Friday, December 31, 2010

Happy New Year!

It's a wrap! 2010 is history and was my best year yet, finishing up a nice 31.99% in my trading account. I'll go over the numbers tomorrow. In the meantime, here's to a safe, prosperous, and Happy New Year to one and all!

Down to the wire

Well, this is it. 2010 is almost in the record books. With just one more day to go, it will be interesting to see if the tax loss sellers show up or if traders want to realize some gains tomorrow. The very last session of the year is historically a down one, according to The Stock Traders Almanac. But based on the recent good economic news and the sluggish pace of trading all week so far, I'm not expecting a major downturn. And I note that all three futures (ES, NQ, and YM) are up at this hour (1:30 AM EST). So the swing trend arrow remains green despite today's 16 point loss on light volume.

Over the weekend, I'll be posting my annual performance review of how and what I did this year, plus a look ahead to what technical analysis might tell us about next month and the rest of 2011. Stay tuned.


Yesterday, I bought some Intel (INTC) at 21.00. Intel has been beaten down lately and it is my "Dogs of the Dow" candidate for this year. The DoD theory holds that you can make money by buying the worst Dow performers at the end of the year. Technically it's not the biggest woofer, but I already own AT&T and Verizon and Intel is more affordable. It closed today at 21.02 and I'm planning on holding onto it for a while, longer than my usual swing period.

Wednesday, December 29, 2010

Drifting on...

Down a bit, up a bit, move along, nothing to see here. Yesterday's Dow hanging man did not have any follow through and we actually ended up 21 points today. In such a listless market, technicals pretty much lose their predictive power. But it's all pretty much as I expected. I'm just watching the charts and letting my longs run. The green arrow remains in place, mainly because I don't have a better clue as to what I might change it to right now.

There's really not much to do now but wait for the big players to come back from vacation and see which way they decide to push the market next week, next month, and next year. In the meantime, I'm just putting the champagne on ice and counting down the few days left until the ball drops in Times Square. No trades today.

Monday, December 27, 2010


Zzz... zzzz... zz... huh? Oh, sorry - I guess I must have dozed off after watching today's lethargic trading, where fewer than 77 million shares traded hands today, leaving us with another mixed market, the Dow losing all of 18 and the S&P and Nasdaq just barely positive. Whether it was the mega-snow storm or the usual inter-holiday slump, today was a real snoozer. Not much to say about it.

I don't particularly like the shape of today's candle, being a Hanging Man, but with such light volume, it's difficult to draw any conclusions about anything right about now. This candle also brings us under the RTC lower edge, which is a bearish setup. But again, I think we're more just drifting along so I can't read too much into it. So I'm still just standing on the sidelines and counting down to New Year's. No trades today.

Interesting Reading

Here's a story from the Seeking Alpha web site today that's worth a read:

Short summary: the author expects a market downturn in the near future on contrarian grounds, citing growing bullish sentiment. I suppose that's possible, but I generally try to refrain from looking more than a week ahead. And I don't see a crash coming this week.

Sunday, December 26, 2010

Weekly Review

I know that most everyone has already declared victory and gone home for the year by now, but here's my take on the next few days anyway.

Take a look at the weekly chart of the Dow. After four consecutive weekly green candles, you'd think the indicators (being, from top to bottom a long stochastic, RSI, momentum, money flow, and short stochastic) would all be pretty overbought. But they're not. In fact, if you use a bit of imagination looking at the candles, the last three weeks look like a "three white soldiers" pattern and that is quite bullish. Also, our weekly close at 11,573 still leaves us a few hundred points shy of the upper Bollinger band at 11,818, implying at least a bit more room to run. Note also that the last week of December (modulo the very last day) is historically good for the markets.


In a piece in today, someone from a place called Warren Financial says:
“The Vix is the lowest we’ve seen since before the financial crisis,” said Warren of the CBOE Volatility Index /quotes/comstock/20m!i:vix (VIX 16.47, +1.02, +6.60%) , which on Wednesday fell 6.3% to 15.45, its lowest close since July 2007."
OK, well let's look at the VIX. Here's a chart of the VIX, in monthly candles (since Mr. Warren is taking the long view) going all the way back to 2006, before the housing bubble really took off. In the 2005-2006 area, the VIX was averaging below 12, and actually hit a low of 9.39 in December of 2006. Compare that to today's 16 and a half and I'd say that the alarm bells are a bit premature (as they generally are). Remember back in those days when people were saying the VIX was "broken", that it no longer worked and that some new indicator was needed? I'll believe a market correction is imminent when I start hearing that sort of talk again. Until then, I think the VIX still has room to fall further and stocks have room to run higher. Today, the VIX is only low if you compare it to the crazy levels it reached back in 2008. The VIX at 90??? Now that was the buy signal of all time.


It's hard to draw any significant conclusions in a market where the major players are absent, but I think the last week of the year will be pretty much a re-run of last week. We may see some tax loss selling on Thursday, but I think that effect will be muted this year, since the market as a whole has done well this year and therefore people will have fewer losers they feel a need to jettison for tax purposes. I'm not expecting any major disasters out of Europe this week mostly on psychological grounds. The weather there is too dreadful right now for rioting in the streets and I think most people would rather stay home and digest their Christmas goose or turkey or whatever. So I'm going to keep the green trend arrow up and keep my long hat on for the next few days.
That said, the ES right now ( 9 PM EST) is down nearly half a percent, so tomorrow might not be so hot, but I'd still expect the year to end no lower than we are right now.


Last week I was up a gratifying 1.12%, bringing my YTD total to a nice 30.80%, compared to the Dow's 10.98%. My win/lose ratio by day (number of days I made money over number of losing days) now stands at 1.62, or just under a 5 to 3 ratio. I'll do an annual performance review next weekend.

Merry Christmas!

Merry Christmas to one and all. The Night Owl is taking a few days off. I'll be back tomorrow with the weekly review and a look ahead to the final week of the year. In the meantime, I'll make one quick observation: the uptrend remains in place and the swing trend arrow stays green.

Wednesday, December 22, 2010

Uptrend resumed

Well it looks like this is the market that will not be denied. Today's 26 point gain in the Dow convinces me to reinstate the green trend arrow. The fact that the bears tried to knock 'em down for two successive days on Monday and last Friday, but failed, makes me consider today's action even more bullish. At 11,559, we have left the 11,400 resistance level in the dust and now set our sights on the 11,867 peak from way back in August 2008. There is no resistance of any sort between here and there. After that is the 12,000 level from earlier in 2008.

We are now far along enough into December to conclude that the Santa Claus rally did in fact occur this year. At this point, with just five trading days left in the year and the pros all gone off to Aruba or Vail, it's all over but the shouting. As for me, after a nice 0.63% gain yesterday, I made all of three dollars today. Oh well. I'm still just about at my high for the year, so I'd say I'm about done too. Next, we will set our sights on the fabled January Effect. Stay tuned. No trades today.

Another present from Santa

Well well well. Looks like Santa Claus resumed his rally today and dropped off 55 Dow points worth of presents for everyone. This was particularly welcome since we managed to close above the highs of the last five sessions. In fact, today's close brought us right back to the lower edge of the RTC channel we fell out of yesterday. It's too soon to tell if that uptrend can be resumed though.

Note in particular that the VIX actually rose today for the second day in a row, even as the Dow finished up. Very curious. And given that the Big Three futures (ES< NQ, and YM) are all down around 0.1% right now (1 AM EST), it's possible we may not get any follow through tomorrow. But trying to make any predictions this entire week is pretty pointless. Right now, I'm just along for the ride.

History suggests we might still have a few more up days left this year, and I certainly don't see any big losses on the horizon. I see the recent action as part of a process of overcoming the mid-2008 shelf. It might take some time to accomplish as the market gathers the necessary steam. In the meantime, the upper Bollinger band at 11,657 suggests there's at least a few more points left to gain in the short term. We'll see.

No trades today. I'm just letting my longs run right now.

Monday, December 20, 2010

Directionless markets

Well, it seemed like a reasonable thesis yesterday, but clearly the market disagreed with me. After expecting gains for two days, we got losses, ending today down just under 14 points in the Dow, though once again the S&P and the Nasdaq both posted small gains to finish up a quarter percent each. In any event, today's Dow loss fell entirely outside the lower line of the RTC channel. This is a bearish trigger. Ordinarily, I'd change the trend arrow from green to red at this point, but because of the low volume and the time of year, I'm not confident enough to do that right now. So instead, I will punt and put up the "who knows" icon. With such tiny daily moves, we're kind of back to the situation we were in from the 3rd through the 9th. There's not much money to be made swing trading this sort of market. Right now I'm leaving my long hat on, but only because I don't see any real need to remove it.

My theory on the VIX was also wrong, but though it didn't fall as I expected, it also didn't rise very much, gaining just 0.30 today. Today's Dow candle looks like a doji, but I think it reflects more a lack of leadership in this environment than the usual indecision of a turning point. Personally, I was actually up 0.42% today thanks largely to the performance of my low price/high yield portfolio. No trades today.

Sunday, December 19, 2010

Weekly Review

Thursday night I was expecting the Dow to go higher on Friday. While the Nasdaq and S&P did managed to eke out tiny gains, the Dow was down by an equally tiny fraction, dropping just 7 1/3 points to finish the week at 11,492. So I wasn't right, but I also wasn't too terribly wrong. Nonetheless, I think there's a lesson in this week's action and that is that we were able to breach and defend the 11,400 resistance point from the November highs (upper blue horizontal line). And as I've mentioned before, that level is also the cliff edge from back in 2008 right before the big October crash. The only fly in the ointment now is the shape of Friday's candle, which is a hanging man, coming on very high volume. However, it being options expiration at the end of the year, I can't really call that a top without confirmation Monday.

So where does that all leave us for the coming holiday-shortened week? Let's check out the weekly chart. Take a look at an entire year of the Dow in weekly bars:One thing that jumps out at me is that the Dow posted bigger gains this past week than last week and did it on much higher volume. As the great Dr. Brett Steenbarger always emphasized, volume is critical in chart interpretation.

Add to this that there are now just eight trading days left in 2010 and that historically, six of the last seven days of the year are positive for the markets (the very last trading day is typically a loser), I'm going to keep my long hat on this coming week and keep the green swing trend arrow in place. I believe the market still has the potential to climb at least a bit more before we call 2010 a wrap. But I'm not looking for any major moves. It's a short week, and I'm sure many of the pros have already decided to take the rest of the year off, with the Dow at its high of the year.

I note too that the VIX has now touched an important weekly support level at 15.23, its lowest point since mid-2007. The daily VIX indicators are mixed with the RSI calling it oversold but the stochastic executing a bearish (for the VIX) crossover, ie. bullish for stocks. And I particularly note that of the 19 other times in 2010 when the VIX stochastic looked like it does right now, the VIX went lower the next day. Check it out. I've highlighted the last three instances (blue vertical lines). Looks like the VIX could go even lower from here, doesn't it?


I was up 0.63% on Friday, a day on which the market as a whole did nothing, so that was nice. However, disappointing results early in the week left me with just a 0.13% gain on the week. Nonetheless, my trading account is now at a year-to-date high, and barring any catastrophes between now and New Year's I should end the year well ahead of my 2009 results (knock on my glass desktop). My current YTD return is 29.35%; the Dow is up just over 10%.

Friday, December 17, 2010

Bears Beaten Back

Today did not start off very auspiciously, with the bears mounting an attack on the 11,400 support level in the Dow, actually driving it down to 11,424 early on. But that's as far as they got. For the second day in a row, they were beaten back, and we ended up gaining 42 points leaving us solidly along the upper edge of the rising RTC channel. The holding of this important technical support level is quite bullish and the bearish action that could have brought us out of the RTC channel today did not materialize. Similarly, the VIX today was unable to break out over its own resistance level of 18 and after yesterday's doji, posted a big red candle - also bullish for stocks.

Note also that the House finally passed the tax cut bill (which to be fair isn't really a tax cut, but rather an extension of the status quo in taxes) late this evening. The removal of all the uncertainty associated with this issue for so long now can only be good news for the markets.

Finally, we are passing out of the historical mid-December sag and gearing up for the full effect of the Santa Claus rally, which typically really gets going in the last six trading days before the last day of the year, according to The Stock Trader's Almanac. Since Santa already gave us a few early presents back at the start of December, one can only conclude that he's got more goodies in his sleigh for us, and not lumps of coal.

So I'm now reaching for my long hat and the green trend arrow remains in place.


I dumped my puts on GE today for a small loss. GE ended the day up a respectable 1.6%, so the insurance wasn't needed. I could have saved a little money by not making this trade yesterday, but I slept better last night. It still looked like a good idea at the time from a technical perspective. I'm also looking for an entry point to AUY, with the recent dip in gold. I expect to find one in a day or two.

Thursday, December 16, 2010

Bearish setup possible tomorrow

Today the Dow dropped 19 points but remains well within the boundaries of the ascending RTC that I drew going back to December 8th. More importantly, the 11,400 area which provided resistance for so long is now support, and it held up well today with the low reaching 11,445 (the high of November 5th was 11,452). Add this to the fact that all three futures are up modestly at this point (1:20 AM EST) whereas they were down at the same time last night, and I'm not looking for a breakdown tomorrow.

Also, note that the VIX today hit a high of 18.14 before closing at 17.94. The 18 level which was its support for a long time, is now resistance. Anything that impedes the rise of the VIX is good for stocks.

However, because of the steep slope of the RTC, it would now take only one more day of either sideways action or an outright decline of any amount to form a bearish setup that might signal the end of this trend. And note too that today's volume was greater than yesterday's - a bearish sign.

So with these mixed messages, tthe market has a feel of indecision to me. I'll bet that in this environment, any piece of good news on taxes could drive it quickly higher and any bad news out of Europe could drive it lower. I realize that's not a particularly deep observation, but there are times when the market seems to completely ignore the news. This doesn't feel like one of those times. Right now, I can't really put on either my long or short hat. We'll see.


Today, GE, one of my holdings, fell out of its own daily RTC channel that saw it climb from 15.68 last month to a high of 17.90 two days ago before closing at 17.49 today. Since I really like GE as a company and I'm in a deep profit position in it, instead of selling it I bought some puts (March 2011 strike) today to act as insurance and protect my profit. I don't really play options very much. Buying puts as insurance is about all I ever do with them. Try as I might, I have a hard time figuring out all those exotic strangle, straddle, whatever combinations. And I don't trade what I don't understand.

Wednesday, December 15, 2010

New Uptrend

Today's 48 point gain in the Dow to close at 11476 provided the confirmation I was looking for after a week of directionless trading. Accordingly I'm drawing a new regression trend channel and putting up the green swing trend arrow. With a Pearson's coefficient of 0.968, this one should provide some good guidance going forward. After today, it will now take three days of sideways action, or one day of a drop below 11,425 to put the current uptrend in jeopardy.

A couple of interesting divergences today worth noting: first the VIX rose, as I thought it might, closing up 0.34%, but the Dow also rose, 0.42%. That's unusual. Also, while the ES and YM futures are both down slightly right now (1 AM EST), the recent trend in ES is not looking as strong as YM. Usually, these two are pretty highly correlated. I'm not quite sure what to make of that, but with the Dow now up four out of five (and the fifth day was only flat), I'm going to be looking for further advances as we follow the RTC channel. Even more important is that we finally closed above the 11,400 resistance level. I'd not been expecting it to come so soon after yesterday's failure to hold that line, but I did say the third time would be the charm.


Today, I bought some Ford (F) preferred, but for my IRA, not my trading account. With a 7.5% yield in a company that's looking better coming out of the Great Recession, it seemed like not a bad deal at 25.66. I did not trade my trading account today. It closed at 25.64 today.

Tuesday, December 14, 2010

More Indecision

Today saw the second attempt to breach the November 11,400 resistance (red horizontal line on the chart), and like the first on December 7th, this one failed too. We actually hit an intraday high of 11,480 before falling back to finish at 11,429 with a modest 18 point gain on the day. Ordinarily with a chart that looks like this, I'd start a rising trend channel here, but with a total gain of just 58 points in four days, I'd like one more day of gains to do that. And I'm not convinced we'll get that tomorrow.

Actually, I still don't see any good signposts that might provide a clue as to where we're headed the next few days. The fact that the Dow has managed to close higher the past two days is encouraging, but the rejection of the 11,400 level is not, especially coming in the form of a gravestone doji, which is bearish. Also, the indicators are looking overbought, especially the RSI and stochastic. And the daily VIX looks primed to rise, which is also bearish for stocks.

On the other hand, the futures are holding their own right now, fairly late into the night (it is now 1:40 AM EST) with the ES up one tick, the NQ down two and YM up 3. So all in all, lacking any clear direction, it's too early to declare a new trend and I will be sitting on the sidelines a while longer.

I do think the next attempt to cross that 11,400 line will be succesful - I'm just not sure when it's coming. Maybe when our Fearless Leader announces a tax deal, hopefully before the end of the month. We'll see.


Today I finally sold my AKS trade that turned into an investment, at 14.96, for a $12 loss. Had I held on a bit longer, I would have seen it climb to a high of $15.42 before falling back to end at 14.96 again. I think it's going lower tomorrow.

Sunday, December 12, 2010

Weekly Review

56 points. Fifty six. That was the entire range of the Dow last week. Not the difference between the weekly open and close. That was the difference between the high of the week and the low of the entire week. I have never, in the eight years I've been watching the market seen such a narrow range week. Friday's meager 40 point gain extended the Dow's nowhere streak to six days, equal to the record going back 10 years.

The only thing that looks clear now is that the market appears to be hostage to all the political posturing going on in Washington over tax cuts. I think the current situation is going to continue until we get some sort of resolution, any resolution, from Congress. I also think that in the end, the Bush tax cuts will be extended and when (and if) that finally happens, the market will go higher. Until then though, the Santa Claus rally is stuck in neutral and it looks like more nowhere action. Accordingly, the "X" indicator remains in place. There is no trend, there's not even enough range to declare a channel, there's just nothing.


Ironically enough, despite the lack of volatility, I ended up making 2.09% last week in my trading account, well above average, and finished the week at a 52 week high, thereby proving once again that it's better to be lucky than good. I own some GE, and that took a nice pop after they increased their dividend. I wasn't expecting that, but it sure contributed to my bottom line. Right now, the Dow is up 9.42% YTD, and I'm up 29.18% with just 13 trading days left in 2010.

Saturday, December 11, 2010

A Tale of Two Backups

Of course, we all know how important it is to back up critical data on your computer. (You do perform regular data backups, don't you?) A disk drive can fail at any time and with no warning. The time to start thinking about backups is while your system is running normally, not 10 seconds after it goes south.

Now I've been doing daily backups of my critical trading data to a local file server for quite some time now, and weekly backups of everything else. But I thought in the event of a disk crash, it would be a lot easier if I had an image file of the entire disk. That way, I wouldn't have to reinstall the operating system and all of my programs individually. That could easily take several days. So I decided to run the Backup program that comes with Windows XP. (There's a great article from Microsoft about how to get and use this program, here Well, it ran about 20% of the way to completion and then stopped reporting some vague message about "read error".

So I decided to try a different program. I downloaded a copy of Macrium Reflect ( I tried doing a disk image but it too failed to complete, this time with a "CRC read error" message. That was the clue. CRC means a bad block on the disk somewhere. I checked the system log and sure enough, there were a pile of bad block errors in there. Note that all this time, the system was apparently functioning normally. I then ran chkdisk, with the options to repair any bad sectors. It found a bunch of them too.

I rebooted and tried the backup again. Failed the same way. I then ran Western Digital's Data Lifeguard utility and it reported an error on that drive that chkdisk was apparently unable to fix. Now note that this drive was only 18 months old. I ended up replacing the drive. Since it was under warranty, my friendly local computer shop did the job in one day, and apparently their utilities are more powerful than mine, because they were able to successfully image the bad drive. I lost just a couple of unimportant files, which I was able to recover from an earlier individual file backup on my file server.

So the moral is not just to back up your data, but do it two different ways.
One place I used to work at did regular backups (this is back in the days of open reel magnetic tapes). One day, the big crash happened and they went to recover their data. They discovered to their horror that every single backup was unreadable - the program wasn't working. It was a disaster.

Also, I strongly recommend having at least one off-site backup. It could be at your parents' house, a safe deposit box or wherever, but it doesn't matter how great your backup is if the drive is sitting right next to your computer and your house burns down, or a tree lands on it, or the pipes burst and flood your computer room.

And by the way, with the new drive, both XP Backup and Macrium work fine. They're both free, and I can recommend either one. (There's also a paid verison of Macrium with more features).

Today is Saturday, the markets are closed. Take a few minutes to get your data in order and you will save yourself a massive headache later on. Maybe not tomorrow or next week, but one day that drive will fail. Trading is serious business and it depends on data. That data has to be treated seriously.

Thursday, December 9, 2010

Waiting for Godot

No chart today - no need to. Today's action was just like yesterday's, and the day before, and the day before that. In fact, we now have five straight days of nothing going on here. What does it take to get this market off of top dead center? I went back in the daily Dow charts for 10 years looking for other instances of such trend paralysis. I found a half dozen or so. The interesting point is that none lasted more than six days. Tomorrow will make day six of the current gridlock.

In the meantime, I was wrong two days ago about yesterday, and I was wrong yesterday about today, if you can call a 2 point loss against a call for positive action to be wrong. So I give up. I now officially cry "Uncle" and step to the sidelines where I will await our fearless leader and his Keystone Kops Kongress to make up their minds about income taxes so the rest of us can get on with our lives.

I have absolutely no idea which hat to put on tomorrow. The only bet I'm willing to make right now is that I give it one more day (that will make the magic number of six) to resolve this statsis one way or the other.


Today, I welcome Himax, HIMX to the Low Price/High Yield portfolio. I paid 2.10 for it and it's yielding 12.1%. We'll see what develops.

Wednesday, December 8, 2010

Stuck in Neutral

Last night, it sure looked to me like we'd be going lower today, and for a while this morning indeed we did. But in the end I was wrong and the Dow finished the day with a 13 point gain, the fifth day in a row of tiny ranges in the market. Part of the problem for me is the huge run-up we had last week. I keep looking at that and waiting for the inevitable retracement - only it doesn't seem to want to happen. The longer we spend stuck at the 11,300 level, the less likely a near-term 200 point plunge becomes.

The indicators are still all showing overbought, but after a while at these levels they become "broken" and lose their predictive power. If yesterday's action demonstrated the bulls' inability to drive the market higher, today's demonstrated the bears' inability to knock it lower. So the tug-o-war continues. Right now, there is no trend in this market either up or down, so the "X" symbol remains in place. It's difficult for a swing trader to make any money when the market only moves a few points a day. Today for instance, I made all of $7 in the market. While that's definitely better than losing 7, it's not going to pay the rent. Even intraday, there was really nothing going on. I'm sure the daytraders aren't too happy either right now. In fact at this point, I'm seriously considering taking the rest of the year off.

So where next? I think the fact that last night the market looked for all the world like it should go lower today but finally didn't suggests that it may be poised instead to go higher. The VIX, which did in fact bottom yesterday as I had thought, was unable to gain any meaningful traction today and actually ended the day with a red candle. And right now (8 PM EST), all three futures are up meaningfully, with the ES up 0.35%. I'll update this later tonight, but right now the bias seems to marginally favor the bulls for tomorrow.

1 AM Update

Right now, all three futures (ES, NQ, and YM) are up even more, over half a percent now. Indeed, ES at 1236 is now convincingly above its November highs. This does nothing to change my opinion that we may be having another go at the Dow 11,400 level soon.


I dumped my stake in GMR today at 3.64, taking a small loss. Meanwhile, DRYS, which I sold last Friday, continued lower today, as I expected. I continue to watch this one because it may be worth getting back into when it bottoms.

Tuesday, December 7, 2010

Looking for lower

Yesterday, I wrote
"My general feeling is that we may be in for several days of consolidation"
and that's just what we got today, ending barely down just a couple of points in the Dow. Unfortunately, the candle it produced was a gravestone doji which is a bearish indicator. It also marks a failed attempt to breach the 11,440 resistance level. The market is going to need a few more days to regroup for another attempt.

In addition, today's action fell entirely outside the lower RTC line, and given yesterday's bearish setup, this has to be considered a bearish trigger. Therefore, I am reluctantly removing the green arrow since this uptrend is over. But I can't replace it with a red arrow since there's no evidence to suggest we're going to be trending lower just yet.

However, I do think we'll be lower tomorrow, so I'm reaching back into the closet for my short hat. The indicators are still all overbought and today's declining volume was higher than yesterday's. And the VIX, which was looking like it was getting ready to bottom yesterday, I think has now done so. Its daily stochastic is executing a bullish crossover, which is bearish for stocks.

We've now seen four consecutive days of tiny ranges and that can't last forever. Although I still think December as a whole will be higher, I can't say the same for tomorrow. I'm not looking for a huge drop, but I also don't think we're in for any gains just yet.

No trades today. I sold my entire position in DRYS last Friday, only to watch it rise further yesterday. Today however, it came back down and formed a dark cloud cover which is a very bearish candle. I guess I was just a day too early.

Pearl Harbor Day

Today is December 7th, the "date which will live in infamy" as we mark Pearl Harbor Day, the 69th anniversary of the Japanese sneak attack on Hawaii that plunged the US into World War II.

Let us pause for a moment today to reflect upon the courage of those those who made the ultimate sacrifice that day and those who fought bravely against seemingly impossible odds to repel and finally put an end to the tyranny of the Japanese Empire in the Pacific and protect the freedoms we enjoy today.

To all these brave Americans, we salute you, and we remember you.


Hmmm, let's see. Last Friday I was hopeful for some more upside from this market but by last night I wrote
I'm getting a feeling that we might be in for a bit of a pullback tomorrow.
and that's exactly what we got, with a 20 point loss in the Dow. I ended up not taking any short positions though. In fact, I made no trades today, and judging by the low volume, a lot of other folks stayed home too. So where next?

Today's action brought us right the the lower edge of the rising RTC channel and that is a bearish setup, but not a trigger. If we are lower again tomorrow, I will reverse the swing trend arrow. But for now, it remains green. The indicators are all looking toppy right about now and the daily VIX did hit a support level of 18 from which its rallied every time back to October, but it has not reached its lower Bollinger band. And as of this writing (1:15 AM EST), all three futures are up, with the ES up 0.23%. These sorts of mixed messages are consistent with a directionless market.

My general feeling is that we may be in for several days of consolidation before making another run at the 11,440 resistance level. I'd be surprised to see any major moves in either direction tomorrow. The market this year has shown an ability going back to September to spend anywhere from 3 to 6 days just doing nothing before resuming its previous trend. And historically, though December as a whole is a strong month, it has a weak spot in the middle.

So I'm temporarily putting both my long hat and short hat in the closet until I see some clear evidence of which fashion is in style.

Monday, December 6, 2010

Perhaps a pause

Looking at the action in the futures this evening (it is now 12:45 AM), I'm getting a feeling that we might be in for a bit of a pullback tomorrow. It would only make sense after the spectacular three day run last week. In particular, with the ES down 0.16% right now and its stochastic about to make a bearish crossover, I'm not quite as optimistic as I was last Friday. Also, Friday's candle in the Dow looks like a hanging man and that could also portend a turn around.

So right now, I'm leaving the green swing trend arrow in place but looking to buy some short-term insurance for tomorrow. It is admittedly not a real clear signal either way.

Saturday, December 4, 2010

Weekend Buffet

Quote of the Week
"Germans are not going to retire at 67 so Greeks can retire at 58."

- Angela Merkel, Chancellor of Germany

Since the mess being made in Europe by the PIGS has been in the news again so much this past week, I think it's worth taking a special look at it. I came across the following article in the Washington Times and I can highly recommend it. If you want to know more about what Ms. Merkel is talking about, check this out:

It's not a pretty picture. Bottom line, the Europeans in general hate each other and always have, no doubt to the chagrin of the "one worlder" types. The coming unraveling of the Euro (and I am certain that it is inevitable now) is simply the end result of that.

Chart of the Week
And if the unrest in Europe wasn't enough to bum you out, with the new unemployment numbers out this past week, check out this chart I found over at Wells Fargo, courtesy of the US Dept. of Labor:It is often all to easy to forget, when you live in a nice upper middle class neighborhood populated by college professors, scientists and other professionals, that the rest of the world is not like that. The message is clear: if you have a college education, the unemployment rate in the country for you personally is not 9.6% or 9.8% or anywhere near there. It's about 5%. And over there on the left end of the chart, not to belabor the obvious, you drop out of school at your own peril. Your unemployment rate then is almost 16%. And the recession induced hit was far larger than for those with more education.

What's the answer? I won't even pretend to know that one. What I do know is that throwing more money at the school system is definitely not the answer. New York, for instance has the third highest per capita spending rate on public education in the nation and yet ranked 32 out of 50 in 2001 (the last chart I was able to find - I wouldn't be surprised if it's even lower today).

Friday, December 3, 2010

Weekly review: Uptrend established

I was a bit concerned yesterday that after two such big up days, we'd give it all back today and fall back into the 11,000 - 11,200 trading range. But apparently, all the day traders decided not to bail out for the weekend leaving us with a modest 19.7 point gain in the Dow to end the week at 11,382. And as you can see from the daily chart here, this keeps us right in the middle of the new ascending RTC channel I started from 11/30. I'm sure glad I had my long hat on.

And since it's the end of the week, now let's take a look at the weekly Dow chart, going back to the start of the September rally.Technically, there's not much to dislike here either. This week formed a big bullish engulfing pattern and the weekly volume on this green candle was about double last week's red one. Dr. Brett Steenbarger was always pointing out how important volume was to judge the significance of a particular price movement. By that measure, this week was significant indeed. Finally, we can see a nice bullish crossover in the stochastic. This all points towards an assault on last month's high of 11,451 before the end of the month. The uptrend is established; my long hat remains on.

On This Day in History
1929 - US President Herbert Hoover announces to the U.S. Congress that the worst effects of the recent stock market crash are behind the nation and the American people have regained faith in the economy.

The Dow gained an impressive 2.6% this week. By comparison, I was up 2.55%. It would have been more but for the 1% loss I took on Tuesday. But you can't really be disappointed with a 2.5+% gain on any week. And for today at least, I handily outperformed the Dow, gaining 1.38% vs. to Dow's 0.17%. This now gives me a year to date gain of 26.5%, compared to the Dow with 9.15%.

And my low price/high yield portfolio is doing very nicely indeed. It's giving me a yield of more than 10% and I also now have a capital appreciation of 10%, just since last July.

Thursday, December 2, 2010

New Uptrend

Yesterday, I thought today we'd see a fairly sedate day with perhaps some small losses. I was quite pleased to be wrong, with an additional 107 points piled on top of yesterday's monster 250 point jump in the Dow to close at 11,362. (In my defense, don't forget I did say I had my long hat on). Anyway, with today's action lying entirely above the critical 11,200 level, I can finally take down the channeling icon that's been up for two weeks now and replace it with a green arrow. Today's action makes me believe we're headed back to the highs of early last month at 11,450 and the upper Bollinger band, standing today at 11,497. Possible headwinds for tomorrow include that the ES futures are already at those early November resistance levels. But overall, I think the swing trend is now positive.

In retrospect, I should have been more bullish on today. While the first day of December is historically bullish, so are the second and third days. I don't know if we'll see any follow through tomorrow, but we're definitely out of that 11,000 - 11,200 channel and the break to the upside definitely bodes well for stocks, coming as it does at this time of year. The VIX meanwhile is down big time from where I called it lower two days ago, and I think it's not done yet, meaning there's more room to run for stocks.


Today I spent a while kicking myself for dumping OMEX, which bobbed to the surface to close at 2.09, higher than anywhere I was holding it. Then I kicked myself some more over GMR, which went nowhere since I bought it yesterday. Then I bought some GE preferred (GE/PA for you eSignal subscribers) at 26.36, which has been beaten down lately and is looking quite oversold. It yields a most attractive 7% and I think has a lot of room for appreciation.

Meantime, my low price/high yield portfolio (see my special post on that) has hit its highest level since I bought in last summer. I've got about an 8% gain on a basket that's yielding over 10%. Not too shabby.

Wednesday, December 1, 2010

Ho Ho Ho!

Wow - what a way to kick off December! I called my post yesterday, "Looking for higher", and we sure found higher today, up a whopping 250 points for a 2.27% gain to 11,256, the Dow's best gain since September 1st (you remember September 1st - that was the day that kicked off the big fall rally).

Of course, the question everyone is asking now, being December, is: what's the story with the Santa Claus rally, and which Santa is going to show up? Will it be jolly old St. Nick with a sack full of toys for all good little traders, or will it be Futurama's evil Robot Santa, bellowing "Your mistletoe is no match for my TOW missile!"

Let's try to sort it all out. First of all, historically, December is a great month for the markets in general, with the S&P averaging a 1.6% gain and the Dow a cheery 1.7% gain. Now of course, December wasn't so hot last year, coming as it did after a monster rally that lasted most of 2009. And naturally all of 2008 was just a complete nightmare. I just went over the monthly Dow chart going back 20 years and it seems that the Dow does better in years where it has some positive momentum pushing on it going in but isn't yet overextended, as we had in 2003 and much as we have now. By contrast, in years where the overall performance was lackluster, like 2002, the Dow was down in December.

But what we really want to know is what about this December. Well let's look at the monthly Dow chart:The chart looks a little busy because I've left all the recent RTC channels up and because I wanted to get the entire swing from the 2007 highs to the 2009 lows in there, but bear with me. On a monthly basis we see that we're pretty much in an upward trend going back to September.

Today's action completely canceled out last month's negativity. And just as important, today we finally closed outside the channel that's been going on forever it seems, breaking convincingly above the 11,200 level. And why was that number such resistance anyway? On the monthly chart, you can follow the lines back and see they point tot he "summer shelf" of 2008 just before the big meltdown.

I mentioned recently that I think a lot of people who rode the market all the way to the March 2009 bottom are now so thankful to have finally made back their losses that they've been unloading their stocks right here. It looks like this process may finally be coming to an end, thus freeing the market for another leg higher. Having cleared the 11,200 barrier, the next resistance point is 11,705, which is the upper Bollinger band. Then we have the psychological 12,000 level, and finally 12,600, the high of June 2008.

Note also that the monthly indicators have not yet reached overbought levels and even the weekly indicators are now actually less oversold than they've been since the end of September. In fact the weekly stochastic is now getting ready to make a bullish crossover. Now I freely admit that I am by nature biased to the long side (though I try to stay neutral when doing analysis), but it's looking to me like this December it's going to be a merry Christmas. Assuming we can keep the Koreas from blowing each other up and the rioters off the streets of Europe for a while.

In any case, I now have my long hat on again, though I'm leaving the channeling icon up one more day until I see an actual daily upward trend forming, something that I can draw an RTC channel across. After such a big run-up today, I'm not expecting a whole lot more out of tomorrow, but I also don't think we'll give up all of today's gains either. I'd vote for a narrow range day tomorrow, and slightly negative before resuming higher. We'll see.


Today I entered a small long position in GMR, General Maritime Corp., another shipping outfit, at 3.86. It's been beaten down pretty badly for a long time but is now looking oversold on a daily basis, and still reasonable on the weekly chart.

Looking for higher

I know that yesterday I thought the market was going to go higher today and it ended up not. I just got that one wrong. What we in fact got today was actually a lot like yesterday - a probe down below the 11K mark in the Dow but then rallying back to close just inside the lower end of the horizontal channel we've been in now for 10 straight sessions. So although we're now down for three days in a row, the swing trend indicator remains set to "channeling".

Tomorrow will be critical. If we close below 11,000 tomorrow, the channel is broken and we're in a new downtrend. But if we head higher, we'll be in for an 11th day of sideways channeling. Now I know I was wrong about today and I hate to call for a higher close tomorrow for fear of sounding like one of those people who are always making the same call - eventually they're right. But I really think I was just a day early (and a dollar short, obviously).

The VIX, which was looking overbought yesterday is looking even more overbought today. And the bears were unable, for a second day in a row to force a close near session lows, even on much higher volume today than Monday. We have also now traveled all the way to the lower Bollinger band in the Dow (though not closing there). Also, the futures, which last night at this time (1:40 AM EST) were all lower, are now all 0.3% higher.

We're also about to begin December, which according to The Stock Trader's Almanac, is the no. 1 rated month for the S&P and no. 2 for the Dow going back to 1971. And the first day of December is itself historically a good one. So let's see what happens. These trading ranges are difficult to call. It seems logical right now that the market could go higher tomorrow but I'm just not feeling really confident about it right now.

I am also putting together a longer monthly view, being as it is the end of November. That will have to wait for my next post.

No trades today. OMEX closed down 3 cents from where I sold it yesterday and has still lower to go. And it looks like GM may not be following the IBKR IPO model after all, being on a three day winning streak and defying the rest of the overall market.

Tuesday, November 30, 2010

Channeling action continues

Last Friday I wrote:
It looks to me like we're in for some continued weakness for at least a few more days, possibly a week.
and sure enough, the Dow ended down 39.5 today. But look at how that played out. I also said we'd get more clarity after today's action and so we did. Today, I'm a bit more optimistic because there are two telling points in this chart. First is the shape of the candle. This is as classic a hammer as I've seen and that's always bullish. If you consider the range-bound sideways channeling action of the last 10 sessions now as lumped together into a consolidation, then we have a potential resolution here and may see some upside later on this week.

The second thing to note is that the bottom end of the channel, the psychologically important 11,000 level was tested today but finally held in the end. The bears tried to knock 'em down but were finally unable to hold 'em down. (That's basically the rationale behind the hammer).

I note also that the channeling has now gone three days outside of the right edge of the descending RTC trend that began on November 5th. This is also bullish.

And finally, let's take a peak at the daily VIX. I've zoomed in on the last couple of weeks here.What an interesting chart. The VIX today ran right up to its 200 day MA (23.19) and was stopped cold, closing at 21.53. Strike one. It also hit its upper Bollinger band. Strike two. And look at the two day pattern - a classical dark cloud cover, and that's an excellent bearish predictor. Strike three. The VIX is out. (Oh and the VIX today got as far extended from its pivot point as it's been in weeks. Never underestimate the attractive power of the pivot. It will always return there sooner or later).

On that basis, it would not surprise me to see the VIX lower tomorrow and therefore by implication, the market higher. We're nearer the bottom end of the 10 day Dow channel now than the top and we know the bottom held support. And of course, tomorrow is the last day of the month, so there may be some window dressing going on (though that seems to be less in vogue lately than in the past).

In any case I'm removing my short hat and reaching for my long hat, but I'm keeping the channeling icon up since there is no real uptrend developing just yet.


I deep-sixed my OMEX today at 2.02 and took a small profit. It closed a few cents higher but after last weeks big gain, I think it now has more risk than reward, at least from a swing trade viewpoint and that's what we do here.

Sunday, November 28, 2010

Weekend Buffet


Time for some selected weekend musings. Here's a link I just can't emphasize enough. It's to Dr. Brett Steenbarger's Trader Feed blog. Until its end earlier this year, I was an avid daily reader of this. I credit Dr. Brett in large measure for my trading turning profitable, and he was the inspiration for my starting this blog. To his credit, the blog is still up and searchable, though no longer updated since he went private.

If you've never read Trader Feed, you owe it to yourself. It is an impressive collection of psychological insight into the art and science of trading. You will be a better trader (and a better person) for reading it:

Dr. Steenbarger has also written several books. I've read The Psychology of Trading: Tools and Techniques for Minding the Markets and it was great. Here's an Amazon link to all of them. This is definitely worth taking a look at too:

Chart of the Week

There's been a lot of interest in gold lately, what with it setting new record highs. While wandering the web, I found this chart over on Wikipedia. I find it both fascinating and depressing. It plots the value of the US dollar against gold from 1954 to 2003. This chart is worth discussing in more detail later on, but for now, here it is:I'm not quite old enough to remember the very left edge of this chart, but I do remember the days when gas was 26 cents a gallon and a postage stamp was 4 cents. Today both gas and stamps are about an order of magnitude more expensive. But does a gallon of gas get my car ten times further than it did back in the 50's? Does a letter get delivered 10 times faster? No and no.

Gas and mail (and cars and college educations and everything else) are the same today as they were back then. What has changed is that the value of our currency has shriveled to near worthlessness. We're not quite to the stage of Weimar Republic wheelbarrows of cash to buy a loaf of bread - just yet anyway. But looking at this chart makes me sad.

Friday, November 26, 2010

Weekly Update

Well the problematic day after Thanksgiving is over. And as I expected, we did not break above the 11,200 level in the Dow marking the upper end of the trading range now going back eight sessions. However, the 95 point loss was greater than I would have thought. This brings us almost exactly back to the middle of this horizontal channel.

And that makes the question of where do we go from here a lot harder. I spent a long time looking at this this afternoon and I think I have the answer. And the answer lies in the weekly chart, which is fortuitous since today was the end of the week. So let's have a look at that. Here's an entire year's worth of the Dow in weekly candles:Here the picture becomes much clearer. The downtrend established on 11/5 appears to be intact here. The past eight days of sideways channeling don't even show up and more importantly, they do not violate the descending RTC channel. Now take a look at the weekly indicators, the RSI, momentum, money flow, and stochastic: all of them have peaked and are now declining. This is consistent with an overall weakening market.

So here's what I think. It looks to me like we're in for some continued weakness for at least a few more days, possibly a week. If we break below the 11,000 - 11,200 channel we've been stuck in for so long now, then the next support level on the Dow is the 200 week MA at 10,943. After that we have support at the plateau established back in August around 10,700, and finally, the 200 day MA at 10,621, though I don't think we'll get that far. In fact, the monthly chart looks a lot more optimistic and I'll get to that next week when I do my monthly review.

Of course, it's important not to read too much into today's action, being a holiday shortened half session when most of the big players are still home digesting turkey. Next Monday should be a better indicator of where we're going. Six of the last seven, and seven of the last 10 years in the Dow have been down on the Monday after Thanksgiving, including the horrifying 680 point massacre in 2008 (remember that one?) Given all of this, I'm going to keep the channeling trend indicator up, but I'm reaching for my short hat.


I lost 0.46% today. About the only consolation I have is that the Dow lost more: -0.85%. This leaves me with a -0.77% week, and a disappointing three week losing streak though I'm still up 23.38% on the year. My only bigger losing streak this year was a string of five weeks back in January into February. This in itself is something of a bullish indicator if you believe that any trend that gets overextended eventually comes to an end. So I'm hopeful to make some money next week, even though I think the first half of the week isn't looking great right now.

I made no trades today.

Thursday, November 25, 2010

A Trader's Thanksgiving

Today is Thanksgiving 2010. I am of course thankful for all the usual things: family, friends, health, and just still being around for another year. But there's plenty to be thankful for as a trader too. The economy, while not exactly a powerhouse, is at least holding its own and it's looking less and less likely that the dreaded "double-dip" will happen. Next year is a pre-presidential election year and that is traditionally a good one for the markets.

I'm thankful for living in a country that gives us a marketplace where I can buy and sell all sorts of interesting things right from the comfort of my own home, and gives us the technology to do it. The computing power available to the little guy today would have made John D. Rockefeller's jaw drop. The financial and regulatory barriers to entry into trading are ridiculously low, compared to say opening a MacDonald's or an auto repair shop.

I'm thankful to for hosting my silly little blog for free, and very thankful that it has actually begun to attract an audience. To all my readers, thanks.

And despite all the moaning and complaining about how the market is rigged and how only the fat cats can win, it really is possible for anyone to make money trading. Of course you really need to know what you're doing, but the fact that the opportunity is there for anyone to take advantage of is something to be thankful for.

I am very very thankful for being profitable in my trading for two year running now, after a rocky start in which I blew out not one but two (admittedly small) trading accounts over the course of five bad years.

And finally, thanks to everyone out there who sold me their stocks just before they bottomed, and bought them from me close to the top :-) Now get off your PC and go enjoy some turkey!

Range Bound

Last night I called the market higher today and that's just what we got, with a 150 point jump in the Dow closing near session highs and right up to the top of the horizontal channel established seven days ago (blue horizontal lines in the chart).

Looking ahead to Friday, historically that day, the day after Thanksgiving, tends to do well too. However, we are now at the top of the recent trading range. I doubt that the Dow will be able to break the 11,200 level on the holiday shortened session Friday. I went back five years and note that in the years where the Dow was up the day after Thanksgiving, it had had room to run in that direction as part of a longer trend. In years where the day before closes near the top of a range, it's less likely to see an advance on the following day.

All the big money movers will be on vacation and either way I'm not expecting much out of that day. If the Europeans can stay out of bankruptcy for one more day and if the North Koreans can manage to act like civilized human beings for a while, things should be fairly quiet on Wall St. I myself plan on watching the markets but I doubt I'll do any trading. For now, we remain in channeling mode.

And I made no trades today either. I will just note that my OMEX spec play spent a few days bobbing around the ocean aimlessly before giving me a nice 9.63% pop today; I'll let it run. And GM (which I also talked about at its debut last week), though posting a 23 cent gain today, still put in another red candle in the wake of its overpriced, over-issued, and over-hyped IPO. I'm looking for it to go lower still. And seven of my eight LP/HY stocks were higher today, with one unchanged.

Tuesday, November 23, 2010

Sideways Channeling

Today's ugly action in the market was brought to you courtesy of Kim "Mentally" Ill Sung, the loose cannon of North Korea. And with the 142 point drop in the Dow, I now have to take down the green arrow and admit that I have no idea where this market is going. I took down the rising RTC channel I thought we had yesterday. The low Pearson's coefficient simply did not bear it out.

The best I can say at this point is that there is no trend right now, either up or down. We are simply channeling, with strong support at the psychologically important 11,000 level and resistance at 11,200. On that basis alone, and since the futures have been rising since the close, and because the day before Thanksgiving is traditionally good, I'll call tomorrow higher but I'm not overly confident about it.

We're in an environment now where bad news is bad news and good news is also bad news. Until the market can break one way or the other outside the range established over the last seven sessions, there's not really much one can do, at least on a swing trading basis. Once again, I made no trades today. I'm just waiting for this mess to resolve one way or the other.

Monday, November 22, 2010

Holding the course

It's difficult, after a day in which the Dow was down well over 100 points at the low, to keep my long hat on, and yet, if you look at the way things ended up on the daily chart, down only 25 points, you see that this still leaves us above the upper line of the new ascending RTC trend. I'm almost reluctant to do so, but I just have to leave the green arrow up. Today's action leaves us a long way from bearish territory.

I also note that today's declining volume was lower than yesterday's rising volume. That just leaves the shape of today's candle - a hanging man if I ever saw one. But all in all, I think that the RTC and the indicators, which are all still rising off their recent bottom, point to higher prices ahead.

And again, we're talking about swing trends here. If you're a day trader, there's not much here for you. After today, it would take a one day loss of 175 points or four more days of sideways action to bring us to a bearish setup. That's the time range we're talking about.

No trades today. Of the eight stocks in my low price/high yield portfolio I wrote about the other day, four were up, two were down, and two were unchanged and cumulatively, their net value rose 10% today.

Sunday, November 21, 2010

Weekly review

Two days ago, I declared the recent downtrend over and turned the swing trend arrow around from red to green based on the strength of the technical indicators. Friday's action confirmed that. Look at the latest daily Dow chart. Thursday took us to the top edge of the descending RTC line. That's a bullish setup. Friday's action was entirely above the line. That's the bullish trigger. Notice also how the indicators have all bottomed and begun rising. And finally notice how volume hit a weekly low on Wednesday, the low point of the week, then rose Thursday and finally rose more on Friday. All bullish signs. My long hat remains on.

And although this isn't technical, I can't help but observing that two important pieces of news came out today: first, Ireland finally cried Uncle and decided they needed some help from the EU after all, after denying it for quite a while now. Second, it turns out that North Korea is going into the Atomic bomb business in earnest, to the complete surprise of absolutely no one. With the futures up half to two thirds of a percent this early in the evening (it is now 8:35 PM EST), I'd say the market chose to "accentuate the positive, eliminate the negative". But I have to say that in strategic terms, the implications of a belligerent nuclear armed North Korea run by paranoid schizophrenics are of much more concern to the security and stability of the world than a bunch of Irishmen who can't keep books. Still, you can't fight the charts, and I don't intend to.

Finally, historically, the shortened week before Thanksgiving usually does pretty well. I'm at least not looking for any major meltdowns between now and Turkey day.


Last week was kind of a disappointment for me. Although I was up three days out of five, I finished the week essentially flat. A bad day on Tuesday, the day the Dow tumbled 177, is what did me in. After a full week of trading, I lost all of $58. Oh well. This is the sort of thing where I can take consolation in my low price/high yield portfolio. It still spun off interest last week. So right now, I am up 24.34% YTD, on track for a 36.6% annual return. The Dow meanwhile is up 7.43% YTD.

Weekend Reading

Here's something that's apparently a long-running tradition, but I only just discovered it recently, and it's great. If you don't already have a copy of The Stock Trader's Almanac, run don't walk to your nearest book-selling website (I got mine from Amazon) and buy one today.

Published annually, the STA is like the Old Farmer's Almanac, only for the stock market. It's just brimming with useful nuggets of historical data, statistics, trends, tables, and charts all in a wire-bound daily calendar format that lies open flat on your desk. Market holidays, options expiration days, everything is in there. And though it's also available as an e-book, treat yourself to the real deal. It deserves a prominent place on your office desk. There is something interesting on every page.

The Stock Traders Almanac is like a cell phone or a microwave oven. I never knew I needed one before they existed; now I don't know how I ever got along without them.

Chart of the Week

And here's a chart I found on a site by the name of It shows the correlation between the S&P and the Consumer Confidence Index, going back 20 years. Note how during most of that time, there is a high degree of correlation between the two. It makes intuitive sense: when the market goes up, people feel good; when it goes down they feel bad.
But look what happened after the 2008 financial collapse: since then the market has rebounded nicely, but consumer confidence remains in the toilet. I interpret this as being bullish for the market. The two major tops in this chart (in 2000 and 2007) were both marked by consumer confidence readings that were not only much higher than now, but much closer to the level of the S&P (going by the way this chart was set up) at the time.

You have to admit, this is a most interesting chart.

Friday, November 19, 2010

The Low Price/High Yield Portfolio

Today, I want to talk about my little low price/high yield portfolio that I started last summer. It came about because I had some money invested last spring in some short term private corporate bonds that were yielding 7% and matured in three months. Not a bad deal - until I got a notice last summer that the next series were only going to yield 5%. I said to myself, surely I can do better than that with some nice dividend paying stocks. The idea was to find some stocks that would give me at least the 7% yield I had been getting on my bonds and also potentially provide some capital appreciation. That would be icing on the cake.

So I did a stock screen for stocks that yielded 7% or better, had at least 300,000 average volume, were priced under $6, and were technically oversold. The volume is important because it helps narrow spreads and assures you of some liquidity. Why low price? Simple - choosing low price stocks allows me to buy more than one round lot of each and that gives me more flexibility in how to play the trade. I can buy or sell fractional positions that way as the price changes. My little trading account is too small to do that with a $50 or $80 stock.

So here's what I came up with, back in July (the prices and dividends are as of today):

Symbol Price Dividend Name

AOD 5.83 11.32% Alpine Total Dynamic Dividend Fund
CIM 4.02 17.91% Chimera Investment Corporation
RSO 6.54 15.29% Resource Capital Corp.
NRF 4.12 9.71% NorthStar Realty Finance Corp.
SPIL 5.13 15.80% Siliconware Precision Industries Co. Ltd.

A financial, a property management, two REIT's and a tech. That's fairly diversified and avoids putting all my eggs in one basket. And it yields an average of 14.01%. That's not quite the 35% return I'm getting on my swing trading, but it handily beats the 7% I was getting with those bonds. Plus, since buying these last summer, I now have just over 6% of my original investment in capital gains, which increases my yield even more, and provides some cushion against market downturns. Even if all these stocks do is break even, I'm still making money.

Since last summer, I've added three more names to the LP/HY portfolio: DHY, JRO, and ANH.

Here they are:

ANH 6.91 13.31% Anworth Mortgage Asset Corporation
DHY 2.95 10.78% Credit Suisse High Yield Bond Fund
JRO 11.83 6.59% Nuveen Floating Rate Income Opportunity Fund

Another REIT and two bond funds. And technically, JRO, trading at 11.83 isn't all that "low price", but it rates as an honorary member of the portfolio because it pays its 6.59% dividend monthly rather than quarterly. And as we all know, it's always better to get paid sooner than later.

Of course, with dividends averaging well north of 10%, you might wonder if this portfolio is risk-free. Of course not. With this kind of return, there's always a risk involved. The risk comes in two flavors: one, the company could decide to issue new stock, thus diluting existing shareholders. CIM recently in fact did just that dropping from 4.04 to 3.86 in one day. Interestingly, however, two days later it was trading right back at the level it had been before the announcement.

The other big risk is that a company will cut its dividend. That hasn't happened yet here, but I think I now have enough diversity and profit to guard against that. Unfortunately, both of these risks tend to pop up suddenly and without warning. On the other hand, risk and profit go hand in hand. Going for higher yields always implies taking higher risk. That's why I'm not 100% invested in CIM, the highest yielder of the group.

And if my trading generates a better yield than this, why bother with this particular strategy? Because this portfolio doesn't care if I had a good week or bad - the return is always there (obviously modulo the caveats above). I'm not saying to buy any of these, but they're all at least worth a look. Just some food for thought.

Thursday, November 18, 2010

Downtrend Broken

When I posted my 1 AM update last night, I was expecting an up day today. I was rewarded beyond my expectations, to the tune of +1.76%. That certainly helped take the sting out of the miserable day I had on Tuesday. Today's 173 point gain was so big it took us clear to the top edge of the descending RTC channel in one day. According my RTC method, this is only a bullish setup, not a trigger, but because the indicators are all looking so bullish, I am now turning the short term swing trend arrow from red to green. I believe that the downtrend established on 11/08 is now over. I put my long hat on late last night; it remains on for tomorrow.


Today I found a new name to add to my low price/high yield basket: ANH, Anworth Mortgage Asset Corporation, yet another REIT. It is currently yielding an impressive 13.35%. I bought it at 6.88 today and it closed at 6.89. Overall, the basket is performing nicely.

I am tickled over having been able to get some JRO the other day. It added another 7 cents today and looks to have still plenty of room to run. It's now yielding 6.61%, but keep in mind that it pays that monthly, not quarterly. I bought some for my IRA too.


Well it seems like everyone else in the known universe has something to say about the GM IPO, so I might as well too.

I tried to get in on this IPO when the talk was of pricing it in the low 20's. However, neither of my two brokers would give me any shares, being as how I am simply a mere mortal and not a billion dollar hedge fund or my own country.

Then it got really popular. Then greed raised its ugly head. The price went up. They issued more shares. And here's the net result, in a day's worth of five minute bars:It finally priced at 33, but for us peons, it opened to the public at 35. Then, after a little bouncing around, it was all downhill after 10:45 AM. It finally closed at 34.19. If you had bought at the open, you'd be underwater now. If you had gotten in at 33, you'd have an underwhelming 1.19 profit.

Which is not to say I don't think the New GM will eventually go higher. But I think it revisits the zone where it was originally supposed to IPO before that happens.

Now where have I seen this movie before? Oh yeah, IBKR, Interactive Brokers, another IPO that generated a ton of hoopla before it opened on 5/4/07. By some strange coincidence, the prices were pretty close to GM's today.

There was a lot of interest. IB raised the price. They diluted the offering. By the time it hit the floor, it was at 33.00. It hit a high of 34.25 that day before closing at 31.30. Sound familiar? So then what happened? Let's look at the first couple of months on its daily chart, back in 2007:A month after opening, it was trading at 26. It briefly flirted with 35 in early 2008. Today it's at 17.80. (Disclosure: IBKR is my trading broker).

Would I buy GM tomorrow? Heck no. I like the company, I drive only GM cars, but I'm not rewarding this sort of greed. Sorry guys. I'll come back and visit when you're down in the low 20's.

Wednesday, November 17, 2010

A turning point

Yesterday, I was thinking we might see a bounce today. It turned out to be more like a thud than a bounce, with the Dow down 16, the Nasdaq up just 6, and the S&P essentially flat. However, and you can call me an optimist, but I think the important take away here is that the bears were unable to drive the market any lower today after yesterday's big bum's rush to the downside.

Add to this the fact that the indicators are all looking oversold now (and the stochastic is about to make a bullish crossover) and I think it might be time to call the recent downtrend over. Note also that tomorrow is GM IPO day. I'm willing to bet that that by itself will have a positive effect on the market as a whole. And the futures are all up about a third of a percent at the time of this writing (7:50 PM EST).

However, according to my RTC method, we don't even have a bullish setup yet, much less a trigger. We remain way below the lower RTC line in the descending channel (though that in itself can be bullish, going by a "reversion to the mean" theory). So we're now at one of those critical junctures: the bear raid may be over, but it's not quite time to hit the "all clear" siren.

Accordingly, tomorrow I will be reaching for my long hat, though not quite putting it on just yet. And the red downtrend arrow remains in place, if only because I'm from Missouri (well, I'm not really, but I still want the market to show me) so I'll wait another day or maybe two for a bullish confirmation before calling the downtrend over. So tomorrow is looking like a good day for the adventurous to go long. Everyone else, just wait a bit.

1 AM Update

Right now, all three futures are up strongly, and have been trending up since 5 PM. ES is now up 0.83%. NQ and YM are also up about 0.75%. The daily ES chart has formed a classic bullish stochastic crossover. Based on this, I am going to have to put on my long hat for tomorrow after all, despite the lack of RTC confirmation. We'll see if I'm right or not.


Today's big trade is one I didn't make. Way back last spring, I thought it was a good idea to stock up on DRYS, the dry shipping company. Well, shortly after getting in my DRYS sank like a Liberty ship in a U-boat attack. Today, however, after the close DRYS reported better than expected 3rd quarter earnings and it took off like a V2 rocket in the after hours trade. Thus proving that sometimes you can turn a trade into an investment after all, and more importantly that it's better to be lucky than good. I ended the day up nearly 1%, mostly on the strength of that one stock.

Aside from that, my JRO was up 21 cents, and my silly OMEX spec trade was down a mickel. C'mon guys - I want some pirate gold!

Tuesday, November 16, 2010

Ever lower, but maybe a bounce?

Today's action could only be described as just plain ugly. The Dow dropped clear down to the lower Bollinger band at 10,977 before rebounding a bit to close at 11,023.50.

But there is a silver lining to this carnage. After a long wait, it looks like Wall St. is getting ready to hold a sale. A lot of stocks on my watch list that until recently looked overbought are now starting to look oversold.

So where does this leave us? We are still way in downtrend territory according to the RTC, so I must leave the red arrow in place for the short-term trend. However, you can see how oversold all the indicators look after today's action, so at least a one day bounce tomorrow would not surprise me at all. For now at least (8:30 PM), the ES is up 300 and the NQ and YM are also in the green. But because of the magnitude of today's losses, I think a short term trend change now becomes anywhere from four to six days away.


I dipped my toe in the water today and picked up two interesting stocks. First I bought some JRO, the Nuveen Floating Rate Income Opportunity Fund. I've had my eye on this one for a while, but couldn't find a good entry point. I think today provided one. It is currently yielding an attractive 6.72%, but what makes this really interesting is that they pay out monthly rather than the usual quarterly. I like that.

My other buy today was OMEX, Odyssey Marine Exploration. You may have seen their show, "Treasure Quest" on cable. OMEX at 1.92 is looking oversold. I'm not expecting to get rich on this one - it's more of a vicarious play. I can't be on the Odyssey Explorer hunting for sunken pirate treasure (arrrgh!) but I can buy a few of their shares. OMEX has limited downside at this level and if they should happen to hit some major shipwreck brimming with gold dubloons, it could take a nice pop. It's just a fun trade. We'll see how she sails.

And just to show I don't always talk about my winners, my entry into TIE last week was poorly timed. I've got some unrealized losses on this one, but I'm going to hang on anyway.