I know I've brought this point up before, but given today's action, it merits repeating: the bears have been outright cheated by what's happened in the FX market versus equities. What was supposed to have happened was equities were going to fall hard once the dollar finally got around to rising. Well (equities in blue, euro in black)…………
OK, "cheating" is too harsh a term, because the market promises us nothing. All the same, it's hard not to feel disappointed.
So what do we take away from the fact that equities have absolutely given the middle finger to a stronger dollar? What it tells me is that, given that…….
+ We have a strong year-end bullish bias;
+ An imminent short-term weakening in the dollar;
+ The "one-edged sword" we've witnessed
……..that strength in equities between now and year-end could be explosive.
I have no intention of scampering out of my existing shorts except for the one reason I will always accept: getting stopped out. I do intend to do the following, however:
+ Continue to augment strong long positions;
+ Take on a seriously large long precious metals position;
+ On the very last trading day of the year, substantially augment my best short positions (probably in the closing minutes of the trading year)
Personally, I can't wait for this year to be over, but I still need to do the very best I can every day. There are still seven trading days left, and the above is roughly what I think is in store for the balance of 2009.
(Editor's note: When I asked for folks to contribute to Slope, dozens and dozens of folks raised their hands, but only a few of them have contributed consistently. I am very grateful for these contributions. One particularly consistent guest poster has been Biffermas, whose last post of the year is below. Thanks, Bif, from all of us! – – Tim Knight)
Humans conceive reality in linear (straight) ways.There is a starting point and a destination,
If A, B, C, and D are performed, than E is the outcome.Houses are built in simple geometric forms,
not blobs.We enter school in
kindergarten and follow the straight line of education upward through college
before attacking the world.Roads are
built as directly as possible, using bridges, tunnels, and carving away any
earth in the way.Scientific study is
notoriously linear, with research designed to eliminate as many variables as
possible.Linear thinking is likely an
evolutionary design used to reduce a complex world into a simplified form
understandable to humans.There’s
nothing wrong with this, provided that we realize it’s happening and account
Markets and stock prices don’t move in straight lines, they
move like water over uneven terrain. Viewed from above, a river takes the form of a snake, and appears to
follow a very inefficient path while flowing from valleys to ocean (or Southern
California).Runoff from snow-capped
mountains will eventually reach the rivers, but the pathway is inconsistent and
constantly shifting.Leaves on a tree
don’t sway in the wind in uniform and consistent fashion, but in a chaotic
dance.Weather patterns are too complex
for 100% prediction by experts in the field. With millions of variables, why should markets be any different?
Technical analysis is an excellent tool to survey the
market, without a doubt.There’s
nothing wrong with basing your trading plan around the linear concepts of chart
patterns and setups, provided that you pay homage to the higher complexity and
unknown forces in control.You must
yield to such forces by taking losses quickly when appropriate.If you refuse this you’ll cease to exist as
a trader; just another corpse in a large pile of like-minded who insisted on
forcing their two-dimensional world views against the violent multi-dimensional
This short Alan Watts video captures the linear trap that many
Americans fall into.Grinding away
their entire lives going down the predestined path of education, work, raising
kids, paying off the debt and mortgage, etc. A short, largely joyless life wasted simply to reach that great point on the
time-line: retirement!I hope all my
friends here on the Slope remember that in life it’s not the destination that’s
important, it’s what happens along the way. Don’t forget to dance while the music plays!
Have an excellent holiday season, and best of luck in 2010! Thanks for all the support you've shown me, a relative newcomer. I'm leaving for Bora Bora on Wednesday, so I'll be largely absent until the new year.
Hi Slopers, it is silly season and the markets are levitating against my
short positions. The precious metals correction that NFTRH had
anticipated is well in progress. I remain long there. So, by extension
I must be pretty bummed out, yeh?
No freaking way. Momma always
told me to have patience… and a plan. I do, and if nothing else I
look on with a sort of comic bemusement (if that's possible) and await
resolution. Noise baby, noise.
Speaking of which, last year
during the deflation scare, somebody sent me a particularly good bit of
noise, the self-proclaimed "scariest gold chart in the world",
targeting gold at below 400. Now, it is easy to produce charts like
that during a deflation when there is little apparent chance of the
metal actually breaking to new highs, as it ultimately did a few months
This is the kind crap that comes out and reinforces the
popular sentiment. Right now, that dynamic is going on in the markets
to the upside. Well, I will show you what I think is one of the
scariest charts in the world; the yield on Larry's 30 year bond.
the baby inverted H&S (green) that has already broken the neck
line? That targets close to 5.2%. If that target comes to be, then we
will have broken the neck line on big bro (blue) and its target of
6.8%. How do you think such a rise is going to play with the macro
wizards and their ability to sell US debt around the world? At best, I
could envision a self-reinforcing buyer's strike on US treasuries as
would-be buyers await maximum yields for buying the debt of the
hopeless and chronic inflator. At best.
I feel like I need a shower, giving all these "long" ideas, but the cold fact of the matter is that my long positions are up three times more than my shorts, so I'm trying to focus on what's working. One pattern in formation – not yet complete - is Ruby Tuesday (RT). $9.25 is a long way away, but a break above that would be pretty amazing.
A glance at just about any ultra-bear ETF these days (SRS, MZZ, TWM, SKF, etc.) resembles that of a company heading for bankruptcy. There's no doubt that 2009, in spite of all indicates a year ago, was the Year Of The Bull.
Just about the last ETF that hasn't been absolutely, completely mauled (from a chart pattern perspective) is DXD, the ultra-bear on the Dow 30. For what it's worth………
Well, the /NQ is at yet another new high, and the /ES is about to do the same. Maybe the bulls intend to end this year with a swoop-up crescendo. I haven't shorted anything new this morning, but I took on six new long positions; here are three of them: