Calvin and Hobbes - Subsidize Me

Been out most of the day. Got a new book, though: The Coming Generational Storm. Talk about a bleak looking 2030 for a good portion of the baby boomers. Hopefully I'll be on a beach somewhere drinking a martini. Otherwise, I'll probably be making a shitty wage in the nursing business.

~22 Pips

I have trouble holding onto a trade after I hit 10 pips. I get a little anxious, even though, as with these trades, I could have easily combined the two into one and held out for another 10, perhaps even 20. With the spreads being 3.2 or so (what happened to my 1.8-2.5?; I rarely can get filled at those spreads anymore) I have a major incentive to setup and hold on. For those two trades I basically paid a 6.4 pip, or a 30%, commission. Positive, yet awful.

42.50 Feb COST Puts @ .85

Bought some puts for Costco. Read the Buy on the Dip post and agree with him. If it can break 50 there's a good chance it will hit 43 or lower.

Been posting on Twitter and messing around. I can't believe how tired I am at the moment. Been doing some workouts to get into some sort of physical shape. Hoping it will help keep my mind and emotions in shape as well. Trying to think of ways to make a little money on this site, which rarely pan out. Few people, very few people, click on the ads which is understandable--I don't get that many hits. I am going to increase my participation in other sites. I know I how rewarding it is to get a comment on a post; I'll try to do that for others. I've been looking at some of the twitter ad services, and seeing what type of deals they offer. Twittad and Magpie seem to be the way to go. Not sure if you can really make any decent money, but every dollar builds confidence levels.

Take care everyone.

PS: Might head off to see a movie later in the afternoon. Milk looks like an interesting flick. Gus van Sant is a veritable indie god, and while some may poke fun at his movie Last Days, Elephant and his main stream Good Will Hunting certainly make up for any of his more experimental films (to those who do not like the experimental).

Predictions Based on Demographics

"Booms like this happen every other generation."



"Worse of the Stock crash will happen late 2010 mid-2012."

(h/t The Housing Time Bomb)

Dinosaur Trader's Best of 2008

Ready to read a kick-ass compilation of the internet's best 2008 stock market posts? Click here to savor the prime rib, first tier work of DT as he strives to make sense out of the universe--or something like that.

Predictions for 2009

Many people are interested in what will happen tomorrow, because if you know what will happen tomorrow you can profit from that information. While difficult to predict what will happen in the time ahead (e.g. flying cars, anyone?) a general idea of the future can be generated. And, at the very least, reading other people's predictions gives you insight into their preceptions and how successful businessmen think. Here are several lists of predictions for 2009:

- Many people have been waiting for the Fly's '09 predictions. The man runs a successful site, trades well, and is generally entertaining (first tier shit, baby). Check out his predictions here.

- CNBC has an entire section dedicated to '09 predictions. With two [1, 2] optimistic articles and a single slightly pessimistic one, CNBC appears to have a bright slant. While a view into where a good portion of the United States will get their economic information, I would take anything at CNBC with suspicion, especially Jim Cramer.

- Corey Rosenbloom, at Afraid to Trade, posted on Buffett's 2008 predictions, which include some all-around good advice. It is safe to say many anticipate Buffett's 2009 predictions.

- There are the very pessimistic views of Celenate, given in the post below.

- John Cassidy at Portfolio.com wrote a fairly bleak 2009 outlook, saying, "Most economists predict a recovery late next year. Don’t bet on it." He also mentions several polls with this as the highlight: "...people working in the finance business are even gloomier: 77 percent of them say their industry is in a state of crisis, and 50 percent say the economy is the worst it has been in their careers."

- Barron's has an interesting article parsing the views of a handful of economists: Troubled Waters.

- And Seeking Alpha has a rather interesting, reasonable, outlook on 2009 here. There's no prediction of sunny day's ahead there.

Feel free to post other predictions below.

Good luck in 09.

Construction: Working on Design

Hope the new design is a little easier on everyone's eyes. It isn't complete but I am hacking away at it piece by piece (I'm not familar with blogspot's code; I know enough HTML to work through it, though). The goal is that it will develop into something that doesn't look half bad.

Here's to goals.

Gerald Celente Interview: He says, and I paraphrase, Be happy to receive food for a Christmas present in 2012; what?

Here are three youtube “videos” (basically mp3’s) of a Gerald Celente interview. From what I understand, this man works as CEO for The Trends Research Institute. He forecasts trends and has been rather successful at doing so. You’ll hear all about that in the interview. If you want something that claims to counter some of his claims, click here.The blogger edrants does not do a very good job at debunking Celente’s claims. He doesn’t really point to any false forecasts, but instead aims at saying Celente is a generalist and says things that anyone on the street could say.

Now, while I do not think Ed did a very good job of pointing out Celente’s missteps, I do think you should do some research on your own, maybe take a breath or two, before breaking into a panic and having a fallout shelter built in your backyard. Yes, our economic outlook appears gloomy, but he does mention certain things, albeit subtly and almost as unlikely, that could prevent an all out depression. In any case, never take anyone’s word for what they are saying. My dad would always say, believe a fourth of what you hear, a third of what you read, and half of what you see. I think he stole it from an Almanac he had around the house.

In any case, I am posting the videos because they point out some of the problems I see with the American system. Our economy is based largely upon consuming and services. We do little production. This seems somewhat unstable to me given the makeup of our population (e.g. fewer high school graduates, less emphasis on education, many taking easy college majors and large amounts of disdain towards intellectualism). But what seems even more unstable to me, and has seemed unstable to me for a very long time, is summed up in the fact that we, as a nation, are willing to pay $4 for a cup of coffee. Yes, it is delicious, but doesn’t this say something about how we value money? We are losing touch with reality and paying far more than we should for things that we give too much importance to in our lives. And you will find this in other areas of our economy as well: McMansions, impractical automobiles, unsustainable growth, pay scales that fail to reward in a sane manner, attraction to glitz, the superficial and the glib. Watch most any television show on business and you’ll see unhealthy decadence and outright misinformation.

Now, whether this leads to food riots, is something else entirely. But, I enjoyed the videos nevertheless:

A Simple Use of Simple Moving Averages: Trend Determination

This isn’t going to be a long post. The method is fairly simple and the idea behind it just as simple. This will not make you large amounts of money instantaneously, but may help you determine a strengthening trend or a weakening trend.

All this technique requires of you is a chart of the stock or currency you would like to analyze and the overlay of three moving averages: the 50 period simple moving average (SMA), the 100 period SMA, and the 200 period SMA. Nothing else is required. Because you can use this on any type of time frame (e.g. 1 minute, 15 minute, daily, weekly, etc), I call the moving averages 50 period, or 200 period, rather than 50 day.

Once you have this information on your screen take a look at the location of the moving averages. Based on the following list, you will be able to ascertain important pieces of information from this chart:

- If the 50 period is below both the 200 period and the 100 period, the stock is trending relatively hard to the downside.

- If the 50 period is below the 100 period but not the 200 period, the stock is trending with some strength to the downside.

- If the 50 had recently been above the 100 and the 200 but is slowly converging with one or both, then the uptrend is losing steam. It is becoming relatively neutral.

- If the 50 is above the 100 but not the 200, then the stock is beginning to regain momentum to the upside. It is relatively bullish.

- If the 50 is above both the 100 and the 200 period moving averages, you have a stock that is strongly bullish.

As you can see above, the main goal is to compare the average strength of the past shorter period with two longer periods. Seeing the average increase or decrease in value tells you quite a bit. Remember that just because the trend is bullish or bearish based on the above, that is not enough information to put on a trade. While it is often smart to put a trade on in the direction of the trend (stocks tend to move in the direction of strength), you want to watch for weaknesses in the trend.

Feel free to play with other lengths of moving averages. EMAs (or exponential moving averages) often aid in short term trend direction. They react to the underlying prices faster, although, that can lead to whipsaws. The smart thing to do is practice and experiment on your own. Having some understanding of the current trend will definitely aid you in your stock trading endeavors.

Ozymandias

I met a traveler from an antique land
Who said: Two vast and trunkless legs of stone
Stand in the desert ... Near them, on the sand,
Half sunk, a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed:
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works ye mighty and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.

-- Percy Bysshe Shelley

Was watching the new Watchmen trailer, which reminded me of this poem.

Reasons Not to Listen to the Media

At the very least, aim not to get your stock tips and information from the likes of Jim Cramer, MSNBC, Fox Business, or your local news channel. None of these outlets strive for excellence. None of them aim for much more than a glitzy story to draw in the viewers. If you have some method of using the information as a contrarian indicator, then by all means, go right ahead. Many, on the contrary, will find the sources muddying their thought and clouding their profit potential.

Albeit much more helpful, use caution when reading The Economist, Bloomberg, WSJ, and even the technical analysis journals at your local bookstore. You will find many of these sources of use, at times, especially if you work at ferreting out the useful and shifting through the misleading or unpredictable; but, many of these outlets will be at least a day behind and sometimes more than a month. The monthly magazines can be particularly disappointing. Use them for their technical ideas, their intellectual side, but not for current market information.

What I am trying to say, I suppose, under my warnings against the media is to find another way to analyze information. You will often find the media utilizing data to serve their interests, whether that is to say what you want to hear, sell advertising to mutual fund companies, or any number of other things.

When Cramer screams at you to buy because the fundamentals are strong, take a step back, look at a chart, look at several sources for a likely fundamental scenario, and make your own decision on the data. It may be hard at first, but in the long run, you will thank yourself for putting in the effort.

SPY Puts

Scalped some Jan 80 SPY Puts for a +2.3% gain. 1.29-1.32.

Practice Makes Better

I don’t know how many of you have read Outliers by Malcolm Gladwell, but one of the main points definitely needs to be repeated here: practice makes better.

Sure, if you have some sort of disability or innate inability to do something, practice may not help. But, given you have some ability, and if you are reading this site you likely have some ability to trade (or you got here completely by accident and probably have no idea what the hell I am talking about). You have some ability to trade. Say it to yourself and own it.

Now you need to practice. If you are reading this article, you likely are searching for ways to improve your skills. Most likely, you aim to improve your trading abilities, but it is not like this works only in the market.

In Malcolm Gladwell’s book he states that 10,000 hours is a well accepted number for achieving a high level of strength in a certain skill. Bill Gates had access to a computer in high school, a good computer for the time, and racked up more hours of programming than nearly any college student would have had at the time, and more than most any public high school students. Those extra hours gave Gates a push. And any extra time you put into trading will give you an edge over the competition.

There is tons of competition, but do not let that frighten you. Opportunities abound. With practice you can hone your skills, reduce your losses, maximize your gains, and skip trades that have a tendency not to succeed for you. With practice, you will know your game like the back of your hand.

So, how do you practice?

Read trading books. Look at the charts. There are a lot of free ebooks on the internet, and a lot of blogs that post analyses of charts. Read along or make an analysis and then compare your thoughts on the chart to the blogger’s. Write some entries on stock forums, or in the comments of blogs. See if your theories pan out.

If you do not have enough money to constantly trade the market, or if you have fear of losing money, there are many online stock trading games. Most of them are free as well. Try inspectd.com for a stock game that can be played at any hour of the day or check out wallstreetsurvivor.com to get a free paper trading account. Either way, you’ll build up your skill.

If you want to put some real money on the line, but nothing significant, why don’t you try a micro forex account? FXCM.com has, in addition to a paper trading account, a micro forex account that allows you to trade in the real markets, using their software, for a minimum opening price of $25. I’m not sure if they are doing it anymore, but you may be able to find a link to their account promotion through google where they even give you the $25 just to open an account.

What was the point of this article?

You need to practice. People do not get better at doing without doing. It would seem to be coming sense, but sometimes we have these magical images in our heads. Sometimes the media, or our crazy uncle, or someone ranting in a chatroom leads us to believe that Warren Buffet got to where he is as though he were a successful businessman without any work at all. It is just not true. He puts in a lot of effort, a lot of work.

And if you want to get better, you will have to do so too.

Why a Plan is Pertinent

No matter what type of market you may be in, you need a plan. It should outline how your actions should develop within the market. The stronger your plan, the more likely you will be able to maximize gains and limit losses.

If you jump into a stock with no outline describing where to purchase and where to sell, you will likely find yourself in a less than desirable situation. You want to have set arrangements in order to increase your odds of coming in and out of stocks with an overall gain. You need to have an outline, whether on paper or in your mind, that tells you not to buy when the price is overextended and volume is decreasing, or to tell you to sell when the price falls beneath a set support level.

If you have a diagram of your trade you will be able to get in and out of a trade a predefined level—a level you determined while you were, hopefully, rational and not overly emotional. The plan should limit the effects of wishful thinking, superstition, poor judgment, emotional irrationalities, and other less than desirous obstacles.

This is not to say that your plan should be so rigid that you find yourself acting as a voodoo prognosticator. You do not know how the stock will rise or fall, or if it will do both or neither. But the idea is that you have a plan in place to deal with the fluctuations, so you find yourself holding, selling, or buying at opportune times determined by reason and more thought than you can devote while action is taking place.

You can change your plan mid-way through. Perhaps you did not take something into consideration, or maybe you have to leave the computer for the rest of the day; change your plans, but make sure you do it in as sober a state of mind as you can summon. Cut the hope; cut the gastro-intestinal premonitions; cut the crap, and increase your odds.

No one wins all the time, and no one wins on hope alone either. With a plan you will have something in place to protect your capital and to guide your decisions as you progress in the world of stocks, options and forex.

Yes, Virginia, There is a Santa Claus

"DEAR EDITOR: I am 8 years old.
"Some of my little friends say there is no Santa Claus.
"Papa says, 'If you see it in THE SUN it's so.'
"Please tell me the truth; is there a Santa Claus?

"VIRGINIA O'HANLON.
"115 WEST NINETY-FIFTH STREET."

VIRGINIA, your little friends are wrong. They have been affected by the skepticism of a skeptical age. They do not believe except [what] they see. They think that nothing can be which is not comprehensible by their little minds. All minds, Virginia, whether they be men's or children's, are little. In this great universe of ours man is a mere insect, an ant, in his intellect, as compared with the boundless world about him, as measured by the intelligence capable of grasping the whole of truth and knowledge.

Yes, VIRGINIA, there is a Santa Claus. He exists as certainly as love and generosity and devotion exist, and you know that they abound and give to your life its highest beauty and joy. Alas! how dreary would be the world if there were no Santa Claus. It would be as dreary as if there were no VIRGINIAS. There would be no childlike faith then, no poetry, no romance to make tolerable this existence. We should have no enjoyment, except in sense and sight. The eternal light with which childhood fills the world would be extinguished.

Not believe in Santa Claus! You might as well not believe in fairies! You might get your papa to hire men to watch in all the chimneys on Christmas Eve to catch Santa Claus, but even if they did not see Santa Claus coming down, what would that prove? Nobody sees Santa Claus, but that is no sign that there is no Santa Claus. The most real things in the world are those that neither children nor men can see. Did you ever see fairies dancing on the lawn? Of course not, but that's no proof that they are not there. Nobody can conceive or imagine all the wonders there are unseen and unseeable in the world.

You may tear apart the baby's rattle and see what makes the noise inside, but there is a veil covering the unseen world which not the strongest man, nor even the united strength of all the strongest men that ever lived, could tear apart. Only faith, fancy, poetry, love, romance, can push aside that curtain and view and picture the supernal beauty and glory beyond. Is it all real? Ah, VIRGINIA, in all this world there is nothing else real and abiding.

No Santa Claus! Thank God! he lives, and he lives forever. A thousand years from now, Virginia, nay, ten times ten thousand years from now, he will continue to make glad the heart of childhood.

- Francis Pharcellus Church (Originally Unsigned), 1897

Quote

Do not believe in traditions because they have been handed down for many generations.
Do not believe in anything because it is spoken and rumored by many.
Do not believe in anything simply because it is found written in your books.
Do not believe in anything merely on the authority of your teachers and elders.
But after observation and analysis, when you find that anything agrees with
reason…then accept it and live up to it.
-The Buddha

Santa Claus Rally!

I think that's an appropriate image, given the lack of a Santa Claus rally this year, and whathaveyou (h/t The Big Picture). I'm not doing any trading today. Wish the best of luck to all of you reading this. Take care.

When Is It Going To Break Down? Not If.

I completely agree.

Pips, well, not many lost

I was all over the place today.

Major tip: learn and then learn to trust your knowledge and judgement.

Boomboxes and Dictionaries

The Gaslight Anthem.

/I'm being stupid with forex.

PCU

Might be a good long if it pulls back to its 50.

I <3 Google

Oh, how you help me target readers: "http://www.google.com/search?hl=en&q=a line graph of panda bears getting killed each year&btnG=Search"

Head, Shoulders, Knees and Toes

Not sure if it will breakdown, but a nice setup on the 1-hour anyway.

Look at this mess (luckily, I've just about worked my way out of it). That 25 pip loss was from a scalp gone horribly wrong. Don't trade against the trend without tight stops. And, for me, make sure you use them.

S&P P/E Insight

While reading through xTrends comments, I found an interesting analysis of the S&P 500 from a fundamental perspective.

Here's a slightly abridged version of eboro's original post:

"According to [Roubini, Shiller, and Shilling], there are essentially 3 types of earnings we should consider when measuring 'market climate' in a bear market. They include: Trailing Earnings, Peak Earnings and Normalized Earnings. The information below was taken directly from the S&P 500 data website:

Trailing EPS: $48
Peak EPS (2007): $84
Normalized EPS (5 Year): $65

Using data compiled by Shiller, let me point out the historic averages of each earnings multiple, as well as the levels they have often reached during cyclical bear movements in secular bear markets (often leading to the “bottoming process”). Note that I have adjusted them based on recent data:

Price to Trailing EPS: historic average of 16.5; bear market low levels of 12
Price to Peak EPS: historic average 13-14; bear market low levels of 7
Price to Normalized EPS: historic average of 15; bear market low levels of 10

Based on our different P/E types, and the levels they most often reach during bear market bottoms, we get the following numbers:

Using Trailing EPS: $48 x 12 = 576
Using Peak EPS: $84 x 7 = 588
Using Normalized EPS: $65 x 10 = 650

I do not think any of these numbers in isolation can effictively predict 'the bottom.' In fact, they are at best 'intelligent guesses' because there is no assurance that past multiples will be witnessed in this bear market, especially seeing as interest rates are so low. The important thing to remember is that they provide a 'probable range of outcomes'; we could see slightly lower earnings with higher multiples or vice versa (for instance, if 2009 earnings were to come in at $40 per share and the multiple was slightly higher around 14 or 15). In any case, if history is any indication, the S&P could reach a low range between 576 and 650, which implies downside risk of 27 to 36% from the current level of 900. Bottom line: the market may still be relatively expensive.

I think the lack of consistency amongst analysts concerning S&P P/E is a result of 'mixing and matching' different earnings with inapropriate multiples. I recently saw an analyst on CNBC claim that the market was cheap by using peak earnings with a bear market normalized earnings multiple. By doing this, she she inputed $84 x 12, thus estimating a value for the S&P around 1000. This methodology seems flawed for 2 reasons: she used only 1 type of earnings, she used the wrong multiple.

Thanks, E"

Thank you, eboro.

Jerk Offs

Ben Stein is one of the bigger jerk-offs. (H/t xTrends)


Tool's Jerk-Off; "Maybe it takes longer to catch a total asshole."

Link Additions Over the Last Week

I have added several blogs to the link list over the past week or so. Stock Rookie (Charlie G.) is a rookie like me. From what I have read, he does mostly paper trading at the moment, but even so, some of his picks appear very good. For instance, his newest post mentions EGT (Elixir Gaming Technologies). Yesterday I was doing some stock screening on FinViz. I searched for stock with high relative strength, and looked for charts with an increase in volume over the last few days. EGT looked to be a very good pick.

I also added Slope of Hope. I have been reading this site on and off for quite a while. Why I had not put it on the sidebar, I don't know. Same goes for xTrends. Check the most recent post--amazing. And not only that, but the comment section is a veritable goldmine. Through Slope of Hope, I found Action Points, which looks promising. I have not read much of it yet, but from what I have read so far, Action Points looks like an extensive resource.

I have added Pursuing Wealth as well. A site dedicated to learning the market and prospering from such knowledge. Another interesting extensive blog, Quantifiable Edges aims to provide an empiracle approach towards trading. The historical information is a boon to any trader looking for another method to gain an edge in this market. Last, but definitely not least, I have added The Market Kid. His focus appears to be on stocks below ten dollars (at least for the most part). I am amazed at his returns and his picks.

Check them all out.

If you have any recommendation, feel free to post them below. I love perusing the internet, especially economic/trading blogs.

How to Play Liar's Poker

Having finished Liar's Poker: Rising Through the Wreckage on Wall Street by Michael Lewis, last week, it seemed appropriate to explain the rules of the game. Yes, a review might have been interesting, but definitely not more entertaining (and I would consider the book an entertaining read). So, in the spirit of trading sites everywhere, I have written this tutorial to explain the basics of liar's poker:

1) There are several version of liar's poker. One involving bidding and another more in the spirit of poker. Because the bidding version appears to be the most popular, and because Micahel Lewis features it in his book, I will discuss the general rules for that game. As with any game, remember to clarify rules before beginning since more than a single version of the game likely exists.

2) The game requires 2 or more players and each player needs a dollar bill (several if you want to increase the uncertainty of serial numbers drawn).

3) Put all bills face down, covering the serial number, into a pile in the center of the group. Shuffle the bills.

4) Have each player take a bill. Do not show it to any other players. Keep your "hand" covered, just like in a game of cards.

5) Look at your serial number. In general, 1's count as aces and 0's count as tens, but make sure to clarify this at the beginning of the game. Some versions play with 0 being the lowest number and 9 being the highest. Either way works out well. Count the number of times each number appears in your serial number. This is your hand. Remember it.

6) Begin the bidding. You can choose the starting player in any number of ways. If you have only two players, a coin toss works well. Otherwise, rolling dice or picking a card. Use your imagination.

7) Make a bid. That means, make a bet on how many of a certain number you believe to be among all the serial numbers. Say you have 2 5's on your serial number. You could safely bid 2 fives, as you know there to be two five's for a fact.

8) Continue to the next person. This person can now bid a higher amount of the number you last bid on, say 3 5's; or, they can bid a higher amount on a lower number, say 4 4's or 4 2's; or, they can bid on any amount of a higher number, say 2 6's or 1 ace.

9) Another option everyone after the first player has is to call the last player's bid a lie, or a bluff. Say you do not think there could possibly be 4 aces among all the serial numbers, but that was the last bid. You could call the last player's bid a bluff.

10) Now, the next person can agree with you and also call that player's bid a bluff. But if they do not believe it to be a bluff, they can also continue the bidding in the manner explained in step 8.

11) If the belief that a person has in fact bluffed becomes the consensus of the entire group, everyone must show their serial numbers.

12) Count up the serial numbers.

13) If the person being called the liar actually bid correctly (e.g. the player said there were 5 aces and there were, or there were more), then that player wins. Each player gives him a dollar, or a point, whichever has been decided upon.

14) If the person is incorrect, then that player must give everyone else a dollar, or a point, whichever is decided upon. You do not have to play for dollars; playing with smaller or larger amounts works just as well.

To watch a sample game, click here. There are also free tournaments and games on that site. If you are interested in the odds behind the game, I found this page (go to the bottom). It's not perfect, but interesting nonetheless.

Mmmm. Pips.

Getting a little better! =) +11pips

Update: Some more. +12.5 more. I love the 15-minute and going with the 60-minute trend (determined by the 5ema and 10ema).

Debt, Good Books, and Some Pips

I love this graph (h/t to one of my favorite sites, The Housing Time Bomb).

I'll post more tomorrow, but I have finished Irrational Exuberance and would highly recommend it. Plus, on a lesser note, I made ~10 pips trading currency this evening trading from the 15 minute.

Take care, and good trading.

SPX Resistance, Financial Increases

The 915/920 level is important. Tomorrow we're looking to see if the market can push through this level on solid volume. Today's volume on the SPY was below average, but significantly better than yesterday's. We broke through the 50-day moving average, which will probably serve as some sort of support tomorrow. It's at 90.43.

XLF had good volume. I put on a strangle yesterday for 1.85 that is now worth about 2.05 or so. I'm hoping for a little more, but will be watching the price action tomorrow, exiting if necessary. Even if the SPX remains stagnant, I think that financials have a chance to continue their rally. Just look at the volume on the XLF, GS, or MS; the fed lowering the rate to a near 0% rate sparked the spike, helped by the less than expected losses from GS (obviously, still horrible). Watch MS for earnings tomorrow. I'd look for resistance at 13.50 on the XLF, which is its 50 day.

PS: No more for today. I have two final papers that I have to work on due over the next two days. Take care.

Update: Got scared out of my strangle. Sold for 1.88, gained a small +1.6% gain.

34 Steps to $25,000

The title is probably a little misleading. It assumes you already know certain things such as how to make more successful trades than unsuccessful trades. The steps to develop that skill are not taken into account in these 34 steps. Instead, I have posted these 34 steps to motivate myself and other traders (and possibly potential traders). Among my many psychological hurdles, pushing my expectations beyond the realistic resides as one of those near the top. If you do not know what to expect, and if you do not set realistic expectations (and even these below may be much too high), then how can you psychologically prepare yourself for the battles ahead?

At least that's the idea behind this post. You see, in order to be a day trader (that is, to trade whenever and however many times you please) you must have $25,000. Therefore, I am setting that as the goal. With many stocks at the moment, and especially with options, I figure a 10% gain is a reasonable stepping stone. Sure, there will be times when you will get less or even lose money, but there will also be times when you obtain more (at least, that's my experience).

With those as guidelines, I wondered how long it would take to get to $25,000 on a $1,000 account, and I came up with 34 steps:

1 - 1000
2 - 1100
3 - 1210
4 - 1331
5 - 1464
6 - 1610
7 - 1771
8 - 1948
9 - 2142
10 - 2356
11 - 2591
12 - 2850
13 - 3135
14 - 3448
15 - 3792
16 - 4171
17 - 4588
18 - 5046
19 - 5550
20 - 6100
21 - 6710
22 - 7381
23 - 8119
24 - 8931
25 - 9824
26 - 10806
27 - 11886
28 - 13074
29 - 14381
30 - 15688
31 - 17257
32 - 18982
33 - 20880
34 - 22968
35 - 25265

If you want to count obtaining the $1,000 as a step, then you would have 35, but, as with the trading knowledge, turning on your computer and the breakfast/morning routine, I will stick to 34 steps, and assume you are beginning with 1,000 at the moment. The above isn't quite accurate, as I did it by hand, cutting off any gains below a dollar.

Using the formula (I'm a math tutor) A = Pe(rt) you'll get ~32 times after plugging in all the information. But, as mentioned before, these are just guidelines.

PS: I finished reading Liar's Poker over the weekend. Expect a review soon. Also, I am about half way through Irrational Exuberance and Kirkpatrick's book (long title). If you had to choose one, I'd go with Irrational Exuberance, but I'm a little more biased towards the macro side at the moment.

Side Note: This weekend has been rough and somewhat stressful. I hadn't been close to him since middle school, but one of my cousins was shot and killed over the weekend by a gang. My aunt is, understandably, very upset. My mom and the rest of my family is rattled as well. Take care, and remember to love those around you.

On Pushing Forward

I don't know how many of you who read this run blogs of your own. I have a great respect for those of you who do. The amount of time that goes into creating content for a website, and the amount of effort required feels immense. At least to me. Pushing forward even when results fail to impress is pertinent. Without being able to pick yourself up after a fall, who is going to save you from lying in the dirt?

Today could have been a good day on the options front, but I decided, in a drowsy state, to sleep in. I slept until 7:00. My alarm, which I had set for 6:00 (PST), continued to bleep. By 7:00 AZO had risen from a low of 123.5 back on up to the ~128 level. I felt somewhat disappointed.

I should have known that any sort of gap down would become filled by the end of the day. I won't be too hard on myself, because I did limit my losses by risking a fraction of my account; but, I should have made a greater effort to protect myself, even if that meant forcing myself up or getting to sleep early.

Something good did come from it. I learned that my ability to choose stocks has improved. While there were plenty of other good, and some better, choices out there, I succeeded in picking a stock that did drop. And it dropped enough to increase the value of my puts some 10+%.

In tandem with developing new technical trading techniques, I am working on successful mental strategies for achieving success in trading. I realize that I need to let go of loses and take what I can get. I had a chance later in the day to pick up a 5%+ gain, but held on stubbornly. I have gotten better on letting go, albeit I have not hit the levels I would like.

This brings me back to blogging. I feel that my maintance of the site has improved somewhat. Along side my understanding of stocks and the economy, I would say reasonbly well. But I am definitely nowhere near where I would like to be. The gap is large and difficult to bridge--which, I think, is the point of this post: Don't give up. Keep pushing foward. In time, and with effort, you will be able to see a better tomorrow.

Making Money with Simple Point and Figure Support and Resistance Trendlines

First, let me emphasize that you do not need to be able to construct your own point and figure charts (click here instead), nor do you even need to be able to read one. If you are reading this guide, you have enough knowledge to be successful.

Second, there is, to my knowledge, no simpler way to locate support and resistance than with point and figure charts. The ease with which it can be done will astound you. Because of the simplicity inherent in the point and figure chart’s structure, creating successful entry and exit points will become a snap, enabling you to reduce your loses while increasing, not only your profits, but your confidence as well.

The beauty of the point and figure is its simplicity. Because only significant moves are plotted, much of the noise of a stock gets discarded. In the place of your normal line or candlestick chart, you will get something like the chart pictured below:

(chart obtained from stockcharts.com. Create your own by clicking here)

When you make a chart using stockcharts.com certain trendlines will be drawn automatically. In my experience, these tend to give poor or limited guidelines; therefore, we will add some of our own.

Bottoms and Tops:

General bottom resistance and top support, whether short term or long, are easy to spot. Using your favorite drawing program (e.g. Paint, Photoshop, or GIMP), take the line tool and draw a line below the bottom-most “O” or the top-most “X”. That is all there is to it:

How to use this new data will not be difficult for the veteran trader, and for the novice, a little common sense is all that is needed. For instance, say your own 100 shares of Apple and it appears to have a long-term resistance at 100 and a short-term support at 80. If it goes up to 100 you will want to consider selling all or a portion of your stake. If the price falls below the short-term support you may want to consider liquidation your position. Furthermore, if the price hovers above support you may want to consider adding to your position. To determine your reaction with greater precision, in addition to point and figure support and resistance lines use other technical, fundamental, and sentiment indicators.

Uptrends and Downtrends:

Creating your own uptrend and downtrend lines takes little to no more time than the above. With the point and figure grid as a guideline, find any diagonal pattern of X’s and O’s. Using your favorite drawing program, draw a line along these trends like so:

It really does not get much harder than that.

Expanding your knowledge:

The goal of this article was not to teach you how to configure your own point and figure chart, or even how to decipher one. If you want to learn more about those aspects of point and figure charting, stockcharts has many guides on various technical analysis charts and techniques, and I have started writing one of my own describing patterns and setups to aid you in analysis. The major point of this article was to show you how to create simple areas of support and resistance without having to struggle with excessive noise. Using the above, you should be able to create your own successful support and resistance lines. Despite their simplicity, or quite possibly due to it, these charts make a powerful addition to any trader’s arsenal of analysis techniques.

AZO Jan 100 Puts @ 2.15

Bought 3 Jan 100 Puts for AZO at 2.15; hoping to see it fall to its 200day, at least, or even better, its 50day. It's been strong, but I can't imagine it will be able to hold onto such a high RSI for too long in this environment. Its earnings were good, but not good enough to push it above its 52week high. Basically, I'm looking for a pullback and strong resistance at 130.

5k

Tuesdays tend to be long days for me. I get a few moments here and there to go on a computer, but I don't get much time to trade.

I don't really know where the market is going by looking at today's charts. Things like this do not seem too outlandish. Watch yourself in here.

I'm taking a break at the moment; I bought Irrational Exuberance at B&N today and am interested in reading through it.

Charts are where the money is at

I thought about writing another market report for today, but decided against it. I am tired and I have put in some decent work. Instead of making a separate analysis for today, I will post some charts that I have worked on. I did not make any trades today because of the lack of much movement on the xlf and spy. AZO, mentioned in the report on Sunday, would have made a nice short. I still plan on shorting it if my other setups turn sour. Hat tips to fortune8 and stewie for a few stock tips.

Also, I underestimated the benefits of twitter when researching stock ideas. I'd suggest you check it out if you haven't done so already. You can find me here.

Now to the charts:



PS: I got sick of the green layout and the others were a little too much as well. I'm going to stick with something plain and simple for now. Hope it's easy on the eyes.

Market Analysis

Click here for my market analysis. This is the first one and I have yet to determine exactly what information will be put into it; but, it is definitely a good start. Please post any constructive comments you may have. I have a few things that I would like to add in the future: forex suggestions, news interpretation, macro indicators, etc. That will all come later, though.

Good luck on Monday.

Bailout.

Bailout Approved. Yesterday, I said that I feared going short into the weekend because of the likelihood of the auto bailout beingn approved. However, when I consider all of the bad news surrounding this market, I wonder whether Friday will be all the rally that this bailout garners. Watch the support/resistance levels discussed earlier: 88 on the SPY; 870ish, 840, 820, 800 on the S&P500.

SPY DEC 75 Puts @ 1.78

Purchased 3 DEC 75 Puts @ 1.78. Looking for the SPX to break 820.

Update: Sold 3 DEC 75 Puts @ 1.76 for a ~1.2% loss. I should've taken the fucking $60 profit. I still think the SPY is going to break 82. But I have fears the bulls will rally in anticipation of auto bailout news released this weekend (I'm guessing this weekend). My indecision maimed me again.

PS: Glad I sold them this morning before I left. Only brought my average option gain down to ~+18%. I would've been massively hurt considering the S&P went to 876 at the end of the day. On Monday, watch for resistance at 88 on the SPY. If it manages to break through that level we might get decent bear market rally. The weekly stochastics could definitely use a respite from their oversold positions.

DEC 80 SPY Puts

3 contracts @ $1.88

Sold all @ 1.98 for a +5.3% gain (-$12 for commissions). I have to shower and go to school, and I'd prefer not to leave them on. Be careful tomorrow, I have a feeling the news released will cause some unpleasant (if you are unaware) volatility.

Zen Poetry

1) Tai Chi - If the force is great, move with it in order to overthrow it (i.e. if great volume is pushing the market in one direction, move with it).

2) Heavy Weight Boxing - If your opponent is showing weakness, hit him hard and lean into the punches (i.e. if volume is waning and the stock is still going higher or lower, then be contrary).

3) Wisdom - If your opponent is swift, like the wind, do not waste your energy chasing him, because what kind of fool aims to beat up on the air? (i.e. if volume is low and price movement is whimsical, sit back so you don't strain your financial muscles).

And, as always, have patience, grasshopper.

Quick Update

Just a short update.

Anyone who took offense to the Jim Rogers post earlier, I love the guy. I was making fun of CNBC, not him.

The Housing Time Bomb has a post (Hey Bulls: This Recession is Different) that I most completely agree with. Check it out.

I'm getting ready to go short tomorrow. Futures are red (not that they are anywhere near a reliable indicator for much of anything). More importantly, we are at that P&F resistance that I was talking about yesterday:

I'd look for resistance at 850, then 865/870, judging by the P&F. If the market decides to wipe out today's gains and head down to 815, I'd watch out below, especially on high volume.

Take a look at the 88 level on the SPY. It's running up into a descending trendline, as well as a previous reversal at 87.

PS: Unemployment Rate, among other stats, will be released on Friday. Be aware.

News Bites (or perhaps, mauls?)

The job report shows a 250k loss. The October numbers have been revised for the worse. Surprise? Not if you have been following along.

Automakers want money. Congress says: go back and make a plan so that it doesn't look like we're throwing money into a pit.

Oil is below $50. Gas prices average ~$1.80 a gallon.

Goldman Sachs looks at a $2 billion loss. At least their first loss looks impressive.


You're a legend. But we're going to argue with you and continuously ask you questions that you have not answered to our liking. I'm going to giggle because I'm an idiot. I'm glad I get paid for being an ignoramus. CNBC, thank you.

Long Day, Short Day, Schizophrenic

I didn't get to watch the market today. I had to get up early and didn't get home until 2 1/2 hours after the close. But the day wasn't completely surprising. I thought we'd head down after some upshot because of the 9% down day yesterday (you can only have so many of those before the entire market would become delisted). I was surprised by how high the market went, but in retrospect it feels healthy. If nothing propels the market upward tomorrow (e.g. a GM/F/whoeverelse bailout; free money for every man, woman, and child; or, a Murdoch whistle blower saying this entire sub-prime mortgage mess is a sham), we probably won't head all that far upward tomorrow. If we break the Thanksgiving highs on some decent volume, then things change--resistance becomes support and whatnot. But, I don't think that is going to happen.

I did not participate in any trading today. And I didn't change any positions over at Rob's. Over there, I'm still in cash after trading in my puts on the SPY for a ~75% gain after a nearly ~180% gain in C calls. Part of it is luck, part of it is charting, and even though I didn't have any money on the line, it boosted my self-confidence (a little,) in option trading. I probably won't be able to trade tomorrow either. I'd look for resistance at 850, then 865/870, judging by the P&F. If the market decides to wipe out today's gains and head down to 815, I'd watch out below, especially on high volume.

PS: You don't want to be short if the NYSE Bullish Percent Index makes an X above 30. Historically, going from below 30 to above 30 precedes a rally of some sort. While it is at ~26 right now and unlikely to make it above 30, it is still a good indicator to keep in mind while trading these volatile markets.

Some Good

Well, the markets are moving in the directions the charts pointed; but, I didn't pull the trigger and buy puts. I was hoping the market would open at the closing prices from Friday, or at least closer than a 2%+ drop. My hesitancy took hold. When playing with virtual money, however, I did manage to pull ahead =). Go over to Stock Insight if you'd like to put in your own option or stock pick.

Also, if you want a free $25 forex trading account, check out this link. I signed up last week, and received my free $25 deposit today. It's fun, and if you don't want to trade the money (which is good charting practice), you can always take the $10 fee and have them mail you a check for $15 (after trading in and out the few required times).