CONFESSION IS GOOD FOR THE SOUL
Here is a trade I made in of all things Rough Rice that I closed out yesterday right before the close, for a very nice profit considering how many contracts I had in this across my accounts. I put this ridiculous Bollinger Band template on here just for fun. I have no idea what any of this stuff is other than obviously I know what his Bands are. I wonder if this trade was justified by this technical stuff?
I poke fun at myself because this is a very thinly traded market, so not the best place to trade. However, one thing I did notice was it was the weakest of the grains I thought other than Wheat, and it tends to form very nice patterns in some of my proprietary indicators. As a result, I took a shot at this one and made about 11k on it.
The confession reference is just that I traded a market that I would tell most people not to touch due to liquidity, so kind of embarrassing, but a good result in the end.
Yesterday was certainly interesting in that we are beginning to see a little panic selling at times for the first time in quite awhile. I made a very large gain in a tick chart trade in Crude Oil when it collapsed. Speaking of Crude, let's revisit that now that once again the Pickens effect is happening again. He was on CNBC last week predicting a rally and boom a crash. He obviously does not make his money from price prognostication, he is the most inaccurate predictor of price in the world. I cannot remember one single time he has ever been on when I have heard him, that he was not absolutely dead wrong almost immediately by a large amount. He owns it and I assume he has an in-house hedging group that makes the trades. If he is making them the hedging operation must lose money. The old adage of never listen to someones opinion about price direction, when his livelihood depends on that direction being necessary for his business to profit certainly applies here. I cannot understand how he is so bad at this, but it is what it is.
The main reason I have been so bearish on Crude is as clear as day on this chart. We had a very unique situation at hand here. If you look where I have the arrow, there was an extraordinary high level of Open Interest which is bearish on it's own. However, if you look at this closely you can also see that the Commercials had a record net short position at the same time. This tells us that the huge Open Interest was not Commercials at all. You can see the record Small Spec long position that was in place right at the same time. When you also couple this with the fact that overall on this weekly chart, the market was still in a downtrend, you really had the perfect storm for a price collapse. When we see something like this generally there will be a large not small price move down. This is why I have been telling people who ask me where Crude prices are going, that I think we are headed back down into the 30's again.
You can see some Commercial buying on the dip that is occurring now which is to be expected, the huge short position is beginning to get worked off a bit by the Commercials. As we drift down this will likely increase and will show them being buyers ahead of when the low actually gets made. On a near term basis this type of buying does justify looking for long entries for a bounce. Of course all of this hinges on the stock market anyway. If stocks rally, this will bounce, if they crater so will this. However, I think in spite of a stock bounce, this will ultimately continue on it's merry way down overall.
The last chart is the result of something I heard someone talking about on the Fox business channel last night. This is a chart of the Bernanke 500 with a 50 day and a 200 day Moving average on it. The technique being espoused was not to ever worry about a bear market as long as the 50 day moving average is above the 200 day moving average.
This theory on the surface makes sense. A shorter term average will be above a longer term one when price is rising and vice versa on declines. However, the big problem with moving averages is they are lagging indicators. You can see here by this logic as a long term investors you really got whipsawed big time by this theory mid last year. You would have exited right where you should have been buying. This is most often the case in these static types of approaches. However, just like anything else, when you get a market that has doubled, any trend following techniques will work. So would having a monkey throw darts at a board. Let's be honest money managers get paid by you having your money with them, not out. Of course they want you to stay in. He was right about one thing, the 200 day. There is plenty of research that supports this benchmark as being a good thing to be aware of. Buying above the 200 day on dips and selling below it on rallies is a proven method statistically to have an edge. As to this 50 to 200 day theory, form your own opinion, but it is way too much of a lagging technique for my taste.
That is all I got today