BEIJING, PEOPLE’S REPUBLIC OF CHINA – From my vantage point here in Beijing this week, I find my mind drifting this morning closer to home and specifically back to Citigroup Inc. (C).

Shares are under pressure for reasons that most investors, particularly those who were looking for a repeat of Goldman Sachs Group Inc. (GS) – don’t understand – especially after a “favorable” conference call and results that were widely interpreted as positive. Others are taking it a step further and suggesting there’s a massive capitalist “conspiracy” at play in the financial sector – especially now that the government is so heavily involved.

While I’m not ruling out the fact that there’s some backroom-government maneuvering at work, my experience as a veteran trader suggests there’s a much more logical explanation – not unlike the infamous “Bin Laden Trade” rumor that I dispelled in the past, or the “Dark Pools” that I brought to light. Unfortunately – as was true of the Bin Laden and Dark Pools examples – the Citigroup case is shaping up as yet another example of a situation in which the proverbial “little guy” could get caught short once again as the Big Money crowd has its way and runs roughshod all over Wall Street.

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On Monday, $24.8 billion worth of takeovers were announced. It was the third busiest Merger Monday on record in 2009. Yet most investors remain unimpressed….

They’re convinced it’s nothing more than a short-lived Darwinian event. Weak and unfit companies, exposed by a nasty recession, are simply being forced into the arms of the strong. Or as Jack Ablin, Chief Investment Officer at Harris Private Bank puts it, “A lot of these deals are motivated by self-defense.”

But they’re wrong.

Even though this Monday wouldn’t even make the cut for the top 20 deal days during the last takeover boom (in 2007), it’s more than just a function of survival or some freak bear market anomaly.

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My last visit to New York proved to be a very fruitful one as I had the opportunity to attend the Trader’s Expo, and more importantly, I got a chance to sit down with Bo Yoder from BoYoder.com. I’ve known of Bo when I first started here at INO, but he took time out and refocused on some top projects that meant a lot to him. He’s back now and I’m excited to introduce you to him, his site, and the article below. Please enjoy the article and comment below so you can make Bo feel welcome!

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As the markets fight for a bottom, there is a new wave of interest in the world of active trading and self-directed investing. These new traders have so many wonderful tools available to help guide them and accelerate their learning curve. Archives such as those offered by INO.com have all the information needed to build a solid background as a technically focused trader.

However, many beginning traders fail to understand that technical analysis at its root is the science of interpreting order flow. Let’s look at one of the most fundamental technical analysis price patterns… the double bottom.

In a double bottom, the market first finds support and bounces after a decline into capitulation. This bullish reversal is exactly what we are currently experiencing on the daily chart of any major market index. The bounce builds momentum, and creates excitement in the investing community. Traders and investors take long positions in a steady cascade of buy orders as their investment strategies trigger.
At some point, the very last strategy will go green, and the very last block of technically driven shares will be taken. For a very brief moment, the market will hover without buyers, then head lower as the inherent selling pressure takes it down towards levels of higher liquidity.

If the market has bottomed in a “V” as it has been doing in the real world recently, the heaviest liquidity pool will be often centered at the lows for the year. The majority of technical traders will have put their stoploss orders below that level, and this liquidity pool will tend to “suck” price down for a test.

Put yourself in the mindset of the bull at that point… You took a trade according to your investment strategy, and had some nice open profits at the end of the run up. Now, the market has come back down to retest your initial support level, and is trading perilously close to stoploss orders. If the market has bounced particular violence, it is likely that many traders will have missed the run and be frothing at the mouth to get long on any excuse. As the market retests support, they take this opportunity to buy and this surge of order flow creates the support needed to drive the market higher.

This supply/demand imbalance takes the market cleanly off the lows and forms the “W” pattern which is characteristic of a double bottom. Once the bottom has formed, the market tends to rally back up to the last minor swing high, and another massive constituency will be triggered to go long as that swing high is broken.

The traditional trader, taking entry as that swing high is violated is taking several points in risk for the potential of buying into a major market bottom. While this is a perfectly acceptable trading methodology, and carries solid edge… I can show you how to more than double your profit on this exact same investment opportunity!

For a real world example, let’s look at the market action in IBM…

As you can see, a classic double bottom had formed just below the $85 per share area. A traditional trader would be going long at approximately $93 a share. A traditional stoploss orders set below the lows would put the trades risk and a little more than $10 per share. (For every 100 shares taken, a pattern failure would cost the trader $1000.)

In terms of a profit objective, the 200 period simple moving average (blue line) would be a logical place to take profits. Since this level of technical resistance is currently hovering near $100 per share, the trade will yield a little less than one to one if successful. From a mathematical perspective, this is not a very attractive proposition. Even though the pattern is technically perfect, there isn’t that much reward for having your market opinion proven correct.

Most beginning (and intermediate for that matter.) traders are more focused on profits and profit potential than risk management or loss avoidance. They are more afraid that they will miss out on an investment opportunity, then they are cautious about taking a mathematically disadvantaged trade. They also forget that the market constantly wiggles…

It is that tendency to wiggle that will prove so powerful once you learn to harness it. If we go back to our chart, you can see that the breakout above $93 per share did indeed attract a great deal of bullish attention… but as is often the case, that technically driven order flow was short lived. The market then spent a few days basing sideways, and then fell sharply off a gap open and retested the breakout zone around $93 per share.

And that my friends is the magic entry point…

Let’s look at the math…

If entry is taken into areas above chart as well as moving average support around $93 per share, then to my eye the $90 per share area would be logical for stoploss placement. This puts the risk for the breakout/retests trader at a very manageable three dollars per share. Whereas the original pattern recognition entry demanded a 10 point stop, the fullback trader can take nearly 3 times the position size while assuming the same dollar risk.

In this example, support did indeed hold… and the market tested the 20period simple moving average just a few days later. If profits were taken at that level, then the pullback trader would have enjoyed a risk to reward ratio of better than 2 to 1!

So here is our bottom line…

The first trader took 100 shares at $93 per share, held them through the wiggle and exit it into the $100 per share level for a $700 profit…

The second trader took 300 shares at $93 per share and held them for what was a smooth four-day moon shot to the profit objective. The 300 share position was sold at $100 per share for a profit of $2,100.

Now of course, no trading decision or investment strategy is without its downsides… The downside on waiting for the retest after a breakout is that you may miss out on the trade entirely if no wiggles are present. If this should occur, the only cost to you is an emotional one… No money will change hands in either direction!

But wouldn’t you be willing to run the risk of emotional discomfort for the opportunity of doubling or even tripling your profit potential for every trade? I know I would! (And do on a daily basis…)

So as you learn about traditional technical investment strategies, spend some time looking within the pattern itself to see if there isn’t an alternate entry strategy that will yield a much stronger return to its employer. It is this kind of thought that allows me to enhance so many traders returns when working with them as an edge consultant as I help them to Optimize Their Trading Edge!

Bo Yoder

BoYoder.com

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Is California coming to the end of its housing crisis? Well, it’s definitely improving and finding its way up the ladder. Over the last 18 months, California has had a dramatic increase in home purchases, primarily because prices have plummeted to affordable rates for the average Californian family. Thanks to the government’s stimulus package and tax credit, there are now advantages to purchasing a home in California.

The tax break from California home buyers affects those who purchase a home during the 2009 tax year. It only affects first time home buyers with the eligibility stating that you must not have owned a primary residence in the past three years. The benefit of this tax break equals out to be $8,000 on your 2009 tax return. Another important stipulation is that the purchased home must be your primary residence, which includes homes such as houseboats, condominiums and trailer houses. You must follow the established 2008 IRS guidelines and insist that your loan closing fall between January 1, 2009 and December 1, 2009 to be eligible for the additional return.

California home prices have taken a dramatic plunge, but have turned into a great advantage for the residents of the state. California home purchases have increased; making California one of the leading states in the country in revitalizing the real estate market. Most California homes on the market are the result of recent foreclosures and are owned by the finance company; however, most of these homes are in decent, sound neighborhoods providing the opportunity for people improve their living situations. The price reductions vary from county to county; for instance in Yuba county prices decreased by 41.5% making the average price for a home around $158,000. In Sutter County prices plummeted by a whopping 66% making prices as low as $166,000, prices throughout the state of California averages $224,000. It has been many decades since California homes have been this affordable.

On the other side of the coin you have those people that are fighting to keep their homes and people that are desperate to sell their homes because of their financial situations. These people will be taking a big loss in their home. The Government has created a bail out for these home owners with low interest financing and credit counseling, but it is to late for many of these home owners.

The best way to get involved with buying a home in California is through a real estate contact. There are many excellent bargains that are not advertised. There are no for sale signs on the property itself, nor an advertisement in the daily newspaper. The only information provided is on the states MLS listing; in which a real estate agent can access for you or you can access it on the states MLS website.

With housing prices going down as of late in California now is as good an opportunity to own a home as ever before. On average if a family makes $53,000 they can now live the California dream and live comfortably knowing they can afford the mortgage.

There are plenty of organizations out there to assist people in the dream of home ownership. Places such as Neighborworks homeownership center, the resale of HUD homes, veterans loans are just some of the places out there to assist in helping people to realize their dream of homeownership.

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Orlando is a major city in the U.S. state of Florida, the county seat of Orange County, located in Central Florida. Orlando is also the principal city of Greater Orlando.

The city is well known for the many tourist attractions in the area, in particular the nearby Walt Disney World Resort, which is located in Lake Buena Vista about 20 miles (32 km) southwest of Orlando city limits via Interstate 4. Other notable area attractions include SeaWorld and Universal Orlando Resort.

The district sees an estimated 52 million tourists a year. Orlando is one of the busiest American cities for conferences and conventions with the Orange County Convention Center, the country’s second largest in square footage.

Located several miles away from the main tourist attractions, Downtown Orlando is undergoing major redevelopment with a number of residential projects, commercial towers, and major public works projects including the Orlando Events Center and the Dr. P. Phillips Orlando Performing Arts Center. Orlando ranks as the fourth most popular city, based on where people want to live, according to a 2009 Pew Research Center study.

Presently, the Orlando Real Estate Market has been making news across the country. Orlando’s real estate market has gone from being one of the hottest seller’s markets a few years back to one of the strongest buyer’s markets around today.

In light of recent events foreclosure, pre-foreclosure, and short sale investment has also been making news across the country. A lot of homeowners have been removed from their rights to redeem mortgage and real estate investors have been capitalizing on this to offer lower priced Orlando real estate to homebuyers.

In line with this, many investors have been proclaiming they have the best strategies in succeeding in this entrepreneurial endeavors and real estate seminars on this investment opportunity has been prevalent.

As it has been established that Orlando is one of the most favored places on earth to live, private investors have flocked in the areas and people with money have joined the wagon to have a share of this burgeoning profitable venture.

Don’t miss out on this big break. Learn more from Jeff Kaller, the real estate expert in his Orlando real estate seminar, the secrets of foreclosure, pre-foreclosure, and short sale investing.

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