QUICK THOUGHTS
- Have done nothing with any of "The Gun" trades. Reason being that the volume just isn't there to justify a long position. Doesn't mean that a trade will fail when a trigger is hit on light volume. It just means that the chances of success are not as great. - Strange market today. A very narrow trading range. We simply gapped up and have been sitting around the same levels. - I feel that we are going to chop around a bit here for sometime. If you enjoy trading over the very short term, it's time to look for shorts into a move like this. - The names in our portfolio continue the long consolidation process. Most of them are sitting at the lower ends of their consolidation ranges. These are long-term holdings. As I told members this weekend...when the names within our portfolio do decide to move out of their respective ranges, they will bring in exponential gains in a short period of time. I expect all of them to realize their value over the...
THE WEEK AHEAD: 5 CHARTS TO KEEP YOU IN PEACE AND NOT IN PIECES
click on the charts below to enlarge:
A DISSECTION OF THE 4 PHASES IN A CORRECTION OR BEAR MARKET CYCLE
Almost exactly one month ago, I described the 4 phases of a bull market cycle. My reason for writing the article was to warn market participants of the impending disaster that tends to strike right around the time a certain class of investor (termed "phase 4" investors) becomes involved in the financial markets. Since the time that article was written the QQQQ is down over 7% and the SPY is down 5%. I mentioned 3 stocks in the article that invariably tend to attract the euphoric "phase 4" class of investor. All of the 3 names are down significantly over the past month, with FNSR suffering the worst out of the trio with a 50% (no, not a typo) decline over the past month. Given the types of declines we have seen in many of the phase 4 names, the astute investor has to be wondering if the market has done a terrifically expedient job of rinsing the excessive optimism out of the market? It's a valid question that deserves to be explored. Just as a bull market has 4 phases, a bear market or correction cycle will have various phases that tend to frighten different types of investors. By watching the types of investments that are being liquidated by these investors during the various stages of a bear market or correction, one can make somewhat accurate judgments as to whether unwarranted pessimism has created an opportunity for the market to create a sustainable bottom from which a rally may develop. Judging the phases of a bear market or correction cycle is remarkably more difficult than judging the phases of a bull market cycle. I believe this is due to the fact that fear causes more emotional reactions in human beings than does greed. The more emotional a move in the market becomes, the more difficult it becomes to predict and the more chance it has to overshoot any reasonable technical targets. The loss of ones hard earned dollars seems to inflict greater emotional reactions than the greed driven ecstasy of making enough money to buy a new Jaguar. Make sure to keep this in mind as we discuss the various phases of a bear market or correction cycle. Phase 1 (beginning of bear market or correction cycle) -- Investors ignore even the most obvious signs that the market is turning around. Sentiment surveys, put/call ratios, COT reports, negative divergences, the appearance of phase 4 bullish investors. Every warning sign is ignored. Investors are eager to buy the dip in their favorite stocks, as they feel that the market is set to turn back up. The most speculative companies...
TOP 3 MOST POPULAR POSTS FROM THIS PAST WEEK
1. THE MOST READ BLOG POSTING IN THE SHORT HISTORY OF ZENPENNY 2. VISIONS OF NATURAL GAS INVESTMENTS DANCING THROUGH MY HEAD 3. TODAY'S THOUGHTS
I GOT GAS AND SO SHOULD YOU
I'm not going to stop pounding the table (I hate that term, but it's all I could think of at this moment) on natural gas. It belongs in every investors portfolio. Don't believe me? Ask the CEO of Exxon Mobil, Chevron or Royal Dutch Shell. As smart as you think you are, these guys know a whole lot more about the future of energy than you do. You know what they are doing? Throwing the kitchen sink, with all the dishes, pots and pans at natural gas. Here's a recent news story about it. They have seen the future potential of natural gas and with good reason. I wrote an article a couple weeks ago about being aware of who you are holding hands with in the stock market. If you haven't read it, please take some time and digest it. When you run with the sheep, odds are you're going to get sheared. But if you run with the big dogs, odds are you're going to be eating steak. There are multiple ways you can invest in natural gas. If you want a pure play, try the UNG, which attempts to track the natural gas prices in ETF form. It has the potential for some enormous upside, but you may risk missing out as natural gas stocks are already moving. You can also invest in FCG. It's another ETF. This ETF contains a variety of natural gas related companies. If you want to be aggressive, as I always tend to be, invest in micro-cap natural gas companies like PSTR. The smaller you get in the market cap, the more upside you will have when the natural gas trade gains in popularity. If you prefer to be conservative, take positions in the mega-cap companies like XOM or CVX. There are a million ways to play it. All I'm saying is that a piece of the natural gas play, in whatever variety you choose, belongs in your portfolio for the next few years and...
A NEW WAY OF LOOKING AT MARKET CORRECTIONS
Looks like we're in the process of completing our first leg down of this correction phase. I'll be going over a bunch of charts this coming weekend. For tonight, however, I want our focus to be on one. The chart we're looking at tonight is the QQQQ. Correction phases are tricky affairs. It makes sense that they would be. They (correction phases) are essentially rinses. It is an attempt to rinse the weak hands from the market so that the proper balance is observed in order for the averages to resume their uptrend with maximum strength and dexterity. The best way to visualize a rinse is to imagine investors in a bull market as a pile of shit on the sidewalk. I hope I didn't lose you...just stick with me here and you'll see where I'm going. Ok. Investor's are a pile of shit sitting on a sidewalk. The rinse that takes place is basically a very high pressure hose pointed right at the shit (investors). Initially, the weakest investors (surface shit) get carried away by the pressure of the water coming from the hose. What remains then is the more firmly ingrained shit. As the pressure from the hose becomes more concentrated, even the most firmly ingrained shit doesn't have the strength to hold on and is carried away with all the rest. What remains at that point are only pieces of shit that are embedded so deeply in the cracks of the sidewalk that they cannot be rinsed away. Once there is nothing left to rinse, the pressure stops and those who manage to embed themselves deep within the cracks of the sidewalk, get to walk away with the pleasure of participating in the next leg up for the market What the market has done to date is to rinse away the surface shit, mostly in the form of phase 4 investors. It has also managed to get into the more deeply embedded shit, which is a good thing. This simply means that we are completing the rinsing process at a lot faster pace than expected. The unfortunate part, however, is that the rinse is not over. There are more pieces of shit out there that need to be dealt with. This simply means that we will more than likely encounter a period of choppiness over the next couple of months before any sustainable uptrend takes place. Choppy movements can become extremely discouraging extremely fast. They frustrate traders and take up the levels of fear without the markets really going anywhere. They also create technical patterns that become extremely difficult to interpret, causing even further confusion, as...
LET’S GET LAZY
I haven't been updated "The Gun" lately for a very simple reason.....trading opportunities are few and far between. The long setups I had been watching over the past couple weeks have broken down given what we have experienced in the market recently. And short setups? Well, they are susceptible to days like today where the squeeze is applied with painful precision. That leaves me with nothing to do. Having nothing to do is something that we, as humans, associate with laziness or complacency. Basically, when we have nothing to do we feel that it's because we haven't been working hard enough. This is a good line of thinking if you're a postal worker, as there is always new mail to sort. It's a good line of thinking if you're a paper pusher, as there is always new paper to push. And it's a great line of thinking if you're a sales guy, you can always search for new leads. If you're a trader or investor, however, it's financial suicide. Yet another example as to how the financial markets run contradictory to every emotion, whether learned or innate. It's an aliens game that a bunch of humans are trying to play. A group of midgets playing in the NBA. A gang of nuns trying to feud with the bloods and crips. The markets are one of the few places where you are penalized for working hard. You begin pushing trades and creating scenarios that don't exist, instead of allowing trades and investments to come to you. Being anxious to find trades in order to stay busy just isn't good business in this arena. Have some patience. The opportunities will come. In the meantime, if you feel the need to work hard...go to the gym, go do some volunteer work or run a lap around the block. You'll feel better about yourself and your portfolio will thank you, as...
THE MOST READ BLOG POSTING IN THE SHORT HISTORY OF ZENPENNY
I published it back in February, and it's still far and away the most read blog post in the short history of Zenpenny. Here's the link http://www.zenpenny.com/?p=815 The phase 4 investors proved their weight in gold, as they gave yet another strong signal that the markets were topping. Learn peoples! It's all right there in the article. Let's look at the numbers since the phase 4 investor stampede warned us of an impending market top. The "phase 4 investor stampede" article was published on 2-17. Since then: QQQQ -8% FNSR (mentioned in article as phase 4 stock) -46% JDSU (mentioned in article as phase 4 stock) -21% CIEN (mentioned in article as phase 4 stock) -10% All this in one month! I hope that some of the phase 4 investors heeded the warning and took...
VISIONS OF NATURAL GAS INVESTMENTS DANCING THROUGH MY HEAD
This article also appears on thestreet.com and fidelity.com websites. Every decade has an investment theme. A sector or group of investments that you look back at wondering how you could have missed something so blatantly obvious? This is followed by the ritual calculations of the type of wealth you would have been able to accumulate had you seized the opportunity. In the 1990's, it was technology. In the 2000's, it was gold and oil. What sector will be the cause of our self-loathing in 2020? One of the most obvious answers is natural gas. Let's go over some in your face facts regarding the potential for natural gas over the next decade and beyond. Let's begin with the basics: natural gas is one of the cleanest burning fossil fuels. It is a cleaner alternative to coal and a more practical alternative to solar power. The United States has the largest natural gas reserves in the world. In 2010, JP Morgan analysts estimated that the United States contains 8000 trillion cubic feet of gas in place. Given the dramatic advancements in natural gas drilling techniques, up t0 50% of the 8000 trillion cubic feet of gas may be recoverable. The largest oil companies in the world have seen the light. Over the past few years, there has been a massive shift of capital into the natural gas space on behalf of the major energy players. Here are some recent examples: - Chevron just today announced that they will start engineering and design work on an expansion of the company's $43 billion dollar Gorgon liquefied-natural gas project in Australia. - In December 2009, Exxon Mobil paid $41 billion to buy XTO Energy. This is seen as a direct bet on the future of the domestic natural gas market. XTO dealt primarily in the natural gas market. - In November 2010, Chevron purchased Atlas Energy. Atlas was a major player in shale gas. - BP has been investing in natural gas, through partnerships with US companies, since 2008. As recently as 2010, BP was in a joint-venture with a private company in an attempt to gain access to South Texas natural gas. - In May 2010, Royal Dutch Shell paid $4.7 billion for East Resources, a major US natural gas and exploration company. As the price of crude oil continues to move up in price, viable alternatives will be put on the fast track towards implementation. The large oil companies have come to the realization that the global market wants a cleaner energy source. Nuclear energy has been removed from the discussion indefinitely as a result of the disastrous events ongoing in...