Wall Street Craps – 2012 Global Ebook Finance Award-Winner

STOCK MARKET OBSERVATIONS FOR November 2, 2014: The stock market has fulfilled its “V-Shaped Bottom” with last week’s historic run to the upside. However, the new closing high on Friday is still unconfirmed by a number of major indicators. This coupled with several “overbought” readings in key underlying indicators would suggest that the upside may be limited right now. It’s probably too late to buy into this rally without experiencing some sort of sideways correction soon, but be ready to buy any dips for a resumption of this long bull market.

Key underlying market indicators show the following:

• NYSE Breadth Oscillator – Ultimate Indicator – 71 (overbought)
• Nasdaq Breadth Oscillator – Ultimate Indicator – 76 (overbought)
• NYSE % Above 50 Day Moving Average – Ultimate Indicator – 86 (overbought)
• Nasdaq % Above 50 Day Moving Average – Ultimate Indicator – 91 (overbought)
• S&P 100 % Above 200 Day Moving Average – Ultimate Indicator – 82 (overbought)
• S&P Bullish Percent Indicator – Ultimate Indicator – 83 (overbought)
• Risk On/Risk Off Indicator – Ultimate Indicator – 59 (neutral)

Personal Note: A good student of the market needs to update their strategy over time in order to play the game more effectively. The reason is that the stock market game is now more volatile than ever before. The new players in the game are quicker, smarter, better equipped, more competitive, and forever looking for an “edge” in order to make money in this market.

As an individual do-it-yourself investor, the new strategy for today’s market is to make smaller bets while buying the dips and selling the rips – and thus, holding your trading positions for a shorter time. This applies to “playing” the stock market for fast money with less risk.

As far as “asset allocation” and the vehicles for “security assets” and “growth funds,” the best funds for long-term money are in the higher-yielding broad-based low-fee Exchange-Traded Funds offered by Charles Schwab and Vanguard. The annual fees charged by Exchange-Traded Funds when compounded over time can amount to significant cuts in your overall returns. This is especially true when it comes to large positions that are held for a long time – as in “Security Assets” that they are described in my book, Wall Street Craps: How to Play Today’s Hot & Cold Stock Market For Fast Money With Less Risk.

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My advice for traders and investors is let the market set-up for a dip in the near term in order to establish new long positions. Rather than a simple bounce in a topping pattern, this rally appears to me to be a new leg of a revived bull market. Otherwise, it might be less risky to simply wait for the seasonal correction during mid-December in order to establish or add to long positions. Don’t get antsy and remember that the “casino is always open!”

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THE APPLE BEAR MARKET OPTIMIZED MOVING AVERAGE UPDATE FEBRUARY 4, 2013:I have devised a new indicator for Apple which I call the “Apple Bear Market Optimized Moving Average“. It is a 50-day exponential moving average of the price of Apple. It currently has 3 points that served as the top of small rallies since early October 2012. This will help those who want to buy the stock low but want to get out before it turns down again. As of today, the moving average is at 517 and dropping rapidly.

With so many traders, investors, and institutions having paper losses in this popular stock, it appears that the one thing that people don’t expect is a bear market in this issue. Almost all of the fundamental projections for the stock are in the 700-800 price range. Until these weak hands get scared out of the stock, my technical and behavioral indicators point to lower prices.

Some key Apple indicators show the following:

• Relative Strength Indicator:  “34” reading and not far from a buy signal under 30
• Ultimate Indicator:  “31” reading and close to a buy signal under 30
• Money Flow Indicator:  “43” reading which is far from being a buy signal under 20 (Note: This indicator has been the most timely and reliable of the three mentioned above!)

Until the “Apple Bear Market Optimized Moving Average” is broken to the upside, the trend is down for this popular stock. And until the Money Flow Indicator gets near 20, it still hasn’t gone enough to an extreme in this most accurate forecasting timer for buying Apple. For now, my crystal ball says that a turn to the upside in Apple will have to wait until mid-to-late February (approximately Feb. 18-23).

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)

TALLY YOUR RESULTS: If your wins are consistently small and your losses are consistently big, then quit trading or continue to play small for the love of the game. Leave your serious money in low-risk stable investments for the long-term.

It’s always wise to take a periodic inventory of your investment results. If there’s a consistent pattern of losing, you may have a hidden flaw in the way you play the game. In many cases, emotional self-sabotage can prevent even smart investors from winning — regardless of the actual strategies they may employ.

Until you find and fix the flaws in your game, it makes no sense to increase or continue your current level of play in the stock market. A lack of consistent positive results means that there is something wrong in either your thinking, feeling, and/or actions regarding your stock market investments.

Comment: If you are getting angry, frustrated, disappointed, bitter, or depressed about how stock market trading or investing, it simply means that there is something that you don’t fully understand…. understand about the stock market, understand about your investing tactics, or understand about yourself.

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“Most new investors try various markets, lose money, and finally acquire some knowledge through bitter experience. This is roughly analogous to learning how to drive by having a series of accidents.”

Samuel Case ~ Author of The First Book of Investing (1999)

DON’T RETURN TO PLAY THE MARKET IN THE SAME MONTH: The stock market requires time to realign itself for its next move up. The market rarely gives a major sell signal and a major buy signal during the same month.

Major shifts in investor psychology require time to develop. The public almost never goes from greed to fear in less than 31 days. If you sell out of your stock positions in an intelligent manner, it makes perfect sense to go away for at least a month without any fear of missing out on a low-risk intermediate-term buying opportunity. A careful study of previous stock market declines will reveal that a large number of major corrections exhibit at least two legs down in price and duration.

Comment: “Two legs down” means that you can expect two separate trends during the course of several weeks where the general stock market moves in an overall downward direction. Each “down leg” will reach a lower level of stock prices before reaching a point where prices temporarily stabilize. This means that there will be a space of time between the two down legs where prices level off before resuming their downward march towards a potential major bottom and low-risk buying opportunity.

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“I try to wait until things set up just right before I take a trade. Then, when I’m ready to take the trade, I slowly count to ten before I pick up the phone. It’s better to have the wrong idea and good timing than the right idea and bad timing.”

Linda Bradford Raschke ~ Professional trader

THE CASINO IS ALWAYS OPEN: Figure out precisely what you did wrong, as well as what you did right after each losing trade. Always forgive yourself for your mistakes and realize that opportunities for improvement often come disguised as misfortune or temporary defeat.

Resist the urge to get back into the market right after you have cashed out. Remember that the stock market will always be there for you to play in, and that it’s not important for you to participate in every minor rally. Have the patience and understanding to wait instead for the next big opportunity, which will present itself on its own time table and not yours.

The great thing about the stock market is that every bottom is followed by a top. And every top is followed by a bottom. It’s been that way throughout history and you can expect this pattern to keep reoccurring well into the foreseeable future.

Comment: Realize that some opportunities to trade for profit are going to escape your grasp. Resist the urge to play the “what if” game and don’t concern yourself with minor stock market moves. Instead, let the market set itself up for a more clearly defined up move.

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“It would be foolish to overlook the human vice of greed. The successful trader must be able to recognize and control his greed. If you get a buzz from profits and depressed by losses, you belong in Las Vegas, not the markets.”

Mark Richie ~ Professional commodity trader

COME TO GRIPS WITH YOUR LOSSES: Figure out precisely what you did wrong, as well as what you did right after each losing trade. Always forgive yourself for your mistakes and realize that opportunities for improvement often come disguised as misfortune or temporary defeat.

A wise individual realizes that there is absolutely no value in beating themselves up for something they have done wrong in the past. After all, you cannot change the results you get in the stock market anymore than changing what you had for breakfast the previous day. Remember to be kind to yourself and choose instead to accept the lesson of your mistakes, uncover any bad habits, improve your system, regain your emotional balance, and move on to your next opportunity.

Recognize that your path to fortune will always have some bumps along the way. The sooner you get over these bumps, the sooner you will be ready and willing to trade successfully the next time around.

Comment: The stock market teaches you valuable lessons about investing and life more through defeat and pain than victory and joy. The purpose of pain is not for you to suffer. The purpose of pain is to heal yourself and then help other to heal from the same thing.

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“Every investor should be prepared financially and psychologically for the possibility of poor short-term results.”

Benjamin Graham ~ Legendary professional investor (1896-1976)

DON’T JUSTIFY YOUR BIG LOSSES: Your goal is to become a savvy player who plays the game correctly. It’s not about outperforming the averages. In a down market, don’t take satisfaction in knowing that you only lost 25% of your entire capital when the S&P 500 Index (one of the most widely followed stock market measurements) lost over 30%.

Professional money managers normally gauge their performance against the general market as measured by the S&P 500 Index in the effort to attract and keep clients. But individual investors are not in that same business and, therefore, should not use this measure as an excuse for losing money.

Individual investors must realize that the only way to lose large sums of money is by holding sizable positions during the wrong period of time. The individual investor always has the flexibility to leave the market and move to a 100% cash position at any moment.

On the other hand, most professional money managers are required to invest a certain portion of their fund’s assets in equities at all times. The professional money manager plays a competitive game that is measured against the performance of other professionals; in contrast, the individual investor is only concerned about making money-management decisions that fit their own objectives and level of risk.

Comment: Big losses are the result of poor decision-making. When it comes to market trading tactics, big losses usually stem from the inability to cut losses short and admit that you’re wrong. When it comes to money management, big losses are causes by concentrated bets that aren’t diversified or involved too much risk.

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“When you sell in desperation, you always sell cheap.”

Peter Lynch ~ Author of One Up On Wall Street (2000)