Wall Street Craps – 2012 Global Ebook Finance Award-Winner

MARKET OBSERVATIONS FOR APRIL 21, 2012: The stock market’s breadth (advancing issues verses declining issues) continues to correct while prices try their best to rally. This sets up a market that is neither overbought or oversold enough in terms of breadth, sentiment, or price to make new buying decisions in the near term.

The Wall Street Craps approach calls to resisting the urge to short the market and to keep one’s powder dry in cash while waiting for the next buying opportunity. That first opportunity to take pilot positions may occur in the next week or so.

Since the last closing high in the Dow Jones 30 Industrial Average occurred on April 2nd, the more likely buying opportunity would be in the month of May at the earliest. This is based on the concept that selling opportunities and buying opportunities do not occur during the same month. That’s because it takes time to generate a significant shift in investor sentiment – a necessary ingredient for valid market signals.

Side-Bet Notes: Google (GOOG) is now approaching a possible buying opportunity as the Money Flow Indicator hit the 23 level on Friday. A move to the 15-20 range would mark a likely place for a short-term trading bottom. Apple (AAPL) still has much further to go before reaching a Money Flow Indicator buy signal.

MARKET OBSERVATIONS FOR APRIL 8, 2012: The stock market continues its correction into a late April to May bottom. The short side of the market continues to be tricky (as always). So it’s best to stay out of the market and on the sidelines – keep your powder – wait for a good buying opportunity that’s likely to come soon.

The McClellan Summation Index continues to show the market in a clear downtrend heading towards lower prices. When the time is ripe, we will be looking to take some large bets in a diversified portfolio of dividend-paying, Blue Chips equities in the form of actively-traded Exchange-Traded Funds. In addition, we will also look to take a solid position in the QQQs which are likely to be the speculative leader in the next rally.

My simple idea is to place 80% of trading funds designated for equities in SPY and DIA and 20% in the QQQ.

As far as total funds are concerned, I would place 80% in equities and 20% in high-yielding corporate bonds.

But first, the market needs to feel more pain! Maximum pain needs intensity, frequency, and duration. We haven’t reached that point yet.

MARKET OBSERVATIONS FOR MARCH 24, 2012: The stock market appears to be in a correction phase moving in the direction of the next buying opportunity. Most internal indicators are mid-range and don’t point in any particular direction. While some analysts will look at last week’s Apple dividend announcement as a sign of an approaching top, I would ignore the urge to go short now and wait instead for one last bull run into late April and May.

The McClellan Summation Index continues to show the market correcting heading towards lower prices. The trick is whether the March 6th bottom was an early cycle bottom or not. My guess is that the March 6th bottom will be tested shortly (as early as late next week) and prove to be a place for a good bounce up or even continuation of the recent bull run.

For now, the best advice is to keep your powder dry on the sidelines and let the market set itself up for its next move up. Betting the short side of the market will probably be tricky and distract you from making more significant bets when the market eventually bottoms. Remember that there’s a lot of money still out of the market or leaving the bond market and waiting to get in stocks or equities.

MARKET OBSERVATIONS FOR MARCH 10, 2012: The stock market experienced an interesting week where it corrected into a short-term oversold bottom and then rebounded in a 3-day rally. I would expect the market to retest Tuesday bottom in the next week.

Cycle studies point to a possible bottom around the March 16th time period. Also a major Bradley Turn Date is scheduled for March 19. (Note: Bradley turn dates can be either indicate tops or bottoms. If we get a weak rally to a new closing high, then this Bradley turn date would indicate a top. On the other hand, if we get a successful retest of last Tuesday’s bottom, then this Bradley turn date would indicate a bottom.)

So for those who want to go long in this market, a bottom worth buying could arrive either this coming week or next but only after there has been a successful retest of last Tuesday bottom.

MARKET OBSERVATIONS FOR MARCH 3, 2012: The stock market continues to hover in a tight trading range near recent highs. I wouldn’t be surprised if the Dow Jones 30 Industrials makes one more attempt at a closing new high before starting its overdue correction.

My 5-day retest rule indicates that the Dow Industrials will make an attempt at a new closing high on either Tuesday or Wednesday in the coming week. If that new high comes on weak volume and is largely unconfirmed by strength in the Dow Transports, QQQ, and overall breadth, it will most likely mark the intermediate high of this move. (Note: If the new high comes with a measure of strength, then the market can delay its topping formation for still another week)

Small side bets (called $5 bets) can be made in Exchange-Traded Funds with the symbols SDS and TZA for those who dare to play the short side of the market on a weak close during the last hour of trading on a new closing high in the Dow mid-week. Otherwise, a stock market bottom worth buying looks to be waiting for sometime in mid-to-late March at the earliest.

The McClellan Summation Index is showing a well-defined topping pattern with a time cycle bottom occurring about 4 weeks away. It’s important to remember that major selling opportunities and buying opportunities do not occur during the same month. It takes time to generate a significant shift in sentiment – a necessary ingredient for valid market signals.

MARKET OBSERVATIONS FOR FEBRUARY 11, 2012: The stock market continues to climb the proverbial wall of worry without much of a break in the form of a correction. But that may soon change.

A key reversal from Apple at mid-week, major non-confirmations from the Dow Transports, and 2 consecutive new closing highs at clearly defined resistance levels, may mark a point of market exhaustion. If the Dow Jones Industrials should make another closing high on Tuesday without confirming strength from other key indicators, it could mark the end of this rally phase and an intermediate term top of this market. But until the stock market sets up in this manner, it is better to let the rally run out its course.

Small side bets (called $5 bets) can be made in Exchange-Traded Funds with the symbols SDS and TZA for those who dare to play the short side of the market on a weak close during the last hour of trading Tuesday. Otherwise, a stock market bottom worth buying looks to be waiting for sometime in March in all likelihood.

MARKET OBSERVATIONS FOR JANUARY 21, 2012: The master strategy for winning at Wall Street Craps is to always play the game correctly by making only smart percentage bets at the optimal time period in the appropriate amounts relative to risk. Do these key tasks consistently as well as manage your overall bankroll wisely and “Know Thy Self” so that you can adjust your play according to your unique individual temperament.

• Sentiment Signals = solidly optimistic both long and short term – still room for one more pop to the upside – signaling that we are very close to some sort of top

• Breadth Signals = breadth indicators are moderately overbought – overdue for a swing to the downside but can still go in any direction short term

• High Yield Bond Signals = topping out and due for a stock market move down

Comment: The stock market is at the top of its trading range. There were 4 consecutive new highs recorded last week making the market vulnerable to an “exhaustion high” early next week. This is definitely not a time to be buying as the risk is deemed as being too high. The market may not be ready to go down right now but it’s upside is limited. It’s debatable whether the market will hover at these levels or go immediately into a correction. We are likely to see a “buy on dips” mentality if we do go down from here – making the first correction a short one. That would lead to a retest of the highs in February.

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“Markets top not because of smart sellers it’s just an absence of buying. And conversely at markets bottom, markets bottom not because of smart buyers it’s an absence of selling. So that’s our whole thesis and that’s our approach to analysis.”

Tom DeMark ~ Investment Advisor and Market Timing Expert

KNOW THY SELF & ADJUST YOUR PLAY ACCORDINGLY: People have deeply ingrained core values that are centered on the issue of money. Your ability to win consistently at Wall Street Craps is largely controlled by these underlying core values. So “Know Thyself” and play accordingly.

The famous Greek maxim “Gnothi se auton” (“Know Thyself”) is inscribed at the Temple of Apollo at Delphi. For centuries, people seeking advice from the oracle at Delphi would read the inscription and throughout the years philosophers offered this same advice to their students — and I’m doing the same thing here. If you’re a person who has deep issues with self-esteem, impatience, fear, indecision, doubt, insecurity, or worry, then trading the stock market will probably not be a good fit for you. That’s because your natural habits or patterns of thinking will likely resurface under the stress of trading funds in your account.

A good lesson that one can learn about their own nature is summed up in the following line: “The way you do anything is the way you do everything.” So if you’re lazy and undisciplined in one area of your life, it’s highly likely that you will be lazy and undisciplined in your stock market trading. And in the latter case, your chances of succeeding in a challenging game like the stock market are very slim.

Once you understand more about your own natural behavior, it is perfectly okay to either: (1) take a healthy break from stock market trading, (2) quit playing the game all together, or (3) continue dabbling in the stock market with only small amounts of money, simply for the love of the game.

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“The worship of money and the condemnation of money exist side by side, sometimes even within the same individual.”

Herb Goldberg and Robert T. Lewis ~ Authors of Money Madness (2000)

NOTICE WHAT THE GAME MAKES OF YOU: Playing the stock market at a serious level is not for everyone. If you find that playing the stock market game is bringing out the worst in you, then perhaps you should dial down the pressure so you can return to the kind of person that you want to be.

A few signs that the game is getting out of control for you include: (1) you’re spending too much time alone watching or obsessing about the market, (2) your losing positions in the stock market are ruining your weekends or family outings, and (3) you’re becoming noticeably more negative, less tolerant, and unbearably moody. Some simple suggestions for playing at a less stressful level include: (1) make smaller bets, (2) trade less frequently, (3) hold for a short time period, (4) eliminate the use of leverage, and (5) stop buying individual stocks or Exchange-Traded Funds.

For more extreme cases, you should consider confining most, if not all, of your stock market activities to buying or selling traditional broad-based no-load indexed mutual funds for the longer term. That way, you can participate in the overall growth of equities in a passive, yet intelligent, low-cost, low-risk manner.

Comment: The stock market can be a stressful activity that causes people to behave in ways that reveal internal emotional or character flaws. And the chances of success will be greatly limited by those emotional problems that show up when a person’s investments go in the wrong direction. So for those investors who possess these kinds of problems, it is better to step aside from the market and resolve your personal issues before returning to action.

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“True financial freedom doesn’t depend on how much money you have. Financial freedom is when you have power over your fears adn anxieties instead of the other way around.”

Suze Orman ~ Internationally Acclaimed Personal Finance Expert

SEPARATE THE WINNERS FROM THE LOSERS: Winners will only continue to play at games that they consistently win. Losers continue to play games that they consistently lose. If you find yourself a consistent loser at playing the stock market, change your approach or find another game.

Realistically, not everyone will experience success in trading the shorter-term trend of the stock market. The stock market game involves inherent risks, challenges your emotions, and tests your ability to manage money effectively. It’s entirely possible that this game or style of play is just not your cup of tea and, therefore, should be avoided.

If you love the stock market but have trouble trading the shorter-term movements, then consider eliminating the play money or speculative portion of your asset allocation plan. Place all of that money into the less volatile growth funds part of your allocation strategy, to invest in the intermediate term instead. (Note: An example of this would be to align your asset allocation so that it reads: 80% security assets for the long term, 20% growth funds for the intermediate term, and 0% play money for the short term.)

Comment: While the stock market seems to capture the attention of most public investors, the bond market is a much bigger investment arena to the institutional investor. With the advent of Exchange-Traded Funds, it is now possible to buy highly-liquid and actively-traded bond funds on the regular stock exchanges. A simple strategy of buying a portion of your funds in high quality long-term Treasury bond funds (example: TLT and IEF) and lower grade high-yield corporate bond funds (example: JNK) can give many investors a consistent return that exceeds stock market players with less risk and stress.

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“The ability to make a decision is another characteristic of a winner in money matters. I have found over and over again that those who succeed in making large sums of money reach decisions very promptly and change them, if at all, very slowly. I have also found that people who fail to make money reach decisions very slowly, if at all, and change them frequently and quickly.”

Venita VanCaspel ~ Author of The Power of Money Dynamics (1982)