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John Dalt
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John Dalt is a retired small business owner who is now operates for stock investors and traders.
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  • Waiting on the Wedge
    We wondered this morning what the day would look like.  Asian markets were down, except for China.  European markets were up early and futures looked positive for U.S. markets.  We were not convinced.  The unrest in Libya sounds like it is getting worse.  Crude oil and precious metals are spiking.  One of our favorite ways to look at the market is a point and finger chart.
    Point and Finger Chart 3/7/11
    It is a simple way to see where we are.  If the S&P drops below 1300, we have a long way to fall.  I noticed the S&P chart this weekend looked like we had a trend line starting to establish itself of lower highs.  Here is a sharpchart.
    S&P 500 3/7/11
    You can draw a line from the top on 2/18 down across the tops of the highs (sloping down from left to right).  Then draw a line from the lows on 2/24 along the bottoms (sloping up from left to right).
    We have a wedge building that comes to a point.  The market has to break one of the trend lines, either moving higher or falling to create a new trend.  Traders would be advised to watch for the break of this wedge.  This will tell us the short term trend of the market.
    The market looks like is going to bounce off the bottom trend line today. Be careful entering trades that may move against you swiftly on violation of these two trend lines.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Mar 08 3:42 PM | Link | Comment!
  • Dumb Money Chart
    What is your plan?  A friend’s mother has Alzheimer’s disease, a very sad situation.  He is resigned to watching his mother grow more distant.  She was a successful professional, and now is not able to take care of herself.  Many may not know it, but some patients lose the ability to speak, and just gaze into space with a blank stare.
    I am sorry to bring up such a depressing subject.  But I have a point to make here.  How are you handling your investments and trades right now?  Do you wake up every morning, amazed that the sun came up and confident everything will be just fine?  Do you have an expectation the market will climb higher and all will be ok?  Are you overly bullish? Or, are you betting everything against the market moving higher?  We don’t want to encourage either ‘plan.’
    More than likely, if you are like many retail investors, you are in the optimistic camp.  You may not be all in, but you are probably close.  Don’t get me wrong, the market has been on a heck of a run.  For the last seven weeks we have moved higher.  But deep inside, don’t you know it has to end sometime?
    Below is a great chart I refer to when I need detachment from the current market and want to understand market sentiment and its relation to stock prices.
    Dumb Money Chart
    This chart is the S&P 500 stock index divided by the VIX index. We are looking at the value of the S&P and dividing it by the index that measures investor sentiment (the fear gauge). It should not surprise you that investor’s feel warm and fuzzy right now. Everyone is sitting on gains and is relatively happy with how they have done.
    I call this the Dumb Money chart.  I pay attention when this chart hits extremes.  The market has climbed long enough for everyone to jump on board.  Many are sitting on gains, but this hot money will jump at the first sign of trouble.  Some market participants fancy themselves as traders.  They are the last in and  the first out at the high extreme, and late to sell and slow to come back on the low extreme.  They don't recognize the market is inticing them to lay down their money, only to watch it be snatched away!
    You can see what happened in September 2008 when the chart was at a high ratio, then March 2009 as it bottomed at the opposite extreme.  We can trace the climb back to April 2010, then the bottoming in June and July.  Please notice we have climbed back and are higher than last April or for that manner September of 2008.
    This is complacency writ large, but for me it causes fear.  Make sure you are monitoring your stops.  Consider selling at least part of your largest positions.  If you have some big gains, chances are those stocks make up too large a percentage of your holdings. Now would be a good time to take some winnings off the table, and put your portfolio back in balance.
    This chart wants to come back in balance.  We have used a 900-day moving average for the red line to illustrate a good point of reference.  Balance can be restored by the S&P moving lower or the VIX index climbing higher.  Which will it be?  These two indexes do not necessarily move independently.  A falling S&P creates investor fear which raises the VIX index.  But, we could go through some consolidation days that are not that destructive of the market.  This would raise the VIX and help bring us back in line.
    We will watch our Dumb Money chart for our next buying opportunity.  Selling into the present market looks like a better long term strategy.  We sold one of our stocks last week in the Long-Term Portfolio.  We have a tight $trailing stop on another right now, and we are ready to issue another tonight.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jan 19 9:55 PM | Link | Comment!
  • Great Expectations
    I was looking through the offers from competing investment newsletters to encourage people to subscribe and pay for their services.  At times I have been guilty of promising more than we can possibly deliver.  Galtstock is the only investment website I know of that makes all of our past results available at all times.  Good or bad, you can look at our past results.
    We may not meet your expectations, but we don’t lie to you, only to disappoint with our actual performance.  We offer a guarantee on all of our investment services.  It is the only way I know to do business.
    One of the secrets to life and investing is to not be one of the ‘herd.’  How many of us have been encouraged to buy a widget after promises of its utility to improve our life?  We are all guilty.   How many of us have bought an investment program actually believing that the seller’s advice can turn $1,000 dollars into a million in less than six months?  If they could do that, why would they sell it?
    According to the Wall Street Journal, the average hedge fund made just less than 20% return on investment in 2009. This was the same year the S&P 500 gained 23.5%. The ‘average’ hedge fund has the best and brightest researchers, the smartest analysts, the fastest computers, the most experienced traders, and the best sales operation available; but they still returned less than the market indices.  We returned over 25% in our long term service with a well diversified portfolio.
    Sure, a few of them recorded fantastic results.  But, they probably did it with one large bet.  If they would have been wrong…investors would have been lining up at their door to pull their money out.
    What is an investor to do?  Lower your expectations, be realistic.  New investors always have stars in their eyes about the gains to be made.  The easy road to riches the stock market promises them.  My mind drifts to other big events in my life.  Remember the sage advice to add a bean to a jar every time you had sex as a newlywed?  After the first year, start taking a bean out…for the rest of your life.
    Sage advice in the stock market may not be as humorous, but can be just as disappointing to anxious investors.  One of the worst experiences a new investor can have is a big winner.  It will encourage risk taking, hunches, and wild activity.
    Most investors have accumulated their assets by hard work, dedication to their business, and executing a plan over a very long time.  Investing is EXACTLY the same.  Work hard at understanding economic forces, dedicate your efforts to disciplined actions, and have a plan.
    One other point about a difference between operating a business and investing in the stock market needs to be made.  Don’t be bold!  In business, sometimes we have to lead when everyone else thinks we are nuts.  In business, dogged determination makes a difference.  In business, putting your shoulder to the wheel can pull you through a tough time.  In the stock market, these attributes can get you slaughtered.
    I am a contrarian investor.  I like to buy when everyone else is running away.  That is different from staying with a trade that is going south fast, because of hard-headedness.  Buying when there is ‘blood in the streets’ is different than draining your own blood in the streets!
    Your investment plan should involve research of potential investments, position sizing, stop losses, and diversification of your holdings across sectors.  You can read our article in Investor Resources titled the Four Legs of Wealth.  This should help you clearly define some issues of importance.
    The important take away is; lower your great expectations.  You can make money in the market, but it is not easy, it won’t happen without work, and it won’t be the next best thing to sliced bread!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 30 5:00 PM | Link | Comment!
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