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Cartoon by Mark Anderson at Andertoons.com

 

I will NEVER be a video producer, editor, or director. With all the problems I have had over the last two weeks with Adobe Creative Cloud’s insistence on perfect codec, I had to rely on Camtasia to finish the final edit and render. That is why there is an imbalance in sound level. I will get with Adobe this week to see what tweak needs to be made to resolve the sound errors. I was so hoping to have titles and fade-away cuts without having to rely on the green screen. Well, perfection is the enemy of completion. I will improve. Please watch the video at the bottom, as it outlines my future plans to improve content here to where it was back in the glory days.

This post is designed to re-familiarize you with my trading work and my background, and to ask a question regarding the product that I may create soon for this blog and hopefully soon to be authority site.

To hear an interview regarding my basic style of trading, click here.

Other things I have done include

I participated in what is now tradingmarkets. com for a number of years in the late 1990s. In 2004, I began to write for MrSwing.com when it was a very popular trader website and bulletin board forum. That is where my neural net trade set-ups were featured before appearing on this blog in 2008. I was actively involved in the foundational days of Stocktwits and wrote their personal finance blog for two years. In the early days, I was also one of the most followed traders on Stocktwits.  I was also featured on Vince Rowe’s radio show on BizRadioNetwork for five years from 2005 until early 2011. Though I was not totally responsible, the podcasts (for which I was featured once to twice a week) were rated #2 on iTunes during that period. I was probably the first trader to ever have been featured on a Webex simulcast with AM radio to demonstrate trade set-ups on my computer screens to listeners around the world who heard the simulcast of the internet. From the responses I got from listeners, and participation in my blog, I know I made a positive impact.

Though I am not a Chartered Market Technician, I am an associate member of the Market Technicians Association. I have well over 30 years of experience looking at and analyzing charts.

To read my short bio, go here:

Here is the video:

On that comment at the end regarding trading models, at the moment, I am the only one trading the models in real time. Bruce and I have considered marketing these models once we are totally satisfied with their stability and the stability of the trading platform is operated within.  It will take coordination, testing, and probably legal review as well, before we can market them, but we are still considering it. Given the improvements and bug fixes with the current platform we use, I am proceeding with further live tasts. The statistics below are not final, but they are indications of what future statistics could be like if we are satisfied with model stability and robustness.

The stats are here and the equity curve is here.

Thanks again for supporting the blog. The marketing funnel is coming soon!

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That cartoon was created by cartoonist Rob Tornoe after a game in which Eagles quarterback Michael Vick was hurt. From www.philly.com

I do not own the rights to the above photo, other than to prove a contention posed later in this post. All impugning ( editorial or sardonic) of Michael Vick, Andy Reid, or the Philadephia Eagles (and I know of at least two of their fans who read this blog regularly) are the responsibility of the cartoonist, Rob Tornoe. I am a strong believer in parity, particularly when discussing ANYTHING about NFL football teams.

Now, back to the main attraction. I was absolutely waiting with bated breath for this article, whose title is “Oil Warning: The Crash Could Be The Worst In More Than 45 Years”. I think this almost qualifies for the Sports Illustrated Cover Jinx award.  If you know what that is, then one would think that we could indeed be at a bottom. We might, and again, we might not. Why? Because another notable analyst has looked at forward demand picture and still sees oil at or above $100, certainly in the next 5 years, if not before.

Who is right? I am not going to go there just yet. If you recall, I was going to track the set up of crude oil futures back in the spring, and then all the nuttiest began to erupt in the Middle East, and short-term panic-mongers pressed oil prices higher. I left that article hanging (and a lot of readers wondering if I had just given up). I had not. I was looking for a little more evidence. Now, I think I have some. It is not, as one might imagine, from some short-term swing chart of price ticks on futures data, but on a WEEKLY chart of continuous crude oil futures prices. Sometimes, you need long-term data to make short to medium range forecasts.

I will attempt to demonstrate that now.

I just downloaded the latest upgrade of Ensign 10, and for some reason, the Pesavento Pattern application seems permanently set at ‘Def-con 98′. It is everything that Vince Rowe used to cross his eyes at when I demonstrated this stuff on Webex simulcasts. Please do not be alarmed. This chart is marked for what is important among all those insanely jumbled convergence points. It does make great eyesight training though.

Here is what is most important about this chart:

1) That weekly low of January 16. 2015 has 13 different Fibonacci points of confluence that converge at that point. You really only need 4 to make that a very significant low.

2) On a weekly basis, that low has yet to be exceeded, so it is safe for now.

3) It should worry longs that there is a succession of bearish candles that continues to close at or near the lows of the week. If that continues, item 1 above will not hold, and we will see some new lows in crude oil.

4) Here is where the stuff gets weird (and why I cut the chart off before showing the full price symmetry low).  At the cycle high of 107.68 and a lowest low of 44.20, the new displacement to a price symmetry low would be the difference of $107.68 and $44.20 or $63.46. At the previous swing high of $64.45, the symmetrical momentum low of that A-B=C-D swing pattern would be…wait for it…$0.97 cents a barrel. Yep, that is, though rather unbelievable, exactly 97 cents a barrel.

That is situation is absolutely nuts, but the symmetry is there. We really only saw crude oil prices (and particularly futures prices) flirt with the teens in the late 1990s. It is certainly possible, with Iran going online without sanctions to sell their oil, OPEC attempting to destroy U.S. domestic oil prices, and new world oil producers running their drilling rigs again, that we could see prices fall dramatically.

What we have are two countervailing forces (and if this sounds like an oversimplification, it might be, but history has proven that the crazies can always win out in the short run.) The countervailing forces are:

1) Surging demand for oil in every place but China. Since last year, demand has increased by 1.6 million barrels a day over last years average. That ultimately means that the stocks of many integrated oil companies can (and in many cases ARE) trading at three decade lows and are relatively cheap, assuming the economic cost of exploration can remain reasonable and that the sales price and cover the cost of recovery, refining, and marketing of end products.

2) The overwhelming number of stupid, greedy, power-hungry leaders around the world.  OPEC actually increaed production of crude oil by 1.5 million barrels a day from February to May 2015, much more than eclipsing world demand increase. Libya may come on line with oil under some kind of new leadership. Iran, with sanctions lifted, will likely also pour oil onto the world markets. Would you trust oil market economics to a person like Ayatollah Khamensi who posted this mature tweet? If you remember the late 1990s the way I do, you remember the Saudi princes having to sell real estate and bail out of their lavish lifestyles because the oil revenues would no longer support them. 

If the world economy slumps into recession, as it could, the worse case scenario is a possibility. I very seriously doubt you will be able to buy a barrel of crude oil for what you once could pay for a McDonald’s cheeseburger, but there is likely no historical precedent other that the mid-1980s and late 1990s that could ever compare to it. If, by agreement, oil production were managed by agreement, there might be a chance for it to stabilize, but that would take real leadership and not the elitist form of world fascism we seem so carelessly to be gliding into at the moment. “My way or the highway” is the watch phrase of the day.

The factors that could cause prices to rise is a potential interruption of supply should ISIS or Iran decide to create some kind of a blockade or interdiction of oil movement of some kind. If you watch the video associated with the case for $100 a barrel oil, the case is fairly solidly made for the lack of stored supplies at the moment, even in the US. With little inventory, prices could indeed spike, and capital expenditure could once again be justified to bring drilling online, and that process is NOT instantaneousThere are way too many mitigating factors to make a collapse in oil prices a certainty, but in order to see this football game, you WILL need a program, because the players change constantly and the rules are fluid (much like NFL refereeing :) ).

Conclusion?:

Before we descend upon gloom and doom associated with an oil bust, just remember the chart. The only significant thing to be watching now is that price of $44.20. If it holds, and we get some traction, then we could be in for at least some kind of rebound. That rebound of course will take time. I think I tweeted about 11 months ago that we could see the breakdown above $78 a barrel in Stocktwits, but I will have to dig that up. If you are going to short, then, from a practical perspective, it is likely only to do well if it breaks that $44.20 price level. Whatever happens, it is going to be interesting, and I would assume not without a bit of volatility as oil bulls and bears put on the riot gear and go after each other. That is the nature of market liquidity. Everyone gets a good clubbing before the winner is decided.

To have a better discussion of what the real price lows are, I will wait for that to happen, and post as I see things happen. We live in a crazy world at the moment. Charts help you to see benchmarks and targets, but you have to use your brain and manage your risk as well. Once again, thank you for supporting this blog!

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From March 1998 Saturday Evening Post

There was no weekly reversal report on the weekend of 7/12/2015, as I traveled to an internet marketing seminar to get a better grasp on reviving this blog as a business, and in particular how to rebuild the audience that this blog once had via survey.  That was accomplished, and that survey construction is under way. I also got the video camera operating, though I will have to learn a way to run video editing through a separate computer to manage the editing, but that is on its way as well. As I think many of you know now, this blog has gone from a very large audience via measurement in alexa.com to being a virtual non-entity. Part of it is the fact that it is no longer a daily blog, but most importantly, I have stalled any expansion of product until I fully understood a way to really know that my old audience wants. That will be forthcoming, as Juan Morales (an internet marketing expert from Panama I met for the first time last weekend), showed me a way to do this. There will be a bit of a social media blitz associated with the survey, but it will NOT initially even require you to identify yourself. It will, in a short but well directed series of questions, tell me kind of trading and investing information I should provide for you. If I were to revert to the daily 4 hour grind of producing pattern signals as I once did, and no one wants them, I would then be wasting my time, and more importantly YOURS. I will continue to use neural nets provided by Ward Systems NeuroShell Day Trader Professional to do it, but I want to do that in a relevant way. If I do that, I think I can reduce the construction time for far UNDER the 57 years it seems like it has taken to revive this thing. I am a trader first, and I am a one-man shop, but this blog can also help me to fund research if I can provide something you need. More on that is coming, and I hope it can get going by the end of August. Stay tuned!

GLD AND XAU

Much has been written about gold (and for purposes of clearer charting, I am going to use the ETF proxy for gold, GLD) and the XAU stock index. With the July 16, 2015 bounce at a previous low on the XAU, many were predicting a modest rally in the shares of gold miners and perhaps, even of the metal itself. When viewed from a larger time frame however, one sees a bit of a different story. Take a look at the monthly chart for XAU and for GLD.

So that you don’t think Ihave completely whacked out on the data, I fully realize that July 2015 is only half over, but in both cases with these indexes, new lows beyond previous solid support have been broken this month. If rates increase, at least in the short run (4 to 6 months), we could indeed see a correction in the XAU to extremes near 32.70 if symmetry holds. If support holds, it needs to hold at the level it is at now near that 1.272 extension of the previous major support, which is 54.20. The price of gold will be influenced by U.S. Federal Reserve rate increases as, when all other things remain the same, the currency will be considered stronger because of that high rate of return on short-term U.S. government securities. The important thing to take away from this is that we are at a very critical inflection point in the price of gold itself. If you look at the GLD monthly chart, there is support at around 99.50, but if that breaks, price symmetry would suggest that 78.30 (equivalent to approximately $783.00/oz) would be the ultimate target low.

Those lows might not hit for 6 months or so, but the point is, there is a very distinct possibility that if these indexes close below the support lows they have just now broken that those targets can be hit. As the days and weeks move forward, I will run the models on GLD and XAU. I will also take a look at individual names in that index as they arise.

We are operating in a more complex world economy than 40 years ago when the USA was almost the only real game in town. With US debt skyrocketing, economic slowdown appearing more evident on a global basis, and China and the Eurozone in their own separate monetary policy and political quandaries, we are likely to see volatility and even a few things we might not have contemplated as being possible before. The important thing to take away is that if key supports do not hold, the Fibonacci price patterns in that same 3 to 6 month period ahead favor the bears.  I will do my best to put some statistics around that in the near future.

In any event, I am hoping to learn enough about video production and editing this week, as this afternoon I did get the camera charged, the lights all coordinated with uninterruptible power supplies and surge protection put into place. Now the real work begins.

I will now accept the full challenge of bringing this blog back to its once former glory to the best of my ability. It will be a difficult climb, but I think it will be worth the effort, and I am confident that you will be too. Thanks once again for supporting my blog.

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David Simonds Cartoon for Guardian Article referenced in this blog post.

 

Once again, the Friday screens once again revealed more slop, but moreover, the Greek referendum apparently goes strongly against accepting a bailout and more austerity to reduce their debts. To make things even more exciting, the EURUSD opened down around 100 pips (about a penny),  NQU15 (E-mini Nasdaq 100 futures September contract) dropped 39 points, and ESU15 opened about 21 points lower, just to name a few. Instead of trying to pick a bottom that might not yet be one, I think I am gong to continue the discussion that I began last week on ASHR (which you can see here). I am not going to make brownie points trying to be the blind squirrel finding the nut in the whiteout blizzard. There will be plenty of time to find set ups soon enough. Its time for me to do some more”educatin’ ” on pattern analysis.

One thing I think most new traders should do is to stand down unless you see set ups that you are both used to and that fit your trading plan. This overnight shakedown could be the beginning of something larger, or just another overreaction. Your principle goal as a trader or investor is to protect your capital as much as you can. You pay for stupid moves. You GET paid by dong research and testing your ideas before implementing them in the financial markets. You can be successful, but you have to work at it and remain persistent.

We did, as typical Fibonacci pattern theory would dictate, see a short-term rally into mid-week on ASHR. However, as the week progressed, we began to see news out of the Peoples Republic of China (PRC) about the government there trying to put a floor under prices as novice investors began to put more money (and margin money) into the Shanghai Stock Exchange. Even though this seems at first blush an overreaction to an overheated market, one would have to think that the Communist Party there is worried about further damage to consumer confidence and spending if savings are blown up in a market meltdown.  Add to that noise the rumor of both domestic (Chinese) and international short selling  and you have the recipe for a rumbling casino (something we have seen several times in this stock index over the last 20 to 25 years). Then the cherry on top of the market panic sundae was the IPO freeze announced Saturday. When governments start talking up “market stabilization funds”, you know some powerful politicians are worried about the outcome, and short selles, like sharks, smell the blood in the water.

What does the daily chart seem to indicate?  Take a look at this chart. Well, at first glance, it now shows 3 Fibonacci confluence points at the new low that was set on Friday July 2, 2015, seeming to want to more strongly confirm a near term bottom. If that is true, with some minor adjustments, you get something very similar to what I posted last week.

So I should go right out and plow everything I have in it, right? Let Darth Vader answer that question. NO!

Why would I say that? First, the news items I quoted seem to indicate that the sellers are lining up in greater numbers as the government leadership hits the panic button. The other issue is the confidence factor that my neural net model created using Ward Systems NeuroShell Day Trader Professional software. The confidence level of a buy has a profit factor of only 1.3/1 and a win percentage of 75%, which is slightly lower than is normally acceptable. The reason for that is that average losses in that model are nearly twice as large as the average wins despite the win percentages.  Unless we can see a countertrend reversal to the levels in that chart I generated last week, the optimal time to short has passed for now. The June 25 lower high (marked LH) was the best place to have shorted. 

I will continue to track the model and report on it for ASHR as the days move ahead. There is a lot of uncertainty and hubris being tossed around in world financial markets at present. I would prefer to wait for the best set-ups, manage my risk, and be prepared for the next opportunity. There will always be one out there.  We are probably overdue for some kind of correction in equity prices in the USA and China, but we will simply have to wait our turn. It always comes around.

The basic lighting in the studio works, and I will be testing the camera beginning tomorrow. The e-mail newsletter will be revving up again shortly, so if you want to sign up, head up the box on the right hand column of this blog post and join.  The survey will be coming soon also, which will determine the future direction of this blog.

Thank you again for supporting this blog folks! It is much appreciated.

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Ethan Hanson

Ethan Hanson Cartoon

Nothing interesting his the screens this past week, as markets in the US continued their summertime roil. Tonight, I will take a look at the ASHR (Shanghai Composite Index A-Shares)

Its a lovely summer Sunday evening in the US before Asian and European markets open. First we find out that Greek banks will be closed on Monday as millions of Greeks hard fist their ATMs to empty their accounts before the Greek government does prior to leaving the Euro, which seems to be ever more likely by mid-week. And what did the Shanghai Composite Stock Index dropped 6% on Friday June 26, 2015. The A-share ETF for that index (ASHR), representing the highest quality Chinese stocks, dropped 10%. The Euro opened this evening down over 170 pips (about 1.7 cents on the EURUSD pair) from Friday’s close.

While you were watching woman’s soccer or reading some hot novel at the pool, I was enjoying myself reading my latest copy of the AAII Journal of the American Association of Individual Investors (once again proving that I have no life at all). What was the lead article this month? You guessed it! It was “Understanding Market Bubbles and How to React to Them”. It is an interview in which Robert Shiller discusses the origins of market bubbles around the world for the last century, and how, despite the expensiveness of current inflation-adjusted valuations, that there is no way to predict interest rate spikes or peaks, or even to really tell when a bubble has begun. What he does mention, which I think makes the article worth reading if you get a copy of it, is that often external forces and world events can change sentiment, regardless of the state of the economy. Those changes can create panics in equity prices that are difficult to predict or even see in chart prices prior to any market price bubble bursting.

Take a look at three charts of ASHR that I have set up: 1) the basic candle stick chart 2) The dreaded (though much enjoyed, at least on the radio simulcast I used to do). air traffic control screen for ASHR daily chart, showing the Fibonacci retracement levels and 3) The same daily chart showing the potential AB=CD patterns with targets. Without getting too verbose, ASHR (as did the Shanghai Index on Friday) was rocked by selling, and the gap represented by the drop was wide. You can see that in chart 1. In chart 2, the air traffic control screen caught the momentum low on February 8, 2015. Because you would have gone blind looking at fan lines, I did not increase the sensitivity of that screen for momentum lows, but another one hit on March 8, 2015, and that became the X point of reference. It showed that the low we hit on Friday June 26 produced a B point that aligned with Friday’s momentum low and the 61.8% (o.618) retracement of the distance from the June 14, 2015 high (the highest high in that swing) from that March 8, 2015 low. As ASHR did NOT close on its low and that you did see a 127.2 extension of a previous swing low that lined up with it, odds are now greater than 50% that the low is a solid near-term low and that a rally will occur to protect that low for awhile. On chart 3, I looked at the two major price resistance areas, one at a 38.2% retracement and one near the 50% retracement (the 0.50 line is obscured a bit). It is possible that it could rally all the way back to a 61.8% retracement, but since there is considerable price resistance at those two levels, I decided to work on what would be the two worse case scenario of a stalled out rally, which typically happens with these kinds of patterns. They are NOT perfect Gartley patterns, but they still show up a lot. If there is price symmetry  (A to B equaling C to D) in the decline after the stall out, the 0.382 retrace would lead to a target low (D1) of roughly 35.40 and the 0.50 retracement would produce a target low  (D2) of roughly 38.25.  Those would be drops from the momentum high of 55.19 of 35.9%(D1) and 30.7% (D2) respectively. That is not nearly as extreme as some of the Hang Seng Index drops of the mid-1990s (which I shorted via put warrants), but it would be severe if it happened. Is it going to happen? Who knows, but if that scenario of resistance followed by correction is symmetrical, then it is decently likely at this point.

In China and in the US, margin debt in equities is at extreme levels, as shown in this chart I received from Larry Pesavento while writing this post. There are other antecedent conditions that could lead to sell offs brewing, but, as Mr. Shiller stated, until something substantially moves the risk free rate of money above zero basically, the asset value of equities can and will increase.

At any rate, we need to be clear about what we are holding long and why, and not just holding on for the sheer fun of it. Fun can turn nasty pretty quickly when the combination of margin and fear mix.

More is coming! Thank you once again for supporting this blog!

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Cartoon from Article In New York Times Regarding The Coming “Robot Apocalypse” To Be Referenced In This Post

Out of the 20000 stocks sorted, only HUM (Humana, Inc.) made the list and with better than acceptable statistics. There are 2 reasons that I will not trade it as a swing trade, nor should you:

1) Humana’s price: Friday, June 19, 2015 close was 202.31. The vast majority of you out there cannot buy a large enough chunk of that to make a tremendous amount of money in that trade.

2) I would avoid Humana and most health care providers and health insurance companies as swing trades (despite recent merger activity) until we see the results of rulings by the United States Supreme Court on subsidies for state exchanges under the Patient Protection And Affordable Care Act are passed down. I personally think there is a bit too much news speculation in the very short run to make a long swing trade the smart thing to do. There will be other opportunities to do so once all this news settles out.

I will continue to track what we have as I figure out how to transition this blog into an authority format (which is ongoing). Despite the delays, the video will be going up soon along with the survey.

Lets spend just a moment looking at a monthly chart of the $SPX. While studying the financial news and financial social media, I have seen the $SPX (Standard and Poor’s 500 Stock Index) referred to as the “mildly bullish roller coaster of death” (there’s a visual) to a most undervalued index with tons of growth potential. I decided to create a Fib reatracement model (again without the “air traffic control screens” to show the interaction of Fibonacci level confluence). I will get to that later as we go down the road. Take a look at this chart, basically unedited. Notice how at the top right of the chart, you can see the near record or new record levels we are at now, and the fact that there is a triple confluence of Fibonacci levels converging there. Typically, you need four closing in at very tight points, which we do not have yet. We do though have a 161.8% extension level of the last upswing from the 2009 lows being put in. That is, at least, cause to be worried that we might be in for some kind of significant correction. It will likely not be the death knell that I saw in Bitcoin awhile back, but it does give pause to at least think about the possibility that a key inflection point is nearing.

I am going to stop beating the drum about extended historical valuation levels (as you can search this blog and others to find my warnings on that topic). There are also others who consider the market to be in clear sailing mode, as you can see from Greg Harmon’s blog. I began to exit many equity markets in 2012, and by the end of 2013, I had exited all of my energy stocks, as I felt they too were extended beyond what could be seen as a healthy value, even with the dividend yield. I did similarly with bond and bond funds that remained, as I felt that the tightening cycle would one day appear, and that I did not want to ride that train into the gulch once the dynamite of higher interest rates, mandated by U.S. Federal Reserve action, blew up the bond bridge, sending my train into the depths below. I made alternative investments going forward, as well as income producing real estate with a large potential for gain over time, as well as land.

Was I completely right? No, but I feel I have done decently well. Should you ride out the equity roller coaster and be long only come hell or high water until the end of time? Probably not. I think the answer that would determine these things are held in your age, your income circumstances, and your tolerance for risk. I will be 60 years old this year, so I have to begin to think about balancing out risk. I think for someone like me, doing that is important, because we are at an extreme in the interest rate progression (with low or basically zero interest rates) and the fact that in the future, at least until we can get through another 15 year cycle, there will likely be more net redemptions in U.S. equities than purchases, as retirees take their money and collect income, by various means. If you are under 40, you certainly have more time and you can afford to put money in places that will provide good return. Even for you of that age, however, I think it is important to understand real equity value relative to earnings growth, sales, and cash flow. We are likely not that far away from another bubble, created by some sort of exogenous event, likely regional or world war in my opinion. It could come from any number of economic dislocations, however, as even now China is worried about its own debt problems, and may join the world in one way or another in its own version of quantitative easing. Their move would be one of the largest participations in the “race to zero” for world currency valuations, and that ultimately creates another source of bubbles whose final outcomes are the unintended consequences of ignorance of free market action. Young investors are likely going to have to be more open-minded, world-focused, and flexible. It may also mean that they might have to risk further exposure to private capital markets as world governments begin to potentially overegulate public capital markets and destroy their competitiveness.

There’s a lot of dystopian fear-mongering going on in the U.S. and world press as well. Some think that we are close to another mass species extinction. While I think that forecast is bordering on psychotic, there is a real fear that the speed of technological change will ultimately replace humans with robots. While I do worry that the forces of fascism and technology are converging rather rapidly to quell human freedom and ease of innovation, I think there are some reasons not to be worried. In fact for young people, now is the time to prepare to be on the rising tide of technology. That is the subject of these two articles ( here and here). I think that investing will begin to take on a more hybrid structure as we go into the future. Even Warren Buffett is beginning to explore the private equity markets, as he is beginning to find it hard to see true value in equities.

Young people will have to explore entrepreneurial ventures in much the same way as their great-grandparents did during and after the Great Depression. College will not just become a dirty word for many, it will become an overpriced word for many more, and these young people will rely on their own intellect and their guts to find projects that will lead to greater long-term opportunity. Just buying a mutual fund and waiting may not enough for millennials to survive until just past mid-century (2050). Those vehicles might not even exist, or may be so convoluted by regulation that they might not be viable. That grouping might also include exchange traded funds (ETFS) in the future too.

What those articles did not discuss is the very fact that I believe that private industry can and MUST take the lead in space exploration. Governments are too interested in buying votes for power and bloating Byzantine bureaucracies to get us where we need to go. If we do see some kind of Malthusian disaster, some people may want to go into space eventually to terraform distant planets and start new lives. I think that is a very real possibility as we move closer to 2050. If we don’t blow each other to bits on this planet, I think that is going to be the greatest opportunity for the next three or four generations. We will figure out how to travel great distances, handle harsh environments,  and make new opportunities that did not exist previously. Private industry and individual effort will make that possible.

My turn and our generations’ turn at the wheel is about over. The next generational wave will inevitably have to lead the way out of the mess that exists worldwide today. There is one thing for certain, however. One cannot sit on one’s ass playing video games and make that happen. Some of the coming stresses of change will bring forth another group of people who will take those problems head-on. As bad as things seem to be at the moment, you have no choice really. If you are alive, you have to persevere and participate in the growth. Be awake, be aware, and be ready to get into the action as activity and growth changes direction. We have had these dystopian nightmares in every century. We need to put down the nightmares, and begin to dream again. Some of that will require putting the digital device down, and turning on the brain. It will happen when the time is right, I think.

I will get more into other indexes and markets as time goes on. Check your portfolios to make certain you are not holding something that is not past its shelf-life in terms of value while markets move sideways. Its not time to panic yet, but it is probably time to prune.

As always, thanks one and all for supporting this blog!

 

 

 

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Apple Pay Cartoon from News Cloud Productions for Amazon News

 FULL DISCLOSURE: I am NOT currently a shareholder of PAY, but I do have a private investment that relates to patentable aspects of Apple Pay that is NOT a public company, and which could ultimately NOT benefit from that patentable aspect. PAY’s earnings will not benefit me directly one way or the other. I do want to make sure I point that out. The selections made here are based on computer models and not my personal whims. I just call them as my computers and I see them.

There was a cartoon showing a member of ISIS accepting Apple Pay, but I REALLY didn’t want to go there. At least I got a late jab at Halloween 2014 (or early jab, if an uninitiated reader is early for Halloween 2015). I would do my own cartoons, but then you would have to use Apple Pay before READING this blog. After all, we bloggers are all starving artists, you know.

As I am in the midst of a couple of projects (including one home improvement project), I will make this post short and sweet. I will summarize what has gone on in this blog since the end of March, good bad or indifferent, later in the week, including the stop out on JBLU, which did bounce back, but, if one is rules based, one was nonetheless stopped out. Wishful thinking only leads to larger losses, which is why stops should ALWAYS be used in swing trading.

Here is a list of Friday’s survivors:

L G Display,         LPL,   xN, Electronic (Misc Products)
Micron Tech,       MU,    xO, Electronic (Semicndtr Mfg)
Arris Grp,            ARRS, xO, Telecomm (Equipment)
New Residential, NRZ    xN, REIT (Mortgage)
Delta Air Lines,   DAL,   xN,  Transportation (Airlines)

Amer Axle,           AXL,   xN,  Auto & Truck (OEM)
Verifone Hldgs,    PAY,   xN,  Business Svc (Misc)
NXP Semi,            NXPI, xO,  Electronic (Semicndtr Mfg)
Chicago B&I,CBI,xN,Building (Heavy Constr)
Ross Stores,ROST,xO,Retail (Apparel)
Vodafone GpADR,VOD,xO,Telecomm (Cellular)
Coach Inc,COH,xN,Retail (Apparel)
Luby’s Inc,LUB,xN,Food (Restaurant)
JP MoganAlerian,AMJ,xN,ETFs (Sector\Energy)
Alerian MLP,AMLP,xN,ETFs (Sector\Energy)
Ares Capital,ARCC,xO,Market (ClsdEndFndsDom)
Spdr BarCap,SCPB,xN,ETFs (FixedInc\Treasury)
iShr Silver,SLV,xA,ETFs (Commdty)\Futures)
Boardwalk Pipe,BWP,xN,Petroleum (Prod\Pipeline)
Mead Johnson,MJN,xN,Food (Prepared)
GoPro Inc,GPRO,xO,Electronic (Misc Products)
Plains AllAmer,PAA,xN,Petroleum (Prod\Pipeline)
Duke Energy,DUK,xN,Utility (Electric)
Senior Housing,SNH,xN,REIT (Equity)
GrubHub Inc,GRUB,xN,Internet (Svc Provider)
Momo Inc,MOMO,xO,Business Svc (Misc)
Gen’l GrthPpty,GGP,xN,REIT (Equity)
On Deck Captl,ONDK,xN,Financial (Savings&Loan)
Pandora,P,xN,Internet (Software),Internet
Kinder Morgan,KMI,xN,Petroleum (Prod\Pipeline)
Range Res,RRC,xN,Petroleum (U S Explr\Prod)
Yelp Inc,YELP,xN,Business Svc (Printing)

CBI almost made it, but was lacking volume. After value, momentum, volume, and price pattern screens were finished, the neural nets only liked one name, and it is somewhat of a wounded duck with a lot of future potential. Verifone Holding, Inc. made the final cut.  The profit factor was 3.83/1 for swing longs, with 83.3% of the trades being winners. The one slightly lacking factor was that average wins were 0.63 the size of average losses. The Beta (as compared to the $SPX) is 1.82 (meaning it is 82% MORE volatile that the S&P 500 index), so the ride could be a bronco ride.

The negatives ( basically 5+ months of money losing quarters) are summarized in a Wall Street Journal article. The good to positive news was that Verifone Holdings Inc. (PAY) made a little money and beat street estimates in Q2 2015. Verifone Holdings is indeed a play on the retail expansion of Apple Pay, a collaboration with Visa Holdings to expand Apply Pay and Android Pay into China and other overseas markets, as well as to expand store rewards via the Apple Pay app. There are a lot of moving parts to this story, but the stock reacted by swinging higher on a truly rotten trading day for bulls on Friday, June 12, 2015 on volume that exceeded 150% of its 50 -day simple moving average of shares traded. That tends to ring a bell with the neural net models, and in this case, it seems to like the set up. For a summary of potential growth (and yes, I know it comes from Seeking Alpha, but at least the data is summarized nicely), read this article. There is considerable controversy over what gets published there ( as many contributors are paid), but if I can find relatively generic content that does not amount to total fan-boy (or fan-girl) bloviation, I will reference it.

If (and I think, despite performance and prospects), $PAY can hit the numbers in that most recent article above, there is considerable chance that it could tag out somewhere between $39/share and $43/share. If $PAY screws up, it could get nasty, but with all the balls in the air seeming to bounce its way for the moment, (and price patterns tending to agree with that bounce). It does seem feasible. Lets look at this chart to see if we can get a bead on an immediate price target in that 5 to 15 trading day trading window.

To summarize the targets (and I can elaborate later in another post)

Target 1: 38.08 roughly, but I would accept a penny below the round $38.00 level at $37.99 to get a fill.

Target 2: $39.25

Target 3: $40.15

Can PAY go higher? It could, but remember everything has to work perfectly for that to happen. In the current world trade environment (and market environment), anything can happen. If you look at this IBD chart, you can see that the volume did pick up on June 12.2015, and that the price is attempting to hit support on a rising set of price moving averages.

With the general U.S. market in a bit of a sloppy mode between banging against old highs and then slumping listlessly into the summer season, we might see more volatility that could shake long positions like the one we recently saw with JBLU. That is one reason why so few positions pass the screens, and why I personally will remain cautious until liquidity and volume return to U.S. equities. A purchase at or below 36.64 is likely the best entry point, with a stop a penny below the low at 35.20 (35.19, which is not a round figure, probably works best). That makes this trade a slightly riskier than normal entry, but it is consistent with price structure.There are no guarantees of a winner, but the conditions seem right on any general market uptick.

That is all for this week’s reversal report. As I see things, I will make some brief postings. We are still running sideways in a rather confused but slightly bullish-biased market. This is NOT the time to be going to Vegas. It is time to look for the best set ups you can find and to manage the risks of any position, whether it is a swing trade or a long-term position trade. Make sure that if you have long-term profits, that you either find a way to protect them, or to take those profits in as tax-efficient manner as possible. U. S. equities in general are not cheap by longer-term historical methods, but there are places where those equities are cheaper or more expensive by sector than other stocks. Be mindful of that as you progress into the fall. In cases of extreme valuation, it is never a bad idea to sell too soon. You can always wait for the next bargain to come along, if you do your homework.

Thank you one and all for continuing to support this blog!

 

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A piece of sculpted Steuben glass from Post Online Media

 

Note: For full disclosure, I am an former Corning employee, but I am neither a hapless fan boy nor am I a current shareholder of Corning stock. My stock screens (fundamental, technical, and neural net) found this name and a few others that hit the top of my lists this past Friday evening.  As you know, I am not a purveyor of crap (commonly repeated attributions of profit), most of which are not profitable because they are based on random tips. This research, good or bad, is based on a consistent application of screens that I have used for nearly 15 years now, combined with about 30 years of overall experience. There is NO guarantee of profitability implied, only a relentless effort to find good technical, fundamental, and momentum values for stocks to hold long for at least 5 to 15 trading days. Though these are bullish set-ups, I am neither bull nor bear, I am just a Buffalo.

Here is a list of this weeks screening survivors:

Raytheon         RTN    xN 2619318 Aerospace & Defense (Mfrs) Aerospace & Defense
Fidelity NatInf FIS    xN 1599317 Business Svc (Misc) Business Svc
Paychex Inc     PAYX xO 2454385 Business Svc (Misc) Business Svc
Biomarin Phr  BMRN xO 1013159 Drug (Biomedical\Genetic) Drug
Catalent Inc    CTLT  xN 1443668 Drug (Biomedical\Genetic) Drug
Medivation     MDVN xO 1305460 Drug (Biomedical\Genetic) Drug
Corning Inc     GLW    xN 8753586 Electronic (Misc Products) Electronic
Fairchild Semi FCS     xO 1097018 Electronic (Semicndtr Mfg) Electronic
iShr GSInvst    LQD    xA 5547971 ETFs (FixedInc\Other) ETFs
JP MoganAler  AMJ    xN 1776758 ETFs (Sector\Energy) ETFs
Sony Corp.        SNE    xN 1389931 Home (Audio\Video Prods) Home
Bitauto Hldg     BITA   xN 2835045 Internet (E:Commerce) Internet
Joy Global Inc  JOY     xN 1469355 Machinery (Const\Mining) Machinery
Terex Corp       TEX     xN 1169341 Machinery (Const\Mining) Machinery
Pitney Bowes    PBI      xN 1347774 Office (Equip\Automation) Office
MeadWestvaco  MWV xN 1246130 Paper Paper
Rock-Tenn ClA  RKT   xN 1538994 Paper Paper
Lorillard Inc       LO      xN 4730512 Personal (Tobacco) Personal
Chevron Corp     CVX    xN 6023877 Petroleum (Intl Integrted) Petroleum
Enterprise Ptr    EPD    xN 2858695 Petroleum (Prod\Pipeline) Petroleum
Kinder Morgan   KMI   xN 12092161 Petroleum (Prod\Pipeline) Petroleum
HollyFrontier      HFC   xN 2563829 Petroleum (Refining\Mktg) Petroleum
Marathon Oil      MRO   xN 5321674 Petroleum (Refining\Mktg) Petroleum
Tesoro Petrol      TSO    xN 1612504 Petroleum (Refining\Mktg) Petroleum
Valero Energy     VLO   xN 5262965 Petroleum (Refining\Mktg) Petroleum
Western Rfng     WNR   xN 1008221 Petroleum (Refining\Mktg) Petroleum
Devon Energy     DVN   xN 2740467 Petroleum (U S Explr\Prod) Petroleum
Cheniere Engy    LNG    xA 3974166 Petroleum (U S Explr\Prod) Petroleum
Computer Assoc  CA       xO 2739483 Software (Business) Software
O G E Energy    OGE      xN 1152285 Utility (Electric) Utility
ONEOK Inc        OKE     xN 4608627 Utility (Gas) Utility

Volume is recorded in shares traded on Friday June 5, 2015

x means the stock is optionable

Trading in U.S. equities and stock index futures has been as treacherous as trying to row a kayak in the vortex implied by that Steuben glass piece shown at the top of this post in the last month. As you can see, we still have a lot of petroleum exploration and production names appearing on the list. This week however, biotech drugs and electronic components have made a rumbling. When value and fundamental screens were applied to the technical screens, we had three final qualifiers, WNR, GLW, and CTLT.

The value play among these three happens to be CTLT.   Because the stock has such a short trading history, there are not enough trades to apply against the trading statistics, and for the purposes of swing trading this model, CTLT has to be put aside. I WOULD keep this one on a watch list. Catalent is a developer and marketer of drug delivery systems. The stock has a projected earnings/share growth over the next year that should approach 40%. No guarantees that this could happen, but the company finishes a secondary offering on June 8, 2015 priced at $29, and that has not harmed the current stock price, which closed at $29.61 on Friday, June 5, 2015.

WNR does not quite possess the statistics required by the neural net based Fibonacci pattern model to be traded either. As oil prices continue to struggle with the $60/barrel level, I think there will be time for this name to provide additional swing trade opportunities as time goes on. Many of the names in that list above will also, which is why the screens will continue to look for them over time.

So what about GLW (Corning Glass Works)? Statistics fall just below the acceptable level, (1.62/1 Profit Factor, 58% winners, versus the minimum standard 1.60/1 60% winners standard, though average win/average loss ratio is 1.42, which is strong).  Corning appears poised to see improved earnings from their involvement in 4K high definition TV screens and optical fiber to the home sales. With 2 billion in net cash, GLW could buy back shares. When  one considers that near term (next 12 -18 month) earnings growth could approach 16% per annum, given its current price to earnings ratio of approximately 12.11 and a share price at 20.71, its not impossible to see a price on GLW approach 27.30 to perhaps 30.oo a share. That is not too shabby a return. Read this week’s Barron’s article for data on the prospects for GLW.

Why does the model not like the swing trade? Look at the daily chart and the corresponding weekly chart. Typically, you would like to see a bullish engulfing candle for a price bar on the momentum reversal somwhere around the 61.8% retracement of that last up-move (it stalled around the 50% retracement, and did not show a large price reversal). In my experience, it is best to wait for that to show up before initiating a trade.

Also, you would typically see a reversal very near that blue trend line you see on the weekly chart at a key retracement line that intersects the blue trend line. That would happen somewhere between 18.48 and 19.80 per share. Yes, that is a WIDE range, but it is important to understand that the statistics on the model will likely improve dramatically when support is tested, and that if a volume reversal hits with a bullish engulfing candle AND at an important retracement level, the criteria for a trade with 70%+ likelihood of success will have been met. I am willing to WAIT for that to happen.

Once again this week, we have stocks that are close but not yet ready. I will continue to monitor them and keep looking for better entries. At least the companies pass the test on a multitude of fronts for a long trade, and those that do generally work. That reminds me!

Progress of CFG:

The neural net swing model fired a sell signal after Friday’s trade. It closed at 28.32. When that stock was recommended on March 30, 2015 at or below 24.50. If you still hold it, not adjusted for commission, you have about a 15.5% gain over that time. Now, it look a LOT LONGER than 5 to 15 trading days to get through the targets, but in this market, it is taking longer to get to target levels. The US equity markets seem to be pretty much in stall mode, even though in aggregate they continue to press to slightly higher highs on relatively light volume. Because screening out the nasty names in the list helps to reduce (though not TOTALLY ELIMINATE) risk, these kind of shorter term returns are possible.

Progress on JBLU:

20.49 was the close on Friday, only slightly higher than the 20.44 entry. The model still likes the position, but for now, momentum is a bit slack and little progress has been made since May 26 when this position was mentioned. I will continue to follow it and comment.

For the kind of method I use, the trades are a bit slow in coming at the moment. I am fine with that, as I will protect capital while waiting for the positions to arrive. I am eager to trade when conditions are right, but I am not eager to lose money otherwise :).

More is coming. Thank you for supporting this blog!

 

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The Three Stooges Via Boston Globe

Isn’t this cycle getting a little monotonous? Once again this week, a large plurality or majority of stocks in energy production and exploration showed up( 3 of the 6 that survived this week), and NOT ONE passed the neural net screening process. This reminds me a lot of the end of 2007 and beginning of 2008, when it seemed like we could not make new headway and the markets were topping out a bit. Regardless of that, the U.S. equity markets defy all gravity and continue to press to new highs even with some dramatic pullbacks after hitting them.

I cannot (and will not) publish names that will not pass the minimum screens, so there is nothing to trade this week. Of the 20000 stocks surveyed, only 6 made the first cut:

VNET  Internet Service Provider

WNR Petroleum Refining

ECA  Petroleum Exploration and Production

EC    International Energy Production

VIV  Telecom Services

TDC Computer Memory Devices

CCJ Uranium Mining

I would probably keep WNR ECA VIV and TDC on the watch list. WNR and ECA are dependent on the price of crude oil ( as NFX is). Until we get a line on what crude oil will really do in the next 6 to 12 months, I think these names are still toss-ups.

I really apologize for the dearth of names meeting the fundamental, technical, and neural net screens, but that is the nature of this market at present. I will continue to search and dig out the good stuff as it becomes available.

WHAT DO THE DOW TRANSPORTS AND THE DOW JONES INDUSTRIAL INDEX SEEM TO INDICATE ABOUT THE U.S. EQUITY MARKETS? An internet marketing expert chided me this past week for writing like an academic, but if you want to learn something, you need to READ IT AND STUDY IT. Here is a good discussion of Dow Theory . STUDY IT. What I am going to do is to pull back to a monthly chart basis, and then quickly discuss how what I see varies from typical Dow Theory. I will also try to explain WHY and WHY we might want to be a little more worried than we might be otherwise.  If I get more votes, I can go further into detail about it. You should AT LEAST be aware of it, as even though it is an often discredited “theory” created over a century ago, you would be absolutely amazed at the number of institutions that track this concept.

I had a couple of problems with data sources again this week, but being the intrepid redneck that I am, I pulled up ETF surrogate for the Dow Jones Industrial Index (DIA)  and an ETF surrogate for the Dow Jones Transportation Index (IYT). Both are monthly charts.  Notice that even though DIA is making new highs, IYT is NOT! Transports are not confirming new highs, and that should make perma-bulls at least a little nervous about the continuation of this multi-year rally from the quantitative easing (QE) instigated low of 2011.

Note that the gray dotted line only connects the two major lows in this last rally. For reasons I will not go into here (even though for full understanding, you need the Fibonacci retracements to understand why), we are likely to see that underlying trend line TESTED by a correction before we would begin to “soil our shorts” over a potential major break in the rally. That would give a potential correction in the Dow Jones Industrial Index ($INDU) below 16,000. That is not such a big deal in context, but, what IS different is that the Federal Reserve is out of bullets with short-term interest rates effectively at zero. There are other ways to shift assets on the Federal Reserves balance sheet, but it likely will not be all that effective.  We will have to observe what happens to GDP and consumer spending as this year progresses. Economic growth at below historical norms and wages stuck in neutral in the US for nearly two decades are not exactly belweather pre-conditions for a consumer led economic boom. There are lots of questions both domestically and internationally that have to be answered. The Eurozone is still in crisis over currency, solvency and austerity in public spending. Russia is rattling its sabers in Ukraine and the Baltics (not to mention Poland), and China is threatening military action. The Middle East is also not exactly vacation-land at the moment either. It is no longer easy to make logic-based forecasts when so much is up in the air. All one can do at the moment is to watch the precursor market actions that would signal change. What I demonstrated above is certainly one to watch, but maybe not quite yet time to panic over. Still, keep your eyes OPEN!

I got that discussion finished without too many words. Remember folks, even Moe Howard, the organizer of The Three Stooges, used the word “monotonous”. (Of course, he was purported to have an effective IQ of around 200 and had a perfect photographic memory, which is why Columbia Pictures president Harry Cohen was literally afraid to negotiate contracts with him.). Being stupid can be smart :). More is coming, and I will do additional scans over this week to see if anything else pops up in this messy market.

As always, thank you for supporting this blog!

 

 

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A brief note: I decided to save time today by attaching the charts to links like the old days. If you do not like that set up and want me to go back to posting the charts directly on the blog, please let me know at buffalotrader100@gmail.com. I am trying different ways to produce high quality with increased speed. I found a way to consolidate the list of survivors (which is why you see them all in a nice pretty column today).

Here is the quick look at the original list of screen survivors for Friday 5/22/2015. All these stocks trade at greater than 1 million shares/day, prices at or above $10/share, have positive momentum reversal characteristics on higher than its 50 day simple moving average of volume (reported as greater than or equal to 150% of that value, though there are a few reporting anomalies which might slightly be in disagreement with that). The close of that day is greater than the open, and there is a decent statistical expectancy that a variation of a 61.8% retracement of the previous swing from low to high on a daily chart has been met, followed by a reversal. The neural net models do a complete optimization of the swing pattern model it is based on, and it looks for highly probable statistical fits for the next run up. It is a proprietary model that I built using Ward Systems Inc. NeuroShell Day Trader Professional.

WNC Transportation/Equipment Mfg.
JBLU Transportation/Airline
TRMB Electronics/Telecom
KSS Retail Store
ANF Retail Apparel Maker/Marketer
URBN Retail Apparel Maker/Marketer
RYN Equity REIT
LINE Petroleum Exploration and Production
LNCO Petroleum Exploration and Production
NBL  Petroleum Exploration and Production
RICE Petroleum Exploration and Production
RRC Petroleum Exploration and Production
SN  Petroleum Exploration and Production
UPL Petroleum Exploration and Production
POST Food Processing (Grain/Sugar/Flour)
CME Brokers
VXX Specialty ETF
QLD Specialty Dividend ETF
XME Natural Resources ETF
FAS  Financial ETF
INVN Electronic Components
KEYS Electrical Equipment
HMC Auto/Truck Manufacturing

Note once again that US petroleum exploration and production names continue to pop up on this list. Today, non met the combined screen pass for value and for pattern statistics, so none get on that list. Some names are close and should be watched, in my opinion. Among them are UPL, WNC, POST, HMC, SN, KSS, URBN, and KEYS. Probably the best value on this list might well be UPL, but it probably bears watching as the price of oil stabilizes. It might take some time, but if that does happen, there are a lot of names including that one that may begin to present stronger and perhaps longer-term buying opportunities.

Let’s look at a chart of JBLU (JetBlue). A few things are noticeable:

1) Look at the consistent trend line that has existed since January  2015.

2) It just hit a new all-time high on May 19 ,2015.

When you see conditions like this with increasing volume at swing points, you tend to see extensions of new highs made. This stock for the balance of the year has been a real “buy the dips” kind of stock. The neural net statistics (Profit factor 2.56/1 and 66.7% with an average win/average loss ratio of 1.28/1, tends to verify that analysis. Does that mean that the next swing is a guaranteed winner? NO! What it does mean though is that we might expect this trend to continue given what we know about the company’s current earnings activity. That is:

1) The after tax cash flow enterprise value of this company is roughly $37 dollars. Its earning growth estimates for the coming year are anywhere from 20% to 29% per annum, given the fact that air travel is expected to improve for the balance of the summer, as apparently, according to industry estimates, lower gasoline taxes have put some additional money (for now) in the pockets of consumers, and those consumers are chosing to spend it rather than to save it.

2) If you accept 13.61 as the current price earnings ratio for JBLU and the 2015 earnings going forward would be 1.75/share versus 1.36/share from 2014, you get an earnings growth of 28.7%. If you divide that by the trailing PE currently (which is 13.39), you can use that reliable Peter Lynch price target mechanism and estimate that the stock could have a terminal price of $33.96/share sometime by the end of the year. What makes this a little dicey is that JBLU currently estimates zero real earnings growth in 2016, so the numbers need to be pretty solid going into the second half of the year, which seems at the moment to be the case. This could indeed change.

Compare this price target chart to the price target my model would provide. As you can see, we are well within those terminal price targets with the outside target being 23.56, which is a 17.6% potential gain over Friday’s closing price, EXCLUDING COMMISSIONS FOR THE TRADES TO BUY AND TO SELL.

I still believe this market does have risk to world events, goofy Euroland issues roiling institutions, ETFs,  and mutual funds, and a real question of whether we see a recession sometime in 2016, but for now, it would appear that buyers are going to chase certain transports. As long as the earnings seem predictable (as predictable as one can ever figure in the current US market envrionment), JBLU should be among those that will continue to be bought into that range I discussed above. I have a hard time seeing it getting that much above 33.96 (even by the end of the year), but at least there is some realistic potential that it could happen. If you were to try to position this, you would attempt to buy at or below the open price on Tuesday, with a stop just below 18.97. At the first target of 21.49, that creates a 1.37/1 reward to risk ratio, and if the second target is the goal, it ends up being a 2.23/1 reward to risk ratio. If you get the first target and decide to take partial profits, you would then move your stop to breakeven and allow the rest of the position to take a chance at the second target, and even the third target.

I am going to cut this post a bit short. The pickings with this methodology on a once a week basis have been slim of late, but I will do everything I can to squeeze out what I can find until we get strong established trends again. Remember that trading involves risk and you must take consideration of this before determining position size or even taking the trade at all. Thank you one and all for supporting this blog!

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