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Fear or Fact, What Drives Your Trades & 3 Charts That Stand Out


Posted by Tyler Bollhorn - StockScores

on Tuesday, 15 August 2017 06:46

Screen Shot 2017-08-08 at 7.48.09 AM

In this week's issue:

  • Weekly Commentary
  • Strategy of the Week
  • Stocks That Meet The Featured Strategy

In This Week's Issue:

- New Stockscores website coming soon
- Stockscores at the Toronto Money Show
- Stockscores' Market Minutes Video - Avoiding Fear and Recklessness
- Stockscores Trader Training - Fear or Fact, What Drives Your Trades?
- Stock Features of the Week - Abnormal Breaks US
-
New Stockscores website coming soon
The new Stockscores website will be launching soon. Once it is live, you will no longer be able to subscribe to use the Stockscores Market Scan unless you have completed one of our courses. If you are subscribed before we make the switch, you will be grandfathered until you cancel your subscription.

Stockscores at the Toronto Money Show
I will be doing two presentations at the Toronto Money Show in September, one free and the other a Master Class that you can purchase a discounted ticket to until August 17th. For more information on these two presentations, click here.

Stockscores Market Minutes - Avoiding Fear and Recklessness
Traders must avoid fear and recklessness to be profitable. This week, I discuss this, my weekly market analysis and the trade of the week on LC. Click Here to Watch
To get instant updates when I upload a new video, subscribe to the Stockscores YouTube Channel

Trader Training - Fear or Fact, What Drives Your Trades?
Speaking from experience, I have found that most mistakes in trading are the result of succumbing to fear. When I say mistakes, I don't mean losses since losing money on trades is part of trading. Instead, I mean those bad trades that we all take which don't fit in to our trading strategy and plan.

The fear based decisions that cause us to deviate from our trading rules can be broken down in to two types.

First, the trading decisions that we make because of our fear of losing money. These are usually exit trades; we sell too early for fear that our winner will turn in to a loser. Perhaps we fail to take a trade that fits our criteria because our "common sense" tells us there is something wrong with the trade and that it can't succeed. Maybe we enter a trade later than we should because we want to see the market prove our trading idea correct, only to end up getting in once much of the run has happened.

The second fear based trading mistakes we make are those that are the result of our fear of missing out. These tend to be on the entry; we take trades that don't quite fit our rules because we focus on what might be, the profits that could happen. It may be that we listen to an "expert" in the media or follow the actions of the crowd and do what the headlines are telling us to do.

Have you ever succumbed to either of these fear based trading mistakes?

If you are a normal human being, I think it is highly unlikely that you have not. Since they happen to all of us, we need to figure out a solution. Fortunately, the solution is quite simple.

Rather than focus on fear, focus on fact. Make trades based on what is happening, not what you think could happen.

Many have described fear as "future events appearing real". We don't walk down a dark alley at night because we might get mugged. We don't swim in the ocean because we might get attacked by a shark. We don't fly on a plane because it might crash.

When we focus on what might happen, what our fear tells us to do, we typically ignore probability. The probability of getting attacked by a shark is extremely low. Last year, you actually had a greater chance of dying taking a selfie photograph than by being attacked by a shark. If we focus on fact, we get better results.

This does not mean you should ignore fear. It is there to protect us and, when probability is on the side of the decision, it is best to listen to fear. I stopped flying small airplanes because the statistics showed that it was a dangerous thing to do. I still trade stocks because I have strategies that put the statistics in my favor.

When you trade, take your focus off of your emotion and look at the facts. Develop a trading strategy that puts probability for profit in your favor. Have a process in place to assess the facts and take the trades that meet your requirements. Overcome fear in favor of fact.

This week, I looked at the Abnormal Gainers US on Monday and checked the charts for breaks of downward trend lines after a rising bottom had formed. This is a good turnaround indicator, here are a few charts that stand out:



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Stocks & Equities

Dot Com Bubble Do-Over?


Posted by Chris Vermeulen - The Gold & Oil Guy

on Tuesday, 15 August 2017 06:35

Our recent analysis suggests we may be setting up to repeat history in an odd and dangerous manner.  As market technicians, part of our job is to work with numbers, find patterns and attempt to predict future price moves in US and Global markets.  As you can imagine, it is not always easy to accurately predict the future.  Still, we take on the challenge and truly enjoy being able to find and share trading strategy concepts with our ActiveTradingPartners newsletter.  As such, we are sharing this recent technical research data with your today.

Recently, the ActiveTradingPartners research team identified a unique pattern in the VIX that allowed us to accurately predict the June 29 VIX Spike nearly 3 weeks in advance.  Also, on July 30th, we predicted a big decline in the NASDAQ during August. It also allowed us to know that VIX Spikes were possible on other future dates – such as the most recent date near August 4th.  Even though the current VIX Spike did not hit exactly on the August 4th cycle date, the actual VIX Spike move happened only two trading days after our predicted date and the VIX has rallied over 90% from recent lows.  Sometimes, analysis like this allows us to know months in advance that a cycle or critical event may have a higher probability of happening.  This allows us to plan and profit from our research.

Today’s research correlates to the recent price moves in the XCI index (Computer Technology), NASDAQ and US Majors.  The premise of this research is that the past 4+ years have resulted in a global investment in Technology firms as a result of lower ROI in most other sectors.  This focus on technology investing is uniquely similar to the XCI Index DOT COM rally from the late 1990s and early 2000s.  We are attempting to verify our presumptions and analysis by using core technical analysis techniques as well as fundamental price analysis.

We’ll start by looking at the price activity leading up to the 2000 DOT COM bubble burst. Initially, our analysis focused on the similarities in price action setting up this price move. The Accumulation, Exuberation/Pause, Hype and eventual CRASH phase. In 1995, the Accumulation phase initiated after a nearly 95% rally from 13+ months earlier (1994 – 462 days total). Currently, the Accumulation phase initiated after a 100%+ rally from 13+ months earlier (2009 – 427 days total). Subsequently, the Accumulation phase lasted 1057 days resulting in a 238%+ advance in 1998. The current Accumulation phase lasted 1456 days resulting in a 77%+ advance in 2014. Interestingly, the 1998 advance totaled 472.50 pts while the 2014 advance totaled 594.00 pts – resulting in a 125% advance size increase.

The Exuberation/Pause phase in 1999 lasted 252 days and resulted in a 207.19 pt move (+31.51%). The Exuberation/Payse phase in 2016 lasted 889 days and resulted in a 288.26 pt move (+21.15%). The more recent phase took 3.5x longer (time) to result in 139% greater price advance (which was actually a reduced percentage move of only 67% of the 1999 advance.
I advanced the term WEEKS where is should have been days.

Many analysts may be quietly stating, “all of this can be attributed to relationships of percentage values vs higher price valuations”, which is of course true.  Our attempt at dissecting these moves is to try to understand the propensity and strength of any future moves.

Lastly, the HYPE phase lasted 39 weeks in 2000 ending with an advance of 895.23 pts (+97.94%) from the PAUSE/FLAG breakout in 1999.  The current HYPE phase lasted 53 weeks ending with an advance of 674.54 pts (+40.26%)  from the PAUSE/FLAG breakout in 2016.  The resulting current HYPE price advance is 25% lesser than the 2000 move and results in a nearly 60% decrease related to the total percent swings.

2000 DOT COM – XCI Index Chart

XCI 2000 DotComBust Weekly F



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Timing & trends

The Guns of August, The Trade Set-Up & Removing your Rose Colored Glasses


Posted by Rambus Chartology

on Tuesday, 15 August 2017 06:22

 

Today I am going to lay out the case of a major market top and how it fits into the geopolitical backdrop of today. We then profile the trade set-up to look for and finally I will forcefully remove your Rose Colored Glasses you have been wearing since January 2017.

In Barbara Tuchman’s “The Guns of August” she argues that August 1914 was when the Gilded Age died and the modern era actually began. The book opens with the famous depiction of Edward VII’s funeral in 1910 attended peacefully by all the kings of Europe. Never again would the body of world leaders be unified and cut from a similar cloth. The war ushered in a new world, not recognizable from the past. Not since that time have we witnessed such diplomatic folly as in the month of August 1914. Today we wonder are we witnessing a similar conflict between a super power and the client state of China which is an emerging super power?  Could it unfold in a similar fashion?

Since May I have chronicled the topping process associated with a post bubble contraction. We have witnessed the following sequence:

1 The Gold-Silver ratio initially warning of an upcoming credit contraction in the future.

2. European stocks putting in a top in the traditional time window of May-June

3. USA stocks embarking on a final run for the roses, one last hurrah over the summer.

4. The Gold-Silver ratio signaling a confirmation of its original signal.

5. Yield curve flattening and credit spreads widening

6. Investor psychology embracing market top behaviors.

7. An initial crack in the US indexes in the time window of August or September.

The Topping Process

Over the summer we have watched the indexes relentlessly rise despite narrower breath. The FAANGs drove the NASDAQ and Boeing drove the Dow over the past 6 weeks. The DOW being a price weighted index, was inordinately influenced by Boeing, now a $240 stock. Boeing’s rise accounted for 75% of the DOW’s gain since the beginning of July. Strip Boeing out of the DOW and the index barely even rose… Same with the FAANG’s effect on the NASDAQ.

This of course is classic topping action. It masks the underlying exhaustion which has been occurring in individual issues. The exhaustion expressed itself in a lack of volatility. On August 8th the S&P 500 had gone 13 days in a row with less than a 0.3% fluctuation. This has never occurred since records have been kept since 1927.  This compression then expressed itself with the VIX exploding over 80% in a raucous 3 day move.

Bearish market signals have been evident to the few who cared to interpret the charts. Let’s take a look at some of the flashing red flags available to all who care to see:

S&P 500 Orthodox Broadening Top

Pull out your copy of the bible of technical analysis: Edwards and Magee. Look under the index for “The Orthodox Broadening Top”. The example they use is Air Reduction Co. from 1929. I will scan and post below:

EM-Broadening-top-Air-Reduction-759x1024

 

E&M remind us this type of top comes from low volume markets (check) and it is precisely defined on the chart (check). It’s definition is:

“It has three peaks at successfully higher levels and, between them, two bottoms with the second bottom lower than the first. The assumption has been that it has been completed and an in effect as an important reversal indication just as soon as the reaction from its third peak carries below the level of its second bottom”



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Energy & Commodities

Is this the Start of a Hot New Metals Bull Market?


Posted by Frank Holmes - US Global Investors

on Tuesday, 15 August 2017 06:14

COMM-aluminum-metals-08112017

Major U.S. indices slid for a second straight week as President Donald Trump and North Korea both escalated their saber-rattling, with Kim Jong-un explicitly targeting Guam, home to a number of American military bases, and Trump tweeting Friday that “Military solutions are now fully in place, locked and loaded.” The S&P 500 Index fell 1.5 percent on Thursday, its largest one-day decline since May. Military stocks, however, were up, led by Raytheon, Lockheed Martin and Northrop Grumman.

As expected, the Fear Trade boosted gold on safe haven demand. The yellow metal finished the week just under $1,300, a level we haven’t seen since November 2016. Last week, Ray Dalio, founder of Bridgewater Associates, the largest hedge fund in the world, said it was time for investors to put between 5 and 10 percent of their portfolio in gold as a precaution against global and domestic geopolitical risks. The threat of nuclear war is at the top of everyone’s mind, but Dalio reminds us that our indecisive Congress could very well fail to agree on raising the debt ceiling next month, meaning a “good” government shutdown, as Trump once put it, would follow.

Dalio’s not the only one recommending gold right now. Speaking to CNBC last week, commodities expert Dennis Gartman, editor and publisher of the widely-read Gartman Letter, said that he believed “gold is about to break out on the upside strongly” in response to geopolitical risks and inflationary pressures. Gartman thinks investors should have between 10 and 15 percent of their portfolio in gold.

Government shutdowns haven’t always been harmful to the stock market—during the last one, in October 2013, stocks actually gained about 3 percent—but I agree that it might be prudent right now for investors to de-risk and ensure their portfolios include safe haven assets such as gold and municipal bonds. Dalio and Gartman’s allocation percentages mirror my own. For years, I’ve recommended a 10 percent weighting in gold, with 5 percent in bullion and 5 percent in high-quality gold stocks, mutual funds and ETFs.

Analysts Bullish on Metals and Commodities



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Energy & Commodities

Is Kim Jung-un Blinking?


Posted by Martin Armstrong - Armstrong Economics

on Monday, 14 August 2017 07:57

Kim-Jung-un-Characture
Kim Jung-un in North Korea is refusing to blink yet he maybe. He has turned domestically first in the ongoing crisis and has now announced a massive army recruitment program. An article in a Pyongyang-based propaganda newspaper today declared already more than 3.5 million people had signed up to fight. The newspaper is claiming that millions were “volunteers” including students and former soldiers.

The truth is that the North Korean army is subjected to absolute obedience to the Kim dynasty. If civilians are scrambling to volunteer, it is also likely that they are malnourished and desperate civilians. Yet this peals back the fact that Kim is blinking.


His latest claim that 3.47 million people had asked to enlist in the army since the North Korean crisis began, is shifting his power achievement away from missiles and to people. Even their currency reflect the old communist subservient duty to the state. The man holds his Marxist bible and the woman is gathering wheat in the fields. This may have the impact of worsening the economy if true for feeding that many more soldiers is impossible for his regime without reducing rations for the current army soldier.



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