21 Jan
Blog

The Moving Average Sandwich

Here Is An Excerpt From FindLeadingStocks.com’s Intra-Week Update. If You Want To Buy Leading Stocks…EARLY.

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FLS Update:
All Eyes On The ECB

Holding Pattern Continues
Ahead of Thursday’s ECB Meeting

The U.S. stock market is holding up rather well as global markets continue trading all over the map and earnings are being released in droves. The fact that the market is not falling in and of itself is a subtle, yet important, bullish sign.  The next technical hurdle that the market faces is its 50 DMA line. It is very possible to see the market “bounce” into its 50DMA line then roll over and fall hard. That is typically the “norm” in downtrending /weak periods. In most cases, support (recent lows) resides just above the 200 DMA line… So clearly, the next move wins. [On a lighter note, this is an advanced technical pattern known as a moving average sandwich (joking)]
Therefore, ECB meeting (or enter latest headline of your choice) aside, the bulls want to see the market jump back above the 50 DMA line and continue moving higher. Clearly, it is very important to see how the market reacts to the ECB meeting tomorrow and more importantly where it closes on Friday (weekly close).

Outlook: Cautiously Bullish

Overall our stance has not changed- we remain cautiously bullish. We feel the market will move higher (mainly because of the central bank put) but know that this bull market is “aging” and there are many bearish signs emerging in the periphery.  Furthermore, if deflation gets out of control, or if the market stops reacting so well to all the interference from global central banks- then all bullish thoughts are removed from the equation.
SPX- Moving avg sandwich
Nasdaq - Moving avg sandwich Dow Jones-

15 Jan
Blog

The World Is Deflating…

I Feel Deflated

Deflation, What Is It? & Why Is It Important?

Deflation, Inflation & Disinflation- Defined

For the purposes of this article, the following definitions will be used:

  • Deflation occurs when asset prices fall considerably
  • Inflation occurs when asset prices increase
  • Disinflation occurs when the rate of inflation slows.

The World Is Deflating:

As a general guideline, economists and central bankers around the developed world want to see a rate of inflation around 2%. That is ideal and considered healthy in most developed economies. As of this writing (Jan 2015), the world is deflating, not inflating and that is not a healthy sign for Wall Street & Main Street.

Why Is Deflation Bad; The Deflationary Spiral

FindLeadingStocks.com members frequently ask me why is deflation bad? I am asked:
Isn’t it better if I pay less for food and energy? Why is it bad to see prices fall? So on and so forth…

“Deflation Begets More Deflation” – Adam Sarhan

In the short term, deflation may appear “good” for your wallet but if it persists, the ramifications are ominous. The primary reason is that deflation begets more deflation and pretty soon it morphs into a negative deflationary spiral that could cripple the general economy. Broad scale deflation is bad for the economy because the primary reason why deflation occurs is due to waning demand, which occurs when people spending less money. That, in turn, reduces money supply and credit and hurts the economy, earnings, incomes, and general economic growth. To sell their products, companies are “forced” to lower prices and that tends to lower earnings. In time, salaries are reduced, and people have less money to spend. All this causes more deflation which sparks a negative deflationary spiral.

Right Now, Deflation Is A Bigger Threat Than Inflation

Over the 12 months we have seen deflation spike as a slew of widely used asset prices are imploding. Right now, Metals (Gold, Silver, Copper), Energy (Crude Oil, Gasoline, Nat Gas), and Agriculture commodities (Soybeans, Corn, Wheat) are all in private bear markets and the prices are accelerating to the downside. This is not healthy action and something investors across the globe are watching closely. In the last six months, a lot of attention has been paid to imploding energy prices. The concern going forward is that eventually stock prices will be dragged lower if “deflation” continues or gets worse. This is something that central banks across the globe are watching closely and we are doing the same thing. Stay tuned, it is never a dull moment on Wall Street.

18 Dec
Blog

Here Comes Santa…Central Banks Save The Day- Again

Santa222What Is The Santa Claus Rally?

Here is how Wikipedia defines a A Santa Claus rally, “It is a rise in stock prices in the month of December, generally seen over the final week of trading prior to the new year. The rally is generally attributed to anticipation of the January effect, an injection of additional funds into the market, and to additional trades which must, for accounting and tax reasons, be completed by the end of the year. Another reason for the rally may be fund managers “window dressing” their holdings with stocks that have performed well. The Santa Claus rally is also known as the “December Effect” and was first recorded by Yale Hirsch in his Stock Traders Almanac in 1972.“

Easy Money Party Continues…For Now:

Easy money from global central banks has played a major role in sending stocks higher since the historic March 2009 bottom. The benchmark S&P 500 soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. QE 3 ended in October 2014 and stock continued to rally because the QE trade has evolved.  In a perfectly orchestrated chain of events- the moment the U.S. Federal Reserve ended QE 3, nearly every other major central bank in the world, stepped in and announced aggressive measures to flood the system with more liquidity.

Q4 2014 Central Bank Review: Hollywood Couldn’t Have Written A Better Script

It has been a VERY BUSY quarter for global central banks. The U.S. Fed ended QE 3 in October. Then almost instantly, we saw the Bank of Japan, The European Central Bank, and China’s Central Bank all step up and announce aggressive measures to join the easy money party. Not to be out done, Russia’s Central Bank and the Swiss Central bank both jumped in one week before Christmas and joined the “let’s distort the market” party. In the middle of December, Russia’s Central Bank held an emergency meeting and raised rates to 17%, up from 10.5% in an effort to stop the Ruble (Russian currency) from collapsing. That didn’t help because one day after the news, the Ruble plunged a whopping 23% in value! That is an enormous move for a currency! On Dec 18, the Swiss Central Bank said they will take rates into negative territory to help stimulate their lackluster economy.

The Central Bank Put Is Alive & Well

For now, all this interference is serving as a strong bullish fundamental backdrop for stocks and is now known as the Central Bank Put. The Central Bank Put suggests that global central banks will step up and “do whatever it takes” to stimulate both Main St & Wall Street. Global central banks are doing their best to “control” markets and that can only last for so long until the patient (global system) becomes numb to the medicine (easy money). History shows us that free-market forces always win, every time. Therefore, it is a matter of when, not if. We are hopeful, that all this interference will end well. But are cognizant of the fact that only time will tell.  The market deserves the bullish benefit of doubt until material damage occurs.

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11 Dec
Best Trading Tips, Blog, Psychological Analysis

Trading Math Part II – Don't Let Statistics Fool You

Risk - RewardsRisk vs. Reward

Last week I wrote an article titled Trading Math and received quite a bit of positive response from it. The article discussed the importance of keeping your losses small and letting your winners run. This week, I want to follow up with a brief introduction to risk and reward in capital markets. Put simply, every transaction on Wall Street presents a chance to both win and lose. In the simplest sense, successful traders make more money than they lose and unsuccessful traders do the opposite. The risk of the trade is the difference between your entry price and your exit price, if you are wrong. The reward of the trade is the difference between your exit and entry prices, when you exit with a profit.

How Unsuccessful Traders View Risk & Reward

Most people get caught up in the headlines and do not properly understand statistics, especially on Wall Street. For example, if someone tells you their win loss ratio is 90 to 10 (meaning they win 90% of the time and lose 10% of the time). At first blush you might consider that to be a very healthy win-loss ratio. But what if I told you that you can still lose money by winning 90% of the time and that ratio in and of itself has nothing to do with whether or not someone is a successful trader. The key is to understand Trading Math and look at the amount of money you win vs the amount of money you lose when wrong. The following exaggerated example will help illustrate this point:

Trader A: 90/10 Win rate

Trader A placed tend trades and won nine times and lost once. In this example, the trader won $1 for each winning trade (total won $9) and lost $10 when she was wrong (total lost $10). As you can see in this simple example, even though the trader had a 90% win rate, the trader still ended up losing money difference = negative $1). So clearly, the overall win-loss ratio is misleading and has nothing to do with the bottom line.  Let’s take a look at trader B

Trader B: 1/99 Win Rate

Trader B placed one hundred trades and only won one time and lost ninety-nine times. In this example, trader B lost $1 for every losing trade (total $99) and won $199 on her one winning trade. In this example, the trader ended up making money even though she lost 99% of the time!

How Successful Traders View Risk & Reward

Successful traders think in probabilities, not absolutes. They know that anything can happen on Wall Street and are prepared for any possible outcome, before they risk a penny. As we approach the end of the year (and quarter), I like to do an inventory of all my trades and study my actions, learn from my mistakes and see how I can improve my process. I also know that most (not all) successful traders have a win loss ratio of close to 40/60. Meaning they only win 40% of the time but end up making a lot of money because they cap their losses and let their winners run. I show FindLeadingStocks.com members exactly how to do this in real-time. Here’s to a VERY strong 2015!
 

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04 Dec
Best Trading Tips, Blog, Psychological Analysis

Wall Street Math: Rethink Your Numbers

Trading MathHow To Limit Your Losses

There is an old maxim on Wall Street that says successful traders limit their losses and let their winners run. Simple enough, right? But knowing how to actually do that consistently is not easy. Why? Because it is counter-intuitive in nature and goes against what comes “natural” for most people.

How Unsuccessful Traders Use Fear & Greed

As a quick refresher, the two most dominate emotions that drive markets across the globe are fear and greed. They are the one constant throughout history and will always be present in the markets for the rest of time. Remember, markets take on the personalities of their participants and the way the basic emotional triggers work is that when someone buys a stock at 30 and it goes to 33 they are fearful that they will lose their profits and quickly sell to lock in the gain. Conversely, if they buy a stock at 30 and it falls to 25 they become greedy and hope that it will go back up so they can get out and break-even. Another psychological layer comes into play at this point because for most unsuccessful people they believe that selling for a loss means they are “wrong” and that hurts their ego.

How Successful Traders Use Fear & Greed

One common trait found among successful traders is that they operate with the notion that markets are counter-intuitive in nature and learn how to consciously remove their emotions from their investment “decisions.” This process allows them to cut their losses and let their winners run.  In the above example, the successful trader will do the opposite- hold on to their winner and cut their loser quickly. The successful trader always has an exit plan before they buy a stock. This way they know (ahead of time) where they are going to get out if the market moves against them and how much they are going to lose, if wrong. They also know that profits are a function of time and that they learn how to be patient with their winners and impatient with their losers. Once you realize that taking small losses is inevitable you can plan for them and no longer take it personally when you are stopped out for a small loss. Instead, it becomes a cost to doing business.

Trading Math

Another important fact that supports this notion is the concept of simple mathematics (see table above). It is infinitely easier to recover from a small loss than it is to recover from a large loss. The numbers below do an excellent job illustrating this important and often overlooked concept.

Creat A Plan, Then Trade Your Plan

So, next time you want to buy a stock – ask yourself, where will I exit if wrong and how much am I going to lose. This simple, yet often overlooked, step will help you take small losses because once you have a plan, all you have to do is trade your plan. If you want to see how I do it, I show FindLeadingStocks.com members my process by giving them exact buy and sell signals in real-time so they always know exactly where to get in and where to get out before the market even opens. Then all they have to do is trade the plan.
 

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19 Nov
Best Trading Tips, Blog

How To Create Your Own Mutual Fund

ETFIntro To ETF’s

Whether you are a long-term investor or an active trader- every buy or sell decision you make in the market begins with an idea. Do you think this stock is under-valued? Do you think this is a growth stock? Is the economy going to expand or contract over the next 6-12 months? Does this stock have an exciting new product that is “in-demand?” Do you think gold will be higher or lower in the next 12 months? Will energy prices be higher or lower next quarter? Etc…etc…

Ideas Move  Markets

Make no mistake about it, the right idea in this business is priceless. The market thrives on ideas and the number one reason why most people under-perform the market is because they do not have access to the right ideas. Instead, they shoot from the hip, do not have a plan, then let their emotions take over every time the stock moves a few points in, or out, of their favor. There must be a better way….I  know making money on Wall Street is not easy (unless you have the right ideas) and that’s the exact reason why I created FindLeadingStocks.com. To help you succeed on Wall Street. In addition, to giving you exact entry and exit points in leading stocks, I also show members how to express investing ideas via Exchange Traded Funds (a.k.a. ETF’s).

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ETF’s Defined:

An Exchange-traded fund is a relatively new instrument that trades like a stock and has changed the way capital is being deployed on Wall Street. ETF’s, like stocks, come in all different shapes and sizes, but they all represent a way to profit from an “idea.” For example, let’s say you want to buy gold in your IRA (or normal trading account) but can’t buy physical bullion and don’t want to buy individual gold stocks. The easiest way to express that view would be to buy the GLD, which is a highly liquid ETF that tracks gold prices. The GLD reflects the price of gold and can be bought and sold instantly. Another investor might want to invest in biotech stocks. So they might buy the IBB, a highly liquid, and very popular, Biotech ETF. So on and so forth.

How To Find The “Right” ETF:

The latest studies show that there are over 1,500 ETFs on the market, and over 150 new ETF’s launching each year. This is why it is very important to pick the right ETF. The way that I use ETF’s is to start by asking myself what is my underlying investment idea? Do I want to own tech stocks? If so, then I will look at all the available tech ETF’s and then narrow my search down to the top 3 most liquid tech ETF’s. Then, I’m able to select the one that best expresses my underlying view. If they are all the same, I will usually choose the one that has the highest average volume (trades the most shares each day). This way I know I can comfortably get “in” or “out” anytime the market is open without a hassle.

Are ETF’s Expensive?

Are ETF’s expensive? The answer is no. According to ETF.com, the average U.S. equity mutual fund charges 1.42% in annual expenses and the average U.S. equity ETF only charges 0.53%. If you look closer, the vast majority of ETF money is being invested with an average fee of only 0.40%. That is a huge difference.

Create Your Own Mutual Fund

Another benefit I find when investing in ETF’s is that I can use them to easily create my own custom mutual fund. Meaning, I can buy (or sell) a basket of highly liquid ETF’s, and/or individual stocks, that allows me to very easily create a mutual fund (but at a fraction of the cost). I show FindLeadingStocks.com members exactly how to do this and incorporate ETF’s into our investment toolbox each week. If you want to learn more, why don’t you try FindLeadingStocks?

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06 Nov
Blog, Psychological Analysis

How To Let Your Money Work For You

How To Let Your Money Work For You

Money is a highly emotional and sensitive topic for most people. That’s why most people have a hard time consistently making money on Wall Street (primarily because they are making emotional, not rational, decisions).

Money Work For You

Two Schools Of Thought:

Work For Your Money Or Have Your Money Work For You

There are two primary schools of thought when it comes to making money: either work for your money or have your money work for you. Most people are conditioned to blindly do the former and stumble, or outright ignore, the latter. The conventional wisdom that society teaches is for you to play it “safe,” get a job, put in the time, get a paycheck, save your money, work hard and your paychecks will grow as you climb the corporate ladder. Nowhere in that narrative does it suggest you have your money work for you. Invariably, people have to “learn” this important skill and that takes time, effort, and a lot of patience to learn how to properly implement it. The good news is that anyone can learn this important skill and through time can have their money work for them.

Profits Are A Function of Time

The first, and most important, step to have your money work for you is to change the way you think about money. Instead of thinking that you have to work for your money, start believing that your money can work for you. In order to actually have your money work for you, one of the most important facts for you to realize, is that profits are a function of time (in any business, not just on Wall Street). In that vein, patience is a critical component to actually having your money work for you. Sometimes, less is more and less activity can actually be better than over trading.

Change Your Thinking & Your Habits Will Change

Because most people are not aware that they have to reprogram their thinking, they end up doing the exact opposite of what is necessary to make big money in stocks. Successful people on Wall Street (regardless of their approach) let their profits run and cut their losses. Saying this and (knowing how to overcome your emotions) actually doing it are two very different skills. Most people cut their winners short because they are fearful that their profits will disappear (thus never capturing big gains). To make matters worse, the “work for your money mentality” causes them to engage in another harmful habit by letting their losses grow (because they want to get out at “break even” or they do not want to sell and admit they are wrong). For example, if you buy a stock at $50 and it goes up to $52 or $53 in a couple of days, most people will sell it and lock in the profit (because they are fearful that their profits will evaporate). Or if they buy it at $50 and it starts falling they hold on and “hope” that it will go back up and they can get out and break even. More often than not, the exact opposite happens (the stock that goes up keeps going up after you sold for a small gain and the stock that falls, keeps going down and your losses get out of hand).  That reminds me of the old Wall Street adage; Be fearful when others are greedy and greedy when others are fearful.

Your Money Can Work For You; If You Let It

The good news is that in today’s information-age there are many resources available for you to learn how to have your money work for you. We created FindLeadingStocks.com for anyone who wants to learn how to buy and sell leading stocks. The service is designed to teach you how to fish while giving you fish along the way. Each week we share our logic, show you how we are navigating the stock market, give you new trade setups (before they breakout), and give you exact entry and exit points in leading stocks as we add them to our model portfolio in real-time. For a little over $2/day- why wouldn’t you join?

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05 Nov
Blog

Market Intel: We Want To Hear From You…

What do you thinkDear Clients, Friends & Readers:

In the recent past, we have received quite a bit of inquiries about creating actionable educational content for you to use to enjoy better results in the market. To better serve you, we would like you to tell us:
1. What struggles are facing in the market?
2. What are your financial goals and biggest financial struggle?
3. What are three topics you would like to learn more about?
4. What frustrates you about your experience with Wall Street?
5. What are your top three investing/trading strengths and top three weaknesses?
6. How long have you been investing? How do you best describe your trading style?
Please email your answers to: info[at]FindLeadingStocks[dot]com
Kind regards,
Research Desk
FindLeadingStocks.com
PS: We are putting the final touches on our first options course and will let you know when it is ready. Stay tuned!
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