Classless at the Bay

As a die-hard Packer fan I have been waiting impatiently for Thompson and McCarthy to get fired to get back to my roots and cheer for the team I loved.

Today, the Vikings played at Lambeau Field, and the fans booed Brett Favre. I almost puked. I used to think that Thompson was just an anomaly, not representative of the town, especially coming in as an outsider to the GM job. I always defended Green Bay and the Packers against anybody that spoke ill of them explaining how the Packers are the only community owned team in pro sports and the reason why Green Bay is called Title Town…

The fans booed Brett… and showed that there is no class left in that town.

It is a sad day… now I know that I will never go back to being a Packers fan.

shame on you. I hope Brett goes to the Hall of Fame as a Viking… or a Jet… anything but a Packer.

Go Brett Go

I’ve been a die hard Packers fan all my life. But when the moron’s Thompson and McCarthy ran Favre out of town I was so pissed off and stopped following the Packers, but kept on cheering for my buddy Brett.

I have not watched a Packers game since, till tonight. The Vikings are playing the Packers and Brett is putting a whopping on the Packers.

The morons Thompson and McCarthy do not belong in Football and here is why. In business, successful small business owners have a killer instinct. However mid level managers in big organizations are typically clueless and just worry about their own little fiefdoms. A small business owner goes out to hire the best and brightest they can find, to grow their business.

In large companies, mid managers hire the stupidest people they can find so that they can protect their own turf.

In sports, much like in business, the Super Star cannot be substituted for a bunch of mediocre people. You cannot say something like: my mediocre people are 50% as good as my super star and thus i will just fire my super star and hire two mediocre people to replace him. In small business, a super star employee is irreplaceable.  In Football, a super star player is irreplaceable. You cannot just replace him with somebody that 50% as good or 60% as good or 70% as good. It does not work that way.

Apple couldn’t have replaced Steve Jobs with 5 people that are each 20% as good as he is. It does not work that way.

A 100 people, each 10% as good as Bill Gates couldn’t have collectively taken another company to the heights of success that Gates took Microsoft…

it simply does not work that way.

So when Thompson and McCarthy thought to themselves that Rodgers is 80% as good as Favre and that would do, and fired Favre, they were mistaken… big time mistaken… and the proof is in the pudding.

 

Go Vikings.

Weekly Wrap

Portfolio	S&P	Nasdaq	Dow
11.26%	13.91%	28.64%	8.91%

 

While the broad market has barely budged over the last week the portfolio managed to gain few percentage points and close in on the S&P 500 while still badly trailing the Nasdaq.

The markets continue to be in rally mode without signs of any turn around yet, while everybody and their mother is rushing to call the end of this rally, the best action now is to stay long and use trailing stops to protect capital in case of a severe downturn.

The best performer of the portfolio continues to be LCC, while the worst performer is OMN which is approaching its stop loss order and will be sold this week if it continues its weakness.

Meanwhile it looks like the other positions have plenty of room to move before the stops got hit, unless some massive action happens this coming week.

The portfolio is nearly fully invested so there are no planned purchases. Barring a sale due to a stop loss being hit there will be no sales or purchases this coming week.

Weekly Wrap

Portfolio	S&P	Nasdaq	Dow
8.61%	13.60%	28.15%	8.28%

 

The portfolio has lost a little bit of ground since the last post. Now up 8.6% on the year, badly lagging the Nasdaq which is on fire, and the S&P 500.

The big reason for the recent pull back is the untimely purchase of OMN.

I managed to purchase it near the very highest price of this move before it proceeded to plunge over 25% immediately after my purchase. It may have put a swing low near 4.50 and that would be just fine by me. Otherwise, it is approaching my trailing stop and will be sold for a big loss if it continues its downward projectile.

LCC on the other hand is showing a nice gain, not enough to offset the OMN weakness but enough to keep the portfolio from falling apart.

Meanwhile I had closed by FIG position for a profit and traded DTO couple of times, one for a profit and another for a loss, with the profit being larger. All in all, I am down 2% since the last post in spite of being down nearly 25% in OMN.

The run up in the market since the March lows has everybody flustered not knowing what to do. Many people, recalling the rallies during the 1929/30 times, are calling for another huge drop from here to wipe out all the gains and take us considerably below the March lows. Others, are worried about missing the boat and ending the year lagging the broader market and are just now starting to pile back into the market.

As you can see on the weekly chart the severity of the run up since mid March is only equaled by the severity of the preceding drop since mid October. One could very easily argue that both moves were born out of fear and not reflective of the true value of the market, especially with the Government pumping trillions of dollars into the market and the economy. As such, one could argue that the recent move have simple reversed the panic of the prior move from Oct to March and we are back where we should be.

If that is the case then the swiftness of the move over the last 5 months shouldn’t really affect your assessment going forward.

Technically speaking the combination of the moves from mid Oct till now formed a reverse head and shoulders pattern on the weekly S&P 500 charts. We are starting to break above the neckline. A measured move analysis on this pattern would project an upward move to near 1300 on the S&P 500, nearly 30% move from this point.

Also, if you consider that we lost more than 300 S&P points in under three weeks last October then you can potentially foresee a move to 1300 from here in a short period of time.

In other words, it is wholly plausible that we completely erase the downward move that started in October, within few more weeks.

So while the move has been swift and prudence calls for hesitation, do not go shorting the market at this stage. Remember Sir Isaac Newton, an object in motion will continue its motion till it burns out all the people shorting it.

If you are going to put fresh money into the market I would carefully consider the lows of this week at just above 975. This is as good a place as any to put your stops. If indeed we are going to reverse and start a new leg of the bear market there will be plenty of time to go short the market, do not jump the gun. Capital preservation is key. Pick a good stop point here in case the market heads lower. Let the stops take you out, preserve your capital and then prepare to go short if the charts show us the path.

Weekly Wrap

Portfolio	S&P 500	Nasdaq	Dow
10.21%	11.87%	26.84%	6.87%

 

The market continues to power higher despite of all reasons to go down. The portfolio gave up grounds since the last weekly wrap primarily due to having a large defensive cash position and couple of losing short term trades. As it stands, it is up just over 10% for the year, lagging the all mighty Nasdaq and the broader S&P 500 and barely edging out the Dow.

The portfolio is currently fully invested with roughly equal positions in CY, LCC, FIG, OMN and DTO. DTO being the inverse oil fund it is a bet on oil coming down from here, my stop is tight. The others are small caps stocks betting that the market continues to power higher and that higher beta stocks will move up higher than the broad market. Some of those stocks have had a great run up before I purchased them and have been pulling back even as the market moved higher. FIG on the other hand gained over 22% in five days.

My stops on CY, LCC, FIG and OMN are pretty wide and will not get hit unless we get pull backs in excess of 10%.

The broader market, depicted in the weekly chart above, have retraced the losses from Mid Oct of 2008 and is now at an interesting juncture. First of all, it can be argued that the markets just put a reverse head and shoulder pattern. A measured move from the lows of March (mid 600s) to the neckline (mid 900s) indicate a potential move up to 1250-1300.

The markets are definitely overbought and nobody in their right mind would expect a move up to 1300 after the worst financial crisis in history. However, a year ago when we broke down through the 1300 levels from the other direction the markets were way oversold and nobody in their right mind expected a move down to the 600s.

In other words, what makes sense has little to do with how a market can behave. Several weeks ago when I said that you should go long or get out of the way very few people were expecting the continuous strength in the market. Here is an updated chart of what I posted then.

Notice how we powered higher even though we were facing what looked like a topping pattern breaking down. The area on the chart, marked with the blue arrow in my post then gave us a perfect stop. Trading is all about risk management and we can see on this chart how technical patterns make risk management so easy for us. Had you bought the 900 level, which was the level of the market when I posted the chart, your risk would’ve been 31 points on the S&P 500. That’s the difference between 900 and the stop level indicated by the blue arrow. Yesterday the markets closed at 1010. So you would’ve made 110 points for risking 31 points. That’s better than 3 to 1 reward to risk ratio. That’s how risk management works.

 

With my money, I am staying long this market and short the oil market. The oil trade I do not have strong convention in, so I am placing a tight stop. The others I am giving plenty of room for pull backs. There is very little cash left in the portfolio so there are no planned purchases at the moment.

Weekly Wrap

Portfolio	S&P 500	Nasdaq	Dow
12.18%	4.11%	19.63%	-0.35%

 

The portfolio had another good week and is now up over 12% for the year. Easily outpacing the lowly Dow, besting the S&P 500 but considerably lagging the Nasdaq which continues to power ahead at brisk pace.

The weekly chart on the S&P shows that we have stopped at the critical level once more. Ever since we broke the 950 level going down in 2008 we have not been able to convincingly recapture it. We closed, on a weekly basis, above it only once in Oct of 2008 and that was erased the following week. Ever since then we keep flirting with that level without actually breaking through it.

Looking at this chart it is easy to feel bullish as it looks like the market is ready to clear the 950 level this time around, maybe after a slight pull back, and once it does, there is no real resistance in the cards till we hit 1200 which is a very handsome upside from here.

In the portfolio I am positioned either long or in cash without any shorts. I was long RIMM in side and then booked profits on half of that position. I am currently trailing the other half using a 6% trailing stop.

I added a small position in AIG late this week. The idea is that crappy stocks like that would pop on continued bullishness. I am initiating my trailing stop at 15% from Friday’s close. If it pops this week I will be quick to take a small profit. Otherwise my trailing stop will take care of it, not planning to stay in this position for long.

Finally I added another new position, PCBC. This stock has been acting very well as of late and was showing great action on Friday, that is till I bought my position and then it all went downhill from there. It ended up printing a very bearish candle on high volume. It could be that this is just profit taking on the tail of very strong action. But it could be that this run up in this cheap stock is done and it is going to crash by to the abyss. I am placing an 8% trailing stop for now and will watch what happens.

I am watching several stocks for purchase on pull back next week as I intend to get longer from here and reduce my cash position.

Get Long or Get out of the Way

Ever since the March lows every pundit out there has been calling for a small pullback to slow down the thrust of the upward movement.

We finally got our pullback and everybody and their mother turned bearish calling for the resumption of the Great Depression Trade.

Luckily for us we do not have to wonder if the world is going to end or prosper. The market gives us all the cues we need to successfully navigate it.

After pulling back strongly the market has finally put a reversal day last Wednesday followed by a huge upside candle yesterday. The Wednesday reversal is marked by the upward pointing arrow on the chart. Yesterday’s action is the last bar on the chart and is clearly bullish as we have a wide range day finishing at the highs of the day.

As a speculator you can trade this market from either the bullish or bearish side. If you are a bear, you look at the high put on 6/11 as the high of the current swing and that would be your stop and you would go short here. That’s a valid trade but the difference between yesterday’s close and that high is 55 S&P points. Which means that if you go short here you either have to use a small position size to manage your risk or to take undue risk.

If you are bullish at this juncture you could go long at the open on Tuesday with your stop right below Wednesday’s lows. That’s 32 points of the S&P and is more manageable and allows for larger position size.

I was short few weeks ago and then went flat recently and finally went long couple of sessions ago. So obviously I am leaning to the upside here though I have my stop level well defined and will be ready to exit in a heart beat if the stop does not hold.

I did not switch positions rapidly because I like to flip flop ala Sen. Kerry, nor did I do it because I can foresee the future, which I cannot.

I switched positions because I am trying to manage my risk. Technical analysis does not foresee the future but merely helps us stack the odds in our favor. However to be honest with you so many people interpret the charts so differently at the end it is probably no better or worse than a coin toss.

The good news is that you can make money in the stock markets even with a coin toss. If you randomly guess the direction of the markets you can still make money if you know how to manage risk. All what you need to do is to make more money when you are correct than you lose when you are incorrect and then to compound your gains. The effects of compounding can be amazing.

In order to do so, you just need to look at the charts and try to locate reversal points. This means that you do not want to short an equity just because it had gone up so fast and you definitely do not want to go long an equity just because it went down too much.

What you need to do is find pivot points that can be used as your stop level, whether on the long side or the short side. Once you find those points you need to use proper risk management techniques to size your position. Finally you want your profit target to comfortably exceed your stop loss. This way you can flip a coin and still make money in the market as long as you can stomach extended draw downs because even a perfect coin can go on a long streak of heads or tails.