In the first chapter of Winning the Loser's Game, Ellis states that in a winner's game, the outcome is determined by the correct actions of the winner. In a loser's game the outcome is determined by mistakes made by the loser.
He sites the scientific study of professional tennis versus amateur tennis as an example. The scientist found that in professional tennis 80% of the points are won and in amateur tennis, 80% of the points are lost. Brilliant shots and exciting rallies are rare in amateur tennis. Instead the ball is all too often hit out of bounds or into the net, and double faults at service are very common. Rather than focusing on adding speed to the ball, and aiming closer to the line to improve the game and win points, amateurs are just concentrating on hitting the ball back and trying not to lose the point.
As a long time amateur tennis player, this analogy really hits home. Unless, I've got a big lead, I usually stick to the same game plan, and the outcome comes down to who makes the least amount of unforced errors.
Investing for retirement, however, is much more important than winning the weekend tennis match. So if your long term investment plan is well below your target, or if you are a new investor who has shied away from equities after the 2008 crash, you might want to pick up a copy of Winning the Loser's Game.
According to Ellis, there are 5 levels of investing:
- Setting the overall investment strategy and asset mix;
- Equity mix and proportions thereof;
- Active versus passive management;
- Specific fund selection;
- Active portfolio management - selecting specific stocks and executing trades.
The further down the list you go, the more expensive and time consuming the investment strategy becomes, and the least likely to add value.
If your time horizon is long-term 20-30 years, there's no point in trying to time the market. Stick with low commission index funds and ETFs for the majority of the equity portion of your investments rather than focusing on winning stocks. In the long run, the time and money spent on stock picking and market timing is unlikely to add value to your portfolio, and may hinder the results.
The book discusses many aspects of investing including asset mix, risk, inflation, policy, and performance measurement. Always focus on the endgame as opposed to the short and near term market swings.
The breach of the ORL which coincided with the daily trendline set up the perfect storm. Broad based selling on heavy volume (institutional) into midday. The 50 DMA held as support, but still we closed near the lows. We aren't too oversold just yet, but soon. Oh, and we've given back the entire YTD gains.
SPY trade - Lower high is the tell. Breach of trendline is the trade.
H&S patterns for GLD and USD (inverse).
Significant downside pressure in early trade gave way to stabilization and a retracement in the afternoon. Another distribution day, the third in the past week and a half. IBD will be changing its current outlook from "Market in confirmed uptrend" to "Uptrend under pressure" tonight.
After retracing 38% of the Nov.-Dec. rally, the $USD spiked this week for a retest of the rally highs.
Stocks gapped wide and swooned. Gold stocks gapped and attempted to stabilize, giving traders a chance to enter a trade.
Despite the lack of positive catalysts, the markets recaptured all of Friday's losses and managed 52 week closing highs. However, volume was lighter, so this is not an accumulation day. Last week we had two distribution days each for the S&P and the NASDAQ.
Biotechs and healthcare stocks rallied in anticipation of an upset in Mass.
The greenback managed to move higher as well.
Overnight weakness in S&P futures capitulated on Citi earnings in pre-market, then formed an inverse H&S bottom. When the markets opened, buyers were eager to buy the pullback, shorts got squeezed and prices thrust higher.
The AMZN swing trade was aborted in early trade. Weak retail sales data threatened a retest of the lows so I bailed with a profit rather than wait to be stopped out.
Broad based buying brought back stocks after yesterday's losses.
AMZN came within 15 cents of the December low and bounced. Before attempting to catch a falling knife, we wait for a base to form. The daily pivot S1 held as support and we entered long off of the 5 min. timeframe. Closed the day trade at R1 and hanging on to swing trade with BE stop.
Yesterday was a distribution day which helped neutralize the overbought posture.
Last week, AMZN looked like a symmetrical triangle. Now it looks more like a descending triangle is forming. Still, we should bounce on the second test of support à la Turtle Soup.
The first week of the new year started strong and ended with 5 consecutive higher closes despite the weak jobs data on Friday. The Nasdaq spent most of the week in a sideways chop, waiting for the broader market to catch up. Markets approaching overbought so I'm expecting some consolidation/retracement sometime this week.
The $USD is consolidating its gains in a flag pattern, but if it doesn't break soon, we could see it slip back.
The new year also saw some sector rotation with Energy, financials, and gold leading on the long side, as some high flying tech names take a breather.
A few charts to watch next week. GLD is forming a base a $112.00
AMZN appears to be forming a symmetrical continuation triangle. Looks like a good swing trade setup.
MON from the HCPG focus list, carved out a C&H pattern. It didn't quite reach full extension. I exit when it it printed a lower high.
GS has been on a tear since HCPG highlighted it as a focus stock out of the base. I thought we were done for now yesterday when it closed at the 62% retracement level of the last leg down.
According to the Stock trader's Almanac, the January Effect refers to the historical tendency of small-caps to outperform large-caps from mid December until April. This period also coincides with the bullish six month cycle that extends from November to April. Historically, the strongest period of small-cap outperformance runs from mid December until end January.
The NASDAQ chart above shows a solid BO from the base with a low volume rally. The S&P chart below shows a failed BO. What happens when one market breaks out and is unconfirmed by the broader market? Price usually reverses.
The monthly S&P timeframe shows that we have retraced 50% of the losses from high to low. It also shows this month's range is NR7 and the momentum is waning.
The VIX is forming a broadening pattern and looks poised to bounce. The S&P versus VIX chart below was highlighted last week and we note that the VIX has crossed back above the support line.
My thoughts on AAPL - BO premature. We need a right shoulder. 
