Not much to say on the long view of the portfolio this week. It was certainly a very volatile week, and my portfolio went from 11.82% to 30% annualized to end up at 6.07% annualized.

So far the loss for March is -1.78%. 

KLAC broke down with a gap and became oversold, however, there was no bounce for two days regardless of the oversold condition, the general markets did not help much either. I am looking for any minimal bounce to exit. Since next week is going to be driven by news, there is no point on exiting Monday, as there was no point exiting on Friday.

LLY broke down with a gap, became oversold and bounced. The same criteria as KLAC applies to LLY. I will either close on Tuesday if the market does not react positively to the news, or keep the position. 

If the markets fail to react to the Fed news, I will start unwinding my positions and change strategies in view of a bear market ahead, instead of a correction. 

For now, waiting, this portfolio right now is risky, but it has some room before becoming a liability.

I am not publishing stock picks because it is starting to look like we may move into a full fledged bear market.

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Last update : 16-03-2008 10:24

Horrible week for long positions, but you don't need me to reiterate that.

The portfolio I started in January is still up, but losing a lot of ground. This week I had to liquidate my first position at a loss (CHS). I had bought at 9.85 and sold at 9.06 during the reversal day for a loss of 8%. It was a good thing I did sell it, because CHS kept going down and is now at 7.42. 

The portfolio had ended up February with a 2.63% gain, and lost during this first week 50% of its gains (thus the somber tone of my post today).

The biggest winner is RIG, up 11.5% since bought

The biggest loser is MRK, down 9.73%. MRK is reaching the risk limit the position had, as it reached a long-term support area. If you look at a MRK chart you will see between October of 2006 and March of 2007, the 41.6 area acted as support for creating a base before the run up in May 2007.

MRK also completed 5 waves down since the peak in December 2007. So there is high probability for MRK to bounce from these levels. Failing to bounce and breaking down will signal my exit, and a loss of 11%/12% on this position.

(ADMIN! We really need Charts here, when are you going to install them?).

EXPD is down 6% since I bought, but I am looking at the monthly chart and I don't see yet a reason to sell. This one will require a lot of patience and a careful eye should it break the support levels at around 38.

All in all, for a long only portfolio during a bearish market, I am satisfied with the results. The key from now on will be to keep managing risk to avoid further erosion of the gains. I agree with the view of other posters that we are close to a bounce, probably starting on Monday, but hope does not make us money, and due diligence does.

Have a great weekend everybody! 

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Last update : 09-03-2008 00:00

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Last update : 05-03-2008 06:57

This is a repost of an article published originally back in September 2007. It is worth republishing it.

1. Avoid, to the extent it is possible, selling goods at a fixed price to be paid in the future
   1. Remember that if you work for somebody you are selling your work at a price set in the past and you will be paid in the future, so, during hyperinflation, you will be robbed daily
2. Do not loan money at a fixed interest rate
   1. Remember that when you put money on a 401k, bank account, etc., you are loaning money at a fixed rate (bank account) or at a zero rate (401k), the same is true if your are an employee
3. Take loans at a fixed interest rate
   1. Good luck with that (see 5)
4. Do not save! Every penny you save will lose value on a daily basis
   1. Remember that if you work for somebody you are saving no matter what (you give your work today and your employers keep the money they owe you for your work in their bank account, and they pay you without interest at the end of the week, etc.)
   2. The longer it takes for you to spend your money, the more you lose
5. Owe interest free money
   1. Try to buy goods and services and pay for them in the future
   2. Take as long as you can to pay your debts and, if your creditors complain, tell them that you are facing a liquidity crisis
   3. The best candidates for this kind of transactions (if you have no power) are your friends, so be ready to change friends frequently

That said, here are the informal chances of survival and thriving based on the income class you belong to:

1. If your only source of income is the sale of your work and you have adjustable rate debt: 0%

You will survive, but it is called slavery (you will have enough money to feed yourself so you can go to work)

1. If your only source of income is the sale of your work and you have adjustable and fixed rate debt: 5%

You will survive, and have a very expensive house/ car, or whatever else you are buying on a fixed rate. As soon as you refinance that expensive house or car to get all that equity you will go back to 1.

1. If your only source of income is selling your work/services as an independent contractor/professional and you don't charge cash: 10%

You can always raise your prices every day; however, you will lose money in every non-cash transaction

1. If your only source of income is selling your work/services as an independent contractor/professional and you charge cash: 20%

Of course, it also depends on your debt situation

1. If you sell goods you paid cash for: 30%
2. If you sell goods you will pay at 30, 60, 90 days: 40%
3. If you loaned money at a variable rate: 50%
4. If you have employees and you pay weekly: 60%
5. If you have employees and you pay bi-weekly: 70%
6. If you have employees and you pay monthly: 80%
7. If you have employees, you pay monthly and they give you money for their 401Ks: 90%
8. If you are Wall Street: 100%

Of course, we are not even close there yet. Nevertheless, my guess is that the current policies being implemented with the excuse of the Wall Street-created liquidity crisis will move us a few inches forward in that direction.

Ah, and if you do any of the above, don't say you did it because I told you to do so. This column does not intend to be any kind of financial advice.

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Last update : 04-02-2008 19:42

I published this article originally in January 28. The key levels are still valid and the interpretation still holds.

Article follows 

DIA has to decide in the coming week if it is going to go down after a classical Head and Shoulders formation, or if it is going to break out off a flat correction. 

Professional Traders Buying

The NVI (Negative Volume Index) seems to show that professional traders are betting the 500 Moving Average will hold and the Dow will not go down.

With the government pouring money into the economy like there is no tomorrow, they may have a good reason to bet this is the bottom of the short term bear market.

A break down under the 500 MA, with the 500 MA becoming resistance, would show that a new bear market is underway.

As I write this the president is promising making the tax relief permanent. 

Let's see how the market responds tomorrow to tonight's presidential speech, and more importantly, what happens during the Fed meeting.

Again, if the political measures fail to inject money into the markets, it will be really hard to stop the selling avalanche.

Key Levels To Watch

If the current formation is not a classical head and shoulders pattern, the next key levels to watch on the DIA are

Previous low, 115.8

If DIA breaks down below that level and 115.8/116 becomes resistance for up-moves, we will have entered a new bear market.

Key Level 1, 126 

It is common for head and shoulders and other classical patterns to make a counter move to throw off unsuspecting traders who buy thinking that the pattern failed. Another typical move would be a moment of indecision bouncing between 116 and 126 until traders without deep enough pockets are out of the market and the final move finally develops.

50 day moving average, now 130.44

Any break out to the upside will have to break above this level. A run up to the 50 day MA with failure to break out may produce a triangle between the 50 MA and the 500 MA.

If the price breaks above the Key Level 1 (126) and 126 becomes resistance, the Head and Shoulders pattern will be negated, and the next likely pattern to develop would be a flat (or rectangle) formation for a few months with a breakout to the upside. 

That's my main trading hypothesis right now, and only a fall below 116 would negate it. 

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Last update : 18-03-2008 20:17

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Last update : 28-01-2008 14:32