See It Market

Trading Ideas & Research For Active Investors

[andrewnyquist]

Why Being Yourself Is The Key To Being A Successful Investor

You don’t need to be that guy to be successful.  Who knows, but that media savvy guy or that uber-confident trader may just have a different investing time frame than you.  Or they may have a different psychological make up.  Or different collection of experiences. OR THEY MAY JUST NOT BE YOU.

And that’s okay.

Therein lies the secret.  The secret to each of our celebrated successes and failures as active investors.  Be yourself by getting to know yourself.  Understand what makes you tick and why.  How your losses and gains were derived.

And be comfortable in your own investing skin.

Sure, there are plenty of successful traders and investors out there. And many of which you should be following, sharing ideas with, and learning from. But there is a fine line between reading advice and needing advice. As investors, we need to learn to stand our own 2 feet.

Few understand this as well as myself. I have been actively investing in the markets for the past 15 years. And it took me some time to realize that there wasn’t a cookie cutter recipe for success. Sure, reading and researching helps, but it doesn’t always equate to success.  Investing is psychological. And because we constantly want to protect our inner-being, we need to understand how to tame our impulses.

I really enjoy writing this type of article when the markets (i.e. S&P 500) are experiencing some volatility and price swings. Moreover, it is during these times that investors learn more about themselves and build critical ‘experience’ inventory to draw upon. 

In my opinion, active investing is one of the most difficult things anyone can endeavor to do. And unless we learn more about our risk profile, we’ll never be at our best.

In short, when we try to be someone we’re not, well, we’re not ourselves.  And that either leaves us vulnerable to losses, drawing straws, or celebrating gains that have little to do with who we are or how we got from point a to b.

So what can investors do to take their game to the next level?

Keep an investing diary – This can include entries/exits, and notes.  If nothing else, it will keep you accountable.

Make a plan and follow it – Even if this leads to some losses early on, you’ll be able to figure out if you are better at investing on longer time frames or trading shorter ones. Set realistic goals and be okay taking profits (or losses) to refresh your capital for the next opportunity.

Minimize losses – Big losses greatly damage your psychology and subconsciously separate you from yourself (it’s that ego thing). Realize that losses are going to happen… in fact, a sign of a mature investor is knowing when to take a loss… and being okay with it.

Take care, and thanks for reading. 

[andrewnyquist]

Yesterday, I wrote about the market chop (above and below the surface) that investors have had to navigate. And depending upon your given time frame, the chop can be very rewarding or frustrating.

As I type, the S&P 500 is nearing the upper band of it’s choppy, sideways range (1885/1900). I...

[seeitmarket]

Uncertainty Roils Under The Surface

In the first four months of 2014, investors have seen Small Caps and Tech underperform, Momo stocks get hit hard, and Blue Chips and Bonds rise. But what's even more interesting is that the intermediate term trend in most equities is still in tact.  What's this spell?  

Uncertainty. In a big way.

Without a doubt, there have been plenty of risk-off indicators flashing (see fellow SIM contributor Chris Ciovacco's post on waning risk tolerance). Traders need to be surgical here. And trend traders need to be patient, yet ready to de-risk/reallocate resources.

As mentioned in my S&P 500 weekend update, the chop carries a range of 1815-1885 (+/- 15 points).  

Until this range is broken (up or down), the uncertainty will continue.  Invest accordingly.  -AN

[seeitmarket]

What's (Going) Wrong with Japan in 10 Charts. (Click first chart and scroll for captions). -- AK

[yahoofinance-deactivated2020040]

On Monday Feb 17th, Yahoo Finance Interactive Editor Phil Pearlman will moderate a panel discussing technical analysis and social media at the International Traders Expo.

A growing number of market participants are using social tools to exchange trading and investment ideas and knowing…

[ryandetrick]

This should be a blast and I’m honored to be a part of it.  Hope you can make it.  

[seeitmarket]

Good stuff, great crew.

[seeitmarket]

The Precious Metals complex is capping off its best week since early October with Gold, Silver, Platinum and Palladium adding 3.6% as a group just prior to the open of Friday's trading.    

Gold and Silver are each breaking a 15-month descending trend line, while Platinum is completing a bullish Three Inside Up pattern, marking a successful retest of its own trend line break in January.  Typifying the week's constructive move higher, RSI is just peaking into bullish territory >50 in each case.

By comparison, industrial metals - namely Copper, viewable in the lower-right pane - are getting only a modest lift.  While PMs have a lot of work to do, they are still almost universally derided here.  Even if they aren't bottoming here - a prospect looking increasingly better - the recent double bottom each of them put in place provides a well-defined baseline against which to measure risk and place stops.  Copper, on the other hand, isn't capturing this momentum, with an ascending triangle that favors a corrective over a bottoming scenario.   -- AK

[seeitmarket]

Key Divergence: Crude Oil Front-Running Equities

Earlier today, Korey Bauer highlighted an important divergence between the S&P 500 and Crude Oil prices during the latest stock market pullback. As stocks began to slide, Crude Oil was on the rise.

So why was this an indication that the "bears" may not be ready for prime time? Two reasons: 1) Crude Oil is known for front-running equities from time to time (not always a great indicator, but note that it also turned lower about a month before equities) and 2) If the global economy was signaling a serious slowdown, Crude Oil likely wouldn't be rallying in the face of declining stocks. See chart below. -- AN

S&P 500 vs Crude Oil Prices

[seeitmarket]

Gold Prices At Critical Juncture

Gold prices have rallied back to the critical $1275 level that we recently highlighted on See It Market. This is a critical resistance level that will likely decide whether Gold continues its rally… or fails to breakout and heads lower.

Why? Well, in short, this is the scene of the November '13 price breakdown and current downtrend price resistance.

The 2 charts below highlight time periods relevant to active investors: the daily and weekly bar charts. On the daily chart, Gold has popped its head above its downtrend resistance line. But active investors may want to wait for the weekly close to ensure that the yellow metal closes above its weekly "closing" trend line". This would be the first step towards a breakout… the 2nd being follow through. Trade safe. -- AN

Gold Daily:

Gold Weekly:

[seeitmarket]

In their secular context, the incipient moves in the Japanese Yen (higher) and Nikkei (lower) may just be getting started. 

The Nikkei crested at 16410 in December at trend line resistance (log), then shedding about -15% in a bit over 5 weeks, while JPY (here CME's J6 futures contract) advanced 4.5% over the same period. The pair is just beginning to come off another bout (see the mid-1990s, and late-2000s) of a nearly flawless negative correlation as JPY short covering/carry unwind tamps down on the cheap risk liquidity the Nikkei has benefited from over the last 15 months.

These moves in the Yen (see here and here) and Nikkei (those and here) aren't surprising: Abenomics has inversely conjoined both asset classes through the 1) the BOJ's open and active purchases of Japanese ETFs and REITs as well as 2) the Yenkuza's sustained and demonstrative debasement of the JPY to instigate renewed carry trades (at least some of which has served its intended purposes: to bid up Japanese stocks). 

Today's policy context is unique; but it's intermarket and technical consequences seem very familiar.  As a function of Japan's deflationary malaise, it's currency vacillates between strength and weakness according to the vagaries of risk appetite and aversion. That, in short, is why the carry trade exists.

Meanwhile, Prime Minister Abe and BoJ Governor Kuroda have lashed Japanese stocks to the mast of the listing Yen in an audacious bid to incite inflation and stimulate growth.  Now 13 months down that road and irrevocably committed, further JPY strength/Nikkei weakness from here may serve as the first real test of their resolve.  In that case more rhetoric, more stimulus and more volatility are certainties. -- AK

[seeitmarket]

Nikkei Bumping Against Upper Range Resistance

The Japanese Nikkei 225 Average has been one of the most interesting markets of the past two years, as well as one of the highest performing. A highly volatile (and deep) May-June correction in 2013 set up a ridiculously wide trading range on the monthly chart (see below). But it also set up another rally leg back to the top of the range.

Question is: After the latest pullback, will the Nikkei turn higher again and break out above the top side of the range (current resistance)? Or will the price action require a deeper "test" within the range? Note that the RSI on the Monthly chart is still running a bit hot, so some sideways action would likely be healthier longer-term. Trade safe. -- AN

[seeitmarket]

Fusion-io Shares Continue Rebound

Fusion-io (FIO) shares popped higher today on stronger than expected earnings. The key word in that sentence is "expected," as shares were badly beaten in 2013… especially into year end.

As I wrote about earlier in the month on tumblr, this made FIO a January Effect candidate. And so far, so good; expectations were very low into year-end, as bad news combined with likely tax selling. And this set the stock up nicely for the rally that is currently unfolding.

Whether shares are experiencing a dead-cat rally or the beginnings of a longer-term bottom is to-be-determined. No doubt, some consolidation and follow through would likely put this small cap back on investors radar again. -- AN

[seeitmarket]

Why Did Chinese Manufacturing Cause Today's Sell Off?

A few proximate causes have been proffered for today's US equity selloff: first, there's the chatter (emanating from a comment made by IMF Deputy Managing Director Shinohara) the Bank of Japan might refrain from increasing QE in April (global taper uneasiness), Ukraine's riots general escalating and spreading beyond Kiev; and HSBC's Chinese Flash Manufacturing PMI.

I like to assiduously avoid asking "why" because it's a bit like unwanted light pollution in the dark room that is my process.  As a "technical purist", begging the question of narrative is like a blemish on the trade setup emulsion I'm trying to develop.  

But, because that describes almost no one else, I'm often confronted with questions of why. And in the case of today's market destruction, the Chinese PMI looks like the spark; if for no other reason than S&P Futures capped out exactly as the PMI printed at 2045ET last night.

The story so far is that Chinese manufacturing has seen better days, has generally been on a downtrending course and just printed it's worst release (in contracting territory below - the horror - the universally-respected and sacrosanct, planetary axis-tilting, geomagnetic pole-flipping 50 line) in 6 months.  

Stocks aren't taking it well (assuming that's what they're taking, to begin with). How has the S&P 500 fared in the recent past vis-a-vis this release?I took a quick look at the last 36 months of PMIs and the S&P's single-month return.

chart courtesy of forexfactory.com

Excluding this month, this PMI has been down 18 of 35, or just about 50% of the time.

Of those 18 occurrences, the S&P 500 posted a positive return, averaging 2.64%.

Of the remaining 7 of 18 occurrences, the S&P 500 posted a negative return averaging -3.31%.

These contractionary PMIs tend to come in groups; but excluding July-September 2011 (also see: US Debt Ceiling and EZ Debt Crisis), the S&P 500's performance during them has been decidedly net positive.

If all this is the case, why did the PMI print induce a selloff?  Why don't market participants realize these events correlate to a net positive performance for the S&P?  Does this mean that January will end positively despite today's downturn?  

If you find the answers, let me know. I'll be the guy in the corner drawing on a chart with an evasive and aloof look, earbuds in with something like this turned to 11. -- AK

[seeitmarket]

Managing Risk In An Elevated Market

Every investor is unique. Period. And that's why it's imperative that we understand ourselves; our strengths, weaknesses, and investor psychology. With the turn of the new year, and in lieu of the market's annual close on the highs, I decided to make a renewed effort to focus on risk management (in my portfolio and in my writing).

It's during these times that risk management can get lost in the shuffle. And as indifferent as it feels thinking about the flip side of what is happening, it's a reality… and investors should be prepared. I emphasize this point not simply because we are at all time highs, but because it has been some time since we've seen a 10 percent correction in equities. This makes stock picking a bit more difficult as well, if for no other reason than the "best" and the brightest tend to lead (or at a minimum follow) market direction. Sure, buying dips has worked, but when will the music stop… ?

No, I'm not talking about a new bear market. Just a simple, healthy correction. Rest assured that it will feel much worse for those who aren't prepared. And, as experienced investors know, a few big losses can really dampen annual performance. Now, to be clear, I'm not suggesting shorting the market here (and I have no position currently). But, I do think it makes sense to stay focused and disciplined. Tighten up stops.

I expect the waters to get a bit choppier as we get deeper into the first half of the year. And this could provide some nice short-term trading opportunities for those with cash and confidence. -- AN

[andrewnyquist]

A couple weeks back I posted about Google’s outsized stock gains in 2013. A clean breakout on the long-term chart cleared the way for higher prices (see chart below).

This move was (and is) bullish longer term for Google (GOOG). Yet, at the same time, investors should be aware that the...

[seeitmarket]

New Struggles with the Psychological Legacy of the Dot-Com Bubble

Here's a familiar observation: The S&P 500's P/E is high right now by historical standards.  Just how high?  Apparently high enough for the revered David Kostin of the Goldman Sachs to describe it as "lofty by any measure".  

David has the statistical voodoo on his side: as the chart above clearly displays, the S&P 500's Next-12-Months (NTM) P/E at 15.9 is almost 1 standard deviation above it's multi-decade average.  Not the "burn up on reentry" stratospheric (well, exospheric) measure that became routine during the St. Tropez-expensive Dot-Com era, but high.

That could mean a miserable near-term outcome for stocks.  Or as Josh Brown deftly spits in his recent crash battle with Henry Blodget, P/Es (the contentious CAPE foremost among them) may not be the best predictor of major tops or impending crashes.  

But that we insist on framing now in terms of then is a subtle but fascinating feature of this market's cognitive topography.  In a piece out today on See It Market, Andrew Kassen points out that the title of the chart is more insightful than it's contents:

To describe the S&P 500's valuation today, we are confined by it's "loftiness" to a solitary point of reference: 1997-2000. Perhaps we can all take comfort that the current reading (15.9) is beneath (far beneath 1999) the tech bubble.  But, this often-made contrast misses the all-important sub-text: the S&P 500's NTM P/E is so high by historical standards that the biggest valuation bubble in living memory is our baseline for comparison.

It isn't just that the S&P 500's P/E is "only lower than tech bubble levels"- it's that we can't stop making that comparison; and by continually doing so, we ("the market") have shifted from measuring the S&P 500 against it's long-running historical average.  When we do that, the conversation changes from "it's overvalued, but" to "it's not nearly bad as" and the general lesson of history is displaced by a few outlying inputs.

Kassen lays this change at the door of the statistics themselves; and at our own feet, sounding off on a few characteristics we all share that cause the general market past to diminish, allowing outliers to become base case scenarios:

We're constantly looking at 1999 (and 2008) not only because it stands tall statistically, but because the madness that marked it's end-run and the twin desolation of late 2000 to 2002 make them emotionally salient points in the collective market's memory.  

What follows is a discussion of several cognitive biases which help these major market stimuli, few though they are, push aside the rest of the past as we assess the present.  Check out the full post here. -- AK

[seeitmarket]

Boom #2

[seeitmarket]

Boom #1