Dialing It in

like James Stewart. He has written some interesting books, but he is dialing it in here. An excerpt: As the economy shows signs of improvement, I plan to gradually shift out of defensive positions like consumer staples and health care and into more growth-oriented positions. Meanwhile, I still have the cash position I raised by selling stocks in April. With benefit of hindsight, that sale was premature, a decision for which I nonetheless remain unapologetic. As I’ve said many times, no one can time the market perfectly. I’m in no rush to put that money back into stocks. Last week’s drop was a reminder that even bull markets suffer declines. Eventually there will be a 10% drop, which will be the trigger for me to put more money into stocks. No doubt by then, fear will again have made its presence felt.

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Minimum Profit Objective & 10% Rule

MPO=(100-(win Rate))/Win Rate

For average $100 risked on average trade, skillfull trader realize about $10,000.0 in income per year.

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Trader Goal

Your job as a trader, is not to pick winning trades, but instead to pull profits out of the world's market, As is often the case in this perverse business, the biggest edges and most dramatic profitability come from th low accuracy/high risk to reward trading strategies. I strongly suggest you ignore the false idols of accuracy and win rates, and pull all of your time and focus during the strategy development process into larger risk to rewards ratios.

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Volume Trade

• Selling Climax Day is volume expands by at least 20 percent or more compare with before and other. Selling Climax day is not the buy signal, buy signal occur the test of the low of the the selling Climax day with at lest 8 percent shrinkage in volume, follow by a close above the low of the selling climax day.
• False break out, volume shrink by 8% on break to new high.Sell signal triggered on close below previous high.
  
• tested previous low on 3% less volume with implies decline should continue.
• 3% to 8 % no trade.
  

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Crash Course

Embedded Video

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Earnings Will Get Even Worse

Last week I said that 2009 as-reported earnings estimates for the S&P 500 would be dropping. 2008 earnings had dropped to $29.57 as I wrote the letter. They are now down to $28.60. One of my favorite analysts is David Rosenberg of Merrill Lynch. His forecast for reported earnings for 2009 is now down to $28. That puts the P/E for the S&P 500 at 30.

He also projects "operating" earnings to be $55 for 2010. And, as he writes today:

"For those looking for a silver lining, at least we are going to have a deeper bottom to bounce off. Applying a classic recession-trough multiple of 12x against a forward EPS estimate of $55 would imply an ultimate low of 666 on the S&P 500, likely by October if our estimate of the timing for the end of the official downturn is accurate."

That is a 20% drop from today's close of 829. That is not what you will hear from "sell-side" managers who want you to invest in their mutual funds and long-only management programs.

I noted the problem with the rest of the world earlier. 40% of the earnings for the S&P 500 are from outside the US. It is hard to see how those earnings are not going to be deeply affected. Let me reiterate my continued warning: this is not a market you want to buy and hold from today's level. This is just far too precarious an economic and earnings environment.

Given the probable ongoing bad news from financial and consumer stocks, plus the depressing news on bank losses coming down the road, why take the risk?

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Oil Price Projection

Lower oil prices should provide a modest offset, boosting consumers’ discretionary spending power. Our commodities team expects WTI crude to average $35/bbl over 2009 − lower than today’s $40/bbl − while recovery will lift quotes back to $55/bbl in 2010 (see Global Oil Outlook – 2009: The Global Engine, Stalled and Flooded, February 2, 2009). Lower oil prices are only one factor behind the plunge in inflation. The deepening downturn has intensified the risk of deflation, as rising economic slack increases the prospective US output gap to more than 7%. Slack overseas will put downward pressure on import prices, and the dollar has strengthened. We think aggressive monetary policy, a global rebound, and increased commodity prices will prevent US inflation from slipping below zero − but the risks, especially over the next year, are tilted toward lower inflation.

Morgan Stanley - Global Economic Forum

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