Wednesday, 21 December 2011

Cut your losses

Rotten  Christmas present I've given myself

I got that wrong!  I saw the spike in volume on Friday and I assumed that it was a signal that the market was on the point of falling out of the slow upward movement that has been evident since August. I was encouraged in this belief by the fall that occurred on Monday. How wrong I was. Yesterday saw one of those sharp spikes in price that make this market so hard to trade. It would now appear that the volume spike was indeed a harbinger but its message was that the Santa Claus rally had arrived.

By the time the market opened
 most of the move had happened
I had been prepared for a fall and I was up to my ears in short ETFs. Wall Street shot up when the market opened. I failed to stop my losses straight away in case this was a bear trap. It wasn't and I left it till the market closed to pull out. Very painful. More pain to come today because I left some of my positions in place in case I was still wrong. Still "He who fights and runs away..." and I have to live to fight another day. So I lick my wounds and set about working out what I have to do next.

Is this really a Santa rally? I suppose it is. All those bankers want to push up their their paper profits to up their annual bonuses. Silly of me to think it would have been otherwise. Do I have the guts to believe and to buy shares? Market opens shortly and I will know.

Sunday, 18 December 2011

Moment of truth

Where now?
We are mid channel. I am set up for a further dip in the market. Friday I increased my holding of shorts a little.

Unfortunately my data service does not provide volume data for the US indices till the following day so it was not till Saturday that I saw the massive spike in trading that occurred yesterday. As I have explained before a spike like this usually presages a change in price direction. What is not clear is whether this change in direction is a return to the top of the channel (short term) or the beginning of a collapse out of this period of horizontal movement that has lasted for four months now (long term).

Is this the moment we've been waiting for?
No strategy just vigilance and readiness to move fast.

I have increased my gold and silver stakes again. A spike in volume a couple of days ago was the motivation. So far so good.

Sorry about gap in service yesterday. With Christmas and the New Year coming up pressure of panic followed by pressure of hi jinks will mean service may be patchy. Merry Christmas to you all.

Thursday, 15 December 2011

Gold and silver dive

Just a little patience was needed
I was out to lunch yesterday so little opportunity to fiddle. Nevertheless I did have time to ditch the gold and silver that I had foolishly repurchased, before too much damage had been done. And my US index shorts made money. I still have not bought back my UK index short position.

The market is now well on its way down the channel. I have predicted successfully but, as before, I have failed to capitalise on my prediction properly.

Is this capitulation in gold?
The big issue is the precious metal drama. All the support lines have been broken in a huge dive for both metals. Their tether to the stock markets holds but yesterday it was exaggerated. However (and I say this with trepidation for it is a huge temptation for me to jump back on board) yesterday's price movement has all the hallmarks of a capitulation. A very sharp drop (over 3% for both metals) on a spike in volume. A capitulation is the moment when the last of the determined holders give up their positions and admit defeat to the relentless pressure of bear action. No more sellers left in the market and buying pressure can now push the price higher. Those who got out of the market early and who are not licking their wounds can grab the opportunity to buy cheap. The rest, who took maximum losses, will be frightened to re-enter the market and will miss the boat.

And in silver?
The price fall has continued overnight. I bit more hand sitting and then I will be back in. I have not done well out of this slide but others have done much worse.

Wednesday, 14 December 2011

Nervous trader

Ups and downs
I have become a very nervy trader. I jump in and out of positions within a day. I would argue that this is because of the way the market is going. It is impossible to predict what is going to happen next but I do try to assess the odds.

Yesterday was especially hard. The FTSE was up most of the day. That was fine, I had closed that position and I was happy about my prescience. Then, shortly after the open, the DJI jumped 131 points and most of my profits vanished. I closed the position worrying that we may be due for a break out on the upside. But as the last two trading hours began so did a massive slide to well below yesterday's  low. I bought back in time to pick up some profit.

Gold also dives
With gold I was not so lucky. I was nicely placed with a very small holding. But then stock market strength started to pull precious metal prices up and I bought back positions. But when the Dow did its dive so did precious metals. I held my positions on the UK market so I had no opportunity to resell. There seems to have been a bit of a recovery overnight which might have saved my bacon.

So am I right to be working so hard on my positions or am I stupid and should I be sitting on my hands. Trading costs are negligible so that is not an issue. The problem is reading the market. The odds change so quickly and the moves are so violent. Miss your moment and you're stuffed. So for now I will stick with this roller coaster ride. I am making progress, albeit in a two steps forward one step back fashion.

I have a friend who is playing just a few UK shares. She watches for them to make a dip to what she sees as a low and then places a very large stake and holds it till it reaches a high. And then she waits to do it all over again. Her returns are terrific. Hats off to her. I may follow her lead.

Tuesday, 13 December 2011

Best to hold back: argument is finely balanced

Silver bounce?
Yesterday was a day of selling. I started off by selling my FTSE shorts when the market looked too strong for my liking. Turned out to be a mistake because the market fell sharply as the day went on and Wall Street opened weakly. At least I had all those US shorts. The end of the day, however, suggested that there there are still lots of bulls out there. They pulled the market back up from a new local low. Caution is crucial. When the argument between bulls and bears is so finely balanced there is not much opportunity to make money. Best to hold back.

Similar situation in gold and silver. With the benefit of my new appreciation of the current relationship between stock markets and those precious metals (see last two posts) reducing my holdings further seemed to be the right thing to do, so I did it. This morning I repurchased the silver that I sold yesterday. The price seemed to bounce off support. I judged that my silver holding was too small.

So here is my latest portfolio structure is: gold and silver 6% commodity 5% equity 2% shorts 13% cash 75%

Sunday, 11 December 2011

Never count your chickens

Are we seeing a repeat or is this the beginning of a Santa Clause rally?
After Thursday's sharp fall, Friday's price action recovered all of that ground. It has happened before (the sharp drop on November 9th was followed by a two day rally on the 10th and 11th - and the 11th was a Friday too). But I must also remind myself that people speak of a Santa Clause rally. A price run up towards Christmas as bankers fill their stockings to ensure a good annual bonus. So I must be ready to dump those shorts and buy stocks.

I promised you a silver analysis after yesterday's gold. I have closed off lots of gold positions and have only a sprinkling of silver now. I must be ready to reverse those positions too in case there is a precious metal's rally. 

As I explained yesterday - instead of acting as a hedge gold is now moving with the market.

Silver's a lot like gold
It turns out that at the same time as gold began to follow the market so did silver, except that silver took a 30% tumble first. So I will now be watching how this relationship fares to manage my precious metals stake. This blog is helping me to see a bit more clearly.

My trading year follows the financial year so I have until April to make a profit. At this moment I am 5.6% down, compared with the market (I use the FTSE as my benchmark - always have since I used to trade UK shares exclusively) which has fallen by 8%. Just a few days ago the gap in my favour was much larger. But with three and a half months to go I am quietly optimistic.

Thursday, 8 December 2011

Now here's a thing!

Gold moves the opposite way to the market much of the time
I have been troubled by how best to manage my precious metals. The received wisdom is that when the markets go up gold goes down and visa versa. Look at the main chart (right click and choose open in a new window for best effect) and you will see that this is what usually happens. The yellow line is gold, the green is the Dow Jones. I have pointed to the big periods where this inverse relationship is obvious.

But now look at the side graph which starts at the end of September. Mostly gold has followed the market. I have explained before that I think the reason is that the market is being run by mad bankers flush with cheap cash doled out by desperate governments in Quantitative Easing programs. But the reason behind these unusual patterns is not important. The big question is: How long will this last? And will it end in a big bang.

but recently it has followed the market
These questions are relevant to solving the problem of how to trade. I think that I have to go with the flow. At present I have to dump gold when the market goes down and buy it when it goes up. But I also have to be vigilant because this relationship (which we have seen is both new and unusual) could end abruptly - especially if the economic world suffers a body blow. In those circumstances it will be important to jump back on the gold wagon very fast - no hanging about. I will keep more than a token presence because the danger of a calamity is real. The situation for silver is messier and I will look at it tomorrow.

We seem to be going back into the channel
In the mean time the wait to see where the market is headed looks like being over. The first big down tick in the Dow Jones happened yesterday. On time too, third day after touching resistance. I must not count chickens... and I must remember that there's an intermediate support level at about 11700. The other encouraging factor was the way the market moved yesterday a steady fall through the day, a late afternoon rally to trap the bulls, and then a sharp fall. And all this on average volume.

So I have rejigged my portfolio as follows: precious metals 12%, commodity 5%, equity2%, shorts 22% cash 59%. It may not be too late to up the short positions even further.

Among the mad people

Which way now?
"But I don't want to go among mad people," Alice remarked.
"Oh, you can't help that," said the Cat: "we're all mad here. I'm mad. You're mad."
"How do you know I'm mad?" said Alice.
"You must be," said the Cat, "or you wouldn't have come here."
(Alice's Adventures in Wonderland, Chapter 6) 

These days of sitting on the border are excruciating. As the DJI went down I bought more positions. And then up it went again.  Discretion being the better part... and all that ... I took small losses and stuck with a smaller position. This could have been just the wrong thing to do. I could have been mistaken counting the 30th November as the first day on the border. Some more of my wishful thinking. On Monday 5th the price almost touched our resistance. Then Tuesday it broke through. So yesterday was either the second or third day of hovering around resistance. I have to keep my powder dry and sit on my hands a little longer.

As for gold and silver. I have shuffled my gold holdings and now have a physical gold ETF in New York so I can trade into the evening more easily. The code is SGOL and the gold is held in Switzerland.

And so we go on waiting, nibbling our finger nails while the market makes up its mind which way to go.

Yesterday I made a delicious vegetarian dish. My own version of Jamaican Rice and Peas. Dead simple too. Chop and fry a large onion gently until it is soft, add enough rice for the number eating (about 2 oz per person). Fry a bit longer. Then add a tin of coconut milk and another of water (that's for three to four people, add more liquid if you're cooking more rice and vice versa). Simmer until almost all the liquid is gone then add a tin of red kidney beans and/or a tin of chick peas. Gungo peas are even better but they are quite hard to find in an ordinary supermarket. I then add frozen peas. Add salt and pepper when the rice is done - it should take 10 -15 minutes. Then mix in the seeds of a pomegranate.

Wednesday, 7 December 2011

Precious Bane

Scary scenario for anyone with a big gold holding
The tension continues as losses accumulate, mostly in gold and silver.

I've made the judgement that the odds for a downturn in the market have shortened. I have added to my short positions. But the market continues to edge upward, nudging that resistance line. I have not lost much but I must be ready to move if resistance is broken. This is still very much on the cards. You may remember that I warned myself that a false downward break out can signal a real break  out at the other end of the range. I must remain vigilant.

I do not short individual shares. It's too hard to do from a practical perspective. Instead I buy shorts on the markets: SUK2 in the UK, and DXD and SDS in the US.

My big problem is how to manage losses in gold and silver. This is my hedge against real calamity in the world economy. The safe refuge. It represents 21% of my portfolio as of last night. This means any pull back in price really hurts and I don't have a strategy for managing this. (Ideas gratefully received.)

Silver presents the same problems
I am always on edge after making a big gain and yesterday I panicked as I saw gold and silver start to eat into my hard won profits. So I sold half my gold and a third of my silver - held in my UK account. Then in the evening gold and silver started to recover and, again in panic, I bought some back in the US market. I missed most of the recovery. The problem is that these two markets are so hard to read. Look at that gold chart. We're in the middle of a channel so the price could go either way. There is a diagonal resistance line that has been in place for a month. A support line which held for a week has just been broken - it was that move that made me sell. The volume spike on the last big rise is worrying. None of this would be too bad if my holdings were not so great. The major support level is 3% below where we are now - and some of my holdings are leveraged - so a fall to that level would hurt badly.

Silver is almost as bad. Its hard to know what to do.

Portfolio position at present is: gold and silver 21%, commodity 5%, equity 2%, shorts 12%, cash 61%.

Tuesday, 6 December 2011

Jumping the gun?

The bouncing Dollar
Another nervy day with the markets looking strong. 'Did I jump the gun?' questions still rattling around in my head. And it stayed like that till the evening. Then the US market, which had made a high that was within 50 or so points of the resistance line, pulled back sharply. It ended, after some flutters, near to yesterday's close. And then I jumped the gun again. Or did I? I bought the first tranche of my planned short positions.

I went in slow. Remember those congestion areas I showed in the weekend post? Each reversal period lasted three days or so. If we count Wednesday's run up as day one, Tuesday will be day four so a fall today would not be a surprise. But that's thin evidence on which to dive in with shorts. So more nail biting in store. Should I have bought more or should I have bought less. The futures market suggests I should have been bolder. Will I gobble up some UK market shorts when the market opens? And then more US shorts in the afternoon? Knife edge decisions.

Today's chart shows the gyrations in the pound/dollar market (cable to the cognoscenti). It rose strongly all through October then fell through three quarters of November. Then a bounce back until the end of the month. And now we're on our way down again. Perhaps a spot of currency speculation is in order. Mmm/? I'll leave that for the moment.

Perhaps instead I should be more active on my precious metals positions. Profits and losses there make me queasy with their ups and downs. I think this will be the next project to tackle.

Yesterday I was inspired to make an eighteenth century dish: an onion and potato pie. It all started with the Antiques Road Show. A lady brought in a copy of Mrs.Hannah Glasse The Art of Cookery Made Plain and Easy, first edition. It was valued at £7-8000. My wife leapt up off the sofa. She had a copy of the very same she thought. Unfortunately it was a later edition, though still very old. We have not checked but it probably is not worth very much. Still, a recipe was worth a go and I tried the pie. My wife wrote out the recipe. The book was not allowed anywhere near the kitchen, later edition or not. 

A pound of potatoes from the garden (boiled, peeled and sliced), a pound of apples (peeled and sliced). They were still hanging on the tree and now quite sweet what with the ripening November sun!? Four hard boiled eggs (shelled and sliced), two large onions sliced in rings and lightly boiled to soften them.

I buttered a casserole dish and sprinkled spices and seasoning (a mixture of mace, nutmeg salt and pepper). Then I put in the other ingredients in a series of layers, with butter and the spice mixture between each collection of layers i.e. potato, onion, egg, apple, butter and spice and then start again. I added ten tablespoons of wine (perhaps cider would have been better suited) and then baked for an hour at 180 degrees. I added a few tablespoons of vegetable stock to keep the pie moist. I rolled out some pastry (I used puff but shortcrust would also have worked) and covered the pie. I then returned it to the oven at 200 degrees for twenty minutes. It was delicious. And here's the recipe as it appears in the book:

To make an onion pye. WASH and pare ſome potatoes, and cut them in ſlices, peel ſome onions, cut them in ſlices, pare ſome apples, and ſlice them, make a good cruſt, cover your diſh, lay a quarter of a pound of butter all over, take a quarter of an ounce of mace beat fine, a nutmeg grated, a tea-ſpoonful of beaten pepper, three tea-ſpoonfuls of ſalt, mix all together, ſtrew ſome over the butter, lay a layer of potatoes, a layer of onion, a layer of apples, and a layer of eggs. and ſo on till you have filled your pye, ſtrewing a little of the ſeaſoning between each layer, and a quarter of a pound of butter in bits, and ſix ſpoonfuls of water. Cloſe your pye, and bake it an hour and a half. A pound of potatoes, a pound of onions, a pound of apples, and twelve eggs will do.

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Saturday, 3 December 2011

And now we wait

The big What next?
Yesterday was a nail-biting day. Just after I posted, the FTSE surged by 100 points. Had I blown it and sold too early? There were gyrations throughout the rest of the day and the FTSE ended up 63 points to make a fabulous run up for the week. Then in the evening the DOW, which managed a rise of 124 at its highest, faded to near enough no change by the close.

Dow fades during the day
We have yet to touch the 12200 resistance level. But there has been a volume spike, more pronounced on the S&P, which could signal that we are in for a fall. I have highlighted the areas of congestion, at my long running resistance levels. They are our only guides to what might happen next. Five favour a reversal and one a continuation.  It is amazing how well those support and resistance levels have held.

And so we wait.

Friday, 2 December 2011

The silver and the gold

Lots of resistance to a further upward move in gold
Well I did it. I sold up all those shares I bought leaving a tiny rump of Hong Kong shares. So far it is uncertain whether I was premature or not. The Dow is hovering uncertainly at its high. But I have put a substantial chunk of money into my pocket and have the emotional energy to look dispassionately at gold and silver.

Before I do that, let me examine my emotional state. I climbed into the market a little early on the 18th when I still thought that the 11700 support line was important. VectorVest was showing that a bullish strategy had yielded positive results over the previous week when the market was falling, so I thought I would give it a go. Bad move! I sat watching money drain away and I had to take losses on the worst performers. None of that cohort of shares did much good except CISQ. A lesson learned.

My next two moves were well timed UK purchase on the 22nd and US shares on the 25th. And I used share picking strategies that I know, as a result of lengthy back testing, work in these circumstances. More purchases on the 28th and 29th yielded more profits. In the US I went for systems that picked large cap shares which disappointed - I was going for safety - not always so smart.

And then belatedly I went for Hong Kong which yielded meteoric returns in a day. I have problems with Hong Kong because I only start to think about it in the evening. I buy my Hong Kong shares in a SIPP and not all the shares have been vetted to show they qualify for a SIPP. I have to get the TD Direct Investing to check, and the department that checks has gone home. They do not return before the market closes in the morning so I am stuffed until the next day. I could have upped my stake in the shares that are pre approved but then I am increasing my risk. This time it would have paid off handsomely another time it might  have been a disaster.

So how did I feel while all this was going on. Frankly it was grim. I was not too worried about the risk to my capital. I am used to that. I am still sitting on an unpleasant loss for the financial year and can take that in my stride. It is the short term unpleasant feeling that here I am sitting on a hefty profit after just a few day. Am I going to lose it? A decision is needed and it is hard to make. Next thing to work on.

Now those pesky precious metals. Gold is coming up to a horrid looking diagonal resistance line, it is sitting at an intermediate resistance level and yesterday's price movement indicated uncertainty about a continuing upward move. I shall have to consider selling some of my gold to reduce risk. However, I am constrained by all those warning sirens that are being sounded by ministers and bank chiefs. What is the best place to be when the S hits the F?

Silver presents a confusing picture
Silver presents an altogether more untidy picture. It has broken down through several support levels but in a rather unconvincing way. The chart provides no decent guidance and I suppose sitting on the sidelines is the best strategy. Lightening exposure is second best. My instinct, however is to hold onto both gold and silver. The battle rages in my heart.

Thursday, 1 December 2011

The anguish of profit taking

For most of my twelve years trading on the markets I have enjoyed long trending moves with sharp market collapses to provide a bit of relief. I have not witnessed these broad channel movements. I am having to learn the art of profit taking. In Hong Kong I took profits after just two days and cashed in a useful chunk of money.

It was harder to cash in my UK shares but cash them in I did. That also yielded a very useful profit after just a few days. Here it was the odds that made me decide. The chances that they would fall after such a sharp rise was the clinching argument. Look at the chart and the signs that the odds are lengthening and we are now unlikely to get more upside movement.

I don't know if I will be quick enough selling my US shares this afternoon when the market opens. My performance in the US market has been marred by buying a group of shares using one of VectorVest's search systems which was inappropriate for market conditions. I was lured into believing that a system which had done well over 5 days and then the latest day would yield well performing shares. I was wrong and had to cut some horrible losses. Nevertheless going back to picks based on criteria which I had selected as ones which work well in a recovering market I managed to squeeze out an overall profit - albeit one that remains to be cashed in. Here are the UK and Hong Kong shares that I picked and the profits they generated in a very few days. I will post the US share list once I have booked the profits/losses. (HK shares have numerical codes.)

So if all goes well at the US open I will have cleared another third of my peak loss and with luck and a following wind I will have cleared up the mess I made earlier in the financial year.

The next task is to read the next phase of the market correctly and to trade it well. Will we continue up to the top of the channel and then break out, or do we have a period in the doldrums inside the channel to live through?

There was some damage done to the US profits on the open but I did close my positions and cashed a reasonable profit. I now wait to see what happens next. Gold and silver are contributing well. I wonder if that will go on? Here are my US picks including those ghastly ones from the VV Derby winners selections.

Wednesday, 30 November 2011

Key moment

How those steps are formed
A friend asked me how I draw my lines of support and resistance. To be frank it is an art not a science. For the past four months I have been working with 3 lines which have contained two very broad channels inside which the market, as defined by the Dow Jones index, has moved in first one and then a second horizontal line. All fireworks and no progress.

I drew the lines as soon as they seemed to act as support and resistance. Their numerical value is a  arbitrary but is based on where the market seems to be turning round. (Think of them as bands around a number rather than the number itself.) I link these areas to price points which seemed to be important in the past: the end of a dramatic move; or a point where argument has caused a trend to pause.

The value of these support and resistance areas is that they mark the price point where I must pay special attention to what the market will do next. A bounce off support is a sign that buying shares should be profitable. A turn after hitting resistance is a sign that a short position should pay a dividend. Breaking through resistance can be even more profitable for buying shares. But it means that I must look for new potential resistance lines above the break out and should now see the previous area of resistance as a new area of support. Breaking of support is equally dangerous.

False breakouts can also represent a key moment. They can, on occasion, signal that the market is ready to break out of the opposite side of the channel.

The FTSE struggles to choose direction
The present moment is a difficult one. There has been a break out to the downside of the current area of support. I am working on the assumption that this is a false break out and have bought plenty of shares. I must be ready to change my position very fast if it turns out that I am wrong. The movement of the FTSE today, as we wait for Wall Street to open shows how finely balanced opinion is.

Tuesday, 29 November 2011

Ship comes in

True or false?
First let me apologise for rather truncated service. Life has been hectic for the past few weeks and I guess it will continue this way as Christmas approaches. If any of you, other than me, rely on this commentary let me know, by way of comment, and I will endeavour to  write more regularly.

As of yesterday it began to look as though my analysis of the market may be right after all. The next few days will tell. The downward break out of the 11500 to 12200 channel may prove to have been a false break out. The previous  10800 to 11500 channel also had false break outs. But we cannot be complacent. A second downturn without a convincing re-entry into the main channel would be a very bad sign.

In the mean time I was well prepared for a recovery - even though I was a bit premature. I had bought equities in the US UK and HK and as of this morning they represented 43% of my portfolio and I reaped a hefty return. I am ready to ditch them if the worst comes to the worst and the market begins to look ugly. But for now any signs of a continuing up wave would encourage me to buy more.

Quietly hopeful,that gold will recover
Gold presents a far more orderly picture. A frightening move to the bottom of the broad channel and now a period of sitting on the bottom. Let's hope the recovery comes soon. The silver chart is altogether more ambiguous. I just have to wait and see.

Thursday, 24 November 2011

The arguement

Gold at a support level
It is a cliché to describe stock market movements as an argument between those who think shares are undervalued and those who think they are overpriced - the bulls and the bears. For the past few days the bears have been in the ascendant and there has been a 7% fall in the shares on the Dow Jones and a similar fall on the FTSE. Several important support  levels have been breached and there is little in the way of support until we reach 10800 on the Dow. This does not mean we will get there but the situation is worrying. Especially for me since I have bought shares in the UK and in the US. They are looking sickly to say the least.

I have jumped the gun and have the grizzly task of choosing between cutting my losses or holding on in hope. So far hope prevails. I have chosen good shares that have been beaten down in price and I feel confident that the UK ones will soar once the market perks up. The US ones have been picked on a rather less sound basis  and therefore should be replaced by better rebound candidates. So I must decide whether this break of support is real or false. If it is real I should cut my losses and wait for the rebound from a lower level. If it is a false breakout I should soon recoup my losses. My inclination is to hold on but not for much longer.

The continuing fall in gold and silver are also making my portfolio look sickly. But there again I feel confident that a rebound will occur. This is not a time when prediction is easy. The only price that is near a support level is gold. All the other prices are floating and could go either way.

Present portfolio position: Gold and Silver 24%, Commodity 5%, Equities 25%, Cash 46%.

Happy Thanksgiving

Tuesday, 22 November 2011

Too quick out of the gate

Now that's a trend! Gold for that last 5 years.
Have we found support for the Dow?
On Friday I bought some US shares in order to make a good start with the rally I was expecting. But I was too quick off the mark. It turned out that my analysis of the market was flawed. The interim support line that I guessed was the bottom of the channel did not hold. Nor did my original candidate for the task and the Dow ploughed straight trough both. But by the end of trading there had been a rally and the market ended some 20 points above the original support line. So the analysis looks sound for the moment.

I had an uncomfortable day watching my purchases tank. I held on nevertheless - foolish? maybe. Time will tell. With the FTSE rally this morning and encouraging futures for the DOW I moved further out onto the ice and bought some UK shares. This is playing a dangerous game but there is no point in doing these analyses and not acting on them. The big problem is deciding if and when I am wrong and need to throw in the towel. (The mixture of metaphors is deliberate).

Gold and silver are also a source of pain. This time I have in interest in holding gold because if the S hits the F I want to have this as my back up. I also believe that this pull back is part of a long term trend and I bough much of my present holdings towards the bottom of the pull back. I have shown a five year chart for gold to illustrate what a real trend looks like.

Friday, 18 November 2011

Guessing at the odds

What are the odds?
I have taken profits on all my shorts. Percentagewise it was a great success - 4.5% on the UK market in three days and over 4% on the US market in an even shorter campaign. But I did not have enough money committed to a very high probability trade. Never mind better luck next time.

Although the market looks set for the next up move I do not feel too confident about the odds. Although that 17000 support level does look like the bottom of the channel and the last down move has touched I have lingering doubts. I have drawn the line as a solid one and taken it back to January when it briefly represented resistance and to March when it offered spongy support. You can see how tentative some of this analysis is. The result may be that before the evening is out I will buy a small holding in bottom feeding shares to make the most of a possible rise to the top of the channel and even a possible break out.  I can see the possibility of a winning move but I am not confident about the odds.

In the mean time my holdings in gold, and especially silver are crucifying me. I am not too worried about gold and have increased my stake by 50%. I just sit and hope. The charts do not look disastrous yet and so far I can bear the pain.

My overall position is 24% gold and silver, 5% commodity, 2% equity, 69% cash.

I have watched two lovely French films.

Beautiful Lies is a sort of follow up to Amelie. It is a charming comedy of errors which plays games with the mess that happens when lies are told, even with the best of possible motives. It is a frothy soufflé of a film set in a hair dressing salon bathed in the beautiful sunshine of the South of France. Audrey Tatou makes irrisistable watching and Sami Bouajila will keep the ladies happy as he woos the daughter and then, reluctantly, her mother.

Potiche is an extraordinary film. It goes back to the late 1970s. It succeeds in capturing the spirit of the time but also the style of film making. Potiche means trophy wife and that is the role that Catherine Deneuve plays. The film is an homage to the early days of feminism. Deneuve takes over her husband's role as the director of HER family's umbrella business sweeping aside his authoritarian and confrontational style. It is her own daughter who pushes her aside because she wants the role of a wife and mother and wants her own husband to have a job that keeps him at home. Her mother rises above this setback proving that women can act out a major role in the world.

Thursday, 17 November 2011

Hard decisions

A day of hard decisions.
I've pulled out of all my long stock positions - thankfully no great losses. I have opened shorts on the UK and US markets and they are going great guns. I have held onto my hat and it has worked - so far. Two problems:

  • I do not put enough money into shorts; 
  • I still have no good way to take profits - from longs or shorts.

I guess my failure to take profits on the Lloyds position illustrates that. But much worse is my failure to take money out of the precious metals market. Today's movement has devastated what was a very big paper profit. In this choppy market I should act fast and grab money while it is there sitting on my account. Instead I play it as though the market was in a reliable bull run. It is all about emotion. I have made the right buy decision and cannot persuade myself to believe it will end. Mastering this is my next big challenge.

The US market closed well down but pulled back up in the last hours. Is this the end of the fall or does today bring us closer to the bottom of the current channel? Price movements in the past couple of weeks suggest that there is a support level around 11700. If this is the case I should sell my FTSE short, which has delivered a 2.8% return in three days. And, according to the futures market, will fall another 1% when it opens. A hard decision.

Silver: should I worry?
Silver has fallen right through the bottom of its channel and is looking very ugly. The move is partly a response to the recovery of the dollar exaggerated by the tendency for silver be extremely volatile. I have a lot in my portfolio so I cannot be too cavalier. The absence of a spike in the volume of trade is ominous.

Gold: opportunity to buy?
Gold has also broken down and here I may use the opportunity to buy more. There was a volume spike and gold is the market of last resort in these bad times. And prices have started to pull themselves up off the floor.

I have finished reading Boomerang and was disappointed. It does nothing to analyse the European financial crisis. Instead the reader is treated to a short catalogue of racial stereotypes  It starts with a description of Icelanders, portrayed as testosterone fuelled, thuggish fisherman who, bored with the sea, decide to stay on dry land. They attempt to conquer  the world by setting up investment banks using what they have learned during brief intern-ships in New York. The Greeks appear to be a thoroughly greasy lot who cheated spectacularly to get into the Euro and cheat whenever the opportunity presents itself. The Irish are presented as stupid but not bad. They walked away with nothing. But they had borrowed to build more houses than there were people. The Germans saved money assiduously, being an anally and cash retentative bunch. They placed their hoards in the hands of naive bankers who fell over themselves to lend it to sub-prime peddling American banks and then the profligate Europeans described above. Essentially to any snake oil salesman who appeared at their door. Finally there were the Californian cities who ended up owing so much to the pension funds of the police and fire departments that they are ruined to the point of bankruptcy.

If the nations described in this sad story had been blessed with skins in shades of brown instead of pale ones Michael Lewis would never have dared to write as he did. PC considerations aside, I have walked away very little the wiser. The best I can say is that the book was short.

Sunday, 13 November 2011

Hold onto your hats

Hold onto your hats.
Amazingly the Lloyd's purchase is paying off - so far. I am sitting on a net profit of 1.7% after four days despite yesterday's pull back.  I guess it will all vanish tomorrow. I need to monitor carefully because it is a share with no fundamental virtue. Its price is subject to political interference - this does not make for a happy holding. It will be a case of take the money and run. I might have done that yesterday but was out all day with our Australian guests. For the time being the price is being pushed and pulled by the market and that is why I think the paper profits will disappear today. We are still in that ghastly channel

Hong Kong is much the same. Price fell to the level where I had made the judgement that it would bounce back and in a valiant effort to put my money where my mouth is I put in an order to buy a batch of shares on Thursday night. Since I expected a strong rebound I put the buy limit at 1% above the closing price of the previous day. All my orders, with one exception were filled. The exception was a share that sprinted upwards and made a 4% rise on the day. That share (330) has continued to rise The shares I did buy made no money the first night but with the big rise on the Dow the next day they made money on Monday. The money was lost on Tuesday overnight after the Dow had lost ground.

It is beginning to look as though the new resistance line that I had failed to spot previously (I have marked it on the chart above) is the important one. With that new line in place I'm beginning to wonder if we are going to have a repetition of the last pattern of consolidation. If this happens the next move is a sharp fall to the bottom of the channel and support at around 11500 with the risk of a breakdown. This is guesswork but I still think it's time to hold on to your hats.

I was not at my desk yesterday because I took my guests to Swindon. Swindon? you may well ask. But Swindon has used part of its old railway workshops to create a massive cut price retail outlet - boring but big and lots of ladies like it - and another part to create an amazing museum dedicated to display the story of the building of steam locomotives from the nineteenth century up to the 1960s. Over 20,000 people lived and worked there for several generations. The museum is called Steam and whoever designed it did a fantastic job. There are short film clips that show interviews with men and women who worked there as well as pictures of the frightening machines they operated. Those machines are there and there are massive examples of the locomotives they built. I have taken two lots of visitors there and in both cases they were enthralled.

Thursday, 10 November 2011

Patience is a virtue

Patience is a virtue, a virtue is a grace, Grace is a little girl who wouldn't wash her face. A nice little rhyme which I could do well keeping closer to my heart. I have done it again. I correctly forecast the top of the channel for gold. Indeed when gold got to the top I sold half of my holding. Then it poked its head above the channel and I promptly bought back. Then it dithered at the top of the channel for a couple of days and plonk, down it dropped to about three quarters of the way towards the bottom of the channel.

Take profits before its too late
My trading error with silver was worse. I actually stocked up with an extra holding when it pulled back to the bottom. Did I take my profits when it rose? I did not. It's greed and it's impatience. These market conditions are brutal because the moves are so violent, even when they are inside a channel, and it is hard to judge the moment when there is going to be a break out.

At least with gold and silver I had the excuse that we were at the bottom of the channel. The stock markets were a fair way from the top and still I could not sit on my hands the way I should.  I have a good friend from Australia staying. He is an econometrician. We used to work together and he has much greater forecasting skills than mine, but he has less knowledge of stock market trading. I have been showing him the techniques I use and have introduced him to the VectorVest service and its various share picking tools. It is great working on something like this with a friend because you can stumble on new ideas. I had a 'conversion on the road to Damascus' moment when we used VV's portfolio backtesting system and applied stop losses over a period where I would not have expected them to make a difference. I was backtesting a bottom fishing strategy over the period 10th August to 12th October - an unpromising period for trading and found that it worked very well and the stop lossing at 10% loss or 20% gain. The stop loss almost doubled returns.

I then explained that I found VVs market timing system unhelpful. Instead I use the methods that readers of this blog will recognise. I try to identify areas of support and resistance based on price action during earlier periods. I also use a very few chart patterns to help nail turning points. Finally I mentioned the  importance of volume spikes.

We were looking at the chart for Lloyds Bank and noticed that the price was approaching a support level and that there had been a volume spike a few days ago. There are two resistance levels - one 14% away and the other 34% away. The support level is just 3% away - a natural point at which one can review the situation and bail out if necessary. Terrific risk reward ration. So I bought Lloyds Bank on a whim.  So now I have the uncomfortable decision to make. Do I just pull out of Lloyds or do I wait for the market, which is now approaching the bottom of the channel much faster than I could have hoped, deliver a new buying opportunity and make Lloyds a part of that stock purchase alongside new bottom fishing candidates that I find.

Tuesday, 8 November 2011

Patchy service this week

Missed opportunity on the Hang Seng
This week and into next we have house guests so the service is likely to be patchy. I will endeavour to ensure that any crucial developments will be covered promptly but there may be gaps.

I am writing this post on Tuesday morning, a day after the markets did very little. The Dow was modestly up. These days 83 points counts as a modest move! And the FTSE was modestly down. So the FTSE may play catch up when it opens, though its move may be subdued because the futures market is currently pointing to a 60 odd point fall in the Dow at the open. We continue to sit on the 200 day moving average. See Friday's chart.

Gold and silver look more interesting and, from a trading point of view, worrying. Gold had a good run yesterday and overnight has risen sharply to touch its next resistance level at 1793. So big decision: do I take profits or will it power through. My inclination is to take part profits as soon as London opens and then repurchase if the price moves on upward. On the other hand there are no volume signals to suggest that a reversal is about to take place, so I may just hold on. There is no good news on the Euro Zone crisis and gold is the only protection against an ugly end to that political saga. Silver has cleared the downward diagonal that I pointed out on Thursday's chart, and so it looks set to move on to the next resistance at 3570 2.5% up from here.

Today's chart is the Hong Kong index - the Hang Seng. I put it up to show how I missed an opportunity by watching the world with blinkers on. I was sitting fiddling about with gold and silver and fretting about movements on the Dow and the FTSE while the Hong Kong market moved up 25% in a month. I am set up to pick shares in Hong Kong and to buy and sell them easily. I have a stock of HK$ sitting idle in my brokerage account and I take my eye off the ball. This blog is doing its job in reminding me how stupid I can be. My guess is that the opportunity has passed since we have hit resistance. But I will keep my eye on this from now on. There remains a gap to be filled so another run up is possible. And there is a potential support line around 19050 which could provide a sensible entry point.

Friday, 4 November 2011

Mid channel doldrums

We're back in the doldrums. It feels even more boring now that I only have gold and silver. There are no shares to watch. Silver is continuing with its pull back, respecting the diagonal resistance line I spoke of yesterday. If it continues on this course I may have a chance to buy a bit more - if I dare. In the mean time it weighs down on my portfolio.

I am showing the Dow chart again today to show how it is stuck at the level of the 200 day moving average having bounced off the 11720 support line. I believe it is working its way along a broad channel between 11520, the top of the previous channel, and 12284, the high reached on Thursday 27th October. That's about 750 points  - not much different from the width of the previous channel. I wonder whether it will take another two months to break out?

A favour please. I notice that I have a number of regular followers. If you enjoy reading the blog why not share it with friends. There is an envelope symbol at the bottom of each post which makes it easy to email your friends. Good luck in your trading.