Monday, August 08, 2011


It is amazing the George W could cause a crash like this as long as he has been out of office, what a miracle worker. I guess I was wrong about today reversing if it started down big. I did not count on that dumb ass giving a speech. When he talks bad things happen let's face it. Why not blame everyone else? The items I mentioned as to why I thought a reversal might happen from an oversold level today are even more pronounced now, so they still stand. Of course fighting trends no matter the logic is never a great idea. The trend is down in case you did not get the memo yet.

This is the type of thing I have been warning about in here for quite some time. I have said over and over a nasty decline was going to happen at some point because of how manipulated this market has been by the FED. I did not envision it going this far this fast at this time. I still maintain that a very sharp bounce is imminent. For those looking to play it I would suggest shorting the VIX. We have panic like has rarely been seen in history right now, and mark my words that as they came true here this will happen in the metals at some point also. Reversions are statistical realities. There have not been many 5 standard deviation moves like this that I can find. We have about a 20% haircut so far, imagine what the 50 percenter in the metals is going to look and feel like. It probably won't happen until next year the way it looks now but who knows. Once something gets pushed over you can see what happens.

The problem we have now is the sell the bounce trade is now toast. When this does bounce it is going to be suicide trying to short it. I will do it nonetheless if my signals are there, and just get run over anyway. I would think now that more or less if we bounce up to the 200 day moving average, that might be a place to get short, but if the stops are too big I will pass. Since this across the board wipe out has messed up so many other markets, I am not in any trades at all right at the moment. I am still watching the HOGS market to see what happens there. I suppose I am not waiting for a bounce, who knows if it will happen. I could justify being short there right now but I am not so what can I say.

I would suggest to everyone to be careful here, this is a rare occurrence and you do not want to pattern your trading after periods like this. I am mostly focusing on day trading at the moment to keep my head in the game and keep interested. I exited some of the trades I was in that correctly pegged this a bit too soon but it does not bother me. Moves like this are once a decade, even the rout of 07-09 did not go down as fast as this is without any bounces at all.

Since we are in the process of getting whacked again tonight, the PPT has to be lurking. They have a green light now from the public I am sure to save this if they can. They will show up soon, and one morning the average American will wake up to a 500 point up day when the Fed intervenes. I think this will happen in the next few days, but that is just an opinion. I wonder if behind closed doors our imperious leader knew we would fall this far the minute he backed away. It is a testament to how deeply involved in moving this up they were. I personally do not even want to know the details of how they pulled that 2 year rally off.

The good news for average Joe is this. If you knew nothing at all except seasonal patterns, you would not have been burned here. We are in the time of seasonal declines. If you are inclined to buy, wait. Time wise you should wait until October for the seasonal to be back in your favor. I suppose you can average cost your way in if you are a buy and holder. I am not. I go all in, all out.

Other than that VIX trade which is one I am looking at, I do not see anything else other than Hogs on the horizon. There is possibly a silver sell for a short term trade, but the cycles are bullish there so I do not know if I am going there or not yet. Don't go crazy here push away from the screen for a few days and count your blessings that you are not a buy and holder getting your life wiped out right now. I assume that buy and holders don't read here since I focus on short term strategies.


David said...

It's all rather bewildering, I like the views of David Goldman whose line is that this is driven by mass hedge fund liquidation/redemptions by investors, something similar to 1987 but not driven by fundamentals, because corporate earnings are high on the large cap side for companies that have access to foreign hard currency markets, even the banks, while they don't make much aren't going to lose much either. So if it's like 1987 then in retrospect one day it will seem like an odd blip, all the losses will be recovered - I have no idea.

Konrad Sherinian said...

Chris - I agree. W is a powerful guy to still be causing crashes 2 years, 7 months, and 19 days (about) after he left office. Few have managed to so infiltrate the ranks of government to have such power. Anyways, as I said earlier, I did take the Hogs trade. While it turned out to be a bit more of a nail biter, I added to it Friday and Monday, and exited last night when it hit my target right under the 50 day (89.05 in the V contract). It turned out very well - thanks again!

Chris Johnston said...

It is just what happens when un natural forces manipulate prices for a long time, eventually a very sharp reversion happens. As to whether this is the beginning of much more, we don't know yet. Most of the profits are the result of the FED manipulating rates so the jury is out on them in my mind.

Konrad, glad to hear you made some $$ in that trade, I am still waiting for an entry for a bigger move down. It could just roll over here so I may need some luck to get a bounce.

Anonymous said...

chris we have to wait some days in hogs.than we get a biger move

Anonymous said...


Interesting parallel to the 1929 crash--we should see some kinda bounce but watch out for 2012-13 :).

Konrad Sherinian said...

Chris - I think hogs will bounce at the 50 day. I don't know how much it will bounce, but I would expect another shot at a short / maybe as early as tomorrow. Only other trade I am looking at is Coffee, which burned me good a few days (weeks? - away from quote screen) ago. Good luck!

Anonymous said...

If you're day trading the Bernankes, check out what happens when the Highs or lows of the night session are taken out during the following day session. I have been tracking it real time since June 6 and it is amazing how consistant it is. Using a Stop loss of 3 full points and an exit profit target of 3 S&P points it wins 77% of the time. With a 5 pt target it hits 57%. This is not back testing (I do not have that capability) but compiled on a day to day basis. Just log the Night Hi and Lo at 9:30 EST when the theoretical day session opens and watch it happen. I'm happy to share the excel spreadsheet I have compiled but don't see a way to attach it to this blog message. Let me know if you want to have a look and tell me how to get it to you.
Don in Virginia

Chris Johnston said...

Don, thanks for the offer, but I day trade differently than that. I used to try that very short term stuff for small gains at high percentages, and just got burned out on it. I used to use a breakout of the opening 4 minute bar and take 5 points on a limit with a stop on the other side of that bar. There were some other rules to it like days of the week and times of the day. I made alot of money doing that for several

Tradestation or Genesis would allow you to easily test mechanical ideas like this and you are at a disadvantage not having software like that to stay ahead of the competition.

I do think night session highs and lows matter for day trading. My approach is more along the lines of trying to ride something for an hour or two. For example I made over $1.00 in Crude per contract today doing just that. It just fits me better than the shorter term scalping type of approaches. There are alot of very smart people you are competing against in the scalping world, and the challenge always becomes knowing when these edges are gone before you blow up trading them. You can find things that work for a few months, then don't work anymore.

Anonymous said...

Can you elaborate on how specifically to short the VIX? Last I checked you couldn't short the index itself. The put and call premium is always overly inflated. The only method I know of is to short the VXX etf, but even there it's sometimes hard to find shares to borrow to short.

Chris Johnston said...

buy the xxv there is enough volume to trade that on the long side