Imagine the stock market is a giant rubberband. The short sellers are pushing it all the way back, hoping to snap it and destroy the band. However, the band is very strong and shits on people like you daily. It rarely breaks. As a matter of fact, the band has only snapped a handful of times in over 100 years. More often than not, the band snaps back and catapults the shorts into muddy pits filled with alligators.
It’s true the euro is tanking and Europe is scary. For the most part, the US economy has held firm, allowing US debt to become a safe haven–also a net positive for gluttonous Americans. The question at hand is, how stretched is the rubberband right now? After all, let’s be honest with one another, this market doesn’t want to trade lower. So many leaders have been shot, yet the Dow is saddling 12,000.
In my estimation, fundamentals and technicals are now secondary to mean reversion in this market. Meaning: when levels get stretched, on both the long and short side, that is your most reliable tool when deciding to buy or sell. It sounds simple; but it really isn’t.
We remain in an oversold tape. As of right now, these levels are not woefully oversold, as investors liquidate positions thanks to the decline in the euro. We will get to an extreme oversold point soon and that will be an occasion to buy. When that time comes, most of you will be commenting shit on the zerohedge blog, rooting for black smoke. But you will be mistaken, yet again.
There is an algorithm, gentlemen, that is deciding the direction of this market and I have possession of it. It’s a woefully dangerous tape to navigate and the moves are extreme. No one would blame you if you chose to play it small, leaving the majority of your assets in cash. This is end of the year bullshit and the stakes have never been higher.
For now, I remain 75% long, with 5% ready to allocate into current positions at the right time.
NOTE: I shed 2% today.
NOTE 2: Happy birthday Ben Bernanke.
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Ben will be back at work tomorrow.
I’ve been using the almost perfect inverse correlation of TZA/TNA to play this bullshit. Has been working so far and I’m not pulling my hair out when something I know/like is acting like one of Corzine’s positions.
So what is the next catalyst?
More Euro rumors? (4 weeks* and counting…)
Wednesday night HSBC Flash Mfg PMI (chiner) with a follow up from German Flash PMI ?
I’m open
Believe it or not, the catalyst will be the lack of bad news.
agreed.
Always the news, I generally know before I go to bed how it is going to play out on the open. Then generally at 8-8:30am PST, there is more news and can either lead to a swing or a continuation of the trend. I’m not going heavy long until there is some kind of concrete resolution. I’m tired of buying and rushing to sell to keep my gains.
options expiration week of december is one of the strongest seasonal patters in existence
http://quantifiableedges.blogspot.com/2011/12/mooost-wonderful-tiiiiiiime-of.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+QuantifiableEdges+%28Quantifiable+Edges%29
Testicule, You forgot Flash EU, France numbers also tomorrow night. You also have SNB meeting this week…nearest catalyst is OPEC meeting imho.
It is all simply a master global algorithm which all others try (and fail) to leach from designed by only the most monstrous of minds to inflict maximum mental anguish/exuberance cycles at an ever increasing frequency. It will recycle itself until peasants of the world capitulate and accept the money masters next centralized GLOBAL fiat enslavement tool.
Fuck off, our most valued asset is our marketable skills. We know this and it can’t be stolen.
Our most valued asset is my peaunise.
I hope it doesn’t turn out like the Thanksgiving rally.
Weren’t immortals involved then?
Just snakes.
Wererats, I heard.
Lack of bad news Fly?
TI?
Best Buy?
Intel?
In the middle of the frickin X-mas season??? These warnings are shocking at this time of the year.
Some of the economic indicators look a bit better but Europe austerity is going to kill that momo.
How in the fuck is Europe gonna grow when there salaries and pensions are being cut anywhere from 10-40%(pensions)?
Expecting a massive contraction in Euroland. Guessing 10%.
Agree with your rubber band theory. The problem is it might take DOW 7000 BEfore it either breaks or snaps back.
I am not painting a lt buy and hold theory. Just a trade
Hear ya.
Prolly a good one given your track record..
BTW, your Iranian motorboat line is probably your best work ever. Alomost pissed my pants reading that one.
Keep up the great work. I have deep respect for you Fly.
Son, you really suck a$$…but fading ya bank’s me coin!! Well deserved.
Mr.Quagmires
respectfully, how did you only shed 2% when nearly all your positions were down significantly more than that?
blow·hard/?bl??härd/
Noun:
A person who blusters and boasts in an unpleasant way.
BANNED
what are you talking about fool? gsvc was up on the day….
some plebeians, are better served to keep their thoughts inside their pea brains, unless they know of what the speak. The good Dr, came with the Rosebud Back Hand.
I was a Plebe once, then a Yuk, a Cow and a Firstie
hahahaha, was wondering when you were gonna say that.
Long Gray Line?
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yup, you?
Fly, what are your thoughts on big oil moving forward(CVX, XOM etc…)?
25% cash.
What do you feel about books such as “Intelligent investor” The hole buy and hold theory versus trading? I am 19yrs of age and dont want to loose my lifes savings.
That is based on a normal market. Set up hypothetical portfolios and use those to learn before you bet your own money.
I just finished reading the book. It seems as if this would be the time to invest heavily when every one is scared. So many stocks seem to be cheap (trading at low multiples) and solid balance sheets.
What should someone my age do? I dont want to sit back and miss good oppurtunities I also dont want to loose it all?
Are the multiples really that low? Seems they are moderately reserved multiples, but of course that also does not take into account whether earnings are currently peaking. If so, then those multiples would no longer be low at all. But still even if we assume earnings continue at current strength, weren’t multiples way lower in history?
First, distinguish between “lose” and “loose.”
Then trade.
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and whole and hole
A wordsmith such as yourself should obtain their Series 7 ASAP and contact me to help offload these sexy and savvy 10x leveraged derivative moneymakers I have graciously packaged onto your friends.
What do you feel about books such as “Intelligent investor” The hole buy and hold theory versus trading? I am 19yrs of age and dont want to loose my lifes savings.
What are your thoughts on this Fly?
Intelligent Investor is a good primer on technicals. Worth a read.
(and it’s “whole.”)
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Fwiw I’ll throw in my 2 cents. Good ideas and great long term strategies, but so much has changed since then just due to the Internet alone. Trading times happen in less than a second, and business models themselves have sprung up that create earnings potentials undreamt of before.
The fundamental needs of human societies remain the same (i.e. Maslow), but new levels have been added to his pyramid of hierarchies. The Internet is quickly moving on a global scale from want to need which changes a lot in the game.
Graham’s theory works when the market moves up, but what if it moves down? Or even better, moves sideways more often than up or down?
One strategy can work in one market condition, but a variety of strategies applied in different market scenarios may yield even higher returns. Everyone out there has their system. You’ll develop your own, but only with experience.
Study chart patterns. Learn them inside and out and practice using them daily. Then use scaled trading methods, per Jesse Livermore.
These two will increase your odds by 500%.
he has cash. see older posts
Out to get some Chinese for dinner.
Unfortunately the places around here are very weak compared to Great NY Noodletown in NYC Chinatown when I visit.
http://www.urbanspoon.com/u/photo_list/35595?photo_id=12216
Have you been to Flushing? Visit the next time you are in NY. Quite different than Chinatown; you would not know you are in the US. Very odd feeling.
That place looks so fucking awesome
Even dinner is made in China! Sigh!
CNBC – MF Global didn’t lose anyone’s money because it never existed all Madoff like. Right.
http://finance.yahoo.com/news/madoff-inside-mf-global-220357861.html?l=1
Did naive asshat bulls get fish slapped today?
my algorithm has bigger rocky mountain oysters than yours.
It has a longer white beard also.
I’ll roll my nuts up in your beard to keep them warm, while I play Flight of the Valkyries with my D on your teeth. Playing your dentures like a Xylophone.
BANNED!
Hey, that was funny!
http://trade.cc/qcg
Woefully oversold against what time frame? Daily and Weekly stochastics for SPY and other indexes show overbought.
Ppt. I don’t use charts
Agreed. Charts are useless at this point. Some T/A is relevant when we hit key resistance levels which is what I look for because I don’t daytrade.
IMO…On a daily basis charts are worthless in this risk on risk off trade world.
I’ve been sidestepping the potholes and making the obvious wins every week or two, via charts. Ben doing this for about 15 years straight now.
What’s the group opinion on CanSlim, and the whole O’neill camp. I just read ‘how to make money in stocks’. The book is a giant solicitation for his newspaper and other subscriptions, and in my opinion it’s better to sail your own boat rather than have it piloted for u. Just wondering what everyone thinks?
Not a terrible introduction to technical analysis.
I’d eschew the IBD subscription, though.
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BTW — your namesake was up big today!
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The book is worth reading, but it’s not in my top ten. I think it’s critically important to figure out what type of investor you are. I learned O’Neil’s style is nothing like my style, so CANSLIM doesn’t work well for me.
Oneil’s concept of money management and setting rules is important. The rules are always have a trade with more upside than downside, roughly 3:1 (20% gain to 7% loss), and if you use stops, always use them.
O’Neil’s book is a must read for anyone going into the market.
Skip the IBD subscription though.
Learn chart patterns first. Then learn scaled trading methods. Then learn how to use the CCI, True Strength Index, Stochastic of RSI, and breadth indicators such as McClellan Oscillator and other breadth trend indicators.
That took me 15 years to tell you that. Skip all the shit in between.
The last two sentences of your post (green machine), hit the nail right on the head for me. Thanks for the feedback guys.
Joe, as Mr. Tropicanna has often confided to us people in the know, you’ve got to have inside information to trade successfully! Books n shit don’t mean shit!
Ben got touch-downed in shower today, Sandusky-style.
Still accumulating since the 2008 crashola. Haven’t sold squat. Sort of wish I’d gotten a boatload of M when Fly recommended it back then for a few bucks. It’s up 350% now.
@Fly, thoughts on final three days heading into OpEx? Unfortunately, I’m at a loss for scenarios that would snap us up…. but that has never prevented the market from stunning me into silence and awe in the past.
We should be up in the morning and then a nice fade into the close!
Did you see the VIX closed red, there is no fear at all. Oil should nosedive, OPEC is adding and API really showed a build…plus, OMG that lame rumor that spiked it about Iran was all false..dive, dive oil..we need it to go back to its mean.
I can honestly say, through all the books and other crap Ive read, I’ve learned more on this blog and comments section. Thanks for all the feedback.