Flat Lining

Last week a friend told me that "when the Democrats get elected they will raise the capital gains tax."

This is an example, much like GM now deciding to analyze hybrids and slow the manufacture of SUV's and trucks, of misguided logic.

With GM they approach the barn after it has fallen and analyze how to paint it.

With "the Democrats and taxes" a "fact" is provided that Democrats raise taxes. Is this a true and real fact, and can it be proven?

It can be proven that recent Republican administrations have lowered taxes, but increased spending, thusly creating a large U.S. deficit that helps create a falling USD, thusly increasing prices. Thusly, did they lower taxes, or simply move the taxes to a different burden.

As a "factualist" I am often assumed to be the liberal Democrat. In reality, I am the "factualist." I believe in our constitution.

I do not support church and state, but the separation of church and state, as this is what our constitution defines. I don't care if you are Christian, Muslim, or a Jesuit Frog....I want you out of politics and my government, and you should too.

As a stock trader I analyze false facts to understand what it not understood, or is falsely assumed.

4 months ago Treasury Idiot Paulson, who came from Wall Street, told us " the subprime situation is under control."

Thusly, I knew this to mean, "it will continue, it's a bloodbath, and the false books will catch up with us, but I'm afraid of the market collapsing".

When I hear "Democrats will raise taxes" the factualist says: prove when they have done so in the past?

The following email from David S, an Advanced Mentoring client, helps me with perspective, as I hope it does you:

Hi, Floyd.

First, I wanted to offer words of encouragement for you and to let you know that I am one of your students and subscribers that appreciate you. I can imagine all the crap email you must have received over the past week regarding the "losing trades" from your subscriber base due to the fact that folks for some reason can not take personal responsibility for their own actions. It has nothing to do with any particular trade gone bad but everything to do with lack of self control (in terms of money management or decisiveness to trade any particular trade at all). I would hope that there are not any angry or discontented subscribers but I am sure I am wrong. You are an amazing trader, Floyd. Just know that I am one the ones religiously supporting, following and learning from you as much as possible.

I am still working through my book report on Dorsey along with everything else I have going on. I feel maybe I am way to detailed and need to chill out on it a bit - who knows. Anyhow, I am also writing to be taught by you involving getting my ass bent over last week in the market. I have been doing so well with paper trading and real money account for the last 7 weeks... I was almost astounded by it. I had pretty much doubled my money twice in less than 8 weeks! I was only playing your recommendations and occasionally I would play a high volume, leading IBD breakout stock as well. I was on an awesome winning streak.... Every time I got into a play I would sale at 20% profit or sometimes less if the stock "looked funky" to me (as if I really know what that is). A couple plays I even had 100% returns on overnight (options). When any position went against me I would double up on my option positions at a 33% downturn (like we do on OEX) and sit it out until it came up. The longest I had to wait for the trade to pan out was VLO, a few weeks. Anyhow, I only allocated 20% of my total capital per trade and really thought I was following the rules with position sizing and high flyers, in leading sectors, breaking out on high volume. All was good until a week and a half ago began. This is when the market started to plummet ridiculously. I was in good shape going into the downturn as I was 38% cash (of 47k account) so I had room for second buys on my stocks. Then it happened... One by one each stock starting hitting second buy points (remember I was using options instead of buying the stock). So I bought second buys on everything until 100% of my capital was tied up in long positions on second buys. Then the market continued to decline even more. Some of my positions were down 50-70% even after second buys. I started to panic, Floyd. All I saw from a few days earlier was a nonsensesical watershed market fall that I was sure was going to continue, because it had, and my positions went more into the red. So I came to the conclusion to "stop the bleeding" last Friday when the DOW hit 12070 and then closed near the low of the day. I was afraid it was a bad sign that we were surely going lower so I exited all my positions except one (RIG which I am still in on a first and second buy on July options and down 28% right now), bought $3500 worth of VIX calls, an OEX put, and then that day, my account that started with 25k and went up to 47k, went back down to 25k - right back to where I started. So here I sit pissed off while I am not sure what I did that was "wrong" per say, trying to "figure it out" on my own, but my obvious noobness played a role in this damn thing I am certain. So, I lay it out for you to slap me upside the head for doing wrong if I did, and please, please, please teach me what I should have and shouldn't have done in this scenario... I do not want to make the same error ever again. Where did I mess up? Some of the "things" I am thinking I did wrong, while trying to work through it on my own: Playing long positions in declining market? Panic and fear, it overcame me. Should I have had confidence and if so what perspective could I have had to help me? Was my position sizing right? The options I played were they ok? I took second buys, should we not do this on equities? I do not understand, I do not think, the correct concept of a "falling knife"? I am afraid to play any of the OEX call recommendations with the market declining... this seems to me like we are still trying to catch a falling knife, yet all the OEX call recommendations are all working out profitable. I amazed, honestly, about how you keep your composure about what the market is/will be doing enough to recommend calls. Like you are totally objective to it. Even when there was no clear bias you still gave recommendations that worked out. How can I think or what can I do to help me maintain objectivity, as you, in a market decline like this? Alas... help! I guess is my plea. I need help to put all of this into proper perspective so as to learn from it. Right now I am "gun shy" of the market and don't want to be. It is a choice I can make to not be but I do not want to do it foolishly and make unnecessary mistakes again.

Also, while I am writing the Dorsey book report I am almost done reading Wycoffs book - it is excellent. All my AM has been paid in full so I have no mental obstacles there. My list of stocks I have chosen to follow are listed below. Please let me know what you think. A lot of these are your recommendations. I hope you don't mind me copying you on many of these.


Thank you in advance, Floyd, for your patience and teaching administration.

And from trader MP, who played the June600C Tuesday during the downside move:

"You'd be proud of me. I saw your alert again later on in the day regarding the JUNE call. I also noticed that the Dow was hitting some good support at 12,000..therefore I went ahead and bought two calls for 9.00. I quickly sold them in about 10 minutes for 10.00. The DOW retraced and tested the bottom again at 12,000 so I bought 2 more calls at 9.00...only to sell again 10 minutes later for 10.00. That's 400 BUCKS in a matter of 20 minutes. If you do that every day, you'll be making a nice 80k on the year! AND the risk is pretty low because if we break through the 12,000 support level...you just get out of the trade! It's an easy trade because you know exactly when to exit if it goes against you."


Yesterday the market did what is called "flat lining". First the market fell to a theoretical Dow low of 11,938, very close to the 11,880 bottom we saw as serious test of 3 month lows. Traders reported profits of up to 1.40 per contract on the July580P, enlarging our winning streak.
By midafternoon the market turned to the upside, rising 75 points in short time. Many traders scalped profits on OTM calls, for those that day trade with us.

As gas prices soar past $4.00 a gallon, Congress and the Presidential candidates are hard at work trying to assign blame for the record prices, and suggesting fixes.
For Republicans the answer is simple: we need more energy and the best way to get it is to expand domestic production through new drilling. For Democrats the problem is the energy industry itself, that needs to be brought to heel under new regulations.
For Floydian factualists the answer is obvious: we must move prudently and environmentally in a responsbible way away from oil, both foreign and domestic.

Someone should be punished for what we have done, and they are being: the U.S. citizenry, and the world population.

We are who we elect. We are what we consciously become. Do we need an SUV to drive to get bottled water, and do we NEED bottled water. When we go to war, what are we fighting for, who are we killing, and where does the money come from?
These are factual questions that lead our market.

When mortgages were so easy to get, did we wonder why? Who is to blame?

When we cry about foreigners taking our work away, where do the clothes we buy come from, and who did this? We did, by demanding the lower prices. All is not as it appears.

For example:
June 18 (Bloomberg) -- General Motors Corp. has delayed indefinitely a program to replace its current large pickups and sport-utility vehicles as it reassigns workers to develop more fuel-efficient car models.

Engineers working on the redesigned Chevrolet Tahoe SUV and GMC Sierra pickup for 2012 are being shifted to other projects, GM spokesman Tom Pydensaid today.

``This is hugely significant,'' said Rebecca Lindland, an analyst for Global Insight Inc. in Lexington, Massachusetts. ``This is a clear sign they are re-evaluating everything, because this has been the core of their bottom line for years.''