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Cramer’s charts reveal that euphoria caused the stock market meltdown



While CNBC’s Jim Cramer is content to blame the market’s recent sell-off on high-risk products that traders used to bet against volatility, he knows there could be more to the story.

That’s why the “Mad Money” host recruited technician Carley Garner, the co-founder of DeCarley Trading and the author of Higher Probability Commodity Trading, to get to the bottom of the drastic correction.

“In Garner’s view, there’s a whole lot of blame to go around. It’s not just the fault of foolish speculators who made big, leveraged bets that the market would stay calm, then were forced to sell common stocks and stock futures to meet their brokers’ margin calls,” Cramer said on Tuesday.

“Garner thinks the market was already broken in early January. She believes the bulls were victims of their own complacency.”

Cramer first called attention to the daily chart of the CME Group’s E-mini S&P 500 futures, which trade 23 hours a day, to get a more detailed view of what happened.

Garner noticed that the indicator climbed from the 2,400s in September to the 2,800s in January practically in a straight line, without much consolidation. That trajectory alone told her that the S&P 500 was just as broken at January’s peak as it was at February’s bottom.

“Her reasoning is pretty simple,” Cramer said. “Asset prices aren’t supposed to move straight up or straight down unless you have a sudden and dramatic change in the fundamentals — and yes, the big tax cuts certainly count as a big change, but even with tax reform, this was an extreme move.”

But the market is rarely rational, especially during bull markets. Garner said investors’ emotions also played a big role in the decline: exuberance pushed stocks higher into January, then gave way to panic as the market started to break down.

Garner even made the case that the S&P 500 never should have traded above the 2,730 mark that it reached in early January.

“In fact, the moment we broke through that level, it pretty much broke [almost] all the rules of technical analysis,” Cramer noted.

As the S&P 500 approached and crossed that mark, the Relative Strength Index, a key indicator that signals when stocks are overbought or oversold, was screaming that the index had gotten extremely overbought.

To Garner, “these readings were classic signs of a broken market on the upside, yet people who were making money in stocks didn’t want to admit that anything was wrong, at least not until the pendulum started swinging the other way,” Cramer said.

That’s why Garner argued that the market’s decline was technically justified — the S&P 500 fell to its floor of support, the long-term trend line, and bottomed before resuming its march higher.

The only reason it seemed so dramatic, Garner said, was because stocks had run up so much before the plunge.

Now, the S&P 500 and its Relative Strength Index have returned to normalcy. To Garner’s satisfaction, the bears were ostensibly shaken out — albeit messily — and the bulls’ euphoria was tempered.

The technician also accepted Cramer’s argument about risky volatility betting being a part of the decline.

“Betting against volatility is really just an extreme type of irrational exuberance because the VIX goes up when the market goes down,” Cramer said, relaying Garner’s point.

But for Garner, “these VIX traders are the symptom, not the disease,” he said. “The actual ailment is euphoria, which is why so many funds were foolish enough to make such a risky bet in the first place.”

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The greatest obstacle to investing success is… you




From Richard Smith, Founder, TradeStops:

If you’re like the average investor, you’d say it’s easy to feel overwhelmed at times by confusion in the markets – and sometimes even by fear.

But why should it have to be this way?

Investing is a noble pursuit. Generating wealth for a comfortable retirement means creating the financial freedom to live well in the golden years… while providing support to loved ones… enjoying the finer things in life… and possibly making a real difference in the world.

Those are all good things. The pursuit of good things should not be a stressed-out experience! But for too many investors, that’s exactly what it is. Their market journey is a series of obstacles and worries.

There is bad news and good news here.

First the bad news: Your greatest obstacle to investing success is… you.

And the good news: The solution to overcoming your “greatest obstacle” is within reach.

What does that mean, to say the greatest obstacle to investing success is you?

It means that when it comes to investing successfully, finding great stocks is not the hardest thing. And dealing with volatility is not the hardest thing.

The hardest thing for any investor  and this includes everyone from Warren Buffett on down  is overcoming the natural pitfalls and challenges within their own brains.

Walt Kelly, the artist who drew “Pogo,” had a caption on his most famous cartoon that read: “We have met the enemy, and he is us.”


That statement could have been tailor-made for investors. Your biggest challenge as an investor will be overcoming your natural behavioral shortfalls and biases  learning to do the right thing and overcoming your built-in bad behaviors in the process.

(And again, this isn’t just “you” specifically. It’s also true for me, and Warren Buffett, and everyone else.)

This really goes back to the essential mission of TradeStops. We want to help as many investors as possible find a path to comfortable retirement. (We’ve helped 25,000 so far, but that number should expand 1,000-fold.)

A key goal of TradeStops is to remove anxiety from the investment process, and in doing so, help investors rediscover the joy of investing as they build long-term wealth.

How do we do this? By combining science, technology, and proven principles of behavior modification.

To get rid of bad investing habits, you can’t conduct brain surgery on yourself (and you wouldn’t want someone else to try).

But you can use software as a tool in the investment decision-making process… which in turn serves as a form of painless behavior modification… which puts you on the path to anxiety-free investment success.

Again, this is what TradeStops is all about: Helping investors overcome their greatest obstacle to investing success… so they can meet their long-term wealth-building goals… and have a positive impact on everyone around them.

Here’s something else funny about the brain: Knowledge makes behavior modification easier.

The better and deeper the brain understands the “why” behind something, the easier it becomes to make a positive behavior change around that thing. And sometimes the “why” is even more important than the rules.

The importance of the “why” was once vividly demonstrated by Ed Seykota, a famous trend follower who made countless millions in the commodity futures markets.

Seykota was one of the earliest adopters of mechanical trend-following techniques. In the 1970s he was a pioneer in the use of exponential moving average crossover systems. (They were so new and exotic at the time, people called them “expedential” moving averages.)

At one point, Seykota decided to teach a classroom course on trend following. For the curious who signed up  remember, trend following was totally new at this point  Seykota spent something like 10 percent of the classroom time explaining the very simple rules of his trend-following system  and the other 90 percent explaining the “why” behind the importance of sticking with the rules!

We’ve realized a similar idea applies to TradeStops software.

No matter how good our software is  and you continue to give us rave reviews, for which we are deeply grateful – it feels like there is always more opportunity to help you, our customers and fellow investors, to get more out of TradeStopsby better understanding the “why” behind certain basic principles.

To that end, we are excited to start something new: An “education series” of editorials, designed to help you become a better investor by sharing the “why” behind some very important concepts.

Our game plan with the education series is to start with the following concepts, exploring each one over a period of weeks or months:

  • Cognitive Biases
  • Probability
  • Investor Psychology

We’re confident the insight you gain from this series can help make you a better investor, even if you aren’t currently using TradeStops. (Though of course, if you haven’t yet experienced the power of TradeStops, we suggest rectifying that immediately!)

Another one of our goals for 2018 is to accelerate the development of TradeSmith University, our ongoing effort to enhance your education as an investor. It goes back to the same set of goals: Giving you more of the “why” behind the principles of investing… so you can make better use of the TradeStops software… in order to reach your wealth-building retirement goals.

It’s an exciting project. We’ve got some great material to draw from, and we’re confident you’ll learn a lot.

If you have any questions, comments, or just something you’ve always wanted to know about cognitive biases, probability, or investor psychology, let us know!



Crux note: Richard’s TradeStops philosophy is to cut your losses and let your winners ride… And the results speak for themselves.

You can discover why one satisfied investor called TradeStops his “safety net” right here.

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Two things the World Cup can teach you about investing




From Jason Bodner, Editor, Palm Beach Trader:

Last week, my phone had a temper tantrum. It just wouldn’t work and was so slow that I couldn’t take it. I took it to the phone store to see my upgrade options.

I brought my three sons. While I waited to get a new phone, they watched the World Cup game in the store.

I wasn’t paying attention, but my seven-year-old Liam proudly proclaimed that Belgium was playing Japan.

This was big deal. (And in a moment, I’ll tell you how it all relates to investing.)

You see, my wife was born and raised in a small city in Belgium. My kids all have dual citizenship. I’m the only one in the family who has just a U.S. passport.

When we left the store, the score was 0-0 at halftime. We were still confident our team would win. There was talk of how Belgium could go all the way. We seemed a sure bet against Japan. (Belgium lost to France in the semifinals on Tuesday.)

About 20 minutes later in the car, I asked Sacha, my middle son, to tell me the score…

Belgium was down by two goals and still hadn’t scored. It was quickly turning into one of the biggest upsets in World Cup history.

Sacha was bummed, but being an optimist said, “You never know… We can come back. It’s not over yet!”

I saw his face was mixed with disappointment and hope. I replied with a weak moment of adult realism: “I don’t know Sach, it seems doubtful. Sorry dude.”

I felt bad the way a dad does when he’s gotta break bleak reality to his kid.

Five minutes later, he said “Oh yeah, Daddy? Look now!” I nearly crashed the car when I saw on his phone that the score was now 2-2. I was screaming with glee with the windows open. It must have looked strange to anyone standing on the street.

When I got home, we ran into the house to watch the final minutes of the game. Belgium scored an injury-time goal to win 3-2.

My sons and I started jumping around. Belgium turned what would have been the biggest upset in the World Cup into the biggest comeback.

Aside from being a fantastic game, there is a point to this story…

You see, I was ready to throw in the towel on Belgium. Psychologically, I had given up.

There was plenty of time for a comeback – improbable as it was. But my mind had written off that possibility and given in to despair.

Sure enough, I was dead wrong. And that’s the point…

Emotion is the true enemy of investors. It can lead to despair and fear. And that can cause you to make drastically wrong decisions.

If Belgium were a stock, emotion would have told me, “I can’t take it anymore!”

I would have sold at the exact bottom.

It took me a long time to learn how to overcome emotion as an investor. Ultimately, the most important thing I had to master was my own mind.

Like most people, I have a knack for doing the wrong thing at the worst moment when I act based on emotion. That’s why I built a stock investing system to take guesswork and emotion out of it.

Your stock positions will move up and down, day-to-day, and week-to-week. The market itself will get bumpy from time to time. We all know this… Yet we still act on our feelings when it happens.

The key to overcoming emotion is to stay rational – especially when things get bumpy.

There are two ways I do this:

  • Stay patient. I need to remind myself that investing in stocks is a long-term game. I need to stick to my system and not sell out of fear.
  • Stay focused. When I feel overwhelmed by emotion, I find it helpful to take a walk or do something to focus my attention on something other than what’s bothering me. For me, listening to music or walking my dogs calms me down and helps me refocus.

Emotions cause us to react. Logic dictates that we stay disciplined. Patience and focus will get us to where we want to be.

Talk soon,



Crux note: In case you missed it…

Palm Beach‘s crypto expert Teeka Tiwari is teaming up with political commentator and radio host Glenn Beck to create a one-off special extended broadcast live from his studio in Dallas: The Great Cryptocurrency Conspiracy of 2018.

Tune in July 19 at 8 p.m. Eastern time to discover the secret behind making money with cryptos like bitcoin – something both Wall Street and Washington would like to keep hidden from you…

Click here to register for this free event.

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Investors of Botox maker Allergan shouldn’t get their hopes up




After three years of weakness in shares of Allergan, the pharmaceutical giant behind Botox, CNBC’s Jim Cramer has started to wonder when the stock will finally hit bottom.

“The stock has been a terrible performer,” said the “Mad Money” host, whose charitable trust recently sold the stock after weeks of declines. “But even if I’m wary of the fundamentals, it turns out that the technicals may be telling a different story.”

So Cramer recruited technician Tim Collins, his colleague, to help with the technical analysis and figure out where Allergan might be headed.

And to Collins, the stock’s recovery over the last two months fed into the story its charts were telling.

In his view, “Allergan just needed a little time to iron the wrinkles out, a Botox-like injection to smooth out the path for the bulls to follow,” Cramer said.

“Or, to put it another way, this could be a situation where beauty is in the eye of the beholder,” the “Mad Money” host continued. “And as far as Collins is concerned, the charts are starting to look downright pretty — at the very least, he thinks they’re showing some bullish signs that might eventually result in a non-hideous picture.”

Collins pointed to Allergan’s weekly chart. He noted that while the stock has struggled in the last 12 months, the start of 2018 has brought forth a different pattern: in Cramer’s words, “a wedge formation within a wedge formation.”

This pattern signified that as Allergan’s $140 to $150 floor of support stayed the same, its ceiling of resistance changed. That led shares of Allergan to break out above two separate ceilings of resistance in recent weeks.

“Collins thinks that changes the game,” Cramer said. “From these levels, he believes Allergan has a clear path higher for at least the next 10 points — so we could get to $186 without much difficulty.”

The technician added that only one ceiling of resistance in the mid-$180s is now capping Allergan’s run, meaning that if the stock breaks above that level, it could rally to the $200s.

In addition, Allergan’s moving averages recently flashed a bullish sign. The 10-week moving average crossed above the 20-week moving average, which Collins took as a signal that the stock is ready to run.

But even with Collins’ positive outlook in mind, Cramer still had reservations about Allergan’s long-term prospects.

“I think we need to be skeptical because this is a situation where I think the charts may possibly disagree with the fundamentals,” he warned. “I see some major competitive threats to its main drug, Botox, and I’m concerned that it’s got real risks as we get closer to its major patent expirations.”

The “Mad Money” host pointed to Revance Therapeutics, a challenger to Allergan’s Botox whose CEO he interviewed in April. He also noted that Allergan lost a key patent protection case for its $1.4 billion eye drug, Restasis.

“The stock has been one disappointment after another for years. So I don’t want you to get your hopes up,” the “Mad Money” host warned. “The charts, as interpreted by Tim Collins, suggest that Allergan may be ready to roar here. I think the fundamentals tell you to be a little bit skeptical. To me, they’re saying you need to be careful with this kind of challenged pharmaceutical company, but I accept that Allergan’s stock was overly punished and can continue to rally in the absence of any new negatives.”

Allergan’s stock settled at $175.95 a share on Tuesday, down 0.5 percent.

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