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I made it back from vacation in time to post tonight. Are you convinced yet that we are in a decline–day 5 (D-5) to be exact? Yes, I did sell my CME too soon, it soared 50 points after I sold it. If I had not planned to be away from the market part of this week, I would have been content to just set close sell stops. But with the GMI weakening, I did not want to risk losing any of my profit from this relatively short rally. We remain at +3 with the indexes rapidly weakening. Only 16% of the Nasdaq 100 stocks rose today, along with 27% of the S&P 500 and 7% (2) of the Dow 30 stocks. Note that less than one half (121 or 42%) of the 291 stocks that hit a new high 10 days ago closed higher today than 10 days ago. 71% of the stocks in my universe of 4,000 closed above their 10 week average.
While on vacation, I watched Cramer yesterday warn his audience that "madmoney" pertains only to extra funds that a person has–excluding pensions, IRA’s and 529 plans. In other words, don’t speculate with those assets which you need for the future and can’t risk. I think maybe he is retreating in the face of some of his disastrous picks. Take a look at General Mills, one of his "safe" stocks that he has been touting for weeks as a defensive stock. We all need to own safe, defensive stocks like this. I guess Cramer would call GIS a "bargain" now. If you don’t like this one, take MSFT or CSCO or DIS, other Cramer picks that have weak charts. (He did get CME and GOOG right thus far, however.)
I am critical of Cramer because I think he is misinforming the public. He tells everyone never to use market orders-just use limit orders. But he fails to add that a limit order may fail to get you out of a rapidly declining stock. (If you place an order to sell a stock at a limit of 20–$20 or better—-you will not be sold out if the stock opens below 20 and keeps declining. This is why the really successful traders use stop orders that get them out of a stock at market– next best price available. When things turn bad, I want to get out immediately, and do not quibble about getting the extra nickel or dime or quarter per share. So what if the broker rips off a few more pennies, as Cramer claims–I lose much more if I fail to buy a rocket or sell a loser.
And then Cramer has the audacity to say that he has tried all of the analytic software and it does not work. Charting is worthless–you need to concentrate on fundamentals, he says. Well, first of all, most people do not equate technical analysis with mindless software programs that replace the trader’s insights with automatic buys and sells. And most successful technical analysts (O’Neil, Darvas, Weinstein, Livermore–check out the book listed to the right by John Boik) incorporate fundamental analysis with their chart patterns. You can have a great company, but if no one discovers it or if it takes years, it is not going to make you a fortune in your lifetime. The charts help me to time my buys and sells and to discriminate between promising stocks.
Finally, I think that it is irresponsible to urge people to buy more of the same stock as it declines. The great successful gurus all tell people NEVER to average down, to spend good money after bad. I think I know why Cramer preaches what he does. He is among the few lucky persons who built their fortune in the great market bubble of the late 90’s. During that time one could buy a tech stock as it fell and then be saved as the market climbed to a new peak. (However, note that Cramer had to be saved by his wife, the trading goddess, a number of times when his losing positions almost drove him out of business.) But TODAY, gone are the days of the bull stampede when you could buy a declining tech stock knowing that a crowd of greater fools would eventually buy it back from you. Cramer’s methods are simply out of step with the post-bubble, less bullish market environment……………………….
So, I am mostly in cash. I do own puts on a stock and on a market index. This year could turn out to be typical of post-election years that are followed by a year of miserable stock market performance.
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Please remember that the stock market is a risky place, especially now. I am not providing recommendations for you to follow. My goal is to share tools and methods that I have used over the past 40 years of trading, so that you may learn from them and adapt them to your trading style and needs. While I do my best, I do not guarantee the accuracy of any statistics computed or any resources linked to my blog. Please consult with your financial adviser and a mental health practitioner before you enter the stock market, and please do not take unaffordable risks in the current market environment. See the About section for more statements designed to protect you (and me) as you navigate this market. Past performance does not guarantee future results, but I would rather learn from a former winner than a loser.