When most people look at the market they check to see what the major indexes did, and maybe what volume was like. From this they draw their conclussions. If you look at the major indexes yesterday you would conclude that nothing happened, after all the DOW closed the day with a modest loss of 2 points. But if you take a closer look a few things start to become clear. First of all the advance to decline line has been negative. In fact during this entire below average volume rally of the last few days we have seen decliners leading advancers more often than the other way around. New Lows also continue to outpace new highs, though the momentum might be shifting here. Important groups and sectors have started to break down, for example the transports. Transports had been an important port in the storm for the market the last several years, no more. Major railroads like BNI, CSX, NSC and truckers such as JBHT, HTLD etc have topped out. They are now all shortable on low volume rallies. There are a few area's of strength, but they are not in the area's you'd like to see them in, as the majority of the strong area's are very defensive. In fact if you listen to what the market is saying, it is YELLING loud and clear that we have a RECESSION just around the corner. Some stocks to consider. Please note that there has been some leadership, and some strong stocks. I believe this is really turning into a "stock picking" market were money will be made on both sides, but it will not be easy. Filent Corp (Nasdaq: FILE) has broken out of its base on HUGE volume. At this point it is too extended to buy, but this type of strength is not to be ignored. Over the next few days keep FILE on your watch list and look for buying opportunities on light volume pullbacks to support. EZCorp (Nasdaq: EZPW): This pawn shop and pay day loan store operator reported blow out earnings after hours last night and upped guidance. It has been building a wide and lose base for the last few weeks. Watch for breakout buying opportunities on the gap up this morning in EZPW. Euro Currency Traders (NYSE: FXE) The FXE represents a short position in the US Dollar. With everyone fairly sure that the fed is done for the time being with rate hikes there is not going to be anything to support the dollar. It could very easily go into free fall mode. I am already long FXE and looking to add to it on continued signes of strength. In edition to the stocks listed above several names in the oil patch are also acting well. Oil stocks have been all over the place as of late, and the poltiical situation makes them all pretty high risk, but there has definatly been strong leadership in names like XOM, CVX, OXY etc. On the short side there is a lot out there as well. The transports present at this point the very best shorting opportunity in the entire market in my opinion. However, this is a fresh top that has gotten extended to the downside. That means that for the time being there is not a trade to take. However, keep a close eye on BNI, CSX, NSC, JBHT, HTLD, ABFS and the like. A low volume rally or sideways move is going to present a great opportunity to get in on the short side. Also on the short side retailers are not looking all that good. In fact anything related to the consumer isnt so healthy. Keep an eye on TGT and WMT both for shorting opportunities. Finally BA and GOOG both look to be getting ready to roll over too. About: Brandon Fredrickson is a hedge fund manager operating from Sarasota, Florida. The swing of things commentary reflects his opinions only. At the time of publication his intent is to take positions in each of the above listed trades if/when they meet the entry criteria. The swing of things provides you with an opportunity to "look over the shoulder" of a successful manager and get a feel for how he operates. Brandon can be reached on AOL IM under the screen name drknowbody29. He got sick of having to sort through hundreds of emails a day for oxycontin and viagra and has given up on email, so IM is the best way to reach him.
Update: None of the long idea's from yesterday gave valid entry setups. The closest to doing so would have been the Euro, but due to the gap we put in place the 30 minute rule, and that market never took out its 30 minute highs. On the short side a few setup. BA, WMT and GOOG all gave valid triggers for short trades. I have positions in them and they look like the next swing in them will be down. The Transports continue to march lower, but there needs to be a resting period in them before I am interested in putting on new positions. I have continued to be asking "where is the beef" as it relates to volume. We have had some nice moves up, but we have not been able to get heavy volume. Well, yesterday we had larger volume then we have in the last few days (though still not what I would consider a huge volume day) and the market retreated. A lot of leading growth stocks took a major hit. This continues to support the idea that we are in a bear market and preservation of capital should remain the major objective, followed by above average returns. Trading Ideas: The entire ultility sector continues to shine. I am looking to take larger long positions in leading utility names such as EXC and TXU on a light volume pullback. Pharamcy stocks are the other group with strong leadership right now. I am watching the PPH for a sideways move or a pullback on light volume. This will give me an entry to go ahead and pick up a position in the PPH. The short side is offering more potential setups than you can shake a stick at. Across the board the market is just looking terrible. The QQQQ and or the IWM look great to have a broad market based short position on. Individual names giving potential setups include CBK, INTC, QCOM, OIH, AMAT, HD, C and AL all look nice.
For the last several months my message has been very consistant: PRESERVE CAPITAL. In the market there are various times when you want to be aggressive and go for the throat, but there are also times that the best thing to do is roll over and play dead. The preservation of capital is important for several reasons, the most obvious of which is that if you are broke you can't play at all, there for there is no potential for any profit. When you have a drawdown the loss grows geometrically, which means if you lose 20% you must gain 25% to get back to even, if you draw down 50% you have to produce a stellar 100% gain just to get back to the starting line. It's not even fair, but it's life. Less obvious, but no less important is confidence. When you take a big hit in the checkbook you also tend to take a hit in the confidence department, and we are in a business that requires the utmost of confidence. By preserving capital you also preserve confidence, which can be very hard to preplace once lost. Because of the way the market has traded over the last few months investor pessimism is at very high levels. In fact cash is near record highs for pension plans, mutual funds, hedge funds, banks and insurance companies. In recent pollings investor confidence is also near historic lows. These are all secondary indicators, but important to watch. In the last few weeks the market has had every reason in the world to fall off the edge of a cliff. A proxy war between in the United States and Iran/Syria has begun via the Isreali/Hizbullah conflict, oil prices continue to soar and that problem was recently made much worse by the closing down of Alaska's Prudoe Bay. Al-Qada terrorists are still plotting terrible things which we just got a rude reminder of with the recent arrests in Britan. The air is coming out of the housing bubble and many homeowners and homebuilders are starting to find themselelves in trouble. Certain counties in Florida are seeing record forclosure numbers. Inflatin is running rampant and I could go on and on, but I think you get the picture. Now, here is the key thing: In spite of this smorgas board of terrible news and events, the market has held up. It has essentially gone sideways and has now created a volatility coil. Volatility is mean reverting, and I suspect once that Genie is out of the bottle we will see a massive move. I now think that the most likely direction for that move to occur is up. So...what to do? Well some people would just go out and start to buy stocks with both hands. Those who know me though will know that I am much more cautious then that. The most important thing to me is to cover my downside, if I do that the upside ALWAYS TAKES CARE OF ITSELF. So, at this point I am going to start building a few very small positions in the market in the strongest names. When these names have their first pullbacks I will be in them and watching the volume patterns they show VERY CLOSELY, and if we get favorable volume and price patterns on the first pullback I will treat this as a very bullish development and then I will start buying more aggressively. Right now the stance is that I am cautiously optomistic. One thing we definatly have going for us if this starts to move higher is that cash is at very high levels and most of my fellow Wall Streeters would rather lose all of your money than miss "the bottom", this can create some massive distortions, and that spells opportunity for you. ------- Oracle (ORCL): Out of all the major Nasdaq Tech names I think this one has been the most impressive in terms of its relative strength over the last few weeks/months. No matter how badly the market has been hit, ORCL just kept on trucking carving out a base near new relative highs. It has now broken out nicely from its most recent range ( I do wish volume would have been higher) and I am currently long ORCL. I will be watching for intraday and daily setups that afford me the opportunity to increase my size in this trade. JDS Uniphase Corp (JDSU): Probably the most speculative pattern. It has formed a pretty nice low level base and in spite of some recent bits of bad news the stock just stayed in its base. It feels sold out. If it can get above $2.33 it could see $3.00 relatively quickly and your downside is limited, about 10 to 20 cents. Best case scenario would see JDSU trade up around $4.00 per share. Frontier Bank (FTBK): I always work with the theory that stocks are like schools of fish, they travel together. That is to say that when a sector is in play you tend to find a number of stocks in ttat group who are also having their day in the sun. Frontier is a small bank in Washington State. The earnings and revenue growth have been very impressive, as is the chart. I am currently long FTBK from $34.15 and planning to add to the position if it trades above $40.00. Telecom Holders (TTH): The telecoms have been probably the best performing technology sector lately. TTH is the AMEX traded holder that represents ownershipe of these companies. I will be buying on a break above $31.00. There are a whole host of stocks out there that look pretty nice, way to many to write articles about each of them. That in mind I am going to go ahead and just give you access to my entire long list and you can do what you will with it. AMD, Q, PTEN, ORCL, SPY, MOT, BAC, TJX, GOOG, CMCSA, CMCSK, GM, EEM, KO, ANF, ABB, ABT, PEP, AKAM, USB, KSS, SUN, XMSR, UTH, NGPS, TTH, BTI, IMKTA (on a pullback) FILE, CLB, DAKT, COG, ELE, ENDP, STR, CACB, FTBK, CHAP, PCAR, LKQX, TRMB, ALB. Good luck. If you wish to contact me I am most easily reached on AOL Instant Messanger under the handle drknowbody29.
I have now been trading professionally for slighty over a decade, 6 years trading privatly, 4 years trading other peoples money and my own and just recently having started up my hedge fund. Most people do not last even one year, and I came very close to being part of that statistic by not respecting risk. I came into the market just like most everyone else does, with wide green eyes that had dollar signs for pupils. I was convinced that the stock market was the place I would find quick fame, glory and fortune. That my $20,000 account would grow to the stuff legends are made of, I would have a house on the hill with a six car garage for my collection of Ferrari's and Porsche's. I planned to have this with in two years, maybe three if I hit a small snag. Well, I hit a snag! I opened the account in June 06 with $20,000 in it and my birthday (Dec 8th if any of you want to send gifts btw) the account was down near $10,000. I had lost nearly half of the money Toni had given me to start my career with. As you can imagine I was pretty depressed at this point. I thought I had blown it and I did not know what I was going to do. As luck would have it Toni kicked me in the ass. She told me that if I brought that account down under $10,000 it was being closed and that would be that. Toni's ultimatum marked one of the most important points in my entire development and career as a trader. Why do I say this? Because from that moment on I no longer focused on getting rich quick. I knew that I love the markets and that trading is all I want to do career wise, and knowing that it was very close to being taken away from me changed everything. I started to focus on RISK. Instead of asking myself what can I make when this idea works out and how much leverage should I use to maximize the potential gain, I started to ask myself how much I could lose if the trade did not work out (I stopped out) and also how much could I lose if things really went south (big gap down because they miss earnings and the CFO's girlfriend has been stealing from the company). This shift in focus obviously worked out pretty well for me as I am still here today. Not only am I still here, I'm doing better than ever. I live at one of the nicest country clubs in Sarasota County, and I continue to grow my own account. This shift in focus resulted in such a positive change in my performance that it was not long until people started asking me to trade their accounts for them. Over the last several years I have done this successfully. Just recently a major Wall Street firm selected me to manage money for their clients via my hedge fund. This is a program that has hundreds of applicants for every one available slot. I am optomistic that with my style I can grow my fund to someplace around $300 to $500 million under managment. I have done all of this not by making the most money, there are many funds and traders out there who have returns that are far better than mine. However, you you look at my performance on a risk adjusted basis there are not many out there who do better. I have limted drawdowns, in fact the last time I had a drawdown of more than 5% was nearly 3 1/2 years ago. So, how does this apply to the market today? Well at this point we are starting to see good things out of the market. Yesterday the market continued to build upon the gains it posted on Tuesday. Not only did it build on them, it did so on heavier volume which shows that the "big boys and girls" might finally be coming out to play. Volume has been a key part that has been missing in the market for some time when we had upside. Overall bearish sentiment in the market is very strong. Most charter members of the wrong way crowd have started to come around in the last few weeks to a bearish world and market view. You can see this in several places: Cash is holdings are near records, the odd lot short numbers are very high and in pollings the number of people who are classifying themselves as bears is up sharply. These are all secondary indicators, however when you combine it with the price and now volume patterns that we are seeing in the market it starts to pain a more attractive picture. Because cash levels are so high and so many people see themselves as bears this could give us some very nice upside. However, at this point I still want to take a somewhat cautious approach. The thing to remember is that if this is really "the bottom" then there is plenty of upside to come. You do not have to rush right in and take a lot of risk. What I want to do right now is watch the market on its first test, which will be its first pullback off these highs. If it can hold its own, which I suspect it can, then I am going to be out there buying strong stocks like DIGE as one example.
I am no longer have a website as I am "just" trading now as I have grown my hedge fund to the low 8 figures. I still hang out in Toni's chatroom @ Mainstreet but just as a member.
NBTY Inc (NTY) is a leading stock in the very strong Cosmetics and Personal Care market sector. I have always subscribed to the theory that stocks move very much like schools of fish, so if you find a sector that has several names acting well that is likely to continue and you are likely to see more and more names breaking. NBTY has a strong gap window from 7/28 that has yet to fill and over the last several weeks it has now been basing near new highs. If NTY breaks above $30.35 I will be a buyer. Center Financial Corp (CLFC) is a California based bank that specializes in mortgage and small business loans to the Korean American Community. Small Western Banks are one of the best looking sectors out there at the current moment and this is one of the better looking stocks in that group. It also has solid fundamentals with good organic growth and a strong pressance in its niche market. I will be buying CLFC if it breaks above $25.10. Tsakos Energy Navigation (TNP). OIL OIL OIL OIL, everywhere I turn people are talking about oil and prices keep going up. Meanwhile production and oil in storage is at record levels and the oil services stocks are starting to show the first signs of tripping. The shipping stocks have also been a strong beneficiary of the strength in everything oil, but there is starting to be a lot of ability to ship oil and rates are showing the first signs of topping out. This is going to have a negative effect on these companies, TNP is one of the first of the group starting to give us a short setup with its weekly chart avalanche. This is a very thin issue so extra caution is in order. If this avalanche triggers I will be shorting shares of TNP for a longer term "Position Trade" MidCap Syders (MDY): Over the last several weeks as the market has rallied the Midcap sector has been badly lagging the market, not partaking in the fun. Keep an eye on the MDY for shorting opportunities.
Hello Brandonf, can you tell me about a Web-Site where i can Screen Sectors and search for Stocks in strong Sectors. Thanks Peter