fickletrader journal

Trading bot results for today: -1.17%
(S&P 500: -2.94%)

My observations from yesterday turned out to be spot on, especially FXI breaking down to new 52 week lows.

My DRV shares bought a few days ago now have a nice profit. I'm playing for the IYR to make a big downtrend, so if anything I'm thinking of buying more DRV.

In the big picture, we can see the various arms of the government flailing about in the quicksand. The more they try to coerce the economy, the more people will avoid uncertainty and pay down debt. Personally, I don't travel, I don't drive more than 5 miles from my home on a daily basis, I barely spend any money on leisure, I have a cell phone from 2005, I don't own a home to pay taxes on, I don't carry debt, and I buy bullion every month. This is my way of doing my part to "pay my fair share" - starve the beast. I will carry some debt in the future to buy assets, but now isn't the time for that. Getting informed and acting responsibly now is the only way I can look in the mirror and say I did my part to give a vibrant future to my two little boys.

http://www.infowars.com
 
Trading bot results for today: -3.24%
(S&P 500: -3.18%)

There were some eye-popping down moves in the BRIC etfs, oil, silver, and the AUD. Many of these are technically significant breakdowns. Looking through the charts of the banks in XLF, it looks like a waterfall decline with no end in sight.

Soon treasury holders will all move to the other side of the boat, so who will be the beneficiary? In December 2008, the obvious trade was sell your treasuries to buy junk bonds. I remember a very good "Buttonwood" column in the Economist magazine around that time talking about a few fund managers who made that great trade. The fly in the ointment is when I look at JNK, HYG, and PHK, it looks like the pandemonium has yet to really get started. I'm thinking those won't be good buys until there is blood in the street (one or more major banking houses going under). One implication of this conjecture is that TBT and XIV aren't good buys yet either because we don't know how long the banking system can keep itself together. The day will likely come soon where we must ask ourselves, can the system survive this? Given the backdrop of the Bush and Obama fascist administrations, I'm not prepared to rule out banking nationalization as a possible objective. That's why bullion is still a fantastic buy no matter how low the price goes. I started drooling earlier today thinking of 100 oz silver bars for < $2k each.

That said, I sold 25 out of 34 AGQ shares (2x silver etf) near the open this morning for ~$176.50. This was a realized loss of ~$1k for me since my entry was ~$216.50. At first I wasn't going to sell. Then I did my floor workout routine (pushups, situps, dumbbells, etc) and I realized (hat tip to Dr. Brett Steenbarger) that I didn't want to be all tied up "making my money back" in AGQ a month or 2 down the line if my analysis is correct and I'm going to be able to buy levered bond funds yielding ~30%. I want to dig into those things like a tick when the time comes. Note that this wasn't a "stop loss" or some "uncle" capitulation. I am simply keeping my analysis current and responding to prices based on a constantly updated hypothesis. If this sounds familiar, it should. If it doesn't, read "The Alchemy of Finance".

Exhibit A: the vix is over 40 again and likely breaking out to new highs during the next week of trading. Exhibit B: emerging markets are making new 52 week lows. Exhibit C: financials sector under performing for months. Exhibit D: Energy sector and commodities implosion after a long period of outperformance. Exhibit E: treasury yields plunging. We all know this music.

Baseline strategy for the next month of trading: buy 3x inverse etf's into any huge snap-back rallies, close those short positions when the market has followed through sharply on new 52 week lows. Limit orders are a good tool for executing these maneuvers. The analogy is flying a jet fighter between downtown buildings. There's little margin for error, things are moving fast, and it is the most hazardous of environments.

Sorry for the scatter-brained "core dump" post. Prices are moving fast now, so my pace of analysis quickens to match.
 
Quote from fickletrader:

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.
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negative news such as a bank run in Europe will lead to the increase of platinum price? As a industrial commodity, there will be some downward pressure on plat. But at the same time, as a rare metal, people tend to hold it as a preservation of value (but this effect is stronger on gold).
 
Quote from arriam:

negative news such as a bank run in Europe will lead to the increase of platinum price? As a industrial commodity, there will be some downward pressure on plat. But at the same time, as a rare metal, people tend to hold it as a preservation of value (but this effect is stronger on gold).
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Its true that platinum will decline in an economic downturn, which we are no doubt experiencing now. My concern specifically was Bernanke loosening monetary policy at a time when I know my dealer has a VERY tight physical supply of platinum that is already under pressure from 1:1 parity with gold.

I don't even know if they have any platinum available for purchase this weekend after the price decline this week. When I went in to buy a 100 oz bar of silver yesterday, I had to accept 10 x 10 oz bars because there was a run and the 100 oz bars were all sold out. My friends and I also took all the big bills cash on hand from the closest bank. I was lucky to get the last of the $100's and lots of $20's. Anybody coming in after us would have had to accept their withdrawal in quarters and dimes or drive to another branch :D

If the precious metals spot prices drop much further, I expect the bullion markets to get a severe case indigestion. If you're just trading for $$$ in a brokerage account, then a similar scenario for you will be when your clearing house can't settle up with you and you have to wait to get your money. This happens from time to time. Look up the shut down of the broker Refco when they tried to go public and some old book cooking/embezzling was uncovered. People with money at that brokerage had to wait months to get their money. If I remember correctly, there are old threads on elite trader by people trying to get their money back from the Refco wind-down. I think all the Refco depositors were eventaully made whole, but it is important to know it can happen and that your money can be frozen.

If you go in to buy a $1,700 coin, and they don't have one on hand to give you, do you leave the cash with them to lock in that price and hope they can deliver it to you at a later date? If they do have it on hand, does that mean that the price is too high and you should wait until they are out to try to buy? Bullion trading can be tricky :p
 
Trading bot results from Friday 9-23-2011: +0.59%
(S&P 500: +0.61%)

For the record I was wrong about the resistance holding on SPY/GLD. It broke above the resistance Friday in a big way as gold fell precipitously on margin hikes. Also of importance, the gold/silver ratio was holding steady around 45, and now that it broke upward (starting Thursday morning), it seems like it may run for quite a while before stabilizing at a new level. I bought 100 oz of silver this weekend on credit, but I was sure not to buy so much that I can't buy again each weekend if it drops much further. If it does, I don't expect the dealer to have any supply left and that I will have to wait possibly months to get the metal. I will put on one order like that, but not add to it.

I'm hoping for a dead cat bounce in the markets this week (off the bottom of the range that seems to be holding for US equities) so I can buy more DRV.

Here's the weekly update of the bot vs s&p graph:
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Trading bot results for today: +1.28%
(S&P 500: +2.34%)

Dead cat bounce, day 2. SPY is also at nearly 50% retracement into the range. I might place a nearby limit buy order tomorrow for a small amount of DRV. It will depend on how I feel about the market open tomorrow. Currently, the overnight futures are up less than 0.25%.
 
I re-arranged the real-estate short this morning. I sold out the 100 shares of DRV @ $12.70 and shorted 56 shares of URE @ $44.82 (2x long real estate). This puts time decay on my side, but limits the profit potential unless I add to the postion. This isn't a problem for me because I love adding to a winner.
 
Trading bot results for today: +1.16%
(S&P 500: +1.07%)

Dead cat bounce, day 3.

There are a few troubling observations to go over today. First, AGQ had a severe underperformance to its benchmark: +6.94% vs SLV +4.71%, a miss by 2.48%. I remember in 2008 when the banks couldn't be shorted anymore and the leveraged financial etfs started regularly missing their benchmarks by a wide mark. One possible explanation is something I think will occur without a doubt in the next few years. The listed prices for precious metals will be so low that all the physical supply becomes hoarded and cannot be replenished due to the futures market resorting to cash only settlement (sort of like S&P futures are currently done). In this "disconnect" scenario, the metals futures markets start to become a policy tool for central banks and wind up becoming useless for industrial consumers and hedgers. My local coin dealer is currently not even providing an offer price for platinum unless you call or visit them and make a special arrangement because the supply is so tight. In other words, they can't maintain a bid-ask spread, like a market maker does under normal circumstances.

This brings me to my next observation: platinum. As of today, the platinum/gold ratio has solidly closed below the 1:1 mark, at 0.94. This is a problem for people making levered arbitrage bets that the ratio floor of 1 from 2008-2009 would hold. I said it didn't have to hold, and probably wouldn't hold weeks ago when it first hit 1, and the reason for it is a grave one: the platinum price is no longer a real price. I can't just go and buy an ounce of platinum at that price if I want to. This is just the beginning, if the price continues to fall (it probably will), the back-orders will become extreme and we truly will not have a functioning market where the price can go to unthinkable levels. Remember that this is all happening with the backdrop of a slowing economy in the US and abroad, and platinum demand from auto production is waning quickly. This should mean that there is a supply overhang of platinum pushing down the price. If this were the case, it would be easy to buy. It isn't. I suspect that due to an imminent economic slowdown, industrial companies won't be using much platinum anyway, so the bankers have declared open season on that market amongst themselves. Gold was up sharply today, silver up sharply today, palladium up sharply today, but not platinum, and the volume is getting heavy. Also important, oil was up sharply, which has a very high correlation to platinum.

What all this means to me, is that the paper prices for metals are set to go anywhere the big trading desks want to push them, to hell with the physical markets. I don't know how long such a phase could last, but obviously it will be self correcting eventually. It is possible that platinum is being used as a little sister market to inexpensively suppress the gold price since they are at 1/1 ratio and should track closely at that level due to arbitragers. Similar manipulations were written about in "Reminiscences of a Stock Operator" and in chapter 7 of Jesse Livermore's own book "How to Trade in Stocks", where wheat was the big market and rye was the the little sister market.

Changing gears to currencies, I noticed some extreme volume in FXA etf (Australian dollar) over the past few days. This is most likely due to big options trades, but I haven't investigated to that level of detail yet. The reason I mention it, is because a similar activity started happening in FXF etf (Swiss franc) starting in late July, a couple of weeks ahead of its major revaluation. The AUD also tends to exhibit some correlation to gold since the Australians have a large mining industry.

And finally, TIP etf (treasury inflation protected securities) also just had one of these rare 10x average volume trading days today.
 
Trading bot results for today: -2.06%
(S&P 500: -2.06%)

I don't see how the S&P 500 could break out of this wide trading range to the upside given the implosions happening in the BRIC stock markets in particular, and other world stock markets. The chart I saw tonight that paints the clearest picture was JNK etf (junk bonds) weekly chart. To me it looks like a very clear head and shoulders top, and swooping down towards the neckline to resolve the pattern. A breakout to the downside would likely carry extreme momentum, "taking the lid off" of volatility. I know it has been high volatility already, but I was anticipating much higher volatility a few weeks ago.

Speaking of high volatility, I noticed a persistent headache starting late last week, lasting through most of the weekend and into this week. Because prices are changing faster, I am checking them more frequently, reading more financial news, and consuming more financial media. So to combat this "battle fatigue", I have been trying to go to bed with 9 hours until I need to get up, and reading for 1 of those hours. This is 1 more hour than I usually try to get. For the past few days it seems to be working.

I shorted an additional 24 shares of URE mid-day today @$42.88, bringing my total position in URE to 80 shares short. Tomorrow I will probably implement shorts in UYG and UYM, roughly $1k each in size. I hope for a gap up in the markets to use as an entry spot. I may also submit a sell-stop order to add to my URE short position on a price drop.

My new "Zero Water" filters arrived today. I ordered 16 of them for $10 each via the Zero Water website. I use them for tea water when preparing green tea (I drink 4 or 5 per day), and also for drinking water. It tastes amazing. One more tip for making delicious green tea: don't soak the tea bag for more than 3 minutes.

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Trading bot results for today: -0.37%
(S&P 500: +0.82%)

Like I planned last night, on a gap up I would short UYG and UYM. Here's the fills:

-25 UYG @ $39.50
-34 UYM @ $29.01

So much for going to bed early tonight :(
 
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