Sunday, 27 May 2012

Pause for breath?

The volume spike gave due warning of a change. Initially it showed a change of direction and, as I expected, the market rallied on Monday. Since then there has been an almighty tussle between the bulls and the bears. On Tuesday the Dow was pulled up and down but closed more or less unchanged. On Wednesday the bears were out but lost ground seriously as the day went on and once more the close was unchanged. Thursday was mostly the bulls' day though bears fought back in the afternoon before losing out in a late rally. And then, at last, Friday saw a dip.

So the volume spike seems to have presaged a pause in the sharp decline that has been in place since the beginning of May. I cashed in my shorts with a hefty profit on Monday, but was a bit too quick to get back in when the market weakened on Wednesday. So I sacrificed some of the money I had made. I have nipped out and in and am now back in to my short positions.

Having made the judgement that we are in line for further falls I have put money on it. You have to go back an awfully long way to find any evidence that there should be support for the market at this level: February and April last year. My guess is that support is temporary. As ever, if I am wrong I will pull out.

My other investment was made on a whim. The ghastly Eurozone crisis festers on, so I have bought a chunk of gold. Apart from anything else it keeps some money out of the clutches of banks that are vulnerable to any currency disaster. So far the investment is not too bad. Nothing spectacular but I might have caught the bottom by a fluke, not by judgement. So I sit and hope I'm right. Roll on next week.

Saturday, 19 May 2012

Thirteen days in May

So we have had almost 13 days of uninterupted fall. Just one tiny recovery day. I had been expecting it for weeks and there had been three false starts. It's an almost 7.5% fall from the peak. The big question now is whether this is the bottom. The spike in volume suggests that for the time being it might be. I shall certainly be worrying on Monday and will be ready to cash in the profits on my shorts.

All of this analysis has been done without reference to the news. However much I try to insulate myself from it news leaks in through my ears and eyes and I am aware that Europe is in the grip of a panic about Greek and Spanish banks. This has to be worrying because noone is immune from a banking collapse. It would be foolish to assume that national borders would protect banks in one country from disasters in another. My response to the panic has been to buy some gold. This has had very modest success. Surprising given the scale of the risk. On Monday, if I sell my shorts, I shall be sitting on loads of cash, very vulnerable to what is happening in the banking world. What to do with it will be the next challenge. More precious metals? Shares in big solid companies in consumer basics? US bonds? There is no clear place of safety.

I suppose I will just have to go on worrying. Anyone got any ideas?

Wednesday, 16 May 2012

Starting to get interesting?

Have you been around long enough to remember the bursting of the tech stock bubble? The cry was, as prices plummeted,  "a wonderful buying opportunity." Perhaps this is in the minds of bulls now. The market seems remarkably reluctant to fall. Perhaps the market is being manipulated to stay high to give smarter traders time to get out of their positions and offload their holdings onto the more gullible. Or perhaps I am wrong and we will not see a collapse in the market.

I've just sold the very last dregs of my equities. Little bits and pieces I was holding onto for not very good reasons. I have stoked up my short ETF holdings a little more so I now have 39% in equity shorts and the rest in cash. Since April 6th I am up 2% compared to the market's 6.1% fall. I need a bit of cheer after last year's disastrous performance. The main thing is that I have coped psychologically with the loss and I am in the game and fighting back.

Tuesday, 15 May 2012

Thanks for your comments

Two posts in one day, that's a first. I was inspired by George who left a comment. Thanks for that, and thanks too for other comments.  There are so many ways to look at the market and if you don't look for alternative ways of interpreting what is happening you get nowhere. I personally am not convinced that there is a cabal manipulating the market. I make a deliberate effort not to listen or read market commentaries in newspapers because they sensationalise everything. Their priority is selling their rags. They also have a way of being knowledgeable but only after the event. I try to look forward.

Back to the cabal that George suspects is running the show. I do think the market is being moved by people with far more money than sense. Governments have pumped banks full of cash. As we know, this has not been lent out to businesses. Instead it has found its way, one way or another, into asset markets especially stock markets. This has pumped up the price of shares to unreasonable levels. For me this is a disaster because I am good at finding bargains, pointless if the market as a whole is poised on the edge of a precipice. Eventually the easy money will run out and there will be a drought of buyers. Then some piece of bad news will cause a panic and sellers will suddenly appear. This will be the tipping point. All those hungry buyers will see paper losses mounting on their books and they will add fuel to a selling frenzy. The ones that bought low will be OK but the ones that came in late will have trouble repaying their debts. We just hope that the banks that lent them the money will be able to cope.

Unless there is Armageddon, those of us sitting on cash will be able to hunt for bargains again.

But going back to present problems the bulls are still out there, holding on and pushing the market back up. Yesterday's Greek story is forgotten. You're not allowed to wrap your fish and chips in yesterday's news any more. Now that really was recycling.

I appreciate David's comment from the last post too. I agree that going short is part of a good strategy, it's just that I don't do it very well. I don't buy soon enough and I am frightened out of my positions by rallies so I miss the next move down. I do it using ETFs. Do you have a better way David?

So here we are with the US market nudging the support, now resistance level. We just have to wait to see how strong those bulls out there are. My money stays, albeit hesitantly, on the short side.

Tortured on the rack

The news yesterday was full of it: GREEK CRISIS HITS STOCKS! But as you can see from the charts a fall was to be expected and, measured by recent market activity, it was not especially big. The lower support line almost held and we are left scratching our heads. Will it go lower or will it not? This morning's futures market says not:: a 40 point rise in the Dow, a FTSE that will open flat and a modest rise in the Dow.

The FTSE looks more like a down trend but even there you can see that yesterday's fall was not out of the ordinary. The fall in the DAX was even less dramatic.

Never trust what you hear on the news. Watch the charts and be afraid unless you get a clear signal. We have now been in limbo for six weeks. That's more than 10% of a year. It's the worst possible type of market for making money. It is impossible to be confident about short positions and holding stocks is mighty risky when there is the threat of a big decline. Woe, woe and thrice woe.

Thursday, 10 May 2012

The bulls are holding on

You will know that I are strongly on the bear side of this market, that I entered my bear positions far too early and got stopped out. You will know too that I am holding short positions again. Net result is that I am very marginally down on those trades since the beginning of my financial year which starts on the 6th April (just like the British financial year.) So to answer the question that I used to entitle my last post: No we're not there yet.

I have always found it extremely hard to trade the market on the short side, the more so at present because I no longer see any relationship between the market and the reality of economic life. I would agree that there is an argument that says that we are in the economic doldrums so some people think the only way is up. They believe the prospects for those companies that have a grip on their debts are good. In addition with continuing low interest rates companies with good cash generation offer better returns than bank deposits so there is a good reason for strong share prices. 

However, a massive shadow hangs over the market. Banks only survived because their huge portfolio of toxic debts has been taken over by governments. They were already almost overwhelmed by their own debts. The solution which has, most effectively, kept this creaking show on the road has been the printing of money. I cannot see how this can go on without some of the wheels coming off. We already have commodity inflation and the prospect of this seeping into inflationary pressures is ever present.

As you know, there was a time when I saw safety in precious metals, but I have had little to say about those for some months as I have stayed away from a collapse in their prices. Their time may come again but not yet.

My favoured territory has always been stock picking among undervalued companies, and this has kept me fed and watered for many years now. But I fear buying into companies which, by their nature, are illiquid and would be impossible to sell if the s**t hit the fan.

So what do I do? For the moment my strategy is this: 
  • I will take my profits on my open short trades and see what happens next
  • I will keep my eye open for rallies on the market and try to take quick profits out of beaten down shares
  • I have just decided to spend money on learning how to trade foreign currencies properly
I hope this will be enough to keep my head above water.

Monday, 7 May 2012

Are we there yet?

We have now had two days of heavy falls. Judging by the futures market and by the performance of Asian markets overnight we are due for another nasty day today. So has the slide that I have been waiting for, preparing for at such a high cost finally arrived?

My short positions are slowly returning to profit. I still have to recover the losses from my early short foray that I closed in mid April. I opened more positions on Friday. So I am backing my judgement big time - 28% of my portfolio. Whether or not I am right still remains to be seen. I have found that taking short positions is a risky business. But then you can't expect to make money without taking risks. The money you make in this game is a reward for taking risks. So I hold on tight and stick with the white knuckle ride.

Wednesday, 2 May 2012

Fear factor

I am sitting on heavy losses from my shorts on the FTSE S&P and DOW. Yesterday I almost threw in the towel as the market powered through the previous highs on the Dow. But then it pulled back and closed below previous highs. The close was still a local record. The situation on the S&P was not so bad, we are still well below previous highs. The big disappointment was: no spike in volume. I am waiting for a crescendo in trading. This would show that those sitting on the sidelines have finally been suckered in, and the market his at last ready to fall.

But I am  pretty close to my stop loss so the next day or so will be the end of my patience.

I am not a great one for listening to news but an item caught my attention yesterday. Alan Greenspan made a statement. You remember him, he was the guy who single handedly landed us in the s**t.  In a Bloomberg interview he said that stocks are very cheap. His argument is superficially coherent since it is based on the low PE ratios of S&P companies. I continue to believe that we have is asset price inflation generated by the the printing of money, so I continue to fear a big bust. The day will come when it becomes obvious that central banks can no longer sustain the weight of their collective borrowing and the banking system will start to unravel again. I just hope that when it happens I will be in a relatively safe place. But there is no point in being right in the long term and losing money in the short term so I will have to pay attention to my stops and find something else to do unless omething happens soon.