After The Storm.

After the devastation, the markets gave its best shot in a difficult situation. So far it is following the path written. If you remember, we expected the indices to move up and down this week and make a messy bottom. So far SPX has corrected only about 5% from its top but the downturn has persisted for over 40 days now. This in itself is something of a rarity. I see close similarity between now and last April.

And my call for a test of the high is consistent with that topping pattern.  Already some positive divergences are appearing.  Tradersu has forwarded the following link.

http://pialerts.files.wordpress.com/2012/10/techsmithworb9b2.png

However, it would be good to remember that this rebound is going to be short term in nature and unless we see 1480 taken out with conviction and SPX stays above that range for a while, I would consider that as a part of topping process.

For the near term, I would like to share a chart of Presidential Election cycle sent by Tom McClellan.

Again, this chart fits perfectly with my cycle and call. I think Apple is bottoming short term and will test the 50 DMA in the coming days. Gold and silver made some progress from the base. All in all, I am of the opinion that a base of some sort is being built for the next stage of the rally. But for that, we may have to wait till next week.

I hope all you readers are safe and secure. Our good wishes to those who have been badly affected by this storm. At least it gave us respite from the 24 hour politics.

Thanks for sharing my thoughts. Hope you are in cash and cushy and ready for the opportunities ahead of us. 

Messing Up With The Brain.

That’s what the market is doing with bulls and bears. The bottom is in sight but it is going to be a messy short term bottom. I would not be surprised at all to see the markets up one day down the next for the whole of next week.

So far the important support level has held but it is still too early to do bottom fishing. As I had mentioned in my email, till cash SPX closes above 1420 in a convincing manner, there is no reason to go long for even one day. Even after that, if you want to go long, I would recommend that you weigh all the benefits against risks.  Most likely we will see a retest of the earlier high and may even have a higher high but just. I would think that the risk is more to the downside, both fundamentally and otherwise.  We have been here before.

(H/T: Lance Roberts)

I do not normally believe in analogs. Analogs are fun while it works but we cannot make investment decisions based on analogs. But there are other factors like money flow through the banking system, the coming fiscal cliff and even cycles indicate that there are dangers ahead.

One of the respected chart analysts, Peter L Brandt has this chart to show:

The caveat is that this theory is invalid if SPX closes above 1480.

By Mid-November, I expect SPX to push above 1470 but whether it will stay above is the million dollar question.

We will take it one day at a time but now is not the time to be cute or smart. The topping process is on and even if the mid-November top comes by end November, it does not change anything.

That’s all I have for this rainy weekend. For those of you living in the path of the storm, hope you are well prepared. If we have to err, better be on the side of caution, be it a storm or stock market. Stay safe friends.

Apple Fell From Tree.

Story of the night is the earning miss by Apple. And the cherry on the top is the disappointing results by Amazon. SPX futures (/ES) again tested 1400 after hours and Nasdaq futures (/NQ) tested 2600. Both bounced back from the lows but we have to wait and see the action overnight.

Trading of Apple shares were halted in the after-market when it traded below $600. But the market was not expecting anything great from these two, if I have got the pulse correctly. Right at the point of writing this post Apple was trading at $ 607. There was no dumping as such.

I wrote in the past that once Apple closed below $640, it had more to fall. I think we will not see a trade-able bottom for Apple before the end of the year. This is consistent with my view of the general market. For now, despite the disappointing results, it is poised for a bounce soon. So are the futures.

Today the markets messed up with both the bulls and bears and end of the day both group were confused as hell. The short term cycles are all mixed up and it is going to be a messy bottom in a day or two.  

These days I look at 4 hour chart to get a little bigger picture. The 4 hour chart of /ES is showing 4/5 touches around 1400 level and bounce from there. Obviously this is an important support. As time passes and bears are unable to convincingly break this support, it becomes stronger. Having said that, market always surprises and inflicts maximum pain on maximum number of people. If folks did buy more puts of Apple, we can be sure that Apple will close higher. As per option pain calculator, November Max.pain for Apple is $ 635, which is higher than where it is now. Go figure.

I still think a short term bottom is around the corner. Let us see what the overnight actions and tomorrow bring. And I am still waiting to see whether Nat.Gas gives the sell signal. Today it broke below $3.40 but closed above that line. If there is no sell signal in a day or two, then it will be time to pile on to Nat.Gas.

Sentiments have turned south for gold and silver. Today one newsletter writer bailed out of gold and that may be a good contrarian indicator. My take is that we will see a re-test of the last high by mid-November and if the re-test fails, then we bail out and re-enter by end of the year.

That’s all for tonight. I made some changes in the Ad program. Now we only have Amazon link at the top and no other Ads except the in-line text ads. Hope you will remember the blog if and when you use Amazon.

Thanks for sharing my thoughts. Patience is required for few more days.

"Are We There Yet" Redux.

There were some questions from readers about the stock market performance vis-à-vis Presidential elections cycle. The theory goes that price movement in stock market predicts the winner. Logically the incumbent wants to spread the feeling of well being before the voting and “O” has done his best to goose up the stock market with endless liquidity flow. And barring the 50-60 point sell, we are actually closer to the top end of the range. And yet every drop in market is cheered and end of the world is eagerly anticipated. We never believed in this rally (including me) and many have stayed away from the melt up from June. But someone made money and I bet that someone belongs to the Boyz club. With this month long chopping and grinding down, sentiments are bearish. But if the COT EuroDollar chart as shown yesterday is any indication, we should follow the money flow of the TBTF banks.

Today Stock Trader’s Almanac had this chart:

It compares two past Presidential election when the challenger defeated the incumbent. I do not care much about who wins but what I wanted to point out from the chart is that in both cases the market has gone up from this point.

Is it any wonder that cycles are calling for a rally soon?

Today /ES (SPX Futures) tested the 1400 line twice during the day and so far it held. The 1^st rebound from here, if it comes tomorrow will fail. And at that point we have to see whether it makes a higher low and whether there is a positive divergence in RSI. I think we will again test this level in a day or two. By that time we will be in the last week of October.

Gold tested 1700 level and held so far. Same with Nat.Gas. It did not go below $ 3.40. If it does not break through $3.40 in a day or two, I will anyway take a long position with  Nat.Gas. The COT positions are bullish.

Although I plan to take a long trade by end of October, I am hesitant to long equities. I think it may be a good idea to Short VIX. Again this would be a trade for 15 days or so and not an investment. I think we will get a decent correction after mid-November, not an itsy-bitsy 50-60 points correction which is about to reverse any-time now.

So we wait for another day and in the mean time day traders pile up on short trade only to be squeezed. Thanks for sharing my thoughts. Remember, cash is also a position.

Demise Of Financial Bloggers?

Josh Brown ran an article today as to why financial bloggers have gone down in numbers. I found it quite funny and could not resist quoting it here:

“There seem to be fewer regularly-updated, high quality financial blogs these days. Many have simply disappeared or have gone inactive. And very few new ones of note have come along to replace them.

But why?”

 Then he goes on to give some theories:

Many bloggers have simply been so completely dead wrong about the post-crisis period we've been in (Hyperinflation! Depression! Social Unrest! Hoard Water and Dry Goods!) that they simply have no audience left. Keep in mind that many of the 2008-2010 generation of bloggers were misanthropes who had been rooting for a collapse all along. They came out of the woodwork and began blogging motivated by a mixture of I-Told-You-So schadenfreude and the desire to predict the next crisis, which was obviously an imminent thing. Only it didn't happen (I know, I know, any day now). And having blown all of their personal credibility on failed Cassandra-ism, having recognized what a horrendous disservice they've done to those who've heeded them, they've simply moved on. Many went to Twitter instead where there is a less permanent record of their bullshit.

But the biggest rant blog is still going strong.

That brings me to my post. The collapse of USA is not yet imminent. And come to think of it, so far it is just a 50 point correction in SPX. But already folks are behaving as if the end is near. And when the real stuff comes up, there would not be many to take advantage of it.

We all know the fundamentals sucks and earnings are crappy. And retail has started buying puts like never before. It happens without fail. Retail will sell at the bottom and buy at the top. The equity put/call volume ratio across all 10 options exchanges ended at 1.05, with roughly 7.46 million calls and 7.86 million puts traded.

My 2 cent contrarian thinking:

VIX closed outside its BB today , 1^st time after April 2012.

And SPX closed 2 Standard Deviation below mean, outside BB.

If we see a green day tomorrow, it might be considered as a VIX buy set up.

I do not expect a rally from tomorrow; rather I expect a sideways movement from here till end of the month.

One of the things I follow with interest (apart from my cycles) is the COT Eurodollar indicator as shown by Tom McClellan. He has some complex formula whereby he moves the whole thing ahead by 12 months. I do not understand how it works, except it gives a clue to what the Banksters are thinking and where the money is going. Few days back,the following chart was shared in SHJ’s blog by one of his readers.

So the Boyz have planned all the ups and downs all along!

What I like most about this chart is that it matches with my cycle analysis. It also agrees with the Bradley dates. So we may have to wait a bit more for the Armageddon. Don’t buy the dry foods yet.

At least I have no emotional trauma to bear because I am on the sideline.  So I leave you with some thoughts and cautions. It’s raining here in Toronto. The fall leaves are almost gone. They say that winter will be difficult this year and I still have not been able to get in Nat.Gas. It refuses to give a sell signal. But I am patient.

Thanks for sharing my thoughts. Stay frosty folks. 

Indices Dig Out Of Hole.

The selling momentum of last Friday continued for better part of today but the last hour was a good turnaround. DOW covered more than 100 points to close in green. In terms of chart pattern let us see the favourite of the Boyz, /ES or emini (SPX futures).

The following is a 4 hour chart of /ES

This is the 2^nd time /ES has bounced from 1420 level which is a good support and the last breakout happened from here. The next line of defence is 1400 level.  And the indices still held the low of 10/12/2012. The cash SPX actually bounced off the lower BB and is sitting just above the 50 DMA. Possibly the bears are allowed only up-to this much for now.

The fundamentals are not that great. With corporate profits down and fiscal cliff hanging in front, there are quite a bit of distributions going on for the last many trading days. Most likely smart money is getting out before the uncertainty hits home. But the last bit of shenanigan is still ahead of us and the Boyz will melt up the market for at least one more time. Therefore it is time for patience and not the time for taking positions. I plan to take a long position by end of October but not in any stock or indices. In my view, the least risky trade would be short bond and therefore TBT.

As you know I am long term bullish on Gold and Silver. But if Gold and Silver do not make new highs by mid-November, it may not be a bad idea to step out for a short while. However, if you are not checking your investment portfolio everyday and are comfortable to hold it for a long term, then there is no need to hop in and out.  In fact every weakness is an opportunity to scale in.

Nat.Gas did sell off today. From $3.65, it closed at $3.44. Yet it has not given the sell signal. It has to close below $3.40 for a meaningful correction. I am waiting for it to correct some more for a good entry.

Coming back to short term equities cycle, the 1^st reading had bottom around 24^th October. Subsequently, 24^th October inverted to top and cycle bottom moved to end of October. In situations like these, it is screaming confusion and the best course of action is no action at all. The crystal ball is fairly clear after 29^th/30^th October till mid- November and that is when I plan to take a long shot for a short while.

Hope you have been in cash and cushy. Cash is the king in times like these. Good opportunities are ahead of us and we have to keep our emotions in check. If you were long, hope you did not close your position because it will turn around very quickly. Problem is, none of these turn around are for real.

We may see some more selling in a day or two but it does not matter. Unless the bears break down 1400 with conviction in the coming few trading sessions, we are looking for a swing high around 1480-1500 range by mid-November.

That’s all for this Monday evening. Thanks for sharing my thoughts. Be safe out there please.  

Tips For Investors.

I have couple of tips for Relaxed Investors:

1.       Remember that Investment if different from Trading:  The successful investment strategy differs markedly from trading.  It is especially important to establish good, long-term positions when prices are favorable. Most individual investors seriously underperform long-term results by selling low and buying high.  Most successful professionals, of course, do the opposite.

             Even successful years have significant drawdowns.  15% is not unusual.  The investor needs to   expect this.  If it feels stressful, then your asset allocation is wrong.

(H/T Jeff Miller)

2.       Realize that we are no expert on world events: However much ZH or some such blog or various talking heads on TV explain why the world is going to end soon, world is not going to end that easily. Investing based on bear talk can be harmful to the portfolio. World may or may not end tomorrow but investing based on personal belief is not a good strategy.

One of my favourite strategy is to have patience and remove the fear of missing out from the mind. I have not been active in the market for the last few months. During these times, market has gone up and down many times in the most unpredictable fashion. Nothing and nobody can say with any degree of certainty which direction the market will move next. Why take the burden of emotional pain in such a market? So I am looking for what would be a long term trend and trying to get in slowly for a long haul.

For next week, my 2 penny advice would be the same. Patience and do not chase either way. Monday we may see some more selling to start with but an eventual bounce. The market would chop around till end of October. Gold most likely would form a bottom around 24^th-25^th October. And thereafter a longer term up trend (relatively speaking) for equities till mid-November.  Let us see how things develop.

Thanks for all your support and kind words. Have a great Sunday folks.

Presented Without Comments

Problem With Comment Publish

For some reason I am unable to publish all the comments in Blogger.
But I want to acknowledge and say thanks to all of you for expressing your support.

51 Shades Of Red.

50 shades for the market, 1 for me.

In the morning call of Friday morning I wrote the following:

As I wrote last night, DOW has been down last 6 straight and 7 of the last 8. That should tell us that we should expect the market to close in red. How deep the colour of the Red is to be seen. It would be foolish to venture an opinion on OpEx day.

It now turns out that the shade of the Red was very deep indeed. It now seems that the indices are making a triple top, if there is something like that in the dictionary of TA. But fear not. It is not the start of the waterfall that we all are waiting for. It is just a symptom of a sick market. Sometime back I wrote that a complex topping process is going on. And because of these weekly ups and downs, it is impossible to trade let alone invest in this market. That is why my conclusion in Friday morning was; Trade Safe, Invest not.

I have done this hop on hop off trade in the past. This is not swing trade. For a swing trade we need somewhat longer term trend which is absent from June. If anyone tells you that s/he is making money in this market day trading or swing trading, s/he is either lying or lucky. My guess, it is the former.

Readers know that we were expecting a pull back since last two days but the degree of pull back surprised everyone, including me. Now we have to see if the low of last week holds. Today’s sell off was triggered by earnings or lack of it. (Although I would say Cycles) let us hope next week the earnings come out better.(because cycles are up till 25^th October). So far the DOW and SPX have stopped at 50 DMA as if that’s all the bears are allowed. The Fed has said that they will prop the market no matter what and $40 billion a month have just started coming in.

After the cycle top around 25^th October, the next short term low is around end of October. And the important cycles all go up from there. That also matches with the Bradley Date and the COT Euro dollar chart of Tom McClellan. I do not want to guess how low the market can or will go from here till 30^th October, but I may take a swing at some longs between end of October and Mid-November. If you remember, I am on the sideline, neither long nor short.  By the way, despite the sell-off, there is no confirmed sell signal from the major indices yet. It may change if we have more selling next week but we will cross the bridge when we come to it.

That made your 50 shades of red market. Now, my 1 shade of red.

In the morning Google very kindly notified that my Adsense account has been closed. Naturally I was very disappointed. But out of 1000s of readers, so far 10 have stood by me and have said that they will support me in every whichever way. Thank you ladies and gentlemen. I have never met you in person and yet you have extended your generosity to an unknown blogger. That I have 10 unknown souls by my side, makes me realize how lucky and blessed I am. I feel that I have achieved my goal.

But God has a funny of showing love. When s/he closes one door, s/he opens ten others. Blogging was never going to be my profession or livelihood. I do it because I love it and as I had some more time in hand, I started spending that here. Making my work of love a paid or subscriber model, will not give me sufficient money to justify my time yet it will alienate most of the readers. Charging $15 per month to 50 or even 100 readers will not allow me to live and yet that will tie me up with huge responsibility. So I have decided to let the blog be as it is. Free for all.

I have signed up with another company called BidVertiser who do the same thing as google but on a scale of 1 to 1000000. So I will do whatever I can to generate Ad revenue and then there is Amazon link which I hope readers will use during the holiday season.

I will be making my regular evening post and sharing my views on investments and market. The Weekly Market report (WOF+) is going for a premature death because readers don’t think it is worth any money. Let life continue as it was, without any bells and whistle.

That sums up the eventful week and the 51 shades of red. Have a great weekend folks.

Intra-Day Update:10/19/12: 12 Noon Eastern

Not looking good. let us see where it closes.  This can go up equally quickly. Don't panic or chase please.

Intra-Day Update. 10/19/12; 11AM Eastern

Personal disappointments aside,
Let the market action continue, SPX is not that bad. Nasdaq is testing its earlier low.
I would not chase it either way for now.
Patience folks.

Morning Call. October 19, 2012

First we had Apple sell off and now we have Google sell off. These two are the staples of most hedge funds. These funds will be under water for sure and what they will do to improve their monthly report is not very clear yet. Some may now try to get out the tech. stocks and chase small value beta. In short there will be instability in the market for whole of October.

Euro Summit decision has now been pushed to November. Everyone is waiting for the US Presidential election to get over to wash the dirty laundry. There is a fight between Germany and France about banking supervision. Spanish bailout issue is hanging and Greece debt fiasco is nearing its end. I do not see it being resolved in favour of the Greeks.

But the market seems to ignore all the above issues. In USA companies after companies (Chipotle, IBM, CAT, Nike, Intel, ……) report lower earnings and weak guidance. These are big names and yet DOW / S&P 500 marches on. This is the power of liquidity. I can only guess how long this will go on and I have given my best estimates of the timeline before. As of now we should be up till mid-next week.

Futures:  DOW futures are down about 40 points but Nasdaq does not look that bad. Down only about 5 points. SPX is down about 3 points and is well above any danger mark. Today is OpEx day. Any move is to be discounted as a part of the shenanigan of the big boyz who sell premium. As I wrote last night, DOWn has been down last 6 straight and 7 of the last 8. That should tell us that we should expect the market to close in red. How deep the colour of the Red is to be seen. It would be foolish to venture an opinion on OpEx day.

Commodities:  Overnight gold and silver sold off. Silver was worst hit, down 1.35% but gold is holding an important level. I expect a rebound here. Let us see how far the rebound goes till next week. Crude was higher with a gain of 0.25% and so did Nat. Gas. Therefore it would be wrong to say that the market is in “Risk-off” mode. It is just the manipulators switching money from one sector to another.

Earnings & Economic data: Today we have release of existing home sales. Additionally, General Electric (GE), McDonald's (MCD), Baker Hughes (BHI), Edwards Lifesciences (EW), Honeywell International (HON), Ingersoll-Rand (IR), McMoRan Exploration (MMR), and Schlumberger (SLB) are scheduled to release their quarterly reports.

In fact GE has already come out with the numbers and has reported an increased earnings of 8.3% while revenues are down. GE shares are down 2% in pre-market.

Conclusion:  I am standing aside. Expect a roller coaster ride throughout the day. Trade safe. Invest not.

Note: Starting today, all intra-day updates will be released through the blog posting and link tweeted. No more direct twitter.  

Market Wrap Up: October 18, 2012

The morning call was again on the money on all counts. SPX pulled back till 1452 against the wishful target of 1450 but closed down a tiny bit. The conclusion part of the morning call said “no reason to be bear”. Dow was also down a small amount but the biggest loser was Nasdaq and that’s a story which will be discussed 1000s times in main stream media and other intelligent blogs. So we will give it a pass here. Bottom line, readers of this blog knew and possibly was prepared for the pull-back.

Day before, in Options+, in bullish ideas, LEN was mentioned. Today it is up 1.5% in a down market. Market thinks that housing has turned around and good luck to those who believe in tooth fairy. But if you are reading between lines, may be you have come across this news:

One of the first big hedge funds to try to profit from a rebound in the U.S. housing market by investing in foreclosed homes is looking to cash out, even as other institutional investors are still getting in.

Och-Ziff Capital Management Group LLC, the $31 billion hedge fund led by Daniel Och, recently told its investment partner, 643 Capital Management, that it wants to exit from the foreclosed homes business, said several people familiar with the matter.

The hedge fund is looking to make a profit on a portfolio of about 300 foreclosed homes in northern California that were acquired at distressed prices, said the sources, who did not want to be identified because they were not authorized to discuss the matter.

(Reuters).

Really smart folks will get out of this housing mess while others rush in. I think US housing is far away from finding a bottom and another 20%-30% drop by 2014 is definitely on the cards. Only this time, US would not be alone, Canada will join the party.

Regarding tomorrow, it is OpEx. The picture is cloudy. Stock Trader’s Almanac is indicating that tomorrow is bullish. On the other hand October OpEx, Dow down straight last 6 times and last 7 of the 8.  But today both SPX and VIX closed in red. Bonds were down as well. Normally that would mean a green day next day. And then we had the Google fiasco. I think it could be a roller coaster ride tomorrow but knowing that the cycle is up till middle of next week, even if we see indices weak during the day, it could be buying opportunity. Normally I avoid taking any position on OpEx and Fridays. Unless there is some very compelling  reason, I do not see why there should be an exception tomorrow. As usual, I will tweet through out the day as I see it .

Today one dear reader asked about Apple. If you remember my earlier call on Apple, I said that if Apple closes below $640, there are problems ahead. Apple did close below $640. Now it is due for a bounce and we might see a possible test of its high along with the general market melt up around mid-November. However it may not close above $675. Its trouble is far from over and I expect Apple to test $ 500 by end of the year. While discussing prices, please keep the time period in mind.

Commodities showed reasonable strength today. Gold and silver did not lose much ground and held their earlier lows. But Nat.Gas refuses to give the sell signal. Oil could be due for a short term bounce. 

The Options + was in its 2^nd day today. Already we have quite a few trade idea and over 700 page views in less than 2 days. That shows that there is an interest in short term trading. But I want to emphasize again that investors with a longer term view should avoid it. That is preciously the reason I have set it up separately. As you can see, I am spending lots of time here in the blog and your continued help/support is absolutely essential.

Invite your friends to join the readership and Join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  Now you have two more blogs to visit:  http://artofbetterlife.blogspot.com/ and http://bboptions.blogspot.com/ . And please send your feedback and comments.

Morning Call : October 18, 2012

Futures:  

In line with what I wrote last night, futures are down across the board. Nasdaq future is the weakest, down over 13 points. Dow future is also down about 13 points and /ES down 4.5 points. Most likely these red numbers will increase before the open. Surprisingly, the futures were flat for the overnight session and it now seems that when folks at NY TBTF banks have started their day at 8.30 eastern, the futures started to move down.

As I had reported last night  http://bboptions.blogspot.ca/2012/10/ideas-for-night-october-17-2012.html there were higher put activity on SPX and higher call activity on VIX yesterday. This would indicate that those in the know are hedging for a bit of downside.

I am not sure how far the correction will go but knowing that the up momentum has been very strong and cycles are up till October 24-25, I would be hesitant to short the market.

Commodities:

US Dollar index is up about 0.2%. Gold & silver is down almost 1% while crude is down about 0.64%. However Nat. Gas refuses to go down and is stubbornly holding on to $3.50 range. I think more action will be on the equity side today.

Earnings & Economic data:

Today's economic notables include weekly jobless claims, the Philadelphia Fed's manufacturing index, and the Conference Board's index of leading economic indicators. Google (GOOG), Microsoft (MSFT), The Travelers Companies (TRV), Verizon Communications (VZ), Advanced Micro Devices (AMD), Alliance Data Systems (ADS), BB&T (BBT), The Blackstone Group (BX), Boston Scientific (BSX), Capital One Financial (COF), Chipotle Mexican Grill (CMG), Cypress Semiconductor (CY), E*TRADE Financial (ETFC), Fairchild Semiconductor (FCS), Fifth Third Bancorp (FITB), Huntington Bancshares (HBAN), KeyCorp (KEY), Morgan Stanley (MS), Philip Morris International (PM), SanDisk (SNDK), Southwest Airlines (LUV), SUPERVALU (SVU), and Union Pacific (UNP) will unveil their respective earnings reports.

(H/T Schaeffersresearch).

Conclusion:  Same as yesterday. The markets will seek lower level but no reason to be a bear.

Mixed Bag Wednesday.

It was not a short covering rally, which some distinguished writers are suggesting. Then why the bounce? Simply because we can.  May be QEI effect has started showing up. If you remember, in one of the posts of last week, I wrote that it takes some time for QE to show up in the market and the initial reaction is a sell off. But I have given up finding reasons as to why the market goes up or down. I cook my own dish without any logical input. My recipe is a complex formula. My base sauce is my cycle timing model. Then I add little bit of sentiment sauce, few dollops of liquidity and generous amount of shenanigans of TPTB (the powers that be). Garnish it with bit of charts and TA. Voila! You have a good dish ready. And most of the time it is yummy.

Jokes apart, my views of the market are known to all of you. The crooks running the show know and understand how retail thinks and I try to understand what the crooks are thinking. The retail investors go through different phases during melt up.

·         Despair

·         Disbelieve.

·         Acceptance

·         Euphoria.

We are far away from Euphoria. I think we are in somewhere in disbelieving stage. Nobody loves the market which has rallied from SPX 1267 in June. I myself have been mostly out of the market from June. I think I did few trades between June and September and no new investment. So we can expect the market to grind up. Cycle wise it is coming close to an important intermediate term top. The correction thereafter will be significant but not “the” correction. Played well, we should be able to make money both ways. But I am trying to stay away from these weekly cycles of highs and lows. I will call out when I see low risk entries in either side.

The morning note started today and you have been very kind to accept it well. The call was clear; do not short the market even if it appears overbought. It remains overbought and the last four hours SPX moved around at the same level with a bit of selling in between. It will be very unnatural for the market to continue higher and higher from here till October 24^th/25^th. I was expecting the market to seek lower level today but that did not happen. It may happen tomorrow. Knowing how these manipulators work, most likely we will find futures down 10 points when we get up in the morning tomorrow. It will be perfectly normal for SPX to spend a day or two at 1445-1450 level before starting the journey up.

Natural Gas refuses to give the sell signal and is bouncing off important support level of $3.40. Gold and Silver made some progress during the day but nothing substantial. If we do not get the desired price level by Mid-November, we will have to wait a little more. Bonds sold off and TBT made good progress.

I want to express my sincere thanks for all your help and support. Please continue your support as this blog depends on you. Invite your friends to join the readership and Join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  Now you have two more blogs to visit:  http://artofbetterlife.blogspot.com/ and http://bboptions.blogspot.com/ . The last one is just one day old baby and is a work in progress. 

Morning Call: October 17, 2012

Futures: The markets are digesting the huge gains of last two days and it is normal for the markets to give back a little gain before it start with the journey again.

Overnight, Dow futures are down 20+ points, Nasdaq futures are down about 6 points while S&P is up about 3 points. The four hourly chart of /ES (SPX futures) are overbought and will most likely turn down. While that is the logical course of action, market does not always behave logically. Therefore, if I am a day trader (which I am not), I would not jump to short the market just because RSI has reached overbought. Rather I would see how low the correction goes and buy in new long positions.

Reasons being, the up momentum for the last two days is very strong and cycles are up.

Commodities: Natural Gas has started its downward journey which I wrote in the weekly report. Hopefully it will reach around $3.25 or lower to allow a good entry. Crude is modestly up along with Euro but the cycle is down and those who control the speculators will ensure that crude does not go up till election. Gold and silver consolidating at yesterday’s level.

Earnings & Economic data: The earning season is upon us. Today's economic calendar features the MBA mortgage index, new housing starts and building permits, as well as the weekly update on crude inventories. Meanwhile, earnings are due out from American Express (AXP), Abbott Laboratories (ABT), Align Technology (ALGN), Bank of America (BAC), Bank of New York Mellon (BK), BlackRock (BLK), Check Point Software Technologies (CHKP), Comerica (CMA), eBay (EBAY), Halliburton (HAL), Kinder Morgan Energy Partners (KMP), Knight Capital Group (KCG), PepsiCo (PEP), Quest Diagnostics (DGX), St. Jude Medical (STJ), SLM Corp (SLM), Stanley Black & Decker (SWK), Steel Dynamics (STLD), U.S. Bancorp (USB), and Xilinx (XLNX).(H/T Schaeffersresearch).

I expect most of these companies will beat the forecast.

Yesterday’s price action indicates that QE3 or QEI (whatever you call it) has started its action. And that was exactly what they had in mind. Maximum impact just before election.  Once we know which direction they are leaning, we can play accordingly.

Conclusion: Look for the market to seek lower levels today but no reason to be a bear.

Terrific Tuesday.

Last Tuesday was “Terrifying Tuesday” and this one is “Terrific Tuesday”. Of course I am talking from the point of view of the bulls. It is no fun investing or trading in a bear market. Bear markets are treacherous and difficult to make money. Not many can short the market, either because they do not know how or they do not have the mental make-up to short. Short selling is not for mom and pop. The only vehicles available in the market are the leveraged short ETF which loses value over time. All in all, bear market sucks! But we will have to play with the hands that we are dealt.

I keep writing that while the longer term prospect of the market is dim, let’s not get caught up in macro economic analysis and bear talk while the market is going up. My favourite conspiracy theory is that the “Rant blog” which screams of immediate demise of the western civilization from morning till night, is actually a mole of GS and other TBTF banks. Planted to create a fear psychosis amongst the retail, so that retail always sell cheap.

When the bear will strike again, it will come un-announced and in the height of euphoria. When the opportunity to short will present itself, we will find that we have run out of ammunition because we have fired them in the sky.

The last two days have changed the storyline of last week. It never amazes me to see how a 50 point sell can make every one think that the end is here. After all, it is just cycle topping or bottoming. Today Pandit of Citi resigned suddenly without any explanation and the financials barely budged. If the cycle was down, there would have been a sell-off of all bank stocks. Did not happen today! Since 2009, when Bernanke started to pump liquidity in the market, it has become impossible to trade based on TA alone, leave alone investing. And now we have unlimited liquidity. What will cause the fall and return of the bear will be something which is beyond the control of Bernanke. The liquidity will find home in the unlikely places and will have un- intended consequences, like increase in the price of gold and silver and run on the bonds.

Yesterday I had given out the market outline as I see it. I also outlined the broader outlook in the weekly report. So far things are as per expectations. I think tomorrow  and day after we will see consolidation and/or a minor correction and the up-trend will resume again thereafter. Already I am hearing renewed call of 1500+. But the market has run way ahead if it-self. In two days it reversed the damages done in earlier four days.  The earlier high is not very far. If SPX is able to close above 1470 before 25^th October , then it is very likely that we will see 1500 -1550 by mid-November. You see, unless we have tested the all time we cannot say that end is near.

Only a quarterly chart, it seems that 1550 is a reasonable target.

I am making some changes in the blog. As a good number of our readers do short term trading and active in options, I plan to start a separate and dedicated blog for options.( http://bboption.blogspot.com/)  Please, options are not for everyone and don’t get carried away by the stories of easy and quick money. Most of the time, it is a losing proposition and only the sellers of premium make money. They are our beloved TBTF banks. But if folks want it, folks will have it. I will find good plays every day from different places and experts and put it out in the dedicated option blog. It will not be my own play. I would rather have the best ideas from the real experts.

I also plan to do a quick post in the morning to update you about the market as I see it. The focus of the morning post will be more short term while the focus of the evening post will be longer term. That way the readers will have more value and incentives to come back and check the blog more often.

Only, I am yet to see the results . Since last Friday things are little down and today we have another Presidential debate. Last debate was bad for the blog. I am not sure how this one will be. So my request to you dear readers: please support the blog. Your help and support is absolutely critical to keep the blog running. Do remember to disable Adblock.

Thanks for reading http://bbfinance.blogspot.com/  join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  And if time permits visit and comment on http://artofbetterlife.blogspot.com/

Adjustment Of Dates.

Readers of the weekly report know by now that short term cycle has indeed bottomed. But some changes need to be taken into consideration. The last short term top was due on September 7^th, but came on September 14^th, about 5 trading days late. The Short term bottom was due on 10^th October but actually came on 12^th October. These changes call for adjustments for future dates.

Earlier I was calling for another short term bottom around October 24^th or around that time. With the shift of dates as mentioned above, I now think that the next short term top will be around October 24^th-25^th, instead of a bottom. The expected short term bottom should now move to October 29^th- 30^th. The final melt- up date remains the same. From end of October till 12^th-14^th November.

Getting confused? Well, let me put in another way.  A complex topping process is going on. We knew that this correction was coming and was prepared for it. Now we also know that another pop is on the way and that would run for next 8-10 days. But that would not take us far and that is not the final pop. I have written before that we have one more scare coming. My expectation is that we will see a swing low around end of October. I cannot say for sure whether that low will be lower than the current low and that will depend how high this one goes. And please keep in mind this short term pop will not be one straight line. Talk of meat grinders!

And a strong caveat: I cannot predict the future. I try to best guess the market based on certain models. So far most of these calls have been on track but while anticipating multiple turns in advance, one has to be ready for quick changes in the plan. I am not playing the market till the end of October (earlier it was 24^th October). And I would not recommend that anyone does either. Patience is the watch word.

I was little disappointed as to how much gold and silver sold off but on the other hand these are good entry levels. Silver bounced off from $32.50 and gold is very close to $ 1740. If you are not already holding precious metal and planning to take core, long term position, do not jump in all at once. You must scale in. For e.g. if you are willing to allocate $ 10000 to PM sector,  instead of investing the entire $10K at one shot, do it in 3 or 4 instalments  Therefore if tomorrow price of silver is above $33 (close) and price of gold close above $ 1740, you may want to allocate 25% -33% to get in. I hope you get my drift. With PMs, we are talking very long term holding periods. Few years at least. So invest accordingly.

Our dear reader dc_BEAR has sent a Bradley Date chart with a comparison of actual SPX price movements. The comparison was originally done by Tim Knights of SOH.

Surprisingly the dates are matching very close to the cycles which I am working with. Let us see how it plays out but this is eerie.  

I know lots of readers here trade short term. One of my friends called in today and asked me to put in ideas about Options. This is something I would tell regular investors  to stay away from. I want to emphasize that if you must trade and deal in options, have separate accounts and allocate only a small amount of risk capital for option trading. Even if you lose 100% of your option account, which is very likely, your core investment will not be affected. My friend agreed to my suggestion. If you folks think that this is something you would like to take a look at, I will have to start a separate blog on Options. I absolutely would not want retirement savings going in option play.

I have been pounding the table for “Relaxed Investor” approach and to take a long term approach to investing for quite a while now. Yesterday, Josh Brown of The reformed trader wrote the following:

A portfolio compounding at 7 percent will double in 10.5 years. Thus, if a client has 20 years of working, saving and investing in front of him (and our nemesis inflation compounds at just 2 to 4% a year) the reality is that we'll be just fine (even if a bit envious at times of an Icarus trader's good fortune and a bit smug when they inevitably crash back to earth). Dicking around with small cap Chinese coal miners just because "they move, bro" simply doesn't enter into this goal-oriented approach. And once the goals become simple, the methodology ought to be every bit as simple. I tell people that if I ever start talking about delta hedging I'm probably high on something and they should fire me.

I have written the same thing in the last weekly report.

 That’s all for tonight.  Hope the up momentum is maintained tomorrow. Please continue with your help and support which is absolutely critical to keep the blog running. Do remember to disable Adblock.  Also please send your feedback on the weekly report so that I can make necessary changes as per your needs. Thanks for reading http://bbfinance.blogspot.com/  join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  And if time permits visit and comment on http://artofbetterlife.blogspot.com/

Sunday Musings.

Friday before last, October 5^th, SPX made an attempt of testing the high and closed at 1460. The mood was optimistic and everyone was looking forward to 1500+ very soon. This Friday , 12^th Oct, SPX closed little below  1428 and the mood is of doom and gloom! How things change in a week! Yesterday ZH ran a post promising below 600 sometimes in 2014. While it may or may not happen, (I have difficulty guessing what will happen tomorrow, leave alone 2014), there are other dire predictions floating around.

One such thing came from McClellan publication and we have to give it much higher credibility than ZH. Tom McClellan sent this following chart of Dow Jones 40 year log scale.

And it shows a peak sometime close in near future and a huge drop thereafter.

While I agree with this chart for the long term movement of the market, we need to be careful about the timing. While I am expecting a substantial correction after election, I do not think the end of the world is near yet. On the contrary, for those of you who have lost money getting caught up in the bear talk for the last four years, please pay attention. The 1^st half of 2013 may present an opportunity to make money on the long side. So don’t start buying the soup cans yet.

We will take opportunities at every turn as they come but also keep a longer term picture in mind and not take any risk.

The coming week is going to be crucial in the sense that while the initial support has been broken, the secondary support at 1400 SPX level is still intact and we will find out whether it gets broken as well. Chances are we are going to see the bounce we were looking for as the short term cycle has bottomed.  We may not get the huge bounce and see the market chop around a bit till after OpEx but I think those last 15 days would be good for bulls.  On the other hand, if ‘O’  is going to lose, we will see a much larger correction. So we have to keep the options open and not front run. Not till October 24^th Anyway.

I want to share a chart of dollar index from Jamie Saettele, currency strategist.

And the chart agrees with my reading of Euro that we will see a test of the high for Euro.

The 3^rd issue of the weekly report has gone out today and readers will notice that more and more I am asking you to avoid taking risk and differentiate between investment and speculation. Loss in trading is a direct result of risk. So you have to ask yourself, what is your risk tolerance level and to what extent you want to gamble with your money. Sitting in a rocking chair keeps us occupied, but it does not take us anywhere. Same thing with day trading!

However, many of our readers are involved with options and short term trading. I will soon start separate pages for options and swing trades, may be as early as next week. Those pages will be dedicated to the traders and not suitable for long term investments.

It has not been a good weekend for the blog. The pageviews and earnings are down substantially. Your help and support is absolutely essential to keep the blog running. Please remember to disable Adblock .  Thanks for reading http://bbfinance.blogspot.com/  join me in Twitter @bbfinanceblog)for the real time market updates and calls.  And if time permits visit and comment on http://artofbetterlife.blogspot.com/

Relaxed Investor.

Evolution is a process which guarantees the survival of those who adapt to the changing environment. This is true of nature. This is equally applicable to the world of investing.

The readers of this blog come from many walks of life and from different countries. There are day traders, traders who specialize only in emini or options and a vast majority who are not traders at all but simply want to preserve and grow their capital and want to take control of their financial independence in their own hand. These vast majorities of readers are folks who work full time, have 401K accounts, and feel that they are not being served by their financial advisor.  Obviously the needs of each group are different and how each would approach their trading / investment approach is also different. For e.g.  a day trader who is very active in the market (has to be) can move between positions multiple times in a day. But that option may not be available to someone who is working in the law enforcement and is busy chasing the crooks.

I want to share some of the emails from readers (I have obtained their permission):

Don asked:

I have a question.

I have started Swing Trading, but not very successfully so far.

What is a reasonable expectation of returns after a ramp up period of say a year, if someone works at it diligently?

I recently sold my business and have invested the proceeds.

I find it interesting to observe and explore the patterns I seen in the markets and would I believe be happy spending my time being active in the financial markets by taking advantage of these patterns.  This form of  "trading" would only make sense if I can significantly outperform the returns I could achieve with index investing.  As well I am in my 50's so I am concerned with capital preservation.  I should say as well that my spouse is concerned that this form of "speculation" is too risky for us at this stage in our life. And, I of course want to be respectful of her concerns.

Robert said:

grateful if you could add my email to your list.

I  have tried to day trade, mainly ES futures but never made money so I need more of your 'relaxed' investor methods

whilst still putting in time on technical, risk/ ETF picks etc.

find your blog and twitter always worthwhile

And they are not alone. Possibly over 90% of the readers will find themselves in that position, of not making enough money, consistently, over long period of time. In the process, the capital pool is depleted and the dream of achieving financial independence and securing the retirement remains just that, a dream.

I have renamed a page in blog as “Relaxed Investor”. There, I have outlined 16 investment strategies of Sir John Templeton: (H/T Ritholtz.com)

1.Invest for maximum total real return
2. Invest — Don’t trade or speculate
3. Remain flexible and open minded about types of investment
4. Buy Low
5. When buying stocks, search for bargains among quality stocks.
6. Buy value, not market trends or the economic outlook
7. Diversify. In stocks and bonds, as in much else, there is safety in numbers
8. Do your homework or hire wise experts to help you
9. Aggressively monitor your investments
10. Don’t Panic
11. Learn from your mistakes
12. Begin with a Prayer
13. Outperforming the market is a difficult task
14. An investor who has all the answers doesn’t even understand all the questions
15. There’s no free lunch
16. Do not be fearful or negative too often

All his advices are worth listening to, but what I like most is point # 2. Invest – don’t trade or speculate. However, Sir Templeton possibly wrote these rules during bull market and we may have to adapt them a bit in this secular bear market. (yes, I think we are in a secular bear market rally, which will end soon)

To elaborate more on point # 2:

The stock market is not a casino, but if you move in and out of stocks every time they move a point or two, or if you continually sell short… or deal only in options…or trade in futures…the market will be your casino. And, like most gamblers, you may lose eventually—or frequently.

You may find your profits consumed by commissions. You may find a market you expected to turn down turning up—and up, and up—in defiance of all your careful calculations and short sales. Every time a Wall Street news announcer says, “This just in,” your heart will stop.

Keep in mind the wise words of Lucien Hooper, a Wall Street legend: “What always impresses me,” he wrote, “is how much better the relaxed, long-term owners of stock do with their portfolios than the traders do with their switching of inventory. The relaxed investor is usually better informed and more understanding of essential values; he is more patient and less emotional; he pays smaller capital gains taxes; he does not incur unnecessary brokerage commissions; and he avoids behaving like Cassius by ‘thinking too much.’”

And a little bit on point # 3:

There are times to buy blue chip stocks, cyclical stocks, corporate bonds, U.S. Treasury instruments, and so on. And there are times to sit on cash, because sometimes cash enables you to take advantage of investment opportunities.
The fact is there is no one kind of investment that is always best. If a particular industry or type of security becomes popular with investors, that popularity will always prove temporary and—when lost—may not return for many years.

It is difficult to make money day trading when your only resource is your home computer, some technical analysis tools and an internet connection. You are competing against those bots that are able to front run every order. You are competing against those four massive US TBTF banks that control 70% of the derivative market and can employ the best and brightest to write program for trading. Against those hedge fund genius that trade on insider information and have a wide army of expert network.  Above all, your worst enemy is you yourself, your emotions, fear and greed. Very few day traders make money on a regular basis, (over 90% lose money) year after year and those who do, deserve a special salute.

I have been writing about being patient, cash is king etc. Because I have done that mistake of jumping from trade to trade. I have now given up on that and I only trade only when I think it is a long term trend. I would rather not make money, than risk losing it. Capital saved is capital earned. That is why I am not interested in shorting the market for 30 or 50 points any-more nor do I want to go long for that many points. I am waiting for the clear sell or buy signal which will run for 100+ points or more. These opportunities come once in a while but when they come, we are too exhausted or emotionally drained from our failed trades to take advantage of them. The markets are tradable only two or three times in a year, rest of the time; it is not worth the risk. At least from the ordinary investors’ point of view.

There are some sectors, some industries which will go up even when the rest of the markets are down and we have to identify those. I quote this from Josh Brown of reformed broker: The consumer staples sector of the S&P is up 47% since the peak of the S&P 500 in 2007 while the broader market is still down 7% five years later. Did you learn anything? Here's what you should have learned: Even in the very worst of times, people still have to get out of bed, make their kids breakfast and put them on the bus to school. They will die before they stop doing that, no matter what kind of recession/depression/crash you think is afoot. Before I let my kids go hungry, I will work three jobs and then kill a hobo to sell his organs. And you will too. Invest accordingly, end of lesson.

The post is getting too long so I better finish it now. In conclusion, let’s just have a longer time horizon and at the same time be nimble. We are not going achieve our financial nirvana tomorrow and it is going to be a long journey. (We also need bit of luck with us.) Hope I will be able to share the journey with you.

Your help and support is absolutely essential to keep the blog running. You can show your love of this blog in many ways. Remember to disable Adblock and use that Amazon link if needed.  Thanks for reading http://bbfinance.blogspot.com/  join me in Twitter (@bbfinanceblog)for the real time market updates and calls.  And if time permits visit and comment on http://artofbetterlife.blogspot.com/

Do We Need Plan B?

Today SPX was down about 4 points, Nasdaq was down 5 points and Dow was actually up. So why does it feel like we have a huge down day and the bear market is upon us?

I think it is because we had expectation of upswing and that expectation was not fulfilled. Before we go any further, let me repeat an analog: the weather man said it will be sunny and bright. But you look out of the window and see that it is cloudy and may be a drop or two is falling. You will have to go out. Will you take an umbrella with you just in case or would you think, the weather man said there will be no rain, so why bother?  Will there be a plan B just in case?

Now, coming back to the market, do we need a plan B?

What was the plan A in the 1^st place?

I know I have this bad habit of quoting from my earlier posts and some of you think I am just boasting, which I am not. It just saves me from repeating myself and we normally read and remember what we like. So, at the risk of offending you, if I may again quote from yesterday’s post:

It looks like a giant topping process is going on. Nasdaq is definitely the sick man in the town. But I still think there will be one last push from the 24th Oct till 12th Nov. We will see renewed bullishness in the market during that period. I do not know whether SPX will cross 1500 but looking at Nasdaq today I am becoming sceptical. Between now and 23rd Oct. I expect there will be lots of backing and filling.

I also said : The short cycle was supposed to bottom yesterday and by the price action of today, it seems that things are on script. Yes, it did sell off after the 2nd hour but that was only to be expected. The down momentum for the last two days was very strong and it cannot reverse on a dime.

I also said I am not going long equities, that the correction in gold and silver is not over yet etc etc.

OK, fine and dandy, so what the hell was Plan A?

Plan A was that the correction was to stop around SPX 1435 and bounce from there and chop around a bit till 24^th October. Then we go straight up till around 12^th November. That what the weatherman said. But today we have some rain cloud. Do we need to change the plan?

I do not think any major change of plan is needed at this time. You see the short term cycle which caused this correction, has bottomed. At the risk of repeating me, cycle analyses are not an exact science, or let us say it has a better track record than all the Economists. But it can sometimes off  +/- few days. The last cycle top was expected on September 7^th  but came on September 14^th.  It gives us a general sense of direction and tells us to be careful. So maybe we will see some more weakness on Monday morning but there is no sell signal yet. So I am not even thinking of going short. Surprisingly, Nasdaq was stronger today. I think Apple has found a bottom and I stick to my earlier call that it will test its earlier high or come close to it.

In the worst case situation SPX can start Monday by testing 1420 level. This is the level from where the earlier breakout took place and it is common to see prices come back and test that breakout level. If that level holds, it will become the support for the next up move. During the day I tweeted that /ES ( SPX futures held 1420 and it’s a good sign). The following chart explains why:

You can clearly see that it is the level from where /ES took off last time around 6^th September. Not too long ago if you think of it.

PM sector is going through its correction, which I think will be short term (may be another 10/15 days) and I think we will be pleasantly surprised to see their prices by next February.

That’s all for this weekend.

If you ever think that at any point of time I am being arrogant, just say “Memento Mori” and I will come down to earth. I just tell you not to take every trade, be patient and wait for the grand opportunity which is coming soon. I would also tell you that from time to time, my calls will be wrong because if I am always right, why should I spend my time writing a blog and drumming up support. Rest is up to you.

Thanks for all the donations and supports. Your continued help and support is important to me to keep the blog running. Please remember to disable Adblock.

Thanks for reading http://bbfinance.blogspot.com/  join me in Twitter (@bbfinanceblog)for the real time market updates and calls. And if time permits visit and comment on http://artofbetterlife.blogspot.com/