Friday, April 09, 2010


Well the old adage of all the bad trades look stupid afterwards certainly applies here. Keep in mind that I just trade patterns, not opinions. As a result, all trades are really the same. The patterns are different from trade to trade. However, I don't trade with alot of discretion so I usually don't feel dumb after a bad trade like this one was. This week has been mixed, I have made a couple of bad trades and a few good ones, so a net gain, but not a great week overall.

Let's talk a little about a bigger picture view of this market, and all the indexes. I harp ad nauseum about the PPT. We know they exist, and we also can see they are making no effort to disguise what they are doing anymore. In reality this is really irrelevant. We cannot do a thing about it, and we do know they are baised in one direction so anything they do will move the markets higher. It really is a known edge. It tells us that during any pullbacks that we get no matter how small they might be, buying is the correct play.

It is hard to buy into a 2% decline after an 80% upward move, I have to admit. The strongest trends are the ones that have very small pullbacks and they just don't give us great chances to enter. For those who might be long term holders, I do not envy you here. This is a very difficult call to make if you have sat this one out all the way up to here, and are now contemplating what to do. If it were me in that position, I would sit on my hands here. Chasing something like this inevitably results in you buying the exact high. There are significant downside possibilities here that could trigger at any moment just based on all of the political things that are going on. If the horse happens to get out of the barn away from the PPT, this could meltdown incredibly fast. However, there is always the possibility in any trade of it moving against your desired direction, so you really have to tune that out.

You have to have a plan for how you approach trading and investing. This helps when we get into a dilemma like this. For me I don't care because I make my money going in and out for 3 to 10 day periods for the most part. I know my plan and it's limitations. For those who have a longer term horizon you have to separate news from your decisions. You need to buy on extreme weakness. If for some reason you exited when we went down under 7k in the DOW you need to have a plan of when to get back in. I would say in general the plan needs to be identifying a point when a retracement of a trend becomes a trend change. Obviously that happened quite some time ago now, so this is not a place to make your re-entry. DO NOT make it based on your view of whether Barry and his minions are commies or not. They appear to be but that has nothing to do with the stock market. I think most people have seen that proven out now.

I will be the first to admit that my longer term view has been incorrect. When we intially began the rally in March of 2009 I thought it was a retracment trade. As it carried along I still thought it was. I realized really about 3 months too late that it was more than that. However, I still thought the 1235 area would provide a ceiling for this. That might still be the case, nobody knows. Since there is such a heavy confluence in that area with so many different approaches that are used, I do expect us to have a moment of truth there. If we blow through those areas that next stop is new all time highs in the markets. My gut is that is what is going to happen. That gut is not based on anything technical that I use. I just feel now that we have defied the odds as well as many other forces for so long, that there is no way to stop this. It is yet another bubble that is being inflated. We all know that nobody does bubbles better than the former United States.

There does remain the possibility that with all the world wide crises going on, that money could flee from other places and start chasing our stock market. We have been lacking volume which proves this has not yet happened. If it does that could provide significant fuel. This is impossible to quantify.

So, if the .618 retracement area does not produce a reversal in this market, one is not coming. I cannot offer any advice to long term holders other than to watch that area and see if we stop there. If we don't you will have no choice but to get back in. It will be a terrible re-entry point if you exited at the lows. I never told anyone to exit there, but I will admit I did tell people I thought we were ultimately going under 6k before the final low was made. That is not going to happen now. I was wrong about that. I did also tell someone that when he got out at a different place than I had suggested, that he needed to be prepared for the period where he was going to feel like he had made a mistake. That time is now. I was unduly influenced by COT data in making that low call. I did tell another person who asked me about getting out that if he did decided to do that, he had to make sure he had a plan to get back in if he was wrong. He never got out I think mostly because he did not know how he was going to get back in.

For me it is very easy to just get back in once I see I was wrong in exiting something, as per my post above. This is just born out of experience. I cannot afford to get too hung up in what has already happened. If a setup for an entry is legitimate I keep chasing it until it is not. If it proves to be wrong I reverse.

Since I showed the losing trade above, here is the winning trade I made which made alot more profit than I lost in the dumb NAZ short.

I am not going to be doing much more shorting until I see something else that might indicate we are reversing. There is nothing jumping out at me here, other than the re-entry today if we were to move back down which is highly unlikely. This NAZ trade was just a losing trade and the setup is gone now barring a late drop today.


Flip flop flow said...

I think it is a classical capitulation set up. Until investors capitulate and start buying, the market will go higher. Wall Street will sell into the capitulation buying then withdraw their support of the market.

The only wrinkle is the deal that Wall Street made with the White House. Wall Street keeps the market up and Obama runs interference on regulation of Wall Street. If Obama's poll numbers go down enough, then Wall Street won't care and an engineered correction will take place, November elections be damned.

Chris Johnston said...

certainly a possibility, and I do believe that type of back door arrangement is exactly what is going on. Somehow they have gotten the big boys to lay off all sell programs, and that took a bribe of some sort on a large scale.

We have never seen engineering of asset classes like what we are seeing now, so it makes it very difficult to surmise at what point this will happen. If they can take it far enough up to make new all time highs, it will crash back down again just like it did the last time. I wish they would just allow the natural flow of things to take prices where their normal flow would take them be it up or down. Alas, that is not going to happen anytime soon.

jg said...

I am going to leave my short bet on the Russell 2000 in place until early next week; it feels like the Greece situation is getting messy (soon to be a liquidity crisis?). But, if my loss moves to 3-4% of my capital, I'll get out.

Lucky for me, my failing short bet is being nicely offset (and then some) by my long-term bet on gold and silver.

Flip flop flow said...

I think the Wall Street PhDs know exactly how intra-day traders like me work. And they are not giving much opportunity to trade since the market flat-lines mid-session until a surprise break upwards.

I am going to study this over the weekend. Try to pick the bottom for the day and stay long all day for the end of the day pump. And vice versa on down days. My proposition is that I trade this way as long as mid-day flat-lining is the mode.

Chris Johnston said...

Once you go back in history and discover these tendencies which if you do it properly would take several days if not weeks, you will see how clear this market manipulation is. I already know these tendencies and these moves do not happen in sync with what has historically been the case. The PPT is using a different metric for their buy programs than what has typiclly been used and that will become clear to you once you do this.

I cannot tell you what it is because I do not know, I just know it is not the same based on observing when these moves happen. You can just take a 60 minute chart and usse %r for o/s levels and just buy em all when they dip into buy zones

jg said...

I got tired of the PPT action, and closed out my short bet late in the morning, and went long for the afternoon for the obviously imminent ride up.

I will wait on the sidelines, now, with my short-term money, as I am loathe to go long, but understand that there seems to be a floor under this market, now.