I hope to publish three or four posts per week to record my thoughts about the market. I will use broad brush strokes to describe my activities, but nothing I write should be construed as a recommendation. I will highlight my fears and uncertainties because that is what stockmarket trading is about. Comments are invited to help me and readers better understand what is happening.
After that massive drop and then a long weekend, for those of us in London, the market turned round rather sharply. I could have closed my US shorts yesterday but I didn't. I couldn't even kick myself because the market could have gone either way. Further falls are likely but safest to bank the profit and worry about further falls tomorrow. So I closed off the positions at the open and walked away. I expect tthe next step down will come soon. I suspect the sharp rise was partly short covering.
In the mean time my gold is moving on up. I shall have to start worrying about whether to take profits as it hits the resistance level.
I bought some oil this morning (in ETF form) and that is doing well. Today's main chart shows the reasoning behind that trade very clearly.
Last Friday's call on the market was beautifully timed. I am not one for patting myself on the back, I could so easily have got it wrong but not on Friday. The fireworks I had been looking for shot up into the sky. Dreadful metaphore because what happened was that the markets broke their support levels made a dive. I had shorts in place and bought more as the markets in London and New York opened, even though a large part of the move had already taken place overnight. I made half my profit for the year so far on Friday so those predictive volume spikes are doing their stuff for me.
My portfolio is now64% short ETFs 10% gold and 26% cash. My profit for the year so far (from April) is 6% while the market has fallen by 8.1% (my benchmark is the FTSE and I measure in £s). A modestly good start to the year and just what I need after my disasterous performance last year. I am going to have my work cut out if I am going make up for last year's catastrophe and earn my salary for this year. The main thing is that I did not lose my courage and was ready to move on.
Friday's performance was not just shorts, it was also that gold I bought a few weeks ago. That shot up on Friday too. To my mind this is a worrying sign, for gold normally weakens when the $ strengthens which it did on Friday (at least it did when you factor out the effect of terrible jobless numbers in the US that were published before the US markets opened). And it shot up as markets tumbled, a return to the old relationship which has been absent since last Autumn. To me this suggests that fear has really returned to the market. We must see how this develops over the next few weeks.
FTSE closed for a couple of days now to celebrate the Queen's Jubilee. Could cause a problem if I need to sell UK holdings.
Those new support lines (I should say old support lines because they go back to February and April last year) have been working their socks off to hold the DOW up for 9 days now. Then yesterday there was a spike in volume and an interesting candlestick shape. (I'm not too hot on candlestick shape analysis but it looked interesting with its long wicks and short body.) Main thing is that it was associated with a modest volume spike.
Result is I'm looking for fireworks today, could be up, could be down. I'm guessing down. At the moment the futures markets are showing a fall for the DOW but rises for the FTSE and the DAX. Only time will tell if I'm right. Luckily I'm not a nail biter.
In the mean time my gold is going well but mainly because of the rise in the value of the dollar
The volume spike gave due warning of a change. Initially it showed a change of direction and, as I expected, the market rallied on Monday. Since then there has been an almighty tussle between the bulls and the bears. On Tuesday the Dow was pulled up and down but closed more or less unchanged. On Wednesday the bears were out but lost ground seriously as the day went on and once more the close was unchanged. Thursday was mostly the bulls' day though bears fought back in the afternoon before losing out in a late rally. And then, at last, Friday saw a dip.
So the volume spike seems to have presaged a pause in the sharp decline that has been in place since the beginning of May. I cashed in my shorts with a hefty profit on Monday, but was a bit too quick to get back in when the market weakened on Wednesday. So I sacrificed some of the money I had made. I have nipped out and in and am now back in to my short positions.
Having made the judgement that we are in line for further falls I have put money on it. You have to go back an awfully long way to find any evidence that there should be support for the market at this level: February and April last year. My guess is that support is temporary. As ever, if I am wrong I will pull out.
My other investment was made on a whim. The ghastly Eurozone crisis festers on, so I have bought a chunk of gold. Apart from anything else it keeps some money out of the clutches of banks that are vulnerable to any currency disaster. So far the investment is not too bad. Nothing spectacular but I might have caught the bottom by a fluke, not by judgement. So I sit and hope I'm right. Roll on next week.
So we have had almost 13 days of uninterupted fall. Just one tiny recovery day. I had been expecting it for weeks and there had been three false starts. It's an almost 7.5% fall from the peak. The big question now is whether this is the bottom. The spike in volume suggests that for the time being it might be. I shall certainly be worrying on Monday and will be ready to cash in the profits on my shorts.
All of this analysis has been done without reference to the news. However much I try to insulate myself from it news leaks in through my ears and eyes and I am aware that Europe is in the grip of a panic about Greek and Spanish banks. This has to be worrying because noone is immune from a banking collapse. It would be foolish to assume that national borders would protect banks in one country from disasters in another. My response to the panic has been to buy some gold. This has had very modest success. Surprising given the scale of the risk. On Monday, if I sell my shorts, I shall be sitting on loads of cash, very vulnerable to what is happening in the banking world. What to do with it will be the next challenge. More precious metals? Shares in big solid companies in consumer basics? US bonds? There is no clear place of safety.
I suppose I will just have to go on worrying. Anyone got any ideas?
Have you been around long enough to remember the bursting of the tech stock bubble? The cry was, as prices plummeted, "a wonderful buying opportunity." Perhaps this is in the minds of bulls now. The market seems remarkably reluctant to fall. Perhaps the market is being manipulated to stay high to give smarter traders time to get out of their positions and offload their holdings onto the more gullible. Or perhaps I am wrong and we will not see a collapse in the market.
I've just sold the very last dregs of my equities. Little bits and pieces I was holding onto for not very good reasons. I have stoked up my short ETF holdings a little more so I now have 39% in equity shorts and the rest in cash. Since April 6th I am up 2% compared to the market's 6.1% fall. I need a bit of cheer after last year's disastrous performance. The main thing is that I have coped psychologically with the loss and I am in the game and fighting back.
Two posts in one day, that's a first. I was inspired by George who left a comment. Thanks for that, and thanks too for other comments. There are so many ways to look at the market and if you don't look for alternative ways of interpreting what is happening you get nowhere. I personally am not convinced that there is a cabal manipulating the market. I make a deliberate effort not to listen or read market commentaries in newspapers because they sensationalise everything. Their priority is selling their rags. They also have a way of being knowledgeable but only after the event. I try to look forward.
Back to the cabal that George suspects is running the show. I do think the market is being moved by people with far more money than sense. Governments have pumped banks full of cash. As we know, this has not been lent out to businesses. Instead it has found its way, one way or another, into asset markets especially stock markets. This has pumped up the price of shares to unreasonable levels. For me this is a disaster because I am good at finding bargains, pointless if the market as a whole is poised on the edge of a precipice. Eventually the easy money will run out and there will be a drought of buyers. Then some piece of bad news will cause a panic and sellers will suddenly appear. This will be the tipping point. All those hungry buyers will see paper losses mounting on their books and they will add fuel to a selling frenzy. The ones that bought low will be OK but the ones that came in late will have trouble repaying their debts. We just hope that the banks that lent them the money will be able to cope.
Unless there is Armageddon, those of us sitting on cash will be able to hunt for bargains again.
But going back to present problems the bulls are still out there, holding on and pushing the market back up. Yesterday's Greek story is forgotten. You're not allowed to wrap your fish and chips in yesterday's news any more. Now that really was recycling.
I appreciate David's comment from the last post too. I agree that going short is part of a good strategy, it's just that I don't do it very well. I don't buy soon enough and I am frightened out of my positions by rallies so I miss the next move down. I do it using ETFs. Do you have a better way David?
So here we are with the US market nudging the support, now resistance level. We just have to wait to see how strong those bulls out there are. My money stays, albeit hesitantly, on the short side.
The news yesterday was full of it: GREEK CRISIS HITS STOCKS! But as you can see from the charts a fall was to be expected and, measured by recent market activity, it was not especially big. The lower support line almost held and we are left scratching our heads. Will it go lower or will it not? This morning's futures market says not:: a 40 point rise in the Dow, a FTSE that will open flat and a modest rise in the Dow.
The FTSE looks more like a down trend but even there you can see that yesterday's fall was not out of the ordinary. The fall in the DAX was even less dramatic.
Never trust what you hear on the news. Watch the charts and be afraid unless you get a clear signal. We have now been in limbo for six weeks. That's more than 10% of a year. It's the worst possible type of market for making money. It is impossible to be confident about short positions and holding stocks is mighty risky when there is the threat of a big decline. Woe, woe and thrice woe.
You will know that I are strongly on the bear side of this market, that I entered my bear positions far too early and got stopped out. You will know too that I am holding short positions again. Net result is that I am very marginally down on those trades since the beginning of my financial year which starts on the 6th April (just like the British financial year.) So to answer the question that I used to entitle my last post: No we're not there yet.
I have always found it extremely hard to trade the market on the short side, the more so at present because I no longer see any relationship between the market and the reality of economic life. I would agree that there is an argument that says that we are in the economic doldrums so some people think the only way is up. They believe the prospects for those companies that have a grip on their debts are good. In addition with continuing low interest rates companies with good cash generation offer better returns than bank deposits so there is a good reason for strong share prices.
However, a massive shadow hangs over the market. Banks only survived because their huge portfolio of toxic debts has been taken over by governments. They were already almost overwhelmed by their own debts. The solution which has, most effectively, kept this creaking show on the road has been the printing of money. I cannot see how this can go on without some of the wheels coming off. We already have commodity inflation and the prospect of this seeping into inflationary pressures is ever present.
As you know, there was a time when I saw safety in precious metals, but I have had little to say about those for some months as I have stayed away from a collapse in their prices. Their time may come again but not yet.
My favoured territory has always been stock picking among undervalued companies, and this has kept me fed and watered for many years now. But I fear buying into companies which, by their nature, are illiquid and would be impossible to sell if the s**t hit the fan.
So what do I do? For the moment my strategy is this:
I will take my profits on my open short trades and see what happens next
I will keep my eye open for rallies on the market and try to take quick profits out of beaten down shares
I have just decided to spend money on learning how to trade foreign currencies properly
I hope this will be enough to keep my head above water.
We have now had two days of heavy falls. Judging by the futures market and by the performance of Asian markets overnight we are due for another nasty day today. So has the slide that I have been waiting for, preparing for at such a high cost finally arrived?
My short positions are slowly returning to profit. I still have to recover the losses from my early short foray that I closed in mid April. I opened more positions on Friday. So I am backing my judgement big time - 28% of my portfolio. Whether or not I am right still remains to be seen. I have found that taking short positions is a risky business. But then you can't expect to make money without taking risks. The money you make in this game is a reward for taking risks. So I hold on tight and stick with the white knuckle ride.
I am sitting on heavy losses from my shorts on the FTSE S&P and DOW. Yesterday I almost threw in the towel as the market powered through the previous highs on the Dow. But then it pulled back and closed below previous highs. The close was still a local record. The situation on the S&P was not so bad, we are still well below previous highs. The big disappointment was: no spike in volume. I am waiting for a crescendo in trading. This would show that those sitting on the sidelines have finally been suckered in, and the market his at last ready to fall.
But I am pretty close to my stop loss so the next day or so will be the end of my patience.
I am not a great one for listening to news but an item caught my attention yesterday. Alan Greenspan made a statement. You remember him, he was the guy who single handedly landed us in the s**t. In a Bloomberg interview he said that stocks are very cheap. His argument is superficially coherent since it is based on the low PE ratios of S&P companies. I continue to believe that we have is asset price inflation generated by the the printing of money, so I continue to fear a big bust. The day will come when it becomes obvious that central banks can no longer sustain the weight of their collective borrowing and the banking system will start to unravel again. I just hope that when it happens I will be in a relatively safe place. But there is no point in being right in the long term and losing money in the short term so I will have to pay attention to my stops and find something else to do unless omething happens soon.
I have not been updating because there is so little to say. Here we are waiting, waiting, waiting. And it's a painful wait. It's so hard to get the timing right. When the market shoots off in an upward direction it takes massive courage to hold onto shorts which are losing money, particularly when my capital base is so small. Result is that I cut my losses and then I'm not there when the market moves off in the direction I expect. Fear of the bear trap is ever present. The best I can do is to control the money I put at risk so that if I do get it wrong my loss will be manageable. I then hold on tight and go with the ride as long as I can bear the pain. The notes on the chart show why I am holding on.
I am feeling the jaws of the bear traps gripping my ankles. Who'd have thought it: straight through the 13000 level and sticking there all day long. No volume spike but we are back to those days of huge daily price movements. I have yet to throw in the towel. If it goes on like this I am going to have to sit on the sidelines and watch developments that I lack the skill or resources to handle. I cannot afford another year like the last one.
Today is decision day and its going to be hard. But the first rule of investing is that you must, above all, protect your capital. If you fail to do that you have no chance of re-entering the game. Take your losses and wait for better times.
The market recovered on Thursday and then fell on Friday. I bought more shorts as I planned. Now I wait to see if the slide will continue or if I have been suckered into a bear trap. No real way to tell until it happens.
The market held above that support line of 12880 for most of the Friday and only slipped in the last 30 minutes of trading. Perhaps this is a good sign for my position. Only time will tell. That waiting game again.
It is hard when you have lost a lot of money to get back into the market, but you need to grit your teeth anddo it.
I indicated in my last post that I am now bearish about the market so the only way to go is short. I bought short positions on the US and UK markets yesterday through SUK2 and DXD exchange traded funds. I turns out that I went in too early for the market continued its retracement today. I'm holding on and planning to buy more when the up-tick has come to an end. 13000 is the strongest resistance point and it also represents the half way point of the downward move.
Not much more to say. I wait to see if I am right.
Back after three week of absence and at the beginning of a new year for my portfolio. On the 5th April each year I cash up, review my performance for the previous year, revalue any holdings at their market price on the day, and start with a clean sheet.
My performance last year was disastrous. Almost half my losses were chalked up during the last three weeks. I was too slow to cut my losses. I was holding a portfolio that was far too risky to be left without proper supervision and I lacked full access to data which would have warned me that a major shift was taking place in the market. Too late now to grieve, I just have to work hard to make up the losses.
A quick look at today's chart shows what has happened and also what I should have done if I'd had been able to see events unfolding more clearly:
the support line, respected by the market since October was broken on the 6th March
it looked like a false break down because the market recovered within a week
support was broken again on the 20th
this followed a sharp spike in volume on 16th, the day of a new high
Those last two events should have been my signal for retreat. I actually held my positions until the 29th March by which time my losses were dramatic. To add insult to injury one of my US holdings had it's listing suspended on 28th March. I have written off that holding and this accounts for about a third of the loss accumulated during the past three weeks.
So where are we now? Yesterday the Dow closed bellow the critical 13000 level and faces a couple of previous resistance levels which are now potential support levels. I do not hold out much hope for a happy outcome. Share prices have been riding high and we are approaching the summer which is rarely a good time for the market. I enter this period with almost 90% cash and so I am now protected from danger and will be well placed to take advantage of any rises. For me the best outcome would be a sharp market fall which would mean that bargains would reappear.
Precious metals and commodities have done no better than shares. I have no precious metals but still have my cattle holdings which are not doing well. My other holdings are tiny.
Service will be patchy for a while. But I will be back.
What a jump! More than 200 points and it took out the 13000 level (purple line), burst above the diagonal trend line and broke through an important peak that occurred just before the 2008 market collapse (top blue line).
So where to next. As ever I am not foolish enough to predict these things. But I have a well invested portfolio so that tells you where I'm putting my money. The futures market for tomorrow looks promising. I bought a whole bunch of "surfing" shares on Monday. By this I mean ones that:
have an upward trend
have displayed a wave motion in price
are near the bottom of the wave
the value of the move from the buy price to the mid point of the wave movement is worthwhile.
In the UK I have bought TT. KIE PMO STAN KAZ RIO. All are in profit since Monday and STAN is showing a 3.5% profit and is close to the point where profits are taken.
In the US I have bought ZSTN USHS ALNY WNC and LCAV. These are doing reasonably well and have very high profit targets but are being dragged down by poor performance by LCAV.
My US picks of 8 March are showing excellent returns. Hong Kong shares bought the next day are, rather disappointingly, neutral.
Report comment overall: could do better, but is improving.
This information is provided so you can watch. I do not recommend shares.
After last week's scare we are back in the doldrums. The market has recovered - a bit. It has bounced through our two resistance levels. (You will remember that these are highs established in May and July last year. The next resistance level which I have just added was established in May of 2008, before the 2008 market crash.)
Currently the market is struggling with the 13000 level which it has breached briefly before falling back. It is also below the diagonal trend line support level.
At present I working on the assumption that we are poised on the brink of a renewed bull market which may be short lived. I am therefore picking shares that should generate short term gains using two strategies:
I am currently experimenting with a month by month share picking pattern. I buy shares and hold them for a month and then replace them with a new batch. The reason for this rapid rate of turnover is because the shares I pick are in reasonable companies that have been severely beaten down in price. These shares can show spectacular returns but carry a high level of risk and meteoric percentage rises can quickly evaporate. These are shares that I seek out in the US, Hong Kong and the UK
I am also buying shares using my tried and tested UK system that looks for shares which have out performed the market and have exceptionally attractive fundamental characteristics. PE ratio, predicted growth rates etc.
So last week I was frightened out of my positions based on the first strategy, with a moderately better than neutral outcome; and held onto the shares bought using the second strategy.
As things settled down and the market recovered I bought back into strategy A, a little more cautiously than before. The US shares I bought were PCX DMND STRI AMRS PMFG. They are already showing a nice chunk of profit. In HK I bought 886 267 2328 2342 and 1828. They have yet to show a profit. In the UK I strengthened my portfolio of strategy B shares with VP. BMY RNO and SPD. I'm still waiting for an uptick in those.
Remember that nothing here is a recommendation. I mention what I have bought so you can all watch and then have a good laugh if I fall flat on my face OR think how right he was if I don't.
So I was wrong. Hasty reappraisal of tactics. Swift implementation of stop losses. Winding down of positions and then sitting back to tend to my bruises with an enhanced war chest. Wondering whether I should hedge with some short positions. Too early to tell.
And then this morning. One of the pleasures of holding some Hong Kong shares is that I can get up in the morning and see what has happened overnight. I could have gone to bed leaving sell orders but I decided not to. I don't have an automatic feed for Hong Kong so its a question of manually looking up each share.
First though I looked at the futures market which was expecting a 30 point rise on the Dow. Then the HSI - the Hong Kong index was only down 150 points. Not bad for an index that can easily fall several hundred points when its feeling peaky.And then I went to look at the individual shares I own. 6 out of 9 were up.
Futures are indicating a 17 point fall in the FTSE. Not massive. So here I am sitting on the fence. I think I'm going to do this: Wait for the open and see how black the clouds are looking. If they are dark I shall do a bit more pruning of the portfolio and throw in some small shorts (how do these puns find their way into my head?) and I shall do the same with the US market. The HK market has about an hour to go. If my position starts to deteriorate between now and then I'll take some profits.
Hello David. Thanks for your comment. I agree that caution is needed here. (see comment on last post - no pun intended, but there could be a hidden message.)
The fact that you look at the evidence and find it points to a a top and I look at it and think a breakout is more likely is why the market plods along unwilling to do anything much. Buyers and sellers are matched and each side is trying to wear down the other. I see that two resistance levels have been broken on the Dow. Others see the failure to breach the 13000 level. Either side could be right. My modest optimism is just that: modest. Tomorrow I will go through my holdings and stop some losses and possibly take some profits. I have yet to decide whether going back into silver is a good idea now. Not only is it outperforming gold but it is much more volatile so there is much more danger.
A big part of tomorrow's work will be reviewing stock picking strategies. So my bullish mood continues unabated. Only a big drop in the Dow will shake that.
Just to keep my feet on the ground and to keep me worrying (worrying is best) I show two shots of the S&P 500 today. It shows a failure to break the highest resistance level and a break down through the next lower resistance level which should now be offering support. It has also broken down through a diagonal trend line support level that has held since the end of December. If those portents are to be believed it is a case of hold on to your hats. "It's a game, i'nit."
That massive dive in the gold price (5.5% in a day) has had no kind of follow through. The price drifts about at the same spot it ended the day on Wednesday. The volume spike on Wednesday was big but not as great as the last real biggie that occurred on 26 November last. And the volume follow through on Thursday was very limited compared with other such events. And then on Friday trade was pathetic. Sliver showed a similar pattern.
What is extraordinary is that none of the other main markets were affected. It was as though someone dropped a huge rock into a pool and it sank without ripples.
By now you will know I take little notice of the news and allow the market to tell me what is happening. But with something as strange as this I was curious to see what others made of it so I took a little peek. It was much as I should have expected. It's amazing how many ways grown men (and women) have to wrap up the words "I have not the faintest idea." while still pretending to be on top of what is happening. Better still the fall came as no surprise to them.
My next trick is to decide whether I should go back into those very profitable gold and silver positions or is this the beginning of the end for the precious metals bull market. I can divide that question into two parts:
do I still feel confident about the equity market? (My basic idea here is that equities seem poised to make a big breakout on the upside and I am perhaps 80% convinced that this will happen.)
could the precious metal markets yield a better return than the equities? (I am fairly clear about the answer to this question - if I am right about equities I am convinced that I can make more money by share picking in a rising market. I can cash in my profits and if If feel the need to buy precious metals I will be in a position to buy more gold, silver or whatever.)
The risk I am running by doing this is that I could get caught out by a catastrophe which would catapult precious metals into the stratosphere and leave me struggling to dispose of my shares. Something to mull over in the next few days.
In the mean time the Dow plods on finding it hard to smash that 13000 barrier leaving my portfolio languishing with it.
One little idea did come out of listening to all those explanations of why gold was dumped as Bernanke spoke. It would appear that platinum has been outperforming gold since the beginning of the year and did not take the big hit that damaged gold. And then I looked at the charts and found that platinum and silver followed the same trajectory. I think I feel safer with silver. But a lot more thought needed here.
I've started to lose my nerve. Only a bit, and it was the result the sudden fall in the gold price. It should not have come as a surprise because it has had several failed attempts at the $1800 level. The silver price has followed. I snatched profits as the fall began. By then the various mining stocks were wobbling. I was too late to grab profit except in LMI where I managed to take 4% accumulated since Feb 7. I've held onto the remaining miners where there is a reasonable chance of recovery since they do not specialise in precious metals.
Last night I threw in the towel on ALVR where I was nursing a 15% loss. As ever you tend to give up just as the bottom has been reached and today we see a small recovery. Makes you want to spit.
With less pressure on my cash I have bought some more from my patented strategy filter. I bought VP. BMY and upped my stake in LAM. ISA's don't let you buy AIM shares and I still don't have sterling cash to spend in my SIPP. As a result I've had to give the AIM shares that came up as candidates a miss till I can free up some more cash.
Back to the panic. The DJI is stuck. It's hovering just above a resistance line and if you add in the days it hovered below it has been sitting there for a month. Will it make the break or is 12875, the high reached last May, going to be a step too far. Yesterday it closed above the 13000 mark and it keeps nudging that level but it needs to move convincingly above it before I will feel confident that resistance has been broken. I wonder if that fall in the precious metals price is a break in the link between gold and Dow. I've just put my money on that bet. But I'm nervous as I walk away from the bookie's counter.
Since the last week in January I have been active. I have gone from a portfolio that was half empty to one that has almost no cash. I have a rump of my gold and silver, which is doing very well and represents 9% of my portfolio. I still have that position in cattle which is languishing. I had the opportunity to take a small profit a few days ago but didn't and am now showing a small loss. A big part of the problem here is currency loss. I shall not keep this much longer.
78% of my portfolio is in equities some doing well and some doing badly. In the UK I have three strategies.
The first looks for shares that have a low prospective pe ratio; a high prospective earnings per share; positive revenue growth; have out-performed the market in price movement and that out-performance is accelerating; they must generate cash flow more quickly than earnings. Picking shares on that basis has generated a profit of over 4% in a week.
The second is my surfing strategy which I have been running for about a month, this has generated just over 3% in a month with most of the profit realised
Finally I seek out high valued stocks in growing sectors and these have generated 1.8% in about three weeks
I am happy with these returns since the bulk of the profits were made in a period when the market went up by less that half a percent.
I also did well in Hong Kong where I sought out shares with a decent value profile but which had suffered a collapse in price. Here I made almost 3% in a little over a week while the market made 1.5%.
The big disappointment was the US where I looked for
high valued stocks in growing sectors and for small cap stocks that have suffered bad price reversals and they have left me with a loss of 9%. I am holding on because these selection strategies have worked well in the past through thick and thin. If they do not start to perform I will have to do a serious debrief to see what went wrong.
Using my surfing strategy in the US was also a failure. I lost about 1.5% in a month.
Today's graph shows how my surfing strategy works at its best. I look for shares that are trending upwards - shown by the middle blue line. I then pick those which are at or near the bottom of the channel representing a movement of 1.5 standard deviations (the dotted blue lines). I like to see a high percentage movement back up to the trend line. In this case it was 9%. I bought at 125 on 25th January and sold at 133 to realise a 5% profit after costs in ten days. I could have held on to the top of the channel but I had no way of knowing it would get there - it did not before. I think I am happy with this type of trade and will increase my stake to reduce the impact of costs
I am delighted to have had a couple of comments from readers. The topics are moving averages; and how to get on top of this trading business. In response to the latter I recommended two books which were instrumental in getting me going on a largely successful path many years ago now. (See last post)
I like Richard Koch's book because it gets you to look at yourself and choose an investment style that matches your personality. For me the best approach was finding value shares. Jim Slater's Zulu Principle was invaluable in getting me going on that road. Benjamin Graham has written several more advanced books on the same topic.
Going back to moving averages, Terry showed interest in moving average crossovers as signals for getting in and out of trades. I did a quick test on Unilever and found that simple MA xovers would have lost money consistently. (details in the comments on the last post).
I mentioned that I almost always show a 200 day moving average on my charts. I don't use this as a signal but as a guide to where the instrument I am looking at is going. 200 day MA above the price indicates a downtrend. A big and growing gap suggests that there is a good chance that a recovery in price is likely in order to narrow the gap. In an uptrend the opposite is true.
Red line is 200 day MA
Today's chart is chosen to show the value of the 200 day MA. I've chosen IRobot Corp. A share which I bought because it had demonstrated a big fall from its trend. It had just announced excellent results for the past year but had also issued a profits warning for the fallowing quarter and year. I bought it on 21 February several days after the big gap down and when some recovery had already taken place. It is a risky trade because there is nothing to guarantee a recovery, but a potentially profitable one. A recovery to the top of the open on the first day following the profit warning would represent a 12% return. The share price dove through the 200 day MA and there was what looked like mass panic. A classic opportunity to make money as wiser heads begin to prevail and see that the market fall has been overdone.
Looking at the second chart we can see that the 200 day MA has been a helpful guide for the past 5 years with consistent price movements that demonstrate that the MA acts as a magnate for the price, always pulling it back when it strays too far. I don't know if you find this helpful. I do but I do not see it as a reliable signal. Choosing your entry and exit point is a matter of judgement. Hope that helps Terry. Remember I recommend nothing. I just point shares out that might be of interest.
Laid low by a cold for the past couple of days. Since Monday was a holiday in the US the interesting action happened yesterday.
The DJI remained above the resistance level that was established by a price peak back in May last year. But the movement in the market remains steady and subdued on a day to day basis. It is amazing how hard I find it to pick up on a change in the mood of the market and respond appropriately. I have completely failed to respond to the smooth upward trend which emerged in December, hugely to my cost in missed opportunity. I now am fearful that my response is too late. This feeling is not helped by the fact that my share picks have been poor. So, even now that the market is still bowling along my returns are dismal.
No point in bleating about this. I am making some money and these periods when nothing you do goes right happen from time to time. It's just a case of being strong and holding on for the moment when luck returns. In the mean time you just keep going and checking to see whether perhaps there is something you have missed and could be doing better.
In the mean time I have taken profits on PG and VZ in the US, both meagre. In the UK on WEIR, decent.
I have filled my boots with HK shares 3360 410 1128 1068 and 2342 - so far so good. These were purchased on the basis of decent quality shares that had been beaten down.
I am also in the process of buying battered shares in the US that I plan to hold for a week. More news about these in my next post.
I have had two comments and have been delighted to reply to each one. Ian recommended MA crossovers as a method for getting in and out of shares. I tested Unilever and found that they were too slow as signals for getting in and out.
A short post today. Tomorrow is President's Day and the US market is closed. It left us on Friday with conflicting signals. On the one hand it clearly broken through the 12875 resistance level I have bee watching for several days now (see Thursday's's post). It was not a dramatic rise, just 46 points, giving no suggestion of a climactic end to a rally.
On the other hand there was spike in volume. As you may recall I have demonstrated that, in the past, almost every spike in volume predicts a change in direction in the market. I show this again on today's chart. However, the last volume spike signalled nothing. Also there has been a radical change in the character of the market ever since the 21st December. The violent movements, both up and down have subsided and we seem to be following a smooth upward path.
Betting that that will continue, for a while at least, is where my money is. I wish my strategy was yielding better returns at the moment but I am not losing faith. I will have to wait till Tuesday for the first inkling as to whether I am right or not.
Just look at the charts. The Dow is struggling. Why? Greek debt, unemployment levels, inflation, quantitative easing? Perhaps? Or none of these things. The answer is that it has hit resistance. And that resistance goes back to the 2nd May 2011, nine months ago. There was a lower level of resistance that was established in July 2011. In theory it was a stronger level because the market had two goes at breaking it before it gave up and collapsed. But when the market recovered to that level (12750 on 23rd January) it took ten days to break through. We are now on day seven of the effort by the market to break through the higher level of resistance (12875) - established in May. There have been no days of exceptionally high volume. So I am holding faith. That does not mean I am right but I think the odds are on continued upward movement. I've put my money where my mouth is and have my fingers crossed. That's what this business is like. The next day or two will tell me whether I was right. My current portfolio distribution is gold and silver 9%, commodities 5%, equities 74%, cash 12%.
Last night we went to see a miserable play. It was called Neighbourhood Watch and is Alan Ayckbourn's not quite latest offering. I also saw Life of Riley, his previous play. All I can say is that he has lost his touch. Both plays were a waste of time and effort. This last had everything wrong with it and since Ayckbourn directed it, no one else can possibly be to blame. The plot did not hang together, the characters did not make sense, the period of the action was ambiguous, the set was dismal and the costumes were drab or, in one case unbearably Essex. The final moment of the play was laughable. The only positive thing I have to say is that the actors played their parts, dreary as they were, well. If it was an attempt to cock a snook at Cameron's Big Society it needed to be a lot better constructed to make its point convincingly.
We went with a friend who has been a very successful am dram producer and director and she thought its simplicity and range of characters would be very appealing to amateur companies. But please, Mr Ayckbourn spare people who pay full price for their theatre tickets from this dross.
My switch in approach from bear to bull is paying dividends. The strategies I have adopted are paying off and I now have evidence that if I had been less lilly livered through the past year I would have made lots of money instead of losing some. I have back-tested share picking strategies, using Vector Vest, in the US the UK and Hong Kong. With the right strategies in those three territories and picking shares at the beginning of each month and selling them at the end I would have made profits of at least 50% on my capital. I also know that I would have made money in more than half of the months but the profit in the good months would have more than made up for the losses in the bad months.
So I embark on my new approach. I bought shares using the best performing strategy in the UK on 7th of February. They are slow movers (mostly in the mining sector which is notoriously volatile and is currently having a few days of weakness), nevertheless they have covered trading costs. I bought another batch on 13th February and they are already in modest profit (GSK BKG SXS AMEC BRBY). - as ever these are not recommendations but shares you might like to watch to see if my strategies are working. - The batch of shares I bought in the US on 6th Feb are also in profit with SPPR leading the way with a 13% rise. And finally I bought shares in Hong Kong last night and they have delivered a little bonanza straight away (3360 410 1128 1068 2342).
I am still running my wave theory shares. (I guess a better name for the system is surfing - I pick shares that trade in a channel and at or near the bottom.) I cashed in profits in the US on MDP (8.5%since 25 January) and am holding on to the others pro tem until I find myself some better prospects - I said on Sunday that I had screwed up when picking these shares, but until I find something better I might as well stick with them till they recover some of the losses already incurred. I have put limit price orders on all of them to reduce the emotional toll of deciding when to sell.
In the UK I cashed in ROR (2.9% since 25 Jan) and MRW (loss of 5.3% but luckily I only bought a very small stake so the cash loss was minimal). I have now refined the surfing system so I now by shares which have very good potential over a relatively few days and I only buy one which are in an uptrend. My latest buys in the UK are POLY and EVR (which has made 5.7% since Monday. I am hoping for over 8.5% and over 6% from POLY.
There is always a danger that some ghastly news will spook the market and I will have to beat a rapid retreat but I'm making hay while the sun shines. Today's picture is not a chart. Instead I show you Elk. The Aberdeen Angus bull who lives in the field at the end of our garden along with two of his sons and his mother. I think it is appropriate that he is rather muddy. My feeling about the bull market that he represents is rather muddy too.