Archive for December, 2009

This is the time of year that evokes scores of emotions.  That’s ok, we’re human beings.  I have written frequently in my blog of removing emotion from your trading in order to make your decisions based upon objective, non – emotional criteria.  However, it is our ability to feel deeply about various issues and care about others that denotes our uniqueness as humans. It seems like so many areas of our lives are encouraged to be efficient with flawless execution, devoid of emotion and subjectivity.  We forget to celebrate and embrace our frailty and the frailty of those around us.

This blog is dedicated to helping the retail stock market trader to achieve consistent success in the Market.  I have had some say to me, “What are you really contributing to the overall good by showing people how to make money in the Stock Market?”  That question made me pause.  The answer is that unless you are willing to help others who are less fortunate or struggling with your prosperity, you are failing yourself and those that you touch every day and your success becomes futile.

So, as you gather together with those that you care about this holiday season, look into their eyes and if you see pain and despair, know and realize that you can help them. If you do that, you will truly be “Home for the Holidays.”  Robin

The DOW is currently trading in a sideways range or box.  There is substantial resistance from trading activity in 2004 and 2005.  It should be difficult to continue higher at this point.  The trend is tiring and it appears that it is time for a pullback.  Friday printed a Shooting Star type pattern on significant volume.  I feel that the index will move back down in the range and test the lower trend line of the broadening channel.

The SPX is has also been trading in a consolidation pattern for the last three weeks and appears that the trend has weakened tremendously.  The ADX supports the thesis of a  diminishing trend and we also have a Bearish MACD divergence and crossover with confirmation from a Bearish Stochastics.  We are more than likely headed back down in the range to test the lower trend line of the channel.

The COMPQ has been very erratic over the last three weeks with several gaps and indecisive trading.  There is major resistance at 2200 and I feel that the index will trade sideways to down in the immediate term.  Look for a test of the 50 days simple moving average and the lower trend line of the channel about 2135-2140.

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An indicator is a formula when placed against price will hopefully reveal the directional bias of a stock.  Last week we talked about how a simple moving average is determined.  The purpose of any moving average is to smooth price action and give the trader a sense of where the stock is trending. 

Moving averages are lagging indicators and are many times used to confirm direction.  Major moving averages like the 20, 50 and 200 day simple can be used as areas of support and resistance.  Sometimes moving averages are used for buy and sell signal when a shorter term moving average crosses over a longer term moving average.

A moving average can be adjusted to react more quickly to price movement and therefore not lag quite as much as a simple moving average.  The purpose of doing this is so that the moving average can act more as a buy/sell signal.  An example of this is the Weighted Moving Average.  This average weights recent price action more heavily.  Following is the formula for the Weighted Moving Average.

               If using a 5 day weighted moving average, the most recent day’s price receives the greatest importance.  The weighting would be in multiples as follows:  5+4+3+2+1 =15.  Today’s price would receive a weight of 5, yesterday would receive a weight of 4 and so on.  In this example, the total numerical weightings add up to 15.  We then divide the total prices from the five trading days by the sum of the weights (15) to arrive at the most recent plot point for the weighted moving average.  Using last week’s Simple Moving Average numbers, let’s recalculate for the weighted moving average.

Day 1 – $44.60 – 5 days ago, multiply by 1

Day 2 – $88.70 – 4 days ago, multiply by 2

Day 3 – $130.98 – 3 days ago, multiply by 3

Day 4 – $173.76 – 2 days ago, multiply by 4

Day 5 – $220.70 – today’s price, multiply by 5

Total = $658.74 / 15 = $43.92

              This data point would be plotted.  As each day closes, the new data point is plotted and the prior day receives less importance the older it becomes.  Exponential Moving Averages are a bit more complex as it uses a constant or exponent that acts as a multiplier against the difference between one day’s price and the next.  No need to panic, most charting packages have it all figured out for you.  The important thing to know is that weighted or exponential moving averages take some of the lag out of the moving average and it becomes less of a trend following indicator and more of a leading indicator.  Best, Robin

ECONOMIC REPORTS

MONDAY 12/7

Consumer Credit,

TUESDAY 12/8

None

WEDNESDAY 12/9

Wholesale Inventories, Crude Inventories

THURSDAY 12/10

Initial Claims, Continuing Claims, Trade Balance, Treasury Budget

 

FRIDAY 12/11

 Export Prices ex- ag., Import Prices ex – oil, Retail Sales, Retail Sales ex – auto, Michigan Sentiment – Prel,  

Business Inventories

 

 

 

EARNINGS OF NOTE

MONDAY 12/7

CASY, KKD, PBY, KR

TUESDAY 12/8

 HRB, TLB, COO

WEDNESDAY 12/9

 JTX, MW

THURSDAY 12/10

CIEN, COST

FRIDAY 12/11

 NONE

Here are some ideas for your New Year’s trading resolutions:

1. I will complete a detailed trading plan which will become my “Bible for Trading”.
2. I will read one trading book a month and outline the best ideas that it presents.
3. I will seek out a trading partner who will be a person with whom I can share and exchange trading ideas and hold each other accountable for disciplined trading.
4. I will build a watch list which shall be comprised of fundamentally, well diversified stocks.
5. I will master the art and science of technical analysis.
6. I will adhere to strict money management principals.
7. I will master the Collar Trade.
8. I will eliminate fear and greed from my trading.
9. I will learn how to use the Greeks to manage my portfolio.
10. I will mentor other traders and in doing so I will help others to become successful in the Stock Market.

This list should give you a good head start on becoming more disciplined in your approach to trading.  If you make a concerted effort to improve your processes, you will improve as a trader.  Best, Robin