The Stock Market | The Wall Street Shuffle Blogs

Archive for the ‘The Stock Market’ Category

Trailing Stop Loss

In a way, almost every stop loss that is carried with an open position is a trailing stop loss. The price level that closes an open position is generally moved as either price or time advances. I will use a long position in our example. You and I buy a stock at $100 and we decide to place a sell stop below the market to protect our account, in case we are wrong about our investment decision.

Some traders and brokers use a flat percentage calculation for this stop price level. This is a mistake. A flat percentage stop assumes that every stock trades at the same level of volatility. They do not. The average price movement on a daily basis in stocks is about 1-3%. However, there are many stocks which may move on a daily basis more than 5 percent of their daily prices. This is especially true for active low priced stocks.

If I use a flat trailing stop loss of 10 percent, for most stocks, the stop loss would be about 3 1/2 days movement away from current prices. [If a stock moves 3% of its price a day and does this 3 days in a row, prices have moved 9 percent of its price.] This sell stop may be fine for a stock that moves 3% of its price per day, but what about a stock that moves 9 % of its price a day? Yes there are many stocks that move that much of their price in a single day. Such a stock could be stopped out in a single day’s move against your position. You could easily be stopped out, just to watch the stock move back higher after you are out of the trade.

Trailing stop losses are a money management tool not a forecasting tool. Trailing stop losses are called that because they trail behind current prices and move as time or price advances. They are used to “lock in profits”. This means they are used as a tool to protect an account financially. Trailing stop losses are generally kept so close to current price levels that they are easily “hit” during price corrections within a trend. While a profit may be insured by the use of a trailing stop, the use of a trailing stop loss can take a trader out of a major trend rather easily.

This is the problem with the trailing stop. The average market correction easily hits many types of trailing stops and the end result is that the trader misses a potential dynamic bull market by the use of such a money management tool. Traders may point to the bull market in IBM or AAPL, but a strict use of a trailing stop could have taken them out of those trends early in the game.

The use of stop orders to close positions is very complex. Quantitative research focuses on their affects over time and the end result risk-to-reward profile from the trade strategy. Here is what you do to see if your trailing stop loss is working for you. Plot your trail stop on a chart and see if the trailing stop is easily hit during normal market corrections within a bull market. Look at many examples of bullish trends. If you see that your trail stop is easily hit during the typical market corrrection, then you know that you will be taken out of most bull markets very easily. This means you may miss a major move.

www.traderscountryclub.com was created to help you with trading and investing. This site will launch soon and you can learn more about stops of all kinds, as well as other monoey management strategies. The use of trailing stops are a major topic within the education section. Happy trading.

Tweet This Post

2010.01.13 / no responses / Category: Bulls and Bears, TCC, The Stock Market
“I am not just a potted plant.”

These are the words attorney Black used while he was representing John Dean during the Nixon hearings. I have to steal them to make a point. In December, I advised the listeners to the WSS that airline stocks were about to get hot, because of the sell off that occurred in the energy markets. Unlike other hosts, I also advised the audience to take profits in 1/2 the position after the nice price rise in the sector had occurred. I followed up this advice by warning that this same sector would come under pressure as the cold spell created the most recent price rise in the energy complex.

I did more than that. I advised that upon the next price advance in the equity market, the oil stocks would move up with the equity market, unlike former periods. I explained that the energy complex was facing a change in fundamentals and this time the energy sector would advance with the market. I added that the refinery stocks would be the fastest to respond to this change.

Well take a look at the charts. I am not just a potted plant. I have 30 years of trading experience which is something rare for a radio commentator. I have winning streaks and I have losing streaks like all advisors. This time everything fell into place. Good trading and investing for everyone in 2010. Listen to the WSS. You just might like what you hear.

Tweet This Post

2010.01.04 / no responses / Category: TCC, The Stock Market
Are You Getting Ready for Next Year?

The bull market for 2009 has been unusually strong and a trend which has been rather consistent. From a trading or investing point of view, it has been one of the easier price trends in which to participate. Now by no means do I imply that trading is easy. It is never easy. However, the bull trend which began in March has had only minor corrections during the price rise. Bull trends with constant reversals create many opportunities to make a mistake in investing. The bull market of 2009 was one of the most consistent price rises you will witness.

The bearish trend in 2008 was also clearly identified, if you knew what you were looking at in your charts. My question is whether you feel comfortable in looking at a price trend in a stock or commodity chart and developing a trade plan from what you see? If the answer is no, then you need to make that part of your new year’s resolution for 2010. Learn as much as you can about how to read a price chart. If you do, you will be rewarded for many years to come.

Tweet This Post

2009.12.23 / no responses / Category: Bulls and Bears, TCC, The Stock Market, Uncategorized
Market Update for the US Dollar, gold, and the stock market

I have mentioned various trends for the past several days on the Wall Street Shuffle and I wanted to spend some time updating these points of view.

Stock Market

In regards to the stock market, Dan and I mention warnings that appear from time to time that may change the longer term landscape in the investing environment next year. The current trend is unquestionably bullish and this trend must be respected. Investors may want to take some profits off the table, if they have any, but there is certainly no sign yet that the bullish trend has ended. Long positions are still paying off better than short positions. Once we see a change in that trend, we will let our listeners know the bullish trend may be ending. That is not what we see today.

US Dollar:

I recently mentioned that the dollar index (DXZ09) was holding above the 76.00 level very well and that traders or investors should be on the alert for the possibility that the index could rise simply because buy stops could be triggered by large quantitative funds getting out of short dollar positions. This buying frenzy is taking place today.

The main reason for my forecast was because the Japanese Yen had risen for three consecutive days and that this kept a small lid on the dollar index rally. Any reversal of the Yen’s rally could help the dollar index blast higher and trigger those nearby buy stops. This event began today as the Yen is down more than 150 points.

GOLD:

Dan loves gold from a longer term perspective and likes to hold physical gold. I prefer the futures market to trade the gold and silver markets. WHY? It is simple. Leverage. For less than $5,000 margin, I can control $112,000 amount of gold. If I am right about my market call, I obviously benefit from the use of the margin. If I am wrong, then I get hurt just as quickly. However, with training you can learn to control that risk and profit over time.

I have recently warned our audience about the price of gold. I saw the potential for a change in the dollar and I also was watching the energy market decline. Now for full disclosure. Did I go short gold futures? No I admit that I did not. However, as an advisor (I am a registered commodity trading advisor (CTA) I recommended clients to sell their gold coins, which were at a considerable premium to the spot gold price. Are they happy? A $100 decline in gold has them with a broad smile – at least at the moment. Clients are fickle beasts.

Trends are based upon perspective – not necessarily fundamentals

There are many times price trends make no “sense”. New traders must understand this. The trend of any market is based upon the current fundamentals of supply and demand and the perception of future supply and demand. The perception of the future is often more important than the current conditions. Keep this in mind as you analyze price trends in the future. If good news cannot drive prices higher, then the perception of the marketplace may be that all the good news is already priced into the market. The reverse is also true.

Sometimes a market can price in such bad news that a low is made simply because the news or perception cannot get any worse. This is what we saw in March of 2009. The market priced in the US economy going over the cliff. A change in that perspective created the bottom. It was not a change in the fundamentals per se that was the critical factor. It was the change in perspective.

The comments I make on the program are generally from a trader point of view. I have been a professional trader for 30 years, so that is my perspective obviously. However, I promise to do my best to teach our audience how they can begin to analyze the marekts themselves and become better investors and traders in 2010.

Tweet This Post

2009.12.11 / no responses / Category: TCC, The Stock Market
Higher Energy Costs – The next insult to all Americans

It took a little while before $1,000 gold prices began to become a bargain rather than a potential market top. The same is beginning to occur for $75.00 crude oil and 2.00 gasoline in the commodity markets. Today the US dollar index set a new low. Every correction in the US dollar has been viewed as a selling opportunity in the investment community and this is beginning to have a continued affect on the commodity markets.

Crude oil and other enery products appear ready to set new highs for the year, because the U.S. dollar continues to weaken on a weekly basis. The $75.00 price barrier has become a price of support recently, not a temporary price level set in a stage of short covering. Higher prices appear to be around the corner.

Gold traders have gotten use to $1,100 gold and above. Consumers this winter better get use to higher energy prices as well.

Americans better bundle up, while they wait in line for their unemployment check!

Tweet This Post

2009.11.09 / no responses / Category: TCC, The Stock Market, Wall Street
Now the Bonds are Giving Us Hints That Higher Rates are Ahead

The 30 year bond futures have broken below the lows of the past few weeks and this may be the start of a bigger decline ahead. As bond futures fall, rates increase. Watch the next rally in both the 30 year bonds USZ09 and the Ten Year Noteas TYZ09. If the next rally in unsable to move above the high of the previous 3 days, then we may be in store for a more serious decline later this month. Active traders should be on alert for potential shorts in these markets.

A severe correction in the equity market may prevent a market fall in the bonds or notes, but so far there has been nothing but an incredible rally in the equity markets. Combine this with higher commodity prices to instill a fear of inflation and you get a depressed bond market in the futures markets. What we do in the futures markets in the bonds and notes the next few days may set up a trend that will last for several weeks.

Tweet This Post

2009.10.14 / no responses / Category: Bulls and Bears, Mortgage Rates, TCC, The Stock Market
Physical Commodities are on the move

Crude oil has moved back above the $73.00 level and natural gas has now retouched the $5.00 level. By itself this move is not significant, but there are other commodities which are also reaching upper price levels that suggests that a bull market may be ahead.

Soybeans has blasted off from its lows like a roman candle and the corn and wheat markets have also enjoyed a very strong rally recently. All of these markets should be watched very closely over the next few weeks. If they all hold near current price levels in the days ahead, this will be a sign that buyers are stepping in and willing to support every minor price decline or correction. Small corrections after a significant price rise is a sign of a change in momentum. If strong buyers are followed by weak sellers, this is a set up for an additional rally. This is what we have in the grain markets and the energy markets. We have had a nice rally recently. Now let us see if aggressive sellers are absent in the next decline.

Why do I suggest that traders watch the physical commodities? Baker Hughes (BHI) just set a new high for 2009. So did Schlumberger (SLB). These bull markets are beginning to catch investor attention. If the energy markets find a base, this will help these two stocks.

Want an ETF to watch over the next few weeks? Watch DBA. Power Shares Agricultural. If the grains continue to establish a bullish scenario in the futures markets, this will help this ETF find a new bullish footing. A close below $25.00 in DBA cancels this view, but watch this ETF over time. If you see the next down move is greatly diminished and has the appearance of lack of selling interest, this will set up the potential for a bullish price run later in the month. I will watch this for the Shufflers and keep you up to date on the progress.

Tweet This Post

2009.10.12 / no responses / Category: TCC, The Stock Market
And the Band Played On

While the stock markets all rallied in a fit of enthusiasm for the bull market, other markets continued with their trends as well. Gold breached the $1,060 level for the December Futures contract and the dollar index set a new low for the year. Just what we needed, as other countries are having closed door meetings about whether the US dollar should continue to be the world’s benchmark.

Now I can’t imagine why the world would be nervous about our future stability. I know we have record single year deficits and future exposure of tens of trillions of dollars, but we have the best and the brightest working to solve these problems. No I am sorry I may be wrong about that. The world’s greatest generation is retiring. They are buying up cheap condos in Boca Raton, Florida. They are getting fitted for golf clubs and tennis shoes. They are saying the hell with it and hunkering down.

The generation in charge is clueless about what to do. They would rather keep being elected than solving a problem. They would tell their ten year old the way to solve a debt problem is to first quit spending, but then tell their voters what is needed is a trillion dollar stimulus package. This isn’t a political statement! Both parties have driven this country into the ground and we are at the edge of the cliff on whether we can suitably recover from this mess. This is why meetings about the future of the US are taking place around the world. They see what we all see – a Washington leadership that is incapable of functioning at every level.

So what do we do as investors and active traders in this environment? Learn how to manage your own funds and trade the trends before you. In the next few weeks, Traders Country Club will be making some important announcements to make sure the Shufflers are ready to take the reigns and control their own nest egg. Besides, when it is our turn, we want to make sure we all can enjoy the Florida sun and be on the back nine before noon.

Tweet This Post

2009.10.09 / no responses / Category: TCC, The Stock Market
Things Heating Up!

Well the market is beginning to heat up. There is plenty of debt on the market for sale. As we discussed on the October 1st show, credit card volume was up to more than $100 billion in losses. We mentioned other consumer products doubled that amount.

There have been some very large debt sales of consumer services in recent months that include wireless telecommunication,utilities (gas, electricity and water) and others. The good news is prices are the lowest they have been since the early 1990’s.

Yes, the economy is slow and unemployment is up, but remember the pricing is based on the expected returns in today’s economic conditions. When the economy starts to recover, the returns that are projected over a 3 year time line will begin to climb, exceeding the expected return.

I believe there is a window of opportunity. How long that window remains open is still in question, however I do not believe it will remain open beyond the first quarter of 2009.

Tweet This Post

2009.10.08 / no responses / Category: Author, Dennis Hammond, The Stock Market
The World Still Has Concerns Over Our Future

Has the stock market made you feel confident in our future? Are all our problems in the past? Has the current administration made a change the whole world can believe in? There is a commodity that suggests the answer is NO.

Gold has set a new recent high and now approaches the $1,060 barrier overhead. The continued interest in gold is not a good sign for our financial situation. Imagine a one ounce rock and understand there are individuals, by the millions, who are willing to pay over $1,000 in US dollars for that rock, rather than hold US dollars.

Stocks are indeed making a strong and continuous bull market run, even though corrections are beginning to occur more frequently. However, do not feel completely comfortable. As long as there is a continued strong interest in gold versus other assets, there is some fools gold out there. Whether it is the fools who are paying $1,000 an ounce for the rock or the fools who are believing in this stock market rally only time will tell.

Tweet This Post

2009.10.06 / no responses / Category: TCC, The Stock Market