Happy Birthday 12631

Coinciding with iBankCoin’s four-year anniversary this weekend is the one-year anniversary of our 12631 Trading Service inside The PPT. The service is run by myself and the RaginCajun, where we direct a cutting edge, real-time chat room on top of many other features. We only offer 12631 memberships to PPT subscribers due to the interconnectedness of the services, in the sense that 12631 seeks to extrapolate on The PPT algorithm. Since literally the first moment that we launched 12631 in 2010, the response has been overwhelming. Over the past year, we have cultivated and developed a community of well over 200 active members at all times.

During that process, our service has taken on a life of its own inside the iBankCoin family of businesses. There is little doubt in our minds that we are home to the most dynamic and value-added chat room and trading service on the internet. Despite our numerous subscribers, however, we are a very closely-knit group, genuinely seeking to help and pulling for each other on a daily basis.

Along with the great help of Jeremy in the IT department (shout out to “gappingandyapping” too), we have also consistently upgraded the service, including email alerts for all trades, and a recent renovation to our unique “Pelican Room” chat with plenty of useful features on the sidebar.

As we head into our second year, our goal is simply to continue to sharpen our trading skills, refine our use of The PPT algorithm, and nurture our great sense of community. We would like to sincerely thank our loyal members for helping to turn our service into a special place, with traders improving daily, as well as gaining confidence and having fun along the way. And, of course, none of this would be possible if The Fly had not showed the business acumen and confidence to give us the green light to launch the service last year.

We have had a wildly successful year in 12631, but we are not the types to rest on our laurels. In fact, we are just getting started. For as little as $25 per month, you can join us on the journey.

Click on the 12631 hyperlink to learn more about joining our winning team.

Winning stocks in their prime, such as Microsoft in the 1990’s, are very forgiving to just about everyone except shorts. If you are not sure whether you are trading it or long-term investing in it, you will catch a break as the stock will go higher regardless of whether you got panicked out on a pullback and decided to buy it back higher.

Unfortunately, plenty of stocks which have great potential can be not nearly as forgiving to their believers for years on end. Over the past several years, ATP Oil and Gas has treated its loyal holders like dogs. Personally, I have had mixed results trading in and out of it, but the common denominator has been that I always knew I was simply trading it with a clear exit plan. I never let the losing trade magically turn into an investment. Because it is a very high beta energy play filled with numerous shorts, ATPG lends itself to a vicious squeeze opportunity if you catch it at the right time. As with many stocks in the market in 2011, there have been headfakes galore, even when ATPG appeared to have been technically set up very well for a breakout. When that happens, your two best defenses are: 1) Position sizing, and 2) Protective stop-losses to stop the bleeding and move on to another trade.

In other words, ATPG is a very tough stock, and it really puts you to the test of whether you are a long-term investor with conviction, or whether you are just trading it. If you are the former, then you should periodically reassess your thesis to see if it has remained intact (and even then, you should still at least consider a maximum threshold for losses). If you fall into the latter category, then your exit strategy should be well-defined at all times, given how volatile and unforgiving the stock can be. If you are not sure whether you are investing or trading in it, you are better off staying away altogether, as this is clearly not Microsoft in the 1990’s.

Looking at the weekly chart of ATPG below, you can see that the 2010 lows were breached this fall, but price is still well above the 2008 lows of $2.75. The selling volume has picked up recently, and the stock remains in a downtrend since March of this year. Moreover, a retest of the 2008 lows cannot be ruled out if the October 2011 low of $5.71 is violated. Note the stock is not yet oversold according to the weekly Bollinger Bands. The best bet for the bulls is to hold this $6 area and work higher through the long-term sideways channel (blue lines).

ATP Oil is once again challenging the faith of its loyal investors. Make sure you know if you are, in fact, one of them.

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Last week’s selection was my all-time favorite movie, Goodfellas (1990). I fully recognize that The Godfather (1972) was released well before Goodfellas, and may indeed have set the gold standard not just in terms of melodramatic depictions of mafia families, but the highest level of cinema as a whole. Be that as it may, I still believe Goodfellas would have been made all the same, for several reasons. However, I am not going to focus my discussion on that comparison tonight.

Instead, I want to be completely blunt here. Let’s be honest; There are plenty of child rape cases out there and they do not garner anywhere close to the kind of attention that the Penn State one has. In fact, most are conveniently swept under the rug by the media unless there is some compelling subtext to the story. The reason why the Penn State child rape scandal has gone viral is because of the prominence of the football program and the multi-year cover up. Both of those aspects of the scandal can be blamed squarely on head football coach Joe Paterno.

As early as 1998, and certainly by 2002, Paterno knew that his vaunted defensive coordinator, Jerry Sandusky, was a sexual molestor of minors. We know that Sandusky committed the rapes, so why even talk about Paterno? Because he not only held himself out as the patriarch of the Penn State football family, but also that region of Pennsylvania in general. Instead of calling the police and doing the right thing, he tried to solve the problem his own way. Because I think Paterno knew back in 1998 about Sandusky’s actions, it is not surprising that Sandusky retired in 1999. I believe Paterno gave Sandusky the option of either retiring or reporting the rapes to the police. As a result, Sandusky continue to rape little, vulnerable boys for at least the next decade. Paterno was constantly praised for molding young men at Penn State into gentlemen with character, integrity, and honor. And yet, when faced with a decision that was clearly the right thing to do (going to the police), he opted not to tarnish the beloved reputation of his “famiglia.” Surely, a former defensive coordinator being exposed as a child molester would have put an immeasurable stain on the legacy of “JoePa.”

True, this is America and Sandusky will get his day in court if he does not take a plea bargain, but my point is more centered around Paterno. Personally, I think child rapists should be eligible for the death penalty, possibly a topic for another post. For the purposes of this post, though, the story about Paterno acting as the criminal patriarch implores you to watch or re-watch The Godfather. There is no doubt in my mind that this is a case of life imitating art, solely with respect to Paterno assuming the role of Don Corleone in attempting to handle a criminal issue “inside the family” as though he, himself, were completely absolved from the law and its repercussions. Paterno may or may not have broken any criminal laws, but he knew Sandusky clearly had committed one of the most heinous crimes imaginable. For that, “Don Paterno” will be remembered by most as more of a mafia boss than an esteemed leader of young student-atheletes.

http://www.youtube.com/watch?v=gtYjdEwa8GA&feature=related

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One of the more difficult aspects about “trading the trend” is when you encounter a situation like the current one. We know that trends can go on for much longer than most think possible, yet no one wants to get caught holding the bag at the top, especially in this day and age of in-your-face, call-you-out, real-time social trading. On the one hand, we have high momentum standouts like GMCR and NFLX clearly breaking down from late-stage bases. That does not necessarily mean those stocks are done forever, but rather that they need plenty of time to at least reset their base count before sustaining another powerful uptrend. On the flip side of the coin, growth leaders like AMZN AZO (chart below) CMG LULU PCLN are holding up remarkably well considering how much ground they have covered since 2009, and all of the broad market volatility in recent quarters.

Note that all of the stocks mentioned above have, or currently still are, been priced with three digits. Unfortunately, the overwhelming majority of low-priced issues never amount to the elusive ten-bagger. In fact, as the axiom goes, you get what you pay for. More often than not, high-priced stocks become even more so, while single-digit midgets often become extinct, rendering their beloved penny stock holders’ equity worthless. Notice how I used the phrases ‘high-priced,” and “low-priced,” instead of “expensive” and “cheap.” A high-priced stock can be very, very “cheap” fundamentally, whereas a low-priced stock can easily be “expensive.” Despite that, many investors and traders still have an aversion for buying a stock priced over $100.

Currently, we are in a market environment where the previous view of either ‘”risk on” or “risk off” is being trumped by more nebulous action. The S&P 500 has broken out from its summer trading range, but as we know it has categorically not been an off to the races scenario like last year at this time. This time around, you may or may not get what you pay for with high-priced winning stocks–A more rigorous approach is going to be required to find the winners, regardless of whether you focus on technicals or fundamentals.

With all of the old Wall Street axioms that fly around the financial media on a daily basis, such as “Just dollar cost-average down when your holdings plummet instead of panic selling,” “Buy low and sell high in order to get rich,” or “I know old traders and bold traders, but no old AND bold traders,” etc., it is very easy to see the market in black and white terms. Given the current predicament, though, I suspect shades of gray are more appropriate.

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Direct Vimeo Link Click Here

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At the end of last week, I surmised that the weekly charts of the major indices would likely go, overall, sideways this week, with the potential for volatility to collapse. Well, as we wind down this week, we have indeed gone sideways, holding above the summer’s multi-month trading range, but also below the late-October highs. Note the potential for a bull flag on the weekly chart of the SPY below.

However, the VIX is stubbornly holding around the 30 area, failing to collapse. As a result, the wild price swings remain commonplace, making it difficult to swing trade this market aggressively yet. Wild price swings tend to favor the bears, as the nature of the indecision (violent) makes it difficult for buyers to hold  and add with conviction. A bullish scenario next week would be a continued sideways move in the indices, with volatility finally holding below 30 and sliding lower, likely allowing more and more individual setups to break out properly.

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