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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.

Busy days

Since the last week in January I have been active. I have gone from a portfolio that was half empty to one that has almost no cash. I have a rump of my gold and silver, which is doing very well and represents 9% of my portfolio. I still have that position in cattle which is languishing. I had the opportunity to take a small profit a few days ago but didn't and am now showing a small loss. A big part of the problem here is currency loss. I shall not keep this much longer.

78% of my portfolio is in equities some doing well and some doing badly. In the UK I have three strategies.

• The first looks for shares that have a low prospective pe ratio; a high prospective earnings per share; positive revenue growth; have out-performed the market in price movement and that out-performance is accelerating; they must generate cash flow more quickly than earnings. Picking shares on that basis has generated a profit of over 4% in  a week.
• The second is my surfing strategy which I have been running for about a month, this has generated just over 3% in a month with most of the profit realised
• Finally I seek out high valued stocks in growing sectors and these have generated 1.8% in about three weeks 

I am happy with these returns since the bulk of the profits were made in a period when the market went up by less that half a percent.

I also did well in Hong Kong where I sought out shares with a decent value profile but which had suffered a collapse in price. Here I made almost 3% in a little over a week while the market made 1.5%.

The big disappointment was the US where I looked for  high valued stocks in growing sectors and for small cap stocks that have suffered bad price reversals and they have left me with a loss of 9%. I am holding on because these selection strategies have worked well in the past through thick and thin. If they do not start to perform I will have to do a serious debrief to see what went wrong.

Using my surfing strategy in the US was also a failure. I lost about 1.5% in a month.

Today's graph shows how my surfing strategy works at its best. I look for shares that are trending upwards - shown by the middle blue line. I then pick those which are at or near the bottom of the channel representing a movement of 1.5 standard deviations (the dotted blue lines). I like to see a high percentage movement back up to the trend line. In this case it was 9%. I bought at 125 on 25th January and sold at 133 to realise a 5% profit after costs in ten days. I could have held on to the top of the channel but I had no way of knowing it would get there - it did not before. I think I am happy with this type of trade and will increase my stake to reduce the impact of costs

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.

Hard decisions

A day of hard decisions.

I've pulled out of all my long stock positions - thankfully no great losses. I have opened shorts on the UK and US markets and they are going great guns. I have held onto my hat and it has worked - so far. Two problems:

• I do not put enough money into shorts; 
• I still have no good way to take profits - from longs or shorts.

I guess my failure to take profits on the Lloyds position illustrates that. But much worse is my failure to take money out of the precious metals market. Today's movement has devastated what was a very big paper profit. In this choppy market I should act fast and grab money while it is there sitting on my account. Instead I play it as though the market was in a reliable bull run. It is all about emotion. I have made the right buy decision and cannot persuade myself to believe it will end. Mastering this is my next big challenge.

The US market closed well down but pulled back up in the last hours. Is this the end of the fall or does today bring us closer to the bottom of the current channel? Price movements in the past couple of weeks suggest that there is a support level around 11700. If this is the case I should sell my FTSE short, which has delivered a 2.8% return in three days. And, according to the futures market, will fall another 1% when it opens. A hard decision.

Silver: should I worry?

Silver has fallen right through the bottom of its channel and is looking very ugly. The move is partly a response to the recovery of the dollar exaggerated by the tendency for silver be extremely volatile. I have a lot in my portfolio so I cannot be too cavalier. The absence of a spike in the volume of trade is ominous.

Gold: opportunity to buy?

Gold has also broken down and here I may use the opportunity to buy more. There was a volume spike and gold is the market of last resort in these bad times. And prices have started to pull themselves up off the floor.

I have finished reading Boomerang and was disappointed. It does nothing to analyse the European financial crisis. Instead the reader is treated to a short catalogue of racial stereotypes  It starts with a description of Icelanders, portrayed as testosterone fuelled, thuggish fisherman who, bored with the sea, decide to stay on dry land. They attempt to conquer  the world by setting up investment banks using what they have learned during brief intern-ships in New York. The Greeks appear to be a thoroughly greasy lot who cheated spectacularly to get into the Euro and cheat whenever the opportunity presents itself. The Irish are presented as stupid but not bad. They walked away with nothing. But they had borrowed to build more houses than there were people. The Germans saved money assiduously, being an anally and cash retentative bunch. They placed their hoards in the hands of naive bankers who fell over themselves to lend it to sub-prime peddling American banks and then the profligate Europeans described above. Essentially to any snake oil salesman who appeared at their door. Finally there were the Californian cities who ended up owing so much to the pension funds of the police and fire departments that they are ruined to the point of bankruptcy.

If the nations described in this sad story had been blessed with skins in shades of brown instead of pale ones Michael Lewis would never have dared to write as he did. PC considerations aside, I have walked away very little the wiser. The best I can say is that the book was short.

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.

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.

Dull day?

US Cattle 30 September 2100

Today there is not much happening. I have to pinch myself as I write those words. At one point the FTSE was down 122 points and it ended almost 70 points down. And the Dow Jones has been 158 points down. In the days when the stock market made sense, movements like these would be rare and would have signalled something amiss. In the past few months they have become everyday events. I think that is a massive signal that something very bad is happening and we need to worry. In the mean time I can report that the markets continue to dither inside their trading range. But let's not forget that that range is almost 7% from top to bottom. It's almost 9% if you include the two intra day downward spikes to 10600, as a friend has reminded me. I speak of the DJI. The rather more untidy FTSE has a range of about 10.5%.

As gold and silver fall and I lick my wounds I think to myself this is what I am doing to assuage my growing fear about a calamity to come. Much is written about the dangers of buying exchange traded funds because they are poorly regulated and they rely on paper trades. Paper trades, by definition, have counter parties who may go bust and fail to divi up when the shit hits the fan. I agree it is a worry and I would not rely entirely on ETFs that are structured in that way. For my gold and silver the bulk of my holdings are in PHAU and PHAG. The producers of these ETFs swear that they hold actual gold and silver bars and a list of those bars is available on the internet. They are kept in vaults that belong to reputable banks. At times when I was feeling particularly paranoid I bought a version of their ETFs which held its gold in Swiss banks. The argument goes that there is a risk that when the S really hits the F solid western Governments will start to confiscate gold. I am not immune to paranoia but I don't I have the lightness of foot that I would need to cope if life became that bad. So it's best not to think about it.

To lighten the gloom of that last paragraph I can report that my friend the spider has had a good day. Two flies and a fair bit of exercise hauling them in and repairing her web. Also COW is starting to do its stuff and I have made 3.6% in about 10 trading days. Now that is a normal world. The fundamentals look good and the price is chasing after them. First area of resistance has been broken. We must now watch the second. That's my chart for the day.

Have a good weekend. Here in the West Country the weather has been beautiful. Lets hope it lasts a bit longer. I've always liked September.

The best laid plans of mice and men

US Cattle 200911

Today those plans did go awry. The markets took it into their heads to make up the ground lost yesterday. Luckily I was out when all this was happening so I did not have the chance either to worry or to attempt to deal with a problem that had no real solution. Positive point at time of writing is that the DJI has kissed the resistance line and has not moved on.
I am going to be bold and buy some more shorts on the US markets. After all, silver and gold have repaid my patience as has COW. This will be my chart today. I bought when that long resistance line was breached. Then there was a worrying pull back but now the price has broken up a second time.

My reason for being out today was a long awaited follow up appointment at the hospital. I was in hospital some months ago for a period of two weeks. I had an illness with severe neurological symptoms. It remains undiagnosed but the symptoms have abated. I had hoped that the follow up would involve a kiss and goodbye. But some autoimmune antibodies which appeared while I was in hospital remain and are serious enough to warrent further investigation despite the fact that I feel 99% better. So more tests and appointments are in the offing.

Volume Spike

The chart of the DJI shows a number of volume spikes and each time there is a spike it is at or about the time of a major change in direction of price movement. This is what happened on Friday. I jumped on board shorts at UK and US opens despite the fact that by the time each market opened there had already been a big move. Nevertheless I am hoping that the fall will continue for at least a couple of days. We have also had a bounce down off the top of the channel so the hope is not unreasonable.
Elsewhere I was suckered into a silver rally that came to nothing and ended in a rout. Gold ditto. I am holding on gloomily.
The COW position looked bad at the outset but has recovered somewhat so I am holding on.
All in all a dismal day for me. I wonder if I should just give up chasing on the basis of hope in a market that is going nowhere. Pile up my money and wait for a market that has a clear direction one way or another. Lets just hope that the spike signal (which does not always work) will provide some profit.

Sell Away

The support lines have done their stuff. As soon as I saw that the FTSE was strengthening this morning and there was no follow through on the fall on Wall Street in the futures market I concluded that the support lines were bringing out the bulls. I sold more than half of my shorts on the FTSE (SUK2) and then more than half of my shorts on the DOW and S & P (DXD and SDS) as soon as the US market opened. (I was taken to lunch at the Moody Goose in Midsomer Norton. The food was fabulous. I thoroughly recommend it.)

I was very well fed but I was flying blind when I sold the shares but it turned out all right and I pocketed a healthy profit.
I also cashed in a decent profit on silver (PHAG). The market was weakening this morning after a poor performance yesterday and it was following something that looked like a peak.
Gold turned down after I went out so I had no chance to sell. Some of it will probably go tomorrow morning. I am sitting on a healthy profit.
With the indices back inside their range tomorrow may be dull but I intend to stay alert because this market is so jumpy.
I am now 83% in cash, 10% mostly gold and 6% in shorts.