Friday, November 25, 2011


I have no idea why this chart looks so lousy, I captured it just like the Genesis charts. It is a Tradestation chart, but I don't know why that would be any different. This shows my legging into the long SPY trade on this decline, looking to catch a year end rally. I also had shown the stats indicating the typical up bias of this week. I would have to say that based on that, CROW was the appropriate main course for me yesterday. I know some new readers will say, "well what a dumb ass doesn't he know about the crisis in Europe" etcc? For those of you that are new to reading my blog, I do not trade based on my opinions on economic situations. Yes of course I am aware of what is happening in Europe. Yes I am aware of what is happening in the US. However, for every person you show me that brags at cocktail parties about their prowess as an economist, I will show you 10 that lost all their money betting on that prowess.

I trade based on mechanical techniques that have stood the test of time. They will not always lead me to the right conclusions or the right trades. However, they do lead me to trading profitably, and that is all I care about. Furthermore, going out on a limb publicly every day with your views only guarantees you one thing, you will be wrong and look like a fool at times. This does not bother me because I know that in trading as it is with anything else in life, there is no holy grail. I am going to be wrong at times it just is what it is. I will openly admit when I am and not gloss over it like so many others do. I am real, not Joe Isuzu. 

One thing to keep in mind as you can see from the chart if you can see it, is that I have been buying in as we declined, adding to the position on weakness. This is not a typical trade for me at all, I rarely do this. My normal trades are like the ones I show here where I am in for a short time of 3 or 4 days to a couple of weeks, and I go with the shorter term momentum of the market not against it like this. This is not a large position for me, just in the thousands of shares, not tens of thousands. As I type this about 15 minutes into the trading day, the position is about even overall since I have bought larger chunks as we have dropped. This trade serves to show people something even if it means me taking one on the chin. If you are looking for a longer hold period, you need to buy when things look the worst. You need to buy weakness. This is something so few people seem to be able to do. They get scared when they listen to all the bad news, and think the sky is falling. It may be, and I have no doubt that overall this manipulation by governments around the world to stave off what is inevitable, will fail. However, that does not mean we will not have periods where markets rise. They will not just go straight down every single day for the rest of eternity. You cannot wait for it to be "safe" to buy when you are looking to hold something for a period of time. You need to buy when it is not safe, otherwise you will be buying highs and selling lows.

The one benefit from what the Fed has been doing with interest rates, is that many companies are making record profits. If you just look at moving averages of the last 12 months earnings on most companies, they are on a nice positive slope. This is in general a condition to buy into. It does not mean you just blindly buy, but when you can buy stocks on good sized declines with decent valuations, against a back drop of steadily rising earnings, you have a pretty good trading system there.

I was in a bar in Del Mar with a buddy a few of months ago, and we ran into a couple of Realtors who were out on the prowl. Once we started talking to them and they found out I was a trader, they asked me what I thought about interest rates. When I told them I thought they would decline, they could not believe it. They said I was the only one they had heard making such a prediction, and that their experts were telling them the opposite. Of course my question was, do these experts make money by being right or make money for giving you an opinion right or wrong? They gave me kind of a funny look, then got it. I trade, I don't predict. I get paid when I am right and pay when I am wrong. I would be willing to bet after having predicted that huge Bond rally that happened dead on, and in contradiction to their experts, that they are trying to find me and get my next call. The whole point is not to be a braggart, but just that I put real money in that trade just as I have in this SPY trade, and we will have to see what happens. I am risking about 5% on this one and that is that. The full position is on now as of today's opening.

Here is the worlds favorite market, Gold. I had mentioned sell setups in here a couple of weeks ago and I am short in this market. I have drawn in a couple of small trend lines, either one of which could have been used to enter a short position. I mentioned a couple of weeks ago when I pointed this one out that the sweet spot could be about now, where the seasonal shows a good downward bias for a couple of weeks. Once again my synthetic COT indicator is not in agreement with the short side here, it is bullish. By and large, this indicator has been okay in this market, picking most of the swings, but has missed a few. One of these days I will try to dial this in better, but not today. For now it just gets displayed because it is on my charts already and I don't feel like taking it off just to upload them to the blog. Please do not get too hung up on this.

I still am of the view as long time readers know, that we are close to the point where the game is going to be over for PM's. However, as long as we hold above the lows of a couple of months ago, the longer term trend is still intact. If we happen to break those levels, the game is over for many many years here. You are going to see the world exit one trade at the same time at some point, and those newer to trading are going to be shocked at how far and how fast this goes down. I am not sure when it is going to happen, and I doubt right here. I still am thinking the beginning of next year is the point from which this crash will happen from. Whether or not it will begin from higher or lower levels than current ones, I do not know. I am more focusing on the time frame, not the price. As it is with everything else, this view is based on historical data, not an opinion about fiat currencies and all that other garbage that is out there telling up all why GOLD has to go to 25000. This is not a site for an economics discussion anyway. Maybe it will go up forever and I will be wrong? Just think about the term reversion. This is a term people always love to quote as long as it suits their argument. The minute it does not the idea of a reversion happening gets quickly discarded. Just keep in mind, historically in commodities reversions has "always" happened. That is not one instance of it not happening, ever! Maybe this will be the first but it is a long shot to say the least.

This is something I am watching closely as per my comments the other day about the EURO, which is essentially the inverse of this trade. The Dollar Index here has quite a bit of divergence building in the POIV indicator. You can see how much lower it is than it was at the high, while price is getting very close to that high point. This is one of the reasons why I have been watching here for a potential sell and the Euro for a potential buy. So far the setups are not there but I am lurking here.

I better sign off I feel the crochety old man coming out again!

Good Trading


ya said...

Chris what is your average holding period for a trade? Did you take that long coffee trade?

Chris Johnston said...

tried to buy it on the 22nd and did not get filled, did not try after that the bar pattern in my view was not any good

average is anywhere from one day where bad trades get stopped out immediately to a couple of weeks for good ones, probably average overall 5 to 7 days

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