Only thirteen stocks made my new highs screen based on specific criteria as described in this post. Of the thirteen stocks, half were from the oil and gas industry which tells me that it’s a short term leader during any up-trends in the recent market downturn. Steel and iron, specialty chemicals and synthetics were also among the few stocks making new highs on strong looking charts (when compared to recent beaten down leaders).

Each of these industry groups fall under a broader sector labeled “basic materials”. It couldn’t be clearer as to where the smart money was throwing funds today as volume spiked across these industries and especially among the stocks making new highs.

I understand that recent market leaders such as AAPL, BIDU and JASO (up more than 12%) were also higher today but they are still far from new 52-week highs and some are still under key moving averages such as the 50-day.

Basic Materials: Independent Oil and Gas, Specialty Chemicals, Steel and Iron and Synthetics flexed their muscle today and the stocks below were among the few making new 52-week highs. Making new highs after the recent market downturn speaks volumes for the relative strength of these stocks. Several of them are extended from ideal entry points but do not leave these off any near term watch lists on the long side.

Trade the trends – one of the simplest methods to make money in this world. I am not calling for a bull market but these stocks have support from the smart money and I have no problem jumping aboard even if it only last a short while.

Stocks hitting New Highs Monday on Strong Volume:

• MTL – 111.60, Mechel Steel Group was up 10.60% on volume 97% larger than the daily average
• EOG – 98.43, EOG Resources was up 4.58% on volume 112% larger than the daily average
• SWN – 61.87, Southwestern Energy was up 6.54% on volume 63% larger than the daily average
• RRC – 59.61, Range Resources was up 4.82% on volume 19% larger than the daily average
• NEU – 60.97, Newmarket Corp. was up 3.90% on volume 341% larger than the daily average
• KWK – 32.03, Quicksilver Resources was up 7.48% on volume 21% larger than the daily average
• CCC – 18.09, Calgon Carbon was up 8.13% on volume 148% larger than the average
• WMS - 39.85, WMS Industries was up 3.45% on volume 65% larger than the daily average

Study the charts as they are among the best looking in today’s market. It’s hard to buy new highs, especially in this weak market environment but if you must buy long, think about these candidates.

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I get this question often and always offer the same answers to allow the person to determine if they can trade full time. I don’t trade full time and I am not sure if I ever will because I am great at what I do: trend trade longer time frames.

Take this quick quiz and honestly determine if you are built to trade full time:

• Are you properly capitalized?
  I wouldn’t suggest anyone start to think about trading full time until they have at least six figures that can be used solely for trading. Living expenses must come from other income or saved funds. Without six figures (and the more then better), I suggest you continue to build your stake.
• Are you a successful part time trader?
  Why do you think you can succeed being a full time trader if you haven’t made money as a part time trader? Have you built your own stake to six figures trading part time? If so, you pass this question with flying colors.
• Have you developed a system that works?
  Does your system have a positive expectancy? Have you back tested the system (I don’t hold too much weight to this question)? Do you understand position sizing and do you implement it properly so you don’t blow-up with one or two trades?
• Does your system offer enough opportunity?
  Without opportunity (multiple trading signals per day/ week), you will not be able to achieve your system’s expectancy. A lack of opportunity may skew your results and turn your anticipated positive expectancy to a negative expectancy and cause you to go broke.
• Can you handle your emotions?
  How do you handle your emotions now with longer term positions or part time trading? Do you follow your rules, all the time? Will you have pressure to make money every month, week or day? Can you handle being alone (most cases) and staring at a computer for large portions of the day?
• Finally, do you have spouse or other influence that will interfere with your endeavor?
  A spouse, friend or family (member) can have a negative affect on your trading that may result in subconscious sabotage. Outside negative forces or nagging pressure people may lead you down a path that is not controllable because you are trying to prove something rather than “just trade” based on your acquired skills. Make sure the closest people in your life support you while making the move to full time trading.

We must understand that investing is NOT about winning and losing, it’s always about the bottom line or net result. Once an investor accepts this statement as truth, they will see their bottom line grow. It took me several years to finally believe this statement and train my emotions to also believe it. As humans, society trains us to win at everything and this cripples the potential success of most novice investors and seasoned investors alike.

I have an article to share that I read about 3 years ago.

Lessons Learned after 25 Years of Trading
By: Thomas N. Bulkowski

NOTE: Bulkowski refers to two charts in this article but I do not have the images to upload here. The original article was published in the September 2005 edition of SFO Magazine, a publication about Stocks, Futures & Options.

Profits lost can be lessons learned. Eight simple lessons taught by the greatest teacher of all - experience.
Trading stocks doesn’t require a college degree. A trader’s education may begin at a bookstore or be handed down from relatives. Even before I earned my driver’s license, I became interested in stocks. After college, I contacted two dozen investment firms and reviewed their prospectuses for my first investment: a money market fund. I paper traded stocks for four years before I bought my first one, mostly because I didn’t have the bucks to invest, but also because the riskiest investment my parents ever made was in a U.S. savings bond. The result was worth the wait as I made 88 percent on that first stock. Over the years, I learned a number of lessons worth sharing, and although simply reading them cannot prepare a trader for the profits and losses and the stress of placing trades, it’s certainly a start.

Half of All Trades Will Fail
This surprises most beginning traders. My lifetime win/loss record is 49 percent, and it falls in the 40-percent to 60-percent range that many professional traders are rumored to maintain. How often a trader wins or loses is less important than how much they win. If a trader makes a million dollars in one trade and loses $10,000 in each of ten trades, he still has $900,000 to play with despite a win/loss percentage of just nine percent.

Use Stops to Limit Losses
If half of all trades fail, then a trader needs to know how to limit losses and maximize gains. One easy way to do that is to use a stop-loss order. . I bought 400 shares of Linens ‘N Things at 31.75 after the earnings announcement caused the price to gap up, forming what I call an earnings flag – a generic term for a price pause after an earnings announcement. I sold at 35.20 when price pierced an up-sloping trendline drawn beneath the valleys, confirmed by other technical indicators I follow and a downward turn in the general market. I made $1,350 in a month – more than ten percent on the trade.

As price climbed, I raised my stop from 28 to 30.84, to 32.13 and finally to 33.23. Notice how the numbers are oddball ones, not 31, 32 or 33.25. I don’t use round numbers, as they are common support or resistance zones. I place my stops below the support zones, trying to give price every opportunity to move higher.

When price climbed above the prior peak and made a new high, I raised the stop to a few cents below the nearby valley. Peaks and valleys are places where price is likely to find support, so they make handy stop-loss locations.

Notice how price formed a second peak at 36 and change – a double top – before sliding down to 24. Holding onto this stock and riding price lower would have been a costly mistake. That’s why stops are so important.

Scenario Trading: Ignore News
I read the business press daily but don’t pay much attention to trends they see forming. I remember a columnist in a weekly news publication touting that gold was a buy. Once a month, he’d quote a different expert who said the price of gold had bottomed and now was the time to buy. Gold continued down. A full two years later, his prognostication finally came true. Gold bottomed. Anyone buying gold stocks during his bullish buy signals would be choking on the metal.

Scenario trading is believing the sound bites and trading on them. The times I have invested in a scenario, I find myself so confident of the analysis that I invariably lose big, taking losses that are 15 percent or higher instead of the usual five to ten percent. As price drops, I average down (buy more at a lower price), compounding the loss. Averaging down is a wonderful technique for buy-and-hold investors willing to wait years for a stock to recover, but it leads to large losses for traders. Don’t average down, and don’t believe the scenarios spun by the news outlets. The purchase may be near the peak, or from a portfolio manager who is dumping his shares.

Let Profits Run
Want to make a bundle in the stock market? Don’t trade. If a trader uses the weekly scale for signals, he will make more money per trade than if he uses the daily scale. If a trader uses the daily scale, he’ll make more money per trade than if he trades intraday. As the trading frequency increases, the per-trade profit decreases. This makes intuitive sense. A stock can double in a year, but a trader would be hard pressed to double his money in one intraday trade.

Day trading allows a trader to make small amounts of money numerous times in one day. Position trading allows a trader to make a larger amount of money, but it may take days, weeks or even months to achieve the results.

I’m not knocking day trading. What I am suggesting is that a trader should let profits run. Don’t be so quick to sell. Whether day trading, position trading or buying and holding, there will come a time when it will be wise to sell. Wait for it. Follow a few stocks, and get a feel for how they move. Learn to predict significant price turns.

**I am having some trouble loading the rest of this article so stay tuned as I try to get this fixed***

Wordpress 2.3.3 is acting very wierd over the past few days as i am having trouble saving drafts. Any ideas?

Too many talking heads and so-called market experts continue to make predictions on the market, the economy and the general direction of this country (and the world for that matter). I can’t stand predictions (except for Plaxico Burress’ prediction prior to the Super Bowl last week – Go Giants).

I have compiled a list of excellent quotes to combat the constant bombardment of predictions on television, in magazines, on blogs, the internet and on the nightly news; I love quotes and agree with the ones below 110%!

Try and predict the market while trading and you will go broke, that I can predict with certainty. The men and women below couldn’t have been more correct when speaking of the ignorant dopes that try to predict everything in life! When will the predictors learn to shut up? I know: when idiots stop listening to them and paying for their garbage (see best seller doomsday list).

Enjoy, it’s a fun post today!

• “Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” - Lao Tzu
• “He who knows, does not speak. He who speaks, does not know.” - Lao Tzu
• “Never make predictions, especially about the future.” - Casey Stengel
• “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.” - Peter Drucker
• “If one could foresee the next three days, one could become rich for several thousand years.” - Anonymous
• “If you learn one thing from having lived through decades of changing views, it is that all predictions are necessarily false.” - M. H. Abrams
• “I figure lots of predictions is best. People will forget the ones I get wrong and marvel over the rest.” - Alan Cox (the MEDIA!)
• “History can predict nothing except that great changes in human relationships will never come about in the form in which they have been anticipated.” - Johan Huizinga
• “You can only predict things after they have happened.” - Eugene Ionesco
• “In the future, instead of striving to be right at a high cost, it will be more appropriate to be flexible and plural at a lower cost. If you cannot accurately predict the future then you must flexibly be prepared to deal with various possible futures.” - Edward de Bono
• “You never know what the next day is going to bring. That goes for football, goes for off the field, and I gave up a long time ago trying to predict the future and trying to deal with things I couldn’t deal with.” - Brett Favre
• “Predictions of the future are never anything but projections of present automatic processes and procedures, that is, of occurrences that are likely to come to pass if men do not act and if nothing unexpected happens; every action, for better or worse, and every accident necessarily destroys the whole pattern in whose frame the prediction moves and where it finds its evidence.” - Hannah Arendt
• “To predict the behavior of ordinary people in advance, you only have to assume that they will always try to escape a disagreeable situation with the smallest possible expenditure of intelligence.” - Friedrich Nietzsche
• “The unpredictability inherent in human affairs is due largely to the fact that the by-products of a human process are more fateful than the product.” - Eric Hoffer
• “My predictions are notably inaccurate.” - Robert Caro

And Finally…

• “The best way to predict the future is to invent it.” - Alan Kay

What else can I write about after the major indexes dropped 2.93%, 3.08% and 3.20% (DOW, NASDAQ and S&P 500)? Volume wasn’t overwhelming for the day but peaked during the hours of the major decline. The first two days of this week have basically wiped out all of the gains from last week while the S&P 500 has now recorded its worst year-to-date start in the index’s history (according to Investor’s Business Daily).

Avon Products, Church and Dwight and Apollo Group were among the stocks making a positive move this week. These are not the stocks you want to lead a strong market (we all know it’s far from strong). Cosmetic, personal care, household and education industries are all related to defensive moves for investors. Run for cover from the former leaders when these stocks rise to the top.

However, the names below may provide for nice safe havens while this market sorts itself out. Their relative strength ratings are holding steady and their declines from recent 52-week highs (some at all-time highs) are rather impressive when compared to the fallen leaders that are now off by as much as 60%. Even long time superstars such as AAPL are off by almost 40%, GOOG by 30% and MDR by 30%.

Will Institutional Investors park Money here?

• CPLA – 60.70, a primetime $60-$100 candidate as the stock corrects back towards the 200-d m.a. for the first time ever. A nice moving average (accumulation) buy - not far from all-time highs
• MA – 206.78, even with the credit crisis, this stock is within a few dollars of its all-time high. Continue to accumulate shares along the long term moving day average. Remember, MasterCard isn’t responsible for default loans (the banks are).
• POT – 139.86, what was I smoking when I passed up POT on numerous buying opportunities in 2007. I guess I can realistically say that it never pulled back to the 200-d m.a. so it slipped my best risk/reward screens. Still a place for funds to park money
• FSLR – 178.00, the stock has corrected by 50% since hitting its peak but it is still holding the 200-d m.a. strong, a sign of institutional sponsorship
• JASO – 50.25, still a nice play as it challenges the 200-d m.a. for the first time since the IPO debut last February. The Olympic hype, solar angle, IPO aspect and increasing earnings should keep this one flying.
• RIMM – 88.30, the blackberry stock has corrected back to the 200-d m.a. for the first time since 2006. The correction is welcomed so let’s watch to see if it can hold the line. A nice accumulation area if it holds its weight. Keep an eye of the 10/30-week crossover to the downside (a negative signal).

None of these stocks are recommended buys when the “M” in CANSLIM is weak but do keep an eye on them and accumulate when you find the best risk-to-reward setup and a sign of life in the market.