Just buy the dips

Till they stop working. Momentum persists and yet another shakeout followed by dip buyers enthusiastically bidding up equities. As I have said before when repeated attempt at making a high fail or once shorts get shaken out repeatedly, is when the market will reveal its true intention.

While the dip buyers were active yesterday, number of market leaders and high momentum stocks, or stocks which lead healthy advances, or stock with outstanding earnings are not the one necessarily finding the bid. When Gold, silver, GE, C and the likes lead the market, I find little to be enthusiastic about. Anyway I will be looking at most opportunities post new year.

In new year the market will turn its attention to the upcoming earning season and then again you will find opportunities on both long or short side as stocks breakout or breakdown in anticipation or post earnings. The earnings are projected to slow down. This is the difference between last earning season and this one. That was one of the reason, I was bullish heading in to last earning season. There are some sectors which however are projected to have accelerated earnings and you should keep an eye on them.

Many of you have emailed me asking how is scan different from a conveyor belt and other questions related to the conveyor belt metaphor I used yesterday, while I have responded to some specifics, I will make a more detailed post later sometime today to give some examples of kind of things I have researched. Those examples should give you enough hints to possible directions on setting your own trading conveyor belt.While I try and respond to most emails I receive individually, in this case most questions are similar, so if the post does not answer your question, you can email with more specific questions.

What works for me may not work for everyone. Each trader must find his own nirvana.

Round up of some interesting things

Merger Mania:

The total value of takeovers across the world has reached $3,611bn (£1,836bn) this year, higher than during the dotcom bubble, according to new figures.

This is a bearish sign. Merger tend to happen at bullish extremes. But that alone is no reason to be bearish.

Earnings surprise
I visit this page everyday. Earnings drive prices. Surprises are even better. Another good source of earnings is Starmine, When analyst raise estimates it can be bullish. There is more to it than just that, you can find more about the Starmine methodology on their site and also sign up for free newsletter. It has some good profitable ideas.

Bonus Nightmare for some

The bonus pool is the largest ever doled out by a Wall Street firm. Inevitably, jealous rivals want similar sums, so stories abound of fits of pique and resentment — hence, the “Goldman problem”.
One London banker said: “This Goldman stuff has caused us a nightmare. Suddenly I’ve got a row of 25-year-olds outside my door telling me that if they get £200,000 it’s not enough. We’re not even announcing bonuses yet — it’s extraordinary. They know it’s far more than their parents earned over a period of years but there’s still this culture of jealousy.”

Most profitable trade in Goldman's history

Goldman has made much of its extra profits by trading on its own account — rather than by using the traditional bank model of trading for other people and then taking a share of the profit.

The bank made $1.3 billion in a single trade this year. For decades Goldman has been cultivating contacts in China. In April the bank invested $2.6 billion in Industrial and Commercial Bank of China; when ICBC went public in October the investment was valued at $3.9 billion. It is believed to be the largest single gain on an investment Goldman has made since it opened its doors in 1869.

The last time western capitalists pulled off a trade this profitable in China “they were selling opium”, wrote Trader Monthly, a magazine that chronicles the lives of the financial elite.

Culture of negativity and Barry Ritholtz

More people are realising that popularity in blogosphere is a function of how bearish you are or how persistently wrong you are in analysing markets or your ability to generate conspiracy theories.

A problem in this exercise is that some pundits are good debaters. They quickly find some argument that has a superficial plausibility (e.g. The government is manipulating the data) which resonates with many active traders, most of whom did not take a course in political science or quickly forgot it! The average person's knowledge of government is basically zilch, which is why they know more about The Three Stooges than the three branches.

Any investor or trader who is more sophisticated in the understanding of government organization, the institution of the Fed, how research is conducted, and what to expect from data has a real market edge.

With this background in mind, I read with some astonishment a recent post by Barry Ritholtz. Barry claims that since he knows about cognitive bias, he is beyond this problem. He writes as follows:

My saving grace is that I at least recognize these biases, which gives me a fighting chance to see reality without all these filters. That's why I am so keen on looking past the headline data and taking apart the details beneath.

I find this amazing since Barry does not really do what he says. My impression of his analysis is that he posts, uncritically, any link that supports his bearish view. He attempts to tear apart any number that conflicts with this view. This is an empirical question. One could look at his blog and analyze the posts to see if my impression is correct. If my staff has time, we might do this. Barry could also do this in his forthcoming year-end analysis.

I want to be perfectly clear in setting this forth. I respect Barry and I am delighted at his success in building a blog that gets major attention and getting media coverage. He is approaching many problems in the right way. I just think he is reaching the wrong conclusions. The popularity of his blog, as well as the attention to Roubini, and other bears like Doug Kass is part of the current climate of negativity.

See my earlier post on this ' Don't follow an analyst unless you understand Cognitive Dissonance'

GMI: 6; No longer long stocks

Failure of new highs to hold up is a sign of market weakness. Only 37% of the Nasdaq 100 stocks advanced, along with 57-60% of the S&P 500 and Dow 30 stocks. The Nasdaq 100 stocks are clearly lagging. Only 49% of them closed above their 30 day averages, the lowest percentage since this rally began in mid-August, and well down from a peak of 88% reached in October. The IBD 100 list from 12/18 did better on Tuesday, 54% of them advanced and 72% remain above their 30 day averages. RIMM fell on Tuesday, but GOOG and AAPL bounced.......

I am sorry, but I don't like this market and I have told you I am a chicken. It has been 17 days since the QQQQ hit a recovery high, the longest such stretch since this up-turn began in mid-August. Tuesday was the 86th day of the current up-trend in the QQQQ. The MACD for the QQQQ continues to decline. I am out of all of my longs, and holding a small pilot position in the QID. QID will rise if the QQQQ declines. Meanwhile, I will earn 5% interest in a money market fund as I wait for a clear trend.

One of the blogs I visit daily. I like his very focused and well thought out approach. Lots to learn from his approach and trades.

Cartoonist for a month

My name is Evan and I like to do different things each month and then write about them on the Internet. Some are more interesting than others. For November, I only ate $1 worth of food each day. For December, I'm drawing a web comic each day.