Schadenfreude

As I write this, MVIS is up 8%. My buys in the middle 4s will likely be the icing on the cake of my riches.

Now of course, me being the realist that I am, I have to admit to myself that MVIS could open Monday at a buck a share. It is certainly possible. I just have to say that to quell the MVIS haters, and to be honest with myself.

I also have to say that there are a few things that are bothering me that I just want to rant about.

1. I can not stand bloggers that analyze a bunch of data, be it macroeconomic or fundamental data regarding a company, and then never produce a profitable play. What is the point? Are you here to regurgitate your own opinions or are you here to make money?

2. Herb Greenberg can write about a company, even if he doesn't have a position, and still get paid for what he writes. I can not figure out why a blogger who does not get paid for what he is writing would write incessantly about stocks that he has no position in. Something about that smells.

3. I get angry at bloggers who will laud their good calls while sweeping their bad calls under the rug. It makes it worse when they get defensive when challenged on their bad calls.

4. I can not stand bloggers who blame market makers for everything that happens to a stock. Similarly, I can not stand bloggers who have conspiracy theories about the government manipulating data to prop up the stock market.

5. I can not stand bloggers who claim a block of shares was sold short. There is no platform, data feed, etc. that lists real-time short sales. Any blogger who says he knows for sure it was a short sale is lying, unless he placed the trade himself.

Thanks for letting me rant.

Gigamedia and Microvision

Today was a great day, all the way around. I took the day off to run some errands, and to hopefully sweep up some cheap MVIS.

Not only did I get some more MVIS, but I picked up some GIGM on sale, added 250 shares of SWHC @ $16.99, and then watched as the markets put the shorts on notice that the Fat Lady called in sick.

First, let's look at GIGM. I have been trading in and out of this stock for many months. GIGM has quarterly earnings growth of 167%, year over year. Its forward 2008 PE is 15.45. Short interest is currently 12% of the float. This gem is on sale at these prices.

As evident from the chart, today's blow-off-bottom presented a perfect buying opportunity, so I started my initial position, 500 @ $13.10. All signals are go at this level. However, it is trading under the 50 day average, so I would expect some resistance as it approaches the average. Even selling at the 50 day will give over 1 point of profit. A stop underneath today's low is typically how I play this type of set-up.

Now for MVIS. I made two purchases today, one block at $4.52 and one at $4.74. These shares are not included in my account I keep with Stockalicious as they were purchased in an accounts I keep for my parents. Certainly, this could be a dead cat bounce. There are likely more warrant holders who want to liquidate at higher prices. Because of the pressure from the warrants and the shorts, it would not be unlikely for MVIS to retest the $4.40s. I have seen it happen many times. However, I would not have purchased shares in the .70s if I thought the probability of more downside was likely.

I am absolutely dying to read the spin the MVIS haters/shorts put forth from here on. Let's recap what has transpired.

• The dilution has been priced in. No more anonymous hedge fund writers predicting a swift down move when the warrants are converted.
• MVIS has no debt.
• MVIS has enough cash to fund operations for over a year.
• Short interest keeps building, and is now around 10%, and is likely to have increased tremendously over the last few days.

So again, I'm sure the shorts will get creative, but the reality is that either MVIS comes through with a major contract, or they do not. I predict that with Tokman's track record, and the company firing on all cylinders, that the shorts are likely to begin covering, in anticipation of the contract. I feel that a contract announcement is more probable than a competitor getting to market first, or MVIS dropping the ball entirely.

Finally, the FOMC could wreak havoc on the markets tomorrow. I will likely not trade anything, except for maybe adding more GIGM. I will have stops in place for both GIGM and SWHC. I do not feel certain that longs are safe, but today's action was extremely bullish.

The Pink Elephant in the Room: MVIS

If you think MVIS is going to blow up, and you are wondering what the heck I'm doing with 6K shares (over 25% of my capital) invested in it, then read this post here.

Frankly, I'm rather surprised at the Schadenfreude exhibited in the blogosphere since MVIS has been selling-off.

If you are new to trading or holding a stock that has tripled in 9 months and then gets diluted by 25%, file this recent experience under "Sell When This Happens." When stocks get diluted, they almost always get punished. It's an easy short and a very high probability one at that. I was hoping it wouldn't be as brutal with MVIS, with expectation of the contract announcement mitigating any impact. That being said, several months ago I made the decision to hold my shares until a contract announcement is made. While it hurts to watch MVIS take the hit, what is happening is certainly not out of the ordinary, and does not change my conviction to hold until the announcement.

A 9 month chart can also provide some perspective.

After moving from $1.35 in October of 2006 to $5.90 in June, and then getting diluted, a correction to the first Fibonacci level (a 38.2% fall from the high) looks probable. I would not be surprised by a quick Wednesday morning move taking MVIS down to the low 4s, but I fully expect a bounce by the end of the day as all indications point to it being oversold at those levels. I believe we will see some basing action taking place in the $4.40s to $4.70s.

However, another possible outcome is a 50% retracement of the Oct-June move, taking the price to the $3.60s, leaving the stock at long term support levels. I do not think this is as likely as the scenario above.

Keep in mind that the correction from the January highs to the February lows was ~30%. It hurts, but it is not the end of the world.

When Time Machines Break: A Mid-Year Look At The Pros' Fearless Forecasts

On December 27th, 2006, BusinessWeek Online published Fearless Forecasts from the Pros.

The pundits, strategists, and prognosticators fearlessly predicted the mid and year-end numbers for the Dow, the S&P, the Nasdaq, and the Russell 2000.

As June comes to an end, it is time to examine just how accurate the pros have been in their mid-year forecasting. Due to constraints of both time and space, this first installment will examine only the forecasting for the Dow Jones Industrial Average.

Out of the 80 pros polled, only 74 made a prediction for the mid-year Dow. William Greiner from UMB Asset Management was the most bullish, predicting 13,750. Greiner's forecasting was accurate enough in 2005 to be awarded the BusinessWeek Stock Market Strategist of the Year.

The most bearish pro was Vinny Catalano from Blue Marble Research. Catalano's prediction of 10,600 was more than 3 standard deviations from the mean analyst prediction of 12,604. Joining Catalano with a greater than 3 standard deviation forecast was Barry Ritholz of Ritholz Research and Analytics, author of a very successful finance blog The Big Picture. Ritholz's prediction of 10,750 puts both him and Catalano in the group that can only be described as way out there.

Monday's Dow close of 13,352 puts Charlie Crane of Scotsman Capital Management in the running to peg Friday's mid-year number. Crane's 13,350 prognostication is flanked on both sides by pros who may find their predictions very near the actual mid-year number, barring any extreme volatility between Tuesday and Friday, June 29th.

Charting the Pundits' Prognostications

• The red square and bar denote predictions that fall within a tight range of the close of 13,352 on Monday, June 25th.
• 9 of the 74 pros are within 2% of Monday's close.
• 6 of the 74 pros' predictions were farther than 2000 points (>15%) from Monday's close.
• The standard deviation is 603.92
• The distribution is negatively skewed -1.42

Stay tuned for more analysis of the Pro's Fearless Forecasts.

Machined Gunned!

Well MVIS got hammered today, but I stayed long, as I'm still a believer.

Other than that, when the markets get confused, so do I, and my trading today showed it.

I've been watching NTRI for a break out its current range. It looked to be breaking out of it today, so I bought 100 @ 67.47, with a stop under $66.00. Then, when the markets started dropping, I sold out of it at 66.31.

Also, HANS has been trading very weird lately. Again, when the markets get confusing, so does my trading, so I sold my 300 HANS @ $43.34.

I also sold my BKI, 600 @ $15.18

Then, I picked up 200 QID @ $47.37

I have a lot more to write about (like my QID purchase) but not enough time. Hopefully tonight I be able to explain my thinking more clearly.

Short Squeeze Part Two- SMSI

Lady luck has truly shown down on me lately, as I've trashed the shorts 2 days in a row, experiencing ~20% gains during each move. Just a few minutes ago I sold half my position in SMSI- 500 @ $14.84. Due to this success, the account will likely close at a new YTD high.

In other news, I again sold ALTR, 500 @ $22.76

I am beginning to not trust this market, hence I'm still sitting on nearly ~40% cash.

Finally, can anyone tell me why HANS gapped down this morning and continues to sell-off throughout the day? Was gaining compliance a "sell the news" event? If so, where's my memo?

***Update*** Sold off the 500 shares of SMSI @ 14.6325. I'm going home. I plan on getting a post or two up this weekend.

Short Squeeze

It was certainly hard to stay focused at work today, with the above going nuts.

Good Morning World

Should be an interesting day, with Microvision calling in their warrants.

Yesterday, I sold out of my VRGY position, taking a small loss when I sold 200 shares @ $29.13

More updates later- I'm going to watch the open.

***Update*** Sold 600 BKI @ $15.41 for a small gain. This looks like it might retrace a bit before moving up again. The chart still looks great.

***Update*** Sometimes I do stupid things. Right now I'm just sitting back chuckling at myself. Here's why. I chased BKI! And then, I waited til the absolute top to buy (kept moving my limit order up). My purchase 0f 600 shares at 15.65 effectively top-ticked the stock. It was so stupid that I'm not even mad at myself.

***Update*** Sold 100 shares of LNN @ $42.95 for a one day gain of about 13%. I still have 200 shares left.

Just sold another 100 shares at $44.03. I had a limit order in at $44.95- my luck was it top ticked at $44.94.

Now just sold final 100 shares at $44.95. I did 27.5% on this lot. This sell may have been a tad premature, but I feel confident that when the shorts are done covering, it will retrace pretty quickly.

***Update*** Doubled my position in SMSI, buying 500 @ $12.49

SMSI Seems Like a No Brainer Here

Check PRs and news articles on yahoo. This is extremely oversold.

I picked up 500 @ $12.37

Also picked up another 100 HANS @ $42.97 I'm going against my instincts here, which are to dump this like an ugly Betty. However, every time I do that, the stock surges upward. This time, maybe it will be different?

***Update*** Added 100 LNN @ 37.60

Too Much Cash and Too Much Momo

So I keep waiting for a pullback to spend some of this cash, which is running now at about 30K. Everything just keeps going up. Now, to be sure, I'm not complaining. I just wish I would have spent some more of it. Its thoughts like, "If I would have just bought twice as much of this or that" which can really be annoying.

All in all I'm holding 5 winners and 2 laggards. The laggards are VRGY and ALTR. When I think about it, 2 out of 5 is not so bad. VRGY and ALTR were bought as breakout plays, but didn't breakout, so they will be dumped before too long. My other breakout play, BKI, looks like a dream.

Other than that I do not have much to say. We are in a heck of a bull market, and it looks like it will power over just about anyone or anything that gets in its way. I'm not one for making predictions over a long time horizon, but I think that if good earnings reports start to pour in, this run has the potential to continue.

I feel strangely un-profound at this moment, and the result is that I have nothing really good to write about, so I'll let you move on to another blog.

***Update***
I did sell out of ALTR at the close. 500 @ $22.36 The stock is near 50 day support as well as the lower Bollinger Band. I hate to sell it near support, but I do not like how it traded today in the wake of MCHP trimming its outlook. I only have a small loss in ALTR, and I like to keep them that way.

The Failure of the "Experts."

If the market is always right, then why are many "experts" saying that it is wrong?

One does not have to read very many blogs and newspapers or listen to very many television pundits to know that many of the so-called experts have been calling for a bear market. To my memory, it seems to me (admittedly anecdotally) that many of these writers and pundits have been calling for this bear market phase since the end of 2006, some for even longer. Despite their dire predictions of a recession, a sub-prime blowup, a housing market meltdown, and high inflation, the market has chugged right along. To read a bit of humor which gets at how frantic some of these experts have become, Bill Rempel wrote the following on his blog:

The Next Phase of Bearish Punditry

"Expect to see this soon, at a bear blog near you:

The government is lying to us, and we are actually in a deflationary recession now. They managed to hide this from us through a clever fakery of job numbers and GDP calculations, depressed gold prices through central bank selling, and hedonic adjustments to the CPI. The entire reason the yield curve de-inverted is because the government is manipulating the rates through sales of long bonds. There will come a point in time when the banks run out of gold and bonds to sell, and the damage to the economy will be too obvious to hide. Then, oh, then, the truth will come out! As soon as those stupid, moronic bulls realize this, the stock market will collapse. Just you wait."

Why the market is smarter than the experts.

If one accepts that the experts are wrong, and the market is right, then it becomes important to understand WHY the market is smarter than the experts. In James Surowiecki's The Wisdom of Crowds, the author elaborates on the conditions that often exist within crowds which allow them to make more accurate predictions and provide better solutions than the so-called experts. Some the examples given in the book are of the jelly bean count (widely replicated--the median guess is usually very close to the actual number of jelly beans) and the estimation of the weight of an ox by a crowd of spectators.

The author asserts that in order for the crowd (and by extension, the markets) to be smarter than experts, the following criteria must be met:

Diversity of opinion: Each person should have private information even if it's just an eccentric interpretation of the known facts.

Independence: People's opinions aren't determined by the opinions of those around them.

Decentralization: People are able to specialize and draw on local knowledge.

Aggregation: Some mechanism exists for turning private judgments into a collective decision

Traders need to ascertain if the criteria are currently being fulfilled in the market. If they are not, there may be a failure of crowd intelligence, and the market may be going through a bubble period, or may be experiencing a period of irrational pessimism. For example, during the 1999-2000 bull run in the Nasdaq, the average barber and bartender became stock market “experts.” All independence was lost as nearly everyone jumped aboard the technology train, heading to instant riches. As independence was lost, so went diversity of opinion, until POP! the bubble burst.

The market in June of 2007 seems to meet all the conditions necessary to be smarter than the “experts.” The current high levels of short interest function as a proxy for Diversity of Opinion. Independence seems to be present as there does not seem to be a glut of average Joes entering the market (Think about the Shanghai market as an extreme lack of Independence) The explosion of Web 2.0 and proliferation of bloggers point to Decentralization of knowledge, and Aggregation (which the markets do all the time) is evident with the availability of a range of brokerage options, from full service to discount. Almost anyone can now participate in the markets.

Why are the experts not as smart as the market?

This issue needs a blog post of its own, but I will lay out some simple ideas about why the experts fail.

Experts typically suffer from a lack of cognitive diversity. Simply put, they operate within a narrow framework of thought. One person simply cannot aggregate all varieties of data, opinion, research, and experience as efficiently and effectively as the market does.

Experts also suffer from a lack of humility. This overconfidence in themselves creates a plethora of biases which diminish their capacity to receive and aggregate information which is counter to their beliefs.

Finally, information cascade can result as the experts seek the opinion of other experts (usually they seek out experts who have the same beliefs as they do.) Typically, if they are presented with information that is congruent with their own beliefs, it confirms what they thought (their beliefs are correct), and if the information from other experts is not congruent with their beliefs, it is dismissed as being incorrect.

If they are often wrong, why are they still considered "experts?"

I believe that what we are currently witnessing in regards to many experts calling for a bear market and literally being wrong month after month is simply an example of survivorship. We do not see all the writers, pundits, and analysts who were consistently wrong, as they are now out of work, or have moved to a new career, or have changed their opinions. What we are left with are those who have not yet been fired, or humiliated enough.

Finally, what the wisdom of crowds shows is that even though many of the experts are consistently wrong, as traders, we still need to consider their points of view. We must aggregate all available data, consider other points of view, remain humble, and above all, never consider ourselves to be experts.

Buying Some Breakouts

I've established feeler positions in the following:

BKI 300 @ $15.27
VRGY 200 @ $29.99
HANS 200 @ avg. of $43.30

MVIS and Black Swans

Well first off I took out $2500.00 from the account to pay for a nice vacation at the beach, coming up in July. I believe that Stockalicious will keep my YTD gains the same, even though I withdrew cash. Just in case you cared, or were paying attention.

Of course the other reason the account took a hit today was because of the MVIS retracement. Fully 25% of my portfolio is in MVIS. There has been plenty to say across the blogosphere about MVIS, and many have differing opinions on what the future holds for the company. Obviously, I believe the company will make-good on their promises. However, when one holds 25% of portfolio value in one position, there are some risks, not to mention the volatility when the position retraces (like today). One must understand the risks and be able to stomach the volatility. When considering risk, Black Swan type events must be considered. A Black Swan is an event that cannot be planned for and is one that typically is completely unexpected. Some might call it a worst-case scenario. However, Black Swan events can also be positive. How does this apply to MVIS? First of all, lets consider a worst-case scenario type event. Now by the nature of a Black Swan, it is difficult to predict what the event might be. Lets say for Microvision that the Black Swan is that a competitor (previously unknown to the market) is able to produce a better PicoP type projector, and is able to get it to market and land the big contract with Nokia, Motorola, etc. For this illustration, lets say that it drives MVIS stock down to $1.00 a share. Where the stock would actually trade during this type of event is hard to say, but I believe the company has enough products in the pipeline that it would still receive some value by the market. For my portfolio, in this type of event, I would lose $4.30/share, which would cost me $25,800. This would put my portfolio value at $87,106, and at a loss of 16K for the year, and roughly 15% down. Knowing this may allow you to consider my weighting of MVIS differently. I could easily weather a worst-case scenario Black Swan, and still live to trade the very next day.

Many writers will only mention the worst-case scenario Black Swan and do not like to mention that Black Swans can also be positive. Best-case Black Swans can often be a new, disruptive technology. It may be a development which suddenly frees the world from reliance on fossil fuels, or it may be the development of a full-color laser projector which turns the average cell phone into a full-fledged media player. In this example, I am of course considering that MVIS's technology could be disruptive, and could present to the cell phone, video game, automobile, and aerospace industries a Black Swan.

Now lets consider that the positive Black Swan occurs. MVIS finds itself in contracts with Sony, Nokia, NASA, the U.S. Military, and GM. (Before you chuckle, MVIS has signed agreements with 2 of the 5 aforementioned industries). To stay conservative, lets say the stock goes to $10.00/share. Again, I'm being conservative. I now make $4.70/share, or $28,200.00. My account swells to roughly $141,000.00, giving me a percentage gain of almost 40%.

You do the math. 15% loss vs. 40% gain. That is almost a 3 to 1 reward to risk.

I normally avoid being rude or crass on my own blog, but I'll tell you, you've got to have balls for this folks, and a desire, above all else, to be rich. Many can lay around wondering what if. Many can live their lives in fear of what might happen. Me- I live my life in fear of two things: that I will never be filthy rich, and that I miss out on a great exciting life because I allow fear to control me.

If I have time tonight, I'll update the blog as to what trading I did. SWHC reported numbers AHs, and they look great. The stock is trading up nicely. Unfortunately my shares will get called from me tomorrow.

New Highs Soon for the Nasdaq?

I've spent the last few evenings with my wife and kids, conciously trying to stay off the computer and this blog. I figured that with the markets in transition mode, it would be a good time to regroup and wait for some more data to emerge to guide future direction. Well, the markets seemed to think that we got that data today in the form of the Fed's Beige Book.

Looking at a chart of the Nasdaq, it seems that this last dip was just what it needed to build up some strength for the next leg up. The MACD is below the negative line, and the Stochastics just crossed over, giving a buy signal. Both have plenty of room to run. Last Friday's bounce made a perfect touchdown on the 50 day average. Furthermore, it seems likely that a lot of bear bets were made over the last week or so, and if the market continues to move up, they will have to be unwound.

Yesterday afternoon I sold off TRW as it traded beneath its 50 day line. Of course today it rebounded, but oh well, as it is important to close out a trade if it fails the criteria for which it was entered. It is also just as important to know when to re-enter a trade. At the close today, I picked up another 500 of SWHC @ $14.78. I am anticipating my other 500 shares getting called from me tomorrow or Friday, and I don't want to have to re-buy them above $15.00

Tonight I will be running some screens and looking for new candidates. I will go into Thursday with over half cash.

***Update*** The following are some symbols that looked promising. These were returned from the BobV32x filter and the Close at HOD plus 10% increase in volume. You might find them interesting. I like posting them here because it saves me having to write them down and take them to work.

(Bobs) SUG, ALTR, ICON (HOD+10%Vol) NOVL, HAS, CPWR, TEK, AMIS, SCS, NSH,

And from the 52 weeks highs list, I like VRGY, PRX. What I want to do with all of these is compare the ATRs per Marlyn's suggestion to help me weed out the ones less likely to move.

Bull Traps

Looks like Friday may have caught a few bulls. I know I got caught, although I do still have a large cash position. Plainly, I was a little premature buying back some of my positions.

Anyway, this morning I decided that I'm not ready to go short, so I'm going to continue to sell-off stocks and build cash. To that end, I once again sold PFWD, 500 @ $15.98, taking a very small loss.

Also, as much as I don't trust the market right now, I still really like ALVR, so I doubled up my position on this morning's dip, buying 500 @ $9.15 Other than this purchase of ALVR, I will likely not be making anymore purchases.

Monday Wrap-Up

Well, it was inevitable-- the account closed down a little today, mainly due to MVIS shaving off a little more than a nickel.

My other stocks traded as if it were summertime. Oh wait, it is. ZZZZzzzzzzzzzzzzzzzzzzzzz

The Nasdaq action suggests consolidation on what looks like very light volume. The latest volume information I have shows approximately ~1.6 billion shares traded.

At this point I think it is wise to trade lightly and to keep some powder dry.

Good Monday Morning

Bought 200 TRW @ $38.56

I have been wanting to experiment with options. There is only so much one can do on paper, so I decided to sell some covered calls today. I sold 5 June 15s @ .20 of SWHC. This netted a profit of $86.00 I'm not really concerned if the shares get called or not. In terms of learning how everything works, I'm kind of hoping they do get called so I can find out how my platform handles it and how I am notified. If they do get called, I will have netted about $160.00 from the trade.

More later...

Beautiful Bounce from 50-Day Average

While screening with Stockfetcher, I came across this chart for TRW. It had a nice bounce from its 50-day average, and closed at the high-of-day. The pullback to the 50-day is often reported to be a favorite buy-signal for institutions. This will be interesting to watch to see if it can continue its uptrend after such a long run. One strange statistic about TRW is that the short interest in May was only 600K. I may throw some change at this one as I like trades that have a clear place where the trade fails. For this trade, the lower Bollinger Band (not shown), the 50-day average, and the whole number 38 must hold in order for the trade to not fail.

The filter that found TRW is screening for stocks that closed at the HOD on a 10% volume increase over the previous day. There are a few other stocks this screen returned that look interesting to me. Q, IRIS, TUP, CAR

When Is $1,000,000 Worth More Than $1,000,000?

This article will be the first in a continuing series about randomness and luck in the financial markets.

I pose the question, "When Is $1,000,000 Worth More Than $1,000,000?" as I believe it is a good jumping-off point for this discussion.

Let's first consider two people, both who have recently reached retirement age with $1,000,000.00 in the bank. We have a small business owner who managed to save and participate in a retirement plan over the last 20 years of his career, and we have a man who was rear ended by a drunk-driving UPS truck operator. The jury awarded him the prize just as he was hitting retirement age. Both men are in possession of $1,000,000; however, is the money worth more in the hands of the small business owner or the victim of a DUI?

We often hear stories of the men and women who win multi-million dollar lotteries, and are then broke and in great debt within a few years of winning the prize. What is our reaction to those stories? Do we sometimes feel that they deserved to lose the money because they never really deserved to have it in the first place?

Let's examine how this might apply to traders and investors.

Again, lets compare two traders. One averages $1,000,000 per year by using complicated options strategies. These strategies could be described as low-risk; yet, like many low-risk strategies, the rewards will not be absolute and are limited by the strategy. Our second trader can best be described as a gunslinger. He is no stranger to 7 figure returns. He typically seeks out bio-tech companies with drugs in the approval process and puts down a significant portion of his capital as the testing nears completion, betting on a new homerun drug.

Both traders finish the year with $1,000,000; however, is the amount worth more than $1,000,000?

If the option trader were to lose everything (not very likely, as he has quantitatively identifed almost every scenario that could affect his strategies) would we feel any sympathy for him? How about the gunslinger? Would we feel any sympathy for him if he lost his $1,000,000 due to making a bad bet on a company like Dendreon?

Do we unconciously assign more worth to the 7 figures in the hands of the option trader?

Let's go back to our two individuals, the retired small business owner and the DUI victim. The small business owner has proven that he can manage his money. He is likely to leave the money he has saved in an interest bearing account of some sort. The DUI victim has no track record of saving or investing. Before his accident, he believed he may have to work until he was 70. What are the chances that he will be a good steward of his prize awarded by the jury? Which sum is worth more?

Luck and Randomness

It should be clear that in each hypothetical situation we have an individual who arrived at his 7 figure sum by a strategy which is probably able to be repeated across different times as well as different fields. Whether the small business owner was a doctor, or a lawyer, or even a teacher, his strategy of saving and investing is likely to be replicated by many with similar success. However, our DUI victim and our gunslinger have gained their 7 figures through a series of events which can only be described as luck and randomness.

Do we as traders and investors place a value on the method of earning money? Does the method used to earn the prize assign a value on the prize that is higher than its intrinsic worth?

The questions are important to consider. If we often win money in the markets through luck and randomness, are we then more likely to place a lower value on this prize? Does assigning a lower value mean that we are more likely to use high-risk strategies when the capital is deployed? Can we also describe one trader as being "better" than another, even if they earn simliar returns?

As I continue my articles on luck and randomness, we will consider the above questions and begin to explore alternate histories.

Although I've been considering these issues for some time, my thinking has become more solidified on these issues as I read Fooled By Randomness, by Nassim Nicholas Taleb. I will be borrowing some of his ideas and thinking in order to examine luck and randomness. You can find the book under "My Favorite Trading Books" link.

Good Afternoon World

What a pleasure to get back to computer access and find the account sitting at YTD highs. The only bad news I have is getting stopped out of HANS, .10 cents from the low.

My BobV32x system pick, MDCO, needs to get closed out today. Looks like I'll take a small loss on that.

Other than that, I doubt I'll trade anything else today. I had plans to add to ALVR, but it moved without me. I'll have to wait for another pullback. This weekend will be a good time to review this week's market action, looks at some charts, run some screens, etc., to determine whether we are looking at just a pullback, or more of a correction.

***Update*** This market is incredible! However, I'm not convinced the bulls are out of danger yet. As I was in almost 60% cash, I am re-establishing small positions in stocks I sold off yesterday.
500 SWHC @ $14.84
500 GIGM @ $14.93

Can't The Bears Use An Oversold Indicator?

I mean for Christ's sake, the friggin' futures are down again this morning. It must be the late-to-the-party crowd jumping on the short side a couple of days too late.

And just in case you weren't paying attention, I said about a week ago, that when this guy starts taking directional trades, that it would represent a market top. Was I right, or what?

I've got a meeting starting at 8:00 a.m., and it is out of the office. So I will not have access to the markets until around lunchtime. I've set stops on all of my positions except for MVIS. That will just have to do for now.

I noticed on my local news station that they had one of the CNBC pretties talking about the market tanking. When that stuff starts happening, its time for a bounce. I fully expect for a flat to green day today.

To Mother Market: I Smote Thee In Thy Nether Eye

Yes, if you read Chaucer, you know what I did to Mother Market today. If you have to ask, then you should have paid more attention in English class.

For you math majors, the account finished green today.

Basically, I sold off almost everything today, harvesting some nice profits. The only relatively dumb move I made, in my opinion, was buying back 500 shares of PFWD @ $16.13. At the time I was distracted by two salesmen who were, surprise surprise, trying to sell the company schwag. Instead of punching both of them, I made the mistake of hitting the buy button.

Anyway, I have more that I want to write about concerning today's action, but I am scheduled for 5:00 o'clock cocktails, and after a day like today, I don't want to be late getting into that action. More later.

Good Morning World

I sold 300 SWN @ $46.91. This made a profit of about 400.00, or about 3%. There looks to be some support around $46.00, and I'd consider buying it back around that level.

The Nasdaq is bouncing around just above the 20 day moving average. I will begin to get a tad concerned on a close beneath ~2570.

More updates later.

***Update*** Sold 1000 GIGM @ $14.85 for a small loss.

***Update*** Sold 1000 SWHC @ $14.90 for a big, fat, man-sized gain of 14% or ~$1800.00 This trade is one of my best of the year in terms of execution.

***Update*** Sold 500 PFWD @ $15.98
The market is speaking. Are you listening?

Wednesday Evening Wrap Up

The account closed green today, and I feel really good about that.

SWHC finally made its move, and it made me feel like "the man" to have a stock run after I was already fully positioned. Couple that SWHC move with a profitable daytrade in the Qs, and the day turned out to be a success.

MVIS held strong today and formed a bullish hammer, while SWN attempted to crash my party. SWN may need to be sold tomorrow. I'd like to note that the Bollinger Bands around HANS are closing in extremely tightly. I am of the opinion that the volatility squeeze will have to happen soon. I am considering adding to my HANS position as my belief remains the volatility will be to the upside.

The Nasdaq closed lower on average volume. I still see no reason to not buy this dip.

Knocking Off Early Today

I'm leaving the office in a few minutes and heading home. I've got a sick baby and some painting to finish.

As for today's action, I don't think things are as bad as they seem. Most everything I'm watching is trading way below average volume levels. I have every confidence that the dip buyer is going to step in at some point and stabilize things. The Nasdaq is still a good ~20 points above support at the 20 day average. Therefore, it would be healthy and normal to see the 2570 area.

***Update*** Lets play "catch a falling knife!"
Long 1000 QQQQ @ $47.06- This will be liquidated before the close.

3:23 ***Update*** I caught the knife, selling 1000 QQQQ @ $47.24

What A Lucky Stiff!

Last night I used Stockfetcher to screen for stocks making a new 52 week high, and for stocks that closed at the high-of-day. The screens returned several hundred stocks, and I just scrolled quickly through the charts, and saved the ones I liked. I ended up saving 22 stocks. This morning, while at work, I saved the symbols into my platform, and checked for any pre-market action. The one stock that stood out in the pre-market was ALVR, as it had traded some small lots and looked to gap up. The chart was showing a strong candle orginating from the 20 day average, and was extended just beyond the reaches of the upper Bollinger Band. I typically do not purchase stocks trading above the upper band. When the morning gap down occurred, ALVR held strong, and so I purchased it. I say all this because it turned out to have a killer day, and was one of only a few stocks that actually closed green from the 22 symbols I started with. I'd like to think I have some superior pattern-recognition skills, but I'm sure it was just luck that I picked the big winner. Anyway, I'm posting the chart because it makes me happy to look at it. As for tomorrow, the surge in volume tells me there is more upside left, and probably an a.m. gap-up. I will consider selling into the gap-up, although stocks that surge like this on strong volume typically will continue the run, albeit after some consolidation.

Today the account finished down a tad. I was very happy with how everything performed. Unfortunately, Stockalicious must be having a server malfunction because their site will not load and my kewl Stockalicious widget will not appear on my blog. Therefore, you have to trust me that I had a decent day, without my widget cheat-sheet.

I doubled my position in GIGM, adding 500 shares at $15.18. If you recall, I sold out of this position on Friday. Now I am back in, with a full position. The stock has caught a serious bid the last two days. SWHC also seems on the verge of running again.

The BobV32x system pick MDCO also closed green, on average volume. It closed 7 cents beneath my entry. It has 3 more days to show me the money.

The Nasdaq finally closed firmly within the Bollinger Bands, unfortunately on large volume. I'm continued to be concerned by the divergence between price and volume, but will continue to stay bullish until the technical picture changes. Note that bullish investor sentiment levels are reaching extremes.

Good Tuesday Morning World

I bought 500 ALVR @ $8.90 I found this one last night from a Stockfetcher screen.

More updates later.

Nasdaq Again Closes Outside of Bollinger Bands

I would feel better if volume was better than average. It's not. Today my chart shows volume on the Nasdaq pegged right at the 50 day average.

Today marked an interesting hallmark as I took my first system pick, from the BobV32x filter- MDCO, buying 250 shares @ 20.15. I set my stop at 4%, or $19.34. We'll see how this trade works out. The filter actually generated two picks, but I only took one. I plan on taking on a max of two positions from this system once I get more comfortable trading it.

I also sold CLWR, 400 @ $19.04 as it looked to make a really ugly reversal candle. This gave me a small loss of about $140.00 I also sold out of LNN, as it looks like the momentum has perished. I sold 300 @ $33.74 for an approximate profit of 4% or just over 400 bucks. I have to say that LNN did pause at the 20 day average today, which normally I would find healthy. However, the huge short interest and the recent series of lower highs made me liquidate.

I also re-purchased 500 shares of GIGM @ $14.90 as the stock caught a serious bid most of the afternoon. $15.00 may still be serious resistance. We'll see.

I have about 26K in cash, and I plan to screen for breakouts and bounces over the coming days to put it back to work. I'm working hard to not be too anxious as the Nasdaq can not trade outside the Bollinger Bands too long before retracing a bit. While, as always, a trip back to the mean would be healthy, if the strength continues, the Nasdaq may just ride right up the upper band for a while.

Backtesting Results: BobV32x

First, I must thank Marlyn and Jim for getting me started testing using Stockfetcher, and for designing the Blow-off-bottom (Bob) filter. I'm not sure which one, Marlyn or Jim, designed the particular Bob known as V32x. I believe they both made tweaks. Please take a look at their blogs to find out more. (Marlyn is on hiatus from blogging, but there is loads of good information still on his blog).

Anyway, Stockfetcher does not allow one to backtest more than 2 years data at a time, and they do not allow testing from more than 5 years ago. I decided to pull together all the 2-year tests, testing BobV32x as far back as allowed, up to the present. The results are very interesting.

Here is the filter and the parameters I used within Stockfetcher to get the results.

show stocks where close is between 15 and 35
and average volume(90) > 500000
and close 2 days ago <> volume 2 days ago
and close > open
and low > low 1 day ago
and close 2 days ago <> close 2 days ago and close > close 1 day ago

Maximum Trades Per Day: 2
Maximum Open Positions: 2

Stockfetcher provides very basic statistics for their backtesting. I wanted to take it further and see how the strategy performs in terms of R, and plot a chart of the equity curve. One test that I'm not smart enough to run in Excel is to produce an R multiple distribution. I have the data if anyone wants to run that distribution.

The results show that on average, this system produces bigger losers than winners, but the system also has twice the number of winners than losers. I did include $14.00 roundtrip for commissions in the results. The max drawdown from equity peak to trough was 15.5%. The beauty of this system is that it keeps initail risk at 4%, but the stops are only hit about 11% of the trades. It also produced a string of 15 winners in a row, while the longest stretch of losers was 5 in a row.

Finally, I allowed each position to be only $10,000 (including commissions), even though the theoretical account could have allowed more than that after the equity increased. Increasing position size as equity increased would have probably resulted in greater gains.

You may view all the trades generated by this system in the Excel Spreadsheet, as well as some of my calculations right here.

Note: I have edited this post a couple of times, and it seems that when I do, blogger has deleted some information, specifically from the filter. The post may have been up for a while without all of the data. This post is correct and has all the information intended.

Nasdaq Closes Outside of BB

If one looks at the times when the Nasdaq has closed above the upper Bollinger Band in the past year, he will find that typically, within a day or two, the index reverses to trade back within the bands. Even worse, a doji was formed today, on lower than average volume. What does this mean for us Monday? Who knows. What it means to my trading strategy is that it is time to cut some laggards and build up a little cash.

I sold GIGM today because it looked like it might close beneath the 50 day average. This was a hard call to make, as I really like the company, and the stock. However, I feel it might make a double-bottom around 14 before moving up again. There really is no near-term catalyst to drive it over $15, and the company forecasted a weak 2nd qtr. I noticed it did catch a small bid at the close. I will be a buyer again on strength over $15 or a re-test of the $14 area. I made a couple percent profit on this trade.

I added to HANS today because there is going to be one heck of a volatility squeeze, hopefully sooner than later, and hopefully it will be UP.

CLWR continues to outperfrom, although it could not hold above resistance at $20, so I did not add any. Volume did swell today. The Fly used to have a position in CLWR, and sold it all, and now seems to hate the stock. I think he is punishing it by not buying it back.

Finally, SWHC closed above $14.00, and PFWD has experienced 2 days of high-volume churn, probably as recent buyers of the 15 buck follow-on shares unwind their easy money. PFWD may have to be sold if it can't hold $16.00

All in all it was a killer week, and I was able to finish it off making another couple hundred bucks today. I am hoping to get a post or two up over the weeked, so stop back by if you get the hankering.

Good Morning World

ARWR news was released. Check Fly's site for the update. It feels like a sell the news event to me, so I sold out, 1K @ 7.405. This makes a nice gain of almost 1 grand or 13% in a few days.

Most everything else I own is ripping upwards. More updates later.

***Update*** Bought 100 more HANS @ $40.32
Sold 1000 GIGM @ $14.57