by Olivier on July 26, 2010
At first sight the headline I chose looks like this might imply one should redeploy funds aggressively on the long side. Although the short term technicals have improved, from a big picture perspective the technicals are still bearish and the trend remains down. A clearly positive development is the fact the markets were able to put in a higher low and what looked to be a bearish head and shoulders pattern has now morphed into a bullish inverse head and shoulders formation.
A few observations:
- Leaders like ARUN – Aruba Networks are acting very well. Others are joining in and providing decent percentage moves to the upside.
- The stocks in the Rare Earth Elements Sector are much stronger than I would have expected. Especially RES.V – Rare Element Resources is acting well. For now it looks like the sector might be able to stage a turnaround. Looking at the charts the bearish patterns I wrote about regarding QRM.V – Quest Rare Minerals and AVL.TO – Avalon Rare Metals seem to be of much less concern now. Rare Earth Elements Sector Overview Chart.
- The market is beating my expectations and is stronger than I originally anticipated.
The last comment is the most important one. Whenever the market doesn’t meet or if it exceeds your expectations, it is time to pause and reflect. A great trader’s performance depends on his ability to adapt to a changing environment. The market is telling me to keep an open mind and to be ready to change my mind.
Again, buying pilot positions is probably the way to go. Put another way, at this point in time I would be neutral or cautiously bullish. For now my plans are to stay in cash as I am still in holiday mode and am still recharging my batteries. I will start providing regular website updates starting with the second week of September. In the meantime my focus is on other stuff so no guarantees as far as regular updates are concerned.
What is already known about a stock is most likely priced in.
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Buenas noches!
by Olivier on July 26, 2010
Global X Funds has now launched a Lithium ETF. Quite interesting as I started tracking the Lithium Sector early on. Also of note the fact AVL.TO – Avalon Rare Metals is part of the list. Goes to show the interest for Lithium, Rare Earths Elements and Exotic Metals in general can be closely related at times.
Fund Description: The Global X Lithium ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Lithium Index.
Index Description: The Solactive Global Lithium Index is designed to reflect the performance of the lithium industry. It is comprised of companies globally that are primarily engaged in some aspect of the lithium industry such as lithium mining, exploration and lithium-ion battery production.
The Global X Lithium fund holdings:
ROCKWOOD HOLDINGS INC – ROC
ADVANCED BATTERY TECHNOLOGIES – ABAT
EXIDE TECHNOLOGIES – XIDE
ENER1 INCORPORATED – HEV
SAFT GROUPE S.A.
A123 SYSTEMS – AONE
SANYO ELECTRIC
GS YUASA CORP
COSLIGHT TECHNOLOGY INTERNATIONAL
ULTRA LIFE BATTERIES – ULBI
SOCIEDAD QUIMICA Y MINERA DE CHILE – SQM
AVALON RARE METALS – AVL.TO
GALAXY RESOURCES -
CHINA BAK BATTERY – CBAK
VALENCE TECHNOLOGY – VLNC
FMC CORP – FMC
ELECTROVAYA -
OROCOBRE LTD
CANADA LITHIUM CORP – CLQ.TO
LITHIUM ONE – LI.V
Keep in mind almost 50% of the fund components are related to lithium-ion batteries. A better way might be to apply the ‘picks and shovels’ investment approach. PPO – Polypore which is part of my public list fits that description. I will write about that stock at some later point in time.
The funds holdings will change over time. Still, it should be telling a stock like WLC – Western Lithium Canada, which was an early leader in the Lithium industry is not part of the list. RM.V – Rodinia Lithium by the way didn’t make it into the Lithium ETF either.
Other interesting ETFs and their components:
The energy of the mind is the essence of life. – Aristotle
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Buenas noches!
by Olivier on July 19, 2010
Nothing really unexpected happening. Friday the market tested resistance and headed lower. We are still moving back and forth within a lower highs and lower lows scenario. A few select strong stocks might be able to move higher still, but overall staying defensive is the way to go right now.
In the meantime listen to the excellent and very interesting Audio Interview with Robin Griffiths from Kingworldnews. Here’s the road map for the S&P 500 Index according to his analysis: The markets are headed for a low in October. Then we’ll have another rally with the markets tanking in 2011 in order to then test or even break the March 2009 low.
In the end predictions do not matter. Watching price and reacting to it is the name of the game. Until we don’t print higher highs the path of least resistance is down.
Many are stubborn in pursuit of the path they have chosen, few in pursuit of the goal. – Friedrich Nietzsche
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Buenas noches!
by Olivier on July 12, 2010
Gold is building a bear flag which indicates further pressure to the downside should be expected. The fact July and August are the weakest months for gold from a seasonality perspective is corroborating the short term bearish technical picture.
Up-to-date Gold Price chart on my public list.
Further evidence of potential price weakness ahead in the precious metals sector is what now looks like topping tails in the HUI – Gold Bugs Index. Check the following Chart comparing the price of Gold with the HUI.
Although the recent Moving Average Death Cross in the S&P 500 Index wasn’t a trading signal in and by itself, the implications are bearish. We now have a cluster of moving averages that represents serious overhead resistance.
Conclusion:
So far this has to be considered a bounce from deeply oversold levels. For position traders there is still no compelling reason to go long. The strong charts still need to set up and build more pattern pressure in order to go long for position traders. Markets are headed into resistance. A good time to take advantage of being in cash and enjoy the summer.
Silence is better than unmeaning words. – Pythagoras
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Buenas noches and congrats to Spain!
by Olivier on July 6, 2010
More excellent trading advice from Tyler Bollhorn. Check out his website and subscribe to his weekly newsletter. This guy has incredible insight.
www.stockscores.com
Don’t apply logic to the stock market
So often I see people make decisions in the market on what makes sense to them. It makes sense to buy stocks when the company insiders are buying. It makes sense to buy stocks that are making positive announcements. It makes sense to listen to what the President has to say about the company’s prospects. However, all that matters is what the market thinks of the company and whether the buyers are more motivated than the sellers. So often, the market does things that do not make any sense until we later learn of what motivated the market to do what it did. Remember, the market is forward looking, most times, what makes sense is judged on what has happened in the past.
Never average down on a losing position
Buying more of a bad thing is not much different than continually betting on a losing horse. Winners win for a reason, and until your stock starts to show that it is a winner, don’t add more to a bad situation. If you like a company whose stock is losing you money, sell it. You can always buy it back later when the market starts to like it again.
Successful investing is not about being right, it is about making money
Most good traders are usually wrong. They will lose small amounts often and make big amounts occasionally. What matters is how much they make over a large number of trades. Don’t try to always be right, simply work to make money.
Resist doing what feels comfortable
We have a tendency to look for the market to prove our decision is a correct one before we make our move. The problem is that this often means we are too late to capitalize on the opportunity. We have to move before the crowd, and that often feels like a dangerous thing to do.
Anyone can get lucky in the short term, only good traders succeed in the long term
Don’t confuse making money in the stock market with knowing what you are doing. It is easy to get lucky on a stock or on a sector and enjoy gains that give credence to your analysis method. However, short term winners often give back all of their gains because they fail to recognize their success as luck.
Be patient with your winners, not with your losers
The natural tendency is to sell your winners too early and hold on to your losers, hoping for a turnaround. A simple, but not easy, thing to do is reverse this tendency. When the market proves you right, wait to sell on a signal that indicates the stock is likely to go lower. When the market proves you are wrong, let the trade go and take the loss.
Publicly available information is priced in to the stock, don’t rely on it to make decisions
Once information, no matter how good, is made public, it loses its usefulness to you. Public information is priced in to the stock by the market of investors. Information only has value to you if the market has not priced it in.
Make sure your trading strategy has an edge
A trading strategy is only worth trading if it can be shown that it consistently makes money. Establish your trading rules and test them over a variety of market conditions so you know that it is effective. Time spent testing a strategy to prove it is a money maker can save you a lot of money in the market.
People lie, markets don’t
I have learned the hard way to never trust what people say, their actions say much more. Learn to read the market and understand it’s message. No matter how much insight a person may have, recognize that they have a bias based on their own emotional attachment to money.
It is easier to trade with the trend than against it
Understand the mood of the market and trade with it. Don’t chase euphoria, but seek to buy stocks that are in the control of the buyers. Don’t sell on fear, but seek to sell stocks that are under seller control.
Also check the following articles:
Tyler Bollhorn – Trading Rules
How To Correct Common Trading Mistakes – Tyler Bollhorn
Trades that make a lot of intellectual sense are likely to be losers. – Tyler Bollhorn
My public list with all my charts can be viewed here:
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Buenas noches!
