Monday, July 16, 2012

Right & Wrong Way To Approach Market Timing

I received an email today that nearly made me retire my timing signal. You know, the one that is free of charge on zentrader. What can you do when somebody makes such an astute observation about your work that so accurately describes the results, but retire.

Well no offense, but it looks like your market timing signal does not actually work.

I decided to follow it by also buying a bit of QQQ and now I am loosing money. It looks like your signal turned yellow when things were already changed and had already turned bad. I don’t believe anyone can time the market, especially not this sort of super volatile market. How can any automated process account for Fed meetings and EU meetings?

You can assume that anytime somebody starts a sentence out with “well no offense” that you’re in store for some offensive comments. The fact is that no market timing system is 100% accurate. It can’t be. Nobody can predict the future because of free will and the gazillion factors that can influence the 6 billion individuals on Earth. All you need is 3 things to make consistent money in the markets. Notice that the timing signal is the least important.

  1. Money management rules
  2. Patience
  3. Way to time the market

Here’s what mine has done over the last 6 months. Past six months of market timing signal

Why you lost money is because you happened to try it on one of the whipsaw signals, but had you got long in December you would have made a killing. Or had you shorted the markets in May you would have sent me an email praising my timing. It’s all about perspective.

Stick around for awhile. You signed up for me free (did I say free?) newsletter on June 24th (not even a month ago) and you can declare my timing signal ineffective? If you are going to trade this signal then you have to take every trade. This is not a message just for you but for anybody subscribed to my newsletter.

I like to suggest to traders to use the timing signal as a guide to know whether you should be shorting, buying, or on the sidelines. By all means, trade the signals with real money, that’s what I do, but realize that there are risks when trading and take responsibility by having good money management rules so when a trade goes against you that you can exit and live to trade another day. Capital preservation is always top priority.

Starbucks SBUX is a long-term hold, as well as a shorter-term trading pick

Starbucks Corporation (NASDAQ:SBUX) — The largest coffee roaster and retailer in the world has had a steady stream of earnings gains, and the stock has rewarded its buyers with a 50% run from October 2011 to April 2012. Earnings have improved each year since 2008, and this year the company is expected to earn $1.84 (FY ended Sept. 30) versus $1.62 in 2011. And analysts are looking for $2.29 in 2013.

The stock is trading in a bull market consolidation pattern called a right triangle with support under $52. On Thursday, SBUX flashed a buy signal from the Collins-Bollinger Reversal (CBR), our proprietary internal indicator. And several days ago, the stochastic issued a buy signal.

The intermediate target for SBUX is $62, but investors should put Starbucks on their list of top stocks to buy as long-term holds.

Trade of the Day – Starbucks Corporation (NASDAQ:SBUX)

What you must know before buying most mining stocks today

From The Gold Report:

It may look as if almost any mining stock you see these days is a bargain just waiting to be plucked. While most stocks have seen major drops from their highs and some are showing significant price turns, others have more downside left and a few just won't make it to the next market peak. Ivan Lo, publisher of The Equedia Weekly Letter, takes both a macro view of market and economic conditions and then carefully studies the specifics of each stock he decides to follow or acquire. In this exclusive interview with The Gold Report, Lo talks about the critical factors that can separate a mega-winner from a rollback candidate and talks about some of his favorite names.

The Gold Report: Your newsletter, The Equedia Weekly Letter, talks mainly about Canadian companies you actively own. Why did you begin writing this newsletter and how do you choose the companies you invest in?

Ivan Lo: I've always been interested in the capital markets because they are the source of the world's growth. Without them there wouldn't be Google, Microsoft or Apple. My father was editor-in-chief of a prominent global newspaper, so I guess that's where I combined the two ideas. There are some extremely able men in our industry and I get to have some great discussions about investment philosophies, strategies and market outlook. We often trade ideas and go through what works and what doesn't.

These brilliant men don't think like the average person; their thought processes are often beyond that of the average investor. That's how The Equedia Weekly Letter got started. I wanted to bridge that gap and turn complicated investment philosophies into something simple that everyone could understand, from macroeconomics to mining 101. My job is to make it simple and start with macroeconomics, the big picture. For example, I believe the precious metal sector is undervalued right now.

First, I'll look at the project. Does it have value or is it just a crapshoot? When it comes to mining, drill results alone aren't enough. A company...

Read full article...

Builders FirstSource, Inc. (NasdaqGS: BLDR)

Builders FirstSource, Inc. engages in the manufacture and supply of structural and related building products for residential new construction primarily in the southern and eastern United States. The company offers prefabricated components, including floor trusses, roof trusses, wall panels, stairs, and engineered wood; and window and door products, such as aluminum and vinyl windows, and pre-hung interior and exterior doors, as well as assembles and distributes interior and exterior door units. It also provides lumber and lumber sheet products comprising dimensional lumber, plywood, and oriented strand board products; millwork products, including interior trim, exterior trim, columns, and posts, as well as custom exterior featured products; and other building products, such as cabinets, gypsum, hardware, composite materials, roofing, and insulation. The company was formerly known as BSL Holdings, Inc. and changed its name to Builders FirstSource, Inc. in October 1999. Builders FirstSource, Inc. was founded in 1998 and is based in Dallas, Texas.

To review Builder's stock, please take a look at the 1-year chart of BLDR (Builders Firstsource, Inc.) below with my added notations

BLDR had been trading within a sideways Rectangle for about (3) months. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. For BLDR, the Rectangle pattern formed a $4.50 resistance (maroon) and a $3.50 support (blue). The stock broke out of that Rectangle at the end of last month and now seems to be coming back to the old breakout resistance.

The Tale of the Tape: BLDR formed a very common chart pattern know as a Rectangle. Last month the stock broke through the resistance, headed higher, and now seems to be coming back to the previous $4.50 level. A long trade could be made at $4.50 if the stock approaches that level.

This Major Fed Move Is About To Create An Explosion In Gold

from KingWorldNews:

King World News is continuing to receive extraordinary levels of interest in what has turned into a series of Michael Pento pieces. Today Pento reports more stunning news, “Last week the ECB reported that overnight deposits parked at the central bank plunged by the most on record, or €484 billion in just one session. It now seems my theory that banks would deploy their reserves was proven correct in a matter of days.”

Pento also predicted, “I believe the cyclical period of deflation that I warned about several months ago is now close to an end.” Pento is now calling for another significant move, and he noted, “If the Fed does indeed go down that road, I would expect to see U.S money supply growth increase significantly. This will cause gold and commodity prices to soar.”

Today Michael Pento, of Pento Portfolio Strategies, writes exclusively for King World News to put global readers ahead of the curve, once again, on what is unfolding as a result of the major unprecedented moves by central banks. Here is Pento’s piece: “Could it be that world governments and central banks are now taking drastic measures to re-inflate their economies because they don’t believe their own economic statistics? For example, China reported that GDP growth came in at 7.6% last quarter. That’s slower growth, but still not so bad.”

Egon von Greyerz continues @

This Is The China Chart To Watch

Decision time for China. The Shanghai Composite is testing long-term trendline support that goes back to the mid-1990s. Resistance up top is a trendline down from the euphoric highs of 2007. So we’re essentially at the apex of two converging meaningful trendlines.

This is a logarithmic scale weekly line chart of the benchmark Shanghai Composite:

The current prices are near the 2001 highs, right before the Shanghai Composite got cut in half. There is memory at this price. That former resistance adds additional support at these levels.

The consequences of a breakdown below long-term support would really be damaging to this chart, and paints a poor picture for China. But I think there is an overwhelming amount of support where the higher probability move is a bounce. And a breakout above an almost 5-year down trendline could be explosive.

So as you can see, there’s a lot going on right now in this China chart. And I think it’s important to at least stay for the outcome. Regardless of what asset classes you own, this is probably going to have an impact.

This Packaging Giant is on the Threshold of a Technical Breakout

Behind every great food product is a well-engineered package.

Packaging is essential to keep food fresh, ensure it arrives at your local store in one piece, and to communicate the brand image that makes you want to buy the item.

It's also a multi-billion dollar industry that's expected to increase revenue 24% by 2014.

Benefiting from this growth is one of the world's largest manufacturers of folding cartons. This company has a strong technical outlook, solid fundamentals and outstanding valuation... and its shares have 38% upside potential.

Graphic Packaging Holding Company (NYSE: GPK) -- which operates facilities across the Americas, Europe, Asia Pacific and Brazil -- offers paperboard and flexible packaging, primarily for the food and beverage industries.

In fact, it creates packaging for some of the world's most recognized household brands, including Coco-Cola (NYSE: KO), Pepsi (NYSE: PEP), General Mills (NYSE: GIS) and Kraft (NYSE: KFT).

Graphic Packaging focuses on providing low-cost, high-tech packaging solutions, especially for China, one of the world's largest beer consuming nations. GPK expects its beer packaging to grow over 5% annually in the coming years. The Chinese are also showing an increasing demand for dairy products, like milk and yogurt, which require innovative packaging solutions. (more)

US Weekly Economic Calendar

time (et) report period Actual forecast previous
8:30 am Retail sales June 0.2% -0.2%
8:30 am Retail sales ex-autos June 0.0% -0.4%
8:30 am Empire state index July 5.0 2.3
10 am Inventories May -- 0.4%
8:30 am Consumer price index June 0.0% -0.3%
8:30 am Core CPI June 0.2% 0.2%
9:15 am Industrial production June 0.2% -0.1%
10 am Home builders' index July
30 29
10 AM Bernanke testimony
8:30 am Housing starts June
751,000 708,000
10 am Bernanke testimony
2 pm Beige Book
8:30 am Weekly jobless claims 7-14 368,000 350,000
10 am Existing home sales June 4.65 mln 4.55 mln
10 am Leading indicators June -0.1% 0.3%
10 am Philly Fed July -7.0 -16.6
None scheduled