Why Are You Having Such A Bad Year

Based on the market action of the last year, most investors probably would've been better off doing nothing.  Bull and bear markets are generally defined by whether or not the SP500 is trading above or below its 200-day moving average.  Over the last year, the SP500 has vacillated above and below the average for short periods without a sustained trend.

While the SP500 has held up relatively well due to a few mega-cap names holding up the index, the majority of stocks have been in a bear market for most of the year.

By comparing the SP500 and Nasdaq 100 to their equal weight counterparts, you can notice the enormous impact a select few names have had on the two indices.

Click To Enlarge

Typically, this type of bearish action that we are witnessing on most individual stocks trickles down to the actual indices, and the indices might catch-up to the stocks. However, one must keep an open mind that maybe individual stocks may start to act better and the market's breadth will broaden.  As of right now I'm seeing subtle improvement on some individual names.

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Top Posts Of The Week

Read This Before You Call It Quits

25 Years Later We Are Still Complaining About The Same Things

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Read This Before You Call It Quits

Before you jump the gun and call it quits on the market based on a tough week I want you to know a few things;

1.  Since 1980 the average intra-year decline in the SP500 has been roughly 14%.  26 out those 34 years despite the average intra-year drop the market closed positive, 76% of the time.  That does not mean that the declines were not painful; it's just a reminder that the market goes UP and DOWN, not up OR down.  And, draw-downs are unavoidable, there is no sense in trying to avoid what cannot be avoided. 

2.  Its never been wise to be a bear for too long.  In the last 89 years, stocks closed down 20% or more six times (7%).  35 out of the last 89 years stocks delivered 20%+ returns, (39%).  Try to minimize your losses but never forget that the real game is played on the long side. 

3. The SP500 annualized gain is 10%; that doesn’t mean that you will make 10% every year, you are going to have good years, bad years, great years, and awful years.

4. You will have reasons why should get out of the market; they will always be more enticing, believable, and persuasive than the reason you should stay in, especially if you are still licking your wounds from 2007.

Feel free to plot the reasons above to the SP500 chart below.

5.  Realize that there is a time to be aggressive and a time to just move a couple of pawns around just get a feel for the environment.

6.  Stay thirsty, don’t disengage. 

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25 Years Later We Are Still Complaining About The Same Things

25 plus years later we are still complaining about the same things.  The more things change, the more they stay the same.  If you have kept an eye on the financial blogosphere you have probably read about; the massive buybacks corporations are doing due to all the free money, the underperformance of hedge funds, and the influx of cash moving into passive strategies. Below are excerpts from a book written 25 years ago.

"The rotund and owlish seventy-five-year-old money manager's worries are legion: the horrendous budget deficit, the competitive failings of U.S. business, deficient ethics, the undisciplined stock-buying spree."--Every time a major corporation misses their quarterly numbers they immediately announce a buyback.

"Wright Investors' is typical of a majority of U.S. money managers who have failed to match the performance of the major stock market indexes during the five-year bull market."--We hear about this every day, outperformance by managers comes for the most part in down years.

"Inevitably the competition among the nation's more than 1,000 money management concerns came from investment performance measured not from decade to decade or year to year, but from quarter to quarter."  This was recently discussed by Carl Ichan.  With social media and up to the second everything, investors now have the ability to become even worse investors quicker by chasing what has been hot and getting rid of what has not.

"Institutional clients began to resent the fees they were paying to their money managers, and indexing began to appeal as a way to cut investment costs."--Passive investing, robo advisers.

"As the popularity of index fund grew, so did trading in the same big blue-chip stocks that account for all or most of the weight of the most popular market measures among index fund builders: the S&P500, The S&P100, and the American Stock Exchange's twenty-stock Major Market Index (MMI), which includes seventeen stocks from the Dow." --All we hear nowadays is how only a few mega-caps are lifting the averages, FANG.

So there you have it, the popular topics of 25 years ago are still popular today, what's new?

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The Extremist

The above quote from Sean McLauglin is very true, all you have to do is read any of the market wizards books to agree.  You had macro investors, value investors, technical traders, etc..; Bruce Kovner, Jim Rogers, Mark Weinstein. Today we have many extremists in the investing world; we have the extreme fundamentalist, the extreme technician, the extreme passive investor and the extreme active investor.  What dictates what is the right way or wrong way of investing/trading is your P&L.  I believe a hybrid approach triumphs all.

There is no doubt that in order for a stock to make a multi-year run it has to have a story, strong earnings, sales growth etc…But sometimes a stock can get cut in half before the next 10-Q and 10-K comes out, look at the oil names recently, sometimes a stock can double before the next 10-Q.  

Technicals will many times keep you from owning a great company, with great numbers, just because it broke some trend-line that you believe is important or because it's below some magical moving average.  Other times it will take you out of an overly loved stock that gets cut in half before the fundamentalists get a chance to read the latest filings.

Pick your poison.  What’s important is to know what works for you and what works within your time-frame.  If you are a 10-Q, 10-K reader then your time frame is at a minimum one-quarter, you should probably not sell a stock based on the price action if you bought it based on its previous 10q.  You must first read the updated 10-Q or 10-K, and then you have to come to the conclusion if whatever changed is a one-off event. Tough decision.

If your time frame is less than a quarter and even up to a year then earnings, sales, growth are for the most part irrelevant, if you think otherwise just look at the biggest winners every month.  

Here is what Kyle Korver the NBA’S best 3 point shooter had to say about developing his shot. “I think the secret to shooting is finding a shot you can make exactly the same every single time and then do it a whole lot. There’s no secret potion to it all. You just gotta find something, however you are, like, whatever feels good to you, but shoot it so you can make it the exact same every single time. The exact same. Like, a little bit off can change a lot. So you focus on trying to make it the exact same, and over time hopefully you become a good shooter.”  In other words—DO WHAT WORKS FOR YOU.

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Focus On What You Can Control

• You can control what stock to buy.
• You can control how much money you put behind the idea.
• You can control which markets you trade in.
• You can control how much you are willing to risk per trade. 
• You can control what type of stocks you buy, big caps, only small caps, only over $20, only under $10, etc.,
• You can control what kind of set ups you buy.
• You can control when you get in or out, barring a halt.
• You can control when to trade or when not to trade.
• You can’t control the outcome of the trade.
• You can’t control how the market will react to the news.

Don't fret over what you can’t control, shake it off, once you put the trade in what the market decides to do is out of your control. 

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Photo; guruseye

Brazil's Strong December Streak

Right around 3:40 pm news hit the wires that Brazil's President Dilma Rousseff will face impeachment proceedings. EWZ (Brazil Index Fund) spiked higher.  One can assume that based on the immediate reaction that the investment world views the news has positive.

The news comes at an interesting time, there has been some recent heavy call buying in EWZ, and the ETF has held above the low of 9/10/15 which was the day after Standard & Poors downgraded Brazil to junk.

But it gets better.  December by far has been the best month to own Brazil.  In the last 15 years EWZ in December has enjoyed an average gain of +5.14% with a win ratio of 80%, it's been up 12 out of the last 15 Decembers. --Source PastStat

While the impeachment process may take months, the possibility that it might happen could very well be enough to keep a constant bid under EWZ.

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Three Stocks Ready For An Extended Move Higher

I'm a big fan of bases, the longer the base the better.  The base is a term that technical analysts uses to define a stock that has been trading sideways for a while.  I'm always intrigued by bases because a prolonged period of contraction typically leads to an extended period of expansion, and the longer the base, the better it is.  What happens in the base that is being formed after a big decline in the stock is that the buyers and sellers find equilibrium, the sellers, for the most part, are done selling and or the buyers are taking in all the supply.  These new stockholders apparently believe that greener pastures await the stock.  More importantly, what you see right before the stock exits its base to the upside is a series of higher lows. $BCEI, $TRUE, $DANG, have all exhibited a series of higher lows. These stocks are to be looked at positively as long as they stay above their bases that are well defined.

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Trade Ideas, When To Push

One of the hardest things to master when you are swing trading is when to push the pedal to the metal and when to hit on the breaks.  We have two possible market moving events this week, ECB meeting tomorrow, and the NFP number on Friday.

TRUE, YELP, RATE, UIHC, CEVA, GIMO, IMPV, OPK, SSTK, DANG, ECHO, GWR, CNSL, WSTC, PYPL, GNW, are the names on my swing trading watchlist today. Link to CHARTS.

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I don’t look at charts in your conventional cookie-cutter manner, or have rules as to where the stock should be whether its 15% off its 52-week highs or above or below certain moving averages, etc, .in the short term none of that matters.

1. How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. All this can be done pre-market.

A few things that you should know about this swing strategy;

•  Its primary goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets; it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling five-day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action; we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for ten days but who is to say that it won’t coil for another five days.  If you anticipate the range expansion you might buy something that is not ready to go, and it will only frustrate you and lower your odds of a winning trade.
• For me, this list is a one-way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automate it with buy orders after 9:45 am.

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The Month Of December Is A Lay Up

If you have not already heard, December tends to be a good month for the bulls, particularly in the small caps.

Since 1990, the average return for the Russell 2000 has been +3.57% with an 87% win ratio.  The last time the Russell had a down December was in 2007.

The SP500 has enjoyed an average gain of +1.83% and has been up 80% of the time since 1990.

Past performance does not guarantee future performance.

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Source; PastStat

Trade Ideas, It's All About Execution

You can be best chart reader in the world, the best stock picker we have ever seen, but none of that matters if you can't execute.  It's no different than having the best product in the world, but if you can't sell it, then it's pretty much worthless.

GIMO, BLX, CRM, ECHO, DGX, BCEI, WSTC, GNW, PYPL, are the names on my swing trading watchlist today.

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I don’t look at charts in your conventional cookie-cutter manner, or have rules as to where the stock should be whether its 15% off its 52-week highs or above or below certain moving averages, etc, .in the short term none of that matters.

1. How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. All this can be done pre-market.

A few things that you should know about this swing strategy;

•  Its primary goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets; it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling five-day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action; we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for ten days but who is to say that it won’t coil for another five days.  If you anticipate the range expansion you might buy something that is not ready to go, and it will only frustrate you and lower your odds of a winning trade.
• For me, this list is a one-way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automate it with buy orders after 9:45 am.

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Trade Ideas, Focus On What You Can Control

Focus on what you can control.  Once you put your buy order in and it's executed, how much or how little you watch the screen is not going to make a difference, you cannot will a stock to go higher or lower.

RATE, GIMO, GWR, NBL, DANG, AUDC, LNKD, FB, UTX, MITL, WSTC, BKD, are the names on my swing trading watchlist today.

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I don’t look at charts in your conventional cookie-cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc, .in the short term none of that matters.

1. How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. All this can be done pre-market.

A few things that you should know about this swing strategy;

•  Its primary goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets; it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling five-day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action; we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for ten days but who is to say that it won’t coil for another five days.  If you anticipate the range expansion you might buy something that is not ready to go, and it will only frustrate you and lower your odds of a winning trade.
• For me, this list is a one-way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automate it with buy orders after 9:45 am.

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How To Save A Ton Money Swing Trading

I get a lot of calls from my broker friends asking my opinion on different stocks. Usually, they ask me after they buy the stock, I always tell them that if they wanted to know my opinion then they should've asked me before they bought it, there is a whole psychological reason behind this that I won't get into. They also tend to ask me about stocks that are already up 4-5 days in a row, usually this is when the story gets around the office, and they start to believe that the stock will never go down.  I also see many on Twitter touting breakouts on stocks that are up 4-5 days in a row.  If your time frame is 0-20 days then buying a stock up 4-5 days in a row is a poor decision in my opinion.  When I say time frame, I mean the actual time frame of your trades, not your mental time frame, or the time frame that you wish you had the ability to hold through.  Many traders want to be long term holders until the stock closes down .10 cents, just like many investors who say that they are in it for the long term until the first 5% correction hits them. There is a difference between buying a stock at $15.43 after its up five days in a row and buying that same stock at $15.43 after ten days of sideways action.  Very simply the latter offers a better risk reward ratio, not only monetarily but also mentally.  If you want to save a lot of money and frustration, don't chase stocks up 4,5,6 days in a row.

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Trade Ideas, Adapt

We need to stop quoting old sayings by Wall Street "gurus", things change, what might have worked 20 years ago might not work now.  When it comes to trading we hear a lot about discipline, not enough is said about ADAPTING.  Remember when taking a three-pointer on a fast break was a sin?

CEVA, SOHU, GWR, DGX, ABC, M, FEYE, RGLS, DATA, SQM, SGMO, SGYP, XBI, NK, MITK, are the names on my swing trading watchlist today.

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually it's no more than 50 names.  My process is based on market structure, not on beliefs or myths about what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure; these behavioral patterns are recognizable, observable, and quantifiable.  On a daily basis, we have 3,000 stocks that we filter based on certain market structures that give us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names, he market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

I don’t look at charts in your conventional cookie-cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc, .in the short term none of that matters.

1. How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. This all can be done pre-market.

A few things that you should know about this swing strategy;

•  Its primary goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets; it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling five-day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action; we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for ten days but who is to say that it won’t coil for another five days.  If you anticipate the range expansion you might buy something that is not ready to go, and it will only frustrate you and lower your odds of a winning trade.
• For me, this list is a one-way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automate it with buy orders after 9:45 am.

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Biggest News Of The Day

The one piece of news that shook Wall Street this morning and put everyone on notice was, Turkey gunning down a Russian jet.  Futures immediately took a nose dive, but by 11:00 am the market made a comeback and closed positive.

Energy names led the way; Energy was the best performing sector today with XES up 4.69%, OIH +3.26%, XLE +2.17%, USO +2.23%.  Gold and the gold miners also had a slight uptick, probably related to the Russian/Turkey news.

Absent from today's brief turnaround was AMZN, FB, GOOGL. LNKD, these have been stellar performers lately, but they did not go green as the market did after midday.

The focus now is on a possible retaliation by Putin; that's probably the reason why we saw significant moves from the oil names and the gold miners.  "Putin calls jet's downing 'stab in the back,' but Turkey says warning ignored."

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Trade Ideas

Trading is 90% mental, if you look in the mirror, you will be staring at your biggest challenge.  Conquer your emotions and you might have a shot in trading successfully.

$NPTN, GIMO, TEO, NLS, TYPE, MXWL, NPO, EXPO, VNET, BCEI, RXN, OSK, MTN, TKR, BDC, WUBA, YGE, AMOT, WSTC, NK, are the names on my swing trading watchlist today.

The Process;

Every morning I go through a few of my scans to find buy candidates for the day.  Depending on the current state of the market the size of the list will vary, usually it's no more than 50 names.  My process is based on market structure, not on beliefs or myths about what works– or what doesn’t work.  They are certain behavioral patterns that have been around for 100 years that are based on market structure; these behavioral patterns are recognizable, observable, and quantifiable.  On a daily basis, we have 3,000 stocks that we filter based on certain market structures that give us an edge of a higher probability than a random outcome.  Once the list is narrowed to a handful of names,he market will further narrow down the list by getting us in or keeping us out of these names with a range expansion move.

I don’t look at charts in your conventional cookie cutter manner, or have rules as to where the stock should be whether its 15% off its 52 week highs or above or below certain moving averages etc, .in the short term none of that matters.

1. How much you put at risk per trade depends for the most part what your current outlook is for the market over the next 0-5 days.
2. Put these names on your trading platform.
3. Set the alerts at yesterday’s high for each name.
4. Once the alert goes off take a look at the chart, decide within 3 seconds whether or not you are going to buy it.
5. Decide how much you want to risk on the trade and your stop loss.
6. Hit the buy button, and leave the rest up to the market, wash, rinse, repeat.  Buy’em tight, Sell’em loose.
7. This all can be done pre-market.

A few things that you should know about this swing strategy;

•  Its primary goal is to get you in when stocks are moving and keep you out in choppy/sloppy markets; it is imperative that you allowed the market to get you in only when the stocks go through their previous day’s high.
• Your awareness of how the market is behaving is crucial, this will give you an idea of how hard to push the envelope.  My best indicator for this is my rolling five-day watch-list.
• Swing trading is a numbers game, you are going to be wrong half the time, risk management is above all, and many times you will have nothing to do because the market did not get you in. We are not looking for any action; we are looking for the right action.
• Don’t be penny wise, don’t try to anticipate a move just because the chart looks good.  You can have a great looking tight set up with a stock coiling for ten days but who is to say that it won’t coil for another five days.  If you anticipate the range expansion you might buy something that is not ready to go, and it will only frustrate you and lower your odds of a winning trade.
• For me, this list is a one-way list – long bias.  I do not look at this list as a long or short list, long and short are two different games with different dynamics.
• You need to be extremely organized.  Most if not all your work will be done pre-market and you will spend the day just executing or you can just automate it with buy orders after 9:45 am.

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Bringing Back The Smart Money Index

We have been hearing a lot of complaints about how weak breadth has been, how only a few stocks are pulling the indices higher.  Whether bad breadth will ultimately be a problem or not remains to be seen. You have to keep an open mind that maybe more stocks will start to participate in the future, it doesn't always end badly.

The image below tells you the whole story.  The mega-cap names that have a larger effect on the SP500 have outperformed their little brothers on a 1, 3, 6, and 12-month basis. The lower cap names are all lower in every time-frame.

According to Finviz, there's 21 mega-cap names, 571 large caps, 1041 Mid caps, 1621 Small caps, 1229 micro caps, and 599 nano caps.  When you take the breadth of the entire market and plotted against the SP500 you more than likely will see divergences. It's not fair to compare 4,490 stocks not in the SP500 to the SP500.

Maybe it's not too late get reacquainted with the smart money index of the 90's, $OEX. The index is composed of the largest U.S. companies in the world.

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Checking In On The Robo Advisors

We all know how miserable it's been recently for some hedge funds, now it's time to look at some Robo Advisors.  These portfolios vary depending on the needs and risk tolerance of the investor, but you can get a feel for what the returns might look like for a conservative or moderate investor. I'm using the allocation of a recent Wall Street Journal article.

Schwab Intelligent Portfolios, 30% U.S. stocks, 30% International stocks, 12% U.S. bonds, 9.49% International bonds, and 18.51% other; U.S. reit, EX-U.S. reit, IAU, 8.51% cash, this particular mix is down 5.16%.

Betterment's mix is 33.5% U.S. Stocks, 36.4% International Stocks, 15.6% U.S. bonds, and 14.5% International bonds, this mix is down 3.66%.

Wealthfront has 41% in U.S. Stocks, 31% International stocks, 23% U.S. bonds, and 5% other (DJP), this particular mix is down 5.15% year to date.

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