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Sunday, December 11, 2011


WHAT TO BELIEVE



I wish I had the time to go through and create filters for all the doom and gloom emails I get via forecasts from "experts." Grantham, Faber, Briese, it seems never ending especially now. Like they say in the movies, Sex sells. In trading it is fear that sells the tickets at the box office. I have to admit I only know the track record of one of these three guys above, and even he although in general has been pretty good over time, he has been terribly off the last few years. The other two, although their names are in the news all the time, I have no idea if they actually make money trading or not. Regardless of whether any of them do or do not, you have to make your own decisions about things. Going into a diatribe about what the historical returns have been when the S & P has a book ratio of blah blah blah, is just an abyss of guesswork and nonsense. It is true there are legitimate stats that can tell you when certain things have happened, it has led to other things happening. However, getting caught up in static numbers is a very big mistake.

Life is relative and so is trading. Grantham says the presidential cycle runs October to October? Huh? According to whom, him? Why would the 3rd year of the cycle end within a year unless there was some over optimization of the stats to make a point. Aah, this is why you have to be careful. You can bend statistics a million different ways to get to an end. After all look at what the government is doing with the inflation and employment reports, to make them seem better than they really are. My studies on the cycles are done for calendar years, and for the life of me I cannot see any reason why they should be conducted in any other fashion.

I know some of you spend a lot of time perusing the Internet searching for stories to support your opinions. When I do that which is rare, I seek out the opposite views of what mine are to get a sense of how credible they might be. I have told readers over and over that is what you should do. Here is what it boils down to. Have these people above consistently had market beating returns? Have they been right at the turns over time, or have they had one home run and a bunch of strike outs? I will let everyone answer that for themselves. I don't think you should take anyone's world for what will happen next. You should do your own research. Maybe you stick with one person. I personally only consider what Larry Williams says because he is my mentor. Many of the tools I use are his or variations of them that I have developed. By listening to him I assure that I stay in tune with properly using my tools. That is it.

It is my view as I have stated, that we are going to continue to rally albeit at a slow pace, through the end of the year, possibly into Mid January. At this very moment the only long exposure I have is an ancient IRA that went to the long side a couple of weeks ago when we were accelerating downward. I will be out of that at one of two places. First, mid January if we hold up. Second, if we do not, when the lows at the red arrows on the chart get taken out. If those levels go, and we get that much weakness during what should be a very bullish cycle period, I will head for the hills quickly. My best guess would be we might get as much as another 5 percent up from here but I would be surprised if it is any more than that.




The above Gold chart has a surprisingly similar look to that of the Dow over recent weeks, with two also well defined support points. As readers know I am of the view that this market will basically follow stocks going forward. If you think stocks are going to tank you better have your exit strategy set for Gold if you are long. I would suggest seeking out Steve Briese's recent Gold study and it's bubble nature. It is completely numerically based, not opinion based. If you are a bull don't bother reading it because nothing will convince you to be worried. I won't make any more attempts to convince people of what I think is coming here. This is the same stance I took on real estate at the end of 2005. I just sold all mine, and took the money and watched the rest of the people who thought I was nuts get wiped out. It will be no different here, except the drop is going to be larger and much faster. You have good support points in the market marked above, so as long as they hold it is still business as usual here. When they go, don't be a pig, take the money and be thankful you caught most of one of the greatest runs in history. "Don't be that guy" who had hundreds of thousands of dollars in profit that lost it by being greedy.

If you are big picture bullish, just wait until we get the $200 down days coming in succession which will happen, then just buy into them and average into the trade. I would not do that, but I am also not a long term bull or bear. I am just telling you what history says will happen. I could care less one way or the other. I am bearish now just because of the reversion mathematics. Once we fall back to $400 or $500 I will probably be a bull at that time for the same reason.





Here are two markets that I think are worth watching this week, Corn and Sugar. We could call this the Fructose Corn Syrup trade. Obviously that is a bad combination in food, but maybe it will be a good one for trading this week. There do appear to be pretty clear short term trend lines in place here at times with a seasonal up bias. Upward breakouts are probably worth taking in these two markets.

I think we will just have a quiet upward drift in equities for the last two weeks, potentially interrupted at any moment by these goofy stories about Europe. I would suggest ignoring them, they are impossible to trade and it is fruitless to attempt to do so.

One observation from watching a debate over the weekend of the GOP candidates. It is amazing when people fear having the smartest guy in the room as the President. Haven't we had enough dumb asses in recent years from the current one going back several terms. Why not try a smart one just for kicks, Gingrich? In trading I always change when current things are not working. Why not do it in politics? I do think we are at a critical mass point or close to one, when we see the corruption that is going on. Corzine is likely the poster child for what they are prepared to do. He is the ultimate insider, who appears to have broken several laws. At some point, somebody like this is going to have to pay a price. He has ruined many people's lives and I suspect he will not have a penny left after he goes through all the law suits that are likely coming at him.

I read an interesting theory about what happened to the 1.2B this weekend. It was alleged that it was transferred to UK subsidiaries who do not have restrictions on the use of customer funds. It was then supposedly pledged as collateral for these bad debt bets they made that blew up. The collateral was then taken by the creditors as security against the loans. I have no idea if that is true or not but if it is, lookout below for this guy. If that is true, the UK has some serious holes in the laws and I would expect more of this to happen in the future. I am sure some smart ass will cut and paste out of this and change the way I have stated this, I cannot do anything about that. I have no idea at all if the person stating this if knows the law, and if this is accurate. I just thought it was worth throwing out there. Maybe I have readers here that know whether or not that is even an accurate assessment of the laws governing the use of segregated funds, and the differences between US and UK regulations?

I hope that story is not true.

Good Trading

7 comments:

Robert said...

Chris,


Do you have a link to Steve Briese's recent Gold study .Went online and was unable to find it .Would love to read it since I believe gold is not in a bubble or has it ever .
But would still like to read his views on gold .
Thanks

Robert said...

Chris,

Do you have a link to Steve Briese's recent Gold study--can't find it online.went to his website and i guess he puts out a weekly newsletter .Not sure i would put much into what he says about gold because on his website back in Sept he said gold was ready to go down to under $1,000.I think he was just a little off there to say the least.

The Sound Center said...

Yes, seems it was run from the UK book

The Sound Center said...

Yes, seems it was run from the UK book.

Anonymous said...

Corn, Sugar, and Soybeans - very miserable markets right now. I will be impressed if your Corn and Sugar longs work out. Good luck. I think corn and soybeans can fall another 200 points from here

Alain said...

Wikipedia specification of an expert: ...Experts have a prolonged or intense experience through practice and education in a particular field...

only traders have practice in trading. How can one be an expert if he does not trade him/herself? IMO this is the first thing to be checked if one wants to listen to an expert in this biz if he trades for his own account.

Alain

Alain said...

Gold: if we close < 1 year trendline and unable to move above it, it'd represent a trade. But also, IMO it 'd take 1633 to exclude a bear trap.

Alain