Welcome. The contents of this blog comprise my personal observations on the stock market from the perspective of using both fundamental and technical analysis by reviewing market data and stock charts based on the methodologies of William O'Neil of Investors Business Daily and his books, from Stan Weinstein's books, and most of all, through lessons learned over the years by listening to Gary Kaltbaum's "Investor's Edge" radio show on Business Talk Radio.

Criteria of stocks include first researching sectors to determine which are strong and which are weak using the ADX indicator (>40 = increased volatility); focusing in on a leading sector and buying leading stocks on a high volume
breakout (minimum 2x average) above a base; stock prices are higher than $25/share with daily average volume higher than 300K; positive and increasing PVT (indicating institutional ownership), positive and increasing RSI (indicating relative strength compared to other stocks in the market).

Please keep in mind that
I am by no means an expert, nor are my posts intended for anything other than to share my opinions of what stocks are doing for the purpose of getting feedback. Thus, please do your own research before taking action on what you read here. I will be adding posts on topics of interest as I learn about them.

Sunday, July 27, 2008

Still in a bearish trend.

There is a lot going on in the market, especially with government manipulation of the mortgage lenders and the propping up of the financials. I took a short position in Fannie Mae (FNM) when the news broke and I got out when I heard that the government was trying to manipulate the stock. Even though things are starting to look better in banking land, I can't help but to think there are more bombshells waiting for the average investor that will drive the sector lower. Further, while I loved trading in the fertilizers, they topped on or around July 4th, and now they are crashing all over the place, so I'm not exactly sure what to do at this point.

Generally, we are more than 8 days since the initial bullish day and we have yet to see a follow-through. That means that in short, we are still in a BEAR market, at least until we see that follow-through day. There were hints of it last week, but nothing that met Investor's Business Daily's strict discipline of what is and what is not a follow-through day (e.g. up 1.7% on high volume.)

I've been paging through IBD's 100 list with a fine-tooth comb, and I can't help but to think that I'm wasting my time because these stocks are all going against a bearish market trend. Why try to pick the winners when the market will eventually turn them all to losers?

So after reading Stan Weinstein's book again a few months back, I decided that shorting is probably the best thing to do in this market. But, the prospects I chose as shorts kept washing me out. In short, no pun intended, when I would initiate a short position, the stock would quickly reverse on me and would stop out my short position. This was frustrating.

Then I realized that William O'Neil and Gil Morales have a book on shorting stocks. They outline a strict discipline on when to short and when to cover, and how to identify good shorting prospects. For now, I will take a break from my trading until I see more bullish markets, and I will learn his strategies on shorting. While learning, to test my new techniques, I'll paper-trade.

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