This is a book by Anthony Gallea. Came across it in the library some weeks ago, and picked it up because I recall Jim Cramer saying the title of this book before in his programme. The book mainly has tips for short-term traders that uses technical analysis. It is an easy read as it is organised into many bite-sized tips which is usually 1-2 pages per tip. I have not highlighted those below as I subscribe more to the value investing philosophy. Some quick notes:
- Watch for rising commodity prices – Rising commodity prices are bad for stock prices (copper and oil are essential products). When you’re in a bull market, look at commodity products to see if you will be hitting a ceiling.
- Odds are against short sellers – The stock market rises or stands still about 80% of the time, hence it favours buyers over sellers. If you are going to be a short seller, you have long odds against you. Odds of successfully shorting a stock is probably 1 in 20 or 1 in 30.
- Invest in haste, repent at leisure.
- What to buy in recovery – In a market recovery, good investments will recover quickly and poor ones will stay down. When deciding what to buy, look to the upside leaders.
- Hmm – 3/4 of all stocks rise in a bull market. 9/10 of all stocks fall in a bear market.
- Buying during dips – Investors should buy more as an investment rises in value. If you have an approach that buys during dips, you will be in a mental state of mind that dictates holding on, and dip buyer would typically not have protective stops.
- News fully priced-in in 3 days – Legendary S&P trader Marty Schwartz has a rule of three: by the third day, the news is fully priced into a security. On the first day, people learn about the news and react by buying/selling. By the second day, clients of brokers have all called them back and have acted. In addition, analysts have posted their comments and their institutional clients have acted. By the third day, only a few people are coming into the market on the news, meaning that the stock will tend to settle down after a strong/weak opening.
- Weather is important – If it’s going to be a cold winter, heating costs will rise, which is good for oil, natural gas, and other energy stocks. That can slow retail sales as people divert money to utilities. As a result, retail stocks may suffer. Inflation could be a problem, which would have an impact on the bond market.
- A/D line to confirm trend – The advance/decline (A/D) line can be used to confirm a market trend. Note that it can lag the market for some period of time and is a slow-moving thing.
- Gold! – In a bull market for gold, you want to own the stocks of gold mining companies, because of the effect of leverage (cost for such companies generally fixed hence % increase in profits is more than % increase in gold price). Do homework to see how much production has been sold forward at fixed prices (if a lot, leverage is muted). The leverarage effect cuts both ways. In a bear market, you want to own the metal because the leverage to the downside is absent but you still have exposure. In a rip-roaring bull market for gold, junior mining stocks have the most leverage of all.