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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

Tuesday, April 27, 2010

Greek and Portugal Debt Downgraded

DJIA 11050 -154 SPX 1194 -17.20 Nasdaq 2487.48 -35.47 VIX 21.06 +3.59
Gold 1162 +8.20 Silver 18.16 -.17 Oil 82.24 -1.96
Dollar Index 82.20 +.58 EURO 1.3231 -.0114 Brit Pound 1.5272 -.0182
IEV(Europe Index) 41.83 -1.23 EEM (Emerging Market Index) 41.85 -1.21 EWZ (Brazil) 70.80 -2.67 FXI (China Index) 40.77 -1.29
TLT (LT US Bonds) 91.55 +1.35 IEF (7-10 yr US Bonds) 90.36 +.72

Remember Dubai? It now has company. Standard & Poor's downgraded Greek debt to junk territory amid concerns about the nation's ability to make the necessary reforms to curb its debt problems. And the S&P downgraded its rating on Portugal's debt by two notches to A-minus.

The analogy is the same as the subprime loan problem in early 2007. The bankers and the Fed chairman were quick to tell the world that everything was OK. The problem was that in the financial world the fish swim together in schools so that what affect one affects the other. Once the tuna start to attack the ball of anchovies most of the other predators come in and finish them off.

This is just another example of sovereign debt being attacked by the Tuna. The others will come. I expect them to say it is OK and smooth it over but it is not going to go away and in time will be very damaging to all countries that have taken on too much debt.

We are now nearing the 20 day average of 11033 that has not be broken since 2/16. The parabolic sell is at the same level. The low on the Goldman hit was 10930 on 4/16. A break of 10930 would give me a short term sell signal that should get us back to the 50 day of 10732 in a hurry.

Note: US bonds are making a strong move today nearing 2/5 peak. That coincidentally was the market bottom at 9835. What caused the rally in the bonds then...a European debt crisis

This is the third selling squall since April 7th. In every case the market bounced off of the 20 day average. The traders have been conditioned to buy the 20 and in every case have been rewarded. One of these will go through. My hunch is that they are buying this one too.

Mikey
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