Trading With The Trend
…and the power of “Super-Stocks”
Back in our April 2nd Newsletter, we stated: “My long-term “Herd” and my short-term “Herd” are both on a neutral reading, which usually translates to more consolidation, but doesn’t rule out another leg up starting this week. And this environment usually favors day trading over swing trading. Now let’s look at a weekly chart of AMZN to see why a “Super-stock” can make you a fortune in swing trading. You can clearly see that you stay out of this stock about 60% of the time. But the 40% of the time that it makes huge moves, swing trading can boost your trading income in a big way! But as always, if the big buyers step in, I will follow their lead.” And as it turns out, this has lasted for the last two weeks. Last week was more consolidation and ended with somewhat of a correction. Believe it or not, this is only a 3% correction from the high back in March, with the norm being a 3% – 5% correction.
Will we correct further? This information is unknowable, so keep your powder dry. What can we know about a market turn? Plenty. Watch for reversals, support areas, bullish/bearish consensus, and more to see when a market has good odds of turning back up. These and my other SOC indicators will tell us whether the institutions are supporting stocks and the market, or letting them fall lower to another support level. But in a bull market, these same institutions will step back in and buy when they feel the bargain is too good to pass up. So, until there are indications of the correction being over, we need to let the market do what markets do. I’d rather pass on a few trades any day over the classic symptom of “overtrading” and blowing my account after chasing a trade.
Another way of saying this is to realize that markets/stocks/indexes are only making big moves about 40% of the time. The other 60% of the time is spent in either a correction or sideways move. Don’t think so? Look at some charts yourself. Knowing that alone can keep you from overtrading and jumping in when a stock is extended. And if you really want the keys to the Kingdom, here it is.
Look at the daily chart of AMZN I posted below. I put the data on an Excel sheet showing how many runs it has had in the last 12 months. How far did each run go in dollars? How much was that % wise? And most importantly, how long did the run take? I know all this information, and would not even consider swing trading my account without it. It literally gives a trader the keys to the Kingdom. I’m not going to give it to you because doing the work is what will make you a successful trader. Let’s look at a daily chart of Amazon, my favorite swing trading vehicle. As you can see from the chart, it is only moving big about 40% of the time.
Now let’s look at a weekly chart of AMZN to see how you can make a fortune swing trading “Super-stocks”. You can clearly see that you should stay out of swing trading this stock about 60% of the time. But the 40% of the time that it makes huge moves can boost your trading income in a big way!
Here’s another bit of trading brain food. If a $40 stock makes a 10% move over two weeks, it’s $4. And if a “Super-stock” like Amazon makes the same 10% move over two weeks, it’s $90 (last move). Let that soak in for a while. Most traders will focus on stocks under $50 – $100 because they mistakenly think they are cheaper or easier to trade. Not the case. Many low dollar stocks have terrible a bid/ask due to the smaller volume. Back to the market. Let’s look at some charts to see what, if any, indications of a turn are present. The SP-500 is still in the pennant pattern that it has been in since the start of March. Watch the lower channel to see if we turn in this area. The Fear & Greed index is finally down to 25, a level it has not been to in a while.
The Nasdaq is approaching the 5,780 support level, so we need to see how it acts when it gets there before resuming heavy trading. Could it turn tomorrow as price drops lower? Sure. Would I be a buyer on the dip if that occurs? You bet. In the bigger picture, nothing has changed about the bull market that would keep me from doing that.
April’s stats say it is normally a good month for stocks, but it is just that. An average of the previous 100 years of April in the markets. That is exactly why we follow price and not stats or the media and their “guesses.” They parade so-called “trading experts” across the screen all day on TV who tell us what the market will do in the future. Not only are they usually wrong, any intelligent adult knows they cannot predict the future any more than we can. If you can find someone who can actually do that, let me know and I will pay him a lot of money as trading would be easier than tying my shoes!!
I don’t currently have any of my stocks showing setups, as they are all correcting with the market. That can change as soon as tomorrow, but I will watch for the institutions to jump in and start buying in earnest before I will follow suit in my own trading. No predictions needed. Let the market and leading stocks show the way. Gold – GLS has moved above a major resistance area and the 200 dma and looks to want higher.
So, while we wait for the stocks to start setting up again, I will go back to day trading and watch to see how the major components of the market are acting. Banks and financials are an important part of a healthy bull market, and that is what we have had. This appears to be a normal correction, but one that I will watch closely.
Wix.com – WIX had defied the correction and found support at the 10 dma, a place the institutions will step back in.
San Diego, CA-based Tocagen – TOCA launches higher Friday after its IPO. Worth a watch.
Let’s review the 25 Market Insights from the great trader Jesse Livermore:
(We are taking them two at a time)
11. Remember that stocks are never too high for you to begin buying or too low to begin selling.
12. When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks. I do not allow my possessions – or my prepossessions either – to do any thinking for me. That is why I repeat that I never argue with the tape.
In closing, I thought I would include a short excerpt from one of my favorite books, “The Strangest Secret” that I read over 40 years ago. It still has relevance today as the greater “truths” do not go out of style. We are all familiar with the law of gravity. You can play around with it over and over, waiting for it to fail, but in the end, it will not. These laws do not care who we are. They just go about their business as usual. What does this have to do with trading? Everything!! Once you have a successful methodology and truly understand risk, everything else is mental!
“THE STRANGEST SECRET” by Earl Nightingale About the author: As a Depression-era child, Earl Nightingale was hungry for knowledge. From the time he was a young boy, he would frequent the Long Beach Public Library in California, searching for the answer to the question, “How can a person, starting from scratch, who has no particular advantage in the world, reach the goals that he feels are important to him, and by so doing, make a major contribution to others?” His desire to find an answer, coupled with his natural curiosity about the world and its workings spurred him to become one of the world’s foremost experts on success and what makes people successful.
Earl Nightingale’s early career began when, as a member of the Marine Corps, he volunteered to work at a local radio station as an announcer. The Marines also gave him a chance to travel, although he only got as far as Hawaii when the Japanese attacked Pearl Harbor in 1941. Earl managed to be one of the few survivors aboard the battleship Arizona. After five more years in the service, Earl and his wife moved first to Phoenix then Chicago to build what was to be a very fruitful career in network radio.
As the host of his own daily commentary program on WGN, Earl Nightingale arranged a deal that also gave him a commission on his own advertising sales. By 1957, he was so successful, he decided to retire at the age of 35. In the meantime, Earl had bought his own insurance company and had spent many hours motivating its sales force to greater accomplishments. When he decided to go on vacation for an extended period of time, his sales manager begged him to put his inspirational words on record. The result later became the recording entitled The Strangest Secret, the first spoken word message to win a Gold Record by selling over a million copies.
In The Strangest Secret, Earl had found an answer to the question that had inspired him as a youth. In turn, he found a way to leave a lasting legacy for others. About this time, Earl met a successful businessman by the name of Lloyd Conant and together they began an “electronic publishing” company. It eventually grew to become a multi-million dollar giant in the self-improvement field. They also developed a syndicated, 5-minute daily radio program, Our Changing World, which became the longest-running, most widely syndicated show in radio.
When Earl Nightingale died on March 28, 1989, Paul Harvey broke the news to the country on his radio program with the words, “The sonorous voice of the nightingale was stilled.” In the words of his good friend and commercial announcer, Steve King, “Earl Nightingale never let a day go by that he didn’t learn something new and, in turn, pass it on to others. It was his consuming passion.”
About “The Strangest Secret” This amazing message was first played for a group of salespeople at Earl Nightingale’s insurance agency. They were utterly electrified. Word of it spread like wildfire and everyone who heard it was positively ignited into action. Requests for a recording of the message came pouring in—thousands of requests per week. Within no time, more than 200,000 people had called, written, or just walked right into Earl’s office to request a copy. As years went by, that number soared above 1,000,000. By 1956, Earl Nightingale had already soared to successful heights as a Network radio announcer: the voice of Sky King. He also went on to host of his own daily radio and television show. Expanding his horizon, he bought a small Life Insurance company, ensuring its success by giving encouraging, inspiring, motivational talks to his sales staff. Then because he was going to be away, Earl wrote and recorded on a record, an essay which could be played during his absence. He called it THE STRANGEST SECRET.
The response to the message had significant an impact on the staff. Requests for copies to share with friends and families grew and grew. Columbia Records filled the requests and within a short period of time sales soared to over a million copies. It quickly earned a Gold Record – the first and only spoken word record to ever reach Gold! Today, more than 40 years later, The Strangest Secret remains one of the most powerful and influential messages ever recorded. It continues to transform the lives of everyone who hears and heeds it. Prescription for success: listen or read twice a month for the next ten years, then once a month forever.
The Strangest Secret Do you know what will happen to 100 individuals who start even at the age of 25, and who believe they will be successful? By the age of 65, only five out of 100 will make the grade! Why do so many fail? What happened to the sparkle that was there when they were 25? What became of their dreams, their hopes, their plans … and why is there such a large disparity between what these people intended to do and what they actually accomplished? That is … The Strangest Secret. Some years ago, the late Nobel prize-winning Dr. Albert Schweitzer was asked by a reporter, “Doctor, what’s wrong with men today? The great doctor was silent a moment, and then he said, “Men simply don’t think!” It’s about this that I want to talk with you. We live today in a golden age. This is an era that humanity has looked forward to, dreamed of, and worked toward for thousands of years.
We live in the richest era that ever existed on the face of the earth … a land of abundant opportunity for everyone. However, if you take 100 individuals who start even at the age of 25, do you have any idea what will happen to those men and women by the time they’re 65? These 100 people believe they’re going to be successful. They are eager toward life, there is a certain sparkle in their eye, an erectness to their carriage, and life seems like a pretty interesting adventure to them. But by the time they’re 65, only one will be rich, four will be financially independent, five will still be working, and 54 will be broke — depending on others for life’s necessities. Only five out of 100 make the grade! Why do so many fail? What has happened to the sparkle that was there when they were 25? What has become of the dreams, the hopes, the plans … and why is there such a large disparity between what these people intended to do and what they actually accomplished?
THE DEFINITION OF SUCCESS First, we have to define success and here is the best definition I’ve ever been able to find: “Success is the progressive realization of a worthy ideal.” A success is the school teacher who is teaching because that’s what he or she wants to do. Success is the entrepreneur who start his own company because that was his dream — that’s what he wanted to do. Success is the salesperson who wants to become the best salesperson in his or her company and sets forth on the pursuit of that goal. A success is anyone who is realizing a worthy predetermined ideal, because that’s what he or she decided to do … deliberately. But only one out of 20 does that! The rest are “failures.”
Rollo May, the distinguished psychiatrist, wrote a wonderful book called Man’s Search for Himself. In this book, he says: “The opposite of courage in our society is not cowardice … it is conformity.” And there you have the reason for so many failures. Conformity — people acting like everyone else, without knowing why or where they are going. We learn to read by the time we’re seven. We learn to make a living by the time we’re 30. Often by that time we’re not only making a living, we’re supporting a family. And yet by the time we’re 65, we haven’t learned how to become financially independent in the richest land that has ever been known. Why? We conform! Most of us are acting like the wrong percentage group — the 95 who don’t succeed.
GOALS Have you ever wondered why so many people work so hard and honestly without ever achieving anything in particular, and why others don’t seem to work hard, yet seem to get everything? They seem to have the “magic touch.” You’ve heard people say, “Everything he touches turns to gold.” Have you ever noticed that a person who becomes successful tends to continue to become more successful? And, on the other hand, have you noticed how someone who’s a failure tends to continue to fail? The difference is goals.
People with goals succeed because they know where they’re going. It’s that simple. Failures, on the other hand, believe that their lives are shaped by circumstances … by things that happen to them … by exterior forces. Think of a ship with the complete voyage mapped out and planned. The captain and crew know exactly where the ship is going and how long it will take — it has a definite goal. And 9,999 times out of 10,000, it will get there. Now let’s take another ship — just like the first — only let’s not put a crew on it, or a captain at the helm.
Let’s give it no aiming point, no goal, and no destination. We just start the engines and let it go. I think you’ll agree that if it gets out of the harbor at all, it will either sink or wind up on some deserted beach — a derelict. It can’t go anyplace because it has no destination and no guidance. It’s the same with a human being. However, the human race is fixed, not to prevent the strong from winning, but to prevent the weak from losing. Society today can be likened to a convoy in time of war.
The entire society is slowed down to protect its weakest link, just as the naval convoy has to go at the speed that will permit its slowest vessel to remain in formation. That’s why it’s so easy to make a living today. It takes no particular brains or talent to make a living and support a family today. We have a plateau of so-called “security.” So, to succeed, all we must do is decide how high above this plateau we want to aim. Throughout history, the great wise men and teachers, philosophers, and prophets have disagreed with one another on many different things. It is only on this one point that they are in complete and unanimous agreement — the key to success and the key to failure is this:
WE BECOME WHAT WE THINK ABOUT This is The Strangest Secret! Now, why do I say it’s strange, and why do I call it a secret? Actually, it isn’t a secret at all. It was first promulgated by some of the earliest wise men, and it appears again and again throughout the Bible. But very few people have learned it or understand it. That’s why it’s strange, and why for some equally strange reason it virtually remains a secret. Marcus Aurelius, the great Roman Emperor, said: “A man’s life is what his thoughts make of it.” Disraeli said this: “Everything comes if a man will only wait … a human being with a settled purpose must accomplish it, and nothing can resist a will that will stake even existence for its fulfillment.” William James said: “We need only in cold blood act as if the thing in question were real, and it will become infallibly real by growing into such a connection with our life that it will become real. It will become so knit with habit and emotion that our interests in it will be those which characterize belief.”
He continues, “ … only you must, then, really wish these things, and wish them exclusively, and not wish at the same time a hundred other incompatible things just as strongly.” My old friend Dr. Norman Vincent Peale put it this way: “If you think in negative terms, you will get negative results. If you think in positive terms, you will achieve positive results.” George Bernard Shaw said: “People are always blaming their circumstances for what they are. I don’t believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and if they can’t find them, make them.” Well, it’s pretty apparent, isn’t it? We become what we think about. A person who is thinking about a concrete and worthwhile goal is going to reach it, because that’s what he’s thinking about. Conversely, the person who has no goal, who doesn’t know where he’s going, and whose thoughts must therefore be thoughts of confusion, anxiety, fear, and worry will thereby create a life of frustration, fear, anxiety and worry. And if he thinks about nothing … he becomes nothing.
AS YE SOW — SO SHALL YE REAP The human mind is much like a farmer’s land. The land gives the farmer a choice. He may plant in that land whatever he chooses. The land doesn’t care what is planted. It’s up to the farmer to make the decision. The mind, like the land, will return what you plant, but it doesn’t care what you plant. If the farmer plants two seeds — one a seed of corn, the other nightshade, a deadly poison, waters and takes care of the land, what will happen? Remember, the land doesn’t care. It will return poison in just as wonderful abundance as it will corn. So up come the two plants — one corn, one poison as it’s written in the Bible, “As ye sow, so shall ye reap.” The human mind is far more fertile, far more incredible and mysterious than the land, but it works the same way. It doesn’t care what we plant … success … or failure. A concrete, worthwhile goal … or confusion, misunderstanding, fear, anxiety, and so on. But what we plant it must return to us. The problem is that our mind comes as standard equipment at birth. It’s free. And things that are given to us for nothing, we place little value on. Things that we pay money for, we value.
The paradox is that exactly the reverse is true. Everything that’s really worthwhile in life came to us free — our minds, our souls, our bodies, our hopes, our dreams, our ambitions, our intelligence, our love of family and children and friends and country. All these priceless possessions are free. But the things that cost us money are actually very cheap and can be replaced at any time. A good man can be completely wiped out and make another fortune. He can do that several times. Even if our home burns down, we can rebuild it. But the things we got for nothing, we can never replace. Our mind can do any kind of job we assign to it, but generally speaking, we use it for little jobs instead of big ones. So, decide now. What is it you want? Plant your goal in your mind. It’s the most important decision you’ll ever make in your entire life. Do you want to excel at your particular job? Do you want to go places in your company … in your community? Or simply, do you just want to get rich? All you have got to do is plant that seed in your mind, care for it, work steadily toward your goal, and it will become a reality. It not only will, there’s no way that it cannot. You see, that’s a law — like the laws of Sir Isaac Newton, the laws of gravity. If you get on top of a building and jump off, you’ll always go down — you’ll never go up.
And it’s the same with all the other laws of nature. They always work. They’re inflexible. Think about your goal in a relaxed, positive way. Picture yourself in your mind’s eye as having already achieved this goal. See yourself doing the things you will be doing when you have reached your goal. Every one of us is the sum total of our own thoughts. We are where we are because that’s exactly where we really want or feel we deserve to be — whether we’ll admit that or not. Each of us must live off the fruit of our thoughts in the future, because what you think today and tomorrow — next month and next year — will mold your life and determine your future. You’re guided by your mind.
I remember when I was driving through eastern Arizona; I saw one of those giant earth-moving machines. It was roaring along the road with what looked like 30 tons of dirt in it — a tremendous, incredible machine. There was a little man perched way up on top with the wheel in his hands, guiding it. As I drove along I was struck by the similarity of that machine to the human mind. Just suppose you’re sitting at the controls of such a vast source of energy. Are you going to sit back and fold your arms and let it run itself into a ditch? Or are you going to keep both hands firmly on the wheel? Will you control and direct this power to a specific, worthwhile purpose? It’s up to you. You’re in the driver’s seat. You see, the very law that gives us success is a double-edged sword. We must control our thinking. The same rule that can lead people to lives of success, wealth, happiness, and all the things they ever dreamed of — that very same law can lead them into the gutter. It’s all in how they use it … for good or for bad. That is The Strangest Secret!
Do what the experts since the dawn of recorded history have told us to do: pay the price, by becoming the person you want to become. It’s not nearly as difficult as living unsuccessfully.
The moment you decide on a goal to work toward, you’re immediately a successful person — you are then in that rare group of people who know where they’re going. Out of every hundred people, you belong to the top five. Don’t concern yourself too much with how you are going to achieve your goal — leave that completely to a power greater than yourself. All you have to do is know where you’re going. The answers will come to you of their own accord, and at the right time.
Start today. You have nothing to lose — but you have your whole life to win.
All the best,