Lessons

1. If VIX is under 26, buy the dip. If VIX is over 26, sell the rip.

2. Always trade in the direction of the larger trend. Find the strongest trend in your time period.

3. Nothing as bearish as a failed breakout. Nothing as bullish as a failed break down.

4. Don't worry about the last dollar. Take your money and go to the beach!

5. No more than four positions at a time. Preferably 2-4. Scope out others. Pick the strongest.

6. Buy the strongest; sell (short) the weakest.

7. Nothing is guaranteed. Nothing.

Sunday, January 31, 2010

ST Outlook

Look at the volume pattern on a QQQQ 1-year daily chart, then on an ES daily 1-year chart. We are seeing volume that we haven't seen since March 2009. I don't think this is bullish.

At the end of a major down move, you will see big volume bars. Normal. It's a selling climax. Similarly, at the end of a major up move, big volume bars signify a buying climax.


ES:
Bottom at 1060-1070 ES. 50% (or thereabouts) retrace, then down to 1030-1040 ES.

Gold

Bottom at $1075 or so. This is a fall of about $150 from the top. 50% retrace is 1150. We should retrace to around $1135-1140 at least before any correction.

Silver

Silver fell from $19.57 to $16.07 (if the fall is over, as I assume it is). 50% retrace is $17.82 at least, but probably up to $18.30 or so (where it will meet a falling trend line) before correcting a little.

Gold or the Dollar

In this coming bounce, it should become clear whether Gold or the dollar will triumph. Very shortly, we should get a bounce in the SPX and Gold coincident with a dollar top.

Friday, January 29, 2010

Ritholtz and Bespoke - WARNING!

S&P 500 crashes through support. Traders had been watching 1080-1085 level. So much for the strong opening. “The reversal today was telling,” FusionIQ CEO Barry Ritholtz says.

- It’s getting ugly out there. “This type of action, when the market trades sharply down even though economic reports and earnings reports both beat estimates handily, is not good,” Bespoke says. “There’s simply no way to sugercoat it.”

"BR: I don’t know about other technical analysts, but back in September I warned of a 5-15% correction (it was 6.5%). Now, I am looking for a 10-20% correction." = Barry Ritholtz



The Correction is NOT over

Please proceed with caution. Take quick profits on long trades.

Nice Lesson on Market Dynamics

In a downtrend, every thing falls. Every thing. The instrument that gives the most resistance, falls the hardest. Don't worry, it will fall. So far, until further notice, unless this bounce
(when it comes) crosses 1150 SPX with gusto, this is a downtrend. And 1120-1130 should be shorted. 1120-130 SPX should correspond with 1120 - 1130 Gold.

Long SLV up to Gold $1120- $1125

I think Gold will go up to $1100 by next Wednesday latest, probably Monday or Tuesday, and then to $1120, within 5-10 days. Then it may fall heavily, along with the market.

Thursday, January 28, 2010

Trading lessons

Two lessons
1. I do best when I plan my trades on instruments that I am following carefully, worst on spur of the moment alternative trades that occur to me. Today's Q buy seemed like a good idea, but I hadn't given Q's the time that I have to the other instruments I have been watching more carefully.

2. It's always a good idea to wait for overbought/ oversold conditions to buy/sell.

ST Outlook

Equities down to $43 QQQQ; 1060-1070 ES;
Dollar up $80;
Gold bottoms $1070 - 1080.
EUR/USD temporary bottom around 138.

Trade: Long PMs. Short EUR/USD until 138.

SCALPING!

Scalping is the name of the game. That's what Carl is doing, and that's what I can do to build the account. Successful scalping with stops -- as I did today. Stopped out of a EUR/USD short at 1.410, went short at 1.45, covered at 1.402. Hey, 48 pips is 48 pips!


Monday, January 25, 2010

ST outlook

MT and LT we are screwed. ST we may get a bounce from 1075. Best to just ease up and then short again.

Consider going long SLV or GLD for a quick bounce.

Wednesday, January 20, 2010

Time frame

1. Decide the time-frame of the trade.

2. If it is a ST trade, watch it. It not, shut your computer.

3. If it is a ST trade, aggressively take profits and be happy, even if the market continues in the same direction. Be happy! Do something else! Meditate! Especially if it is a counter-trend trade.

Dollar-PMs

The dollar is rising to the roof, but PMs are still very strong. Silver and Gold may have bottomed already.

Tuesday, January 19, 2010

ST Update

The tape is very strong today. I didn't expect such strength, but this is still a bull market. I am now quite sure that we have NOT seen the highs. Either now or next week, we will get another wave up.

Big Picture Update

We are in Wave 1 of a big bull market. Wave 1 is about to end, perhaps around 1170 SPX? Loan losses for banks are still continuing, and regulation will now come in which will limit bank profits for the next few years. (I hope.) The decline (correction) should take us to at least 1020 SPX over this year. Use the decline to invest in SOX and perhaps IBB in your 401Ks.

Friday, January 15, 2010

Hong Kong, Shanghai and Mumbai

I just understood why Hong Kong and the BSE charts are so much higher than Shanghai. There is a risk premium in Shanghai; your assets can get seized.

The Fundamentals, Gold, $, SPX

The fundamentals

American loans are still going bad and not getting better. The JPM report showed that. This is bad. The U.S. consumer will probably stay fucked and the U.S. government will keep monetary policy loose. Zero interest rates may mean that stocks will not crash. Also, companies are doing very well at becoming more efficient. Companies with global sales -- IBM, Oracle, Intel (most tech) -- are doing great. Hence, I feel that any correction will be small (<10%).

U.S. small cap equities may not be the best performing class for the next few years. However, the Chip cycle has started. A new, international bull market is alive.

Gold is still correcting. This correction should take Gold down to 1080s and possibly to 1000.

In SPX, Carl thinks that the correction will stop at 1090 SPX, and then on to 1200. Maybe. I'm not so sure about the 1200 part, but it's certainly possible.

Carl thinks that the SPX will go up to 1200 after the month of January. I find that slightly unlikely. Typically, in bull markets, the SPX goes up around earnings season and retreats after earnings. This, in my experience, is a very strong indicator. So the correction may last through January and February and half of March.

The dollar will be go up as long as people perceive risk in equities and commodity markets. JPM earnings brought down the $. Because the Fed is determined to have a loose monetary policy (and keep interest rates low), there is always potential for a $ carry trade.

However, the dollar's primary competitor for the next one or two years at least is the Euro. The Yuan (or Remnimbi) cannot compete, because China will not let it float. It would cause riots in China. They cannot. Plus, keeping their currency down is a huge net positive, in almost every way. The only negative is that Oil and commodities are more expensive for them. And since they can subsidize the hell out of these (they have enough reserves), this is not a problem. China is doing just fine.

By pegging the Yuan to the dollar, China is not only putting a ceiling above the Yuan (because of the dollar's depreciation), it may also be putting a floor under the dollar. See, the world cannot have the Yuan become any cheaper than it is. If the Yuan gets cheaper, more manufacturing flows out of Germany, Japan and the United States and, in the long run, power flows to the manufacturing countries. In the long run, as the Yuan gets cheaper, these countries become vassal states of China. This is China's plan. Devalue currency, become manufacturing powerhouse, bring wealth to Chinese masses, get Americans addicted to Chinese consumption, and become supreme. Cheap chinese consumption is like the Opium the West gave them. They have learned their lesson well.

So the Eurozone and Japan will fight to retain manufacturing, and, in trying to devalue the Euro against the Yuan (main competition), they will devalue their currency against the dollar. As much as Trichet is an inflation hawk, Mercel and the others will keep him muzzled.

So this rally in the $ may be range bound. The Euro will fight to go down and will probably succeed in taking back 50% of the dollar fall.

Side note: America is not the place to invest your money. Crony capitalism is killing this country. China and India and Australia and Brazil and Canada. While the corporations are doing fine (thanks to the ROW), the people have little buying power,


Dollar Long-term

USD may not go beyond 80. This wave up in the $ may well be a B wave in a massive, multi-year correction, to be followed by the final wave down in the $.

I'm not sure if a $ bull market has started.

Other than risk-aversion and the fact that some economies in the Euro zone (Greece) suck, why should some one put money into the dollar? The Europeans are trying to devalue the Euro and we're trying to devalue the dollar. Both of us have to devalue, in order to compete. The Euro zone will print less, probably, because they're more afraid of inflation.

JPY will begin another wave up now, along with the $, on risk aversion, but JPY will be the better buy.

Although they're pressing Prichet not to say anything about raising rates, despite inflation, Prichet is an inflation hawk.

GBP may raise rates in February. This could provide a nice bounce play if it gets too oversold verses the dollar -- in the upcoming move to safety.

Thursday, January 14, 2010

New Bull Market!

1. A new 80 year bull market may have started.

2. A new 8 year Bull Market started on March 2009.

3. A 2 year bull market started in March 2009.

3. Watch the Semis and buy on the dips. Also buy Biotech.

4. EURUSD has already topped. SPX will put in a ST top tomorrow, then break to 1110 or so.

5. Look at the Intel outlook. The chips start the bull.

Wednesday, January 13, 2010

EURUSD and Equity Outlook

1. Equities rise to 1150-1160 and then break 30-40 points on Friday.

2. EUR-USD will probably rise to 1.4680 or so.

3. Buy the dips and Sell 1.4670.

50% retrace WILL be protected.

Waiting with No Position

I don't wait enough. I have to learn to let the trade come my way.

Tuesday, January 12, 2010

Futures - Position Sizing and Time Frames. Very Important.

If you have a $15,000 account are are trading one unit of e-minis (margin about $5000 depending upon the broker), adding another unit when the trade is going your way, etc., then you should only do short-term trades, trades on which you have a very high probability of success. This means trades when you are very sure about the direction of the market, a bottom has been formed, and you are targeting a pre-set level. You get out at that level. These should be conservative trades.

The above trades are not double-down trades where you can possibly see the market going against your trade and see yourself doubling or tripling down. If the market can go against you, it probably WILL. With only three units to trade, you could get wiped out.

If you want to build a futures position for a big currency move (which may be a one to three month trade), you may build the position over a few days and average in at extremes. In such a case you need to have at least ten units worth of capital and build the position over weeks. I haven't yet learned to do this successfully.

Sunday, January 10, 2010

Patience and Speculation

One of the most important characteristics of a speculator is patience. I don't think I can have the patience necessary if I am not writing.

Breakout Tomorrow?

The EURO-USD may have an upside breakout -- along with equities -- tomorrow, or some time this week, maybe around Jan 14 or 15.

Sentiment in favor of the dollar is overwhelmingly bullish. COT data shows the more big speculators are short EUR-USD than at the EUR-USD bottom. Also, lots of traders expecting some sort of a break in equities... however, the public is just getting invested. This is not a good thing.

We may get a blow off top EUR-USD, a move to 1.46 and the SPX to 1165 - 1170 (+30 points) before we get a correction.

Consider getting out at break even to short at 1.46 or so in a week.

Thursday, January 7, 2010

Will try to go short EURO-USD today

Good volume selling here (on the ES). I will look to go short EURO/USD today. SPX will likely drop tomorrow.

Wednesday, January 6, 2010

Gold, EURO-USD, SPX Targets

Gold - 1145 should be the end of this up move. Should come tomorrow or before Friday's NFP report at any rate. Around 112.3 on GLD.

EURO-USD - 145.5 or so. Again, should come tomorrow.

SPX 1145 or so temporary top.

After this, there should be a ST fall in SPX. Last move up in the market (to 1170 or so), Gold and EURO-USD should decline. USD should start to telegraph warnings around this Friday morning or sooner.

Feels like Wave 5

Everyone is bullish. Even Yahoo finance. This could easily last all of January, but the fall (the first fall) when it comes, will be sudden. There will be a bounce back, but watch for that first fall. The USD is telegraphing it.

Does the Stock Market Predict?

In my opinion, yes, the market does predict 6 months ahead, but not 12 months ahead. Six months ahead earnings may be rosy, but 12 months ahead we may have a recession.

Monday, January 4, 2010

Equities up, as planned

1. EUR/USD should go up to 145 - 145.5 or so.

EUR/USD should not go up above 145.5 or so.

2. Equities should consolidate today's big move; down a bit tomorrow? EUR/USD should go to 143.5 or so, then up to 145.5 or so in next week or so as equities go up to 1145.

At 1145 we should see resistance, and again at 1165 or so. This should be bullish USD. Good time to go long USD, when equities are correcting. Close USD shorts at 143.5?

Big picture: USD is affected by risk perceptions. Risk perceptions will increase suddenly within 2-4 weeks. USD will rise. EUR/USD will fall. Also watch for any problems within the EURO zone.

Saturday, January 2, 2010

Week of 1/3

U.S. Equities (and world equities) will likely go up for around for 1 -3 weeks in a sharp up move.

The EURO-USD pair could be bullish for 1 week or so. But if this move is for real, it should not go up beyond 145.5 or so. If it does, I will wrap up my shorts at favorable opportunities.

My primary case for a top in equities:

1. Equities are fundamentally overvalued - by any measure, even if earnings are as golden as expected. Earnings will be good for 2010Q1 and possibly also for 2010Q2. But 2010Q3 and Q4 may not be golden. Fear of that should draw the markets down.

2. Fed may be done buying bonds -- QE. If Fed stops buying bonds, bonds collapse, as they have been. LT interest rates go up (they have been). Equities may continue up (1-2 weeks). This is what has been happening. Bonds (20 year - TLT) will continue to fall to $87 or so, where they meet a rising trend line and bounce. Why do they bounce? Because of a global flight to safety, a flight away from risky high-yield Brazilian bonds to safe U.S. Bonds.

3. Fund managers have collected bonuses for the stellar 2009.

4. We have finished a 10 year Bear Market. Buy the next dip. We should overshoot to the downside, and therefore SPX 850 is a good bet. 900-950 is fair value.

5. Sentiment among fund managers is overwhelmingly bullish. However, sentiment among the public is still overwhelmingly negative. The China-India growth story is intact, but should suffer a correction. We should get a correction; this is a healthy bullish scenario. We should get a correction so that bears feel we are going down to the end of the world -- they were right all along. 10% from 1150 means 1040 or so. 20% means 920 or so. This should be expected. I may start buying 920.

6. A stock market correction will also bring about lower interest rates, which is also long-run bullish because it will help with mortgage resets.

7. Catalyst may be fear of government intervention being withdrawn, or sovereign default in Europe. Ireland? Greece? We are overvalued; all we need is a catalyst to produce a low and then a lower high. Then we're set. Low around mid Feb? Lower high late Feb? Then decline?

8. Summary: I am bullish in the very short-term (1-3 weeks), then bearish for 3-6 months, and Bullish LT. The upcoming correction is a buying opportunity LT.