Stock-Market-Observations

MY CHARTS

BUY/SELL SIGNAL IN FORCE

Bought on Wednesday 5/10/12 at 12 AM EDT
Sold on Wednesday 5/10/12 at 2 AM EDT – stopped out, not short

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LONG TERM – Up (black 3, chart #10.8)

INTERMEDIATE TERM – Up (blue 2, chart #10.6)

SHORT TERM – Down, likely close to a bottom

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WHAT’S HAPPENING

The market has absorbed JP Morgan’s surprise trading losses surprisingly well.  The SP 500, DAX and FTSE futures have not violated the lows made on May 9th.  That doesn’t mean it won’t happen later but for now, things appear under control.  The FTSE and DAX are well above their May 9th lows.

Presently I’m anticipating one more decline in the JP Morgan trading loss and it appears to be underway.

• FREE “real time” SP 500 futures quote and chart

GLOSSARY UPDATE

I often urge the use of the Bressert Money Management system and upon rereading it today, I found it cumbersome.  Consequently, I have updated this section of the Glossary.  The idea is still the same but it’s no longer verbatim per Bressert and is now more concise and easier reading.  Hopefully you think the same.

Money Management (Bressert System)

• Regardless of how much money you have, if you never invested in a futures contract, NEVER BUY OR SHORT MORE THAN ONE CONTRACT.  Learn first, speculate second.

• Taxes – Futures Contracts – Scroll to near the end of the definitions to read “Taxes, Futures Contracts” (alphabetical order)

• Currently (2012) the margin cost of one SP futures contract is $5,000.  Additional capital is also required for futures trading.  A one point move in the SP 500 index is a 1% fluctuation of your invested capital, or $50 per contract.  A move of 20 points in one day is not unusual and represents 20% of your invested capital.  It’s easy to see how easily you can lose money trading futures contracts.  As the market moves against you, margin calls frequently take place.  This is ample reason for buying only 1 contract UNTIL you have experienced hard times in the futures market.  There is no better teaching tool regarding the stock market than bad times and losing money.  Been there, done that.

• Currently (2012), the value of one futures contract is about $70,000 worth of stock.  When you trade futures contracts you never want to exceed the amount of money that you would have invested in stocks.  It’s very easy to over-leverage yourself in the futures market.  Remember, leverage is a double edge sword and definitely will cut both ways.

• The following is an edited version of Walter Bressert’s money management system.   This is a very useful idea for managing money in the stock/commodity market.

• To put this into action, you must scale the figures to fit your situation.  It’s necessary to think of your purchase as consisting of three parts.  Bressert’s example uses 3 futures contracts but a similar concept scaled into three equal parts works for stocks.  If you were going to buy 300 shares of stock, think of your purchase as consisting of three blocks of 100 shares each.  You sell the 300 shares at different times instead of all at once.

• All three contracts can be entered at once, or bought at different times and price levels.  I am an all or nothing person and will buy all of my contracts at once.  Whatever you are comfortable with is prudent.
  

• Contract No. 1: The Money Contract
  

• The first contract, called the Money Contract, is the most important.

• Profits on the money contract should be taken as quickly as possible.  Personally, I sell the Money Contract after a 3 wave count of significance.

• When the money contract is liquidated, your risk is lowered and you have profits in your account.

• Contract No. 2: The Short-Term Profit Objective Contract

• The Short-Term Contract is designed to take profits at a short term objective.  This can be the crest/trough of a trading cycle or a preset objective.  Liquidate the contract as prices approach your price objective (wave count termination) or move stops closer and let the market take you out.

• Contract No. 3: The Long-Term Profit Objective Contract

• The purpose of the Long-Term Contract is to keep you in the market for the BIG moves.  Assuming you have liquidated your other two contracts at a profit this will give you breathing room during the corrective phase.  The purpose of the Long- Term Contract is to comfortably ride with the market until your long-term price objective is reached.

• As the initial correction is ending, three more contracts are bought for a total of four contracts.  You now have two Long-Term Contracts, one Money Contract and one Short-Term Profit Objective Contract.

• With the purchase of 3 new contracts, you repeat the same scenario outlined above.  Liquidate the Money Contract and the Short-Term Profit Objective Contract as they meet your short term objectives (wave counts).  The two Long-Term Contracts are held until the long-term objective is met, or the trend is no longer intact.
  

• You keep repeating this scenario until the bull/bear market is finished or a major correction is anticipated.

• If you fail to purchase 3 new contracts as a correction ends, you will have your Long-Term Contracts and can still participate on a primary direction move.

• Should the market fail to reach your long-term price objective, fail-safe stops will liquidate your long term position. Assuming all goes well, the remaining Long-Term Contracts can be liquidated at different price levels as the long-term objective is met.

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This entry was posted on May 10, 2012 at 8:26 PM and is filed under UPDATE. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site.