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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.

Jumping the gun?

The bouncing Dollar

Another nervy day with the markets looking strong. 'Did I jump the gun?' questions still rattling around in my head. And it stayed like that till the evening. Then the US market, which had made a high that was within 50 or so points of the resistance line, pulled back sharply. It ended, after some flutters, near to yesterday's close. And then I jumped the gun again. Or did I? I bought the first tranche of my planned short positions.

I went in slow. Remember those congestion areas I showed in the weekend post? Each reversal period lasted three days or so. If we count Wednesday's run up as day one, Tuesday will be day four so a fall today would not be a surprise. But that's thin evidence on which to dive in with shorts. So more nail biting in store. Should I have bought more or should I have bought less. The futures market suggests I should have been bolder. Will I gobble up some UK market shorts when the market opens? And then more US shorts in the afternoon? Knife edge decisions.

Today's chart shows the gyrations in the pound/dollar market (cable to the cognoscenti). It rose strongly all through October then fell through three quarters of November. Then a bounce back until the end of the month. And now we're on our way down again. Perhaps a spot of currency speculation is in order. Mmm/? I'll leave that for the moment.

Perhaps instead I should be more active on my precious metals positions. Profits and losses there make me queasy with their ups and downs. I think this will be the next project to tackle.

Yesterday I was inspired to make an eighteenth century dish: an onion and potato pie. It all started with the Antiques Road Show. A lady brought in a copy of Mrs.Hannah Glasse The Art of Cookery Made Plain and Easy, first edition. It was valued at £7-8000. My wife leapt up off the sofa. She had a copy of the very same she thought. Unfortunately it was a later edition, though still very old. We have not checked but it probably is not worth very much. Still, a recipe was worth a go and I tried the pie. My wife wrote out the recipe. The book was not allowed anywhere near the kitchen, later edition or not. 

A pound of potatoes from the garden (boiled, peeled and sliced), a pound of apples (peeled and sliced). They were still hanging on the tree and now quite sweet what with the ripening November sun!? Four hard boiled eggs (shelled and sliced), two large onions sliced in rings and lightly boiled to soften them.


I buttered a casserole dish and sprinkled spices and seasoning (a mixture of mace, nutmeg salt and pepper). Then I put in the other ingredients in a series of layers, with butter and the spice mixture between each collection of layers i.e. potato, onion, egg, apple, butter and spice and then start again. I added ten tablespoons of wine (perhaps cider would have been better suited) and then baked for an hour at 180 degrees. I added a few tablespoons of vegetable stock to keep the pie moist. I rolled out some pastry (I used puff but shortcrust would also have worked) and covered the pie. I then returned it to the oven at 200 degrees for twenty minutes. It was delicious. And here's the recipe as it appears in the book:


To make an onion pye. WASH and pare ſome potatoes, and cut them in ſlices, peel ſome onions, cut them in ſlices, pare ſome apples, and ſlice them, make a good cruſt, cover your diſh, lay a quarter of a pound of butter all over, take a quarter of an ounce of mace beat fine, a nutmeg grated, a tea-ſpoonful of beaten pepper, three tea-ſpoonfuls of ſalt, mix all together, ſtrew ſome over the butter, lay a layer of potatoes, a layer of onion, a layer of apples, and a layer of eggs. and ſo on till you have filled your pye, ſtrewing a little of the ſeaſoning between each layer, and a quarter of a pound of butter in bits, and ſix ſpoonfuls of water. Cloſe your pye, and bake it an hour and a half. A pound of potatoes, a pound of onions, a pound of apples, and twelve eggs will do.

Read more at Celtnet: http://www.celtnet.org.uk/recipes/glasse-lent-dinner-dishes-09.php
Copyright © celtnet

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.

Running with the bulls of the Dow?

I am writing today's post early because tonight is busy. I have made another big move. I have taken profits on those positions that I opened just over a week ago. When the market turns it is viscous and I am glad I started to take profits on Friday. I did not ditch UK shares until it was obvious that the market was not going to turn around. The US shares I dumped on the open. Hong Kong shares overnight were still generating profits so I held on - may regret it tomorrow.

I switched from US gold (and silver) positions, which are based on futures, to UK physical metal ETFs. The drama that revealed itself when I first looked at the markets this morning was not in equities but precious metals. They had fallen precipitously for no apparent reason. Equities had had a strong run and needed to consolidate but that was not true of gold and silver. A look at the dollar explained what had happened. The dollar rose sharply after its pull back and precious metals bore the brunt.

So there I was this morning grabbing my profits as quickly as I could before they melted away. And despite a hefty chunk being torn out of them I have still recouped over half of my losses for the year.

So what happens next? Today's chart shows the strong run up that has just ended. The broken resistance levels are now potential support levels. As I write the Dow is sitting on the first one at 12090. (Notice how the pull back started after the price hit resistance at 12290). Then we have the 200 day moving average. Then 11880 where the market paused for three days. Then 11715 which has already acted as support on the way up. And finally the top of our old channel at 11530. This is the important one. If it is broken we are back in bear territory but a determined bounce off that or off one of the others suggests we may be running with the bulls.

For now I am mostly back in cash. precious metals 13% commodity 5% equity 12% cash 69%.

My weekend was a great one. My daughter and son-in-law came with their two children - four and six. I had treated my daughter to a session at the new Bath Spa. And the children were left in our care. They behaved impeccably watching the television some of the time and playing happily together the rest.

I prepared a dish which was fashionable a while ago but is seen less often these days. It was moussaka. I made it as follows:

2 large onions coarsely chopped
1 kg of lamb mince
half a bulb of garlic crushed
tsp of ground cinnamon
3 bay leaves
fresh thyme
1/2 pt white wine
1 tin chopped tomatoes
1 tin cherry tomatoes
chicken stock
pepper

3 aubergines sliced and fried in olive oil

I fried the onions and garlic gently and then added the lamb and turned up the heat and stirred till the lamb was almost cooked through. Then I added all the other ingredients (except aubergines) and simmered for a good half hour.

The aubergine slices I used to line a big casserole dish.

While the lamb was simmering I made a Béchamel  sauce by heating 3oz of butter with 3oz of flour and then slowly adding and gently whipping in a pint and a half of whole milk. The trick is to turn the heat right down after melting the flour into the butter and only raising it again once the mixture has become mostly liquid. Once I had a smooth sauce I added a 50-50 mixture of grated parmazan and Gruyère. I put in about half a pound but you could try less. I then added three beaten eggs and a tablespoon full of Dijon mustard.

It just remained to pour the lamb onto the aubergines in their casserole dish and pour the Béchamel  sauce over the lamb. I could then get back to playing with the children. I then put the whole lot in the oven at 190 deg. about half an hour before we were ready to eat. Everyone seemed to enjoy the resulting concoction.

Gold gaps upward

What a wonderful day. Blue sky. Low sum illuminating golden autumn trees. Light chilly wind. This morning I saw a rainbow the like of which I have never seen before. It was sitting on the horizon. It was not a complete arc. In fact it rose only a short distance into the sky. But it was so broad and all its colours were intense and distinct. Not only that but market that has treated me well once more.

Gold gaps upward

Today's rise in the gold price has been accompanied by a rise in the dollar. My American shares are also doing well. As I suggested might happen, STP lost the ground that it had made by close of business but is doing well again now.GTIV has also chipped in a good performance. The UK shares I bought are, sadly, fading. About half are winners but they are offset by the losers. 

The big question is what will tomorrow bring. It looks to me that the Dow has stalled at the first area of resistance and is now deciding whether to bounce back off a weak area of support at 11720. If it does we should be in for another upward move. If not we return to the doldrums.

But today's chart shows the gap up made by gold. I ought to be taking some profits. But I see the main resistance a little higher than the present price. Today's rise is on low volume so there may be a bit more to go for. Greedy, I know but that's how I feel at the moment.

Invited out for an unusual tea. Cucumber sandwiches, beautiful harpsichord playing and a lovely bay horse. Exciting conversation on a wide variety of topics including renting cottages on  the Balmoral Estate  and ancient organs. And then a drive through the hills to enjoy the autumn colours.

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.

Has the $ come to the end of its dramatic rise?

£ to $ exchange rate May to October 2011

Dow Jones support lines have been breached and we must hold our breath to wait for a confirmation that this is not a false break out. I have jumped in with both feet and bought a range of shorts increasing the share of my portfolio dedicated to them to 16%. This makes me vulnerable to a reversal so I must keep a sharp eye on progress.

My vulnerability is shown by the way my portfolio has responded to the the reversal in precious metal prices. A decent profit on the day has morphed into a heft loss.That's what happens when you fail to diversify. Unfortunately in this market there is little else you can do.

Today's chart looks at the dramatic rise of the US$. I show it against the British Pound. The data is presented with the £ as the primary currency as indicated by the code GBPUSD (first currency is always the dominant one). In this convention a downward slope indicates that the £ is falling and the $ rising. We can see that since its low point on the  19th August the $ has strengthened by 7.5%. The chart also shows that it has twice failed to break through the resistance at $1.534 to the £ and has made a possible double bottom. This could indicate the end of its upward travel.

Some people think that the fall in gold and silver is down to the strength of the $. If they are correct and we do indeed get a retracement in $ value perhaps this will accelerate the recovery in gold and silver prices.

This morning I went to an interesting lecture by Anne Sebba on Jenny Churchill, Winston's mother. Jenny was a feisty woman and her marriage to Winston's father was a true love match. Through her life she had a powerful sense of her own destiny. For example she had no doubts that the she and Randolph would marry and Winston was conceived two months before their wedding. She had taken a great risk by sleeping with him before they had tied the knot in those Victorian days. Through her life nothing cowed her and she taught her son to believe in his own destiny, in his turn. So, the lecture argued convincingly, the spirit that led Winston to hold the line through the Second World War was a spirit passed to him by his American mother.

Bad choices

With the market still rising albeit at a reduced pace, the temptation to dive in is strong. But is this a trap ready to be sprung at the top of a rally? My picks yesterday were/are a disaster.They started fine but quickly reversed when the market turned weaker as the evening wore on. And with the exception of TSPT they continued weak today. I will leave the decision as to whether to dump till tomorrow. The natural reaction after a disaster is to sit still for a moment and that's what I'll do. Leaving the market alone may also be the right thing to do.
My portfolio has been helped by currency movements over the past few days. I hold US$, HK$ and Swiss Franc assets. All have fared well against the pound giving a modest lift to my portfolio value. The US$ and HK$ movements are cyclical but the Swiss Franc story is extraordinary (see chart). I just wish I had jumped aboard the train sooner.