Trader’s Narrative

I’ve often mentioned the use of relative strength as one of the most powerful tools for a trader. Using the simple concept of relative strength, you can enter a position and have the “wind at your back”. But relative strength can also be a great signal for exits.

Take a look at the recent price action in Monster Worldwide (MNST). From Feb. until mid March it mimicked the S&P 500 (as denoted by the line chart which corresponds to the left price axis). It topped in mid February, fell in late February along with the wide market index and it then carved out a double bottom.

But by March 21st 2007 (the New Year to some!) it was clear that MNST had lost its mojo. The S&P 500 powered ahead on that day with a wide range expansion candlestick which broke out of the trading range of the double bottom formation (above the blue line). MNST though barely eked out a positive day and definitely did not break out in the same way. As the red arrow indicated, MNST had “decoupled’ with the S&P 500.

So if you were long from the $46.50 area on a thesis of a double bottom, a red light was flashing to warn you that all was not well. The smart money was putting their capital elsewhere (and getting a much better return on it). In the following days, MNST meandered and then fell with a gap down past its prior swing lows. Meanwhile, the S&P 500 was powering ahead:

And by the way, MNST was one of Tony Oz’s recent stock picks for the CNBC Million Dollar Challenge (after it gapped down). He’s had a great start with a 32% return so far. This puts him in the top 1%! Is he going to win the contest? It’s been a while since Tony’s won a stock trading contest but I wouldn’t put it past him

To keep up with his most recent stock picks, sign up for email alerts at his free CNBC Million Dollar contest at his site: WindaMillion

In his last Stock Trader TV video, Tony Oz shared some tips on how to win the CNBC Million Dollar Portfolio Challenge and mentioned that he was creating a separate website called WinDaMillion for videos he would be making dedicated to the CNBC contest. He has put up his first video now and not only does it have tips and tricks but it also has 6 stock picks:

And Tony also signed up for the contest himself (just before it closed on April 7th). Here he discusses his performance since April 2nd (bold is my emphasis):

I finally entered the contest on 4/2/2007 and for the first week I had a return of almost 20% - all that in just four trading days as the market was closed on Friday. I find it very interesting that in just four trading days, I was able to pass 96% of the participants. In case you didn’t know, this contest has been going on for 24 trading days so far. I also wonder how high I ranked for the week, I mean, was I even close to winning the $10,000 weekly prize? Unfortunately, CNBC doesn’t tell us that. It just gives an overall standing since the inception of the contest.

If you’re not all contest-ed out, TheStreet.com started theirs on April 1st: Beat The Street. It is a bit different from the CNBC Million Dollar Portfolio Challenge. There are 6 rounds. Each one consisting of 60 days and having a $100,000 USD prize money. But the biggest prize is that each of the 6 winners will actually get to have an interview with Cramer! And if you don’t win the prize money you have a pretty good chance of getting a consolation prizes like: ActionAlert subscriptions, Cramer books, and something called ‘Jim Cramer autographed bulls’ (I’m assuming they’re plastic schwag and not livestock).

The trick to winning stock trading contests is to read the rules and to adapt your strategy accordingly. From what I’ve seen, ‘Beat The Street’ has less stringent capitalization requirements than the CNBC Million Dollar Portfolio Challenge - so go for the small and microcaps that can pop!