TSP Trader

RSS Feed Homepage

Warning - Investor Running Yellow Lights
2007-11-01 14:00:00
Following a systematic approach to investing is crucial. Much like my day job of flying airplanes, successful investing relies on instruments rather than "seat of the pants" instinct. I highlighted recently that my primary indicator of market direction and risk, the NYSE bullish percent, had moved onto defense. In that same post, I stated that I thought a move back up off of support was expected - and that the bullish percents might reverse back up to offense as a result of that move. Sure enough, the market moved back up from support...No, this isn't a bullish bias on my part. Instead, it's the application of technical analysis that tells me what the market is LIKELY to do. What do we do from here?There's two factors at play:1) The market is on defense as per the bullish percents discussed above. This tells me to sell at market resistance points in anticipation of oversupply driving prices lower.2) My secondary market indicator, cumulative market breadth, came close to ...
More About: Running , Investor , Warning , Yellow , Lights

The art of bluffing
2007-10-25 19:45:00
I'm writing this from Las Vegas, where I've been flying this week. America's recent obsession with poker provides a lot of lessons applicable to the stock market. Remember, you only get to see your own cards - at least, until the money's on the table. Seeing the other cards requires you to bet, and sometimes it costs more to play (higher stakes). That's the price of poker.As we're moving through earnings season, volatility has been high with really little net movement in prices. Some individual stocks are getting a beating with the ugly stick, but others are flying high. This volatility has actually resulted in the bullish percents to go "on defense" - indicating a recent concentration of point & figure sell signals.Remember, the offensive/defensive status of the market is not a timing device. Rather, this gives focus to our risk management - whether to operate in wealth accumulation or wealth preservation mode. In other words, do we "buy the dips" or "sell the hig...
More About: Bluffing

I'm Buying More
2007-10-16 06:09:00
We interrupt this market dip to inform you that this blog's author is buying stocks.I posted last Thursday about "Zen and the Art of Confident Investing", and my point was that it's OK to buy and hold (and buy more if you can) - AS LONG AS THE MARKET IS "ON OFFENSE". This of course is defined as the bullish percents in a rising trend, which they are:Please note that buying and holding does not work when the bullish percents turn around and start to fall. That's when I seek to protect my money rather than look for ways to put it to work.See, I bought into some of the leveraged ProShares funds promptly after the market went on offense, and they've done quite well so far. Here's my portfolio and current results:ProShares Ultra Oil and Gas (symbol DIG): +29.0 %ProShares Ultra Industrials (symbol UXI): +9.2 %ProShares Ultra Basic Materials (UYM): +25.7 %I'd also purchased the Ultra Financials fund (UYG), but sold with only a minor gain last week due to relative strength lagging...
More About: Buying

Zen and the Art of Confident Investing
2007-10-12 05:43:00
After Wednesday and Thursday this week, some investor's confidence is sure to be shaky. Is this the time to sell?Nope.That was easy, any more questions?How can I be so sure? Because I have a quantitative measurement showing supply and demand at work in the stock market. The bullish percent charts keep rising, which tells me that more stocks are being bought than sold.That's not to say that charts won't wiggle a little lower. There's certainly a little more room in the basement than the attic right now - if you get the analogy.Little wiggles are not, however, a reason to sell and wait for ensuing Armageddon. Little wiggles can be timed by day traders - but most people don't have the time to sit in front of a computer all day with a hair trigger mouse. I wouldn't want to - I like my day job much better! Amateurs trying to jump in and out of the market is a sure recipe for lost opportunity, and probably also for lost cash.Instead, let's consider a little risk management. ...
More About: Investing

Investing versus Speculation
2007-10-09 04:50:00
What a great weekend! I took the family "camping" up near Flagstaff, and the aspens were simply ON FIRE up behind San Fransisco peak. That's my photography on the right. Lots of relaxation with friends and family, crisp cool weather, and now I'm writing as I watch the third quarter of the Buffalo Bills / Dallas game. My apologies if you're a Dallas groupie, but watching the humiliation of Tony Romo / T.O. simply tops off this excellent weekend for me. (Update - I realize the cowgirls won, but the point is they're not America's team with that many turnovers).Investing has so many parallels with football. If you've read this column for any time, you know we went "on defense" back on 27 June - and returned to "offense" on 8 August. I discussed both events in detail in my blog. So where are we now? I'd describe this week's market conditions as "3rd and 3" - it'd be nice if we could move the chains on 1st or 2nd down, but we can't expect to throw to the end zone every ...
More About: Versus

God and the Existence of Beer
2007-10-02 06:28:00
Beer, I believe, proves three things:There is a GodHe loves usHe wants us to have funFor my regular readers who wondered at the lack of a weekend update... Oktoberfest was this weekend. Good thing the stock market escaped without a hangover.Some folks, I think, were caught off guard by the market's performance Monday. Some of my readers are familiar with Ebb - who was all cash. Nice call, Nostradamus. The bottom line here is that we are in a bull market. I haven't the foggiest how long it will last, and neither does anyone else. But let there be no doubt which way this market is going. Look, for Pete's sake - even Tim Knight (perma-bear numero uno) acknowledges the market's bullish trend!In a more coherent moment this weekend, it occurred to me that although I disagree with the platitude-driven buy and hold mentality (see also: "you need time, not timing") - there's really no reason to bounce in and out of a market that's on offense. In this poker game, when you know y...
More About: Beer , Existence

The Calm after the Storm?
2007-09-24 05:15:00
As promised, last week was busy. Ben Bernanke and team didn't just give the market what it wanted - they showed up with Christmas in September! For the week:S&P 500: UP 2.8%Wilshire 4500: UP 2.6%EAFE: UP 3.1%My sincere regrets to my bearish and/or cynical friends out there... (And by the way, that's my own amateur photo work on the right!)Bottom line remains that the market has been and continues to be ON OFFENSE. I'm not even going to post a chart of the bullish percents this time - I think you know which way that index moved this week. All the market breadth measures show that buyers are out in force. My advice here is: Don't Fight the Market.This week will still be busy on the news front, with a focus on inflation. Shouldn't be nearly as exciting by comparison with last week's news.For all the indices, we're now above the 50 and 200 day Moving Averages. This is going to provide strong support for prices going forward.Here's some charts, with my comments ann...
More About: Storm , Calm

The witching hour has come...
2007-09-17 00:14:00
... technically "quadruple witching." This term, of course, refers to the volatility that tends to accompany the simultaneous expiration of four types of equity contracts. This happens four times every year, on the third Friday of March, June, September, and December - and typically means wild price swings for the markets. Following Friday's trading session, these September contracts will expire:stock index futurestock index optionstock optionsingle stock futureThis alone would make for a crazy week in the markets.But wait, there's more! Take a look at the weekly economic calendar (courtesy Yahoo Finance, my highlights in red):DateTime (ET)StatisticForSep 178:30 AMNY Empire State IndexSepSep 188:30 AMPPIAugSep 188:30 AMCore PPIAugSep 189:00 AMNet Foreign PurchasesJulSep 182:15 PMFOMC policy statement-Sep 198:30 AMCPIAugSep 198:30 AMCore CPIAugSep 198:30 AMHousing StartsAugSep 198:30 AMBuilding PermitsAugSep 1910:30 AMCrude Inventories09/14Sep 208:30 AMInitial Claims09/15Sep 201...
More About: Hour , Witch

Don't Panic (Really!)
2007-09-10 05:03:00
If I were investing based upon my emotions, this might shape up to be a sleepless night. Premarket futures are down significantly as I write this, and the Asian markets are taking a beating with the ugly stick.Pleasantly, I have reliable market indicators that tell me whether supply or demand are currently in control of market prices. These are currently squarely aligned in favor of the bulls - so I'm invested.When I apply any technical analysis tools, I try to approach the chart from two perspectives - as both a potential buy or a potential short. In other words, I play devil's advocate; regardless of whether my current position is long or short. (I blogged a piece earlier this summer, titled "Bias and Self Validation" that discusses this investing psychology in greater depth.) In my current analysis, I tried to see the charts as if I were bearish - looking for an entry point to go short... but such a trade would be foolhardy with current chart patterns.Let's look at some charts...
More About: Panic , Ally

Labor Day: Family, Football, and a few good Stock Charts
2007-09-04 00:53:00
Happy Labor Day weekend to all. The inlaws are in town this weekend - so I'm tempted to make this a LONG update... Instead of writing a novel for your reading pleasure, I thought I'd take a different approach with this post. Along the lines "a picture is worth 1,000 words", I've marked up some charts with my observations. I'm afraid that these charts will just look like spaghetti to some, so I'm eager for your feedback on this format.Remember that you can click on any of the charts for a close up view. The first on the menu is my primary market indicator: the bullish percent charts. Notice that all these plots are steadily rising! There is absolutely NO OTHER explanation for this than buyers overpowering sellers.Next chart on deck is a little historical study of the advancer/decliner breadth on the New York Stock Exchange. This is a weekly chart, and gives some perspective on the little correction we've experienced last month.Read the date stamp carefully on the next tw...
More About: Family , Football , Charts

Not So Fast!
2007-08-30 19:02:00
Fans of ESPN's College GameDay will recognize the trademark title of this article - it's as if Lee Corso rang the NYSE opening bell on Wednesday, saying "Not so fast, my friend!" Really, Tuesday and Wednesday this week defy explanation. I DID state in my blog on 26 Aug, 22 Aug, and 21 Aug that a retest of the market's August lows was likely - and that it would be a good buying opportunity. This is why it's so important to NOT react emotionally to the markets - why you must invest/trade based on the supply and demand forces at work.You may have noticed that the market was moving dramatically before the headlines hit the public wires that seemed to "explain" the move. Obviously, a lot of people know what's going on before you or I. That's OK - I have another job that I happen to really like, and I wouldn't WANT to be stuck in front of a trading screen all day. Once again, this is why you must approach the market with a gameplan and the discipline to execute. My gameplan...
More About: Fast

Cue up the fight song and start running plays
2007-08-27 00:17:00
The other team - call them the "Bear Market Maulers" - have put together a drive that has taken more than a month off the clock and pushed most of the way down the field. A few of the roster have left the field on a backboard (American Home Mortgage), and more will be on the "injured" list for a while (Countrywide). The "Maulers" drive ran out of momentum at the home team's 32 yard line, where they turned over the ball on downs. Now the offense is back on the field, and most of the team is healthy. It's time to run some plays - in other words, make some money investing in stocks!The football analogy works really well to explain Bullish Percents on a point and figure chart. I wish I could take credit for the concept, but I learned it first in Tom Dorsey's excellent book on Point and Figure charting:The offensive/defensive team analogy can be very helpful to understanding the mid-to-long term market trends. Take a look at the following point and figure style bullish percent ch...
More About: Running , Song , Fight , Start , Plays

Back on offense
2007-08-23 04:12:00
First: some administrative business. It was brought to my attention yesterday that clicking on my charts caused some browser problems - those are now fixed, feel free to click away!Yesterday, I noted that the bullish percent for the S&P 500 had reversed up. Today, the New York Stock Exchange bullish percent reversed up. See the chart on the right, and notice how the latest column is rising in "X"s.This is a big deal.Let me be clear - bullish percents are not market timing signals in and of themselves. I actually still expect a retest of last week's lows.But I will not be dissuaded by fear. I did a study earlier this year where I shaded a chart of the S&P 500 showing when it was on offense versus defense. The periods of offense are shaded blue, and defense is shaded orange. (I didn't intentionally pick Denver Bronco's colors at the time, but all the more reason to like the chart.) The most important piece to study on this chart is the bottom of last summer's reversal. N...
More About: Back

Signs of life
2007-08-22 04:38:00
Good morning. I wrote in a recent blog post, Time to Start Thinking about Offense Again, that demand had returned to the market. This was based on the S&P 500 bullish percent reversing UP on a point and figure chart. I noted in that post, "This doesn't mean that it's time for me to buy stocks with both hands - YET. "I didn't touch my TSP allocation at that time, and that bullish reversal turned out to be short lived. Now, two weeks later, it is noteworthy that the S&P bullish percent has again reversed UP. (Click on the chart to the right for a closer view.) Remember, bullish percents are not pure market timing tools - but they are excellent measures of supply vs. demand in the market. Once again, it looks like buyers are showing back up with cash to spend.What does this mean, and where do we go from here? I'm glad you asked. Let's talk about the TSP funds, one at a time. (Lots of charts follow, click on them to enlarge.)For the S&P 500, having the bullish percent on...
More About: Life , Signs

Changing the playing field...
2007-08-20 04:27:00
Good morning. Friday was a very interesting day, and fortunately I wasn't watching the markets. "Fortunately", I say, because I might have reacted emotionally to the news or the chart. In the end, I'm glad I'm still out of this market. Let me explain why:One of my readers asked me over the weekend, "did yesterday's bounce change your charts?" He was referring, of course, to the bullish percent charts. The short answer is, "not so much". The following charts show the major market bullish percents:I spent some time Sunday afternoon researching Friday's news. If you Google "surprise Fed funds rate cut", you find interesting headlines. Like the following: Fed makes surprise rate cut"Wall Street responded immediately with one of its strongest rallies on record."Will it do the trick? History sides with the bulls"For now, most economists and strategists agree that it looks as if the Fed's easing will head off a recession this time around. If that's the case, it's likely ...
More About: Changing , Field , Chang , Chan

Catching a Cold vs. Pneumonia
2007-08-16 03:43:00
This stock market is not healthy.How sick is the market? At this point it's gone past the "healthy correction" level, since S&P 500 is currently trading below both the 50 and 200 day moving averages. A healthy market will occasionally correct to the 200 day MA, and that's not a big deal. Instead, we've seen two failed rallies at the 200 day MA, followed by strong moves lower over the past few days.So what do you do when you're sick? You take measures to protect your family and coworkers from catching what you've got. Then, you rest and treat the symptoms. Note that the beginning of a week long head cold starts out very similar to a potentially dangerous upper respiratory infection that could last much longer.A similar thought process needs to apply to this market. What started off as a little sniffle has worsened significantly. In my last post, I said that the S&P 500 bullish percent showed signs of reversing. Well, that was a short lived wiggle (and a good example...
More About: Cold , Neum

Time to start thinking about offense again
2007-08-09 06:07:00
This is important. The S&P 500 bullish percent reversed back up today, from a rather low risk level only seen three times in the last three years.I know that many of my readers are not familiar with point and figure charts, but the important thing to note in the chart on the left is the little green column of "X"s on the far right side. That means that at least 6% of all stocks in the S&P 500 have gained buy signals - clearly indicating a return of demand to the market.This doesn't mean that it's time for me to buy stocks with both hands - YET. Nearly every market sector is still on defense, swamped with overwhelming supply (ie: sellers outgunning the buyers). Further, the New York, AMEX, and NASDAQ cumulative Advancer/Decliner breadth charts are all still in clear downtrends. These latter charts are key indicators of the supply/demand big picture. The NY advancer/decliner chart is shown below, and I would want to see the chart line break above the overlaid moving averag...
More About: Time , Start , Thinking

Mirror, mirror, on the wall...
2007-08-07 04:52:00
Today was mirror image (reverse) of Friday. While Friday was marked by panicked selling, today was an orgy of buying.My only regret was not putting in a "sell" order this morning for my remaining stock positions.Although the price ranges between the last two trading days are remarkably similar, there are similar differences under the hood. Take a look at the raw breadth data in the chart below:Market Momentum Advances Unch. Declines Today +0.25% 3118 117 2696 Yesterday -2.35% 961 119 4851 While Friday was absolutely dominated by the sellers, today's breadth was nearly a 50/50 split (cue sound effect: party music screeching to a halt). The biggest gainers were also the biggest company's stocks.What I'm saying here is - this isn't the bottom yet. Demand is what drives prices higher, and you can see that move in when advancers outpace decliners. Take a look at these latest charts of cumulative market breadth. When the lines turn back higher,...
More About: Wall , Mirror , The wall

For those surprised by the market's recent downturn...
2007-08-05 19:02:00
The mass media shows a lot of surprise and distress concerning the stock market's recent downturn. Were YOU surprised? You shouldn't have been. This market showed all the signs of topping out back in June, and I'd like to teach you how to recognize these signs for yourself.I've been writing in my blog for the last 6 weeks that the intermediate direction of the market was not going to be up. Now, I didn't "call the top" exactly - and I don't think anyone can do that consistently. But I do have reliable instruments that show me whether supply or demand is in control of the market. I can't tell you which way the market is going tomorrow, or how far it'll move in that direction. For 24-72 hour market predictions, this isn't the right column - you want EbbChart for that. Currently, my market indicators show that our emphasis should be capital preservation rather than accumulation.My primary instrument - the market bullish percent - is like a barometer for the market. A ...
More About: Recent , The Mark

Be right and sit tight
2007-08-03 05:16:00
Watching the intraday market action can be unhealthy for your sanity. Worse, it can cause you to lose the big picture - being unable to see the forest due to all the trees in the way.You bet, we've seen some interesting end-of-day buying action the last couple days. You might be tempted to get back into stocks here... Do these thoughts sound familiar?"The market's gone down so far, it's due for a good bounce...""I sold too late, after the damage was done - now I can't afford to miss out on any gains!""I'm just in for the long haul - just buy and hold!"But consider what the emotionless supply and demand indicators are telling us: Every US index's bullish percent is currently "on defense".For those unfamiliar with point and figure analysis techniques, note that this condition is black and white - not a matter of individual interpretation.The New York, AMEX, and NASDAQ breadth charts of advancers vs. decliners indicate a clear trend of sellers drowning out buyers.Now, please n...

Wall to Wall Trading
2007-08-01 06:40:00
Yogi Berra said, "you can observe a lot by watching." Today, we saw the market gap open (premarket futures were ludicrously high), then climb up to the Fibonacci retracement levels I identified for you yesterday (nearly EXACTLY), then drop back down for a high volatility wall to wall trading day.This is why it's so important to understand where the flow of supply and demand is pushing the market currently. Risk management is the key here - It's not about trying to hit home runs all the time, but minimizing your losses at appropriate times. This doesn't mean being a "market sissy", running away every time the charts look scary. There's no reward without risk - but the risk must be calculated and appropriate for the situation. When the situation looks bad, a reduced exposure leaves cash available to act with audacity when confidence is restored.I wrote a blog post on 3 June about this idea, where I used a bit of statistics to show the impact of this concept. I ran a simulatio...
More About: Trading , Wall

A deceased feline
2007-07-31 06:33:00
Last week was an interesting one for the markets. In fact, the week was one of the worst seen in years. What?s going on here is a shift from a market controlled by demand to a market controlled by supply. It?s worth reviewing what brought us to this point: The markets initially showed weakness during the first week of June, when they fell out of rising trend channels. Reference the following chart of the S&P 500, and note the first retracement to the 50 day MA.The rest of June saw a series of lower tops and lower bottoms, within a mostly horizontal trading range. Note the similar action between the S&P chart above the the Wilshire 4500 chart below:This action demonstrated that buyers were drying up, even as the markets charted new highs. The real question is, where do we go from here?I answer that question by looking at a chart that illustrates supply and demand - and the best way to do that is a bullish percent chart...
More About: Deceased , Feline

What I've been waiting for...
2007-07-27 15:10:00
Short post this morning as I've got a 0715 tee time with my Dad and brother in law. Yesterday was confirmation for why I'm not "all in" with this market. I've been saying for a long time that risk levels were extremely high - and then I've been preaching since 28 June that this market is on defense. Yep, the downturn didn't happen right away - but when on defense the primary concern is capital PROTECTION, not accumulation.I'd like to be all out today, but TSP's end-of-day transactions would leave me out at the bottom today.I expect another UGLY day today, since none of the pros want to take a "wait and see" approach over the weekend. Monday will likely be a bit of a bounce, and I'll trim some more from my account holdings then.Thanks for reading!- Divot
More About: Waiting , Wait

A shakeout.. OR?
2007-07-25 05:10:00
Today the broad market sold off throughout the afternoon. Volume was significantly high, and breadth was authoritatively negative. Remember what I said yesterday about support levels? The S&P crushed the first two I identified for you, and stopped (really saved by the bell) just above 1510. The 50 day moving average didn't even seem to offer any friction (that's not a good sign for bulls), and the "last ditch" of support I can see lives in the 1490 to 1500 area.All the bullish percents are now in full retreat, while the advance/decline charts show an obvious and significant downslope. Both these signs are also not good for bulls over the next few months.Comparing the following chart of the Wilshire 4500 to the S&P 500 above, you'll notice today's drop was significantly more severe to the small caps. This goes right along with my comments yesterday about the relative strength of the larger cap stocks. Again, I've highlighted the "last ditch" support level, which is less t...

Catching a breather
2007-07-24 07:06:00
Both I and the markets have been catching a breather over the past couple of trading days. I've been enjoying San Diego with my family, while the market has revisited the June 18 highs. These are showing strong support for prices and leaving open the path for continued advance by the markets. In fact, charts show a strong "formation" of multiple support levels just below current prices, which lends a lot of evidence that supports this "new" uptrend. I expect bullish markets to continue through the rest of week.For example, S&P 500 support levels:1535 (0.5% lower)1525 (1 % lower)1510 (2 % lower)1490 (3.3 % lower)Wilshire 4500 support levels:Right here at 693686 (1 % lower)673 (2.9 % lower)What's interesting about having all this price support right behind current prices is that market indicators I trust are not indicating clear sailing. I put a lot of credit in market breadth as a gauge. The NASDAQ "tech country" looks bad, the New York and Amex still ...
More About: Brea

Oh, no you don't!
2007-07-19 04:29:00
That's how the buyers reacted today.Take a look at the intraday chart of the S&P 500:As always, there are plenty of reasons WHY - in fact, if you ask 10 different analysts you'll get 50 different answers... Still, it doesn't matter why: WHAT happened was that a 1% pull back was eagerly bought up. Pull back a little for the big picture perspective:Notice how the previous highs were support for today's low. Also, today's low (1533) was pretty close to - and just above - a 38% Fibonacci retracement of 1528. All of this on a high volume day.The Wilshire 4500 had a very similar performance today:The small caps of the Wilshire 4500 closed almost exactly at the support level created by the early June high. The day's retracement low of 691 was also a near perfect Fibonacci rebound (as measured from the late June lows to last weeks high.)This adds up to be some nice confirmation for an upward trend.The EAFA picture isn't as clear cut as the above - it looks like there's room for...

The Planning Process (continued)
2007-07-18 05:26:00
This post will be a little different from my usual market commentary on the market indices tracked by the TSP funds. I'm expecting tomorrow to be a down day for most of the markets, but that discussion will wait for later in the week.Since the markets have recently proven the ability to move above their triple tops, I'm now working to reenter long positions. My TSP account is now partially invested, and today I'll address how I'm managing my more flexible brokerage account. As I consider my strategy in the latter account, I have a couple of key considerations:What is the market direction?What is the market risk level?To answer both these questions I'll look at the bullish percent charts. This gives me trend information that a price chart won't necessarily reveal.I'm not concerned with every little wiggle here, but general position and trend direction are important. In the above charts, it appears that supply was overpowering demand on the New York and in the S&P500, but ...
More About: Planning , Process , Conti

The Planning Process
2007-07-17 06:20:00
As of this afternoon, my TSP account is back in the market:20% - EAFE10% - S&P50010% - Wilshire 4500The remaining 60% is still in government bonds.Earlier in the morning, I closed the short positions in my brokerage account. I was in a couple very leveraged positions, anticipating an interest rate run up that would have pulled the rug out from under the utility sector. That didn't happen, and my losses were limited to about 1%.I spent the evening evaluating current market opportunities in light of developments over the last 6 weeks. The market has proven the ability and will to break out higher, and I have to honor this bullish trend in spite of ample warning signs. As I stated in yesterday's post, market action could continue higher for some time - although I wouldn't be surprised to see a significant correction before year's end.In the mean time, I want to position both my brokerage and TSP accounts to profit from the potential for an extended bull run. Small cap stocks, ...
More About: Planning , Process