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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, August 7, 2010

It this August 2008??

Here is the chart of the long term government bond market. Notice the action between June 2008 and October 2008. Are we there again?

This is the bond market. That period is the consolidation period just before the blast off in Dec of 2008



This is the stock market notice that the market rallied from mid July of 2008 into the second week of August 2008, just before the crash.



This is a chart of the money supply. I think easing is appropriate don't you?




This is an interesting quote:

"The thing that set the tone and the catalyst for the move in bonds was the employment report and the propensity for that to really fuel the discussion about whether or not the Fed resumes their quantitative easing measures when they have their discussion next week at their meeting."

What is quantitative easing? It is when the Fed pumps money into the money supply. You can see the money supply has had negative growth since the end of 2009. How do they do it? They sell their bond holdings. Who is going to buy bonds with such low yields? The answer is that the buyers are convinced that we are going to have deflation.

The last time we had quantitative easing was between August of 2008 and March of 2009. Notice the money supply growth between on the chart from the middle of 2008 to the Spring of 2009. That is the Fed selling their bond holdings. You can see it by the decline in bond chart from late 2008 until June of 2009. There was a story going around in late 2008 that the Fed was going to buy treasuries and mortgages in the open market to help the economy. Take a look at the bond chart from late 2008 until mid 2009 when they were "buying".

You can see by the charts above the spike in the bonds and the sell off in the market. I think the reality is that the economy is running out of steam and that the story is starting to go towards deflation. You know the Fed is tightening when they buy bonds. They are talking about "quantitative easing" which is code for selling bonds. My interpretation is that the deflation story is about to get legs so the Fed can "qualitatively ease". The Fed will ease to save us from deflation and the story will be so bad that the government will have to step up to the plate and have stimulus package part 2 but that is another story.



Mikey
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