Not Looking Good, But!

Definitely not looking good.  A 20 point sell-off is never good looking but it is looking more like a panic bottom. Question is, do we have sufficient panic for a bottom or more panic is yet to come.  If we do get a break down, we are looking towards 1100, so we have not missed much. Better be careful because on hourly as well as daily basis, SPX is way oversold. The following is Daily $NYMO

And the next one is weekly $NYMO

I am not sure how much lower we can expect the market to go from here. On the other hand, oversold can remain oversold for much longer. These are real danger zones. Volume for the day was well above average at 2.88 mil for /ES. It seems no one wants to hold the bag overnight. But Crude did not break down below $ 92.50 and showing a bottoming pattern.  Copper is refusing to break down below $3.45 and is oversold. Of all things, Gold and Silver bounced back almost 3 %. If Europe melts down tomorrow we can always join the party, but better not gate crash unwanted. At the same time, bottom fishing now is like trying to catch a falling knife.  Let us see how things develop for next few days.

Looking at chart pattern, I think this panic is just a teaser of what is to come, but before that we could have another huge up. My downside target as of now is 1280 but the upside target is 1420. I might be totally off my rocker but the risk and reward analysis does not support shorting here. We were short from 1410 and we got out at 1340. So we got most of the correction. Could we have waited? Sure we could have, but I wanted to protect the profit, take the cash and run. There is no best time to take profit and we cannot exactly time the top or bottom. As Joe said, 1^stpriority is preservation of capital.

We have to overcome our fear of “missing out”. I quote Joe Fahemi again: “95% of individual traders lose money over ANY 10-year period. Why? I could write a book on the many reasons why I think this happens, but one reason is their inability to sit out (trust me, I struggled with it for years). Many traders not only lose money by trading choppy markets, but more importantly, they lose confidence. Since 80% of anything in life is psychology, protecting confidence should always be a top priority for traders.”

The 1^st rebound, if it comes tomorrow or day after, will fail. It is at that point of failure, we should decide the next course of action. I would give few more days for the panic to settle down and see where we are going.

I hope you are enjoying my posts but at the end do whatever is best for you. If you think we should short here, please let me know why. I am always ready to learn and improve.

Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Please forward / re-tweet the post. I would like to have more readers and your re-tweeting  might help.

Thank you for reading http://bbfinance.blogspot.com/

Why do traders still quote Jesse Livermore?

Found this excellent quote from the Elite Trader forums. 

In a response to one poster asking, "Why does everyone quote Jesse Livermore? He was a horrible trader, who blew up every couple of years. ", another forum member answered: 

"Simple. He was a pure artist of "the game."

Artists always reach beyond their grasp. They sometimes succeed brilliantly. They sometimes fail tragically. But they never fail to inspire."  

Speculation is an art form. And true artists, however flawed, never fail to inspire us.

In Waiting Mode.

I am in waiting mode and do not have any new thing to say or discuss today. SPX closed below 1330 and as I have said before, I would wait for it to close two consecutive days below 1330 to decide whether to take short position again. However I think we are due for bounce.

Given the lack of any clear direction and not waiting to risk capital by taking hasty positions, I thought I would share some investment thoughts. I would like to share with you some parts of an email from Joe Fahmy which I received today. Joe is a highly successful trader and I like what he has to say. In fact my investment philosophy today is almost similar to Joe’s.  So while we wait for the market to show its hand, let us read together what Joe has to say. I am sure you will like it.

·         I’ve been trading for 16 years. For the first 12 years, I would do very well during market uptrends, only to give back a good deal of profits during the corrections. I made one simple adjustment over the past 4 years: When I see potential warning signs, I now go to cash and SIT OUT! If I’m wrong, I could care less because I’m confident that I’ll make the proper adjustments and get back in the market, even if it’s at higher prices. I stopped worrying about “the fear of missing out” (which is the downfall of most traders) and I got more concerned with respecting risk and playing defense. MY NUMBER ONE PRIORITY IS TO PROTECT CAPITAL…PERIOD!

·         The market is healthy 2 to 3 times a year. When I feel we’re in an uptrend, I trade companies that are both fundamentally and technically strong. When I see warnings signs, I get out!

·         I’ve studied some of the best traders who ever lived, such as Jesse Livermore and Gerald Loeb. They believe that you should only be in the market when probabilities are in your favor, and that the LESS you are in the market, the better. According to Harvard Business Review, since 1886, the US economy has been in a recession or depression 61% of the time. I realize that the stock market does not equal the economy, but they are somewhat related. Again, I only want to be in the market when I feel it’s healthy.

·         90% of what we’re taught about the stock market is flat out wrong: dollar-cost averaging, buy and hold, buy cheap stocks, always be in the market. The last point has certainly been proven wrong because we have seen two declines of over -50%…just in the past decade! Keep in mind, it takes a +100% gain to recover a -50% decline.

·         95% of individual traders lose money over ANY 10-year period. Why? I could write a book on the many reasons why I think this happens, but one reason is their inability to sit out (trust me, I struggled with it for years). Many traders not only lose money by trading choppy markets, but more importantly, they lose confidence. Since 80% of anything in life is psychology, protecting confidence should always be a top priority for traders.

·         I rarely short because I believe shorting is very difficult. In his Market Wizards interview, William O’Neil said: “I have only made significant profits on the short side of two of the last nine bear markets.” In other words, if one of the best traders of all-time finds the short side challenging, then who am I to try and re-invent the wheel?

·         DO WHAT WORKS FOR YOU.

I could not agree more! One of the reasons I am extra cautious now to take the short side is risks are more and that is why it is a bad trading / investment strategy to make up your mind after reading all the doomsayers. You know who all I mean. Like Joe, I have realized that fear mongering is an extremely good marketing strategy. But as the saying goes, “ do what works for you”. If someone out there thinks that the world will end tomorrow and short the hell out of the market, who am I to argue with him.

In the morning I posted a US $ chart showing a possible double top. US $ is facing a multiyear resistance and it may not be able to break that resistance in the 1^st attempt.

 Now it is weak across the board.

So we wait for opportunities and keep our patience. Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Please forward / re-tweet the post. My only motivation as of now is to have more readers and your re-tweeting  might help.

Thank you for reading http://bbfinance.blogspot.com/

US Dollar

It is 12 noon Eastern. It seems US $ has reached a critical resistance level.

It looks like a double top to me. Unless US $ takes out 81.50 convincingly, we will see reversal here.
Going to be very choppy next few days.

Houston, We Have A Problem.

The markets are standing on a precipice. One more push and it will be in free fall. Crude is near $ 93 and breaking that level will take us to $ 70. Gold at $ 1543 and on confirmed sell signal. Apple back to its pre-earning level. Euro at a new low. God, we have panic. I wrote almost a month ago when the air was full of talk of SPX 1500, mark my words, we will have panic soon. http://bbfinance.blogspot.ca/2012/04/weekend-musings.html

As I wrote last night, I will wait to see SPX close below 1330 for two consecutive days before I decide to short again. Today we came close but it was not enough. We will have to wait for another day. This is the beauty of the market. That it is able to turn sentiments in the opposite direction in a very short time. Now everyone is totally bearish and clarion call is going out to short the market with all the leverage. But it may be too early, too soon. Only time will tell.

Surprisingly, RFG, the S&P 400 mid-cap did not show much damage. And all the bearishness did not put much water on the mother of all scams, the Facebook IPO. For some reason Groupon shares were in high demand today and the share jumped almost 4% on good profit. Don’t folks realize that it’s all accounting myth? I think most of the demand was for taking loan for shorting.

I am sticking to my plan. I am happy to be out of the market watching the psychotic behavior from low to high to low. We do not always have to be invested and cash is a position. When in doubt, stay in cash. I do not think we have seen the end of the bull yet. There is still some life left in it and it may surprise many.

Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Thank you for reading http://bbfinance.blogspot.com/. Stay nimble and trade safe. 

Cash And Cushy!

Once again we are in “Cash and Cushy”. We closed our short position around 10 AM eastern. After that the markets went up, then down and now futures going up again. The reason for closing the short positions is a simple one.  Technically speaking, everything is oversold in the short term.  There are confluences of supports and resistance, Demark exhaustion set up is tomorrow, short term cycle has bottomed, McClellan Oscillator is oversold and the last year’s tape is being played, everything points to a bounce.

You may like the following chart from Ciovacco Capital:

My earlier call was for SPX 1340 and I got out there. I will wait for few days to access the market internals and momentum. If SPX can close decisively below 1330 for two days in a row, I will add new short position. If SPX can crawl above 1360, I will go long, even if for a short while.  In the interim zone, I will just watch.  More so, folks are now bearish and are piling on to lots of puts.

In the 1^st place we waited for quite a while before going short and only when I felt that the risk of whipsaw is less, I got into short position on May 1^st  around 1410. And we are out on May 14 with a 14% return. No heartburn now, whichever way the market moves in between those 30 SPX points!

Let us see which way Greece drama plays out. I think Euro bounce is due. As of now it is still threatening to breach 1.28 but except Gold, rest of the risk assets are not following it. Part of the reason of renewed drop of Euro post lunch may be Moody’s downgrade of 26 Italian Banks and the knee-jerk reaction to it. By itself S&P and Moody’s are a joke and I fail to understand why anyone would react to whatever they do. But the biggest joke is that the Banks in Europe have any rating at all. So downgrade does not make a squat of a difference. 

Jim Flaherty, the finance minister of Canada made some blunt comment about Europe today:

 "This is a time of crisis in the euro zone. The whole future of the euro zone is up for grabs, and this is very important for many of the euro zone member countries, given the history of Europe in the last 100 years or so," Flaherty told CTV television.

"So they have to show courage. They have to do the right thing, use some of their taxpayers' money to bail out some of the weaker members of the euro zone - or start moving away from the euro zone and just say this was an experiment that has not worked."

(Reporting by Randall Palmer; Editing by Peter Galloway)

 That is pretty blunt talking and we have not heard such talks from politicians before. May be it shows that patience with Europe is running short and money from G20 will not be coming in easily?

That’s all for today. Let us not trade or invest with fear and greed.  As always, trade safe and be nimble. Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Thank you for reading http://bbfinance.blogspot.com/

Clawbacks for Politicians

Pundits and politicians are loudly proclaiming that Wall Streeters whose firms lose money should "give back" earlier compensation.  Why not apply this reasoning to politicians?  Since Jerry Brown misguessed the California deficity by $ 16 billion, why not have him cough up all of his assets (but no more than $ 16 billion).  Similar for Obama and other politicians who proudly announce their fiscal discipline and then quietly let the truth seep its way into public view when no one is watching.

If politicians had to personally make up the shortfall for their promises versus their funding of those promises, maybe they would have second thoughts about their duplicitous behavior.