Today was an unseasonably warm day in New York City. Sunday was frigid, but today I walked home in shirt, no jacket. Does this mean the winter is over? The weatherman says a snowstorm is on its way. Let us take a look at the season of the stock market.
Dear Spikers and SpikeTrade Members,If ‘the January Indicator’ applies to our group, we should have a very good year. The Spike group as a whole has gained over 4% in January. Only two Spikers underperformed the S&P, while the great majority beat the index. Kerry is doing a fantastic job keeping records for our group. I have often said “Show me a trader with good records, and I will show you a good trader.” Perhaps I should add “Show me a group with good records…” I hope you are tracking equity charts on the members’ home page of www.spiketrade.com/members/, updated each weekend, showing the top four Spikers for the past 13 weeks. This week Ross is in the lead, with Henry on his heels, followed by Jeff and Susie. Kerry and I have just finished writing checks and sending diplomas to Q4-2008 winners, as well as special prizes to 2008 annual winners. We look forward with pleasure to writing more checks and signing diplomas for Q1-2009, two months from today.I have been trading this month together with Pat and was surprised by the January report she wrote for us yesterday. Going beyond the percentage of winning trades (high) and the slope of the equity curve (rising), she made several entries that made me stop and think: the best trade, the worst trade, the best entry, the worst entry, the best exit, the worst exit. It was a surprise to see my most profitable trade classified as our worst trade for the month. I made it in a hurry, with no written plan, and sat through a nasty drawdown before the trade began to work.I hope you are keeping good records. At a risk of sounding self-serving, I recommend using AK47, created by Kerry, Jeff, and me. We built it for ourselves and later offered it to the public. You can see a demo here http://shop.elder.com/shopexd.asp?id=341 and if you decide to get it, be sure to ask Inna for a Spike discount – 10% off and free delivery.<a href="www.spiketrade.com/members/">SpikeTrade</a>
A common human tendency is to take what you see on trust, not ask yourself what is really inside, below the surface. This tendency simplifies our lives – you do not want to stop every minute and ask yourself deep questions – but it also contributes to the tendency towards thoughtless living. The powers that be exploit this tendency to take advantage of crowds.Here is a link to an article on another blog, exhibiting ‘the true skinny’ behind the Dow numbers:www.ritholtz.com/blog/2009/01/bianco-the-dow-is-distorted/Live with your eyes open! Thanks to Kerry for bringing this piece to my attention.Alex
Sorry for the late posting of this chart. On Thursday Kerry left the Camp to fly home. The local airport was closed due to warm rain and fog and Kerry returned to the Camp. I had offered to post NH-NL, but in the confusion got Kerry’s message to please do so only this morning 🙂
When the market rallied last week, we got three days of New Highs exceeding New Lows – by single digits. Those skinny swallows did not make a Spring. Now that the market is sliding, the message is quite different
The behavior of the NH-NL Index is just as important as its absolute level. We want to see New Highs expand during a rally to confirm its strength. The increase of New Lows during a decline points to bearish strength.
(speaking of contrarians, please see a discussion of the best book on Contrary Opinion Theory in our blog. At * a copy it is a pretty safe investment :-)Dear Spikers and SpikeTrade Members,Hello and best wishes from New York. Kerry has just arrived here – to spend a few days working together, to have his ‘sushi fix’, attend a campers’ meeting, and then to fly down to the Caribbean for some pain & suffering in the 2009 Traders’ Camp.Congratulations to the group on completing a very successful week. The 88% success ratio was awesome. We also must tip our hat to high-performing SpikeTrade members. Every week they participate by sending in a volunteer pick, they earn an $3 credit towards membership renewal – or $20 credit if their pick beats the Bronze Spike pick for that week. Two members scored $20 last week – Pat L and Steve M. Congratulations to all!”There is many a slip between a cup and the lip” – I first heard this phrase in my 20s’. Someone said it to me soon after I discovered the stock market. What brought it to mind today was my performance – or rather non-performance – on my favorite Spike pick for the previous week. As last Sunday went on, I kept turning over Spike picks and decided I liked Susie’s ‘short QSII’ best. I spelled out a trading plan for myself and e-mailed it to Susie. I should have sent it to Mr Market instead! I had a fairly elaborate entry plan, but Mr Market did not know that – it went down from the opening. The missed opportunity rankled me so much that I recorded a video about it – ‘the one that’s got away’ – and posted it on our (free) blog. Take a look and post a comment if you like!What’s next on the market’s agenda? Bet on the bull or the bear?
I have been watching the Madoff affair with morbid fascination. I also bought and am currently reading a book on the original Ponzi scheme some 90 years ago – it is superb, and I will post its review here a few days later.Meanwhile, I just saw the best summary of the ‘affair’ so far in my favorite magazine – The Economist (<a href="http://www.economist.com/">http://www.economist.com/</a>). Here is an excerpt (AE):<strong>"There are no heroes in the Madoff story; only villains and suckers"</strong>On the face of it, the attractions were clear. Mr Madoff’s pedigree was top-notch: a pioneering marketmaker, he had chaired NASDAQ, had advised the government on market issues and was a noted philanthropist. Turning away some investors and telling those he accepted not to talk to outsiders produced a sense of exclusivity. He generated returns to match: in the vicinity of 10% a year, through thick and thin.That last attraction should also have served as a warning; the results were suspiciously smooth. Mr Madoff barely ever suffered a down month, even in choppy markets (he was up in November, as the S&P index tumbled 7.5%). He allegedly has now confessed that this was achieved by creating a pyramid scheme in which existing clients’ returns were topped up, as needed, with money from new investors.He claimed to be employing an investment strategy known as “split-strike conversion”. This is a fairly common approach that entails buying and selling different sorts of options to reduce volatility. But those who bothered to look closely had doubts. Aksia, an advisory firm, concluded that the S&P 100 options market that Mr Madoff claimed to trade was far too small to handle a portfolio of his size. It advised its clients not to invest. So did MPI, a quantitative-research firm, after an analysis in 2006 failed to find a legitimate strategy that matched his returns
Dear Spikers and SpikeTrade Members,Best wishes to ya’ll for the New year. This is the year when the stock market is guaranteed do one of three things: it will either go to hell in a hand-basket, rally into a new bull market, or spend the year meandering in a trading range. Which of the three will it be? During the move to a new slum I have mislaid my crystal ball, but I can tell you what I am determined to do. I expect a lot of cross-currents in the months ahead, and will concentrate on short-term trading, rarely holding a position over a weekend during Q1. I can think of no better place for a short-term trader than in the SpikeTrade. With a wealth of trading ideas coming to us every week from Spikers and SpikeTrade Members, I feel like a kid in a candy store.
Dear Spikers and SpikeTrade Members,Congratulations on an upbeat conclusion of the brutal Q4-2008 and of the entire year. 2008 will be remembered as one of the most eventful years in modern financial history – right up there with the Crash of 1929, the oil embargo of 1974, and the Crash of 1987. The most important thing to remember is that each of those earlier disasters – which caused countless losses and waves of human misery – marked the beginning of a new long-term bull market.The horrendous news are coming at us in an avalanche – the bankruptcies of key banks and even smaller countries, the huge frauds becoming unearthed and leading people to suicides, the future of the entire US auto industry being brought into question. It may be easy to become fearful and depressed – but that would be just the absolutely wrong thing to do! At the bottom of every crash there are fantastic, once-in-a-lifetime opportunities. Together, we will be scouting for those opportunities here in SpikeTrade.com