• Weekly Top 5: Why Having A Process Is A Must For Success in ’13

    by  • January 4, 2013 7:00 am • Weekly Top 5 • 8 Comments

    Here is this week’s Weekly Top 5.  These are articles that weren’t in the headlines and probably under the radar, yet are still well worth a read.

    Here are the Top 5 reads of the week.

    • Phil Pearlman on what it takes to be successful in trading.
      • Phil is the Executive Editor over at StockTwits and is a true genius at integrating social media and trading.  Also I’m a fan of his for the way he views the market based on psychology and behavioral tendencies.
      • In this post, Phil discusses why most people will fail at trading and those that are going to succeed will have many failures along the way.  This isn’t an easy game, but one that takes many years of practice and constant learning.  To improve in ’13 he suggests focusing on just one critical aspect of your craft and master it.  Or as he puts it ‘crush it’.
      • I’ll be the first to admit that one of my weaknesses over the years is I’ve bounced from strategy to strategy, always trying to find the latest and greatest trading edge.  One thing I’ve learned over the past decade is there isn’t a holy grail.  I’ve greatly toned down what I look at on my charts and instead try to focus on just a few key indicators I believe in.  Along the lines of what Phil said, looking at too many things can let you take your eyes off the prize.

     

    • CNNMoney poll of various strategists and money managers looking for the SPX to close at 1,490 this year, up just 4.5% for the year.
      • Are there concerns out there?  Yes, absolutely.  None the less, given various indexes are close to new multi-year highs, it is simply amazing how much distrust there still is toward the market.   Whether is it hedge fund exposure, strategist allocations, or retail investors constantly missing this rally – nearly everyone has missed this multi-year rally.  For this one reason (and in a very simplistic way of viewing things), we continue to expect the rally to continue because so many don’t.
      • FWIW, I was in this poll and I’m looking for the SPX to close at 1,650 – a 16% move higher.

     

    • Speaking of hedge funds underperforming, the Wall Street Journal had this article noting they’ve underperformed for four straight years now.
      • The average hedge fund was up just 5.5% last year, according to HFR.  This is nothing new, as they’ve underperformed since ’09.  A lot of our work last year suggested they were drastically underexposed to equities, so this underperformance isn’t a shock.
      • Still, this hammers home a few facts.  First off, hedge funds have missed the rally.  At the same time, they do still have a huge amount of money on the sidelines which could be very bullish once they finally put their cash to work.
      • The chart below sums it up.

    • Derek Hernquist explains his personal process and what process means to him.
      • Out of anyone I follow, Derek does simply some of the best work on what it means to have a process.
      • He lists six beliefs that summarize his personal process.  Remember, we all should have our own process, but nothing wrong with seeing how others, who you respect, do it.
      • I won’t give all of them away, but these two beliefs resonated with me.
        • Market moves start inward and spread outward, so studying the “market of stocks” makes more sense to me than studying SPX
        • I have no way to “outknow” the information on any stock, sector, or asset class; time spent trying is time taken away from honing my true edge
    • Well said and I suggest everyone read what Derek has to say and figure out what process works best for you and hopefully this will help you have a very successful ‘13

     

    • AP story on why ordinary folks are losing faith in stocks.
      • This is nothing new, as the retail crowd continues to doubt this rally.  Still, this article was chalked full of great stats which hammer home just how much distrust there still is toward Wall Street from the eyes of Main Street.
      • My favorite stat was investors have pulled $380 billion from US stock funds since April ’07, while pouring more than a trillion dollars into bond funds – according to the ICI.  Simply amazing.
      • Not to be outdone, according to our data, last month was a record 20 straight months of domestic equity mutual fund outflows.  The lack of trust is alarming, yet incredibly bullish from a contrarian point of view.  Look at the Greek stock market.  This time a year ago their country was toast, all that happened was their stock market gained 30% last year.  I can’t stress this enough, you want to buy low ‘expectations’, not low ‘prices’.  To me, expectations toward US stocks are still extremely low.
      • Pension funds have historically been horrific market timers.  According to the article, “Private pension funds have cut stock allocation from 70 percent of their holdings to just under 50 percent, back to the ’95 level.”
        • Keeping this very simple, ’95 was a tremendous time to be accumulating stocks for a huge multi-year run.  This is just one stat, but still one that I think bodes well for the viability of this rally having substantial legs.

    Lastly, if there is anything you’d like me to take a closer look at or an article you feel is worthwhile, please feel free to mention it below.



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    About

    Ryan Detrick is the Senior Technical Strategist at Schaeffer's Investment Research in Cincinnati, Ohio. He joined Schaeffer’s in 2003 and is a frequent speaker and writer on stock market and economic issues and is widely sought after by financial media for his expertise and commentary. Mr. Detrick is a common guest on CNBC, Fox Business, and Bloomberg Television and has been quoted in outlets such as The Wall Street Journal, BusinessWeek, USA Today, Reuters, the Associated Press, and others. With a decade of financial industry experience in the investment and financial services area, strengths include short-term trading with an eye toward timely technical- and sentiment-based trading opportunities, and advanced option trading strategies. Mr. Detrick received a BA in finance from Xavier University, an MBA in finance from Miami University, and has earned his Chartered Market Technician (CMT).

    http://schaefferstradingfloor.com/

    8 Responses to Weekly Top 5: Why Having A Process Is A Must For Success in ’13

    1. Fact Finder
      January 5, 2013 7:25 am at 7:25 am

      Great set of articles, Ryan.

    2. akabeachguy
      January 4, 2013 12:44 pm at 12:44 pm

      I would love to see exactly what stocks Phil Pearlman and Derek Hernquist did well with.

      From where I sit, taking positions in individual stocks versus an index ETF is just too risky. Look at NFLX, AAPL, FFIV, CMG, APKT, MAKO, EA, SINA, BIDU, GMCR, RIMM, PANL, HPQ and the list goes on and on of stocks that would have handed you your head on a platter if you had taken any one of them even after allowing for a 50% haircut.

      You go into earnings praying to whatever higher power you pray to that earnings are much better than expected or not as bad as expected because if they are you know you are going to wake up bludgeoned the next day.

      Even the more conservative stocks of the DOW can slice and dice you. How about CAT’s drop from $94 on 9/19 /2012 to $82 and change on 10/15/2012. Or CVX from around $118 on 9/21/2012 to $101 on 11/15/2012.

      Trading today is next to impossible with HFTs, computer buy/sell programs that are based on who knows what and algos dominating the field. It is not just the retail trader who is long gone. Hedge funds numbers are down as well as big brokers traders numbers. Volume across all markets are down.

      So, how about those picks of the two fellows you admire? And if not them, what do you like? Give me a reason why I should even attempt to trade individual stocks when all the cards are pretty much stacked against me.

      • January 8, 2013 8:30 am at 8:30 am

        Some interesting points BeachGuy. I will say very short-term trading is a tough game and one I want no part of. I am a swing trader and hold for a few days to a few weeks. That just fits my personality. One big key to successful trading is finding what fits your personality.

        Along these lines, my favorite quote last yr came from Josh Brown when he said in order to beat high frequency traders you have to be a low frequency trader. The more I think about that, the more I like it.

        • akabeachguy
          January 8, 2013 11:51 am at 11:51 am

          Totally agree on the Josh Brown quote. Makes all the sense in the world. And have to agree on the short-term trading comment. Have for most part given up day trading in the last few months after trading for 14 years other than on days the markets make big down morning moves which almost always seem to be wiped out by late day lifts.

          For me, even for swing trades, I prefer Index ETF’s to take away the potential land mines as I outlined in my earlier post.

          Thanks for your reply. And know I always appreciate your views. All the best for 2013!

          • akabeachguy
            January 8, 2013 3:22 pm at 3:22 pm

            3:22 PM and TNA hits 69.80 – about to sell it

    3. akabeachguy
      January 4, 2013 12:38 pm at 12:38 pm

      I would love to see exactly what stocks Phil Pearlman and Derek Hernquist did well with.

      From where I sit, taking positions in individual stocks versus an index ETF is just too risky. Look at NFLX, AAPL, FFIV, CMG, APKT, MAKO, EA, SINA, BIDU, GMCR, RIMM, PANL, HPQ and the list goes on and on of stocks that would have handed you your head on a platter if taken any one of them even after allowing for a 50% haircut.

      You go into earnings praying to whatever higher power you pray to that earnings are much better than expected or not as bad as expected because if they are you know you are going to wake up bludgeoned the next day.

      Even the more conservative stocks of the DOW can slice and dice you. How about CAT’s drop from $94 on 9/19 /2012 to $82 and change on 10/15/2012. Or CVX from around $118 on 9/21/2012 to $101 on 11/15/2012.

      Trading today is next to impossible with HFTs, computer buy/sell programs that are based on who knows what and algos dominating the field. It is not just the retail trader who is long gone. Hedge funds numbers are down as well as big brokers traders numbers. Volume across all markets are down.

      So, how about those picks of the two fellows you admire? And if not them, what do you like? Give me a reason why I should even attempt to trade individual stocks when all the cards are pretty much staked against me.

      • akabeachguy
        January 4, 2013 12:56 pm at 12:56 pm

        sorry for the double print – seemed like first attempt failed

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