The recent correction was predictable for the following reasons ...

[bryanmcn]

Lessons

This recent correction was predictable for three reasons;
1)   The TSX had run up almost 15% since the first of the year. That’s a lot in 6 months and it would only make sense that it would back off a bit.
2)   The technical’s indicated that the markets tried 3 times to break into new territory. Once in the middle of May, then at the beginning of June and finally in the middle of June. The last failed attempt indicated “frothing”. Some would call the pattern a sort of a “head and shoulders” both of which are bearish signals.
3)   Lastly, summer is a time when traders take vacation too. They’ve done well with all the oil and coal stocks and it only made sense to cash out for a vacation.

Comments?

[DCA]

1)  I have done well on oil and coal stocks lately.
2)  On Hurricane Ridge in Olympia Nat. Park, Wash.  Line of site to cell phone tower means I can type on Blackberry.  Not enough bandwith to load my Reuters.  Ergo, I must be on vacation.

If a stock falls while I am on vacation and I do not know about it, is it still a correction?

Port Townsend underwent a market correction circa 1893.  It has still not recovered.

[Victor]

I got stopped out of GCE, TEC, and WTN before the weekend SSP call to sell.  I also got a stop signal on HLB, but it ran away on me.  I must kill hope and stay disciplined, this is not the first time a runaway to the downside has affected the overall performance. 

Not too long ago I added some good yielding units to supplement the cash position.  The idea was that there's always a cash buffer as my position sizing algorithm would be really stretched to be fully committed.  Given that it would make sense to earn a better yield than simple cash in the account.  Of course my yield picks have taken a 12-15% beating.

For now HLB seems to be resting at old support, a bounce would be nice, a further drop is clearly a signal to leave this group entirely.

Bryan, I know you got out earlier, and are the richer for it.  I'm still not convinced it's predictable.  What I can say is that a lot of the stocks in SSP perform as options on the index (TSX).  I wonder if similar performance can be achieved with an options portfolio? 

When the liquidity leaves the big names it really screams out of these smaller stocks.  I'm nearing my "first anniversary" with SSP.  I'll post a thorough update after it happens.

Cheers,

Victor

P.S. an alternative would be to hedge SSP with OTM index puts.

[bryanmcn]

I guess "predictable" is too strong a word. I find that there are signs using contrarian logic and TA that help increase the probability of making accurate predictions. The triple threat I spoke of was too much to ignore in my opinion.
On another prediction note ...
I would like to hear from anyone with an opinion on oil prices. This upward movement is defying logic. Except for some minor corrections, prices have gone straight up since february. We can't be running out of oil THAT fast!
Could there be a massive correction to the downside?

[garilou]

bryanmcn,
I totally agree with you that a correction was predictable.

Now you ask about oil prices:

Could there be a massive correction to the downside?

I think you can already see a small correction:

http://futures.tradingcharts.com/chart.php?cbase=CO&market=CL&cterm=88

But I tend to think it will be a short time correction.

As for the stocks related to oil, this is a different story.

Stocks have a tendency to "inflate" or "deflate" their movements compared to the commodity they are based on.

I remember in 1994 shorting a gold stock in the time where gold went up and up!
In that time I was dealing with a traditional broker, and when I gave an order to short, my broker told me I was silly, but I had been keeping my own charts (there was no Internet in that time) on that stock for a while, comparing it to gold variations, and it always jumped  15% "too high" when there was a relatively small up in the gold and the reverse when gold when slightly down. As I have said somewhere else, trading never prevents me from sleeping: I shorted on a Friday, and my broker lost his sleep, he even called me during the week end!
I covered my short on the Tuesday, and, even with the high commissions a had a gain!


I think commodities have gone wild in the past months.

Ethanol produced from corn was supposed (I never believed it) the magical replacement for oil! And corn soared!
Look at it now:
http://futures.tradingcharts.com/chart.php?cbase=CN&market=C&cterm=78


The voices against it are heard louder and louder:
1. its production is not any cheaper then oil
2. it's so much less efficient in "miles per gallon"
3. it's not environmental friendly

There will be a "natural selection", and we will have to be very careful as to which oil (or energy in general) related stocks we will buy.
On the other hand, while so many traders think that those stocks are to "inflated" and they try to bottom fish other "forgotten" stocks, they might miss still good opportunities in the energy sector. Seems contradictory? Yes, I admit. But the markets are dangerous in the moments.
Looking for good "fundamentals" seems useless.
Even stocks with 12 to 13% divident yeald go down!

Any stock trade should be a short term one.

But there are lots of opportunities in "mid or long term shorts" 

[DCA]

Can we be running out of oil that fast?  YES!!! The reality seems to be we hit peak oil in 2005.  The word that I have heard from people is that the reason that Saudi Arabia only increased production by ~200,000 bbl/day to 'help' in the current crisis is that is all they could manage.  To bring down current prices significantly they would have to increase production by ten times that amount.  I expect that there will be some 'corrections' and 'reverse panics' but I do not think I will ever fill up my car at 37 cents/litre again and will consider myself lucky if I see $1.37/litre.

In Oregon right now gas costs more than Vancouver.  That is something else I never expected to see.

BTW why do you think the US is gearing up to invade Iran?  Freedom or Free Oil?

[bryanmcn]

Why do you think the US is gearing up to invade Iran?  Freedom or Free Oil?
If you ask an American they will say its to prevent the evil tirants from invading Isreal.
If you ask a Canadian its because they need gas for their Hummers.

[garilou]

I doubt they will invade!
But if ever, the reason would certainly be the petrol... and maybe some uranium for Canada