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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, July 31, 2010

China's Number Sunday

There is always a number coming out that tells us the state of the economy. The next number is the China PMI. Basically if it is over 50 that means growth and if it is below 50 that means weakness. So if that number "shows growth" you can forget about the US numbers because they can point to something positive and run stocks especially commodities again. If the number shows weakness they can gap the market lower and punish the longs that just bought into the current rally. Here is the skinny

China PMI due Sunday night

According to Reuters estimates China's official PMI will likely be at a 17-month low as Beijing’s policies to curb lending and rein in the property market weigh on manufacturing.

China July PMI Estimate
Median: 51.1 (Lowest Since Feb. 2009)
Range: 50.0 to 51.7 (11 forecasts)
Previous: 52.1 in June, 53.9 in May

The headlines number is expected to be weak, but it’s what lies beneath that matters more. Investors will be paying particular attention to the new orders and stocks of finished goods. The former slumped in July, while the latter rose, suggesting big inventory accumulation and possibly future cuts in factory production, writes Reuters.

It is just another way to jerk us around and confuse the issue. What does it mean? It means whatever they want it to mean. Notice that they say they already know the number is weak, so the number doesn't matter. The number that matters is new orders. That is the key to the whole truth of the Chinese economy truth seekers.

Mark Twain said that there are lies, damn lies, and statistics. Statistics are the tool that the Investment Bankers and Central Banks use to justify the actions that they take. They can paint a green picture and call it red. It is what they say it is because they control the short term reality of the investment markets.

I have a hard time with that but if you don't accept that you can get run over. The point is they want to control the behavior of consumer and investor by using these numbers to tell their story.

Mikey
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