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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

Thursday, June 18, 2009

What I know and what I don't know

DJIA 8566 +69.76 SPX 918.30 +7.57 VIX 30.18 -1.35 Gold 936.90 +.90 Oil 71.25 +.22Dollar Index 80.67 +.09 TLT (Long Term Gov Bonds) 90.84 -1.00 IEF (7-10 Yr Gov Bonds)

Stock MarketTrends

Long Term Trend Down
Intermediate Term Trend UP
Short Term Trend Flat

What I know.

1. The economy is in bad shape and has not bottomed.
2. The "experts" are telling us that we are bottoming
3. The long term trend of the market and commodities is down.
4. The prices for most stocks and the market is approaching their falling 200 day averages and their long term trends are down.
5. The bubble in Real Estate burst in 2006 and is still bouncing along the bottom
6. Real Estate leads any recovery.
7. The economy is 75% consumer driven.
8 The consumer bubble burst in early 2008
9 The debt bubble burst in 2008
10. The oil / commodities bubble burst in late 2008
11 The "experts" are telling us to worry about inflation and buy Gold and oil. Every yahoo is the world is short the dollar and long gold.
12.The Tech bubble burst in 2001 and is still bouncing around its low
13.The Japan stock market bubbled in 1989 hitting a peak of 38915 and is now 9703.
14. Once you have a bubble is takes a long long time to repair it
15. There has been a record amount of stock and bonds sold in the past month.
16. The market, commodities, oil, and Gold are going to take out their lows.
17. The BRIC's bubbled in 2008...(emerging markets)
18. The "experts" are touting the BRIC's
19 The public is still long and has not liquidated
20. The experts do not like the Government bond market but do like the corporate and Junk bond market.
21. Corporations are selling alot of bonds.
22. The experts say that the FED will not buy down the long term bond market



What I don't know

1. How and when the markets are going to get there.

I think it is enough to know I will leave the when up to them. We could rally 1000 point up from here and then crash or we can roll over and selloff from here. My guess is that by sometime this fall we will have taken out the lows by 5% or so. The point is that history tells us that after a major bubble it takes years to recover.

We have bubbled in many areas over the past 4 years and it will take years to recover from this. The only time you` trade from the long side after a bubble is when it is extremely oversold and usually the first oversold rally is the best one. I think that this bounce that we have had is the best one we are going to see..period.

The public is still locked into their 401K plans and has done nothing to extract themselves from the destruction. They have a chance to come out with some money now but are being told to hang in there because we are bottoming. I will tell you this we will not bottom until the public gives up and liquidates at the low whenever that is.

It is my belief that this mess will end up in a deflation/depression and not the inflationary growth they are telling us. There is alot of BS they can pull to prop up the numbers like the clunkers for cash scam but in the end nature has to take its course. I think the play here is long term governments TLT & IEF and short commodities. I particularly like the short Gold play here.

MCD 58.62 is forming a huge head and shoulders top. The the left shoulder was from April of 2008 to July 2008 from 56 to 62. The head is was at 62 to 66 from Aug 2008 to Oct 2008. The right should is forming now with the neckline being at 56. The top of the right shoulder is at 60-62. That is a good shorting zone to me. If the stock rallies into that 60 to 62 area or falls below the neckline at 56 I will short. The 200 month average is just above 30 and the breakout in 2006 was at 36. My objective will be somewhere in that 30 to 36 area.

The beat goes on... Mikey
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