Do you remember the time.. When you fell in love..

The above chart is of Dow Jones Index from 1st Jan 2020 to now. The market almost has a V shaped recovery and everybody is talking about how it can happen with the man on main street  fighting pandemic, fighting racial abuse, scared of losing his/hers job. etc etc.  

VIX the fear index which was almost at its bottom at 11.80 something rose to 85.47 on March 18 showing the fury of the viscous down move. But since March 20 it has been on the down move and as of June 3 its trading at 24.47 right at the 200 day moving average. As you can see from the above chart, Dow Jones Index is right at the 200 day Moving average. 

But as Goerge Santayana has said those who forget their past are condemned to repeat it.. 

So here's some history for all of us that we should remember and be wary of. The below is the chart of Dow Jones Index from 1929-1930. You can see that DJI crashed in October 1929 and bottomed out in November of 1929 and had very similar looking recovery for next 4 months and then came and kissed the 200 day moving average on April 16, 1931 and sold off and finally bottomed out on July 8, 1932. 

I am not saying that will happen this time too with such a huge Federal stimulus and pending Presidential election but once should be wary of any sell off as the situation on Main street is very ripe for repeating that situation. 

Cell Phone Saga

Last few months have been phone switching saga that it would be worth telling my grandkids when I grow old.

The saga began after I saw the new Samsung Galaxy S7 edge that my friend Sunil Sharma showed me on a lovely Saturday afternoon. I was totally impressed with the screen of the phone and the Camera capabilities. Hence I decided to trade in my lovely loyal note 4 phone.  I went to Best Buy to buy S7 edge but Samsung that day had a launch of their new Note 7 phone.

Note 7 phone was love at first sight. The stunning looks of its brother S7 edge plus tons of other features including a new sharp Note Pen that I have got so much used to and have ditched books and pen.

Note 7 worked flawlessly for me but I was forced to return if for the first recall. So I got S7 edge as a loaner and then finally after 10 days or so the new N7 fixed phone (with black dot). We Indians know the black dot story…. You know what I mean...  Nazar na lag jaye...

But my joy was very very short-lived, the new phone started heating up in just less than an hour.. a short ride from Best Buy back to work..  It was a super-hot cake by the time I reached office. The phone cooled down a bit once I was at work, but in 3 hours it was dead, the fully charged battery was discharged to less than 5%. The previous N7 I had lasted to more than 38 hours. So I went to Best Buy next day morning complaining about the so called “Fixed Phone” but Best Buy managers as usual even did not want to acknowledge the problem and instead said talk to “Samsung Rep”. After a quick chat with Samsung rep, the phone was reset and was brought back to Factory settings and guy asked to me see if it fixes my problem.

Again a drive from Best buy back to home made the phone like a hot cake... It was so hot that I thought it would burn up my leather car seat or leave a mark... so I actually stopped the car and placed the phone on napkin (like a coaster) and drove back home. I called Samsung that reps over there were more stupid then anyone I have ever talked to. They kept of saying that phone is fixed phone and kept on checking serial numbers. After talking to 3 different departments in Samsung, the last rep advised me to send the phone in for a repair.

So next day, I went to Bestbuy again told them that I want to return the phone but they said that I cannot return the phone as the phone is passed  the 15 day period. I was aghast as I had just bought the phone a day ago but according to them the phone was bought a month ago and this recall switch of phone does not count.

After frustrating experience with all these people on returning my phone, I called my AMEX my credit card company and after answering few questions, they asked me to called Verizon with them on the phone as the phone payments were going to Verizon. Verizon’s initial phone rep mentioned that since the phone was bought at Best buy, they have nothing to do. At that time, the AMEX rep stepped in and told the Verizon guy that he would like to speak to some Supervisor. The phone call was promptly transferred to a Supervisor and Verizon’s supervisor also had the same verbiage as if they are reading from the some written directives.

Amex rep was very professional and told the Verizon supervisor that Amex will be filing a bad device case and will be taking legal steps. At that point Verizon supervisor brought in a real supervisor on phone and the real supervisor was more than willing to understand the issue and put in a request to exchange out the device at Verizon store.  So we ended a phone call on a happy note, everyone thanking each other for their services.

In the afternoon, I went down to corporate Verizon Store and Verizon rep there also had the same verbiage like the phone rep. I was him politely so see the account notes before giving me run of the mill answer. He reluctantly pulled up my account and was very surprised to see some notes asking them to replace the device.  Now they did not have the N7 in stock, so they requested I take a loaner phone till they have a new N7 for me.

So I wanted the S7 edge as a loaner again but they said I can’t have that they gave me some Galaxy J3. After 4 days, my “ New fixed fixed N7” came in… and hence I rushed back to Verizon store to get my N7 back as I missed so many things that Note series offers.  I stayed in store for an hour to make sure that this N7 was not a hot cake like the previous one. Finally after an hour of testing everything, I happily took it home. The phone did not heat up and after 3 hours it was barely down to 97% on battery. 

The phone worked fabulously, the picture were amazing. The battery life was one of the best seen around. I got around 42 hours on a single charge.  The love for the phone grew as I used it every day, in spite of people ridiculing me at work for the phone being a firebomb.

After 3 weeks, someone reported that there was fire incident on some flight and the phone was reported to be the fixed note 7.  After that the downfall of N7 started, Samsung swiftly decided to shut down the N7 production and announced Global recall of all the devices.

It became so difficult for me to give up my beloved device. Some of the problem areas were:

 1)      Need a note phone with pen... so have to go to Note 5 which is 2 year old phone tech.

       2)      Nothing on the market that comes close to N7 in photos, the screen quality, the features.

So finally made a jump back to Apple world, which I had left since IPhone 4 with a hope that IPhone 7 plus would be a matching contender for the N7.

Top 15 ETFs to remain invested in..

Top 15 ETF sorted by YTD returns. 

Where are we?

Office and coffee areas  are abuzz with stock market chatters. Some folks keeps on talking about Top is eminent and some folks keeps on saying that market will put in another record year as we are in super bull cycle.  I also get pulled into those conversations once in a while. 

When to come to ask me my answer is as follows:
 Lets look at some charts on weekly time-frame and one can judge for yourself what is going on and at levels one say say that Bull market is over. 

As you can see from the below charts that all indices are making new highs. The last lows in all the indices were around Feb 2 2015.

Tops normally takes 2 to 4 weeks to form where we don't go anywhere and just chop around at the same levels. The professionals are systematically selling to the amateurs who are hoping that new highs will be there soon and eventually market runs out of buyers.

As of now we are not seeing that type of phenomena in the market. The stocks are making new highs, we also see some sort of rotation from one group to another.

So for now the market is in a healthy state. One has to keep an eye out for any sort of corrections. If the corrections gets strangled at the levels shown by dotted line then the bull market is intact and expect the trend to continue and markets to go higher. If for some reasons, if the markets decides to take a bearish mode and one of the buried ghosts comes alive(there are lots of ghosts buried under namely, Greece, Russian war, Chinese deflation, Oil Crisis and mother of all Federal rate increases)
then you should expect the above dotted lines breached and good 10 to 20% correction should be expected.

Apple reminds us of Doji at Top

Apple today reminded again why Doji at the top should be watched very carefully.

This signal has more than 400 years of history. Japanese rice traders developed the system 

period.  In mid 1700,  Kosaku Kato (1716 - 1803) was born in the city of Sakata, now Tamagata

His mastery of the rice market price movements was popularized in verses such as: "When it shines in Sakata (the growing region) it’s cloudy in Dojima."  English translation means when there is good weather in Sakata, the prices fall on the Dojima exchange. "And in Edo (Tokyo), it rains." Rice prices plummet there.

Apple yesterday wrote a new all time highs at 103.74 and formed a doji at the top signal. It was not a red candle doji but was a doji and if one had watched it carefully, the way Apple opened today would have stopped them out. Apple opened at 103.2 today and then within few minutes started selling off.
I had my stops at 102.49 and I was immediately taken out. That trade triggering me woke me up as I was busy watching other stocks gapping higher up.

Once again Doji at the top should not be ignored.

http://bigbullandbigbear.blogspot.com/2011/05/doji-at-top-pattern-to-burn-in-your.html

2014 Summer Mentorship Program

I will be starting 2014 Summer Mentorship Program on June 15.

Please e-mail me on marketing1977@gmail.com  with subject line "2014 Summer Mentorship Application".

The course is free of cost. 

Risk of Ruin

This material is copied from my premium service: bigbullbigbear.net.

Understanding Risk Of Ruin.

Lot of times, we try to be successful and try to hit a home run and we get out or miss out on smaller opportunity and end up losing. Now logically if you turn the scenario on its head, and start thinking that we want to lose everything, we might end up hitting the home run.

Perry Kauffman developed this theory of Risk of Ruin exactly on these principles.

The risk or ruin (also known as the probability of ruin) is the probability that you will lose sufficient trading capital that you deem it impossible or unwise to continue trading. This point does not need to be bankruptcy (it often is) but is where you throw in the trading towel and close your trading account.

What is the PROBABILITY?

If you pursue any occupation or endeavor for long enough you may witness events that are once-in-a-lifetime or at least very rare events. A bird watcher, may for example, rarely if ever see an Spoon-billed Sandpipers on Michigan Lake. However, the chances of him/her seeing an Spoon-billed Sandpipers increase the more bird watching he/she does.

Trading is no different. If you pursue a trading career for long enough and you execute a sufficiently large number of trades you will most likely see long losing and wining periods. The longer you expose yourself to trading the more likely you are to see those extreme events.

Perry Kauffman considers the following 2 premises:

• In real trading, once profits accumulate, the chance of ruin decreases. The greatest risk is at the beginning.
• If we plan to withdraw profits, thereby maintaining the same relative commitment to the market then the risk of ruin must be greater than if we accumulate profits and keep the trading position the same.

Kaufman gives us the following formula for calculating the risk of ruin:

risk_of_ruin = ((1 – Edge)/(1 + Edge)) ^ Capital_Units

Edge is the probability of a win.

We can see that the mechanics of the formula are such that the larger the value of Edge the lower will be the risk of ruin. This is also intuitively logical because the greater your edge in any strategy the more likely you will have more winning trades. Also, the greater the number of capital units employed the lower the risk of ruin. Again this should be obvious: The smaller the amount you risk for any one trade relative to your capital base the lower the risk of ruin.

 Risk greatest at the beginning why?

As mentioned above, the risk of ruin is greatest at the beginning.

One reason is because your capital base is smallest at this point and if you immediately hit a string of losses it will take a smaller string of losses to wipe out your account

There is another reason why risk might be greatest at the beginning. This may be because of lack of experience. An experienced trader who has survived for a long time will have overcome losing habits that a new trader may still have. These losses may be from simple things such as not operating the trading platform correctly to more complex discretionary decisions about when to override the system.

Conclusion

The risk of ruin is greatest at the beginning. The risk of ruin also increases the longer your remain a trader because the risk of experiencing a series of losses increases.

When one hits a losing streak, or when market is not behaving the correct way,  by scaling to smaller trade sizes as the portfolio is reduced one lowers the risk of ruin and improve the survival rate.

Hence for new traders, they should really think about how much they want to risk, once they start making a bit, then increase the risk appropriately. Starting with 0.5% of total portfolio risk and then increasing it by 0.10%  is a very prudent way to start.

Doji at Top - Revisted Follow through.

Couple days ago I posted DOJI AT TOP - Revisited and and one of the chart I was planning to attack. 

The attack is now bearing fruits. 

This type of pattern happens over and over again and if you attack these super movers with this defined strategy, then it can bear real nice fruits for your overall account.

Doji at TOP - Revisted.

Back in 2011 I had written this article about DOJI at the TOP and what it means for parabolic movers.

http://bigbullandbigbear.blogspot.com/2011/05/doji-at-top-pattern-to-burn-in-your.html

We have Biotech sector going parabolic after the buyout of  Intercept Pharma where the stock gapped up massive $250 dollars on the day.

Due the this there has been a massive buying in all type of biotech stocks which has made the biotech ETF surge exponentially higher.

Looking more closely to the chart, we do have a Doji at the top followed by a red doji/ / hammer type of candle. ( I would have preferred a Red candle DOJI  instead of a green one but nevertheless this setup here offers a good risk reward.

The critical level here would be 250 area. if that gets taken out then this ETF can easily tank down to 200 levels.

There are multiple ways to play the short.

One simple way would be to short the ETF with the Buy Stop a the top the that DOJI candle.

Other ways to play them would be with options.
My friend Steve Place has a good way to explaining this on his blog

http://investingwithoptions.com/blog/2013/12/30/the-foolproof-way-to-find-a-blowoff-top-using-options/

Dragon Scan Candidates for Jan 9, 2014

Dragon Scan Candidates

This scan is to quickly find the stocks that have this Wedge pattern or Dragon pattern

I am putting this in ThinkorSwim for the folks who cannot access TC2000 or Telechart. 

First Custom Scan: Price Linear Regression 44 days

#Big Bull and Big Bear LLC

def MiddleLR = InertiaAll(close, 44);
plot buy1 = middleLR > middleLR[10];


Second Custom Scan: Volume Linear Regression 10 days
#Big Bull and Big Bear LLC

def MiddleLRVol = InertiaAll(volume, 10);
plot volbuy =middleLRvol < middleLRvol[5];


Third Custom Scan: Top Band Linear Regression 10 days
#Big Bull and Big Bear LLC

def price = 1.01*High;
def TopbandLR = InertiaAll(price, 10);
plot toplr =topbandLR < topbandLR[5];


Fourth Custom Scan: Lower Band Linear Regression 10 days

#Big Bull and Big Bear LLC
def price2 = 0.99*Low;
def LowerbandLR = InertiaAll(price2, 10);
plot lowerlr =lowerbandLR > lowerbandLR[5];

I run this scan on the stocks that show on a very good tool called Bluefin developed by a friend Dan Cummiskey atPatient Fisherman.

As Dan has pointed out multiple times, one should to be in the best performing stocks in the market. In Bluefin, Dan has filtered out the strongest stocks by various methods. 

Now one need to go through this entire list and using elbow grease, need to identify trade able pattern and subscribe to alerts. 

What is your Edge ?

WHAT’S AN EDGE? 

In a probabilistic arena such as the markets with random outcomes, an edge is defined as a higher probability of one outcome occurring over another. Edge also represents some type of advantage over time.

There are various type of edges

1) Education and experience give an advantage or edge

2) There is the information and experience edge.

3). Speed  - Robotic computers located very close to exchanges. They try to extract the technological edges.

There are actually many types of edge in the market, but we are going to focus on two edges that are there are embedded in every above edge or are very structural to market.

First one is Win-rate edge and second one is Winning Dollars edge,

Win-rate: This is the % of favorable output over a series of trades.

Most of the Casinos and professional traders use the 50 percent threshold as a baseline to assess their win rate, because a 50 percent win-rate equals probability of flipping a coin, A win rate less than 50 percent indicates a negative edge while a win rate above 50 percent represents a positive edge.

In the roulette wheel in Casion, the House holds the Win-rate edge over the gamblers 52.7% vs 47.3%,  There are 18 red slots and there are 18 black slots and there are two green slots 0 and 00. These two green slots are always for the Casino. So if you bet on say Red slots then your probability is 18/(18+18+2) i.e 18/38  = 47.3 %  So the win rate of casino is 52.7%.

For a new trader, the methods he selects for entry and exit of stocks /etfs should give him more than 50% win-rate to start with. With that said many professionals traders, have win-rate of less of 50%.

many professional traders post win rates les s than 50 percent, which

means they lose money on a larger number of trades than they win. These professional traders understand the importance of edge over time and how the win-rate edge is just one component in their trading plan.

Winning Dollar Edge

Professionals traders give higher importance to the winning dollars edge. Winning dollars edge refers specifically to the reward-to-risk relationship in dollar or point terms of a setup. For example, lot of traders try to seek 2 to 1 or 3 to 1 reward to risk ratio. This means that every $1 risked, the traders is seeking $3 in profits.  So with a win-rate of 50%, this trader over 10 trades would make $15 (5 winning trades x $3) and would lose $5 (5 losing trades x $1) and would make $10.

A combination of these two edges would give you your expectancy numbers. Expectancy number is average amount of dollars you expect to generate per trade.

Expectancy =  (Average Winning dollars x Win-rate)  - (Avg losing dollars * (1- Win-rate))

Once you understand this then you have to work systematically towards either increasing your win-rate edge or your winning dollars.edge,

Best ETfs of 2013

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