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Needs to break the range

Posted on 5/31/2011
For last 4 months market is range bound. It is trading nears its recent 6 month high but has had trouble breaking to the upside decisively. The downside moves have been sharp and they have been followed by 8 to 10 days bounces which have petered out.

What we need at this stage is a big breadth supported bounce. If that happens then market might rally for few weeks.

The sideways market is creating some nice sideways bases in many stocks, all that is needed is one push higher. 

Reflex bounce a possibility

Posted on 5/24/2011

The market has witnessed multiple down days in last 15 trading sessions, but it still is down only around 3% from top.
Three back to back up days or down days have been rare in the last 15 days. Yesterday there was no follow through selling, so likely scenario today is bounce.
As I talked about it in my last night video, the selling so far has not been aggressive and many stocks are holding up well and some are setting up nicely for up move.
What this market needs is a breadth thrust. For that a catalyst will be needed. As of now there is no catalyst for upside breakout. The European debt trouble is possible downside catalyst.
In last 4 months the market has had lot to worry about. The Middle East revolution, Japanese Earthquake, US debt downgrade, and now Europe debt worries, but every time it has jumped back from those worries.
Sentiments have moved from extreme bullish to bearish in few months. So all in all it is a volatile range. You have to look at one day at a time.

Market is stuck in a wide range just near recent high

Posted on 5/23/2011

Another week goes by but the story remains same. Market is stuck in a wide range just near recent high.
Both camps can not find enough momentum. Selling does not have sustained follow through. Buying does not have follow through. So from day to day we gyrate up and down.
Today we are starting with a overseas weakness. So let us see if the bears can pressure the tape.




Legend
Price , green candles = breadth thrust 2 plus
tiny lines running along x axis of price pane, green 300 plus day, red 300 down day
yellow & aqua 13/34 difference
green & red 25/65 difference
bottom pane, breadth thrust, green is above 2,red is below 0.5
From a   Stockbee member

LNKD: Should you buy an IPO on first day

Posted on 5/19/2011

The rush to buy IPO on first day in after market by some retail investor is often a foolish bet. Most of the time the strategy is likely to fail. There is very good reason for that. IPO's are allocated to select few funds and individuals. They waste no time in flipping them and selling them in open market once the IPO opens for trading.
The new issue fizzle is a well known phenomenon. There is substantial and overwhelming evidence that shows that IPO under perform the market both in the short run and long run. This is extensively documented fact but Wall Street underwriters would like you to believe that investing in IPO's is good strategy. After all their business depends on finding bag holders for failed IPO's.
Very few IPO's make it over the long run, most fizzle out. How many IPO's from dot com era have survived. How many IPO's from housing boom era have survived? How many IPO's from the ethanol mania phase have survived. IPO's are like fads they last for short period of time.
There is a sure shot way to make money on IPO if you can get the shares at offer price. Offer price is the price set by underwriters and issuing company for IPO before it starts trading. Research shows that on an average a IPO is 15% under priced. Research shows that over last 15 years, the share price of a typical IPO rose 15% on first day of trading from offer pricejcboe.
Flipping an IPO is virtually free money for big institutions, select few wealthy individuals, hedge funds and Wall Street insiders. You need a fat account running in multi millions with leading broker like Goldman Sachs, Merrill Lynch, Morgan Stanley, Credit Suisse etc to be part of this money making racket.
Underwriters of IPO systematically under price IPO to make it easier for them to market the IPO and lower their risk to minimum. Under pricing assures that issue will be fully subscribed and the underwriting firm will not have to support the issue. If issue fails underwriters have capital loss.
In practice what this means is those lucky enough to get IPO shares at offer price quickly sell their holding on first day.This depresses the price post IPO. If you understand this you will understand that in vast majority of cases buying IPO in open market on first day is the most foolish thing you can do (but there was a period when the strategy worked it was during dotc com boom).
Unless the market is in mania stage buying IPO on first trading day has no edge. The typical path most IPO will follow post IPO is slow bleed as the IPO's are passed on from sophisticated investors to unsophisticated bag holders. Hot IPO's where investors think they are sure bets tend to perform the worst after IPO. Remember when CBOE IPO came it was touted as very hot IPO. What happened post IPO? GM IPO was very hot. What happened.
Wait for an IPO to setup after debut. Let the flipping phase be over and then you can find opportunities in IPO when they breakout after forming a base. Rushing to buy an LNKD  on first day is not necessary. But marketing hype is hard to resist and people do not want to follow good advice and tested methods. Waiting for setups is hardest thing to do for many people.



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Odds favor a bounce

Posted on 5/18/2011

Odds favor a reflex bounce

image
A bounce here is a very high probability play. Yesterday market recovered from a drop and today a follow through more likely.
A big bounce will negate recent negative action. This market has time and again bounced big to upside after such selling bouts.
If we get a bounce here watch stocks that are holding up well.

Bounce Potential Watchlist

For day trades and may be 2 days hold players.
BKS LXU NUAN EXPE UFS DAL MCO BIIB EL WPI CB MGM TIF MHK MW CERN CPA SCSS
And one potentially good long idea:
TTWO: Tate Two 


Damaged but not broken

Posted on 5/17/2011

The markets have experienced some distribution in last few weeks. by historical standards that is not a major distribution. we have not seen 300 plus day yet.
Lot of leaders have corrected and stocks that were up 25% in a quarter has dropped down.
At this stage market has corrected between 2 to 3.75% depending on the Index you look at.

Russell2000
This market has had persistent bid for months and any weakness of this magnitude has attracted buyers. Same thing may not repeat but if you see 300 plus day to the upside you should give benefit of doubt to long side.
As of now it is still an extended range being formed since March. At some stage the market will break big time but the direction remains unclear.
My stance is currently neutral on the market direction.

Market timing and earnings analysis

Posted on 5/11/2011
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Don't bet the farm

Posted on 5/10/2011

As you have noticed lot of traders and investors have suffered huge losses in silver. For some it has ended their trading career. Wall Street Journal had a big story about this recently

Silver-Mad Small Investors Fueled an Epic Rise and Fall

When silver prices hit a three-decade high last week, David Zornetsky decided to do some buying. Searching for a job, the 31-year old in Beacon, N.Y., hoped to use gains from silver to finance a move to New York City and to pay down student loans. "I had been hearing that silver could go up to $150 an ounce this year," says Mr. Zornetsky.
Instead, silver has suffered its worst one-week drubbing since 1980, when an infamous alleged attempt by Texas's Hunt brothers to corner the silver market came undone. This week's brutal tumble sent silver-futures prices down to $35.28 an ounce from nearly $50 in just five trading days, and has left Wall Street pros and individual investors dazed, some dealing with sudden losses.
"I don't understand," says Mr. Zornetsky, whose silver investment fell about 25%. "Silver is supposed to do very well this year."
Behind silver's historic collapse is a market that came loose of its moorings, fueled by speculative traders, many of them small investors who may have jumped in at just the wrong moment.


As I have said constantly the most important thing you must learn in the market is to cut your losses short and never ever take too big a loss.
Betting the farm on sure thing and not cutting losses are the reason why traders end up with big losses. Traders hold on to losers, hoping they will bounce back. They enter a extended setup.
They consume too much financial media and start believing in stories. They start trading stories instead of setups.
 Sometime back there was a member who was fixated on uranium stocks. He used to send me pages and pages of research on why uranium stocks present best opportunity. I told him repeatedly, that trade setups not these kind of macro themes. After the Japanese disaster the member just vanished having taken catastrophic losses.
Everyday I look at this table:
image
Stay in the game. Keep drawdowns low. If you preserve your stake then you can play the game. Else you are out of game. If you stay in the game long enough you make lots of money.
I have been actively blogging for last 5 years or so and talked to lot of traders in last five years. Very few have survived beyond few years. The reason is pretty clear large drawdowns. One day they just disappear.
Don't let that happen to you. It is ok if you don't make money for few months, but if you lose your stake , you are out of game very quickly....

Leading stocks taken to woodshed

Posted on 5/04/2011

Stocks that were leading the action since March 17th 2011, bottom were taken to the woodshed in last two days. Stocks that were up 25% plus in a quarter experienced bout of selling. 

The good news of Osama Bin Laden killing did not lead to rally but has resulted in reversal. How long this correction will last and how deep it will be is not known. But this market has had persistent bid for many months , will that change now. 

Correction will lead to new leaders emerging soon.....