Friday, 6 July 2012

Why Waiting Is Worth It.

Everyday I talk of manipulation by TBTF banks and dealers. Most don't believe me but read it non the less. You might want to have a 3rd party validation of the rotten heart of finance here.

Yesterday I wrote that we have to be careful of various shenanigans of the manipulators and as we no longer operate in a free market, we have to be careful while shorting. If you have seen the price movement in the last few hours you know what I am talking about. You will also understand why I am not yet short. Yes, we are in the time zone and price zone but we do not have a confirmation of the intermediate term top yet. What if it is a bear trap?  

I am more cautious before jumping in to short the market when some very powerful men in the universe do not want the market to fall. I do not mind giving up the initial 20 points if that helps to get a confirmation and helps me to avoid whipsaw. One thing that is troubling me today is action of VIX. It closed the day with a -2.17% down, even with SPX down almost a full percent. As if the big boyz are not really worried now and they are just working out the extreme overbought level of NYMO. The selling was orderly and there was no panic or unusual volume. It is too good to be true.  So I have decided to wait for few more days to see which way the wind blows.

We will have a bounce from here. That is almost guaranteed. In fact it has already started. It is where that bounce fails, that will tell us if we can short with confidence. I do not want to take up a position today only to cover it tomorrow. And my downside target is 1200-1230. So I have lots of points in sight and I am in no hurry. Once again, it is not necessary to trade just because we are bored or ZH said the world will end tomorrow. Or emotions got better of us and we are afraid that we will miss the opportunity.

In the morning when the market plunged, I am sure many of you cursed me for waiting and wasting time. But I would rather err on the side of caution. There will be many more trading opportunities, but if we lose our capital, we will not be able to catch those opportunities. That is my trading / investment method and I want you to understand where I am coming from. If I am not sure, I will not take a trade. Nobody can win all the time, but at least let me try to reduce the risks.

Coming back to the market, I think we will see two things. To start with, they will kill the bears 1st, so that when the time to short comes, there will not be anybody else left except the BOYZ.  This objective will be achieved in the next few days and along with that there will be technical confirmation of buy signal to bring in momentum chasing lemmings. Those folks will get killed next. In the process SPX may well test 1380 or higher soon. The reversal from 1264 of June 4 can be considered a wave 4 and will end in 3 push up where the 3rd push may or may not make a new high.  That will be my cue. It is all coming to an end and those who are patient, will win.

 Thanks for bearing with me and reading . Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it. Hope it rains over the weekend. It is too hot here for doing anything. Your place better be good. Have fun folks.


  1. great stuff,very interesting,thanks

  2. Thanks for your blog entries! I'm waiting for the time to short as well.

  3. Happy weekend BB, you are like a commander today. Well done!

    What is happening to the Euros? Could you please share more in future how to read this indicator ?

    Enjoy your week!

    1. :). Happy weekend to you as well Mikey. I think most of the risk assets, Euro, Equities, Crude, were/ are on a wave 4 which is coming to an end now. I am finding that the AUD has started correlating better with SPX in the last few weeks. Instead of Euro or AUD, let us focus on US dollar index.

  4. Thanks BB - Amazing, as usual. And your calls gained in accuracy the last few weeks. Congrats! 2 Qs/remarks assuming you're right: (1) why does VIX know more than SPX is showing (ie. how does VIX reflect what the BOYZ are planning and not how the other players act (buy buying calls or puts on SPY and SPX today). (2) Instead of waiting for the perfect timing, why don't you use options, which give you the possibility of being wrong (to some extent). E.g. selling the July 142/144 call spread as an example. You'd place time on your side and collect the time decay and could afford SPY going up to 142 before any need to worry. If SPY goes down then you get instantaneous reward - without waiting.

    1. Thanks Ringo. Reason I do not discuss option now, it is too risky and not every one can handle it. I know we cannot get the perfect timing. I am just waiting for one more push up which will complete the 3 push pattern and will match with the cycle top. The cycle top is between July 5 to July 11.
      Most likely, if Monday is up, I will start going short.
      So far as VIX vs SPX is concerned, SPX has 500 companies where as VIX you just buy or sell volatility. You are dealing with one subject. That is, how much% market will go up or down in 30 days. I think they sold lots of VIX premium before NFP and now they will jack the market up to kill the premium, cover it and then Bam!
      Thanks for your support.

  5. BB
    Your calls are starting to get creepy. Amazing insight. I find your cynicism serves us all well. My fingers were getting itchy today to short. Waiting on you Commander

  6. Options are a great idea but the strike price is well known by the hedge funds and big players with big bucks. The small guy with a few contracts gets burned because the big hedgers will take you out even when you are right. It is done within minutes of a trading day. Every hedge funds has puts on Apple, Priceline, Google the SPY, DIA,IWM NDX and etc. You can look smart but end up in a mess if you play options for protection on any bull or bear play. Stay away unless you are smarter than the average bear!!

    Be skeptical of anybody that says they make a killing on option trades. They never tell you how much they lose on trying to
    protect their option plays (puts or calls) that are out of favor..

  7. Options ARE indeed a great idea but you have to know how to play it. Playing spreads (puts or calls) Is still a great strategy because it allows you to stay at pretty safe distance of historical prices (AAPL before earnings for example) and collect time decay. To short the SPY with call spreads you have to have a great confidence on your strategy because indexes are moving faster on one direction or the other than individual stocks. That is why it is riskier with SPY.