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.