Prospect of rate rise

The dialogue on the financial channel is about the prospect of the US Fed withdrawing stimulus at some point in the future. The prognosticators always offer their outlook for the economy and the stock markets. Usually saying somthing to the effect that the US economy is improving and the rise in interest rates and withdrawal of Fed stimulus will be taken in stride and the economy will learn to walk by itself.

Maybe.

How long has it been since the US economy and the stock markets were not dependent on artificial stimulus and low interest rates? I think it has been about 25 years. The Reagan deficit spending was the original stimulus. Then the Greenspan years. The bust of 2000 led to an outright dependence on Fed stimulus. And now Bernanke is on the job for more of the same. I think this economy and this stock market is addicted to easy money.


The question is not how the economy will go on after stimulus wanes. The question is how the stock market will react to the prospect of that stimulus waning. It is that uncertainty that will drive prices. The debt has not been liquidated, after all. It has just been moved around.

Just thinking...... Bearish lately....

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General market weakness

Markets weak today continuing the weakness of the last several day. Where are the bottom pickers? Not here yet..

Volatility has woke up. A look at the VXX chart shows large volume over the last months. Normally when a chart is going down on high volume I think it is confirmation of the trend. Sideways on high volume is accumulation or distribution depending on which end of a trend we are.
Not sure on this chart, but the volume declined on some of the declining days recently. Price of VXX moving strongly off of A bottom. Don't expect a straight move up. But IF the vxx reaches the level of the previous hard ceiling it would signal serious damage to the broader stock and commodities markets. And my experience is that markets seem drawn to ceilings.
It will take time, IF this happens. A couple months would be the expectation.

Easy does it!
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CIMTR

CIMTR on Amazon here


A few weeks ago I communicated via e-mail with Dr. Alex Elder. His "Trading For a Living" was one of the important books on trading that I stumbled across in the first couple of years of trying to find that "secret" that would make me money in the markets. (By the time I found that book I had already surmised that there would be not secret to be found and was on the lookout for books with a certain generality about them. That is hard to explain, but at the time the sources that I searched for were somehow recognizable to me by the tone of the delivery. Low key and serious is about the best way to describe them.) When Dr. Elder offered to send me a copy of his "Come Into My Trading Room" I accepted eagerly. I recieved that book a few days ago and finished reading it a few minutes ago.

I must say that it is even better that the original. I have fifteen years more experience now and CIMTR is definitely a complete book on trading. The overall theme of this book, as of the original, is of the three M's. Mind, Method, and Money.

Mind refers to the psychological aspects of trading. In the end I think this is the most important of all three.
Method refers to being able to find a method that agrees with the mind of the trader. To each his own. In the beginning somewhere I heard of the hedgehog principle. That being the importance of knowing what you were good at and sticking to it. I had also heard of identifying your edge. If you couldn't identify your edge you didn't have one!
Money refers to sound money management. Knowing how much to bet on every idea. And most of all knowing how much you could afford to lose. And not exceeding that!

All three of these ideas are interrelated and Dr. Elder, with his background in psychology does a masterful job of pointing out the pitfalls that EVERY trader falls prey to in all of these areas.

This book is one that would need to be read many times over as one learns to trade. Much as I did with "Reminiscences of a Stock Operator". And I have no problem mentioning them both in the same sentence.
In the future I will refer to CIMTR as I continue to learn from every winning trade and more importantly from every losing trade. A highly recommended book for everyone who is seriously looking for trading improvement.
Thank you again Dr. Elder.

WTF with WLT!

I like when I am sitting at my computer screen, watching the goings on, and one of the stocks I am waiting on takes off. Like this:

Looks like we may get that breakout....

Control your risk. Scale in, and don't let anything cost you more than you can tolerate comfortably!

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The next day:

I got out quick. A move up that doesn't keep going is not to my liking. Actually that is just an excuse. I had too big a position on to hold.....

Sold everything midday and bot som vxx....
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Lackluster copper....

Dr. Copper can't keep it up lately.....

Copper, the metal is used in many industries that are basic to the world economy. The metal is often referred to "Dr." due to the predictive ability of copper demand in economic activity.
More on Dr. Copper.

Here is the chart. It adds to my general sense of wariness....

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Fleckenstein

I copied this "Quote of the Day".

"Many folks seem to think that the dollar going down will magically solve our trade deficit. I disagree. We don't export enough to solve our trade deficit. What we need to do is stop consuming beyond our means and start saving, which is what will be forced upon us eventually." -Bill Fleckenstein

When it gets right down to economic fundamentals, the above statement reflects the truth. The dollar going down will cause us to limit what we buy from abroad, or make it ourselves if we want it. But if all currencies are going down, then the dollar is only valued relative to other currencies. And that won't affect the trade deficit...

But when inflation starts to hurt in the currency manipulating countries, think China, then they will be forced to let their currency rise, limiting their exports and they will "export" their inflation to us. Interest rates will rise around the world, debt will continue to contract, and we will stop buying the crap from around the world that we buy. We will have incentive to save, our savings accounts will actually pay interest. And at some point a US Dollar will hold it's value...

Finance will no longer be king. Manufacturing will return. Unions and workers will regain power.

And then we will all be drinking free BubbleUp, and eating Rainbow Stew!

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Selling in the morning...

As the chart below shows there was some selling this morning in the SPY.

I expect some sort of pullback in the averages as this nation goes into the "sequester" debate/decision.
The republican response to the state of the union address was the same old talking points so I expect more of the same obstructionism.
It seems to me that any large players would be reticent to add to positions ahead of such an event as the budget debate. And I expect the traders will start to pull back as well. Of course mom and pop are probably looking for a pullback to buy......

Here is a 5 minute chart of the SPY this morning....

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Running out of steam?

I keep seeing raiding parties from the bear side.

CDE crashes today. It wasn't a high probability, just bottom picking. But down sharply.

I had some CLF. Was looking for a return of enthusiasm... NOT!

US Treasuries had a poor demand sale this morning.... Down again. Interest rates going up... Sometime. I wonder how the U.S. economy will handle higher interest rates?

Devon still strong....

But I notice the S&P makes new highs on LOW volume... A warning sign for the short to medium term at least.

On a brighter note I bought a couple tickets to see Merle Haggard, at 7 Feathers, in March.....

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Iran on the ropes?

Here is some copy from over at Mad Hedge Fund Trader:

MHFT

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History doesn't repeat...

.... it rhymes.

The thing I like about technical analysis is looking for patterns that I've seen before. Since the patterns reflect the emotions of the traders as related to the price of the underlying security I expect traders to act the same way as they did before. Not always, since there are always some sharpies out there to take advantage of those predictable.

But looking at the GLD chart I am struck by the similarity of the price action to the pattern some months earlier.....

In particular the rounding action of the bottom. I find that the round bottoms are the most desirable.
...er, oh, you know what I mean.

Silver is holding up well also.... Coils can go either way so be careful!

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