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.

Thursday, 3 November 2011

Silver stairs

And now the silver stairway?
Another early post because of a busy evening. I managed to sell my Hong Kong shares, without technical problems, as prospects for the market deteriorated. There was one glitch of my own making - one of my holdings I sold 4000 shares instead of 40000. D'oh!

I'll fix that tonight and then I'll be out of equities with the exception of AFC on the London market. I'm holding for the long term on the recommendation of a very good friend. I sit and wait with no strong feelings about it except for trust of the source and a consequent willingness to hold with a 20-25% stop loss.

The weakness in the futures market overnight has been transformed into a continuing rally, up to the 200 day moving average so far. We're still mid range and we still haven't fallen to touch the 11520 support level. Everything remains up for grabs.

Gold and silver, on the other hand are on the move in a gentle sort of way. Gold seems to be climbing up to the next step on its stairway. (see yesterday's graph.)

Silver, (today's graph) has touched the bottom of its current step so I upped my stake as I said I would yesterday. I can always take some profit when it reaches the top of this run. However, there is a triangle, which brought today's rise to an end. Let's worry about that tomorrow.

My portfolio breakdown is now: gold and silver 21%, commodity 5%, equity 3%, cash 71%.

I did a quick and easy duck a l'orange for my wife and I last night. Sainsbury's was selling duck breasts at half price.

I fried the duck breast in lard at high heat on the skin side (skin salted) for about 8 minutes then turned it over and fried for 3 minutes the other side. I then finished it off in the oven at 195 deg. for 6 minutes.

The sauce consisted of 3 oz sugar dissolved in 1.5 fl oz of vinegar. To this I added the zest grated off one orange. I find the best way is to use the coarse side of the grater (though I did grate my thumb). I then peeled the orange and sliced it. I added this to the liquid together with about 5 fl oz of Cointreau. I simmered all this for about 5 mins and then a bit while I served up the rest.

The sauce was quite liquid so I served it with brown rice which I always cook with frozen peas (added at the last minute so they only just cook). I sliced the duck breasts before serving and they were a lovely pink. Leave them longer in the oven if you are queasy about under done meat.

Wednesday, 2 November 2011

Golden prospect

Golden stairway to heaven? 
The Hong Kong saga continues. I attempted to sell my remaining shares at about 2am and again the system failed. But system failure does not always work against you. The market had fallen at the open and with it my shares so I wanted to cut my losses. By the morning there had been a big recovery and prices were back up to the levels where I would have sold them on the night before. TDW offered to put the trades through manually but I decided to hold on. The futures situation looked good. They would not have owed me money anyway. They say they have fixed the problem and we may see tonight. But with the recovery in the markets I could hold on. (They're fading a bit as I write.)

Apart from this I am doing nothing. The 11720 support level is holding so far and the Dow has had a good day despite the best efforts of the Greeks. By now you will know that I give little credence to the notion that such announcements have much long term effect on the market. It was due for a correction and that's what it got.  We are in for a period of uncertainty until the market decides to continue its rise above 12284 or to dive below 11520. Best to sit on the sidelines until it is clear what the next move will be. During the last run inside the channel, I thought that down was the most likely outcome and I lost a lot of money betting that hunch. In this phase I am agnostic about the direction of the breakout so the temptation to fiddle is not strong.

On the other hand I am glad that I stuck with gold and silver They have recovered and are showing promise. Both are climbing up stepwise from their sharp fall. A courageous strategy would be to build my stake each time the price reaches the bottom of its channel and taking profits each time it gets to the top. I wonder if I can manage that?

Tuesday, 1 November 2011

Trials and tribulations

DJI 1st November
At 2:15 I was woken by the dog slurping up his water so I went to look at the Hong Kong market. It was displaying weakness but nothing terrible. I placed my orders to sell my Hong Kong stocks and went back to bed. In the morning they were still showing as pending and the market had dived. You have to put in limit orders on the HK market so I thought that I had screwed up on the limits in a falling market. A bit of investigation revealed that this was not so. I waited till 7:30 when the TD Waterhouse staff started answering their phones. It was then that I discovered they had a problem with their systems - because of the change of clocks of all things. Computers take time too seriously and screw up.

Anyway it seems that TDW were inclined to do the right thing and roll back to check whether the trades would have gone through. And if they found that the trades should have gone through they would honour them. Big sigh of relief. Until in the afternoon I discovered they had accepted three trades but had cancelled three others. Luckily for me the HK Exchange has a reasonably nifty web site that tracks prices and trades. I had a look and accepted that one of the trades would not have gone through, a second was debatable, the third was clearly in my favour. The Exchange data is not crystal clear so I am now waiting to see what TDW make of it all. It did not help that the people who were making the corrections thought that 2:56am GMT was 13:56 HK time (It's actually 10:56). I have sent in my complaint and await the result with interest.

All this stopped me fretting about what was happening on the market. I had been right to pull out it seems. Most of that euphoria that had pushed the DOW up to 12284 has smashed into the shards like a broken Hellenic urn (I turn my hand to the purple prose when I feel like it. And I have been stressed all day.). But I am keeping my anxiety in check. Remember all those support lines that I pointed out yesterday. They are still there and the 11720 seems to be doing its stuff as I write. It was the thought of those support lines that stopped me from buying shorts - that and the speed of the fall. But it's a long time till 8pm when the US market shuts and things may change. The important support line is still 200 points lower.

In the mean time gold and silver have been thrown out with the bath water once more. And that hurts because I still have big holdings.