Running with the bulls of the Dow?

I am writing today's post early because tonight is busy. I have made another big move. I have taken profits on those positions that I opened just over a week ago. When the market turns it is viscous and I am glad I started to take profits on Friday. I did not ditch UK shares until it was obvious that the market was not going to turn around. The US shares I dumped on the open. Hong Kong shares overnight were still generating profits so I held on - may regret it tomorrow.

I switched from US gold (and silver) positions, which are based on futures, to UK physical metal ETFs. The drama that revealed itself when I first looked at the markets this morning was not in equities but precious metals. They had fallen precipitously for no apparent reason. Equities had had a strong run and needed to consolidate but that was not true of gold and silver. A look at the dollar explained what had happened. The dollar rose sharply after its pull back and precious metals bore the brunt.

So there I was this morning grabbing my profits as quickly as I could before they melted away. And despite a hefty chunk being torn out of them I have still recouped over half of my losses for the year.

So what happens next? Today's chart shows the strong run up that has just ended. The broken resistance levels are now potential support levels. As I write the Dow is sitting on the first one at 12090. (Notice how the pull back started after the price hit resistance at 12290). Then we have the 200 day moving average. Then 11880 where the market paused for three days. Then 11715 which has already acted as support on the way up. And finally the top of our old channel at 11530. This is the important one. If it is broken we are back in bear territory but a determined bounce off that or off one of the others suggests we may be running with the bulls.

For now I am mostly back in cash. precious metals 13% commodity 5% equity 12% cash 69%.

My weekend was a great one. My daughter and son-in-law came with their two children - four and six. I had treated my daughter to a session at the new Bath Spa. And the children were left in our care. They behaved impeccably watching the television some of the time and playing happily together the rest.

I prepared a dish which was fashionable a while ago but is seen less often these days. It was moussaka. I made it as follows:

2 large onions coarsely chopped
1 kg of lamb mince
half a bulb of garlic crushed
tsp of ground cinnamon
3 bay leaves
fresh thyme
1/2 pt white wine
1 tin chopped tomatoes
1 tin cherry tomatoes
chicken stock
pepper

3 aubergines sliced and fried in olive oil

I fried the onions and garlic gently and then added the lamb and turned up the heat and stirred till the lamb was almost cooked through. Then I added all the other ingredients (except aubergines) and simmered for a good half hour.

The aubergine slices I used to line a big casserole dish.

While the lamb was simmering I made a Béchamel  sauce by heating 3oz of butter with 3oz of flour and then slowly adding and gently whipping in a pint and a half of whole milk. The trick is to turn the heat right down after melting the flour into the butter and only raising it again once the mixture has become mostly liquid. Once I had a smooth sauce I added a 50-50 mixture of grated parmazan and Gruyère. I put in about half a pound but you could try less. I then added three beaten eggs and a tablespoon full of Dijon mustard.

It just remained to pour the lamb onto the aubergines in their casserole dish and pour the Béchamel  sauce over the lamb. I could then get back to playing with the children. I then put the whole lot in the oven at 190 deg. about half an hour before we were ready to eat. Everyone seemed to enjoy the resulting concoction.

Picking shares

Trading is all about state of mind. I make no bones about the fact that I have had a terrible year and have lost a lot of money. It was just not my type of market. Despite this I could not leave it alone and I lost. I was chasing price movements. Taking positions too late and holding on to losing positions too long. Then realising losses just as the market turned. I was reading the market correctly but I was trading badly. Luckily for me I have faith and continue to try to learn about how to make money in such unfavourable conditions. I need to because those conditions could easily return.

But now conditions have changed. We are back in my kind of market and in just a few days I have made back well over half of my losses.

At heart I am a share picker and the table shows what share picking can achieve. You can see the shares I bought, the date on which I bought them and the percentage profit, after costs, that they have generated. Most have been held for a week or less. The first batch are US shares and the second UK. The performance of the latter is nothing like so spectacular because the UK market moves more slowly.

I have bought some Honk Kong shares too but I only bought them last night they have not yet had time to cook. I bought the following shares: 88 712 571 4 17 and 903. (HK shares have numbers as codes).

But now I start to worry about protecting my profits. Making a return of 60% on a share in a week is brilliant but I begin to wonder when other buyers will start to take profit. Same is true of all the high return positions. Perhaps a little turnover in holdings is needed.

And then there is the market risk. A long solid upward run like the one we have just had is bound to have pull backs. I have no way to tell when a pull back is part of the rising trend and when it signals the beginning of the end. You see what I mean about state of mind. Worry on the way down, worry on the way up. My decision to change tack will be made on a whim. I am not bound by a system. And that, I believe, is how I win in the end. I have never heard a systems player admit to what their return on capital is. I would dearly like to know. Because if they are doing better than I am I will try their system and leave behind all anxiety.

I have repurchase gold and silver. I started to read Boomerang: the Meltdown Tour by Michael Lewis and began to feel very queasy. He talks about disaster waiting to happen inside the world's national banks. It reminded me why I was holding all that gold.

Today has been a sad day. My father has had Alzheimer's disease for the last 14 years. For most of that time he has been cared for by my exceptionally patient and loving step-mother. For the last few months he has moved into a home where the care is exemplary. I went to visit him today. It is disheartening watching human wreckage. Men and women who have lived rich and full lives reduced to sitting staring into space unable to do even the most mundane things for themselves. My father feeds himself and has a huge enthusiasm for his food. I played a game of chess with him. His recollection of the moves is still there but only just. It passes the time.

At the last minute I decided to take profits on the three highest performing shares and hold onto the cash until it is clear that the market continues upward.

Portfolio structure is now: precious metals 16%, Commodities 5%, equities 52%, cash 27%.

Rapid move into equities as Dow rally continues

Dow carries on upward

The weather has closed in but the market continues to climb. The Dow has now broken that second resistance level and continues powerfully upward. We must maintain vigilance but enjoy the upward run as it develops. I begin to wonder if we have slipped into the autumn/winter rally that is a feature of most years. Wishful thinking I know, but it usually happens so why not this year.

My portfolio has been transformed. I have ditched my gold and silver. I was a bit precipitous and I have bought some back again. If only we could predict the future. But the other main change has been that I have piled into equities.

I use VectorVest as I explained the other day - follow the link for an explanation of how it works. I pick out shares that are recommended by their best bottom fishing filters. These are basically decent shares that have been badly beaten down. I gave an example on Tuesday. I have to work hard to find the best filters for each market. But then I pick out the shares which have low PE ratios and buy the resulting candidates in equal quantities. I have done this for the US and the UK and plan to do the same for Hong Kong overnight.

The shares I picked today for the UK market were RSW GFS IAP HOME and WIN. They are mostly doing well and the ones I bought on Friday are generally showing excellent profits. In the US my picks (including one bought yesterday) are FSLR IPSU DQ GTAT CIS NFS and SODA. I ditched EK yesterday. It was going nowhere fast. Again returns are excellent. STP is up 37% since Friday and CIS  is up 10% since I bought it this morning.

So my new portfolio structure is:  Precious metals 8% commodities 5% equities 45% cash 42%

Gold gaps upward

What a wonderful day. Blue sky. Low sum illuminating golden autumn trees. Light chilly wind. This morning I saw a rainbow the like of which I have never seen before. It was sitting on the horizon. It was not a complete arc. In fact it rose only a short distance into the sky. But it was so broad and all its colours were intense and distinct. Not only that but market that has treated me well once more.

Gold gaps upward

Today's rise in the gold price has been accompanied by a rise in the dollar. My American shares are also doing well. As I suggested might happen, STP lost the ground that it had made by close of business but is doing well again now.GTIV has also chipped in a good performance. The UK shares I bought are, sadly, fading. About half are winners but they are offset by the losers. 

The big question is what will tomorrow bring. It looks to me that the Dow has stalled at the first area of resistance and is now deciding whether to bounce back off a weak area of support at 11720. If it does we should be in for another upward move. If not we return to the doldrums.

But today's chart shows the gap up made by gold. I ought to be taking some profits. But I see the main resistance a little higher than the present price. Today's rise is on low volume so there may be a bit more to go for. Greedy, I know but that's how I feel at the moment.

Invited out for an unusual tea. Cucumber sandwiches, beautiful harpsichord playing and a lovely bay horse. Exciting conversation on a wide variety of topics including renting cottages on  the Balmoral Estate  and ancient organs. And then a drive through the hills to enjoy the autumn colours.

Chocolate and Cola Cake with Cola Float

Suntech Power Holdings - Ready to bounce?

I thought lighting had wiped out my internet connection but a restart sorted the problem.

I am happy to report a second good day despite the pullback in the markets. It is mainly the precious metals that have generated profits today.

But so did those shares that I bought using bottom fishing selection criteria. Today's chart looks at the best performer: STP. I bought it on Friday and lost a little money. Then it surged yesterday. Today it gave me the heebee jeebees by running up and down. It could still fade before the day is out, but at present I am sitting on 16% profit. Since Friday! The others have not done so well and EK is losing me money. But I buy on the principle that you spread your risk across a number of shares and you don't attempt to cherry pick.

STP is a share that came up when looking for shares that had a reasonable fundamental value but had  dramatically fallen in price. In the big August fall, the price had been beaten down to a quarter of its previous value. By the time I bought it on Friday it had already started to recover and had risen by 20% in a fortnight. So it was a reasonable bet as long as it was in amongst other shares with the same sort of characteristics.

I am not kidding myself that this is a one way bet. The tricky bit will be persuading myself to take profits before there is a turn in fortunes. For now its fingers crossed time.

Was taken yesterday to a favourite local pub which has been awarded the Good Pub Guide dining pub of the year award and very well deserved too. It is the Potting Shed in Crudwell. Had beautifully gamy wild boar and plum burgers with triple cooked chips. Followed by a divine chocolate and cola cake. So soft and light it wasn't true. Accompanied by a true blast from the past: a cola float (ice cream floating in CocaCola). This is how to live.

Fear: still the dominant emotion

At last! A decent day. I have been waiting a long time for a day like today. I made the right judgement to buy shares in the US and the UK. And my gold and silver positions also chipped in some profits. But it is not time to stop feeling nervous since the market has been volatile and can turn on a sixpence. I need to be ready to jump if those profits start to evaporate.

As I suggested yesterday I bought some US stocks. They have generated some spectacular returns - in just one day: GITV +3% TSL +8.9% STP +15.3% CSIQ +5.1% EK -6%.

But there are lots of areas of resistance to break through as shown on today's graph.The first has just been broken at 11890. The second is the 200 day moving average at 11965. The third is at 12090 and relates back to support back in April and then there is 12300. The upward movement could snag at any of those points and hard won profits could disappear. I just have to hope that the shares I have picked move rapidly upwards and that I am not too greedy and cash in my profits in time.

I also have to hope that gold and silver are also carried upward by this rally.

Fear is still the dominant emotion.

Is the Dow Jones breaking out of its channel?

Is this the breakout for the Dow?

The big question is this. Do we have a break out? It looks very much like it. We can see a break in the price pattern of the Dow Jones. Instead of turning round when it hit the top of the channel it sat at the top of its travel for seven trading days while I had kittens. I had bought shorts and they were losing me money. Then today we have what looks like a clear break out. Some would say I am too precipitous in calling this move and I should wait for a higher low and a higher high. But today we do have a higher high and yesterday could be interpreted as a higher low after Tuesday which was an outside day and provided a local high as well as a new low.

Well I have ditched my shorts with a big sigh of relief and a horrible hole in my pocket. And more adventurously I have gone back into the market. I subscribe to a service called VectorVest which provides a system for picking shares. I have had it for almost two years now and when I first bought it I made a lot of money. Since then the opportunities for finding undervalued shares and realising a profit have been few and far between. And the ones that have arisen I have missed. VV provides a wide variety of systems and its greatest strength is that it allows you to backtest how well they have performed in the past. I have sought out the strategies that work best when shares have been beaten back as is the case at present. They tend to be shares that have lost ground fastest in the market but still have intrinsic value. They tend to have great volatility so one must be careful and be ready to take profits or cut losses quickly. So far I have used the system to mine for shares with special characteristics. I chose them on the basis that they did well in the past when the market situation was similar to the one we see today. So far I have only bought into the UK market and have bought the following shares. I am not recommending these shares and am well aware that I might have jumped into the market too soon and will get my fingers burnt. The shares are SGP LAM NWR INVP RGU EMG CSR AFR.

If the break out appears to be holding I may buy some US shares using the same system later.

For precious metals it has been a roller coaster of a day. There was a strong rally from overnight which strengthened as the morning went on and then faltered with the opening of the US market. The rally provided me with a decent profit early on which faded later.

My asset allocation is now precious metals 33%; other commodities 5%; equities 16%; cash 47%. 

Waiting game

Gold failing to glister

The DJ market is now back inside the channel and I bought more short ETF late last night. Perhaps a bit more later tonight.

But that does not make up for the dive in gold and silver. Very painful, not because of the fall but because of my heavy exposure. The question is whether this a fall or a continuation of the consolidation pattern. This is a very hard period to trade because there is no trend. Tricky to make money. Tricky to judge what will happen next. A horrible waiting game.

Ruled by fear

Dow Jones fiddling at the top of its range 19 October 2011

Frankly this market is boring. It is going nowhere. Although it is sitting at the top of its range fear has so far prevented me from taking out new shorts. And this is despite the fact that logic dictates that I should. What if logic is wrong and the market breaks out upwards? Yesterday's volume spike was not big enough to give me the confidence. Fear still rules me. I will stick with what I have till I change my mind.

We watch, we wait. Have no more to say.

Breaking the rules

Silver's roller coaster ride

The Dow is dancing at the top of its channel. Down this morning up this afternoon. Logic dictates that I should take advantage and buy more short positions. Fear dictates that I should not. Time will tell whether fear or logic will win.

I have a rule that I should not hold more than 10% of my portfolio in any one type of asset. I am currently breaking that rule by holding 33% of my assets in gold and silver the result is that I have to watch my total portfolio rise and fall dramatically as the precious metals get buffeted about by relatively small percentage moves.  Worse is the risk that I am wrong about the eventual direction of gold and silver prices. At present I can bear the pain because I bought my holdings close to the recent lows. But how would I cope if it turned out that the recent lows were simply stops on the way to a further fall, instead of a springboard back to recent highs. There is no question that I am playing a dangerous game. Just look at the drama that has played out in the silver market (today's chart) since February, just eight months ago.

The current breakdown of my holdings is: precious metals 33%, other commodities 5%, equity 4%, index shorts 9% cash 49%.  

Dow turns, on cue, at top of channel

Dow Jones reaches the top of its move and sets of on its way down again

It was horrible to watch the way that the DJI changed direction after poking its nose up through the top of its channel on Friday. The puppet masters on Wall Street have made their money on the way up and are now ready to make money on the way down. I guess most sold out on Wednesday when the index poked up for the first time and then pulled back on high volume. Then they toyed with us for a couple of days till they were ready with their short positions and now we are on the way down again. Only problem for me is that it has taken the full two months to accept that this is happening so I have failed to make money from it and have lost instead. And now it could well be that the pattern will soon be broken as, at some point, it must.

My main reason for writing this blog is to improve my skills at reading charts AND making money from that reading. I have never pretended to know more than the next man and this market is unfamiliar territory for me as well as for everyone else.

Gold and Silver plod on.

Dollar falls, Dow at top of two month old channel

A week later and we are still in the same neck of the woods. The FTSE looks as though it has broken out of its channel but an examination of the US markets shows that we are at the top of the DJI and S&P channels. A further rise this week would confirm a break out, a pull back would show that we are still sitting inside that nearly two month old channel. No amount of analysis will tell us which way the market will go. A toss of a coin would do just as well.

The fire has gone out of gold and silver and they plod gently onward. There is however, a new strong directional movement as I suggested on October 4th. I do not intend to spend a lot of my time patting myself on the back for making good predictions. Unfortunately at the moment I am losing money so a bit of a boost to my moral is required. I forecast that the $ was ready to move up ten days ago and this is exactly what has happened. (Remember the chart works upside down for the $. A strengthening of the £ is represented by an upward movement.)

Unfortunately I am not set up to make money out of this. Precisely the opposite. I have cash and assets in dollars which my broker make impossible to protect because of the high fees they charge for converting currency. So I have to bear the pain. If anyone has any ideas about how I can hedge I would be grateful.

Anyway net result is that I am losing on gold and silver since they are denominated in $ and the small gains translate into sterling losses.

Cow is the only bright spot in my portfolio at present: up 7.8% since I opened the position on 15 September and the second bight, purchased on 3rd October, is up 1.5%.

See you tomorrow at the start of a more profitable week, I hope.

Interruption in service

For about a week starting today there will be an interruption in service due to pressing personal business. I will attempt to make perhaps one or two updates during next week. I hope you bear with me until I am able to provide the usual daily service again in about a week's time. Hope you are lucky while I am unable to post comments. I  shall be watching progress.

I leave you with two charts. The FTSE has touched the top of its channel and has pulled back.

And the Dow Jones is sitting in the middle of its channel. If it goes up the FTSE will follow it and it will look like a break-out but it could just be the continuation of the non-directional phase of the market. It is just more wait and see.

Stay cool.

What do they know that they're not telling us?

FTSE 6 October 2011

The Bank of England has handed another £75bn to those greedy banks in the form of quantitative easing. Is that good or bad? Frankly I don't know. But it is bloody frightening. What, I ask myself, does the Government know that it is not telling us. How weak are those banks' balance sheets?

Commentators will be attributing the FTSE's strength to this bold move by the BofE and will ignore the fact that the Dow rose 140 yesterday and another 95 today and that the DAX is up 172. The FTSE rise might be flattered by the announcement but the main pull is the tether.

Sterling did a big dive and then a sharp recovery against the $. Against the Euro it just sank.

For me there is a new worry. Where will all that new money go. In all likelihood it will find its way into the markets. So the odds on a fall in the indices have lengthened. I should no longer be so keen to take out shorts and should look instead for opportunities to buy the market. This is good because it is easier to make money in a rising market. But it requires a serious mental adjustment. I've closed part of my short FTSE position to get used to the idea.

In the mean time gold and silver have had a goodish day. Better in the morning than the afternoon.

Balls of steel

DJI 5 October 2011

I have had a bleak couple of days. Victim of wishful thinking again I suppose. Looking for a rise in precious metals that has not come to pass. And a belief that the downward break of the Dow was the start of a large fall which also failed to materialise. So we're still stuck in the old channel where its hard to make money and easy to lose it. I'm not clear in my mind what to do next. To pull out and lick my wounds or carry on trying.

The viciousness of the moves is illustrated by yesterday's candle for the Dow. A candle in the wind if ever there was one. A 244 point move down to 10405 was transformed into a 157 rise in the last couple of hours of trading. It's impossible to know where we go next. A friend asked me whether I thought the problems of the Dexia Bank would hit the market. He thought that the end of the world was nigh. He was shocked when I said I doubted that it would make any difference. Wasn't the fall in the stock market, that we were seeing, the beginning of a new collapse? I said I was convinced that yesterday's fall was entirely due to European markets following the American ones. And so it turned out. Yesterday's recovery in the Dow has led to a 158 point rise in the FTSE and a 256 point rise in the DAX. I notice a that there is no more talk about the Dexia effect by commentators today, even though we now also have a downgrade of Italian debt. The market has lost touch with reality and we can only see what is happening by watching the charts.

In order to get through a time such as this you need balls of steel and a belief that you will win through in the end. I'd feel that much stronger if I felt better able to calculate the odds. At present I would advise no one to follow me because I am gritting my teeth and treading a precarious path. My life-line is the knowledge that when conditions return to normal I will know exactly what to do.

In the mean time the weather has broken. No more sunny days. Falling temperature and drizzle turning to rain. My spider friend has taken to nocturnal habits. I don't know if the wind has cut food supplies during the day or if it is the harsher conditions. But she spends most of the day curled up on the window frame with two legs holding threads of her web, presumably to alert her if a fly were to stray into her trap. My photo is again rather fuzzy but you can clearly see one of those legs out there feeling for the twitch of the arrival of a meal. My feelers are out there too. But the wind is whistling round them and they are mighty uncomfortable right now.

Has the $ come to the end of its dramatic rise?

£ to $ exchange rate May to October 2011

Dow Jones support lines have been breached and we must hold our breath to wait for a confirmation that this is not a false break out. I have jumped in with both feet and bought a range of shorts increasing the share of my portfolio dedicated to them to 16%. This makes me vulnerable to a reversal so I must keep a sharp eye on progress.

My vulnerability is shown by the way my portfolio has responded to the the reversal in precious metal prices. A decent profit on the day has morphed into a heft loss.That's what happens when you fail to diversify. Unfortunately in this market there is little else you can do.

Today's chart looks at the dramatic rise of the US$. I show it against the British Pound. The data is presented with the £ as the primary currency as indicated by the code GBPUSD (first currency is always the dominant one). In this convention a downward slope indicates that the £ is falling and the $ rising. We can see that since its low point on the  19th August the $ has strengthened by 7.5%. The chart also shows that it has twice failed to break through the resistance at $1.534 to the £ and has made a possible double bottom. This could indicate the end of its upward travel.

Some people think that the fall in gold and silver is down to the strength of the $. If they are correct and we do indeed get a retracement in $ value perhaps this will accelerate the recovery in gold and silver prices.

This morning I went to an interesting lecture by Anne Sebba on Jenny Churchill, Winston's mother. Jenny was a feisty woman and her marriage to Winston's father was a true love match. Through her life she had a powerful sense of her own destiny. For example she had no doubts that the she and Randolph would marry and Winston was conceived two months before their wedding. She had taken a great risk by sleeping with him before they had tied the knot in those Victorian days. Through her life nothing cowed her and she taught her son to believe in his own destiny, in his turn. So, the lecture argued convincingly, the spirit that led Winston to hold the line through the Second World War was a spirit passed to him by his American mother.

Will the DJI fall to 10000 or is it still stuck in it's channel?

DJI 3 October 2011

COW plods happily on. It is at this stage that I start to think I wish I'd put more into this position. I start to agonise. Is it too late to up my stake? Will it turn round and wipe out my profits twice as fast if I do? That's how I torture myself at this point in a trade.... I have decided to go for it and added to my position.

All of this and more goes through my mind as gold starts to move upward. But my heart is in this one and gold looks like a bargain to me. So does silver but this is far more frightening because of the size and speed of moves. I have bought more of both today.

Then there are the indices. I have drawn two sides of a triangle on the DJI chart and the bottom one was pierced at the start of trading but the price action has returned inside the triangle after touching my lower support line. I am now watching for a piercing of of both of those support lines. If they do I will reopen my shorts and wait for the touching of the 10600 level. If it bounces I shall take profits on my shorts If it goes through I shall work on the assumption that another big slide will follow, with the next stopping point at 10000. So we wait for a more salubrious entry either higher up or a bit lower down. STOP PRESS A sharp move down is beginning, the lower support line is breached and I will open a small short.

My current asset distribution is: Gold and Silver 35%, Commodity 5% (including that bit more more COW), cash 60%.


Fabulous weekend weather is enough to cheer us all up here in little old England.