Wednesday, January 25, 2012


It is time to return to our mystery chart which once again appears to be dead on balls accurate about it's forecast of the price many months in advance. Many of the cycles and seasonals have called for a top in mid January, which is why I was looking for one once we got into this overbought condition. However, at this point I am going to defer to this forecast until it misses a turn in the market. It is calling for a top on Feb 24th, so that is what I am going to look for. As you can see it calls for a decline of a couple of months. After that we should have a rally that lasts several months.

I know there are many talking down the economy telling us how bad things are. However, we are seeing fairly good earnings reports, so it is a bit of a reach to say the world is ending. I really think it is very difficult to determine what is really going on especially in an election year. There is so much manipulation by the government. The bottom line is now that the trend is up in all time frames, and we have somewhat of a runaway market. I have no interest in trying to short the ES under these conditions. I also won't chase it on the long side here. I am damned if I do and damned if I don't, so there is just no trade for me in the stock indexes here. There is not one in sight either. We are likely at some point to get some type of pullback, but by this forecast it should not be much of one. In my younger years runs like this used to kick my ass. I would dig in my heels with my fancy tools, and refuse to admit that I was wrong as the market just plowed forward. I now know that my weakness is that I don't trade runaways very well, so I don't trade them. KISS is my strategy. I keep it simple stupid for myself knowing I can't trade these for a lick.

My call for a Mid January short term top was just DEAD WRONG.

One thing that has been a constant is the way the FED acts to create bubbles. They do it almost exclusively through interest rates. When they announced today rates would be low at least through 2014, they are giving us a heads up not the expect anything really bad to happen in the stock market for quite awhile and too swing away. I have no doubt that by that time in 2014 or thereafter we will have another big bubble on our hands. We have plenty of time to make money and bank it before the next crash it appears. I would suggest not getting too tied up in the gloom and doom talk. Things look good to me for the near term. There will come a time if we sail along like this for months where trouble could show up, but my short term indicators are just flat lining now, which tells me not to even consider fighting this. A flat lining condition with them does not necessarily indicate a decline or a big rally, it just tells me not to fight the move at hand.

This chart to me is very interesting, it shows Bonds in Green going up directly in sync with stock prices. In the good ole days before electricity, this was the norm. Low interest rates are very bullish for stock prices because money chases the higher yields of stocks when rates are low. If rates are going to stay low for at least two more years, any declines in stocks should be pretty well contained. This is what I meant by the topic of this post. It also applies to the politics of the election. It is my contention that regardless of what people say, most people are afraid of change. This is why nothing ever changes in Washington, and it won't this time either. The guy who would truly represent change can't win in my view, and that is not Ron Paul I am referring to. He would get us all killed, so he has no chance at all, zero. Gingrich is who I refer to. I would love to see him win just to watch him belittle the media for 4 years. He has good ideas, but that is why he can't and won't win. People are just too afraid of change, and I think his ideas although good for the most part, represent change to scares people. Barry is much more mainstream and the Repubs are handing this thing to him if Gingrich winds up the nominee. Romney is just a typical politician who blows which ever way the wind blows. so I think for that reason he will wind up the nominee. He does not represent change at all to me, other than being an evil rich person we all are being taught to hate because he is successful. He never got the memo telling him not to donate to charity and to instead give 100k every year to each lifeguard who retired at 50.

The reason I state this is just for the logic, it is not to ignite another political discussion in either direction. Please no political comments I will screen them. I just bring this up to make a market point. It is by the same logic that I state that the US Dollar will not lose it's status as the worlds reserve currency. As much as we want to engage in these long shot discussions, the harsh reality is that change of that magnitude rarely happens in things such as politics and politics are what is going to determine the fate of the buck. It is for political reasons that this won't happen. I can't argue that it shouldn't with what we are doing with our finances here. I am just stating that I don't think it will because it represents too much change.

Also speaking of things not changing, I was in a Sushi restaurant yesterday with a good buddy of mine. As we sat at the bar, of course the bartender was hot. Aren't they all when they are women? I decided to challenge here to do something I thought she would never be able to do. I asked her to just repeat three words. I started with a simple one, "I." I then followed that with "Was" and she repeated them perfectly. The third word was where trouble surfaced. The third word was "Wrong." It was my bet with my buddy that no women could ever say those three words one after another under any circumstances. Here we were with some total stranger having fun, and she could not even say "I was wrong." This again proves my point, some things never change. She later made a mistake on our bill, and I said "say it, say it." She couldn't do it.

The way I see the stock market here, it is just more of the same. We are pushing it higher with low rates, same ole, same ole. Fighting the Fed is a bad idea as we all know.

I do not see one single new trade for tomorrow, and the truth be told, I am trading much less this month than I desire to. The runaway stock market is just zapping volatility across the board. Many of my normal signals are just not there at the moment. I am sure some others out there are frustrated like I am with these market conditions. Stay patient this will pass, don't throw away your money in the mean time.

Good Trading


Anonymous said...

CJ--you are on a roll!! Lifeguards and bartenders--you got my day started right--thanks for all you do!!


Vikas said...

Thanks for the post. It is definitely frustrating to watch the market creep up on low volume like this. Your chart indicating a feb 24th top? I see a small decline before that, I'm wonder what levels S & P would test before topping out in late february?

Chris Johnston said...

I am no good at guessing at price levels but I think it will come completely out of the blue like today looks at the moment. They have reversed so many of these in a row though that it is hard for me to be too sure this might be it. I don't think it is a selling opp other than short term anyway whenever it does come.

Alain said...

the only short opportunity I identified and waiting to get filled is cotton.

got stopped on short crude. Still short HO but stop close. RB long, it's just mixed.

trading life is calmer by setting NO targets. From my experiance, the few times you get out earlier do not compensate the many times you can make more profits.


Squire said...

I will have to try out the 3 word test. Really funny.

The established interests are powerful. Yet, the Davos globalists have lost credibility. I don't expect much change. Real change would require a real crisis which we never had. Apparently.

Chris Johnston said...

There is a qualifier on the 3 word test, the gals have to be decent looking. If they look like Sargeant Schultz they will probably say it willingly and that would be disallowed by the referees upon a booth reveiw.

Agree on the comments on targets and getting out too early