Become A Better Investor Through Specialization

What can you do to immediately become a better investor/trader? There are several things you can do to immediately speed up your investment learning curve. One of those is specialization. Investment/Trading specialization is one of the most important stages that aspiring investors/trader can reach in their development. In fact, the sooner you are able to reach this place, the better off you will be and the higher your returns will be.

When you step out into the investment and trading world, you are instantly pitting yourself against an extraordinary array of competitors and professionals. There are literally millions of others out there who want the same profits you want, and the laws of the marketplace simply object to everybody walking away with bags filled with riches. In fact, most will walk away with significantly less capital than they started with.

Given this intense competition, market inefficiency, and the limited space inside the investment winners' circle, do you really want to go out there and compete half-heartedly in a whole host of events, likely losing at nearly all of them? In investing it is a much better idea to become an absolute, top-of-the-line expert in one area, and then go out and win the field in that specialty.

As far as specialties go, there are very many options you have. Here are some choices you have to distinguish your investment specialization: 

Time Frame: This is one of the first and most basic distinctions that you can make as an investor/trader. While the thought of mastering every single time frame is appealing, and it may in fact be your long-term goal, you do not have to do it all at once. Choosing a time frame to specialize in allows your trading to be customized for you and your schedule. It also gives you direction as to what strategies you should be more focused on.  

Patterns/Strategy: You can further specialize yourself by limiting the number of patterns you choose to utilize. By limiting the patterns, indicators, or other factors that comprise your strategy this allows you to solidify your investment plan and follow it rigorously. If you specialize your strategy this mean you specialize the criteria or rules that tell you to get in and get out of the market. You will then become a more disciplined and focused investor, which is always a good thing. 

Markets/Sectors: There are many investors/traders out there who specialize in a particular sector, or sometimes a few select industry groups that they understand very well. Also, there are just as many who specialize in just one specific market, such as currencies, emerging markets, bonds, etc..Perhaps you have a professional background you can bring to bear regarding your sector analysis. Narrowing the field in this manner is yet another way to become an expert investor/trader. I have met a trader who trades only Pork Bellies, pays zero attention to any of the other markets (DOW, S&P, Gold, etc..) and achieves very high returns (sometimes triple digits) because of this specialization. 

Market Stages: Some of us choose to hone in on one of four market stages as our chosen trading environment. For purposes of making these distinctions, there are really three categories: Uptrend, downtrend, and consolidations. I have met several traders who actually do best in and therefore trade only in a range environment. Others love it best when the market is tanking, and invest/trade on the short side. The majority, however, will probably gravitate to uptrends for their time frame of choice. You can also develop a system to glide between the various market stages, investing in up, down, or sideways markets. 

There are certainly other specializations you can have as an investor/trader, but these above are the basics and where you should start to hone your skills. I find it is easier to start with choosing the time frame and market then move on to the other specialty areas. It is fine to mix and match between them, as long as your final criteria exhibit enough restrictions to qualify as a true specialty. If you do choose to have several specializations just make sure each specialization has a system with rules that adhere to those criteria. For example you can utilize both a short-term crude oil contrarion trading system, while also using a long-term technology shorting system; however, you would not want to mix the two systems rules together, keep them both specialized and separated from one another.

Technical Analysis Of the Metals Market

Gold has closed lower today due to break of support levels, and remains below the 10-day moving average crossing near 1110.00. Stochastics and the RSI are oversold and are both still suggesting for more losses.Closes above the 20-day moving average crossing at 1137.40 are needed to confirm that a short-term low has been posted. If a further decline ensues from here the 38% retracement level of this year's rally crossing at 1032.60 is the next downside target. First resistance is the 10-day moving average crossing at 1109.00. Second resistance is the 20-day moving average crossing at 1137.40. First support is last Tuesday's low crossing at 1075.20. Second support is the 38% retracement level of this year's rally crossing at 1032.60.

Silver closed lower due to long covering and breaks of short term support levels; also, silver extended this month's trading range. The mid-range close sets the stage for a steady opening Wednesday. Stochastics and the RSI are both moderately oversold, diverging, and are turning bullish hinting that a short-term low might be in, or is near. Closes above the 20-day moving average crossing at 17.779 are needed to confirm that a short-term low has been posted. The reaction low crossing at 16.155 is the next downside target. First resistance is the 20-day moving average crossing at 17.779. Second resistance is this month's high crossing at 19.500. First support is last Tuesday's low crossing at 16.780. Second support is the reaction low crossing at 16.155.

Copper has managed to close higher today as it continues its short term rally.  Also, Copper has posted a new high for the year. The high-range close sets the stage for a steady to higher opening on Wednesday. Stochastics and the RSI are still bullish signaling that sideways to higher prices are possible near-term. The 87% retracement level of the 2008-decline crossing at 3.48 is the next upside target. Closes below the 20-day moving average crossing at 3.18 are needed to confirm that a short-term top has been posted. First resistance is yesterday's high crossing at 3.344. Second resistance is the 87% retracement level of the 2008-decline crossing at 3.48. First support is the 20-day moving average crossing at 3.18; second support is the reaction low crossing at 3.08.

We are currently bearish on both Gold and Silver in the medium to short-term, suggesting that you still have time to purchase these two hard commodities at lower prices in the near future. However, we are neutral at the moment on Copper, and waiting for it to close above 3.34 which at that point we will turn bullish, or close below 3.18 would turn us bearish on copper for the short term.

How To Enroll Into A Debt Management Program

If you’re having a tough time to make the monthly minimum payments on your credit cards and other forms of unsecured debt, then a debt management program (DMP) might be the answer to all your problems. A debt management program can make you debt free and help you get back the control over your finances. Most of the people become overextended with debt as a result of delayed payments that lead to late fees and increased interest rates. People often spend frivolously with their credit cards and max out on their cards, which subsequently result in over the limit fees.

With extra fees and raised interest rates, your payments go out of your control and you find it harder to pay off your debts. In this kind of circumstances, you can use a debt management program to come out of the debt trap.

Collect your statements for credit cards and all other unsecured debts. Also get your paycheck stubs and records of other income. Lastly, prepare a list of your monthly expenditures, for example utility bills, housing expenses, conveyance bills and other monthly expenses. You would require these items for the purpose of formulating a debt management plan.

Find a trustworthy consumer credit counseling agency in your neighborhood. Make an appointment with them and you must not forget to carry the records you have collected. The consumer credit counseling agency would help you make a practical evaluation of your finances and would communicate with your creditors on your behalf to bargain reduced interest rates, relinquishment of fees and possibly extension of your repayment term to pay down your debts. In doing this, they would assess your repayment capacity. As soon as your creditors have accepted the debt management plan, the consumer credit counseling agency would process your payments. Some agencies charge a nominal monthly fee, which is optional most of the time.

You just need to make one monthly payment regularly to your consumer credit counseling agency. Subsequently, the agency would allocate the payment among your creditors in line with the debt management program.

Low Volume Of the Holiday Week, As Usual, Is Not Likely To Provide The Needed Breakout

Despite some downward, selling pressures, the major indices main support and resistance have once again held. Currently, the overall bullish trend of the market persists; however, there is a range pattern forming and the upward momentum has diminished significantly in the last month Some of the technical indicators have weakened, but as long as support holds, they are not very important.

On the up side, the S&P 500 resistance in the 1155 - 1160 area remains in tact, resulting in a tight trading range. For four straight days [recently], the S&P 500 ($SPX) opened above 1110 and traded higher, but each day selling pushed the closing back below 1110, it has just recently managed to close above 1110 but the low volume suggests a false breakout. First support for the S&P 500 is now at 1110. Resistance for the DOW Jones Industrial Average remains at 10,550 and there is first support at 10,437 and then the next major support level at 10,280/290. It would take a daily close outside of these levels to have meaningful significance. Also, both of these indices are forming a bearish (inclining wedge) pattern.

Market tops are usually marked by weakening breadth. Numerous breadth oscillators have shown much weakness over the last month. That weakening breadth, combined with a bearish pattern and not being able to break above resistance are certainly all negative signs.

Equity-only put-call ratios have been unreliable ever since heavy hedging activity began last summer. That activity seems to be abating now, so we are tentatively looking to use the equity-only ratios as reliable market indicators again. These ratios have also recently generated bearish signals.

Volatility indices ($VIX and $VXO) continue to decline, and that is generally bullish for stocks. $VIX would have to close above 25 to potentially change its chart to bearish. However, these volatility measures are at historically low, or below average levels, suggesting it may be time for them to spike up with an increase in volatility, which would then lead to an increase in risk aversion and a market decline.

Meanwhile, the $VIX futures continue to trade with large premiums. The January premium is 3.70 and February is a relatively large 5.50. These large premiums indicate an overbought market, but Sell signals wouldn’t be generated until the premium peaks and falls below 1.00 or so. Also, other indicators of market strength such as RSI, Stochastics, MACD, etc.. all indicate the market is overbought, and they are starting to turn negative which would produce sell signals as well.

The term structure of the $VIX futures continues to slope steeply upwards, which is another indication of a bullish but overbought condition. This has persisted to some extent since March. A term structure intermediate-term Sell signal would occur only if the structure began to slope downwards.

In summary, both bulls and bears are in a stuck, confused position at the moment. It will remain this way until a breakout of the above mentioned support or resistances occurs. Once the breakout occurs it will be a very large, capitulation move for the markets. Due to our analysis, this breakout we believe is most likely to be to the downside for the markets. We suggest you either allocate your investments for a rise in volatility, or since we are generally bearish at the moment, begin decreasing your exposure to equities. If you have a shorter time frame in mind you could buy or sell the major markets on a breakout of the two above levels, or trade the range between the two levels, this however can be complex so we suggest you do your due diligence before trading short-term. Just call us at 262-939-8885 and we can help you with any questions you may have about how to be prepared. Have a very Merry Christmas, and we will post more "Seedlings For Your Healthiest Money Tree" at the beginning of next week.

Technical Outlook For Gold - Daily

Gold's fall from 1227.5 has resumed and the precious metal has broke 1110.2 and reached as low as 1097.7. Intraday technical analysis suggests more downside, with the next target near the 50% retracement of 931.3 to 1227.5 at 1079.40 . On the upside, there is 1142.9 resistance, and if this is broken then a short term bottom may be formed and bring stronger recovery towards testing the highs.

In the bigger picture, rise from 681 has good possibility of developing into a of five wave sequence (popular pattern for technical analysis , Elliot Wave) with first wave completed at 1007.7, second wave triangle consolidation completed at 931.3. Rise from 931.3 is treated as the third wave and has possibly completed at 1227.5 after missing 100% projection of 681 to 1007.7 from 931.3 at 1258.

A deeper pull back from the current levels will test the 1026.9 - 1072 support zone (should provide a good medium-term buying opportunity for a bounce off support and resumption of the uptrend for fifth wave completion), or even further to retest 1000 psychological level. But downside should be contained above 931.3 support and bring up trend resumption. If this is indeed an elliot wave pattern for gold then gold prices shall not fall below the 1,010 support mentioned above (end of first wave) before reaching a new high for the fifth wave, which is currently projected to reach the 1,250 - 1,300 level. Daily indicators have yet to show significant enough divergence to suggest a trend change, and there is multitudes of support coming in slightly below Golds current levels, with these two factors in mind Gold may soon provide a nice buying opportunity for investors of all time frames.

Comex Gold - 4 Hours Chart

Comex Gold - Daily Chart

Pivotal Period For The Dollar

The movements of the US dollar index and the dollar against most major currencies over the past few days has caught the market’s attention. For the first time since early March when technical analysis of the dollar index indicated a top, daily technical analysis has now turned moderately in favor of the dollar, suggesting at least a short-term low has been made and short term dollar strength to come.

How significant is this low the dollar recently hit?

Figure 1

The dollar index marked a high in early March at 89.71 and hit a low nearly two weeks ago of 74.27. On these lows, the selling (for a change) was not as heavy as before with the on-balance volume (OBV) acting much stronger and forming a bullish divergence, line e. The initial OBV resistance, line d, was overcome and further new highs would be quite positive. A move in the OBV above the longer-term resistance at line c would be even more impressive. The daily downtrend at 76.70 should be tested this week, and a test of the 23.6% resistance at 78 is likely over the next week or so. Normally, I would expect the rally to stall in this area, but with the massive short dollar position, this may not happen. The first major upside target is the 38.2% resistance at the 80 level.

Figure 2

The weekly chart of the EUR/USD shows that the euro peaked at near 1.5142 nearly three weeks ago, falling short of the major 78.6% resistance level in the 1.5225 - 5275 area. The euro (through December 8) is testing the weekly uptrend, line a, and chart support in the 1.4630 area. There is additional support in the 1.4500 area. The weekly RSI formed a short-term negative divergence at the recent highs, point 2, and is likely to break its uptrend, line b, this week. At a major top, we would normally expect to see a divergence that was formed over a longer time period, but if one assumes that this whole rally was just a rebound of the 2008 decline, then it could end with such a short-term divergence. Typically, we would expect to see another one to three weeks on the downside and then a rally that would take the RSI back to its declining WMA. This could be an optimum dollar selling opportunity.

Figure 3

The daily analysis of the euro futures nicely supports the weekly analysis as the euro futures made marginal new highs last week, point 2, but the OBV was much weaker. This indicates that there were significantly fewer buyers than there were on the prior highs (point 1). The break of the uptrend in the OBV, line c, confirms the negative divergence as well as the break of the uptrend in prices, line b. I would not be surprised to see a strong rebound in the euro if support in the 1.4300-4350 area is tested (EUR/USD is currently rebounding strongly from just hitting 1.4305 a few hours ago). First resistance is now in the 1.4650-1.4750 area.

The next few months may be a paradigm shift for the dollar sentiment. With technical and fundamental factors conflicting, the real catalyst should be when the Fed becomes more hawkish (decrease money supply, raising rates), or when the major market indices break significant support levels. While nearly everyone is looking for the Fed to raise rates before the dollar can mark a new multi-year bottom, the technical outlook suggests that with the current position of the federal reserve policy the dollar has a good chance of hitting that new multi-year low below 70.5 on the dollar index before rates are raised in mid-2010.

Are The Grain Markets Looking A Little Grainy?

Yesterday, March corn futures closed down 2 cents at $4.065, and this closing price was very near the session low. Losses were limited by a fresh export sale of U.S. corn yesterday. However, bulls appear to be getting tired after the recent rally. Prices are trapped in the middle of a choppy trading range at higher price levels, bound by solid support at the November low of $3.72 1/2 and by solid resistance at the November high of $4.25. Bulls still have the overall short-term technical advantage. The next upside price objective is to push and close prices above strong technical resistance at the November high of $4.25 a bushel. The next downside price objective for the bears is to push and close prices below solid technical support at $3.90 a bushel. First resistance for March corn is seen at this week's high of $4.10 and then at $4.15. First support is seen at yesterday's low of $4.05 and then at $4.00.

January soybeans closed down 1/4 cent at $10.54 3/4 a bushel yesterday, and prices closed near the session low. Prices could not manage to gain upward momentum despite a fresh announcement of a large sale of U.S. soybeans to China. This suggests the bulls have become exhausted as prices reach the upper boundary of the recent trading range. Bulls do still have the overall near-term technical advantage. The next upside technical objective for the bulls is pushing and closing January prices above solid technical resistance at the December high of $10.78 1/2 a bushel. The next downside price objective for the bears is pushing and closing prices below solid technical support at the December low of $10.19 a bushel. First resistance for January soybeans is seen at yesterday's high of $10.68 1/2 and then at $10.78 1/2. First support is seen at yesterday's low of $10.49 1/2 and then at $10.40.

March soybean meal closed steady at $312.60 yesterday. Prices closed near mid-range yesterday and also hit a fresh four-month high. Bulls have the overall near-term technical advantage. Prices are in a nine-week-old uptrend on the daily chart. The next upside price objective is a close above solid technical resistance at $325.00. The next downside price objective for the bears is below solid technical support at last week's low of $298.90. First  short term resistance comes in at $314.80 and then at yesterday's high of $316.60. First support is seen at yesterday's low of $310.10 and then at $307.50.

March bean oil closed up 1 point at 40.05 cents yesterday. Prices closed near mid-range. Bean oil bulls still have the overall near-term technical advantage, but are fading a bit. The next upside price objective for the bean oil bulls is pushing and closing prices above solid technical resistance at last week's high of 41.44 cents. Bean oil bears' next downside technical price objective is pushing and closing prices below solid technical support at 39.00 cents. First resistance is seen at yesterday's high of 40.40 cents and then at 40.75 cents. First support is seen at yesterday's low of 39.81 cents and then at this week's low of 39.61 cents.

March Chicago SRW wheat closed down 6 3/4 cents at $5.36 3/4 yesterday. Prices closed near the session low. Bears still have the overall near-term technical advantage. The next downside price objective for the bears is pushing and closing prices below solid technical support at the November low of $5.07 1/2. Bulls' next upside price objective is to push and close March futures prices above solid technical resistance at $5.70 a bushel. First resistance is seen at this week's high of $5.48 and then at $5.52. First support lies at last week's low of $5.30 and then at $5.25. 

March K.C. HRW wheat closed down 7 1/2 cents at $5.26 1/2 yesterday. Prices closed near the session low. Bears still have the overall near-term technical advantage. Bulls' next upside price objective is pushing prices above solid technical resistance at $5.60. The bears' next downside objective is pushing and closing prices below solid technical support at the November low of $5.16. First resistance is seen at yesterday's high of $5.31 1/2 and then at this week's high of $5.39. First support is seen at yesterday's low of $5.26 and then at last week's low of $5.22 1/2. 

March oats closed up 1 1/4 cent at $2.60 yesterday. Prices closed near the session high. Bears still have the overall near-term technical advantage. Bulls' next upside price objective is pushing and closing prices above solid technical resistance at $2.65. Bears' next downside price objective is pushing and closing prices below solid technical support at $2.50. First resistance lies at this week's high of $2.62 and then at $2.65. First support is seen at $2.57 1/2 and then at yesterday's low of $2.56 1/2.

Investing With The Big Picture

Multiple Timeframe Confirmation, or MTC is nothing new, however it is a method of investing that is gaining more attention with traders and investors of all types.  MTC is the art of finding investment opportunities characterized by bullish (or bearish) chart dynamics in timeframes other than the primary one the investor/trader is using.  For example, if I am trading in  the hourly chart I might look at the daily and 5-minute chart to see what the market looks like in both the longer and intraday timeframes.

Using MTC, we identify a trading signal in the dominant timeframe we are investing/trading, and then confirm it across the other timeframes.  For example, if you are an end of day trader using Daily Charts.  You might be running a simple MACD indicator system to look for reversals.   When you see a trading signal, you should look at the weekly chart to see if there is a bullish pattern in that timeframe.   Assuming there is, you would then look at the 60 minute chart to see what happened in the last 4-5 hours of trading.  If there is bullish sentiment in that timeframe as well, you would then enter the trade. 

When examining a LONGER timeframe, we are looking for longer term support and resistance and (optionally) bullish indicators in that timeframe.  The idea here is to determine whether we are near a significant level in the longer term chart that might affect our trade, since the psychology of the market could easily be affected by, say, a support level going back as far as even a few years.  If Stock ABC has hit $20 four times in the last year and rallied, you probably don’t want to be shorting it at $20.50.  Similarly, if the stock is breaking through $30 in the daily chart but the weekly or monthly shows all-time resistance at $31, you probably want to wait until $31 has been surpassed before buying it.

When we examine a SHORTER timeframe, we are looking for shorter term chart patterns – especially Consolidations, Saucers, and Gaps.  This is the most important aspect of MTC because confirming that you have a bullish chart pattern in (say) the 60 minute chart means your end of day trade has that much more chance of rallying at the open, giving it that much more clearance from your entry. 

Chart patterns provide one level of MTC confirmation, but you can also use indicators.  Whether you are trading /investing with moving averages, RSI, Stochastics, MACD or any other basic movement indicator, seeing the values above and below your trading timeframe provides an extra level of confirmation.  For example, a rising MACD Histogram indicates strength.  If you plot this indicator in multiple timeframes, and confirm that it is rising in each of them, then you have further increased the chance of an upside move.

Three charts are presented below – a daily, weekly, and 60 minute chart for AAPL, depicting what happened on November 6 and 9. 

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Weekly:  In the weekly chart, we are turning up off a Cycle Low above our averages.

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Daily:  On this “signal” day in the Daily Chart, MACD Histogram is increasing, there is a gap, and the market is moving up through the moving averages.

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60 Minutes:  On November 6, the markets were turning up off our moving averages.  We also have a consolidation formed over the past 2 sessions.  Consolidations are continuation patterns so this pattern indicates the probability of a continued up-move.

All three timeframes showed bullish sentiment.  AAPL rose 5% to the end of November.   MTC works because the participants in each timeframe have different trading horizons.  In the daily chart, you primarily have short term investors with holding time horizons of 1-3 weeks.  In the weekly chart, longer term investors are working to establish investments lasting months.  Dropping to the 60 minute chart, you have the trading market acting on the stock during the session, creating a technical psychology that fuels movement.   When all three participants (short, medium, and long term) are acting on a stock to drive it up, the chance of continued rally in all timeframes is increased. 

Summary 

Multiple Timeframe Confirmation is a powerful tool for confirming direction and trend before entering any trade/investment.  Regardless of the platform you use, applying the principle of MTC can dramatically improve your results.  If you display charts in several timeframes at the same time and confirm across them, you will definitely gain an edge in your trading.