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Saturday, December 31, 2011



FINAL INSTALLMENT OF THE FORECAST AND HOUSEKEEPING




Just to get this out of the way, the final standings in the World Cup show that my 6 month venture brought me a bronze medal. I discussed this recently, so I won't go too much into it beyond just showing the final standings. A return of 52% for 6 months is not bad I guess. This is the only contest that has people trading real money, that is why it is the only one that matters. Trading in a CNBC simulated trading contest is nowhere near the same thing as trading real dollars. I wish I had been in the whole year, since all of my competition was, and doing this in half the time is what makes me the most satisfied with it. Of course, my other botched business venture is what caused me to enter so late, so that is on me. Readers know that the entry in the contest from my venture was up 25% or so in the first quarter, before I pulled the plug on it for extraneous reasons not related to trading at all. Onward.

As to the rest of my forecast, I want to mention something about a market I have already covered, GOLD. If you are of the mindset that the bull market there will rage again, and no matter what happens you cannot be persuaded to change your mind, it is clear what you need to do. Do not ever look at charts of the price, EVER. One thing you don't want to do in trading and investing, is mix time frames and approaches. If you are bullish on Gold some of these reasons that people are putting forward about this new economic malaise etc.., there is no reason to look at charts or read comments from someone like me. You need to stick to your guns and just buy all the dips. Charts will potentially mince your thoughts. There is no reason to look at a price chart if you are not buying it because of a price chart. This is the same logic I use in reverse fashion about not considering these types of arguments when I trade off charts. I stick to my core approach which is charts not opinions. I hope this makes sense. Tune guys like me out, our approach is irrelevant to what you are doing. Who cares what we think or what we are doing.

I wanted to cover this because I happened to read an article about Gold on my Blackberry while I was waiting at the vets office the other day. It was written by a bullish writer, and it was so confusing. It was basically talking about a great buy coming but it was not here. He went on to say it could be anywhere from days to months! Good grief! That sure is a lot of help isn't it? Stick to your guns and don't mix approaches. Speaking of that I did mention I thought the take out of that low would result in a trap and short term reversal, and I was right about that.

CRUDE OIL




I do not have great vision for this market coming into 2012. We currently are in a solid up trend, and we recently had Open Interest get down to a low level not seen in years which is very bullish. However, we have seen the link between this market and stock prices. It is hard to imagine a big bull market in Crude without one in stocks. Due to my view on stocks, I think this market is going to rally some at the beginning of the year, but that rally is going to be tempered by stock prices being flat to weaker. On a relative basis this market has switched to being stronger than stocks, so it should remain so. 

The one wild card that is always out there is T Boone Pickens. If he happens to come out and publicly announce Crude is going way higher, we will need to shift to shorting with both hands almost immediately. It is perplexing how someone who has made billions of dollars in Oil is such a poor prognosticator of price direction, but it is what it is. The last two times he has come out and made big appreciation calls, this market has fallen off a cliff within a week or two. Barring the TBP effect, I am looking for higher prices during the first part of the year, but not a runaway bull move. I do think we will have a pretty sharp down move that will happen at some point, and my best guess is either May/June or in the late fall. These are just guesses based on cycles and really not worth anything to be honest. 

I do not have at the moment a clear short term signal, although as of today it looks like more of a buy than a sell.

The next chart is the CRB Index. We are at a point where the water cooler economists are going to have to be proven right pretty soon, or even they are going to have to give it up.




The theories are that all the "money printing" that is going on is going to cause a huge amount of inflation. You would think if we had a lot of inflation, that commodities would be rising. Do you see them rising on this chart? What they miss is the concept of velocity. The money supply does not mean anything, if it is not turning over at an increasing rate. We are at a point in time where the seasonal tendency is for prices to rally, and we have followed the overall seasonal bias very closely here. If we are going to have this huge explosion upward, this is the spot where it is going to come from. I am and have always been in the deflation camp. However, if we were to switch to an up trend here at this time of the year, I might change my mind. For now the trend is still solidly down.

This is pretty much it. I don't have time to summarize every individual market and if I did that would be a pay per view service. The recent posts have covered in a broad brush fashion, what I am looking for. I am a short term trader, so at times I will trade in opposition to longer term trends. I do not consider them in my short term trading unless they happen to sync right up with an entry, then I look for the move to be larger.

Happy New Year and thanks for reading in 2011









12 comments:

numbersgame said...

More deflation may be on the horizon:

http://www.pring.com/infowems.htm

Marc said...

Thanks Chris for your blog. You're a great trader and one whose trading opinions should be appreciated.

Happy New Year!

Anonymous said...

I read you occasionally, but not every single day. I like your posts very much, but limit my exposure to them (and all blogs for that matter) in order to force myself to think on my own rather than just adopting opinions from someone smarter. I'm trying to learn to fish, not just go looking all over the internet to see who is giving fish away, you know?

Anyway, I do have a question for you about gold (your favorite!). You have probably answered it already and I have just missed it. Gold has clearly been in a long-term bull. What is your basis for thinking that bull is over? There must have been some kind of fundamental driver for the impossible-looking spire on the right side of gold's long-term chart. Do you think that fundamental driver (regardless of what it may be) is gone? Or do you just think that parabolic moves always break, and gold's parabola is broken?

Anonymous said...

Happy New Yr Chris !!!

BQ

John M said...

Hope you had a great New Year's celebration, Chris. Here's a tidbit about the CCI and stocks that I found pretty interesting. The guys at Gann Global are looking for a big drop in commodities this year based on the 60 year cycle they use. That's no secret, they've given that much away in their free seminars. But at the same time, they see a powerful rally in stocks. Given the correlation between the two for some time now, even they're scratching their heads a little over how that would work.

Just passing it along because it seemed interesting. I've been interested in cycles since I started reading Hadik's newsletters some time back, so the Gann prognosis caught my eye. If...big if...they're right on both counts, that would be a huge breakdown of correlation there. You know the old saying about correlations, they work until they don't.

Myself, I'll have to see some evidence of a breakdown before I put the commod/stock index correlation to bed.

Chris Johnston said...

agree on the deflation

Chris Johnston said...

Thanks Marc, Happy New Year to you also

Chris Johnston said...

On the Gold question, for the most part the last sentence probably best summarizes my overall view. In commodities we have 100 plus year histories of big reversions to the mean, this will be no different even though many argue it will be. In addition to that we have broken all the uptrend lines now.

I agree with your comments on reading others opinions and I have stated that in here repeatedly.

Chris Johnston said...

Same to you BQ, did you get your daniero free from MF yet?

Chris Johnston said...

John

I agree with you here, although I am not looking for a big up year in stocks. This correlation is being driven by interventions by governments and I don't think we are going to see that stop this year. It might even ramp up this year if things get dicey.

Correlations are tough to trade off but they are also tough to ignore when they are this pronounced.

derek from england said...

Chris - I just wanted to leave a comment so you know you do get readers even from places which you might not expect! I was a cocoa trader in my career but now retired and quietly getting screwed by zirp! I just find your views fascinating and it is refreshing to find an honest commentator who tries to stay free of the peer pressures in markets. Myself I have always been a macro guy and no good at short-term trading but I know from experience how few people are successful at short-term stuff. Very easy to be distracted from one's systems etc.
Good luck with the trading.

Chris Johnston said...

Thanks Derek I am actually aware that I have picked up readers from all around the world. When I look at the reports just to see where readers come from I am amazed to see that they come from every country on earth including Pakistan, Afghanistan, Australia, Russia, China, Sweden you name it. It was what keeps me doing this every day. The world is truly flat.