The Trading Digest

From Bloomberg.com

Dave found this picture but he’s busy trading so I’ll post it.

Family is visiting and I have had my hands full the last week. I will get all the T2108 exits exits posted for your review tomorrow. You can always gauge the Ultmate Oscillator at stockcharts.com with the default setting.

Dave Johnson

Just got a new laptop at work, strange thing happens, I plug in the headphones but the speakers don’t mute. So while trying to listen to music at work through my headphones it’s also playing through my speakers.

No problem I think, I’ll do a quick search, find a setting/driver I missed and be on my way. This is what I found.

Unbeleivable.

- John

My father-in-law owns an irrigation/landscaping company that primarily installs sprinklers systems. Last night he mentioned that in the past week, the wholesale price of PVC pipe (plastic pipes used in pretty much everything) has risen 25%. This means that all bids and prices are increasing by $150+ per install just to cover the extra raw material costs.

This is the type of trickle down that is just starting to work it’s way into the system from oil being $120+. These type of increases take months to make their way through the supply chain and be reflected in consumer prices.

- John

The number of paid clicks on the Web sites operated by Google and its partners during the second quarter fell 1 percent from the first quarter, the first sequential downturn that the company has ever reported in the category. The 19 percent year-over-year increase in Google’s paid clicks also was the company’s lowest ever.

- John

IYF hit the 3% Profit Target this morning.

Here is a post with the present holdings.

Many of these will probably start to exit based on a cross of the Ultimate Oscillator crossing the 50 line. We’ll know at the close.

Once we get back to cash I will do a full review.

Dave Johnson

This Bloomberg headline caught my eye:

Pakistani Investors Stone Karachi Exchange as Stocks Plunge

The history of dumbasses is a well littered trail, yet the ones that got together at the Karachi Exchange decided to :

In Karachi investors today broke windows, threw plant holders in the parking lot of the building, burned shareholder statements and at least one protester was injured, prompting intervention by police and the paramilitary. Investors were also protesting outside the Lahore and Islamabad stock exchanges, Geo Television reported.

and

Police surrounded the exchange after hundreds of investors stoned the building and shouted anti-government slogans. They directed their ire at the government and Securities and Exchange Commission of Pakistan, which this week removed a 1 percent daily limit on price declines. The measure was aimed at halting a slide that wiped out $30 billion of Pakistan’s market value in three months, threatening to undo a 14-fold rally since 2001.

That is right folks. A 14 fold rally since 2001. Yet prices slide 25% in a short period and this requires stoning the building. Here is the recent chart. Were there any obvious warning signs in the past 3 months? Of course.

Dave Johnson

Source:

http://bigeyedeer.wordpress.com/2008/07/15/this-cartoon-wrote-a-sweary-word-on-your-toilet-wall/

Dave Johnson

From Sept. of 2006 (via The Big Picture)

One one hand, we have news that Bush has given an “amber-light” to the Israelis to bomb Iran.

On the other we have a largest bank failure in decades, which is will cost the FDIC billions.

And of course we have the beginning of earnings season where we learn how realistic those 3rd quarter EPS projections really are…

No summer doldrums this year :).

- John

Whenever you read a story about declining consumer savings rates or increasing consumer debt load followed by some media explanation of why it’s not the consumers fault and it’s due to economic “headwinds”, remember this picture.

Consumers are lining up for hours for the opportunity to spend $199 to buy a new iPhone.  Has there ever been any activity that makes less economic sense than waiting for hours/days in line to buy a product that will be mass produced to the point of saturation?  It boggles my mind.

- John

Below you will find entry prices followed by price targets for exits. Yesterdays rally brought some a bit closer.

IYF 67.66 - 69.69

IWP 102.22 - 105.29

EWA 25.69 - 26.46

IWB 70.79 - 72.91

EWY 51.43 - 52.97

EWT 14.21 - 14.64

EWU 20.81 - 21.43

EPP 132.89 - 136.88

The other exit criteria is the Ultimate Oscillator crossing above the 50 level.

In this foray below 20 on the T2108 indicator we have had 9 entries. IYF was entered twice with the first entry exiting at its 3% profit target. We presently have a full position now with 8 holdings. 

Dave Johnson

Tomorrow the system will be buying:

IYF- We were in and out of that profitably last week

IWP

Here is a look at those ugly charts.

These are at tomorrows opening price.

This brings the system to 8 full positions and the system will no longer add any more positions unless we get some exits.

Dave Johnson

Only one signal for tomorrow and that is:

EWA

Australia

Alright Australia it is. With the the one exit today this kind of evens things back out again at 6 holdings. Maybe tomorrow we can get a really really big down day to fill out the portfolio. We’ll see

Dave Johnson

IYF hit the profit target at 69.45 this morning. Figures it is the financial one that hits first

The 3% targets for the other 5 entries are as follows:

IWB 72.91

EWY 52.97

EWT 14.64

EWU 21.43

EPP 136.88

Remember the other potential exit is the Ultimate Oscillator crossing 50 if the profit target is not reached.

Dave Johnson

On my ETF list of holdings in yesterdays post I wrote one of them twice.

EWU should be in place of that second EWY. I posted it that morning, I just screwed up the list.

EWU entry was @ 20.81

Dave Johnson

Ok, we have 6 holding in our portfolio that can hold 8 total positions. With today’s mini-reversal we have no new entries for tomorrow because no ETF’s crossed below the level of 30 on the Ultimate Oscillator.

Remember our exit is either a 3% profit target or the Ultimate Oscillator crosses above the 50 level.

Here are the 6 holdings and their entry prices.

IWB @ 70.79

EWY @ 51.43

EWT @ 14.21

EWY @ 51.43

IYF @ 67.43

EPP @ 132.89

Remember the only reason I am trying to highlight this system is because it has a couple key elements I have found in backtesting.

1) High win/loss percentage
2) Favorable profit factor when comparing cumulative profits versus loses over the long term
3) Although risk is open ended it can be mitigated by using a small percentage of the overall portfolio

If, again If, this catches a major swing point you just might be able to let a small portion of these positions run with a major swing low as a point defense. If the overall trade begins to hit profit targets make sure those runners are small enough that if they hit those swing lows you are still ensured a profitable trade. Keep the overall trade small and if those runners represent 1% of your overall portfolio you just might have the basis of a some exposure to extreme oversold conditions.

Dave Johnson

Todays entries are:

IYF and EPP

Big gap down which helps a bit

Dave Johnson

The next 2 entries for the T2108 ETF system are:

EWT

EWU

Taiwan and United Kingdom.

This brings us to 4 holdings and we have 4 more slots available as long as we remain under 20 on the indicator. Market is very very very fear wrought at the moment. It has the feel of a really big down move coming. But I suppose that is why bounces in this type of environment can be quite powerful as people look to quickly gain long exposure and shorts cover their positions. Either way we’ll know soon enough.

I see John did a post. I have reasons for not keeping up with the blog that are a bit different. I am quite lazy and get kind of bored trying to post same the same crap over and over. Maybe the blog muse will visit me sometime soon.

Dave Johnson

As some of you may have noticed, I haven’t been posting much recently due to multiple factors. The first being my “real” job has been taking up significantly more of my time, primarily due to business travel. Amazing how spending hours stranded at random airports cuts into your stock blogging time.

The second is that I’ve been trying a slightly different approach to my trading. Where I used to be a voracious reader of everything market related (news, blogs, books, forums, etc), this past quarter I’ve done little more than update telechart to look at charts, read my favorite blog (alchemy of trading) and of course IM/talk with Dave.

In spending less time, I’ve noticed my trading has become less taxing. I’m no longer worried if I miss an open, or if I haven’t read any news. When on business trips, days go by without me even having a chance to look at my IB account.

The result of all this has been positive, my account has been doing well and trading no longer feels as much like a 2nd job. I’m not worried about missing a few days action one way or the other.  Trading is such a strange thing, unlike almost every other profession, the results are often not at all commiserate with the amount of effort expended.   For those of you that have full time jobs, remember that making 10% spending 10 hrs per week, is a much greater return on your time than making 15% spending 50 hrs per week.

- John

Some of you may remember the system that triggers when we get very oversold on the T2108 indicator that I have highlighted in the past.

Today that system is buying:

IWB and MDY

If we get another big down day you can expect it to buy another pair of ETF’s tomorrow. Remember based upon historical drawdowns keep this system a small portion of your total portfolio. 10% is about right. Have to do something with my high cash position since equity trend stuff went to cash over last few weeks.

Have a Great Day!

Dave Johnson

Richard Fisher head of the Dallas Federal Reserve gave a speech entitled “Storms on the Horizon” yesterday. Below is a link to the text.

Fed Speech

What would be your solution to the problem? or if you even perceive it as a problem.

Raise taxes? Massively cut discretionary spending? Do you think the next administration will address this problem?

Dave Johnson

These forums are much less interesting since Fidelity bought them, but every now and then there’s a good one.  I’ve found this one interesting.

- John

Full link 

Any guesses on when it’s from? (hint, it’s a daily)

Last week was what appeared to be the season finale of the 2nd season of Wall St. Warriors.  Many of you will remember the first season as launching Timothy Sykes into a media personality after the episode focusing on him trading in his bathrobe while his mother cleaned his NYC apartment.  Although not the image most people have of hedge fund managers, it was nevertheless a memorable character.

In Season 2, the most interesting characters were Lance and James who are brokers at an unnamed (but obviously not top tier) firm and appear to be straight out of The Boiler Room cast.   What I found most interesting about them (other than their obvious over the top sales strategy) was what they were doing with their clients money.  They appeared to be primarily using fundamentals to select their stocks and their #1 stock (they said they had 60-70% of all client money in it) was SNDK.  Sandisk has a great story and has had good growth in the past.  It is by no means a pump and dump penny stock (like those in Boiler Room) or one set to go to zero.

However, the one thing that Lance and James never paid attention to is the overall market tone.  In the time the show was filmed (appeared to be June/July -> Dec), the US stock market transitioned from a Bull market to a Bear one and experienced it’s worse decline since 2002.  In these types markets, the market will simply not pay the same multiples for stocks as it will in a Bull market.  With contracting PE multiples, even if a companies earnings growth stays constant (difficult to do in a recession), the price will still go down.  The opposite happens at the start of Bull markets.  Even companies with marginal growth go up because their earnings multiple are expanding.  Long story short, you can be right about the company and still lose large amounts of money because of market conditions.  Just something to remember when you’re allocating your portfolio.

- John

From the Big Picture.

- John

The Bear deal is official and it’s at $2 per share.  The link in the post below links to the actual article.

$2 per share, $236 million, same as Audible.com

Thats the latest rumor, I expect we’ll have confirmation one way or the other in a matter of hours.  If $20 is the real number, that’s another 25% below the LOW that BSC traded at on Friday.  I don’t know if an uglier chart exits.

- John

The T2108 indicator is below 20 today. Hopefully, Dave will have time to update his Ultimate Oscillator script as those trades were extremely profitable the last few times.

For another example of how we’ve traded from the T2108, here’s a post from last August

- John

Today marks the one year anniversary of our collective2.com system. When we started it on 2/28/2008, the S&P 500 opened at 1398.64.  It closed today at 1380.02 for a one year return of -1.33%. During that same time our system returned 9.1% for an outperformance of the S&P 500 by 10.43%. Not too shabby if I do say so myself. Obviously the path has not been straight up and unfortunately we had quite a few subscribers join near the highs (Oct), only to leave during the lows (Jan), but for the ones who have stuck with it, they have handily outperformed the S&P 500 placing orders once a day, without day trading, without using extreme margin and without and risk of a complete account blowup.

- John

As Robert guessed, the lower chart below was DRYS.  It was at ~77 at the time of the posting and this was in IBD tonight:

10 The Greek dry-bulk carrier said profit jumped more than fivefold to $4.50 a share ex items, beating views by 46 cents. Revenue almost tripled to $233.4 mil, above views. After a Nov. to mid-Jan. plunge, shipping firms have been rebounding as several long-term contracts hit the market (NYSE:BHP - News). DryShips (NasdaqGS:DRYS - News) expects to have 17% more fleet operating days in ‘08. Its shares rose 7% after hours.

Yahoo is showing it trading @ ~91+ right now.   Fortunately, I closed my last DRYS short at the close on 2/6 so I avoided this runup.  Based on these strong earnings (I’m assuming guidance was strong), I don’t think it would be an attractive short for awhile.

- John

One of these charts I’m considering for a long.  The other I have played on the short side and am considering another short.  Which is which?

- John

Teenie weenie though

Oh wait we have to like give the whole trade. Phooey.

Ok faithful readers. Do we buy this? How? What trade size? Do we set a stop? Are we adding to a portfolio full of holdings? or maybe one bursting with cash? Does that affect our decision process?

Have a Great Night!

Dave Johnson

No trigger but maybe you can be ready next time we get it.

I wanted to make a quick clarification of the 4 Red Candle System I mentioned last night. The 4 red candles all need to be a down days. Meaning each candle’s close is lower than the previous close. So although you can have a red candle on an up day (close lower than open but close higher than previous close), that would not fit the criteria for this system.

Happy Trading!

Dave Johnson