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Unless you’re one of the rare “cult personalities” on the internet, people aren’t reading your blog because of you… they’re reading it because of what it can do for them. An All About Me blog is fine, but not if you want more readers. What we do and think isn’t nearly as interesting to potential readers as it is to us.

The above quote is from Be Humble, the second of the Seven Blogging Virtues published by the excellent Creating Passionate Users site.

(Of course, when I read that first line about “cult personalities,” I couldn’t help but think of TraderMike and Maoxian!).

We’re at a historically important crossroad right now for the U.S. Dollar. That crossroad is at the top of a jagged mountain, and we stand atop a precipice with a perilous plunge on all sides except for one narrow, treacherous path leading to safer ground (the path of solid, steady economic growth which seems so unlikely right now). And I’m about out of metaphors.

I’ve written sporadically about currencies and how important it is that we keep an eye on them. They’re not the tail that wags the equity dog. They’re the bank that finances the debt that built the home where the little equity dog lives out back. (Ok, so maybe I’m not out of metaphors). Point is, currencies are just that big a deal. As I’ve mentioned before, the currency market dwarfs both the bond market and the stock market by a considerable margin. The weakening or strengthening of the dollar, combined with the reasons for that weakening or strengthening (economic growth or lack thereof, Fed policies) influence global economic activity and account for the growth or failure of the companies whose stock we trade, and just as importantly, the companies who employ many of us.

Here’s a chart of the Dollar vs. Euro from last weekend:

The dollar “climbing” on this chart is actually the dollar weakening (more dollars to buy one Euro). If you’re not used to thinking “up” and “weakening” at the same time, here’s the same chart flipped, which makes the weakening even more obvious:

This chart, which goes all the way back to 2002, shows how the dollar weakened through the beginning of 2005, then drew a Head and Shoulders pattern through mid-2006. The pattern then failed as the dollar broke upwards (weaker) from the right shoulder.

We now sit between the critical levels of 1.3666 dollars/euro as the last line in the sand before a dollar plunge, and the 1.295 area as a support level which, if broken, would portend further strengthening of the dollar.

The main question is which one do we wish for? For me, the answer is that we wish for a stronger dollar to help offset the likely-approaching events which will serve to further weaken it, namely, lackluster economic growth, Fed easing and the continued strengthening of the Yen and Renminbi (yuan).

If the U.S. economy caught a little gust of wind in its sails and actually began picking up steam (which it most definitely has not, considering the unprecedented liquidity poured into it the last few years), the dollar would strengthen, we’d get a tad of inflation, life would be good. It may even allow enough breathing room for China to let the yuan strengthen a bit more without cratering the dollar.

However, the economy doesn’t seem to be “catching fire” at all, no matter how many trillions of dollars have been thrown into the tinder box over the last decade or so. That’s bad, bad news.

The late, great, brilliant economist Milton Friedman tied inflation directly to money supply. Flood the market with more dollars than the economy requires for current growth, and the result is inflation. Lots more dollars chasing a little more product. Those excess dollars sloshing around in the economy get spent and re-spent, increasing the velocity at which money flows through the economy. It’s that money velocity which results in upward-spiraling prices and wages, i.e. inflation.

Conversely, if the Fed were to start reducing the money supply, or even increasing it, but at a rate slower than required by current growth, money velocity would slow down, people would hold their dollars longer, those dollars would begin to increase in value… voila, deflation.

Deflation is not good. The ideal balance for economic growth and happy peasants… er, citizens, is what they call “a little inflation.” Maybe 2-3%. Why? That’s an article in itself, but the short version is that prices go up easily, but are “sticky” on the way down… they don’t fall in proportion to the decreased money velocity. Particularly wages. Would you be agreeable to having your pay cut during recessions (i.e. really tied to the “cost of living”)?? Nobody would. So what can happen is the dreaded deflationary death spiral, where people spend less- so money velocity slows- so economic growth slows- so people spend less… There is only one known way to (try to) abort such a spiral:

• The Fed floods the economy with money (by lowering the Funds rate) so that people loosen up and spend more

• The economy grows and people get jobs and buy houses and feel good (the intended effect), and we get some inflation from the excess money supply (a side effect)

• The Fed then steps in and gradually slows money supply growth by raising the Funds rate, ostensibly to fight inflation, its media mandate.

• If all goes well, we settle back in at 2% inflation and everything’s back on track. Right?

Right, in a perfect world. But that’s where we should be right now, after the hundreds and hundreds of billions of dollars added to the economy in recent years, which resulted in trillions of dollars of extra spending:

1. We had the LTCM debacle in 1998

2. The Y2K recession and stock market meltdown, and

3. 9/11…

In response to each of these situations the Fed, under Alan Greenspan’s leadership, did exactly what he and Paul Volker had learned to do after studying the mistakes the Fed made which deepened and prolonged the Great Depression… Greenspan’s Fed flooded the eoncomy with money- in the case of 9/11, by cutting rates by a half percent at a time and pouring liquidity into the market as fast as the 1s and 0s could cross the wires.

And it worked. Sort of. The economy didn’t go into a death spiral, and it even began to grow a little. But not nearly as much as it should be growing. We should have nearly- out- of- control inflation. Fed with Funds rates at 8% trying to calm the flames. Pay skyrocketing due to job demand created by the surging economy.

That is not where we are right now. We have an economy frothing with money, but no growth to speak of (compared to what should be expected).

What we have is an economy that’s trying to stall in spite of all the excess money. What happened to all that money, and where’s the inflation? That money caused a vast inflation in home prices, in case you didn’t notice. Why didn’t that show up in the CPI so that we’d all hear Maria moaning about it on CNBC? Hint: they don’t count it because it would look too bad. We might think our economy wasn’t as “stable” as it so obviously is. Wink. Nod. Consumer prices have been very stable, except for the stuff we don’t want to count.

Including home prices, we would have been showing outrageous inflation over the past 5 years with very very little economic growth. Stagnant, even. Bingo- stagflation.

Now we have the beginning of the collapse of the real estate bubble. Not the end, not the middle. Remember when the “experts” were all chirping about how home prices may “slow in their rate of increase,” but would never go down overall. I remember, because I laughed at them. Not only that, I went on the record and wrote one of my first soapbox articles on Dummyspots about it.

Well, those same “experts” are the ones pronouncing the collapse over, that we have or are near a soft landing, etc. And they’re still just as wrong.

As home prices continue to decline, people will stop spending, not because they’re responsible, but because their ATMs (i.e. cash-out refi’s) have been taken away. Money velocity is decreasing. Economic activity is waning.

If this continues, all the Fed can do is pull the same rabbit out of its hat- the rate decrease. The bond market is already predicting a decrease.

But this decrease won’t be very effective. The Fed doesn’t have the power, with rates at only 5.25%, to drop them far enough to re-liquify to the economy and abort the spiral.

Without some serious economic growth, and seriously quickly, we’re the next Japan of 1988. And the chart of our stock markets may very well look like the chart of the Nikkei in the 90s.

What to do? Watch your charts. Watch your stops. Hope for economic growth. (click) Economic growth.(click) There’s no place like home. Here’s to hoping…

I know this is late notice, but today only (3/14/07), Amazon has TurboTax Deluxe Plus State on sale for $29.99. That’s significantly cheaper than I’ve seen the deluxe version anywhere else, including Wal-Mart.

It’s here! After hours of intensive HTML and CSS work, and many more hours of troubleshooting (I think I’m getting rusty, especially with tables), I’ve completed the first version of my StrategyDesk Formula Reference. I’m so tired of looking in forty different places for this stuff, and I figured everyone else probably is, too. So here y’go. Enjoy.

Only made one trade today, then had to go to ICK! the full-time job and work until 10pm. Have to be back first thing in the morning, so this is going to be short and sweet.

In the one day a week I get to daytrade, I’ve evolved something of a system. StrategyDesk, with all its shortcomings, has made quite a difference in that system. This morning, I ran my old faithful Prophet.net scan for up-gappers with good volume. As usual, it returned about 15-20 stocks (actually, a little lower than normal). Since I’m using the free version, I didn’t get my list until around 0950 EST, which is fine as I don’t normally trade before then anyway.

Next, I made a custom symbol list from those results and loaded it in a realtime screener in StrategyDesk. It was very similar to the one I described a few posts back, and is solely designed to make my job easier. This one looks for a couple of simple things that I would previously have had to manually and constantly scan for (very labor-intensive):

• A series of lower lows where the last one closes within 1% of the 5ema

• A current bar that is threatening to break the previous bar’s high (I just have it look for “Last Price >50% of the prior bars range”)

The screener only kicked out a few stocks, exactly as it should have on a day like today. The list would only be from 0-4 stocks long at any given time… most of the time it was empty. I drank coffee, checked the Market Overview, read/wrote some email, played a little guitar.. then when a symbol would pop up, I’d look at the charts on multiple timeframes (both StrategyDesk and Quotetracker), and within about 10 seconds I’d be back to drinking and playing.

Finally it kicked out COO (The Cooper Companies) on the 1100 EST bar, and it was a beauty:

I simply entered when the 1100 bar broke the 1030 bar’s high of 46.60, set the low of the entry bar (46.30) as my initial stop, and let ‘er go. She went up nicely. I had to sell on the 1130 bar, because I had to go to (choke, puke) work and couldn’t practice my stop-trailing. However, I made a nice little gain in about 30-40 minutes, and as it turns out, I didn’t miss out on much until that big run at the close.

Ah, low-stress trading. I could get used to this.

If you have your own domain, you should have a current XML Sitemap in your home directory. Now that virtually all the major search engines have adopted Google’s sitemap standards, having one should be considered mandatory. It maximizes the opportunity for search engines to thoroughly index your entire site. The discussion about whether to do it is pretty much settled. It’s like (some philosopher, I can’t remember who) said about his belief in God: “If I do, and I don’t need to, no harm done… but if I don’t, and it turns out I should have… whoa, baby!” (that, of course, is a paraphrase).

What is a sitemap? They more accurately should be called a site index, which is self-explanatory, but the term sitemap has hogged all the attention, and so that’s what they’re still called. A sitemap is simply a properly-formed XML page referencing the URL of every page on your site so that search crawlers have an easier time… crawling.

Now sitemaps technically aren’t necessary for the accurate crawling of your site, but you might be surprised at how some of your pages’ ranks change when the spiders have had a look at your pretty little sitemap for a few weeks. Your pages are easier to find, they rank better, they get more hits and links, so they rank better, so they’re easier to find… kind of an inverted death spiral. A life spiral.

The thing that held me off from uploading a sitemap was, basically, that I’m too dumb to make one. Google gives these instructions in their Webmaster Tools (you do use Google’s Webmaster Tools, don’t you?). See if they make sense to you. People with Computer Science degrees are excused. I’d read a bit, then say “forget it!”.

Then last summer I happened across one of the best little tools I’ve happened to happen across. It’s called the XML-Sitemaps.com Free Online Sitemap Generator, and it’s exactly what the title says. Go there, enter your base URL, have a cup of coffee while it churns away… then voila! download your ready- to- use sitemap! Be sure that the uncompressed sitemap.xml file finds its way to your home directory; you can read the uses for the other files at the site (some folks used to keep html sitemaps in their home directory for other people to look at… that’s purely optional, as after the first few hundred pages, they look like crap.. here’s mine, for instance).

Now just go to Google Webmaster Tools and submit your new sitemap!

It’s just that easy, and I know for me it made a very noticeable difference in my traffic and my rankings. That may have something to do with the quirky way I code lots of my stuff (if you use your turn-key blog software right out of the box, it may not make as big a difference), but even if the crawlers already have an easy time with your site, this will only make it that much easier.

And finally, remember that Google (wink) can’t promise (wink) that having a sitemap (wink) will improve your rankings (wink, wink), but they do “strongly encourage” the practice.

Best of luck. (wink)

No need. In fact, this is finally one of those times when we could do this “in our sleep.” One of the most common questions I’ve heard in the last week is, “Do you think the correction is over yet?” Exsqueeze me? A baking powder?

Let’s back up, take a breath (no, really, take a long, deep, cleansing breath), and look at what we’ve got. Not what “they say” on CNBC. “They” have a vested interest in keeping our stomachs knotted up. Here’s what we’ve really got:

Pretend for a minute that you’re looking at a chart from 1992. Detach from the anxiety of the present moment and the emotional attachment to the balance of your 401(k). This chart is as clear a trend break on super-high volume as you’re ever likely to see. If we were looking at a chart from 1992, it would take about half a second to read it.

If those guys in 1992 were trading on any timeframe longer than a couple of weeks and shorter than a few years, they should have been in cash for a week now, waiting for the chart to signal a new entry. Anticipating a short on the resumption of the down thrust. If it goes up, look to re-enter long once an uptrend has clearly been re-established (weeks, maybe months). Otherwise, wait for the signal.

This is a swing trader’s playground. Short for a few days, long on the reaction, short on the reaction to the reaction, etc. When people get scared, they start to act purely out of emotion, and when people act out of emotion, the charts clear up considerably, like a fuzzy picture coming into focus. People become more predictable. Like if you walk into the middle of a herd of Angus cattle and scream. You don’t know their individual personalities, or what they think about their future, but when they panic, they all react predictably. (Well, except for that stupid one over in the corner of the pasture, chewing on his cud and uploading pictures of naked heifers to the internet.)

That’s what charts are, after all. Snapshots of people’s current emotional state with regards to a stock or the market. Not the result of cold, rational decisions as we’d like to believe. It’s why stocks trade at multiples, and not at book value. Opinion, charged by emotion. Doubt whether we primarily operate from emotion? Just observe today how many cold, deliberate, rational people you see. And observe how many times you hear the phrases “Do you think” and “I think” followed by an emotionally-charged statement.

Unfortunately, it’s our emotional state that is behind many poor decisions, in life and in trading. The whole point of technical analysis, paper trading, chart reading, even so-called “fundamental analysis”, is to develop the skill to make prudent decisions in spite of our emotions.

So, in answer to the Big Question, I don’t know. I never do. I just try to trade the charts like a complete moron (if you don’t follow Dave, this is a compliment to him- it’s how he refers to himself). Right now I see a lot of sweet shorts setting up. If they rise a bit more, they’ll become a lot of sweet longs setting up. That’s it.

None of this really applies to daytrading, of course. With daytrades, we can go long or short at any time on any day. That’s what we love about it, and the recent volatility and “people acting like cattle” just makes it that much more lucrative.

I’m off to the dentist. Writing with a toothache sucks.

In the comments of a recent post, we’ve been discussing the construction of various formulas for TDAmeritrade StrategyDesk. The last comment was by Dave:

Let’s try this:

Buy:

RSI[RSI,14,D] < 40 AND (MACD[MACD,Close,12,24,9,D] AND MACD[MACD,Close,8,13,6,D] AND MACD[MACD,Close,5,8,4,D]) AND (Stochastic[StocK,14,3,1,10] > Stochastic[StocD,14,3,1,10] AND Stochastic[StocK,14,3,1,10,1] < Stochastic[StocD,14,3,1,10,1])

Sell:

RSI[RSI,14,D] > 60 AND (Stochastic[StocK,14,3,1,10] < Stochastic[StocD,14,3,1,10] AND Stochastic[StocK,14,3,1,10,1] > Stochastic[StocD,14,3,1,10,1])

Dave- thanks for the formula (and we finally got those escape codes working.. I went in and edited them one last time).

The Stochastics crossover is similar to the one provided in the (short, wimpy) documentation of SD, and combining it with a “loose” RSI as you’ve done is a great idea. Seems like that would prevent it from generating a signal when the “K” crosses the “D” in the bottom half of a trend. (I’m thinking, however, that we may be able to require that the Fast Stochastic simply be above a certain level upon the crossover, and we could achieve similar results).

I was confused by the MACD statements in this formula. We need some type of operator on them. We could require the (12,24,9) to be greater than the (8,13,6), or do one of those “X > Y today but X < Y yesterday” crossover statements. Alternatively, we could use the MACD Histogram formula and simply say X > 0, for when the histogram crosses the zero line.

I went and read the thread you referred to where you got the MACD info. I believe the author is confusing various things (although he’s doing a heckuva job trying to get some info out there, and I commend him for it.) He refers to “Ameritrade Analyzer” … which at first I thought meant Ameritrade’s Advanced Analyzer; but I’ve been using that one for months and there’s not a way to lay three MACD curves on it.

The fact that he just gives the parameters for the three MACDs tells me he’s talking about a chart, or possibly setting up custom columns with those figures, but that they’re not, in that form, any use in a StrategyDesk formula. I was able to place the three MACDs on a StrategyDesk Chart… but those charts just SUCK! Much better to just do the charting in QuoteTracker. Anyway, I still haven’t clearly seen where this particular combo acts as the great filter he seems to have found it to be.

Please continue the conversation in the comments to this post. Thanks!