Oil at All Time Highs

WE begin with a full market week, in a world in turmoil, and oil at all time highs. The youth are speaking in the Middle EAST, nothing to do with Emperor Bush and his invasion of Iraq and claim that mass slaughter would lead to democracy.

Instead social networking creates a communication world in which the vast majority of the dictator led worlds say WTF? and why are there no jobs and no rights, while our dictators distort our reality,and steal our money.

We live in a world in which now the Pee Party and GOP claim credit for the greatest economic turnaround in history led by President Obama, and in a world in which 54% of the U.S. population believe that Stephen King wrote Moby Dick.

A friend of mine shared that in dictatorships they are often accepted and aided by an uneducated people and Floyd counters that this is also true in Amerika where we have union busting thought of as “stopping greed” when instead it is a GOP trick to cut union support so that they can take over the White House and restore their world order in the next election.

And we live in a world where the massive economic cuts being requested now are the very economic expansions led by the Republicans that now push for cutting the deficits that they created.

Last week was our first “slow trading week” for the OEX in months, because of the whipsaw that began questioning market upside, but in which we held above 12,000 by week end, and bullish percentages stayed high.

It's All Timing

Our level 3 and Advanced Mentoring students are given 6 books to read that Floyd believes explain and detail the market. Our favorite book , because it is written by protégés of my Father as the sole licensee of Richard D. Wyckoff, the famed Wall Street Trader is: Charting the Stock Market: The Wyckoff Method

New Level 3 subscriber Derek B summarizes this book well below. We request detailed book reports from our Level 3 and Advanced Mentoring students, to prove to themselves what they gathered. Derek B did a superb job, and we thought his summary appropriate to your studies:

“Wyckoff did not listen to the BS from broker offices, news, tips, earning reports, rumors, etc.… He taught how to be a detective uncovering the forces behind price and volume fluctuations as well as intercepting stocks when the charts show them at their most profitable stages. The 3 charts that Wyckoff used were the line chart, P&F, and his very own wave chart, used to uncover motives of large investors that were capable of moving and manipulating the market. Wyckoff studied the “bread crumbs” left behind. These charts are used in very specific ways and must be followed accordingly in order for the Wyckoff Method to be effective. The line chart is used to determine the direction of the price and the most opportune time for buying. The P&F charting is used to determine the distance the stock will move (points). The Wave chart is a leading indicator of how the market/sector will travel. The wave chart provides subtle clues of how the market is “turning/reacting” before it does.

(This part of the book had a lot to do with “reading” the overall market, big help with OEX trading)

When we study the market our ultimate goal is to accurately determine when the current trends will change and what type of change (i.e. short term, intermediate, and long term waves). Supply, demand, and trading volume are extremely important aspects of the Wyckoff Method (WM).

The Bear Market Correction sprouts towards the end of a declining market when traders lose hope that the decline was short lived and temporary, while others were attempting to buy on the way down “timing” the market for a quick rebound and was unsuccessful. In any instance the traders begin selling off their high priced stocks feeding fuel into the beginning of a selling climax (I am anxious to witness my first selling climax). The climax begins with a sudden spike in volume while the price range widens followed by a closing near the low. The savvy trader buys at the end of the climax and awaits the rebound; the rebound will show volume dips while price range jumps. This move gives the impression of a quick rebound taken back by the Bulls but in actuality it is setting up for the most critical aspect of the Bear Market Correction, the secondary reaction. The market may pull back and stabilize at the original selling climax with shrinking volume providing evidence that selling has dried up and buying power has moved back into the market. The other outcome after a secondary reaction is the selling (supply) is to much for the market to handle prices will fall lower then the initial selling climax extreme low suggesting a new and further decline. When the selling does subside a solid conformation of a reversal is when prices break the technical rally (rebound).

Bull Market Correction is not the exact opposite of a Bear Market Correction. The Bear market is for the investors needing to pick up stocks at a lower price. The Bull Market Correction is hidden selling by the big players. They attempt to maintain a high price while dumping their holdings. The large operators must not allow the prices to fall to low where the average Joe Shmo will unload his position but maintain some hope in the market until they are down selling off their position. The issue with the Bull Correction is determining how far down the correction will go once the large operators are done selling off and the public beings to panic. The “correction” could become a turning point and move into a down market. Wyckoff mentions standing on the sideline waiting for the dust to settle because of the magnitude of uncertainty. When prices start to rise halfway to previous highs but volume fails to increase this clue tells the savvy trader that buying is maxed out and the larger operators are biding up the price and will being dumping their position time to go short and rake in the Benjamin’s J.

The distance of a Reactions can also provided the strength of the market/trend. A normal reaction is half the distance of an advance. If the reaction is less then half of the advance the market is strong and will likely to climb from the “weak” reaction. If the reaction is greater then half the trend maybe fading does not expect a large bounce. The opposite for a decline

Wyckoff’s method is a very logical one. He believes in finding a weak stock/sector within a Bull market waiting for the trend to reverse and go short. And following a strong stock during a down market waiting for the Bulls to take over and go long on that stock. I like many people believed that buying a beat up stock in a down market would produce more returns when the market turns Bull then a stock that maintained stability in a bull market. This is not the case.

For the most part the market is being manipulated on a daily/weekly basis, so understanding the stages of a manipulators campaigns will further prepare a trader towards insight on future moves. Wyckoff explains a 4-stage process: accumulation, marking up, distribution, and marking down. The accumulation process happens when the stock/market begins to consolidate and congest with low volume (this may happen over several days or weeks). The marking up process begins when the manipulator allows or pushes the price up with increasing volume along with plateaus during the process. The third stage is distribution, the manipulator begins to buy and sell during consolidations giving the appearance that the stock is ready to move further upwards, once the public begins to buy into it he sells his shares and prepares for the downturn. Marking down is the final stage where the operator shorts the stock and watches it naturally fall back down (having supply and demand take over). These manipulators use the market as their personal ATM machine, I can’t blame them only follow their moves and pick up the breadcrumbs.

Volume is the great validator of price movement along with a great indicator of what the future has in story. Wyckoff mentions numerous scenarios throughout the book showing how important price and volume are when used together. He explains the “signs” of turning points, strong markets, weak markets, etc.… all greatly revolving around price and volume.

Students of the Wyckoff method/Floyd method must develop and hone their own trading styles. These methods are teaching tools and help one develop the proper skills to become a successful trader. Paper trading has helped me immensely when entering and exiting positions and seeing where I rushed or did not enter in when the signs were clearly there. Hindsight does have its advantages when learning and paper trading.

Wyckoff and Dorsey both follow the same underlying foundation in regards to their methods: supply and demand. And cause and effect. While Wyckoff does not rely on the same tools as Dorsey they both rely heavily on the P&F charts along with sector rotation, strong stocks within bear markets, weak stocks within bull markets waiting for the reversal, and studying the overall trend of the market. The more I learn the more I realize this is not rock science. That being said I look back to what I knew last November and what I know now and realize that knowledge is power in the market. Though it has only been a couple months I feel like I know 10 times the amount of information I did before I started and wondered how I ever thought I has ready to through money at the market. I still have a lot to learn but what I have learned has maybe me a better trader/person.” Derek B

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The money is all being falsified, and the economy responded to the stimulus. In reality, all of Obamas radical financial moves were not radical as much as shrewd and astute. The economy is showing true strength, the commercial real estate market is up, banks are not bankrupt, and car companies have paid off loans.

The actual deficit can never be paid off. This happened almost 2 years before Obama, based on Social Security and Medicaid, and his added deficits would have stimulated.

We elected Pee Party and GOP because GOP stalemated all, and the game was for him to gain no power. They gained the power back, but could take no credit for what has actually happened.

It's all timing. As usual, America was patient.

Soon I can see the GOP saying Iraq was what brought democracy to the Middle East.

Thanks for letting me babble.

I’ll Be Fine Until I'm Not

The fall of the Egypt regime should not be viewed with optimism, nor that with the fall of the regime in Tunisia will be a slow conversion to democracy. This is wishful thinking.

The chaos that reigns with nations that have not lived without dictatorship in many years, or ever leads to other opportunities, and believe me, they are preparing.

The option to democracy spreading is either continued chaos, or a slow overtaking of these nations by radical Islam.

Do not believe that everything will work out for democracy.

Things are not as they appear.

As a trader I would like to teach the best knowledge I know to you in one sentence:

I’ll be fine until I’m not.

Fear and Greed control our emotion, and supply and demand are created by cause and effect, and this creates the stock market.

Learn this around pivot points and support and resistance lines and you’ve got half of it. Watch Dow tops and bottoms in our projections to review 30 of the top 100 stocks.

Trade with rules. Do not break the rules. Expect losses. Have enough capital to make losses up with wins, which to date we are running at 8.75 to 1, meaning we’ve mostly been dead right.

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As trade ranging continues, however, we are more held with constraint, neither bull nor bear, as oil, which we had thought to correct prior to Egypt, may now lead to higher highs and even more inflation.

Gold holds at a resistance line, in slight correction, and we believe will move less slowly up that Silver. SLV we would option, and have, as it held at 29.30, and will sell at near 32.00, where SLV may top.

Otherwise we will stay out of the Gold and Silver markets.

In our Blue Chip service we have a large number of open options, and many of our traders have been very successful in day trading one and two LEAPS, and buying again on dips. We always suggest taking some profits on options at 33%, even if you believe there is much room ahead.

Study PNF to see where support and resistance lines lead, and remember that our pivot point and support and resistance calculators, and even the count of the stock can be used in option trading also.

Explain Hain and Tyco has been the question of the week.

Why would old Floyd pick stocks that are “staid” or “flat”.

1. They are undervalued.

2. Tyco has had image problems with the slime Kowalski, now in jail that they have handled poorly in PR, as the new CEO has done a magnificent turn around and we believe we’re by a great value stock with long term potential.

3. Hain is simple. Floyd is a student of Carl Icahn and his turnarounds. Icahn is the ultimate risk taker, and Icahn stocks are like the old Wild West. We believe he has taken a sizeable interest in Hain with his normal methodology with his normal work with top restructuring CEOS, consultants that detail where and how to change, and executes to a strong plan.

These are long-term holdings, using a 25% trailing stop.

As for new trades this week we will have none in Blue Chip.

We have too many holdings and its’ time to just day trade and hold our various positions while the market considers changing sectors, and whether to defy odds and continue upside, or to fall to our Dow lows on fear of oil and the lack of knowledge of what is going to happen.

As if we knew

Be Well, Do, Good, Show Compassion:

Floyd at BCO and OEX

Copper Hit An All Time High of $10,000

Floyd was in Ecuador last week on business and pleasure. Internet even at fine hotels was sometimes hard to work with, and little English language based television. The Miami Herald Intl Version was the only U.S. based paper, and abridged

The news of Egypt was not as “large there”.

Every citizen is paid a minimum of $264.00 a month, and to most this is their only income.

From a distance I watched our market struggle at the 12,000 mark, with the very same reasons we’ve struggled in a trade range since hitting market tops.

Bears believe we are at the top for the year. Some believe we have been in a bear market rally since the March 2009 low.

Quantitative easing has occurred twice, yet Europe and other countries have supported it less. This means we may not do it again based on watching the commodity markets generally receding. If you have followed Blue Chip you’ve sold out of your gold and silver holdings long before the drop, and wait now to see if we see another surge. Meanwhile, Copper hit $10,000, and all time record on Friday. Copper looks to a chartist as if it topping, and it is a strong indicator typically of what and when commodities lower.

FEAR and GREED rule the market. We’ve always seen VIX as an excellent strategist for us to show when complacency begins sleeping with greed, and we begin to expect the market to move higher.

From Floyd’s perspectives we may have a few more weeks or months, but will have two corrections, the first minor (11,597 area) with a burst up, followed with what could be a major correction for Obama to deal with just as things get right.

But for the OEX day trader, and the shorter term of our Blue Chip traders we’ve had simply some extraordinary weeks. In our BCO alerts this week we will not only share new recommendations, but also share how we were able to actually short term trade from Ecuador, viewing the market only once a day, and receive 20 to 55% returns on a number of picks.