Monday, December 31, 2012

Theatre of Absurd

Theatre (sometimes theater in American English) is a collaborative form of fine art that uses live performers to present the experience of a real or imagined event ...

Can there be any other form of live performance which present an imagined event and stock prices have the best day of the year?

That is the American Fiscal Cliff negotiations.

The best demonstration of the theatre of absurd that money can get you.

So do we have a deal or not? As per the latest headlines from the main stream media, we do not have any final deal yet. Why then the spectacular jump? Not that I mind it or really looking for any reason for it. That was the reason in my last post I said :  Had this (sell) signal come 15 days back, I would have jumped on the short side. But today I would stand aside and let it pass. But at least it gives confirmation to the path that lies ahead.

Even in the answer to the comments I said that I do not expect any major selling yet. (Nah, not yet.)

So where do we go from here? While it would be unfair to the subscribers to spill the bean here, all I can say that cycles are about to bottom soon and I expect a bit of choppiness in the next few trading sessions. Does it mean that the markets will never correct meaningfully because central bankers will continue to pump money for ever? My take is, at some point, the unintended consequences of all the liquidity pumping will manifest in un-curable malignant cancers. When and how that will happen, is a matter of interpretation. At this point, let's just drive the car very carefully and take advantages wherever we can.

We cannot trade or invest this dysfunctional market with TA alone. We need some other quantifiable edge. But whatever is your edge, always have proper risk controls in place and never look for absurd yields. No system is always correct 100% of the time and if I say that my system is the best, I would be bulls**tting. But I try not to front run, I do not chase trades and I tell everybody to be patient. In 2012, I may have given up more trades than taken and looking back I am happy that it has helped in the preservation of capital. When people tell you that " No risk no gain" what they mean is that when you take big risk, chances are that if you are right, you will make big money but if you are wrong, you will also lose big time. And we will be wrong more times than right. That is the fact of life. So you decide what you want to be, an investor with a long term financial goal or a speculator?

It has been great sharing this space with you. While I have shared my trading/investment philosophy  and systems with you, I have also learned so much more from you folks. I am thankful to those of you who have shown the faith and have signed up the subscription. I will work really hard to earn and keep your faith.

Happy New Year everyone

Friday, December 28, 2012

Sell Signal At Long Last.

At last we have that elusive sell signal but time wise we are reaching the last stage of down cycle. Had this signal come 15 days back, I would have jumped on the short side. But today I would stand aside and let it pass. But at least it gives confirmation to the path that lies ahead.

After hours Indices Futures are down a lot. /ES has gone down below its earlier low of 1390 and at some point was down almost 2 %.
Let us see where does it closes.

Last trading day of the year is normally bearish. As per Stock Trader's Almanac, Nasdaq down 10 out the last 11. And I do not see what kind of last minute deal they can make when both sides want to jump the cliff.

So it is going to be a very interesting week and New Year. Some juicy tit bits as to how 2013 may shape up:

First Five Days in January Indicator -  This one has a very nice track record. The last 40 UP first five days of the year have been followed by full-year gains 34 times for an 85% accuracy ratio. This includes 2012 which had a 1.8% rally in the first 5 days. The average gain for the first 39 of those years was 13.6%.  The results are less reliable when the first 5 days in January are negative, showing just a 47.8% accuracy rate and an average gain of 0.2%. It’s important to note that the S&P 500 posted a gain for the first 5 days of the year in just 6 of the last 15 Post-Election Years.

Do you want to make a guess ?

We are preparing for the new year with lots of cycles about to bottom and host of signals about to come through. From January, the posts would be irregular and all buy / sell / hold or wait signals will be emailed to the subscribers. Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

Thanks for sharing my thoughts. It has been a great journey with you all and I wish everyone of you happiness, health and prosperity. Have a great weekend folks.

Thursday, December 27, 2012

Bi-poler Market

DOW travelled almost 300 points down and up and closed in small red. And all the action intra-day was based on hope and fear. I think big boyz used the bounce to unload some of their positions. In any case hope and greed is never a good investment strategy. Whatever be the deal, taxes are going up and Govt. spending, which is the main engine of growth for now, will be reduced somewhat. At best, they can kick the can down a bit.

But that is no tonic for growth.

Don't mis-understand me, I am not suggesting to short the market. In fact I have not shorted the market since  Uncle Ben came out with his QE4 except a quick stab at silver. I think the immediate / short term opportunity is on the long side for equities and commodities and I am waiting for cycles to finally bottom and give confirmation of the up move.

The whole world in in the last stage of reflation. Japan is making the last ditch effort to de-base its currency and bring in inflation. China is again pumping in money but in a different name. Now they want to develop the rural areas. In USA, the printing press is on full swing.

Only Europe is still pushing "Austerity" but living within your means has become a dirty word and politicians cannot get re-elected based on long term structural solutions. Look at Italy. It is very likely that Bunga Bunga will come back as the leader of that country to have fun with under-age girls again. 

The result of all the money printing will have the unintended consequence of pushing the commodity prices higher. I expect crude to go higher in 2013 as well as PM sector. But timing is going to be important because with higher oil prices will come higher inflation and ultimately higher interest rates. 

Short term, SPX was down 4 days in a row and most likely tomorrow there will be a hope driven rip. It has also taken a poke at 1400 and held. If we are to see some serious selling, we might see it in New Year but cycles are about to bottom and not much time left for serious correction. And yet, some folks will book their loss in 2013 so reduce the tax liability and that may affect the market behaviour a bit. Not a big deal but still be cautious. Santa Rally has been a disappointment so far and I do not expect much in the next few days either barring occasional flutter.

Thanks for your time to read this blog post out of your busy schedule. I hope you have had a great Christmas and having a great time with your family and friends. I look forward to your feedback and comments. Should you like to join the Newsletter service from Jan. 2013, you know the drill. Happy holidays folks. 

Wednesday, December 26, 2012

Lump Of Coal?

This is the time of the year when volume is next to nothing and a yearend rally is all but assured. And yet, two trading days in a row SPX closed in Red.  Whatever happened to the Santa Rally? The all powerful man of USA cut short his holiday to solve the mess, which is his mess as well but the market just gave a big yawn. Some other time, SPX would have rallied 2% just on the news that President of USA has shown some urgency, but not today. So, is Santa going give a lump of coal to Wall St. for the New Year Gift?

Whatever happens with respect to the fiscal cliff, taxes are going to go up and spending will get curbed somewhere. None of that can be good in normal circumstances but coming in at a time when USA is just barely muddling along; the drag on GDP could be substantial. And yet, there is not much panic anywhere. Is this complacency? Or just the liquidity of QE infinity propping up the market?

The headlines after the market closed was: U.S. Stocks Fall as Retailers Slump Amid Budget Deadline.

 This is as moronic as it gets but the buzz is that the holiday sales were not as good as expected. So is the American consumers have stopped spending money that they don’t have on stuff that they don’t need? If that is so, what will happen to Chinese factories producing all those worthless junks that we find in Wal-Mart? Will all the folks in Africa and Bangladesh now buy up the entire excess inventory that every country on earth is trying to export and prosper? Somehow the math does not add up.  

It is too early to write off the American Consumers, more so when the Govt. actively encourages you not to save but borrow and spend. Well, sometimes in future they will go bankrupt along with the Govt. but by then it will be someone else’s headache. Most likely the Chinese and Japanese will be left holding the bag of crap bonds that the Fed has been able to sell. There are only two options for USA. Either become like Japan with a 20 year deflation and 200+ % of debt to GDP or become like Zimbabwe with super high inflation.  The Fed’s balance sheet will balloon to over $ 4 trillion by end of 2013 and they have no exit strategy. USA has over $ 16 trillion in debt and they are talking about reducing $ 1 trillion over 10 years. I still do not get it. While I am very sure about how it will end, I am not sure about the time and I think there is still some time to play on the long side and the end of the world scenario that everyone talks about, is still far away.

In this game, timing is everything. If we are too early we will lose our capital. So we will try to make money in both long and short trades / investments and we will be open to all other asset classes including commodities and bonds and not just equities. We just have to remember that “Return of Capital” is more important now than “Return on Capital”. We should never front run and never take undue risk for big returns. That is called “Greed” and greed kills.

We therefore continue to wait for opportunities and be patient with our investing / trading. And I see some interesting opportunities coming up soon which I will 1st share with the subscribers. Thanks for signing up during the holidays. I know, many of you would be travelling and be on vacation at this time of the year and that is why I am putting out the reminders regularly. Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

Thank you for your time to read this blog post out of your busy schedule. I hope you have had a great Christmas and having a great time with your family and friends. I look forward to your feedback and comments. Happy holidays folks. 

Monday, December 24, 2012

Fiscal Cliffmas

Today was the official starting day of Santa Rally. But the reindeer team is on strike so the rally is delayed until further notice.

Till last year, not many were aware of such a creature as “Santa Rally” but this year the name has become main stream.  Now the retail is sold on the concept of year end rally. While it is premature to say that there will lump of coal in the stockings, things don’t look too rosy either.

After talking with the insiders I get a feeling that the political class wants to get over the cliff. R gang doesn't want to be seen as the party which abandoned no tax hike policy. It is easier for them to come back and reduce the tax on some, after the rates have gone up. Obama is not interested in the negotiation anyway. Neither party has any plan for America except how they will win the next election and how they can play the game of one-up man ship better.  Secretly they are informing the Wall St. that they will take care of it in 2013 with some sort of Band-Aid. That is why we do not see any panic. But the Boyz will most likely create some panic near term before they gun for the top.  The old, tried and tested formula is: Rinse: Wash: Repeat. Why it would be any different this time? If that were to happen, expect some selling from now till 1st week of January. “Santa Rally” may well turn in “Satan Rally”, as I wrote last night.

2013 will also bring in focus the problem facing USA. In many ways things here are more dire than in Europe. With a $ 16 trillion debt, only thing that is keeping the lid on higher interest, is the blatant monetization by the Fed. It is keeping the interest rate low in an artificial manner and I would expect that at some point of time interest rates will start rising. It may not happen tomorrow or in the next month, but it is going to happen earlier than you think. Those of you invested in Bond funds, should think of getting out of it while you still can get out. While deflation is still the primary concern facing the Fed today, cycles show that inflation is going to pick up and that is why commodities are going to do so well in future.

Last night I also wrote that I am seeing some new trend whereby USD and GOLD are moving together in the same direction. It held true today as well when both of these two were up together.   I really don’t know what it means but surely old correlations are breaking down. Today even Bonds were down along with equities. Normally, I correlate Forex with Equities and look at AUD for direction. AUD is down and is likely to test 1.02 levels in the next few weeks. That should ideally take SPX in the range of 1380 level but time is running out. May be we will see some heavy duty stuff after New Year.

Cycles are bottoming in the commodities and we are about to get quite a few buy signals soon. I am not going to front run but wait for confirmation. I will be informing the subscribers about these buy signals on 2nd January.  Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

I take this opportunity to thank you for sharing my thoughts and wish you merry Christmas and happy holidays. I wish 2013 will be a very prosperous year for all of us and wish you health and happiness.

Saturday, December 22, 2012

Deck The Hall

Christmas comes in the fantasy land and who better to welcome the celebration than the genetically modified bimbos. So here you go and enjoy the holidays:

I will see you tomorrow with the weekly report.
As always, stay frosty.

Thursday, December 20, 2012

Special Update

Futures are down quite a bit and I have not seen such a waterfall in quite a while.

I just hope that this red holds tomorrow. We do need some good scare.

December Quadruple Witching

There was no follow through of the correction of yesterday, so my hope of a better entry to go long was dashed while my doubts for any lower prices were proved correct. But tomorrow is year end quadruple witching and lots of shenanigans will go on, even without any input from the fiscal cliff drama. Come to think of it, we are days away from the cliff and no resolution is in sight. And yet there is no panic anywhere. Remarkable to say the least. I am waiting for the cycles to bottom before deciding the next course of action. I have identified a number of shares and ETFs which I think will yield spectacular returns in the coming months.

I closed the short trade in silver today. While cycles still did not bottom, I think there is not much juice left and whatever little downside is there, better leave it for the next guy. It is called the greater fool theory. We don't want to be the last guy holding the can. Gold fulfilled my price target and I do not have any lower target for gold. Just waiting for going long.

The wheat trade, which I did not take because wheat did not cross $ 820, was cancelled today when it closed below $ 800. I do not think there is much downside in wheat but why take any chances. Better opportunities are coming up soon.

Crude is consolidating around $ 89-$90 range and let us see how it behaves in the next few days. Something very interesting in brewing the the oil fields which has the potential of an explosive return on investments.

It was a good decision not to short Nat. Gas because cycles did not top yet. Today we saw Nat.Gas go up and I think it might challenge $ 3.70 level soon. But the preferred trade in Nat. Gas now is on the short side and I am waiting for the cycles to top.

This coming Sunday will be the last free market report. 2013 will be an exciting period for investment / trading and I am sure we will do great.

Thanks for sharing my thoughts and good luck with your last minute holiday shopping.

Wednesday, December 19, 2012

Things That Make You Go " Hmmm".

One of those things that make you go  "Hmmm" could be my quick post of last night where I wrote that : We may see some pull back starting tomorrow afternoon
The other  "Hmmm" factors could be:

  • Short trade in silver is doing well if you have taken it. If not, don't worry, may other opportunities are coming up.
  • Now that you are seeing the price action of Crude, may be you will appreciate why I closed the short crude trade last week.
  • Wheat is still in range of $ 800- $820 and is a candidate for a long trade with this consolidation.
So may be you can say "Hmmm", the system is working and is in fact getting better.

Jokes aside, I do hope that the correction continues for a while more. I would love to see a lower low in indices and that would make me more comfortable going forward.

The reason that we have for the 11 points correction in SPX is the same that was given on the way up. i.e. fear of the cliff. But if I am allowed to put in my 2 cents, I would say, cycles did not bottom yet although they are close to. The 1st ideal target would be around 1415-1420 in SPX and a close below that should take it closer to 1400. But again, time is running out. Therefore, at this point of time, I do not have any price target, only time target. Don't bother about the end of the world stories. 

You may want to watch this clip from Bloomberg

I think the circus will continue for a while.

Gold is now around $ 1670 and here my price target is around $ 1650, not a huge drop but enough to shake weak hands out. For 2013, it is going to be a huge winner. 

Let us see how far the correction goes and whether it goes any further at all. Again, no need to front run or take any positions. Time for actions is coming soon and we remain alert and keep the powder dry.

Thanks for sharing my thoughts. Hope you remember the Amazon link if you need it for your holiday shopping.

Tuesday, December 18, 2012

Quick Note

Quick note today as I am running late with an assignment.

The short trade of silver was triggered today, but I would urge readers to keep a tight rolling stop.  The stop would depend on your risk tolerance level but I personally would keep it really tight. For e.g. right now silver futures (/SI) is at $ 31.82 and in this situation my stop would be around $ 32.25. Better still, if you have not taken the trade, rather wait it out for the cycle to bottom by end of the year.

Wheat is showing the positive consolidation pattern and I am waiting it to break above $ 820, re-test the break and make that as new support, to go long.

Equity indices are on fire but lots of divergences for comfort. VIX has a negative divergence with SPX and so has Dr. Copper. So far cycles have not bottomed yet so I am not long but I have identified some very nice and juicy numbers for going long in a few weeks time.

We may see some pull back starting tomorrow afternoon but no need to guess and front run. Let everything line up in a row before we open fire.

That's all for tonight. Will see you tomorrow with a more detailed report.

Monday, December 17, 2012

Do Gods Hate Bears?

Poor bears. They are not getting a break. That’s very unfair. What will happen to ZH and all those who are waiting for the next disaster (just round the corner) for the last so many years?

Now that the year is coming to an end, what have we learned? I don’t know about you, but here are few things I would include in the learning experience:

1.       News is noise: Believe me, very rarely price moves based on news. Rather, it is the price action which makes the news. Only few months back, analysts were falling over each other to bring positive news from Apple and up the price target. Now that Apple is around $ 500, they are finding news to downgrade it. My take, stay away from news, mute the talking heads and stop reacting to things.
2.       Stop chasing beta: The losses arise because we take undue risk. We take risk because we want to chase performance.  Relax; stop chasing some imaginary benchmarks, stop comparing how others are doing. Just focus on what is your own goal and be realistic about it.
3.       Don’t listen to too many gurus: I have seen otherwise intelligent folks reading 100s of blogs and newsletters and getting confused in the process. Identify someone who has been consistent and stick with him/her. Everyone is correct at some point or other. Even a broken watch shows correct time twice a day. The trick is to find someone who is correct more times than not.  But use him/her as a pole for pushing the boat. Nothing beats your own analysis and due diligence. After all, it is your money which is at stake.

Back to markets, thank my lucky starts I did not short the indices last week. I should run a subscription service just to advice folks not to front run and keep capital safe! In so far as the two picks of last night, I am still waiting for them to break the range. Silver did not test $ 33 nor did it break below $ 32. Wheat is also stuck between $ 800- $ 820 and a consolidation here will be good for going long.  Euro is also in a consolidation mode and despite all the very smart and witty posts regarding its demise, it is holding up.  Short term, we better have some weakness in the market soon before the cycles bottom time wise.

With the market remaining in the chop zone, it is very frustrating for investors and traders who always feel the need to do something. But as I have demonstrated time and again that break up or down of the range, coupled with cycle directions, provide the best guidance in this uncertain market.

That’s all for this evening. Patience is the watchword for now. Thanks for sharing my thoughts. As always stay nimble and stay safe.

Saturday, December 15, 2012

Interesting Week Ahead.

Here we are, at the edge of the cliff and yet we are only 60 points down in SPX from the high of the year and that was almost 90 days ago. It has been incredibly choppy during all these days. So if we have stayed on the sideline with respect to equities for the last 90 days, have we really missed out on any great opportunity, particularly, if we are not day traders?  Bad news has piled up but equities refused to correct in any meaningful manner. One reason being the liquidity that is being pumped by the central bankers around the world. We know that it is not going to end well, one way or other, but we do not know when exactly.  The best thing to do in such situation is to keep the time horizon small, be ready to run quickly on any short trade and look for opportunities everywhere, not just in equities.

Last Friday was another teasing day. I sent out a tweet in the morning highlighting the levels for shorting the market.  Almost in each case the EOD was close but did not go below that. As a result short trades were not initiated. That is the beauty of following a system, when we can override emotions. As you know, most trading mistakes are made because of emotions. As of now the short side is bit over crowded and everyone and their grandmother are dead certain that bottom is going to fall out. It may not be so.

A correction can happen in price, in time or with both. In the last 90 days we have had a correction which consisted mostly time factor, less in price but the end result is none-the-less same. Folks out there are gloomy and they hate this market with a passion. Just look at the short interest.

The short interest is at levels next only to seen in last June.

This coming week, we may see some more price choppiness but definitely not a waterfall. If I may remind you, bear markets start at the height of euphoria, not on bad news.

While cycles are still down for most of the asset classes, they are now about to flatten out in the next 7-10 trading sessions and that makes me uncomfortable going short without price confirmation. There is simply not enough time. The most notable feature of Friday was the drop in US Dollar index. Apple tested its lows. I think it has another 5% to fall and that would drag the Indices down by about 2%-2.5% and that is the max. downside I can see for now. I will be going through all the data and algos over the weekend and the weekly newsletter will highlight if there is any trade worth taking. But safety comes 1st and I am not going to be a testosterone driven rash adventure seeking aggressive bungee jumper. Been there, done that, learned my lessons.  

Not a day passes when we read some kind of gun violence and yet there is no political courage to stand up to this monster. Children pay the price and politicians shed crocodile tears. Its good television but after few days, everyone forgets about this killing to discuss the next. I feel sad for the kids who died in this senseless act of violence but more than that I am angry at the duplicity of the politicians and the authorities. How on earth a mentally unstable man could get his hands on assault weapons in the 1stplace. The blood is in the hands of the politicians.

Enjoy the weekend with your loved ones and take some time to remember how blessed we are. See you all tomorrow evening with the newsletter.

Thursday, December 13, 2012

Confusion Compounded

The markets moved as expected and yet the confirmations of the roll-over are eluding us.

For e.g. I need SPX to close below 1410 to short it. The futures touched 1410 after close of the cash market and did not break it and are now creeping higher. I was looking for NDX to close below 2640 and here also it was close but not close enough to give the confirmation.

Same story with oil and silver.  I was looking for silver to close below $ 32.50 and despite intra-day below that level, silver did not close below that line in the sand. Oil did not close below $ 86 which would have made me comfortable to short it again. The US Dollar index stayed in flat line around 80.

All in all, it was kind of teasing frustrating day. Fingers itching to short and yet system tells you to hold on. Mind plays tricks that gosh, we are going to miss out and discipline holds back. I keep reminding myself it is not about winning the battle; it’s about winning the war.

Now, things may change overnight. /ES (SPX Futures) may test its high of yesterday and rollover and I would be happy to go along. But as of now, my belief and trading are not in sync and it would be foolish to risk capital based on belief and hope without confirmation. Giving up part of the profit while waiting for confirmation is more worthwhile than losing capital.

Let us keep in mind, time is running out for any meaningful short trade and that applies to all asset classes. We have max till end of the year for the cycles to bottom. While the downturn can be violent and severe in the next few days, it can also move sideways and create lots of whipsaws. That why confirmation is so important to me at this point of time.

For those of you who read ZH and have been brainwashed in believing that the end of the world is close, you may have read something idiotic like : "The Fed's QE half life is now down to 30 minutes of effectiveness."  This is far from truth and the system does not work like that. The best analysis of these kinds of stupid comments has come from Josh Brown of “TRB”:

First, the Fed is not a daytrader. They certainly don't make an announcement about hundreds of billions of asset purchases with the intention to "mark the close" on the day they announce.  Rather, what they are attempting to do is provide more time for housing to get off the mat and to push investors into riskier assets to improve credit conditions, balance sheet flexibility, and, indirectly, consumer confidence.

I'm sorry to inform those who are perpetually rooting for the next cataclysmic shoe to drop, but so far they're accomplishing these goals (even if not their greater, overarching goal - improving employment).  The housing market recovery is no longer up for discussion and one needs look no further than the inflows into high yield debt of all sorts to check off the "riskier assets" box on their scorecards.  As for consumer confidence, I am not a believer that the stock market is very important for the wealth effect (impact from housing is 10x that of the Dow Jones) but a glance at the market-leading consumer discretionary sector should tell you all you need to know about that.
But to pronounce a trillion-dollar program like this "DOA" after only a few hours' worth of trading is moronic. Please tune out the Twitter-addled, short-term myopics  who do so. They're living in a different world, one in which every headline is "playable" and every jerk in market has some kind of meaning.

It doesn't.

The Fed will continue to make cash intermediate-term inhospitable and bonds asymmetrically risky.

Act accordingly.

Very nicely said.

And it was one of the reason that I closed my short trades yesterday even when I continue to believe that risk assets have some more to correct.

Yes, the Fed will eventually blow things up but we do not want to be too early in the game, waste our capital and then miss the opportunity. May be that is what the doom and gloom gang want us to do.

If I have to pick up a mascot for my trading / investment style, I would choose “Leopard” . Silent like a shadow, fearless yet risk averse, when faced with a bigger or tougher opponent, it will leave its kill to retreat to fight another day and hunt another pray. Above all, opportunistic and patient.

Lets learn our hunting technique from this predator.

Wednesday, December 12, 2012

Ben Moved the Goalpost.

And that is why it is so difficult to short the markets in this environment.

Although it does not change anything in terms of cycles, we have to respect the liquidity flow and the disruption it causes in the short term. That was the reason I closed my short positions in Crude and Silver, although I still think both will correct more. I expect crude to test its support at $ 80 and silver to test $ 30 by the end of the year. But with the additional bond purchase Bernanke again broke the back of US Dollar and that does not work well for our short trade. My thinking was it is better to be safe than sorry. Better give up some profit now instead of bigger loss later. I might enter the short trade again after things settle down for a day or two and price of crude and silver drops down a bit more. Protection of capital is more important in this crazy environment.

It is no good to trade or invest based on ideology or belief. As I have shown in that chart of yesterday, while there has been much discussion about cliff and doom, institutions have been buying.  I expect one good shake down soon before we get the chance to go long again, but time is running out.

I am not going to front run because SPX is up six days in a row and statistically, tomorrow should be red. I would rather wait to see SPX close below 1410 convincingly. Everything says that we are close to an intermediate term top but only price action can confirm that and we better wait for confirmation.

For now cash is king.

Tuesday, December 11, 2012

Will Tomorrow Be The "Top"?

Calling “top” and “Bottom” is a losing game but if we are playing the game without any skin in it, then it is fun. We closed our short position on the indices in the nick of time and we are only short on two commodities as mentioned in the Sunday newsletter.  So we can afford to call a top in equities and even if we are wrong, no harm done.

In the Sunday newsletter, I mentioned that I was expecting NDX  to test 2700 level in a few days time. Sure enough NDX came up to 2697 intra-day. With that we have covered 50% Fib. retracement level. Now let us see how tomorrow morning plays out and whether I feel comfy to dip my toe in SQQQ.  For one thing, I absolutely do not like the price action of Apple and I think it is going to make a lower low. And with that NDX should also make a lower low.

Let us be absolutely clear that the end of the world is not anywhere close and we are in a corrective phase.  As of now that correction is incomplete. CNBC and ZH do their best to scare retail investors to sell with various types of scare and the latest of the scare is the scare of the Fiscal Cliff. And while retail is selling, guess who is buying?

It is the Institutions. It never fails!

I am not saying we have to buy here. Rather I have suggested that we should reduce our exposure to equities and keep cash ready for a better entry.  I am not comfortable with the risk reward equation of equities and that is why I am on the sideline and I really do not mind even if I miss a good selling in equities here. Because I see opportunities in other assets classes which are less risky to me.  I am all about reducing risk in investment / trading and less about making double quick money.

It is important to remember that when people say “…you can’t make money without taking a risk” what they are really mean is “you can make a lot of money if you right – but likely lose a lot more if you are wrong.” Since every investment decision is primarily a 50/50 bet you can see why being an aggressive investor has worked out so poorly for individuals over time.

For tomorrow, I would like the indices to close in green because that will push the McClellan Oscillator in the overbought territory.

Daily NYSE McClellan Oscillator Chart

If I think there is a trade worth taking tomorrow, I will email everyone. Short term, we are not out of the woods and most likely selling will resume soon. I just don’t want to front run.

Thanks for reading the blog. 

Monday, December 10, 2012

Dull Day, Boring Markets.

It was another dull day in a boring market. Only the “short oil trade” did well. Oil closed below $ 86 and slowly but surely it is going to test its support at $ 80. It might take some time to reach there but that is the only way for now.

In the morning, I sent out an email urging readers to wait for “short silver trade” a little while more. I sent out email highlighting the level for short.  And as mentioned in last night’s email, I am looking for NDX to attempt to reach somewhat higher level before taking a position with the ETF mentioned in the email.

From January all trade ideas and updates will be sent out by email to the subscribers and alert of the email by Twitter.

Back to markets, they are being propped up by hope and greed. None of that is a good strategy and yet I cannot short the market with any conviction. That is the irony of central bank manipulated market.  The only thing to do in such situation is to learn patience and not front run.  Look out for danger signals and be safe.
One such danger signal is coming from AUD.  From the latest COT data we see that speculative long position in AUD is at record high.

As you know, non commercials tend to be on the wrong side at the turn and commercials on the correct side.  The only question I have is how long we have to wait for the turn. Reason being, the correlation between AUD and SPX is very close.

Moreover the cycle of AUD is pointing down.

In fact copper is also giving a sell signal short term and Dr. Copper normally shows the way to the equities market.  That’s all fine and dandy but I would like to see some price action confirming that this charade is about to end. To start with, can we have SPX close below 1400 please?

How many days are left for this lame duck congress to solve the mess? Less than five you say? What are the chances that everything will be resolved by then? I don’t know and although I think more selling ahead, I am not going to front run. As I have mentioned in last night’s email, we have other things to do which have better risk return ratio.

Thanks for sharing my thoughts. Please forward it to your friends and colleagues who might enjoy the post. And as the holiday season is upon us in full swing, please do keep in mind the Amazon link in the blog, should you plan to buy anything from Amazon. Have a wonderful evening everyone. 

Thursday, December 6, 2012

Another Crazy Day.

Let’s start with the “Chart of the Day”: Euro:

Euro made a spectacular dive, worthy of 10 points in an Olympic event. We are all conditioned to believe that when Euro falls, so does the equities. But today was one of those crazy days when equities went up. Hope? Or they know something which we don’t.

In the morning, as the cash market opened, I closed all my short position on indices. The feel was not right. I tweeted that I have closed the shorts. And sometimes after that the indices started going higher. I must say that I was very lucky. In this game, it is better to be lucky than smart. I am not that smart because it seems my Twitter account was hacked in the morning. Luckily, I was able to take control fairly quickly and so far it appears to be OK. If problems continue, I will have to suspend this Twitter handle and open a new one, but for now we have control.

As you know, I never tweet that I have made few hundred dollars etc. and never give any links to click apart from my own post. If you have clicked on any link, please do a thorough checking of your computer for malware, spyware and clear all cookies and download history. In extreme cases, I have even re-formatted my hardware in the past and I have learned from my mistakes. Also, if you use gmail, please use the 2 step account verification system.

Back to market, my short position in crude is working fine.  The following chart is from Bespoke:

I quote the following from Phil:

A short play on USO, which had a huge build in Gasoline (7.9Mb) and Distillates (3Mb) against just a 2.4Mb draw in Crude that in no way is doing anything to relieve the massive inventory pressure over at the NYMEX, where they still have 284M barrels worth of open contracts for January delivery and only until the 18th to roll them. But February is already uncharacteristically filled with 185,000 open contracts (1,000 barrels per contract) that nobody wants, so things can get pretty messy over the next 8 trading days.

I was short oil about a week back and I was short based purely on cycles. Now I see that fundamentals are lining up as well.

While I closed my shorts for indices, I increased my short position on silver. Let us see how it plays out.

I am absolutely market neutral so far as equities are concerned. In all possibilities, we may see more weakness tomorrow but I want no part of it. Even if the equities fall of the cliff, I am not walking that path for now. Things do not seem right. Nobody knows if the clowns will solve the fiscal cliff or what will happen with the debt ceiling negotiations. While I believe that equities should correct more, I see too much risk in that trade and risk is to be avoided. Rather, let us focus on less risky, high probability trades. I think “ There are plenty of fish out there” is going to be my favourite line. And closing short position on indices does not mean going long. There is no reason to be long equities as yet.  The VIX Call buying is at record level.

Which means that folks are buying protection, just in case we fall off the cliff.
(H/T : Schaeffers research)

That’s all for this crazy day. I got more requests for the draft of the trade alerts and I promise that I will email it  Sunday evening, so that you can decide on trades on Monday. Thanks for sharing my thoughts. Please forward it to anyone who you think may benefit from it.  Have a wonderful evening folks.

Wednesday, December 5, 2012

Opportunities or Frustrations?

Apple dropped almost 7% out of nowhere and SPX reversed hard. What gives?

This is not a market for faint hearted that’s for sure.

If we are able to look beyond equities, we will find that there were lots of actions today in the commodities. 

Let's start with the US Dollar Index daily chart.

I think it made a bottom. If my thinking and analysis are right, we will see more pressure on crude and PM sector soon.

Gold and Silver gave the sell signal and I plan to add some more to my short silver position.  I would have liked silver to close around $ 32.50 range and that would have made me more comfortable with the shorts, but none-the-less, there is no higher price target for PMs now. The direction is clearly lower.

Few days back I wrote that I am out of Nat. Gas.  There was a question as to how low I expect Nat.Gas to go and I wrote that I do not have any lower price target for Nat. Gas and I am neutral. I also wrote that Nat. Gas would most likely test the falling trend line around $ 3.90 and only when it fails there, it would be safe to short it. Nat. Gas jumped 4% out of nowhere. The 2X ETF BOIL tells a story.

I would expect BOIL to test $ 56 level and fail there. That would be a cue to take a short trade in Nat. Gas.

I also wrote about coffee few days back. I said that the hourly charts of coffee is over bought and will retrace soon. It is where that retracement stops will determine if Coffee has really bottomed. From the hourly chart of coffee ETF (JO) it seems that it has made a double or triple bottom. I do not want to jump in coffee yet.

Let us keep an eye on the daily chart of JO and we can think of a safe entry when the 13 DMA crosses over the 34 DMA. I think that would be around $ 35 or so.

Equities are moving in a world of their own. No one wants to sell because everyone is expecting a deal on the fiscal cliff.  This, despite the best efforts of CNBC to scare the retail to sell. So the Boyz will now have to take drastic step and create a bit of panic. I have been writing that do not expect any big sell off, keep the stops tight etc. etc. If we do not get the sell-off by next week, I might close my short positions of the indices and just continue with the short position on crude and silver.  I am not suggesting to go long yet but keep an worry eye on any short on equities. I feel bad bad for ZH, the world refuses to collapse. May be a bad NFP number tomorrow will convince folks to sell and that would be a good excuse to create some panic.

I have not been able to send that sample action report for the paid service because I keep writing everything here and not much action has taken place in the last few days. Hopefully I would be able to write something special soon.  Thanks for sharing my thoughts. Hope you will forward it to your friends as well. Join me in twitter ( @BBFinanceblog) and remember the Amazon link at the top. 

Tuesday, December 4, 2012

Hanging By The Thread.

Nothing much to write today.

The market refuses to break down for whatever the reason. I hope it completes the downward journey soon. Judging by the market action it seems an intermediate term top is close but unless we have the confirming price action, it is just a possibility.

We need close below 1400 in SPX to have the 1st confirmation of the down move. So close!

The big news today was the sell off in gold. If you remember, I went out of gold weeks ago and have advised readers to take profit in their trading position. I am still waiting for confirmation of the sell signal in silver. Here also, we are very close to the sell signal which will ensure that silver will re-test the lows.

Crude is in the topping process and a close below $ 87 is required to short it.

All in all, we are close but close does not mean much unless the deal is done.

So we need to wait for a day or two more.

Test of patience. In the mean time, keep the stop loss levels tight.

Monday, December 3, 2012

Howdy Folks?

Well, here goes some scribblin' that's a little past due,
But I reckon I'm always a-thinkin' 'bout you

Was it a boring day or what? In the morning crude zoomed past $ 90 for few minutes and I was thinking: aw snap. But the equities obliged and gave back most of the early morning gains. But for the correction to gather momentum, SPX will have to close well below 1400. I suppose it will happen soon but since I am not a day trader, the daily movements does not really affect me that much. All I care now is where the indices are going to be by mid-December.

The high point of the day in SPX was 1423.73. Darn close to my target of 1425. So for now I consider target met but will wait for it to close well below 1400 for confirmation of the intermediate term top.  I am not expecting a huge drop but a retest of the lows at 1344 can be expected. I do not know if it will make a lower low although that would be the preferred outcome. So keep the trading time frame short and stops tight.

I see a kind of double top in Apple and the up momentum appears to be weakening. I don’t think it will happen tomorrow but if Apple makes one more attempt to rally and fails, it will take the NDX down with it.

I am more interested in Crude for now. I think Crude has made the cycle high today morning and the reversal can be considered as a bearish reversal. I am not sure about tomorrow but if crude closes below $87, chances are we will see more correction ahead. So bit of wait and watch situation for now. In any case I do not have any higher price target for Crude and I think the high probability trade is down.

Nat. Gas gave a sell signal but the chart pattern is oversold in short term. I think Nat. Gas will test its high again. In the past week, Nat. Gas has tested $3.90 area few times and has failed there. If it again fails there, we will short it for a quick trade.

I am neutral on Gold but have a tiny short position in Silver. Only when Silver closes below $ 33, I would think of adding to the short position.  Everything now depends on US$ and should it make a bottom here, we will see all risk assets correcting together. And I think they will. So we just wait patiently.

Thanks for sharing my thoughts. Hope you will be able to get some juice out of it. I have quite a few readers expressing interest in the paid service. I will email a sample report this week. So if you are interested send me an email. Please forward the post to your friends. Tell them that we do not have any fancy charts, no macro economic analysis, no other BS here. Just market direction and bullet point market actions.

Tweeter Handle (@BBFinanceblog).

Saturday, December 1, 2012

Why is word of mouth so powerful? (a little technical)

Simple: WOM is awesome because WOM gives rises to MORE WOM. The elasticity of WOM compared to other forms of marketing is much higher (about 30% to 50% in some cases), meaning, word of mouth puts your business on a growth cycle which lasts much longer than when you market the product using traditional online marketing.

Word of mouth is not only powerful, it is sustainable too. Sustainability is the future. Everything from food production to using human resources to distributing wealth will be sustainable in future. So it makes sense that marketing will go back its roots and take a form which is sustainable, AKA, word of mouth marketing. Google also has shown interest in this area and this is a old Google article showcasing the importance of word of mouth and how it affects the way consumers buy online. Are you leveraging word of mouth for your business?

Market Manipulation And Your Financial Freedom.

I sometimes write about the Boyz manipulating the market like a giant casino and you shake your head in utter disbelieve. Nowhere the manipulation was more evident than the closing market action of Friday. Instead of me writing something and doing a poor job of it, let me quote from Josh Brown of Reformed Broker:

Friday's close was the most obviously, nakedly manipulated bullshit close I've ever seen. I have no idea who is behind it but this is not what healthy, well-participated-in markets do. There are too many real players to allow for this kind of thing to be able to happen in a real market. This market we have is shady as hell. I wouldn't even comment on something like the below chart if it were a one-off, but honestly, this feels like it's all the time.

The market is devoid of width and depth, you can jerk it around pretty easily - especially if backed by an institution that borrows free money.  And in the meantime, the powers that be need it to close higher every week to prevent outflows and redemptions.

So let us start with the analysis of what the manipulators will do next. In a way the markets did what was expected of it, except perhaps crude but that I consider more of an exception than rule.  Next two weeks are going to be interesting. However do not expect any crash. As I said yesterday, the BOYZ will create some confusion and panic to buy cheap. ZH will do its best to scare folks in selling or shorting. Those who think that they can tackle this market with fundamental analysis or technical analysis alone, they are in for a rude awakening.

Regarding the long term fundamental analysis let me read the following in Bloomberg:

Bond Investor Gundlach Buys Stocks, Sees 'Kaboom' Ahead :

Then it goes on to say some more:

The co-founder and chief executive officer of DoubleLine Capital LP explains that the first phase of the coming debacle consisted of a 27-year buildup of corporate, personal and sovereign debt. That lasted until 2008, when unfettered lending finally toppled banks and pushed the global economy into a recession, spurring governments and central banks to spend trillions of dollars to stimulate growth, Bloomberg Markets reports in its January issue.
In the ominous third phase, he predicts another crisis: Deeply indebted countries and companies, which Gundlach doesn’t name, will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy -- at the risk of higher inflation in coming years.
Gundlach, 53, doesn’t know when the third phase will get here, but he tells his audience they need to gradually get ready for it.
“I don’t believe you’re going to get some sort of an early warning,” Gundlach, who’s also chief investment officer at Los Angeles-based DoubleLine, tells his listeners. “You should be moving now.”

For most parts, Gundlach is correct. The part I disagree is; his call to buy stocks: because when that crisis situation comes, stocks are going to be equally badly hit. There will not be any hiding place.

However, I do not want to sound like ZH and I do not believe that we are going to that bust phase right now. We still have some more time and we should use that time to make money. It is no point to short the market when it is going up even if the up movement is temporary. While traditional investment / trading tools are not going to give you the any early warning, the cycle analysis will and does give us detailed road map in the future.

It is cycle analysis which had told us that this current correction is just a correction, not a crash and has kept us focused.  While 2012 has been a huge chop for most parts without clear direction, 2013 shows very clear direction. It is much easier if we know what lies ahead.

The road to financial freedom starts with a little bit of introspection. Set out your goal. What are you expecting in terms of your investment? Are you thinking like an investor or trader? If you expect to double the money every so often with Options, you are gambling and taking huge risk. What is your risk tolerance level? Risk is the amount of money that you will lose when you are wrong. And chances are, we will be wrong most of the times. If anyone says anything else, don’t believe it. The only “Mantra” going to be risk reduction. I would love to say ‘risk elimination” but we cannot totally eliminate risk from investing or trading.  With a 10% compound rate of return, you will more than double your money in 10 years. Does it sound reasonable? If we can do that consistently, we can retire happy. Then why can’t we achieve it? Because we chase yield and compare our return with some silly bench mark or against others. We read that there are wizards out there whose trading methods gives 80% return in every trade and chase those mirages. We allow green to overcome logical reasoning.

Therefore dear readers, before the crisis moment is upon us, just do your goal setting. Where you are right now. What you want? Is that goal reasonable? How much risk you are willing to take. ( How much money you are ready to lose if you are wrong) Do these exercise seriously before you think of subscribing my or anybody’s trade/ investment ideas. Nobody can offer any magic formula. I will probably help you in preservation of capital and grow it in a reasonable manner. Sometimes I will not trade for months if I think that the environment is not right. Sometimes I will go in and out of trade quickly if I see an opportunity. Sometimes I will take a position and sit on it for months and years. Whatever it is, the magic has to start with you.

This weekend is a good time to start that exercise. Your financial freedom is in your hand. Take charge of it.