I hope to publish three or four posts per week to record my thoughts about the market. I will use broad brush strokes to describe my activities, but nothing I write should be construed as a recommendation. I will highlight my fears and uncertainties because that is what stockmarket trading is about. Comments are invited to help me and readers better understand what is happening.
Consistency has never been my middle name. My mind jumps about too much and refuses to stay rigidly within the bounds set by rules, especially self imposed ones. I can focus for a while but when my attention is grabbed by something new the best laid plans "gan aft a-gley" (often go awry) as Robert Burns wrote: But, Mousie, thou art no thy lane In proving foresight may be vain: The best laid schemes o' mice an' men Gang aft a-gley
An' lea'e us nought but grief an' pain, For promised joy.
How appropriate a motto for a stock market trader.
I will however make a valiant effort to draw support lines in green and resistance lines in amber. I will also try to draw important lines and those that are still holding with a thick line and those that have been broken or are less significant with a thin one. Bear in mind that support can turn into resistance and vise versa. So here is the DOW with the new lines drawn in.
You will see that the bulls made a valiant attack on the resistance line but it held and the bears succeeded in pushing them back almost all the way to Wednesday's close. The futures market indicates that a renewed attack on resistance is being mounted overnight. It will be interesting to see how well that turns out. Volume is fading a little.
When my granddaughter comes to call she and my wife make the most delicious brownies
They melt a 100gm block of chocolate (85% cocoa type) together with 250 gms butter by heating gently in a pan while stirring with a wooden spoon.
When melted they take it off the heat and stir in 375 ml of caster sugar and mix in well. Then they add 4 eggs,one at a time, beating well.
Finally they stir in 60 gms plain flour and 100 gms dark chocolate chips.
The mixture goes into an 8 in square baking tin with a removable bottom and is baked for 35 mins at 180 degrees (C). Don't overcook. Remove tin and lift brownies out on the tin's bottom when cool. Cut into squares and DO NOT EAT till next day.
The banks, their cash handouts and the effect on commodity prices
I forgot to mention the latest BBC Radio 4 program about how our money goes to fund all those banker's bonuses.
This one focuses on the way that the free money that governments give banks through QE ends up inflating the price of all kinds of day to day items such as petrol (gas) at the pump and the tin cans that are used to pack soft drinks.
It is a sobering story of how these institutions can carry out what would, in the stock market, be seen as insider trading. We all fund their gambling and pay for their profits. Please don't miss this. If you have not listened to the earlier episodes, listen to them too.
In England we had a bank holiday so the market was shut yesterday while in the US the DOW took another beating. There are reports that it was caused by the developments in Syria but a quick glance at the chart shows it was a continuation of a move that has been running for 17 days. To underline this analysis I include a longer term support line that goes back to the end of February and which held back the current slide for four days before yesterday's slump.
There is no new news and the market looks a little stronger in the futures market. To my mind the next important support line is around 14570. So about 200 points to go. This support was the low established on 25th June before the latest run up to a new all time high. There is another potential support about 100 points lower but if that fails to hold we could slip all the way to 13770, a thousand points away.
Our stream of visitors has almost come to an end. We were particularly delighted to spend the last four days with my eleven year old granddaughter whose visit was a joy. The core activity was teaching Alfie (dog for newcomers and those who have not been paying attention) to dance. We worked up to a four move routine but there were lots of other activities, mainly walks in the lovely countryside that surrounds us.
I have a ghastly medical procedure coming up but I hope that after that I'll be back to business as usual.
Incidentally I bought some gold on 16th August. I can't remember if I mentioned it at the time, I was inundated with all that was going on. Anyway it has done well, however, TBF has pulled back a little.
The papers are full of news about the Hindenburg Omen. I am not a big fan of complex technical indicators but since this one has hit the headlines it is worth explaining what it is all about.
Put very simply the number of 52 week highs AND the number of 52 week lows on a given day must exceed 2.8% of the stocks traded on the NYSE. There are other criteria to be met but this is the key one. The argument goes that normally the flow of the market should be mostly in one direction. The pattern of new highs and new lows occurring together suggests that market sentiment is confused so a crash is likely.
It is said that the Omen predicted the bursting of the Tech Bubble and the 2007 crash. Believers claim that the predicted crash will occur within 40 days of the Omen appearing. It has occurred several times over this summer - see below.
I'm sticking with my view that support and resistance lines are the best indicator of whether I should be in or out of the market. Currently I am out and the up indicator is still a way off.
There has been no helpful guidance from the official bodies, whose pronouncements are as clear as mud. They seem confused so it is not surprising that the market is confused. Confusion in a market that is highly leveraged is exceptionally dangerous because when shares are held using borrowed money forced sales will accelerate the pace of any decline. Hold onto your hats.
“Almost all participants confirmed that they were broadly comfortable with the characterization of the contingent outlook for asset purchases that was presented in the June postmeeting press conference and in the July monetary policy testimony.
Under that outlook, if economic conditions improved broadly as expected, the Committee would moderate the pace of its securities purchases later this year. And if economic conditions continued to develop broadly as anticipated, the Committee would reduce the pace of purchases in measured steps and conclude the purchase program around the middle of 2014.”
That's what the Federal Market Committee said about QE. So we are no further forward in truely understanding whether the Federal Reserve will begin to taper their purchase of long term US government stock before the end of the year. They might or they might not.
Despite this the Dow continued its downward trajectory with a spot of acceleration but little change in the volume of trade. Best that we can say is that the futures suggest that the decline will continue today/tomorrow. On the other hand the Asian markets seem unperturbed by the FOMC information. You can read a summary of what the Committee said about future policy here. It is couched in the most obscure language and I defy anyone to extract a clear message from their words. I wonder if they know what they are doing? (Early trading in the UK indicates that yesterday's sentiment has been reversed so the market seems to be deeply confused. Not surprising given the mixed messages that have been given.) I can give myself a little pat on the back for sitting this one out.
The UK market is much the same. It fell in anticipation of what the FOMC minutes would say. If the Bank of England's new Governor was trying to reassure the market with the opening words of his tenure he seems to have failed.
There's not a lot to say about the DOW or the UK markets other than that the downward drift continues. Since the hit on Wednesday and the big fall on Thursday the slide has been slower. It's four days since the break of support.
There is another way of looking at this. Since 2nd August, when it made a new all time high, the Dow has come off 650 points. Quite a big deal. Over that same period my short on US 20year bonds (TBF) has made a 4% rise indicating that interest rates have risen fast. Tomorrow is a big day for the markets. The minutes of the latest Federal Open market Committee will be released. They should give a clearer idea of what will happen to Quantitative Easing. The chances of tapering in September will then be clearer. More news will trickle out as the week goes on and the Jackson Hole economic summit on Thursday may indicate if there will be a worldwide shift in policy. So if there are fireworks they may happen tomorrow or Thursday.
The market fell out of the sky. The sky was clearish and it was bluish. I've run for cover. Quite quickly there was down signal and all my shares have cleared the 5% trailing stop. This was using the new support line I drew yesterday. I have said that the drawing of support and resistance lines is an art and even though I only spotted it yesterday I now feel comfortable with my new line.
Of course this could all be a storm in a teacup. There was no strong rise in volume to give confidence to my judgement which persuaded my to exit the market. The last volume spike was almost four weeks ago and that marked the end of the latest rally not the current collapse.
In addition the China market enjoyed some recovery last night so that could be bullish.
Net result is that while I am glad that I pulled out of my ISA position as I readied myself for the transfer to a new provider I do not now know if I was too precipitous when I pulled out of all my US positions at the start of trading yesterday.
The explanations after the event are trickling out. The fall is blamed on increasing fears that QE is coming to an end. Not a bad explanation, but there is no way of telling if it is true. There has been no announcement.
My approach is better safe than sorry and I have pulled out. My only remaining holdings are TBF, my short position on US long term government stock and GVC my remaining UK stock which enjoys a very high dividend.
A quick update on yesterday's post. Yesterday the market closed below that support line. I spotted a new support line that had been broken seven days ago. That break brings us close to the signal level for a down call so close to the point where I start selling off on a 5% trailing stop and I start to build cash.
The big question for me is: will that line hold? For the past three days it has teetered on the brink. Today is no different. The market has broken down but has not yet penetrated the lows of the last few days. Only time will tell. But I still have no negative signal.
Individual shares on the other hand are different. I have two that are creaking all of a sudden. GTN is really bad and EVC is almost as bad. I think I have to get rid of both. The question is do I wait till they recover a bit or do I ditch them now and take the whole of the horrible losses. I'll let you know when I decide.
Clear information is emerging about my stock picking systems as they work in the real world. The two top unisearches in my list (A and B) are indeed performing the best. A has generated the equivalent of over 50% return pa in the space of a month when the market has done nothing. System B is not far behind. System D on the other hand has generated some dismal returns.
much of yesterday building up my courage. I am not of a sentimental disposition
and I do change service providers regularly. I have changed my bank several
times in my lifetime, uncommon according to the statistics. But somehow
switching stock brokers, albeit execution only stockbrokers, proved hard. After
15 years, leaving Selftrade, even though it has changed its name and its owner
several times, feels like a big wrench. I spent the whole day thinking and
worrying before I finally took the plunge at 4 o’clock and I began to liquidate
my UK holdings.
Out went THT
AML WIN CLDN III BDEV KLR GLE SDY TW LLOY SIV. With the wind in my sails I
ditched my US holdings too. ZHNE HCBK LSI. The UK campaign was pretty neutral
but I lost a chunk of money on those US shares.
was the long and tedious process of filling forms. One to open an ISA in
TDDirect, another to transfer the funds from Selftrade. My W8Ben, the form
which must be filled in to ensure the US authorities did not tax me on US
shares, was due to expire. So there was yet another form to be filled. How I hate filling
in those forms. Communicating with functionaries is tedious. I feel proud to be a compatriot of Kafka who characterized the dead weight of bureaucracy so powerfully.
stroll down to the post box with the dog and, hopefully, the job is done. I now
just wait till the back offices at TD and Selftrade sort themselves out and I
shall be in business again. In the meantime about half my portfolio sits in
cash. Unable to win, unable to lose.
Activity in the housing market, it seems, is on the move. Looking into estate agent's windows I have noticed the number
of sold stickers is on the rise. And now the Royal
Institute of Chartered Surveyors confirms a rise in buyers’ interest and a lift
in prices. It’s been a long wait, but it was bound to happen eventually.
So what of
the stock market?
sent me a 4 hour chart showing the movement in the DOW. It’s not a
pretty sight. The line of resistance, in particular, looks very strong.
contrast it with the daily chart with my support line holding strong despite efforts,
over the last two days, for the market to move lower. Time will tell which interpretation of the data provides the best view of the future.
week’s Desert Island Discs,Kirsty Young interviewed Daniel Kahneman. He is
a psychologist who won a Nobel prize for Economics. He penetrated the mysteries
of how people make their economic choices. In a fascinating review of his life's work he all but said that economic
forecasting is pointless and efforts by traders to outperform the market were futile. It
is an interview that is both entertaining and thought provoking.
me: I once heard it said that economic forecasting was invented to make weather
forecasting look good.
It happens. All seems to be going well. You have picked your shares, you have filled your boots, and then the market turns round and slaps you in the face. I said in the last post that I felt exposed being 98% invested and then on Tuesday and Wednesday I took two days of heavy losses. Money came back yesterday and then today it started hemorrhaging again.
When this happens there are two contradictory things I need to do.
The first is to hold my nerve. I have picked good shares and there is every chance that they will pull back so I will recover my profits and go on to make more.
The second is to be ready to panic. It's all well and good to say they will come back, but what if they don't. For the US I have a fall back mechanism which works automatically unless I preempt and sell early. I wait till the market has broken support by a predefined amount and then I apply a 5% trailing stop. We are not there yet.
The Dow looks like this. I have moved the support line from being on a slight upward slope to a horizontal line which now fits better. That support line has yet to be broken.
The UK market is also giving me grief. I am girding my loins, ready to switch my ISA to TDDirect in order to trade US stocks more easily. It is a big wrench since I have been with Selftrade in all it's earlier incarnations for 15 years or more. Sadly they don't do US trading very well.
I have been busy so no time till now to update the blog. Not much lost since the
market continues flat. ( I speak of the Dow, more of the FTSE in a moment.) I’ve
drawn a tentative new support line. Although the old one was broken several days ago the price
has not fallen sufficiently to give a down signal using my Support and Resistance system.
trading point of view it is very frustrating. You will recall I am fully
invested in US stocks. The market is playing with me: one step forward, one step back. Nothing to be done except watch and wait an be ready to bail out if
The UK is very similar, albeit with a more volatile manifestation of going
nowhere. The new Governor of the Bank of England is due to make his first big
announcement today. It is reported that he will unveil a new policy of guidance on
interest rates. This means the bank will say that interest rates will remain at
x (x being half of one per cent at the moment) for a period of time unless something
specific happens e.g. inflation rises above a certain level or unemployment falls to a specified point.
is that short term interest rates cannot fall further, so that bolt has been
shot. And longer term interest rates, over which the Bank has less direct control,
are edging upward. However, it does not address the question of QE. If the Bank
stops buying bonds prices will continue to ease and long term interest rates
will, de facto, rise. So the likely effect on the stock market remains hazy.
portfolio is holding up reasonably well despite carrying two lame ducks: THT
Current holdings are: UK: THT AML WIN CLND III BDEV KLR GLE SDY TW. LLOY SIV GVC US: ZHNE HCBK LSI TBF KTOS LEE ARC ORBC SBCF SNV SOL HSOL III UVE GTN EVC COCO LFVN I am 98% invested and feeling a bit exposed.
It explains why I
work so hard to manage my own portfolio and probably why some of you do the
same. It may also encourage those, sitting on the edge of the pool, still
using financial advisers and financial products to "look after" your savings, to take
the plunge and to do your own investing.
explains in graphic and horrifying detail how the city is robbing you blind. The program should come with a content warning. The Simpsons once announced to its viewers "The preceding program contained scenes of extreme violence and should not have been viewed by young children."
It explains how many organisations, all of them grown very fat on your money, take a slice
of your cash, before a single penny is used to buy a stock. Even after the
shares are purchased the gouging goes on.
gets rich, its employees enjoy bonuses. All because they can legally pull off
the trick that some fraudsters successfully exploit. If you can break
into an accounting system through which money flows and then shave off a tiny sliver from each transaction,
no-one will notice and you can make millions. Billions in the case of the
financial services industry.
It’s a massive endorsement for making the effort
to do it yourself.