Creative articulation, baby

Joined May 6, 2012
10 Blog Posts

Creative articulation, baby

Joined May 6, 2012
10 Blog Posts

Do I bet it all? Do I ?!

3
1,344 views

Gambling title seems oddly appropriate, especially after watching David Einhorn taking down $4.3M in the ‘One Drop’  WSOP $1M buy-in tournament (which he’s donating to charity, by the way).

If you’re checking in on the 4th after an Nth round of debauchery with levels of inebriation approaching ‘that one time in college’ levels, you might want to come back and read it later. There’s a bunch of numbers and charts here that are liable to put you to sleep and miss out on the next round of ‘hey, y’all !!! watch this!’ fireworks display.

Wanted to write a quick update on the assessment of where we are in the market at this point, especially since signals I described in my ‘I bet it all’ post have just triggered (If you haven’t read the original post, it might be a good idea to do that in order to understand the 1st signal here).

First, ‘Planes, trains and automobiles’ signal update.  The breadth thrust signal triggered today. Here’s an update on performance of the signals I mentioned in that post:

click to enlarge

 

  • As you can see, there are 2 new signals for 7/2 and 7/3/2012 with one on 7/3 being especially strong and fitting well within  Whaley parameters. Typically breadth thrust like this indicates the beginning of a new sustained move higher. However, there is indeed a caveat to that. As you can see, the one outlier of poor performance in the whole set of data (at least thus far) is the 7/1/2011 signal. It certainly appears that when a breadth thrust occurs near 52wk highs it is much more likely to indicate a blow-off top than a beginning of a new bullish move. I would be much more comfortable with levering up long had we had this thrust when the market was down 10% than at this point – we are not even 3% off 52wk highs.
  • Is there anything else that can support the bull case then? Something that would increase one’s confidence in this ferocious rally? Well, there’s the 13EMA of NAHL that I like to use as the long term indicator of where the market is heading. Something like this doesn’t really catch the very tops or bottoms, but is a decent indicator for a long term direction. 13EMA first waded into the positive territory on 6/20 and after a brief dip has quickly recovered and is now firmly above 0. That has certainly been a bullish signal in the past and bolsters the bull case on intermediate and long timeframes.
click to enlarge
  • We are also approaching the earnings season, and with expectations that have been severely beaten down are likely to see a series of reports that are way over analysts expectations.
  • 50SMA on SPY has finally started to tick up today, possibly indicating the end of the correction as well.
  • And finally, election year seasonality is decisively bullish:

So based on these signals and assessment, should you lever up long and leave for a long vacation as it will be undoubtedly paid for (and more!) by the bountiful gains simply given to you by mother market?!

One thing to keep in mind is that we are severely overbought at this point, so much so that the value of NYMO reached 4th highest level in 14 years. Something like that absolutely has to be worked off through either price (moderate pullback) or time (few relatively flat sessions with indexes just drifting sideways). So hold off on getting that 2nd mortgage and selling wife’s jewelry to put it all in on a bunch of triple leveraged ETFs for just a few days.

When I look at the instances when NYMO reached very high levels (79+ in this study), short term picture (next few days) looks rather bearish (average 0.81% loss with 83% probability the next day and 1.75% with 70% probability over the next 2 days). Could it be skewed by horrendous losses of 2008/2009? Sure, but hard to guess just how much role that played in the overall picture.

click to enlarge

Then there’s also the surprisingly well fitting analog of 2011 and 2012 charts of SPY (well, more precisely 9/2010-8/2011 with an overlay of 9/2011-now). I did cheat a bit by shifting this year’s numbers by about 2 weeks to ‘make it fit better’. While I don’t think there’s a great chance of repeating the last year’s summer debacle, especially in light of election year seasonality, considering that European shenanigans are far from over, keep this picture in mind.

click to enlarge

So where does this leave us? While things can certainly change (even tomorrow since for some reason Europeans don’t celebrate the wonderful Independence Day of the United States and keep their markets open), as of the time of this writing things are looking up for the bulls on the intermediate and long timeframe. On the short timeframe we are WAY OVERBOUGHT and need to get these conditions relieved (through time or price). I did buy some TZA and SQQQ to hopefully take advantage of the pullback, but would not hesitate to cut them if it appears that we are just basing and not pulling back. Once the pullback is over (you’ll know it when you see it, but 1338-1340 levels seem like a good pullback target IF we pull back), I am certainly prepared to allocate a significant portion of my portfolio to the long side.

Enjoy the holidays, folks, and remember to let those bottle rockets out of your hand BEFORE they go off.

 

 

Titanic update – did you see that goddamn iceberg?!

5
446 views

As a reader of ibankcoin you’re undoubtedly aware that market looks like a thousand miles of bad road right now. There seems to be no escape anywhere except for cash and bonds (which is where I’ve parked my long term retirement accounts based on the seasonal investment strategy).  As many astute traders have mentioned already, the stubborn bulls are – ironically – keeping the market from finding a tradeable bottom. In most cases a flush/capitulation event is what will put the floor under the market (even if short term). So far we’ve had the painful slow drip, which is in many ways analogous to the old anecdote of a frog slowly being boiled to death.

Markets like this emphasize the importance of having a plan for each of your positions and sticking to it. Don’t be a frog. If you aren’t disciplined and continue to just give it another day, you’ll quickly find yourself with large loss, wondering ‘how could this have possibly happen?’ and  – to paraphrase Blake from ‘Glengarry Glen Ross’ (if you haven’t seen it yet, rent it tonight!) – ‘sitting around in a bar: ‘Oh yeah, I used to be a trader. It’s a tough racket.’

Remember why you were in the trade to begin with and stick to your plan. If you entered the trade based on a ‘good looking chart’, don’t forget to exit based on the chart as well and don’t let a trade become ‘an investment’ (sadly, I’ve done that myself many a time, but I’m getting better).

But back to the Titanic update. There was a lot of disbelief and talk about ‘crazy voodoo breadth signals’ (mostly from my friends who think this whole breadth research is a load of crap) when I first shared the results of this research, however those who haven’t considered it now certainly wish they had. Take a look at the updated chart and see for yourself. And to be completely honest and fair, I haven’t taken advantage of this ‘Titanic syndrome’ call nearly as much as I should have. While I made some money on the short side and saved my long term accounts from this disaster, it was really but a fraction of what it should have been. It was the first time I calculated it and saw it play out in reality, so I suppose next time I’ll trade it with a lot more conviction.

click to enlarge

And as horrific as that looks, keep in mind that DOW is only 5.39% off 4/4 close, while other major indexes fared much worse.

SPY down 7.24%, QQQ 9.64%, IWM 8.85% (that’s from 4/4 close, numbers are slightly worse from 52wk highs)

The question that is on most traders’ minds at this point is – where do we go from here? Well, unfortunately Titanic Syndrome doesn’t specify the maximum drop target (I wish it were that simple), but it does state that the typical drop is at least 10%. We are just about there at this point (at least on some indexes). There’s the question of a H&S pattern on SPY, which calls for a measured move of low 1280-ish, so we are nearly there as well (say, another 1.1% down or so). There is, however, more in the ‘bad news department’ as we just had a ‘Dow theory sell signal’ as reported by Stock Trader Almanac group, which may suggest that the worst is yet to come.

Also some of the breadth signals I track have gone from ‘Buy’ to ‘Strong buy’ over the last couple of days. However it’s important to remember that any long trade at this point would be going against the trend, and therefore will carry a much higher amount of risk. So far I have said ‘tomorrow’s the bounce day fo’ sho!’  several days in a row and have been obviously wrong (keep in mind that I meant a ‘relief bounce’, not another leg up just yet).

As many experienced traders note in their rules, it’s correct to be neutral or bullish in an uptrend and it’s correct to be neutral or bearish in a downtrend. So what’s a trader to do? That really depends on your trading style, personality and risk tolerance. If you try to catch every intermediate top and bottom and ‘milk the mother market for every drop she’s got’, you might start initiating long positions thinking that the bounce is near and a snap-back relief rally (which could be quite viscous as shorts pile in to lock in their gains) is just about to unfold. If that isn’t your style and you prefer a sold base before you commit to a trade, then cash continues to be king and a valid position in times like this. Remember that election year seasonality in May is bearish right through the end of the month and so far this year it’s played out perfectly. Also remember that market breadth is a valuable tool and really paints the picture of what the collective participants are doing (as opposed to thinking, pondering, considering while they answer sentiment surveys). It will tell you when to step out of the market as well as when to be ‘take a 2nd mortgage on the house’  aggressive. (FB IPO wasn’t one of those occasions – there’s the mandatory mention of Facebook for today).

 

 

But as for me and Grandpa, we believe

2
1,601 views

Obviously way too early for Christmas song references, but I don’t really have much time at the moment to come up with a witty title, so you’d have to settle for this one.

Echoing Fly’s ‘Grandpa stocks’ theme, here are some of the heavy-barely-moving-except-when-momo-stocks-get-killed-in-summer-months stocks that typically perform well in time of bearish seasonality. If you were to play it completely conservatively you’d heed my previous advice and hide your hard earned/stolen/inherited/received in a divorce settlement (clearly received before Fly banned all divorces) money in a bunch of bonds, which have been killing lately (just ask Bill Gross). But if you decide that equities is still the name of the game, take a look at these names:

KO – outperforming most of other grandpa stocks, perhaps stock market bears are kind to it due to the whole polar bear commercial that’s been running for decades now.

KFT – what hardworking mother wouldn’t want to ‘cook’ Kraft’s macaroni and cheese for her kids, especially with Mother’s day dinner coming up in the next couple of days.

PFE – with US (and world’s for that matter) population growing older and living longer, the ultimate grandpa boner stock continues to impress.

Hope you’ve caught on to the theme of the post, but if not – it’s pretty simple, really. Consumer staples and healthcare sectors (preferably with decent dividends)  hold up pretty well during ‘Sell in May’ season, so give that sector a quick look-see if you haven’t already.

Seasonality update (long term accounts)

3
840 views

Clearly by now every Joe Plumber has heard of the beaten down ‘Sell in May and go away’ cliche, so here we are, it’s May. And there are just as many pundits defending the veracity (or, more accurately, profitability) of following that system, as ones attacking it and pointing out that ‘this time it’s different’.

One of the Seasonal Timing Strategies  (and one that I have started following) was introduced by Sy Harding n 1998 and ‘ has gained 190.6% to year-end 2011 compared to a 64.4% gain for the Dow, a 20.3% gain for the S&P 500, and an 18.8% gain for the Nasdaq.’ 

Anyone following this system could have saved oneself some grief during awful summer months drawdown periods of 2010 and 2011, not to mention made quite a bit more money as can be clearly demonstrated by this SPY chart.

‘Stock Trader’s Almanac’ guys follow a similar seasonality strategy, which triggered a “sell signal’ on 4/3/2012, which came very close to nailing the top on SPX.

However we shouldn’t forget that we are in the presidential election year, which can have a tremendous impact on market performance.

Compare overall seasonality chart: 

 

With that of an election year:

If the patterns holds true, while May looks atrocious, June should be quite strong and July and August are screaming ‘lever up long’.

McClellan seems to agree with that as well, pointing out similar charts and stating ‘A big strong June and July is wholly contrary to the old saw about “Sell In May…”.  Most of the time that rule does work, at least in part, but in election years a whole different rule goes into effect.  If the correlation persists this year as well as it has been doing up until now, we can look forward to a big rally in June before the market finally enters a plateau in July, when the media’s attention is tuned to the campaign promises being slung by the presidential candidates. 

Considering the fact that Operation twist is quickly drawing to an end (and should end around June) and the upcoming upheaval in the market will raise further demands for continuing easing efforts, Uncle Ben should start rolling up his sleeve to fire up those printing presses (in whatever easing/twisting form printing manifests itself this time) right around June timeframe. Incumbent propping-up is likely to drive the market higher – whatever the cost – and why not ride that wave?

I have been happily in bonds in my long term accounts at the moment, escaping the upcoming carnage  (which is far from over) and awaiting the buy signal for the summer rip higher. While the market is likely to go down swinging at least 10% from the recent high and volatility is likely to explode (another post on why I think that), all will be well in just a few short weeks.

 

 

Creative articulation, baby

Joined May 6, 2012
10 Blog Posts

Creative articulation, baby

Joined May 6, 2012
10 Blog Posts

Do I bet it all? Do I ?!

3
1,344 views

Gambling title seems oddly appropriate, especially after watching David Einhorn taking down $4.3M in the ‘One Drop’  WSOP $1M buy-in tournament (which he’s donating to charity, by the way).

If you’re checking in on the 4th after an Nth round of debauchery with levels of inebriation approaching ‘that one time in college’ levels, you might want to come back and read it later. There’s a bunch of numbers and charts here that are liable to put you to sleep and miss out on the next round of ‘hey, y’all !!! watch this!’ fireworks display.

Wanted to write a quick update on the assessment of where we are in the market at this point, especially since signals I described in my ‘I bet it all’ post have just triggered (If you haven’t read the original post, it might be a good idea to do that in order to understand the 1st signal here).

First, ‘Planes, trains and automobiles’ signal update.  The breadth thrust signal triggered today. Here’s an update on performance of the signals I mentioned in that post:

click to enlarge

 

  • As you can see, there are 2 new signals for 7/2 and 7/3/2012 with one on 7/3 being especially strong and fitting well within  Whaley parameters. Typically breadth thrust like this indicates the beginning of a new sustained move higher. However, there is indeed a caveat to that. As you can see, the one outlier of poor performance in the whole set of data (at least thus far) is the 7/1/2011 signal. It certainly appears that when a breadth thrust occurs near 52wk highs it is much more likely to indicate a blow-off top than a beginning of a new bullish move. I would be much more comfortable with levering up long had we had this thrust when the market was down 10% than at this point – we are not even 3% off 52wk highs.
  • Is there anything else that can support the bull case then? Something that would increase one’s confidence in this ferocious rally? Well, there’s the 13EMA of NAHL that I like to use as the long term indicator of where the market is heading. Something like this doesn’t really catch the very tops or bottoms, but is a decent indicator for a long term direction. 13EMA first waded into the positive territory on 6/20 and after a brief dip has quickly recovered and is now firmly above 0. That has certainly been a bullish signal in the past and bolsters the bull case on intermediate and long timeframes.
click to enlarge
  • We are also approaching the earnings season, and with expectations that have been severely beaten down are likely to see a series of reports that are way over analysts expectations.
  • 50SMA on SPY has finally started to tick up today, possibly indicating the end of the correction as well.
  • And finally, election year seasonality is decisively bullish:

So based on these signals and assessment, should you lever up long and leave for a long vacation as it will be undoubtedly paid for (and more!) by the bountiful gains simply given to you by mother market?!

One thing to keep in mind is that we are severely overbought at this point, so much so that the value of NYMO reached 4th highest level in 14 years. Something like that absolutely has to be worked off through either price (moderate pullback) or time (few relatively flat sessions with indexes just drifting sideways). So hold off on getting that 2nd mortgage and selling wife’s jewelry to put it all in on a bunch of triple leveraged ETFs for just a few days.

When I look at the instances when NYMO reached very high levels (79+ in this study), short term picture (next few days) looks rather bearish (average 0.81% loss with 83% probability the next day and 1.75% with 70% probability over the next 2 days). Could it be skewed by horrendous losses of 2008/2009? Sure, but hard to guess just how much role that played in the overall picture.

click to enlarge

Then there’s also the surprisingly well fitting analog of 2011 and 2012 charts of SPY (well, more precisely 9/2010-8/2011 with an overlay of 9/2011-now). I did cheat a bit by shifting this year’s numbers by about 2 weeks to ‘make it fit better’. While I don’t think there’s a great chance of repeating the last year’s summer debacle, especially in light of election year seasonality, considering that European shenanigans are far from over, keep this picture in mind.

click to enlarge

So where does this leave us? While things can certainly change (even tomorrow since for some reason Europeans don’t celebrate the wonderful Independence Day of the United States and keep their markets open), as of the time of this writing things are looking up for the bulls on the intermediate and long timeframe. On the short timeframe we are WAY OVERBOUGHT and need to get these conditions relieved (through time or price). I did buy some TZA and SQQQ to hopefully take advantage of the pullback, but would not hesitate to cut them if it appears that we are just basing and not pulling back. Once the pullback is over (you’ll know it when you see it, but 1338-1340 levels seem like a good pullback target IF we pull back), I am certainly prepared to allocate a significant portion of my portfolio to the long side.

Enjoy the holidays, folks, and remember to let those bottle rockets out of your hand BEFORE they go off.

 

 

Titanic update – did you see that goddamn iceberg?!

5
446 views

As a reader of ibankcoin you’re undoubtedly aware that market looks like a thousand miles of bad road right now. There seems to be no escape anywhere except for cash and bonds (which is where I’ve parked my long term retirement accounts based on the seasonal investment strategy).  As many astute traders have mentioned already, the stubborn bulls are – ironically – keeping the market from finding a tradeable bottom. In most cases a flush/capitulation event is what will put the floor under the market (even if short term). So far we’ve had the painful slow drip, which is in many ways analogous to the old anecdote of a frog slowly being boiled to death.

Markets like this emphasize the importance of having a plan for each of your positions and sticking to it. Don’t be a frog. If you aren’t disciplined and continue to just give it another day, you’ll quickly find yourself with large loss, wondering ‘how could this have possibly happen?’ and  – to paraphrase Blake from ‘Glengarry Glen Ross’ (if you haven’t seen it yet, rent it tonight!) – ‘sitting around in a bar: ‘Oh yeah, I used to be a trader. It’s a tough racket.’

Remember why you were in the trade to begin with and stick to your plan. If you entered the trade based on a ‘good looking chart’, don’t forget to exit based on the chart as well and don’t let a trade become ‘an investment’ (sadly, I’ve done that myself many a time, but I’m getting better).

But back to the Titanic update. There was a lot of disbelief and talk about ‘crazy voodoo breadth signals’ (mostly from my friends who think this whole breadth research is a load of crap) when I first shared the results of this research, however those who haven’t considered it now certainly wish they had. Take a look at the updated chart and see for yourself. And to be completely honest and fair, I haven’t taken advantage of this ‘Titanic syndrome’ call nearly as much as I should have. While I made some money on the short side and saved my long term accounts from this disaster, it was really but a fraction of what it should have been. It was the first time I calculated it and saw it play out in reality, so I suppose next time I’ll trade it with a lot more conviction.

click to enlarge

And as horrific as that looks, keep in mind that DOW is only 5.39% off 4/4 close, while other major indexes fared much worse.

SPY down 7.24%, QQQ 9.64%, IWM 8.85% (that’s from 4/4 close, numbers are slightly worse from 52wk highs)

The question that is on most traders’ minds at this point is – where do we go from here? Well, unfortunately Titanic Syndrome doesn’t specify the maximum drop target (I wish it were that simple), but it does state that the typical drop is at least 10%. We are just about there at this point (at least on some indexes). There’s the question of a H&S pattern on SPY, which calls for a measured move of low 1280-ish, so we are nearly there as well (say, another 1.1% down or so). There is, however, more in the ‘bad news department’ as we just had a ‘Dow theory sell signal’ as reported by Stock Trader Almanac group, which may suggest that the worst is yet to come.

Also some of the breadth signals I track have gone from ‘Buy’ to ‘Strong buy’ over the last couple of days. However it’s important to remember that any long trade at this point would be going against the trend, and therefore will carry a much higher amount of risk. So far I have said ‘tomorrow’s the bounce day fo’ sho!’  several days in a row and have been obviously wrong (keep in mind that I meant a ‘relief bounce’, not another leg up just yet).

As many experienced traders note in their rules, it’s correct to be neutral or bullish in an uptrend and it’s correct to be neutral or bearish in a downtrend. So what’s a trader to do? That really depends on your trading style, personality and risk tolerance. If you try to catch every intermediate top and bottom and ‘milk the mother market for every drop she’s got’, you might start initiating long positions thinking that the bounce is near and a snap-back relief rally (which could be quite viscous as shorts pile in to lock in their gains) is just about to unfold. If that isn’t your style and you prefer a sold base before you commit to a trade, then cash continues to be king and a valid position in times like this. Remember that election year seasonality in May is bearish right through the end of the month and so far this year it’s played out perfectly. Also remember that market breadth is a valuable tool and really paints the picture of what the collective participants are doing (as opposed to thinking, pondering, considering while they answer sentiment surveys). It will tell you when to step out of the market as well as when to be ‘take a 2nd mortgage on the house’  aggressive. (FB IPO wasn’t one of those occasions – there’s the mandatory mention of Facebook for today).

 

 

But as for me and Grandpa, we believe

2
1,601 views

Obviously way too early for Christmas song references, but I don’t really have much time at the moment to come up with a witty title, so you’d have to settle for this one.

Echoing Fly’s ‘Grandpa stocks’ theme, here are some of the heavy-barely-moving-except-when-momo-stocks-get-killed-in-summer-months stocks that typically perform well in time of bearish seasonality. If you were to play it completely conservatively you’d heed my previous advice and hide your hard earned/stolen/inherited/received in a divorce settlement (clearly received before Fly banned all divorces) money in a bunch of bonds, which have been killing lately (just ask Bill Gross). But if you decide that equities is still the name of the game, take a look at these names:

KO – outperforming most of other grandpa stocks, perhaps stock market bears are kind to it due to the whole polar bear commercial that’s been running for decades now.

KFT – what hardworking mother wouldn’t want to ‘cook’ Kraft’s macaroni and cheese for her kids, especially with Mother’s day dinner coming up in the next couple of days.

PFE – with US (and world’s for that matter) population growing older and living longer, the ultimate grandpa boner stock continues to impress.

Hope you’ve caught on to the theme of the post, but if not – it’s pretty simple, really. Consumer staples and healthcare sectors (preferably with decent dividends)  hold up pretty well during ‘Sell in May’ season, so give that sector a quick look-see if you haven’t already.

Seasonality update (long term accounts)

3
840 views

Clearly by now every Joe Plumber has heard of the beaten down ‘Sell in May and go away’ cliche, so here we are, it’s May. And there are just as many pundits defending the veracity (or, more accurately, profitability) of following that system, as ones attacking it and pointing out that ‘this time it’s different’.

One of the Seasonal Timing Strategies  (and one that I have started following) was introduced by Sy Harding n 1998 and ‘ has gained 190.6% to year-end 2011 compared to a 64.4% gain for the Dow, a 20.3% gain for the S&P 500, and an 18.8% gain for the Nasdaq.’ 

Anyone following this system could have saved oneself some grief during awful summer months drawdown periods of 2010 and 2011, not to mention made quite a bit more money as can be clearly demonstrated by this SPY chart.

‘Stock Trader’s Almanac’ guys follow a similar seasonality strategy, which triggered a “sell signal’ on 4/3/2012, which came very close to nailing the top on SPX.

However we shouldn’t forget that we are in the presidential election year, which can have a tremendous impact on market performance.

Compare overall seasonality chart: 

 

With that of an election year:

If the patterns holds true, while May looks atrocious, June should be quite strong and July and August are screaming ‘lever up long’.

McClellan seems to agree with that as well, pointing out similar charts and stating ‘A big strong June and July is wholly contrary to the old saw about “Sell In May…”.  Most of the time that rule does work, at least in part, but in election years a whole different rule goes into effect.  If the correlation persists this year as well as it has been doing up until now, we can look forward to a big rally in June before the market finally enters a plateau in July, when the media’s attention is tuned to the campaign promises being slung by the presidential candidates. 

Considering the fact that Operation twist is quickly drawing to an end (and should end around June) and the upcoming upheaval in the market will raise further demands for continuing easing efforts, Uncle Ben should start rolling up his sleeve to fire up those printing presses (in whatever easing/twisting form printing manifests itself this time) right around June timeframe. Incumbent propping-up is likely to drive the market higher – whatever the cost – and why not ride that wave?

I have been happily in bonds in my long term accounts at the moment, escaping the upcoming carnage  (which is far from over) and awaiting the buy signal for the summer rip higher. While the market is likely to go down swinging at least 10% from the recent high and volatility is likely to explode (another post on why I think that), all will be well in just a few short weeks.

 

 

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