Current Stock, Bond, and Oil market prognostication

Oil is a different creature. The unrest in the Middle East has changed the direct price relationship with oil and equities. Now the primary factor is not predicted GDP worldwide, but production. I would stay away from this commodity for now because unexpected news could turn a good trade into a terrible outcome.

The long bond has done the only thing it could do. It has moved above the 143 11 upper level of its trading range. But it is important to note that the huge upswing in price that we once saw is not happening. I think we are coming closer to a time when the long bond price will fail to go higher unless equities collapse or terrorists strike. In the absence of any news, I expect price to fall, as it will on balancing equity days. I do not like the long side of the bond trade for any length of time and suspect that the best option here is short day trades.

Finally, the Euro/USD relationship. 1 Eur = 1.3373 USD today. I think this trade may be one of the best going forward. The pressure on the Euro is immense. Worldwide speculation of Euro union issues remain and long term, I think the Euro is likely to fall vs. the USD. But I would suggest looking for good European news, and rallies, prior to selling.

Happy Thanksgiving!

Friday nov. 18......Yesterday's oil trade was profitable, but I got out too early.

I followed the oil trade with a buy of bonds at 142 28. It turned out profitable. My intent had been to go long if bonds broke through 143 04. But I took the trade early. Bonds did go higher, and I got out when the move stalled and prices fell back to resistance. But it was a poor trade. I got in before the break, anticipating it. It could just have easily not gone through 143 04 and instead retraced.

Today the premarket is up 85 now on the DOW at 8:51. The long bond future is at 142 17. I am buying here on the long bond, anticipating that the Dow will seek to close the gap after the open, and if it falls, then bond prices will rise. I will get out if that has not happened by 10 am.

No news today. Oil is just below 100. If it goes above this level and trades there with persistence, you woul have to go long if you trade oil at all. If it falls below 99 for most of the day, this could be the beginnings of a downward move. I do not have any feel for equities and will simply watch, with the exception of the pre open bond trade. If equities were to fall and bond prices rise above 143 04, it would be smart to be long the long bond future. But I have noticed a bit more resistance to higher moves than in weeks past. So I would trade with stops and not look for too much.

I got out of oil trade too early.

But those things sometimes happen. The Dow was holding up quite well and I did not want to take the chance of losing the profit that was there.

I am looking at the long bond future now. Trading right at 143, it is up against some stiff resistance from a level not seen in over a month. This is a repeat attempt at this level too, with 11/3 and 11/9 showing similar tests with retreat. It will all depend on equities, and with today's fall, the European news, and the poor reaction to some relatively good news this morning, I think that a break above this level could go a couple of points.

Out of oil trade at 100

I think oil will go lower. But there may be a quick, and harsh rebound if not. With equities stable, I chose to get out. I will watch price today and tomorrow and could reenter short.

OIL TRADE POSITIVE

Oil is down in overnight trading. The short position I took yesterday after the news at 10 am is now positive. Now where do we go?

Review of the rules of trading as listed by some of my favorite trading books here.
The main rule is to have a plan. My plan going into this trade......written down, was as follows:

• short oil on weakness because of long run, price level reaching July resistance, global economic issues
• get out on close yesterday over pre petroleum status news release levels 102.15
• get out if overnight ends above that level and trading in am sustains
• look to take profit at first test of 100, if it happened early

---

The big news release for the day, housing and jobless claims are out. Housing is slightly better than expected, Jobless claims were better than forecast. I don't know what this will mean for equities, but if the major indexes trade up, I will close the oil trade, knowing it will be hard for oil to fall with equities rising. On the other hand, I suspect we could see a fairly substantial retreat and will monitor for that, but will not allow this trade to turn negative under any circumstances.

End of trading day Nov. 16

I shorted oil. Now that the markets are closed I can honestly think about why I shorted oil.

Unfortunately, part of that reason is because the run up had been so rapid. That is not a good reason to short. Never short because you think price is too high.

I must admit that I am so bearish on equities and the economic situation in general, that it is difficult for me to be objective. That is not a good frame of mind to assess possible trades. Nonetheless, the oil market did not rally very strongly after the 10:00a petroleum status report. In addition. Looking at the 15 minute bars, there was sharp excess from 102.6 to 102.9 in the 2:15-2:30pm bar.

My stop was a close above the 102.15 level, essentially closing higher than the pre news release trade. I had noted that on a longer term chart, we were pushing into prices not seen in 3.5 months, so there will be some longer term players entering the market at current prices. Which way they push price, we will have to wait and see.

Right now the trend up remains, and it remains firm with the market up over 2 dollars/barrel today, but volume was lower than on similar up days like Oct. 24 and 25. But changes in contract month could account for some of that, and volume per 15/30 minute period is still clearly higher in up moves. Does the chart below suggest that volume and open interest is in my favor? While volume is staying at higher levels, open interest has fallen almost 60% from early October highs, but this is a near month contract and a view of the January contract shows rising open interest. click here and click on charts icon for volume and open interest charts.

I will use 102.90 as a hard stop and be quick to get out if I think the market shows further strength. I likely am still early, and I recognize my bias. But I think that oil is likely to fall in price in the near term. I will reassess in the morning.



It may be too early ...but I shorted oil at 102.1

My idea is based on the slower progress of price post release of petroleum status report. I am well aware of the sharp run that oil has been on, and price has been much stronger than I would have anticipated. I have clear criteria, and if price is >102.15 at end of day, then I am out. On the other hand I have put in a market sell order to be activated should price test below 100 today.

Wednesday November 16

Where are we? Where are we going?

Two weeks since the Dow broke back above 11,750 and into the trading range from July, prior to the break. We have gone nowhere fast since then, and the futures hover just below 12,000 as I write this. What should we expect going forward?

The technicals of this market suggest that lower prices were rejected (soundly I might add), with the sharp pullback and subsequent upward move on and since October 4. In addition, prices have remained within the trading range from July's pre break levels. However, prices have not threatened the >12,300 levels of the high end of that range.

The fundamental aspect of this market is much different. The economic situation is weak at home with housing inventories high, consumer confidence poor, job growth weak, and no income growth. Europe will not be able to solve their issues without some major changes politically as well as financially, and that will only happen under duress. In short, the fundamentals favor the downside much more than up.

So where do we look for profits in this type of market? Short, intraday trades with no overnight positions may be one answer. Be patient. You don't have to trade everyday. Look for your opportunities. Wait for exactly the right moment when the odds are strongly in your favor. This will mean NOT trading on some days.

Because of my bearish sentiment I would also add that if a trend day comes along (I would expect trend down), don't be afraid to get onboard, but if you wait for absolute confirmation before acting, you will likely find yourself stopped out.

One trade that I like right now is shorting the Euro relative to USD. I also like waiting for equities to break lower below the 11,750 range. If that happens, go short. I also think a short in oil is a good bet, BUT the price of oil has persisted at higher levels than I would have anticipated, so for now I would hold off on that. Listen to price. Wait for the fall in price, leaving excess on the upside, then consider that short.

Wednesday Nov.2

TODAY IS FEDERAL RESERVE DAY..........BE CAREFUL.......EVERYTHING COULD CHANGE

Where are we? This market can't make up its mind, but it is certainly looking as if the move back towards the July trading range has been rejected. I am not surprised.



The chart above clearly shows a move into the July trading range, with a break down gap on Monday and a larger lower gap on Tuesday (which should now be used as a reference). This market has no immediate intention to trade higher.

Bonds have exploded to the upside with almost 6 points in 3 days. I said last week that I thought this was a good trade. I still like bonds, but I would not buy at this price.



Finally Oil. I must admit that I have thus far been wrong here. I would have thought oil would fall, and I still favor short as the right move at these prices.



This market has moved sharply and the volatility will continue. I think long is wrong (or certainly the higher risk) with oil and equities, and I believe bonds will go higher, but I would wait for a retracement to buy.

Again, it is the day that the Federal Reserve will release their minutes and Bernanke will give a press conference. A lot could change today, at least in the short term

Friday Afternoon October 28, 2011

The bullish move in this current market since October 4th has been stunning. By my count 13 of 18 trading days have been postive, and most of those significantly positive. The gap up on Thursday morning left over a one hundred point gap from the previous high on October 24, even after an early move to close that same gap.



The initial break lower in late July came from a Dow level near 12,600. We are still a few hundred points shy of there, but we are back into an area that traded in late June. What does this mean, and where do we go from here?

From a fundamental assessment, the big recent news is the EU settlement. Greek debt issues have been solved...or so it would seem. I reserve judgement, but anticipate that we have not heard the end of that story. The employment situation continues to look bleak and is expected to remain so in the foreseeable future.



Trade, will likely continue to be of no benefit with the rest of the world excluding China in economic straights as well, and China's long growth boom is showing cracks, expanding at the slowest pace in nearly two years in the third quarter of 2011 see chart here. Housing, the usual recessionary savior, is of course unlikely to save the day with last months statistics still showing inventory issues (>6 mos). Of course, according to the National Bureau of Economic Research our great recession is already over, having ended in June of 2009. I wonder how many Americans recognize this?



My point is that the fundamentals are still quite poor and though it is true that Market appreciation preceedes output increases, it seems as if further upside in our equity market above mid June 2011 levels, would likely be preceeding GDP change by years, not months.

What about from a technical assessment? What do the charts tell us?

(SEE DOW JONES INDUSTRIALS BELOW) As you can tell from my previous two paragraphs, I am bearish. But the charts are telling us otherwise......at least for now.


I think the gap up on Thursday of this week needs to be the primary reference going forward. As long as equities remain above that gap, it is hard to go short. But should that gap be tested significantly, especially if there were a gap lower leaving an island excess formation, then I would be going short. My best bet would be long the long bond (despite incredibly low rates, and high prices) and short oil. One issue to remember is that though confirmation is important, a trader cannot wait for everyone to get short as that leads to incredible volatility and ensuing difficulties with trade and stop locations. Instead, watch this market closely from here. Should we balance for a day or two, maybe even week, and then test up and fail......then might be a time a to consider a short, with the stop above the failed up test.
.

Of course there is another scenario. This market could just keep going up.
It could happen!

THURSDAY October 27

Big news! Europe has solved all their issues with Greek debt.....or so it seems.

FIFTY PERCENT WRITEDOWNS, and a boost in the rescue fund. So every thing is solved. I look forward to seeing who exactly is writing down the debt, and how this will affect European banks whose balance sheets included Greek debt, likely as Tier 1 capital, or exceedingly safe debt.

This is surely NOT over

Can the equity markets continue to go higher. Of Course. But We are approaching the 12000 level and very close to the breakdown level from late July. This will be a volatile area most likely, but I would not at all be surprised to see today close lower than the gap open level. Today's gap up should be used a reference point. We need to watch trading and see if further buying occurs, because it may not. If we get a pullback today, and especially if we close this morning's gap up within the next couple of days, I would lean short.

The reasons for me leaning short are fundamental, not market driven......thus far. Today is a big day. How we trade today, how far into the gap we retrace, how we come out tomorrow and Monday, will all guide me a great deal in trading going forward. Right now, it is too early to tell. But remember the old adage, BUY THE RUMOR, SELL THE NEWS. Today was NEWS.

Addendum 12:30

The above was written 2 hours ago. Now the Dow is up 330, so there is definitely some continued buying. We will have to watch this! I am still thinking short at some point, but the market has to confirm that intent, or at least confirm the intent NOT to go higher, before I short.

OK.......it is now 3:10pm and Dow is up 380. OBVIOUSLY there IS continued buying in the current equities market at present. So no matter how much I think fundamentals are suggesting a down market going forward, you can't stand in front of Mac Truck, and this month in equities has been a bull Mac truck.

I remain skeptical that we are out of the woods. I would not go long here. But there is no way to go short with this type of continued buying. So...Wait and Watch. Maybe the global economy is about to turn a corner and we will be looking at another up leg. But............I sure doubt it.

Saturday October 21

Yesterday was a strong up market in the equities. That was a culmination of the across the box trade that is detailed here.

Several trading sessions prior on October 3, in the midst of a harsh bearish prevailing attitude, the Dow broke below the two prior lows which marked the bottom of the trading range that had developed since the late July break. I had expected the Dow to break lower. I think most people expected that. What we got instead was a sharp pullback into positive territory, then a move well back into the trading range on the next session. It has been up from there. Yesterday was a convincing break above the upper end of the range.



I am as bearish as I can be. The Europe issues are far from over, the U.S. economy is in a real dilemma, there is no consumer demand, the U.S. will be unable to trade their way out of our current situation, and with the presidential election next year, you can expect no more stimulus and a decrease in government spending. This said, the market may be thinking otherwise right now and any trader would be a fool not to listen. It may go higher. I doubt it will, but it may. We now are testing the area of the late July break and it is important to watch carefully whether price becomes accepted at higher levels. If we see that it is not, especially were there excess on an intraday basis (that remained at the end of the day), then it might be a good place for a short.

.

The smart play here is to watch.
IF, we get a reversal, go long the long bond and short oil.

Friday October 21

A little late to be writing this, but the market was showing signs of accepting the new higher level, so I was anticipating that a significant up day might occur. We are up 228 on the Dow now at 11:25 am. This is the test we want to see. If this rally fails. A short here might go a long way. I would especially short oil futures. BUT....We must see what happens here. The rally could go farther than I expect. But I am anticipating a further surge from here, then excess showing either intra day, or by virtue of an overnight retreat within the next few days. Those leaning short need to wait for confirmation before going short. Do not try to pick the top.

Wednesday October 19

Tuesday Morning at 9:58. So far this week, the market has done what I would have expected this week by testing above the 11625 previous highs of the trading range. It then sharply withdrew and tested almost 440 pts. lower. Now it remains around 11,500 on the Dow.

I remain bearish in the intermediate and long term. But in the immediate near term, we could easily see another, more significant test above 11,650 on the Dow. I think a short in oil and a long with the long bond are the investments I most prefer. Expect volatility if the Dow tests above 11600, and wait for evidence of excess before shorting oil. Bonds may simply drift higher, but could also test around 137 16 again if the Dow rises.

Anything can happen so do not over trade. Think out the trade PRIOR to making it, and know where you will get out, keeping in mind that volatility will increase and normal stops may not work.

We remain at near the higher level of the trading range that has been set up since the break in late July. The Dow is up 98 as I write this with oil up over 2/barrel. Bonds have slipped a point.

I think it is likely we will test the upside of this range. Maybe not today, but soon.

When a trading range is set up, and tested on the low side as happened 8 sessions ago, the break occurs, but then fails, it makes an upside break through the trading range a strong possibility. My instinct is that our economic situation simply won't support the Dow trading back at 12,500 now. With that in mind I don't want to be long, but you can't go short ....yet. You must wait for some market confirmation that indeed it wants to test lower. This can only happen, I think, if the Dow tests (and hopefully breaks) the upside of this trading box and then fails. I think today is a watching day

Thursday October 13, 2011

Where do we go from here?

I did not expect this. Seven trading sessions ago the Dow was testing 10,300 and overnight it was above 11,500. That's 1200 pts. in 7 sessions. Do the math, 171 pts./ session, more than 10% from intraday lows to overnight highs. Though the truth is that with the market testing low and going higher on day one, and overnight higher last night, but slightly down this a.m., the average per day is significantly less. Nonetheless, I think many are surprised by this move. But I think that is the risk going short in a bear market. The moves can be fast and harsh, BOTH directions. Get a crowd thinking that the market will break lower, then have it test and hold, and soon enough people start to cover. Then everyone starts to cover.

As I was assessing the market this morning I looked at a 3 month chart. The break lower began in the last week of July and moved sharply with the initial low at 10,500 on August 9. Since then the market has simply found a new trading range, testing 10,500 again on September 22, and then breaking that low on October 4, with a low of 10,328, but NO Continued Selling! Am I surprised, YES. But with a failure to go lower does the sharp move up surprise me. No. But it did move higher than I would have expected, but still remains 200 points below the upper limit of the range established in early August.

All that has happened so far is that the market tried to break below the trading range, failed, and has surged to the upper end of the range. Where to from here?

I am still bearish. That said, I am not stupid. The market could go higher and break above this range. I am not smart enough to know all the fundamentals that are affecting this market. That is why I trade on technical information. I watch the market and try to understand what it is telling me. At this point, all it has said is that it was not ready to go lower......yet. And many shorts then got off the bus.

The European woes are far from over, read this Bloomberg Article on Dexia, the french belgian bank by clicking here. I think there is much more to come. Consumer Confidence in the U.S. is stable by measurement thus far in September, but far from good. Growth in China finally seems to have hit a roadblock and the IMF has cut its growth forecasts for China and Asia warning that downside risks have "significantly intensified". You can read that article here. Clearly there are still many concerns globally. So why is the Dow up so much, so quickly. Is it really because investors believe that Europe has figured out how to handle its woes? No. It is because investors, traders, hedge funds, whatever.. saw that the market tried to go lower, and failed. So they got out. When you are short, you get out by buying.

Would I go Short here? NO!, at least not now.

I think the play here is to wait, and watch. What I would like to see is some more good news, and then the market go higher and test the upside at dow 11,600. This would likely make oil go higher, bonds go lower, and then we could see. Is it possible that the Dow would break up and continue the rise. Sure. Is it likely? I don't think so. Were it to test 11,600 on the upside and fail, and then (and this is the important part) show that it is going lower. THEN, I would go long bonds, short oil (whose drop will likely lag the Dow) and of course short the Dow.

Those are my thoughts. But if you choose to do those things, or anything else for that matter, as a trader you must remember:

• Think out your trade AHEAD of time. Know your parameters and what will cause you to believe you are wrong and get out, as well as where you will take profit
• Be aware that volatility will continue to be an issue and consider this with you stops. Avoid Leverage that will make you get scared, and get out, even if you are right
• Remember...anything can happen. No one can predict the future. Your goal is to win over a large sample of trades, so don't over-risk your capital. Live to trade another day.

One other thing. Options will be expensive in this environment. But if you are trading on low capital it could be a reasonable option that allows you to pre define your maximum loss. The thing about options is that if you wait for market confirmation, the price goes up.....a lot. So sometimes a small out of the money investment at the right time can be worth the risk. But it is still a substantial risk, so don't get greedy. Make your money little by little. You don't have to make it all in this move, whichever way it goes. My biggest fault has always been overtrading. In my case it would always be that I thought I KNEW what the market was going to do, so I did not want to miss the move. I HAD to get in and I had to do it NOW. Years later, with less funds, I have learned. There will be another day. The market does not fail to give opportunity, you simply must stay alive (funded) to be able to capitalize.

Friday October 7

This is an unusual market for sure. Every time I think the bottom is likely to fall out, we have a bounce, and the bounce is more than I would expect. Nothing has changed my thoughts on the overall trend...this is a bear market. But, it clearly is not as bearish as I thought it was. It is 9:30 and the market just opened. Gap up by 75 points to 11,122 on the Dow. Only three days ago we were testing 10,300. Oil has moved up with the equities and the bond market is falling.

I would use the gap today as a reference. The bullish trading over the last three days suggests equities might not fall today. Nonetheless, I would not go long here. Instead, I would look for excess on the upside to start a short trade. Mark Cook used to tell me that he paid great attention to the 10-11 am hours and used this to determine if there was buying in the market. That may be a good idea today.

Friday Sept. 23

It is Friday Morning at 8:30. Yesterday ended down 350 on the equity markets, and that was really better than I expected. I thought that we might test the lows from early August at 10 500. We likely will today. The market is trading lower in the prior to open trading. I am anticipating a down day (Friday in a bear market) with likely a LOT of volatility. My bias this morning is to trade short. I think long positions could be quite dangerous in this environment, ......although short positions could too if you are not careful. My focus today will be on quicker profits. I will not stay in positions as long, and I will be prepared for what has worked in the past to not necessarily work today. Higher volatility may make stops at normal settings trigger more often, and typical patterns not work as well. But you must have stops.....at least emergency stops You simply have to recognize that a lot of others will also be short today. When a longer term low is then tested, ........if there is a break, it could be harsh.....if there is a prolonged test with no break lower, the rebound could be harsh, and QUICK. Be prepared.

I would anticipate oil going lower if the equities do, but the upper seventies is an area where i would not be quick to go short. The previous low at 77 will provide some support, and any rally in equities will likely cause the same in oil. Previously, I had been hesitant to short oil because of global demand and a weaker dollar, ......those are looking to be less concerning, so longer term it certainly could fall further.

Finally, This has been said before many times throughout this site, but it needs to be stressed again here. I do not at this point know if I will be correct in my prediction that the Dow will go lower today, and in the weeks to come. BUT......and this is the extremely important part..........even if I KNEW the market would make a lower close today the question remains: COULD I MAKE MONEY WITH THAT INFORMATION?
Being able to predict what the market will do is not enough! You must be able to turn that into money. You must know how to trade.

Knowing how to trade involves so much more than prediction. How much will you risk? for how long? at what point will you enter? where will you take your profit? what will cause you to get out? what will cause you to increase the investment? These are the important questions. If you do not know the answer to these questions, forget about trading now........and until you do know the answers!

Thursday Sept. 22

This is a bad Thursday. Unfortunately, I would bet tomorrow to be the same.

A few things are worth noting here. The Dow had a very bad day yesterday, after the federal reserve announcement. It ended down sharply, beginning the move only minutes after the announcement. The day prior, and yesterday morning, the market had been up. Overnight the trading continued down and the down gapped lower by over 250 points at the open. That left quite a gap and no serious move to close it occurred in the early hours, and certainly will not occur today with the market down 400 as I write this. Keep this gap in mind though, it may be useful as a reference in tomorrow's trading......though I seriously doubt it. I suspect the equity market will not challenge this gap tomorrow.

Oil is being beaten lower as well, with the Nov. crude contract down $5 today. The bond market of course has done the opposite, with the thirty year bond contract up almost 3pts. today. Bond investors are suggesting that the economy is in worse shape than advertised. Of course much of this is simply money leaving equities.

I stand by my thoughts from earlier, only now more so. This market is going lower, probably a lot lower. Once it breaks below the 10 500 level, the bottom may fall out.

Friday September 16

This is an unusual market. Every fiber of my being wants to be short, and believes this market will go down. UNFORTUNATELY that is sometimes when a trader can experience his worst losses. Confirmation bias will lead us to see things that we want to see.......which is only those things that confirm our bias. New traders may think that trading when you have a very strong opinion is the optimal time to trade. It can be, but only if you are willing to set your parameters, and define your maximal loss, before the trade. Otherwise, you will tend to stay in your trade just a little longer because you KNOW what will happen (you can never know). You might also make a trade, get stopped out with a loss, and quickly reenter in the same direction......again, because you know. A trader must be careful in these type situations.

That said, I think that the likelihood of a breakout to the upside of the recent highs at 11,600 are quite slim. Not zero, but quite slim. Certainly I favor lower prices as the more likely scenario.

The Fundamentals ------poor job growth, lower tax revenues, increased government spending, crisis situation in Europe, lack of rebound in housing, recent declines in consumer spending-----strongly suggest lower prices going forward. But again, as a trader we consider fundamentals, but that is not the key for trades. Price action is the key.

With regard to fundamentals and trading: I have had some interaction with Mark Cook. I have described this elsewhere on this site. Mark Cook is a trader, a very competent trader. He knows what he is doing. You would not be harming your potential by following his comments, or visiting his seminars. Nonetheless, Mark is like all of us and occasionally can be subject to bias. He has developed knowledge that can only be described as intuitive, through his years of trading. He understands price action and knows the markets extremely well. He is patient. He has proven to me, in person, that he can make money most everyday. Yet not so long ago he continued to comment about bond prices (particularly the long bond) and how they must come down. This was not the trader in Mark, but the fundamentalist who knows that historically increases in government spending can only lead to higher interest rates and lower long bond prices. The price action in the 30 yr. bond was not telling Mark that price was going lower, but he felt strongly that it would......because historically it always had. The price has continued to rise.

I felt the same way Mark did as I watched the long bond go up in price. Government spending had reached a new crescendo, it would be hard to spend more. Yet the long bond price has not done what it historically "always had done", instead it has gone up. Richard Koo is an economic analyst for Nomura Securities and he, years ago, published a book entitled THE HOLY GRAIL OF MACROECONOMICS . In this text Mr. Koo explains in detail why bond prices are now going higher. I would encourage you to get of glimpse of this here

My commentary here is not intended to be about macroeconomics, nor is it intended to say anything less than flattering about Mr. Cook. He has proven his abilities as a trader many times over. My intent is to bring to your attention a fact: Things we think we know sometimes do not play out the way we expect . With this in mind, despite my extremely bearish sentiment, perhaps it would be best to wait for confirmation from the market before trading in the short direction. I certainly would not be long, but I also think I would wait for some confirmation through price action, before going short. It is 10:22am as I write this. The long bond is down 5/32 at 139 on the December Contract. Oil is still hovering around $89. And The Dow is at 11,492, up 40pts. on the day. The Dow has filled the gap down from last Friday, which could be volatility, or may be the market giving us a clue that things are not as bearish as I think. We must be open to that possibility.

My thoughts now on trading. I don't have a trade. Let's watch.

Friday September 9

Those of you trading today remember two things. First, this is a Friday and this is a bear market so the odds suggest down. Second, we opened with a gap lower. See picture below



Keep this gap in mind as you trade today. Were the market to fill this gap, then it might suggest that things are not as bearish as I imagine. Should the gap remain, then you can expect the trend to remain down.

Keep in mind the longer term trend as well. It has been quite volatile with exceptional swings, but clearly down is the major direction. See chart below.



Friday September 2

Finally,....college football is here.

The most recent equity rally we just saw was more than I anticipated, but I look for that rally high to last for a while.That was 11,700.

I am strongly bearish on the market and have said so in the recent past. But the last rally was more than I anticipated and had me wondering if I was sticking too much on my conviction that I knew what was going to happen in the market. You never "KNOW". I was considering that. The job market is miserable. Consumer sentiment is awful. Europe is about to implode. But nobody ever KNOWS what will happen in the market. You cannot know. What you can do is assess the odds of one outcome vs. another. I think that the odds that this market will go up to new highs, is quite low. The odds that we will travel lower and test, and likely break through the recent lows, seem much higher. The gap this morning was from 11,464 to 11,276.

I would mark this gap on your charts and pay attention to whether the market can trade back up through it. It tried on the open, but could not do it. I would image this gap could be a good reference going forward. Though I think it will likely stay for a while, any successful trade back above this gap could signify a change worth noting. I remain bearish.

That said, I was short oil......and got out with a loss because the market went higher than I thought it would. As Brent Penfold says in his book "The Universal Principles of Successful trading"....There is the principle of maximum adversity --"The market will do what it has to do to disappoint the most traders". I was one of those on the oil trade. The thing is, I knew that I had made a bad a trade and did not want to take the two to three hundred dollar loss. So I took the 1400 loss. I know better. I made back much of it during the day, but I would have been much farther ahead had I not put myself in that situation to begin with.



Bonds moved above 141 on the 30 year today. The session ended at 141 20 (SEE CHART RIGHT).

It will be interesting to see where bonds go from here. The price is very high, but I think traders are beginning to realize that what has happened in the past, (inflation with government spending), may not happen this time because of the severity of our economic situation. Read Richard Koo from Nomura and his ideas on balance sheet recession. You can find some of his comments here

It will be important to pay attention to bond prices going forward. I imagine that most people think they cannot go higher. They can.
Will they? Who knows. All it would take would be a forceful down move in equities and prices would spike again. At the moment, I see no trade here, unless they break above the current level.

Friday August 19

We need to think about what is going on to understand this market.

Dow down >170 today. Where are we in the scheme of things and what is a good trade? This is not an easy thing to decide. Let me make it easier. WE ARE IN A BEAR MARKET. Period.

To understand where we go from here, you must understand TIME FRAMES, and how they fit into the market and its trading. We had a huge bear market in 2007/2008 everyone is aware of this. The Dow (or S+P) then reached a point at which some fund buyers thought that it was a safe bet. Some longer time frame investors stepped in. It held. Some other (intermediate) time frame investors piled on hoping it was safe. It was. Some more climbed on. That was at <7000 on the Dow. We have been to 12800. Once we got there, the market traded up, then down, then up, clearly in a trading range. A trading range signifies indecision. Nobody wants to comitt. It tested new highs, then quickly broke back through the test level (see Vic Sperrandeo in book recomendations.) We kept trading in a range. .I went short at 127000. The market went lower. It got to 11 800, I was a genius. But it rallied. It rallied a lot. I was not the genius anymore. I held my short.... But it retreated. The market went lower. Then one day...................BAM. It fell a LOT. Down, Down, Down. where will it end?

Go back to the newspapers, magazines, and if possible tv broadcasts and read and hear why this happened. Was it Europe? Was it the S&P downgrade? Was it something else? Read USA today, IBD, Wall St. Journal. Each can give you an answer.

But here is the real answer:
The market had gone higher and higher despite a quite miserable global economic situation. Bad news had been discounted. The price of equities went up.....Until it could not go up anymore.Why? Because one day there were no more funds/individuals willing to push the prices higher. One day it could not go up anymore. What is the cause? There is no one cause. The cause is the conglomeration of data, sentiment, trading results, etc. One day the market broke. Add that information to all the other information and all the sudden the market does not look so enticing to all those who did not get out on the break. Those investors are now looking for a place to sell. Look at the charts. Consider yourself a fund manager. Is this a buying opportunity? We are in a bear market . The highs are in. Let me say that again. The highs are in!

The question now is where we go from here. I suspect that the answer is not good.

Tuesday August 9

I was wrong it did rally big. Up 400 I forgot a primary thing, the economic calendar. I completely forgot about the Fed Meeting. That is a big thing to forget. I, as last friday, might have thought about government intervention, but I would not have expected 400 pts. I am still bearish, but we will see.

Monday August 8

The Market ended down >600pts. This was a surprise to me. I of course expected volatility, and was, and remain bearish, but I would have thought 200 pts.or so. I am surprised.

Who is it that needed The S&P rating company to tell them that the U.S. Government had some debt issues? Seriously, We doubled our national debt in 2008/9 and we need a rating company to tell us that we have issues. In addition, a rating company that was bullish sub prime debt and missed ENRON. Absurd.

What is even more absurd is what it will mean for the country going forward. This is fuel on the fire for all who want the U.S. to pass a balanced budget amendment, increase taxes, and cut jobs programs and entitlements. Is that a bad thing? Ask the Japanese, who have tried it more than once in an effort to get out of their misery. Revive and ask John Maynard Keynes, who had been thought the man who figured out how to get us out of the great Global depression of the 30's. His teachings suggest the opposite. Taxes, cutting government spending, these are good ideas, ......but not now, not in this miserable environment.

Unemployment is high, businesses are weak and scared, and nobody, nobody wants credit. Why, ....because they can't find anyway to use it profitably in this economy. There is only one buyer of credit that is reliable......The U.S. Government.

We need the use of credit in our economy. Credit increases the money supply, fuels inflation (as opposed to deflation) and expands the economy. Force the U.S. Government to stop using credit in this current environment and you need another way to stimulate the economy..........
Trade?.......look overseas,.....it won't happen
China? how long can this last?
Consumer demand.........usually, but not with unemployment at 9-10%
Here is what the S+P rating downgrade has done. It has accelerated what would have happened anyway. The market would have fallen, because we are in a no win situation and we won't be getting out of this soon. Obama would be out of office in 2012 (very probably, despite his eloquence) and those who came into office would have run on the anti-Obama plan (whether they believed it or not) so this would be no jobs programs, no stimulus packages, decreased entitlements, and no quantitative easing, This won't work. It comes with a price. GDP will fall, and the misery will be prolonged. Standard and Poor's has succeeding in taking the first step towards being a primary cause of what they predict......ie a "self fulfilling prophecy". Very bad decision on the part of the Standard and Poor's company.

Where do we go from here?

Don't expect a magical solution from Washington. The Democrats say no cuts, the republicans say no new taxes. Who will win? There will not be a quick solution.

Will our economy continue to falter?
It will.

We are in a situation that will not soon end. Some blame lies with the republicans and lack of oversight in the housing crisis. Some blame with Greenspan, who though revered, did not step in when he should have. Some blame lies with the democrats and the effects of larger and larger government and entitlements. But unfortunately much of the issue is simply a conglomeration of events, being in the wrong place at the wrong time. Our global situation is disastrous. That is not the fault of republicans or democrats. Bernanke is doing an admirable job. But soon, his hands will be tied.

If you are an investor, Forget about those who say don't get out. GET OUT! (maybe this market would rally, but not tomorrow, and not much.....and long term....it is going down)

Stay away from treasuries for now. They are safe, very safe, but the price is way too high.

Buying gold is reasonable, but not now......

Oil will rebound based, if on nothing else, on the weakness of the dollar. But it will only rebound when things calm down. I can't predict when that will be........don't count on tomorrow. If you can, just watch. This is a tough market.

If you have had the misfortune of losing much in today's (and last week's decline) take advice from a man who knows. DO NOT... Do not expect a quick recovery of your paper losses. Get out. What you lost is gone. Live to invest another day. That is a very tough position to be in, and a hard decision to make, but it is the right one.

Saturday August 6

Longer term. This market is going down.

But as I said Thursday after the big decline, don't be surprised by intermittent short, rallies. What about the debt downgrade? Well, it can't be good for sentiment, but don't forget that these are the same companies that gave the subprime mortgage backed securities of the early 2000's their high ratings. These companies should be out of business just as Arthur Andersen was with Enron . The credit crises of 2007 essentially proved their value, and if you need more proof go back and look at Enron's ratings prior to their fall.(investment grade up to only a few days prior to bankruptcy)........these ratings are worthless.

Unfortunately, there are still some who find value in their services. So we have to care to some extent. I don't know what the effect will be on either the equity or bond markets. But it is safe to say it is not a positive. What I think I can say with certainty is that volatility will remain, and probably increase significantly in the early trading. Be careful.

I can foresee a negative effect on bond prices in the near term, with pundits telling us how much this downgrade will increase the cost of debt for the U.S. government, and how much interest rates will have to rise. Right...... The fact is that there is money to be invested. Where is it going to go? Perhaps to the equity market--the same one that fell almost 500 pts. Thursday? I doubt it. And there is nothing to suggest that economic activity in the U.S., or anywhere else for that matter is robust to the extent that we can expect more borrowing by business. With unemployment just below 10% I don't think that we will see consumer demand increase any time soon. My guess on the bond market would see prices would fall (yields rise) in the immediate short term in response to the downgrade, but I would view this as a buying opportunity.

I remain bearish on the equity markets.

I think Oil will rally once the volatility in the equity markets calms down. However longer term it will likely fall further.

How can you make money from this. (well first of all, be very, careful .....it will be volatile) sell rallies in the equities,.... buy bonds on the pullback that is likely to come. (this would be my best bet) But I would anticipate that the pullback may last for a few days.

Oil is tougher. I might simply watch for now The dollar will fall and thus U.S. oil prices go up to some degree.

Thursday August 4

I had discussed the possibility of a sharp decline with a friend on Monday. I did in fact think that the highs were in, and had been in for some time. But historically the summer is not the time you would expect this to happen. Nonetheless, as we discussed, the equity markets of 2011 trade quite differently than those of decades prior. Whatever the reason, the stopper is out of the bath now. Should you use this as a" buying opportunity"?..............Absolutely NOT! Do not be fooled by a short term rally. It may happen. Likely not tomorrow (on a Friday, in a now clear bear market) But it will probably happen to some extent soon. Maybe even getting back to the 11800 level on the Dow. DO NOT BUY.

Wednesday August 3.

On Friday July 29, I made a couple of general and one specific comment. I was very bearish on the equity markets. The dow had gone back to almost even for the day (when I made my post) Now it is almost 600 points lower, in only several days. Bonds.. I also made a comment on bonds on Friday. I was bullish, and the market had rallied considerably up to 128 12 at the time. I commented that I would buy bonds, but look to do so on a pullback to around 127 05. In the overnight on Sunday, the thirty year came back to 127 09....It has rallied since to 132. 5 full points.

OIL,
I was bearish oil. But crude for front month had dropped to 95.75 at the time, and I wanted to sell higher, around 98. It did rally on Monday to 98, but since has fallen to 90. EIGHT POINTS. These were my first ever posts on this site. My reason for posting is not that anyone might follow my thoughts and ideas, but so that I can come back at later dates and realistically analyze how I would have done. I am understanding more and more about markets and trading and trying to learn how to convert this into profitable trades. I will, in the future, make attempts to be quite specific on the front end. It is easy to be specific retrospectively, not so in advance. But without some degree of specificity, you can never really understand your potential profitability. It is quite easy for me to look at these three ideas and think of all the money I could have made had I bought put options on all three products with ALL my money. WOW, I would be rich.. But trading is not like that. Sometimes you are wrong and you must prepare for that. (I had taken all my money (which is not much) out of equities a month or two prior. I was not short. I did have long positions in bonds. I had no trade in oil.) So those of you who are new to this and look at these ideas and how well they performed in 4 days, must control your enthusiasm. No one can predict what will happen. The best we can hope for is to recognize inequitable risk reward situations and invest accordingly.

Friday morning July 29

Fall of 2007 and the Dow is at 14086. By early 2009 it is at 66.26, a fall of 66%. Now here we are between 12 and 13k, in a trading range for the last few months. Where do we go from here?

This all started in 2007 and we now almost four years out from the initial waves. Are we soon to be back on our way to consistently productive output, less unemployment, and higher real estate prices? Maybe, but if you really want a sobering thought, take a few minutes to review what happened in the United States in the 30's, or better yet what has happened to Japan in the 90's......and persists today. We have a mess and it is difficult to believe that the markets will discount this going forward in the near term.

My immediate thoughts:
It is Friday morning July 29 and the market has worked back to almost even, from early morning losses. But it is Friday, and this is certainly not a bull market. I anticipate lower prices today. Bonds are up. The thirty year has broken above a trading range. It will likely go higher. I would look to buy on a retest of the 127-127 05 area. There is much talk about our national debt, our deficit, and the fact that long term rates can "only go up". You might want to ask the Japanese government about all that. Ever heard of "Liquidity trap"? Let the market break below 11,800 again and watch what happens to bond prices. I am bullish on bonds. Richard Koo has written a great book on all this entitled THE HOLY GRAIL OF MACROECONOMICS It can be found at amazon It is worth the read.

http://www.amazon.com/Holy-Grail-Macroeconomics-Lessons-Recession/dp/0470823879

Oil.
This is a little tougher. Chinese production, consumption continues to increase and in the end this can only be bullish for oil. But in the near term the weight of European woes and the U.S. economic misery will bring prices back down. Short around 98-100, but I would leave it alone in the lower 90's.

VOLATILITY.
There is incredible uncertainty. The markets will continue to be volatile. Trades with typical stops based on historic data will likely fail.