Looking back and looking ahead

It is the end of another trading year. A time of reflection on things past and pondering of what may come in the next year. I am reminded of one of the Market Wizards (from the book) who, when asked what was the secret to trading well, threw the chart book on the floor and got up on his desk to look down at the charts. Meaning that it is all about the big picture. Always look at the big picture. The same theme was one of chapters in "Reminiscences of a Stock Operator". The chapter where the protaganist Larry Livingstone tells of his conversion from a ticker trader to a big picture speculator, and says, "the big money is made in the big move", and relates his discovery that when he got the big picture right he knew he had the staying power to stay with his positions. Of course timing remained paramount. Putting on the trade at the right time is the key.
That said, lets look at the year past. I do that in the markets by looking at charts of prices of stocks and stock averages as well as the prices of commodities in their stock share equivalents. I started in the commodities and I believe that commodities are the nearest to a crystal ball that there can be to speculation in the broad markets in general.
Here is a chart of the S&P:

Bonds have been the safety trade. The long bond still looks to be going up, but I am looking for a top this coming year. This could be the trade of the year. (If I don't look too hard! LOL) Timing is the key, again.
TLT may break above recent highs early next year just to sucker in the last buyers. But then I expect it to reverse. Conversely, the stock market may have an early selloff just to catch the most on the wrong side.
The long bond:

And the "crystal ball"??? Here is some of what agriculture has been doing. As well as energy. Oil is near $100 a barrel again, without much fanfare. It wasn't that long ago that $100 oil was huge. Natural gas may keep a lid on energy prices though, and this will be good for the stock markets and the economy in general. Cheap energy allows the rapid consumption of everything else!! Remember the 1990's?
The charts:

I chose Noble Energy to represent oil. The trend is up in this one.
And Agriculture is looking to turn around. Food prices drive inflation, as does oil.... The early stages of inflation are good for the stock markets.



And the green looks good! John Deere green. I should write a song! DOH!

I'm kind partial to Deere.

And for the investors the Russell small caps have lagged, but I think they will catch up fast if the stock indexes go higher.
IWM:

The charts show what the market is looking for and which ways the economys of the world are trending. Some things that may try to derail the recovery are Iran and its ambitions and the threat of war. And how Europe resolves it's debt problems. I made a reference to the 1990's in one of those charts. The 1990's were a decade of problems around the world. There were several currency crises in that period and their problems proved to be our gain. Their economys slowed and we profited from the lower inflation. Low inflation gives banks a good incentive to lend and lending is the way money is printed. I think the US Dollar will resume it's downtrend.
But in the final analysis I trade. It doesn't matter what the markets do. It is much easier to make money in a bull market however. And everybody is generally happier. And I wish everybody a very Happy New Year!!


Markets just closed today..... Year to date gain only 8.4%. A tough year.

Happy Holidays

Here is one of my favorite Christmas songs. I hope you like it.

http://www.youtube.com/watch?v=SAZft2koC9A

Heckmann Corp

Here is one of those charts that show a possible long term breakout. Heckmann Corp moves waste water in the oil/gas fracking industry. I believe fracking will ultimately prove safe enough to be acceptable as a major innovation that has the potential to give this country the big boost in inexpensive energy that we need to get the economy moving and will help us to bridge the gap to sustainable energy in the future.
Heckmann Corp has broken out to new highs recently. A long term chart shows a series of highs since Feb. '10 at about $6.50 and an upsloping trend. The alltime highs were back in the boom of '07. There has been good volume on the latest breakout.
The downside is that this stock was touted by Jim Kramer on his show last week. I am alway leery to buy a stock that is touted on the television because it often gives the big holders a chance to sell into some new volume coming into the market. But, I suppose even Kramer could get something right once in a while! ;)
The charts:

control your emotions and control your risk!
gh

Molycorp

On Nov. 21 I guessed that China may further restrict exports of rare earth metals. Here is a news item from today:

Molycorp Inc. (MCP, $27.08, +$0.65, +2.46%) shares climbed as the Sydney Morning Herald reported China has blocked exports from Baotou Steel, the world's largest rare-earth producer. China dominates the market for rare earths--often used in high-tech gadgets--and tightly controls output. Rare-earth supply/demand, and any reports that speculate on changes to the relationship, can affect pricing and ultimately, the stock performance of rare-earth miners. Analysts said the gains in Molycorp shares also could be from CEO Mark Smith's late-Friday disclosure he purchased 5,000 shares.

Here is a MCP chart. This is bottom picking. Not a generally high probability trade. If the general market picks up I think this company could revisit old highs.

Also, notice the recent new low on low volume. Another indicator of lack of selling pressure. If there is a bottom in here somewhere it will probably manifest as a trading range for awhile.....
gh

Anatomy of a trade.

Covered my gold short in  GLL this morning. It is always emotionally difficult to let go of a trade that worked well because I know I probably didn't sell at the high. Sold GLL at $19.00. I had bought in four tranches starting at $16.18 on Dec. 1st, $16.10 on Dec. 2nd,  $16.82 on Dec. 8, and the last at $17.70 on Dec. 12 for an average price of $16.70. Except for the second purchase all of the buys were at a price that was higher. That meant that the trade was going my way and I made money from the start. Buying this way is easy to do emotionally. I always consider a trade a process of establishing a position and if I keep my average price below the price that the stock is trading I will have a cushion to protect me if the trade goes sour. This is controlling risk. Although I had a high percentage of my account invested in this trade I felt it was not a risky trade because of my average price position and due to the volatility that was the norm in the gold market. The idea for the trade was the very defined trendline that was evident in the gold market and that I thought there would be many sellers if that trendline was broken. The recent strength in the dollar was another factor. And the clincher was the intraday selling that I saw in GLD, and the lack of volume on the run up around Dec. 1st.
My "edge" is watching and interpreting the intraday trading action while considering the longer term technical factors. As I have stated above. I don't know what gold will do in the short term from this point on. There may be buying at this point due to the previous consolidation back in Sept. It may continue to go down from here also. But I don't have strong conviction.
If a person was into a trade like this for a longer term trade it would be wise to not have such a big position on. That would make it easier to hold for the long term. But I trade short term because that is what I do best at. It is important for me to remember that to be profitable. Of course there is always anguish when I sell and then watch a market keep going. That happens. But I traded my "edge". And that is what is important. And this is the hardest thing to learn.
Now it is time to watch and wait for the next good trade, and avoid the impulse to take the bad trades.
It is kinda funny how the good trades are good from the start. The trades like this are the ones that I just know from the beginning are going to work. There is no real doubt.
The charts:

gh

How can the EuroZone raise money???

Along the line of the previous post:
The EuroZone needs to raise money to bail out their governments and banks. They can "print" money. but the Germans are adamantly opposed to that since it will further weaken the Euro and will "kick the can" down the road. I wonder, do those governments have gold to sell???
gh

What could cause US Dollar strength?

I've noticed that the dollar has been strong lately even as the stock market has gone up. Many traders still keep an eye on the dollar and see a strong dollar as a flight to quality, and thus weakness in the stock markets. This correlation may be beginning to change. Since Sept. the USD has been going up, and the stock market is up since Oct.
Today, the employment numbers came in relatively strong, and then we see strength in the USD. The talking heads on CNBC are trying to figure out why the dollar is strong even when the stock market is strong. In my opinion, if the economy is strong, then the dollar will stay strong. And furthermore, from a investing perspective a strong economy before the next elections will favor the Democratic president and the Democrats in general. If the Dems are able to take the reins again I can see govt. revenue increasing through taxes. Raising taxes will show the world that we intend to pay our bills, resulting in more confidence in our currency and more confidence in our bond markets. This holds down inflation, keeps imported goods including energy less expensive for us, and also keeps interest rates relatively low since the threat of a devaluing currency is removed as well as the threat of inflation. This is good for the economy in general, which is also good for our banks since they can expect their loans to be repaid. They will be more amenable to lending as a result.
This is looking out farther than I trade, but I get the feeling that this market and this economy is stronger than many believe.

Here are some charts to ponder:

Wasn't that fun!

Nice up day. Steel one of the strongest sectors. Molycorp did o'kay also.
The charts:

Control your risk.....

China tensions?

The president of the U.S. was in Australia to announce the placing of a U.S. Marine contingent on the continent. This is seen as a counterbalance to China in the region. This can't do anything good for China relations in the medium term. China is the type to twist arms when they can. I remember their moves in restricting the export of rare earth minerals last year and what they did to the prices of those commodities, prompting the re-opening of the only U.S. mine for the rare earths, the MolyCorp mine in So. California. I can see China continueing to tighten the grip on the rare earth metals since they are critical in the solar and computer industry. With that in mind I initiated a small long position in MCP. The price of this stock continue to decline, but there doesn't seem to be much urgency in the selling.

The volume in the S&P is not urgent so far today as well. I would expect more panic given the percent declines.....

Control your risk.



There goes the market

All bets are off for awhile.....

turn gas into steel?

Why couldn't this country use it's advantage of low cost gas to make steel?
Steel stocks still strong.

Just thinking......gh

LNG and CNBC

CNBC just had a discussion on why the U.S. is not using more natural gas in transportation vehicles.
Last week I sent them the news item about Cheniere Energy (LNG) that I posted on this blog. I asked them at that time why they don't talk to Boone Pickens again. Guess who's picture is on their website today???? Mr. Pickens.
Maybe I had some influence. Yea, me and a thousand others with the same Idea.... the 99%.
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Will the sentiment change from deflation to inflation?

That is the question on needs to consider to be on the right side of the markets nowadays.
Here is a stock that I would consider a bellweather of the inflation trades.  Freeport McMoran, an Australian mining company, has been in a recent downtrend. The downtrend may be broken soon and may be an indicator to the direction of world stock markets in general. I has held up surprisingly well given the European problem going on. FCX is a China play, and an inflation play in general. Stocks like this usually make a meaningful move when a trend line is broken. It may go down as well, however.
Watching:

Control risk.
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Addendum:
FCX is a copper and gold company. Here is the chart of copper. Known as Dr. Copper in the markets for it's usefulness as an indicator of economic activity. Copper is an important component in many industrial processes.....
Dr. Copper. This chart looks almost the same as FCX.....

What is the 99% upset about?

There has been a movement afoot lately called "Occupy". As you know this group has been organizing people to stage demonstrations on Wall St. and in the business districts of major cities in this country. The "occupy" movement seems to suffer from the lack of a single coherent message however. Instead the participants voice a general dissatisfaction with the way things in this country have been going. I would like to point out one instance of the kind of thing that I think is causing this dissatisfaction.
A couple weeks ago Canadian regulators gave the go ahead to a project to export Liquid Natural gas from a port in British Columbia. Last May U.S. authorities o'kayed a plan to export LNG from Louisiana. Most of these exports will be to Asia. Natural gas prices have plummeted in the last 3 years as new technology has made the gas more recoverable. Estimates of U.S. natural gas reserves now give us decades of plentiful energy if we choose to use it. Today, as I write this, the price of crude oil is $97 a barrel. We all know what the high price of oil does to the economy. Automobiles and trucks are easily converted to natural gas.
A very large part of the trade deficit in this country is due to imported oil. The trade deficit is a large part of what makes the U.S. dollar weak, and a weak currency makes everything more expensive. And the countries that we buy oil from do not always have the best interests of this country in mind. Not to mention our need to act as policeman in the Middle East.
Yet, the lawmakers in this country would rather let private interests export our natural resources while the rest of us import high priced energy to burn in our cars. A carefully fostered sense of distrust of government has been put over on the American people. Many in the public arena have taken up the chorus of "government is bad". I believe that many in big business have supported this campaign against "big government". But private enterprise will not undertake the job of converting the U.S. from oil to natural gas without incentives from the government. And the government is us. The 99 percent!
The availability of energy is what powers our economy. The cheaper the energy the easier it is to produce the things that make life comfortable. Yet the powers that be choose to allow our cheap energy to be sold to China. Again, the private interests trump the public interest.
This is one example of the kind of thing that makes Americans wonder just who is in charge.

Why is the U.S. and Canada exporting natural gas?

Here is a recent new item:

CALGARY (Dow Jones)--A project to export liquefied natural gas from British Columbia's west coast to markets in Asia received approval from Canadian regulators Thursday.
KM LNG, a joint venture between Apache Corp. (APA), Encana Inc. (ECA) and EOG Resources Inc. (EOG), received the license from Canada's National Energy Board to export from a deepwater port in Kitimat, B.C.
The license is a step forward for the project, initially estimated to cost C$5.6 billion, which is still undergoing a feasibility study by the partners. If they decide to build it, the terminal could begin shipping natural gas to markets in Asia by late 2015, eventually shipping up to 1.4 billion cubic feet of natural gas a day.
It's the first license Canadian regulators have issued to export LNG, reflecting the shift in North American gas markets as horizontal drilling technology unlocked vast new supplies of natural gas from shale rock. The new supplies sent North American gas prices plummeting, and plans to open more terminals to import natural gas from abroad were converted to export from oversupplied markets in the U.S. and Canada.
"Kitimat LNG represents a remarkable opportunity to open up Asia Pacific markets to Canadian natural gas," KM LNG President Janine McArdle, who is also an Apache senior vice president, said in a statement. "This export license approval is another major milestone for Kitimat LNG as we move forward to market our LNG supply."
The U.S. took a similar step in May, approving plans by Houston-based Cheniere Energy Inc. (LNG) to export LNG from a terminal in Louisiana.
The KM LNG project, led by Apache, received a 20-year license from the Canadian government to export more than 9 trillion cubic feet of gas over the life of the project. Nearby gas basins in British Columbia and Alberta owned by Apache and EOG contain more than 19 trillion cubic feet of recoverable gas, according documents filed with regulators.
Calgary's Encana said in a recent presentation that an LNG export terminal will help find markets for gas produced from the Horn River basin in northeastern British Columbia, which is rich but a long distance from markets in the U.S. The company estimated that Asian countries will need an extra 15 billion cubic feet a day of new gas supply by 2020 in order to keep up with the growth in demand.

_____________________________________________________________________

Why will the U.S. allow the export of our natural gas at the same time we are buying $100 oil. Natural gas is very usable as a transportation fuel. This is what T. Boone Pickens was trying to get done a couple years ago, to no avail. This is more foolishness by the Americans. We will let our private interests make a profit to the long term detriment of our country.

col revisited

This is a strong looking chart. I don't know why.

interest rates, oil, and the economy.

Very interesting action in the stock indexes lately. Big down day in the indexes yesterday and weak action in the long bonds. And oil keeps going higher. (At least until I mention it!)
I can't help feeling that interest rates are going higher from here. Got stopped out of TBT last week, but am looking to re-establish a position as a trend emerges.....
The charts:

If Europe was going to set in motion the Greatest Depression ever, why is the stock market so strong. Markets usually do the thing that fools the most people, because markets are the people all trying to outguess each other.
Control your risk and don't let the market train you into bad trading habits......
gh

umpq

Awhile back I was touting Umpqua Bank, a local publicly owned bank in the Pacific Northwest. At the time I was advocating a buy over $12. At that time the stock went barely over and then quickly reversed, stopping me out with a small loss. Since that time the stock broke through the bottom of the range it was in and now has recovered back to the $12 dollar area. The best trades are often the hardest to take. It is hard psychologically to get back in this stock here, but the strength of this stock is dramatic and it has outshone most of the banking stocks that I look at. For a long term play this bank has merit. The chart:

As alway, limit your risk in whatever timeframe you play in.....gh

update 11-6-11

A quick update on possible trades recently featured.
I was stopped out of the long TBT by the gap down day last week.
Holding on to steel. Still see buying in most steel stocks.
JJG is seeing buying in large chunks intraday....
A recent comment by Schnitzer Steel leads me to believe the asian economys may be stronger than many believe....
"
Schnitzer Steel Industries Inc.'s (SCHN) fiscal fourth-quarter earnings more than doubled as the company reported double-digit revenue growth and higher volumes and prices. The company's revenue has continued to benefit in recent quarters from stronger global demand for recycled metals and higher prices, though lower margins and a higher tax rate have cut into earnings. The company has also been on an acquisition streak this year, closing 10 deals. "Looking ahead to 2012, we expect the positive benefits of the investments and acquisitions we have made as well as the overall increasing demand for scrap metals to continue," President and Chief Executive Tamara Lundgren said. "Despite recent forecasts of lower global GDP growth, the growth rates of the developing economies, which are our primary end markets, still reflect levels which can sustain strong steel production."

Combine this with the LVS strength and the outlook for the emerging economies may still remain strong....
Some recent charts:

I wonder when coking coal will become popular again?

Control risk always........

One of my fav trading patterns....

On of my favorite chart patterns to trade is a triple top. I don't mean a triple top near all time highs, although that works too. But any time I see the price bump against a ceiling three times I get set for a breakout through those recent highs.
I have been seeing a lot of trades lately. What a difference a moveup in the averages makes. That is another valuable trading rule: Don't buy when the averages are in a downtrend!
Anyway, here is a chart of Knightsbridge tankers. I suppose the price of crude going up means their business might pick up as well...

Know when you will get out. Look at a chart and ask yourself: If I trade using charts, and if a breakout through this triple top means the price is going up, where will the price be when I am wrong. The classic answer is "somewhere in the middle of the present consolidation".....Please note that this is only good for a short term trade. Usually a day or two. We are bottom picking here if we trade for the longer term. I find it hard to hold on to these for the long haul. If I were that type of long term investor I would perhaps put on a big trade position, and then sell most of it and hold the rest for the long haul....Or add more later as the trend proved itself.
It is a gutcheck when you sell the trade and the stock just keeps going up! I remember buying Oregon Steel at $14, making a quick buck, and it didn't stop until $60....aaarrrghh!

alway limit your risk....gh
Limit your risk.

Defense?

I keep my stocks in lists. One of those lists is "Defense Stocks". This is the best looking chart of the bunch. A break above resistance at $58 may be the start of another leg up......

Always limit your risk......gh

7 Billion people on the planet.

The world population continues to grow. I wonder what they will eat. I suppose they will want to drive a car too...

http://www.vancouversun.com/business/billion+people+earth/5627728/story.html

Zerohedge locked me out.

I find that my I can't log in to Zerohedge. I must believe that I was locked out by the management. I have lately had some disagreements with the general tone of the discussions on ZH. I have felt that the stock market and the economy in general may not be as bad as is portrayed on ZH. I went so far as to state that "Zerohedge is a one trick pony". OMG!! Did I really say that??
All of my comments have been polite and logical. And I have been right lately. I think that may be the problem. The economy may be poised to turn around, the problems in the middle east may be on the mend, Obama may be the next president, and low interest rates may finally pull the economy out of its slump. And that means Zerohedge is out of a job.
But, I can't log in..... I can't believe they could do this. I thought they welcomed debate. Maybe I will be proven wrong.
If you have access to Tyler ask him what is up!!
gh

Grains?

Here is a interesting pattern. I would look to buy some grain if the price breaks out to the upside from here. I also would consider the price of grains an indicator of inflation. Inflation is a sign of increased economic activity.

gh

Buy the strongest...

One thing I have noticed over the course of the last couple decades is that when a downturn in the general market is coming to a close the best bets are those stocks that have held up the best during the downturn. On a long term time horizon, here is one that has held up well...... Buying new highs in these situations often turns out to be a good bet. Counterintuitively.

Las Vegas Sands.

The late dollar rally...

Here is the bigger picture of that dollar rally that happened over the last couple months as the stock and commodities markets were under pressure.

There is no uptrend here:

gh

tbt

This is where you buy some more TBT. Don't get greedy. Just a second third.

Control your risk.....gh

How about this!

There is a lot of doom and gloom out there and has been for a long time now. It seems sometimes that everybody has lost hope of a rebound in the housing market. I often see charts of financial activity that the presenter shows as an example of the markets getting ready to repeat past history. Here is a chart put out by the folks at Case-Schiller. The crayon marks are mine.

gh

ditto

"Surprises" happen along the line of least resistance.....

gh

This is why trend trading is best.

Here is a prime example of the trend that continues to trend....

There is no "bottom" here.

Jesse Livermore, one of the greatest traders of all time, made the point in "Reminiscences of a Stock Operator" that the unexpected events that occur in the financial markets almost always occur in harmony with the existing trend. When the trend is up the surprises will be bullish surprises, and when the trend is down the surprises will cause further downward movement. I have found this to be true. There was a time when I tried to pick bottoms when there was no reasonable expectation for the trend to change, and invariably when the next news item came out the stock dropped further.
gh

here is a breakout

This is one I meant to post for a couple of days. A classic "breakout" from a trading range. These are the types of areas where it is easy to put on an initial position with little risk since there is a well defined line of resistance that was broken. The buy was just as the price broke above the line....

Always limit your risk....

Technical analysis..

I make most of my trading decisions based on technical analysis of stock charts. I would like to present a case for bottom picking in a coal stock. "Bottom picking" doesn't mean buying the low of the move. To me bottom picking means trying to identify those areas where a stock has MADE a bottom and has potential and momentum in an upward direction. It also is often where the shorts find themselves to be wrong..
Here is my technical take of Patriot Coal.

As a general rule stocks experience three stages of decline before they get set up to rise. In the chart above I have identified three areas that represent these declines in PCX. Notice the volume at the bottom of the chart. In the first decline the volume only picked up right at the bottom of that decline. The bulls were still in charge,(or so they thought), and the stock rallied back, but the volume remained low except for a couple of days.
The stage 2 decline was on huge volume, and the stock was halved in price. A sideways consolidation pattern then occured. The volume declined.
The stock had a chance to break out on the upside during it's consolidation after decline #2. If you look close you will see that it just barely broke out of the sideways channel that it was in, but each was a "false" breakout. The buying was quickly overwhelmed and the stock went down.
The stage 3 decline was on the largest volume so far. At point #2 (bottom chart) it must have been a "throw in the towel" moment for anyone still holding on. Also a good sign when looking for a potential bottom.
Let's take a closer look:

As the stock plunged to point #1 the volume surged. A rebound on heavy volume, and then another plunge to #2. The rebound from #2 was on the heaviest volume yet, and took the price up to #3. And volume has remained heavy in sideways trade from then, with the heaviest volume on the up days.
One of the key things I look for in a bottom is heavy volume in a sideways pattern signalling accumulation. ie, big buyers. The kind who tend to keep what they buy, and the kind who tend to be right. (Notice the decline in volume in the consolidation decline 2.) The volume has remained heavy since the selloff at #1.
To complete this bottom we need to see the stock (1) move above the highs at #3 on higher volume. If they do that then they will need to (2) break through the floor of the consolidation from the second decline, then to the top of that range, and (3) break through that to keep going up.
For a long term hold the stock would have to do the above three things.To limit risk on any trade the long term trader could buy at each of these milestones. As always, limit your risk by selling if the stock falls below the support areas offered by the consolidations.

A note on technical analysis. I don't have the money to do the research that the multi-billion dollar funds do. So I look for their footprints. When they buy or sell they tend to move markets on larger than usual volume. And they can't put on their position in one day. So they will tend to do their buying and selling over weeks. By interpreting the signals that price and volume give, the astute technical trader gets an indication what the "smart money" is doing. And the small technical trader has a huge advantage if he chooses to use it: He can put a position on in one mouse-click, or take it off just as easy. And his volume doesn't move the markets. (Well, most of the time!) So limiting risk is as easy as controlling your ego and admitting you were wrong. LOL!
gh

Steel?

Keep an eye on this one....

gh