the Market Is a Reflection of Who You Are ...

High Correlation and Downward Momentum

2011-08-22T11:09:00.000-07:00

History never repeats itself but it rhymes

-- Mark Twain

Talking about some statistics of the market, here are some good facts to know from Bloomberg

High Correlation

Stocks in the S&P 500 are moving in lockstep with each other by the most since at least 1990, a sign that the market's biggest retreat in three years may not be over, according to MF Global Holdings Ltd. The average correlation coefficient between the 500 companies and the index was 0.8268 on Aug. 18, using 60 days of data, according to MF Global.

High correlation is usually the case in a bear market, when investors are liquidating equities as an asset class, Craig Peskin, co-head of technical analysis at the New York- based firm, wrote in an e-mail on Aug. 18. In a bull market, when investors are differentiating, we see low or falling correlation.

Correlation among S&P 500 stocks exceeded 0.78 twice previously, according to MF Global. After the first time, on Dec. 1, 2008, the S&P 500 declined 17 percent to a 12-year low on March 9, 2009. Correlation peaked again on July 26, 2010, when the benchmark slipped 6.1 percent over the next month, data compiled by MF Global and Bloomberg show.

The momentum of downward spiral

History shows the S&P 500 may keep sinking. The index plunged 16 percent between July 25 and Aug. 8. The eight declines of that size over similar amounts of time since 1928 led to additional losses averaging 17 percent, according to data compiled by Bespoke Investment Group LLC, a Harrison, New York- based research company.

Marc Faber on the market

2011-08-07T02:37:00.001-07:00

Marc Faber is a wit ...

The Case of a Bear Market ...

2011-08-02T00:23:00.000-07:00

For all the hoopla in the stock market, 2011 has been an extremely choppy market. At this writing, S&P 500 has gone no where since the start of the year. However the time is finally ripe for a bear break ...

In my last market missive, I talked about some dangerous signs pointing to market internal deterioration, let's review what has happened since May 15, 2011.

Nasdaq made a nominal high of 2887.75 on May 2nd after the relief rally from the Japanese earthquake and tsunami disaster. The high surpassed the 2007 Oct high of 2861.51 (It is simply eye popping to watch how powerful Fed could lift all asset classes by its massive influx of cheap money to the market). From early May to the middle of June, the Nasdaq dived 10% due to the European mess on bailing out troubled Greece. At the middle of June, the Greece problem was put aside and the anticipation of good corporate 2rd quarter earnings started the summer rally in earnest, with some big multi-national US corporations reported solid numbers, including IBM, GOOG, AAPL, BIDU etc. Here comes today, as the debt ceiling debate is over, this market is yet again in a critical juncture, where is it heading? The indices don't tell a full picture.

One striking fact about the last 5 months' market activity, shown in the above Nasdaq picture, clearly demonstrate repeated heavy selling from the institutions. Heavy volume sell off from the top (early march), followed by low volume rally to new highs (Mid March to end of April), followed by another boat of concentrated high volume liquidation (May to Mid June), followed by low volume summer rally. This pattern can be seen in many stocks and sector ETFs, e.g. oil ETFs, XOP, XLE, OIH; metals and ming ETF XME; industrials ETF xli etc. Repeated high vol sell off followed by low vol rally points to market topping process. Smart $$$ is leaving the market.

The internals of the market is rapidly deteriorating. The above picture shows the percentage of Nasdaq stocks above 200MA for the last 3 years. It is clear that the number of stocks participating the market rally since March 2011 shows strong negative divergence. With more and more stocks breaking below 200MA, the indices are only a few percent below their all time highs. What is holding up the market? One pillar (or the single remaining one should I say?) of the strength comes from some big cap tech stocks, AAPL, GOOG, BIDU, IBM, AMZN. When they finally start to top (they have yet to show signs of topping), the flood gate will open.

Looking at the market sectors, financials (XLF) and Semi conductors (SOX) are mired in their bear land; Industrials (XLI) finally breaks down last week. As the pillars of any bull market, these three areas are pointing further market weakness to come.

On the growth stock land, the whole cloud computing stocks are gone (look at RVBD, ARUN, APKT, FFIV, VMW, CRM etc); Some small innovative or niche market growth stocks from the March 2009 bull market are taken to the woodshed (e.g. OPEN, ACOM, PAY, etc). There are some selected retail stocks targeting the American affluents (and a few medical stocks) are still holding up (e.g. LULU, CMG, GMCR, FOSL, TIF, TPX, HLF, ULTA etc), however the names are getting thinner and thinner. (These stocks are yet another fact to know that those rich are less affected by this rapidly polarizing society where poor becomes poorer and rich becomes even richer ... how to protect your family and kids from this wealth zero sum game? learn to invest properly is certainly one way !!!)

How is the market sentiment now? No bears, the latest Market sentiment survey continues to show more bulls than bears, bulls 50%, bears 21% which is a remarkable contrast to Sept 2010, where bull/bear ratio is 40% bears to 30% bull.

As I went to an IBD meetup here in the bay area on late July, 2011, more than 60% of participants are bulls and one bullish argument they constantly cite is the fact that the average bull market length is 3.8 years and this bull market is only 2.3 years old and also the fact that we are in the 3rd year of presidential election which is usually bullish.

Let's look deeper into the length of the bull market. This article was written in Jan 2011, so the current bull market length was shown to be 1.8 years.

Here are some important fact to know, as of the last bull market of 2002-2007, among the 15 market cycles from 1930

The average duration of bull markets since 1932 is 3.8 yrs (median of 3.6 yrs)
80% of bulls lived past their 2nd birthday.
Barely half saw their 3rd birthday.
The average gain of these past 15 bull markets is 136.4%; The median gain is 101.5%.
The last bull market lived less than 3 years is 1987 bull market which lasted 2 years 7 month.

We are now 2 year 4+ month into the bull market. Because the average bull market is 3.8 years long such that we don't have a case for bear market? NO, your conclusion is flawed, the distribution does not suggest you have a strong case.

As I am sitting here in caesars palace in Vegas attending the annual Blackhat hacker conference, I see some hackers constantly refreshing their browsers to read the debt ceiling news on Bloomberg as if the market's softness is purely due to the debt ceiling uncertainties. The fact is the market will go where it wants to go regardless what the solution of the debt ceiling is.

I don't know what will happen tomorrow or a month later. I careless about the news. The price, volume action at hand as of this writing on the indices, sectors, and stocks, however, point to an upcoming bear market.

Trading Like a Sniper: Blending Aggression and Self-Control

2011-06-03T14:20:00.000-07:00

As I read the articles over http://traderfeed.blogspot.com, the "trading like a sniper" resonated with me so profoundly that I decided to make a copy and reference it here in my blog.

http://traderfeed.blogspot.com/2008/05/trading-like-sniper-blending-aggression.html

Traderfeed is a great educational site on trading psychology. I highly recommend it. Here is the full article on "trading like a sniper".

Trading Like a Sniper: Blending Aggression and Self-Control

In my recent post, I outlined how a trader's very achievement motivation can lead to "pressing": trying so hard to make trades happen that trading plans and rules are abandoned. This often happens when traders become frustrated with losses or slow markets and try to make up for the lack of results by sizing positions too aggressively or by taking too many positions. Traders press when they feel pressure, whether for profits, for action, or to achieve competitive advantage over other traders.

The result is a loss of self-control, as aggressiveness takes over and judgment takes a back seat. Successful trading may be discretionary or system-based, but it should always be rule-governed: controlled by basic considerations of risk management and opportunity. Indeed, this might be an apt definition of poor trading: when the need to trade overwhelms the need to preserve and add to capital.

One of my favorite posters in my office is of a military sniper in the field, peering out from ground cover. The caption beneath the picture reads, "The sniper's greatest weapon is a sharply honed intellect. He combines a mastery of stealth, situational awareness, ballistics and precision shooting skills into one of the most lethal weapon systems to ever strike fear into the enemy."

If the sniper became too aggressive and excessively bored with sitting in the field waiting for the right shot, he might leap from his cover and begin spraying the enemy with fire. Most of the shots would probably go wild, and the out-of-control sniper would quickly be located and mowed down.

No, the sniper waits for the ideal shot: "stealth" and "situational awareness" are essential tools of the trade. Being a sniper means combining aggression with exquisite self-control and judgment. It is controlled aggression.

Over the years, I've learned to trade like a sniper by not placing one trade after another in rapid succession. When a trade is concluded, I go flat and wait for a fresh setup. During the waiting time, I refresh my "situational awareness" (assessment of market conditions, my own condition), and return to my basic trading rules.

The idea is to trade only when I have an unobstructed view of the target. Everything else is waiting and preparing, staying low in a defensive posture. It's the time between those shots at the target that provide the self-control. It is difficult to press if you take the time to reassess, reload, and return to cover after an errant shot. With repetition, that reassessment and reloading become automatic: your default mode becomes one of self-control.

Plan. Trade. Reassess plan. Trade: It's a rhythm that combines the best of achievement motivation and aggression with the best of judgment and forethought. It's a beautiful feeling to plan one good trade, execute it to perfection, and then sit back and wait for the next opportunity. Any performance skill, honed and executed with precision, is a kind of work of art. I think the best snipers understand that.

Is market going to break wide open this summer?

2011-05-15T19:56:00.000-07:00

After more than two years of bear market low of 2009, the case is finally ripe for a significant market break this summer. Although I am not in the business of making market predictions, the dangerous signs are lining up and you should expect a perfect storm soon ...

Although the market indices, Nasdaq, NYSE, SP500 are lingering near the 3 year recovery high, the underlying conditions are not printing a bullish tape and some of them are outright bearish.

First of all, metals and commodities have rolled over. Metals, especially copper, usually lead market higher in recovery phase, and top ahead of the big board in anticipation of economic slow down. Copper peaked in February, which has since seen nothing but distribution. Copper has corrected 15% from Feb high, its correction has no signs to end soon. The climax run on Silver is another sign the commodity run for the intermediate term is over. The sharp run up of the silver and brutal sell off at the end of the April is a text book classic of the climax top, which usually takes months, if not years to recover in the chart world.

Secondly, the growth stocks, which always lead the market cycles are showing signs of topping out. One by one, growth stocks are rolling over, AAPL, BIDU, SINA, OPEN, FFIV, RVBD, SWKS, AAPL, GOOG. The few remaining ones such as PCLN, NFLX are all in late stage bases showing no constructive chart patterns.

Thirdly, defensive industries and sectors are leading the market which usually coincide with the market correction. Medicals, drug, health care, diversified services, chemicals are dominating the top ranked industry groups.

Market sentiment is also painting a bleak picture showing Bull/Bear ratio of 51%/18% in Investor's Intelligence survey, which is a remarkable contrast to Sept 2010, where bull/bear ratio is 40% bears to 30% bull.

History shows the third year of the bull market is usually choppy and difficult. Needless to say the uncertainty in this summer is already paramount: the end of QE2, the slowing of emerging economy, the possibility of restructuring of Greece debt, and incoming political battle on US debt ceiling.

Is market going to break wide open this summer? signs are painting a bleak picture.

I suggest you all to move your 401k to CASH -- perfect storm is brewing ...

2011-05-13T12:40:00.001-07:00

After more than two years of bear market low of 2009, the case is finally ripe for a significant market break this summer. The dangerous signs are lining up and you should expect a perfect storm soon ...

I will write a thesie this weekend ... In the mean time, I suggest you take a very defensive stance on your money, espeically if you have a big stake in the market.

价值投资：智商与智慧，哪个更重要？

2011-05-13T10:29:00.000-07:00

http://chinese.wsj.com/gb/20110512/LJN093910.asp?source=UpFeature

价值投资：智商与智慧，哪个更重要？
2011/05/12 09:39:10
刘军宁

在投资界，没有人认为愚笨是一种资产。投资被公认是智力密集型的活动，投资界是人精扎堆的领域。有人会问，投资市场上有蠢人吗？从动机的角度来衡量，绝对没有蠢人。每个投资者都对自己说，“我才不傻呢，我来投资是要赚钱的。”然而，所有人在投资生涯开始时都是始于盲目无智的状态，都是蠢人。所有人都是带着与生俱来的智商去投资，却没有几个投资者在一开始就带有大智慧。对投资者而言，智慧与智商各自有多重要？投资成功的关键是什么？智商，还是智慧？

哲学是关于智慧的，其含义是爱智慧。投资哲学是关于投资智慧的，即热爱投资智慧。智慧永远是这个世界上最稀缺的东西，投资的智慧更是如此。智慧是人人欲求的，但是得到的人却很少。什么是智慧？按通常的理解，智慧是指某个人具有不同常人的理解、洞见和相应行动的能力。智慧毕竟不同于专长与知识。一个投资界的专业人士可能有丰富知识和技术专长，却未必是很有投资智慧的人。最智慧的人也未必是知识最丰富的人。尤其对专家和学者来说，他们可能掌握大量的具体的数字性的知识，但这些东西掌握得再多也不可能使人更有智慧。所以，一个人的智慧程度和所掌握知识的多少不必然成正比。

正是道德把知识与智慧区分开来。知识是关于事实的，智慧是关于道德的。一切知识与事实都将淡去，只有道德才能引领我们生活、投资。没有道德，就不能得到真正的智慧。一切智慧，归根结底，是有关人类如何才能更好生存的智慧，投资智慧也不例外。

西方的智慧传统是由两个支流合成的，一个是雅典的智慧，一个是耶路撒冷的智慧。希腊智慧中的宇宙是数学与物理的宇宙，而耶路撒冷智慧中的宇宙，是道德与信仰的宇宙。雅典智慧起源于古希腊的哲学与科学探索，是以苏格拉底、柏拉图、亚里士多德、阿基米德、毕达哥拉斯等哲学家、科学家为代表的关于理性和科学的智慧。我们今天很多的自然门类，都是在古希腊起源的，像几何、代数、物理学、原子论等等。耶路撒冷智慧起源于旧约的智慧书，故也称为旧约智慧。耶路撒冷智慧是强调信仰、道德与实践，是对财富的超验性质的理解。其代表人物是旧约圣经中的大先知如摩西、亚伯拉罕、以后许多的犹太商人。巴菲特被称为Oracle of Omaha。其暗喻是，上帝关于财富有一整套的神谕。谁领悟了神谕，谁就获得了财富。保守主义投资者注重实践的、道德的智慧，看淡精确的、科技的知识。

在投资领域，雅典智慧是关于价格的、数字的、公式的，其代表是那些被称为宽克（quants）的人，他们数学极好，数理分析能力极强，有些甚至是高能物理学出身。他们相信，商业的世界是数学物理的世界，数学的精确性是分析最复杂的人类活动的基础。耶路撒冷的智慧是关于道德、信念、价值、审慎、自律、耐心的，其代表是保守的价值投资者。他们相信商业的世界是道德与实践的世界。

这两种智慧有高有低么？这取决于我们用什么尺度来衡量。在投资领域，如果我们需要精确与量化，雅典的智慧高一些；如果我们追求正确，哪怕是模糊的正确，耶路撒冷的智慧重要一些。价值投资的名言是：“宁要模糊的正确，不要精确的错误。”

耶路撒冷智慧还有一个重要的特点就是强调道德在智慧中的极端重要性。人类最高的智慧是对道德秩序与道德生活的规则的认识。当与道德有关的智慧涉及到人类如何发现财富的本质及其增值方式时，投资智慧的问题就产生了。耶路撒冷的智慧相信，财富的本质及其运行方式，不是由人决定的，而是由人发现的。道德既是实现成功投资的手段，又是衡量投资成功的标准。对投资者而言，借助不道德手段的成功是脆弱的、低度的成功，不合道德的成功是不合格的成功。按照耶路撒冷智慧的看法，投资智慧的本质是道德智慧。投资智慧的任务是探寻价值的本质及其获得方式，投资者在天人秩序中的位置及其使命，寻找并践行价值投资的指导原则。

与智慧相关的是智力（亦称聪明，以商数来表示）。两者通常被认为是含义很接近的一组概念，仅有高低之别：智慧要高于聪明。听说过有大智慧投资软件，没听说过有高智商投资软件。然而，我认为，智慧和聪明是有性质上的差异的，而不仅是程度上的。我更愿意把智慧和聪明看作是反义词。智慧与聪明既是邻里关系又是对手关系，智慧甚至包含一些与聪明相对立的东西。比如说，愚和拙是聪明的反义词，但是却可能成为一个智者的特征。常有人用愚和拙来表明自己有智慧，比如说，大智若愚。再比如守拙，作为一种信念与行为方式，可能无关洞见和预见，却是一种很高的智慧。看过电影《阿甘正传》的人都知道，主角是个“愚笨”的智者。在日常生活中，聪明往往会当作一种贬义词来用，智慧总是用于褒义。有人会说，聪明反被聪明误；没有人说，智慧反被智慧误。

在投资中，智慧比智商重要。用戏谑但很认真的话说，人类智商的绝对高度是249，任何人的智商高度都不可能高达250，吉尼斯记录好像是228，故人类智商的中等高度是125。巴菲特印证了这个看法：“我的成功并非源于高智商。只要你的智商在125以上，就足以胜任投资的事业，有中等以上的天资足矣。”在中等智商的前提下，决定投资是否成功的关键不是智商，而是智慧。妨碍投资取得巨大成功的往往不是太笨，而是太聪明。

高智商不仅不是一定能在投资上取得成功的保障，相反要格外警惕那些高智商的投资者。智商越高越容易产生致命的自负。越聪明的人被聪明所误的可能性也越大，代价与损失也越严重，也越具有毁灭性。智慧更强调克服人性的弱点，强调人要恭谦、审慎、耐心。这些都不需要高智商，反而，高智商往往是获得这些智慧的障碍。

智商也许是天生的，智慧在相当程度上则是后天的，主要来自经验。智商是与行动无关的生物性特征，而智慧却需要落实到行动上。我们很难提高自己的智商，却能大大提高自己的智慧。成功的投资不需要高智商，但是需要高智慧，而保守主义投资哲学是价值投资的最高智慧。

（作者刘军宁，北京大学政治学博士，中国文化研究所研究员，著有《保守主义》、《共和·民主·宪政》、《权力现象》等。文中所述仅代表他个人观点，您可以通过新浪微博与作者联系。）

Big cap techs are killing the market ...

2011-04-15T12:50:00.000-07:00

If you look at GOOG and AAPL alone, you see market is probably in bear market. They are absolutely a horror show. If you hold aapl and goog, you should get out of your position entirely.

If you look at BIDU, PCLN, CMG, INFA, TIBX, LULU, and especially gld and slv, you probably think we are in a strong bull market.

Eventually the sticky battle will win out one way or the other. The more likely case is down ...

The question to ask is what is the best way to win out this bifurcated market? are you prepared if a bear market strikes?

Buy more gld/dgp ... before today's close!

Silver will have a climax run soon?

2011-04-14T12:46:00.000-07:00

If you have not seen anything running in climax fashion in real time ... then open your eyes everyday to watch silver ... it is on its way ... one day u wake up, silver will go up 20% ... that is the time u sell ALLLLLLLLLLLL

Buy more gld/dgp ...

Is market biding time to go lower? All things point to a likely yes

2011-04-12T22:19:00.001-07:00

Commodities get a big hit, market rally is done?

* Commodities got a big hit today with oils and oil stocks taking the obvious toll. With semiconductors and big cap tech already rolling over, the broken last straw on commodities seem to nail the market in the coffin.
* Secondary indicators like AAII sentiments or Investors' intelligence survey also point to a bearish picture with investment advisers overwhelmingly bullish.
* The bull market from March low of 2009 is aged.
* Fewer growth leaders are holding up with more and more former big runners breaking down.
* The accumulating rating on the big indices such as Nasdaq and NYSE is a miserable E, pointing to institution selling

To make some offensive selling to raise cash is prudent at this moment. Market may bounce/chop around due to earning announcement coming up.

Be careful out there ...

BUY GOLD!

2011-04-05T11:16:00.000-07:00

GOLD is breaking out of the recent 5 month consolidation. I think the next up leg is starting ... buy gld/dgp

The case of a bubble in Silver

2011-04-04T10:51:00.000-07:00

Clearly you can see Silver is entering the bubble stage.

In modern times, silver made its all time high in 1980 at US$49.45 per troy ounce. At the way the US government and the Fed are dealing with the fiscal and monetary policies, it is not out of the question Silver will surpass the history.

My target on Silver is $50. Inflation adjusted price to $100/T.O.?

A replay of Feb - Apr 2010 stock market ahead?

2011-03-23T15:50:00.000-07:00

With Japan behind us and on going saga over the middle east, US stock market is trying to get on its footing after 4 weeks of big sell off. One interesting observation comparing to the same period last year is the timeline of Quantitative Easing.

QE1 ended on the first quarter of 2010, although it took a little time for the securities to settle on the balance sheet. Market topped on Apr 2010, which started the 4 month intermediate correction causing the Nasdaq to correct more than 18% (short of 20% bear market threshold).

QE2 will end on June 2011. With Fed behind the market lifting the boat, I doubt the market will enter a much worse correction. A replay of Feb-Apr 2010 stock market is ahead of us?

BIDU breaks out of a 5 week flat base today to new high with convincing vol. The ability for it to hold gains next days ahead will provide some clues if the on going rally attempt will have any ammo left.

There are not many solid growth stocks left in terms of constructive chart patterns (chart patterns discloses the supply/demand relationships in the stock market, so never dismiss them as useless out of ignorance). To name a few, bidu, nflx, lulu, tibx/infa (oracle will report tomorrow), open, gmcr etc. The names are getting shorter and shorter meaning the market is too stretched out of the 2 year bull run. One day the big boyz will threw a bear market to clean the plate anew.

Silver is make history again. If Fed decides to do QE3 .... Bang ... Silver will go to 100 :-)

Dang Dang is carving out the first IPO base

2011-01-13T23:36:00.000-08:00

and looks like it is ready for the up leg ...

Since the uptrend started Sept last year, market has not made any significant pull back. One day we will get a more than 5-10% correction and even a bear market, the current market condition still looks solid and healthy. One negative is that the bullishness among investors are getting very frothy, it is however not an accurate indicator to ping point a market top.

There are several high profile Chinese IPOs over the last couple of months. One of them is Dang Dang, the Chinese version of Amazon; the other is Youku, the Chinese version of Netflix or Youtube. Chinese new issues tend to be volatile and are among the highest number of fraud in accounting (take a look of RINO, for example). It is prudent to be cautious when investing in Chinese new issues.

You never want to buy IPOs on the first day, because it is gambling, period. Well, unless your dad works as CEO or COO for that company ... (still I think that is gambling ... )

It is much safer to wait for a new IPO to consolidate its gains and establish a price range. Carefully observe the price and vol pattern. Study the fundamentals and decide if the stock present a compelling story. Then when the time is right, you pull the trigger.

Let's first look at YOKU. YOKU's market capital is 4 Billion. What is Netflix's market capital? 10 Billion. How much is Netflix's annual revenue? 2 Billion. How much is Youku's sales over the 1 year period? 20 Million!!!!!!!! With 20 Million sales, Youku is priced with a market cap of 4 Billion. Would you buy this hype? I won't. YOKU is a junk in my opinion. Once the bear market returns, YOKU will be among the first to drain into the rat hole. Could YOKU have explosive growth in the future? who knows. I don't bet on unknowns. Show me the money first!

Now let's look at Dang Dang, Dang Dang made 300 Million sales last year. Sale growth has been between 50% - 100% over the last 7 quarters. Dang Dang's PE ratio is 400!!!! Once PE ratio gets that high, you know the market is getting frothy. High PE does not mean it won't go even higher, it only means your purchase gets a lot riskier.

Looking at the price vol action of Dang Dang since IPO, it finished 6 week consolidation and the price is breaking out to the new high. During the 4th week, Dang sold off with very little vol indicating selling pressure drying up. Starting this week, vol comes in and price got steadily bid up.

Dang is buy right here right now in my opinion. Your cut loss should be set at 31-32 area. Never lose your line ... If it goes up as planned, ride it ... otherwise cut loss and let it go.

GOOGLE　ｉｓ　ｓｈｏｗｉｎｇ　ｕｐ　ｗｉｔｈ　ａ　ｇｒｅａｔ　ｃｈａｒｔ　ｐａｔｔｅｒｎ　．．．

2010-11-03T20:26:00.000-07:00

Market continues its uptrend started from Sept 1st. Top growth stocks, such as BIDU, AAPL, NFLX, CMG, PCLN, ARUN, FFIV etc, have handily beaten the index. As of today, top growth leaders are all holding the line tough, calling for more market appreciation. Well, anything could happen in the market, trend followers only trade based on what they see, not what they think the market will do tomorrow.

One stock which has been lagging badly since 07 market top could re-vindicate itself if the market uptrend continues. Google, being a growth leader for years, seemed to have reclaimed its growth leadership, with top and bottom line growth running hot again. The latest sales are growing at 23% and EPS around 30%.

GOOG is showing up very tightly in its chart, which essentially has traded sideways in a tight range for about 3 weeks after its huge earning induced gap up. If google can break out of the little 3 week tight range in vol, then the next target is its old high of $750.

An Uncanny Similarity between the 1930s and 2000s

2010-10-22T00:33:00.000-07:00

A great chart you probably want to look at is the comparison of the 1930s with 2000s. You see the uncanny similarity between the two?

If things play out exactly like the 30s, that means we will have a painful down turn ahead of us followed by a great bull market ...

History never repeats itself, but it often rhymes -- Mark Twain.

As market uptrend continues, it is perfect time to review what Jess Livermore thinks what we should do at this very juncture ...

2010-10-15T01:00:00.000-07:00

Here is my favorite excerpt from Reminisces of a Stock Operator, the biography of the life of legendary trader JESSE LIVERMORE.

Is this the right time to review what a classic trader he is? and on how we should handle stocks at this juncture?

"In Fullerton's there were the usual crowd. All grades! Well, there was one old chap who was not like the others. To begin with, he was a much older man. Another thing was that he never volunteered advice and never bragged of his winnings. He was a great hand for listening very attentively to the others. He did not seem very keen to get tips that is, he never asked the talkers what they'd heard or what they knew. But when somebody gave him one he always thanked the tipster very politely. Sometimes he thanked the tipster again when the tip turned out O.K. But if it went wrong he never whined, so that nobody could tell whether he followed it or let it slide by. It was a legend of the office that the old jigger was rich and could swing quite a line. But he wasn't donating much to the firm in the way of commissions; at least not that anyone could see. His name was Partridge, but they nicknamed him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast.

The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap's answer was always the same.

The customer would finish the tale of his perplexity and then ask: "What do you think I ought to do?"

Old Turkey would cock his head to one side, contemplate his fellow customer with a fatherly smile, and finally he would say very impressively, "You know, it's a bull market!"

Time and again I heard him say, "Well, this is a bull market, you know!" as though he were giving to you a priceless talisman wrapped up in a million-dollar accident insurance policy. And of course I did not get his meaning.

One day a fellow named Elmer Harwood rushed into the office, wrote out an order and gave it to the clerk. Then he rushed over to where Mr. Partridge was listening politely to John Fanning's story of the time he overheard Keene give an order to one of his brokers and all that John made was a measly three points on a hundred shares and of course the stock had to go up twenty-four points in three days right after John sold out. It was at least the fourth time that John had told him that tale of woe, but old Turkey was smiling as sympathetically as if it was the first time he heard it.

Well, Elmer made for the old man and, without a word of apology to John Fanning, told Turkey, "Mr. Partridge, I have just sold my Climax Motors. My people say the market is entitled to a reaction and that I'll be able to buy it back cheaper. So you'd better do likewise. That is, if you've still got yours."

Elmer looked suspiciously at the man to whom he had given the original tip to buy. The amateur, or gratuitous, tipster always thinks he owns the receiver of his tip body and soul, even before he knows how the tip is going to turn out.

"Yes, Mr. Harwood, I still have it. Of course!" said Turkey gratefully. It was nice of Elmer to think of the old chap. "Well, now is the time to take your profit and get in again on the next dip," said Elmer, as if he had just made out the deposit slip for the old man. Failing to perceive enthusiastic gratitude in the beneficiary's face Elmer went on: "I have just sold every share I owned!"

From his voice and manner you would have conservatively estimated it at ten thousand shares. But Mr. Partridge shook his head regretfully and whined, "No! No! I can't do that!"

"What?" yelled Elmer.

"I simply can't!" said Mr. Partridge. He was in great trouble.

"Didn't I give you the tip to buy it?"

"You did, Mr. Harwood, and I am very grateful to you. Indeed, I am, sir. But "

"Hold on! Let me talk! And didn't that stock go up seven points in ten days? Didn't it?"

"It did, and I am much obliged to you, my dear boy. But I couldn't think of selling that stock."

"You couldn't?" asked Elmer, beginning to look doubtful himself. It is a habit with most tip givers to be tip takers.

"No, I couldn't."

"Why not?" And Elmer drew nearer.

"Why, this is a bull market!" The old fellow said it as though he had given a long and detailed explanation.

"That's all right," said Elmer, looking angry because of his disappointment. "I know this is a bull market as well as you do. But you'd better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself."

"My dear boy," said old Partridge, in great distress "my dear boy, if I sold that stock now I'd lose my position; and then where would I be?"

Elmer Harwood threw up his hands, shook his head and walked over to me to get sympathy: "Can you beat it?" he asked me in a stage whisper. "I ask you!"

I didn't say anything. So he went on: "I give him a tip on Climax Motors. He buys five hundred shares. He's got seven points' profit and I advise him to get out and buy 'em back on the reaction that's overdue even now. And what does he say when I tell him? He says that if he sells he'll lose his job. What do you know about that?"

"I beg your pardon, Mr. Harwood; I didn't say I'd lose my job," cut in old Turkey. "I said I'd lose my position. And when you are as old as I am and you've been through as many booms and panics as I have, you'll know that to lose your position is something nobody can afford; not even John D. Rockefeller. I hope the stock reacts and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the experience of many years. I paid a high price for it and I don't feel like throwing away a second tuition fee. But I am as much obliged to you as if I had the money in the bank. It's a bull market, you know." And he strutted away, leaving Elmer dazed.

What old Mr. Partridge said did not mean much to me until I began to think about my own numerous failures to make as much money as I ought to when I was so right on the general market. The more I studied the more I realized how wise that old chap was. He had evidently suffered from the same defect in his young days and knew his own human weaknesses. He would not lay himself open to a temptation that experience had taught him was hard to resist and had always proved expensive to him, as it was to me.

I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, "Well, you know this is a bull market!" he really meant to tell them that the big money was not in the individual fluctuations but in the main movements that is, not in reading the tape but in sizing up the entire market and its trend.

And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight."

With Nasdaq 100 taking the lead and broadending growth leaders making new highs, this rally could have legs

2010-09-26T10:14:00.000-07:00

Market usually turns when it is least expected. When everyone was thinking market could turn ugly in the late August when S&P-500 hang dearly above the important 1040 support level, it followed though with conviction to the upside on Sept 1st.

Since September 1st, Nasdaq has run up 12%, followed by Russell 2000 11%, SP-500 and NYSE 9%; Dow Jones 8%. Nasdaq 100 is the strongest running up 15% with fund managers continue to pump money into the most liquid names. All major indices close above their corresponding Aug high, bolting the market to a solid intermediate uptrend.

Top notched growth stocks are running hot with big cap growth leaders, such as AAPL, BIDU, PCLN making all time highs. Leadership are broadening with participation from various industry group such as Leisure, retail, computer software, computer hardware, internet, telecom, construction machinery, fertilizer. Semi conductors are playing a catch up game while the financials continue to labor. The negative divergence from the financials will eventually come back to haunt the market.

In Livermore's book, he often talks about Wall Street Suckers. One suckers' play is to short the high flyers in a bull market. In finance discussion board, I see people start to short NFLX, AMZN etc. If you do, you better think twice. The following stocks, which I own, have very big short interest. Those who short these are the ones being screwed to provide the fume to stocks' furious price gains when the trend turns solidly higher. Don't short the high fliers, stupid!

Short interest:
EBIX: 40% (11 million out of 27 million float)
NFLX: 30% (12.5 million out of 40.8 million float)
ARUN: 29% (17.7 million out of 61.2 million float)
GMCR: 20% (22 million out of 108 million float)
CMG: 13% (3.9 million out of 30.2 million float)

Learn the market before you put up your trade.

Stock market is a discounting mechnism of the future

2010-09-10T13:56:00.001-07:00

you know my philosophy on stock market is always price/volume is your first indicator, everything else is secondary ... including economic numbers ...

Stock market is a discounting mechanism of the future, not the present ... price/vol are always ahead of macro economic indicators. You can talk a load of how bad the economic numbers are ... or you can show extreme enthusiasm on economic knowhows ... In the end ... you can't base on the economic information today to RELIABLY infer the market direction tomorrow ... The reason is SIMPLE. Stock market is always ahead.

Always react to the market, not predict the market. Always know what the market is doing and react accordingly.

Will the market crap out on Monday? Sure, if it does, simply hit eject button ...

Here we go, my top gainers as of today's close

NFLX 11% (first buy intra-day of 01Sep2010)
TNA 7% (first buy close of 01Sep2010)
ARUN 6% (first buy 30Aug2010)
CMG 6% (first buy intra-day of 01Sep2010)
BORN 5% (first buy market open 03Sep2010)
CRM 3% (first buy intra-day of 01Sep2010)

I am also holding GMCR, HLF, GLD, EGO

BORN is about to burst out. I am expect it to be another JKS. Someone is accumulating a big lot of BORN

Can we get a tradable rally?

2010-09-01T22:05:00.000-07:00

This market followed through to the upside indicating a possible tradable rally ... I am getting back to the market, currently holding the following,

TNA
ARUN
CMG
CRM
NFLX
GLD
EGO,

If this rally can hold, meaning I need to see my current buys continue to march forward ... I will add more positions ...

What we should care is not what the Friday's job number is or Sept is the worst month of the year. Listening to Pundits' prediction is a loser's game.

Today the market says big and loud, get back to the market and buy the best stocks !

This low volume rally attempt is officially dead in my book ...

2010-08-11T21:37:00.000-07:00

Very ugly sell off in high vol puts the market back into correction mode. The 6+ week low volume rally attempt is officially dead in my book.

There has been no volume in this entire rally attempt. The best bull markets all start with big volume surge showing convictions from the big boyz. In certain cases, volume can come in later times, but until vol comes in, caution should be taken to get heavily long. This is a great lesson to learn from this 5-6 week rally.

Besides low volume rally, there have been several other cautionary signs,

SOX has been laboring since Mid July, relative strength has been leading to the downside. If you look at INTC, that is a way ugly roll over.

Nasdaq and Small cap's relative strength has been leading lower comparing to July low. That is a dangerous sign in their own right. Investors are staying away from risky assets for this entire rally.

There is no life in retail. If you look at RTH. There is simply no bid.

All things point to the fact that things will get uglier eventually.

Although disciplined investment calls for caution, it also calls for participation on the upside as long as the market trends up.

The idea of trending follow is to never miss a big move. Tons of people missed 2009 March rally. Those who failed to profit from that rally have not learned the lesson, then I don't know what market lessons can save them.

No body knows the future, whether a rally attempt can morph into a full fledgling bull market, or it will be short lived. But by following trend, u will never miss the big move.

Raise cash.

2010-07-26T07:03:00.001-07:00

Marke starts a tradable rally ...?

One thing I have learned in trading over the years is that you should always be ready for change in your market stance ... Over confidence or less of confidence in stock market is a killer for performance.

The market action over the last couple of days illustrates the importance of staying flexible in market views. Last Thursday, market reversed the Wednesday loss and gapped higher and Friday's follow through on bigger vol to the upside puts the market in a potential tradable rally. Nasdaq's vol on last Friday is the first over the last three weeks going above 50MA, indicating big boyz are stepping up to the plate. Well, there is no sure thing in stock markets, things definitely have brightened up a little for good.

There is no shortage of leadership breakout. The breakouts have been holding up, pointing to further price apreciation if the market can continue to ramp higher. The two top leading groups are cloud computing related represented by CRM, VMW, RVBD, NTAP; the other group is the fabless semiconductors represented by CRUS, ARMH, ALTR etc. Other breakout includes FFIV, ISLN, VIT, ROVI, ARUN etc.

Friday's big reversal on several big stocks should alert you to stay away from overlly bearish on the market. AMZN gapped down at the open more than 10% but closed near unchanged. The seemingly broken down former leading stocks ISRG, CMG all rampped higher after earning release.

Economic sensitive sectors seem to be on the mend. Commodity stocks seem to find a bottom (at least in the short term bases). Construction and machinery stocks look to be basing nicely. These are all supportive to the health of the market rally.

I am willing to take a bet ... I am going to buy the following stocks on Monday. My capital commitment will be 30%

Fabless semi: CAVM, SWKS, LSCC
Retail: CMG
Cloud Computing: CRM

History paints a bleak picture

2010-07-01T17:20:00.000-07:00

A very nice article comparing the current market to the past 3 bear markets,

History paints a bleak picture

Profile of Trading Greatness -- What makes a great trader?

2010-05-18T07:45:00.001-07:00

An excellent paper on trading psychology:

In the 1983 movie "Trading Places," Eddie Murphy (a wily street con-artist) and Dan Akroyd (an ivy-league heir and investor) had their identities reversed by two wagering millionaires. Could Eddie Murphy, with no prior experience, succeed in the trading pits? Could Dan Akroyd pull himself out of forced homelessness with nothing but his own smarts? The comedic pair ultimately outwitted their interlopers and made a killing in "Frozen Organe Juice" futures. Yet the question those two devious millionaires gambled on remains unsolved, is it innate skill or life experience that makes a trader great?

Please take the trader's personality test before you read what follows.

High-performance traits
Researchers have begun analyzing the psychological components of outstanding trader performance. It turns out that several emotional and personality characteristics are correlated with superior trading in recent studies.

Psychological traits that relate to successful trading are discussed below. The traits are measured using different techniques that include mailed surveys, personality inventories, and psycho physiological measurements. What follows are simplified explanations of various research findings. Due to the simplified nature of the research interpretations, some of the information may be unintentionally distorted.

1) Low emotional reactivity.
The most important characteristic of outstanding traders appears to be low emotional reactivity during periods of market turbulence: "stability during volatility." (Lo and Repin, 2005). In one study Andrew Lo and Dmitry Repin used psycho physiological equipment to measure heart rate, blood pressure, and skin conductance while traders performed real-time trading. They found that more experienced traders had less physiological reactivity to information surprises (Lo and Repin, 2002). Additionally, Oblechner (2004) found that "emotional stability is considered almost equally crucial [to judgment] for a successful foreign exchange trader."

2) Low illusion of control AND likely to believe in the occurrence of chance (random) events.
Winning traders do not feel that they have control over market price action, and they have a strong belief in the role of chance events in shaping market prices. Winning traders prepare for their trades with thorough research. Before they enter into positions, contingencies have been thought through, and their plan is in place.

Losing traders feel that they have some control or sway over price movements, and they do not believe in the influence of chance events on their trading performance. Because they attribute control to themselves, losing traders are more emotionally affected by mistakes - "it was my fault" - and therefore have more emotional difficulty recovering from losses. Likewise, losing traders become elated by successful performance, and they are more likely to believe that it was their "brilliance" or "expertise" that led to their latest wins. The attribution of control and chance to oneself leads to greater emotional reactivity to both ups and downs in performance.

Other researchers have found that the illusion of control among experimental trading subjects led to under performance relative to others (Fenton O'Creevy, 1998).

3) Low Overconfidence.
Overconfidence refers to a mis-appraisal of one's foresight, talent, and abilities as being better than they really are. Overconfident traders tend to trade too frequently and tend to ignore danger signs regarding their positions. Biais et al found that overconfidence is correlated with sub-par performance among experimental subjects in a trading environment (2001).

In a now famous study, Terrence Odean and Brad Barber (1998) analyzed 10,000 brokerage accounts at Schwab. They found that overconfident investors tend to sell their winning stocks to early and stay in underperforming stocks too long, leading to 3.5% annual under performance of the market. The actual nature of overconfidence is still debated, and Odean and Barber's definition of overconfidence above may now be more reflective of other phenomena such as the disposition effect.

Academics now generally accept that overconfidence refers to one's belief in the superiority of one's information, superiority in abilities, and superiority in probabilistic forecasting (in contrast to reality). Overconfident business people, including entrepreneurs and brokers in two studies, actually attract more business. Although the overconfident brokers underperform in their investment recommendations, they attract more clients.

4) High Self-discipline.
Self-discipline relates to how we manage our impulses. Self-disciplined people are better able to control and channel their impulses towards goals. Self-discipline is a facet of conscientiousness.

Thomas Oberlechner from Webster University in Vienna mailed a survey form to 600 professional foreign exchange traders in Europe and the UK (2004). 54% of the survey forms were returned. Each survey form asked traders to rank the most important characteristics of successful traders out of a list of 23. Of the individual items, the most highly ranked were (1) quick reaction time, (2) discipline, (3) experience, (4) concentration, and (5) stress resistance. Out of eight "factors" he derived from sub-groupings of the 23 characteristics, "disciplined cooperation" was ranked most highly.

Biais et al (2001) found that subjects who scored high on a measure of impulsivity (the opposite of self-discipline) placed more trades, without improving performance.

5) Self-awareness.
Self-awareness is an enhanced consciousness of one's own physical and emotional state. Additionally, self-aware individuals often have logical reasoning behind their choices and behavior. Self-awareness is one of the key traits of individuals who have high "emotional intelligence." Emotional intelligence (EQ) is associated with long-term success in most vocations, and it is more predictive of vocational success than IQ. Biais et al (2001) found that highly "self-monitoring" participants in an experimental financial market place more profitable orders than others.

6) Decisiveness
Oberlechner (2004) reports that a "tackling attitude" is necessary for trader success. Kahn and Cooper (1996) report that decisiveness is essential for traders, regardless of the stressors they are facing on or off the trading floors.

Assessing trading emotions
Personality scales, such as the NEO personality inventory used in our "Investing Personality Test," measure one's propensity to experience particular emotions and utilize certain coping mechanisms in daily life. The NEO test examines a moderate range of personality traits such as conscientiousness, neuroticism, openness, extraversion, and agreeableness.

In general, by the age of 18 our personalities are somewhat fixed and will not change much over our lifetimes. While personality traits are difficult to change, there are maladaptive habits and coping strategies associated with personality styles that can be managed for greater success.

Many authors have concluded, without studying large samples of traders, that personality traits are themselves not important for trading (Lo et al, 2005 in a study of 36 traders).

Most of us assume, as Jack Schwager concludes in his book "Stock Market Wizards", that traders do best if they adjust their trading style to match their personality. And this is true as a good first guess, however there are some tantalizing findings of personality traits that predispose traders to success.

Fenton-O'Creevy, who studied 118 professional traders for European investment banks, found that successful traders tend to be emotionally stable introverts who are open to new experiences (2004).

Trading coach Brett Steenbarger reports that a study of 64 traders at one of Linda Bradford Raschke's LBR seminars demonstrated that high conscientiousness was the most reliable predictor of trading success. Conversely, Steenbarger found that high openness and high neuroticism are correlated with trading problems (2003). He summates these findings as "one important lesson: Success in trading is related to the ability to stay consistent and plan-driven."

On the Marketpsych.com website, we also have two psychopathology measurement scales that are used to assess the presence of clinical disorders such as inattention and impulsivity, gambling, anxiety, depression, obsessiveness, or substance abuse.

Techniques such as psycho physiological measurement can be used to assess emotional reactivity. Reactivity can be measured via changes in skin conductance during periods of surprise or stress. Additionally, it appears that fMRI brain imaging can be used to assess emotional reactivity in the brain's limbic system.

Sometimes, it takes the patience to win you out in a yo-yo market.

2010-05-04T03:24:00.000-07:00

An inside day with diminishing vol on the big board. Here is the definition of the inside day from investorpedia,

What Does Inside Day Mean?
A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami pattern and can be very useful for spotting changes in the direction of a trend.

An inside day is often used to signal indecision because neither the bulls nor the bears are able to send the price beyond the range of the previous day. If an inside day is found at the end of a prolonged downtrend and is located near a level of support, it can be used to signal a bullish shift in trend. Conversely, an inside day found near the end of a prolonged uptrend may suggest that the rally is getting exhausted and is likely to reverse.

Now here is an interesting tidbits on the trading front,

Computer studies suggest that inside days— where the high is lower than the previous day's high and the low is higher than the previous day's low— provide very reliable t entries in the S&P 500 futures market. The basic trading pattern is an inside day (ID) followed by a sale if the next day's market opens lower or a buy if next day's market opens higher. Entry is on the open and exit is on the same day's close without a stop.

In computerized tests, this basic procedure produced 68% winning trades in the S&P between 1982 and 1987. This is a reasonably high percentage and suggests a strong tendency or bias for prices to continue in the direction of the open the day after any inside day.

Refinements

One simple variation of this pattern—discerning whether the ID close and next day's open are in the same direction—produces an even higher percentage of winning trades. The ID has a higher close than the previous day and is followed by a higher open. A buy is taken on the open and exited on the close. A sale is taken when the ID has a lower close and is followed by a lower open.

What do we have tomorrow? a weak opening due to Chinese Manufacturing data and Euro area problems. So it is interesting to see how the market unfolds tomorrow.

As for as leading growth stocks, majority I am monitoring are staying healthy or digesting the previous big run ups (AAPL, BIDU, PCLN, GIL, NFLX, APKT, VRX, CMG, RVBD, VMW, SNDK, FFIV, TPX etc). As for the turn around stocks, such as UAUA, LVS and housing stocks are also behaving constructive.

GOLD is perking up to finish its basing. I think GLD should challenge 120. Once 120 is broken ... then sky is the limit.

When market started its overdue correction, it pays to exercise patience to win you out in a yo-yo market. As far as the growth stocks concern, they are nothing but consolidating, which does not mean they won't tumble if the market tumbles the next few days.

Change of the market character?

2010-04-27T22:40:00.000-07:00

Heavy distribution from the top. Are we embarking on a short term correction of 3-5% or an intermediate correction of 10+-%? No one knows, guess need not, let the market tell us what it wants to do. Either case, be prepared.

Several developments have called the market correction overdue,

First of all, top growth stocks have been quite extended. Look at AAPL or BIDU, the law of normality calls for correction.

2nd, bearish break downs in emerging market. Shanghai stock index has lead the word market out of the recession, but it has been lagging US market badly for the past 6 months. The technical picture of Shanghai Stock index looks very bearish, the deterioration of Chinese ADRs (except a few, e.g. BIDU, VIT, CTRP) over the past several months calls for deeper correction in Chinese market.

3rd, distribution days are piling up. Regardless what the news are which trigger the sell off, the unequivocal selling from big boyz should raise your alert level.

When market starts to correct, it is prudent to raise cash, move off margins, monitor closely the current holdings. In bear phases, next leaders usually emerge as the strongest candidates which go through shallower corrections and show stronger relative strength.

There is no need to sell out all your winners. If you enjoy a healthy gain of 20% in AAPL when it broke out of its last base on Mar 5th, you may decide to sit through the correction. The ability to hold on to big winners over time is the crucial step toward winning big $.

高手与普通散户的区别（转摘)

2010-04-10T10:44:00.001-07:00

顶尖高手用境界，一流高手用趋势，二流高手用技术，普通散户用迷糊。最高境界的人在讲心境如何，什么也不看，只用感觉就能炒好股赚钱。我说顶尖高手是走过迷糊阶段。用趋势的人说趋势无敌，看明白了趋势你就能赚钱，用技术的人说，你什么也不信，踏踏实实的学好技术，你就能赚钱，惟有许多散户没有自己的方法，没有自己的主张，听这个也好，那个也好，最后不知哪个好，什么都用，什么都用不好，只有迷糊亏损。

普通散户与高手的具体区别有以下五个方面：
一是高手要追的是确定无疑的涨势，要杀的是明白无误的跌势。而许多普通散户自以为看的明白，在认为涨跌之前就行动，往往是错误的。
二是高手在行情不确定和跌势时选择绝对的空仓观望，不急于操作，趋势明朗快速进场。而许多普通散户频繁操作，不断的有损失，碰上凶狠的主力，损失就更大了。
三是高手善于空仓，空仓时间大大多于持仓时间。而普通散户基本天天满仓，一天不满仓就不舒服，晚上就睡不好觉，第二天又急急忙忙满仓，好象一不满仓就会失去赚大钱的机会。
四是高手善于等待再等待。等待大机会的光临，然后全力出击，而普通散户没有等待，不浪费时间，天天耕耘。一天不动便手痒难捱，投机至上的原则深入骨髓之中，随波逐流成为习惯行为，一有风吹草动便不能自持。
五是高手看盘的水平比普通散户要高,出错的几率比普通散户要少。而且修正错误的反应速度要比普通散户快，不是绝对不出错，错了也不找借口。

这五个问题都显示一般散户技术和心态的功力还不到家。要解决这些问题，唯有努力学习、学习、再学习；思考、思考、再思考，不断提高自己的技术水平和综合素质，打造自己股海制胜的心态。你看股市十几年来，后浪推前浪，前赴后继，多少高手曾驰骋股场，应变自如，战果辉煌，名扬股海，至今却不见踪影，能在股市中生存下来的很少，你可以想象到股市的残酷性。
《卖油翁》这个故事向人们揭示了“熟能生巧”的道理，对于股市中散户迈向高手有深刻的借鉴意义。古代有个叫陈尧咨的人，擅长射箭，以此自矜。而卖油翁只略表赞许。他把一个油葫芦放在地上，用一个铜钱盖在葫芦口上，将油通过钱孔灌入葫芦中，钱孔却不曾溅上一滴油。真可谓妙哉。陈尧咨的超人本领和卖油翁的绝技，是天生就有的吗？非也。卖油翁曰：“我亦无他，唯手熟尔。”

Top gainers after March 1st follow through

2010-04-09T22:59:00.000-07:00

DNDN 17% (03Mar2010)
AAPL 11% (05Mar2010 1st buy, 23/Mar2010 add)
GMCR 14% (02Mar2010)
PCLN 9% (pilot buy 18Feb2010, 01Mar2010 1st buy)
GIL 7% (05Mar2010 1st buy)
BIDU 4% (pilot buy 01Apr2010)
CISG 4% (23Mar2010 1st buy)

It is not difficult to buy breakout in bull markets, what is the most difficult is to hold the winners to let them run their course.

There will be scare days, normal pull backs in the days ahead. The idea is not to be shaken out during these days. The utter most benefit of the doubt should be given to the growth leaders to allow them to rise to maximize the profits.

Start of the Leg Down?

2009-10-21T18:37:00.000-07:00

Time to raise cash and prepare for down leg.

Gold Stocks Are Never Looked Better Before

2009-10-06T19:00:00.000-07:00

Take what market offers you, not making predictions what market will do next. Right now, the market says GOLD is breaking out of a 19 months range and many gold stocks are showing favorable chart patterns.

The chart says "Take Them"

A123, Is the Battery More Hype than Hope?

2009-10-03T16:10:00.000-07:00

Cleaning Up: Is A123 System’s Explosive Stock-Market Debut The Real Deal?

By Keith Johnson

To judge by the buzz surrounding the initial public offer of battery maker A123 Systems, investors are ready for a ride. A123, which has never turned a profit, just upped both the size and the price of its stock-market listing to almost $400 million. Its shares were priced at $13.50 apiece for the IPO; they jumped to $19.70 in early trading today.

Is this the beginning of the green tech revolution or a reprise of the tech bubble?

Let’s take a look under the hood, as it were. A123, based in Cambridge, Mass., makes batteries that power hybrid and electric cars, among other things. The market for electric cars could be potentially huge, since the U.S. and other big economies want to wean themselves off oil and curb greenhouse-gas emissions.

How huge is anybody’s guess. Actually, it’s A. T. Kearney’s guess—A123 used to use market forecasts from Lux Research, but those were fairly conservative. So since this summer, A123 has been relying on Kearney forecasts of the market for lithium-ion batteries for electric cars: $32 million today, but poised to grow to $21.8 billion in 2015 and $74 billion in 2020.

That might very well be the case. Or it may not—as A123 points out in its prospectus, the world is a fickle place. Oil and gas prices might get cheap and stay there, eroding demand for electric cars. Political will—so important to support the not-yet-cost-competitive electric-car market—could evaporate. Somebody else might invent the next big thing. And so forth.

Actually, as A123 notes, its real fears are more pedestrian. It does a lot of manufacturing in China, where intellectual-property laws are lax. Its rivals are better-funded, and have deeper relationships with carmakers that plan to use the batteries. Staying competitive on costs will be a challenge, especially since China has jumped into the battery business with both feet.

Still, A123 has already landed funding from the federal government’s plan to jumpstart U.S. battery production, a huge vote of confidence. And the company also has its eye on another market: Batteries can be used to store electricity from renewable energy, and countries around the world are already scrambling to add more wind and solar power.

But for investors who remember the dot-com boom, there is one potentially troubling part of A123’s pricey public offering: The company’s proven track record of spending more than it makes. In the first half of 2009, A123 had sales of $43 million and a net loss of $41 million. That followed last year’s net loss of $80.4 million on sales of $68.5 million.

That’s because the company is still spending more to develop the next world-beating battery than it’s making by selling them. Total costs were 1.45 times sales in 2006; 1.78 times sales in 2007; 2.16 times sales in 2008, and 1.93 times sales so far this year. Simply getting bigger won’t solve that.

Investors appear eager to get in on the coming clean-tech revolution; LED-maker Cree had a field day last week with a secondary offering. Time will tell if A123 is the best vehicle to get there

Raise Cash

2009-10-01T21:27:00.000-07:00

Went long AONE

2009-09-30T17:45:00.000-07:00

Whether the market tops out soon or it will continue to march higher is in anyone's guess ...

Another distribution day (minor) today is added on major indexes.

Current distribution count, Nasdaq: 2; DOW: 5; NYSE: 3; SP500: 3.

To throw the market to correction, we need to see more distribution days and growth stocks sold on volume. Until I see that happens, I continue to hold my long positions, which are acting constructively so far.

Enter Long GMCR

2009-09-28T20:03:00.000-07:00

Current Holdings,

RINO, RTI, SWI, ARST, PEGA, FIRE, CFSG, GOLD, IAG. GMCR

Growth Stocks Are Outperforming ... Which Bodes Well For Continued Rally

2009-09-22T20:02:00.001-07:00

Continued with the Saturday's post, Play What the Market Offers, here are more buys

GOLD stocks:

Commodities:

Chinese Stocks/Pollution Control:

Play What the Market Offers

2009-09-19T22:39:00.000-07:00

Prostate Cancer? lol

Computer Sftwr-enterprise,

Chinese ADR/Fire Safty Products

Sell All! Move to Cash

2009-08-17T12:36:00.000-07:00

Pickup some shares on STEC

2009-08-04T12:31:00.001-07:00

Keep It Simple, Sit with Your Gains

2009-08-01T17:05:00.000-07:00

The Market

let's keep this market comments short. There has not been any material change since the market follow through on July 13.

The philosophy of my trading has not been focused on trying to guess where the market is going to do next, but rather trying to understand what the market is currently doing.

I take cues from the basic law of supply/demand. News events, Market comments from Wall Street, to me, are mostly noise. The economic indexes are all lagging indicators.

The market could top out in a week or next day, but until it clearly tells me so, I continue to hold my top gainers.

Remember the big money is made by sitting, not by trading. This is exactly what I did last week. I only made two trades, initiated a buy on UTA, sold half of CISG to lock in partial gains.

Let's focus on the big pictures,

The housing stocks are in the bottoming process, which bode well for housing recovery. (XHB/ITB)
200MA of Major indexes (Nasdaq, S&P500) are flattening and curving up. With the golden cross of 50MA/200MA in June, a classic uptrend is established.

In the short term, the market continues to be overbought. The sentiment is a little frothy.

Let's watch what the market will bring us next week.

The Port

There is little action from me other than watching my core holdings.

BIDU

BIDU continues to act as the de facto leader of the Chinese market. With the Chinese stock market leads the world market to recovery, there is little doubt where the money is going. The price/volume action is very constructive. The fundamental side of the story supports the price higher.

Hold for now unless there is a material change of the market direction.

CISG

This little thin Chinese insurance company has enjoyed an enormous run since I entered my first buy on July 15. The high volume sell off last Friday could mean it could use some rest. Sell half.

GMCR

Could this little coffee maker be another Taser or HANS?

Beautiful stock! HOLD!

NTES

NTES is the strongest stock (with PWRD) in Chinese gaming market. In face of some Chinese gaming stocks broken down last week (CYOU, SNDA), NTES continues to hold up rather well. Earnings will be out in two weeks.

Hold!

EJ and CHLN

HOLD

UTA

Another Chinese stock broke out a two month trading range on 07.28.2009. Group peer includes Ctrip and Priceline. Last quarter sales growth 72%, EPS growth: 75%. The stock is on the thin side with average trading volume of 400K.

Bought the first position on July 28, 2009 with pivot buy of 12.70.

Keep/Add to the Winning Position, Sell the Laggard

2009-07-24T09:29:00.003-07:00

Hello from Las Vegas. Las Vegas is hit with blistering wave of summer heat. It is hot hot hot. Folks look really sexy on the street ...

Market closed the last Friday with modest loss. The fact that a few big high profile stocks got hit hard combined with overbought market condition did not bring down much the big board shows how much stronger the underlying market is.

The market breath is in lock step with the big board moving higher.

Market is overbought in short term. In strong bull market, overbought condition is not the reason to sell winning positions.

My Port

BIDU

GMCR

NTES

CISG

EJ

CHLN

The following positions are sold,

CYOU

CYOU is too sloppy. The wide and loose price action is not something I like to see. Sell the position, move the fund to cash and other better performing stocks.

FUQI

FUQI offered the secondary essentially diluting the share value. There is no information on how much the secondary is priced. Sell now to move fund to cash.

In retrospect, I probably should keep 50% of the winning position.

ARST

The action is too sloppy. Sell!

A Day of Strength in Leaders

2009-07-20T10:08:00.000-07:00

I came across this video and found it extremely interesting. Speaking of credibility problem, you think America is not full of it?

A solid day for CANSLIM investors. The theme of China is playing out. Many growth stocks are breaking out from the consolidation area. This bodes well for the continued up move of the big board.

Nasdaq Composite has been up for nine days in a row. A little rest is expected and should be welcomed.

IBD 100 index added 2.5%; IBD 85/85 rose 2.6%, all well above the major indexes. May leading stocks finally outshine the major indexes and lead the market higher? Time will tell ...

More leading stocks broke out and my soldiers are put on line

FUQI (Retail/Whlsle-jewelry, Chinese ADR)

BIDU (Internet-content, Chinese ADR)

EJ (Real Estage Operations, Chinese ADR)

GMCR (Retail/whlsle-food)

NTES (internet-content, Chinese ADR)

ARST (computer Sftwr-security)

CISG (Insurance-brokers, Chinese ADR)

CYOU (Internet-content, Chinese ADR)

WATG (Auto/truck-original Eqp)

TSRA

CHLN

A few other stocks, which posted solid gains, are on my watch list. Not surprisingly, they are all Chinese ADRs.

PWRD

VIT

UTA

Two stocks failed the breakout and I have cut loss after I bought them,

VPRT, TLEO.

more leaders broke out

2009-07-17T09:59:00.000-07:00

WATG

TSRA

NTES

A Handful of Leading Stocks Broke out

2009-07-16T12:30:00.001-07:00

BIDU

ARST

EJ

The Market Follow Through Negates the Short Term Head and Shoulders Top

2009-07-15T19:47:00.003-07:00

The market resumed its uptrend on Monday.

The high volume surge today of major indexes negates the short term head and shoulders top formation. S&P500 came back above the neckline after it lived under it for 4 trading days.

The Nasdaq Composite, which is the leading index, broke above the 5 week flag formation on high volume.

The action in leading stocks overall continues to be muted. IBD 100 has been lagging in the entire rally from March 12 follow through. Though if bought right, profits can be made handsomely. Strong bear market rally can be very profitable.

Here are a few good ones broke above the trading range.

BIDU, TLEO, STAR, EJ.

Here are the top leading stocks continue to form the second stage bases,

GMCR, NTES, SNDA, VPRT, ARST, NFLX, CYOU, PWRD, AMZN, STEC, RVBD ...

Market is Under Character Change, Time for Growth Investors Could Be (Is) Coming

2009-04-25T09:02:00.001-07:00

Details will be added, but here is the outline

1. Section Rotation Model

2. Stan Weinstein's Stage Analysis

3. the Market in 1938 and today
William O'Neil's radio interview on 04.21.2009

3. Leading stocks are building bases; Breakouts are sticking

4. Market is due for consolidation

the Market is very overbought in intermediate time frame
Bullish Percentage Index is reaching bear market extreme
the Market will show its card in the next pull back

Is China Gona Have a Trend Change?

2009-03-17T03:08:00.000-07:00

A much beautiful picture than US.

Is this a decision time or what?

Is This the Final Low?

2009-03-15T13:49:00.000-07:00

I am finding it harder and harder to keep up my planned pace to update this blog. I have so many chores to finish in the evenings and weekends. I can't do much during the day time weekdays. Before I change to full time trader/money manager, I have to behave at my full time job. I have to finish some work related essays today (it has been delayed for couple months now, each time I started writing, I ended up looking at the market), but today I find it compelled to put up my thoughts here in my blog at this important market juncture.

Wall Street participants are obsessed with calling for market bottoms. Eventually they will get it right after they have been wrong so many times in the past (I bet when you ask them, show me the money? they have red all over their balance sheet). Ridiculously, people in Wall Street (or Main Street) seem heedless of these callers' past credibility. When they finally get it right, they will soon be dubbed as the new Wall Street Prophesiers (who correctly predicted the end of the miserable 2008 recession).

Is this the Final Low? No one knows, only the future market development can tell you if this is THE FINAL low.

There are lots of notorious Wall Street Cliches, their only purpose is to fool the mass. I consider the worst two of them are the followings,

If you want to outperform the market in the long run, you have to be invested at all time and you need to sit through the market downtimes, like we are experiencing now.
In order to be on top of the market, you need to follow the economic/political news (or you should watch CNBC, because you get it all?). You need to be very sophisticated and knowledgable in finacial knowhows, e.g. understand and interpret correctly what SEC is doing -- they are removing uptick rules; or what the congress is doing, e.g. they are revising the mark-to-market accounting rules.

The rule number one basically tells you the market can NOT be timed.

The rule number two says, the fact you are lack of financial know-hows (you will never know them all) and you are always late and ignorant (or at least partially) to understand economic/social events, You basically can't do it successfully in the stock market. Having your money managed by "professionals" is the only way to outperform.

I will elaborate in separate essays in the future on why these cliches are misleading and they will lead you no where in your financial well being.

There are some basic facts, however, that the Wall Street never wants you to know, one of them is that YOU DON'T NEED TO CATCH/KNOW THE EXACT MARKET BOTTOM TO MAKE A TON OF MONEY.

Over the weekend, I was looking at the 2000-2003 market bottom. I find some interesting comparisons, let's take a look of the following charts and see what kind of information it provides us.

There are some striking similarities and I will show you the significant differences as well. After vicious down move, Mar 2002 -- Jul 2002; Sept 2008 -- Nov 2008, both market entered a low volume one to one and half months bear market rally. After they were sold off and the new lows were both taken out. Although in 2002, it was only marginally.

The next piece of the news is more important. After the final low put in Oct 2002, the market went on with heavy accumulation. Do you see all green tall volume bars? Clearly, it is not average joe is buying.

If down the road, the market can not rise in high volume and pull back in low volume, instead, distribution days soon piles up, then this is clearly NOT the low. I think this is likely the case, we have to wait and see.

The second important piece of the puzzle is the leading stocks. For any market to have staying power, leading stocks (growth companies with new product, new services, new economic conditions with sound technical charts) need to form proper bases and break out to new highs one after another. Right now, we see almost NONE.

What did we have in Oct 2002 back then? Take a look of the following stocks,

They are absolutely gorgeous. They are the stocks which can make you filthy rich, not buying junk-from-the-bottom stocks.

All of them are in clear uptrend and heavily accumulated during (even BEFORE) the Oct bottom.

We have NOTHING like them NOW in this market. Could leaders emerge soon after ... yes, they could, but until you see them, don't bet your money.

The message is clear. If no leading stocks are setting up and breaking out, and the market continues to rally in low volume and distributes in high volume, This is NOT the FINAL LOW. Hoard your cash or short the rally continues to be the more profitable actions.

Now I need to get back to my essay writing. I probably need to burn the midnight oil tonight.

Thanks for reading.

Two Months into the Year, the Market Traded a New 12 Year Low

2009-03-01T13:26:00.000-08:00

The Waterloo campaign continues, the market is on retreat. The bear coalition is defeating the once mighty Wall Street.

The market registered a major technical break down. On monthly, SPX500 broke decisively the year 2002 low. The market dropped all the way back to 1997. You don't think buy-and-hold (or buy-and-hope) strategy should be thrown to the garbage?

The technical picture is NOT pretty. Where is the ultimate low of this bear market?

The market continues its vicious cycle of deleveraging. The big boys are selling, and they are selling hard.

The market can't even muster a decent bear market rally. In the last bear market from 2000-2003, on three occasions, the market went on with a multi-month ~20% bounce. Each happened when the full stochastics on Monthly registered a major oversold signal. Since the mid of 2008, the monthly full stochastics went below 20 and has been under 20 since. Guessing when the market turns is a loser's game. CANSLIM investors don't catch falling knifes.

Looking at the performance chart of the sector Spiders, the nine funds representing 10 industry sectors within S&P 500, Financials continues to be the biggest loser with -39% return year to date. Technology shows the best relative strength with -8% loss.

In bear market, no sector is immune. Bears will eventually attack all the remaining sectors. Up to last week, Medicals and Health Care had been showing the best relative strength. Many leading stocks showing good fundamentals and technical merits were in Medical and Health Care sectors. Health Care and Medicals were creaminated last week (Thank you, Mr. President)

Take a look one of the leading stocks in Biotech, Gilead Science (GILD). Since the low made in the Nov of 2008, some institution money has been piling back to GILD. GILD recovered within 8% of its all time high on early February 2009. It rolled over last week, breaking below 200MA on big volume. 200MA is flatting and rolling over. A lower high is in the making. This is a classic long term topping pattern.

Looking at the 10 year weekly chart of GILD, GILD has been on steady up move for many years. If this is the final top, it could easily drop back to 20s.

Disclosure, I am holding a short position on GILD. I am going to hold and looking to add more short positions as it goes down.

Cash is still the KING; Shorts are QUEEN; Hard Metals are PRINCE and PRINCESS.

A Lost Generation

2009-02-10T20:49:00.001-08:00

The Hope and the Reality

2009-02-08T19:03:00.001-08:00

Hope is a wonderful thing in life. It gives us reason to continue and courage to move ahead. In stock market, HOPE is a dangerous emotion.

In his book, "How to Trade in Stocks", Jesse Livermore wrote the following on HOPE,

HOPE -- Hope lives hand in hand with greed when it comes to the stock market. Oce a trade is made hope springs alive. It is man's nature to be hopeful, to be positive, to hope for the best. Hope is essential to the survival of the human race. But hope, like it's stock market cousins, ignorance, greed and fear, distorts reason. Hope clouds facts, and the stock market only deals in facts. Like the spinning of a roulette wheel, the little black ball tells the outcome, not greed, fear, or hope. The result is objective and final with no appeal ... like nature.

To trade the market on hopium that the worst is over and Mr Obama and his gang is our savior is self destructive.

Let's strip all the noise and discover what is wrong under the hood.

First of all, let's make no mistake, the big trend is solidly down. The precipitous drop of the stock market world wide since Nov 2007 foretells us the tough road ahead.

Secondly, this market continues to trade on headline news and rumors. On 01.28.09, market followed through on the 6th day of the rally attempt on CNBC 'rumor' that the government was contemplating structuring a 'bad bank' to purchase the distressed assets of the major banks. Within the next five trading sessions, the market was followed with two distribution days to throw the market back to market undress pressure. On last Thursday and Friday, the market, again, moved higher on hope Obama is going to shot US economy a magical medicine next week. The market volatility continues to call for cautious approach to the market.

Thirdly, on the landscape of leading stocks, there is nothing popping up to feel excited. Education stocks, gold, food, medicals are dominating the IBD's top rated stock list.

On the short term, market looks bullish. Nasdaq composite lead the market higher and broke above both the 50MA and the downtrend line drawn from last August. SP500 bumps up right to the 50MA and the downtrend line.

It will be interesting to see how the market fares after the street scrutinizes the details of the financial rescue plan, which is to be announced next Monday. Whether the market will start a significant bear market rally or another leg down remains to be seen. Once the trend is established, there is plenty opportunity to participate, but at this moment of time, treading water cautiously is the best strategy.

Gold

In spite of the uncertainty of the broad market, there is one group of stocks showing solid accumulation and favorable chart patterns. When the governments world wide are printing a lot of money, the expectation of inflation is rising.

Gold has been basing for a year. After the three distinct down legs, starting Nov 2008, the right side of the base has seen solid accumulations. The long term moving average 200MA is flattening out and the golden cross of 50/200MA is about to happen.

I am holding some positions in GLD in both of my 401k acct and trading acct.

Stem Cell

Will Obama lift the stem cell ban? The stocks are saying yes. Let's take a look of a few very bullish stem cell stocks, ASTM, STEM, GERN.

I own some positions in both ASTM and GERN in my trading account.

The First Week of the Market in 2009 is a Terrible Tell of What is Ahead of Us ...

2009-01-11T22:27:00.001-08:00

I did not get a chance to update my blog, but the title of this brief summary tells all. Once this miserable retarded uptrend is over, the Nov low of 2008 will be most likely tested.

The year of 2009 could be as challenge as 2008, if not worse. The world is full of unknowns. How the economy and the market will evolve is in anyone's guess.

My number one priority in 2009 continues to be preservation of cash. At some point down the road, we will have a strong bear market rally; but until it arrives, I make no second guess and all my money will be meticulously protected like my baby.

A Look Back at 2008

2009-01-03T12:15:00.000-08:00

The year of 2008, in many ways, is like depressing black humor Hollywood classics, gripped the hearts of Wall Street audiences. It has been a year like no other with the worst global economy in decades; and the elect of the first black president in history. The year of 2008 was unfolded with the collapse of the US corporate giants; unprecedented government intervention; the debacle of the hedge funds and the biggest Ponzi Scheme scandal in Wall Street history. The DOW industrials lost 33.8%, the biggest one year drop in 77 years. Only 1931 (-52.7%) and 1907 (-37.7%) were worse. The S&P 500 dived 38.5%, the worst since 1937. In this article, we look back at 2008, the events, the implications and especially, what we can learn to protect ourselves financially in bad times, and eventually thrive and prosper in good times.

I will start by filling up the "Current Market" section before moving on to other topics.

The Burst of the Wall Street Levee
The Government Intervention
The Hedge Fund Debacle and the Scandal
The Destroy of a Living Legend -- Bill Miller
The Start of the Dive -- 2007 Market Top
The Final Thrust of the Commodity Boom -- March to May Bear Market Rally
The Great Shorting Opportunity -- Sept to Nov Market Plummet

The Current Market

The first day of the 2009 started with a bang. S&P500 went up 3.16%; Nasdaq Composite went up 3.5%; Dow Jones went up 2.94%; S&P 600 Small Cap went up 1.32% and IBD100 went up 0.64%. The leading stocks continue to lag the big board. All Major indexes held above 50MA and cleared the trading range to the up side. This is no doubt a short term bullish development.

The troubling factor of the whole move up from the Nov low continues to be the low volume rally. The entire move is characterized by the buying from the retail crowd and the MMs raising the bids.

The best performing groups on the first day of the trading of 2009 were all from beaten down commodities.

No Expansion of New Highs. In a healthy market, with major indexes breaking above a trading range and going up 3%, you would expect a major expansion of new highs. We don't get it. New highs in NYSE and Nasdaq are lingering around 20s.

In the landscape of the leadership stocks, the quality of the leadership remains to be a big concern. Other than a few stocks in medical/defense/education, the rest are all thinly traded, LPHI, AIPC, CSKI, LOPE for example. These are not the landmark showing the strength of a strong bull market.

The market is off the oversold condition from the Nov sell off. The market is no longer oversold. As a matter of act, it is getting very overbought in both short and intermediate term. In short term, the upside limit should be limited.

Could this market go higher? Absolutely, the enthusiasm of the bottom callers and retail crowd certainly could push the market higher as big institutions continue to sit on the sidelines with no buying, but no selling as well. This is not the kind of the market I am interested in playing, at least based on the market condition as of now. Without institutions on my backing, I won't make big bets. Majority of all my money will be continuing to park in the safe, locked waiting for a better opportunity. In stock market, the best advice I have ever acquired is that you don't need to play the market all time. This is the time I won't play heavy.

Today I was reading the market message from John Murphy (I find he is very good in discussing inter-market relationships as well as some historical repeating market patterns). He talked about the January effect as well as the first-five-trading-day-effect. Here is an excerpt,

"As January goes, so goes the market ... What the market does over the next week is important. As I explained the previous Friday, what the market does during the first week of the new year often gives a clue about direction for the remainder of the year. According to the Stock Traders Almanac, "S&P gains during January's first five trading days preceded full-year gains 86% of the time". The predictive ability of the month of January is nearly as impressive. "The January Barometer predicts the year's course with a .741 batting average. 12 of the last 14 post-election years followed January's direction" (Almanac)."

Next week is going to be important after business gets back to normal. The big boys will show their cards. If we can build on further gains on higher volume and then drop back to test the break out on lower volume, I will deploy some capital to work.

At this moment of time, all I am doing is to wait and see how things unfold.

My Agenda for 2009

Will be back to finish the thesis.

A Hundred Years of Bear Markets --- I

2008-12-05T12:03:00.000-08:00

It's a recession when your neighbour loses his job; it's a depression when you lose yours.
Harry S. Truman

The bear market of 2007 is unprecedented in the modern times. At the onset of the bear market in late 2007, a few savvy market observers started to contemplate whether the bear market of 2007 was going to be a replay of 1973-1974 or 1981-1982. Well, their bets are off :-). With the greatest predicting power of the stock market, the vicious decline and the historical volatility in the last two months foretell we are going to witness the worst ever bear market since the great depression of 1929.

Over a short span of 10 years, our generation has tasted twice the bitter fruits of bubble economies, the burst of the internet bubble in 2000 and the collapse of the housing bubble coupled with credit market bubble and commodity bubble as of today. How many had thought that they would never see another 2000 alike bubble again in their lifetime a few years ago? Well 8 years later, a once in a hundred years event happens again, though in a slightly twisted form but with even more destructive consequences.

Bear market is a great time to reflect ...

Bear market is a great time to relax and reflect. It is a period where great efforts should be devoted not to trading, but to thinking. You should protect your capital, save your ammunition to wait patiently for the next brand new bull market with clear understanding that the easiest (with minimum risk) and the biggest money are made in bull not in bear. This is the drive behind my embarking on the road to study the history of the bear markets in the last hundred years.

In the next series of articles, we will study the major bear markets in the past, the top which led to the collapse of the stock market, the bottom which proceeded the emerging brand new bull and the false bear market rally(ies) which sucked in all the premature bottom callers in between ... We will return to this topic next week.

Current US Market:

The fact that market rallied in face of the ugly employment data last Friday is encouraging. Have we priced in all the bad news? Will the approval of some type of loan to the big three auto makers from Congress this week provide the catalyst to the much waited year end bear market rally? (or the rejection of the loan to derail the rally?). Let's wait and see.

Chinese Market:

The picture in China looks much better than US. I think the strong bear market rally has started. Here is the picture of FXI. Chinese market could rally all the way to 200MA of major indexes.

I am going to put some money to work on FXI with stop loss around 25.

Other Stocks

Continue to hold AXYS taken last Wednesday.

let's poke a little -- AXYS

2008-12-03T21:24:00.000-08:00

I am going to buy a little of AXYS tomorrow at market open. Small position.

Proactive Asset Management -- Yes, You Can Time the Market

2008-11-27T18:07:00.000-08:00

The bear market of 2008 will surely be written to the history book as one of the most brutal ever in the stock market history. As of 11.21.2008, SPX500 plummeted 49% from its all time high of 1576 made in the Oct of 2007. In the same period of time, DOW lost 43%; Nasdaq Composite lost 51%. The record point losses, the vicious circle of deleveraging, asset collapsing and the melting down of the global financial system are simply stunning to watch. Treasury Secretary Henry Paulson called the current financial tsunami a "once or twice" event in a 100 years. Have we seen the worst of the crisis yet? I think we have a long way to go. What is good about this bear market is that once this bear market is over, the next bull market will be equally powerful to provide fantastic opportunities to profit from. It could be your life changing event if you know how to profit from it. The question you should ask yourself now is Are You Prepared?

With market in panic mode, what is equally stunning (and amusing) is that, nearly all major financial news networks, radio stations, newspapers, financial advisory agencies are calling investors to stay calm, stay fully invested. The argument they use is simple, YOU CAN'T TIME THE MARKET. This leads to today's topic: Proactive Management.

Since the premise has already been set that You Can't Time the Market, if you ever do, you will end up badly with miserable returns. In today's media, what I hear the most from commentators is the following quote,

In the ten year period ended December 31, 2007, if you remain fully invested, S&P500 average annual return is 5.91%; However, if you missed the 10 best days, S&P500 average annual return reduces to 1.13%.

Let's dissect the above statement. The statement has some legitimate points. I can imagine a vivid picture how typical investors missed the best days in the market.

It is a well known fact that the biggest up days all happened in bear markets. Let's look at the 10 biggest up days of SPX500 from 1950 up to today Nov 27, 2008.

10/13/2008	11.58%
10/28/2008	10.79%
10/21/1987	9.10%
11/13/2008	6.92%
11/24/2008	6.47%
11/21/2008	6.32%
7/24/2002	5.73%
7/29/2002	5.41%
10/20/1987	5.33%
9/30/2008	5.27%

SPX500 10 biggest up days from 1950 to 11.27.2008

Among the 10 biggest up days in the past 60 years, six of them are from 2008 alone. This is simply shocking! Two of them happened in 2002 when the collapse of the Internet Bubbles was still rippling through the economy. The two remaining ones happened right after the black Monday of Oct 19, 1987, the biggest one day stock market crash in history with SPX500 lost a whooping 20%.

Why the biggest up days all happened in bear market? It is simple. In bull market, you see calm orderly advance. Big institutions are at work to nimble up shares. In bear market, emotions are running high. The doom and gloom are broadcasted daily in the news. The greed and fear of human nature are at the full force. (The other times you see greed and fear in display is at the market tops). The market is characterized by choppy, volatile motions.

Here is how a typical investor Joe missed the 10 best days in bear market. When the bear was the ugliest, Joe got scared. "What if the market goes down another couple hundred points? All the news media talking heads are pessimistic about the economy!" Joe decided to pull his money out (e.g. 401k). Then within a few days, market went up 10% in a day. Joe became scared again. "This must be the bottom". He put his money back to the market. This is a classic action from a typical Wall Street participants.

The study of missing the 10 best days, which dramatically reduces your long term return, is legitimate. It shows how a typical investor, if becomes "proactive" in bear market, can end up miserably in his own financial well being.

The other side of the study shocks me too if you read the numbers. In 10 years period of time, if you remain fully invested, SPX500's annual return is ONLY 5.91%. (Majority of the mutual funds can't beat the market, the return of SPX500 is a good proximity of the long term returns).

I went ahead to look at the 30 year return which is representative for a working class for his retirement account. Here are the results,

The year in which 30 year period is ended	30 year annual return
2008	7.28%
2007	9.31%
2006	8.69%
2005	8.88%
2004	9.83%
2003	8.12%
2002	6.41%
2001	8.06%
2000	9.02%
1999	9.44%
1998	8.27%
1997	7.62%
1996	7.27%
1995	5.95%
1994	5.08%
1993	5.66%
1992	6.10%
1991	5.39%
1990	5.28%
1989	5.44%
1988	4.76%
1987	5.64%
1986	4.89%
1985	4.41%
1984	4.41%
1983	5.94%
1982	4.98%
1981	4.86%
1980	5.94%

The average 30 year annual return from 1950 to 2008 is 6.65%, which is not far from 5.91%. There is a tendency that market accelerates to the upside. The 30 year annual return is clearly growing to the upside from average 5% in the 80s to average 6.6% in the 90s to average 8.4% from 2000 onwards.

The returns from the above table is far from 12 - 15%, which is what I have been told over the years by buying and holding mutual funds in 401K.

Is the market really NOT timable? The Wall Street common wisdom says NO. Majority, if not all, talking heads on TV say NO. Nearly all financial advisers say No. You can not time the market, NO ONE can time the market. The wisdom is so overwhelming that any school of thoughts which deviates from it is considered a cult of the market.

Wall Street is a sell side. Stock brokers or financial advisers are not in the business to provide you timely advice because their job is really all about asset gathering. They love to tell you when/what to buy, but they nearly never tell you when/what to sell. They need to keep you invested so that commissions can continually be generated from your investment/portfolio.

Proactive Asset Management is not Buy and Hold. Proactive Asset Management thinks market can be timed.

Proactive Management is not hyperactive trading, in which investors engage in excessive short term tradings.

To me, Proactive Asset Management is about liquidating significant percentage of risky assets or moving the risky assets to safe assets at the onset of the bear markets and do the reverse at the onset of the bull markets.

Market can be timed. Proactive Asset Management can drastically improve your returns.

The most reliable way to identify the market tops is by looking at the actions of leading growth stocks and major indexes. If leading growth stocks, after long advance, one by one, sector by sector start to experience heavy institution selling and their technicals start to break the intermediate and long term moving averages; At the same time, major indexes show heavy volume churning and choppy actions and their long term moving averages (e.g. 200MA) start to flatten out and roll over, this is the most reliable sign that a bear market is about to start. This is the time you should be on high alert and aggressively raise cash.

In today's blog, we examine a simple yet effective way to identify market tops and bottoms. We exam its effectiveness over the span of 30 years.

What we are going to look at is the EMA13 and EMA34 cross over on weekly charts of SPX500. John Murphy has several articles on this topic in his market messages.

The chart of SPX 500 from 1999 to now.

The chart of SPX 500 from 1996 to 2000.

The chart of SPX 500 from 1990 to 1995.

The chart of SPX 500 from 1986 to 1989.

The chart of SPX 500 from 1981 to 1985.

What are your conclusions after you study the charts on the effectiveness of EMA13 and EMA34 on weekly charts (in short, EMA13/34 crossover)?

Here is mine,

EMA13/34 crossover lags the onset of bear/bull markets. If you use it alone, you can be too late to sell in bear and too late to buy in bull (e.g. 1987 market crash, the crossover happened after the crash)
EMA13/34, although lags the onset of bull/bear, it is a great way to confirm the bull/bear markets. There is never a miss in the span of 30 yrs.
The longer the previous bull, the longer the bear, the more effective is the crossover. (e.g. 1981, 2000 and 2008 bear markets)
The shorter the bear, the faster the drop, the less effective is the crossover (e.g. 1998 bear market)
When the market is in trading range, the crossover gives false signal (e.g. 1994).

In summary, the EMA13/34 crossover is a great reliable indicator to use to identify the bull/bear markets, but it can NOT be used alone.

Current Market Comments:

This is bear market rally. How long, how far will it go, I have no idea and I have no interest to know beforehand. Remember I don't make predictions and I don't trade based on what I (or other people) think market will happen next.

Current Portfolio:

Trading Acct: 95% cash.
401k Acct: 100% money market.

A Key Reversal Day?

2008-11-13T21:07:00.000-08:00

There is no doubt today is a bullish day. In technical chart analysis, today is a positive Key Reversal Day. I was trying to google the text book definition of the Key Reversal Day, but with no luck. Technicians seem to differ on several details of the definition.

The following chart from incrediblecharts shows intuitively what a Key Reversal Day looks like.

Regardless if today is a classic Key Reversal Day, this is what happened with SPX 500 today.

Market went down 7 days in a row (well, with one up day in the middle) with SPX 500 registering a 15% loss before today.
The index broke new low. In fact, SPX broke the intraday low of Oct 10th.
The index closed higher than the intraday high of yesterday.
The index closed at the high of the day.
The volume went significantly higher.

Key Reversal Day carries a bullish implication, at least in short term basis. There is no guarantee that a Key Reversal Days will kick off a strong bull run. The rareness of the event combined with the context of the market indicate today could be the start of an intermediate bear market rally.

My previous post suggested a range bounded market until the early December to form the bases of a tradable bear market rally. I still hold that view. I am just a little surprised the re-test of the Oct low happened sooner than I thought.

In the next few days, we need to see constructive signs with market rising on higher volume and backing off on lower volume.

The next few charts supports the bullishness of the case.

VIX backs off from the trendline.

Jap Yen drops again and showing positive divergence.

In the charting landscape, things are looking much better than October. Leadership has expanded from medical to education, retail-discount, regional airlines, food, small banks (Well, can these industries be the real bull market leaders?????). If market can go side ways and more accumulations enter the market, the year end bear market rally is in the card.

The following picture is what I like market to do in the next few days ... Am I making predictions? Yes. Do I trade based on my predictions? NO. I trade on what I see/saw, I do not trade on what I think market will happen. I want the year end bear market rally BADLY (to make some money), that's all ... lol

Today, I do have a good long I am going to take. By the way, ENB short was closed today before market close with a little gain, I will reenter short once the bear market rally is over.

Going long tomorrow at market open: DLTR

Keep the position small, we still need to wait for the follow through day to confirm the rally.

Short ENB

2008-11-12T00:06:00.001-08:00

A good short candidate for tomorrow's market: ENB.

High volume sell off then low volume rally back to 50MA. Final cut loss @ 50MA if the stock closes above 50MA.

Market likely to be range bounded before a "powerful?" tradable rally in the year end

2008-11-09T20:02:00.000-08:00

The market is in bear market. The economy is in recession if not depression. The primary trend is down.

Everyone is looking for a year end rally. The question when we will get one is in everyone's mind. Bear market rally comes from all forms, some of the strong ones can produce powerful returns.

There are several positive factors in the making,

The market is still quite oversold in the intermediate terms.
New lows are not expanding, a positive divergence.
Market enters the favorable seasonal period from Nov to May.
The Banking Index is holding the low made in July and showing the relative strength to the market

There are some disturbing factors as well, two outstanding ones,

There is no market leadership, other than a few medical stocks, it is a waste land.
The 50MA is still quite far from the index indicating more sideway work needs to be done.

One recent bear market rally we can compare to is March of 2008. Compare to today, can you tell the difference?

I still believe the market will have a tradable rally before the year end, but for now. I think market will range bounded to early December of 2008.

For growth investors, your strategy continues to be sitting with large percentage of cash.

The Project of Wealth Realization

2008-11-08T00:55:00.000-08:00

The Myth

Wall Street is a myth. On the surface, the daily fluctuation of the stock prices creates endless opportunities to profit from. Once you dip your toe into the market, you start to realize Wall Street is such a merciless beast that squeezing some profits out of it represents a daunting task. Among all investors, only a tiny percentage makes money consistently over the long run.

In the May 2004 paper entitled "Do Individual day traders make money? Evidence from Taiwan", UC Berkley professor Terrance Odean assesses the success of day traders in the Taiwan stock market using detailed individual trading records, they found that individual investors account for majority of day trading activities and over 80% of day traders lose money after transaction costs.

In a study by Wall Street Journal published in 1987 that between 75% and 95% of all commodity investors lose money. A few savvy traders make good money from the vast majority of less sophisticated players.

It is a fact that mutual funds managed by professional money managers, on average, do not beat indexed funds. In one of the best selling books ever about investing, "A Random Walk Down Wall Street", the author, a Princeton professor hypothesized that "a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts." In 1988, The Wall Street Journal, picked up on the popularity and novelty of the idea and ran the experiment of pitting monkeys (blindfolded journalists) against professionals. The rules got changed continuously as experiment upon experiment was run. When the 100th contest ended, the Wall Street Journal presented the results. The professionals won 61 of the 100 contests against the Dart throwers. Though the professionals won, this slim margin was quite embarrassing for these supposed experts. What was worse was that the pro's only beat the Dow Jones Industrial Average in 51 of the 100 experiments. In theory, by just investing in the Dow, you could do just as well as following expert advice.

Nevertheless, Wall Street provides enormous money making opportunities. Selected few savvy investors, money managers, individual investors have amassed enormous wealth over time. What makes them stand out?

What differentiates pros from the amateurs, winner from the losers in Wall Street? Are there common traits exist in all those legendary investors? As an individual investor, is there any system we can leverage to profit from?

The Market

Efficient market theory stops its usefulness at the wall of the ivory tower. Under the theory, there are no trending stocks, market timing is impossible. The market reaches instant equilibrium as soon as the new information is disclosed. The hypothesis maintains that it is impossible to use technical, fundamental or expectational analysis to beat the market.

Efficient market theory only holds if the market participants are perfectly informed, emotionless robots. As was aptly stated by William O'Neil in Jack Schwager's book, Market Wizards, "The stock market is neither efficient nor random. It is not efficient because there are too many poorly conceived opinions; it is not random because strong investor emotions can create trends." It is this inefficiency and trending which create enormous opportunity to profit from.

The most fascinating thing about the stock market is that what works in the stock market is contrary to human nature. Greed and fear take over the consciousness of the majority investors when real money is on the table. Typical investors nearly all sell at the end of the bear market, and buy near the end of the bull market. The interesting phenomena you can observe for years is that when all Joes on the street, all Jacks in the internet discussion board are making money and starting to boast how fast they can make money by buying out-of-money near-term options; how proud they are on their own proprietary trading systems; how smart they are by doubling their dollars by buying the over the counter pink stocks etc. You know the bull market is getting close to the end and all Joes and Jacks are destined to lose all.

The game of Wall Street is more of a psychological than a game of odds and economic know-how. To me, the game is 70% of psychology, 20% of statistics and 10% of economics.

The investors

There is a single Warrent Buffet.

There are couple Peter Lynch(es).

There are couple George Soros(es).

There are couple James Simons(es).

There are couple Ken Heebner(s).

There are couple David Booth(es) who made himself known after donating $300-million gift to the University of Chicago's business school.

There are a massive number of underperforming mutual fund, hedge fund, pension fund money managers, who make their living by managing others' money.

Then we have the sea of small fishes and shrimps, the individual investors, who come to Wall Street with only one purpose, to make money. Over the century of stock market history, a few individual investors, WHO PLAYED THEIR OWN MONEY with lone hands, stood out the market tests with enormous success. The classic examples are Jesse Livermore, Nicholas Darvas, and William O'Neil.

As an individual investor, who should we follow? Or should we invent a system of our own? Well, it is true all road leads to Rome, majority are filled with traps and landmines. There are a few standing out ones which are clearly more superior than the rests.

As an individual investor, what advantage or disadvantage do you have comparing to top notch Wall Street institutions?

Small investors have no edge or advantage when it comes to fundamental research.

Big institutions and funds will almost always have superior information.

Small investors have the advantage of being flexible and quick moving.
If a small investor is disciplined, he or she can use charts and superior money management to follow the smart money into the best stocks and generate superior gains.

In light of the common mistakes of typical investors and clear disadvantage of the fundamental research over the big Wall Street money house, we need to adopt a trading system which can clearly put the winning odds in your hands.

The strategy

In the most general sense, trading success requires 3 basic components: an effective trade selection process, risk control, and discipline to adhere to the first two items.

Over the span of a hundred years of stock market history, stock market spends more than twice as much time in bull market as in bear market. Since 1854, an average business cycle lasted 53 months. The average bull market was 35 months and the average bear market was 18 months. Between 1945 and 1991, the average bull market was 50 months and the average bear market was 11 months. In each bull cycle, normally there are several innovative market sectors and industries to lead the market higher. Top companies within the leading industries with superior fundamentals (big EPS and sales growth, superior products) will SIGNIFICANTLY beat the market (e.g. comparing to SP500). In the following bear cycle, market normally corrects with much bigger volatility, some of the former leading stocks get sold hard and forever finish their bull run. Market goes through changes of leadership until next bull market starts. This phenomena can be best seen in the dot-com bubble of 2000.

To leverage this historically repeating pattern, a trading system can be designed to ride each bull phase buying top leading stocks in leading industries to maximize the profits and move to cash heavy in bear market to preserve capital. To play the market cycle by cycle, by compounding, you can amass enormous wealth.

This is what CANSLIM does. CANSLIM is the trade mark of IBD.

In the nutshell, CANSLIM strategy can be summarized in the following:

Once market comes out of a bear market, buy top leading stocks (companies with superior earning growth) within top leading industry (the sectors with top relative performance leading the entire market higher), which break out of sound consolidation bases on brisk heavy volume.

Hanging on to leading stocks as long as the fundamentals and chart patterns continue in favor of higher price and market remains healthy. Pyramid on the way up.

Sell when stocks enter classic topping patterns, e.g. climax run, or high volume breach of important moving averages, or showing signs of heavy institution distributions.

During bear markets, keep heavy in cash.

I use CANSLIM system with some added momentum strategy of my own.

Once you have a winning system, as if you know you are the casino owner, not a gambler by playing it again and again, the rest of game requires your discipline and consciousness of the mind. You need to sell into strength when you see euphoria of averages Joes in discussion room; You need to refrain from buying and sit with your capital when market offers you no opportunities; You need to act decisively and pounce once the opportunity is upon you; You need to cold bloodly sell your losers and patiently wait your winners to perform.

The flair

"NOTHING IS MORE DIFFICULT, I truly believe, than consistently and fairly profiting in Wall Street." said Gerald Loeb in his first chapter of the book "The Battle of Investment Survival".

He continued, "Knowledge born from actual experience is the answer to why one profits; lack of it is the reason one loses. Knowledge means informaiton and the ability to interpret it marketwise. But, in addition, making money in the market demands a lot of "genius" or "flair". No amount of study or practice make one successful in the handling of capital if one really is not cut out for it."

The end

The purpose of the blog is two fold: It creates a place holder to collectively store my thoughts, observations and studies of the market. Secondly, this is my second Ph.D. thesis. If my first Ph.D. thesis led me to understand the science and engineering, the second will lead me to understand sociology, economics and best of all, human nature.