Technically and Officially in a Bear Market.

Three consecutive down quarters. The worst three quarters since the last stagflation in 1974. The last time the market saw more than two consecutive down quarters was in 1977 when the DOW lost 17.3%. Since October 2007, the market has lost more than 20% as of Friday’s close.

Recession? What recession?

Dow Weekly Candles

Dow Monthly Candles

Dow Quarterly Candles

Whichever perspective you take, all the technical indication point to more downside in the coming months. Historically, this is the worst quarter of the year. July starts the best month of the quarter but this is only in Bullish Markets. July never fares well in bearish markets.

And if that’s not bad news enough, August is the worst S&P month, 2nd worst DOW month and 3rd worst NASDAQ month. And that’s when the market is ‘normal’.

Let’s put the icing on the cake for Q3 - September is the biggest loser on all three benchmarks since 1950.

Remember that I quoted in my blog that for June, 12,200 was a likely support. S&P500 will likely find its June bottom at 1,320.

I was 850 points off the mark on the DOW and 40 points off on the S&P - TO THE DOWNSIDE!! Guess I was being conservative!

But I also mentioned at the May Gathering that the DOW would see 11,200 – 10,800 before we had any chance of seeing any serious upside before September. I also stuck my neck out to declare that Oil could well hit $200 before September 2008. And I reinforced my belief that the market will generally be sideways till 2011 around Q3.

I still stand by those analysis. With the DOW just 146 above my first support level now, I don’t expect to be wrong about 10,800 before September. And say what you like about oil … regardless of OPEC’s rants, the Saudi’s vain attempts at being Robin Hood, lumping the blame on speculators, etc … the fact remains - Oil is going up into a bubble. You can argue that it’s overbought and that it will come down but before it does, let’s get real and face facts, Oil is going up. When it does come down, I don’t expect it to get below $120 to $130 pb. This is where the future is. It’s happened before and history has a knack of repeating itself very reliably.

So watch out for Election Julys which have a habit of returning crap, a flat to negative August and the worst expiration (Triple Witching) Friday in September.

Its going to be one heck of a Q3 so trade safe, be bear and Happy Hunting!!

In an episode of the TV Reality Series, “Fear Factor”, a seemingly dumb-blonde-Barbie-Doll-like babe made it to the last round for a shot at the $50′000 prize. She got there not because she qualified for it. In the first round, a hunk of a guy made a mistake and got the boot and in the second round, another girl sucked more than the babe.

So here she is in the final round and everyone is making fun of her and saying mean things about her. She seems to be miles away in her airhead when Joe, the host, asks her if she was ready for the final challenge.

The clock starts and she stays perfectly put with her eyes closed while everyone is shouting at her to get going. She takes her time, takes a breath and executes the task. Although she completes the task, her time sucked so she takes the walk of shame.

As she walks away in slow motion, you hear her thoughts;

“I will go away from this knowing that I didn’t lose because I lost. Every stage of the competition I completed was a victory to me because I didn’t lose to myself. I had a plan, I executed the plan and I didn’t give up till I completed the plan. I go away, knowing that I will be stronger and better, simply because I will never allow myself to give up, even when it’s obvious that I can’t win.”

The trader’s single most common bad habit is that they never plan. How many times have we heard of traders jumping into a stock and getting stuck in it because they didn’t know when to sell it? Some of those stories even end up in losses.

It’s a very common trait because most traders don’t plan their trades. They either don’t know how or are too proud to admit their shortcomings. And when push comes to shove, they often react too slowly while continuing to accumulate losses. If it’s tough for them to get out on a profit take, it’s more difficult for them to get out of a losing trade because they definitely didn’t plan on losing either.

Then we get the phenomenon that is the Growing Portfolio. This is not the same as Portfolio Growth where your investments experience growth. The Growing Portfolio is a growing list of trades that have gone out of control simply because the trader never planned on closing out the older trades and bought into new ones every time the older trades weren’t profitable.

Planning a trade is about doing a thorough research on the underlying then planning to trade it. You plan an entry and more importantly, an exit. The exit is based on a time target and/or profit target. The timing of your entry into a trade is not as crucial as the exit because the art of exiting a trade is based on looking for an excuse not to stay in the trade.

Money is the key reason traders falter when it comes time to execute an exit. Greed takes over when the trade is profitable and the trader will always be tempted to go a bridge too far. Then when the stock goes south, Fear runs wild and makes exiting even more challenging. What if we could eliminate the money factor? What if we treated those numbers as units instead of money? That means you shouldn’t be trading with money you can’t afford to lose. When you put yourself under pressure to perform, the stress can be quite overwhelming and mistakes will be made and compounded.

The only way to overcome these problems is to plan your trades and stick to the trading plan no matter what happens. When you trade to trade well instead of trade to make money, you will find your trades becoming more and more consistent and the losses will lessen considerably. By treating the numbers as units and not dollars, the element of fear and greed fades enough for us to make sound decisions without battling fear and greed.

Focus on trading well. Give it 100% and stick to the plan. Taking comfort from a well executed trading plan is more satisfying than getting an accidental win. Plus by trading well, you inevitably adopt the habit of trading consistently.

Dow Jones   S&P500

Looking at Trends, S/Rs, PHIbs and Candles on weekly and monthly charts, it would seem like we’ll range even more this week. The “summer rally” of June is traditionally the worst rally of all four seasons but great enough for short term traders.

NASDAQ usually has a good June especially during the End Of Quarter Window Dressing. The first trading day of June is more often than not, bullish so tech buyers should watch for entries.

June expiration also brings on the Triple Witch (20 June) which adds to the summer rally sentiment. But beware the day before the TripWitch (19 June) as it is traditionally very bearish as is the day after the Trip Witch (23 June). Statistically, the week after the TripWitch is reliably bearish with the worst saved for the last day of the month.

But we can look forward to a bullish start to June today, with the 1st-day-of-the-month trading day phenomenon, where on the DOW Jones over the last ten years, the 1st trading day of the month has combined gains which outpaced all other combined trading days.

We should be having some fun this month as I expect DOW to range between 13,135 and 12,010. Where will it close? Frankly, I don’t care but for the sake of discussion … 12,200 is a likely support. S&P500 will likely find its June bottom at 1,320 and a top at 1,440.

Sector strength will likely continue amongst Construction (FLR, FWLT, JEC) & Const’ Equipment (MTW, BUCY, DE) and HMOs (HUM, AET, CVH, MOH) while we can shop for quick opportunities with Agri (MON, MOS, CF), Industrial Transportation (UNP, BNI, CSX, CNI, CP, NSC, CHRW, JBHT, R) and Shipping stocks (VLCCF, EGLE, DRYS, DSX, FRO).

As always, trade with caution and don’t hold on to your profits for too long. Tempting Mr Market to take it away is always ill advised.

Happy Hunting!!

Its been a fast, frenetic and eventful three months and yours truly has been up to his neck with travels and classes … not that I’m complaining, mind you … its a great problem to have.  So here’s a quick catch up on everything that’s happened …

Topic 1 of 6: Another Great Gathering!

And what a night it was. Unlike the usual noisy and rowdy gatherings of the past, this one was a night of extremes. The crowd was by far, the largest we’ve ever had in my 17 months of hosting these monthly events for the past 17 batches – even the batch number amazed me if you consider that I never considered this tutorial to be anything other than a basic course for novices, that it would become as popular as it is today – and it was good to see some “old” familiar faces again.

As usual, I started with some jaw dropping stuff about the markets and fished out some sectors and tickers to watch. I made a bold analysis on the market; that the DOW would see 11,200 – 10,800 before we had any chance of seeing some serious upside in the next 3 to 4 months … Oil could well hit $200 before September 2008 … and I reinforced my belief that the market will generally be sideways till 2011 around Q3. Far beyond me to make such public declarations, but the temptation of showing off got the better of me … now we wait and see if I am worth my salt in technical analysis!

Kiat Haw then laughed the crowd with his tutorial on the TOS platform. It put a lump in my throat to see this young man up on stage in front of a 100+ people - teaching them the proper way to navigate a professional trading and charting workstation – considering that only a year ago, he graduated as a novice trader (still studying in the Uni) and now trading consistently and teaching what he knows. Rawk on KH86!!

The highlight of the night was the long awaited contribution of friend whom I met on-line who, in my humble opinion, is easily the most consistent, knowledgeable, educated and trained Options Trader this country has to offer … the Greeksman himself, Jack Wong.

He gave an in depth look at the complexities of options strategies and debunked many myths and beliefs about this style of trading. His stress on the importance of psychology sounded familiar, like we spoke the same language. Not surprising if you consider that it’s a common trait amongst successful traders. His mind-blowing strategies and approach to writing options really rawk’d a few people’s worlds while enforcing more education on others. What I wouldn’t do to have this man on the team permanently! Keep up the good fight, my dear friend … you, in my eyes, are the best!

I am so looking forward to the next reason for having another big bash like last night.

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Topic 2 of 6: Congratulations to WA11!!

 Another wonderful batch of wealth aspirants and it must be said that his batch was indeed the hungriest by a long shot. They really stretched Adam and myself and took this workshop to the next level.

And we couldn’t have done it without the help of one of the most dedicated bunch of coaches this year. As always, they made the difference in this workshop in spite of the lack of preparation and missing a lot of senior/veteran coaches. You fellas stepped up and I am proud of each and every effort that all of you put into this camp. You made the impossible look ridiculous! RAWK ON!!

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Topic 3 of 6: WATMY 03

 The 18^th to 20^th of April saw the Pattern Trader Tutorial graduate its third Malaysian batch and it was a blast! Thanks to the seniors who made the trip to come back and help out while re-learning what they had learned a few months earlier.

Alicia, Akalawoo, Henry, Melvyn and me.

 And a special, special heap of gratitude to the bunch of guys and gal, who have been nothing short of dedicated, loyal, loving and caring, who share the same passion of sharing and giving in the name of education and life changing. I salute you, Alicia, Lawrence, Henry and Melvyn. You have my best wishes for a wealthy and healthy future. Let’s keep making a difference!!

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Topic 4 of 6: Congrats! To The Inaugural WAT Jakarta Batch 01!!

This was the ideal start for the Pattern Trader Tutorial in Indonesia … a batch of hungry and eager-to-learn traders who will do whatever it takes to make this business work for them.