Thursday's TSM Report (07/22/10)New to TSM? Find how I suggest you use it here
and a Note: I've started tweeting again, if you want me to continue that intraday, please click on the above add, as it helps pay for the services. You don't have to buy anything, just click on the link.
TSM Articles of Interest
(Richard Miller) Part II: Drawdown" These TradingMarkets.com articles describe strategies, analytical
indicators (e.g., 2-period RSI) and present results from my own analysis.
TSM's strategy in a nut shell is to identify a group of fundamentally sound
stocks through 15 multiservice screens (IBD, Zacks, Vector Vest,
Morningstar) then concentrate on buying those stocks with value remaining at
their current price (2-yr PEG ratios as they pullback. The 2-period
RSI and TradingMarket's PowerRatings provide measures of pullback strength.
Tuesday, the S&P reversed again at its resistance trendline. Our market indicator remains very bearish, which is also evident in finding the 50-day moving average falling below the 200--commonly called a "death cross.". The 200 remains well above its 20 as well. Until these indicators turn bullish again trade lighter, possibly hedge with inverse ETFs, and/or look at those ETF's that counter the market's bearish moves: gold (GLD) and bonds (TLT) are examples. Note too, the market's preference has definitely turned to favor large caps. Today, 19 of 119 (16.0 percent) TSM stocks moved up more than half a percent while 17.8% of the total market did. Remember that earnings reporting season starts in earnest this week. The following table charts Friday's (7/16/10) performance for the high volume contra ETF (>100,000 shares traded on average). Note, many of these, trade more than 100 percent inversely, some 2 and 3 times. When the market moved higher over the past few weeks to meet resistance, I sold SH puts (contra ETF that moves inversely to the S&P.
...(07/16/10)...The following chart shows over the last few months how money has been flowing into various financial assets: stocks, bonds, the Euro and gold. There continues a flight to safety into bonds and gold. Further, over the past few weeks, there has been a rebound in the Euro.
 John Murphy (StockCharts.com) made a good point in a recent column. Money is flowing into our markets, and the strong dollar is a reflection of that fact. The strong currency reflects a strengthening economy. The net effect is that US stocks become favored over foreign stocks. American investors lose money two ways investing in foreign stocks: stocks falling prices as well as falling currency values. Look at these relationships in the following chart. As the dollar strengthens, our goods sold overseas become more expensive. Over the last few weeks that relationship has reversed itself: the dollar continues to weaken and foreign stocks outperform US stocks....(07/16/10)
 The S&P closed +0.29 relative to its 20-day moving average. Eighteen of this week's 119 TSM stocks made a 21-day high (1 other(s) a 21-day low), while 51 of 119 traded within 10 percent of their 52-week high. Earnings reports for Thursday {07/22/10}.
The weekly chart below shows the S&P broke through its April and Feb
lows and then fell to the support of its 38 percent Fibonacci level then
reversed higher last week. On Friday, it resumed its fall.
...... 07/16/10
 The following chart shows several relationships reflecting the state of the current economy: The dollar (UUP), generally up, continues falling against the Euro (FXE) over the past few weeks; the S&P is pulling back; the Consumer Discretionary Sector cycles against Consumer Staples (and between bullish and bearish moves in the general market) (a sign of a flight to safety when the curve is falling like it has over the past few weeks). Gold, Oil and Commodities are all moving higher relative to the general market...... 07/16/10 
This next chart shows the average gain/loss in the S&P 500 presented by day of the month. Performance-wise, it's the tail of two halves. While over the past 42.2 months, the S&P has lost 12.73 percent: days 1 through 20 in the month have lost 21.40 percent, while days 21 through 31 have gained 8.68%. It pays to be in the market during the latter half of the month. Here's how days 21 through 31 have performed, summed over the 41.4 months between 01/03/07 and 07/12/10: 21 (+9.3%), 22 (-17.3%), 23 (+9.9%), 24 (+4.6%), 25 (+5.3%), 26 (-0.1%), 27 (-15.1%), 28 (+13.9%), 29 (-8.1%), 30 (+2.1%), 31 (+4.2%).
Over the past 33 weeks, TSM has picked 575 unique stocks. The following chart shows the TSM life of this group. For example 25.4 percent of the group made the TSM list just once, while 81.9 percent of them made the list from one to ten weeks. Looked at another way, 18.1% of the group were on TSM's list just for 11 to 33 weeks. 
Successful day trading is all about finding edges. For me that means getting to know well a few, very liquid, high quality stocks. Ideal candidates have the following characteristics: 
Find a discussion of various edges here and a few examples here. Special Report: "Seven Day-Trading Edges" Recent Examples of a new day-trading strategy used to place money in the market at 20 percent plus annual returns: identifying a market that's stretched in pullback and ready to spring higher; day trading that reversion to its mean until it peters out; exiting the trade writing an in-the-money call ("covered call"). Click chart to enlarge.
Trading TSM StocksTSM Trading Returns have been summarized from the last 27 quarters of forecasted stock picks. A
$35,000 account on 9/15/03 would have grown to $719,585
over these quarters (a 1,956% return over a period the S&P
gained at a +3.49%). On a quarterly basis, TSM trades averaged 100 half-position trades to completion
over 6.3 days/trade, and in only four of the 27 quarters did the S&P outperform the TSM trading returns. Find more details
here.
Note, I don't make every one of these trades myself, though I do make many. Trade results are hypothetical. Think of TSM results as
what's possible from these forecasts. Note, it's highly unlikely that you (or I) will consistently match these results (because one would
have to be sitting in front of a computer screen all day long while the market's open). Having said that, I do actively trade TSM
screened and forecasted stocks for my own accounts (TradeStation).
"Buy Weakness and Sell Strength" Long TSM Buys for Tomorrow (in addition to highlighted purchase)
Writing Naked Puts on TSM stocks has proved very successful over the past year (101 winners in 109 forecast picks generating $53,614 in premium). (TSM Puts must meet these requirements: >18% annualized return, >10% downside protection (from 15 to 40 days before expiration and >5% <15 days), high relative volatility (rich premium) level (relative to the volatility experienced over the life of the option) is also a plus. I'll supply these TSM Put candidates each evening (and during the day occasionally through Twitter).I'll forecast Put trade(s) intraday on the TSM twitter account (TSM_rm) and track these trades on the "Open/Closed Put Trades" accessed from the link in the Index box at the top of the page. All TSM Put Positions with
Potential for Tomorrow
 Plus Their Fundamentals
 Naked Put Strategy: Find an article that I wrote about the benefits of writing naked Puts here--especially if you're trying to allocate money conservatively at a higher rate of return. That's right, writing Naked Puts is a conservative play. Believe it or not, it's even more conservative than buying stocks outright. Envision five market scenarios for a given stock over the next 30 days: stock goes up a lot (>10%), stock goes up a little (to 10%), stock stays the same, stock falls a little (to 10%), stock falls a lot (>10%). Well if you own that stock, you make money with the first two; if instead, however, you had written the 10% Out-of-the-Money Put, you make money in the first four scenarios and don't lose as much in the fifth. Enough said. Each day, I suggest a particular TSM stock and its Naked Put play. If there are 15 or fewer days before expiration (3rd Friday each month), this play will have >5 percent downside protection (make money even if stock falls up to 5 percent over those 15 days). If there are 16 to 40 days left before expiration, this play will have >10 percent downside protection. In either case, I expect an 18 percent annualized return. Those are my three criteria: high quality TSM stock, 5-10 percent downside protection, 18 percent annualized return. One always worries about the impact a catastrophic event might have on your stocks. The Naked Put strategy gives ~10 percent protection, but it will still be susceptible to a further downturn. Hard stops, on the other hand, hurt performance so the question might be: "Just how big a fall might we expect in our stocks with a catastrophic event? From 9/10/01 to 9/21/01 (over 5 trading days following the 9/11 attack on the "Twin Towers") the S&P fell 11.6 percent before rebounding. More importantly, 59.1 percent of 6,530 stocks fell that amount or less, while another 27.2 perfect fell between 11.6 and 25 percent, i.e., 86.3 percent of these stocks fell less than 25 percent. From my perspective the downside protection offered in our Naked Put strategy (used on quality TSM stocks) has more than enough protection.
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