What to Read

Trading is a game of information. You live and die on the quality of your information. I'm not talking about actual stock price data, but about news. You need to be informed about what's going on in the world to help guide your trading decisions. Of course, with the net, there's a wealth of stuff to read out there - far too much stuff. And of course I'm not helping matters by adding to it :-)

But it's always interesting to hear what other people read. Here's what I follow on a daily basis:

First and foremost is Dr. Brett Steenbarger's excellent Trader Feed blog, right here on blogspot:
http://www.traderfeed.blogspot.com/

Reading this blog has made me a better trader, and a better person. There's something for traders at every level here. Dr. S is smart, creative, and insightful. I can't say enough good things about this. I make sure to never miss a day of this. Check it out.

Seeking Alpha is another great resource for traders. There's always lots of good analysis there:
http://seekingalpha.com/

I also subscribe to the Dealbook from the New York Times:
http://dealbook.blogs.nytimes.com

as well as a series of newsletters from my investment broker, Wells Fargo (formerly Wachovia, formerly Prudential). This is not meant as an endorsement of this company - I'm sure all the other big brokerages offer the same service to their clients.

Finally, I read the free weekly articles from Stratfor:
http://www.stratfor.com

Not directly market oriented, it nonetheless provides great strategic insights into what's going on in the world of global politics. It's fascinating reading.

I also generally have CNBC going on a separate PC. They're not a great source for investment advice, but I figure if Osama Bin Laden is ever captured or flying saucers land on Wall St., I'll probably hear about it fairly quickly from them.

I don't subscribe to any "pay services". There's just too much good free stuff out there and I don't really have time to read anything else anyway. Also, there's a real point of diminishing returns in reading market commentary. If you read too much, eventually you will accumulate so many different opinions that you'll be no better off than reading nothing.

Dow Forecast for 3/5/10

Yesterday's forecast proved completely wrong as the shooting star candlestick failed to pan out. Actually, these mistakes are more useful than the successes since they are learning experiences. Why did the market not fall following this bearish signal?

The key here may be that while the Dow chart looked ready to roll over, we were seeing a divergence in the ES chart. There was no doji there yesterday. Given today's action and the current state of the ES, NQ, and YM, I have to call tomorrow's close up from today, with moderate confidence. 10,400 is now established as firm support. If the bears couldn't knock it lower today given yesterday's action, then it appears the bulls remain in control.

It may also be that there wasn't really enough of a trend preceding the shooting star we saw yesterday for it to count as a true reversal signal.

Dow Forecast for 3/4/10

Well, yesterday's forecast proved correct, just. But what an interesting chart pattern we're seeing. Check out this daily Dow chart. A double shooting star. I went back over the daily chart for 12 years and didn't find anything like this. Today's pattern is even longer than yesterday's. Right now (5:15 PM EST), I will make the call that tomorrow will close lower again, with a fairly high degree of confidence, on this basis alone. And that the decline will be greater than today's 9 point loss. I'll update this post later on tonight when the Night Owl comes out.

12:45 AM Update: All three US futures (ES, NQ, and YM) have turned decisively lower as the evening wears on. Also, the VIX put in a doji after falling for five days straight. This tends to reinforce my earlier opinion.

Dow Forecast for 3/3/10

Following the long doji the Dow put in last Thursday, we saw three consecutive up days. Then today's action constituted a shooting star, always an ominous bearish reversal sign. The RSI is indicating overbought and momentum is decreasing. In addition, money flow is again at levels associated with a top.

And although Asia closed mostly higher, the US futures are lower right now, though not by much. In addition, the euro/USD looks like it is putting in a short term top around 1.33. So all in all, I'm going to call tomorrow's close down from today, with fairly high confidence.

Market Streaks

"Those who do not remember the past are condemned to repeat it. " - Sanatayana

One way to tell if a market trend will continue, either up or down, is to see how the current streak compares with the past. So I took a look at the daily closing price of the Dow over the last 10 years, or 2514 sessions, to see just how many winning and losing streaks there were, and how long they were. The results are interesting:

(Up streaks are in green, down in red. Click graph to view larger.)

The data is pretty similar for both winning and losing streaks. The longest streak was 10 sessions; three of those were up, two were down. We also see that by the time a streak has gone on for four days, it's starting to get pretty long in the tooth. For example, there were only 36 times over ten years that a winning streak went on more than four days. You can use this data to guide your confidence that a streak may or may not continue.

The Only Rule of Trading

Here is the Only Rule of Trading, the one rule you must follow in order to succeed as a trader. It's so simple, so trivial, and so trite, you may be tempted to stop reading right here, but hear me out. Rule One, the one and only rule, is very simple:

Buy Low, Sell High.

Yes, these four words completely summarize everything you need to know about trading. This is the only way you can make money. There is no other. All the charts, technicals, fundamentals, news, and rumors boil down to is that you must be able to tell when a stock is low enough to be worth buying, and high enough to think about selling.

So if it's that simple, why is it so hard to make money in the market? I think there's an evolutionary reason for this. You can see how animals in the wild band together to form herds for protection from predators. Ships crossing the Atlantic in World War II formed convoys for mutual protection. There is a survival advantage to doing what others do, being where others are. It's an instinct. Unfortunately, in trading this instinct can kill you. It's what leads people to pile on to a stock that's been going up and up, one that everyone wants to own. It looks like a sure thing and everyone's doing it. Unfortunately, unless you're early on the bus, you generally end up holding the bag.

It works the same way on the down side. When everyone is bailing out and running for the exits, you want to do that too, just like a herd of zebras fleeing a hungry lion. But this instinct can lead you to sell at exactly the wrong time - ask me how I know.

It's really hard to view down days in the market as buying opportunities, and up days as selling opportunities. Your natural instinct is just the opposite. You want to join the crowd and buy when everyone else is buying, or sell when everyone else is selling. But that's almost always the wrong thing to do. I can tell you that I've made a lot more money since I converted to contrarianism than I used to when I tried to be in with the in crowd. Buy when your stock is down, not when it's rocketing skywards. Sell when it's topping, not when it's cratering.

Of course, obviously this doesn't apply if you own an Enron, GM, or other fatally flawed stock. Unless your holding time is on the order of a few hours or less, make sure your stock has some basis in reality before even thinking of buying into it.

Dow Forecast for 2/26/10

If we interpret yesterday and the day before's action as a bullish harami, and today as a hammer, I'd tend to be cautiously optimistic about tomorrow. Note also ES up 200-350 in the overnight. Support at 10,280 was tested and held the last two days. Today's run at it ultimately failed, suggesting the bears don't have the clout to knock 'em down and keep 'em down at the moment.

Last trade - bought 100 AUY at 10.24 on 2/24. It was near its lower Bollinger band and had considerable support at 10.00.

On Health Care Reform

An Open Letter to President Obama

Dear Mr. President:

I am surprised at your dogged persistance in pursuing a health insurance overhaul plan that it seems pretty clear nobody but you and Ms. Pelosi wants. Perhaps the problem is that we really do need health care reform - America just doesn't want your version.

We do not want "reform" that is going to cost the country a trillion dollars, or even a mere $800 billion. We can't afford it. Period. What we do need is competition in the health insurance industry. Allow companies to sell policies across state lines. Total cost to the taxpayer: zero. And as a form of vital public utility, health insurance companies should be subject to the same regulatory oversight as gas and electricity companies. Savings to the taxpayer: huge.

It is not the government's place to tell the citizens of this country that they must buy health insurance - or any other product for that matter. There is nothing in the Constitution mandating universal coverage for all citizens, let alone foreign tourists. With all due respect Sir, what you need to do now is to stop obsessing over health care and get on with the serious business of the economic health of the nation, which is close to needing a med-evac to the nearest intensive care unit.

Dow Forecast for 2/24/10

Well I was right not to go long today, but I was not expecting the Dow to sell off the way it did. I thought we'd have at least one more day of vacillation first. The consumer confidence numbers seem to have kicked the market over the edge a day early. That said, the support level established on 2/2 and 2/3 around 10,288 (which is also the 40 day MA) held today. We've also gotten fairly extended below the pivot point of 10,395.

Are we replaying the action of mid-December? Hard to say, but the ES futures are not following lower this evening (up 50 at 1:45 AM EST). Technically, the charts say we should be headed lower tomorrow and all the indicators are pointing that way. But with Uncle Ben on deck to speak and the ongoing Greek tragedy playing to packed houses, who knows. If I had to make a call, I'd say tomorrow close will be near today's. But this is a low confidence forecast. I'm still sitting on the sidelines for now.

Dow Forecast for 2/23/10

Well, today's action was looking good - right up until 3:40 PM when the sellers came out. Interestingly though, they were not able to beat the market below the morning lows. Looking at today and yesterday's candles, one might think we now have a bearish engulfing pattern. However, today's range was so small, I'm more inclinded to think of it as a doji day - another day of market indecision. We'll see how Asia plays out and what the ES futures do later tonight before making a call for tomorrow.

No trades today.

Update at 1:35 AM: The more I look at the daily chart, the more toppy it looks. But I'm also thinking it may potter along around the current levels for a couple of days before heading lower. In any case, I'm taking no new long positions right now.

Dow Forecast for 2/22/10

US futures are up, Asia closed higher, no resistance til 10,450, money flow continues to rise, no indicators are overbought, economic news is good. The Dow will end higher tomorrow.

Latest trades:

Long SLV on 2/12/10 at 15.15

Thanks for nothing, Ben

Yesterday, I predicted a down close for the market today. I'm not sure what score to give myself. At 4 PM the Dow had actually closed up 84. But just thirty minutes later, the ES futures cratered (along with everything else), thanks to Ben Bernanke and his rate-raising follies.

I avoided going long today because I was expecting a lower close, so I guess in that sense I was right. But I was really simply lucky. I had no way of knowing Uncle Ben was going to boil up a bag of Minute Rice and dump it on our heads.

And as we all know, sometimes it's better to be lucky than good. As for tomorrow, Dr. Doom is in the room.

Olympic Sports for Traders

Today, we examine which winter Olympic sport you should compete in, based on your trading style.

The Scalper

Short track speed skating is your sport. Like scalping, it's fast and furious, requires lightning fast reflexes and the ability to read the competiton instinctively. And you can go form hero to zero in the blink of an eye. There are only two kinds of competitors here: the quick and the dead.

The Daytrader

Daytraders go for downhill skiing. You jump out of the start house at 9:30 AM and rush headlong to the finish at 4 PM. Like downhill skiiers, the daytrader needs courage, confidence, and ambition to negotiate the twists, turns, and jumps the course provides on every run. The daytrader needs to be flexible to adapt to changing course conditions throught the day. Like the downhiller, daytrading generally ends one of two ways: on the podium or on the stretcher.

The Option Trader

Curling is the ticket for option traders. Exciting only to the participants, both come with a built-in countdown clock. When it's done, so are you. And like options, curling comes complete with a set of convoluted rules and strategies that would make Bobby Fischer's head explode. Sweep, curl, put, call, spread, straddle... kaboom!

The Swing Trader

The biathlon is the sport for swing traders. Not quite as lethal as the downhill and not quite as baroque as options trading. You definitely have to pace yourself here. The lead can change hands many times and the eventual winner is often not the one you'd have picked from the start. And like in biathlon, when the swing trader pulls the trigger and misses, they have to ski a penalty loop to get back to even.

Well, there you have it. Now back to Bob Costas...

Dow Forecast for 2/18

The Dow finally managed to put together two consecutive winning sessions for the first time in the last eight today (2/17). Will this mini-streak continue tomorrow? I have my doubts.

Looking at the daily chart, today's close, 10309, was right at a short-term resistance point established on 2/2 and 2/3. It also marked exactly a 50% retracement from the January highs to the early February lows. In addition, volume declined today from yesterday, and momentum has turned downward. Both the CCI and stochastic are at overbought levels, though the RSI is not yet. Getting above this level may be tough.

Also, the Asian markets closed mostly lower and the US futures are currently (1:40 AM) running lower too. Overall, I expect tomorrow to be a transition day ending slightly lower. I'm looking to see the day end with a doji candle. Longer term, I'm looking for the market to make a third try to get back above the 10310 level sometime in the next month, and that time it will be successful.

Welcome

Welcome to the Night Owl Trader. This blog will follow the stock market and include a mix of market predictions and observations on the art of trading itself. The name comes from the fact that I'm a night person. Because of this, I do a lot of my market research very late at night. I'll discuss why in another post.

I'm starting this blog mainly as an exercise to help my own trading performance. Though I'll be tickled if I get anyone following it, that's not the main objective. I just find it helpful to put things down in print. That helps me organize my thoughts and keeps me honest. Perhaps someone else may find something of value here.

That's about it for now. My first post - we're off the ground. Let's see where we go.

Disclaimer: Nothing in here is investment advice, period. Your trading is your own responsibility. If I say the market is going up and it goes down, too bad.

Privacy: I don't collect any information from this blog. No counters, no cookies, no hidden widgets, no Javascript, JSON, Ajax the Foaming Cleanser, or any other trickery. No ads either.

I have no presonal interest in or affiliation with any of the products or services I may mention other than as a regular customer. I am an independent trader working for no one other than myself. This blog isn't mainly about recommending individual stocks, but if I do it, I will always disclose my personal position im them.