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.

Cut your losses

Rotten  Christmas present I've given myself

I got that wrong!  I saw the spike in volume on Friday and I assumed that it was a signal that the market was on the point of falling out of the slow upward movement that has been evident since August. I was encouraged in this belief by the fall that occurred on Monday. How wrong I was. Yesterday saw one of those sharp spikes in price that make this market so hard to trade. It would now appear that the volume spike was indeed a harbinger but its message was that the Santa Claus rally had arrived.

By the time the market opened
 most of the move had happened

I had been prepared for a fall and I was up to my ears in short ETFs. Wall Street shot up when the market opened. I failed to stop my losses straight away in case this was a bear trap. It wasn't and I left it till the market closed to pull out. Very painful. More pain to come today because I left some of my positions in place in case I was still wrong. Still "He who fights and runs away..." and I have to live to fight another day. So I lick my wounds and set about working out what I have to do next.

Is this really a Santa rally? I suppose it is. All those bankers want to push up their their paper profits to up their annual bonuses. Silly of me to think it would have been otherwise. Do I have the guts to believe and to buy shares? Market opens shortly and I will know.

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.