coming Bad Years by Howard J. Ruff (Mass Market Paperback - Jul 1981)

Making money: Winning the battle for middle-class financial success by Howard J Ruff (Paperback - 1986)

Howard Ruff's crash course for the serious investor by Howard J Ruff (Unknown Binding - Jan 1, 1987)

How to Prosper During the Coming Bad Years by Howard J. Ruff (Paperback - April 1984)

Books from Today:
The Coming Collapse of the Dollar and How to Profit from It : Make a Fortune by Investing in Gold and Other Hard Assets by James Turk and John Rubino (Hardcover - Dec 28, 2004)

The Coming Economic Collapse : How You Can Thrive When Oil Costs $200 a Barrel by Stephen Leeb and Glen Strathy (Hardcover - Feb 21, 2006)

Defying the Market: Profiting in the Turbulent Post-Technology Market Boom by Stephen Leeb and Donna Leeb (Hardcover - Jun 3, 1999)

Empire of Debt : The Rise of an Epic Financial Crisis (Hardcover) by William Bonner, Addison Wiggin (November 11, 2005)

The Great Bust Ahead: The Greatest Depression in American and UK History is Just Several Short Years Away. This is your Concise Reference Guide to Understanding Why and How Best to Survive It (Paperback) by Daniel A. Arnold (November 25, 2002)

Image courtesy of http://mirrorimageorigin.collegepublisher.com/media/paper144/stills/x5jf138r.jpg

Piranha

Crude Breaking above Resistance

2006-07-13T12:23:00.000-04:00

The NASDAQ is getting slammed below the recent up-trending support line as it trades below the June low (intraday action). If the NASDAQ closes below the June low, the attempted rally would be completely erased. Looking at the NH-NL ratio for the NASDAQ, we can see how new lows are rocketing higher as new highs are plummeting to almost nothing today. New lows use the number scale to the left of the chart while new highs use the number scale to the right of the chart.

Crude oil is also up over 2.5% as it broke above the resistance level of $75 a barrel. The daily chart highlights the break above the trading zone between $70 and $75. I told you to cover all “long” losing positions last night or positions that were turning against you with a slight gain. I will be very interested to see how the afternoon finishes and will update the day’s action on the daily screen tonight with all interactive charts telling the story in real time.

Piranha

Test Buys are starting to Pull-Back

2006-07-11T15:56:00.000-04:00

Even though I have placed several test buys over the past few weeks, I am starting to see some of the breakouts pullback and possibly breakdown. I will not hesitate to cut these positions and move back to cash as this rally may be a false move especially since it confirmed well after the seventh day (original CANSLIM rules).

We’ve logged two consecutive negative days for the NH-NL ratio and are on target for a third today. Looking at the NASDAQ daily chart, we can see that the index has formed a new short term up-trending support line with today qualifying as the third touch. We slipped below the line intraday (briefly) but have managed to pull back above the line (slightly) in late afternoon trading.

Looking at the NASDAQ weekly chart, we see that the longer term trend is holding support above 2,100 for the past seven weeks as a new range is starting to form between 2,100 and 2,200 (below both major moving averages). Relative strength for the NASDAQ has dipped to a new 52-week low as seen on the weekly chart.

The S&P 500 and DOW are trading near recent support levels but are struggling to climb above their respective 50-d moving averages. The S&P 500 is holding the 1,245 support level and is still above the up-trending support line dating back to 2004 but the short term outlook is not anything to write home about.

Finally, looking at crude oil, we can see that a 13-week trading range has developed between $70 and $76 with both numbers acting as support and resistance. I am still looking for a break below $70 in order for the market to gain a sustainable rally but it is not happening. Even if crude breaks the current trading range, I see the longer term moving average (40-week or 200-day) giving support lower as it has over the past several years.

We will need to continue to grind out small gains based on quick movements as the longer term trends are still sideways with volatile swings from month to month.

Piranha

Congratulations Italy!

2006-07-05T10:02:00.000-04:00

Way to Go Italy!

-Especially after that dirty hit by the Frenchman! Way to lead by example captain!

Mid-Year Rally?

2006-06-30T09:09:00.000-04:00

Thursday's move was powerful and it was powerful on several levels. I say this because the new highs list on the daily screen is the strongest I have seen since the end of March. The MSW Index stocks were simply amazing and have a 5% gain for the week (a total of 14 stocks – 8 of them are up more than 6% with two in double digits). Several stocks we have been following together over the past several weeks broke out or moved to new highs, many on above average volume – a sure sign of accumulation. The Fed raised the rate by 25 basis points to 5.25%, the 17th in the past two years but also gave investors an idea that they may slow the aggressive hikes in the future. Remember, the market typically prices-in future news six months in advance so we may be starting to see the positive move we want six months before the Fed stops raising rates. HOWEVER, I will not base that assumption on one day of strong moves with strong volume but everything starts somewhere and today is that kind of day.

The NASDAQ was up 3% on volume 35% larger than yesterday while the DOW was up 2% on volume 26% larger than yesterday (the first major accumulation day in weeks, if not months). We never undercut the previous low set before the attempted rally so technically this can be a follow-through even though I marked it dead on Wednesday. I will now look for an additional follow-up move to confirm this move but the stop sign has been lifted for buying stocks. If you decide to start placing positions, please continue to use caution and strict selling rules so you don’t get whipsawed and lose a large amount of money in a short period of time. Use the proper position sizing techniques based on the size of your portfolios. Today was the largest daily gain for the DOW since April 2005, the largest for the NASDAQ since March 2004 and the largest for the S&P 500 since October 2003.

Another solid sign was the NH-NL ratio which recorded its first positive ratio (186-126) in 19 trading days (31 of the past 33 days have been negative).

So, how do we know if this is a true rally? The next step is to watch the leading stocks and start to place some test buys (about 1/3rd your typical position size) and see what happens. If you make money, the rally is telling you something, if your positions turn against you, it may be another bluff. I don’t know the answer but I will soon enough as I will be placing a few test buys. Depending on the action in the market tomorrow, I could be writing a great weekly analysis and updated MSW Index. Days like today are fun and I have been waiting for something like this to happen for a long time. I go on vacation Saturday but I am definitely bringing my laptop so I am able to watch the market and make moves next week.

As the Stock Trader’s Almanac states: the NASDAQ’s mid-year rally from the end of June through mid-July is strongest. The NASDAQ has been averaging a 3% gain since 1987 from the end of June to the second week of July versus 0.1% for the entire month of July. History also states that the gains over the next four months will be solid if July provides us with huge gains. In any event, continue to follow the price and volume of the indexes, the NH-NL ratio and individual market leaders.

Piranha

New Lows still larger than New Highs

2006-06-26T15:27:00.000-04:00

I dedicated a portion of this past Saturday’s weekly analysis to the NH-NL ratio; so I wanted to highlight the added chart that tracks the NASDAQ new highs and new lows at stockcharts.com. My weekly NH-NL ratio is compiled from IBD and stretched further than just the NASDAQ.

Prior to Today (Monday, June 26, 2006), the NH-NL ratio has closed in negative territory for 28 of the past 30 days, the longest streak over the past several years (since the bear market). The previous long streak from 2005 lasted 13 days during the month of October when we had three consecutive negative weeks. We have now had 15 consecutive negative days ending this past Friday, the weakest in years. Five of the past six weeks have been negative for the longest stretch of weakness since MSW has been publishing screens in early 2004. This is the longest negative NH-NL ratio streak since late 2001 and early 2002. With all of this weakness, I am amazed at how well the markets have held up compared to the bubble burst of 2000 and the strong bear market that lasted for a couple years from 2000-2002. This can only mean two things: the market still has more downside or the market has strength that will eventually show up with the DOW possibly making a new all-time high and the NASDAQ moving to new 52-week highs. Wow, I guess anyone can predict that (I took both sides of the coin).

Whatever is in store for us, we must follow the rules and wait patiently until the NH-NL ratio returns to positive territory, the market highlights new individual leaders and the major indexes recover their long term moving averages. Until all of this happens, I will remain in cash with a few long-term option positions. Even though I added several new names to the MSW Index, it remains strictly a watch list at this time.

Below is an updated look at the weekly averages for the NH-NL Ratio:
Saturday, January 14, 2006: 500-32
Saturday, January 21, 2006: 348-46
Saturday, January 28, 2006: 516-46
Saturday, February 4, 2006: 449-44
Saturday, February 11, 2006: 229-57
Saturday, February 18, 2006: 306-42
Saturday, February 25, 2006: 420-36
Saturday, March 04, 2006: 399-49
Saturday, March 11, 2006: 162-84
Saturday, March 18, 2006: 459-53
Saturday, March 25, 2006: 312-52
Saturday, April 01, 2006: 441-39
Saturday, April 08, 2006: 481-58
Saturday, April 15, 2006: 150-103
Saturday, April 22, 2006: 540-75
Saturday, April 29, 2006: 353-76
Saturday, May 6, 2006: 503-74
Saturday, May 13, 2006: 384-116
Saturday, May 20, 2006: 64-211
Saturday, May 27, 2006: 57-182
Saturday, June 3, 2006: 119-93
Saturday, June 10, 2006: 72-204
Saturday, June 17, 2006: 41-310
Saturday, June 24, 2006: 56-238 – This Past Week

As for new highs vs. new lows – here are the facts from last Week:
Monday showed a ratio of 59-240
Tuesday showed a ratio of 43-278
Wednesday showed a ratio of 64-192
Thursday showed a ratio of 59-227
Friday showed a ratio of 53-253

Another thing that I noticed on a combo chart (I first noticed this by Matthew Frailey) was the possible switch of favor from small caps to large caps in recent weeks. As you can see from the second chart (which tracks large caps versus small caps), large caps are starting to gain some strength by violating the trend line that dates back several years to the bubble burst. This is a secondary indicator that can be helpful but never use it alone or as a decision maker without first reviewing the price and volume of the market and the NH-NL ratio.

Piranha

Expectancy explained through Poker

2006-06-22T10:48:00.000-04:00

I have been taping the 2005 US Poker Championships on ESPN with my DVR because I love to watch Texas hold ‘em. Most of you know by now that I love to play the game too. As the episode ended last night, they put up a stat that caught my attention even though I was starting to doze off. I paused the show, wrote down the statistics and thought to myself that it would serve as an excellent example on expectancy.

As you already know, a positive or negative expectancy can be achieved in multiple ways and the number of losers versus the number of winners does not matter so much when considering them individually. The power of expectancy takes place when you combine the percentage of winners and the size of the winner versus the percentage of losers and the size of the losers.

For more on expectancy please visit this post.
Also check out my expectancy calculator.

Poker expectancy example (this relates directly to trading):
Nine players at the table
34 total hands were played in this round

Player A saw the flop 28 of 34 hands or 82% of the time
Player A won hands 16 out of 28 tries for a 57% winning percentage

Player B saw the flop 11 of 34 hands or 32% of the time
Player B won hands 4 out of 11 tries for a 36% winning percentage

Looking at these numbers and assuming that both players had equal chips (they were close), who do you think made more money during the round?

Most people would guess Player A due to the 57% winning percentage on 16 hands. Player B fails in comparison with only 4 wins, a quarter of the wins of Player A.

Well, Player A actually had a net loss of 5,500 chips
While Player B actually had a net gain of 10,000 chips.

So what is my point?

The point is that being more active or less active is not a way to guarantee success. You must formulate a positive expectancy system that balances the opportunities with minimal risk and maximum gain. Player B took on less opportunity but made the most of it when the opportunity arrived.

Player A was erratic and played several hands that gave him poor odds and this is what I see so many traders do when the market is weak such as now. They trade for the sake of trading and they lose. I told you yesterday that I haven’t made a trade in five weeks and I will not make one until I feel the right opportunities arrive. Until then, I battle my patience and stick to my rules so I don’t trade erratically and play the game for the sake of playing.

Now, to tie this into the current market, I want you all to look at the chart I posted on a couple forums yesterday and the daily screen last night. Several people jumped back into the market on the long side based on a “possible follow-through day” but I don’t see it and I will sit this hand out until I see the downtrend broken and the NH-NL ratio strengthened.

Piranha

Can the NASDAQ – Crude Oil Index predict Bulls & Bears

2006-06-21T14:05:00.000-04:00

As many of you know, I have had a lot of time on my hands as the market has been trading in volatile patterns with a downward bias. The majority of my money has been parked on the sideline since mid-May with the exception of a few open option contracts (longer term plays). I have not made a trade in five weeks since the start of my vacation in late May and I have become very bored. It’s been tough writing nightly market analysis but I am doing my best to locate possible short setups, consistently monitor the mechanical screen and follow the few market leaders (I prefer to call them stocks with the best RS ratings and charts as no true leaders exist right now).

Using this free time, I have been comparing certain market indexes with other benchmarks that I have been following over the past 6-12 months. Two of these include the NASDAQ and crude oil (light contracts). Two charts are loaded to this blog post:

The first chart is a combination index that I created myself using Stockcharts.com advanced tools. It combines the average close of both the NASDAQ and crude oil contracts over the past 10 years with a 200-d moving average. As you can see, the progression of this chart has called every major up-trend and downtrend before it was about to happen. The gray line on the chart represents the actual close of the NASDAQ index over the past 10 years (this line varies from the combo index). The only major divergence between the combo index I created and the actual price of the NASDAQ is during the past 18 months (since crude has gone wild). The combo index continues to trade downward as the NASDAQ trades sideways to slightly upward.
The second chart compares the action among the NASDAQ and crude oil over the past 10 years without any special combination effect. As you can see here, both entities have been trending higher over the past 18 months. This is very different from the combo index in the first chart.

So how would I use this combo index?

It is a long term outlook index that seems qualified and prepared to call the next major up-trend for the NASDAQ. To do this, the combo line must cross back above the 200-d moving average with strength and consistency. It has not stayed above the 200-d m.a. for long periods of time since 2003, the most recent “up-trending bullish market”. Prior to 2003, we have not seen a true bull market up-trend with this combo index above the 200-d m.a. since 1997-1999. From mid 2000 on, the combo index has spent much of its time below the 200-d m.a. and we all know how the market has behaved since March 2000.

So, to answer a question I received about a recent comment on a blog post: yes, I do believe that crude oil must cool off before we can sustain a major bull rally and this combo index may prove my theory correct if it continues to trade accordingly. But then again, it is only a theory and I am not into predictions.

Enjoy the combo index.

Reviewing the Market Charts

2006-06-16T09:03:00.000-04:00

The DOW was back above 11,000 with a 1.8% gain on volume that was close to yesterday’s average while the NASDAQ was up 2.8% on volume 6% larger than yesterday. Advancers led decliners by a 4-to-1 ratio on the NASDAQ as many familiar stocks joined the party.

This was the best gain for the NASDAQ since March 25, 2004, well before the official start of MSW, although I was running these screens on several internet forums. It was also the first back-to-back triple digit gain for the DOW in 18 months as all 30 DOW stocks ended higher (not that we follow these blue chips).

The S&P 500 gained 26.12 points for its best one day gain since Mach 17, 2003 when it gained just under 30 points. The gains were solid but the volume was lacking for an all-out accumulation day as the NH-NL ratio finally subsided a bit with a final tally of 57-124 (still negative but looks much better than the past week).

If you are wondering about a rally, today was the second day of a newly attempted rally with a follow-through targeted for Monday thru Friday of next week. The rally count reset after we hit a new low, lower than the previous rally attempt. I told you that July was the only bullish month of the summer so I wouldn’t be surprised to see a move heading into next month. Don’t jump in early but start to review the stocks on the daily screens and look for candidates that consistently show up every night. I am doing the same and looking to start with a fresh batch of stocks for the MSW Index.

This next chart is one that is used by Trader Mike, a trader I have spoken about in the past, who I respect. It is the % of stocks above their 50-day moving average (it gauges the strength among the individual stocks on the index). I have never used this indicator but it seems very interesting so I will post it here for the first time. From what I understand, 20 and 80 are the extreme levels that can and sometimes do give buy and sell signals. For now, I will start to view it as a secondary indicator with relation to the NH-NL ratio I use. I would like to observe it for myself for a period of time before influencing decisions based on the action of the chart.

Finally, crude oil is still above the support area of $70 and until this breaks, I don’t see any major bull markets in the near future. Just an opinion of mine (I do understand that opinions are worthless in the market)!

Piranha

Update: SWN short play

2006-06-13T08:30:00.000-04:00

I spoke about a possible short position in SWN back in March on MSW and highlighted the chart analysis on this blog: SWN a Short?

I said: “The short position or put options can be placed (or bought) right now but I must warn that oil is still trading above its respective 200-d m.a. Unless oil cracks $60 and breaks below its own moving average, this play may not work out. If you initiate the position, make sure you use the correct position sizing techniques and protect yourself from a move to the up-side.”

Two things happened: oil didn’t violate $60 and is still above $70 a barrel and SWN was immediately in the red on my put options. Looking at my trade journal, this is what I wrote for the position:

“3/15/06: SWN Sep, 2006 35 put, shares price: $31.18, option price: $6.20, looking for moving average breakdown or drop to $20”

Monday’s price closed at $25.88 (with the options trading at $9.60 per contract), its lowest level in a year (the stock did exactly what I anticipated over the six month stretch even though it looked like a bust during the first few weeks). If this was pure stock short, I would have covered when it went against me but I never sold the options due to the longer term outlook I took (6-month window). As many of you know, I typically purchase options for stocks in the $60-$100 run with a 9-12 month time frame (many of these options double or triple within the first few months and I close the position long before the 12 month expiration). Tenaris was a great example as I closed the options above $37 (from $12) and then went on to watch them soar to $97 per contract.

This position is one bright spot for me in the midst of everything happening in the weak market environment. These contracts are now showing a 50% profit so I will start to contemplate scaling out of the contracts and locking in gains today.

Piranha

The “System” is not the Holy Grail of Trading

2006-06-10T11:52:00.000-04:00

After reading a forum post earlier in the day, I was prompted to write this short entry. I always here amateur investors talk about that the “best way’ or “only way” to invest and argue why their way is better than everyone else’s. The passion and energy exuded by these beginning investors is wonderful but they are missing the point completely. No one can say that options are better than stocks, commodities are better than options and forex is better than everything, etc... Each investor develops a system that is suited to their own personal character traits and they use a vehicle (stocks, options, forex, commodities, real estate, etc…) that can help them reach their goals.

To say that one system or vechicle is the “way to go” is ignorant.

Pick up any Market Wizard book and read how these men and women made hundreds of millions in the markets using different systems. The only thing they all had in common was money management and risk management. That’s ALL! Every single one of them traded in different ways and used different vehicles but they all watched their risk and calculated proper position sizing techniques. Money management and risk management is the holy grail of investing, NOT THE SYSTEM!

Novice investors will eventually understand this after many years of trading (some quicker than others).

So, if someone ever tells you that their “system” is better, turn away and run and run fast because they don’t know what the hell they are talking about.

Here are some examples supporting my opinion from the Market Wizard books:

Michael Marcus turned $30,000 into $80 million trading futures
Michael Steinhardt ran a fund that averaged 30% annual return over 21 years trading stocks
Tom Baldwin started with $25,000 and eventually traded $2 billion a day in T-bond futures on the floor or in the pit.
Paul Tudor Jones ran funds that averaged triple digit returns for five consecutive years trading multiple markets
Ed Seykota realized an astounding 250,000% return over 16 years (yes that says 250,000%) managing accounts trading in the futures markets – possibly the best trader of our time
Bill Lipschutz traded currencies with a staring account of $12,000 (started out as an architect – very motivating for me since I started the same way).

The list can go on forever but my point remains the same – they all traded different markets from different locations (the floor, an office or their home in the mountains) but they all had one major factor in common: money management and risk management.

Just about every single market wizard refers to position sizing as one of the “holy grails” of trading. Van Tharp (also featured in Market Wizards) coined the phase in his book but he only realized that money management was the holy grail after studying and speaking with hundreds, if not thousands of very successful traders.

Piranha

Market Reversal?

2006-06-08T21:27:00.000-04:00

With rate hikes across the globe, the markets opened lower but stopped the bleeding around noon and started to construct an afternoon rally. The NASDAQ was down as much as 2.4% and losers were outpacing advances by a 5-to-1 margin but the reversal officially gave the market a day “1” count for an attempted rally. This time I will buy into the possible start of a rally but I will not “jump the gun” until I get a solid follow-through in one or more of the major indexes in the next four to ten days (preferably four to seven days). As IBD states (rules of William O’Neil’s CANSLIM), no major bull market has ever started without a follow-through from the initial day one attempt. I am not saying that this rally will work but I will take this move a bit more seriously than last week because I see many oversold indicators working together. Things can turn on a dime in the market and even though the NH-NL ratio and several individual market leaders got trounced, we can reverse for an attempted up-trend in less than a week. The DOW was up slightly on volume 38% larger than yesterday as the afternoon showed a nice surge in activity.

Even though the major indexes made solid reversals with spikes in volume, the NH-NL ratio weakened to its worst level of 2006 (49-371). Typical in 2006, we continue to see contradictory and conflicting data between the major market indexes and the “so-called” individual market leaders.

As you can see, day one of an attempted rally has passed and this is why it is very important to keep watch lists during poor market environments because we may have a buy signal within the next four to ten days.

Take a look at the first chart, it shows the daily reversal on the candlestick chart for the NASDAQ.

The second chart shows the NASDAQ in an intraday view with a nice mid-day reversal and afternoon up-trend with increasing volume.

The third chart shows the DOW from an intraday perspective as it mimicked the action among the NASDAQ.

Finally, I show a multitude of index charts that keep everything in perspective and show you that the market is still in a downtrend even though we may have witnessed a reversal.

Piranha

General Market Analysis: 6/6/06

2006-06-07T09:00:00.000-04:00

A copy of the general market analysis I posted on MSW last night:

Every stock listed on the MSW Index was down today as the group fell 3.8% collectively with several doing so on above average volume. Sterling Construction (STRL) dropped the most with a 14.84% decline on volume 163% larger than the 50-d m.a. The two stocks that advanced yesterday, DXPE & LQDT, caught up to the rest of the field by dropping 5.53% and 8.17% respectively. The market is getting its ass kicked! Not the type of language I typically use but I need to make sure that I have everyone’s attention. I started to pull the community to the sidelines in early May and accelerated my campaign to cash throughout the month. If you are still being hurt on the long side by the recent declines, I suggest that you find something else to do with your money before it’s all gone. Every single indicator that the market has to offer has been telling to you to raise cash and move to sidelines until skies clear. If you are experienced enough to short stocks and play to the downside, excellent, but still use caution because this market cannot be trusted in either direction. It’s tough to just sit here and do nothing since I have been back from vacation but I am not crazy, I don’t like to lose money for no good reason other than boredom.

Looking at the broad market, we see the DOW fell to its lowest levels in months with a 16.1% increase in volume for another pure distribution day. The NASDAQ fell in higher volume to confirm a double bottom breakdown but it did attempt a rally towards the late afternoon (a strong final hour of trading). The NASDAQ remains below its 200-d m.a. as the DOW is above the long term moving average (recently fell below its 50-d m.a.) with a spread triple bottom breakdown confirmed on the point and figure chart today. The NH-NL ratio dropped to 50-253 today, confirming the weakness once again. With statistics like this, it is a waste of my time to upload screens that attempt to target stocks to buy. It is important to continue to watch the stocks with the best relative strength ratings but I will focus on possible shorts once again tonight.

Sectors with the most stocks making new lows included: medicals, building related stocks and retail stocks. Computer stocks have been getting slammed as well as several of these industry groups have fallen from mid-teen ratings to the bottom of the 197 member list in IBD (in less than three months). Speaking of IBD, they finally admitted that the market was in a downtrend rather than looking for this so-called rally or follow-through. I told you last Saturday that I was extremely skeptical of the follow-through they were looking for. Long term members of MSW understand that the NH-NL ratio will confirm a new up-trend so never jump the gun and buy before the rally is confirmed or when some other publication only suggests it could happen. I love IBD and I don’t understand why they gravitate so quickly to potential ups and downs; they never did this type of stuff five years ago.

Be safe in the market!

“Good judgment is usually the result of experience and experience frequently is the result of bad judgment” – Robert Lovell (quoted by Robert Sobel, Panic on Wall Street)

Based on my experience and judgment, I will stick to cash for now and wait patiently for the next move.

“Big money is made in the stock market by being on the right side of major moves. I don’t believe in swimming against the tide” – Martin Zweig

Piranha

Reversing Peter Lynch’s Thinking

2006-06-05T12:16:00.000-04:00

I have wanted to write about this topic for many months but finally hit my boiling point after my experiences this weekend at the Home Depot. Peter Lynch likes to buy what he knows and what he uses (whether it is a specific hotel or new product). He once bought thousands of shares in a new hotel chain based on the great service, cleanliness and positive atmosphere he experienced while on business trips. The trade was very successful and his method was duplicated time and time again. I don’t trade like this but I wish I could reverse his thinking and short the hell of Home Depot (HD). I can’t tell you how many times I have walked into that place in a good mood but left angry based on the lack of help, professionalism and knowledge that these employees exude.

These big box stores have taken over the nation and we have lost the smaller, independent local stores that actually housed knowledgeable individuals that could help you with almost anything pertaining to their products or your own project. I specifically target Home Depot because it is 5 minutes from my house and I go there on a weekly or bi-weekly basis (forced to go since I don’t feel like driving 30 minutes to the closest local hardware store). Remember, I live in NJ, home to every chain store in America. It is bad enough that many of their employees don’t know much about the actual “how-to” to most projects but I can’t understand why they don’t even know where most of their products are located throughout the store. I don’t want to stereotype every Home Depot employee but the knowledgeable employees are few and far between.

A place like Home Depot stays in business due to the advantages they have when pricing items but I am willing to pay more to go to a place that can help answer some questions. My only problem with going to the small time hardware store is my time – I value my time and I don’t want to waste it driving in traffic for a round trip of one hour. The more I think about it, the more I figure it may be worth my time to only go to the small store when I have questions and only step into Home Depot when I know what I want and don’t have any questions. I may still have a problem because the employees might not know where the products are located so I will have to go on the usual scavenger hunt to find what I need.

Best Buy has the same problems when it comes to electronics but they have responded to some degree by integrating the Geek Squad to help with computers. I bought my most recent flat screen television at PC Richards based on the extensive knowledge of the salesman. Everything he said was right on cue and he helped us in many ways and allowed us to make an educated decision on which television would suit our needs best. For example: before meeting this guy, I didn’t know the difference between HDMI and component cables and how they affect the image and sound of the unit. Do you know how pissed-off I would be if I bought a system without HDMI technology. I don’t like “pushy” salespeople but I sometimes prefer them because they study the products they sell since it is directly related to their bottom line. Without commissions, they don’t get paid so their knowledge and customer satisfaction goes a long way. Many Home Depot employees could care less and I make this statement based on the fact that I have witnesses several of them using cell phones during work which I know is against their policies.

Now that I am done ranting, I tie this all together with the fact that Home Depot just signaled a descending triple bottom breakdown on the point and figure chart (a short term signal for a short position). If this was the old days and I was a major player, I would aim to take this stock down by gathering together a shorting pool. If investing was this simple, a kid would know what stocks to buy and what stocks to short (based on my life experiences at Home Depot, they should be out of business by now).

Piranha

Blogging to the World Series of Poker

2006-05-31T22:35:00.000-04:00

As many of you know, I love the market, I love writing and I love poker. In addition to writing on this blog, I write market analysis and provide equity research five times a week on MSW. To my delight, I went to play a sit-and-go no limit hold’em game tonight and saw an advertisement link to a free tournament sponsored by PokerStars for all types of bloggers. I use PokerStars.com exclusively and can recommend them to anyone interesting in playing online.

Here are some details from the PokerStars website:

“PokerStars is proud to announce the 2nd Annual World Blogger Championship of Online Poker (WBCOOP). This is an exclusive FREE poker tournament open ONLY to Internet bloggers.”

“To prove our continued commitment to the bloggers of the world, we're giving away a $12,000 package to the 2006 World Series of Poker. This package includes a $10,000 buy-in to the main event, hotel accommodations, and additional spending money. Imagine blogging your WSOP experience live from Las Vegas! You'll have endless blogging material, a shot at being on TV, and a chance to win millions of dollars.”

“…you do not need to deposit money in your PokerStars account or provide any financial information in order to play in the World Blogger Championship of Online Poker event. Yes, it's absolutely free!”

Each blogger in the poker tournament will start with 2,000 chips.
Blinds will start at 10/20 and will go up every 15 minutes.
Prizes will be awarded based on placement in the tournament.

Good Luck to all that enter!

I will be there using my wife’s screen name for good luck!

Piranha

I have registered to play in the PokerStars World Blogger Championship of Online Poker!

This Online Poker Tournament is a No Limit Texas Holdem event exclusive to Bloggers.

Registration code: 9433662

Hedge Funds - Richest of the Rich

2006-05-30T09:08:00.000-04:00

It’s good to be back from vacation and refreshed after following the weak market over the month of May. As I was away, The New York Times was delivered to my door each morning (complimentary) and I found an interesting article. I have always been amazed by the enormous incomes that hedge fund managers produce year in and year out. I have even posted up the top 10 salaries from past years (example: Top Incomes in 2003 for Hedge Fund Managers ). If you briefly view the top 10 from 2003, you can see that George Soros was #1 with a take home pay of $750 million. Well, only two years later the top earner has doubled the total from 2003 to a whopping $1.5 billion (eclipsing last year’s top earner by $500 million). Edward Lampert was the first manager to surpass the billion dollar mark in 2004 but two men accomplished the feat last year. One of my favorite traders, Steven A. Cohen remained in the top 10 with a salary of $550 million. Mr. Cohen, along with several others on the list below has been featured in the book series titled: Market Wizards (all highly recommended). Below is the entire article from The New York Times written by Jenny Anderson (originally printed on May 26, 2006):

Enjoy, the numbers are staggering!

Atop Hedge Funds, Richest of the Rich Get Even More So
By JENNY ANDERSON
Published: May 26, 2006
*image from The New York Times website*

Talk about minting money. In 2001 and 2002, hedge fund managers had to make $30 million to gain entry to a survey of the best paid in hedge funds that is closely followed by people in the business. In 2004, the threshold had soared to $100 million.

Last year, managers had to take home — yes, take home — $130 million to make it into the ranks of the top 25. And there was a tie for 25th place, so there were actually 26 hedge fund managers who made $130 million or more.

Just when it seems as if things cannot get any better for the titans of investing, they get better — a lot better.

James Simons, a math whiz who founded Renaissance Technologies, made $1.5 billion in 2005, according to the survey by Alpha, a magazine published by Institutional Investor. That trumps the more than $1 billion that Edward S. Lampert, known for last year's acquisition of Sears, Roebuck, took home in 2004. (Don't fret for Mr. Lampert; he earned $425 million in 2005.) Mr. Simons's $5.3 billion flagship Medallion fund returned 29.5 percent, net of fees.

No. 2 on Alpha's list is T. Boone Pickens Jr., 78, the oilman who gained attention in the 1980's going after Gulf Oil, among other companies. He earned $1.4 billion in 2005, largely from startling returns on his two energy-focused hedge funds: 650 percent on the BP Capital Commodity Fund and 89 percent on the BP Capital Energy Equity Fund.

A representative for Mr. Simons declined to comment. Calls to Mr. Pickens's company were not returned.

The magic behind the money is the compensation structure of a hedge fund. Hedge funds, lightly regulated private investment pools for institutions and wealthy individuals, typically charge investors 2 percent of the money under management and a performance fee that generally starts at 20 percent of gains.

The stars often make a lot more than this "2 and 20" compensation setup. According to Alpha's list, Mr. Simons charges a 5 percent management fee and takes 44 percent of gains; Steven A. Cohen, of SAC Capital Advisors, charges a management fee of 1 to 3 percent and 44 percent of gains; and Paul Tudor Jones II, whose Tudor Investment Corporation has never had a down year since its founding in 1980, charges 4 percent of assets under management and a 23 percent fee.

They may charge such amounts because they can. "In the end, what people want is the risk-adjusted performance," said Gordon C. Haave, director of the investing and consulting group at Asset Services Company, a $4 billion institutional advisory business. "As long as the performance is up there, in the end the investors do not care about the high fees."

If there is a downside to being so rich, it is that the money is flooding in at a time when hedge fund performance, even for some of the greats, has been less than stellar over all. Six managers made the top 25 even while posting returns in the single digits.

"You would think someone would be a little embarrassed taking all that money for humdrum returns," said John C. Bogle, founder of the Vanguard Group. "I guess people don't get embarrassed when it comes to money."

Many of the funds have gotten so big that the management fees alone are the source of much wealth, perhaps leaving some managers without the fire to try to outdo the broad market. Institutions like pension funds and endowments, whose money is fueling a significant part of the hedge fund boom, continue to flock to these managers for their track records and name recognition.

Bruce Kovner's Caxton Global Offshore fund returned 8 percent last year while his Gamut Investments, an offshore fund he runs for GAM Fund Management, returned 6.4 percent. The survey said 2005 was the third year that he had posted single-digit returns. Still, Mr. Kovner took home $400 million, according to the list. He did not return calls to his office.

The average take-home pay for the 26 managers in 2005 was $363 million, a 45 percent increase over the top 25 the previous year. Median earnings surged by a third, to $205 million last year, from $153 million in 2004.

Included on the list were both familiar names and new stars. Mr. Cohen of SAC Capital, who while shunning publicity has become known as an avid art collector, landed in fourth place in 2005, taking home $550 million. For the year, his various funds were up 18 percent on average. A spokesman for Mr. Cohen declined to comment.

New to the list are two managers from Atticus Capital, a fund that was among the investor activists that opposed Deutsche Börse's attempted takeover of the London Stock Exchange for $2.5 billion. That campaign led to the ouster last year of the Deutsche Börse chief executive. Atticus is also a major participant in the battle for Euronext, the pan-European stock and derivatives exchange, which is being courted by the New York Stock Exchange and by Deutsche Börse.

Making his debut at 14th place, Timothy Barakett made $200 million in 2005. His Atticus Global Fund was up 22 percent net of fees, while the European Fund, managed by 33-year old David Slager (No. 20 on the list with $150 million), soared 62 percent. Atticus officials did not respond to requests for comment.

A fellow investor activist, Daniel Loeb of Third Point, made $150 million in 2005. According to Alpha, only 10 percent of the firm's $3.8 billion is dedicated to activism, an unexpectedly small slice considering his reputation as management's worst nightmare.

A value- and event-driven manager, Mr. Loeb posted returns of 18 percent, largely from bets in energy, including a 140 percent gain on McDermott International. Mr. Loeb's spokesman declined to comment.

Another debut on the list was by William F. Browder, founder and chief of Hermitage Capital Management and the largest foreign investor in the Russian stock market. He tied for 25th place by taking home $130 million.

Mr. Browder, 42, grandson of Earl Browder, onetime leader of the Communist Party of the United States, has been barred from returning to post-Communist Russia since November, when immigration officials revoked his visa. The fund had $4.3 billion under management and in 2005, his flagship Hermitage Fund was up 81.5 percent.

A shareholder activist, he has challenged management at Russian state giants including Gazprom and Lukoil. Mr. Browder could not be reached for comment.

The Fear of Losing Money

2006-05-24T15:59:00.000-04:00

I thought is would be interesting to sit down and write about people’s fear of money. Many investors fail in our world due to their fear of losing money. I don’t want to confuse the concept of protecting one’s money through proper money management and the “actual” fear of going broke. These fearful investors base their entire system and style of investing on a negative thought process. Successful investors, whether it be in stocks, real estate, businesses, etc. always think about strategies to protect from the down-side but they focus on the reward versus the original risk. Unsuccessful investors think about losing the initial investment and more often than not, pass up on a potential golden opportunity.

How many times have you heard a person say: ‘if I only put my money into that stock or that piece of real estate”? These same people are also the ones that continue to pass up on potential opportunities today because they are scared to lose. Nothing comes easy and life rarely serves up a free pass without some form of risk attached. When speaking in terms of stocks, an investor must place money after their best ideas or they will never know if they have a winning system. Many people paper trade and claim they can pick winners but I view them as fearful of losing money. The fear of money and the fear of losing are two of the main reasons why so many people go broke on Wall Street. If you don’t fear money and can accept losing as part of the game, you will eventually become successful.

A perfect example of a type of person that fears to lose money is a scared poker player. Sit at any $1-$2 no-limit hold’em game at a casino and you will quickly realize who fears money and who plays without fear. Good players may continually lose because they fear the dollar and fail to play according to their strategy. I have seen several bad players win lots of money at the tables because they bully the scared players out of their hands. The players without fear may be garbage players but they dominate and get lucky because they have a huge advantage against a fearful player that probably has the odds on their side. For example: if you are dealt a KK and raise for the first time but one of these fearless players re-raises all-in to scare you out of the pot, would you fold. I have heard many stories of players folding high quality hands due to their fear of getting a bad beat. In this case, the bully can only represent one hand that can beat yours, so the odds are heavily in your favor so you must call and call quickly (don’t have fear when the odds say you should win). Two remedies exist for the fear of a bad loss: a bankroll that can withstand a few bad beats and a strategy that capitalizes on hands with high odds for potential winners. Over the long term, you will be a consistent winner but must understand that beats will happen and some of them will be large (if it is a bad beat). Assuming that you let go or cut poor hands short, these larger losses can be avoided consistently. In poker and in life: scared money is dead money!

The same holds true in investing and in life. The people that assume the risk and calculate the odds of success are typically the ones that come out ahead with larger bank accounts. They don’t focus on the losing aspect of a deal and never blurt out the words “what-if”. To repeat, they don’t ignore possible failures as they prepare for the worst and expect the best. I will not deny that I have been in situations where I was scared to lose but that helped me seek out the answers to consistent winning. Losing will always sting a little bit in my case as it is part of my nature (a long background in sports) but I now accept losing as part of the game. I am NY Mets fan and grew up in a city that loves the Yankees and I always wanted the Mets to win (every game). Now that I am older, I understand that winning a series is more important that looking to win every game or sweep every series. If a team aims to win each series, they will most likely end up in first place when the season closes. A team that is about to play a 10 game road trip should aim to win six games and lose no more than 5. No one should sit there and expect them to win all 10 games. I expect each player to have the mindset to win the game on each specific day they wake-up but they can’t expect to win every game of the season.

I do the same with each trade I put on – I expect to win each trade but ultimately understand that some will fail and it’s ok as long as I don’t let it become catastrophic. I have learned to accept losing trades, losing money and I have challenged the fear of money. I place risk under control by developing and using a positive expectancy system and money management techniques that eliminate my fear of losing money. I may lose many small battles but I depend on my system to win the ultimate war.

Here is a quote from the movie Rounders:
“In "Confessions of a Winning Poker Player," Jack King said, "Few players recall big pots they have won, strange as it seems, but every player can remember with remarkable accuracy the outstanding tough beats of his career." It seems true to me, cause walking in here, I can hardly remember how I built my bankroll, but I can't stop thinking about the way I lost it.”

That quote can be tied to investing with great accuracy.

One more quote that fits with the article I have written about the fear of losing money:
“They're trying to goad me, trying to own me. But this isn't a gunfight. It's not about pride or ego. It's only about money. I can leave now, even with Grama and KGB... and halfway to paying Petrovsky back. That's the safe play. I told Worm you can't lose what you don't put in the middle. But you can't win much either.”

*picture provided from actionforex.com*

Piranha

Dooms-day? Is this really 1987 all over Again?

2006-05-22T14:17:00.000-04:00

With the markets heading lower once again, I am sitting here with a big grin on my face as I start to pack for vacation. Why am I grinning? I have been scaling out of the markets over the past several weeks and have been advising all MSW members to do the same. My indicators have been turning very weak and the NH-NL ratio has been predicting this type of collapse all year long. As the markets neared multi-year highs and all-time highs, the NH-NL ratio stayed weak; a clear sign that we were watching a false move. I don’t expect to see a magazine cover similar to the Time image I uploaded any time soon but I may be wrong(from November 1987).

I highlighted some key quotes of mine on this blog from the MSW screens in May which show you how serious I thought this decline could become. It is a coincidence that I am leaving for vacation and the markets are so weak but it works perfectly for capital preservation. I am not worried about a thing because I have moved to sidelines and will enjoy time in the sun with my family as some people continue to average down and pull their hair out (trying to predict bottoms).

Now I will post up a “dooms-day” article that was featured on The Drudge Reportand has now been uploaded to many blogs and financial sites around the web. It is an interesting article from the London Times. A simple look anywhere online or in print will show you how investors are panicking. Gloomy articles are being written by the minute. Enjoy!

The Sunday Times May 21, 2006

Markets ‘are like 1987 crash’
David Smith, Economics Editor

CONDITIONS in the financial markets are eerily similar to those that precipitated the “Black Monday” stock market crash of October 1987, according to leading City analysts.
A report by Barclays Capital says the run-up to the 1987 crash was characterized by a widening US current-account deficit, weak dollar, fears of rising inflation, a fading boom in American house prices, and the appointment of a new chairman of the Federal Reserve Board.

All have been happening in recent months, with market nerves on edge last week over fears of higher inflation and a tumbling dollar, and the perception of mixed messages on interest rates from Ben Bernanke, the new Fed chairman.

“We are very uncomfortable about predicting financial crises, but we cannot help but see a certain similarity between the current economic and market conditions and the environment that led to the stock-market crash of October 1987,” said David Woo, head of global foreign-exchange strategy at Barclays Capital.

Apart from the similarities in economic conditions, during the run-up to the 1987 crash there was a sharp rise in share prices worldwide and weakness in bond markets, Woo pointed out. “Market patterns leading to the crash of 1987 resemble the markets today,” he said.

Equity markets settled on Friday after sharp mid-week falls, with all the main American stock-market measures recording small gains on the day. But nerves remain.

Gerard Lyons, head of research at Standard Chartered, said: “The volatility is explained by tighter liquidity conditions, markets pricing in more for risk and dollar vulnerability. But people forget that this is not a case of emerging-market economies being in trouble as in 1997-8. They’re in good shape.”

The vulnerability of stock markets is likely to add to the case for a prolonged pause before the Bank of England hikes interest rates, analysts believe.

While one member of its monetary policy committee (MPC) voted for a rate hike earlier this month, some recent data, notably subdued labour market conditions, suggest few signs of inflationary pressure.
Base rate is unlikely to rise until next year, according to a survey of analysts by Ideaglobal.com, a financial-research consultancy. It finds a median expectation that the rate, currently 4.5%, will rise in February next year.

Piranha

Commission Fees water down Expectancy

2006-05-19T18:13:00.000-04:00

I have talked about position sizing and I have talked about expectancy.
If you understand the proper positing sizing algorithms and positive expectancy, you would think that you are on the road to riches or at least to a system that returns a profit. Not so fast! What happens when commissions start to eat away at the profits you thought you would have at the end of the year? Many investors have a winning system with a positive expectancy but that might not be profitable in the end when adding in the heavy toll of commissions.

As I have stated in previous posts, expectancy will tell you if your system will be profitable over time but you must use a position sizing calculation in order to trade the proper amount or you could be broke before you know it. Trading too large will send you to the poor house on your first or second major mistake. You don’t want to dig yourself into a hole you can’t climb out of with a positive expectancy system. It would be a sin to have developed a positive expectancy system, only to be ruined by commissions.

I am not a day trader although I continue to see advantages each and every day as I learn more about many of the advanced techniques of professional investing. Under my current system of investing (call it trend trading, momentum trading or swing trading), I pay a commission of $9.95 on each end of the trade (I rarely use limits but they cost a few dollars more on each end). That is cheap in my estimation but the more I increase my activity, the higher my costs become and the lower my expectancy becomes when adding in this major factor. Besides, I don’t have the advantage of using 4-to-1 margin the same way a day trader can leverage their account and position sizing algorithm. Day traders typically pay commissions per share rather than paying on each end of a “total trade”. From what I understand, this breaks down to a much cheaper structure as long as minimum trading levels are reached. If these levels are not reached, penalties may be applied but check with your own broker before you take my word for it.

I typically place the entire trade when I get a signal and use retracement stops to get out of a position to capture gains so I am only required to pay commissions once on each end. In tough markets, I will place tester buys but I also understand that my commission fees will accumulate due to the fact that I scale into the position and sometimes scale out. If I only place 1/3 of my anticipated position on the breakout in a weak market, my $20 round trip commission could accumulated to $40, $60 or $80+ based on the number of scale-ins or scale-outs I use. Using my current style of momentum trading, I can handle these larger commissions because I am aiming to capture larger gains per trade than most day traders. I am looking for the 25% initial breakout gain that accompanies many CANSLIM type stocks. Looking forward, I am developing systems that trade more frequently so I can realize my calculated expectancy over a specific number of trades. Since my number of trades will increase and my individual profits per trade will decrease, I want to minimize my commission fees.

It is very important to factor in commissions when calculating your overall expectancy. If your expectancy is positive but only slightly, be wary that higher commissions may push this number into negative territory. Weigh all factors before implementing a system that looks good on paper but actually comes out negative and gives you no chance of winning over the long term. A negative expectancy system (including commissions) will make you go broke if you continue to trade it. Think of that casino analogy; gamblers will go broke playing the tables in Vegas because the odds are against them. They may make a few big scores but in the end, the casinos take it all! Trade a negative expectancy system and the markets will take it all!

I love the movie Casino and there is a scene in this movie when Robert Di Niro develops a plan to keep a high stakes gambler at the casino so he can continue playing (to give back the money he won by luck – he made a big score). Di Niro (the casino manager in this movie) knows that the shark will lose if he continues to play because math never lies and the game of baccarat has a negative expectancy geared towards the players. Again, this is why I play poker at the casinos (they get a rake but that is just a commission fee in my mind as the positive expectancy is based on me playing the odds)!

Piranha