Wednesday, 4 January 2012

Official End of Santa Rally.

So there was little bit of juice left in the market after all. The day started poorly but ended OK. I however closed all my long positions in the morning, for two reasons.You can view the trading results here:

Reason one is that I think this  cycle has reached its top. It does not mean we will start down drift tomorrow. On the contrary, tomorrow we may see another attempt to breach 1284 in SPX. But I am no longer comfortable on the long side even if the SPX goes up few more points. The risk reward calculation does not justify it. So I would rather take the profit on the table and run. Leave something for the next guy.

The second reason was personal. I had meetings throughout the day and going in and out of office. I was not able to devote proper time to exit in a phased manner and had to exit at one go.

So now I am market neutral. Cash and cushy.   

Apart from cycle top, liquidity flow, seasonality etc, FX is sending a signal which I do not like. AUD tried three times to break 1.0380 but failed all three times. In the process it made lower lows.
Also if you note that AUD retraced from 1.0300 levels in the morning to 1.0371 in the afternoon, almost the same level as yesterday afternoon. But indexes did not follow it up. It is a kind of divergence which is worrisome.  If SPX is not following AUD up, then AUD will follow SPX down. In the process both will come down. If that were to happen, AUD would possibly go down below par. The AUD rally is looking more like a corrective rally.
Dollar index took back yesterday’s loss and despite that gold gained $8.50 and bonds lost value. So we have divergences all around. Direction is not clear and taking a position seems risky to me. I expect gold to retest $ 1620 and fail. But there again I am not going to short it. Same story with crude. The maximum  upside I can find in Oil is $105 and we have already seen $ 103.60 tested twice. Iran story notwithstanding, Oil is due for a correction and will possibly happen tomorrow when the inventory figure comes out.

I think indexes will go down a bit for about two weeks, starting next week. Do not let them scare you with their horror stories of Euro crisis or Iran phobia or some other BS. Markets go up and down and for us, stock market going down is not a crisis, it is an opportunity.  Just wait for a clear direction.

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  1. I just discovered this blog last month. Not only have you been spot on in anticipating the market moves, you have named the problems that prevent others from doing the same thing.
    I love your blog and appreciate your philosophy. I will continue to increase my donations, because this blog helped me make more money.

  2. Thanks for reading my blog. I do not ask for donations. Please give to any charity of your choice. And if you can put it up in Facebook, inform ten others, that will be enough reward for me.

  3. I'd like to see a "cumulative return" in your portfolio update. Obviously its not gonna be like your "effective yearly return" :)

  4. You have all the figures there. Why don't you calculate? :)
    Cumulative return depends on the size of your portfolio and allocation of capital to each trade. That is variable. The idea here is to show you the profitability ( or loss) of each trade. It is up to you to take the trade that you want and allocate capital to each trade according to your bias.