Sunday, November 18, 2012


As we enter the new era of Socialism we are faced with what the negotiations here over the Fiscal Cliff really mean. There is so much talk about who will do what if certain things happen. You have to set aside all the rhetoric both from the controlling party and the others. I said others because now I think there is only one political party in this country. Competing with them are factions of groups with opposing views that collectively comprise too small of an amount of the electorate to do anything as we just saw. The dissenters claim raising taxes will hurt job growth and the controlling party says we can just spend spend spend with no budget and just take the money from the wealthy people to pay for it all. The latter is an European model and what the forecast above tells us is that the fabulous model they have used has led to us being able to predict our ebbs and flows from what the big players in the Euro are doing.

I don't see how this endless spending and redistribution strategy can work but we are without question now going to find out since it is here. I know once I get back on my feet I won't be willing to live somewhere where they take 70% of my money in taxes. This is without a doubt where California is headed and why I did not form my company in this state. I will move out of places that have that feature to places that do not even if it means leaving the US. If we look at the chart above I think we are seeing a somewhat similar pattern developing in the two different spots marked.

In the first instance we had a top and the forecast called for us to go down a little bit before we did. There was an initial dip and then a rally while the forecast was continuing down. That led to a high test and a big rollover. I think we are seeing the first of that 3 leg sequence now. We have the forecast showing down and now if we rally back up against that declining forecast and test the high, we could have a Jim dandy of a sell signal. One of the things about the forecast that has to jump out at you is that overall it shows we are doing down for quite some time going forward. Ironically this is one of the main reasons I knew BO was going to win the election. I could not see how the market would go down for this long with Romney in the white house. Therefore I knew the news event triggering this would have to be a BO victory. One of the things about news items is that they do cause market moves. However, it is just impossible to predict in advance what they will be. We are better off with technical models and just letting the news events be anticipated by them as we did here.

We are at a time of the year where a rally should happen and I am hoping it will to set up this sell entry better. At this very moment the trend is still up from a long term stand point but as I have mentioned, my band trend determination method has turned down for the Nasdaq now which normally leads the other stock indexes. More specific than the Naz is the SMH which is the semiconductor proxy. Chips are the core of everything in life now and the SMH has for years now been a very good leading indicator of where the market as a whole is going. Look at the next two charts and you will see some great examples including the recent one.

Here are two great examples of where just watching the SMH alone gave us a great advance notice of a large move in the markets as a whole. The 2009 low had the SMH not making a new low while the ES did. Even if we did not know how to guess how much futures buying the Fed was going to do there to move the market up, it did not matter. We would have known to look to the long side.

Here in the above example we had the top the was just recently formed and you can see the huge negative divergence with the SMH. There also was a bullish divergence at the low over on the left side of the chart that I did not mark. I think at this point this is pretty clear. We need to look to sell rallies now.


I have had a few email exchanges with people about the equity sweep option. You can open an equity account at Vision they are licensed for both equities and futures. Once that is set up you can move money back and forth between a futures and equities account. However, there is an asterisk to this. They are not setup to automatically move the money back and forth. You will have to determine an amount to keep in futures and an amount in equities to start. Let's take an example of a $50,000 account. Let's say you leave $20,000 for margin in your futures account and $30,000 in your equities account. If you get into a margin call situation you can meet it by moving money out of equities into your futures account. Once you get out of the trade you can move it back. You do this via emails with customer service. You will have to keep track of the margin you are using.

They do not really want people moving money back and forth all the time due to the cost of administering this. Offering this is an accommodation and not a general practice with them. I do not know if in the future if there is enough demand if they will offer it for a charge of some kind. TD Ameritrade has an automatic function where they calculate the requirements and automatically do this for you every day. This is a superior option for safety. Net net from a insurance against theft basis, TD is the best of anyone. There is another firm whose name I won't mention who also has this same option but the fills are so bad with them I don't even consider them. I do believe from a safety stand point they may be as safe as TD Ameritrade. I will never use them so I will not go any further into discussing them.

Did you hear that? Just listen closely, there is a cash register ringing in the law firms involved in PFG, they just made another million.

Good Trading this week


Marcus said...

Thanks for the info about SMH, very helpful. This site is a great resource. I primarily follow you and Peter Brandt, not for trades but to learn how to think.

Where can I get more info about what exactly comes with the paid subscription?

Michael said...

Good luck trying to leave the country, I looked into that a while back. Most won't take you, hard as hell to get in and if you do you'll pay more taxes than here in the US. A few little shit holes out there will let you come in and pay little to no taxes, but you'll get what you pay for (tax wise). Take a break from trading when you can and check out a few countries, I have, the grass looks greener some times but as you get into the details of life there the picture changes. There's always a trade off.

Great blog and many thanks on all the PFG info!

Chris Johnston said...

Michael I am sure you are right it is more likely that I move to a state like Texas instead where I get away from the heavy tax burden of California. I don't have the resources to do anything at the moment thanks to the PFG theft but once I get back up there I can re-examine things. Perhaps things won't be as bad as I think the next 4 years. I just hate to move away from beautiful San Diego but I think things are just so bad here there is not likely to be a solution for a very very long time, and a lot of pain in between. Besides moving all my animals across states is one thing but overseas is another thing entirely which is not likely feasible.

Marcus what questions do you have about the paid subscription? The details of them are in my web site is there something else you want to know?

If so email me at cj@wearefuturestraders.com

Anonymous said...

Hi Chris. You mentioned another firm that performs sweeps like TD Ameritrade. I understand that the fills may be horrible for active trading but is it the same for longer term trading/investing? Would you be so kind to name the brokerage? After your later Cantor Fitzgerald post it would be good to know all options available. Thanks again!