pebblewriter

Year: 2013

  • Break on Through

    MEMBERSHIP NOTE:

    I have added a Q&A section to the page discussing the fund in the works and will continue to expand it to include additional questions submitted by members. Those members who are accredited investors may learn more by clicking here.

    Also, I received many emails regarding the category of annual membership some of you have (charter or not.)  Because (1) it will take time to go back and check, and (2) I’d like to be able to offer an ETA on the proposed fund, I’m postponing the fee increase — probably through the end of the week.

    For those who haven’t checked in lately…

    The current annual membership price of $950 is going up to $2,500 shortly [why?]  For those monthly, quarterly and semi-annual members planning to renew in the coming months, it pays to grab a charter annual membership now, regardless of whether you’re interested in the fund and regardless of whether the fund comes to fruition.

    If you’re a regular annual member, it might also make sense to upgrade to a charter annual membership.  Even if your current membership doesn’t expire for months, the new rate will be higher.  Because it’s impossible for me to know exactly when the fund might be up and running, your membership could expire before you’re able to take advantage of the perks for annual members.

    And, if you upgrade to a charter membership, you wouldn’t have to worry about future fee increases if, say, the fund launch is delayed or you decide not to participate.  And, as mentioned above, you’d be eligible for a rebate of your fees anyway if you end up subscribing to the fund.  So, your downside is pretty limited.

    As always, any new membership will simply be tacked on to the end of your existing monthly, quarterly, semi-annual or annual membership.

    If you’re already a charter annual member, do nothing.  You’re golden.  Your annual pebblewriter.com rate is locked in for the life of the site and you’re already eligible for all the perks for the proposed fund.  The only thing left to do is forward membership information to every investor in your address book.

    *   *   *   *   *   *   *   *

    ORIGINAL POST:

    In the words of that prescient market technician from the 60’s…

    You know the day destroys the night
    Night divides the day
    Tried to run,
    Tried to hide
    Break on through to the other side
    Break on through to the other side
    Break on through to the other side, yeah…

    *   *   *   *   *   *   *   *

    We started yesterday’s session wondering whether the reversal at the red .786 would lead to a downturn or was Point B in a Butterfly Pattern. From the initial post:

    As we discussed last week, the reversal at the red .786 could be the full extent of a corrective wave on the way lower (the B wave in an A-B-C)  that is meant to test the bottom of the white or purple channels.  But, it could also be the Point B in a Butterfly Pattern targeting 1531 or 1540.

    We spent the day harvesting several 7-pt moves, waiting for some kind of breakout or breakdown. With a few minutes to go before the close, the markets approached the neckline of the Inverted Head & Shoulders Pattern we’ve been watching for the past week (dashed yellow line below.)

    The technical picture was mixed, but we went with the IH&S and went full long at 1525 as was our plan [After the Funding’s Gone – 1:45PM update.]    Thirteen points later and from this side of 1530, it was obviously the right move.  But, it wasn’t quite so obvious at the time.

    Now that we’ve broken on through to the other side, the question is “what’s next?”

    continued for members… (more…)

  • A New Analog: EURUSD

    As noted back on Feb 21, the EURUSD has broken down from its rising channel (white) and accelerated to the downside, breaking the Jan 4 1.2996 low and the psychologically important 1.30 level.

    The intersection of the purple .618 and two white channels at 1.38 will have to wait (till my next visit across the Pond, no doubt.)

    Losing the rising white channel hurts momentum quite a bit, but it’s the drop back through the 75% line on the falling white channel that represents the bigger problem for the pair.

    This channel dates all the way back to Dec 06. Reaching the top for the third time is still possible, of course, but it’s that much harder now that the pair needs to retake the higher channel line and mount a fresh attack.  Suppose it doesn’t?

    I’ve redrawn the falling white channel as red and will lower its top (for now) to reflect that possibility.  I’ve also sketched in a more relaxed rising channel (light blue) that reflects potential channel support at current prices (the intersection of the falling red .75 and the rising light blue .25.)

    I don’t know whether the pair needs to retest the falling white midline or not.  The bottom of the new light blue channel intersects with the red .75 in mid-March.  Also there is the .25 of the very large rising purple channel, which provided a huge bounce in Jun 2010.  It’s easier to see in the LT chart below.

    Here’s the really big picture.

    Several months ago, I noticed that the entire chart looks a bit like an expanded replay of the little dip way over to the left.  Playing with channels, I got some interesting results.

    The huge rising white channel seems to matter quite a bit. Note the support it offered from Aug 93 – Jan 97.  When it broke, the pair fell precipitously to the midline, shedding .15 in about six months.

    The midline offered support again through Feb 99, then completely fell out of bed (equities maxed out in Mar and Aug 2000.)

    EURUSD spent 18 months in the penalty box confirming the channel bottom until finally breaking out early in 2002.  It nearly reached the midline again two years later, and spent almost 4 additional years grinding higher – reaching 1.60 at a little over the 1.618  before zigzagging lower to its present level.

    We’ll circle back to these charts Tuesday and take a look at the analog’s implications for the US dollar and equities.

    To be continued…

     

  • Charts I’m Watching: Mar 1, 2013

    Getting a nice sell-off following the completion of the Bat Pattern we were tracking yesterday.  Shown below on the eminis…

    The downside path is clear.  But, bulls will probably go for the obvious IH&S with what should be a decent bounce somewhere around 1495-1500.

    The dollar reached our 82.136-82.281 target from several days ago, and the EURUSD has lost another important level of support: 1.30.

    More in a few…

    UPDATE:  09:40 AM

    SPX opening down sharply…Note that it turned yesterday at 1525.34, only 36 cents from one of the two targets we identified just before it opened at 1515.99.

    The market didn’t fall out of bed overnight, so I’ll take a long position on the open this morning in anticipation of tagging the .786/.886 combo at 1521.11/1521.19 or the .886 at 1525.70.

    I remain full short from 1525.34 (the 2:20 update for members) but will play any bounces as mentioned above.

    The key level today is 1496 – the bottom of the purple channel.  If this is broken, lots more downside where that came from — especially if the previous low at 1485 is taken out.

    UPDATE:  10:00 AM

    Nice post on Zerohedge earlier: You Rarely Know You’re in a Recession Until it’s Too Late.

    Referring to an ECRI report, ZH makes the following points:

    1) Think back to 2008, a couple of days before the Lehman failure. Looking at the data in hand, you would see GDP growth at about 1% in Q1 and 3% in Q2. More specifically, Q2 GDP growth had just been revised up on August 28 from 1.9% to 3.3%, sparking a 212-point Dow rally that day. http://www.nytimes.com/2008/08/29/business/29econ.html?_r=0

    2) In March 2001, 95% of economists thought there would not be a recession, but one had already begun.

    3) No economist predicted the 1990-91 recession beforehand.

    4) Hardly any economists recognized the severe 1973-75 recession until almost a year after it started. Indeed, that recession began with the ISM at 68.1, and payroll jobs growth did not turn negative for eight months.

    5) In 1970, unaware that the economy was nine months into recession, none other than Paul Samuelson said that the NBER had worked itself out of a job, meaning that improved policy expertise had made recessions very unlikely.

    6) In three of the last 15 recessions – specifically, in 1980, 1945, and 1926-27 during the Roaring Twenties – stock prices remained in a cyclical upturn.

    ECRI has caught a lot of crap for their recession call last Fall.  I know the feeling, as most economists I know (yes, I travel in exciting circles) think the worst is over.  I wish I shared their optimism.

    I mention this because of the positive ISM Mfg Report released this morning.  It’s being cited as proof of expanding activity.  Remember, the PMI is a survey of purchasing managers’ opinions about their business.

    They read the same newspapers and websites, watch the same TV, and are subject to the same MSM brainwashing as the rest of us.  A better than expected snapshot in time of their opinions does not mean the economy is just fine.

    UPDATE:  10:35 AM

    We got a bounce off 1501 — pretty close to the 1495-1500 range where we expected it.

    Any push back into green territory would be cause for an intraday long with tight stops, but not for giving up shorts.

    We just hit the .500 Fib of this morning’s decline, and the .618 is at 1516.63.  The top of the white channel is up ahead at 1518.50.  Any of these would take the index positive on the day.

    Would that mean the correction is over?

    continued for members... (more…)

  • Charts I’m Watching: Feb 28, 2013

    Yesterday was a great example of the beauty of Harmonics.  In conjunction with my RSI work and channel work, we were able to rack up 23 points on a day when the big picture is still fairly negative (remember Italy, the sequester, negative GDP, retailers’ horrid guidance?)

    By drawing important Fibonacci lines in the sand, we made the market prove to us it had more upside by crossing those lines. As we’ve discussed many times before, Harmonic Patterns don’t, by themselves, always tell you what the market is going to do in a particular time frame.

    But, they do an excellent job of “if-then” forecasting, such as “if the market reverses at Point A, we can be very confident of reaching Point B.”  Again, combining this information with other fairly reliable patterns, we can capture most of the points most of the time

    The market didn’t fall out of bed overnight, so I’ll take a long position on the open this morning in anticipation of tagging the .786/.886 combo at 1521.11/1521.19 or the .886 at 1525.70.

    Fresh charts in a few…

    UPDATE:  9:45 AM

    The channel placement is still somewhat speculative.  But, again, in a volatile situation like this, the market will show us whether it has more potential or not.

    We are nearing the .786 retracement of the move down from 1530, and the .886 of the move down from 1525.  They’re on top of one another, lending added validity.  So, all else being equal, we can expect a reversal here — especially given the 60-min RSI chart.

    Note we’re taking a 2nd crack at breaking out of the yellow channel at 61 — the range in which most moves fail.  Stay tuned.

    UPDATE:  9:50 AM

    Just tagged our target level, so I’m booking the 5 points from this morning here at 1521.29.

    A strong move back up through 1521 opens up 1526.  The immediate downside target is around 1510 a combination of Fib levels and the next lower purple channel line (the 25%.)  If that doesn’t hold, the bottom of the purple channel is currently down at around 1494.

    BTW, I’ve had a number of questions about the new fund in the works and the changes it might bring for this website.  I think the past few days are an excellent example of why a fund makes a lot of sense.  Yesterday, I was in and out of the market (on these pages) six times for a total of 23 points:

    1. Bought at 1497
    2. sold at 1507 (+10)
    3. bought at 1507
    4. sold at 1514 (+7)
    5. bought at 1514
    6. sold at 1520 (+6)

    Twenty-three points on 1497 is a little over 1.5% — a decent day, especially given that it occurred on a bounce in the midst of a downturn, which are generally tricky.  Twenty or thirty of those in a year would be a great year for most investment advisors.

    Given that it takes a few minutes to identify a situation, a few more to chart it, a few more to make the chart readable for members, and more still to post it online and compose a cogent comment or two, it’s challenging to get that information out to readers fast enough so that you can capture every single point that I do.

    Then there’s the issue of how to trade the information.  I just shorted SPX at 1521 with the expectation of an initial 10-point drop.  Suppose it pops up to 1525 60-seconds later?  Were you stopped out?  Do you hold on?   Wait, now it just dropped 20 points!  You refresh the screen…where’s the update!?

    While you’re anxiously refreshing the webpage, I’m looking at RSI channels (in multiple time frames), various chart patterns, checking the dollar/euro/bonds/VIX, looking for any news just out, etc.  I make a determination and either trade on it or sit pat.

    I then start the process of updating the chart and posting it online with supporting comments.  Best case…3-5 minutes.  Worst case, all hell is breaking loose and it takes 10-15 minutes or more.

    This is why I like the idea of a fund.  For better or worse, it’s the quickest, most efficient way to transfer value from my noggin into your net worth.  Investors can go on with their business meeting/golf game/ski run and leave all the sweating it out to me.

    BTW, I know a fund isn’t for everyone. For the rest of us, the website will continue to provide the exact same kind of information it always has.  But, it will evolve, ideally becoming more efficient with streamlined delivery accompanying the charts for the pebblewriter.com veterans and investment professionals who want to go it alone.

    For example, those who have been around for a while would completely understand a comment like “hit .786/.886 combo at 1521, Gartley/Bat or Butterfly Point B?  Charts later.”   That way, I could cut down on the time it takes to convey the essence of the post.  I’m also looking into ways to post the information on a chat-like platform, which might also eliminate email and log-in problems.

    The trick with investment advisor clients is finding a way to deliver timely information at a reasonable price without giving away the secret sauce to potential competitors.  It will mean substantially higher fees for future subscribers ($2,500 on Mar 4), but won’t affect current members who have taken advantage of the current membership offer.

    Have you locked in your subscription price yet? CLICK HERE

    More shortly…

    UPDATE:  12:50 PM

    SPX won’t go down without a fight.  It has retraced almost .886 of its declines from 1521.37, meaning it’s about to reverse at 1520.65 and head lower (a Bat Pattern) or is destined for the 1.618 at 1525.29 — also the .886 retracement of the 1530-1485 decline (1525.70) and the level of the last high on the 25th.

    As noted earlier, a push through 1521 opens up 1526.  SPX has till about 1:30 EST to decide: push up through 1521 or a channel breakdown.

    Note the close proximity of the white channel line, which will always, always offer support… until it doesn’t.

    The RSI picture is mixed at present, so we’ll stay focused on harmonics and channels.  Looking at other indicators, the dollar is hanging in there in its own rising channel.

    It recovered its midline just before equities opened this morning, and broke out of its a channel on its 15-min RSI.  It tagged 82, but hasn’t yet been able to break above — much less reach its short-term target of 82.136-82.281.

    UPDATE:  1:20 PM

    There’s our answer, a breakout above the .786/.886 Fib at 1521.11.

    Playing the long side again, with initial target of 1525.70, trailing stops starting at 1521.

    Charts in a few…

    UPDATE:  2:05 PM

    Getting pretty close, now.  This should also be a tag on the large purple channel midline and the proposed yellow channel top.

    UPDATE:  2:20 PM

    Let’s review the implications to our forecast of tagging 1525.70.  We started into this yesterday, but got interrupted by a pretty wild intra-day ride.

    continued for members… (more…)

  • The Big Picture: Feb 27, 2013

    ORIGINAL POST:  6:00 AM

    SPX ended yesterday just below our 1497 trigger point at the neckline.  I know the bulls would love to blow through this level and negate the H&S, but I think they’ve really got their work cut out for them, especially given the political mess in Italy and the looming US sequester.

    Bernanke isn’t likely to say anything new today.  And, judging from AAPL’s price action, the market isn’t looking to Cupertino for salvation.  The durable goods data?  Ho hum…  Saying it was a good number if you ignore defense and aircraft is like saying a shark attack was fine except for those pointy things in their mouths.

    Defense is due to get a lot worse starting next Monday.

    I’d put slightly greater odds on a breakdown of the purple channel.  As for targets, I’ve mentioned the 1474.51 level a lot – the Sep 2012 high and roughly where the SMA 50 was at the EOD (hat tip to Mike for the question.)

    I still think this area has potential, as a retracement to the .886 of the 1576-666 decline would set up a move to 1576 itself.  Why?  Think of stair-steps, where each major Fib tag or break is followed by a back test to a significant lower Fibonacci level.

    continued for members… (more…)

  • The Future of Pebblewriter

    Some of you have heard about the new Fund I’ve been contemplating for some time [more info HERE.]  While I’m excited about its prospects, I want to reassure members that  pebblewriter.com will still be here, putting out the same kind of market analysis for which it’s become known.  Sometime in the next few months, you may notice…

    The site will be more streamlined, focusing on existing members, fund subscribers and financial professionals who don’t require quite as much hand-holding.  Those of you who have been around very long don’t need another explanation of Gartley Patterns every time I chart one.  If you’re new, don’t worry; we’ll get you up to speed first.

    I might implement a premium chat-room format for active day traders.  I’m looking into ways to share trading information on a semi-live basis for both fund members and blog members without cannibalizing the fund.  Still much to be worked out here…

    The website (and customized services) are moving to a more sustainable business model that won’t compete with the fund.  That’s a fancy way of saying the cost of an annual subscription will increase to $2,500 on March 4 (except for charter members, whose rates are fixed.)

    This increase will cover the cost of hiring administrative support for the website (sign-ups, log-in issues, etc.) that will be necessary once the fund is up and running as well as some long overdue enhancements in technology and communications.

    I understand $2,500 represents a steep increase for some, but it is comparable to the annual fee charged to someone making a $100,000 investment in the fund, or a $150,000 investment in the average equity mutual fund.  And, I dare say, we’ve had better success than just about any mutual fund out there.

    Nevertheless – and,  in order to reduce the sting – I am extending the following offer:

    All members as of March 4 will have the opportunity to become a charter annual member — meaning your annual membership fee will be locked for the life of the site.

    If you are a current monthly, quarterly, semi-annual or non-charter annual member, simply purchase a new annual membership ($950) by March 4 and I will add one year to your existing expiration date.  All future renewals will be at the same rate for the life of the site.

    If you are just now joining (or recently joined) pebblewriter.com,  you may also join as a charter annual member at the current price of $950 before prices increase to $2,500 in a few days.

    SIGN ME UP!

    I value each and every member, regardless of your interest in the fund or portfolio size.  You made this journey possible!  I’m excited about this next step, and will continue to do my best to earn the faith you’ve shown by being a part of pebblewriter.com.

  • Bernanke Speaks

    PLEASE NOTE THAT MEMBERSHIP RATES ARE SET TO INCREASE ON MARCH 4.

    *   *   *   *   *   *   *   *

    A new day, a new bounce.  As we discussed late yesterday, SPX has reached the bottom of the purple channel that’s guided it since 1343.  So, naturally, we’ll get some reaction — probably at least to the white midline at 1495.

    Whether it sticks or not is pretty much up to Ben.  Press conference at 10AM EST.

    The yellow channel on the 30-min RSI shows decent support here.  Looks like resistance at the purple midline, though, likely in conjunction with the white midline mentioned above.

    I’ll be surprised, though, if we don’t make it all the way back to 1497 for a proper back test of the H&S neckline – yellow dashed line.

    UPDATE:  09:40 AM

    That’s close enough for me.  I’m closing my ST long position taken yesterday (3:50PM update) at 1490 for a 6-pt gain and will let my core short position ride — for now.

    Many Bernanke pep rallies have left me feeling like a crash test dummy.  I’ve learned to keep my stops tight or stay on the sidelines all together.  For intrepid day traders, I suggest staying nimble.  A breakout or breakdown is to be expected.

    But, we did just complete a H&S Pattern, and that counts for something — as do the incomplete harmonic patterns.  We’ll take a look as soon as the Bearded One is done scolding Congress for messin’ up a good thing.

    UPDATE:  12:30 PM

    Equities are clinging to gains following Bernanke’s testimony — which was mostly a non-event.  IMO, he said nothing to help the bulls’ or bears’ case, which means Italy and the sequester will likely drive prices over the next several days.

    We should continue to see periodic bounces over the balance of the day, but the onus is on the bulls now to turn the trend.  We’ll keep an eye on the 5 and 15-min RSI charts to determine breakouts that merit an intra-day long, and revisit the daily charts to get a sense of intermediate-term possibilities.

    continued for members… (more…)

  • Charts I’m Watching: Feb 25, 2013

    FOR MEMBERS LOOKING FOR NEWS AND INFORMATION ON THE FUND CURRENTLY IN THE WORKS, CLICK HERE.

    ANNUAL MEMBERS WHO SUBSCRIBE TO THE FUND WILL BE ELIGIBLE FOR PRIORITY, PREFERENTIAL PRICING AND MEMBERSHIP FEE REBATES.

    PLEASE NOTE THAT MEMBERSHIP RATES ARE SET TO INCREASE ON MARCH 4.

    *  *  *  *  *  *  *  *

    ORIGINAL POST: 09:30 AM

    High potential for a pop and drop this morning, with key levels being 1523.74 and 1527.10.  I’m operating on the assumption that this is a bounce in the midst of a larger move lower.

    Recall that we shorted at 1530.50 on Feb 19 (the 2:45 update) and went long for a bounce at 1499 on Feb 21 (10:20 update.)

    I’m taking profits on the long position here at 1523.60 and going full short again.  Any move up through 1524 is cause to consider an intra-day long.

    Why am I suspicious of this rally? The dollar has back-tested the 25% line in the big rising channel, as well as the 1.272 Fib in what looks like a Crab to the 1.618 at 82.281 (and red .618 at 82.136.)

    The DX daily RSI also looks strong, having broken out of and back-tested the red channel and making a beeline for the intersection of the white and yellow channels.

    UPDATE: 10:00 AM

    SPX is taking a crack at the .886 at 1527.10.

    I’ll take an intra-day long position at 1524 with tight stops.  Keeping the short position unless we move up through 1530.

    UPDATE:  10:10 AM

    That move didn’t take long to fail. A reversal here leaves a nice tag of the top of the white channel, a tag of the 75% line of the light blue channel, a near tag of the .886 (1525.84 v 1527.10) and a nice reversal candle on the 60-min chart.

    Closing the intra-day long at 1524, and full short again from 1523.60 (above.)

    UPDATE:  11:25 AM

    SPX broke back down through the big purple channel midline, which augers well for further downside.  Watch for a backtest to the midline (around 1519.)

    UPDATE:  2:00 PM

    We’ve racked up a nice 24 points since shorting this morning, which is especially cool on the heels of the 26-point gain from our long position (the bounce from 1497) and the 32-point gain since originally shorting at 1530.50 on the 19th.  That’s a 5%+ week — much appreciated after the market’s directionless churning in the days leading up to 1530.

    As we approach the .886 retracement (1500.54) of the rally from 1497 to 1525, we should be on the lookout for a bounce at the still-important 1500.  A good place to start is the  RSI channels on short-term charts like the 5-min. A break of the upper bound of a well-defined channel is always a warning signal of building momentum.

    The US dollar is approaching our 82.22 – 82.28 price target and the top of the daily RSI channels we charted this morning.  It will likely need a breather before attempting higher.

    Much of its strength is being attributed to euro weakness which, of course, is being blamed on Berlusconi’s unexpected success in the Italian elections.  It goes without saying that his reelection would be a disaster for the euro zone.

    The EURUSD, which had carved out a solid channel to the moon (well, 1.39 anyway) broke down and backtested the channel that’s guided its upside since last July.

    We should expect some support here at the .886 of the 1.2996 to 1.3710 rally at 1.3078 (also a potential price channel bottom in yellow.)  It’s also the bottom of an RSI channel (below in white) on the daily chart.

    But, I’m not so sure that this support will hold.  We could be looking at a drop to the bottom of the red/yellow/white RSI channels, meaning the pair takes out 1.30 support.

    As unpopular as Monti is with Italians, Germany thinks he’s just swell.  He’s been a team player, falling in line with Merkel’s efforts to salvage Germany’s investments throughout the continent.

    Berlusconi, who was heavily criticized by his former contemporaries around the time of his resignation, is a wild card whose election, at best, would leave Italy with a divided leadership at a time when a unified front seems essential to the euro’s continued survival.

    This is not what the bulls needed, especially as they try to get through the sequester week unscathed.

    UPDATE:  3:00 PM

    Adding the complications of the euro mess to the sequester mess makes for a very tricky path ahead for equities.  Last week, I theorized that a decline to 1490 would make for a deliciously ambiguous setup (for market makers, at least) to fleece the greatest possible number of investors.

    Does that scenario still make sense?

    continued for members… (more…)

  • The Fund

    A couple of months ago, I mentioned I was looking into starting an investment fund.  I’ve decided to move forward with it.  There are several reasons, but the two main ones are:

    1. FORMAT: using a blog to convey market information that produces consistent results for the average armchair investor is difficult; and,
    2. BUSINESS MODEL: while enormously enjoyable, the amount of work I put into the website is, unfortunately, not proportional to the financial reward.

    THE FORMAT

    As we come up on the one-year anniversary of pebblewriter.com and two-year anniversary of pebblewriter.blogspot.com, I’ve taken a long, hard look at the website’s effectiveness.  What I do is sometimes fairly complicated, which explains why almost half of our members are investment professionals (investment advisors, brokers, etc.)

    The balance are split between pretty serious investors who have the time and energy it takes to learn and implement my techniques, and those who don’t (seriously, who wants their surgeon taking a break during an appendectomy to trade his portfolio?)

    In blogging, it’s tough to write a post that satisfies the needs of all three groups.  Some members want to know how the watch works, while others simply want to know what time it is.  Others, especially those new to the site, just want to be less confused.

    Even when I pen the perfect post, there’s always the issue of getting information out quickly.  Charting already takes a lot of time.  Making the charts presentable and offering even minimal explanation obviously takes even more.  In a fast-moving market, this can affect performance.

    I believe a fund would allow investors of all kinds to benefit the greatest from the research I do. When I make a trade decision, they won’t have to worry about deciphering the information or being available to act on it.  It’ll just happen.

    I’ll continue to offer research for determined do-it-yourself’ers who don’t need quite as much hand-holding — perhaps offering periodic webinars to discuss things in more detail.  And, of course, I will continue to offer specialized services to those professionals who use my technical analysis to augment their own analysis.

    BUSINESS MODEL

    My hope in starting pebblewriter.com was that it would grow enough through word of mouth that I could make some reasonable coin while putting in only 40-50 hours/wk and still have the flexibility to hang with the family, travel, etc.

    Instead, I’m putting in about 70-80 hours/wk and making a little more than I did as a first year associate straight out of B-school.  Old Wall Street chums with the same level of expertise as I do average 10-30X and have a lot more free time.

    I’ve studied some of the other successful web-based investment services, and have come to believe most are really better at marketing than they are forecasting markets.  Frankly, I’m not interested in building a marketing company that offers investment products.  I am very interested, however, in being an excellent forecaster for those investors who value (i.e. are willing to pay for) such services.

    Though most on Wall St would laugh to hear me say it,  it’s not always about money.  About 70 of my friends/co-workers didn’t come home on 9/11 because they were busy chasing money.  We all gotta go…but I’d like it to be in pursuit of something meaningful and enjoyable. I really enjoy the challenge of forecasting markets, and love helping others reach their financial goals.

    But, if I’m going to spend 10-12 hours/day away from my lovely family, I owe it to them to provide something tangible such as, say, a decent college education or the occasional trip to Disneyland.  And, I owe it to subscribers not to burn out.

    THE PLAN

    In 2012 (from inception March 22), pebblewriter.com members who went long SPX when I called bottoms and sold short when I called tops would have earned about 100% on a highly diversified, unleveraged portfolio.  It turns out this was no small feat — more than 2X the best-performing hedge fund’s 2012 return.

    According to Barron’s, only one of the hundreds of hedge funds tracked by HSBC earned over 40% in 2012; only another 7 earned even 30%. The average fund earned 7.32% and about one third actually lost money. The S&P 500 itself earned returned about 16% (including dividends.)

    My plan is to generate high risk-adjusted returns for investors in a hedge fund using the same techniques I use every day on pebblewriter.com to determine tops and bottoms.  But, instead of  writing about them (and trading for my own account) I will go long and short broad equity markets (primarily the S&P 500) and, to a lesser extent, currencies and risk instruments such as VIX.

    The portfolio might occasionally be all or partially long or short, or even all cash.  This would be a slight departure from the website, which generally reflects either 100% long or 100% short. This added flexibility would allow the portfolio to reflect the degree of confidence I have in a particular move.  It would also allow us to move to the sidelines in the event of high-risk situations such as an election or FOMC announcement.  I would use no leverage other than that required to hedge existing positions.

    The fund would be managed by me, but all assets would be held by a third-party custodian such as BNY Mellon or State Street.  Another entity such as Citco or Apex would provide administration and a major accounting firm would provide audited tax returns.  This isn’t the cheapest way to run a hedge fund, but it’s the safest.

    I intend to keep the size of the fund manageable, which to me means no more than $100 million.  The legal stuff is in the works, but the plan is for a private placement for about 100 accredited investors.  The US fund would be domiciled in Delaware, but I’m looking into a master-feeder arrangement with an offshore fund in either the Cayman Islands or BVI for non-US and tax-exempt investors.  About $5 million in capital is already earmarked.

    Minimum investment would mostly likely be $100,000, though there might be a limited number of smaller slots for non-accredited investors.  Fees would be the standard 2/20 hedge fund structure and feature a high-water mark and hurdle rate to be determined.  Liquidity would most likely be quarterly.

    Annual pebblewriter.com members would receive several perks – my way of saying thanks for being an important part of the journey.  First, annual members would get first crack at the 100 subscription slots.  If there are still slots available after annual members have subscribed, I intend to open it up first to other members, then those referred by members, and lastly to outside investors.

    In addition, annual members who invest in the fund would be eligible for a rebate of their unused subscription fee to pebblewriter.com.  So, an annual member who paid $950 one month before investing in the fund would receive $870.83 (11/12 of 950) back in quarterly installments over the course of their first year.  And, subject to the lawyers’ okay, I plan to offer annual members an additional 10% discount on their first year’s total fees.

    It’s hard to say exactly when everything will come together, but I’m shooting for late March/early April.  I can’t offer any more guidance at present, but want to stress that the above perks will be offered to annual members on a first-come, first-served basis.  My goal is that every annual member who desires to participate will have the opportunity.

    But, when the slots are gone, they’re gone.  So, the best way to ensure a spot is to: (1) become an annual member right away; and, (2) act quickly when the offering goes live.  Those current quarterly and semi-annual members who wish to become annual members now may have their current membership extended by one year, and would thus be eligible for the membership rebate and fee discount as described above.

    PEBBLEWRITER.COM

    As for pebblewriter.com itself, I intend to migrate the website and customized services to a more sustainable model that won’t compete with the fund.  This means that the cost of an annual subscription will be raised to $2,500 on March 4 (except for charter members, whose rates are fixed.)

    I understand this represents a steep increase for some, but it is comparable to the annual fee charged to someone making a $100,000 investment in the fund, or a $150,000 investment in the average equity mutual fund.  It will cover the cost of hiring additional administrative support for the website (sign-ups, log-in issues, etc.) that will be necessary once the fund is up and running as well as much-needed enhancements in technology and communications.

    Speaking of running the fund… I plan to run it from Carmel, California where my family and I reside.  An added bonus for fund investors, the Monterey Peninsula is one of the most beautiful places in the States to visit. While checking up on your investments, you can take in the ATT Pebble Beach Pro-Am golf tournament, the Monterey Jazz Festival, the world-famous Monterey Aquarium, or a drive through gorgeous Big Sur.

    Carmel is about a 90-minute drive south of San Jose/San Francisco, but is also served by the Monterey Airport which offers a 7,600 foot runway and several excellent FBO’s as well as direct flights via United, American, US Air and Alaska Air.

    It will help immeasurably to have a good sense of how many US vs non-US members plan to participate in the fund — if and when it is offered. So, look for an email in the next day or two asking for your opinion. In the meantime, please don’t hesitate to contact me, as many of you already have, with any questions about the fund or the website.

    I’m excited about taking this next step, and will continue to do my best to earn the faith you’ve shown by being a part of pebblewriter.com.

    *  *  *  *  *  *  *  * 

    important note:  

    The above is not an offer to sell or a solicitation of any offer to buy any securities. Offers are made only by prospectus or other offering materials. To obtain further information, you must complete our investor questionnaire and meet the suitability standards required by law. The  fund discussed above is strictly in the planning phase, which means it might never be formed nor offered to subscribers. If it is, essential elements might differ significantly from those discussed above.  The information contained on this and every page of pebblewriter.com is subject to our Disclosures and Use Agreement available here.

     

     

     

     

     

     

     

     

     

     

     

  • Charts I’m Watching: Feb 22, 2013

    ORIGINAL POST:  09:25 AM

    UPDATE:  09:30 AM

    SPX overshot our initial target by just a couple of points yesterday, reaching the channel 25% line at 1497.29 before getting the bounce I expected at 1499/1500.  Note that SPX completed a Bat Pattern down to the .886 in the process (larger white pattern.)

    The .618 Fib of the decline from 1530 is up ahead at 1518.09 — also the 1.618 of the 1422-1266 decline last summer (1518.57.) It intersects with the channel midline either later today or early Monday.

    Daily RSI reached the white midline as we expected, and is currently backtesting the purple midline. It’s still too early to say whether the new falling channel I sketched in yesterday is legit or not.

    The dollar is backtesting the channel line it broke through Wednesday after completing a Butterfly Pattern (the small white grid) to the 1.272, but the 1.618 awaits at the confluence of the purple 1.272 and red .618 up around 82.1-82.2 after the backtest is complete (not yet, I think.)

    The big question: what happens after the backtests are complete?

    continued for members… (more…)