Larry,
This may be a bit contrary to the popular opinion but do you think Nem might be a good short using O'Neils rules.
The market appears to be in the first stage of a bear move. It's been about 5 months since Nem made a high in the 50+ range. The 50 DMA has crossed under the 200. The gold stocks were the leaders from 2000 to the end of 2003.
I was also thinking it might not hurt to see if the dollar closes above the 200 DMA before placing the short.

Jim

Jim,

Actually, according to O’Neil’s shorting strategy, NEM would seem to qualify. The only thing is that gold stocks are not market leaders. They may have outperformed the market, but institutions were not loading up on gold stocks.

But, yes, overall it does seem like an O’Neil short. However, I think I’ll pass on this one.

Larry

Jim,

We may have a possible 2B reversal in NEM today. It took out its low of 39.98 from February and if it closes above that low it would be a confirmation. If so, it indicates a rally back to at least the 50-day moving average. That may be a better shorting opportunity if you are so inclined.

It’s also happening at the same time the dollar is up against resistance and gold has traded down to its 40-week moving average.

Larry

Larry,
I'll keep that in mind. I kind of thought it might be a good idea to wait and see if the dollar can close above the 200 DMA also before I short it. I'm not sure if this is worth noting but the dollar seems to be shrugging off bad news lately. Isn't this typically bullish action?

Jim

Yes, shrugging off bad news is a bullish factor.

Larry

Larry,
IBM just reported 2 days early and with bad news. Do you think maybe I should buy the AMZN put maybe 3-4 days before the 26th?

Jim

Man, that's strange and unusual. I'm not surprised their numbers were bad. I am really surprised they reported a week early. I'll be curious to know what that's all about.

Also, RFMD reported really bad net income. Trading is halted.

I don't know what to tell you about Amazon. I can tell you what IBM did is really unusual. So I guess you better get in early to make sure. I guess these companies are going to report whenever they feel like it.

Larry

Has anyone noticed what happened to the QQQQ's in the after hours market. IBM didn't just hurt IBM.

Gary

Seems like panic in the QQQQ's tonight. What was that saying, buy panic sell euphoria, or something like that.

Jim,
I think I'll give your gap strategy a try tonight.

Gary

Jim,
Looks like your short idea on Nem is panning out. Did you go ahead and short it?

Gary

PS. Amazon also appears to be cooperating.

Gary,
No unfortunately I was waiting to see if the dollar could rally above the 200 day moving average. It does appear that Lassonde was on the right track when he sold most of his shares several months ago. I did buy the put on AMZN though and yes it is working very nicely.

Jim

Larry,
The dollar closed above the 200 DMA yesterday and looks to extend its gains today. Over the last 15 years the 80 level has held support every time. It seems that the edge would be that the bottom has been put in for the dollars decline at least for a while. All the metal stocks are in decline as a matter of fact all the commodity stocks are in decline. It seems unlikely that commodities are going to do much unless the dollar starts down again. I'm thinking shorting some of the metal stocks might be appropriate right now. If the dollar closes back below the 200 DMA I'll close the shorts. Take profits if the dollar reachs the 95 level where it has historically peaked out after bouncing off the 80 level. Am I missing anything that would contradict my reasoning?

Jim

the quote is:

"It seems that the edge would be that the bottom has been put in for the dollars decline at least for a while."

is this true? it's all how you look at it, i guess... here's how i see it. (uh-oh, here i go again with biasis).

look at the US$ weekly chart. the price did close above the 40 WMA... but if you look back at may 2004 it did the same thing. popped above the 40 WMA after a multi-month consolidation. that seemed like a bottom too at the time - but we know what has happened since. the strength of the trend carried onward!

i know i mentioned a steve sjugguard article on this site before, he said that there are so many shorts in the US$ that, once they start covering, it's bound to rally. this may be that rally - but i don't think he was saying that the mega-trend will turn. he was just anticipating a blip.

all i'm saying is... the 40 WMA is clearly down. personally, i wouldn't want to stand in front of that freight-train!

careful out there.

-ja

Joe,
That's why I said I would cover any shorts if the dollar closed back below the 200 DMA. It seems that the profit potential is much greater than the risk at the moment. If the dollar moves down 1 point I'm out, if however it moves up to around 95 where it has historically bounced to in the past, then I think the small risk is worth the potential large gain.

Jim

if you're right & you have correctly picked the bottom in the US$ then YES, you will do very well. if you're wrong but you're out fast with only a small loss then it's only a small loss - this is great trend-trading. i was just questioning your assumption about the edge being on the long side based on this small blip.

i think the best way to determine a tread is to throw up a 40 WMA (or a 200 DMA) on your screen then ask a 5 year old which direction it's heading - up, down or flat. it should be real obvious. then trade with the trend.

the other way to get a good entry is to ask gary what he's doing... then do the opposite.

(it's a joke - & why do i jest? because i love.)

-ja

Jim,

I agree that the edge may be that the dollar has put in at least a temporary bottom. But there’s lots more resistance above the market. The dollar closed on Friday at 86.11. Beginning at about 87, there seems to be a lot of supply that may put a lid on any further advance.

And I can see why you might want to short some metal stocks. I just think there are probably better shorts out there. But if you're so inclined, I think you’re playing it the right way.

Larry

Joe,
I would have to agree with you on the 40 week moving average to determine the long term trend. I just thought it might be a worthwhile short since in the last fifteen years everytime the dollar has reached the 80 level its bounced back to about 95. 100% seems like pretty good odds. Maybe this time will be different though.

Larry,
It seems to me that if I'm correct and the dollar does rebound back to around 95, the metal stocks will get hit really hard. What other sector would you recommend, that you think would suffer more than the precious metals if this senario does unfold?

Jim

Jim,

If the dollar does go from a 79-81 low to 95, the metals may very well get hit really hard. When that happened in 1992, Newmont (NEM) went from about 38 to about 31 in about five months. But when it happened in 1995, NEM went from about 38 to about 40. It took two years.

I just think there is so much resistance above and there is so much money waiting to sell the dollar everytime it sticks its head up, that it's going to have a hard time getting to 95. If I had to guess, I'd say what you're seeing now is more like a short squeeze than new buying. But I don't have anyway of kowing for sure.

What would be a better short? Probably tech, now that it's run up into resistance.

Larry

By the way, interestingly, from November of 1995 to February of 1996, NEM went from 37 to 58 as the dollar went from 84 to 87.

Larry

Larry,
Speaking of NEM, I see it's a buy at open today and I did. I like this system but for the purposes of 15 days, is today day one and if so do we sell at open on day 15 or at close on day 15 (open day 16)?
h

Howard,

Today is day one. Also, keep in mind there's nothing magic about 15 days. I'm just guessing that it's a good time stop.

Larry

Larry,
I'm sure I want 15 days to be more magical than it is. That way the guy to develped the system will be responsible for my losses not me.
But it turns out that it's a good plan as I've been looking at charts. It seems these plays on BBs either come back quickly or take a while. 3 weeks is a good period to wait. I guess it's a balance of capital turnover vs. not taking a loss. If you wait the loss gets smaller but you don't get your money into play as fast. If you don't wait you take a bigger loss but you're on to the next one.
Have you ( or anyone) modeled what a portfolio would do given that capital is tied up. I'm thinking that if we took 5 or 10 efts or stocks and backtested taking all signals that our capital allowed for (20% for 5 or 10% of capital if we use 10) we might see some difference because of the effect of missing signals while waiting. Just a thought. I'd do it but I'm busy right now because my ebay business is doing well - not a bad reason to not have time.
h

what's your business, howard?

-ja

Jo,
I buy old roman coins found and packed in Europe and offer them for resale. Collectors and hobbyists clean them up. I also clean some and sell some of those. I only keep the ones from the first 12 caesars because that's my only interest in them. In fact, that's one form my silver takes.
h

Larry,
This is a bit related to what Howard mentioned above about 15 days and having capital tied up for awhile. I was playing around with the Individual BB system. I looked at the first 20 stocks in the Nasdaq 100 for the last six months. If you would buy anytime Intraday that the stock declines under the lower bollinger band by what ever amount and sell if it closes above the lower band on that day. I get a total of 243 trades, 145 are one day trades were the stock closed back above the lower band. 85 turned into normal BB winning trades with the majority closing in 1-5 days. 13 were losses of which only 4 were caused by the switched entry. Seems like a pretty good way to get a lot more one day trades. Am I overlooking something?

Jim

Jim,

Nope, you’re not missing anything. In fact, I know your numbers are about right. One of Altucher’s strategies from his book is a “5-minute BB System.” Using a 5-minute chart and a 10-bar moving average with 2 standard deviations, he went by the following rules:

1. Buy when the stock falls 3% below its lower band. Hold until at least the end of the 5-minute bar where the stock was bought.

2. Sell when the stock hits a 1% profit target or at the end of the second bar after the stock was bought.

You would have to get something like Trade Station and set some alerts, but inter-day, intra-day, it doesn’t matter. You should get good results either way. And you’re right the more trades you can generate the more compounding you have working for you.

Larry

Larry,
One other question. You mentioned Altucher's results for the individual BB system, Every year was great except 04 which only had a 1.24% return. I looked at a few stocks in 04 and the system looked like it produced the same average returns. Was 1.24% a misprint?

Jim

Jim,

No, it’s no misprint. 2004 was an aimless, choppy year. You may see a year like that every once out of every 10. You also had measly returns with QQQQ/Bollinger Band and with VTO for that year.

I can’t explain why you got better results with your test. Maybe the way you did it was better for 2004.

Larry

Larry,
I just looked at a few stocks in 04 which appeared to have normal returns. But by no means enough to get a true picture.
Is there a way to scan for stocks under the lower Bollinger band in real time on stockcharts?

Jim

Jim,

There probably is a way to scan in real time on Stock Charts using the advanced scan engine. But I don’t know how to do it. One of the things I’m going to do one of these days (famous last words) is to learn how to use the advanced scan better than I know how to use it now.

Larry

Larry,
I discovered that you can scan in realtime by choosing Intra-day at the top of the advanced scans. By the way do you think an average volume of 500,000 is adequate for liquidity?

Jim

Duh! I forgot about that intra-day option. Now all you have to do is adjust the BB settings.

I think you want at least 500,000 shares of volume. Maybe a million. I think you want to avoid stocks that are too illiquid for the big guys to mess with. It's going to take volume to snap the stock back above the lower BB or whatever profit you're looking for.

Larry

Also, you need very tight bid-asked spreads. That also takes volume.

Larry

Larry and all,
I'm not going to play this but I want to be conscious of the q's, retailer, reit, banking etfs look like they'll close above the upper bbb. Let's watch what would happen if we shorted as a reverse of the system.
h

Howard,
I looked at that senario a bit and it didn't produce very well. But then maybe I didn't look at enough cases. It seemed to perform poorly so I didn't bother to test very long.

Jim

Howard,

I can tell you reverses of the system don't work. They may work this time, but overall they don't. Markets go up differently than they go down.

Larry