Great Trades

Great stock trades based on fundamentals and technical analysis.

Monday, January 12, 2009


Trading Again

In 2006, we didn't like the fundamentals for the U.S. stock market, so we decided to "cease active trading in the U.S. stock market" on expectations of "a tougher market for traders in coming months/years." We did "a strategic reallocation from the overall U.S. stock market to undervalued commodity stocks." Unfortunately, we didn't anticipate that the collapse in the U.S. financial markets would have such far-reaching ramifications, devastating commodity stocks along with the rest of the stock market.

While we continue to hold our portfolio of undervalued commodity stocks for the long term, as we believe commodity stocks will be big winners when the global economy recovers from the current recession amidst decreased future supply combined with recovering demand and high inflation, we have resumed active trading of the U.S. stock market in our trading accounts. We believe that for the foreseeable future, the overall U.S stock market will be a great market for active trading, and not such a great buy and hold market outside of commodity stocks.

We resumed active trading of the overall U.S. stock market in our dormant trading accounts 3 months ago (on October 10, when we had a buy signal), focusing on the market indexes rather than individual stocks, as the wide swings in the overall market have overwhelmed most stock picking in this volatile market. During this time, we've been developing our trading model based on a variety of technical indicators to time the significant turns in the U.S. stock market. We've had tremendous success with this model to date, as it has predicted every significant turn in the market over the past 3 months. It's still a work in progress, and we continue to fine tune it, but we plan to post its changes to market allocation to establish a published track record.

Our trading model began the year 100% short, and today covered the short and reversed to 50% long. Unless otherwise specified, the trading model will use the S&P 500 (or its exchange traded fund, the SPY ETF) as a proxy for the U.S. stock market. Today's reversal signal is based on the hourly charts being very oversold, so it's not as strong a signal as a daily signal, and thus is only a 50% allocation and could be changed quickly. We plan to only post allocation changes in market off hours, and we anticipate that there will be anywhere from 1 day to several weeks between changes.

Open Position: 50% long S&P 500

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Disclaimer: Great Trades may have a position in all or some of the stocks discussed in this blog, but is not paid by any company to promote their stock. Great Trades contains opinions, none of which constitute a recommendation that any particular security, transaction, or investment strategy is suitable for any specific person. Great Trades does not provide personalized investment advice.

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