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The US economy suffered continued economic contraction during the 2nd quarter, (April to June), though the gap to growth narrowed, relative to Q1. The fall in output of -1% annualised compared to a consensus forecast of -1.5%. Q1 GDP was revised downwards from -5.5% to -6.4%. 2008 growth was also revised to a weaker 0.4% from 1.1%.
The world’s largest economy has now shrunk for four consecutive quarters, the longest losing sequence since records were formalised in 1947.
A key contributor to the latest decline was the erosion of business inventories which slumped by a record $140bn in the quarter as firms cut production in an effort to reduce stockpiles. The production cut-backs contributed about 80% of the Q2 contraction in economic activity.
Exports, residential and business investment all fell though the rate of decline in each sector slowed compared to the 1st quarter.
The GDP report came at the end of another week of appreciating equity prices, though as predicted in this column last week Monday and Tuesday saw equity markets stutter giving short sellers a small window of opportunity mid-session to prosper before equities resumed their bullish run later in the week.
Ticker AUO
Position Open
Signal Long
Date 30th July 2009
Entry Price 11.17
Target Price 11.96
AUO to 30th Jan 09
The essence of Pawlewski’s system is that it is able to distinguish between appreciating stocks that are experiencing a short term pull back but will imminently rally and stocks that are falling and will continue to do so with near uninterrupted momentum. Using statistical analysis Pawlewski’s system can identify long trade candidates, which he would typically hold for an average of 10 days. Similarly, by using ‘reverse’ statistical analysis the system proposes short positions. The exact details of the process are confidential, but it is clear that Pawlewski can identify the ‘genetic’ code within a stock’s chart which under analysis by the Pawlewski system provides information regarding the future direction and pace of a stock’s movement.
Democracy is the system of one person one vote. Business is one dollar one vote. It would take a vivid imagination to think that the perfect scenario for a business; securing abnormal profits or a monopoly, is appropriate in a fair and democratic society. Likewise, the managers and shareholders of corporations need to be offered a reward for their time, skills and investment otherwise there would be no motivation to take risks or to employ workers. A fair equilibrium is the logical aim.
But the two, democracy and business, co-exist uncomfortably as there is a finite amount of wealth in the economy and that wealth needs to be shared equitably between two of the three participants in any economy: individuals, (workers, consumers and taxpayers) and businesses. The third participant is the government which should not pursue wealth or power for its own benefit but should act as the moderator and facilitator creating a scenario which allows the two other parties to prosper fairly, in correct proportion and in line with the law. To achieve this fair scenario key governmental decision makers should not have personal interests more aligned with one group, business, than the other, society.
In periods of economic growth when both the individual and corporations as a whole prosper the division of wealth between the two is naturally a concern. But those concerns are magnified significantly when the economic pool of wealth is contracting. In a recession tensions between the individual (the ‘man on the street’) and companies increase as corporations lay off staff to protect the interests of the firm’s owners. Tensions rise further when certain companies or industries receiving preferential treatment at the expense of industries with less political influence or the collective society.
The onus is on the government to ensure fair allocation of stimulus and support so that both individuals and companies exit the recession together, as far as that is possible. But if the country is still struggling to recover, unemployment is rising and the average individual is still suffering whilst certain corporations are already, again, enjoying abnormal profits then the division of wealth and the legislation that created that scenario is flawed. Also, corporate earnings can only grow quicker than GDP growth if the finite wealth of society is being re-allocated from the individual to corporations.
The past 25 years has seen the economic balance of power shift too far from the fair equilibrium. The few are benefiting at the expense of the many. Goldman Sachs is a beneficiary. Wall Street as a whole is another beneficiary. Main St has suffered. But the individual, the workers, the micro-engines of the economy have suffered most. Unfortunately, one dollar one vote is more popular than ever in Washington.
GS to 29th July 2009
Ticker TIE
Position Open
Signal Long
Date 28th July 2009
Entry Price 8.29
Target Price 8.50
TIE as at 28th July 2009
The essence of Pawlewski’s system is that it is able to distinguish between appreciating stocks that are experiencing a short term pull back but will imminently rally and stocks that are falling and will continue to do so with near uninterrupted momentum. Using statistical analysis Pawlewski’s system can identify long trade candidates, which he would typically hold for an average of 10 days. Similarly, by using ‘reverse’ statistical analysis the system proposes short positions. The exact details of the process are confidential, but it is clear that Pawlewski can identify the ‘genetic’ code within a stock’s chart which under analysis by the Pawlewski system provides information regarding the future direction and pace of a stock’s movement.
Ticker AKS
Position Open
Signal Long
Date 28th July 2009
Entry Price 18.90
Target Price 19.86
AKS to 28th July 2009
The essence of Pawlewski’s system is that it is able to distinguish between appreciating stocks that are experiencing a short term pull back but will imminently rally and stocks that are falling and will continue to do so with near uninterrupted momentum. Using statistical analysis Pawlewski’s system can identify long trade candidates, which he would typically hold for an average of 10 days. Similarly, by using ‘reverse’ statistical analysis the system proposes short positions. The exact details of the process are confidential, but it is clear that Pawlewski can identify the ‘genetic’ code within a stock’s chart which under analysis by the Pawlewski system provides information regarding the future direction and pace of a stock’s movement.
Ticker AKS
Position Closed Long
Date 31st July 2009
Entry Price 18.90
Target Price 19.86
Closed Price 19.80
Ticker HNT
Position Open
Signal Short
Date 27th July 2009
Entry Price 13.49
Target Price 12.53
HNT to 27th July 2009
The essence of Pawlewski’s system is that it is able to distinguish between appreciating stocks that are experiencing a short term pull back but will imminently rally and stocks that are falling and will continue to do so with near uninterrupted momentum. Using statistical analysis Pawlewski’s system can identify long trade candidates, which he would typically hold for an average of 10 days. Similarly, by using ‘reverse’ statistical analysis the system proposes short positions. The exact details of the process are confidential, but it is clear that Pawlewski can identify the ‘genetic’ code within a stock’s chart which under analysis by the Pawlewski system provides information regarding the future direction and pace of a stock’s movement.
The following is an excerpt from Jeffrey Kennedy’s Trader’s Classroom Collection. Now through August 10, Elliott Wave International is offering a special 45-page Best Of Trader’s Classroom eBook, free.
Aspiring traders typically go through three phases in this order:
Methodology. The first phase is that all-too-familiar quest for the Holy Grail – a trading system that never fails. After spending thousands of dollars on books, seminars and trading systems, the aspiring trader eventually realizes that no such system exists.
Money Management. So, after getting frustrated with wasting time and money, the up-and-coming trader begins to understand the need for money management, risking only a small percentage of a portfolio on a given trade versus too large a bet.
Psychology. The third phase is realizing how important psychology is – not only personal psychology but also the psychology of crowds.
But it would be better to go through these phases in the opposite direction. I actually read of this idea in a magazine a few months ago but, for the life of me, can’t find the article. Even so, with a measly 15 years of experience under my belt and an expensive Ph.D. from S.H.K. University (i.e., School of Hard Knocks), I wholeheartedly agree. Aspiring traders should begin their journey at phase three and work backward.
I believe the first step in becoming a consistently successful trader is to understand how psychology plays out in your own make-up and in the way the crowd reacts to changes in the markets. The reason for this is that a trader must realize that once he or she makes a trade, logic no longer applies. This is because the emotions of fear and greed take precedence – fear of losing money and greed for more money.
Once the aspiring trader understands this psychology, it’s easier to understand why it’s important to have a defined investment methodology and, more importantly, the discipline to follow it. New traders must realize that once they join a crowd, they lose their individuality. Worse yet, crowd psychology impairs their judgment, because crowds are wrong more often than not, typically selling at market bottoms and buying at market tops.
Moving onto phase two, after the aspiring trader understands a bit of psychology, he or she can focus on money management. Money management is an important subject and deserves much more than just a few sentences. Even so, there are two issues that I believe are critical to grasp: (1) risk in terms of individual trades and (2) risk as a percentage of account size.
When sizing up a trading opportunity, the rule-of-thumb I go by is 3:1. That is, if my risk on a given trading opportunity is $500, then the profit objective for that trade should equal $1,500, or more. With regard to risk as a percentage of account size, I’m more than comfortable utilizing the same guidelines that many professional money managers use – 1%-3% of the account per position. If your trading account is $100,000, then you should risk no more than $3,000 on a single position. Following this guideline not only helps to contain losses if one’s trade decision is incorrect, but it also insures longevity. It’s one thing to have a winning quarter; the real trick is to have a winning quarter next year and the year after.
When aspiring traders grasp the importance of psychology and money management, they should then move to phase three – determining their methodology, a defined and unwavering way of examining price action. I principally use the Wave Principle as my methodology. However, wave analysis certainly isn’t the only way to view price action. One can choose candlestick charts, Dow Theory, cycles, etc. My best advice in this realm is that whatever you choose to use, it should be simple. In fact, it should be simple enough to put on the back of a business card, because, like an appliance, the fewer parts it has, the less likely it is to break down.
For more trading lessons from Jeffrey Kennedy, visit Elliott Wave International to download the Best of Trader’s Classroom eBook. It’s free until August 10.
Jeffrey Kennedy is the Chief Commodity Analyst at Elliott Wave International (EWI). With more than 15 years of experience as a technical analyst, he writes and edits Futures Junctures, EWI’s premier commodity forecasting service.
It’s a rare rally that sees an index make gains in 12 consecutive sessions but that’s what the US technology sector achieved at close of business on Thursday. In fact the index was just minutes away from closing up in the 13th session, as the first chart below highlights though a burst of selling just before close quickly eroded the day’s marginal gains and the NASDAQ 100 Index Tracker (QQQQ) ended 0.76% down (2nd Chart).
Despite the late fall on Friday the index has now significantly out-performed the S&P 500 diversified index in recent weeks. Entering the new week the index offers investors a poor risk-adjusted return scenario in the short term with the sector’s 14-day RSI (Relative Strength Index) a lofty 72.68. An RSI over 70 indicates prices are overbought in the short term irrelevant of fundamentals or valuations. We may see the technology index make further impressive gains between now and the end of the year but those gains are unlikely to receive much of a contribution from the next couple of sessions, such is the rarity of two weeks of near unbroken bullish behaviour. For nimble shorters the prospects are better. A well placed trade, with stop losses of course, could give shorters a quick profit but those positions should be closely monitored as this rally offers investors a bit more meat on the bone in terms of economic fundamentals than March’s gamble.
QQQQ Minutes Before Close on Friday
QQQQ Minutes Before Close on 24th July 2009
QQQQ At Close Friday
QQQQ At Close 24th July 2009
It’s a rare rally that sees a sector make gains in 10 consecutive sessions but that’s what the US technology sector has achieved. The chart below clearly highlights the jump in prices from 17.35 to 19.77 in the (XLK) Technology Select Sector SPDR. The sector has now significantly out-performed the S&P 500 (SPY) diversified index in recent weeks.
As at close of business following the 10th positive session the sector offers late entrants, foolish enough to chase the rally, a poor risk-adjusted return scenario in the short term with the sector offering buyers an unattractive 14 day RSI (Relative Strength Index) reading of 76.32. An RSI over 70 indicates prices are overbought in the short term irrelevant of fundamentals or valuations.
We may see the sector make further impressive gains between now and the end of the year but those gains are unlikely to receive a contribution from the next couple of sessions, such is the rarity of 11th and 12th consecutive winning sessions. For nimble shorters the prospects are better. A well placed trade, with stop losses of course, could give shorters a quick profit but those positions should be closely monitored as this rally offers investors a bit more meat on the bone in terms of economic fundamentals than March’s gamble.
XLK Daily to 23rd July 2009
tradinghelpdesk 11:46 pm on July 31, 2009 Permalink |
Ticker TIE
Position Closed Long
Date 31st July 2009
Entry Price 8.29
Target Price 8.50
Closed Price 8.40