Sir Isaac Newton’s Third Law of Motion is commonly known as: for every action there is an equal and opposite reaction. Mathematically, this is generally expressed as Fa = -Fb. We won’t torture our Business and Finance Major friends by developing free body diagrams, force equations or rigorous mathematical relationships to relive the joys of University engineering curricula however, the concept can often be useful as applied to human behavior. This would include the central planners over at Japan, Inc.
For the past few months, the Japanese Central Bank (JCB) has been acting to aggressively devalue its own currency against all virtually comers in an attempt to stem the tide of decades long deflation – aka, the lost decade(s). What has been the affect of this? We all know…declining JPY and generally rising Japanese stock markets.
EWJ Weekly. Breakout from symmetrical triangle:
DXJ, WisdomTree Japan Hedged Equity Index, which is long Japanese equities and also hedged short the JPY against USD. More on DXJ
Looks great. Japan’s rallying. Let’s look at some well known Japanese companies that also play in the US. Differing time intervals provide an interesting picture here. Beauty can be in the eye of the beholder. First Sony, then Honda and Toyota.
SNE Monthly. Possibly a bullish declining wedge ready for an upside breakout:
SNE Daily: Maybe the breakout doesn’t happen so fast – Double Topping?
HMC Weekly – Nice Triangle Breakout:
HMC Daily – Maybe some resistance:
TM Daily – Looks Great:
TM Monthly – Looks Maybe Not so Great:
These charts leave me with mixed feelings, depending on timeframe. Given the fast runup here, I’m inclined to tread carefully. I traded SNE for a nice win in January but we could very easily see a pullback in this sector before perhaps another manipulated push higher.
As a broader observation, this latest JCB effort has gone about attempting to fix their economic problems in perhaps a less nuanced way than the US Federal Reserve Bank, but the end result for equities has been roughly similar: MOAR. The JCB has been trying to keep the JPY underwater for decades but the dead body keeps wanting to rise to the surface. So of course, like good central planners, they are promising new massive doses of the same old thing to keep the bodies below water. Japan’s initial response to its Real Estate and attendant financial system near-death-experience in the early 1990′s was to Zombie Up their financial system. So they’ve already been there, done that. Although Japan’s 230% Debt/GDP ratio screams “Danger Will Robinson,” they have thusfar been able to largely internally finance what would appear to be a ruinous debt load. As a result, Japanese interest rates remain “well anchored,” if not cratered, similar to their demographics.
We are not so different here in the US and Europe as it is the path of least resistance for policy makers who are captured by the Too Big To Prosecute (TBTP) financial system (h/t Eric Holder and his European counterpart stooges). QE strategy seeks to (in no particular order): 1) keep Zombie Banks afloat, 2) contain interest rates and inflation “expectations” via full-spectrum Bond market domination (thus also preventing a blowout of the $16+ Trillion US Federal debt financing), 3) stave off deflationary pressures and, 4) to create a “wealth effect” in the economy. A derivative effect of Fed “largesse” is also downward pressure on the USD, although not consistently realized in today’s global “Race to the Bottom” currency environment, which curiously mimics current US Federal Education policy. But I digress.
The upshot of all this is that the JCB has gone about raising asset prices in the short term by overtly manipulating its currency (there’s that term again - I thought only the Chinese would do such a dastardly thing). At some point, it’s likely that there will be a reaction to the Japanese action. None of us know when, or in exactly what form it will materialize, but it could be Sooner Than You Think.
That’s right. I’ll raise my hand, I’m the d-bag that made a lousy entry into one of the most hideous stocks of the past week, $ELLI. Why did I buy this stock here? I was looking for an upside reversal. Unfortunately its looking like I caught a falling knife or at best selected an ill advised entry point. My decision to buy wasn’t based on fundamentals. My main interest in fundamentals for short term trades is in avoiding bankruptcies while I own the stock. It also wasn’t an earnings “play.” Homie don’t play that game. Earnings for this stock are coming soon, on 2/14 and I intended to sell prior to earnings rather than risk a big sloppy Valentine’s Day mouthful of rotten tongue. But I digress.
Looking at the accompanying annotated chart I denote where I made the buy, a half size position at $20.60 on Friday 2/1, during the early market euphoria.
Rule Break #1: Beware buying weak stocks in confirmed downtrends on stupidly euphoric market days – things don’t appear as they really are – especially this late in a broad market move/trend. The markets rallied Friday as more ersatz economic data was spun in a positive manner, as is usually the case in bullish periods.
Rule Break #2: Wait for a confirmation candle following a hammer. In fact, wait until there is an actual hammer – don’t invent one – as I did. We are not Bureau of Labor Statistics and can’t just make stuff up. I had been stalking this stock and convinced myself that the 1/31 candle was a close-enough hammer. Well guess what? It wasn’t a hammer – it was just a less shitty looking candle than most of the rest of the past week. Volume was still elevated though it looked to be taking on a bit of a Gaussian distribution during the selloff (perhaps not capitulation price and volume). Also note the stock had a steep prior downtrend where daily price was riding the lower Bollinger Band down like a submarine doing an emergency deep dive. (So much for counting on Bollinger Band bounces BTW…).
So after buying early on 2/1 $ELLI behaved well, rising quickly and flagging out the rest of the day on good volume. Ok…so far so good. ”Hammer” candle, check. Confirmation candle, check. ”Decent” up volume on Friday, check (though still less than previous selling vol.). Fast forward to Monday 2/4 where the market sold off some of its recent froth. Stocks like $ELLI get pounded into the dirt when markets no longer want MOAR. In fact, $ELLI was deballed to the tune of about 6%. Reversal fail.
But wait, there’s more.
Rule Break #3: Use Stops, they work. I intentionally did not in this case and was wrong. I had just bought the stock with the intention of swing trading it. At my day job, which apparently I won’t be quitting anytime soon, I didn’t notice the stock was getting hammered down until after it was already a few percent below where I bought it. So I held and monitored the rest of the day as it continued to plumb lower lows. Which leads to…
Rule Break #4: Be decisive, don’t be a deer caught in the headlights. This was intended to be a short term swing trade to be sold prior to 2/14, there is no reason to ride this pig down like Slim Pickens on a hydrogen bomb.
Rule Break #5: I bought a 1/2 size position as an initial entry, which I frequently do to manage risk, but in this case, a 1/3 or 1/4 size would have been more appropriate given the elevated riskiness of going long given the recent price and volume action.
So net/net I still own this piece of shit and will likely sell the entire position on any further sustained weakness on Tuesday, after waiting for the robots to complete their fleecing of market participants during the opening 15-30 minutes. The stock has filled the gap below from last August and support below this level is anyone’s guess.
For those interested in playing reversal or hammer candles, refer to Brian Lund’s excellent blog post on this subject: 5 RULES FOR TRADING A REVERSAL HAMMER
I leave you with Siouxsie and the Banshees singing about a far more frightening subject, Candyman. Avoid getting molested by the market.
Today’s move in $EXK was one of the more retarded things I’ve seen happen since…well this Tuesday’s equally retarded Fiscal Cliff vote. On the heels of divine revelations that not quite everyone on the FOMC is completely batshit insane, metals and many metal stocks were trampled underfoot like a taxpayer caught in an Obamaphone Flashmob.
Here is my answer Senator: Nothing. And I’d appreciate it if you’d pay the commission fees for my next tranche of metal buying.
Does anyone that is not face down in a bucket of bathsalts seriously think the Fed will stop liquefying the Treasury complex to the tune of $85B per month anytime this year, or next? Even if the Fed’s new and magical unemployment target metric is eventually met (through the fraud of lower and lower participation rates – not actual job growth), the Fed’s buying must continue. You see, if the Central Planners ever lost control of inflation “expectations” it’s game-set-match for the US’s debt financing Ponzi. Fortunately, this is not likely as we as a nation have on our side the capable hands of the BLS etal., who successfully conspire to under-measure inflation by about 50% through their tortured statistical arbitrage of economic reality.
It will be interesting to see how long this Animal Farm existence can endure in America and for that matter globally. Probably longer than one can imagine. Trade carefully my friends.
First off, Merry Christmas to those that observe. I will be attending services later this afternoon, which counts as Christmas attendance somehow. I suppose we can all pretend we’re operating on Jerusalem Standard Time or something.
Next, in looking at market action on this abbreviated day, I keep being drawn to $EKX, a degenerate silver mining stock that a lot of us like to trade. Of late, the stock has been diving like a submarine crossing the 100 fathom curve heading out to sea on patrol. The recent fecal cliff worrying has likely contributed to its price weakness. The stock is now near long term support near 7.70 area and is very tempting for a patient swing trade. I have a now stale starter position in this name from 8.10 that is about two weeks old, on which I’ve been early. I would consider adding but I need to see this long term support area hold as I very rarely add to a losing position. However, the risk seems manageable from here. Of note $EXK is not quite oversold on The PPT, but close. I will use the hybrid score as a reference for any potential add. Below is the weekly chart of $EXK.
Strange Day. In an upset victory, the Universe didn’t collapse into a black hole of sovereign debt at the end of the Mayan calendar. However, last night, on the eve of the would-be Mayan Apocalypse, as if on cue, futures collapsed following news of GOP malfeasance in the House of Pain. For some reason, trading robots give a shit about this noise – or was it just an excuse to work off recent equity “frothiness?” We’ll never really know. Overall, market action today wasn’t particularly end-of-the-world worthy. Call me complacent. Although, as per norm, the Twittersphere was full of pros telling us how stupid we all are for not being 200% levered short like they were going into today. Guilty as charged. Yawn.
On a day when nothing seemed to work other than $EGOV (h/t @chessNwine inside 12631 for spotting this one), I did little – refusing to offer discounted prices for my holdings to depraved algorithmic trading platforms. I actually reduced my already slim 33% cash position by opening a starting 4% position in $DDD late in the day at 51.69. It closed a tad under 52. I recently booked a decent gain in this name – though fat-fingered an exit, leaving substantial wampum on the table. The stock showed good relative strength today, was actually green, and appears to be consolidating after its recent runup. I would post a chart but you all can look it up if you care to. Enjoy your pre-Xmas weekend. Try not to be shot while shopping.
Oh, it’s a strange day In such a lonely way I saw some children dance I watched my life in a trance And the people around me Seemed so glad to be here Will my time pass so slowly On the day that I fear? And the noise that surrounds me Is so loud in my head From the promises made To the lies that I said Oh, it’s a strange day In such a lonely way Some people look down on me I hope they like what they see Strange day Such a strange day - NEW ORDER / TRUTH
Every thinking person is searching for answers and solutions in the aftermath of Newtown. There probably aren’t any satisfactory answers. Solutions are difficult to reconcile with competing societal interests. Politicians always feel that something, anything, should be done to address even the smallest of problems in society, usually to justify their own existence or to protect us from the latest perceived Boogeyman. Sadly, the Newtown massacre isn’t a small problem and it’s a REAL Boogeyman. In this case the politicians and talking heads demanding action are right, but are they going to address the root cause of the problem (mental illness) and not just the contributing cause (weapon / gun).
Some form of increased gun/ammo regulation is forthcoming. It’s an emotional response and understandable. However, it won’t solve the root of the problem. In formal root cause analysis, the true root cause is found by determining “what single action or event, if it did not occur, or was not present, would have resulted in the event not occurring.” There typically are contributing causes to an event that support the root cause. Typically, there is only one root cause to an event though rare exceptions exist. So let’s play. In this case, if Adam Lanza didn’t have a gun, could he still have committed act(s) of murder? That answer is clearly yes. Maybe as many don’t die but he still goes off based on whatever triggers he had in his head. Next, if Adam Lanza was institutionalized and/or receiving appropriate mental health treatment, would he have still committed act(s) of murder? Well, that’s harder to say, in part because we don’t know what treatment he may (or may not) have been receiving but it’s not unreasonable to conclude “No” – were he institutionalized. Late breaking information (of unknown veracity though being reported in the MSM), indicate that his mother was pursuing some form institutionalization and speculation immediately turns to this as possibly being the trigger for Adam Lanza to snap.
There probably are “too many” guns floating around in our society – legal and otherwise. However, any such effort to tighten up on gun regulation only addresses part of the issue, and maybe not the most important part – which is the way in which mental illness is addressed in this country. I don’t purport to personally have the answers, I’m not a mental health professional, but these two articles shed some insight into significant problems in how this country deals with mental health problems.
The first article is a now viral blog entry by the mother of a current day young boy with growing mental health issues, and her struggle to find help in a system that effectively puts her, her family, and the rest of us, at increased risk of something going wrong. The second link (h/t to @woodshedder for drawing attention to this the other day), is a paper generated earlier in 2012 on the Blowback from the decades long policy of “Deinstitutionalization” of the mentally ill. This paper lays out a pretty strong case that we (and other countries) have seen a rise in violence and in particular mass violence events ever since it was decided that the mentally ill are better off (and have a right to) being treated outside of mental institutions and in their communities. It appears to me that this policy, more than any other single factor, accounts for the rise in Newtown, Columbine, Aurora, ad infinitum, events. In fact, we’ve become so de-sensitized to this problem that smaller events with low body counts go largely unnoticed by the national media. This is a new phenomenon that started in the 1980s and doesn’t correlate with gun sales or availability. However the increase in mass shooting incidents does correlate with the implementation of Deinstitutionalization and is supported by the extremely high percentage of events that are committed by those previously diagnosed with some form of serious mental illness. In fact, we’ve all seen the statistics in the past few days…gun ownership has decreased in the US over the same time that these mass casualty attacks have increased. Clearly, something else is going on other than guns being too freely available.
I point the above out in the belief that if we wind up doing the simple thing here – banning assault rifles, limiting magazine sizes, etc., these will largely prove ineffective because these actions don’t address the root of the problem. In a theoretical world, if all guns were eliminated tomorrow, we’d still have the problem of inadequately-treated mentally ill people becoming deranged and committing heinous acts of seemingly random violence. Sure, they wouldn’t be able to steal a Glock and play Natural Born Killers (BTW thanks Quentin Tarantino for glorifying excessive violence in society – that helps / sarcasm off), but they surely could club or knife people to death. Home Depot sells lots of things that could be used to commit murder. Or blow people up – see below. While the individual death count in an average nutter event might be limited to something more “palatable” (say three or four), the random attacks would still happen.
And to my point about other weapons being used to commit mass murders, read about the Worst School Massacre in US history (no its NOT Newtown CT’s Sandy Hook Elementary), courtesy of Wikipedia:
The Bath School disaster is the name given to three bombings in Bath Township, Michigan on May 18, 1927, which killed 38 elementary school children, two teachers, and four other adults; at least 58 people were injured. The perpetrator first killed his wife, and committed suicide with his last explosion. Most of the victims were children in the second to sixth grades (7–14 years of age) attending the Bath Consolidated School. Their deaths constitute the deadliest mass murder in a school in United States history.
Godam this iPad and Foxconn, which just erased my draft post.
Now, with that unpleasantness out of the way, it occurs to me that when we distill down the choices for the next tabbed
Victim Blogger at ibc, THE choice is none other than the Rhino. Who else amongst the rabble here has the passion for trading and experience of Rhino? The Rhino brings well supported trading ideas to the table and doesn’t just hurl feces around the room hoping something will stick like some guest Wanker on CNBC or FBN. The Rhino also won’t be offering you trading ideas in Atomic Mass Unit terms. Rhino clearly has the best shot of attaining the arbitrary traffic goal which has been set forth by “The Management” in Geppetto-esque manner. Much like the airman in the video below, Rhino doesn’t scare easy. Consider Rhino’s trading ideas and insights to be a form of “free stuff,” which Americans now love like their Precious. What could be simpler?
Do the smart thing. Vote Rhino or consider ritual Seppuku by sundown tomorrow.
For my inaugural blog post, I thought I’d analogize this week’s market battle near $SPX 1420 to the La charge à Eylau in 1807, where the Grand Armée of Napoleon ran headlong into its first damaging resistance, namely the Russian army, on the wintry plains of Doji’s lost ancestry in East Prussia. The piece below is from the compelling 1994 French movie “Le Colonel Chabert,” based on a a gripping character study novel by Balzac. The movie features Colonel Chabert (Gerard Depardieu), as one of Napoleon’s greatest officers, who was considered dead following La charge à Eylau in 1807. The battle of Preußisch Eylau was a multi-day affair and one of the more bloody battles of the Napoleonic Wars, at one point featuring over 14 hours of continuous combat. In the movie, although badly wounded at Eylau, the good colonel does not die, which sets the stage for his return to France where he finds his wife remarried, his fortune and social standing lost in an Obamaesque post-empire world. Noone believes he is really alive as he has been declared killed in battle. The movie becomes a captivating account of the colonel and his lawyer’s struggle to reclaim something of his life from various miscreants. This scene, where no words are spoken (and none are needed), could only be produced outside of Hollywood. It is worth turning up the volume to fully experience the raw power, nobility, and thunderous fury of the French horse mounted cavalry charge directly into the Russian lines.
The charge reminds one of the pitched battle equities have fought for most of this week, gapping up directly into a killing field of resistance. As in the real life battle, the market results have been inconclusive, but not without significant casualties. It remains to be seen whether the Bulls can breach the defensive lines of the $SPX 1420 region and achieve a breakout and encirclement of the burlap clad bear army or whether a tactical withdrawl to previous support is necessary. Personally, when I sense resistance as a trader, i try to remember one of Sun Tzu’s dictums regarding an enemy “When strong, avoid them.”
As an aside, the real life battle of Eylau took place in the vicinity of Preußisch-Eylau which post 1945 is the hideous Bagrationovsk in the Kaliningrad Oblast of Russia, along the Baltic coast. In a parallel universe somewhere, WWII never happened and the Doji spends most of his time in the drawing room of his family’s Junker compound outside of Preußisch-Eylau composing music and developing plans for new conquests while opining on the issues of the day to an audience of scandalous French women. Have a good weekend.