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AN EXCELLENT LESSON FROM DENNIS GARTMAN

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Posted by Dennis Gartman via Victor Adair

on Wednesday, 30 May 2012 02:32

THIS WAS BAD ADVICE: A well known hedge fund manager… who shall remain anonymous for we see no reason in making more enemies than we already have on The Street… was short of the Netflix last year, selling it at prices above $200/share. One would think that this hedge fund manager would be ecstatic about what has happened to Netflix since but one would be wrong, for this gentleman covered his short position at or near $250/share, losing a great deal of money, all the more sad given that NFLX is now trading nearer to $75/share and has been rather obviously bearishly in the news of late. (written October 2011 - Ed)

What do we find sad about this manager’s position and his advice given earlier this week in an interview with The Wall Street Journal? We find it sad that the manager said that in retrospect he should have believed his own analysis; should have remained short and should have added to his losing position as the price moved above $250/share rather than covering. This is nonsense; this is bad trading of the worst kind and this is the sort of thing that the public really must needs avoid. Having had the stock move against him from $200 to $250, the market was shouting at this manager that he was wrong and badly so. Adding to a losing trade is the only sure way to eventual failure in this business of trading. Ask Nick Leeson, or ask the boys at Long Term Capital Management… they’ll tell you.

There was plenty of time as NFLX began to falter to have been short of this stock, and indeed, it was a much better short at $175 and was
falling than at $250 and rising, for at least when it was falling one who was bearish had the bearish wind at his back. ‘tis always better to trade that way than to be heroic and try to find the top… which one never, ever can anyway. Ask us; we know!

To this we add our own story, for we were short several thousand shares of NFLX a month or so ago in our own personal account and got the benefit of the first $35/share plunge. What did we do? We handled this poorly, covering that day because that seemed like an excessive… an egregious… over-extension to the downside. How wrong we were, however, as NFLX stock has fallen another $45/share from that level and we are out and have missed that plunge. Our error was almost as ill- advised as was that of the hedge fund manager noted above; indeed, in many respects it is worse, for our trade was never behind; it was profitable from the outset. We should have sat tight and we should have added to the trade. Live then and learn. Live then and very much learn.

Dennis Gartman



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Personal Finance

Think Less

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Posted by Tyler Bollhorn StockScores

on Monday, 28 May 2012 08:15

'

You cannot expect to do well in the market if you look at investing in a normal way. By definition, being average is doing what most other people do and since investing is largely a psychological game, doing what other people do is only natural. Average results come from normal people acting in normal ways.

To beat the market, you have to be different.

Not necessarily in a straight jacket bouncing off padded walls different, just a little off.

Here are 10 things that may help you be a better investor, some ways to think differently from the crowd in that pursuit to achieve market dominance.

1. Do not think about making money, think about losing money - the first step toward success is accepting that losing is part of trading. You will not be right all of the time, you cannot always trade your way out of a bad situation. There will be times when you simply have to walk away with a loss. The key is to keeping the losses small and manageable. When the market proves you wrong, take the loss.

2. Do not think you can average down to win - it is a logical idea, add more to a losing position with the expectation that the market must eventually go your way. Many times this strategy will work but, when it does not work, the loss may be insurmountable. The market does not eventually have to go your way.

3. Do not think that your success is entitled - you may make a great trade, pick a really great stock and have a feeling like you really have the market figured out. Forget your gloating, no one ever has the market figured out. We must always remember that we have to work as smart for the next trade as we did for the last.

4. Do not think that talent is required - making money in any trading endeavor is a small part technical skill and a big part emotional management. Learn to limit losses, let winners run and be selective with what you trade. Emotional mastery is more important than stock picking skill.

5. Do not think that you can tell the market what to do - the market does not care about you, it does not know that you want to make a profit. You are the slave, the market is your master. Be obedient and do what the market tells you to.

6. Do not think you are competing against other traders - trading success comes to those who overcome themselves, it is you and your persistent desire to break trading rules that is the ultimate adversary. What others are doing is of little consequence, only you can react to the market and achieve your success.

7. Do not think that Fear and Greed can ever be positive - in life, fear can keep us from harm, greed can give us the motivation to work hard. In the market, these two emotional forces will lead to losses. If your decisions are governed by either or both you will most certainly find that your money escapes you.

8. Do not think you will remember everything you learn - every trade provides a lesson, some valuable education on what to do and what not to do. However, it is likely that your lessons will contradict one another and lead you to forget many of them. Write down the knowledge that you accumulate, return to this trading journal so that you can retain some value from the lessons taught by the market. Remember, the market is cruel, it gives the test first and the lesson after.

9. Do not think that being right will lead to profits - you may be exactly right about what the fundamentals are and what they are worth. However, timing is everything, if your expectations for the future are ill timed, you may find yourself losing more than you can tolerate. Remember, the market can be wrong longer than you can be liquid.

10. Do not think you can overcome the laws of probability - traders tend to be gamblers when they face a loss and risk averse when the have a potential for gain. They would rather lock in a sure profit and gamble against a probable loss even if the expected value of doing so is irrational. Trading is a probability game, each decision should be made on the basis of the best expected value and not what feels best.


The market ended the week in wait and see mode. With the US markets closed on Monday for the Memorial Day holiday, trading action on Friday was light. Traders want to see what happens with Europe, and specifically Greece, before making a commitment with capital.

This overhang for potential breakdown is hanging over the market, increasing the action in the VIX. Trade set ups on the VXX have been working well lately and I think it is the place to play next week. Ironically, the VIX has gone in to a narrow range without a lot of volatility. However, with the trend up, the potential for a break to the upside on the VIX is significant. Watch the VXX ETF next week for a break from this low volatility pattern. A break to the upside indicates fear is increasing again and we could see a good trend to the upside.

I am not comfortable owning stocks right now, it is best to wait for the market to show an opinion. Right now, investors are cautious about what is happening in Greece. Until the world gets some visibility, it is best to only short term trade stocks that are trading abnormally, moving on their own story. Last week we had a number of Biotech stocks making those kind of moves, watch this area as well.

1. VXX
The VXX is in a very narrow range, a break from this range should telegraph where it goes and tell us a lot about what is happening in Greece. An up break is a sign of weakness for the market. A down break means the market is finding some stability and likely to recover from the recent selling pressure.

vxx

References

 

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    Disclaimer
    This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don't consider buying or selling any stock without conducting your own due diligence.


 




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Personal Finance

IMPORTANT --- Dow Theory Confirmation

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Posted by Richard Russell - Dow Theory Letters

on Sunday, 27 May 2012 12:56

On this Memorial Day Long Weekend Richard Russell has declared a Dow Theory Non-Confirmation and a Primary Bear Market.  He notes that the D-J industrial Average high of 13,279.32 on May 1, 2012 was not confirmed by the Transports, then when the two averages turned down and broke below their April lows "This action confirmed that a primary bear market is in progress -- it was a textbook bear signal."

Russell further thinks that the Bear Signal indicates that Greece will leave the Euro, then Spain, then whole Eurozone will likely crumble. Also that although Gold will probably be under pressure or awhile, a major bull market/move is to follow. 

what-is-a-bear-market-definition



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Personal Finance

Big Trouble Ahead

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Posted by Marting Armstrong - Armstrong Economics

on Wednesday, 23 May 2012 06:42

"They are coming to take your money away Ho Ho, Hee Hee, Hum Hum!"

I have been warning that government is getting VERY aggressive all because of the Sovereign Debt Crisis. I have warned that this problem CANNOT be solved in the manner in which they are pursuing – taxing everyone & everything. They are about to destroy the economy and we are headed toward a major period of authoritarianism. There is a steady flow of bills being introduced in Washington that are design to eliminate the Constitution all to save the Bureaucracy. They are going to make DWI a federal offense. Sure, drunk drivers are dangerous. The question becomes what is drunk? When there is money involved and profit for government, do not be foolish to really think they are doing anything for society. The kill switch on the Internet is to cut off the free press and to eliminate the right to assemble since they saw how the Arab youth used social media to organize their revolutions.  

Now on January 1st, 2013, the US government will be requiring everyone to have direct deposit for Social Security checks and pensions. Why? Well guess what.  There is another bill HR 4646 that will impose a 1% tax on ALL transactions in a bank account. This is not income. This is money flow - a 1% tax on all bank transactions which will include paychecks, retirement checks and Social Security checks. That will even include a 1% tax on your refund check from the IRS. They want direct deposit and eliminate “paper money” to enable them to now tax your cash flow regardless if you make money or not.  This bill was introduced by Representative Chaka Fattah (D-PA). They will tax everything before REFORM because this is all about retaining power. The next target 2016 is looking very grim indeed. Forget the gold standard. They want everything electronic and eliminate cash!

....read more about the Sovereign Debt Crisis by Martin Armstrong HERE

sovereign debt crisis countriesindangerzone



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Global Insights - May 13th

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Posted by Kevin Konar

on Monday, 14 May 2012 14:05

Kevin Konar

»» Most equity markets traded lower for the second-straight week. European risks dominated investors’ attention.

»» For Greece, an "orderly exit" from the Eurozone is like an oxymoron (page 2).

»» While we’ve been quite cautious about Europe for a long time, some perspective is in order. (page 3)

»» Global Roundup: Updates from the U.S., Canada, Europe, and Asia. (pages 3-4)

Click Here to read the complete analysis



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