Click chart to enlarge DDM (and the entire market for that matter), held the new uptrending channel. Of course a channel does not really exist yet, but we drew one anyway because it is the most likely scenario. Of course it could fail at any time, and new lows could be formed, but we don't have to worry about that unless it happens. In the meantime, we're focused on balancing our portfolio in such a way that we take advantage of this extreme volatility (most volatile when a channel is in its infancy) by maximizing profits on both the long and short side, using the projected channel as a guide. Today was a little scary, as it threatened to break the projected channel, which would leave us in no man's land. Technically, a trendline or channel does not exist without three points, and we only have two. But at least we have that.
We got out of FXP (except for a negligible amount that got stuck in one of our accounts), and added significantly to our longs today, buying more DDM and some SSO. We are going to remain heavily long until DDM reaches 40, at which point we will begin a very gradual shift from long to short. If and when DDM reaches 45/46, we will likely own more FXP than DDM and SSO.
We'll repeat this for as many iterations as possible, until the channel is broken. That's the game plan anyway. Our advice is to not chase a position if you miss it, and to not make anything other than minor adjustments to your long/short allocation anywhere near the middle of the channel because the effects on your bottom line will be immaterial. Just focus on the big picture, paying no mind to hourly fluxuations. The daily chart is really all you need to pull this off.
34 comments:
Snot,
Have been enjoying your blog. Some questions: What's in the name and can you point me to a summary of your investing strategy. Also, Is there a book you recommend for this type of technical analysis (channeling)?
Thanks,
not so Rich
Not so Rich,
Wall Streeters wear expensive suits and flaunt their Harvard and Wharton MBA's as if they're some kind of status symbol, then they create companies named "Stratton Wilshire", or some other upper crusty English name (even though they're from Chicago), and then they steal from the public for years until the Feds catch up with them. We take a totally different approach. We don't take the market too seriously because it's terribly corrupt. The best you can do today is remove the shirt and tie (and the B.S. that goes with it), and accept that this is all legalized gambling and little else. If you call your firm "Stratton Wilshire", you run the risk of taking yourself too seriously by pretending that trading stocks is a legitimate career. Once you've accepted that, the name "Snotwheel" makes sense, as do the tee shirts we wear when we trade, err, umm... 'invest'.
There is no comprehensive summary of our investing strategy. Some have asked that we create one and post it on this blog so that newcomers can quickly be brought up to speed on the basics. We're working on that now, but the approach varies from bull to bear, making the "summary" more involved than one would think.
If you're looking for a book, we strongly recommed "Secrets for Profiting in Bull and Bear Markets" by Stan Weinstein. It is not about channel trading, but it covers the 4 stages of the growth cycle inside and out. Knowing those 4 stages, and being able to quickly identify them, is extremely helpful in understanding the basic concepts behind channel trading.
Hi Snot,
What stage are we at the moment? Appreciated! Thanks
FOUR! The entire market is in a Stage Four decline (downtrend). It is hard to even find any chart in an uptrend in this market. The market will not leave Stage Four until it breaks above its 200 day moving average, so it will remain in Stage Four regardless of its performance for some time.
"until it breaks above its _uptrending_ 200 day moving average" :)
Question to the board:
I've been wondering, why the market is not convinced by the gigantic emergency programs in the US and in Europe.
Now I found an explanation by a German expert: According to our German plan, the state can take over struggling banks. If banks ask for help, the top-management has to accept the fact, that Berlin runs the show. More important: The compensation is cut to a maximum of 500k Euro. Therefore, the executives of failing banks would never accept state support, until it's too late.
My conclusion: Bank-bosses with huge egos sell everything they can. Just to avoid humiliation and compensation cuts.
Any ideas about this thought?
Remark for Snot:
Interesting to read that you consider sharing your knowledge with others. Sounds like a book in the making. You considered my advice in spring to open an own blog and to leave the trashy LDK-board. Now, you might reconsider the newsletter-idea.
newfrankyboy
How would charging people offer any improvement? I've been with this blog since the start and I think it's turned into a nice place for intelligent give and take (99% of the time anyway). I keep hoping that one of us readers will figure out what the next "big thing" is going to be and let Snot know ahead of time instead of him pretty much always helping us ahead of time. That would be the best way to repay Snot for all the help he's given us, and probably the way he'd prefer since that would net him far more profits than running some nickel and dime pay-for newsletter or blog or whatever.
I appreciate your blog Snot, and I for one hope that you continue to keep things just the way they are.
Art Cashin still thinks we need to retest last Friday's lows. Let's do it today!
We like the blog the way it is, too. We are hoping that the readers help us find the next big thing in its early stages so we can all ride the next wave together. We look through charts using a scanning system looking for charts that meet the criteria, but it's not perfect. There are charts that look ok now, but we need several in the same sector to look good, and for the indexes to also be in an uptrend before we can get excited about the investment.
Why is Bush speaking? He can only hurt things.
snot,
market seems to lack of direction...
do you think we should still go long at this point?
Car Battery is the next big thing.
SQM comes to mind, but that is categorized as commodity stock so...
A battery company that powers the car. Such as the one Warren Buffet invested in only available in HK market.
We're staying long on the thinking that the market will return to its moving average. It may not quite get there, but that doesn't matter. Don't watch the hourly fluxuations. All you need is daily charts. The hourly gyrations could scare you out of an otherwise profitable position.
Until we close below the channel, we have no reason to watch the market closely.
I think several people on the LDK board last spring encouraged Snot to start a blog, myself included. I'm glad most of the lowlifes didn't follow us here.
The Weinstein book is good BTW, I'm well into it. It's a bit dated, but the techniques are timeless.
Yes, it's a little dated, but learning the 4 basic stages is so, so important. It helps you to understand that a stage 4 stock is headed to zero until further notice. If all you take from the book is that one concept, you can save yourself a lot of pain.
When you're done with that book, if you haven't read it already, Nick Darvas's "How I Made $2 Million in the Stock Market" is a great read. It's also dated, but it's still a classic and its basic teachings still apply. It's also a fun read, as it's written as a story of his journey into the market.
We're quickly approaching DDM 40 which is where we need to start thinking about our next move. Perhaps Monday we can look at how much further this rally could conceiveably go.
hi Snot,
I believe the reason for today's mid-day really was because it was option expiration day. NDX had a resistance at 1360 and of course it didn't break it. I believe the next target is going to be between 931.50 and 898.50 (a 31-33% decline). The capitulation hasn't happened yet since there is still hope in the market, people are still talking about buying socks. Should we get an event like 1987, the target could even be as low as 792. That would constitute a 42% decline from 1360. I do not know which it may be, but the enormity of any of these targets is simply shocking.
I hope I am wrong.
Good luck to all.
Hi Snot,
What is your opinion for POT. Trading at 6x P/E. Down amost 70%. Do you think we can get LONG from here? Thanks
Johnny
Hey Johnny, read over some of the older snot-posts here and you'll find an answer to that question (not excactly that question but you'll know),... a quick answer is that the P/E doesn't matter now, the graph looks bad and you should awoid POT
sigurduregill
Johnny,
Look at DRYS,ACH, VCP.Tell me what do you see in common?
That answers your question.
Also that answers why the capitulation hasn't happened yet.
Thanks guys! =:)
Snot,
As for any uptrending charts or something close to it in this bearish market, drawing some long lines to account for the crash of the last month, how about FDO, FRED, DLTR and MCD. What do they have in common? That's where bubba shops all the time and that where everybody shops when times are hard.
Hi snot!
What do you think about EBS?
Hk, it's very possible that the market goes lower, but we think that it's oversold enough that people should be accumulating the indexes. Buffett has been buying, for one. He generally doesn't catch the very bottom, but when he starts accumulating, it indicates that we're at a level that we'll likely return quickly to if the market should crash from here. You can tell from our allocation that while we think the next move is higher, we wouldn't go long without plenty of dry powder.
Johnny, the guys are right, it's good advice to avoid buying individual stocks in a bear market.
Furthermore, when a new bull does come along, the glamour stock of the previous bull are not the leaders. In fact, once forgotten, it is our belief that stocks spend the rest of their existence slowly going lower.
Anon, we like you're thinking that people shop at Dollar stores during bad times. Cramer has been recommending that people buy stocks of pawn shops. We don't like their charts, though.
We're all for strong fundamentals, but not without favorable technicals. Neither FDO, FRED, nor DLTR have good long term charts. MCD does. If we had to pick one, it would be MCD, but it had its own problems. Its recent strength is due to massive international expansion. Considering the economic crisis is now a global event, we would not count on countinued earnings strength coming from their recent ventures.
Anon, thanks for bringing EBS to our attention. We'll look into it further. While we have no interest in buying an individual stock in a bear market, researching it is well worth the time. Many times the charts are the first indication of where the next bull's strength will come from.
Hk22,
Here is a different way of looking at Friday's action, just to play devil's advocate... Instead of finding an excuse for the rally (options expiry), we think that the rally was/is in the cards and instead need an excuse for the selloff. That excuse is easy... Friday. Traders exit positions before the weekend. Perhaps Friday's stunted rally will resume Monday or Tuesday.
Hi snot.
I'm not Anon, but no problem. :)
Hi Snot,
Where do you think oil would go in the next or few weeks or after the OPEC meeting? Seems like it would come back up to around $80? (DIG and DUG seems to be pretty good trades)
The price of oil is very hard to predict... much harder than most stock charts. It's like the BDI (Baltic Dry Index), which seems to have a mind of its own.
Our guess, though, is that oil is a buy. It's down 50% from its highs, and now that's it's $3 at the pumps, we cannot imagine it going much lower. We will not venture a guess on its short term moves, but longer term, oil should stabilize in this area.
Hi Snot,
Do you still think MOS will go to 14 cent? Trading up today on new that Cargill Inc may take major stake. Time to get in for the ride? What is risk/reward? Thanks
For the moment, the market is trending higher, but we're still in a bear. Our guess is that once we return closer to the moving averages and are not so severely oversold, there will be another drop. Maybe not to new lows, but another violent drop nonetheless. The fertilizer stocks have been forgotten and will not be the leaders of the next bull market. If you are buying any of them, you should be taking the value investor's approach and be expecting the stock to go sideways for many years. If it goes higher, consider it a gift.
Hello Snot,
SSO or DDM is better buy here? What is your target on these two? Thanks
SSO is better because it's more diversified. We just like DDM because we're very familiar with the Dow's levels. We wouldn't add to a long position here, but if you don't already have any, you can start your position at these levels. Buy a portion of your desired position, not all of it. Our short term target for the indexes are their highs of 10-14. This is approx Dow 9800. If you are new to the blog, then you may not know that we do not wait for our price targets in order to start selling. We scale in and out of positions as the market moves towards our targets. At the same time we're scaling out of DDM, we'll be scaling into FXP. We haven't done any of this yet, but are looking to start making the slow transition if/when DDM reaches 40.
If you are starting your position here, do so with the mentality that it will be a long term hold, and one that you'll add to if the market continues to slide.
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