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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.

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?

Starting to get interesting?

Have you been around long enough to remember the bursting of the tech stock bubble? The cry was, as prices plummeted,  "a wonderful buying opportunity." Perhaps this is in the minds of bulls now. The market seems remarkably reluctant to fall. Perhaps the market is being manipulated to stay high to give smarter traders time to get out of their positions and offload their holdings onto the more gullible. Or perhaps I am wrong and we will not see a collapse in the market.

I've just sold the very last dregs of my equities. Little bits and pieces I was holding onto for not very good reasons. I have stoked up my short ETF holdings a little more so I now have 39% in equity shorts and the rest in cash. Since April 6th I am up 2% compared to the market's 6.1% fall. I need a bit of cheer after last year's disastrous performance. The main thing is that I have coped psychologically with the loss and I am in the game and fighting back.

Thanks for your comments

Two posts in one day, that's a first. I was inspired by George who left a comment. Thanks for that, and thanks too for other comments.  There are so many ways to look at the market and if you don't look for alternative ways of interpreting what is happening you get nowhere. I personally am not convinced that there is a cabal manipulating the market. I make a deliberate effort not to listen or read market commentaries in newspapers because they sensationalise everything. Their priority is selling their rags. They also have a way of being knowledgeable but only after the event. I try to look forward.

Back to the cabal that George suspects is running the show. I do think the market is being moved by people with far more money than sense. Governments have pumped banks full of cash. As we know, this has not been lent out to businesses. Instead it has found its way, one way or another, into asset markets especially stock markets. This has pumped up the price of shares to unreasonable levels. For me this is a disaster because I am good at finding bargains, pointless if the market as a whole is poised on the edge of a precipice. Eventually the easy money will run out and there will be a drought of buyers. Then some piece of bad news will cause a panic and sellers will suddenly appear. This will be the tipping point. All those hungry buyers will see paper losses mounting on their books and they will add fuel to a selling frenzy. The ones that bought low will be OK but the ones that came in late will have trouble repaying their debts. We just hope that the banks that lent them the money will be able to cope.

Unless there is Armageddon, those of us sitting on cash will be able to hunt for bargains again.

But going back to present problems the bulls are still out there, holding on and pushing the market back up. Yesterday's Greek story is forgotten. You're not allowed to wrap your fish and chips in yesterday's news any more. Now that really was recycling.

I appreciate David's comment from the last post too. I agree that going short is part of a good strategy, it's just that I don't do it very well. I don't buy soon enough and I am frightened out of my positions by rallies so I miss the next move down. I do it using ETFs. Do you have a better way David?

So here we are with the US market nudging the support, now resistance level. We just have to wait to see how strong those bulls out there are. My money stays, albeit hesitantly, on the short side.