Saturday 17 March 2012

Happy St. Patrick's Day.

Yesterday I sent out the following tweets:

·         GM all. All the witches are here and all kinds of black magic will be deployed today. I would rather watch the action.
·         And see if any blow off top is coming. Dips are routine in morning followed by rips in afternoon. SPX 1410 is almost guaranteed. Almost! 
·         SPY dividend today. SPY may be in red even when SPX is up. Blame triple witching!
·         NZD/JPY now has a better correlation with SPX than AUD/USD.

You can see for yourself if they turned out correct. SPX did in fact reached 1406 intra-day before closing down, but still in green. By now bears may have just given up any hope of correction and almost everyone has accepted that stock market only goes up. If it falls even a day, PPT of the Fed will come and save it. What else can explain VIX falling below 15, at a level not seen since 2008. However there are some die hard bears left who draw beautiful charts but whose trading methods seem limited to analogs or conventional TA. 
Analogs have the bad habit of deserting you during crunch time. They are fun to watch but absolutely horrible as a trading vehicle. And TA has show how limited it can be. But people like charts and like to predict the future by seeing the past. It seems our brains are made for pattern recognition.

I think only a true trend following method combined with cycle analysis and basic TA can give satisfactory result in trading. There are no 100% correct methods. You have to find something which will reduce losses and maximize profits.  As of now the trend is up although in short term the breadth is weakening.  I have been calling for weakness in the last week of March for a while but it will be a dip-buying opportunity. This rally still has some juice left in it but it is getting riskier by the day. I would consider to short it only if I see hourly trend line has been broken. As of now that is 1395 in SPX. But even that is going against bigger trend and should be played with absolute caution. In all likelihood Monday will be an up day leading to a Demark exhaustion set-up.

On an intermediate term time frame, can this rally go on forever? Absolutely not. It will end by Mid-April and the commercials are preparing for it. Last week, their long position of JPY has jumped almost double.

I have written before that JPY is correlated with bond prices. If we see this trend for few more weeks, we can expect a big jump in Bond prices which now seem to be breaking down. That is another example of a head fake. The market screws maximum number of people and when people least expect it. I think a bond rally and a US Dollar rally is coming by Mid-April which will take equities down. But that is still a month away.

On a longer time frame, year 2012 will be a year of equities and bulls. If you can join together all the pieces of the puzzle, you can be sure that indexes will reach a new high this year. The commercials are accumulating EURO in a big way for months now and they know something which we don’t.

Don’t be confused with all these calls of short term, intermediate term and long term. Markets never go up or down in one straight line. The buy and hold method of investing may not be suitable at this point and we may have to adjust as we go.

If there is one investment advice I may be allowed to give, that would be never to base your investment decision based on what is said in Elliot Wave or ZH. We know things will end badly but they have no credit for that. In the meantime, they will destroy your portfolio.

I hope you are enjoying this ST. Patrick’s Day weekend. Have fun with your friends and family. Remember to forward this post to someone you know and help me get another 100 followers in Twitter in the month of March. (@BBFinanceblog). Thank you for reading my post. 


  1. Hi
    This is a question that has been in my head so I hope you don't mind me asking.
    If the Fed is the source for the liquidity and the rise in the stock market. Do they have to sell? Couldn't they keep the prices where they are? Eventually wouldn't it be "we the people" now own the stock market because it is bought with U.S. debt.

    1. The Fed does not hold or trade in stocks directly. It is the TBTF banks who are also the primary dealers who trade. They buy low and sell high. Thats how they make money.

  2. ZH simply blames every sell off in GOLD on margin sees a good sell -off...and the next minute ZH will be posting some excuses for it.......that put me off


  4. I know several traders who successfully trade the Elliott Wave in combination with Fib ratios. The problem with certain EW practitioners is their never ending tendency to want to call tops. Most good traders avoid making this mistake.
    Indeed, too much ZH or CNBS can be detrimental to your portfolio.

    1. Can you please give the blog names of such successful EW based traders. I would love to learn this magic.

    2. Here are two that have blogs, the others are personal acquaintances.

    3. Thanks. I will definitely follow these folks and try to learn. Actually it is my fault that I have not been able to understand EW. And I was taken to cleaners by Robert Prechter of EWI.

    4. Prechter quite frankly I cannot understand. Here's a guy who should know better than try and call a top. Has he taken his fortune and double leveraged it short against a raging bull market? Geez...tops take time to form, it isn't a sudden collapse in the market once THE top is in. It takes many months before an ultimate top is made. One only has to go back through time to see it on a monthly chart. Keep your blog going, you have good things to say.

    5. Thanks. Appreciate your kind words.

  5. EW....your are in the 1st wave of the b wave of the 4th wave of the.........BULLSHIT..