October 12, 2011- Chasing extended stocks NOT a recipe for long-term profitability.

In this world, we all search for people who believe what we believe, who share common value systems with us, who look at the world the same way or who have had similar experiences. Why? Because those shared values form an instant connection between complete strangers.

Steve Jobs better than anyone else understood that if you want people to buy your product, or buy into your ideas, you don’t go out and sell them, you bring them to your cause by selling your beliefs. People don’t buy what you do, they buy why you do it.

Steve Jobs taught me to have a belief, and sell that belief, because people buy beliefs they don’t buy products

– Leigh Drogen (What Steve Jobs Taught Me)

*****

Good evening folks,

Among other things on my to do list , I can be seen right now with my laptop blogging away.

(i.e. I’m supposed to be studying for a technicals-related certification which is due in two weeks time, lo and behold..I’m still not even done halfway with two important books.) Gah!

Every time the markets are strong, I’m compelled to “research” on what to do, what to buy, given that it’s hard to manage a trade when it’s going off the roofs.  The failure for us to make any slight pullback has led all the doubters of this rally to squeeze all the remaining shorts in this counter-trend move.  Now, I frankly don’t understand what’s happening with Europe, and I’ve read quite a lot of good articles but Steven Place is the best article I’ve found in his article here.  Basically, he says that there are only two countries who can be behind the market’s wheel.  It’s only the Europe voodoo and the other more important thing— China!  Just a few hours ago, the Shanghai Composite staged one of the best one day reversals I’ve seen in my life.

Hence,

I was compelled to do the following things:

1.) Check the behavior among Philippine stocks in the most recent V- market rally, on the companies that staged the best bounce.  I want those strongest bounces (i dont care about the story, but just the chart) listed from the strongest down to the weakest.  From this analysis, I can infer which are the ones I should be most in love with (technically).  If the fundamentals are strong enough, it will only make me love it more.  Again, ignore stories, just trust the chart.

For purposes of short term swing trading, we will only evaluate from the period of Sept. 26, 2011 to the present:

Here’s what I came up with:

I highlighted the best performers in bright green.  This list is objective and simply based on the price.  It has nothing to do with fundamental stories etc.  Again, ignore stories and just trust the chart.

All that aside, we are heading into some huge resistances with 1226 in the S&P 500 and 4200 in the Philippine Composite.

It should be noted, that if you haven’t bought stocks when it was cheap, chasing stocks at this point does not only take into consideration the risk/reward, but also is just simply running through with your emotions.  At best, the information shown here is simply to show that when the markets have full confidence, they are picking up stocks that have fallen steep (For instance MPI and DMC is a value play that rebounded quite fast with very strong volumes).    Gold related and mining plays are still beloved by market participants, with LC,LCB, PX,MA,MAB,and SCC dominating.  Blue chip territories (AGI,ALI) as well as love for casinos comes full swing with LR,BEL joining the pack.  I don’t know if JGS is a weirdo in the group or what.

In any case, V- markets are hard to trade.

Chasing extended stocks is not a recipe for long term profitability.  You , as a trader, aren’t expected to exploit every ripping move. If you’ve bought your stocks since October 4 or 5, and have held on with your shares (perhaps sold some of your shares, and just trailed stops for the rest, kudos for a very good trading management) 😀

Standing in the sidelines, if you have sold too early is really nerving for traders (just like me, who can’t stick to the rule of retaining at least 1/4 of my early cheap purchases to ride this jackpot).  However, a consolidation is necessary.  If we go higher and higher, just let it pass.  There aren’t much compelling stocks to chase in the Philippines, unless you have a really tiny size on chasing your entries.  You’ll have your chance.  Patience is a virtue.  Or… just switch to looking at newly broken out charts.  LR’s beautiful bullish engulfing day today looks too pretty to ignore, but if one’s late, one is late.

Next time you buy the pullbacks, focus on the leaders 😀

Also, it might be good to put PGOLD on your watch list, just in case anything happens.  It’s consolidating quietly.

It’s a trading range.  Don’t be aggressive chasing unless you have a clear plan.  Also, what’s up with CEB,COL,MWC, TEL and SMC? They never rallied. Hmm…

P.S.

I’ve found a treasure of Steve Jobs’ related videos.  Watch the following clips from Tim Knight’s West of Wall Street(- Silicon Valley) devoted to Jobs.  Incidentally–if you guys happen to wake up around 6-7am, Bloomberg West shows Emily Chang.  Beautiful girl to wake up your mornings with 😀  Ciao!

Ticker Tank! – Remembering Steve Jobs

– The Faceless Trader

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15 Responses to October 12, 2011- Chasing extended stocks NOT a recipe for long-term profitability.

  1. Good Morning!
    Have a good trading day FT!

    Thanks for the research.

    Like

  2. steveplace says:

    thanks for the shoutout 🙂

    Like

  3. Something to keep in mind: (In relation to this same post)

    As of last night’s close, we bumped into the temporary resistance of 1220 in the S&P 500 intraday, but managed to close at 1207. This brings us to two questions— will we consolidate in the upper end of the box and manage a breakout? Perhaps close at 1220 and present a bulltrap? I’d like to remind that just as we had a bear trap when we fell to 1070 intraday but staged a one day reversal last October 4 (NY Close), this market still has yet to play itself out. This is a question that swing traders need to be wary of. Conversely, we can just simply see that some stocks in the China space (HK stocks) are just waking up from their oversold levels which may mean, some room to go further. All these mixed signs lead every trader to be nimble and neutral. – FT

    Like

    • It’s time to be Jack 😉

      I’m thinking that the 1st week of November is still far away and a lot of things can still happen before that. My exposure to US equities is not very flexible so I’m looking to sell today and lock in gains already.

      Like

      • i couldn’t find much compelling setups to go long in the Philippines except for PGOLD. I’m long on 3 commodities in HK (Maanshan steels, Jiangxi Copper and Aluminum Chalco), as well as a small exposure in the hangseng index futures (going long). From panic selling to panic buying tayo eh, since I just have to be in, my size is just normal (not too big, nor too small). All I’m really thinking is where I place my buys in the Philippines, as normally I’m not a fundamentalist kaya nahihirapan ako. Of course, I can just simply make the Apple a day system to relieve me of my pains.

        -FT

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  4. Same here. 90% in cash for the Philippine market. I do buy some stocks selectively to trade for the short term. I’m learning and LC/LCB has been very kind so far. Today I picked up LR at the close. I liked the spike in volume. Hopefully it’ll produce some gains for me tomorrow.

    Thanks FT.

    Like

  5. Regarding the 1/4 rule, do traders really practice this? I do think it makes sense – holding some in your portfolio encourages you to follow the price action of the stock but a part of me also believes that if you believe that the stock is bound for a correction then it’s just proper to sell everything. In any case, you can buy back the stock again if the price continues to rise. What are your thoughts on this? I actually leave some before but it always bugs me when I’m right and the price drops (a sign maybe that i’m still immature when it comes to trading hehehe ^^)

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    • i dont know. Actually, most of the traders that I find who are successful in maximizing their trades often leave 1/4 of their initial position size, and let it ride with very wide stops. The case being, is that sometimes, it never hits their stop, and they can enjoy perhaps a 50% rally (in case the market leaves everyone away). Sometimes, a stock can travel 20% above your initial cost, and just consolidate in a volatile manner of 5-10% making your unrealized gains fall which can churn your stomach. I guess, it’s a matter of sizing. Its really hard to maximize a trade, but when rallies like what’s currently happening are happening (typical of bear market rallies), it’s one way of maximizing. Easy to say, difficult to do.

      -FT

      Like

  6. vicoy says:

    been reading your blog entries just recently, sir….and been learning a lot from you…

    thanks for sharing 🙂

    Like

  7. Pingback: October 16,2011- The Perfection Trap and Trading Probabilities « Faceless Trader

  8. K says:

    Sorry but Im stil a newbie in stocks. Does your post mean that long-term or value investing isnt any good?

    Like

    • Nope. I didn’t say that. In fact, I think that long-term investing is a sound and good approach to the markets, provided that one’s personality is suited to that type. I believe that we need to understand what personality type we are. I normally do swing trading, so I have to use sentiment, and timing in order to gain an edge from the markets.

      -FT

      Like

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