The Right MindsetMarket & Sector Review
This Week's Economic Reports
Member Update -->New Market Scan --> It has been in the works for awhile and beginning today there is a new market scan based on Dr. Alexander Elder's Triple Screen. This scan does not give exact buy and sell points but does give you stocks that currently exhibit criteria that Dr. Elder looks at for candidates. To make the list the slope of the weekly MACD line must be positive and the daily force index must be below zero for long positions. Exactly the reverse for short positions. Check out the explanation page with chart examples (link to this page appears on the scan itself) and Dr. Elder's trailing stop entry technique. Match this with relative strength and group strength and you have an excellent scan to look for potential candidates both long and short. There is also on this page links directly to the publisher should you desire to include his books in your library, a good idea!
The Right Mindset
Trading requires cultivating the right mindset. You must be relaxed, logical, perceptive, and ready to tackle anything the market throws at you. Unfortunately, this sounds much easier than it actually is. Trading is a difficult profession with unique issues that other professionals don't deal with. If you can identify these issues, address them, and halt their influence, you can cultivate the mindset of a winning trader.
Why is trading more difficult than other occupations? In many professions, a group of scholars have clearly defined foolproof ways to gain success. And the leaders of a particular profession argue that if one follows these well-proven pearls of wisdom, success will surely follow. In most professions, these claims are somewhat supported, but when it comes to trading not so. Many so-called trading gurus claim to have discovered the Holy Grail, but oftentimes these claims only offer false hope to those seeking easy money. Think for a moment, I read an advertisement recently claiming 900% in 5 years. That is 180% per year. Take $10,000 at 180% per year and using the rule of 72 your money doubles approximately every 3 months. That means in 5 years your $10,000 is equal to $1,721,036, why are you working?
Why are you promoting and selling this system? Think!
Seasoned traders warn, for example, "Don't trust anything you read or anything you hear." The general consensus is that most of the information out there about how to trade is suspect, and that the only way you'll ever separate the truth from the fiction is to try it all out and find out for yourself just what works and what does not. Seasoned traders also warn, "There are no universal rules for traders to follow." Conventional wisdom is only correct when it is correct. History only repeats itself when it does. Lack of consistency in the rules of the market and in how the market behaves can be disheartening. Many seasoned traders warn, "Trading is a profession where you should go in assuming you'll lose more money than you'll make." Considering this advice, it is no wonder that novice traders have difficulty cultivating the right mindset. Trading consistently seems difficult if not impossible.
The good news -> It is still possible to overcome these limitations. First, it's vital to remember that there are indeed actual traders who have studied the markets over years, made efforts to build up trading skills, and became profitable. You can't turn a $5,000 online investor account into a fortune, but with the proper trading plan, the proper attitude, and with a few simple trading rules designed by you and for you, you can become a very successful trader. Again, it's just a matter of having realistic expectations, the proper training and mentorship, and the necessary experience to trade under a variety of market conditions.
Second, the right attitude is also essential. Once you face the fact that trading isn't easy money, or that you won't become rich overnight, you'll be able to prepare yourself mentally. It is merely accepting a few disconcerting facts about trading. If you know that you need a sufficient amount of capital to survive the learning curve and the draw downs, you'll manage risk properly in order to have as much trading capital as possible to invest. If you expect more losing trades than winners, you won't be disappointed when you face losing trade upon losing trade. When you know that your seemingly foolproof trading strategy is bound to fail when the market conditions change, you won't be very upset when it does indeed start to fail. By facing the cold, hard facts about the pitfalls of trading, you'll neutralize them.
Trading is a challenging profession, but there are many traders who have met the challenge and have the winning track record to show for it. By meeting the challenge through hard work and dedication, you can also be a member of this small, elite group of winning traders.
Market & Sector Review
Last week I went over some Fibonacci levels looking for a possible short term peak and came up with the 1260 level basis the S&P 500. We didn't make that level (approximately 1245 was the high reached on three separate days) before this correction began. The apparent bearish rising wedge formation is not bearish until it breaks (see last weeks letter for that chart Click Here!). So was this the top and now down we go, I don't think so just yet, and again I point to the psychology of the market place, it's almost there, just not yet. The put/call ratio rose to well over 1 on both Thursday and Friday a good indication the top pickers are still there, still actively seeking this elusive top. The McClellan summation indices appear to be rolling over, however it is quite normal for them to roll over then in the next market rally the summation indices should lag.
Unlike market bottoms which can happen quickly, tops often take a long time to form and complete, anywhere from a few weeks to many months, and sometimes years. Tops also often look like the very beginning of a new large up leg that will take the market significantly higher. Those that have been avoiding the market for so long will come to believe in a new paradigm and commit the final dollars of this bull. I know it sounds harsh, but it has always been true. There is an old market axiom an old mentor of mine taught me many years ago, the market gives you two chances to buy and also two chances to sell. My current thinking is this decline will not last very long nor will it go very far before this market rallies once again probably to new highs giving the second chance to sell. And if my timing is correct that second chance to sell will be in late August or September, and at new highs, let's see how it plays out.
Remember however, this is a market of stocks and while I am talking about a broad large capitalization weighted index, you may be in an issue that will withstand any decline. So watch the action in your sectors, and groups, and your individual stocks much more than the index. One quick additional note on psychology, a very good friend and also an excellent trader, sent me this in an email a week or so ago after we talked on the phone and I told him I was beginning to turn bearish.
A good friend of mine and also a trader and I talk often on the phone. One day a week or so ago when discussing our opinions he said to me sounds like your a bear hah. Well not quite but it sparked an email from him that gave me quit a chuckle and I thought I'd pass it on:
Don't you get it?
High price of oil = strong economy = good for stocks
Bonds going down = strong economy = good for stocks
Low price of oil = low cost of doing business = good for stocks
Bonds going up = low interest = good for stocks
Now I know it was a joke but it is the type of thinking that usually accompanies tops, we shall see.
In the June 11 Newsletter I introduced a new feature called the most improved groups and ETF's along with the biggest declines or most unimproved if you will. I was and still am a bit unsure how this program will eventually work out for everyone but for me it has already paid handsomely. Let me explain. When we look at this or any report we are going to have built in prejudices which will allow us to look at certain groups and not others. Normal human behavior I think, but a good one. Time often does not permit us to look at everything. Also and very important, you want to put this or any report into context, if we are in a bull market you will pay more attention to the most improved, if we are in a bear market you will pay more attention to those declining. Not that you can't find shorts in a bull market or longs in a bear market but you are attempting again to put the odds in your favor.
For years now the Metals groups, have treated me well and I have developed a new affinity for them that I haven't had since the 1970's. In the first posting (June 11) I noted how Silver was the second most improved as measured by the PT-PPO, and noted a very bullish metals comment from the president of Newmont Mining. The following week Silver moved to the 5th most improved in relative strength and first in PT-PPO, and that week was joined by Gold (MG135), and Industrial Metals and Minerals (MG134). Even though I was and have been looking for a top in the major averages later this year, these are groups that I believed would fight any downward tide in the major averages. Then the Gold ETF's GLD and IAU began to appear. In the June 18 Newsletter we did a little discussion on Gold, Gold Stocks and the ETF GLD. I had earlier probed the market and I know some of you did later (from e-mails received). You can revisit any of these newsletters in the Archives section of the site. So let's take a look at what happened since then in these groups and ETFs and what is possible from this report in each newsletter and for the metals stocks moving forward.
Now here is an idea for those that have not participated here. There is a new market scan, the Dr. Alexander Elder Triple Screen. Read up on how it works, from our introduction first then from his books. There are several posted this weekend in the Industrial Metals and Steel groups, there will be some from gold and silver probably appearing soon (Dr. Elder looks for corrections in bull markets to buy) follow his techniques outlined or adjust with your own. In my humble opinion these groups are just beginning there next move.
Now here is this weeks most improved report. I personally have not reviewed it as of this writing but will be this weekend. Save it and compare it to last week and the week before for your research you may just find another gem.
This Week's Economic Reports
Have A Great Week!BillDisclaimer:Trading in securities, of any type, may not be suitable for all individuals. The contents of this newsletter are not a solicitation to buy or sell securities. The opinions expressed are solely that of the author. You must do your own research, contact your own financial advisor for suitability of any investments. Data gathered is from sources believed to be reliable, but NO guarantee as to their accuracy is made.
Now here is an idea for those that have not participated here. There is a new market scan, the Dr. Alexander Elder Triple Screen. Read up on how it works, from our introduction first then from his books. There are several posted this weekend in the Industrial Metals and Steel groups, there will be some from gold and silver probably appearing soon (Dr. Elder looks for corrections in bull markets to buy) follow his techniques outlined or adjust with your own. In my humble opinion these groups are just beginning there next move.
Now here is this weeks most improved report. I personally have not reviewed it as of this writing but will be this weekend. Save it and compare it to last week and the week before for your research you may just find another gem.
This Week's Economic Reports