Michael Covel: News & Info.

Ed Seykota was recently asked at his site:

“When you select what looks like a “promising” stock, do you keep pulling the trigger after being stopped out or do you move on to other markets if the first attempt fails? The reason I am asking is because I noticed many stocks will breakout with strength only to fall back, hit my stop, linger a couple months or so and then really take off.”

Ed responded:

“A promise is a statement that you will do something in the (non-existing) future. As such, all promises have an inherent design flaw. I don’t know of any stocks that make promises. I merely know stocks that meet various mathematical criteria in the now. You might consider having a look at what you mean by a “promising” stock.”

Trading guru Larry Williams better get what appears to be tax problems fixed with the IRS! Read.

Six years after the Spring 2000 Nasdaq crash, from a buy and hold perspective, the index is still in a -57% drawdown. That’s a long time for all of us generations who were constantly told to sit back and just trust buy and hold. Then again, as I have said often, the Japanese surely don’t believe in buy and hold. Their stock index, the Nikkei 225, is still in the middle of a -60% drawdown spanning over 16 years. That’s tough sledding for buy and holders.

Leo Melamed offers this perspective on the future of futures (PDF). An excerpt:

“Clearly there will be new financial scandals. Long Term Capital Management, Enron, WorldCom, Allied Irish Banks taught lessons that greed will quickly erase. While those scandals caused some hand wringing and finger pointing at derivatives markets, by and large they did not impede their growth. Indeed, one can make the case that while such scandals result in intensified scrutiny by regulators, they often serve to increase rather than decrease the use of risk management applications provided by our markets. Above all, such scandals often underscore the need for transparency that is best provided by organ- ized futures exchanges.”

A recent article of mine covering “risk” basics (PDF).

Theresa Lo offered a nice comment on price:

“I know you’re used to reading financial blogs that opine ad nauseum everyday. I have no idea how they do it, nor am I going to try. You see, I show up each morning to make money; cash facilitates life. I don’t care for conspiracy theories or consider fiat currency an Ayn Rand moral dilemma. I won’t waste time tracking the defunct M3. Who cares if the Plunge Protection Team is real or not? @*$%@#$ corporate greed. I cannot right the alleged wrongs of capitalism - that’s what the SELL button is for. Use it. I simply accept the Darwinian nature of the markets. There is a financial circle of life and it cannot be defied. There is no good or bad. There are only profits or losses. That’s why tracking and trading price is the way to go. In an imperfect world, it’s all we have.”

The Nasdaq has been dropping. I have no idea why, nor do I believe anyone else really has an idea why it has dropped. Consider the chart:

Nasdaq

Imagine all you have is that.

Even if you had all of the “news”, “opinions” and “analysis” from the last 6 months, how would it help you to trade that chart? Many trend following programs, if in the Nasdaq, are most likely short now. Does that mean they are right about direction? No, it just means that a directional shift has happened. When just staring at the chart, don’t you feel more secure using daily price data for decision-making v. “news” and “opinions”?

Recent feedback:

“Please relay to Michael my thanks. I’ve spent the last two and half years trading commodities and trashing back and forth between success and failure. After applying trending following principals from his book, my portfolio and I feel like we have direction. No more thrashing. Granted I’ve been in a hot copper, gold, and silver market but the fact that I was in it and not trading IN and OUT can be traced to Michael. I’ve taken my $60,000 to $330,000 in 2 months, and I’m no longer stressing over market moves like I did during my “TRASHING PHASE”. Please thank him again.”

Thanks, but…

Two months does not make a sample size of note! I am gald you have made some money, but be careful. There will be ups and downs and you need to be ready for those.

An interesting article about crash talk (PDF). You never know when or if everything will really take off, but if markets all go sharply, trend followers will be there.

Ben Stein lays out strong thoughts on the responsibility for high oil prices here (PDF). An excerpt:

“The energy companies — by and large and with some exceptions — just go out into the market, like you and me shopping at the grocery store, and buy oil, process it, and then sell it with a small markup to pay them for their efforts and to reward their stockholders for risk. This profit is pennies compared with what stock brokerages, software makers, and other major U.S. companies earn on a percentage basis of sales. In other words, the oil companies are just messengers announcing to energy-consuming Americans the news about oil prices.”

I agree 100%. Later he adds:

“As for me, I question if the commodities boom can go on forever. I have some of the funds I just mentioned, but not a lot. Commodities booms come and go — historically, they’ve never gone on forever. If you think this one will, here’s a hint. When people say, “Hey, this nonstop boom has never happened before,” and someone responds, “This time it’s different,” hold onto your wallets. “This time it’s different” is one of the most frightening phrases in economics. It’s entirely possible that the next move for oil is a long step down. Then won’t we be sorry for shooting the messengers?”

I agree here too. The idea, the trend following mantra, is not to predict bull or bear markets, but rather to follow along the market direction with a precise plan for exit always in mind.