Credit Card ’s Talk

The fight continues to rage among traders who use technical indicators and those who prefer fundamental information to establish new positions and to exit current positions.

The fundamentalist believe in knowing all the facts about a company such as price earnings ratios, sales growth, product margins, management capabilities, cost of production, cash flow, etc., etc. while the technicians could care less about the latter and want to see sector price trends and rank, the Relative Strength Index, MACD (moving average convergence divergence), stochastics, trend lines, chart patterns and many more esoterically evolved indicators.

Which method is the best?

There is no Holy Grail of trading and what critics of either method forget that it is the trader who adds the final nuance that results in profit or loss. The more years a professional investor has been working his plan the more successful he usually becomes. The unsuccessful ones have long since gone broke and are no longer in the game.

It is somewhat difficult for me to give great credence to fundamentalists as I am a technician and have a very long profitable track record to prove it; however, I do sometimes look at some of fundamentals. It seems that the longer term trader can do well with a fundamental approach because the timing to buy or sell has a lag time. He does not buy the bottom nor sell the top, but who does?

The technical trader will ignore the informational approach with the use of charts and other indicators. Short term traders must be technicians, especially day traders, as there are no fundamentals upon which they can assess their buys and sells.

Technical trading is based on the psychology of the mass of traders that ride upon the hidden values of the changing fundamentals. Charts and other indicators tell the of the long term health of a company, country or commodity as it is shown in the price action. The fundamentalist looks for the reason for a change to buy or sell whereas the technician tries to find the change in the price action to initiate buys and sells.

No matter what a fundamental trader?s position he must be very patient. He may have a position on for years. During that same period there will be waves of highs and lows during which he remains constant in his position. The technician may trade the same equity several times buying the low of the wave and selling the high (hopefully). In commodities it is astute trading, but when it is done in stocks and funds it is called timing.

A combination of technical and fundamental methods can give the best results. For the average guy occasional trader I can only caution him to be very careful. Very few intermittent traders ever make money.

A successful trading approach requires commitment. It is a business the same as owning a shoe store or trucking company. You must give it your all.

Like any business you have to work at it.

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

The Shadow knows. Remember him? It seems a shadow has a firm grip on this stock market. Since the terrible break in mid-April we had a rally and then a decline. Trying to choose a suitable stock or mutual fund has been like grasping at shadows.

Two great Wall Street gurus, Elaine Garzarelli who manages multimillions of investors’ dollars and George Soros, king of the hedge funds, each have a different take on the future.

Elaine thinks the Dow Jones Industrials will be at 12,000 to 12,500 by the end of the year. Big George says we are in a bear market and must be very careful where to invest money right now. Another pundit I saw on CNBC whose name I can’t remember made a very good case for a trading range for the next several months.

Let’s examine the psychology of the majority of investors at this moment in time. Almost every one of them has been beaten with a large stick and big paper profits have been taken from their wallets. They haven’t really lost anything, but their enthusiasm for putting more money into the market has been greatly diminished. Most of the financial columnists and talking heads are saying this is a time for caution. The old buy the break conventional wisdom seems to have disappeared. How is this going to affect the entire market?

It takes more buyers than sellers to put the market up. That takes conviction and enthusiasm, both of which seem to be lacking. Until the little investor gets back his confidence it makes sense that this market has more chance of going sideways than of making any new contract highs.

There is so much bearish sentiment about what Mr. Greenspan is going to say next week that it may turn into a nonevent. In fact because of all this negative sentiment whatever he does may already be factored into the market. Even if it is a sharp interest rate increase the market may throw it off and move up much to everyone’s surprise. A negative event followed by a market rise is quite bullish as we saw from the unemployment number on Friday. That 3.9% unemployment number should have made the market go down, but it went the other way. We could be in for a rally this week.

I believe that if a stock or mutual fund is not going up with a strong momentum you should not buy it. Right now almost all mutual funds are going sideways. There is plenty of time to get invested so the best thing to do is wait until a definite upward trend is established and then buy it.

Since none of the great market mavens can agree then who must you rely upon? You know. You must reply upon your own judgment. Not a broker, not a banker, not an economist, not the guy on CNBC. You. Your guess is just as good as anyone else. You.

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.

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

Stocks breakout from properly formed bases everyday but many investors don?t understand how to locate a pivot point or what patterns to study that may contain this very important buy signal. A pivot point can be described as the optimal buy point or the area at the end of a familiar base pattern where the stock breaks out into new high territory. William O?Neil, the founder of Investor?s Business Daily is considered the pioneer of the pivot point in modern times. As Jesse Livermore explains in his book (1941), the pivot point can also be described as the point of least resistance. When a stock breaks the point of least resistance, we are presented with an opportunity where a stock has the greatest chance of moving higher in a short period of time, especially when volume accompanies the breakout.

The pivot point can be calculated as the stock is forming the handle on a cup-with-handle base. The ideal buy price would be $0.10 higher than the highest spot during the handle, also know as the top of the right side of the base. The intraday high can qualify at the highest point and does not have to be the closing price of the stock. If the stock closes at the high for the day, then we will use this number as the high point.

The exact methods used for finding pivot points vary depending on the base pattern that is forming on a daily and/or weekly chart.

When a flat base occurs, an investor should look for a move $0.10 higher than the top point on the left side of the base or the start of the formation.

A saucer-with-handle follows the same rules as the cup-with-handle and is described in detail above.

A double-bottom formation triggers a pivot point that will be $0.10 higher than the middle peak in the ?W? shaped pattern.

Many investors will try to cheat the rules and place a position prematurely before the stock breaks out and passes the pivot point. I do not suggest buying until the stock triggers the pivot point on above average volume also known as qualifying volume. The area considered as the least amount of resistance is weighed so heavily because all overhead sellers are gone as we break into new high territory. The pivot point usually comes within 5% to 15% of the stock?s old high 52-week high.

Don?t chase a stock that is 5% or more above the proper pivot point. This does not mean that you can?t buy on normal corrections and pullbacks to support or moving averages, especially if the stock remains in an uptrend. This rule only applies to the pivot point area as the stock becomes extended. If you buy with the pivot point and sell when a stock falls 7-10% from the pivot point, I guarantee that your yearly performance will increase dramatically.

Chris Perruna - http://www.marketstockwatch.com

Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

One of the great secrets of successful people is discipline and it doesn’t make any difference whether it is manufacturing, processing, servicing or investing in the stock market.

Before you can have that discipline you must have a successful plan and stick with it. If the method you use does not work or results in smaller profits it should be abandoned and a better one found. For the average investor the plans laid out by Wall Street do not work and over the long run you will lose money. Actually you will make a very small percentage, but the return will be mitigated due to ongoing inflation. The great majority of investors believe that an annual return of 10% or more is to be expected when actually it is much less and there will be periods when there will be almost no return at all.

Returns can be increased greatly if the investor will learn not to follow the 3 great lies of Maul Street. They are Buy and Hold, Dollar Cost Average and Do Research. These lies have been told so often that they have become conventional wisdom.

During 1998 and 1999 the price appreciation was fantastic. If you check back in history you will find this was an aberration. Folks still think that was normal. The actual norm is about 16 to 18 year periods of bull markets followed by bear markets with many 4 year cycles of ups and downs with that 16-year time frame.

Think back to 2000, 2001 and 2003. During that time did your broker ever call to tell you to sell? About 98% of brokerage company recommendations were to Buy. Many folks lost 50% to 80% of their savings. That alone should have turned on the light bulb in your head that either these guys are stupid or they are lying to you.

There is a secret to investing and it is one word - Sell. You must have to discipline to remove yourself from losing positions. During the worst part of that 3 years we saw many stocks drop 50 to 90% and other companies go out of business. It you have placed a limit to the amount of loss you would take you would have a lot more money today. Why do you want to wait for your stocks to drop 30, 40, 50% or more when you could have placed an Open Stop Loss Order with your broker to sell you out if your stock dropped below a certain price? Maybe 10%, hopefully not 20%, but even that is better than a huge loss.

In many cases brokers try to talk you out of selling, but your discipline will require you to be firm. You must protect your money; insist on protection of your investments.

Al Thomas’ best selling 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 and receive his market letter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2005