Month: January 2012

I sat down with David Berman at the Globe and Mail in Toronto this week and discussed short term trading.

Day trading gets a bad wrap and I think some of the criticisms can be justified.

If you are not prepared to control risk or dedicate your professional life to the endeavor, then you will likely lose money. You are probably just gambling.

If, on the other hand, you approach it as a craft and career, then you have a shot…

The greatest advantage to day trading that I see concerns value at risk. If you are not taking home risk then you are not exposed to large overnight dislocations caused by major events and the potentially large price gaps they provoke.

So gap risk is completely off the table because you are not involved when the market is closed.

On the other hand, shorter term trading seems to be getting more difficult for some due to high frequency trading and the games the computers play on the bids and offers.

You can watch the video HERE.

Apple ($AAPL) reports after the closing bell tonight.

There are few more anticipated numbers than this one.

Everyone either has a position, an opinion or an allegiance. What’s more, Apple’s report and its price response will have a significant effect on the broader market, especially the $NDX, at least over the near term.

Yet, it makes no difference to the individual investor whether they beat, meet or miss or how they guide. What matters much more is whether you have a plan going into the number and how you are positioned.

If the stock drops 5% as it did last quarter on the day after the report (and the $QQQ drops 2%) will you have given up your hard earned gains for the year? What is your value at risk and how are you managing it?

Have you done the math?

Back in the day, before NASDAQ 5000, Intel, Microsoft, Dell and Cisco were known as the 4 horsemen of the NASDAQ as they dominated the index and created incredible wealth for shareholders over an extended period of time.

It will be 12 years in March since the NASDAQ crash began and these stocks have not fared well in the interim.

Since the 2000 top, $CSCO is off 75% plus, $DELL is off almost 75%, $MSFT has lost half its market cap and $INTC has lost nearly 2/3 of its value.

Much more recently though, $INTC and $MSFT have been trading extraordinarily well and have garnered more attention on StockTwits and in the media (Disclousre: I am long Intel).

Nothing remotely like the truly epic action back in the day but still noteworthy with $INTC making 3 year highs this month and up well more than 30% from its September bottom and $MSFT climbing 15% in 3 months and 8% already in 2012.

So I’ve been taking a look at $CSCO to see if this original horseman might also be setting up and took note of no breakout yet but what looks like a clean rounded bottom.

I asked my bud, expert chartist and mad genius behind Day Trader Bootcamp, Ron Roll (AKA: @gtotoy), what he thought and he sent me along this weekly study which is also constructive.

Take a good look. Ron adds that he likes a break above 19.5 with a stop at 17.53 or building a position on a drift lower as it forms a handle.

 

*For those unfamiliar with The Goat’s creative nomenclature, by Kirby he means vacuum.

 

 

 

 

Over the course of 2011, The S&P 500 ($SPX) ended trade at 1257 precisely where it ended 2010.

The resulting candlestick on the yearly chart is commonly called a doji among chartists.

Its tricky making assumptions about the meaning of this or any pattern. Unburdened by interpretation, the candle represents a summary of price behavior in which the market traded in a 24% range from top to bottom while opening and closing 3% above the mid point of that range.

Still, to me, it looks a lot like a cross, which is a fitting metaphor for the year as sacrifice and rebirth are two critical underlying themes as we move from December into January and a new year.

Looking back, the market sacrificed the year to attempt to make meaning of realistic fears related to Europe, global debt, the China bubble – you name it.

Traders, who’d grown comfortable riding bullish trends during 2009 and 2010, sacrificed their prediliction as every trend seemed to end abruptly, almost violently and with an endless array of lunatic reversals.

Momentum sacrificed his boundless energy to simple gravity – the folly of misguided expectations…

Hedge funds sacrificed performance, losing across every strategy against its benchmark, which might foster a pruning of beta masquerading as alpha – an epidemic.

We sacrificed the sacred cows as Bill Miller mercifully hung up his cleats and Jon Paulson blew up as spectacularly as he dominated just a few years ago.

The collective participant psyche sacrificed illusions of certainty or order in the larger entropic current – that complexity thickens even as the world shrinks.

All very humbling to those willing to listen.

Looking ahead though, and having sacrificed, the potential for rebirth in 2012 abounds with freedom to distinguish the things we can not control from the things we can.

We can not control how the market or a specific asset is going to behave no matter how sharp our sword or superb our analysis. Those who learned from 2011 and grew, learned this lesson well at some point… the wisest sacrifice.

We can control our own behavior, preparedness, management and execution. For this, and not being right with magical powers of prophecy, separates the fleeting phenom from the enduring success.