Very Nice Rally Powers A Lot Of My Longs To Great Gains; For All The Bullishness Today, Did Anyone Notice Volume Is Still Below Average?

surprising bulls out there;;;;this from a blog i sometimes read, he is a hedge fund manager : (tonights commentary below)

“Stocks Higher into Final Hour on Short-Covering, Bargain-Hunting
BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Software longs, Alternative Energy longs, Gaming longs and Biotech longs. I added to my (GOOG) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is slightly above average, despite gains in the major averages. Today’s overall market action is very bullish. The VIX is falling 4.7% today, but remains relatively high at 22.0. The ISE Sentiment Index is a low 95.0 and the total put/call is an above-average 1.03 today. Finally, the NYSE Arms has been running below-average and is currently .80. Today’s broad market action is even more impressive considering today’s economic data, the rise in oil and decline in tech leader (GOOG). While the major averages are getting extended short-term, the recent parabolic rise in short interest, high cash levels at most funds, historically bearish sentiment readings and technical breakout in the S&P 500 should keep pullbacks relatively mild and short-lived. Hitwise said today that it is actually seeing an increase in traffic from Google to retail sites, which indicates GOOG’s paid search deceleration is not due to the economy. Pacific Crest said that its channel checks contradict the data from comScore and CSFB said that the January decline in paid clicks was intentional in an attempt to eliminate the zero value click. I still believe recent significant improvements to GOOG’s algorithms will result in further substantial market share gains over the intermediate-term. I suspect the shares are in the process of bottoming for the year right now and will finish the year substantially higher than current levels. Nikkei futures indicate an +206 open in Japan and DAX futures indicate an +45 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short covering, diminishing bond insurer angst and bargain hunting.”

Josh, you raise several good points here, as usual. The one I will take note relates to a conversation we had in the comment threads and in the chat: that of a gap up. I have made a screen shot of DBA (arithmetic chart) and marked it up the way you often do for your Real Money posts. I identified 8 gap-up days since the first tradign day of the year. Interestingly, the first one came on the first tradign day of the year and was on the 2nd highest volume ever for DBA. The seven following gap-up days have all been on even higher volume than the first gap up.

The last of the seven gap-ups doesn’t have the biggest intraday range since the start of the year: maybe it is the second biggest. The day that followed it (yesterday) is not a gap-up but it does have the greatest intrad-day range and the highest volume in the stock’s entire history- about double of any other day!

I am saving this diagram and related notes because, as you have pointed out, this is as close to a “TEXTBOOK” example of climax run as can be found.

If other newbies have a question about what a climax run looks like, this would seem to be the chart to which they can be referred- even if we don’t know what will happen over the the near future.

thanks again, as always, for the many insights you are providing.

How can you be net 100% long here? and add to a GOOG long?

you are very welcome, starling.

you are using!!!! this site.

EXCELLENT!!!! your students are never going to forget you.

Hey Josh,

I appreciate your comments, and am happy i could provide some fodder regarding DBA, possibly helping others

Just as a point of clarification, when I was asking about the Plunge Protection Team and how long it could last, I was more asking about the ability of our government to continue directly doing things like buying futures. Since the government doesn’t put out the M3 report anymore, it’s difficult for people to gauge this type of direct manipulation of the market. Feel free to call me out as a quack, but I think we have had several events in the futures that don’t make sense in any other context. This past es flag breakout to the upside, for one. Days with one bad report after another and, miraculously, the market turns up with each one!

On another note, I trade in a way that insures I can withdraw enough to live on at the end of each week. I firmly believe in taking profits like a paycheck. What this has meant for me is to use your advice about longs and shorts as a confirmation of the greater trend for my swing and day trades. (You aren’t rolling your eyes yet, are you??) I only trade either es futures or front month options usually moving my stops up to entry within an hour, and my average hold time is less than a day, but I can still incorporate your perspective with my style. I don’t have a lot to trade and I protect it religiously, so I sacrifice some profits on the bigger swings, but keep well more than I lose, at least for the past 9 months. It took blowing out an account to learn all this.

Whatever… long intro to a short question… do you or the people in your forums or chat daytrade with these same basic trends that you identify? Maybe this would make a good FAQ…

Thomas, the answer is no -we don’t daytrade. Period. The goal is to catch the larger trend, the 100%-10,000% trend, not chase after these 5-10% moves. Not only is daytrading not worth the effort, but so few can do it well consistently. I’d just rather give all my money to Ken Heebner and let him return 25% year after year while I live a full life than sit at my computer all day, staring at a screen in the hope of getting my 5% by the end of the week…and very probably failing.

I wish you the best of luck, however. Bear in mind, though, that what you are doing flies in the face of what the best traders in history espoused. Those are tough odds. And that’s what this game is all about.

“No man can always have adequate reasons for buying or selling stocks daily – or sufficient knowledge to make his play an intelligent play. I proved it.”
-Jesse Livermore

Daytrading is for amateurs. I started off daytrading but after studying the greatest stocks and reading about the greatest traders ever I decided I would NEVER daytrade again and then REALIZED daytrading is IGNORANT. Anyone that is reading my “past big winners” page and does not understand one $1 buy and one $1 sell with a 100% to 10,000% gain in between is much better than trying to daytrade that stock. How many successful “daytraders” do you know? I know NONE that focus on stocks.

By successful I mean can out perform me year in and year out over a three year, five year, and ten year period? .5% of all daytraders maybe.

O’Neil, Livermore, Darvas, Loeb, Baruch, Ropell, Heebner, Wyckoff , and the current staff at IBD all use/used a form of CANSLIM.

Therefore, the smartest traders would ONLY invest this way also.

By the way, Livermore learned the exact same thing I did and even mentions it in his book: daytrading is for amateurs and the best investors/traders learn to sit.

It wasn’t the action that made him rich, it was the sitting!!! Sitting and holding longs in bull markets and sitting and holding cash in bear markets.

If the greatest traders of all time traded this way WITH STOCKS then why would I EVER want to daytrade???????

Unless you get 50 to 1 margin, daytrading is for suckers!

I will bet you my entire portfolio you can NOT find anyone that returned what I returned in AAPL in 2004-2006 on the long side and now on the short side that daytraded the stock. Same with any of the leaders.

I mean thing about this on your own!!

Imagine you bought GRMN RIMM AAPL in 2003 (ONE BIG BUY) and then in 2005 bough GOOG and BIDU (ONE BIG BUY) and then you decided to sell them all on January 3, 2008. Do you know the returns of these stocks?

RIMM 3/03-11/07 6150% return (WHY DAYTRADE?????)
GOOG 9/04 to 11/07 517% return (WHY DAYTRADE????)
GRMN 10/02 to 10/07 1069% return (WHY DAYTRADE????)
BIDU 03/06 to 12/07 600% return (WHY DAYTRADE????)
AAPL 04/03 to 12/07 2750% return (WHY DAYTRADE????)

one $1 buy at the start and one $1 sell at the end. Now, why do you want to daytrade? (rhetorical question)

And do I have to tell you about TNH? 3000% gain from 09/03 to 01/08.

We have one guy named David who lives in London, UK that daytrades futures. He is very good but he calls major turns in the market that always turn out wrong. LOL. But in the short term, he is GREAT!!

If you are daytrading futures, you have my full blessing. If you are daytrading stocks, I will NEVER give that an OK because of CANSLIM. When you know about CANSLIM it is just silly to ever daytrade EVER again.

But with futures, the action suits that and margin can make the game veyr worthwhile.

thomas, was curious how long you have been trading ?

personally, i think if you have a proven system that consistently allows you to beat the market with odds in your favor then by all means use that system…

LOL.

Yes, that is something I forgot to mention.

OK, so this system, seriously, by AAII own test!!!! proves that this is the best out there. But if you can’t get it down and if you are making money consistently with your own strategy. Then by all means don’ t listen to me. I should be strictly entertainment. Like a monkey. For your amusement.

Hey Josh,

So, for daytrading, I find stocks with high liquidity in derivatives that follow the ES (until they don’t) and then buy slightly ITM. It’s basically like daytrading the ES’s (which I do) but is more interesting. Sometimes I’ll sell spreads around earnings with stupid premiums.

Believe me, I would love to get to the point where I can watch the market less using CANSLIM. I’m a student. But I really don’t know how to make a living this way, taking weekly or even monthly profits. As I build my account, I’m taking more long term positions, but, for now, I can’t wait a year or two for a position to play out.

Orkiter… I traded very badly for over 2 years, and then started fiercely protecting my egg, trading this way about 9 months ago. So, less than three years total.

Thanks for the comments, All. I know you believe strongly in Josh’s method, as do I.

Take care,

Tom

Sounds like a proper plan if you need money RIGHT NOW. Because this methodology is to swoop in and in bullish markets make a TON TON TON of money. So much money that you can be in cash for a couple of years, if the market turned sour and you were afraid to short, and still come out with a three year gain of 500% even though you made all of your money in 1 of the 3 years. Turning $1 million into $10 million , as long as you live a SIMPLE life, like me, should last you the rest of your life. You could have one very great year and never trade again using this system.

The most important thing is to keep your cash for when these perfect moments come. So many will trade their account into the ground while they wait for the next big bull that by the time it comes…they are gone. This is why I hold positions. I have living expenses covered for AT LEAST six months in case I can not get any winners.

But there is always a bull market somewhere and usually when I find it it pays off. Such like the commodities now.

Great luck Tom!
Keep doing what you got to do!!

Tom,

I’m glad you have a pretty good attitude. The thing is, when it comes to the market: everybody is wrong, only the market is right. CAN SLIM affords the trader the best chance of being in lock step with the market, pure and simple. None of us here are any smarter than the next guy, believe me (and we’re certainly not any better looking), but we’re pretty hardcore when it comes to O’Neil’s research, for reasons that I think are obvious. So don’t take what we write the wrong way (which, I’m pleased to read, you didn’t). When you get right down to it, all anybody wants here is to do well. The path of least resistance to that goal is CAN SLIM; as far as you getting to that point where you can use it successfully, there’s no time like the present. Do the work, reap the rewards.

Best of luck,
Author_Ego

Thanks again Josh! You can bet once I get my account up enough to live for a little while, I’ll be more active here.

I, too, live simply. That’s the best money making decision I ever made. I’m a big proponent of buying things used after first deciding if I actually need it.

Great luck to you as well !

Tom

And thanks for the kind words Author_Ego… I appreciate it.

With the fractal nature of the markets, I think there’s room for people to make money at every time scale, but I do hope my trading evolves into investing, especially with Josh and others here as a resource.

Take care,

Tom