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Don’t Take Losses, JD is a full-time investor and trader of primarily common stocks and ETFs, in taxable trading, trust and retirement accounts. He uses technical and fundamental top down analysis based on a modified Dow Theory Trend analysis. . He is founder of the... More
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  • 07-10-10 Weekend Recap and Stock Trading Plan: How does an Investor “trade” This Dicey Market? 0 comments
    Jul 11, 2010 3:49 PM | about stocks: FFIV, GS, AKAM, SNDK, PFF, VMW, AAPL, PCP, CRUS, SKX, BRCM, PCLN, V, F, CF, CMI, BIDU, TCK, AMG, PAY, DECK, LVS, MA, BUCY, NVLS, CLF, TRLG, ENTR, SDY, OSIS, PRXL, BTU, CREE, PWER, ARMH, WHX, NLY, PSEC, ETW, PWE, HTS, EOS

    07-10-10 Weekend Recap and Stock Trading Plan: How does an Investor “trade” This Dicey Market?

    On June 21, 2010, I noted: “…I've used the "Close All" a half dozen times in the last month. I went to all CASH June 21, 2010. … remember when we hit SPX 1131 that day, and the machines kicked in?  We haven’t sniffed SPX 1100 since, that was 3 weeks ago. We thought we had broken the downtrend, got above the  SPX 20sma, pushed above the 50ema and have been crushed since. After going all cash that day, at the interim top, I’ve nibbled and been stopped out since, tiny cuts, day by day, except when Blake got us back in this week on Wednesday morning when he told us premarket on TVN that he was nervous and covered his short positions and Nick Pirraglia told us on TVN, “..we’re going to be up 250 points today…”  Still all CASH that morning, I went 65% long and increased that to 90 % until Friday when I cut back and reduced my risk, back to around 1/3 CASH.

    The SPX was up 5% on  the week, but did you as an Investor or Trader participate and get your share of that move? It is HARD playing defense and trading, much less investing in this sausage maker of a market. I know, as I try to do both. I’m not a skilled day trader and want to be long and invested. I also want to keep my moola and Don’t Take Losses. How many Money Managers and Hedge Funds do you think participated in the little move up?  Not many is my bet based on volume. Yet the Materials stocks have made a move such that the 50ema has been surpassed in quite a few.  Is the risk trade really back on? T-Bills went up to 4.04% , a huge move from a week ago. So, how do we survive, how do we invest longer term money when so many are betting on SPX 900 to SPX 843 still? ?

    Here’s my plan to which I have referenced in recent blogs including my post on the 3rd quarter outlook.

    First, if you’re an Investor, please read my post @ http://tradingviews.com/b/articles/archive/2010/05/21/ira-investing-is-buy-and-hold-a-good-idea-or-do-you-trade-it-are-you-kidding-me.aspx.  The basic point is: “…you can trade around positions by selling a little when you are up 25 percent in a position (I was up 102 percent this year in CLF, 78 percent in BUCY in my IRA). You can use trailing stops for half of each position, checking them every couple weeks, moving them up every 10 percent, trailing by say 12 percent. In CLF you could have kept 75 percent of your profit. If you just bought and held, almost all would have been gone at today's close.

    You can also raise cash when things get dicey. You just sell something. You can hold some CASH at all times, for opportune buys, in your IRA. You can PLAY DEFENSE when the warnings are clear and the risk is high…”

     Now here we are with BUCY, CF and CLF all way down from those highs, but back above or approaching their 50 day moving averages.  Was this a correction in a bull market, or a pause and bull trap in a downtrend that will last for months longer until the November elections or even longer? I DON’T  KNOW. Wish I did. Neither does Blake or Nick. This is why we must have trading rules and stop loss orders, even for long term invested money and pay close attention and use discipline.

    There is security in knowing you have a plan and executing it.  If the plan is to get long and stay long, you’ve been crushed. If you placed stops in your IRA @ 12%, or 8%, on half or two thirds of your position size (on 300 of your 500 shares for example), you raised cash in the downdraft since June 21…and protected some profits along the way. Yes, it’s a pain in the ***…but it beats losing money. If you can keep 80% of your profits and cuts your losses to half of what the market experiences, you are way ahead. That’s how I “trade” long term money (money I won’t need for more than 4 or 5 years). In our IRAs, I am now using 3% initial purchase stops,  8% minimum stops on established positions, with 3-5% stops on stocks that feel like they could tank. I move up stops every several days or over the weekend.

     Short term money (that which I may need in the next 4 years), I play EVEN GREATER DEFENSE. I have been 100% to 80% CASH a lot overnight until the last 3 days. I have shortened my trades to hours or days instead of days to weeks. It is the market we have. I use the Trading account to trade mostly the same IRA stocks except some of the IRA small caps which are too hard to trade. Trading these in the taxable account and getting the feel for how they move, how money comes and goes, has greatly benefitted my IRA. This week I was up 7% in the IRA, but just better than 3% in the Trading account. That is because I make bigger moves after harder downdrafts n the IRA and use wider stop losses. The %s reverse in uptrends. But preserving capital is job one in the Trading account.

     We are still in a downtrend, until we’re not. The SPX remains below its 200 and 50 day moving averages. Notice the Black Cross which you’ve read about (see Toni Hansens’ excellent article on this site). Interesting to me, although the 50sma is below the 200sma,  the 50ema and 200ema are even, both just above our current range and right about SPX 1094 or so.  Until we trade above and establish support above there, I will continue to be in capital preservation mode in the Trading account. I am mostly back in, in the IRA after being almost 60% CASH on stops 2 weeks ago. I may be early but have those 3% stops on new positions and they all have moved up 5 to 10% in the last 3 days.

    In my 3rd Quarter Outlook post, on July 5,  I wrote, inter alia:

     “…Bottom line: I am sticking with Technology stocks (high tech industrial and medical companies as well as information and network stocks like AAPL, SNDK,  FFIV, AKAM, CRUS, NTAP, BIDU), very focused  Consumer growth companies (like TRLG, SKX, DECK, LVS) and Materials and Energy stocks...in due course. I’ll follow with more picks in a few days.

    Taxable Accounts, all CASH: But until Big $$ signals the all clear, I have been and am 100% cash in my taxable accounts and will play small ball on any little rallies, and won’t be surprised if this lasts until November.

     In IRAs, we’re 35% to 65% CASH and have snugger stop loss orders, down to 3-6% now. We like to give more room but expect more downside here. We’ll add in small bites if buyers come in, but will keep stops snug in IRAs….”

    I used this test of SPX 1010 to buy in the IRA and here is what I now hold, in order of position size:

    FFIV, GS, AKAM, SNDK, PFF, VMW, AAPL, TIE, CRUS, SKX, BRCM, PCLN, V, F, CF, CMI, BIDU, TCK, AMG, PAY, DECK,LVS, MA, BUCY, NVLS, CLF, TRLG, ENTR, SDY, OSIS, PRXL, BTU, CREE, PWER, ARMH.

    Why these? As discussed in prior blogs, I think the recession is over, we’ll slowly grow, jobs will only start to see material increases when the Dems are crushed in November (see my post this week re US businesses holding $1.8 Trillion on their balance sheets, believed to be the most in history), there will not be a double dip, the EU stress tests will show less risk than factored, China already has a soft landing in place, the 80% with good jobs will spend on what they really want (True Religion jeans, Decker Uggies, iPads, iPods, Android Xs, Tiffany Atlas watches) and business will continue to expand and improve their networks, wireless communications, cloud computing and software and slowly we’ll expand. My picks fall in 3 basic categories: focused Retail, network, cloud and wireless focused Tech, and Materials and related Industrials….all early cycle stocks. They also have high growth prospects, relatively low PEs and low PEGs. The latter is most important to me: stocks that trade @ a PE that is about equal to their growth rate. I’m also focused on small to mid caps. My bet is we can get back  what we lost (and more) in the last 3 years,  in the next 2 years. I believe Big $$ will go after growth when the coast is clear, in Washington.

    Immelt, Zuckerman et al have turned on Obama, with good reason. They thought they could game his new energy, health care plans and were wrong. They didn’t listen to his words 2 years ago. They now proclaim he’s anti-business; there are no bones about that. If the Dems are crushed, we’ll see a tidal wave into growth stocks… If I’m wrong, I got stops. But this is the plan, its my plan and I’m sticking with it, patiently, until it all plays out. I don’t pick tops or bottoms. I did sell all my defensive and high yield stocks in the IRA a month ago or so. I do hold PFF (S&P 500 Index preferreds ETF yielding around 8%, which we started buying around $20),  and some CASH, but that’s about it  for “safety” in the IRAs.

    I also have a taxable non-trading account, which holds ONLY very high yielders:

    WHX, PFF, NLY, PSEC, ETW, PWE, HTS, EOS, AND FpS.        

    These have yielded a bit more than 1% per month in dividends as a basket, have held up their account value remarkably well through this chaos and I just buy more when they go down. For example, I held my nose, got lucky admittedly and bought WHX (Whiting Trust) this week (7/07)  on the dip @ 16.38. Its @ 17.95 today with a yield of 15% or so. I rode this from 17 to 24 to 15 and now back to 18. These can be traded,  and I do some, but mostly I just buy the dips and reel in the dividends. The blend has kept me from worrying and my wife loves the monthly payola. Are these risky? Sure, but compared to what? The market is a roller coaster, and on balance these have been remarkably stable as a basket and 12 to 15% is pretty sweet.

    So, that’s it: high growth, low PEGs and high yielders; looser stops in the IRA,  higher CASH positions and snugger stops in the Trading account and staying in the game. I am using all the trading techniques from Derek Siek and Harris Frankel on Pivot Points, Bollinger Bands  and market momentum with Nick the Piranha Pirraglia, market turns and Forex indicators  from Blake who always seems to know what happening toMorrow and staying in the Materials with Kevin “I’m Long (horn)” Dixon.  I just want to express my thanks to this crew and those not mentioned for all their real time advice and hard analysis that we can’t get anywhere else. Their wisdom gives me confidence to make my trades. Period. Out (to the beach!).

    PS: Notice Bloomberg headline: Gross, El Erian, Pimco favor equites? The bond kings? yep.

     



    Disclosure: Long all mentioned
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