ADM

I'm not sure what the market will do for the remainder of the week, but I am sure that there are a lot of great looking longs out there.

I tried to find longs that were making new 52-week highs, as well as having constructive looking weekly and daily charts.

I recently added this stock, MV, shown below to my account. This addition, which replaces a freshly squeezed short, now makes my account about 50% long and 50% short. Therefore, I really have no bias to the up or down side of the market.




This stock appears to be making a quadruple top break out:

CREE

F

HGG

MFE

WPI

This stock has broken out of its box, and looks strong:

MV

This stock looks strong. Notice the new 52 week high:

WTNY

This stock looks weak. A break below $8.00 makes this stock highly shortable, in my opinion:

A Simple Forex Trend Following System

Over the past 4 years, I have opened 4 currency trading accounts with various brokers. My first 2 currency trading accounts imploded due to me not knowing what I was doing, the third account I broke even at (but closed it due to the sleep deprivation it caused), while the fourth account I have been trading actively since May.

In my opinion, currency trading seems to offer many advantages over stock trading, including:

• Very low commissions (about 20 cents per $1,000 of currency traded)
• No interest charged on margin
• Open 24 hours, 6 days a week
• Stops are almost always hit right on (very few gaps)
• Shorting is as easy as going long (no need to borrow stock)
• Easy order entry (a click of a mouse)
• Can earn interest on carry trades
• Basically unlimited liquidity

Despite these advantages, the vast majority of currency traders end up losing money. One major reason for this is due to the fact that currency trading is a zero sum game (actually a negative sum game when you include commissions). This means that there is no money generated by the Forex market; it is merely transferred from one account into another. It stands to reason, therefore, that every successful currency trader had to have drawn upon the capital of many more unsuccessful traders.

In order to stand a chance in this market, I have learned that you need to always trade with an edge, and always follow strict rules. Here are the rules that I now always follow before placing a new short trade (long rules are just flipped):

• On the daily chart, the currency pair must be below its 50dma (daily moving average)
• On the 60 minute chart, the currency must be below its 50ma
• On the 60 minute chart, the currency must be below its 200ma
• On the 60 minute chart, the 50ma must be below the 200ma

After the position is initiated, it is closed once it crosses the 50ma on the 60 minute chart.

So, basically, I am attempting to following the trend (no surprise there). Here is an example of a trade that worked out using these rules. The chart below shows a daily chart of the USD/CAD pair:


In the above daily chart, I am just looking to see if the currency pair is above or below its 50dma. In this case, the pair is below, so I now know that only shorts can be taken. Longs are never initiated if the daily chart is below its 50dma.

Having established the daily trend, I now zoom in and look at the 60 minute chart. The chart below is a 60 minute chart of the USD/CAD pair:




As the above chart shows, this pair was in a strong downtrend for the past few days, and met all of the rules mentioned above. I held on to this trade for as long as it remained below its 50ma.

To be fair, the majority of my trades to not work out this well, and, like any trend following system, there are whipsaws. In fact, probably about 70% of my trades are losers, but, on occasion, I am able to surf some truly massive waves, which tend to pay for the losing trades and then some.

Follow @ChartingTrends

Canadian Dollar ETF (FXC)

I did these trades this week:

• Covered FULT (hard stop hit)
• Covered ELY (second lot only, original position still being held)
• Bought IVN
• Sold IVN (hard stop hit)
• Shorted NPBC (added to existing position)

I went into this week being almost entirely short, so the fact that the market rose every day this week was not beneficial. I lost less than 10% of my account equity this week, which is actually very surprising considering that:

• I am about 90% short
• I am fully margin (3:1)
• The general market rose over 7% for the week

And most of the money I did lose was actually on the long side with IVN. This stock spiked down 16% on Thursday on some unfavorable news.

All this means that my shorts must have done very well (at least on a relative basis). For example, for the week:

• CEPH +.41%
• ELY -.20%
• NPBC +.24%
• HANS +3.19%
  

This is why, when I go short, I want to short the weakest stocks I can possibly find. This way, even if the market does rise, stocks that are technically weak will (hopefully) rise less than the market or even fall.



Anyway, here is an ETF that caught my eye this week:

West Timmins Mining (WTM.to)

Here is a stock taken from The Tischendorf Letter. The chart below shows that the stock is currently in a strong uptrend, which is evidenced by the alignment of all of the moving averages, and also by the numerous gaps up.

I may consider placing a buy stop around the $1.75 area, as I think a breakthrough there could be favourable.

Also, readers of this blog may notice that I rarely buy stocks under $5.00. The only reason this is true is because my broker requires more margin for such positions. To me, margin is a precious resource, and I dislike stocks that absorb excess amounts of it.

One advantage, however, of a lot of these low priced Canadian stocks is that they are uncorrelated with the general market. For example, if the Dow drops 300 points on Monday, this stock may not necessary fall. This is a major advantage, in my opinion, and another reason why I would like to have this stocks as a part of my mix.

Anyway, regardless of whether the stock is $1.00 or $1000.00, the rules apply just the same. A purchase of this stock would have me place a stop at 2x the ATR below the price of execution (so about 28 cents below entry in all likelihood). I would, like always, have no profit target, and only sell if the stock broke its 50dma, or the hard stop was hit, whichever came first.

Skywork Solutions Inc. (SWKS)

Here is a stock that has just made a new 52 week high. Stocks like this provide me with 'ammunition' in the event that the market rallies, and shorts are stopped out.

Associated Banc-Corp (ASBC)

This stock has recently made a new 26 week low. A break below $10.00 would really prove to me that the bears are in control:

ROST

I lost quite a bit of money with yesterdays rally. Although most of my shorts rose, none were stopped out. As I am writing this, the market opens in 20 minutes, and any strength at the open will likely stop out at least one position. If this happens, I will replace stopped out shorts with one of the following longs.

Unfortunately, it appears that I may be in the process of getting whipsawed. This is likely due to a temporary stalemate currently underway between the bulls and the bears. Once this resolves, I will hopefully start making money again.

Trend followers can make money just as easily in up or down markets, but sideways, choppy markets can be tough.

HA

This stock is making a new 26 week high:

PRE.to

VSEA

CEPH

I did these trades this week:

• Sold EWA
• Shorted HANS
• Sold OCN
• Shorted CEPH (see below)

As I suggested last week, the market fell this week, and more longs were stopped out. OCN was stopped out for a 24% profit, while EWA only for about 1%.

I am only selling my longs because they are breaching their 50 day moving averages. I am not selling them because I believe the market is going to decline. I do not know if the market is going to decline.

• If the market does rise, then some of my shorts may get whipsawed, and I will have to replace them with longs (see previous posts for today).
• If the market falls, then I will simply add to my existing shorts

I shorted this stock on Friday. I shorted it because it is currently in a downtrend:

IVN

LPL

SEH

ARMH

TRW

TSCO

PARD

Hansen Natural Corp. (HANS)

A new stock came up in my 26 week low scan today, and it is a stock I have mentioned on this site before. On May 30, I got rid of my long position in HANS, and mentioned that the stock was "seriously weak".

I originally bought HANS because it was in an uptrend at the time, and sold it several months later after it broke its 50 day moving average, signaling to me that the trend had come to an end. Since then, HANS has proceeded to break its 200dma as well, which now makes it a short candidate:

Callaway Golf Co. (ELY)

I did one trade this week:

• Shorted more ELY (see below)

The market continued to show weakness this week. In my trading account, my shorts are starting to flourish, while longs are barely getting by. If the market shows any additional weakness in the next few days, then my EWA position will almost certainly be cut, but since I am net short, this would be a desirable outcome.

It is also worth remembering that the US market is still in a long term downtrend. This fact is easy to forget after a 40% rally in the S&P. The chart below shows a weekly chart of the S&P 500 going back 4 years:



Here are some points that come to mind as a trend following trader when I look at this chart:

• The price is below the 50 week moving average (wma)
• The price is below the 200wma
• The 50wma is below the 200wma
• The 50wma is drifting lower
• The 200wma is drifting lower

The message of the above chart is unambiguous. The trend is down.

I also noticed this week, and this is visible in the above chart, that the low for the week was exactly equal to the close of the week. In other words, the weekly candle printed this week had absolutely no lower wick. In my experience, this has bearish implications more often than not, perhaps 6 or 7 times out of 10.

So, I would say that the odds slightly favour the downside next week, although I am completely open to the possibility of the market rising as well. All I can do is assess the trend, and place my bets on the side that has the higher probabilities.



Anyway, here is the stock I added to (on the short side). This stock has made a new all time low on Friday:

Cephalon Inc. (CEPH)

If I make money next week, I may decide to plow margin into this short. My thought pattern is as follows. Because I am net short, making money likely means the market is falling, and if the market is falling, then it only makes sense to go with the flow and continue shorting:

Synnex Corp. (SNX)

This stock is currently in an uptrend, and has made a new all time high. I will keep this stock in mind if the market rises again: