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Discussed in this article: Chevron ( $CVX )
First of all the T2108 indicator; my thesis, my projection whatever you want call is we’re going to bounce tomorrow, probably either at the open or within the first five or ten minutes, I just don’t see it go beyond that. However, in case I forget to mention later, understand that there’s a difference and you have to understand this, I already know this, but maybe you don’t; you have to understand that there’s a difference between a short-term trade, and not, in other words something longer than that.
Here’s my thesis; yesterday the market had a pretty nasty sell-off and I was talking about that as being day one. Today definitely was day two, no question about it, I think it was also a structural change, a breakage it in the market. I think suddenly the bulls are saying, you know what? I’m not so horny and the bears, not so timid; they’re not teddy bears now they’re grizzly bears because some things have changed. I’ve ranted about enough in the forum so if you really want to know what I feel about the gang of Ben, go in the forum and read that. I won’t bore you with new thoughts or certainly with repetition, but in a nutshell I think the market is looking at his comments in a few different ways.
Number one, their thinking, and nobody’s really talking about this, but I can’t see smart people who were informed as far as how money works, I can’t see them not thinking this way, at least I hope they’re not missing this, maybe the fed actually hasn’t really known what it’s doing. It seemed real good at that time, because they’ve got almost an unlimited amount of dollar bills so they can keep firing it at the economy. But maybe all of this stuff really hasn’t done anything more than what would have happened in the economy if they had not done anything at all and instead just let money go where it goes. And that is finding a happy equilibrium between fixed income and equities, as opposed to trying to manipulate the market. Manipulate frankly, all the senior citizens who should have been in fixed income but couldn’t because they’re not making any money; trying to manipulate everybody and pushing them into equities and that is absolutely, undoubtedly what has happened. In fact, I’m pretty sure that Mr. Bernanke has intimated that in one speech or another, about asset prices, equity prices.
Make no mistake about it, the dislocation between fixed income, that is bond yields, and equity prices has been monumental, I hear some equity bears talk about how valuations are stretched and we’re not going to get really good earnings numbers in the third quarter and all that. That may very well be, but I’m looking at P/E ratios and I’m not seeing stuff that’s really super extended, I’m not seeing these massive sky-high P/E’s like we saw in late 1999 and early 2000.
What I’m seeing, and I think what a lot of investors are seeing, is that relative to the yields on fixed income, equities, P/E’s are really, really stretched. Which means one of two things, either P/E’s are going to have to come down, meaning stocks are going to have to sell off a bit, or bond yields are going to have to come up. There’s going to have to be some kind of a normalization so that the carry cost isn’t so massive. In another words, what’s the cost of actually having your money in something, in some instrument, because there is a risk cost there, and there’s also a cost of lost opportunity elsewhere.
So the bottom line is, there’s a huge carry cost in bonds simply because you’re not getting anything in return for your money. So there’s going to have to be some normalization between bond yields and equities. Everybody who understands how money works, except apparently, Ben Bernanke and the fed, understand that ultimately this dislocation is going to have to normalize, its going to have to revert to the mean. Now what these guys have been thinking, and there’s a difference between thinking and knowing, and by the way that includes what I’m saying, I’m just the guy with the microphone, I don’t have all the answers, I just have a lot of really good questions in my mind. But what these guys were thinking is that by pushing all this money into the economy, by printing all this money that ultimately the economy would recover. Now, it’s never actually happened that way in the past, but maybe that’s because the wrong people were in charge, and these folks think they’re the right people, I don’t know but that was really their approach and so the problem that we’re facing now, in my view, just in a macro view, on a real macro level, is, okay the economy is not really picking up, there seriously is not an infinite amount of money, I mean at some point even the dimwits with the printing presses are going to say, you know what? I don’t think we can really keep doing this. I mention this in the forum today it’s kind of like an investor who’s wrong on a stock, he keeps averaging down, and averaging down, but at some point, no matter how well heeled that person is, if the stock that he is trading is ENE, which was Enron, at some point he’s going to realize that he can’t pile in enough money to get his money back. So there truly is not an infinite amount of money, at some point it has to come to an end.
What the market’s concerned about is that the fed, Mr. Bernanke, is hinting that they’re going to taper, but tapering is not tightening, he can’t really answer why he’s just saying it’s not that the fed is going to kind of stop accelerating, they are maybe going to still be buying bonds, so it’s all good. We’re not going to do it quite as much, but we’re looking at the economic numbers and we’ll keep it going as long as the economy still looks like it needs help, but the risks going forward are not as big as they used to be. All of these things the fed has basically said one way or another, and so what the market’s interpreting is that they may curtail their bond buying before the economy really recovers. Let’s put it another way, they may realize that perhaps their bond buying is no longer is even helping the economy, so why keep doing it if it’s not working? That’s kind of like the definition of insanity.
The market, in a nutshell, is doing this, the market is anticipating kind of a reversion to the mean in the difference or the dislocation between equity returns, between P/E’s between rising equity prices and rates and yields. That’s really what’s happening. You know we can throw out all the blame and you know where I throw it; I think the fed is a bunch of hubristic knuckle heads who have more degrees than a thermometer but less common sense than a squirrel looking for nuts. There I said it, but forget about all that, that’s just me ranting and if I offended some of you, you know what? I’m sure you’re going to live with it just like I do. But in a nutshell, away from all of that, what the financial markets are really dealing with is, you-know-what? I think we need to be selling bonds because they’re just not working at these low rates and I think that there’s going to be a reversion to the mean and so it’s kind of a self-fulfilling prophecy. I think it was Doug Kass that was saying this on Fast Money, where he was really saying if people are anticipating rising rates, or if they’re anticipating lower equity prices, or the combination of the two, then as the market continues to do what it’s doing, that’s going to become a self-fulfilling prophecy and it’s going to become a feedback loop.
Hopefully I’m clearing up some of this. All you really need to know is that there’s a massive dislocation between the returns that you get on bonds, which is like nothing, and the return that you get in equity prices. Well nothing goes up forever, not even hot-air balloons, nothing goes up forever and the market knows this, traders know this, and the only reason equity prices will continue to go up is if buyers are aggressive. For every stock there’s a buyer and a seller, so buyers are not more numerous than sellers on the uptrend, sellers are not more numerous than buyers on the downtrend.
There is an equal amount of supply and demand on every single stock, on every single bond. In every single market it’s the relative aggressiveness that dictates price direction, and please I’m giving you pearls here, you may not agree with my viewpoints on various things and that’s fine, I really don’t care, because there are alternative views, and I could be totally wrong, but I’m not wrong about the way stocks and bonds trade. You need to understand this, that it’s an aggression thing that dictates the price, the price movements. I had CNBC on, kind of and off during the day, I heard somebody say what I think really sums up money managers, hedge funds big guys, and frankly even small investors. There are those that participated, they were long and strong, they’re happy, they’ve got all this money. Well those are the guys that are selling. A lot of them, by the way you should be one of them, you should have been one of them if you were really profitable. Why ride it all the way down? So those guys, the ones that are riding some really nice profits are protecting them by cashing out. At the same time there’s a lot of fund managers who have not been participating in the rally, they’ve started to chase, I’ve been talking about that lately, I mean that was part of my rationale for higher equity prices, there’s money on the sidelines, money is coming in, money managers are chasing performance, they’re going to have to get it in.
At some point, and I have never been making fundamental arguments, it’s all about crowd psychology and just simply return on investment. Those folks that missed it, they’re seeing the sell off for the last couple days and they’re saying, “You know what? I’m finally right, I knew this was going to happen.” Some of them, by the way, have recently capitulated and bought. Well you know they’re selling now, because they don’t want to buy at the top. So you’ve got the potential demand, the money that wants to be put to work, that hasn’t been put to work because it felt like the market was overdone to the upside, or as a friend of mine just said today, the market has been greedy; they don’t want to buy just yet, they’re standing back because they’re saying, “I’ve been right and I missed this upside, well I’m darn sure not going to buy after just a stupid five percent correction.” So the potential demand for equities on the way up is not there now, it’s backing away.
Okay, so let’s get back to basics and that’s what I’m talking about here. For you traders, there’s going to be some buys tomorrow and I’ll go through that in a little bit, but for you longer-term guys, don’t do anything tomorrow. Do something other than try to get your money back, don’t do that. We want to get back to basics here, but we have to understand that the market moves up, the market moves down, and it all is dictated by the relative degrees of aggressiveness between buyers and sellers.
Now I’m going to go through some stocks because I don’t want you to get bored, I want you to stick through this video because I’ve got some basics for you, I’ve got some things that I want to talk about and I swear at the end of this video you’re going to think, this is what I needed to be doing.
We’re looking at the T2108 indicator; this is the percentage of stocks above their 40-day moving average. We got only 21 percent above the 40-day moving average. The green line, that’s the S&P ( INDEXSP:.INX ), look what happened the last time we got this low; big move up in the S&P ( INDEXSP:.INX ). Look what happened the time before that when we got this low; big move up in the S&P ( INDEXSP:.INX ), keep in mind though, we got a lot of gyrations here. This one came down lower than we are now, we got just a little fake out in the S&P ( INDEXSP:.INX ) and then it went lower, so this is not a perfect indicator. Here, screaming buy, when you’ve got less than about 5 percent that are above their 40-day moving average you know it’s time to go out.
So here we’ve got the rubber band that’s totally stretched tight. If we look here, this is the four-week new high verses new low ratio; this is also at a really low level. This is a pretty good short-term indication at very extreme levels. Here we’ve got a buy, watch the line up here, here, we’ve got a buy point back here we’ve got a buy point, here buy, here buy, even here for a day, buy. So like I said, I think if you’re a trader, buy the open tomorrow morning, I think you’re going to do fine. By the way, if you’re buying the SPY here’s your trade, buy the trade at the open, keep a 2 percent stop on the S&P ( INDEXSP:.INX ). Do you really think the S&P ( INDEXSP:.INX ) is going to drop another 2 percent from where you bought? Answer; no way on God’s green earth, it’s not going to happen. So if you just want to make a trade that you’re going to be profitable on buy the SPY, doesn’t look like you want to buy it does it? Buy the SPY at the open tomorrow; set a 2 percent stop and the most you’re going to lose on that trade is 2 percent. You know what? I can live with a 2 percent trade, not every day but on most days I’m good with that. Buy that and then sell it when he goes up a little bit. There’s your trade for those of you that are looking to trade.
But I want to look at this too; we’re talking about short-term stuff, about bouncing tomorrow. The tick index, this measures how many stocks we’re trading on the bid, versus how many stocks were trading on the offer, how many listed stocks; the lower the number the more stocks were trading on the bid. In other words how many stocks were being sold. You can see where the low is, typically right here, this is where it really kind of closed, which would be how many stocks actually closed down, versus closed up. But if you look here, on the intraday stuff, it was almost 1,400 down at the maximum, that’s a pretty low number. We saw some lows like that, I think even yesterday, so we’ve seen these lows. My point is, on a lot of different levels the market is super, super oversold, this is a market that you sure don’t feel like buying, but you have to because typically the ugliest potential trade is usually the best one, that’s the most profitable. So that’s what I would say about short-term traders. Again, you need to differentiate between if you’re a short-term trader or have a longer-term mindset; I think there’s a big difference between the two.
When the S&P ( INDEXSP:.INX ), and it’s going to bounce, unless there’s something that’s really nasty that comes up, when the S&P ( INDEXSP:.INX ) bounces you’re likely to see some selling here, perhaps even there. I’d be really surprised if we don’t get a bounce, but I’ll just go out on a very strong limb, this is what I’m expecting, I don’t know exactly where these levels are going to be, but I expect a bounce to some extent, but I’m looking at the market as really kind of being broken here. This is the good news, and seriously there is some good news; if you’re a longer-term investor you don’t have to do anything right now, you’ve got a long-term view. What’s the difference between buying on Friday triple-witching, ugly day Thursday, little reversal on Friday, what’s the difference between buying on Friday verse buying next week, the week after that? I promise you the prices that you get in a week or two, worst-case scenario if you’re looking to buy, are not going to be that much higher than they are now. They will probably have been higher, but they’ll also have been lower. You’re going to see here that there are going to be some really good buying opportunities on some stocks, but they’re not going to be tomorrow.
So if today kind of rattled you, and I think it did, judging by the correspondence that we’ve had, and some of the posts we’ve seen in the forum, I think it rattled a lot of people. Well here’s the thing, welcome to trading. When Drudge reports, and some of the non-market related websites start posting headlines about the Dow, or the S&P ( INDEXSP:.INX ), or whatever, you’re supposed to be shaken up, okay, that’s why it’s news. So if you’re sitting here and you’re discouraged, don’t be. Happily these days don’t come very often, and I promise you, if you stick with it, in a week or two or three, or a month or two or three you’re going to look back on this and you’re not really going to remember just how intensely discouraged you were, you just won’t. What you need to do is really focus on learning from this.
Okay, let me get through this; first of all let’s look at levels here. There are a number of different levels, I saw Carter Worth on Fast Money, I forget which level he was looking at, I think it was saying the S&P ( INDEXSP:.INX ) could pull back to 1,450; I don’t know if it was because it was some level here, some Fibonacci retracement, or whatever, but frankly, that’s just an arbitrary level, and I love Carter’s work, but he doesn’t really know, he’s projecting. Here are some projections you can take to the bank. One, this is the November low verses the recent high in May, when Bernanke decided to speak; 61.8 is a retracement, right here at about 1,556 give or take a few; that could work. This could work here, from this last high; the high was 1,597, 1,600 or so. Well we’ve blown through this; so then we’ve got this retracement, this 61.8, which is really 38.2 percent retracement. So we’re coming back to 61.8 or we could come back to 50 percent, which would be what? About 1,515. But if it comes down really, really fast over the next couple days that will also coincide with the 200-day moving average, or we can come back to this 38.2 level here.
So there are a lot of different levels that the market could come back to. Nobody really knows for absolute certain, which is why I’m telling you I don’t know, I just think that we’ve got lower prices to come. Again, I’ll have to say it because somebody’s going to forget, I believe that tomorrow we’re going to get some kind of bounce, but it’s a trading bounce, don’t get sucked in if you’re a long-term investor, don’t do it.
Now, let’s look at the other stuff; Dow, this is busted, there’s no way around it, it’s broken. If we can move up to fifteen thousand, I can about guarantee you that that’s going to be sold into, it’s almost a lead pipe cinch. Let’s look at some stocks. These are some Dow stocks that are nice uptrending stocks; here are your levels to watch. If Chevron ( NYSE: CVX ) pays 3.3 percent yield, which is not bad, I think that’s probably more than the ten-year note, if it gets back down to the 200-day moving average, that’s a pretty good buy point, so buy some. JP Morgan ( NYSE:JPM ), watch about $51.00, certainly $50.00; if JP Morgan ( NYSE:JPM ) comes down to $50.00, buy it, I doubt it’s going to do it tomorrow. American Express ( NYSE:AXP ); American Express ( NYSE:AXP ) has been pretty steep, it’s been really steep, it’s kind of tough to sustain this. Watch seventy-one, that’s about what the 50-day moving average is, but after seventy-one watch sixty-eight, that’s down around this level, this prior high here; and then after that you can watch about sixty-two, which is where the 200-day moving average is. One thing you want to do, write this down and think about it. When you’re considering stocks that look like they’re correcting, look and see where the 200-day moving average is, relative to the price, relative to the high, this was really far extended.
Now, how do we know it was far extended? Well, when do we see that extended to this level? Look what happened to American Express ( NYSE:AXP ); it started rolling over and moving sideways. I don’t think you’re really going miss a buying opportunity if you stand aside and don’t buy American Express ( NYSE:AXP ) right now. Now look at Pfizer ( NYSE:PFE ); this is what you’re seeing in a lot of stocks; a lower low and you say, “Well maybe this is that shot across the bow, that first sign when something is amiss.” Well look at this massive volume here on the rally, only to do what? To fail at the prior high; do you want to buy Pfizer ( NYSE:PFE ) right now? I don’t, I love the uptrend, but if it comes back, and by the way, 3.3 percent yield, if it comes back to twenty-seven. If you’re a longer-term trader, not an investor, not a short-term trader; you don’t want to be buying Pfizer ( NYSE:PFE ) when it falls back to twenty-seven so you can sell it at twenty-seven eighty for a nice quick little day trade, don’t mess around with this. If you’re a longer-term investor, Pfizer ( NYSE:PFE ) going to work, you just don’t want to be buying it right here. Look at McDonald’s ( NYSE:MCD ); breakdown, here was the pattern, this is the breakdown right here, and this was somewhere around in here was the congestion level. So what happens to this stock? The stock moves up, now we don’t know when it moves up here, whether it’s going to break through, I would think that it’s going to roll over, which it ultimately did, and why would I think that? You know how I look at this, because in here, after the stock breaks down, everybody’s a loser, nobody likes being a loser, a lot of folks are going to do something about it if they can get close to getting their money back they’re going to go ahead and sell. So their wife or their husband likes them again, because nobody wants to lose money, particularly if it’s the family’s money. So here, what are we going to do? Well I’m not looking to buy McDonald’s ( NYSE:MCD ) yet. If it falls down, by the way this is over 3 percent as well, if it falls down further, maybe so. But am I looking at this as a right here, right now moment? I don’t think so.
Let’s look at the transports; this isn’t really working either. You could say, “It’s down here at this buy point.” Fine, but look at all the tops and bottoms on this chart; we’ve got a lower high. So you don’t have to rush in on this thing either, you just don’t. Nasdaq ( INDEXNASDAQ:NDX ); this is kind of busted. If it gets down to about 2,800, let’s look at the composite, this is kind of busted, I tend to focus on the Nasdaq 100 ( INDEXNASDAQ:NDX ), but this is kind of busted. If it falls down to about here look for a buy, but it got to extended here.
Now I want to talk about some basics, because it’s important that you think about these. I really think that that you’ve got to know this, so start taking notes if you haven’t already, because what I’m going to talk about are basics. Number one, write it down, I’ll wait When in doubt get out; it’s your money, if you’re uncertain there’s a reason why you’re uncertain, it’s okay to get out, it’s okay. As long as tomorrow’s a weekday and not a holiday, the markets going to be open tomorrow. So if you’re in doubt, if you’re feeling uncomfortable, get out, and by the way, the definition of discomfort and getting out maybe is just cutting down your position size, but don’t sit there and hold an uncomfortable position.
Trading is hard, it is, but it doesn’t have to be agony, it shouldn’t be agony and it shouldn’t be self-flagellation. You should actually feel, you will if you really focus on this, and I hope you’re writing this down. If you’re learning you’re going to start feeling really good about trading. By the way, here’s your first to rule, start journaling and I guarantee you, you are not journaling, you’re not writing down your trades, you’re intending to, you know you’re supposed to, I’m not the first one that’s told you this; write down your trades, write when you entered, write when you exited, write why you entered, write why you entered, what was your thought process? And by the way, what was your plan? You did have a plan, right? You had a plan, why were you buying, because you saw that that I happened to mention a stock and said something favorable about it? Well that doesn’t work, because number one, I cover typically about twenty stocks in every video. Also, I can be wrong, I am wrong, no question about it, I get a lot of stuff wrong. So if you happen to get in on that trade, is that really why you got in, because I was bullish on it? Make your own decisions, have your reason, write it down. If you make a profit on a trade, write down what was good about it, what did you do right? Also, what did you do wrong? In your journal, on the losing trades, and this is really important, identify one, possibly even two or three, but at least one mistake you made; write it down, keep it on a separate list, “Stupid Mistakes That I Made,” not make, made. Write it down.
What you are going to find, I promise you, you are going to find that you make the same mistake again, and again, and again, and then after that, after the weekend, you make it again. Do you know why? Because you’re not writing it down, you’re not journaling; you’re letting it ride through your stop. You don’t have a stop, you’re trading to big, your position was to big, then the stock fell over and you were at max pain, you sold it all, and then the stock ran up. Whatever, you were going to make the same mistake again, and again, and again and here’s the thing, this is reliable, you’re going to make that mistake for as long as you trade, until you start writing it down and you realize that that’s the mistake you’re making, then you’re not going to do that anymore. Think about it this way, if you’re holding a board with the nail in it, and you’ve got your left hand on the board, and the nail is just a little bit to the right of your thumb, and your hammering it, you take the hammer, you swing it down, and you hit your thumb, then you swing it and hit your thumb again, by the way it really hurts. You’re going to do that again, and again, and again, until finally say, “You know what? Maybe I just need to move the hammer over a little bit to the right, because my thumb is getting sore.” But if you don’t realize what your problem is, how are you going to do that? Your thumbs just going to hurt a lot, so write it down.
Number two, this is number two; when you’re uncertain trade small, that’s it, trade small. By the way, if you normal position and you’re uncertain, this goes back to the first one, when in doubt get out. Lighten up, I do this all the time, I do it all the time. Rarely do I just look at something and go, “Oh my gosh, I’m so right I’m going to pack it on,” and I just pile in. Typically, if I’m feeling uncertain I’ll chop down my position, particularly when it comes to option, though a lot of times if I feel like I’m kind of uncertain on options, I just close a position out, because the magic of leverage is, I can make it all back in a real fast amount of time once I’m right. The magic of leverage too is I can lose a whole bunch of money really, really fast if I’m wrong.
Okay, a few more, write this down; no revenge trading, no revenge trading, and I’m talking about a couple things. First of all, if you lost money you’re not trading well. Maybe I should say if you lost a lot of money, you’re going to make losing trades, it’s going to happen, it’s okay, that’s trading, that’s why they call it trading not money harvesting; you’re going to make losing trades, but if you’re taking an inordinate amount of losing trades, or if you’ve lost more money than you really comfortable losing, what you’re going to tend to do is trade more aggressively to make it back. Well if it was that easy to make money, like I just have to trade harder so I could make that money back. Well if that was the solution then why don’t you just do that all the time? Because that’s what we want to do is make money. No, when you’re losing money, when you’ve made some bad decisions, you’re not having a good day; sit on the bench, get off the field, it’s okay.
The market doesn’t care about you, the market doesn’t know that you’ve lost money in the last trade or two, the market doesn’t know that you’re down 20 percent on a stock and you’re embarrassed to say that. The market doesn’t know about you, and if it did know about you, it wouldn’t like you because the market doesn’t like anybody, it’s rigged to take the most money away from the most people at the most inconvenient time. Once you understand that, and you are journaling, you’re going to be among the few, among the elite, that when the market rolls big-time you’re going to get hurt a little bit, but you’re not going to get taken out of the game. When the market starts behaving as it should, and sometimes it does, you’re going to be making more money than the other guy, you’re going to be doing fine, but it all comes down to understanding that the market doesn’t know about you, and it darn sure doesn’t like you.
A couple more, long-term; if you’re a longer-term trader be diversified, don’t have more than 5 percent of your portfolio in one stock, no more than 5 percent that’s it. That doesn’t mean you have to twenty stocks you need to have a cash component or how about this, have fifty percent of your portfolio in the S&P ( INDEXSP:.INX ). How much did you lose today? If you had 50 percent of your portfolio in the S&P ( INDEXSP:.INX ), you lost 2.5 percent, your portfolio dropped 1.25 percent, just because of the history-making decline in the S&P ( INDEXSP:.INX ), I should say headlines. So the S&P ( INDEXSP:.INX ) made headlines, because you were 50 percent invested you lost 1.25 percent on your portfolio. That’s not that big a deal, but if you have a 100 percent of your portfolio in Pulte Home ( NYSE:PHM ) you’re down almost 10 percent.
The point is, be diversified, you’re not going to do as great as you would if you were in the top stock, but you’re not going to do as badly as you would if you were in the worst stock either. So I want you have no more than 5 percent of your portfolio, I’m talking longer-term traders or investors, have no more than 5 percent in one stock. Here’s the other secret, in building that 5 percent, do it over time, not all the once, don’t just go, “Oh, 5 percent,” take whatever your normal position size would be on 5 percent, take 25 percent of that, take 30 percent, maybe take 50 percent of that and only add to a winner. So by the time you get a full position size you’re profitable, you’re in a better position right there. Also, watch moving averages and slopes, in other words, how steep is the stock trending; for example is it topping? If it’s not just going up, is a topping or is it consolidating where it’s probably going to move up? You want to look at how much it’s already moved. For Ambarella ( INDEXSP:.INX ); the low back here was $6.00, now it’s at $17.00 or so. So is this a top? It could be, but it hasn’t been trading that long. I’m looking at this and fine, look at what Google ( NASDAQ:GOOG ), not that this is Google ( NASDAQ:GOOG ), look at how Google ( NASDAQ:GOOG ) moved before it really formed any kind of a top. So I’m looking at this, this is consolidation. Intel ( NASDAQ:INTC ); doubtful that this is a top, it was down below twenty, now it’s up to twenty-five. This is just probably consolidation and you could buy some around here. Lululemon ( NASDAQ:LULU ); I’m looking at this and maybe this is a good buy point now, but if you look at the weekly chart, this could be a top, I mean it was down under $3.00 and now it’s up at $62.00, went up to $80.00; that’s a heck of a return, so maybe this is a top.
The reason I’m going into the differences is because if your longer-term investor you kind of missed the move on Lululemon ( NASDAQ:LULU ), I hate to tell you, but you missed it. Buying at $62.70 doesn’t entitle you to the kind of profits that somebody made who bought it at $6.27. So this, this is a top, if you’re a long-term investor you don’t want to be buying this right now, because if you’re a long-term investor, by definition you’ll have plenty of time to make money on this stock. Buy it if you really believe in this stuff, buy it when it really takes is dump, and I don’t think today, down 3 percent, I don’t think a move from when Christine Day announced that she was stepping down and the stock company announced some kind of bad numbers. I don’t think this stock is done going down to a point where it’s going to start moving higher and get away with that, it’s due for a rally, it will probably move a little bit; if you’re short-term trader take it, that’s fine.
Home Depot ( NYSE:HD ); this might be a top, I mean look how much the stocks come down. So if you’re a long-term investor you’re looking at this, do you want to buy this stock right now? I wouldn’t, not as a long-term investor, not really as a trader either, because I’m seeing all of this resistance here, the stocks broken below the 50-day moving average, it can trend higher for a little bit, and then probably come in to more selling pressure. So if I’m a long-term investor do I really think that I’ve got to rush and buy this stock right here at $74.00 because I’m never going to get an opportunity to get it lower than that? How can you say that? We can’t do that, it all starts with determine your timeframe; determine your timeframe.
Now look at Cree ( NASDAQ:CREE ); I’m looking at this, my gosh, so Cree ( NASDAQ:CREE ), back here stock was down in the teens, ran up to $80.00, you look and say, “Well this sure was kind of a violent top but chances were pretty good that this was toppy; here we don’t really know that so much. If you’re a longer-term investor then I still don’t think this is your best opportunity, I think you wait for it to be closer to the 50-day moving average, and then here’s the other thing, it’s important for you not to be buying at a top. If you’re buying a stock that’s hitting an all-time highs that’s fine, just don’t buy a bunch of it, and then when the stock moves even higher, you’re, profitable then you add a little bit more. You don’t just go pile in. With Cree ( NASDAQ:CREE ), it looks like a pretty nice uptrend, you want to buy on the dips, but understand how far this stock has come. If it starts falling below the 50-day moving average, well then, you need to take a hint because it hasn’t really done that before.
These are the types of things that are going to help keep you in the game, they’re going to put you in a position to win, I promise you that, they’re going to put you in a position to win. The way you get in a position to win is you avoid being in a position to lose, and I’m not talking about having an unprofitable trade I’m talking about losing a sizable chunk of your portfolio, I did that once, several years ago, two or three crashes ago, I lost a lot of money, it took me a few years, I forget the exact number, but we’re talking years in order to get back to where I was before, and I’m a good trader, I really had to work. But, if you lose a boatload of money, are you really a good trader or did you just kind of have a nice streak or maybe the market was working in your favor? So don’t get to full of yourself, I describe myself as, I’m a good trader, let’s just say I know a lot of stuff. All it takes his one mistake, a big mistake, and all the sudden the good trader isn’t so good, which is why there’s that saying, you’re only as good as your last trade. So I was an awesome trader up until that trade, then not so good. If this has happened to you get back on your horse, just kind of get a Shetland pony, don’t get on the big Clydesdale, get on a little Shetland pony, get back in the game slowly but surely, but don’t let the market get to you and remember some of the basics that I’m talking to you about.
Okay we’re going to keep going here. Consumer Staples ( NYSEARCA:XLP ); this is busted, this is not supposed to happen when the market gets a little uncertain. Kimberly Clark ( NYSE:KMB ), it’s really not supposed to be doing that. PepsiCo ( NYSE:PEP ), not really supposed to do that. Procter & Gamble ( NYSE:PG ); not supposed to be doing this. So this stuff is not supposed to be happening, so look at this, don’t just rush in to buy tomorrow, this means something.
Now what about the XME ( NYSEARCA:XME )? You traders, this is probably going to bounce tomorrow, you’re probably going to get a nice bounce there. Am I calling a bottom? No not on this stupid thing, but I’m looking at this and I’m seeing this test to prior support; here’s your trade, go ahead and buy this puppy right where it is, right where it is, $34.20. Where’s your stop? Just a little bit below today’s intraday low, $33.76, a little below that and by the way, if this is gaps down go ahead and buy it; then your stop is about 2 percent below where you bought it from, you’re probably going to make money on that trade.
Now, Alcoa ( NYSE:AA ); this is the stuff that everybody hates and nobody wants. Look at Alcoa ( NYSE:AA ); this is probably going to be a pretty good trade tomorrow too, for a trade, not an investment. Alcoa ( NYSE:AA ), pretty nasty downtrend, prolonged base here, but am I calling a bottom? No, but I’m saying this, if you buy this stock and then it starts trading below 7.97 then you took your shot, get out, no big deal. Homebuilders ( NYSEARCA: XHB ); they’re probably going to get a little bounce tomorrow, they really got shellacked here. Look at Pulte Home ( NYSE: PHM ); right off the 200-day moving average. This is probably going to get a little bounce, but it’s kind of a broken stock, if I’m a long-term investor, I’m not getting into this right now. If I’m a short-term trader I’ll get into it and then if it runs up to say $21.00 or so I’ll sell that and say, “Thank you very much.” Home Depot ( NYSE:HD ): this could be broken. It’s a fall below the 50-day moving average; if it moves back up to this level I think you’re probably going to get some selling. Why? Well, because all these folks who bought right here are losing money, and also all the shorts are licking their chops, I would be. The first time it comes up here and then starts to roll up, when it starts to roll over, that’s your short, and your cover is right up a little above there.
A few more, Mas Tec ( NYSE:MTZ ), again we’re just kind of looking at construction. Watch the 50-day moving average, watch how it behaves down here; this could be a double top. Okay fine, but it could just wind up in one big long consolidation. So if it comes back here go ahead and take your shot, but your stops right underneath here, your stops right underneath $30.00. If the stock starts trading below $30.00 then go ahead and get out. I know what you’re thinking, “But Dan, why would we want to get out there?” Because this would be a congestion area so couldn’t we just draw a line over here and say, “Well I think we’ll hold it to $29.00. Okay, well that’s fine, you hold it to $29.00, and meanwhile the stock keeps trading away; the 200-day moving average comes up, you’re holding it to $29.00. Well it doesn’t bounce; it keeps going; now you’re going to hold it until it tests the 200-day moving average. Meanwhile the market’s doing what it’s doing, and then that happens, and now you’re saying, “You know I should have just sold it at $29.00.” I should say underneath the 50-day moving average, you should have sold it right there. The point is, you have your plan, and then you execute your plan. Take some time; review your notes about the basics. Put those notes in front of you tomorrow, stick them on your screen, do something, put a bunch of Post-Its on there.
But the number one, if you forget everything I said here’s what I want to remember and do, journal. Start writing down your trades because what you’re going to find is, you are going to be your best teacher, not me, because every single person has their own unique set of mistakes; you’ve got yours, do you really care what mine are? Do you really care what the next guys are? What you care about is what your mistakes are. So you journal those, you write those down and what you’re going to find, again I promise you this, you are going to find that you make fewer mistakes because you know what your mistakes are.
Then here’s the other thing, it’s a little twist, the mistake that you make, craft a rule that’s the antithesis of that, okay, the antithesis of that. Don’t say, “Oh I don’t want to do this, I don’t want to do that, I don’t want to chase stocks. Don’t talk in the negative because the brain doesn’t understand the difference of not, don’t, won’t, all it understands is the basic jist without the don’t and won’t. So craft a rule about what you will do; I will by at support. If you don’t buy at support, if you don’t buy at support because you’re always chasing stocks, they don’t write as your rule, I won’t chase stocks. What the heck does that even mean? Instead your rule is, I will buy at support, and then before every single trade that you make, you look at your rules, are you buying at support? Well if the stock’s running away from you, i.e. you would be chasing it, then you know you’re not buying at support, don’t you? So guess what? Don’t do that, wait; you’re going to find if you do this, this is going to be the most important video that I could possibly give you. I can talk about all these stocks that you should buy or sell or this or that, but all that changes with every tick on the chart. I’m talking about trader development, what I want you to do is look and see that the best possible stock that you can own is stock in yourself.
The way you can do that is by just continuing to learn and develop. You’re not going to do that if you give up, and you’re not going to do that if you don’t journal, if you just continue to make the same mistake again and again. Please let me know that, and I will give you my mailing address, I would appreciate it if you just send me your money as opposed to just give it to the market, because one way or another you’re going to lose your money if you’re not writing down your trades. I’ll challenge you to do this, if you say, “Well I don’t need to do that.” Go another six months then look back over the last six months and ask yourself, would I maybe have done better if I had started writing down my trades and what my issues were?
So do that; I promise you you’re going to do a much better job at trading, and you’re also going to be able to handle this mess, because tomorrow the market’s going to open up and the day after that is the weekend. Next week it’s going to be trading et cetera, et cetera. You don’t have to trade every day; what you want to be doing is making money. The best way to make money is by losing less of it on days like today.