Saturday, 8 June 2013

Quote for the day

"Intelligence and good market analysis can certainly contribute to success, but they aren’t the defining factors that separate the consistent winners from everyone else." - Mark Douglas

2013 Country Stock Market Returns

Below is a look at the year-to-date stock market performance of 77 countries around the world. Of the 77 countries shown, the average 2013 performance is +7.11%. Fifty-seven of the 77 countries are in the green for the year, 19 are down and one is flat.

As shown, Dubai is up the most in 2013 with a gain of 49.25%. Nigeria ranks second with a gain of 40.91%, followed by Abu Dhabi in third at 36.81%. While it has fallen off a cliff recently, Japan remains the best performing country of the G7 so far this year with a gain of 23.88%. The US ranks 2nd of the G7 with a gain of 14.91%, followed by the UK (8.72%) and Germany (8.44%). France is 5th out of 7 with a gain of 6.36%, while Italy ranks 6th at just +2.57. Canada has been the worst performing G7 country so far this year with a decline of 0.42%.

The BRICs have been extremely weak so far this year. India is doing the best of the bunch with a gain of 0.01%, while Brazil and Russia are the second and third worst performing countries on the entire list. Only Peru has been worse this year with a decline of 22.63%.

The 3 Things We WANT to See During a Market Pullback

Pullbacks happen.

Contrary to what we all might wish for, even the very best stocks don't go straight up for months on end with no corrections.

The same goes for the stock market as a whole. Even during the strongest bull moves, painful corrections occur.

These corrections often last days, but sometimes they last weeks and still don't disrupt the overall uptrend.

The dirty little secret that amateur traders fail to understand is that pullbacks are a good thing…IF they're “constructive” in nature.

While it’s no fun to watch your portfolio drop during a session – or even several sessions – professional traders understand that constructive corrections give stocks (and the market as a whole) a chance to adequately rest up and continue their upward moves.

If stocks go up continuously without normal “resting” periods, they become much more susceptible to sudden and dramatic crashes. These crashes can be brutal to a portfolio and extremely difficult to recover from.

Normal (constructive) corrections help stocks avoid these sudden crashes.

So what makes a pullback constructive and how do we tell the difference between a “constructive” correction and a “dangerous” correction?

Three things, actually:

1) Constructive pullbacks occur on lower volume.

Volume tells us how much conviction is behind a price move. If we see heavy volume, it tells us there is more force behind a move, it’s more aggressive. If we see lighter volume, it tells us there’s uncertainty behind the selling, not everybody’s buying into the move.

Ideally, we want to see pullbacks occur on volume that is less than the previous day’s volume and/or less than the volume seen on recent up days.

2) Constructive pullbacks don’t break below key support levels.

Nicolas Darvas, the father of the Darvas Trading System, was famous for recognizing that the best stocks actually pulled back quite often and quite dramatically, but they never fell through their key support levels (which Darvas usually identified with his famed “Darvas Boxes”).

When pullbacks occur, we don’t want to see them fall through key trend lines or moving average lines that have been maintained throughout the overall uptrend. Pullbacks that break these levels are a big warning sign, even if they don't actually trigger a sell-stop.

3) A single day’s action is rarely a cause for concern.

Even the best stocks (and strongest bull markets) can have a brutal session here and there. The key is that they usually recover quickly. A single day of selling is rarely a cause for concern, even if it does occur on higher volume. Some profit-taking during a strong bull move is to be expected and sometimes this profit-taking creates panic among the market’s weaker holders. This type of behavior can produce some wild one-day swings.

However, a constructive market environment will normally rebound quickly by reversing higher or leveling off in the days that follow the dramatic decline. Top traders don't get spooked out of winning positions based on a single day of selling.

Edited article