Today's Market
by Dr. Invest


Aunque la mona se vista de seda, mona queda. Let me interpret, "A monkey dressed in silk, remains a monkey still." I don't care how good the market seems, "DO NOT BUY STOCKS!".

The global economy is slowing, "smart money" in corporations is buying back their stocks; "dumb money" is selling their stocks. It is the traders who are buying stocks and there is only a "low volume" in buying. Let me explain, institutional investors are holding-on to cash.

This market could change, but September is typically negative in stock returns. Oh, yes, there is a whole group of analysts dressing-up the market in silk, so people will buy back into the market. This is the "great hope", that people will separate with their money, putting all their cash back into equities. This just isn't going to happen yet. The market still remains a monkey.

Not only are stocks rocketing up and dropping like a ton of bricks, gold too, is remarkably volatile. Oh, did I mention treasuries? Wisdom tells you to stay clear and don't invest. Bernake will not SAVE YOU with a QE-3 this Friday. This "market uncertainty" will continue for a while. Wait until October and then re-assess the market. And most importantly, STAY AWAY FROM THE MARKET!

(Note: The above article is not for investment purposes, but solely for entertainment purposes.)

Bringing Home the Bacon
Understanding Volatile Markets
by Dr. Invest

Many of you who have followed this blog understand that my approach is to identify the best time to invest into the market and the optimal time to get out of the market. This strategy frowned on by traditional finanical advisors and called "timing the market".

There is nothing wrong with long-term investments and your portfolio should contain them, but if you are going to invest in securities, you will need to understand some basic ideas. "Timing the Market" is generally directed at the effort of judging market lows and highs and buying and selling at the right time. This is done by "day traders", by "swing traders", and by "financial advisors". Financial advisors call this "balancing one's portfolio". Are you seeing the humor in the symantics of "timing the market"? The financial advisor recommends the instruments for you to invest in and get's his fee for managing your funds, his fee for selling you the product, likely he gets a percentage of the management fees for the product he sold you, and a fee when you sell the product he recommended. (see front load and end load) So whether you use "portfolio balancing" or "timing the market" really doesn't matter much. If a financial advisor is going to recommend "rebalancing your portfolio" you need to understand that "rebalancing a portfolio" shouldn't take place after your portfolio has lost 30%.

FOLLOWING THE VIX

So here is the tool you need to better judge the trend of the market. It is called the VIX. Here are some important points as shared by Greg Forsythe at the Schwab Research Center.

Key Points

• Based on S&P 500 option prices, the VIX is a measure of expected market volatility.
• Learn about distinct patterns among various market indexes, depending on whether the VIX was high or low.
• Action steps: Using VIX in your stock strategy.

While patience is generally a virtue for investors, Schwab research suggests that, indeed, stock investors who like to make tactical shifts in their portfolios can utilize market volatility to help boost returns and manage risk.

Measuring Stock Market Volatility

Market volatility measures recent price changes for broad indexes like the S&P 500®. But while actual volatility tells you what's already happened, investors must look ahead, so what they need is a way to gauge potential future volatility.

Fortunately, the Chicago Board Options Exchange (CBOE) provides a convenient tool: the Volatility Index, or VIX. Based on S&P 500 option prices, the VIX is a measure of expected market volatility.

VIX History

First, let's take a look at how the VIX has behaved in the past. The chart below shows that it's generally ranged between 10 and 30 during the past 20 years, occasionally surging higher.

Because the VIX usually rises when the market falls and spikes during times of market distress, it's often called the "fear index." However, the VIX is really an uncertainty index, reflecting actual prices paid and demanded by bullish and bearish options traders.



Volatility Tends to Persist

Wouldn't it be great to know when the stock market was in a high- or low-volatility period, and adjust your equity strategy accordingly? The challenge comes in predicting volatilty persistence or shifts with enough accuracy to profitably act upon your forecast.

The chart shows two periods when the VIX was generally below its long-term average and two where it was generally above the average.

We found that when the VIX was above 20, 78% of the time it remained above 20 three months later. When it was below 20, 85% of the time it remained below 20 three months later. So the VIX has historically tended to remain high or low for extended periods.

Stock Performance During High or Low Volatility

So if the VIX tends to rise as the stock market falls, what happens to the market after the VIX moves above or below its long-term average? Our research found distinct patterns among various market indexes, depending on whether the VIX was high or low.

• Large- and small-cap stocks¹ generally provided higher returns (about 2.6% each) the quarter after the VIX fell below 20 versus the quarter after it rose above 20 (1.5% and 2.4%, respectively).
• Large- and small-cap returns were almost 50% less volatile in periods after the VIX fell below 20 compared to after it rose above 20. In other words, the VIX has predicted market volatility well.
• Value stocks significantly outperformed growth stocks (3.1% large-cap value versus 2.1% large-cap growth and 3.3% small-cap value versus 1.9% small-cap growth) in periods after the VIX slipped below 20. Large-cap growth outperformed large-cap value (1.7% versus 1.1%) in periods after the VIX rose above 20.

Action steps: Using VIX in your stock strategy

Our findings suggest that investors can benefit from keeping an eye on the VIX (keeping in mind there's no guarantee future patterns will duplicate the past).

For example:

• If you're a buy-and-hold investor, you can use the VIX to help decide when to rebalance. For example, if your portfolio is overweighted in stocks and the VIX is above 20, consider selling back to your target stock allocation. When the VIX is high, the market is usually riskier and provides below-average returns.
• When the VIX is low, you may want to overweight large-cap and/or value stocks within your equity allocation. When the VIX is high, you may wish to underweight stocks overall, but overweight small-cap or growth stocks within your equity allocation.
• If you buy individual stocks, you don't need to vary your strategy as much in response to VIX levels, but you should expect less consistent performance when the VIX is high. When it's low, using value and momentum selection criteria may help performance. Schwab Equity Ratings, our tool to help you find individual stocks, has historically performed similarly when the VIX is low or high.

History suggests that market returns will remain volatile in the near future and that small-caps may continue to outperform large-caps.
CONCLUSION

As of August 21st of 2011, the VIX sets at 42.67, not a good number for stocks. The market is not static but dynamic. Securities must be managed, even your long term investments. By using the VIX you can estimate the coming trends in the market. Using the VIX in combination with seasonal cyclical trends can give you advantages when purchasing or selling stocks.

(Note: The above information is not for investment purposes, but solely for entertainment purposes only.)

Today's Market
by Dr. Invest


Someone asked, "Well what do you think about the market today!". The past three or four days of stock returns have been spectacular. For the amateur, it seems that it is time to buy. Today proves that whatever bearmarket gains we see, it is likely to be only a "sucker's market" or a "dead cat bounce" in the end.

I am not keen on most of the analysts seen on CNBC or other news programs, but Louise Yamada seems incredibly honest about the present market. See her at Yahoo by clicking on the link below:

http://finance.yahoo.com/blogs/breakout/market-death-cross-mode-stay-sidelines-says-louise-152153683.html

She reflects what I have already been saying and one would be wise to put her ideas into practice. My opinion has not changed. STAY OUT OF THE MARKET! Your chances for success are minimal until October, and even then you will need to retest the market for its trend.

Listen carefully to Louise Yamada and take your own personal notes. She uses the idea, "the weight of the evidence". Volatility, the death cross, the poor historical stock returns in August and September, and a weakening in the economy points to what Louise Yamada calls, "Staying on the sidelines" because their are only two losses you take, the loss of OPPORTUNITY and the loss of CAPITAL. We would rather be out of the market, wishing we were in; than to be in the market, wishing we were out.

(note: the above article is not for investment purposes and is soley for entertainment.)

Today's Market
by Dr. Invest

We have just seen what is commonly called, THE DEATH CROSS. This is where the 50 day moving average falls below the 200 day moving average. Typically, this marks a downward trend in the market. Eventhough we are seeing a rebound in the market, this coming week we will be getting reports on home sales and the continued reports on the PIIGS, with continued concern on Greece, Spain, and Italy. France has just come under the scrutiny of the S & P and is in danger of a credit downgrade.

Those in a rush to get back into the market, may well find themselves subjected to major losses in a market that declines 600 points on a whim. Look at the the table below and you will see the statistics pointing to index performance after a DEATH CROSS.



What we can gather from the above chart is that after a DEATH CROSS, the market performs poorly. There is a higher likelyhood that the DOW index will lose value over the next month, than gain. And even after the first month, the following months for the DOW is less than stellar. A bear market does not always occur after a DEATH CROSS and the further you move away from the Death Cross, the more likely you will have a better performance. Inspite of the dramatic ups and downs of the past week, we are still down 200 points.

A knowlegeable trader can find opportunities whether the market goes up or down, but trades cost money and with each trade are opportunities for failure, as well as success. My goal is not to take risks, but find the optimum season for success. Considering the above chart showing returns the month after a DEATH CROSS, the unpredictability of the present market, and the fact that the months of August and September show poor performance for stocks, it would be best to stay out of the market for now. If you have a cash position, hold it! If you have a long-term buy and hold position, then you shouldn't be terribly concerned about these temporary market fluctuations.

Today's Market
by Dr. Invest

Well, no comment was needed for Monday. My estimate of a decline of 1+% was far exceeded. Today we enjoyed the "Dead Cat Bounce", no offense to animal lovers. Just when the decline in the market was so painful it brought tears to your eyes, the sudden rise in the market could only bring a small feeling of relief.

If you didn't have the chance to exit the market and move to cash, it would be safest if you REMAIN SEATED at this time. This roller coaster market will continue for the next few weeks with breath taking ups and downs; and typical of roller coasters, the ride will eventually end at the same location. A good financial advisor will remind you that this one little jostle in the market will soon be forgotten and you will recover from your loss.

You may ask, what should I do now? I want to encourage you to read the previous blogs on The Market Today. There is a DIRECTION that the market is taking and it seems that the OVERALL MARKET is moving downward. We already know that in the months of September and August the historical market returns are poor. This means that the winds are unfavorable for equity investments until October, and even then the winds will need to be re-tested again to see if overall market is advancing.

There are gains to be reaped right now, but the risks are too high. You don't want to learn the hard way, that your favorite stock that went up 8%, 12%, or 14% yesterday when you were not in the market, will drop 4%, 8% or 10% once you buy them tomorrow. No one can know what the market will do when it is swinging wildly. Wait until there are a number of days that show regular and predictable rising returns from the market.

Here is a diagram for the trajectory of a bouncing ball. Notice how the ball, as energy is dissapated, bounces lower and lower.
 
The market moves in the same way. This stock graph shows what looks like a W at the begining, with the market moving from higher highs until it reaches its maximum peak, then a series of lower lows in the market as the energy in the market dissapates. If you look at the very end of this chart on the right, you see a sideways motion called, CONSOLIDATION. What is important here is that without something to ENERGIZE the ball, it will bounce lower and lower, just like the market will move lower and lower unless something is there to energize the market. The market is far more complicated than a bouncing ball, but if there are fundamentals in the market like "demand for goods" and "profits", the ball becomes energized and bounces higher and higher.

The question that you must ask yourself, "Is do we have something energizing this market?".  Even the most bullish analysts acknowledge that growth and unemployemnt is at best, tepid and at worst, entering a recession. There is really NOTHING that can energize the market at this time, so the ball must move downward.

Closing Thoughts

What can energize the market are three holidays where large sums of money is spent. This means people buying and companies making money. These holidays are: HALLOWEEN, THANKSGIVING, and CHRISTMAS. If my speculation is right, we are still set for market improvement in October. So hold on, it will get better.

(Note: The above article is not for financial advice, but soley for entertainment purposes.)

UPDATE ON MONDAY'S MARKET
by Dr. Invest

The news is out... don't worry about tomorrow, everything is fine. I warned about the S & P downgrade, and it will affect the market tomorrow. It is 12:00 and I am looking at the Asian Markets. NIKKEI down 2.13%, HANG SENG down 4.04%. These are reasons for you to not enter the market on Monday.

Chicken Little is saying, "the sky is falling" and Mother Hen is saying, "It's a beautiful day". I wouldn't listen to either one. The statistics are not in your favor over the next two months, as August and September typically do not show high returns for stocks. The market will react to the downgrade by the S & P and you should expect to see the market drop 1+% tomorrow. Regardless of Geitner's projections, the VIX or negative feelings about the market will rule the day.

Some economists believe we will see a 17% rise in the market before the year's end and that is very possible, it just doesn't seem like tomorrow is the right day. Oil has fell to a low of $87 per barrel and oil stocks look attractive, but I would wait until it looks like we have hit a bottom and have seen a rebound. Even then, be warned that what seems the bottom could be a series of bottoms with LOWER LOWS. Wait for a while, until October, then see where the direction of the market is going. There will be plenty of time to make money.

Until October, I suggest that you DO NOT ENTER!

(Note: the above article does not constitue financial advice and is soley for entertainment purposes only.)

Today's Market 
by Dr. Invest

It looks like it's good to go, or maybe not. Some of my favorite stocks lurched foward with gains of 2 to 4%. I asked myself, "Now why didn't you have the courage to get back into the market?"

I want you to think of this like seeing a $100 bill in a busy street. You already know that when people leave their work, the street is going to be filled with cars. You also know that at mid-afternoon, everybody will be in their offices and few cars will be on the street. Your chances getting that $100 bill without injury is far better at 2:00 in the afternoon, than at 5:00, when everyone is in a rush to drive home. The same is true of the stock market. When someone sees an opportunity to get an easy $100 bill, they may take that chance when the risks are high. Yes, they might get hit by on-coming traffic and it may cost them thousands in medical bills, but to them the reward is greater than the risk.

There are great opportunities to make some real money because the market had dropped 10%, but to make that money is just too risky because we don't know what will happen next week. If you invest $10,000 and make 10%, you will have $11,000, but if you lose 10%, you will have $9,000. To regain your original investment of $10,000, you have to make $1,000 which requires a return of 11.5% off of $9,000. What I am saying is "Don't get back into the market now!". The odds are not in your favor.

Look, the DOW was all over the charts today. This is the sign of turbulent water, get out! As I said in the past blog, August and September have traditionally been low performing for stocks. Using the forumula GNP -(minus) NATIONAL DEBT = GROWTH, the U.S. is floundering. Businesses typcially reflect the national formula in stock price. (The exception are business positioned in other countries.) The dilemma is that both the U.S. and the INTERNATIONAL GOVERNMENTS are floundering economically. None of these government have declared bankruptcy, but all are under REORGANIZATION. The E.U. has promised to LEND MONEY so the international governments can pay their debts (like Greece, Italy, and Spain). The S&P has not lowered the U.S. bond rating at this time, but threatens that unless the U.S. gets their debt under control, they will reduce the rating for the U.S. And the U.S. continues borrowing money from China to prop up the U.S. failing economy. Businesses want to see how all of this RE-ORGANIZATION is going to work out before investing more money in a failed economic system.

The Bank of New York Mellon, slaped large clients with charges for holding cash, said the Wall Street Journal. These "large clients" are waiting for a turn-around in the market. Investors are unsure whether we will turn-around or turn-down.

Let me repeat myself, "As we go into this weekend, with a mixed result in stock returns, it would be best if you remained out of the market." As the market begins next week there could be a short rally, but I am expecting the market to swing wildly for the next two months and then settle back down. Early to mid October will be your target for investing.

If you have plenty money to loose, there are some real buys out there; but be warned, the traffic is heavy and it is not yet time to push the GO BUTTON.

(Note: The above article is not to be considered financial advice and is soley for entertainment purposes)

Managing Loss
Dr. Invest

The real title is managing gains, not losses. I can't think of anyone who bought a stock expecting to lose money. And that is the key, you should never loose money. YOU WILL LOSE MONEY, but the objective is to manage your loss.

You are psychologically designed to WIN! This is expressed in the characteristic of competitiveness. Imagine a hungry cave man who just caught a glimpse of tonight's meal. He is not wired to walk away or give up. His brain is wired to win. You may not know it, but this primitive motivation is right there in you.

When you buy stock, the pursuit of prey begins. You can't imagine yourself losing, so even when your stock shrinks in value, you are hopeful that it will gain value and you will walk away with the prize. Although beneficial to the cave man, this kind of thinking will lose you tons of money in the stock market.

The way you overcome this little glitch in thinking is to PLAN. You have to plan against your way of thinking if you are to consistently make money in the stock market. By planning, you manage your loss. So I'm not going to talk about "stock selection" or "purchase targets" in this blog, only about how to plan against yourself so as to manage your loss.

When you are ready to buy a stock, you need to know more than the price. You need to have a PLAN FOR HOW MUCH YOU WANT TO LOSE. Yes, I know this sounds strange, but trust me. See, you will have likely considered how much your going to make off this trade, but I'd bet you had not considered how much you were willing to lose.

So if you are investing $10,000, how much are you willing to lose? 1% is $100; 2% is $200; 3% is $300. If you are buying a stock, certain that it will rise in value, are you also prepared to let it go? If you buy $10,000 of ABCstock, you need to immediately put a STOP SELL of 3% on ABCstock. If things go as planned, ABCstock will grow 5% and you will move your STOP SELL but if ABCstock declines in value, you will still make 2%.

Earlier in 2011, I purchase (HK) Petrohawk. It grew 26% and then in March, declined below my STOP SELL that was set at 3% below the price of (HK). When (HK) declined, the STOP SELL was triggered and my earnings from (HK) was 23%. When I later saw (HK) recover, I doubled my investment in (HK), setting my STOP SELL 3% below my purchase price. As (HK) grew in value, I moved my STOP SELL from time to time to be 3% behind the closing price of (HK). (BHP) Billington bought out (HK) and BHP tendered an offer for my HK stock. The gain was 46%. Total gain for money invested in (HK) at the end of July was 72% return.

In mid-July, I had purchased CRZO, an oil stock. The reports were excellent, but oil prices were going down. I placed a STOP SELL on CRZO and in short order, CRZO sold and I lost $150. I can't even tell you how much that hurt my cave man brain; but had CRZO not sold, my loss as of today would have been $540. I managed my loss because I used a STOP SELL, and it was executed automatically.

Don't get STOP SELL confused with STOP LIMIT. Using a STOP LIMIT, you can sell a stock at an exact price, for instance $19.92. If you use a STOP SELL, the stock sells at the best available market price for your stock. So if you say, sell at $20, the best market price might be $19.96. So you could get a lower price for your stock than where your STOP was set. If you use the STOP LIMIT and say, sell at $20, they have to sell it to you at $20. Here's the problem. The market doesn't always move in a linear way, for example: 1, 2, 3, 4, 5. But most of the time moves in a non-linear way like: 1, 4, 8, 9. So if you set a STOP LIMIT at $19.29, but the price of the stock was never bid for at $19.29, but rather $19.23, your stock would never sell. The market would go down and your STOP LIMIT would be setting there untriggered, and you suffering losses. (I learned about this by experience.) So even though you might lose a few pennies per stock, use the STOP SELL.

One last secret to buying and selling triggers. You can use a STOP BUY as well as a STOP SELL. Without being in front of your computer to make a BUY, you can enter a request to BUY from your broker when the stock reaches a certain price. This is called a STOP BUY.

My suggestion, if you don't have a broker, is to open an account with OPTIONSHOUSE.COM where you can practice with a VIRTUAL ACCOUNT and learn about the Trading Desk and take some of the Trading Courses. Do remember that they want you to make as many trades as possible so they can make money. Learn, but just don't play the game the way they want you to.

If you will have a PLAN to MANAGE LOSS by using a STOP SELL when your purchase a stock, set at 3% (or whatever you want to lose), you can limit your loss and if the stock gains, you can advance your STOP SELL behind the closing price of the stock to guarantee your gains.

(Note: The above article is not for financial advice but soley for entertainment purposes)

Today's Market 
by Dr. Invest

If there had been any question about the direction of the market, a drop of over 500 points leaves no doubt that the direction of the market is downward. As I understand it, a drop of 10% is a correction, a drop of 20% is a recession, and a drop of 40% is a depression.

I hope you took my advice not to invest into the market at this time. As I mentioned in a previous blog, some major investment firms have moved large amounts of money out of stocks into banks. This is a sign that these investment firms don't trust stocks when the market is contracting. Also, the months of August and September have historically had poor stock returns.

There is a renewed sense of market doom and the analysts who have always proclaimed that the DOW would return to 2,000 points are making hay out of the bad news. You may have noticed that people didn't buy gold today, they sold it! I might also ask myself, "Who sold the gold?". This would be and interesting area of investigation. If gold is a "good buy", why sell? Are some investors feeling that gold is oversold? Like any investment, I would be cautious to buy the investment if it is going down.

So I want to speculate that now isn't the time to buy stocks, nor is it the time to buy gold, and that some of the major investment firms are holding cash positions because they believe that the down turn in the market will be short-lived and want to be liquid enough to purchase new positions. That means that the perception is that we are undergoing a market correction rather than a double-dip recession. As an investor, you need to be prepared for either.

If you are comfortable holding a losing position for six months or more, stay invested. Do remember that this market correction is not over and will continue to go down more. If you are a swing-trader, like myself, you will want to keep the stocks that continue to go up... like TIP, that went up .88% today as the market fell 500 points. Even though TIP has continued to rise over the past month, I still have a STOP SELL on TIP if the stock reverses.

Be cauious in this market and don't trust neither the glowing reports nor the damning reports on the economy. I heard an analyst damning the U.S. market and ending his report with: "I would invest in international stocks.". Of course, his company managed an international portfolio. Yesterday, one of the analyst who clearly represented the views of the White House, explained that the crisis was over and that the remainder of the year would see a strong market recovery. You would think that he had some kind of agenda to persuade hard-working people to invest in the market. Aren't you glad that you didn't make that investment yesterday?

(Note: The above article is not for investment advice but soley for entertainment purposes)

The Direction of the Market
by Dr. Invest

If you can learn any thing, learn that water doesn't flow up-hill. Really, this is an important first lesson in investing in stocks.  When the financial market is declining (lower lows), you will be hard pressed to make a profit on your stocks.

Yes, I do understand about shorting stocks and buying options. Which means you can make money, even when the market is going down. But this blog is not addressed to such sophisticated traders as yourself, rather; I have chosen to help the simple "swing trader" make straight forward investments that will bring maximized returns with the least risk.

The market only moves three ways, UP, DOWN, SIDEWAYS. You need to observe the signs and identify the movement of the market.

When the over-all market is moving lower, over-all stock prices will move lower. When the over-all market is movinging higher, over-all stock prices will also move higher. The saying are: "The TREND is your FRIEND" and "Don't fight the TREND".  You don't have to be in the market all the time, you can and should, get out!  This is especially true when the trend of the market is downward.

Some investments, such as CD ladders (Certificate of Deposit) or carefully selected bonds are not affected by the ups and downs of the market, and you need this kind of diversification. But by following a few rules of investing, you can see your STOCK PORTFOLIO safely grow 12+% per year.

How? Well that is what this blog is about. Here is the simple formula: DON'T SPECULATE, BUY QUALITY STOCKS, BUY WHEN MOST FAVORABLE FOR THE STOCK TO GROW, SELL WHEN MOST LIKELY THAT THE STOCK WILL DECLINE. The result is a predictable return.

The DOW Jones has averaged about 8.6% return over the years, before taxes, financial advisor fees, and the CPI (inflation). Remember, this covers ALL THE STOCKS in the DowJones Index, both good and poor performers. Selecting SOLID PERFORMERS out of a stock index and learning their characteristics and behavor is critical to consistent returns. (Look at my blog on Narrowing the Odds)

You need to know the over-all direction of the stock index you choose HISTORICALLY and what that index is doing in REAL TIME. Likewise, you need to know the historical behavior of the STOCK you have chosen and be aware of what it is doing in REAL TIME.

Don't trust a friend's advice on a stock, or what you heard on T.V., or what you read in Money Magazine. By the time you have learned about the "HOT STOCK", so has everybody else. So when you buy the "Hot Stock", it will be over-priced because everyone else has been buying it. Then, without warning, the more experienced traders will sell and you will belatedly be rushing for the door to sell your stock to assess your losses. This is not a good idea and is a poor way to trade.

(Note: The information contained herein is not for investment purposes but soley for entertainment)

Today's Market
by Dr. Invest

I love listening to the "talking heads". President Obama's spokesman said Wednesday that the administration doesn't believe there's a risk that the economy will head back into a recession. And that is probabally true with the promise of QE-3 that emboldened investors to purchase stocks, that barely put the market into the black.  In Central America, they have an interesting saying, interpreted it sounds something like this: "A monkey dressed in silk, remains a monkey still." Dressing up the present economy with beautiful words and promises, doesn't change the fact that we have a bad economy. One drop of water doesn't cure the drought, just like a rise in the market of 25 points doesn't resolve the fact that our economy is floundering.

Throwing more money at yet another stimmulus package will result in the same lackluster outcome. The market may continue to grow, albeit slowly, but a strong recovery is somewhere in the future. What is a worst effect is that stimmulating the economy by buying more toxic debt from banks and reselling it to the American people as treasuries will result in the increase of inflation in the years ahead.

So what to do? Keep waiting. Yes, I know that the "talking heads" are telling you that everything is all right. But how sound was their advice in warning about the last recession? And what had they predicted about the recovery? We were, according to them, well on our way to reducing unemployment, building a strong commerce, and creating a flourishing economy. So here we sit, getting reports of increasing unemployment and decreased earnings.

I still suggest holding out until October before doing serious investing. I think that CRZO and APA would be worth watching. I also think that CATM and PETM may show signs of recovery and might do well in the months to come.

Enter these trades carefully and add more stock to your position once your original purchase has gained 3 - 4%. Fully plan how much you are willing to lose if the investment doesnt produce or where you will place a STOP SELL once you see gains for your stock. This is called an ENTRANCE and EXIT STRATEGY. (I will give you some rules on entrance and exit strategies in the future.)


(Note: the above information is not to be used for investment purpose, but is soley for entertainment purposes only.)

Narrowing the Odds
by Dr. Invest

Successful investing comes largely be observation. If the waters are troubled and swift, don't get in them; if they are calm and placid, slip in and enjoy the moment. If you see a storm coming, swim to the bank and exit. And remember that in the winter, the waters will likely be cold; and in the spring, the rains are likely to make the waters swift.

If you are capable of catching the illustration, you will understand the power of observation. There are some things that are CYCLIC. Winter... Spring... Summer... Fall   The stock market and each stock, follows simmilar cycles or patterns. Some mathmeticians see these as random numbers. Another term used is LARGE NUMBERS, so if you flip a coin long enough, you will have an equal number of heads, as tails. Given that numbers were not affected by seasons, weather, innovations, opportunity, politics, war, and many other equally complicated interactions and correlations, the LARGE NUMBER theory would be workable.

So then, how does the "little guy" narrow the odds and get an edge? You need to get the right tools to know when to fish. Look at this little chart that I published in a previous blog.



 Now this chart shows you when you are most likely to make money based on the market returns over the past 10 years. The old adage "go away in MAY and come back another day" and "the January Effect" seem to make sense when looking at this chart. So using this chart, you can define CYCLES in the stock market and increase your odds for successful investing. The "big boys" in the market will continue using sophisticated research, data, and statistics, but with a glance at the above chart you can have an advantage.

Just like you can see cycles in the OVERALL MARKET, there are also cycles in stocks. You may ask, how can I access the information of cycles on individual stocks. Well, without you paying $300 per month, you can access that information for free at Daily Finance with AOL.

Go to http://www.dailyfinance.com/lookup//usa and enter your stock symbol in the box that says, "LOOK UP SECURITY" and hit "GO".  Select in the left-hand column, "AVERAGE MONTHLY RETURNS" and wallah!  You will see the average monthly returns for that stock averaged over the past five years. Remember what I said about OBSERVATION. Likely, there is a pattern that will help you invest at the right time to make some money. If you are an active investor, you can also know when to sell before the stock declines.

Remember, there are no guarantees. Understanding cycles only gives you an additional indicator to be used with other indicators for buying and selling your investments.

(Note: the above information is for entertainment purposes only.)

My Favored Discount Brokerage

by Dr Invest


I have held accounts with most of the brokerages, with each having unique services they offer to their clients. Most of the fees you only learn about after you have become a client. For instance, Lowtrades charges a $50 fee if you don't make at least one stock trade every six months and a $4.95 trading fee everytime you buy and $4.95 everytime you sell. With LowTrades, you need $2,000.00 just to open the account. So follow me here... if you make a $1000.00 stock purchase, you have to make 1% just to get back to even, because buy and selling at LowTrades cost you 1% or $10 in fees. If you buy $500 worth of stock through the LowTrades Brokerage, the $10 brokerage fee is 2% of the $500. Before you can BREAKEVEN, you have to see a 2% gain. When an annual gain of 6% is considered a good return, subtracting your 2% fee leaves you with only 4% profit left.

Now I don't mean to depress you here, but if you consider that inflation has averaged 3%, then you have only 1% of your profit left from your trade. Now did I mention that you need to pay income taxes on that trade? When you consider that TD Ameritrade is going to charge you $9.95 to buy and another $9.95 to sell, using the right brokerage for smaller trades becomes even more important.

WELCOME OptionsHouse

OptionsHouse is for the small investor who wants to try their tradings skills in the market place. For only $1000.00 you can open an account. To buy stock is $3.95 and to sell stock is only $3.95. One plus is the OptionsHouse Trading Platform. You can see in REAL-TIME what the market is doing and what your stocks are doing. A special feature is what is callled a VIRTUAL ACCOUNT. You can place a vitural cash deposit into your virtual account, and then use that cash to make trades. The virtual account lets you practice your trading skills, keeping record of your gains and losses. When you are ready, you can return to your ACTUAL ACCOUNT and make trades that will either make you or break you.

I am sold on OptionsHouse at this time. My experience tells me that when OptionsHouse has fully developed their product and gained sufficient clients, they will find ways to charge their clients for all these services. But for now OptionsHouse seems to be one of the best brokerages out there.

(Note: No suggestion is being made regarding financial service companies and the information herein is soley for entertainment purposes.)

Today's Market
by Dr. Invest


So you didn't listen to my advice and bought into the market last night. Now you know that the market can leave you in a precarious position when it suddenly drops 265 points. (Dow Jones) Even though the market fell 2.19%, you can learn an important lesson. Good news from the politicos doesn't always result in a market bounce. (Market Bounce: When the market is lower than expected and good news seems likely spark investors into buying stocks.)

The market may return to life once again with a big bounce, but remember the tide is moving out. (Look at the chart in yesterday's THE MARKET blog.) There is a strong likelihood that the market will continue moving downward. If you are a swing trader or long-term trader, now is the time to wait. I hope that I have proved that point by warning you about the forceful direction the market would take today.

If there is a rally in the market, it will likely be a SUCKER'S RALLY. (Sucker's Rally: Market moves up three or four days, and it seems that you must get into the market so you won't miss out on all the good deals. You buy, generally at the end of the rally, where the market suddenly resumes its downward trend.) You want to re-enter the market when you know the conditions are favorable for continued growth.

Favorable conditions for a return of strength to the market will include: strengthening world economies, a strengthening national economy, an increase in durable orders, a decrease in debt obligations both nationally and individual households, increased profits in various sectors. (For example: the oil sector is projected to grow. Reduced oil production in Lybia and Egypt with an increased demand for oil by Europe, India, and China, should increase the cost of oil per barrel. A number of financial analysts suggest that oil will rise to $130 per barrel by the end of the year. The oil sector will likely be profitable into the months ahead regardless of how the general market may perform; however, in the market everything changes and rapidly, so care must be taken when purchasing stocks in a sector that seems weighted for growth.)

I placed STOP SELLS on all of the stock investments in my portfolio, expecting that in a downturn, most of my stocks would sell. One investment with a STOP SELL is an oil stock called, PETROHAWK or (HK). I purchased HK at $26.46 in February. HK was purchased by BHP so that HK's price rose to $38.14 or a total increase of 44.10%. I fully expected HK to break the STOP SELL, but today, with the market falling 2.19%, the HK stock only fell 0.18% and in the past 5 days of market decline, HK even made profit over that 5 day period.

This doesn't mean that HK is a good buy, but the likelihood of HK retaining its market strength or even growing is quite high.

(Note: this article should not be taken as investment advice and is for entertainment and discussion purposes only.)

Today's Market
by Dr. Invest

Just a few comments about the debt cap, congress, and the market. As of today, it appears that an agreement will be worked out between the members of Congress and that we will scrape by with a compromise bill.

The market showed their support by moving stocks higher from their lows earlier in the day. Don't take this as a signal that all is O.K. The U.S. government's bonds could still be down-graded tomorrow.

Furthermore, many of the major investors have sold and are holding large sums of cash. Why? Why aren't they buying back into the market?

Look at this graph and give me your opinion of the chances of seeing gains in the stock market for the months of August and September. The financial analysts are looking at this same chart and waiting for the dark clouds to move on before re-planting their fields. If you are planning to invest in the near future, it would be best to stay away until October and then enter with caution.

Investment Tools
by Dr. Invest




(note: information is not for investment purposes and soley for discussion and entertainment.)

One obvious truth is that you cannot really invest without knowing where you started and where you are going. If you invest $10,000, you want to know that your investment is growing. And if it isn't, you want to SELL SELL SELL.

You will see many companies offering trading software or stock investment systems for thousands of dollars. These systems only "look good" but really offer no special advantage over the many freeware stock tools available to  you without cost. And about that training for $4,000 that will make you double your money in three months... laughable. The only one who will profit from your $4,000 stock investment course are the people to whom you gave your money.

Let me explain, why. Imagine you have special software that tells you when to buy and sell... well so do 100,000 other persons who bought the same software. All of you are looking at the screen, seeing the same information and all buying at the same time. So what will happen to the price of the stock as each person makes their BUY. Yes, that's right, the stock price will climb. Then what will happen when your software says, SELL? OOPS! That software is telling everyone else to sell too...so only the fastest and most alert traders will make their SELL and reap a reward. 85% of the stock investors will loose on the trade as the price falls. If you watch MSNBC's Cramer, he will suggest stocks that everyone will buy the next day. The market will have a sudden move upward, making Cramer look like a stock guru. If you stay in the investment because you are a long-term trader, you will see a decline in the value of the suggested stock as everyone clamors to SELL before they incur more losses. This isn't the way to be a successful trader. (More about this later) So you need the right tools, whether you are a short-term, long-term, or swing trader.

JSTOCK - Freeware

Before you ever open a BROKERAGE ACCOUNT, you need to become familiar with the market where you are investing your money. JStock Software is free. It is like accounting software for stocks. It does lack some professional elements found in some of the for-pay stock software, but is an excellent way to start trading WITHOUT MONEY.

Trading stocks, ETFs, or mutual funds is not really logical, rather anti-logical. When everyone else has sold, it is the time to buy; and when everyone else has bought, it is time to sell. This doesn't make sense to the logic, but there is an intuitive element to trading that can only be learned by practice. (So do it without money first, then add money when you are certain that you can turn a profit.)

JStock Freeware will help you start building habits of record keeping and market observation that will make you a better investor before entering the market with money.