Today's Market
by Dr Invest

Some of you are wondering if this is my sad Christmas, with me sitting in a corner drinking my hot cocoa all by myself. The trades I began in November did not turn out the way I had expected. A whole list of bad news stories kept the market down, with my selected stocks going up one day and down the next.

What kept me secure were the RULES of TRADING. I had already determined that I would lose no more than 6%. And at one point, all the selected stocks neared negative 6%. The market regained its footing and my selected stocks rose once again.

I patiently sat by, watching and waiting. FDO (Family Dollar) seemed to only move up in price, only to fall again and again. Believing FDO to be overbought, I sold FDO before occuring losses. DLTR (Dollar Tree) seemed to rise and fall with every news report on the prevailing outlook for Christmas sales. Although DLTR had some significant gain, I felt it best to sell before Christmas just in case the report of Christmas sales fell short. Even if the report of Christmas sales is up for 2011, it is likely that a week after Christmas, the market will have long forgotten the Christmas market glow. I do think that DLTR is a good LONG-TERM investment, but I would prefer to re-purchase  DLTR after the stock has declined a bit.

I have chosen to keep CATM (Cardtronics ATM) which is an international company, making agreements with banks world-wide to support their banks with their ATM products. This stock grew 60.9% in 2011, and with good reason; it has solid financials and will likely continue it move upward in the year ahead. Because of that, I will keep a STOP-SELL on CATM at 6% below it's daily close price. This is a fairly tight STOP-SELL but will insure that a significant downturn will be sold. As we move into 2012 I will purchase more of CATM being careful to sell all of CATM, rather than lose the core investment.

For instance: An initial purchase of $10,000 of CATM grows 20% with a STOP-SELL set at 6% below its present gain; this means that the least I will make in a sudden decline in the market is 14% of $10,000 or $11,400. When I have seen that CATM continues to TREND UPWARD, I will purchase another $10,000, making my total investment $22,000. Once again, I will set my STOP-SELL at 6% below the closing price of CATM. If, at this time, CATM suddenly declined, CATM would sell at 6% below its present price or for $20,680. (Remember my CATM was purchased in November and is now valued at 14.88% at the end of December. I will want to patiently wait until CATM grows to 20% before adding to the investment.)

As you can see by the above example, that the orginal $10,000 with a 6% STOP-LOSS, put $600 at -risk; but now, after adding an additional $10,000 to the orginal $10,000 for a total of  a $20,000 invesment, you put none of your investment at-risk and even gaining $680 in this scenario if the market suddenly turns downward. 

Assuming that CATM continues to grow even another 20% in 2012, with the $22,000 in CATM stock, the investment would grow to $26,400 for a profit of $6,400. Again, in the market you can assume nothing and must constantly adapt to the changes. The market can be better than you ever dreamed or worse than you ever imagined. ALWAYS USE STOP-SELLS and be prepared to get out of the market.

STOCKS

FDO - Family Dollar  was SOLD with a 1.72% gain
DLTR - Dollar Tree was SOLD with a 4.93% gain
CATM - Cardtronics ATM was not sold and presently has a 14.88% gain

                              The average gain over the three stocks being 7.1%

This does fall short of the 10% to 12% I had hoped to gain, but I am celebrating this Christmas. In two months, I was able to see a 7.1% gain in the fall trading season. Time will vindicate or incriminate your decisions in trading the market. For now, I have every reason to celebrate.

The MPT (MODERN PORTFOLIO)

If you are following this blog, I hope you are reading ALL of the ideas. Harry Markowitz, the father of the Modern Portfolio Theory and winner of the Nobel Prize in Economics is clearly a lot smarter than most of us.

Someone suggested that by putting 50% of your money in the ETF called, BND (a general bond fund) and 50% of your money in the EFT called, VTI (for US stock portfolio) you could beat the market and follow the MPT. (Modern Portfolio Theory)

Here is how we test that idea. Go to www.etfreplay.com and select BACKTEST ETFs. Then select: BACKTEST EFT PORTFOLIO. Under EFT 1 enter: BND and under EFT 2 enter: VTI. Go to the weighting column and give them equal weight or 50%. You will see the graph showing that without your management of only these two ETFs, your return for 2011 would have been 4.8%. In today's market, that return is admirable, especially when you consider that most portfolios have lost profit this year.

Let me give your two other EFTs to add to this portfolio and let's see how these additional ETFs will backtest. Add under the symbol column, TIP and VNQ giving each of the now four ETFs equal weight at 25%.  Your portfolio for 2011 would have returned 8.3% or almost double of 4.8% with only BND and VTI.

MAXIMIZING YOUR RETURN

By using these four ETFs (BND, TIP, VTI, & VNQ) you can see good results with little personal management. You can, however, maximize your return with minimal management by selling any ETF that moves below the 200 day simple moving average.

For example: Go to www.yahoo.com and then select FINANCE, at the top left you will see GET QUOTES, enter the ETF symbol... in this case VTI and hit the yellow button. In the left hand column that is blue, look for CHARTS and select INTERACTIVE at the bottom of the chart you now see, select 1M for one month. The chart will show VTI for a one month period. Always select 1M, so your Simple Moving Average will be correct in relationship to the price. Go to the top of the chart selecting TECHNICAL INDICATORS and then select SMA and set the SMA to 200. This is the 200 day SIMPLE MOVING AVERAGE. Now look at your chart. You will see the SMA marked on the chart. If the price is above the 200 day SMA, buy the EFT. If the price of the ETF moves below the 200 day SMA, sell the ETF.

On this date, the price of VTI is below the 200 day SMA, don't buy it. One other caution, the price of the ETF must remain above the 200 day Simple Moving Average for 30 days before purchasing the ETF. (Note: The price of VTI is moving close to the 200 day moving average, but needs to move above it and hold there for 30 days before you purchase VTI.) As of today, VNQ, a real estate investment ETF recommended here, moved above the 200 day moving average only 5 days ago, stay out of VNQ until it stays above the 200 day moving average for at least one month. Both BND and TIP prices are above the 200 day SMA and would qualify at this time for an investment. It is also advised by the IVY PORTFOLIO that after you buy one of these EFTs, you hold them for at lease a month, even if they fall below the 200 day moving average for a short while. If the price is continuing to move above the 200 day moving average, stay in the ETF for another month.

This is a simple portfolio to manage and without a lot of trades, can be very profitable. Most importantly, any ETF can be sold just like a stock. Unlike bonds, that you have to sell to someone else, or mutual funds that can only be sold at the end of a day, an EFT can be sold when you want to sell it.

Consider simpliflying your portfolio by using BND and VTI.  If you want to improve the return, add VNQ and TIP. Manage the four EFTs in your portfolio by removing an EFT that falls below its 200 day simple moving average. Having managed this portfolio by using the 200 day SMA would have returned 10.5% over 2011 and out performed the majority of the Financial Advisors recommendations.

CHANGES TO 2012 PORTFOLIO

Because of the volatility in the market, the Modern Portfolio will be my consideration as we move further into 2012. 1/3 in cash, 1/3 in stocks, 1/3 in bonds is the ideal. The Modern Portfolio theory suggests 50% in bonds and 50% in stocks, but one can modify the portfolio as best fits the investor. I would want 1/3 in BND and TIP and 1/3 in VTI and VNQ when their price is above the 200 day simple moving average. The final 1/3 kept in cash will be used for some stock purchases, but returned to cash after trades. The concern is that the EuroEconomy will affect the U.S. economy and move us closer toward a recession. Keeping the gains and retaining the core investment will be the goal.

(note: the above information is for entertainment only and not to be used for investment advice.)

Today's Market
by Dr Invest

Ho! Ho!, Just like a Yo Yo! Maybe Micheal Jackson knew something about the stock market too! I haven't blogged over the past week because there really hasn't been anything to report.

I want to get "Out of the Market", but have been waiting for the place to jump off. You will remember that in the first part of November, I purchase three stocks in hopes that the "Santa Rally" would soon be near; but upon the roof there rose such a clatter, I had to take a look at my DOW index to see what was the matter. (FDO, DLTR, CATM)

The market still seems obsessed with the EUROTRIBE and that is unlikely to go away. So stocks have fallen and rose again, and again, and again. I don't really see an end to this and it is indicative of a market getting ready to collapse. Traders are indecisive. They are just like me, desperately needing to get in, but really worried about getting out if there is a sudden long term downturn.

Well I did enter the market hoping for a 10% to 12% return. It is clear, that I will not hit that goal this year. So now, the goal is to get out before December the 24th. Next week, I will be looking for that special moment, hoping that CATM and DLTR will "YO YO" back up and I can capture a decent return for my efforts.

Return on CATM and DLTR as of today:

• CATM up 8.70%
• DLTR up 4.59%

I really have no reason to weep over these kind of returns, remember a year in a Certificate of Deposit might return 1.20%. Even a 4% return can beat some bonds over a year period. Though I really haven't watched these stocks very closely, I recognize the potential volatility of the market and I am ready to get out.

Let's look at the chart below and learn:

On this chart, look for two horizontal green lines, these represent a trading range. The top green line represents RESISTANCE because unless the market trend is strong, it is not likely to push above this top green line. The BOTTOM green line represents SUPPORT because unless the market trend is weak, it will likely not move below this line. In between these two lines is a TRADING RANGE. Given that there is no major good news or major bad news, the DOW is likely to remain within the TRADING RANGE. (Remember LIKELY, because nothing guarantees that the DOW, in this case, must stay within the TRADING RANGE.The political deadlock at the end of Friday moved the DOW into the red at the end of the day. In a last minute vote before Christmas, the politicians agreed to extend the payroll tax cuts.This should help the stock market rise on Monday.) The market is irrational and will act as it wants, but there is a strong likelihood that a tepid market, as we have, will continue in a sideways movement. NOW NOTICE the light greed diagonal lines. The light green diagonal line nearest the center right represents the last uptrend of the DOW. The light green diagonal line nearest the outside edge on the right, represents the present uptrend in the DOW. Good, I think you are begining to understand. Since Thursday, there has been an uptrend in the market. (represented by the black box moving upward) The EXPECTATION is that the UPTREND will continue until it meets RESISTANCE at the top green line.... somewhere around 12,300.

Another indicator of interest is the RSI indicator at the very TOP of this chart. This chart shows whether a stock is oversold or overbought. Note: when you see the stock price go down, people are selling to get out, so the RSI indicates an oversold; when there is a strong uptrend, too many people are buying stocks and the RSI will show an overbought. (see stockchart.com >chartschool) The point here is that the RSI indicator shows, that today, the DOW is a bit oversold. This makes me feel comfortable in waiting a bit longer. (Remember, there are no gurantees when using charts because you are seeing what already happened, so you can only draw approximations of where you think the market is going.)

There is another line worth mentioning and maybe even more important than the TRADING RANGE between the two green lines. It is the squiggly blue line between the two green  horizontal lines and is called the 50 DAY MOVING AVERAGE. So the 50 day moving average is critical and the DOW has to remain above the 50 day moving average.

In the DOW's present UPTREND, the top green horizontal line at 12,300 is the point at which the market could return to a downtrend.  Though the market is not moving STRONGLY UPWARD, I would expect the market to continue on an uptrend through Monday & Tuesday. I will see Monday and Tuesday as selling opportunities for DLTR and CATM.

Now all of this is rather FOOLISH TALK, because we don't know what the market will do. Israel might bomb IRAN, at which time the market is certain to NOSE DIVE. Europe might disband the EURO, and again the market would surely nose dive. This is simply part of TRADING STOCKS, live with it! Don't put all your (eggs) investments into one basket. Keep some in cash, some in real estate, some in gold, some in bonds. Most importantly, reduce your loss by using STOP-SELLS.

Knowing the importance of getting out of these two stocks next week and understanding that the market needs to remain in an UPTREND, I do look to a higher power than me for the benevolent blessings to come.

(Note: the above article is soley for entertainment purposes and not to be used as financial advice of any kind.)

Today's Market
by Dr Invest

One of the more joyful moments is when the market turns in your favor. Still, you can't trust your emotions, even though you have them. The market alone is the sole determinate of market price and trend. The market is not rational; when you think it should go up, it goes down and when you think it should go down, it goes up.

There are, though, certain seasonal trends that improve your chances to take a profit. The market is presently EXPLOSIVE, volatile. I would not enter the market at this time and believe that we have two more weeks of a postive market trend, which is not enough time to carefully invest in the market. STAY OUT OF THE MARKET!

MY RECENT TRADING HISTORY

On November 9th, I purchased DLTR (dollar tree), FDO (family dollar), and CATM (cardtronics). All three started with a bang and returns of 2%, 3%, and 6% and within days had each sunk below 5% in the negative by Thanksgiving weekend. I had placed a 6% stop-sell and was convinced that all three would end up selling, leaving me with a 6% loss.

If you have been following this blog, you will see that I operate by a set of carefully crafted rules. For example: (1.) only buy stock with a proven uptrend; (2.) buy selected stock when in a temporary dip; (3.) determine how much you are willing to loose before making a purchase; (4.) Learn the behavior of a stock during its one day period and purchase when the stock is typically lowest during its day trading period; (5.) place a STOP-SELL on the stock when you buy it, set for the amount you are willing to loose in the trade (what you are betting on is your judgment); (6.) be patient and wait, even if the stock is going down. (7.) when your stock rises 1 time above the percentage of your STOP-SELL, move the STOP-SELL to half the percentage above the purchase price. (you set the stop-sell at 6% below purchase price, when the closing price rises to 6% above the original purchase price set your new STOP-SELL at 3% above the original purchase price of the stock. As the stock continues to rise, move the STOP-SELL behind the closing price by 3%. [you can also use a  TRAILING-STOP which follows the closing price automatically]). (8.) Ideally, you want to stay in the market as long as the stock will continue its upward trend. A more volatile stock may mean setting a higher percentage. It the stock moves up or down 3% at each market turn (up or down), you may need to set the percentage at 12% because you are taking a greater risk for purchasing a stock that grows more quickly or may fall more quickly. (9.) The most important rule is: DON'T LOSE MONEY!

PRESENT RETURNS ON STOCK INVESTMENT

                                                      BUY            FRIDAY              TODAY
FDO (Family Dollar)                    $58.8193     gain   .68%            gain  1.72% SOLD
DLTR (Dollar Tree)                      $79.20         gain   .53%            gain  5.23%
CATM (Cardtronics ATMs)         $24.81          gain 9.42%            gain 10.11%

You will remember that in my last blog, I wrote that I wanted to sell FDO as soon as possible. It was always tepid, even though climbing some 7% in the past week, when it hit a particular price, it would fall back down. (this is called resistance) Some analyst believe that FDO is OVERBOUGHT. That means too many people own it and it is over-valued. This can be a learning lesson for me and you, in that, if a stock doesn't show MOMENTUM, get out of it! By the end of the day FDO closed with only a .31% gain. By following my intution and selling at the high during the day, my portfolio gained 1.72% .   The 1.72% gain is after brokerage fees, so I am happy that I didn't have a loss in my portfolio and have exceeded the amount I would have made from a Certificate of Deposit. (Excepting that it only took a month to gain the 1.72%)

AMAZING INVESTING FIGURES

Harry Markowitz is a Nobel Economics Prize winner and considered the "FATHER OF MODERN PORTFOLO THEORY".  As I understand it, his portfolio is divided into half, with 50% going into VTI (Vanguard Total Stock ETF) and 50% going into BND (which is the Vanguard Total Bond ETF). For a man who is so intelligent but has such a simple portfolio, one has to ask: "What does he know that I don't?"

In the past few blogs, I have explained why this market is different than any other. The last 12 years, the DOW has remained flat, growing only .83% annually and when offset by CPI (inflation) the DOW has declined. When considering that Financial Advisors have their clients into investments that DO NOT BEAT THE DOW INDEX and fall below the DOW index some 10%, 20%, even 30% it is no wonder that almost everyone's portfolio is beaten up.

USE CARE BEFORE PURCHASING AN ETF IN THE MARKOWITZ PORTFOLIO

Care should be used when entering the Markowitz Portfolio. Make sure that the current price of the ETF is ABOVE THE 200 DAY MOVING AVERAGE or don't buy it. If the ETF moves below the 200 day moving average, sell it! Re-purchase the ETF when it rises above the 200 day moving average.

I am presently invested in BND, but I have a stop-sell on the ETF just in case it start falling. Treat ETFs just like stocks. Don't buy a BOND CERTIFICATE. There are concerns that there is a BOND BUBBLE, so be cautious here. In this volatile season of the market, always protect yourself with a STOP-SELL. You will not regret it later.

(Note: the above article is soley for entertainment purposes and not to be used in anyway as financial advice.)