Did They Really Just Kill The Bull?

It is 2009; the Fed rides to the rescue saving the banks, housing, and our beloved stock market the old-fashioned way with nearly free money. The goal was to have corporations hire folks and then that demand for workers would produce wage growth. That wage growth, as we know from experience, would ignite inflation that in turn would allow for a tightening of rates to get us back to normal.

It is now 2015 and trillions of dollars of debt later there is no inflation and wages are dormant.

I used to suggest that technology will be the death of us. Maybe it is not a joke. If it is, it’s not funny. The humongous change in technology that has forever changed the global labor market is, and has been, changing things for the worse. This change has been responsible for the abnormal recovery coming out of the Great Recession.

The Fed kept talking as if we were recovering from any old recession while ignoring or not admitting that something substantive, and negative, was at work in the workforce.

Human beings of all ilks have a more than passing interest in the implications of these changes. Economies in the past have grown as a result of demand spurring labor-intensive manufacturing that generated income that allowed greater consumption.

Technology has lowered demand for labor; less labor less income. Less income less demand. Less demand less growth. Less growth lower profits. Lower profits lower stock market.

The days when the so-called Bernanke put, now the Yellen put, would fire up the buy-the-dip-vigilantes and a rally would ensue are, I think, behind us for now; at least until the next QE starts. 

The Fed’s mantra included observations that issues were of a transitory nature and inflation was bubbling just below the surface. However, what was bubbling below the surface was not inflation, it was the noted behavior in the stock market as it made new highs in 2015. Leadership stocks were not participating. In fact, they were in reverse.

Mid-year of 2015 the stock market had to contend with Greece’s collection of kicked cans now piled up at the end of the road. More recently, we discovered that Chinese numbers just don’t add up and not only that, we cannot get a grip on what they are.

Should we have been surprised at August’s flash crash? Moreover, if you thought August was ugly, there are more months to follow according to my calendar.

During this time, the buy-the-dip-vigilantes were active, sopping up fallen prices like new sponges just as sure as the bond vigilantes were doing their intimidating thing in the late ‘90s.

Along comes Janet Yellen and her FOMC posse on Sept. 17, 2015. For the umpteenth time, the market media trumpeted this meeting as “the most significant” since the invention of money. If the FOMC does not raise rates, the rocket fuel of the past for a market pop, does it indicate economic weakness? Yes. Yes, it does.

Well, the boys in the band, the FOMC, with aging lead singer Janet Yellen flinched by not raising rates… again.

The market promptly went south in a big way. For one thing, we were right back where we were hours earlier, i.e., will they, won’t they? Major banks like JPM and GS are looking beyond October.

Has the global growth engine gone into reverse? Lack of growth, loss of jobs has started anew. WFC, HP, Qualcomm, Deutsche Bank, Johnson Controls, cut a combined 57,482 workers. Now WFC’s 182 workers doesn’t seem like much until you note that it’s in their North Carolina mortgage department. WFC is the nation’s largest mortgage banker. What do they see? Less income to spend, less demand, less growth, less profit, equals a lower market.

Technology does not eat, doesn’t spend money, and doesn’t require health care; it just sits there waiting to be utilized.

Moreover, what do corporations do with the money they save? They’ve been buying back their stock.

Meanwhile, the unemployed carbon-based human forms eat, have mortgages, rents, health care bills, among other life needs. They are going back to where they were in 2009.

Increasingly, technology is replacing humans at a time when humans are replacing themselves faster than death can absorb the new population growth.

We are all grown-ups here, does anyone think this is sustainable?

I believe this market will continue to fade rallies and continue to make new lows. Arguably, maybe at the 1870 level on the SPX will usher in QE4. Oh, yes, they can, and oh, yes, up we would go.

The argument may not be so much when will the Fed raise rates? Maybe the question is, can they?

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Posted in economy, Fed, FOMC, inflation, interest rates, janet yellen, market direction, Stock Market, technology, trading, Trading Stock Market | Tagged , , , , , , , , , , , , , , | Leave a comment

How To Know If You’re An Investor Or A Trader

“Calling someone who trades actively an investor is like calling someone who repeatedly engages in one-night stands a romantic. – W. Buffett

Mr. Buffett has a way with words, doesn’t he? He also makes an important point to anyone contemplating entering the stock market. Know yourself first.

Everyday people with average funds, average intelligence, above average hopes, and probably below average fears, want to get into the stock market. They just want to make money, ideally without losing any and they are aware of the risk.

Most people attracted to the market are aware of one of two ways to participate. They know about buying low to sell high, also known as buy and hold; and they know about day trading. The two are similar but vastly different in analytical methodology, time, strategies, as well as different human character types that tend to participate in each.

Let me clarify something that people get hung up on about the distinction that Mr. Buffett points out: whether investing or trading, you are speculating. What we’re really talking about, in my opinion, is a matter of degree.

Speculation is trading in an asset that has a risk of losing some, most, or all of one’s initial outlay. The objective is always a substantial gain. You would not take a speculative risk if you were looking for the same return you can get in a bank certificate of deposit.

While trading or speculation is mistakenly compared with gambling, a key difference is that speculation is equal to taking a calculated risk and is not dependent on pure chance. Plus, you can always exit the position anytime. Gambling depends on chance or random outcomes; and try taking your bet off a casino table.

Most people would not consider real estate investing as speculation. Review your paperwork from your last purchase. Show me the line in your contract that says your house will appreciate a guaranteed percentage every year. Having said that, isn’t there a term known as “spec homes” in the real estate industry? I mean, it does stand for speculative after all. Hmm, go figure.

In the stock market, if I buy a blue chip stock like IBM in 1998 and sell it in 2007, that is a trade, a buy and a sell. If I buy IBM at 9:45 AM and sell it later the same day, say at 1:45 PM, that is a trade, a buy and a sell. The fact that one was long-term, presumably a buy and hold investment, and the other a short-term day trade is immaterial.

In both situations I have no guarantee of a substantial return. I have a risk. I may have taken steps to hedge my risk, but all the ingredients of speculation are there whether long or short-term trading.

The major distinctions between Warren Buffett’s “investor” and his “active trader” are:

  • Investors do think long-term. That could be holding from one quarter to the next or could be years worth of business cycles.
  • Traders think in terms of minutes to days. Their sole criteria for a trade is a potential for price movement with room to run.
  • Investors think in terms of quarterly improvements in earnings, cost control, cash flow, sales, management, and outlook.
  • Traders think the charts already reflect what investors think and thus believe they can see price patterns (behavior) in the charts.
  • Is it safe to say traders are impatient vs. investors? My experience says yes, we are an impatient lot.

As far as I know, traders and investors make the best romantics.

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If No One Knows, Why Try To Tell Us?

I have stopped adding to the cacophony of websites dedicated to telling you where the stock market is going in the next minute, day, week, year, and even the decade.

Oh, I still put out my daily newsletter, Trader Thoughts, dishing out market observations and expectations, but that is not the same as maintaining a site dedicated to market direction. I don’t run or manage money; I trade short-term and even day trade.

Where the market will be weeks or years from now is immaterial to me. Since the 2008 breakdown, meltdown, conflagration, I’m just glad to have a market to trade. Aren’t you?

I guess I’ve reached that point between age and experience where I need to throw a flag and call, “bullpoopydoodle.” Having read those articles over the past 30 plus years and having noticed one recurring phrase: “Of course no one knows what will happen but…, ” allows me to throw flags.

Look, is it just me? But why is someone writing an article telling me where they think the market is going while simultaneously telling me no human, no computer, no deity can say what will happen next in the market?

In politics, investment advising, and religious or spiritual counseling, what do you have left after a disclaimer of that sort? No one knows if my decision will be good for the community, said the politician; no one knows where the stock market is going, said some Bloomberg or WSJ writer; no one knows if there’s a God, said the preacher.

Okay, say I, and then I don’t need you.

The public reads those articles having been drawn in by a nifty headline and gets an overcautious rambling opinion. Good lord, author, make your call, explain it, defend it if you must; we know it’s an opinion. Let time, the ultimate judge in these matters, pass.  

In Wall Street’s brokerage world, it’s all about giving investment advice generally for the long-term. If you have a brokerage account that ever went through a steep correction, I’m sure your broker called saying, “We’re in it for the long-term, Mr. Jones.” Right? I think I see you nodding in agreement. By the way, if he/she didn’t call you, under those circumstances, consider getting a new broker.

It was disappointing to all those folks caught at the bottom of the 1932 market after hearing that advice; and then had to wait twenty-two years to get back to even, just even, not ahead. If Mr. Jones was seventy years old in 1932, by the time the market came back to even in 1954, he discovered what his broker meant by “the long-term.” He was then ninety-two and his account had been beaten up by inflation along the way.

So if the disclaimer is true, and no one knows where the market is going next, how is it we have a financial media industry?

Posted in black swan event, day trading, market direction, market gurus, planning, psychology, Trading Stock Market | Tagged , , , , , , | Leave a comment

Last Trading Day In May

Stock market action has been on a short leash this week. Already it’s a Friday and the last trading day of the month as well.

Given the market’s indecisive almost bipolar nature, with big losses on Tuesday followed by big gains on Wednesday and indecision on Thursday, we might expect the bull/bear battle to play out today… GDP day.

The GDP disappointing numbers announced this a.m. (down -0.7% showing contraction) seems to be icing on the Wall of Worry. The bricks in the wall- China, Greece, and the Fed waiting game, are juxtapositioned with end of month rebalancing. While transportation stocks ($DJT) have already thrown in the towel, the financials and tech stocks flex some muscle. This is the picture of the U.S. economy and market conditions midway in 2015.

If the mega-money guys aren’t sure what to do, what are we to make of it?  The market has been range bound for weeks, three months actually, and traders want a trend to capitalize on. A six point range is hardly a trend except for a day trader.

M&A speculation can provide industry pops for short-term traders, but I view that as market topping behavior. So, is INTC really after ALTR? Stay tuned.

Greece? What we know is that we can count on a positive/negative headline to be followed by a negative/positive headline. Europeans don’t make big decisions on Fridays… ever. Greece has only been a front burner issue for three years, why rush things?

China’s market is screaming volatility with uncertainty in overnight action.  The Shanghai Composite saw a 6.0% swing from low and high and settled with a 0.2% decline.

So what do we know? We know that we can get eleven differing economic outlooks from ten economists looking at the same data. We know the market will move on every verb and adjective flowing from the Fed mouths.

We know there is uncertainty. After disappointing news, such as the GDP data this morning, a ‘normal’ market would have sold off hard. These are not normal times and this is not your father’s stock market. For for that matter, it’s not even your older brother’s stock market. Yet we know one thing: nothing new will happen in this market that hasn’t happened before.

Ultimately, we know what we’ve known all along: don’t fight the Fed and the trend is your friend. But there’s the rub, is sideways the new trend?

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You’ve Decided To Trade The Stock Market

You’ve finally decided to get into the stock market… as a short-term trader, maybe even a day trader. What can go wrong?

You’ve done your homework, read every book, visited every website that matched the words “stock market” and “trading” in the same sentence. Hmm,”… make millions trading the stock market… the secret to wealth,” it read. Seems legit.

You’re still hearing an annoying little voice carrying on about losing money or some such thing. It’s left you carrying a pinch of apprehension. Okay, in all honesty, you’re pretty sure this may be equal to the outcomes that usually follow: “Here. Hold my beer. Watch this.”

Maybe it’s just one of those unsown wild oats that’s surfaced at this mature age. Maybe it’s something you have to get out of your system, since you’ve been an avid investor and market student for decades.

Damn the apprehension – full cautious speed ahead.

You’ve concluded that your desire to make money has become more important than your fear of losing money. This, you’ve come to appreciate, is the most significant aspect of trading that a beginner must accept. You understand that being in the stock market is about risk and reward. Whether you’re a short-term trader or a long-term buy and hold investor, you understand and accept risk.

You’ve had stock mutual funds in the past that you held, passively, for the long-term. You held them because your broker reminded you of the long-term with every significant pullback or correction the market experienced. It’s something they must teach in stockbroker school: always tell the client he’s in it for the long-term when his stock is down; consider asking him to double up, after all, if he liked it at $50.00 he’s got to love it at $40.

There’s the rub. Mutual funds or broker picks are passive investments. Pretty much hands off since you rely on the fund manager or the broker. That was okay when you didn’t know anything. But now, after you’ve read libraries of books, as far as you’re concerned, this trading thing is doable.

Trading for a living, the concept, conjures up vivid dreams of success and easy money. This sounds easier than the forty-five minute commute to your cubicle with unsavory coworkers, and an even more unsavory boss. No nightmares in sight.

You’ve visited a bazillion websites on trading and determined that half are a wasteland, a quarter are ‘get-rich-quick’ hype promising only riches with no mention of risk, and a quarter are overflowing with information.

The topic of trading, once discovered, is akin to Howard Carter’s opening of Tutankhamen’s tomb… a treasure trove not of gold, but information, tons of it, some as valuable as gold: economic philosophies, technical jargon, strategies, chart reading analysis, indicator usage, tips on stocks, brokers, commodities, futures, market news, explanation of options, stock picks, strategies, definitions, bonds, currencies, interest rates, precious metals, money, banking, money management, economic sectors and industries as well as something called rotation, the Federal Reserve, trading exchanges, order entry, stop-loss, how to trade, what to trade, blah, blah, and….. blah. And what in the name of holy farm animals is a stop-loss?

You’ve refrained from telling anyone of your intent, not wanting to be ridiculed or discouraged. You’ve considered this market thing for years now. You’ve visited millions of self-improvement sites and concluded that Anthony Robbins et al are right… your attitude will determine your altitude.

It’s crunch time and suddenly you realize you don’t know where to actually start. After all that time web surfing, reading into ungodly late hours, and you’re not even sure which broker you’d use.

Here some things that you don’t want to ignore:

First, don’t decide now what type of trader you’ll be at this point. You may say you want to day trade only to find out three or six months from now that swing trading or even longer term investing is what you really want. My advice: this isn’t a race, allow yourself to EVOLVE into a trader type that fits your style, temperament, and risk tolerance.

Second, pick a well-known online broker such as www.thinkorswim.comwww.optionsexpress.com, or www.interactivebrokers.com. Commissions do matter, but so does service and quick trade execution. The brokers I’ve mentioned here have more bells and whistles than you’ll ever use, but  you can experiment with a lot of ‘what-if’ scenarios.

Third, how much money are you working with? Accounts under 25K have day trade limitations. That won’t stop you from day trading since you are still allowed three day trades in a five business day period. There are specific rules for smaller account sizes.

Fourth, familiarize yourself thoroughly with the broker’s trading platform now, before you ever take a trade. In the heat of battle is not the time to learn how to operate the machinery that can save your life, in this case your trading account.

Fifth, the best way to familiarize yourself with that trading platform is to paper trade. No, you don’t make any money but you don’t lose any either. The purpose of paper trading is not so much to see how much money you can make as a trader. The reason you paper trade is to learn the platform, market behavior, chart reading, order entry, and strategies. Play with it for weeks then wipe the slate clean and start paper trading again with the goal of making money in the paper account. Ask yourself why professionals in any endeavor practice, practice, practice. They don’t want, nor can they afford, to make mistakes in the real game.

Sixth, get a handful of USEFUL websites regarding the markets and trading. Sites like marketwatch.comBloomberg.comFinviz.comfinance.yahoo.comgoogle.com/financebarrons.com, or briefing.com. These are just a few of the hundreds of fine sites available. Depending on your trading style (day/swing/investor) each site offers you information you need, some education, and links to other credible sites.

Seventh, you’re a rookie, a newbie, a beginner… get a stock market trading coach. If the coach is any good he/she will work from your existing knowledge base and walk you through the realities of trading. Why would you even think of stepping into shark waters without knowing something about shark environment, shark behavior, shark feeding habits, and how to avoid them? Michael Jordan listened to coaches, you never saw shark bite marks on him.

Here’s the problem when not using a trading coach or mentor: If you follow a popular guru or newsletter, your tendency will be to accept their trade recommendation deferring to their expertise and experience. So far so good. If the trade works out, trust me, you will invariably exclaim how brilliant you are. If the trade doesn’t work out, you lose money, you will blame the guru as sure as I’m hitting the keyboard here. The net result: you’ve learned nothing, you’re frustrated, perhaps you give up on trading.

The well-known adage in the industry is that YOU take responsibility for your own trades… win, lose, or draw. Through even small successes comes confidence. You must appreciate that even losses teach you something. In that light one might say, “I never lose in trading. Either I win or I learn.”

Did you learn something useful, a nugget of new knowledge, even if you didn’t win? For that matter, did you learn something meaningful if you won? There’s nothing wrong with following gurus if you understand, appreciate, and agree with their rationale. The only way you can do that is to have enough knowledge to agree or disagree with the guru’s analysis. You will learn to trust yourself, to trust that little voice. Yes, the same voice that was once annoying.

Trading becomes easier, not harder, with knowledge and experience.

Once we know, we can’t unknow, but everything we don’t know might as well be a secret. And that’s the point, there are no secrets. There is only knowledge or lack of knowledge in this business. Predator and prey. In this business, ignorance is not bliss.

Posted in day trading, market gurus, speculation, stock guru, stock market trading, take responsibility, trader psychology, trading coach, trading for a living, Trading Stock Market, trading websites | Tagged , , , , , , , , , , , , , , , , , , , | Leave a comment

About That Outside The Box Thing

I’m in a box, and not just any old curbside corrugated box. On no, I’m special. This is the box we’re all supposed to think out of. Yeah, that box, and I really wish I were somewhere else because it means I have an issue, a problem. Ever been there?

This is the box that by the time you’ve identified it as that box, you know you’ve got a problem. You also know you don’t know how to resolve it. In short, what you’ve done hasn’t worked, perhaps it’s made things worse, and a new word takes its rightful place in your vocabulary: flummoxed.

As surely as you won’t win the lotto, you note the talking heads move their lips as if they were addressing you: “Think outside the box,” (TOTB) they say; perceive things differently; act differently; use different tools; reach out to someone (anyone) and maybe whisper loud enough to be heard, “A little help here?”

By the time you start hearing from everyone around you, including your ex, iPhone’s Siri, your Uber driver, that you should TOTB, you know your problem is serious. (Maybe this is how some exasperated people end up on the Dr. Phil show after seeking guidance from a rinky-dink lawyer, himself under indictment for something or other, or from a homeless guy collecting real corrugated boxes.)

What exactly does that mean to TOTB? If I could instantly think outside the metaphorical box, wouldn’t that mean that I’m already outside it and the solution clear? Or am I inside the box imagining I’m outside the box looking at the issues? I think it’s supposed to be the later, but the reality is I’m inside the box and I see walls, a ceiling, and a floor (read formidable issues, problems, concerns).

I don’t know about you, but I’ve struggled from time to time trying to resolve an issue in my work or personal life where being able to think outside that box might have shown me the way, but I couldn’t see past the problem itself, the box.

Let me rephrase that: I didn’t just struggle to no avail. Ultimately, I resolved things by using tools inside the box, tools available to me all along. In the end, I didn’t have to be, see, or think outside the box per se. In the end, it might have been brute force (read crunch time panic) that made me punch through a wall, or dig under the wall, to resolve an issue. Fear is a hell of a motivator.

I’m intrigued with someone’s problem solving ability when they can show me it was their thinking outside the box that saved the day. I now try to resolve all issues that way. I didn’t say I was good at doing it, I said I try, yet I think I found the secret.

For example: When I was in sales years ago as a commissioned stockbroker there were periods of time when lack of sales caused concern (panic was a better term back then). Back in the day, a time that the earth’s crust was still cooling, my motivational self-talk was: “There are no problems, only solutions.” Now this self-talk has been useful, but there are times when life, that mocking jokester of any well thought out plan, will just throw you a curve that turns your lily pad upside down. As Mike Tyson said, “Everyone has a plan until they get punched in the face.”

When it comes to TOTB, what I know is that if I were somehow outside the damn thing I could see around all six sides. I guess I might envision, until now, unthought-of options to solve a particular problem since perhaps I’d notice what outside forces or pressure were keeping the lid down, the walls up, and the floor impenetrable.

However, I’m inside the box. I am only able to see the inside metaphorical construction, the problem(s).

What I’ve learned from experience is that I can get outside that box by admitting that it was my best thinking that got me here, inside the box. This is not easily done, at least for me, but once I’ve accepted it, the lights come on, walls start to buckle, the box lid is suddenly ajar.

“My best thinking got me here,” I think about that before I look for scapegoats now. Note, it’s not my near best thinking or my good thinking… I’m smart, says I, so it’s always my best thinking. Reality just has a way of saying pay attention, like a 2×4 across the forehead.

Some of you may note that the line, “My best thinking got me here,” is used in various twelve-step recovery programs. Clearly it works in those situations, but one need not be in any recovery program to appreciate the simple truth therein.

If that’s true, that my best thinking put me in that box, and there was no plan B, and I accept it, claiming that problem as my own monstrous creation, unintentional as it might be, at that point I am outside the box. Getting ego out-of-the-way, admitting error in some capacity – maybe the original plan had flaws, maybe the execution was flawed, but regardless, I own this box… after all, my best decisions got me here, thus, my responsibility.

At that point it is my box, I own that baby, which after some changes (because nothing changes until something changes) it can become a platform to stand on to see a new horizon, a new way of doing things, a new goal, and I can move up.

I note that a box on top of another, and another, and another could be designed as a stairway.

I’m on my way up!

Posted in planning, problem solving, problems, psychology, take responsibility, think outside the box, Trading Stock Market | Tagged , , , , , , , , , , | Leave a comment

Gurus Know Where The Market’s Going … LOL ROTFLMAO

Whoops… funny thing happened to the market on its way to the moon today. Like the economy, and unlike yesterday, it lost escape velocity and seems to be losing more.

**Your detailed market report for today, 3/31/15.

** Sector performance 

** Industry Performance 

** Domestic economic data due

** Earnings Due

Discussion/Opinion:

Let me explain something about all those websites and guru websites you visit about the stock market’s direction near-term or long-term. I don’t care if you use the popular sites, like the ones mentioned in my 3/29/15 post, “What Is It About Financial Writers,” or if you have some super-secretive-not-known-to-the-public source.

No one knows the future: not Ms. Yellen, not the POTUS, the pope, your mailman, or anyone else on the planet. That’s why the market is about risk and risk management.

The market itself doesn’t know the future. All it can do is render the collective opinions of millions of participants at any one minute and leave a trail of minutes that show trend. That’s it.

Those websites and gurus are all opinion and thus may or may not be based on fact. Opinions are generally a combination of objective and subjective opinion, or may be totally one sided. The minute I hear the words, “I think…,” I am waiting to hear what follows, fact, feeling, or hearsay?

Now some of those sites are outright bullcrap, misleading, and silly, but I know you, dear reader, are too smart for those sites. (Say, “Yes, yes I am.”)

What’s the difference in being objective or subjective in market analysis? Being objective means you’re using observable, measurable facts, suitable for decision-making. Meanwhile, being subjective, you’re decision-making is based on personal opinion, assumptions, guru comments, a feeling, etc., generally not suitable for decision-making.

Your first thought should be: well, don’t you (me) give opinions every day? Answer, yes I do, and if you look carefully it’s probably 50/50 about how objective or subjective it is. If I make a statement without further facts to back it up, it’s subjective. Your opinion on the matter could just as easily be correct or as wrong as mine but for very different reasons.

I suppose that’s analogous to both of us looking at modern art. Maybe you know something about the painter and the story behind what is depicted in the artwork; while I know nothing about the painter or facts behind it and conclude that it’s trash.

THAT’S WHY IT MATTERS SO MUCH THAT YOU THE TRADER know how to read between the lines or where to get the facts, and how to decide what you’ll do. It isn’t rocket science, but we have an eroding quality in this country called common sense, in my opinion, and sometimes all it takes is common sense. Buying a penny stock that has a 95% chance of bankruptcy based on fundamental analysis can’t magically show up in your buy list because you “have a feeling” about it.

Consider the following:

These are very recent articles on the same topic. Can you pick which has the odds in their favor of being right? How are you deciding, in the argument’s strength, the rhetoric, or the facts?

Now, certainly I’m not smart enough to know where oil prices are going, though my opinion is that maybe it breaks $40 but won’t stay there long. Should I trade on that opinion?

On this topic, that’s my objective opinion.

Posted in market direction, market gurus, Stock Market, Trading Stock Market | Tagged , , , , | 3 Comments