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Saturday, January 12, 2013

STOCK AND ETF TRADING




Now that we have started another new year and the PPT is back at it again with the magical final minute rallies to make the closes green, I thought it was time to revisit an old theme that could well be in play once again. One of the problems funds have is that they are bench marked against the indexes in terms of return percentages. Why would you want to put your money in a fund and pay them their Corleone off the top, if they can't make you more money than you would make putting your money into the SPY on your own?

The chart above is just one stock I randomly picked, I have never made a trade in this ETF. It happens to be a mining stock ETF but it could be anything, the point would remain the same. With few exceptions, the direction of most ETF's and individual stocks is being determined by what the S&P 500 is doing. I have the ES plotted on top of the XME symbol and you can see they trade in direct concert with one another. There is one point at the lowest low where the ETF did not get the memo for a while and went down while the boss was rallying. This setup a great divergence buy point in the ETF.

If we do get back into the government controlled slow crawl rally mode again the strategy should be to look for bad employees that don't read the memos ( stocks or ETFs that have been lagging the ES ). There are not easy to find and it is time consuming, but a rising tide will lift most of the boats so there is no reason not to take advantage of this.

We are seeing the commodity markets diverge against big brother now for the first time in quite a while. I think as I have stated in other posts, the FED effect is wearing a little thin. At some point the message just gets old and has no impact anymore. Perhaps they have achieved about as much inflation as they can for the time being?

Newsletter readers know my big view of the stock market, so I am not going to delve into that here since they have paid for it. In the very short term I do have a short position in the ES that was put on at Friday's open and is basically a scratch at the moment. It is a trade out of my mechanical system so it does not reflect any bearish pattern I see. I think too many beginning traders make the mistake of trying to always short moves like this, I did when I started. The old adage of never sell a dull market has generally held true. They will crawl you to death just creeping up the market day after day until you say uncle, then the decline hits and you miss it. I don't really think this market is a sell at this point even short term when I look at my technical tools, they are pretty neutral. The ES is about the hardest market there is to trade so beginners should not be so hell bent on mastering it. It is a million one lotters and that makes it awfully choppy and also easy to control for the PPT as we are seeing towards the closes once again. For now I will just follow the rules on my system trades in the ES until a time when something larger develops. After my system runs for a few months we will revisit how it has done. So far this year it has had only one trade prior to this one which was a small win.

Random Musings

One topic I visit mentally every day is trying to determine what the big picture monetary incentive is for this plan to ruin the US that is being acted on politically. At the end of the day motivations are always Religious, Power or Money. Weakening the US intentionally does not fit the first two categories, so lurking behind door #3 is money. I hate to get into conspiracy theories but this whole situation is just so odd that it does make me wonder if there might be something behind all of this beyond just pure ideology. There was a story in the paper in San Diego today about how the vote that was done in the recent election that resulted in state workers except police officers being switched to 401k plans from pensions and that caused a huge additional payment of $40 Million! HUH? How in the hell could that be? Now the city faces a bigger deficit because of that? It is stories like this that make me think this is something much bigger going on here than I have been able to figure out. This story cannot possibly be explained with anything other than a cover story that is 100% BS.

If the true goal was to completely redistribute money the first place to do that would be to reform the legal system. During the last several years there is one case after another where the big money people always get put in front of the small fries in the order of creditors. Of course the lawyers get paid even before any of them. This fleeces little people. Taking a few thousand dollars from wealthier people through taxes that just go into more pension payoffs does not help the little guy at all. It gets votes from those who resent people who are more successful than they are, but it does not really accomplish anything. We see all the deals in Washington that get made via lobbying, again a big money payoff arrangement. I point this out because I think the redistribution rhetoric is BS and it is not the true goal. It has been an effective way for one party to get control to execute the real plan which I am fairly sure is something entirely different, even though I have not determined what it is. Here is where I am stuck. I think these people are too smart to be just blindly following idealogy without understanding the outgrowth of doing so. I am of the opinion they know exactly what they are doing.

Generally a collapse of a country would be reflected in their currency. If you thought Europe was going to implode you would short the EURO etc.. The problem I see is that if you are of the mind set that Europe will collapse that is likely to mean a huge Dollar rally. The Dollar Index is about 67% of the EURO FX so by definition these are going to trade opposite. It is hard to imagine if the US were to collapse that Europe could thrive at the same time. As a result, I am just not sure how to play all of this. I am of the opinion that Europe is a house of cards, but I think we are as well. I also don't think there is an immediate risk of collapse because the central banks have not run completely out of fuel quite yet. This gives me time to figure this out. The easy answer is to short the EURO but I do not know if that is the correct answer.

Net net, I am not sure how to play this apparent plan to dramatically weaken the US both militarily and financially, but I am sure there is a play in here somewhere with a big payoff if timed correctly. I think the play is a currency short, I am just not sure which one yet. Once I figure out how I am going to play all this and what I think the end game is I will post it in here. Maybe I am just as smart as I think I am but hopefully my determination will overcome that.

This last chart shows the seasonal for the ES and it indicates a tendency for a decline to begin right now, marked with arrows on the chart. We also have some of my COT knock offs showing the same. The commercials show in the buy zone but when you look at the net positions they are still decidedly short, so not sure this is a legit buy signal the way that appears in the graph. My sentiment indicator can be ignored, it has been terrible in this market as you can see. There have been countless numbers of overly bullish readings that did not result in any type of decline at all happening.




The conclusion here still is that we should get some type of pull back here. The Nasdaq is by far the weakest index so if you are going to short the indexes that might be a good place to do so. I am in the ES because that is where my trading system plays, I do not have one for the Naz at this point.

Good Luck next week




4 comments:

trading-gold-2013-01-14.html said...

Regarding today's comments by Bernanke:

He is quoted as saying, regarding raising the US debt ceiling:

"It doesn't create new deficits, it doesn't create new spending," he said. He said it was like a family deciding that to save money, it won't pay its credit card bill.

However, it seems to me like raising the debt ceiling to pay existing liabilities is like asking for a credit limit increase from one credit card, to pay your monthly dues on the other credit card that you have maxed out.

What do you think Bernanke means by comparing raising the debt ceiling to a "family deciding to save money" ?

Is he just jerking people around? Does his statement make sense? Is he an idiot?

Chris Johnston said...

Of course he agrees he is one of the biggest proponents of spending and printing money to get out of this mess. Many of us don't agree but it has been made clear by the F You I won President that if you don't agree with him you don't matter. It is clear in everything they say and do and to expect it to change is not living in reality.

jason said...

For some reason these people think that a giant huge government will solve everyone's problems and getting them hooked on their funny money is a major way they plan to do that. American money is becoming more like Monopoly money than our Canadian bills will ever look like. Get the people hooked on handouts and you get them hooked on the party doing the handing out. Good by independent money, hello Socialism.

Chris Johnston said...

The problem is that this strategy has worked and reversing this type of thing is going to take a very very long time and most likely a huge catastrophe