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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, August 9, 2010

The Risk Trade

DJIA 10698.75 +45.19 VIX 22.14 +.40 10year 2.8312 +.0159 30year 4.0191 +.0251
Gold 1203.30 -2.00 Oil 81.48 +.78 USD 80.711 +.34
Days to option expiration 9

Economic Conditions: Negative -10.3

Mikey OB/OS index High 97 Low 0 (80=OB 20=OS)---71

Mikey Confidence Index (Traders: confident = 100) 70

Mikey Power Index (MPI)
BUY >60 SELL<50 Short <40

Stocks 60 Oil 60 Gold 45 Bonds 50 Emerging Mkts 70
USD 45 Aussie 74 Euro 68 Brit Pd 67

Short ETF SCORE 549
DXD 48 DZZ 48 ZSL 31 DUG 30 EDZ 30 SMN 18 SKF 35 SRS 36 SZK 52
QID 37 SCO 33 RXD 62 TBT 52 SDP 33

Long ETF SCORE 849
DDM 49 UGL 47 AGQ 65 DIG 58 EDC 71 UYM 80 UYG 65 URE 65 UGE 79
QLD 61 UCO 66 RXL 60 UBT 38 UPW 45

Power index +300 up 54

Risk trade basically means that investors, traders and / or financial institutions would rather own assets that can make them profits, instead of holding cash. We have been witnessing this event in large fashion even though we are coming off of the worst financial crisis since the great depression. It is a strange, but true.

The dollar is at the root of the risk trade mentality. As the dollar sinks in value, investors move their cash into stocks, commodities and even other currencies instead of watching their purchasing power erode with the dollar. There are other factors that impact the price of these hard assets, but this is the main reason.

This is the same thing that drove the market in late 2007 and into July of 2008

Dollar



DJI


You can see the inverse relationship between the dollar and the DJI. The idea is utter nonsense. The idea that the dollar goes down with economic weakness and the stock market goes up makes me scratch my head. This seems to be what is happening now. In mid 2008 the idea was that the world economy was going to be OK even though the US was going into a recession. You had a big disconnect between the US economy and the US market. It feels like the same thing is happening today.

Mikey
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