Monday, March 21, 2011

3/21 Daily Commentary

How many times have you heard that investing is a matter of being in the right place at the right time?  You make this statement and your audience will always agree with you.  It's a truism.  It means something different to me.  Seeing a large trend that goes on and on at the inception is worth waiting for. When I'm waiting for the start of the trend I am putting in my market trades, not just preventing losses but the psychological impact of losses, focusing my energy instead of dispelling it in the ordinary trades that I put on regularly.  The number of trades this month has been dramatically less than normal and it's not just Japan creating a news market. I'm preparing myself for several markets that will turn and put in long trends.
The 2 Weekly posts this past weekend have been laying the groundwork for my action plan.  There are 3  time periods that I've determined are vital to catching a big piece.  First, a smoothed I1 to show the approximate timing of the tidal wave of risk.
Although not shown on the chart and lacking the fine precision of I1 closer to the present, the bottom of the upcoming wave is followed by recovery that is decidedly under 3.25.  Bear markets in the past have been defined by smoothed I1 with such muted peaks followed by renewed downmoves.  The anticipated bottom is not until next May.  The smoothed peak is in between raw I1 peaks, so it can't be used to pinpoint with certainty when the tide will turn strongly downward, either 4/19 or 5/16 (which is the formal I1 sell signal date).

From this point on I'll be shorting all downswings in I1 with increasing amounts of capital, but I'll be covering these shorts when I1 bottoms until the 5/16 high where I'll be putting in permanent positions.  The double-short ETFs for the SPX, DJI, and Nasdaq 100 show a little slippage (they have fallen slightly more than their respectively indexes have risen).  The less liquid ETFs show more slippage over the medium term.  On 5/16 I intend to place a portion of capital into the ProShares double-short funds which, while they subtract modest fees, show no slippage (or any I can detect).

Meanwhile, today's stock market rallied in what has the look of a 3rd wave, then traded sideways in what has the look of a 4th wave.  EWI is calling the rally kaput here, but I1 says more to go.  If it is wave iv then there is little incentive for me to buy here, as prices will retrace to around this level after the upcoming wave v rally completes.

Precious metals benefit the most from Fed ease and I'll wait until mid-May to entertain entering short. This would only occur on a break of the 145-day gold M/A.  Absent this I'll short April 28th. I'll be confirming silver's move with the 10-week rate of change of monetary base and M1.   

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