Joined Oct 26, 2011
153 Blog Posts

Trend Trader

FYI right now we are in a weekly uptrend, but positioned for what could very well be a strong monthly downtrend. The QQQ, SPY and Dow are now overbought on a weekly chart and the Russel is not far behind. Also a higher high is made in the RSI while stocks are showing a lower high.

Conclusion:Position size in stocks should be minimal and reduced further into a weekly overbought signal in the remaining indices. It should be concentrated in value names as well.

The US$ is in weekly neutral position as trend is mixed on a weekly chart showing a downtrend in the parabolic SAR and the last signal from overbought in slow stochastics, but momentum gaining positive movement. However it is in a position for a strong monthly uptrend with oversold Slow Stochastics starting to near the trigger buy, but the Parabolic SAR is bullish and a bullish momentum signal in the MACD Histrogram has recently been given.

Conclusion:In light of weak market and strong monthly uptrend, Position size should be large, and leverage (such as using UUPT) is permitted) . The position size should be large enough to be biased towards a market decline and rise in the dollar, but small enough to get more aggressive should the weekly trend change upwards.

Treasury bonds (TLT) are in a Monthly Uptrend but OVERBOUGHT, and in a weekly downtrend just coming off of week 2 of transitioning out of the previous overbought signal.

Conclusion:Position should be unleveraged (avoid UBT, TMF) and a smaller position size should be taken in spite of the likely decline in stocks and the possibility to get significantly more overbought.

DBA – Although similar to stocks, DBA is in a monthly downtrend and what appears to be a weekly uptrend, the weekly uptrend has only just begun. However the weekly results are still mixed. With that being said, it’s rare to see an oversold RSI but the RSI came very close to oversold recently on a weekly chart, and the slow stochastics transformed from oversold and turned upward giving us a bullish signal, and the MACD is very close to a bullish signal. As a result I believe the chart could be considered bullish in spite of the still bearish parabolic SAR.

Conclusion:I feel DBA is a much better option for “risk on” at this point than stocks and possibly gold and should be positioned as such.

DBC – Very similar to DBA, but the parabolic SAR and MACD histogram on a weekly chart as well as slow stochastics are all bullish. Monthly is bearish. There is a bit less room on the upside before it gets overbought however.

Gold is in a monthly Overbought uptrend although a weekly uptrend signal is close to and expected to trigger into bullish territory. Silver is showing a monthly downtrend with a mixed weekly chart.

Conclusion:Gold is likely due for a pause longer term, but still remains a potential option to help reduce correlation in the market and a very small position is still warranted. Silver also gives us a clue about gold and silver is a bit bearish right now on the monthly chart.


Copper is bearish but has been for quite some time and is close to getting oversold on a monthly basis, for now stay away but keep an eye on it if we are to see further declines

Natural gas is at this point starting to look like an excellent value and contrarian play, so I would consider a position in that, as it is heavily oversold, however I would keep the position small and not add a significant position until it transfers out of oversold and gives a bullish signal as it is still in a downtrend, although one that has gone on for years and isn’t likely to continue for much longer.

It certainly may be possible to find undervalued stocks still worth it but the question is what is your time frame?

Overall Conclusion: The general theme is “protect capital” at this point. Stock position should be reduced, and potentially reduced to the minimum when overbought signals hit on weekly chart. Positions in DBC and DBA and potentially even GLD can be used now so that in the event that stocks get overbought it will provide a seemless transition into reducing stocks while still maintaining minimum allocation for “risk on” plays and avoiding overbought areas with minimal room for upside.

Meanwhile, US dollar position should be large and potentially increased near maximum if either a weekly oversold signal is given or weekly uptrend occurs. Treasuries should have a very small position but are still an option especially with the markets vulnerable and likely the US treasury bonds can gain. Shorting the euro is a possibility as well via EUO.

A small position could be considered in arbitrage plays, but it either should be kept small or larger with a majority (except for a small amount) held in an play that is expected to close very soon. Leverage as well should likely be taken off now, or very soon. A small position will always be warrented in arbitrage because of the ability to reduce correlation, however if e get overbought on a weekly basis and remain in a downtrend on a monthly chart, that is a vulnerable state of the market which could potentially cause deals to fall apart either through some kind of a weasel clause, or financing falling through, so unless you are very meticulous and good in this area, it is wise to keep the size smaller for now.

Although Arbitrage plays have very little correlation, so there always is room if the deal is right. But correlation and risk still exists in the form of economic contraction in lending, and increased pessimism by both businesses and individuals. Leverage should certainly not be used at this time. You can also specialize in pair trades, pre and post earnings plays, and other relatively uncorrelated things with the market

A very small (such as a 2%) position size could be considered in natural gas  at this point via UNG


risk on:25%

risk off:60% (leverage permitted)


More specifically

Risk On

spy or value stocks: 10%



UNG 2%

GLD 2%

Risk Off:

TLT 10%

Cash 10%

UUP 20%

UUPT 20%


When we get the overbought signal on a weekly basis (including the russel), it makes sense to get more “aggressively conservative”:

risk on:20% (shorts considered)

risk off:75% (leverage permitted)


More specifically it may look something like:

5% stocks

5% DBA


3% UNG

2% GLD (copper?)

Risk off

10% TLT



10% cash

You can also use valuation models to determine percentages and adjust based on these so you increase allocation as it gets more undervalued relative to the rest.

Since we are somewhere between the “no extremes” and the overbought position (not overbought in russel), you could be somewhere between the two.

Additionally a daily “bonus” allowed if OS/OB on daily basis if you prefer a more active approach. (Such as 10% increase in “risk on” and 10% decrease in “risk off” at OS) Generally I will rebalance after a daily chart swings to a high or low with a bias towards the opposite direction so I shift my allocation slightly.

TLT is much smaller than it would normally be in both cases, but there is a reason for this that I may address later.

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Weekly Report

Brief supplement to the monthly report. Don’t expect me to make these weekly, just occasionally when I feel like it. Contrary to the November monthly trend report, on a weekly chart it is very bullish.

It’s shifting out of Oversold in slow stochastics giving a bullish signal, a bullish positive divergence in RSI was previously made (higher lows while stocks made lower lows), it’s shifted from bearish to bullish in the MACD histogram and now it’s gaining momentum and the parabolic SAR turned bullish this week. If the monthly signals weren’t so bearish and didn’t tend to be so much better than the weekly signals, I would be bullish here. But I don’t like to bet against the longer term trend. It’s like a train or cruise ship, slower moving, but causing tons of wreckage to those who get in it’sway compared to more of a car or speedboat. it’s the difference between the hot money moving in and out of the market (weekly) and the big money, the soverign wealth,central banks, government policy, longer term trends in global policy, major shifts and macro trends emerging, all within a business cycle that either expands or contracts,etc (monthly). The monthly charts are telling me a much different story. This weekly move is probably merely a reaction of the hot money against the grain of the larger forces at work. And when there are no more greater fools playing chicken in front of the train or trying to hit the waves of the cruise ship and you are the last man stuck in front of the train tracks or side of the cruise ship as it’s turning, you better hope you can get out with minimal injury. Then again, every now and then the unsinkable titanic sinks and the train derails, so the long term isn’t a sure thing, I just wouldn’t bet against it. The silver lining is that before the monthly trend changes there will indeed be this sort of reaction on a weekly chart, but there will also be this same type of move on a false move.

Everything on a weekly chart ripping bullish while everything on a monthly chart is bearish is very odd, but using 1937 as comparison, it makes sense that we could easily go higher over the next few weeks before we go lower. Probably being bearish just based on the monthly trend report is a bit stubborn. We are above the volume gap now and pushing against the 200 day MA as well.  If you are stubborn like me, you added a bearish position here and will close it out tomorrow if we close the day above the 200, unless we open below the 200 day MA, then you will need to see another close below the 200 day MA to remain bearish. I take this line and if I close out the trade I will be looking for another opportunity to get bearish higher, perhaps at round 1300 in the S&P.

The more prudent thing would be to simply own a mixture of bonds and stocks, and when you are bearish limit your stock exposure to say 25% minimum and your bonds to 75% maximum, and when you are bullish 75% stock maximum and 25% bonds minimum depending on if you move with the hot money and institutional  funds (weekly), the longer term trends (monthly) or even using The PPT signals for swing trades. History shows there is nothing wrong with always having a little skin in the game and always having a little bit out to protect yourself and give you capital to take advantage of opportunities.

Do as I say, not as I do. My heart is young and I say bring on the pressure. Pressure my be used to cook lobster and fry those who can’t handle it, but it is also what turns coal into a diamond and I’m not afraid of testing what I’m capable of.  So we will see if come christmas time stocks are lower and santa turns my coal into diamonds, or if I’m just left with coal.

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November Trend Report

To not at least aware of the bleak picture with mutual fund cash levels as low as they are would be a bit reckless.

So we start with not just the “long term” but the “wake me up from my coma when I give a crap-Long-term”. That is the contrarian indicator that is useful on a multiple-year or decade basis. So we start with this in mind. If mutual funds have the power to fuel rallies, they have very low power when they hold little cash. However, this sort of behavior results in low volume needed to create big moves and for volatility to be at a high in terms of daily and weekly fluctuations. This helps explain why HFT accounts for so much of the volume and why the markets seem so batshit crazy volatile lately.

Batshit crazy I tell ya!

For now the August data is available
July 2011 3.3% cash
August 2011: 3.4% cash
They’re lagging a couple months behind but September data should be available soon I believe, ici.org should have it up.

Is there a fundamental reason to be bullish? on a long term basis? Well, if not for this being an abnormal cycle with coked up leveraged banking and sovereign debt problems we would be quite a few years into the business cycle. Since the full cycle lasts about 8 years, and 2007 was the top in at least the markets and arguable economic contraction started thereabouts, the next peak of economic expansion is potentially somewhere around 2015. However with that aside, I am going to need to see cheaper prices first.

So is there a reason? Not really…. At least historically there is a reason to be less bullish than usual. The 10 year trailing PE attempts to smooth out some of the volatility and identify value for long term moves. Right now it is neither undervalued nor overvalued, but more overvalued than undervalued if you look at stocks since the removal of the gold standard. If you look at stocks over the last 100+ years, it is overvalued. The 10 year PE is around 21, just above the mean of 19-20 or so since the removal of the gold standard, and above the 16.42 long term historic mean

Since this is not at extreme it really doesn’t mean a whole lot, plus it completely ignores treasury yields and dividend yields and growth rates so unless we know whether to expect multiple expansion or contraction or if it’s at extremes it’s not really important. With that being said the trend seems to indicate multiple contraction for the time being but that could change at any moment. I believe mutual fund cash levels is a much more ominous reading than the PE at current levels. In combination shit’s not all roses.

Let’s look at the charts.

Historical comparisons can be drawn to the following date/s based on monthly charts only

Bearish:December 2008, April 2000,Dec 1929 , And June/July 1937

Relatively Neutral: September 1981

Bullish: dec 1987,sept 1998

Some fit better than others. The RSI is not nearly as overbought like it was in 2008 or 1929. Although certainly closer, it is not even as bad as 2000 or even 1937 (although technically I feel this is the most similar) so we would not expect things to be as bad. However things are more overbought than the remaining. 1998 is similar however it lacks the 3rd month of increasing momentum. I feel the best comparison is June or July 1937. Observe.

I didn’t line the charts up exactly but you can see the sharp decline from overbought in the slow stochastics until it is lower even though stocks made a lower high. You see the 3rd month in a row where the MACD histogram was down, and 3rd month in a row the parabolic SAR was down. The RSI made a similar move from just/nearly ovebought to a lower low.

Sector Trends:

Utilities is the only area with a technical uptrend intact using the sector SPDR etfs. Even Utilities appears overbought though. Everything else is bearish confirming the long term bias to the downside.

The following represent decent fundamentals


Industries in a monthly uptrend: This section is under construction. Do your own research.

In down trends on a monthly basis it represents periods of, or anticipation of economic contraction, and flushing out the leverage. Cash becomes king, which is partly why aside from bonds, Utilities remain strong due to their strong cashflow. However

Sorry to shit on your Europe haircut party…

…where everything is solved or so is the hope but reality is as long as there’s 1 currency yet multiple bonds for each country, it remains to be seen whether this will be a powerful enough event to change the long term trend. I doubt it.

(don’t ask me who that asshat is with the shit for brains haircut, I don’t know)

Like in 1937 I believe we swirl down the proverbial toilette(sic) and wipe the smug look off of the perma-bulls. However, we certainly may rally and retest the boundaries of the trend in the next couple of months first but I do not think we break through.

The trend report is not to discourage you from day trading or swing trading, but it is to make you aware of the longer term picture so that you can make subtle adjustments either holding larger or smaller amounts of cash where appropriate and/or reducing position sizes or adding stops and moving out of the way of buying the dips as aggressively, to avoid August 2011.

I didn’t have the luxury of having my own blog on a premium site like IBC or even a PG lately so I posted here.


Sorry unless you were part of the few dozen viewers or whatever the fuck, you missed out. My bad, you trailer trash turds, now quit jacking off to the batshit crazy picture of Britney and go do something useful with your lives. And slowing people down on the way to work trying to change the world by holding up stupid ass signs no one cares about doesn’t fucking count…. Unless you’re this guy… Fly is that you?

In conclusion for the 2 people who got this far and are still reading, shit is probably going to hit the fan sometime within the next few months, Adjust accordingly. You probably won’t though… 6-8 months from now you will all wonder why the fuck you bought the last dip before stocks went 20% lower.  I will keep you updated to let you know if the trend changes, but for now the long term direction is lower first. Buy the dips at your own risk, or else the space alien magician might harvest your organs and eat your brain for an appetizer while screaming “ack, ack, ack” and Netflixing Whitney Tilson.

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