Will we see a re-test of the February lows?

The Dow Industrials closed down nearly 300 points today, or about 1.16%. More concerning was the 246 point decline in the Dow Transports, which equated to nearly 2.3%. Dow Theory plays a significant role in how I view the market, so I am paying very close attention to the Transports now. Since the early February low close, the Transports only recouped about 700 points of its losses, or just over 50% of the down move from the January high. Meanwhile, the Dow Industrials had picked up about 1,900 points of its 2,800 point decline, or about 2/3 of the losses. The Transports now seem likely to re-test the early February lows, and that likely means the rest of the market will decline a bit from here. The question then will be what happens next? The Transports have been lagging the Industrials for quite awhile. If they turn lower, it will be difficult for the overall market to make significant new highs, as was the case in 2015 after the Transports peaked in late 2014. So, for what it's worth, the Transports are flashing yellow again.

Is Evaporating Clinton Lead Weighing on Stocks?

In many circles, it is conventional wisdom that a Clinton victory is good for Wall Street. After all, the Wall Street elite are among the biggest donors to her campaign. So, as the polls have tightened over the last ten days, and especially since the Comey letter to Congress about new evidence in the Clinton email probe, stocks have been sliding. In fact, the S&P 500 has closed lower in 8 out of the last 9 sessions, including today. Does this mean that investors may be anticipating the possibility of a Trump victory more and more? A victory that they fear? Perhaps. Keep in mind, we just got a muddy 3rd quarter GDP report last week that gave more amunition to the Fed to hike rates, and we've had a mixed bag of data ever since. On top of that, we just passed the peak of earnings season. When all is said and done, the stock market has gone NOWHERE for two years now. Today's close is only about 5% higher than it closed exactly two years ago. The market is also richly valued by most measures and top line revenue growth in corporate America remains weak. With all this in mind, I wouldn't read too much into how the election is impacting the market. We are due for a significant bear market anyway, no matter who becomes president.

A blueprint for making big money in stocks

Most people follow the typical Wall Street advice of investing in blue chip stocks that pay dividends, thinking that there is no way to beat the S&P 500 returns over the long run. I'm here to tell you that not only is it possible to beat the S&P 500, but you can absolutely crush it. Here is your blue print for making big money in the stock market. First of all, this plan should only be utilized with risk capital, until you become experienced enough to handle the risks involved in trading stocks. I define risk capital as the amount of money you can afford to lose without having a negative impact on your lifestyle. Ok, so here is the blueprint... 1. Only trade stocks that are making new all time highs or 52 week highs in price. Remember, we are talking about trading, not investing. Our intention is not to buy a stock with the intent of holding it for years. We are only looking to capture chunks of a major trend, and particularly the high momentum portion of the trend.

2. Forget about the penny stocks. Yes, you can make a big chunk of change in a few hours by day trading some of these stocks. But, our strategy is for the long run. We don't want to be stuck in front of our computer trading stocks every day do we? We want to have the money to do whatever we want, whenever we want. 3. We are only interested in stocks that have at least some institutional sponsorship. This shows up in the stocks volume. Ignore stocks that are only trading a few thousand shares every day. You need to focus only on stocks that will catch the interest of a few big investors. 4. Don't focus much attention on the underlying fundamentals of the company. Leave that to the Wall Street analysts who need to justify their salaries. The law of supply and demand is the only fundamental we care about when it comes to trading stocks. If demand is high, and the supply of shares can't meet that demand, then the stock price will go up. Let other people worry about why a stock is moving up in price. 5. Trade these stocks with a trend following system. A trend following system is simply a strategy that buys strength and sells weakness. Just develop a trend following system that works for you, and that is all you will need. Be sure that system employs a stop loss. 6. Remember this quote..."pigs get fat, hogs get slaughtered." What that means when it comes to trading stocks is that you don't want to risk too much of your capital on any given position, even if you think you know the stock is going to go up in price. The market doesn't care what you think. Use good risk management so that when you lose on a few trades, you'll still have enough capital to exploit the good opportunities when they arrive. 7. Pay attention to the longer term trends in the overall stock market. In a bull market, most stocks will go up in price. In a bear market, even the best stocks can get dinged pretty hard. Learn when to be aggressive, cautious or out of the market altogether. 8. Pay attention to the stock market leadership and be wary of leadership changes. When you notice a group of stocks moving up, buy the strongest in the group. During bull markets, the leaders will go way up in price, but the leadership will also change from time to time as well. For instance, earlier last year, biotech stocks were on a roll...then they crashed. Earlier this year, gold and silver stocks took the lead, then they crashed. 9. DON'T use your trading profits to pay your bills. To build substantial wealth with this blueprint, you must let the power of compounding grow your money. And that is a good solid blueprint for making big money in stocks. Keep in mind, this takes work. You've got to put in the work, study the market, and be patient. You will have losing trades, and some small winners. But, if you can nail a couple big trends in any given year, you will generate big returns. I recently found a website that seems to hit on all of these key points. Check out Stock Trading Headquarters. And that's all I got for today!

Turn Off CNBC

If you want to stay focused on the task hand, and make money in the stock market, one of the best decisions you can make is to turn off CNBC and other financial news channels. Why? It is easy to get caught up in all the noise, and you can lose focus on your trading. The best way to become profitable in the market is to do your own thing and develop your own methods. All these financial news channels will do is clutter your mind with nonsense. Every day, a couple times each day, CNBC will strut out a bull and a bear to make an argument on the direction of the market. These are often people who have decades of experience, yet they really have no clue where the market is heading because NO ONE DOES! While it IS important to stay on the right side of the market, just let the action of the market itself tip you off as to which way it wants to go. Keep it simple though. If the market is breaking out to new highs, it will likely go higher. If it is selling off to new lows, it will likely go lower. Don't try to pick market tops and bottoms. Let the action of your individual stocks tell you when to get out of them. If you have a sound strategy for trading stocks, that strategy should tell you what to buy, when to buy, and when to sell. That's all you need! www.whentobuyandsellstocks.com

When To Buy and Sell Stocks - Part 1

When to buy and sell stocks is a question that has been asked by traders and investors since stock markets were invented. There are literally thousands of ways to trade stocks and make a profit. The problem is that most investors do not have the technical skills or knowledge to obtain historical stock market data and then back test all of these strategies to find out which one will work best. Another problem is that in certain conditions, some strategies will perform better than others. With this in mind, keeping your trading strategy as simple as possible, and then following it with strict discipline, is the way to go. One of the best general models for trading stocks that will produce significant long term profits (if applied to the correct stocks) is a trend following strategy. Trend following strategies essentially buy a stock when it breaks out to a new high price of some level, and then exits the position at a low price. This actually sounds like “buy high and sell low” but the goal is actually to buy high and sell higher. This is counter to what most investors want to do, since they typically want to go bargain hunting and buy a stock when it is cheap. The problem with buying a stock when it is perceived to be cheap is that usually this means it’s price is trading in a down trend. Investors may perceive the stock to be cheap based upon its valuation. Unfortunately, it is virtually impossible to forecast what a company’s earnings will be. In reality, it is just a guessing game. At the start of the bear market in late 2007, early 2008, Crocs had been on a roll, more than tripling in price from the beginning of 2007. Then the stock price started to break down. In early 2008, one of the analysts on CNBC’s Fast Money said the stock, trading in the twenties at the time after peaking over $70, was undervalued and it was time to buy. By the time of the bear market bottom in 2009, the stock was trading down to about $1. People had stopped buying its products. This kind of situation occurs over and over again. When you are just guessing, you have a recipe for disaster. A sound trend following strategy will get you out of a position before the roof caves in. This type of strategy will not get you in at the absolute low price of a stock, and will not get you out at the high. The goal is to capture the “meat in the middle” so to speak. Trend following strategies have made some high profile traders hundreds of millions, and even billions of dollars. William O’Neil, who created Investor’s Business Daily, described a sort of trend following strategy in his book “How to Make Money in Stocks.” However, his exit strategies were not very well defined. John W. Henry, owner of the Boston Red Sox, made his fortune by applying trend following strategies in the futures and currency markets. Many of the top performing commodity trading funds over the last several decades have all applied trend following models to generate their performance. How does a trend following strategy actually work? One of the more famous strategies applied in the commodity arena is the Turtle Strategy. It was created by traders Richard Dennis and William Eckhardt, and was a variation on Richard Donchian’s 20 day channel breakout rule. The very basic idea of the strategy was to buy a commodity if it made a new 20 day high in price and exit the position if it made a new 10 day low in price. Short traders would be the opposite. They then applied some stop loss rules and risk management. They taught this system to a group of individuals that Dennis referred to as the Turtles, a name he created based upon a trip to Asia where he noted turtles being grown. He bet Eckhardt that traders could be taught to trade and that they would be successful. There were two groups totaling 21 individuals who were taught the system, and many went on to future success in managing money after generating millions in profits for Dennis and Eckhardt over a five year period. This type of strategy can also be applied to individual stocks, even if just trading from the long side. Since even George Soros has said he has lost more money by shorting stocks than in any other strategy, it is best for the individual investor to just trade from the long side. As Jim Cramer always says, there is always a bull market going on somewhere. In a universe of thousands of stocks to choose from in the U.S. market alone, what are the best stocks to trade? Trend following strategies do poorly when markets are not trending. So, it would make virtually no sense applying the strategy to a stock such as Intel, or Microsoft, which have gone nowhere for years. With that in mind, it is best to apply the strategy to a stock that has demonstrated a tendency to trend in relatively recent history. Therefore, the individual investor should essentially screen for stocks that have been shown significant relative strength compared to the overall stock market over the latest year, and look for an opportunity to enter a position on a breakout. All stocks undergo some sort of a correction now and then, and that is the opportunity to look for, as long as it’s longer term trend remains intact. The investor will look for that breakout opportunity, have a stop loss plan in place, and then simply let the other exit stops, such as the 10 day low exit strategy, trail the stock price. The difficulty in following this strategy is that there will be false breakouts for one reason or another, and as a result, it requires significant discipline to continue with the strategy in the same stock when there has been a string of losing trades. No matter what strategy you use, you need to adhere to it with strict discipline, assuming it has a long term history of performing well. Your plan should be to at least monitor the market on a weekly basis, identify a group of stocks that you will want to trade, and then apply your trading model at the appropriate instance. Do not focus on short term results. Simply execute your plan with discipline and you will come out way ahead in the long run. www.whentobuyandsellstocks.com

Weekly Comments - U.S. Stock Market - May 6, 2012

U.S. stocks posted sizable losses last Friday on the back of a weak jobs report. The markets closed down for the week and the market averages appear to be ready for a new leg to the downside. Visit the link below to learn more! When to buy and sell stocks

Apple's Earnings Report April 2012

Apple apparently came out with a favorable earnings report, as usual, and that is boosting the stock by over $40 above its closing price Tuesday evening. Apple has been a drag on the Nasdaq over the last couple of weeks as many weak longs exited positions. It will be interesting to see if this ultimately becomes a dead cat bounce or a new leg up in the stock. The first key price level is 620. If it struggles with that level in the next week, it will likely test today's low around 555. The overall stock market has been in a tight range dating back to mid-March. There is an obvious potential head and shoulders top in the Dow Industrials, and a break below 12,700 would be the breakout level of that pattern to the downside. Keep in mind, however, that this pattern can be a great continuation pattern to the upside as well if the downside breakout fails, and then the market breaks above the high of the right shoulder. No matter what, we are currently in consolidation during the beginning of a seasonally weak period. With the general election season underway, and all signs pointing to a close election, the market faces significant uncertainty. Add in the issues of Europe, the Middle East, and a slowdown in China, there is very limited certainty as to the direction of the economy. Earnings reports will shed more light on this, but only temporarily. Ultimately, macroeconomic factors will take over, and traders will again focus on these issues. What we are presently left with is a choppy market with many stocks having trouble continuing their recent uptrends. With that in mind, traders and investors should continue to proceed with caution. www.whentobuyandsellstocks.com