Speculation Retrospective

I generally track my trades and newly developed stock screeners complete with dates, remarks, and anything else I can think of so that I can review the results, and compare them to the market action during that time period, then determine whether or not I should repeat the same pattern in the future.

No need to wallpaper the hut; the sticky notes give the room a mellow, glowing, canary yellow ambiance.

I have noticed over the years that when I shifted focus to more speculative endeavors, either I would occasionally get lucky and the market would continue to rise, or I would get caught at the top holding an overpriced...ummm.....ZOOM Technologies, Inc., for instance. More on that later.

Speculation Fever

I know I've caught the speculation fever when both of these symptoms appear simultaneously:

1. Stocks mentioned in cyberspace mysteriously appear in my portfolio soon after I perform my illusion of due diligence. The speed at which this occurs would have Siegfried and Roy looking on in wonderment. I guess they could look on in amazement, but wonderment seem to fit the scene better when using Siegfried and Roy in the same sentence.

In this case, Chimera Investment Corp, (CIM) caught my attention recently after reading Jack Adamo's article at Moneyshow.com. Could be worse, right? It's not like its a pink sheet.

2. My stock screeners from days past suddenly appear from their locked crypt, and I find myself retesting some of these in today's market promising years earlier that I would not give them another chance since reward must now outweigh risk.

The screener I was looking at this weekend is simply called 4DAYVOL300. The criteria includes stocks that have a one day minimum 300% increase in volume, positive 120 day price slope, and new 80 day high for volume. Take this and offset it four days which means that the selected stocks met the criteria four days ago. If price fell back into a comfortable Fibonacci zone within the four day period and contains a convincing reversal candle on the fourth (or fifth, or sixth day), buy and hold it for a week or so, and voila!...which means, take what you can. As you can see, there's a reason why it should be kept in the crypt.

The last part of this 'back from the dead' screener is subjective but the few results that appear when running this using a price range between $1 and $20 are easy to sift through. The only stock to pop up this weekend was Vertro Inc.,VTRO. (It opened at $4.50 today and is currently trading at $4.51.)

And you wonder why I seek the ultimate mechanical trading system. That 12 step speculators anonymous rehab program never did take!


Back to ZOOM ...and Beyond

Several years ago, in a land far, far away, ZOOM Technologies not only appeared in the results of one of my 'turn of the century' stock screeners but was also a hot tip from a neighbor who owned the best tree in the jungle whose friend's dad's friend worked at the place. I was told $16 a share was a fraction of it's potential. That was all I needed to know. Even with plenty of opportunity to get out, I watched it drop to under $2 in a year and a half.

I know, I know, it was a different time back then. It was all about peace, love, dot-coms...and Cisco.... the San Jose Cisco, not the San Fran...Cisco.

Three years later I doubled down and bought a pant-load of ZOOM for just over a dollar and sold at $5 a share...and almost broke even. The market has a way of convincing traders that only losing a little is "one for the win column". Of course this was just an exercise in tying up trading capital.

Personal Speculation as a Leading Indicator

The point I am trying to make in my convoluted style is that when the sudden chill of speculation fever overtakes your market sense, question the source. Could a recent 20% uptrend have you pile-jumping, and risking trading capital on the most unstable of choices. The sudden impulse to get in the game and follow the herd could be a sign of market reversal.

If you have a good track record, keep doing what you are doing. If not, stick to a plan, and if you want to speculate, keep the bigger scenario in mind. As an example. I only go long individual equities when I am holding a large QLD position initiated by a longer-term method or indicator(s). When the signal changes to buy the QID, stops get set and the portfolio of impulse 'buys' shrinks considerably.

The recent run-up since September may just be the beginning of a 2009-like advance or it could be a ten week set-up that will push the herd into the wrong side of the trade. Using a longer range method that specifically defines market accumulation and distribution, and then using this to trade in the right direction will, with proper money management, ease the effects of speculation fever and keep any ZOOM's you may come across in check.