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Friday, March 15, 2013

Stock Crash surely it has to happen!




Ok I admit it I want the extra 300 readers the word Crash will bring, guilty as charged. I have had more upbeat normal topics the last few days and readership fell off.

I will get into some thoughts on this in the post after I cover the recent trade we just did in Bean Oil in the Swing Signals. I think some may wonder why we got out so fast, so here is the explanation. I have three different ways of entering trades and all three have the goal of trying to catch a move for a longer period of time than just a couple of days like this one. These techniques all have different rules for entries and exits. I follow them PERIOD. At times they are just dead on. At times they get me out incorrectly. That is trading, nothing is perfect. However, over a period of time they wind up working pretty well.

In this particular pattern, the rules say after two days in the trade if the close is not strong in our direction on the second day, and price is better ( profitable ) compared to the entry price, the trade is exited. This is pretty simple and easy to follow. The reasoning behind this particular entry is that it is a very short term break out pattern that I have found tends to reverse when it does not just blast out strongly in the direction I am looking right away. I use just a basic close near the lows of the 2nd bar as a measure of that. In this case we closed in the middle of the second bars range but lower than where the initial short entry was taken. As a result the trade was exited. Had we closed really weakly on Thursday the trade would have been held. What we will look for now is whether any one of the entries will come up again on a bounce. It is not perfect but it has worked for me and us since we started offering these signals.

I just wanted to cover why we do this at times in these trades. The goal is always to stay longer but I follow the rules and in this case they said to get out so I did.

I want to discuss this whole situation with the Stock Market.

There is a reason I have told everyone in the Newsletter so far to stay long the stock market even though there are a few flies in the ointment. This market has one very simple thing going for it and it has nothing to do with opinions, economic forecasts, cyclical patterns, neighbors stock tips, stock buy back programs, short interest, non-farm payrolls, the F You Administration, Congress, child pornography or the new Pope.

The reason is WE ARE IN AN UP TREND. It really is that simple. Do not get tied up in all of this nonsense. It is true there are all sorts of funny things going on with numbers from the government, the Economy is not doing what is being advertised, etc.. Why do you care? The FED has inflated another bubble and that is how you get rich, riding these bubble waves. The beauty of this is that it is so easy to get out when it pops. It is not like Real Estate which is very illiquid and you have to sell way in advance of the slow down to get a decent price. Most of you are not large fund managers, so you don't have to worry about moving size on short notice. You don't have to get the exact high when you exit. Just ride the trend and look for the break, when it happens get out. I will be sending out special notice emails to Newsletter readers when this break has happened, until then don't sweat it. Here is what it will most likely look like.




This is back from 2010 where we had the same slow creeping move up relentlessly making new high after new high. Then all of the sudden we started to chop around a bit and made a break of the last pivot marked with a horizontal line. Once that happened we got a bounce of a few days, then bam. There are times when highs can be spikes but that usually requires a spike into that high. What we have now is just a slow creep which means that most likely the transition will be a little slower and not just one day where we have the highest high then 1000 points down.

There is no question that there are shenanigans going on and I don't like it any better than the next guy, but what I am trying to do with the commentaries is get focused on what matters. All of that "stuff" does not matter from a trading perspective. Do not get too negative it will not help your returns.

Have a great weekend

7 comments:

John M said...

Does saying Crash in the comments do anything in Google? lol

Chris Johnston said...

Yes it creates a much bigger search result, people surf for negative stories not neutral or positive. It is consistently about 300 more readers between days with no negative word in the title at the beginning and a negative word.

Sad but true

Dynomite said...

Crash brought me here. Just kidding!

Vikas said...

I am surprised the older posts didnt get many readers. I'm glad you posted this on twitter btw, this way I just retweet it so that all the people who follow me on twitter see your post and then click and read your blog

Chris Johnston said...

Thanks V

Dyno - LOL!

Readership did pick up today so the magic wand continues to work

PD Quig said...

I have booked profits on about 75% of my longer term long position over the past two weeks. I'll let 25% ride.

Given where we are, what would your recommendations be about initiating new longs?

Chris Johnston said...

I would not put on new longs here personally and stated that in my stock market summary in the Newsletter as well as the reasons why.