Dear Club Members:
We had a great week this week!
We entered the C Fund at 1280. We exited the C Fund today at 1320. Even I was not expecting 1320 as a closing price. Everyone should feel pleased. A special shout out to Terry who entered the C Fund on a down day (Friday). Terry's entry took courage. He is to be commended.
Terry's Model Portfolio is up 95.79% for the week. We surpassed the 2010 performance record for Bridgewater Associates. Our goal remains 100% by November 21, 2011. I am waiting for the right opportunity, clear overbought conditions in a down trend. We are also approaching a long holiday weekend which may provide opportunities as well.
The take away point is that we saw opportunity this week. We executed. We closed out the trade and preserved our profits. It is likely that tomorrow will show a higher high but that higher high will not be sustainable. Watch the closing price tomorrow. Is the closing price lower than the opening price? Is the closing price higher than the opening price? Is tomorrow an Inside Day? These traits will signal that the time is nigh to short this overbought market in a down trend.
A toast to everyone on a good week,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Thursday, June 30, 2011
Move 100% into the G Fund
I am 100% in the G Fund.
There is significant risk of a drop ahead in the S&P 500 Index. From a technical basis, there is astounding triple negative divergence between price action and the MACD Histogram. Resistance on a closing basis sits @ 1316. Gann resistance lies @ 1313. Elliott Wave resistance lies @ 1311. Resistance on the daily 50-day moving average sits @ 1316. Resistance on the weekly 13-day moving average sits at 1316. The dominant trend is down and yet the market is approaching an overbought condition on low volume. These factors suggest an excellent shorting opportunity. Since our objective is to remain in the C Fund while the market is going up, the future seems inconsistent with our objective.
On the fundamental level, there are ample reasons for the market to sell off. There is the continuing risk of a Greek default. Who knows the connection between a Greek default and the threat of contagion in French and British banks? We have the continuing risk of bad news on the federal debt ceiling vote. There is too much sovereign debt out there in Europe. And, most importantly, investors and traders sell bad news in a Bear Market.
For these reasons, it is prudent to leave the C Fund at this time.
Your early morning strategist,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
There is significant risk of a drop ahead in the S&P 500 Index. From a technical basis, there is astounding triple negative divergence between price action and the MACD Histogram. Resistance on a closing basis sits @ 1316. Gann resistance lies @ 1313. Elliott Wave resistance lies @ 1311. Resistance on the daily 50-day moving average sits @ 1316. Resistance on the weekly 13-day moving average sits at 1316. The dominant trend is down and yet the market is approaching an overbought condition on low volume. These factors suggest an excellent shorting opportunity. Since our objective is to remain in the C Fund while the market is going up, the future seems inconsistent with our objective.
On the fundamental level, there are ample reasons for the market to sell off. There is the continuing risk of a Greek default. Who knows the connection between a Greek default and the threat of contagion in French and British banks? We have the continuing risk of bad news on the federal debt ceiling vote. There is too much sovereign debt out there in Europe. And, most importantly, investors and traders sell bad news in a Bear Market.
For these reasons, it is prudent to leave the C Fund at this time.
Your early morning strategist,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Wednesday, June 29, 2011
Time to Go
Dear Club Members:
Tonight, it is time to leave the C Fund. Barbara will be receiving her e-mail shortly.
We have had a good ride this week. We took advantage of the short up trend and oversold conditions. Kudos to Terry for moving into the C Fund on Friday. He was right on the mark. He has also taken plans to leave the C Fund which I applaud wholeheartedly.
Q: What are my reasons for leaving the C Fund?
I will list five reasons but I could list ten reasons just as easily:
1. The momentum is slowing down. Trader Mark Weinstein famously would look for a slow down in momentum and then go the other way. The strategy works because markets only go up on momentum. If you say good-bye to up momentum, then a stall is sure to follow. Then, its down you go.
2. The downward sloping 50-day moving average on a daily chart hangs over our heads at 1316. I know I sound like a stuck record but I remember the Flash Crash in 2010 and the Crash in 2008. Better safe than sorry. Both were heralded by resistance at the 50-day moving average. There are pros out there selling into this rally. They are banking on the 50-day moving average as a brick wall. I can feel it. So can Terry.
3. On a weekly chart, 1316 is resistance on the 13-day moving average. The market is not going higher than 1316, particularly since we are in a dominant downtrend. Yet, another reason to leave the C Fund.
4. I saw dangerous triple negative divergence between the MACD Histogram and the price action today. The market is rising on fumes. Triple negative divergences can lead to dramatic drops in price.
5. If you accept the Elliott Wave take on this market since May 1, 2011, then we are approaching the end of this Wave 4 (corrective wave c). What should follow is a Wave 5 down comparable to Wave 1 down (May 1 to May 23) and Wave 3 down (June 1 to June 16).
It is time to go.
Your resolute newsletter writer,
Wink
Inspirational Quote: "Only when nearly everything lines up right and he feels the timing is virtually perfect does he put on a trade. He passes up many trades that he believes have a high probability of working, but for which he lacks the same degree of near absolute confidence." Mark Weinstein in Market Wizards, page 337.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Tonight, it is time to leave the C Fund. Barbara will be receiving her e-mail shortly.
We have had a good ride this week. We took advantage of the short up trend and oversold conditions. Kudos to Terry for moving into the C Fund on Friday. He was right on the mark. He has also taken plans to leave the C Fund which I applaud wholeheartedly.
Q: What are my reasons for leaving the C Fund?
I will list five reasons but I could list ten reasons just as easily:
1. The momentum is slowing down. Trader Mark Weinstein famously would look for a slow down in momentum and then go the other way. The strategy works because markets only go up on momentum. If you say good-bye to up momentum, then a stall is sure to follow. Then, its down you go.
2. The downward sloping 50-day moving average on a daily chart hangs over our heads at 1316. I know I sound like a stuck record but I remember the Flash Crash in 2010 and the Crash in 2008. Better safe than sorry. Both were heralded by resistance at the 50-day moving average. There are pros out there selling into this rally. They are banking on the 50-day moving average as a brick wall. I can feel it. So can Terry.
3. On a weekly chart, 1316 is resistance on the 13-day moving average. The market is not going higher than 1316, particularly since we are in a dominant downtrend. Yet, another reason to leave the C Fund.
4. I saw dangerous triple negative divergence between the MACD Histogram and the price action today. The market is rising on fumes. Triple negative divergences can lead to dramatic drops in price.
5. If you accept the Elliott Wave take on this market since May 1, 2011, then we are approaching the end of this Wave 4 (corrective wave c). What should follow is a Wave 5 down comparable to Wave 1 down (May 1 to May 23) and Wave 3 down (June 1 to June 16).
It is time to go.
Your resolute newsletter writer,
Wink
Inspirational Quote: "Only when nearly everything lines up right and he feels the timing is virtually perfect does he put on a trade. He passes up many trades that he believes have a high probability of working, but for which he lacks the same degree of near absolute confidence." Mark Weinstein in Market Wizards, page 337.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Trading
I picked up this handy list from Clearstation.com this morning:
"Title: Trading
I was looking over some old posts at the old website this morning and rediscovered this little gem offering the 22 Rules Of Trading according to Dennis Gartman:
Never, under any circumstance add to a losing position! Nothing more need be said. To do otherwise will eventually and absolutely lead to ruin!
Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
Capital comes in two varieties: mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two.
Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is “low.” Nor can we know what price is “high.” Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed “cheap” many times along the way.
In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
Markets can remain illogical longer than you or I can remain solvent. Illogic often reigns and markets are enormously inefficient despite what the academics believe.
Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds… they shall carry us higher than shall lesser ones.
Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect “gaps” in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In “good times,” even errors are profitable; in “bad times” even the most well researched trades go awry. This is the nature of trading; accept it.
To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market’s technicals. When we do, then, and only then, can we or should we, trade.
Respect “outside reversals” after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more “weekly” and “monthly,” reversals.
Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen… just as we are about to give up hope that they shall not.
An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.
Establish initial positions on strength in bull markets and on weakness in bear markets.
The first “addition” should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.
Bear markets are more violent than are bull markets and so also are their retracements.
Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are “right” only 30% of the time, as long as our losses are small and our profits are large.
The market is the sum total of the wisdom and the ignorance of all of those who deal in it and we dare not argue with the market’s wisdom. If we learn nothing more than this we’ve learned much indeed.
Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.
The hard trade is the right trade: If it is easy to sell, don’t; and if it is easy to buy, don’t. Do the trade that is hard to do and that which the crowd finds objectionable.
All rules are meant to be broken: The trick is knowing when and how infrequently this rule may be invoked!"
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
"Title: Trading
I was looking over some old posts at the old website this morning and rediscovered this little gem offering the 22 Rules Of Trading according to Dennis Gartman:
Never, under any circumstance add to a losing position! Nothing more need be said. To do otherwise will eventually and absolutely lead to ruin!
Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
Capital comes in two varieties: mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two.
Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is “low.” Nor can we know what price is “high.” Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed “cheap” many times along the way.
In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.
Markets can remain illogical longer than you or I can remain solvent. Illogic often reigns and markets are enormously inefficient despite what the academics believe.
Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds… they shall carry us higher than shall lesser ones.
Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect “gaps” in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.
Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In “good times,” even errors are profitable; in “bad times” even the most well researched trades go awry. This is the nature of trading; accept it.
To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market’s technicals. When we do, then, and only then, can we or should we, trade.
Respect “outside reversals” after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more “weekly” and “monthly,” reversals.
Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen… just as we are about to give up hope that they shall not.
An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.
Establish initial positions on strength in bull markets and on weakness in bear markets.
The first “addition” should also be added on strength as the market shows the trend to be working. Henceforth, subsequent additions are to be added on retracements.
Bear markets are more violent than are bull markets and so also are their retracements.
Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are “right” only 30% of the time, as long as our losses are small and our profits are large.
The market is the sum total of the wisdom and the ignorance of all of those who deal in it and we dare not argue with the market’s wisdom. If we learn nothing more than this we’ve learned much indeed.
Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.
The hard trade is the right trade: If it is easy to sell, don’t; and if it is easy to buy, don’t. Do the trade that is hard to do and that which the crowd finds objectionable.
All rules are meant to be broken: The trick is knowing when and how infrequently this rule may be invoked!"
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry's Model Portfolio: Day 5
Trade Execution: Sell 102 July 130 SPY calls @ 1.87.
Rate of Return Today: 3.8%.
Profit on the Trade (Realized): $10,125.
Portfolio Balance: $19,579.
Performance Year to Date: 95.79%.
Objective: 100% by November 21, 2011.
Time: 6:31 a.m. (PST), Wednesday, June 29, 2011.
Assessment: Market gapped up on news of Greek vote. Good practice to sell on the news.
Twyman Asset Management
June 29, 2011
Dear Terry:
We closed out the trade this morning for a nice realized profit of 95.79%.
Our 100% objective is within sight. Triple negative divergence (MACD Histogram) is evident on a 60-minute chart. As we discussed, market conditions are setting up a top. The next major move should be down.
QE2 is ending this week. Where is the money going to come from to buy all of the treasuries next week?
Warm regards,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Rate of Return Today: 3.8%.
Profit on the Trade (Realized): $10,125.
Portfolio Balance: $19,579.
Performance Year to Date: 95.79%.
Objective: 100% by November 21, 2011.
Time: 6:31 a.m. (PST), Wednesday, June 29, 2011.
Assessment: Market gapped up on news of Greek vote. Good practice to sell on the news.
Twyman Asset Management
June 29, 2011
Dear Terry:
We closed out the trade this morning for a nice realized profit of 95.79%.
Our 100% objective is within sight. Triple negative divergence (MACD Histogram) is evident on a 60-minute chart. As we discussed, market conditions are setting up a top. The next major move should be down.
QE2 is ending this week. Where is the money going to come from to buy all of the treasuries next week?
Warm regards,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Tuesday, June 28, 2011
The Next Couple of Days
Terry wanted to know my thoughts on the next couple of days.
I am uneasy tonight. The 50-day moving average looms overhead @ 1316.89. The S&P 500 Index closed today @1296, a resistance level. Once we breach Wednesday's high of 1298, my Elliott Wave signal will flash caution. I am under no delusions here. We are in a corrective wave c. It is the final wave against the dominant trend down since May 1, 2011. I am more concerned with safeguarding profits than capital appreciation. Elliott Wave points to an end to the up wave at around 1310. Clearstation.com is also suggesting a top @1310. Gann suggests a top around 1313. So, I see a confluence of indicators pointing to the 1310 - 1318 zone as significant resistance.
Its funny. When I am on the side of the dominant trend, I am at peace. I tend to forget the market. When I'm on the right side of a corrective wave, I am very alert because I know that gains can be fleeting. The dominant trend remains in place.
I also am mindful that QE2 ends on June 30. Q: How will the market react come July 1?
On a 60-minute chart, I can see that the momentum is slowing down. There is the beginning of negative divergence on the MACD Histogram. The market can go higher but now is a good time to be on the lookout for triple negative divergence. Triple negative divergence between price action and an underlying indicator can provide an excellent sell signal. It has worked for me in the past.
The world economy is slowing. The debt problems in Europe are not going away.
An idealized chart of the Russell 2000 shows a sharp peak into July 1 followed by a decline into August.
Conclusion.
For all of these reasons, I am not dancing the jig this evening. I am watching my indicators. I remain on the lookout for signs that the market momentum is slowing. I feel that the time to sell is close at hand.
Your anxious newsletter writer,
Wink
Inspirational Quote of the Day: "If, at the time my million dollar tools are giving buy indications, most advisory services are going against my indications, your chances for a good trade are further increased! I mean this sincerely. As with the stock market, when too people believe something will happen, it never does." Larry R. Williams, How I Made One Million Dollars Last Year Trading Commodities, page 60.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
I am uneasy tonight. The 50-day moving average looms overhead @ 1316.89. The S&P 500 Index closed today @1296, a resistance level. Once we breach Wednesday's high of 1298, my Elliott Wave signal will flash caution. I am under no delusions here. We are in a corrective wave c. It is the final wave against the dominant trend down since May 1, 2011. I am more concerned with safeguarding profits than capital appreciation. Elliott Wave points to an end to the up wave at around 1310. Clearstation.com is also suggesting a top @1310. Gann suggests a top around 1313. So, I see a confluence of indicators pointing to the 1310 - 1318 zone as significant resistance.
Its funny. When I am on the side of the dominant trend, I am at peace. I tend to forget the market. When I'm on the right side of a corrective wave, I am very alert because I know that gains can be fleeting. The dominant trend remains in place.
I also am mindful that QE2 ends on June 30. Q: How will the market react come July 1?
On a 60-minute chart, I can see that the momentum is slowing down. There is the beginning of negative divergence on the MACD Histogram. The market can go higher but now is a good time to be on the lookout for triple negative divergence. Triple negative divergence between price action and an underlying indicator can provide an excellent sell signal. It has worked for me in the past.
The world economy is slowing. The debt problems in Europe are not going away.
An idealized chart of the Russell 2000 shows a sharp peak into July 1 followed by a decline into August.
Conclusion.
For all of these reasons, I am not dancing the jig this evening. I am watching my indicators. I remain on the lookout for signs that the market momentum is slowing. I feel that the time to sell is close at hand.
Your anxious newsletter writer,
Wink
Inspirational Quote of the Day: "If, at the time my million dollar tools are giving buy indications, most advisory services are going against my indications, your chances for a good trade are further increased! I mean this sincerely. As with the stock market, when too people believe something will happen, it never does." Larry R. Williams, How I Made One Million Dollars Last Year Trading Commodities, page 60.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry's Model Portfolio: Day 4
Open Trade: Buy 102 July 130 SPY calls @ 0.88. Closed today @ 1.80.
Rate of Return Today: 60.71%
Profit Today (Unrealized): $6,954.06
Portfolio Balance: $18,862.26
Performance Year to Date: 88.62%
Objective: 100% by November 21, 2011
Time: 1:00 p.m. (PST), Tuesday, June 28, 2011
Assessment: Market reaching cycle top. Signs of negative divergence. Prepared to exit on June 30, 2011.
Twyman Asset Management
June 28, 2011
Dear Terry,
Today, we beat Bridgewater Associates for the year 2010.
The numbers say it all.
We had a very good day.
Warm regards,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Rate of Return Today: 60.71%
Profit Today (Unrealized): $6,954.06
Portfolio Balance: $18,862.26
Performance Year to Date: 88.62%
Objective: 100% by November 21, 2011
Time: 1:00 p.m. (PST), Tuesday, June 28, 2011
Assessment: Market reaching cycle top. Signs of negative divergence. Prepared to exit on June 30, 2011.
Twyman Asset Management
June 28, 2011
Dear Terry,
Today, we beat Bridgewater Associates for the year 2010.
The numbers say it all.
We had a very good day.
Warm regards,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Inside Days: Buy Stop @ 1286.60
9:42 a.m. (PST)
The buy stop for Thursday's outside day has been triggered. The high for Thursday was 1286.60. At 9:42 a.m., the S&P 500 Index reached 1286.82. Many astute traders and investors have set buy stops just above Thursday's high of 1286.60. Higher prices are ahead today.
Classic play out of yesterday's inside day.
I don't like to blog during the trading day but this event seemed noteworthy.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
The buy stop for Thursday's outside day has been triggered. The high for Thursday was 1286.60. At 9:42 a.m., the S&P 500 Index reached 1286.82. Many astute traders and investors have set buy stops just above Thursday's high of 1286.60. Higher prices are ahead today.
Classic play out of yesterday's inside day.
I don't like to blog during the trading day but this event seemed noteworthy.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Monday, June 27, 2011
An Inside Day
Tonight, I want to return to a topic that is near and dear to my heart.
Let's talk about inside days.
Inside days are simply days of range contained within a larger previous day's range. They reflect indecision. They show a coiled spring being wound up. They represent market opportunity in real time.
Today was an inside day. This means that the high on the S&P 500 Index was 1284 which was lower than Thursday's high of 1286.60. The low was 1267.53 which was higher than Thursday's low of 1262. Q: See how the entire daily range today is contained within Thursday's range from high to low?
Now, inside days tend to produce explosive moves. If the price goes higher than the outside day high, then you will see an explosive increase in price. If the price goes lower than the outside day low, you will see prices move with conviction lower.
Today was an inside day.
If prices top 1286.60 (Thursday's high), then we should see a price move higher to 1310. The price move up should equal the length of Thursday's price range. Now, here's the thing---While it is good to anticipate a price move to 1310, it is also likely to be a terminal move. 1310 might be it and it might then be time to go home. Time to get out, as they say. That's my thinking.
In the meantime, please note the historical precedent. The May 2010 Flash Crash was preceded by a tremendous outside day on April 27, 2010. Several inside days followed, thus building up pressure for the waterfall decline on May 6, 2010. Similarly, we saw a tremendous outside day on September 18, 2008 (I think) followed by several inside days. Pressure was built up before the low of the outside day was breached, thus producing the Crash of October 10, 2008.
Conclusion.
Inside days lead to predictable and exciting price moves. The important thing is to be right with the trend. If you are on the side of the trend, you will make money when the inside day breaches the outer limits of the outside day. (For more details, google "Larry Williams" and "Inside Days.")
Your newsletter writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Let's talk about inside days.
Inside days are simply days of range contained within a larger previous day's range. They reflect indecision. They show a coiled spring being wound up. They represent market opportunity in real time.
Today was an inside day. This means that the high on the S&P 500 Index was 1284 which was lower than Thursday's high of 1286.60. The low was 1267.53 which was higher than Thursday's low of 1262. Q: See how the entire daily range today is contained within Thursday's range from high to low?
Now, inside days tend to produce explosive moves. If the price goes higher than the outside day high, then you will see an explosive increase in price. If the price goes lower than the outside day low, you will see prices move with conviction lower.
Today was an inside day.
If prices top 1286.60 (Thursday's high), then we should see a price move higher to 1310. The price move up should equal the length of Thursday's price range. Now, here's the thing---While it is good to anticipate a price move to 1310, it is also likely to be a terminal move. 1310 might be it and it might then be time to go home. Time to get out, as they say. That's my thinking.
In the meantime, please note the historical precedent. The May 2010 Flash Crash was preceded by a tremendous outside day on April 27, 2010. Several inside days followed, thus building up pressure for the waterfall decline on May 6, 2010. Similarly, we saw a tremendous outside day on September 18, 2008 (I think) followed by several inside days. Pressure was built up before the low of the outside day was breached, thus producing the Crash of October 10, 2008.
Conclusion.
Inside days lead to predictable and exciting price moves. The important thing is to be right with the trend. If you are on the side of the trend, you will make money when the inside day breaches the outer limits of the outside day. (For more details, google "Larry Williams" and "Inside Days.")
Your newsletter writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry's Model Portfolio: Day 3
Last Trade: Buy July 130 SPY calls @ 0.88. Closed @ 1.12.
Rate of Return today: 27.27%
Profit Today (Unrealized): $2,454.30
Portfolio Balance: $11,908.20
Performance Year to Date: 19.08%
Objective: 100% by November 21, 2011
Time: 1:00 p.m. (PST), Monday, June 27, 2011
Assessment: Market in strong short-term up trend. No reason to sell calls in a rising market. Time exit is July 1, 2011, depending upon conditions.
Twyman Asset Management
June 27, 2011
Dear Terry:
Today we had a good day.
When the opening 15-minute trading range was broken to the up side, we committed heavily to the long side with calls. This up wave should take us through Friday. I am confident that we will best Bridgewater Associates by Friday (What do you get for $60 billion anyway these days?/smile)Support lies at the 13-day moving average or 1278. Overhead resistance @ the 50-day moving average will take us out of the trade.
Regards,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Rate of Return today: 27.27%
Profit Today (Unrealized): $2,454.30
Portfolio Balance: $11,908.20
Performance Year to Date: 19.08%
Objective: 100% by November 21, 2011
Time: 1:00 p.m. (PST), Monday, June 27, 2011
Assessment: Market in strong short-term up trend. No reason to sell calls in a rising market. Time exit is July 1, 2011, depending upon conditions.
Twyman Asset Management
June 27, 2011
Dear Terry:
Today we had a good day.
When the opening 15-minute trading range was broken to the up side, we committed heavily to the long side with calls. This up wave should take us through Friday. I am confident that we will best Bridgewater Associates by Friday (What do you get for $60 billion anyway these days?/smile)Support lies at the 13-day moving average or 1278. Overhead resistance @ the 50-day moving average will take us out of the trade.
Regards,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Reminder - Resistance @ the 50-Day Moving Average
Just a reminder---Even if the market goes up this week, resistance is anticipated @ the 50-day moving average.
I just checked. Resistance on the 50-day moving average is @ 1317.28.
I plan to leave the C Fund when we hit that target.
I hate blogs during the trading day because market conditions can change rapidly. However, my plan to get out @ the 50-day moving average remains the same.
Enjoy the week!
Wink
P.S., Terry's model portfolio is performing well....
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
I just checked. Resistance on the 50-day moving average is @ 1317.28.
I plan to leave the C Fund when we hit that target.
I hate blogs during the trading day because market conditions can change rapidly. However, my plan to get out @ the 50-day moving average remains the same.
Enjoy the week!
Wink
P.S., Terry's model portfolio is performing well....
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry's Model Portfolio: Day 3
Trade Execution:
Bought 102 July 130 calls on the Spiders Fund (SPY)
Limit price filled @ 0.88.
Time: 6:44 a.m. (PST)
Date: Monday, June 27, 2011
Rationale: Oversold conditions in an uptrend. Up trending MACD on 60-minute chart. Up pointing 200-day moving average. Market did not drop to or test 1262 in the first 15 minutes of the trading day. Anticipated drop happened in overnight futures market. Probabilities favor market rise into July 1, 2011.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Bought 102 July 130 calls on the Spiders Fund (SPY)
Limit price filled @ 0.88.
Time: 6:44 a.m. (PST)
Date: Monday, June 27, 2011
Rationale: Oversold conditions in an uptrend. Up trending MACD on 60-minute chart. Up pointing 200-day moving average. Market did not drop to or test 1262 in the first 15 minutes of the trading day. Anticipated drop happened in overnight futures market. Probabilities favor market rise into July 1, 2011.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
100% in the C Fund @ 1272
The market is going up. We did not see a drop to 1262 during the first 15 minutes of trade. 1272 is resistance and, since the 200-day moving average is pointed up, time to go long the C Fund. This week should be bullish. Later.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sunday, June 26, 2011
1262 - Buy Zone
Good Morning!
It is early. I am still a little sleepy. However, I wanted to share my developing thoughts before my busy day kicks into gear.
1262 should be a buy zone this week for the following reasons:
First, a 100% retrace of Thursday's dramatic up move would take us to 1262. This means that everyone who decided that 1262 was a good buy on Thursday will be either underwater or flat. This realization should produce demoralization among new Bulls. Demoralization among new Bulls = a buying opportunity in an up trend. (Remember, I use "up trend" advisedly here. When I say "up trend," I mean "up trend" until the S&P 500 Index hits the downward sloping 50-day moving average @ 1318. By no means do I believe that the dominant trend has changed to up.)
Second, a test of support is required to put in a bottom. First, we tested the 1258 low with Thursday's 1262 low. Another test of 1262 is consistent with how bottoms are formed. Remember that we profit by buying fear. Maximum fear is at the point of the re-test. Our minds will produce fear because we project a drop from 1268 to 1262 as continuing into infinity. Markets don't work that way. They cycle, although our minds are not hard-wired to presume a cycle. High-speed computers have an advantage over retail investors in this regard. Computers don't have to get dressed for work. Computers don't listen to CNBC and feel the fear. Computers don't imagine scary conditions. Computers operate on raw data. We would profit to do the same.
Third, corrections against the trend come in three waves. This is Elliott Wave Theory 101. So, if we trust our technicals, then we are in an up trend until the downward sloping 50-day moving average or roughly 1318. The Correction down from the 1298 high should come in three waves. I'm thinking that Wave A down was from 1298 to 1262 (Wednesday-Thursday). Wave B up was that dramatic short covering rally on Thursday (1262 to 1282). We are now in Wave C down from Thursday's 1262 short covering high. Friday was one long Wave C down all day with a low of 1267 and a close @ 1268. Since Wave C should surpass the Wave A low to trigger stop loss orders, 1261 is a logical terminus for Wave C. Then, the fun begins on the road to the downward sloping 50-day moving average or 1318. I am not that good, so I would buy just above 1261 and wait for the market's behavior to confirm my strategy.
Fourth, the closing trin on Friday was 2.27. A high trin suggests that more money is leaving stocks then entering stocks. As a contrarian, I take a high trin reading as a buying opportunity. Any closing reading above 2.4 is considered high. While the closing trin was not above 2.4, the high of the day was 2.6 That's good enough for me. In my experience, the following day should produce a buy opportunity, particularly since we are in a short up trend.
Finally, there are so many long tails on the japanese candlesticks in the 1258 to 1268 zone. (By this point, I have totally lost Barbara/smile.) A japanese candlestick is a way of depicting price action for the day. A day has four points of interest for the trader and investor: the open, the low, the high, the close. If the close is higher than the open, this day is considered a bullish day. The candle will be white. If the close is lower than the open, this day is considered a bearish day. The candle will be red. Sometimes, the opening price will be followed an early morning plunge or drop in prices. These early morning bulges (to use Larry Williams' phrase, see How I Made One Million Dollars Last Year Trading Commodities) sometimes reverse. When the reversal in price exceeds the opening price, then the drop in price produces a visual long tail on a chart. Long tails reflect buying pressure in the market. They are good places to buy as the odds favor higher prices ahead. For examples, pull up a chart of the market action on February 5, 2010. The market opened at about 1062 and then dropped about 20 points. You can be sure that early morning drop placed the fear of (insert the word of your choice) into the hearts and minds of retail investors that morning! But the professional institutional investor was lying in wait for a rebound. (Remember Gary Smith's admonition that the time to buy is a late day reversal and positive close after a period of price decline?)
Here is the take away point about February 5, 2010. February 5, 2010 was the low point in the market until the April 26, 2010 high. The market never came close to 1042 again for months. The price action on February 5, 2010 produced a long tail from which the market bounced onward and upward. For another long tail, look at May 6, 2010. Yes, this was the day of the infamous Flash Crash. But the market rallied sharply into the close. The price action produced one of the longest tails in 2010. Is it no surprise that the bottom on May 6, 2010 was met with buying pressure that took the S&P 500 Index up to resistance @ the 50-day moving average of 1173? There was also a long tail on May 24, 2010. From a low of 1042, the market bounced up in corrective fashion until making a high of 1131 on June 21 just below the downward sloping 50-day moving average.
Conclusion.
For these reasons, I consider 1262 to be a buy zone. I hasten to add that I consider the downward sloping 50-day moving average at 1318 as resistance. The character of the market during the first hour of the trading day will determine whether a buy recommendation is issued.
Have a good Sunday!
Wink
Quote of the Day:
"Without a doubt, the most important trading advice I can give you is
BUY ONLY ON DOWN DAYS
SELL ONLY ON UP DAYS"
Source, Larry Williams, How I Made One Million Dollars Last Year Trading Commodities, page 128.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
It is early. I am still a little sleepy. However, I wanted to share my developing thoughts before my busy day kicks into gear.
1262 should be a buy zone this week for the following reasons:
First, a 100% retrace of Thursday's dramatic up move would take us to 1262. This means that everyone who decided that 1262 was a good buy on Thursday will be either underwater or flat. This realization should produce demoralization among new Bulls. Demoralization among new Bulls = a buying opportunity in an up trend. (Remember, I use "up trend" advisedly here. When I say "up trend," I mean "up trend" until the S&P 500 Index hits the downward sloping 50-day moving average @ 1318. By no means do I believe that the dominant trend has changed to up.)
Second, a test of support is required to put in a bottom. First, we tested the 1258 low with Thursday's 1262 low. Another test of 1262 is consistent with how bottoms are formed. Remember that we profit by buying fear. Maximum fear is at the point of the re-test. Our minds will produce fear because we project a drop from 1268 to 1262 as continuing into infinity. Markets don't work that way. They cycle, although our minds are not hard-wired to presume a cycle. High-speed computers have an advantage over retail investors in this regard. Computers don't have to get dressed for work. Computers don't listen to CNBC and feel the fear. Computers don't imagine scary conditions. Computers operate on raw data. We would profit to do the same.
Third, corrections against the trend come in three waves. This is Elliott Wave Theory 101. So, if we trust our technicals, then we are in an up trend until the downward sloping 50-day moving average or roughly 1318. The Correction down from the 1298 high should come in three waves. I'm thinking that Wave A down was from 1298 to 1262 (Wednesday-Thursday). Wave B up was that dramatic short covering rally on Thursday (1262 to 1282). We are now in Wave C down from Thursday's 1262 short covering high. Friday was one long Wave C down all day with a low of 1267 and a close @ 1268. Since Wave C should surpass the Wave A low to trigger stop loss orders, 1261 is a logical terminus for Wave C. Then, the fun begins on the road to the downward sloping 50-day moving average or 1318. I am not that good, so I would buy just above 1261 and wait for the market's behavior to confirm my strategy.
Fourth, the closing trin on Friday was 2.27. A high trin suggests that more money is leaving stocks then entering stocks. As a contrarian, I take a high trin reading as a buying opportunity. Any closing reading above 2.4 is considered high. While the closing trin was not above 2.4, the high of the day was 2.6 That's good enough for me. In my experience, the following day should produce a buy opportunity, particularly since we are in a short up trend.
Finally, there are so many long tails on the japanese candlesticks in the 1258 to 1268 zone. (By this point, I have totally lost Barbara/smile.) A japanese candlestick is a way of depicting price action for the day. A day has four points of interest for the trader and investor: the open, the low, the high, the close. If the close is higher than the open, this day is considered a bullish day. The candle will be white. If the close is lower than the open, this day is considered a bearish day. The candle will be red. Sometimes, the opening price will be followed an early morning plunge or drop in prices. These early morning bulges (to use Larry Williams' phrase, see How I Made One Million Dollars Last Year Trading Commodities) sometimes reverse. When the reversal in price exceeds the opening price, then the drop in price produces a visual long tail on a chart. Long tails reflect buying pressure in the market. They are good places to buy as the odds favor higher prices ahead. For examples, pull up a chart of the market action on February 5, 2010. The market opened at about 1062 and then dropped about 20 points. You can be sure that early morning drop placed the fear of (insert the word of your choice) into the hearts and minds of retail investors that morning! But the professional institutional investor was lying in wait for a rebound. (Remember Gary Smith's admonition that the time to buy is a late day reversal and positive close after a period of price decline?)
Here is the take away point about February 5, 2010. February 5, 2010 was the low point in the market until the April 26, 2010 high. The market never came close to 1042 again for months. The price action on February 5, 2010 produced a long tail from which the market bounced onward and upward. For another long tail, look at May 6, 2010. Yes, this was the day of the infamous Flash Crash. But the market rallied sharply into the close. The price action produced one of the longest tails in 2010. Is it no surprise that the bottom on May 6, 2010 was met with buying pressure that took the S&P 500 Index up to resistance @ the 50-day moving average of 1173? There was also a long tail on May 24, 2010. From a low of 1042, the market bounced up in corrective fashion until making a high of 1131 on June 21 just below the downward sloping 50-day moving average.
Conclusion.
For these reasons, I consider 1262 to be a buy zone. I hasten to add that I consider the downward sloping 50-day moving average at 1318 as resistance. The character of the market during the first hour of the trading day will determine whether a buy recommendation is issued.
Have a good Sunday!
Wink
Quote of the Day:
"Without a doubt, the most important trading advice I can give you is
BUY ONLY ON DOWN DAYS
SELL ONLY ON UP DAYS"
Source, Larry Williams, How I Made One Million Dollars Last Year Trading Commodities, page 128.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Saturday, June 25, 2011
Terry's Most Excellent Questions
Good morning!
It is a sunny Saturday morning. I feel rested and refreshed from a crazy work week. Now on to the market....
Terry raised very good questions recently in a comment. The questions are so good that they deserve a separate blog posting.
1. "If we are in a high and tight Bull flag pattern, should we consider entering a buy position in the TSP? I am typing this just after close on thurs. The DOW closed down ~60 and the S&P down 3.6."
Answer--When I saw the dramatic rise in the market on Thursday after 7:50 a.m. (PST), my first thought wasn't bullishness. My first thought was that (1) the drop caught the market off guard which meant (2) a bounce was due which we saw in the last hour of the trading day. Now normally, the last hour of the trading day means professionals are at work. But I remembered the same action in the afternoon of May 6, 2010 and the Flash Crash. Remember how the market drop caught everyone by surprise and then there was this tremendous short covering rally as the shorts feared losing their unanticipated good fortune? I also remembered this wonderful video on You Tube titled "100 Pips in 25 minutes." In this video, a Forex trader shows how shorts late to the party are always hurt by the inevitable retracement. So, I immediately took out my calculator and calculated a 0.618 retrace of the 1298 to 1262 drop. That got me to 1284. So, I anticipated the market should halt around 1284. It actually stopped around 1282.
After the 0.618 retrace, I anticipated a further drop in the market. That further drop happened on Friday.
But to answer your question, it remains a High and Tight Bull Flag pattern until the 1258 low is breached. So, a buy position in the TSP should be considered Monday morning. I am cautious because the upside is limited to the downward sloping 50-day moving average or roughly 1318. I am not comfortable right now with a buy recommendation, but definately, a buy consideration would be in order for Monday. If my thoughts should change, I will send out an alert to the Club members ASAP.
2. "I feel today would have been a good day to move into C fund. It would have been a scary move considering the market opened down 200. I ended the day +ing up my meager positions in stocks and ended the day up 2%."
Answer: Assuming we are witnessing a High and Tight Bull Flag Pattern, then Thursday would not have been a bad day to enter the C Fund. However, drops retrace (sometimes 0.618%) and then they make a lower low. The You Tube video "100 Pips in 25 minutes" makes this point. I recommend a viewing by all Club members. So, the best time to enter the C Fund might not have been Thursday because there was more of a drop in price to come. Why enter the C Fund at 1282 if you can enter the C Fund at 1262? Just a point to chew on.
Now, Terry, allow me to place on my Elliott Wave hat for a moment....
We can all agree that we have seen a big wave 1 down in May, a big correction wave 2 up in the last week of May, a big wave 3 down in June, a big correction (long and complex) wave up since the 1258 low on June 16. June 16 is very, very important to this big corrective wave 4. The low was 1258. Then, the market went up to 1298. Remember how I wrote that the daily trend changed on me? I believe this change means the big corrective wave will not be denied and that we will see the downward sloping 50 day-moving average or 1318.
Corrections are against the dominant down trend. They proceed up (A), then down (B), and then up to a higher high (C). 1258 to 1298 was corrective Wave A. Corrective Wave B began at 1298 and dropped to 1262. Then the market rose on Thursday from 1262 to 1282 (0.618 retrace). We need a retest of 1262 to scare people, then the market can continue its date with destiny at the downward sloping 50-day moving average.
So, I am looking for a test of 1262 on Monday, probably Monday morning. The buy zone is between 1258 and 1262.
3. "Your decision to sell out of the position above was a smart move how would your percentages calculated if you had held firm 1 more day?
Answer: The July 125 puts closed @ 1.70 on Friday. But I don't look back. There are plenty of opportunities between now and November to meet and surpass our goal. For example, Monday morning might present an opportunity around 1262. We will see....
Your contented strategist,
Wink
Quote of the Day: "What are the elements of good trading? The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance." Ed Seykota, quoted in Market Wizards, page 163.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
It is a sunny Saturday morning. I feel rested and refreshed from a crazy work week. Now on to the market....
Terry raised very good questions recently in a comment. The questions are so good that they deserve a separate blog posting.
1. "If we are in a high and tight Bull flag pattern, should we consider entering a buy position in the TSP? I am typing this just after close on thurs. The DOW closed down ~60 and the S&P down 3.6."
Answer--When I saw the dramatic rise in the market on Thursday after 7:50 a.m. (PST), my first thought wasn't bullishness. My first thought was that (1) the drop caught the market off guard which meant (2) a bounce was due which we saw in the last hour of the trading day. Now normally, the last hour of the trading day means professionals are at work. But I remembered the same action in the afternoon of May 6, 2010 and the Flash Crash. Remember how the market drop caught everyone by surprise and then there was this tremendous short covering rally as the shorts feared losing their unanticipated good fortune? I also remembered this wonderful video on You Tube titled "100 Pips in 25 minutes." In this video, a Forex trader shows how shorts late to the party are always hurt by the inevitable retracement. So, I immediately took out my calculator and calculated a 0.618 retrace of the 1298 to 1262 drop. That got me to 1284. So, I anticipated the market should halt around 1284. It actually stopped around 1282.
After the 0.618 retrace, I anticipated a further drop in the market. That further drop happened on Friday.
But to answer your question, it remains a High and Tight Bull Flag pattern until the 1258 low is breached. So, a buy position in the TSP should be considered Monday morning. I am cautious because the upside is limited to the downward sloping 50-day moving average or roughly 1318. I am not comfortable right now with a buy recommendation, but definately, a buy consideration would be in order for Monday. If my thoughts should change, I will send out an alert to the Club members ASAP.
2. "I feel today would have been a good day to move into C fund. It would have been a scary move considering the market opened down 200. I ended the day +ing up my meager positions in stocks and ended the day up 2%."
Answer: Assuming we are witnessing a High and Tight Bull Flag Pattern, then Thursday would not have been a bad day to enter the C Fund. However, drops retrace (sometimes 0.618%) and then they make a lower low. The You Tube video "100 Pips in 25 minutes" makes this point. I recommend a viewing by all Club members. So, the best time to enter the C Fund might not have been Thursday because there was more of a drop in price to come. Why enter the C Fund at 1282 if you can enter the C Fund at 1262? Just a point to chew on.
Now, Terry, allow me to place on my Elliott Wave hat for a moment....
We can all agree that we have seen a big wave 1 down in May, a big correction wave 2 up in the last week of May, a big wave 3 down in June, a big correction (long and complex) wave up since the 1258 low on June 16. June 16 is very, very important to this big corrective wave 4. The low was 1258. Then, the market went up to 1298. Remember how I wrote that the daily trend changed on me? I believe this change means the big corrective wave will not be denied and that we will see the downward sloping 50 day-moving average or 1318.
Corrections are against the dominant down trend. They proceed up (A), then down (B), and then up to a higher high (C). 1258 to 1298 was corrective Wave A. Corrective Wave B began at 1298 and dropped to 1262. Then the market rose on Thursday from 1262 to 1282 (0.618 retrace). We need a retest of 1262 to scare people, then the market can continue its date with destiny at the downward sloping 50-day moving average.
So, I am looking for a test of 1262 on Monday, probably Monday morning. The buy zone is between 1258 and 1262.
3. "Your decision to sell out of the position above was a smart move how would your percentages calculated if you had held firm 1 more day?
Answer: The July 125 puts closed @ 1.70 on Friday. But I don't look back. There are plenty of opportunities between now and November to meet and surpass our goal. For example, Monday morning might present an opportunity around 1262. We will see....
Your contented strategist,
Wink
Quote of the Day: "What are the elements of good trading? The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance." Ed Seykota, quoted in Market Wizards, page 163.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Friday, June 24, 2011
Market Forecast for Balance of 2011
Market conditions are ever changing. Oftentimes, the best time to sell is when the market looks the strongest. Similarly, the best time to buy is when the market looks most weak. In the spirit of Contrary Opinion and the Fear Factor, the following is my best sense of how the balance of 2011 might unfold.
Between Now and July 1, 2010.
The market appears to be putting in a short-term bottom. Several factors point to this conclusion. First, the daily Trin reading is quite high today. As I type, the trin reading is at 1.93. That is on the high side. A high trin indicates more money is leaving stocks than entering stocks. It is a rough gauge of cash flow into and out of the market. Ironically, high trin readings are bullish. They create buy opportunities. Second, the low today was 1268. I wrote down 1268 this morning as an anticipated low consistent with a short-term up trend. Thus far, 1268 has held. The longer 1268 holds as support, the more bullish I am. Third, the 200-day moving average has provided strong support thus far since June 16. Fourth, yesterday's price action showed strong buying pressure up from the 1262 level. We now appear to be retesting that level. Finally, it is normal for the market to hit the 50-day moving average before declining further. The 50-day moving average is now at 1318 on a daily chart. That level would seem to be a target for the market.
Between July 1, 2011 and October/November 2011
The outlook is bearish. The dominant down trend remains intact. Alot of damage was done to investor psychology during the month of May. Consider these factors:
First, the Elliott Wave theory suggests that we have a final fifth wave down to witness. Thus far, the market has only gone down in two waves (May 1 to May 23, June 1 to June 16). There is a final decline ahead of us.
Second, the Stock Trader's Almanac on page 104 refers to an idealized chart of price action on the Russell 2000/Russell 1000 One-Year Seasonal Pattern. The chart is interesting in that depicts a sharp drop between July 1 and the end of August based on daily data from July 1, 1979 to April 30, 2010. The chart is not a guarantee that the future will unfold the same way but it is a factor to take into consideration.
Third, the absence of $600 billion in buying pressure from the Federal Reserve as of June 30 would seem bearish for the market. Remember how the Federal Reserve ended QE1 last year? The termination of QE1 resulted in the Flash Crash in May 2010. History doesn't always repeat itself but one has to wonder where will the money come from to replicate $600 billion in buying pressure?
Fourth, the weekly chart of the S&P 500 Index shows a down trend based on the MACD lines and the stochastics. The momentum is down for now.
Finally, notice how news about Greece seems to matter more now. Bad news is not ignored in a Bear Market. Bad news is sold.
In conclusion, the coming four months should be bearish. Price should drift lower, although it is not clear they will stair case lower or plunge lower.
November - December 2011 End of the Year Rally
It is likely that the market will rally into the end of the year. Thus, be prepared to
move back into the C Fund around October/November. This is a good time to also select individual small-cap stocks for rallies.
Your market strategist,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Between Now and July 1, 2010.
The market appears to be putting in a short-term bottom. Several factors point to this conclusion. First, the daily Trin reading is quite high today. As I type, the trin reading is at 1.93. That is on the high side. A high trin indicates more money is leaving stocks than entering stocks. It is a rough gauge of cash flow into and out of the market. Ironically, high trin readings are bullish. They create buy opportunities. Second, the low today was 1268. I wrote down 1268 this morning as an anticipated low consistent with a short-term up trend. Thus far, 1268 has held. The longer 1268 holds as support, the more bullish I am. Third, the 200-day moving average has provided strong support thus far since June 16. Fourth, yesterday's price action showed strong buying pressure up from the 1262 level. We now appear to be retesting that level. Finally, it is normal for the market to hit the 50-day moving average before declining further. The 50-day moving average is now at 1318 on a daily chart. That level would seem to be a target for the market.
Between July 1, 2011 and October/November 2011
The outlook is bearish. The dominant down trend remains intact. Alot of damage was done to investor psychology during the month of May. Consider these factors:
First, the Elliott Wave theory suggests that we have a final fifth wave down to witness. Thus far, the market has only gone down in two waves (May 1 to May 23, June 1 to June 16). There is a final decline ahead of us.
Second, the Stock Trader's Almanac on page 104 refers to an idealized chart of price action on the Russell 2000/Russell 1000 One-Year Seasonal Pattern. The chart is interesting in that depicts a sharp drop between July 1 and the end of August based on daily data from July 1, 1979 to April 30, 2010. The chart is not a guarantee that the future will unfold the same way but it is a factor to take into consideration.
Third, the absence of $600 billion in buying pressure from the Federal Reserve as of June 30 would seem bearish for the market. Remember how the Federal Reserve ended QE1 last year? The termination of QE1 resulted in the Flash Crash in May 2010. History doesn't always repeat itself but one has to wonder where will the money come from to replicate $600 billion in buying pressure?
Fourth, the weekly chart of the S&P 500 Index shows a down trend based on the MACD lines and the stochastics. The momentum is down for now.
Finally, notice how news about Greece seems to matter more now. Bad news is not ignored in a Bear Market. Bad news is sold.
In conclusion, the coming four months should be bearish. Price should drift lower, although it is not clear they will stair case lower or plunge lower.
November - December 2011 End of the Year Rally
It is likely that the market will rally into the end of the year. Thus, be prepared to
move back into the C Fund around October/November. This is a good time to also select individual small-cap stocks for rallies.
Your market strategist,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Thursday, June 23, 2011
What a Day!
Dear Club Members:
What a day in the market! There is so much to say. In my continuing effort to be creative, I will address the day's action in a question-and-answer format.
Q: What happened today? The market was all over the place!
A: Yes, it was. Before the market opened, the futures were tanking. I saw the drop in futures as a continuation of the sharp drop in price action on the S&P 500 Index during the last hour of yesterday's trading day. Remember that the professionals tend to drive price action in the last hour of the trading day. Yesterday evening, I saw the price evaporate on the futures market, thus setting up a lower open this morning.
Q: How did you see the low opening this morning? Was it a buying opportunity or a selling opportunity?
A: It depends on your time frame. For day traders, it was a heaven-sent opportunity to go long the market. For longer-term investors like our Club members, it was much ado about nothing.
Q: Please explain.
A: Well, here's the thing. The dominant trend is down and that's what we care about in our Club. However, there are always bounces even in a Bear Market/dominant down trend. For the guys with a time horizon of a day or 60 minutes, these bounces can be quite profitable.
Q: How so?
A: Well, you might recall that I said a few posts ago that the daily trend had changed from down to up. I define the trend for purposes of daily action by the MACD lines. Pull up "Stockcharts.com." Type in "$Spx" as a symbol. "$SPX" stands for the Standard & Poor's 500 Index. When the chart pops up, you will notice at the bottom of the chart a graph for the MACD lines and MACD Histogram. Now, this information is like a dashboard for an airline pilot. The MACD readings keep me on the right side of the trend on a daily basis. This is invaluable data! When the black MACD line is above the red MACD line, then you know you are in an up trend on a daily basis. It is a short-term reading. It will change as the short-term character of the market changes. Anyway, the black MACD line is above the red MACD line now. That means it is time to rock and roll if you are a short-term Bull.
Q: Ok. But how do you make money once you know the short-term trend is up?
A: Simple, You identify an oversold condition and go long the market. You buy. Oversold conditions in an uptrend are excellent buy opportunities. The harder question is defining an oversold condition in real time.
Q: There is no objective definition?
A: It depends on the choice of the investor and trader. This morning, I defined an oversold condition by going to the website futuresource. com. They have a wonderful chart of the S&P 500 contracts, including a 60-minute chart. A 60-minute chart is really good for catching turns in the market before they register on the daily chart. I then affix a MACD and Stochastic study to the 60-minute chart. Now, I was looking for a 0.0 stochastic reading on the 60-minute chart. Do you know how rare a 0.0 stochastic reading is on the 60-minute chart? It means that everyone is standing around waiting for someone else to buy. Those are wonderful buy opportunities in the short-run, even if the dominant trend is down is the short-term trend is up. I saw a 0.0 stochastic reading this morning. And I stood there transfixed.
Q: Did you execute?
A: I have a day job, so its a little bit hard to move on a 0.0 stochastic while trying to have breakfast, read market conditions, shower and get ready for the work day. I think the institutions recognize the limitations that retail investors operate under.
Q: How so?
A: Well, it is very interesting to me that the precise low of the day, 1262, occurred at 7:50 a.m. (PST). I was probably getting out of the shower precisely at 7:50 a.m. LOL! Anyway, I don't believe for a moment that the low of the day at 7:50 a.m. after a dramatic gap down open was a "coincidence."
Q:What is the take away lesson for the Club?
A: Stick with the TSP! (smile) Seriously, if you are a retail investor, you have to trust your technicals. If you see a 0.0 stochastic reading on a 60-minute chart in an uptrend, execute first and think later. You can't go wrong buying an oversold condition in an uptrend.
Q: Anything else?
A: Today was classic. We had a panic open and a late day powerful rally. I can place the price action in context. We are in a short-term trend likely to top out around July 1. When this short-term rally finishes, it should complete a Corrective C Wave. That point (1305-1315) should provide a wonderful shorting opportunity as it will be an overbought condition in a down trend. Think of the rise from 1258 to 1298 as Corrective Wave A. Think of the drop from 1298 to today's 1262 as Wave B. We are now on our Wave C to the 1305-1315 selling zone. Then, the dominant down trend should resume in July.
That's my story and I'm sticking to it!
Have a great Friday!
Your blogger on the beat,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
What a day in the market! There is so much to say. In my continuing effort to be creative, I will address the day's action in a question-and-answer format.
Q: What happened today? The market was all over the place!
A: Yes, it was. Before the market opened, the futures were tanking. I saw the drop in futures as a continuation of the sharp drop in price action on the S&P 500 Index during the last hour of yesterday's trading day. Remember that the professionals tend to drive price action in the last hour of the trading day. Yesterday evening, I saw the price evaporate on the futures market, thus setting up a lower open this morning.
Q: How did you see the low opening this morning? Was it a buying opportunity or a selling opportunity?
A: It depends on your time frame. For day traders, it was a heaven-sent opportunity to go long the market. For longer-term investors like our Club members, it was much ado about nothing.
Q: Please explain.
A: Well, here's the thing. The dominant trend is down and that's what we care about in our Club. However, there are always bounces even in a Bear Market/dominant down trend. For the guys with a time horizon of a day or 60 minutes, these bounces can be quite profitable.
Q: How so?
A: Well, you might recall that I said a few posts ago that the daily trend had changed from down to up. I define the trend for purposes of daily action by the MACD lines. Pull up "Stockcharts.com." Type in "$Spx" as a symbol. "$SPX" stands for the Standard & Poor's 500 Index. When the chart pops up, you will notice at the bottom of the chart a graph for the MACD lines and MACD Histogram. Now, this information is like a dashboard for an airline pilot. The MACD readings keep me on the right side of the trend on a daily basis. This is invaluable data! When the black MACD line is above the red MACD line, then you know you are in an up trend on a daily basis. It is a short-term reading. It will change as the short-term character of the market changes. Anyway, the black MACD line is above the red MACD line now. That means it is time to rock and roll if you are a short-term Bull.
Q: Ok. But how do you make money once you know the short-term trend is up?
A: Simple, You identify an oversold condition and go long the market. You buy. Oversold conditions in an uptrend are excellent buy opportunities. The harder question is defining an oversold condition in real time.
Q: There is no objective definition?
A: It depends on the choice of the investor and trader. This morning, I defined an oversold condition by going to the website futuresource. com. They have a wonderful chart of the S&P 500 contracts, including a 60-minute chart. A 60-minute chart is really good for catching turns in the market before they register on the daily chart. I then affix a MACD and Stochastic study to the 60-minute chart. Now, I was looking for a 0.0 stochastic reading on the 60-minute chart. Do you know how rare a 0.0 stochastic reading is on the 60-minute chart? It means that everyone is standing around waiting for someone else to buy. Those are wonderful buy opportunities in the short-run, even if the dominant trend is down is the short-term trend is up. I saw a 0.0 stochastic reading this morning. And I stood there transfixed.
Q: Did you execute?
A: I have a day job, so its a little bit hard to move on a 0.0 stochastic while trying to have breakfast, read market conditions, shower and get ready for the work day. I think the institutions recognize the limitations that retail investors operate under.
Q: How so?
A: Well, it is very interesting to me that the precise low of the day, 1262, occurred at 7:50 a.m. (PST). I was probably getting out of the shower precisely at 7:50 a.m. LOL! Anyway, I don't believe for a moment that the low of the day at 7:50 a.m. after a dramatic gap down open was a "coincidence."
Q:What is the take away lesson for the Club?
A: Stick with the TSP! (smile) Seriously, if you are a retail investor, you have to trust your technicals. If you see a 0.0 stochastic reading on a 60-minute chart in an uptrend, execute first and think later. You can't go wrong buying an oversold condition in an uptrend.
Q: Anything else?
A: Today was classic. We had a panic open and a late day powerful rally. I can place the price action in context. We are in a short-term trend likely to top out around July 1. When this short-term rally finishes, it should complete a Corrective C Wave. That point (1305-1315) should provide a wonderful shorting opportunity as it will be an overbought condition in a down trend. Think of the rise from 1258 to 1298 as Corrective Wave A. Think of the drop from 1298 to today's 1262 as Wave B. We are now on our Wave C to the 1305-1315 selling zone. Then, the dominant down trend should resume in July.
That's my story and I'm sticking to it!
Have a great Friday!
Your blogger on the beat,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Wednesday, June 22, 2011
Terry's Model Portfolio: Day 2
Trade execution:
Sell July 125 SPY puts @ 1.04
Time: 6:33 a.m. (PST) Wednesday morning, June 22, 2011
Loss: 5.56%
Account Balance: $9,454.00
Reason for trade: 4th day up in a downtrend. Probabilities favored a down move to some extent.
Assessment: Daily trend turned up during the day on a daily chart. The MACD lines have crossed and are pointing up on a daily chart. Stochastics has turned up out of oversold level. Entered trade too early for puts on the market. Sold quickly to limit losses.
[Explanation for the lay person- Yesterday, I determined that 1290-1295 was a sell zone. Assuming a down trend, this zone was a good place to buy puts on the SPY. SPY is a fund that mirrors the performance of the S&P 500 Index. Puts are contracts to acquire a security at a certain price. Now, if the price of the underlying security drops in value below the strike price, then the price of the put will increase for a profit. If the price of the security does not decrease or even increase, then the price of the put will decline. I entered the market yesterday at roughly the 1290 level with full anticipation of a drop to at least the 13-day moving average of 1280. But I was alert to being wrong. If wrong, then the proper play is to limit one's losses quickly.
Unlike the TSP which is better suited for a middle-aged guy with other commitments and obligations, puts on the SPY require minute to minute monitoring. Its like leverage. If you are right on the market direction and timing, you will see a profit right away. If you are wrong on either market direction or timing, cut your losses quickly and move on. The reality is that all investors and traders are wrong about half of the time. See Nicholas Darvas and his book on investing. The key to profits is to exercise iron discipline. When you're right, let your gains ride. When you are wrong, get out and look for a better opportunity. There are always opportunities in the market.
The opening bell allowed me to quickly assess the character of the market. If the market were bearish on a daily basis, the high of the day would have been the open. Instead, the market consolidated around 1294. A high level consolidation is not the time for ownership of puts.]
Strategy: We are now in a high and tight Bull Flag Pattern. This pattern is considered the must bullish and strongest pattern out there, according to Thomas Bulkowski. Longer term, we remain in a down trend with resistance @ roughly 1315.
Later,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sell July 125 SPY puts @ 1.04
Time: 6:33 a.m. (PST) Wednesday morning, June 22, 2011
Loss: 5.56%
Account Balance: $9,454.00
Reason for trade: 4th day up in a downtrend. Probabilities favored a down move to some extent.
Assessment: Daily trend turned up during the day on a daily chart. The MACD lines have crossed and are pointing up on a daily chart. Stochastics has turned up out of oversold level. Entered trade too early for puts on the market. Sold quickly to limit losses.
[Explanation for the lay person- Yesterday, I determined that 1290-1295 was a sell zone. Assuming a down trend, this zone was a good place to buy puts on the SPY. SPY is a fund that mirrors the performance of the S&P 500 Index. Puts are contracts to acquire a security at a certain price. Now, if the price of the underlying security drops in value below the strike price, then the price of the put will increase for a profit. If the price of the security does not decrease or even increase, then the price of the put will decline. I entered the market yesterday at roughly the 1290 level with full anticipation of a drop to at least the 13-day moving average of 1280. But I was alert to being wrong. If wrong, then the proper play is to limit one's losses quickly.
Unlike the TSP which is better suited for a middle-aged guy with other commitments and obligations, puts on the SPY require minute to minute monitoring. Its like leverage. If you are right on the market direction and timing, you will see a profit right away. If you are wrong on either market direction or timing, cut your losses quickly and move on. The reality is that all investors and traders are wrong about half of the time. See Nicholas Darvas and his book on investing. The key to profits is to exercise iron discipline. When you're right, let your gains ride. When you are wrong, get out and look for a better opportunity. There are always opportunities in the market.
The opening bell allowed me to quickly assess the character of the market. If the market were bearish on a daily basis, the high of the day would have been the open. Instead, the market consolidated around 1294. A high level consolidation is not the time for ownership of puts.]
Strategy: We are now in a high and tight Bull Flag Pattern. This pattern is considered the must bullish and strongest pattern out there, according to Thomas Bulkowski. Longer term, we remain in a down trend with resistance @ roughly 1315.
Later,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Tuesday, June 21, 2011
Terry's Model Portfolio: Day 1
Trade Execution:
Bought 90 July 125 puts on the Spiders Fund (SPY).
Limit price filled @ 1.10.
Time: 7:33 a.m. (PST), Tuesday, June 21, 2011.
Further details this evening.
Bought 90 July 125 puts on the Spiders Fund (SPY).
Limit price filled @ 1.10.
Time: 7:33 a.m. (PST), Tuesday, June 21, 2011.
Further details this evening.
Terry's Model Portfolio: Day 1
Good morning, Club members!
Welcome to this real time exercise. In an attempt to liven things up, I have created a self-imposed contest. My mission is to secure a 100% rate of return on a hypothetical portfolio for Terry by November 21, 2011. I have at my disposal the world. I can use Elliott Waves, moving averages and trends. I can do futures, mutual funds, or stocks, or anything else under the sun. I can go long or sell short. All that matters is beating the 100% goal by November 21, 2011.
Be mindful that I have a day job. So, this will add stress to the endeavor. Unlike the TSP which suits my middle-aged comfort level, the world of high finance is a young person's game. It is stressful because I have to make snap decisions in real time. I will be tapping into my knowledge and experience over the years. I will make mistakes. That is part of the game. The key will be to let the profits run and keep the losses short.
The first hour of the trading day is the most important hour. You can get a feel for the character of the day. Over my left-hand shoulder,I have on CNBC. I see the quotations roll by on the lower screen: BHP, FCX, VXX, WAC, SDS, etc. What to choose? What to choose?
It's 43 minutes to the opening bell. I will get dressed for the day now, so that I can give the opening hour as much focus as possible.
The Set up: We are in a down trend. Thus, rallies should be sold. Of the most importance to me is a selling zone reflected in the long tails on a daily chart in the 1290 - 1294 zone. I consider this a selling zone.
Inspirational Quote: "For example, today I bought the S&Ps when they were down sharply. Two weeks ago, I had written down the number 248.45 as the best entry for the S&P. The low today was 248.50. Consequently, I was able to buy into weakness today and make a good deal of money. I had a plan, I carried it out, and it worked." Marty Schwartz, quoted in Market Wizards, pages 274-275.
Cheers!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Welcome to this real time exercise. In an attempt to liven things up, I have created a self-imposed contest. My mission is to secure a 100% rate of return on a hypothetical portfolio for Terry by November 21, 2011. I have at my disposal the world. I can use Elliott Waves, moving averages and trends. I can do futures, mutual funds, or stocks, or anything else under the sun. I can go long or sell short. All that matters is beating the 100% goal by November 21, 2011.
Be mindful that I have a day job. So, this will add stress to the endeavor. Unlike the TSP which suits my middle-aged comfort level, the world of high finance is a young person's game. It is stressful because I have to make snap decisions in real time. I will be tapping into my knowledge and experience over the years. I will make mistakes. That is part of the game. The key will be to let the profits run and keep the losses short.
The first hour of the trading day is the most important hour. You can get a feel for the character of the day. Over my left-hand shoulder,I have on CNBC. I see the quotations roll by on the lower screen: BHP, FCX, VXX, WAC, SDS, etc. What to choose? What to choose?
It's 43 minutes to the opening bell. I will get dressed for the day now, so that I can give the opening hour as much focus as possible.
The Set up: We are in a down trend. Thus, rallies should be sold. Of the most importance to me is a selling zone reflected in the long tails on a daily chart in the 1290 - 1294 zone. I consider this a selling zone.
Inspirational Quote: "For example, today I bought the S&Ps when they were down sharply. Two weeks ago, I had written down the number 248.45 as the best entry for the S&P. The low today was 248.50. Consequently, I was able to buy into weakness today and make a good deal of money. I had a plan, I carried it out, and it worked." Marty Schwartz, quoted in Market Wizards, pages 274-275.
Cheers!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Monday, June 20, 2011
Terry's Model Portfolio: A Work in Progress
Let's have some fun.
I could write another dry daily update about the market today. The market continued to bounce within a symmetrical triangle and the trend remained down. Volume was awful, thus producing a delicious rising wedge pattern. But I decided to be more creative.
Let's assume that I am a Hedge Fund Manager. I manage Twyman Asset Management. Terry is my first client. After assessing market conditions, I decided that we can grow his account by least 100% between tomorrow and November 2011. Terry doesn't know what to make of this goal but he decides that I must know something about the market.
I lay out the following terms and conditions for this campaign:
Beginning Portfolio Balance: $10,000
Duration of Campaign: June 21, 2011 to November 21, 2011
Fund Manager: Wink
Fund: Twyman Asset Management
Rules of Engagement: The world is my oyster. I can make 1 trade, 5 trades, 10 trades or no trades at all. I can buy or sell. I can use stocks, bonds, treasuries, derivatives, exchanged traded funds, options, commodities, mutual funds or ultra funds, and, of course, cash. I have total discretion.
Execution of Trades: I must notify Terry of the trade confirmation as soon as possible. No hindsight investing.
Five Strikes Against Me:
1. I only have five months to reach my 100% goal. Fund managers normally have 12 months to reach their goal.
2. I don't have a cracker jack staff of tens of researchers to go out into the field and research companies. Its just Wink and his lap top.
3. We are in a strong Bear Market. It is easier to lose money than to make money.
4. 100% rate of return is unheard of for a Fund Manager. According to my preliminary research, the top Hedge Fund in 2010 was Bridgewater Associates: +38%. "Ray Dalio's 'zen' approach to an investment firm paid off as they returned one of the higher totals across the hedge fund industry last year." They manage $75 billion in global investments. Wink will be managing Terry's hypothetical $10,000 portfolio.
5. I am fading myself in a sense. The trend is down. Attempting to make any money, let alone 100%, will require a good sense of timing and market skill.
Conclusion. This exercise will be in real time. Can Wink grow Terry's portfolio by more than 100% with five strikes against him? Can Wink leave Bridgewater Associates in the dust for the year 2011? Stay tuned....
Your hypothetical fund manager at the starting gate,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
I could write another dry daily update about the market today. The market continued to bounce within a symmetrical triangle and the trend remained down. Volume was awful, thus producing a delicious rising wedge pattern. But I decided to be more creative.
Let's assume that I am a Hedge Fund Manager. I manage Twyman Asset Management. Terry is my first client. After assessing market conditions, I decided that we can grow his account by least 100% between tomorrow and November 2011. Terry doesn't know what to make of this goal but he decides that I must know something about the market.
I lay out the following terms and conditions for this campaign:
Beginning Portfolio Balance: $10,000
Duration of Campaign: June 21, 2011 to November 21, 2011
Fund Manager: Wink
Fund: Twyman Asset Management
Rules of Engagement: The world is my oyster. I can make 1 trade, 5 trades, 10 trades or no trades at all. I can buy or sell. I can use stocks, bonds, treasuries, derivatives, exchanged traded funds, options, commodities, mutual funds or ultra funds, and, of course, cash. I have total discretion.
Execution of Trades: I must notify Terry of the trade confirmation as soon as possible. No hindsight investing.
Five Strikes Against Me:
1. I only have five months to reach my 100% goal. Fund managers normally have 12 months to reach their goal.
2. I don't have a cracker jack staff of tens of researchers to go out into the field and research companies. Its just Wink and his lap top.
3. We are in a strong Bear Market. It is easier to lose money than to make money.
4. 100% rate of return is unheard of for a Fund Manager. According to my preliminary research, the top Hedge Fund in 2010 was Bridgewater Associates: +38%. "Ray Dalio's 'zen' approach to an investment firm paid off as they returned one of the higher totals across the hedge fund industry last year." They manage $75 billion in global investments. Wink will be managing Terry's hypothetical $10,000 portfolio.
5. I am fading myself in a sense. The trend is down. Attempting to make any money, let alone 100%, will require a good sense of timing and market skill.
Conclusion. This exercise will be in real time. Can Wink grow Terry's portfolio by more than 100% with five strikes against him? Can Wink leave Bridgewater Associates in the dust for the year 2011? Stay tuned....
Your hypothetical fund manager at the starting gate,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry's Question: Opportunity in a Bear Market
One more thought for Terry--If you want to make money with low risk and high reward in a Bear Market, why not short the S&P 500 Index? Whenever the S&P 500 Index hits the downward sloping 50-day moving average on a daily chart, go short with the spiders ETF (SPY). As long as we are in a Bear Market, I (must...not...say...guarantee/smile) assure you that you will be trading wisely. Better yet, whenever the S&P 500 Index stochastics on a daily chart return to an overbought condition, (above 80), go short! (must...not...say...like...taking...candy...from...a...baby.../smile). In my experience, those trades (shorting an overbought market in a down trend) are as close to sure profit as you can get on God's green earth.
I've been thinking about Terry's question more and more. Maybe, I will set up a hypothetical portfolio for Terry from June 21 to November 21. My goal would be to earn 100% profit in real time in a Bear Market. If I have the time and if the day job permits, I might set it up....That might be fun for our Club members.
Anyway, Terry, I'm an overworked lazy toad at times. I was content to just beat the S&P 500 Index by year's end. Might as well have some fun and show off my skills in the process/smile.
We'll see.....
Your inspired lunch time writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
I've been thinking about Terry's question more and more. Maybe, I will set up a hypothetical portfolio for Terry from June 21 to November 21. My goal would be to earn 100% profit in real time in a Bear Market. If I have the time and if the day job permits, I might set it up....That might be fun for our Club members.
Anyway, Terry, I'm an overworked lazy toad at times. I was content to just beat the S&P 500 Index by year's end. Might as well have some fun and show off my skills in the process/smile.
We'll see.....
Your inspired lunch time writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry's Question: Consumer Staples and Healthcare
Traditionally, Wall Street has viewed consumer stables and healthcare as defensive plays during Bear Markets. I would agree, with the caveat that the returns will not be as great as small cap high tech companies during the end of the year rally. Consumer staples and healthcare are not exciting to me but you don't need excitement to make money. You just need a stock to go up in price.
If you are ready interested in consumer staples and healthcare, check out the sector rankings at clearstation.com. You will learn more about retail stock technicals than you could possibly imagine. At the top of the right-hand column, Clearstation.com provides an A+ analysis of hot sectors with details galore. Consumer cyclicals are hot right now.
Once again, everyone has to develop their style as an investor and trader. I reviewed a few charts (consumer goods) and the prospects did not excite me. When you have to strain to see opportunity, its best to move on. On the other hand, the opportunity in gold and silver practically jumps off of the page. The same goes for El Paso.
If I were a Hedge Fund manager, the effort expended coupled with the risk/reward calculation and general market conditions wouldn't cut it for me on consumer staples and healthcare. There are exceptions to this rule but it would take alot of digging to unearth the gems. Its easier, as Jim Rogers would say, to find setups where you are practically picking money off of the floor (i.e., December 1, 2010).
As always, thanks Terry for a great question!
Your lunch time writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
If you are ready interested in consumer staples and healthcare, check out the sector rankings at clearstation.com. You will learn more about retail stock technicals than you could possibly imagine. At the top of the right-hand column, Clearstation.com provides an A+ analysis of hot sectors with details galore. Consumer cyclicals are hot right now.
Once again, everyone has to develop their style as an investor and trader. I reviewed a few charts (consumer goods) and the prospects did not excite me. When you have to strain to see opportunity, its best to move on. On the other hand, the opportunity in gold and silver practically jumps off of the page. The same goes for El Paso.
If I were a Hedge Fund manager, the effort expended coupled with the risk/reward calculation and general market conditions wouldn't cut it for me on consumer staples and healthcare. There are exceptions to this rule but it would take alot of digging to unearth the gems. Its easier, as Jim Rogers would say, to find setups where you are practically picking money off of the floor (i.e., December 1, 2010).
As always, thanks Terry for a great question!
Your lunch time writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry's Question: Growth in a Bear Market
Good morning!
Terry asked a very good question recently. He wanted to know possible growth areas in a Bear Market. During the 2000 - 2002 Bear Market, I did not have much luck with growth areas. It was my experience that the vast majority of stocks went down as the general market went down. There were exceptions but it was more a matter of timing the entry to coincide with a major bottom in the market like 9-11. For example, take the former high flyer, Juniper Networks (JNPR). JNPR was one of the best growth stocks in the market before March 2000. Then, it collapsed like everything else during the 2000-2002 Bear Market. However, it was possible to earn 70-fold on your money with the purchase of October 20 calls at the end of September 2001.
But let's assume that you want to profit over the long haul between now and say October/November. One growth sector would be foreign currencies, particularly the Swiss Franc. There is a fund, symbol (FXF), that allows retail investors to benefit from the strong up trend in the Swiss Franc. I would suggest an initial stop loss @ 112.0. Take the attitude that you will likely be right because the trend is up, however, you are out without regret if you are wrong. That's the mental approach for making money. Let the profits run. Cut losses to a minimum.
The next growth sector for this Bear Market would be precious metals. There are funds that allow the retail investor to profit from the strong up trends in gold and silver. For gold, the best fund would be symbol GLD. Buy @ the 50-day moving average. Place a stop loss @ 142. This trade would be a high probability trade. I wouldn't lose sleep over an investment in GLD. When it comes to silver, the correction is not over. We need a lower low before I would suggest a good time to buy. By the way, the best fund to trade silver would be symbol SLV. Aim for the January 2011 lows as a good entry level. Place your stop loss @ 24.99. If I am right, the stop loss should be not be touched. If the stop loss is touched, then you wouldn't want to be in silver in any event.
A final sector would be public utilities. For my money, the best stock would be El Paso Corporation (EP). The up trend is strong. I would buy now with a stop loss @ 17.99. EP is a high probability trade. EP is one of the top trading vehicles in public utilities.
Now, there are probably other opportunities out there in this Bear Market for profit. It would take alot of work and research to identity the opportunities. It would literally mean reviewing the chart patterns of hundreds of stocks for strong up trends. (Maybe, I should start a subscription service for a fee/smile. Maybe later this year....)
Anyway, Terry, these are my thoughts. You raised a good question and I hope everyone benefitted from my answer. My goal for the TSP Club is beating the S&P 500 Index for the year. As you are beginning to see, it won't be that hard to outperform the S&P 500 Index if the down trend continues into October/November. And yet only a small minority of professional money managers beat the S&P 500 Index year after year. Maybe, I should have been a Hedge Fund manager.
Have a good day! I will be watching the market today to see if the symmetrical triangle can keep it together. We are truly in the sweet spot. We are out of the market and can watch from the sidelines as any Black Swan events are to the downside.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Terry asked a very good question recently. He wanted to know possible growth areas in a Bear Market. During the 2000 - 2002 Bear Market, I did not have much luck with growth areas. It was my experience that the vast majority of stocks went down as the general market went down. There were exceptions but it was more a matter of timing the entry to coincide with a major bottom in the market like 9-11. For example, take the former high flyer, Juniper Networks (JNPR). JNPR was one of the best growth stocks in the market before March 2000. Then, it collapsed like everything else during the 2000-2002 Bear Market. However, it was possible to earn 70-fold on your money with the purchase of October 20 calls at the end of September 2001.
But let's assume that you want to profit over the long haul between now and say October/November. One growth sector would be foreign currencies, particularly the Swiss Franc. There is a fund, symbol (FXF), that allows retail investors to benefit from the strong up trend in the Swiss Franc. I would suggest an initial stop loss @ 112.0. Take the attitude that you will likely be right because the trend is up, however, you are out without regret if you are wrong. That's the mental approach for making money. Let the profits run. Cut losses to a minimum.
The next growth sector for this Bear Market would be precious metals. There are funds that allow the retail investor to profit from the strong up trends in gold and silver. For gold, the best fund would be symbol GLD. Buy @ the 50-day moving average. Place a stop loss @ 142. This trade would be a high probability trade. I wouldn't lose sleep over an investment in GLD. When it comes to silver, the correction is not over. We need a lower low before I would suggest a good time to buy. By the way, the best fund to trade silver would be symbol SLV. Aim for the January 2011 lows as a good entry level. Place your stop loss @ 24.99. If I am right, the stop loss should be not be touched. If the stop loss is touched, then you wouldn't want to be in silver in any event.
A final sector would be public utilities. For my money, the best stock would be El Paso Corporation (EP). The up trend is strong. I would buy now with a stop loss @ 17.99. EP is a high probability trade. EP is one of the top trading vehicles in public utilities.
Now, there are probably other opportunities out there in this Bear Market for profit. It would take alot of work and research to identity the opportunities. It would literally mean reviewing the chart patterns of hundreds of stocks for strong up trends. (Maybe, I should start a subscription service for a fee/smile. Maybe later this year....)
Anyway, Terry, these are my thoughts. You raised a good question and I hope everyone benefitted from my answer. My goal for the TSP Club is beating the S&P 500 Index for the year. As you are beginning to see, it won't be that hard to outperform the S&P 500 Index if the down trend continues into October/November. And yet only a small minority of professional money managers beat the S&P 500 Index year after year. Maybe, I should have been a Hedge Fund manager.
Have a good day! I will be watching the market today to see if the symmetrical triangle can keep it together. We are truly in the sweet spot. We are out of the market and can watch from the sidelines as any Black Swan events are to the downside.
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sunday, June 19, 2011
Alternation and the Symmetrical Triangle Pattern
Happy Father's Day!
This morning, I want to talk about alternation and the symmetrical triangle.
A few days ago, I raised the probability that whatever happened after the bounce up from the 200-day moving average @ 1257 on the S&P 500 Index would be a reaction against the down trend. So, we would know that we were in a corrective phase. We should also anticipate a long and complex correction since the previous correction (May 25 to May 31) against the down trend was a simple and sharp correction.
We should also be alert to a developing symmetrical triangle pattern. Symmetrical triangles reflect converging resistance and support levels. Jesse Livermore might say that one can see the pitched battle between Bulls and Bears as the resistance level drops lower and lower while the support level rises higher and higher. Another way to think of a symmetrical triangle is as a coil that is getting tighter and tighter before it explodes out one way with definitive force.
Personally, I do not like symmetrical triangles. They are prone to false breakouts. Thomas Bulkowski has performed important research in this regard. Bulkowski has observed that symmetrical triangles are prone to busted chart patterns and shakeouts. Life is difficult enough without sideways patterns gone awry.
In any event, here is the case for a nascent symmetrical triangle. Thursday's low of 1258 was followed by a higher low of 1267 on Friday. We have two higher lows, one after the other. This action demonstrates that the support level is rising. Check. Q: Do we have falling resistance levels? Yes, we do. The high on June 7 was 1296. The high on June 9 was 1294. The high on June 14 was 1292. The high on June 15 was 1287. The high on June 17 was 1279. Notice how the daily highs are falling down in a staircase like fashion. Each daily high is a resistance level indicating that selling pressure is greater than buying pressure. The resistance levels are forming lower highs.
At some point in time, the rising support levels and the falling resistance levels would converge forming a symmetrical triangle shape.
Q: Is this pattern Bullish or Bearish? One looks to the incoming trend to assess the probable outcome. Since we are in a down trend since May 1, 2011, I would favor further down side. Once the closing price breaks below the most recent support level of 1267, prices should drop down with force.
From the vantage point of intuition, this outcome makes sense for several reasons. First, many institutions have staked their bullish presumptions on the rising 200-day moving average (1257) providing long-term support. When 1257 is breached, their bullish presumptions will be undercut. Second, 1257 is an important level from a psychological level. It represents the Bear Stearns low from the crisis in March of 2008. 1257 represents resistance turned support on a five-year chart of the S&P 500 Index. I cannot overstate the importance of this level failing. Bulkowski has written about busted chart patterns. They are Bull Traps in that bullish money committed to a rising market has been proven wrong. A drop below 1257 would mean that former support (March 2008) turned into resistance turned into support (roughly the March 16, 2011 low) is now resistance again. Recognizing that bullish investors were wrong on the market direction and that they are now trapped in losing positions, one would expect sell orders to kick in from investors and traders trapped above 1257. Please note that, according to Bulkowski, busted chart patterns result in market moves quite a ways in the unanticipated direction. In our case and from the bullish perspective, this direction would be down.
(Remember that the 200-day moving average signals the line between a Bull Market and a Bear Market. See Sy Harding's Riding the Bear.)
Second, money managers are paid based on their end of year performance. The year began @ 1257. A drop below 1257 means the S&P 500 Index is down for the year. A negative year would not be good for the bottom line of hedge fund managers.
Third, there is no panic in the market yet. I have not seen newspaper headines screaming fear. So, this suggests that the retail investor remains too complacent for a bottom to be put in place.
Fourth, the weekly chart says the down trend remains strong. The MACD lines are open and still pointing down. The MACD Histogram is still falling. And the stochastics should fall some more.
Finally, the Federal Reserve's policy of quantitative easing (QE2) ends on June 30. Consider that the market has been propped up to a large extent since August 2010 based on the Fed's $600 billion buying of bonds. I won't go into details but the correlation between Fed buying and the rise in the market is strong. Q: What happens when the Fed stops buying? Well, we had a Flash Crash in May 2010. This time again, I don't anticipate a Flash Crash. The market doesn't repeat itself. But the line of least resistance is down. The trend is down. I would think the market reaction to the end of QE2 will be down.
Conclusion.
The more I thought about the symmetrical triangle, the more it makes sense since a symmetrical triangle is considered a long and complex correction. However, the duration of the correction may not be two weeks. In fact, I am leaning more towards a correction of four days in length.
Whether the correction be four days or two weeks, there is one certainty for now--the trend is down!
Warm regards to all of the fathers out there,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
This morning, I want to talk about alternation and the symmetrical triangle.
A few days ago, I raised the probability that whatever happened after the bounce up from the 200-day moving average @ 1257 on the S&P 500 Index would be a reaction against the down trend. So, we would know that we were in a corrective phase. We should also anticipate a long and complex correction since the previous correction (May 25 to May 31) against the down trend was a simple and sharp correction.
We should also be alert to a developing symmetrical triangle pattern. Symmetrical triangles reflect converging resistance and support levels. Jesse Livermore might say that one can see the pitched battle between Bulls and Bears as the resistance level drops lower and lower while the support level rises higher and higher. Another way to think of a symmetrical triangle is as a coil that is getting tighter and tighter before it explodes out one way with definitive force.
Personally, I do not like symmetrical triangles. They are prone to false breakouts. Thomas Bulkowski has performed important research in this regard. Bulkowski has observed that symmetrical triangles are prone to busted chart patterns and shakeouts. Life is difficult enough without sideways patterns gone awry.
In any event, here is the case for a nascent symmetrical triangle. Thursday's low of 1258 was followed by a higher low of 1267 on Friday. We have two higher lows, one after the other. This action demonstrates that the support level is rising. Check. Q: Do we have falling resistance levels? Yes, we do. The high on June 7 was 1296. The high on June 9 was 1294. The high on June 14 was 1292. The high on June 15 was 1287. The high on June 17 was 1279. Notice how the daily highs are falling down in a staircase like fashion. Each daily high is a resistance level indicating that selling pressure is greater than buying pressure. The resistance levels are forming lower highs.
At some point in time, the rising support levels and the falling resistance levels would converge forming a symmetrical triangle shape.
Q: Is this pattern Bullish or Bearish? One looks to the incoming trend to assess the probable outcome. Since we are in a down trend since May 1, 2011, I would favor further down side. Once the closing price breaks below the most recent support level of 1267, prices should drop down with force.
From the vantage point of intuition, this outcome makes sense for several reasons. First, many institutions have staked their bullish presumptions on the rising 200-day moving average (1257) providing long-term support. When 1257 is breached, their bullish presumptions will be undercut. Second, 1257 is an important level from a psychological level. It represents the Bear Stearns low from the crisis in March of 2008. 1257 represents resistance turned support on a five-year chart of the S&P 500 Index. I cannot overstate the importance of this level failing. Bulkowski has written about busted chart patterns. They are Bull Traps in that bullish money committed to a rising market has been proven wrong. A drop below 1257 would mean that former support (March 2008) turned into resistance turned into support (roughly the March 16, 2011 low) is now resistance again. Recognizing that bullish investors were wrong on the market direction and that they are now trapped in losing positions, one would expect sell orders to kick in from investors and traders trapped above 1257. Please note that, according to Bulkowski, busted chart patterns result in market moves quite a ways in the unanticipated direction. In our case and from the bullish perspective, this direction would be down.
(Remember that the 200-day moving average signals the line between a Bull Market and a Bear Market. See Sy Harding's Riding the Bear.)
Second, money managers are paid based on their end of year performance. The year began @ 1257. A drop below 1257 means the S&P 500 Index is down for the year. A negative year would not be good for the bottom line of hedge fund managers.
Third, there is no panic in the market yet. I have not seen newspaper headines screaming fear. So, this suggests that the retail investor remains too complacent for a bottom to be put in place.
Fourth, the weekly chart says the down trend remains strong. The MACD lines are open and still pointing down. The MACD Histogram is still falling. And the stochastics should fall some more.
Finally, the Federal Reserve's policy of quantitative easing (QE2) ends on June 30. Consider that the market has been propped up to a large extent since August 2010 based on the Fed's $600 billion buying of bonds. I won't go into details but the correlation between Fed buying and the rise in the market is strong. Q: What happens when the Fed stops buying? Well, we had a Flash Crash in May 2010. This time again, I don't anticipate a Flash Crash. The market doesn't repeat itself. But the line of least resistance is down. The trend is down. I would think the market reaction to the end of QE2 will be down.
Conclusion.
The more I thought about the symmetrical triangle, the more it makes sense since a symmetrical triangle is considered a long and complex correction. However, the duration of the correction may not be two weeks. In fact, I am leaning more towards a correction of four days in length.
Whether the correction be four days or two weeks, there is one certainty for now--the trend is down!
Warm regards to all of the fathers out there,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Saturday, June 18, 2011
The Education of a Blogger
Good morning.
As you all know, I am a big discipline of technical analysis. Technical analysis is simply a collection of tools in the tool box. Elliott Waves, moving averages, and stochastic readings can keep us on the right side of the trend. And that's really enough to make money or to keep from losing money. There is an art to market research. Different researchers might draw different conclusions from the same raw market conditions. And that is ok. Nicholas Darvas might only go long the market and make money while Jesse Livermore might go long and short and make money. Its a personal call. My aim is to beat the S&P 500 Index this year by taking advantage of waves, moving averages, and trends. As market conditions change, I might substitute one tool for another but the aim always remains the same; i.e. to outperform the S&P 500 Index for 2011.
Do I have long-range views on the economy? Yes, I do.
One of my favorite activities is reading. I love to read. For me, hanging out at Barnes and Noble is the ultimate R&R. I should have become a history professor but I digress. As a law professor, I was drawn to a study of the Commerce Clause, specifically the Dormant Commerce Clause. Shadows intrigued me. I wanted to better understand the shadows cast by the congressional power to regulate interstate commerce when congress was silent. Heady stuff, no? (Smile) Ok, I'm a nerd to the nth degree which is probably why I understand Hedge Fund Manager Michael Burry, formerly of Scion Capital.
I continued to read about the market and the economy during the early 2000s. I wanted to know why Bear Markets developed. I can still remember reading Riding the Bear by Sy Harding and feeling like the fog had been lifted. Harding's vital revelation to me was that the 200-day moving average separated a Bull Market from a Bear Market. As economic conditions worsened, I began reading The Prudent Bear blog. In those days, I soaked in all of the commentary that I could digest about economic cycles, debt cycles, and business cycles. I am sure that Prudent Bear led me to Ian Gordon and the Kondratieff Winter.
Ian Gordon's website, The Long Wave, was like Harding's Riding the Bear on steroids. Gordon laid out the clear and compelling case that we had entered a new season, the Kondratieff Winter. The idea was that economies went through four seasons similar to the weather. There was a Spring when economic conditions gave birth to a new boom. It was a good time to invest in stocks for the long haul. It was not a good time to be in precious metals or cash. As the economy got stronger, the economy moved into the Summer time. These were good times, times of prosperity. Recessions were short-lived. However, the seeds of good fortune led to too much debt. This debt would cripple the economy and result in an eventual Winter of bankruptcies, defaults, and insolvencies.
The more I read, the more the Kondratieff Winter made sense. It explained better than alot of other stuff why the Bear Market began in 2000 and seemed to keep going. Gordon believed the Kondratieff Winter was generational in length. So, we should expect subpar economic conditions until at least 2022. This time frame is also consistent with Arnold's demographic work in The Great Bust Ahead and Larry Williams' cycle work.
So, on a day to day basis, I may give you running commentary on the latest short-covering rally or late day sell-off. These dramas are but ripples in the larger story. The larger story, I believe, is a generational turn down. No amount of Federal Reserve quantitative easing will solve the structural dilemma of too much sovereign debt. (In this regard, I am a daily reader of Zero Hedge Blog, Market Oracle UK, and Economic Collapse. These are uber Bearish blogs and not for the faint of heart/smile.)
I take a Bearish view of the world over the long run. For my money, Gordon T. Long has replaced Professor Nouriel Roubini as the intellectual force for the Bear Case. I suggest a casual reading of Long's prolific essays and articles (Where does he find the time?) Long's work is insightful, far-sighted, and prophetic. I would not bet against Long in my investing and trading.
So, there you have it--the education of a blogger.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
As you all know, I am a big discipline of technical analysis. Technical analysis is simply a collection of tools in the tool box. Elliott Waves, moving averages, and stochastic readings can keep us on the right side of the trend. And that's really enough to make money or to keep from losing money. There is an art to market research. Different researchers might draw different conclusions from the same raw market conditions. And that is ok. Nicholas Darvas might only go long the market and make money while Jesse Livermore might go long and short and make money. Its a personal call. My aim is to beat the S&P 500 Index this year by taking advantage of waves, moving averages, and trends. As market conditions change, I might substitute one tool for another but the aim always remains the same; i.e. to outperform the S&P 500 Index for 2011.
Do I have long-range views on the economy? Yes, I do.
One of my favorite activities is reading. I love to read. For me, hanging out at Barnes and Noble is the ultimate R&R. I should have become a history professor but I digress. As a law professor, I was drawn to a study of the Commerce Clause, specifically the Dormant Commerce Clause. Shadows intrigued me. I wanted to better understand the shadows cast by the congressional power to regulate interstate commerce when congress was silent. Heady stuff, no? (Smile) Ok, I'm a nerd to the nth degree which is probably why I understand Hedge Fund Manager Michael Burry, formerly of Scion Capital.
I continued to read about the market and the economy during the early 2000s. I wanted to know why Bear Markets developed. I can still remember reading Riding the Bear by Sy Harding and feeling like the fog had been lifted. Harding's vital revelation to me was that the 200-day moving average separated a Bull Market from a Bear Market. As economic conditions worsened, I began reading The Prudent Bear blog. In those days, I soaked in all of the commentary that I could digest about economic cycles, debt cycles, and business cycles. I am sure that Prudent Bear led me to Ian Gordon and the Kondratieff Winter.
Ian Gordon's website, The Long Wave, was like Harding's Riding the Bear on steroids. Gordon laid out the clear and compelling case that we had entered a new season, the Kondratieff Winter. The idea was that economies went through four seasons similar to the weather. There was a Spring when economic conditions gave birth to a new boom. It was a good time to invest in stocks for the long haul. It was not a good time to be in precious metals or cash. As the economy got stronger, the economy moved into the Summer time. These were good times, times of prosperity. Recessions were short-lived. However, the seeds of good fortune led to too much debt. This debt would cripple the economy and result in an eventual Winter of bankruptcies, defaults, and insolvencies.
The more I read, the more the Kondratieff Winter made sense. It explained better than alot of other stuff why the Bear Market began in 2000 and seemed to keep going. Gordon believed the Kondratieff Winter was generational in length. So, we should expect subpar economic conditions until at least 2022. This time frame is also consistent with Arnold's demographic work in The Great Bust Ahead and Larry Williams' cycle work.
So, on a day to day basis, I may give you running commentary on the latest short-covering rally or late day sell-off. These dramas are but ripples in the larger story. The larger story, I believe, is a generational turn down. No amount of Federal Reserve quantitative easing will solve the structural dilemma of too much sovereign debt. (In this regard, I am a daily reader of Zero Hedge Blog, Market Oracle UK, and Economic Collapse. These are uber Bearish blogs and not for the faint of heart/smile.)
I take a Bearish view of the world over the long run. For my money, Gordon T. Long has replaced Professor Nouriel Roubini as the intellectual force for the Bear Case. I suggest a casual reading of Long's prolific essays and articles (Where does he find the time?) Long's work is insightful, far-sighted, and prophetic. I would not bet against Long in my investing and trading.
So, there you have it--the education of a blogger.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Friday, June 17, 2011
Alternation
This evening, I want to talk about the principle of alternation.
Alternation simply means that the market will not repeat the same corrective action in a row. If the previous correction or reaction to the dominant trend was simple, then the next correction or reaction to the dominant trend should be long and complex. The idea works because everyone is always looking in the rear view mirror to divine the future. But the future is never a carbon copy of the past.
A better strategy is to assume that the market will attempt to trip up the most people. Since thousands of traders and investors are looking at the same pattern every day, the finance community is prone to drawing the same conclusions from a recent correction. What do I mean? Since the last significant correction against the down trend was sharp and quick (May 25 to May 31), there is a natural tendency to presume the next correction against the down trend should be sharp and quick as well.
Actually, the probabilities are greater that the correction up ahead would be different; i.e. long and complex. If you review any daily chart of the S&P 500 Index for several months, you will notice that the corrections to the dominant trend tend to alternate, contrary to the presumptions of the crowd.
As a result, Club Members, I believe that we will be looking at a long and complex correction, sideways in nature, for the next two weeks. The range should be within the 1258 to 1294 level. This outcome is most likely to frustrate traders and investors who are looking for a repeat of the May 25 to May 31 experience. The down trend is still strong, however, markets tend to blow hot and cold. I anticipate a cold spell ahead with lessening volatility.
On to market conditions today....
Today was a bearish day. The market gapped up, then traded down to the 1269 level before closing @1271.50. This action was bearish for several reasons. First, whenever a gap up in the morning cannot hold up until the close, then this indicates late day selling. Remember that the open is dominated by amateurs. Late day trading is dominated by professionals.
Second, I saw an odd thing that reminded me of the market action on June 21, 2010. June 21 was a Monday. I expected the retail crowd to be out in force at the start of the trading day. But I recall in the first hour of the trading day that, while the price was going upwards to 1131, the stochastics was pointing down!!! This behavior was odd indeed and suggested lower prices ahead. And as it turned out, 1131 was the high of the move in late June 2010. Today, I saw the same odd occurrence. While the price was drifting up to 1279 in early trading, the daily stochastics was heading down. Odd indeed! This picture wasn't right. Something will have to give over the coming days. I suspect it will be the price action.
Finally, the media coverage is too bearish right now for immediate downward price action. Yesterday, I heard a NPR radio show about the Greece Debt Crisis and the bad consequences that might befall the Western World should Greece default on its debt. These bad things may well happen but broadcasting the consequences to the world is almost a guarantee that the market will not be falling right away.
C'est la vie. C'est la Contrary Opinion and the Fear Factor.
Well, that's all for this evening. It has been an interesting week. Ultimately, we are in a down trend. The principle of alternation provides a road map for the coming weeks.
Have a Great Weekend!
Your market newsletter writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Alternation simply means that the market will not repeat the same corrective action in a row. If the previous correction or reaction to the dominant trend was simple, then the next correction or reaction to the dominant trend should be long and complex. The idea works because everyone is always looking in the rear view mirror to divine the future. But the future is never a carbon copy of the past.
A better strategy is to assume that the market will attempt to trip up the most people. Since thousands of traders and investors are looking at the same pattern every day, the finance community is prone to drawing the same conclusions from a recent correction. What do I mean? Since the last significant correction against the down trend was sharp and quick (May 25 to May 31), there is a natural tendency to presume the next correction against the down trend should be sharp and quick as well.
Actually, the probabilities are greater that the correction up ahead would be different; i.e. long and complex. If you review any daily chart of the S&P 500 Index for several months, you will notice that the corrections to the dominant trend tend to alternate, contrary to the presumptions of the crowd.
As a result, Club Members, I believe that we will be looking at a long and complex correction, sideways in nature, for the next two weeks. The range should be within the 1258 to 1294 level. This outcome is most likely to frustrate traders and investors who are looking for a repeat of the May 25 to May 31 experience. The down trend is still strong, however, markets tend to blow hot and cold. I anticipate a cold spell ahead with lessening volatility.
On to market conditions today....
Today was a bearish day. The market gapped up, then traded down to the 1269 level before closing @1271.50. This action was bearish for several reasons. First, whenever a gap up in the morning cannot hold up until the close, then this indicates late day selling. Remember that the open is dominated by amateurs. Late day trading is dominated by professionals.
Second, I saw an odd thing that reminded me of the market action on June 21, 2010. June 21 was a Monday. I expected the retail crowd to be out in force at the start of the trading day. But I recall in the first hour of the trading day that, while the price was going upwards to 1131, the stochastics was pointing down!!! This behavior was odd indeed and suggested lower prices ahead. And as it turned out, 1131 was the high of the move in late June 2010. Today, I saw the same odd occurrence. While the price was drifting up to 1279 in early trading, the daily stochastics was heading down. Odd indeed! This picture wasn't right. Something will have to give over the coming days. I suspect it will be the price action.
Finally, the media coverage is too bearish right now for immediate downward price action. Yesterday, I heard a NPR radio show about the Greece Debt Crisis and the bad consequences that might befall the Western World should Greece default on its debt. These bad things may well happen but broadcasting the consequences to the world is almost a guarantee that the market will not be falling right away.
C'est la vie. C'est la Contrary Opinion and the Fear Factor.
Well, that's all for this evening. It has been an interesting week. Ultimately, we are in a down trend. The principle of alternation provides a road map for the coming weeks.
Have a Great Weekend!
Your market newsletter writer,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Thursday, June 16, 2011
Market Conditions: June 16, 2011
Good evening!
A bounce is coming to the markets for several reasons.
First, the S&P 500 Index printed a long-tailed candlestick or doji. A doji means the market displayed indecision. It went up and it went down but ultimately it closed at about the opening price. After an extended downturn, this condition can signal a bounce is coming.
Second, the market at one point dropped from the daily high of 1274 to a daily low of 1258 where it practically touched the 200-day moving average on daily chart. As you recall, some investors and traders will use moving averages as a rough measure of support and resistance levels in the market. When the 200-day moving average was touched, many buyers decided to buy stocks. This buying pressure is represented by the rise from the daily low of 1258 to the close of 1267. The area between 1258 and 1265 now represents a zone of buying pressure.
Third, a day that reflects late-day buying pressure so that the close is higher than the open (1265) is bullish. It would support traders moving prices higher for a bit since the line of resistance is now UP! Even in a larger down trend, bounces happen. They are expected. They are welcomed because they afford higher prices at which to sell.
In conclusion, a bounce is coming. Resistance remains at the falling 13-day simple moving average or 1290. 1290 is now the zone for selling. The drop from resistance should create a lower low than today's low of 1258. This lower low (in the future) should present a short-term buying opportunity.
Bounces are natural in a down trend. They happen. Let's see if the market can bounce up to 1285-1290.
Later,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
A bounce is coming to the markets for several reasons.
First, the S&P 500 Index printed a long-tailed candlestick or doji. A doji means the market displayed indecision. It went up and it went down but ultimately it closed at about the opening price. After an extended downturn, this condition can signal a bounce is coming.
Second, the market at one point dropped from the daily high of 1274 to a daily low of 1258 where it practically touched the 200-day moving average on daily chart. As you recall, some investors and traders will use moving averages as a rough measure of support and resistance levels in the market. When the 200-day moving average was touched, many buyers decided to buy stocks. This buying pressure is represented by the rise from the daily low of 1258 to the close of 1267. The area between 1258 and 1265 now represents a zone of buying pressure.
Third, a day that reflects late-day buying pressure so that the close is higher than the open (1265) is bullish. It would support traders moving prices higher for a bit since the line of resistance is now UP! Even in a larger down trend, bounces happen. They are expected. They are welcomed because they afford higher prices at which to sell.
In conclusion, a bounce is coming. Resistance remains at the falling 13-day simple moving average or 1290. 1290 is now the zone for selling. The drop from resistance should create a lower low than today's low of 1258. This lower low (in the future) should present a short-term buying opportunity.
Bounces are natural in a down trend. They happen. Let's see if the market can bounce up to 1285-1290.
Later,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Market Conditions - Thursday, June 16, 2011
It is early in the morning.
Asian markets were down overnight. That was to be expected since the U.S. markets were down yesterday. What got my attention this morning were the european markets. The FTSE (London), CAC (Paris), and DAX (German) markets are all down and by respectable amounts. The european markets could indicate the direction of today's trading in the U.S. markets. Today feels like a day where the open could be the absolute high of the day.
Conditions are bearish. I noticed that the mainstream media is beginning to pick up on and report about the market drop. This shows a point of recognition, a common feature of markets in the middle of a Third Wave of a Third Wave down.
After reviewing a weekly chart of the S&P 500 Index, I can see a pattern in the stochastics. The weekly stochastics has bottomed on or about July 1 since at least 2008. This pattern tells me that there is a seasonable cycle at work. If this three-year pattern holds up, then it is most assuredly time to get short ASAP. Lower prices are ahead.
The stochastics on a daily chart remain embedded. This Third Wave of a Third Wave is just beginning. There is no panic in the streets. Quantitative Easing 2 ends on June 30. The Greek debt crisis is returning to the forefront. Together these factors suggest intense downward pressure on the markets in the next two weeks.
Let's see how the day unfolds....
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Asian markets were down overnight. That was to be expected since the U.S. markets were down yesterday. What got my attention this morning were the european markets. The FTSE (London), CAC (Paris), and DAX (German) markets are all down and by respectable amounts. The european markets could indicate the direction of today's trading in the U.S. markets. Today feels like a day where the open could be the absolute high of the day.
Conditions are bearish. I noticed that the mainstream media is beginning to pick up on and report about the market drop. This shows a point of recognition, a common feature of markets in the middle of a Third Wave of a Third Wave down.
After reviewing a weekly chart of the S&P 500 Index, I can see a pattern in the stochastics. The weekly stochastics has bottomed on or about July 1 since at least 2008. This pattern tells me that there is a seasonable cycle at work. If this three-year pattern holds up, then it is most assuredly time to get short ASAP. Lower prices are ahead.
The stochastics on a daily chart remain embedded. This Third Wave of a Third Wave is just beginning. There is no panic in the streets. Quantitative Easing 2 ends on June 30. The Greek debt crisis is returning to the forefront. Together these factors suggest intense downward pressure on the markets in the next two weeks.
Let's see how the day unfolds....
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Wednesday, June 15, 2011
Market Conditions - Wednesday, June 15, 2011
It was another down day in the market today.
The S&P 500 Index opened @ 1287.87. That was the absolute high of the day. There must have been alot of sell orders lined up at the opening bell. Anyway, the futures were down this morning and the day's action constituted follow-through selling. The selling was unrelenting.
The market closed @1265.42. The TSP Club left the C Fund @ 1300.
Today was a typical day in a downtrend. Bad news out of Greece was sold. The opening price was the absolute high of the day. There's not much more to say.
The trend is down. Prices will continue to decline with bounces here and there until the down trend ends. Professional traders are selling the rallies, not buying the dips.
Later,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
The S&P 500 Index opened @ 1287.87. That was the absolute high of the day. There must have been alot of sell orders lined up at the opening bell. Anyway, the futures were down this morning and the day's action constituted follow-through selling. The selling was unrelenting.
The market closed @1265.42. The TSP Club left the C Fund @ 1300.
Today was a typical day in a downtrend. Bad news out of Greece was sold. The opening price was the absolute high of the day. There's not much more to say.
The trend is down. Prices will continue to decline with bounces here and there until the down trend ends. Professional traders are selling the rallies, not buying the dips.
Later,
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Tuesday, June 14, 2011
The Closing Bell
Today, the market bounced. The volume was lower than the previous day.
Resistance lies at the falling 13-day moving average or 1300.
The stochastics remain embedded. The trend remains down.
I observed that the market dropped in the last hour of the trading day from a high of 1292 to the close at 1287.
The end of this week should be interesting.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Resistance lies at the falling 13-day moving average or 1300.
The stochastics remain embedded. The trend remains down.
I observed that the market dropped in the last hour of the trading day from a high of 1292 to the close at 1287.
The end of this week should be interesting.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Monday, June 13, 2011
Market Conditions - Monday, June 13, 2011
Today was a pause in the down trend.
The S&P 500 Index closed at 1271.83. On a weekly chart, the down trend remains decidedly down. The MACD lines are pointing down. The MACD Histogram is pointing down. The Stochastics are pointing down but well above an oversold condition. On a daily chart, the Relative Strength Index (RSI) is flat lining and hugging the oversold line. The 50-day and the 13-day moving averages are both pointing down. The MACD lines continue to show an intact down trend. The stochastics remain embedded.
In short, the trend remains down until proven otherwise.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
The S&P 500 Index closed at 1271.83. On a weekly chart, the down trend remains decidedly down. The MACD lines are pointing down. The MACD Histogram is pointing down. The Stochastics are pointing down but well above an oversold condition. On a daily chart, the Relative Strength Index (RSI) is flat lining and hugging the oversold line. The 50-day and the 13-day moving averages are both pointing down. The MACD lines continue to show an intact down trend. The stochastics remain embedded.
In short, the trend remains down until proven otherwise.
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Sunday, June 12, 2011
Sunday Musings: Third Wave of a Third Wave
Good morning everyone!
I am writing on a wonderful Sunday morning from a hilltop in Southern California (an undisclosed location a la Dick Cheney/smile). The views of the green hills in the distance and the valleys below are pleasing to the eye. There's a nice rustling sound as ocean breezes slide by the way. Ah, Sunday mornings.
It also helps that market conditions are unfolding as they should.
You see, the trend is always your friend. I don't care how many smooth-talking money managers are talking "x" or indicators are saying "y." At the end of the day, it is best to be right with the dominant trend. Life can be easy.
Where are we this fine Sunday morning?
Well, the S&P 500 Index topped on May 1, 2011 at 1370. Since then, the market shifted into a down trend gear. The early warning sign were the five swings down throughout the month of May. Elliott Wave Theory 101 teaches that the dominant trend begins with five waves in a direction. The direction could be either up or down. But once we see a five-wave move in a new direction, we have rock solid confirmation that the trend has changed. Now, it may be psychologically hard to accept what your eyes are seeing. As the previous trend is ending, we have a human tendency to project the old trend into the future. I do it. You do it. Everyone does it.
But we must put away that rear-view mirror and look at the road ahead (do you hear me, Joel?/smile).
Anyway, these waves are fractal in nature. That just means that they unfold in layers within a larger wave. Think of it this way. The first five waves down completed on May 23. Now, we know. Those who study the markets every day have their confirmation of a trend change to the down side. The high-speed computers know this and, presumably, are being programmed to sell on the upcoming rally. Why? Because the complete wave down from May 1 to May 23 constituted a wave down of a larger degree. Corrections follow waves down, so the move up from May 23 to May 31 was the first rally up. And it was wise to sell this rally.
When the market peaked at 1346 on June 1, we had a tremendous trend day. It is considered a trend day because the market trend revealed itself with force. June 1 was a massive down day as the market opened at a high of 1346 and closed around 1315. It was time to go.
This Second Wave down that started on June 1 will have three baby or micro down waves contained within it. Thus, think of the first drop from 1346 to 1277 as baby wave 1. Baby wave 2 up followed and took us up to to 1294. But remember that the dominant trend remains down. Don't forget that! We can be safe in being bearish because the whole move down from May 1 to May 23 has provided insurance against the engine backfiring as Jesse Livermore might say.
On Friday, the market dropped below the previous baby wave 1 low of 1277 to close at 1270. We are now in baby wave number 3 of the large wave 3 down since May 1. We are in the sweet spot of the down trend. We are in the Third Wave of the Third Wave down. It is at this point, according to Wikipedia, that the crowd catches on.
What may lie ahead?
There are no guarantees in this business. However, it is likely that the baby wave 3 will continue down and be the strongest of the baby waves down since June 1. Baby wave 3 should be followed by a baby wave 4 up and a final baby wave 5 down. Then, we should have a sideways consolidation or Wave 4 before the whole process repeats itself again in a final Wave 5 down.
So, we're in the sweet spot right now.
Cheers!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
I am writing on a wonderful Sunday morning from a hilltop in Southern California (an undisclosed location a la Dick Cheney/smile). The views of the green hills in the distance and the valleys below are pleasing to the eye. There's a nice rustling sound as ocean breezes slide by the way. Ah, Sunday mornings.
It also helps that market conditions are unfolding as they should.
You see, the trend is always your friend. I don't care how many smooth-talking money managers are talking "x" or indicators are saying "y." At the end of the day, it is best to be right with the dominant trend. Life can be easy.
Where are we this fine Sunday morning?
Well, the S&P 500 Index topped on May 1, 2011 at 1370. Since then, the market shifted into a down trend gear. The early warning sign were the five swings down throughout the month of May. Elliott Wave Theory 101 teaches that the dominant trend begins with five waves in a direction. The direction could be either up or down. But once we see a five-wave move in a new direction, we have rock solid confirmation that the trend has changed. Now, it may be psychologically hard to accept what your eyes are seeing. As the previous trend is ending, we have a human tendency to project the old trend into the future. I do it. You do it. Everyone does it.
But we must put away that rear-view mirror and look at the road ahead (do you hear me, Joel?/smile).
Anyway, these waves are fractal in nature. That just means that they unfold in layers within a larger wave. Think of it this way. The first five waves down completed on May 23. Now, we know. Those who study the markets every day have their confirmation of a trend change to the down side. The high-speed computers know this and, presumably, are being programmed to sell on the upcoming rally. Why? Because the complete wave down from May 1 to May 23 constituted a wave down of a larger degree. Corrections follow waves down, so the move up from May 23 to May 31 was the first rally up. And it was wise to sell this rally.
When the market peaked at 1346 on June 1, we had a tremendous trend day. It is considered a trend day because the market trend revealed itself with force. June 1 was a massive down day as the market opened at a high of 1346 and closed around 1315. It was time to go.
This Second Wave down that started on June 1 will have three baby or micro down waves contained within it. Thus, think of the first drop from 1346 to 1277 as baby wave 1. Baby wave 2 up followed and took us up to to 1294. But remember that the dominant trend remains down. Don't forget that! We can be safe in being bearish because the whole move down from May 1 to May 23 has provided insurance against the engine backfiring as Jesse Livermore might say.
On Friday, the market dropped below the previous baby wave 1 low of 1277 to close at 1270. We are now in baby wave number 3 of the large wave 3 down since May 1. We are in the sweet spot of the down trend. We are in the Third Wave of the Third Wave down. It is at this point, according to Wikipedia, that the crowd catches on.
What may lie ahead?
There are no guarantees in this business. However, it is likely that the baby wave 3 will continue down and be the strongest of the baby waves down since June 1. Baby wave 3 should be followed by a baby wave 4 up and a final baby wave 5 down. Then, we should have a sideways consolidation or Wave 4 before the whole process repeats itself again in a final Wave 5 down.
So, we're in the sweet spot right now.
Cheers!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Saturday, June 11, 2011
Livermore and the San Francisco Earthquake - Part 2
Let's return to our story....
Livermore had "always made money following his(hunches)." page 74 He sold 1,000 shares of Union Pacific on the spot. His friend thought Livermore must have inside information. Livermore didn't. Then, he sold another 1,000 shares of Union Pacific. His friend thought Livermore was stark raving mad. Livermore had no quantifiable reason, just years of experience and observation. Livermore sold another 1,000 shares of Union Pacific. Livermore's friend grabbed Livermore and said it was time to go before Livermore had sold all the shares of the company.
To the naked eye, nothing seemed wrong. The market was strong. Nobody was thinking of falling prices.
The next day, the market went up some more. At the end of the day, there was a sell off in Union Pacific. The price dropped below Livermore's selling price. Livermore was encouraged by the late day selling. (Late day selling is always a hint that lower prices may be ahead.) Livermore sold 2,000 more shares of Union Pacific.
Livermore cancelled his vacation and returned to New York that very night. He knew from the price action that something was up. He wanted to be prepared.
The next day, New York received word of the San Francisco earthquake. Could it be that people in the know were selling shares of Union Pacific late in the day the previous day? Livermore had no inside knowledge. He had seen alot of little things and his unconscious mind, his intuition, did the rest. His intuition told him to sell. Only later would he receive word of the earthquake.
Now, you might assume that the market dropped like a rock upon the news.
Not really.
In fact, the market opened down only a couple of points. Livermore explained that "the public never is independently responsive to news. You see that all the time." page 77. If the market is filled with bullish sentiment, then people do not want to accept bad news. As a result, prices came back.
Livermore's friend teased him. "That was some hunch, kid. But, say, when the talent and the money are all on the bull side, what's the use of bucking against them? They are bound to win out." page 77
Livermore accepted that prices hadn't dropped but they would. He challenged his friend with the fundamental argument "What would you do?...Buy (Union Pacific) on the strength of the millions of dollars of damage suffered by the Southern Pacific and other lines? Where are the earnings for dividends going to come from after they pay for all they've lost?" page 77
When the fuller reports came in the next day, the market began to slide off. Livermore doubled down and sold 5,000 more shares of Union Pacific. Nothing under the sun could prevent a substantial break. The next day, the market really just dropped. Livermore doubled down again.
For Livermore, the market was presenting a heaven-sent opportunity:
"I wasn't thinking of anything except that I was right--100 per cent right--and that this was a heaven-sent opportunity. It was up to me to take advantage of it. I sold more....There was nothing that anybody would do to undo the earthquake, was there? They couldn't restore the crumpled buildings overnight, free, gratis, for nothing, could they? All the money in the world couldn't help much in the next few hours, could it?" page 78
Livermore cleaned up the next day. He made $250,000.
That summer, Livermore took a real vacation in Saratoga. He had earned it. Of course, being Livermore, he kept one eye on the market.
He took the time to sit back and think about economic conditions. Stepping back and taking in the big picture is always invaluable as an investor and trader. If you are on the right side of the fundamental conditions, then you will profit in the long run. To quote Livermore:
"I studied the situation in 1906 and I thought that the money outlook was particularly serious. Much actual wealth the world over had been destroyed. Everybody must sooner or later feel the pinch, and therefore nobody would be in a position to help anybody. It would not be the kind of hard times that comes from swapping a house worth ten thousand dollars for a carload of race horses worth eight thousand dollars. It was the complete destruction of the house by fire and of most of the horses by a railroad wreck. It was good hard cash that went up in cannon smoke in the Boer War, and the millions spent for feeding nonproducing soldiers in South Africa meant no help from British investors as in the past. Also, the earthquake and the fire in San Francisco and other disasters touched everybody--manufacturers, farmers, merchants, labourers and millionaires. The railroads must suffer greatly. I figured that nothing could stave off one peach of a smash. Such being the case there was but one thing to do--sell stocks!" pages 93-94
But the market kept rallying! Livermore was right in a broad sense but his timing was off. His difficulties in getting his timing right reminds me of Bears before February 18 and May 1 of this year. The Bears were right in a macro sense about troubles ahead but the timing was early. Livermore concluded that it was best to start selling when the risk of the engine backfiring had been minimized.
When did Livermore know the time was right to start selling?
One day, he read in the newspaper that Great Northern was issuing new stock. Payments could be made on the installment plan. Installment plan? This new development meant that the big banks were not sure stockholders had the cash to pay for a bargain. No cash? Time to sell! A few days later, Livermore read another advertisement that said St. Paul had set its date of payment ahead of Great Northern. St. Paul was trying to beat the two other railroads to what little money was floating around Wall Street. This was another signal that money was scarce on the Street.
In Livermore's words, "If money already was that scarce--and you bet the bankers knew--what would it be later? The railroads needed it desperately. It wasn't there. What was the answer? Sell 'em!" page 98
(To me, the parallels today are with these global insurance companies. They did not plan on an earthquake/tsunami/nuclear meltdown. The bills have come due from Japan. And I figure the big banks know the real score better than me. But I digress....)
Livermore started selling stocks like a mad man. The rallies grew feebler and feebler. Prices kept breaking every day (Kinda like the month of June 2011)
By February 1907, Livermore had cleaned up again. He had big profits. He went to Florida to fish and rest.
While on vacation, Livermore forgot about stocks. He just wanted to fish and enjoy life. A friend brought him a newspaper one day. Livermore saw that the market had had a big rally. Hmmn. The Bear Market was not over and yet Wall Street was "marking up prices beyond reason or letting somebody else do it." page 103 Livermore couldn't stomach the fake rally. Livermore went to a broker's office and, after a false start, began selling stocks again. It was around Washington's birthday, 1907. The more he sold, the more his profits grew. Everything was going down. Livermore cut short his vacation and returned to New York.
For four months, he sold and sold stocks. The market rallied. He sold the rallies. The summer came again and the market grew dull. (As you recall, markets blow hot and cold.) He left on vacation for Europe.
While on vacation, he didn't give a thought to the market.
One day, he read in the Paris newspaper that Smelters had declared an extra dividend. Stock prices had been run back up and the market was strong again. Well, Livermore knew that the Bear Market wasn't over. "The news simply meant that the bull cliques were still fighting desperately against conditions--against common sense and against common honesty, for they knew what was coming and were resorting to such schemes to put up the market in order to unload stocks before the storm struck them." page 109
Livermore sold Smelters, cancelled his vacation, and returned to New York.
Once in New York, Livermore sold more stocks. As money got tighter, the call-money rates went higher and prices of stocks lower. The money market was megaphoning warnings to the world. People believed in miracles, so they did not sell their speculative stocks. Big mistake!
(In this business of investing and trading, hope is your enemy. You must sell when you get the feeling that something is wrong. The first loss is always the best loss. He who panics first panics best!)
One day in October 1907, there was just no more money. There was no money anywhere. You couldn't liquidate stocks because there was nobody to buy them. The intervention of J.P. Morgan saved the market. Livermore covered his shorts, profiting $1 million on October 24, 1907. On that day, there were no bids for Union Pacific at any price! No one had money to hold stocks! No one had money to buy stocks!
Conclusion.
Does history repeat itself? Yes and no. Patterns recur but never in identical fashion. Otherwise, everyone would be wealthy and retired. The best we can do is read the tea leaves, connect the dots before the next guy, and be alert to the economic impact of distant earthquakes.
Have a great summer!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
Livermore had "always made money following his(hunches)." page 74 He sold 1,000 shares of Union Pacific on the spot. His friend thought Livermore must have inside information. Livermore didn't. Then, he sold another 1,000 shares of Union Pacific. His friend thought Livermore was stark raving mad. Livermore had no quantifiable reason, just years of experience and observation. Livermore sold another 1,000 shares of Union Pacific. Livermore's friend grabbed Livermore and said it was time to go before Livermore had sold all the shares of the company.
To the naked eye, nothing seemed wrong. The market was strong. Nobody was thinking of falling prices.
The next day, the market went up some more. At the end of the day, there was a sell off in Union Pacific. The price dropped below Livermore's selling price. Livermore was encouraged by the late day selling. (Late day selling is always a hint that lower prices may be ahead.) Livermore sold 2,000 more shares of Union Pacific.
Livermore cancelled his vacation and returned to New York that very night. He knew from the price action that something was up. He wanted to be prepared.
The next day, New York received word of the San Francisco earthquake. Could it be that people in the know were selling shares of Union Pacific late in the day the previous day? Livermore had no inside knowledge. He had seen alot of little things and his unconscious mind, his intuition, did the rest. His intuition told him to sell. Only later would he receive word of the earthquake.
Now, you might assume that the market dropped like a rock upon the news.
Not really.
In fact, the market opened down only a couple of points. Livermore explained that "the public never is independently responsive to news. You see that all the time." page 77. If the market is filled with bullish sentiment, then people do not want to accept bad news. As a result, prices came back.
Livermore's friend teased him. "That was some hunch, kid. But, say, when the talent and the money are all on the bull side, what's the use of bucking against them? They are bound to win out." page 77
Livermore accepted that prices hadn't dropped but they would. He challenged his friend with the fundamental argument "What would you do?...Buy (Union Pacific) on the strength of the millions of dollars of damage suffered by the Southern Pacific and other lines? Where are the earnings for dividends going to come from after they pay for all they've lost?" page 77
When the fuller reports came in the next day, the market began to slide off. Livermore doubled down and sold 5,000 more shares of Union Pacific. Nothing under the sun could prevent a substantial break. The next day, the market really just dropped. Livermore doubled down again.
For Livermore, the market was presenting a heaven-sent opportunity:
"I wasn't thinking of anything except that I was right--100 per cent right--and that this was a heaven-sent opportunity. It was up to me to take advantage of it. I sold more....There was nothing that anybody would do to undo the earthquake, was there? They couldn't restore the crumpled buildings overnight, free, gratis, for nothing, could they? All the money in the world couldn't help much in the next few hours, could it?" page 78
Livermore cleaned up the next day. He made $250,000.
That summer, Livermore took a real vacation in Saratoga. He had earned it. Of course, being Livermore, he kept one eye on the market.
He took the time to sit back and think about economic conditions. Stepping back and taking in the big picture is always invaluable as an investor and trader. If you are on the right side of the fundamental conditions, then you will profit in the long run. To quote Livermore:
"I studied the situation in 1906 and I thought that the money outlook was particularly serious. Much actual wealth the world over had been destroyed. Everybody must sooner or later feel the pinch, and therefore nobody would be in a position to help anybody. It would not be the kind of hard times that comes from swapping a house worth ten thousand dollars for a carload of race horses worth eight thousand dollars. It was the complete destruction of the house by fire and of most of the horses by a railroad wreck. It was good hard cash that went up in cannon smoke in the Boer War, and the millions spent for feeding nonproducing soldiers in South Africa meant no help from British investors as in the past. Also, the earthquake and the fire in San Francisco and other disasters touched everybody--manufacturers, farmers, merchants, labourers and millionaires. The railroads must suffer greatly. I figured that nothing could stave off one peach of a smash. Such being the case there was but one thing to do--sell stocks!" pages 93-94
But the market kept rallying! Livermore was right in a broad sense but his timing was off. His difficulties in getting his timing right reminds me of Bears before February 18 and May 1 of this year. The Bears were right in a macro sense about troubles ahead but the timing was early. Livermore concluded that it was best to start selling when the risk of the engine backfiring had been minimized.
When did Livermore know the time was right to start selling?
One day, he read in the newspaper that Great Northern was issuing new stock. Payments could be made on the installment plan. Installment plan? This new development meant that the big banks were not sure stockholders had the cash to pay for a bargain. No cash? Time to sell! A few days later, Livermore read another advertisement that said St. Paul had set its date of payment ahead of Great Northern. St. Paul was trying to beat the two other railroads to what little money was floating around Wall Street. This was another signal that money was scarce on the Street.
In Livermore's words, "If money already was that scarce--and you bet the bankers knew--what would it be later? The railroads needed it desperately. It wasn't there. What was the answer? Sell 'em!" page 98
(To me, the parallels today are with these global insurance companies. They did not plan on an earthquake/tsunami/nuclear meltdown. The bills have come due from Japan. And I figure the big banks know the real score better than me. But I digress....)
Livermore started selling stocks like a mad man. The rallies grew feebler and feebler. Prices kept breaking every day (Kinda like the month of June 2011)
By February 1907, Livermore had cleaned up again. He had big profits. He went to Florida to fish and rest.
While on vacation, Livermore forgot about stocks. He just wanted to fish and enjoy life. A friend brought him a newspaper one day. Livermore saw that the market had had a big rally. Hmmn. The Bear Market was not over and yet Wall Street was "marking up prices beyond reason or letting somebody else do it." page 103 Livermore couldn't stomach the fake rally. Livermore went to a broker's office and, after a false start, began selling stocks again. It was around Washington's birthday, 1907. The more he sold, the more his profits grew. Everything was going down. Livermore cut short his vacation and returned to New York.
For four months, he sold and sold stocks. The market rallied. He sold the rallies. The summer came again and the market grew dull. (As you recall, markets blow hot and cold.) He left on vacation for Europe.
While on vacation, he didn't give a thought to the market.
One day, he read in the Paris newspaper that Smelters had declared an extra dividend. Stock prices had been run back up and the market was strong again. Well, Livermore knew that the Bear Market wasn't over. "The news simply meant that the bull cliques were still fighting desperately against conditions--against common sense and against common honesty, for they knew what was coming and were resorting to such schemes to put up the market in order to unload stocks before the storm struck them." page 109
Livermore sold Smelters, cancelled his vacation, and returned to New York.
Once in New York, Livermore sold more stocks. As money got tighter, the call-money rates went higher and prices of stocks lower. The money market was megaphoning warnings to the world. People believed in miracles, so they did not sell their speculative stocks. Big mistake!
(In this business of investing and trading, hope is your enemy. You must sell when you get the feeling that something is wrong. The first loss is always the best loss. He who panics first panics best!)
One day in October 1907, there was just no more money. There was no money anywhere. You couldn't liquidate stocks because there was nobody to buy them. The intervention of J.P. Morgan saved the market. Livermore covered his shorts, profiting $1 million on October 24, 1907. On that day, there were no bids for Union Pacific at any price! No one had money to hold stocks! No one had money to buy stocks!
Conclusion.
Does history repeat itself? Yes and no. Patterns recur but never in identical fashion. Otherwise, everyone would be wealthy and retired. The best we can do is read the tea leaves, connect the dots before the next guy, and be alert to the economic impact of distant earthquakes.
Have a great summer!
Wink
Standard Disclaimers
1. This blog is for educational purposes only.
2. None of the individuals associated with the Las Vegas TSP Investment Club are registered financial advisors.
3. This blog is not an offer to the public to buy or sell any stocks, options, commodities or futures.
4. You are encouraged to do your own due diligence and to consult with a professional financial advisor before making any investment decision.
5. This blog cannot take responsibility for the results of your investment and trading decisions.
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