Review our Dow projections carefully, which have now been in affect for almost 21 days, still operating within a 584-point range.
We believe there is a 60% chance the market could move to 10,650 to 10,746, the top Fib retracement, a 20% odds the market will hesitate no higher than 10,550, and a 20% chance the market could reverse to the 9950 to 10050 area, before another attempt at upside.
Our projections remain on track and hitting each step:
9800-Strongest Resistance, the market seems to bounce from here
9950-10050-The struggle point
10,118-10,250-Strong Support lines.
10,416-Resistance-possible highest top
10,550-Resistance
10,676-Strong Resistance
Our basic rules of thumb on Dow projections: When the market drops it typically moves to a total of 584 points down, in periods of time. Any move up that holds over 100 points by day end typically ends a downside, and begins an upside to the same 584 area move up.
10,746-10,787-Fibonnaci Resistance and Retracement level
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Therapy is where the patient identifies his traits and characterology and learns how to change, or deal with them.
Many psychologists and psychiatrists spend their time with patients while the patient lies to them, never tells them the “truth” or the whole story. The Dr. will not know what the real truth is until the patient is able or willing to expose themselves to the physician, or to themselves.’
This holds true with Stock Traders who all suffer their own emotions, issues and grief’s, and have their own torments in addition to suffering with the natural traders lament of when to buy and when to sell, and more importantly, how they as a trader deal with FEAR and GREED.
FEAR occurs both in “should I buy now” and “should I sell now”
GREED occurs both in “should I sell now” or hold on, or “should I wait a little longer to buy, to let the stock go down more, before I latch on and carry it up, thusly showing GREED.
System logic traders follow flexible (not rigid) rules to trading.
Quantative logic traders trade by math algorithm’s that are mechanical and take the emotion out of trading.
OEX Options.com, our sister company, is a system logic methodology that uses “flexible” parameters around basic sets of “when and when not” and how and how not”.
We trade indices like the OEX pitting our trading ability against the others that are selling or buying, hence the spread between bid and ask.
As an example we recently recommend trading PAAS (Pan American Silver) ONLY when it had moved UP to 24.70. On a PNF chart we were waiting for confirmation of upside before entry.
As the stock hit 24.70 we recommended PAAS OCT 16 2010 23.00 CALL
which hit 53% returns within 5 days.
This, again by example, is an October call, giving us until October 15th to sell out for profit or loss.
Here’s a view of PAAS:
Note the stock is now nearing a double top at $27.00 and if it rises above $27.00 to 28.00 will have hit all time recent highs since May of 09.
Note the stock is now above the simple moving average and hitting the Bollinger Band top.
Watching Silver (SLV) which we also own, and being believers that Silver many have more long term upside than Gold for the short term, (GLD) which we also own, traders will have two choices:
1. Lock in profits now at 53% returns.
2. Sell partials (at least 1/3) of your position at the top we are at or near, and hold the final position for more upside, having already gained profits to cover their buys. This is called “letting an option run”
3. Hold it all. Wait for the stock to hit over 28.00, to new highs, and reap much larger returns.
Fear and Greed will play a huge role in what decision the trader makes.
For the trader that bought just the stock, they know what could be a stop loss ($23.00) if trading “tight” or if risk oriented and wanting a deeper stop loss or a place to take a larger second buy of the stock, watching for a drop to $20.00, the most recent lowest low.
Who you are is defined here. How you emote, how you feel, where you have FEAR or GREED, all come into place.
Now, in turn, let’s look at GLD and CEF, both stocks we own, not options.
GLD is simply gold and CEF is gold and silver bullion, on the Canadian market.
And SLV is the indices like GLD that holds only Silver. We own all three:
We would begin watching Gold (GLD) for the highest top at 1290.00 per oz, and a stop loss near 1200.00
This fund has shown a double top break out, confirming the same as PAAS that silver is on an upswing. We’d look for tops at $22.00, and stop loss at 17.50 for tight traders
This stock shows lower volatility, and lower volume in trading. Because it combines Gold and Silver in real assets and is not traded by the minute as GLD and SLV often are we would see this only as a long term hold, using both the Gold and Silver highs and lows as recommended points to exit the position.
However, for those keeping 15% of their trading capital in real assets, CEF is the best long-term trade for steady accumulation.
Long-term 10-year treasuries have dropped 2.5% in two weeks, raising their yield. We’re out of TLT, as you know, and have re-invested in treasury inflation bonds, TIPS, which we will hold while the world economists argue whether we are approaching deflation or inflation.
We’d like to cover 4 more holdings this week, all part of Floyd’s perma bull thinking on oil. Most systemologists see energy stocks on the downturn, which they are, and Crude Oil not hitting and holding above 78.00.
Short term this is true. Long term we think not, and have invested in three stocks that all pay dividends, that all have lots of cash, and all also invest and reconnoiter around liquid and natural gas also.
COP-Conoco Phillips. Buffet owns it, and so do we. Buy and hold.
XOM-Exxon Mobil - This is our largest holding. ExxonMobil has more money than most countries combined and is undervalued in the market. Continue to buy.
Chevron-CVX-This is another stellar, volatile energy stock we feel undervalued in the market.
Traders should own the stocks, and be accumulating them all on dips, all with a trailing stop loss of 20 to 25%.
If option trading these positions we only recommend long term calls that are at least 6 to 9 months out, and being ready as a trader to hold and accumulate on volatility.
If we can learn compassion we can build peace. If we can learn not to fight “dirty” (the GOP not allowing any bill to pass) we foster dissent. Dissent builds resentment and anger, and irrational behavior.
When we are smart enough to not even read the news bytes on a Sarah Palin we have begun to understand that reading false facts and manipulation only confuses the issue, for the lady with the “good looking legs and the new boob job”, and begun to understand self promoting vs. content.
Have a good week trading.
