Trading this Market

On Monday, JP went through all the Canadian stocks and gave me a list to check out. I went through it and thought the following were great charts:

  • RME.TO
  • FRU.TO (A royalty company.)
  • LCS.TO (A fund)

The next day, he asked me which one(s) I was going to buy. I told him none of them. He couldn’t believe I was just going to sit on a bunch of cash without investing it. Of course, I had some explaining to do. It was very simple: I didn’t like the market. I figured the market was going to offer hokey bullishness all week which it did, ending with a big hoorah day on Friday.

 

Market Monthlies

The XIU, SPY, QQQ, and DIA ETFs on freestockcharts.com

Here are the monthly charts for the Canadian XIU ETF, and the U.S. ETFs: the SPY (S&P 500), the QQQ (the NASDAQ), and the DIA (Dow Jones Industrial Average). There are seven trading days left in this month. If we close at new highs with lower volume, then I will happily wait for a correction next month.

I noted on the charts the months when we last saw a correction or a reset. On the DIA chart, I put a star over March 2017. Even though there wasn’t a proper sell-off/ correction, it consolidated and traded sideways for the following three months, which is often a good setup for another run.

Out of all of them, Canada’s XIU looks the best. If the U.S. markets undergo a correction, then trading Canadian stocks could be the next best play. I’d keep a close eye on the Canadian financial stocks, though, to see whether they reset or have a substantial sell-off that could weigh down the Canadian market.

For the rest of the week, JP kept asking me for my contribution of picks in return. I flat out declared I’d rather sit on cash than to buy anything right now. (Honestly, I was too lazy to look, but we both knew that.) He agreed that although the market looks overbought, sector rotation could keep it churning and that unless something fundamental changes in world economics (like a big war), we’re going to keep going.

I found some charts worth watching over the next week or two:

  • CCO.TO (Needs better setups on daily, weekly, and monthly timeframes.)
  • MX.TO (Could tighten up on the monthly, but decent daily and weekly charts.)
  • ALA.TO (Nice monthly, but it went up a lot already on the daily and weekly.)
  • ATZ.TO (I own this already. This must set up on all timeframes.)
  • H.TO (I own this already. The monthly chart is meh.)
  • DRT.TO (I own this already. The weekly isn’t that clean.)

JP’s picks definitely look better than mine. However, I feel these are worth watching as they had more recent corrections on the monthly timeframe. None of these have great patterns on all their daily, weekly, and monthly timeframes. I find that often when the pickings are slim, we’re due for a correction. By the time the correction or reset comes around, these picks could be even tighter. That’s the benefit of having cash ready and waiting in your account: you’ll be ready to go once the best opportunities are there. You can always afford to be patient.

 

 

 

 

 

The Transparent RRSP: Thanksliving Day Weekend

The week of October 2
  • On Oct 2, I bought 10 shares of ZPR.TO at $11.61. This cost me $116.10.
  • To my horror, I realized later on that I meant to buy 15 shares of ZPR, not just 10. So I ended up buying another 5 shares the next day at $11.67 a share (6 cents more!). This cost me $58.35. Aw phooey!
  • I would have bought more ZPR on Wednesday when I finally had more funds in the account, but the price was up higher by that point. Instead, I bought 15 shares of GRL.TO at $7.96 per share. This cost $119.55.

I have $37.92 in cash left in my RRSP.

GRL and ZPR

Price charts for GRL and ZPR on freestockcharts.com

I bought both of these stocks earlier this year. In early January, I got 50 shares of ZPR for $10.86 and 50 shares of GRL for $7.74 in mid-February. When you work out the average price, it looks like this:

ZPR

  • 50 shares @ $10.86 + $0.50 in commission* = $543.50
  • 10 shares @ $11.61 = $116.10
  • 5 shares @ $11.67 = $58.35
  • This totals to $717.95
  • Take the total cost of $717.95 and divide it by 65 shares. You get $11.05 a share for ZPR.

* I forgot to buy this under the “Free ETF Investment” commission structure with Virtual Brokers. I did remember to choose the correct commission structure this time around. At least I got one important thing right.

GRL

  • 50 shares @ $7.74 + $0.50 in commission = $387.50
  • 15 shares @ $7.96 + $0.15 in commission = $119.55
  • This totals to $507.05.
  • Divide $507.05 by 65 shares = $7.80 a share

Oh, what fun math can be! 

I really need to work this out for all the stocks I’ve averaged or scaled into. I scaled into a few of my other stocks last week — as I’ve been doing throughout the summer. I wish I could be a little more type A when it comes to tracking.

My new year’s resolution was to get more organized with tracking my trades. I still use post-it reminders occasionally. I now have two bulletin boards and a whiteboard to post better visual reminders for my trade ideas, upcoming strategies, and items that need attention. While I’ve made improvements in keeping up with things, I’m still floundering in the tracking department.


Thanksgiving Day 

Tomorrow my in-laws are coming to stay with us for a few days. They know it’s going to be a vegetarian ‘Thanksliving’ (the term courtesy of Jesse Eisenberg), so I’m sure they’re getting their turkey fill tonight with the other half of the family in Calgary before they fly in tomorrow.

I’ve got yummy Tofurky on the menu (don’t knock it until you try it) along with savoury kale chips, grilled veggies, dessert cookies, and other things that go well with good wine and craft beer. This may seem unappetizing to many, but we’re decent cooks for a couple of veg-heads and have yet to disappoint our guests. Cholesterol levels will not be spiking tomorrow!

I’ve got some cleaning and prep to do tonight so that tomorrow, I can trade in the morning for my US margin account as the US markets are open. Once I’m done trading, Thanksgiving cooking – and drinking – begin in the early afternoon.

Happy Thanksgiving to all!

 

 

Stock Markets and Stock Picks

Marks

Monthly charts of market ETFs: XIU, DIA, SPY, QQQ on freestockcharts.com

The Markets

I typically like to analyze the XIC ETF as it consists of more TSX stocks. The XIC is very much like the SPY ETF for the S&P 500 index. When I want to know how the tech-focussed stocks are doing, I check out the QQQ.

I admit, I rarely look at the XIU (the TSX’s top 60 large cap stocks) or the DIA (the U.S. ETF for the Dow Jones Industrial Average). It’s an old habit of mine as my trading background was more focussed on shorter timeframes and bigger price action. There is less price action in these indexes that cover the large-cap, blue chippy stocks. Molasses moves faster than some of these stocks’ prices — this is because there are so many more shares to go through at each price level before the price moves up or down. Less price action, though, doesn’t mean less money. It’s just more stable. I really should watch these ETFs more because this is where big money, like funds, tends to go. With investing, it’s often good to follow the big money.

I drew horizontal lines on the charts for the XIU, DIA, and QQQ to show where those stocks had reset. The XIU has been “resetting” for a long while now, pretty much since February. The DIA (often called “the Diamonds”) had a reset in April and the Qs had one in July. Look at the SPY’s trendline that goes straight up. When is the SPY going to take a breather? If we’re going by season, then perhaps in the fall?

Observing the timing of these corrections demonstrates well the cyclical nature of markets. To get a better idea of what drives these differences means to take a closer look at the sectors and specific stocks that dominate their respective markets.

I worry that if the SPY makes a correction, it will affect the Canadian market. If I didn’t concern myself with the U.S. market at all, I have to say that I like what the charts tell me for the Canadian market. It’s been rationally pulling back for over half a year now and moving sideways for three months. It could be gearing up for another bullish move up. Let’s hope that if and when the SPY comes down, investors move into the Canadian stocks and start a new investment cycle.


Stocks to Check Out

Here are some stocks with nice-looking monthly charts:

  • TCW.TO
  • CVE.TO
  • SJR.B.TO
  • HSE.TO
  • IPL.TO
  • POU.TO
  • MG.TO
  • THCX.V (I own shares of this one already.)

Now, keep in mind, most of these are oil stocks. If you’re considering trading any of these, keep a close eye on the sector. And as I always advise, do your own necessary research on the company, the sector, and the markets. Consider how your choices fit into your grand plan and decide on the appropriate time horizons and how much you can safely risk for your portfolio.

The Transparent RRSP: Interest

Action taken the week of June 26
  • Transferred $150.00 into the RRSP. That gives me $170.90 in cash.

If I see anything that looks interesting, I’ll be ready to take action with some cash in the account again. I’ve been looking around and I found a few compelling charts. However, the market is just so uninspiring right now. I’d much rather wait for it to settle down before I do anything. It would be great if there was nothing to do until next month.

Another thing to note: If we raise interest rates sooner, that will greatly impact the market. I plan to consider, over the next week or so, some good trading/investing ideas.


July xic

XIC ETF in freestockcharts.com

Let’s look at the monthly chart of my favourite TSX index ETF, the XIC. I would like the market to pull back until the blue line. I mentioned in a previous blog that I’d like a market correction to come down to the same area we were at around November last year.

I think, though, that we’ll likely only pull back to the orange line, which is where we were at in December. This year so far, we had the heaviest selling volume in June. To get significantly below June’s levels we’d have to sell a lot more.

If interest rates do actually go up, a lot of sectors like retail and housing will be impacted. The financials, on the other hand, have been recovering since late May. Higher interest rates will be better for their business, especially after they’ve been running on low interest rates for so long.

I wrote previously that I think there’ll be a recovery in energy (oil) this summer – and I still think that. It’s worth considering swing trade opportunities in this sector as it could go up over the next few months to a year.

After a quick search, I noticed that the following stocks have had heavy selling volume the last few months:

  • SU.TO
  • PD.TO
  • CVE.TO
  • BTE.TO
  • ENB.TO
  • ECA.TO

If you feel conflicted about putting money into the yucky oil industry, you can just treat this as a study into my process when I look at sectors that have been beaten up. Here is a general run down of my process:

  • Watch the daily and weekly charts of stocks;
  • Look for signs of sideways trading;
  • Watch for reduction in trade volume. The volume should indicate less selling some more buying;
  • Check the monthly chart – it should look like a reversal is happening;
  • Compare all this to the sector ETFs;
  • Among the sector’s stocks, watch for the ones that are looking the best;
  • For swing trades, look at the strongest stocks that meet your criteria for entry, price, and trading ranges. In other words, figure out which ones that will give you the most bang for your buck.

I’ll share my ideas on this more recent trade idea and if I do take a trade, I will let you know. If this makes you nervous, then you can sit back, relax, and enjoy watching me fall flat on my face. I often go into trades thinking that I will do just that, but it’s exciting enough for me to take action. This mindset forces me to only risk enough so that I won’t be devastated if I’m totally wrong. Personally, it’s more devastating to not financially benefit from an idea I had that actually worked.

Money Talks

 

Recently, I did a presentation at the Toronto Public Library on investment basics. I had no idea how it would turn out, but I ran through my head a number of best and worst-case scenarios. It was better than I could’ve ever imagined.

I’d never seen a more diverse audience in age, background, and investment interests. Each person was comfortable enough to engage or ask questions – great questions, I might add. To all those who attended, I’d like to offer my deepest gratitude for your participation. This was the conversation I’ve been dying to have with people. This is the type of conversation more Canadians need to have with each other.

Today I’m going to share with you the questions that I can remember. I’ll add parts of my original answers, but I want to answer the questions more fully. These are in no particular order.


How long does it take for you to do your investment research each week?

Now, it’s a few hours a week, anywhere from two to six hours. But I also apply up to 20,000 hours of previous learning and experience. I hope that I can help others enough so that you don’t have to take as long as I did to learn how to invest.

I’d like to also add that many of my decisions result from bouncing ideas off my man, JP. He has put in the time and discipline to learn as well. We have the advantage of combined knowledge and experience. I share a lot of these very ideas in my weekly blog.

As much as I’d like to spend more time doing research and trading more actively, I would become more prone to micro-managing my trades. I’ve done a lot better with a more passive and hands-off approach.

How did you get a 70% return last year?

2015 was a terrible year for the Canadian market. The loonie and the Canadian economy were weak. We patiently waited for the market to stop going down. This happened around late February 2016. We looked for stocks that we knew traded actively and had suffered huge drops in share price. It was a very good time to get into the market. These opportunities don’t come very often.

We bought shares in TECK.B.TO, ECA.TO, BBD.B.TO when they were really cheap, and then in April, bought some APH.V (now APH.TO). We bought a few other stocks, but these few alone did very well after just a few months. We kept selling shares incrementally each time the stocks surged in order to secure profits (called ‘selling into the strength’), but they kept going up. We could’ve done much better had we just kept the shares in and moved up our stops (selling prices). It became a decision between banking on certain profits and waiting to see what will happen. We did a bit of both and we still have shares in all those stocks.

I don’t anticipate as big a return this year, unless the market has a major correction, soon after which there’ll be many more big buying opportunities (a bad and selfish thing to wish and wait for, I know, but…). My US portfolio, though, has been my big winner this year because I had the same idea with US tech stocks last summer.

One of the things I always say is that investors are always looking for new opportunities.

What ETF should I buy?

Many financial institutions create ETFs. Some are:

  • BMO
  • Horizons
  • Vanguard
  • iShares
  • Claymore

When doing your research, consider your investment objective – dividend income, market index performance, sector selection (like banking), fixed income, etc. Also consider the MER, share price, distributions, and frequency of distribution payments, to name a few things. You can look up this information on the ETF info sheet. For me, I only select among ETFs with higher trade volume.

Market ETFs can swing a lot in price because of the demand of traders in the market. So the ETF might be worth more (or less) than its actual value (NAV). Would it make sense to put some money in a market index ETF and some in an index mutual fund (which will be less prone to price swings)?

If you want to invest in the market, consider an ETF or an index fund – or both. The major distinction between these is the MER as it’s a lot higher for mutual funds than it is for ETFs; however, it can be more affordable to buy units in an index fund than it would be to buy shares in an ETF.

An actively traded market ETF can experience more volatility than the actual index it’s based on. Its price will vary based on the demands of buyers in the market. If buyers drive the price up, it’s possible for the ETF to be worth more than the net asset value (NAV) of its assets, so you’re paying a premium in share price. If investors are fearful, heavy selling can drive its price down below its NAV, so it’ll be trading at a discount. For index funds, the NAV is what it is after the market closes. At the end of the day, you shouldn’t notice a big difference between similar index funds, be it an ETF or a mutual fund. (If you do, the mutual fund will likely be underperforming because of the MER.)

What’s most important is that you’re 1) comfortable in what you’re investing in, and 2) you’re not paying too much in fees.

What do you think of mortgage-backed securities?

These have had a bad reputation as these were hugely responsible for the 2008 recession, but mainly because they were deregulated. They’re just bundles of mortgage loans that pay investors interest.

If you’re after real estate income, the REIT (real estate income trust) is great because it can pay investors their share of the distributions which will come from a mix of rent, mortgage interest, capital gains, as well as return of capital. You can also get real estate ETFs. Because of the mixed forms of investment income that come from these, they’re best held in registered accounts. Also, keep in mind the MER. I own a couple of these to add diversification to my portfolio. Other than the value of real estate happening in my own backyard, I don’t really follow the real estate market as much as I should.

What brokerages do you use?

I have opened accounts in the past with Disnat Direct and Questrade. I now have accounts with Virtual Brokers and Interactive Brokers. I’ve been with the last two for years.

What do you pay in commissions per trade?

With Virtual Brokers, I pay 1 penny per share. It’s less if the stock price is under $1. With Interactive Brokers, it’s 1 penny per share, but a minimum of $1 per trade. So if I buy 125 shares, I pay $1.25 plus any market data fees.

Both of these accounts were opened as margin accounts – trading on margin means you need to open with and maintain a minimum amount of cash in the account which allows you  3 times the buying power. So if you open with $25,000, your buying power is $75,000. To attract active traders, the commission fees are very low.

I also have TFSA and RRSP accounts with Virtual Brokers (VB). Thanks to JP’s slick skills in negotiation, we managed to have the same awesome rates extend from the margin account to our registered accounts. Often with registered accounts, you get charged a quarterly administrative fee. With VB, they do charge $25 plus HST unless your account has a minimum of $5000 in it.

I am an active FOREX trader. How should I be doing my taxes every year?

With an accountant. I did our taxes the first couple of years we started day trading. I had the advice of a friend who’s an accountant. She gave me samples on how to calculate the adjusted cost base of securities and their exchange rates, etc. It was actually a really good exercise in learning about taxation for the self-employed and how to factor in fees and expenses; on the other hand, it was a total headache. After that, we started using an accountant who magically does it all in a few days.

What is your take on robo-advisors?

They’re great if you don’t know what stocks or ETFs to buy, or when to sell them. They take away from you the inconvenience of guessing and researching and they make those decisions for you. I’d just be cautious about the frequency that the portfolio is rebalanced and focus on the ones that meet your criteria and charge the lowest fees. As you get more comfortable and savvy with reading the market, you should compare how your portfolio is performing against it and decide then if you might be better off investing in an ETF.

What is your advice for women and their investment choices, especially as they age?

Women have developed a reputation for being great long-term investors because we typically make conservative, less risky decisions. I feel that the financial markets have shifted so that being conservative could work against us in the long-term. Those traditionally conservative decisions, like owning a lot of GICs and low-risk mutual funds, could leave us with less money than what we actually need to have, especially as we live longer and longer. We should be thinking about how our portfolios need to keep generating income as we age. In my opinion, we should consider dedicating more of our portfolio to more medium-risk choices, like blue chip funds or stocks that pay us a dividend.

I know I have a pretty aggressive approach when it comes to making money, but I’m careful with most of my money and more risky with a smaller amount of it (or maybe that’s just what I tell myself and it’s more like half and half). A big part of my own early retirement plan is to live off of dividends, although I still want to make money on capital gains if I have to sell my shares to rebalance my portfolio.

What are good websites that could tell me more about Canadian securities?

I drew a blank – thank you to the audience members for their helpful input. Motley Fool Canada and Retire Happy were mentioned. I also think that Canadian Couch Potato and My Own Advisor are excellent.

You must have a really diverse portfolio?

Yes. It not only keeps things interesting, it spreads and reduces the risk factors within my portfolio. A lot of my trade decisions come from looking at the sector or industry first. That’s why the economy is a big part of my book. I have stocks and ETFs across many different sectors.

I risk very little for each stock, so I’m not worried if it turns out to be a dud (a rare occurrence). After a while, if I like a stock enough, I’ll buy more shares if there’s a new entry (called scaling in).

How do you research fundamentals?

I said I cared about two things: the price I got in at and dividends. I’ll admit, it was a shortcut answer. I don’t pay as much attention as I should to the fundamentals mainly because I learned about stocks from traders who studied price charts and used only technical analysis. When it comes down to it, even if a company’s fundamentals look good, if the stock price has gone too far up or isn’t trading well, I just won’t enter.

I use technical analysis for all my decisions and I apply very general guidelines when considering a company’s fundamentals. One day, I’d like to take the time to figure out how to use both forms of analysis to become an even better trader. For now, I rely on good charts that indicate signs that a trend is about to start; I look at the sector the stock is in; and I compare the stock to other stocks in its sector. Then I cross my fingers hoping that the rest of the market catches on and buys the stock up.


We all have different ideas on what we want to do with our money. There are so many different ways to apply strategies, even between people who have similar takes on risk and opportunity. What I think we all need to have is a general basis of knowledge and from there, we each can branch out and find our own approach to investing.

Thank you, TPL! I had a wonderful evening.

 

 

The Transparent RRSP: My Own Stocks and Father’s Day

No actions taken the week of June 12

It’s been a very busy week for me, but it’s a good time to be busy as the markets are still looking like they’re headed lower. I don’t feel the need to take action quite yet. The US markets need to go down through May’s lows – at the very least – before going up again. This could affect the Canadian market; we have already been weakening the last couple of months and going through our own correction. If the US market goes down more and we don’t, then that’s a good sign for us that our correction could be over.

markets.jpg

Price charts of QQQ, AAPL, XIC, and SPY on freestockcharts.com

Apple (AAPL) is a big part of the NASDAQ (ETF: QQQ) and it’s been weakest of the big tech stocks (Facebook, Amazon, Netflix, and Google). Until it stops going down and levels out, it will continue to lead the NASDAQ down.

It’ll be interesting to see if the rest of the US market follows suit. I’ll keep my eye on the S&P 500 (the SPY ETF). Its financial sector (XLF) has been quite strong, but this sector is due for a correction. A slower summer market could cause it to stall and look less inspiring to investors. A correction in the financial sector could take the SPY down. There was a lot of selling last week in some of the big US banks (BAC, JPM and WFC) as well as Visa (V). Other big financial stocks (C, MA, and AXP) were trading strong. A divergence between a sector’s biggest stocks creates uncertainty.

Summer Trading Means Fewer Selections

Often, when the leading market heads lower, other markets eventually do the same. However, it can be different in the summer because of less trading volume. Performance is more stock and sector specific and less market dominant.

Investors and traders pile onto the fewer, more promising opportunities that stand out. Sectors kind of do their own thing and are less prone to overall market moves because there’s less of a dominant trend. It becomes more obvious which sectors are stronger and which ones are weaker. It’s actually a very good time to look for sectors and stocks that are about to embark on a new move or trend before it gets busier again in the fall.

For me, the summer is usually the time when I focus on the quiet under-performing sectors and I try to see if there will be a new longer-term opportunity in it. I’m going to watch the Canadian financial sector as it’s been weak since late February. I feel that it should correct just a titch more, and if it does, I will watch very closely for when it sets up again. If this happens, Canadian banks, here I come!

I didn’t have time to do a stock search this week – I only had time to look at my own portfolio. Here are a few of my stocks that I’m considering buying more shares of:

  • Aphria Inc. | APH.TO
  • Aritzia | ATZ
  • Bombardier | BBD.B
  • BMO SP TSX Laddered Index ETF | ZPR
  • ECN Capital Corp. | ECN
  • Extendicare REIT | EXE

I’ve been complaining a lot about having too many stocks. It’s better for me to focus on what I have and get more shares of the ones that I like. I just have to wait for a new entry point.


Thanks Dad!

My dad passed away in 2009. He was 59 and battling a long-term ailment. At least I can say that shortly before his death, he was living life to the fullest. What happened to me after his passing was something worth thinking about. Without his guidance, his half-believable stories, and hilarious anecdotes, I had to use whatever resources he’d passed onto me to keep going. I’m sure this recognition was all subconscious, but I finally had the courage to see things for what they were and let them go in order to do the things I most wanted to do. I took a promotion at my job, saw my career trajectory and said, “On second thought, I’m going to learn how to trade stocks. However that turns out.” The rest is my history.

I’m halfway through reading Jack D. Schwager’s, Market Wizards: Interviews with Top Traders. It’s been an incredible read so far. I’ve heard of some of these guys before. It’s so cool to hear about how they all had to overcome so many barriers to get to where they were. One thing none of them had to overcome was their gender. I can honestly say that neither have I, even though I am a woman.

Since I was young, my dad convinced me that being a girl was an advantage. His dad, my grandfather, was in the US Army, and he was away a lot. He served in WW2 and in Korea. So my grandmother ran the show when my grandpa was away. My dad was the youngest of seven siblings, four of whom were older, amazing sisters. My dad ended up being a very macho guy – who saw women as being greater than anything macho.

Because of my dad, I never felt disadvantaged for being a woman. I actually thought that I could do whatever I wanted to because I was female – he’d long convinced me it gave me an edge. Maybe it is true – our society has yet to accept this concept. Or maybe he just told me a tall tale knowing what I’d be up against. As I got older, I became more painfully aware of the disadvantages women frequently encounter. I love trading because the market doesn’t care about your personal details. You’re either in at the right time and right price, or you’re not. It doesn’t get more gender neutral than that.

As I’m reading Market Wizards, I feel that I can relate to these traders on so many levels, but it feels a bit too much like a boys club. I know there are a lot of extremely successful female traders out there. We’ll just have to cover our own stories. Whether or not I become a market wizard worth writing about one day, I’m sure my dad would be proud of me.

Happy Father’s Day, Dad!

 

The Transparent RRSP: Share Prices & Flash Crashes

Action taken the week of June 5
  • Bought 20 shares of TransAlta (TA.TO) for 7.74. This cost me $154.80 + 0.20 cents of commission. I now have 45 shares of TA. There is $16.90 in cash left in the RRSP account.

If you buy a stock at different times and at different prices, then it makes sense to figure out the average cost of the shares. The previous 25 shares of TA were purchased at $7.63 per share. I’ve worked it out below:

  • 25 shares * $7.63 = $190.75 + $0.25 commission = $191
  • 20 shares * $7.74 = $154.80 + $0.20 commission = $155
  • $191 + $155 = $346
  • $346 / 45 total shares = $7.69

This is also known as the adjusted cost base, or ACB. I use the share price of $7.69 to determine how much I make in profits (or losses) when I sell the shares at a different price later on.

If I want to determine just the average price of the shares, I can do the same thing, only I leave out the commission fees. It works out to be $7.68. It doesn’t seem like much of a difference, but that’s only because my commissions are extremely low.


Flash Crashes

Yesterday the Canadian market closed positive. We traded sideways all week. Not much action, which I prefer. The US market, mainly the NASDAQ, however, experienced a flash crash. I saw the charts and so I had to see what the news had to say about it. They explained that the mega-cap tech stocks (Facebook, Apple, Amazon, Netflix, Google – aka FAANG) were starting to sell off. They weren’t the only ones selling off hard before the crash. The semiconductor stocks (SMH is a semi-conductor ETF in case you’re interested in viewing its chart) were selling off heavily after noon. It had been a long while since the tech sector had shown any major weakness.

After hitting new highs this week, investors were starting to collect profits and play defence by unloading some shares to be less exposed to a sell-off. Well, if enough investors with large holdings (particularly institutional investors) get the same idea, this triggers a mass sell-off. These sales which began around noon triggered the automated trading programs to sell later on in the day, which led to an overall big sell-off in the market. This domino effect happens when giant stocks fall; sometimes even one giant stock can affect the general market. The NASDAQ market lost its last three weeks of gains in minutes. It recovered partially at the end.

I have shares in a few of these tech stocks and I was thinking this week, “Wow, I can’t believe it just keeps going up! When will it come to an end?” I had sold some shares to collect profits a few weeks ago; I was left with the disappointing feeling that I had acted a little too soon. However, I did so because I was anticipating this. (If you’ve been reading my blogs, then you know this isn’t hindsight commentary.) I’ve lived through enough flash crashes to know that I’d rather make my decisions away from such events, not in reaction to them. I still have some shares left in these stocks, but I’ll see how they do over the next couple of weeks.

The Canadian market came down a bit in reaction, but it came back and closed positively. These flashes tend to be more pronounced in the US markets. Because the US market is so big, a crash can affect the global markets if sustained recovery doesn’t follow.

It’s events like this that could deter people from wanting to ever invest in the market in the first place. These things can happen in any market, though, because people are prone to panic. Rather than cave into your feelings and react out of fear of the worst to come, it’s best to try to be objective: Observe the sentiment of other investors and see how your holdings are doing on the bigger time frames like the monthly charts. There is a good chance that your charts are still looking healthy. A correction here and there is to be expected as nothing ever goes straight up. All I can say to all that is to keep calm and let your stock carry on!

39

 

The Transparent RRSP: Managing Doubts

Action taken the week of May 22
  • I reviewed my holdings in both my RRSP and TFSA. I am considering buying more shares of TransAlta Corp. (TA.TO) next week because I like the monthly chart.

A Glance at the Market

XIC may

The XIC ETF price history charts on freestockcharts.com

As you can see on the weekly chart, there has been mostly selling in May, which is consistent with the saying, “Sell in May and go away.” It would take more buying than all the selling that’s gone on all May for the market to trade above that. If the selling continues to consistently happen, even in small amounts, we’ll start to move lower.


When I’m in Doubt I Stay Out

I’ve been going over my portfolio and considering each stock that I bought and sold over the last year. First, I listed my primary and secondary financial goals for each one. If I had sold the stock or some of the shares, I made note of why I made the sale. Then I looked at the price history charts for each stock on my list and considered whether the stock’s performance was still in line with my intentions and goals.

Of course, my ultimate financial goal is to make money in any stock that I invest in. The major distinctions between each of them are determined by how I want to make money (dividends? capital gains? both?) and when (in the next few months? in a few years? in decades?). It was interesting to see how many of my holdings were initially intended for a swing trade after which I ended up wanting to keep them for much longer. This tends to be a pattern with me.

I’ll often buy a stock with this thought process: Let’s see how this performs. If it’s good, I’m keeping it. I might sell some and keep the rest. I might buy more the next time it has a good setup. If it’s a dud (a stock that sees zero action despite the market or its sector), then I’ll opt to sell it at break even or for a small profit and move on.

Selling at a loss is almost never an option for me. This only happens if, for whatever number of reasons, it becomes obvious beyond any doubt that the stock appears to be worth significantly less. I then have to ask myself if I’m willing to hold until that lower point and then wait for its recovery. If it does recover, at what price will it likely recover to before it goes up – or down – again? I rarely have to address the prospect of selling at a loss. This is not because I’m a decent stock picker. It’s because after years of trading, I saw that most of the stocks I sold at a loss ended up doing well weeks, months, or years after I bought them and sold them.

This basically means that it doesn’t matter if a stock has a good chart or not. It also doesn’t matter if you can time the market. More time in the market surpasses any well-timed entry. For a chart reader like myself, admitting this an act of hypocrisy! The price history chart is merely a tool that helps me understand the bigger picture.

Once I decide to invest, I rely on my ability to be patient. I believe strongly that patience is the key factor to growing a strong portfolio. Getting in and out of stocks frequently can really mess with your mind and potential to do really well. I learned that the biggest threat to patience is doubt. Doubt can be very powerful if you don’t trust the market, the world of investing, and yourself.

Whenever doubt starts to creep into my thoughts, I remind myself this: There is a finite amount of money and this puts a limit to the value that we place on things. Collective optimism makes things go up, but not forever. Collective pessimism leads to fear and this makes investors sell, but only until that fear exhausts itself. Humans are generally optimistic, and this is reflected in the overall market’s tendency to go up. I can’t always time everyone’s optimism or predict the end of all pessimism. If I get into a stock during its early signs of new optimism, it’s easier for me to exercise patience, even if it takes a while before market consensus helps the stock take off.

The main reason why I look at charts is because I can’t wait around until some analyst goes on TV to talk about a security that has been doing well already. While many investors might feel more confident in making investment decisions by waiting for an expert to give his or her opinion, it’s often too late for me at that point. I am more likely to act on doubtful thoughts if I know I got into a stock later rather than early on. I end up self-sabotaging my efforts by looking only for factors that confirm my doubts and fears. I’ve done this enough to know not to listen to such counter-productive thoughts. I’ve learned to trust my process and to stick with the strategies that give me the most confidence. Now, I only buy – and sell, even at a loss – when I’m confident in the factors contributing to the decision. I’m not afraid to make mistakes, but I don’t and won’t act on doubt.

 

 

The Transparent RRSP: Book Review

No action was taken the week of May 1

I did an extensive search and didn’t find any good candidates for the RRSP. I think that once we see a more substantial correction in the market followed by some stabilization, we’ll see more options.


 

Market

The XIC, SPY, and QQQ ETFs on freestockcharts.com

 

Chart 1 is the weekly chart of the XIC ETF. It didn’t budge much last week and traded sideways for the most part. However, as you can see from the arrow I drew, it had some strong selling as indicated by the red trade volume bar.

Chart 2 shows the monthly chart of XIC. We finished close to where we opened. The arrow shows that overall for the month of April, there was more buying. As we’ve seen from a shorter timeframe of the weekly chart, there was heavy selling last week. Well, investors like a strong finish.

Already in this week alone, we traded lower than the month of April’s lows. This means investors are getting cautious and losing a bit of confidence. They’re selling shares, taking profits, and holding out on new opportunities – and if investors do trade, it might be with fewer than normal shares to reduce risk. No market can go straight up, so this isn’t anything to get too nervous about.

Chart 3 is the monthly chart of the SPY for the US market’s S&P 500 Index. The arrow identifies trading in March. You can see there was heavier selling in March. April had more buying than selling, however, it wasn’t able to trade higher than it did in March. All week it has been trading sideways. It might still have a positive May, but watch the volume and look for signs of less buying.

Chart 4 is the monthly chart of QQQ ETF for the Nasdaq 100 Index. The tech sector, especially the semiconductors, have been extremely strong since last summer. May will mean the seventh month up on a strong move. The arrow shows that April had a huge move up, but with lesser buying than in March. Are the Qs losing steam? We shall see…

There is naturally lower trade volume going into the summer months, starting in May. I will be keeping a close eye on the weekly and daily charts to look for more immediate signs of a reversal in the markets.


Last week I finally finished reading Michael Lewis’ hugely entertaining book, Liar’s Poker. I was sad to be done, but I feel like the story hasn’t ended because I’m living it through my own trading and from watching the markets. There is a story behind every trade and each investment decision. He skillfully addressed throughout the book how the human element of emotion is what drives markets.

This true story was about Lewis’ introduction into Wall Street as a bond salesman for Saloman Brothers, a securities firm. Every successful sale was done by convincing an investor that what he was selling them was going to be worth more later on. This sounds conniving and this book reads more like a humourous confessional as Lewis grew increasingly conflicted the more successful he became.

Even though this book focusses on the bond market, it translates the same way for stocks and any other security for that matter. Optimism is what drives the markets and allows them to thrive and continue. Pessimism morphs into fear and will make most investors regret their decisions and jump ship into something else.

All year so far, I’ve been providing you with analyses of the ups and downs of markets and making shorter-term projections based on price moves and the corresponding trade volume. These moves occur because of optimism and pessimism. The reason why I trade is because I’m generally an optimistic person and my long-term view is that the markets will always keep going up because I believe that most people are inherently optimistic. That is why, despite all these tales of glory and failures that come out of Wall Street, it’s still around. The markets aren’t going anywhere and I’m happy to believe that more of us are getting involved.