Saturday, August 21, 2010

Why Most Investors and Nearly All Traders Lose Money

I strongly suggest that you do not confuse being an Investors with being a Trader. I’ve been pointing out for many years that the Stock Market is greatly influenced by day-traders, flash-traders, program-trading firms, in for quick trades of a few hours, a couple of days at most, and back out again. That’s not Investing and certainly not Investing Wisely.

The problem for Investors is that they have for decades, for the most part, considered themselves to be Buy and Hold Investors, (married to the stocks and mutual funds) through both good times and bad. When they finally get discouraged, (and they do!)they get out, usually due to large losses, and they tend to stay out for very long periods. An excellent current example is / are those who have been on the sidelines since the big bear market plunge of October 2007 through early last year, not enticed back in for even part of the new bull market of last year plus.

They (Mutual Fund Investors) tend to listen to Wall Street saying they need to have a long-term perspective when their stocks and mutual funds are plunging 25% - 50% and more, and so hold on. When they do decide to ‘reposition’ their portfolio they tend to listen to mutual fund managers, and brokerage firm sales persons and spokesmen on TV shows and in magazines, advising them to buy a stock that should be 30% higher 24 months from now, without considering that it might first be 30% lower three or more months from now. (more)

Faber: Buy India, Avoid Long Bonds, China

By: Julie Crawshaw /,

Gloom, Boom and Doom editor Marc Faber advises investors to avoid long-term Treasury bonds and China.

"I think eventually inflation will accelerate," Faber told CNBC.

"Whenever food prices go up, and grains have been very strong recently, with the sum delay, you get inflationary pressures."

Faber expects the U.S. dollar will weaken.

“That's the policy of the U.S. government, to weaken the dollar in order to cushion the downturn in the American economy," he says.

He does, however, like the idea of investing in India.

“If I look at the long-term potential . . . there is an emerging middle class and capitalism has now been truly endorsed by everybody," he says, plus India has some "very well run" companies. (more)

Black Swans Need Not Apply (6 Reasons Why the Economy is Going Down)

By Louis James, Chief Metals Strategist, Casey Research ,

I was pounding pavement instead of kicking rocks recently, on Wall Street of all places. There were Suits hanging around outside the familiar iconic buildings, despondently smoking cigarettes. In my surely biased opinion, the feel of the place was distinctly less energetic than usual.

But what really struck me was not one, but two guys with sandwich-board placards announcing “WE BUY GOLD” – for different companies.

Just afterward, while having lunch at Rockefeller Center, my sister, a conservative mainstream banker, called and asked me how to go about buying physical gold. I knew that day was coming, just as I knew the Soviet Union was destined to collapse sooner or later from the weight of its own economic stupidity, but it was still a shocker when it happened.

And yet, if you ask your neighbors, you’ll most likely have a hard time finding any who own gold. My New York adventures are signs of an approaching gold mania, not a present one. But I believe more firmly than ever that it’s coming.

Meanwhile, the Wizards in Washington entreat us to pay no attention to the man behind the curtain, hoping to distract the American consumer from the mounting evidence that the so-called recovery in the U.S. of Oz is faltering. Rather than let the market liquidate malinvestment and mismanagement, government intervention to prop up failed companies, bankrupt states, busted banks, and toxic business models (like condo flipping) is only dissipating vast sums of borrowed money to no useful end. (more)

Gold, Silver, Oil & SP500 ETF Trends & Reversal Levels

Trading commodities and indexes through the use of exchange traded funds sure keeps things simple for an average trader. These funds allow individual investors to buy and sell things like gold, silver, oil, the sp500 and other investments which where not available only few months ago like “wheat” for example.

One of the nice things with ETFs is that is allows everyone to follow the price of a commodity or index using any charting website and can even apply indicators to help spot key support and resistance levels using volume by price analysis. There is no need for a expensive data feeds, charting programs and you don’t have to worry about contract expiration.

Below are a few charts of the trend and my short term forecast.

GLD – Gold Bullion ETF

As you can see gold broke out of its support zone this week and popped into the next resistance level. This is very typical price action in the stock market. It is important to look at the price charts like an apartment building. It’s nothing but a bunch of floors and ceilings.

How it works; if a ball breaks though a floor it will naturally fall to the next floor and bounce. The same for if a ball breaks through a ceiling, it will hit the next ceiling then bounce back down. This is essentially how the market moves. (more)

The Economist – 21 August 2010

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores the close links between domestic and international issues, business, politics, finance, current affairs, science, technology and the arts.

read more here

World Financial Report

click here for audio

Second Hindenburg Omen Confirmation In As Many Days, Third H.O. Event In One Week,
Longs may be forgiven if they are sweating their long positions over the weekend: not only did we just have a second, and far more solid Hindenburg Omen confirmation today, with 82 new highs, and 94 new lows, but the Saturday is the day when Iran launches its nuclear reactor, and everyone will be very jumpy regarding any piece of news out of the middle east. As for the H.O., the more validations we receive, the greater the confusion in the market, and the greater the possibility for a melt down (or up, as the case may be now that the market is unlike what it has ever been in the past). Furthermore, with implied correlation at record levels (JCJ at around 78), any potential crash will be like never before, as virtually all stocks now go up or down as one, more so than ever before. And should the HFT STOP command take place, the future should be very interesting indeed (at least for the primary dealers, and the Atari consoles which are unable to VWAP dump their holdings in the nano second before stuff goes bidless).

CNBC: Gold Bug Sees 20-Year Global Depression

U.S. stocks drop on economic malaise, off for week

(MarketWatch) -- U.S. stocks declined Friday on light summer trading volumes, sending the Dow Jones Industrial Average to its second consecutive week of losses as concerns about economic growth weighed on investor sentiment.

The blue-chip index lost 57.59 points, or 0.56%, to finish at 10213.62, putting it in negative territory for the week, month and year. The Dow /quotes/comstock/10w!i:dji/delayed (DJIA 10,214, -57.59, -0.56%) has lost 2.1% for the year.

The Nasdaq Composite Index /quotes/comstock/10y!i:comp (COMP 2,180, +0.81, +0.04%) rose less than one point to 2179.76 while the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,072, -3.94, -0.37%) slipped 3.94 points to 1,071.69.

A fall in the euro /quotes/comstock/21o!x:seurusd (EURUSD 1.2705, -0.0114, -0.8893%) on Friday reminded investors of lingering sovereign-debt concerns and added to the week's push-and-pull between encouraging corporate news and weaker-than-expected economic data.

A resurgence in deal activity to the highest levels since late 2009 contrasted with persistent reminders of the struggling global economic recovery. (more)

Is Deflation Looking to Pop the Gold Bubble?,

If Goldman Sachs is publicly bullish on gold, is that a good thing or bad thing for gold bulls?

Wall Street’s notorious trading house published a report on gold last week setting a price target of US$1,300 in the next six months. The report cited several factors. But before we get into them, we’ll confess it made us a bit nervous. Whenever any broker is saying one thing, you have to wonder if they’re actually doing the opposite.

That said, Goldman did make a point that is true of an asset in a bull market: it requires corrections to shake out the speculators and weak hands from time to time. Following the June high north of $1,250 the net speculative long positions declined. Traders took profits. And so did momentum players in the exchange traded funds market.

But then something happened that Michael Pascoe and Rory Robertson did not expect. The gold bubble did not pop. Because it’s not a bubble. The momentum players departed and the price found plenty of support. It’s now around US$1,220. (more)

4 Attractive Stocks Under $6

By David Sterman /,

One of the most fertile areas for investment research can always be found among stocks that trade for less than the price of a deluxe cheeseburger.

When a stock is below $5 or $6, many mutual funds are prevented from owning them. Yet if these stocks can make some headway and move up toward the $10 mark, then the stocks will begin to pop up on fund managers' radars. And when they begin to pour money into these stocks, their buying efforts can quickly move shares up into the low teens.

With that in mind, I wanted to take a fresh look at my favorite names that are trading below $6. That's not to say that these stocks are micro-caps or nano-caps -- I tend to like companies that are worth at least $250 million, as they have to be at least that large to ever get noticed by those stock-moving fund managers. Here's a quick synopsis of my current favorite stocks under $6.

JetBlue (JBLU)

This low-cost airline is gradually morphing from industry upstart status into maturity. Gone are the days of white-hot growth, but JetBlue is quietly becoming a profit machine. Per share profits are likely to double this year, and as long as the economy stays aloft, per-share profits should rise another +50% in 2011 to around $0.60.

That profit surge comes even as revenue growth is expected to slow to around +10% next year. I always like to see profits growing faster than sales, as it means that a company is able to squeeze more profits out of each incremental dollar of sales. For JetBlue, the operating leverage comes from continually optimizing its route structure to re-direct empty planes to cities where demand is more robust. (more)

Weekly Visual CFTC Commitment Of Traders Summary - August 20

Commitment of Traders Report

Commitment of Traders Financials