Saturday, September 15, 2012


I debated this for quite some time, but finally made a decision. When I begin publishing my newsletter, the first issue is going to cover one of my most prized possessions. I think it is important to give people who trust in you, the best you have. Everyone myself included, wants to try and figure out where the DOW is going next. Since we know that most markets with a few exceptions, trade almost tick for tick with the Dow now, we can help our trading immensely, if we have a good idea where stocks are going. You can see where the lines are drawn on the chart, by and large indicate pretty good entries into the market. There are 5 winning trades here, and 2 very small losses. That is just taking the indicator straight up. There are ways of filtering these, which I will get into once the newsletter begins. I am also going to discuss exactly what those bands are, how they are calculated, and how to use them. Readers are going to instantly see how helpful they are in every market.

For now, the rules say this is a bull market, no shorts. It is anyone's guess how far we go, but I think new all time highs are coming pretty soon. The whole thing is one big ruse, and we see one thing happen over and over again. Criminals always overdo things, which leads to them getting caught. One of my favorite lines, which came from an alcoholic, is "anything worth doing is worth over doing." If you have a drinking problem this is not funny, but I think it is. I also think it applies to what we are seeing happen in the world right now. The local paper the San Diego Union Tribune, has an article today about how the Fed is saying cutting spending would be catastrophic. Let's examine that statement for a minute.

We currently have an out of control federal deficit, and corresponding national debt. I have yet to find one single instance of a debt problem that was solved by not cutting costs. For me when PFG stole hundreds and hundreds of thousands of dollars from me, did I just increase my spending in reaction to that? Did I decide I would spend my way out of this huge hole that created for me? Of course not, I fired my landscapers, cleaning lady, and cut back every penny I could in every aspect of my life. I went from Whole Foods to Walmart, from $40 wine the $15. I cut back the watering in the pasture of my ranch to reduce the water bill. I changed the size of my trash bin I use. I asked my wife to pay for some of the dog expenses out of her business. I left my country club, and decided not to play golf again for at least a year. This is something I love to do, but I had to sacrifice everything to get through this.You get the gist of this. I looked at every single expense I had knowing I had to cut every penny just to survive.

It actually feels really good to be responsible with money. I had been a millionaire for a long time, and had not been as responsible for money as I should have been. I did not throw it away, but I certainly was wasting it in many places for no reason. If I can do all of this, why in the world can't the government at the very least reduce the amount of the increase in spending each year? Keep in mind when the government talks about spending cuts, they are talking about lowering the rate of the increases, not actually reducing the gross amount they spend. They are now scaring us saying if we don't keep spending irresponsibly, the world is going to end? I say we tell Chicken Little to let it end then!

Here in California, the state legislature just recently passed a bill requiring all companies no matter the size, to provide a retirement plan for every worker. For those who don't there will be fines, and employers could be responsible for gains that theoretically could have been made! If I had not read this with my own eyes I would never have believed it. They are expanding entitlements. The first thing I did when forming my company for the website, was partner with someone in another state and formed the LLC there. The other state has an annual fee for the LLC of $50, Calfornia, $880. OF COURSE! Who in their right mind would start a business of any kind in California? NOBODY. If things go well and we have to hire some people, they will be hired in another state, not here. It is not just talking point chatter, when people say that regulations are killing small businesses. It is a fact.

Now we go across the country to the Chicago teachers strike, and see that a 16% raise is not enough? Who in the world is making annual pay wage increases like that in this economy? If I were running things back there I would blow them all out and hire replacements. Yes education is very important. Is it important enough that it needs to bankrupt the whole state? If you look at the pay amounts including benefits teachers are being offered in the new contract, it totals triple the median income of that area, TRIPLE! It is not good enough.

All of this is leading me to the following. There is one commonality in all of this, it is all not sustainable. The FED keeps doing the money printing to move the stock market higher, hoping that will generate all these other trickle up types of things. The problem is the smart people know they are building an incredible house of cards, and the higher it goes, the more worried they are getting. We are getting close to making new all time highs in stocks, yet there is barely a buzz at all about it. In past big bull markets like this, they were the talk of the news every night. They barely get a mention now because everyone knows it is bogus. It is a sad state of affairs unfortunately.

The point I am making about all of this is as follows. You need to be long, and looking to play the long side of most markets. It is highly unlikely any significant dip will come along before November. When we get dips, if we do, we have to be looking to buy them. There is going to come a time in the future, when this whole thing is going to collapse, and when it does we are going to hope for 2008, because it is going to be a lot worse than that was. It could well be a couple more years, but I do think it is going to occur under BO term 2 and he is going to own it. He is not going to be able to blame W at that point even though I am sure he will try. Even if Romney is able to beat the media and Barry and win, he is going to be stuck with the same problems nobody wants to solve. These problems are decades in the making, so we can blame everyone, not just one side.

As traders we can make money off this stuff, so that is where our focus needs to be. The tools I have that I show above, should help time the entries and exits, and the political stuff really does not matter. The newsletter is going to be $125 a year, so pretty cheap, and a good way to get some very valuable tools to help you. I am getting close on the site, probably next week it will launch. I have to submit business docs to Pay Pal to prove it is legit etc, so that is what is the last thing holding it up. Please do not expect this massive huge resource spot for charting and all types of fancy things. I may be able to eventually build into that, but it is not going to start that way. It is going to detail what I can offer, why it is valuable, and how to get access to it. The services are going to be where the meat is, and it will be easy and cheap to get them. I have priced the newsletter low to get a large audience, not because of content. This is going to be the best deal going.

I mentioned the other day that the grains were lagging the FED asset push, and I think they are setup for sell signals now. Here is one of them, Soybeans, that looks attractive to me here.

I am not a huge fan of reversal bars, and we had one Friday here. However, this market has had a short term trend break, marked on the chart, and it is potentially now making a lower short term high than the peak. It is an aggressive trade, but does seem like one I am going to consider doing.

Thanks for reading


John M said...

Central banks can only buy time and keep kicking the can down the road. Governments have to use that time to right the ship, and when they don't, like we aren't and Europe isn't, there's a perfect storm of sorts that gets created.

Two ways of getting out of debt, best done in tandem: make more money and spend less money. Principles aside, asking people to pay a little more in taxes who won't even feel it is part of the equation. Cutting costs is the other, but those cuts always seem to be things that effect the poor and middle class and long-term national necessities like having a competitive workforce through better education (16% pay raises to teachers should just be off the table, though...insanity). What never gets touched? The military and the boondoggles for agriculture and pet projects of people on both sides of the aisle.

Social programs that take the brunt of cuts time and again are not the problem. The military budget, the interest on the debt and getting entitlements under control (including not pillaging their stockpiled funds, if any, for other purposes) will make a difference. And nothing really happens there because compromise is a thing of the past, especially with the rabid right.

Short story: we're screwed. And everyone who gets into office from either party makes sure we're screwed that much more.

On a brighter note, I'm really looking forward to your newsletter. That sounds like it will be great.

sergio said...

Hi Chris, I agree with you. Where would you put the target objective after the sell stop hs been triggered? I can see a similar pattern in Bean oil.

Chris Johnston said...

sergio for that trade a stop just on the other side of Friday's range should do it. If price gets back up there this trade is no good.

John, I don't see why we can't just say we are cutting everything across the board 1% net, everything, defense, social security, medicare, rich, poor etcc? It is amazing to me that the one guy who had the plan of just cutting 1% a year would balance the budget in such a short amount of time, and he was laughed out of town. Raising taxes won't help because they will also spend more it taxes are raised. This whole thing is so frustrating it is beyond belief, but we all know how it is going to end.

Xiang said...

Hi Chris

Woow you nail the Soybean trade right on. Congrat

However I missed it. Arhhh. Is ok, wait for the next one.

Really look forward to learn more from you.

Chris Johnston said...

this soybean trade is the type of trade my swing service will be featuring just FYI. It is more discretionary and designed to try and catch a larger move. This one is right out of the textbook. If anyone reading took the trade, just for fun let's manage it here. The stop needs to be moved down to above the intraday high now that we have had a move this large. We don't want to be short in an up trend this strong, if a move down this large gets reversed intraday. This way we have very low risk in the trade now, and a potential for a large gain. It may not happen, but this is just prudent money management.

Vikas said...

Beans are limit down now, and didnt take this trade :(