fickletrader journal

Trading bot results for today: +0.92%
(S&P 500: +4.74%)

Today reminds me of when TARP was announced and the markets gapped up almost 10%. The financials gapped up nearly 25%. It was euphoria for a few hours... and then it was sold relentlessly.

It is still my view that the stock market has entered a bear market. In addition to all the other analysis I've posted here, looking through foreign stock markets like China and Brazil reinforces my view. They have been stalled out along a technical support line for months, and have now convincingly broke down. The S&P 500 looks similar if you price in terms of gold. Volatility is so high in both stocks and bonds that the damage has been done. Sort of like shooting a deer and then having to follow its trail to get the body.

On the monetary policy side of things, we learned today that the fed won't be doing what they need to in order to defend a high credit rating: raise interest rates. So with no prospect of that happening, more down-grades are just a matter of time. This is no surprise.
 
Trading bot results for the day: -2.14%
(S&P 500: -4.42%)

At this point I have to assume the real possibility of somebody big going under over the weekend. Thursday's trading may not matter much because the high-reward scenario is a big down Friday followed by a bloodletting on Monday. People mistakenly think that "buying when there's blood in the streets" means jumping in on a nasty day. This is incorrect. It means buying the bankruptcy firesale. The vix is on a moonshot and treasuries are almost priced as high as the peak in December 2008. There's blood in the water, so what's called for now is patience and preparation.

If this scenario does play out, I will hope to get some bids filled at much, much lower prices on the BDC's. The trick will be having bids in the right place at the right time in the right BDC's. This will be the focus of my analysis for the next two days, and possibly through the weekend.

One other thing I'll mention. Gold is ripping it up so much lately and it seems to be on everyone's mind. In my view, gold is entering into a parabolic move. It's not that I think you can't make money buying gold right now, but the time to buy it was months, even years ago, and many of the people who were doing that are now just starting to shift out of gold and into other things like oil and platinum. I think gold will go a lot higher, especially as long as short rates are low (the foreseeable future), but it is not a value play any more. Buying gold here is much more like buying internet stocks in the beginning of 1999. I suspect a lot of people who are new to gold don't understand that the higher it goes, the more of it the miners can afford to pull out of the ground and the more new mines they can bring online. There is more to gold than just the monetary aspect, there's the supply side cyclical factors too. Jim Rogers' book "Hot Commodities" is a good place to read more about this.

When you see the central banks all jumping in and buying gold and it's going up faster than anybody ever thought possible, then the end is in sight. Great Britain actually almost ran out of gold before. There was a HUGE bank run. As soon as people knew where the bottom of the reserves were, they stopped waiting in line at the bank and went back to work. Crisis over, the economy recovered. PEY, an unleveraged dividend etf is yielding 4.6% based on last year's dividends at the current price. Most of the historic gains in the stock market come from this type of dividend, rather than capital gains or risk taking according to academic studies I've read. If this yield gets to 5 or 6 percent, you better believe people sitting on massive stacks of gold are going to do some trading. And they're going to use those dividends to buy back all the gold they sold in less than a decade.

If you're still reading this, you probably aren't a daytrader :cool:

If you want to read some really long-winded gold stuff (I can't get enough), head on over to FOFOA's blog. You might have to scroll down a bit to see what it is really about if you've never been there before. It seems gold is going up so fast that it has just turned into a party over there every $100 up. He used to have a lot more time between each $100 move to write long, insightful articles :p
 
Trading bot results for Friday 8-12-2011: +0.7%
(S&P 500: +0.53%)

I think I'll start posting the graph of the trading bot each week starting from the point this journal began because seeing it ties together these daily updates in a meaningful way.

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This has shaped up to be a quiet Sunday open, with gold slightly down and stocks slightly up. Since my hypothesis of an institution going down over the weekend did not play out, my current view is that the market will enter a consolidation period.

The bot is still in a very defensive stance, so I will also remain defensive with my discretionary positions. I am planning to keep my bids for BDC's where they are, and remain short the insurance etf until either my bid is filled or the bot moves off of its defensive posture, in which case I will most likely close the short with a market order.

One interesting thing from late last week I noticed is when the margin for gold was hiked Wednesday night, we saw a sell off in LQD and TLT in addition to GLD on Thursday, which was a big up day for the market including junk bonds. A factor that might help explain this is that institutions are hedging their IG bond portfolios with levered gold, and when it became more expensive to hold the gold, they sold bonds in addition to the gold.
 
Trading bot results for today: +2.14%
(S&P 500: +2.18%)

The bot has taken off a lot of its shorts without replacing them over the past 2 trading days. It is now positioned only slightly defensively. As this pertains to my discretionary short in KIE, I have a difficult decision to make. It is back at my entry price, so there are no gains or losses to affect the psyche. On the other hand, it is my only short position and vastly outweighed by long positions in my portfolio (passive longs that have been accumulated month by month for about a year). We still have quite large true range trading days and what appears to be a low-volume bear flag formed on many charts such as IWM, XLF, and KIE. My instincts say to keep the short on. This market could turn sharply lower on a dime and the bot will swing right back to turtle defense before I could easily put a good short back on. Will institutions sell the rip? Who knows, but I think I'll sleep better with the short on than off. When viewed as a pair trade (long PBT, short KIE), I'm well ahead in the trade and I really only want out of the short leg when I'm convinced we're in a bull market again.

Rant over. I've talked myself into keeping the KIE short for another day :cool:
 
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