Red Dawn in Morning - or Time and Price/Supply and Demand

Being a good steward of your money ultimately means understanding the value of things and being able to manage risk. I'm always a bit surprised to see discussions of technical analysis trumps fundamentals or fundamental analysis trumps technical analysis. I consider them both to be nourishment of the bread and water kind--essential to your investment survival (I'm channeling Loeb here).

You've no doubt heard the expression about 'certain' people: S/he knows the price of everything but the value of nothing. It's an expression worth thinking about as you consider your stewardship responsibilities over your money.

We cannot ever lose site of the simple fact that stocks are inventory, and that inventory is always turning over. And, much like your favorite shopping destination, when there is more inventory than there are willing buyers, prices drop. The obverse goes without saying. Our good friend Seldon reminds us:

Our big capitalists are seldom entirely
out of stocks. They merely have more
stocks when prices are low and fewer
when prices are high

Now my saying this is not a paen to value investing. Rather, it is a paen to importance of knowing price and value and being able to opportunistically benefit from the difference by making a buying or selling decision. And while arguments are fervently made that the market is the final arbiter of price, those adherents forget that time is another important dimension. Panic selling can yield opportunistic buys, and panic buying can yield opportunistic sells.

No matter what your philosophy is OR what your modality is, ultimately you are moving inventory as well. Accordingly you must buy advantageously and sell advantageously. Knowing the value of what you are buying/selling v. the price that those are willing to sell/buy to/from you is an important part of keeping your inventory turning profitably.

There's another dimension, too. That is knowing the season, what to stock and in what colors. That statement IS a paen to the business cycle. Much has been made recently in the increases in metal prices (always a requirement in a recovery) and increases in durable goods (a signal of confidence). Trying to figure out which season you are buying for is not so easy as the lovely symmetrical charts will tell you--a bit like the model size 8 doesn't is different that a real woman's size 8.

I just saw on Bloomberg yesterday (I don't see it now) about how undervalued Chinese stocks were. I've had my best luck with Chinese stocks, but I must admit that I do not trust the reported numbers so much. But I do know this....the Asian economies are being looked to as the saviour for the world. I've maintained in this space before that we are projecting our own proclivities for assuming debt and lack of saving to Asians who are savers. Will these would-be consumers step into the large shoes of the American consumer within a short period of time? I think that you'd have to believe something monstrously untrue to answer yes.

Being "Slightly Better"

I mentioned some time ago that I bought a bunch of books from Fraser Publishing. One of those books was The Battle for Investment Survival by Gerald Loeb. Each time I pick up one of these books, I'm reminded that the basic tenets of being a steward of one's money are not different.

Perhaps it seems useless to read the same concept articulated by different folks, but it does seek to reinforce the concepts and, more importantly, convey a nuance that deepens the understanding. Loeb writes:

Your best weapons against the forces that tend to clip your fortune are knowledge and experience. Realization of the conditions that exist should lead you to learn more about them. . . The acid test is to learn to be a knowing participant in the game of getting ahead of the other fellow. (p. 212).

When I read that this morning, I was reminded of Russel Napier's conversation with James Authers of Financial Times. Authers did "A Long View Segment"...[Geez, I just went over there to find it for you, but I started reading other stuff.....I'll never get this post finished....you are on your own to hunt it out. I know that I posted a link on this blog when I saw it the first time. I'll find it for you later.]

There's the funny joke about trying to out run a bear....you don't have to be faster than the bear, just faster than your companions. Such was Napier's point about successful investing. You don't have to be THE smartest, just slightly smarter/quicker than most people. And that's called out-maneuvering. Those who jumped in the market in March and are likely selling their stocks to all of the underperforming fund managers, were slightly smarter/quicker! They outmaneuvered me, but I was busy saving lives from a burning business.

Financial Sense on Line had Jack Schwager on talking about 'market wizards'. Let's face it...I'm never going to be a market wizard (I'll refrain from saying that you will not likely be one either!). It is almost scary to see these books and interviews wher there is even a suggestion that MOST investors can attain such success. How many cellists get to Yo Yo Ma's level?

Though I've consigned myself that I will not be a market wizard, I don't mind aspiring to being a wizard's apprentice. And if you are going to be better than MOST of the investing crowd, how do you plan to do it? Like most simple questions, it's a powerful one. You might as well tack up "How will I know when I'm wrong?" AND my favorite "What do I have to believe to be true for X, Y, Z?"

I've only skimmed a few parts of this book--enough to want to launch a post in this dry desert of a blog of mine. I hope that this post is only slightly better than something else you might have read today.

Late? Early? Missive

I don't normally write posts at 12:51 a.m. I'm normally in winkie land. Today (err, yesterday!) was my husband's birthday. For whatever reason I was both uncomfortable and wakeful, and I elected to come downstairs.

I'm still finding myself at a strange crossroads. On Wednesday, I had the most wonderful day away from client and market demands. I went with my two friends from my KPMG days (friends of 27 years) to the Barboursville Winery's lovely restaurant, Palladio. They feature Northern Italian cuisine. As I was not the designated driver, I had a 4 course lunch with wine pairing. I generally do not drink in the middle of the day, and I was sorely wanting for both a binkie and a blankie for the ride home.

While drinking, eating and laughing-'til-you-cry, a combination with this threesome, are a wonderful curative, I've not come back to the markets with any sense of feeling grounded. No doubt you are bombarded with opinions--many of them confounding--about what the market will or won't do and why.

But when there is no new thinking to be had, sometimes it is useful to revisit old thinking or go to others and read and think a bit. So my point of this post, is to give you a few things to read together.

First, I wanted to revisit what I summarized from Napier's book. You can find that post here. Second, I always find Jeff Saut to be wonderfully grounding. Do look at this column,

“It takes a licking and keeps on ticking?!”

from this week. (Click on the above).

Financial Sense online has two articles from this week. The one that REALLY GAVE ME PAUSE was Frank Barbera's. If you were to read nothing else, read this:

The Wall Street-Main Street Paradox

You might guess on what gave me pause (but it is late/early depending on your perspective, so there is no point in being coy about it or make you thrash about in your guessing) was this: This rally is so unbelieved in, and so many are coming into the Sept/Oct season with fear, then it would be as perfectly reasonable to NOT expect a decline in this time as it would have been to NOT expect the "sell in May" aphorism to be worthless. I may my negatives wrong and I may have to clarify this post later. And I'm still big believer that we will get a rock'em sock'em downturn from these levels.

Here's my theory: We did get many positive (less-bad varietal) surprises out of earnings. Companies have cut hard. We have to see follow through on revenues rising. So there is a bet of betting on the come that sales revenues will rise and all of this manna will drop beneficently to the bottom line enriching stockholders. I offer that we will NOT see this to be unequivocably the case until the next two quarters. It MIGHT happen with Q3, but I think that there will be so much ambiguity regarding Fed stimulus not percolating through etc. Remember this view is based on the market-as-teenage-boy model will come into play. The market needs a few whacks on the side of the head before the rose colored glasses goe flying. So Frank's view has some real merit.

And finally, Danielle Park's missive gives an interesting perspective

Speculating on Recovery

With respect to Parks, she, like many, note/lament on the lack of volume on this rally. To my eye, and I'm not sure why other commentators (real ones!) do not note this simple fact: the volume on this rally is heavier than the volume leading up to the decline last summer. If you have an answer for that or if you think my eye is jaundiced, you may write me and tell me that politely.

Hopefully there was something of use here. Now I will re-retire!

MOnday a.m.

I don't capitulate much (as my husband would tell you), but I dumped my UNG.

The light blue shading is where I thought the bottom was--"How many more sellers could there be?" I asked naively! I guess everyone who thought that they found the bottom when I did.

It's been a while since I've had options expire worthless, that's more a function of my not dabbling in options than my prowess in them. I had EDZ calls and PRA puts expire. Fortunately, I had a monster win (4x) in RX calls and a nice win (2x) in SSL calls. I sold 1/2 of my SSL Sep 40 calls. I'll keep the rest, though I realize it may be a volatile ride.

I did quite a bit of flipping through charts. It seems to me that there is an airpocket of volume in the S&P. I was looking at it against the Nikkei:

Also, there seems to be some long term distribution patterns in some of the bio-pharma stalwarts.


But I'm seeing some interesting things, too. MF is one. I have a Jan 7.5 call position.



If you are wondering what types of charts these are, they are Renko. I find these charts helpful in getting rid of some of the noise. I will never be able to figure out Point and Figure charts...the element of time is important to me. I prefer to see Renko with the volume bars. To be fhair., there is likely a heck of alotof overhang on this stock....but the price action will tell.

Many are commenting on the disconnect between the market and 'fundamentals'. I'd offer this that "hell hath no fury like a trapped short (or an underperformig fund manager)". It's constructive to think about a few things about this disconnect:

• Money has to go somewhere
• Short covering can provide the most delicious of all rallies
• Fear of missing a move is one of the most powerful (and dangerous) of emotions
  
• Volume is low, so intraday action driven by momentum traders can explain much

A rally is a rally. I've not participated fully. But, I didn't lose any money in the down draft. As individual money stewards, we are not subject to relative performance ratings. Where losing 'less' money than others in a bear market is okay for them, it is not okay for this money steward. Making prudent entries into volatile markets or choosing to stay on the sidelines is fine. If you've lost 50% of your money, you need a 100% rebound to be even.

I'm really liking the term "money steward". It removes lots of the connotations that go with the label investor or trader or speculator.

More Bank Woes | Finding Focus

http://online.wsj.com/article/SB125081267424648035.html

The WSJ writes about mortgage securities on the balance sheets of many regional/community banks. The irony is that for banks that had idle money because there was not growth in their communities, deployed their money in these assets. At the time, it did not seem like such a bad idea as the assets were highly rated. So they avoided making bad loans, but didn't avoid having bad loans on their balance sheets.

You'll also remember insurance companies have gobs of this 'stuff' too, but that seems to be working itself out, though I don't really know how.

So the sticky booger analogy of these assets being made and then flicked with some real sticking power still works. As I was closing down my client, I had another blast from my past. The computer consultant was there. I told him that I always remembered the conversation that we had on computer viruses, and that his sticky booger analogy has been useful in discussing it!

This post is back into the stewardship of money vein. Money sitting around and collecting dust is not good stewardship because there are safety issues (theft, fire, etc). Banks have to earn a return, so you can see that their investing in these supposedly safe securities with a wee bit more yield would be attractive. We saw how that story ends.

The point is that these securities still have to work their way out of the system. And mortgages have two facets: underlying collateral value and repayment. Ultimately prices need to stabilize (otherwise people walk away and give the keys to the bank) and employment needs to stabilize. Employment still is the income stream that most people need to pay their mortgage.

I live in a very small neighborhood. Two people are losing their jobs in the next few months. As I talk to young people, they are depressed about their futures. But as I look back over history, I also see that this 'stuff' gets worked out. Looking back in retrospect always offers greater clarity than a contemporary view of matters.

We can make a decision about how we choose to engage in forging those solutions. This crisis is surely one that will be a turning point in the complexion of our nation. I've been doing some reading in various places. First, I have a real interest in old investing books. I ordered a bundle from Fraser Books who specializes in the reprinting of these books. Investment advice really has not changed much in 100 years. Second, I'm reading Jose Ortega y Gasset's, Man in Crisis. It is one of the books that I found at the used book store in Sylva, NC. There are some real gems in this book, and I will share some of them.

My particular interest in this book is in his historical perspective of generational change. He distinguishes between a linear, soft change, to an abrupt change that serves to challenge the past and break free from it. We see those jolts in our history lessons. These changes release a great bit of energy (and war serves as a manifestation of such release). I cannot help but wonder if we are on the precipice of such a change--a change that will shape the contour and complexion of our nation.

He writes something very interesting, which I'll paraphrase: We are what we focus on. We are a great nation--and the focus for our forefathers was the securing of our collective freedom. At some point in time the focus has become blurred. I'm excited about the book because I believes that it falls into my hands at a time that is meaningful. Here I am, almost 50, and I'm feeling the need to have an understanding of what that generational change is, what it will mean, and whether or not it is a hard or soft evolution.

I believe that this book will give me some needed focus. Since the demise in the credit markets (something I was very focused on), I've felt rather directionless in terms of focus. I feel like this book will give me a construct from which to write with more purpose and clarity.

The Perplexed Investor - Perplexed!

When I started this blog three years ago, it was born from the desire to MAKE myself write about the markets--more specifically my understanding (or lack of) understanding them. There's a huge risk embarrassment, but by doing so, I'm confident that I've become a better steward of my money.

Steward of my money. I chose those words carefully. I elected NOT to call myself an investor or a trader, but rather a steward of my money. We forget that we are human. As humans, labels are part of the way that we make sense of the world. Liberal, conservative, fundamentalist, provocative, predictable, flexible, stalwart, ....... All of these labels connote stuff. Labels are shorthand to distilling alot of complexity into a sound bite. Efficacious? Yes. Accurate....not always.

You might recall last October, I had an ambitious goal of reading Paul Krugman's articles on the Japanese deflation. Alas, my layperson status caught up with me, and I could not muster the brain power to tackle it. Hedge Funds and Systemic Risk, though a stretch, was more accessible.

The fundamentals are so screwed up. Either the market is ahead of itself- anticipating - or the market is just full of beans and getting ahead of itself.

I'll go to my grave believing that the market IS NOT prescient. It is anticipatory for good information, and it needs a hearing aid for bad information. However, once that information SHOUTS, then it hears and dispatches accordingly. That is "The Market Accordingly to Leisa" , and I've seen NOTHING in my observations that would yield a different conclusion.

The dollar is in jeopardy. And if you are in dollar denominated assets, what might you do?

That, my friends, is the answer to the conundrum that we call the market. We are likely to find ourselves in a currency crisis. It is something that I've mentioned here, but I've not committed any real thinking time to it. (Admittedly, it is a stretch). I suspect that if the dollar is to fall, then we'll have our own private US inflationary hell. Perhaps this is how the inflationista's wrest the titular "bad ass" crown from the deflationistas.

To say that this is a perplexion is an understatement. I've posited in this space before the imporatance of understanding currency and the inflationista/deflationista battle.

Tuesday a.m.

I missed the market decline yesterday. My portfolio seems to be rather perfectly hedged. I'm not sure if that is a good or bad thing! Cash position is still north of 90%. I'm not sure if that is a good or bad thing either.

My husband and I went to the upper James River to do a canoe/fishing float. I offered to paddle so that he could fish. I did warn him that if he fussed at me at all, that I would never go again. He restrained himself, and we had a very nice day. As you might imagine, I'm sore, but it is a good sore.

With no cell phone coverage, such endeavors are truly a time to remove one's self from day to day stuff. I didn't see until about 2:45 the market. I had some EDZ calls that expire this week. I probably should have closed them yesterday, but elected not to.

I did see this spectacular drop in SNEN:

I'm not in this stock, as I sold in the volatility moves. They've had some trouble with one of their receivables....and that has exacerbated itself.

I will always be an advocate of mixing technical with fundamentals for longer term investing (read: more than 1 day). If you are a technical trader, they don't mean much. I'm not a technical trader or a day trader. I'm rather confident that I will never be. Part of any of this 'stuff' is that you have to find a style that makes sense to you. And there is no style that absolves you from making an informed decision about what to do with your money.

Ultimately, the best bellweather regarding making an informed decision means that you've consciously made a decision regarding the risks and return you are willing to take over a specified time frame.

---

As I look through some charts from yesterday's sell off, I cannot help but note that in more cases than not, the volume is not very high.

Futures are up as I type.

http://www.box.net/shared/static/ce0qjagkht.png

Saturday Morning Post

I was trying to find a way to have some better clarity on my screen shots….here’s my final version with admission that I didn’t find what I was looking for….

Yesterday I pulled my last information off of a laptop. I bought an 8GB thumb drive since it was clear that my DVD backup failed. The drive was less than $20. Storage costs sure have come down.

Today is my birthday. I’m 49. I hope that I’m never ashamed to state my age, but I could see serial anniversaries of my 49th birthday! I plan to relax a bit today. Mark and I will be taking a canoe adventure on Monday.

I’m trying to get back in synch with the market. I like Tim Wood quite a bit. If you take a moment to read his Friday’s comments on FSO, it would be worth your time. http://www.financialsense.com/Market/wrapup.htm

Ascribing the rally to a new bull market feels odd to me largely due to my believing that we’ve taken a recession overlay (in terms of decline and correction) and are using it on a deeprecession (rather than a depression). Perhaps that term has already been used by someone. I don’t know, but I’m using it here and will lay claim to it.

Time for a few charts:

I have a theory that if we really are in a new bull market (I don’t think that we are) then the trade-down trade, is likely to be over (crowded). I shorted just 200 shares of FDO in my speculative account. You will remember that my speculative account is one that took from ~$5K to $26K. I then blew it up with two bad trades, and it went to $15K. I just left it alone. I now have it back to $17,850. I only have one position, which I’ll show later.

Here’s the FDO chart. I can see it going to 29, and that is the level that it would need to hold. I took my 4.3% gain on my short from an overnight hold and moved on. I don’t mind base hits, but I still believe that the big money is made in the big moves. Big moves are generally apparent in retrospect though.

TGB is a stock that I held in this account as well. I bought it at $2.21 and it promptly fell into a chasm. I’ve marked in magenta my ignominious entry. I should add that it has always been on my radar screen, so I made some purchases at the bottom and sold in my qualified account. This may be a case of selling too soon which is a habit that I’m trying to break. But, I expect that it will pull back, and there will be a chance to re-enter.

SNEN, my Chinese compressed natural gas stock is a wild ride. I’ve been holding to my buy low volatility and sell high volatility. You can see the long shadows on this stock to see the price swings.

The above is a weekly chart. Here’s a weekly chart that shows the action more vividly.

I’m truly finding that using the volatility spikes is very helpful in giving me an objective signal. It’s a stock that I watch and will likely re-enter as I like the ‘space’ that it is in—compressed natural gas for automobiles and engine conversion kits.

Here’s another name in that space: CHNG

I was looking at this stock around March…looking is the operative word, as I was ‘looking’ at gold stocks at the end of November.

Here’s another old favorite:

They reported disappointing earnings this week. I’ve been in and out of this stock (using blv/shv) I’m finding that using this strategy, I’m doing much better at producing these results where I’m selling (the small red/blue) combo. The last mark is where I bought at $4.86. The cat may have run out of lives on this one! We’ll see.

Here’s my one holding in my spec account

It may or may not be bottoming. I know better, but I give into my catfish tendencies to swim along the bottom.

I’m still mostly cash, and have a nice combination of brilliant and dumb ass trades to keep me up about 11% this year.

Saturday Post

Today is bit of atonement for not volunteering much over these last few months for dog transport. I did a quick jig to Fredericksburg from Richmond.  But in a bit, I’ll need to drive to Emporia and take—count them –four—English Setters from Emporia (1.25 hours south from me) to Fredericksburg.

I hope they all get along. 

Duke rode shotgun with me today.  He was a lovely boxer gent who’s health was poor.  Mange and starvation.  Sweet as can be and better days a head.  Thankfully, most dogs we see are in good shape.  So the transports are uplifting, not heartbreaking. 

One of my book club members (and married to another book club member) transitioned this week.  She was only 53 years old.  She was a very beautiful person, with an open, loving heart. Unfortunately, her heart was not strong, and she died from complications of heart valve surgery.  Her life was filled with many battles, but she always had kindness and grace.  We can learn much from these special people on whom life unfairly leans.  Sometimes they break, but the ones who bend with the load, find the song in their heart and the courage of their voice teach us much about both endurance and vulnerability.  I am glad that I was able to hear her song.

I’m not sure what the market’s song is.  My ear has not been tuned in for that, and to be sure it has leaned hard on those who have not been listening.

Today, is just a day of service to others. 

The Privilege of Patience

In summation, action can best be described as “classic,” or as close to classic as can be reasonably expected in the first five months of a bull market following a bear of such magnitude and duration as was seen in ’07-‘09. The market is in that sweet spot during a young bull in which prices are getting marked up broadly because the upper limit on where the economy, earnings, and valuations can grow to is not known. Similar to the mark-up phase of a young growth stock, participants are content to buy “the potential,” and leave dealing with “the reality” of an eventual ceiling in the economy, earnings, and valuations for a later date. 

Kevin N. Marder

Marder on the Markets

Free newsletter that you can subscribe to here  www.GilmoReport.com

Though the reports are not frequent, they are quite good. I lifted the last paragraph to contrast expectation with reality. The market model of "market as a teenage boy" goes a long way toward supporting what most of us would call dissonance. Dissonance is a bit like the MACD, the real opportunity to 'pounce' is when the market expectations are furthest from the reality.  For teenage boys, they require a few 2x4 whacks to the head before your admonishments to them regarding their safety and success (cars, girls, school) sink in.  Those whacks can be something they survive, or those whacks can be life changing, or worse, game ending.

If we set aside the logic that the market should be based on fundamentals, and realize that it is based on expectations (and all manner of other emotions), then we’ll not run the risk of over thinking ‘stuff’.  I’ve a long history of over thinking ‘stuff’, and there is nothing wrong with that.  But the market punishes those thoughtful participants who have their thinking dead on but their timing dead wrong. 

Being too early or too late can be paid for with a dear price.  Those who believe that the market will go up forever or the pullback is unjustified and are positioned accordingly will suffer the same fate as those who believe that it will never go up again or the advance is unjustified. It is what makes a market.

But one can CHOOSE to be another market participant—the prudent or opportunistic investor.  When the risks are high, then step aside or reduce your exposure.  When risks are low, then strike.  It’s not easy to do.  I don’t pretend to do it well. However, I’ve greatly improved my performance by not making big bets when the market’s idea about economic realities has not sufficiently matured (that teenage boy thing again). You don’t LOSE your ideas, though.  Rather, you are patient like a crocodile or a your big cat of choice and wait for the market to catch up to your way of thinking.

 

 

We have the luxury of independent investors to not have to worry about relative performance.  And, if we are prudent and take appropriate, but not outsized, risks, at the right times, then we have compounding on our side.  Averting a 30-50% decline makes it all the more easier to enjoy the privilege of patience.  Having said that, don’t think for a minute that I don’t have some twang of regret for wading in sooner.  I saw the price action, but I tried to out-think it.  I still had my small capital at risk, with some big rewards, which I call my dividend plays.  That was a conscious decision, and I’m not going to re-think it, but I did want to own up to a few of the pangs that I was having.

Currently, the market’s participants believe that we are coming out of a normal recession.  I’m still instructed by the Nikkei….

 

 

We still have the inflationista/deflationista battle.  If we are to have a currency crisis, though, I’m afraid that we will have the inflation that I’ve been thinking that we’ll avoid.  I’m still on the fence about this….and I’m just an average person trying to make sense of it.

More on volatility

I wanted to expand a bit more on my volatility focus.  Again, this focus is new for me, but one that I’ve been employing with some success.  Below is a chart of SNEN.  I entered this position when volatility was low.  I’m looking at the %B (in light purple).  The scale in on the left.  You can see the unsustainability of moves above 1.  I marked the top of the %B along with the tops in the chart. 

Now, this is a cheap stock that any normal person ought not be trading.  But I’m not normal, and I like to find these. As you can see these moves (and these are daily candles) are huge as a percentage.  I sold this stock into the surge a day or so ago for $2.  I re-entered at $1.70.This chart is making to my eye a pretty decent basing pattern.  Further it is in the compressed natural gas (stations and converters) in China. 

 

 

SPRD is another name that I was in. I sold it today at $3.10 with a $2.62 basis.  @ 1.20 %BB, this move on huge relative volume is unsustainable (though it may show otherwise!).  These Chinese small caps are very much like Chinese firecrackers. 

 

Another example of a stock that made my year in 2007.  Against all sound advice, I do not diversify, but you wouldn’t expect me to, would you?  I was NOT using any volatility measures at the time.  I did have the presence of mind to sell into the rocket ship upwards.

 

Timothy asked a great question in the comments section about the interface of RSI with %B.  I wished I were as smart as the real technicians.  Admittedly I know enough to be dangerous, and perhaps these tools in my hands are the equivalent of a toddler handling a gun. 

I am a tenacious student, though.  And as I reflect, I’ve been dong ‘this’ consciously, now, for almost 4 years.  And…I’ve been 90% of the money managers in a difficult market. I’ll take that as progress.  (Admittedly, I do not know if the 90% is correct or not, but I suspect so).

YTD and One Year Comps from FINVIZ

From FINVIZ   

It’s easy to be blown away by the incredible gains this year to date.  But even with those gains, note the 1 year performance…Basic Materials still down 25% after a 28% gain this y-t-d.

FINVIZ is easily one of the most informative sites to do quick looks at stuff.  I incorporate it in my chart studies because I still will not buy a stock if I do not understand the fundamentals. 

Risk/Position Management <> Prescience

Tim Knight has a terrific post regarding Paul Tudor Jones. I'd recommend your watching the videos if you've not seen them already. You can find them at Tim's post below.

http://slopeofhope.com/2009/07/paul-tudor-jones-the-trader.html?dsq=13439734#comment-13439734

What I enjoyed about watching these videos is the re-enforcement that any of this 'stuff' we call investing/trading is still based on managing uncertainty and managing risk.  We’ve a tendency, I think, to believe that some people have a remarkable prescience about what the market will do.  To see PTJ nervous and uncertain was comforting.  So here is ‘a great one’ uncertain as to which way the market is going , and it struck me that he is no more prescient than any other.  Rather, it emphasized the importance of market participants to distinguish success as DIFFERENT from prescience (which implies some certainty). 

There’s really no such thing a prescience. Success is simply a result of good risk management. (That applies to most things in our lives).  For every stock you buy or sell short, you are making some decision using some criteria about the future direction.  You’ll be wrong a good portion of the time.  So long as you manage (curtail) your losses and manage (optimize) your gains, your failures will be minimized and your optimized gains will look like prescience.  The curtailed losses, because they are managed, make the winning positions look like prescience. 

Don’t confuse good position management with prescience.  And be careful not to ascribe super abilities to your favorite market pundit.  I believe that if more people understood that success comes from good risk management v. some ‘special foresight’ that, particularly given the prolific proclamations of so-called stock gurus, there would be less misery and more investor education.

While I’m much better and picking winners and jettisoning losers, I’ve a long way to go in BETTER management of my positions to optimize gains. 

Sunday “Stuff”

I’ve written more posts in the last 3 days than the last three weeks!  It feels good to write again.

My husband recently went on a couple of canoe fishing expeditions.  It is not something that we’ve done in a very long time.  He was reminded on how much he enjoyed it.  We have since bought a canoe and went on recon for other items needed. Part of that recon was going to Bass Pro Shops.  Wow! It was one of the most extraordinary shopping experiences I’ve ever had.

The scale of the store is huge, and it is designed to titillate the outdoor enthusiast.  Prices are set accordingly, so I promptly made a list of stuff I needed and surfed the net.  I did make about $100 worth of purchases to include a fishing net, paddle, and a couple of things for the dogs:  a stuffed animal to be shredded and a ‘hyperdog’ ball launcher. 

On the internet, I found some dry bags for the inevitable flip, canoe back seats.  We will likely do some camping, so I’ll need to provision for that as well. 

For longer term readers, you know that I went on a fit by 50 kick.  In just over a couple of weeks, I’ll turn 49.  At last year’s birthday, I committed to this goal.  By January, it seemed to be a faded memory, coinciding with my client work that absorbed all manner of time to the expense of all else. 

I’m ready to embrace the Newtonian law of a body in motion stays in motion and forever remember that a body at rest stays at rest.  I’m starting out simply—I rode my bike.  It was depressing how winded I became so quickly.  But the body responds quickly to exercise, just as the brain responds to the stimulation of learning. 

My post last evening has sparked an interest in my putting in a new stock screener to find bollinger band with lows and highs.  When forced to WRITE the stock screeners, it forces one to THINK about what one is trying to accomplish. The key is to THINK and DO not THINK instead of DO. 

Saturday P.M. Post

I’ve spent most of the week in decompression.  Part of decompressing was returning to my study of charts.  I found that return to familiar territory to be a pleasant diversion.  I’ve been spending some time over on Tim Knight’s blog. I used to post there very regularly. 

Being over there last week was also a return to roots, so to speak.  The tone on the blog was tough, largely because the recent stock market rise has been met with incredulity—and for that the market was shorted.  The results were damaging to performance.

On another blog, a blogger noted that on Seeking Alpha, it was noted that shorting Bidu was as easy as shooting fish in a barrel.  Right.

 

If I’ve learned a thing (and I’ve learned it the expensive way), it is that it really doesn’t pay to be too early.  And my friend (friend by way of the book, as I don’t know him) Stan Weinstein preaches, you do not short stocks that are not below their 30 week moving average. The above is a daily chart—the weekly looks all the worse in terms of over performance.

SNEN—I ended up selling this because the gain was too much in too little time. I would like to re-enter this name at a more favorable price.

You’ll remember that my ‘new’ strategy for this year has been to buy low volatility and sell high volatility.  WH is another name that I own(ed) in this fashion:

I sold at $7.  I re-entered at $5.06, for much fewer shares when the volatility came down.  You will also remember that I had this baby as a featured post of “Acapulco cliff diver” on the March 9 swan dive.

Adding volatility measures to my screening has improved my results greatly.  You can learn about volatility quite easily by going to Stockcharts.com.  There is lots of free stuff there, and you can print out all of these high quality articles and place them in a notebook and have the nicest TA book in the world. This is from their website: 

 

Bollinger Bands measure volatility by placing trading bands around a moving average. These bands are charted usually two standard deviations away from the average, so as the average changes, the value of two standard deviations also changes. This value is the Bollinger Band Width, which represents the expanding and contracting of the bands based on recent volatility.

During a period of rising price volatility, the distance between the two bands will widen (BB Width will increase). Conversely, during a period of low market volatility, the distance between the two bands will contract (BB Width will decrease).

There is a tendency for bands to alternate between expansion and contraction. When the bands are unusually far apart, that is often a sign that the current trend may be ending. When the distance between the two bands has narrowed too far, that is often a sign that a market may be about to initiate a new trend.

 

MGIC is another name that I am in.  I DID NOT sell this one. Though, I should have.  I’m not always very disciplined.

 

My point to share is that I believe that adding a volatility filter will help reduce your risks of entry.  And while you may chose to hold, as I did, you may want to reconsider buying when volatility is high—that’s high risk. We want to IMPROVE our odds of making successful buys/sells…and low risk entries help us do that.

Remarkably Similar

 

The above are SPRD and CNTF….remarkably similar.

Reflections and Prospections

Time to reflect on some past charts and look at some new.  Prospections is not a word, but I think it ought to be.  When I started this blog, I was sure that there was a word for “perplexion”…..I call it an agent that perplexes.  Language would never evolve if folks did not feel some freedom to add words to the lexicon.  Now that I’m back to writing a bit more, I’m going to exercise that free will!

For UNG I suppose that many of the folks that bought when I thought there was no one left to sell were the ones that were remorseful sellers.  Much has been written about the vagaries of UNG.  I’ll not repeat them here, but I’m still holding this though I bought at magenta.

 

 

Magic Software.   This stock can be called nothing but thin and speculative. As they are holding a boat load of cash and are recently profitable and are breaking out of an important range, I bought some in an extended price jump that I normally wouldn’t jump into.  If FINVIZ is to be believed, they have $1.13 in cash per share.  Seems pretty low risk to me—see but see my UNG comments above!.  Click on their name to be transported to their website. 

Here’s a longer term chart

 

A trio of observations.  First, here’s a good example where money can be dead as a hammer for a long time.  Second buying and holding through a bubble (witness the nose bleed levels of 2000) is goofy.  Third, look at the base in this stock. 

 

Bottom Line Technologies…..here’s an interesting chart—another former glory turned gory in 2000 tech bubble.  I’m beginning to wonder if tech—not big cap tech so much—but small cap tech may be coming into a resurgence.  I’ve no position here, but you might put them on a watch list.

Sunday Post

To say that I’ve been out of touch with my life since January would be an understatement. I had two critical client undertakings where people were depending on me.  I take such trust pretty seriously.  And to the exclusion of all other things in my life (sleep, exercise, friends, writing, family), I worked on those matters.

Now, after having fought the good fight in one matter, I have some time freed up.  I’ll need to knock on some doors and get some client work to backfill, but I can take a little break for a month or two if I want.

This weekend was lovely.  We went to the Pork, Pine and Peanut Festival at Chippokes Plantation.  We went by boat—and many people travel there that way.  It did not seem to be very well attended in terms of foot traffic. The flotilla, though, is clearly where the party is and becomes a Mardis Gras atmosphere.  We never stay that long to witness though there is always an acquaintance or two that brings back stories.  Okay, it did look like there was a couple channeling the ad slogan for the Pork Council:  Pork the one you love.  They were in the water, but not too much was left to the imagination.  I was neither disgusted or titillated—I would have like to have been something…I’m just numb still.

Nevertheless, the day could not have been better.  The boat ride was smooth, and the cloud cover offered just the right mix of rays and cover.  We invited a younger couple who have invited us to their home a couple of times.  They were a delight.  They are active and travel widely—the camping, hiking, hard travel.  She’s an art teacher and he is an industrial engineer with many similar interests to my husband’s.  Perfect company on a perfect day.

I’m feeling very out of synch with the market as this last month and a half have been very time consuming.  But there are two observations.  First, I must observe that my UNG post (where I thought there was capitulation) was a great example of the market going further than you think.  Second, an in reinforcement of that, the market is likely to act in a way that will cause the most people to lose (the ‘obvious’ head and shoulders).

Funny how the market is like that.  I never forget Stan Weinstein’s comment that the market is designed to put the money of many into the pockets of a few.  I will begin ‘reconnecting’ with the market.  It feels like we are at an inflection point….and I’m not sure which way the market muscle will flex.  But as a watched pot will never boil, neither will a watched bearish pattern break down.  I paid a high tuition for that in my early to the party entry into shorting banks and insurance companies.

Coming up for air

Since March 1, I’ve been working with a client to overcome what ultimately became an insurmountable issue.  The client has ceased trading.  Working cooperatively with the bank and its largest vendor, it is working on transitioning backlog and valued associates to another dealer.

These months have been the most difficult in my career—and I’ve had a tough career.  I’ve finally experienced the ‘disaster’ that I was always so successful at avoiding.  And as I work through my last day of it today, the outcome is one that will ultimately allow many of the associates to continue in their service to their valued clients.

I plan on taking a little time off to regroup.  I’ve been working non-stop since January 22—with even little in terms of weekend breaks.