Nisource Inc. (NI)

Some of my short positions fell this week, like, for example, DOW which was down 19.12% and VIP which was down 8.97%. This has had the effect of making my portfolio overexposed to the long side, so on Monday I will re-balance by shorting one of the following three stocks:

What to short: NI

How much to short: 344 shares (based on a hypothetical $10,000 portfolio and risking 3% on the trade)

Current Price: $9.68

When to cover at a loss: Based on the stocks volatility, my method says to place a buy stop at $10.55

When to cover at a profit: After a close above the 50dma


(Like all my posts, this post is for informational and record keeping purposes. It is not a recommendation to buy or sell any security)

International Paper Co. (IP)

What to short: IP

How much to short: 169 shares (based on a hypothetical $10,000 portfolio and risking 3% on the trade)

Current Price: $9.12

When to cover at a loss: Based on the stocks volatility, my method says to place a buy stop at $10.88

When to cover at a profit: After a close above the 50dma


(Like all my posts, this post is for informational and record keeping purposes. It is not a recommendation to buy or sell any security)

CNH Global (CNH)

What to short: CNH

How much to short: 104 shares (based on a hypothetical $10,000 portfolio and risking 3% on the trade)

Current Price: $8.01

When to cover at a loss: Based on the stocks volatility, my method says to place a buy stop at $10.89

When to cover at a profit: After a close above the 50dma


(Like all my posts, this post is for informational and record keeping purposes. It is not a recommendation to buy or sell any security)

Uranium Participation Corp. (U.to)

This week's fund is called the Uranium Participation Corp. According to the official website, this fund is designed to:

invest substantially all of its assets in uranium, either in the form of uranium oxide in concentrates or uranium hexafluoride, with the primary investment objective of achieving appreciation in the value of its uranium holdings. The objective of the Corporation is to provide an investment alternative for investors interested in holding uranium.

In other words, this fund will rise if the price of Uranium rises, and vice versa. One thing that I've noticed with the price of Uranium, is that it is very uncorrelated to most other markets. For example, if the Dow declines 400 points tomorrow, this fund could actually rise, which means that it can add diversification to a typical stock only portfolio:

As you can tell from the above chart, the price of Uranium has not been exceptionally strong. However, if you take this fund and compare it to the CRB commodity index, you can see that Uranium is nevertheless outperforming most other commodities:



Personally, I would not buy or short sell this fund at this time. The 50dma is trading below the 200dma, which is indicative of a long term bearish trend. However, the fund is now trading above its 50dma, which is indicative of short term bullish trend. Put another way, this chart is giving off mixed messages, which is fine, since there are hundreds of other ETFs for me to chose from.

CONMED Corp. (CNMD)

What to short: CNMD

How much to short: 150 shares (based on a hypothetical $10,000 portfolio and risking 3% on the trade)

Current Price: $15.36

When to cover at a loss: Based on the stocks volatility, my method says to place a buy stop at $17.34

When to cover at a profit: After a close above the 50dma

Michael Covel on Riding Winners

One key rule when it comes to trend following trading is that you've got to let your winners run. This means that you stay with a trade for as long as the trend is in your favour, and you only get out once the trend comes to an end.

This goes against the market adage, "bulls make money, bears make money, but hogs get slaughtered." Although this cliche may sound reasonable, it is not what top traders do. Richard Dennis, a trend following trader who reportedly made over $200 million in the commodity pits of Chicago in the 1980's, was quoted as saying:

...many people would make incredibly bad trades just to take a profit. They would get out even though the market was locked limit-up and almost sure to go up the next day. They could not stand the profits burning a hole in their pocket. I would try to get in when they were getting out.

Trend Following (Updated Edition): Learn to Make Millions in Up or Down Markets

Hansen Natural Corp. (HANS)

Today's stock is a potential long candidate. Although we are in a full fledged bear market, it is still important to have both long and short side diversification to help offset losses that result from strong snap back rallies (like we saw in late November):



This stock is not really close to making a 52 week high, but I like it anyway, thanks to its strong relative strength:


What to buy: HANS

How much to buy: 62 shares based on a hypothetical $10,000 portfolio

Current Price: $32.96

When to sell at a loss: After a close below the 50dma

When to sell at a profit: After a close below the 50dma


(This is not a recommendation to buy or sell any security )

PowerShares DB Agriculture Fund

One common characteristic of all successful trend following traders is that they maintain extremely diversified portfolios to help them manage risk. Exchange Traded Funds offer the average investor easy access to new investment areas that simply did not exist before. One such example is the following ETF, ticker symbol DBA, that follows corn, wheat, soybeans, and sugar:


The concept of diversification is not new, but, unfortunately is still misunderstood. Many investors think that they are diversified, when in actuality they are not. For example, the average Jim Cramer type investor might have a portfolio that consists the following top 5 holdings:

Long Apple
Long General Electric
Long McDonald's
Long Bank of America
Long Conoco Phillips

In the above hypothetical example, there is some diversification to be sure, but nonetheless the entire portfolio is 100% long, 100% in stocks, and 100% American. This means that if the market tanks, the above portfolio will almost certainly tank as well.

On the other hand, here are 5 holdings that I have in my own personal trading account:

Long Gold
Short Natural Gas
Long Metro Inc (MRU.A on the Toronto Stock Exchange)
Short Vimpel Communications
Short Dow Chemical

As you can see, I am long commodities, short commodities, long stocks, and short stocks. This is a much stronger portfolio, and is better able to absorb large market fluctuations. With the above mentioned ETF, an investor can add diversification to their stock portfolio, since the price of grains probably exhibits little correlation to, say, the price of Apple stock. Furthermore, ETFs can also allow investors to explore bonds, interest rates, and currencies, but more on that later.


(This is not a recommendation to buy or sell this ETF. It is for informational purposes only)

Vimpel Communications (VIP)

The scanner I used to identify this stock simply looks for stocks making 52 week lows. With the S&P 500 down over 5% today, my scanner was able to isolate numerous examples. When a stock is making a 52 week low, it is usually reasonable to assume that it is in a downtrend, and, thus, ripe for shorting.

Incidentally, when I first began trading, I used to look to buy stocks that were making 52 week lows, thinking that I was picking up companies at a "discount." After all, I thought, to make money in the market, one must "buy low, and sell high." I later realized that what comes to mind instinctively is often the worst thing you can do when it comes to trading. The hectomillionaire commodity trader Richard Dennis summed up this fact when he was quoted as saying, "If it feels good, don't do it!"

What to short: VIP

How much to short: 170 shares (based on a hypothetical $10,000 portfolio and risking 3% on the trade)

Current Price: $5.99

When to cover at a loss: Based on the stocks volatility, my method says to place a buy stop at $7.75

When to cover at a profit: After a close above the 50dma

Aqua America Inc. (WTR)

Here is a long candidate that was recently identified by one of my scans. I do not know what product or service this company provides, and I do not need to know. This stock is trading above its 200 and 50 day moving averages, which is rare to see in this type of market. This indicates to me that this company must be doing something right:


The next chart shows the same stock divided by the S&P 500. As the chart rises, it is telling you that this stock is rising more quickly than the market, or falling more slowly. This is what you want to see if you are long a stock.



What to buy: WTR

How much to buy: 125 shares based on a hypothetical $10,000 portfolio

When to sell at a loss: After a close below the 200dma

When to sell at a profit: After a close below the 200dma


(The sell rules are different from previous post due to this stock being a long candidate)

Atlas Pipeline Holdings (AHD)

Out of the many thousands of stocks to chose from, my scanner has identified the following stock as a potential short candidate:

What to short: AHD

How much to short: 166 shares (based on a hypothetical $10,000 portfolio and risking 3% on the trade)

When to cover at a loss: Based on the stocks volatility, my method says to place a buy stop at $5.20

When to cover at a profit: After a close above the 50dma

Mechel Steel Group (MTL)

Out of the many thousands of stocks to chose from, my scanner has identified the following stock as a potential short candidate:



What to short: MTL

How much to short: 258 shares (based on a hypothetical $10,000 portfolio and risking 3% on the trade)

When to cover at a loss: Based on the stocks volatility, my method says to place a buy stop at $4.43

When to cover at a profit: After a close above the 50dma