Saturday, September 17, 2011


This post is done on Saturday and will serve as Mondays entry. The topic I want to cover Perspectives, is just like what it sounds like. As I have gone through this turmoil with my animals this week, and I have another one in trouble now on top of the one I lost, it just reminded me of how all of our decisions are the result of our perspective on things. I am sure that some people who read here were probably completely annoyed by my loss, and others completely sympathized with my grief. I wish it were different but it is okay, we all have different values. What is important to one person is not to the next. So it is with trading.

I have my approach that I use that may or may not suit the next person, but it works for me. Although it was never my intent, I suppose it is true that I am trying to influence others perspectives on market direction when I do posts. In my conscious mind I started all of this just to try and get myself known to the public a bit more, and along the way help people make profits in the markets. I think I am doing both of those, but who knows. I know as I watch this story break about how the White House has tried to get this one general to change his testimony in a way that would help a big democratic donor, it makes me realize that they are trying to influence perspectives also.

The one problem we all have, myself included, is that we tend to seek out things that support our perspectives and stay clear of the things that do not. I think this is a mistake we all make. Think about the above scenario, since it concerns our national defense being compromised many are up in arms. It is in opposition to the masses perceptions of what is good for us. However, lets look at another conversation that we know has been going on for a couple of years between the White House and the Fed. We know and at this point the Fed has admitted as much, that they have deliberately manipulated the stock market upward. If you don't think the White House has not had some input here, read up on the web about the PPT. In this case the masses give this a pass because their perception is that they have benefited from it in their retirement accounts, so it is ok. In other words they are seeking out things that line up with their perceptions. I can assure you had the conversations been to drive the stock market down for political gain instead of up, this scenario would be different.

What politicians do is no different than what corporations do. In my corporate experience during my life I have come across one lie after another from an executive. Everyone is trying to cover their ass, so there is no reason to expect a politician from either side to be any different. Just look at how the rare few that are very straight forward are perceived. When Perry called Social Security a Ponzi scheme, many people freaked out. Are you kidding me with that? It is absolutely a Ponzi scheme and could very well be what could be put in Websters Dictionary to define it. Paying of old investors with inflows of new investors money, and not returns on the original investment, is what a Ponzi scheme is. This is exactly what Social Security does. Further people have been calling Social Security a Ponzi scheme for a very long time, is this a news bulletin now? It is the opposition to many peoples falsely molded perceptions, that is causing this problem. We all get very uncomfortable with the truth when it is against what we perceive should be happening. Afer all how could our own government be engaged in something like this? That perception clouds our judgement and gets in the way of many seeing that Social Security is a textbook occurence of this scheme.

Now that I have bored everyone and have them wondering when in the world I am going to get back to trading, here is the tie in. When we line up a trade to execute, we do it from the perception that our techniques we use will accurately predict future price direction. After all we spend countless hours researching, even paying for seminars, reading books, etcc, to try and develop a reliable methodology. Most of the time when our methodology fails us, it is due to us not perceiving something we should have.

Let's take an example from a trade I recently made that turned out to be alot of work for a $100, after I let $15,000 of open profits evaporate in the process. I had been talking about trying to short the SP 500 for a few weeks, when the bounce finally happened and setup an entry for me. I showed that trade in here when I did it. The trade immediately moved in my favor and my perception at that point was that due to all of the other perceptions that I had from cyclical to seasonal, to short term indicators, I had a big fish on the line. As I was waving to the crowd I missed something that in hindsight was very important. The market reversed right at a critical spot of support. I would argue it was the PPT but no matter, a huge bounce occurred right as we were about to implode.

What I should have done was move my stop down to the high of that reversal bar because that represented a higher short term low than the lowest low, hence market structure in the short term changed to bullish when that high went. My perception got in the way of good thinking. I was so tied up in my perception that the market had to tank, that I missed the obvious signal the market gave me that it was not going along with my plan. The moral of the story is, do not get too locked up in your predispositions of what should happen. One of the most humbling things about trading is no matter how good we are, we are still going to be wrong a good bit of the time. Do not be so sure that you are right that you lose sight of what is happening in front of you.

As we head into next week, here are my perceptions, and then it will be followed by reality. First, I perceive on a weekly basis, that we are still in a downtrend. This is hard to dispute. We also are at a time when the seasonal influence generally results in market declines. The cyclical work I use also points down. However, the short term trend is without question up at this point. There is a steady bid under this market. If you watch intraday charts, we are rallying at the end of the day every day recently. Here is how I am reconciling what my perception tells me to look for versus what reality is telling us.

First, although I am looking for sells here, many of my short term indicators are long now, so I am nowhere near a short entry on a daily chart basis. Second, even though the overall cyclical projections show down, they do indicate a slightly upward bias here for the next few weeks, then a move down in October. The Seasonal also calls down but we are rallying. This is pretty much the same as the cycles, there is an up wiggle in the seasonals here, so we are not completely off the reservation here. In summary, my perception is to look for a sell signals, but what is in front of me does not tell me to short this market right here.

You can see below a prior market pattern that I think is pretty similar to what we have going on now. This is pretty much what I expect to happen, although I think we are going to be sideways to up for a few weeks from now instead of going down starting on Monday like this chart shows. Notice how after a decline we then started a nice rally during this prior instance. This matches up with an October low in that we dip down during the beginning of October setting up a buy signal for a nice year end rally. I know there are many saying I told you so we are doomed, see how the Euro is falling apart etc.. We told you so they say, buy Gold, hide in a bunker etc.. I think these folks are just too rigid in the thinking they use. They are locked in one perception and ignore everything else.

They of course could be right, but the next chart also tends to line up with my above scenario. It appears to me the Dollar Index is setup to take a plunge. I emphasize setup, this does not mean just go sell at the market. We have a classic pattern here. First, a defined down trend, commercial selling on a rally against that trend. Open interest is rising quickly which is bearish, and Sentiment has gotten very bullish. This is a recipe for a good downward move, so I am looking for short entries in this market right now. The DX has tended to move opposite of stocks recently, so I suppose this supports a further stock rally. Since I think stocks look like they could meander sideways to up for a couple of weeks, a DX sell also makes logical sense.

Good luck next week trading, and I should be back on schedule now for regular daily posts. Have a good positive thought for me and my big boy Zeus who is having trouble right now. I think he is going to be ok, but I thought that last week about Reggie and he did not make it. I am not getting much sleep taking care of him so it is possible I might be too tired to post a day here or there.

1 comment:

Anonymous said...

Great "perspective"; it reminds me of a quote from Ayn Rand:
"The hardest thing to explain is the glaringly evident which everybody has decided not to see"
It has a particular application to politics.
Take care of the dogs first, the trading will always be there and the dogs are too important a part of your life. If you don't do all you can you will have regrets later. Be well.
Don in Virginia