Category: MarketClub Techniques, Tips & Talk

Tips and trick from traders on how to become a better trader.

A bear market rally, or a genuine turn in the market?

Posted on by The INO.com Team

A bear market rally, or a genuine turn in the market?

With the Federal Reserve cutting the discount rate 50 basis points to 1%, it remains to be seen if this will loosen up the credit markets. There remains a great deal of mistrust among banks and borrowers at the present time, and until that changes, we would look for the economy to limp along.

The sharp move up, in both the DOW and the other indices on Tuesday was a sharp counter trend rally to what remains a prolonged bear market. One day does not make a trend, and we will not know for some time if the lows we have seen recently in the past month are going to be the final lows of this bear market.

My gut feeling is, that we will see more sideways action in these markets for some time to come. I would not look for any dramatic upside action in stocks. If we do see a further rally from current levels, it would be perfectly normal within the confines of a bear market. If you are inclined to trade these markets from the long side, I suggest doing so with a slightly smaller position than you would normally trade. We expect the volatility level to subside from its current torrid pace and fall back to a more normal level as we move sideways.

The judicious use of a game plan and money management stops is highly recommended for everyone. These markets can cut you into pieces in hours mainly because of the market's inability to fashion out a firm trend either on the upside or downside.

Just because the market is going sideways does not indicate that all is over on the downside. The longer we see these markets move sideways, the greater the opportunity that we may be building a base to carry the markets higher.

Adam Hewison

President, INO.com & Co-creator, MarketClub

The rate cut maybe too late for the baby boomers ...

Posted on by The INO.com Team

The rate cut may be too late for the baby boomers ...

As many baby boomers are facing retirement, this recent meltdown in the stock market has put many in a precarious position. Money they had counted on for their golden years has quickly disappeared and will not likely return anytime soon.

To illustrate this point, a friend of mine recently sent me a chart which I would like to share with you. This charts shows that we may be going into a prolonged period of no growth in the overall stock market. The NASDAQ peaked at 5,132.52 on March 10th, 2000. The NASDAQ market is in many ways more important than the DOW, and should be considered more of a leading indicator. If that is truly the case, then we have been in a bear market for the last eight years.

If many stocks have lost 50% of their value, they must now go up 100% just to get back to where they were. If we are to assume that the stock market grows by 10% a year (and that is not a good assumption), then it's going to take at least 10 years for many of these stocks to reach the heights they once were at. Many stocks will never come back. I don't think we will ever see Yahoo trade anywhere close its all time intraday high of $500.13 (set January 4, 2000).

I expect to see a prolonged economic climate that is not conducive for stocks to move higher. However, there will be pockets of opportunity where certain markets and sectors will move higher.

All in all, this is not a rosy picture for either the US economy or the world economy. As I have said many times on this blog, these are trading markets and not markets to hold long-term. Witness our General Motors blog, and the fact that General Motors (NYSE_GM) is a scrambling to either avoid bankruptcy or to find a partner. The latest rumor is that they're looking at Toyota (NYSE_TM).

Trading throughout the balance of this decade and into the early part of the next decade is going to be the key to survival and for recovering the profits in your portfolio. We strongly recommend that you approach these markets with some level of expertise and knowledge of technical trading.

The future is going to be the future and we need to take advantage of every moment and prepare ourselves to be the very best we can be in whatever business or endeavor we are pursuing.

Every success in the future,

Adam Hewison
President, INO.com
Co-creator, MarketClub

It hasn't sunk in yet, and maybe it never will.

Posted on by The INO.com Team

It hasn't sunk in yet, and maybe it never will.

For most people who've lost 30% or 40% of their IRAs or 401(k) plans, it just looks that way on paper. In other words, it hasn't sunk in yet. The reality is that when this sinks in, and it will, the realization will have a significant negative impact on the psyche of the US consumer and the US economy.

This is the first real bear market we have seen in a generation and maybe the start of the greatest bear market we have seen since the Great Depression. All of these distressed securities have to be worked out and priced accordingly in the marketplace and that is going to take time. Right now, there is no reason to jump in and buy stocks because they look cheap.

The technical and fundamental trends are clearly down in all the equity markets as the de-leveraging of the hedge funds continues. You may remember I made a post some time ago about hedge funds. I said that in the end "they will devour their young." That's exactly what's happening right now.

This is without a doubt an extremely challenging time for both the US and world economy. There are no easy answers. China's economy was built on manufacturing and selling products primarily to the United States, but also the rest of the world. The global slowdown will dramatically impact their economy.

The fact that crude oil has crashed and lost almost half its value in a very short time has helped the consumers shake the real fear that rests in their subconscious psyche. Will lower gas prices jump-start the economy if consumers see more disposable income in their pockets? Even if lower gas prices come to fruition, will consumers commit to spending the extra money?

The greatest fear right now has to be fear itself. I discussed this in one of my previous posts and I believe it hasn't yet sunk in to the general public just how bad the economy is.

If we see the recent lows in the equity markets taken out, we could see another huge capitulation to new lows. If that occurs, both professional and amateur investors alike will be scrambling for the exits at the same time.

So what's an investor to do? I have blogged in previous posts that these are not markets you can buy and hold forever. Unfortunately those days are long gone. The classic fall-back line for all stockbrokers is, "if it doesn't go your way, it will work itself out in the long-term." Did General Motors (NYSE_GM) work itself out over the long-term? NO. Has GE (NYSE_GE) worked itself out over the long term? NO. This can be said for thousands of other stocks that have not gone up "in the long-term." So remember when your broker tells you to, "hold it for the long-term...it'll come back," you might want to cut your losses early.

The key thing to trading and investing is knowing what the markets are doing at all times. Right now the market remains negative. Why would anyone go into defensive stocks just to be in the market? If the trend is down in a so-called defensive stock, why would you want to hold on to that stock? It just doesn't make much sense in my book.

I believe we are going into a prolonged, protracted time when stocks don't do much of anything. People are fearful right now. Over the years we've lived the good life here in the United States. Credit was easy, people thought the money carousel would go on forever. Well, guess what? The world has been playing musical chairs and when the music stopped (read that as the credit) there are no chairs to sit on. We are left standing, not sure what to do next.

I am normally an very optimistic person, but at the moment, I feel an economic chill settling over the world for quite some time.

Having said all of this, the perception of the marketplace can change at anytime. When that does, you need to change with it. You can no longer be passive in these types of markets. The individuals who do remain passive and hold for the "long-term" are now way behind the eight ball. Unfortunately, many may never recover.

Mark my words, there will be some fantastic opportunities in the weeks, months and years ahead. But, those opportunities will only go to the well-prepared, disciplined individuals traders who believe in what they're doing in the market. That's the only way successful investors will succeed in my humble opinion.

Best,

Adam Hewison
President, INO.com
Co-creator, MarketClub

Traders Toolbox: Moving Average Convergence / Divergence (MACD)

Posted on by lindsay

MarketClub is known for our "Trade Triangle" technology. However, if you have used other technical analysis indicators previously, you can use a combination of the studies and other techniques in conjunction with the "Trade Triangles" to further confirm trends.

Developed by Gerald Appel, this indicator consists of two lines: a solid line called the MACD line and a solid line called the signal line. The MACD line consists of two exponential moving averages, while the signal line is composed of the MACD line smoothed by another exponential moving average.

To complete the standard calculation of the two lines, you must:

  1. Calculate a 12-period exponential moving average of closing prices
  2. Calculate a 26-period exponential moving average of closing prices
  3. Plot the difference between the two calculations above as a solid line. This is your MACD line.
  4. Calculate a nine-period exponential moving average of the MACD line and plot these results as a dashed line. This is your signal line.

MarketClub will do the above calculations for you. The MACD line is represented by a red solid line and the Signal line is represented by a green solid line. The default values for this study are set to the suggest values listed above.

The most useful signals generated from this system occur when the solid red (MACD) line crosses below the green solid line (Signal) and a sell signal occurs when it crosses above the signal line.

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You can learn more about the MACD and Gerald Appel by visiting INO TV.

"Saturday Seminars" - Elliott Wave Theory for Short-Term & Intraday Trading

Posted on by lindsay

Elliott Wave Theory is often seen as a tool to determine long term cycles in the markets. However, the fractal nature of Elliott Wave makes it just as useful for short-term and intraday trading. In this session, Steven will explain why Elliott Wave is an excellent tool for daytrading. He will discuss how you can make money even when you have the wrong wave count and the wrong assumptions; how Elliott Wave is forward looking and a great money management tool. He will also focus on the weaknesses of wave-based trading and how to overcome them. Finally, he will describe how intermarket analysis, when used together with Elliott wave, can add confidence to your trading analysis and final actions.

PDF Workbook

Steven PoserSteven Poser is President and Founder of Poser Global Market Strategies Inc., and institutional and retail advisory services firm registered as a CTA with the CFTC which also offers training in technical analysis techniques for trading and analysis professionals. Prior to forming Poser Global Market Strategies Inc., Steven spent nearly eleven years as sole U.S. technical analyst at Deutsche Bank Securities in New York City, sitting, at various times, on the U.S. Government Bond Primary Dealer Desk, the International Bond Desk, and the Currency Desk. Before joining Deutsche Bank, he was a computer analyst for Merrill Lynch Capital Markets and the Western Electric Company, where he helped create the Y2K consulting industry with his Y2K non-compliant coding techniques. He holds a post-graduate certificate in finance, an MBA with a concentration in economics and a BA in mathematics and computer science.

Steven has become a widely acclaimed technical analyst achieving recognition for his prescient calls on the U.S. bond, currency, and stock markets. He has appeared on CNBC, is a regular guest on Reuters Financial Television and articles have appeared in publications such as Forbes, Barrons, Futures, and The International Financing Review. He took the highest honors in the Knight Ridder Financial's trading game competition in 1996 and finished third in 1998 although he competed for only six months of the year.

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Saturday Seminars are just a taste of the power of INO TV. The web's only online video and audio library for trading education. So watch four videos in our free version of INO TV click here.

INO TV