A few months ago, our world was stable and your retirement was secure. Today, suddenly, all heck is breaking loose and your future seems like a role of the dice.
A few months ago, Wall Street and Main Street were counting on Fed Chairman Ben Bernanke to protect them from disaster. Now, suddenly, they have awoken to the realization that his efforts have done nothing to end the credit crunch or save the economy ... and have done everything to gut the value of the U.S. dollar.
Just a few months ago, most Americans believed they could count on a dollar to buy a dollar's worth of food, energy and other products. Today, inflation is devouring our buying power at the fastest pace in nearly 30 years - and it's accelerating.
In response, Mr. Bernanke is panicking. He's dishing out hundreds of billions in new "monopoly" money even as we speak. He's getting ready to cut interest rates again. He's gutting the dollar, driving inflation higher. And still, credit markets and the economy are swooning.
Millions of Americans are stunned. And for Wall Street, it's judgment day.
Monday, March 31, 2008
Saturday, March 29, 2008
Hung Out to Dry
The current tightness in the credit markets is no secret. And no move to alleviate the iced-up market is working.
The Federal Reserve has tried every possible fix:
They've slashed their Fed Funds rate by three percentage points in roughly eight months.
They've implemented money auctions through their lending facilities.
They've opened up their discount window to banks and primary institutions, practically accepting a half-eaten peanut butter and jelly sandwich as collateral for loans.
And they've even stepped in on an individual basis to spot JPMorgan Chase on their bailout of Bear Stearns.
But what have they actually accomplished so far?
Lenders are being given access to affordable money, but they're stopping the flow dead in its tracks. Instead of passing that money along to would-be borrowers, they're using it to seal up the holes left from the losses they suffered when an era of irresponsible lending practices came to a grinding halt.
One of the most noticeable changes: The end of blockbuster mergers, acquisitions, and buyouts.
The Federal Reserve has tried every possible fix:
They've slashed their Fed Funds rate by three percentage points in roughly eight months.
They've implemented money auctions through their lending facilities.
They've opened up their discount window to banks and primary institutions, practically accepting a half-eaten peanut butter and jelly sandwich as collateral for loans.
And they've even stepped in on an individual basis to spot JPMorgan Chase on their bailout of Bear Stearns.
But what have they actually accomplished so far?
Lenders are being given access to affordable money, but they're stopping the flow dead in its tracks. Instead of passing that money along to would-be borrowers, they're using it to seal up the holes left from the losses they suffered when an era of irresponsible lending practices came to a grinding halt.
One of the most noticeable changes: The end of blockbuster mergers, acquisitions, and buyouts.
Friday, March 28, 2008
The market for leveraged buyouts is collapsing
Shares of publicly traded buyout firms have collapsed and several mega-deals are falling apart.
The latest: A $19.4 billion deal by Thomas H. Lee Partners LP and Bain Capital Partners LLC to take over radio and billboard advertising firm Clear Channel Communications. It looks like the banks that so eagerly signed up to finance the transaction back in the "anything goes" period are balking at their commitments - so the PE firms are suing them.
Of course, it's easy to see why the banks are fearful: The value of leveraged loans is falling fast. These types of debts have already been marked down by about 15%, according to the Wall Street Journal, meaning the banks would be looking at a hit of a few billion dollars if the deal closed.
Collapsing deals are bad for bank and brokerage earnings. They also drain confidence in the market. Here's something else to think about: One reason the bulls cited for buying stocks in the past few years was the possibility you could catch a buyout bid. After all, private equity firms, loaded with cash and bank lines, were busy taking over companies left and right. We've clearly lost that support.
The latest: A $19.4 billion deal by Thomas H. Lee Partners LP and Bain Capital Partners LLC to take over radio and billboard advertising firm Clear Channel Communications. It looks like the banks that so eagerly signed up to finance the transaction back in the "anything goes" period are balking at their commitments - so the PE firms are suing them.
Of course, it's easy to see why the banks are fearful: The value of leveraged loans is falling fast. These types of debts have already been marked down by about 15%, according to the Wall Street Journal, meaning the banks would be looking at a hit of a few billion dollars if the deal closed.
Collapsing deals are bad for bank and brokerage earnings. They also drain confidence in the market. Here's something else to think about: One reason the bulls cited for buying stocks in the past few years was the possibility you could catch a buyout bid. After all, private equity firms, loaded with cash and bank lines, were busy taking over companies left and right. We've clearly lost that support.
Thursday, March 27, 2008
Use pullbacks in commodities to buy.
Everyone should own ...
Gold through the streetTRACKS Gold Trust (GLD and gold stocks via mutual funds like the Tocqueville Gold Fund (TGLDX).
Oil via the United States Oil Fund ETF (USO), which tracks the price of oil, and a solid oil fund like the Fidelity Select Energy Fund (FSENX).
Diversified natural resources through a fund like U.S. Global Investors Global Resources (PSPFX).
Gold through the streetTRACKS Gold Trust (GLD and gold stocks via mutual funds like the Tocqueville Gold Fund (TGLDX).
Oil via the United States Oil Fund ETF (USO), which tracks the price of oil, and a solid oil fund like the Fidelity Select Energy Fund (FSENX).
Diversified natural resources through a fund like U.S. Global Investors Global Resources (PSPFX).
Wednesday, March 26, 2008
Stagflation
Investopedia.com calls stagflation "a condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation."
Right now, we are looking at a possible scenario in which the economy slows dramatically and, as a double whammy, inflation runs higher than normal. The average fixed-income investment won't keep up with the higher inflation rate, and most stocks will drop in value because of the slower economy.
So how do you invest during a period of stagflation? Very carefully.
During periods of high inflation, natural-resource investing is one of the best ways to outperform the market. Gold, uranium, silver, and other natural resources tend to move higher.
Right now, we are looking at a possible scenario in which the economy slows dramatically and, as a double whammy, inflation runs higher than normal. The average fixed-income investment won't keep up with the higher inflation rate, and most stocks will drop in value because of the slower economy.
So how do you invest during a period of stagflation? Very carefully.
During periods of high inflation, natural-resource investing is one of the best ways to outperform the market. Gold, uranium, silver, and other natural resources tend to move higher.
Monday, March 24, 2008
Day of rest
The U.S. markets were closed for Good Friday, but there was plenty of activity around the globe.
Take a peek at what Asia did on Friday, Japan was up 1.8 percent, Taiwan was up 2.25 percent, and Korea was up 1.37 percent.
But careful. The gains may have ridden the coattails of the 261-point jump in the Dow on Thursday.
Take a peek at what Asia did on Friday, Japan was up 1.8 percent, Taiwan was up 2.25 percent, and Korea was up 1.37 percent.
But careful. The gains may have ridden the coattails of the 261-point jump in the Dow on Thursday.
Friday, March 21, 2008
Self-Repairing Material
Scientists have created artificial rubber that, when cut in two, can join itself together again.
Within an hour of being cut, the rubber's as good as new.
The self-healing is possible because of alterations at the molecular level made by the scientists.
Possible applications include self-repairing seals on pipe fittings and children's toys.
Within an hour of being cut, the rubber's as good as new.
The self-healing is possible because of alterations at the molecular level made by the scientists.
Possible applications include self-repairing seals on pipe fittings and children's toys.
Thursday, March 20, 2008
Trends
Wild, short-term swings in the markets can often be confusing. But through it all, the major trends remain firmly intact:
The Federal Reserve will continue to do everything in its power to prevent a financial meltdown, pumping in fiat money like there's no tomorrow. Accepting more and more forms of weak collateral to lend even more money to the system. Slashing interest rates. And more.
This is inflationary.
The dollar, save a bounce here and there, will continue to decline in value against every major, and almost every minor currency on the planet.
This is inflationary.
China and India's economic growth - despite what you hear and read to the contrary - continues to barrel ahead.
This is inflationary.
Global demand for natural resources remains at record highs in virtually every commodity.
This is inflationary.
Meanwhile, supplies of most major natural resources remain tight as a drum. In oil, in gold, in wheat, in platinum, and more.
This is inflationary.
These are all inflation forces striking the U.S. - all at the same time.
That's despite the fact that real estate remains in a bear market and the country is already deep in a recession.
The Federal Reserve will continue to do everything in its power to prevent a financial meltdown, pumping in fiat money like there's no tomorrow. Accepting more and more forms of weak collateral to lend even more money to the system. Slashing interest rates. And more.
This is inflationary.
The dollar, save a bounce here and there, will continue to decline in value against every major, and almost every minor currency on the planet.
This is inflationary.
China and India's economic growth - despite what you hear and read to the contrary - continues to barrel ahead.
This is inflationary.
Global demand for natural resources remains at record highs in virtually every commodity.
This is inflationary.
Meanwhile, supplies of most major natural resources remain tight as a drum. In oil, in gold, in wheat, in platinum, and more.
This is inflationary.
These are all inflation forces striking the U.S. - all at the same time.
That's despite the fact that real estate remains in a bear market and the country is already deep in a recession.
Wednesday, March 19, 2008
Platinum
South Africa produces 80% of world's platinum. Power shortages in that country cut platinum production by 16% in January. No wonder platinum surged 36% this year through the end of last week.
But the wheel turns, and now the white-hot metal is cooling off big-time. Going forward, it could be in for a precipitous drop.
The demand picture for platinum hasn't changed much since February. What is changing is supply and speculator sentiment.
The South African power utility, ESKOM, says it is coming to grips with the power shortage.
What's more, South Africa is so concerned about the hard times for miners that it may drop plans to impose a royalty tax on mining companies. And lower taxes may encourage higher metal production.
This doesn't affect the short-term outlook on platinum, of course. But it is enough to send skittish hedge funds piling OUT of platinum the same way they piled in just a couple months ago.
And technically speaking, platinum's chart is sounding a big "sell" warning. It broke through support, which then turned into overhead resistance. It has weakness down to about $1,650, and perhaps lower.
Of course, this is only a short-term outlook. Next month, the lights might go off in South Africa again and the government there could decide platinum miners need to pay MORE taxes. And then we can ride the metal higher again.
Because that's the thing about metals - nowadays, even the worst of them is better than the best financial stock!
But the wheel turns, and now the white-hot metal is cooling off big-time. Going forward, it could be in for a precipitous drop.
The demand picture for platinum hasn't changed much since February. What is changing is supply and speculator sentiment.
The South African power utility, ESKOM, says it is coming to grips with the power shortage.
What's more, South Africa is so concerned about the hard times for miners that it may drop plans to impose a royalty tax on mining companies. And lower taxes may encourage higher metal production.
This doesn't affect the short-term outlook on platinum, of course. But it is enough to send skittish hedge funds piling OUT of platinum the same way they piled in just a couple months ago.
And technically speaking, platinum's chart is sounding a big "sell" warning. It broke through support, which then turned into overhead resistance. It has weakness down to about $1,650, and perhaps lower.
Of course, this is only a short-term outlook. Next month, the lights might go off in South Africa again and the government there could decide platinum miners need to pay MORE taxes. And then we can ride the metal higher again.
Because that's the thing about metals - nowadays, even the worst of them is better than the best financial stock!
Monday, March 17, 2008
Depositing Checks From Home
The ATM freed bank customers from having to wait in long lines to deposit checks. And soon, this simple transaction could be taken care of from the comfort of your home. Several banks are considering adopting technology that would allow customers to scan checks with their home computers, and then submit them to the bank over the Internet.
This system - Remote Deposit Capture - has been in widespread use for several years among business clients. A banking services company recently modified it for individuals and has been lobbying banks to adopt the innovation. Check with your bank to see if they offer it.
This system - Remote Deposit Capture - has been in widespread use for several years among business clients. A banking services company recently modified it for individuals and has been lobbying banks to adopt the innovation. Check with your bank to see if they offer it.
Watch Out
And so the games continue: Worry about the damage a growing credit crisis is inflicting on an ailing U.S. economy led the Federal Reserve to make a rare weekend move, lowering a key lending rate before Wall Street opens today.
The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately,and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to Wall Street firms today.
"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.
We all know who will be paying for it in the end though!
Stocks appear headed for a sharply lower open as Wall Street and other global markets were left reeling from JPMorgan Chase & Co.'s buyout of the faltering investment bank Bear Stearns Cos.
Global markets plunged today on news of the Bear Stearns deal with investors struggling to gauge how much worse financial markets could get.
Oil prices hit a record in Asian trading, U.S. stock index futures fell sharply and the dollar hit record lows.
The central bank approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately,and created a lending facility for big investment banks to secure short-term loans. The new lending facility will be available to Wall Street firms today.
"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.
We all know who will be paying for it in the end though!
Stocks appear headed for a sharply lower open as Wall Street and other global markets were left reeling from JPMorgan Chase & Co.'s buyout of the faltering investment bank Bear Stearns Cos.
Global markets plunged today on news of the Bear Stearns deal with investors struggling to gauge how much worse financial markets could get.
Oil prices hit a record in Asian trading, U.S. stock index futures fell sharply and the dollar hit record lows.
Saturday, March 15, 2008
Under Siege
Today's regular unleaded gas price is more than double the price back in February 2001 - $3.14 versus $1.41. Ouch! And when you think about the fact that household debt as a percentage of GDP has grown to over 100%, from roughly 70% in 2001, the picture looks even uglier.
As we see it, the dollar's precipitous decline grows scarier by the day. And the worst part: Rarely do we hear that the dollar is oversold, undervalued or due for a correction.
Unfortunately, nothing seems set to change that. It becomes a game of wait-and-see; wait-and-see how long before the U.S. economy improves and when (or if) the Federal Reserve will alter their course.
When we study all the different elements at play across the board, we believe we are witnessing a currency under siege. Until and unless either the U.S. economic fundamentals improve or the Feds stop their unabated assault on the dollar, upward price action leading to any kind of sustained rally will probably be blocked.
As we see it, the dollar's precipitous decline grows scarier by the day. And the worst part: Rarely do we hear that the dollar is oversold, undervalued or due for a correction.
Unfortunately, nothing seems set to change that. It becomes a game of wait-and-see; wait-and-see how long before the U.S. economy improves and when (or if) the Federal Reserve will alter their course.
When we study all the different elements at play across the board, we believe we are witnessing a currency under siege. Until and unless either the U.S. economic fundamentals improve or the Feds stop their unabated assault on the dollar, upward price action leading to any kind of sustained rally will probably be blocked.
Friday, March 14, 2008
Recession is here.
A WSJ survey shows 71% of the 51 economists surveyed say the U.S. has already slid into recession.
Key forecasts: Economic growth in Q1 will be just 0.1%, adding another 0.4% in Q2; 47% think a current recession will be worse than the 2001 and 1990-91 downturns; the economy will add less than 5,000 jobs/month over the next year; home prices will fall 5.3%; Bernanke has a 59% chance of being reappointed in 2010.
Key forecasts: Economic growth in Q1 will be just 0.1%, adding another 0.4% in Q2; 47% think a current recession will be worse than the 2001 and 1990-91 downturns; the economy will add less than 5,000 jobs/month over the next year; home prices will fall 5.3%; Bernanke has a 59% chance of being reappointed in 2010.
Thursday, March 13, 2008
Be wary
Regasification is the process by which liquefied natural gas is changed back into gaseous natural gas.
Why is this important? It allows countries to import its natural gas from anywhere in the world. Look at the sharp increase in the LNG regasification capacity for North America. This growth will be centered in the United States, which is expected to account for nearly 381 billion cubic meters of imports a year.
The U.S. has seen its natural gas production flatline over the past couple years. We've been relying more and more on imports from Mexico and Canada. These new regasification plants will open up the playing field and make the U.S. a global competitor for world natural gas supplies.
But here's the thing: The U.S. is building these plants at a faster rate than it expects to import LNG. In other words, there will be a glut in the U.S. market -- not of natural gas, but of capacity. That's not good for LNG companies building these plants when 85% of that capacity will be lying idle.
Be wary of buying any hard-core LNG company building strictly here in North America, like Cheniere Energy, Inc. (LNG), for example. In fact, we're already seeing weakness: The company reported earnings last Friday with net income dropping almost 22% quarter over quarter.
Why is this important? It allows countries to import its natural gas from anywhere in the world. Look at the sharp increase in the LNG regasification capacity for North America. This growth will be centered in the United States, which is expected to account for nearly 381 billion cubic meters of imports a year.
The U.S. has seen its natural gas production flatline over the past couple years. We've been relying more and more on imports from Mexico and Canada. These new regasification plants will open up the playing field and make the U.S. a global competitor for world natural gas supplies.
But here's the thing: The U.S. is building these plants at a faster rate than it expects to import LNG. In other words, there will be a glut in the U.S. market -- not of natural gas, but of capacity. That's not good for LNG companies building these plants when 85% of that capacity will be lying idle.
Be wary of buying any hard-core LNG company building strictly here in North America, like Cheniere Energy, Inc. (LNG), for example. In fact, we're already seeing weakness: The company reported earnings last Friday with net income dropping almost 22% quarter over quarter.
It hit $1000
Gold hit a record high of $1,000 an ounce today, fueled by a combination of a weakening dollar, strong investment demand and inflation fears due to rising crude oil prices.
Dollar dives.
The dollar fell to 12-year lows against the yen, dropping to less than 100 yen, and hit record lows against the euro, as Asian/European markets and U.S. equity futures dived in overnight trading , raising concerns of more turmoil in the financial markets.
"Investors are getting out of dollar assets and this is going to lead to a dollar crash," a Tokyo currency manager said.
On four previous occasions since 1995, Japanese authorities have sold the yen when it approached the 100 mark to support its country's exports.
"Investors are getting out of dollar assets and this is going to lead to a dollar crash," a Tokyo currency manager said.
On four previous occasions since 1995, Japanese authorities have sold the yen when it approached the 100 mark to support its country's exports.
Wednesday, March 12, 2008
Stocks - Bearish Feeding Pattern
The stock market is facing multiple problems including a slowing economy, housing bubble implosion, credit crisis infection and deteriorating earnings for many sectors.
Let's take a closer look at corporate earnings, the engine that drives Wall Street. Earnings per share for the S&P 500 declined 4.2% in 2007. This happened despite the fact that most analysts had a positive outlook for the year at the end of 2006.
Many analysts expect earnings for the S&P 500 to recover in the second half of 2008. You can see how much investors trust this outlook by the S&P 500's chart action. Look at the monthly chart ...
You can see how the S&P 500's sell-off right now looks very similar to the one in 2000-2001 and 2007-2008 (so far). Both patterns show a choppy top followed by an extended sell-off.
Why is this important? Well, chart patterns often repeat themselves because investors tend to repeat their mistakes.
That means if the S&P 500 does repeat history, it could go as much as another 40% to the downside!
Now, not all sectors are performing the same. Financials are getting pummeled mercilessly while the energy sector looks like it's still in a bull market. But there's plenty to indicate the broad market could go lower in a sell-off that could last a long time.
Let's take a closer look at corporate earnings, the engine that drives Wall Street. Earnings per share for the S&P 500 declined 4.2% in 2007. This happened despite the fact that most analysts had a positive outlook for the year at the end of 2006.
Many analysts expect earnings for the S&P 500 to recover in the second half of 2008. You can see how much investors trust this outlook by the S&P 500's chart action. Look at the monthly chart ...
You can see how the S&P 500's sell-off right now looks very similar to the one in 2000-2001 and 2007-2008 (so far). Both patterns show a choppy top followed by an extended sell-off.
Why is this important? Well, chart patterns often repeat themselves because investors tend to repeat their mistakes.
That means if the S&P 500 does repeat history, it could go as much as another 40% to the downside!
Now, not all sectors are performing the same. Financials are getting pummeled mercilessly while the energy sector looks like it's still in a bull market. But there's plenty to indicate the broad market could go lower in a sell-off that could last a long time.
Tuesday, March 11, 2008
KGC - Kinross Gold Corp.
In the last two weeks it broke to new highs on very high volume and a strong stochastic buy signal.
A pullback to the 50-day moving average could provide an excellent opportunity to initiate a position or add to a current position, since the trading target now appears to be close to $30.
A pullback to the 50-day moving average could provide an excellent opportunity to initiate a position or add to a current position, since the trading target now appears to be close to $30.
A short?
ARGN offers a compelling short opportunity because investors are incorrectly valuing the potential of ARGN’s R&D efforts and future product pipeline. ARGN has only one commercial product which is the CCS, using the most generous multiple possible, we estimate this business is worth $8 per share yet the stock trades at $18.20 which means that 56% of the market cap is attributed to ARGN’s product pipeline.
The short opportunity is that the technology in the pipeline is impractical and unlikely to be economically worthwhile. In addition, ARGN sells into the very challenging auto industry where their customers (OEMs) have a lot of power over suppliers and volumes are unlikely to see meaningful growth. Finally, ARGN is highly exposed to GM and Ford auto volumes and there has been heavy insider selling lately.
The short opportunity is that the technology in the pipeline is impractical and unlikely to be economically worthwhile. In addition, ARGN sells into the very challenging auto industry where their customers (OEMs) have a lot of power over suppliers and volumes are unlikely to see meaningful growth. Finally, ARGN is highly exposed to GM and Ford auto volumes and there has been heavy insider selling lately.
Monday, March 10, 2008
Chesapeake Energy
Chesapeake Energy has risen more than 20% since the end of January and hit an all-time high.
CHK shares have been driven mostly by the rally in natural gas prices and strength in the energy sector. Short interest has been increasing, as some investors are betting on a pullback, yet the CEO has been taking the other side of the trade buying more shares.
Natural gas is on an upward trend and may find a higher sustained price range.
CHK shares have been driven mostly by the rally in natural gas prices and strength in the energy sector. Short interest has been increasing, as some investors are betting on a pullback, yet the CEO has been taking the other side of the trade buying more shares.
Natural gas is on an upward trend and may find a higher sustained price range.
Sunday, March 9, 2008
The First Half Hour Of Trading Can Be Dangerous To Your Trading Account!
We once wrote a little piece about keeping your losses to a minimum since letting a losing trade get wildly out of hand will cost you dearly. So we got a question we'd like to share with you:
"I agree with your concept of bailing out of a trade quickly before it snowballs into something ugly. I think that is why we use stops. But I have a question about that. What do you do if you buy a stock on Monday and it ends the day right about where you bought it. But then Tuesday it opens down 50 cents and falls from there, hitting your stop. Do we let the stop take over?"
What a good question and the answer is going to need some explanation. We don't usually like to get too involved with the first half hour of trading. It's that first opening 40 minutes of trading where the overnight market orders are getting processed, where the morning's economic data is getting "knee jerked around" and overall it's usually a good time to avoid.
So, what does one do when a stock opens the next day and it's at your stop? In general terms the best thing to do is ignore your stop. Why? Again, the market is at it's most volatile during that open, and more times than not the first few moves are not indicative of what's going to happen for the course of the day. Even if it is, we usually see a decent bounce once the initial move takes place.
In other words, let's use an example. You buy XYZ on Friday. You pay 20 for it. But Friday night it closes at just 20.02. You had set a tight stop at 19.70 . So, Monday morning we see themarket's in a bit of a funk, the futures are a bit red, and sure enough XYZ opens at 19.70 and starts inching lower. In 5 minutes it's 19.60. If you honored your stop, you just lost 30 cents.
Now let's say it's going to be a bad day. After trading down to 19.60 XYZ bounces and gets to 19.90 but then starts fading. The market is soggy. It's now 10:10 am and XYZ is sliding back down. If it hits 19.70 we'd take it off the table and bail. Yes, you took a loss, but it's just 30 cents and at the end of the day GLXX is at 19.50. You did well.
Now let's say that instead it's the kind of day where the morning's funk wears off. Again, you bought at 20 its opening at 19.70 it trades down to 19.65 and then "levels out". By 10:10 the market is perking up. The DOW just went green. The NASDAQ is perking up. XYZ is now 19.85 and inching higher. You hold it and find that when the final bell rings, XYZ is at 20.15. You won.
The key was to not get stopped out at the open in either case. When a market opens sour and we're already underwater at the opening bell, we take the mechanical stops off. We want to see if it's really going to be a bad day, or if it's just morning funk, and you cannnot know that until some time passes. Certainly you don't want this to get out of hand! We mean if it opens at your stop and then ten minutes later it's down to say 19.40, we'd probably sell the first meaningful bounce and wonder what the heck went wrong! But you understand what we are saying. We rarely if ever will sell out at the open. You can usually "do better" by waiting for a bounce, and there's always a bounce.
If the bounce holds and the market is warming, chances are you'll end up back in the green or at least, down just pennies. It's not easy to watch, but getting taken out on a gap down will usually find yourself kicking yourself.
Subscribe to the Stocks2Watch Newsletter now to receive tips, tricks and techniques for trading.
Just send a blank email to: stocks2watch@sendfree.com
"I agree with your concept of bailing out of a trade quickly before it snowballs into something ugly. I think that is why we use stops. But I have a question about that. What do you do if you buy a stock on Monday and it ends the day right about where you bought it. But then Tuesday it opens down 50 cents and falls from there, hitting your stop. Do we let the stop take over?"
What a good question and the answer is going to need some explanation. We don't usually like to get too involved with the first half hour of trading. It's that first opening 40 minutes of trading where the overnight market orders are getting processed, where the morning's economic data is getting "knee jerked around" and overall it's usually a good time to avoid.
So, what does one do when a stock opens the next day and it's at your stop? In general terms the best thing to do is ignore your stop. Why? Again, the market is at it's most volatile during that open, and more times than not the first few moves are not indicative of what's going to happen for the course of the day. Even if it is, we usually see a decent bounce once the initial move takes place.
In other words, let's use an example. You buy XYZ on Friday. You pay 20 for it. But Friday night it closes at just 20.02. You had set a tight stop at 19.70 . So, Monday morning we see themarket's in a bit of a funk, the futures are a bit red, and sure enough XYZ opens at 19.70 and starts inching lower. In 5 minutes it's 19.60. If you honored your stop, you just lost 30 cents.
Now let's say it's going to be a bad day. After trading down to 19.60 XYZ bounces and gets to 19.90 but then starts fading. The market is soggy. It's now 10:10 am and XYZ is sliding back down. If it hits 19.70 we'd take it off the table and bail. Yes, you took a loss, but it's just 30 cents and at the end of the day GLXX is at 19.50. You did well.
Now let's say that instead it's the kind of day where the morning's funk wears off. Again, you bought at 20 its opening at 19.70 it trades down to 19.65 and then "levels out". By 10:10 the market is perking up. The DOW just went green. The NASDAQ is perking up. XYZ is now 19.85 and inching higher. You hold it and find that when the final bell rings, XYZ is at 20.15. You won.
The key was to not get stopped out at the open in either case. When a market opens sour and we're already underwater at the opening bell, we take the mechanical stops off. We want to see if it's really going to be a bad day, or if it's just morning funk, and you cannnot know that until some time passes. Certainly you don't want this to get out of hand! We mean if it opens at your stop and then ten minutes later it's down to say 19.40, we'd probably sell the first meaningful bounce and wonder what the heck went wrong! But you understand what we are saying. We rarely if ever will sell out at the open. You can usually "do better" by waiting for a bounce, and there's always a bounce.
If the bounce holds and the market is warming, chances are you'll end up back in the green or at least, down just pennies. It's not easy to watch, but getting taken out on a gap down will usually find yourself kicking yourself.
Subscribe to the Stocks2Watch Newsletter now to receive tips, tricks and techniques for trading.
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Another Day Of Working With This Volatility
A lot of people wonder how in the world to make a trade in a market where choppy mood swings are an every day event. When this happens, instead of blindly throwing money at a stock you think should run, you have to take into account what "could" happen if you are on the wrong side of a huge drop.
What is the average trader to do? Well, during the worst volatility, sitting out is probably the wisest choice because you can get so whipsawed it makes your head spin. But if you are one of the personality traits that says "I'll conquer this volatility and anything else that gets in my way," here are some suggestions to help you do just that. First realize that every average and every stock has a "trading range" that it goes through every day. For some issues it's only a 1/2 point, but on some issues it can be much more. It becomes very necessary for you to look at some charts and get a feel for how much your stock ranges in the course of normal trading before you can identify a move that is "outside" its "normal" course. So what do you do about that "abnormal" move? Do you sell in fear, or hold and hope? Here is a tip for you that may help. Unless a stock has some fundamental reason to move higher such as a news release, a stock split, an upgrade, etc. it will pretty much behave in step with the overall market. A "good stock" in the tech sector may be up nicely and moving well with the NASDAQ up 20 points, but if the NASDAQ tanks, you can bet your stock will too. So, your tech stock that is now down outside the "normal range" could certainly be there because the NASDAQ as a whole is now down 40 points. Now the question really isn't "what's wrong with my stock" because the answer is nothing, the question is "what's wrong with the NASDAQ?"
This is where technical analysis actually becomes important and learning to spot support levels comes in. Let's say that your tech stock that just took a beating has good support at a certain level. If the move down hasn't violated that support level, keeping the trade in play probably isn't a bad idea since chances are the NASDAQ will have a move to the upside and bring your stock back up with it. But, if the loss violates that support level, bailing out may be the best choice since so many buy/sell programs are based on resistance and support that it could cause even more damage to the issue.
On the other hand, if the stock you were in was a pure momentum play and support is several points below, it is often wisest to cut your loss quickly and get out while you can. When a momentum stock gets pulled back outside it "normal" range, it is often a bad sign, no matter what the averages are doing. So, in times of big volatility, knowing where technical support levels are in your particular stock, will often help you decide if you are still "okay" or about to get creamed. Learn the basics of reading a chart and study them so you can recognize support and resistance in a heartbeat, they will ultimately help you a lot!
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What is the average trader to do? Well, during the worst volatility, sitting out is probably the wisest choice because you can get so whipsawed it makes your head spin. But if you are one of the personality traits that says "I'll conquer this volatility and anything else that gets in my way," here are some suggestions to help you do just that. First realize that every average and every stock has a "trading range" that it goes through every day. For some issues it's only a 1/2 point, but on some issues it can be much more. It becomes very necessary for you to look at some charts and get a feel for how much your stock ranges in the course of normal trading before you can identify a move that is "outside" its "normal" course. So what do you do about that "abnormal" move? Do you sell in fear, or hold and hope? Here is a tip for you that may help. Unless a stock has some fundamental reason to move higher such as a news release, a stock split, an upgrade, etc. it will pretty much behave in step with the overall market. A "good stock" in the tech sector may be up nicely and moving well with the NASDAQ up 20 points, but if the NASDAQ tanks, you can bet your stock will too. So, your tech stock that is now down outside the "normal range" could certainly be there because the NASDAQ as a whole is now down 40 points. Now the question really isn't "what's wrong with my stock" because the answer is nothing, the question is "what's wrong with the NASDAQ?"
This is where technical analysis actually becomes important and learning to spot support levels comes in. Let's say that your tech stock that just took a beating has good support at a certain level. If the move down hasn't violated that support level, keeping the trade in play probably isn't a bad idea since chances are the NASDAQ will have a move to the upside and bring your stock back up with it. But, if the loss violates that support level, bailing out may be the best choice since so many buy/sell programs are based on resistance and support that it could cause even more damage to the issue.
On the other hand, if the stock you were in was a pure momentum play and support is several points below, it is often wisest to cut your loss quickly and get out while you can. When a momentum stock gets pulled back outside it "normal" range, it is often a bad sign, no matter what the averages are doing. So, in times of big volatility, knowing where technical support levels are in your particular stock, will often help you decide if you are still "okay" or about to get creamed. Learn the basics of reading a chart and study them so you can recognize support and resistance in a heartbeat, they will ultimately help you a lot!
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Just send a blank email to: stocks2watch@sendfree.com
3 Great Ways to Play Splits:
3 Great Ways to Play Splits:
There are actually five ways to play stocks that are splitting, but we wanted to highlight the three most profitable ways for you. They are not necessarily good for day trading, but often daytraders will veer off course a little and make some hansome profits playing stock splits. You should consider doing it also. Now here are the three ways we like to play splitters:
AFTER THE SPLIT ANNOUNCEMENT
Often times, the stock will develop a pattern of dropping back three to ten days after the announcement. This provides you with an opportunity to take advantage of the split announcement. If you are playing calls this is when you buy what they call “ dipping undervalued calls “. Many times you will have 2-4 chances to make this play before the stock actually splits. Just make sure you carefully observe the chart patterns to confirm that the stock is pulling back and that there is a turn back to the upside. Establish your exit points by looking at the prior highs.
PAY DATE
Historically, this play has very high odds of success and profit. If you are playing options, this play has you buying the stock or option the day before the split. Pay careful attention to the stock pattern during the week of the stock split pay date. Hopefully, you should be observing an upward pattern or at least a sideways channeling. Your best odds are to hold the option throught the split ( note: you will now have twice as many options since they also split ). Sell your options within 2-3 days of the split, your odds are better if you purchase the closest month of the “ out-of-the-money “ call.
And please remember that there will always be other plays, so if the stock is tanking one or two days before the pay day, don’t play it! Wait for the next one to come along that meets these guidelines.
POST SPLIT PLAY
Usually, the leaders in their industry group, such as Dell Computer, Intel and Microsoft, those companies that we the general public and trading institutions most easily recognize, have a greater chance of moving upward than those that do not split.
Here again, observe the charts for a long dip and profit taking before you buy long term “in-the-money” options. If you already own the stocks you can write ( sell ) “out-of-the-money“ calls to collect premiums and have good odds of being “called out“ with a nice capital gain.
Now suppose your stock gets upgraded as it is going into a split, how to you play that?
Well, upgrades react very much like split announcements in their pattern of behavior. Generally on the day of the upgrade they soar. This MIGHT last into the next day, and then they pullback on profit taking. After a few days of consolidation, and if some fund money starts to show up, they begin climbing and can go for quite a few points. Use this concept after they have started heading back up and you can capture some nice plays!
Use only upgrades and initiates from the major institutions. They are the ones that carry the most weight when they upgrade a stock.
Subscribe to the Stocks2Watch Newsletter now to receive tips, tricks and techniques for trading.
Just send a blank email to: stocks2watch@sendfree.com
There are actually five ways to play stocks that are splitting, but we wanted to highlight the three most profitable ways for you. They are not necessarily good for day trading, but often daytraders will veer off course a little and make some hansome profits playing stock splits. You should consider doing it also. Now here are the three ways we like to play splitters:
AFTER THE SPLIT ANNOUNCEMENT
Often times, the stock will develop a pattern of dropping back three to ten days after the announcement. This provides you with an opportunity to take advantage of the split announcement. If you are playing calls this is when you buy what they call “ dipping undervalued calls “. Many times you will have 2-4 chances to make this play before the stock actually splits. Just make sure you carefully observe the chart patterns to confirm that the stock is pulling back and that there is a turn back to the upside. Establish your exit points by looking at the prior highs.
PAY DATE
Historically, this play has very high odds of success and profit. If you are playing options, this play has you buying the stock or option the day before the split. Pay careful attention to the stock pattern during the week of the stock split pay date. Hopefully, you should be observing an upward pattern or at least a sideways channeling. Your best odds are to hold the option throught the split ( note: you will now have twice as many options since they also split ). Sell your options within 2-3 days of the split, your odds are better if you purchase the closest month of the “ out-of-the-money “ call.
And please remember that there will always be other plays, so if the stock is tanking one or two days before the pay day, don’t play it! Wait for the next one to come along that meets these guidelines.
POST SPLIT PLAY
Usually, the leaders in their industry group, such as Dell Computer, Intel and Microsoft, those companies that we the general public and trading institutions most easily recognize, have a greater chance of moving upward than those that do not split.
Here again, observe the charts for a long dip and profit taking before you buy long term “in-the-money” options. If you already own the stocks you can write ( sell ) “out-of-the-money“ calls to collect premiums and have good odds of being “called out“ with a nice capital gain.
Now suppose your stock gets upgraded as it is going into a split, how to you play that?
Well, upgrades react very much like split announcements in their pattern of behavior. Generally on the day of the upgrade they soar. This MIGHT last into the next day, and then they pullback on profit taking. After a few days of consolidation, and if some fund money starts to show up, they begin climbing and can go for quite a few points. Use this concept after they have started heading back up and you can capture some nice plays!
Use only upgrades and initiates from the major institutions. They are the ones that carry the most weight when they upgrade a stock.
Subscribe to the Stocks2Watch Newsletter now to receive tips, tricks and techniques for trading.
Just send a blank email to: stocks2watch@sendfree.com
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