Buy and Hold? Building a Portfolio

It's relatively obvious that the buy and hold strategy has not held up. Those that bought at 6400, after a rise to 14,100, have seen returns to 9000. Those that held have watched their stocks go through freefall.

In the next decade our priorities will shift. They will have to. Global economy, money, environment. The core game may be changing.

Traders still remain on top, if they are following trends well, and care little for what "should be", but only "what is".

• Traders playing "inflation" will be watching all commodities, from Gold and Silver, to industrial, oil, and agricultural moves.
• These traders will hold TIPS, treasury inflation protection bonds. Their principal adjusts upward along with inflation.
• Traders playing "deflation" will be watching long term treasury bonds, very likely to surge, safe municipal bonds, and CASH.
• And the middle grounders will play it all, of course, "allocating their portfolio" , and will include a larger % in "risk plays", such as emerging stocks, new break out plays, and small caps.

At www.bluechipoptions.com, in our preferred Blue Chip member service, we utilize the Richard D. Wyckoff Method of a 50 position "watch/own" list, and we only trade in options, or stocks, the same 50 in position, with minor changes through the year, and we typically physically hold no more than 10, and up to 20 total positions.

Cut Your Winners Short and Let Losses Run?

* Overbuying and overstudying the market confuses your thinking. Limit your input.

In recent days I've been performing a test on your reading and comprehension ability, and how many of you actually read my "dribble", which I hope you do.

I used a line "We cut our winners short and let our losses run". A few bright subscribers wrote "Other trading services teach the opposite...let winners run and cut losses short.

What I was writing was what HAPPENS, not what should be. Joe the Trader, most of all investors, "cut winners short (to make profits) and hold something too long ("let losses run") because they are "sure it will turn around.

The point of my exercise is for you to not "read a maxim", but analyze what you are reading. This is how you will become a trader.

Don't wait for Fundamentals to Deteriorate

-When a breakout is at risk.

-If the stock is deteriorating as the sector does.

-If there is a high volume reversal, or a down day with high volume.

Natural Gas as a Commodity Investment

Natural gas prices are set regionally, unlike oil. Supply and demand is thusly at its highest cause and effect. Shale gas wells came at the market, perhaps another way to exploit our environment, or whatever.....and gas production has increased dramatically. Supply is up now, and demand down.

So, nothing has gone right, and natural gas prices, best tracked by ETF UNG (U.S. Natural Gas Fund)

Bearish Resistance Lines

Bearish Resistance Lines:

1. The resistance marks a former top

2. Going beyond this former resistance is the true test of the strength of the breakout

3. Buying at this top, before it’s been confirmed, creates higher risk and potential higher returns

Quantifying Triple Leverage ETF Performance

http://www.oexoptions.com/BlueChip/BCO-Subscribe.html

Our Preferred Blue Chip subscribers received this information some time ago. We often publish "excerpts" of our subscriber newsletters to help the trader understand the market.

Let's start with a study of what triple leverage ETF holders are, and what they are intended to be.

Study: http://www.direxionshares.com/index.html

At www.bluechipoptions.com we trade best in heightened volatility periods, and we use these ETF's as short term trading vehicles. Make careful note: we do NOT believe investors should buy and hold the funds.

The purpose of the following funds is simple:

BGU, BGZ, FAS, FAZ.

Both BGU and BGZ trade 3X bull or bear markets respectively, and FAS and FAZ trade 3x the Russell Index.

Dirextion, and many other trading firms, new to this largely unregulated (sound familiar) and "gotta really follow the holdings" methodology could make the average investor simply think:

"Heck, when the market is going up I buy X, and going down I buy Y and I'll get rich".

It should be noted that Inverse 2 and 3X funds are massively risk for any volatility in the market and a purchase can lose 50% of it's value in minutes if the market moves dramatically in a contradictory manner to which the trader is using the vehicle.

The bottom line: We trade "front month" options only on the 3X funds. We buy calls or puts, noting that if a bear fund you are buying CALLS as options, and if a bull fun you are buying PUTS as options.

The risk is huge, and larger second buys often have to be made. But, returns can run 100's of %s on any high volatility move to the directional bias you are following, from our Dow projections.

We update often on our investments in this new genre. It's a new trading technique that we're experimenting with, and Floyd will keep you posted.

The Bell Curve Theory

*The Bell Curve Theory: The basic bell curve will show a top when a movement is three standard movements above the norm. Typically then stocks (or any commodity) will correct to the middle of the bell curve.

*It is the weight of public opinion backed by action or inaction that creates values.

*The common forces of supply and demand are: FEAR, HOPE, FACTS, RUMORS, GREED.

*You can always buy a stock again.

SRS Proshares Ultrashort ETF

SRS is our Proshares Ultrashort ETF. At www.bluechipoptions.com we invest in this often, both in the form of the actual alert, or recently our recommendation SAJKD SRS October 20.00 Call.

With SRS, which is a shorting instrument, in order to buy to the trend of the short, one buys a call.

To buy against the inverse, that the market goes up, one buys a put.

Right now we have invested only in one position, with two buys made, and an average cost of 2.44, including commissions.

We intend to hold this position for a good period of time, unless we see a massive spike quickly that RAISES the price of SRS. The higher the price of SRS goes, the more this option gains in value.

Simply watch a quote on SRS to see how it approaches 20.00.

Recently we bought SRS itself, at the 19.85 range, and sold at 23.40. SRS has a natural resistance area at 25.00. Blue Chip made this profit of 18% up holding the position less than 5 days. That's short term trading.

The core reasons we believe the real estate market is still seriously broken are twofold:

1. There is a glut of foreclosure and "built and shrink wrapped to sell later" (seriously) home inventory across the country.

2. The commercial real estate market is the next massive bank bubble to burst. Banks, and insurance companies have loaned real estate investing companies billions as the multitudes of mini malls, and mega malls have proliferated in the last few years.

Tenants/retailers are already in arrears, or in negotiations with their commercial landlords, for "rent reductions".

As savings grow, as unemployment rises (but earnings are good) disposable income that fills the retail coffers at these malls will fall. As always, we simply overbuilt and thought it would last forever.

We trade SRS a great deal, often in advance of "housing news" (always good :) or as we see more and more unravel.

The New Game of EVERYTHING is Capitalism

I am a student of the political comedian Bill Maher. Sadly, his comedy and blunt comments almost always hit the ground running for me.
For example:
BILL MAHER: New Rule: Not Everything in America Has to Make a Profit

The Controlling Price Factor

The distinction/difference between supply and demand has been the controlling price factor throughout the ages of mankind. Only the medium of exchange has been different. If we have something that no one wants, we call it worthless; if everybody wants it we call it priceless. This is the law of supply and demand.

Following your Intuition-Jesse Livermore

Reminisciences of a Stock Operator, by by Edwin Lefevre, is one of the 5 recommended Floydian reads. This is the story of Jesse Livermore, the famed 1920's and 1930's stock market investor that "owned" the stock market.

Trader Noam from Israel, in our Level 3 service at www.oexoptions.com just gave a review:

"Hello Floyd,

I wanted to tell you that the reminiscences book which

I'm currently reading is really excellent and interesting.

Also, I just got to the part about his mysterious hunches

(not yet read it, but the preceding paragraph on p. 77-78

in the illustrated book) - and it is exactly what I have many times:

I suddenly get an uneasy feeling (intuition) that I should

immediately sell and this feeling is 99% true, though not based

on any logic, and it occurs mostly while watching a chart but

sometimes, surprisingly, while I'm doing something completely unrelated,

and the chart isn't even open, so I rush to open the chart and

have an even stronger feeling that I must act quickly.

If I hesitate for even a few seconds than the position starts

running against me, and in the end I miss a great opportunity.

Noam"

Follow your instincts. Know your gut. Know the difference between your gut and your emotion; they are distinctly opposite.