Friday, December 31, 2004

A brief description of the best strategy I have right now.

The buying is done near technically important areas on the daily chart, such as handles and pennants. I enter a small position on the first and/or second "higher low" that a stock makes. The best buying scenarios are where you can identify an ascending lower-channel support line. I will keep buying the smallest lots I can on these ascending lows. If the stock fails to hold the line of support, then I quickly exit some or all of the position. One of the benefits of accumulating this way is that you immediately see a profit if you are right in your buying. Another benefit is that it is very clear when you need to exit the stock, because you were wrong about the low being a "higher low". Yet another benefit to buying this way is that because your position is small at first, you can afford to give it a looser stop than you could with a large position. And the best is that if the stock does break-out, you can hit it with a big break-out buy order to complete your line. As for cutting losses, there are a couple ways to do this. You can place a stop under the most recent support, or you can use your "break-even" price as a stop so that you don't let the gain turn into a loss. Both work well.

For profit taking, I will sell when the stock falls under the following price: 1% less than the 10-day MA as of the previous day's close. You can use whatever MA you want for this, not just 10. I have found that in almost all cases that this price is hit, the run is over and you aren't missing anything by exiting. The one exception seems to be that if you stop out, the following day you can buy back in if the stock rallies strongly on big volume. The MA guidelines should help you determine whether you are right to buy back in or not.

This is the technique that my experiences lead me to believe will work the best for me. Also, keep in mind that this technique is new to me, and not fully tested. It also takes a lot of time monitoring unless your brokerage firm will let you place "if - then" limit and stop order pairs.

I plan to post a few chart examples over the next couple of weeks.

LSCP closed yesterday just under C & H pivot of $34.10

It is up way past the pivot this morning in the pre-market. I don't have a position in LSCP at this time, however I will probably buy a small lot of it this morning because of how beautiful that cup & handle looks on the weekly chart.

Thursday, December 30, 2004

Some good reading

I just finished going through Trader Mike's Top 24 of 2004. I found Another Look at Multiple Moving Averages and Let's Review to be my favorites because Mike goes into detail about how he uses multiple moving averages. In "Let's Review," Mike uses his analysis and call of the May 2004 low as an example of how he uses multiple moving averages, including links back to his blog updates at the time the bottom developed. I frequently use two moving averages as an oscillator, but I think Mike's multiple moving averages techique gives more information, so I will probably start using it. Thanks Mike.

Wednesday, December 29, 2004

TASR just under CANSLIM pivot point

I stopped out of TZOO and GOAM this morning, but TASR was strong so I doubled down. If it still looks strong passing through its CANSLIM pivot of $31.07 then I will add more shares again. TASR's perfect setup right now is very rare so I will probably take a very large position.

I also picked up a small position in SIRI today following my "accumulate higher lows" strategy.

Tuesday, December 28, 2004

Holiday journal updates

Kevin Pickell, a friend of mine has started a trading journal blog, so it will be fun to follow along with Kevin's commentary and trades. Bill Cara is also back up with a new blog and website. Both of these blogs will show up on my blogroll links soon.

I started getting long yesterday, entering positions in TZOO and TASR. I followed up today with positions in GOAM and CAAS, but stopped out of CAAS. Recently I have been trying to buy higher lows near important technical areas instead of buying breakouts because breakouts frequently roll over by the time you can get into them. For example, I was watching GOAM trade at $9.50 this morning waiting for the shares to drop about $0.10 so I could pick some up near $9.40. The low for the day was $9.30, and also a long-term support area. If I could buy at $9.40, it would be a cinch to know where to put my stop-loss, and I could have it close to my entry. Keep in mind that I have been stalking GOAM for weeks. I got up to go to the bathroom, and when I got back to my desk the stock had gained $1.00. I bought the breakout and got a fill at $10.33, which I don't think was a bad move, but the problem is that it isn't so clear where to put the stop-loss anymore. I don't want to get shaken out on a normal correction, and I also don't want to get stopped out right before the stock finds support and takes off again (if I were sitting out, I might be a buyer there). I don't want to risk very much either. I don't like holding a stock when it is going down because you don't know how far it will fall, so a stop-loss works much better for me than trying to say "OK, this thing has HAD IT! IM DUMPING". Doesn't work. So I can't put my stop near $9 like I wanted to. Instead, it is closer to $10.

NGPS has been the star performer on my watch list lately, but I didn't catch any of the move. I haven't planned to buy NGPS because it hasn't had a correction in months! The stock has literally gone straight up. After NGPS corrects, I will be watching closely for a low-risk entry point. A friend of mine has been in it since $26, which is also where I would have bought it if I wasn't already loaded up with AAPL, SYNA, NVDA, GOOG, and a few others at the time.

Ironically enough, I received a Motely Fool investment book as a Christmas gift. I know I was bashing the Fool a week or two ago, but it will be interesting to read more about their stock picking strategy. I try to keep a very open mind, its the best part of being fickle.

Friday, December 17, 2004

Important message from Bill Cara AKA Trader Wizard

Yesterday I quoted Bill Cara and linked back to his Trader Wizard blog. Unfortunately, as of this morning, the TraderWizard site is down. I spoke with Mr. Cara earlier today about the site outage and he asked me to pass this message along:


  • Hi TW Networkers,
    The Trader Wizard is going to take a holiday. For business reasons, the web site has been shut down. Readers can reach me directly at carabill-at-rogers.com

    When I return, in January, I will have a different style blog, and maybe even a new name.

    In the next few weeks, in addition to enjoying the holidays with my family, I will be hard at work at a number of things:


    to build an investment fund for the China projects of Michael Wong


    to finish my book draft "Say No! to Wall Street"


    to consult to the credit union system in North America


    to build my automated buy or sell decision models


    to consider how I might improve my web presence with a new website and blog.

    After the Dow passed north of 10,400, I felt that equity markets entered a zone of rampant speculation, where risk/reward ratios became unreasonable. In that scenario, I feel it is best to step back and take a deep breath.

    So maybe my readers might think it wise to consider doing the same.

    Seasons greetings, and see you soon…

    Bill Cara

    For the Trader Wizard

Thursday, December 16, 2004

Bill Cara's words of caution noted

Today GOOG, SIRI, and OSTK got pounded for 3-6% losses, but AAPL, NVDA, and NGPS all held on to 1-3% gains today (the naz lost 16.5 points). All-in-all, my watch list (posted a few days ago) has been dead in the water for a couple of weeks now, so I don't feel like I've missed anything even though the market has been creeping higher. If the leaders aren't taking it higher then I figure it isn't worth playing.


Here is a passage from Bill Cara on the Trader Wizard Daily Show, December 16 2004:



  • "The more ridiculous this stuff gets, the lower the USD will fall, and the higher gold will go. When paper (securities and currency) becomes meaningless, gold, which is real, will inflate in price.

    I have a busy day today in and out to meetings, so I'll have to take a bigger picture view for now. Mergers & Acquisitions, which is always a sign of an equity market top, and the falling dollar, will continue to dominate.

    Risks to capital ownership are rising, which is not to say that this situation could not prevail for some time. Look at 1999 and how long the top took to form. But at a 10,400 Dow, which is 300 points to the south, I thought the equity market had become unreal. So I stepped back...just as I did in December 1999.

    Every day and week now, the technical indicators are showing a riskier position if you are long and in debt. I think leveraged holdings of equities here is a bad thing. The risk/reward ratios are getting completely out of whack.

    The number of new highs versus new lows is declining. Momentum indicators are rolling over and falling. Price to earnings multiples are out of line."


While I take everything anybody says about the market with a huge grain of salt, I know that Cara is not a perenial bear so it is well worth noting his words of caution. I have no open positions right now, but I am watching TASR, TZOO, GOAM, and CAAS very closely. There is a lot of tension coming to a head, especially in TASR and TZOO. You can see a huge wedge coming to a point on both TASR and TZOO's daily chart. Both of these stocks will probably resolve in the same direction, which can be used in conjunction with the direction of the market as sort of a confirmation signal.

Tuesday, December 14, 2004

Sell-side doing you any favors?

I like surfing into the Motley fool from yahoo finance because they throw in statements like "We're not buying ridiculous stocks like Taser and travelzoo" so that their article will get linked from the TASR and TZOO press release page on yahoo finance and other sites like that. It never ceases to amuse me that they do this every chance they get. The motley fool presents another article to sell their 2005 book of stock picks because they did such a great job picking stocks in 2004. I read the entire article and was impressed when Mann was talking about identifying two stocks that I have watched do well this year: GRMN and SE. But then I got to the bottom of the article and read the punch-line: "Bill Mann is the editor of Stocks 2005, as he was with Stocks 2004, Stocks 2003, and Industry Focus 2002. He owns shares of none of the companies mentioned in this article. Stocks 2005 is on sale for a limited time, so act now!" He doesn't own any of the stocks mentioned in the article eh? They listed all the stocks that they picked in the article!


My whole problem with this deal, and the reason why "The Motely Fool" isn't for me, is that there is clearly a conflict of interest either way you go here. Why doesn't Mann own the stock's he's recommending? But if he owns them and then recommends them, other people will cry foul about pumping. No, sadly the truth is that we're alone. Anybody who is good enough at stock-picking to make a fortune doesn't need to be selling you their picks. They don't need you. My idea of a fool is someone who pays for tips, and even greater suckers buy 'em and hold 'em through thick and thin like "the fool" tells you to do. I can't think of any reason to hold a stock while it is going down if you don't have to. So why is it that "the fool" tries to paint the traders that run stocks like TASR, GOOG, and TZOO up into the stratosphere as the same people who ride them down to the bulletin board exchange, rubbing their bums and wondering where their pile went? Because they need you. Don't be a fool, study winners, not losers.

Monday, December 13, 2004

laggards, advance!

My watch list looked like crap today. You wouldn't guess that the market was busy advancing more than 1%. Not only that, but looking through the intra-day charts I did not see much in the way of accumulation patterns. The stocks I saw setting up last week (GOAM, CAAS, TZOO) could not break out during today's advance. In fact, GOAM even broke down. To me, this is a big red flag. I will be watching today's best performers (OSTK, NGPS, SIRI) closely tomorrow to see how they act heading into the fed announcement.

My watch list is currently:

TASR
TZOO
RIMM
HRT
AIRT
EXM
GOOG
SYNA
AAPL
OSTK
AMD
SIRI
GOAM
CAAS
CME
NGPS
NVDA

Thursday, December 09, 2004

Pivotal moment for the market

As I write this, the market has completely recovered from the large drop at the opening. TZOO is forming a near perfect intra-day wedge. A breakout from this wedge while the market is in the green may be a good opportunity.

Tuesday, December 07, 2004

Times like this are great for revising your watch list

In "Reminscences of a Stock Operator", Larry Livingston talks about selling probe positions into strength to see how the market absorbs the shares. If the shares were gobbled up, he would buy back all he had sold, and a lot more because he knew he wasn't the only one buying. I don't have the money to move markets, but other people do, so I'm letting them do this probe-work for me by watching where lows hold in the market averages and in individual stocks. It will be very interesting to see where the naz finds support over the next few days because it has went almost straight up for a month. I don't think it will retrace that entire gain, but if it does, I'll be mostly in cash.

It became pretty obvious after the first day the naz hit resistance near 2155 that it would need to consolidate before it could push up into new high ground for the year. Over the last week I have stopped out of everything except for AMD, but I haven't been putting on new positions because after I buy, I need at least a week of strength in a stock for my sell-stop to get a foothold that won't whipsaw me out at a loss, and the risk of a big down-day like today was just too high recently due to how "overbought" the market has been since the election. I am watching closely to see how far down stocks will be allowed to fall. If we make a convincing higher low and then start to move up again on expanding volume, then I will feel confident buying stocks.