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.