Today's Market
by Dr Invest
Friday, at the close of the market, I purchased three stocks. CATM, FDO, DLTR which are Cardtronics ATMs, Family Dollar Store, and Dollar Tree Stores. The real question here is: Why?
The market is indeed irrational. All the surrounding facts would compel a person to move all his investments to CASH. Yet, here I am, buying into the market. Quite honestly, the market doesn't care what I think. The market is the market, it moves up and it moves down. So my purchase of stocks can't be based upon what someone said about the national debt or a rise in commodities. These gurus will sell you their StockReports for a mere $250 per month, but they will likely be the only ones to profit from their advice because they have your subscription. The best gurus are only right about 63% of the time and the average stock guru is right only a little over 30% of the time. In the stock market, the market is right 100% of the time. It is the market that determines the value of the stock.
So, here's my interpretation of the market. Reports have shown that during this Christmas season, the dollar stores will dominate. With a number of negative factors that would normally influence the market to decline, it has only continued an upward trend. In October, the market climbed more than all the other months combined. I call this "kinetic energy" waiting to be released in a seasonal bull market. Others may call this buying pressure or market momentum, but the market is showing signs it wants to move higher. The recent reports of companies profits is a postive sign for an uptrend. Finally, we are in what is commonly called, "The earning season". I look closely at seasonal trends and when the stocks are most likely to rise. (October to January)
Finding an Entry Point
The real challenge is finding an entry point when the market is advancing so forcefully. Friday closed with great turmoil over whether the Prime Minister of Greece could lead his government into the Eurotribe's bailout plan. You will remember that the same Prime Minister said, "I need to call for a referendum vote by the Greek people." After the G-20 summit, he quickly reversed himself, calling for the Greek representatives to move forward on the Euro Bailout Plan.
A casual observer could see that something happened at the G-20 summit, that convinced the Prime Minister that the Euro Bailout Plan was an imperative. The market was nervous on Friday that the Prime Minister of Greece, would not be able to put together a coalition to accept the EuroPlan.
So at the close of the market on Friday, I began to see the market decline the last thirty minutes of the trading day. THIS WAS THE PERFECT ENTRY POINT. After making my stock purchases, I could see the market rising the last 5 minutes of the trading day, along with my purchased stocks.
Taking a Calculated Risk
The only thing that was still lacking was the good news that Greece has approved the EuroPlan. Even with the approval, it does not guarantee that the market will rise, but it does improve the chance that the markets will not be shaken during this "earning season".
Here's the news report for Sunday evening:
, On Sunday November 6, 2011, 6:48 pm EST
ATHENS, Greece (AP) -- Greece's embattled prime minister and main opposition leader agreed Sunday to form an interim government to ensure the country's new European debt deal, capping a week of political turmoil that saw Greece face a catastrophic default that threatened its euro membership and roiled international markets.
This is really all that I need to see. My chances for the overall market to continue in an uptrend is greatly improved. I think that my selected stocks will also continue in an uptrend. What is important to me, is that I feel good about the investment. Questions remain about whether Greece can implement the austerity programs needed to satisfy the EuroPlan. Monday, the market will interpret how it sees the news out of Greece, but the EuroPlan will likely satisfy the markets until February of 2012.
Protecting the Investment
I will repeat this mantra again, and again. When you buy a stock, put a stop-sell on that stock. My suggestion is to set your loss at 6 to 8% depending on the volatility of the stock. You potential loss is only 6 to 8%, but if the stock continues on an uptrend, you move your stop-sell behind the closing price. The goal is to pay for your trading fees and see a return on your investment. Don't sneeze at a 2% gain after trading fees, that is better than what you would get at a bank.
Should your stock slow in the force of its uptrend or begin to move sideways (consolidation), move the stop-sell as close as possible to the closing price without tripping the stop-sell. Any radical drop in the price of your stock will trigger your stop-sell.
Calculations
DLTR (Dollar Tree) was purchased for $79.20 per share. Multiply 7920 *.06 = 475.2 (6% of $79.20 is $4.75.) I now subtract 4.74 - 79.20 = 74.46 remains. (My stop-sell is placed at $74.46)
I chose DLTR because I believe it will advance, not decline in value. But if I am wrong, I won't need to make a decision to sell, because I already have made that decision. If I am right in my judgment, I will advance the stop-sell 6% behind the closing price until the stock rises high enough to produce a gain in the investment.
(Note: The above information is soley for entertainment purposes only and should not be considered under any circumstances as investment advice.)
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