Switchback

Brent Crude in US$

After that massive drop and then a long weekend, for those of us in London, the market turned round rather sharply. I could have closed my US shorts yesterday but I didn't. I couldn't even kick myself because the market could have gone either way. Further falls are likely but safest to bank the profit and worry about further falls tomorrow. So I closed off the positions at the open and walked away. I expect tthe next step down will come soon. I suspect the sharp rise was partly short covering.

In the mean time my gold is moving on up. I shall have to start worrying about whether to take profits as it hits the resistance level.

I bought some oil this morning (in ETF form) and that is doing well. Today's main chart shows the reasoning behind that trade very clearly.

Didn't we do well

Last Friday's call on the market was beautifully timed. I am not one for patting myself on the back, I could so easily have got it wrong but not on Friday. The fireworks I had been looking for shot up into the sky. Dreadful metaphore because what happened was that the markets broke their support levels made a dive. I had shorts in place and bought more as the markets in London and New York opened, even though a large part of the move had already taken place overnight. I made half my profit for the year so far on Friday so those predictive volume spikes are doing their stuff for me.

My portfolio is now 64% short ETFs 10% gold and 26% cash. My profit for the year so far (from April) is 6% while the market has fallen by 8.1% (my benchmark is the FTSE and I measure in £s). A modestly good start to the year and just what I need after my disasterous performance last year. I am going to have my work cut out if I am going make up for last year's catastrophe and earn my salary for this year. The main thing is that I did not lose my courage and was ready to move on.

Friday's performance was not just shorts, it was also that gold I bought a few weeks ago. That shot up on Friday too. To my mind this is a worrying sign, for gold normally weakens when the $ strengthens which it did on Friday (at least it did when you factor out the effect of terrible jobless numbers in the US that were published before the US markets opened). And it shot up as markets tumbled, a return to the old relationship which has been absent since last Autumn. To me this suggests that fear has really returned to the market. We must see how this develops over the next few weeks.

FTSE closed for a couple of days now to celebrate the Queen's Jubilee. Could cause a problem if I need to sell UK holdings.

Big day today?

Those new support lines (I should say old support lines because they go back to February and April last year) have been working their socks off to hold the DOW up for 9 days now.  Then yesterday there was a spike in volume and an interesting candlestick shape. (I'm not too hot on candlestick shape analysis but it looked interesting with its long wicks and short body.) Main thing is that it was associated with a modest volume spike.

Result is I'm looking for fireworks today, could be up, could be down. I'm guessing down. At the moment the futures markets are showing a fall for the DOW but rises for the FTSE and the DAX. Only time will tell if I'm right. Luckily I'm not a nail biter.

In the mean time my gold is going well but mainly because of the rise in the value of the dollar

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.

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?

Will it hold?

Hello David. Thanks for your comment. I agree that caution is needed here. (see comment on last post - no pun intended, but there could be a hidden message.)

The fact that you look at the evidence and find it points to a a top and I look at it and think a breakout is more likely is why the market plods along unwilling to do anything much. Buyers and sellers are matched and each side is trying to wear down the other. I see that two resistance levels have been broken on the Dow. Others see the failure to breach the 13000 level. Either side could be right. My modest optimism is just that: modest. Tomorrow I will go through my holdings and stop some losses and possibly take some profits. I have yet to decide whether going back into silver is a good idea now. Not only is it outperforming gold but it is much more volatile so there is much more danger.

A big part of tomorrow's work will be reviewing stock picking strategies. So my bullish mood continues unabated. Only a big drop in the Dow will shake that.

Just to keep my feet on the ground and to keep me worrying (worrying is best) I show two shots of the S&P 500 today. It shows a failure to break the highest resistance level and a break down through the next lower resistance level which should now be offering support. It has also broken down through a diagonal trend line support level that has held since the end of December. If those portents are to be believed it is a case of hold on to your hats. "It's a game, i'nit."

What's new?

That massive dive in the gold price (5.5% in a day) has had no kind of follow through. The price drifts about at the same spot it ended the day on Wednesday. The volume spike on Wednesday was big but not as great as the last real biggie that occurred on 26 November last. And the volume follow through on Thursday was very limited compared with other such events. And then on Friday trade was pathetic. Sliver showed a similar pattern.

What is extraordinary is that none of the other main markets were affected. It was as though someone dropped a huge rock into a pool and it sank without ripples.

By now you will know I take little notice of the news and allow the market to tell me what is happening. But with something as strange as this I was curious to see what others made of it so I took a little peek. It was much as I should have expected. It's amazing how many ways grown men (and women) have to wrap up the words "I have not the faintest idea." while still pretending to be on top of what is happening. Better still the fall came as no surprise to them.

My next trick is to decide whether I should go back into those very profitable gold and silver positions or is this the beginning of the end for the precious metals bull market. I can divide that question into two parts:

• do I still feel confident about the equity market? (My basic idea here is that equities seem poised to make a big breakout on the upside and I am perhaps 80% convinced that this will happen.)
• could the precious metal markets yield a better return than the equities? (I am fairly clear about the answer to this question - if I am right about equities I am convinced that I can make more money by share picking in a rising market. I can cash in my profits and if If feel the need to buy precious metals I will be in a position to buy more gold, silver or whatever.)

The risk I am running by doing this is that I could get caught out by a catastrophe which would catapult precious metals into the stratosphere and leave me struggling to dispose of my shares. Something to mull over in the next few days.

In the mean time the Dow plods on finding it hard to smash that  13000 barrier leaving my portfolio languishing with it.

One little idea did come out of listening to all those explanations of why gold was dumped as Bernanke spoke. It would appear that platinum has been outperforming gold since the beginning of the year and did not take the big hit that damaged gold. And then I looked at the charts and found that platinum and silver followed the same trajectory. I think I feel safer with silver. But a lot more thought needed here.

Colywobbles

I've started to lose my nerve. Only a bit, and it was the result the sudden fall in the gold price. It should not have come as a surprise because it has had several failed attempts at the $1800 level. The silver price has followed. I snatched profits as the fall began. By then the various mining stocks were wobbling. I was too late to grab profit except in LMI where I managed to take 4% accumulated since Feb 7. I've held onto the remaining miners where there is a reasonable chance of recovery since they do not specialise in precious metals.

Last night I threw in the towel on ALVR where I was nursing a 15% loss. As ever you tend to give up just as the bottom has been reached and today we see a small recovery. Makes you want to spit.

With less pressure on my cash I have bought some more from my patented strategy filter. I bought VP. BMY and upped my stake in LAM. ISA's don't let you buy AIM shares and I still don't have sterling cash to spend in my SIPP. As a result I've had to give the AIM shares that came up as candidates a miss till I can free up some more cash.

Back to the panic. The DJI is stuck. It's hovering just above a resistance line and if you add in the days it hovered below it has been sitting there for a month. Will it make the break or is 12875, the high reached last May, going to be a step too far. Yesterday it closed above the 13000 mark and it keeps nudging that level but it needs to move convincingly above it before I will feel confident that resistance has been broken. I wonder if that fall in the precious metals price is a break in the link between gold and Dow. I've just put my money on that bet. But I'm nervous as I walk away from the bookie's counter.

Work in progress

The system works even in a down-trend

I've been making money for a couple of days. In the US on Tuesday and in the UK yesterday - a lot. I've taken profits as shares have risen to hit targets. So far I've cashed in SVS - where I subsequently missed a hefty continuation - and PZC and QQ. 6.5% and 4% and 2.2% on each in just about a week. More to come I hope. I had hoped for a quicker return from the strategy of buying shares that are sitting near the bottom of a range and selling them when they rose to about half way up that range. But it is an experiment. Next time I try I shall concentrate on shares which have bigger amplitudes in their wave motion.

My reason for trying this is partly my friend's success and partly my continuing nervousness about a market that is closing in on recent highs.

I am also  about to do some work looking for share picking strategies that will work in a consolidating or rising market. Although there is still the prospect that the market will go into sharp reverse I am getting tired of living with a relentlessly bearish outlook. But so far holding such an outlook has served me badly. So now I plan to try and make some money from shares that have some oomph. I will report on my progress.

I hope I am not making the foolish mistake of coming in too late.

Here comes gold

Gold and silver seem to be coming back. My taking of profits on silver seems to have been badly timed and I am now back in that market. Gold is progressing too.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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%

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.