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Tuesday, November 30, 2010

BATTLE OF WILLS


I have been taking quite a bit of time lately to just try and figure out how to play the stock market right now. As I have stated previously, we are in uncharted waters here in my lifetime. There is clearly a battle going on between the will of the people and the will of the governing in all aspects of our life right now. It is clear the will of the people wants to sell the stock market here. Just about every historically accurate way to time the stock market indicates a correction should be happening. However, we have a government that has decided that no matter what they have to do, stock prices are not going to be allowed to decline.

I really don't care if they go up or down to be honest, all I want is free market flow which we clearly do not have at all. The next chart should add to making this point.



This is a chart of Caterpillar, and old stalwart blue chip stock. Historically this has been a steady solid company whose stock although a good one to trade for holding purposes, has generally just plodded along. I have marked all the gap openings in this stock just in the last few months, many of which have held and not been filled. Trust me folks, this is highly abnormal. A stock like this should not look like a chart of OATS. This tells us a couple of things. First, it shows the tremendous overnight futures moves in the SP 500. Those moves are what cause these openings. Second, it also tells us that trading this stock in the traditional ways will not work anymore. Third, it is confirming the lessening relevance of the pit sessions here in the US.

I personally have had a hell of a time trading stocks the last month. The chart patterns are just weird and it is because of the overnight manipulation of the indexes by the Federal Reserve. The big problem I see with this when I study history, is that prior circumstances of government meddling in pricing of commodities has always resulted in price ultimately going where it wanted to, and often violently. This type of a move will happen out of the blue when it does, and I have no idea when. Study the price of lumber going back to the time when the government had a limit on the price on the upside, and what happened when it broke through that limit.

Listening to CNBC yesterday very early, there was shock that the Ireland bailout was not being perceived as good news. Are you kidding me? Countries that are basically insolvent loaning money to another who is should be viewed as good news? All they are doing is creating a bigger bubble. Bankruptcies need to happen. When an entity cannot pay for things, it needs to go out of business and then re-structure itself into a model that can operate profitably. As I have said recently, I am more worried about the big picture than at any time in my life now. I cannot recommend that the average investor be long stocks here. We have a wonderful trend that has been going on, but just the way this is being manipulated greatly concerns me. For my purposes as a short term trader, I have no problem being long because I can pull the plug and go flat when this wipe out starts, or get short to take advantage of it. The average person with 401k's is not going to be in a position to move that quickly either physically or emotionally.

The VIX index has been speaking loudly recently, that a sharp sell off was coming. It appeared to be here until the Fed got back into the futures business to stop it once again. There is going to be a time when they are not able to do it, and the exits are going to be incredibly crowded when this happens. I wish I knew when this would happen so that I could tell you. Today they are once again reversing a huge overnight down move in the futures, so the battle is on once again. Day trading might well be the answer to some of these issues even though it is a very difficult way to try and make money. It keeps you clear of the overnight games by the Fed.

For now I am just long Bonds and am in a couple of other things but overall not heavily trading today. I am looking for some other action. I have been looking for shorts in the energy markets. RB has a classic trap pattern right here, but since it is the strongest in that sector, I want to short Crude which has been far weaker. I got out of my Dollar long too soon, but I have not done much else right the last month so that is par for the course I suppose. I still think the traditional indicators say down in the stock market, but who knows if they mean anything anymore.


10 comments:

Konrad Sherinian said...

Chris - Hope you had an enjoyable Thanksgiving!

I agree with you regarding the markets. A lot of indicators are looking like we should see a correction; i.e., investor sentiment (although it is rolling over), hedging indicators, every sane momentum indicator, LW's WillGo, etc. I am hoping for a mild correction, and an opportunity to get in at better prices, but am not playing to the short side - the come back yesterday was something else.

Any thoughts on Coffee and the Aussie in the near term?

Anonymous said...

Nice blog Chris.

I've had an uneasy feeling in my stomach for months now, not knowing what to do. The Irish bailout, makes no sense. As you've stated, how can a country with no real money to lend, offer up billions to another country? Our U.S. dollar is on it's last legs IMO.

I'm contemplating withdrawing funds from my 401k, take the tax and penalty hits, and investing in physical gold and silver for the long haul.

Thoughts?

Anonymous said...

Nice blog Chris.

I've had an uneasy feeling in my stomach for months now, not knowing what to do. The Irish bailout, makes no sense. As you've stated, how can a country with no real money to lend, offer up billions to another country? Our U.S. dollar is on it's last legs IMO.

I'm contemplating withdrawing funds from my 401k, take the tax and penalty hits, and investing in physical gold and silver for the long haul.

Thoughts?

Chris Johnston said...

Coffee don't see anything right here by what I watch. The Aussie appears to be in a buy zone to me but short term indicators don't have any signals yet. It trades tracking stocks pretty closely so if stocks resume, it should come along for the ride

As to the other comment about paying penalties and withdrawing from the 401k, I would not recommend doing that. That is an all in bet against the dollar, if you are wrong you will be wiped out. Gold has gone up 4 fold, it is not a time to get aggressively long there in my view.

Aside from my view in the dollar and gold markets, an all in strategy on anything is a bad choice in my opinion.

Also, in a worldwide wipeout if one were to occur, it is my view that the dollar will soar, unless militarily we are overthrown. As long as we remain the most powerful country, I think there will be a flight to quality into the dollar like we are seeing now in a time of strife.

All in with the metals here is like all in with housing in 2005 and we saw what happened there. The metals will utlimately do the same thing it is just a question of when not if. If you study history you will see that commodities go up and down, none have a steady life long uptrend like what we are seeing now in those markets. It will revert and sharply, but I do not know when and those all in will be decimated when it happens.

Obviously you have to do what you think is best, and I have been wrong about the metals thus far. I never thought they would go up to this level. Get some exposure if you feel strongly about it but don't go all in.

Anonymous said...

agree overall with your view about heavily manipulated mkts...it just always seems to end very badly. The bailing out and increasing reach of the Fed runs the risk of turning the whole thing into a silly game. Where does it end if there is absolutely no 'out of bounds'? An overnight collapse of the banking system in '07 would have been bad no doubt...its very hard to start over with panic running high. However, that being avoided...checks for a zillion shmillion dollars and an extended accounting holiday for banks is just a free give-away. The rest of us play by the rules, but the biggest players have no consequences for their actions. Not to be dramatic but you cannot skew the value of the somthing to suit your every need. Price of a pint of beer, or cost of money on a mortgage....its a fragile unforgiving mechanism that is not being allowed to function properly. But, in true mkt followers fashion, we need to recognize that the biggest players have unlimited accounts and make the rules and just go with what comes.

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Chris Johnston said...

I used just the standard tools in blogger, it was very easy to do.

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Chris Johnston said...

I am not a big fan of that, but as long as you clear it with me first like you have done here that is fine. However, make sure you cite where it came from. The government is watching when we are talking about things like I do so just be careful. I have found them snooping in my blog at times.

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