Just because it looks cheap doesn’t mean it can’t go lower.
Just because it looks cheap doesn’t mean it can’t go lower.
With General Electric (NYSE_GE) trading around 22 1/4 today it looks cheap, but can it go even lower? The answer is yes. The last time General Electric traded at current levels was back in October of 2002. Now add in inflation and General Electric is even lower today than it was 6 years ago!
Despite the fact that Warren Buffet invested 3 billion dollars in GE preferred stock giving him a 10% yield, I see no reason to buy GE. The deal Mr. Buffet received was a deal that every investor would love to have in their portfolio. The bottom line is the trend for General Electric which is on the downside and it shows no signs of turning around at this point in time. I would rather buy General Electric at let’s say 30, knowing that it’s going higher than trying to pick a “value bottom.”
Watching CNBC this morning, Mark Haines who has been around for a long time in the financial world made a statement that the buy and hold strategy is no longer a successful strategy in the stock market. I have long held the belief that the world has changed and you can no longer just buy a stock and hold it forever hoping that in long-run it will go higher. We only have to look back at a recent blog commentary on General Motors (NYSE_GM) to see that this is a flawed strategy. Looking at General Electric today proves once again that we are in a trading world and not an investment world.
I understand many of you will disagree with that statement but the truth is the markets have changed, not just domestically here in the US, but globally. Now, the US has to contend in a competitive way with China, India and Russia. The US is in a much more competitive world, where fortunes will be made and fortunes will be lost.
At MarketClub, our mission is to help you make money in this ever-changing market. We are still waiting to see what the outcome will be from the rescue package, bailout package, save America package, any name you want on it package.
No one is going to be able to predict what will happen to the market, except the market itself. We’ve talked about this in the past. The market is the ultimate mechanism for price discovery.
I do not believe that the current global economic slowdown is going to turn around any time soon. I don’t expect to see a “V bottom” in the stock market and that “demand destruction” will force a retracement in many markets that were very much in demand just a few months ago.
So here’s my advice… the one thing we do know about the markets is that they a reflection of human nature. Having said that we would want to pay attention to our “Trade Triangle” technology. Those of you who are MarketClub members, follow the “Trade Triangles” because they will keep your emotion out of the market and show you which way the market is headed. For those of you who are not MarketClub members, you should be looking at some sort of technical analysis to help you avoid stock meltdowns.
It doesn’t matter what markets you trade because there are always opportunities to make money in the trading game. Our mission is to present those opportunities to you in a very easy way to understand.
Every success in what can only be described as an interesting, turbulent and opportunistic time.
Adam Hewison
President, INO.com
Co-creator, MarketClub
The 3T’s of Trading
Today I’d like you to welcome Geoffrey A. Smith, from Day Traders Institute. DTI has been a leading the way in trading education for years and I’m very excited to have Geoffrey, the lead instructor from DTI, join us today. Please take time and read the article below on “The 3T’s of Trading”, then visit the DTI to learn more about them as a company and how they can help you with your trading and investing.
==================================================================
As a trader and instructor, one of the most frequently asked questions I get is “where to take profit”? When I first was asked this, my initial response was “when you are making money”. But after pondering the question for some time, I came to realize that many traders struggle with taking profit hoping that the market would go further in their favor only to get stopped out for a loss. So to help traders with learning to take a profit, we came up with the 3T’s of trading:
Tick
Trade
Trend
Look to trade in thirds, taking 1/3 of your position down at a time. When using the 3T’s, the goal is to first finance the trade and let the last third pay as much as possible. Wouldn’t it be nice to trade with someone else’s money? Well, initially we have to put up the cash to get into the trade and take on the risk of losing money. But if we take enough of the trade off and adjust the protective stop to a point that the trade cannot lose, this eliminates our risk in the trade, relieves the fear of losing, and allows us the legal right to let greed set in.
The first T is the Tick part of the trade. Really it is a scalp, only looking for a small amount. If trading stock, take 1/3 of the position off at $0.30. If trading futures like the Emini S&P, look for 0.50 to 0.75 of a point. This accomplishes two things, it reduces your exposure to the market, and also allows you to pay commission.
The second T is the Trade. Look for twice as much as you got on the Tick part of the trade. Again, if trading stock, look for $0.60 or so. This will elevate 2/3 of the initial position and lock in $0.90. If you adjust your protective stop back $0.50 from current market, then you are on a “free ride”. At this point, you have no more risk in the trade and can concentrate on making money.
Finally is the third T, which is the Trend part of the trade. This is the last 1/3 of the position that we hope will pay the most. Sometimes you will get stopped out on the last 1/3, but other times the market will continue to trend in the direction you are trading and can end up making your whole day.
These price targets are not set in stone but examples of what you might look for. On a stock that is trading at 50, you can’t look for as much profit as one that is trading at 150 because of the price movement. You will need to adjust your profit targets accordingly. I will look at the ATR (average true range) of the stock and set my first target at 10 – 15%, second target at 30 – 40%, and look for the whole ATR on the last third. Some days the stock will get there, other days it will not, but at least the trade was financed on the way.
Give this technique a try and see how you like it. It helps in reducing the fear of losing and allows you to take some profits as the market trends in your direction. It has been my experience that the first target is hit 85% to 90% of the time, with the second target getting filled about 75% to 80% of the time. Not every trade goes in your direction, however, if 1/3 of the trade has been taken out of the market, then the loss has been reduced as well. Remember as traders, we want to make are losses small and our gains big. The 3T’s is one technique to help us get there.
Good Luck!
Geoffrey A. Smith
Chief Instructor – DTI
Bailout or bust… for the USA
Bailout or bust… for the USA.
Congress, can’t live with them and we can’t sue them. How about putting a few of them in jail, is that possible given the mess they have put us in?
Let’s think about what can happen if they pass the bill for the “rescue” package. The first thing that will happen is that they will come up with a softer name that will not scare the general public. After that, confidence and fear will push and pull the markets.
Let’s look at the market in the belief that they pass the bill. What will happen the next trading day? What happens is going to be very important as to which direction the market heads. If the market opens lower after they pass the bill, watch out. It won’t be a pretty day and panic will be sure to set in. If the market opens sharply higher and sells off later in the day, it’s not going to instill confidence in the system.
What I’m looking at is how the market closes this Friday. Does it close higher for the week, or does it close lower for the week? Another key will be what are traders comfortable going home with this weekend. You may want to watch the dollar index and gold and see where they are closing for the week as they typically foreshadow things to come for the economy as a whole.
If Congress and the Senate continues to play politics and do not pass this bill for the markets, we are going to see a pullback and a retest of the lows. Again, I can not stress enough the importance of how the indexes close this weekend. I doubt I am the only one who thinks that these guys are incapable of cleaning up this issue given that they made the mess to start with.
Our “Trade Triangle” technology continues to remain in a negative position and we see nothing in the short term that’s going to change the trend of the US economy and the stock indexes that we are following.
For your information the Dow closed at 11,143.13 last week. NASDAQ closed at 2183.34 and the S&P closed at 1213.01.
Again, I stress that I want to see how these markets close for the week and not only how they close the day after the announcement is made.
Our blog poll for traders has always been very accurate over time. Many traders, in this case 67%, are negative on the stock market for the balance of the year. I would not dismiss this poll as it has been extremely accurate in the past in predicting gold, crude oil, and other markets.
We are living in tumultuous times and these times demand strict discipline in the one’s trading.
Round three begins Thursday morning.
Good luck to everyone,
Adam Hewison
President, INO.com
Co-creator, MarketClub.com
