Thursday, January 31, 2013

1500 Breached, But Just Barely.

Well, SPX did not hold 1500 at close but after hours futures are up and my prognosis remains the same as yesterday. That we will chop around here for a while before the next move.
Gold and silver gave up all the gains of yesterday and that's exactly what I was afraid off.
Everything is churning and I find such situations quite frustrating and outright dangerous for the portfolio.
So we better go for skiing.

We will come back when it the time is right.
Subscribers will get the 1st glimpse this Sunday as to what the crystal ball is predicting. And if you would like to know, please join the gang. Time to join the February subscription runs out on Sunday.

Have fun folks.

Wednesday, January 30, 2013

Will 1500 Hold?

We are coming close to end of the month and barring something unexpected, it will be a positive January. So we have every Jan. indicators positive. On the flip side, my upside target for SPX was 1510 and we have come few pennies away from that target. If we can close convincingly above 1510, then the next target is 1530. But I have my doubts that it will happen anytime soon.

Today SPX gave up about 6 points but still managed to close above 1500. As if it is now acting as a support. And I think it will move around this level (1500-1510) for a while.

Folks are now actually getting bullish. It seems retail investors are now returning to the market and are talking about their portfolio. I wonder at what stage of the sentiment cycle we are at.

Is it at the Hope stage? I don't think so. I think we are somewhere between Thrill and Wow, I am smart stage. And if my reading is correct, then we would chop around here a bit before a decent correction. Yes, I know that would be the fodder all the doomsdayers are waiting for but my Crystal ball can't see beyond next few months and can't tell me whether this is minor top or major top.

Yes, I know, calling a top is fools errand and that's why I am not suggesting that we should short now. I am suggesting that we wait for confirmation for price action either way and wait for sell signal. As of now, we do not have any sell signal and the bull case is still strong. But again, it is late in the game to join the dance. May be we will be asked to shut the lights off because we would be late in the party. So better to wait and watch. Remember last Jan/Feb? Everyone was calling for top and shorting the market, only to get killed. This year is more of the same.

Commodities are also not doing much, just moving in a range. Today's spike in gold and silver is not convincing enough to go long again and it looks more like a pump and dump action. Till gold closes above$ 1700 and stays there, we could see more correction in prices.

Oil on the other hand can go up a little more but not much juice left for now.

All in all , we need to remember how to be patient in this market.

Good luck trading, folks.

Monday, January 28, 2013

Bears Rejoice. Red SPX.

We had a red day with SPX and Dow but Nasdaq was green.
Obviously, all the financial bloggers are feeling happy because they can see the next crush just round the corner. Yet it was not even 3 points down. At this rate, unless something unexpected happens, January barometer will be positive.

So we have a positive Santa Clause Rally, The First Five Day was positive and most likely we will have the whole month of January positive. What does the past statistics say for that?
Well, I have this chart from Stock Trader's Almanac.

S&P 500 SCR, FFD & JB Positive 1-Year Pattern since 1950 Chart

There is still plenty of time for things to go wrong and I do not recommend to buy in equities now because to move higher, we need a good pullback. My point is: a big correction is not the end of the world.

VIX raised its head above the water but I do not think it has completed its downward journey yet. May be soon and then bears will rejoice.

Let us therefore take things as they come and not have a pre-conceived notion as to how the year will end. Its been just four weeks out of 52 and lots of ups and downs will come. As of now, I see indices moving sideways and even making a higher high, before the fat lady sings.

Have a great evening folks. 

Friday, January 25, 2013

SPX Closed Above 1500. Did we Erase 2008?

There you have it.

Depending on whether you walk on hoof or on claws we are either on the verge of a giant collapse ( just round the corner for last 5 years?) or about to see another bull era when stocks will go up and up with the rainbows
Personally, I think it would be foolish to marry either of the positions.

All I know and believe that there are real value stocks out there which are beyond my reach today and I would love to buy them at 50%-60% discount and sit on it for ever. I would like to buy KO for less than $10, XOM for $20 and so on. Unless we get a massive sell off, how in our life time we will get that opportunity? And no I would not touch any tech. company for long term investment.

So yes, I would love a huge correction but I do not think that would be the end of the world.

For last may posts I have written that we are on buy signal and as I have shown yesterday, we have been long from beginning of January, only to harvest now. And we are not going to short the market yet, however over bought the indices / indicators are. The corrections will come, nothing lasts for ever. And I am very hopeful that God willing, we will be on the right side of the market even then. No need for any dramatics, no need for any fancy charts or Analogues, no need for splitting hair with macro economic s**t. No need to cry foul that Ben has distorted the market. Because those are beyond our control and don't help us in anyway to make money. Talking of Ben, I don't know how his gamble will play out in the long run, but I would like to share the following chart with you.

At least he did succeed in bringing down the unemployment with his QEs. What will be the unintended consequences, we don't know. So let us just concentrate as to how we can beat the market and make some money, if we may please.

Right now the best entertainment is being provided by Ichan vs. Ackman

It has become personal with insults flowing all around.

Back to markets, SPX closed green 8 days in a row. I think even the 9th day will be green. I have been writing not to short or front run and hopefully you have listened to my unsolicited advice. Overbought is not the reason to short the market and it is not that overbought yet.

I wish ZH and other similar bloggers who are unable to come out of the shock of 2008, would shut up and instead of crying of all possible conspiracy theories, would tell their readers how to beat the system and make real money. But I also know that that is not going to happen and in the next 20% correction they will claim vindication. Alas!

Anyway, lets enjoy the ride while it lasts. Right now, the most favoured position is "Cash". And yes, cash is a position. I think the upside is limited but the indices may churn here for a while.

That's all for this weekend. Have fun folks and remember that Feb. Subscription is open now.

Thursday, January 24, 2013

January Recommendations & Results

In my earlier post, I said that I will report the final scorecard of our January picks later, by the 1st week of Feb. But since almost all the positions have been closed, I think I can show you the results now.
Please keep in mind, this is my results and may not be same with everyone else because everyone has different time frame for execution. Some will be better, some worse but I would expect most would be close to the range.
Please do remember, past performance is no guarantee for the future.
I personally expect February to be spectacular.

SPX Green 7 Days In A Row!

For the 1st time since 2007, SPX crossed 1500 although it did not close above. But it was green 7 days in a row which has happened only 4 times before. 

So green or red tomorrow? Honestly, it does not matter, 

Are we done here?

I would say not yet. May be there will be some profit taking tomorrow, little red, entice some new short positions but not the turning point you are looking for.

Subscribers of this blog went long at the beginning of January and we have remained long till now. Readers were advised to harvest gains yesterday and today morning. We knew that 1500 will be taken out in SPX and for most parts, we have made handsome gains on our position.

The following is a snapshot of our Jan. 2 Newsletter:

Market Analysis & Trade Ideas

For the Week Jan 2- Jan 4, 2013.
Happy New Year.
I have been out of the equities for almost half the year and I don't think I have missed much, except the emotional roller coaster ride. In the mean time I have played in Crude, Nat. Gas, Gold and other commodities. Now I see some definite trends developing in equities and I would like to share some of my trades herein below.
Before I start, few techniques or principles worth remembering are:

  • Always scale in. For e.g. the equities that I am going long, I will scale in over two weeks or more. For commodities, I will scale in in a shorter time frame.
  • Always have stop loss. Nothing is guaranteed in the world of trade and investment and we must guard against a trade going against us.
With that preamble, the following are my trades for this week and next.
  1. Long SLB. 1/3rd each on this week and week afters
  2. Long ANR. 1/3rd each on this week and week afters
  3. Long NEM. 1/2 each this week and next week.
  4. Long XIV. on 4th Jan
  5. Long SSYS. 1/2 this week and 1/2 next week.
  6. Long DDD. 1/2 this week and 1/2 next week
  7. Long HZU.TO (Canada) or AGQ (US).1/2 this week and 1/2 next week
  8. Long CDE. 1/2 this week and 1/2 next week
  9. Long NUGT. 1/2 this week and 1/2 next week
  10. Long EWG. 1/2 this week and 1/2 next week
  11. Long EWN.1/2 this week and 1/2 next week
  12. Long SLW.1/2 this week and 1/2 next week
  13. Long INDL. 1/2 this week and 1/2 next week
  14. Long Gold through LEAPS. I am buying Dec. 2013 calls on GLD
You can do your own math as to how we have done so far. Subscribers have got regular emails / notifications, sometimes multiple times in a day, suggesting, when to exit, take profit or harvest. We cut losses on one or two trades but let our winners run.And most of our trades have been winners.
I will publish the final scorecard of our January buy list in 1st week of Feb. along with our exit prices.
By the way, all the above trades are done and now is not the time to chase them. The easy money has been made. We have closed these trades.

And if you think Jan. was good, Feb. is going to be still better.

We will not trade the market with any pre-conceived notion. We don't care if the market goes up or down. We just want to be on the right side of the market. Neither a bull nor a bear. Even the best  makes a wrong call from time to time. 

Here is Peter L Brandt today morning:
Peter Brandt ‏@PeterLBrandt

When I am wrong, I am wrong $AAPL Looks like attempted bottom has failed.

And he is as respected as they get. So I will not be an exception. But the key is to have more winners on a consistent basis.

Apple got hammered. Regular readers know that many moons back I have mentioned about Apple cycle topping and Apple closing below $ 500. That time it looked like a fantasy and now folks can't get out of the door with Apple. And the cycles did not bottom yet.

Readers know that one of thing that differentiate me from others is my call for patience. I tell readers that we do not have to be long or short always. There are times, when I prefer cash. That advice in itself is more important than anything you can find anywhere. Let us call it "Art of not losing money". Again, I do not claim to be right all the time. Rather, the effort is there to increase the odds of success and hopefully my subscribers will vouch for that.

Back to markets, although SPX could not close above 1500, the bull case is still strong and we most likely will see another push up soon. Rarely such a momentum stops on a dime. But we will not pick up nickels in front of the steamroller. We have achieved 96-98 % of our price target and we will take our money and run. And no, we will not short the market because we are not done yet. At the same time, we don't want to be greedy. And while SPX gave up most its gains for the day, VIX was not that strong either. It closed a whooping $0.23 cents higher than yesterday. I have no doubt ZH will be writing a lot about that huge gain in VIX.

So if you would like to benefit from some very unconventional yet highly successful trading methods, try out the subscription for just $49 for a month and judge it for yourself. It is much less than a cup of Starbucks' cappuccino every day. The subscription for Feb will remain open till 2nd Feb. when the Newsletter for Feb. will go out. By the way, subscribers get the Newsletter every Sunday and daily updates if any action is needed. 

That's all for tonight. Don't front run and trade safe. GLTA

Wednesday, January 23, 2013

February Subscription Is Now Open

If you will like to make some money or rather not lose money in the Wall St. now is your chance.
The February Subscription is now open.
Some good opportunities of the year is coming up and you do not want to miss them.
So click on the donate button to pay the monthly subscription of $ 49.
Please write "Feb. Subscription" in the subject.
Thank you for your trust and support.

Tuesday, January 22, 2013

Higher High Ahead

SPX at five year high. It seems there is no respite for bears these days. Lots of talking heads are calling for the Top and in various daily trade forums folks are discussing all obscure indicators to justify talking shorts. But I have bad news for the bears.
Its still too early for the top and higher high is ahead for indices.
One of the indicators I would like to share today is the short interest.

(H/T :Schaeffers)
As you can see, the short interest is still high and there are still good deal of short interest out there which will be taken out by the BOYZ in the coming days. It is like low hanging fruits for them. As SPX comes closer to 1500 and may be struggle a bit, folks will pile on the short side and then BOOM! SPX well past 1500. Till short interest capitulate, the market will keep grinding higher.

Schaeffers talks of lower trending or higher trending short interest but I think at this point of time, that distinction is more academic.

While I would suggest not to short the market at this point of time, I would also not suggest to be aggressively bullish. We are long on selected stocks from start of January and most of them are doing fine. Like everyone else, we have not had the chance to add more on weakness but at this point, we are holding on to our long position. I will email to subscribers as to when is the right time to harvest the gains.

Our positions in PM are doing well, (praise the lord). While Gold is struggling to break through $1700, once through the gate, it will most likely run away. Silver will also follow.

So if you are long, enjoy the ride up. Other than that, there is nothing more you can do in this market. This is a repeat of 2012 and therefore play accordingly.

Good luck trading all.

Saturday, January 19, 2013

Why I Hate ZH and Other Similar Creatures.

Regular readers of this blog know that I dislike ZH with a passion. The over riding reason is, these guys have scared the retail investors since 2009 and have caused the biggest missing investment opportunity of our life time, when SPX more than doubled from its lows. I could write many valid points but toady I want to share the following from Joshua Brown ( the reformed broker)

Without further ado, here is what Joshua Brown has to say about the merchants of gloom & doom:

Escaping the Fear Factory 

Are the birds chirping? Is tranquility close at hand?
There are many who believe so or at least admit that they can see it in sight.
The world is awash in liquidity and opportunity abounds in every region around the world:
Distressed investors in Europe are now reaping the benefits of their midnight maneuvers where no one else dared to tread. Dan Loeb (Third Point) made a half a billion dollars buying Greek bonds before Labor Day and selling them before Christmas. Marc Lasry (Avenue Capital) is taking whole portfolios of performing loans off the hands of Belgian and French banks at steep discounts, bringing liquidity to one of the last deserts without it.
Animal Spirits are returning to the equity markets as five-year highs are penetrated with a persistent and lusty thrusting from below. The same is true in the corporate bond market asinvestors line up for the latest offering like sneaker aficionados on Air Jordan launch day. Not every waking second is being spent on avoiding loss - people are once again looking to win, a psychological seachange as important as any quantitative market indicator you want to present to me, I promise you that.
Housing, formerly the Achilles Heel of the US economy, is now the engine driving us out of the negative feedback loop.
Goldman Sachs is back to being Goldman Sachs again, smashing estimates from trading to I-banking to M&A to underwriting.
Bank of America is putting the sins of its acquired mortgage business behind it with every settlement and charge-off.
Even Citi has a request in front of the regulators to up their share buyback.
Morgan Stanley's just traded through a new 52-week high with very little other than green field ahead of it now that it's no longer the poster child for hidden Euro exposure.
You may look at the return to prominence of the big banks and say "How unfair!" You will be right, but please compartmentalize that notion. Because it has nothing to do with your duties as an investor.
The deficit hawks have read the polls, they now understand how unpopular their debt ceiling stance is with the people. They are unwilling to allow the "Republican Recession of 2013" to become the rallying cry of the Democrats during the next elections. And so they cave and grant an extension so that negotiations may continue.
The US stock market is trading at a 13 multiple on the $108 in earnings analysts are expecting for this calendar year's S&P 500.  The Schiller PE (a 10-year average to smooth out cyclicality) stands at 22.8, a higher-than-mean reading (the mean being 16) to be sure - but not obnoxiously so and given the massive earnings nosedive in 2008-2009, some generosity is required here.
Headline-wise there are just a few more hurdles, we are told, and then the Era of Crisis 2007-2012 will be germaine only to the historians and the professors.
And with our passage into the new era, we will leave behind the baggage of the old one.
There will be bloggers and journalists and newsletter writers who continue to fight the old battles that no longer matter. They will spend countless hours on "Who really caused the Crisis" and lament the favoritism shown by Geithner and Paulson. They will continue to chase mortgage fraud headlines down the rabbit hole of who-gives-a-shit and expend a great deal of time and energy on fearing high frequency trading and loathing the banks.
To which the productive and creative and ambitious among us will say "Whatever."
We will stop reading these diatribes, they will no longer enter into our decision-making process. Like the screams of the Wicked Witch of the East as she melts into the ground, their yowls and yelps will grow even more shrill and abrasive as our collective attention continues to fade. This will be embarrassing - like an older family member who seeks to bait you into a heated discussion about Vietnam at Thanksgiving dinner. We will not read or watch or click this stuff anymore.
Phasers set on ignore.
Our escape from the Fear Factory will not be an easy one. There will be surprise spikes in the Vix and drops in the market during which all the old alarmist assholes are trotted back out into the spotlight - however briefly - to sow the seeds of uncertainty and discord. They will return with their old catchphrases - "The Fed is shooting blanks, kicking the can, Bernanke is facing a liquidity trap, etc."  For an amazing, museum-quality look at everything the permabears got wrong these last few years, please visit this page of newsletter archives - it's like a compendium of every single horrible call you could have made all in one place. When you run a bear fund, this is your job I suppose - to make hay while the sun is not shining.
Hope they made the most of their moment, nobody will care going forward.
To say that "risks remain" and that "headwinds persist" would be an understatement. Many things must go perfectly right this year so as to ensure a continued expansion and the possibility of derailment is significant. Much of what needs to be fixed remains broken, even if less visibly so thanks to the healing power of time. The bandaids will not remain affixed to the wounds forever, at a certain point an actual treatment will be necessary - possibly a painful one.  The market understands this, has processed this and has decided that the issues we face are manageable.
We are coming off of our wartime footing. In the streets, shopkeepers are sweeping up the broken glass and putting their establishments back in order. Banks are lending again and filling the air are the sounds of hammers and drills and felled trees and the rumbling of machinery. We are borrowing and building and planning and hiring again. Only a lonely, bitter old man would fail to see this - his mind poisoned by his growing irrelevance in a world that's rapidly passing him by. How else to explain something like this bit of June 2010 commentary from the Dow Theory Letter's Richard Russell:
"Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt  and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country. They’ll retort, “How the dickens does Russell know — who told him?” Tell them the stock market told him."
If you've been overdosing on shit like that since 2008, you can stop now. Richard Russell cannot hurt you anymore. His time has passed and his furtive scratching and clawing at our time can be safely ignored.
The next drop in the stock market is around the corner - perhaps it will be a garden variety 5% correction and perhaps something more in response to politics or last quarter's earnings. This is what you should expect. In fact, if your time horizon as an investor and an accumulator of financial assets is longer than ten years, it would be irrational for you to be rooting against that!Pray for it, you will need it.  And what you will see on this next dip is a change in behavior, in investor mentality. These sell-offs will be bought up gleefully and rapidly by those who've remained in the Fear Factory for too long. This can go on for quite awhile, especially should interest rates remain low. The investor class has favored bonds to stocks at a rate of 33 timesthese past five years - an imbalance like that takes a long time to correct.
The next crisis is already in the works - this is how things will always be but remember that their risks are our opportunities. And smile. Think of what you've been through thus far!
Welcome the new era - whatever it brings - as a former prisoner of the Fear Factory welcomes the first rays of sun on the outside of the wall.

Bravo Josh. Very well said.

We will get corrections from time to time, sometimes even 20% or more but that would be another shopping opportunity. We do not have to be long all the time but we do not have to be scared all the time as well. 

Happy long weekend friends.

Friday, January 18, 2013

So Much For History.

History says Jan. OpEx is normally Red.
But this year the history was turned upside down, as was last year.
And all the day trading bears got slaughtered, again.
I sometimes visit a day trading forum of a TA site and I see folks animately discussing VIX trend line,( a new low of 12.31) T2111, USHL5, NYHGH, so on and so forth. The conclusion is that a Top is around the corner and things are about to crash.

I still hope for some sort of correction beginning of next week but definitely no crash. By the way, does any one remember what I wrote about VIX a week back? If you don't , here is a link:
Expect VIX to reach low double digit

The problem with these TA guys are same as that of Robert Prechter or ZH.
They are never wrong, just little early.
And TA need not be complicated. It works when you can make it simple so that anyone can understand it.
Prechter has been early with his S&P500 crash call for the last 5 years as has been ZH. May be one of these days it will really crash and then they can say "Told you so". But I doubt anyone would be left to short the market then, because by then everyone would have blown up their capital with these wrong calls.

Today gold and silver faced the resistance and retreated a bit.
Let us look at the chart of gold.
This is a simple chart with trend lines and Fib info. Easy to understand that gold is facing a resistance at $1700 and that is what we saw yesterday and today, when gold came close to $ 1700 and retreated. Very soon it will break this triangle and I am on the camp that it will break to the upside and run away. So we will be patient with our long gold position for many months to come. While there is a short term top in gold, the weekly cycles are up.

Nat. Gas is presenting a paradox. Seasonality and longer term cycles are down but having closed above $ 3.38, the price actions indicate that it wants to retest the last high before rolling over. As I do not trade against the cycles, I will not go long here. Rather, I will wait for the price action to exhaust itself and then take a short trade again.

Coffee futures are grinding higher but is still away from the long term buy signal. But cycles are close to bottom and specially in such situations we can expect whipsaws. The coffee ETF, JO is presently at around $35.10 and I think a buy signal would come around $ 38.75 or so. Please send your feedback on this one.

Oil has reached a point where I do not expect much short term gain and is looking a bit stretched here. A correction to the $ 88-$ 89 level is needed before we can go long oil again.

All in all, a very interesting week. There are some very interesting trends developing and Sunday Newsletter will highlight some of them to the subscribers. As always, let's not front run because this beast has some more energy to run.
Have a great weekend folks.

Thursday, January 17, 2013

Counter Point

For those of you who have been brain wasted by ZH and other prophets of doom and gloom, here is something of a counterpoint:
Ray of Hope by Ned Davis
I am not saying we should rush to buy stocks.
I am just saying: keep an open mind.

P.S. Its now almost noon per Eastern time. I find it odd that ZH was silent for almost 40 minutes ( 11.34-10.54) and had not come up with another story why everything will end badly. Running out of ideas or Top is really close and no longer a need to drive folks to short?

Wednesday, January 16, 2013


Almost a repeat of last year.

The Indices keep grinding up while everyone calls for the top and correction.
Last year, the Jan OpEx had a rare gain and so far this year, we have opened lower but sharply reversed for everyday of this OpEx week.
Historically Euro is weak during January but the history has been over written both last year and this year so far. Euro refuses to go any below 1.3200 and as a result, there is no sell signal in Euro.
So where do we go from here?
First thing first. We don't need to front run and short the market just because some of our favourite TA indicators are showing overbought.
Next, while the Indices can definitely grind higher, just like last year, the risk;reward is not favour of huge gain without some correction.
In such situation I follow the rule:

Cash is King.

PM sector is on the verge of long term break-out (silver already broke out) and I would rather put my money in gold and silver than in equities. We are long PM from beginning of January and some selected commodity shares.

I think Coffee is making a long term bottom but I am waiting for confirmation. Nat. Gas trade which went against us, will come back to us in few days. And I like Oil long term. Bonds are making a bottom and TLT will most likely give a buy signal sometime soon. So you see, there are plenty of fish out there without bothering much about equities.

Regarding US Bonds, I think this is probably the last bounce we will see in bonds for many many years to come. So if you are long bond funds, you may think of getting out in the strength.

Equities are in the process of making a complex top but the top will come when everyone has given up and raised their hand in resignation. May be few weeks away but definitely not now. We may see some correction, we want to see correction but that may not be the start of the major drop in price. But for my plan to play out, we need that correction soon and I hope it arrives tomorrow. As I have written before, till SPX 1450 is taken out, we have nothing to worry and in fact would be a buy opportunity.

Lets wait for tomorrow and see how it plays out. In the mean time, we sit tight with our positions.

Thanks for sharing my thoughts. As always, stay frosty.

Tuesday, January 15, 2013

I Am Still Laughing!

Orlando the ginger cat


And we do so much research for beating the S&P benchmark!

By the way, 61% of the hedge funds were below that vaunted S&P benchmark.


Why are we still paying 2 and 20?

Monday, January 14, 2013

January OpEx Week.

Here we are, start of the OpEx week which normally has been a red week.
While the indices want to go higher, short term, they are bit over extended and a healthy pullback is needed before the journey can continue higher.
Today we had just a tiny mini less than 2 points correction in SPX while DOW was green. Nasdaq was red mainly because of Apple. The McClellan Oscillator is still high and further immediate upside may be limited although not totally ruled out.

Daily NYSE McClellan Oscillator Chart

On 10th January, Tom Demark predicted in Bloomberg that SPX will peak at around 1500 and will fall 5.5%. demark-sees-s-p-500-falling-5-5-after-peak-near-1-500.html
Now Tom Demark is the guru of the Hedge Funds and he charges a pretty penny from anyone who wants to use his system. And yet his success rate off late has been around 50:50, as good as tossing a coin. Last year, around same time he predicted the market top many times and the top never came. Which goes to show that even the best have to eat a humble pie sometimes.

Today was my day to eat humble pie. My trade on Nat. Gas is not working out the way I would like it and I would most likely close this trade tomorrow. But against that, the long trades in Gold and Silver are doing fine. We are also long on selected commodity stocks and ETFs. That explains why we should not put all our eggs in one basket and why we should diversify and spread out the risk.

I may have mentioned before, I expect the market to correct in the next 5/6 trading sessions and I would love SPX test 1450 before the upmove again. While there is a short term top, the bigger cycle is up and unless SPX closes below 1450, the buy signal remains intact. Here I agree with Mr. Demark that we will see at least an intermediate term top around 1500-1510 but my time line for that is still few weeks away. Therefore I would not short the market at this point. The memory of last year is still very fresh in mind.

Elsewhere, the fight between President Obama and GOP is heating up. Again, folks do remember the last debt ceiling show down and the market sell off after that. It promises to become much more ugly this time round.

And last but not the least, the following Tweets are worth a read:
(H/T Ryan Detrick, CMT. Schaeffer's Research)

 Sunrise Trader – “Don’t trade out of boredom, have a plan and see it first. Days like today are often best spent studying.”
  • Amen.  If there is nothing good to trade, don’t force it.  This is easier said than done, but trading just to trade will do nothing, but churn and burn your account.  Let things line up and come to you, then load up.
Eddy Elfenbein – “Since 1990, the S&P 500 has annualized 14.1% when the VIX is below 13. When it’s 13 or more, the annualized return is 4.9%.”
  • Great point.  We’ve heard so much the past few years how a VIX of 15 is ‘low’ and this means we are due for a pullback.  Yet, looking longer-term this isn’t the case.  This tweet spurred us to do some research and we found similar results.

 Chris Ciovacco- “Our perspective, forecasting brings bias & ego into the decision making process – better to pay attention with open mind & adjust on fly.”
  • Love this quote.  Trading can KILL you if you have an opinion and blindly stick to it.  We are all wrong in this game.  In fact, we are usually wrong a lot.  The key is being able to bounce back, learn from it, and live to fight another day.  Another key component to trading is exactly what Chris said above.  DON’T have a bias and only trade what is in front of you.  Our minds can trick us if we let them.  If you think you know it all or have everything figured out, Mr. Market is about to crush you.

And I completely agree with Chris. That is why I am ready to admit mistake ASAP and change from long to short or from short to long or close a trade based purely on price action  or adjust on fly, as Chris says. Ego or faith in the system has no place in preservation of capital. 

That's all for to-night. As always , trade safe and stay safe. 

Saturday, January 12, 2013


One of the finest chart analyst whose work I respect is : Peter L Brabdt.
Peter posted a note on Gold which I thought is worth sharing with you all.
Presented without comment:
Look forward to your comments.

What Is A Cycle?

Many readers are baffled by my constant use of the word " Cycle".
For me, it is a mathematical algorithm of time and price which repeats at regular interval. It is different from "seasonality" and has its own variations.
"Cycles" were first introduced by  Nikolai Kondratiev (also written Kondratieff) and later popularized by  Joseph Schumpeter . Many theorist have worked on cycle theories over the ages and the latest are Harry Dent  and JEFFREY A. HIRSCH . 
Then there is Gann, and many others : Stock_market_cycles
Normal Fosback has a system where by  he would buy at month end and sell at early next month and he was able to out perform the market.
You can read more about Kondratieff here: Kondratiev_wave
You can also develop your own model and now-a-days it is so easy to gather all the data from the internet.
However, most folks who develop some kind of theory about cycles tend to be rigid. But a long cycle top or bottom need not be at the same point/time. Nature's time keeping methods are little different than humans. We humans have decided that winter comes on December 21. But in some year winter comes early and in year it is late or mild. Its same with cycle tops or bottom. I use it more for direction and when I see that cycles are matching with seasonality, Technical Analysis and cash flow, it sets up a high probability trade. Nothing in life is "Guaranteed' and neither are cycles. They just help to stay away from unnecessary risk.

Trading or investing today is not about winning everytime but rather about not losing everytime and everything. So whatever helps us to avoid risk, is welcome. Just remember nothing is perfect or works 100% of the time.

Hope you all are having a great weekend.

Thursday, January 10, 2013

SPX At 5 Year High

Yesterday for the first time in seven days VIX rose by a huge 0.25 vol. and while it was still below 14, the blogosphere came alive with the story of imminent market top and collapse thereafter! And yet, today we have SPX at a five year high. Goes to show that we really do not understand (me included) how the market works. People and media make a fortune trying to find a logical reason and answer "why". And there is no clear answer. I think this exercise of finding logic in market movement is futile.

I do not know if we have a top or bottom but surely we need a good correction to get a better entry. Today SPX broke the range and cleared 1470 convincingly. Common sense says that it is better to sell here than buy but everyone is taking that trade and it is a crowded trade to say the least.

My ideal correction for entry would be in the range of 1450 which is about 20 points below from where we are now and that would convince everyone that the world is ending, only to deceive again. I do hope we will see some correction next week to shake out the weak hands but I also remember what happened last year. We never got a chance till March.

But our long positions in PM sectors are doing well with the break out today. While it was nice, the fireworks have not yet started and more are yet to come. Last night I sent out email to the subscribers stating that I expect Natural Gas to re-test $ 3.20 and stop/fail there. Fortunately, Nat. Gas read my email and behaved accordingly! (just kidding). I am hoping for another kind of fireworks here.

Coming back to equities, I do expect some kind of pull back shortly but that would normally be a buying opportunity. Couple of days back I wrote that SPX may test 1475 before any pull-back and most did not believe it. Today we closed at 1472 and the up momentum is still there. So another 3 points intra-day tomorrow is quite possible. By that logic we should see the correction next week.  Do I want to take a short trade for 20-25 points in S&P 500? I would not but then I am not a day trader and my time frames are different. There are folks out there who do monitor the daily ups and downs but all I can say that patience is very important. You get the chicken out of the egg by hatching it, not by smashing it.

That's all we have time for today. Hope you have been on the right side of the market and did not front run it.  Do share this post with your friends if you think they will like it. As always, thanks for stopping by.

Tuesday, January 8, 2013

First 5 Trading Days of January

2013 has got off to a good start. Santa delivered 2% gain and the first 5 days have delivered 2.2% gain in SPX. The following is from Stock Trader's Almanac:

The last 40 up First Five Days were followed by full-year gains 34 times for an 85.0% accuracy ratio and a 13.6% average gain in all 40 years. In post-presidential election years this indicator has a solid record. Just six of the last fifteen post-election-year’s First Five Days showed gains. Only 1973 was a loser at the start of the major bear caused by Vietnam, Watergate and the Arab Oil Embargo. The other four years gained 22.8% on average (1961, 1965, 1989, 1997, and 2009). 
First Five Days Changes Table

There are couple of nice posts in Bloomberg about the money losing short trades in 2012:

Okay, the headlines are mine but you get the idea.

Does it mean we can now buy some calls on SPY and forget about the market for the rest of the year? Not really. It is going to be a challenging year to say the least. Taxes have gone up. Net consumer earnings will go down and world growth remains a distant memory. At some point markets will catch up with fundamentals. Million dollar question is: when? Well, honestly, no body knows and I am no exception. But at least I have been steadfast in saying that do not short the market and even when I had taken a short position, I was quick to get out. In my heart I am a big bear but I also know that economy and stock markets are two different animals:
So right now I am long and waiting to add to long on weakness. There is only one short trade in commodities . Earlier I would normally deal in indices but this time I have a bunch of  individual stocks and ETFs which I think will do better than the average market. Let us see how it goes. 

The Godfather of Low Volatility investing , Bob Haugen passed away. I would like to share the following with the readers which resonates with me very well and is actually very similar to my principle of "Relaxed Investor":

Coming back to markets and away from equities, I think coal has made a bottom and coffee is in the process of making one. Normally Crude takes a dive in January but so far this year, it has held steady. Similarly, gold and silver are also making a base. Grains are still few weeks away from making a tradable low. 

This week, so far the equity indices are in a consolidation mode and is digesting the gains. We are close to the highs of 2012 and SPX is facing resistance. I would have liked the correction to be little more deep but it is what it is. May be we will get few more days of small reds. Then again, these days I find more opportunities in commodities than in equities. Bonds are out of bounds for me for now because they are moving in a range.

That's all for this evening. Hope you are having a great time and thanks for sharing my thoughts. Stay nimble and good luck trading.

Saturday, January 5, 2013

Official End of Santa Rally

Santa Rally officially consists of last five trading days of December and first two trading days of January. It seems this year, Santa's elves and reindeer gang were on strike and Santa was late in coming to Wall St.
Santa was hanging near the cliff and somehow made peace and arrived just in the nick of time. Now that we have the end of Santa Rally, SPX is up 1.5% during this period. During this period we have also seen back to back accumulation days which A/D ratio at 17:1 and 12:1. Very robust to say the least. Consider this, SPX is 14% higher today than it was at this time last year. And still we want to make money shorting the market?

Next we need to see the 1st five trading days of January and we want them to be positive.

Does anyone remember last January? The market kept grinding up and up till March and everyone kept shorting the market till there were no bears in town. I suspect this year we will have a repeat because already  I am hearing about folks shorting the index and talking about over bought. They forget that overbought can remain overbought for a long time. While I do expect a short term correction, I do not want to short the market because cycles have bottomed and is up for quite a while. Any correction will be an opportunity to add to the existing long positions.

It is a fool's errand to predict the future but if I have to make a guess, I would think that correction would come towards the end of next week. The market may just grind around this level for few days, consolidating and correcting in time if not in price. SPX may even target 1475 before correcting back to 1450 level for the next upward journey.

I am yet to see anyone who is happy about 2012. The beginning of the year was a wash for TA enthusiasts who kept calling for corrections day after day. The 2nd half was a massive meat grinder with chops and whipsaws. Almost all of Wall St. got 2012 market calls wrong :

Coming back to Friday's market action, the most notable thing was the collapse of VIX.

This is a weekly chart and as you can see VIX has not been so low since 2007. If you remember my last post (only few days back) I wrote that I expect VIX to reach in low double figure and we still have 3 more points to go before we reach bottom.  And no, I am not going to buy UVXY or TVX even if VIX goes up a little by middle of January, because the dominant cycle for VIX is pointing down. I would never trade against cycles, even if I have to give up some trades or profits because I believe in "safety first".

So how was your market return in 2012? I want to share an article written by Phil Pearlman, executive director and investor of Stocktwits: Successful market participation is a gruelling process, a marathon. There are so many components and it is such a complex challenge that you must spend years improving while facing serious stress and financial setbacks. You will need to master multiple skills and it will take time.
For 2013, you will not need to or  be able to conquer it all.
Instead, choose one critical aspect of this craft to improve on and then make it your mission to crush that one thing.
For some of you, this will mean risk management but it may be something else like managing trades once you are in them or trade selection.
But whatever you choose, that one important thing, devour it, become it, crush it…
Focus on that one thing with religious fervor. Learn everything you can, seek guidance from those who have been successful, read about it everywhere, consume yourself in it, think about it when you should be doing other things and cultivate your own process.
Then practice practice practice that one thing you will improve in your trading until it becomes so automatic and so much a part of your routine that you do it every single solitary time as a function of habit.
Very Prophetic! For my part, I am working on risk management and preservation of capital. What is your goal for 2013?

We have scaled in our positions and will add more on weakness. I think Gold and Gold Miners have made a bottom. Although I have not taken any position in GDX, I thought it would be interesting to share this chart of gold miners with you:
(H/T: Arthur Hill, Stock

Seasonality also favours the PM sector.

That's all for this weekend. Thank you for reading the blog. Please forward it to your friends who may like it. I look forward to your comments and suggestions.

Wednesday, January 2, 2013

2013 Market Outlook.

The lesson from 2012: We can ignore the Mayans, ZH and many other preachers of doom and gloom. Everything ends and the world will also end someday. We can't get caught up in bear talk all the time and not live a normal life. This dysfunctional central bank liquidity fuelled market will again enter crisis zone someday but we can't short a rising market without risking loss of capital.

The other life lesson: We can't predict future. If that was possible, the fortune tellers and gurus will all win the lotteries. So I am not even going to try. But I follow a system which analyse the past, takes inputs from the money flow, takes into consideration the seasonality patterns and tries to determine the next move, where the "puck" is going to be. Along the way, we apply risk management and only look for high probability trades and even then follow a stop loss system.

  So what are the dominant themes for investment / trading in 2013? Lets look at the positives first:

  • Energy independence in USA. With the fracking USA is producing surplus Nat. Gas and shale oil the cost of energy in USA is less than 50% compared to Europe or Japan or China. More and more companies are realizing the benefits of the cheap energy and companies are moving manufacturing to USA. It is a long term secular trend. We will not see any immediate impact tomorrow or next month but if we suddenly wake up and compare the manufacturing landscape in 2020, we will find that lots of manufacturers who require high energy inputs have moved to USA.
  • Change in Manufacturing: Manufacturing itself is changing. Since industrial revolution labour cost has been one of the most significant part of cost of production and it is the lure of cheap labour that has move manufacturing to China and shut down the plants in the rust belt. But moving production to a far off place which is 1000s of miles away from your market has its own set of costs and problems. There is cost of transportation, inability to respond quickly to changing markets and of course corruptions in a developing country and loss of intellectual property rights. But now even the manufacturing process is changing. Robotics are slowly taking over the production process and replacing the blue collar workers. Take a look how Telsa Motors making cars:             Slowly but surely Robots are replacing humans from Warehouse management to complex shopfloor production. In future production lines will have fewer people who will be highly skilled technicians. The flip side is, there will be no market for unskilled labourers except flipping burgers. Even that will be challenged. With this change, the cost advantages for off-shore production will be gone and you will find more companies are relocating back closer to their markets, thereby cutting down costs of transportation and other headaches. I think, long term that spells trouble for China and Good for USA.
  • New Technology: 15 years back, internet changed the way we do business.  Now something new is coming up which will again impact the whole manufacturing process. That is 3D printing. Companies will be able to manufacture what they need in quantities that they need in a much more cheaper and efficient way. 
Now the Negatives:
  • Structural Challenges: For too long USA has been living beyond its means. It has over $ 16 trillion debt and much more in unfunded liabilities. There is no way in hell or heaven that it can balance the budgets. Even if USA changes 100% income tax , it will not be able to bridge the gap. The problem is spending and USA is not able to address that. With the interest rates at today's artificial low level, it has borrowed more and more and with looming deflation, Barnenke is pumping more money. This will inevitably lead to inflation which in turn will push the interest rates higher and the cycle will come full circle. The era of low interest rates are coming to an end soon.
  • Structural Unemployment: The unemployment problem will continue to trouble USA and much of the Advanced world. It is a structural unemployment where skill set required is absent in a large section of the population while demand for high skilled workers remains high. The level of education, particularly math and science till grade 12 is pathetic compared to some other countries and cost of University education is becoming more prohibitive. It will no longer be sufficient to have a basic grade 12 education and hope to get a factory job. More and more factory jobs will require good knowledge of math and science.
  • Political Paralysis: Or partisanship. All that politicians are interested is how to get re-elected and they are playing to their base. While the cliff thingy has been kicked down for two months the real issue will come up in February when the debt ceiling collides with cliff. That is a major headwind for 2013.
  • Global Slowdown: Every country is trying to prosper through export and debasement of currency. If everyone if trying to export who will be left to buy? American consumer has long supported the world but how long they will buy the stuff they don't need with the money they don't have? 
  • Geo-Political Problem: I see major issues coming up in middle east and far east which can have serious negative impact.

  Final Thoughts:

While I have a long term bullish outlook for USA, I expect 2013 to be a bumpy ride. While Wall.St. pandits will again scream as to how cheap equities are, the fact remains that we are at the upper end of the range and the forward looking profitability of the companies are not going to be great. I expect SPX to test 1500 in the 1st half of 2013 and correct from there.In the next few months I expect VIX to trade lower from here and reach low double digits. The exact timing of moves are a matter of interpretation and left for the subscribers. I expect to see better risk/reward ratio for commodities and would be watching Oil, Nat.Gas, PM sectors and other soft commodities like Soya bean , coffee, wheat etc. I think there are very few longer term investment opportunities in equities in 2013 and whatever opportunities are there, would be short term trading in nature. Because of the economic headwinds the time frames will be much shorter. But opportunities will be both on the long side as well on the short side. So let's not get married to any one idea. Like in 2012, the coming year will continue to frustrate investors with whipsaws and folks will have to be very nimble. Even if there is no recession, the growth opportunities will be limited and US economy will at best muddle through. 

If "Muddle Through" economy is the most likely scenario of 2013, combine that with the fact that the 1st year of the 2nd Presidential Election cycle, when an incumbent is re-elected and you will see that the prognosis is not that great. Precisely the reason I am calling for a short trading/investment time span, take the money and run approach.

We have immensely enjoyed the Fiscal Cliff Circus and we are now getting ready for the next part which is "debt ceiling' drama. But for now, we have removed some uncertainty and  markets in general do not like uncertainty. We would be scaling in various positions from this Friday, long and short. Today it might be little volatile with wild ups and downs. All in all, an interesting beginning for 2013.

Stay frosty and good luck trading all.