Gasoline could hit 7 dollars nonsense

Crude supplies are actually lower than some official estimates indicate, while demand is unlikely to fall anytime soon, according to a statement by analysts led by Jeff Rubin at CIBC, an investment bank. They forecast that these tighter supplies and continued strong demand will drive oil and gasoline prices to roughly double their current levels by 2012.
"It is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity," said Rubin. "Despite the recent record jump in oil prices, oil prices will continue to rise steadily over the next five years."

Every time you read such bold prediction you should read Limits to Growth published in 1972, during similar kind of period.

The art of swing trading

The art of swing trading

In 100/200, Double Trouble, Modified Double Trouble, and Top 20 Sector methods the concept is same. We want to capture a slice of a pre existing trend. Understanding that concept thoroughly is the key. If you understand that then the questions about stops will have context.

The concept of swing trading is to trade an upward swing in a stock experiencing a strong uptrend as defined by relative strength or sector stregth. Relative strength is a measure of price trend that indicates how a stock is performing relative to other stocks in the market.

The best points of entry in such stocks are not in the middle of an upward trend, but instead on fresh breakouts after a period of weakness or consolidation. The following figure illustrates this concept: more

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Market Update

Market Monitor: Bullish

* Another 300 plus down day in last 5 days is not a good sign.
* This market has had tough time breaking out of range since January.
* The GE news and other world market reaction (Japan, Hongkong, India down big) will test the market. If the market can rebound from these repeated selling bouts , it will show resiliency.
* The earnings season will continue to be volatile and lighter commitment and more watchful approach.

Note: All new posts now onwards will be on www.stockbee.biz


Economist cover indicator

MTL up 347% in 52 weeks

The steel sector has been leading sector for last 5 years. Many steel stocks were stuck at single digit levels when the 2003 market rally started. Doe 5 years the sector has maintained its leadership.MTL the Russian steel maker is one of the start performer in the sector with a 347% move in last one year.

The top 20 sector stocks continue to attract buyers. Some of the stocks witnessing higher buying pressure from this sector are:

ACGY,Acergy S.A. Ads (Google Yahoo Earnings Chart)
AEZ,American Oil & Gas Inc (Google Yahoo Earnings Chart)
BEXP,Brigham Exploration Co (Google Yahoo Earnings Chart)
CXG,CNX Gas Corp (Google Yahoo Earnings Chart)
CXZ,Crosshair Exploration (Google Yahoo Earnings Chart)
KOG,Kodiak Oil & Gas Corp (Google Yahoo Earnings Chart)
LNG,Cheniere Energy Inc (Google Yahoo Earnings Chart)
MTL,Mechel Steel Group OAO ADS (Google Yahoo Earnings Chart)
NOG,Northern Oil and Gas (Google Yahoo Earnings Chart)
PKD,Parker Drilling Co (Google Yahoo Earnings Chart)
PLLL,Parallel Petroleum Corp (Google Yahoo Earnings Chart)
PRC,Petro Resources Corporation (Google Yahoo Earnings Chart)
RIC,Richmont Mines Inc (Google Yahoo Earnings Chart)
SD,SandRidge Energy (Google Yahoo Earnings Chart)
TMR,Meridian Resource Corp (Google Yahoo Earnings Chart)


Energy sector continues to power forward

Worldwide shortage of coal is leading to dramatic increase in coal prices. The strength in coal sector stocks are reflecting that.
JRCC, James River Coal Company is the price leader in sector. It is up 440% in last one year from its 52 week low.

Stocks from top 20 sectors witnessing buy interest

ACI,Arch Coal Inc (Google Yahoo Earnings Chart)
APWR,A-Power Energy Generation Sys (Google Yahoo Earnings Chart)
BBL,BHP Billiton Plc Ads (Google Yahoo Earnings Chart)
BHP,BHP Billiton Limited ADS (Google Yahoo Earnings Chart)
LAYN,Layne Christensen Co (Google Yahoo Earnings Chart)
MCF,Contango Oil & Gas (Google Yahoo Earnings Chart)
NOG,Northern Oil and Gas (Google Yahoo Earnings Chart)
QMM,Quaterra Resources Inc (Google Yahoo Earnings Chart)


Frothy sectors witness profit taking

  • In recent days market had become a bit frothy with some sector stocks like solar and energy having back to back 4-5 days rallies. So a correction in some of those sector was a possibility as profit taking kicks in.
  • When a move gets going for few days like we witnessed in last 5-6 days, those who did not participate in it, or were positioned for it, at some stage feel the desperate urge to participate. which often tends to be the point of short term reversal.
  • A small period of rally also leads to couple of trades working for a trader and that often leads to overconfidence. Mr. Market then quickly throws in a punch or two to remind who is the boss.
  • From a trade mechanic's point of view, when faced with a unexpected strength like we witnessed yesterday morning, your first instinct should be to lighten up in strength. Stops work poorly in fast markets.
  • As a general observation fast trends tend to climax, slow orderly trends tend to persist.

Stocks from top 20 sector showing buy interest
BCON,Beacon Power Corp (Google Yahoo Earnings Chart)
DVR,Cal Dive Intl Inc (Google Yahoo Earnings Chart)
FDG,Fording Canadian Coal Trust (Google Yahoo Earnings Chart)
GHM,Graham Corp (Google Yahoo Earnings Chart)
GRA,W.R. Grace & Co (Google Yahoo Earnings Chart)
JRCC,James River Coal Company (Google Yahoo Earnings Chart)
NOG,Northern Oil and Gas (Google Yahoo Earnings Chart)
NRP,Natural Resource Partners (Google Yahoo Earnings Chart)
PBT,Permian Basin Royalty Tr (Google Yahoo Earnings Chart)
PCX,Patriot Coal Corp (Google Yahoo Earnings Chart)
QTWW,Quantum Fuel Sys Techworldwide (Google Yahoo Earnings Chart)
REXX,Rex Energy Corp (Google Yahoo Earnings Chart)
SLT,Sterlite Industries (Google Yahoo Earnings Chart)
SPIR,Spire Corp (Google Yahoo Earnings Chart)
STLD,Steel Dynamics Inc (Google Yahoo Earnings Chart)
SUTR,Sutor Technology Group (Google Yahoo Earnings Chart)
WEL,Boots & Coots Intl Well (Google Yahoo Earnings Chart)
WLK,Westlake Chemical Corp (Google Yahoo Earnings Chart)


Top Sector Stocks

Top 20 sectors have had nice run in last few weeks. If rally continues other sectors will join in soon.

CMP,Compass Minerals International (Google Yahoo Earnings Chart)
DESC,Distributed Energy Systems (Google Yahoo Earnings Chart)
ESLR,Evergreen Solar Inc (Google Yahoo Earnings Chart)
FSLR,First Solar Inc (Google Yahoo Earnings Chart)
FSYS,Fuel Systems Solutions Inc (Google Yahoo Earnings Chart)
HYGS,Hydrogenics Corporation (Google Yahoo Earnings Chart)
JASO,Ja Solar Hldgs Co Ads (Google Yahoo Earnings Chart)
KEG,Key Energy Services Inc (Google Yahoo Earnings Chart)
LDK,LDK Solar Co Ltd (Google Yahoo Earnings Chart)
MEE,Massey Energy Company (Google Yahoo Earnings Chart)
MMR,Mcmoran Exploration Co (Google Yahoo Earnings Chart)
MOS,Mosaic Company (Google Yahoo Earnings Chart)
PDE,Pride Internat Inc (Google Yahoo Earnings Chart)
PLUG,Plug Power Inc (Google Yahoo Earnings Chart)
QTWW,Quantum Fuel Sys Techworldwide (Google Yahoo Earnings Chart)
RTK,Rentech Inc (Google Yahoo Earnings Chart)
SIM,Grupo Simec S.A.B De C.V (Google Yahoo Earnings Chart)
SOL,ReneSola Ltd. (Google Yahoo Earnings Chart)
SQM,Sociedad Quimica Chile (Google Yahoo Earnings Chart)
WLK,Westlake Chemical Corp (Google Yahoo Earnings Chart)
XCO,EXCO Resources Inc (Google Yahoo Earnings Chart)


How to put together a trading system

The critical task in trading is to assemble a complete working trading method. involves a step by step approach and once you master that you can put together several systems. Many time members or traders share a concept with me and all I do is put together a working system by using inter changeable parts like entries, exits, entry set ups, exit set ups etc. Think of these as lego blocks. Your task is to assemble them together.

The basic framework for putting a method together is:

Vehicle selection:We need some valid way to select the universe of stocks we would be trading. We want to select the most profitable markets to trade. Because market is dynamic, we want to do this process dynamically as against using a static framework.
Now when it comes to vehicle selection most of the time we use some attribute based model to select stocks. So when we say use earnings+ROE+margin to cull out 100 stocks , it is a three attributes vehicle selection system. Or if we use a one year price growth to select stock then we are using price growth as single attribute to choose vehicle.
There are several factor based models to choose equities. The growth investors choose vehicles based on attributes like earnings, sales, margin, etc. Value investor choose equity based on factors like free cash flow, p/e, p/b, etc. You can choose vehicles based on attributes like market cap, size, trading volume, price, fund ownership, insider buying, year of IPO, country of origin, sector and so on.
We should only select attributes for vehicle selection which will give us most profitable opportunities. Many of these attributes have been studied to death and we know certain attributes like earnings, momentum, neglect work consistently. So we base our methods on that. The CANSLIM method is based on historical study of top 500 performers in market and isolating the attributes which lead to their growth. Boucher method uses a combination of CANSLIM kind of character plus breakaway stock behaviour attributes to choose vehicle. There are potentially thousands of ways to select vehicles. Now this step is very critical because if we select more profitable markets to trade with then, we increase our probability of being profitable. Vehicle selection is also a function of time scale you want to trade. If you are day traders, the attributes you would look for in a vehicle will be a combination of high trading volume, clear direction, large intra day range and enough volatility to make potential trading profits worth the risk and expense of trading. That is the reason many day traders choose stock index or bond futures or currencies to trade.

Entry Selection: Once we select vehicle we select entry method. What kind of entry we want to make on this vehicle. Breakout, pullback, scaled, timed , etc are some of the entry choices we have.
We use a set up to enter. So in IBD 200 and DT we use a set of six conditions. Together when all the six conditions are present, it is our hypothesis and experience that there is an ideal set up for entry. In CANSLIM presence of certain chart patterns is a set up. In earnings breakout , a certain event, neglect and magnitude of earnings growth is a set up.
Again you can put together n number of setups for entries. But the objective should be clear, to enter a properly selected vehicle at the start of a potentially profitable stage. Setups are entry triggers.

Exit Selection: Again exits is a setup. If certain conditions are fulfilled we will exit. Exit strategy has multiple considerations. Your first exit is based on entry setup failure. This helps us protect our trading capital in event of the failure of entry signal. Our second exit is based on meeting our intended profit objective. Now we can add third exit criteria to same trading mix of say 5 day time stop at entry. Now objective of this exit is to avoid dead money. Now if we want to further refine our exit we can design a exit condition saying exit on 20% profit or at end of two weeks, whichever is earlier. Again the objective of such exit is to avoid slow moves. We can take a different approach and design a partial exits. Where we exit 25% of position on 10% profit and move rest of our stop to a trailing exit stop. We can even build more complicated rule based exits to manage risk better.

Risk selection: Once you have the above three elements of trading mix together, then you add risk selection to the mix. Risk selection strategies are designed to manage risk of capital loss, to avoid catastrophic losses, to manage open position risk, to increase returns by use of leverage, or to decrease volatility of returns. This determines how much you will risk per position. How many total positions you will have. What setup conditions will lead to you risking higher amounts or reducing risk. This is again very critical part of your trading mix. One of the reason I developed Market Monitor was to manage fluctuation in returns. Previous to designing MM I used to have wild swings in profits. MM is a risk management setup. So when it is bullish you can increase risk and decrease risk when it signals bearish phases. Similarly on individual positions I use very conservative risk strategy to avoid catastrophic loss. Day traders and short term swing traders typically need to take higher risk per position as they need to maximize returns. Plus because they are micromanaging the trade, they can reduce risk by quick exit.

All these elements of trading mix are equally important and needs to be looked at in totality. When all elements are properly put together, you have a working profitable trading system. The process is iterative and testing and back testing can help you fine tune each element of the mix.

But at some stage, you need to stop that process and trade the system for sometime to understand what really works and why. Excessive fine tuning, is mostly unproductive, and may lead to distraction from trading. Most of the effort in such designing is one time and after that you need to fine tune it from time to time. Setups often deteriorate if lot of people use the same thing or systems become widely known, but basic logic does not change and you can always change setup conditions.


How long will the rally last

  • There was not much of follow through breakouts on second day of the rally.
  • One of the most troubling aspect of this market has been lack of new leadership sectors.
  • The top 10 sector list is full of sectors which are old leaders of rally.
  • Counter trend sector rallies like that in housing are not going to have sustainable leadership and will son run in to trouble.
  • Under such circumstances you have to look for just 5 to 10%moves on breakouts. Many moves are giving back part of the profit intraday, so if you have 5-10% profit, you better lock it in.
  • It is difficult to build bigger positions or to hold positions for larger profit potential.
  • As the earnings season progresses the picture might change, but currently it is still too early to tell how much leg the rally has.


Bottom fishers at play

Market Monitor: Bullish

  • The highest readings on 65 bearish side were in January (1/22/2008), since then market has essentially gone sideways.
  • While attempted rallies have failed so far, same thing has also happened on downside.
  • In the face of steady bad news market has held up well.
  • Considering the kind of scenarios most bearish pundits and media is painting, you see little evidence of that in the market.
  • So there is clearly a divergence between the punditry, sentiment, news, and views and the market.
  • This is the backdrop to this market action.
  • What has happened in last few months is lot of sectors have bottomed out. Look at housing three months ago it was ranked in bottom 20 sector in IBD sector tables, today it is in top 10. Similarly beaten down sectors like financials are where bulk of buying is concentrated.
  • As of now only thing which is working is stocks at or near their 52 week low.
  • Stocks at or near 52 week high breaking out have found little traction. ... more


Understanding Trading Mix

Converting an idea in to trading method or system requires putting all elements of trading mix together. Trading Mix is like the Lego Blocks of trading. They are under your control and once you have the basic framework , you can convert any trading concept in to workable method.

Vehicle selection (equity selection in stock market case)
Entries selection
Exits selection
Risk selection

By putting together the different elements of the trading mix we can overall create a composite trading system. we can test individual element or we can then test the overall mix of elements. I have written about this in my previous post.

Market is ever changing. Market is not predictable. Market is complex. Market offers too many choices. Market is not controllable. But methods are controllable. Methods can be constant irrespective of the market situations. Methods are under traders control. Your trading mix is completely controllable and that is the key to profitability.

In marketing there is a concept called marketing mix. The central hypothesis is that you can not control the consumer behaviour but what you can control is the marketing mix.

So given an idea like say the IBD scans, the next task is to assemble a complete working trading method. Or given a concept like earnings breakout , the next task is to put together a working system. This involves a step by step approach and once you master that you can put together several systems. Many time members or traders share a concept with me and all I do is put together a working system by using inter changeable parts like entries, exits, entry set ups, exit set ups etc. Think of these as lego blocks. Your task is to assemble them together.

The basic framework for putting a method together is (more.....)

Earnings will be in focus

The earnings season has started and as usual might offer long or short opportunities for those focusing on earnings lead strategies. Overall the market continues to be range bound and since January/ February has essentially remained in sideway pattern with sporadic attempts at breakouts or breakdown.

There has been a steady stream of bad news and yet market has not had a washout move. If you read the news and see some of the hyper ventilation by the usual perma bears who have been predicting 50% plus drops since last 3 years plus, you would think the market would be down severely. But at this stage it is just a 20% kind of correction after a 41/2 years of rally. That still looks like a normal bear move post multi year bull move from 2003 bottom. We have extremely high probability of bullish move resumption in later half of the year. Such move is likely to be triggered by earnings trends. Ultimately market looks and often discounts next 2-3 earnings seasons.

With earnings starting to trickle in , revisiting earnings based strategies might be useful for those
If you really apply yourself , you can easily find 5 to 10 very good trades during earnings season. In a tough environment like current one you may find just 5-6 good opportunities. The beauty of earnings trade is it gives you anywhere between 20 to 100% plus returns in few months or sometime days post entry. This is one method if you master, it gives you dividend 4 times in a year. Plus helps you improve your market understanding.

The trick in this is to prepare well in advance and think through what you want to achieve . You have to do all the thinking and planning before earnings season, if you want to trade this method. Bull market, bear market earnings trade works.

How To Trade Earnings
How to trade earnings Part2
How to trade earnings Part3
Earnings and Bulkowski
Improving odds in earnings breakout
Earnings Season- Time to be very careful...
Earnings and Dan Zanger
Earning Surprise System for $1495
Trading Earnings Breakouts
Earnings Acceleration- Long Term Impact
Trading Earnings Breakout -Part1
Trading Earnings Breakouts -Part2
Trading Earnings Breakouts -Part3