Overnight markets are rallying on a Global coordinated bailout effort. I am creating a gameplan for the next few months.
This week is Pivotal. Targets are defined!
The market without question has been very intense of late. There are a number of people making money, however most are a bit shell shocked. I have been reading a Yahoo CGMFX board. Some have been riding that fund down from 61 to a friday low of 38.74. They are not alone. I feel pretty fortunate to have been scraping out a few percent a week to the plus side. I think we have a very exciting monday. Probably downward pressure with many redemptions. The panic is palpable.
I think Fuel expresses what people are thinking of this market.
I would have loved to be more bearish from the Gov’t intervention. Unfortunately, I just got small with a slight upside bias. Fortunately, my downside hedges have worked out a little. As I mentioned then, it is one thing to fight the Fed, and another to fight the ill-informed law makers, SEC, and Treasury.
Two weeks ago, I spoke of a scenario of a rally above SPY 118 with upside bets off on a break below 118. Well, the catalyst of a poorly executed passing of HR 1424 (aka. The Failout) scrapped chances for that plan to succeed. Investor’s of US securities feel anything but secure at this point. Upon the break of 118, I started putting on some downside hedges, albeit not enough in retrospect.
We are approaching a point I have put on my radar since January, break of SPY 139.3. SPX – 1080. This is a 61.8% retracement of our move since the previous bottom Oct 10, 2002 (SPY 77.11), to the top on Oct 11, 2007 (SPY 157.53). The dates are eerie, eh?? And here we are… next friday Oct 10. Hmmm. Does it mean anything? Who knows.
S&P 500 (SPY) Monthly- Looking at the SPY level as technical support. Breaks below 106.70 could be very, very dangerous.
An unknown for me is this: Has the Gov’t/SEC intervention in limiting short selling short-circuited market functions that could create a melt-up as shorts cover?
SPY Weekly – A bounce from a projected low could lead to a bounce to Fib levels SPY 120 (23.6%), or 127 (38.2%). Both of these level match up with previous consolidation areas. With the large scale selling we have seen, this dog could run with no legs.
IWM – Russell 2000 – Now this is a dog of the indexes. For the longest time I couldn’t figure out why small caps could be relatively strong in the deteriorating economic environment. Well, the hen has come home to roost. Using a Elliot Wave Long tool, the target is 61 to 56 on the downside. Retracements from the 2002 lows are 38%- 65.01 (broken on Thursday), 50%- 58.81, 61.8% – 52.62. I believe this to be the weakest of the charts and furthest from support. Pair trade short IWM/long SP.
While I was driving to my PrePaid Legal event on Saturday I was thinking about Gold (GLD) a chart I reviewed on Wednesday.
Our current economic reality is uncertain and deflationary. Only 1/2 good for gold. Ben Bernanke being an expert in the Great Depression will do everything in his power to re-inflate the economy. My guess is that this weekend he has been on the phone with every Central Bank official to warn of “impending doom”. This includes Jean-Claude Triche and the ECB. The ECB is stuck in the same mindset the US had in 1930, “We can’t have inflation.” And added is the European memory that, “Hyperinflation was terrible for us in the past”. So they keep the rates high. If that happens, look out EC you are dead meat.
So what may they do? A coordinated Global effort to lower rates early in the week. In other words, attempt to re-inflate. The intent would be to create inflation to stimulate spending and stabilize prices. And using the “‘don’t fight the Fed motto”, I think we may see a magnificent pop in gold.
GLD Weekly – We have seen a 62% retracement, which is our defined stop. The uptrend is undeniable, however so is the double top. Play this one smart. Know your exits before you enter.
Here are two Podcasts worth putting on your listen list:
Daily – The Real Story w/ Frank Curzio
Weekly – The Disciplined Investor w/ Andrew Horowitz
Sometimes rules are so random that they just need to be changed.
There is rule for investors/traders. It was created after the dotcom bubble. Many traders lost plenty of money. Unfortunately they only knew how to trade in bull markets. When then mighty bear came, they crashed and burned. Now many traders are arming themselves with knowledge of trading in a variety of markets, as long as the Gov’t doesn’t intervene with rules which don’t allow the market to function properly. i.e. Short selling bans.
Well to protect/govern/legislate/??? traders/investors the SEC/FINRA passed a Pattern Day Trader Rule. I have included in the letter to my Congressmen below the basic definition, and why it should be repealed.
If you agree with me, I would like your support. You can alter the below letter, and send it to your Congressman. Here is the link to find your Congressman’s email/fax.
This is the most ludicrous rule I have ever had to abide by. Other than, “Finish everything on your plate.” But I digress. Exchange Rule 431 has caused me so much frustration at times, I can hardly see straight.
I have There is a current regulation called the “Pattern Day Trade” Rule. This rule NEEDS to be repealed immediately.
I trade 5 different accts. Brokerage, IRAs, Futures, etc. In 3 accts I have exceed the 25K and I can operate with proper trading discipline and minimize the losses due to recent volatility. Yet the other 2 are less than the regulated amount. And in rapidly changing market conditions I can’t make the amount of money I make in my larger accts, and risk much larger losses.
According to this rule, If I: Make 3 day trades in equities or options with a 5 day rolling period. I am labeled a “Pattern Day Trader” for the accts with a less than 25K. Yet, it is perfectly fine for my other 3 larger accts.
It seems absurd. It is a relatively new regulation (3 yrs, I think) and it does absolutely NOTHING to protect me. In fact, it could lead to oversized overnight losses.
There are several issues with the regulations imposed on small traders (not necessarily unsophisticated).
1) Limits execution of good trading discipline. i.e. When buying a stock (or another position), I immediately set a stop loss. Buy for 50, if it goes below 45 I exit with a $5 loss.
If I enter a position, and set a stop target. I may be stopped out on the same day. If this happens 3 times in a rolling 5 day period (easy to do in current market conditions), the trader will not be allowed to exit position 4 (and risk catastrophic losses). And to make matters worse the trader/investor will have his acct locked for 90 days. For a crime against whom??
2) Overly regulated. A maximum security society. We need to stop this over regulation.
Regulators are too concerned with keeping us “safe”. I don’t want regulated safety, like this. It is ok to provide safety against fraud, and inside information but not to regulate different laws for different financial levels of investors/accts. I have 5 accts which I trade. In 2 brokerage acct over 100K, 1 proprietary futures acct, and 2 others below 25k. In 3 accts I am consider a “sophisticated” investor, yet the other accts I am not. What gives? I feel much more secure in my larger accts, and I am able to grow that acct more quickly because I am able to be more nimble as market conditions change, or move rapidly when mispricings occur.
In the two “average Joe” accts.
If I buy 4 equities on a given day, and Goldman Sachs/Hedge Fund does the same, and later in the day something significant happens (i.e Middle eastern conflict, surprise NO SHORTING regulation), both GS and I decided we don’t want to be have that risk in our accouts. Who looses? Me. GS exits their 4 positions and then turns around and pushes the stock down, yet I can only exit 3 positions. If I choose to exit 4, my acct won’t let me or I am banned for trading that acct and labeled as a Pattern Day Trader. Who was this law designed to protect, it sure isn’t me.
3) Outdated regulation.
Although this regulation is only 3 years old, it is no longer relevant. Perhaps it was created to prevent overtrading and excessive commissions. Commissions are very, very low. They are much less expensive than having to hold overnight positions in the case of a rapidly changing market condition, and a move against my positions.
4) Who does it benefit?
This teaches the average individual that they are not sophisticated enough to handle their own money. And when they try, they are dissuaded from using proper money management practices. It further suggests they should give their money to a large Money Manager who operates with different regulations. My investment disciplines and returns have been superior to the large money managers because I am able to protect myself by moving more nimbly, yet I get handcuffed with these regulations.
I truly hope that the regulating institutions recount their decision, and repeal this Pattern Day Trader regulation.
Please Please consider my request.
Today put me over the edge and caused me to write this letter:
On days like this, I am having gains from a well-timed and well-planned trade. Yet I don’t want to get out when some piece of news has hit the wire because I don’t want to take away 1 of my 3 weekly intraday trades, and underlying has not reached my target price..
With current market volatility the stock races against me. I take a loss and also lose 1 of my 3 trades. Remind me how the SEC and FINRA are trying to protect me?