Daily Archives: June 13, 2010

A Simple Long-Term Trading Plan (by Biffermas)

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What’s the appropriate answer to this question?


“Hey, you’re really into investing, aren’t you?  My broker stinks and I’m thinking about taking control of my retirement account.  Can you teach me this?”


In the last several months three separate non-trading friends have approached me with the same question.  I really didn’t have a good answer for them beyond, “Uhhhh”  (and secretly, “Grooooaaaaan”).  I hate giving investment advice for obvious reasons:  the process is fraught with peril and the motivations / expectations of those who ask is unclear.


I’ve given the matter much thought, and I’ve transformed my own long-term trading plan into a simple system that many people can use.  It has the following advantages:


1.       It gives clear, objective signals.

2.       It outperforms the broad markets.

3.       It keeps you on the right side of momentum for the majority of moves.

4.       It provides the signals for taking partial-profits, hedging, and putting additional capital to work.


This system has three levels.  Permanent links for these charts are here, here, and here.


Big Picture View:  13/34 EMA Weekly Crossover.  The parameters are simple: Go long when the 13 is more enthusiastic than the 34, and reverse to short when a bearish cross occurs.  This very seldom generates signals, and they tend to remain patent for years.   According to the plan, this chart alone dictates major portfolio positions and should not be gamed / faded.



Long term final
 

 

Intermediate View:  The Ratio Adjusted NYSE Summation Index.  This one I learned from somebody on the Slope forum (I don’t remember who!).  This provides excellent signals and serves as the framework for hedging, profit taking, and putting additional capital to work.   Although a wonderful “tell” of short to intermediate-term directional change the timing can be fuzzy by 1-2 weeks and requires a third signal before acting.



Intermed final
 

 

Short term view:  Daily 3/10 EMA crossover.  This is merely used to confirm the intermediate view and serves as the trigger for entry.   Both higher time frames *must* be in agreement first.




Short term final
 

One additional level you can add is a 3/10 EMA crossover on a 60-minute chart, located here With all four in agreement, it's a very good way of stacking the odds in your favor.


All four have triggered long signals as of Friday's close, and barring a hideous gap Monday morning, I'm putting money to work!  Remember to use stops!  I'm placing mine underneath Friday's low.

Weekly Sector Report | 06/11/10 (by Leisa)

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Somehow this sepia photo (mine) of the water bottle seemed to be relevant to current matters.  My hope that it is not the permanent symbolism for the Gulf of Mexico.
Last week was a significant rebound in the 24 major sectors with basic resources leading the charge higher.  The major indices are at a critical juncture technically.  It's important to remember that individual stocks make sectors and sectors comprise indices.  Accordingly, looking at individual sectors can yield clues about the indices.  Underlying sector rotation  can cause chop…and if the news stream starts a fire and flames the fears of investors, then the indices will put the those flames out by stopping, dropping, and rolling…OVER.

Let's take a look at the 24 Major Sectors:

You will remember that last week, that graph was upside down.  I have created a chart book for you that you can find here.  It contains the weekly + daily charts for the 24 Sectors above.  Also, it contains all 147 DJUS sectors sorted by relative performance to the total stock market index.

For the week, the 10 Best/Worst performing industries were as follows:

 Source:  WSJ Industry Page

Next week will be a critical week as the market digests geo-political and economic information.  Keep your trading wits about you and focus on your disciplines, not the opinions of others.

Balance Thrice Sought

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I've never tried meditation, but the closest I probably come is weekends like this one, when my mind is deeply focused on how to position myself for the market.

During much of May, the market was behaving in the kind of way where the effort required for me to profit was pretty small. It was my kind of market, in which my only real task was to seek out yet more opportunities and gently adjust the stops on existing ones (almost all – and sometimes entirely – short positions). There was, as you may recall, a ten-day winning streak of fat profits I got to enjoy. My kind of life!

Last week – particularly Thursday – put an end to all of that. The evidence that the bear party is yet again put on hold has piled up. Some of the evidence is technical. Some of the evidence is anecdotal (such as the level of Kooky Kommentary I've been noticing on my own blog, some of which is perhaps comprehensible only to its own writer). And prognostications about highly conjectural earth-shifting events on other unnamed blogs probably should serve as a bit of a tip-off.

There is no way on this earth I intend to undergo the kind of stomach-churning draw-down I went through from February 5 to the end of April while awaiting for good sense to return to the market. Good sense doesn't matter; cycles do. June 10 stunk, and on June 11 I began making adjustments by adding bullish positions to my portfolio.

I don't intend to go "all bull", but I do intend to push for a market-neutral (at least by my own measurements) portfolio to ride out what I think could be a five-hundred-plus push higher on the Dow's part. I've already picked out thirty charts I find attractive for purchase on Monday. They fall into three categories:

The New High

There aren't many of these in my list, but these are the "obvious" buys – – stocks which, in the face of a weak market, have continued to show Herculean strength. They have very clean stops are pretty much everything going for them if the market in general shows more power.

0613-regular

The Sputter

These charts are on the lower end of some kind of oscillating pattern. Their stops are not far away, but they've got lots of room to run. I imagine they will sputter out around the same time the general market does.

0613-sputter

Hemmed-In

This is my favorite, since I consider it my canary in the coal mine. In these cases, I don't see the price getting anywhere past the tinted area. As these stocks approach their respective resistance levels, I think the market will be ready for its big turn down.

0613-hemmed

I don't relish the thought of returning to a "50/50" portfolio, since it eliminates the prospect of the kind of big profit days I enjoyed in May. At best, it'll mean a small profit is eeked out, irrespective of the market's direction. That's the price I am willing to pay for my lack of certitude about where the market is going.