Saturday, August 20, 2011


I am going to spray to many fields this weekend so bear with me. I hope that I give out some useful information for Monday. First, one of my favorite DA's ( Dumb Asses ) is on Fox and whose name I will withhold. He is one of the token liberals they have on almost every night. This poor kid would not know a clue if it stabbed him in the eye. He more or less represents people who will support a liberal no matter what they do, from murder to just being an idiot, he is on board. He was mentioning on Fox recently what a wonderful thing we did saving Gm and what a great success story it represents. Does the above chart look like a success story? Had you bought the IPO you are down over 30%. He mentioned stock holders were making money, really? Which ones would those be? It is not illegal to be an idiot like he is, but it is shameful to just push an agenda when people are actually hurt by it. The bond holders got wiped out and the union was given a mulligan and a half in what they did. I am sure when the IPO took place, the union raked the public over the coals with some type of internal tracking price that is still in the green, while any idiot who bought this IPO is getting rolled. Let's be honest, this business model does not work and you are a dumb ass if you have not figured that out yet. Unions charging exorbitant rates to make average products, is not a successful business model. You can loan them as much as you want, the movie ends the same way every time be it VHS, or CD. This company will just go back into bankruptcy again at some point.

The beauty of being a trader is that you know people like him are either lying or stupid, take your pick, and you can avoid being caught in frauds like GM. This is going to sound like a very harsh statement, but I am not running for office, so here it is. We should be thankful for stupid people like him, they are how we make money. If everyone was brilliant we would have quite a battle on our hands trading. Fading idiots like him is how we make money. We just need him now to get into the funeral parlor business so knowone will die.

The next thing I want to talk about is these supposed market mavens that are paraded out for us in the news. I always wonder as I listen to them whether or not I am listening to a politician who has signed on to the talking points, or whether I am listening to someone who actually is giving us an honest highly researched view on things? On Friday during my workout, I was listening to CNBC roll out these "experts" and ask them whether we should be buying here or not. They rolled out the usual suspects, whose names I will not mention. What a surprise, every single one of them was bullish.

One general rule with the stock market, and one that I hate, is that when you are under the 200 Day Moving Average you sell rallies and when you are above it you buy dips. As you can see above, we are clearly under the 200 day MA, so rallies are sells. Statistically, this gives us about a 75% edge, and that is one heckuva an edge. I am always surprised when I listen to these panels of people on the weekend that discuss the markets, some of whom have good trading records, that none of them ever reference any statistical evidence to back their positions. I guess they want the appearance fees to keep coming. My question is, if you are just wrong one time after another, as a major investment advisor, doesn't that hurt your business more than the appearance fees make up for you? Aah, there is the political aspect of things, silly me. It is better to lie to the public, to have the "administration" look favorably upon you, than it is to shoot straight with your clients. All of these advisers I heard today were bullish of course. This bias is not party biased, it does not matter whether the president is conservative or liberal.

Here is my question to these advisers, how much short selling do you do in your funds? Do any of them trade their own money? If so what are their track records? I know I am really going out on a limb here, but I bet they are long only funds across the board. Is it then surprising that they are bullish? It is no different than the short only funds who are always bearish. One of my favorite quotes was "we look at the market from a different perspective than most." Of course they do, they are getting fees for losing money while risking none of their own capital. I would have a different perspective also if I were in that position. I would walk down the street every day with cowboy boots on and nothing else flipping everyone off if I were making millions in management fees without risking anything at all! You need to listen to the people who have no agenda, who trade in both directions....... like me!

Here is the update on the VIX, we are not quite to the zone to sell the VIX. You can see the last two times we reached this level we sold off heavily. This trade is not based on an absolute value of the VIX, it is based on an oversold level of the stock market. We have not reached that level but we are getting closer. I am not going to reveal what that indicator at the bottom is so no questions or emails on that. Just suffice it so say, that once it reaches a level just a little lower, it is a sell signal for the VIX. Perhaps what we will see is a bounce up into the sell signal I am looking for in the Indexes over the next week to 10 days, then a plunge which will take us into the zone and also stocks into the seasonal buy zone in October. That would be a great buy signal if it were to play out that way.

The next market Cocoa is really setup well for a rally right here, which then should be followed by a pretty good sell signal in September.

You can see we have pretty good commercial buying here at a time when a seasonal trough is due. We also have a seasonal high then to follow in a few weeks, so this should be good two way action here. Sentiment also got pretty bearish recently at the low a week back, so we should move up some here.

Here is an updated Natural Gas chart, showing we are really getting close to a very good buying spot. In particular notice how negative the Small Speculators have gotten, selling heavily into the seasonal low point. The Commercials are also buying. We still are in a huge downtrend, so we can't get too excited just yet but this buy is close.

The Wheat market which has been rallying appears to be setup to continue to move up, although the Sentiment is getting a tad too bullish to be perfect. We do have commercials buying here, and the seasonals call for a continued rally. I am not long this market yet but am looking to get long this coming week.

As for stocks, I still am of the same posture that we bounce or go sideways into early September, and then down again. I may be wrong, but that is what I am sticking to until proven wrong. If we just crash right into September, then maybe that will be the low all the people who "look at things differently than most" are looking for. We certainly have alot going on in the world right now and it seems as though things are at a tipping point, but remember, it is tough to trade when emotion is driving the decisions. You have to set all that crap aside and look at the charts. As for the Gold market, no matter how I view that none of the things I use has been anywhere near accurate in that market, it is breaking all the rules other than the seasonal pattern. Since that has been decent and calls for higher prices now, we might as well go with that for now.

Good Trading


colin said...

thanks for the good stuff.

When you say you 'hate' the 200-day MA rule you mentioned, does that mean you don't believe in that trading rule (as mentioned), or you do?

Chris Johnston said...

Here is why I hate it, pundits who I know have never even researched it spit it out as gospel. It is very noisy, and does not work in futures at all, only with ETFs and stocks. I know most of these pinheads just recite it because it is a talking point and don't really know how to best use it.

Anonymous said...

I really liked the article, and the very cool blog

Chris Johnston said...

Thanks for the kind words

JM, I warned you about trying to post political comments in here, go post them somewhere else.

You ought to be ashamed of yourself if what you tried to post is how you really look at the world. You are not welcome here anymore.

Anonymous said...

Since most things that go straight up eventually tend to come straight down, I have been allocating a small amount to DGZ at .50 increments starting around 11.50. If we eventually have a split the hard way in gold, especially if hedge funds have to sell something of "value" to cover other losses, it seems like a low risk way to scale in, as nobody knows where the rocket stops.

Any thoughts?

Chris Johnston said...

Well first off my view of Gold being a bubble is still there, but that is a big picture take that could take a year or two to blow up. Bubbles are very difficult to time correctly. ADX is now at 78 here, tops normally happen in the 60 area. In all the years I have studied the markets, I have never seen any trade filled with small traders like this that has worked so well for this long, it is unique in history.

For the moment by traditional blow off tops looks, this is one, but this market is also defying all previous measurements that would indicate a top. I think selling this market is dangerous, it is defying all technical and fundamental rules. Even it's realtionship to the US Dollar is completely out of whack from where it has been traditionally, it is close to 6 times more overbought against the DX than what has historically been where tops have occurred. It is inevitable that a decline will happen, but where is anyone's guess and cycles say January at this point but who knows.

In summary, my view of this market has been wrong, so I am not sure I have any credibility with it, but I do think selling here is dangerous unless you are prepared to have this go against you for a few months. I hope when it does break I am short, because it will be the trade of a lifetime for those who catch it correctly. My feeling would be that it would at least have to break some type of trendline first for me to consider any shorts in this market, and there is not one that can even be drawn yet since we are going vertical.

Best of luck, I hope you catch it correctly.

Anonymous said...

As we learn from Japan, owners of physical Gold in all forms are aggressively liquidating. From "Tokyo struggles to keep pace with gold rush" by L. Whipp from Financial Times, 20 August,

"Japanese families are rushing to sell gold jewelry, sake cups and even teeth to cash in on surging gold prices. The stampede to sell gold is so intense that shops buying the precious metal are struggling to cope and are even having to turn some disappointed customers away."

"In the past week, Goldplaza, which buys and melts down gold for resale, has been handling about Y100m($1.32m) of gold every day - about 15 times its daily average in July. The craze began in earnest on August 11 . . ." [Emphasis added.]