Range trading may be idea worth considering

We keep tip-toeing around the lows of 7,400 or so in the Dow we hit in November.
It seems like, out of the gate anyway, that Obama effect many were looking for has been a no-show.

Layoffs continue at a break-neck pace and the consumer is tired and broke.

Bottom line: It’s a long way up and it may also be a long way down.

But there may be opportunities there for the more astute and gutsy of investors out there.

Those opportunities come in the form of trading in a range.

The current market’s oscillation between the high 7,000 range and the upper 8,000 range lends itself to investing in stocks that are exhibiting the same action.

In other words, if you spend a little time watching a particular stock or two, you’ll get hints about how their price action follows that of the overall market.

Over time, you’ll find a range in which those stocks are trading.

Buy in when the stock is at the bottom of its range and sell when it gets near the top.

Sounds simple enough, you say.

But it’s not. In fact, it can be a little challenging — and nerve-wracking — figuring out when to buy in at the right time and how to sell before it falls again.

Apple (AAPL) and Dryships (DRYS) both seem to be good candidates for this strategy.

Apple’s been oscillating between the 80s and high 90s since October, a peek at its chart on Bigcharts.com shows.

Its track record has been pretty decent and could make a good range-trading play — if that is, something sensational like CEO Steve Jobs’ recent leave of absence for health reasons doesn’t beat the price down even more.

Dryships also had a tradeable bounce in the last few weeks, going from about $9 a share to around the $14 range.

Even after taxes on a short-term trade, that 5 points wouldn’t be anything to sneeze at.

Is this investing? No. Is it more akin to gambling? Absolutely.

But with the market in the state it’s in, buy and hold is obviously not working.

Unless, of course, you’re buy-and-holding cash or CDs.

Fishkind says more pain ahead

Henry Fishkind, a noted Florida economist, was in town last week to give his annual Economic Forecast Breakfast, sponsored by Whitney Bank and the Manatee Economic Development Council.

His message?

More tough times ahead.

Fishkind predicted that economic output and the housing market won’t start showing signs of life until at least the latter part of this year and a full recovery shouldn’t be expected until 2011 or 2012.

But Fishkind also said that the recent stimulus programs from the government, and the others to come, should ensure we get back on solid footing.

Let’s hope so.

Brian

Sounds too good to be true? Run.

We’re all guilty at some time or another of greed.

Whether it’s rushing in for that last slice of pizza — knowing that you could do without it and the others in the room have had less — or, say, plunking a bunch of your hard-earned money into a hedge fund promising stellar returns and market-beating performance.

That’s apparently what happened to investors who committed millions of dollars to a hedge fund run by Sarasotan Arthur G. Nadel.

According to various local news reports, Nadel has vanished, along with about $350 million in funds investors placed with his hedge fund.

In times like these, especially, when most CDs are earning a paltry 1 percent or 2 percent, and stocks — well, let’s not go there — it’s easy to lose sight of logic and walk zombie-like into the clutches of that banner ad touting 10 percent, super-safe CDs, or a guy who can guarantee market-beating returns, no matter what.

To be fair, Nadel has not been charged with a crime.

And the fact that, as reported, his car was found at the Sarasota-Bradenton International Airport, may not necessarily be a bad thing.

Maybe he had to fly somewhere to straighten out the investments for his clients — you know, meet with his people, or his people’s people.

Then again, maybe he flew the coop and investors are left holding the bag.

The incident immediately began drawing comparisons to Bernard Madoff, the New York hedge fund manager who is accused of ripping off investors to the tune of $50 billion in a Ponzi scheme that funded returns from existing investors by taking money from new investors.

Eventually the well runs dry.

Rene-Thierry Magon de la Villehuchet lost more than $1 billion to Madoff’s scheme.

He also disappeared — with the help of sleeping pills and a box cutter he used to slash his wrists.

Point is, there are no sure-things. There are no safe investments that are going to produce spectacular returns consistently.

I learned this firsthand last year, when I was lured to auction-rate securities.

These vehicles — which were essentially short-term debt and commercial paper that reset after being sold at auctions every seven or so days — were touted as being safe as cash and just like a CD, except liquid.

I didn’t have to commit to six months or a year, and I was earning 5 percent, or even more, on my money.

What more could one ask for? The market was beginning its rapid descent, and I thought I had found myself the equivalent of buried treasure.

Why didn’t more people think of using these things?

Then came the bad news: The demand for the auction-rate securities dried up and people — including myself — saw their funds being frozen, unable to redeem their shares.

Luckily, I was able to get out and recoup my funds, but some investors have had to resort to extensive litigation that continues today.

So if it sounds too good to be true, it probably is. Sometimes there is no substitute for time and patience.

And Nadel, wherever you are, some people want to ask you some questions.

Brian.

No way to soften blow of really bad year

This has been a bear of a year.

I thought I had it all figured out.

Thought I was pretty smart, actually.

I was bobbing and weaving, buying and selling — sticking to a system that had me cutting my losses early before they escalated and taking a profit at the right time before the love for a stock died.

I rode Apple (AAPL) like a hobby horse, riding it up, taking my profit, then buying it back on the dip to squeeze a little more out of it on the next climb.

I enjoyed quick profits on under-the-radar stocks like Enersys (ENS) and Atwood Oceanics (ATW).

I was up more than 10 percent in my portfolio and gloated when I got my brokerage statement that showed a graph of my performance versus the common benchmarks — my performance being far superior.

Then, all of that came to an end.

As I’ve written before, I finished the year down 10 percent, closed my fee-based trading account and stuck my money in a CD.

Others have fared much worse, losing half or more of their retirement savings with no clear sign of a rebound in sight.

Buy-and-holders like John Bogle, founder of Vanguard investments, say now is no time to cash out of the market.

Doing so means you are guaranteed to be saddled with your losses, they say.
But hanging on to your stocks with what increasingly seems blind faith can be hard to do.

There are some things pointing to a recovery.

The fact that the major indexes have already plunged more than 40 percent is actually a good thing in some people’s minds.

It means that a lot of the major selling has already taken place and stocks may be at prices more indicative of their fundamental values.

As price-to-earnings ratios get lower and lower, investors have more reason to believe that share prices will hold up as the bottom is reached and we emerge from this nasty downturn.

Although there are plenty who say the market could fall much farther at this point, their are an equal number of investment professionals who are seeing dollar signs in some downtrodden stocks.

There is another reason to take heart: The market only goes one way over time — up.

That was poignantly illustrated for me by an American Funds chart a reader sent me a while back, out of his annoyance at my market-timing view.

The color chart included presidents all the way back to the Great Depression. Through wars and recessions. Through every imaginable catastrophe, including 9/11, stocks continued their steady climb.

A 40 percent drop seems like staring into a giant abyss. But on that chart, assuming it’s printed again in 10 or 20 years, our current market chaos will appear as a mere blip.

Sometimes it pays to step back and take a larger view.

Here’s hoping that 2009 gets us back on that upward march again.

Brian

Living between two fears

This past Friday was a pretty nice little rally.

True, the volume of buying wasn’t that great, given the fact that it was at the end of the holidays. But the Dow’s jump of 258 points on Friday was nothing to sneeze at given the mostly flat, go-nowhere activity we’ve seen in recent weeks.

And that scares me.

It scares me because I know that the market’s been decimated more than 40 percent, and a decent surge like that after all the flatness we’ve seen could signal that people are ready to step back in again.

It scares me because I know that the money I have locked up in a CD that would have been allocated for stocks will make nothing even close to what it would in a decent bull rally off a market bottom, even if it did turn out to be one of those short-term cyclical rallies.

For instance, when I wrote about Dryships (DRYS) in my column last Monday, it was at about $9 a share. It closed on Friday at $12.49. That would have been money already made, and probably more to come if the bullish sentiment holds.

But that’s a big “if,” and plenty of other stocks that I actually owned are at or below the point where I sold them before getting completely out of the market several weeks ago.

And that also scares me.

People have been heralding the bottom for months now. They did it when the Dow was at 11,000. They did it when the Dow fell below 10,000. They did it — well, you get the idea.

True, no one — not even the best of them — can accurately predict a precise market bottom.

But there’s no reason to ride stocks down another 40 percent or 50 percent as one local economist predicts.

Rodney Johnson, president of H.S. Dent investments in Tampa, told the St. Petersburg Times that he thinks the Dow will peak between 9,600 and 10,000 during 2009, but will fall again, leading to a true and deep bottom in 2012.

How low will it go?

To between 3,800 and 4,500, Johnson predicts.

Yikes.

Of course, Johnson was in the minority of the other investment experts the Times interviewed.

Their predictions were more optimistic, yet still guarded in terms of how much of a climb we might expect to see this year.

Will I enter the stock market again this year?

Probably.

Will I be faked out by what appears to be a decent rally and lose money?

I’d put those chances at about 50-50.

Am I enjoying some relaxation and better sleep knowing that my money is in an old-fashioned CD instead of worrying about what bit of misguided news or some analyst’s comment will do to the share price of a stock I own?

Absolutely.

But if I see another couple of days like Friday this week, I might start losing sleep for a different reason.

Brian