Talked to your broker or financial planner lately? Probably. The slowdown in the economy is causing the stock market to go down. Of more than 5,000 stocks on the Nasdaq over 1,000 have lost 90% of their value and more than 200 have lost 99%. The Index is off 58% from its highs. Pretty scary for ‘Buy and Hold’ believers.

When you ask your broker what to do he usually gives you the standard Wall Street conventional wisdom, “You are a long term investor. You are in for the long haul. The market always comes back”. Now ask yourself, “In my lifetime?” Having traded for more than 30 years I will tell you any stock that has dropped 90% will never go back to its old highs and the Nasdaq Index will go lower before it goes higher. The most optimistic opinion I have is it will be 10 years before we see any kind of approach to 5100.

But you don’t have to worry about that because your broker says you are a long-term investor and not a speculator. Folks, there is no difference between an investor and a speculator except the time period. Yes, you are a speculator, but in order to become successful you must learn some of the basic rules.

Rule One. Never take a big loss. Know how much you are willing to risk when you purchase a stock or mutual fund. Let’s suppose you bought CatsnDogs at $60/share. You invested $6000. What if it went down instead of up? Are you willing to take a loss of $1,000? Are you willing to sell it immediately to safeguard what is left of your capital or would you prefer to watch it slowly it drift down to $12/share with a loss of $4,800 with possibility of it’s going even lower. In a heavily traded issue it could take years before you ever get back to “even”. What if the stock’s name was Lucent?

Always place an open stop-loss order when you buy any stock and have a mental stop for any mutual fund. Despite what Wall Street tells you mutual funds do go down. You should never blindly buy a “good” fund and put it away. Again, know how much you are willing to risk before you make the purchase.

Rule Two. There is no such thing as a “good” stock or mutual fund that you buy and hold forever. Yes, many stocks and funds go up, but just as many have huge price retracements and you don’t want to own them while they are going down. Is U.S. Steel a “good” company? If you had bought the stock any time in the last 5 years you would have a loss. Why would anyone want to keep it? The object of buying any stock is to make money not sit on it like a china egg.

The talking heads in CNBC-TV all tell you to buy and hold and it is a lie. It tells me they don’t understand their trade. They are not professionals because all the successful professional traders I know would never do this.

Despite what your broker tells you you are a speculator. You are a long-term speculator. If you want to double your investment returns you have to change your thinking.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

We have established why a stop loss order is a requirement for the successful investor. Now let’s look at some of the simpler methods.

There are 3 basic methods (and many more we will not discuss here) for stops that almost anyone can master. They are percentages of the price action, moving averages and support areas. These cannot be covered in detail here, but you can do further research on your own.

Any stock, fund or Exchange Traded Fund (ETF) you buy you think is going to go up, but there is the chance that it may go in the other direction. The stock you buy is $50 per share. You certainly don’t want to hold it while it goes to $25 or $10 as many did in 2000. Your first thought should be how much am I willing to risk if I am wrong and that is called your loss limit. Let’s pick an arbitrary amount of $5.00 per share. That’s 10%. If it goes down that is the maximum amount you will lose and you still have 90% of your money remaining to find a better investment. When it goes up you will want to protect your profit by moving the stop up.

When an equity advances to $55.00 your stop of 10% should be moved to $49.50 that is 10% 0f $55. When it goes to $60 your stop is now $54. Nothing complicated here. There have been many stocks that gone from $20 to $250 and then down to $2.00. Think what a stop loss would have done for you in that case.

As I have said before never buy anything unless it is going up. That same $50 stock was moving steadily higher in a rather narrow trading range. If you decide to use a 20 day moving average you will have to do the calculations either daily or weekly. You add up the closing prices for the past 20 days and divide by 20. This should be done once each week and the number calculated is your stop loss. Again nothing complicated. The steeper the advance the shorter should be the number of days for the moving average. If you are lucky enough to have one of those skyrockets you might even be down to a 5DMA. Some traders use a 50 day MA and others even a 200day MA. Mutual funds lend themselves to the latter,

Finding support and resistance points requires a more sophisticated approach. This is something you are going to have to study. There are many places on the Internet that have short explanations with examples of how to determine these points.

Briefly you watch a stock, fund, ETF run up and then you see it stop and set back like a stair step. It will rest for a while with a short up and down sideways pattern that forms before the next move higher. Your stop should now be down at the point the recent up move started. When it advances again this current formation becomes the stop loss point. This is not mechanical and requires a more experienced trader to determine these points. Once you learn this technique you will also begin to see the orderliness of the market.

The mastery of an exit strategy with stop loss orders will immediate put you in the top 10% of all investors. Learning how to sell is the key to successful investing.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

Did I spell that right? What I mean is change happens. Like what we are seeing now in the stock market. In the Spring everything was headed down. For most of the Summer stocks were going sideways with few exceptions. The down-movers had made their lows and a few stocks were beginning to head up. The sideways pattern is over and we are now in the next bull leg up. The shift has happened.

Many people like to buy individual stocks, even IPOs, both of which I shun like the plague even though I am a former exchange member and floor trader. I have gotten lazy and learned (the hard way) it is not necessary to spend hours and hours each day in front of my computer screen, watching prices and charts. Now I let someone else do the heavy lifting; that is, pick good stocks that are going up.

How do I do it and how can you do it also? There are a few good stock pickers (believe me, very few) who not only know their stuff, but are also lucky to be in the right place at the right time. Anyone can hire these people to manage their money and not have it cost them one cent. Let me explain.

The only thing I buy is no-load mutual funds that are going up. The fund manager does the stock picking and you buy these funds through a discount broker. Therefore, no commission. There are more than 1,000 mutual funds that can be purchased for zero commission. The discount brokers call them NTF funds - no transaction fee. You want to be buying these for your IRA and SEP retirement accounts and now is the time.

You also want to review the stocks and mutual funds you now own to see if you need to shift (that word again) to a different issue. Every week you will find a list of the best performing mutual funds for the past 6 months on the front page of section 2 in Investors Business Daily. These are where you should be because these are the ones that are going up NOW. Never mind the 3-year and 5-year record of any fund; that is ancient history and it won’t make you any money. At the race track I don’t care if the horse I bet on won 3 or 5 days ago - is he in front of the pack NOW? If he isn’t then change your bet. You can’t do that at the track, but you can do it with mutual funds. Shift.

You cannot have loyalty to a fund, a fund manager, a broker or anyone. Your loyalty belongs with your money. Unless you take responsibility for watching it I can assure you no broker is going to do it for you. Once each month you should be reviewing your holdings to be sure they are maximizing your returns.

Time to let the shift happen.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

Think about this one. Has your broker EVER recommended that you place a stop-loss order on a stock after you have bought it? Ninety-nine percent of the brokers never think about helping you protect your capital. In fact these brokers are not taught this very important technique. The brokerage companies don’t realize that by helping you get out of a poor position it gives them more of your money to trade again to make them even more commissions which is all they really care about.

You see, they don’t want to recommend stops because if you sell out you might take your money out and that’s a no-no. Or worse yet, you might blame the broker because the stock went up after you were out and now you are mad. Let me draw on my 30 years of experience as a trader and let you in on a little secret. Three weeks to 6 weeks after you have been stopped out of any position that individual issue is going to be lower than where you sold it in about 75 to 80% of the time. When you are at the gaming table you must go with the odds.

I hear your protests. "But I’m not a gambler, I’m a long term investor" No, you’re not. You are just as much of a speculator as the day trader; the only difference of the time frame. To make a substantial return on your investment you must keep you funds working with profitable stocks or mutual funds all the time. You cannot afford to buy something and have it drop in price and then wait months or years for it to come back "even". It is not "even" because you have lost the investment power of your cash by not being in some other stock that is going up NOW not some nebulous time in the future.

Stops are easy to figure. Don’t ask your broker; he probably doesn’t know. Very simply you might place a 10% stop below the low of the previous 2 weeks and keep moving it up every Monday morning. Let’s take a look at what might have happened in this recent crazy tech market. Microsoft went to $119 and as of this Friday, May 26 was $61; WorldCom went to $64, now $37; Palm $165, now $21; E-trade $72, now $15; Ask Jeeves $190, now $20; Red Hat $151, now $17 and there are plenty more like this. Many are 80% lower and it is doubtful we will see new highs in our lifetime. If you owned any of these last year and did not have a stop sell you are hurting today.

And if you did get stopped out and it went to a new high you could buy it back again placing the same kind of stop. Using this method to sell is letting the market tell you when to get out and not guessing that this is the high. You don’t know. Neither do I. Let the price action tell you. This is what the professionals do.

You must learn how to use stops or you will never make real money in the market.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

Last year you could have used a dart, thrown it at a stock page in the newspaper and bought that stock. By the end of the year you probably would have had a nice profit. This year you can retrieve your dart, throw it again, and there is about a 90% chance that any stock you hit will be down from its previous highs. What’s going on?

Even with my more than 30 years experience of trading markets there is one simple answer - more sellers than buyers. I’m not being facetious. In all those years I can’t recall a market that went up this quickly, but I have seen them come down even faster. Remember the 20% loss of the DOW in 1987? In one day! Many of you don’t. This break is a good lesson for those who failed to put trailing stop loss orders on all their stocks.

Your broker certainly did not recommend a stop. His company discourages that sort of thing. Why I will never be able to logically understand, as it would benefit both the customer and the brokerage house. How? If you were sold out at a much higher price than that dog you have in your account now you would have more capital to invest when the market turns up again. You are a happy camper and the broker makes more commission because you have more money in your account to invest.

Check out the stocks or mutual funds you now have in your portfolio. See where you would have been stopped out if you had had approximately a 10% trailing stop loss. I can almost guarantee you would have more money in your account today than you do right now.

Let’s try to use some common sense to figure out why this market is going nowhere at this time. Think of all the people who are sitting on stocks that are selling for less than they paid for them. A lot, huh? I can bet many of them are saying to themselves, "I’m going to sell XYZ as soon as it goes up to where I can get out even". This effectively puts a cap on any strong rally.

What are the pros doing here? Each time the market falls near its former lows they are in there buying from those people who have become discouraged and no longer want to wait for the market to head up. This is support.

We have a group willing to sell their shares when there is a rally and another group willing to purchase shares when the market starts down which gives us the reasons for this sideways market.

It is very difficult to make money in this type of situation so you must be very choosy with your purchases. Fundamentals don’t apply well here. Technicians can make money provided they will sell with small profits. For those interested in the long term they must be patient enough to wait for the next leg up.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

No, not the money you have in your brokerage account, but mutual funds. This year so far more than 600 mutual funds have vanished. Where did they go and what happened to the money in those funds that belongs to the investors? The mutual funds were either liquidated or merged out of existence.

Not to worry. Investors did not lose any money, but there could be tax consequences. If the mutual fund is in a tax-sheltered plan of some kind it won’t make any difference as far as taxes go; however, if the investor is not in a tax shelter he will be responsible for the capital gains taxes, if any. When a fund manager liquidates a stock for a profit within the portfolio the profit must be declared and a capital gain distribution sent to all investors in the fund.

The situation is different if there is a merger. The stocks within the fund are absorbed into the surviving fund and may or may not be sold depending on the investment philosophy of the fund manager. For the investor who wants to be invested in a particular type of fund this may deviate from his personal goals.

The big and famous funds don’t merge or liquidate, but in fund families such as Fidelity, Liberty, Janus, etc. they have been known to merge their weak funds into stronger ones. The prime reason being that the fund is not making any money and is unable to attract new investors. Usually the fund is taken into one that has a similar portfolio and this helps a fund family as it buries the losers and shores up their overall track record. It does reduce overall expenses and works to the advantage of the investor. You must be aware that sometimes money is moved from one non-performing fund to another. You have to find this out for yourself.

One good thing about the liquidation of a poor performer is that it forces the investor to move his money from a bad situation to (hopefully) a better one.

This year is not going to be a banner year for the majority of mutual funds. It should force many investors to take a closer look at what these fund managers have done with their money. At this time it might be a good idea to evaluate what your funds have done for you lately. If over the past few years they have not outperformed the S&P500 Index it would be a good time to sell to take a cash position until after the first of the year. You don’t want to own a fund that has gone down in value that might hit you with a capital gains distribution on which you must pay taxes. That adds insult to injury.

Be aware that this last quarter is when most liquidations and mergers occur. Five percent of all mutual funds will be gone by the end of the year. If you have a small mutual fund that has poor performance it just might disappear.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

Ever wanted to know a proven method to track the trends and make the trend of the market your personal friend?

Here’s how you can do so:

1. Find a short term moving average. Use 20 days simple moving average

2. Find a longer term moving average. Use 65 days simple moving average.

Look for a “golden cross” to denote market trending upwards to buy when the 20 days simple moving average crosses over the 65 days simple moving average. When this happens we know the short term average of 20 days is stronger than the 65 days average, suggesting currently the market is trending upwards and is in strength.

Conversely, look for a “dead cross” when the market is trending downwards to sell when the 65 days simple moving average crosses over the 20 days simple moving average. When this occurs, we know the short term strength of the market is weaker than the past 65 days and the market is falling off from its high prices.

While we can follow the trend in this way and avoid a lot of whipsawns by taking such periods of the simple moving averages, we actually do suffer the drawback of a less sensitive indicator. If we wish to be more responsive, and are willing to suffer some whipsaws as well, we can modify the moving averages to shorter duration moving averages, such as a crossover between a 7 day and a 15 day simple moving average.

Trend following systems are always lagging, so they are always slower than what we would like to have, and are in fact confirmatory. These systems are generated and always sighted AFTER the market has turned.

But when you adopt this as a trading method, over the long term, you will find you will be able to track the trends of the markets effectively, and will turn out to be a winner in the stock markets.

Peter Lim, Certified Financial Planner, has been a registered dealer representative and is currently a Trading Coach and author of several ebooks on stock market trading and investment. He provides a free Swing Trading course and many free resources at http://www.online-guides.info/Swing-Trading Learn about his Swing Trading method at http://signaldot.poolofwisdom.com/swingbook.phtml

Because almost everyone has been baffled by Wall Street baloney they have accepted the conventional wisdom that every investor needs a stock broker or financial planner if they are going to invest in the stock market.

That would be true if brokers and planners were trained to not only pick stocks, but also protect the investors’ money. Neither is true. That seems like a pretty horrific statement. I know because I used to own a brokerage firm and have hired 300 brokers. Only 1% or 2% of them knew what they were doing and consequently lost money for their clients. That probably applies to so-called financial planners because they all went to the same non-school.

Yes, I said they received no training which is true in almost 99% of the individuals. What little ‘advice’ they received was based on false and untrue premises. The Buy and Hold philosophy is the biggest lie of Wall Street. No broker is taught an exit strategy – how and when to sell. Protection of customers’ money should be number one on their list; however, brokerage companies do not want you to sell . They would rather have you go broke. (Of course, they don’t say that.) The investor is quoted the Ibbotson study. Unfortunately, the quote only shares one half of the study and the part about why Buy and Hold does not work is never given.

Wall Street has told you that you are too dumb to pick your own investments and that you need a broker to help you decipher the intricate maze that leads to financial freedom. Too bad most brokers haven’t learned or the 7 trillion dollars in losses that occurred from 2000 would not have happened.

Not only have liars and thieves been uncovered in Enron and World Com, but now we find that the fund managers of great bastions of ‘safe’ investing in mutual funds have also been stealing from their shareholders. Yes, late trading is theft and has been misnamed market timing. This also leads me to realize that the SEC has not been doing their job of protecting the small investor.

With all this corruption you, the investors, are more confused than ever. What do I do now? Where should I put my money? You need “expert” advice and I must say to you that you will not get it from a broker. Advice from a broker is a eulogy for your money. No, now is the time for you to take charge of your own investment portfolio. Could you have done any worse in the past 3 years than letting a “professional” handle your money?

There are many places you can seek advice, but none of them are on Wall Street. The library and the Internet are both great sources of information. Find someone who does not fit the Wall Street pattern. Several someones. And start your financial education.

Go look in the mirror and say, “Tell me what to do”.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

The bulk of third quarter earnings were reported over the past two weeks. Many stocks, particularly tech stocks, fell sharply on above average earnings and guidance. Consequently, the stock market was more predictable than many individual stocks. SPX, for example, generally traded within 1,170 and 1,200, i.e. multi-year support at 1,165 and the 200 day MA at 1,200. Also, the economic data reported Friday showed real GDP expanded at a 3.8% annual rate during the third quarter. So, there was no "soft-patch" afterall.

However, the market continues to worry about inflation. The GDP Chain Price Deflator, also reported Friday, rose at a 3.1% annual rate during the third quarter, which was much higher than the 2.6% rate reported for the second quarter. Recently, the market has been fearful that the FOMC will continue to tighten the money supply well into next year. On Tuesday, the FOMC is expected to raise the Fed Funds Rate another 25 basis points to 4%. That would add up to 300 basis points of hikes (25 basis points at each meeting) over the past 16 months.

The chart below is a Nasdaq weekly chart. Nasdaq has been creating a rising wedge for about two years. The MACD indicator has been moving in the opposite direction of the price chart (i.e. negative divergence). The three highs in the wedge fit well. However, it’s uncertain if the third low will also give a good fit. The wedge is compressing, which should continue to generate volatility. Many intermediate-term technical indicators, e.g. NYSE Summation Index, NYSE Oscillator MAs, CBOE Put/Call, etc., suggest the market will be higher sometime within the next few months.

It’s possible, the market will fall shortly after the FOMC announcement Tuesday for a better opportunity to buy before a multi-month rally. Also, there may be excellent opportunities to sell, for large gains, taking advantage of trading ranges and volatility. The Nasdaq Rising Wedge and the SPX multi-year support and resistance levels, between 1,165 and 1,250, can be used together for general buying and selling points. However, it’s also possible the market will continue to trade well within these ranges for some time with greater volatility. Nonetheless, I believe, there will be many excellent short-term and intermediate-term trading opportunities over the next few months.

Charts available at PeakTrader.com Forum Index Market Overview section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

I have recently been contacted by a gentleman who has a large financial Internet web site devoted to mutual funds and he has asked me to act as an editor. He sent me a list of mutual funds and asked me to list them into 53 categories.

"Gee, Ken, thanks for asking, but I only have two categories." He was baffled. "What about Large Cap, Mid Cap, Small Cap, Sector, Index, Emerging Market, Value, Undervalued, Balanced, Closed End, etc. etc. funds? What about all those Wall Street "professionals" who say we should analyze our portfolios and put money into different funds?"

The answer is very simple. Don’t listen to those "experts". The only expert is the bottom line.

My two categories are those that PERFORM and those that are NONPERFORMERS. How do I differentiate them? Again, a very simple test. The performers are beating the S&P500 Index and the nonperformers are not.

When you purchase a mutual fund what are you getting for your money? You are hiring a mutual fund manager who is supposed to be able to pick individual stocks for the fund that will increase in value to make your investment go up. Not down. Not sideways. If the fund manager cannot do that he should be fired. The S&P500 is merely a market average and an average job by a fund manager is staying even with it. If anyone you hire for any job cannot do an average job would you continue to employ him? Not really. Yet in 1998 only 319 of 8,520 mutual funds had managers that were able to beat the S&P500 index. Pretty pathetic.

So what do all the categories mean? Basically, nothing. This is more Wall Street smoke and mirrors trying to confuse you to look at what the magician wants you to see while he is fooling you with his act. You watch his right hand while his left hand is dipping into your wallet. Wall Street hates me because I tell the truth. They want to work their magic on you with their convoluted ways. Simplicity is very difficult for twisted minds.

Whatever funds you now own should be reviewed monthly and compared to the performance of the S&P for the last 12 months. Only12 months. Not 36 months. Not five years. Remember the admonition, "What have you done for me lately?" Fund managers run hot and cold and you don’t want to stay with him when he has a cold streak.

When you have your account with a discount broker most have funds that have no transaction fees or the fee is very small to switch to a better fund. If you don’t watch out for your money I guarantee your broker will not and you will be left with a small sum in your bag instead of the riches you deserve.

Al Thomas’ book, "If It Doesn’t Go Up, Don’t Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005