Bear Cave 2 (Bull Allowed)

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Saturday, February 15, 2014




Sloping Trendlines



I have been asked this question by some readers and wanted to tackle it here. Many have noticed that I do not often use down-sloping or up-sloping trendlines in my analysis and wonder why.

In the earlier days of my trading career, I relied on them rather heavily. However, the longer I ply my profession it seems to me that their value has decreased considerably. I chalk this up to the changing nature of computerized trading. That is another lesson in and of itself but suffice it to say for now that the vast majority of hedge funds do not "think" when issuing buy or sell orders - they REACT, more specifically, their computers react. This buying or selling comes en masse - there is not the least bit of finesse or skill involved with it. It is more akin to a wall of money slamming into a market and brutally shoving it higher or dropping it lower.

In the past, there tended to be more discretion with trading orders - now we have gone over to the systems trader which means the impact on price tends to get exaggerated at times because nearly all of the computers are reacting to the same thing at the same time. This tends to create imbalances in the demand/supply equilibrium in the market which take some time to sort out.

Trader Dan's Market Views
 
TODAY'S ACTION for Friday

Sure, the dollar is crap, but….

FEBRUARY 14, 2014 2:50 AM GMT ·
Unlike many of my colleagues, I am not a dollar bear. I see no evidence on the charts that the dollar is about to do much of anything, let alone collapse. There are reasons for this that go beyond the technical evidence on the long-term charts. The dollar is crap, oh yes. But it still has enough swagger to command the world’s fear, awe and grudging respect. For more on this, see my Dollar Index tout below.




DXY – NYBOT Dollar Index (Last:80.21)

FEBRUARY 14, 2014 8:37 AM GMT
The drumbeat of dollar bears has grown louder in recent months, with some of my colleagues suggesting that a collapse is imminent. Technically speaking, I’m just not seeing it. The Dollar Index has in fact been one of the world’s most boring trades for the last three years and is currently thrashing around near 80, about where it was ten years ago. In the intervening decade, although there have been some big swings, it has crossed trendlessly up and down through 80, the approximate midpoint of a 20-point range, no fewer than 15 times. If I had to bet which direction the next, presumably insignificant, move will be, I’d give 6-5 odds that it will be up.

Don’t’ get me wrong: I completely agree with those who tirelessly assert that the dollar is crap. Even so, it is the crap the world chooses to hoard against the threat of financial collapse; it is the crap that financiers bet on whenever some geopolitical crisis causes a global tremor; and it is the crap that the paper shufflers bet with — to the tune of a quadrillion dollars — whenever they want to make big money with relatively little work. These factors greatly outweigh any reservations they may have about taking dollars in exchange for all of the things that Americans consume. Crap or not, the dollar will remain buoyant until the day the rest of the world realizes the U.S. economy is kaput and that the confidence that supports the financial shell-game was egregiously misplaced. This will happen with the swift, destructive force of a nuclear blast, by the way, rather than via a comfortable and more or less predictable process of accretion.

Trading Newsletter for Gold, Silver, Stocks and Mini Indexes
 
Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion

February 17, 2014, 7:23 AM


Soros Fund Management has doubled up a bet that the S&P 500 SPX is headed for a fall.

Within Friday’s 13F filings news was the revelation that the firm, founded by legendary investor George Soros, increased a put position on the S&P 500 ETF SPY by a whopping 154% in the fourth quarter, compared with the third. (A put or short position basically gives the owner the right to sell a security at a set price for a limited time, and in making such a bet, an investor generally believes the security is going to decline.)

Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion - The Tell - MarketWatch
 
February 17, 2014
Topping Patterns and the Proper Cause for Optimism

John P. Hussman, Ph.D.

Needless to say, our concerns are little changed by the last week’s advance, and with this low-volume reflex rally in place, we may observe a much deeper and uncorrected loss if the prior resolutions of severely overvalued, overbought, overbullish, rising-yield conditions are an indication. The expectation of impending market losses should certainly be tempered by the fact that similarly extreme conditions in February and May 2013 were largely uneventful, and were followed by further gains. Still, it’s important to recognize that extreme syndromes of overvalued, overbought, overbullish, rising-yield conditions have previously created risk and instability over a period longer than a few weeks or even months.

Hussman Funds - Weekly Market Comment: Topping Patterns and the Proper Cause for Optimism - February 17, 2014
 
I just saw this on Marketwatch but you already posted, its not good for public sentiment.

robo said:
Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion

February 17, 2014, 7:23 AM


Soros Fund Management has doubled up a bet that the S&P 500 SPX is headed for a fall.

Within Friday’s 13F filings news was the revelation that the firm, founded by legendary investor George Soros, increased a put position on the S&P 500 ETF SPY by a whopping 154% in the fourth quarter, compared with the third. (A put or short position basically gives the owner the right to sell a security at a set price for a limited time, and in making such a bet, an investor generally believes the security is going to decline.)

Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion - The Tell - MarketWatch
Click to expand...
 
slayer72 said:
I just saw this on Marketwatch but you already posted, its not good for public sentiment.
Click to expand...

This is good news for us, there are plenty of folks out there willing to help him eat $h!t on that trade...I hope he eats it :D
 
How 2014 Could Be Like 1929

Feb. 17, 2014 4:05 AM ET

There has been a lot written about how the current stock market pattern looks like 1929, especially since Mark Hulbert highlighted it in a column. Most of the commentary is overly alarmist. One of the most balanced perspectives on the issue comes from Cullen Roche of Pragmatic Capitalism. The most important point here is that McClellan isn't expecting a 1929-style market crash, but a far more muted decline [my emphasis in bold]:


This chart first appeared late last year when Tom McClellan posted it to his site. I post Tom's material here at Pragcap on occasion and find it to be of consistently high quality. I didn't post that original piece because I thought some people might misinterpret the 1929 chart and believe that it was fear mongering. That's exactly what happened. And after a bit of controversy followed the original post Tom posted a follow-up which explained the chart in more detail. It was a very useful explanation that cleared up much of the confusion. But the confusion has continued today primarily because some other people have picked up on the chart and used it to imply that we could be on the verge of that 40%+ crash. The thing is, Tom never implied this. He was simply pointing out that the market pattern was similar. In other words, the chart below very clearly shows that the potential downside risk to the Dow is about the 14,000 level. Therefore, the downside risk according to Tom's analysis is 12.5%. NOT 40%

How 2014 Could Be Like 1929 [iShares FTSE/Xinhua China 25 Index (ETF), SPDR S&P China (ETF), PowerShares Gld Drg Haltr USX China(ETF), ProShares UltraSh FTSE/Xinhua China 25, Direxion Daily China Bull 3x Shares ETF, iShares MSCI China Index Fund] - S
 
Tuesday, February 18, 2014

"The easiest way for your children to learn about money is for you not to have any." --Katharine Whitehorn

There are many ways to benefit from a slumping stock market, but perhaps the best one is by purchasing an actively managed fund of short U.S. equity positions with the symbol HDGE. By owning this fund, you won't be forced by your broker to repurchase your shares because your broker can no longer borrow them. In addition, if you sell short directly, then you will achieve a short-term capital gain taxed as high as 43.4% even if you hold your short position for more than one year. However, if you buy HDGE, then if you hold it for at least one year and one day it will qualify as a U.S. federal long-term capital gain which has a top tax rate of 23.8%. If you are in a low tax bracket, then the differential is 15% short-term versus 0% long-term. If you prefer shorter-term trading, which is ideal for a retirement account, then you can buy HDGE whenever VIX is depressed, with the idea of selling it whenever VIX has recently surged to a short-term peak and begins to retreat.

Speaking of VIX, almost no one has noticed that VIX has formed a pattern of higher lows since it bottomed at 11.05 on March 14, 2013. For nearly one year, VIX has been forming a pattern of several higher intraday lows. The last time that VIX bottomed at a multi-year nadir was on December 15, 2006 at 9.39; we know what happened afterward. It's not different this time. VIX measures the implied volatility of a basket of options on the S&P 500 Index; a slow rise in VIX over the course of one or two years indicates that the most knowledgeable options traders are progressively charging more to insure equity portfolios. The media sometimes discuss VIX, but they don't know how to interpret it properly. Similarly, an extended pattern of lower highs for VIX, such as we experienced from October 2008 through March 2009, indicates that a strong U.S. equity bull market is approaching.

True Contrarian: "The easiest way for your children to learn about money is for you not to have any." --Katharine Whitehorn
 
ESH14 – March E-Mini S&P (Last:1836.50)

FEBRUARY 19, 2014 4:11 AM GMT
Tuesday’s timid feints in both directions were not even worth the day trader’s time, much less a reason for anyone to change one’s outlook, be it bullish or bearish. My gut feeling is that the S&Ps will tank after making a marginal new high. However, so many of my colleagues evidently envision the same scenario that we must remain on our guard against a collapse without the usually obligatory head-fake. Its purpose would be to discomfit bulls as badly as bears have been discomfited by February’s short-squeeze rally. By now, though, even without a last-gasp thrust, bulls are probably sufficiently complacent to ride that first leg to hell without even realizing they’re aboard. We’ll keep to the sidelines for now, but you should stay tuned to the chat room if you’re interested in taking whatever pot-shot opportunities may arise in the course of the day.

ESH14 – March E-Mini S&P (Last:1836.50)
 
I put on two short positions today while working around the house, but I had no idea JDST would be up so much.... Selling before the close.

2/19/2014 11:13:04 AM ET JDST Bought JDST @ $18.29 Executed

2/19/2014 11:17:11 AM ET SDS Bought SDS @ $29.469 Executed

Good trading.
 
CrabClaw said:
nicely done!
Click to expand...

Thanks, but it was just a lucky trade. I had NO IDEA that GDXJ/JNUG would sell-off this much today. Kaplan thought GDXJ would pull-back and head back down under 38.00 again to shake out the new Bulls and it just might. I'm looking to buy JNUG again for a short-term long-trade, and GDXJ for a position trade soon. Waiting to look over things tonight, but things could move quickly once we bounce back up Brotherman, so have a plan if you are thinking of buying or adding.

Maybe we will get the BT Rambus talked about. He was fully long for today's beat-down.

http://rambus1.com/wp-content/uploads/2014/02/JNUG-BUY-39.48.png

http://rambus1.com/wp-content/uploads/2014/02/NUGT-BUY-51.25.png

Good trading.
 
A comment from Kaplan:

Update #1975: Wednesday night, February 19, 2014: Revert back in anger.

One important difference between a bear market and a bull market is that, in a bear market, corrections often lead to further declines. In a bull market, pullbacks are more frequently followed by rapid recoveries. Both may initially appear to be alike, thereby confusing investors who don’t realize that an important trend change has occurred. If gold drops below 1300 U.S. dollars per ounce, thereby triggering a new round of selling, this will likely discourage recent momentum players who had jumped aboard the bandwagon specifically because gold had crossed above the psychologically important 1300 level rather than because of a perception that fundamentals had improved for being long the yellow metal. Such is the nature of strong bull markets: they behave in such a manner so the fewest investors will benefit from them. Knocking out stop-loss orders by technical traders is one way that this is achieved. Most momentum players place stops near easy-to-remember price levels like 1200 and 1300 rather than numbers such as 1273.90, for obvious reasons. Round numbers are often retested to the downside in a bull market and to the upside in a bear market, specifically to clear out those who are not really committed to an investing concept but are merely playing games with charts.

There’s an old joke which goes like this: a broker contacts a client urging him to buy something at 40 dollars per share. The client says, “You told me it was a good buy at 30, so I got some.” The broker replies, “I know you did and those shares are still in your account, but it’s an even better bargain at 40.” The client complains, “If I only knew it would be a better buy at 40 than at 30, I would have waited patiently for it to reach 40 before accumulating any.” In real life, brokers don’t have to convince clients to buy something at a more expensive level, because people perceive a recent price increase as confirming the superiority of any asset and are therefore much more eager to own it. Many subscribers were more eager to buy GDXJ near 45 than near 29, and after its recent pullback are less willing to add than when it was higher a few days ago. This is the exact opposite of how most people act in a store when they see their favorite items on sale, which therefore begs the question: why do people behave differently in the food or clothing markets than they do in the financial markets? I will save a full answer for another update; a simplified response is that the fundamentals are nearly identical but the psychological perception is radically different. If a piece of clothing made of a certain material by a certain manufacturer is selling below what you know is its usual price, then you perceive the irrationality of such a bargain and you are eager to take advantage of it. In the financial markets, however, most people don’t perceive or appreciate fair value. If a stock or fund drops in price, most people believe that it’s reflecting some kind of fundamental deterioration which could continue indefinitely. If a financial asset rises in price, most investors perceive that it is gaining acceptance with others and therefore that it’s worth owning. Whenever there is widely broadcast news about any asset, this especially encourages buying that asset if it has recently gained in price and selling it if it has recently declined. The reason is that the news provides traders with “reasons” for acting; as humans, we value what appear to be logical cause-and-effect relationships above intuition or other methods for reaching conclusions.

True Contrarian
 
Is GDXJ headed back to 38.00? Some folks think so including Kaplan, but I sure don't know.

I saw the chart below in another chat room.

http://forum.rambus1.com/wp-content/uploads/2014/02/sc-298.png

Steve still has his bet on with Jim, and I think Steve will lose, but that's a guess on my part. As it was from Steve that GDXJ would hit 37.75 before it hits 46.00.

The Bet:

One of the most reliable indicators has been the opinion of certain emotional traders whom I have gotten to know, some of whom have been calling me on the telephone or emailing me for decades. These folks will nearly always buy or sell near an important turning point--not always a long-term top or bottom, but frequently an intermediate-term high or low. Some more experienced traders with better track records also give useful signals if I count the frequency of their calls or emails; they will send the greatest number of messages about how brilliant they have been just before they make their biggest mistakes. One fellow named Jim last purchased GDXJ and told me about it in late August 2013; not surprisingly, he unloaded it around the middle of December. Jim called me shortly before noon Tuesday to tell me excitedly that he had bought GDXJ again. I haven't sold any of my similar holdings, but if you're the kind of trader who likes to hedge in the short run by selling covered calls or via any other method, this is probably the best time to do so in almost a half year. If you do sell covered calls, only pick those which are out of the money or not more than one strike in the money and which expire in more than 30 days, or else you will invalidate the holding period of your underlying security and you'll have to pay taxes at the high short-term capital gains rate. If you don't have many years of thorough experience with options trading, then ignore this suggestion completely because whatever you do will result in losing money and making a hopeless mess of your account. Also keep in mind that if you sell GDXJ with the idea of buying it back after it drops 10%-15%, then you'll end up paying much more in taxes than you'll save in trading, and create lots of headaches. As a general rule, you have to make a 140% profit taxed as short-term capital gains to equal the profit from a 100% profit taxed at the long-term rate, assuming you live in a state with an income tax averaging 9% as in New Jersey. If you live in Canada where there are no long-term capital gains or you have gold and silver mining shares in retirement accounts, and you've been trading options since you were a callow youth, then good luck with the covered-call idea. If it doesn't work out, remember that I'm not doing anything with my own accounts or the accounts of my clients.

I made a bet with Jim: I have to treat him to dinner at his favorite New Jersey restaurant if GDXJ reaches 46 before reaching 37.75 (which was symmetric in both directions at the time we reached the agreement); if it falls to 37.75 first, then he treats me instead. It's worth noting that on January 23, 2014, when GDXJ was already in what will prove to be a well-established uptrend, it plummeted in less than two trading days from 38.22 to 34.28 which was a rapid correction of 10.3%. Even if GDXJ rallies further before deciding to retreat, a double-digit decline is probably a likely scenario. From October 2008 through July 2009, I continued to accumulate GDX into higher lows (GDXJ didn't exist at that time), with the rule that I would only buy it after it had dropped at least 20% from its most recent peak. I was able to make several purchases during those months, indicating that even for GDX which is less volatile than GDXJ, periodic double-digit declines during a powerful rally are commonplace. Anything which is likely to quadruple, as I expect GDXJ to do from its December 6, 2013 8:30 a.m. pre-market bottom of 28.80 (it later touched 28.82 during regular hours on December 23, 2013), will necessarily have to suffer such retracements as par for the course.

In case you're an emotional trader without decades of experience: leave your holdings intact in gold and silver mining shares, but don't buy any more at the present time. These will still end up doubling or tripling from their current levels by the first half of 2015 and perhaps even sooner, but too many people are getting excited about them in the short run.

True Contrarian
 
Two Charts Say the Market Rally Is Coming to an End
By Jeff Clark
Thursday, February 20, 2014

The stock market has had a great run this month. But it looks like the rally has just about run its course.

Many technical indicators are showing negative divergence right now. In other words, as the S&P 500 has been making higher highs on the chart, the momentum indicators have been making lower highs. That's "negative divergence," and it's a strong warning sign that the rally is nearing an end.

So now is not the time to bet aggressively that stocks are going to keep pushing higher. But it's probably a good time to make a bet on the short side of the market.

Growth Stock Wire | Stock Market Analysis, Market News & Stock Picks
 
February 25, 2014 2:45 am GMT



It’s telling that the short squeeze DaBoyz engineered yesterday to kick off the new week failed to reach the 1859.50 target shown. The actual high fell 2.75 points shy of this objective. Although that may not sound like much, when a price pattern is as clear as this one, even a small target-miss suggests that there was not much real power driving the rally. My hunch is that the usual suspects have milked short-covering dry for the time being and that it could take at least a few days to prime bears for another run-up.

This would be more easily accomplished if DaBoyz can keep the correction shallow; however, it is they who will be on the ropes if this vehicle takes out yesterday’s 1830.25 low in the process. Under the circumstances, you should trade with a bearish bias, since the intraday charts are bearishly impulsive. The potentially tradable pattern I see at the moment, using the 3-minute chart, comes from the following coordinates: a=1350.25 at 3:48 p.m. EST on 2/24; b=1842.00; and tentative c=1846.25. Please note, however, that it would take but a 1.00-point rally to generate a bullish impulse leg on the 3-minute chart, so scalpers should consider both sides of opportunity.

$ESH14 – March E-Mini S&P (Last:1845.75. )
 
What to Do When the Stock Market Is "Wrong"
By Jeff Clark
Tuesday, February 25, 2014

The stock market should be falling.

Last week, many technical indicators were showing negative divergence. We also had an early warning sign that the Volatility Index (the "VIX") was about to reverse. And the McClellan Oscillator showed that stocks were overbought.

Just about everything was pointing to a short-term stock market decline. But the S&P 500 made a new all-time high yesterday.

So here's what you should do now...

As you can see in the 60-minute chart of the S&P 500 below, the market doesn't agree with the technical analysis.

The market is "wrong." But as traders, we can't get caught up with that. It doesn't matter what should have happened. And we can't worry about whether or not the market may still decline. The bottom line is, for the moment, the momentum train is running higher. You can either hop on board, get out of the way, or get run over.

Personally, I prefer not to chase stocks higher into overbought conditions. Chasing overbought or oversold conditions leaves traders vulnerable to sudden reversals. That's a dangerous strategy.

But staying put and sticking with a trade that is going against you is even more dangerous.

It doesn't matter how "right" you are. If the market doesn't agree, it will run you over.

Growth Stock Wire | Stock Market Analysis, Market News & Stock Picks
 
This is special intraday update #1977b for Wednesday night, February 26, 2014.


I bought HDGE at 12.59 in the early afternoon using 0.10% of my net worth with the next rung in my ladder, which I would rate as a 7 on a scale of 0 through 10. HDGE is a fund of pure short U.S. equity positions, which will qualify for a long-term capital gain if you hold it for at least one year and one day before selling it. The current or upcoming U.S. equity bear market will likely end in the second half of 2016 or the first half of 2017. If you are a short-term trader and you use a retirement account, or you are a non-U.S. resident, you can also buy some HDGE with the intention of selling it after the next U.S. stock-market correction. Because the bear market is likely to be severe, this strategy could result in annualized gains exceeding 20%, although most of the total increase will likely occur in future years rather than in the upcoming year as bear markets of any kind typically experience their sharpest declines about 3/4 of the way into their respective lifespans.

True Contrarian
 
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