The Big Picture... #ithink

When ever I start feeling too bullish I look at this chart. It's the SPX weekly from 1960 up to now. It's a log chart and I think log charts are best when looking at longer time framed charts, that way you can see massive moves better. This chart tells me we are in a bear market overall.

I say that mainly because of the huge double top... Trending123.com defines a double top: 

"A double top occurs when prices form two distinct peaks on a chart. A double top is only complete, however, when prices decline below the lowest low - the "valley floor" - of the pattern."

That's the lower '09 low pointed out on the chart.
 
Before you run out and sell sell sell, know that this is the major market movement and it could be years before the major market trend shows it's self again. For now we are in a bear market rally, a strong one.
I suspect this is the chart that bears were looking at all of 2009 while they died a death of a thousand cuts. You have to trade with the market on the most immediate market moves, and now the market is moving up. 
 
I'm posting this because no one else is. People make a case for the bear market rally but I've never seen this chart with the double top tied in and pointed out in one place, and I've scoured the Internet from blog to blog and to trading site to trading site and so far I haven't found it. Sure, chart patterns fail all the time, it's just the size of this one that's so convincing. Nothing is set in stone, but I believe this is as close as you'll come to it.
 
I try not to let my long term view cloud my short term view, so I'm buying stocks now, and going short less, even when I see opportunities to do so because the market is moving up. But I'm watching for tops more carefully, and I think one of the buzz phrases to listen out for is "stock fund inflows" until you see big big stock fund inflows I don't think this rally ends. As of now I can't really see big big stock inflows coming any time soon, but, (there's always a but) If the Republicans win the house this may give people a sense of hope towards the markets. I'm not smart enough to say weather the American economy will come back, but my observation limited as it is tells me it's gonna be a rough recovery. The thing is prices in America are too high in proportion to the worlds consumption capacity, not just American consumption but world consumption. No one else in the world can afford our stuff. President Obama wants America to become a leader in exports, but the price of labor here is so high that we have to price things above what the rest of the world can afford. So our salaries have to come down. Minimum wages have to come down. That means the price of living has to come down as a whole.
 
Price pressure is here because we can't even afford our own stuff and we're the richest population in the world! No one wants to face the fact that our standard of living is going down whether we like it or not. The reason being it went up on false pretenses. Right now Chinese wages are going up because they are coming from such a low base as is many developing nations. We've been there and done that.
 
So the Republicans can't really help unless they can turn back the clock.
 
As of right now it's not economically sound for the worlds biggest companies to make things here, so we have to make it economically sound by lowering our wages. that would bode well for future generations by giving their wages room to grow, but it would bring that double top into fruition. Wages go down everything goes down, and without a systematic process for bringing those wages down the economy has to do it. It does it by having people out of work for so long that they'll take any wage.
 
This is a hard pill to swallow for any nation, but especially for ours. The sense of pride is so strong here that the thought of making less and living on less causes groups like the Tea Party to form. They give people the false impression that more jobs is just a matter of what party is running the country. The truth of the matter is, it doesn't matter.
 
My plan is to make as much money as I can now, tax man be damned, save as much as I can interest rates be damned, and live below my means while I find a genuine store of wealth. Once things fall the people with wealth left will be the winners #ithink.
 
Until next time, Do Some Home Work, Make Some Money...... And don't forget to save some.

Why I Bought $MCP...

First and fore most it's the western hemisphere's only producer of rare earths. When you see the words "only" and "rare" in the description of a stock that's a good thing. A really good thing. Rare earths are used in newer wind turbines, hybrid car batteries, defense systems and computers. China has 97% of the worlds rare earths in their Inner Mongolia mines, so the company is not a pure monopoly, but it's damn close. There's no way the US Government will depend on China to supply rare earths for our defense systems, so that's an automatic contract. Molycorp has the only mine in the US (Mountain Pass in California, it has a 30 year mine plan permit it got in 2004) that has these rare earths so competition in the US is none. the mine has been down since 2002 so the company is using money raised in a recent IPO to expand it, and get it up and running.

These rare earths are in demand and supply is dwindling due to the demand. Here's what Wikipedia says about the rare earths supply/demand picture:

"The use of rare earth elements in modern technology has increased dramatically over the past years. For example, dysprosium has gained significant importance for its use in the construction of hybrid car motors.^[9] Unfortunately, this new demand has strained supply, and there is growing concern that the world may soon face a shortage of the materials.^[10] In several years, worldwide demand for rare earth elements is expected to exceed supply by 40,000 tonnes annually unless major new sources are developed'

Jeff Siegel in an seeking alpha post pointed out a Congressional Accountability Office report released in April that took a look at the national security risks associated with our dependence on rare earth materials. Here are a few key points from that report:

•While rare earth ore deposits are geographically diverse, current capabilities to process rare earth metals into finished materials are limited mostly to Chinese sources.

•The United States previously performed all stages of the rare earth material supply chain, but now most rare earth materials processing is performed in China, giving it a dominant position that could affect worldwide supply and prices.

•Based on industry estimates, rebuilding a U.S. rare earth supply chain may take up to 15 years and is dependent on several factors, including securing capital investments in processing infrastructure, developing new technologies, and acquiring patents, which are currently held by international companies.

•Government and industry officials have identified a wide variety of defense systems and components that are dependent on rare earth materials for functionality and are provided by lower-tier subcontractors in the supply chain.

•Defense systems will likely continue to depend on rare earth materials, based on their life cycles and lack of effective substitutes.

•Some DOD components, other federal agencies and companies are taking initial steps to limit their reliance on rare earth materials or expand the existing supplier base.

Currently Molycorp is producing 3,000 tons of rare earths a year, they're modernizing the Mountain Pass mine and expect to be producing 20,000 tons by 2012. Let's say, for some unforeseen reason they're only producing half that by then, that's still triple their production now.

Not only are they mining the rare earths but they're launching an operation to make the magnets (they call the operation "Mine-To-Magnets"). They just hired one of the leading rare earth magnet experts by the name of Stan Trout to head that operation. This is one of the guys that helped pioneer the use of rare earth magnets in MRI machines. CEO Mark Smith has a lot of confidence in Trout, we'll see if it's well deserved.

That's the fundamental picture, Here's the technical look.

A big volume spike this month has the chart looking strong. A big drop Tuesday Sep. 29th was a good test that the stock passed, and bounced back the next three days ending the week back near the highs. Bloomberg ran a story on China cornering the rare earth mineral market on Thursday and that brought in volume that day most likely, but after watching it all that day and the next showed the strength in the stock. Some one is buying and it's not us small Fry's. You could see the accumulation in the price action.

We're sure to get a drop, so volume will show just how strong this baby is, but for me this is not a trade, it's an investment. I plan on holding and adding as long as it doesn't drop 8% from my buy point of $28.39 (my base price)

technically, it looks sound even though it's up a lot, it still looks sound since it's been tested, first with resistance at $24.15, and again when it tested that same area proving it now to be support.

Now, the risk. Based on gross operating, and net margins, it has a cost structure that eats up a percentage of its revenues, worse, the company is losing money on an operating basis. I remedy this with the fact that by 2012 the production should be up 500% to 600%, assuming the cost structure stays the same or is improved, the company should be ok. Not only that but who's to say how much rare earth minerals and the magnets they make will be worth in a few years?

It's a new issue that came to market July 1st 2010 so the market has had time to take a long hard look and the verdict is buy... So far. Every one knows it's losing money for now, but big buyers are still all over it because the future potential is pretty big.

It's had a big run up so it could have a big drop. I'll sell at -8% like I said, but if the first drop is on too heavy volume I'll sell before then and look for a re-entry. It's highly possible I bought late but when I saw the chart with a nice drop and bounce back I felt more confident in buying when I did. Any one else who wants in should watch it and get in at a proper buy point. In my opinion it's a buy for the reasons stated. This is not a recommendation for any one to buy this stock, this is just the reasons I did. As always I recommend you do your own research so you can make a decision to buy or not on your own, since it's your own money.

My risk tolerance is pretty high, so please do what's right for you and your risk level.

Until next time, Do Some Home-Work, Make Some Money.

The Charts Don't Lie

This is the NDX weekly chart ending 9/24/2010 and it's beastly! I don't need anything else but price action, volume and time. The news, the blogs, the tweets, they can all shove it! The charts are saying this market is going higher. Can they change their minds on Monday? Sure, but for now they are saying higher.

SPX weekly ending 9/24/2010 we're at resistance on the S&P so I am expecting a pull back. We'll see Monday.

This is the Dow weekly ending today 9/24/2010 and it has bussed through some major resistance. I like to look at the weekly chart at the end of the week, the monthly at the end of the month, daily at the end of the day. I like this because all the time frames tell a story and right now that story is that the market wants to go higher. You'll hear people say we're over extended, overbought or we've gone too far too fast. All that may be true, but when the pull back comes don't let the talking heads tell you the rally is over, let the charts tell you! A crazy high down side volume will tell you all you need to know.

With that said I do expect a pull back of some sort because the market pulls back and tests levels it has broken through. I expect the market to pull back, test those levels and continue rising. I expect October and November (especially if the GOP takes control of the house) to be nice up months. If the GOP doesn't take control of the house I think that will end the rally, simply because higher taxes will be a given and people will rush to take profits (and losses) this year.

The equity out flows all but assure that congestion is a non factor. I think.

I'm long EMC, APD, BSDM and a Canadian gold and silver ETN (exchange traded note) CEF, with APD being my largest holding and EMC being my newest (today) and smallest holding. I'm not using any margin but I plan on buying every dip in EMC and BSDM so I'll get into it soon enough. I don't like to hold more the 6 stocks as I don't have a major amount of money and it gets me spread too thin, so I have two stocks on my watch list, which ever hits the buy point first is the one I'll buy. The two are EGO with a $20.33 buy point and TSL with a $28.97 buy point. 

EGO daily with a red line marking the buy point.

                                       

                                         TSL with red line marking the buy point.                                                              



TSL looks like it'll win the race to the buy point, but looks can be deceiving as hell.



I'm sorry my posts have been sporadic at best, but I plan on picking it up with a few book reviews and some other things. I don't think my opinion matters all that much to blog every time I have a thought, not only that, I would hate for one of my wrong thoughts to influence some one who's on the right track trading wise and have them second guess their trades. AXTI shook me out something terrible and my mistake was buying too much in my initial purchase, so when it turned against me I got shook easily. That made me tip toe into EMC today and I feel good about my entry even though it pulled back a bit after my second buy. I tweeted my second buy and it seems like when ever I tweet a buy it turns against me. It's probably me. But that makes me not tweet my buys as much, so if you follow me on twitter and I tweet a stock I'm in I've probably been in it for a while.... Anyway, watch the charts, listen to the charts, not the talking heads. 

Until next time, Do Some Homework, And Make Some Money.

Charts Don't Lie.

 Men lie, women lie, but charts don't lie.

The charts aren't telling me which way the market will go, they're telling me which way the market will most likely NOT go, and that's sideways.

NDX Weekly
The Apex Approaches

COMPX Weekly
The Apex Approaches.. Again

SPX Weekly
The Apex approaches... And yet... Again

 Chart after chart shows these symmetrical triangles with the apex fast approaching. If your familiar with symmetrical triangles you know that the apex is usually decision time. I'm the "wait and see and trade the tape" type, but I'm biased to the down side. This is because all the leading indicators are looking more and more horrible by the minute. The Jobless claims and the Philly Fed survey to be specific.

By now you've heard all about both so I won't go into the logistics of either. I will say that both were sobering and these indicators are nothing to sneeze at, as they are forward looking unlike earnings.... Every body's favorite disclaimer "Past performance is not indicative of future performance" isn't every body's favorite for nothing.

The bad numbers give the the infamous "Double Dip" theory a little more credence to me.

On the flip side, the recent M&A surge means.... Some thing. One way of looking at it is that corporations see recovery coming and are positioning them selves to take advantage of it. Another interpretation

 is that corps. see maybe not hyperinflation, well yes hyperinflation coming and are starting to see those big cash hoards as liabilities and not assets.

Yet another look at it could be that corps are trying to regain control of their balance sheets, which could be a mixture of both interpretations.

To add to that, the ECRI index is projecting slow growth, but not double dip.

We have next weeks jobless claims this coming Thursday (Aug. 26 2010) and ISM numbers the following Friday (Sep. 3 2010) which is the same day we get August jobs numbers, and this will tell us a LOT. As for what I think, I don't think, I watch.

 Especially since I have no clue which way this market is heading right now. I'll restate my bias is to the down side, but I'm not loading up on inverse ETF's. I'm holding $EPB $USO and $APD longs. I grabbed $SPXU $DOG $REW last Wednesday and sold early Thursday as my raised stops got hit. I'm up to about 80% cash and expecting another technical bounce and I'll hedge up off that bounce. For now no new longs. I have pretty good base prices on all my longs except $USO which I just grabbed this past Wednesday Aug. 18 waiting to get a clear response on what the world will do about Iran's new nuclear plant. That sucker is down 1.9% since I bought, I can stand  an 8% beat down, at which time I will promptly sell and cry. #thatisall

Until next time traders, do some homework, make some money.

Tools Of The Trade: Donchian Channels

Donchian Channels.

Richard Donchian is called the grandfather of trend following. His initial trend following ideas form the basis for all trend following achievement which has followed. Donchian's initial systems required using a moving average for the entry and exit indicator part of his program.


Richard Donchian made use of the 4 week rule. Donchian's tactic was to buy whenever a stock hit a 4 week fresh high and the exit rule was sell when it forms a two week low.

The Donchian channel is an indicator found in market trading made by Richard Donchian. It is produced by taking the highest high of the daily maxima and the lowest low of the daily minima for the last n days, then observing the area between those values on a chart.

The Donchian channel is a useful indicator for seeing the volatility of a market price. Where a price is stable the Donchian channel is going to be relatively narrow. In the event the price fluctuates a great deal the Donchian channel is going to be wider. Its principal use, however, is made for offering alerts for long and short positions. In cases where a market trades above its highest n day high, then a long is established. In case it trades below its lowest n day low, then a short is established.

The Donchian Bands are determined in basic formulas:

Upper Band = Highest High of X periods

Lower Band = Lowest Low of X periods

X is the calculation period of the Donchian Bands.

The Donchian Bands are mainly used as a breakout indicator - they determine support and resistance and make entries as price breaks these levels. Because Lows and Highs usually correlate with Support and Resistance levels, this indicator is valuable in objectively defining Support and Resistance levels.

Nevertheless, it is also used as a reversal signal - entering when price touches a band and reverses its direction. Before using the indicator in this fashion, verify the quality of the psychological level by requiring no less than 2 touches at the level. This makes certain that the signal is good and elevates its dependability.

My preferred way of trading the Donchian Band is using its middle band. The center band is the average of the lower and upper band, and may also be used to evaluate trend. Entry signals are made in the following way: When price crosses the middle band from below - buy, and when price crosses from above - sell. It is usually a powerful signal when trend strength is confirmed (with support and resistance or combined with additional technical analysis tools).

Video and description are from http://www.youtube.com/user/StockTradingMaster



As a trader you need every tool out there, that is every tool you feel comfortable with. It's a mistake to use a tool because every one else uses it. Use what your comfortable with, but how do you know what your comfortable with if you don't try all the tools out? You don't, so from time to time I'll post "good" videos I find explaining the tools of the stock trade.

In the mean time, Do some home work, make some money.

Uncle Pennybags Is Back In The Building

The Fed said: To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserves holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserves holdings of Treasury securities as they mature.

And the market turned around in a hurry (yet it did still close in the red.) The market rebounded and the Fed is on the job. Win - win you would think. The thing is, the fact that the Fed has to pull out it's wallet... again, means that the first 2 stimulus weren't good enough. The warm fuzzy feeling of the Fed winding down and the economy recovering is turning back into worry. Why? First off we're buying our own treasuries with money we made. That's like Rich Uncle Pennybags buying Park Place himself instead of selling it to us suckers. We've run out of suckers and we're the only suckers left.

It does seem needed if look under the curtain of Fridays jobs report (Larry Levins' blog tore the curtain down) and a third stimulus bill looks almost certain, just what we need right? May be not. A third stimulus package might put us in the Japan lane, I think. Hyperinflation can come out of no where easy and fast. Probably not as fast as Japan got it but when it comes you won't care how long it took.

So, is this the end? should you go get your gun and wait at the window like Malcom X? Not just yet. But you should take a long hard look at ways to hedge for all the possible futures.

For inflation I'm looking at the ETF $TIP that's iShares Barclays TIPS Bond The investment seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S.Treasury Inflation Protected Securities (TIPS) index (Series-L). it closed today at 107.66 up 2% year to date. Worth taking a look.

Also $CEF That's the Central Fund of Canada Limited (Central Fund) is an investment holding company. The Company is a specialized, passive holding company with most of its assets held in gold and silver bullion. Central Fund’s purpose is to hold gold and silver bullion on a secure basis for the convenience of investors in the shares of Central Fund.

As always you MUST do your home work on these investments before you invest your money!

I'm also looking for the right time to start my $SPXU buy program back up as this market may start seeing the bad for what it is.... Bad. I think I might wait until next month when the big boys come back because the volume is so low the market seems easy to manipulate. On top of that traders can't decide which way to send the market. We get zero follow through it seems. I am holding longs and I think if inflation does come, the beginning will be seen in inflated stock prices and I plan on riding that up a bit. Also with bond rates so low I hear chatter of bond money coming into high yielding stocks. I'm holding $ADP with it's 5%+ yield. Also holding some $GE which just upped their dividend.

All in all it's still summer time so these moves don't reflect the bias of the real big boys. Lets wait for next month and see what the big money thinks of all this. I plan on blogging more, but I planned on blogging more after my last blog so, we'll see. Anyway, until then, Do Some Home Work, Make Some Money.

Peace.

The Ugly Jobs Numbers.

431,000 jobs, most from census workers temporarily employed. That's what beat the market down today. The Dow 9,931.97 -323.31 down 3.15% The Nasdaq Composite 2,219.17 -83.86 down 3.64% (the most of the three major indexes.) and the S&P 500 closed at 1,064.88 -37.95 smacked down 3.44%. The world is over.... Right? Wrong. The census workers are usually low income people who are most likely to spend their money.

*Light bulb* There will be a boost in consumption, if only for a quarter. The question is what's the trade?

What will the census workers buy? I think cellphones shoes and clothes. I'm being frank here, but honestly, they start giving census jobs first to welfare to work recipients.

They won't really need to buy food since they get food stamps on a card. So I think we may get an upside surprise in retail numbers. One of these retail numbers is going to pop this market, mark my words.

We have a Retail Sales number coming out June 11. The market is looking for 0.3% growth, the last number was 0.4%. I'd bet a dollar to a doughnut the number comes in at least 4% may be 4 and some change.

I know what your thinking because I thought it myself. Maybe I'm stretching for a catalyst, and this could be true, but 300,000 census workers is still 300,000 more people who will buy something on payday. 300,000 people with thee most pent up demand. Watch and see, until then watch the market, not T.V.

SPXU Trend Line Break Out

The rule of 3 rings true for ETF SPXU. After 39 weeks and 3 tries it has broken out and close above a massive down trend line. With Euro concerns, the flash crash and slowed US growth still in the back of most traders minds, any rally in the S&P is suspect. This SPXU break gives credence to the notion that a bear market is beginning.

With more and more companies guiding down it's no wonder investors are weary. After watching the tape this week I say I'd have to agree. Yet I sold SPXU on Wednesday morning looking for a technical pop. I wanted to see if the major indexes could close above their 200 day moving average. The Nasdaq took back and held it's 200 day line on 5/27 making 5/28 the second day it closed above it. But the other indexes got rejected. This isn't particularly troubling since the Nasdaq has been the leader since the rally began, it's no surprise that it would hold first. Next week I will be looking for the other indexes to follow the and close above the 200 DMA at least two days in row. This will signal the long term uptrend is still intact.

As for the SPXU I'll be looking at the SPX volume and market action going into the close. It's important to buy right when trading anything, but it's multiplied by three when dealing in the SPXU. I've gotten burned on more than one occasion trying to jump the gun on the SPXU. So we must be sure this is the start of a bear market and not just a normal market correction.

Judging from the Nasdaq it's still time to buy, We'll see if the other indexes will come back and confirm this.. Until next post watch the tape, trade the tape, and trade well!!