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Chief Strategies

AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

Longer Term Strategy

Background

Stocks have recovered since 2008, but the US economy lags that recovery. The Obama stimulus (2009) and the Tax compromise (2010/2011) have both stimulated the economy and stocks.  A very significant factor  is the Fed Bank lowering interest rates to almost zero and introducing massive amounts of quantitative easing.

QE 1 & QE 2 (Jan. 2011) flooded the economy with liquidity and is a significant factor in stocks recovering.

Changes in Fundamentals & Technicals

  • Mantra #1 – Until it no longer works - still endorsing the concept that the Fed POMO [schedule] is and will be the key factor in keeping a longer term rally going. Another term for this is quantitative easing or QE #2. The $600 billion in QE may have a much bigger impact over time when it is thought of in terms of  leveraging.
  • Mantra #2 -60+% of the volume on US stock exchange is soaked up by High Frequency Trades (HFT’s) chasing imbalances in trades and using algorithms. This means less than 40% of volume is made up or real or valuation investors. A financial elite through not only HFT’s, but also Central Banks, Sovereign Wealth funds, Hedge Funds are the real market movers. Simple value investors, technical traders who remain in stock markets are manipulate by these entities.
  • You can NOT compare, use many technical tools, or historic data to evaluate this market because it is being manipulated by the programed trades of HFT and others mentioned  above.
  • Central banks, especially our Fed are major market manipulators. Often,like QE#1 &2 they succeeded in moving stocks higher (obviously not the only factor, but a very significant one)
  • QE 2 ended June 30. Two Major question is Will there be a QE #3? How will the Fed and other central banks manipulate the European and American economic problems?
  • The elite Kleptocracy that governs the US  uses the threat of the crash the world’s economic system to get what it wants. This threat was probably very real in 2008. However, no regulations on the too big to fail banks and mega international companies leaves us with the same destructive system.

Therefore, the stock outlook fundamentally & technically has remained CAUTIOUSLY BULLISH or NEUTRAL for this year (May 20th downgrade to NEUTRAL) Stimulated by a tsunami of Fed liquidity, a 0% interest rate, no financial reforms and virtually no regulatory cops on Wall Street

The High Frequency Traders, the too big to fail companies, and manipulating central banks, have created  far different market dynamics than the past. The potential of a building economic bubble obviously still exists in the financial sector

Quantitative Easing Chart

Shows Fed POMO program (QE 1 & 2) Relationship to rising stock prices

This chart was done by Kevin McCElroy from Seeking Alpha.

The Fed and other allied central banks seem to be manipulating bond rates in Europe by buying distressed bonds (through proxies). This added liquidity has stabilized markets (statement made Mid Dec.)


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Tools & Concepts

KISS – Keep It Simple Stupid - Investors411 uses some basic formulas that change if they are no longer effective. Investors seeks to educate YOU in the use of sound technical techniques and often offers resources for more in depth technical analysis. We try to keep it simple.

Buy the DipsTechnically, Investors411 seeks to buy the dip in a sector/country/commodity/stock that is trending positively. Basically if the 50 Day Moving Average is trending higher that’s a positive trend. The 200 & 17 DMA are also used along with some more sophisticated measures. See below for some examples.

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McClellan Oscillator

Our #1 technical forecasting tool

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$NYMO (6 month chart link)

$NYMO (2 year chart link)

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The NY Stock Exchange McClellan (EOD) Index  (MO) – measures how much the NYSE is oversold or overbought . There are many others overbought/oversold indicators used, but this has worked EXTREMELY WELL for us so we  are staying with it.

  • Oversold conditions = ( @-30 moderately oversold, -60 oversold, -90 OMG oversold) = buy
  • Overbought positions (@+ +30 moderately overbought, +60 overbought, +80 OMG overbought) = sell

The higher or lower the better our chances of making money by buying or selling or a reversal. Markets simply runout of buyers when they get  over extended in either direction. There is no 100% clear buy or sell signal.  +80 or – 90. – The OMG levels are best, especially if you are more conservative. So its best to use these numbers as guideline.

The MO is used to gauge overall condition of American stock indexes. It can also be read like any basic chart. Example a series of higher high and higher lows on chart shows a rising (bullish) MO.

  • Almost always since the Spring 2009 rally (we had a higher MO and now quick reversal as markets moved higher) The getting close/to/or above the OMG levels has almost always meant at least a 5% reversal within a week to a month.
  • Obviously, another signal to get out of a long term position is when the MO gets near or over +80 (OMG Overbought)

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For tutorial on how to use MO

LINK. ChartFilter.com

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Caution – Investors411 uses Stockchart’s MO data

and this site has different data, but the principles are the same.

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Buy/Sell Strategy Outlined

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A Rough Outline

The basic strategy is to buy the dip  of a trending market. – Sell into the rally or go short if market is moving down.

Most crucial to this is our MO chart. Start buying when the MO dips to @-60 and add to positions if the MO goes lower. If the MO reaches +60 you either sell if still holding a position or short stocks (use puts or ETF’s that short stocks) This situation (@+/- 60) has occurred a bit less than once a month over last two years

+/- @80 is a better starting point for more conservative investors.

Other suggested considerations

Depending on what you invest in and if your a longer term investor or a shorter trader – Buy, hold or sell examples –

  • Shorter term traders – Sell 1/2 after 5% to 10% gain and can let the rest ride and become a longer term investment or until the MO approaches +60 to +80. Obviously after gains you can also use something like a 3% to 5% trailing stop.
  • Shorter term traders – Your Stock Lists – may be more suitable for your investment style
  • Shorter term Investors – Should use Puts and Calls to leverage risk. Also a “protection” option for longer term investors in bad markets.
  • Longer term Investors – Should also consider Investors411 long term outlook. If is NEUTRAL or above with a lower rather than higher MO, your chances of success are better
  • Longer Term Investors – More likely to use Dividend stocks/ETF, but can use YSL’s.
  • When using MO – It is better to use ETF’s that track the major indexes (example S&P 500) rather than more volatile individual stocks.
  • When using MO - A general 5% rule – The market will move 5% in the predicted direction far more often than the other directions.
  • All - Determine when to get out in advance – Never hold onto a stock that’s tanking =  loss of 5 to 10% should be a big sell signal unless you have some kind of protection (example – a put)

ALL OF THE ABOVE DOES NOT WORK 100% OF THE TIME. HOWEVER THIS (Especially the MO) HAS WORKED THE VAST MAJORITY OF THE TIME OVER THE LAST FEW YEARS. (Obviously unseen fundamental factors can obliterate any gains quickly – so be careful)

Comment’s Section

Investors411 has a very informative comments section (stocks,trends & politics) and often some excellent trading strategies appear there – Examples -

The Critic:

When to Buy

“#1 The Lower the McClellan goes the better time it is to buy stocks.
#2
YOUR Stock List (see Positions section for more on YSL #1,#2, & #3)  has stocks moving higher – The 50 day moving average is going up. This is the blue line on the chart.
#3 the time to buy is when these stock dip back down closer to their 50 day moving average.
#4 A time to sell is when the stock gets too high above that moving average?”

Paul R:

“When a good quality stock pauses to refresh and hangs out on the 50 day moving average (DMA) it can be a good time to buy, this point is known as “Free Parking”. If you are watching a stock in this situation and it starts moving up on higher than normal volume go for it!

When a stock is extended 30% from the 50 DMA be light on your toes. When the stock is extended 50% from the 50 DMA have your finger on the trigger. When a stock is extended 100% from the 200 DMA many institutional buyers (mutual funds etc) will lighten up on their position.”


3D Trading

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Investors411 utilizes 3D trading

to determine overall market trends

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  • First Dimension  -  Standard Technical Analysis  - A primer on technical analysis can be found at Stockcharts.com Because Central Banks, Sovereign wealth funds, Hedge funds, Investment Banks, High Frequency Traders dominate and manipulate markets volume has become distorted. Example =  Increased volume has historically been one of the best confirmation factors behind a higher price move.  Now US markets can sustain a move higher on pathetic volume
  • Second Dimension – Fundamental analysis – Currently this is first a study of the market manipulators – The Fed, High Frequency Traders, and other major entities that attempt to manipulate economics and markets. Obviously standard fundamentals also apply.
  • Third dimension – Inter market analysis - as taught by John Murphy Examples (note – these are subject to change.)

  1. Currency – Basically - Dollar up = US stocks down & Dollar down = US Stocks up. Any daily dollar move over +/- 0.50% is significant.  A multi year chart of the US dollar of the US dollar
  2. Commodities –  usually move with stocks. Oil, one of the most significant commodities, moves in one direction and stock will usually follow.
  3. Bonds – Bond yields are now inversely correlated with stocks. Right now (Dec 2011) the Italian 10 year bond rate is very significant. & is the rate at which other European countries were forced into control bankruptcies. US equities go down as we get closer to 7% and up as we get further away.


AS ALWAYS DO YOUR OWN RESEARCH BEFORE INVESTING

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