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From The Trading Turret
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From: R.A. Christy
Editor, ‘From the Trading Turret’
President/CEO, Christy Investment Group
http://www.christyinvestments.com
Date: July 27, 2007
Current Field Position:
DEFENSE
Bullish Percent NYSE: Os @ 52%
Bullish Percent OTC: Os @ 44%
Bullish Percent Option: Xs @ 50%
This week’s comment …
Man what a week. Just when you thought it
couldn’t get any worse, the roof falls in. I think the only people
surprised by this are the buy-at-any-cost folks on CNBC. The talking
heads were in full panic mode trying to find out why the market was
going down. They’ve come up with a couple of reasons, but they don’t
hold water with me. It’s just an excuse to cover up the real reasons and
that is simply that the market is quite a bit ahead of itself and the
shakiness at Bear Stearns (hedge fund fiasco) is just the tip of the
iceberg.
Last time, I wrote, I mentioned that we
were on DEFENSE, but I don’t think I didn’t go into a lot of detail. My
number one indicator, Bullish Percent, had reversed from a Column of Xs
(going up) to a Column of Os (going down). Bullish Percent came in at
69% which when it fell below 70% triggered a move to DEFENSE. After this
week’s mess, the NYSE BP stands at 52%.
For those of you not familiar with
Bullish Percent, it’s the best Offense-Defense indicator that I have
ever come across. It’s a one stock – one vote indicator and it’s made up
of every stock on the NYSE. It encapsulates the battle between supply
and demand and when plotted as a Point & Figure chart, shows the flow of
money into and out of stocks.
It’s calculated by taking the total
number of NYSE stocks trading on a Point & Figure BUY Signal and
dividing it by the total number of stocks on the exchange. By converting
that ratio into a percentage, I can then plot it as a Point & Figure
chart. Buy signals occur when the indicator moves from a column of Os to
a column of Xs. The best signals occur when the ratio is less than 30%.
A SELL signal occurs when we go from a column of Xs to a column of Os.
The best SELL signals occur when the ratio falls below 70%.
Sectors
As for sectors, I follow roughly 40 or
so. When I last wrote, there were 23 of 40 sectors moving up (column of
Xs). After the trashing this week, there are only 5 left that are
positive and barely so. They are the SEMIS, SOFTWARE, OIL, OIL SERVICE
AND
We are now fully in the CAPITAL
PRESERVATION mode.
We’ll resume our buying when the
indicators move us into the OFFENSIVE MODE. Until then, I’m sitting on
my hands and keeping my eye on the stops. If and when they are
triggered, I move into cash and bide my time.
Emotions
I was sent a copy of the annual Dalbar
survey, Quantitative Analysis of Investor Behavior, and spent some time
looking it over. The survey concludes once again that the primary reason
investors under-perform the market is their emotions. Most investors
panic and buy in at the top and sell at the bottom. The exact opposite
of what you should be doing.
One of the interesting points in the
study is that investment advisors actually panic more than their
clients. Why? I have two theories here: (1) they sell yesterday’s
returns and create expectations that can never be satisfied. It’s a case
of over-promise and under-deliver. The other reason (2) is that the
advisor may be afraid of losing the client because of lower than average
returns. This has to do with the asset mix and equity or fund selection.
In other words, the advisor and the client don’t own the same
investments.
Let me throw this out – when was the last
time your broker sent you a copy of his/her investments? Do they ever
talk about what they own? If not, why not? Don’t settle for the answer
that the account objectives are not similar, etc.
For the record, my money is where my
mouth is. The Long/Short Portfolio is my portfolio and it’s on the
website – warts and all.
Is it too late to sell?
Someone ask me that on Saturday night and
it’s a good question. My answer is that it’s never too late to sell and
it really depends on what you’re looking for. I’m not much into
hand-holding and empathy is not one of my stronger virtues.
When I initiate a position, I’ve made at
least 3 decisions. The first is WHAT TO BUY. The second is HOW MUCH
MONEY IS AT RISK ON THE TRADE? It makes no sense to me whatsoever that
someone would open a trade and NOT know where they would PULL THE PLUG
if the trade was a dog. The stock market is not a great place if you’re
overcome with wishful thinking. My final decision is at WHAT POINT AM I
GOING TO PULL SOME MONEY OFF THE TABLE?
I’m constantly amazed at how many people
trade stocks without stops. The market action this past week was awful,
but if you have downside stops in place, the damage should have been
limited.
Another thing that I do when faced with
the question is this – I have Debby print out all of my charts. She then
cuts off the names at the top and mixes them up pretty good. She numbers
them so that she’s the only one who knows the name of the stock.
It’s my job to sit then sit there and
answer one important question – IS THIS SOMETHING THAT I WANT TO OWN
RIGHT HERE AND RIGHT NOW? If the answer is NO – it’s gone. As a trader,
I ask myself each day – do I own the best names that I can possibly own?
If not, why not? It’s that simple.
That’s about it for now. Stay steady and
don’t become a deer in the headlights. If you have a question or have
something that you’d like me to address one on one, just send me an
email and I’ll do the best I can to help.
That’s about it. Have a great week!!
RA Christy
P.S. Please fee
free to forward this to your peers, friends and associates you think
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R.A. Christy is a professional stock
trader, money manager and author. Mr. Christy is the President CEO of
Christy Investment Group, Ltd., a registered investment advisory firm.
He is also the Managing Partner and Portfolio Manager of Plato Advisors,
LLC. At the time of publication, Mr. Christy may from time to time write
about stocks in which he, Christy Investment Group Ltd or Plato Advisors
LLC has a position. In such cases, appropriate disclosure is made.
Under no circumstances does the information in this column represent a
specific recommendation to buy or sell stocks. Mr. Christy appreciates
your feedback and invites you to send it to
rac@christyinvestments.com.
The Stock Trading Advisor
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© Copyright 2007 RA Christy
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