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Trend Trader

Going Against The Great

I find myself in an unusual position. For the first time that I know of, I see things from the exact opposite perspective as the Option Addict.. And with conviction. I purchased some LNKD today near the end of the day on a day where option addict was selling his calls. Going forward is my TOP idea right now.

I say this with a tremendous amount of respect. I really do look up to “OA” and 80% of what I do is because of him.  Much of what I do differently than him is still because of “OA”. What I mean by that the approach of slicing up the market in multiple layers and identifying a good risk/reward among other things I got from him. So even if I am using different criteria and specific techniques to analyze are different, a lot of my ability to sort through it all and come up with a highly actionable setup can only be because I learned the majority of the process from him.

Betting against “a great” is not something that I like to do, and betting against the Fly or a tabbed blogger typically will get you nowhere fast. Yet I truly believe I am in a position where I have an edge on this trade. Even if I am wrong, I have learned that sometimes the only way you can learn to develop a strong intuition is going with your gut when your eyes confirm what you feel. I’ve watched great trades pass me by as a result of not trusting my gut but both my gut and eyes have been fine-tuned to being very productive. In this case, BOTH are signalling to me that going forward there is or will be tremendous opportunity in LNKD for at least a setup with profitable expectation.

Here is what I am looking at.

Item 1)The longer term rotation by the big money creates long term trends. Here I am comparing LNKD with another social media giant FB and using the GOOG/BIDU relationship to show how it works. daily and weekly chart. Although there is often an overlap and pretty significant correlation being in the same space, in terms of trends you can tell what’s in favor and how it rotates. You can often anticipate who is the next to lead and which is next to lag.Jeff of course has talked about the risk cycle in a slightly more advanced way for more of a swing trader’s perspective, but I believe in many cases when the stocks are similar enough in size and type of company you can look at a longer term cycle of multiweek/multimonth moves. Eventually based upon this analysis, I believe a multimonth move is coming in LNKD eventually.

The first one to bottom or breakout typically leads with stronger trends upwards. The first one to peak typically begins to consolidate first and the other follows.

leader laggard cycle

To emphasize what I see.

GOOG starts with a stronger trend while bidu consolidates. Bidu then forms a relative low while GOOG is having troubles showing strength and as bidu rips higher IT then begins to catch up aggressively and thus becomes a leader for the time being. THEN the rate of ascent slows as GOOG continues consolidating. Now GOOG makes an initiative move and the rate of ascent favors GOOGLE as a leader confirmed as BIDU is the first to top out which at some point may be good for BIDU as at some point it will consolidate again while GOOG then is late to decline and BIDU will at some point in the future likely take off another leg higher while GOOG continues to consolidate again and the cycle continues.

Now FB/LNKD. LNKD was strong while FB lagged. There are some subtle differences in the relationship as to the nature of how they lead and lag. As FB peaked in feb 2013 suggesting LNKD may follow and eventually it did, but LNKD remained very strong and actually even began the leg up first before FB, actually continuing a second leg of leadership. FB followed late, midway through LNKD’s advance and then continued as LNKD sputtered, then continued again but this time the rate of decline slowed as basically FB consolidated and made it’s next leg up as LNKD continued to tighten much like GOOG did to BIDU as BIDU still advanced, but as soon as GOOG broke out, it’s rate of ascent was much higher.

LNKD initially peaked first, suggesting it would consolidate but on FB’s next major high LNKD actually took out that high on October 21st while FB failed to do so suggesting that a subtle rotation may be beginning. Even though FB defiantly continued another leg higher this time while LNKD continued it’s long consolidation, LNKD continued to set up with a tighter consolidation readying for a multiweek or multimonth advance to take the baton from FB. While FB is still technically leading, it is on it’s 2nd leg higher. The last time LNKD did that it spent a lot of time consolidating.


So right now I see LNKD as having been largely ignored by the big money which create the trends and in my mind, that creates opportunity of greater value for lnkd than it does for FB at SOME point. Based upon technical analysis I think that will cause LNKD to lead SOON, the question is only WHEN.

Now let’s isolate LNKD as a stock and do some more specific technical work with today’s closing chart.

Item 2)Chart 1:


LNKD has about 80% of it’s outstanding shares floating. That means it is heavily traded but not necessarily owned heavily by management types. That means I am more likely to interpret the volume as simply temporary action as opposed to permanent “value” investor positions. Therefore, I think those who bought 150-180 probably took some profits above $220. The aggressive buying everytime you think the stock is breaking down to a lower low tells me they want their shares back badly at lower prices. The smart money to me has been slapping the dumb money around who comes in late and chases the rips higher and panics late lower. Even if that interpretation is incorrect, I think the 150-180 volume will be able to “shoulder” the selling, and possibly even create that one rip higher where the dumb money learns there lesson so they stop chasing higher the next time or two around and suddenly they find themselves missing out and the stock at new highs. At SOME point I think that will happen. Regardless, EVERYTIME you had a new low, you saw an eventual rejection of that low and a very sharp up move from that new low that carried on into the following week.

Item 3)”Bullish Divergence” The RSI and Slow Stochastic have a large degree of overlap which means they essentially are measuring many of the same things (momentum). So I won’t call it a “quadruple divergence. However, on MULTIPLE timeframes (using OA’s triple oversold indicator) the RSI on the daily chart is showing a clear picture of HIGHER relative strength lows even as the stock goes lower. That signals strengthening momentum even as stock is available at lower prices which tends to be bullish.



I believe we are near levels of support however you look at it. If we get a fast down, I think there will be a quick flush , capitulation and a chase higher and the support as we near 180 will be very aggressively ready to buy. Even if we do not, we may still be at the levels where the consolidation pattern is in a state of support and we could still rip higher once more. If we do not flush lower and reverse we still could see that eventually happen and I may be early, but I like my odds here on multiple timeframes for multiple reasons.


HIGH conviction name. I am not saying it might not flush first and reject. Short it if you wish, but to me looking forward there is tremendous potential. I may be far too early in the trade, but nevertheless I like it here even though many will see it as “crazy”.

Finally: For future consideration and what will eventually be described in more details in my 2014 outlook I would like you all to consider that there are generational trends driven by the relationship between bond prices, interest rates and pension funds having to reach certain thresholds of earnings to stay solvent. That these trends are only just starting to potentially become relevant with regard to stock prices. As a consequence these trends along with how the smart money anticipates and capital reacts, create a “liquidity cycle” that potentially change whether or not we are in a stock market or market of stocks and which in turn drives the “risk cycle”.

Disclaimer: I grabbed some LNKD near the end of the day today (2/12)

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Shockingly Bullish? Why The Dow Could Go to 40,000 By 2020 or sooner.

Every now and then when I get the feeling we may be at extremes (I started writing this before the recent pullback but haven’t gotten around to finishing it until now but I will edit the rest of it) I like to check to see if there is any past behavior in the market that can give us a clue. Human nature remains very much the same even as power, leverage and credit shifts, that too is governed by human nature. Charts really are only available since the 1900s so 110 years worth of data perhaps doesn’t really capture the rise and fall of entire nations and how that effects the economy and trade and the growth of technology is a wildcard as well.

Still though, that’s a long time to look for patterns and we should be able to find some time frame in which we recovered from a major low and are years into the recovery. Of all those periods, we should be able to find one that lines up well.
While there seemed to be several periods of time that lined up fairly well, there are really 2 candidates that I really liked that came off a major bottom.

Unfortunately they are polar opposites. The one was 2002-2007. I actually think this similarity is exactly what we need for SOME of the crowd to believe any short term dip is the start of 2008 all over again. Many people get caught “fighting the last war” and it is this that keeps them fearful. 2008 is fresh in our minds, and less likely to happen. I think too many people will be looking the first sign of a minor move down which is all they will need to not believe the rally and create “disbelief”. The one that I think will shock some people is the period of 1920-1926 which lines up well with the current market.

2013 as 1926


meshed color

Since I have created this, the dow has declined a bit and diverged in direction as well. Nevertheless, the last time I saw an analog line up like this good was in 2009 near the bottom. There were also decent analog in GOLD and various markets in bear markets that along with the thin volume profile below and heavy volume profile above (as many would be underwater with not enough buying support to sell) allowed me to predict a sharp decline.

In the dow, we rallied from the low the expected 60% but actually kept going. Analogs only work so long. I blogged about this way back. In fact, to access it we have to use the “way back” machine.


Back then it was “now vs 1929” where 2007 lined up with 1929 top basically and 2009 low lined up with the 1929 low. There was a big “bottom” that would have resulted in a 50% increase before it started to diverge from the analog and continued higher thanks to a more elastic money supply and completely different market structure. Now it’s “bringing back 1929” where mid way through 2015 or late 2015 lines up with mid 1929.

If this actually works going forward it is suggesting a huge bullish move as took place between 1927-1929. During that period, stocks went up around 150% depending on where you measure from exactly.

There are other ways to look at potential targets. However the big issue we still have to overcome is the long term trendline of the dow which puts resistance around the general range of 16,000.


There is support around 13,000 and then 10,500 and then again at 7500 and very, very long term support at 6000 or so. On the other side, the resistance kicks in around 16,000. After that? There is really no reference until around 40,000 on very, very long term resistance.

max target

Unfortunately, that’s a very wide net to cast because if it is in fact “2008 all over again” there is still plenty of downside. But I think the easy money will be if/when dow breaks the 16,000 resistance zone.

Ideally, we will soon get a sharp crash in other parts of the world, and the US likely will also get hit initially, which could set the stage for a monster parabolic run, like in 1987 when the US markets crashed and capital concentrated into Japan from 1987 into 1989 peak of… you guessed it, 40,000 (well actually 38,957.44 but close enough). I think that because both 2007 analog also lines up this will convince enough people that 2008 is here as we decline and diverge from the 1920-1926 analog. Then a significant decline will start possibly next month causing people to expect the move only being just starting. At this point, the market will blast off to the upside to ply catch up with 1920-1926 analog leading into the 1929 type of peak, which could easily top out before the late 2016, or diverge and fall short of the target but continue the climb as 1929 declines, diverging.

I actually am crazy enough to think that can happen in the U.S. The “tell” being the recent wreckage in Asia while the US markets stayed near their highs. The shift out of the Nikkei was also likely a global one. Maybe there is another move, coming up, maybe that was it.

Here is what we know:

1)The other markets around Asia also sold off, as well as emerging and frontier markets, indicating it wasn’t just isolated to one country.

2)The currency. After declining 30% from it’s peak, the Nikkei basically doubled from November 2011. So put this in a global investors perspective. The balance sheet was 30% less valuable on average to others around the world, yet the price of those companies are twice as much? Wouldn’t you sell? If you were in Japan and your currency was devalued, you certainly would prefer stocks to cash, so while the buying was probably mostly domestic, the selling was likely global, and hence why it was more than just your typical profit taking correction where the correction is relatively “orderly”.

3)1987 crash in the dow in a single day was a global phenomenon too as the dollar had lost 50% of it’s value from the 1985 Plaza Accord high). Take a look at the action of the Nikkei afterwards. This time it may happen in reverse where another nation such as Japan crashes in a short time frame and the US stocks then are the beneficiary. Perhaps it already happened as Japan dropped over 20% in a few weeks from May-June.

4) Although you can talk about the fundamentals for the dollar when involved in actual trade and exchange and speculation, the dollar is the only global currency with enough liquidity to absorb the international demand of central banks and very large funds who need to park extremely large amounts of capital in the world reserve currency.

5)Although you can talk about how dividend payments are low, compared to the low interest rates in a bank, CD, money market, or even bonds, the large money, particularly pension funds in order to stay solvent will be forced out into more speculative junk bonds, preferred shares, and the like. Interest rates will have to come higher which long term is correlated with major secular bull markets around the world. The hunt for return will chase people out of yield and into speculation, but if they must have yield, they will need to get in high dividend paying “blue chip” stocks real soon while they’re still cheap and yielding a reasonable amount.

6)The global concentration of capital into the US, and shifting out of the bond market in my opinion and opinions of those I respect will likely lead to a secular, if not parabolic run.


Parabolic runs are nothing new, they are simply a concentration of a large percentage of all available capital into one area (or globally) both for purposes of avoiding other “dangerous” assets, or the simply concept of “herding”. Here are four known “ancient” bubbles. Actually 3, south sea is there twice.


and I found this as well which has some other “ancient” stocks.


“Even the Tulip Bubble, the first contagion post-Dark Age, was a European-wide contagion as tulips even traded in London. There were ancient contagions and panics. Stocks traded in Rome, insurance predated even that, and commodity markets thrived in a boom bust cycle as far back as Babylon.”

Domestic Panic v International Contagion

I do not have the Boom/Bust Bubble charts of Babylon, but regardless, where there are markets, there are price changes, and the potential for “bubbles”.

The fact is that not only that “bubble’s” are ancient, but that it represents a concentration of capital on very large scale levels. It is not simply JUST emotion, as that can only drive the force which causes capital to concentrate. In many cases you need debt and global or at least very widespread interest. A large percentage of the known world economies must become interested and concentrate into one market, particularly near the height of a business cycle top.

Here is japan on 100 year chart to give us similarities with the US one. Not an analog per say but  to show you the structure was relatively “normal”, just as dow 40,000 might be “normal”. (almost no one will look at it that way until it’s too late, as it is only the structure that would be normal, not the perspective)


You probably more often see the small chart I included for comparison on the right dating back from 1970 leading to 1989. This appears to be a break of a trendline channel with no reference points and a mania run. And in many ways that’s true but it isn’t without longer term reference and structure that in fact is a bit more predictable than one may think. Look at the chart on the left that truly offers a long enough historical comparison for us to see that 1989 could really just be perceived as a test of very long term resistance on a trend-line, and in that sense is relatively “normal” on a long enough time frame. The same goes for the dow if it goes to 40,000 and tests very long term resistance as I showed earlier with the very long term trend channel with around a 40,000 target.

The view on the left side is what very few are used to seeing. A relatively “normal” rise in a channel and correction that doesn’t actually seem so shocking until you consider the time frame is 100 years and the market went parabolic on a short time frame and the correction has lasted over 2 decades.

Here is another market. First the chart you are probably used to seeing when you look up charts of the 79 parabolic run in silver and gold.

silver and gold

Again, without more data, you would conclude that this has zero context or reference point, and is simply a parabolic run as you would when gold went up to $1900 only recently. But here’s a much greater historical context of data.

200yr gold

I bet you never thought of gold at 1900 as hitting “long term resistance” before, huh? So gold at 1900 actually was actually just a “test of resistance” Even though, most had no idea that there was ANY to be found. I think the data derived from understanding the total global “allocation” weighting towards each asset class at a given time and factoring in supply would be much better to measure with regards to bubbles to know just how extreme these moves get by asset class. Hence why the trend can be higher, but references of extremes remain somewhat predictable providing the maximum possible swing before capital must revert back to other assets which now will have been neglected. Bubble’s “end” when either the credit can no longer expand at the same rate, and in fixed money supply markets (such as gold standard) where or the allocation weighting cannot shift anymore aggressively towards that asset without completely neglecting and providing ridiculous valuations and opportunity elsewhere. Even sometimes as famously said, “the market can remain irrational longer than you can stay solvent”, it still has boundaries eventually. The 1929-1932 crash was actually a rise of 50% in the dollar from 1920 to 1932 that supports the relatively “normal” 50% decline story that has examples littered throughout history. But also support the history of bubbles popping back to the trendline. The capital inflow and demand of the US dollar first shows global allocation, and support the “normal” constraints of around a 50% decline with an additional increase in the dollar that both inflated the bubble and deflated the decline due to the gold standard (money was fixed to gold so as it could not rise independently on it’s own, everything else had to fall in value with it as capital rotated out of Europe into the dollar and gold).

The gold standard bubbles in gold are instead a flight to cash and represent the slow down of the velocity of money and hoarding of capital, and effectively “deflation” and “flight to quality”. The gold bubbles that occurred where money was not a gold standard, represent a concentration of capital away from the debt markets and currency markets and sometimes stock markets. “inflation” MAY cause gold to rise but actually doesn’t have that much to do with it, but instead a shift away from government and/or private paper. Even so, it’s never that simple because gold is globally in demand and different nations have different money systems but it still behaves with structure, because of the nature of “limits” in how much people can spend, without neglecting other assets to such an extreme it motivates a shift back to the neglected assets, or how fast people can keep money moving to the point where credit can’t expand fast enough to keep an asset growing and the credit cycle must end.

The bubble peaks when buying power cannot sustain the prices and the slightest amount of selling pressure and all the volume that came in towards the end buying “at any price” suddenly end up underwater and want to sell. Everyone who wants to buy already has done so and the price can go nowhere else but down.

But nature of bubble’s aside,  All asset classes can act like that since price is a function of confidence and perception of return relative to all other opportunities. (Liquidity also plays a role as well as it has to be a market that the largest players can get in and out of.)


Yields went parabolic even and the other direction you might even look at the decline of yield as a parabolic run in price. There are points in history where bonds of companies and entire governments eventually yield nothing as soverign debt collapses. But when yields first broke-out and some said it started to go parabolic, was measured in decades, rather than years (except the final move at the end). The time frame of such a cycle is much different than stocks or gold. Bond yield “bubbles” or “price yield “bubbles” are very different in nature, since treasury bonds have become currency that pay interest since you can borrow against it, but such a shift in confidence still exists.

We have three great examples of charts of stocks going parabolic here. The roaring 20s, the Nikkei bubble into 1989, and the nasdaq bubble into 2000. (of course the earlier picture also is some of the ancient stocks such as Londan Assurance and South Sea companies going parabolic).


You can see that as a trendline is broken, and it doubles, if during that double it breaks another trendline, the time in which it doubles is significantly less. Actually the move into 1984 was a slight break of the previous trend and after the pullback it basically doubled from 300 to 600 in 8 years first. Then 800 in 1994 to 1600 in 1998 4 years. Then 1999 to 2000 from under 2500 to  over 5000 in 1 and a half years. It’s not so much the magnitude of the move itself but the timing and historically large moves in shorter and shorter periods of time.

When the major break of the trendline is made, the asset often accelerates to it’s peak. In the extreme example like the Nikkei or nasdaq we see it double and then double again.

Perhaps if/when we break the long term resistance it will instead be a “secular” run rather than a parabolic one. Afterall, as I have shown, the returns are possible to continue measured over a long period of time. I am not yet convinced we won’t see a significant pullback first, and we are coming up on the period of time August-October that worries me.

However, the actual very long term resistance probably will still hold, so it’s a question of whether we set up a quick run to extreme historical highs (1929), or a gradual run to large gains over decades (1942-1965, 1982-2000). You could measure from trough to peak, or you could measure from the distance after the breakouts. I have done this in historical look from 1900-2013.

Most relevant right now is “Gains from “breakout” point (This has YET to happen)

1924-1929 104 to 386.1  A 271.25% Gain

1951-1966 235 to 1001.1 A 326% Gain

1983 to 2000 1100 to 11750.25 A 968.20% Gain

(ALTERNATE: 1983 to 1987 1100 to 2746.70 A 149.70% Gain)

(1995 to 2000 4000 to 11750.25 A 193.76% Gain)”

With a breakout point of 16,000 (it’s actually above that), you only need 150% gain to get to 40,000. So the 1983-1987 period would be like 2013 or 2014 to 2017 or 2018.

You can add onto that the parabolic runs of the nasdaq, and the nikkei with minor considerations and even look at a few of gold’s historic runs to get an even more bullish target.

I think ultimately if you think the market is going “parabolic” the very long term upper trend channel that I outlined is the target, which is around 40,000. I think history shows that if you break a long term trend channel, you can see stocks do far more than double in only a few years such as in the nasdaq or Nikkei’s final run up depending on when you measure from.

Then there is the dow in the roaring 20s. Before it broke the long term resistance lets see what it looked like first.

roaring 20s pre breakout

Compare that to the dow right now.

Since we have already identified the extreme similarity of the timeframes aligning 1926 and now, we can project forward and perhaps predict the future if we see what the roaring 20s looked like?
roaring 20s post breakout

It put in about a 150% gain in 4 years. Where does 150% gain from the breakout point of around 16000 take us? You got it, 40,000 by 2017-2018 depending on if we break now or in 2014.

Or take the nasdaq run. From the 900 to 5048.62 peak it gained at a rate of about 3.02% per month. If the Dow goes on that kind of a run, after breaking 16,000 it will reach 40,000 by early 2016. (I consider that optimistic of course).

Another way to look at it is the Nikkei was at 10,000 in 1985 2 years before the 1987 crash and got to 40,000 in 1989. 2 years before the recent wreckage in Asia, you may recall the dow was actually a little above 10,000.

Well, the odds are not that great that it will go to 40,000 in that short of order, let’s be honest, but it’s the extreme “outside” chance that I see as more possible than many may comprehend and at some point, it is only a matter of time before the extremes of the long term trend channel are tested. I also see a longer term durable secular break that could take maybe 10 years or so to reach that level as a possibility. Of course so is one more cycle top resulting in a decline to retest support setting the stage for a more durable run. But To me, this shorter term bearish phase we may be heading into could very well set the stage for all the shorts to come in and pessimism to make one more strong run setting the stage for the ultimate bear trap before the parabolic run.

Afterall, when do you ever see analysts calling for that type of run before it happens, or even a secular run? While I think the odds are much better that we simply correct a bit first and then perhaps go on a longer drawn out secular run, do not sleep on this possibility.

I think we will see a very strong and sharp correction somewhere that will keep the majority “wrong” both in the short term as they chase the “froth”, and in the long term as they avoid the casino and vow to never return and claim “2008 all over again” at first sign of a minor correction and continue to try to short it. (well until it hits 30,000+ and they can’t help themselves and everyone and their mothers start buying).

It is the type of “sky is falling” type of move that will scare the public from getting in while the getting in’s good, and the type of psychological “aversion” to stocks that create enough pessimism to cause the majority to miss the move until it’s too late, then they are afraid to chase and afraid to chase and finally they think it’s stupid not to and they don’t want to “fight the trend” and they go “all in” when they have hoards of cash that comes from the boom as credit cycle peaks. I am not as convinced that on the long term timeframe we have had  that complete aversion and think that perhaps 2011 was just an aversion on a shorter term run and a prelude to the decade long aversion. But I am open to the possibility that we break to the upside with not much more downside. Personally I think September will be a major shockthat has everyone coming out claiming “stocks are rigged” or “investing in stocks is suicide” to an even greater extent than we saw before. Then as we break out there is major denial and people saying “no way to stocks go higher, then suddenly they realize they were wrong, and the story of stocks to the moon occurs. Dow 100,000/200,000 calls are made near the top.


And you’ve all seen the chart Option Addict refers to a lot. I personally think we are entering a bear trap on the above chart and “aversion” into September, but I could be wrong and as he suspects that could have been 2011.

sentiment chart

Although the market may be similar to 1926, the market also looked similar enough to periods near “market tops” or prior to “corrections” for me to continue to be concerned in the very short term, but many of those time periods weren’t too far away from a major secular run after the wreckage was over, and there are a few bullish periods as well.

It’s enough for me to be concerned, especially along with the bearish seasonals into the August-October range, the budget battle in September (deadline of October 1st) and the Germany elections September 22nd and other various headwinds. I think though after that we may be in the clear. Just for kicks, here are all the analogs I consider relevant.

Ultimately, my bias is much, much higher, and the best analog is still probably 1926 but we need to actually break resistance in order to set the stage for a large run, until then I will be a bit cautious, unless we get more of a dip around September setting the stage for a significant buy opportunity.

The strategy if we are going on a strong secular run or parabolic move is probably going to be to consider more of a longer time perspective. If you use options you might go further out in strike price and time and use smaller position size. This way you can have more names with less total capital at work of the “lotto” type of swing for the fences plays… Perhaps on a longer term time frame, and more of a “monthly lotto” which means you probably want to focus on the naes that really can trend for weeks when they go. The swings will be more “momentum” type of moves that just take off and keep going. The duration of swing and actual price movements are likely to be greater and breakouts are likely to carry on and last, pushing stocks to significant momentum extremes. Perhaps moving towards a trend strategy or position trades rather than swing trades.

If you use stocks, you might consider widening your stop and also letting your winners ride for a longer period of time, perhaps using a wide trailing stop.

If you aren’t looking to change your core strategy, you might just grab a ETF or 3x ETF and hang on for a longer term move with a portion of your funds and keep doing what you have been. Or you might consider decreasing your cash percentage. However, it’s very possible the volatility could pick up, shaking people out often enough to keep them in disbelief and keeping others who sold lower willing to chase the same stocks higher and push it up.

Me personally? I have been working on structuring a basic plan that I have figured out conceptually, but that I want to get more specific about. Part of that means finishing my position sizing and expectation spreadsheet. I will when I find the time.


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Februrary Trend Trader

I decided to go with the posts titled “trend trader” for use explaining the individual industries and stock and etf selections and their weightings. The Trend Report will instead just analyze the market, the economy, etc.

When you expect the market to move strongly to the upside, and present high upside, limited downside with a good probability of success, you want to increase your Beta, that is your leverage to the overall market. The Trend Report is about trying to best understand the conditions to make those shifts to position your beta properly to be aligned with the market and your percentage allocation of “risk on”, “risk off” and “neutral”.

The Trend Trader instead is about Alpha. It is about individual names that present a good return on a low risk. A high individual margin of safety.

We will first analyze the sectors. This was mostly done in late January but I haven’t gotten around to completing it until now.


healthcare 52%
telecom 31%
utility 26%
energy 19%
industrial 17%
financial 15%
technology 5%
staple 37%
discretionary 0%
material -9%

(valuations from sometime in late Jan)

The following get long term buy ratings as well: telecom,utility,energy,industrial,financial,technology,staple,discretionary

You can use sector spdr ETFs if you like, or else look at individual etfs or stocks within each area.

I combed through a handful of etfs in each area with decent valuations
discretionary PMR
discretionary UGE (2x)
staples KXI
staples RHS
energy MLPN
energy IYE
energy GEX
energy ERX (3x)
energy ICLN
energy TAN
energy DIG (2x)
financial IAI
financial UYG (2x)
financial KME
financial IAK
financial IAT
financial KCE
financial RKH
financial FAS (3x)
healthcare BIB (2x)
healthcare BBH
healthcare IHF
healthcare RXL (2x)
industrial PHO
industrial CGW
industrial PPA
transportation FAA
materials NONE
tech IAH
tech TYH (3x)
tech (nanotech) PXN
telecom TTH
telecom IXP
utility JXI
utility RYU

Of index etfs, SPY looks better valued than the rest while FXI is overvalued.

Here are a handful of highly undervalued regional ETFs
Mexico UMX
Global/Multi-Region ETFs IXP
Global/Multi-Region ETFs JXI
Global/Multi-Region ETFs BBH
Latin America LBJ
Global/Multi-Region ETFs DBR
Global/Multi-Region ETFs TAN
Global/Multi-Region ETFs MNA
Global/Multi-Region ETFs DOO
Global/Multi-Region ETFs IXJ
Global/Multi-Region ETFs IRY
Global/Multi-Region ETFs ICLN
Global/Multi-Region ETFs FGD
Global/Multi-Region ETFs PBTQ
Global/Multi-Region ETFs GEX
Latin America ILF
Global/Multi-Region ETFs MKH
Global/Multi-Region ETFs PWND
Global/Multi-Region ETFs KXI
Brazil UBR
China FNI

Individual stocks with long term buy ratings and many of these still are likely to provide a margin of safety but should be checked at http://www.wikiwealth.com/company or gurufocus.

AllianceBernstein (AB) Stock Research
Alliance One (AOI) Stock Research
Advanced Battery Tech (ABAT) Stock Research
China Yuchai Intl (CYD) Stock Research
COPEL (ELP) Stock Research
Ctrip.com (CTRP) Stock Research
Central European Distribution (CEDC) Stock Research
Dean Foods (DF) Stock Research
Gafisa SA (GFA) Stock Research
Hewlett-Packard (HPQ) Stock Research
Entergy (ETR) Stock Research
America Movil (AMX) Stock Research
AMN Healthcare (AHS) Stock Research
Dreamworks Animation (DWA) Stock Research
H&R Block (HRB) Stock Research
CTC Media (CTCM) Stock Research
Cemex (CX) Stock Research
American Dental Partners (ADPI) Stock Research
Grupo Televisa (TV) Stock Research
California Water (CWT) Stock Research
Best Buy (BBY) Stock Research
Goldman Sachs (GS) Stock Research
Gannett (GCI) Stock Research
ConocoPhillips (COP) Stock Research
Dell (DELL) Stock Research
Amsurg (AMSG) Stock Research
Energy Transfer Partners (ETP) Stock Research
Cal-Maine Foods (CALM) Stock Research
Interactive Brokers (IBKR) Stock Research
Exelon (EXC) Stock Research
AmeriGas Partners (APU) Stock Research
Banco Bradesco (BBD) Stock Research
B&G Foods (BGS) Stock Research
Capital Senior Living (CSU) Stock Research
Comcast (CMCSA) Stock Research
Apollo (APOL) Stock Research
Anglo American (AAUKY) Stock Research
Allstate (ALL) Stock Research
Brink’s Company (BCO) Stock Research
Diamond Offshore (DO) Stock Research
Itron (ITRI) Stock Research
Freeport-McMoran (FCX) Stock Research

Many stocks with long term hold ratings still provide an excellent margin of safety and also are worth looking at.

Gentiva (GTIV) Stock Research
Canadian Solar (CSIQ) Stock Research
Alliance Imaging (AIQ) Stock Research
Bon-Ton Stores (BONT) Stock Research
China Information Security (CNIT) Stock Research
Frontline (FRO) Stock Research
Hanwha SolarOne Power (HSOL) Stock Research
Excel Maritime (EXM) Stock Research
Corinthian Colleges (COCO) Stock Research
Calamos (CLMS) Stock Research
DHT Maritime (DHT) Stock Research
Imperial Sugar (IPSU) Stock Research
AMR Corp (AMR) Stock Research
Alcatel (ALU) Stock Research
Aegean Marine (ANW) Stock Research
CPFL Energia (CPL) Stock Research
Healthways (HWAY) Stock Research
Career Education (CECO) Stock Research
China Finance Online (JRJC) Stock Research
Farmers Capital Bank (FFKT) Stock Research
Bidz.com (BIDZ) Stock Research
China Medical Tech (CMED) Stock Research
Eastman Kodak (EK) Stock Research
Amrep Corp (AXR) Stock Research
Aspen Insurance (AHL) Stock Research
Cogo Group (COGO) Stock Research
Ambassadors (EPAX) Stock Research
Himax Tech (HIMX) Stock Research
ITT (ITT) Stock Research
Ceom Israel (CEL) Stock Research
Allied World Assurance (AWH) Stock Research
Axis Capital (AXS) Stock Research
Exide Technologies (XIDE) Stock Research
ACE (ACE) Stock Research
American Caresource (ANCI) Stock Research
Hudson City Bancorp (HCBK) Stock Research
JA Solar (JASO) Stock Research
Advanced Semiconductor (ASX) Stock Research
HDFC Bank (HDB) Stock Research
Forest Labs (FRX) Stock Research
Air T (AIRT) Stock Research

There are probably many more, but I have not gone through all of the names at http://www.wikiwealth.com/company


The mexican peso for example looks great on a valuation basis and on a chart on a monthly basis, but the daily/weekly chart timing is terrible. You could add a FXN position and intend to increase the position it if it pulls back, and hold for awhile.

On the contrary, FXE is looking good on a weekly chart, but does not look to provide much of a margin of safety.

tradable currency (slow stochastics OS readings or close to it)

fxe weekly good

(fxs weekly okay)
(FXF weekly, okay)
uup daily good, weekly not great
tlt is somewhat reasonable to trade again. (relatively neutral signals).
But contrarian signals are warning that US treasuries should be avoided as it may present higher risks and lower return.
positive valuation
Taiwan (TWD, Dollar)
Egypt (EGP, Pound)
Singapore (SGD, Dollar)
Colombia (COP, Peso)
Greece (EUR, Euro)
Argentina (ARS, Nuevo Peso)
Hungary (HUF, Forint)
India (INR, Rupee)
Mexico (MXN, Peso)
Hong Kong (HKD, Dollar)
Russia (RUB, Rouble)
Czech Republic (CZK, Koruna)
Brazil (BRL, Real)
China (CNY, Yuan)
European Union (EUR, Euro)
France (EUR, Euro)
Indonesia (IDR, Rupiah)
Israel (ILS, Shekel)
USA (USD, Dollar)
South Africa (ZAR, Rand)
Italy (EUR, Euro)

Keep in mind that the euro can only be traded as one currency, however the bonds are sold separately so it is possible, but a bit more difficult to get exposure to the individual euro countries debt markets.

Currency ETFs for above that are available

Since prices change daily, valuations will as well, so you probably want to check everything over before making a decision, but this should give you a good range of selection from which you can determine which assets you want,
and then how to weight them… taking into account correlation and the overall outlook of the market based upon February trend report. You may want to use the guide to investing in stocks that I constructed to sort of explain how to bring the big picture together.

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