Hey all. I decided to include in my latest blog some of my thoughts on trading. I am doing this partly as a disclaimer to my own suggestions. Also, the company that first introduced me to stock trading, Investools, has been under fire from disgruntled clients who lost money following their system. These clients cried over their losses, called the SEC, and are suing Investools, which I think is a bunch of donkey stuff (kind of sounds like the cries coming from the subprime mortgage victims). Hopefully, I can keep the ranting to a minimum and impart my own views on how to be successful.

As the site name suggests, hedgeagainstspeculation.com, I also thought it might be useful to give my opinion on how to best use the stock suggestions you see. First of all, let me start by saying every trader is different. Cliché I know. But it is true. When I suggest a stock, I am usually bringing it to your attention because the chart of the stock tells me one of several things: it is about to break out, it just broke out, or it is forming a chart pattern that I find interesting. But just because I am seeing something in a chart does not mean it will happen, or that you should make the trade in that stock. With the exception of one or two chart patterns, I always wait for the breakout before I take a position. This usually, but not always, helps to ensure that I am right. Take for example one of my suggestions from the other week, EGOV. I thought it was forming a nice chart pattern. It gave a false breakout on the 16th. Following my own trading rules I got in. After three days, the stock had basically gone sideways. While it may have gone up from here on out, I decided to exit the trade because the stock did not do what I thought it would. I take a small hit at the chance of profit. Eh, oh well. You have to risk to win. That is the name of the game.

This little story brings me to my next point. Which is do not make a trade until you have answered a short list of questions that I find to be very important. The first two are the obvious two: which way am I expecting the stock to move, and where is my entry point? Next comes a tougher question. How much money should I risk, or what should the size of my position be? Then an even tougher question. If the stock goes against me, at what point do I get out? And finally is the toughest of all. If the stock moves for me, when do I take a profit?

The first couple of questions, I usually address with each post, but these other several questions I have been kind of avoiding. And for several reasons, the biggest of which is that I don’t know you, your financial situation, or your risk tolerance. The exit strategies I have set for myself I laid down on paper, and defer to them in ALL situations. When I first started trading, I could find good stocks, and get in at relatively good prices, but my exit strategy was weak, and I ended up either leaving money on the table, or taking larger than necessary losses because I was not being disciplined. The way I do things is based on percentages. I relegate only a certain percent of my money for any one trade. Next, I do not take on a full position right away, but usually limp in as the stock continues to go in my predicted direction. Finally, my stops are based on the percent of the investment I feel I can accept losing. Besides, there are plenty of stocks out there, so if the current stock is running dull, why not preserve the capital and put it into something that will turn a profit.

So here are just a couple suggestions for the yet to be savvy trader. When you see a stock chart being analyzed, do not make the trade unless you truly see the patterns taking place, ie support/resistance, reversal patterns or continuation patterns. Just because a pattern suggests a certain price target does not mean that is the definite place to exit. What if the stock falls just short of that, or what if you get out at that point, and the stock continues to move right on through the target. In both places, lack of proper exit strategies would leave you at a loss of either real or potential value. And in each instance, you would be kicking yourself. In this case, as I approach a price target, I usually don’t exit automatically, but instead tighten up my stops. I may not make the full profit if the stock does stop at this point, but I also keep my position in case that double I just hit turns into a homerun. Finally, lose the ego. Brag about the successful trades once you exit them, but until then, stay humble. This will give you the confidence to keep investing, but will also allow you to follow your rules should the stock go against you. I consider a successful trade to be any trade where I follow my rules, win or lose. Staying humble is the most important part of being successful. There is nothing more efficient at turning small losses into huge ones than hope and ego.

Happy Trading

-Dylan

Let me make my view clear. I really want to do this to distinguish my style from others that may be found both on this site as well as others around the web. I am still trading as though the market is going to continue to go up. However, I am not as bullish as I was this time last week. In fact, I am more neutral right now. I don’t know if reading other blogs or whatever is starting to get to me, but until the market CLOSES below the current resistance level I am staying neutral to bullish on the market. Breaking resistance on the close indicates a change in direction in the market. As all three major indices show right now, the markets are sitting on resistance. Here is a 2 year daily chart of the S&P. I went through and cleaned up a lot of my resistance lines to make it more clear. We had a longer term head-and-shoulders pattern form with the left shoulder in late June/July of 2007, the head in October/November of 2007, and the right shoulder in December of 2007. The neckline, depending on how you draw it, could have been either around 1430 or 1405. For the sake of this argument we will use the 1430 line. Since the level was support during the head-and-shoulders formation, it also acts as major resistance. The current up trend has hit this resistance level, and has since settled down current support at 1390. Until the markets close below this support level, I am not changing my view on the market. However, I have tightened up all of my stops, and closed out of a couple of my winners yesterday. If this level breaks there is some minor support at 1360, and some stronger support at 1320. If current support breaks, I would expect a test of the 1320 lines, and will adjust my trades accordingly.

I still like the stocks I brought up yesterday. I also did a search looking for stocks that have pulled back and may be ready to bounce. I came up with 19 stocks from this search. Here they are: TSN, SWIR, XRTX, CLI, WSO, ALE, ACS, OTTR, CRR, CIEN, PAG, NHP, NPO, STLD, APD, SPSS, HME, DFS, SLGN. Some are better charts than the others, but it is for you to decide which you like and which you don’t. But here is one of my favorites. ALE had a really nice move from $35 in mid march up to $43 in early May. It has since pulled back to support around $40.50 and had a nice move up yesterday on good volume (sorry, I didn’t check news to see what may have caused it). I am looking to get into it cheap early on today because I expect it to continue its move. The next levels of resistance are $43, then $44.50, then $46.

While I haven’t run a similar search for bearish stocks making this pattern, one bearish stock from my watch list is XNPT. This stock has been in a down trend ever since drop earlier this year. It consolidated sideways for a while, and then finally continued its downward move earlier this month. The chart pattern kind of reminds me of an inverted cup and handle, but just kind of. There is strong support at $37.50, but if it breaks this there is a very good chance it may go as low as $30 before finding another strong support area.

Happy Trading

-Dylan

I have been watching (GA) Giant Interactive, Inc. for the past 7 months since the stock had its initial public offering in late October of 2007. The stock debuted on the day of its offering at $15.50. It ran up as high as $20.46 then started pulling back as it got a lot pressure from the markets due to subprime issues, the falling dollar, and credit concerns. The pullback lasted until mid December 2007 with the stock reaching a low of $9.56. Since the breakdown in price the stock moved in a channel consolidating between a low of $9.50 and a high of $13.67 for about 5 months. As of April 26, 2007 the stock finally broke out above resistance at $13.67 and has been making higher highs and higher lows. GA is currently above its 5, 10, and 50 day moving averages with heavy volume. The stock ended today trading at $17.15 on volume of 3.28 million +1.46 or +9.31 percent. My price target for (GA) Giant Interactive is $21.00 with a stop loss at $16.10.

Giant Interactive is a company that operates online games in the Peoples Republic of China. The company was founded in 2004 and is based in based in Shanghai, China. The company focuses on online games that are played through network game servers, in which thousands of players are able to interact and connect.
 
Being that the Shanghai Index is moving to the upside after being down for the past few months there will be more Chinese stocks that will be moving in the coming weeks. Please keep a close watch on stocks such as LDK, SOLF, CHNR, STV, SOL, TOMO, and RCH just to name a few of the stocks in the Chinese markets. This stock will be making huge moves going forward.

As for the U.S. markets the Dow Jones Industrial Average, Nasdaq, and S&P 500 have been continuing to move higher after breaking through previous resistance levels. I think they will all pull back to those previous resistance levels before heading higher into the summer. Many investors are sticking to their old game plans based on tradition sell in May and go away. From what I see I don’t think there will be a need to sell. I think the markets will continue to run higher until the end of the year with gold reaching as high as $1500 per troy ounce and oil reaching $130 to $135 per barrel by the end of the year.

By: Marlin Rolle

http://stockmp.blogspot.com/

I hope everyone is having an excellent weekend! Everything looks to be moving along just fine in the markets, so I have no new technical forecasts for you. If we take a look at a daily 4 month chart of the S&P 500 I think it’s fair to say that the inverted head and shoulders pattern has been confirmed. In hindsight, this pattern did infact trigger at 1360 making it much more probable for the markets to break the key 1400 resistance. After breaking the neckline, traders started to panic to cover their short positions. Pressure was put on the short sellers once again as the S&P broke 1400. Now in the daily time frame, the bulls have the upperhand. With Microsoft abandoning the Yahoo bid over the weekend we may see a pullback on Monday. A negative day would be a healthy one for the markets as long as we don`t close below 1400. A pullback would be an opportunity to go long as we prepare to test the MA(200) at 1440.

Technically there is nothing more to report. If we get a pullback, which we might not because the futures are still showing strength, I will post a watchlist of stocks ready to breakout. To generate some much needed discussion on this site, I will likely post it as a comment under this article. Please do the same if you have stocks you like and feel strongly about.

Things are looking bullish right now, but there are still many unanswered questions as we head into the summer. These questions are ones to think about as we approach the 200 day moving average.

How much impact will the U.S. rebate checks have? Answer: I think people are more inclined to pay off their debts than go on a shopping spree…why celebrate when everyone is talking about a “recession”.

So are we in a recession? Answer: Many people are under the impression that we have bottomed and this is simply a slowdown. As mentioned in my previous posts, I am expecting a long leg down, so yes, we are in a recession and I think this recession will be longer than expected. This market is still overvalued and needs to correct.

But jobs and other economic data aren`t as bad as we expected. Answer to comment: A prolonged bear market and weakness in the job market is likely. Our latest job and economic data is simply lagging as usual. Maybe someone can answer this question for me…did the unemployment rate for April take into account that graduates just joined the work force? Would this skew the number upward hence the “unexcepted” smaller decline?

What will happen in the summer? Will the Fed continue to cut interest rates? Answer: Hopefully not, cutting interest rates will simply make inflation worse. The Fed will most likely raise rates again during the summer. This is when the next leg down will be…with it, more loan defaults may flood the market. When this happens, Wallstreet will have to do much more to forget we are still in a correction period.

So again, here`s my strategy for the week…if we close below 1400 I will short the markets, if we get a pullback I will buy if opportunities arise. I`m sure many of you may have other opinions in regards to the questions listed above, if so please comment and share your thoughts below

Richard
richard@hedgeagainstspeculation.com