Checking in on Social Stock Pickers

With today’s 427 point drop in the Dow Jones basically putting us in perfect position for a retest of the October 10 intraday low, I thought it’d be a fitting time to look at how some of my favorite “social stock pickers” are doing.

Starting off with Cake Financial’s Cakedex, which is an index of the selections of its “top” members, we see that the innovative concept of social stock picking is a great way to lose money. The Cakedex is down nearly 22% so far this month. That follows declines of approximately 19%, 18%, .15%, 8% and 10% over the previous 5 months. Apparently, social investing is a lot like socialism: what wealth you have is spread around quite well.

Let’s move on to my favorite individual social stock picker, Howard Lindzon, founder of StockTwats. Lindzon, who has been buying Google for his kids’ college education fund for some time and who proclaimed the stock a buy at anywhere near $400, has hopefully learned that catching falling knives leads to cut hands. GOOG closed today at $280. At this pace, Howard’s kids just might be paying for community college themselves.

Unfortunately he may not have learned anything. He recently boasted that he has fantastic average prices in Visa, American Express, Apple, Electronic Arts, Nintendo, Adobe and Salesforce. If anybody has the time to look at their charts, you’ll know why I feel pity for Lindzon. Especially since he wants to load up on more.

If you think like Lindzon, I’d point out that the smart money swings both ways and ironically, isn’t bleeding from the ass. Buy when truly oversold, sell when truly overbought. Sell when truly overbought, cover when truly oversold. If you don’t know the basics of determining these points based on a price chart and technical indicators, especially in a volatile market like this, do yourself a favor and go to Vegas. You’ll have more fun.

Unfortunately, there are plenty of other fools who like boasting about their idiocy.

Of course, I’m not complaining. The stock market wouldn’t function without fools and given the fun I’ve been having day-trading SKF and UGY and the make-money-in-your-sleep ease with which you can locate great individual stocks that are fundamentally weak and that can be played against their macrotrends, I’m thankful that people like Lindzon exist.

That said, unlike individuals like Lindzon, I feel no compunction to turn my trading into a social experience. Real traders are not sharing their every trade and scouring StockTwats for investing ideas. It serves no purpose because there’s only one thing worth paying attention to: the charts.

For my readers, however, who are in the stock market and who might otherwise be tempted to listen to money-losing twats on Twitter, I’ll provide a small commentary that should be useful for even non-technicians.

As I mentioned earlier, it looks possible that the Dow will test its October 10 intraday low. Today’s close was, in fact, the lowest close of the year.

This area has previously held support. The October 10 low led to a big rally. The retest of the October 10 low that took place on October 27 also led to a rally that continued into early November. By November 13, we were retesting the low again and true to form, traders looking for support provided it and sparked another rally.

So what happens next? If you want “predictions,” you need to call Miss Cleo or Howard Lindzon. Technical analysis tells you what to do right now, not what is going to happen.

So will support hold or will support break?

If support holds (again), we’ll see another rally. How sustained it is and how far it goes is anybody’s guess. Bear market rallies are not unusual and they can sometimes last for a couple of months, producing gains of up to 20%. A bear market rally does not equate to a key reversal and a new bull market and traders should not play it is as such.

If support does not hold, the next major support is around 7200, which happens to take us back to pre-Bubble 1.0 levels. The breaking of support would, of course, not be good for “investors” like Lindzon who have been buying up Brooklyn Bridges the past couple of months.

Frankly, I could care less where the market goes. If support holds and it leads to a bear market rally, there is most definitely money to be made to the upside but it’s not a time to bet the kids’ community college fund on GOOG either. If support breaks, there’s still plenty of pain to capitalize on on the short side (which is the team most smart traders have been predominantly playing for since January).

I’ll inject a little bit of “big picture” opinion here: politicians in the world’s largest economies and the world’s central banks seem to have few weapons left. The recent G20 summit didn’t result in any tangible action to solve the global financial crisis because there are no easy solutions. Are there some signs of improvement? Sure. Is there some irrational fear in the market? Sure.

At the same time, the problems that are endemic in the global financial markets and in global monetary policy are very real and they have not been addressed substantively. Putting a band-aid on them can only mask their flaws for a short time. The global economy is slowing down. Perhaps the most stunning way to visualize this is to look at the drop in the Baltic Dry Index.

Throw in the looming demise of Detroit automakers if the United States government doesn’t bail them out and it’s difficult to be overly optimistic right now.

While stock market recoveries often precede economic recoveries, there’s a lot of reason to give credence to the notion that we’re far from out of the woods. Fortunately, there’s plenty of “green” in these woods and it doesn’t matter which way the market is moving for you to make it. As long as you don’t listen to twats like Howard Lindzon.