Tharp's Thoughts Weekly Newsletter (View On-Line)
$700 Discount Ends Next Week on Swing Trading Systems Workshop
In this Swing Trading Systems Workshop you will not only learn 5 swing trading systems, but you will have the opportunity have a simulated experience of trading several of the systems.
VTI continues to fine tune and expand our trading simulator capabilities!
You will be able to 'trade' the rules for each system with actual historical data using the trading simulator. Plus, you can continue your practice trades in the evenings during the workshop to get more experience. The simulated trading platform makes each system come alive requiring you to match what you see on the screen to the rules. You'll already have some experience trading the system when you return home to trade the systems live. When attending you will need to bring your laptop. You will access the simulator via a web browser (Firefox or Chrome).
For our full workshop schedule, including discounts and pricing, click here.
Glamour Stocks Get Hammered –
Implications For the Big Picture
Here in the Delaware, spring is finally(!) upon us. Easter has gloriously come and gone. Spring flowers are still beautiful. The trees are tentatively colored green as leaves appear (they’re covered in green, I tell you, not white!). Yeah, it’s been a long snow-filled winter. And to be honest, this paragraph would have probably been easier to write if it weren’t 49 stinking degrees outside (that’s 9.4 Celsius to the rest of the world…).
And with the changing of the seasons, the stock market has seen drastic “changing of the guard”. The glamour stocks (mostly in tech) that led the charge during last year’s huge up move for the broad U.S. stock indexes have done an abrupt “about face” with many of them just flat jumping off a cliff. Let’s look at what’s happened with those once (and future?) high-flyers, what stocks have taken their place at the top of the leader board and the implications for the markets moving forward.
First, the Broader Market Continues to Impress
We’ll get to those glamour stocks in a moment. But the S&P 500 itself was basically a glamour stock in 2013, putting on one of its best performances of the past century. NYU’s Stern School of Business maintains a database of annual performance for the S&P 500 dating back to 1928. Using their data, I sorted for the top performing years and found that 2013 ranked as the 11th best total return performance (price appreciation plus dividends) out of the past 86 years. For reference, below is a table of the top 15 years based on total return:
The market can’t have a monster year like that without having some heavy hitters leading the way. The glamour stock list is tech-heavy and sounds like a CNBC headline producing machine: Google, Amazon, Priceline, Trip Advisor, Biogen Idec, Facebook, Tesla, LinkedIn and Twitter to name just a few. Not all are in the S&P 500 (most are), but they were certainly among the most talked about stocks of 2013. With gains from 60% to 297%, these stocks captured the imagination (and the cash) of the public and institutional investors. What a difference a couple of months make.
The Great Rotation
For some of these high-profile stocks (AMZN, TWTR, LNKD), the top came in January or earlier. But for the rest, the big migration started right around the first of March. And the air has come out of these bubbles quickly. Since the market close on 12/31/13, the S&P 500 has managed a 1.65% gain. But the glamour stocks have been whacked and whacked hard. The more robust symbols like GOOG have only dropped 16%, but PCLN (-20%), BIIB (-24%), TSLA (-26%) and NFLX (-29%) have been thrashed. And the IPO that could do no wrong has been dashed back to earth with TWTR dropping a whopping 47% from its all-time highs.
So what does this tell us about the markets?
Many bears are seeing blood in streets with the darlings of 2013 getting trashed over the last two months. But with the S&P up for the year, it is interesting to see which stocks (and sectors) have taken the glamour stock’s place at the top. Much like the early months of 2013, some non-traditional sectors are extending the market’s bull run. Sectors like utilities, energy, health care and consumer staples are once again leading the way. Blue chip names including Alcoa, Caterpillar, Merck, Southern Company and Johnson & Johnson are returning double digit gains for 2014 year-to-date.
A shift in mind-set has certainly occurred. The continued tapering from the Fed has taken market players from a full risk-on decision process of “chase all high-flyers” to a guarded “stay invested, but choose defensive names that won’t get hurt as badly during a pullback” posture.
If the market can weather the beating that has bruised the glamour names and survive what most believe to be another $10B per month paring of QE on Wednesday afternoon, then this bull market could put together a last-gasp blow off top. Then those beaten-down glamour names may start to look like bargains and we could get one more rotation before this year’s correction hits. Until then…
Combo Discounts available for all back-to-back workshops!
See our workshop page for details.
Silver Rush Coming Soon?
Above is the monthly chart of Silver. Similar to Gold, it has not been a darling for most investors who kept it until recently, wasting a chance to make a remarkable profit in 2011.
However there are some technical aspects of this long term chart that may pose some valuable arguments for those who are strong believers in a comeback. As always, these are projections and my intention is to provide you with a master plan, but also to offer a plan B so that there are few unwanted surprises.
From the price action of this precious metal you can see that after a considerable upward movement, Silver retraced quite substantially, more than the 61.8% level which is the maximum retracement of typical wave 4. Therefore the overall movement that started in 2008 can only be labeled, as of today, a corrective ABC movement where the first leg up was wave A, the bearish (current) movement is wave B and probably (but not surely!) wave C will be a bullish one. What are the likely targets for the next wave?
Trendlines give important indication not only for what concerns price targets, but also for time targets. In fact, one of the possible targets is the one laid out by the dark blue trendline, which gives both time and price targets. A double top around 44 USD could materialize by August 2015. Note that at current prices, a double top would be at the 61.8% level of Fibonacci Extension of previous wave A. As you can see, that time and price target is also the juncture of both the dark blue and the purple trendlines. The purple trendline is a copy of the previous wave A movement, as you can check in chart.
The purple line goes even higher, and from the current Silver price level of 20.34 USD, a 100% Fibonacci extension of previous wave A is at 60 USD by July 2016. The safer assumption is that if a new bullish movement could materialize, a possible target is the dark blue line, which makes a strong resistance since it has been violated as a support. Once (if) that resistance is violated, then the next targets would be the ones around the purple line.
It is possible that the next movement may be a short term upward one, and not a new outright bullish movement. In fact, the long term indicator below the chart, the CCI 50 period, is in a strong oversold position and has been there only twice in 13 years, the last time was in the year 2001.
So there is some consistency of targets from different indicators. However bear in mind that these are only possible outcomes, not all outcomes.
Operating signals of possible long entries are set at the breaking of the current resistance which is the orange trendline. As you can see, it did its job of containing any upward impulse perfectly for 6 months in a row in 2013, so breaking it will actually mean something important. Violation should mean at the same time the breaking of February candle’s high at 22,18 USD
It is very likely that with the breaking of such resistance will be also the breaking of another resistance, the one present on the long term indicator shown below the chart. In fact, the CCI 50 periods is in a strong oversold but there is no current sign of inversion. Such a sign will materialize with the breaking of the current resistance.
Another important fact is that the current December 2013 low is a higher low compared to the June 2013 one, stating that on a shorter time frame. Since then, Silver may have started a bullish wave 3 or C. There are lots of clues pointing to soon-to-come bullish movement.
Let’s take a look at a possible plan B scenario: since the April 2011 high, Silver is inserted in a strong bearish structure and therefore it is important to consider each bounce as a mere relief rally and not an inversion. If the current low at 18.18 USD is broken, more weakness must be expected with possible targets at 15 USD first and below 9 USD afterwards.
New Product Release
Our First Streaming Video Format of a Trading System Workshop is Ready!
Dr. Ken Long's original two-day workshop on longer-term trading systems is now ready for streaming. With nearly 7 hours of video and downloadable companion documents you'll learn Ken's systems in your own space, at your own pace.
One of the primary objectives of longer-term systems is that they require less management than shorter term systems. Ken's Core Systems can be operated largely outside of market hours in less than an hour per month.
At $1,295 it's half the cost of the live workshop. Plus, for a limited time...
...we are releasing it for only $995!
We've complied all you need to know about this new offering. Go to www.vantharp.com/products/core-workshop-video-home-study.asp
For a short video overview about the course, click here.
Congratulations to Super Trader, Dave Walton
for being named 1st Place Winner of the 2014 NAAIM Wagner Award!
The National Association of Active Investment Managers (NAAIM) announced today that Dave Walton, co-founder of StatisTrade (www.statistrade.com) and a Van Tharp Institute "Super Trader" program student, is the 2014 first-place winner of the $10,000 NAAIM Wagner Award for Advances in Active Investment Management for his paper “Know Your System! — Turning Data Mining from Bias to Benefit through System Parameter Permutation.”
In addition to receiving the $10,000 prize, Mr. Walton will have the honor of presenting the paper to hundreds of active investment managers at NAAIM's annual conference being held May 5-7, 2014.
The announcement and a copy of the paper is available here:
An easy-to-understand summary of the key concepts underlying the paper are here:
Of the win, Greg Morris, the Chairman of the Wagner Award Committee, said
In his award-winning paper, Mr. Walton argues that not only does traditional trading system development lead to positively biased performance estimates, but that much valuable information is lost in the process. The result for many traders is frustration due to poor realized trading system performance that does not live up to expectations. Mr. Walton demonstrates how to leverage the optimization inherent in typical system development via a method named System Parameter Permutation (SPP) and to extract information that enables realistic contingency planning based on probabilities.
“[Dave Walton] ... has developed a sophisticated system to help investment advisors evaluate and use their trading systems more effectively. The encouragement of this kind of innovative thinking is why NAAIM created the Wagner Award competition — to bring out more original ideas and research in the Active Investment Management field.”
These comments were in response to D. R. Barton's 3-part series on Bitcoin.
(Part 1, Part 2, Part 3)
Thanks for your excellent article. One question though, the last time I checked (a few months ago), there was no way to short bitcoins. How can I take advantage of the volatility if I can't sell short?
I did read in an article about a mechanism to buy something that resembled a put, but the article I read claimed that the transactions settled in bitcoins. So, even if the put buyer was correct about the price of bitcoins decreasing, the profits (in bitcoins) from the sale of the puts would be less because of the decrease in value.
Or maybe i was misinformed... your thoughts?
I appreciate you taking the time to write — and thanks so much for the kind words!
There are some ways to short bitcoin, but all are small (low volume) and unregulated (if you get a bad or horrible fill, tough luck), so I can’t recommend any of them (bitfinex, for example or ICBIT which has created an unregulated futures exchange CAVEAT EMPTOR). I read one article on shorting that was published in April of 2013 — I can’t imagine how horribly any of those trades would have turned out!
Thanks again and God bless you,
After reading your article on Bitcoin I must write some feedback and say that it is the most accurate and balanced appraisal I've read on the subject. Thank you.
I'm a long-term speculator myself and have lost a considerable amount from MtGox. I think this was a turning point though; the infrastructure in place to deal in Bitcoin is reaching a critical mass and pretty soon it will be too much hassle to not use it for business and consumer FX transactions.
It's also exciting to see a whole new asset-class emerge which may even become non-correlated to commodities, gold, bonds, equities. That's exciting purely from a diversification perspective.
Anyway, thanks again for the write-up.
Thanks for taking the time to write and thank you very much for the kind words! I hope that you didn’t have significant assets stored at Mt. Gox.
I believe your observations are spot on. As one astute writer put it, the value of bitcoin the currency goes up with every transaction made. You also make another good point — the value of Bitcoin in its current incarnation may just be in its use as a hedge — against inflation, central bank largesse, etc.
Thanks again and God bless you,
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