Thursday 12 January 2012

Head Fake?

Regular readers know that I am neither a Bull nor a Bear. I take trade based on expected market direction. Most of the time the trades give positive results fairly quickly. However there are times when I have to sweat it out a bit. Sometimes bad karma hands out a loss. Now is the time for sweat. As I wrote yesterday, I took the short trade 4 days ahead and now 16 SPX points wrong.  Out of many parameters, few key parameters gave an early signal of market turn and I think I was impatient. Lessons learned and system strengthened. But I am fully committed to the short trade.

In the morning post  ( ) I wrote that now is not the time to close the short on equity. Remember the saying; “Be fearful when others are greedy and be greedy when others are fearful”. Now is the time to be fearful.  In the early morning when Emini futures were flying past 1300, was there someone dreaming of SPX 1400 very soon? Obviously retail is chasing the rally. VIX is in 20s and for 2nd day running, index only put/call ratio is at 1.25 and equity put/call ratio is at 0.57. In other words, retailers are super bullish and why not. SPX 1400, here I come!

But nothing really changed. The charts of DOW and SPX of yesterday are still in play. The long term resistance did not break. Overbought became more overbought. Extreme reading in many indicators became more extreme. As there is no QE in operation, these extremes and divergences cannot exist for ever. Sooner, rather than later, we will see the market balancing itself. The longer this imbalances continue, severe the correction will be. I can go on listing various divergences and extremes and present many charts here but the bottom line is, these indicators are there for a purpose. If all parameters and indicators fail for all the time, there would be no trading.

Once again I quote Phil Davis; “Anyway, the point is - I DO know how to be bullish and we WILL be able to make money if we have a genuine bull rally and we are NOT going to miss anything by simply waiting to see if the data matches up with the enthusiasm.  I simply am not seeing it yet.” I could not have said it any better. Only thing I did wrong, I did not wait, when my first intuition was to wait out and not take a position before the direction becomes clear. Now I am paying the price of my lack of discipline. Talk of leaving cash on the table!  

If you look at the charts above, you will see that most of the gains of October were given back in November. There is no defining trend. We just play between overbought and oversold. January option expiration is next week which is horrible for bulls, at least statistically. So we will see what tomorrow brings.

Tomorrow morning I will be off to Asia and would not be able to see the fun. But I am back by 19th January and I think I would have the pleasure of closing the position with profit. I will be posting on and off for the next few days so please keep visiting.

Thank you for your continued support. Please join me in my Twitter (@BBFinanceblog) and refer your friends to . I need more readers / viewers to keep myself motivated.

P.S Modified the chart of DOW


  1. Please do your best to post!!! I count on your blog as one of the best and least prejudiced. I too have gone short 11 points too early, and need your calm comments to help me hold the course!
    I was hurt last year by the incredible QE2 wave extension, and am hoping this is not the same mistake this year!!

  2. I just found your blog and please continue the great analysis. I too jumped too early on the short side and it's been pretty painful.

  3. have fun in ASIA

  4. Thanks Guys. There is no QE2 this time. But we may be limited to the 1250 range. I am not so much counting on the price level but more on the time frame. Whatever level is reached on January 20, I will take it.

  5. Hi BBFinance
    Have a great Trip and will be waiting to celebrate Jan 20th when you are back and hopefully the market realizes the day of balance.
    Thank you.

    1. Just to follow ups on Jan 20th, market did not make a bottom that BB Fiance called for instead market made a rally.
      Calling market bottom or high is dangerous for anyone and proved WRONG on BB Finance again.

  6. Keep on blogging. There are few blogs out there that are truly neutral in tone. This appears to be one of them.

  7. You'll have internet there - right? We all will miss your valuable posts...

  8. Thanks Guys. Appreciate. Yes there is internet and I will do my best.

  9. Happy travels to you, and thank you for the post. TexEx

  10. Think you'll enjoy the market open today. Hope you can get a feed on it wherever you are.

    Enjoy your travel.


  11. This is a fine blog BB. Please do continue to post.

  12. I was wondering when the Trolls would show up and here they are. I think it is the same guy who does not have the courage to give his id or identity. I would be the 1st person to accept that I am wrong and I have accepted that I am wrong this time. If I am always right, I would not be writing this crap here. But statistics show that I have more right calls than wrong and just because some son of bitch troll says so, it is not right.I have one comment for you Mr. Troll. Do not read this blog and get a life, you low life creature.