Yesterday started out with a VIX-driven pop that quickly fizzled and nailed our downside target before rebounding and hitting our upside target. Since SPX closed right at resistance, it needed a boost overnight. So, why not go back to the same clever trick that worked the day before?
Yes, VIX’s red channel has broken down again. And, the algos are eating it up… to the tune of +5 on ES.
Will it pop and drop, again, or will this one take?
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ORIGINAL POST: 9:15 AM
Last night, the dollar tagged the .786 Fib retracement of its decline from Apr 4. It subsequently sold off almost to the .618 but, so far, is hanging in a rising wedge.
The EURUSD re-tested the .500 Fib of its rise from Apr 3, and snapped back into its falling wedge and the (purple) channel that’s guided prices since then.
The e-minis tacked on a few points overnight — almost reaching the .786, only to give them all back with this morning’s underwhelming Durable Goods report. The H&S Pattern that was looking pretty good at yesterday’s open is now looking a little ragged, with a right shoulder that’s already 15 points higher than the left.
UPDATE: 9:45 AM
SPX continues trudging toward the .786 retracement (1584.23) of its decline from 1597 to 1536.
After plunging beneath the channel that’s guided it from 1343 to 1597 on Apr 17, SPX rallied and re-joined the channel yesterday. This was a very bullish development, as long as SPX remained in the channel all the way to the closing bell.
Despite a five minute thrill ride from 1578 to 1563 (the channel bottom) and back, SPX managed to regain and hold the 2007 high of 1576.09 into the close.
It now sits perched on the neckline of an Inverted H&S Pattern which has either completed or not, depending on whether a 5-minute plunge qualifies as a shoulder. Short answer — I have no clue.
Here’s what we do know:
What Does It All Mean?
When I forecast markets, I look for lines in the sand. I try to determine price levels that, if crossed, would signal a change in trend. When that trend switches from bullish to bearish, I want to be short. When it switches from bearish to bullish, I want to be long.
A channel is one such method that features boundaries rather than absolute price levels.
As long as prices remain in a rising (or falling) channel, we can expect prices to continue to rise (or fall.) It’s rather simplistic, but it usually works. We can make educated guesses as to future price targets based on where the channels point.
Of course, even well-formed channels (multiple tags on the top and bottom and over a sufficient time period) can’t go on forever. I look for moments when prices have to choose whether to remain in or leave the channel. A tag of a top or bottom bound or midline usually create opportunities, though other lines can as well.
The Real World
Recall that we shorted SPX at the 1597 high on the 11th [see: Big Picture], riding down to the channel bottom where I went long at 1554, expecting at least a bounce. We got one on the 16th with SPX rallying up to 1575 — the channel .25 line.
We closed our long position, going short the following morning for the trip back to the channel bottom at 1555. We tried another long position there, but were quickly stopped out as the channel was broken — signalling a bearish trend change.
So, we shorted again, playing quite a few bounces down to 1540 where we eventually went long in anticipation of establishing a H&S Pattern neckline [see: Dollar Daze.]
At that point, I expected a back-test of the broken channel. We got it, reaching 1565 on the 22nd but closing beneath the channel’s lower bound. Note that this move completed 5/6 of a H&S, but the right shoulder was underdeveloped relative to the left.
Anticipating an intra-day retracement to 1567 (the .500 Fib) or 1574 (the .618) the next day (yesterday), I stayed long — trying without much success to anticipate the top. Since SPX topped the .618, the next up on the chart is today’s target: the .786 at 1584.23.
Going Forward
With all that as preamble, here’s what I expect going forward.
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The ECB will do “whatever it takes”, which I guess now translates into strong-arming the Russians into bailing out Cyprus. Still no break out on the EURUSD, though.
It makes sense to play along with the upside, but keep stops close. It’s questionable whether this rally will have any legs. The dollar looks like it’s finding support here.
UPDATE: 09:33 AM
Looks like a pop and drop by SPX standards. That was the .786 of the move down from 1563.62 (purple) and the .886 of our proposed path to 1576 (white.) Full short again, stops at 1561ish. Revised charts in a few minutes…
UPDATE: 09:55 AM
The daily chart tells the picture well. I need to redraw some channels, but the prominent features are:
- large 1474-1343 Crab Pattern completion at 1555.57 (yellow)
- large 1370-1074 Crab Pattern completion at 1553.39 (red)
- small 1530-1485 Crab Pattern completion at 1559.32 (white)
- small rising wedge broken at 1563 top
- long-term TL and channel top at 1560
UPDATE: 11:10 AM
SPX continues to position itself for a run at 1576. The 5-min chart shows a small potential Crab Pattern with a 1.618 at 1577 and a Flag Pattern targeting 1576.
It has broken back above and backtested the purple channel midline and retraced nearly .886 of its drop from 1562 and a little more than .786 of the drop from 1563.62.
While it’s positioned for 1576, there is no more certainty than when we first broke 1555 on the Mar 14 overnight ramp job. The large, bearish patterns listed above have still not produced the kind of sell-off they normally do.
And, it’s all because of the cheerleaders’ determination to be able to tout a new all-time high for the S&P 500.
In addition to the little Crab Pattern (purple) that targets 1577 and the flag pattern targeting 1576, there’s an obvious effort to construct an IH&S pattern targeting 1580. It could benefit from a lower right shoulder, but bulls must beware of crossing back beneath the purple channel midline.
The S2 shoulder isn’t quite legit, BTW, as the neckline doesn’t quite connect on the left side. But, the S1 shoulder is quite a ways down there. So, if the pattern plays out, be prepared for some serious chop.
UPDATE: 1:00 PM
With the FOMC announcement a little over an hour away, let’s resume our chat about the big picture. If it seems like we’re “lost in the reeds” as one reader so aptly put it, it’s because we are.
The large Crab Pattern completions promised a good-sized dump last week at 1553/1555. Instead we’ve inched higher. Why? These patterns completed in the middle of harmonic no-man’s land: the gap between an .886 retracement and a double-top.
The .886 retracement (of the 1576-666 crash) produced a 9% reversal back on Sep 14. Since then, SPX came screaming back to retake the 1576 all-time high — but slammed into the Crab Patterns and a very important channel line along the way.
Now, it doesn’t know what to do.
Double tops usually produce reversals, too — sometimes meaningful ones as we found out on October 11, 2007, when SPX scooted up past the 1552 top from 2000 by a whopping 24 points before dropping 58%.
The 2000 top itself shows just how “messy” tops can be. Here’s the finished picture in perfect hind-sight. It’s a very crowded chart, but every pattern on there had a say in how the top unfolded.
Once SPX broke out of the falling purple channel, it had “permission” to pursue several harmonic patterns in the works. SPX shot up 66 points in that one day — blowing through every Fib level between .618 and 1.000.
It finally came to rest at 1458, completing a Bat Pattern at the purple .886. But, the small white 1.272 was just above at 1477, as was the rising purple channel midline and the 1.272 from a much larger pattern seen below. An IH&S target waited at 1497 – tantalizingly close to a nice round number of 1500. The all-time high of 1478 from two months earlier beckoned.
SPX got up to 1477.33 before reacting, falling to 1466 over the next two days. Close, but not quite. Someone watching closely might have noticed the Flag Pattern it constructed, targeting 1562. Someone else probably pointed out the biggest Crab Pattern target of all — the 1.618 extension of the 13% correction from 1420 to 1233 from Jul-Oct 1999.
I don’t know what the catalyst was, but on Mar 21, 2000 (that date sounds awfully familiar) SPX shot up through the channel midline, the cluster of Fibs around 1477 and, importantly, the 1478 high and raced up toward those higher targets.
On Mar 24, it reached 1552.87, which cleared the IH&S target at 1497, the purple 1.272 at 1519 and the last remaining Crab Pattern at 1535. What ultimately stopped it? The .75 line from the big purple channel dating back to Jul 1999 — almost to the penny.
Total move: 17% and 227 points in 20 sessions. Could it happen again?
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The S&P 500 gained about 6% between the last update (Dec 20, 2012) and the Feb 19 highs of 1530.94. The index gave back half of the gains over the subsequent week, then retraced 88.6% of those losses over the next two sessions for a total move through Feb 28 of about 11%. Our calls accomplished approximately 19% over the same period.
December, 2012
December 2012 wrapped at +9.20%, leaving us with a total return for 2012 (since inception on Mar 22) of 97.99%.1 The S&P 500 was up 2.36% over the same period (excluding dividends) and the average hedge fund earned 7.32%.2
I had anticipated a significant reversal in mid-December at SPX 1346, and the market accommodated with a 3.3% decline into the year’s end based on an analog that served us very well since April, 2012.
January 2013
Even though Congress failed (as expected) to really resolve the fiscal cliff dilemma, the market saw the resolution as “good enough” and pushed higher during the low-volume New Year’s holiday week.
The next two weeks were spent in harmonic pattern limbo, deliberating whether a double-top or a new high was in the works. Finally the question was settled by a push past the Sep 2012 highs — right into the next harmonic target range. With only 9 sessions left in the month, there was little time left in which to accomplish much.
At +4.46%, January was the first month in which our numbers lagged the S&P 500. I realize that 4.46% is nothing to sneeze at; but, in retrospect, I should have exercised more caution around big news days, used tighter stops and perhaps traded a bit more frequently.
February 2013
At +11.43%, February was a much more rewarding month — but, not without its challenges. Prices fluctuated by 10 or more points in a full two-thirds of the trading sessions. But, volatility creates trading opportunities, so I took full advantage.
It seemed at the time that I traded too frequently (33 times, including 14 intra-day trades that added 5.50%.)3 Looking back, however, SPX gained only one point between the Feb 1 close and the Feb 28 close. In other words, it was the kind of month where day traders are rewarded, and buy-and-hold types should have gone skiing.
If nothing else, February convinced me that a managed fund could deliver added value for pebblewriter subscribers who have neither the time nor the inclination to sit by their computers waiting for the next trade signal.
Even for those who do, there is the problem of time lag. Under the best of circumstances, it can take several minutes to transmit a newly hatched idea — more if charting or explanation are involved.
By the time a member receives, reads and acts on the information, prices can move appreciably — potentially reducing returns and/or increasing risk. A fund should, at the very least, eliminate the lag. I am currently working with advisors and will announce details as soon as possible.
Summary
As of Feb 28, we’re up 113.08% since inception for an average monthly return of about 10.05% — on track with our Dec 20 report. I’ll continue to work on finding the right balance between trade frequency and risk-adjusted returns.
The road ahead looks no less bumpy. Will QEn sustain uninterrupted new highs, or will this market — like every one before it — soon reveal its Achilles heel? Interest rates are on the rise, while a whole host of economic indicators and corporate earnings are flagging.
Personal income is slumping, employment isn’t much better, the euro zone is officially back in a recession, China is faltering and central banks the world over are racing to devalue their currencies as debt continues to skyrocket. Where’s the upside in that scenario?
The day will come when money printing and accounting gimmicks alone won’t be enough to levitate the stock market. At the end of the day, real profits require that someone, somewhere, buys something. A bull market that rallies to new highs while ignoring that basic premise is, in my opinion, not long for this world.
Stay tuned…
Notes:
1 According to this Barron’s article, only one of the hedge funds tracked by HSBC earned over 40% in 2012; another 7 earned 30% or more. The average fund earned 7.32% and about one third lost money.
2 Remember, our “performance” is based on a theoretical unleveraged portfolio utilizing only long and short positions in SPX based on the tops and bottoms identified on pebblewriter.com. Trading expenses are not included. Your mileage will vary.
3 Late last year, I began experimenting with leaving a core long or short position in place while placing short-term or intra-day trades. The jury is still out on the effectiveness of this strategy.
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…
We’re getting a little more momentum going on the downside today. SPX completed the small H&S pattern I posted yesterday. It targets 1445 — approximately the .146 Fib of the 1266.74 – 1474.51 rally.
DX completed its back test of the falling red channel and continues to show strong positive divergence. The RSI chart shows substantial upside.
And, despite the Japanese vote of confidence, the euro is showing continued weakness — with another test of the rising wedge and a white channel line coming up. The channel line intersects with a .382 Fib at 1.3060, so look for a bounce there.
We remain short from SPX 1462, but we can expect to see some bounces along the way. As discussed in the last performance posting, I will likely maintain a core short position until we reach our ultimate target. But, I’ll also provide thoughts on any foreseeable interim moves.
Longer term investors who wish to ignore the intra-day swings should feel free to disregard that info. While, those who hope to capture the many 10-20 point swings along the way will have some useful (and hopefully helpful) information.
As of last week, the primary directional moves accounted for about 40% returns since inception on Mar 22. The interim swings were good for an additional 55%. So, pick your poison.
UPDATE: 11:15 AM
AAPL just broke through an interim channel line on the primary channel we’ve been following since early November. This should set up another test of the channel midline and, more importantly, the H&S pattern neckline.
Since AAPL is an important bell cow, it’s important to know what’s at stake here.
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We got the reversal we were looking for last Friday, but as detailed in the last forecast there is still some uncertainty as to the ultimate outcome of this latest rally.
We remain short from 1462, but a stop in the 1466-1468 range would be prudent. A rally through 1474 changes our forecast, as discussed yesterday.
The euro bounced off the bottom of the rising wedge we’ve been tracking as expected. There is negative divergence relative to the Dec 7 low; so, in all likelihood, the larger wedge should break.
The daily RSI shows the two options quite well — a bounce off the yellow channel line or just a back test of the broken purple channel line.
The dollar continues to move in tandem with equities. It rose last week as SPX rallied, and is off today. But, like EURUSD, there is marked divergence on the daily chart since it broke up through the top of the red price channel and retested the bottom of the white price channel.
It reversed at the .786 of the B-C (purple) drop. And, the 1.618 extension of this move is the same level as the .786 of X-A: 83.10ish. This would set up a tag of the white channel mid-line somewhere around Jan 22-23 (the .886 intersects with the mid-line around Mar 6.)
I posted quite a bit over the weekend about the SPX forecast, so I won’t rehash it here. Suffice it to say we need to see some follow-through on the dip this morning in order to get anything going on the downside.
The 15-min chart shows a potential H&S pattern that targets 1443. But, SPX will need to reverse before 1468 for it to play out.
I’ve updated the channels and harmonics for the most recent top. In general, they confirm the current forecast. But, there is plenty of wiggle room.
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Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
― Lewis Carroll, Alice’s Adventures in Wonderland
The market never ceases to amaze me. Despite all the ingredients being in place for a sizable correction, it’s sailing along as though everything were copacetic.
Negative divergence abounds. The correlated currencies are all selling off. Gold is down. Silver is down. Even AAPL is down. Numerous indices have completed bearish Harmonic or Chart Patterns.
The Fed let slip yesterday that the adrenaline drip will soon be removed — leaving banks without a buyer for their underwater mortgages and the stock market without any downside protection. They’ve finally admitted what we’ve all known for some time: QE’s effect is diminishing, and the risk is growing.
The budget showdown is still ahead (the part of the fiscal cliff that really matters.) The most fractured Congress in modern history, which utterly failed to resolve the important issues, will now turn the task over to an arguably more partisan Congress.
The country’s AAA credit rating is hanging by a thread at both Moody’s and Fitch. A downgrade by either would require massive selling by institutions which require at least two AAA ratings in order to comply with their investment policies (especially insurance companies.)
Unemployment has reportedly declined, but only because we no longer count the dejected job seekers who are leaving the work force in droves. Include them, and the actual picture is startlingly bleak. (source: Shadowstats.com)
The EU is officially back in a recession (though it never really left.) Its banks are being kept afloat by the ECB/ESM, which is exchanging (somehow AAA) paper backed by shaky sovereigns for junk sovereign debt as fast as it can. Meanwhile, unemployment continues to soar.
The big 2013 headline that isn’t (yet) is the global derivatives debacle: $700 trillion — over 10 times the global economy — of unregulated, unpriced, unreported private contracts which have been sliced and diced so many times that no one has the slightest notion what the risk really is — except that it dwarfs the capital of the banks that hold it.
In my opinion, the only things keeping the economy and the market afloat are the unrelenting screech of MSM fairy-tale “good news” and the Bernanke Put (the Fed’s money printing and plunge protection operations.)
As long as these two factors can outweigh the negative fundamental picture, the market stands a good chance of rising. Take one of them away, and the resulting crash will be swift and severe.
That said, I’ve spent the past two days assessing the current state of our analog and forecast. I’ve quantified it as best I can in an attempt to eliminate my admittedly negative bias. I’ll lay it out over the next several hours, a few charts at a time.
If you’d rather skip to the punchline, I’m still bearish. In the absence of a push through 1474, I think we’re in for a sizable correction and remain short from 1462. If 1474 is broken, everything changes.
For members who enjoy getting their fingers dirty, stay tuned.
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About an hour ago, we completed a Bat Pattern which is nestled inside of a Bat Pattern which is nestled inside of a Bat Pattern.
UPDATE: 3:15 PM
RSI channels show how much is riding on this moment. A push through the top of the purple channel brings the red channel mid-line into play. Could it correlate with 1474, or maybe just the next channel line on the intra-day?
I’m not sure. The intra-day 1.272 is 1468.17 and the 1.618 is 1471.61. A double-top would be a real nut-buster.
All I know is there’s still negative divergence across the board, so I don’t expect the red mid-line to be broken.
My apologies for the delay in getting the forecast charts up. They’ll have to wait until after the close. I’ve been distracted by the melt-up, checking and re-checking my charts to see what I might be missing.
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“In another moment down went Alice after it, never once considering how in the world she was to get out again.”
― Lewis Carroll, Alice’s Adventures in Wonderland
Not quite four months ago, the Fed guaranteed lower interest rates and higher stock prices forever. At least that was the mainstream media’s take on QE3. The market shot up about 40 points in a day, then did something rather curious. It stopped.
While the rest of the world took advantage of the pause to shift more money in AAPL, those who study harmonics loaded up on shorts in anticipation of the huge Bat Pattern that was completing [see: The World According to Ben.]
After having reversed at the Fibonacci 61.8% of the 2007 to 2009 crash, SPX had reached the 88.6% level. Would it be a huge reversal as occurred when the Gartley Pattern completed at the .786 (- 21.6%) or something more modest?
The fact is, we don’t know yet. After shedding 131 points (8.9%) from September to November, SPX has retraced 119 points — roughly 88.6% of them.
This means that SPX has constructed another Bat Pattern over the past 4 months.
It’s easier to see if we zoom in.
Like the larger pattern that took place from 2007 to 2012, will this pattern deliver a big reversal or something more modest? For help, we can examine how SPX reacted the last time it reached a major Fibonacci level — the Gartley Pattern at the .786 in May 2011.
SPX lost 112 points to 1258.07 before regaining about 88.6% of them to complete a Bat Pattern (the light blue pattern.) At that point, it did it all over again (the red pattern.)
In retrospect, the move from 1370 to 1258 was the 1st wave. The move back up to 1356 was the 2nd, corrective wave. It was powerful and quick — taking only 14 sessions compared to the 1st wave’s 33. This fooled a lot of investors into thinking it was a motive wave and was going to establish a new high.
Note: For those of us following an analog that compared the 2011 top to the 2007 top, it was a fabulously opportune time to start loading up on shorts [see: Why Do Analogs Work?] Our gains over the next couple of weeks were nothing short of spectacular.
The same thing happened a second time (the red pattern.) The wave from 1356 to 1295 took 7 sessions, while the wave back up to 1347 took only 3. Again, this suggested higher prices, not the powerful reversal that slashed 246 points in only 13 sessions.
Are there any parallels between the market’s reversal at 1370 and its reversal at 1474? As regular readers know, I am tracking a new analog [see: A New Old Analog] that suggests there are. But, there’s a line in the sand at current price levels.
We can argue all day about whether the pathetic fiscal cliff deal, combined with the latest QE incarnation, should mean higher prices. But, if the latest Bat Pattern doesn’t hold, and prices ramp up past 1474, I’ll consider the analog broken and start charting upside targets.
But, it won’t be because the Transportation Index just made a new high. It simply completed a Crab Pattern (on negative divergence I might add), imbedded in the tail end of a large Bat Pattern that it’s been trying to complete since February.
And, it won’t be because the Russell 2000 just made a new high — which can also be viewed as a quadruple top (dashed purple TL) that coincides with: (1) a Butterfly Pattern completion (in purple); (2) a Crab Pattern completion (in red); (3) a back-test of a well-formed rising wedge; and, (4) the .786 time fib of the wedge. All of this, of course, is on negative divergence.
It would be in spite of a dollar index that just broke out of a channel that dates back to May (red), after testing the bottom of a channel (in white) that dates back to Feb 2011.
It broke out of and back-tested the latest channel on the hourly chart, too.
I’ve always wondered what would happen when The Powers That Be threw everything they had at the market and it yawned. Might that be a rabbit hole from which there is no easy escape?
Between QE3, ESM, Congressional Kumbaya singing…the market should be hitting new highs. So, why is it mired at the same point (metaphorically, at least) that preceded the last big correction?
The market is currently frozen in headlights, wondering whether to respect the latest Bat Pattern or not. So, I’m going to take the opportunity to review our analog and general forecast.
To be continued…
Strange things have happened around holidays this past year. Though this is a short day (equity markets close at 1pm EST) it’s best to remain vigilant. Equity futures have recovered most of their overnight losses, and TPTB would love nothing more than to undo the gains we’ve racked up (since shorting on the 18th) while no one’s looking.
Keep an eye on the proposed channel for the dollar for any signs of weakness…
…as well as the EURUSD, which is trying to stage a comeback. A move through 1.3232 would signal 1.3265 — 1.3238.
UPDATE: 10:15 AM
As to SPX, any push beyond 1432.78 carries the risk of a Bat completion up at 1441.27. Though, there would no doubt be a reaction at the .618 of 1435 first.
Since the 1432.78 high on Dec 21 stopped just shy of the 1432.82 low the day before, it might mark the completion of a Wave 4 in the first subwave of whatever degree wave down we’re currently in. Thus, the bulls might attempt to throw this most obvious bearish wave count into disarray by overlapping 1432.82.
It would then be easier to characterize the 1448-1422 slide as a normal A-B-C corrective wave rather than a bearish impulsive wave. Regular readers know that I don’t use Elliott Wave for predictive purposes, but it’s good to be aware of what Wavers might be thinking — since breaking through key EW levels will likely get them moving one direction or the other.
Our bearish case would benefit most by a reversal right here at the midline of the proposed white channel.
More later.
UPDATE: 11:45 AM
SPX just completed a small H&S pattern (below, in purple.) If it plays out, it will negate a potential IH&S pattern (in yellow). If the purple pattern plays out, it targets 1417 or so, which is around the bottom of the little white channel that’s tracking pretty well so far.
If the yellow pattern completes with a return to the dashed yellow line at Friday’s 1432 high, it would target somewhere in the vicinity of the .886 retracement of the 1443-1422 drop at 1441.
A low-volume, holiday-shortened feel-good day like today would be the perfect time to execute a ramp job. As discussed above, keep your guard up.
UPDATE: 1:00 PM
Things remain on track here at the end of the holiday-shortened equity trading day. Any fireworks will have to wait until Wednesday.
BTW, I finally updated the RESULTS PAGE for those who follow such things. Friday marked the end of the third quarter since the new site went live on Mar 22. After Dec 31, reports will be based upon calendar quarters.
Since inception last March, we’re up about 95% as compared to 3.7% for SPX (without dividends.) I don’t have figures for the same time period for hedge funds, but according to HSBC’s Dec 13 Hedge Fund Weekly [available on Zerohedge.com] the average ytd performance for all equity hedge funds was 5.15%. The top-performing fund (BTG Pactual’s Distressed Mortgage Fund) returned 39.91%.
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POTENTIAL CHANGES:
A couple of weeks ago, I mentioned I’ve been considering some significant changes to this site. Although our results have been above-average, I’ve debated whether the current format is the best way of delivering value to members.
It’s challenging, for instance, to convey information in a way that serves the needs of both long-term investors and day-traders. It’s also difficult to strike a balance between providing timely trade information to those who don’t require a lot of explanation and educating those who are new to my process.
Also, from a purely mercenary standpoint, I’d like the site to make financial sense for me and my family. I realized when I began the site that it would take some time for word to spread. My goal was that by the end of the year I could cover my nut while putting in only 40-50 hours per week — leaving me enough time to hang out with the family, coach a little basketball, travel some.
Nine months later, membership has grown to a point where it almost pencils out — but, not quite. I can’t yet justify hiring a proper web developer and administrative staff to handle membership issues, accounting, loss prevention, so I’m putting in 60-80 hours week on average — which, of course, leaves less time to chart, write and sleep — not to mention my family and other business interests.
It seems I have two choices: grow the site or convert it. Growing it should be simple but, in all my years as a stockbroker and later in asset management sales, I have come to realize I don’t really enjoy sales. And, of course, devoting time to shameless promotion takes away from charting and writing — which I do enjoy.
Converting the site would mean setting up a hedge fund. Several friends have expressed interest in seeding a small fund that would ultimately grow to about $100 million. I would continue to do exactly what I’ve been doing — identifying major and interim tops and bottoms — and execute unleveraged long or short positions in major markets on behalf of the fund.
It would be run from my small, but lovely town (also an internationally renowned vacation destination) on the Central California coast with an assistant and a trader. Custody, administration, etc would be handled by name brand entities elsewhere.
As I envision it, current members would have the option of investing in the fund or continuing to simply receive research until their membership expires. Current members would, of course, have their pebblewriter.com fees applied to fund management fees — which would be discounted for current members who are involved from the start.
One member has also suggested a chat-room type system whereby fund trades could be communicated in real time to members who want to continue trading their own accounts as well. I am fine with this idea, as long as we’re not giving away research to our competitors (one of the problems with the current site, where we get 20-30 login attempts daily for every active, paying member.)
I have a lot of homework yet to do, beginning with a survey of current members I had planned on sending out regardless. In the next couple of days, I will be seeking your opinion on both the current site and the proposed fund. There is no fund yet, so I am not soliciting investments at this time; but, it would be very useful to get a sense of members’ potential interest. Please watch for an email.
NEW FEE SCHEDULE:
In the meantime, membership fees for pebblewriter.com are slated to increase on January 1, 2013 (regardless of what happens with the fund, I need to purchase some new computers, backup systems and communications.) In keeping with my practice of tying fees to performance, the new rates are as follows:
- Annual: $950
- Semi-Annual: $550
- Quarterly: $375
I recognize this is a significant increase, so I am offering existing members the opportunity to lock in current rates through December 31. Also, as a bonus, the first 15 annual memberships will be granted Charter Membership status. In other words, your annual rate will never rise above $800 for the life of the site. As those who joined last Spring for $500 will tell you, that’s pretty cool.
This offer won’t be opened up to the public until December 26th. And, as always, if you currently have a membership, we’ll tack your new one on to the end of your current one. That way, you won’t get stuck with even higher prices when your existing membership expires in a few months.
Again, if we move forward with the fund, current members will receive a full offset for any pebblewriter.com fees paid from this date forward, and will also receive a meaningful discount on any fund fees charged. I strongly believe in rewarding those who’ve stood by me on this adventure.
If you’ve read this far, thanks! I had no idea when I started pebblewriter last year that it would grow into something so rewarding and enjoyable. I’ve learned a lot, and I hope most of you have, too.
* * * * * * * *
Christmas Eve is always bittersweet for me. I love being with family, singing Christmas carols and seeing the excitement on my children’s faces as they rush downstairs to see what Santa brought. And, it seems most people are just a little bit nicer to one another. But, it’s also the day when, at age 15, I lost my mother — my one remaining parent. So, for me, it’s a reminder to reach out to loved ones and tell them how much they mean.
It’s also a reminder of the importance of helping those who are struggling. These are challenging times. If you’re anything like me, the events of the past year have caused you to take stock of the world and your place in it. Between wars, famine, financial distress, political and religious division and, yes, shootings — we need this holy day now more than ever. And, regardless of what church, synagogue, temple or mosque we attend, we need to look for opportunities — every day — to minister to those around us.
My family and I wish you all a Merry Christmas and a blessed New Year.
