LIFTING THE VEIL ON STOCKS

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I'M GETTING BETTER AT TRADING SINCE I TURNED OFF THE NEWS

February 9, 2008

My trading has improved considerably since I've started turning off the radio whenever a commentator is talking about the market. How can it possibly be of any significance to me whether that the Dow "plummeted" by 300 points, when that represents an approximately two percent dip? It certainly isn't newsworthy, and a two percent dip in any of my holdings certainly wouldn't trigger a stop. I'm sure there are many traders who go rushing home with their hearts pounding in their throats to see how their portfolios may have been impacted by a two percent dip on the Dow or the NASDAQ. My experience over the last few years has been that every chart speaks for itself, and I stopped looking at the Dow, the S&P 500, the NASDAQ and other ind ices to test the mood of the market a long time ago. If the NASDAQ or AMEX goes down, all that means to me is that my stock listed on one or the other exchange probably won't go up by as much as it would have otherwise.

So, how did I do this week? I'm happy to report that one of the selections posted to my public list at StockCharts.Com made the very top of the NYSE Top Gainers list today. Navios Maritime Holdings (NMWS) gained a respectable 13.70%. One of my selections only made it to second place on the AMEX list of Top Gainers. Sulphco (SUF) turned in a respectable 35.41%. (In all fairness to SUF, the top gainer was a penny stock that doubled from $0.01 to $0.02, thus bumping SUF into second place with its 100% gain. I could have claimed a double victory if not for that.) Syntroleum (SYNM) continues to make the Top Gainers listing on the NASDAQ day after day. Today it's up 25%, and this predictable pattern play may well have a long way to go. And, it still hasn't sent out clear technical buy signals on the weekly chart.

Far and away my biggest winner this week was Overhill Farms (OFI) which made the AMEX Top Gainers list several times throughout the week. According to the weekly chart, it posted gains of 54.23%. When I originally posted it to my public chart list, it was trading in the range of $2.50, and it closed out the week at slightly over $4.00. All in a week's work.

I MADE A BIG MISTAKE

January 31, 2008

I don't check the top gainers list every day, but whenever I do, I invariably see a few of my selections listed among the top gainers of the day. Today was no exception, with Kodiak Oil & Gas (KOG) posting a gain of 14.86% and Sulphco (SUF) posting a modest gain of 8.3% on the AMEX. The NASDAQ provided better results, with Franklin Bank of Texas (FBTX) sporting a 21.49% gain, Sterling Banks (STBK) rising 18.8%, and Star Bulk Carriers (SBLKW) riding with the winds in its sails posting gains of 21.20%.

The NYSE was equally generous, with W Holding Co. (WHI) providing a cool 25.00%, BankAtlantic BankCorp up 12.77%, and Excel Maritime (EXM) up 12.64%. While it didn't make the top gainers list, Rite Aid (RAD) turned in a respectable 8.46% on the NYSE, and Peace Arch Entertainment (PAE) brought in 6.09% on the AMEX. All in a day's work, though I've enjoyed some better days this week.

Double bottom on FBTX confirmed when price penetrated MA 50.

Where did I make my big mistake? The biggest potential gainers were sitting right under my nose, their technicals on the charts screaming "buy me now!" But I didn't believe the message in the charts. And I didn't post the charts on my public list on StockCharts.Com for fear of being embarrassed in a very public place because I may have been wrong. I hate being wrong. And I hate being embarrassed. And I particularly hate being embarrassed because I was wrong.

Now, I'm triple-exponentially-smoothed embarrassed because the technicals on the charts were screaming at me, and I didn't listen. I listened instead to the dire prognostications of the "experts" on National Public Radio, and in the newspapers, and in the financial magazines. Even the typically astute Technical Analysis of Stock and Commodities threw me for a loop with a recent article on how the particular industry in question still had a long way to go before it hit the bottom.

Therein lies the tale with which I open up this occasional financial blog, and it begins with a very valuable lesson. Always, always, believe the chart. Never, ever believe radio broadcasts touting experts, financial magazine articles, the Wall Street Journal's opinion or commentary, or for that matter any stock analyst (except to the extent that they may often be taken as contrarian indicators.) Always believe the message in the chart, and always completely ignore the news and the fundamentals because they simply don't count.

It was an interview with the original encyclopedia guy, Robert W. Colby, in Technical Analysis of Stock and Commodities that first drove home the point that fundamentals don't count. Bo Yoder made the point in a subsequent issue, noting that the market can completely ignore fundamentally sound companies while handsomely rewarding some others that simply don't deserve it. Another encyclopedia guy, Thomas N. Bulkowski, recounts in the introduction of his "Encyclopedia of Chart Patterns" how he painstakingly researched companies for weeks on end, while his co-worker opened up the newspaper and put his finger on a stock at random. After a few months, Bulkowski realized that he was getting creamed by his co-worker's completely random picks.

Even when I did look at the fundamentals in the particular industry in question, they weren't that bad. But I was sold by the hype surrounding the "downfall" of the industry. Sure, I knew the regional banks were a bargain, and I gleefully snapped them up even as I posted their charts to my public chart list on StockCharts.Com. These were no-brainers. But then, so were the ones that I tucked quietly away from public view for fear of being wrong.

So, what were the big winners that were sitting right under my nose? On the AMEX, Orleans Homebuilders (OHB) posted a gain of 21.71% today. On the NYSE, Irwin Financial (IFC) posted gains of 27.81%, Impac Mortgage (IMH) posted 25.64%, Pulte Homes (PHM) gained 20.53%, Meritage Homes (MTH) gained 17.89%, Levitt (LEV) gained 15.27%, while Brookfield Homes (BHS) gained 15.23% today. On the NASDAQ, Comstock Homebuilding (CHCI) gained 47.30% today.

Double bottom followed by squeeze play on this homebuilder's penny stock.

Every single one of these big winners was on my radar, with all the technicals on their respective charts screaming at me to buy them, and I not only failed to pull the trigger, but I hid them away from view.

I had a good day in the market today. Many of my holdings were a smashing success. But it could have been a much better day had I completely trusted the charts, and completely disregarded the news, and the commentary, and the analysis, and the radio. From this day forward I resolve to be a dyed-in-the-wool technical chartist, never again to look at the fundamentals, and always to turn off the damned radio as a matter as urgent as a religious rite whenever NPR broadcasts its Market Update.

Up to this point, I have believed from a purely intellectual standpoint that everything you need to know is already reflected in the chart. As of today, I don't only know that to be true, I truly believe that to be true. The difference may appear to be subtle, but it is actually quite significant.