Future Profits Through Lessons of History

Posted By Barry Brush |  Subscribe in a reader | Comment 0
2DIME’S INVESTOR NOTES
Wednesday, November 21st, 2007
 
“On Average, History Will Repeat Itself.
 
 
 
Wow! What do you think about the recent moves in the Markets? Truly, the only constant is change. As for my personal efforts to stay ahead of the crowd, I’m about even with my trades for the past two weeks. Gains off setting give backs. The advantage of picking good stocks in good industries at good buy points, they weather the storms of market fluctuations nicely. Its great to even see some of them motoring onward and upward while "Rome burns."
 
During the first week of November, I was feeling some relief as the markets were recovering from the late October pullback. I pondered whether the expected last quarter rally was at hand and wondered if we would see new highs. I made a mental note that GOOG and AAPL looked a bit Over Bought…..with rising prices during the previous week BUT with declining Volume. Hmmm…..
 
I was trying to refresh my memory about the average price of stock during the last 52 years that has historically made the greatest run-up. I recollected it was around $48; but wanted to pin it down. I guess the need for precision is an old carry over from my days as a professional pilot.
 
 Where did I see that?  It was in William O’Neil’s book “The Successful Investor” ( pg.111)

As I was thumbing through the book, I noticed a chart of AOL from 1999 and thought….That sure looks like GOOG. It was talking about how to recognize tops and was using AOL as an example of an “Exhaustion Top.” I took another look at GOOG and noted on the chart:
 
“ Same Pattern as AOL 1999
1. 7-8th Base formation
2. Highest daily gain 19 on 10/30/07
3.Prices continuing to rise on declining daily volume
4. Exhaustion Gap 10/23 – 10/24?”
 
Later in the trading day, on November 5th,  I thought about how important studying past performance of individuals and stocks is to gaining an understanding of the markets and the trading craft. So.. I trimmed off a few profitable trades (Rule of thumb is to take ½ off when your gains hit 100%) and purchased high DELTA Puts on GOOG, AAPL, DIA and the QQQQ’s. With the uptick on the 6th , the little voice of greed in my head started chattering and vacillating and then became quiet on the 7th as the correction swooped in and gave the FED another opportunity to inject cash into the marketplace. (On Thursday November 15th they injected $47 billion in temporary reserves into the banking system, its biggest injection since September 2001.)
 
Granted Google is not AOL and 2007 is not 1999; but it sure is gratifying to see stuff happen after you think it might and take a few precautionary steps “just incase.”
 
The puts on GOOG, AAPL, DIA and QQQQ helped to blunt some of my less favorable plays. And yes, golly darn, I exited before I thought I should have. And now, a week later it is a moot point. Cause I’m all about Calls.
 
As I said, “The only constant is change;” but it sure is helpful when that change repeats itself. Now! Where’s the BULL?
 
Cheers, 2Dimes / Barry Brush (To contact me send an email. To support@selfinvestors.com and Tate will make sure I get it.)

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