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Posted: December 12, 2007 at 5:01 pm by Lisa
Wow, what a mess today. I didn’t understand the excitement over the Fed’s plan to make borrowing easier for the banks, but I guess I saw that more as an act of desperation. Who cheers when faced with that type of situation? The best we can hope for is that all the plans, schemes, or whatever you want to call them, actually have the ability to quietly repair some of the damage, rather than crash, our financial institutions. The point swings on the Dow today were impressive, if not a bit scary. All of this action makes trading more hazardous, but not impossible. I’m still in the fray!
The reaction by the financial stocks is viewed by us as a no-confindence vote by the markets. Let the Dow swing away, just protect your capital, as you know that the danger is far from over. This market environment is really wearing out a lot of traders as they run from one gap to the next, but it’s a little bit easier when you have a view of the bigger picture and confidence in your ability as a trader.
We’ll have more tonight!
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Lisa -
Yep…I have confidence. Confidence that this market is going higher. Buying dips in bull markets is a time proven profitable strategy. The long-term trend on the DOW is still bullish. As the saying goes, “a bull market isn’t over until it is over”. You know, the trend is your friend. I am a little surprised that the market only had a partial rebound from yesterdays down move.
If the market were to return to new all-time highs on good volume, would you consider it a sign that the economic turmoil had subsided?
I have confidence that the market, including retail and pros, acts like a herd and will avoid extinction by going where survival is most likely — cash and bonds — as soon as more danger signs like the one raised today by the Fed, go up.
To think a slow down can be avoided in the face of record foreclosures and record drops in home prices is unreal.
And the Fed isn’t fighting a moderate slow down with today’s auction plan, it’s fighting for the survival of our financial system. Containing the mess to a mere recession will look good on the Fed, in my opinion.
Dave,
I hope you are not buying every dip in THIS market, you are playing with fire. You have been with us for a long time and I understand you want to be “in the market”. But you also have to understand from what we have been explaining to our readers the implications of what is at hand. The market is holding by a thread that is every day getting weaker.
The FOMC action yesterday was a vot of no confidence that the FEDs can control the spread of the liquidity problems. The actions that the FED’s announced this morning was an even BIGGER vote of no confidence and sold off the market in strength.
You are at will of course to buy and sell as you see fit, but the perspective from us, who monitor the markets, study the charts, study the financial statements, and follow the events around the world with live news tickers running in our office virtually 24 hours each day, and our experience… we can only tell you that you MUST keep your stop losses tight. Anyone who is “loading the boat” here for long term investments may be lucky and have a great pay off, BUT the risk is at extremes.
Keep your stop loss exits close and tight, don’t want to see you lose it all.
I hope you are not keeping that plate on the table waiting for the cheesecake, but we are setting our plate here
The stock picks that you have are not doing to good. Three stocks hit their stop loss price today. More stop loss than profits.
That is the purpose of having the stop losses in place. In this market if one is to ‘try’ and capture some moves then one has to play the charts as best as one can, but the markets moved violently again and so our stop loss points keep us from suffering any big losses. Remember, each position is only a 10% portfolio trade, so the actual loss on the portfolio is even lower.And remember, only stocks which first reached the confirmation price became open trades. Stocks on the watch list that don’t reach confirmation are never entered so if the stop loss hits on those it does not matter because we never took the trade.
How did “buy the dips” work in 2000? This market has become a scalper’s market of late. That’s why we are now spending even more time scanning charts and looking at company fundamentals to find the trades with the best potential rewards. And, it may take a “name” financial institution to finally admit they are insolvent before this market understands the scope of this problem. The speed of the deterioration in the financial sector is the only thing that took me by surprise.
Lisa - There was big money to be made buying the dips even in 2000. Yes, if you were in the group that bought the very last dip you would have lost money, but it would have been limited with tight stops. That discipline to keep tight stops in extended markets is crucial. There were a boat load of dips moving into 2000 that would have made you rich had you bought them. Every bull market will have a ton of opportunities to “buy on the dip” and only one opportunity to buy that final dip that doesn’t work. Why try to guess which dip will be the last? That is like catching the falling knife in reverse.
Chuck - No, unfortunately the last dip I bought was in mid-August. I loaded the boat (100% stock) with every momo stock I could find and clicked the buy button the moment the rate cut was announced. AAPL, BIDU, GRMN, DRYS, RIMM, VMW, etc. I made a HUGE return by letting it ride, moving my stops up, and tightening the stops as the price rose. It was like playing with house money. Yeah, I stopped out of a few too early, but I made more than 40% in several months.
I got out of stocks completely (as I have shared on this site) about a month ago. I missed the short on the way down, and the up move on the way up. I am still sitting in 100% cash. I will enter long soon, but this market has been too volatile. There are many opportunities (solar is hot, PG, McDonalds, etc.), but I haven’t entered yet. I am allowing you guys to scare me out of an entry for just a little bit longer.
P.S. I am as close to my cheesecake strike price as you. I prefer blueberry thank you.
Trading styles differ, Dave. And, it’s not as if we’ve been totally sitting out the whole time. With the extreme volatility, swing trades have contained more risk than daytrades. I’ll take my Carnegie cheesecake plain, thank you
My friend said I had still not convinced her to get out of the stock market. She is a conservative buy and hold investor with a 15 yr mortgage in So. California. She said if the market does go down as I predict, she will buy the dips, a strategy which has served her well since the 1980’s. They plan to retire in 10 years.
I think most people have been conditioned to buy the dips, ride it out, because in the long run, the market does go higher.
While I am short stocks, and long metals, and in cash, I have not been able to convince others to be cautious. Some of my family and friends think I’m too bearish.
SB -
I am one of the buy on the dips guys……. “as long as we are in a bull market”. IF this bull market breaks (in my opinion an SP close below 1390) I will change and short the market and sell on the rallys.