Cramer Says "Buy The REITS"

Title of this post is a little disingenuous as I don't plan on discussing, confirming, or refuting any of Jim Cramer's recent comments regarding the REIT sector as long. Longtime readers can probably guess my gut feeling on this. Thankfully this post is not about my gut.

What we are going to look at is the long term and short term technical outlook for the REIT index and see if it warrants initiating any position - long or short.

Here is the long term (10 year chart) for the REITS index:

The long term trend is down. The index hit the low 20s in March and since rallied more than 100%. I expect it to rally all the way to the yellow spot which would put it somewhere near its long term trend line as well as a complete 50% retracement of the down move over the last few years.

So on the long term chart it looks like an eventual short - but not yet - the timing isn't there.

The next question is the short term chart and if there is a nice long or short setup. (suspicion - there might be a long as the index retraces to the anticipated FIB target and trendline).

The daily chart shown over the past six months looks quite bullish other than the declining volume during the recent months. I would be looking long over the short term however there is a problem in that the ETF looks really overextended her and I would prefer to get long near the trendline with a bit tighter stop if the trend resumes.

So back to Cramer - I think he's right for now but this fundamental concept - of short or long the REITS based on the economy is really difficult to trade off of and I don't see either opportunity as correctly presenting itself in the now moment. Ill keep an eye on this one but maybe I can find a present trade in thet coming week.

On economics versus trading

Ive always been interested in the there is an order to the madness type approach to the markets. This had its roots in my (naive) original belief that you could actually "predict" the markets based on an understanding of the underlying economics. And that there were certain people out there (gnomes, masters of the universe, etc.) that knew what was going to happen next. This led me to a heavy focus on prediction during my formative years. I spent many hours first reviewing and understanding financial statements and then delving deeper and deeper into macroeconomics with a special emphasis on monetary theory.

Keep in mind that this learning was unstructured and ad hoc. There was also very little math or quantitative aspect involved. If anything the process had a major historical component that gives very little other than perspective. As I went deeper into the process I found that I learned something about the markets or the economy from listening to an increasingly small % of speakers on television, writers of books, or bloggers, etc. The opinions I respect were less than 1% of commentators. A worse surprise was that more than 50% of commentators who may have even possessed something useful to contribute were too obssessed with the republican versus democrat political dog and pony show and were merely talking their book. Great examples of this are Paul Krugman or Larry Kudlow.

Over time I destroyed some fallacies, biases, and misconceptions about the whole process of speculating and trading. My emphasis shifted from a "what's the next play mentality" to one of how can I make money doing this on a sound risk adjusted basis and a repeatable basis even if differen strategies are utilizied re: long / short, day trade / swing trade, futurers / options, foreign domestic, etf / individual stock, etc.

The two themes that I found as a constant and I want to spend the next several years exploring on the site are two fold:

1) Risk Management
2) Objective, measurable, and repeatable setups / trade entries.

The previous editorial style that took a certain underlying economic theme and extrapolated from it turned out to be worth very little to me in practice, other than the opportunity to claim that I was right about something. Unfortunately that entire line of thinking now falls into "every asshole has an opinion" as far as I'm concerned.

The future development is on the building blocks of the trading process, building a solid foundation that is also scalable up to approx $100M portfolio size and then trading the plan.

I will for fun - occasionally discuss some of the underlying economic themes as I see them, but the value of these observations other than humorous is obviously nothing. (Not that the trade implementation is worth more than nothing - only to me is it worth something.)

This weekend I will discuss a trade setup on a longer term time frame that I find interesting - I will also talk about how to manage the risk.

-Ben

TKTM Wrapup

TKTM was sold last Tuesday at the open wrapping up this paper trade. The initial stop loss or incrremental stops were never hit. The target of $10+ was never hit either. The time stop which triggered on the 10th trading day was hit, selling out for a gain of approximately $1 per share. Based on the stop loss of $1.35 this was a risk adjusted return of less than 1R or 1X risk which is extremely weak.

I hope to improve the risk adjusted returns to 10R + over time as I learn to mix the intraday entry and stop (risk management) which the daily price target or swing trade chart.

Here is a chart of the entry and exit: