Friday, December 30, 2011

Looking back and looking ahead

It is the end of another trading year. A time of reflection on things past and pondering of what may come in the next year. I am reminded of one of the Market Wizards (from the book) who, when asked what was the secret to trading well, threw the chart book on the floor and got up on his desk to look down at the charts. Meaning that it is all about the big picture. Always look at the big picture. The same theme was one of chapters in "Reminiscences of a Stock Operator". The chapter where the protaganist Larry Livingstone tells of his conversion from a ticker trader to a big picture speculator, and says, "the big money is made in the big move", and relates his discovery that when he got the big picture right he knew he had the staying power to stay with his positions. Of course timing remained paramount. Putting on the trade at the right time is the key.
That said, lets look at the year past. I do that in the markets by looking at charts of prices of stocks and stock averages as well as the prices of commodities in their stock share equivalents. I started in the commodities and I believe that commodities are the nearest to a crystal ball that there can be to speculation in the broad markets in general.
Here is a chart of the S&P:

Bonds have been the safety trade. The long bond still looks to be going up, but I am looking for a top this coming year. This could be the trade of the year. (If I don't look too hard! LOL) Timing is the key, again.
TLT may break above recent highs early next year just to sucker in the last buyers. But then I expect it to reverse. Conversely, the stock market may have an early selloff just to catch the most on the wrong side.
The long bond:

And the "crystal ball"??? Here is some of what agriculture has been doing. As well as energy. Oil is near $100 a barrel again, without much fanfare. It wasn't that long ago that $100 oil was huge. Natural gas may keep a lid on energy prices though, and this will be good for the stock markets and the economy in general. Cheap energy allows the rapid consumption of everything else!! Remember the 1990's?
The charts:

I chose Noble Energy to represent oil. The trend is up in this one.
And Agriculture is looking to turn around. Food prices drive inflation, as does oil.... The early stages of inflation are good for the stock markets.

And the green looks good! John Deere green. I should write a song! DOH!

I'm kind partial to Deere.
And for the investors the Russell small caps have lagged, but I think they will catch up fast if the stock indexes go higher.

The charts show what the market is looking for and which ways the economys of the world are trending. Some things that may try to derail the recovery are Iran and its ambitions and the threat of war. And how Europe resolves it's debt problems. I made a reference to the 1990's in one of those charts. The 1990's were a decade of problems around the world. There were several currency crises in that period and their problems proved to be our gain. Their economys slowed and we profited from the lower inflation. Low inflation gives banks a good incentive to lend and lending is the way money is printed. I think the US Dollar will resume it's downtrend.
But in the final analysis I trade. It doesn't matter what the markets do. It is much easier to make money in a bull market however. And everybody is generally happier. And I wish everybody a very Happy New Year!!

Markets just closed today..... Year to date gain only 8.4%. A tough year.

Tuesday, December 20, 2011

Heckmann Corp

Here is one of those charts that show a possible long term breakout. Heckmann Corp moves waste water in the oil/gas fracking industry. I believe fracking will ultimately prove safe enough to be acceptable as a major innovation that has the potential to give this country the big boost in inexpensive energy that we need to get the economy moving and will help us to bridge the gap to sustainable energy in the future.
Heckmann Corp has broken out to new highs recently. A long term chart shows a series of highs since Feb. '10 at about $6.50 and an upsloping trend. The alltime highs were back in the boom of '07. There has been good volume on the latest breakout.
The downside is that this stock was touted by Jim Kramer on his show last week. I am alway leery to buy a stock that is touted on the television because it often gives the big holders a chance to sell into some new volume coming into the market. But, I suppose even Kramer could get something right once in a while! ;)
The charts:

control your emotions and control your risk!


On Nov. 21 I guessed that China may further restrict exports of rare earth metals. Here is a news item from today:

Molycorp Inc. (MCP, $27.08, +$0.65, +2.46%) shares climbed as the Sydney Morning Herald reported China has blocked exports from Baotou Steel, the world's largest rare-earth producer. China dominates the market for rare earths--often used in high-tech gadgets--and tightly controls output. Rare-earth supply/demand, and any reports that speculate on changes to the relationship, can affect pricing and ultimately, the stock performance of rare-earth miners. Analysts said the gains in Molycorp shares also could be from CEO Mark Smith's late-Friday disclosure he purchased 5,000 shares.

Here is a MCP chart. This is bottom picking. Not a generally high probability trade. If the general market picks up I think this company could revisit old highs.
Also, notice the recent new low on low volume. Another indicator of lack of selling pressure. If there is a bottom in here somewhere it will probably manifest as a trading range for awhile.....

Wednesday, December 14, 2011

Anatomy of a trade.

Covered my gold short in  GLL this morning. It is always emotionally difficult to let go of a trade that worked well because I know I probably didn't sell at the high. Sold GLL at $19.00. I had bought in four tranches starting at $16.18 on Dec. 1st, $16.10 on Dec. 2nd,  $16.82 on Dec. 8, and the last at $17.70 on Dec. 12 for an average price of $16.70. Except for the second purchase all of the buys were at a price that was higher. That meant that the trade was going my way and I made money from the start. Buying this way is easy to do emotionally. I always consider a trade a process of establishing a position and if I keep my average price below the price that the stock is trading I will have a cushion to protect me if the trade goes sour. This is controlling risk. Although I had a high percentage of my account invested in this trade I felt it was not a risky trade because of my average price position and due to the volatility that was the norm in the gold market. The idea for the trade was the very defined trendline that was evident in the gold market and that I thought there would be many sellers if that trendline was broken. The recent strength in the dollar was another factor. And the clincher was the intraday selling that I saw in GLD, and the lack of volume on the run up around Dec. 1st.
My "edge" is watching and interpreting the intraday trading action while considering the longer term technical factors. As I have stated above. I don't know what gold will do in the short term from this point on. There may be buying at this point due to the previous consolidation back in Sept. It may continue to go down from here also. But I don't have strong conviction.
If a person was into a trade like this for a longer term trade it would be wise to not have such a big position on. That would make it easier to hold for the long term. But I trade short term because that is what I do best at. It is important for me to remember that to be profitable. Of course there is always anguish when I sell and then watch a market keep going. That happens. But I traded my "edge". And that is what is important. And this is the hardest thing to learn.
Now it is time to watch and wait for the next good trade, and avoid the impulse to take the bad trades.
It is kinda funny how the good trades are good from the start. The trades like this are the ones that I just know from the beginning are going to work. There is no real doubt.
The charts:


Thursday, December 8, 2011

How can the EuroZone raise money???

Along the line of the previous post:
The EuroZone needs to raise money to bail out their governments and banks. They can "print" money. but the Germans are adamantly opposed to that since it will further weaken the Euro and will "kick the can" down the road. I wonder, do those governments have gold to sell???

Friday, December 2, 2011

What could cause US Dollar strength?

I've noticed that the dollar has been strong lately even as the stock market has gone up. Many traders still keep an eye on the dollar and see a strong dollar as a flight to quality, and thus weakness in the stock markets. This correlation may be beginning to change. Since Sept. the USD has been going up, and the stock market is up since Oct.
Today, the employment numbers came in relatively strong, and then we see strength in the USD. The talking heads on CNBC are trying to figure out why the dollar is strong even when the stock market is strong. In my opinion, if the economy is strong, then the dollar will stay strong. And furthermore, from a investing perspective a strong economy before the next elections will favor the Democratic president and the Democrats in general. If the Dems are able to take the reins again I can see govt. revenue increasing through taxes. Raising taxes will show the world that we intend to pay our bills, resulting in more confidence in our currency and more confidence in our bond markets. This holds down inflation, keeps imported goods including energy less expensive for us, and also keeps interest rates relatively low since the threat of a devaluing currency is removed as well as the threat of inflation. This is good for the economy in general, which is also good for our banks since they can expect their loans to be repaid. They will be more amenable to lending as a result.
This is looking out farther than I trade, but I get the feeling that this market and this economy is stronger than many believe.

Here are some charts to ponder: