Tuesday, February 19, 2008

Why I'm not trading right now... and why charts sometimes lie.

I have turned into somewhat of a technical analyst, though I still have a lot to learn about when to sell and how to control losses.  Back in January of 2007 I bought USO at a dip low of around $42 that could have ended up being a $75+ gainer.  At a financial conference, I pointed it out to the Metastock rep there, who called it one of the best calls he had seen.

I sold out at 14% so I wouldn't get greedy.  Could have been almost 50%.

Along with stop gains, I believe in stop losses.  Right before the crash in January, I put a couple of "stink stop" bids on a few of the stocks I owned.  All of them were grabbed from me at the low of the day (all at losses), and by the next day they were all above what I had paid for them. 

Intervention by the Fed at it's finest.  Technical analysis of the charts would have told me we were in for a long ride down.  Realistically I should have known that government intervention will skew results beyond what a chart can predict.

After that, I became a bit more disillusioned with the whole market itself.  And this is the main reason why I don't feel like touching stocks any more.  Because the market isn't acting right.

"If a stock doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit. It is a very old thing, this of noting the behavior of a stock and studying its past performances." - Jesse Livermore

Bill Cara: Cara's Commentary & Community Chat, Tues., Feb. 19, 2008, 7:57am ET

Of course, in this case, we know what is wrong.  The loss of faith in global markets and financial institutions.

We can see this with the price of gold, which is up $21.60/oz today.  10 year gold since June '07 has gone vertical.   60 day gold shows 3 distinct peaks, with a 4th peak forming.   Point and Figure chart doesn't indicate any bottom.  Are we on our way to $1000 gold in the next month or so?

Oil also hit $100/barrel today, after various issues with Texan oil refineries and Venezuela.

BMO didn't do too well today after announcing writeoffs.

"Part of the problem is that they're just writing this off, writing that off,"said Chyanne Fyckes, chief investment manager at Stone Asset Management.

"I think if they had any idea about how bad it was, they would just go ahead and write it off and be done with it. But they're not doing that this time because they don't know what's going on and that's what I find very disconcerting."

I'm not sure that anyone knows exactly what's going on and how bad the current financial situation is with the banks.  How do you value illiquid assets?  What risks are you taking on if your risk models aren't accurate?   

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