Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (40310)	11/2/2003 11:40:34 PM
From: Johnny Canuck	Respond to of 71001

Using RS Lists To Aggressively Trade On Long Or Short Sides TradingMarkets.com Wednesday October 29, 5:00 pm ET By Mark Boucher One of the most important lessons that a successful stock investor needs to learn is that there are times when the market is presenting plentiful, low-risk opportunities and there are times when making money in the markets is quite difficult and far less certain. Adjusting one's strategy for these different market environments is key. You can trade aggressively in a terrific market environment and make triple-digit annual gains with ease. But trading just as aggressively in a very difficult market environment could result in a huge drawdown of capital. Remember that a 50% drawdown erases a 100% gain, and requires a 100% gain just to get back. ADVERTISEMENT Over the years, one of the most common stories I've seen is for a smart investor to begin investing very aggressively during a strong market run-up when the environment is fairly easy pickings. This smart investor will have a strategy that exploits the good environment quite well -- and he'll typically make huge gains of around 500%-1,000% on his money in a one- to three-year period. But when the market environment changes, this investor refuses to change with it, and in the following one- to two-year period, the investor loses most or all of his trading capital. Witness Foxhound funds' recent wipeout -- a leveraged 300% gain in 1999, but a total 100% loss of everything by April, 2000. Clearly, learning to understand when one can be aggressive, and to understand when to be defensive is important to investors desiring to maximize gains with minimum risk. We've already discussed (in prior lessons and courses available on TradingMarkets.com) some macro tools investors should watch -- like interest rates, market breadth, and timing models both short and long-term -- to help distinguish an environment conducive to aggressive vs. defensive trading. In addition, investors should watch carefully the number of flag and cup-and-handle breakouts or breakdowns in stocks with upfuel or downfuel to see how abundant the market's opportunities are. Probably most importantly, investors should watch carefully our daily list of Top RS New Highs (on TradingMarkets.com) and the groups and sub-groups based on this list as well as the Bottom RS New Lows and the groups and sub-groups based on it. When the list of Top RS New Highs is more than 20 stocks every day and there is clear leadership in several groups that are broadening with more and more new highs in that group each day, e.g., (Philadelphia:^SOXX - News), the environment is more conducive to aggressive buying. Conversely, when the list of daily Bottom RS New Lows is more than 20 stocks every day and there is clear downside leadership in several groups with more and more new lows in those groups each day, the environment is conducive to more aggressive shorting. When Top RS New Highs and the number of issues in leading groups thin out, the environment is one to become defensive toward on the long side. And when the Bottom RS New Lows and the number of issues in lagging groups making new lows thins out, the environment is one conducive to becoming defensive toward the short side. Until early March 2000, both the short-side and the long-side showed broad participation and seemed to be indicating an aggressive posture. However, beginning in very early March, the environment began to change abruptly. Top RS New Highs began to thin out to under 20 issues and the leading groups began to show fewer and fewer new highs. Similarly on the downside, Bottom RS New Lows began to thin out to under 20 issues and the lagging groups began to show fewer and fewer New Lows. This is why, in early March, when we had been previously advising fully leveraged shorts and longs, we advised investors to take half profits on all positions. Leadership was failing and the opportunistic environment was at a sea change. Since early March, the stock market environment has changed. There is no clear leadership on either the upside or the downside. In addition to reducing leverage, tightening up trailing stops, and taking 1/2 profits on all positions, investors need to trade more defensively in their approach going forward until a better environment returns. A huge part of knowing when to trade aggressively and when to cut back is revealed simply by watching carefully the breadth and number of flag breakouts and cup-and-handle breakouts to new highs in stocks with upfuel on our Top RS New Highs list -- and in watching the leadership and breadth of stocks and groups on these lists over time. Similarly, a huge part of knowing when to trade the short side aggressively or when to cut back is revealed simply by watching carefully the breadth and number of downside flag breakdowns and downside cup-and-handle breakdowns to new lows in stocks with downfuel on our Bottom RS New Lows list -- and in watching the downside leadership and breadth of stocks and groups on these lists over time. These lists are some of the most incredible tools available to investors anywhere.

To: Johnny Canuck who wrote (40310)	11/2/2003 11:41:54 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 71001

Here's Where I Would Take Partial Profits TradingMarkets.com Friday October 24, 2:08 pm ET By Mark Boucher The last few weeks have experienced some spotty, sharply volatile moves in various markets, that each related in one way or another to bumps in the road on the way to the recovery scenario. Gold, Chinese stocks, Russian stocks, and even the S&P have experienced some quick moves up and down as the markets have already experienced most of the impetus from monetary and fiscal policy stimulus. The baton must be passed to greater confidence in the economic outlook and consistently better-than-expected earnings growth and employment growth to spur markets ahead much further. This phase change comes as VIX and other overbought/oversold sentiment gauges, as well as insider net selling, are at extremes. Thus, we may get some consolidation/corrective action here as the markets await more economic clarity before investors focus on the recovery. How well the global economy shows that it is responding to fiscal and monetary reflation will likely determine how long and how much further markets will go globally. Despite this action and a distribution day in the major indexes, the main trend continues to be up. It still appears that the most likely dangers that could derail the recovery remain a bond surge, a dollar crash, a renewed oil crunch and price surge, or a major terrorist action that breaks the back of consumer confidence. We would take partial profits on Asia and Eastern European plays if this week's lows are broken - buying back on breakouts to new highs subsequently in broad Asia and Eastern Europe. Latin America and resource plays seem to be holding up relatively better, as do broad EM exposure, so far. The base metal and junior mining sectors continue to explode to new highs here. Commodity currency plays also remain a favorite of ours. Our US long/short model is doing reasonable well considering the low level of allocation it has had. Investors should continue to cautiously add stock exposure as trade signals are generated that meet our strict criteria, as well as allocate to our favorite segments. Our model portfolio followed in TradingMarkets.com with specific entry/exit/ops levels from 1999 through May of 2003 was up 41% in 1999, 82% in 2000, 16.5% in 2001, 7.58% in 2002, and we stopped specific recommendations up around 5% in May 2003 (strict following of our US only methodologies should have portfolios up over 13.5% ytd by our calculations) - all on worst drawdown of under 7%. Last week in our Top RS/EPS New Highs list published on TradingMarkets.com, we had readings of 32, 30, 33, 48, and 24, accompanied by 10 breakouts of 4+ week ranges, no valid trades and no close calls. Internal strength has come back after plummeting last week. Position in valid 4 week trading range breakouts on stocks meeting our criteria or in close calls that are in clearly leading industries, in a diversified fashion. Bottom RS/EPS New Lows remained non-existent with readings of 1, 1, 0, 0, and 1 with 3 breakdowns of 4+ week ranges, no valid trades and no close calls. The short side remains bleak. For those not familiar with our long/short strategies, we suggest you review my book The Hedge Fund Edge, my course "The Science of Trading," my video seminar, where I discuss many new techniques, and my latest educational product, the interactive training module. Basically, we have rigorous criteria for potential long stocks that we call "up-fuel," as well as rigorous criteria for potential short stocks that we call "down-fuel." Each day we review the list of new highs on our "Top RS and EPS New High List" published on TradingMarkets.com for breakouts of four-week or longer flags, or of valid cup-and-handles of more than four weeks. Buy trades are taken only on valid breakouts of stocks that also meet our up-fuel criteria. Shorts are similarly taken only in stocks meeting our down-fuel criteria that have valid breakdowns of four-plus-week flags or cup and handles on the downside. In the U.S. market, continue to only buy or short stocks in leading or lagging industries according to our group and sub-group new high and low lists. We continue to buy new long signals and sell short new short signals until our portfolio is 100% long and 100% short (less aggressive investors stop at 50% long and 50% short). In early March of 2000, we took half-profits on nearly all positions and lightened up considerably as a sea of change in the new-economy/old-economy theme appeared to be upon us. We've been effectively defensive ever since. On the long side we like (NasdaqNM:AVID - News) still and other recent close calls from past weeks, (NYSE:CYD - News), (NYSE:PKZ - News), (NYSE:SID - News), (NasdaqNM:NIHD - News), (NYSE:PBR - News), (NasdaqNM:PETD - News), (NasdaqNM:STFC - News), (NYSE:WES - News), (NasdaqNM:PKOH - News), (NasdaqNM:FDRY - News), (NYSE:WR - News), (NYSE:WLS - News), (NasdaqNM:NCEB - News), and (NYSE:FCX - News), as well as in our favorite global sectors. No short-side opportunities have developed via our strategy for some time. We also like broad metal stocks, like FCX and (NYSE:BHP - News), small-cap Emerging Markets in general, metals and resources, South Africa, broad Latin America, and broad Eastern Europe and broad Asia again on new highs. Don't get complacent here. We still suspect that we'll have to be very nimble to profit consistently and know when to pull the plug in this market. A mini-mania could develop if global economic statistics start to change investor psychology - or a shock could tank this market so quickly it would make you dizzy. That's why we suggest using funds and vehicles that are liquid enough to get in and out of quickly for our current exposure to top relative-strength markets. Investors are advised to remain extremely flexible. Mark Boucher