Saturday 9 March 2013

Everything Must Be Great

DOW made new high!. Yeeeee.
Now everything in the world must be al-right and every American is now rich. The retirement accounts are filled to the brim and no body cares what the crooks do.
But I feel little sad for ZH and Prechter. These guys are running out of ideas about what to write about the imminent collapse of USA. Not only the collapse (which was just round the corner) never materialised, even a 10% decent correction is also not on horizon. Only last October they were saying that QE4 has failed to do its magic and QE is dead. So far I have not seen anything anywhere saying sorry, we were wrong.

Anyway, now that Indices have or are in the process of making new high, where in the sentiment cycle are we?
I personally think we are in the Euphoria stage. The retail is just now getting excited about the rally while the TA guys have given up.

Our collective memory is short. Otherwise, we would have simply looked at what happened during the same period of last year.
This is a daily chart of SPX from December end of 2011. Does the up move of 2012 looks similar? If they look like ducks, walk like ducks and quack like ducks, then most likely they are ducks. And most likely this years pattern is just a repeat of last year. And by that token, the bears should remain in hibernation till the better part of March. 

We went out of all long positions by end of Jan. with SPX around 1510. So far we have given up about 30 points rally but we have no emotional roller coaster ride. We are what is called reluctant bear, sitting on the sideline. Just waiting for the move to exhaust itself. We have avoided all temptations to short because our model did not give us the go ahead signal. And we are not looking for the end of the world, not yet.

Coming back to the market, the shearing is not yet complete. 
I think the BOYZ will spend another couple of weeks to corral most of the sheeples. Retail almost always buys at the top and why it would be any exception this time? And for those TA enthusiasts looking for all sorts of elusive Da Vinci Code for the Top and shorting relentlessly, only to lose the underpants, I have news for you. The Fed is buying Bonds almost every day for the month of March! (POMO Days are here again).

I am not for a moment saying that buy buy buy. On the contrary, I think if we are long, its better to take chips off the table and raise cash. We have gone off gold and silver sometimes back and are waiting for the cycles to bottom. But I am not shorting anything yet. Subscribers will get email when the signal comes and they know the levels to watch for.

So far the market is moving as per my base line projection for 2013. If ZH and Prechter can continue till 2014, they might have some chance of gloating. But that's a long shot. We will take one month at a time and put forward our steps very carefully. From now till next few years, before I make any investment or trading decision, I will be asking myself: how much will I lose, if I am wrong, instead of thinking how much will I make. 

Its a jungle out there. So don't front run and trade safe.
Have a great weekend folks.


  1. Thanks WOF.

    Just one comment about shorting indices. Probably not a good idea to short them until the 200 simple moving average (SMA) starts pointing south. There's usually a lot up and down action near tops which cause those gone short to get squeezed out of their positions. Guys like Prechter who try to call tops, do it for fame and business reasons. Calling a top or bottom is plenty ego satisfying but not the highest probability trade.

    True story relating to your "Euphoria" comment. I was sitting with a bank representative this week making a contribution for my son's education fund. The rep said: "You're putting it in equity, right?" "No, put it in cash for now. I'm waiting for the next bear when prices are 30-40% lower" I said. She looked at me as though I was a bit of an idiot. We're getting there.