My thoughts and journal

Discussion in 'Journals' started by Brandonf, Oct 9, 2004.

  1. Brandonf

    Brandonf ET Sponsor

    In general terms as I looked at the 197 groups and the major indexes there appears to me to be a pretty split market. This probably going to lead to continued "choppyness" as we move higher in some groups and lower in others. I would expect that the major indexes move higher overall, but again it will be sloppy.

    In general terms the weak dollar and overall global economic cicrumstances continue to favor commodities and related groups. Another interesting area, I think, is to invest in resource dominated economies such as Australia (EWA), South Africa (EZA), Canada (EWC) etc. Currently these charts are extended so I will not be buying them here, but they are certainly worth paying attention to on any pullback or base.

    Most of the Oil names look sharp at this point, but again only on a pullback, and who knows if we get it. A lot of the Transportation and related stocks are looking very strong. Examples are UPS, GLNG, OSG, TK, UTIW, EXPD,EAGL. Mostly again on pullbacks. I would not be buying them at this point. Commodity and related groups still look very strong too. The ETFs mentioned above in addition to stocks like GGC, SSL, TIE, STLD, OS, X etc all look fine, but again not here.

    Right here the only sector I could find that had much to offer was telecom in which I like VIP, I got into some of that yesterday, NXTP which i think looks great, and APCS and AMT.

    The pullback has been on light volume overall, except the semis which had heavy volume yesterday.

    Because I expect a pretty choppy type of market I think its a good idea to be long and short to reduce exposure and volatility. In that vain Im short C, and looking at a number of other stocks such as SNPS, NTRS, ELX, F, HLWY, ESRX, and the homebuilders.

    Brandon
     
  2. Brandonf

    Brandonf ET Sponsor

    The S&P500 gained 2.25 points, ending at 1124.39 in very light holiday trading on Monday. Volume came in at 939.5 million shares on the NYSE, 27% decrease from Friday, while the Nasdaq come in at 1.17 billion shares which was 30% lower. On both exchanges new highs continue to outnumber new lows, this is much stronger on the NYSE than on the Nasdaq at this point.

    Mondays light trade created a day in which there was not very much to do. As I often tell members of our Live Trading Room though success in trading is often about the times you sit and wait for a better opportunity, not about the times you are doing something. If you can not sit and wait, when the time comes to actually do something you are unlikely to have the confidence or the capital to do it.

    Record oil prices, and near record natural gas prices put a bit of a damper on equities, though by the end of the day oil had reversed from its highs, and the oil sector was one of the days weakest. This is something to keep a close eye on, because in spite of what others are saying if the price of oil does not come down soon it will have a shock effect on the economy. This would not be good for stocks.

    New highs came mostly in Commodity related groups, which just continues the theme I have been talking about for several months: Commodity related stocks and groups will continue to see a bull market, this will happen regardless of what is happening in the general equities market. Commodity related stocks and ETF’s remain buyable on pullbacks. Countries who’s economies are strongly resource dominated should also be good places to invest and trade overall. This would include countries such as Australia, Brazil, Canada and South America.

    A number of specific stocks continue to be of interest. This would include: NSANY, HMT, SBTV, RIO, PWN, IAII, ABFS, EFD, OLG, PGR, CACC, CGI, FPIC, UPS, EWA, EWC, EWA. I have also noticed that value stocks have been performing well, so consider a look at things such as the Russell 1000 Value trust (IWD) and the Mid Cap Value Trust (IWS).

    I expect that overall the market will remain volatile and mixed going forward. High commodity prices are not a blessing for the overall economy and this will effect the markets eventually. It would be wise to mix longs with shorts to reduce overall risk and volatility in your portfolios. Names such as C, FLEX, CECO, ESRX, WFMI, FISV and INTU come to mind.

    For the day I stopped out on my DELL long and entered CREE long as a short term swingtrade. I am otherwise flat.

    Brandon
     
  3. Brandonf

    Brandonf ET Sponsor

    The overall markets opened up scared today on $54 per barrel oil, however by the close oil futures reversed to close @$52.17. The S&P500 lost 2.55 points to end the session at 1121.84. This does not, however, tell the entire story. The markets opened up down sharply and sold off after the open, at its worst point it was off nearly 9 points. Volume was again light today was heavier than yesterday but not spectacular. We had 1.32 Billion Shares on the NYSE and 1.5 Billion on the Nasdaq. While seeing the rally off lows was nice, particularly if you are bullish, for the most part the market traded back and forth today and did not offer much play for short term traders.

    My biggest concern for the market is that when I looked at Jeff Semmels Tradingscans I saw 111 new 1 month highs and only 36 one month highs on tracked stocks. This is the worst ratio we have seen since the rally began in Mid August. We do have “good news” though with YHOO and INTC both reporting well. It will be important to see how the market reacts to this “good news”.

    I expect that overall the market will remain volatile and mixed going forward. High commodity prices are not a blessing for the overall economy and this will affect the markets eventually. It would be wise to mix longs with shorts to reduce overall risk and volatility in your portfolios. Commodity related stocks and groups will continue to see a bull market, this will happen regardless of what is happening in the general equities market. Commodity related stocks and ETF’s remain buyable on pullbacks. Countries who’s economies are strongly resource dominated should also be good places to invest and trade overall. This would include countries such as Australia, Brazil, Canada and South America.

    From last nights list HMT, PWN, EFD and UPS broke higher. Trail stops on these plays. Each has excellent fundamental and technical traits for short term trading.

    For tomorrow I am watching EWA, CGI, CACC, SBTV, IWS, IWD, GOOG (which will probably gap too high due to YHOO) PGR, MRVL, CVC, FPIC, CNCT, QCOM, NSC, CNF, and CYTC as longs.

    On the short side I am going to pay close attention to the SMH and how it reacts in the first few minutes of the day.
     
  4. Brandonf

    Brandonf ET Sponsor

    CNF +47.25
    FSH +60.75
    CNCT +28
    ACF +22
    HTCH +34 (small)
    SBTV +36.50
    CYTC +27

    Brandon
     
  5. Brandonf

    Brandonf ET Sponsor

    Trading the markets takes a lot of nerve. Decisions often need to be made quickly, and if one flinches, one may miss a significant price move, and divert a sound trading plan. Fear and anxiety often are at the root of hesitation. One may fear a loss, fear being wrong, or fear not having an opportunity to exit. The more a trader can control fear and anxiety, the more he or she can avoid the tendency to hesitate. A classic experiment on the study of emotion control provides a solution. One of the best ways to control fear and anxiety is to take an objective and analytic approach to interpreting events.


    In the 1960s, Professor Richard Lazarus and colleagues elicited fear in a laboratory setting by showing participants films portraying various stressful situations. They called one of these films the "sub-incision film." In this film, an Australian Stone Age tribe demonstrated a primitive ritual in which crude surgical operations were performed on young men as a rite of passage. Participants watching the film knew these crude incisions were going to be made, but they didn't know exactly when. Physiological measures of fear, such as skin conductance, respiratory functions, and heart rate, were monitored as participants watched the film. As might be expected, levels of fear were highest at the point the incision was made. But fear was also very high while anticipating the fearful event. Anticipation of a stressful event is often associated with fear and anxiety. After the incision, fear immediately decreased. The vantage point that participants used to view the film exerted a powerful influence on emotional experience. By manipulating the soundtrack of the film, and coaching participants on how to cope with watching the incisions, researchers were able to help people manage their emotional reactions. One approach was to "intellectualize" the film. Participants tried to view the film as a scientific documentary in which one removes oneself from the ongoing process and tries to look at the events from a rational and impersonal perspective. A second approach was to try to "think positively." Subjects were told to focus on the positive aspects of the film. For example, the young men in the ritual looked forward to it, and were viewed as having a higher status in the tribe once the ritual was completed. Results showed that taking an objective and intellectual approach was much more effective at controlling emotions than trying to think positively and trying to ignore the negative aspects of the film.


    This research study shows how taking an objective approach to trading can reduce fear, and in turn, reduce hesitation. Any way that you can objectify or intellectualize trades will improve your ability to control fear. For example, looking at trades as a percentage of increase or decrease in capital rather than dollar amounts can help greatly. Don't think of the value of the money, and what it can purchase. Look at it as merely objective percentage points of loss or gain. This will help you remain rational and calm. It will help you control your fear, and reduce your tendency to hesitate.

    Brandon
     
  6. Curious, if you don't mind the question, why you don't trade index futures. I am sure there is a interesting answer there. Thanks.
     
  7. Brandonf

    Brandonf ET Sponsor

    Its not very interesting, I do trade them. I'm much better as a futures trader than as a stock trader but its not anything I ever really talk about.

    Brandon
     
  8. Thanks. I don't talk about my index trading either. But for different reasons. Good luck.
     
  9. Brandonf

    Brandonf ET Sponsor

    When I analyze the market as it moves up and down, the most important thing I look at is volume. Volume shows the foot prints of the big money. When Aunt Mary and Uncle Tom are doing the buying in a stock it might move in the short term, but there is no long term commitment or support too it. On the other hand, if Goldman Sachs or Fidelity is actively accumulating or distributing a stock there is likely to be continued support in that direction. These players come into a market with conviction and support their positions. So, I think volume is very important. Each day I want to see what the volume figures are, and how it compares to prior figures. If you see a market or a stock breakout and rally on very heavy volume this is a good sign, the next thing you then want to look at is the pullback. Key in on the volume, is it lower, higher or the same. If a stock pulls back on lower volume than it broke out on this tends to show that the people who accumulated it are staying in it. I tend to assume this is a stronger stock and one that I can look at closer and perhaps buy.

    So why have I offered all of the above comments on volume? Well, volume has been the plague to the market for the last several months. We see the market rally on lighter volume and then stronger down days occur on heavy volume. This shows some overall distribution, and is why in my commentary each night I have advocated a pretty equal mix of longs and shorts in the current market environment. Today we saw the market gap up strongly on the open due to stronger than expected earnings out of key stocks, however by the end of the day the S&P500 was down 8.2 points to 1,113.65. Volume increased by 17%, to end the day at 1.54 billion shares. We also saw the overall number of declining issues beating the number of advancing issues by a ratio of 2 to 1. Furthermore, Jeff Semmels Tradingscans.com shows us 67 stocks making new 1 month highs, while nearly twice that many, 128, made fresh 1 month lows. This does not always mean the party is over, but it is a sign for me to start to be cautious.

    At this time the commodity related stocks continue to look nice. They are, for the most part, somewhat extended so I am not interested in them at this point, but if they continue to pullback on light volume I will be a buyer. Technology related issues have started to look BAD. This is new. I now suspect that many tech names will be shortable in the very near future. For tonight I do not have any new names to watch, either long or short. The most important thing for you to gather from this report is to be cautious.

    Last but not least: I would like to invite all of you to the Trading From Mainstreet Live Trading Room Thursday evening at 7pm Eastern Time, when I will be giving a special class on finding the best stocks in the market. Most people’s focus is too broad, and I will be covering the subtle aspects of finding stocks that produce gains of 100% or more. To join me for this special lesson please visit our site, tradingfrommainstreet.com, and sign up for the free trial of the Live Trading Room.

    Brandon
     
  10. Do you apply the same volume interpretation principle intraday? Sorry, nobody else is responding to you. That is the fate of highly intelligent threads on ET. I know, because I have to pitch my thread low to appeal to the LCD. I find your analysis highly disturbing, because I am long 401K's in PRSVX and VIVIX, somewhat hedged by VBTIX.
     
    #10     Oct 13, 2004