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Random Rants and Market Ideas by Brandonf
- Thread starter Brandonf
- Start date
Over the last few weeks the market has gone into correction mode while maintaining itself up near new highs. This is great, its exactly how you want to see the market act when it pulls back. Unfortunately I see a cloud on the horizon. A couple actually. One the internals have SUCKED which just shows we are rotting from the inside. Its like the pretty girl with a bad attitude, nice so long as you don't get to close. Also commodities, esp. metals and oils. EVERYONE, including my 83 year old grandmother, is bullish. When all the bulls have committed their money, who is left to buy? I don't know either! For that reason I think that RISK Is up HUGE at this point. I am looking to short steel, OS, X and SCHN look the best to me. I might even go the hunt for a few oil companies to short, but this will be hard on me. Also, keep in mind that the short ideas in commodity stocks are TRADING ideas and will not be held for long. The big picture is still very bullish and I don't see that changing any time soon, however Joe Sixpack has crashed the party, so its time for the cops to come and bust it up, which I'm sure they will be doing any day now.
http://tradingfrommainstreet.com/Videos/aug8.html
Back in August of last year bought this from $41's and gave it in my newsletter. I've been slowly working my way out of it over the last week and will continue to do so for the next couple days, at which point I intend to have 1/5th of my original position and continue to hold that, looking for $100/$120 per share on the rest. This is a great example of the type of micro cap stock I look for.
Brandon
Back in August of last year bought this from $41's and gave it in my newsletter. I've been slowly working my way out of it over the last week and will continue to do so for the next couple days, at which point I intend to have 1/5th of my original position and continue to hold that, looking for $100/$120 per share on the rest. This is a great example of the type of micro cap stock I look for.
Brandon
Lets have a bit of an in depth look at oil. It seems to be on everyone's mind, my dad even called me recently to ask what Oil company he should buy. After all they are all robbing us blind and hurricane season is right around the corner.
So, lets look at the oil sectors. Lets start off with the IYE, which is the IShare of the US Energy Industry. I want you to notice the bars from 4/21 and then again from 5/2. This is a very clear double top. Also, if you look at the monthly chart we have what I would define as a 2b top being made. Next, look at a chart of oil itself. You will notice that on the daily chart we have actually started to put in the start of a new downtrend if you define a downtrend as a series of lower lows and highs, oil has each of these now. On the weekly chart it has a lower low but not yet a lower high. I'm sure that is just around the corner.
Now, this is only the technicals. Personally I do not do well when the only reason I have to put on a trade is technical. I do not have the confidence to sit through the ups and downs that naturally come with a trade. So, although I always start with the technicals, I also need something else.
Lets look for that something else. I see a couple things happening in oil. First of all the politicians have been for a long time creating a mess. The mess they have created has led to the bullish move in oil in the first place, but right now they are trying to talk their way out of it. They see people hurting and figure now is as good a time as any to act like a bunch of communists and populists and turn someone else into the bad guy. Of course the bad guy would not be the EPA and Greenpeace who have made sure that no new refineries have come online since before I was born, gosh that would not be PC at all. So, no no no, it is the big bad greedy oil companies. You didn't know that? Shame on you! Never mind that with taxes the various levels of government make much more off oil than the oil companies do, the government see's a chance to steal someones money, to blame someone else for a problem they created and they are certainly unlikely to let this kind of opportunity pass them by, it only happens a few times in one's career. So, I see this as being pretty bearish for the oil companies.
Next, from a risk management stand point I think everyone is fully committed to oil stocks already. What do I mean by that? I mean that when they go on TV, or write a report, or talk to me on the phone, everyone who is so bullish on Oil has bought as much as they can buy. Even if they wanted to, they can not commit more money to oil stocks. They are maxxed out. This means they are not bulls no matter what tune they are singing in public, they are in fact CLOSET BEARS. Why do I say this? Coz they will not be buying at any point, the only thing they will be doing is watching each price point on a decline and seeing dollars coming out of their pockets. They will be looking for a place to sell since they can not buy any more. This type of selling can add a TON of pressure and bring about a lot of downside.
So, what to do? Well for me relative strength is the king. That means that what I want to do is go ahead and look at the oil stocks and isolate the names that have not been playing along with this rally. Names like SUN, MUR and EOG to give you three examples. I will then watch these stocks for ANY technical sign of weakness. When that occurs I will be shorting oil stocks.
Now, does this mean I have become all the sudden long term bearish on Oil. By no means. In fact I think that in the long term (3 to 5 years) dips are buying opportunities in Oil stocks. I think that oil and or mining related names are the next bubble in the making and I plan to ride that fully when it starts to come about. However, for the short to intermediate term I think a top has been put in, and its one that offers a nice trading opportunity. Of course if Oil and Oil stocks run into a bit of a road block we will also see upside in certain sectors like airlines, so you will want to watch them closely as well.
So, lets look at the oil sectors. Lets start off with the IYE, which is the IShare of the US Energy Industry. I want you to notice the bars from 4/21 and then again from 5/2. This is a very clear double top. Also, if you look at the monthly chart we have what I would define as a 2b top being made. Next, look at a chart of oil itself. You will notice that on the daily chart we have actually started to put in the start of a new downtrend if you define a downtrend as a series of lower lows and highs, oil has each of these now. On the weekly chart it has a lower low but not yet a lower high. I'm sure that is just around the corner.
Now, this is only the technicals. Personally I do not do well when the only reason I have to put on a trade is technical. I do not have the confidence to sit through the ups and downs that naturally come with a trade. So, although I always start with the technicals, I also need something else.
Lets look for that something else. I see a couple things happening in oil. First of all the politicians have been for a long time creating a mess. The mess they have created has led to the bullish move in oil in the first place, but right now they are trying to talk their way out of it. They see people hurting and figure now is as good a time as any to act like a bunch of communists and populists and turn someone else into the bad guy. Of course the bad guy would not be the EPA and Greenpeace who have made sure that no new refineries have come online since before I was born, gosh that would not be PC at all. So, no no no, it is the big bad greedy oil companies. You didn't know that? Shame on you! Never mind that with taxes the various levels of government make much more off oil than the oil companies do, the government see's a chance to steal someones money, to blame someone else for a problem they created and they are certainly unlikely to let this kind of opportunity pass them by, it only happens a few times in one's career. So, I see this as being pretty bearish for the oil companies.
Next, from a risk management stand point I think everyone is fully committed to oil stocks already. What do I mean by that? I mean that when they go on TV, or write a report, or talk to me on the phone, everyone who is so bullish on Oil has bought as much as they can buy. Even if they wanted to, they can not commit more money to oil stocks. They are maxxed out. This means they are not bulls no matter what tune they are singing in public, they are in fact CLOSET BEARS. Why do I say this? Coz they will not be buying at any point, the only thing they will be doing is watching each price point on a decline and seeing dollars coming out of their pockets. They will be looking for a place to sell since they can not buy any more. This type of selling can add a TON of pressure and bring about a lot of downside.
So, what to do? Well for me relative strength is the king. That means that what I want to do is go ahead and look at the oil stocks and isolate the names that have not been playing along with this rally. Names like SUN, MUR and EOG to give you three examples. I will then watch these stocks for ANY technical sign of weakness. When that occurs I will be shorting oil stocks.
Now, does this mean I have become all the sudden long term bearish on Oil. By no means. In fact I think that in the long term (3 to 5 years) dips are buying opportunities in Oil stocks. I think that oil and or mining related names are the next bubble in the making and I plan to ride that fully when it starts to come about. However, for the short to intermediate term I think a top has been put in, and its one that offers a nice trading opportunity. Of course if Oil and Oil stocks run into a bit of a road block we will also see upside in certain sectors like airlines, so you will want to watch them closely as well.
Quote from chud:
Nice call on the PNRG.
I see some 20%+ drops that you held through. How do you determine when to get out of one like this. Can't use stops I guess. I think I'd have been scared out several times along the way.
On a name like that you really have to think of yourself almost as a partner with the company. You can not trade in and out, so you have to be in it for the long pull, and not look at the chart at all really. If the fundamental picture stays the same, then you stay wtih the company. If the fundamental picture changes you swollow hard and take your lumps.
Brandon
Hey Brandon.
First of all just want to say after reading your blog elsewhere on the Net (don't know if I'm allowed to point to other financial websites here or not - if I can let me know & I'll post a link or someone else can)... I have great admiration for you dealing with the pain that afflicts you, and not just getting on with life but *succeeding* in trading/investing. Very inspiring.
Second, you've retired from the "guru gig" I take it. Believe it or not, I have actually considered trying to become a guru myself one day (OK everyone, stop laughing). I'm not kidding, because it seems like you can trade but get a low risk income from the guru side of things. But I want to know the downside. What was the worst thing(s) about being a guru and why did you stop?
First of all just want to say after reading your blog elsewhere on the Net (don't know if I'm allowed to point to other financial websites here or not - if I can let me know & I'll post a link or someone else can)... I have great admiration for you dealing with the pain that afflicts you, and not just getting on with life but *succeeding* in trading/investing. Very inspiring.
Second, you've retired from the "guru gig" I take it. Believe it or not, I have actually considered trying to become a guru myself one day (OK everyone, stop laughing). I'm not kidding, because it seems like you can trade but get a low risk income from the guru side of things. But I want to know the downside. What was the worst thing(s) about being a guru and why did you stop?
Quote from MichaelJ:
Hey Brandon.
Second, you've retired from the "guru gig" I take it. Believe it or not, I have actually considered trying to become a guru myself one day (OK everyone, stop laughing). I'm not kidding, because it seems like you can trade but get a low risk income from the guru side of things. But I want to know the downside. What was the worst thing(s) about being a guru and why did you stop?
I am semi retired. I'm still writting my blog, sending out some free newsletters and I also help Toni out in her chatroom, but I am no longer paid for anything and so I dont have the obligation I did before I guess. As far as what is the upside, I really enjoyed all of it. I met a lot of great people, both in terms of my clients and other people in the trading industry. One thing I have learned in martial arts is that the best way to learn is to teach, and it applies equally to trading as it does to Tang Soo Do. In that regard the guru biz was very good to me as a trader. It was also very profitable, but I must say that I think I benefited greated by my timing. I got involved in the industry around 1998 which was as good of timing as you could probably get. This set me up very well going forward. I'm trying to help a former employee of mine break into the business on his own right now, and it is much more of a challange than I thought it would be. But in my case, the money was good, I was able to make 150/200K per year. The only negative I can think of is that the business is full of sharks and so people automatically assume you are too, and if you are an upfront, honest person it can be frustrating..but if you are eventually you will prove yourself and have to deal with that less. Anyway, if you are a proven trader and you are good at communicating too boot, I say why not? You don't really have anything to lose by giving it a try. As to why did I pull back from the business, it was just about commitment. I have started to manage a good amount of money and I continue to get new clients and more money. I did not want them to have any doubt in their minds as to were my commitment was at. Possibly in the future I will do a newsletter again, I dont know, because I did enjoy it.
Brandon
There is a popular game played at carnivals, the object of which is to hit the head of a joker as it pops out of one of multiple holes. Most people will "lose" this game by continuing to watch where the joker once was. When I watch many market players reacting to the markets natural coiling and uncoiling tendency, I am comically reminded of this game. After an explosive move to the upside everyone is all hyped up and ready to go. Unfortunately for them it is normally at this point that the market volatility cycle begins to coil, and in the process separates most traders from their money. After several days of chasing the joker (momentum), traders become disgusted with themselves and the market. They decide now is the time to play it safe, or stand on the sidelines. Its at this time that our joker will jump out of his box and make a surprise return.
Well this is just a heads up, the joker came out of the box over the last few days. The market is was coiled tighter than a mad Arizona Rattlesnake it struck. Prior to the last few days the market had been in a very tight range. Now that the joker has come out of the box people are going to start swinging where it was, and the cycle will just keep playing out as they are separated from their money. Don't play carnie games!
Volatility in the market is mean reverting. If you learn nothing else, this might be the concept worth studying.
I do think that the market has entered into a bear phase. The NASDAQ had already been in a subtle bear market for some time...its not so subtle now. We should now be looking for at least a 10% correction, which is something we have not seen in some time. HOWEVER, I think that right now is not the time to be falling all over yourself to get into the market on the short side. The market has gotten itself extended and needs to rest. Think of the market as a marathon runner. If you ran a marathon yesterday, how likely would you be to win another one today? Not very. However, if you have rested up for a few days and you are well trained then you can win one. The market gets rested and well trained by basing and retracing. So, at this point I would expect to see the market start to move sideways or possibly up. More than likely this pause in the selling will be brief and on low volume. If that is the case then I will be aggressively shorting stocks, specifically internets, biotech's and commodity related issues. I feel that the biggest shock risk is in the commodity related issues, they could see downside on the order of 20 to 30% in just a few days if those who arrived late to the party start to panic.
Some charts to look at would be MVK, EOG, SUN, OS, PAAS and SCHN in the commodity related fields. Some other names I like include EBAY, YHOO, GOOG, MSFT and their ilk.
Everything though is not all doom and gloom. Right now is certainly not the time to be aggressively long the market, but there are some bright spots. Over the last few weeks with the Dow and everything else right near new highs, even crappy names found themselves doing well and making new highs. Now that selling pressure has hit the market, you will be able to isolate the true leaders. The names that continue to hold up near highs despite the selling pressure that has occurred and is likely to continue, these are going to be the leaders in the next up cycle, and it is important that you keep scanning and building your list of leaders. Right now media names are showing a lot of strength, with names like DIS, CMCSK and OMC barely budging as the market sold off. Ditto insurance which also held up pretty well.
Finally on Rydex. Today I will be adjusting my positions to reflect my current view that the market needs to rest. I will be reducing my Dynamic Weakening Dollar from 20% to 7.5% of the account and the Dynamic Short OTC from 12.5% to 5%. This is because I do think we will bounce. Once we get that bounce I will start to put the short back on and build up a nice position across the board.
I have one purpose in life, to protect and grow my clients capital. That is going to best be by being short and in cash. Because of the risk involved in shorting I do not get 100% short. The biggest exposure I will go to is around 40% or so, and I do expect that I will be up to that point relatively soon..but, I don't want to be swinging where the joker was. Keep your powder dry, that is most important because this bear phase will not last forever. We are not going to see a bear market like we did in 2000/2001 again, this will likely be a short termish type correction...but it could be violent.
Well this is just a heads up, the joker came out of the box over the last few days. The market is was coiled tighter than a mad Arizona Rattlesnake it struck. Prior to the last few days the market had been in a very tight range. Now that the joker has come out of the box people are going to start swinging where it was, and the cycle will just keep playing out as they are separated from their money. Don't play carnie games!
Volatility in the market is mean reverting. If you learn nothing else, this might be the concept worth studying.
I do think that the market has entered into a bear phase. The NASDAQ had already been in a subtle bear market for some time...its not so subtle now. We should now be looking for at least a 10% correction, which is something we have not seen in some time. HOWEVER, I think that right now is not the time to be falling all over yourself to get into the market on the short side. The market has gotten itself extended and needs to rest. Think of the market as a marathon runner. If you ran a marathon yesterday, how likely would you be to win another one today? Not very. However, if you have rested up for a few days and you are well trained then you can win one. The market gets rested and well trained by basing and retracing. So, at this point I would expect to see the market start to move sideways or possibly up. More than likely this pause in the selling will be brief and on low volume. If that is the case then I will be aggressively shorting stocks, specifically internets, biotech's and commodity related issues. I feel that the biggest shock risk is in the commodity related issues, they could see downside on the order of 20 to 30% in just a few days if those who arrived late to the party start to panic.
Some charts to look at would be MVK, EOG, SUN, OS, PAAS and SCHN in the commodity related fields. Some other names I like include EBAY, YHOO, GOOG, MSFT and their ilk.
Everything though is not all doom and gloom. Right now is certainly not the time to be aggressively long the market, but there are some bright spots. Over the last few weeks with the Dow and everything else right near new highs, even crappy names found themselves doing well and making new highs. Now that selling pressure has hit the market, you will be able to isolate the true leaders. The names that continue to hold up near highs despite the selling pressure that has occurred and is likely to continue, these are going to be the leaders in the next up cycle, and it is important that you keep scanning and building your list of leaders. Right now media names are showing a lot of strength, with names like DIS, CMCSK and OMC barely budging as the market sold off. Ditto insurance which also held up pretty well.
Finally on Rydex. Today I will be adjusting my positions to reflect my current view that the market needs to rest. I will be reducing my Dynamic Weakening Dollar from 20% to 7.5% of the account and the Dynamic Short OTC from 12.5% to 5%. This is because I do think we will bounce. Once we get that bounce I will start to put the short back on and build up a nice position across the board.
I have one purpose in life, to protect and grow my clients capital. That is going to best be by being short and in cash. Because of the risk involved in shorting I do not get 100% short. The biggest exposure I will go to is around 40% or so, and I do expect that I will be up to that point relatively soon..but, I don't want to be swinging where the joker was. Keep your powder dry, that is most important because this bear phase will not last forever. We are not going to see a bear market like we did in 2000/2001 again, this will likely be a short termish type correction...but it could be violent.