----------------t---------------------------------------------------------------------------A few additional notes...
Today the market got absolutely decimated. This is why I spent the week focusing on the meeting of the Fed... it was holding up the market, especially the financials. Now add in RIMM and ORCL and you have a storm. Some people were talking about buying on "capitualation" on the message boards. I think we will have a bounce after this selling but capitulation? Maybe when we fall through 11,000. Before this is all said and done (over the longer term)I think we'll find ourselves closer to 9,000... but I have no crystal ball and that will not happen all at once. Even then certain stocks and sectors will still be winners. Money has to flow somewhere, even though a lot will be taken out of the market altogether. An example of a good place to be today... gold stocks.
The technicals showing the evening star on UYG and the RSI+bounce from upper bollinger on POT at 140 are the kind of edge that will really help going forward. The charts are still below... just a reminder to make them bigger click on the charts...
BTW I sold POT because I sell in this market when 50% of profits on a given stock is given up, give or take. Usually I allow much less but with POT I gave it more flexibility. I like to limit losses and keep gains... while still keeping some flexibility so profits run... And it is always possible to re-enter after re-examining the situation.
Just wanted to be clear on this... also if I had watched the charts I would have sold some at 140.
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I listened to the CC because I think this is a great great company. And they can have a big effect on the Naz.
First though I want to talk about the overall market action. Now that I have seen more from the Fed's comments I realize that they really may be leaning towards fighting inflation... at least in rhetoric... This is very bad for banking stocks! Notice how the UYG ended up giving back almost all of its gains before close? Had I been able to seen more on the reports I may have shorted UYG just like I said I would on the last post if the Fed emphasized inflation over economy.
We are now close to where we were on the Dow and SP before the FOMC catalyst... which is just above bottom support at 11740 area on the Dow, a bit above the 1275 key area on the SP. The leading sector may now come under pressure because of the reaction to RIMM earnings (more later). So this is one dangerous market right now. Still, support is innocent until proven otherwise so it is time to watch carefully the markets right now.
Ok my thoughts on RIMM... Margin pressure was the theme of the call and the greater CAPEX than expected. What I heard was a company absolutely in the zone and needing to spend to capture large gains in international growth in the second part of the year. Margin compression is bad when it is due to competition, not necessarily when it is due to technological RD and development growth.
Cmon... a tech company without RD is in big trouble. RIMM sounded very very good to me. This is more about the overall market and the fact that the stock has run from 100 to 140 in such a short time. Any hint of weakness could be construed as negative. Also... if international growth slows and the company is not able to sell as much as it predicts this winter we may have a problem with so much CAPEX.
My overall take... I see a great company in a very solid position but in a market that is very nervous right now. Also the stock has run up a ton. In fact, where would the market be if not for the recent run-ups in AAPL, RIMM, etc? We'd be depending almost entirely on commodity stocks and even they may start to slow (have a bit... but was this just rotation into other names for the FED bounce and now we get a return to the safe bets?) Can't trust AH... wait til 10/ 10:30 to see what the big boys do. If the stock goes down we are looking at a potential move to the 50 or even the lower Bollinger band of 128.
I am now in 100% cash. I have a rule to never give up more than 50% profits on a stock in a market like this... today the 50% threshold was reached... and the charts may indicate a move back to the 50SMA... and if the key support fails watch out below. However, POT is at RSI 50... a turning point often for a strong stock. If it bounces off and we get rotation back into fertilizers I will jump right back in... with stops... This is a traders' market if ever I have seen one...
Tomorrow I may short QLD... I am looking at DUG again as well possibly, and shorting UYG...etc. I don't see much upside here in the near term in the markets. Either a trading range, with tests of the lows, or a fall through lows.. Science (probability) and history say... watch out here... especially if you are long financials...
Some Charts and final points:
As I mentioned I have a background in chemistry and I got into the markets really by looking at fundamentals such as PEG ratios and DCF calculations. I like to be able to calculate and make tangible what I am doing. However, it became clear that this would not work entirely in this market. It is my nature to want to learn when I do not know. So I have turned heavily to sites like investopedia and Fool CAPS etc, but this was still not enough so I started reading and learning.
This approach is not for everyone but it has always worked well for me. If it works for you great... if not then do what is right for you. My learning style is to to learn the text, then see it applied in the real situation, then improve upon it.
Let me show you exactly what I am talking about. I have read a bunch on technical analysis and now am also looking at candlestick and other chart patterns. In a trading world dominated by computers it is really important for me to have a basic grasp of things... And it may really pay off...
Take a look at this chart of UYG. In the beginning of May there was a clear Evening Star type formation (not exactly a star but very close)... a very very strong reversal indicator. Had I known then what I do now I would have shorted UYG or bought SKF and layered in as the move continued, with stops. It's as clear on this chart as a reflection off of profound azule waters of Crater Lake...
Now again... I was not looking at the charts as I fell into the trap of entirely trusting POT because of fundamentals. But this is a traders' market and I should have known better than not to check regularly on my charts... Take a look at the clear bounce off of the upper Bollinger band and the reversal from overbought RSI at the same time... a perfect sell indicator. I almost sold on the bounce to 136 and had I looked at the charts I would have. As for now we have a bounce off of the middle Bollinger and the RSI 50 potentially setting up...
but looking at past history POT usually goes down near the 50 when it corrects (see chart) so I expect this but will get back in with stops if it bounces.
This kind of knowledge I believe will be invaluable to going forward. I hope to combine the power of my scientific base, the use of fundamentals, and what I learn from reading and doing in the market to continue to improve. Hopefully I can share my thoughts, successes, and failures, on here and possibly also help with those who feel they can also benefit from the text typed on this blog...
Always learning, always trying to improve, always trying to sharpen the samurai sword... Best, Jon
This blog is for informational purposes only. It does not give investment advice.
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