A money losing week for me this week, but the market is still in an uptrend and my stops were not hit, so nothing has changed.
The grains ETF that I bought 2 weeks ago has proven to be quite weak and has quickly become my biggest loser. The good news is that the ETF did find support along a major gap, which in my years of market observation, happens more often than random chance would suggest.
The chart below is a weekly chart of GRU, an ETF that follows the price of corn, wheat, soybeans and soybean oil:
While the support is holding at the moment, I do not know if it will hold in the future. Despite this uncertainty, my decision is simple: either my stop will get hit or it will not.
Anyway, since the market is still in an uptrend, I will be adding a new long position next week. Here are some stocks that are at new highs:
The stock above is not at an all time high, but is at a new multi-year high.
Next, the stock above is explosively rising on tremendous volume.
Notice the gaps and new high on this one above.
The ETF above, ZSL, is an ultra short silver ETF. Notice that the ETF is making new all time lows while the underlying commodity, silver, is not even close to making new all time highs.
I quickly went over a couple hundred stock candidates this morning and here are 3 that are in uptrends, are displaying positive relative strength and have, what I consider, to be favourable chart patterns:
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The market's uptrend continued this week. Following my rules, some positions were liquidated and these closed trades have been recorded in a spreadsheet that is available in my links section.
I feel that it is very important to write down all closed trades for one's records. If not, traders will tend to remember their good trades and repress their bad trades from their memories. Because much can be learned from past mistakes, it is essential to record all trades for future review.
In addition to closing out a couple of stocks, I added to one position, my short of VXX, as shown by the chart below:
My stock trading strategy involves two components. The first component is buying stocks that are making new highs (buy high). The second, and equally important, component is shorting or selling stocks that are making new lows (sell low).
Anyway, here are three commodities that are going up this week:
Although rather illiquid for my tastes, I continue to like the ETF above that follows the price of Cocoa. Notice, too, that the 100 day moving average has just supplanted the 150 day moving average - a bullish development in my view.
Next up, we have a an ETF that follows the price of grains:
The ETF above provides exposure to three commodities that, individually, all look technically strong: corn, soybeans and wheat. Blended together, the resultant mix also looks strong, as logically one would expect. Other ETFs that are similar, but have somewhat different blends of agricultural commodities are: DBA, and RJA
Lastly, the price of crude oil is currently going up. An Ultra ETF that goes down when Crude goes up is SCO. Like all ultra ETFs, SCO is very good at eroding in value and is a short candiate only:
I recently finished reading a book called The Perfect Swarm by Len Fisher. After reading at least 150 books on the market, I now like to read books on a more diverse range of topics, but I often find that even these books can occasionally offer valuable insight into trading.
In The Perfect Swarm, Fisher shares the results of an interesting experiment which involved 2 groups of students, one from Germany and the other from America, to answer a simple question: Which city has a larger population, San Antonio or San Diego.
Seeing as how both cities are in the United States, one would expect that the American students would better be able to answer this question, as they knew more information about both cities than the German students. Surprisingly, though, 100% of the German students guessed the correct answer - San Diego - but only about two-thirds of the American students knew the answer.
How did the German students do so much better? The reason is that they simply had never heard of San Antonio, but they had heard of San Diego, so they naturally assumed that San Diego must be the larger city. Clearly, in this case, having less information resulted in a better outcome.
Another book that touches on this notion that less information is better is Blink, by Malcolm Gladwell, who, incidentally, graduated from the same high school as I did in the small mennonite town of Elmira, Ontario. Below is an excerpt from Gladwell's website:
One of the stories I tell in "Blink" is about the Emergency Room doctors at Cook County Hospital in Chicago. That's the big public hospital in Chicago, and a few years ago they changed the way they diagnosed heart attacks. They instructed their doctors to gather less information on their patients: they encouraged them to zero in on just a few critical pieces of information about patients suffering from chest pain--like blood pressure and the ECG--while ignoring everything else, like the patient's age and weight and medical history. And what happened? Cook County is now one of the best places in the United States at diagnosing chest pain.
The above example shows that looking at fewer variables has helped doctors save lives, but can the same concept help you become a better trader? Think for a moment at how many variables you could look at when deciding whether or not to buy a stock:
Earnings, balance sheets, income statements, dividend yield, P/E ratios...
Analyst opinions, expert forecasts, news announcements, sales, new products...
FOMC meetings, ECB meetings, employment reports, GDP numbers, the election, inflation numbers...
Just as doctors who looked at too many variables made poorer diagnoses, traders who look at all or most of these variables will likely make poor trading decisions. What has really helped me in my trading is to, like the doctors in Chicago, reduce the number of variables to four:
What is the trend of the general market: Up or Down
What is the trend of the stock in question: Up or Down
Is the stock in question making a new high: Yes or No
Is the stock showing positive relative strength: Yes or No
I would say, therefore, that I am (unashamedly) an uninformed trader. I'll end this post with a zinger from Nassim Taleb's book, The Bed of Procrustes:
With the general market itself making new all-time highs, there are a tonne of individual stocks doing the same. Below are 3 high potential stock candidates that have recently made new highs:
The stock above made a new high on Friday and is performing very strongly relative to the general market.
Next, we have a stock that gapped up last month and that is now finding support along that gap. I especially like to buy stocks that gap up to new highs, since the gap often acts as support in the event that the stock proves weaker than you had anticipated.
One of my holdings, PPG, is an example of how a gap offers a line of defense against unexpected weakness.
Finally, we have a stock, SNY, which I have not idea what product or service it provides, but looks good nonetheless.
Because I have half a dozen stocks on the line now and all of my cash has been deployed, I will not be buying any of these stocks. I believe that when you've got a full position on, and your positions remain in up-trends, there is not much required to do except wait, as the quote of the week suggests.
Last week, I mentioned that the price of silver was beginning to show some signs of strength. This strength intensified this week in the precious metals market as well as some agricultural markets.
Firstly, let's look at gold:
The daily chart of GLD goes back one year and shows that the yellow metal has been seriously under-performing the S&P 500 for the last 12 months. Recently, however, I am detecting some developing signs of strength in this market. Firstly, the short term trend has turned up - this is a good first start. Second, the long term trend (the blue "clouds"), although still down, is slowly starting to turn around. Lastly, Friday's price action was bullish, with a tall white candle forming as the bulls took control away from the bears.
I was planning on shorting ZSL on Monday, which was down over 7% this week, but my broker did not allow this. I did buy a gold stock instead, RGLD and I am just as satisfied with that.
Besides precious metals, agricultural commodities are really starting to catch my eye. The next chart shows an ETF that follows the price of cocoa:
This ETF's long term trend is slowly turning around and will likely enter a new bull market soon. The red area at the bottom of the chart shows the relative strength of cocoa versus the S&P 500 and is also showing some improvement.
Next, we have an ETF that follows the price of soy beans. Although the ETF is rather illiquid, the price action is clear: up
At Stockcharts.com, you can better view the price of soy beans by typing in $DJASY. A longer term chart using this symbol shows new multi-year highs being made.
Finally, we have a daily chart the price of wheat:
Unlike soy beans, this commodity is in an earlier stage of a bull market, as the long term trend only recently turned up. The bottom line though is that all of these commodities are looking strong.
An ETF that follows the price of wheat is ticker symbol WEAT.
As for me, I will not be buying any of these right now, as I have on half a dozen positions at the moment, which, according to my written rules, is the highest the number of positions I can have on at one time.
