Tuesday, October 5, 2010

10/5 Slow Trading

  • Annaly Capital Management's price retraces to the bull phase starting point; possible entry opportunity (NLY).
  • S&P 500 50-day moving average nearing a bull signal (SPY).

D $40.85 $43.68
EEM $40.76 $42.20
GLD $115.25 $121.55
JNK $38.93 $39.29
NLY $17.48 $17.66
QQQQ $46.25 $46.54
SPY $112.05 $110.95
USO $36.46 $33.97

NLY's price just barely moved below the ma200 before bouncing. It is trading below the ma50 and the ma50 is in a shallow decline toward the ma200. The cautious trader will wait both for a price move above the ma50 and for the ma50 to begin rising again before opening a bull position.

The bull signal given in early August on NLY remains in force.

The SPY ma50 is a bare 1 percent below the ma200. The more aggresive trader, wishing to anticipate the signal, would open a bull position, with the understanding that a downturn in the ma50 would be signal to close the position.

  • ma50 - 50-day simple moving average
  • ma200 - 200-day simple moving average


My strategy for slow trading uses the 50-day moving average (a quarter) and the 200-day moving average (a year). It has these rules:

a) When the 50-day moving average crosses above the 200-day moving average, open a bull position.

b) When the 50-day moving average crosses below the 200-day moving average, either move to cash or open a bear position.

The short version: 50-day-ma above the 200-day ma = bull phase. 50-day-ma below the 200-day ma = bear phase. Simplicity itself. It is important to note that new positions should be opened at the time the signal is given. If the stock is in the midst of a phase, then keep your money on the sidelines until a new phase kicks in.

For my own account, I tend to trade the bull side only, as I find that to be more reliable over the longer term.

Potential Slow Trades

Here are the stocks and exchange-traded funds (ETFs) that I’m following as potential candidates for slow trades.

  • D is the Virginia-based electric utility Dominion Resources. Dividend: 4.2%
  • NLY is the New York-based real-estate investment trust Annaly Capital Management. Dividend: 15.5%

  • EEM tracks emerging markets. Dividend: 1.2%
  • GLD tracks the metal gold. No dividend.
  • JNK tracks high-yield corporate debt. Dividend: 8.6%.
  • QQQQ tracks the Nasdaq 100, usually called the "tech-heavy Nasdaq". Dividend: 0.9%.
  • SPY tracks the S&P 500, usually called the blue chip stocks. Dividend: 2.1%.
  • USO tracks crude oil. No dividend.

Tim Bovee, Private Trader tracks the trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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