When to Exit? 1/29/12

After waiting patiently for a long trade signal, and then entering it at the right time, it is a good feeling to see the stock rise. And as we watch it patiently step up, we feel invincible and good about our trading methodologies. Yes – these trading systems work etc. etc. That has been how it has felt with F and some other stocks and ETFs I am holding. Unfortunately there comes a cataclysmic event like an earnings announcement on Ford (F). There were some issues with commodity prices rising and the future looking a little less bright. The stock responds by dropping 6% pre-market. That easy money is now half gone and I am wondering do I exit or wait for my exit signal. I know my trading system is lagging and is dampened to the individual changes of the stock market day to day. So I wait. The stock opens low and claws its way up in typical contrarian style and ends lower for the day but with only a 4.5% drop. Now what do I do? It’s the weekend and I have more time to think.

I have to follow my stock trading system signals if I am to succeed in the long term. I know that. I also know that I do not want to see all my profits evaporate because I am waiting for an exit signal. Therefore I will opt to sell half my shares at a limit price. Why a limit price? Because after a long weekend, there are probably many others wanting to sell and the market maker for F can drop the price substantially at open and later let the price slowly come up. Of course I may be over thinking this and time will tell. But here is the chart on Ford.

I have had a couple of stocks do the same think to me last week; SNDK and PCP. Fortunately there was the up move by CAT on earnings announcement and my entering GLD and IAU that have climbed nicely during the last week. I am seeing the benefits of having a portfolio spread between regular stocks and other alternate investments like commodities, bond funds, TIP, real estate and currency funds.. As the waves caused by stocks going up subside and start pulling back, I get a fresh wave from the alternate investments. Their wave rides over the pullback. And then there are a few from the stocks that were bigger waves and they continue on. My only regret from the coulda, woulda and shoulda category is not having taken the buy signals on my real estate fund and real estate stock (IYR and SPG) and also my currency funds (FXA, FXC). No excuses. I should have taken them. Now I wait patiently for the next pullback on those.

We have had a strong positive start to this year. I am sensing a pullback is due. That could be a good buying opportunity. Trick is going in as it pulls back. Not fun to do.

Whirlpool – Buy or Sell?? 1/24/12

WHR- Buy or Sell? That is the question.

Recently I attended a two-day class conducted by a couple of gentleman from WHR. They did an excellent job of communicating the subject matter at a fast pace, keeping us learning and working through training exercises late into the night. I wanted to provide them an example of stock analysis and trading systems by taking a look at the Whirlpool stock WHR and commenting on how I see it.

The company stock chart is the voice of the company, just like a control chart is the voice of the process. A control chart allows the viewer of the chart to see whether there is a common or special cause of variation by use of control limits. Similarly a stock chart of the company is the voice of the company when you place a proper trading system on the chart. It tells you when you can buy the stock with a reasonable expectation of gain, and when you should sell the stock to protect yourself from losses.

At first glance, the WHR chart shows a buy signal on 12/23/11. Interestingly, if we look back at my earlier blogs that is the same day I reported seeing a buy signal on the S&P500 (SPY) chart. It is always nice to buy a stock long when the market is signaling long as well. Why? Because it is better to trade with the overall market direction than against it.

If we choose to simply follow my system signals on WHR, I would say we could have gone long 12/23/11. The stock is up about 8% in the last month since that signal. Still, there is reason to be cautious. I am always very conservative and what gives me pause is that the stock has been in a down channel since 6/30/10. It has worked its way down in that channel over a rather long time – and we can hope that it will break out of this channel and resume its true upward trend again. The stock would need to rise above $68 to be peeking above the upper line of the down channel.

WHR is also trading below its 200 day exp moving average – shown as a bold black line. I feel better trading a stock long when it is above the black line as happened on 7/14/09.

Still, I would consider going long with part of my money when I see a long signal, because I have no way of predicting how long a signal will last. The uptrend shown could sustain itself through the Summer of 2012, or collapse next week. If I saw a down signal after the data came in end of day, I would close my long position at market open next day. It is much safer to set up technical analysis based systems, test it and then follow it versus using a gut feeling or using a “hope” system.

The market is still under a go long signal. But it seems a bit overbought to me right now, and I expect we could see a modest pullback and then a resumption of the uptrend for now. I will add to my long positions on a pullback. But if I see a down signal on the stocks I own, I will close my long position the next day. It is far more important to protect myself against massive losses by jumping off the train when it is rapidly speeding downhill in a recession.

Buy Signal on GLD 1/22/12

Looks like my trading system gave a buy signal on IAU end of last week and a buy signal on GLD last Friday after close. I took a starting position based on the IAU signal and now will place a market buy order to add some GLD Monday morning. IAU and GLD are both Gold ETFs.

My intent is to buy Gold at every signal buy signal opportunity as down the road it is more than likely that the US Dollar will sink and Gold rise as we (US) continue to carry and add more debt, or print more money.

A new Buy signal on the India Fund 1/17/12

The India fund, IIF gave a buy signal on 1/17/12. I am a day late reporting it as I had not pulled up the chart. Given the location of the price - being so much lower than the 200 day moving average (the black line), I would be a tad bit cautious in jumping in full strength.
Still, a buy signal is a buy signal and these are far better points of entry than arbitarily buying and hoping price goes up. I can use these technicals and the up arrow to define an entry point and with a down arrow, an exit point.

Cautiously Long 1/16/12

No changes.

My system still says long on SPY, the S&P 500. I am long on various stocks such as CAT, F, HOG, PBR, PCP, AMD. In my 401K I am partially long as my monthly system is divided between equity funds and Fidelity Govt Income fund.

I went to the Richland County library in Columbia, SC based on the advice of a friend of mine and looked up various newsletter subscriptions by the Chartist, Richard Russell, IQT etc. Overall the sentiment is quite bearish. The recommendations vary but go as far as to “beg” the subscribers to get out of the markets in one case. Inevitably though, there are variations in recommendations as one would expect. I do find the suggestions useful and found some newsletters more actionable than others. But it is easier for me to use Metastock and my own technical systems to trade these stocks. I think if the markets tank later in the year, I would be in a good position to be out of the markets and take some put positions to make a little on the down side and protect  the rest of my position by being out of the market.. Attached are charts on some of my long positions.

I think that the biggest opportunity to make money this year will be a large up move or two and also a large down move. Down moves usually start in the end of April time frame. This time I want to be fearless and trade both directions knowing that I will never know how long a move will last. I will still only have very modest returns as I do not trade all my portfolio. My wife wants me to get larger returns; but I know with larger returns come the risk of larger drawdowns. I am very conservative and do not want to experience a large loss. …but will head in the right direction, i.e. + up on my portfolio.

401K Minor Changes 1/8/12

There were a few minor changes in my 401K from my monthly analysis. The analysis continues to show a mixed position between equity funds and Fidelity Govt Income Fund which means I am no more than 40% in equity. The market is still going through its transition and although I now have a long signal on SPY, I continue to hedge and position long cautiously.

In my first 401K I am now split between Fidelity Govt Income Fund and American Century Equity Inc Inst.at 40% and cash at 60%. Exchanged out my positions in the PIMCO bond funds to cash (Fid Inc.Mg Port). 

In my other 401K I am split between Fidelity Govt Income Fund and WFA SPL Midcap VL.

Shown below is the chart of Fidelity Govt Income Fund (FGOVX) as it premiers in both 401Ks that I have.

Taking some Buy signals 1/2/12

I see some buy signals on stocks I trade. Some of them are HOG, PCP, SNDK and F. Taking initial positions on all these tomorrow with put options to hedge them, with the exception of Ford, that I am buying on a Stop market at 10.81. The actual timing to buy is not perfect but then it is the new year and I feel I need to follow my New Years resolution and start acting on my signals. I can always add to at more appropriate shorter term signals; but this gets me swinging.
Also see some signals to buy on IYR, SPG, FXC etc. but those I will wait a little. I am also long on TLT, TIP and have put options trading down on PBR and CAT. Some of these I will probaly regret as my main gate signal is long right now on SPY. I need to bias myself on the long side but the put positions taken were also based on my technical signals and I will not hesitate to exit and take my lickings if they turn against me. I was modestly positive on them last week.

Overall I was flat last year in my trading; just like the S&P 500. Nothing stellar. Our portfolio grew by the money we put in through 401K contributions at my workplace. We are saving signficant amounts and investing with moderate to low risk positions.

New Year Resolutions - Jan 1, 2012

It is time to make New Years resolutions. Let’s see – the usual ones are lose weight, save money, reduce debt, conquer some old weakness etc. As far as trading is concerned, my New Years resolution are

-         Fine tune my trading plan and stick to it.

-         Follow my trading systems.

Where could I do better? I have good technical systems certainly but the subtleties of their signals leave one in doubt and sometimes cause me inaction. So perhaps I need to add another couple of resolutions

-         Be clear on the rules I will follow for entry and exit signals

-         Then execute perfectly every time.

A friend of mine took a class from a successful day trader and he remarked that what impressed him the most about him was that with his rules there was a right time to enter a trade and a right time to exit. When the right time came, he would execute the trade.

The day he was apprenticing under this trader, his trade was doing very well. But you could not tell looking at the day trader’s expressions whether he was making money or losing it. He was executing his system perfectly. That is what I strive to do…My systems will make me the money if I keep the rules clear and follow it.

Let me be a human who can define the trading rules very clearly but also a robot that I may follow them perfectly.