Dow turns, on cue, at top of channel

Dow Jones reaches the top of its move and sets of on its way down again

It was horrible to watch the way that the DJI changed direction after poking its nose up through the top of its channel on Friday. The puppet masters on Wall Street have made their money on the way up and are now ready to make money on the way down. I guess most sold out on Wednesday when the index poked up for the first time and then pulled back on high volume. Then they toyed with us for a couple of days till they were ready with their short positions and now we are on the way down again. Only problem for me is that it has taken the full two months to accept that this is happening so I have failed to make money from it and have lost instead. And now it could well be that the pattern will soon be broken as, at some point, it must.

My main reason for writing this blog is to improve my skills at reading charts AND making money from that reading. I have never pretended to know more than the next man and this market is unfamiliar territory for me as well as for everyone else.

Gold and Silver plod on.

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.

Interruption in service

For about a week starting today there will be an interruption in service due to pressing personal business. I will attempt to make perhaps one or two updates during next week. I hope you bear with me until I am able to provide the usual daily service again in about a week's time. Hope you are lucky while I am unable to post comments. I  shall be watching progress.

I leave you with two charts. The FTSE has touched the top of its channel and has pulled back.

And the Dow Jones is sitting in the middle of its channel. If it goes up the FTSE will follow it and it will look like a break-out but it could just be the continuation of the non-directional phase of the market. It is just more wait and see.

Stay cool.

What do they know that they're not telling us?

FTSE 6 October 2011

The Bank of England has handed another £75bn to those greedy banks in the form of quantitative easing. Is that good or bad? Frankly I don't know. But it is bloody frightening. What, I ask myself, does the Government know that it is not telling us. How weak are those banks' balance sheets?

Commentators will be attributing the FTSE's strength to this bold move by the BofE and will ignore the fact that the Dow rose 140 yesterday and another 95 today and that the DAX is up 172. The FTSE rise might be flattered by the announcement but the main pull is the tether.

Sterling did a big dive and then a sharp recovery against the $. Against the Euro it just sank.

For me there is a new worry. Where will all that new money go. In all likelihood it will find its way into the markets. So the odds on a fall in the indices have lengthened. I should no longer be so keen to take out shorts and should look instead for opportunities to buy the market. This is good because it is easier to make money in a rising market. But it requires a serious mental adjustment. I've closed part of my short FTSE position to get used to the idea.

In the mean time gold and silver have had a goodish day. Better in the morning than the afternoon.

Balls of steel

DJI 5 October 2011

I have had a bleak couple of days. Victim of wishful thinking again I suppose. Looking for a rise in precious metals that has not come to pass. And a belief that the downward break of the Dow was the start of a large fall which also failed to materialise. So we're still stuck in the old channel where its hard to make money and easy to lose it. I'm not clear in my mind what to do next. To pull out and lick my wounds or carry on trying.

The viciousness of the moves is illustrated by yesterday's candle for the Dow. A candle in the wind if ever there was one. A 244 point move down to 10405 was transformed into a 157 rise in the last couple of hours of trading. It's impossible to know where we go next. A friend asked me whether I thought the problems of the Dexia Bank would hit the market. He thought that the end of the world was nigh. He was shocked when I said I doubted that it would make any difference. Wasn't the fall in the stock market, that we were seeing, the beginning of a new collapse? I said I was convinced that yesterday's fall was entirely due to European markets following the American ones. And so it turned out. Yesterday's recovery in the Dow has led to a 158 point rise in the FTSE and a 256 point rise in the DAX. I notice a that there is no more talk about the Dexia effect by commentators today, even though we now also have a downgrade of Italian debt. The market has lost touch with reality and we can only see what is happening by watching the charts.

In order to get through a time such as this you need balls of steel and a belief that you will win through in the end. I'd feel that much stronger if I felt better able to calculate the odds. At present I would advise no one to follow me because I am gritting my teeth and treading a precarious path. My life-line is the knowledge that when conditions return to normal I will know exactly what to do.

In the mean time the weather has broken. No more sunny days. Falling temperature and drizzle turning to rain. My spider friend has taken to nocturnal habits. I don't know if the wind has cut food supplies during the day or if it is the harsher conditions. But she spends most of the day curled up on the window frame with two legs holding threads of her web, presumably to alert her if a fly were to stray into her trap. My photo is again rather fuzzy but you can clearly see one of those legs out there feeling for the twitch of the arrival of a meal. My feelers are out there too. But the wind is whistling round them and they are mighty uncomfortable right now.

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.

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.