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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

Monday, November 30, 2009

Dubai is the Bear Sterns of the emerging markets.

DJIA 10300 -7.63 SPX 1089.95 -1.56 VIX 25.19 +.45 Gold 1176.70 +2.50 Silver 18.39 +.088 Oil 77.20 +1.15 RBOB (Whsl Gasoline 1.9927 +.066 Dollar Index 74.94 -.10 EURO 1.496 unch TLT (Long Term Gov Bonds)96.62 +.22 IEF (7-10 Yr Gov Bonds)93.04 +.13 XLK (Tech)21.67 -.03 XLE(Oil Index)56.50 -.52 (XLF Financials Index)14.46 +.18 XHB (Homebuilders Index)14.19 -.25 EEM (Emerging Markets)40.19 +.05 FXI (China Index)43.52 +.42 GDX (Gold Miners Index)50.69 -.13

The credit problems of Dubai will be resolved just like the sub prime loan problems were resolved for Bear Stearns and Lehman. The reason the economy did not grow was that the banks, even though solvent, could no longer make new loans to prop up underlying assets.

What people don't get is that the economic problems were not resolved. THE ASSET BASE CONTINUED TO CONTRACT BECAUSE THE LOAN MONEY DRIED UP. There was a rally after the loan problems were fixed by the Fed. The problem was that the market was only looking at the loans and not the economy.

The Wizard wants to show you that the Dubai loans will be fixed. Over the weekend the Dubai banks were given liquidity at prime to keep them going but new loans cannot be made and that leads to deleveraging. This is just 2 years behind.

The real problems with the emerging world will be the economy. The same problem exists in the US. The Wizard is telling you that the banks will be OK. The are letting the banks live at a nice spread between the Discount rate of 0% and the loan base. The problem is that the banks are not loaning out the money because that are sill writing off bad loans. The leads to more deleveraging and DEFLATION. This process will last at least 2 years probably alot longer.

A good analogy is that if the banks were a swimming pool and the Fed was pouring water into the pool it would not fill up because the pool has a crack at the bottom. There will be no recovery for YEARS not only in the US but in the emerging world.

The US economy which is the consumer engine to the emerging markets was created on the leveraging of appreciating real estate. The real estate market in the US is deleveraging, and therefore, the asset base continues to fall. The banks cannot loan money because , if you will the pool has a crack in the bottom. No matter how much water is added to the pool it will only leak away. The loan problems of the banks are very very deep and until those loans are "filled" there will be no asset appreciation, no inflation and no economic growth anywhere.

Note: Housing and now retail stocks are acting weak.
Mikey
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