Good morning. Futures are pretty flat this morning, which should not really be a surprise. Overbought conditions rarely resolve themselves in a straight line. Instead, a brief bout of selling will typically be met with some dip buyers. The subsequent move reveals the underlying capitalization of these buyers. Is it high enough to soak up all the supply and then push the price to new highs before all the demand is satiated? Or is the supply of profit taking great enough to fill all the demand…and then some!!

So these little pauses in pullbacks are extremely important for a trader to study because they provide a window into the underlying dynamics of trading behavior. It’s not just a question of drawing lines and then assuming that your pretty little drawing will play out the way you want it to. This is about market psychology; not geometry.

Personally, I think any rally today is likely to be a bull trap. I could be wrong, but I am wary of traps.

If you studied my strategy session last night, you probably learned a few things about trading the intraday action. While nothing is certain, there is a good chance that $TSLA will trade very similarly to yesterday’s price action. I’m looking at $700 as a line in the sand.

Also, you probably know that $NFLX reported disappointing numbers last night. The company picked up 2 million subscribers…but prior guidance was for more. Traders don’t like it when a company misses its own guidance, so the stock is down about 9%. This is one of the residual impacts of COVID — everybody decided to sit home and watch the tube rather than working out and ridding themselves of their inner tube around their midsection. So subscription growth was off the charts last year. Now? Not so much. Also, due to the COVID lock down, production for new content slowed. So basically, there’s nothing compelling for people to watch. Note: This doesn’t apply to me and Jennifer. We rarely watch cable TV anymore and have found a virtual treasure trove of old content that everyone else but us has already watched. In fact, we are members of a small, elite group of media consumers who never watched one single episode of Game of Thrones during the eight seasons that it was in production. Not one show. While this might seem pretty stupid, I didn’t even know what a “Throne” was because I had no context for the title. (When I learned that the series was based on “A Song of Ice and Fire,” I figured that Pat Benatar had written it.)

I was totally indifferent. But after the final season had aired, we binge watched the entire series and probably finished it in about a month. Trust me, it’s a lot better when you binge watch because it just feels like the longest movie in history. It’s the sign of the times — we need instant gratification and nobody wants to wait for anything anymore. Anyway, I digress.

I suspect that you’ll see some kind of lift in $NFLX at the open, but I think the stock is pretty heavy. it’s been trading in a sideways range since last July and the latest high printed a week ago was lower than the January high. Support is at $500, which is where the stock is trading now. But judging by the pre-market trading, I doubt $500 is even going to hold. It’s heavy. Why bother?

OK. That’s all I’ve got. See you in the forum.

–Dan

Good morning. Just a general note about market conditions.

I tend to start any assessment of market conditions with a simple question: “From where things are here, how much potential upside is there?” Now, there is no way to quantify the upside with specificity. It’s a guess. But the way I see it, there’s not a lot of upside from current levels. I won’t hazard a guess on the downside. That’s taken care of by simply deciding where you’ll exit any and all trades if the trade goes against you. So the potential downside is not that important to me. Now, if you don’t believe in stops, then the potential downside is a HUGE factor to consider. I need stops because I don’t try to predict market movements. I can only react to them. And that reaction focuses on protecting my trading capital. I’ll let the stock take care of compounding my money — I can only control the risk.

I don’t see a lot of follow through on breakouts, and that’s important. Yesterday’s breakout in $FUTU has failed today and the stock is down more than 16%. $CVNA was trying to move higher, but it’s looking more like a short now. $VSTO took a stab at a breakout, but it’s down almost 5%. $ETSY had been looking good a couple of weeks ago, but it’s under distribution now. $NKE has broken down completely and is now looking more like an upside-down swoosh — All the woke in the world won’t overcome determined selling. $FIVE and $DECK are also pretty weak, though they haven’t had the treads come off like $NKE has.

$AAPL is extended, though it’s not showing signs of any pullback — it’s really just a matter of the potential upside. I understand that they’ve got some announcement today, but I never hang my hat on such things. They are by their very nature unpredictable. The way I see it is that any big move to the upside would only be as a result of a well-received announcement. But that’s a binary event — the move could be downward, too. So that’s just gambling. For whether weird reason, I had more than half of my trading account invested in $AAPL last week while I was on vacation. The position was protected with staggered stops, but it was a pretty big position to hold while I was spending the week trading dollars for margaritas.

To be honest, I really can’t justify holding such a big position while I was away from the market. The stock was already extended, though it did have pretty good momentum and I just figured that there was more upside. But I approached the position the same way I always do: Define the risk first. So I knew exactly how much I was risking, and I can assure you that it wasn’t much. I was not stopped out, so I came into the day with a lot of apples in the cart. The stock ran above $135 today and I ditched it all as soon as it fell back below $135. Basically, I paid for the vacation, including many shots of mezcal that burned my throat and made me sneeze. ( The Mexican people are much better drinkers than me, and I don’t feel compelled to compete with them. I’ll let them have the win).

I traded $TSLA this morning and actually was really heavy in the stock. At one point, I had 70% of my account in the stock. No options. Just stock. And I watched it very closely. I also watched the clock per my 59 Minute Trading approach. I had more stops than city bus on a crowded route. I was hoping that the stock would follow through, but it did not. My big position paid me off nicely, but it was only possible because I had a very tight control on risk. I was able to take what the stock gave me. It was only modestly generous, though I was in a position to do very very well if the stock sprinted higher. I’m out of that now.

So the bottom line for me is that breakout buying does not pay off these days. So I’m not trading breakouts. The tactic that works the best are very precise entries with tight stops. The position can be built quickly without increasing the risk because of stop placement. I don’t think about the % of the account in the trade. Rather, I think about the % of the account that would be lost if my stops are hit.

What’s the moral of the story? When you focus on risk first, you set yourself up for reward.

My trading account is now 100% cash. (Remember that cash is a position.) I have the capacity to lose money with each minute that the market trades, but I’ve got the rest of my life to make money. When you are patient, you make better decisions.

–Dan

Good morning. Futures are down this morning…though they were up when I was hitting my snooze button an hour ago. This is the nature of markets these days. Rocket Companies ($RKT) was truly a rocket ship yesterday as the #WSB gang targeted this highly shorted company (40% of the float is short), which requires more than 4 days to cover (i.e., the “short interest ratio”). So, as the stock ran 100% over the past 3 days,

Rocket owns Quicken Loans, and mortgage rates have been rising…and that’s the thesis for all the short sellers. Now, I get the GameStop ($GME) thesis, which was that the gamers are now getting their games online rather than going into deserted malls to buy their little DVDs. But…why these brainiacs didn’t consider the fact that a brand name is worth something, and that there is potential to just start trading on their name and converting to online sales is beyond me. This is the ethos of dedicated short sellers — they believe that they’re smarter than the market. Maybe so — but this isn’t an IQ test. It’s a “crowd observation” test. Everyone has heard of GameStop and seen their stores in malls/ Ours is next to Target ($TGT).

So, now that mortgage rates are rising, it’s time to short mortgage companies. There’s one little problem with that. Just a teeny weenie problem. With the economy opening up again, there might be a few folks that have been wanting to buy a home, but have been waiting for a better economy. There might be a few homebuilders who are likely to build a few more homes because their subs don’t have to climb scaffolding with masks on. There might be a few folks who have been unable to refinance their home because their income had taken a hit over the past year, but that prospects for better days are right around the corner. Also, this company has been posting some monster numbers in terms of revenues, margins and earnings. So I just don’t get the short thesis other than what a first year intern at a hedge fund would have come up with. Sometimes the hardest lessons to learn are also the most expensive.

So, I had been looking at $RKT as a potential long. We traded this stock in January as a covered call — long stock, hedged by short calls. I was just waiting for it to break out of a squeeze in the $21 buck area. But if you look at the chart and understand the type of trades I like, you’d see that this just wasn’t a trade that I’d have made. It never really set up — it just blasted off. So I just missed it — though I get the sense that several traders in the forum caught this move. Great job!

Just a reminder — yesterday I was stopped out of the Restoration Hardware ($RH) trade, but I had set the stop too tight — I was watching for a breakout. But instead, the stock fell back into the trading range and barely clipped me. If you are still long (or if you bought), I think you’re on the right side of the trade. I think the stock is fine and I may even open it again. I’ve got a couple of other stocks I’m considering, so watch for alerts.

Have a good day.

–Dan

Good morning. Futures are up a bit this morning, and Chairperson Powell is due for yet another round of titillating testimony where he shares his prescience and insight with our leaders, assuring us that money will remain nearly free for as long as any of us, our kids, or grandkids shall live. Beyond three generations…well, he’s not sure. But he will repeat what he said yesterday — that “the way to grow ourselves out of this nearly $30 trillion dollar debt will be to grow the economy…so darn it, let’s get started! To you unwashed masses, do not fret. Stimmy checks coming soon.”

I suspect that we’re going to have another day of reversion, where the oversold stocks will retrace a bit more of yesterday’s selloff. But from the looks of various stocks in pre-market trading, I’m not expecting much. The trading activity over the next three days will tell us a lot about the current state of the market. Many stocks fell below prior support and are not trying to regain those levels. If the majority of stocks are indeed able to recover, we’ll see this week as a “shot across the bow.” It will raise the yellow flag…but it will also reveal that the market is still attracting money and it’s right to be long.

But if stocks stall out, then it’s really time to pull in your horns and focus on protecting capital. If you are a long-termer, really pay attention to your positions, and make decisions about what your acceptable risk will be if your position declines…and stick with it.

If you are losing sleep over your risk, and over the state of your account, then you are trading too big…or you are holding positions that are simply not working.

This leads me to something I’ve discussed on a few occasions recently.

One of the biggest mistakes made by traders of all experience levels is related to diversification.

Some traders just swing for the fences. “Let ‘er rip!” They’ll put all their eggs in one basket and then watch that basket very closely, cheering with every rally and crying on every selloff. They’ll sometimes catch stocks like GameStop ($GME) or Riot Blockchain ($RIOT) just right…and make massive returns. But they can also get whacked the other way, piling into a “can’t miss” stock…only to see that stock get slammed when it turns out that the stock is a witches brew of hype and hope rather than the next big thing.

This type of trader is a gunslinger. And the thing about gunfights that bothers me is this: They are all binary events. Somebody walks away…and somebody doesn’t. There’s no such thing as a tie…because even the wheel guns have 6 bullets. Miss on the first one, you’ve got 5 more shots to get lucky and hit the other guy center mass. And when you trade like a gunslinger, it’s only a matter of time before your the bulls-eye painted on your chest has a hole in it. You’re done!

Don’t be that guy.

The opposite approach is similarly flawed. Do you try to catch every move on every stock? Are you constantly scouring our awesome trading forums on the alert for the next big thing? You’re afraid of missing out, so you wind up buying everything in sight, and end up with a big vat of alphabet soup. You’ve got more tickers than a clock factory.

This is what I call destructive diversification. You are so diversified that you never make any money. Oh, you might not be losing much either…though my bet is that your account is slowly draining value. Why? Because the winners aren’t big enough to make a difference; and the losers are just enough to drag the account equity down as gravity takes hold of your account. Your account is just “heavy.” I’ve been there. It’s heavy. Period.

When you read that last paragraph, did it remind you of…you? If so, you’ve got too many positions. You’ll never be able to keep track of ‘em all. And if you don’t know what you own, you are just a horribly bad trader. Not knowing what you own is like owning a used car lot and just buying and selling blindly, without looking under the hood, without opening the door, and without keeping track of your inventory. When the lot gets full, you just start selling cars on a first come, first served basis…without even remembering what you paid for them. This is not the kind of volume business you want. Trading is no different! If your inventory sucks, you suck at trading. Period.

As a trader, you must decide how many stocks you want to own. With a small account, you should be in single digits, with a few fingers left over. A larger account can hold more…but you’ve always got to remember that you want stocks that are rewarding you…and you want as much of them as possible.

Your stocks are employees. They are your business partners. If they are not holding their own, you’ve got a problem. If they are costing you money, you’ve got a problem. As an employer, you have two alternative solutions; while as a trader, you have only one.

If you employ people or have partners in your business and you’ve got a lousy one, you can either:

1. Train that individual. After you’ve completed the training, that individual had better improve. If there is no improvement, the second alternative has to come into play.

2. Fire him (or her, or whatever the chosen gender is. Doesn’t matter to me.). The employee/partner is costing you money — and you are in business to make money, not to lose it.

If you are trading, you have only one way to address a lousy employee. Termination. Simply put, you were wrong in hiring the employee. If you want to be right, give the employee the pink slip, clean out the desk, and show him the door. Period.

But if a stock is working for you, that’s another story completely.

I’ll put it to you this way: Last week I was talking with my wife Jennifer about an investment we have in Bitcoin ($BTC). We are HODL-ers. We’re not selling. The volatility over the last few days doesn’t bother me a bit, because we have a plan. In fact, I have a GTC limit order to buy more at a much lower price, and I’m hoping that the volatility gives me a gift when I wake up one morning. But Jennifer said something pretty simple and straightforward when we were discussing it. “We bought it because we thought it was going higher. It’s going higher. We’re not going to sell it because it’s doing what we thought it would do. We’re going to hold it until it stops doing what we thought it would do. We knew it would be volatile. So none of this is beyond our expectations.”

Seems like a pretty good trading plan to me.

And I’ll be honest — my wife is a lot smarter than I am. She really is — I’m not making a joke or blowing smoke. She’s got a very quick mind and is growth oriented. She has been listening to me blather on for the past six years and has picked up a lot of things about trading through mere repetition. She hears me say the same thing again and again, even though I’m not aware of it.

She says that my biggest mistake is that I always sell too soon.

She’s right. I’ve got to fix that.

See you in a couple of hours at the training session.

–Dan

Good morning. Futures are down this morning after jobless claims came in higher than expected…by about 90,000. Last week FOMC chairman Powell addressed the unemployment rate and acknowledged that a 6.3% headline unemployment rate dramatically understates the true damage that has been done over the past year. It’s a good thing for the market that Powell is stating that the headlines cannot capture the extent of the devastation resulting from a pandemic and associated mitigation factors.

Focusing on an improving headline number is not much different than–in fact, it’s exactly the same as–looking at your trading account and saying, “Hey, you’re doing great! Look at you! You’re a trader! What are you griping about and why are you discouraged? You’re up 10% this month, and 4% last month!” And you say, “Um, that’s very nice of you to say, but I’m down 80% from where I was one year ago. So a 7% average over the past couple of months doesn’t really move my needle, and it doesn’t improve my financial situation.”

But the bad news about the current financial/employment situation domestically is good news for the market, because it’s a lead pipe cinch that the Fed won’t be hiking rates this year. And once this big uptrend corrects (and they ALWAYS correct…they just don’t correct when we expect them to), we should see an even more dovish Fed. So TINA will always be with us and equities will still be where you want to be. But it’s important to focus on particular stocks that are working, and to stick rigorously with a trading approach that is repeatable. If you do that, then any correction shouldn’t hurt much at all because such corrections are always preceded by little signs such as persistent breakout failures, leaders that become laggards, lack of viable setups (because they all seem to fail), and various other indicia of a faltering money flow. You don’t have to predict. You just need to watch, and think.

The congressional hearings on the $GME, RobinHood, Citadel, and the WallStreet Bets subreddit gang starts at noon Eastern Time today. It should be interesting, but I doubt that it will be substantial. These politicians are all beholden to Wall Street, and specifically to Citadel, the high frequency trading firm that makes literally billions of dollars purchasing the order flow from brokers so they can front run the orders and look for pockets that can be exploited. And some of them don’t know much about markets, and how HFT impacts the market. So the hearing should be similar to the hearings featuring the Silicon Valley bunch, where politicians who can barely spell “internet” grill Zuckerberg, Dorsey, and Pinchai about how their companies control information. It’s like a bunch of ants trying to figure out how the internet works.

Look for the same thing today. The theme will be protecting the little guy. But the aim will be for each politico to get a nice sound bite and video clip highlighting how tough they are on Wall Street and organized crime. Here’s how you’ll know that the hearing is a sham.

1. If the subject of how HFT benefits the market is broached (which I actually doubt that it will be), you’ll hear Citadel make the specious claim that HFT actually increases the liquidity of markets and enhances fair pricing. The proof is in the volume! High volume = liquidity. Of course, this is bull spit…though you actually need to understand how HFT works. When you buy a pair of shoes from a retailer at a particular price, it’s counted as one sale. But when you buy that same pair of shoes from someone who first bought the shoes from the retailer, then it’s actually counted as two sales — one from the middle man buying from the retailer, and one from you buying from the middle man…after he’s marked it up. This arrangement is misleading because it makes those shoes look like they are really in demand. The price goes up, and it happens again and again.

Don’t look for politicians to pursue this line of questioning. They know nothing.

2. I’m sure they’ll grill Vladimir Tenev quite a bit because he’s the “villain” in this story. But he’s not the villain because he cut off trading and consequently did not let his suckers (er…clients) get out of their stock. He’s the villain because he didn’t really run a trading firm. He ran a gaming firm with no internal controls, and he got pinched by the high volume and the ignorance of his “clients” about how trades are cleared — specifically, “T+2.” So his entire company has been a sham because it just presented trading as merely a game that everyone could play…for free!

Don’t expect politicians to ask about this subject. They don’t understand how it works either.

Anyway, gotta go. Have a good day, and I’ll see you in the forum.

–Dan

Good morning. Futures are down just a bit this morning, despite retail sales coming in higher than expected. I think that, with each passing day, the market is increasingly looking forward to additional stimulus boosting buying power even further.

Just a quick run-through of a few stocks:

$RIOT — I received some feedback on last night’s treatment of $RIOT, and it was great to see people understanding that there are low risk ways to trade high risk stocks. It’s up another 9% this morning, and you can use the same strategy of staggered stops and incremental buying. Just make sure you know what you’re doing. If you are wondering whether you know what you’re doing…you don’t.

Bitcoin popped through $51,000 and was up at $51,714 at one point. I have found that trading bitcoin is not as profitable as merely holding it. Trading it requires a great deal of time because it is so volatile. But the trend is decidedly higher, so why not just ride the lightening until the current flow stops?

$SHOP — reported good numbers but the stock is down. This highlights the risk of holding a stock over earnings — particularly when it has rallied strongly into the earnings number. Buy the anticipation; sell the event.

$PTON — Holding at support…right at the bottom of the range.

$TME — opening a bit higher this morning after a high volume breakout yesterday. This is a high squeeze pattern, which can have a lower chance of a big move simply because the start of the move comes from a squeeze that is extended above the 50-day moving average.

$ZM — continues to move higher along the upper Bollinger Band. Really nice, gentle trend.

$NIO — This trade is not working out. T he stock is going to open lower for the 5th consecutive day. I’m shutting this down rather than holding through lower prices in the hope that the bulls will bail us out. Hope isn’t a good method; it’s a strategy used by traders who do not understand the nature of risk.

Have a good day.

–Dan

Good morning. The futures are down in a really big way this morning as the short volatility trade continues to unwind. Wondering why the market is doing what it’s doing? The underlying dynamics are pretty complex, but I can explain the generalities quite easily.

The easiest trade in the world has been short volatility. Volatility has been draining out of the market for several years, and it’s been quite profitable to just short one of the VIX Exchange Traded Products (ETPs) or Exchange Traded Notes (ETNs). Many traders started looking at it as free money. Every month the volatility shrunk further. Why was volatility shrinking? Perhaps it’s because of central bank manipulation, or something else. For our purposes, it doesn’t really matter. What does matter is that there is no such thing as free money. Sooner or later, there is a day of reckoning.

This is what happens when the trade becomes so obvious that everyone is in it. The most obvious trade is typically the trade that you don’t want to make. If you bought the ProShares Ultra VIX Short Term Futures ETF (UVXY) on January 24th when it broke above $10, you’re now up 200%, as the UVXY is likely to open slightly above $30.

For today, here’s what you should be thinking about. None of these dynamics impacts individual stocks at all. The market will gyrate wildly this morning. So will the stocks you hold. But how does the unwinding of the short VIX trade impact stocks like Netflix ($NFLX) or Amazon ($AMZN)? Answer: It doesn’t.

If you’re fairly new to trading, today will be pretty instructive. I’d say that there is a greater than 50% chance that we’ll actually close higher on the day. This is what capitulation looks like. If you are an active trader, you’ll probably be able to trade this swing today. Just make sure you stick with LIQUID issues.

As noted for the last week or so, the damage that’s being inflicted on the market is not just financial; it’s psychological. And it’s going to take a while for that to be repaired. It’s highly likely that we’ll see more downside over the next month or so. Beyond that? No one really knows. But I don’t view this pullback as a real buying opportunity for long term holders. Short term traders? Sure. But this is now a very very volatile environment. Such an environment is dreamland for active traders — daytraders and swing traders. But for the longer term investor, this is the kind of environment that can be very confusing.

Remember Fitzpatrick’s First Rule of Trading: Don’t Lose Your Dough.

–Dan

===============================
INTERVIEW WITH MARK MINERVINI
===============================

Don’t forget about tomorrow’s interview with Mark Minervini. Mark is a Market Wizard and has been trading almost 35 years. I had a long chat with him last night and I can tell you that he understands what is going on now very very well. He has had a very large short position on the Dow for about two weeks, and it’s paid off handsomely. We’ll be chatting about the current state of the market, including his outlook for what’s ahead. I’m sure that you’ve already registered for the event. But if you haven’t, here’s the link:

https://mpa.omnovia.com/register/22191516979520

See you tomorrow at 4:30PM/ET.

Good morning. Futures are pretty flat this morning and it’s looking like yesterday’s reversal won’t be following through today. But this is short-term analysis. I seriously doubt that the strong uptrend in equities is at an end. There is just no sign that the run is over; rather, only that the move is accelerating. The acceleration merely shortens the time period between now and a major top. But it does not help us find the level at which the market reverses.

I think this is a very important distinction. When a market goes parabolic (think Bitcoin), the momentum can carry it to heights you’d never have foreseen. Again, think Bitcoin. But that acceleration can ultimately get so steep that it’s nearly vertical. As the slope steepens, those who bought at much lower levels start heading for the exits. At the same time, the more unsophisticated traders and investors really start getting excited. The feel like they are missing out. But in actuality, they have already missed out.

When a move is so clear — so obvious — the bulk of the profits have already been made. The only thing that remains is to book those profits. And how do the sophisticated traders book those profits? They sell to the lowest common denominator: The unsophisticated and inexperienced retail traders. For the pros, the work is done. For the amateurs, class is in session. They’ll now start paying steep tuition for the privilege of learning that buying at the wrong time usually leads to selling at the wrong time. Buying high and selling low is certainly a strategy. It’s just not a profitable one.

So stick with a trend because it can last longer and go higher than you think. But avoid chasing. On any particular stock, just keep something in mind. If you missed the opportunity, then you missed the opportunity. There’s no shame in that. There are around 5,000 US stocks that trade every day. As such, there are hundreds of opportunities that you’ll miss every day. You can’t watch everything. The only reason you regret missing an opportunity on a particular stock is because you happened to see what happened. But what you see can indeed hurt you because of a tendency to “get in on it!” But what you don’t see can’t hurt you. There was an opportunity there…but you weren’t aware of it.

So don’t stress about missing opportunities. High entries are philanthropic — you’re helping someone much sharper than you get out of their trade. How nice of you to take one for the team. Class is indeed in session, and you’re now in the front row. If you do it again and again, you’re a back bencher.

Be capitalilstic, not philanthropic. Know what you’re looking for, and then don’t do anything until you find it! By being resolute on sticking with a plan, you’ll avoid buying high and getting hurt when a stock, or the entire market, reverses.

See you in the trading room.

–Dan

Good morning. I’m struggling with the flu that seems to be a lot like Santa Clause. If you’re just patient enough, he’ll ultimately climb down your chimney and leave you a present. Frankly, I’d rather he left me a lump of coal. But instead, I got the popular flu bug that everyone has been re-gifting.

The futures are up sharply this morning which, after yesterday’s widespread selloff, shouldn’t be suprising. This is still a “buy the dip” market, and old habits die hard. And after all, why should you change a habit that has worked for years? So we can expect such pin action to continue — market sells off, buyers appear the next morning….lather, rinse, repeat.

But don’t discount what happened yesterday. The entire day creates what I call a “shot across the bow.” A SATB is typically seen in an untrending stock that has been under institutional accumulation. It is trending nicely — very orderly. At some point, it starts to get a bit more volatile, and volume picks up a bit. But the trend is intact, so there’s nothing to worry about, right? And then things change. One day the stock opens up a bit higher, and then massive selling takes the stock down in a very long candle…and the close is right at, or near, the bottom.. You assess the carnage at the end of the day and can see that this type of selling could only be institutional selling. So you watch carefully, and sure enough, the stock rallies. It may rally significantly, on higher than average volume (though not as high as yesterday). Whew, the coast is clear. Must have been a fat finger. The stock is back above key support (and perhaps the 50-day moving average). Back in the channel. Well, maybe I’ll buy some more.

The stock continues trending higher, though the volatility is up just a bit. Time goes by — maybe a week, maybe a month. But ultimately, the stock starts rolling over and starts accelerating to the downside. Reversal complete.

That big selloff wasn’t a “one off”. It was the first obvious sign that institutions were liquidating. They’d probably been liquidating for a while as the stock trended higher. Sell a little –> Back off and let the stock rise –> sell a little more –> back off and let the stock rise. But each rally was a bit more tepid than the last. Trend intact, but not orderly. At some point, the big trade is made and we see the SATB.

But we really don’t recognize the SIGNIFICANCE of the SATB until much later, and after the stock has reversed.

So, with respect to yesterday, I’m considering the broad selloff as a shot across the bow. All is not well. So even if the market continues higher–and it probably will because that’s what it’s been doing–it would be prudent to keep your enthusiasm in check. Remove your ego from any trade, and instead focus on what the stock is doing. Focus on your exposure. You want to stay involved in a strong market because that’s how you make money. But you KEEP money by avoiding being a fan, and instead focusing on exactly what the market is doing. If you look deep enough, think more than you’re used to thinking, and become more of a number cruncher than a cheerleader, you’ll find that you’ll keep a lot of your gains WHEN and IF the market does indeed roll over.

We aren’t there yet. But with each new All Time High, we’re getting closer. We have smooth sailing ahead. But don’t forget that missile that was just launched across your bow. That rogue battleship is out there somewhere…we just don’t see him.

Don’t forget about the Q&A training session tonight. You’ll be getting an email later today with details.

–Dan

Good morning. After a three day weekend, we are getting off to a great start, with the S&P futures up about 14 points, and the Nasdaq up by 45. So the record setting rally continues.

Just a couple of stocks I want to mention this morning before the open:

Citigroup (C) beat estimates, though it did take a pretty big tax loss. Because of the new tax law, they had to write down the value of their repatriated cash and deferred tax assets that declined in value. Other banks have also had to book losses on such assets. But traders are shrugging that stuff off and the stock is up almost $2 bucks in pre-market trading. From this move, one can conclude that traders have been expecting these losses. As such, similar reports by Goldman Sachs (GS), Bank of America (BAC) and Morgan Stanley (MS) shouldn’t be a problem. All are up in pre-market trading.

Apple (AAPL) received a letter from four House Republicans asking for more info about the company’s disclosure that it deliberately slows down older iPhones “to prevent shutdowns.” (wink, wink). That stock is also up in pre-market trading. This idea that Apple was somehow doing its customers a solid by slowing down products that they sure wish you’d ditch for their new and improved iPhone is clever; but also disingenuous. I suspect there are other reasons for making older models slower.

Don’t forget about tomorrow night’s Q&A session at 8 pm ET. We’ve received a lot of feedback and suggestions about last week’s training session on managing risk, so there’s a lot to talk about.

See you in the forum this morning.

–Dan

Good morning. Three things to ponder:

Producer prices for December came in lower than expected, declining 0.1%. As a consequence, futures are up a bit this morning because a tame PPI (“Producer Price Index) decreases the likelihood that the FOMC will hike rates to tame inflation. When stuff doesn’t start costing more, there’s no need to raise interest rates.

Regarding the course I delivered to members last night, one of our members posted about it last evening, and I’m going to share my response:

“That’s really great to hear, shrholder. And don’t be embarrassed about never having tracked your trades. I wasn’t really tracking my trades for a long long time. As such, my results were very inconsistent. But once I started tracking them, my mistakes became glaringly obvious. They just jumped off the page at me. And if you do a “look back” at your trades over the past several months (beyond just the last 20), and then study the chart that was printed AFTER you closed the trade, you’ll be amazed at the number of times you can’t even justify WHY you sold when you sold. Seriously,…you’ll look at the subsequent price action and realize that you were too skittish and sold because a stock under institutional accumulation does what all stocks do — it goes up…and then comes down…goes up…and then comes down. You got shaken out on the “come down” part, and weren’t around for the next “goes up” part.

The best stocks resemble a staircase rather than Evil Knievel’s launching ramp. They move higher as they are accumulated –> They rest or pull back a bit as profit-takers close their trades…or those who bought at the last high sell to get their money back (“IWWMB” traders…”I Want My Money Back!”) –> And then the stock moves higher again as supply has been absorbed and new buyers (remember, it’s under institutional accumulation) have to pay up to get more stock.

If you happen to be one of those who takes profits after the first move higher, you’ve got a nice 5%-10% profit. Great! Seems like a pretty good trade. Been there; done that. But if you can be patient and have faith in what’s happening with the stock — looking at the big picture (daily and weekly charts) rather than the 15-minute chart (great for day trading…but for longer holding periods…not so much) — then you can hang through the 2% pullback and climb the staircase higher as the stock makes yet another 10%-20% advance. Think of it as an escalator rather than a staircase. Just stand there on the escalator, and let the power that runs the escalator take you higher. The electricity that powers the escalator is kind of like the institutions that buy the stock. Actually, it’s EXACTLY like the institutions that buy the stock. If you pull the plug, the escalator stops going up. If institutions stop buying and start selling, the stock stops going up…and perhaps even reverses. But if 30 obese people, each weighing 300 pounds, are on the escalator at the same time, the escalator slows a bit. Provided that the electricity hasn’t been shut off due to lack of payment, it the escalator keeps moving higher. But it just slows until all the big guys get off.

When you track your trades, you’ll see whether or not you’re hopping off the escalator just because a few big guys are weighing the escalator down. You’ll see whether you are actually trading right. That is, being patient and holding the stock as long as the trend is generally higher, accepting and embracing the fact that your stock will often pull back to a lower price than it was yesterday or last week. It’s ok. A couple of big guys carrying heavy packages just got on the escalator. They’ll get off soon enough. Be patient with them.

So it’s not enough to just go back and see your batting average and your average profit vs. average loss. That’s actually the easy (though tedious) part. The hard part is doing something about what you see. Can you make changes to improve your results?

In my view, Mark Minervini has written two of the best books on trading that I have ever read — and the bookshelves in my office and my home office are filled with them. And so is my Kindle and my iPad. Hundreds of them. But Mark is the first trader I’ve seen who lays all of this out. And much more than I have done in this course (which, as I’ve said, should be called “The Three Legged Stool of Risk Management.” If you just want to read a nice book on trading, then read one of John Murphy’s books; or Martin Pring’s books (all of which I really like because he has the same writing style as I do — though without the flippant comments). Those are good books on chart patterns and technical analysis. Alexander Elder has written well on the mental game of trading. But Mark’s work is the best work, by far, that I’ve ever stumbled upon. It’s also been the cause of several lost weekends and late nights. But if you are intent on being successful at trading — I mean, consistently successful to a point where your trading is a second (or first) income rather than just something that’s fun to do — then you’ve simply GOT to do the work. There’s no way around it.

So I hope my efforts in bringing these concepts to you are useful. But watching the course is just the start. It’s like giving you a bunch of iron, and all tools to build a bridge. But without the work, that bridge is never gonna get built. Instead, all that iron will just gather rust. And that’s a waste of time and money.

Again, glad that you see the light. Now…do the work and build that bridge to where you want to go.”

–Dan”

Good morning. Futures are down as the bond yields continue higher. The dominant news seems to be China’s apparent change instance regarding its U.S. Treasury purchase program. If China reduces it’s bond buying program, it is going to be a problem. As most Treasury watchers know, China is the largest holder of U.S. debt, totaling more than $1.24 trillion of the $6.3 trillion in T-bills, bonds, and notes held by foreign countries. They own nearly 20% of all U.S. debt to foreign countries.

In the simplest terms, China is the main enabler of U.S. spending habit. About 60% of U.S. spending is on entitlements — mandatory expenses that aren’t negotiable. There’s no real “art of the deal” to curb entitlement spending. Instead, it’s likely to balloon over the next several years due to the influx of immigrants, many of which will likely start receiving benefits fairly soon. This is just a fact. So as our as our entitlement debt grows, we’re gonna need someone to keep buying our bonds.

Given the 25% increase in the 10 year Treasury yield over the past four months, it’s safe to say that our debt isn’t as attractive as it used to be. So watch the bond yields — they matter. Be mindful that institutions are always gauging the relative value of equity and bonds. With money so cheap, equities have been attracting money — lots of money. As yields rise, equities become a bit more expensive relative to fixed income. It’s not a big deal now…but that might change if yields continue to rise.

Don’t forget that I’ll be releasing my new course to all my active members tonight no later than 8:00 p.m.  If you follow the methods I will be discussing, you really can’t help but improve your performance. Promise.

If you aren’t a member and want to be a part of the Beta Test Group click here:

http://stockmarketmentor.com/trial/risk-management.php?utm_source=NonM-TwinPillar-1&utm_medium=email&utm_campaign=TwinPillar

–Dan

Good morning. Futures are down as the bond yields continue higher. The dominant news seems to be China’s apparent change instance regarding its U.S. Treasury purchase program. If China reduces it’s bond buying program, it is going to be a problem. As most Treasury watchers know, China is the largest holder of U.S. debt, totaling more than $1.24 trillion of the $6.3 trillion in T-bills, bonds, and notes held by foreign countries. They own nearly 20% of all U.S. debt to foreign countries.

In the simplest terms, China is the main enabler of U.S. spending habit. About 60% of U.S. spending is on entitlements — mandatory expenses that aren’t negotiable. There’s no real “art of the deal” to curb entitlement spending. Instead, it’s likely to balloon over the next several years due to the influx of immigrants, many of which will likely start receiving benefits fairly soon. This is just a fact. So as our as our entitlement debt grows, we’re gonna need someone to keep buying our bonds.

Given the 25% increase in the 10 year Treasury yield over the past four months, it’s safe to say that our debt isn’t as attractive as it used to be. So watch the bond yields — they matter. Be mindful that institutions are always gauging the relative value of equity and bonds. With money so cheap, equities have been attracting money — lots of money. As yields rise, equities become a bit more expensive relative to fixed income. It’s not a big deal now…but that might change if yields continue to rise.

Don’t forget that I’ll be releasing my new course to all my active members tonight no later than 8:00 p.m. If you follow the methods I will be discussing, you really can’t help but improve your performance. Promise.

–Dan

Good morning. It looks like the party is continuing for at least one more day — Hopefully…many, many more! We want to get a good start out of the gates in 2018. It’s always good to have a cushion if you are tracking your performance.

Our Growth Stock List (GSL) continues to work really well, and I encourage you to consider this approach:

If you tend to be a short term trader, you are likely leaving a lot of money on the table that you don’t even know about. Strong stocks remain strong for much longer than the typical short term trader thinks. You take advantage of a quick pop and are happy to make 5%-10% on the move. Then you sell and start looking for the next big mover. But no one except a liar has a perfect track record. So some of your new selections are going to lead to losses. Two steps forward, 1 step back. And sometimes, it’s one step forward and 2 steps back. Each time you initiate a trade on a new stock, you’re starting from scratch. You are obviously risking your precious trading capital because you have no profit in the trade. So if you are wrong, you take a step backward.

Meanwhile, that strong stock (such as those on our GSL) has been resting. It’s pulled back from the run that rewarded you…but it’s pulled back in an orderly fashion on light volume, indicating that the institutions that were buying the stock are not selling the stock. Rather, they are hanging onto it. Perhaps they are not buying because they want the stock to settle down rather than continue higher. They are looking for opportunities to buy more stock and don’t want to compete with retail momentum investors for the stock. So they wait…and the stock rests. At some point, the stock takes off again because, well, because that’s what strong stocks do. Meanwhile, you’re off somewhere else looking for your next meal ticket.

You’d have been better off still holding that stock through the pullback because you have a profit cushion. Your initial capital is not at risk, your profit are. I’ve often said, “Make better decisions by making fewer decisions.” The meaning behind this concept is pretty simple: The decisions that turn out to be good ones should be held for as long as possible. As long as your good decision is leading to profits, then stick with it. The bad decisions can be corrected before they cost you too much money.

Market Wizard Mark Minervini says, “It’s OK to BE wrong; but it’s not OK to STAY wrong.” So you reverse the decisions that don’t pan out quickly. And you wait…and you wait…and you wait to find the next strong stock at an opportune buy point. You don’t chase some ragged stock because you’re eager to make up for the loss you’ve just taken. Perhaps you’ve had a string of losses (hopefully small losses because you’ve resolved your bad decision). It happens. So are you going to start chasing a bunch of crap stocks in the vain hope of getting back to even? No. That’s a fool’s errand.

Instead, you remain patient. You do research to find the best candidate. Look, it’s hard to find great stocks with great setups. Frankly, you’re not going to find that many. They’re difficult to find, which is why most people lose money over time in their trading. Rather than stick to high standards in finding stocks that merit your hard earned capital, you lower your standards. When you think about it, dropping your standards isn’t particularly smart. If you’re searching for a strong person to fill a vacancy in the accounting department, but you haven’t found the right one, are you going to give up and hire the guy who flunked math in high school who, during his job interview, asked how many vacation days he’ll get, and whether his desk will be close to the coffee machine? Great! You’ve filled the position. But you’ve forgotten your goal — to find someone who can do the work. But since you couldn’t find what you were looking for, you just took the warm body. Wouldn’t it have been better to just keep looking rather than give the HR department more job security by hiring a slug?

Trading is no different. If you wait for the right opportunity, you’ll be waiting a while. Let the opportunity present itself rather than manufacturing an illusory opportunity. In trading this way, you’ll make fewer decisions…but they will be better ones.

If you’re a short term trading, scratch that itch and take some profits. But don’t close the entire position. Hang onto part of it and let the strong stock rest. It’s no different than letting that great accountant take a sick day once in a while. When he’s got the sniffles, give him time to recover. Most times, he will. And then you’re back to making money!

See you in the forum.

–Dan

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TWIN PILLARS OF RISK MANAGEMENT COURSE

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Gary and I will be sending out my new course to all of our active members tomorrow.  If you are a member, you’ll get it for free and don’t need to sign up.  We’ll just email it to you.

NOT A MEMBER?  Join my 30 day free trial – https://stockmarketmentor.com/member-signup/?coupon=freetrialwebinar

Good morning. Today the opening bell rang and the VIX (Volatility index, or as many traders call it, the “Fear Index”) opened below 9 again. It’s never done that before — trading two consecutive days below 9. Since the index was created back in 1989, it’s only traded below 9.0 on seven days. Six of those were in the last six months. (This information comes from an article at Zerohedge.com). So something is going on, and I can tell you what it is.

There is no fear in the market now. This is a buying frenzy that just keeps going. The best strategy on Wall Street is BTD — “buy the dip”. Every time equities are lower, they are snapped up by eager buyers who seize the chance to put more money to work. And every time they BTD, they make money. Now, this is a dynamic that the Fed started under Greenspan, and was continued by Ben and Janet. It’s known as the “Greenspan Put”, the “Bernanke Put”, and the “Yellen Put.” Pretty soon, you’ll hear of the “Powell Put” when Jerome takes over the chair at the end of the table. Central banks have been the biggest market manipulators in history. (My opinion, though I have not done an exhaustive study of market manipulators. Rather, it just seems pretty obvious…at least to me).

So when every dip is followed by a rip, the bulls start feeling pretty smart. In fact, the bulls laugh at any trader or commentator who expresses negative views about equities. They believe that any bear is a really dumb bear, and that the market has changed from what it was back in the dark ages. “We are now in a new world, where Wall Street has no edge. Information is everywhere. And everywhere we look, all signs point to higher prices. What’s that I hear in the distance? Bobby McFerrin! “Don’t Worry. Be Happy!””

It’s very tempting to get so bull crazy that you start counting the profits that you plan to make this year. You get excited. This beats the snot out of that desk job you have where the highlight of your day is going down to the corner store during lunch and buying a couple of $10 scratchers in the hope that you won’t have to go back to work.

It’s good to be a trader these days. But there’s something you should be thinking about. Actually, a couple of things.

1. When the bull is running, it pays handsomely to run along with it rather than stand on the sidelines with a grumpy look on your face because you’re out when everyone else seems to be in. You keep waiting for that day of reckoning when you’ll be proven correct and all those idiots who have made a killing in the market finally realize that you’re the smartest one in the crowd. They admire you for being so resolute in your refusal to join the buying orgy.

2. When the inevitable correction does occur (as it must), you will now have something in common with all those foolish bulls who made so much money during this high momentum bull sprint. The foolish bulls will be on the sidelines with their tails between their legs, lavishing you with praise.

But there’s just one problem here. They will have lost part of the profits they made on the way up, because no one is able to identify the precise top. So as the market rolled over, the more disciplined of those foolish bulls sold their positions for nice profits, despite not selling at the exact high. They’ve now raised some cash. So you and the disciplined bulls who took part in that major blowoff that has dominated the market for the past couple of years are all in the same position. You’re in cash.

But sadly, those foolish bulls have more cash than you do because you’ve done nothing, while they have increased their wealth. So as the next opportunity presents itself, their original stake will be bigger than yours and they can continue on their merry way to growing their wealth even more, while you’re standing there wondering what happened. If you’re so smart, how come the dumb guys have more money than you?

Remember the “Parable of the Three Sons”? Each of them did different things with the fields their father gave them, but they all achieved something that benefited the kingdom. It wasn’t a competition. Doing something that you love is critically important. When you do something you love, and do the work to do it well, you cannot fail. You’re just a work in progress on the way to wealth.

There are many ways to make money in the financial markets. Whichever way you choose works for YOU. At least it should work for you — if not, then make some changes and find something that does.

There is money to be made now. At some point, that opportunity will vanish. Prepare for that eventuality…but make hay while the sun shines.

–Dan

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RISK MANAGEMENT COURSE
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I’ll be teaching a class on risk management next week. It is free to members. After next week, it will still be available for a modest fee in our educational department. I’m putting a lot of time, imagination and energy into this training session. Few things in life are certain, but I can tell you this. It is an absolute certainty that the concepts I will teach you next week will be reflected in your trading results. If you do what I teach you to do, you cannot help but get better. And that’s a promise. If, at the end of the free course you disagree, then let me know and I’ll refund your tuition.

I had originally intended to teach a course on the correct use of stops. But as I got into it, I quickly realized that such a course was incomplete because there is more to risk management than just setting a stop that cuts your losses. So I will incorporate calculating proper position size in this course. With the proper position size, and a consistent use of stops, how can you not become a more profitable trader?

One final note: Each day I get up and review all of my positions, including a quick search of any news that impacts the stock, along with premarket moves. I then review my stop levels. I have a spreadsheet that is quite useful to keep track of the risk on each trade (both percentage and dollar risk). In this spreadsheet, I also update the status of my entire account. If all of my stops are hit simultaneously (unlikely…but it could happen), how much of a drawdown will I take — both as a function of dollars and percentage. As of today, I am 92% invested. This is pretty high for me, particularly in a market that almost seems to good to be true. (When something is too good to be true…it’s false).

But though I’m 92% invested, I am only at a 4.25% risk in my account. If everything goes to a SHTF scenario, I’ll be down less than 5% from where I am now. With just a 5% downside, I’m comfortable participating in this probable blowoff. I’ll keep managing my risk along the way, never striving to get out at the exact top. I will take what the market gives me, and never demand that it give me more.

Hope this helps you in your own trading.

–Dan

Good morning. The futures are showing a flat open today after a strong start to 2018. I’d like to say something insightful this morning, but I’m “insight depleted.” So this morning, I’ll just make note of a few stocks discussed last night.

$ATHM: Yesterday I added Autohome (ATHM) to our Growth Stock List. On November 9th, Autohome’s board of directors announced a .76 cent/share special dividend to be paid on January 16th. The ex-dividend date is today — January 3rd. Consequently, the stock is trading lower this morning by……..76 cents. If you had a stop in place, make sure you review it. TDAmeritrade notified me yesterday afternoon that my GTC stop on the stock was automatically lowered by 76 cents. Since I have a rather loose “SHTF” stop on the starter position, it doesn’t impact me. Just make sure it doesn’t impact you. Also, if ATHM continues its breakout today and eclipses yesterday’s $71.85 intraday high, confidence in yesterday’s breakout from $65 should be even higher. As a reminder, ATHM has an EPS AND Relative Strength rating of 98, according to IBD’s ranking system. Additionally, the 3-5 year EPS growth rate is 46%, and the number of funds owning this stock has more than doubled over the last year. The stock closed at an all time high yesterday, …and you know how much I like stocks that print all time highs. Most are like Lays Potato Chips. They don’t make just one.

$MRVL and $MCHP: Last night as I focused more on Marvell Technology ($MRVL) and Microchip Technology ($MCHP), both of which may be setting up to move higher. MCHP still needs consolidate and build more of a base after gaining 80% in just 15 months. That type of move rarely continues with just a brief pause, so give it time. MRVL looks more immediately promising as the stock squeezes with a Bollinger Band width of just 4%. The one bone I have to pick with this stock is that it printed a blowoff top in late November on news that the company was merging with Cavium (CAVM) in a cash and stock deal. Acquiring CAVM aids Marvell in its efforts to better compete with Broadcom ($AVGO). Speaking of which, AVGO is also starting to break out. Likewise, Nvidia ($NVDA) is popping out of a squeeze and up almost 3% in pre-market trading.

Many of the semiconductor stocks are in squeezes, but they all have a common characteristic — they do not have very mature bases, which are typically necessary to support a sustained breakout. I’m not saying that they won’t break out, or that any break outs won’t work. I’m just pointing it out as something to be aware of. We want to avoid snapping at shiny objects and instead focus on sound trading decisions.

That’s all this morning. See you in the trading room.

–Dan

DON’T FORGET that I’m releasing my new course of Stops and Position Sizing to all Members.  Later today Gary will be releasing the details of how we will release this to our members AT NO CHARGE.

Not a member and want to get this at no charge, JOIN HERE 🙂

Good morning, and welcome to 2018. To say that the gains in the equity markets during 2017 have been impressive is to understate the kind of year we had. The S&P gained 20%, and the Dow Jones Industrial Average gained 25%. This is really historical stuff and it’s been a financial felony to remain on the sidelines. There is no telling what 2018 will bring, but it’s getting off to a good start. The futures in the S&P, Dow Jones Industrial Average and Nasdaq 100 are all up around 0.3%, following strong gains in the Asian markets.

Given that the new tax plan took effect yesterday, there is always the possibility that traders will now be taking the profits that they were unwilling to take last month. So far, that’s not happening and it’s not the kind of theory that you want to rely on for making trading decisions. The smartest traders do not predict what the market will do. Certainly we still see a few of those prognosticators appearing on financial TV or on various well-known financial websites, but they have no real credibility due to their dismal record.

Anyone can assert that the market has topped and will soon undergo a big correction. Heck, I’ll say that. I’ll tell you that this pace is not sustainable and that the big, overdue correction is imminent. I’ll even tell you that we are on the verge of a bear market. And if I just stick with this prediction, I have a 100% chance of being proven correct. As long as I don’t include a time element, I’m never wrong — I’m just early.

Don’t make predictions. Instead, be an observer and take your cues from what the market is doing. Recognize that there are always things to worry about. If it were otherwise, the only wall we’d be talking about it the one along our southern border. Instead, that well is illusory; but the Wall of Worry is real…and constant. If you can learn to operate in an environment of uncertainty, you’re on your way to being a successful trader. Don’t let the Wall of Worry put you on the sidelines. Instead, come up with a few resolutions for 2018 that will serve you well.

Here are a few resolutions you might want to consider:

1. Make no trade that you cannot defend in 5 sentences. If it only takes you one sentence that starts with “I’ve got a hunch…”, you’re not trading. You’re guessing.

2. Decide what your ideal position size is, and then take that position every time…without exception. When you make exceptions, you have no ideal position size — you’re trading on a hunch. If you are going to measure your trading performance, you need consistency in your position size. Your “ideal” position size should include a few different numbers. First, what’s your starting position? Good traders don’t just pile in at one time. They take a pilot position, and then wait for confirmation that they are correct. Then they build on that position until they have reached a full position. They never reach a full position until they have a profit in their trade. They have a cushion. Resolve to trade with a cushion, not a pair of dice. You’ll make more money.

3. Speaking of measuring your trading performance, you will take some time each week, without exception, to take stock of your performance. Review your trades each week and make sure you are on track with your decision-making. Are you consistent in your trading actions, or are you all over the place? Are you guessing?

4. Have specific standards for opening trades. Know what your preferred setup is. And if you can’t find any setups, don’t lower your standards. Instead, patiently wait for them to present themselves. Trust me. They will.

5. Sit on your hands on a regular basis. Just remember that there are two aspects of hand sitting. First, see #4. Also, resolve to avoid micromanaging a profitable trade. Your stock is going up for a reason. Let it do what it’s doing rather than try to predict when it’s done. Sit on those hands and let others push the stock higher. You’ll find that sitting on your hands can be quite profitable.

You’ll have your own resolutions to make for 2018, depending on your current trading habits and performance. Don’t make ten resolutions…make 3. Heck, make one! Just have a plan for 2018 that addresses your own trading behavior. Having a goal for achieving a certain return is a good thing…but it’s a waste of time if you have no plan to get there.

See you in the forum.

–Dan

Good morning. The futures are showing a modestly higher open as we grind through a week known for light volume and low volatility.

In last night’s Strategy Session, we focused on retail and energy stocks because many are on the move. In the immediate environmentt makes little sense to fixate on stocks that really aren’t going anywhere. The vast majority of 2017 market leaders are drifting sideways for lack of selling pressure. With large profits in the leaders (S&P up 20%, Dow-30 up 25% for the year), why would anyone be determined to close their position out and incur a taxable gain to be paid in 4 months? While I have never allowed tax implications to influence my trading decisions, I don’t manage other people’s money. Those who do are not inclined to tick their clients off by closing positions in market leaders this close to the end of the year unless there is a darned good reason for doing so. We are in a low “darned good reason” environment.

Regarding oil, let’s take a walk down Memory Lane:

Oil prices have broken through a key level of $60/bbl — a price not seen in more than 2-1/2 years when oil was on it’s way south. After starting a slow decline that gained momentum in last 2014, oil fell to nearly $40/bbl before rebounding to $60 in early 2015, and then starting another leg down that bottomed at $26/bbl a year later. Between February and June of 2016, oil doubled in price and settled into a trading range around $50/bbl. That trading range has persisted until recently.

So with oil now breaking out of a 2.5 year base, it makes sense that many oil stocks have been working their way higher for the past several months. Further, the energy sector has the highest corporate tax rate of all S&P sectors. So the new reduction in corporate tax should continue to boost prices in this sector.

Case in point: Devon Energy ($DVN). Over the past 5 months, DVN has tacked on 50% and is now blowing out of a volatility squeeze. Several other stocks are moving in similar fashion. Be sure to watch last night’s Strategy Session, where I cover several energy stocks, including $MTDR, CLR, $EOG, $DVN, $APC, and $FANG. (Not all of these are “buy RHRN” stocks. Some are, and some are on my watch list for new entries.

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I CAN HELP YOU COME IN FROM THE COLD
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On January 10th, I’ll be teaching a training course on the two biggest factors in controlling risk. If you’re ready to come in from the cold, I can open the door for you. Because I want to give our members everything you need to succeed, this course will be free. It’s part of your membership. But make sure you attend. After I’ve completed the course, it will only be available for purchase in our store.

–Dan

One last thing:

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2017 Dumb Ass Theory Awards
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We have a new nomination for the 2017 “Dumb Ass Theory” award. An outfit that calls itself “Digiconomist.net” (yes, .net) has claimed that cryptocurrency mining is on track to consume all of the energy on this planet by 2020.

Enough said.

Good morning. I hope you all had a relaxing day of rest yesterday. I’m in Minnesota. I went outside one time…to see how cold it really was. It was indeed cold, and I never went outside again. I could have just looked at my weather app, but I wanted to experience it for myself. Fortunatelly, I didn’t need to stand outside until I got frostbite on my nose and lost all feeling in my toes. It only took about 10 seconds for me to conclude: “This is not for me. Lesson learned. Nothing more to be gained by standing in the freezing cold.”

Losing is like that. No trader is really a trader without experiencing losing. Typically, every trader deals with significant losses at some point. That’s the time when you have to decide whether losing is for you. How long do you need to stand in the cold before finally deciding that it’s time to go in and stand by the warm fire with a fresh cup of coffee? For some of us, it takes a long, long, LOOOOONG time before we’ve had enough of losing. Despite losing significant money, we make no adjustments in our trading behavior. Perhaps we are lazy; perhaps we are stubborn; perhaps we just feel like we deserve to lose (Yes, many traders have a subconscious attraction to losing). But irrespective of the reason, many traders continue their poor habits and decisions for quite a while — long after getting frostbite on the schnoz and losing feeling in the fingers.

Ultimately, everyone comes in from the cold. Some figure it out right away. They realize very quickly that they need to change their habits. They come in from the cold with only a small reduction in their trading account. Others need to stand outside for longer. Their account is severaly damaged before they walk back inside. Others are much more hearty. They stay outside until they’ve lost it all. When they finally have had enough of the cold, they walk inside with nothing. They have indeed proven that they have an exceptional tolerance for the cold. But they’ve lost everything in the process.

How much tolerance do you have for the cold? Are you ready to come inside, or do you still need to spend more time in sub-zero temperatures because you just haven’t quite concluded that losing is not for you?

Decide.

–Dan

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I CAN HELP YOU COME IN FROM THE COLD
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On January 10th, I’ll be teaching a training course on the two biggest factors in controlling risk. If you’re ready to come in from the cold, I can open the door for you. Because I want to give our members everything you need to succeed, this course will be free. It’s part of your membership. But make sure you attend. After I’ve give the course on January 10th, it will only be available for purchase in our store.

If you aren’t yet a member you can become a member now and attend the course at no charge – https://stockmarketmentor.com/member-signup/?coupon=freetrialwebinar

Good morning. Just a couple of thoughts today.

First, don’t forget to check out yesterday’s training session on methods for preparing for the holiday break. “Should I Stay or Should I Go?” It’s more than a Clash hit, it’s the question that every trader should be contemplating this time of year.

Stocks are up this morning as we go into the last two trading days before a three-day weekend. Volume tomorrow should be quite low, so don’t expect any fireworks. Jobless claims came in slightly above estimates, thought GDP is now at 3.2%, thus once again justifying Thomas Carlyle’s description of economics as “the dismal science”. When you are always confident but only occasionally correct, you’re not much better than a broken Rolex. Why do economists have such a tough time being correct? Because the science of economics is the science of understanding people. They’re not statisticians; they’re psychologists in the business of predicting the behavior of people. I don’t need to say anything more about that. When you really think about it, how can that possibly be accomplished? If it was possible to PREDICT crowd behavior, every trader would rush to get an advanced degree in economics. Rather than remain traders operating on “If,…then….” hypotheses, we’d all just be winners who were always confident, and only rarely incorrect.

We don’t need to make sense out of crowd behavior. There is no sense to be made of the value of stocks. Honestly, stocks are not much different than cryptocurrencies. The hit on cryptos is that they have no value. How many times have we heard that there is no basis for determining the “correct” price of Bitcoin (BTC)? I agree with that contention. There’s no way to value cryptocurrencies because their price is determined by the crowd. They epitomize democracy. Everybody gets a vote, and the majority wins. Every time. Seems a bit dicey to me, because crowds can get totally irrational and push prices to unsustainable extremes. But that’s what happens.

Why are stocks any different? How many times have we seen extreme moves in the price of a stock, only to watch it revert back to the mean price? The only thing that changed was the prevailing opinion of the crowd — which is exactly what governs cryptocurrency prices. Most stocks correlate with the broader market. When money is coming into the market, lots of stocks benefit because…they are part of the market. When the major averages are selling off, many stocks also decline. But during those rallies or selloffs, what has changed in the valuation of a specific stock? Is the company suddenly more profitable or less profitable? Has the company’s business fortunes changed such that there is a justification for the change in price of its stock? No! And as a shareholder, what do you get for your investment? If the stock pays a dividend, you get paid. If it doesn’t, all you’re holding is air. You have a sense of security because you can study the fundamentals of the company. You can look at the income statement, the P&L statement, and the balance sheet. So you get a sense of valuation. But that’s a false sense of security. If you’ve been trading for any period of time, you know that stocks with great fundamentals can tank, while stocks with horrible fundamentals can make strong moves. Fundamentals don’t move stocks; crowd behavior moves stocks. Over time, the fundamental picture will influence stock prices. But at any given time, they are irrelevant when compared to crowd psychology.

I’m not making the comparison between cryptocurrencies and stocks to justify any valuation in digital currencies like Bitcoin, Etherium, Litecoin, or any of the hundreds of ICO’s that are sure to hit the market. Rather, I’m making the comparison because it’s important that you realize that the biggest influence on stocks and cryptos is the same — crowd psychology. And what’s the difference between the most expensive pair of jeans and the cheapest? Assuming the quality is the same (and that’s a safe assumption in most cases), the only difference is in the style. But what makes one embroidery pattern on your butt more valuable than another? The “V” on your Levi’s has been around for generations. Is that more or less valuable than some complex pattern on a pair of “designer” jeans? No! The crowd is fickle. Fashions change. If it were otherwise, the fashion industry would cease to exist. Back in the 70’s, I was a big fan of bell bottoms (and I’ve got to tell you, I really looked good wearing a pair of bell bottoms and harness boots). But times change, and I would have a tough time even finding a pair of bell bottom jeans (assuming I would even want to search for them).

Yesterday’s treasure is tomorrow’s trash. Whether it’s stocks, cryptocurrencies, or jeans, the valuation is determined in the same way — it’s an auction. The price is determined by the crowd.

If you can recognize that valuation of different things is determined the same way, you’ll break through the false illusion that you know more than the crowd. When you start thinking that you actually KNOW something about determining the “correct” valuation of any asset, you’re no better than an economist. And those guys sound really smart, but they never make any money.

–Dan

Good morning.

The market has opened higher this morning as traders act on the optimism that the tax bill is likely to pass this week. Midcaps and small cap stocks ($MDY and $IWM) are the strongest, which indicates that traders believe that the tax changes will benefit smaller businesses. Of course, the S&P 500 ($SPY) is in third place…so I guess the big companies are going to make out OK too. On my list of ETFs, only utilities ($XLU), oil services ($OIH), and semiconductors ($SMH) are weak. So this is a broad based rally and is rewarding those who have chosen to stay in the market rather than pack it in and take the rest of the year off.

A few stocks to mention:

CSX Railroads ($CSX) — I think this stock has bottomed after the market’s reaction to the sudden death of CEO Hunter Harrison. Jim Foote, COO, was named as new CEO. The current range was in the high $40’s to high $50’s. The stock gapped down to the 200-day moving average and hit a mass of buyers. I think $51.50 is the bottom and represents a selling climax. This is typically not my type of trade, but I bought some stock at the open and have a very tight stop at $51.40.

The power moves I discussed last week in Riot ($RIOT) and Roku ($ROKU) are working well this morning. You should be raising your stops on these stocks to at least break-even. Set them tighter to your own risk tolerance, but don’t allow these powerful moves to turn to losses. Lock in some profits too. Set some fractional (i.e., “partial position”) stops at higher levels.

I’ll be in the forum today. There is a lot happening and I want to seize every opportunity that presents itself so that I can maximize my profits this year. No unusual risks or aggressive trading. Instead, I’m just focusing on prosecuting my trading plan and finding what works.

See you there.

–Dan

Good morning. The futures are slightly higher this morning, but the real news is a pipe bomb explosion at New York’s Port Authority. There’s not much information at this point, but it’s likely that all subways, bus terminals and rail terminals will be impacted in various ways — either shut down, or at least given an extra level of scrutiny. The perp has been taken into custody wearing a device with a bunch of wires. But let’s not jump to conclusions. It might just be a disgruntled Radio Shack employee. Damage and casualties seem to be minimal, so the impact on the financial markets should be muted.

Bitcoin futures started trading yesterday on the Cboe Global Markets ($CBOE), and will be launched by CME Group ($CME) next Monday.. Because there are no natural sellers (yet), it’s not surprising that Bitcoin prices are surging again — currently at $16,650, though I’m sure that price will be a lot different by the time you read this. There’s no question that futures trading will impact the volatility of this cryptocurrency.

If you are trading Bitcoin, just be careful. There is no question that this is a bubble — but there is a big, unanswerable question about what price can be reached before the bubble pops. Perhaps it was already hit last week when Bitcoin hit $19,697 on GDAX exchange. But perhaps we should add a 1 to the front of that number in estimating the ultimate peak in Bitcoin. Nobody knows, though there are many who guess with authority. Last week Kevin O’Leary was licking his chops on CNBC, claiming that he couldn’t wait for futures to start trading so he can short Bitcoin. I wasn’t aware that O’Leary was interested in much other than stocks paying dividends, but he may be a closet genius in the futures market.

There are many causes of bubbles, but the one that you need to be mindful of is the psychological tricks that your mind can play on you. Have you ever chased a stock that you wished you had bought earlier? You first saw it at $15 and thought about buying it…but you didn’t. Now you’re watching it cross through $25 and you are filled with two very strong emotions — fear and greed.

You fear not buying it because you would be missing out on huge profits that you just know are in front of you — “I should have bought it at $15. Now, just 2 days later, it’s at $25. I’m such a dope. But I’ll feel like a real moron when it goes to $50 next week. So I’ve got to buy it now.” So you fear what’s going to happen without you, rather than what might happen to you. That’s a strong emotion, and it prompts you to abandon all notions of risk management.

You’re also greedy. The action you take due to greed is the same as your action in reacting to your fear, but the mechanism is different. You see the skyrocketing price, and visions of glory and triumph take over your thought processes. You just know the stock is going to $50, and you start counting the money before you get confirmation that your order has been filled.

When you are a slave to fear and greed, the result is always the same — only the timing is unknown. That coveted stock may indeed go to $50. But it might also go to $5. We’ve seen it before.

Back in 2000, Qualcomm (QCOM) hit $1,000 on a swell of unabated excitement. The company had split the stock in 1994, and twice in 1999 — a 2:1 split in June, and a 4:1 split just a few months later. Qualcomm fans were everywhere, and they were all geniuses. That’s the sign of a bubble. And after QCOM hit $1000, it pulled back just a bit: 88% in less than 3 years. It has yet to regain its all time high, though it did come within 15% after just 14 years.

The Nasdaq Composite was also in a bubble that popped in 2000. It finally printed a new high a couple of years ago.

What was the cause of these bubbles? Disruption. Al Gore’s invention was truly a game changer of historical proportions. What would we do without the Internet? Buy fax machines? Get the newspaper dropped on our front porch so we could find out what happened yesterday? Semiconductor chip technology was advancing according to Moore’s law.

There’s no question in my mind that cryptocurrencies are disruptors. Any time you see all the banks crying about something and professing concern for the general populace, you know the money changes are worried. They don’t care about you — they care about their power, and they need you to give it to them. Cryptocurrencies threaten that power, though the outcome is unknowable. And most people, including me, do not have a deep understanding of what it is.

And that gets back to fear and greed. If you don’t understand something, it’s typically not a good idea to invest heavily in it. You’re gambling; not trading…and certainly not investing.

So if you are participating in this phenomenon, recognize that you’re buying a bubble of unknown size. Be aware that fear and greed are everywhere, and it’s easy to get caught up in it. If you’re taking that plunge, try this: Imagine how you’ll feel about losing 50-80% of what you are investing in it. Seriously. Think about it — Bitcoin might be the next Qualcomm. Nobody knows for sure, though many believe that they do. But if you go by the 50-80% rule, you’re not going to get into much trouble. But if instead you are counting the money that you’re going to have when BTC reaches $1,000,000, then you probably need to lay off the sauce.

Meanwhile, back on planet Earth, we’ve got a nice market that’s rewarding the bulls, and it’s not a bubble (as far as I can tell).

See you in the forum.

–Dan

Good morning. The futures are set to open lower this morning, with several of the tech stocks trading lower in pre-market trading. For example, Nvidia (NVDA) is down about two bucks from yesterday’s close. This is important. The FANG, “et al” stocks ($FB, $AMZN, $NFLX, $GOOGL, $NVDA, $MSFT, and $AAPL) that have been leading the way over the past year all sold off substantially over the last week or so. Not enough to break their multi-month/year uptrends…but enough to either break through, or test, their 50-day moving averages. Many institutions tend to buy stocks that they like right around the 50-day moving average.

It’s not an absolute rule…but it is a useful reference for relative strength. For example, look at the daily charts of Facebook and Nvidia. Facebook has been trending along the 50-day moving average all year. Nvidia has been doing the same since breaking out of a trading range in May. They’ve both now broken through those key levels on heavy volume. Stocks under institutional accumulation don’t do this. Instead, they fall on heavier volume, and then rebound on lighter volume as the selling backs off and retail traders come in to take advantage of the dip.

Yesterday, many tech stocks rebounded after steep pullbacks. Look at $PYPL. After a 13% pullback over 5 days of trading, the stock held at the 50-day moving average and rebounded a bit yesterday…only a bit (23 cents). This morning it’s trading lower.

These are the types of signs that you’ve got to pay attention to. The “buy the dip” strategy has been a winner for quite a while. At some point, that won’t work anymore. And the steeper the drop, the weaker the pop. Why? Because institutions are no longer snapping up these stocks on any weakness. They’re selling — if they weren’t, we wouldn’t see steep declines on high volume. Volume reveals institutional activity. An absence of volume reflects an absence of institutional activity, and high volume is a consequence of a lot of institutional activity.

It can take quite a while for uptrending leaders to actually reverse course. The only difference between consolidation leading to higher prices and a top is what comes after the existing uptrend takes a breather. So I wouldn’t write these stocks off just yet, but I do think it’s important to recognize what’s happening now. I doubt we’ll see much follow through from yesterday’s oversold bounces. I’m sure avoiding them…because institutions are liquidating. There is no need for further analysis.

Also, don’t buy the argument that these stocks are still cheap. “Business is great! These businesses are not in decline…they’re picking up steam.” Look, fundamentals don’t predict price movements. Price movements anticipate fundamentals. If it were otherwise, value investors would be great traders. They’re not. High flying stocks always turn down when the future is so bright that you’ve got to wear welding goggles over your dark sunglasses. When things can’t get any better, institutions are selling…and looking for the next growth story.

Here’s an example: Over the past 4 quarters, Nvidia’s EPS growth has been really solid…but the growth has actually been decelerating. Compared to the same quarter in the prior year, the last 4 quarters of EPS growth were 183%, 126%, 124%, and 60%. Now, 60% growth during the quarter ending Oct. 31, 2017 over the same quarter last year is outstanding! But not when you compare it to the 183% EPS growth in the quarter ended January 31, 2017.

So beware of the same old story. The higher stocks go, the greater the tendency to become fans rather than prudent traders. Look for new ideas. Be creative. Be disciplined. Let institutions sell their merchandise to someone else who isn’t as smart as you are.

Do that, and you’ll make more money. You may not be “early”…but you definitely won’t be “late.”

–Dan

Good morning. The futures are up a bit this morning, with the Dow set to open about 50 points higher, the S&P up about 5 points, while the Nasdaq is flat as a puddle. To recap last night’s Strategy Session, there is a rotation out of tech and into some of the more relatively defensive sectors such as retail, homebuilders, consumer discretionary, financials, and transportation. Really…just about anything but tech.

The profit-taking in the semiconductor sector actually started last week. But since the trend was so pronounced and the Semiconductor Index ($SMH) was so extended, it took a few days for many traders to conclude that the pullback was likely more than just a ‘buy the dip” opportunity. Now, the SMH is down 8.5% in just 6 days. If you are still long semiconductor stocks, then you’ve either got a long time horizon and view them as investments (which is certainly a viable approach. You don’t want your entire market exposure to be sitting in your active trading account), or you’re simply wrong.

Waiting for your favorite stock to come back is a tactic used by many inexperienced traders who never last long enough to gain sufficient experience to know that the market is always right. Being stubborn might work in some aspects of your life (though I can’t really think of any right now, unless you equate stubbornness with perseverance), but it doesn’t work in trading.

Consider Nvidia ($NVDA). This is a great company with very strong business prospects. It’s also fallen 15% in 5 trading days. You may be thinking that this is a great buying opportunity. “Hey, this is the dip I’ve been waiting for!” Well, that’s not right. Who are you buying from? Zoom out on the chart and the answer will be right in front of your eyes. Since February of last year, NVDA has advanced 770%. It is owned by more than 2,000 funds. This is not a new idea. It’s not an overlooked stock. Large money managers hold stocks for a long, long time. They anticipate the types of developments in Nvidia’s business and buy early. Now, they are booking profits. And they’re selling to you.

Trust me. You don’t want to do business with large funds. Don’t buy what they sell; and don’t sell what they are buying. You want to be running in the same direction as they are — preferably at the front of the pack so that their buying pushes your stock higher.

Look at your account holdings. Can you make a case for owning every stock in your account? Do you have a time frame in mind? Is it a “trade”, or do you intend to hold the stock for a while, irrespective of any pullback? I don’t know the answer to your question; I just know that this is the question you need to ask yourself. If you’re not asking that question, then you’re not thinking — you’re hoping.

See you in the forum.

–Dan

(My best wishes go out to all of our friends up in Ventura County, who are facing a very very serious wildfire that is totally uncontained. I mean, 0%! The Santa Ana winds are an annual phenomenon in Southern California and they kicked up yesterday. California has had its share of fires this year, and I’m hoping that our brave firefighters have this one under control soon.)

Good morning. The futures are up this morning on optimism that some type of tax cut might actually happen. Mixing two common phrases: While hope springs eternal, the devil is in the details. No one really knows for sure what will ultimately come from the Swamp.

OPEC is also meeting today and the question is whether the cartel will continue to cut production through 2018 in order to elevate oil prices and slay the frackers. I’ve been largely ignoring the energy stocks, however the Oil & Gas Exploration & Production ETF ($XOP) and the SPDR Energy ETF ($XLE) are looking interesting — particularly the XOP. Nothing to do yet, but the XOP is still down 60% from the June 2014 peak, and it’s up 60% from its January 2016 low. Go figure.

As noted last night, the sell of in the high flying FANG stocks took them down to test key support levels, and they are rebounding a bit this morning. Zoom out to the weekly charts and you’ll see that the uptrends are intact. But it’s important to pay attention to current volatility and to high volume, steep declines because of what it represents — institutional distribution. But these stocks could continue to move higher…or not. As some funds sell, other funds buy. Tops are processes that can take a long long time to complete. In Mentorland, one person’s sell is another person’s hold. And one person’s hold is another person’s buy. So decide what your approach is in every stock you own. Are you going to pay attention to the short-term volatility, or are you going to take a long term approach and view your stocks as investments. There is no universal “correct” answer. You just need to ask yourself that question and find your own answer.

Pay attention to the banks and brokers. $SCHW, $ETFC, and $AMTD are working well and coming out of squeezes. Regional banks are also doing well.

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REMINDER ABOUT DISCOUNT PRICES
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This week, we’ve discounted all of our trading courses by 25%. I’ve been pushing the “59 Minute Trader” because we’re seeing so many money-making opportunities due to the volatility at the open. If you want to ramp up your trading performance, this is one big way to do it. And even if you are not interested in short-term trading, the concepts taught in this course will be invaluable to your decision-making process in managing your holdings. Check it out!

See you in the forum.

–Dan

Good morning. Just a quick note this morning. As I type this, Bitcoin has pushed through $11,000. I never thought I’d see another bubble like the Internet Bubble back in 2000. But, to paraphrase Yogi Berra, this is deja vu all over again. While each bubble is different, but one thing is the same. There is a pervasive feeling that “this time IS different.” But it’s really not — because bubbles are a consequence of human psychology put into action.

This move in Bitcoin is unique in that it’s an entirely new asset class that the masses are just now discovering. It’s not the stock market. It’s not real estate. It’s not tulip bulbs. This is truly a phenomenon. So this definitely IS different, right?

I don’t think so — because we’re not looking at the asset, we’re looking at the crowd psychology that is dictating prices. As with all bubbles, no one knows exactly when they will pop except the liars and fools. (Now BTC is at $11,485)

I’ve discussed the various reasons for the enthusiasm about cryptocurrencies (no governmental regulation, the equivalent of an “offshore account”, finite supply, ease of use, etc). But it’s still a bubble. The bubble may pop at $11,485 (It’s trading a bit lower now), or it may pop at $111,485. No one truly knows. Don’t become a “believer”, an “advocate”, or a “fan”, of cryptocurrencies. During the Internet Bubble, there were plenty of trading fans. Plenty of stock fans. I remember one guy who I taught a few trading classes with who would walk around saying, “Oh, I know Dell ($DELL). I know that that stock and I’m making a fortune on it. Oh yeah, I know Dell.” His big strategy? Selling at-the-money puts on the stock. LOTS of puts. He was a genius (in his own mind) until stocks crashed and took Dell with them. His broker had to liquidate his account because he couldn’t meet a margin call. Boom! The genius was the new class dunce.

Don’t be that guy. As the price moves higher in any bubble, the crowd gets increasingly enthusiastic. That’s what inflates the bubble.

I’ve got some serious stops placed at $11,195. I’ve been enjoying the ride and believe that Bitcoin will ultimately move much higher. But I’m not a fan. I’m just a trader who sees an opportunity. I’m not selling into strength. The market is very very liquid. I’m just keeping stops on my trades and embracing the truth that I won’t get out at the top.

There are a lot of lessons to be learned from this bubble. Most of you probably weren’t trading 20 years ago, so you didn’t experience the ether surrounding the stock market. This is just like that. The only thing missing is Maria Bartiromo standing on the floor of the NYSE shrieking about buy orders “in size.”

That’s all.

–Dan

Don’t forget about today’s training session at 9 am PT, Noon ET.

Good morning. Just a very quick note today.

Stocks are set to open a bit higher today as stocks just seem to be melting higher. No big moves (other than $ROKU), but no big selloffs either (other than $SQ). There is a LOT of chatter in the media about Bitcoin hitting $10,000. It’s the typical talk about the parabolic move in cryptocurrency that will ultimately end badly. That’s always a distinct possibility and it pays to be mindful of the risk associated with buying rocketships with booster rockets that are still creating more acceleration. These things always go farther (and faster) than people imagine. Recent “predictions” of BTC moving to $10,000 have shot for several months from now. Instead, that key level is probably going to be reached today. As I’ve previously noted, the “float” in BTC is 21 million coins, though the current true float is a much lower number. So as demand heats up, the price skyrockets because of the finite supply. It’s the Price-Action-Emotion Cycle that I discuss in Technical Analysis for Non-Technicians.

Price moves and that sucks in more buyers who want to get in on the action. They get emotional and just buy! That buying begets even higher prices, which sucks in more emotional buyers. It’s a positive feedback loop. Folks get excited and develop a confirmatory bias, where every upward move confirms their belief (i.e., hope/wish) that BTC will move higher into infinity and they’ll be a millionaire quite soon if they just load up now. The price moves even higher…and they put more money in.

Finally, after all the aggressive buyers are done buying at such lofty prices, the new BTC futures market kicks in and the big sellers rear their angry heads and knock BTC down 40% overnight.

Seriously, it could happen. Look what happened to Square.com (SQ) just yesterday. Down 16% because an analyst said that the Bitcoin payment app was overblown. Boom! The weak hands got skittish and created a cascade of selling.

Your protection? Two things:

1. Reasonable position size (devoid of emotion); and
2. A stop loss that defines your maximum loss.

With respect to Bitcoin — it’s about as liquid as you can get. It trades 24/7 and never gaps. So if you are on a BTC trading platform, you can place a GTC limit order. This allows you to always define your risk. A lot of folks wish they had done that back in 2000 when QCOM looked a lot like BTC. When the stock finally reversed, it fell hard! And it left a lot of wannabe millionaires holding stock that no one else wanted.

Look at Bitcoin as a teaching tool. Watch what happens when a true bubble starts inflating. Ultimately it pops, and it pops loudly. But you never know when that’ll happen. With BTC, it could happen at $9,990…or $49,990. No one truly knows…but you can truly define your exposure.

Be careful out there.

–Dan

Good morning. I hope you had a wonderful and relaxing Thanksgiving holiday. Ours was spent back in Minnesota (very cold; no snow), and we hosted a dinner for 41 people. So our holiday was wonderful…but hardly relaxing.

The futures are pointing to a slightly higher open this morning, and traders will be looking at the retail sector for indications of how strong the consumer really is. From what I’ve read, we had the usual bout of fistfights as Wal-Mart shoppers got a head start on the joyous holiday season by doing everything possible to grab that last big screen TV. I’ve always wondered what happens to the TV after the cops come. Do they put it in the trunk of the cruiser? Can it fit in the back seat with the perp? And what is the difference between the Black Friday savings on the TV and the bail bond? Hopefully, you don’t know the answers either.

Regarding Square.com (SQ): This parabolic mover received a downgrade this morning, with the analyst noting that the buzz around the new feature of its Cash app allowing Bitcoin payments is overdone overdone. The stock is down nearly $2 pre-market (around 4%). As I’ve been noting, the massive volume in this stock, combined with the parabolic move, is amounting to a blowoff top.

I strongly recommend that you be moving out of this stock. All good things come to an end, and I do agree that the bitcoin move has been overblown. Bitcoin is rapidly being seen as a store of wealth (i.e., buy and hold until BTC hits $180,000) along with a method of payment. I think that traders might be overlooking this important aspect of the cryptocurrency. At this point on the chart, the risk of loss far outweighs the potential for higher prices. Don’t overstay your welcome. If you are a long-term investor, take a look at the weekly chart. Maybe you’ll change your mind.

I’ll see you in the forum.

–Dan

Good morning. The S&P futures are up 8 points, while the Dow is up around 85 points. The week of Thanksgiving is always accompanied by lower trading volume as many traders start pushing away from their desks a bit earlier. The moves tend to be sluggish and slow…but the direction tends to be higher,with the average weekly gain of the S&P about 1%.

I don’t see much happening this week, so I’m not doing much. Are you? Decide on your timeframe. How long do you tend to hold positions. Some tend to be very fast traders, holding positions for very short periods of time and selling when a stock shows the first signs of resting. Others tend to hold positions for longer periods of time — several weeks or months. Knowing your holding period is critical–CRITICAL–to having success in your trading. If you don’t know your tendencies, then you are going to be sucked into whatever is happening on any given day. You’ll sell a very profitable stock that is working quite well and showing no signs of weakness because the market is down and you see negative stories in the news. You’ll buy a stock that you would NEVER ordinarily consider buying because you saw a comment on it that pushes you into action.

I recently responded to a tweet by Stephen Burns (@SJosephBurns) about trading success. His suggestion — take one simple strategy and record every trade. My response: “Being a jack of all trades is great for home repair; but it’s not so good for trading. Curly (City Slickers) said it best: ‘One thing.'”

I really believe that. As a part of my development as a trader over the past twenty years, I’ve tried many styles of trading. For a short time, I even warmed a chair in a day trading shop up in Seattle, showing up about 30 minutes before the open, and sitting in my chair banging stocks as a SOES bandit. It was a great feeling to walk away at the end of the day without any open positions to worry about.

But it wasn’t so great when I walked away at the end of the day with nothing to show for my efforts. After spending a day filled with stress and a hyperactive mouse, I would think about all of the things that I could have done rather than working for free (or worse, paying money via losses for the privilege of drinking too much coffee and draining a bottle of Visine into tired eyes).

Over time, I’ve figured out what works for me. I try to learn from the best by reading as much as I can about trading tactics and methodology, theory of markets, psychology, and just about anything else I can get my hands on. Frankly, most of it isn’t particularly useful, but I always find value in everything I read. In the mid-1980’s, I was a physical therapist and sports medicine specialist in San Diego, working with both world class athletes and sedentary housewives with bad knees. I remember one time when I went into the office of my supervisor, Byron Wildermuth. I expressed frustration about having tried many different approaches to helping one of my patients with severe back pain from a disk injury. I said, “…and the most frustrating part is that I haven’t learned anything!” Byron said to me, “Dan, that’s wrong. You’ve learned all of the things that don’t. Now, forget about those and try something different. And keep trying different things until you get him some relief.”

That resonated with me. So I kept trying different approaches, failed a few more times, and he finally walked out of the clinic with a straight spine rather than the S-curve that he came in with.

You should do the same thing with your trading. Take stock of the things that you are doing. Do they work for YOU? They may work for other traders…but do they work for you?

Find what works for you, and then get better at it. When you follow Curly’s approach to trading, that “one thing” will give you success beyond your most optimistic dreams as long as you stay true to that one thing, and put in the effort to become the best.

–Dan

Note: By the way, here’s how I finally “fixed” my patient with the crooked, excruciatingly painful back. Having tried everything from traction, stretching, manipulation, ice, heat, craniosacral manipulation, massage, electrotherapy, and all of the other accepted methods of therapy, I finally went outside the box and tried something that made sense to me. I made the guy stand up as straight as possible. I went to his side, bent down, and put my shoulder into his rib cage. I put my hands around his waist and grabbed his hips while saying, “Trust me, ok?” I then shoved my shoulder forward at the same time that I pulled his hips toward me. Boom! The guy who had been coming to therapy for a month finally stood up straight after I applied my novel technique of brute force to the problem. Instant relief! (Those who know me well will not be0 surprised at my approach When a hammer doesn’t solve a problem, I just look for a bigger hammer).

Keep trying to find your way in this amazing profession of trading. Be self-aware. Keep track of each and every trade. You’ll want to ignore the irrational ones that are a bit embarrassing. But frankly, those are the most important because they hold the answer to why your account isn’t growing despite all the great trades you have made.

Ultimately, you’ll find that one thing that you’re good at. After you find your one thing, just do that — again and again.

Good morning. This is a short week, with the market closed on Thursday in observance of the Thanksgiving holiday, and open only one half of the day on Friday. The futures are pretty flat this morning, which seems typical for the market these days.

There’s not a lot to say this morning because it’s a relatively slow news day. We’ve got a few earnings reports due this week, though about 95% of all of the companies in the S&P have already reported. Urgan Outfitters (URBN) reports this evening, and Lowe’s (LOW), Dollar Tree (DLTR), HP (HPW), Gamestop (GME) and Salesforce (CRM) report tomorrow, and Deere (DE) pulls up the trailer on Wednesday.

LOW and DE actually look like that could move on earnings. Both look somewhat like coiled springs, though it is always a risk to hold a stock over earnings. CRM has been in a very solid uptrend with few rest stops. So be careful with this. The bulls may have already anticipated strong earnings…though we won’t know that until the report comes in tomorrow.

One matter over in Europe that bears watching.

Developments in Germany (and hence, the EU) are interesting. I am not well versed in foreign politics, finding it sufficiently difficult (and distasteful) to understand our politics over here. But I do read, and I do pay attention to what’s happening in Europe because, in this global economy, it’s not all about us any longer.

As you probably know, Angela Merkel recently won re-election as Chancellor of Germany, and is also the senior leader of the G7. So she’s kind of a big deal over in Europe, which means she’s a big deal over here. As newly elected Chancellor, she is charged with putting together a coalition government. And therein lies the problem. Angie is an avowed globalist. This is not an opinion, it’s a known fact. She’s a big fan of the European Union (EU) and probably hasn’t slept a wink since the Brexit vote last year. On that front, opinions vary. Some folks over in Germany seem to be more interested in self-governance. That’s where the Free Democratic Party (FDP) comes into play. The FDP is about as far away from Merkel as you could be. Unlike Merkel, the FDP’s focus is on individual freedoms and away from excessive, intrusive governmental regulation. Its motto is “As much state as necessary, as little state as possible.” They want a balance budget, deregulation, privatization, reduction of governmental subsidies and a reduction in government debt. They also want a flat tax.

As I understand it, none of these things move the needle for Merkel.

Merkel allowed 1.2 million migrants to enter the country in 2015-16, and would love to have more. If you remember, her rallying cry in defiance of those who actually wanted to limit the unrestrained amount of refugees coming into Germany was “we can do it.” Last year she dropped that slogan, though declined to adopt a newer, more accurate slogan, “Um, no we can’t.”

So there are a LOT of issues over there that definitely impact the direction of Germany, and hence the direction of the EU. And the FDP, along with a few other minority parties, aren’t really playing ball with Angie, so she’ll probably have to rule (er, I mean “govern”) with a minority government, or deal with a brand new election.

Either of these outcomes could roil the European markets, so keep an eye on them. Any issues over in the EU should be interesting, though I don’t expect them to have much impact on our domestic markets.

Anyway, I thought I’d just pass along this little tidbit this morning. It’s easy for us to remain very insular in our thinking and focus. But it’s a big world out there, and it’s important to have an understanding and appreciation for economics and governing policies in various parts of the globe.

Have a great day!

–Dan

Good morning. Let’s take stock of the current market through the lens of one of the biggest questions related to performance. When do you sell? This applies to both individual positions and the overall state of the market.

Ignore for a moment your unrealized profit or loss on the current trade and instead just look at the current price. When you opened the trade, you took into account the potential for loss. You have your stop loss in place. Your position size takes into account your maximum acceptable loss in the event that your stop is hit. As such, your original entry and current P/L on the trade isn’t relevant to the conversation here.

So assume you just opened the trade. Based on the current price of the stock, what’s the potential for profit on the trade? What is the risk and magnitude off the potential loss? When you have considered these questions, you’ll have a pretty good idea whether it’s time to sell…or whether it’s time to add to the position.

This strikes at the very heart of today’s market.

Say the stock (or the market) is making all time highs. You know that there are no unhappy bulls overhead, looking to just get their money back on their losing trade. Everybody’s a winner. Look at the chart. The only unhappy traders are those who wished they had bought the stock at lower levels. Now, some of them will buy now. This happens on every tick on every stock; every day that the market is open for business. Somebody wants to own the stock, so they look for supply.

And where is the supply coming from when a stock hits an all time high? Traders who are taking profits. This is a “blue sky” situation, where the stock can just keep moving higher. But at some point, traders begin to see the stock as having moved too high. Perhaps valuation is an issue, where the stock is perceived as having “gotten ahead of itself.” It’s out kicked the coverage. When traders perceive the stock as being too expensive to own, the demand drops off. At that point, all those blue sky bulls will start taking profits.

At what point this happens is unknown. And that’s the nature of the current market. The mass of traders that make up the equity market (i.e., Institutional traders down to small retail traders) see stocks moving higher and higher. But the “smart money” sees little upside potential because stocks have “gone up too much”, and are expensive. So they temper their appetite for stocks. They raise some cash by selling positions. After all, they’ve had a good year and don’t see much potential for even greater gains.

But the market keeps going higher…and higher. These same money managers who previously saw little potential for future profit are now stuck. They now see the potential that they’ll get left behind. So they begin getting back into the market. They’re a bit worried about the situation and are waiting for the big correction…that never seems to come. Their buying pushes the market even higher, exacerbating the overbought situation in the market. Indeed, it’s a blue sky market where the potential for future profits is truly unknown.

I’m describing the “Wall of Worry.”

The interesting, and frustrating, thing about the current market environment is the notion of risk. How much risk, versus unknown potential for future profits, is in the market? Because of the lack of options in other asset classes due to the Fed’s grand experiment, traders actually see little risk. That’s why the VIX is so low. There’s just no appetite for portfolio insurance.

This is actually a pretty complex topic that goes beyond the scope of this note. But just keep this in mind. No one truly knows how much potential for future gains exists. Breadth is narrowing, major divergences are everywhere, but stocks keep moving higher. Sellers soon become new buyers…and the market moves higher still. No one seems to be wondering when to buy stocks. The prevalent question is when to sell.

And until there is consensus on the answer, the market will keep moving higher.

Always be aware of the current market conditions, but focus on your individual stocks. Some will be in sync with the broader market, and some will not. But if you contain your question of when to sell to each specific situation, you’ll find that your ability to balance the risk of missing out on future profits against the risk of loss improves.

Have a great day.

–Dan

Good morning. Today, the futures arepointing to a lower open, with the S&P down 10.75, the Dow down 107, and the Nasdaq down 18.50. So yesterday’s pullback is continuing today. I’m being very discriminating in taking new positions in this market. The junk bond market has been selling off, which is concerning. The NYSE advance/decline line peaked on October 20th, while the Nasdaq advance/decline line peaked more than a month ago, on October 5th. This narrowing breadth should not be ignored.

These internal dynamics of the market, including the trends of the major indexes, are really important for getting a general sense of what the market is doing. But unless you are an index trader, your focus should be on individual stocks. If you insist on finding low risk entries on trending stocks, you’ll find it easier to make money.

When you have trouble finding new stocks, it should tell you something. Fewer opportunities reflect a tired market. And by remaining resolute in your discipline, your most difficult task will be…remaining resolute in your discipline. Many traders suffer from the need for constant action. That’s a real problem. Shouldn’t you really be looking for profitable trades rather than action? When you can’t find opportunities, you protected from a market correction because you just aren’t that exposed.

Conversely, when trading opportunities abound, the market is strong. Your most difficult task is finding the best opportunities in a field of opportunities. We aren’t in that kind of market. But at some point in the future, we will be. Don’t spend your time wishing for different conditions. It doesn’t help. Wishful thinking often results in confusion — you see one thing, but it doesn’t match what you are hoping to find. Once confused, you are vulnerable to making rash decisions. Don’t do that.

Thoughts on a few stocks:

Target (TGT) is down this morning, despite beating estimates for earnings and revenues. They also raised their full year earnings forecast. But the fly in the pancake syrup seems to be the weaker outlook for the holiday season. The stock had advanced about 30% in 4 months, and if it opens where it is currently trading in pre-market trade, it’ll still be up about 18.5% since the June low. If you are looking for opportunities in the retail sector, I’d suggest Home Depot (HD) or Best Buy (BBY). They are both in volatility squeezes. Best Buy reports earnings tomorrow.

Roku (ROKU) is down again in pre-market trading. I discussed the trading dynamics of Roku at great length in last night’s training session. If you are interested in learning to trade these types of rocket ships, you may want to take the time and review the video. It’ll help. These short squeezes can be real money makers if you know what you’re doing. But they can be real money takers if you do not. You should not be holding this stock now. The short squeeze is over, and the stock will go much lower. Even after yesterday’s gap and crap (closing down 13.5%), the stock is still outside the upper Bollinger Band. That’s pretty remarkable. I can’t recall a stock falling this much in one day and STILL being more than 2 standard deviations away from the 20-day moving average. I would short the stock even now…if I could borrow shares.

I’ll be in the forum this morning. Hope to see you there.

–Dan

Good morning. The futures are pointing to another lower open today after the S&P printed a bullish engulfing pattern yesterday. The S&P is trading in a pretty tight range, but support is holding around 2,575 and there is still an upside bias to the market. The macro influence on equities is tax “reform.” The dueling House and Senate bills are still being considered and conventional wisdom seems to be that one of them will actually pass. Conventional wisdom has a really bad track record of late, so I don’t put much stock in it. For the record, I have strong doubts that either bill will pass, nor will Congress come to any type of “compromise” that changes the dynamics of the tax laws. Oh, it might change a few things here and there to give everyone some talking points to sell constituents next year; but any giveaway in one area will be taken back in the next, and I doubt it will have much impact on individual taxes, or on the economy. But it will be a success for the swamp because one party will be able to declare “Yay! We did something for you!” while the other party will be able to declare “Yay! We kept you from getting screwed!”.

Because the market always discounts future events, I think it’s safe to say that the market isn’t expecting much. Frankly, I think any change will prove to be a non-event. Stocks haven’t been moving higher this year because everyone thinks they’re going to get a stocking filled with candy at Christmas. They’ve been moving higher because there’s nowhere else to go. So just stay the course and forget about the reality shows on the financial news channels. As previously noted, you’d be better served watching the Real Housewives of Orange County. It’s interesting to some folks, and it’s a better use of your time.

Yesterday morning I pointed to Roku (ROKU) as a high momentum stock that I’d be watching. The bulls pushed it up nearly 30% (it’s up 126% over the past 3 days). Traders in the forum were all over this stock, and it’s up even more pre-market. If it breaks above $47.50, I’ll be trading this again today. Happily, it’s impossible to short the stock because you can’t borrow any shares. Therefore, it’s impossible for you to do something dumb. Think about it. When you can’t get a borrow, you know that the stock is heavily shorted. And a heavily shorted stock is like a puddle of gasoline just waiting for a match. A match got dropped in that puddle a few days ago. Respect the short squeeze. It’s a fool’s errand to try to predict the top. So either stay away from the stock, or be long with a sharp eye on the chart, and an exit plan that includes a stop loss.

This morning, Buffalo Wild Wings (BWLD) is up 25% pre-market after a report in the Wall Street Journal that Roark Capital has made a bid to buy the company at $150/share. The stock is currently trading at $148.50. With the stock just $1.50 below the bidding price, the only reason you’d be buying this stock is because you believe that the bid is too low, and that a competing bid at a higher price is forthcoming. Other than that unlikely scenario, it’s just a shiny object.

Members: Remember that I’ll be hosting a training session tonight at 8 pm ET. (I will send out a short Strategy Session video prior to the training session.) Hope to see you there.

–Dan

Good morning. The futures are pointing to a lower open today. Stocks I am following today are:

$WUBA — Testing $70 after reporting earnings.
$GE — cut its dividend by 50%. The stock is up this morning. After years of mismanagement by Jeff Immelt, the stock just might be putting in a bottom at $20.
$JD — reported strong earnings and is now back above the 50-day moving average.
$TSLA — The latest distraction by Elon Must is a recent tweet: “Tesla Semi Truck unveil to be webcast live on Thursday at 8pm! This will blow your mind clear out of your skull and into an alternate dimension. Just need to find my portal gun …” Jeff Bezos didn’t even say anything about the release of the new Kindle Oasis. Tim Cook promoted the recent Apple products pretty heavily, but his promotions were rational. They also resulted in $AAPL hitting new all-time highs. It will be interesting to see whether Mr. Musk’s latest “Look! Over there! A squirrel” effort will be enough to achieve a lift off from $300. If it doesn’t, I can see the stock ultimately falling to $240 before reaching $200. These targets are based purely on technical levels rather than fundamentals (though with current bond yields reaching junk status, the fundamentals aren’t exactly stellar).
$ROKU — Another new high. Blue sky stock
$QCOM — rejecting Broadcom’s takeover offer. The stock is higher today.

One aspect of trading I want to briefly mention. I attend Saddleback church in Lake Forest (founded by Risk Warren, author of best selling “A Purpose Driven Life”. One of his recent messages was the concept of “breakthroughs”. As you might expect, his message was from the perspective of spirituality. He noted that true breakthroughs don’t come until you are ready for them. It’s not enough to simply pray for a breakthrough (i.e., health, emotional, financial, relationships, etc). You need to truly be ready to receive it.

This message is intensely applicable to trading. There is an old saying, “When the student is ready, the teacher will appear.” Are you ready for a breakthrough in your trading? Is your account swinging wildly as big losses wipe out months of gains? Is your account NOT swinging wildly but is instead falling or remaining flat even as the market moves higher? Are you overtrading, where the vast majority of your trades are impulsive and unprofitable?

If you answered “yes” to any of these questions, you’ve got to ask yourself: “What am I doing wrong?” It has to be SOMETHING. Something is broken in your trading behavior. But so far, you haven’t taken any real action to fix it. If it were otherwise, you wouldn’t still be stuck in the same rut you’ve been in. Simply put, you need a breakthrough. But in order to achieve a breakthrough in your trading, you’ve got to do more than just want it. We all want to trade better. You’ve got to put yourself in a position to make a breakthrough.

And how do you put yourself in a position to make a breakthrough in your trading? You review ALL of your trades — past, present, and future. This is the only method that results in discovering what you are doing wrong. But it’s something that only a very, very small percentage of traders are willing to do. Why? First, because it takes a lot of time to review all trades. Next, because most traders really don’t want to know how badly they are trading. Their current, unprofitable trading style works for them emotionally. If it were otherwise, changes would already have been made. Finally, making changes in trading behavior takes a lot of time and energy. Few want to put in that time. But in order to achieve a breakthrough in your trading, you’ve got to put in the time. You’ve got to face the deficiencies in your trading.

If you are ready to make a breakthrough, then start reviewing past trades and all future trades right now. Don’t wait until January, where your New Year’s Resolution is the catalyst for review. Do the work now, and then make a resolution in January to make the changes you have already identified. Feel free to start that process sooner, but I’m trying to make this as easy as possible. If you aren’t willing or able to do the work required to reach breakthrough status, then don’t expect to break through any obstacles in your trading.

Think about it.

I’ll be hosting a training session tomorrow evening at 8 pm ET. Hope to see you there.

–Dan

Good morning. Futures are up a bit this morning, indicating a higher open. Consider the strong close on Friday, where the S&P closed up by .52% with a closing location price just slightly off the high. Trading volume was above average, mostly due to expiration Friday. Comparing the intraday low on Thursday to Friday’s closing price, the S&P has rallied about 1%.

This is what strong markets do. While it’s important not to worship at the alter of the bull, where your faith in a perpetual bull market trumps all evidence to the contrary, it’s of even greater importance to avoid the common belief that “this market is wrong. The ‘Big One’ is right around the corner.” Think about this. It’s a lot easier, and more profitable, to have an exit plan when there is evidence of a market reversal than it is to have an entry plan AFTER the big correction has occurred. In the former scenario, you’re making money with an exit plan in place. In the latter scenario, you’re standing at the station waiting for a train that may be many miles away. You see the trains going in the opposite direction on a regular basis. But you are going to wait patiently for your train. You are a sideline sitter. Nothing wrong with sitting on the sidelines because you won’t lose money. But you won’t make any either.

By waiting patiently for the Bear Train, you stand the risk of capitulating at the worst possible time. Sideline sitters can get frustrated as they see others making money. At some point, that frustration leads to action. Often times, the frustration reaches its peak right before the fall. Why? Because human nature is human nature. We are all wired the same. At some point, the last of the sideline sitters decide that they’re never going to get what they’ve been waiting for. So they jump on the tracks and sprint to the platform on the other side of the station, intending to catch the next Bull Train.

You know what happens next.

About halfway through their sprint to the other side of the station, the Bear Train comes rolling into the station without even blowing the whistle of warning.

Splat!

As long as the trend is higher, be involved in stocks. Be invested.

Each evening I post my trading notes along with the Strategy Session video. I’ve adopted a more detailed and specific format so that these notes can serve as a starting place for your own notes, highlighting stocks that are working and thus worth holding, stocks that are not working, and stocks that are close to entry points. I look at price action, volume, patterns, fundamentals, and the health of the broader market. These notes are intended to help you develop your own decision making and action taking process.

Everybody needs a plan to succeed, whether it is for the next trade, or for the rest of your life. Without a plan, you’re just drifting without direction and relying on luck to guide you.

Do you have a plan?

–Dan

Good morning. Futures are pointing to a sharply lower open today, with the Nasdaq down 37 points, the S&P down 11, and the Dow Industrials down 90.and the Dow down. When I woke up about an hour ago, the picture was even worse. So…as we approach the opening bell, I think traders are starting to see this pullback as yet another buying opportunity in a string of buying opportunities. Today is the 30th anniversary of the 1987 crash and that anniversary seems meaningful to some. I think a 30th wedding anniversary is meaningful…but the 30th anniversary of a big move in the financial markets is just an interesting thing for the financial pundits to discuss between Trivago (TRVG) and ETF commercials. It means nothing.

Spain is cracking down on Catalonia’s bid for independence and that has the EU worried, though I’m not sure how or if that impacts US markets. Doesn’t seem like it to me. Asian markets are weak due to concerns of excessive debt in China. Debt is an interesting concept, but it’s something that doesn’t seem to matter over here in the US, as the interest per year on our $20+ trillion debt is more than $271 billion, with a debt as a percentage of GDP at 105.89%. As noted yesterday, the Fed is hamstrung. They won’t be raising rates much anytime soon (i.e., forever) because the rise in Treasury rates would turn us into Greece on steroids (no offense to Greece, of course). The cost of refinancing US debt would be crushing. In my view (steeped in a mixture of cynicism and common sense rather than experience in the field of banking and economics), this is why the Fed is focusing on reducing the balance sheet rather than raising the Fed Funds Rate. The result might be the same, but hope springs eternal that the Bernanke Experiment can somehow be unwound without any impact on the economy.

Getting back on track, the news from overseas is negative, but I doubt it’ll have any negative impact on equities that will last longer than the 15 minutes following the opening bell. The Dow 30 is extremely overbought after yesterday’s blowoff, and the low open this morning will won’t even come close to reversing yesterday’s 160 point gain. While I have doubts that the pre-market weakness will pick up steam, I do think that we’ll see some consolidation for a period of time as the recent acceleration in buying runs its course.

Always check your stop levels before the open to ensure that they aren’t hit on a low open. When your stop is hit at the opening bell after the stock gaps down below your stop price, you wind up selling at the opening print rather than your stop price. Most stop orders (including mine) are market orders where your stop becomes a market order when it’s hit. You can place stop limits where a triggered stop issues a limit order at your preferred price. I just use market orders because I typically trade liquid stocks, and I always check them before each trading day begins.

Hang tough, and don’t overtrade. If the trend on your stock is still intact, then just leave it alone.

I’ll see you in the forum, where we will probably have an opportunity to short Adobe (ADBE), which is gapping up more than 5 standard deviations from yesterday’s close. In more than 20 years of trading, I’ve never actually seen a stock gap up 5 standard deviations and keep going. This might be a first, but I doubt it.

–Dan

Good morning. The Dow is up 92 points this morning on the back of IBM, which posted better than expected earnings. The stock is trading at around $156, which marked the last significant ceiling for the stock back in June. It’s been trending lower for much of the year falling 25% from the 2017 top in February to the August low. I’d say the bottom has been put in. Given the strength of the Dow this year, IBM has obviously been underperforming and exerting a downward drag on the index. This pop will now pull the Dow higher. I’d suggest watching how the stock trades this morning. If this is a “gap and run”, where the stock opens above $155 and keeps going, then we should see continued strength in the Dow-30 and a decisive move above 23,000. If not, then we’ll likely see another day where the bulls struggle to stay above that historic level.

Look we’re at a stage where money is just pouring into the market. But unlike September, we’ve seen the mid-cap ($MDY) and small-cap ($IWM) indexes trading a bit lower. This is a bit of a yellow flag (“caution”…not “stop”) because it shows that money is becoming a bit more selective. I like to see a market where the small- and mid-cap stocks are hitting new highs. When money goes into the smaller, more poorly capitalized companies, it means that investors are very bullish about the future. They see young companies having great prospects for growth.

So when the smaller cap indexes flatten out while the large cap indexes move higher, the theory is that investors, while still optimistic, and being more selective. They’re investing in the strongest companies, which are a bit safer during flat or down economies.

I continue to believe in the uptrend in stocks, but it’s always good to really understand what’s happening beneath the hood. If you understand how money is flowing, you’ll be better able to make decisions when we start seeing weakness. Remember, this is October. Lots of seasoned investors are waiting for the big selloff. But the problem is that, if the selloff does not occur, they’ve got money on the sidelines with the end of 2017 approaching. And in that event, we’re likely to see a continuing rally into the end of the year as they start chasing performance.

One last point, which I mentioned the other day. Sorry, but the Fed isn’t going to raise rates much at all. They jawbone about it, and the threat is always there. But the activist Fed of yesteryear has become the “do-nothing” Fed of today. And if rates stay low, then stocks will remain cheap. The metric is a COMPARISON between the returns on fixed income versus the returns in equities. When you hear the “experts” talking about how expensive stocks are, you will never hear them discuss historically low rates. Why? Because they cannot raise that variable without ultimately concluding that stocks are actually cheap. Fixed income just isn’t an option for those who are looking for alpha (outperformance).

Keep that in mind. Always respect the trend, and never feel like you have some kind of insight that the market doesn’t. To feel like you have an “edge” over the market is both arrogant and dumb. The Crowd is always right. You’re not smarter than the collective wisdom of the Crowd. So it’s best to be a follower — as long as you’re not the last guy in line. So far, we know there’s money still coming into the market. And that money is going to push stocks higher.

Ride the bull…until it bucks you off.

–Dan

Good morning. The futures indicate a flat open as stocks continue to float higher. I noted in last night’s Strategy Session that the market just isn’t offering much chance for underinvested bulls to put money to work. But I did mention a few stocks to put on your radar.

The investment banks have been building multi-month bases for much of this year after their post-election rally that took many of them up more than 30% before peaking on March 1st. The bases have been really constructive, with cups as long as 4 months, followed by volatility squeezes. Last Thursday JPMorgan (JPM) reported solid earnings that beat estimates, though the stock failed to break out. Instead, it pulled back for a couple of days before closing at an all-time high just yesterday. Recall that the company reported poor trading revenue due to persistently low market volatility. This isn’t a JPM thing; this is a market thing. All the banks will deal with this same problem, which is part of the reason that many are looking at starting bitcoin trading operations. You don’t find much more volatile markets than the cybercurrency market.

Through my chart analysis, I’m looking for a minimum move to around $108.50 for JPMorgan. But the other banks are not too far behind.

Morgan Stanley (MS) just reported earnings and, like JPM, reported lower trading revenue, but still beat estimates. Last week the stock pulled back around 5%, but yesterday MS reversed that pullback on higher than average volume. This morning the stock is trading higher and is likely to push through $50. My minimum target for MS is $54. I think it works.

Goldman Sachs (GS) also reported solid earnings this morning and is also trading higher. But as of yesterday’s close, the stock was about 5% below its all time high on March 1st. So GS has been a bit of a laggard. I suspect it will start catching up. As I see the chart, a breakout above $247 would put $270 in play.

Lastly, watch how Netflix (NFLX) trades this morning. The stock really started an earnings run a couple of weeks ago after breaking to a new high on more than twice average volume. That run looks like it’s going to continue after the company reported subscriber growth of 5.3 million subscribers last quarter. Earnings were a bit below expectations, but I don’t think that’s a big deal. Subscriber growth is the key metric, and guidance was actually raised for next quarter — to 6.3 million subscribers. Netflix is the obvious market leader in content streaming, and I don’t expect that advantage to go away anytime soon. Market leaders tend to keep leading unless a competitor manages to introduce a game changing product. There are competitors, but Netflix is really a staple of content streaming, with other services largely being seen as add-ons.

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STILL TIME TO GRAB $297
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Just a reminder about tonight’s follow-up live training session on Technical Analysis for Non-Technicians at 8 pm ET (5 pm PT). If you’re looking at this email, you’ve been notified that we are giving this course away to members. The non-member price is $297, and this has been our most popular course! You still have time to grab this for free by simply starting your 30-day free trial today. After today, this downloadable course will still be available — it’ll just cost $297. Even if you will not be able to attend tonight, the class is being recorded. You’ll be able to catch it later, after you’ve studied the course material. Check it out with the 30 Day Trial – https://stockmarketmentor.com/member-signup/?coupon=freetrialwebinar

See you in the forum in a while.

–Dan

Good morning. Today is the 30th anniversary of the 1987 market crash — Black Monday. It actually happened on October 19th, but what difference does a few days make? It was on a Monday. When I think about Black Monday, one word comes to mind: Risk. Here are a few thoughts:

I wasn’t trading 30 years ago. I was in the homebuilding business because real estate was booming. I remember driving to work with a buddy of mine when we heard the news on the radio. I remember him looking at me and saying, “Well, aren’t we glad we aren’t in the market? That’d never happen with real estate.” (Of course, 20 years later, it absolutely did happen to the real estate market — it just happened over a period of years rather than hours.)

There is risk in any investment you make. That’s just the nature of making money. When you have a job, you are trading your time for money. You are paid for your work…AFTER you’ve done the work. There is always a risk that you won’t be paid for your time. Bonds are considered “safe” investments. They don’t pay very much, and that’s because they don’t have much risk. But ask Puerto Rico bondholders how they feel? The high yield they signed up for was because of the increased risk of not being paid. But as it turns out, the high yield still wasn’t enough to account for the risk. They’ll collect pennies on the dollar.

So there is risk in investing in stocks, real estate, bonds and even time. The one thing they all have in common is that we want to make money for putting our assets at risk. There is no “sure thing” when taking risk. If there were, then it wouldn’t be risk, right? Have we learned anything from the 1987 crash, the popping of the real estate bubble, or the blowup of bonds in Puerto Rico. I doubt it. Because the focus tends to be on those specific events rather than the common thread that runs through them — risk.

When things are going great, the concept of risk doesn’t seem important. Equities keep moving higher and volatility is essentially non-existent. Complacency is everywhere. What could go wrong? Buy every dip. So far, that strategy has worked pretty well. As such, you’ve got to follow that strategy! If equities do indeed correct, take advantage of the correction and buy the dip. You’ll be able to do that if you’ve incorporated the idea of risk into you investing/trading activity.

We cannot control how much money we make. We buy stocks, but we do not really know how high they will go, or whether they’ll move higher at all. But we can control how much we lose. And we exert that control by defining the risk that we are taking. And when you find yourself thinking, “Oh, that’ll never happen”, you know that you are not accounting for risk. Don’t ever say that, and always account for risk. You’ll make more money by losing less money. It’s really just math.

See you in the forum.

–Dan

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ARE YOU COMING TOMORROW NIGHT?
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Don’t forget about tomorrow’s training session for “Technical Analysis for Non-Technicians”. This is a $197 course that we’ve made free to members. If you haven’t signed up for a free trial membership, why not do that today? Your risk is zero…and your potential reward is limitless. That’s a good trade.

Good morning. Stocks are opening slightly lower (yet again), and it wouldn’t surprise me to see the market close higher (yet again). This just seems to be the way of things in the current environment. But when the market direction seems soooo clear, the risk of typically the highest. As I noted last night in the Strategy Session, when considering the task of climbing the Wall of Worry, you are either part of the problem or the solution. If you are invested in stocks, then you’re actually part of the problem. Sure, you’re a cheerleader and are happily waving your pompoms as the bull runs. But you’re no longer of any help to the market. Rather, you are part of the ceiling that can kill the rally. The only thing you can do is sell. And the only question is “when”. If you are underinvested and carrying a lot of cash, you are part of the solution. You’ve got money to exchange for stocks, which increases demand. And when demand is strong, stocks move higher.

We need a healthy balance. We need some optimistic cheerleaders and we need some curmudgeons who are either pessimistic and have no intention of buying stocks right now, or are frustrated because they wish they were invested and fear missing even higher prices. It’s the balance between the two camps that keeps the boat level. But when everyone shifts to one side, the boat tips over.

Bullish sentiment continues to be quite high, which also increases the risk of a pullback as the group of optimists (potential sellers) overwhelms the group of pessimists (potential buyers). This will ultimately happen; only the timing and magnitude is unknown.

As long as we understand the dynamics at work, we can be comfortably invested by paying attention to each stock that we own, and setting fractional stops on those positions. By “fractional stop,” I mean avoiding the “sell it all” order by setting a series of stops — even two is better than 1 — at successively lower prices. Fractional stops create a balance between risk and reward. If the pullback is small, you might get hit on your first stop, but not the lower stop(s). You’ve cut your risk, but stayed in the game. If the pullback is more substantial, your stops get hit in succession. So the more “wrong” you are, the less risk you will have. This simple adjustment in your trading behavior will payoff over the long haul because you’ll be able to hold winning positions longer rather than get shaken out of the entire position during a normal pullback in price.

One other thing. Last month, Jamie Dimon launched into a rant about Bitcoin being a fraud worse than tulip bulbs, declaring that any JPMorgan employee who was caught trading Bitcoin would be fired for being stupid. This morning, in an article on cnbc.com, Dimon said that he would no longer be commenting on Bitcoin and noted that he “was reminded that we move trillions of dollars a day…digitally. It’s not cash.” (By the way, the Bitcoin market moves “trillions of dollars a day…. It’s not cash.)

A couple of takeaways. First, Dimon’s new “I’ll stay quiet” stance likely means that JPMorgan will be starting a Bitcoin trading desk soon to capitalize on the inordinately high fees made by market makers, not to mention the trading profits that can be made from trading this very volatile market. In an environment where volatility is basically non-existent, I don’t know how an investment banking firm can pass up the chance to participate in volatility on steroids. It just doesn’t make sense…particularly when you consider that a sophisticated trading firm like JPMorgan can reap huge profits if the Bitcoin bubble does indeed burst. Goldman Sachs is already considering starting a new Bitcoin trading operation, so Jamie needs to slowly and quietly withdraw from the conversation. Last month he said that any JPMorgan employee who was caught trading Bitcoin would be fired due to stupidity. That statement will probably come back to haunt him. When JPMorgan does open its trading desk, somebody needs to be fired for stupidity — and it might have to be the CEO.

By the way, Bitcoin broke through $5,000 and is now at $5,200. So the bubble continues to inflate.

I take no position on whether Bitcoin is a viable currency or investment. I’m just commenting on the abrupt change in stance by Dimon. Also, this change in stance should be a reminder that the most seemingly intelligent people who have megaphones often give the appearance of superior insight because they speak so emphatically. But often times, they’re just full of crap. Remember Mark Twain’s declaration that “It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”

See you in the forum.

–Dan

Good morning. Today is Columbus Day, so volume should be a bit below average due to the Treasury markets and banks taking the day off. But the futures are up and it looks like this helium lift will continue. There’s not much in the way of financial news this morning, so I’ll be brief:

Netflix (NFLX) is closing in on $200 and is likely to push through today. As recently noted, there is likely to be enough supply at $200 to keep the stock at that level for a while. Many traders will often use these even numbers as sell stops. “When NFLX his $200, I’ll sell.” This dynamic makes chart reading a bit easier because you can simply watch that level. If the stock stalls, you know why. Supply is sufficient to fill the demand. But if the stock instead keeps rising, you also know why. Demand is so strong that all the available shares at $200 have been absorbed and buyers are still interested in buying stock. I’m looking for higher prices. As I see the weekly chart, this isn’t a place where the prevailing uptrend in NFLX is likely to end. The R1 (first level of resistance) in pivot point analysis is $201.12. So that’ll be another level to watch.

Tesla (TSLA) is down this morning after Elon Musk tweeted on Friday (conveniently, after the market closed before a weekend, followed by a holiday) that the new Model 3 is being assembled by hand. There’s a bit more to it than that, but I’ll just leave that sentence alone because it says so much about so many things related to the company’s production estimates. The company recently published a production goal of 20,000 Model 3’s being produced each month by the end of the year. Obviously that’s not gonna happen. But no one is really surprised. The stock has been largely rangebound (in a very wide range) since the early June breakout. However, because this is Tesla, this type of pullback will likely prove to be another buying opportunity. Each time the stock falls on this type of news, it’s bought.

Mazor Robotics (MZOR) is also breaking out this morning, trading above $54 after last week’s high volume move on Wednesday. You can review Wednesday’s Strategy Session for my thoughts on the stock. This company is in the same industry as Intuitive Surgical (ISRG). The main difference is that Intuitive Surgical focuses on minimally invasive surgery, while Mazor emphasizes brain and spinal surgeries. Mazor is still losing money, but the picture is improving. The stock has been on fire since breaking out in mid-2016 at $12. Look at a weekly chart and you’ll see a dramatic increase in volume since last March. This represents institutional interest in the stock, and revenues have been increasing at a very rapid rate. I’m not worried about missing the move from $12 to $50. I’m more focused on catching the move from $50 to $100 (not a prediction at all; just a statement that a stock like this isn’t too late to buy. Rather, timing is everything).

Lastly, thanks to everyone who met up at Central Park on Saturday. It was a blast getting together with so many old friends (and a few new ones). I won the prize for traveling the farthest, but there were a few who definitely went the extra mile (pardon the pun) to attend. (We’ll be having a similar event on the west coast sometime soon, though the date is undetermined at this time).

See you in the forum.

–Dan

Good morning. We’re looking at a slightly lower open today. After six days of advances, it’s definitely time for stocks to take a breather.

Last night I saw an interview of President Trump wherein he said that the Puerto Rican bonds held by Wall Street was going to have to be wiped out. That was a bit shocking to hear, though probably not unexpected by those who have been following Puerto Rico’s debt issues. Puerto Rico has been broken for years, with corruption almost being a way of life for many public officials and private enterprises. Prior to the recent visit by Hurricane Maria, Puerto Rico was already in bankruptcy court, waging a fight with bondholders about the amount of debt that would be erased. If President Trump has just revealed the future, the bankruptcy proceedings might get a lot easier. “See this debt? Watch closely. Wait for it…wait for it…wait for it…. Are you ready?…Boom! It’s gone! And now for my next magical trick….”

While it’s easy to generalize about the debt being owned by “Wall Street”, the generalization ignores the obvious fact that “Wall Street” is actually comprised of a bunch of folks who are managing the money of any mutual fund investor. You probably know some of them — you see them when you’re going out to the mailbox to get your mail. They’re your neighbors.

The fact is that 20% of US bond funds own Puerto Rico’s debt (recent estimates are $73 billion). Some of the biggest holders include mutual funds run by OppenheimerFunds, Franklin Templeton, Goldman Sachs (GS), BlackRock (BLK) and T. Rowe Price. In total, more than 850 mutual funds own Puerto Rico’s debt. So, while those names might sound like “Wall Street”, the money they manage has been invested by Main Street. Many IRA’s and pension funds own Puerto Rico’s debt because of the tantalizing high yield due to the fact that buying Puerto Rico’s debt has essentially been a “hard money” loan (i.e., might be hard to get your money back). Most of the bonds are general obligation bonds that are triple tax exempt (no federal, state or local taxes on income).

I don’t see an opportunity to trade on the revelation that the current debt will likely be wiped out because investors were already in negotiations to take a haircut on the amount of money that would be repaid, and the initial reports of the damage caused by Rita put everyone on notice that they were unlikely to get anything out of this deeply indebted U.S. territory. The massive damage sustained by the millions of residents of Puerto Rico has been just breathtaking, and my heart goes out to all who have been impacted. The rebuilding process will take many years.

On a relatively happier note, we could be getting some movement this afternoon when Janet Yellen speaks at a conference this afternoon. As you probably know, there is speculation that her status as Fed Chair may be coming to an end. (I can almost hear the QE demons saying, “Next!”). It’s hard to know which way traders would lean if she does give some indication that she is a short-timer. Just thought I’d mention it.

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Are you coming this weekend?
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I’ll be in New York this weekend for our annual picnic in Central Park. We missed last year, but are back on track for Saturday. I’m looking forward to hanging out with anyone who wants to stop by. I’ve known several of our members for more than 10 years, so it will be nice to get together with some old friends.

Meanwhile, I’ll see you in the forum.

–Dan

Good morning. The market is set to open higher this morning and it looks like the rally will continue. As I noted yesterday, while virtually all indexes are hitting new highs (SP-500, Dow-30, Dow-20, Nasdaq Composite, S&P 400 MidCap Index, and Russell 2000 SmallCap Index), the momentum does not resemble the type of parabolic move that sucks the last of the bears into the market in one last gasp of buying activity. These types of parabolic moves can occur on individual stocks because the buying is concentrated — money piles into that specific stock for various reasons. At some point, the aggressive buying runs its course. Suddenly, demand completely dries up. Like Icarus who flew too close to the sun on wax wings, the lift goes away and gravity takes over. Put another way, when bids are few, offers are many. (Think Ambarella (AMBA) in July of 2015, where a steep move to $130 led to a 70% reversal that took the stock down to the mid-$30’s over the next several months.)

But it’s very rare to see the entire equity market make such a move because of the thousands of stocks and ETFs that attract money. Currently, there is still a lot of bearish sentiment out there. One of my favorite sentiment indicators is the “Smart Money / Dumb Money Confidence” indicator, a proprietary indicator originated by Jason Goepfert at SentimenTrader.com. The Smart/Dumb indicator reflects what the “good” market timers are doing compared to what the “bad” market timers are doing. Where there are a few opinions in the calculation, most of the components are real-money gauges. Not “what do people think?” Rather, “what are people doing?” It takes into account such things as the OEX put/call and open interest ratio; money flow into/out of Rydex mutual funds and small speculators in equity index futures contracts. Put another way, the index compares what the emotional money is doing relative to the rational money.

Its real usefulness is at extreme dislocations between the smart money and the dumb money. When “dumb money” is extremely bullish, and “smart money” is extremely bearish, the market is ripe for a reversal simply because bearish smart money equates to lots of cash looking for an excuse to buy–but not yet finding a reason–and dumb money is fully invested. Retail investors are “all in”, and are now cheerleaders.

When retail traders are all-in, and professional traders are mostly out, it’s inevitable that we’re at a market top.

That’s just not the case now. While “dumb money” is more optimistic than “smart money”, there is just not much difference between the two indicators. And when the difference is small, the prevailing uptrend tends to continue. Think of it this way: There’s a party going on in the market, and it’s fun to be there. But nobody is hanging from the chandeliers or jumping in the pool fully clothed with a cocktail in their hand.

But with that said, and I hate to be a buzz kill, the MidCap and SmallCap indexes have made very fast and steep advances since the August lows. So it wouldn’t surprise me to see stocks take a rest sometime soon as this round of buying runs its course.

If we do see this type of pullback in the market, I think it’ll lead to a buying opportunity.

My suggestion: Focus only on those stocks that are in sustainable uptrends or are taking a breather on light volume, and consider putting a portion of your cash in the S&P 500 ETF (SPY). It’s then easier to maintain broad market exposure while concentrating your attention on fewer stocks.

I’ll have more to say about this tonight in the Strategy Session.

See you in the forum.

–Dan

Good morning. Futures are down today after a big party yesterday as traders responded to the new proposed tax reform plan. The usual aftermath of a widespread breakout is a pullback. So much money is put into the market at the same time that the resulting move in stocks makes them less attractive at yesterday’s prices. The aggressive money has been exchanged for stock, and the more prudent money decides to wait for the buzz to subside. The ultimate result? A bit of a hangover.

Just a couple of thoughts on the proposed tax plan….

1. Predictions that economic growth will, or will not, result from targeted tax cuts are about as worthless as the Zimbabwe dollar. The FOMC’s is batting 1.000 in predicting the impact of monetary policy on economic growth, inflation, and the unemployment. And those folks are supposed to be some of the smartest economists around. The problem is that they all studied the same stuff in school — and it’s the wrong stuff. So whether or not the new tax plan will have the intended impact is unknown. Period.

2. If international business are able to repatriate overseas cash at a low rate, the megacap stocks like AAPL, CSCO, QCOM, AMGN, and MSFT will benefit.

As for today, Thor Industries (THO) reported strong earnings and is up nearly 4% pre-market. Given the pre-earnings run up in the stock price, it makes sense to be taking profits into this climax of buying — at least partial profits.

Also, just a reminder that the biotech sector is in a squeeze. Check out the SPDR Biotech ETF ($XBI). I’ve got an alert set at $85.50 — just slightly above current levels. A move to that level will likely happen today, and that just MIGHT lead to a breakout.

You might also want to watch Boeing (BA). Theresa May is threatening to blacklist Boeing after the US imposed a tariff on the Bombardier passenger jet. I think the market has been anticipating this event for the past week or so because Boeing has been rolling over. We have a bearish position on BA in the Option Market Mentor trade ideas, and it’s doing well.

See you in the forum.

–DAN

Good morning. I’ve had some internet connectivity issues this morning so I’m getting this out a bit late.

The market has opened higher this morning and the FAANNG stocks are all up a bit. There is still an underlying bid for the leaders. Many traders may be nervous, but few seem eager to sell. A few days ago, it was starting to look like the market was in trouble because of the steep decline in the Nasdaq. That has been disproved by the current market moves, including new highs by the transports and small caps, and the S&P close behind.

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STOCKS TO WATCH
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Last night I analyzed a few stocks that were breaking out of squeezes. You might check YY, Inc (YY), which broke out yesterday is giving back some of its gains, but is still above $80, which is a critical level. Also, Rollins (ROL)_ and Garmin (GRMN) are working. Nutrisystem (NTRI) seems to have its belly fat under control and is lifting back above the 50-day moving average and seems to be at the tail end of a two month consolidation.

Also, Equifax (EFX) continues to rebound from a deeply oversold level. The stock is pretty extended and I think this move is close to being done. The stock opened around $125 after the data breach was reported and traded clear down to $90. Do a Fibonacci retracement analysis and you’ll see that the stock is right at 50%. There’s no indication that this marks the end of the move…but it is a factor in exit strategy. At this point, the stock doesn’t get much room before exiting.

I’m heading over to the trading room and hope to see you there.

–DAN

Good morning. I don’t have much to say this morning because nothing much happened over the weekend that’s relevant to stocks. Stocks are opening down just slightly this morning as we enter the last week of the third quarter. The last time the S&P 500 and Dow-30 printed a losing quarter was two years ago and the streak will remain intact. This weekend I mentioned that the underlying breadth in the market remains strong. With Friday being the last trading day in September, stocks are likely to tread water this week as traders look forward to a busy earnings season.

Much of the news flow related to non-market issues. None of that interests me.

What is interesting is that all of the FANG stocks are down this morning, which doesn’t bode well for the bulls.

Apple (AAPL) is down this morning and trading at $150/share. This completely fills the gap from early August and puts the stock at a critical technical level. As you probably know, the new Apple watch has an inconsistent cellular connection, and the new iPhone 8 is being purchased by basically…no one. Given the multi-month, sideways trading range between $150-$165, this is a major problem for Apple because investors will be making a judgment about whether this range is merely consolidation before the next move higher. Pay attention; it matters.

Facebook (FB) has opened below its 50-day moving average and I was stopped out of a small position based on the thesis that the stock would hold up at $170. I’m fine with that small loss. Small losses are a part of trading, while large losses are a reflection of a lack of discipline, or failure to have a plan before entering the trade. Mark Zuckerberg’s push to create a separate class of shares to allow him to control the company even though he is a minority shareholder has failed, and that’s kind of a big deal.

Ultimately, a rotation out of the FANG group is a healthy thing for the market, though it is definitely a bad thing for those stocks. I will be watching them closely this week.

See you in the trading forum.

–DAN

Good morning. But it’s not a good morning for some of the leaders in this rally. Apple ($AAPL) has an iPhone that has connectivity issues — and connectivity is the key selling point! This morning, Raymond James published the results of a supply-chain check which indicate that the iPhone X will start production later than consensus estimates. The stock is down slightly in pre-market trading, but it’s now below the 50-day moving average. Today’s close will be critical for the stock. The current reading for the 50-day moving average is $156.80. If you’re a bull, you’ve got to root for a close above that level.

Also, Tesla ($TSLA) has entered into a partnership with Advanced Micro Devices ($AMD) to develop a custom chip for a self-driving car. That’s great news for AMD, and for the traders who got inside information on the deal and pushed the stock up nearly 7% during the last 10 minutes of trading. The stock is lower than it traded in post-market trading last night, but is still up over 2%. Nvidia ($NVDA), meanwhile, is down about 2%. A 2% drop isn’t alarming…but it does start the gap-filling process and creates more overhead resistance.

I’ll be covering all of this in today’s trading forum, and will go into more detail tonight.

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POWER CHARTING TRAINING
==========================

Quite a few traders recently took advantage of the Power Charting course which covers profit-making trade tactics based on very specific price behavior and patterns that have been proven to generate the highest probability trades with the most potential for big gains. I call these rare charts “Power Charts!” When the right setup is there, the move can be powerful!

I don’t just teach you how to spot a power chart; I teach you how to find them! You can’t trade ’em if you can’t find ’em, right? So I’ll teach you some scans and screens to find the best charts with minimal time.

The entire course is over 8-hours of instruction on using indicators such as Keltner Channels and Bollinger Bands, ADX, Directional Movement Indicators, MACD, key momentum indicators that get you in just when the trade starts to work, and warn you when it’s time to take your profits. You’ll also get instruction on the proper use of volume analysis to stay away from faulty setups and pile in to strong patterns and the right time to get the most out of the trade. I also cover STOP placement to ensure that you are managing your risk in a way that allows your winners to run, and takes your losers out early. The trick to stops is that you’ve got to give the stock room to oscillate so that you don’t get stopped out just before the big move occurs, or sell too early just when the trend is forming.

Your workbook is over 250 pages, so you’ll have the concepts right in front of you. You’ll be taking notes on every page.

This is truly a powerful course that is assured to improve your trading and get you to the next level. This Saturday, I will be teaching a follow-up class on Power Charting at 11 am ET (8 am PT). Hundreds have recently gotten in on this course, and there’s still time for you to jump on too. Dedicate some time between now and Saturday to get up to speed, and I’ll fill in all the blanks for you on Saturday. This is a downloadable course, so you can start anytime. And if you don’t have time to view the whole course before Saturday, come to the session anyway. The workbook is over 250 pages, so you’ll

And if you are not a member, you’ll be able to start your free 30-day trial and grab the course at a 50% discount off the regular $697 price. With this “fill in the blanks” session on Saturday, you will get nearly 10 hours of instruction geared to increase your profitability.

Use the link below to start your free 30 day trial and unlock the Members price:

https://stockmarketmentor.com/offer/power-charting.php

If you’re happy with your current trading results, then skip this class. But if you think you can do better and are tired of just treading water, then this course will ramp up your trading results — guaranteed. If you disagree, just let me know and you’ll receive a “no questions asked” refund.

What students are saying:

“I’ve been trading for 5 years and have always used those indicators (MACD, Stoch, RSI) Having you explain them and how to use them to see the divergence has really helped me get a good understanding just in swing trading. I’m sure it will help be tremendously on my long term. trades too. Thanks for teaching the class and keeping it affordable. You could have charged an arm and a leg for that class and I thought the price was very generous.” Travis R.

“I’ve been an SMM member for years and Power Charting has been, by far, the best training Dan has done. His level of preparation really shows and he’s so good in front of the microphone. The training was excellent and while four hours would normally have me running out of the room screaming I remained cool and calm; taking notes and considering how to improve my own trading.” Greg H.

“I found the webinar to be a real learning and relearning experience. I will keep the download for reference, with the workbook, well named. I am eagerly awaiting next Saturday. PS: This will make Dan happy. The correct use of “STOPS” has saved me thousands of dollars. I’m now a firm believer. ” Ray R.

This course is seriously mispriced, but I wanted to put something together at a very low price so that anyone striving to trade like a professional can learn the tools at a low price.

Hope to see you there!

–DAN

We’ve got a pretty flat open today as traders wait for the decision from the Fed at their policy meeting. For a while now, they’ve been saying that we’d see another rate hike this year, bringing the number of interest rate increases in 2017 to three. I’m sure they’ll also give an indication of the number of rate hikes next year. The Fed’s forecasts for the economy are rarely correct. Honestly, I can’t remember one forecast that was even remotely in the vicinity of accurate. However, the forecast is important because it indicates what the Fed may do in the near future — and THAT is something that has a big impact on the flow of money…and the flow of money is a big deal because the direction of money is what pushes stocks up or down.

So, as with many things in the market, news is always relevant, what what is more important is the reaction of traders to that news.

But beyond the question of rate hikes and economic forecasting, traders will want to know whether the Fed is going to begin the process of shrinking its $4.2 trillion balance sheet. The way the Fed shrinks the balance sheet is simply refraining from putting money received from maturing bonds back into the bond market. When the money is reinvested, bond prices remain elevated, and yields remain low. But when the money is not reinvested, the bid in the bond market shrinks a bit and prices should come down — which pushes yields higher.

For you non-accountants, buying bonds results in an increase of the “accounts receivable” of the Fed’s balance sheet. When the money is paid as a bond matures, the accounts receivable drops by the amount received. Duh. If the Fed then reinvests the money back into the bond market, the accounts receivable goes back to where it was prior to the receipt of money from maturing bonds and the balance sheet remains unchanged. If the Fed does not reinvest, the balance sheet shrinks because the “accounts receivable” number falls.

On the most basic level, this decision is what traders are waiting for. To shrink, or not to shrink?

A shrinking balance sheet allows rates to rise in the direction of a free market (an ancient concept rendered irrelevant by Ben Bernanke with his helicopter full of money). And rising interest rates result in greater profits for lenders — banks!

This possibility is likely at least partly behind the recent lift in banking stocks. So if the Fed announces that the process of shrinking the balance sheet will indeed begin, look at the banks. You’ll probably want to own some of them — and we’ll be picking through them to find the best technical pictures.

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TODAY’S TRAINING SESSION
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Don’t forget about today’s training session at noon eastern time, and 9 pacific time. If you’ve got any stocks to discuss, let me know. I always appreciate it when requests or comments are sent to Gary prior to the session. (Gary@stockmarketmentor.com) I then review them prior to the session and can address the questions at the front of the session.

Hope to see you there.

–DAN

Good morning. Futures are pointing to a relatively flat open, and the market remains choppy and volatile, albeit with an upside bias. The S&P has advanced nearly 4% since the last low on August 21st, when this key index rebounded precisely off the 100-day moving average.

The big news today is a pending speech by President Trump to the United Nations. While I’m sure it will be interesting, and it is nice to see ideas fleshed out beyond 140 characters, I just don’t think the speech will move the markets one iota. As such…”Objection, Your Honor. Irrelevant!”

Some stocks to watch:

Equifax ($EFX) has admitted that the recent security breach isn’t even the only one they sustained this year. They just decided to let everyone know about it. An earlier breach was discovered in March, and they consulted FireEye ($FEYE) to investigate. Of course, no word on whether your data was stolen back then. I’m sure you can find out if you sign a contract waiving your right to sue for damages.

(By the way, on the day that Rick Smith, CEO of EFX, released a video telling 143 million Americans about their identity being stolen, he said that the company would not be remembered because of the theft. Rather, they would be remembered for the way they responded to the theft. Given the tragically sad and inept response of Equifax, I have to agree with Rick. After I viewed that video, I predicted that the guy wouldn’t make it until Halloween before he was shown the door. Now…I think the only reason why he’s still got the big office is because of a pending testimony before Congress. The company doesn’t want to fire a guy who is about to spill the beans in a public forum. But I’m standing by my prediction — he’ll be wearing a clown suit on Halloween.)

As noted in last night’s Strategy Session, I don’t think your trade in the credit collecting business is Equifax, TransUnion or Experian. I think it’s Symantec, which is owns LifeLock. Are you gonna take a free credit monitoring service offered by Equifax, or are you gonna go to the name that you’ve been hearing advertised on the radio for years: LifeLock? I don’t know the answer to that; but I do know that sooner or later, you’re going to subscribe to an identity protection service. And LifeLock is a major player in that space.

Technically, the stock looks like it’s ready to make another move higher. It is overextended with strong upward momentum. The stochastic oscillator has been overbought since August 24th, and the stock is up 15% since then. A stock that gets overbought and remains overbought is a stock that you want to own — only the entry is unknown.

It’s currently trading in a tight range between $32.50 and $34 (about 3.5%). One could make the case for a bullish “cup and handle” pattern; but I think that’s pushing it. Instead, let’s focus on how many times the stock has rebounded decisively off the 200-day moving average: three times since early July. Since May, the bigger channel has been more than 20% wide. So this is, if nothing else, a volatile stock. There is no “volatility squeeze” that can produce the kind of juice that propels the stock higher. Instead, I think it’s just flat out demand for the stock. Because it is volatile, discipline is required. Don’t just buy and cross your fingers. Wait until the stock breaks above $34 on heavy volume. If it doesn’t do that…then don’t buy it. That’s an easy trade to understand, right?

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Upcoming Events:
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I’ll be hosting a trader training workshop tomorrow at noon eastern time (9 am PT).

I will also be teaching a follow-up course to the Power Charting course that so many of you just got. We will review the material, and then focus on any questions you have to make sure that you get the most out of it. This course will improve your profitability. No question about it. It’s tight. It’s specific. And it’s exclusionary. What I mean by “exclusionary” is that I don’t cover crap that doesn’t work. We look specifically at indicators and patterns that have a proven track record of profitability. I respect your time. I’ll give you what you need to know…and what you want to know. Period.

Our annual picnic in Central Park is coming up in just a couple of weeks — October 7th. Please let Aragorn know if you are going to make it. These are always fun,…and Gary and I do travel to New York specifically to meet our members. It’s an honor for us to get together with you, so I hope you can come. I’d love to shake your hand and get to know you.

See you in the forum.

–DAN

Good morning. The futures are pointing to a slightly higher open yet again, with the S&P poised to open at a new all time high. You’re never wrong when you trade with the prevailing trend. Everything else is just timing. A prevailing characteristic of this market has been breakouts that are sold into. We’ve seen it time and time again, which is why the major indexes are generally stuck in trading ranges. At some point, that’ll change. The bias is with the bulls, and the direction taken by AAPL after the product presentation this afternoon (1 pm ET) will be a major market mover. A strong move will push the Nasdaq 100 to new highs, while a selloff will drop the Nasdaq right back into the trading range.

Learn to read charts efficiently. Do you get the local newspaper delivered each morning? I do, because that’s the only job my dog Tonya loves — she saunters down the driveway each morning and picks up the paper…then carries it back into the house before retiring for the rest of the day. When I actually read it, it takes me about 5-10 minutes to get through the whole thing. Every section of the newspaper. Boom! Done!

How can I get through it so fast? Because I know what I’m looking for. I quickly scan headlines. Bam! 90% of what’s in a newspaper is just crap. It’s just filler between the ads. I recognize it without even thinking about it…and I don’t spend another second wondering whether I should read the article.

If I do see an article that I want to read, I can get absolutely everything I need from the first paragraph…and then skimming the remaining paragraphs for names or applicable words. Most time, the first paragraph is all I need to read.

Frankly, I think Tonya spends more time with the newspaper than I do, because we have a long driveway and she walks slow. But I get what I need…and it doesn’t take me very long.

Charts are like that. Every stock has a chart. If you want to look at the charts of the S&P 500, you’ve got to study 500 different pictures…or 1000 if you want to study two different time frames. It can take hours to get through them all. But if you know exactly what you’re looking for, each chart is like a headline in the paper. Just glance at it and you’ll know whether you want to look closer. You can breeze right past the crud to get to the good stuff.

Chart efficiency doesn’t require knowledge about every single pattern. It requires an intimate understanding of only the things that matter. You can learn this in my “Power Charting” course. This material teaches you what you need to know about the patterns that work. It is not a course for someone who wants to learn everything there is to know about chart patterns so that they can become a “Jack of All Trades.” This course enables you to become a “Master of One” — learn what you need to know to make money; to trade profitably; to improve your stock selection! A critical aspect of trading that is often overlooked by traders is the importance of timing on stock selection.

1. This is the right stock for me…and it’s the right time to buy it.
2. This is the right stock for me…but this chart indicates chaos, and I’m not a gambler; I’m a trader.
3. This is the right stock for me…but it is standing on very thin ice and gaining weight. No thanks.
4. This is NOT the right stock for me and I’m not going to spend another fraction of a second thinking about it. Next!

Learn to get what you need quickly, so that you can get on with the business of trading profitably.

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TODAY’S TRAINING SESSION:
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Today’s live training session begins at 11 am ET (8 am PT). We will look at the real foundation of the current market structure, as well as current trading opportunities around the Equifax data breach, and a few stocks with very profitable technical setups like Tesla (TSLA), Alibaba (BABA), and one retailer that’s paying a dividend that puts the stock in the buy zone. If you are not yet a member, grab a free trial and you can attend today.

See you in the forum.

–DAN

Good morning. Sixteen years ago today the World Trade Centers were hit in the worst attack on our soil in history. Each year, the anniversary of 9/11 prompts me to consider my blessings, which are many. My thoughts and prayers go out to those who lost family or friends in this tragedy.

The futures are up a bit this morning and we’re set for a slightly higher open, albeit still in the interminable trading range. Six million people are without power in Florida and the damage caused by Irma and Harvey to Florida and Houston is extensive. The resilience of the market is actually pretty amazing, and it would not be advisable to short it in anticipation that these natural disasters will bring it down. The charts tell you what you need to see. They reflect the perceptions and expectations of traders. The collective group of traders involved in the stock market make decisions every day. They don’t get together in a room or Skype call and decide how they’re going to trade…but they do, in the aggregate, vote on the direction of equities each day. And so far, it’s a close election.

It doesn’t pay to anticipate the outcome; but it does pay to be observant and patiently wait for opportunities. You don’t make opportunities; you identify them, and act on them.

A few stocks I am watching today:

Thor Industries ($THO) and Winnebago (WGO) are in similar patterns and close to breakout points. If past natural disasters are any indication, both of these companies will be getting a lot of business from the government as efforts are made on behalf of those who are now without a place to stay. This notion is not a surprise. And since both stocks are close to breaking out, it really doesn’t pay to anticipate the breakout. You’re not getting that much of a head start; and you also risk losing money if the stocks do NOT break out. Wait for it; don’t anticipate it.

Apple ($AAPL) is hosting a new product roll out event tomorrow morning at 10 am Pacific Time. The stock typically falls after a product roll out. Unless you are a long term holder of the stock, I’d suggest that the traders simply wait for a direction before acting. After all, the event is happening during market hours. There will be no gap. (My bet is on the bears…though I don’t have any chips on the table).

Equifax ($EFX) stock is stable this morning. I’ll be watching this stock every day. The upward momentum in this stock actually peaked during the third quarter of 2016. While it recently hit a new high, there was institutional distribution during Q416 that took the stock down to $110. Honestly, I don’t see how this company survives. You don’t screw 134 million people though incompetence (10 year old servers were protecting your data. 10 years old! And the CEO, Rick Smith? Oh, he took the reigns

The class action suit is estimated to be about $700 billion (I’m surprised it’s not more). The company’s market cap is $17 billion. That’s a pretty big delta to absorb, and I don’t anticipate too much evidence that politicians will try to save the company. Lobbyists for the credit companies, including Equifax, have been lobbying Congress to kill a rule CFPB protecting victims of data breaches by outlawing forced arbitration laws. So far, they haven’t been successful. That’s dead now. Nobody in Congress is going to risk ticking off every single person who has ever applied for a loan.

If EFX falls below $120, I think it is a very strong candidate for a short. If Arthur Andersen had been a publicly traded company, that would have been the short of a lifetime. Everybody remembers what happened to Enron. While there’s no evidence of fraud here, there is plenty of evidence of a pervasive cavalier attitude among the executives in the company. And that nonchalant attitude has created an identity theft crisis the likes of which no one has ever seen.

Symantec ($SYMC) owns LifeLock. I think SYMC will be the beneficiary of this event (aside from the law firm bringing the class action suit). That stock was up 3.4% on Friday, but closed near the low of the day. But I’ll be watching this for a breakout above $32.50.

OK, see you in the forum.

–DAN

Good morning. One of the things I pay attention to is headlines. At the end of the day, it’s interesting to see what financial publications think of the day’s action. While I am in the market all day, there might be something I miss. I rarely have the TV on during the day (and less and less in the evening — I guess my Dad was prescient when he used to call it the “idiot box”). Because I’m “dark” during the day, I might miss some valuable insight shared by someone else. We shouldn’t trade in a vacuum. No matter how smart any one person believes he/she is, the intellect pales in comparison to the Crowd. So you’ve gotta be open to the views of others…and to the data they share.

But for various reasons, I just don’t like to do it during the day. With very few exceptions, critical, time sensitive information is rarely…and I mean RARELY…shared during the trading day. When you hear someone on CNBC talk about a particular stock that is moving for whatever reason, the move is already underway. You’ve missed it (or most of it). And do you really want to become a day trader because of something that’s said on TV? Again, the meat of the move has already been digested by the market. You’re left with the scraps, where the reward is small and the risk is big.

But I do look at headlines and “big picture” articles. One that stood out last night concerned the 50-day moving average. One reason to be bullish is because the S&P and the Dow-30 held above their 50-day moving averages. Well, they did. But if that’s a reason to be bullish, then shouldn’t we have been bearish on August 10th and again on August 16th? Because on those days, the S&P closed decisively below that key, intermediate term trend indicator…and on pretty good volume, too! And since the selloff on August 10th, the 50-day moving average has nearly flatlined — up less than .02%. (that’s not 2%. It’s 2/10ths of one percent).

I think it’s important to recognize the trend and to avoid at all costs the temptation to predict the future. The trend is higher. I went into detail on this in last night’s Strategy Session. Feelings are great in romantic relationships and picking up very hot objects. But just feeling like the market is going to go lower and break a multi-month trend isn’t going to make you money. These key indexes are indeed above their 50-day moving averages. But sadly, the Midcaps (MDY) and small caps (IWM) are not. Nor is the financial sector ($DJUSBK, $XLF). Nor are the consumer discretionary (XLY) or the consumer staples (XLP). (The XLP and XLY are knocking at the door…but that’s after some key breakdowns).

My point is that there are arguments for higher prices and for lower prices based on the technical picture. Don’t be sucked into someone’s argument just because it agrees with what you hope will happen. And don’t ignore someone’s argument because you don’t like that person, or because that person is notorious for being a great trading signal — to do the opposite of what he suggests. Instead, consider all arguments and observations. Then, apply everything to what you have learned; to your experience.

As you gain experience you’ll take a lot of things into account, even though it may be subconscious. And then you’ll arrive at your own view. But this is where the work starts. It’s not over. Once you’ve made a decision, always be open to the fact that you’re wrong. There’s nothing wrong with being wrong. That’s true in trading, and in life. But have you ever known someone who refused to ever admit that they were wrong? It’s exasperating. Don’t be that guy. If you’re wrong, then admit it. Embrace the horror of your own fallibility.

When you realize you’re wrong, do the right thing…and change your mind. It works in trading; and it works in life.

–DAN

Good morning. First, don’t forget about the training session at 9 am Pacific Time (Noon Eastern). We’ll be looking at the market as well as some key sectors and stocks that should be an important part of your trading day.

The news of the day is the renewed interest by President Trump of getting a tax reform deal done after Congress comes back to work from their latest vacation. Boy, I’ve gotta say that Congress has a LOT of pressure. Imagine how difficult it is to get to 130 days per year of work when you’ve got so much vacation? That’s something that they deal with constantly. “Gotta get back to work! Gotta get back to work! OMG. Gotta get back to work. I think I’m going to cut my 6th vacation this year a little short. There’s work to be done.”

And is the tax reform deal going to lower taxes? No. It’s going to raise them on high income tax payers. That was the campaign promise…well, not really.

Harvey continues to take its toll on Houston. We were watching some of the carnage last night and trying to imagine all of the challenges and tragedies that these people are facing. It’s truly unimaginable. So many things we take for granted can be taken away in the blink of an eye. My prayers are going out to all of the people who are affected by Harvey, and that they come through this safely and with a deep respect for each other. Disasters don’t differentiate between political affiliation. It’s inspiring to see people come together to help each other.

The open is pretty flat today, with the Chinese internet stocks ($TEDU, $MOMO, $TAL, $EDU, $NTES, $WB) being the top performers on my list.

See you in the trading forum.

–DAN

Good morning.

Futures are down by quite a bit this morning, with the S&P set to open down 15 point, and the Nasdaq down around 50 points. North Korea lobbed a missile over Japan after the close and the Dow futures immediately opened down 100 points. This sparked selloffs in Europe and Asia. The uncertainty about what the North Korean rogue regime is going to do seems to be reaching a fever pitch. It’s finally starting to hit the markets.

But there are other reasons for the weakness. The latest episode of “Raise the Debt Ceiling” is upon us and nobody really knows how it plays out. Always a lot of rhetoric and jawboning on both sides. But in the end, we all know how it’s gonna work out.

I’d like to tell you whether this is a buying opportunity or not, but there’s no way to know until the market opens up. You are probably mostly in cash, and this is your reward. The ugly open can provide some great trading buys, and I encourage you to visit the forum to see what everyone else is doing. Many eyes spot a lot more opportunities.

This is one of the days when taking a few minutes to check in can translate to dollars.

On the earnings front, Best Buy (BBY) reported earnings that seem to be pretty good. The reason I say “seem to be pretty good” is that they beat on revenues, earnings, and comps relative to last year’s second quarter —but the stock is down 2.5% from yesterday’s close…and is still falling.

Here’s how the post-earnings action played out. The stock closed at 62.47. Earnings results were reported and the stock immediately ran up to $67

After an initial move higher from $62 up 7% to $67. It then fell , the stock is down 10% from $67 to its current low of $60. So the stock has made a very wide ranging round trip. I’m covering this because I often say that the first move is typically the wrong move. Maybe its algorithms acting in a microsecond based on pre-programmed numbers; or maybe it’s eager traders who see numbers that are either better or worse than expected and they act accordingly. Or maybe its both. Irrespective of the reason for the first move, it’s important that you understand that you are probably not getting ahead of the market by jumping on pre-market moves.

Trading between the bells is what we need to do. Your biggest profits will occur in the morning, whether you are buying a stock right, or taking profits. Most of the action is between 9:30 and 11:00. If you can master that part of the trading day, you’ll be fine.

See you in the forum to trade this very weak open.

–Dan

As is typical after two days of selling, the Nasdaq futures are up about 14, and the S&P up about 4. So it’s not a big enough jump to present any opportunities by itself, but the strength does delay the onset of a more meaningful correction. And there are a couple of other related data points that contribute to a bullish thesis.

First, I was doing some work over the weekend, studying various chart relationships and trying to find some valuable insight into the relationship between the % of stocks above their 200 day moving average. Virtually any breadth indicator can give you some insight into the equity market because it enables you to look into the guts that make up this living, breathing indicator. It is not just a line drawn by opening, high, low, and close prices. A breadth indicator takes all of that information and parses it with the same information in every single listed stock, parsing that data to come up with a single data point each day.

Since it is an average of so much data taken from so many stocks, you might expect it to be quite smooth as one stock cancels out another on many comparisons. Not true. This breadth indicator is quite volatile and presents a LOT of extreme moves (which reflect extremes in the majority of stocks that make up the indicator. And those extreme moves give us insight into the general condition of the market. And the chart, when viewed from a wide distance which encompasses a lot of data, reveals the typical reaction to these extreme conditions.

So by looking at this “%stocks/200dma” indicator, we’ll have an edge.

I’ll cover this in tonight’s strategy session and show you how it can make a difference in your trading results. Better decisions, better actions, higher profits.

See you in the forum.

–Dan

Good morning. The futures are up a bit this morning, with the Dow Jones Industrial Average set to open up 63 points the S&P up 6.5 points, and the Nasdaq Composite up 21.50. As I’ve recently mentioned, the rebound in stocks after last week’s big selloff should be viewed with skepticism. After a big selloff that results in a large cash position, it can be tempting to start plowing it back into the market when the selling abates. Sometimes that’s the thing to do — and sometimes it’s not. I think you’ve just got to be very stock-specific and keep the number of stocks you are holding limited to a reasonable amount that allows for easy management. If a stock is working, then stick with it and even add to your position. Remember, the ultimate goal of a trader is to get alpha. Alpha is outperformance.

The retail sector is up this morning after several retailers reported earnings that weren’t terrible. Keep an eye on Abercrombie & Fitch ($ANF) and Dollar Tree ($DLTR). Both are trading much higher this morning. They may present shorting opportunities. It is always a big risk to buy stocks that are gapping up more than, say 5%. Typically, they will correct as professional traders lift their offers and force buyers to pay higher prices. Then, once the market opens, they sell as much stock as anyone wants to buy because they know that the demand will ultimately wane and prices will fall. They can then cover their shorts for a nice profit.

But while this is a typical scenario, it’s not a cinch. Sometimes those gaps turn out to be the start of a big move. Demand is stronger than sellers thought. They have to rush to cover their shorts, which pushes the stock even higher.

Happily, you don’t have to place a bet on the direction. You can wait to see whether the opening print will hold up or break down. It’s quite an advantage. Think about it this way: Wouldn’t it be nice to be able to bet on the Mayweather v. McGregor fight after the first round? Vegas doesn’t let you do that; the market does.

So if you’re an active trader, then wait until after the first round. Also, check out the pre-market trading behavior where $ANF is actually trading down 66 cents from its reaction high, while $DLTR continues to trend higher.

See you in the forum.

–DAN

Good morning. The futures are dipping a bit this morning, which isn’t really much of a surprise. Last night we were discussing the “3 Day Rule of Thumb” in the Strategy Session. Market breadth has been narrowing for quite some time. By itself, declining market breadth isn’t the biggest deal. Yes, it’s a yellow flag because of what it indicates — fewer stocks are moving higher, and more stocks are moving lower. So money is starting to concentrate in an ever-shrinking number of stocks, while the stocks that are being discarded are sinking.

This is best seen by the advance/decline line. The A/D line printed its first lower high on August 1st. While the major indexes were still relatively flat, and the Dow-30 went on to print a new all-time high on August 8th, the number of stocks still under accumulation was noticeably on the decline. Again, this is definitely something to monitor. But as long as you are in the strong stocks, you’re fine. I discuss this on occasion — when there are fewer stocks to choose, then it’s actually a bit easier to choose the right one. If Baskin-Robbins expanded its list of ice creams to 310 flavors, I’ve gotta think that going into that store would be a bit stressful. Soooo many choices. How do you know which one is best? They give you a little sample of anything you’re interested in. So if you start sampling everything, you consume 2,500 calories before you even make a decision. (Kind of like racking up thousands of dollars in commissions before you are able to find the stock that you can just stick with).

So when the list of choices is small, it’s a bit easier to be where you want to be. And it’s also a bit easier to know when it’s time to go.

Be aware of the health of the semiconductor ETF ($SMH), the technology ETF ($XLK), the financial ETF ($XLF), the consumer staples ETF ($XLP), the metals/mining ETF ($XME), the Retail ETF ($XRT) and…sigh…the energy ETF ($XLE). You’ll see that retail and energy continue to search for the basement, while metals seem to be stabilizing and just might be ready to move higher. SMH and XLK are looking surprisingly strong after a couple of shots across the bow during these past couple of months. The financial sector (XLF, $DJUSBK) is also in a holding pattern — where it’s been since March.

So, looking at the big picture, there is nothing truly amiss in the market. Breadth is declining, but aside from energy, nothing is really cratering. Lots of yellow flags, but no big red ones.

I’ll discuss this in today’s training session at noon ET (9 am PT), along with many of our stocks that are still working. We’ll also discuss the importance of understanding risk. If I had to pick one mistake in trading that is always fatal, it’s not picking the wrong stocks. It’s not trading too much. It’s not even failure to use stops. The one mistake that will ultimately end your trading activity and lead you to the inescapable conclusion that “the market is rigged, and no one can make money” is the failure to appreciate risk. Even if your probability of profit on a trade is very high, it’s never 100%. So if you are trading with very large position sizes relative to your portfolio size, you’ll ultimately meet disaster because, at some point, the probabilities will go against you. That 1-in-10 chance that the trade will go against you will ultimately bite you. The 10% chance of disaster will wipe you out…when that 10% reveals itself in your latest big trade.

By managing risk and building the worst case scenario into your trading actions, you keep yourself in the game, even during those times when the game is going against you. If you learn nothing else, this is the most important element of trading in your skill set.

See you in the forum, and at the training session at noon.

–DAN

Good morning. The futures are higher this morning, which should be expected after yesterday.

1. The S&P 500 was testing the 100-day moving average and rebounded into the close. I typically don’t look at the 100-day moving average, but since the various indices ($SPX, $DJI, $DJT, $MDY, $IWM, $NDX and $COMPQX) have been all over the place relative to their positions in the last 6-8 months of trading, I’ve expanded my moving averages to get a sense of which indexes (and sectors) are strong relative to the others. But the S&P rebounded off the 100-day MA; the Dow-30 rebounded off the 50-day moving average, and the Nasdaq 100 closed below the 50-day moving average for the 3rd consecutive day on declining volume. It is now back above that key moving average in pre-market trading.

2. So, the broad market is set up for a technical bounce. And in all cases, that bounce takes stocks right back into the high-supply areas where sellers live.

3. Chinese stocks are a mixed bag this morning. Momo (MOMO) is down more than 10% this morning after reporting earnings that were actually pretty good. Earnings were $142 million for the first half of 2017, compared to just $22.5 million for the same period last year. Revenue increased to $60.8 million in the second quarter versus $15.4 million from the second quarter last year. So the revenue/earnings growth is extremely strong. The stock initially traded higher in premarket trading. But the first move is usually wrong. (This is true. Check it out — in after-hours trading, the number of times a stock jumps in one direction on the headline, and then reverses once words are actually read by humans rather than machines is actually quite impressive.) So the stock is now lower. Might this be a setup for an oversold/59-minute trade this morning? Perhaps. But stocks that have gapped down have typically taken a while to rebuild their bases. So if you happen to be buying MOMO this morning, you should have a clear plan in mind, including timeframe. (As noted in last night’s Strategy Session, I do not hold a position in MOMO though I was looking for a breakout. But the market has been very user-unfriendly lately and I am sticking with my guidelines of not holding stocks over earnings. It’s just too much like gambling (without even being able to see the dealer’s top card).

4. The solar eclipse came and went and nobody died. I’m sure there will be plenty of folks running to their local optometrist over the next week or so wondering why that can’t see very well. But hey, they saw the moon move in front of the sun, which was a historical event. (I saw a picture on the interweb last night…and that was pretty cool. I had my special glasses on while I was checking it out — my reading glasses).

So we’re going to open higher this morning. I would use the strength to be reconsidering any positions you might have that you are starting to wish you didn’t have. If you can sell some into strength, it’s probably not a bad idea. We really aren’t likely to break out to the upside any time soon.

By the way, it isn’t a bad idea to keep tabs on our aerospace and defense stocks after last night’s address to the nation by POTUS. (res ipsa loquitur)

See you in the forum.

–DAN

P.S.: Jim, if you got this far, text me and let me know. (This is an inside joke).

Good morning.

Today is a big day. The solar eclipse is happening for the first time in 99 years. So, for most of us, this means that it’s a lifetime opportunity to see the moon block out the sun. No matter how interesting the market is today, I’d suggest that you at least go outside for a second and check it out — just don’t look too long or else your eyes will suffer irreparable damage. Last night I read an article with a pretty funny thread of comments at the bottom. A couple of the most humorous was: “Can I just watch until I need glasses?” “I’m not worried. I have eyes in the back of my head.”

Anyway, check it out. You’ll never have a chance to take a selfie with the moon and the sun behind you again.

As for the markets, we’re up just a bit, though nothing to get excited about. (Actually, we’re opening about flat). As noted over the weekend, the market is deeply oversold. And deeply oversold markets can snap back with little warning. Overbought markets give you a bit more warning — but they give you about 80 false signals before they actually do roll over.

I continue to see this market as being “heavy”. It is under pressure with a lot more supply than you might think. Seems like each time equities open higher, many traders get sucked in as they rush to avoid missing the opportunity to buy at the bottom. But that approach stopped working a while ago, so don’t be one of those traders. The broader market flashed a “sell signal” a few weeks ago. Pulling back when you see a sell signal is the only thing to do. If you keep plowing ahead as if it didn’t exist, your money will disappear…as if it didn’t exist.

I’ll be in the forum all day, so pop in and ask any questions you have (for me, or anyone else).

Also, we’ll be holding a training session sometime this week. Gary will get the info out to you soon.

Dan

Good morning. The futures are pointing to a much higher open, with the Nasdaq looking about 40 points higher, the S&P up around 14, and the Dow-30 up about 126. So this morning should be a dramatic. This is something we covered over the weekend, where a spike in the VIX (which always accompanies a broad selloff in equities) will be followed by an oversold rebound. So we’re going to see that oversold rebound today.

I also suggested that this would be a rally that I want to sell into — or at the very least avoid committing new money based on a theory that last week’s equity dumping was a “one off”, and that all is well now. The June 9th mega-reversal in the semiconductor sector ($SMH) was a shot across the bow, and I am respecting that signal.

I’ll post a chart in the forum this morning in the forum that shows the relationship between VIX spikes and subsequent moves in the major indexes (SPX, DJI and NDX). The results are pretty clear and show a near perfect relationship between VIX spikes and market rallies. And you’ll also notice that each spike in the VIX has ultimately led to new highs in the market. So why not just pile in now and reap the rewards of buying the latest low?

Well, you could do that, but things are a bit more complicated than that. The second chart I’ll post will be the same chart…only it will look at the 2016 data. In that, you’ll see that the outcomes of spikes was a bit different. The similarities are that the spike in the VIX rarely led to further declines in the next few days. But unlike the more recent data, VIX spikes didn’t necessarily lead to new highs. They just didn’t lead to new lows.

One difference is this: Last year, we were right in the drama of a presidential election. The bull market was tired (still is), and money was nervous. This summer, the “Trump Rally” has been in play since November. Each pullback has brought in buyers who were anticipating the promised changes in tax rates, regulation cutting, health care overhauling, etc. Just a lot of commitments that the market perceived as being equity-friendly. Well virtually none of those things have happened. (I’m not saying whether that’s good or bad — I’m just pointing out the reality of the situation).

So the market has continued to move higher even as it becomes clear that a lot of the actions intended to stimulate the economy aren’t going to happen anytime soon. In light of this, why hasn’t the market topped? Because there’s nowhere else to go. The Fed may hike rates one more time, but they’re basically sidelined and are taking their cues from the market. They realize that a mistake in monetary policy can wreak havoc in global equity markets, so they’ll err on the side of kicking the can down the road — take just a little action now, but not enough to roil the markets. And what is the “correct” move for the Fed to make? Nobody knows for sure…so you can bet that they’ll be taking baby steps, with each step being accompanied by an intense look at the market.

I could say more about this — such as the fact that there is no imminent threat of a nuclear war (this is something I never really envisioned myself saying in a morning note). So any idea of a bout of panic selling being right around the corner is likely wrong.

Also, let’s not forget about the actions of retail vs. corporate insiders. Since the election, $80 billion has been put into ETFs and mutual funds. At the same time, corporate insiders have been selling at levels not seen in 30 years. So she shift in equities has been shifting into weak hands.

See — I told you it was a bit more complicated than you might think.

So what’s the play right now?

1. Assume that the intraday low on Thursday (in both the major indexes and most stocks you are tracking) is an important low that’s not likely to be violated for a while (“while” means in the next week or so — after that, we take it one day at a time). Keep your stops fairly close to those intraday lows and you’ll have a solid definition of the risk you are taking by being long.

2. Don’t ignore the pain created by last week’s damage. Lots of bulls are unhappy because their positions are unprofitable. Many will be selling into this strength. The result will likely be “heavy” stocks, and a heavy market. We’ll see higher prices in the near term, but the supply is likely to fill all the dip-buying demand before equities move to new highs.

3. Look for an absence of lower prices rather than a big move to the upside. There is a difference. Not going down is not the same as going up. Stocks do tread water — and I think that’s the likely market environment for the next week or two.

See you in the forum.

–Dan

So I think the lows on Friday

Good Morning. The threat from North Korea is finally starting to matter to the market. Investors (and, um….everybody else) are concerned that Kim Jong Un is going to lob a nuclear tipped missile at Guam, a U.S. territory. The logic is undeniable. First, North Korea accelerates their research on nuclear bombs and ICBM missiles. At the same time, they start threatening the US in the most provocative terms. We object, and ultimately get the rest of the world to go along with us (Russia was easy, of course. China…more difficult). North Korea objects to our objection and informs us that, as soon as they can make it happen (which is really soon), they are going to destroy the United States.

Madeleine Albright, where are you when we need you?

The other geopolitical issue on the horizon, with less of an immediate effect, is the tumult down in Venezuela. No need to go into that now, but suffice it to say that the chaotic political situation is probably not going to be resolved by a handshake.

Last night I mentioned that gold wasn’t really reacting to any of this, but today is a new day. This morning, gold is up about 1/2 of percent, though it is still rangebound. But you would do well to watch gold and silver. At least keep it on your radar as a potential trade.

Weibo (WB) reported earnings this morning that were largely in line with expectations. The stock is down just a bit from the close. I noted the other night that, were it not for pending earningss, Weibo would be a great stock to buy because yesterday’s’ breakout was on high volume, and the preceding base was actually pretty strong. That’s still the case, as long as the Weibo bulls decide that earnings were good enough to make them want to own more stock. My suggested be $88.95 — just slightly above yesterday’s intraday high. If the stock pushes to that level, then it’s a bona fide breakout. If you look at the weekly chart, you’ll see the implications for some really great gains.

Now, about this morning. Most of your stocks will gap down, though nothing too dramatic. But if you bought a stock close to support (which is always the goal), then pay attention to that support. You may see the stock fall back into the base and then start to rebound. This would actually be a bullish dynamic that reveals motivated buyers. If the stock gaps down through support (I actually don’t see too many of them, then assume the opening price as your cost basis on a NEW trade. Then, set a stop that’s just 1-2% below the opening price. You will often see the stock open lower, and then immediately move higher as buyers step in to take the supply. If it instead continues to sell off, you are out gracefully rather than riding it lower.

Look, the market is in a very volatile and chaotic phase right now. You know it. You can see it in the way stocks are trading, and in the number of surprise moves you see in various stocks. This isn’t an environment that rewards aggressiveness. Nor is it a market that rewards aggressive risk taking. It’s critical that you understand this because there is an additional danger in this market. The chaotic atmosphere can suck you in. It can prompt you to take big chances in the hopes of a big reward.

Don’t do that. When the market gets choppy, most professionals focus on keeping the money they have. Some of the more active traders like the volatility and seek to exploit that. And if that’s your desire, you should definitely be looking in the forum. We have a few traders who are always making trades on the VIX.

=================

Laugh of the Day: Kevin O’Leary giving Barney Frank grief over the unforeseen impacts of Dodd-Frank (“DF”) on the regional banks. Anyone with even a modicum of knowledge about the financial markets knows that a major change in the banking sector since DF is that the big banks have been buying the regional and local banks at an alarming clip, thus becoming even bigger. Why is this happening? Because the regional banks do not have the finances to comply with the reams of regulations and rules imposed by DF. Barney, as is his habit, deflects, denies and lies. All politicians lie (If you are reading this and take offense because you are a politician and always tell the truth, I just caught you in a lie). But Barney Frank does it with gusto, supreme confidence, and ferocity. Despite O’Leary’s aggressive questioning, he didn’t lay a glove on Frank. They never do. He wears them out.

Don’t let the market wear you out!

–DAN

Good morning. We are on the verge of a historical day in the market. Can you guess what it is? Black Tuesday? Nope. The Dow Jones Industrial Average is set to open…wait for it…wait…for…it….

…DOWN!

(And the S&P is also set for a slightly lower open).

In these heady days of summer, where the sun shines every day and the Dow makes a new high, everyone is brilliant; We’re all making money; We have a bright future; and the best of all…we’re all really good looking. Men: Handsome as the devil. Women: Never seen you look better. (At the risk of triggering someone, I’ll just leave it at the two genders and hope that no one is offended.

Well, at some point, that will end and we’ll all be brought back to earth — hopefully with a smooth landing rather than a loud “thud” and a small bounce. And the way we can give ourselves a better chance of a smooth, 3-point landing is to always consider levels on each stock that we own. We need to be able to write (and should already have written) the plan for each trade. (It can be mental…but just make sure you have one).

Your plan includes

1. What you buy…and why.
2, Where you buy…and why.
3. How many shares are you going to buy…based on the location of support and the difference between the current price and your stop price (which is just BELOW support)?
4. How long are you going to hold the stock if it just sits there and does nothing?
5. If it is working in your favor, when are you going to add…and why? How much are you going to add…and why?
6. Where will you be looking to sell a part of your position…and why?
7. Now what will you do? Raising stops (should have been raising them all the way through the process)?
8. Ultimately….what is your theory for the trade? Is it an oversold bounce on a broken stock, or is it a great opportunity to buy a stock that you plan on holding for a long time.

These are the things you should be asking about every trade. And if you are going through this checklist with care, objectivity and honesty, you’re more likely to come in for a smooth landing when the market turns.

And that’s all I have to say about that.

See you in the forum.

–Dan

Good morning. It’s not a big surprise that the market is set to open higher this morning. Why isn’t it a surprise? Well, because the market is open today; and that’s what the market does. And we need to run with the bulls while the bulls are running. But what we don’t want to do is get caught in a confirmation bias, feedback loop where a rising market prompts us to get increasingly bullish and complacent to a point where we disregard risk and just focus on how much money we’re going to make in an invincible market.

Focus on what is working now; not what used to be working. There are plenty of former leaders who are now lagging. They’re broken. Don’t hang onto them. They are yesterday’s news. Once a stock breaks, the best case scenario is that it spends the next several weeks or months rebuilding and repairing the supply/demand imbalance as traders try to find a price they agree upon. Trends don’t start in that kind of environment. They start AFTER that environment has matured and a new base has been built that’s solid enough to support a breakout rather than produce a fake out.

This is an ultimate truth that every trader must discover and embrace. Leaders ultimately tire, just like All-Star athletes ultimately get old and slow. They often stay in the game too long as their skills diminish to a point where fans quietly hope that the athlete will hang up the cleats and move to the broadcast booth. (No, I’m not throwing shade on Jay Cutler).

If you are still focusing on the high-profile leaders that have dragged the market higher these past several months, your money isn’t working very hard right now. And it’s at more risk than you realize. The much loved “FAANG” stocks (Facebook ($FB), Amazon ($AMZN), Apple ($AAPL), Netflix ($NFLX) and Google ($GOOGL)) are tired. Only AAPL and FB could be said to be keeping up the the S&P in terms of relative strength…and they are no longer leading. They are both correcting after reporting solid earnings, but not as much as the other three have.

These five stocks are responsible for nearly 30% of the gains in the S&P 500 this year. (See Ryan Vlastelica’s article on MarketWatch this morning)

There are other warning flags. The disparity between the S&P 500 and the Dow Jones Industrial Average is historical. The Dow is a price weighted index/ Stocks with the highest stock prices–such as Boeing ($BA), Goldman Sachs ($GS), McDonald’s ($MCD) and United Health ($UNH)–)have a much greater impact on the price of the Dow than the lower priced stocks like Cisco ($CSCO), Coca-Cola ($KO) and Verizon ($VZ). So any stock that is in a strong uptrend can reach a price where it will have an inordinately large impact on the Dow. We’ve seen this with Boeing ($BA) lately.

That can create the illusion that all is well with the equity market. In reality, breadth is narrowing to a point where we are seeing fewer and fewer setups that can lead to higher prices. There are few Goldilocks stocks. Some are too high, some are too low, and few are just right.

So what do we do? I think we’ve got to fly under the radar. We’ve got to look at small and midcap stocks that don’t get a lot of attention. This takes a bit more imagination and work than simply focusing on yesterday’s all-stars. But at some point, you’ve got to cut the aging All-Stars and start the rebuilding process of filling your lineup with future All-Stars. It takes a lot of effort to find those under appreciated rookies, but it’s what you have to do if you want to be a contender!

I spent quite a bit of time this weekend looking at the roster and finding new prospects. I’ll be continuing that work this week and will have my roster finalized by next weekend. While they will all have lots of potential; they won’t all pan out…but that’s trading.

Hope you are doing well.

–Dan

Good morning. First, a market comment. Apple (AAPL) is up. Stocks go up….at least that’s what it looks like at 8 am ET.

Now, some thoughts about your trading game.

One of the essential ingredients for consistent, profitable trading is the desire to trade. That sounds simple enough. Everyone who trades does it because they want to. It’s not indentured servitude. We trade because we like the idea of making money through the fruits of our own labor. It feels good to make a winning trade. Posting losing trades doesn’t feel good, and we resolve to do better next time.

But for a lot of folks, trading is like golf.

If you’re an occasional golfer, you don’t think much about the game until you hit the course. You show up early, hit a bucket of balls, and then head to the course in search of greatness. But it always goes the same way. You don’t like getting sand in your shoes. So you walk lightly as you step onto the beach to hit your ball about 10 feet in front of you. The only good thing is that you don’t have to switch clubs. You can use your well-worn sand wedge again. Ultimately, you rake the sand and move on to your usual three put. Another double bogey — and it was a par 3.

You’re happy that you brought a lot of balls because you refuse to bring a mask and snorkel to find the balls you hit into the pond….while thinking about not hitting it into the pond. You didn’t bring a compass to find your way out of the woods after you get lost trying to find the ball you hit while thinking about…not hitting it into the woods.

But every once in a while, you smack one right down the center of the fairway. Suddenly, all the frustration is forgotten and you remember why you play the game. It’s fun!

Trading can be like that. Most don’t spend much time studying the art of trading. They trade on hunches. They usually lose money because they don’t know the difference between fear and greed. Why? Because they’re not particularly self-aware. They don’t think about risk management because it’s more fun to think about the money they’ll make when the stock or option they buy explodes higher. And when their trade takes a disastrous turn, they don’t know what to do. Why? Because they weren’t thinking about Plan B.

If you’re the occasional golfer, then face facts. You’re probably not much better than you were last year…or even 5 years ago. You repeat the same mistakes. If you’re the occasional trader, then you are probably not much better either. You repeat the same mistakes. But just as you like to golf, you like to trade. That sweet feeling you get when things go your way is addictive…just addictive enough to make you come back for more.

When I was in my early 20’s, I worked as a page at CBS. One of the shows I worked on was the Mike Douglas show. I remember one show in particular. There was a little kid with a putter who was apparently a good golfer.

His name was Tiger.

A while later I left CBS to work as a production assistant for Three’s Company. After that, I returned to school and got my degree in physical therapy. Then I went into the real estate business. After that I went to law school. And after doing that for a few years, I discovered trading. And I’ve been doing it ever since. And while I was switching jobs all the time, what do you think Tiger was doing? He was playing golf every day. He took instruction and always had a coach who helped him work on his game.

Tiger didn’t just like golf. And he didn’t just have a desire to play. He had a BURNING desire to become the best. Ultimately, he succeeded.

I’m not suggesting that you need to focus on trading every single day if you are to become successful. You don’t have to dedicate your life to trading. But you need a burning desire to get to where you want to go. Do the work. Put in the time. Be consistent in your position size, start small, demand entries close to support rather than right under resistance because you “know” the stock is going to break out “this time.” Don’t expect the unexpected when it comes to stock. Expect the expected, and and reap the reward.

If you do that, I promise that you’ll hit more trades (and balls) down the middle of the fairway.

Have a good day…and keep your head down.

–Dan

Good morning. Futures are up this morning, with the Dow Jones Industrial Average set to open up more than 100 points. Some stocks up…some stocks down. Sprint (S) is up to test the 200-day moving average, though the stock has been under significant distribution for much of this year. (Look at the chart. Many wide ranging days, with tall red volume bars.) Under Armour (UAA) lost less than expected…but the stock is still down.

The Dow has closed higher 6 days in a row. Now, as we start a new month, the count starts over again. My bias is in favor of the bulls tiring as many finally remember that the late summer is often the time that equities start lagging due to a lack of catalysts.

This afternoon, Apple (AAPL) reports and I’m intensely interested in the conference call. Why? I want to get the next iPhone upgrade and am hoping that I can do that sooner rather than later. If they could figure out a few more fitness/sleep features, I might even buy a watch. (A feature that actually helped you fall asleep and stay asleep would be a game changer. I stay awake at night worrying that I might not be able to get to sleep.).

One trading thought: Can you write, with specificity, your trading style? Do you have rules? Do you have filtering mechanisms? Are there any patterns or setups that you prefer, or will you trade anything that “looks good?”

I believe that you’ve got to have a specialty. You’ve got to have a trading style that you can articulate with bullet points. You’ve got to be able to explain it to someone who does not trade. It has to be simple; though not necessarily “complete.” There must always be room for deviation because every situation has some differences from other, similar situations.

For example, the fundamentals should show strong growth…assuming you like to buy rather than short. But not every stock you buy needs to have strong growth. Perhaps its a new company…or is in a new industry. Or perhaps it’s in an industry, such as banking, that doesn’t allow for the type of growth that other sectors do. This stuff is all relative…but you’ve got to understand the fundamentals so that you can decide if they matter to you.

Charts are a completely different story. There are many ways to use them. Uptrends. Downtrends. Bases. Identifiable patterns like head & shoulders, cup and handles, etc. Pick your story, and then focus on that story. Get good at trading specific types of charts…and then use the chart as your filter. If the chart doesn’t look good to you, then the stock should be dead to you. If otherwise, your methodology has a “wishful thinking” component to it — a common (and detrimental) aspect of many trading plans.

If you don’t know what your specialty is, then you don’t have one. And that’s ok. You’ve got to start somewhere…and at least now you know where to start. Figure out your plan, and then trade that plan.

I discuss this in one way or another in every strategy session as I try to prompt you and guide you in crafting your plan and then following it. But don’t just absorb it — be an active learner. I watch training videos, read books, and attend as many workshops as I can. I’m an active note taker. Those notes are powerful because they ultimately find their way into the process of refining my trading plan. Always refining. Always improving. Always reinforcing. Never complacent.

I’m a different trader this year than I was a year ago. And I’m also a BETTER trader than I was a year ago. I make better decisions with more rigorous attention to risk. My rules are rigid and are only broken when I make a mistake. When that happens, I admit the mistake, reinforce the importance of the rule…and then move on to the next trading decision.

Yes, I’m better than I was last year…but not as effective as I will be next year! I can’t wait.

–Dan

Good morning. I hope you had a relaxing weekend as we start moving into the last month of summer. Yesterday I was listening to “The Tim Ferriss Show” while I was working out. The theme of this episode was “How to Turn Failure into Success.” There is always a takeaway from each podcast. I’m a regular listener. And as I listen, I am always receptive for some little tidbit, lesson, behavior, or thought process that I can directly apply to my life. In this one, failure was discussed. “Failure is not an option.” That phrase is a fairly common one when people discuss meeting various challenges in life. I’ve always been inspired by that phrase. But after giving it some thought, I realize that “failure” is most certainly an option. In fact, it is a certainty.

You cannot go through life without failing. You cannot try anything worth achieving without failing. Failure is more than an option — it is a necessary ingredient in the formula for success.

When I was younger, going skiing with my brothers was a regular ritual during the winter. We went often. I also enjoyed water skiing during the summer months because I had the best situation a guy could ask for. I didn’t own a boat…but my friend did.

But whether it was skiing on snow or water, we always took the same approach: “If you’re not falling, you’re not trying.” This is a pretty simple concept — the only way you get better at anything is pushing yourself to a higher place, knowing that you’ll fail along the way.

Michael Jordan missed more than 9,000 shots. Ted Williams failed to get on base 60% of the time…and he is the last .400 hitter that will ever play in the majors. Tom Brady has failed a lot. Out of 8,224 passing attempts during regular season play, he threw nearly 3,000 incompletions (152 of which were interceptions…an average of about 9 interceptions per season).

Can you think of three athletes who have been more successful than Jordan, Williams and Brady? I can’t. Yet I do see that failure is a common ingredient in achieving greatness. These guys didn’t let failure knock them out of the game. They had a goal in mind, and they realized that failures are stepping stones on the path to exceptionalism. When you choose to allow a stepping stone of failure to become a wall that prevents you from going forward, you haven’t failed — you have quit.

Winners fail all the time. It’s a part of the process of accomplishing great things. But winners never quit.

You have chosen to take control of your own financial future by trading. Accept the inevitability of making mistakes. Learn to distinguish losing trades from mistakes. You can do everything right and still lose money. And you can do everything wrong and still make money. Making money does not define the quality of the trade. Doing everything perfectly defines the quality of the trade. The profit or loss is then beyond your control — it’s a function of markets.

If you want to be exceptional, look beyond losses and focus on learning from your mistakes. By addressing your mistakes, you are working on your game in the same way as Tom Brady works on his passing, Michael Jordan worked on his jump shot, and Ted Williams took batting practice.

Strive for perfection. You’ll never quite realize it…but if perfection is your goal, quitting will never be an option, even after a string of failures.

Oh, and I couldn’t address failure without bringing up Thomas Edison: “I have not failed. I’ve just found 10,000 ways that won’t work.” “Many of life’s failures are people who did not realize how close they were to success when they gave up.”

You can fail thousands of times. But you can only quit once. Never quit.

–Dan

Just a quick note this morning about where I am looking.

While there is a lot going on today, my attention will be primarily on Amazon ($AMZN), Boeing ($BA) and Baidu ($BIDU).

Boeing is up so much that it looks like a blowoff top. So I’ll be watching for evidence of buying exhaustion. The stock opened above $238.25 yesterday after a second gap. Boeing has ramped 75% in 9 months in a series of bases. So the post-earnings gap can’t be interpreted as a “breakaway gap”. I think it’s an exhaustion gap and leaves the stock vulnerable to short sellers. It’s always a bad idea to jump on top of a missile after it is fired with the plan of riding it down after it peaks. That never worked for Wile. E. Coyote, and it’s not a viable trading strategy. But after two successive days of massive volume and closes near the top of the range, it’s only a matter of time where the buying is exhausted and the stock falls. If the price action shows signs of that, I’ll want to short it, with a buy stop just above $242.68 (yesterday’s intraday high).

Amazon is down this morning (as everyone knows), $1,000 would be a logical line in the sand by the bulls, and is currently where the 30-day moving average of the VWAP (volume weighted average price) is located. So any oversold rebound (gap and reverse) is likely to occur above that area. Selling out-of-the-money puts on this stock should work…as long as we see a rebound. Like shorting a rocket ship prior to the peak, trying to catch a falling cinder block isn’t a great strategy either. Wait for it to hit the ground before picking it up.

Baidu should open up about 6% higher. That’s not an extreme gap, but it will put the stock at a level where it’s ran more than 22% since the June low. In light of this market environment, it seems like it may be a viable “gap and crap” trade.

The key to these types of trades is to wait for the stock to do what you think it’s going to do. Anticipation is not the trigger for the trade. Confirmation is the trigger.

–Dan

Good morning. Futures are up this morning, with the Nasdaq slated to open about 45 points higher. Facebook (FB) hit a grand slam with its earnings report last night, beating analysts’ estimates for revenue, ad revenue, user growth and earnings. The stock is up $13 bucks (about 7.4%) pre-market to $179, and JPMorgan has hiked its price target from 182 up to 210. The stock is quite extended, so use caution if you are planning on buying a gap like this. It worked with Boeing (BA) yesterday. But that was more the exception than the rule. There is always significant risk in buying a stock that jumps more than a few percentage points unless it is breaking out of a volatility squeeze. Facebook will be up about 15% since its breakout in early July. If you do intend to buy the stock, then make sure you have a plan for risk mitigation. Set a stop at a price point where, if the stock hits it, you know you’re wrong and you close the trade. One suggested method would be a $1 risk. Watch the stock open. If the opening print holds for a few minutes, then set a stop $1 below that level. Multiply the number of shares you own by the price difference between your purchase price and the stop level. The result is the amount of money you are risking on the trade.

This isn’t a suggested trade. High profile stocks like this will often make a big gap, and then reverse as professional sellers fill the massive retail demand and then cover at lower prices after the retail demand has dried up. This is a common outcome of these types of gaps. But, it’s not inevitable. Sometimes the stocks keep running. So if you are going to take the lower probability trade, at least manage your risk!

The Q2 earnings report confirms what everyone knows about Snapchat (SNAP). In a one-on-one duel between FB v. SNAP, Facebook is giving Snapchat a cold stare, and stealing its lunch without apology. The one of the key differences between the two (other than slowing growth in SNAP vs. faster user growth in FB) boils down to money. While Facebook is dominating Snapchat by virtually every measure, Snapchat is the King of Cash Burn. In Q1, Snapchat spent $2.3 billion to make $149 in revenue. That’s a bit of a problem, particularly when you consider that it’s burning more cash than Twitter ($TWTR) and Tesla ($TSLA) put together. And Snapchat is not planning on flying to Mars in a Teslaship, and POTUS doesn’t use Snapchat. POTUS and the White House do, however, have Facebook pages.

As previously noted, every day the market is open is a great day to sell Snapchat ($SNAP). Particularly when you consider that 400 million restricted shares will become freely traded on Monday. The average trading volume of SNAP is around 14 million/day. So 400 million more shares doubles the float and would take about a month and a half to unload if shareholders were the only ones allowed to sell.

Look, I have nothing against Snapchat (nor do I have an account). I just don’t want you to fall prey to the “Snapchat has bottomed; it’s a steal!” game. Facebook suffered the same fate as Snapchat, losing over half its market cap during the first 2 quarters of trading. THAT was a buying opportunity. But think about it — Facebook didn’t have a competitor (MySpace doesn’t count). It revolutionized social media. Snapchat is trying to get into a space that’s now dominated by Facebook and Twitter. Enough said.

OK. Good session last night and we received quite a bit of feedback about our “Would you rather…” conversation at the end of the class. Completely spontaneous…and those who attended saw a great example of the concept of “Hobson’s Choice.”

See you in the forum.

Dan

Good morning. We’re looking at a flat open as traders wait for earnings numbers from:

Monday: $HAL, $APC, $ARNC, $HAS, and $GOOGL
Tuesday: $MCD, $GM, $AMGN, $CMG, $CAT, $T
Wednesday: $FB, $F, $WFM, $KO, $BA
Thursday: $UPS, $CMCSA $MA, $TWTR, $VZ and $AMZN
Friday: $CVX, $XOM$ AAL $ABBV $MRK, $WFT, $BCS, $GT. $WU, $COL and $YNDX

So it’s going to be a very busy week. Go into it with a plan. What are you going to do. Anything that you’re interested in? Is there any specific stock you are focused on? Are you holding it over earnings, despite the risk of an unpredictable adverse move? There is no right answer to these questions. They are just questions you should ask yourself. If you don’t have a plan, then you are left to your own devices when something starts happening. At that point, frankly, you can do anything you want — there is no plan to deviate from. You’re just shooting from the hip and hoping for the best. In my experience, shooting from the hip can often lead to getting shot in the foot.

I’ve noted how I would never short Blue Apron ($APRN) despite being of the mind that Blue Apron (APRN) has nothing really proprietary in it’s business model; rather, it is just first in the space. Well, this morning the stock is up about 10% on a few upgrades by various analysts. Even though it might seem like they got together and “colluded” (big word these days) to hike the price, the real reason for the timing is because underwriters can now start issuing research on the company. There is a short restriction time for underwriters when a company goes public. So now that they can start issuing research, they’re going to start justifying the reason to buy the stock. Goldman issued a buy rating, with an $11 price target. RBC has an outperform rating with a $10 target, and Oppenheimer has an $11 target on this stock. Interesting that the IPO price was $10, yet none of these influential firms could generate enough wishful thinking to even give the stock a boost much above its IPO price.

If you were short, you’re in pain. This is a great example of the underlying bid in stocks that are selling off. At some point, someone steps in and provides a catalyst for a reversal. Boom! The stock takes off. No such luck with Snapchat…but I’ve got the same approach. Not swimming in that pool.

I’ll see you in the forum in a while.

–Dan

Good morning. Futures are pointing to a slightly lower open this morning. If you’re looking at CNBC, the Nasdaq futures are down 19, which might seem like a lot. But fair value is -16. We take the difference between the two for the implied open. The Nasdaq should open up just 3 points lower. Not a big deal, and actually a healthy development because we want to see a bit more base-building. The longer the base, the more solid the platform for a move higher. I just don’t think we are there yet.

On the earnings front, Bank of America ($BAC) and Goldman Sachs ($GS) both beat their earnings estimates, but their trading revenue was low. That’s interesting because TD Ameritrade ($AMTD) is up this morning after beating earnings. So somebody is making money, and it appears to be the brokers charging commissions. The big forms like GS, MS, JPM, BAC, WFC, C, etc., make money in a volatile environment. The have the resources to trade profitably and seize on market dislocations.

There have been none in the second quarter. Instead, it’s just been a “melt up” market, where many stocks have just trended higher along rising trendlines. Only the Nasdaq suffered a setback in early June. And it came with such rapidity, it’s tough to imagine the big guys turning that into a cash cow. There was no follow through, and anyone who bet that the Nasdaq would continue to fall after a big semiconductor sector selloff on June 9th didn’t make any money…at all! So the trading revenue miss isn’t particularly surprising. Also, many of these banks telegraphed a shortfall in trading revenue a while ago. No biggie.

As you watch BAC and GS open up this morning, I’m pretty confident that you’ll see these little pullbacks as buying opportunities. These wouldn’t be “trades”; these would be stocks to hold in a sector that’s showing resilience with an upside bias.

As noted last night, Netflix ($NFLX) beat the estimates for subscriber growth, but missed earnings estimates by a small margin. Traders don’t care. The stock is up $15 bucks pre-market. That’s a gap of about $10. Careful about chasing this — I suspect we’ll see some profit taking which might result in a pullback from the open. Let the stock dictate the direction; it doesn’t care what you think. It doesn’t value your opinion…neither do any other traders.

Puma Biotechnology ($PBYI) received approval from the FDA for its breast cancer treatment, and the stock is up 10% pre-market. The short interest on this stock is fairly high. Congratulations to all of you who have been in this stock. We’ve been waiting for some positive news as the stock has consolidated between $80 and $90 during the past several weeks. Consider selling some at the open.

Health care is, not surprisingly, dead. (Seriously…are you surprised by any of this? I’m not…and I’m not even following politics anymore. I’m busy watching ant trails in my back yard — they’re more interesting.) Hard to say whether the health care sector will be hit. If so, it’ll be short lived because the news that the Republicans will not be passing their wonderful new health care bill has already been factored into prices. Only one guy in the world is surprised…and he’s the guy who just got back from his sailboat trip where he sailed around the world without a radio or wifi. Happy he’s back safely. Now, time for a shave and a shower.

With that obscure bit of humor, I’m outta here. See you in the forum. Let’s see if we can make money on Netflix!

–Dan

Good morning. The futures are pointing to a slightly higher open this morning, with the Nasdaq once again attracting the most buying. This entire week should be pretty busy, with several high-profile companies reporting earnings.

Netflix ($NFLX) reports today after the open. The stock is about 3.5% below its all-time high and has been consolidating since a high-volume breakout in April, which led to some nice gains. Holding a stock over earnings is always risky. Obviously, if you are holding the stock for longer than 3 months, it’s unavoidable. If that’s the case with NFLX, or any stock, always check your position size and unrealized profit. Cutting back on your position is rarely a bad idea.

Bank of America ($BAC) and Goldman Sachs ($GS) report tomorrow. Citigroup ($C) and JPMorgan ($JPM) reported Q2 results on Friday. Both closed lower. But if you look at the intraday charts of C/JPM, you’ll see that the selling occurred at the opening bell. From then on, buyers were soaking up the supply righ tinto the close. So if Bank of America or Goldman Sachs report disappointing earnings, they may provide you with a buying opportunity. I’ll discuss this tonight. By and large, the banking stocks have been under performing the S&P, though the charts look really solid. Most have been forming higher bases for the last few months. I would definitely be considering some in this sector as long they hold above the 200-day moving averages. While they’ve been under performing, they haven’t broken down. If they were living things rather than a reflection of buying and selling aggression, I’d say that they were “resting.” As it is, I’ll just say that there has been equilibrium in the degree of aggressiveness of buyers and sellers. At some point this will change, and I suspect the bulls will take control. We’re seeing this type of dynamic in various tech stocks.

Morgan Stanley ($MS) reports on Wednesday. Apply my comments on BAC and GS to MS. Same sector; same price pattern; same analysis.

On Thursday, Microsoft ($MSFT) and Skyworks ($SWKS) report earnings. Microsoft is up about 7% since its rebound off $68 a couple of weeks ago. It’s been strong, and I’m looking for an upside surprise. Why? Because I think that “WannaCry” ransom virus has resulted in a lot of upgrades to Windows 10. This is the type of thing that analysts tend to underestimate because, frankly, they don’t seem to be particularly good at understanding human psychology. The obvious extreme examples of this deficit are seen in the last two bubbles. Few analysts (or economists) saw them coming.

You might want to check out Weibo ($WB), Applied Optoelectronics ($AAOI) and Nvidia ($NVDA) this morning. All are trading higher and have some momentum. Alibaba ($BABA) is also continuing higher.

In a broader sense, note the number of solid setups in this market. Many stocks in diverse sectors are in nice uptrends, such as Boeing ($BA) and McDonald’s ($MCD). This reflects a very healthy environment. Energy stocks, driven by ongoing weakness in oil, continue to fall. Perhaps oil is done going down after printing a higher low last Monday. But it’s still just below its 50-day moving average and about 10% below the 200-day moving average. If crude can regain these two key indicators, the energy stocks should start climbing, which just adds fuel to the fire burning under the rest of the market.

Don’t forget that there are two sides to risk: the risk of taking a loss, and the risk of missing out on profits. If you aren’t profiting in strong markets, your losses in weak ones will hurt you badly.

See you in the forum.

–Dan

Good morning. The Nasdaq futures are up another 10 handles, with the S&P futures up about 3.

The overseas markets were strong last night, moving higher in response to the dovish comments that Ms. Yellen made yesterday about the Fed’s relatively benign stance on the economy. The balance sheet reduction will happen…but it will happen slowly. And rates may go up…or not…depending on whether “inflation” becomes a factor. So you know, in Fedspeak, “Inflation” = “economy”. There is no difference. It just sounds more interesting and complex when you say inflation.

So if the economy isn’t growing too fast, the Fed won’t act too fast. But they are watching! Always watching…because they just don’t know whether their prognostications are too high or too low.

In a nutshell, that’s what she said. Now, while it seems that the Fed is confused (not a new phenomenon), this is good for the markets because the Fed moves slowly. Very tentative, so as not to offend anyone. But they are trying to gently raise the Fed funds rate so that, when the economy (er, inflation) cools off, they can drop rates to boost it back up. It’s kind of like taking a birthday gift back so you can re-gift it on the next birthday.

The Asian and European markets picked up on that, and they rallied. And their strength is leading to our strength. It’s a loop of confirmation. The bulls see other bulls running, so they run too, which gets other bulls running….etc. Lather, rinse, repeat.

We also got a Dow confirmation yesterday when both the Transports and the Industrials hit new all-time highs. Combine this technical signal with all of the uncertainty surrounding POTUS, et al, the Krazy Korean, rampant terrorism, Megyn Kelly’s poor ratings, health care, tax cuts (or increases)…and you’ve got a ton of uncertainty about the future. Put the Dow Theory confirmation together with the rampant uncertainty and you’ve got a perfect plan for a “Wall of Worry”. People stay out because of concern. The market moves higher, they put money to work. The next news bite comes out and people pull their money out. The market again moves higher and they put it back to work…which drives the market ever higher. Always higher.

The worries are still there…but stocks are ignoring it because people want to make money, and fear (while this is the strongest emotion) gives way to another type of fear — the fear of missing out.

That’s where we are right now, and I like it. We’ve been getting the occasional sell signal, but it hasn’t amounted to much. Just focus on managing your positions and don’t be afraid to sell SOME into strength that looks like it’s at an extreme, and put fractional stops beneath your positions so that any big decline in a stock will automatically cause you to get smaller, and reduce your risk of losing more if the stock continues to fall.

That’s all I got for today! Don’t forget about tonight’s training session. We’ll be looking at the roboadvisor industry. You’re going to be surprised at the things you’ll learn, and I’ll show you how to “Beat the Bots”. When you understand how the bots work, you’ll understand how to get the alpha that they can only lie about in their marketing.

See you in the forum.

–Dan

Good morning. The futures are pointing to a much higher open, with the Dow 30 futures up about 100, and the S&P up around 10.50. Traders are enthusiastic because of a sense of clarity coming from Chair Yellen. Yep. In prepared remarks to the House Financial Services Committee, Yellen will say that she doesn’t know whether the economy will get somewhat stronger or less strong than current projections. Well, it’s nice to hear honesty coming out of Washington. But the important news isn’t that the Fed doesn’t really know if their projections are accurate. The important news is that she said that the Fed funds rate wouldn’t need to rise much to get to a neutral policy. That’s kind of a big deal because it signals that the end of rate hikes is nearing, even though there have only been a few of them.

She made some comments on inflation, but they aren’t important. The Fed has been so wrong for so long about inflation that I just skimmed that part of the text. The big news is that the Fed is going to begin shrinking the balance sheet this year (September, probably), but that it isn’t seen as an active policy tool. Translation: It’s going to be very gradual, and you probably shouldn’t make any decisions based on the impact of the shrinkage. Oh, and in the next few years, we might need to hike just a few times. In teency, weency, itsy bitsy steps.

Traders like what they are hearing, because it removes some uncertainty. And there has been plenty of uncertainty in many different areas of the market landscape, so the knowledge that the Fed isn’t going to do anything stupid is really great news.

Thoughts on the GOP healthcare bill: Um,…. Whatever.

Amazon ($AMZN): Amazon’s prime day seems to have been a success. Amazon sold a ton of its own products (about three times as many Echo speakers), and other sellers ramped to about 50 times more items. As a result, Amazon is now trading above $1,000 premarket. If Amazon holds this level in the morning, I think it’s likely to test the upper edge of its range and hit $1,020 fairly soon. After all, earnings are just 15 days away.

Re/ IPOs. You are probably familiar with the trading action of Snapchat ($SNAP), which is probably going to change its name to Aw, Snap! The stock is up a bit premarket on an oversold bounce, but it is down about 10% below the opening price of $17, and the restriction on stock sales will be lifted at the end of this month. No telling where the stock will be when restricted stocks become available on the market. I’ll just caution you against thinking you’re picking up a deal on this stock. Hype does not equal value. Just because someone says it’s so doesn’t make it so. One of the many sleazy things about Wall Street is its shameless ability to treat the public as a dumping ground for crap. Disgraced Henry Blodgett summed it up in an email back in the bubble days of 1999-2000 when he wrote to colleagues that “we’ve gotta put some lipstick on this pig.” Translation: Somebody do something to make this pimple look like a beauty mark on Cindy Crawford so we can unload it onto the public. (He’s now the founder of “Business Insider”, so it’s all good. Few remember that he was barred from trading forever by the SEC).

I would suggest shying away from Blue Apron ($APRN), because everybody else has. We get a couple of this type of meal delivered each week. All the ingredients measured out, and we just have to cook them. It actually makes me feel like a chef. Not much harder than my meals from my bachelor days when I’d cook some hamburger, and eat half of a head of lettuce with salad dressing poured on it while leaning over the sink. Really saved on the cleanup. But Blue Apron already has a lot of competition. We never use Blue Apron — for no reason other than we use somebody else. It’s a habit…and there is competition. And habits are hard to break.

Similarly, when Uber goes public, just imagine Hank Blodgett saying, “We’ve gotta put some lipstick on this pig” when you hear the “experts” on TV touting the stock, and all the hedge fund managers (who got in on the first or secondary round of financing) saying what great growth prospect Uber has, and that they’ll be buying more stock (Think, David Tepper touting Snap when it opened for trading, saying that he thought it was a steal at $17 and that he’d be buying more. Right.)

So don’t fall prey to the hype. Focus on stocks that are working out of flat bases within an uptrend. You can buy any stock you want. You aren’t encumbered by investing themes. Your investing theme should be that you buy stocks to make money. So use the pattern that has the best track record. Flat bases within an uptrend. Basically, you’re buying a stock as it walks up the stairs from lower left to upper right…and you’re buying it on the step…just as the stock starts running to the next step.

See you in the forum!

–Dan

Good morning. The market will open slightly lower this morning, with the big news being Amazon’s Prime Day — a 30 hour sale that started last night at 9 am. Analysts expect it to generate more than $1 billion bucks (which is a lot, even for Jeff Bezos). Those shares are trading flat today and my suggestion is that the $1,000 level be watched because it’s an obvious sell point. Nobody decides to sell their stock at $1002. It’s either at $1000…or a lot higher. So demand has to soak up all the supply from sell orders at $1,000 before climbing higher. And whether or not the bulls can soak up all that supply is unknown. We don’t know it, so let’s not pretend as if we do. Just let the stock tell us whether or not AMZN ($AMZN) has cleared through resistance.

I mentioned Snapchat ($SNAP) yesterday in reference to the lockout period for IPO shareholders. The stock is trading at $16.42 this morning — $1.58 below its IPO price of $17. So everybody who bought SNAP is now losing money. And the first lock up period expires at the end of the month. If you recall, there was a lot of hedge fund sponsorship of this stock, with folks like David Tepper touting the company when the stock first began faltering, and saying that he was going to buy more stock. Maybe he’s still waiting to buy. Because if he followed through on his commitment to buy more stock, the Appaloosa has probably stopped running and become a plow horse. This stock will be volatile this month, with increasing pressure on the stock. But before you consider this as a shorting opportunity, remember that there are a great number of investors who have a vested interest in seeing the stock climb back to their purchase price, if only to sell into the demand. Shorting stocks is rarely as easy as you might think (“Oh, it’s just like buying a stock, only the chart is upside down!”). No. There is an underlying bid waiting for every stock. We don’t see it as the stock falls, but we know it’s there. On the other hand, a stock that is making all time highs typically has no overhead supply other than the urge of bulls to take profits at some point. If the stock is going parabolic (E.g., LINE corp ($LN — up more than 30% in just two weeks last August), the selling will occur sooner than a stock that’s moving in a steady uptrend (E.g., Raytheon ($RTN), which has been a steady climber as it runs along its 50-day moving average).

So the volatile, downtrending stocks can be enticing to short, but you’ve got to be careful.

1. Trade small;
2. Have definitive “Oh, crap! I’m wrong!” levels set that limit your losses in the event that you are wrong;
3. Take profits early. We’ve seen some persistent selling in some of the retail stocks recently. Over the last 3 weeks, Costco ($COST) has fallen 14 of the last 17 trading days. The bars have been long and red. There’s also been a “bearish wedge” in this decline, with a $20 decline from the day prior to the big selloff (June 15) to the bottom of the “wedge” (June 23rd). This gives us a $20 difference that can be subtracted from the bottom of the wedge that generates a price target of $140 — $11 below current levels. Shorting a stock like this as it plummets can be lead to big profits; but it can also bite you if analysts decide that the stock is now a compelling value and start upgrading the stock.

So the easy ones aren’t particularly easy. In a market that is still fairly strong, though in a resting phase now, it pays to just stand aside on stocks that aren’t working rather than try to profit from their decline. And if you do decide to go short, watch the stock carefully and consider reducing your position before the market closes. That way, you aren’t greeted the next morning by a favorable comment that pushes the stock higher.

Manage your risk, and don’t give back your profits in this choppy market. Over the year, your profits will come from distinct periods of time throughout the year. They will not be steady. If you can lose less when the market is tough, you’ll make more when the going gets easier. And it will get easier. It always does.

See you in the forum.

–Dan

Good morning. We’re looking at a weaker open this morning, with Tesla ($TSLA) down significantly on disappointing crash tests (the car, not the stock). While the S&P is down about 0.5%, the Nasdaq 100 ($NDX) is down more than 1%. The big difference is that the S&P is still above the 50-day moving average and likely to find support at that level once again, while the Nasdaq 100 has been below the 50-day moving average and likely to hit resistance on any rebound.

As noted last night, stay away from Tesla (TSLA), and respect the price levels in stocks. Each stock you own should be in your portfolio as a part of a PLAN for that stock. Here’s what I mean: Compare Honeywell ($HON) to Tesla ($TSLA). The companies are totally different, and so are the charts. Tesla is a “growth” story and has a lot of fans. The stock has a very high valuation by traditional models and does not even have earnings (EPS growth rate = N/A; P/E = N/A) Honeywell, on the other hand, does make money and is pretty fairly valued…by traditional models (annual EPS growth of 16%, and a P/E of 20). Between the two stocks, I’d rather own HON than TSLA.

But not because of valuation. Rather, because of the differences in price behavior, which reflects investor sentiment. Honeywell is down 1.5% from its all-time high set on June 19th. It’s still in consolidation, but trading above the 50-day moving average. There is an established level of support. That will change at some point in the future. But for now, the stock is working. On the other hand, Tesla will open about 18% below its all-time high set on June 23rd. And it’s clearly broken. There is no support other than the likelihood of some type of oversold rebound as the market opens for trading.

The point is this: Focus on whether you are making money by owning the stock, not on whether the company is making money. Tesla is broken now, and it’s a trading stock for active traders who like to trade the swings. Honeywell is not broken, and it’s a stock that investors are still holding. Because the stocks are so different, the PLAN for each stock should be different. If you are a Tesla fan, you aren’t happy. But don’t make the mistake of thinking that the stock is now cheap and is a great “investment.” It’s not. The chart is broken and irrespective of whether the company is making money, you aren’t.

And that’s all that should matter.

See you in the forum, and at tonight’s training session.

–Dan

Good morning. We’re looking for a higher open this morning, as the S&P is up 3.75 and the Dow is up 14 points. However, the high profile tech stocks are only very slightly higher, and I suspect that we will continue to see money rotating out of this established sector.

Don’t forget about geopolitical events. This market has been really resilient, shrugging off one event after another. The most recent such event was the launch of a medium range ICBM by North Korea. They continue to ramp up their rhetoric, to a point where you’ve got to wonder they’ll launch a nuke at us in retaliation for some hapless individual tweeting something about that bad haircut on the heavy guy with the stupid smile on his face all the time. (So don’t anyone troll Kim Jong Whatshisname. It could have international implications!!) This is a complex matter because of the players involved. The US continues to pressure China to take action against North Korea, and China continues to do nothing. China and Russia are BFF’s lately and consider themselves to be “most trustworthy strategic partners.” We seem to be on the outside of that great strategic partnership, having substantial differences with both China and Russia. And when you’re one of three big superpowers, the other two are great buddies, and neither of them likes you very much, it doesn’t take much imagination to start thinking about that old adage, “The enemy of my enemy is my friend.” Translation: China and Russia are probably just a-ok with the current threats to the US by North Korea.

This has totally escaped the scrutiny of the financial markets. It just doesn’t seem to matter. At some point, it will matter. And when it does, look for a very hazardous trading environment. No need to anticipate it; but do be aware of the possibilities.

My focus is on financials this morning, with several stocks close to breaking out above their early March highs. In particular, $JPM, $MS and $GS are poised for breakouts. Citigroug ($C) is already moving higher again. These stocks should have some juice, and I think you should be in this group. It’s not volatile…and it will make you money!

See you in the forum this morning.

–Dan

Good morning! Hope you had a relaxing weekend and were able to spend some time with your family and friends, doing things other than persevering about trading. If not, you’ll get another chance this afternoon and tomorrow. The exchanges close early today, and you’ll hear the closing bell at 1 pm rather than 4 pm.

The biggest news I see this morning is the announcement that Tesla is ahead of schedule for starting production on their Model 3 vehicles. Tesla expects to deliver the first Model 3 cars on July 28th, with an exponential ramp in production from there. Musk projects a monthly output of 20,000 Model 3s by the end of the year. If you can’t do that math, that means that they are projecting an annual output of 24000 cars — not this year, but that will be their rate of production by the end of the year.

That’s pretty impressive to me, and the stock is up $8 bucks pre-market.

One subject that I researched this weekend was the small cadre of biotech companies in the immuno-oncology industry. Very interesting article in IBD over the weekend, discussing $CELG, $BLUE $KITE and $JUNO. These companies are all developing immuno-oncology drugs that use the patient’s own immune system to fight cancer. It’s a pretty interesting and exciting project, and full of complexities. I am not a biotech expert, so I won’t take your time by trying to explain the actual process of development. But I can say that the charts are instructive, and I’ll have a bit more to share in tonight’s abbreviated Strategy Session.

Going into the second half of the year, we’re going to be sensitive to big shifts in the market. Large investors are always looking to get invested when a sector is down, and then ride it up on the backs of momentum-based funds and finally, retail investors who tend to buy stocks after they have made much of their run and are quite expensive based on traditional metrics. And as they are unloading the long-held positions, they are looking for the next group of stocks that have potential for big gains. We could certainly see this happening in the months to come.

There is a possibility (not a prediction) that the energy sector could start finding buyers that will push stocks from out of the doldrums and into the sunlight. We could see the same thing in the retail industry. I have absolutely no idea whether these rotations will occur, but they are possibilities that I will be sensitive to. If something like this does happen, I like to be able to consider participating early rather than ignoring the first part of a big move.

By the way, I think this type of rotation is already happening in the solar space. Look at the solar ETF ($TAN). This ETF was at $300 back in 2008. Now it’s at $20 bucks. And in the interim, it formed an 11 month base and carved out a very obvious inverse head and shoulder pattern in 2012-13 before advancing nearly 300% in 2013. Since 2015, the solar ETF fell from $50 down to $16 in about a year and a half — a 66% retracement. It’s now forming what could also turn out to be an inverse head and shoulder reversal pattern. At the very least, it’s in a volatility squeeze that’s just popping above the 50-day moving average.

Could it be that institutions are making a bet that solar energy stocks are the next stocks to make serious moves? They have started buying just during the last week, so things look promising. This is a volatile sector, so any stock position should be given a lot of room to move. A really great dancer needs a lot of room to move on the dance floor. Get too close, and you’ll get an elbow in the forehead. So if you’re taking the plunge in solar (and biotech, for that matter), make sure that your position size is such that the volatility swings are tolerable for you. Heck, they might even be fun, as long as you don’t have an excessively large position.

I’ll also be discussing more about this sector tonight.

Market closes in 3-1/2 hours. And it opens in 7 minutes. See you in the forum.

–Dan

Good morning. Futures are a bit mixed this morning, with the tech-heavy Nasdaq still struggling, but the S&P and Dow futures up just a bit. I think there is still some selling to be done, so I’m being cautious about taking any new positions today. If Amazon (AMZN) holds above yesterday’s close (up about $7 bucks pre-market), then I’ll probably sell some puts. But everything is for rent today because of the weakness in semiconductor stocks, as well as various other loose bricks in the Wall of Worry.

I haven’t seen a lot of news about yesterday’s new “hack attack”. CNBC noted that, so far, the hackers have received about $12,600 in ransom. Combined with the $50,000 reportedly taken in by the WannaCry hack, the hackers will be able to buy a fully loaded Tesla Model 3, and still have some cash to split up. Perhaps these hacks will amount to nothing more than nuisances. But it’s important to follow the news on this.

Tomorrow, the Fed will announce its findings on the stability of our banking system. The report will specify how much banks are able to pay shareholders in the way of dividends. Look for the banks to start announcing dividend increases and stock buy backs after the release. I think this will start juicing financial stocks, many of which are already starting to catch some bids.

Yesterday I taught a workshop on trading the first hour of the day, with some emphasis on VWAP and pivot points to determine entry points. If you weren’t able to attend, Gary is making it available for viewing. He’s also provided a pretty significant discount on the 59 Minute Trader — our most popular course ever. Check it out!

Have a great day, and I’ll see you in the forum.

–Dan

Good morning.

Just a couple of comments before I get back to prepping for today’s training workshop at 12 noon (ET), 9 am (PT). We’ll be looking at methods and tactics for trading the first hour of each trading day — which I call the “Hour of Power.” The most frequent questions I receive from members pertain to the dislocations and opportunities that occur on a regular basis after the opening bell. So I’ll get into this profitable topic in just a few hours. Hope to see you there.

One little tidbit of news today is the record $2.7 billion antitrust fine levied on Alphabet (GOOGL) for manipulating search engine results. I could write a policy paper on the implications of search result manipulation by Google. In 2000, “Don’t Be Evil” was the mantra of Google, being featured prominently in its code of conduct. When Google changed structures and became “Alphabet”, “Don’t Be Evil” disappeared from company policy.

Is anyone surprised? If nothing else, at least management gets credit for being honest about it.

See you at the training session today.

–Dan

(If you haven’t taken a free trial yet, you might want to check it out this morning so you can attend the class.  Here’s the link – https://stockmarketmentor.com/member-signup/?coupon=freetrialwebinar)

Good morning. Just a few comments about stocks that are in the news.

Forget what I said about Chinese Internet stocks last night. Among others, I covered Sina (SINA) and Weibo (WB). I noted that Sina had rebounded from an oversold condition last week, running from $85 up to around $92 bucks in just 5 trading days. It looked like it had just a bit more room to run. I also noted that Weibo was in a $70-$80 range, and that the best buy point would be on a breakout above $80.

Chinese regulators have altered that analysis. Overnight, regulators shut down Weibo’s video and audio services, ostensibly because of Weibo’s failure to crack down on “negative” user posts. The stock is down about $7 bucks in pre-market trading. So much for the $80 breakout buy. Sina owns a majority interest in Weibo, so those shares are back down to $85.

This may turn into an opportunity to buy some Weibo stock, though we need to watch how it trades this morning. Think about it — something that gets turned off can also get turned back on. So if (IF) Weibo can satisfy the regulators by cleaning up the negative comments (China doesn’t have a First Amendment to protect free speech, things can get back to normal. Technically, the stock is back to the 50-day moving average. It’s not broken; it’s just fallen out of the bottom of a channel and landed on the next level of support. This action by Chinese regulators is a big deal, so don’t get lulled into thinking that this is an easy trade. It’s not. I’m just mentioning it because it might be an opportunity. But since none of us has any inside dope on what Chinese regulators intend to do, it’s best to follow the price action and see if the stock holds above $65. If it does, then you’ve got a low risk entry. If it doesn’t, then you can move on. If a trade doesn’t present itself, don’t make the trade that you were hoping for. It’s the wrong trade.

Also, don’t forget about the biotech sector. There is certainly a rotation of money into biotech, though this breakout really started on Monday. The SPDR S&P Biotech ETF ($XBI) is up nearly 10% from Friday’s close, so it goes without saying that any new buyers are late. “Late” doesn’t necessarily mean too “too late”, but it does mean that any new entry is a high maintenance position — it must be watched for signs that the momentum is waning and a reversal is at hand. But if you zoom out and look at the XBI in a weekly bar chart going back a few years, you’ll see that this base has been building and trending upward since early 2016, and just now picking up momentum. The all time high for this ETF is at $91, set nearly 2 years ago. Given the dramatic rotation of money into biotech, and the dearth of alternatives, I can make a case for a test of the all-time high.

Oracle ($ORCL) reported impressive earnings this morning and is up about 11% from yesterday’s close. It’s always a big risk to buy a stock that gaps up this much, and ORCL is no exception. Often, this type of gap, irrespective of the catalyst, will prompt profit taking that drops the stock back down. Caveat emptor.

We’re still essentially rangebound with an upward bias. The “Sell in May and Go Away” crowd has been left behind by 2.5% in the S&P. So far, so good. But respect the falling advance/decline line. Ultimately, it matters. It just doesn’t seem to matter quite yet.

–Dan

Good morning. This morning CarMax ($KMX) reported strong Q1 results that beat estimates. An article in IBD notes that delays in tax refunds shifted some sales from Q42016 into Q12017. The stock is up about $5 (7.5%) pre-market and very close to the May high of $66 bucks. I always discourage buying gaps like this because they tend to fail. The short interest (“days to cover”) is nearly 12 days. So we should see a lot of shorts scrambling to buy the stock. It may hold the gap…but it may not. There is widespread, and widely known, deflation in car prices. That’s why the charts of Ford ($F), General Motors ($GM) and Toyota ($TTM) look the way they do.

The auto market is being hit with a lot of crosswinds. New car sales are down, and used car prices are falling, right? So that makes the sector one to avoid. But I don’t think it’s one to ignore. Here’s why. Rates are rising, and a wave of leased vehicles are coming off lease. So there’s a glut of cars on the used car market. I look at CarMax, and I think — could this be a bad thing for KMX? After all, they’ve got a no-haggle price, and they don’t buy cars that they won’t make a profit on. They don’t look to make a killing on any given car. They just churn ’em through the parking lot. So an argument could be made that a glut of used cars would be good for KMX. But I, not being a used car expert, am just thinking with my fingers on the keyboard. Let’s just watch this chart and see what develops.

Also, one stock in the auto parts sector that’s worth a look is Dana ( $DAN). This company makes driveshafts, suspensions, axles, gaskets and associated parts for off-road vehicles and heavy haul trucks. The earnings growth rate over the past 3 years has been 14%, which isn’t bad for a stock with a P/E of just 10. And contrary to other companies in the industry, Dana’s earnings growth over the past four quarters is actually acceleration, going from 10% in Q2 last year to 85% in Q1 this year. Their earnings are due in a month, so watch the chart. It’s been printing new lows and highs for the past couple of months. Now, all we need is a good opportunity to buy.

Last night I suggested caution in your trading actions. Over the last eight trading days on the Nasdaq Composite, 6 have been negative, with trading volume on 4 of those days much higher than average. So these are distribution days. Also, recall the dramatic selloff on June 9th. This is looking more and more like a shot across the bow. No, the uptrend didn’t break. But this high volume distribution day took a lot of shares lower, and that reflects institutional selling.

Big money is selling tech. Sure, there are bright spots here and there, but that’s the way markets trade. Yes, there is a rotation going on, with money flowing into some financial and industrial stocks. But this takes place over time. It’s not a “trade” — it’s a theme. And with technology being a significant driver of the equity market, a breakdown in semiconductor stocks will be a drag on the entire market.

Narrow your focus to the few stocks that are working. Own those…and keep ’em on a short leash. I have been raising a lot of cash in my trading account simply due to various positions not working. Rather than hold a stock that’s going against me, I’ll just sell the stock and take the stress out of my day. That works for me. But then, I stopped being an adrenalin junkie quite a while ago. Not sure whether it was after my second or 3rd anterior cruciate ligament reconstruction…but I no longer have the “need for speed.” I just want to make money without losing my mind over the swings. And that means that I only trade lightly or not at all when the market becomes murky.

See you in the forum.

–Dan

Good morning. The market is set to open just a bit lower this morning. This should be expected, given the dearth of market moving news this morning.

Tesla (TSLA) is up about $5 bucks today on news that the National Transportation Safety Board (NTSB) has cleared them of any fault in that fatal crash last year when a driver was killed while allegedly watching a Harry Potter movie as his Tesla Model S was speeding about 9 MPH above the speed limit. The car’s automated system was repeatedly instructing him to put his hands on the wheel, but he declined to do so. Ultimately, the climax of the trip was not when Harry killed Voldemort. No, the climax was when the Tesla plowed into the side of a tractor trailer and killed the movie-watching driver. The trailer sustained a small dent. Truly a tragedy, but I have to think that Darwin was looking down with a slight smirk on his face.

So Tesla is cleared, and the Teslonians are happy. I am short the stock with a very small, “I’m scared to death of this stock but I can’t help it” position. Not sure if I’ll cover it this morning, but I definitely won’t add to it. In fact, I may decide to join the party if it hits a new high…or just withdraw and look for opportunities elsewhere.

Watch the homebuilders today. As you know, they’ve been trading in a flat base for the past 4 months. Lennar (LEN) posted earnings well above estimates. Consequently, the stock is trading up near $55, which was printed last Wednesday during trading. A while ago it hit $55.75 in premarket trading, so traders are pretty bullish on Lennar. I never recommend chasing a stock at the open unless it is popping out of a very tight squeeze. The trading range has indeed been fairly tight, but still, I suggest caution on this. If you’re buying at the open, buy lightly. The market hasn’t really been rewarding gap buyers these days (see AMZN yesterday, and NVDA last week).

As we move into the summer months, try to tighten your focus on fewer stocks. With volume lighter this time of year, the market can be more volatile. And since volatility is starting to be more of a historical concept rather than a current reality, any increase in volatility would be welcome. But if you narrow your focus, you’ll find yourself better able to capitalize on opportunities because you’ll see them sooner. With a tight focus, there is less of a chance that you’ll be muttering “woulda, coulda, shoulda”, and more of a chance of saying, “Should I take profits now, or hold it a bit longer?”

I’ll be teaching a trading session next week on trading the first “hour of power” next week. I hope you can make it.

See you in the forum.

–Dan you in the forum.

–Dan

Good morning. we’re looking at a stronger open this morning, with the S&P futures up about 7 points. After a weekend where we shot down a Syrian aircraft, London was the victim of a possible terrorist attack (nothing definitive so far), and Brexit negotiations are beginning, it’s good to see a resilient market. On top of that, the FOMC’s rate hike seems to be digested by the market, with very little acid reflux.

Just a few items to note this morning,

1. Clovis Oncology (CLVS) is screaming up more than 50% (o $92.30) on news that it’s oncology drug Rubraca will have a much wider use for treating ovarian cancer. Typically, a stock that’s up this much is a short candidate, and that very well may be the case here. 20% of the float is short, so there is certainly a short squeeze dynamic impacting the stock. However, biotech is a different animal than other stocks. Sometimes these things just don’t come back. If you are an active trader, you may want to watch the stock for direction. It could go either way, so don’t bring a directional bias into your trading decisions. For most of us, this can just be viewed as an opportunity lost. I know some of you are long CLVS (I’m not). Good for you! Just don’t let the profit slip away.

2. The scuttlebutt is that Whole Foods Markets (WFM) may be the subject of a higher bid than the $42/share that Amazon (AMZN) is offering. The shares are up a bit higher this morning, and are trading 2% above the offer price.

3. The Paris Air Show opens this week, and it would pay to watch Boeing (BA) and Lockheed Marting (LMT). Boeing makes the F/A 18 Super Hornet, which is a bit cheaper than Lockheed Martin’s F-35. President Trump is said to be mulling over a big purchase of new aircraft to update our air force. As you know, Boeing stock has been on a tear since last October, up 44% in just 8 months. That’s pretty impressive for a Dow component. At $198, the stock is just below obvious resistance of $200.

There are plenty of stocks that are working, even in a choppy environment. Strive for consistency and focus only on stocks that are working for you, or are consolidating within an uptrend. On the latter, only buy them when they appear close to breaking out. More money is made through patience than anything else. And more money is lost through hyperactivity and impulsiveness than anything else — because that’s when big mistakes are made.

See you in the forum.

–Dan

Good morning. We’re in for a rough open this morning, with the S&P Futures down 15, and the Nasdaq futures down 58. This morning, the Labor Department posted a strong number in new unemployment benefits applications. Just 237,000 new applications were filed last week, a drop of 8,000. I’m typically not one to get into economic numbers because of the constant readjustments and revisions. Why fixate on a number when it’s likely to be changed next week or next month? But the trend is important here. An article on Reuters notes that jobless claims have been below 300,000 for 119 straight weeks. 300,000 is seen as the threshold for a strong labor market.

So, given the strong employment data, yesterday’s rate hike is likely to absorbed by the market with minimal rebellion. But there are a few wrinkles. The stated reason for the hike was an expectation that economic activity will expand to 2.2 in GDP growth (up from 2.1 last month), though well below the targeted 3% that you hear so much about. But an expanding economy brings inflation, and there are no signs of inflation on the horizon (or in the rear view mirror). But still, the Fed is concerned that it might magically appear.

Such is the way of prognosticators. Make your guess, and then revise it.

Last night, I challenged you to think twice about trading actively in this choppy environment. Tech stock bulls are throwing a fit, with $FB, $AMZN, $AAPL and $GOOGL trading on the low end of a wide range carved out from Friday’s high and Monday’s low. ($NFLX is also in that group, but it’s flirting with falling out the bottom. Several of these stocks have been downgraded recently. And when high flying, mega cap stocks like GOOGL or AAPL are downgraded, you have to pay attention…particularly when they are near all time highs. The usual pattern is for analysts to downgrade popular stocks after they’ve cratered. They are rarely early. They are often late.

Understand that stocks move in cycles. Uptrending stocks tend to advance within identifiable uptrending slopes, and they then rest in sideways clusters. Depending on the stock, these sideways clusters can be orderly and tight (i.e., volatility squeezes), or they can be chaotic and wide. When they are orderly and tight, a way to view an orderly and tight volatility squeeze is to see it as an agreement on price between buyers and sellers. There’s no extreme difference of opinion. The stock is sleepy (see AMZN in March). But when they are chaotic and wide, they reflect a war going on between bulls and bears. There is a huge disagreement over price, and the frenetic selling and buying creates a wild and unpredictable range. That’s what we’re seeing now.

During these times, it’s best to either withdraw, or set very strict rules for position size, and only take action when prices hit an extreme border of the existing range. If you can do that, then you’ve got minimal money at risk, and a greater chance of profit.

My current take is that the tech wreck is a sign of a trading top. It’s summertime, and volatility tends to pick up as a result of lighter volume. There are always opportunities to make money. You just need to be disciplined to avoid gambling.

See you in the trading room.

–Dan

(Which was downgraded from

Good morning. The big news today is the shooting of Congressman Steve Scalise this morning during a baseball practice in Alexandria. News is still coming in and there are a lot of conflicting reports. While I anticipate that this will dominate some of the news today, it is not a dominant news item in the markets. The market is set to open relatively flat, with the S&P futures up 3.50; the Dow futures up 33, and the Nasdaq futures up 18 points.

This afternoon, the Fed is expected to hike interest rates by a quarter point after their meeting adjourns today. The Dow Jones US Bank Index ($DJUSBK) has rallied nearly 7% over the past 5 trading days as traders start to factor in a better lending environment for banks. The regional banks ($KRE) have advanced even more. Last weekend I featured several banks as potential buying opportunities, including $WTFC, $EWBC, $HDB, $MS, $C and $FITB. I can’t say that any are at great entry points, but they definitely bear watching.

In general, I think that two sectors that definitely warrant attention (and investment) are the financial ($XLF) and metal/mining ($XME) sectors. They’re rallying for different reasons, but what’s important is that they are moving higher. Also, within the financial sector, the insurance stocks are doing particularly well. A very illiquid ETF dedicated to insurance companies is the SPDR KBW Insurance ETF ($KIE). When I’m looking at new sectors, one of the things I study is volume. The KIE contains nearly 50 different insurance stocks. How are you gonna decide which companies to buy? Let the volume characterists be your guide. The market is a voting mechanism, and the most “popular” stocks are where you want to be.

Two stocks that jump out at me are:

1. XI Capital ($XL), which is in a well-defined uptrend and at a low-risk buying point just today. Yesterday’s trading volume was 150% above average volume.
2. Aspen Insurance Holdings ($AHL) is still in a downtrend, but starting to form a base at $50 and is close to breaking above the 50-day moving average.

Also, an effort to cut back on the size of the big arms deal with Saudi Arabia has been defeated. The Aerospace/Defense sector ($ITA) continues to move higher. Stocks to consider are Honeywell ($HON), Lockheed Martin ($LMT), General Dynamics ($GD).

I’ll be in the trading room this morning and hope you pop in. There are always a lot of good trading ideas each day, and the “trending” and “moving stocks” tab on the right side of the page make it easy to find them.

–Dan

Good morning. Futures are up this morning as we follow through on the shot across the bow. After a couple of days of fast selling of the high flying Nasdaq stocks, most are rebounding and working themselves back into their established ranges.

Just a simple note this morning about trading oversold conditions. These are the stocks I mentioned last night when discussing oversold rebound candidates:

$NVDA — Must be above the prior intraday high.
$FB — Must be above the prior intraday high.
$GOOGL – Must be above the prior intraday high.
$AAPL – Must be above the prior intraday high. This had a pretty severe selloff yesterday and should test at least $150. It was downgraded yesterday, but no one seems to care this morning.
$NFLX – Must be above the prior intraday high
$AMAT – Must be above the prior intraday high. Tested the 50-day moving average yesterday and bounced with surprising commitment.
$VEEV – Must be above the prior intraday high. The selloff was pretty severe on Friday, but the stock is retracing some of that pullback now.
$PRAH – Must be above the prior intraday high.

You’ll notice that all of these stocks, in order to meet my criteria for buying, must be above yesterday’s intraday high. If they are not, then the selling isn’t quite done. I want to know that everyone who bought yesterday is a winner today. That takes near term resistance out of the way and frees the stock to move higher. But note that if they are too high from yesterday’s close, there is always the danger of a gap that fails. This is something that you should always be considering. You don’t want to chase a stock up too much at the open because a stock that gaps up very high is in danger of petering out as traders take quick profits.

See you on the other side of today.

–Dan

Good morning. Tech is down once again, with Nvidia (NVDA) down $3.77 (-2.5%) to $145.87, Amazon (AMZN) down $5.50, which is just 0.6%. It’s trading at $973.20. The Nasdaq Composite is down 39 points, and the S&P is down just 3 points. So the selling in tech continues, though NVDA and AMZN bottomed out around 8:30 this morning. It’s always a coin flip when deciding whether pre-market moves have any relation to what ultimately occurs during the trading day. Liquidity is very thin, and the big moves you see in pre-market trading can be totally wiped out by 9:32 am.

Here’s my take on the current state of things. I am a seller of tech stocks on any strength. I’ve seen this type of volatility before, though it does not happen a lot. And the fact that it is a rare occurrence makes it even more significant to me. These types of sharp sell offs that occur response to a random note about one particular stock reveal the extreme complacency in the market. The general feeling on Wall Street seemed to be that tech stocks will move up forever. The VIX had been trending lower since a meager “peak” at 16. It finally bottomed on Friday at 10:30 am with an intraday low of 9.39, and then tested that bottom at 11:10 am. The S&P rolled over in perfect sync with the VIX 11:10 test, while the Nasdaq Composite started rolling in sync with the first tag of 9.39.

So we can see that this selloff is highly correlated to VIX levels. While it has largely been a waste of time to analyze the VIX for the simple reason that it has shown extreme complacency since its last peek above 20 on Friday, November 4th (the week prior to our general election), I think it’s critical to track it now. Don’t forget about the FOMC meeting on Tuesday/Wednesday after which they will announce their decision on rates, and will also give their latest prognostications on the economy (always wrong, but market moving nonetheless). If the selling continues and the VIX springs higher to 15-16, it could signal a short term buying opportunity. When I started trading, the extreme lows of the VIX were at around 18 points, with the extreme highs at around 50. So you can see how things have changed throughout the years. Once extreme levels persist for long periods of time, they become the norm. They are no longer “extreme”.

So we are trading in an environment where complacency is a pervasive market condition with little utility other than to support anyone who says, “Man, the VIX is really low. Lots of complacency in the market.” These days, remarking on complacency in the market is about as insightful as revealing the fact that stocks trade a lot between 9:30 and 11:00 am on weekdays.

So keep an eye on the VIX. It matters now — at least for the next few weeks.

Also, don’t ignore the weakness of the FANG stocks. Those have been the leaders for a long, long time. At some point, the institutional sponsorship will drop noticeably as the institutions start taking profits by selling their stock to the latecomers who are still eager to buy. But make no mistake — when institutions flip from buying to selling, there is not enough demand in the market to prop up these stocks. So set your levels on your stocks, and be rigid in your stops. This week will be volatile, and that is a tough environment when you are used to tame markets.

See you in the forum.

–Dan

Good morning. Another relatively flat open as traders around the globe wait to see the outcome of what’s been called “Super Thursday”.

Tomorrow we’ll hear from James Comey as he offers testimony to Congress on various matters, all of which you know about.

Also, the ECB is set to announce its newest monetary policy decision about its GDP growth and inflation outlook and whether to start tightening monetary policy.

Lastly, the United Kingdom holds its general election in less than 24 hours, and the result could be a market mover. I won’t offer any conjecture on the ramifications of the election outcome for the simple reason that I don’t know much about it. It’s tough enough to keep up with domestic politics. I won’t even try to understand the politics on the other side of the ocean; instead, I’ll just watch the market and know that the wisdom of the trading crowd will figure things out.

Aside from the headline matters just mentioned, I notice that metals and mining stocks are close to breaking out. The SPDR Metals and Mining ETF ($XME) has been declining since its peak in February, falling more than 20%. But over the past several weeks, this sector has been consolidating and looking like it’s time to consider steeping back into this sector. Similarly, the basic materials sector ($XLB) actually hit a new all time high last Friday. It’s been building a base most of the year and also looks poised for more gains. Both of these sectors could be factoring in the proposed $1 trillion infrastructure spending program.

Here’s how it is supposed to work: The federal government ump will spend $200 billion on infrastructure projects over the next 10 years. It is hoped that this spending will prompt an additional $800 billion in spending by the private sector, states and local municipalities. A rarely discussed topic is the extent to which the federal government should be footing the bill rather than just allowing the individual states to deal with their own issues. After all, there are 50 of ’em; and I’d like to think that each state has a better handle on what needs to be done than a central planner in Washington, D.C. But either way, the market likes it when the government — any government — spends money. Over time, a $1 trillion spending program boosts stocks. As such, I’m a big fan of any infrastructure program that actually passes Congress.

In this weekend’s Weekend Update, we’ll look at the metal/mining and basic materials sectors. There are several stocks that are flashing “right here, right now” signals and I want to get in on them before the rest of the market does.

Don’t forget about the trader training session at noon today (9 am Pacific Time). We’ll be looking at trading opportunities in the current market environment, and I’ll be covering any stocks that you are interested in. I always look forward to these sessions and I hope you’ll be there.

–Dan

Good morning. We’re looking at a weaker open, and the reasons are pretty widespread. On the political front, the Comey Reality Show debuts on Thursday, and that’s got everyone on edge. The Brits are holding a general election in a few days, and in light of the recent terrorist attacks, there is a lot of uncertainty about the outcome. The FOMC will be meeting next week, and the European Central Bank (ECB) will be meeting on Thursday to discuss monetary policy in the Eurozone. And President Trump is tweeting about a big meeting today with Republican “leadership” (a word without a definition) concerning tax cuts and healthcare. That’ll always keep people on edge because of the uncertainty about the aftermath of the meeting. More tweets?

This is all the stuff that traders pay attention to because all of these issues have a long-term impact on the market. And “long term”, as I use the term, is an impact that lasts at least 6 months, and often much longer.

The short term news blips might influence stocks for a brief period of time — the morning the news hits the wire, perhaps an entire day,…but most news items don’t have long term consequences for the market. Healthcare and tax issues are long term issues. Leadership in the UK is a long term matter. FOMC and ECB banks have long term influence on the market. James Comey…will not have a long term influence on the market. He is a moth with in insatiable attraction to spotlights, so he’ll have his day on Thursday. I’m sure some of his comments will prompt a negative news flow, which will be a drag on the market. The extent of the negative news flow? Unknowable right now. Might turn out to be a big deal, might turn out to be nothing.

The bottom line is that there are a lot of distractions this week, and that’ll make for some trendless trading.

My overall outlook remains bullish. We’re struggling with resistance, but I don’t see any negative divergences that hint at more selling.

I mentioned several stocks that were in squeezes last night. I suggest that you check those out this morning and log into the trading room to discuss. My bet is that some of them will be money makers.

See you there.

–Dan

Looking for an edge in your trading? Start with getting a handle on your trading decisions.

The decisions you make obviously determine the profit or loss that you take. One tendency that many traders have is the practice of closing their entire position in a stock or option trade. Whether it’s a stop loss order or a decision to sell, do you just liquidate the entire position? Or, do you assess the risk of selling too early and missing out on profits versus the risk of holding the entire position and losing more money?

When you trade “fractionally”, you gradually increase or decrease your exposure as your trade idea unfolds. You have an expectation for each trade. As the trade unfolds, is it consistent with your expectations or is it proving you wrong? And as it unfolds, are you sticking with your plan or just making emotional decisions based on money?

Focus on what the stock is doing, not on dollars and cents. If you have a position size that’s appropriate with your risk tolerance, then the dollars you are up or down shouldn’t influence your decisions. Focus on the chart instead, and let the dollars take care of themselves. What is an appropriate position size relative to your risk tolerance? One rule of thumb is a risk of 2% of the value of your account. And “risk” is the difference between the entry and the exit, multiplied by the number of shares you own. If your account size is $100,000, then you should never take a loss of more than $2,000 on any trade.

When you’ve got your maximum risk locked down, then you have the freedom to just let the stock work. There is an ebb and flow to even the strongest stock. If your position is working, you might have a tendency to fixate on your paper profit. And if you are fixated on the dollars, then each pullback in the stock seems like a loss. You think, “If I’d only sold it yesterday, I’d be up more money. Maybe I should sell it now.”

When you think that way, you’re actually trying to pick the top of the stock. You’re trying to sell right at the high, which is impossible unless you just happen to be lucky (or are a liar). It is obvious that the profit you have on an open trade will ebb and flow along with the stock. But your emotions about money might cause you to forget this linkage. In so doing, you let the money take over and your trading idea goes out the window. The result? You sell all at once,…and often watch the stock continue higher without you. You’ve turned a great trade into an average one by fixating on the money.

The idea is to make money. Anything you buy should be with the expectation of profit. So when you start profiting, be happy about it. As long as the stock is generally moving in the right direction, just let it work. You’ll make even more money. The only thing better than making money in trading is making…MORE money. Don’t let fear of losing some of your profit prevent you from maximizing your profits.

Two key points:

1. Make sure your position size is appropriate. If you are stopped out, you should not lose more than 2% of your account balance. The position should not keep you up at night. If it does, the position is too big. (And if you forget about the position, then it’s too small.)

2. Scale into a stock with multiple buys at various levels. As the stock moves in your favor, buy more. But treat each purchase as a separate trade. As the stock moves in your favor, be sure that you can raise your stop on your initial trade to close to break even. When you can do that, you’ve just minimized your risk of losing money on the trade. This enables you to increase the position size without going over your $2,000 risk limit.

While these two basic concepts are a starting place for maximizing profits, the devil is in the details. But if you follow these two disciplines consistently, you’ll find it much easier to focus on the quality of the trend in the chart rather than the bucks.

Also, I’ll be holding a training session on Wednesday at 12 noon ET (9 am PT). Hope to see you there.

–Dan

Good morning. The market opened flat again today. Simply put, volatility is virtually nonexistent, and it is a very very slow news day.

Just a couple of thoughts about the FOMC meeting later this month:

Later this month the Fed is likely to hike rates. Expect the typical banter and ginned up suspense by the financial pundits. A quick google search will yield a lot of conflicting cross talk among Fed presidents. Dallas Fed President Robert Kaplan recently said that he thinks the FOMC should raise rates twice this year, and start to unwind the Fed’s $4.5 trillion balance sheet. But then, don’t forget about James Bullard, another Fed president who changes direction more than a falling leaf on a windy day. He fears that the Fed is going to hike rates too quickly. So basically, it’s a mixed bag in the FOMC when it comes to hiking rates.

But the big deal is the unwinding of a $4.5 trillion balance sheet.

Here’s how they do that: Over the past 9 years, the Fed began buying tons of US treasuries (and other assets such as mortgage-backed securities, which are beyond the scope of this note). They did this to keep rates artificially low. The result? Free money! While a lender (such as a bond buyer) used to be able to get a return on their money, the quantitative easing program made that impossible. Why should you get paid for lending your money when the borrower could basically get it for free? Interest rates were so low that borrowing had virtually no cost — other than the requirement that you pay back the loan. So investors with money had to search elsewhere to find a decent return on their money. The result? A bull market in equities that continues to reward investors.

Back in 2014, the Fed ended its bond buying program. The announcement was made on October 29th. (At that time, the Fed’s balance sheet was a whopping $4.5 trillion bucks). This type of thing is rarely a surprise. The market began factoring this change in Fed activity a few weeks earlier. The S&P fell more than 6%. By the time of the announcement, the market was already in rally mode, and the bull market continued unabated.

While the Fed stopped buying bonds in 2014, their balance sheet was stuffed with all the bonds they had bought between 2008 and 2014. As those bonds matured, the Fed would reinvest the proceeds back into the market. So while their balance sheet wasn’t getting bigger, it wasn’t shrinking either. It has been static, remaining at $4.5, all with varying maturity rates.

The Fed is expected to announce that they’ll only be reinvesting a portion of the proceeds they receive from maturing securities. Over time, the balance sheet shrinks.

This is a good thing…unless it’s not. If the Fed unwinds the balance sheet too quickly the impact on the market could be significant. I really don’t see this happening because the Fed is about as tame as tame can be. They talk a lot, but do very little. This is another good thing. So I think the unwinding will be soothing to investors as they anticipate a gradually normalizing Fed.

The reason I’m mentioning this is because you’re likely to hear a lot about this in the next few weeks. It’s really not confusing…if you understand the process.

(Don’t overtrade. This is a 4-day week, and volume is light.)

–Dan

Good morning. We are looking at a stronger open, with the S&P futures up 5 points, and the Nasdaq up 25 points. An open that’s just 5 points higher than yesterday’s close puts us right back at Thursday’s intraday high. Today is the last trading day of the money, and I suspect there will be an upward bias as money managers do their best to create May account statements that tell their clients that they are invested in the “right” stocks.

In the months ahead (at least, in THE month ahead) I’m expecting a bit more volatility than we are used to. The Fed may (and probably will) hike rates. If so, the financial sector should get some action. You’d expect a rally in the financial sector as a result of higher rates, but don’t be so knee-jerk reflexive that you commit to buying the banks. Instead, wait to see whether the financials catch a bid, and then be very selective. After looking at the charts, I’d say that Citigroup (C), Visa (V) and MasterCard (MA) are in a good position to move higher. The others? Lots of resistance overhead, which should put a damper on any rally.

The retail sector continues to struggle, with Michael Kors (KORS) reporting some tepid numbers this morning. Their EPS beat by 3 cents, while revenues fell below estimates and guidance was depressing. So there’s no safe place to invest in retail.

One sector that I haven’t been discussing (at least for the last week) is the Aerospace/Defense sector. Our military executed a successful test of our “star wars” air defense system. An ICBM shot from the Kwajalein Atoll in the Marshall Islands was intercepted by a missile fired from Vandenberg Air Force Base in California. That’s pretty cool (though it’s a shame that this test is being run because some crazy fat guy with a really bad haircut is flexing his muscles and threatening to launch a nuclear warhead at the mainland. So this successful test helps the following companies, who were instrumental in our air defense technology: Boeing (BA) — prime contractor. Northrop Grumman (NOC), Orbital ATK (OA) and Raytheon (RTN) — subcontractors.

If you look at their charts, you’ll see that they are pretty steady climbers and are worth a look.

If you have questions about them, let’s chat them up in the Forum today.

See you there.

–Dan

Good morning. The market continues to trade in its tight range. The longer this range persists, the healthier the market becomes. Sounds a bit contradictory, but it’s not. If a chart shows a stock/index up at a prior high a couple of months of rest (as we see in the S&P in early March, and now again last week), it can be indicative of a double top. Prices rose to an all time high, pulled back, retested that all-time high…and were unable to get above that level. Supply just overwhelmed demand and the stock reversed course.

But if the price moves back up to the prior high and just hovers there, it’s indicative of persisting demand at high levels. And that persistent demand is being met by enough supply to keep the stock/index from moving higher, but not so much supply that the demand is overwhelmed. In this latter case, the AVERAGE cost basis of all recent buyers is within a pretty tight range. Nobody is complacent because they are doing so well, and nobody is fearful because they’re losing money. Rather, everyone is simply waiting for their risk to pay off. And the longer those levels persist, the bigger that crowd gets. Nobody selling. Nobody buying aggressively. And traders who were waiting for more of a pullback start to become a bit nervous that the market is going to take off without them. So they start buying a little stock too.

Can you envision this? A gradual influx of people into a tight space. At some point, the crowd is going to get so big that the tight space expands and finally pops. Boom! We have another move higher and the uptrend continues.

But if there is no crowd buildup, this dynamic never develops. Rather, some buying pressure takes the stock/index up to its prior high and meets sufficient supply to get the stock that the bulls want. But there is not enough of them to keep buying. Very quickly, traders who own stock see this test of the prior high as an opportunity to take profits. They start doing that, and boom! The stock/index falls, and we have formed a double top.

So the longer the S&P trades within this tight range, the stronger the range becomes. And the more likely it is that the trading range is becoming a base from which stocks spring higher rather than a ceiling that will put a cap on any rally.

We’re not there yet. The current tight range is just 7 days old. And the longer congestion in the S&P (between 2,350 and 2,400) is just now at a point where the 50-day moving average has caught up to it.

So my suggestion is to simply watch the action play out. There are plenty of stocks which are giving us nice gains, but most are just marking time. Wait for evidence that the current trading range is truly a base rather than a top. Trust me. If this range leads to an upside breakout, you’ll have plenty of time to get in. And if it instead turns out to be a top (remember…we are entering the slow season where SPF is more important than SPX), then you’ll be glad that you weren’t complacent.

See you in the forum! We’ll be looking at Tesla (TSLA) and Facebook (FB). Both are down pre-market…though I suspect they’ll just be met by sufficient demand to keep their decline shallow and brief. (Think “AAPL”).

–Dan

Good morning. We’r’e looking at a slightly weaker open — and I mean “slightly”. Apple (AAPL) disappointed the market last night with weaker than expected iPhone sales, and projected a 1% increase of iPhone sales year over year. That’s pretty low if you ask me (though no one has). Lots of folks are focusing on Apple’s service business, which has impressive growth. This aspect of Apple’s business program includes Apple Music, iTunes, iCloud, the App Store, and Apple Pay…and probably several other products that I’m forgetting. The thing about the service business is that it’s not subject to the whims of the marketplace. If you like music, Apple Music is where you go to get all your stuff for a pittance. From Jay-Z to Journey. From Beyonce to the Beatles. It’s all there, and you can download it onto your iPhone so you don’t have to be on line to enjoy all the wonderful music that’s being put out today by our fabulous artists!! (OK, I’m being sarcastic. Most of the new stuff I hear seems like buying retreaded tires. Looks like a tire. Has a glossy look to it because of the wonder of Armor All…but it just doesn’t last very long before blowing apart).

But all things considered, I think this little pullback is going to be met with buying. The stock has run about 25% this year, and we’re just 4 months into it. So you’d think the stock would be down more than 1%. But it’s not. So the stock is still in demand. No one is bailing on it. If you’ve been looking for a buying opportunity, this might be all you get.

A couple of other items that you should keep your eye on are the FOMC, and France. The FOMC is meeting today and tomorrow, and that’s always a fun time as traders wait in eagerly to hear from the Oracles of OhMyGosh about their take on our economic future, and how they plan to help us out. Janet Yellen won’t be speaking tomorrow, so all we’ll be left with is a statement that will be examined by linguistic experts to divine any hidden secrets about what they really think.

Also, France is holding their presidential election on Sunday, but the candidates are holding a debate tonight (this afternoon, for us in the US). Since I don’t speak French, I won’t be trying to watch it live. But I am interested in how the debate is perceived because it could move the markets. Macron represents the status quo, and Le Pen represents change. I have no stake in the election; I just know that the market likes the status quo, so any hint that Le Pen might take the top spot could move the markets. (With the latest polls showing a 60/40 split between Macron/Le Pen, I think it would take a massive shift in voter sentiment to get anything other than the status quo. I think the market will like the results, and that will elicit a big yawn from traders. Potential crisis averted!)

I believe successful trading depends on the balance between patience and action.

If you are too patient, you wind up doing nothing. You miss opportunities because you are waiting for a better one. So are you really being patient…or are you frozen and hesitant?

If you are too eager to take action, then any shiny object looks like a great opportunity that must be seized before it gets away. That doesn’t work either because hyperactive traders typically miss the best opportunities…because the money is being made during the period in between the buying and selling. If you are constantly buying and selling, you minimize the “in-betweens”.

Here’s an example: Alibaba Group (BABA) is up 35% in 2017. Pretty nice move, if you ask me. But it also traded sideways for about a month and half — more than a third of the time. If you sold during the consolidation period, you made about 15%. But you missed out on the other half of the move.

My point is this: Learn to be patient with your stocks. Learn to differentiate between those that are simply not working (i.e., you’re losing money), and those that are not advancing. There is a difference. Every stock needs to take a breather. Give your stocks room to breathe; to rest. If you do that, you’ll find that you’ve got a better balance between patience and action.

And you’ll also make more money, which I always enjoy.

See you in the forum.

–Dan

Good morning. We’re looking at a relatively flat open this morning. The FOMC is starting its two day meeting today, and the expectation that they’ll hike rates is quite low. For a lot of different reasons, I just don’t see a hike this time around. Usually we’d hear several FOMC members jawboning about a “live meeting” and “we could do it at any time”. But they’ve been quiet. Only Ben Bernanke has been in the press lately, asking folks to give him credit for the success of some of his policies. And hey, his widely read book is now available in paperback. “The Courage to Act” is now available in paperback for just $13.56 on Amazon. (Given all the money that he printed, $13.56 is nearly free).

Apple (AAPL) is due to report earnings after the bell and the market expects a move of about $5 bucks. That puts the potential range this evening between $141.58 and $151.58. That’s your risk of holding the stock over earnings. I have no position in AAPL, but if the stock falls and tests the expected downside range, that will be a buying opportunity. And if it instead tests the $151.58 level, I’ll pay particularly close attention because the stock gapped up on fourth quarter earnings and is now more than 15% higher than the open. It never looked back.

But I think it’s reasonable to say that, as Apple goes, so goes the Nasdaq — at least for a day. Facebook (FB) will be reporting tomorrow after the close. That’s got an expected move of about $6.35. Because Facebook (FB) is already extended, the risk of a “sell the earnings” is higher than you might think. BUT…this is one of those stocks that does not reward pessimism. The uptrend has been pretty obvious for the past 3 and a half years. But if you look at the daily chart of Facebook (which hit an all time high yesterday, and will extend that streak today), you’ll see that bullish gaps after good earnings reports virtually always gave those who were patient a better chance to buy the stock within a week or two.

I hope you are doing well, and that your persistence and patience are paying off. Remember that trading is not easy…but it is quite rewarding for those who do the work.

See you in the forum.

–Dan

Good morning. Futures are pointing to a slightly higher open this morning. After Friday’s weakness (which really wasn’t that bad), it’s comforting to see stocks up a bit this morning. It leaves us close to the top of the trading range, and at least perpetuates the continuing building of a base. The wider the base, the firmer the ground under the hooves of the bulls. And the firmer the ground, the higher the bulls can jump when it’s time to move higher. (Bulls really can’t jump very high, but I thought the analogy worked, so I just went with it).

What is just a bit bothersome about today’s higher open is that the reason seems to be that the legislature has reached a new deal to fund the government until the end of the fiscal year (Oct 1st, I think), and avoid a government shut down. I’ve always found that government shutdowns were typically good for the market. No politics — just fact. The market hates uncertainty. It really LIKES the status quo. So when the politicians are taking a well-deserved break from their very difficult jobs, nothing really happens. And when nothing really happens, money managers can worry about other things, like earnings, business conditions, new products, the consumer, inflation, etc.

There are always things to worry about. The fewer they are, the higher the market climbs. So we want a Goldilocks Wall — enough worry to get a foothold to climb higher, but not so much worry that the wall will crumble of its own weight. My father would have liked this market — we used to say that he would even worry about there being nothing to worry about. The market is a bit like that. Always something to worry about — but you’ve got to keep the big picture in mind so that the worry doesn’t keep you out of opportunities.

I notice that Amazon stock is trading up about $6 this morning. That seems like a pretty big jump, considering that Amazon closed about $6.60 higher on Friday. Wow! But then…when you look at the details, it’s a bit more sobering. Amazon is now trading just a bit below $930. On Friday, the first 4-1/2 hours of trading were at significantly higher levels. So despite an apparent jump at the open, I would be leery of jumping in on th is golden opportunity to get in on the reversal. If it’s a true reversal and a rare buying opportunity, we’ll know soon enough. I suspect it’s going to be an oversold bounce — a bull trap.

Make your own decision, but I’m just watching it to see if there are more opportunities to short calls against the stock.

I’ve received a bit of feedback about my “delta neutral strategy” video this weekend. I’m glad that you “got it”, and that it works for you. I think even those who do not trade options should know basic option concepts. It will bleed over into your trading.

I’ll see you in the forum.

–Dan

Good morning. This afternoon is going to be very critical to the health of the market, with Alphabet (GOOGL), Amazon (AMZN) Microsoft (MSFT) Intel (INTC) and Starbucks (SBUX) reporting their earnings results for the first quarter. We’ve really got some of everything in that group:

Alphabet: Cloud based solutions, search/online advertising revenue, fiberoptic business, self-driving cars, ecommerce, data solutions for business…the list is virtually endless.

Amazon: We get retail numbers from the Big Dog, which tell us just how badly they are stomping on brick and mortar retail stores. We also hear about their progress on Amazon Fresh, Basics (its own electronic products), Alexa and Echo…which may be coming to my house soon, so I can start feeding the CIA and NSA false information, movie/TV industry, and who knows what else. Wormholes?

Microsoft: Cloud based solutions, software (Office, Windows OS, etc.), and hardware (Surface, Microsoft PC accessories, servers, phones), consulting, advertising, and training/certification services.

Intel (INTC): Semiconductors — the biggest company around.

Starbucks (SBUX) — you know what Starbucks does. You’re probably drinking a tall skinny double latte with sprinkles, soy milk, an add-shot (because you didn’t get much sleep), and sugar free caramel syrup. (I, of course, am drinking a large cup of coffee — black).

So there’s something for everybody who is trying to figure out how our economy is really doing. Between these five companies, we’ll get a very broad and deep picture of the overall business environment. And that will make for an interesting day tomorrow morning with a lot of trading opportunities for all of us.

As for yesterday, it was a bit disconcerting to me to record the strategy session about a half hour before the bell (a rare thing for me, but sometimes life gets a say in my schedule), and then get a CNBC alert that the market was selling off after “digesting” Trump’s tax plan. As I recorded the strategy for the next day, the market was stable. Shortly thereafter, the market fell almost 1/2 of a percent before stabilizing into the close. On a happy note — when I looked at the “damage”, it really wasn’t much to speak about — it formed a minor “tombstone doji”, which was more doji and less tombstone. And that “damage” is going to be repaired at the open, as the Nasdaq futures are up 15, and the S&P is up about 4.

So there is still a bid to this market, and I urge you to check into the forum each day. The right side of the forum past highlights all of the tickers being discussed and traded by our traders. I get an impressively high number of stock ideas from the list. I click the ticker, and then read all the comments related to that ticker. It’s like walking into a trading room and saying, “Whatcha doin’? Anything happening today?” And the answers are impressive.

Hope to see you there.

–Dan

Good Morning! Steve Mnuchin confirmed this morning that President Trump is indeed after a 15% corporate tax rate. But I think we’ve already seen the market’s response to that over the last couple of days after it was first reported. While that news is a definite boost for a market that’s already on the move, it’s probably a good example of “buy the rumor, sell the news.” Or, in this case, “buy the promise…and then just buy a little more when the promise is repeated…and then buy a wee bit more…and finally take a seat and see what others are doing.”

Frankly, the gridlock and “resistance” to any government change is not particularly bad for the market. Seems like it would be — but the numbers speak for themselves. The S&P rallied about 13% since the last election and is, after all the hiccups, lawsuits, Paul Ryan failures, and riots, the S&P is down 1/2 of a percent below the all time high. And by the looks of things, we could see that level eclipsed today. Why is this? Well, stripping away the politics, the market loves gridlock!

Mr. Market tends to think: “Governmental policies and regulations may be the enemy of business, but they are the enemy we know. It’s nice to think about lower taxes, reduced regulations and infrastructure spending, and all that good stuff. But money is still cheap right now. The possibility of business-friendly change makes me smile…but change is also complex, and let’s admit it — we really don’t know WHAT the final picture is going to look like. So, with gridlock, we’re not guessing. And confidence breeds buying.” And that’s that.

So, party on, Garth.

Twitter (TWTR) crushed and is up nearly 10% pre-market after beating estimates on revenue and earnings, and reporting stronger user growth than estimates. So that’s a great report, although the revenue actually declined despite user growth. So it’s kind of backasswards to me — but this is a big development for the stock, which has been languishing in a shallow slide of prices since last October. After a horrible 3 report last October, the stock lost 34% in market cap in 7 trading days. Since that time, we’ve seen a slow drift to $14. So you’d have to interpret this pop as evidence that the worst has been priced into the stock. And when the worst is priced in, things can only get better. So Twitter is one to watch today.

One other comment — Chipotle Mexican Grill (CMG) reported solid earnings and the stock is up just slightly pre-market. This is one to watch. The March breakout remains intact and the stock has a lot of upside over the next several quarters. While it has to run through $500 first, I don’t think a price target of $600 is unreasonable — and I’m just looking at a weekly chart and drawing some lines. And even a price of $600 is still 20% below the all time high. A $600 handle is almost exactly halfway between the breakout in late March and the all-time high of $760. It won’t get there anytime soon…but I do believe it will get there.

I’ll be in the forum this morning, so don’t be a stranger.

–Dan

Good morning. Once again, we are on track for a very positive open, with the Dow futures up more than 150 points. This is a big rally and we’ve got to let our positions run. This can be tricky right now because of yesterday’s dramatic gap above the trading range that’s dominated the market for the past 4 weeks. Caterpillar (CAT) absolutely crushed its estimates this morning. DuPont (DD) beat the street. and 3M (MMM) is down a bit, despite beating earnings estimates. McDonalds (MCD) — posted Big Mac-sized earnings and is up substantially.

So, as we’re seeing yesterday and likely today, these post-earnings gaps are holding up. In the preceding weeks, gaps would tend to be sold into, and they’d fail. That’s always a sign of a heavy market, where traders view any sign of strength as an opportunity to sell. But when stocks gap up and hold, the underlying dynamic is different. Now, there are momentum-oriented traders in the market, and they’re buying in anticipation of even higher prices.

So the market is, at least yesterday and today, quite strong. Tomorrow will be the third day of strength — and remember the 3 Day Rule. If you’re the guy buying on the third day, you aren’t exactly at the front of the pack. It’s likely that you’re just eating the dust of faster/smarter traders before you.

The sudden strength of the market is not something that anyone could have predicted — you can guess, but you never know for sure whether the next move will be higher. But you can react to the move when you see it, and the quicker the better.

Again, don’t be holding losing positions. I like to have cash on the sidelines so that I can be opportunistic. I also like to make sure that I avoid being a sold-out bull, where I know the market is going higher, but I’ve sold all my positions to book profits. The way I avoid that frustrating scenario is to watch my trades more closely. And if I’m changing my assessment of the market, from more cautious to more aggressive, I resolve to be very vigilant. Because a steep market can trip up and reverse at any time, I am very focused on any stock that I have added to. If I make another purchase of shares on a stock that I’m already profitable in, then that stock gets a lot more attention. I’ll trade around it, always looking at how much risk I am exposed to.

And I accept the fact that, in hindsight, I could have made more than I did. I could have gone “all in”, and then had an amazing run because I would have known when to liquidate everything. The perfect roller coaster ride. Ride it all the way up, and then hop off just before the coaster falls down the other side. Nice to be king. Unfortunately, that’s not the way it works out.

But as you look at this market, you should be seeing that the “heaviness” that was pretty pervasive these last couple of weeks is no longer as prevalent. So I’m saying that the “conditions of the market have changed.” No longer is this a “sell into strength”. Now we are back to “buy a strong stock when it lets you in (minor pullback that finds support slightly below the last high), and then ride it higher, watching closely.” Adjusting your market/trading outlook is very important as new developments come in. That’s what winners do. They see new information, and they base their actions and outlook on that new information. This approach is much more profitable than the approach of just sticking to your opinion even in the face of conflicting evidence. That’s just being stubborn. And nobody ever made much money being stubborn…and a LOT of people have lost a lot of money being stubborn.

Have a great day!

–Dan

Good morning. The futures are up sharply as the French election didn’t produce any surprises. And these days, any election that goes as projected is a seismic event that moves markets! And it makes investors a bit more confident as they wonder if they should continue to climb that wall of worry, or if they should just be happy that they’re not dodging boulders being thrown off the wall by the bears.

Well, I hate to be the bearer of bad news, but there are a few more unpredictable events to deal with over the next couple of weeks. First, this Thursday brings us Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOGL). That will make Friday a pretty sporty day. Next, on May 7th the French go to the poles to elect their President. If Le Pen is elected, they will say good bye to the EU, and their immigrant situation will at least be addressed in actions based on reality rather than on the fantasy that all of the governments in Europe have been feeding the people. That would likely put a serious dent in the market because of the unpredictability of the situation. Seeing another strong nation leave the EU and go back to their own currency would be a serious thing. It would also be a buying opportunity.

Remember Brexit? I do. It was actually fun watching the BBC reporters calling the referendum in real time. They were soooo soooo confused. It was a real window into the world of broadcast news television. So much confidence because they always have a handle on what is happening. But when it doesn’t happen in the way they expected, they are revealed for what they really are — very small, people who equate passion and partisanship with intellect, and who are quite comfortable reading cue cards that were written by someone else. But when the cue cards are pulled and they have to ad lib…well, that’s where the fun begins. The same thing happened during the US election, but no need to go into that. All of you know what I’m talking about.

The consensus is that Macron will win — and while he’s not in one of the big major parties, he is still considered an insider. And since 60-70% of the electorate in France (I forget the exact percent — think it is 70%…but don’t hold me to it) favor staying in the EU, Macron has the inside track because he’s a EU guy. But who knows? I don’t have a dog in that fight. The only way I will ever visit France on vacation will be to travel someplace warm–like Hawaii or the Bahamas–hop on the interweb, and have a YouTube day, where I see all the sights in France. It will be really fun.

But the thing to watch next week will be the multi-national companies like Caterpillar (CAT), Microsoft (MSFT), Alphabet (GOOGL), Boeing (BA), and McDonalds Corp (MCD). If Macron prevails, we should see quite a rally. It might be just the thing to kick the market higher.

This morning, note that GOOG and Amazon (AMZN) are up $9 and $10, respectively. Both will be testing their all-time highs, so watch them carefully. As they go, so goes the market.

See you in the forum.

–Dan

Good morning. Futures are up a bit, with the S&P set to open about 7 handles higher. The higher open won’t really change the dynamic of the market though. Back on March 21st, the S&P sold off on heavy volume, breaking through the recent low 2,355. That’s the level that’s important to me. Currently, the S&P is trading between 2,320 and 2,355. So the impact of today’s higher open will be to put the S&P right in the middle of the range. And since April 11th, the S&P has been below the 50-day moving average.

Because of the above facts, I’m looking for a rebuilding phase that will take a while. Ideally, we’ll see the market trade in the current range for a month or so. That builds a more solid base from which this amazing bull market can start the next leg higher. And during that time, there will be plenty to do in order to keep your account growing.

I’ve said it before, but a sideways market isn’t bad news for those who have some skill and attentiveness. There are always stocks that are in solid uptrends, and there are always sectors that outperform. When the market is consolidating, there are fewer choices. We we all have the same access to information, but we don’t all act the same way. Some stick with stocks they are comfortable with, despite the fact that they are declining. Others break out of that rut and focus on what’s happening rather than what they wish was happening, or what they remember happening in the past. Institutions see the same things you see…and they’ve got to put money to work. So finding a high growth company that holds a bid when the market is declining will tell you something about that stock — it’s under accumulation. Those are the stock that we’ll continue to focus on. And with all the geopolitical risk out there, I suspect we’ll have some awesome opportunities in the coming weeks and months.

For the first time since I was in kindergarten and had to practice hiding under my desk just in case the Russians hit us with a nuclear bomb, there is talk about North Korea actually getting to a point where they can hit the U.S. I seriously doubt that this is a real danger, but just the fact that it is being discussed by anyone other than Alex Jones indicates that folks are wrapped a bit tight these days, and that should make for the type of volatility that rewards the disciplined, and penalizes the skittish.

I don’t know about you, but I’m having fun trading this market. And I’m having fun because I’m not mired in the past, dominated by memories. Nor am I fixated on the future, waiting for better times. Instead, I’m focusing on staying in the present — never believing much of anything that’s said in the media (both financial…and otherwise). I don’t think of it as “fake news” because that’s a waste of my time. Focus on that stuff and you’ll find yourself getting sucked in to issues that do nothing to improve your quality of life. Just focus on what’s happening in the market — in particular, how stocks REACT to news. Focus on that stuff, and you don’t have to figure out whether news is “fake” or whether it’s “real.” Instead, you focus on what actually makes you money.

Focus on the money, and most other things take care of themself. Think “Serenity Prayer.”

See you in the trading room!

–Dan

Good morning. Another strong open this morning on some strong earnings reports by Morgan Stanley (MS), Intuitive Surgical (ISRG), Lam Research (LRCX) an d Abbott Labs (ABT). The indexes are still in jail and I would be suspicious of any breakout. While nothing is guaranteed, I think there is a very strong likelihood that any upward gaps will be sold into. That should be your default position.

There will always be the exception, so don’t just shy away from a stock because it gapped. Instead, watch it closely and keep your mind on risk management rather than all the sugar plums dancing in your head.

The next few weeks promise to be quite volatile as several important companies report earnings. In particular, April 27th (next Thursday) will be nuts (actually, Friday will be nuts). On Thursday, Alphabet (GOOGL), Amazon (AMZN), Celgene (CELG) Dominos Pizza (DPX), Alexion (ALXN), Raytheon (RTN), Union Pacific (UNP), Boston Scientific (BSX)….and a slew of regional banks! So be aware that the volatility in the market will rise dramatically next week as traders struggle to digest the information.

And because we are in consolidation, the market could break in a meaningful way either upward…or downward.

Sadly, nothing is guaranteed….other than your ability to trade prudently and avoid impulsiveness. Come into each day with a plan. And that plan can always include not doing anything except watching and learning…or buying/selling specific stocks according to your plan.

It’s important to have a plan. Your plan might not even be a good one, but it’s better than having no plan at all. If you have a plan that doesn’t pan out, at least you can learn from it. But if you have no plan, then the only thing you’ll have learned is that you shouldn’t had a plan. And you know that alrleady. 😎

See you in the forum.

Dan

Good morning. Stocks are heavy today, and I doubt it’s going to lighten up before a 3 day weekend. The DJI and SPX are both below their 50-day moving average, which is actually never a bullish sign. The way these indexes slid below the key intermediate term trend indicator is a bit worrisome to me. Over the last two weeks, the S&P rallied off the 50-day moving average, but never really impressed much. There was too much supply at 2,370 (which had been a support level before it was so rudely violated by the bears that it reminded me of a fairly graphic scene in The Revenant (I only watched the trailer. I thought Leo peaked at “Rose!!!”). So once that 2,370 level was broken, it turned into a ceiling of pain. Whenever it was toughed, it started gushing stocks. So now the S&P has been back to visit the 50-day moving average. While Tuesday’s trading appeared to be a successful test of the 50dma, it did not lead to anything. It was a fakeout. No follow through.

It was like a bunch of guys hiding in a foxhole. They’re cowering in fear. Finally, one brave soul with a grandfather named Audie say, “C’mon boys! Let’s go get ’em!!!” He charges from the fox hole, scurries forward to cover, looking for the enemy and readying to do battle. He then looks behind him to see how his band of brothers are doing. All he sees are the tops of some helmets, with some eyeballs blankly staring out from underneath. They’re all still hiding in the foxhole.

It’s pretty lonely to be the bravest guy on the battlefield.

That’s what happened yesterday. Tuesday’s rebound emboldened the bulls, right? But by the time the opening bell rang, there weren’t that many brave souls after all. They were thinking about a 3 day weekend with the family, and didn’t want to take on more risk than absolutely necessary. And they soon concluded that they actually didn’t have to take on ANY risk…so it became absolutely necessary to watch Sgt. Murphy rush out of his foxhole alone and see how things worked out.

They didn’t work out that well…and that’s where we are right now.

Things are pretty flat. Unless you plan on ice skating, try to have a bigger cash position — you’ll be able to enjoy the holiday a bit more.

See you in the Forum.

–Dan

Good morning. Last night’s webinar was fun, and I appreciate seeing so many of you there. We’re all quite busy during the day, so it takes a lot of effort and dedication to spend another hour in front of your screen during family time. Thanks for your contribution.

United Airlines (UAL) stock is trading higher this morning, as the stock tries to regain the 50-day moving average after a disastrous couple of days in the media. CEO Oscar Munoz appeared on Good Morning America this morning and announced that he was discontinuing UAL’s internship program where up-and-coming mixed martial arts fighters received training as passenger deplaning specialists so that their transition from the octagon into private life would be smooth. He apologized for the program and admitted that it had been ill conceived.

On a serious note, last night we were looking at some of the airline stocks and I started to change my tune on them. I’ve been lukewarm about this sector because the stocks have just been drifting lower. I don’t see the money. But last night I took at look at the $XAL (Amex Airlines Index). It’s forming a fairly flat base along the 50-day moving average. The sector has possibilities. Delta (DAL) is setting the stage this morning as the stock is gapping up after reporting earnings that weren’t horrible.

I’ll be watching the entire sector. I still think it’s too early to put money to work…but it’s not too early to start studying the sector and finding opportunities.

See you in the Forum.

–Dan

This week is the start of earnings season. While it is always important to know how a company has performed over the last quarter, the critical element in an earnings release is the forward guidance. Is the existing forward reaffirmed by the company, or are they giving “soft” guidance? Are they raising their estimates for 2017, or do they sound uncertain? Since the market tends to look about 6 months ahead, the results of Q2 earnings are likely already baked in to the price of the stock. If the market has been really bullish on a company, then the stock is probably already extended upward in anticipation of those earnings. If the market has been really pessimistic about the company, then the current stock price might already have a bad number factored into it.

If earnings results are strong, will an upward extended stock really move higher? Isn’t it already up quite a bit and perhaps extended from the most recent base? If so, then all the bulls are already in the stock. How much more aggressive buying pressure will there be?

On the other hand, what if earnings results are worse than expected? Well, if the stock is extended above the last base, it’s likely to fall. But if the stock is already down at extremely low levels (bottom right corner of the chart), then even poor results might lead to a rally on the stock.

Here’s an exercise: Check out Chipotle Mexican Grill (CMG). That stock has been in a basing pattern for nearly a year. It’s slightly extended above the current base, but that could change between now and April 25th, when the company reports Q3 earnings. The E.coli bacteria issue has really weighed on the stock because there are no longer any long lines at CMG. You can basically just walk right in and order. Why? Nobody wants to get infected by the E.coli bacteria. That’s why the stock fell from $750 down to $360 in just a year. That’s right — a 50% haircut in market cap because of a microscopic bug with a very weird first name (Esterichia) that nobody wants to share their food with.

The stock has been trading in a range from $380 to $440 since last June, with a couple of brief detours down to $360. So the stock has been under pressure. If you want to buy some, you can buy it pretty easily. Here’s my definition of a base: A stock in a defined range of equilibrium at the bottom of your chart. So CMG has been in a base, right?

But just last week the stock broke out of the base and is now up at $447. Could this be the start of a runup in anticipation of better earnings? It’s too soon to make that call because the results aren’t published for two weeks. A lot can happen between now and then. But watch it during the next couple of weeks. Frankly, if it continues to move higher today and/or tomorrow and pushes above $460, then I’ll probably buy the stock because I want to get in on the action with a Trading Places strategy: “Hey, the Dukes are trying to corner the (CMG) market. They know something. Let’s get in on it!”

So if CMG starts moving higher over the next two weeks, then what do you think can happen when the earnings are released? Buy the anticipation, sell the news! A pre-earnings rally can lead to a post-earnings hangover. We could see the stock drop, even though the earnings report is pretty good.

But what if CMG stays stuck in the current $380-$440 range? When we could see a pop even if earnings aren’t great. The reason? Traders weren’t expecting much. In fact, they expected worse! So it could be that the worst days are behind it — and that means that there are better days ahead. And that takes us back to the top of this note — The market looks ahead by about 6 months. So if the worst days are behind Chipotle, then that means that the next 6 months will likely be better. And if that’s the case, I want to buy right now.

So watch how CMG acts over the next couple of weeks. The trade will either present itself right now…or we’ll be able to wait until earnings and then make the trade. But one way or the other, there’s a trade to be made on CMG around the earnings report.

And by the way, you can apply this analysis to every single stock that you are trading. They all trade according to the laws of anticipation and reaction; supply and demand; optimism and pessimism. When you think in these terms rather than flipping a coin, you’ll actually look forward to earnings season rather than dread it.

Let the games begin!

–Dan

Good morning! S&P Futures are up 4 this morning on a really strong jobs report released by ADP, showing that the private sector added 263,000 jobs last month. That’s a pretty strong number, and it gives the bulls more ammo for pushing stocks to a new high for the month, and above last quarter’s close.

I was talking last night about the Wall of Worry. To recap, the market does not move higher in a wave of exhilaration. The wave of exhilaration does not appear until the very top. The crest of the wave marks the top of the market, when everyone who follows the market (and indeed, even those who do NOT follow the market) is exuberant about stocks. Yes, even folks who have never cared about stocks are suddenly opening up trading accounts and buying stocks. Maybe they’re even trying their hand at day trading. But they are more than willing to talk about the brand new iPhone that’s going to change the world because everyone on the planet is going to want one. Or they’ll talk about how Amazon is going to be flying drones in orbit around the world, stuffed with popcorn, pizza and TVs, which will be parachuted down to anywhere in the world on Super Bowl Sunday, just in time for the game. The stock’s gonna go to Pluto!

Yes, they’ll all have their favorite stocks. And when you start hearing about them, you need to start easing yourself toward the door. It’s time to grab your coat and car keys. (And if you’ve had a bit too much adult beverage, don’t stick around for Uber. Just walk home).

Well, we’re not there yet. I believe that the Wall of Worry is going to last for quite a while. One of the reasons that is not really being discussed is Donald Trump. (This is not a political note; it’s note about the Wall of Worry.)

I understand that there is still some optimism that he’s going to cut taxes, spend a trillion bucks, and cut regulations down to scribblings on a cocktail napkin. Those are all reasons to be invested because they are easier on businesses. But what about the pessimism that he’s going to be able to do none of those things? There are plenty of “Never Trump” types on Wall Street. And their pessimism must be influencing their investment decisions. How could it be otherwise?

So my theory is that, as long as POTUS struggles to get things done, the pessimism will remain a force in the market. And let’s face it — he’s always going to be struggling to get things done. So this pessimism is likely to last for an indefinite period of time; and I can’t imagine the scenario where investors reach an irrational level of exuberance. So the market goes higher.

This rally won’t be without corrections. I’m sure we’ll see 5-10% corrections along the way. Sadly, markets never go up in a straight line. (If the market does start going parabolic, see my above comments about walking home rather than waiting for Uber).

I’ve recently noted that breadth is narrowing a bit, which is a cause for concern. That’s a brick in the wall. One Dum Sun, the fat guy in North Korea, could always spoil the party by lobbing an ICBM our way, but that’s certainly not something to consider when making investment decisions. Trust me. If that ever happens, you’ll have more important considerations than your trading account.

So stay focused on transcending the Wall of Worry. Start viewing any negative sentiment or news flow as merely information. And you parse that information with what’s happening in the market. As long as the trend is intact, then you know that the negative headlines or data are being absorbed by investors. Those who have taken money off the table will ultimately put it back in. And they’ll put it back in if the market pulls back a bit, which lends support to the pullback. And they’ll also put it back in if the market looks like it’s running away from them. Their chasing is actually fuel that’s being added to the fire, pushing stocks higher still.

Make sure you understand this dynamic in the investing and trading world. At some point, the bull market is going to end. But from where I stand, I don’t see it on the horizon. I just know that it’s out there somewhere.

See you in the forum.

–Dan

Good morning! Futures down a bit this morning, which is not necessarily a bad thing. Another successful test of support would be healthy and allow the S&P (and other major averages) to continue to carve out a higher base that could lead to the next leg higher.

I view the current market as having above-average risk because both breadth and market sentiment are bearish. Fewer stocks are advancing, and the smart/dumb money indicator shows that neither the “smart” money nor the “dumb” money is particularly confident that the rally will continue, but neither group is excessively bearish either. The smart money is more bearish than the dumb money, but not enough to reveal any potential for a big move higher. In the final analysis, there’s just nothing here to breed excess sentiment. Instead, it’s kind of a non-issue.

Amazon (AMZN) and Tesla (TSLA) are both slightly lower in pre-market trading. Neither is threatening to end their Phase 1 breakouts. But both are significantly extended. So protect any short-term trading positions you have with reasonable stops, and with fractional profit taking.

Alphabet (GOOGL) is also lower and testing its 50-day moving average again. Amazon’s (AMZN) ad business is picking up steam and this is impacting ad revenue of Alphabet. Nice to be owning AMZN, but GOOGL? Um, not so much.

Remember that markets go up and down. Short term swing traders strive to capture the middle of market swings. You can spot likely support levels and start buying stocks when support asserts itself. But you start small and build your position as you opinion is vindicated by the market. But as for tops? Those are harder to spot — sometimes they are obvious, but most times they are not. So you start reducing your position size as the market hits a resistance level. You resign yourself to the fact that you will not top tick the market; that you will leave some on the table; that profits booked are much better than being long hope.

Don’t be holding too many positions to watch. Be comfortable with your holdings. If there is one stock that’s always causing you aggravation, then kick it out of your portfolio. You’ll feel better; and you’ll trade better.

See you in the forum.

–Dan

Good morning. Recall yesterday’s muted continuation of Tuesday’s big advance, where the S&P (which is the index that most keep track of to see which way the money is flowing in the market — in…or out?) closed slightly higher after a very small pullback. That seemed to me as if the buying pressure was waning a bit. That led me to start thinking “Day 3” was Wednesday — the last stragglers of bulls were getting into the market. So it’s not surprising that the market is due to open lower this morning. But how low? Ha! Barely. They’re just slightly below yesterday’s close, and it’s likely that this little dip will be met with buyers.

But how far will stocks extend today if they do start ripping higher? I can’t predict that move, but I will say that the S&P has run nearly 2% in the last few days and is back to the 20-day moving average. The only time I really ponder the 20-day moving average is in uptrending stocks where the higher highs and lows tend to oscillate between the 20-day moving average and the upper Bollinger Band. During those trends, it’s also advisable to draw a trendling ABOVE the trend. When the trendine that follows the highs is drawn, then we typically get an early warning about upcoming changes in the trend. When a high fails to touch that trendline–even though it might still be a higher high relative to the last high–the uptrend is getting weak.

But there is another way to read that “resistance trendline” too. If you look at a chart of the S&P covering January 2016 up to March 2017, you’ll see that the S&P actually blasted through the trendline — accelerating to the upside. This type of steep acceleration can be viewed as capitulation, where those who were shying away from the market are ultimately afraid that they’ll be left behind if they don’t get in. And as the S&P starts moving, more and more buying from stock chasers pushes the chart to a steep ascent. It’s a mild peak — not exactly a “blowoff top”. But the steep slope cannot be maintained. So the S&P falls back to test support — here, the 50-day moving average. OK, test passed with a B+. And now we’re back to looking for the next high, which will probably be lower because the bulls just need a bit more rest. So, if the buying activity has been spent, then a test of the 20-day moving average has a pretty good chance of failing. It’s not a certainty that this will happen; but I’ve seen it happen countless times.

So what does this mean for us? For longer term positions, it doesn’t mean a darned thing. The market is in an uptrend, and your stock are probably working just fine. For short term traders, it means that you take a look at your stocks, and make sure that the charts are bullish. And you always keep a chart of the S&P in front of you so you can keep a reference for what’s REALLY happening.

One stock that we need to check out in the forum this morning is Lululemon (LULU). They could probably change their ticker to UHOH. The stock is down over $14 bucks, and more than 20%. That’s a rubber band that typically snaps back a bit. So we’re going to want to watch it very carefully at the open. If it does start snapping back, there is money to be made on that rebound. Just need to make sure that the business of selling has nearly run its course and the buying has begun. This could be a “gap and reverse”…or a “Homer Simpson” — that pattern where the stock opens down big, you buy, and the stock keeps falling. You hang on as you wait for the inevitable bounce. It keeps falling. Finally, you say, “Doh!” and sell the stock.. At that point, the stock turns around and you realize that you’ve managed to sell the stock at the exact bottom.

So wait for the stock to truly find a bottom, then buy, with a stop below the lowest price of the day. I’ll cover that process in the trading forum this morning in real time. I’m pretty sure we’ll be able to make some money on it.

Hope to see you there.

–Dan

Good morning. We’re setting up for a lower open today, though nothing like yesterday’s beat down. Yesterday, the S&P and other major indexes rebounded off the 50-day moving average. That’s a bullish development and I suspect that we will see a rebound from today’s opening bell.

I recently mentioned that two sectors which need to start working before we were likely to challenge new high: Energy and financials.

This morning, oil is up just a bit, and the energy stocks are following suit. I still think it’s early to be getting into these stocks, but I do not think it’s too early to watch them. Other than some large fund managers who are talking their book, I don’t see a lot of bullishness in the energy sector. But I do see a lot of them saying the same thing I’m saying — “Energy is going to turn around at some point, and I’m watching oil.”

The financial sector is really held hostage by Washington DC. If it appears that POTUS will be able to enact a significant tax cut (If I was a betting man, I’d bet on the home team rather than the visiting team), then we’ll see financials move higher. Of course, the FOMC will have a lot to say about banking stocks…but they are temporarily out of the headlines, which is never a bad thing.

The Oakland Raiders are going to become the Las Vegas Raiders in a few years. While I’ve never been a Raiders fan (other than when they play the 49ers), I’m pretty agnostic about the move other than the obvious: Raider fans are beyond loyal. They are rabid body painters. They’re some of the most loyal fans in the league, and I’m bummed for them that their team is leaving. With that said, let’s look ahead.

While the move to Vegas doesn’t happen for a few years, this is going to be an inestimable boon to the casino industry. The market looks forward, but I’m not sure that anyone is looking that far ahead. However, Wynn Resorts (WYNN), MGM Resorts (MGM), and Las Vegas Sands should be on your screen. In particular, WYNN is coming out of a one-year base. MGM is at the low end of a multi-year cup & handle, and LVS has fallen back to a low-risk entry level.

Loved the trading talk in the forum “trading desk” yesterday — lots of great ideas that members were sharing. That’s how we make money!

See you there.

-Dan

By the way, I don’t know why I said “inestimable boon”. It just felt right, I guess.

Good morning. Futures are down sharply this morning as a consequence of the GOP’s failure to get the health care proposal though the House. Because it was proposed by politicians and K Street, no one knows for sure whether the health care bill would have saved the federal government any money. (One eyebrow is always raised when you hear that something run by Washington is actually going to save money. It’s a unicorn.)

Nevertheless, the market’s conclusion is this:

If the health care proposal did not make it out of the on deck circle, there is no room left to offer a tax cut. And without a tax cut…the outlook for business operations isn’t so good. Pretty simple, actually.

There are three points to consider:

1. This is not “fake news”. It’s going to take quite a while to sort things out because we’re talking about legislation. At best, it takes quite a while. And the rhetoric will not be helpful to the market.

2. There has been you can Because of the implications of this news, and the market has run significantly as it anticipates a reduction in taxes. The S&P ran about 13%, and the Dow Jones US Banks Index ran 35%. It has since corrected 8% and is now up just 23% since the election — so about a third of the bank rally has already been given back.

3. The 50-day moving average is being tested by the S&P 500 and the Dow 30. A failure to hold that level would inflict significant damage on the market because that will leave the Nasdaq as the only major index standing.

We can’t say that the market didn’t give us fair warning. After the big sell-off last Tuesday, stocks barely snapped back. Instead, they just hovered at support levels. This isn’t the sign of a healthy market. This is the sign of a tired bull that has little appetite for stocks.

It is important for you to look at all of your stops this morning. Will they be triggered at the open? If so, will you be happy to be out, or do you suspect that the stock will rebound a bit after the gap at the open? This is typically what stocks do when the market opens significantly lower. But that’s not a sure thing, and sometimes stocks just continue to fall. I can’t make any predictions, so I’ll just point out that this is something you need to consider. But just remember this:

You can always buy ’em back.

See you in the forum, where we’ll be tracking the market in real time.

–Dan

Good morning. The market will open flat this morning, and there isn’t much in the way of news that relates to stocks. All attention seems to be focused on Director Comey’s pending testimony before Congress. The question is, “What will he say?” My answer is: “Well, somebody will be ticked off about it, but I’m interested in tickers, not who is ticked off.”

Stocks that I’m looking at this morning are:

NVDA — Gesting 50-day moving average and still in a wide trading range as it builds the next base.
MRVL — Still in a volatility squeeze, but looking strong along the 20-day moving average and could break out with just a bit more work.
WAL — A very nice orderly pullback over the last month has taken the stock back to the 50-day moving average. On Friday, the stock rebounded on 3 times average volume and closed up 1%.
BABA — Hope springs eternal, as Alibaba continues to push through $105, but can’t quite break out. I like the potential in this stock…it just needs some big buying to push it into orbit.
INGN — Still working on new highs after two days of institutional accumulation last week.

I spent quite a bit of time in the office this weekend, which makes me a bit of a market geek. But I was amazed at how much I got done with I didn’t have any distractions. It’s always a drag working on a weekend rather than spending time with your family. But the work I did has energized me for the week.

See you in the forum. Let’s get ready to rumble!

–Dan

Good morning. The futures are up this morning, which takes us closer to a breakout. Watch Gold. It worked yesterday, and is showing signs of continuing today.

President Trump released his budget blueprint, which is the first budget we’ve had in several years, and I think it’s likely to provide a lift for the following sectors:

Aerospace/Defense: A $54 billion increase in defense spending should bring more money into LMT, RTN, HON, HII, UTX, and NOC, to name a few. Don’t look for dramatic breakouts today. Rather, just track them and look for acceptable entries. Many are already close to their all time highs (for example, four years ago NOC broke out above $70, and is now up at $244. Not bad for a company that doesn’t have “.com” in its name.)

Border Wall: $1.5 billion in 2017, and 2.6 billion in 2018 to build a wall across the souther border of the US. I’m not sure how much this will boost infrastructure companies such as RTN, CX, MLM, VMC, USCR, FLR, and GVA, I think the real trade is to focus on material companies, and construction equipment: I’ll be watching MLM, EXP, CAT, DE, along with steel companies such as U, STLD and NUE.

Lastly, watch Oracle (ORCL). Great earnings numbers, and the stock is up over 8% this morning. It’s always risk to chase a stock like this.

See you in the forum.

Dan

Note: The Fed’s 25 bps rate hike is being accepted by the bulls, even though Janet Yellen virtually admitted in her press conference that the “data dependent” Fed is actually depending on data that is little more than a cacophony of chaos. Honestly, it was kind of fun to watch the clip when Kathleen Hays (now at Bloomberg, but used to be the economics expert at CNBC) asked Chair Yellen why the Fed is hiking rates now, even as economic data have actually been deteriorating over the past few months.

http://tinyurl.com/h9mvwxw

The clip is a bit long, but for those who wonder how the Fed makes decisions on things that only impact a small sliver of the universe (it’s limited only to this particular planet), you’ll find the answer enlightening.

Good morning. First, a reminder that we’ll be holding a training class at noon ET, 9 am PT today. The stock market is, in my view, has some risk that is easily overlooked. The S&P, Dow Jones Industrial Average and the Nasdaq Composite are both trading at levels seen on February 21st — almost a month ago. The S&P and Dow 30 are both slightly above those levels, and the Nasdaq Composite is just slightly below those levels. So it’s safe to say that these important indexes have been sluggish, or “resting.”

At the same time, the Dow Jones Transportation Average, the Midcap Index and the Small Cap Index are all markedly lower. So what we’re seeing is a softening of the market that you wouldn’t see if all you looked at was the S&P 500.

My point is simple: Just be careful about buying aggressively at these levels. The market is likely to be a bit choppy today, and the chop will start at 2 pm, when the Fed releases its statement about interest rates. No sense in my handicapping it for you. That’s a pretty noisy space already. Let’s just focus on what happens to the banks and housing stocks. Both the $DJUSBK (banking index) and the XHB (homebuilder ETF) have been doing quite well. A favorable response in these sectors to the Fed’s policy announcement would be good for the entire market. On the other hand (and there’s always another hand), a selloff in the banks and homies could ultimately lead to a lower risk entry on many stocks as we approach the April earnings season.

Lots of “if’s” and “maybes” in stocks right now. Plenty of stocks are working. Just make sure that your definition of “working” does not include “hope” or “if only”….

A few stocks that I’m watching are BABA (still waiting for a definitive verdict in the $105 breakout), Netflix (NFLX) (still needing a couple of bucks before it tests resistance, and Clovis Oncology (CLVS) (positive results in Astrazeneca (AZN)’s oncology drug bodes well for Clovis, and not so much for Tesaro (TSRO).

See you at noon ET.

Dan

Good morning. The market opened a bit down this morning, but nothing worth talking about. In fact, with the Fed’s decision on interest rates just a day away, don’t look for much movement either way. And because of that, I don’t have much to day.

Here are a few stocks that should be on your screen:

Disney (DIS): popping out of an ascending volatility squeeze. Looks like the stock could move higher from here, though I would have preferred that the squeeze setup had actually been a bit flatter, if not trending lower. So there’s a pop here…but I don’t know how high the stock will go.

Nike (NKE): This stock has been consolidating after a break of a long term downtrend. With the stock between $56 and $58, this is one that is starting to move in an uptrend. If I didn’t know better, I’d say that masses of customers were returning their UnderArmour (UAA) apparel to the store and exchanging them for Nike’s stuff. UAA down; NKE up. “Just sell it.” vs. “Just do it.”

Snap (SNAP): Now trading at an all-time low. And since the stock has been trading for 9 days, and has been in a range of 30%, it’s actually pretty impressive that the stock is still falling lower.

Valeant Pharma (VRX): As noted in last night’s Strategy Session, Bill Ackman has finally capitulated and sold his entire position in Valeant. In light of this high profile disaster, this stock has probably bottomed. That’s the way of things when a large hedge fund puts conviction above cash. He held as long as he could while the stock fell lower and lower. Finally, it would seem as if he was the last seller. So when he sold, the downward pressure on the stock reached its max…and now it’s likely to move higher. It is still 9.5% down from yesterday’s close, but is up about 3% from the opening print. A move above $11.05 would be a good entry because that’s the high of the morning.

See you in the forum.

–Dan

Good morning. The news driving the market this morning is the upcoming FOMC meeting tomorrow and Wednesday. On Friday, the February employment numbers were impressive — some of you probably found jobs. That’s always a good thing…assuming you were looking for one. If you weren’t, then your job was probably one from the “Honey do” list that we all have. I’m not gender specific, thank you very much. We’ve always got stuff to keep us busy, but frankly, it’s nice to get paid for it.

Why?

Because we feel better about ourselves. Suddenly that $120 pair of jeans is calling your name, and your self-confidence is sufficiently robust to make you believe that they’d look great on you. (And they probably might…just make sure you get your true size rather than your fantasy size. I have many clothes in my closet that you’d swear were left by my son who went to college on a tennis scholarship. They look brand new! And they are all at least one, perhaps two, sizes to small for me.

So feel good about yourself, but know your limitations.

Now that you’ve got a job, add an eating and fitness plan. But now that you are gainfully employed, I know you don’t have time to workout and eat healthy, right? Wrong! You cannot afford NOT to do those things. Discipline is one of the most important ingredients in a recipe for success. Without discipline, the finished product isn’t….finished.

Now…for my trading analogy.

Let’s say that you’ve finally got set up to where you know the type of trading that you want to do, and you’re ready to do it. Boom! You’re a trader. It’s your job (maybe full-time, maybe part time, and maybe just as a patient opportunist who waits around for a high probability trade). Irrespective of how much time your job takes you, discipline is a must! Without discipline, you’re not really working — you’re just riding your skateboard out in the parking lot and calling it work because you keep falling down a lot.

You see, trading without discipline isn’t trading. It’s something else. If trading is your job, then you need an assignment. You need to know what your responsibilities are, and managing your money is a big part of it. It’s really that simple: You are charged with increasing the amount of money your employer (also…you) has in the bank. But you are also charged with avoiding taking big chances with it, lest you lose some of what you already have. Yes, you’ll sometimes lose money because that’s just a reality of trading. But if the losses are small, your boss won’t get mad. He’ll probably just watch you a bit closer, stopping by your office and saying something like “Hey. I just to “check in and see how you’re doing. How was your weekend? What’cha working on today?”

That dynamic is fine. You know you’ve got to protect the trading capital.

So you start injecting more discipline in your trading, and you start getting raises. And you can then afford to pay a food service to bring your healthy meals to your home. Now, you’re eating healthy, and you have time to work out a few times a week.

And before you know it, all those pants that your kid left in your closet now fit you! Isn’t that nice. Oh, and one other side benefit — you actually don’t have a kid in college. But look at the tuition you just saved by imagining that you did!

Maybe it’s time to go shopping again for some new clothes, now that you’re a disciplined trader with a bit of money to burn.

See you in the forum.

–Dan

Good morning. Yesterday’s weakness look more ominous than it really was. We are used to daily trading ranges that are so tight and print short little boxes with tiny wicks on the top and bottom and any increase in the size of the box looks really back. Well, from the intraday high on March 1st, the S&P is down 1.56%. That’s over a 5 day period. So I think it’s a mistake to read too much into this pullback. It’s a natural reaction to the moves we’ve seen in the past 3 months.

As noted last night, oil prices have gone off the end of the dock as oil inventories have increased for the 9th consecutive week. Don’t look for any bullish action in oil until this trend reverses itself. And by the way, a build up in oil inventories is a counter argument to the “things are gonna be sooooo great!” argument. I’m not saying that they won’t be great, or that they aren’t great. I’m saying that economic activity consumes oil. And so far, it’s not consuming very much of it.

You may have missed it last week, but the February jobs report was delayed until tomorrow due to the calendar. February was a short month, and that doesn’t provide enough time for the Dept. of Labor to massage their numbers and get the report out on time. So it will be coming out tomorrow, and that should be a market mover. If the number is hot, then look for increasing chatter about the Fed’s rate hike the following week, and how it might be the first in a string of rate hikes designed to keep a damper on the economy. We want it to be “good again”…because “great again” can lead to an inflationary environment, and nobody benefits from that (except those who own basic material stocks).

Keep yourself in check. If you buy a stock, make sure that you ask yourself whether you are buying it because it is an opportunity, or because you desperately want to do something, and this is the least bad setup you see. When you can make that distinction, you’ll start seeing different results.

See you in the forum today.

–Dan

Good morning. We are set for a very strong open, with the S&P 500, the Dow-30, and the Nasdaq 100 all set to open at their all time highs. President Trump addressed a joint session of Congress with a speech that was, well, presidential. Some of the high points that are relevant to the markets were mostly nothing new, though it is refreshing to see a politician who actually insists on keeping his promises. I think the speech sustained optimism in the “Trump Trade” because a more measured tone increases the chances that he’ll actually get some stuff done. He fleshed out a few more details on what he is looking for with respect to changes in the health care system. He also reiterated his promise to give the middle class a “massive tax cut,” to require the elimination of two regulations for every new regulation enacted. He renewed his call for an infrastructure spending program. He touched on various other big issues, but they don’t really relate to stocks…so why stir things up by mentioning them.

There are indications that inflation might actually exist, which augments corporate earnings. New York Fed President William Dudley made some hawkish comments earlier today, and it’s looking like the Fed is actually going to raise the fed funds rate this month. This paves the way for additional hikes during the year. With interest rates set to go higher, the banking stocks are on a tear this morning, with Bank of America (BAC) up nearly 2.5% in early trading.

All in all, it’s probably going to be a good day for stocks. If you’ve been waiting for a great buying opportunity to get into the market, you are no doubt frustrated. Welcome to Trump World. The party rages on, but the front door is locked.

Don’t forget about the live training session later today — noon ET and 9 am PT. We’ll take an in-depth look at the market, take a look at some of our focus stocks that have been doing very well, and also discuss YOUR stocks. So be there on time, and bring your questions!

See you then.

–Dan

Good morning. Once again…we are set for a slightly weaker open. Is this a familiar theme? Open a bit lower after a string of higher closes (12 days and counting for the Dow 30),…and then ultimately close higher still. I suspect that this will happen today, with stocks trading sideways as investors wait to hear what President Trump is going to say tonight. To say he is “unorthodox” would be an understatement.

From what I have read, “the market” believes that POTUS will emphasize what he has been focusing on (No. I’m not talking about his twitter account. I doubt he’ll mention Meryl Streep, Rosie O’Donnell, or various other shiny objects). With respect to issues that impact markets, he will likely urge additional spending on defense, repealing and replacing the Affordable Care Act, cutting taxes and regulations, and probably a comment or two about rebuilding our infrastructure to the tune of $1 trillion.

My concern is that the market has already priced in these developments. The iShares DJ US Aerospace & Defense Fund ETF ($ITA) and the Health Care Sector ETF ($XLV) have run about 8.5% since the low in January. That’s a significant move for sectors that are typically not volatile. The XLV is right back to 52-week highs, and some defense stocks ($NOC & $LMT) are also at 52-week highs. Others ($HII, $BEAV, $LLL, $RTN and $HON) are hitting new highs on an almost daily basis. So the question is whether these stocks will continue to move higher, or whether there will be selling after his speech. Honestly, I have not been paying much attention to aerospace & defense. Why? Well frankly, it’s not practical to focus on every single sector in the market. You can’t be everywhere at once. I am starting to pay more attention to Health Care ($XLV) and Biotech ($XBI) because many stocks are at key buy points. See last night’s Strategy Session for more on those sectors.

The challenge in this market is to balance the importance of being invested against the tendency to chase stocks. We’ll continue to focus on maintaining that balance in the weeks to come.

Don’t forget about the live training webinar for members tomorrow at 12 pm ET (9 am PT).

See you in the forum.

–Dan

Good morning. Last night after the close, a few companies reported earnings. One popped, one dropped, and a couple didn’t do much of anything.

Square (SQ) reported really strong earnings and revenues and the stock is up about 10% pre-market. Netease (NTES) did the same thing…and kept moving higher. This is a “gap and run”. Other stocks that gap up on earnings reverse at the open. Traders sell into the demand because they like the high price. The demand dries up and the stock reverses. This is called a “gap and crap.” (Recall Fabrinet (FN) back in August).

Jack in the box (JACK) disappointed investors and the stock is trading down around 10%. It may fall further (think Macy’s (M) back in January), or it may reverse and move higher after such a big fall downward. We won’t know that until 9:30 (in about 15 minutes).

Weibo (WB) didn’t do much of anything. It’s still trading in yesterday’s range. So traders weren’t too surprised by Weibo’s strong earnings.

Tesla (TSLA) is also pretty static. IT’s trading below yesterday’s closing price, not not really enough to create any type of trading opportunity.

When you are looking for post-earnings trades, look for the big dislocations in price.

If a stock gets crushed as is happening with JACK, there might be an opportunity to fade that move and buy the stock. You just need to watch it at the open to determine whether there is strong demand for the stock. There may not be such demand and the stock will instead keep falling. In that event, stay away from it.

SQ is going to pop. It’s up big. So watch for profit-taking. Will traders be selling into that news? If so, it’s a viable short. But if the stock gaps and continues to run, as happened with NTES, then you either avoid it, or trade along with the other bulls. This is what we did last Thursday, and it netted a nice profit.

Don’t expect big moves in stocks that aren’t…moving big. Stocks like Tesla and Weibo may move in big ways…but there is no setup on those stocks for the simple reason that they aren’t trading at extreme levels. The rubber band isn’t stretched tight. They’ll likely be “nothing burgers”.

Hope this synopsis of pre-market setups helps.

Let the games begin!

–Dan

Good morning. Futures are pointing to a slightly lower open, which shouldn’t be surprising after the S&P has closed higher in 9 of the last 10 trading days. Pretty remarkable, isn’t it. Oh, it gets better. Over the last 8 days, the S&P has printed consecutive higher lows. Each intraday pullback was met with buyers who were a bit more aggressive about putting their money to work than the day before. And on 7 of the last 8 days, the intraday highs have eclipsed the prior high, with the one exception being a decline of 0.15 points — basically a wash.

Trading volume has generally been a bit lower than the average volume over the last 50 days. But the last two days of advances have occurred on slightly higher than average volume.

Putting this all together, we can see a picture of a bullish tone among institutions who are still wanting to get into the market, even at levels that are nearly 6% up over the last 7-1/2 weeks. The result is a steepening slope of the trend, which will ultimately be followed by a correction as the buyers finish their work. The challenge is in predicting the top of this move. No one can do it. We just don’t know.

But here is one way to at least identify a decrease in institutional buying. Given the numbers I’ve just described, then be on the alert for a red day where the S&P opens high, but then closes noticeably lower…and has an intraday low that is lower than the preceding day. It would be an even more powerful signal if the intraday high failed to eclipse the prior intraday high. What I’m describing is a bearish reversal pattern. If it occurs on higher-than-average volume, the signal is even more powerful.

But here’s a twist: This type of event does not necessarily precede a correction. It might just be the first sign of a sideways move in the market where traders rest and allow the market to “catch up”. When traders get too enthusiastic, they push prices high in rapid fashion. When they finally realize that they might be a bit too eager, they withdraw their bids and decide to wait for prices to come in. They don’t necessarily sell. They just stop buying.

Look at December 14th. The S&P closed down .81% from the prior close. The S&P printed a lower high, and lower low. Just what I’m describing above. Then, over the next 11 days, the S&P fell another 0.88%…before starting the next move that took us 5.5% higher. So, after a reversal signal, the pullback was less than 2% — not exactly a “correction” or a “sell-off”.

So don’t let your emotions overrule your eyes. Stay objective and recognize that institutions want to own more stock. They need to put money to work. Also, I suspect that the public is starting to put more money in their investment accounts as they continue to read headlines about the market being up 10% since the election. Even socialists like to make money, and missing out on 10% is painful. So the money inflows to investment firms give them more money to invest. They don’t hold cash; they have to buy stocks.

So enjoy this rally as long as it lasts. Embrace the fact that you will not be able to predict the top, though you should be able to see it earlier than most. I’ll be keeping you on track. That’s my job.

Have a great day, and hope to see you in today’s training session at noon ET, and 9 am PT.

–Dan

Good morning. The futures are set to open up this morning, with Wal-Mart ($WMT) and Home Depot ($HD) both trading higher after reporting earnings that surprised to the upside. Both are Dow components, but they are as different as night and day. Assuming that Wal-Mart opens at around $71, it is still down about 21% from the all-time high back in January of 2015. So it’s been under distribution for quite a while, though it did recently run up about 6% in anticipation of a bullish earnings report. The challenge for the bulls is that WMT is opening right below established resistance at $72.00. It’s rarely a good idea to chase a stock that gaps up, unless it’s popping out of a sleepy volatility squeeze. That’s not the case with WMT, so be careful if you’re buying this gap. I wouldn’t do it. But I’d also be wary of shorting the gap because the market is strong. In strong markets, stocks that gap on a good earnings report tend not to be the ones you want to short. For me, it’s a “do nothing.” But it will certainly add energy to the market this morning.

Home Depot (HD) is different, though the earnings results are similar. Their earnings beat estimates by about 7.5% (10 cents), and revenue also surpassed estimates. They also announced a $15 billion share buyback program — investors LOVE buyback programs. They love it when a company buys the same shares that they own because it decreases liquidity, which makes the stock more difficult to buy. Buyback programs also attract investors who…love buyback programs. Last week HD broke above established $140 resistance, and should open about 4% above that level. Remember, prior resistance, once broken, becomes new support for strong stocks that pull back. If the stock pulls back, it needs to hold above $140 to be a viable investment candidate.

You want to see demand at prior support because it reveals the presence of eager buyers who would love to be able to pick up some stock at pre-earnings levels. They feel like they’re getting a second bite of the apple if the stock pulls back. As a consequence of the presence of eager buyers at the prior breakout level, the stock holds at support. Boom! That’s your signal to buy the stock (assuming you are in that crowd of buyers who has been hoping for a better entry. That may be you…or it may not be you.) If this support level doesn’t hold, then this stock should not be bought because you are bucking the tide. With no eager buyers waiting below, a stock that jumped up on positive earnings can fall quite a bit as profit-takers sell the stock to a low-demand market.

This is a similar concept explained in my weekend video describing Netease ($NTES), which enjoyed a tremendous run last week after blowout earnings. You’ve got to identify demand. If you know where the buyers are, you have more confidence in your position. Incidentally, I received some positive feedback on the NTES video this weekend. There really are a lot of trading tactics and concepts about buying gaps in that video. If you haven’t had a chance to view it, you might wish to make time. I think it will help your trading. I use these tactics all the time. Not all the trades are winners, but I definitely have an edge that was lacking earlier in my trading career.

I’ll be in the forum this morning and hope to see you there. Also, don’t forget about tomorrow’s Members Only training session at 12 noon eastern time (9 am pacific time).

Have a good day, and run with the bulls.

–Dan

Good morning. Flat open, but a few things to note before you start your day.

On the news front, Aetna (AET) and Humana (HUM) broke up on Valentine’s Day. No roses were on the table, only IOUs. Last month a Federal judge ruled that the AET/HUM merger would create antitrust issues. After that ruling, you just knew it was a matter of time before the two love birds parted ways. Aetna will pay Humana $1 billion (think of it as alimony in one lump sum) for backing out of the marriage. Of course, Humana then announced that a third of that ($370 million) will be paid to Uncle Sam in the form of taxes. (It’s nice to be the uncle.)

The antitrust issue revolves around the consequence of the merger negatively impacting competition in health care coverage programs. To wit, prices would rise because competition is reduced. The two companies would now be playing for the same side.

Just a week earlier, another Federal judge blew up the Anthem (ANTM)/Cigna (CI) for the same antitrust reasons.

So there will be marriages after Valentine’s Day, and the four companies will likely be hitting Match.com (MTCH) or Tinder (not a good idea) to find new relationships.

Humana (HUM) is so broken hearted that it has just taken itself off the dating market and won’t be attending any Obamacare exchange events. No parties; no speed dating; no “it’s just lunch”…nothing. They’re out! I suspect they’re just the first of the big insurers to go solo — All insurers will have to file 2018 plans in April if they plan to stay in the marketplace. So, this issue should fade away for a month or two, but it’ll likely be back on the front page by mid April.

As for the stocks:

Aetna ($AET) advanced 3% yesterday on this news and Humana ($HUM) did nothing. Anthem ($ANTM) continues its advance and has some pretty strong upside momentum. They’re growing…but the numbers aren’t particularly impressive. Cigna ($CI) is still working higher after a long and wide cup pattern…but I just don’t think it’s compelling.

Frankly, of all of the players in this matter, Match Group (MTCH) looks the best. (This is ironic since I only included Match.com in the piece because I thought it would be funny to inject a dating theme due to Valentine’s Day) But $MTCH is consolidating in a high base with $17 as support. Quarterly earnings/sales growth is about 22% year over year (a quarter versus the same quarter last year). And with a P/E of 22, the stock is relatively cheap. Worth keeping an eye on.

OK. That’s all I got this morning. See you in the forum!!

–Dan

What our Members are saying in 2017 – You’re an extraordinary teacher, and I hope the rest of the members are getting as much help from you as I do. (Ron H.)

Happy Valentine’s Day everyone. Futures are down a bit this morning, but not enough to get your attention. After the last few days, a rest is a healthy development. This could turn out to be a very brief rest…or it could amount to more. What’s the catalyst? Fed chair Janet Yellen will be testifying before the Senate Banking Committed today (10 am ET) and tomorrow. Based on her stated outlook on monetary policy, new buyers could materialize if she gives a dovish testimony, or new sellers could rear their angry heads if she hints at a series of rate hikes. A rate hike in March is probably priced in by the market. Traders will care more about the rest of the year.

My guess? I know so little about the Fed’s current stance that I won’t even hazard a guess. (Insert shoulder shrug here). It’s noteworthy that three Fed Presidents also have speeches planned today. So call today “Fed Tuesday”.

Just a general comment on equities. This is the best Wall of Worry I’ve seen in a long time. There is so much to worry about that the old adage “knowledge is power” isn’t particularly applicable in this environment. It seems like the more you know, the greater the urge you’ll have to stay minimally invested and wait for the “inevitable” sell-off/crash that will present a great buying opportunity. The less you know, the easier it is to trust what’s currently happening in the stock market and just go with the flow. And as I look at a 9 year chart of the Dow Jones Industrial Average, I think it’s very possible that we could see another 10% packed on to the current price. And if you’re in stocks that are leading the market, your returns can be much greater than that.

My current approach to our Strategy Sessions is to focus on stocks that are working RHRN (“right here, right now”). On any given RHRN stock, most days are NOT good days to be buying. The stock is in a strong uptrend and rewarding current owners; but potential buyers would be chasing the stock and taking a risk that the stock will correct shortly after they’ve bought it. Better to wait for a future opportunity when the stock takes a rest in the ebb and flow that marks all uptrends. So we focus on staying in the stocks that are working, and identifying low-risk entry points in those stocks.

We also focus on spotting good setups that have the potential for reliable buy signals allowing us to buy stock early in its move…but not so early that we’re sitting around holding a stock that’s doing nothing. If we’re in a stock, we need to balance patience with our desire to see the trade be profitable.

The forum has been rocking lately, with a lot of great analysis and trade ideas. At least check in once or twice a day. Posting is optional…but you can leverage the collective knowledge of the Mentor Community by simply reading what others are saying. And don’t be shy in asking questions or making suggestions. It’s a stress free environment. Everyone is there to help others…and be helped by others. Hope to see you there!

–Dan

(Note: if you just realized it’s Valentine’s Day, you’re a behind the 8 ball. Flowers are always nice. Candy — um, not so much. Not anymore. If nothing else, hop on Google.com and find a massage facility near you. Then go to Vistaprint.com and get a free design template for a gift certificate, and give her (or him) a gift certificate for massage. Guaranteed to be a hit. Just show up with something, or you’ll end up with nothing).

Good morning. The market is higher this morning and the Nasdaq is again leading the charge. As most of you know, I live in California — I was born here and aside from a few short periods in my life, I’ve never left. A lot of my family resides in northern California — including the Oroville area.

Oroville is in the news these days because the dam that sits above the town — the tallest dam in the US — is in danger of collapsing. Why? Because all the winter storms have filled the dam to capacity. Now, the emergency spillway is in danger of collapsing (actually, it already has. They just don’t say it…yet). Why? Because the emergency spillway — that part of the dam that will only be used in emergencies — is nothing but dirt. Sure. That’s gonna hold when millions (or billions?) of gallons of water start flowing down the spillway.

Common sense dictates that massive flows of water over dirt, no matter how densely packed the dirt is, will ultimately erode the dirt. Think: Grand Canyon.

The state authorities were warned about this danger about 12 years ago by various organizations who monitor such things. Response? Meh. We know what we’re doing. The dam is fine. We’re the experts. Mind your own business.

Well now, the expertise of the California authorities is being revealed to be something other than expertise. And the end result may be cataclysmic. (Oh, and here’s a prediction — none of those “experts” who ignored warnings will be fired. Not one.).

When the market is rising and hitting new highs, your skill is unquestioned as long as you own stocks. Life is good. But dangers lurk all around you; they are just unseen. Most traders don’t think much about the future. If they are doing well, they just assume they will continue to prosper. But situations change. And they typically change without notice of any kind. That’s why they are called “emergencies”.

When you think of your trading habits — think of Oroville. Prepare for unexpected situations by at least considering what they might be. Unexpected moves in a stock that you’re overweight in. Do you have an exit plan, or are you just counting on the stock moving higher forever? If you are an option trader, how much risk does your position REALLY involve? Imagine the worst case scenario — your bullish trade is decimated by a massive move in the stock. Who much money can you lose? If the unthinkable happens, what is your REAL exposure? Good traders consider this possibility when they make decisions. No, the water is not likely to start spilling over the dam. But what if it does? Am I ready, or am I just an unknowing victim waiting for disaster to strike?

All is well right now — stocks are rising and bulls are fat and happy. Embrace the rally rather than being in constant doubt. But also consider the worst case scenario. If the worst happens, are you going to keep the lion’s share of your profits, or are they going to go down the emergency spillway while you look for a lifeboat?

See you in the forum.

–Dan

Good Morning. Yet again….stocks are set to open flat, with a slight upside bias. The longer stocks stay at current levels, the more likely it is that the next move will be higher. All we need is a catalyst.

During the training session yesterday, I discussed the use of stops. Some key aspects of that conversation are:

Use stops to protect your initial trading capital — when you first enter a position, you are at the greatest risk of losing money. Based on your research and chart studies, you believe that you are correct in buying a stock…but you’re not sure. You’re starting from scratch, and only when the stock advances in price will you have confirmation that you are on the right side of the trade. So, until that happens, you’ve got to define exactly how much money you are willing to risk in order to have a chance to make money. The sky is the limit, right? But if you don’t use a stop loss order, then the basement’s the limit. You put yourself at risk of losing a significant portion of your trading capital because, once in the trade, you can lose objectivity. You are IN the trade, so you have a personal stake in it. Nobody wants to be wrong. And nobody wants to lose money.

So once you are in the trade, your ego and your money are at risk. So if the stock starts to move against you, your ego tells you that you are not wrong; you’re just “early.” And as the stock continues to fall, your anxiety grows and your objectivity makes a very fast exit. At some point, you realize you are not “early”; you are wrong. But the problem is that you are losing more money than you envisioned, and you can’t bear to take that loss. So you hold the deteriorating position while hoping that the stock turns around and allows you to lose less money. You’ve given up on profits; you just want a portion of your money back. To sell right now risks being wrong because you fear that the stock will rebound immediately after you’ve sold. Bam! You’re wrong again! One big loser…but twice wrong!

When you place a stop on your position as soon as you open it, then you have defined your maximum acceptable loss. Your worst case scenario is ok…because you got to decide what it is. And you make that decision based on position size (i.e., not the amount of shares bought; but the amount of money that is in the trade), and on the distance between your entry and your stop loss level.

Because you do not want to put much money at risk when you are initiating a trade, your stop will be fairly limiting in your maximum risk — perhaps 3-5%…rarely more than that. And your position will be only a fraction of the position size that you’d like to hold. You intend to take a full position on the stock — say, 5-10% of your portfolio size. But you aren’t gonna do that right now, when you are at maximum risk of losing money. Remember, you are initiating a trade. You have no profits to protect. So you start small and wait for confirmation that you are correct. Then you start looking for your next entry — at what level, and under what market conditions, will you increase your position size?

You’ll add to your position at the next logical buy point. If the stock has been advancing, you’re making money on your initial trade. Now, you watch for a resting phase. The stock falters a bit, but doesn’t reverse. Rather, it trades sideways and establishes a new support level, below which the stock is unlikely to fall. It now starts moving higher and looks like it’s going to test the prior, pre-rest high. Boom! You increase your position size, and place a stop just under the new, established support. This stop covers only the new purchase, not the entire position. Your original stop remains where it is. You don’t move it up. You’ve got a profit on that position, and that gives you a profit cushion. If the stock now moves against you, your most recent stop might be hit and you lose money on that new position…but the existing profit from your initial position protects you from losing money on the stock. You’ve cut your risk and are still profitable, despite the fact that the stock did not continue higher. So the trade that you had hoped for did not materialize. You were hoping for big gains, but instead have made just a small amount of money.

You weren’t “right” about the stock because it did not allow you to build a full position. But you weren’t wrong either. Your plan actually worked out pretty well. Your worst-case scenario played out, but you did not lose money on the trade.

Look, that’s trading. You’re going to take small losses on some trades. You’re going to make only small profits on other trades. It’s not because you are a chiseler. It’s because you will never have a 100% track record. Some of your trades will work, and some will not. But if you contain your losses on the ones that do not work, then the profits that you make on the ones that do work will more than compensate for your losses. Overall, you’ll be profitable.

And being profitable is your first step in your trading career. Once you gain the skill and discipline to trade this way, your next step is to tighten up your criteria for trading decisions. Establish additional rules that allow for the highest probability trades possible, and thus increase your number of profitable trades.

But that’s for another day. 😎

See you in the forum.

–Dan

Good morning. Another flat open as the Dow and Nasdaq bump against record intraday highs set yesterday. At some point, stocks are going to break out. The post-election rally essentially peaked in mid-December, yet stocks have not corrected. Fast forward to late January and the S&P printed a higher high. This is not what happens when traders have become too enthusiastic and have pushed stocks to unsustainable levels. Such a scenario typically ends in a correction that hurts the late comers who bought only after the rally had run its course.

This is a different scenario. There just hasn’t been a correction that has shaken anyone out. Folks are just standing pat, happy with their investments. Meanwhile, what has happened on the technical front during this bout of sideways trading? A high base has been formed.

At the December highs, the S&P was 4.6% above the 50-day moving average, which is quite extended for a major index. Now, the 50-day moving average is just 1.5% below the S&P. So this key moving average has caught up with the market, which provides a level of support just slightly below current prices.

Meanwhile, the large cap stocks continue to lead the way. Look at Apple ($AAPL), Netflix ($NFLX), Amazon ($AMZN), Cisco ($CSCO), Microsoft ($MSFT), Facebook ($FB), and Google ($GOOGL). They are all trending higher in various conditions of volatility, and are all trading above their 50-day moving averages.

So the leaders are…still leading. As I’ve noted recently, the breadth of the market is narrowing a bit, which is a concern. This is certainly something to be aware of…but it is not a predictor of anything. Rather, it is a revealer of conditions. You can always profit in less-than-perfect conditions because there is no such thing as a market with perfect conditions.

I’ll be holding a training session today at 9 pm PST/12 noon EST. I’ll discuss the process of setting trailing stops, and will take any questions you have. So if you’ve got some trading questions, or wish to discuss any stocks of interest, please come on it.

Have a great day, and I’ll see you at noon.

–Dan

Good morning. Just a few thoughts this morning.

Futures are up slightly, as General Motors (GM) posted an earnings beat for Q4. Good news for the market, but it is not impacting the stock in a positive manner. The strong earnings were obviously expected, and traders are taking profits (down about 1% pre-market).

The indexes remain range bound with an upside bias. Seems to be just a matter of time before the market breaks out. But for now,

After a month where politics has dominated the headlines and worn most people out, it would be nice to see an attack on new highs so that traders have something to do that makes money. Don’t let the controversial headlines take your attention away from the market. This is a bull market and climbing a Wall of Worry. It’s healthy when stocks climb higher in the face of negative and controversial headlines. Some would say that such bullish action signals complacency. I say that bull markets always climb in an atmosphere of complacency. Isn’t that an apt conclusion when wondering what “Wall of Worry” actually means? “So much to worry about, yet stocks are climbing? Wonder why that is. Traders just don’t seem to understand how much there is to worry about. They are complacent. Sigh. I’ll wait for a pullback.” [The pullback never comes, and ultimately the doubting Thomas buys at higher levels, thus pushing the market a bit higher on the Wall of Worry].

As noted last night, gold and silver are breaking out of consolidation and are certainly worth a look. Technically, many stocks are still below their 200-day moving averages, but there are a couple that are working very well. Barrick Gold (ABX) and Newmont Mining (NEM), both due to report earnings soon, are breaking out above their 200-day moving averages. There are a few others that are popping out of volatility squeezes, and we’ll be looking more closely at those in the member forum today.

Twitter (TWTR) reports earnings on Thursday after the close. No predictions…but the stock is about one year into a wide base, which can be a significant source of support, thus cushioning any downside move on disappointing earnings. Check the 200-day moving average. It flattened out in August and has been moving sideways (with a slight upward slope) ever since. Any position held over earnings is, by definition, speculative. I’m just pointing it out as a possibility. (Random Musing: Twitter seems to be getting a lot of free promotion these days as one widely-followed “tweeter” generates news on a daily basis. No telling whether he is having an impact on the bottom line, or even if my query is even relevant.)

See you in the forum.

–Dan

Good morning. Futures are quiet this morning with a slight downward bias as we start a week in which 70 of the S&P 500 companies report earnings. The major averages remain in a trading range, and that’s likely to continue until traders get more information in the form of earnings guidance.

Now, some random thoughts on yesterday’s Super Bowl, and the various similarities and differences between football and trading:

First, there are 60 minutes in a football game. Irrespective of when you score a touchdown during these 60 minutes, you get 6 points. But the clock is ticking. When the clock runs out, the game is finished. The team with the most points wins. Period. And at the end of the season, the Lombardi Trophy is awarded (usually to the Patriots), and players take a rest for a few months. Then, a new season begins and everyone starts on equal footing.

In trading, it’s different. There is no clock. You trade for the rest of your life. You have no opponent. You aren’t competing with anyone. Rather, your biggest challenge is mastering yourself and maintaining some consistency. There is no “new season”. There is no “next year.” Your trading account doesn’t know seasons; rather, it will grow or shrink based on your consistency. You accumulate “points” by accumulating dollars. And, unlike sports, the dollars you make in trading are yours to keep. The other team can’t outscore you. Rather, you can either keep those dollars and build on them, or you can give them away through poor trading and excessive risk taking.

And speaking of risk taking — the Super Bowl was the most dramatic game I can recall ever seeing. Truly one for the history books. The Patriots scored 31 unanswered points to win 34-28. They had 3 points, and wound up with 34. That’s a “return” of 1,000%. Do you think you can ever achieve that type of turnaround in your trading? No! Your trading should not be dramatic. It shouldn’t be thrilling. Rather, it should be an exercise in consistency, if not downright monotony.

Thrill seeking does not mix with trading. Consistency is what you strive for. Develop consistency and avoid excessive risk taking, and you’ll be in the game for a long time. You’ll have a great career. And ultimately, you won’t need a Lombardi Trophy to validate your success. Your account statement will say it all.

–Dan

Good morning. Futures are down this morning, though it really doesn’t amount to anything significant because we are still in a tight trading range. So the overall market conditions are unchanged — don’t be looking for big gains until the market is ready to give them. That time will come — it always does. But for now, be more selective in your stocks and stay involved. Remain engaged.

Facebook (FB) reported Q4 results last night that beat the street’s expectations, but they also noted that revenue growth will fall “meaningfully” in 2017. This isn’t the first time that this cautionary note was mentioned, but it did knock the stock down in after hours trading. FB ran as high as $138, and is now down at $134 — just 80 cents above yesterday’s close. So, I hate to tell you facebook fans this — but I don’t think it’s very likely that you’re going to get the breakout you’ve been wanting.

Cirrus Logic (CRUS) is a semiconductor company that I was watching yesterday because it was breaking out of a tight squeeze on very high volume. But the company reported earnings after the close…and promptly fell 10% and is resting at support. This stock will now have a lot of work to do before it resumes upward. Timing is everything, and I think this will take some time.

Re/ last night’s Strategy Session — I covered Yelp (YELP) and analyzed the pattern that’s setting up YELP for a nice move. Earnings are due in a week, and we might see the stock start running a bit over the next week as investors anticipate strong earnings.

I’ll be in the forum this morning, and hope to see you there. Great dialog this week and I am very happy to be back in the mix. We will be hosting a Q&A session webinar next week, and you’ll receive the specifics this weekend. And look for more frequent Q&A sessions. I’m sure it’s frustrating to attend a webinar, and not get answers to your questions. So we’re going to be doing them more often.

Have a good day.

–Dan

Good morning. Stocks are up this morning, and AAPL is…so far…holding $127, which is the opening low of the day. As noted last night, if the opening price holds, then those who wish to own AAPL can start a position without risking too much money on a deeper pullback. I choose to wait a few days for the stock to settle in to a post-earnings trading range…but at least we have a support level to key on.

Just a couple of other things…

CLVS continues to run higher, up another 2.3% this morning. If you are looking at this as a trade rather than a longer term hold, you may wish to use the 20-day moving average as a reference for your stop. The stock is trading decisively above that indicator now, and any break below it would signal waning momentum.

Anthem (ANTM) reported solid earnings this morning and continues on a very solid uptrend that has a ways to go. The company beat revenue and earnings estimates, and reported a much higher membership in Medicaid, which tends to be a cash cow for insurance companies.

That’s all I got this morning. Remember that we’re still in a trading range with the S&P just about 113 below resistance at 2,300. Overall this uptrend that started in November looks pretty healthy. I think this sideways channel that’s been slowing the upward momentum is just a necessary rest stop for stocks. After a big move, traders need to take profits at some point. And the question is whether, during profit taking phases, there is enough DEMAND to soak up all the supply at the current levels. If there is not a lot of demand for stocks because “they’re too high”, then the “profit-taking” phase will turn out to be more of a correction. But if demand is sufficient, the S&P just trades sideways for a while as the average cost basis of new shareholders is slowly raised to a steady and reliable level. Then, after all the supply is absorbed…prices move higher again.

This process takes a while, and I think we’re getting to the mature phase of that process.

See you in the forum.

–Dan

Good morning. Stocks are opening lower again today as the correction continues. Just a quick comment on patience.

Look at the chart of the S&P during the latter half of 2016. It traded sideways for 4-1/2 months during the latter half of the year. Use that as a perspective for the current range, which has been in effect for the last month or so. You will see most of your gains during distinct times each year. But if you fritter away those gains during the subsequent resting phase, then you’re right back where you started when the market becomes more favorable to making money. So appreciate the fact that the market needs rest once in a while. Give it room to breathe.

Under Armour (UAA) is the latest victim of the implosion of retail stocks, down more than 25% at the open. This “might” be a bit overdone and could be a profitable trade on a dead cat bounce. Just be careful, because there is a LOT of bad news associated with this stock — missed estimates in both earnings, revenues and full year guidance. Also, their CFO is leaving. That’s a lot of bad things to digest.

Don’t forget that Apple (AAPL) reports earnings after the bell today, and this will certainly move tech stocks tomorrow. It’s always risky to hold a stock over earnings, so respect your money by appreciating the risk.

See you in the forum.

–Dan

Good morning. Congressional hearings continue today, and I suspect that trading will continue sideways for another day as the market waits to hear from the high profile banking stocks tomorrow. Over the past 7 days of trading, the S&P has closed higher than the open 5 times, lower than the open just 1 time, and one day was a draw. Trading volume on the “higher close” days was noticeably higher than trading volume on 2 weak days. So there is still an underlying bid to the market.

Several drugmakers were down yesterday in reaction to a statement made by President-elect Trump in yesterday’s entertaining press show. Fun to watch if you have the time. Irrespective of where you sit in the political spectrum, it’s always fun to watch a bar fight as long as you know everybody will walk away from it with only bruises. The one moment in the show that was the most meaningful to stocks was when PEOTUS said, “Drugmakers are getting away with murder.” It was interesting to see his comments about buzzkill and CNN, but those weren’t market moving comments. But when he made his comment about drugmakers, Mylan (MYL) (maker of EpiPen, which has recently been in the news for shamelessly gouging customers), Valeant Pharmaceuticals (VRX) and Teva Pharmaceutiocals (TEVA) dropped 4.3%, 6.5% and 2.6% respectively. In just 20 minutes, Pfizer (PFE) dropped 2.8% — a pretty big selloff for a megacap stock like Pfizer.

Today, they’re snapping back just a bit (I don’t think there is a trade here — I’m just pointing it out).

One thing about railroads — I looked at them last night in our online webinar session and noted the breakout in Csx (CSX). CSX is the largest coal transporter, and that is likely a key reason why the railroad is outperforming its peers.

And speaking about coal, look at Consol Energy (CNX), Suncoke Energy (SXC), Westmoreland Coal (WLB) and Natural Resource Partners (NRP). These coal companies have all been trading sideways after first staging impressive post-election rallies. There has been little written about coal lately, but I suspect that breakouts in these stocks will be noticed. And once the media and large traders see the strength (which is not yet evident…but is anticipated), these stocks could be quite impressive. I’ll cover them in tonight’s Strategy Session and give you price levels that I think are important.

There were several questions last night that I did not have a chance to get to. I apologize for that, but I will dedicate some time to answer them, and will deliver a video when it is done. Thanks to everyone who attended. I plan on doing these more often.

See you in the forum.

–Dan

Good morning. Another flat open as stocks continue to mark time into the earnings season. As noted last night, the small- and mid-cap stocks underperformed yesterday, and that indicates a narrowing of buying interest. When traders are optimistic, they will be active in the smaller companies. Not necessarily to the detriment of the larger companies, though that has also been noticeable lately. But when you see a strong rally turn into a flat trading range that may be a top–but also may be a mere resting/profit-taking phase before the underlying rally reasserts itself–we should look to the smaller stocks for a sense of the degree of enthusiasm among buyers.

If the smaller stocks are strong, then the likelihood of further upside is good. They are “confirming” the bull market. But if smaller stocks are lagging, then the uptrend is suspect. They are not confirming the bull market.

So let’s review the widely followed indexes:

S&P 500: coiled near the top of the range. Bullish.
Dow Industrials: coiled near the top of the range. Bullish.
Nasdaq Composite: Hitting all time highs. Very bullish.
Dow Transportations: More than 5% below the December high. Not bullish.
S&P Midcaps ($MDY): Down 2% from highs after printing a lower high. Still above support, but we’ve seen three distribution days. Not bullish.
Russell 2000 small caps: Down 3% from the December high and testing support. Three distribution days. Not bullish.

So, you can see that it’s a mixed bag. We are still in consolidation, but the outcome is not a foregone conclusion. Financials are extended after very impressive rallies. Metals & Mining stocks ($XME) ran 25% but they have now entered a consolidation phase and are testing the 50-day moving average. A breakdown in metals would be a bad thing.

What does all this mean? To me, it means that this is not a time to be aggressive in trading. Rather, it is a time to hold on to the stocks you own and allow them to rest. Give them a chance to continue moving higher rather than looking at any little decline as an indication that the stock is going to fall. Spend some time studying the market. Grab a book if you have time and read a chapter on trading. Any book will do — you can always learn something from any book on trading. Some are better than others; but they all have something for you. Spend some time going through the many tutorial videos on our website. All you do is press “play”, and you’ll learn something new.

Invest in yourself in the same way as you invest in the market. You buy stocks because you think they’ll go higher. You invest in yourself because you think the investment will result in you making more money. So either way, you’re making a good trade. A rising stock makes you money. Gaining more trading knowledge makes you money.

That’s a win:win.

See you in the forum.

–Dan

Good morning. Stocks are a bit sluggish this morning, though still the indexes are remaining in their effective trading ranges. I don’t really see much in the news that’s worth commenting on this morning, though I will mention a few random thoughts.

First, tomorrow is the first Friday of the month, so we’ll be getting the official jobs numbers from the Department of Labor. While the indexes are near record levels, it’s hard to envision any aggressive buying prior to the release of this key jobs data. As such, I’d expect to see another day of consolidation. Tomorrow will be different. I think we’ll either blast through resistance, or fall back to test support.

Next, the retail sector continues to struggle and I suggest letting someone else hold these stocks. Macy’s (M) is down about 11% after announcing that they’ll be closing 68 stores. Kohl’s (KSs) is down about 15% after it cut it’s 2016 earnings outlook. The company reports earnings on February 23rd. Both of these stocks may see oversold rebounds this morning, but are not even rebounding from their morning gaps.

Last, just a quick comment about Restoration Hardware (RH). We went shopping last night at a local shopping mall and wandered through Restoration Hardware store. As I left the store, I could not remember one single item that was memorable. That’s a problem. That’s not what you’re supposed to see at Restoration Hardware. It’s supposed to have cool (and expensive) furniture that begs to be adopted and taken home. Instead, everything seemed to be square and monochromatic, which is supposed to be the current trend. That’s a problem if you’re a store that’s trying to get people from the showroom to the cash register. Also, we were the only people in the store other than the sales people, who seemed to be quite bored.

That’s about it this morning. I continue to think that the S&P is on the verge of breaking out. I just don’t think it’s gonna happen today.

See you in the forum.

–Dan

Good morning. Looks like a pretty flat open today, and I don’t really see any market moving news. CNBC is still talking about the “Boeing Twitter Renegotiation”; and I see that the Supremes have overturned the patent infringement case by Apple against Samsung; and Jack Dorsey is saying that Twitter (TWTR) is not responsible for Donald Trump’s win. Irrespective of where you are on the political spectrum, you’ve got to admit that it’s pretty funny that Twitter would even feel compelled to deny responsibility. It’s a platform where any user can type 140 characters and send it out to all their followers.

Back in the early days of Twitter, it seemed like Facebook-lite. Everyone was taking pictures of their dinner plate at a restaurant and tweeting it out to their followers, somehow, amazingly, and wrongly believing that others would really care about what they were eating. Others would tweet their daily activities — in less than 140 words, along with a picture. “Leaving the house to go for a walk with little Austin in the stroller. It’s a beautiful morning here in Smallville [insert pic of Austin sucking on a pacifier here]” Of course, everyone who saw the tweet said one of two things: “Oooooh, he’s sooooo cute.” Or, alternatively, “Ugh. Does she really think I give a rip about when she walks the kid who puked on my carpet the last time they were over for dinner?” [unfollow!]

Now, Twitter is being used by a person with a very rudimentary filtering system to bypass the entire press industry. Only in America.

But consider the evolution of Twitter for a second. It is being used in ways that few ever contemplated. But, when used to its maximum effectiveness, which would include tweeting videos of meetings and statements by the President, his press secretary, etc., and links to documents, budgets, press releases, etc., Twitter could be the catalyst for the destruction of an entire industry of reporters. I might be stretching a bit, but isn’t this the dynamic that pushes us forward?

Bill Gates formed Microsoft after IBM decided not to buy Bill’s MS-DOS operating system that was being used in the PBM PC, instead choosing to license the software. Fast forward…and Microsoft changed the world. In no way am I comparing Twitter to Microsoft, nor am I comparing Jack Dorsey to Bill Gates. Twitter is twitter, and I suspect most users are going to continue tweeting their dinner plates and pictures of their cute baby. But leave it up to the collective imagination of a free society and you’ll be surprised at how things can evolve.

Consider the implications of the evolution of Twitter as a dominant source of news. One guy with a hyperactive iPhone is now threatening the entire news industry. Why? Because that industry was not serving him the way he wanted. He believed that he was at a disadvantage, so he found another way to accomplish what he wanted. That’s the story of industry. If you aren’t growing and adapting, you just might be closer to dying than you realize.

Apply this to your trading. Always be looking for a better way to accomplish your goals. If you aren’t accomplishing your goals, then you might need to do something different rather than just working harder at the thing you are doing. If the thing you are doing isn’t working for you, stop doing it. Sell options rather than buy hope. Change your holding period. Improve your vision by looking at more than charts.

If you can open your imagination, there is no telling what you can accomplish.

See you in the forum.

Dan

Good morning. We’re set for a strong open this morning, with Dow futures up 77 points and set to hit yet another all-time high. We are still in the trading range I discussed over the weekend, which is a good thing. We want to see some sideways trading behavior for a while so that a new “base” can support the next breakout.

Last week Goldman Sachs predicted that the early part of 2017 would be strong, and then drop off as the Fed starts hiking rates more than the market expects. They break it down as being made up of two parts. The first is “hope”. That’ll last for a quarter or two. Then comes “fear”, which takes over the market and all kinds of bad things happen.

That seems plausible, though not particularly unique or insightful. In fact, when it comes to prognosticating about the economy, the Fed, the price of the market, etc., Goldman Sachs has been so wrong for so long that they’ve basically become a trading indicator. Think of it as the GSBS indicator. The stronger the claim, the more you should be skeptical about that claim.

But notwithstanding the GSBS indicator, I do think the first quarter will be a strong one due to the various “market friendly” proposals and headlines. The market reacts to ideas, proposals, plans, legislative activity…and headlines. The market looks ahead to the future when the ideas, proposals, plans and legislative activity actually come to fruition. And because of the time lag between proposal –> enactment –> effect, there will be time for the market to have a little party as investors contemplate the positive impact on their investments that lower corporate taxes, fewer regulations, and less government interference will have. This is the “hope” part of the year.

At some point, the hope needs to morph into reality…the thing hoped for much become fact.

No one really knows what the “hope” phase will lead to. Will it be fear? Or perhaps, if the Dow has advanced beyond 20,000 and the Nasdaq Composite is above 6,000, “complacency” may set in rather than hope. We just don’t know. No one does, including the fine folks at Goldman who purport to know such things. “Hope” is predictable. But as for “fear”,…they’re throwing darts.

So here’s what we do. We don’t focus on hope, fear, complacency, or whether the 49ers are going to win another game this season. We focus on what is happening now, and we work in the current environment. Read the predictive pieces with interest. It’s helpful to know what others are thinking. But as for what you are doing? Seek to find the sectors that are outperforming the broader market, and then look within those sectors for investing possibilities. Or, just stick with the ETFs to allocate the bulk of your portfolio in market-beating areas, and then use a relatively small portion of your account to trade the swings.

As the market continues to run, let’s run with it. Because tops are processes, there is little chance that the market will reverse without warning. We’ll have time to see the progression of topping, and make the appropriate moves to keep the profits and avoid the losses.

Hope to see you in the forum.

–Dan

The futures are up this morning, and it looks like the market is going to continue its impressive move. Steve Mnuchin and Wilbur Ross have been selected to lead the Treasury Department and Commerce Department, respectively. Both bring strong banking experience, which is attractive to investors and traders. Both Mnuchin and Ross also had some good things to say about Fed Chair Janet Yellen, which is a plus because it implicates some stability at the Fed. The market hates uncertainty, and let’s face it — there is more than a bit of uncertainty about exactly what the next administration is going to do. And since Yellen is a perpetual dove, I suspect that investors believe monetary policy will remain accommodative. As new cabinet members are revealed, things become a bit more certain. And that brings eager money into a market that has been largely sideways and choppy since early 2015.

Oil is also up around 7% this morning due to reports that OPEC has reached an agreement to cut oil production for the first time in eight years. Energy stocks are jumping.

So we’ve got a bit of a “perfect storm” — in a good way! Remember “The Perfect Storm” movie? When George Clooney was attempting to pilot the fishing boat out of the eye of the storm, at some point it became apparent to him that they were not going to escape. He simply said, “She’s not gonna let us out.” If they’d only been able to break through and get out of the storm, maybe they’d have been able to bring that big load of fish to the market and make a bunch of money. Instead, it didn’t end well.

We’ve got the opposite dynamic going on now. While oil prices are still range bound between $45-$50, this agreement to cut output may be the catalyst for a breakout. We’re not seeing the breakout yet, but a 7% jump in price just might generate enough upside momentum to get oil out of its base. Add to that the high likelihood of a better lending environment for banks and you’ve got the makings of another leg higher in a very mature bull market.

The ideal way to get into the market is when the market has consolidated for a while. The consolidation is a result of profit-taking meeting new buying. Selling isn’t sufficiently aggressive to generate a sell off. Instead, there is just a period where buying interest dries up a bit. When you’ve got this type of “high base”, a breakout really means something. The prior trading range will now be support for any pullback. So the risk of getting into the market is fairly low due to this support.

Well, we don’t have that now. The November rally has caught a lot of traders by surprise, and they’re scrambling to get into the market. Aren’t you? If we just consider the recent 6% move, the market is quite extended. But if we zoom out and assess the market over the past several years, we’ll see that there actually is a “base”. And that base is the “sideways and choppy” market that I mentioned above. Since early 2015, the market has been forming a high base. And this base will serve as support for any pullback. As such, it’s really important to put your money to work in stocks and sectors (i.e., ETFs) that are advancing.

As I mentioned last night, I think the rally is intact and that this little pause we saw over the past couple of days might be all we get. The prospects of lower taxes, more accommodative banking and business regulations, and higher oil prices should be all that’s necessary to get any sidelined traders into the market.

Simply put, stocks will go higher.

See you in the forum.

Dan

(By the way, I’ve received several emails from members re/ my shoulder issues, which I appreciate very much. After seeing two shoulder specialists over the past couple of days, it’s apparent that I do indeed need a total shoulder replacement. I still have some homework to do and plan to consult with a few other surgeons close to where I live before I get it done. But I’m going to tough it out for a couple more months so that I can get the surgery done during the first quarter of 2017.)

Good morning. We’re looking at a slightly weak open, with traders exercising a bit of caution at the start of this holiday-shortened week. Trading is closed for Thanksgiving on Thursday, and will open until 1 pm ET on Friday.

Just a couple of comments this morning.

1. There is a lot of discussion on the national level about a big trillion dollar infrastructure program next year, and the benefit of such a program to economic growth efforts. It would indeed inject a lot of money into the economy, which always stimulates economic activity. But be mindful that the US Gross National Debt is close to $20 trillion, and about half of that debt has been incurred in a zero interest rate environment — “ZIRP”. So paying on the debt service hasn’t been a big deal at all because the money was basically free. Imagine the sale prices you get when you buy a car during the auto dealer’s “Pay no interest until 2020” special. You are buying the car, and then just paying down the interest in manageable monthly payments. It’s a pretty easy deal. But when 2020 comes around and you’ve got to start paying interest on the car, you have a bit of a problem if you haven’t accounted for the hike in payments. If you’ve been saving your dough for the specific purpose of paying the interest when it comes due, the increased financial obligation is not a problem.

Well, our debt is a bit like that — only we haven’t been saving to pay back the interest when it starts to kick in. We’ve just kept incurring new obligations. Now, with the cost of money rising fairly fast (i.e., rising bond yields), the $1 trillion expenditure will be much more difficult to put in place because it will cost so much. Now, I’m not rendering an opinion as to whether spending more money is a good thing with positive benefits, or a bad thing. I’m just focusing on the cost of money in light of the current bull market in bond yields (bear market in bonds). Lots of selling of bonds.

You’re not really hearing about the debt aspect of federal spending right now — everyone seems to be eager to spend more money. But the devil will be in the details. My reason for mentioning this is simply to put something in front of you that you might want to know as new policies are rolled out in the next few months.

2. Symantec ($SYMC) is buying LifeLock ($LOCK) for $2.3 billion. Last week I mentioned that the stock was moving higher because the market was anticipating either an acquisition by another company, or the company would take itself private. Either way, the price would move higher…but now that the news has been released, the stock should probably be sold. No further upside, unless you anticipate a higher bidder. But even then, how much higher? High enough to warrant holding the stock for the specific reason that someone MIGHT raise the bid?

3. Small cap stocks are working best. I’ll be looking at some of the top performers in the Russell 2000 small cap index in tonight’s Strategy Session, and will probably be focusing on the small caps all this week. When stocks are generally moving higher, it’s fairly easy to be in stocks that are moving higher. But the goal should be to be in stocks that are at the front of the pack!

See you in the forum.

–Dan

Good morning. Janet Yellen speaks this morning and will say that the Fed sees a stronger case for a hike in rates. We’re seeing bond yield continue to run higher, and I read an interesting article on Zerohedge about the power behind the selloff in bonds. Since last July, sovereign wealth funds, central banks, Saudi Arabia, China, and a host of other large bond investors have been selling their bonds at a pretty alarming rate. This is largely due to a need to raise cash to deal with their own problems at home. So, to my knowledge, there is nothing nefarious about it (though the nature of nefarious actions of this kind are typically done under a pretense of innocence, right. Soooo…who knows for sure??)

But the result of that selling is doing three things: First, shoring up the financial obligations of the sellers. Second, causing a 70% jump in yields since early July. And third, sparking the obvious question — who is taking the other side of the trade…because we know the Fed is not. The answer to that last one? Most likely the retail investor crowd is buying these bonds because they feel a 2.2% yield is a smoking hot deal.

But if inflation does rear its ugly head, that 2.2% is going to be small consolation to bond holders.

And might inflation be on the horizon? Well, if we take a look at the spike in the Baltic Dry Index, and the accompanying spike in shipping stocks, it stands to reason that the market thinks that the cost of transporting raw materials will rise, and that certainly will result in higher prices at the cash register.

In my opinion, this is not a bad scenario for a Fed wishing to hike rates, particularly since the Fed is of a mind that the economy is growing nicely.

So watch how bond yields fare over the next few weeks. Over the past week or so, we have seen some very dramatic shifts in some sectors. Financials, bond yields, metals and mining, transportation, etc.

When you decide to buy a stock, make sure you know exactly why you are buying it, and what your profit target is. Do you have justification for the price target? Where could the stock fall back to before you would even see whether prior support will still hold? You want the former to be as far away as possible, and the latter to be sitting smack dab under the current price of the stock…so your stop can sit right under support.

The market is choppy right now, but I believe the next move will be higher. Looking forward and wondering whether any of the anticipated policies will actually support a rising market is something I can’t do. Nobody really can. The structural problems remain. Only the sentiment and rhetoric have changed. The market, at this point, is moving on sentiment, rhetoric, and anticipation of better times. If the market is correct in its anticipation, stocks will continue to move higher for quite a while. If it is not, then we will see markets rolling over and giving us some opportunities to sell/short stocks.

Shorting into a strong market is not where you want to be. But shorting into a market that is under distribution is exactly where you want to be. We will watch for any changes in market dynamics of accumulation v. distribution. But for now, the money seems to be pushing equity prices higher (though I’m hoping for a day or 2 of rest before people start going nuts again).

Don’t forget about tonight’s chat at 5 pm PT, 8 pm ET. I’ll open it up with a “strategy session”, and then we’ll discuss things and I want to get as many questions from you as possible. When I know what you are thinking, it helps me to do a better job in meeting my responsibilities to make you successful.

See you in the forum.

Dan

My only point

accompanied by presupposes that no one knows anything about the nefarious thing)

Good morning. Twitter (TWTR) is up this morning on news that it beat analysts’ estimates for Q3 earnings and revenues, and that it is giving 350 employees the ability to file for unemployment benefits. Twitter also reported that it had a 7% increase in the number of daily active trolls (er, users). This is, in my view, a gift. It gives you an opportunity to sell the stock a bit higher, and then get out of Dodge.

Panera (PNRA) pretty much sums up the current dynamic in the market. The company reported great earnings and gapped up 4.85% yesterday morning. By the end of the day, it closed down 1.77% from the prior day’s close, and down 6.3% from the intraday high. This is a classic “gap and crap”. And the earnings were GOOD!!!

Other companies report great earnings and they just start flying all day and never look back. That’s Boeing (BA) and Netflix (NFLX). Netflix is still up 27% after hitting a high at 29.5%. Over 7 days of trading, NFLX has continued to run with only a brief rest. I’m not recommending that you buy it here. I am recommending that you look at it and marvel at the aggressiveness of buyers. They really want Netflix. (I’m going out on a limb here and positing the notion that Netflix will continue to see more growth because of fallout from the election season. If people are as tired and disgusted with what they are seeing on TV these days with a media that no longer has any resemblance with real journalism, but rather, is a George Orwellian government propaganda outlet, more than a few are going to start cutting the cable and going to, among other things, Netflix. Now, maybe I’m wrong about that, and maybe I am just an outlier. But I think that this election is to traditional media as Colin Kaepernick’s knee is to NFL ratings. It prompted a lot of viewers to reassess what they were spending their time doing, which was watching sporting events that just aren’t that interesting anymore.

This benefits Netflix a lot. And it is a macro thing — a secular trend toward individualized viewing habits rather than robot-like viewing of the same shows night after night. Look at the weekly chart for confirmation (or non-confirmation) that I am right. Again, I could be wrong…but this breakout is a pretty bullish development.

OK, that’s it for my morning rambling.

See you in the forum. And don’t forget — Amazon (AMZN) and Google (GOOGL) report earnings after the bell today. Should be a hoot.

Dan

Good morning. We’re set for a weaker open in the aftermath of the Apple (AAPL) Q3 earnings report. They have a record amount of cash on hand. Earnings and sales seemed OK, and were roughly at analysts’ estimates — give or take a bit. But Apple’s problem is that analysts tend to be lowering their estimates to account for slower growth. And that’s different than meeting analysts’ estimates that have been raised because of an increase in optimism. So the stock has pullback back to just above the 50-day moving average. If you’ve been waiting for a low-risk entry for AAPL, this is probably it. Stock should stay above the 50-day moving average, which is just 2% below the opening price.

Chipotle (CMG) is also down on big losses and declines in same store sales. I’ve been doing my part to help them out with at least one burrito bowl each week. Apparently it isn’t enough. That stock is set to upen at a 52-week low, falling out of a 5-month trading channel. The stock will need to trade back up to $400 if it is to have any chance of staying in the trading range. If it just continues down from here, the $400-420 level will be like a concrete ceiling reinforced with a lot of rebar. No punching through it any time soon. This is the kind of stock that I used to trade, but have since found that profits are difficult to come by, and frustration is plentiful.

T-Mobile (TMUS) has re-traced some of it’s Monday “Hey, is someone gonna buy T-Mobile” rally? Watch this stock carefully. No telling whether it’ll be bought. But if enough traders are speculating, then we just may have a runner.

OK, that’s it. Sluggish, downward, choppy market — not a user-friendly market. So be selective in two ways: First, you should be buying/owning stocks that are trending higher. Next, you should be stubborn on your entries, buying on pullbacks to support that enable you to exchange your cash for stock at a level that is close to a level where, if hit, you’d conclude that you shouldn’t have bought the stock because it’s going lower rather than rebounding. So you can close the trade gracefully, and with minimal damage.

As the old saying goes, “If you wanna play, you’ve gotta pay.” But you don’t have to get fleeced.

See you in the forum.

Dan

Good morning. The market opened higher this morning, with the S&P up 3/4 of a percent — which is actually kind of a big move (from close to open) in this market. But this just takes it back into congestion. And so far, there is no follow through this morning. It took 6 minutes before the S&P peaked at 2,144 before rolling over just a bit. If you are an active trader, you might want to set an alert at 2,144. If that level is hit again, we could see higher prices this morning. But the usual rule of thumb is that, if a stock is not above the opening print at 9:45, it’s not likely to move higher later in the day. My “modified” rule of thumb is that, once a stock rallies off an open and prints a higher high, any retracement needs to be shallow (this one is), and it needs to break above that higher high. And if it doesn’t do that within the first 30 minutes of trading, then it’s probably not gonna do it later — which means that the morning high will probably be the daily high.

I’ve seen this play out enough times to start relying on it in my decision-making. But this is a “rule of THUMB”, not a RULE. So we’ve always got to be flexible and listen to what the trading crowd is showing us.

To the astute observer, the market will tip you off early in the day about where the preponderance of trading interest is — even during a relatively flat market.

Consider $NFLX. Are buyers soaking up every dip? If so, then we see higher lows, relatively flat action, and ultimately higher highs.

Are sellers stringing out stock into every advance? If so, we will see a relatively flat stock (look at $NFLX on a 1-minute chart) on declining volume. In this event, we can conclude that $118 is a pretty fair price for the stock right now. That’s what the market thinks. So if you are shorting this stock because you think it’s “gone up too much”, you are in disagreement with the crowd. The crowd might eventually come around to your way of thinking, but you are now on the wrong side of the trade.

So what we’ve set up is a standoff between buyers and sellers. There are enough buyers to keep the stock above the opening print of $116.63. That’s pretty serious, considering the $17 gap from yesterday’s close. They’re still buying! At the same time, sellers are so happy to get $119 for the stock that they’re selling into the demand. Not in size. Not just “banging the bid” to a point where it will crush the stock. But they’re issuing supply to the market.

So this is an equilibrium within a $3 channel…and this equilibrium has persisted for the first 30 minutes of trading. Even though the price action is boring, it is actually quite impressive! It takes a lot of commitment on the part of both sellers and buyers to keep a stock in such a tight channel at such an elevated level. But at some point, either the supply or the demand is going to dry up, and the stock will indeed break out of this trading range.

You can just smell it coming. As I write this, the bollinger bands on the 1-minute chart are incredibly tight. And that just begs for a breakout one way or the other.

I’m describing all of the things that a chart can tell you if you are looking at it with a curious eye. My bet is that NFLX will break higher and I have an alert set at $120. If it breaks out, I may subscribe to NFLX. But until then, I’m on the sidelines, just watching the tug-o-war.

See you in the forum.

–Dan

Good morning. Earlier this morning the Labor Department reported that weekly applications for unemployment benefits fell to levels not seen in 43 years. This little factoid increases the likelihood that the Fed will hike rates this year. This has put big pressure on the futures. The S&P is due to open below support that I discussed in last night’s Strategy Session.

This is kind of a big deal, team. Now, the entire free world has a vested interest in stocks remaining at high levels, so don’t expect the bulls to just slink away and let prices fall. We’ll see a fight. But it’s difficult to see how traders can keep pushing stocks higher when NYSE margin debt is within 7% of the all-time high, and the S&P is around 2.5% below its all-time high. When everyone is already on margin, where does new buying power come from? Seems like there is an increased likelihood that we’ll see some selling.

My suggestion is that you put additional focus on capital preservation. Look, there will always be stocks to own, irrespective of market conditions. But that number will dwindle if we start seeing more distribution. Decide how many DOLLARS you are willing to lose on each stock in your portfolio. When you focus on dollars, you will necessarily focus on your position size. If volatility increases, inordinately large positions can cause big swings in your portfolio. There is a higher likelihood that you’ll do the wrong thing at the wrong time. But when your position size is manageable and appropriate, you can be more objective in your trading decisions. And in this environment, a “manageable and appropriate” position size is smaller than you might think.

It’s a lonely feeling to do well when the market is moving higher, only to lose big when the market corrects. Strive to be like a stock in a healthy uptrend. You make pretty good money for a while, then you drift sideways for a while. An uptrend with periods of healthy consolidation. That’s a heck of a lot easier on the emotions than managing a portfolio that sustains huge swings up and down. You go from joy to panic, back to joy, and then ultimate devastation.

Lower your expectations when the market is struggling. Right now, the market is struggling. Don’t ask it for more than it is willing to give. Protect your trading capital and you will be better positioned to pounce when opportunity presents itself.

See you in the forum.

–Dan

Good morning. The S&P is closing in on 40 days of a historically tight sideways drift. We’re seeing just a bit of selling after Mario Draghi, the head of the ECB, made some dovish commentary…but apparently not dovish enough. Cutting through all the crap that fills any statements by any central banker in explaining their forecast, Draghi basically said that the ECB expects economic recovery to be slow…but steady. Inflation isn’t going to increase as much as previously forecast due, in part, to the uncertainty surrounding Brexit. Seems pretty reasonable to me.

While an upside bias remains, but I strongly suggest that you refrain from attempting to impose your will and your preferred timing on the market. That’s an approach that is unknowingly attempted by many, many traders.

And it never works. The market is going to do what it is going to do.

For every trader who is desperately hoping for the market to spring higher and reward his upside exposure, there is another trader who is desperately hoping for the market to crater and reward his downside exposure. Hope isn’t a viable trading method, and both sides of the “desperately hoping for…” crowd are probably going to be wrong.

Desperation has no place in the mind of a trader. Instead, you should strive to find a balance in your trading/investing decisions. You must remember that failure to put your money at risk makes it a certainty that you will not make any money. Inflation isn’t an issue, so you’re not losing ground on the value of your money — but you’re just not making any more of it. Conversely, putting your money at great risk by making really big bets that have the potential for huge payoffs also increases the likelihood that you will lose a lot of money. Portfolios (or individual positions within a portfolio) with high risk can lead to great rewards…but you can’t really get away from the fact that you are taking a lot of risk. Focusing solely on the reward is not wishful thinking; it is just fractional thought. It’s incomplete analysis that leaves a gaping void in your trading plan. And the void is a critical one because you are ignoring the one part of the trading process that can be fatal to your results. And that’s the part that you should be most aware of.

In my personal defense training, one concept that permeates everything is the need for a plan. Why? Because panic fills an empty mind. If you don’t have an SHTF (“sh1T hits the fan”) plan, you will be at maximum risk when the danger is the highest.

This is a concept that is important for every trader to embrace. Don’t spend your life fretting about all of the bad things that can happen; just spend a little time planning for them. And if you have a plan in place, then your stress level goes down. You go from “OMG. The SHTF! What do I do now?” To “Hmmm. SHTF. Must implement SHTF plan.”

Briefly, what’s your SHTF plan? It’s composed of proper position sizing, definable and logical stop loss levels, having an unemotional reason for every action you make, and a clear and logical reason for every position that you take. Seems simple enough. But this is something that few traders actually do, which is why trading can be so difficult for some.

See you in the forum.

–Dan

Good morning. Last night I discussed the upward bias in the major averages, with the Nasdaq Composite at a new all-time high. What I didn’t discuss specifically is that the “FANG” stocks are all performing quite well, which reflects where money is flowing. Facebook (FB) and Amazon (AMZN) are both popping out of volatility squeezes in perfect sync…and for no particular reason that I can find in the financial news. Alphabet (GOOGL) is likely to hit a new high soon — it’s just $6 below the all-time high set on August 11th. And Netflix (NFLX), which has been lagging the other three, is pushing against the 200-day moving average.

After looking at the news feed on all four stocks, the only real stories I can find that are relevant to any of these tickers basically say the same thing: “FANG stocks are being bought.” Sure, there are a couple of stray headlines, such as the fact that Amazon is going to start selling cars (yachts and planes are next, followed by trips to outer space on Virgin Galactic and trips to Mars with Elon Musk). But the big story is that these four stocks are moving.

One of the most bullish things a stock can do is break out of a consolidation phase on high volume with no news. It just breaks out. And if the consolidation phase had been built on light volume, all the better. The “newsless” breakout just…happens. The FANG stocks all have been consolidating on fairly light volume, and yesterday’s moves all occurred on relatively high volume. Nice to h ave charts to pick up that action.

With yesterday being the first trading day after the official close of summer (started on Memorial Day and ended on Labor Day), it’s almost as if the big boys returned from vacation and decided where they were going to start putting their money….and they all decided to put it in the same place. I think that’s where we should be putting our money too.

One thing that I did not mention yesterday was the rebound in oil prices. I don’t know whether the rebound will amount to much, but we need to keep an eye on it. The big energy ETFs are all in consolidation, with XLE and XOP close to breaking out. OIH still has a bit of work to do.

One last comment: In just a few hours, Apple will be unveiling the next version of its popular iPhone. The word is that the new iPhone 7 won’t have a jack and will instead require a user to have a bluetooth device. That’s fine with me, but I’d be happier if the iPhone 7 was waterproof. I’ve lost two of them due to the “User Forgot That The Device Was In Pocket of Swim Trunks” syndrome. I now have a waterproof case and a bottle of gingko biloba to remedy the situation. But the case is so bulky that it is being used as a paper weight on top of my junk pile next to the garage door, and I’ve forgotten where I put the bottle of gingko biloba.

So I’m really hoping that Tim Cook comes up with a waterproof iPhone soon. It will make my life easier

See you in the forum.

–Dan

Good morning. I hope you enjoyed your three day weekend and got to spend time with family and/or friends during the holiday. Many folks tend to work so hard to make ends meet that they really need a day off once in a while to remember the reasons why they work so darned hard. One extra day can make all the difference in the world because it gives you time to wind down from a busy week, and get to a point where you truly start appreciating all the blessings that you have. And when we appreciate our blessings, it makes it a bit more palatable to get back to work and earn what it takes to keep those blessings.

We are entering the most active part of the year, with a busier September preceding what will probe to be a very very busy October. And November? Given the importance of the presidential election, as well as Senate and Congressional seats, November should prove to be a real doozy. (Note: I believe this is the first time I have ever used the word “doozy” in a morning note. First time for everything, I guess.) So as we enter the season that tends to be the most profitable for prudent and disciplined traders and investors, make sure that your number one priority is just keeping what you have.

Your profitable trading positions do not consist of your money and the house’s money. You own ALL of your position. Each and every position. You might have three consecutive winning trades on one stock. If you happen to buy that stock again, it is a new trade. It is an independent, singular trade that has no relation to prior trades. You’re exchanging YOUR money for the stock. The fact that you’ve made money on the stock before does not make this new trade anything but another trade with YOUR money. If you start treating some trades as being with “the house’s” money, you will start giving back your profits from prior trades because you’ll be a bit more nonchalant about it. You’ll think, “Well, what the heck. I’ve made good money on this stock. I’m playing with the house’s’ money, so I’ll ‘take a shot’. Setup isn’t great, but what do I have to lose? It’s not really my money?”

Can you see the problem? If you trade like this, you will ultimately reduce your profitability. Since everyone is wrong a significant amount of time, the most important mathematical formula for you is this: “Winners – Losers = Profit or Loss”. When you reduce the total value of your winners, your losers become much larger relative to the winners. The equation gets skewed to the losers outweighing the winners, and the end result is a losing portfolio. So protect your winners and try to let them run farther. Remember that you don’t get to control the movement of the stock. We want every stock to run a long way in the direction of our trade. We hope for a large profit when we enter a trade — after determining the risk we are willing to take, of course. But we want the stock to run so that we can make a lot of money on the stock. Sometimes that happens, but many times it doesn’t. Many times the stock runs just a little bit and then peters out. Or the stock may reverse and give you a small loss (small…because you have defined the maximum risk you are going to take on a trade).

So because those big runners don’t happen all the time, it’s important to (1) let them run as long as possible, averaging up when it’s prudent to do so, scaling out by selling part of your position when the stock looks like it may rest a bit…and buying it back if the “rest” turns out to be some sideways-to-down consolidation that ultimately starts returning to a nice uptrend, and (2) respect those gains and avoid frittering them away through a series of poor trading decisions because you don’t believe that the profits from the big trade are really yours!

Developing this mindset is critical to long-term success. If you can’t adopt this mindset where the profit and loss in every trade is YOUR profit or loss, then you’ll ultimately be subject to the vagaries of the market — making money while it’s moving higher, and giving it back when it’s moving lower.

The past few months have been difficult because there has just been no movement in the entire market. But there have been plenty of stocks that have been moving nicely. There will continue to be stocks that move quite well, even in a stagnant market. Focus on those, and don’t worry about yesterday’s great stocks that everyone seems to tout in financial media. Focus on stocks that are in good, tradable uptrends. If they’re below the radar, all the better. You want to be in stealth trades when you can, and in the high profile trades (like FB and AMZN) when it’s prudent and profitable to be in them.

But irrespective of what trades you are in (including a large cash position), remember that it is all your money. You don’t have to share your profits with anyone, and you don’t get to share your losses either. They are all yours.

Strive for: “Total Profits > Total Losses”

Do this, and you’ll find yourself counting a lot more money than you used to have.

See you in the forum.

–Dan

Good morning. The market is opening slightly down but, of course, we expect this to change throughout the day as stocks go slightly up. Isn’t that the pattern?

This is the last day of August, which takes us to September — the month that volume picks up. We we look at historical evidence, neither bulls nor bears have any kind of edge. The results are mixed, and they are also pretty low in magnitude. Takeaway? We’ll probably see a continuance of the current channels. But at some point, volatility will pick up for the simple reason that volatility is cyclical. Low volatility always begets high volatility, which in turn leads to low volatility. We’ve just been in a low volatility environment for a prolonged period of time. But don’t get lulled into too much complacency. Things can change, and they’ll change fast.

As you contemplate your trading/investing activity, it pays to be mindful that there are just three trading days before a 3-day weekend…which precedes a lot of decision making by fund managers who have been biding their time through the summer. This is an annual occurrence. Nothing special about this year.

If you haven’t been watching the evening Strategy Sessions, you might want to check in at the forum. My notes are posted there each night. Sometimes they are detailed, with price alerts on select tickers. But they always list the tickers under coverage. This can be a time saving method of making sure that you don’t miss information on one of the stocks you are following. You can also go to the vertical navigation bar on the right side of the forum to see which stocks have been the topic of conversation in the forum that day, as well as a list of stocks that are moving. This resource is invaluable to me, and is also used a lot by many members.

Check it out.

See you in the forum today.

–Dan

Good morning. Believe it or not, the market is set to….wait for it…open slightly down. This has been the nature of the market for the past month and a half. Flat open. Slightly higher open. Open slightly lower. Open flat. Lather, rinse, repeat.

Just two items of interest for me today. First, the Case-Shiller Housing Index (20-City Composite) Index continues to show steady appreciation in the real estate market, though slightly below forecasts. But overall, sales and appreciation are solid. This is good news for markets. If housing data was showing a decline, then the flat, narrow market would be more of a concern to me because of the danger of slipping into recession. But with housing strong, it’s not a problem right now.

Next, Apple’s trick over in Ireland is finally losing its magic. The European Commission ruled that Apple is on the hook for at least a $1.1 billion fine in back taxes, and a tax of $14.5 billion bucks, for “illegal tax benefits” from its operations in Ireland. Ireland, of course, is really ticked off and is appealing the decision. Why? Because Apple employs about 5,000 people in Cork, Ireland. And the fine folks in that nation like having 5,000 jobs…and all the economic benefits that come along with the local residents who are employed. When you’ve got a job, you also have money to spend on clothes, food, insurance, housing, cars, eating at restaurants, subscriptions to great information like Stock Market Mentor (a must for every market participant), schools, etc.

It will be interesting to see how this plays out because I’m wondering if Tim Cook will be as keen about having a big operation in a place that no longer affords favorable tax treatment. (Note: the Ireland trick is an extreme, where a company, properly structured, pays a tax of not more than 1%. That’s a drop in the bucket compared to Ireland’s already super low tax of 12.5%. But I wonder if having its taxes raised will prompt some action on Apple’s part to compensate for higher taxes.

Anyway, that’s really all I’ve got this morning. Just not any market-moving news this morning.

See you in the forum.

–Dan

Good morning. We’re looking at a weaker opening today as traders wait for direction from Janet Yellen — do we buy or sell? The Chair is speaking tomorrow at Jackson Hole, though one of her colleagues, Esther George of the Kansas City Fed, has said that she thinks its time to raise rates.

I have not yet checked the Fed’s Facebook page to see if there are any clues on their posts. If you have a facebook account, you might consider checking it out.

Mylan (MYL) remains in the news after the CEO appeared on CNBC this morning to address the torrent of negative press on the high price of EpiPens. The issue is a bit more complex than “just another greedy drug company fleecing the public.” But honestly, I don’t care enough about it to do any research for the simple reason that I can’t do anything about it. One of my immediate family members always carries an EpiPen for a severe allergy to hazelnuts. So I can tell you first hand that they are expensive — and you do need several of them. But at the end of the day, this is stock-specific issue for us , and the stock is up this morning.

I think it’s an opportunity to buy the stock, with a stop below $42.78 (which was yesterday’s intraday low). This is a big news story this morning (as it was yesterday). But by tomorrow, no one will care because we’ll be thinking about the Chair.

To you triple ETF gold traders, the triple ETFs start trading at their split-adjusted prices today.

$NUGT – $21.40
$JNUG — $19

$DUST — $36.19
$JDST – $30.50

These prices are a lot closer to each other than they used to be, so be careful if/when you trade them. Make sure you’re trading the ticker that you intend to be trading. Sounds silly that I even have to bring this up, but mistakes happen.

I can’t stress enough that this is an edgy market. I don’t think The Chair is going to say anything earth shattering, but you’ve got to look at the state of the market. Stocks have been trading sideways for more than 30 consecutive days without any kind of meaningful move. So the average cost basis of short term traders — both bull and bear — is in a very tight range. When this type of squeeze happens, the resultant move can be swift. But you’ve also got to consider whether there will be truly anything new in terms of Fed direction after tomorrow’s speech. I don’t think there will be anything new, but my opinion doesn’t matter. I observe, and I comment (sometimes intemperately). I do not influence policy.

Place your bets. 😎

Dan

Good morning. If this were Rainman, Charlie Babbitt would be saying, “Three Days to Yellen. Three Days to Yellen.” On Friday, The Chair speaks at Jackson Hole, Wyoming. (I previously said Jackson Hole was in Montana. Having actually ridden through Jackson Hole on a motorcycle back in 1990, I’m embarrassed that I didn’t remember what state it was in. It’s in Wyoming. Montana is in Montana).

Anyway, The Chair speaks on Friday. I just read an article on CNBC.com wherein Steve Liesman cites a CNBC Fed Survey finding that 60 percent of Wall Streeters who were polled say that the central bank has no plan to make policy. Rather, they make policy based on the latest economic number (my view), or by their own professed measures, which tend to change a lot.

This is more important than you might think because of the consequence of such a consensus about the Fed’s lack of policy framework. Because of an absence of policy, the market simply prices in non-existent interest rates into infinity. That’s the great news for bulls because they realize that an infinite supply of free money will ultimately find its way into the market. Advantage bulls! But the risk is that an asset bubble will be created,…just like the ones that Greenspan and Bernanke blew up.

Ultimately, they pop.

But I think we can navigate our way through this risky market because I’ve finally discovered the “tell” for the next bubble popping. Think about the history of the Fed vs. the economy over the past 10 years or so. It’s not a perfect relationship, but it works for our analysis. Alan Greenspan was Fed Chairman from 1987 to 2006. He had a big hand in creating the bubble in stocks back in the lat 90’s, and presided over the recovery from 2003-2006. He then had the prescience to retire before the popping of the real estate bubble that he created to get us out of the last bubble. He effectively handed the problem to Bernanke. Greenspan then retired, and wrote a book, entitled “The Age of Turbulence”, ironically published by Penguin Books, about how well he managed the Fed. (Bill Fleckenstein subsequently wrote a book entitled “Greenspan’s Bubbles” which revealed the many untruths told by Greenspan, mostly in the way of revealing certain documents, quotes, and actions taken by the Fed, and revealing the accurate dates that decisions were made, thus proving that Mr. Greenspan had actually “cut and pasted” certain dates to make it seem that he predicted various things that he actually missed by a mile. He edited the time line to make it fit his actions. But I digress).

Ben Bernanke then ran the Fed until 2013, and had to navigate through the popping of the asset bubble created by Greenspan. He took a similar approach as Greenspan — dropping rates to a point where money was free. He completely missed the bubble. The internet is rife with time-stamped bullish and confident quotes of Mr. Bernanke before and during the implosion of housing (and consequently, stocks). After housing hit bottom,the next bubble immediately started — the one that we are currently enjoying. Because investors were (rightfully) spooked by real estate…and millions of would-be investors had their credit decimated by the popping of the real estate bubble…the bubble once again occurred in the stock market.

Upon retiring, Bernanke, following the footsteps of Mr. Greenspan, wrote a book. This one was entitled “The Courage to Act.” Like “The Age of Turbulence” it was a homage to himself. Mr. Bernanke is now an expert, and spends his time at the Brookings Institute and advising foreign nations on monetary policy.

That brings us to present day, and the consolidation of the market for the past 18 months or so. You see, bubbles can last for a long, long time. Are we in a bubble now? Only time will tell. It sure seems like we are. But to be honest, the charts don’t bear that out. Rather, we are in a long consolidation with an upward bias. [There is a nasty “megaphone pattern” which I have discussed many times. But absent that yellow flag, we’re just in a high basing pattern that just might lead to a resumption of the bull market].

So, this brings us to present day, where we need to do our best to figure out how long the bubble is going to last. Will it last for a couple of weeks, months, years, or decades?

Here’s the payoff: I don’t know! Nobody knows…including The Chair.

I don’t think anything will come of the Jackson Hole speech on Friday. I think it will be more of the same — kind of a muddled view of things that reveals that the Fed has no real policy guiding it. And that will be good for the markets.

It is to our advantage, as stock investors, to have an infinite supply of money that ultimately finds its way into stocks. That’s actually a good thing, though it will ultimately lead to a bad thing. But for now, we need to do our best to look at the market through a bullish lens because that’s how we stay on the right side of the market. Nobody likes a perma-bull who is always pouring water on a good party. This is probably why Peter Schiff isn’t invited to many parties. So we want to remain positive and bullish. And we can remain confidently positive and bullish, with clear eyes and a calm heart, because we will be able to predict when the current bull market will end.

Here’s the “tell”: When Janet Yellen announces her retirement, start moving your stops up and increase your cash allocation. When a book deal is reported, where The Chair is being paid a 7 figure advance to write a memoir about her escapades running the Fed, go to cash and remain vigilant. Start focusing on learning to short stocks (you can find a great course on our website. I know, because I taught it). By the time the book comes out, your shorts will be paying off handsomely.

There! That’s our blueprint for navigating through the current market environment, which is admittedly a bit confusing.

So embrace the free money. It just might be a part of your life…for the remainder of your life. Ignore the dire predictions of the naysayers like Bill Gross and Peter Schiff. They’ll ultimately be right…but you won’t make any money by listening to them now. Just think of them as the masons who are building the “Wall of Worry.” Stay long, focus on charts that have a simple combination:

1. Price > 50-day moving average
2. 50-day moving average > 200-day moving average
3. Both moving averages are trending higher.

Stick with that simple combination and you’ll be making money while others are fretting about things that may not happen for several years. But watch the financial news!

When you see a headline that Janet Yellen is retiring and that James Bullard or William Dudley is being considered as the new Chairman, start worrying.

And you thought this stuff was tough. I just gave you the keys to the kingdom! Enjoy.

–Dan

Good morning. Futures are up and it looks like we’re going to open up right at Friday’s opening prints. In other words…right back to the top of the range. A couple of stocks you traders might want to be watching this morning are Oracle (ORCL), which is squeezing pretty tight. There is a high likelihood of the stock breaking out…but I have no idea when that will happen. I’ve set a personal alert at $41.57 on my software. If the alert is triggered, I’ll be notified…and I’ll then start watching it closely as it tests last week’s high.

Another stock to watch at the open this morning is Best Buy (BBY). The company reported strong earnings and CNBC has been pumping the stock for the last 15 minutes. Consequently, the stock is up around 15% this morning. Those kinds of moves are almost (ALMOST!!!) always “gap and crap” moves. Big gap up. Retail traders rush to buy the stock before anyone can get their hands on it. Professional traders, understanding that the opening bell is where all those “buy at the market” orders live, are happy to sell those retail folks as many shares as they want to buy. Their generosity knows no bounds.

And once the retail orders are filled, the demand drops off. Of course, the retail buyers are happy because they got their stock! “Whew! Up only 15%. Sure glad I got in when I did.” They now just wait to be rewarded.

The professionals who sold that stock are just waiting. Waiting for the stock to drop to lower levels as demand for the stock continues to wane. The post-earnings demand has been “front loaded” — it all came at one time (9:30 am). So as demand weakens, the bid price drops. Then the professionals can start buying back that stock that they so generously sold to eager buyers. They buy it back at a lower price, and they have a nice profit for their troubles. Meanwhile, the retail buyers aren’t so happy anymore. Their stock is now lower than when they bought it, and they start to think the market is rigged against them. Happens every time. They got screwed by the market makers. Crooked market! They hate Wall Street.

This happens every morning in one stock or another. It’s the way of supply/demand cycles. Your solution? Don’t buy big upward gaps at the open, and don’t sell big downward gaps at the open.

Now, there ARE always exceptions to the rule. Today, BBY might just keep going. In that case…buy it b/c the pros are wrong (that also happens sometimes). But as a general rule, you should not be chasing big moves. You risk being on the wrong side of the trade and taking a fairly significant loss very quickly.

Oh, also don’t forget about Square (SQ). It was upgraded this morning and is not back to test the 8/4 “gap and crap” high — which was a result of strong earnings. The same type of dynamic that is hitting BBY this morning.

See you in the forum.

–Dan

Good morning. Equities are opening lower this morning, giving us one of those rare red boxes on the upper right side of the chart. However, there is no telling whether those red boxes will remain, or whether they’ll morph into white boxes with green trim. This is the way of the market — a slight open up or down, and then a retracement of the move. Viola! Another trading day in a very very narrow range.

Believe it or not, the influence on traders seems to be an event that is on Friday, when Janet Yellen speaks the Fed Symposium at Jackson Hole, Wyoming (a truly magnificent place). This is the annual confab where the central bank leaders make big pronouncements — and that tend to move markets. Add to this upcoming market moving event the statement that Stanley Fischer said yesterday that the Fed is close to hitting its targets for 2% inflation and full employment and you’ve got a recipe for….a rate hike.

Yes, we could hear a statement come out of Montana this week that a rate hike is imminent. And such a statement would help fulfill the historical status of August as being one nasty month.

I’ve been trading a long time, and I remember when the Fed was only relevant before their meetings. Maybe once/month they’d be in the financial news for a day or two. No big deal, really. Then CNBC started doing “the briefcase indicator” on the morning of the Fed meeting. Cameras would follow Easy Al through the streets and Joe Kernen, David Faber, and Mark Haines would hold a semi-serious discussion of how thick the briefcase was. If it was thick, a change in policy was coming. If it was thin, the Fed would remain pat. It was a light hearted way to have fun, and create some drama in an industry that could otherwise be seen as kinda boring.

Well those days are gone. All anyone seems to care about is whether the Fed is going to hike rates. It is an obsession with just about everyone.

It is a binary relationship.

No sign of a rate hike = buy stocks. Hint that a rate hike is being considered = sell stocks.

Actual rate hike == pink unicorn. It’s never gonna happen…at least not until after the election.

We’re gonna see some relatively narrow, choppy action this week — basically, more of what we’ve been seeing for a while. Embrace it, hate it, but don’t be consumed by it. Be very selective in your stocks, and keep only a reasonable amount in your watch list. Leverage the forum for additional stock ideas. Collectively, the forum covers a lot of stocks because members tend to have different lists. Use your buddies there. It will be a big help.

See you there.

–Dan

Good morning. We’re looking at a slightly lower open, which is par for the course these days. Open lower, close higher. Open higher, close lower. A very very tight range persists. I mentioned in last night’s Strategy Session that the recent Fed minutes revealed a considerable split between members. Inflation is a worry, and the economy is subject to interpretation. Some think it’s improving; others think it’s stagnant. But the upshot is that they’re not going to hike rates in the foreseeable future. James Bullard thinks that just one little rate hike is all that’s going to be required, and there’s no sense fretting over timing. They can do it any old time.

But from a practical standpoint, the only possible time for the Fed to hike rates this year would be in December, after the presidential election. So meanwhile, we should see some stability regarding the fed funds rate.

Just a couple of thoughts about trading this morning. Last night I hosted a webinar wherein I discussed some of the mistakes that traders make. I think it’s important to keep some of the stumbling blocks on the path to success in mind as you make your trading decisions. Because emotion is such a big part of trading for many people, you need to be mindful of how your emotions can impact your actions. And let’s face it, if your trading results are poor, it’s likely because your trading decisions are poor.

Here are a couple of related mistakes that haunt many traders, and some methods of avoiding them.

1. Ticker-Centric Trading: When you make a lot of money on one stock, you start to love that stock. You see it as a generous friend who is nice enough to give you money, with no expectation of repayment. (Man, I need a friend like that!). So, you continue to go back to that stock again and again, even after the stock has changed character. The time period doesn’t matter — it’s still a problem. If you have a typical holding period for several weeks, or just a day or two, a stock that pays you off for making the trade is a stock that you may gravitate to rather than looking for other opportunities when your generous ticker becomes a bit stingy. Ultimately, you’ll give back all of your profits…and then some. The way around this mistake is to have some very basic criteria for considering a trade. One of the criteria that is absent from your list is the ticker. Who cares what the ticker is? It’s the chart that matters. A downtrending stock is not a stock that you want to own, even if you made some money on it recently. Stocks go up and down all the time. To put it simply, find the stock that’s going up in a recognizable pattern and trade that one. Ignore the stock that used to be going up, but is now going down. A great example is Tesla (TSLA), which we’ll look at in a sec. This stock had one great run back in 2013, from $35 up to around $180. Since then, it has sustained declines at various times of approximately 40%, 35%, 35%, 30%, 50% and 30%. Yes, there have been times between late-2013 and the present where TSLA has been in uptrends, like mid-2014 and early 2016. But for the most part, this has been one choppy stock that has been swinging sideways and is now down about 25% from its all time high in September 2014. If you have been holding the stock all that time, mesmerized by Elon Musks’s unkept promises and grandiose visions of going to Mars, you’ve been disappointed. But if you had instead ditched Elon at the high and switched to Jeff Bezos’ company, Amazon (AMZN) would have doubled your money, while Elon would have sucked you dry. This is, of course, theoretical. Nobody sells right at the high, and then immediately switches to a double bagger (If you can do that consistently, please contact me immediately). But I’m sure you get the point. Focus on the direction of price, not the rhetoric of the CEO of the company. So that, and you’ll make better trades (and you’ll probably ditch TSLA and buy AMZN).

2. Revenge Trading: So you didn’t make a lot of money on a stock. Instead, you lost your shirt. Some traders have an ability to take the loss and move on. Others just can’t bring themselves to do that. Instead, they refuse to sell the stock because they “can’t afford to take the loss.” They are blind to the fact that they already have taken the loss; they just haven’t figured it out yet. They haven’t admitted it to themselves. They think they are still in the fight. Don’t be that guy. Instead, if a stock moves against you and does not appear to be rebounding, then just sell the stock and put your remaining money into a chart that doesn’t have so much resistance overhead. If a stock takes a dive, it’s going to have a tough time rebounding because of all the regret that is baked into the stock. Lots of folks are sitting on losses, and they’ll be selling into any strength. So bounces will typically (though not always) be muted. Meanwhile, you’re holding this dog and hoping to be made whole. You want to show the stock who’s boss, and you are fixated on that stock. I’ve fallen into this trap during my early years in this business, and it’s never worked out. Now, if I take a loss on a stock, I’ll tend to look at it a bit more carefully before wading back into the fray. I’ll give it additional consideration to ensure that my emotions are not driving the decision. I’m not suggesting that you completely avoid any stock that you lose money on. I’m just suggesting that you consider whether any additional trade stands on its own merits, rather than being a “get back to even” trade that has suspicious rationale.

In sum, just focus on making money. Not one of the stocks you trade cares about you. They don’t even know you. (And if they did, they wouldn’t like you because they’d see you as a fickle friend who bails at the first sign of trouble. You buy when times are good, and then you exchange the stock for money when times go bad. Not exactly a good friend.) Just focus on the chart that represents the trading activity. That chart is the picture of what other traders are doing. They are competing against you, not the stock. They want you to sell low, and buy high. Everyone is looking for the same thing, but few find it consistently. And why? Because the ticker gets in the way.

It’s not personal; it’s trading.

See you in the forum.

–Dan

Good morning. Today we will get indication of what the Fed is thinking as the minutes from the last meeting will be released. Should be interesting. Asian stocks were strong, and one of the reasons given for the rally is that William
Dudley, New York Fed President, said that they might raise rates as soon as next month,, warning investors that they were underestimating the likelihood of increases in borrowing costs.

He said the same thing before the last time the Fed didn’t raise rates. Now, he’s saying it before the Fed doesn’t raise interest rates. Any idea what he’s going to say before the next time the Fed doesn’t raise rates. It has gotten to the point where investors just don’t listen to Dudly or any of his cohorts when they play the “We’re gonna do it! You wait! It’s gonna happn.! game.

Any questions?

Also, Gawker is being bought by Univision, the media company that serves the latin american, spanish speaking community. Honestly, I don’t get that one. Strange bedfellows.

One thing that bugs me about the current market lift is that there are an increasing number of respected money managers who are saying that being in cash is ok. They are pretty confident that their high cash allocation is not misplaced. They’re comfortable. Now, this is either troubling or comforting, depending on how you view this “go to cash” trend among large money managers (otherwise known as “smart money”)

First, you can view this as bullish. It the market continues to move higher without smart money participation, they will have to capitulate at some point. They don’t get paid to manage dollar bills. they get paid to make more of them. So if the market does NOT start falling, then this smart money will start coming into the market because it’s the smart thing to do. We will be rewarded for holding stocks because their buying will push our stocks higher. On the other hand, this can be a bearish factor because, if the market falls, these money managers will pull away even more for a short period of time and let the thing that they have been waiting for (a big correction) run its course. Ultimately, they will swoop in and grab stocks. They will be rewarded for their patience, and for the panic of those who sold with no hesitation. They just wanted OUT!

Here is my approach. In our pension account, and a couple of old retirement accounts that i have from pre-SMM days, I am not doing much at all. I’m reviewing the stocks that we are holding and making a few changes. I’d do that anyway. But generally, I don’t do much in our pension account. They are long term. I accept the fact that, if the market corrects, these accounts will take a hit. If the S&P falls 10%, I expect our large accounts to fall…10%. I wish that wasn’t the case, but I’m ok with that because I just don’t have time to actively manage a long term account. I’m busy here — focusing on SMM/OMM and also working on new educational projects that will help members immensely.

In my short term accounts, I only have a handful of positions. Now, I think I have about 6. That’s all. Most are working, while a couple are not. They’re not at a point where I’ve decided they are not going to work. They’re just at a point where I’m getting impatient and am starting to look at them in the way someone looks at a serial liar who just assured me that he was telling the truth. Lots of suspicion. At any time, those could be sold for small losses…or small profits that are much less than I had hoped for. But my cash in those accounts is pretty high. Honestly, I’m not making a lot of money on those positions because of my large cash allocation. But I’m ok with that because I am basically playing defense. If I’m driving in a cross country race, I’m going below the speed limit because the road I am on has a lot of hairpin turns, pot holes, and have the possibility of doing a Thelma and Louise off a high cliff. So I’m going slow, and am just happy with the progress I am making. I know this will change soon, and I want to be intact when the change occurs, and the big opportunities present themselves.

In my trading positions, I’ll vascillate between a small, starter position, a midsize position, and a large position that I am almost immediately looking for an excuse to lighten up on. The market is that tight. Just no big swings in most stocks.

I have been focusing on finding stocks that do have a bit more movement in them, and that you will be able to make a good profit on. Several stocks I have recently covered have done very very well. I suggest that you focus on those, rather than the ones that are doing nothing, but that you hope will start paying off because you are a fan of the stock. You made money on it before, and you’re hoping to make money on it again. If it works, great. But if it doesn’t, then be a little creative, do a little work and think, “Is there another stock that I can trade for a payoff NOW? I can always go back to Old Faithful when it starts bubbling.”

At some point, we will see a big change and we will all be thinking, “Ah, this is the reward for my patience and conservative trading. Now I can make some money…and I’m in a better position to capitalize because I’ve been spending my time focusing on learning my craft and getting better at trading.”

That change will definitely come. It always has; and it always will. This is the cycle of markets. Either roll with it, or be rolled over by it.

See you in the forum.

–Dan

Good morning. The market is opening weak this morning, which is kind of a nice change. Last night I was looking at the S&P and ruminating on the current status of stocks. Here are some of my conclusions:

The last two big selloffs have occurred from levels where the S&P was trading at the 200-day moving average in a relatively horizontal manner. Both times (last August, and in January) the selloffs really accelerated when the index pierced the 200-day moving average. Check it out on your chart. The 200-day moving average provided support in July on 5 different occasions. On the 6th test, the S&P fell below the 200-day moving average, and the S&P fell 10% in 3 days. In December, the S&P was trading on both sides of the 200-day moving average, essentially making the 200-day moving average a magnet for prices. That was a “reversion to the mean” dynamic. But when the S&P only managed to get above the 200-day moving average for one day before reversing, the ensuing 12 days brought a decline of 12%.

In other words, the 200-day moving average is extremely important to money managers. They’ll buy stocks when the 200-day is support. They will remain in the market as long as stocks stay in the top zone, buying dips gently. It takes quite a while for the 200-day moving average to catch up with high prices in order to have a chance at a big correction.

I will cover this later today in the strategy session. Meanwhile, just get ready for more sideways consolidation, with no foreseeable catalyst for a big decline. You’ve always got to be protective of your portfolio by managing position size (not too much in one stock), and having stops placed in all positions — either full stops, or just partial stops that automatically reduce your position if your stop is hit. Using a partial stop has the benefit of making you breathe easier after a pullback because you don’t have such a big position. It’s easier for you to think clearly.

Anyway, I think we’re in for some sideways trading behavior for the foreseeable future. This can be good for us, as long as we are in trending stocks that are outperforming the S&P. And those are the stocks that I will be working on!

See you in the forum.

–Dan

Good morning. We’re looking at yet another higher open this morning, with the S&P, DJ-30, and the Nasdaq Composite all set to open at all-time highs…again. We are in “melt up” mode, with the indexes hitting all-time highs, but lacking anything resembling “momentum.” This is, I believe a result of an absence of aggressive selling activity. The summer months are always defined by low volume, as investors/traders take vacations, spend time with their kids, etc. It takes volume to generate momentum, so we won’t really have a sense of whether stocks are truly going to start another leg higher for another couple of months. For now, this is truly a stock picker’s market rather than a sector driven market. Don’t try to make it something that it is not.

Some thoughts on trading stocks and options

I’m sure you are familiar with the description of a person as being “a jack of all trades but a master of none.” Well, in everyday life, that trait comes in handy in many different circumstances. If you’re stranded on a deserted island, it’s nice to be able to tie knots, build a fire, and try to put a broken radio back together with twine and bailing wire. If you buy a fixer-upper, knowing a bit about electricity, plumbing, wood working, and landscape architecture will save you a lot of money because you don’t need to hire others to do tasks that you can do.

In trading, truly being a jack of all “trades” can just get you into trouble. Because you have such a wide array of trading skills and knowledge, you see countless opportunities every day. You see day trading opportunities every morning, and you see really attractive companies with strong fundamentals in the afternoon. You recognize buying opportunities in multi-year charts, and swing trading opportunities on daily charts. You see trading channels that you can exploit by buying at support and selling at resistance – again and again.

If you trade options, you sell front-month puts; buy long duration calls; and write credit spreads. The list is endless.

I suggest that you throw 90% of your “skill” away. It’s not serving you! If you are a “Jack of all Trades” and a master of none, then you will consistently lose money to the guy who is a “Master of ONE” – the one trading tactic that you are using right now.

Don’t be that guy! Instead, look at your recent trades for indications of your psychological tendencies. How long do you keep trades open? Do you intend to hold a stock for months, but end up selling it 3 days later because it’s up 3%…or down 10%? Are you constantly enticed by declining stocks to try and catch the bottom? Do you buy at the top of a range because you sense that the stock is breaking out because your last trade involved shorting a stock that was at the top of the range…just before it broke out?

Here’s what’s happening. You aren’t concentrating on mastering one specific type of trade. Instead, you’re scurrying around with a lot of enthusiasm, but no real plan.

Relax. Decide what you’re good at and just leave the rest for someone else. For example, if you like to buy support and sell resistance in channeling stocks, then just do that. Look for stocks like Whole Foods Market (WFM). That stock has been spitting out 15-20% gains for the past 8 months as it oscillates between $30-$35. Don’t bother with stocks that are doing anything other than trading in predictable sideways channels. If you are attracted to volatility squeezes (my personal favorite), then focus on understanding the difference between a chart like YELP and HAIN. Both have been in squeezes, but the dynamics are completely different! If this stuff turns you on, then don’t waste your time with WFM. Just decide on the one thing that interests you the most, and then focus ONLY on that. If you can do that, then you’ll be the “Master of One” that takes the money from the “Jack of all Trades.”

See you in the forum.

–Dan

Good morning.

Well, another morning….and another pending open that’s just slightly positive. We seem to have buying in the morning that soon fizzles out and stocks close off their highs. The sideways drift of the market continues for one more day, and tomorrow probably won’t be any different. As the sideways drift goes on and on, I’ll likely find myself discussing it less and less simply because nothing has really changed. That’s just the underlying state of the market.

This dynamic will continue and I think a lot of it caused by ETF trading. Buy one ETF and put upward pressure on numerous stocks. Sell that ETF and buy another, and your selling will put downward pressure on numerous stocks, and upward pressure on another group of stocks. So the buying/selling always seems to be balanced. And if one sector seems to be weakening to a point where it’s going to break technically, the buying appears as if by magic to prop it up.

When I was a youngster attending the University of Riverside, majoring in Biomedical Sciences, I was a very curious individual, interested in everything. The classes I was taking were quite challenging for me, but one of my favorites other than organic chemistry (where everything made sense like a pile of leg toys) was physics. Why? Because it gave me an opportunity to study the laws of motion every night by….

….wait for it….

…juggling lacrosse balls. For every motion there is an opposite and equal motion, etc. Every mass stays in motion unless acted upon by an opposite force, etc. All of those things applied to juggling, and I could juggle four balls pretty easily (now, I’d be lucky to juggle two). But the trick to juggling is this: Throw a ball in the air. As it comes down, you start throwing the other one up. When you’ve sent the second ball higher, you reach over and catch the first ball before it can fall to the floor. Lather, rinse, repeat. And you do the same thing, at the same time, with the other hand. Four balls! Impressive.

The central banks are juggling a LOT of balls, but they’re doing pretty well They’re keeping a lot of balls in the air. If you consider this analogy and apply it to the market, I think you’ll be able to see what I mean. There truly are a lot of balls being juggled by a lot of different forces, but the end result is this sideways drift.

In a way it can make things easier because you almost have a safety net. Any big decline will ultimately be caught like a juggler catches a falling ball. But this type of dynamic also leads to complacency. I’ve discussed this in detail, and won’t repeat it here.

Rather than be complacent, try to approach the market more narrowly. Keep a handful of stocks. Maybe it’s just two. Maybe it’s five. Maybe it’s ten. If more, that’s fine — it’s your hand. But focus on a finite number of stocks that are moving in a way that you can understand. Just trade those. Don’t pay attention to much else. Just focus on your stocks. And if one stock stops behaving as you expect it to (i.e. an uptrend breaks), then just put it aside and find another stock that you understand.

Trade the chart, not the ticker.

If you can do that, then this sideways market won’t be so irritating. It will actually cut down on your work because you realize that the best work is focused work.

Focus…and prosper.

–Dan

Some thoughts on timing. I’m not talking about “market timing”. I’m just talking about the period of time between deciding that you want to buy something…and actually buying it. That’s the “Decision/Action” approach that I discuss on occasion. Zoom out to see the trend (or lack thereof). If you like what you see, then zoom in to enter the trade…timing the entry via the daily and/or intraday chart activity.

You make the decision to buy something. But rather than just click the mouse and buy the stock, you wait for a time and price where (1) You can define your risk because the stock is quite close to a level that, if that level is hit, you can exit the trade because you’re being proven wrong by the stock, and (2) You can see good potential profit in the stock. If you don’t have both of those, then you don’t have a buying opportunity.

One could write an entire book on the concept of buying stocks (and many have been written), and you’d find a lot of different chapters that cover all kinds of things. But here are a few general thoughts.

Assume that you see a stock that you have made a decision to buy. Now, you need to focus on where and when to buy it.

1. Start with the overall market. Is it poised to move higher? Is it breaking out? If so, does it look like it’ll hold up, or is it susceptible to a failure? If it’s pulled back a lot, is it rebounding off support? Or are you just hoping that it’ll rebound? And if it is rebounding…is it going to run into a lot of supply very soon? In other words, will it have room to run, or is this just going to be another small move inside a channel that sucks you in at the top, and spits you out at the bottom?

2. If the market has been churning/consolidating in a fairly narrow range (perhaps, say, 10%…and definitely not wider than that), then it’s forming a base. It might be a “high base”, which is really just a consolidation after a big uptrend. Amazon (AMZN) resembled this in May-July. Compare AMZN with Alphabet (GOOGL), which has been consolidating in a “high base” between $700-$800 for nearly a year. It’s great when a stock like GOOGL has such a prolonged base. But there’s one problem: The “base” is really wide. Why does this matter? Because a breakout from a very wide “base” might have limited upside simply because of the amount of aggressive buying activity (accumulation) that it took to simply traverse the distance between support and resistance. So by the time the stock actually “breaks out”, the bulls are nearly spent. There’s just not much demand at the higher, breakout level. So a breakout from a very wide channel that followed an uptrend might not have the kind of staying power (upside) that a breakout from a narrow channel that followed an uptrend would.

3. This type of analysis applies to the overall market, as well as your stock selections. Market first…then stock. If the market is set up nicely to break out of a range, then your range bound stock will have a greater chance of rewarding you. But if the market is not set up a sustainable move (you can truly tell whether it is or not if you just throw bias out the window and apply what you already know), then your stock is more likely to penalize rather than reward you.

4. To apply this aspect of trading to the market today, I would say that this is not really the time to buy because the S&P is still tending to be sold into any breakout. Look at how extended it is from the 200-day moving average. Yes, it’s been trading in a fairly tight range for the last few weeks, but this high range doesn’t look like consolidation. It’s just too extended, and it appears as if any real breakout won’t go too far before selling hits the market.

If you want some type of objective checklist for buying breakouts, then try focusing on the major moving averages. The stock price needs to be above the 50-day moving average, which needs to be above the 200-day moving average. If your stock doesn’t conform to this cocktail napkin checklist, then maybe you want to look for something else if you are focusing on breakouts.

If you are focused on some trading tactic other than buying breakouts, then your tactics change. But you should have tactics. Without a plan, and criteria for executing the plan, you are just enthusiastic about trading stocks and will have a lot of fun buying and selling. Sooner or later you’ll lose all your money, but you will have had fun in the process. Have a plan!

See you in the forum.

–Dan

Good morning. Looks like we’re opening at all time highs again today, with the futures up slightly. Some stocks I am watching today will be those related to oil, with may be moving higher after all. Apparently several OPEC members are pushing for a production freeze, which would push oil prices higher. In turn, the energy sector would be a big beneficiary, though you’d be paying more at the pump for gas. There’s always a trade off.

As you know, energy has been a sector to “watch”. It has been largely trending sideways after a multi-month run, and has been positively diverging from oil. Though oil prices have declined, many stocks in the energy sector have been essentially flat.

Take a look at Schlumberger (SLB), Williams Companies (WMB), and EOG Resources (EOG). EOG reported earnings on Friday. Revenue declined big time. But the company raised guidance for 2016 and caught some upgrades because it was reducing costs. The stock broke out and closed up 7%. It’s a bit too extended here and my bet is that you’ll be able to buy it at a more reasonable price in a few days. Let it settle in.

WMB and SLB look like they have some good potential. They are “coiling” in the charts — just poised to break out. But wait for it — spotting “potential” is not the same as a sure thing.

This market is extremely strong, and I’ve got to think that much of the strength is due to incessant helium being pumped into the markets by central banks, who can print as much money as they want. Doesn’t make me happy, but it’s important to put this in its proper perspective. If you are an aware investor, you can participate in what the market gives you and avoid being a blind follower of financial news. You put your attention to the trend of prices and focus on that. The other stuff is interesting. But honestly, I think I track this aspect of the markets enough to give you the high points. If you start getting into the dirty details of the market, you’ll be tempted to put your money under the mattress. Don’t do that. Just focus on stocks that are going from lower left to upper right. Stick with those and you’ll do just fine.

See you in the forum.

Dan

Good morning. We’re looking at a lower open this morning, and I think that’s a helpful development. Last night I suggested approaching this market from a short-term perspective, noting that a risky market would ultimately sting those who did not respect the risk. We’ve been in this sideways consolidation for the past few weeks, and the range has been nearly non-existent. If you switched from a candlestick chart to a line chart, you’d barely lose any information — the intraday ranges have been the tightest I can recall ever seeing.

And there has been a bit of a divergence that’s worth noting — the Dow has fallen for 6 consecutive days, and the Nasdaq has risen for 5 consecutive days. So there is an obvious bias toward tech and biotech. You can look at iShares Nasdaq Biotech Index (IBB) and Market Vectors Semiconductor Index (SMH) and you’ll see where the strength is.

We’ll be watching oil again today. This morning, it’s back above $40/bbl, but it’s the recent steep trajectory gives me the sense that this may be an oversold bounce of a key technical indicator (the 200-day moving average) rather than a big turn in the trend. Be careful.

One of the more difficult thing for market enthusiasts is to think long-term when stocks are working…and think short-term when they are not. I’m not talking about selling your stock just because it wiggles slightly and pulls back. I’m just talking about being patient rather than taking action because you’re bored.

Focus on what’s working now. And what’s working now are biotech, select technology, and precious metals. Those are working now. Those are “short term” ideas that have actually become long-term ideas simply because they’ve been working for a long time.

Tech stocks like AAPL, GOOGL, AMZN, NVDA and STX are working. I reviewed several biotech stocks last night. IBB, LABU, CELG, etc. They’re working. Gold stocks? Pick one.

So focus on those that are rewarding you, and avoid the ones that are penalizing you. At some point, the buying will go elsewhere, and tech and biotech will no longer be working. We just don’t know when that point will occur.

I believe that gold/silver will work for longer than many expect. They tend to act well during times of uncertainty. And right now, there’s a lot of uncertainty out there (and I’m not talking about the really ugly and disgusting 2016 presidential election). I’m talking about a slowdown in China, weak emerging market economies, very weak economies in Europe, and an apparently booming economy over here that no one seems to be feeling, but that our President described last week. Wow, I never knew I had it so good. And it’s gonna get even better!

These types of weaknesses, in today’s world, mean that free money will be everywhere. Japan’s central bank is going to throw another $132 billion at the economy. This doesn’t surprise anyone, given Ben Bernanke’s recent visit to Japan. That guy epitomizes the term “one trick pony”. His trick works like crap, but it’s popular. And therein lies the wind beneath precious metal’s wings. When all of the central banks on the globe are printing money, money becomes basically worthless. Meanwhile, gold and silver keep chugging along. I’d rather have $20 worth of gold than a $20 bill. True, you can’t buy a loaf of bread with gold…but there will come a time when $20 won’t buy one either. So money should continue to be exchanged for precious metals until the central banks around the world start realizing that there is pain with every excess, and that simply trying to avoid the pain by printing money only prolongs the pain, and sets us up for excruciating pain when the medicine bottle runs dry.

That’s not likely to happen in a long time. (Look at a picture of Christine LaGarde. Is that the picture of competence? Google: “Lagarde negligence” for your answer.

So over the next several weeks, be an Olympian and go for the gold. The other metals are extended, but gold just continues to chug higher. Chug along with it.

See you in the forum.

–Dan

Good morning. Have you ever found yourself trading yesterday’s market today? No, I’m not talking about finding a flux capacitor and going back in time. That would make you a day late…and several dollars short. I’m talking about sticking with a great strategy that’s been working for a while, but is no longer doing much except slowly bleeding your account of profits made when that strategy was working.

I like trending markets. Frankly, I don’t know many who don’t like trending markets – other than those hapless few who are always trying to spot the top and get there first. While it’s nice to be right, it’s painful to be wrong 17 times before your 18th “this is the top” call finally hits the market.

Don’t be that guy.

Focus on markets, sectors and stocks that are trending. If all three are in sync (market, sector, and stock), you’ve found nirvana. But honestly, those were the good ole’ days. We haven’t seen such synchrony in a long, long time, save for a week or two after a deep correction. You’ve got to trade the environment that you find yourself in. These days, the S&P is in a very narrow trading range – it feels heavy…but it also seems to have a bit of helium left in the balloon. Truly a contradiction in market dynamics.

Here are four stocks that aren’t really trending. So “buy high and sell higher” isn’t going to work very well. But if you can identify support and resistance, and then use those levels to derive risk and exit points, you’ll do ok.

Bluebird (BLUE) — breaking out of a 6 month base. Watch how it behaves around the 200-day moving average.

Robert Half International (RHI) — higher low relative to the June low. But not much sky above — it’s at $36.86 and resistance is around $40.

Universal Display Corp (OLED) — We’ve been tracking and trading this for months, and it’s finally breaking out of a very prolonged high base and springing off the 50-day moving average.

Chipotle Mexican Grill (CMG) — Gotta think that the worst is behind this stock. The recent breakout above the 50-day moving average is being tested. Needs to hold above $420 or the move will probably fail and the stock will need more work.

Anyway, those are just four stocks I’ve seen that have different types of dynamics. Focus on the dynamic that applies to all stocks that you are trading. They are all very different.

See you in the forum, which has been rocking lately.

Dan

Good morning. Yet another bullish morning on Wall Street…at least for a while. Over the last 10 days, the S&P has traded in a very narrow range — less than 1%. So that’s a whole lotta nuthin’ going on, and as I type this, the S&P is red, and the Dow has given up half of it’s meager gains. So this is just another day in a series of patience-testing days that will gradually take your money if you insist on trading actively. This just isn’t one of those times where money is laying around the floor to be picked up by savvy traders who know how to capitalize on the ups and downs of the market. In this current environment, there are just fewer ups and downs…and the ones that you find are quite narrow. Not much reward, irrespective of the risk you take.

Facebook (FB) is on tap for tonight, and Amazon (AMZN) will be out tomorrow. Gotta think that Amazon will be amazin’. It’s interesting that AMZN is trading in a fairly tight range, so it’s set up for a pretty big move either way. I have no clue about Facebook.

Careful about aerospace and defense stocks. Raytheon (RTN) and Northrop Grumman (NOC) look a bit heavy as they test support. NOC posted earnings this morning that beat EPS estimates. They also guided higher for the rest of 2016. The result? A gap…and a crap! The stock is now down less than 1%, but it is 2.3% from its intraday high. So this is a stock that is likely to trade either sideways…or start drifting down simply because the relative aggression of buyers and sellers has shifted to the sellers, who are taking profits from a very nice uptrend. At the very least, you might want to place a stop down around $215…or even a bit higher.

Raytheon (RTN) is slated for tomorrow, and that stock is now falling below the 50-day moving average, likely in sympathy with NOC. It just looks a bit sluggish and unwanted.

Comments on NUGT: Yesterday I mentioned that I was out of NUGT in the morning, but then bought back in later in the morning. Because I know that there is often some follow-along trading happening, I thought I’d let you know that I see last Wednesday’s high as strong resistance for this ETF and have liquidated my position already. Now, I’m just watching for my next entry. Holding the stock is also fine. But I just see the resistance and don’t feel like I want to hold it through another test of the 50-day moving average. I’d rather wait for a pullback to run its course and offer a good entry; or, wait for a breakout above $140 and then buy the breakout.

Trade it any way you want. I just wanted to share my approach with you.

Have a good day.

–Dan

Good morning. Well, yet another day where equities are bid up at the open. The helium balloon continues to float sideways. Earnings are going to come fast and furious this week — Apple (AAPL) today, facebook (FB) tomorrow, Amazon (AMZN) and Alphabet (GOOGL) on Thursday. So we’re pretty much a hostage until those numbers are published.

Also, Smith & Wesson (SWHC) and Ruger (RGR) are moving higher today. The patterns are extended and I just don’t see a great entry. I think that, because of the industry they are in (firearms), the stocks tend not to move in the typical patterns that many stocks carve out. They just seem to be dominated by the flow of headlines. Just last week I visited a local gun shop to get some gear, and spoke with one of the managers for quite a while. He said that, since San Bernardino, their business was just off the charts. He pointed to their large showroom. The place had pallets of goods all around the floor. Some of them completely empty, others less than half full. I asked him if the boom in business was due to the plethora of terrorist attacks. He acknowledged a little of that, but he said the biggest catalyst for folks buying firearms was the Second Amendment. Constant talk of gun control has prompted a large body of folks to purchase firearms before they are unable to do so. Given the current political climate, I sure don’t see the rhetoric changing anytime soon (and I am not sharing any opinion about that issue here. Just going over an investment thesis).

So I think these stocks are going to continue to have buying pressure beneath them, and they just might break out. Extended stocks can become even more extended when demand continues unabated. So just watch these stocks. They may surprise you.

Gold miners look like they’ve found trading bottoms, and NUGT rebounded off the 50-day moving average and is up 5% today. This is one volatile little demon, and I’d suggest putting a stop just beneath the 50-day moving average. The swings are so wild that it hasn’t really been practical to do as I recently suggested — just hold the stock no matter what…as long as the uptrend continues. The challenge is that this triple ETF can oscillate by more than 30% from bottom to top of channel. That’s such a big swing that holding it with the faith that the trend will hold can be nervewracking. The one solution to that challenge is to buy it right — buy at a good, low risk entry point. $127 is such an entry — low risk because it’s near established support of $115. That’s the current reading on the 50-day moving average. It’s easier to hold a stock when it’s rallying 30%. Much tougher to hold it when it’s falling 30%. So if this is the way the gold miners are going to trade, then we’ll need to adjust tactics. Buy low; sell high.

Ok, that’s all I got this morning.

See you in the forum.

–Dan

Yet another flat open, with a slight bias to the upside. All of this sideways flotation will be challenged this week, as Apple (AAPL), Facebook (FB) and Amazon (AMZN) report earnings tomorrow, Wednesday and Thursday, consecutively.

Yesterday I was looking at a lot of charts, scouring the market for opportunities for action NOW. I saw a lot of charts that looked virtually the same — in uptrends, but so extended that buying was ill-advised, but that selling stood the possibility of getting out of the trade too early. This is the stuff of “melt up” markets that everyone hates. They love making money, but they are also filled with the sense that the other shoe (and their stocks) will drop at any moment. So they stay very close to the exit with their hand on the door knob. Sound familiar.

So I started thinking about bottoms. They come in all shapes and sizes.

Here are my thoughts:

One of the temptations for many traders is the desire to buy right at the bottom. A stock (or the entire equities market) is trending lower. You watch and wait for the precise low, and then pile in. But the only time this tends to work is when the downward trend isn’t truly a “trend”; it is more like a rock falling off a cliff. The fall is so sudden and steep that capitulation is inevitable – and it will be obvious. The S&P fell like a rock last August, as well as in January. And most recently, after the Brexit vote (which turned out to be a temper tantrum by globalists…and nothing more). The selling was so aggressive that supply violently overwhelmed all demand.

In such instances, it pays to step back and think about how individual behavior combines to create a massive crowd dynamic.

Once you’ve sold, you’re done. You can no longer impact the movement of a stock. You are a bystander. You can be happy to see the stock falling further, thereby vindicating your decision to sell. But your happiness doesn’t influence the price movement one bit. You’d need to actually reverse your action and buy the stock. And few people actually do that. Most sell, and then they wait – they are bystanders. So the group of bystanders grows quickly when stocks fall steeply. And the steeper the fall, the more aggressive the selling. Selling begets more selling, until the last panicked seller has joined the crowd of bystanders.

I discuss this dynamic in Technical Analysis for Non-Technicians and refer to it as the “Power Cycle”.

You can see this “capitulation selloff” on many charts. And it’s actually fairly easy to know when to step in – just wait for the first “green” day, the quick flip of a few short-term indicators, and you can buy with a defined risk profile.

But there are few of those trades in today’s market. The melt up nature of equities will ultimately end badly, but we don’t know exactly when that will be. When the uptrend is justified by calling it “TINA” (there is no alternative), do you think that’s a good thing? It is fine to recognize that equities are moving higher due to a lack of alternatives, but that should make you more cautious rather than emboldened.

Since we can’t find any real capitulation selloffs to capitalize on right now, let’s look at a different type of bottom — a base that’s starting to transition into an uptrend. The Cybersecurity sector is showing such bases. Check out daily charts of these stocks:

CyberSecurity ETF (HACK)
Fortinet (FTNT)
Cyber Software (CYBR)
Infoblox (BLOX)

You’ll see that their bottoms are behind them. (Sorry, I couldn’t help myself. The joke was there, and I took it). I’ll cover these in tonight’s Strategy Session.

One news tidbit is the Verizon/Yahoo! deal. Verizon (VZ) finally pulled the trigger and is buying Yahoo! (YH00) for $4.8 billion. It’s too early to say which way the gun is pointed, though. Yahoo has a lot of problems (seen their Finance page lately?…or all the comments from users? Yahoo made a boo boo.) Verizon is up slightly, and Yahoo is down slightly, indicating that there is not too much emotion about this deal either way.

Have a good day, and I’ll see you in the forums.

–Dan

Good morning. Stocks are opening lower today as the Labor Department reported that jobless claims dropped by 1,000 last week. That’s good news for 1,000 folks who were able to keep their jobs, but bad news for the 253,000 who actually did file for unemployment. But here’s the thing — “less worse than expected” takes us closer to talk that the Fed is going to hike rates. Personally, I don’t think that’s gonna happen, but it is widely known that one of the best tools that the Fed has is the market’s fear that it might hike rates. Whether it actually does so is another question altogether.

So, in a way, this little pullback is healthy for stocks because we want to see them go up….and down. When they just go up with no respite, the unbalanced move ultimately tips over and a lot of traders get hurt. All of this notwithstanding…I suspect we’ll close higher on the day. Tina is still a force to be reckoned with.

If you watch the market all day, I suggest that you narrow your focus a bit. There are so many different areas to be tracking, why not narrow your focus? Check in with the forum. Look at the “Trending” stocks on the right side of the page and you’ll see the stocks that are being discussed. You can see which ones are higher or lower (green or red), and the % of the move. Hover over the ticker and you’ll see a real time chart. You can click on the ticker and narrow the forum posts down to only those posts discussing that ticker.

When you use this forum tool, you are leveraging the power of the crowd. Many eyes, keeping track of many things. And the ones garnering the most attention are the ones that show up. You can do this at any time of the day. It’s the equivalent of having an army of scouts — scouring the horizon for stocks of interest. Check out what they’ve been looking at, and act accordingly.

Pay attention to the biotech stocks that were covered last night. The sector is moving higher today, and it’s looking like money is starting to trickle in.

See you in the forum.

Dan

Good morning. Yet again, we’re looking at a strong opening in equities, with the 10 year yield being down to 1.56%. If folks start ramping up their bond purchases, at some point they’ll be paying the banks for the opportunity to lend them money. Trust me — that will be an unhappy day.

One thing I was thinking about this morning is how to spot the sector leaders earlier rather than in hindsight. Spotting them early enables you to make money. Spotting them late enables you to say that you would have made money, but you didn’t see it in time. You’d be able to point to the chart and specify exactly where you’d have bought the stock, and how much money you’d have made if you had only seen it earlier.

Well, one method to find the early movers is to start comparing lows when the overall market is selling off. During the 4th quarter last year, most sectors were diving, and the decline picked up steam in early January. Seemed like every sector was going to

Earlier this year, none of the sectors were doing very well, and it was apparent that bottoms were starting to be formed. Let’s look at a few:

XOP — Formed a double bottom on February 24th. It’s now run 50% in 4.8 months.
SOCL — Feb 11th bottom. Up 40% over 5.3 months.
XLV — Feb 9. Up 18% in 5.3 months.
XME — printed a bottom on January 20th and never came back to test. It’s now run 138% in the ensuing 5.8 months.
XLI — printed a bottom on January 20th. Over the next 5.8 months, it’s up 25%

Here, the best performer was XME. It hit a “V” bottom and started climbing. Ultimately the ETF more than doubled, running 138%. Note that XLI bottomed on the same day. It only advanced 25% — so much for perfect rules.

The other sectors have done ok, posting double digit returns. But you can see that they hit their bottom later than XME and XLI. So one would think that the last to the bottom would be seen as the strongest sector, right? Well, that’s the wrong way to look at things. The FIRST ones out of their bottoms are the strongest sectors. They are the leaders. The ones that have not yet bottomed are the laggards…and there is a reason for that. Investors are eager to buy stocks that have hit their bottoms — they’ve been waiting for something to buy, and they find it in the early bottomers. So their buying begs more buying as more investors see what’s going on. It’s the “3 Day Rule” concept being played out over a long period of time.

So in the future, when we see stocks start competing with each other for money, let’s look at the stocks and sectors that were the first ones off the blocks. The ones that get the earlier starts are likely to cross the finish line first. And if you’re in the winner’s circle, you get the gold medal.

See you in the forum.

Dan Fitzpatrick

Good morning. We’re looking at a slightly lower open (again). There’s no telling whether the usual “buy the dip” dynamic will once again push stocks even higher. But I can tell you that trying to identify the top of a market is very problematic — unless it’s some type of blowoff top with a huge intraday reversal on high volume. We don’t have that here. We just have a situation where there is a lot of money on the sidelines with nowhere to go but US equities. And given the fear of buying right at the top, money managers will hold off in the morning. But if the market pulls back just a bit, then I guess they start worrying that they’re going to miss their chance to buy. So their buying actually pushes the market even higher, thus perpetuating the very dynamic that they’re afraid of.

Hence, a hated rally. Everybody hates it because it looks weak and unsustainable. Sure, investors like it because they’re making money, but they don’t feel particularly comfortable. Sideline sitters hate it because, well, they’re on the sidelines. They’re waiting for “the big correction” so that they can be vindicated for their patience. But the big one never comes. Hence, more hate.

We don’t get to choose the market environment we want to trade in. We have to trade in the market environment that’s in front of us.

A few stocks to watch this morning.

YHOO reported boring earnings. Missed on earnings estimates and the stock is flat. Everyone’s waiting to see who buys the company. It’s like watching paint dry on a humid day.

NFLX is worried about its own growth rate. The stock is trading down to $85. Might be good for a quick dead cat bounce this morning, but longer term,…I think it’s one to stay away from.

VMW reported strong earnings and it’s gapping back to levels not seen since October, when the stock was trending lower. I’d be careful about buying this opening pop. Let the stock settle in for a few days. And if you do buy this gap (again, it’s risky to buy large gaps), just make sure you’ve got an exit plan in case you’re wrong.

Hang tough.

See you in the forum.

Dan Fitzpatrick

Good morning. We’re looking at a flat open this morning. After the type of moves we’ve had last week, a flat open is welcome. It’s healthy. Heck, I’d even welcome a pullback because I know that healthy markets don’t go up every day. They oscillate and churn. So here’s to hoping for some churning and oscillation.

One concept that so many traders and investors struggle with is remembering what really matters. The ultimate arbiter of success versus failure is whether you make more money, or lose the money you have. That’s it. Nothing else matters. Seems easy enough, but there are many enticing routes that lead you down the wrong path.

One of the more tortuous paths that traders follow is the focus on going for the cheap stock. Lots of folks focus on buying “cheap” stocks. After all, we all like a good bargain, right? Why buy a stock with a 300 P/E when you can buy one in the same sector with a P/E of 14? Buy low and sell high, right? Well, the problem is that no one has ever made a dime on the P/E (Price divided by Earnings per Share) of a stock. Not one dime. Now, this may seem like blasphemy and ridiculousness to you value investors. You like to buy ‘em while they’re cheap – before the market catches on to your little gem.

Well, here’s some tough love. The market has already caught onto your little gem and doesn’t think much of it. The collective wisdom of the Crowd (the marketplace of buyers, sellers and sideline sitters) knows more than you or anyone else does. And the P/E of the stock is a reflection of the opinion of the Crowd. If the P/E of the stock is low, it’s because the Crowd doesn’t find much value in the company. And if the P/E of the stock is high, it’s because there is so much demand for the stock that investors will pay more for the privilege of owning it.

Warren Buffet cares about the earnings of a company that he is considering buying. He’s buying the cash flow, the assets and liabilities, etc. But you aren’t buying the company. You aren’t even buying paper. There was a time when you could physically own a certificate granting you a certain number of shares. Now, you are buying numbers on a computer monitor.

The only thing that truly matters is whether you can sell a stock at a higher price than you bought it for. Things like P/E are fine places to start, as long as you realize that it is only a starting place. The P/E of the S&P is a data point that is widely watched because of the notion that it tells us when the market is “cheap” or “expensive.” But what many fail to realize is that, when it relates to the S&P 500, P/E has to compete with interest rates and inflation. It’s not just a “stock v stock” situation. When interest rates are high, stocks need to compete with the bond market. Higher yields attract money. And when money is going into bonds rather than stocks, stock prices will be lower, and drag the P/E along with them. Similarly, when inflation is high, stock prices will be dragged down by the consumer’s greater difficulty in buying goods and services. So high bond yields and high inflation will ultimately lead to “cheaper” stocks with lower P/Es.

Today, inflation is nonexistent, and the Fed has been brutally efficient in destroying any kind of attractive yield on fixed income securities. In essence, we are in an expensive, high P/E environment because there is nowhere else to go.

So don’t let high P/Es keep you on the sidelines. That’s the way of the financial world right now.

You should be focusing more on the trend of the price. Newton’s Law of inertia essentially states that an object in motion remains in motion unless an external force is applied to it. Put another way, you should find an up trending stock, and then ride it until it bucks you off. If you can do that, you’ll make money.

If you aren’t riding the trend, then you are focusing on things other than simply making money.

Have a great day. See you in the forum.

–Dan

Good morning. Futures are up substantially this morning and it looks like this breakout has more room to run. Remember the Wall of Worry. The S&P has been carving out a “megaphone” pattern for the past week or so with lower lows and higher highs finally reaching a point where the distance of the price range is more than 8%. That’s a pretty long distance for the bulls to run…and still have enough buying power to keep the pattern alive. It just seems like the bulls are about out of gas and the market will revert back to the mean at any time.

This type of mean reversion would do some serious damage to investors who just recently decided that they needed to buy stocks. The last high on June 8th was at 2,122 — 30 points below yesterday’s close. The 50-day moving average is at 2,082 — 70 points below yesterday’s close. So any pullback to either of those key levels would be painful.

And any such pullback would also be a buying opportunity. That’s the way it has been and that’s the way it will be…until that time when it is not.

Look, don’t try to time the market. I’ve been paying attention to the stock market for 20 years and I have seen market timers come and go…and some that just won’t go away. When stocks are moving higher, as they are now, you’ll hear the market timers start calling the top – an impossible feat. Tops are processes. You might get lucky…once! But generally, you’ll keep revising your call until the top is in place. Then you hope that everyone forgets the last 10 market tops you predicted. Don’t do that. (Bottoms are a bit easier to spot because they are often high volume events — a sprint to the bottom where the race ends when the last runner collapses. But a market bottom is irrelevant now because stocks are trending higher, not lower. We’ll save that for another day).

Here’s the bottom line:

1. Focus on holding positions that remain in trend. You can worry about them, but just keep partial stops on the position at various levels so that you are protected. Your concern is the stuff that the Wall of Worry is all about. (And Mexico is not building that wall; you are).

2. Don’t hold too many positions. It’s not necessary. Given the volatility of the market, over-diversification can turn nasty very quick.

3. Have some cash on the sidelines. The megaphone pattern is a dangerous one. It will ultimately be seen, in hindsight, as a big red flag that preceded a significant pullback. But with some cash in your pocket, reasonable position sizes, and stops that protect your profits but are not so tight that you’ll get stopped out during a normal wiggle, you’ll do just fine.

See you in the forum.

–Dan

Darwin Award Nominee: Some guy in upstate New York (name not yet released to protect the reputation of an idiot) was playing pokemon while driving. Not sure whether he caught pokemon, but in the game of driving, the score was Tree 1, Idiot 0. This is an extreme example of why I don’t ride my racing bicycle on the road, and why I am selling my Harley. When idiots like this are allowed to drive, it’s only a matter of time before someone gets killed. And in that unhappy event, hearing the driver say, “Oops. My bad.” just won’t cover the gravity of the situation.

Good morning. It’s looking like yesterday’s breakout has a bit of follow through this morning. Breakouts are like that — they’ll go through a process of slowly bringing in new money as more and more investors/traders start to believe that they are missing out. But breakouts get started by large traders. They tend to be buying before the breakout — though many are also brought into the market after the initial breakout because they have no choice. They buy to avoid underperformance. But ultimately, this initial move is going to end and stocks will come back down. Hence, the “Three Day Rule”:

Day One: The smart money buys on the first day, thus being the catalyst for a big move. The move gets a lot of attention from the financial media.

Day Two: The “semi-smart” money buys on the second day because they see what’s happening and are aggressive. They don’t wait to “make sure the move is real.” They understand risk management and put their money to work. (By the way, this focus on risk management is the reason why some breakouts will fail and ultimately quickly reverse. If there is insufficient follow through via aggressive buying to keep the stock (or market) moving higher into the new breakout, the move stalls. At that point, this Day Two (i.e., semi-smart) money will cease buying and may even sell. That perpetuates the reversal and creates a failed breakout.)

Day Three: This is the “not-so-smart” money — having seen the move, this group of traders was inactive. They were waiting for more. They’d been burned too many times by buying at the top, so they wait for confirmation that it’s safe to buy. So by Day Three, they are convinced that it’s OK to buy. And predictably, because they are the slowest, smallest traders, all the real buying has been accomplished. These latecomers are actually buying stock from the traders that were in at lower levels and are now taking profits. So, once again, the Day Three money has bought the top. Oops.

This “Three Day Rule” applies as a “template” for all of your trading activity. It can be a three day rule, a 3 week rule, or a 3 month rule, etc. It can apply to large pattern breakouts like we are seeing in the S&P, or to volatility squeezes that start to pop (hence, my “Phase 1,2,3” analysis. It’s the same principle!) And this goes further, The Elliot Wave Theory (more of a religion than a method of analysis) is also based on waves — and there are three of them…and then three waves within each wave, and then three more, etc. In trading, the rule of threes is everywhere. Trading outcome — three possibilities: you make money, you break even, you lose money. The stock, and your risk management, dictates how pronounced the outcome really is…but there are only three possibilities.

The timing isn’t as important as the dynamic — you’ve just got to realize that stocks move in waves because not all traders are alike. If you strive to manage your risk rather than pouncing on a move with everything you’ve got, then you’ll start being more comfortable getting into the Day Two crowd because the risks are less. You’re not making a BIG decision. Rather, you are seeing a move with a defined risk, and taking prudent action by opening a small position that gets you going; gets you “involved.” If you start small, you’ll find it easier to act sooner.

This concept that I am discussing is an essential concept for you to know. And if you apply it diligently and consistently, you will soon forget all about it because you are just doing it automatically. Like brushing your teeth. You’ve been doing it so long (hopefully) that you have an unconscious process. You don’t miss any teeth, but you don’t think about it either. You are not brushing with intent; you are brushing out of habit. Good trading is about habit.

Develop good habits and you’ll develop into a good trader. And good traders last. Poor traders move on to another line of work.

A couple of random thoughts:

What do I hear when I first turn on CNBC this morning? The hosts talking about Pokemon. Seriously, I have no idea what Pokemon looks like because I don’t play video games (not even Call of Duty). But this fixation on a phone app that entices people to get completely lost in their 5-1/2 inch screen is kind of sad. A while back I read a news article about a hapless individual who walked right off a cliff down in San Diego and fell to his death — because he was fixated on his iPhone and was not aware of the absence of earth in front of him. Not a great way to go out — I can only imagine what the eulogy was at the funeral service. Don’t be that guy. Nor do you want to be the guy who was watching Harry Potter while his Tesla tried to disprove Newton’s Law about two bodies not being able to occupy the same space at the same time. He didn’t get to finish the movie, and was unsuccessful in his challenge of the universal application of Newton’s Law. Don’t be that guy either.

“Keep your eyes on the road and your hands on the wheel.” Jim Morrison (who died of a drug overdose…surely because Pokemon hadn’t been invented yet). This applies to trading as well as driving.

Speaking of Tesla. Tesla announced that they are going to produce an even lower priced model of their Model X Crossover — starts at about $79,000. The catch? The range is lower. I seriously doubt that a $9,000 reduction in price (in an environment when car loans are nearly free) is going to entice many buyers. The typical buyer wants to drive their car. If they have to keep looking for charging stations all the time, they are driving less and sitting at the charging station playing Pokemon more. Simply put, I doubt a cheaper car that doesn’t travel very far is going to be a winner. I had one of those when I was a kid. It was called “Hot Wheels”. Also, isn’t $70,000 a lot to pay for a car? I haven’t bought one in a while, but that seems like a lot of money.

Anyway, I’ve gone on far longer than I anticipated, but that’s what happens when I put a couple of shots of espresso in my first cup of coffee.

See you in the forum.

–Dan

Good morning. Today is Amazon Prime Day and the stock is up about $8 bucks pre-market. That’s about 1%. With earnings due to be reported 13 TRADING days from today, it’s hard to imagine that the stock won’t move another 6% higher and test $800 before July 28th. As I’ve noted in my video, that’s not a “prediction”, it’s just a working theory that I’m using to trade the stock via options. If it does hit $800, I will be tightening my grip on the position and won’t be giving it much room. After all, holding a position for a very nice, profitable move and then taking profits at a key inflection point isn’t a bad approach. As with all positions, I don’t encourage just flat out dumping the entire profitable position at one time. Rather, you ought to take part of the position off the plate when it hits an important price level and hold the rest. Tighten your stops so that a fall away from resistance would prompt additional liquidation, but that would not be triggered if the stock breaks through.

I believe that this approach allows you to “sell too soon” while simultaneously riding a trend for as long as it lasts — and they typically last longer than you might think. And it’s interesting how the mind works when you are holding a position.

When you have a profitable position in a trending stock, you tend to think the trend will last forever. You’re a bit nervous because you are trying to balance the urge to take profits and “ring the cash register” against the urge to rack up additional profits because you know that great trending stocks don’t come along that often. So you’re nervous, but optimistic that the trend will continue. And your bias can get in the way of your objective view of things when you are counting your money and calculating what your trading account will look like when you make…”just a little bit more money on this trade.”

When you have a losing position, things work differently. The mind has a tendency to not recognize the downtrend (read: $AAPL). Instead, we look at the chart and see numerous support levels that are going to catch the fall and cause the uptrend to resume its winning ways. But of course, the uptrend ended a while ago; so you’re seeing a phantom trend. Our tendency to hope for a change alters our image and our trading actions. After all, there is an aversion to losing money, and an affinity for thinking, “I’ll sell when I’ve made my money back.”

If I could magically convert all of my losing trades throughout the past 20 years and turn them into “break even” trades, I’d have at least another “0” on my net worth. I’d also be in the Trading Hall of Fame (though I don’t think one exists) as being the guy who has never had a losing trade in the past 20 years. I’d be the only trader besides Bernie Madoff who has never lost.

Think about that! It’s obviously absurd. So losing trades are a part of trading! You can’t get away from that, and it is foolish to try. Learn to accept losses as business expenses in the same way as a merchant views shoplifting losses. If you’re in the business of retail or trading (or almost any other business), “cheating” is an expense that you have to deal with. Some customers will steal your clothes; they’ll put some groceries in the bottom of the cart and hope the checker misses it. The list of possible ways for customers to rip off merchants is endless. You do your best to minimize the losses; but you know that the only way to eliminate the losses is to shut your doors. Since you don’t want to do that, you just accept that some stuff is going to walk out the door and do what you can to make it as tough as possible for the thief.

Isn’t trading the same way. Every trade you make is one that you hope to make money on. You’re a merchant. You bought stock or options at a “low” price relative to the price you wish to sell. You expect to profit from your business of buying and selling. But often times, the market rips you off. (Don’t get me started on high frequency traders). Stocks don’t do what you think they’ll do and you have to take the loss. Essentially, the stock market is shoplifting from you. The hard truth is that you’ve got to accept this part of trading and work to minimize the losses rather than eliminate them.

If you can’t stand to take any losses, then you’ve simply got to shut your doors. But if you can work to MINIMIZE them, then you’re in business! That’s where your risk management focus comes into play. You monitor your positions the same way that a merchant monitors the shopping floor. The merchant limits the number of clothes that can be taken into the dressing room, and often places a card with a number on the door to make sure that the items coming out of the room are the same as the items that went into the room. It’s risk management.

Be the same way in your trading. Make each position big enough to matter; but not too big that a loss will be more than an acceptable business expense.

I’m here to help you keep your doors open.

–Dan

(Oh, by the way, in the next week or two, you’ll be hearing about a sequence of courses that I’m putting together to help your business prosper. Watch for it.)

Good morning. Looks like today is the day that the S&P tests all time high of 2,134.71. Think about this for a minute. There is so much bad news all around us — Brexit, slowing corporate profits, plunging interest rates, and very significant civil unrest among the black community in several areas throughout the country. When police are ambushed by thugs and there is NOT universal condemnation, you know there is a problem. Frankly, I’ve never seen anything like it, and I hate what I see.

But rising above all of this are the bulls. I think a lot of the buying activity is simply due to a lack of options. Bonds remain in what could only be seen as a bubble. When the price of the 10 year Treasury Note is so high that it only yields 1.37%, that sure seems like a bubble. Invest $10,000 and get a whopping $136.60/year for your loan to the government. And then, of course, that massive profit is taxed, and you’ll be lucky if you have $70 bucks to spend. How much higher can bonds go?

The consensus about corporate earnings is that they aren’t likely to be that great. But you can’t say that this earnings pessimism is carrying over to the stock market. And there is the hope/expectation (is there much difference between the two?) that earnings will improve next quarter. So traders will be intently focused on forward guidance, as well as whether the Q2 results were better than consensus estimates. I am more concerned about Q3 earnings because that will be the first quarter that will be factoring in the effects of Brexit, though all but the “No Borders, One World” (NBOW) folks realize that it will take several years for this to play out. The

The NBOW crowd will continue to warn that the sky is falling right now. Jamie Dimon recently expressed the hope that Brexit could be undone “if you can only get the right people in the room together.” I’d say he is the King of the NBOW’ers. Angela Merkel countered this pipe dream by saying that there was no going back — the UK is leaving.

But this type of rhetoric fosters uncertainty. And uncertainty is the stuff that makes foot holds and hand holds for the bulls to climb the Wall of Worry. You really shouldn’t try to make sense of it; you should just recognize it and seek to capitalize on it sooner rather than later. I think that this will ultimately end pretty badly. Central banks have mucked things up so severely that there is really no painless way out of this. It has become clear to all but the central bankers that the free money policy hasn’t been working. But when all you have is a hammer, everything looks like a nail. So I don’t see them changing their tune, and that ultimately leads to a bubble in equities. But we are not there yet! Hence, my suggestion that you seek to capitalize on this new move in the market now. The folks who get hurt when the bubble pops are the last ones to the party. They are the ones who refused to get in. They were scared, suspicious and distrustful. They remained on the sidelines waiting for the inevitable huge correction. But ultimately, they capitulated and put their money to work.

Pop!

When the most stalwart bears finally put their money into stocks, there is no one left to buy. There are only sellers. Let one of those sellers be you. And that requires taking steps to put money to work right now. The market will go up and down, and you’ll go through periods of hope and disappointment if you follow too closely. That’s the way of the market. But if you can just zoom out and stay with the prevailing trend, you’ll be fine.

This is going to be a busy week, with Alcoa (AA) reporting earnings after the bell, and several of the banking stocks also reporting. We’ll also hear the latest from Elon Musk about his “top secret Tesla masterplan.” If it’s secret, why is he revealing it? Honestly, I don’t trust the guy. Tesla’s $2.86 billion merger with SolarCity is the ultimate in self-dealing. And the company has failed to meet production estimates consistently. So I’m looking forward to learning more about the Master Plan. Maybe Tesla is going to buy SpaceX next and be the first interstellar car company in the univers (that we know of).

Anyway, strap on your seat belts and turn off the autopilot. We’ll navigate through this market together.

See you in the forum.

–Dan

Good morning. Stocks are a bit higher this morning, though with no particular theme as to leading/lagging sector. We haven’t really looked at biotech for a while, and the sector is still building a base. Look at the Biotech ETF (IBB). It’s in a well-defined range. A few random stocks to consider would be BLCM (coming out of a squeeze), and Endo International (ENDP), which is coming off a higher low of a double bottom. I’m not recommending them — just pointing them out.

The consumer staples continue to work. MO, PM and RAI are still under accumulation, with RAI pulling back just slightly but still on track.

The gold sector is pulling back today and looks to be starting “Phase 2” of the volatility squeeze process. Phase 1 is the blast off. Phase 2 is the pullback. Phase 3 starts when Phase 2 finds support, and the bulls push the stock back to Phase 1 highs. Now, we’re still looking for a low, which I suspect will be found today. Gold is definitely extended, but I do not think it’s going to correct too deeply. The conditions around the world are right for the accumulation of precious metals.

Tomorrow will be a fairly critical day in the market because the Labor Department will release the June labor statistics. As I write this, I am honestly not sure whether it will be much of a market mover. The Fed has acknowledged that they are pretty much held hostage by Brexit uncertainty and that rates will remain unchanged for quite some time. Wouldn’t surprise me if James Bullard hinted at an upcoming rate hike, but that’s his schtick. He says that all the time. Honestly, I won’t be paying much attention to him. I just want to watch the S&P.

A reminder: The market is largely stuck in a trading range. This is the time when people tend to drain their accounts because they keep buying at resistance with the expectation that the market will break out. Don’t do that. Let the market tell you what to do. Take your cue from the market.

If someone were to ask you, “Why are you buying that stock?”, you should be able to give them a clear answer.

You might say, “I just have a feeling about it. I think it’s gonna break out” isn’t really a great reason. Saying, “Well, the stock is in a pretty good uptrend. See this line? That’s where the stock seems to rebound when it pulls back. It’s not exact…but it’s close. So there is demand for the stock on any kind of pullback. Look. You can see the pattern of higher highs and lows. The stock has just drifted down to the trendline and I’m seeing some buying. Those green boxes show strength in buying. They’re starting to move higher. So I see this pullback and what appears to be a rebound as a good, low-risk opportunity to buy the stock because I know what has to happen in order for me to see that I’m WRONG.”

Response: “Huh? You’re looking for evidence that you are wrong? Seems like you’d want to be hoping for good things.”

“Well, hope isn’t a trading strategy. Here is what I hope. I hope my puppy doesn’t crap on the carpet. I hope the neighbor’s kid turns down the music that’s blaring in the back yard before I go to bed. But there is no “hope” in trading. My reason for being in the stock is because I think the rising trend line is going to remain relevant, and that I bought the stock at a good price. I’m pretty sure the trade will work. But I’ll know the trade is NOT working if the stock starts falling back below the trendline. If that happens, I’ll sell the stock. And since my purchase price is only 2% higher than the “oops, I’m wrong” level, this is a low risk trade that should work. So I’m not risking a lot of money on the position. If I’m wrong, I’m wrong. Meh.”

So the other guy seems to get it. A week later he comes back and sees that your trade is up 15%. He says, “Hey, that trade is really working. I think I’m gonna buy that stock too.”

You look at the guy. You then look at the chart. And you say, “Sigh…Where’s resistance?”

The guy’s response: “What’s resistance?”

Your reply: “Oh, never mind. Excuse me. I’ve got to get another cup of coffee. I think I’m going to put some Bailey’s in it too.”

Moral of the story: Know why you are buying. Specifically. Know what price will tell you that your reason for buying is negated. Know how far you would expect the stock to go before it runs into excessive supply. Know what you plan to do when the stock reaches that level (sell…hold…hedge…etc), and know precisely what your dollar risk on the trade is — i.e., if your stop is hit, how much money will you lose? Be prepared to lose that much money. If it is too much, then buy fewer shares.

That’s all I got this morning.

–Dan

Good morning. We’re looking at yet another weak open, and I remain confident that the “box” I drew in last night’s Strategy Session will remain intact for quite some time. As I was laying in bed this morning negotiating with my body, trying to convince it that the benefit of getting these sore bones out of bed outweighed the comfort of remaining supine for just a while more, I started thinking about “Expect the expected” vs. “expect the unexpected.” It’s a critical issue in trading.

Those “out of the box” thinkers are seen as creative, super smart, brave, cutting edge, intellectual renegades, etc. They see what others don’t. They find opportunities everywhere. Of course, most (though not all) of them also don’t really have much to show for their OTB thinking — but they’ve got a LOT of possibilities. Note: Some very wealthy individuals made their money by thinking outside the box. Who invented email? (I don’t think that’s an Al Gore thing — he just built the path of delivery) That guy thought outside the box. Who thought of the Pet Rock? Ironically, it took thinking outside the box to come up with a product where you put a rock inside a box and locked the door. Strange business.

In the box thinkers tend to get no real respect. They aren’t creative. They are rule followers (how boring!). They just plod along.

Well, in trading, I’ll take the rule following plodder every time. (This should resonate with many of you because I see some real OTB trading going on).

When you’re thinking inside the box, you are “expecting the expected”. That’s what pattern trading is all about. You expect that what’s happened before will happen again…until that one strange time when it does something different.

Applying this to today’s market: The S&P is in a box. Don’t assume that it’ll break out of the box. That’s OTB thinking. The box exists because pockets of supply and demand lie above and below. They define the box. When you’re trading, it’s important to respect the box because you will know what to do in making your trading decisions. If it’s a box, you are trading it on tests of the box — buy the bottom, and sell the top. Don’t expect the box to break. Ultimately it will break — but you don’t know when that will happen. If you trade a box like it is an inevitable breakout in the making, you’ll lose money most of the time…because there are many tests of the box, and only one true breakout.

If the pattern is a trend, you expect that the trend will continue…because that’s what trends do. Don’t trade against the trend. That’s what renegade traders do. Trade with the trend. That’s what profitable traders do. Buy the pullbacks and sell (or stand aside) the rallies. But stay long and strong.

If the pattern is a bunch of yuck — just a bunch of garbage that makes the rowing lakes in Rio de Janeiro look like pristine drinking water tanks — then just avoid it. Don’t look at it twice. Just move on to something more interesting.

Right now, the S&P is in a box. Gold is in a trend. You trade them differently, but your trading actions should almost always be inside the box ( i.e., expect the expected).

See you in the forum.

Dan

Yesterday I popped into the forum and discovered a few squabbles that needed to be addressed. Took care of them gracefully, and then moved into a post on the precious metal trade. I’ll get to that in a minute, but first, those who are intellectually curious might find the time to read John Mauldin’s work, which I find quite informative, though it tends to be a bit long-winded for me at times. (Take that with a grain of salt — my nightly videos can sometimes hit 30 minutes, so I’m the last guy to take someone to task for being long-winded).

“Europe Is a Minefield” by John Mauldin: http://www.mauldineconomics.com/frontlinethoughts/europe-is-a-minefield

He discusses a lot of aspects of Brexit of which I was unaware. When you know that you don’t know much, it’s best to say very little for fear of alerting others that you don’t know what you are talking about. John Mauldin knows what he’s talking about, so I just read with a happy smile on my face, and a strong cup of coffee in my hand.

PRECIOUS METALS

I think that the precious metals, as noted in the weekend update, and in the weekend forum where I spent a bit of time reading and replying, are likely to go much much higher. The very fact that the EU will be on uneven, uncertain ground for YEARS is why the equities market is likely to go higher. Take note that this will be a complex deal that’ll take a long long time to complete. The EU bureaucrats who see the trend and realize that their power is slipping away aren’t going to slither back under the rocks from which they slithered. No, they’re going to be clinging to their power like a drunk clings to his last bear bottle when visiting a local bar in Palm Desert as he prepares to check into the Betty Ford Clinic to battle his alcholoism. No matter how strong the bartended, athe drunk is not going to give up that “last call” bottle without gettng every drop out of it first.

The Eurocrats are probabaly drunk right now, ranting about making the UK pay for their sin of leaving their nice little party. They feel that they have to drive a very hard bargain because, if they don’t, other nations will have similar votes and leave the party. So much for it being a great party. If it’s so awesome to be a member of the EU, then why does everyone want to get out. (And to the embarrassing idiot who wrote an article at Vox.com about how the US made a mistake in leaving Britain because we’re so worthless and destructive to world peace and harmony, I will ask a simple question that may or may not make sense to you, depending on how much high quality dope you have ingested with likeminded friends as you wait for the next Occupy Wall Street smoke-in. Here is your answer: If the US isn’t so great, why are millions risking their lives to get in here? Did they forget their coat and hat at the party and are just trying to get them back before they return to their nice little country?)

But this is important pertinent quote: “The market always climbs a wall of worry.” If that’s true (and it is), then the climbers should do just fine. But proper risk management (by either position size, or puts) is the climber’s equivalent to “On belay!”

So the uncertainty that enables equities to go higher is the same dynamic that makes it highly likely (nothing is guaranteed) that precious metals will move higher. (I’ve been a bit remiss in neglecting to emphasize silver. I’ve mentioned $SLV and $SLW in many recent strategy sessions, but haven’t highlighted the fact that it is outperforming gold. My bad, and thanks to those traders who have pointed this out to me. We will all profit from it).

Central banks and sovereign nations are hoarding gold. Even if demand remained static, the resultant decrease in supply brings a concomitant increase in price. But demand is not remaining static. It is increasing. Smart money sees what is happening throughout the global economy, and also must have a longer term approach than most retail traders/investors. And smart money looks at the EU as the source of a multi-year period of uncertainty. And that uncertainty is prompting a bit of a “flight to safety”, which extends much further than buying Consumer Staples and Utilities.

Smart money (read: Large investors…who are only large because they are smart) is buying the precious metals. And they are not buying them as a “trade.” They are buying them as assets to hedge against their equity portfolios, which are extremely vulnerable right now. Their accumulation, combined with the massive accumulation of gold by central banks and sovereign nations, is cutting into the supply of gold for further accumulation by investors. So it’s turning into a buying spree — a feedback loop where rising prices bring out more demand, and more demand creates even higher prices. What’s on the back of your shampoo bottle? “Lather, rinse. repeat.”

And what do you think this is doing to the short sellers who are betting against the precious metal rally? Somehow, saying “oops” doesn’t quite cover the magnitude of a really disastrous trade. They’ll cover.

There is also an argument that gold/silver are being bought as a hedge against the inevitable inflation that results from ZIRP. That’s the textbook theory, but there is no evidence of inflation on the horizon, so that argument really doesn’t hold water. I’d argue that deflation is the bigger risk.

If the Fed were truly “data dependent”, which is something you hear parroted virtually every day on CNBC by Michael Santoli and others, the ZIRP would have been reversed long ago because the data reveals that it is no longer working. In fact, it’s having the opposite effect. But the Fed (and indeed, all the central banks on this particular planet) never assumes that it is wrong. The term “wrong” is not in their vernacular, only “more of the same”. When you catch a cold, Robitussin works wonders. But when you break your arm, all the Robitussin in the world won’t help. You can chug it, or even rub it on your arm. But it won’t help. And if you leave the bottle open, you’ll just attract ants.

Central banks are using Robitussin for a global compound fracture, but to put away the bottle is to admit that you are wrong — and that will never happen. Never!

I contend that Central banks are NOT data dependent. They would like to be; and they say they are, but I’d hate to be a fly on the wall in any of those meetings. First, I’d get stuck in all the Robitussin. And if I could get out of the conference room, I’d probably start building a bomb shelter. Their dependency on data equals their dependency on “hope and change,” as in, “We hope the data changes.” They aren’t looking at what the data is truly revealing; they are just hoping that it reveals something different than what is obvious to everyone else: that ZIRP actually encourages money hoarding, not spending. Nobody in the financial media talks about this hoarding, but it is real. And it is being overlooked by those in power.

The central banks are not data dependant. They are data fixated; data frozen. They can see only ONE action to take. No imagination; no thinking outside the box; no calling in experts with differing views that might help them out of the lobster trap thay have wandered into. No. They do none of those things. Instead, they continue to go down the road embarked on by Ben Bernanke and never ever question whether that road is actually going to take them to their destination. Frankly, they’ve thrown the map out the window. They know ONLY how to stay on the road. They are playing Radar Love on the radio and drive all night long until their hands get wet on the wheel. Always moving on the same road; never even glancing at crossing roads, turnaround stops, and dead end signs. They keep waiting for that specific data that will tell them that they are on the right road.

If that is “data dependent”, then it’s a great road — as long as they ultimately find the data they are looking for. But if they do not find the data they are looking for on that road, they will never even wonder whether they are actually snipe hunting and the joke is on them. This is a serious game, and I doubt the Fed even understands it. If so, they are keeping very tight lips on it.

What you need to know: There is no way that any central bank on the planet is going to raise rates anytime soon. And “soon” extends a long, long time. As someone said (I forget who — I’ve been doing a lot of reading), quantitative easing only works if ony one bank is doing it. If more do it, it’s a disaster. In such an environment, you want to avoid being the FIRST one to start on a trend to normalize rates. So no one is going to do this

Smart money sees this and invests accordingly. Not-so-smart money believes the headlines and continues to confuse the meaning of competency and power when considering the actions of central banks.

All of these reasons are why, in my admittedly fallible opinion, gold and silver are going much higher. It’s an “asset allocation thing.” It is a hedge against the future. The nice thing is that we can make money on it now. We can trade along with the big boys because we can simply focus on the charts, and turn the TV volume down. Do that during times of uncertainty, and you’d be amazed at how well you do in your trading decisions.

Dan

Good morning. Another weak open in equities as we trend down to the lower end of the box that seems to be containing the market. I think that traders are looking right past the Fed’s meeting and focusing on whether the British citizens are going to vote to take back their liberty and endure some short term pain (along with the rest of the global economy), or whether they’ll vote to continue to allow a bunch of unelected bureaucrats living in a place where the most important contribution to modern culture is…the waffle. (It is a good waffle — I’ll give you that.)

The idea of Britain leaving the EU is extremely disturbing to the establishment (i.e., all those with monetary interests in the status quo) because an exit by Britain could be the start of a trend. And who could blame people for wanting to leave the party before it deteriorates too badly? At the end of the day, a nation consists of individuals — each with their own and unique blend of hopes, dreams, talents, flaws, fears, desires, passions, weaknesses, strengths, insecurities, and intellectual capabilities.

Governing is extremely difficult because the governed are extremely complex. What might seem like a great idea to those in power is not so easily accepted by the governed. “The United States of Europe” seemed like a great idea to some (only some…not all), but no one really seemed to ask the millions of individuals comprising the population of Europe whether they wanted to sacrifice some liberties in return for some economic advantages.

Now, they are being asked. And the answers that are being given are a bit different than the establishment anticipated.

As previously noted, I just don’t see how Britain will be allowed to exit. The cynic in me simply believes that the final vote tally will be in favor of “Remain”…even if more votes were cast in favor of “Leave.” Elections are funny that way.

But between now and June 23rd, things will get very interesting and I urge you to pay attention.

Stop and think about the many serious issues before us right now:

1. A Presidential election the likes of which I’ve never seen.
2. A slowing economy that never really got out of 1st gear, and central bankers striving to make money so worthless that it doesn’t pay to save it. Instead, we need to buy stocks or socks with it. If we want to put it in the bank, we’ll actually be charged a storage fee.
3. Mass migration across the globe, where disparate cultures are being blended with little in common in terms of religion, language, culture, financial status.
4. A conflict that everyone knows is there, but that we aren’t really supposed to talk about for fear of offending anyone.
5. A nation that is more divided than I’ve ever seen, and probably more divided than at any time since the Civil War.
6. An explosion in media technology that enables instantaneous transmission of just about anything to just about anyone. Social media is rapidly evolving and is invading the life of every single person who uses electricity.

Any one of these things would make for very interesting times. But put all 6 together (and this is just a short list, not the long list) and you have got some very very VERY interesting times. We are living in remarkable times that will be remembered and studied by many future generations. I didn’t find the 70’s to be particularly remarkable (other than the release of Bohemian Rhapsody by Queen); nor do I recall the 80’s being particularly memorable in historic terms. The “Cold War” ended…but it ended with a whimper, not a bomb. And Iraq was invaded…and then let off the hook. The 90’s were generally fine as the stock market rose to new heights. That’s fine…but it wasn’t the stuff that will fill history books. The turn of the century quickly ushered in a global collapse of the financial markets…and a couple of wars in the Middle East.

All of those things were extremely important and definitely impacted us on a global scale. But the various matters that are before us at present are truly historical. I’m not saying that they are bad or good. I’m not advocating a particular outcome. I am just pointing to them and suggesting that you take the time to consider everything that is happening. Don’t let it pass you by. Think for yourself rather than doing what most people do: Tune in to your favorite TV show, or visit your favorite website, and be told what you should think.

These are, indeed, “interesting times” we are living in. Things will get better because they always get better…eventually. Enjoy the ride.

–Dan

Good morning. If you own LNKD, my salutation is “Awesome morning!!” Microsoft (MSFT) is buying LinkedIn (LNKD) for $196/share, which is back at early February levels, just prior to their precipitous drop following their Q4 earnings report. See — gaps do tend to get filled…just not in one day.

The stock chart will now show what is called an “Island Reversal”. This pattern is formed when a stock gaps way down (or up), and then trades there for an extended period of time. (The definition of “extended” can be whatever you want it to be). The resulting gap is typically a result of a big surprise in earnings — either lousy, or great. Finally, something happens that causes the stock to gap back up (or down) to levels not seen since before the first gap. The result is a series of prices surrounded by gaps — an island of prices. Gaps after island reversals tend not to get filled, and that will be the case here.

The offer is for $196/share. Don’t expect LNKD to trade much loser than that. If the stock trades lower, it’s because traders do not believe the deal will go through. If the stock trades much higher than $196, it will be because traders (i.e., the market) think that there might be a competing bid for LNKD at an even higher price.

This is a smart deal. When the Fed makes money so cheap that large investors have to pay someone to hold it for them (a little bit like renting a storage unit to hold all the crap that you can’t seem to part with, but that will ultimately be thrown away or donated for a receipt that can be used to reduce your taxes), it make sense to use that money to buy something that’s worth something. This is a good deal for MSFT, and it is probably a buy if it falls close to $49 (seems like it’ll do that at the open this morning). The $49 level is a key level because it is (1) slightly below the 200-day moving average, which has been holding since February, (2) prior resistance since November 2014, when the stock gapped away from that level, going from $49 – $52, (3) the bottom of that $49-$52 gap, and (4) a level that has been tested three times since the October gap the bottom of the $49-$52 gap last October (3) reported been tested three times since the October gap.

So if MSFT holds at $49, you’ll have a chance to buy it at a favorable price. Now…….whether you WANT to buy MSFT is a different story. Don’t buy it because it’s a shiny object. Only buy it if you’ve been wanting to buy the stock for a while (look at the weekly chart and you can easily make a case for owning MSFT).

Away from MSFT, the markets are set for a lower open this morning. On Wednesday, the Fed will announce that they will not be hiking rates, but that they are watching the data closely, and expect the data to improve, thus reinforcing the Fed’s belief that the economy is on a steady path of improvement. The statement will say that the Fed remains optimistic that they will be able to raise sometime over the next few months, but that the Brexit vote on June 23rd (which has apparently just made it on to the Fed’s calendar since they never mentioned it until recently) presents risks that must be monitored.

Expect the market to rally on this news, unless it does so today and tomorrow.

And as for what the market does when the Brexit votes are tallied? If the Brits vote to exit the EU, we will see the wheels come off the wagon in ways you haven’t seen since Ben-Hur. If the Brits vote to stay, you’ll see a rally in global markets. I rarely “predict” price activity. But the Brexit dynamics are pretty obvious. At last tally, those who wanted to leave the EU are at 55%. Close. But in my personal opinion, the real global powers who like to stay in the shadows and rub elbows at Bilderberg each year will never let this happen. One way or another, the Brits will vote to stay in the EU, even if it means that some of the votes got magically lost, dead people rose from their graves to vote, or some other voting “irregularity” that is impossible to pin down. I just don’t see the banks, the power brokers, and other governments who benefit from the United States of Europe allowing one of the members who are propping up the EU to simply take their ball and go home. Personally, I just don’t think this will happen. Am I being cynical? Um, duh.

Anyway, be careful about making big commitments to stocks this week. Summertime volume is light, and volatility tends to be higher than usual. That can be good or bad, depending on your trading style and experience.

See you in the forum.

Dan

Good morning. We’re setting up for a weak open today, which is consistent with equities hitting resistance. So the battle continues between the bulls and bears.

So the initial jobless claims data released this morning show that initial jobless claims fell by 4,000 to 264,000. In other words, there were 4,000 fewer people this week who heard, “Roscoe, you’re fired. Fill out your COBRA forms and head down to the unemployment office.” But even though this is generally seen as a bullish indicator, it’s time for the indexes to take a breather.

As previously noted, the strength in midcap and smallcap stocks is an indication that investors still have an appetite for stocks. Combine that with the fact that there are few fundamental reasons for the market to move higher, and you’ve got a recipe for…the market to move higher. That’s just the way of the financial markets — they move in ways that seem illogical and confusing. There is a time for aggressive trading…but only when opportunities are evident. We have some good opportunities in energy stocks, metals, industrials, and aerospace stocks. Many are working.

If you want to capitalize on these opportunities, you have to buy them at the right time (near support, in a definable uptrend, showing signs that others are starting to buy, etc) and then have the patience to hold them through the inevitable oscillations each day. Have you ever sold a stock, watched it go another 5% over the next several days or weeks, and then wondered why you sold it when you did? If this has ever happened to you, then you know that patience is a weak link in your chain.

Self-awareness is the first phase of fixing something.

Active traders only — Watch Restoration Hardware (RH) this morning. If fell to all-time lows after a really rough earnings report. It might bounce…and it might not. But it’s not just going to sit there.

Have a great day!

–Dan

Good morning. The market looks like it’s going to open up slightly and continue to re-test resistance. If you haven’t watched last night’s Strategy Session, I suggest that you set aside a bit of time to do so. One of the main points in the session was the obvious rotation that’s going on. It’s quite interesting that the S&P and other major indexes are essentially bumping up against a ceiling and stalling (which is different than reversing). The supply at resistance is equal to demand, as old bulls take profits by selling to new bulls. That’s the nature of support and resistance.

But if you look at the oil/gas stocks, you’ll see that they are just starting to break out. The actual reason for the breakout doesn’t matter. The only people who get paid for the reason are the analysts who write about the reasons — and they get paid whether they are right or wrong. Nice to be an analyst. The only thing that matters in a quest to make money is what the price of the underlying instrument is doing. If you own it, and it’s going higher, you’re happy. If it’s going lower,…you’re sad. That’s the nature of trading.

I think this breakout is a bit fascinating because the S&P and the Dow 30 both have big energy stocks among their holdings. So the fact that these indexes are struggling (might still go higher — that’s just not what I’m talking about here), and the energy stocks are starting to move, reflects a big shift in money deployment. Simply put, investors want to own energy companies.

This was almost predictable (if you believe in markets being predictable) by one chart: The chart of oil.

Lately, all we’ve been hearing and reading in financial information outlets (I’ll refrain from naming them) is that oil will top out at $50 and probably won’t get above that level in our lifetimes. (Yes, I actually heard one well-known commodities pundit say this). Meanwhile, the trend on the chart showed a straight line from lower left to upper right. Still, conventional wisdom was that oil was at the obvious top of the range. And what prudent money manager would be buying stocks like Halliburton (HAL), ConocoPhillips (COP) or Chevron (CVX) when the commodity they deal in is going to get cheaper, not more expensive? With the knowledge that oil was topped out at $50/bbl, buying energy stocks seems pretty silly to me.

So energy stocks were “underowned”. They consolidated. They didn’t fall because not every investor was aware that oil was obviously not moving above $50 — or they just didn’t believe it. So the energy stocks languished due mostly to a lack of enthusiasm.

Then a funny thing happened on the way to a correction in oil — there was no correction. Instead, oil settled above $50/bbl for the first time since last July…when it was on its way to $26. Now, the smart guys who saw the obvious ceiling at $50/bbl are scrambling a bit. They’re buying energy stocks. You can see it in the charts.

And the cool thing is that you actually knew more than the brilliant analysts wearing the $1,500 suits while looking with admiration at their diplomas from their Ivy League alma mater while standing in their offices in Manhattan. And all you had to do was look at a chart. You could’ve just turned off the TV, started reading the National Enquirer and cruising through TMZ.com and you’d have had better information that market addicts. All you had to do was look at a chart.

Now, I don’t know whether this uptrend in oil will continue. But I’m darned sure not interested in whether the commodities gurus think they will. I want the REAL information.

I’ll just watch the charts.

See you in the forum.

Dan

Good morning. We’re looking at a 40 point gain in the Dow 30 at the open. Always nice to see when you wake up — a bit like looking at your Fitbit or Jawbone readings and seeing that you slept really well last night and got plenty of both deep and REM sleep. You feel like it’s gonna be a pretty good day.

Don’t forget that the S&P and other indexes are up at resistance. That’s where they have struggled many many times over the past year or so. Hopefully we will see a breakout and stocks will start another leg higher. There are a lot of reasons for investors to pull back and wait for more clarity — to wait and see whether the economy picks up, and whether corporate profits are good going into the remainder of the year. There are reasons to be somewhat reluctant to own stocks because you expect “the big one” and want to wait for it to happen so you can rush in and buy low.

Those are great reasons to stay sidelined — and they are certainly valid. No criticism from me. But I think the most compelling reason to have some tentativeness in making a big bet on the major averages right now is because they are at resistance. You see the positive action in the midcaps and smallcaps, and that’s encouraging. You see the market’s bullish reaction to negative news. Those are good things.

So there is evidence that the market is going to move higher…and you are ready. You are holding only stocks that are working (and many members have posted their holdings in the forum). You aren’t riding stocks down and incurring pain and losses. You are trading like a pro — staying “involved” by being very selective in your stocks. Demanding trends. But you are waiting for a technical reason to buy. Technical; not emotional.

When you are approaching the market in that way, the hardest part is just waiting. Because the market doesn’t care if you are bored or frustrated. It’s just going to do what it’s going to do, when it’s going to do it. And that can be tough for an objective trader to handle.

But that’s what you must do. Handle your emotions and instead pay attention to the market and remember that the market ALWAYS breaks out of trading ranges. Always! If it did not, there would be no such thing as trading ranges — instead, there would just be “the high and the low” of the market…which never changes.

Have a great day! See you in our forum.

Dan

Good morning. I am typically dark on Fridays and do not post notes. But I thought I’d just send out a quick comment in light of economic numbers that have been published this morning. The May employment numbers are pretty ugly, with some sobering revisions from April. Labor force participation is down to 62.8%, which is brutal. But hey, the unemployment rate is down to 4.7%, which is awesome, right?

The only problem here is mathematics. The unemployment rate is the U-3 rate. The labor participation rate is U-6. I’ve been commenting on the U-6 number for quite a while because it is the only one that matters. The U-3 rate is the “headline” number, and the number that Janet Yellen has a habit of quoting in her comments about our “strengthening” economy. But in the most truthful terms, the U-3 number is useless.

As many know, the unemployment rate calculation ASSUMES that anyone who ceases to receive unemployment benefits has magically and secretly found a job. In other words, the government cannot fathom the idea that someone can run out of unemployment benefits,…and still not have a job. Instead, the assumption is that they are working.

So, according to this convenient calculation, the U-3 unemployment rate is getting really really bullish. It is so amazing that we are at nearly full employment (um….because all those folks who were collecting unemployment benefits happened to find work at the exact moment that their unemployment benefits ran out. Truly amazing!). Meanwhile, around 100 million people who would like to be working are either unemployed or underemployed.

My bet is that the U-6 number will largely be ignored, and the U -3 number will be touted by Baghdad Bob as evidence that the economy is growing. Josh Earnest is taking the hit on CNBC and talking about how great things have been over the last 6 month and talking about moving averages. Basically, this is a strong recovery. As I hear Josh Earnest talk, I suddenly get enthusiastic.

Secretly, the FOMC will be having conversations about how they’re going to get out of the corner they’ve painted themselves into in announcing through various speeches and statements that the market was not pricing in a June rate hike accurately…basically, telling us that they were going to hike in June. Now, if they hike rates, they’ll be doing the exact wrong thing…but hey, they’ll be doing what they told the market they’ll be doing. If they don’t hike rates, they’ll lose the last vestiges of credibility they have with even the most friendly apologists for the FOMC.

We are seeing this reflected in the market this morning, but not as much as you might think. The S&P is down just 0.52% though it is continuing to decline. Midcaps are down 0.59%, and small caps are down 0.71%. So the broader market is holding up…though they are continuing to fall as I write this.

The biggest hit is being taken by the financial sector. Th e DJ US Bank Index is down 2.5%. Banks make money when money stops being free because they have something of value to lend. The Fed, of course, has made money basically worthless, as there is no return on saving it. (Do you have a savings account that actually has a yield?) The only recourse for most folks is to put it into the market, which is actually a good thing for us.

Going forward into the next two weeks, there will be increasing attention focused on the Fed as the market wonders whether Janet is going to raise rates despite the absence of any data whatsoever that it is appropriate to hike rates. At this point, I make no predictions; only observations. But this month’s statement from the Fed will be one of the most “interesting” ones yet.

Watch how utilities (XLU), Consumer Staples (XLP), and Gold (NUGT) do. Those are the sectors that will do the best today because that’s where market investors perceive safety to be. Growth sectors and stocks will likely struggle all day.

I’ll have more to say about this over the weekend.

Dan

Good morning. Once again, it’s looking like a sluggish open, with weakness in Asian markets, and Mario Draghi stating that the ECB expects rates to be steady or lower for an extended period. Also, weak jobs numbers were posted by ADP — forecasting an increase of 2,000 initial jobless claims from the prior weak. Now, tomorrow’s employment picture that’s always published by the Department of Labor on the first Friday of each month will be closely watched. The way I see it, a positive number will give the Fed a reason to hike rates. The FOMC will be breathing a huge sigh of relief. If the jobs number is poor, then the Fed really can’t credibly explain why they are going to raise rates in a couple of weeks. That’s not to say that they won’t raise them (I’m pretty sure that they will, because several Fed heads have outright criticized the markets for not pricing in a June hike).

But here is the rub:

A weak number might make the market bullish on stocks because of the conjecture that the Fed will stand pat. But then…if the Fed stands pat, it’s because things are not improving very much. Bearish!!

Alternatively, a strong number might make the market bearish on stocks because of the conjecture that the Fed will hike rates, and that’s equivalent to taking the spiked punch bowl away from the party. But then…if the Fed hikes rates, the financial sector should improve because the commodity that they deal in (i.e., money) is actually starting to be worth something, so they can start making money. And we need improving financials for higher market prices.

So you can see that this is a bit of a Rorschach Test — there’s something in there for everybody. Bulls will see something to justify their bullishness, and bears will see ample justification for their bearishness.

In my world, I’m thinking that about 25-30% of an active portfolio can be in stocks…and increasing to higher levels of participation if the market breaks out. The rest? Cash. Cash is the ultimate hedge against big downside moves. And when you put stops into your trading methodology, even the loosest stops, combined with your cash, will keep you out of harm’s way. Remember, the Russell 2000 Small Cap Index and the S&P Midcap Trust (MDY) are breaking out. Strong small- and mid-cap indexes reflect an underlying demand for stocks. You’re not really seeing it in obvious ways, but take a look at the Industrial Sector (XLI — an Industrial ETF). Stocks like TYC, RTN, SNA, ALLE, LMT, ITW, and XYL are looking strong (or about to be strong).

Look at Textron (TXT) — this under-watched (by me) aerospace/defense stock is close to breaking out of a low-volume consolidation pattern just below the 200-day moving average.

So there are indeed stocks to be involved in. We just need to look a bit harder…or be more patient with the ones that we have.

See you in the forum.

Dan

Good morning. May is now in the history books and the S&P advanced about 1.5%. From the mid-May low, the S&P rallied 3.5%. We are still in a trading range, though, and a 3.5% move in 7 trading days is a pretty big number. So it shouldn’t be a surprise that the market is down just a bit.

My suggestion to you is that you respect the trading range, and the current position at the top of a range that has been completely crossed in 7 trading days. As such, a breakout at this time might have a bit of trouble being sustained. But on that same subject, it would be a mistake to just write off the recent strength of the market as being “wrong”. There are plenty of reasons for the market to sell off, and very few reasons (that I can see) for the market to advance. I see various technicians talk about different bullish indicators…but frankly, their analysis seems to be very results-oriented because they don’t want to piss off their firms, which make money on keeping clients IN the market, not in getting them OUT of the market. So you’ll almost always see some type of bullish analysis by one of the suits standing in front of a chart. I look at those same charts, and I see things a bit differently.

But therein lies my point: Markets do what they do. And they don’t ask for permission. They will do things that are illogical and “wrong”…at least, you think they are “wrong”. Why do you disagree with the market? Because you are mostly on the sidelines, waiting for the big dump,…and the dump has yet to occur. In fact, stocks are running higher and they have left you behind. OR…you are fully invested and the market sells off precipitously. You thought the market was going higher, yet it is selling off and hurting your portfolio. You had your reasons for thinking the market would run higher…or sell off. But the market isn’t respecting your reasons. And that can be frustrating.

Instead of going through this difficult process (which, sadly, is a part of trading development), you can just respect the ability of the market to do unpredictable things, and adjust accordingly. Don’t focus on what you want to happen; focus on what is happening.

Here is the truth: When the market is trending sideways (as it has been since February 2015), it will be more difficult to make a lot of money because the overall market isn’t trending higher. And during this multi-year sideways consolidation, there have been a couple of big selloffs. Those are the times when you’ll typically give back some of your money. The extent of the give-back depends entirely…ENTIRELY…on whether you had exit plans in place for each and every position. If you did, then you wake up one day and say, “Crap! I’ve been stopped out of every darned position I have. What the heck just happened??!!” Very, very frustrating…until…

…you realize that you now have a lot of money to invest, and you can wait until the time is right. (And you’ll know when the time is right because of the skills you are learning here…or simply because I will tell you when the time is right. We won’t catch the exact bottom; but we will be able to identify it shortly after it has occurred. (Consider L Brands (LB) as an example. We saw the big dump. We saw when the stock appeared to have bottomed. We stepped in on the second day of “close higher than prior close”, and made some money).

I have been focusing on showing you the stocks that have upside possibilities from current levels (E.g., LinkedIn (LNKD). This stock could run another 15% after breaking out. Earnings are not due until August 4th. But you’ve got to get into this stock with some discipline. Buy a small position, and wait for confirmation. If the stock doesn’t continue higher and instead stalls and reverses, then you are happy that you didn’t pile in. Well, that’s trading. Things don’t always work out. But we focus on finding setups that have a tendency to work out, and those are the things we focus on.

I wish the environment was different, where virtually every stock you buy goes from lower left to upper right; but that’s just not the market right now. So embrace the market we have, and don’t ask for more than the market can give you. Also…and this is important…there will always be stocks that are trending quite nicely, and that you can own. The trick is to find them. And that’s what we are trying to do here, each and every day. Check in on the forum and see what others are doing.

Many hands make light work. Many eyes see a lot. Leverage the community to your advantage.

We have received some questions about the new indicator that is at the left side of my charts — those horizontal bars that extend into the chart. Part of the bars are green, and part are red. Here is the skinny on how to read them. You can see a snapshot of the chart I describe if you go into the Forum and look at my post.

The “price at volume” bars reflect the trading volume that has occurred at the price levels of the bars. The red section of the bar reflects down volume (volume on days where the close was lower than the prior day’s close). The green section of the bar reflects up volume (volume on days where the close was higher than the prior day’s close). The longer the bars extend into the chart, the higher the volume of trading at that particular level. As you change the time that the chart covered (e.g., a chart that extends back to January, vs a chat that extends back to June 2015), you will see the length of the bars change. That’s because the bars take into account all the prices that you can physically SEE on the chart…and ONLY the prices that you can see. So the further back in time, the more general the bars are. The tighter you zoom in, the more specific the bars are — just very short term stuff.

They help to assess where “clusters” of trading have occurred. For example, the S&P 500 chart that extends back to the first of the year has the longest bars between 2,030 and 2,070. And the bars are about 50% red, and 50% green (the edge going to red, but not by much). So there has been a fairly even balance between selling volume and buying volume within that 2,030 and 2,070 range. That level range is where the majority of the financial (and emotional) commitment. Essentially, it is a “base” or a “top”…depending on whether the price starts moving out the top, or the bottom.

Right now, it almost appears to be a base, because the price is now 26 points above the top of that range. BUT….a substantial amount of trading volume has occurred at the 2,090 – 2,110 level. So my take would be that, while this is encouraging — plenty of volume occurring at the top of the range and the stock stuck at the top of the range — the jury is still out. We hope that the stock continues to move higher and spring away from these “volume at price” bars. But it just hasn’t happened yet.

That’s my take on these bars. They really help give an easy and accurate picture of exactly where the action is on the chart…relative to the rest of the chart.

Hope it helps.

See you in the forum.

Dan

Good morning. I’m not seeing much in the way of market moving news this morning, but the market is moving. The midcaps and small caps are getting my attention.

The S&P Midcap ETF ($MDY) is up at levels not seen since last August, and is starting to break out of a 10 point range that resembles a cup & handle pattern. So that’s powerful. The Russell 2000 Index Fund ($IWM) is very close to breaking out, but is still struggling with an April high. But the strength of these two important indexes relative to the major indexes ($SPX, $DJI, $DJT, $COMPQX) is important. They tend to lag breakouts, but are necessary to confirm any new move in the broader market. So it’s nice to see them getting the job done early.

Two factors that should be in your sights are the Fed’s decision on interest rates in a couple of weeks, and the fact that China is posting some pretty weak economic data. And when China’s economy starts to bog down, it negatively impacts the rest of the globe. So, if this persists, we may start seeing some weaker than expected economic numbers in the U.S., and that will be a problem for the Fed, as well as all of the folks who are still struggling in an economy that is supposedly recovering, but the recovery just hasn’t quite made it to their house yet.

But for now, it is extremely important that you respect what you are seeing on the stock charts. Seriously, you do NOT know more than the charts you are studying. You do not KNOW that the S&P will be unable to break up to 2,120 and beyond. You do NOT know what we will see a big selloff in the weeks or months to come just because you’re hearing a lot of pundits discussing it.

You must accept and embrace the fact that the market will do things that are completely illogical and just seem “wrong.” But when you start giving way to the patterns of stock movement rather than trying to predict what the next one will be, you will find it easier to make money. When you focus on reacting (via a trading plan) rather than predicting, you’ll do just fine.

And by the way, “reacting” to price movement often equates to deciding to do nothing. The act of not doing anything–of sitting on your hands–is indeed an action, so long as it is based on a decision rather than complacency.

And one thing I cannot emphasize enough is the importance of journaling all of your trades. If you start doing that (and yes, I’m talking to YOU), you will identify your weak tendencies very very soon. And just the act of journaling, without any additional effort, will improve your trading.

Don’t believe me? Then go ahead and try to prove me wrong. You can’t lose — you will lose in your effort to prove me wrong…but in the process, you will win because you’ll start making money.

See you in the forum.

Dan

Oh, one more thing — congrats to Golden State, who took the best of 7 series from the Oklahoma City Thunder. I can’t say that the team with the best PLAYERS and the deepest BENCH won…but I will say that the best TEAM won. So much individual talent on OKC — very fun to watch. The nickname of the Steph Curry and Klay Thompson speaks for itself — the Splash Brothers. When the 3-point bombs start falling in from all over the court, the game becomes a math equation: 3 – 2 = +1. All those 1’s add up over the course of a game. Fun series to watch! If you’re a basketball fan, I hope you caught some of it.

Good morning. The market has opened a bit flat this morning, and I don’t see much in the way of news, other than a buyout bid for Monsanta (MON) by Bayer (BAYRY). The bid is $122/share, and the stock is trading at $109. Does that mean that there is $13 points on the table? I don’t think so. When stocks typically work this way, it’s because there is a question as to whether the acquisition will go through. So few would be eager to buy at $122 (or $120) in an attempt to make a buck or two because they run the risk of the deal being busted and seeing their easy money turn into a big loss in a blink of an eye.

Nvidia (NVDA) is supplying graphic chips to Tesla and Apple, and enthusiasm for growth of graphics technology in both of those companies is a big catalyst for NVDA. When you look at the chart, you just can’t help but want to buy the stock. I will continue to suggest caution. If the stock doesn’t come back, then it is just a missed opportunity. If the stock does retrace some of its move, then it’s an opportunity to buy closer to where it broke out and hold it for a long time. But I just think it is very poor discipline to buy a stock that has run up so fast, and on declining volume, when it is trading in increasingly tight trading ranges. Better to just stand aside and wait…and wait.

There was a question about the dividend in T-Mobile US (TMUS). My weekend update showed that the yield is 7.62%. I have checked with 3 other sources and can find no such confirming information. I’m using the newest version of TC2000 — Version 16.0. They may have a glitch in their system, so I will contact them about this matter. I spent quite a bit of time with Michael Thompson, who runs their marketing and education programs…and has a lot of insight into what they are trying to do at Worden. There are many new and exciting things happening at TC2000 on the brokerage side. You can now trade stocks directly off the platform, tags and bounces off trendlines, relationships to moving averages, adjust trailing stops simply by adjusting the slope of a line, etc. It is very very impressive stuff and I will definitely be using this in the future. One of the most immediately usable tools on Version 16 is the availability of earnings dates from Zack’s, displayed across the header on each stock. And they are ACCURATE. It’s so nice to be able to review a large number of charts without having to stop and look up their earnings report date.

TC2000 has made things really easy, and I’m going to be working with Michael to develop some scans and screens to go along with a product we are developing. The idea is to make things as easy as possible for members to execute and make money. In what it turning out to be a pretty sluggish economy, and a pretty choppy market, I think that an increasing number of traders are not eager to do as much research as they used to be. You know how it is — when something becomes hard, some people have extra time, and others don’t. So the easier we can make things, the better the environment for members will be. And the better the environment for members…the more successful everyone can be.

Sound good to you?

See you in the forum.

–Dan

Good morning. Futures are down a bit this morning as traders continue in their quest to understand exactly what Janet Yellen is really thinking. It’s a moving target. That’s all.

But as I look at pre-market news, the most significant thing is the higher than expected revenue numbers coming out of Wal-Mart (WMT). Management did express some disappointment about the sluggish growth (7%) of it’s e-commerce business (likely due to Amazon). WMT needs people who are buying stuff on their computers to navigate to walmart.com rather than amazon.com. And it’s tough to get people to change online habits. But the stock is up almost 8% this morning.

Dick’s Sporting Goods (DKS) also beat earnings expectations, and that stock is up in pre-market trading.

Look for the retail sector to rebound this morning as traders start buying the dip after this upbeat news. I mentioned in last night’s video that L Brands (LB) was likely to snap back this morning after falling another 6% in reaction to disappointing earnings and lowered forward guidance. At some point, the selling has to stop…and this poor earnings number is probably just the catalyst for the final puke by bulls who have been suffering more and more pain with each passing day — and with each red candlestick on the chart. If you are a nimble trader, watch for this rebound. It may happen fast, and your reliable trigger is that the stock is trading higher than the opening print. When buyers become more aggressive than sellers, the price rises. When they aren’t, the price falls. Very simple, really. But sometimes our brains get in the way and we see what we want to see rather than what is actually there.

Look, this market is really at an inflection point. The longer it consolidates at these levels, the more likely it is to be forming a base from which it can move higher. So 2,040 is an important level. But the market is quite confusing right now. If you are a bit confused, congratulations! You have a grasp of what’s going on. I challenge you to adjust your mindset. Fewer stocks are working. And that should mean that you have fewer stocks in your portfolio.

Again….FEWER stocks in your portfolio.

You should be spending more of your time doing research and investing in your own education via reading books, reviewing a trading course, getting a new one (I have a few that might be of interest: 59-Minute Trader, Short Selling, options, etc). But in a difficult trading environment where your profits tend to be low, and your losses tend to be more frequent, it pays to focus on yourself and improving your game. Get yourself to a new level so that you can take advantage of opportunities when they arise.

I always say that “cash is a position”. You should also view yourself as an investment — the more experience, knowledge, and DISCIPLINE you develop, the higher the yield on your investment. That’s a fact.

See you in the forum.

–Dan

Good morning. We are looking at a lower open today as the indexes once again test established support. I don’t expect too much buying interest this morning because the Fed minutes will be released this afternoon.

If you want stocks to go higher, you’ve got to be rooting for a really depressing document in which the Fed laments about how horrible the economy is and that it doesn’t see any light at the en d of the tunnel.

If you want stocks to go lower, you’ll be rooting for a really upbeat document wherein the Fed expresses optimism that all of the machinations that the central bank h as been doing over these past several years are finally starting to take root and the economy is going to reach “take off velocity” (one of Ben Bernanke’s more memorable terms that describes how the free flow of money, if given enough time, will stimulate spending to a point where economic growth takes on a life of its own…and then the free money can be quietly taken away, one dollar at a time). Essentially, the economy will lift itself up by its own bootstraps if consumers and businesses can borrow enough money at super cheap rates.

Now, this never happened and Bernanke retired. (Nice to be him, though).

But those are the two extreme sides of what the market will be looking for. Optimism is bad for stocks — to a point. Why? Because the Fed is more likely to hike rates. “Better economy…but your borrowing costs are going up.” Pessimism is good for stocks — to a point. Why? Because rates are likely to remain unchanged, and traders like stable environments. We’ll see these notes express sentiment somewhere in the middle of those two extremes. And as edgy as traders are right now, the direction of the market will depend on which side the optimism vs. pessimism needle rests.

But after all the gyrations subside, we’ve still got a market where retail is taking a nosedive and oil is continuing its gentle march toward $50/bbl (a good dynamic for growth in the energy and select transportation industries). This bifurcation in trends, along with underperforming Midcap (MDY) and Small cap (IWM) sectors, raises a pretty bright yellow flag. I’ve said this countless times in recent videos, but I don’t assume that every member watches every video I produce — though it would be nice if you did. 🙂

One of the toughest, and rarest characteristics of profitable traders is patience. Patient traders are profitable traders. Impatient traders are a broker’s best friend. They make a lot of trades, irrespective of the quality of the opportunity presented. Sometimes there is no opportunity, yet they trade anyway. They just can’t help themselves.

But look at a chart of the S&P that covers the last year. Don’t you see the opportunities presented on those occasions where patience pays off? If a trader had substantial cash in the account, watching the market roll over was truly an exercise in patience. But you’d be developing your skills as a trader. You’d be learning to be more discriminating. And you would be able to see things objectively, without the fog created by holding a lot of losing positions that you were quietly and desperately hoping would turn around and get you out of the hole you were in.

So, my challenge to you is that you work on your patience. Here’s how you do it…and it doesn’t involve trading. Scroll through 100 charts — daily bars. The charts should be of stocks that you do NOT own. Now, write down the ones that look good to you. Can you identify a trend? Stay in the daily timeframe. Don’t zoom out and look at the weekly chart. Can you identify a trend…or is the chart (and hence the potential opportunity) pretty ambiguous. Just write down the tickers.

And when you are done, take note of the percentage of those 100 stocks that are actually viable opportunities. Now, do it again with that shortened list. Take out the ones that aren’t quite as good as you thought they were. Bam! You’ve got a shorter list. If you do that enough times, you’ll probably wind up with about 2-3 charts that look good right now, though you might come up empty handed.

Seriously, this is what profitable and patient traders do. They may not be conscious that they are doing it, but this is what they do. They rummage through the market using their own methods — whether they be fundamental analysis, sector analysis, or day trading. But they look at a large number of possibilities and pass on most of them. They home in on the one opportunity that suits their profile. And that’s the trade they take.

Sometimes the market is “target rich” — trading opportunities everywhere. Sometimes the market is pretty sluggish and weak, generally devoid of opportunities. This market is the latter. Just not too many bogeys flying around in the dogfight.

One last thing — big money moves markets. Retail money seeks to capitalize on the moves that big money makes — to follow the tracks of the elephant. Lately, we’ve seen one firm after another issue tepid outlooks for stocks. Just this morning Goldman Sachs lowered its outlook for stocks to “neutral.” We’ve seen big money managers express similar sentiment…or worse. So if the big money isn’t really interested in buying this market, you’ve got to respect that lack of interest. Any big moves are likely to be to the downside. Stocks that gap up are likely to fall back. And stocks that gap down are likely to continue.

If you accept this reality, you’ll become more patient. You’ll start looking for shorting opportunities, or even start focusing on trading the first hour of the market (which takes focused time in the morning, as well as knowledge of what to look for). You’ll start looking at cash as a viable position because it represents future profits when the right opportunities come along.

See you in the forum.

Dan

Good morning. I hope you had a relaxing weekend, because it’s turning out that the factories in New York didn’t even have a good month. The Empire State Manufacturing Survey revealed that factory activity in May (they publish this number in the middle of each month, so yes, these are the May numbers…with the last part of April in there too) fell to a – 9.02, blowing up the expectations of a +7.25 reading. The April number was +9.6. So while economists were expecting a slow down, they sure weren’t expecting a full-blown reversal.

Put this in perspective. Factories in New York grew in March and April, but suffered a huge contraction in May. Nationwide, factory output has also been low, with US businesses spending less on equipment and machinery, and the global economy weakening. (You’ve probably read at least one or two articles noting China’s slowing growth).

Yet, despite these discouraging numbers, the futures are about flat. In other words, there is no “OMG, sell, sell, sell!” dynamic in this market. Instead, I think traders are balancing the Fed’s desire to hike rates against the lack of a reason to hike rates, and coming out on the side of “no rate hike.” As previously noted, I think the desire to hike rates comes, at least in part, from the angle of reverse psychology being employed by the Fed.

1. We hike rates when the economy is growing because we don’t want the growth to get too far out over its skis. We want to moderate the growth to keep inflation under control.

2. The current economic environment shows virtually no growth — if we hadn’t made some adjustments several months ago in how we calculate the GDP, the growth data would be even more stagnant.

3. “Hey, I know. If we hike rates, we might be able to get folks to believe that the only reason we’re hiking them is that the economy is really strong…and that might spur more spending and business activity. They’ll believe that we see things that they don’t.”

Think of a dog and his tail. The dog is the economy and business/investing activity, and the Fed is the tail. The Fed starts wagging. The dog sees that his tail is wagging. Because he only wags his tail when he’s happy…he decides that he’s happy.

The reaction of the market to this economic bad news reveals that investors don’t think the tail wagging is going to work…but they also don’t believe that the global economy is going to crater. So, the takeaway from investors is that the Fed won’t wag its tail (hike rates) because there is no evidence to support this tactic — and they do need SOMETHING to hang their hat on.

So with a neutral view towards the cost of money, the market remains range bound. So the weak economic numbers have essentially a positive impact on the stock market…at least for now.

I’m suggesting that you keep a close watch on the 2,040 level in the S&P. That’s the level at which buyers have soaked up stock since early April. If the S&P falls below that level, it’ll be a new low and folks will start considering a bearish “head and shoulder” pattern. But if that happens (I expect it to break sometime soon), realize that this is a choppy market. You’re going to see a lot of gyrating around that level.

Here’s how you deal with this. First, embrace the fact that you don’t trade the S&P, you trade stocks and options. Next, only be in stocks that are still trending. For example, Netflix (NFLX) is not trending; Northrop Grumman (NOC) is. Target (TGT) is imploding, but Amazon (AMZN) is trending higher.

Be in the stocks that are either resting, or that continue to go higher. This list is shrinking every week. If you embrace the fact that this list is shrinking and resolve to remain invested ONLY in stocks that are still on the list, then you’ll find yourself naturally raising cash, and you’ll find your investments actually working quite well in a tough business environment.

See you in the forum.

Dan

Good morning. Thanks to Disney, we are looking at a slightly lower open this morning. That’s to be expected after the 1.25% move we had in the S&P. In such a case, the market typically takes a rest as traders consider whether they got a bit too giddy the day before. So they pull back a bit. I wouldn’t focus on the pullback too much. Instead, consider that money is moving into the market. Yesterday, 80% of the S&P components closed higher. That’s a pretty strong signal that ultimately, the S&P will continue to rally. My suggestion is that you work on having a bias toward buying — buying uptrending stocks on pullbacks to support. The challenge in our market lately is that many breakouts don’t amount to much, so you don’t make the type of money you thought you were going to make. So watching for a different type of opportunity merits consideration.

A few stocks I’m watching are Constellation Brands (STZ) as it continues to break out of a volatility squeeze, and Times Warner (TWX), which is in a tight little consolidation above the 50-day moving average. I’m also watching Comcast (CMCSA), which is getting really perky and seems like it’s ready to break out.

Also, look at the tobacco stocks. Philip Morris (PM) is up at an all time high, and paying 4%, Altria Group (MO) is also up at an all time high, and pays 3.55%. Reynolds American (RAI) is not too far behind, being just about a buck below its all time high — and it pays 3.37% in dividends. I’m telling you, these stocks are all worth owning. Their dividends are all high enough to be attractive, but low enough to be considered safe. Imagine owning these stocks and selling out-of-the-money calls on them to bring in extra cash. If you used that strategy on 8 months of the year, avoiding the months where earnings were due to be released, you’d likely have a stock that yields north of 10% annually. And if the stock keeps going up…a nice capital gain. Heck, I’d rather own Philip Morris than Apple…though I would be able to buy the new iPhone with proceeds from my dividends on Philip Morris.

My stem cell procedure went really well, though I didn’t like having to take a valium before the procedure. I’ve never taken valium before, and it made me pretty woozy. For the life of me, I can’t understand why that stuff is addictive. But I’ve got a little bruise in my hip where the drill went in, but my knee and shoulder already feels better…though I am pretty fatigued this morning. Probably nothing that a couple cups of coffee won’t fix.

See you in the forum. If you’ve got any questions or want to make comments about stocks, I am happy to oblige.

Dan

Good morning. We’re looking at a slightly higher open as new weekly unemployment claims rose more than expected (274,000 actual vs. 260,000 estimates). This rise makes it increasingly likely that the Fed will keep rates low for the foreseeable future. Last week, the Fed left rates unchanged, citing a slower economy and absence of inflation. Meanwhile, the Commodity Research Bureau Index ($CRY0 or $DBC) is up 15% since establishing a double bottom in January and February and is now pushing against the 200-day moving average.

The CRB Index fell 60% since early 2011 before hitting that double bottom in mid-January and again in early February. Because rises in commodity prices ultimately lead to a rise in prices of finished goods (which is generally seen outside FOMC circles as the definition of inflation) we want to watch this dynamic. But don’t read too much into it because the entire market also bottomed in early February. So this rise in commodity prices might be signaling inflation…but it might just be in sync with the rest of the market.

So we watch, and we take note that oil is up nearly 70% since the February bottom, and gold is up a bit more than 20% since hitting bottom in December. That’s why we’ll be continuing to focus on energy and metals…and, of course, our aerospace/defense stocks.

Some thoughts about your trading decisions:

I was recently asked whether I use daily or weekly charts to find trends. I’ve discussed this quite a few times over the years, but I realized that I haven’t addressed this important aspect of trading in quite a while. I break down trading actions in two timeframes. I look for a trend on the weekly chart. That’s my “decision” time frame. If I make the decision to buy the stock, I will then zoom in and look at the daily chart. That’s my “action” time frame. And that “action” time frame might point me in the direction of buying now…or it might dictate that I do nothing. I.e., I’ve decided that I want to buy a stock, but I can’t take any action on that decision because the price activity is not favorable to buying right now.

This approach has typically worked for me, though it is not at all a perfect system. Rather, it just ensures that I am on the right side of a trend. And that’s the most important component of long-term success — staying in phase with the trend. And if there is no trend, the stock is not your friend.

One other thing: Tesla (TSLA) reported earnings that beat estimates, and the stock is up pre-market. So is this a signal to buy the stock? That leads me to another matter — how should a trader deal with positive/negative news on a stock? I think you’ve got to do two basic things. First, is the news positive or negative? Next (and more importantly), how did the stock trade in response to the news? The second question is the most important. Applying that to Tesla, watch the stock today. If the stock closes higher, then I take no action — the stock is broken and is going to be fighting a lot of overhead resistance from unhappy bulls who bought at higher levels. Buying the stock isn’t consistent with the trend. But if the stock closes lower despite the good news, I would consider shorting the stock. If a stock cannot hold a higher bid after reporting above-consensus earnings, then it is likely going lower for the simple reason that buying interest isn’t as aggressive as selling interest.

Go with the reaction to the news rather than the news itself.

OK, that’s it for this morning. See you in the trading forum.

Dan

Good morning. Stocks are opening weak this morning on some bad earnings…and a bad ADP report. In April, businesses added just 156,000 jobs, which was the worst number in three years. The good news is that this is a month where the Fed will be dovish and intimate that it won’t be hiking rates soon. (Note that, if the May jobs number is better, the Fed will change its view — nothing more fun than watching a bunch of economists trying to swing trade a global economy.)

But the bad news is that a slowing domestic economy, combined with the ever present fear that China is slowing down, will make investors nervous. China is loosening its peg to the dollar. And since China is a serial currency manipulator, further de-linkage between the Yuan and the Dollar isn’t particularly encouraging.

Sooooo….stocks are under pressure, and my sense is that the idea of new highs (something that I have considered…during the times when I was not considering it) is not likely to become reality.

I received quite a bit of feedback about last night’s Strategy Session, where I gave a very impromptu formula for becoming a better trader. I also discussed some ideas for making better trading decisions. Oh, I also suggested that the aerospace/defense stocks that I have been highlighting are still where you want to be. If you haven’t viewed last night’s Strategy Session, you might want to spend some time today doing so — invest the time to improve your trading so that your monetary investments have a better chance of paying off.

But, if your primary motive for trading is to have some fun, experience some excitement, and get the old adrenaline pumping, then save some time. Don’t watch the video.

Bottom line is this: The market is choppy and fraught with risk. I don’t get to decide what market environment I prefer to trade and invest in. If I did, I sure wouldn’t pick this one. But I do get to decide what I am going to do in this environment. There are always opportunities in any market — they are just a bit more difficult to find right now.