So, perhaps I should also give Sports ideas! Not! However, it is documented and anyone in the Live chatroom on Friday an attest, I predicted Seattle would win by THIRTY FIVE POINTS (35)!!!! I looked at the odds of that and had I bet it, it was 40 to 1. Who says gambling doesnt pay? Ah, yeah, well, NOT is the key word to my career as a gambler. And, does it really matter if I called the Super Bowl? You guys and gals, dudes and dudesses pay to get my market ideas, not my sports picks, and thankfully so. My record as a gambler is about as poor, if not poorer, than most anyone known to man, or even Sashkwash...and any Monkey throwing darts. In the realm of tangential thinking, Im watching MSNBC old special about Jeffrey Dahmer. You know, the maniac serial killer who murdered many women and ate pieces of them as well. What does that have to do with this weeks XTreme Income Trading commentary? Well, a lot actually. What I do is look at the market via trends. Trends are based on what? Human psychology are what trends are based on. We talk about the market in terms of program trading, P/E Ratios, Momentum Stocks, Valuations, etc, etc, etc. But, what really drives market pricing on a daily basis? Think about it, does it make ANY sense whatsoever that BAC closes at $16.50 one day and then is $16.90 the next day on no news? Of course not, so what drives market pricing on an hour to hour, day to day and week to week basis? Its not Valuation, if that were the case the market would be static, meaning it would not trade erractically. Youd be able to pin it down to a clear range based on variables that are quantifiable, and where you would get volatility would be when the valuations were proven overly generous based on news flow and earnins, or too pessimistic using the same parameters. In the worst Bear Markets the P/E ratio of the S & P 500 has dropped as low as 5s or 6s. In the Best Bull Markets its risen to as high as nearly 40 to 1 (1999/2000). That couldnt possibly happen if Valuation had much meaning, other than historically, and trend based, we should ultimately gravitate to the mean (which is about 15 to 16 to 1). Over time we should TREND toward the average. Programs? Well, program trading can overwhelm the average investor, or even fund buying and selling but they are based on large volumes of pairs, or algarythmic trading that is timed by PEOPLE who program the program selling. Pundits talk about this type of trading as though its the machines who do this, but obviously thats absurd unless we have some sort of artificial trading intelligence. Hmm, no, not in the least, at least not yet. So, the answer lies in figuring out situations whereby we have an EDGE, or MIGHT have an edge. Thats my job, to try to figure out where we might have an edge, the bigger the better and its solely based on TRENDS, which is based on Human Psychology. OK, so now lets discuss this coming week and see if we can tie this all together. Clearly we are in a very Bearish market phase. Most on the street believe this is a temporary thing and that any dip is a buy. There are those that have either turned bearish, or have been bearish and ripping out their hair for the last 4 years talking about VALUATION and how overvalued we are (we are about 30% overvalued historically based on MY proprietary research btw, but this is not significant as I pointed out, other than a frame of reference). Having lived through both Bull and Bear markets and studied them historically, one TREND Ive seen that is clear is that the average investor is ALWAYS behind the proverbial curve. Markets do NOT go straight up or down. Weve been in a particuarly Bullish phase and it seems like every dip is just an easy buy over the last four years. And, even I last year put out a short list that proved horrible performance wise as I mistimed the market. I teach that the path of least resistence is KEY to our success. If we go with the market momentum then we can only be wrong ONCE. Hows that? Because if I call some SPY puts, which I am going to, and were wrong and the market does go back to new highs, ok,, we will lose on those SPY puts, but we can switch and go long as well. Using ranges is a very potentially profitable way to trade. We break down, we press our short. We breakout over new hghs, we go long. One mistake many investors, and admittedly Ive made the same mistake at times as a trader, is to not listen to what the market is telling you. As stated, we very well may break back up and continue, but right now every rally or attempted rally is being what? SOLD! And yet, because the mentality is buy any dip instead of waiting for any sort of confirmation any day the market is down almost 100% trend is that the futures are up the next day. Not every day, but most. As I write this the market futures were higher decently, up about 4 points. Why? Now, one day does not a trend make, and hey, we may open Monday morning plus 15 points on the futures, but right now that has to be SOLD, not bought - until proven otherwise. Because THAT is whats working. To be clear, Im not saying we just short everything and go to sleep, we will and have and do buy LONG during this period, but I find best is to do that on capitulatory moves on heavy volumes, or as happened Friday - on big gap DOWNS, not on Gap Ups. Buying Gap Ups are a sucker play, same as shorting Gap Downs typically are. We also use technical analysis to pick out support and resistence levels. THAT gives us an edge, as does not worrying about missing a bounce or two on a dip, or missing a big down move. Jeffrey Dahmer felt compelled to do what he did. I dont want to offend anyone comparing investors to a serial killer, thats not at all what I mean, but were all compelled by our own natures, which fortunately for the vast majority of us means much more subtle and less murderous outcomes. If we are looking to buy every dip without any thought that perhaps we are going to get a larger correction, which I believe we will/are, then I am acting out of compulsion because worst case if I wait for a solid entry on a washout, or a breakout, is I miss about 4%, which is all were down and which is hardly a correction, not even close. I submit that right now, for now, our best bet is to short any gap up and look for SHORT entries on BOUNCES, not on the down moves. Snap back rallies have killed many a trader who in the end our ideas are right, but we stop out or get crushed before we can capitalize. Back in 2000/2001 when the market had finally reached a peak and sold off HUGE, I recall many days where we just gapped up again and again and most every time those Gap Ups were great SHORT opportunities. I think thats where we need to be. Thats the current TREND... This week is a big earnings week. We have TWTR, which is one of the few longs we own currently (with Call Options), but which we will look to exit before earnings this week. So far many companies have reported poorly, with some exceptions. NFLX = great FB = stellar, GOOG = eh, and it should be DOWN off them, not up, but thats why we dont try to buck the market momentum). AMZN = horrible. IBM = horrid, INTC = ditto. SBUX sucked too, but it initially went up, and now has rightfully sold off. I am sticking with near term plan here, Monday is the 1st of the month so we may get some funds flowing in and have a decent day, but Friday is the unemployment report and if those #s are bad again, it could be look out below after last months abysmal #s. The market had the Fed propping it up, now it doesnt, so unless the economy actually does prove its getting stronger, which I dont think is possible, then we should get that long overdue correction and I hope we can catch some of it. The market sells off a LOT faster than it goes up, its harder to make money when we go down quickly, but well give it our all! Lets play the March $183 SPY puts, looking for a move down to $165 to $170 level if Im right. These closed Friday at about $5.90, Id buy HALF the amount I typically would buy and then add if they hit $3.00. Risk is ENTIRE position, so if we rally hard through March 7th fini, these are gonna hurt badly! As far as Stock Play of the Week, lets try GRPN long here. I want to buy it here and have a stop at $9.45. Earnings are in a couple weeks and weve done very well owning this beast into earnings a few times if memory serves. Lets try it again! Rock on and RULE! Michael Waxie Parness mwparness@gmail 2-Week FREE Trial to our LIVE Ninja Trading room a $219 value -sign up NOW - trendfund/trial -- Michael Waxie Parness
Posted on: Mon, 03 Feb 2014 07:49:22 +0000
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