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Wednesday, October 13, 2010

SPECIAL TIME IN HISTORY


I have a question to ask all the readers that check in here. If you were in Las Vegas and the pit boss came by your table while you were playing blackjack and told you we are rigging the hands so you will win? Would you increase your bet size? I think most people would be skeptical but would do so to see what happened. There are some who of course would bet the farm and happen to do it on the one hand they lost on. This cannot be helped, but for the average person who moderately increased his bet size and maintained that over several hands, a big gain would come their way. After all they were told there was going to be a predetermined bias in one direction.

We are at a unique point in history where the Federal Reserve has just done what the pit boss in the above example did. They have outright told us they are setting inflation targets in an attempt to get people to spend more money. They have rigged the deck like at no other time in my lifetime, and told us up front about it. Ever since these announcements we have seen a lift off across the board, and a dollar wipeout. Now might be a time to tune out the Elliot Wave people calling for a 600 Dow or whatever their latest end of the world scenario is. I know I get emails from them and others every time we move up telling us how much things are going to go down. Who knows maybe they will be proven right at some point, but being wrong for thousands of Dow points and years of time is no way for most people to feel comfortable. You simply have to be flexible in this business.

I was bearish on the stock market recently, and tried to short the Naz twice, once for a scratch, and once for a loss. Now it is clear to me this market is a buy on any dip. I was wrong and have now switched my view. The same can be said for the GOLD market. I was bearish there for a long time due to fundamentals, and guess what, fundamentals in that market do not seem to matter at all. I have to accept this for what it is. It is a unique move historically for this reason, but the tape tells it all. This market is just blowing off upward along with everything else. Is it really a good idea to continue to look for a drop when something is rising that sharply? Of course not. This was a blunder on my part to have this view, but I was wrong and just have to admit it. There is certainly no sense in compounding an error with being stubborn.

We have been told by the government they are going to make prices rise, and they are doing so as we speak. As a result, look for longs, what else can I say?

Interestingly enough, the DX chart above does show some basing here on a very short term basis along with some divergence in the CJ Timing line ( explained the other day ). This bears watching simply because of the extreme oversold nature of this market. Many of the currencies show the opposite view. It has been my experience that when I see markets just creeping and crawling along like this day after day, trying to fade the momentum of them is a tough proposition no matter what the indicators are saying. They often will diverge during times like this. Further, when you have markets that just go the same direction day after day after day like this, trading them is very difficult. They just don't give you a way in which at times leads to spikes up then sharp down moves. This happens because eventually the last doubting Thomas relents, and of course does so at the very top of the momentum. Picking that peak is next to impossible, so don't engage in that exercise. This only comprises less than 10% of the historic price action so you cannot tailor a strategy to this alone because it won't work 90% of the time.

The government has spoken loud and clear so be careful fighting this. I am more interested in buying the pullbacks, especially if we happen to see a 3 to 5 day period where things drop dramatically. Will we see that, who knows?


1 comment:

John said...

Chris,

I agree with everything your are saying and I have serious concerns about the future os the US Dollar, of which I am holding way to many of.

I have thought many times about investing in a cd in a foreign currency through EverBank out of Flordia. You make the low interest rate, but also any change in currency exchange (up or down). The CD is also guaranteed up to the maximum by the FDIC (not the loss that may be incurred in the foreign exchange, but the principal plus or minus the currency adjustment).

I was wondering what your thoughts were on such a strategy (I am not asking for any advice, just your thoughts...none of your comments will be used against you I assure you).

I do have a question on another subject, when one has a setup market, what do you think the best entry strategy would be, i.e. oil, bonds, crude oil)?

Thanks

John