Dave’s Trading Diary – A Commitment Phobic Stock Market
 Hi guys,
One thing has become very clear in reporting season this year: that while many companies have reported decent profits – many on target or just over target – they have also forecast hard times ahead for the next financial year.
Where does this leave the market though?  Mostly in a state of confusion - and this is clearly shown in the sideways price action we’ve had over the last 10 months. To cut a long story short, the market is largely still treading water, and while I’ll continue to take entry or exit signals according to my rules, there is one thing that worries me, and that is Market Wizard William O’Neil.
Bear Market Rules According To William O’Neil
In 1962 William O’Neil saw a looming bear market, got out of stocks and started “shorting” the market (where you make money as the stocks fall). His current book “How To Make Money Selling Stocks Short” is based on his learnings that stemmed from this experience, and William O’Neil outlines a few rules for the best time to short a market:
- The best time is usually 4-7 months from the market peak – not right at the peak
- The market will usually have tried 3-4 times to get above its 50 day moving average – and failed
So, why worry? These are the exact things our market is doing at the moment on the All Ords and ASX Top 200. Not to mention we are coming into September, which according to legendary trader John Murphy is the weakest month of the year, cyclically. I am frantically trying to back-test these shorting rules on individual stocks, so I can be ready if and when this occurs!
What About Individual Stocks This Week?
The only sell I got this week was RIV. In my ignorance I left it another week after getting the Dow Theory sell signal last week (RIV prefers 1 cent below the previous trough, not a close below the previous trough), and so my sell price is $9.18 instead of $9.69. Yes, it pays to be on guard!
Other stocks are still kicking along, despite the sideways / down movement of the market. David Jones (DJS) is showing a nice profit, IGO also, and BKN gave us a nice dividend and is still holding up like the rest, in a sideways movement.
No new buys for me this week, and now the first video course is finally out and finished it’s time to get back-testing on medium-term shorting rules. We could be in for a good one, and I want to be ready if we are.
Happy trending everyone, enjoy and have a great week!
Dave McLachlan
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August 22, 2010
Tags: bear market, sell signal, shorting rules, trading diary, william o'neil Posted in: Dave's Trading Diary
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