Sept 11 Extremist Scan

Extremist Scan Results

Take up One Idea...

This is worth listening to:
Lots of Pearls in it

http://cbs360.gsb.columbia.edu:8080/ess/echo/presentation/670921b2-4bad-4843-8dc5-4026360f1369


Don't  need to follow the value investing... . There are various methods.  Think over it ...

Take up one idea. Make that one idea your life - think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. This is the way to success - Swami Vivekananda.

Very recurring pattern one more time..

Please see the below article from May of 2011.

http://bigbullandbigbear.blogspot.com/2011/05/50-day-ma-pattern-very-recurring-theme.html

Cardinal Sin Moments - Escape from Mental ALCATRAZ

Copied from Premium Post from Bigbullbigbear.com

I read an article on my friend Dan Cummisky's blog today about "Oh Shit Moments"  and that nearly happens to everyone. His article is a good reminder to how the market serves you a "Whack on Head" on even the best looking charts and Dan reminds us why position size is important. Dan's article prompted me today to take profits on my positions today as those moments come back to haunt you.  So after I took profits, I was writing in my trading journal and then I thought of writing this below article as part of leaning material for my members on my premium site. 

Nearly all traders experienced or novice have experienced this many times and over..

Imagine you're an investor and you've just bought a stock for $100. The stock rises to $110 and you're very happy and dreaming about a new car or a vacation in Caribbean and you don't take profits.

The next day you see the stock is now at $108, and you're still very happy thinking that is is just a little pullback. and there is more upside to this. ”

The next day the stock is at $103 and you are annoyed at yourself that you now have only $3 of profits. You plot Fibonacci retracements or some other indicator to see what is going and convince yourself that this is just a normal market shakeout and you are not going to grind it out.

Two days later the stock is at $95. and you say WTF ?  and then you really start smoking that dreaded hopium thing. “There's no way I'm selling until I get back to breakeven.” You remind yourself of Warren Buffet quote.. Rule # 1: Dont sell anything for loss and Rule 2: Dont forget rule # 1.

You have committed a cardinal sin of allowing profits to turn into a loss.  

I have been guilty of this many many times and I try to escape out of this psychological prison (I will give you my escape plan later in this article).

Next time this happens,your great experienced mind kicks in !!!!

You buy another stock, again at $100. The stock rises to $110 and this time you sell the entire position and then quote Jim Cramer saying.." Bull makes money, Bears make money and Pigs gets slaughtered" or even better one.. that 'No one has gone broke taking profits".

Some of the fellow traders will tell you "Good job" .. and advise your to now rise and repeat..

In theory this sounds very good. But in real life.. you might notice have sold your horse to buy a donkey as next trade does not work out while your original trade has now gone to 150..

Now the Real RINSE and REPEAT comes ..

Now you start acting like smarty pants, you vow that you will never ever let that happen. You post things on your trading wall or your desktop as reminders.Now when another instance comes, where you have your $100 stock has moved to $110  you mind is all baffled on what to do. You risk repeating the first scenario all over again, allowing a decent profit to turn into a loss.

In the heat of the battle (trading or watching markets on a 5 min chart will make you feel that you are in a battle) this type of psychological battle will continue in your mind and what most of us end up doing is walk away from the chart and do nothing and this is where again your profits gets whacked.

ESCAPE From ALCATRAZ Prison

To escape from this mental prison, I have changed my trading plan a little bit. I have incorporated a first target in my trading plan.

Some people say: Why have the first profit target at all? Why not just raise your initial stop and ride the trend that way?  The answer is because if the stock gaps against you, then you've lost all your profits, which could be psychologically raping you.

But if you took some off the table at a logical first profit target, even if the stock gaps a bit against you, you're still likely to walk away with decent profits.

The basis of my plan is to keep yourself psychologically sound and balanced at all times and not fight yourself or cuss yourself or markets because Markets will do whatever they want to do..

I have defined first target in two ways:

1) Using the previous range.. and adding that to the breakout price

2) Using 2.5 times the Average true range.

If I get either one of the above move, I take 1/2 position off and keep the other half for my Caribeean dream and move my stops on the remaining half moved to break even prices.

Mentoring Sessions.

I will be starting my yearly mentorship group this summer on June 15, 2013.
If interested, please e-mail me at marketing1977@gmail.com

Are we on Mt Everest - Part 2.

On April 4 and on Feb 5 of this year. I wrote about how tops are being formed.

http://bigbullandbigbear.blogspot.com/2013/04/are-we-on-mt-everest-yet.html
http://bigbullandbigbear.blogspot.com/2013/02/are-we-on-mt-kilimanjaro.htm

We are now on April 20 looking again for the same answers that we were looking at.
Now since I wrote the last article 20 more days have passed and we again go back to Mr. Time to give me answers.

Lets look at Market Breadth.

Last time when we looked at the charts, they were at the extreme bullish levels and a turn was right around the corner but turn had not arrived.  We said that we would look for a turn and a big down candle in the in the market and we did that that turn and a big candle down day and all three Bullish percent Indices have turned downwards which is telling us that the Ball has now been passed to Bears and one should not be surprised to see big down days in upcoming days to weeks. 

Lets look at the moving averages to see what to expect. The  8 /21 Exponential Moving average has now crossed over in one of three charts. RUT is definitely in the bearish territory while Dow Jones and SPX charts are right on the verge. 

RUT chart has also formed the ugly looking Head and Shoulders pattern. It tried to trigger this week but bulls came in to fight and defend the 900 -905 levels on the Russell chart. The same happened with SPX chart.  SPX chart tried to breach 1540 area but then it was defended this week.  Also remember that 1540 is the 50 day Moving average too and historically long term trends tend to have a bounce at that Moving average before failing down.

So for now the charts have not fully broken down but Bullish Percent Indices are leaning towards bearish side.

So if you are still long in your 401K account and IRA accounts, use the bounce that will come in next days/week to get out of the position before the Train wreck happens.

Hopefully this should help you protect your 401K and IRA accounts.  If you still need help with your overall trading goals, 401k etc and this type of detailed analysis, you can sign up at www.Bigbullbigbear.com

Are we on Mt. Everest Yet?

I wrote on Feb 5 2013, an article about Tops (http://bigbullandbigbear.blogspot.com/2013/02/are-we-on-mt-kilimanjaro.html) and we are now at April 1 and the same question gets asked again. After a great first quarter, and a ugly day in markets today, the same question Are we on Mt Kilimanjaro or Mt Everest yet.

The only person who has answer to this question is Mr. Time.  The game of stock market is won by people who tries to put the odds in their favor at every given instant of time.  Every person who buy or sells stocks is making a prediction at that point in time on the direction of the stock. The only time he will make money is that Market gods favor him and stock moves in the direction he predicted.

Now if he gets this done in a consistent manner then his profits and accounts will grow. Otherwise his /her portfolio will die the death of thousand cuts.

So next question in your mind is how to predict ?

There are multiple various ways to predict:
1). Market Breadth
2) Moving averages
3) Chart Patterns which are based on human behavior.

So going back the question are we on Mt Everest

Lets look at Market Breadth.

These are the charts of bullish percent indices on SPX and Nasdaq -100 stocks. These charts swing from 20 levels to 80 levels. 80 levels means extreme bullishness and 20 levels means extreme bearishness. Ideally one should buy a the turn near 20 levels and sell at the turn near 80 levels.

Both of these charts are telling us that we are at the extreme bullish levels and a turn is right around the corner but the turn has not yet arrived.. The day these charts start to reverse and you see the market selling off with big candle till then one needs to remain long.

One of the other way to position is to buy at 20 levels before the charts turns upwards and then sell before that chart turns downwards from 80 levels and just target the core of the move. However history has shown the fat tails have been very profitable. So adding the fail tail gains can provide the extra oomph to your portfolio.

Now lets look at the Moving averages: 

All these three charts has their latest lows still intact.A close below the 21 period EMA would indicate further weakness. So the goal is remain long till the stops below these averages are taken out. Otherwise keep trailing the upside moves and let the profits come in.

I will go in the details of chart patterns in a later article.

If you still need help with your overall trading goals, 401k etc and this type of detailed analysis, you can sign up at www.Bigbullbigbear.com

Are we on Mt Kilimanjaro

Some folks keeps on talking about Top is emminent and this should be top. Let me point out some charts on weekly timeframe and you can judge for yourself why this is not a Top. Tops takes 2 to 4 weeks to form where we don't go anywhere and just chop around at the same levels. Yes if we don't break above last week's high which is at 1514.17 and just chop around then we are in the beginning phase of forming a Top. Also if there is a sell off then it will be seen in price action as well as in Breadth numbers and in VIX too.

Why XIV gave 181% returns in 2012.

Looking at the yearly performance of ETFs ,we can see that some of these ETFs significantly outperformed their counterparts. 

Out of these names, the first name is of significant interest here.

Why XIV was the best performer in Year 2012

The main reason for this absolute out-performance  is because of the way these volatility ETFs are structured. 

VXX - This Etf is based on constant weighted average of VIX futures maturity of 1 month

VXZ - This Etf is based on constant weighted average of VIX futures maturity of  5 months.

Details at the following site.

http://www.ipathetn.com/static/pdf/vix-prospectus.pdf

So what exactly are VIX and VIX futures?  CBOE's education site describes it as follows:

"The CBOE Volatility Index is based on real-time prices of options on the S&P 500 Index, listed on the Chicago Board Options Exchange (Symbol: SPX), and is designed to reflect investors' consensus view of future (30-day) expected stock market volatility... The contract multiplier for each VIX futures contract is $1000."

Since VIX is just a computed number, the way to trade VIX is using VIX futures or options on VIX.  The prices of VIX futures are dictated by actual market price. The VIX options are based on the VIX future prices.

If look at a chart of the VIX, you will see that it remains in downtrend for quite a bit of time and then it just runs upwards crazy in exponential fashion and then again come crashing down

There are couple things once can  one can observe on the VIX  and VIX futures charts.

• The prices of VIX futures in different month are different 
• There are short term momentum spikes in VIX and near term VIX futures
• Effect of SP-500 options trading.

The different prices of VIX futures are also called Forward Curve or Term Structure. Term Structure or The forward curve is a graphical representation of the current price of each futures contract over a period of time.

Here is the latest scenario of VIX term structure. 

From the above picture you can see the various months VIX futures. The same information is also available on www.cfe.cboe.com. The futures months are prices upwards towards the mean value of VIX. This upwards slope is called Contango  in Options world.

 If the price of VIX does not change then at settlement the futures contract will have to come down to price of VIX which is also called SPOT price. Hence the difference between the forward price of VIX futures and VIX will be lost.

For e.g Currently March VIX future contract is at 18.05 and VIX is today 14.68. So the difference is 3.37 points Now since VIX futures are mutliples of 1000, So the amount lost will be $3337. 

So as long as the VIX futures keep on sloping upwards, the difference between high VIX futures prices and VIX will be lost.  Hence the ETFs like VXX or VXZ are at significant disadvantage. 

So if there is no movement in VIX or if VIX remains range bound then these ETFs based on VIX futures will continue to perform badly. 

Now there are two ways to capture this type of melting effect, You can short VXX or VXZ etf or you can buy XIV and keep trailing with a stop loss of 75 cents to $1. 

The only caution area here is the deterioration of Term Structure or VIX running up exponentially. 

Bull Snorting today

The market gapped up almost 25 points on SPX and than ran more. This is one of the strongest moves I have seen in a recent history.

Here are the ETFS that had the biggest moves today.

The name of the game to pick winners is Relative Strength. 

What is Relative Strength? 

Relative Strength is the comparison of Performance of a Stock or ETF against the performance of overall market or Market Indices. 

Some of the easy way to look at the performance is to compare stock performance vs Market Performance on Strong uptrending days like today. 

Similarly on a down trending day, one can look for stocks that are holding up or not selling as much as over all market index. 

So use this method and focus on these strong names and you will find good winners, Out of these some will be like 200% to 300% winners. 

Good Luck.

If you need help getting through the muddier market, then please join my premium site at www.bigbullbigbear.com