The stock market looks like it is on a runaway bull run with more and more money being put to work by mutual fund managers.  It looks like we are mostly past the short covering and actual investors are starting to buy.  Many different sectors are moving up and stocks that were harshly punished are being bid up.  Even goofy stocks like specialty retailers have been moving up, which were stocks that were treated like leprosy a couple of weeks ago.  So we could see further uptrend in the indices and sectors that have been severely punished.  Anticipate that we have some pullback, particularly in the banks.

The focus is on the good news events like positive earnings, improved economic data, and investors are ignoring the bad news at the moment.  It is becoming that any bad news events are having less and less effect on stock prices.

 We could even start to get into a panic buy situation on the short term yet the banking sector is still mostly down today, even through the close.  There are quite a few sectors that we didn’t notice were moving up so much because we were focused so much on the short side of the banks and life insurance companies looking to profit on our 4^th cycle of trades with these sectors.  My apologies, it’ll never happen again.

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March 16, 2009  Monday Evening

The Dow30 had a nice run caused by the Bernanke comments on 60 minutes last night, until the last two hours of the session.  It was probably a staged talking head ordered by the Commander in Chief himself and the very statement of “the end in sight” is like guessing an end game of a chess game after the first few moves are made.  For decades, the Federal Reserve was insulated from influence by other politicians but we saw Greenspan be President Clinton’s puppet a few times in the late 90’s but Bush seemed to leave them alone for most of his 2 terms.

The trading strategy that we have been taking the last 4 weeks on the banking stocks may seem aggressive to many of you but this is how you rack up serious profits.  Anytime you follow the chart of a single stock or sector as we have in the banking stocks JPM, USB, BAC, WFC, KEY, STI, and even GE with three round-trip trades starting with long, short, long and now short again is extremely profitable. 

Remember we came from intraday trades (aka scalping) most of September, October, November and part of December to swing trades with a few failed attempts at intermediate trades (that last for more than a week).  So we are using the techniques that work for the current market conditions.  If you are only a long term buy and hold investor, you may be waiting a long, long time before market conditions are conducive to making that a profitable strategy.  We go with the strategies that work and even though this may be a fast pace for many of you, this is what is working now.

You could always sit out this current cycle of short positions if you are tired or exhausted mentally.  OR a good fix for that is to have a very small position than normal so it won’t stress your nerves but keeps you alert and your head in the game.  A rest is fine by having no positions at all but keep monitoring what happens so you don’t totally get stale and indifferent to what is happening in the market.  Even someone as good as Tiger Woods will take some weeks or months to get back into tournament play after a 9 month layoff from golf so it is wise to be somewhat updated as to what the market is doing even though you may not have any positions.

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The stock market was down for two days in a row with the European and Asian markets and Hong Kong is particularly nervous about their own bank stocks including earnings and dividend reductions.  Hong Kong is down over 3% tonight and Tokyo down almost 3% the last two sessions.

So the headlines are focusing on the Bank of Japan, the 2^nd largest economy,  and how they are going to battle their recession with their interest rates already near zero as well as the USA’s.  Japan’s finance minister is also stepping down.  Now the Asian and European stock markets are setting the tone and will likely now be the leader the next couple of days for our market.  The S&P Futures indicates that the Dow30 will open down over 100 points tomorrow if it stays the same.

Some of the indicators that we look at are the VIX- CBOE Volatility Index, % Stocks above 40 day ma, sentiment indicators like the Put-call ratio, bulls vs. bears, S&P Oscillators, Investor’s Intelligence, Smart Money Dumb Money indicators and others.  There are no extreme signals now but we are heading in the direction of developing an oversold condition, but not yet.  The market drifts lower as the Dumb Money indicator is setting up to give us an obvious signal the first.  This is given by Sundial Capital Research and is a proprietary calculation and this indicator does well at extremes.

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The stock market was down as much as 247 points on the Dow30 at the last hour and made a last hour comeback after a report of Obama considering making mortgage subsidies to homeowners.  A government plan to subsidize troubled homeowner’s mortgage payments helped the Dow30 rebound and erase almost all of those losses.  The NASDAQ Composite ended up 11.2 or .73%.  This shows the market is not totally lethargic and dead but has some buying power and willingness to buy on good news.

It is like a hospital patient who is semi-comatose but can be brought back to life by a defibrillator (heart zapper).  The Dow30 was close to a “dropping off point” to the November 21^st lows.  This isn’t just a psychological support line but probably a variety of triggers could occur from margin calls, more redemptions requests that caused a lot of October and November selling, and another cycle of retail investor’s fears.  But again I say, we can make the most money in any market when we let the group herd follow each other down a path and then we position ourselves to take advantage of that non-thinking behavior.

For those of you who have studied the Wizard Training Course (or are about to), that is the very underlying thesis of the Bullshorts technique and I’ve made millions on that one technique alone.  (Required statement:  These results are unique and profits are not guaranteed!)  So needless to say, I love group behavior.  As a group in large numbers, people are not very smart.  But for the prepared individual who is trained to recognize opportunities, the rewards are high.

So to quote myself….  “Money flows to those people who have had the best training, are the most prepared and have the most discipline and they take it from the people who have had the least amount of training, are the least prepared and have little discipline.” 

Cut and paste this to a new document, enlarge it and tape it to your door or your bathroom mirror.  Hopefully this motivates you to study this process of making money in the stock market more diligently and learn about yourself and observe the patterns that help or hurt your trading or investing decisions.

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