I expect the rally started Friday to continue Monday. In the afternoon I intend to practice scale-up shorting, hoping that the market gets all the way to the 5-minute, 380-unit M/A. By the afternoon this should decline to the 10,270 area. This analysis is consistent both with the I1 peak at the close Monday, but with the wave count.
I have been posting wave counts more assiduously in the past few days. There is a reason for this, a good one, which is that we are in wave (v) from the 4/26 high. While I expect stocks to decline into the 6/8 I1 low the behavior after it violates the flash crash low 9872 will be spasmodic, perhaps chaotic. It will be difficult to maintain inner peace unless one also maintains sharp focus. This downleg of the I1 may encompass a sharp rally correcting the decline from 4/26 BEFORE going on to new low 6/8. This is because we are in wave iv of (v), in other words what appears to be the late stages. Wave (v) could extend, in which case the I1 will mirror the steady decline of the stock market into the 6/8 low. An accurate count will allow me to determine if an extension is in the cards. The rally off of the wave (v) low should be striking if and when it comes and any error in timing will be magnified. So, just bear with me as I post the wave count charts one more time:
Notice the 220-day M/A in the first chart. Bouncing off of this should continue through Monday.
I have a confession. I lost money for 10 years and broke even for 3 before turning it around. I've recouped more than I lost so I count myself fortunate.
The point I am trying to make is that the gains look easy but, believe me, they are not. Those of you contemplating a life as a trader should examine the probabilities. 90% lose, simple as that. I continued on because I'm, well, soft in the head.
I have made a commitment to myself to continue this blog for another year. I ask that those using this blog to guide their decisions follow conservative money management. I use very conservative capital allocations because I want to impress upon readers the importance of keeping it small and generating gains consistently with very small drawdowns. I also use conservative allocations because my capital base is larger than it was a few years ago. I know how it is when trading with capital less than $50,000. There is a strong tendency to plunge. Let's look at it mathematically. With $50,000 and a 15% allocation to double-short ETFs the amount of stock controlled is $15,000. A 5% return on a trade is $750. To an inexperienced trader this may not seem worth the effort. Believe me, it is. Compounding works wonders, but compounding is utterly defeated by a single large drawdown.
So, for my purposes a 5% allocation is all that I warrant for my personal accounts on a longer-term trade and a 15% allocation is all that I warrant on a short-term trade (in the direction of I1). Those without deep pockets can double those allocations safely and, rather than plunge, that is what I would recommend. I am happy to provide the results of my research and experience. I ask only that you allow compounding to work by not going "all in".
My trading history over the past several years is to tread water 26 weeks out of the year and make good money the remaining 26. However, those 26 generate an excellent return for the year. To see how excellent the Trading History page is an Excel spreadsheet. Those that have followed the blog from the beginning pretty much know how it goes.
Steve
ReplyDeleteA nice dive to DJI 9000 by 6/8 would put us about 1000 points below the 200 day average and a bounce back up and touch the 200 day would confirm the start of a longer BEAR trend in my mind. We need to break through the February lows first though. This would take us out to your 8/16 date and set us up for the next major decline only this decline starts at the 200 day. Now that the housing incentive has ended and foreclosures continue to raise the market will again be flooded with homes which will bring prices down further to add more fuel to the deflationary cycle. Investors are scrambling to adjust there P/E Ratios on the markets because of China putting on the brakes and Europe headed into a double dip and a total economic brake down. You add the new financial regulation and there is just going to be a lot of deleveraging and unwinding of the markets. All these factors will slow down the USA gross domestic product and spiral the USA into further deflation and debt. Too much debt and not enough revenues to change things this time. If this was you or me we would not be able to receive more credit at any price and be forced into bankruptcy. And you know what the real shame is. People are hardly noticing the largest man made disaster in the history of mankind and are government does not have the power to stop it. What a blunder, it makes me want to cry. The oil spill, you can't let it run for ever. I am up 25% since the top was put in and closely looking at your wave count and marching toward the 6/8 date in time.
Jack
ReplyDeleteYou are right the 8/16 top is very important and will be my real paycheck this year. China will stop being the engine of growth later this year and that will put the rest of Asia firmly into the deflationary phase. Japan has nowhere to go but to continue it's deflation. The concept of money changed in the 90's and included derivatives. So, beyond the tangible upon which a derivative is valued, the derivative itself adds to the New Money Supply. One reason that the Fed stopped publishing the M3 was that every couple of years more esoteric contracts representing real capital were accelerating growth and thus money. The Fed did not want this concept of money to enter into mainstream consciousness. So financial reform will further slow the incentives to lend and borrow, an unintended consequence as are so many from the good work of economic illiterates in Congress and White House. Except, of course, the Berkeley contingent from whom the president receives oracular consultations. Besides this chairman of the Economic Advisors the prez gets input from Summers and Geithner. Wow, with all of this wisdom at hand how can he go wrong? At least he listens to Volcker.
As for 6/8 I will be posting my technical composite on a daily basis next week. It is currently 22. If it hits 32 then regardless of I1 I will pull the plug and stop looking for wave (v) extension. Fortunately it will take hundreds of more points to the downside to throw that switch.
I'm glad you are profiting from this redistribution process, as am I. I did not want to be unseemly in my weekly about leverage, but my reputation will build if all of us coming out the other side with greater wealth. Unfortunately many people are not able to utilize guidance and are childish to blame others for their inability to master their emotions.
BP is like almost all major corporations, rewarding executives for short-term performance all the way down the chain of command. Bonuses depend on risk-taking and this risk was a disaster. It will take a depression to change people and organizations to accept and embrace conservative thought and action.
People behave differently in prolonged economic downturns and their aftermath. They slow down, smell the roses so to speak, embrace simpler living. Businesses have slower growth paths and longer horizons. It does not have to be all bad, there are good aspects to economic depressions. I'm living in a part of the country that was opened to homesteading during the Great Depression and we are celebrating the old-timers, tough as nails, nearly broke, but still taking enjoyment from the simple things in life.
ReplyDeleteSteve
ReplyDeleteJust want to say that any time you can heighten a person’s awareness of the risks they may be taking especially as greed can take hold during these profiting times is timely. All the more we have to look at the technicals closely to be able to lock in our profits before poof, there gone. Your right only when you’re right and if you want to stay right you better be ready to change. That’s my own saying by the way.