1) Women will continue to love over-priced cupcakes.

CORRECT: I started off with an easy one just to build confidence.

2) StockTwits will IPO as a Chinese Rare Earth Solar Biotech stock and gain +300% on its first day!

WRONG: It was obviously a joke, but nonetheless, incorrect.

3) SodaStream ($SODA) might end up being a fad, but I’ve seen fads run for a long time. I wouldn’t be surprised if they announce a distribution deal with Walmart, Target, etc. at some point in 2011. The stock is currently at $31.40…it could double from here.

CORRECT: $SODA went from $31 to a high of nearly $80 (a +150% gain). Of course I didn’t hold it for that entire gain because I am a trader and not an investor, but I still traded it several times successfully. Funny observation: Even though it has dropped considerably from its high, it’s still up +3.5% on the year, which is better than the market.

4) Beyonce will get pregnant and Jay-Z will have 100 problems.

CORRECT: I had to wait until the end of the summer for the announcement, but I knew Young Hova would come through.

5) Molycorp ($MCP) is a real story. The company could potentially earn $4.00-$6.00 in earnings by 2013. When the stock was at $37, I almost tweeted that it was my best idea for 2011…but I was too busy trading it. I recently sold it near $50 and I will look to buy it back at a safer entry point. It is currently at $49.30…it could double from here.

HALF CORRECT: Technically, $MCP didn’t quite double, but it made an explosive +60% in 6 weeks when I tweeted about it in March, and it was a triple from when I started trading it in Sept 2010. Yeah, I know it’s lost half its value this year, but once again, I can’t help you if you don’t trade with stops and have no sell discipline

6) Howard Lindzon will run for President, he might even run a marathon…either way, he’ll be chasing a Kenyan.

CORRECT: Howard ran well over 26 miles this year. They weren’t all in one day, but I’m still technically correct

7) Lindsay Lohan will go back to rehab and cocaine futures will plummet.

CORRECT: Easy prediction

8) There will be a bubble in people calling for bubbles.

CORRECT: Another easy prediction

9) Jazz Pharmaceuticals ($JAZZ) could be the next blockbuster drug company. They develop drugs to treat obsessive compulsive disorder, social anxiety disorder, bipolar disorder, restless leg syndrome and excessive daytime sleepiness…basically, what every trader suffers from. In all honesty, a few of my ex’s would make for a great clinical trial, LOL! The stock is currently at $20…it could double from here.

CORRECT: $JAZZ went as high as +140% this year and is STILL up 90%. I traded it once from $20 to $24 for a 20% gain, and never got back in because I couldn’t find a safe re-entry point. No big deal, a win is a win.

10) The market will go up and people will complain. The market will go down and people will complain. Bottom line: Everyone loves to whine…but real winners do something about it and the losers just keep complaining.

CORRECT: This is true EVERY year.

Overall, let’s call it 8-1-1. The performance of these stocks confirmed a few of my trading rules such as: 1) I’m a trader and I don’t care about getting the entire move, simply take what the market gives you 2) Use technical charts to help you get safe entry points and 3) I don’t care if the stock falls apart after I get out because, at the end of the day, ALL stocks suck!

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Who were they? Charles M. Schwab, president of the world’s largest steel company; Arthur Cutten, the greatest wheat speculator of his day; Richard Whitney, president of the New York Stock Exchange; Albert Fall, a member of the President’s Cabinet; Jesse Livermore, the greatest bear on Wall Street; Leon Fraser, president of the International Bank of Settlement; and Ivar Kreuger, the head of the world’s largest monopoly.

What happened to them? Schwab and Cutten both died broke; Whitney spent years of his life in Sing Sing penitentiary; Fall also spent years in prison, but was released so he could die at home; and the others—Livermore, Fraser, and Kreuger, committed suicide.”

—Donald McCullogh, Walking From The American Dream

My purpose for sharing this passage is not to depress anyone, but rather to remind us that there’s more to life than money. I realize that 2011 has been a challenging year for many traders and investors, but this is simply a reminder that family, health, spirituality, and many other things should come first before wealth accumulation. Make sure to spend time with your family and loved ones during this holiday season because that is where true wealth and happiness exists.

An even greater happiness comes from giving. Think of something that you can do during the holidays to help others, such as charity or volunteer work, and then go out and do it! Trust me, there is no amount of money that can replace the feeling of an enlightened and rejuvenated spirit. Wishing all my readers a Merry Christmas and a Happy Holiday Season!

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How to Make Money in Stocks (4th Edition), William O’Neil
How to Trade in Stocks, Jesse Livermore
Reminiscences of a Stock Operator, Edwin Lefevre
The Disciplined Trader, Mark Douglas
Trading in the Zone, Mark Douglas
Trader Vic-Methods of a Wall Street Master, Victor Sperandeo
Trader Vic II-Principles of Professional Speculation, Victor Sperandeo
How I Made $2,000,000 in the Stock Market, Nicolas Darvas
The Battle for Investment Survival, Gerald Loeb
Confessions of a Street Addict, James Cramer

There are 3 Market Wizards books all written by Jack Schwager:

Market Wizards
The New Market Wizards
Stock Market Wizards

Confidence and emotional control are extremely important in order to become a successful trader. I believe the ideas taught in the following “self-help” books can help develop that “mental toughness” that’s needed. The concepts learned can also be applied to many areas of our lives:

Think and Grow Rich, Napoleon Hill
You’ll See It When You Believe It, Dr. Wayne Dyer
The Power of Positive Thinking, Norman Vincent Peale
The Magic of Thinking Big, David Schwartz
Awaken the Giant Within, Anthony Robbins

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There is one big problem: EVERYONE is saying the same thing! When I realized that the ENTIRE WORLD was thinking the same as me, I immediately had to change my opinion because as Jesse Livermore says: “The stock market is never obvious. It is designed to fool most of the people, most of the time.”

Therefore, earlier this week I started to think of 3 scenarios: 1) The market never gets to 1257 and we turn higher (that option is out). 2) We actually get to 1257 and bottom for the year (I would bet my left kidney THAT won’t happen). 3) We get to 1257, bounce enough to “sucker in” everyone on the long side, and then slice much lower through this key level of support.

I am unfortunately leaning towards the third scenario for the following reasons: 1) Stocks are acting VERY POORLY right now. The selling pressure is relentless and the market is having trouble sustaining any rally. Even the FEW names on my watch list that are holding up well are getting hit. My feeling is that the market will eventually get to everything. 2) Many stocks are breaking down from late-stage bases and the bull market that began in March 2009 is also getting a little long in the tooth. 3) The market is never obvious. Bottoming at an area (1257) that everyone expects WILL NOT HAPPEN. We may bounce, but I doubt it will hold.

I’m not trying to be too negative, I’m simply going by what the market and its leading stocks are telling me. My best advice from here is to raise some cash, especially into strength. Stay defensive and DO NOT force trades. If you trade (either long or short), I suggest taking smaller than normal positions, locking in quick profits, and obeying your stops. As always, maintain a watch list of stocks that are holding up well so you can be prepared for the market’s next uptrend. The key right now is patience and discipline.

One final note, I mainly use the NASDAQ Composite when evaluating the general market. I only used the S&P 500 in this post because it seems that most traders use that index. I plan on writing a future blog post discussing why the NASDAQ is the true leading index, and the only one worth watching…in my humble opinion. We’ll save that topic for another day. Good luck!

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2) StockTwits will IPO as a Chinese Rare Earth Solar Biotech stock and gain +300% on its first day!

3) SodaStream ($SODA) might end up being a fad, but I’ve seen fads run for a long time. I wouldn’t be surprised if they announce a distribution deal with Walmart, Target, etc. at some point in 2011. The stock is currently at $31.40…it could double from here.

4) Beyonce will get pregnant and Jay-Z will have 100 problems.

5) Molycorp ($MCP) is a real story. The company could potentially earn $4.00-$6.00 in earnings by 2013. When the stock was at $37, I almost tweeted that it was my best idea for 2011…but I was too busy trading it. I recently sold it near $50 and I will look to buy it back at a safer entry point. It is currently at $49.30…it could double from here.

6) Howard Lindzon will run for President, he might even run a marathon…either way, he’ll be chasing a Kenyan.

7) Lindsay Lohan will go back to rehab and cocaine futures will plummet.

8) There will be a bubble in people calling for bubbles.

9) Jazz Pharmaceuticals ($JAZZ) could be the next blockbuster drug company. They develop drugs to treat obsessive compulsive disorder, social anxiety disorder, bipolar disorder, restless leg syndrome and excessive daytime sleepiness…basically, what every trader suffers from. In all honesty, a few of my ex’s would make for a great clinical trial, LOL! The stock is currently at $20…it could double from here.

10) The market will go up and people will complain. The market will go down and people will complain. Bottom line: Everyone loves to whine…but real winners do something about it and the losers just keep complaining.

I will leave you with one final note and then a quote from Jesse Livermore. If you trade any of these ideas, PLEASE USE STOPS! So many traders love to criticize when someone recommends a stock and it goes down. What they really should be doing is criticizing themselves for not having a sell discipline. Remember…MAKE THESE IDEAS YOUR OWN! In other words, if they are too speculative for you, don’t trade them! Good luck in 2011!

“There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly built into human nature, that always gets in the way of human intelligence. Of this I am sure.” — Jesse Livermore

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Since this is the one-year anniversary of my investment blog, I wanted to “re-introduce” myself because there are so many new followers on a daily basis. Back in 2006, I used to send “Market Notes” via email to update some fellow traders on my views of the US stock market. I found it very helpful because it gave me the opportunity to organize my thoughts and prepare myself for trading. Thanks to Philip Pearlman and Howard Lindzon, they convinced me to turn these Notes into an investment blog. My intention is to provide keen market insight, strong stock ideas, and to hopefully pass on some of the lessons I’ve learned from 15 years of trading.

My Investment Process:

The first thing you HAVE to do is define yourself! Are you a trader? Or an investor? I am a trader. I hold positions anywhere from 2-3 days to 2-3 months. I screen the market every night with proprietary screens I developed over the years. These screens are quantitative, technical and fundamental. They are based on the “Greatest Winning Stock” models and studies done by William O’Neil. Essentially, I start with sound fundamental companies and try to trade them at the proper time AND when the market is healthy. I believe in Jesse Livermore’s philosophy: the market is healthy 2-3 times a year, do your homework to identify those times, and trade them aggressively. The rest of the time, build cash and protect your profits. Livermore believes you are a fool for trading everyday and “you should not be in the market all the time.”

My Advice:

Find a philosophy that fits your personality and mimic someone who has been successful at it. I don’t believe in re-inventing the wheel. In other words, if you are a long-term value investor, study Warren Buffett. I like O’Neil’s philosophy because it combines both stock trading and market timing, but it might not be for you.

Be ready to work at it! Remember, there is NO substitute for experience and stock trading involves hard work and emotional control. Gerald Loeb says: “Knowledge born from actual experience is the answer to why one profits…knowledge means information and the ability to interpret it marketwise.”

Study great traders. Three common words of advice from the best traders are: CUT YOUR LOSSES! You will begin to realize the importance of this advice when you study the top traders.

Thank you again for allowing me to share my ideas over the past year. I hope you continue to find this blog insightful and that you also learn something along the way. You can email me at jfahmy@zenithasset.com if you have any questions or comments. I will try to answer them as best as I can.

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1) As Jesse Livermore said: “The stock market is never obvious. It is designed to fool most of the people most of the time.”

2) The market experienced a tremendous gain from 9/1 through 9/3 and consolidated it well by giving NOTHING back through 9/10, a positive sign.

3) On Monday of this week (9/13), the market had another strong day and AGAIN gave nothing back through Thursday (9/16).

4) Since the 9/1 “follow-through day” on the NASDAQ, the market has seen very little distribution.

5) Sentiment was so negative at the end of August that it wouldn’t surprise me to see the market continue higher in order to flush out some of this negative sentiment.

6) I just started and ended the same sentence with the word “sentiment.”

7) Breakouts and pullbacks are working well, a healthy sign so far.

8) The NASDAQ 100 has already cleared its 1939 resistance area, mostly led by the recent strength in $AAPL.

9) Some stocks on my watch list include: $BIDU $TSL $JASO $RVBD $ASYS.

Bottom line: The market is acting well so far this month by moving higher on strong volume and pulling back on light volume. More importantly, strong fundamental stocks are breaking out of solid technical bases and holding their breakouts. One possible scenario is that we begin to pull back as the market approaches these “obvious” resistance areas, and then we break through these levels to the upside, once again fooling the majority.

Don’t forget to tune into THE NEXT BIG MOVE this Sunday night at 8PM EST (www.stocktwits.tv) as I will discuss these topics and many more!

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Who were they? Charles M. Schwab, president of the world’s largest steel company (Bethlehem Steel); Arthur Cutten, the greatest wheat speculator of his day; Richard Whitney, president of the New York Stock Exchange; Albert Fall, a member of the President’s Cabinet; Jesse Livermore, the greatest bear on Wall Street; Leon Fraser, president of the International Bank of Settlement; and Ivar Kreuger, the head of the world’s largest monopoly.

What happened to them? Schwab and Cutten both died broke; Whitney spent years of his life in Sing Sing penitentiary; Fall also spent years in prison, but was released so he could die at home; and the others—Livermore, Fraser, and Kreuger, committed suicide.”

—Donald McCullogh, Walking From The American Dream

I shared this passage last December around the holidays. My purpose back then was not to depress anyone, but rather to remind us that there’s more to life than money. Many times, traders and investors get caught up chasing a dollar amount or attaining a certain net worth…but for what? I know I am guilty of this at times and I constantly need to remind myself that family, health, spirituality, and many other things should come first before wealth accumulation.

I know it’s not the holiday season. This is just a simple reminder on a random weekend in August to spend time with your family and loved ones because that is where true wealth and happiness exists. Even greater happiness comes from giving. Think of something that you can do this weekend to help others, such as charity or volunteer work, and then go out and do it! Trust me, there is no amount of money that can replace the feeling of an enlightened and rejuvenated spirit.

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I’m sure most people’s immediate thought is: “What am I supposed to do? How am I going to make money unless I trade?” Here are a few responses:

1) I respect if you work for a prop trading firm and HAVE TO trade. Just keep in mind that trading the market doesn’t automatically mean you will make money! If you HAVE TO trade because it’s your job, my best advice is to keep positions small until market conditions improve.

2) Define yourself! I am a swing trader looking for high probability situations in a healthy market. If there are none, then I don’t trade…PERIOD! Again, I’m not going to agonize and kill myself over pennies when there are dollars to be made later.

3) The key in corrective markets is not to make money, but to protect your capital. As Paul Tudor Jones says: “Play great defense, not great offense.”

4) “Wait until as many factors as possible are in your favor before making a trade. It’s the patience that makes the money.” — Jesse Livermore

As most of you know, I’m not a big fan of predictions because ALL of them (including mine) are useless. I also realize that I could be wrong and conditions could improve quickly (which is why I do my homework EVERY night). Right now, that work is telling me that the market will continue to move 2 steps forward and 3 steps back until we truly bottom.

One last note, the true response to the question above is: Do post analysis of your work and look at your P+L over the past 6 or 7 weeks. If you made money during this choppy time, then you have proven you can successfully trade in these types of environments. If you lost money, you are better off protecting your capital and sitting out until conditions improve.

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2) Stocks are forming bases right now, but they need more time to set up properly. PATIENCE is so important right now!

3) I wouldn’t be surprised to see the market chop around through July. By chop, I mean 1 day up and 2 days down, followed by 2 days up and 1 day down. Again, nothing “sustainable” to the upside.

4) If you insist on trading, keep position sizes small and take quick profits. If you are not comfortable trading that way, then don’t trade.

5) The key in corrective markets is not to make money, but to protect your capital. As Paul Tudor Jones says: “Play great defense, not great offense.”

6) I don’t think we will have another big leg down, but I’m not ruling it out either. (How’s that for hedging myself?)

7) Keep in mind that cash is a position and there is nothing wrong with doing nothing.

8) I do like how many leaders found support near their 20-day moving averages on Wednesday. Examples include: $BIDU $DECK $CRM $APKT $NFLX $AKAM $CMG. Unfortunately, everyone is watching the same 10-15 stocks and this could be a crowded trade. I like these names but I would prefer to see MORE stocks setup.

9) “Wait until as many factors as possible are in your favor before making a trade. It’s the patience that makes the money.” — Jesse Livermore

Please tune into my show “The Next Big Move” this Sunday night at 8PM EST on StockTwitsTV (http://www.stocktwits.tv/). I will be discussing these thoughts in more detail and comparing the current market to a possible 1997 scenario.

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