All the indexes were up around 3% ~ but on very little volume. Laggards were the best performers while the new crop of (possible) leaders remained almost motionless. Nice trend up day though ~ good for catching a few short-term trades.
The indexes are very overbought here. http://stockcharts.com/charts/indices/McSumNYSE.html
Companies will start reporting earnings shortly.
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Hey Coach,
I noticed that last night and the Dow already has 4 distribution days. I see some breakouts and setups but, we are overbought and one can not gauge the moves of the past week without adequate volume.
I tell you what, it took me a year to learn to wait on LEADERSHIP confirming a rally. We have a FTD and a stock breaks out only to form a base on base pattern for the next rally (While my portfolio gets chipped away at). Death of 1000 cuts.
I have the following observation, please comment.
1). More than 6 weeks after the follow through, we do not have one institution quality leadership
2). NYSE has only 8% of stocks above 200MA.
3). leadership indexes (IBD 100, IBD85/85) have much worse A/D rating than the routine index. In another words, leaders do not lead at this time.
4). Drying up in new IPO continue.
personally I also combine "rule of three" to the market, that is, after three weeks of follow through, at least I want to see a minimal of three leading stocks (thin stocks are OK)break out. The problem is I only collect data back to 1991 and I can only back test my rule to that time.
Ge
ST,
I have a concern, and this actually puzzle me quite a bit and I want to know your opinion.
Bill said that the current market is reminiscence of 1973-74 bear market. I did spend some quality time studing that follow through in november 1974. What I found was that once pressure was released, every stock, leaders or laggards, all washed up several percentage in a day and just keep moving up for days. There was basically no way to identify what/where the leadership was. Our friend, Darvas, was puzzled by this, too. If you recall, in one of his books, he used analogy of a powerful tsumani washing everything up shore to describe that fierce market rally.
The current market is just like the one in 1973-74, everything is depressed. The problem is, once the pressure is released, the market can be up minimal 5%/day for several days in a roll. If we are patient and wait for the leadership to show up, we could easily miss 20-30% gain in a short time.
Question: hypothetically, If the above is the case, how would you handle it?
I always plan my trade. But this is the potential situation that I do not know what plan to make.
By the way, Darvas waited for 4 month until he finally located the leadership. But the major indexes already recovered from the significant low.
Ge
hi ST!!
firstly, happy new year to all!
just wanna ask about smthing with regards to taking profits. o'neil mentioned taking profit upon 20-30% profit. I'm abit caught between this and the idea of riding the uptrend until the stocks tell u that u shld be getting out (like darvas).
so is this 20-30% profit a general guideline u stick to?
Hey Ge
refering to your post
"Bill said that the current market is reminiscence of 1973-74 bear market"
may i know where did u got this from?
cheers
GE,
I agree with O'Neil. It is similar to 73-74 in that we are in the same stage of almost the exact same cycle. There is no reason to get worried about missing the move though. It is still fairly new and littered with false breakouts. Lots of money can be lost on those false breakouts...and a lot of self-confidence can be destroyed.
Right now we are seeing some good stocks start to set up. I do not yet trust most of the breakouts though, so I'm keeping my money in my pocket (i.e ATHN...and many others). AIPC looks good but it is soooo thin...too risky for me.
Anyway, as always, I'm waiting for earnings before I move in strong. Once earnings are on the table, well, then you can have some assurance that the move isn't false.
Meanwhile I'm doing some very short-term trading with a small amount of money - just to stay in practice...getting ready. Earnings season officially starts with AA on the 12th. The market will tip its hand then. All the cards will soon be on the table.
Kevin, more or less same answer as in the previous post.
Kevin,
It just depends on your personality. If you are up 30%, do you have a problem giving it all back or half of it back and then possibly recovering it later. You know, it depends on what you want. If you get a 30% return per quarter starting with a 100k account. By the end of the year you will have $285,000 or so. Not a bad return. So if you can nab 2 to 3 stocks per quarter and sell them when they are up 30% or so...well, you can have a good year.
If you hold those same stocks the whole year you could do better or worse - but you will definitely experience more volatility in your account.
Personally, I prefer consistency quarter over quarter, but if a stock is acting right I'll hold it as it moves up on its 20 day MA. However, usually the general market has the last say in the matter. If it undergoes a correction I get out. Over the last couple years it has been tough holding for the long-term.
hey thanks for the reply.
the only reason why i'm asking the above qn is becos taking profit based on a certain % gain seems to be following the old adage of " u can never go broke taking a profit " which supposedly is not true.
True. O'Neil is just giving some general advice..."First build a cushion in your accounts ~ get some profit backlog ~ then you can go for the big multimonth/ multiyear winners."
The goal is not to catch every big winner. The goal is to make money. Once we've got that down, then we can go for the big winner.
It's like fishing. Yu don't start fishing for Marlin right away. You work your way up. Moreover, even if you are fishing for Marlin ~ they are few and far between ~ so there's nothing wrong with catching some Tuna, Sea Bass, Sailfish, and, Mackerel while you wait for the Marlin...you just have to know what kind of fish you have on the line. Then you know how to play it.
To Kevinsays:
1). O'Neil mentioned it at level IV last month.
2). I am not in a position to answer your question to ST. Pesonally, besides my personality, it also depends on my conviction, the stage of the bull market, stock's personality, price projection based on P/E expansion, other stocks' behavior in the same industry group, market behavior and if it is a TML. If you really have conviction, I probably will also put on Darvas' box as my bottom line of holding. That is how much room I want to give to the stock. I have to admit that these are rules I made for myself as I have never experienced a full market cycle yet. They are designed for myself ony and may not apply to you at all.
TO ST:
Thanks. I guess my question is what if leaders and laggards are all up 5%/day for several days in a row, because of the sudden change of market condition like 11/1974, with no identifiable leadership, what would you do?
Ge
GE,
I don't know what the exact situation was in 73-74, but sometimes you just miss part of a few big moves. I would probably just wait for my setups like always..otherwise, what are your risk parameters? Where is prior resistance? Where is support? Where do you put your stops? If I can't answer those questions then I'll probably miss part of a move -just as I'm missing part of a move now in stocks like MA, FSLR, GOOG ,etc. I might catch parts here and there for a short time, but for the most part I'm missing it. From a distance and with hindsight it might look easy to have jumped in with both feet into those names...but it isn't. I know my time will come - and when it does I'll make up for the small part of the move I missed...and I'll have avoided a lot of serious risk. Missing a move used to bother me a lot, but not so much anymore.
Solitary trader, you are saying that you will make up the moves? You missed the big moves 08 Spring. You should have been up triple digits with all the years of experience.
Triple digits in 08? Maybe if I was a really good short-seller. I'm not.
I only do a few things well. There are many people out there a lot better than me - that's for sure.
I said 2008 Spring as in April May after the follow through. Many stocks moved huge. V ENER CLR to name a few.
Chris, with all due respect, your post knocking ST's returns, shows you are new and inexperienced at trading. Please limit your comments to questions, or change your tone. This is one of the best trading blogs I have ever come across, in my many years.
ST, Thanks for all your sharing, and I truly hope to look forward to many more of your posts in 2009.
The has been a recent thorough study done, that in the last 8 years, the percent of FTD's that are successful is closer to 50%, than the often quoted 70 to 80%. This makes the comments of yours about trading off FTD's by watching leadership even more meaningful, IF your trading methodolgy is pure can slim.
I don't know about ST's returns but he is DA man. He taught me a lot. Especially about PATIENCE. I agree with Wireman, this blog indeed is one of the best trading blogs, if not the best.
haha..
ST.. i'm not here to artificially boost your ego but your the only blog i read..
and of cos fellow readers here have also from time to time contributed various ideas and qn which were GREAT too!
cheers
Chris,
I've never been up triple digits in less than a quarter.
Not sure what else to say...I ended the year up about 10%. I'm pretty happy with that. I saved myself and my family and friends a lot of money by mostly staying out of the market. I'm ok with that.
I recently read about a trader who was up over 1,500% last year. Amazing guy! Many more traders went completely under.
I'm happy with the year...looking forward to a better year in 2009.
If you were up triple digits in April/May...congratulations.
1500% wow. Did he make it trading stocks, options, futures or currencies? Do you have any link? Thanx.
Haha...thought someone might ask. John Lansing is the guy. Here's the article. I found it in IBD.
http://www.investors.com/editorial/IBDArticles.asp?artsec=28&issue=20081009
The humbling thing about trading (and life in general) is that there is ALWAYS someone who is better than you...in this case 1500% better.
Chris,
did you study the chart?
V had defined buy point and aggressive buy point, assuming you bought it right and sold it right, it only went up 30% to the exact top.
ENER gapped up before follow through, so it was not buyable. If you tried secondary buy point, and you must sell it absolutely right, you only got 50%.
As for CLR, even O'neil himself did not get it right. He did get in later and sold it right, though.
Ge
To wireman6
Actually I studied this issue back to 2003. It depends on how to define the success fo a follow through. chris (Bill's research man) uses any major indexes up 4% within 1 month, and if this is the criteria, you got 80% follow through work, including last march and july follow through. A master in my meetup use 10% to define success of follow through, and yes,in that case only 50% of the follow through work.
Ge
ST,
That is a good blog. Thanks for answering my question.
I do not know how long I need to condition my nature to have the patience with the stock market. You answered it before but I am about 15-20% to 10,000 hours mark.
Currently, There is no way I can stay at the sideline and watch stocks moving up like crazy, should the same scenario happen like 11/1974, especially I have sidelined for a while. There is also no way if the stocks I bought do not perform right away. I will sell it within two weeks and chase the leaders. It is just my personality, if it is really the beginning of a major bull market, I will do it. I know I may mess up a few huge leaders but stock handling comes with experience and no hard and fast rule apply.
I guess I have to learn this in a hard way.
Ge
I was in those stocks you mentioned back in April: V, ENER, SOHU, GOOG...a few others...feels like an eternity ago. It was the only way I was able to be up on the year. http://solitarytrader.blogspot.com/2008/05/finally.html
I completely missed CLR...and POT and MOS and many others...and when you miss the perfect buy point it sure can be hard to find your way in...never could.
Regarding Visa I wrote the following back in April
http://solitarytrader.blogspot.com/2008/04/next-week.html
...don't think V is done yet.
Solitary Trader, my comment was in response to your 10:16 comment when you said you will make up the miss moves when the market finally rallies with great set ups. Well, there were great set ups last year (Spring 08) when the top stocks in the top groups rallied huge left and right. With all the experience, and success, you only made 10%? You are happy with that? Good for you.
Maybe I should have clarified...you're right. What I should have said was that generally the market doesn't beat me. If it starts pulling away, eventually I'll catch up and overtake it. That's all I meant.
I'm pretty risk averse,Chris. I'm not going to make 100% in a month or two...and when the market is down almost -40%, then yes, I'm pretty happy with a 10% gain. Call me crazy.
Ge, You have to start with year 2000 or 1999. There were a bunch of wipsaws between 2000 and 2003. I have not studied it in depth, but the actual study was done by the Chicago IBD meetup, presented in Nov. I plan on looking at that in detail though. Those are the periods that matter most to accurately start trading.
Wireman,
Don't know if you've seen it. I did a study on FTDs as well, back in 2007.
http://solitarytrader.blogspot.com/2007/12/follow-through-day-charts.html
The data isn't exhaustive, but it was enough to convince me to wait for a while before entering the market after a FTD.
Essentially, almost every FTD gets retraced to some degree...sometimes up to 100%. So there is no need to be in a rush to join the bullish frenzy. In most cases we can wait for the retrace.
ST, I didn't meant to offend you. You are one of the few blogs I read, and my favorite I might add. I never made any comments before. I am just surprised that you didn't make a lot more. That's all. Apologize.
Haha...no problem. I still fail to see what's wrong with beating the market by about 50% though. Could I have done better? Sure. You can always do better. But I am honestly very thankful I didn't do worse.
ST, Thanks for the link.
Chris74, please ton it down and be nice. ST is one of a kind. Why don't you share some info? What are you watching and/or trading lately?
You too ST, what are you watching?
ST,
I here alot of touting (by some pretty darn good operators I might add) about stocks like EMS, CBST, MYGN, CEPH, etc. I just can't get excited that these might be the next potential monster stocks for the next breakout, since they all have institutional ownership ranging from 95-125%. Talk about over owned. If anything, I'm looking to short these if they put in a double/triple top or some other descent topping pattern. Your (or anybody else's) thoughts please.
Thanks Chris. Do you have any short ideas?
Wow, 38 messages!
Chris74, I do not know what the #$#@ you are talking about. Bill, the founder of canslim, does not recommend buying in the bear market and does not recommend day-trading at all, how can there be a day trading version of canslim? In his own words, ".....you're predominantly dealing with minor daily fluctuation that are harder to read than basic trends over a longer time periods...there is generally not enough profit potential in day trading to offset the commissions you generate and the losses that inevitably must occur".
I admit I do not remember ENER right, but Don't tell me what to do. If 28% of the person repeating level IV are hedge-fund managers, it tells me something. and yes, I will repeat level IV on a yearly basis.
I learned this in a hard way and I will never ever predict what will happen in the market. I will let the market/stock action either pull me in or push me out. I adopt Goslin's strategy, and let the people who think they are smart do the prediction.
Ge
Wireman6,
I am aware of the study. That study was done using 10% as the minimal to define success of follow through.
The master who did the study was on investor's profile last year. He was also featured on the investor's success story on IBD recently which showed him and his father driving a antique roadster on father's day.
Ge
GE, Hedge fund manger? Wow... That was a good one. lol When you finish your studying and do some real trading and finally master ONeil's methods in few years, you will know what I am talking about. Good luck.
hey guys. no trash talk here pls. let this not become another flame forum.. like ibd's one.
i would like to suggest that our comments be constructive and edifying.
Chris74,
all right, you win and I lost. I back off.
I come to this website to learn, and will only focus my limited time and energy on learning.
I have only less than 2 hours per day to learn CANSLIM after the stressful job, wife, kid, dinner, etc. So I have to do something constructive and let my ego out of the way.
It is probably even more so for you, since day trading is far more stressful and you have to be 100% ready mentally, emotionally and phscically every single day. Anyway, I could be wrong because I am not as smart, and if you think day trading is easy and effortless and you have more time to show how great you are, then God bless you.
Ge
Ge,
First, thank you for your response to me relative to the FTD study. The only thing that bothers me about IBD marketing, is they don't always reveal the true picture, and it takes advantage of the new folks.
Secondly, I know Solitary Trader, and your recent responce to Chris would fall in line in what he personally would do. Chris is the first one I know of that has come off with attitude, since this blog began. It serves no purpose other than to make this blog not as enjoyable and educational. My friend ST, has worked too hard to allow this to continue much longer. We all know how absolutely brillant and incredible Chris is at investing. Hopefully, he will now grace another blog with his utter genius.
To tell you the truth, guys like Chris can come off as abrasive. He apologized. For me...no problem. He proabably made a lot fo money in April/May and can't understadn how other people didn't.
I also try to look at things from a perspective of faith.... Nothing happens haphazardly.
Perhaps what I can learn from Chris is that I need to get fully invested a little faster. Also, perhaps I've been a little too complacent...comparing myself against the indxes rather than what I could really do. Anyway, that's how I see it. He has made me think...perhaps I could have been up triple digits in six weeks...now that's an interesting thought.
ST,
I like your humble and open attitude. I am sure there are many ways of making money, and canslim is only one of them.
Back to last march/april, I did not think we had a bull market because bull market should have new leaderships but I did not see any NEW leaderships there, only old names of oil, steel and fertz. SO I sit on the sideline for a while and missed many opportunities. I did get a rude awakening when SOHU gapped up and CSIQ gapped up. Thinking back, maybe I should be more flexible, too.
WHen doing postanalysis, however, I still decide to stick to the current plan. That is, my focus is to learn one method and learn it really well, and also put my personality to it. My focus is on the intermediate trend only and I am sure one or two stocks will make the whole year for me and only three or four good trading opportunities will show up per year.
WIll see what will happen in 09. So far things are not that good.
Cheers!
Ge
wireman6,
I learned from Level IV that there is a wall between IBD writers and Bill's portfolio managers. Bill's PM do NOT trade according to IBD 100 or 85/85. Simply put, writers write and traders trade. Even in level III Mike and Charles recommend you reading IBD, but in reality they do their own screening and do not read newspaper.
If you have a closer look of 12/5 or 12/6/08's IBD big picture, in the very last sentence, Jonah Kerri wrote that only trade with stocks that have a daily volume above 400,000. THAT IS THEIR TRUE COLOR. HOwever, they recommended thin stocks anyway, and labelled them "leaders breaking out or set up good bases", blah, blah...
It is ok for them to hedge the words a little bit because by doing this IBD can always predict the market "accurately" while no one else can.
I learned this in a hard way, though. Do not let anyone influence your decision, even if it is from IBD. You have to make your own independent thinking and responsible for your own mistake.
Ge
ST, On your above comment, you are too merciful. We can not forget that the are two factors in investing, risk vs reward, and must balance both. Also, anyone can claim they made great money in hindsight. Studies show, the BS meter runs high, when many traders talk about past performance, without giving real time evidence.
Ge, You are right on with your above comments. I have had lunch and long discussions with half of Bill's personal $ MGRS , as well as the editor of IBD, Chris. One on one, they let their hair down, and a lot of in sight can be gained. There are 2 sides there, one is heavy on marketing to sell papers and books, the other is trying to make $ for Bill and keep their jobs and bonuses. The trails they take and advize are not always the exact same.
wireman 6,
I agree. I would err on the patience and discipline side.
I have talked to less than half of Bill's PM (wendy, scott, charles and mike). Justin and David are not PM. Bill has a total of 9 or 10PMs, I think.
I talked with Chris Gissel for only a minute or so between the breaks and I asked him why he chose 4-5% as success of the follow through. His answer amazed me. He said if indexes were up 4-5%, you should be easy to get out without burned 7-8% assuming you bought correctly. He define the success of market follow through by not lossing money. And if that is the case, then 80% of the follow through work. As you said, this will help to marketing Bill's canslim.
Well, yes, that is true, but I do not know what else to say.
Ge
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