Milk The Market Investment Blog

Welcome to the blog of Milk the Market. On www.milkthemarket.com we offer our tools and solutions for investing and trading. Here, at our blog, is where we discuss ideas, market events, random thoughts and basically everything related to finance and investing in a casual format. Our main focus is on stock trading and index futures (E-minis) trading, both day trading, swing trading and long term investing. Don’t be surprised to find some ideas on bonds, commodities or options though, even the occasional Forex or quant thoughts. In the end, our goal is to extract money from the stock and futures market, and hopefully you can share in that goal too. You can find out more about myself and our tools in the About section. Good luck and happy trading!

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Just a update… this system is done and live on Milk The Market Investment Tools. It took a lot longer trying to stand up a whole site while working on a lucrative contract that has been taking up my time and still trying to keep a pulse on this crazy market for my own investments.

I need beta testers who are good with manual R1 calcs to verify the data and spot anomalies. After porting this into a custom module from a personal tool, things looks good, but I haven’t personally verified enough data to say everything is tip top. If you are interested, PM me, I will send you a free account code.

As you know, my R1 is slightly modified, and will still put you on the right track if you are a R1 purist, but more importantly will not let you miss some important opportunities that strict R1 will exempt. It uses 6 - 8 years data (assuming the company has been reporting that long, then only as far back as reporting), as opposed to 10.

Some things to consider in this market, especially since Tuesday looks like it will be hammered down…

We are not at the bottom, we are going down from here as a market, IMO.

You should be looking at playing shorts for inverse MoS if you are trader and/or aggressive investor.

There are huge opportunities opening for serious MoS discounts all over the place for entries. The key is to isolating the babies getting thrown out with the bathwater… and I’m not talking about financials. I don’t own any, I am still short on the S&P. I have started looking into sectors whom traditionally do well, or at least hold their head above water during recession or general economic slowing, and have a been discounted to the realm of accepted MoS. I am also looking at places that deal with the government, since we know those presses will never slow down (hmmm… gold..).

On your charts, take all your MoS candidates, overlayed against the S&P, and see how they did on the market down days we’ve had. Sometimes it can be telling where the smart money is flowing once you have a smaller “target” to help confirm decisions.

You will need to adjust stop losses (particularly if you do trailing SL) or the volatility of this market will buck you out of positions before you get a chance to take a good ride on them. On my double inverse S&P I finally bumped it back to 14% after missing out on 3% here and there on failed rallies that were causing positions to close.

Good luck! It’s crazy out there, but the crazier it is, the more opportunities arise, along with treacheries. Be careful!

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A recap of Kudlow’s keypoints today on The Call. He could be a very successful White House Press Secretary with his lack of rationale and contempt for anything remotely based in reality:

- He doesn’t like people saying the “R” word because we are not heading for recession.

- He wants 50 bps cut

- “Inflation is the most overrated thing in the history of the world”

- Rate cuts have no correlation to inflation

- Consumer growth at 2% after inflation (maybe using the cooked book version of inflation)

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The good news is even though I think overall the market is going down, if you live by Rule #1 strategy you also know that even when the market is going down there are always stocks that are going up.

I did a fresh screen with data (earnings, prices, volume, etc) current up to today and recompiled all of the aproximately 8,500 stocksin the database.

My ruleset is more lenient than Phil Town’s, but I also screen out thinly traded stocks and anything under $10. What I came up with is about 150 modified Rule 1 candidates.

What this means is that the overall shake up and uncertainty has driven a lot equities down, some likely deserving, some not. It is a lot easier when your list is only 5 long to begin with and you don’t have to evaluate the effect of the credit crisis against them, but it also gives you a lot of industries to choose from. Just about every sector and sub-sector has a stock or two to look into further.

Here are a few that look interesting to me at a quick glance:
HP
SKM
TTM (recent news about buying Jaguar and Land Rover today)

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So CNBC’s Trillion Dollar Survey questions 60 of the nation’s “top money managers”, and they yell BULL in 2008…

Well, did you expect them to say anything different, whether we are on the verge of a modern-era Great Depression, a light recession, flat year or a truly bullish year?

89% of them said the S&P finishes higher. I would disagree, but not empatically. I could see it return 1 or 2 percent as easily as I can see it being down 1 or 2 percent by the end of 2008.

22% said up higher than 10%
2% said up 10%
33% said up 8%
21% said up 6%

So 1 out of 4 are telling us to expect 10% or more return when the latest modest predictions say a recession is a coin flip, with the other side of the coin being no/slowed growth?

If you haven’t seen the pattern develop, virtually all the commentary be anyone “tied” into the market (fund managers, execs, etc… not investors or honest economists) has purposefully underestimated or discounted the issues at hand all the way up to and even after they exploded in the faces of investors.

I wish I had the time to track all such surveys and interviews of the last year to see what kind of contrarian indicator those are on average.

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Happy New Year!

We’re in 2008 and I am still a bear. I had a good year, but a some big and lucrative projects put the trading on hold and I’ve been an investor for the last several months, as long term swing trader at best. Despite this, things worked out well for my portfolio being on relative cruise control.

I haven’t been playing ES/YM, for better or worse, for lack of time. I don’t see the ability to get back to day trading futures or equities for the next 6 months, so I won’t be commenting much in that regard. I will continue to adjust my long term portfolio and longer style swings (mainly shorts) based on the modified Rule 1 screener software. It has done rather well. I know many people were waiting for the public release, and at the time I was very close, but these projects were just too lucrative to try to split time with.

FCX was my best earner. LLNW was second (I was day/swinging this one for a couple months both ways). I have been light in gold for quite a while, but fortunately added positions in 2007. Also, after the inability to play future indexes daily, I took position with the Ultra Short S&P ETF, SDS, which did well, and would have been quite more significant in gains had I not timed it slightly wrong.

I still believe despite ramblings of people thinking we’ve seen the storm pass, that the storm hasn’t even come ashore yet. I think we will see a recession, whether by traditional definition or by modified standards based on modern times.

So here’s what I will be doing for 2008… I will be paying close attention to gold, buying dips, selling big rallies. If you’ve been watching TV gold already seems “played out”, so I’m worried about the contrarian aspect there, but I think things are bad enough that the sell off we wait until we get to at least $750 - $800.

I will be bearish in the indexes, likely taking positions accordingly against the overall indexes for a quarter or two.
I will be going long on unconventional some Rule 1 plays, and short swinging some inverse Rule 1 plays.

Although I believe we still haven’t seen the worst from the market, I will be cautiously evaluating one or two financials that have a ridiculous MOS coefficient and shouldn’t be hit with significant problems. Nonetheless, I am weary because we really do not know if there are problems or not. If there are, we’re not going to know until the execs open their parachutes. If there isn’t, the windfall from the rest of the coming mess could still beat down a stock that doesn’t deserve it.

Now, the million dollar answer… yes, the modified Rule #1 system screener will be released soon. I wasn’t far from being able to release it to begin with, so a few weekends will have a working system available for all. I will be adding more features on request and things I need to improve my ROI to the system over time.

Good luck in 2008!

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