Wednesday, September 3, 2003
Issue Contents:
| 09:29 | Today's Strategy |
| 11:49 | [SP U3, 15M] S&P Futures |
| 13:46 | 2003.08.28 Real-Time Trading Group Transcript This is the text transcript from the Real-Time Trading Group for Thursday, August 28, 2003. |
| 13:54 | 2003.08.29 Real-Time Trading Group Transcript This is the text transcript from the Real-Time Trading Group for Friday, August 29, 2003. |
| 14:05 | 2003.09.02 Real-Time Trading Group Transcript This is the text transcript from the Real-Time Trading Group for Tuesday, September 2, 2003. |
| 14:35 | Remorse |
Yesterday, we discussed the fact that for most major market indices were testing the high end of the trading range.
We looked at the $NDX in particular, and noted the short sale strategies if the test of the August 22 swing high should fail. That's not a problem. We will find sellers in two areas:
- If the $NDX goes back under the August 22 swing high. The initial stop loss will be placed just under yesterday's high.
- If yesterday's low is broken. The initial stop loss will be placed just under yesterday's high.
What is this is a genuine upside breakout? First of all, there is no way to know if it is the real thing until we see the first pullback on the daily chart. That is when the market shows us if old resistance is turned into new support. Without seeing the first pullback, there are two ways to buy a potential upside breakout:
- Just close our eyes and buy on break of yesterday's high, and enter the initial stop loss just above yesterday's low.
- Look for the first pullback on an intraday timeframe such as a 15-minute chart, and buy it if the setup is right. The initial stop loss would be placed intraday, and should the market close in the right direction, then the trade is held overnight.
We will update if an intraday buy setup comes. Be back after the first hour.
This is the 15M SPU3 chart.
The pullback should be starting from here, and we'll see if:
- Buyers step up to the plate at the 20EMA15, and/or
- Yesterday's high will hold and be confirmed as new support.
2003.08.28 Real-Time Trading Group Transcript
This is the text transcript from the Real-Time Trading Group for Thursday, August 28, 2003.
Click on the title above to expand this document.
2003.08.29 Real-Time Trading Group Transcript
This is the text transcript from the Real-Time Trading Group for Friday, August 29, 2003.
Click on the title above to expand this document.
2003.09.02 Real-Time Trading Group Transcript
This is the text transcript from the Real-Time Trading Group for Tuesday, September 2, 2003.
Click on the title above to expand this document.
It happens every time. After a long run-up, we always get the same question from investors in our email. "What do you have for long-term traders?"
Before we get to the answer, let's digress. We've talked about deductive market analysis before. Some of you know about the sentiment cylce from our online technical trading workshops. The bottom line is that for most market participants, the hardest thing to do is the right thing at the right time. When they should buy, it's "too scary". When they should sell, they don't, because they are supremely confident that it's going to go higher. This is why people buy high and sell low time and again.
One of the more interesting phenomenon found in the stock market is what I call non-buyer's remorse. When it was time to buy, they don't. The market goes up. They stand on the sidelines, thinking they will buy the first dip. The market goes up more, without a dip. They are even more sure that it was a good decision to stay away. The market goes up more. The good news that the market "discounted" finally shows up. They realize they missed the boat. The market goes up more. They start to believe this is the real thing. The market goes up more, amid screams of "It's a breakout!", they send email to TrendVue. What is interesting about this phenomenon is that it's the exact opposite of what happens at the bottom. On June 6, we wrote:
(07:17 AM) Teresa Lo: I remember back in February when we set up the buy on the weekly NASDAQ 100 chart.
(07:19 AM) Teresa Lo: It was the third week of February, and the NDX had just traded back up into the January low, triggering a buy setup on the weekly chart.
(07:19 AM) Teresa Lo: Right away, I got the "you're a dummy" emails from subscribers.
(07:22 AM) Teresa Lo: Feb 21, subscriber wrote: "I think you're wrong about the next "pain trade" - everyone is still ALREADY long, there are very few unhedged shorts. Too many people think the market will blast higher on expectations of a quick victory in Iraq - all that does is set up disappointment. Everyone bought in early Dec and early Jan expecting the Oct lows to hold on a test."
(07:23 AM) Teresa Lo: My reply: "Maybe so, but I think the market strategists for the big firms expect it to go down for the count too. Expects new lows - advising institutional clients to get out/short - and so does a number of the big hedge fund people, most notably that guy who was on Wall Street week that I wrote about a few weeks back...
(07:23 AM) Teresa Lo: this is why I think it's going to be a very interesting turn, potentially, since on the monthly chart, it's a big test of swing low."
(07:24 AM) Teresa Lo: Subscriber wrote: "The other Major point is, as a bear market gets into the second half, people will naturally get more bearish as they get in gear with the trend. So you can't use them as contrary indicators anymore. Otherwise, how would we make the ultimate bear market bottom (which is when bears predominate and disbelieve the lows are in until well into the new bull)?"
(07:25 AM) Teresa Lo: My reply: "Well maybe I don't know anything...but I think that you would agree that the surprise move would be up."
(07:26 AM) Teresa Lo: Subscriber wrote: "I totally disagree. Every big fund and all retail investors are already positioned long. There are very very few naked shorts - the majority of NYSE shorts are offset by hybrid bond longs. most bearish hedge funds are 20-30% short here at best. We're only 1/2 way into this bear market. The next swing low will come around 680-695 SP, probably in the next 4-6 weeks."
(07:28 AM) Teresa Lo: If found it interesting how a person who obviously knew the signs of a bottom would be made even more bearish by it. That convinced me that no one thought the market could go up. It's interesting how one can lose subscribers even when our analysis is correct, but if I have to lose them, it's best to do it this way!
(07:30 AM) Teresa Lo: From there, we got the next 100 points on the NDX in one trade, and in our March 24 newsletter, we laid out the roadmap that plotted the move up to test the December 2002 high.
(07:30 AM) Teresa Lo: And now we are here at the upside target.
(07:30 AM) Teresa Lo: And they are quite bullish.
(07:31 AM) Teresa Lo: And any remaining short positions are stressed to the max.
(07:31 AM) Teresa Lo: And many institutions and fund managers are behind the eight ball. Will the fear of mssing out finally make 'em all jump back in now that the "breakout" is pending? Will that be the top? Stay tuned for the next episode of As The Market Churns...
So, what can we do for investors? We can tell them when to buy and when to sell, but in the end, the problem is in the execution. In the end, someone has to click that button, and we can't do it for them. In order to make money as an investor, there are only two ways:
- Buy low, sell high.
- Buy high, sell higher.
You must do one of the above. Buy low and sell high is too scary for most people, mainly because they have to be able to pick bottoms and tops. Buy high, sell higher is easier, because you only need to buy dips in a trend. That is why we created TrendVue Swing Charts for investors and swing traders. The swings are plotted on the chart automatically. The bars are colored for you. Investors use monthly charts. Fund switchers use weekly charts. Swing traders use daily chart. It's all outlined in our Investment and Trading Philosophy. And I'm sorry, but I can't reduce the risk to something that is so small that it's too good to be true.
This is the monthly chart of the NASDAQ 100 index. For long-term investors, the buy stop was officially triggered on break of the February 2003 high. Recall at the time that buying was deemed insane. But we just traded the chart, and bought when the $NDX traded back into the January low. Target 1 was reached in May 2003, while Target 2, the 20-month EMA was reached in June 2003. The move since then is simply the bonus stage, and there have been no new point of entry since March 2003 because it's been a single upswing.
We drill down to the weekly chart of the $NDX, and you can see that there have been at least four pullbacks on this timeframe to enter on the long side for fund switchers or proactive investors.
The bottom line is that there were ample opportunities, but the real question is this: Would you have been able to pull the trigger, do the right thing at the right time?