Sunday, August 22, 2010

8/22/10 'Justification Mode'

Kyle said...
Anyone remember this bear picture???...

http://www.thekirkreport.com/2010/07/27/index.html

August 22, 2010 5:18 AM


Kyle- The commentary upon which the bear photo is based is excellent reading- yet another angle on avoiding directional bias, perhaps the most dangerous of trading pitfalls.

I would highly recommend reading through it once (twice, even), stopping to add/reflect on examples of one's own errors.

I'll append one of my own later in the day.

111 comments:

  1. 2nd- Yes, agreed. I always liked Kirk's comments. It seems he is planning some improvements to his free site in the fall...

    http://www.thekirkreport.com/2010/07/02/index.html

    Just listened to Landry's 2010-08-19 video. Although he basically recommends 'Do Nothing Until the Direction Becomes More Certain', just about every stock that callers' asked about was 'Yea, looks like there's still more on the down-side' (CREE, BCSI, JBL, DDS, etc.). This Fall might be just that...

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  2. CADC - They seem to be walking this one down a trendline drawn back to January's high, I think there's a good possibility we revisit recent lows prior to moving up.

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  3. PIN - TOF - To my untrained eye, this one looks kinda toppy. I still like REDF, even if it does just track sideways for a while would be good for accumulation, IMO.

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  4. S&P - It seems like Monday may offer some green potential but I wouldn't expect it to last very long judging by the way things have gone recently and current sentiment in general I'd have to say that would present an opportunity for reloading short positions.

    I wonder how much longer it's liable to take for this market to determine which direction to follow...

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  5. INTC - I can see a 7% gain from here, running back up to the 20DMA. Can it retake and hold that level? Well, it's Intel, need we say more?

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  6. The real problem I see is that with a completely unstable currency like the dollar, we can make or lose 20% of actual value pretty quickly without it even being reflected on the broker statements. Right now, I bet we all are oblivious to it, but will we still be if the dollar takes a tumble and stagflation comes to town in the form of higher import prices at the same time as high unemployment and zero (at best) wage growth?

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  7. ie: we THINK we are safe in cash, but are we really?

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  8. PAL - Lower trend line is about $2.80 at this point, chart for this one looks like crap. We might be able to get out without losing our butts but I just don't see how this one can climb out of this hole anytime soon given the poor performance of Sleeping Giant gold mine.

    So of course a surprise rally of greater than imagined amplitude is just around the corner but only after we give up and sell.

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  9. Cheapy - Agreed, that's why I've been considering China and commodities. TOF likes India, I think that makes perfect sense as well, especially any pockets of unrecognized quality.

    Blue chips are international as well, and have abandoned the US for the most part, still seem to be leaving.

    If the U$D were to shed 20%, that should be good for real estate and US equities I would think. A lower dollar isn't necessarily bad for the US job market either, is it? Germany, and perhaps Europe in general, seem to have benefited from a weak Euro.

    It's this back and forth action that keeps everything in opportunity decay, pressuring risk takers into safe harbor.

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  10. Can we be in a deflationary environment AND have the USD go down? Wouldn't that just be a relative move where each cancel out the other?

    Very heady issues for my tiny brain on a Sunday morning.

    Waiter! Another round please....

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  11. 2nd- We were both doing the same thing yesterday with our little ones. Hailey had her first game yesterday. She was SO excited. After 3 years of being dragged around to Kendra's games, she finally got to play a real one for herself.

    She's been training with Kendra's club for 2 years now but they don't have any teams that young, so this was her first PYSL game.

    What a blast!! I forgot how fun it was to watch those little buggers. Hailey was great. 6 goals in about 10 minutes of game time. She dominated the game when she was in there....Too funny, if you knew her, you'd laugh. It was funny to hear the comments from the other teams Dad's who have sons playing. I suspect some running after practice for them!!

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  12. I think the Fed is drawing invisible lines, and when they are crossed, confetti is printed, or printed confetti is pulled back, but mostly the former, and less of the latter.

    IMO, We are but pawns in the game, having no clue which string will be pulled exactly when...

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  13. Some shots from yesterdays game. Hailey is obviously in the red with brown hair...but take a look at the boy in blue who is chasing her!!! What a great face :)))

    http://www.screencast.com/t/NTJhMGViOG

    http://www.screencast.com/t/MjM0N2EyZDA

    http://www.screencast.com/t/MmEzZWJk

    http://www.screencast.com/t/MTkwYTk3

    http://www.screencast.com/t/ZjYxMjQz

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  14. Mark - Keep a close eye on those boys chasing your daughter, they may have multiple motives in mind.

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  15. Mark, I can see you have your hands full! what a little powerhouse Hailey is!! thanks for the photo share, it made me smile!

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  16. Since 2nd_ave brought us to the topic of emotional biases in trading, here is another write-up about it:

    McQuill focused on six emotions that cause investors to make these mistakes. You should read these and see whether some of them are familiar.
    1. "Fear of Regret - An inability to accept that you've made a wrong decision, which leads to holding onto losers too long or selling winners too soon." This is part of a whole cycle of denial, anxiety, and depression. As with any difficult situation, we first deny there is a problem, and then get anxious as the problem does not go away or gets worse. Then we go into depression because we didn't take action earlier, and hope that something will come along and rescue us from the situation.
    2. "Myopic loss aversion (a.k.a. as 'short-sightedness') - A fear of losing money and the subsequent inability to withstand short-term events and maintain a long-term perspective." Basically, this means we attach too much importance to day-to-day events, rather than looking at the big picture. Behavioral psychologists have determined that the fear of loss is the most important emotional factor in investor behavior.
    Like investors chasing the latest hot fund, a news story or a bad day in the market becomes enough for the investor to extrapolate the recent event as the new trend which will stretch far into the future. In reality, most events are unimportant, and have little effect on the overall economy.
    3. "Cognitive dissonance - The inability to change your opinion after new evidence contradicts your baseline assumption." Dissonance, whether musical or emotional, is uncomfortable. It is often easier to ignore the event or fact producing the dissonance rather than deal with it. We tell ourselves it is not meaningful, and go on our way. This is especially easy if our view is the accepted view. "Herd mentality" is a big force in the market.
    4. "Overconfidence - People's tendency to overestimate their abilities relative to individuals possessing greater expertise." Professionals beat amateurs 99% of the time. The other 1% is luck. The famous Clint Eastwood line, "Do you feel lucky, punk? Well, do you?" comes to mind.
    In sports, most of us know when we are outclassed. But as investors, we somehow think we can beat the pros, will always be in the top 10%, and any time we win it is because of our skills and good judgement. It is bad luck when we lose.
    Commodity brokers know that the best customers are those who strike it rich in their first few trades. They are now convinced they possess the gift or the Holy Grail of trading systems. These are the people who will spend all their money trying to duplicate their initial success, in an effort to validate their obvious abilities. They also generate large commissions for their brokers.

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  17. Continuing the above post:


    5. "Anchoring - People's tendency to give too much credence to their most recent experience and to show reluctance to adjust their current beliefs." If you believe that NASDAQ stocks are the place to be, that becomes your anchor. No matter what new information comes your way, you are anchored in your belief. Your experience in 1999 shows you were right.
    As Lord Keynes said so eloquently when forced to acknowledge a shift in a previous position he had taken, "Sir, the fact have changed, and when the facts change, I change. What do you do, sir?"
    We expect the current trend to continue forever, and forget that all trends eventually regress to the mean. That is why investors still plunge into index funds, believing that stocks will go up over the long term. They think long term is two years. They do not understand that it will take years - maybe even a decade - for the process of reversion to the mean to complete its work.
    6. "Representativeness - The tendency of people to see patterns within random events." Eric Frye did a great tongue-in-cheek article in The Daily Reckoning, a daily investment letter (www.dailyreckoning.com). He documented that each time Sports Illustrated used a model for the cover of their swimsuit issue who came from a new country that had never been represented on the cover before, the stock market of that country had always risen over a four-year period. This year, it is time to buy Argentinian stocks. Frye evidently did not do a correlation study on the size of the swimsuit against the eventual rise in the market. However, I am sure some statistician with more time on his hands than I do will brave that analysis.
    Investors assume that items with a few similar traits are likely to be associated or identical, and start to see a pattern. McQuill gives us an example. Suzy is an English and environmental studies major. Most people, when asked if it is more likely that Suzy will become a librarian or work in the financial services industry, will choose librarian. They will be wrong. There are vastly more workers in the financial industry than there are librarians. Statistically, the probability is that she will work in the financial services industry, even though librarians are likely to be English majors.

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  18. Bullish Oragami pattern?

    http://www.squidoo.com/origamibull

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  19. Hopefully Shanghai will close above 2634, the 20DMA

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  20. guys i would highly recommend reading "Freedom From Fear"...it's a really long book but it is solid. there are so many similarities to today's world from the 1930-31 time period that it's a little scary. i'm only about 100 pages in but one thing i took away from the book was that the gridlock in washington due to the 1930 election turned out to be a bad thing for the economy because nothing of importance could be done until a majority was in place. so while people are hoping for that in this year's election, i think people should be careful of what they wish for. gridlock could be a very bad thing for us all.

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  21. I guess that's my problem...I'm reading Penthouse letters in the garage from 1987....

    GL tomorrow. I know I keep saying this, but it seems like we are at another critical point.

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  22. So far in Shanghai the 20DMA has held, I've gotta stop watching though...

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  23. Mark - one thing about this book, though, that is is clear is that the downturn from early 1931 to 1932 was based largely on WWI debts that Germany incurred that couldn't be repaid and also by Britain's departure from the gold standard. These events severely exacerbated a bad situation, as many banks in the US had financial ties to Europe and when coupled with recent runs on their banks by domestic depositors, they had bad odds of surviving. This situation just doesn't exist nowadays.

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  24. TOF - There's plenty of gridlock in WDC this time around, and I don't see it improving if at all going into the mid-terms. If only Obama would start talking strictly about the economy and delegate everything else...

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  25. the changing face of technology:

    http://www.businessweek.com/technology/content/aug2010/tc20100810_440259.htm?campaign_id=yhoo

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  26. Thanks for casting a light on the subject and clearing away the fog!

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  27. TBT- Closed at 32.09 for a 1.2% gain.

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  28. SDS@33.56.

    working with my new 9 SMA, 30WMA, MACD set up. 1/3 position size.

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  29. nice 2nd.

    on SDS I have a sell limit in at 33.80 and a stop at 33.60.... with this new set up I will struggle to put on more than one trade at a time....this all feels so mechanical.

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  30. sold at 33.79, was watching it manually so i took it when i could.

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  31. i'm doing something wrong because i just went to the chart and the sell limit now shows 33.89.

    does everyone manually adjust stops or are there rules/algorithms which can be used to auto-adjust?

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  32. TBT closed newSubmitted by 2nd_ave (4489 comments) on Mon, 08/23/2010 - 10:25 #67675
    Taking a 1.2% gain from Friday's close, @ 32.09. I don't consider it 'settling' for a 1.2% gain- my time frames are short these days, and compared with what short-term Treasurys are paying, any gain is appreciated.

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  33. jb- 'Mechanical' is good. Emotional is bad.

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  34. Didn't even notice 'til now:

    Stopped out of AMAT @ 11.10. Man, that didn't take long.

    Stopped out of INTC @ 18.75. Now that one kind of hurts.

    Back to 100% cash.

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  35. I was telling David and vb last night how tired I am of trading. On the way home, it felt like an understatement- I could more appropriately say disgusted with trading.

    When I feel that way at the craps table, obviously I can just leave. It's more complicated when it comes to retirement accounts. Cash isn't a LT option. But for now, cash might be the equivalent of a dinner break.

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  36. yeah, ditto 2nd. I am burned out on trading

    ps.. that rally fizzled out fast!

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  37. I also notice that I am now down -1% YTD, compared to being down -0.7% a few weeks ago. So the flurry of trades I put on each week has set me back. Add in the amount of time, effort, and 'anxiety' associated with trading- SIMAGA was the way to go.

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  38. that's crux - either trade for your own account or do some form of buy and hold. for me there's a lot of anxiety in trading but at least I am somewhat in control. with buy and hold there's a ton of fear and i don't feel like i have any control......which is probably why I am 60% invested and use 40% for trading.

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  39. vb- It fizzled out damned fast. The Monday gap-up played out, but ending the week in positive territory just dropped off the radar...

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  40. where did that spike come from??

    TK must be pleased as punch - he was going to sell his longs early into the morning gap up and reload on his shorts...good move.

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  41. i had .02 more i could have let sds drop before i sold but i moved from "mechanical" to "emotional", playing it safe, and I just cost myself a bundle.

    10mins into my new rules based trading and i'm already breaking the rules

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  42. jb- There are many stop system in place. In general, it pays to trade with the trend, which allows you to move stops up as your positions also move up. The one sector I would avoid using stops with is commodities. The Markopolos book I'm reading (about the Madoff scandal) is filled with anecdotal off-topic remarks about the financial industry in general, including the huge amounts of 'acceptable' corruption tolerated by traders and regulators- worst with commodities.

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  43. And we are now headed into red territory...

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  44. Faz fizzled, now let's see if she sizzles.

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  45. Sure seems like lower highs keep on rollin' ashore.

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  46. thx 2nd, so fido may have a rules engine which would allow me to automate stops based on something like current price > xyz indicator by 5% then move stop up x%. I'm going to dig into it.

    without some kind of rules/automation a slow witted guy like me wouldn't be able to handle more than 2-3 positions at a time.

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  47. btw - i don't think anyone other than mark picked up dell, so i shot him an email this a.m. early letting him know i was jumping out. it wasn't the news i was hoping for but the hpq counter bid moved the stock up enough for me to take some profit.

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  48. 100% cash, no trades. Should have gone short near the open. Oh well.

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  49. Sure wish they'd just sell this thing off and be done with it, this daily grind up and down severely aggravates my brain-cloud condition. ZZZZZZ!

    Suspended animation!

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  50. yeesh...today's action is pretty negative. could have taken profits in PIR but was too slow and am now stuck with waiting to get stopped out on a close below $5.87. still holding REDF as the cash balance (about $1.50) and its proximity to the current price gives me confidence that it is a great long term hold.

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  51. No bounce in this chart whatsoever:

    http://3.bp.blogspot.com/_nSTO-vZpSgc/TGrxdrocDwI/AAAAAAAAJKE/nPaVBsBzeqc/s1600/gallup+-+Obama.png

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  52. by the way, 2nd, cash is a great option in my mind as long as the S&P 500 is below the 200 DMA (i'm 100% cash in my non-trading accounts because of this). while I don't think we will have this huge crash / downturn that some people are calling (hoping?) for, there's always that risk the longer the market stays below its 200 DMA. cash was freaking awesome to be in from Dec 2007 to June 2009, 2000-2003, 1929-32, etc.

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  53. TOF - good observation on LOCM, that one has definite brick-like characteristics.

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  54. alternatively, the market is still in the process of making higher highs and lows since the beginning of July. a close below 1,064 would violate that. so for now today could certainly be just a shakeout.

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  55. WFC coming off DB @ 24.27

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  56. HPQ/CSCO- Were I holding both right now, I'd definitely be in 'justification mode'- as it is, it's relatively easy to practice the 'yang' side of that perspective and say that supply of stock offered at these levels don't bode well for ST price action.

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  57. WFC- Yeah, my favorite bank stock can't get any bids.

    It's just not bullish right now. And we all know it can go on like this for a long time.

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  58. Was noticing how Landry always pulled back to look a 3 or so year like at the chart to see potential overhead supply points. HPQ turn @ 48 or so closely matches 48.52 turn in Sept 08.

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  59. "to take a 3 or so year look"

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  60. Bull traps well underway in HPQ/CSCO newSubmitted by 2nd_ave (4490 comments) on Mon, 08/23/2010 - 12:04 #67680
    The lure being used with HPQ is the 52-wk low. And then it moves lower.

    The lure with CSCO was the apparent 'relative strength' in the latter half of last week- the trap door slid down quickly this morning.

    Just hypothesizing.

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  61. Has Germany averted a housing crisis and if so, how was it accomplished?

    http://www.theglobeandmail.com/news/world/broken-europe/hope-germanys-secret-to-recovery/article1659177/

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  62. Are treasury rates bottoming here?

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  63. The MacArthur Maze Supersized
    Submitted by 2nd_ave (4491 comments) on Mon, 08/23/2010 - 12:57 #67684
    http://tinyurl.com/28mhc8y

    The MacArthur Maze is located near the east end of the Bay Bridge, where freeways 80/580/880/980/Hwy 24 merge.

    http://tinyurl.com/2affkfp

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  64. Looks like interest in silver remains this afternoon.

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  65. Anybody getting an October 2008 sensation lately, like for about the last several months?

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  66. CP- I know you're hoping for some nice entry/reentry opportunities. If I recall correctly, you sold off most of your positions awhile back? Are you net long or mainly in cash right now?

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  67. cp - TBT looks like it held in OK till about mid-Nov 08 (an out-the-window move Nov & Dec 08)

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  68. 2nd - Not at all, I'm net long and still slightly green. Any of this stuff I've got could turn nicely green for various reasons not related to the market, meanwhile I'm kinda hoping for a giant panic during which I intend on adding. It must be a giant panic though, to make it worthwhile.

    Keeping an eye on the Au:Ag ratio, which has moved in a calming direction today (the lower, the calmer, as a gauge of fear).

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  69. looks like today could have been a BEAR trap, not a bull trap.

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  70. Hey Guys...Sorry to leave you rudderless this morning. Had to get to work very early for a concrete pour.

    Little bit of angst I see. Green here and pretty happy with the market overall.

    Looking at our fav UNG.

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  71. Dang....missed a great entry point for V.

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  72. Well, considering there's probably more than a few eyes watching China closely and Shanghai retained the 50DMA even thoug it was down slightly, I wouldn't anticipate any large moves here today in either direction, just whipsaw awaiting instructions from Shanghai.

    Considering the US consumer is tapped-out and probably will remain that way for years, my true guess at this point is there's more weight than we realize resting on the merits of China's real estate and the dawning of a new age of Chinese consumerism. India inclusive, of course.

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  73. JB- Thanks for the update on DELL. I'll hold for now.

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  74. Libor/Ted still coming in....

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  75. anyone looking to gamble should take a serious look at KIRK.

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  76. "FDA Chief: Enforcement of food safety too limited"

    Duh! Who does this bozo think wrote the federal code in the first place? It damn sure wasn't a lazy-ass, self-serving politician! So I guess now the food industry wants change we can believe in too!

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  77. KIRK - Well, tomorrow's day three for that one... I say it closes green tomorrow maybe with a gap up from tonight's close?

    Just a SWAG, not a serious attempt at anticipating a real trade.

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  78. RIMM looking interesting again. Seems like it's jinxed thought on any news.

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  79. As 2nd_ave mentioned, using stops when trading with the trend is an easy thing to do. I have just moved up another $1 my sell stop limit on SGG, up to $53/$52.90. Hopefully, I won't get shaken out of this position too soon and will participate in SGG breaking about $60. :) Then I may just sell it for a nice 20%+ profit.

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  80. Mark: were you going to share some info on SD with us, or did you decide that it is not worth sharing?

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  81. Hi David- I'll see if I can put it together tonight. I want to make sure what I post about it is as accurate as possible.

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  82. Thanks, Mark! I am looking forward to reading whatever bits and pieces you can give us on SD.

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  83. Ahh, so the Markster was out playing in the mud today I see.

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  84. I see my buy limit order for sds@33.96, looks like if we pumch above 34.12 it could run

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  85. just bought another position of sds@34.13

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  86. sold my sds 33.96 lot at 34.72

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  87. if we close below 1,064.88 look out below.

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  88. that would be 34.27, not 34.72!

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  89. C/MS/BAC/WFC/JPM all have inbalances on the sell side. No green close today.

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  90. the crm clown will be on cramer tonight...he's a bag of hot air, but he was right on "on device" biz apps

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  91. Sold some of my PIR at $6.05 that I bought at $6.10 for a small loss. Bought TZA at $38.74 just before the close. My thinking is we will break through 1,064.88 at some point very soon and TZA will go up as a result.

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  92. So if the US is so bad off, why aren't U$D's being dumped?

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  93. sold my 34.13 sds lot for 34.38 ah

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  94. Today's action should put a scare in foreign markets, I'm gonna be pissed if tomorrow's close is green.

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  95. In its current annual report, the US Department of Agriculture notes that "food insecurity" is on the rise, and that 50 million Americans couldn't afford to buy enough food to stay healthy at some point last year. One in eight American adults and one in four children now survive on government food stamps. These are unbelievable numbers for the world's richest nation.

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  96. TLT didn't do jack-squat though and there's a huge gap up from several sessions ago that still needs to fill. Wonder how long that'll take?

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  97. "These are unbelievable numbers for the world's richest nation."

    First of all, I wonder if the DOA numbers are correct and secondarily if the US is really the world's richest nation?

    I think it's fair to say the US is simply a product of the global environment which it helped to create, and not much else, whatever that might mean...

    Holder of the world's reserve currency, a country full of excesses; record empty homes yet expanding homeless population, former food basket to the world yet her citizens starve, greatest debtor nation of the world.... on and on.

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  98. If things really fall off a cliff here, TLT could conceivably gap up again to the upper trend line around $108.00 and ride the line for a few sessions?

    That sure wouldn't be too great from a political standpoint.

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  99. My energy plays held up well today. However, not enough to keep me green. Still comfortable with my positions.

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  100. I'll buy BAC if it get's to 12.00

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  101. great, like I really needed another reason to exacerbate my insomnia.

    CP - read with caution

    http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen

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  102. i have a bad feeling we're at risk of a free fall, unfortunately...

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  103. could very well be right TOF, earlier today CP said it was starting to feel like Oct 2008.

    is anyone looking at physical gold, silver, etc? if the bottom truly does drop out, and the bond bubble explodes, perhaps all paper assets will collapse.

    ok, enough of that kind of talk.

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