Breaking Down An Interview Between Technicians

Wed Oct 3, 2012 7:56pm

183 views

I’ve been enjoying a 3-part interview that J.C. Parets (@allstarcharts) has been conducting with technical analysis pioneer Ralph Acampora. I especially enjoyed the last interview, which was Part 2 of 3. I wanted to share some of his thoughts on the market as I believe it can open one’s eyes when discounting news and current sentiment.

Part 2 starts out with Ralph talking about the Dow Jones. Here are some of his thoughts and findings:

50% of the Dow stocks (a time of interview) are about to make all-time highs
Then asks what was the sentiment on the street & in the public was when going back to 2007 (prior high); answering that it was bullish and exciting.
States that now people aren’t buying and the public is in bonds and cash.
Only people investing today are some portfolio managers and hedge funds, to which they are underperforming for the most part.

Ralph then mentions the German DAX, which is the European bellwhether. He states than many are not talking about its performance but at the time of interview it was only 1% from making all time new highs. He considers this extremely bullish. Below I have included a chart of the German DAX.

Ralph then goes on to talk about the 80’s. He stated that during the 60’s & 70’s we were in a sideways market and many were in disbelief and shocked when it took off in 1982. I found this interesting as this seems to be the exact sentiment as we have now. We have essentially been in a 12 year range. J.C. adds that the consensus seems to be that secular bear markets last longer than 12 years; to which Ralph answers that we have had 12 years and believes that we made a generational bottom in 2009.

Ralph believes that we will start to see money come back into the stock market as it is making new all time highs and the money shifts out of bonds. He also states that he does believe we are topping out in bonds, but we are closer to a top than a bottom. He also states that people are in gems, gold, and cash and it is difficult to get people to buy equities. He believes we will see a major shift from fixed income and when this happens “that will be a tsunami of money”.

There is some interesting talk about gold and oil to which I will skip over in order to keep this short. It is good information though and would suggest taking the 5 minutes to read it and the interview altogether. I just found this talk about the markets interesting as it really lines up to what the sentiment seems to be right now and where we are currently trading. It is hard not to agree in that we will see a boom in equities leaving people chasing if/when we see a shift out of fixed income. It seems many will be in disbelief and shocked again just like Ralph mentioned during the 80’s market move.

Can China Pull It Off Again and Crush Some Stubborn Shorts?

Wed May 30, 2012 11:55pm

1,054 views

Friday could be a big day as we get China Manufacturing, US Manufacturing, and US Nonfarm Payrolls. In reading the blogs at iBankCoin, I often see the word “China” written in posts by The Fly. This has caught my attention because I remember the summer of 2010. We saw major selling in May only to be followed by a big range for the rest of the summer.

Then on Sept. 1, 2010 China released their manufacturing data report and the overnight futures market exploded. The chart below shows the selling in May with the big summer range and then the beginning of a huge run starting with China’s manufacturing data.

Here is a news release from news.com.au titled “Highest share market close in three weeks” with some excerpts:

“Mr Kimber said Chinese manufacturing data reduced the possibility of a sharp slowdown in the world’s second largest economy and gave a boost to local resource companies.

The HSBC China Manufacturing PMI, or purchasing managers index, rose to a three-month high of 51.9 last month from 49.4 in July.

“Of course we had the Chinese numbers out today, which confirmed what (BHP chief executive) Marius Kloppers was saying last week,” Mr Kimber said.

“That basically people who were panicking about China slowing down to five or six per cent are wrong.””

Here is another release from MarketWatch titled “US Stocks Surge As Manufacturing Data Trumps Jobs; DJIA Up 220” with some excerpts:

“Asian shares posted gains overnight, buoyed by encouraging manufacturing data from China and better-than-expected growth in Australia, which allayed some near-term worries about the global economy.

In the currency markets, the euro rose 1% to $1.2817. The U.S. Dollar Index, which tracks the performance of the greenback against a basket of six currencies, fell 1.1%. The Bank for International Settlements reported that daily turnover in the world’s foreign-exchange markets has soared to $4 trillion this year.

Commodity prices rallied, with October crude-oil futures gaining 2.5% to nearly $74 a barrel, ahead of official oil inventory numbers. Oil prices tumbled in August amid growth concerns and unusually high inventory levels. Copper futures surged more than 3%.”

Below is a zoomed in view of the day that started a huge run that topped in May 2011 and the European news started to surface.

That following Friday we had the Nonfarm Payrolls and U.S. ISM Manufacturing data release in which the jobs report wasn’t as bad as expected and the ISM came in a little disappointing. Excerpts provided by MarketWatch “Stocks close higher on jobs optimism“:

“The market leaped after nonfarm payrolls data showed jobs slowing at half the rate predicted by economists. The Labor Department said the U.S. lost 54,000 jobs last month, about half of what economists had expected and matching the level of revised losses recorded the previous month.

The unemployment rate, calculated using a separate household survey, edged up to 9.6%, as expected, from 9.5% for the previous two months.

But the economic recovery still looks weak; data released Friday by the Institute for Supply Management showed a slowing expansion in the U.S. nonmanufacturing sector last month.”

Below is a zoomed out view from the day that encompasses both news events to when the market topped in May 2011.

Of course this is all speculative and I’m not calling a huge run. I can see a summer grind like 2010 which then fuels another nice run. I do like the correlation of current sentiment to the way it was during 2010 and those traders that failed to switch their mindset missed out. Also I am not saying that we had the huge run because of China, but it was a news catalyst and event followed by the not-so-bad jobs number that fueled the money into the market.

I also bring this up because commodities and the dollar are in the same state. Copper and Oil were getting sold and were fueled after these events and the Dollar was soaring, only to see it sell off after these events.

Trying to Think Like I Managed Millions

Sun May 27, 2012 6:24pm

785 views

In being an active trader it is sometimes hard to focus on the long term. But also a trader I like to think “what would a money manager do”. The kind of person that just can’t buy and sell on the same day but acquires positions over time more than a couple days to a couple weeks. I have no experience managing millions of dollars so I don’t know all that is involved but I do know it takes time. So when looking at a long term chart I have to ask myself, what would I do if I were managing a chunk of money. For this I look at the weekly chart of the SPX.

Looking at this chart we are -7.35% off the 1422.38 high with a closing price at 1317.82. So really this seems like a typical correction negating the past, present, & future news. But if you’re trading this news driven market and not the charts, good luck.

What I see is that once we lost that 1350 level we fell into the range of the Feb-Aug 2011 range. It would not surprise me to test the bottom of this range and further expect some choppy action with a big range as seen in 2011. Some downside target areas I like are 1270, which would represent -10.7% decline. Then after that 1225 (-13.9% off the high), which we broke above in Dec 2010 and looks to be a decent support level. Also take note that the bear market -20% level is near 1338 which again looks like a decent buy support opportunity.

I call these levels as if I were managing a lot of money and were looking to start accumulating positions on a further drop. I would not go all in at first but would start allocating some money to the market. This represents a bigger picture view and there is definitely much news for the bearish case. I just try to filter out news and look at the big picture through charts and I see that it really isn’t that bad as it sounds. I end this post with a couple stats from thefinancialphilospher website in regards to market corrections:

1) Average Frequency of Market Corrections: 5% corrections occur 3 times per year, 10% corrections once per year, and 20% declines occur once every 3.5 years.

2) Big corrections (>12%) are normally associated with recessions or markets that are overvalued.

Who’s That Man In the Corner

Fri May 18, 2012 1:58pm

769 views

A lot of talk right now of “the IPO” and how the market is reacting but one thing I am not seeing much of is the World Leaders plotting at Camp David via the 38th G8 Summit ; approximately 20 miles from my dwelling. I imagine the leaders from their respective country are talking about how great they raped the markets in the beginning of the year to leave the common folk feeding on scraps right now. But now they realize things are going down hill and the economy never really recovered but it sure did look like it. Yes the market may digest news 6 months ahead of time as the case is often quoted, but who really knows. So now they are thinking of ways on how we can all help each other out and the man in corner of the room in the shadow just taking things in while cigar smoke is billowing out in dollar signs is The Beard.

So what comes out of the G8 Summit, who knows. But things would be setting up nicely if we have some miraculous news or intervention over the weekend news from any of the countries economies that would cause this market to skyrocket on Monday and leave people that are shorting or still short to run for cover. News is definitely dire here and institutions do not seem to be buying but are just waiting for any reason to buy. Technically things really don’t seem too bad in my opinion as we’re coming back to the bottom of the February – July 2011 range. The charts do look appealing for longer term holdings and for some managers to start accumulating. Yes we could see more downside but you can’t be in this game to pick bottoms.

This is all speculation of course but the recent action in Gold and Silver is a supporting factor of maybe some news to come and news over the weekend is always a great throw it in your face to market bears. But with all this we could also get the BOHICA Pattern Trade too and more misery to the bulls.

The Markets and Whiskey are More Correlated Than You Think

Tue May 15, 2012 11:45pm

666 views

So given the title of the blog post, what do they have in common? From my experience if they are taken fast one is to end up in disorder and confusion. Patience is the key to both the market and drinking whiskey. For example, if you play the market fast constantly being in it and not willing to reduce some risk, I am quite certain you will end up with a blown account. I know this from experience as I have blown up three separate accounts before getting my act together and looking at risk instead of constantly reading technical analysis and options strategy books. Please if you are beginning trading, focus first on risk. Another experience that relates is with whiskey. When I was younger I was all about the shots and reaching that messed up state at a rapid rate, only to wake up the next morning miserable and wondering what the hell happened. Nowadays when I drink my whiskey I enjoy the finer stuff (favorites including Jameson 12 year & Jack Daniels Single Barrel) and just sit back relax and sip on the finer stuff in life.

So how does this all relate to trading? Recently the market has me concerned. Going into today I had mostly exposure to the long side that utilized a small portion of my account. But today’s action action had me a bit worried as shorts did not run and buyers did not really step in. This morning watching the futures, the market looked great but when the action/volume came in, it told me to step aside as the bears are still awake and ready to kill any rally attempt. When the market looks like this I believe that a trader should not look at support unless they are willing to average in, instead wait for conformation to either side and step aside and let the others get chopped. I am not saying don’t trade, but if you do, trade small with expectation of lower prices and utilizing those stops or averaging down for longer term holdings. Case in point is a post by @RaginCajun http://ibankcoin.com/rcblog/2012/05/15/bulls-are-weak/ , and from there “After sitting on my hands for a few days, I decided to try a few longs. I was quickly stopped out of $WYNN after trying to catch a falling knife, but got a great add on my $YELP shares. ”

Below is aq snapshot of my positions at end of day.

From the screenshot and going into today I was long deltas in: BIDU, PCLN, & UA and short deltas in CRM, with long day trade in AAPL. The table refelcts the results:

Symbol	Date In	Date Out	Price In	Price Out	% Gain/Loss on Risk
AAPL	5/15	5/15	3.80	4.80	26.32%
BIDU	5/11	5/15	1.85	1.72	-7.03%
CRM	5/11	5/15	2.29	2.40	4.80%
PCLN	5/14	5/15	1.12	0.79	8.51%
UA	5/10	5/15	4.00	4.40	10.00%

This table is meant to show that I did have some positions on but for reasons of today’s actions in the market I started to get a little worried and reduce some risk and say thanks for the gains so far and go into tomorrow with a clear mind or not trade at all and let things work out for themselves. There is no need to be a hero and try to guess the bottom as this proved to kill some poeple that saw that hammer back in August 2011:

As you can see this hammer looked awesome as it undercut the previous days lows and saw buying coming (the tail) after what appeared to be a capitulation day. Needless to say we can see what happened next as commodities got liquidated, much like todays action.

So from this all I can say is be careful and don’t load up. Take it easy and exercise that patience and let market play out and wait for some evidence of buyers to show up. As quoted from @chessNwine “We are in a short-term downtrend within the context of a bull market correction, until proven otherwise. Aggressive traders have by and large been chopped to pieces in this environment. You simply must protect your capital and confidence here so that you can be properly positioned to benefit from the next trending period in the market.”….and I couldn’t agree more.

Like a fine whiskey, don’t take shots and end up puking and waking up the next day wondering what the hell happened. Sit back enjoy yourself and watch things prove themselves, sip on that whiskey and enjoy the fine points of the oak and wood-char and relax and be patient!