fickletrader journal

Trading bot results for today: -1.23%
(S&P 500: -1.06%)

One quick observation tonight. SPY had the death cross almost a month ago, but the junk bond funds JNK and HYG did not. Well, they will in the next day or two no matter what the price does next because of the lag built into the moving average calculation. This is one of the cornerstones to my bearish view for equities: junk bonds are trading at yields that short term sovereign bonds should be trading at if there was a central bank interest in defending the currencies. Junk should be 8 percent higher still. Despite central banks not budging on the short rates, junk should make the move higher anyway, although at a much slower pace than if central banks aggressively raised short rates and collapsed the economy. Interestingly, the DOW to gold ratio should be somewhere around 1 or 2 when this move higher in junk yields is nearly complete.
 
HYG death cross imminent (50 day SMA < 200 day SMA):

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Please note that stockcharts.com back adjusts dividends into the price as if the dividends were being reinvested without transaction costs, and that affects the moving average calculations shown. This wouldn't make a big difference for this analysis if you didn't adjust for the dividends, but it is helpful to know the context of the chart. The high yield corporate bond funds HYG and JNK are both big dividend payers.
 

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Trading bot results for today: -0.31%
(S&P 500: -2.67%)

As a rule of thumb, I like to engineer a low volatility profile (add hedges) when the market is high volatility, and a high volatility profile (no hedges) when the market is low volatility. The bot has been engineered to do this also, and we see a nice result in the equity graph.

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Trading bot results for today: +0.14%
(S&P 500: +0.7%)

JNK and HYG both have confirmed death crosses. Next up: IYR (REIT etf). I am planning to cover the KIE short I've had for a few weeks at the open tomorrow and replace it with a DRV purchase (3x short real estate). I will buy at 1/2 the size of the KIE short so that the position has the same margin footprint, but a much larger upside potential due to compounding. I think IYR is the low hanging fruit for shorting right now, everything else I looked at is either too volatile or already down too much to make it easy.

As a side note, I bought another 10 oz silver bar on Saturday. I may go buy another one this coming weekend, I haven't made up my mind yet though. The dealer let me have my pick from every kind of bar imaginable, he indicated to me there was a large inventory build up. I chose the Wallstreet bar, since I don't have one of those yet due to luck of the draw. They are the most beautiful of the 10 oz bars that I've seen, although mine is not the most shiny one I've seen.

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Trading bot results for today: -0.14%
(S&P 500: +0.92%)

As planned, at the open I covered my KIE short at $33.31 and got long 100 shares of DRV at $12.13. I don't know how long I will hold DRV, my exit plan is either the volatility goes out of the market or I find a better use for the capital. It is quite likely that I will be buying more DRV later this month when my check hits the account.
 
Trading bot results for today: -0.37%
(S&P 500: +1.35%)

Ouch.

For me, the best thing to do is focus on my daily routine and my research. Instead of fretting about today's large loss relative to the S&P, I have spent the past couple hours researching new trading ideas and found some really great stuff. Some of these ideas will probably eventually make their way into the trading bot after a lot more due diligence and software infrastructure building.

There are so many more dimensions to trading than any one person or group could possibly discover and exploit. I challenge anyone reading this to learn about an unfamiliar trading product and rethink all your assumptions about how you can get money.
 
Trading bot results for today: -1.34%
(S&P 500: -0.98%)

This Saturday I finally bought that 1 oz platinum coin for my unborn son. The price might go down more, but I wanted to buy ahead of any potential stunner news from the Fed or a bank run in Europe. I also bought another 10 oz silver bar for my hoard.
 
Trading bot results for today: +1.44%
(S&P 500: -0.16%)

Scanning through charts tonight, I noticed that the Russell 2000 had a big divergence from the S&P 500, the S&P was flat and the Russell was -1.5%. The China etf (FXI) is pretty much right at the lows for the year, which is a bleak sign from what Soros refers to as the new motor for the world economy (but it is a smaller motor ;-).

I can't remember the SPY ever having such a wide, choppy range for almost 2 months. In 2008, the ranges were wide but seemed to last no more than a few weeks. One explanation is that not even Ben Bernanke knows what he is going to do next, and everything depends on it. It is plain for all to see that the financial markets participants are more addicted than ever to cheap money. Maybe this is a central bank survival gambit, but more likely it was the plan all along.

It seems that gold has hit resistance ever since the platinum/gold ratio hit par. I talked to a coin dealer this weekend who mentioned it to me because I was buying platinum, he said he had traded some of his own gold for platinum. I wonder how big of an effect this is having on the gold market. It seems a lot of people are doing that trade, and gold stalled out right when the ratio hit 1 and hasn't made upward progress since. I would guess the effect isn't too large because platinum is also pulling back.

One last thing for me to point out tonight. Even though the S&P 500 is not back to the very top of the range (it is close), if you look at the SPY/GLD ratio chart, you will see that it is in fact at the very top of a CLEARLY defined resistance. I expect the resistance to hold, especially since the moving averages will soon catch up to the price and we can begin another move down for this ratio.

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