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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, July 20, 2010

Gamekeeper plays the stocks are cheap card

DJIA 10204.61 +50.18 VIX 24.12 -1.84 10 year 2.9491% -.0181 30 year 3.9823% +.0034 Gold 1192.20 +10.30 Oil 7752 +.62 USD 82.96 +.26
Mikey OB/OS index (80=OB 20=OS) 64

I have mentioned before that the last reason you want to buy a stock is that it is cheap. A cheap stock always gets cheaper. It, however, makes logical sense to buy something that is cheap. That is the biggest hook in the stock market. Through the years I have learned that the best way to lose money is buy a cheap stock in a downtrend.

The other idea the gamekeeper is floating is that we are in a trading range 9800 on the low and 11000 on the high. You combine the cheap idea with the fact that we are on the low end of the trading range. It implies that the market is both cheap and at the low end of the trading range. They are minimizing the weakness in economic numbers over the past 2 months. They are saying is the weak economy does not matter.

I conclude that they want us to buy the low end of the trading range. If they want to take it lower that is exactly the message they would give us. It is giving the shorts time to cover just as the economy fails. The way the market is trading now is giving the impression that it does not want to go lower. The Mikey index has now risen to 64 today so as we work lower we are actually doing so by being slightly overbought.

The is classic Gamekeeper the old misdirection play. Change the subject from the bad economy to something exactly the opposite. They can't hide the economic numbers so they misdirect you into what appears to be new rules for the game. Like I said they are telling us the weak numbers are old news. Cheap also implies that it is TOO LATE TO SELL. Who want to sell something that is already cheap.

The weak economy is now a reality and will not go away anytime soon. It will rear its ugly head again in the coming months. The gamekeeper knows this and so creates reasons why you should be in. The main reason now is CHEAP. Cheap is a buzz word for going lower.

Mikey
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