05-31-10 Stock Traders’ Weekend Recap and A look at the Week Ahead

May 31, 2010 7:22 PM ETSPY
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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 www.InvestorTradeStocksPreview.com daily blog providing critical thinking intraday as the market evolves, as well as longer term investment views. Our members trade stocks and options, post their ideas and benefit from our nightly and weekend market analysis. Our 15 sector Focus Worksheets of from 12 to 50 stocks allows us to always have something that is working in an uptrending market. If its not uptrending ,we like Cash... Don't tired, as many, of being whipsawed by algorithmic black box trading of hedge funds and large money managers, and the excuses of those to whom money was entrusted. He was determined to study and learn to personally protect and grow his wealth in a world of ruthless and reckless markets. Don’t, degreed in Economics, Finance and Law, was a Certified Corporate Bankruptcy Specialist. In his 20+ year international practice he had key representations in some of the messiest financial reorganizations, such as Debtor counsel in the Mrs. Fields Cookies tax/recapitalization and delisting from the London Stock Exchange, the swing vote on the Official Creditors Committee of MCORP, the $32 Billion multi MBank seizure by the Feds, America West, Eastern Airlines. Circle K, Checker Auto Parts (now part of O'Reilly's) and World Color Press LBO/MBO Chapter 11 Committees. Don’t helped develop early CDO and CMO structured financing derivatives, negotiating structure and providing bankruptcy opinions to Moody’s and Standard & Poor’s. He provided deal restructure and litigation representation to two Trillion dollar Chinese national import/export enterprises, COFCO (Chinese national Cereal, Oil and Foodstuffs) and MinMetals (Chinese national Minerals and Metals), in ill-advised US ventures, in the process learning first-hand the Chinese government way. Don’t draws on these unique legal-financial representations with his study of comparative economics, antitrust, constitutional and bankruptcy laws into an understanding of the intertwined impact of international currency, commodity, debt and financial markets. His top down approach is necessary due to the extreme leveraged debt legally encouraged, assumed and still being worked-out by regulators, Wall Street and main street. Had legislators simply limited leverage incurred by homeowners and investment banks to 10 to 1 (i.e., a 9% down payment or capitalization) our world would be different. They did not, and we are left with the carnage through which to navigate. Don’t claims no special expertise in stock markets and trading, but uses his ability to critically evaluate Index and stock charts and financial statements. Having invested with Ken Heebner, studied from Adam Smith’s Wealth of Nations, the tactics of Carl Icahn, Michael Milken, Peter Lynch, Jim Cramer, ECRI’s Lakshman Achuthan and having taken over 200 hours of technical trading training, Don’t has formulated trading techniques and rules premised on his trademarked approach, Don’t Take Losses. Intentionally simplistic, Don't forms independent views and actionable trading and investment ideas which he shares with you. Don't does not manage others’ money; he has no undisclosed interests. He refuses to take losses, the key to preserving and growing wealth. Navigating through the tech bubble, the 9/11 melt down and the 6-8% daily volatility in 2009 that lead to the collapse of the SPX to 666. Don’t Take Losses writes and blogs to help those who feel they need an unbiased voice who has undertaken to teach himself to trade with proper risk management. Don't does not manage money, he has no undisclosed interest. PS: And a big Arizona Cardinals fan. How can you not be? http://www.investortradestockspreview.com/
 
Routine correction or the end of the world as we know it? Its hard to separate the noise from what matters. Both camps are loud (the bears are louder), “we’re headed up now that we’ve really corrected and spent a month in the bear’s den” vs. “the Fibonacci is telling us on the 4th wave  that SPX 940 then 800 are in play”. What? I thought all the weak EU economies combined represent only  4% of the world GDP, that Asia (oh, China will slow from a 13% to 11.5% growth rate!) and South America are fine and the US has daily improving data points highlighted by new consumer confidence numbers that surprised on the upside?
 How do we decipher a directionless careening market? Well, that’s the point. Its not necessarily directionless. The SPX has a clear inverse head and shoulders pattern with the shoulder line around 1086 to 1188. We pierced above it and retested it last week and are sitting right there, but not below. We’ll find out this week if it holds. Do these technical patterns matter? Is there even a head and shoulders are described? I dunno. I do know we are below the level of the SPX this time 12 years ago. Was it irrationally high back then? Uh, no, and yes…that was before the big rally above 1500, the drop to 800, the rally to 1500+, and the drop down to 666. So, is our frame of reference SPX 1500+ in 2002 and 2007, or the most recent low of SPX 666?  The cycle, if it holds, points up to 1600. Straight up, no. We’ve proved that with this 15% market correction and 35% correction in many stocks. But the trend is up, at a pause, and big money will tell us, as always, if and when the uptrend resumes.
Market Watch’s Mark Hulbert, who analyzes stock market advice news letters said on Market Wrap with Moe Ansari that the composite of the hundreds of newsletters that he follows showed these advisors 80% long, 20 % cash at the end of April; but now they are -45%. That is 45% short. That 125% swing in a month is the largest ever recorded. Fast markets, but a notable contrarian indicator Hulbert pointed out. These numbers may not be exactly repeated here but are a fair representation of what I heard on the radio Friday.
Paul Farrell of Market Watch wrote today: “Correction? New crash imminent, worse than 2008…. Now Dow Theory's Richard Russell is warning the public of an imminent crash: "Sell ... get liquid ... by the end of this year they won't recognize the country."
So, crash or rally? Who knows, but my bet is on a rally some time soon. How do I know? I don’t, but I will watch the SPX 1088 line in the sand for clues. The 200sma appears to coincide with the SPX line in the sand on the daily chart, perhaps as resistance. But on the SPX weekly chart, which I tend to look at more for direction, shows the 50sma as support. I have no idea why this is what I look at, and I have no idea what will happened this week. But I do want to document what I am in fact looking at and that upon which I am making my decisions. I just don’t believe, absent the always possible exogenous event, that we are going down another 100 points on the SPX. If we do, I’ll be in 100% CASH once the line in the sand is decisively broken. But the bear case, yelling “fire” seems like the easy case and the emotional one.
 I don’t see a fire. I see a slow, gradual recognition that the EU issues will take years to resolve, and may have some restructure side effects that will be “big news” but ultimately won’t be any different than we should have expected out of a debt ridden Socialist continent with no political or cultural unity. I also see a gradually recovering world and US economy with continuously improving economic numbers. True, US employment remains an issue, but we knew this would be true a year ago. But wages and hours are up and spending and consumer confidence are up.
 So, place yer bets. Like is I’ve always admitted: I dunno. But I do have a view and place my bets accordingly. I also have learned humility and will admit I’m wrong with one twitch touch of the “close all” button if the shorty gets it going. Because we Don’t Take Losses.
 


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