The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

16 June 2006

What's it to ya'?

Wow. And wow again.

Okay, Wednesday's profoundly bullish action was not immediately apparent to most investors. That is why you pay me the big bucks: to see market action in advance or even as it transpires. The action yesterday, however, should make the change in the markets' tenor more apparent to many investors. Of course, several quibbles exist; notably, the lack of volume. It rarely occurs that everything typically flows uni-directionally. But remember you possibly witness a market that slowly changes gears, changes directions.

The first real test of this rally occurs today, especially the latter half of the day and the close. What are the closing datapoints in relation to the day's total bar -- upper, middle, or lower third? Etc. Assuming a bullish day and close, the next crucial test would occur between today's close and next Tuesday's close. And so it goes. Can this rally be taken off weanling life support, and become a yearling?

So, okay, I have made a few lucky calls. But for all that, you should ask one question, "What good have those calls done for me, right or wrong?" And there you have it, the nub of the matter. Unless you trade options or futures on the market indices (not indexes!), predictions re the markets' direction in any time frame are useless. Your task, as investor, is to have always ready a list of investment opportunities.

For example, I suggest repeatedly Rackable Systems/RACK. Yes, RACK looks good; it really does...

[click image to enlarge]

Note the line I have drawn. What once was resistance quickly reifies itself as now support thanks to the many tests and re-tests of the line. And now the 200-day sma (simple moving average) lies immediately beneath that line by ~5%. Purchases made at the oft-mentioned $32-30 price support would result in minimal losses in the event the stock breaks down beneath it. Does that not qualify as a professional investor's loss? Calculated in advance, managed by detail.

Before you invest, however, I suggest you wait, wait, and then wait some more; certainty, after all, is a highly-valued commodity. Wait until it becomes obvious the shares will not breach the 200-day sma. Wait until it becomes obvious the stock is not mired in a bear market, levitating before a ghastly and terminal plunge to $0/share. Wait until it has cleared all trend lines, not solely the declining trend lines. Wait until it breaches every obvious level of resistance. Complain about the volume at the most inappropriate moments in the gestation of the chart. A good price point to invest would be... hmm, let's see... ~$60/share. No, wait, better would be $80, even $100! The higher the price, the greater the certainty, the less the risk. Right...? Not!

Manage the details; manage the risk.
-- David M Gordon / The Deipnosophist

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