AAPL: A Possible Short Trade?

Apple (AAPL) is currently on the high end of investors' line of attraction. A picture of Marketwatch's overview of the company is pretty clear: 

 

Almost everyone is more or less bulish on the stock. While I do admit this fuels growth of the stock price, this is not a sustainable condition. Such an overly bullish sentiment may come as a huge warning sign from a contrarian perspective.

Since the beginning of 2012 the stock's price experienced an interesting move. After going rapidly to about $640 it fell with almost $100 down to $540 level for about a month. Since the second half of May 2012 it is again on the rise and now trying to reach its previous high. 

What seems like a hope-fueling mode although, could prove to be nothing more than a normal reaction of a correction when all the people who have left the previous uptrend are getting on the train with renewed hopes. Hence this could be a false move given the newcommers are not strong enough to sustain the demand in near- to long-term perspective. It has happened before, in all kinds of markets and shares and since it's connected with human behavior, this type of market movements will continue to happen.

Let's look at the charts and some sentiment tools.

 

This is the daily chart of AAPL. What's noticeable here is the lower volume the recent upward movement relies on. This is especially true for the price increase since the dividend day. On theory a lower volume combined with a price increase speaks of exhausted buyers. This is a technical warning sign. The stock might still see some upward movement close to the previous high at $640 but the low volume suggest  there would not be enough demand to go much farther.

Schaeffer's Research website gives an insight on the option players' mood concerning AAPL. Put/Call open interest ratio is close to the highest value in one year so this suggest prevailing pessimism toward the stock. Viewed as a contrarian indicator this would suggest a further increase in the AAPL stock price might be possible because of an overly pessimistic mood.  Such a mood however might be present only inside the option players because of the price reaching the previous high and seems to not be supported by neither the analysts recommendations, nor the general market participants as shown by the picture in the beginning of this article.

The short interest on the stock however has been falling since the second half of June 2012 which would partly explain the increase in price experienced since then. What that falling short interest would suggest is that there would be a smaller possibility for a price increase due to short covering.

The open interest configuration shows there is a concentration of put options around the $640-670 level which could serve as a resistance. The calls are concentrated in the $500-640 range.

With all those remarks a further strong increase of the Apple's stock price like the one we witnessed till the April 2012 could not be so probable in near term. 

In any case a suitable stop loss order would limit the possible loss on either side of the trade.

40 bits of trading wisdom

Here is another post aimed at spreading practical wisdom about trading. Similarly to the 38 steps to becoming a trader one, I found this again in my remarks. After some google-ing the original source link seems to point to Traders-Talk forums at http://www.traders-talk.com/mb2/index.php?showtopic=17232

Most of the items below are really valuable. The point is they have to be followed in real to bring value. Any comments are welcomed.

Forty Bits of Trading Wisdom
Condensed from Capitulation's 40 posts.

1. If you want to stay in this business, leave "hope" at the door and stick to your stops.
2. When you get into a trade, start looking for signs right away that you are wrong. If you see them, then get out before your stop is hit.
3. Trading should be boring, like factory work. If there is one guarantee in trading, it is that "thrill seekers" get their accounts grinded into nothing.
4. It helps to just follow a handful of stocks on any given day. Don’t jump on the “next hot thing.” Develop your plan and stick to your plan.
5. You are trading other traders, not the actual stock. You have to be aware of the psychology and emotions behind trading.
6. Be very aware of your own emotions. Irrational behavior is every trader's downfall. If you are yelling at your computer screen, imploring your stocks to move in your direction, you have to ask yourself, "Is this rational?" Ease in. Ease out. Keep your stops. No yelling.
7. Watch yourself if you get too excited—excitement increases risk because it clouds judgment.
8. Don’t overtrade—be patient and wait for 3-5 good trades.
9. If you come into trading with the idea of making “big money,” you are doomed. This mindset is responsible for most accounts being blown out.
10. Don’t focus on the money. Focus on executing trades well. If you are getting in and out of trades rationally, the money will take care of itself.
11. If you focus on the money, you will start to impose your will upon the market in order to meet your financial needs. There is only one outcome to this scenario: you will hand over all of your money to traders who are focused on protecting their risk and letting their winners run.
12. The best way to minimize risk is to not trade. This is especially true during the low-volume “chop and slop” found during the afternoon trading session. If your stocks are not acting right, then don't trade them. Just sit and watch them and try to learn something. By doing this you are being pro-active in reducing your risk and protecting your capital.
13. There is no need to trade 5 days per week. Trade 4 days per week and you will be sharper during the actual time you are trading.
14. Refuse to damage your capital. This means sticking to your stops and sometimes staying out of the market.
15. Stay relaxed. Place a trade and set a stop. If you get stopped out, who really cares? You are doing your job. You are actively protecting your capital. Professional traders actively take small losses. Amateurs resort to hope and sometimes prayer to save their trade. In life, hope is a powerful and positive thing. In executing a trade, hope is a virus that can infect and destroy.
16. Be right on day one or get out. Don’t take a “red” position home overnight.
17. Keep winners as long as they are moving your way. Let the market take you out on a trailed stop.
18. Money management is the secret to success. Don’t overweight your trades. The more you overweight a trade, the more “hope” comes into play when it goes against you. Hope is to trading as acid is to skin. The longer you leave it in place, the more painful the outcome will be.
19. There is no logical reason to hesitate in taking a stop. Re-entry is only a commission away.
20. Professional traders take losses. Being wrong and not taking a loss does damage to your equity and your mind.
21. Once you take a loss you forget about the trade and move on anyway, especially if it is a small one. Do yourself a favor and take advantage of any opportunity to clear your head by taking a small loss.
22. Never let one position go against you by more than 2% of your account equity. The larger the position, the tighter the stop.
23. Use daily charts to get an idea of the 30-day trend, hourly charts to get an idea of the 1-day trend, and 5-minute charts to establish your entry points.
24. If you are hesitating to take a position, that indicates a lack of confidence that is not necessary. Just get into the position and place a stop. Traders lose money in positions everyday. Keep them small. The confidence you need is not in whether or not you are right, the confidence you need is in knowing you will stick to your stop no matter what. Therefore you can actually alleviate this hesitancy to “pull the trigger” by continually sticking to your stops and reinforcing this behavior.
25. Averaging down on a position is like a sinking ship deliberately taking on more water.
26. Build up to a full position as it goes your way.
27. Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment. Realize this and immediately tighten your stop considerably to preserve profits or exit your position.
28. Look for opportunities not to trade.
29. Most of the time, you want to own the stock before it breaks out, then sell it to the momentum players after it breaks out. If you buy breakouts, realize that professional traders are handing off their positions to you in order to test the strength of the trend. They will typically buy it back below the breakout point—which is typically where you will set your stop when you buy a breakout. Greed comes into play when the stock breaks out again, and the momentum players are forced to chase it and “pay up” for the stock. Be aware of how trends are established and use that to your advantage to enter and exit positions.
30. Embracing your opinion leads to financial ruin. When you find yourself rationalizing or justifying a decline by saying things like, “They are just shaking out weak hands here,” or “The market makers are just dropping the bid here,” then you are embracing your opinion. Don’t hang onto a loser. Cut your losses. You can always get back in.
31. Unfortunately, discipline is typically not learned until you have wiped out a trading account. Until you have wiped out an account, you typically think it cannot happen to you. It is precisely that attitude that makes you hold onto losers and rationalize them all the way into the ground.
32. Siphoning out your trading profits each month and sticking them in a money market account is a good practice. This action helps to focus your attitude that this is a business, and your business should generate profits on a monthly basis.
33. "Professional traders only place a small portion of their assets into 1 position. Or if they take on a large position, then they strictly limit their risk to 1-2% of their current equity. Amateurs typically place a large portion of their assets into 1 position, and they give it "room to move" in case they are actually right. This type of situation creates emotions that ruin accounts, while professionals are able to make decisions and cut losses because they strictly define their risk."

More pro and amateur differences…


34. Professional traders focus on limiting risk and protecting capital. Amateur traders focus on how much money they can make on each trade. Professionals always take money away from amateurs."
35. Don't be a hero…
    In the stock market, heroes get crushed. Averaging down on a losing position is a “heroic move.” The stock market is not about blind courage. It is about finesse. Don't be a hero.
36. School of hard knocks in the only way...
    Sadly, traders never learn the importance of “the rules” until they have blown their account out of the water. Until you “lose it all” it never seems that important to have to follow the basics of professional trading. (Cut your losses, let your profits run, etc).
37. The market reinforces bad habits…
    The market reinforces bad habits. If early on you held onto a loser that went against you by 20%, and you were able to get out for breakeven, you are doomed. The market has reinforced a bad habit. The next time you let a stock go against you by 20%, you will hang on because you have been taught that you can get out for breakeven if you are just patient and hang on long enough. It doesn’t matter if the stock has just been upgraded or had a favorable write up in Forbes. You still need to protect your capital. In reality, today’s price is the true indication of the value of the stock, as it is the price people are willing to pay. Instead of rationalizing, control your risk by sticking to your stops.
38. Who is accountable for your trades?
    The true mark of an amateur trader who is never going to make it in this business is one who continually blames everything but his or herself for the outcome of a bad trade. This includes, but is not limited to, saying things like:
    
    • The analysts are crooks
    • The market makers were fishing for stops.
    • I was on the phone and it collapsed on me.
    • My neighbor gave me a bad tip.
    • The message boards caused this one to pump and dump.
    • The specialists are playing games.
    The mark of a professional, however, sounds like this:
    • It is my fault because I traded this position too large for my account size.
    • It is my fault because I didn’t stick to my own risk parameters.
    • It is my fault because I really don’t know how to trade.
    • It is my fault because I know the market makers can legally take some of my money, and I knew that going into this.
    • It is my fault because I know there are risks in trading, and I didn’t fully comprehend them when I took this trade.
    The obvious difference here is accountability. For amateurs, everything having to do with the market is “outside their control.” That is not reasonable thinking, and really just points to an individual who has, probably for the first time, had to confront their “real self” as opposed to the perfect self or idealized self they have constructed in their mind. This is also known as “living in a fog.” A person can drift around through life in their own private world, where they are pretty special and can do no wrong. Unfortunately, trading rips off this mask, because you cannot dispute what has happened to your account. This is also known as “confronting reality.” For many people, when they start trading they are suddenly confronting reality for the first time in their lives. Just to see the world as it really is requires a lifetime of training, and for many people trading the stock market is their first real step in this journey. Some people say that traders are born, not made. Not so. If you choose to see the world as it is, then you can start trading successfully tomorrow.
39. Pro vs. amateur trader difference…
    Amateur traders always think, “How much money can I make on this trade!” Professional traders always think, “How much money can I lose on this trade?” The trader who controls his or her risk takes money from the trader whose head is in the clouds.
    CONTROL YOUR RISK
40. Focus on controlling risk...
    At some point traders realize that no one can tell you exactly what is going to happen next in the market, and that you can never know how much you are going to make on a trade. Thus the only thing left to do is to determine how much risk you are willing to take in order to find out if you are right or not. The key to trading success is to focus on how much money is at risk, not how much you can make.

And yes folks, that concludes the 40 bits of trading wisdom. I hope everyone enjoyed them and most importantly, I hope one person out there has taken these bits to heart and that they have made a difference with someone.
To summarize the important points:

• Control your risk by setting your parameters BEFORE you get in the trade.
• Have a plan with each and every trade and stick to your plan.
• Stick to your stops.
• Don't blame others when a trade goes bad, but rather learn from it so it hopefully won't happy again.
• Don't bet the farm! Allocate only a small percentage of your capital to each trade.
• Set a stop with each and every trade.
• Leave hope at the door and stick to your stops.
• Never add to a losing position....averaging down is like a sinking ship deliberately taking on more water.
• Do not yell at your screen trying to "will" the markets in your direction. Be calm, ease in, ease out, no yelling.
• Trading should be boring like factory work. If you are looking for excitement then trading is not for you because you will wipe out your trading account.
• If you get stopped out, so what? Professional traders actively take small losses all the time...it's part of the game. Re-entry is only a commission away.
• Once you are in a trade, immediately begin looking for signs that you are wrong. If something doesn't look right or the reasons that you entered the trade have changed GET OUT before your stop is hit.

Originally posted by Capitulation

38 steps to becoming a trader

Following is a list of most of the steps every successful trader takes during their life. I recently found it in my remarks. I'm not sure of the author of the list so if any of my readers would know, please write me so respectful credits might be given. Happy reading, successful trading and don't forget that things always change! :)

38 steps to becoming a trader

They are as follows:

1. We accumulate information - buying books, going to seminars and researching.
2. We begin to trade with our 'new' knowledge.
3. We consistently 'donate' and then realize we may need more knowledge or information.
4. We accumulate more information.
5. We switch the commodities we are currently following.
6. We go back into the market and trade with our 'updated' knowledge.
7. We get 'beat up' again and begin to lose some of our confidence. Fear starts setting in.
8. We start to listen to 'outside news' and to other traders.
9. We go back into the market and continue to 'donate'.
10. We switch commodities again.
11. We search for more information.
12. We go back into the market and start to see a little progress.
13. We get 'over-confident' and the market humbles us.
14. We start to understand that trading successfully is going to take more time and more knowledge than we anticipated.
    
    MOST PEOPLE WILL GIVE UP AT THIS POINT, AS THEY REALIZE WORK IS INVOLVED.
    
    
15. We get serious and start concentrating on learning a 'real' methodology.
16. We trade our methodology with some success, but realize that something is missing.
17. We begin to understand the need for having rules to apply our methodology.
18. We take a sabbatical from trading to develop and research our trading rules.
19. We start trading again, this time with rules and find some success, but over all we still hesitate when we execute.
20. We add, subtract and modify rules as we see a need to be more proficient with our rules.
21. We feel we are very close to crossing that threshold of successful trading.
22. We start to take responsibility for our trading results as we understand that our success is in us, not the methodology.
23. We continue to trade and become more proficient with our methodology and our rules.
24. As we trade we still have a tendency to violate our rules and our results are still erratic.
25. We know we are close.
26. We go back and research our rules.
27. We build the confidence in our rules and go back into the market and trade.
28. Our trading results are getting better, but we are still hesitating in executing our rules.
29. We now see the importance of following our rules as we see the results of our trades when we don't follow the rules.
30. We begin to see that our lack of success is within us (a lack of discipline in following the rules because of some kind of fear) and we begin to work on knowing ourselves better.
31. We continue to trade and the market teaches us more and more about ourselves.
32. We master our methodology and our trading rules.
33. We begin to consistently make money.
34. We get a little over-confident and the market humbles us.
35. We continue to learn our lessons.
36. We stop thinking and allow our rules to trade for us (trading becomes boring, but successful) and our trading account continues to grow as we increase our contract size.
37. We are making more money than we ever dreamed possible.
38. We go on with our lives and accomplish many of the goals we had always dreamed of.

Investment Thoughts

"The most crucial out-of-sample test is future investment success. If the strategy becomes known to other investors, prices may adjust so that the strategy, however well tested, does not work in the future"
(Level I Volume 1 Ethical and Professional Standards and Quantitative Methods , 6th Edition. Pearson Learning Solutions p. 571)

But people always want a strategy that works best for everyone... The best strategies are kept secret not because of pure selfishness but simply because of common sense. Knowledge transforms reality and that knowledge may then become obsolete. Eventually everything slips away at some moment. That's why we live and work in a constantly developing environment.

Is CAPE of above 23 extraordinary for a bullish stock market?

In his article "Has the Nearly 2-Yr-Old Bull Market Topped Out?" the respected by me Mark Hulbert speaks about his concerns that the current bull market might be surpassing its sound valuation levels and it might be near its end.

The author uses a CAPE measure to prove his point. CAPE is a modified P/E ratio which was made popular by Robert Shiller, a Yale University professor who uses it in his book "Irrational Exuberance". CAPE stands for "Cyclically Adjusted Price Earnings" and it differs from the general P/E in that its denominator (the E) is average inflation-adjusted earnings over the trailing 10 years. The data the article cites could be found on the Mr. Shiller's website. It's a very complete data set in the Excel file format.

According to Mr. Hulbert's calculations the current CAPE of 23.7 (as of the date of his article) is considerably higher than the average CAPE of 18 for the bull markets of the last century which he examines. The conclusion is that it would be hard to argue that the market is undervalued or even fairly valued.

Now my remarks.

• What Mr. Hulbert is missing is that as a rule of thumb a bull market could surpass a lot its sound valuation levels especially in its extreme points before it tops out and converts to a bear market. And such a conversion doesn't happen overnight. We know a bull market will stop but we usually don't know exactly what time will pass ebfore it really happens. Exiting too early could save your money but also would mean a lot of unrealized profits. Usually choosing one over the other is a matter of personal preferences and attitude.
  
  
• Now as we stand on the understanding that a higher CAPE is a normal phenomenon for a bullish market, it would be nice if the article of Mr. Hulbert shows at what ratio the average CAPE the author calculated was overrun by the real CAPE for the years of the bull markets it discusses. But it doesn't. It just states the current CAPE is higher than the avegare one.
  
  If we dig the data from Mr. Shiller's file we see that the current month CAPE is 23.69 and it's indeed higher than the average 18 Mr. Hulbert calculated. But during 2007 there was noticed a CAPE of above 27 (50% above the average value of 18), during 2004 - above 26-27 (again about 50%), during 1999-2001 - above 40 (122%)! In all the period between the late 1995 to 1999 CAPE values were above 24 with an average value of about 31.5 (75%).
  
  So the current CAPE is 30% above the average of 18 but we've seen even higher differences during the past 15 years. Seen in that light a 23 CAPE doesn't seem so extraordinary.
  

If you are a strictly value oriented investor I understand that leaving your money in a market that you believe is overvalued is hard and against your logic. Not everyone in the market is such a type of investor though. That makes the market move and the imperfections present opportunities.

US stock market technical analysis - S&P 500, daily, 09062010

US stock market has fallen a lot. What started as a surprise to many of the players at the beginning of May continued during the whole month and now the S&P 500 index has reached one of its lowest levels for the period. The signs of the current fall were visible even in April when a series of bearish divergences were formed on the daily and weekly graphs and our expectations of a fall of the markets proved to be right. That downfall was striking to many people and now as they have fresh memories of the pains they might have taken during last 3 years, they are now more scared than ever. Suddenly almost everybody turned bearish which explains the striking volatility and sharp downfalls of the indices. But this means also one more thing - there could not be much more fuel to the inertia. And the rising of the markets could surprise at least as many people as did the sudden decrease of the indices. So much for the psychology. :)

What we see today on the daily graph might pretty much mean the bulls might take some control now.

The graph shows the index continues to make new lows but the indicators don't follow. For today the S&P 500 grew and the Stochastic shows it being in an oversold condition. Still the MAs show the index is in a negative area but those divergences could lead to an increase. Still for a long-term bullish view, this bullish divergence better be confirmed by the MAs crossing on the upside.
The weekly graph shows the index is in a downtrend but a warning sign for the bears (and a good news to the few bulls) is that on the monthly graph the index still hasn't crossed that line and is in an uptrend. There is also no MACD bearish divergence there.

Despite the uncertainty if the index will change its down trend now for the long term, the 4 hour graph shows that for tomorrow there's a big chance the increase to continue. What we see here is the bullish divergence is seen in two indicators which could definitely lead to a continuation of the increase. Around 1068-72 level could be some resistance and if that gets broken, the way up to 1100 seems open.

Financial Wisdom

It's a good thing to learn from other people's experience and wisdom. Often it's not so easy though. In investing and finances as in almost every other area of life we all learn best from our own mistakes. Unfortunately sometimes the price is too high.
Here is a collection of smart quotes we could learn from. The list will be updated from time to time.

• "I often remind our analysts that 100% of the information you have about a company represents the past, and 100% of a stock's valuation depends on the future." Bill Miller


• "Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." Warren Buffet


• It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. J. Livermore


• The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. J. Livermore

All the above Livermore quotations are from the book "Reminiscences of A Stock Operator".

Mass Moods

The days come that almost noone believes the trend could change its direction. The media in Bulgaria almost everyday tell us how bad is the health of the stock exchange. It's almost like in the days of euphoria - everybody had their arguments why the prices will continue to grow and now everone could tell you why they should fall.
We should be aware of the signs that tell us the time will change before everybody sees it and moreover, admits it. The timing is the hardest problem. Many people could see the sings and jump in the game. And then the market continues to go his way. After time they could be proven right but till that day they're on the losing side. And sometimes this could be a big risk - depending on the portion of your capital that you've chosen to bet on your understanding of the market. Sometimes on the very lows people that have managed to survive the big crisis could take their biggest loses - wheather they start to be impatient or the pride of "guessing" the crisis makes them more confident with themselves. This risk could be lowered by just waiting the market to completly change /when this is a fact is another question.../ its direction and then jump on. But as market is made by people there is no such moment as the right one for everyone. If everybody waits to see the complete turning who's going to buy so the prices could go higher?...

This is the best part - the different participants take actions in different times. The more condensed their actions are the more sharp and stronger the movements are. Now the movements are undefined with a slight direction downward.... Sometimes there are buy-outs on some positions yet the overall turnover remains low.

Rumours, beliefs and the actions we take...

Recently in Bulgaria we haven't seen a hostile rumors over some participants in our financial sector. In about 10 to 15 years ago there were some banks that didn't succeed in overcoming the rumors about their liquidity. After a substantial amount of the deposited money were drawn out they were forced to face bankruptcy. Many ordinary people were shocked and lost the money they held in these banks. Moreover the trust in the whole system was strongly affected. We faced hyperinflation, prices were running wild... All these reasons forced the country to accept the conditions of and to start living in a currency board. Our national currency /LEV/ was bound to the German mark at a fixed rate. After the euro was born the exchange rate was automatically adjusted to 1.95583 Lev/euro. This gave the system the needed stability and the situation was normalised.

A week or two ago our financial system was attacked with such rumors again. Alerted by the worldly financial crisis taking part over the previous several months and the problems many international banks reported, many of the clients of First Investment Bank (FIB) believed the gossips that the bank did had liquidity problems. These rumors were spread mostly in the Internet forums. At the most extreme moments of the story they were coming also by sms or spam emails. Surrounded by such fears the people preferred to withdraw their money from the bank while they still can. In the mean time the graph of the FIB trading on Bulgarian Stock Exchange looked more positive than negative. It didn't gave any hint such situation might not be a fake. Some days after the first queues of people in front of the bank offices the Central Bank of Bulgaria after asked by reporters commented the bank didn't have any liquidity problems. In the meantime for about two days the prices of the FIB shares lost about 10%. On the second day the positive sentiment prevailed and the prices closed above their open level for that day. The reports about the smaller and smaller queues of people withdrawing money continued to come. The situation seemed to calm down...

Maybe the FIB will survive and these times will be forgotten. But the situation is worth mentioning. It shows the strengths of the beliefs and fears, how they motivate people thus being one of the most powerful means of causing actions. Actions which might be right or not. Time will show.

Bank problems...Bear Stearns & Co...

The Bear Stearns game appears to be a very interesting one. :)

Let's think - is there a better time for someone to aquire a competitor if not in a stormy time?... I'm not saying the bank didn't have problems - it most probably did. My point is... "the brilliance" of the game. :) The quicker eats the slower, the smarter - the rest. I'm sure the managers of "the Bear" are smart people. Somethimes the pure timing is all that matters. We face slow growing motions that are consisted of smaller ones. The deeper we go inside the timeframe the smaller parts we see. The particular reason the bank failed was the repo market. It's something perfectly usual and normal the banks do to provide more money for their opperations. But it happens to be a very risky one combined with other unstable parts of the body.

The stormy times provide opportunities the calm weather doesn't have. The waves of the raging sea test the quality of the ship. And the exellence of the captains. Yes, there are victims.. The hardest lessons of life are the ones that cost most. The good thing is the life goes on. And the money is to be spent. :)

passion is on the way...

Long time no seen.. :)

It's been more than 2 months since my last post here... The time was full of emotions, fears, hopes. Many people didn't believe the downtrend could take so long and worst - to be so intense! These months we've seen the record of daily fall of SOFIX broken twice - one day it fell about 6%, and only 3-4 days later there were another almost 8% downfall. Since the beginning of the year the overall decline became 20-25%. The prices went to levels not seen for an year. The situation was especially bad on Jan 22nd when the main index of the Bulgarian stock exchange open with a huge gap on the downside and went to one of its lowest points for a year ago - a value of 1233. There were simply no buyers on some of the most liquid positions.That continued for about half an hour and then one by one the stocks put to be sold were consumed. The day closed positive at values about 1384, only 3 points below its highest point for the day. The loooong legged doji was very well formed :) Still the indicators showed there was much fear and the next days prices continued slowly to fall. The volumes though were half the ones before the big fall. As if suddenly half the people stopped trading. Most of the players were not sure where the market would go. Moreover they were scared. Human mind is an interesting thing.. :)

The volumes lowered, the prices - also slightly.. The books say the bottom might be near. On the daily graph the market became more and more oversold. Till one day there were massive buy outs on some possitions. The volume doubled for that day. On the next one things repeated but with more players taking part. The crowd started looking around. Is it over?... After that there were some days of swinging up and down... But the bottoms were higher than the previous ones. On the weekly indicators still point down and they have a way more to go but today /06.02.2008/ we have a bullish macd crossover on the daily graph. And from a very low point. That could lead us to the level of the next resistance - maybe somewhere around 1480-1530. If we don't cross that one /and since the weekly points still downside../ we could swing up and down between 1500-1300 for some time.. :)

The last month the companies reports for the last quarter of 2007 were issued. One could find them on the site of the Bulgarian stock exchange - http://download.bse-sofia.bg/finance/ or through the new service presented by a leading bulgarian investment site - http://bull.investor.bg/. Some were good and some not so much. It seemed that everything was already into the prices.

Bulgarian market is a developing market. Because of the very low base the prices of some assets grow very fast. One such asset is land. Many public companies own land that is bought long before the prices achieve the nowadays levels. And it's calculated in their ballance sheets according to the price of achievement. The price of that asset could not grow forever with the speed it used to. Many companies could decide to recalculate their assets so they reflect their real market value and thus expanding their actives in the sheets. There are examples in the ballance sheets already. This could lead to a new way of attracting fresh money into the company - by selling something they don't need. Time will tell.

An interesting month..

October was an interesting month for the Bulgarian Stock Exchange. Volatile and struggling.. At the beginning of the month the values of SOFIX on the monthly and weekly graphs flew away and above the Bollinger Bands. Stochastic indicator showed the index was overbought. So normally things /the growth/ started to slow down. The first shot was a big red candle on the daily graph. The next day it was followed by a huge gap and the index closed about 4% down from its absolute height formed the previous day. This was unexpected from some of the participants in the market /as usual/ and the index started to go up again as the buyers got more active. After a week it attacked its previous highest point but didn't succeed. At that time MACD crossed from the above the MACD trigger line. So on the daily graph the trend started to show negative attitude. From then till the end of the month there were two more upward movements. After the last one followed a sharp decline again. The fear spreads wider... :)

The weekly and monthly graphs still show positive trend /the MACD line is still above the trigger line/. Till these graphs are positive there are still chances for the bulls to try to stop a deeper decline. Will this be just an opportunity to sell at a higher levels? Time will show....

The month was full of interesting news from the investment market also. The IPO of the construction holding /the company works on infrastructure projects/ TRACE PLC. was 1480 times oversubscriben /!!! - a record for the Bulgarian Stock Market and maybe amoung the first 3 or 5 biggest in the world./ The shares are expected to be listed for trading in the midst of December. The money for that IPO was not to be deposited when giving orders for participating in the IPO so many people gave orders for sums that enormously exceeded the money they realy had. The players on the market expected the money released for taking part in the IPO to be poured back on the market. But according the conditions of the IPO there were not so much money drawn from the market and obviously not so much money to be put back in it. That could be one of the reason for the sharp declines that happened.

There were publications from some of the main investment intermediaries about the high prices /according the fundament/ at the market that stirred the spirits also. Some considered them as a manipulation of the market while others said it was fine that at last someone is brave enough to say it loud.

But as a famous person said "As one seeks the reasons, another one eats the fruits"... :)) Sometimes the reasons remain unknown. Or uncertain.. A newspaper says something, persons give interviews... The strugle is on its way.. :) The mind has to be free.

Greed and Fear

Fear and Greed.. The two most important emotions on the trading floor. When the greed is more than the fear, the prices go up. People are buying more and more expecting the prices to go even higher. The self-fulfiling expectations... For some period of time they work. As long as they are sufficiant number of people /and the MONEY/ to support them. When the stocks are bought, the money spent.. people start to look around. When will it start falling??.. When shall we run?..

At that time the smart one take their profits. They might miss a slight future explosion but protect their capital! The smart investor /or trader if you prefer/ knows that the main point is to NOT LOSE your capital. Your money. When you do the things right way, the profits will come. Protecting your funds means to sell when you suspect someting and to take your profit. After that, if your suspections shows to be wrong you might get on the train once again. But keep your motives clean :) Do not buy just because you have sold your shares before. Consider the deal as a separate deal. Investigate it the way you like and take it because you want it and you know what you are doing. If you are uncertain in some way, it's better to let it go...

So we fear... and we do nothing. The normal reaction is to run. But here comes the hope. The hope that the prices will go in "our" direction at least slightly more. The point is that this same hope is not only ours. Hundreds or thousands of other people hope the same thing. Yet lesser and lesser of them support their hope with money... So it comes the time when more people start to give up their hopes. The problems is that you don't know when their hopefull spirit will be broken and they start to sell. In the most cases you are left behind... That's why it's not a smart move to be long when you suspect you should be short.

One of the hardest things is to do what you think you should do. Sometimes traders /investors, players, etc./ are like the most unrational creatures. Stunned by their hopes and fears they think one thing and do just the opposite. Strange place is the stock exchange....


Look at the graphics, use your indicators, compare the volumes, the prices... Make your dessicion and bet your money on it! :)

an interesting story...

There is a story about a man who followed the stocks only by the papers. For several months he lived up in the mountain with no TV or Internet. After that, when he had decided the time has come and the moment was right he was going down to the town and was making his trades. Depending on the trade he was buying or selling. He constituted his portfolio and went up to the mointain again. He was not in a hurry. That gave him the freedom to see the big picture.

Sometimes you have to stop. To get back from what you are doing and to relax. To keep some distance between you and your work, so you could get a better view of it. Eagles fly high! Because from that point you could see farther and wider. Predict for a longer period and at the end collect the better profit.

Sometimes we all get so close to details that we miss the whole thing. We strive to win, going up and down.. And we think we are a part of the winning team, not realizing how small our profits are and how much we lose only for the thrill of being in the midst of everything. The commission eats away much of the profits we make, the chance takes some other part and we a left with just enough profit so our desire to play do not get burned out forever. That small profit is our enemy! Forget that it pretends to be a friend.. :)

Actually it depends on what one is looking for - the thrill or the money?.. There are cases when both are closely connected but such cases should be really worthy! Otherwise what's the point in putting money in someone's else pocket?!.. If you would do so, you'd better give them deliberately to the ones in need. At least they can't make them on their own..

So don't forget to relax. Take your time and get back so you could see the bigger trends, the macro reasons and the economic conditions as a whole, not just a part of it. See wider, predict wider, think longer...

"Think global, act local" :))

..waiting is a big part of the game...

The Bulgarian floor is opened and the game begun. These days we are in something like a floating state.. Very few of the shares go steady up, others are traded at a relatively high volumes but the price stays the same. The players are relocating their money. Making their folios and wait.

Much of the game is to wait. Patience. Including the time when you fear. You can't escape the fear and you shouldn't. Sometimes fear is our friend. It's like the pain to the body - it says that something is wrong. But one have to teach him- or her-self to recognize the panic. When you haven't done your homework, it's normal to fear. You don't have a good foundation. But in other cases you shouldn't let it torture you. Patience. And good food. :)

So we wait.. To see what will happen. At this movement. When it begins...