Credit Card ’s Talk

You know it?s absolutely crazy. Every time you think you understand the stock market, something comes up that makes you wonder whether there is any sanity in it at all.

I mean, just take a look at the way the DOW has been behaving of late. One would be forgiven for assuming that the market has been taken hostage by a bunch of aliens, aiming to wreak havoc on our investments!

It would seem that no sooner does the DOW Jones recover from a bad day?s trading it swings back into a disastrous trading the following day. And these wild swings appear to have spread to other major indices as well.

Exactly what is one to do under such circumstances and how do you protect your investments from being completely wiped out?

Well there appear to be two schools of thought as far as this is concerned and depending on your risk appetite you can determine which way to go.

The first school of thought is, move with the market, whichever way it goes. In other words, buy when the market is generally moving up and sell when the market is generally moving down

In this case short selling of stocks would be the route advocated by this school of thought. This is good advice if you actually know how to do so and have the expertise to come out ahead.

It is however a disastrous route to go, if you have no experience in this process, as it could quite easily result in complete loss of investment.

The second school of thought suggests that if the market is this choppy and undecided, then this is the time to move into cash and stay there. In other words if you imagine the market as a bad storm, you need to take cover until the storm is over and calmer weather returns.

Frankly, rather than try and be a hero, I think the second school of thought is far more appealing and sensible for the average investor. I would rather not make any huge returns, but have my capital investment safe, than put it to risk and which it gets wiped out on investment methods that I do not fully understand how to execute.

Put another way, when the going gets tough, then the tough (wise) move to cash at the earliest opportunity. So ask yourself, are you going to try and remain wise, or do you want to risk being a directionless hero? The choice is yours, but I know what I?m going to be doing.

Sam P.O.

Sam is a financial and management expert with practical experience in advising and formulating workable solutions to clients.Watch out for more current articles on prevailing scenarios…

Happy trading.

He can also be reached via his e-mail:podera@gmail.com

The first chart shows SPX and the NYSE Oscillator (NYMO) 50-day MA. Previous patterns indicate when the NYMO 50-day MA falls below negative 20, then SPX will begin an uptrend. However, the NYMO 50-day MA hasn’t fallen below negative 20, which indicates either volatility, a test of the recent low, or a further pullback.

Above the first chart is the daily NYSE Summation Index (NYSI) and daily NYMO with its 20-day MA. The NYSI is not low enough to indicate a sustainable SPX rally. Also, the daily NYMO indicates SPX is currently near severely overbought. Moreover, previous patterns indicate the NYMO 20-day MA needs to fall below negative 30 for SPX to begin a sustainable rally.

Below the first chart are the SPX MACD and CBOE Put/Call (CPC) 10-day MA. The SPX MACD created a bullish crossover late last week, while the CPC 10-day MA is at an extreme enough level to indicate the SPX rally is sustainable. However, the gray arrow shows similar extreme levels of these indicators can still allow one more SPX pullback after a bounce.

The second chart shows SPX is near resistance at 1,295, i.e. the 50-day MA, the two day pause of the steep fall, and a Fibonacci level. If SPX rises above and holds 1,295, it may test the high at 1,326. However, resistance may hold after rising from the low over a week ago. If the correction is over, which is unlikely, SPX will often bounce off the 10-day MA.

The third chart is a monthly SPX chart. The zigzag line shows that the previous three times SPX pulled-back, it fell roughly 75 points in two or three months. However, this time, SPX fell roughly 75 points in just over two weeks. The middle monthly Bollinger Band, currently 1,230, is the cyclical bull market support line.

Above the third chart is Money Flow, which shows money is flowing into SPX at a lower rate. Also, below the third chart is the monthly MACD, which is converging towards a bearish crossover. Consequently, it seems, the cyclical bull market, which began in late 2002 may end in 2006 or early 2007.

SPX may trade in a volatile range, e.g. between 1,250 and 1,300, until the FOMC announcement June 29th. If the NYMO 50-day MA falls below negative 20 and the NYMO 20-day MA falls below negative 30, which will likely take place in June or July, then SPX will be in position to begin a sustainable rally.

Free charts available at http://www.PeakTrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

If you haven?t heard of the technical indicator with the stock market symbol VIX it is now time to pay some attention to it. When the number is running low, as it is now, around 15 to 18 it means everyone is happy and thinks the stock market is going to continue up or at least continue on its current path and there is no need to sell anything. This is a measure of complacency. When the number goes above 35 it means everyone is very nervous and thinks the market is going to fall. It is considered a contrarian indicator.

Wall Street calls this the Volatility Index which disguises its real underlying meaning. What it really should be called is the FEAR and GREED Index.

The average investor buys with a greed motive when the VIX is low and sells only after fear sets in when the number is high because he is afraid of further loss. These are emotional moments and the market is an emotional animal. The truly smart investor has a planned exit strategy before he buys anything; he knows when to sell even before he buys.

Notice that the higher and smoother the movement of the market the more complacent the investors become. The investor becomes overconfident that his stocks will always go up. It is a truism that investors buy with only thoughts of how much they will make and never consider that it is possible to lose. When I was a broker and a member of the exchange I would only keep customers who would place stop-loss orders as soon as they bought something. I always stressed protection of capital.

When you are a serious and reasoning investor you must always think about loss first. If what you buy goes up you don?t have to worry. Winning takes care of itself. Losses don?t.

As of March 26, 2004 the VIX can now be traded like a stock. If the VIX is currently 18.5 the value of the contract is $18,500 and trades in $10 increments. It can be very volatile; a move from 18 to 38 can make (or lose if you are short) $20,000. This is not for the feint of heart and should be left to the professional speculators.

When you look at the historical charts and run a comparison of both the VIX and the S&P500 Index you will see the inverse correlation. As the S&P goes up the VIX goes down and visa versa.

There are many technical indicators that are used to determine market direction and this is just one of the many. It can be part of your analysis if you are a technician along with moving averages, various ratios and other stratagems.

Whatever you do do NOT become complacent about the money you have invested in your 401K or any other stock market investment. Protection of your capital is always your first consideration.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

There was dancing in the streets, well, at least on the floor of the New York Stock Exchange last week when the Dow Jones Industrial Index closed at an all time high. The many cheerleaders on CNBC-TV were ecstatic screaming, ?I told you so?. But what did it really tell us.

The DJIA or DOW as it is also called is composed of 30 stocks that actually represent about 25% of the value of the NYSE. That is very impressive and one of the main reasons this index is watched by so many the world over.

Caterpillar Tractor Company was $16 in the year 2000 and closed on October 2, 2006 at $65. The worst was Intel that dropped from $72 to $20. Many fell 50%. So what really happened? Only 9 of the 30 stocks made new highs that day ? only 30%. No one on CNBC bothered to mention 21 stocks, 70%, failed to participate.

New highs were entered by American Express 3 points, Boeing 12, Caterpillar 49, Johnson & Johnson 30, Minnesota Mining & Manufacturing (MMM) 33, Altria 55, Proctor & Gamble 4, United Technology 39 and Exxon 25.

There is no point in listing all the losers. Three lost more than 50% from the 2000 high. How can this make a new meaningful high when the index shows 70% of the stockholders lost money?

Way back when before you were a gleam in Daddy?s eye (1896) when the original average created by Mr. Dow and Mr. Jones first appeared in the Wall Street Journal all you did was add up the price of all the stocks and divide to get the Index.

Stocks went up and dividends were issued and those darn stock splits played havoc with computing what the average was each day. There is no point in going into the complex details, but let?s look at how they get to the final index number.

Each stock in 1990 was added and multiplied by 2. Today each stock is added and multiplied by 8 to get the DOW number. If you add the closing prices of the DJIA stocks on October 3 it came to 1465.91. With the current multiplier of 8 makes a closing DOW Index of 11,727. A new high. Not really.

Every investor is encouraged to go on the Internet to www.bigcharts.com to look at a 10-year history of each of the 30 stocks. A comparison to the DJIA may be superimposed. It will shock most investors.

Don?t buy stock based on what the DOW is doing. You must do your own research for each issue before parting with your money.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2006 All rights reserved.

There is a current movie entitled ?Eternal Sunshine of the Spotless Mind?. It is about a man who has had a painful love affair and will do anything to rid his mind of those pain thoughts of a former love. He sees an advertisement that offers just such a service. It seems his former lover has the exact thoughts and she goes through the same treatment. Guess what? They meet again, do not recognize each other, and fall in love again.

Does any of this sound familiar?

May I gently remind you of what happened to your stock portfolio in 2000 to 2003? Please. Don?t shoot the messenger. You fell in love with the stocks or mutual funds in your 401K and became wildly emotional about all the money your were making and how you thought about buying one of those islands in the Bahamas for early retirement. Then came the road crunching detour and you are left with a broken down portfolio by the side of the road.

Along came a shiny red tow truck and a mechanic who said he could fix everything. Slowly you began to forget the previous gut-wrenching journey and your car is now running (not as well as it used to) and seems to be getting better as this mechanic from Maul Street is working on it. Hey, I think I?m in love again.

If you cannot remember what happened in the past you will repeat those same errors in the future. Every great statesman has been a student of history. Every great investor has studied the history of the stock market to try to determine what the future will bring. Cycles continue to repeat and repeat because people forget the past. Those who are smart enough do not fall into the repetitive trap and instead take advantage of it.

One of the most predictable is the long cycle of the stock market. It usually runs about 16 to 18 years. There is the up cycle which is invariably followed by a down cycle of equal length. Within each long cycle are several short cycles of 6 month to 2 years with a resumption of the downward move until the cycle is completed.

Do you realize we just completed an 18 year up cycle in 2000? Now the market is completing a one year advance within that cycle and may be getting ready to head down again. How is your spotless mind doing? Have you forgotten your lesson from 2000? Are you willing to make that same mistake again?

If you choose to forget you are doomed to repeat your losses. This time use your whole mind to learn from a past mistake so you will not see your money disappear ? again.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

al@mutualfundstrategy.com; 1-888-345-7870

It was just a few short months ago many were saying the bubble had burst in commodities. First of all, I never bought into the bubble talk. How can there be a bubble in commodities - when not one of your friends can name 5 gold stocks? Back in the internet bubble days, taxi cab drivers could rattle off the names of internet companies without skipping a beat. Before there can be a bubble the masses must participate.

The commodity bull market is being driven by simple supply and demand dynamics. Just think about the amount of copper that will be consumed as China industrializes. Mass industrialization takes many years. Everyone knows that Rome wasn?t built in a day and China will be no different.

What the bubble promoters forget is that no bull market goes straight up. The days of buy and hold - I call it buy and forget are over. There is no certainty that a stock will be higher in 6 or 12 months; although that is what Wall Street teaches. I believe to profit in today?s stock market you have two choices:

Looking at BHP?s chart, the ideal purchase price over the last month would have been around $35. If all the stars lined up you could have purchased it at $35, but more than likely you would have been petrified that $30 was right around the corner. Using charts, there is a strong likelihood that you could have picked it up at $38. Not quite $35, but in retrospect not a bad price. I think that you would be pleased with a 13% return in 3 weeks. Commodity stocks are simply too volatile to simply buy and forget. There will be many more drubbing such as the past 5 months before this bull market is over. An effective strategy is needed to navigate through these rough waters. Dollar cost averaging and charting are two that I believe work. BTW, BHP is most diversified mining company in the world. It has 37,000 people spread across 25 countries around the world. Globally it ranks 2nd in copper production, 2nd in thermal coal, 3rd in nickel, 4th in uranium, 6th in aluminum and 1st in silver. It also mines titanium, iron, coking coal and molybdenum. It even produces oil and gas. If you could only buy one mining stock - BHP would be an excellent choice.

About the Author

Michael Dawson recently said goodbye to a 20 year career in Engineering, Marketing and Sales to focus on living his dream of financial independence. He has since founded The Time and Money Group as vehicle to encourage others to do the same. The company’s mantra is Why trade time for money … when you can have both. Sign up for their free weekly newsletter, where he and others discuss the different paths to financial freedom and offer insights for your successful navigation.

http://www.thetimeandmoneygroup.com

Make sure to read one of Dawson’s most popular articles: Saying Good-Bye to the Time for Money Swap