Theatre of Absurd

Theatre (sometimes theater in American English) is a collaborative form of fine art that uses live performers to present the experience of a real or imagined event ...

Can there be any other form of live performance which present an imagined event and stock prices have the best day of the year?

That is the American Fiscal Cliff negotiations.

The best demonstration of the theatre of absurd that money can get you.

So do we have a deal or not? As per the latest headlines from the main stream media, we do not have any final deal yet. Why then the spectacular jump? Not that I mind it or really looking for any reason for it. That was the reason in my last post I said :  Had this (sell) signal come 15 days back, I would have jumped on the short side. But today I would stand aside and let it pass. But at least it gives confirmation to the path that lies ahead.

Even in the answer to the comments I said that I do not expect any major selling yet. (Nah, not yet.)

So where do we go from here? While it would be unfair to the subscribers to spill the bean here, all I can say that cycles are about to bottom soon and I expect a bit of choppiness in the next few trading sessions. Does it mean that the markets will never correct meaningfully because central bankers will continue to pump money for ever? My take is, at some point, the unintended consequences of all the liquidity pumping will manifest in un-curable malignant cancers. When and how that will happen, is a matter of interpretation. At this point, let's just drive the car very carefully and take advantages wherever we can.

We cannot trade or invest this dysfunctional market with TA alone. We need some other quantifiable edge. But whatever is your edge, always have proper risk controls in place and never look for absurd yields. No system is always correct 100% of the time and if I say that my system is the best, I would be bulls**tting. But I try not to front run, I do not chase trades and I tell everybody to be patient. In 2012, I may have given up more trades than taken and looking back I am happy that it has helped in the preservation of capital. When people tell you that " No risk no gain" what they mean is that when you take big risk, chances are that if you are right, you will make big money but if you are wrong, you will also lose big time. And we will be wrong more times than right. That is the fact of life. So you decide what you want to be, an investor with a long term financial goal or a speculator?

It has been great sharing this space with you. While I have shared my trading/investment philosophy  and systems with you, I have also learned so much more from you folks. I am thankful to those of you who have shown the faith and have signed up the subscription. I will work really hard to earn and keep your faith.

Happy New Year everyone

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Sell Signal At Long Last.

At last we have that elusive sell signal but time wise we are reaching the last stage of down cycle. Had this signal come 15 days back, I would have jumped on the short side. But today I would stand aside and let it pass. But at least it gives confirmation to the path that lies ahead.

After hours Indices Futures are down a lot. /ES has gone down below its earlier low of 1390 and at some point was down almost 2 %.

Let us see where does it closes.

Last trading day of the year is normally bearish. As per Stock Trader's Almanac, Nasdaq down 10 out the last 11. And I do not see what kind of last minute deal they can make when both sides want to jump the cliff.



So it is going to be a very interesting week and New Year. Some juicy tit bits as to how 2013 may shape up:

First Five Days in January Indicator -  This one has a very nice track record. The last 40 UP first five days of the year have been followed by full-year gains 34 times for an 85% accuracy ratio. This includes 2012 which had a 1.8% rally in the first 5 days. The average gain for the first 39 of those years was 13.6%.  The results are less reliable when the first 5 days in January are negative, showing just a 47.8% accuracy rate and an average gain of 0.2%. It’s important to note that the S&P 500 posted a gain for the first 5 days of the year in just 6 of the last 15 Post-Election Years.

Do you want to make a guess ?

We are preparing for the new year with lots of cycles about to bottom and host of signals about to come through. From January, the posts would be irregular and all buy / sell / hold or wait signals will be emailed to the subscribers. Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

Thanks for sharing my thoughts. It has been a great journey with you all and I wish everyone of you happiness, health and prosperity. Have a great weekend folks.

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Bi-poler Market

DOW travelled almost 300 points down and up and closed in small red. And all the action intra-day was based on hope and fear. I think big boyz used the bounce to unload some of their positions. In any case hope and greed is never a good investment strategy. Whatever be the deal, taxes are going up and Govt. spending, which is the main engine of growth for now, will be reduced somewhat. At best, they can kick the can down a bit.

But that is no tonic for growth.

Don't mis-understand me, I am not suggesting to short the market. In fact I have not shorted the market since  Uncle Ben came out with his QE4 except a quick stab at silver. I think the immediate / short term opportunity is on the long side for equities and commodities and I am waiting for cycles to finally bottom and give confirmation of the up move.

The whole world in in the last stage of reflation. Japan is making the last ditch effort to de-base its currency and bring in inflation. China is again pumping in money but in a different name. Now they want to develop the rural areas. In USA, the printing press is on full swing.

Only Europe is still pushing "Austerity" but living within your means has become a dirty word and politicians cannot get re-elected based on long term structural solutions. Look at Italy. It is very likely that Bunga Bunga will come back as the leader of that country to have fun with under-age girls again. 

The result of all the money printing will have the unintended consequence of pushing the commodity prices higher. I expect crude to go higher in 2013 as well as PM sector. But timing is going to be important because with higher oil prices will come higher inflation and ultimately higher interest rates. 

Short term, SPX was down 4 days in a row and most likely tomorrow there will be a hope driven rip. It has also taken a poke at 1400 and held. If we are to see some serious selling, we might see it in New Year but cycles are about to bottom and not much time left for serious correction. And yet, some folks will book their loss in 2013 so reduce the tax liability and that may affect the market behaviour a bit. Not a big deal but still be cautious. Santa Rally has been a disappointment so far and I do not expect much in the next few days either barring occasional flutter.

Thanks for your time to read this blog post out of your busy schedule. I hope you have had a great Christmas and having a great time with your family and friends. I look forward to your feedback and comments. Should you like to join the Newsletter service from Jan. 2013, you know the drill. Happy holidays folks. 

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Lump Of Coal?

This is the time of the year when volume is next to nothing and a yearend rally is all but assured. And yet, two trading days in a row SPX closed in Red.  Whatever happened to the Santa Rally? The all powerful man of USA cut short his holiday to solve the mess, which is his mess as well but the market just gave a big yawn. Some other time, SPX would have rallied 2% just on the news that President of USA has shown some urgency, but not today. So, is Santa going give a lump of coal to Wall St. for the New Year Gift?

Whatever happens with respect to the fiscal cliff, taxes are going to go up and spending will get curbed somewhere. None of that can be good in normal circumstances but coming in at a time when USA is just barely muddling along; the drag on GDP could be substantial. And yet, there is not much panic anywhere. Is this complacency? Or just the liquidity of QE infinity propping up the market?

The headlines after the market closed was: U.S. Stocks Fall as Retailers Slump Amid Budget Deadline.

 This is as moronic as it gets but the buzz is that the holiday sales were not as good as expected. So is the American consumers have stopped spending money that they don’t have on stuff that they don’t need? If that is so, what will happen to Chinese factories producing all those worthless junks that we find in Wal-Mart? Will all the folks in Africa and Bangladesh now buy up the entire excess inventory that every country on earth is trying to export and prosper? Somehow the math does not add up.  

It is too early to write off the American Consumers, more so when the Govt. actively encourages you not to save but borrow and spend. Well, sometimes in future they will go bankrupt along with the Govt. but by then it will be someone else’s headache. Most likely the Chinese and Japanese will be left holding the bag of crap bonds that the Fed has been able to sell. There are only two options for USA. Either become like Japan with a 20 year deflation and 200+ % of debt to GDP or become like Zimbabwe with super high inflation.  The Fed’s balance sheet will balloon to over $ 4 trillion by end of 2013 and they have no exit strategy. USA has over $ 16 trillion in debt and they are talking about reducing $ 1 trillion over 10 years. I still do not get it. While I am very sure about how it will end, I am not sure about the time and I think there is still some time to play on the long side and the end of the world scenario that everyone talks about, is still far away.

In this game, timing is everything. If we are too early we will lose our capital. So we will try to make money in both long and short trades / investments and we will be open to all other asset classes including commodities and bonds and not just equities. We just have to remember that “Return of Capital” is more important now than “Return on Capital”. We should never front run and never take undue risk for big returns. That is called “Greed” and greed kills.

We therefore continue to wait for opportunities and be patient with our investing / trading. And I see some interesting opportunities coming up soon which I will 1^st share with the subscribers. Thanks for signing up during the holidays. I know, many of you would be travelling and be on vacation at this time of the year and that is why I am putting out the reminders regularly. Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

Thank you for your time to read this blog post out of your busy schedule. I hope you have had a great Christmas and having a great time with your family and friends. I look forward to your feedback and comments. Happy holidays folks. 

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Fiscal Cliffmas

Today was the official starting day of Santa Rally. But the reindeer team is on strike so the rally is delayed until further notice.

Till last year, not many were aware of such a creature as “Santa Rally” but this year the name has become main stream.  Now the retail is sold on the concept of year end rally. While it is premature to say that there will lump of coal in the stockings, things don’t look too rosy either.

After talking with the insiders I get a feeling that the political class wants to get over the cliff. R gang doesn't want to be seen as the party which abandoned no tax hike policy. It is easier for them to come back and reduce the tax on some, after the rates have gone up. Obama is not interested in the negotiation anyway. Neither party has any plan for America except how they will win the next election and how they can play the game of one-up man ship better.  Secretly they are informing the Wall St. that they will take care of it in 2013 with some sort of Band-Aid. That is why we do not see any panic. But the Boyz will most likely create some panic near term before they gun for the top.  The old, tried and tested formula is: Rinse: Wash: Repeat. Why it would be any different this time? If that were to happen, expect some selling from now till 1st week of January. “Santa Rally” may well turn in “Satan Rally”, as I wrote last night.

2013 will also bring in focus the problem facing USA. In many ways things here are more dire than in Europe. With a $ 16 trillion debt, only thing that is keeping the lid on higher interest, is the blatant monetization by the Fed. It is keeping the interest rate low in an artificial manner and I would expect that at some point of time interest rates will start rising. It may not happen tomorrow or in the next month, but it is going to happen earlier than you think. Those of you invested in Bond funds, should think of getting out of it while you still can get out. While deflation is still the primary concern facing the Fed today, cycles show that inflation is going to pick up and that is why commodities are going to do so well in future.

Last night I also wrote that I am seeing some new trend whereby USD and GOLD are moving together in the same direction. It held true today as well when both of these two were up together.   I really don’t know what it means but surely old correlations are breaking down. Today even Bonds were down along with equities. Normally, I correlate Forex with Equities and look at AUD for direction. AUD is down and is likely to test 1.02 levels in the next few weeks. That should ideally take SPX in the range of 1380 level but time is running out. May be we will see some heavy duty stuff after New Year.

Cycles are bottoming in the commodities and we are about to get quite a few buy signals soon. I am not going to front run but wait for confirmation. I will be informing the subscribers about these buy signals on 2nd January.  Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

I take this opportunity to thank you for sharing my thoughts and wish you merry Christmas and happy holidays. I wish 2013 will be a very prosperous year for all of us and wish you health and happiness.

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Deck The Hall

Christmas comes in the fantasy land and who better to welcome the celebration than the genetically modified bimbos. So here you go and enjoy the holidays:

I will see you tomorrow with the weekly report.
As always, stay frosty.

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Special Update

Futures are down quite a bit and I have not seen such a waterfall in quite a while.

I just hope that this red holds tomorrow. We do need some good scare.

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