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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, July 9, 2009

The Big Picture

The US consumer has driven the world economy for the past 25 years. The expansion in the world economy has take jobs out of the US and reduced income. This loss of income was replace by a massive expansion in debt. The debt was secured by real estate values. Many instruments were created to allow for the expansion of this debt and now the chickens have come home to roost.

The consumer in the US expanded debt from 7 trillion in 2001 to 14 trillion in 2008. In the past year that debt has contracted slightly to 13.95 trillion. That has produced a falling economy as the consumers assets, real estate and income has declined by 12 trillion.

The debt bubble has burst and for the economy to expand again consumer debt must be liquidated or payed down to start up the economy again. The process now is one of falling debt and falling incomes. That is a classic description of deflation. The experts are busy telling us to protect ourselves against inflation. This is now coming back now and neither is the economy.

The other countries particularly the emerging markets have been living off of this debt expansion for a long time and think that the US consumer will come back. The dollar is acting weak because traders believe this bogus story. In the end, all of the economies of the world will follow because Uncle Sugar is tapped out.

What does it mean? It means that the other countries don't believe they have to print as much as we are. That keeps the dollar down and will lengthen their downturn. In the past the game was let Uncle Sugar pump and we get the jobs and the gravy. The game has changed the US can't do it anymore the game is over. The other countries need to inflate and stimulate their economies. Obama is at the G8 now and begging them to stimulate. They don't think they have to but they will find out that they have a big problem too and when they do they print and the dollar takes off.

That is why I am negative on the economy and the world markets. I am negative on the commodities, oil and Gold. They will join us because they have too. At this point it is a waiting game but the hand has been dealt. The game now is to let the air out of this thing a little at a time.

As I mentioned yesterday I bought DZZ (Gold Short) at 22.02 I will double my position if Gold closes below 880. Gold is my favorite short because no one is focused on it. They are looking at oil, the market, and the dollar but not a mention of Gold. This is as Gold breaks below its 90 average and has been dropping with all the talk of a weak dollar. This is the kind of thing you get when something is about to make a big move. I still am looking for Gold to see 400 within the next year


The beat goes on....Mikey
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