As a student of market history, I know that many events repeat. I also know that bull markets last much longer than bear markets and that they are driven by the huge volume of Institutional buying. And it’s always a good sign for the Bull market when the big cap, “growth” stocks lead the way. The best demonstration of that may be Amazon which had another big run from $833 to $923, a whopping $90 move! Amazon, Tesla, FaceBook, and Netflix are great examples of the fast moving growth stocks that analyst expect to post strong earnings for 2017. Why is that important? Earnings are the prime driver of bull markets. They are necessary for the bull market to continue to attract the funds from the institutions. And these institutions drive the market by investing their funds into stocks. The hedge funds alone control over $3.2 Trillion, and that money is put to work everyday in the market place. How can we know that they are still putting this money to work? Just take a look at the volume of some of the leading stocks mentioned above.

Here’s my favorite swing trading stock – AMZN

Inline image 1 Here’s another of my favorites – TSLA. And this stock is worth watching for another move up. It continues to follow the 10 dma which is a healthy sign.

Inline image 3 Here’s another one – NFLX. This stock should make a move out of the consolidation pattern in the near future.

Inline image 2 Here’s another one – FB. FaceBook continues to be an institutional favorite.

Inline image 4 Let’s take a look at the leading sector of this bull market. It’s still Technology, and we can see back in January of this year that while the market went sideways, the Tech stocks continued. The recent consolidation has resulted in a trading range that has held up better than the SP-500. A good sign of higher prices to come.

Inline image 5 Back on April 2nd, our SOC Newsletter stated: “My long term “Herd” and my short term “Herd” are both on a neutral reading, which usually translates to more consolidation.” And the trading range has continued, in odds with the stats for April which say it is historically the best month of the year. But don’t count April out just yet. There is still a week of trading left, and conditions could be lining up for a new leg up in the market. The long term “Herd” is solidly in the buy zone and the short term “Herd” is close. Any downward or sideways movement of price would put it in the buy zone, giving us good odds that higher prices are near.

Inline image 1 Looking at the Nasdaq, we can see that this market is being driven by the “growth stocks” and we are once again at ATH levels. This 3rd attempt will likely be the one that pushes us to new ATH’s again, and as Bill O’Neil says, the third time is a charm. So while the media wants you to think that all if this is contingent on America’s politics and geopolitical events, I will just follow price and let the market tell me what to do. New students are always surprised to see that I only focus on 10 of the leading Nasdaq stocks and the QQQ’s, but if you look at the weekly charts of those same stocks, you will realize why I do that. Amazon going from $35 in 2009 to over $900 in 2017 is a perfect example of that. Does a trader really need to continuously surf 10,000 stocks when the superstar stocks are so obvious?

Inline image 3 Google – GOOGL had a nice run last week and continues to show us that the world all “googles” whatever they want to look up, giving the company a monopoly on searches. This of course leads to advertisers all continuing to use Google resulting in big profits for them.

Inline image 4 Apple – AAPL is showing a declining volume pattern (DVP) as it continues to trade sideways. Watch for Apple to make a move this week or next.

Inline image 7 Chipotle – CMG: So in these SOC Newsletters I could show you lots and lots of new IPO’s and other stocks to dazzle you with massive stock market “news”, or I can show you the basics of how stocks work. This break of the CMG down trend line is as old school as it gets. But it works! I have been using this for 38 years, so unless it stops working, I will continue to do so. CMG has made a $107 dollar run since breaking that trend line, and this stock could easily get back to $600 if the bull market stays intact.

Inline image 5 Remember what Jesse Livermore says: “The only leading indicator that matters is to watch what the market leaders do, the stocks that have led the charge upward in a bull market. That is where the action is and where the money is to be made. As the leaders go, so goes the entire market. If you cannot make money in the leaders, you are not going to make money in the stock market. Watching the leaders keeps your universe of stocks limited, focused, and more easily controlled.

Patterns repeat, because human nature hasn’t changed for thousand of years.

There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure.

Which brings us to our segment:

Let’s review the Market Insights from the great trader Jesse Livermore:

(We are taking them two at a time)

13. Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.

14. I trade on my own information and follow my own methods.

What Jesse is saying about losses, every trade knows deep down that he is right. You see, there are no successful traders who cannot take a loss and move on. Let’s try and prove this mathematically. What if you had 15 losses in a row on a $10,000 account. Not likely, but what would your account look like? Well, if you trade like a professional using a max 1% loss for every trade, you would still be in a position to figure out what you are doing wrong. If you use 7%, it’s pretty much game over.

Inline image 6

Bill O’Neil of Investors Business Daily, a man who I greatly admire, says in his best selling book “How to Make Money in Stocks” that a trader can use a 7% – 8% loss as his or her stop. Can you see what happens to the average trader at 7%? The retail trader cannot trade like a hedge fund or bank. They can ride out dips in the market with their long term horizons and huge trading accounts, we cannot. In my 38 years of being in the market, I don’t know of a single trader who has gotten down to 36% of his account and come back. And what if you did get back to $10K? Guess what, you are only back to where you started! And let’s don’t forget the whole point of trading is to generate profits and grow your account!

And I think what Jesse is saying in #14 is that you have to follow price and your own methodology. Again, in 38 years of trading, I don’t know of a single trader who has made consistent money following the news. And following your own method is a must!

Dr. Van K. Tharp, (a well known Professional Coach for Traders and Investors) says: “A mistake is when you don’t follow your rules. If you don’t have rules in trading, everything you do is a mistake.”

So in closing, I would say that as we look at the market over the last two months, we have had constructive consolidation. Very little selling over those same two months translates to higher prices at some point in the near future. Will that be this week? It’s unknowable, but very possible. The odds still favor higher prices for the market and leading stocks. The “buy the dip” strategy is still intact, and has been working amazingly well. As they say in Texas, “If it ain’t broke, don’t fix it”.

You may have also noticed more and more market “professionals”, “gurus”, and other newsletter writers talking about the “odds” this and that. Or how they now know that predictions don’t work. This is something you have heard from Stock Option Coach for the last 8 years of this bull market. More and more traders who have a following have found that their predictions continue to fall flat, and they are also realizing that this really is just a game of odds and probabilities. Welcome all to “sanity” in trading.

As I have been saying now throughout this entire bull market, “It’s a Bull Market till it ain’t”. (So far I’ve been proven right). And as all successful traders come to realize eventually, it’s not about being right or wrong. It’s about making consistent money in the markets, and being able to have a quality of life where we choose what to do with our time.

Remember, a great attitude and persistence will lead you to great heights in trading. And you really don’t have a choice. I have never met a successful, wealthy individual/trader who did not have those qualities.

All the best,

Coach

Randall Hudgens