Are you still sitting on your hands?

In my last market update I told you that I was doing nothing for a week to 10 days. I suggested to everyone that this would be a good plan after the little pull back we had last week. If you listened and watched the charts you were safe on Friday when the Markets pulled back. Some times the markets will send a signal before a market reversal takes place. It’s usually subtle but it’s usually there. This one happened to be one week before. I also said that if you had to trade, to trade small. If you did take a position hopefully you didn’t jump right in with both feet.

So where do we go from here. Keep sitting on your hands. The uncertainty in Cairo and many broken patterns in the market make it very uncertain. It’s best to wait and see what develops over the next few business days.

Let’s talk about Time Frames. Your time frame is if you own a stock, is it a short, moderate or long term hold. This time frame will help you make a decision in times of uncertainty and market pull backs. For instance, using FORD (F) for example. F has had a great run for a while now, actually over the past 1.5 years from 1.00 to 19.00. Over the past 6 months $14.00 to $19.00. If you have a long term hold you have no concern over the $2.50 pull back that F had on Friday. But if you are a Momentum trader holding stocks for 1 week to 2 months. This pull back just ate up all your gains if you did not sell F before earnings. You just lost 2 months of hard work and because F is possibly in a broken stage it will take F another 4 months to rebuild and begin to move up again. 6 months of DEAD money. If your using your money to make cash flow and constant gains then you did not have a good Friday. But, if you have F for long term, you plan on holding for years. You didn’t mind at all and welcomed or even bought more. Both Time Frames are right! It depends on you personal plan and goals. By the way, a pull back in F is a normal healthy thing and for the short term trader we just need to find where the base is and possibly buy more.

Time Frames are thought of when you put your trading thesis together. Example, APPLE (AAPL) Your thesis is to buy it, forget you bought it because you believe it is the growth stock for the next 2 years. You do not care where it is in the market cycle, you purchase it and forget about AAPL. Conversely, Apple (AAPL) is declaring earnings in March. Your trading thesis is to purchase AAPL to ride AAPL into earning to capture an earnings run selling it just before earnings. Same company two very different plans but both are good.

Every time you purchase a stock think about your Time Frame ask yourself what would you do if your stock appreciates substantially or declines rapidly.

I'll have a Market update soon, very busy week, What is working F, UNP, IPI,LULU, JPM,BAC,SWN and POT

Market Update Jan 23.

Last week we got the beginning of the Market pull back that was anticipated and much needed. I stress beginning because we really don’t know how long or how deep the pullback may be. For all we know it is finished and we will continue upward. I doubt it. The SP500 is in no mans land as of Friday. No direction, finishing in the upper middle of a range of 1270 and 1300. With the 40 day moving average down at 1250.

The healthy thing for this market to do is keep selling off and marking some constructive, organized sell days down or sideways to the 1250 area or Sideways Time with the 40 DMA meeting the daily price action of the SP500. During the past few days the sell off has been organized and constructive with no particular sector selling in panic. Some of the markets Beta High Flyers like SalesForce, Riverbed, Level 5, Apple etc. have sold off. Sectors like the Transports and Banking also have had an orderly pulled back. Even precious metals have retreated. We have had a nice bull market in place since the end of November and this pullback should not be surprising.

What to do right now? Nothing except assemble your watch list and wait this out. Think of it like this. Do you want to be the first one out of your foxhole during a war. I don’t think so. Just sit in your foxhole, read the papers, sharpen you watch list and wait for a directional move. My plan is to wait about seven to 10 days and then reevaluate the market. My only holding currently is F (FORD) which declares earnings on the 28^th. The F thesis is that this will trade sideways to up until Earnings with a strong stop loss at 17.35. If this changes at all I will be out. 17.35 is the point I am wrong and I want out.

So let’s use this time constructively and listen and learn where the market leading sectors maybe heading next. Make that watch list of stocks that you might want to own and start to determine the stocks level of possible support. Let’s watch the SP500 closely because this will be the leading indicator when it might be time to exit our fox holes and start taking long positions again. My watch list consists of JPM, MS, BAC, AAPL, UNP, LULU, ALTR, F, CAT

Be agnostic.

Market update and JPM , LULU Trade

We are getting the much anticipated market pull back. The pull back began 2 to 3 days ago when the market just couldn't find higher highs. If you do have open positions you need to look to see if you are happy with the current price action of the company. If not, sell it, you might get a chance to buy it back less expensive. This pull back is healthy and needed.

JPM Let's look at the trade last week that we talked about. If you entered the trade as described and took a little more after 44.70 you made about 1.5 to 2 points. JPM topped at about 46.00 and after earnings JPM just couldn't find a higher high the next day. This was your cue to exit the trade and capture 2 points. Very nice for a one week period.

What made this trade good? Entry Points! We picked a nice conservative entry. Purchased small and waited for confirmation to add to the position. By planning the Entry Point you have defined your risk (support), made a thesis or plan and did not blitz and buy to big until you were proven correct. All of these items are important in purchasing your stocks with lower stress and accuracy.

We did have a stop loss at 42.50 but that was in place just incase we were wrong in the very beginning or for a massive quick sell off. It should have never been hit and you should have exited the trade for a profit. Even If you waited until yesterday during the sell off, which obviously told you market conditions have changed you should have made a small profit.

LULU did not have follow through the second day if you did purchase. Hope fully you did purchase small if you purchased at all. Stop loss was hit or you exited when you did not see follow though this was the smart thing to do. The action the day of the break out was great but late in the day LULU sold off and did not close at the high of the day. That's a red checkmark! The next day it was sold off slightly, Usually after a breakout, the stock will continue upward for 3 to 4 days. If it dosen't you need to be suspect. So to negatives happened, 1.) LULU dosen't close at the high of the day and day 2 close was below day 1 and pulled back. That's your sign that you were wrong and close out of the position.

JPM and LULU

Entry points are everything. If you get the entry point right everything else will take care of itself. JPM has fallen a few points and have formed what looks like a BULL FLAG. A Bull Flag is a pull back in a stock with decreased selling pressure. The bottom of the Flag is around 43.30. a good trade to get involved would look like this. Buy a Small amount, a starter get involved position in JPM in the 43.20 to 43.75 area. Do not buy a full position at this first buy. We are waiting for confirmation of a Break Out. A break out in JPM would look like this. JPM moving above 44.70 in above average volume. A stop loss should be immediately placed at 42.50. If JPM moves below this amount we are wrong and need to be out of this trade. JPM declares earnings this Friday and they should be good.

LULU is up big after hours. Do Not buy first thing at 9:30 wait at least 1 hour. After 10:30 if LULU is still moving higher you can take a SMALL starter position. LULU has readjusted their 4 quarter sales figures and adjusted them higher. It looks like LULU was the gift of the Christmas season for women! LULU has the ability to be a big winning stock of 2011.

Top Down Approach

TOP DOWN APPROACH

Well itʼs your first real trading month in the markets and your wondering where to begin? How to get organized and where to find the best companies to invest in. The best way to accomplish this and be organized at the same time is the TOP DOWN APPROACH. The Top Down Approach boils the market down to what is working right now. All markets flow in a cycle, ebb an flowing from one time period to another. So looking at the whole market in whole the first thing we need to do is find out what SECTORS are currently leading the market. Leading sectors can follow many items, FED decisions, current economic cycles and political influences to name just a few. So much information, how can one possible filter all this. Use the resources that are currently out there. The Wall Street Journal, IBD, Barronʼs and many CNBC TV shows highlight the trending sectors daily. Another good source is watching the money flow into EFTʼs EFTs are a grouping of like sector stocks that are traded on a daily basis. You can buy and sell these EFTs which consist of a particular sector of stocks. The XLF is the EFT that supports the Financial Sector. If you take the XLF apart you will find that it consist of all financial companies. You can call your broker to get a list of all the EFTs out there once you get the list, make a watch list on your trading platform and you can track them daily. While listening to CNBC shows commentators are always letting you know where the VOLUME or BUYING is and what SECTORS are working. We want to be in the sectors that are working. These sectors that are working usually work for a while they “cycle”. Sometimes they cycle the whole year, sometimes for a few months so you always want to be up to date on what sectors are working. Everything about investing is about trying to make investing easier. Why would you want to invest in any sector or company that is not working and going against the grain. That is just lunacy. Make investing fun and easy, invest in things that are working.

So now we know what sectors are working. We are going to use the XLF Financial sector because it is working now because of Fed Policy and it may work all year! Financials are working so now we need to go inside the Financial Sector and find the companies that are “Best of Breed”. Best of Breed is a fundamental term that describes the financial condition of a stock compared to itʼs peers inside there sector. We what to be associated with the the best fundamental companies inside there sectors. An EFT consist of all companies inside the sector with good or bad balance sheets or financial strength. Where do we rate or find them? We look, listen and read! We listen to the CNBC commentary, they usually talk about the same financial companies over and over. We read the news publications, for example IBD ranks the stocks inside the sectors. IBD also if you subscribe does the work for you with their “Stock Check Up” feature and grades the Balance sheets of the top companies inside the sector. If your really anal you comb the balance sheets determining the PE and Multiple. This is something you should know and also how to do it but with all the resources out there in this age itʼs to easy to find it else where.

So now we have our top 3 to 4 financials. Letʼs say they are JPM, GS, BAC and C. Which one or maybe all to buy. Well that depends on a number of things and your investment risk tolerance so everyone is different. I like to find 1 or 2.The next check box is Technical Analysis. I had you set up your charts last time so itʼs time to go to the charts! The charts tell the trading story of our stocks. How they react and volume or buying of the company. The best thing we can have happen to our stock is have institutional investment. Big money Mutual fund investment is great and we can find that out also by poking around in our publications or online research. The charts let us know where in the buying cycle our stocks are at either short or long term.

When do we buy? Well I donʼt want anyone buying currently. We are waiting for a pull back in the market currently and none of the above mentioned stocks are at good buy points. So play around with this information, resources and try to determine of current good sectors. Get used to finding the best companies for current market conditions.

Dear Traders, family members and friends

PitBull Wizard Basics is an enlightening little read loaded with beginning steps to make your new trading experience positive and, hopefully—more profitable. These lessons are lessons I wish someone had taught me when I first started trading. One of the most important things that I learned back in the mid-1990s, when I started trading seriously, was what an advantage having a mentor to ask questions of or an easy reference guide to use for everyday questions. Yes, there are hundreds of books out there that talk about trading and many are condensed versions to cut corners. This guide is different from all of those, but I recommend you reading as much as possible while you are trading. These information I am about to impart to you are lessons I learned when I was a beginner trader. I learned these on trial and error. When one makes an error as a trader—and you will—you lose your money. What I have compiled here is a guide that I hope will limit some beginner errors and keep your cash inside your trading accounts, where it belongs. My objective is to provide advocacy and good advice to novice traders, derived from the accumulation of my personal and professional trading experiences that span the past twenty-five years.

As a seasoned, battle-tested, scared, and profitable trader I’ve had the opportunity and privilege to know, interact, and learn from traders with vast degrees of experience and knowledge. I have learned so much from listening, asking questions, and sharing my knowledge in an effort to become even more profitable and now, to help mentor others who are interested in our art and to dispel myths about “day traders” or trading the markets.

My background is not finance or trading, it’s healthcare. For twenty years I was a medical consultant for one of the largest pharmaceutical companies in the world. My background is solving various medical disease problems. I like to help people and to see people smile and flourish. Obviously working for such a large corporation and dealing with the lives of their customers for so many years comes with a great capacity for responsibility and requires technical skills, analytics, and problem solving abilities. During my college years, when I was a marketing and management student, I found myself drawn to this thing we call—the market. I worked ninety hours a week during college to help pay the bills, but always found that I needed just a little extra money so I had to find away to earn extra income. Back in the 1980s there was no internet for charting and broker fees were sky high so that was out of the question for me. I wound up heading to the library to research using “Value Line”—looking at a chart that was four months old! Now we can chart in real time!

Welcome to the world of trading. Whether it’s stock, futures, or currency—it is all trading. This short read will help you with the basics, getting your footing in the markets. and prepare you for the next stage of trading. Like everything else, without a great foundation, your journey would be exhausting and painful. Enjoy!