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Mikey's Short Term Trading Rules

1) Make up a list of stocks, commodities or ETF's to trade. This list should be names that have good earnings and high relative strength.
2) Monitor this list and throw out the weaker names
3) Buy only stocks or ETF's that are intermediate and daily up (green) and the market is Daily and intermediate term up (green)
4) Buy pullbacks on these stocks to the 20 and 50 day averages
Usually you get 4 to 6 20 day pullback buys and 2 or 3 50 day pullback buys in an intermediate term trend
5) More agressive traders can buy the 7 day average in the first 3 to 8 weeks of the uptrend.
6) Buy pullbacks not runups. A buy should not be easy or exciting but difficult and somewhat scary. DO NOT CHASE
7) Place stop at 5% below the buy price. Do not remove
8) Sell 3 to 5 days after the stock price takes out its most recent 2 week high with at least 15% gains
9) Uptrends that are 12 weeks or more may be ripe for a correction. The first 2 pullbacks to the 50 day are usually safe.
Intermediate term uptrends and downtrends generally last from 8 to 16 weeks with 12 weeks being the norm.
10) Shorting is a viable strategy in downtrends for experienced traders only. In general, reverse the above rules
11) Tweet Mikey @themarketshadow with questions or ideas

Saturday, October 18, 2008

That was the week that was(TW2)...The week in review ending 10/17

Last week
The market closed last week at 8451 after trading friday as low as 7882. We went into the weekend with the hope that the G7 would bailout the world. Gold an indicator of panic was at 855 and the Vix(fear index) closed at 67.61 after trading at mind boggling 81.

This week
This is a recap of the weeks major news items on Wall Street:

1. The US treasury announced this week that it would directly invest up to $250 billion in numerous financial companies by purchasing preferred stock in the open market. The unprecedented move was the latest measure undertaken by the government in an attempt to soothe the ailing financial markets. The Fed will initially invest in Citigroup (NYSE: C), JPMorgan (NYSE: JPM), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of New York Mellon (NYSE: BK) and State Street (NYSE: STT).

2. Stocks were extraordinarily volatile this week, even when compared to recent standards. The VIX, or commonly called the “fear indicator”, spiked to above 80 for the first time in about 20 years. Traders consider a VIX rating above 30 as severe market pessimism. Despite the extremely high level of fear, stocks traded higher this week. The Dow notched a 7% gain, while the Nasdaq rose nearly 6%.

3. Thursday night, the New York Times published an op-ed article by non-other-than Warren Buffett, entitled "Buy American. I Am." In the article, Buffett pounded the table, saying he has been buying US stocks for his personal portfolio. The legendary investor said that if stock prices continue to fall, Buffett said his non-Berkshire net worth would soon be 100% invested in US equities.

4. Hedge funds and top execs alike felt intense pain this week as they were forced to liquidate positions in order to cover redemptions and margin calls. Chesapeake's (NYSE: CHK) CEO, Aubrey McClendon, who has been buying shares of CHK since 2005, amassing more than 33 million shares, kicked off this phenomenon late last week when the company announced he was forced to sell the majority of his stake in order to cover margin calls. Check out StreetInsider.com's article Ring, Ring It's the Margin Guy... CEO's Don't Answer for a complete list of insiders who involuntarily sold stock this week. On the hedge fund front, Steve Cohen's SAC Capital announced that it had moved substantially into cash amid the current market chaos. On Tuesday, Cohen said he had about $7 billion in money-market and other short-term securities. John Paulson's Paulson & Co. also came out saying the majority of his holdings were in cash equivalents. Elsewhere across the hedge fund landscape, Highland Capital announced that it would close its flagship fund after losses on high-yield, high-risk loans and other types of debt forced the fund to liquidate. Commodities were absolutely hammered this week as many of these funds were highly involved in this sector.

6. Morgan Stanley (NYSE: MS) finally reached a deal with Mitsubishi UFJ Financial Group. Monday, Mitsubishi closed its $9 billion equity investment in Morgan Stanley, giving Mitsubishi a 21% stake in the bank. According to the terms of the deal, MUFG has acquired $7.8 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of $25.25 per share, and $1.2 billion of perpetual non-cumulative non-convertible preferred stock with a 10% dividend.

7. The price of crude oil plunged more than $10 this week, falling below the $70 level on Thursday. Since the beginning of October, when oil was around $100, crude is down about 30%.

8. Gold fell more that $85 an ounce.

9. U.S. consumer confidence suffered its steepest monthly drop on record in October, a survey showed Friday, as the worst financial crisis since the Great Depression sent shocks waves through the economy.

10. Government data show construction of new homes plunged by a bigger-than-expected amount in September as builders slashed production to the slowest place since early 1991.The Commerce Department reported Friday that construction of new homes and apartments dropped by 6.3 percent last month, a much bigger decline than the 1.6 percent decrease that had been expected. It pushed total production to a seasonally adjusted annual rate of 817,000 units. That's the slowest pace since January 1991, a period when the country was in a recession and going through a similar painful housing correction.

11. On the inflation front, the government's Consumer Price Index was unchanged in September, following a 0.1 percent decline the previous month, which is better than the consensus forecast of 0.1 percent.
With more economists saying the economy is in recession, there's growing speculation that the Federal Reserve will cut interest rates again at its Oct. 29 meeting. The Fed's key federal funds rate is already down to 1.50 percent, following a half-point cut last week.

12. September’s 1.2 percent decline in retail sales and downward revisions in the two previous months virtually assure the first quarterly decline in consumer spending in 17 years, something economists have been worrying about for some time when it appears the government’s fiscal stimulus package was having limited effect

13. Economic activity weakened in September across all twelve Federal Reserve Districts,'' the Fed said in its Beige Book report on the state of the economy through Oct. 6

14. The G7 countries essentially backed all deposits in every bank and take equity stakes in many of them.

And finally believe it or not the market finished up 406 points for the week at 8857.
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