Monday, 30 January 2012

Taking profits. Stopping losses

Was I right? Was I wrong?
The theory is working. Just about. We've had two days of falls in the FTSE and the Dow too. The futures market indicates that Wall Street will open lower again. If there is no improvement the open will be inside the rising wedge I've been watching. So there's a big danger that I bought back into the market at just the wrong time.

But since I bought shares that were hitting lows in their wave pattern (see last post) my UK purchases are running with minimal losses. I have to say that the performance of SVS has made up for poorer results elsewhere but that is what spreading risk is all about. I always buy a range of shares because while my crystal ball can't tell me which share will rise by 5 or 50% in a week it can show me where I to look for shares that might. (For crystal ball read educated guess.) I have to buy a selection of shares to increase my chances of finding the bright star in a cluster that may shine less brightly but still glisten.

So what next? I have to guard against the real possibility that I have screwed up on timing and will have to beat a hasty retreat. The plan is to tighten stop losses - i.e. I pull out of shares more quickly if they go the wrong way and take profits more quickly - my finger is hovering over the sell button on SVS (6.7% after costs in a week is not bad - why should I be greedy and want more. Then I still have the option of buying shorts. You can see that it's far more fun when I am holding shares.

Visitors for lunch today. I've made them a goulash , Czech style. It's a stew not the Hungarian soup.

I fried up three onions and several stalks of celery. Once they were soft I added tomato purée,a desert-spoonful each of  sweet paprika and caraway seeds and salt and pepper. In a separate pan I fried up cubed pork (I cut up a 1.5 lb tenderloin because that was the best outdoor bred cut I could find). I added a tablespoon and a half of flour to the onion mixture and then the browned pork. And then about a pint and a half of red wine mixed with a beef stock (I favour Touch of Taste). I then cooked it slowly for an hour. I left this overnight and to be heated up ready for lunch. I'm serving it with Czech dumplings. I buy a mix on the internet from Halusky . It is not possible to get the right sort of flour in the UK so a mix is the best bet.

Friday, 27 January 2012

What's wrong with being wrong

Here's a share chart for a change
You all know of the struggle I've had with gauging the direction of the market over the last few weeks. I've been waiting for a fall that never came, finally accepted that I was wrong and switched my position. I accepted that the bulls were in the ascendant. But joining a bull run after it has already made a lot of ground means that you are probably paying too much for the shares you buy and they are poised to go down. I have attempted to mitigate this risk by looking for shares that are moving in a regular wave pattern and are near the bottom of the wave.

This is a risky business because there still is the danger of a big fall in the market which will leave all ships stranded. But  nothing ventured nothing gained. In the last post I listed my fist batch of shares bought on the 25th. Here are the ones I have bought since then. UK QQ. and IRV. US PGN VZ TE SO. (no recommendation just some shares to look at).

We buy , we hope
Of all the shares I have bought SVS is the only one that has done well and is the main chart today. TATE is running along the bottom of its channel so I show that too. I have a way to go before I can cash in and nothing looks close to a stop loss, so I am holding on. It feels good to be picking shares again.

My portfolio is now divided as follows: Gold 4% Commodity 5% Equity 46% Cash 45%

Monday was my birthday and I was taken out on a treat to the Hand and Flowers at Marlow. It was fabulous. It has recently been awarded its second rosette by the Michelin guide. I had a Parsley Soup with Smoked Eel, Bacon and Parmesan Tortellini to start, followed by the most wonderful fish and chips ever and for my pud I had Pear Soufflé with Poire William Purée, Sweet Cheese and Mace. It was all topped off by my lovely friends singing happy birthday. They pretended to be too shy but in the end they girded their loins and most sweetly they did it too.

The birthday celebrations continued on Wednesday when I was taken to a Burns night supper at a local pub called the Foxham Inn. It has yet to be discovered but has a fabulous chef. I had never been to a Burns night before and it was a lot of fun. The Haggis came in the form of a Scotch egg with the haggis on the outside and an quail's egg on the inside. This was to help us sassenachs to cope. It was a most enjoyable evening with poems from the bard punctuating the courses (melt in the mouth roast Aberdeen Angus with roast potatoes and neeps followed by cranachan - a desert made of toasted oatmeal, whiskey, honey cream and raspberries).

So many well known phrases come from Rabbie Burns; My love is like a red red rose, Oh wad some power the giftie gie us To see oursel's as others see us!  and, most appropriate when trading, The best plans of men and mice often go awry.

Wednesday, 25 January 2012

Day of action

Will it drop?
The volume spike worked as a signal. Even though the Dow opened higher on Monday it retreated and ended very slightly lower. Then yesterday there was a sharp move down at the open but some recovery as the day went on. Nevertheless we are down since Friday's spike. But it is not very dramatic and the futures market is banking on a further rise at the open today.

The other thing to notice is that, for over a month, the wild daily movements in price have subsided. Instead we have had a slow but steady 4.7% climb in a month of trading. So there was a slightly late Santa Clause rally. And it could be that we are in the rally that usually accompanies an presidential election.

All this suggests I should consider dramatically changing my strategy and approach. That is what I plan to do with one eye over my shoulder. I actually opened a short on the Dow yesterday when the market opened. I shall close that, lickedy split. Not much lost. Then I have a plan to buy UK shares that are trading in channels and are near the bottom. At present there are not so many of those because of a month of rises. But there are a few and I shall buy a selection and see how the strategy works.You may recall that the idea is loosely based on the successful scheme favoured by my friend who watches just a few shares and buys low and sells high. The shares I have picked are (and remember I am not recommending these or any other investments - I know no more about what is going on than you do) PZC ROR SVS SHP TALK TATE ULVR WEIR MRW

Time to take profits
Since I finished writing this the FTSE has started to drift downwards and the future on the Dow has weakened. Let's hope I made my choices well. So far I'm breaking even after costs.

In the mean time I took some profit on the back of the sharp spike in silver prices.

So at last, a day of action.

Sunday, 22 January 2012

Rattling of chains.

Volume spikes are usually good signals for a change in direction
After those creaking floorboards in the haunted house (I described this a couple of days ago)we now have the rattling of chains. The Dow has broken right out of the wedge pattern and on Friday rose by 96 points. I am feeling very uncomfortable for, as I explained, I have acted on the judgement that we are more likely to see the end of this bull run than not. Now I have to question my judgement very seriously. And yet....

And yet we have a very sharp spike in volume. Today's chart shows that, with two exceptions (shown by dotted arrows) each volume spike has been followed, within a couple of days by a change in the direction of price movement. That's 2 out of 11 observations (and one of the two exceptions saw a change of direction after five days - purple arrow).

So should I sit here quietly in the dark and keep my nerve? After all I am not losing money, just opportunity to make money. Hard choice.

While I am here whistling in the dark to keep up my spirits I have another straw to clutch. (I love mixing metaphors). We have now more or less hit the previous peak in the market (see dark line). A fantastic place for the market to turn. I wonder if I am right or will I have to  hang my head in shame and change my strategy altogether.

Last Thursday was a very sad day. Dog lovers among you will understand. We had to put down our dog. We got him as a seven or eight year old rescue and he has been with us for almost nine years. In his last months he began to show signs of dementia and he had suffered from arthritis for some time before that. My wife and I have spent the last two days trying to cope with the loss and the emptiness. In the weeks before that we struggled trying to decide whether the time had come. I stayed with him to the last.

Wednesday, 18 January 2012

Ghost story

The wedge patter continues
It is hard watching and waiting. Hard sitting on my hands. It is like a scene in a ghost story. I'm in an old house, in the dark. Floor boards creak and I must keep my nerve.

Monday was Martin Luther King Day so the US market was closed. Then, yesterday, Wall street opened sharply higher. (Floor board creaks). Is this the beginning of an upward break out? Will I be caught in another strong rally with no equity positions to my name? Then, later in the day, the market subsides and I can breathe a sigh of relief.

Don't get me wrong. I am not wishing the market down. It is just that I have made a judgement that the most likely outcome is that there will be a fall. I base this on the pattern made by price movements. A rising wedge has emerged over the past four to five months (see chart) and we are approaching the apex.

I have put my money where my mouth is and sold my shares. This pattern predicts an eventual fall in the market with reasonable, but not absolute, certainty. All the time that wedge continues to build, odds are that I will be right. I am not throwing away opportunity by holding shares in what is a gently rising market. I would be much happier holding shares and making money but if my judgement is right that would be a foolish strategy, for I would lose money when the fall eventually comes. It is likely to be sudden leaving me no time to withdraw

If I am right and the price moves to the bottom edge of the wedge and then breaks down out of the pattern, that will be my signal to buy shorts and make money on the way down. I repeat this is not what I want. I know how to make far more money when the market is rising than when it is falling. But I have no control, only the ability to make judgements, the courage to act on them and the humility to admit I was mistaken when the market proves me wrong. Like most people I prefer not to be wrong hence my sigh of relief when the American market gave up its early rise and closed comfortably inside the wedge.

Saturday, 14 January 2012

Currency trade

Successful currency trade
I have little to write about at present. It is a waiting game. The Dow crawls along the top of that wedge I drew a few days ago. It keeps threatening to move to the bottom edge but there are still too many buyers and the attempts to fall fail. I continue to keep my powder dry. The small volume spike is encouraging but far too small to suggest that capitulation has arrived.

Crawling along the edge
The rally in gold and silver was irresistible. Fatally irresistible as it turned out. I was drawn in that bit too late and am sitting on a small loss. I guess I will have to pull out if the fall continues. And especially if the market falls and precious metals fall with it.

I did make a bit of money by selling the Euro against the US Dollar on a spread bet. There is a strong downward trend and although I picked my moment badly I held fast and pulled out with a nice profit as the exchange rate plunged to a support level on the back of the downgrade of various European country credit ratings. Today's chart is different from usual. Each candle shows a four hour movement rather than the normal daily one.

I am reminded that with skill and care one can make money out of the Forex markets very quickly. But then the opposite is true too. I'm digging back into my notes from various Forex courses I attended and I will see what I can do.

Tuesday, 10 January 2012

Is this really the end of the rally?

Wishful thinking?
I have made my move and closed my positions. I now have to wait to see whether I am right. It's a horrible sort of wait. The market moves against you and you start to doubt your judgement. But it does not move strongly enough to give you a clear signal that you are wrong. So you try to find some signal which provides support for your judgement. You want to bolster your resolve. And that is my chart of the day.

I superimpose some lines on the graph which suggest that the chart is forming a well known shape called a rising wedge. The pattern began to appear immediately after the August crash. Statistically it has been shown that a rising wedge results in a reversal in the price movement once prices are close to the apex and a breakout to the downside occurs. Some earlier breakouts are allowed in the identification process, but the pattern should look well formed with two or three touches top and bottom. The other characteristic that helps identify the formation is falling volume throughout the pattern. I can persuade myself that that is exactly what we have and so we can expect a market downturn.

But I am probably whistling in the dark: looking for justifications for my judgement and my decision.

I have also exited gold and silver. That is based on my observation that these two metals have been following stock market movements in the recent past. I need to watch carefully in case this relationship changes.

Friday, 6 January 2012

Cash up

Dow blue, FTSE brown, DAX green
Today is one of those big days. Not for the market but for me. Seeing the weakness of Tuesday's break out and looking as the long term chart of the Dow which I posted yesterday I lost heart and sold almost everything I had.

I've lived through these moments of truth several times during my trading life. Mostly, I am happy to say, just before a major market crash. I have no way of telling whether a crash is coming but it is possible. A great weight has been lifted from my shoulders. The market with its massive daily movements is so hard to read at present. The fact that gold moves in the same direction as stocks as I described on December 8th. removes gold's value as a safe haven. So what I have done is given myself a breathing space.
  • I can explore alternative strategies that may be helpful in these hard times. 
  • I am ready for a crash if one comes
  • I can watch gold and silver perform their peculiar antics without worry
  • I have cash ready to jump on board any train that I see leaving the station
I made a small overall loss on my purchases of Tuesday. I made money on the US stocks, but I was too slow selling the UK ones. I would have made a lot had I sold them on Wednesday but the gains were quickly reversed. The Hong Kong shares never really went anywhere.

So now I wait to see whether any winning strategies come to mind. Whether I was right to worry. And whether gold and silver will be worth buying again.

Today's chart simply shows the relative movements of the DOW, the FTSE and DAX over the past year. It is surprising that the DAX has been hardest hit given that the German economy is doing so well. I guess it must be that investors are wary of Euro denominated assets. The Dow strength is probably due to a preference for dollar assets.

Thursday, 5 January 2012

Bad connections

I decided to go for it and bought shares in US UK and HK. I made money that first day but it started to drain away yesterday. It's too early to say whether this was a smart move. I was encouraged by Tuesday's clear breakout on the DOW following a few holiday days sitting on top of the resistance/ support line. So far there has been no clear follow through so I am getting a bit nervous. I'm ready to jump either way: buy more, or yelp and run off with my tail between my legs. It's that sort of market.

Gold and silver present similar dilemmas. An excellent rally on Tuesday (and a nice profit for me) but little follow through. Both are coming up to resistance levels. Silver is approaching a line I drew some time ago, gold one which I have only just added. Vigilance is required here too. 

I have been suffering from ongoing broadband connection problems for about two months now and they are getting worse rather than better despite attentive and heroic efforts from BT ably managed, I have to say, by TalkTalk (not everyone's favourite but I've been with them or my phone for many years and several name changes. I think they were called Mercury when I started). BT's latest effort is to rewire from the house to two telegraph poles away. It cleared the crackle on my phone line but the crackle comes back when broadband is attached. For my part I have changed my phones and my router. And still the crackle goes on and broadband drops out several times a day. Sometimes it comes back of its own accord at others I have to reboot the router and the computer. Not much fun. I had to kick Plus Net (my broad band supplier) quite hard to push them into action after the holiday break but they are sending a BT engineer this afternoon. It's dispiriting and I worry that I might end up with no service at all. A bad way to start the new year.

And here's another little worry. Here is a five year look at the DOW. To my eyes it has a distinctly toppy look to it. Stay lucky.

Tuesday, 3 January 2012

Watch and wait.

Not a pretty picture
Happy New Year to you all and may it be a prosperous one.

I have completely ignored the market over Christmas. barring a couple of sneak peeks and a bit of a groan as precious metals dig a hole in my portfolio. This is where I need to focus my attention so that I have a better idea of what to do next.

Which way will it go?
Dow is back up to the resistance level and sitting there. It is sitting high so the big question is 'will it break out?' I've no answer to that so I sit and wait with my ducks lined up.

Gold is ugly. It has broken all nearby support levels so its current rebound is unconvincing. The next support level now is around 1480 almost 7% below where we are now. Resistance at 1600 is frighteningly close. Logic dictates: clear the decks and that is what I might do sometime today.

Silver not looking too bad
Silver is a bit more hopeful. It has bounced of a strong support area around 26.00 and has almost 5% to go before resistance. So good reason to hold or even add. Again I'll leave the decision till later.

A bit of euphoria hit the UK market at the open pushing it up over 100 points. Even after the pull-back it is still strong.

So I am watching and waiting for a sign to show what the Christmas break has done to the market's mood.