TODAY’S THOUGHTS
Looking at the market action today I was reminded of a scene straight out of one of the many apocalyptic movies of the past several years. That one scene where the ground opens up. Mile long cracks appear in the pavement. Entire cars, trees, people, animals and cities are swallowed by Mother Earth. The landscape shifted underneath the financial market today. Silver and crude oil were the first to be swallowed into the massive cracks that developed beneath them. Commodity names, in general, suffered greatly today. The CRB Index scored one of its worst days in many months. Casualties galore. A pronounced shift in the market landscape. The interpretation of today's action is simple: a massive number of speculators were positioned in commodities and when the hammer finally dropped, they all scurried for the same exit. Wall Street in 2011 is not a diverse environment of unique thinkers and a multitude of strategies. What we have is an environment dominated by professional investors that were raised on a school curriculum of creating alpha by jumping on intermediate to long term trends. They then ride the wave until the point when they are forced off. The strategies will have different names. Some will call it global macro. Others will call their fund a hybrid approach. You have systematic traders. There are equity long/short guys. Some guys like to call themselves event driven. When it comes down to it a majority are after performance and will tailor their research around what is performing. Got that? I'll say it again. They tailor their research around what is performing. Performance dictates their fundamental outlook. If the performance is there, the research will be created to justify the position in almost any strategy. That's Wall Street in 2011. Should the trend of mass slaughter across the board in commodities continue, the repercussions will spill over into the equity markets. It already started during the final hour of trading today. Stocks wanted higher, but were pushed down as the slaughter in commodities became a punch to the gut of equities. I am not going to pretend to be smart enough to tell you what the market action will be after a day like today. I'm especially not smart enough to tell you what the market action will be after a day like today AND an employment report being released in the morning. I am experienced enough, however, to say that action should be kept to a minimum at points like this. There are plenty of "in between" points in market trends where you have high percentage opportunities. At points like this you are essentially flipping...
BULLS ARE ABOUT TO STAMPEDE
Three charts is all we need tonight: click on the charts below to enlarge
3 THINGS YOU MUST MASTER BEFORE YOU CAN MAKE YOUR FIRST $25 MILLION TRADING THE MARKETS
1994 I was fresh out of high school. I met with a friend who showed me option chains on different stocks. He showed me that if I put $500 into a call on a stock, it could potentially turn into $2000. He went on and on. I ate it all up. The next day I went to a local bookstore and bought my first book on trading. I would go through the newspaper and find call or put contracts that I thought were reasonably priced based on absolutely no analysis or criteria. One of the first I bought was a call option on Bally's Hotel. I believe the symbol was BLY. And I think the strike price was 7.5. I was successful on the trade as a result of pure luck. I recall walking down the stairs of my parent's house some $500 richer, thinking how brilliant I was for discovering such a simple way of making money. Over the years, I derived a sense of importance from trading. I remember in 1997, I would be trading the Yen at 10pm during a BOJ intervention in the currency markets. It was me versus the BOJ. It was exciting. I was a player. At least I thought I was. Wall Street was my favorite movie. I watched the Paul Tudor Jones documentary over 100 times. He was my idol. The video is available for viewing here. It's a classic documentary. I haven't watched it in years. If you have never seen it, do yourself a favor and spend the hour watching. What I didn't realize at the time was that the fantasy, perception and image I created for myself as a trader was more important than making money. I was more enamored with the act than the results that were produced as a result of the act. I would come up with a successful system of trading and within months completely flip it on its head because the excitement was beginning to fade. After I left the trading desk of Bank of America in 1998, I started making an effort to push back against my Marilyn Monroe complex. The results were astounding. I had triple digit up years in both 1998 and 1999. I didn't have a down year until 2004. The drawdowns I have experienced in the past have all been a direct result of abandoning my ability to make money in the markets for an image of myself that didn't actually exist. It was my way of making the markets exciting and keeping the fantasy alive. I never wanted the markets to turn into just another business. I...
NAVY SEALS AND MARKET TOPS
Important market turning points rarely give participants time to think. They often happen in a violent fashion that forces investors into hasty decisions. Often times those forced decisions cause paralysis and nothing is done at all. The standard reaction is to wait for a "better opportunity". The better opportunity rarely comes and another forced decision - often fear based - is made at a later point. I've seen a fair share of calls being made inferring that we're close to a peak in the markets. If this is the case, the market is giving participants a lot of time to think, plan and coordinate their next move. You can liken it to the recent raid on Osama Bin Laden. It was done quickly, with extreme force and pinpoint precision. Market turning points are similar. You don't have time to plan your getaway. What is happening today is the equivalent of a Navy Seal knocking on the door and asking if he needs to take off his shoes before entering the premises. It's too slow. It's fairly calm. It doesn't have the makings of a top. I think that the bulls will escape this one relatively unscathed. No top in...
QUICK THOUGHTS
Neutrality is in the air. A time to simply watch the action without taking inventory of your feelings one way or another. The Woodstock of speculation. Pass it around. Those were my thoughts during my nightly research. I have a hard time being committed one way or another here. My current portfolio consists of long-term holdings. PSTR is, of course, one of those holdings. Speaking of PSTR, I will be buying should the weakness continue. As much as I love being transparent, I don't want to put a price tag on where my interest will turn into be pressing the buy button. I will announce it on the website once it does. I continue to hold other long-term positions, as well. With the exception of PSTR, the rest of the portfolio has been lackluster this year. The largest holding in the portfolio has suffered recently, causing a bit of a drawdown. Not overly concerned. However, it has my attention. I am also long one stock that came as a result of an intermediate term trigger. A conservative small-cap name in the industrial sector. Should be good for some added muscle to the overall performance of the portfolio. I wish I had more exciting news for everyone. I wish I could tell you that you can make 500% per year trading gold stocks or silver even. I wish I could tell you that daytrading will make you rich and I have the ticket to get there. I wish I could keep the markets super exciting all the time, with promises of endless riches. Guess what? This is a business. And business is boring sometimes. If you have a constant need to keep it exciting then you either haven't been doing this long enough or you still have a lot to learn. And if you have the need to get rich immediately then you will be poor imminently. Goodnight...
CLASH OF THE TITANS: BULLISH AND BEARISH INDICATORS EATING EACH OTHER ALIVE
I'm torn to be honest. I have numerous sentiment indicators flashing sell. Yet what I'm seeing technically tells me there may be more upside ahead. It's a clash of the titans of market analysis. I think it's best to stand back and allow them to work out their differences. So instead of doing my analysis of 5-10 charts for the week ahead, I would like to do some lyrical therapy tonight. I say lyrical because when I write I feel like Kool Moe Dee. I don't really know how my article will end up, I just like to flow. And I say therapy because by the end of my flow, I feel like I have gained that much more insight into what I'm really thinking. It's my way of hiring Molly Maids to come clean up the clutter in my mind. Let's start the process and see if we can all get in touch with our inner kundalini. On the bullish side of things I'm seeing the following. Some charts to illustrate: On the bearish side of things, here are some observations: - I have a screen that filters for short squeezes. Last week it showed me the highest number of stocks in many months. A sign that the bears are throwing in the towel. Typically this is the final step before a bull market is turned on its head. - Margin statistics are showing that margin debt is reaching levels that have historically marked important tops in the market. I discussed this a couple weeks back here. - There is a divergence in market leadership taking place. All healthy rallies begin and end with technology leading the way. It has been this way since the mid-90's without fault. Suddenly we have the industrial names and transportation, as one example, leading the market forward. - The leadership within technology itself is even seeing signs of fatigue. The reliable leader that is the semiconductor sector (SOX) is lagging severely behind the Nasdaq 100. And then there is the issue of the Nasdaq Composite outperforming the Nasdaq 100. Meaning that the traditional small to mid cap names are the preferred vehicle for investors as opposed to the traditional large cap tech names. A sign of speculative excess perhaps? - The moves I have been seeing in Chinese stocks of late is very Phase 4 in behavior. Sloppy, speculative, spread across multiple sub-sectors. Indicating that speculation is rife. I have encountered moments like this before. Caught between believing in one group of indicators versus the other. Both have proven valuable at different points in my speculative career. They both have their place...