Tuesday, November 29, 2005

The rise and fall of stocks

From my 3+ years of experience in the markets, I noticed that the markets go in cycles. Each phase in the cycle has distinct charactertics. When the markets begin a bull market, stocks go up very slowly and tentatively, with each up move matched by a down move. After all the weak investors are shaken out, the markets will start to start a sustained, slow up move, with a few large stocks leading the way. These stocks are the leaders. As more people catch on to the wave, the upward movement of the stock market will accelerate and medium tier stocks will start to move with the leaders. Then, at the end of the bull market, the leader stocks rise so insanely, that investors are forced to buy bottom feeding stocks because they still have "value". After the bottom feeding/loser stocks have been bought, the leaders start to stagger, before collapsing. This marks the end of the bull market and the beginning of the bear market.

We saw this exact same pattern with Energy stocks back in October, and now we are seeing it with the nasdaq. With the collapse of the leaders in GOOG, AAPL, and CME (just to name a few), I think the bull market is over. But how much will it drop? Because I have always been a bear since I started investing in stocks back in 2002 (since I was convinced by Robert Prechter), I think the markets will now start a multi year bear market.

But please do not believe me on my bear stance since it is complete speculation. But I will definitely be more cautious from now on, and may even short if the market rallies a little over the next few days.

Friday, November 25, 2005

Keeps on going up



The strength in the markets, and especially in the nasdaq is unbelievable. It just keeps on going up, every single day.

On the chart above, I measured the length of each bull and bear period for the last 2 years. Notice the length of these bull and bear waves become consecutively shorter by approximately 1 month. If this patterns continue, the current rally will last between 1.5 to 2 months. This is why I previously guessed that the markets would top on Nov. 30.

On another note, I believe the strength we have seen lately is due to manipulation. Financial people (investment bankers, hedge fund managers) are cranking the markets up because they want to receive record bonuses this year, which will be in the area of millions of dollars. What crooks! 75% of all funds underperform the markets, and they still reward themselves with millions of dollars that they steal from their clients. This is why I will NEVER invest in any mutual fund. Also, I truly believe that all people in the financial sector lack morality. For example, when was the last time you saw an investment banker of a mutual fund manager at a church?

Tuesday, November 15, 2005

Top in place?

Originally, I had forecasted that the Nasdaq would hit 2220 on Nov 16 (tomorrow). But after today's actions, I think the markets may have already topped.

Going forward, I see the markets trading in a range (sideways) for about two weeks. After that, there is a good chance that the markets will break down in a big way.

Right now, I am short AMZN. The reason why I shorted is because I believe stocks being added to the S&P 500 are artificially inflated, and all artificailly inflated stocks eventually return to their original path. For example, after Lennar (LEN) was added a few months ago, it shot up to 60, but in the following 5 days, it fell back down to 55. The same goes with RIMM (which was added to the nasdaq top 100 a few years ago), when it fell back down rather quickly after the announcement)

Friday, November 11, 2005

Update

I sold my SHLD position at approx 116. What a POS, it goes down over 2 bucks while the markets rally. I'm not going to trade anymore for the rest of this "rally" after 2 failed trades in a row.

Thursday, November 10, 2005

Update

Just a quick note: I sold my XLE position at the market open, and bought into SHLD when it was trading at around 116.40. Since my strategy is to predict and then trade by that prediction, I'm going to guess that the Nasdaq will top 4 days later (on November 16th).

Tuesday, November 08, 2005

Cautiously Optimistic

Despite the low volume that was exhibited in this rally, I am still cautiously optimistic that we will see higher prices in the short term (with a target of approx 2220 for the nasdaq). Right now, I have options on Cameco (got in at 57.7 CAD) and XLE (entered at approx 48.9). But because the markets are still fairly weak at this point, I will be watching these positions closely and will pull the trigger at the slighest sign of weakness.

Friday, November 04, 2005

KBH Trade

I sold my KBH (KB Home) put for a 36% gain when it was trading at 66.2. Reason is because the market was holding up quite well on a "consolidation day", so I figured the risk/reward was against me.

The market looks really good right now. Even though it has gone up like crazy this past week, I think the market will go higher before it goes lower. The reason why I didn't buy any long positions going into next week is because there are only 2 weeks left in november, and the options will deteriorate quite significantly over the weekend.

Thursday, November 03, 2005

Update for Nov 3

Today, I sold my CCO call position for a 129% gain. This is my first 100+% gain since the summer, so it definitely feels good.

I also bought a put on KBH when it was trading at 68.1. The reason is because I think the markets are overextended, and I would expect a consolidation. I may be going against the trend with this trade, but with my recent track record in going against trends (see last post), I'm going to press my luck.

Wednesday, November 02, 2005

October Performance Review



Overall, I was pretty satisfied with my performance this month. Although there was a lot of volatility in the markets, I thought I played it almost perfectly, as I anticipated most of the moves ahead of time. Ever since I opened my TradeFreedom account on Oct. 13th (which was coincidentally the market bottom), I made 9 US trades in October, with 7 of them successful (success rate = 78%). Although this is a high success rate, I was still quite disappointed in my 2 failures.

One of my failues was my CCJ (Cameco trade). In my Canadian account, I had just sold a CCO (Canadian version of Cameco). The very next day, Cameco dropped (right after I sold it), and I foolishly bought it with my US account. This was a very bad move because there was absolutely no signs that any bottom was reached. The reason why I bought it was because I really like Cameco, so I showed bias in my trading.

My other failure was my QQQQ trade. Before I made that trade, I knew the nasdaq had short term topped. 2 days after I made that assessment, the nasdaq consolidated flat, so I thought the consolidation was over. My bad move came in buying QQQQ instead of GOOG, which I was tracking heavily at that time. The reason is because I like buying leaders, and GOOG was the leader. ALso, I do not buying indexes, because I believe I am buying a lot of bad stocks when I do so.

But overall, I was really pleased with my performance, as I netted over 6000 USD in October with my US account, which isn't bad since I only invest 5000 max at any given time.




With my Canadian account, I was pretty satisfied also. As you can see, I only traded Cameco. Since 9/20, I traded Cameco a total of 6 times (including the position that I still hold today). All of them have been successful, for a success rate of 100%. I was really happy with this because when I traded Cameco long, Cameco was in a downtrend. One of the reasons why I think I am so good at timing Cameco is because I know the stock (not the company) really well as this is my most closely followed stock.

I also bought a Fording Coal (FDG.UN) long position in October. I plan to hold this long term, although it has fallen from my entry point. The reason is because I believe in its fundamentals, and because I like its dividend (18%). In fact, I like FDG.UN so much, that I bought it for my parent's portfolio today at a price of 38.00 CDN.


As I have stated many times since the bottom on Oct 13, 2005, I expect the markets to rally. However, I do not believe this rally will last long, because I think we are currently in the "eye of the storm". Things will be rosy for a while, but probably by the end of November, I expect the rally to end as the US will plunge into a deflationary recession. The reasons for this has been stated in my previous postings.