Thursday, February 28, 2013

Test Of The High?

Today the indices were up for most of the day but some late selling forced them to close in red.
Was it was a re-test and failure of the last high? I think it is still early to call today's action as failed re-test.
However, SPX is still above 1500 and DOW still above 14000. I would like to see indices making a lower low 1st and then re-test the 1530 level in SPX and fail there. Only time will tell whether the market will actually behave that way.

But what lead to the last hour selling? Was it fear of Sequestration or just regular pump and dump action?

But more than the red indices, I would like to draw your attention to Gold which again closed below $1600. I think the bounce in Gold is over short term and we will see some renewed selling. So those of you thinking about catching the falling knife, better be careful. However when the mood becomes totally negative on gold, that would be the time to go for it. We will have to wait a while longer for that to happen.

Nothing much is happening anywhere else really.

Equities will continue their up and down dance for a while more. Grains are still making a bottom before the rally. No much to do in Oil and Nat. Gas either.

All in all, we are in the waiting mode. Our sell signal has been triggered but something else is holding us back from going short at this point of time. I am expecting some whipsaws in market action and better to avoid emotional and moral hazards.

Folks normally get frustrated when there is not much action. We think we always have to buy or sell but in reality, we don't have to. Sometimes it is better to give up short term gain for longer term opportunities. This is one of those times.

March subscription is still open for two more days, before the next Newsletter comes out on Sunday and if you would like to avoid walking in the dark, you are welcome to join the gang.

Wednesday, February 27, 2013

Bull vs Bear. Who Is Winning?

Few days back I wrote that the bull may be wounded but not dead.
Today's market action again proved my point. One day SPX down 2% and next day it is up almost another 2%! Go figure.
The fact remains that upside is limited but Ben is not ready to accept defeat so quickly and easily. And as you know, there is no easy trade. When everyone is expecting the "Top", it remains in hiding. The market will kill the early bears and suck in the late bulls. And another new month is coming with new fund allocation. Why give up all the free money?
But why every 10-15 point move up or down make such huge news? For one, the 24/7 news media is hungry for sound bites and dramatizes every small insignificant issues. But the more important thing which was point out by Josh Brown of The Reformed Broker is that, almost everyone has jumped in the options bandwagon and are playing with leverage. A 1% move has multiplier effect when combined with leverage. This is not investing. This is speculating. And speculation is anything but good for long term financial health of an individual investor.
So where do we go from here?
For one, I have avoided the urge / temptation to go short for now and have advised subscribers likewise. I am sure I will lose some of my subscribers with my constant call for caution and not having enough action. But the fact is we are making a top and direction is not clear. We have a sell signal and yet I am hesitant to take action based on the sell signal. And it is my policy that when in doubt, do not trade. I would shoot, only when all the ducks are lined up in a row. Sometimes give up short term opportunity for longer term clarity.
Folks who have been in the market long enough know that we make 80% of the profits from 20% of the trades.
Going back to the question, who is winning the battle of bull vs. bear, look the following picture for an answer:
It is the TBTF Banksters who are winning.
Yesterday Jamie Dimon told an analyst covering the bank to go F**K himself.  The following is from Reuters:

At a J.P. Morgan investor event this week Mike Mayo, an analyst at CLSA, who has been a critic of large banks and, at times, Dimon, asked if J.P. Morgan wasn't at a competitive disadvantage compared to more highly capitalized peers. (Here is a playback via Business Insider:

Mayo: I think what I hear UBS saying in the presentation is that if I'm an affluent customer I'll feel a lot better going to UBS if they have 13.5 (percent) capital ratio than another big bank with a 10 percent ratio. Do you agree with that?

Dimon: You would go to UBS and not JPMorgan?

Mayo: I didn't say that. That's their argument.

Dimon: That's why I'm richer than you.

This exchange shows what is wrong in the system and Jamie Dimon personifies the arrogance of the Banksters and how they game everything.

In this environment, it is important that small investors start with "Return of Capital" not "Return on Capital" because the fat cats will steal everything otherwise. Avoid risk and everything else will follow.

That's all for tonight. Good luck trading every one.

Monday, February 25, 2013

March Subscription Is Now Open

It is the Subscription renewal time again.
How quickly a month pass!
It was on 1st of Feb. when SPX reached 1513 and we went out of the market.
Now it is morning of 25th Feb. and SPX is starting the day from 1515.60
Not much has changed in the last 3 weeks and we saved ourselves emotional trauma by waiting in the sideline.
So is $ 49 a month worth for having an action plan in this market?
Many of our readers think so. It is less than a cup of coffee per day from your favourite coffee shop and yet provides you, the reader specific action points on various asset classes with at least two weekly updates, if not more.
Extract of some part of one of our old Newsletter is here for your review:

The coming week, we have two indicators for sell signal:
  • SPX closing below XXXX, DOW below XXXXX.
  • VIX closing above XX.
When we see the Indices closing below those levels, we will know that we have seen the highs. From then on, it is a question of Indices making a lower high or re-testing the previous high and failing in the process.

I think we have a good opportunity coming up and let us remain focused on that only, nothing else. We are not economists and at least I do not understand how it works. Just concentrate on making money with low risk.  

PM Sector:
We have met our downside price target of Gold. Silver still has more to fall before it can find a bottom. While I am sure about a new all time high in gold but we may have to wait for 2014 for that to happen. The idea is to buy it when everyone hates it and I think we are reaching that point. Many of you may already be thinking that there is no future for gold. Main Stream Media (MSM) is writing about how Soros sold his gold. So we are getting there. However, if Gold closes below $1600, we will have still lower prices and that will remove all weak hands. So for now, we wait on the sideline with respect to PM.

Only parts of the Newsletter. And the levels keep updating / changing to reflect the dynamics of the market price movement. Apart from Equities and PM, we cover Oil & Nat. Gas, Copper (sometimes), Grains & soft commodities and treasuries.

Are we always right? Nobody is or can be and we are no exception. But we make every effort to reduce risk and shoot only when when we think all the ducks are lined up.  And I try to explain that we do not have to be always invested (Only Wall St. wants you to be 100% invested 100% of the time) and cash is a position. I quote from Josh Brown: "Guys talking about being all-in or all-out can and will change their opinions quickly. This is what they should be doing as professional, full-time speculators. But are you a full-time speculator? If someone can and frequently does go from fully invested to all cash to fully invested over the course of a few days, is there any particular reason that you should be paying attention to them? Will they personally be calling you to give you the second half of their trade? Well, most of you don't realize this so when someone says "ALL IN" or "ALL OUT", it gets you talking, thinking, retweeting, sharing etc.

So if you think caution is your style and you value your savings, want to grow it in a low risk manner, may be you should give it a try. Click on the "Donate" Button above and pay $ 49. In the subject line mention Subscription for "March" and you are all set.

I look forward to hearing from you soon.

Thursday, February 21, 2013

The First Warning Shot.

We heard the first boom.
Intra-day, SPX went below 1500 but closed above at the end.
While we saw a breach in the up-trend it will be wrong to say that the bull is dead. Wounded yes, dead? No.
Those who are thinking of shorting the market now, should do well to keep the fate of this guy in mind.

This was the 1st meaningful pull-back in many moons and at this point of time, is just a healthy correction.I think we will see a bounce very soon, may be as soon as tomorrow. Only when it makes lower high, we can think of an intermediate term top. Just like last time.

When the indices made few lower highs and there were reversals of reversals of reversals, we did see meaning-full correction.  It will follow similar path this time around and prudent traders / investors should wait for price confirmation.

Subscribers know the level to watch for and when the sell signal will be triggered. They also get mid-week and end of the week update, which help us to remain on the right side of the market without front running.

Other risk assets are getting slaughtered as well. Oil had a flash crash yesterday but for now I think it has found a bottom. But there is no such respite for precious metals. We have been out of it for a while and waiting in the sideline for the right time to get long. But we may have to wait for a while till everyone gives up on gold and all gold bugs fly away.

Some other interesting trades are developing in the soft commodities/ grains / Nat.Gas and we will have some action there soon.

All in all, end of Feb./ early March promises to be interesting in contrast to the last 3 weeks which has been a boring kind of market.

Hope you all are doing great and wish you all best of luck trading.

Monday, February 18, 2013

Risk Reward Ratio

Readers sometimes ask me why am I more in cash and less in the market.
My answer is that it always has to do with the "Risk Reward Ratio".
Take the current situation for e.g. When the media and ZH was screaming danger in last December (ZH is always screaming wolf anyway) I was telling readers to get bullish. We were long for the whole month of January and went to cash when SPX moved close to our price target of 1510. And for the last 3 weeks we have turned patient bear and yet not shorted the market. The reason we are not being long equities here can be explained in the following long term (monthly) SPX chart.

Assuming SPX keeps going up as everyone in Wall St and all talking heads in CNBC are saying, the upside in my view is limited to 1550 which is 2% up from here. It may take another 2 weeks and market does not correct, just to kill all the bears.
But on the other hand, should there be a correction (Not the end of the world, mind you) the long term support is a 1300 level, if 1400 does not hold. At 1400, that is 8% correction and at 1300, that is 15% correction.  So at best we have 8% / 2% = $ 4 risk and at worst 15% /2% = $7.5 risk. In other word, to go long here hoping to make $ 1, we will be risking $ 4 to $ 7.5. Is it worth it?
Just to break even on risk reward ratio, we need another 8% upside from here which is 1641 in SPX. I think that is bit far fetched. And although Ben has promised unlimited money, let us see what happens with the Sequestration thingy coming up in March.

Mind you, I am not suggesting that the world as we know it, is about to end. Simply because I do not know how economy works and what will be the unintended consequences. I just know how not to take unnecessary risk or at least I try not to.

 But I get the feeling that I am in that Jeep and the Volcano has already exploded and all the ash is bearing down. So better run or be in cash to take advantage of a better entry later.
Now you know why I am in Cash.

Thursday, February 14, 2013

Teflon Market, Patient Bear.

Or its Deja Vu'

Its 2012 all over again. In the morning, the futures were down and markets opened lower but by mid-day BTFD crowd came in and helped push SPX in tiny green. Most likely tomorrow will be tiny red. Historically, Feb OpEx, which is tomorrow is green. So we will see who wins, red or green. But it does not change anything. And while we are on the sideline, some will short the market out of sheer boredom, only to have emotional trauma and lose money. Some will go long thinking this is the beginning of new bull run and shares will never correct because Ben will have their back. They will also lose big time. Its all about timing.
Timing says, do not front run, shut out the noise and the Zen moment will come. 

I know subscribers are getting impatient for lack of action, but we start with the premise that 1st goal is not to lose money. Rest will follow.

So folks, no new nugget of wisdom or fancy charts to share. Just chill till the appropriate signal comes.

Monday, February 11, 2013

Dairy Of A Reluctant Bear.

It has been a while I posted in the blog. But the fact is, there has not been much to write home about.
We were long for the whole month of January and when SPX started flirting with 1510, we exit all long positions and have been in the sideline since then.
The indices have been chopping and churning and grinding higher very slowly. In the process, killing all bears and convincing everyone else to BTFD
Sentiments are at all time high:
And indices are in the overbought territory.
However, overbought can remain overbought for a long time, till no one is left to sell and everyone is a buyer. When we start hearing about SPX 1600, we will know that the gig is up.

So we are not front running. Subscribers know the levels to watch and when the sell signal will trigger. Knowing those critical levels have helped us to avoid the whipsaws. We are watching VIX very closely and that is another of our indicators.

We have also stayed away from commodities including PMs and while we did not short it, we fully anticipated the sell off in gold and silver. Now we are waiting for the sell signal in oil and Nat. Gas. There is no play in grains or soft commodities either.

All in all, we are practising patience and keeping our emotional health in good shape. Not to mention preserving our capital as well.

Hope you all are having fun in this BTFD market and although I have turned into a reluctant bear, I am now a patient bear waiting for the fish to land in my mouth.
Good luck trading everyone.

Tuesday, February 5, 2013

Told You So.

I have been out from 5.30 AM in the morning and is back at 11.30 PM at night. Have been busy with multiple meetings throughout the day and have not had a chance to see what is happening in the market.
Now that I see how the market played out during the day, I find that SPX was up 15.58 points.
And I can just laugh , shake my head and say that I told you so.
Let me know how are doing in this backing and filling market.
Good luck trading folks.

Monday, February 4, 2013

In The Chop Zone

Indices sold off today by 1% or more.
Understandably bears are jubilant and bulls are giving it a shrug.

However do keep in mind, in Wall St. there is no bull or bear, only Weasels.

If you have read last few posts, you know that my upside target was 1510 in SPX and while we briefly crossed it last Friday, we have been moving in 10-15 points range. The 15 points sell off has not done any damage yet. The market is still on buy signal. That does not mean we have to buy. That simply means we are not going to short, yet.

The story is same with Gold and Silver. Moving in a range.
Same with Crude.

We went for skiing last weekend and after coming back we see that nothing has changed. So we have decided to wait outside the ring and watch the show.

Subscribers know what level to watch for the sell signal and when not to front run. While we do expect February to be a great month we also know when not to jump and this is one of those times. In all likelihood  those who shorted the market today will be disappointed tomorrow and those who go long tomorrow will be disappointed the day after. There is no play in commodity either.

Therefore , dear reader, let me repeat the old and tired formula: Cash is King