Wow just when we thought things were heading south, we get some encouraging economic news. As of Friday May 30, 2008, we are sitting at 1400 on the S&P 500. A bounce off the 50 day moving average was expected, but a continued move past 1390 surprised me.

On Tuesday I left this comment under my most recent article:

We are getting a nice bounce off the 50 day moving average on the S&P. The NASDAQ is bouncing off support, this is a good time to look into shorting.

As you may already know, I was shorting the NASDAQ and on late Wednesday I added to my short position and shorted the Russel 2000 as well. On Wednesday Dylan, one of my guest writers, left this comment:

I think this week is going to end up pretty rough for people who are holding long positions. I think the Nasdaq is in the process of forming a right shoulder in a head and shoulders pattern. The S&P500 is butting up against resistance at 1390 (the same support level that was holding it up this same time two weeks ago). The DOW is also nearing some minor longer term resistance. It may be tomorrow, Friday, or perhaps as late as early next week, but I think we may be in for a bit of a wild ride to the downside. Keep your eyes open for reversal patterns, as this upcoming bearish turn to the market has not really begun yet.

The inverted head and shoulders pattern Dylan is refering to is this:

It`s fair to say that this move past 1390 (major resistance) is not a good sign for short sellers but we have not closed past 1400. Some believe that 1400 is actually the major resistance, so a close above this level would be a win for the bulls, and a retest of those 1440 highs would be likely. Speaking of closing above 1400, I was nervous on Thursday, the markets looked a bit too positive as it hovered above 1400 for some time. I considered getting out of QID and TWM but decided to wait until the close. We are at another critical point in the markets, the best thing to do is to wait for confirmation. Reacting too early may cost you a lot of money, I have a feeling that this move up may be a trap. People who decided to go long these past two days may get trapped in a sudden reversal. 1400 should continue to act as resistance, so more sideways action or a quick reversal is likely to happen. Further, the Nasdaq is forming an inverted head and shoulders pattern as mentioned above. In the shorter timeframes there are a lot of mixed signals, but the long-term trend is still down so further weakness should occur. This upward move was on lighter volume so again I would not go long until we officially break major resistance levels because a drop could be pretty rapid.

You may have noticed the new Cooly Amazing 300×250 banner. I`m actually pretty excited about this, and you should be too. We have around 60 sponsors now with well over 45,000 EC credits to be won. On top of these EC credits (which you could sell on eBay of course) we have other prizes worth hundreds of dollars. Details will be posted on Sunday so please check it out!

Richard
richard[at]hedgeagainstspeculation.com

Hello traders! I’ve decided to make a quick post before calling it a day. We saw more selling on Friday as investors panicked about oil’s rise and its affect on the economy. Renewed fears on the still-slumping housing market and ailing financial services sector caused increased profit taking. Is reality starting to finally set in? Housing, spending, and manufacturing data will be released this weak…and unfortunately, I don’t see any positives coming out from this. Further, technically speaking the indices look extremely weak. The NASDAQ is still the strongest out of the bunch, but big names like GOOG, BAIDU, AAPL, and RIMM don’t look like they’re moving any higher. Let’s take a look at the S&P500:

We ended the week below 1390. This level has acted as resistance since 2006, breaking past this mark two months ago was a great achievement. The bullish run we had was fair, but as of today we are below this important level once again. What was support last week is now resistance! For us to be bullish again we need to break not one, but three resistance levels. To be honest, we have a much better chance of testing 1325 than retesting the 1440 high. If we break below the 50 day moving average, we are bound to test 1325 (the next support level). Looks like the “sell in may and stay away” notion is now in effect. I’m hoping some of you got into some shorts Friday, if you haven’t and still want to take full advantage of this weak market you may want to consider TWM. This ETF shorts the Russell 2000 and is the most volatile ultrashort index, but if things work out you’ll get the most bang for your buck. You may want to wait for a bear pullback though, the market should take a breather at MA(50) before heading lower again.

Oh and just another reminder, Hedge Against Speculation’s Cooly Amazing Contest begins June 1st…don’t miss it!

Richard
richard[at]hedgeagainstspeculation.com

Hello Hedgers, it’s been a while since I made a post about the markets but here it is. The past week has been a bit uneventful, after triggering on the head and shoulders pattern I was expecting the S&P500 to test the 200 day moving average right away. Instead, it took a little break at 1420 before trying to test the MA (200) again. I sat on the sidelines at 1420 while keeping a close eye on the S&P as we approached the vital MA (200). Things were looking very bullish last week, but as predicted the market would not be able to break this 1440 mark. We got confirmation on Tuesday as the sellers decided to show up. Today, more damage was done on the markets as more sellers continued to flow in (today’s volume was pretty strong). On top of that, we broke the March trendline…a very bearish sign.

I have been shorting the Nasdaq (buying QID) since hitting the MA (200) in the S&P; however, this may be a wrong move. I should’ve shorted the S&P (buying SDS) seeing as the Nasdaq still looks fairly strong when compared to the other indices. The Dow is also showing weakness as it fell below its trendline after forming a bearish double top pattern on Monday. The S&P, Dow and Russell are all in bad shape, as of today there is no reason to buy. In the short-term, or at least this week, things are looking bearish. We are making lower highs and lower lows…unless we can retest the 1440 mark soon, I believe the markets are heading down from here. Don’t listen to the people on TV who say that the markets are still looking extremely strong. They were!…but that was last week!! As mentioned in my previous articles, this summer may look ugly. I am expecting a lot of blood…

Strategy: Stay on the sidelines, short the indices or day trade.

Oh and Hedgers, just a little update…we have over 45 sponsors for our Cooly Amazing Contest, so that means there will be loads of prizes to be won. Anyone can enter into this random draw, and entering will take only 15 seconds of your time. This will be one of the biggest blog contests on the web, mark your calendars…June 1st is the date!

Richard
richard[at]hedgeagainstspeculation.com

Ho Ho Ho! It’s far from Christmas, but guess what?…I’m in a giving mood so I’ve decided to have my semi-annual contest next month. I will be giving away tons of great gifts! Hedge Against Speculation will be hosting a new contest in June, but as promised the prizes will be much MUCH bigger this time around and entering will be even easier! On June 1st, I will announce the Cooly Amazing Contest and the details will follow.But without your help this contest will not be as cooly as it should be. In order to have an amazing contest,  I’m looking for Contest Sponsors. Being a Contest Sponsor is a good way to promote your product or website because your name and website will be posted under my “Contest” tab AND under my “Partners’” tab under Contest Sponsors.

If you’re interested in building backlinks to your website, this is a great opportunity. You will get two backlinks from my PR3 website…on top of that, I will be encouraging people to copy and paste this contest on their own blogs. By doing so, you will get even more backlinks, probably upwards to 50 backlinks.

As I type this, we already have 25 sponsors, but I’m looking to double our current prize list. If you’re interested in donating to this Cooly Amazing Contest, please contact richard@hedgeagainstspeculation.com or leave a comment below.

Not sure what to donate? Here’s a few suggestions:

• Entrecard credits
• Free Ad Space
• Money through Paypal
• Free Hosting/Domain name
• Merchandise

If you have any other suggestions for prizes, please post them below.

Thanks,

Richard

Hey all. I decided to include in my latest blog some of my thoughts on trading. I am doing this partly as a disclaimer to my own suggestions. Also, the company that first introduced me to stock trading, Investools, has been under fire from disgruntled clients who lost money following their system. These clients cried over their losses, called the SEC, and are suing Investools, which I think is a bunch of donkey stuff (kind of sounds like the cries coming from the subprime mortgage victims). Hopefully, I can keep the ranting to a minimum and impart my own views on how to be successful.

As the site name suggests, hedgeagainstspeculation.com, I also thought it might be useful to give my opinion on how to best use the stock suggestions you see. First of all, let me start by saying every trader is different. Cliché I know. But it is true. When I suggest a stock, I am usually bringing it to your attention because the chart of the stock tells me one of several things: it is about to break out, it just broke out, or it is forming a chart pattern that I find interesting. But just because I am seeing something in a chart does not mean it will happen, or that you should make the trade in that stock. With the exception of one or two chart patterns, I always wait for the breakout before I take a position. This usually, but not always, helps to ensure that I am right. Take for example one of my suggestions from the other week, EGOV. I thought it was forming a nice chart pattern. It gave a false breakout on the 16th. Following my own trading rules I got in. After three days, the stock had basically gone sideways. While it may have gone up from here on out, I decided to exit the trade because the stock did not do what I thought it would. I take a small hit at the chance of profit. Eh, oh well. You have to risk to win. That is the name of the game.

This little story brings me to my next point. Which is do not make a trade until you have answered a short list of questions that I find to be very important. The first two are the obvious two: which way am I expecting the stock to move, and where is my entry point? Next comes a tougher question. How much money should I risk, or what should the size of my position be? Then an even tougher question. If the stock goes against me, at what point do I get out? And finally is the toughest of all. If the stock moves for me, when do I take a profit?

The first couple of questions, I usually address with each post, but these other several questions I have been kind of avoiding. And for several reasons, the biggest of which is that I don’t know you, your financial situation, or your risk tolerance. The exit strategies I have set for myself I laid down on paper, and defer to them in ALL situations. When I first started trading, I could find good stocks, and get in at relatively good prices, but my exit strategy was weak, and I ended up either leaving money on the table, or taking larger than necessary losses because I was not being disciplined. The way I do things is based on percentages. I relegate only a certain percent of my money for any one trade. Next, I do not take on a full position right away, but usually limp in as the stock continues to go in my predicted direction. Finally, my stops are based on the percent of the investment I feel I can accept losing. Besides, there are plenty of stocks out there, so if the current stock is running dull, why not preserve the capital and put it into something that will turn a profit.

So here are just a couple suggestions for the yet to be savvy trader. When you see a stock chart being analyzed, do not make the trade unless you truly see the patterns taking place, ie support/resistance, reversal patterns or continuation patterns. Just because a pattern suggests a certain price target does not mean that is the definite place to exit. What if the stock falls just short of that, or what if you get out at that point, and the stock continues to move right on through the target. In both places, lack of proper exit strategies would leave you at a loss of either real or potential value. And in each instance, you would be kicking yourself. In this case, as I approach a price target, I usually don’t exit automatically, but instead tighten up my stops. I may not make the full profit if the stock does stop at this point, but I also keep my position in case that double I just hit turns into a homerun. Finally, lose the ego. Brag about the successful trades once you exit them, but until then, stay humble. This will give you the confidence to keep investing, but will also allow you to follow your rules should the stock go against you. I consider a successful trade to be any trade where I follow my rules, win or lose. Staying humble is the most important part of being successful. There is nothing more efficient at turning small losses into huge ones than hope and ego.

Happy Trading

-Dylan