Welcome!

We’ve added quite a few new members over the past two weeks.  I thought it would be a good idea to review a few odds and ends.

First, if you signed up for a Charter Annual Membership, congratulations.  Your rate will never increase above $750.  If you signed up for a regular Annual Membership at the sale price of $500, that rate is good for the first year only.

The annual rate will be reverting to $1,800-2,000 after the membership promotion concludes.  If you’d like to upgrade, no problem.  Just PayPal the $250 difference and we’ll adjust your membership type.  You can also use the Consulting button on the sign-up page [CLICK HERE] if that’s easier for you.  I’ll leave the promotion up through Friday night.

If you haven’t already, take a moment to follow @pebblewriter, and, if you’re an active trader, @pebbletrades.  @pebblewriter is a general Twitter account to which I post a random assortment of stuff on a random basis.  @pebbletrades, for members only, will notify you of intraday changes in position.  If it’s not obvious from your Twitter handle who you really are, drop me an email so I can approve your follow request.

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Now, on to investment matters.  For those of you who haven’t figured it out, I am slightly bearish by nature.  I set up this website back on May 2, 2011 because I was concerned that stocks were about to take a big dump.  They did.  May 2 was the high.  The S&P 500 tumbled 22% by October — most of it in a rather nasty 18% plunge over a period of two weeks.2011-v-2007-side-by-side-1024x594In that case, an analog that was replicating the 2007 top was at work.  It predicted the day and exact price at which the decline would begin.  I was over the top ecstatic, and my readers were too.

But, on October 27, a pattern which might have taken stocks well below the 2009 lows was busted by the ECB.  Thus began my quest to figure out just how central banks and their proxies were directly and indirectly moving markets, and more importantly, how to anticipate such activities.2011 v 2007 bustedThe Fed has always had the ability to goose markets via monetary policy.  But, this was something new: deliberately busting bearish patterns via currencies, futures, derivatives, etc.  Five years ago, most folks laughed at the idea.  Since then, it has become common knowledge, and is openly admitted by the BoJ and SNB.  Others, perhaps more shy about it, are no doubt doing the same.

I’m not an insider.  I have no friends at the FOMC, the ECB, the SNB, BoJ or even at Citadel.  I’m just an intensely curious guy, some would say slightly “Aspergery”, who sees patterns everywhere.  It’s no exaggeration to say I even dream about patterns.  I keep a notebook on my bedside table for those times when I wake up at 3am with a particular pattern in mind.

The downside — aside from making me perhaps the world’s least interesting person to invite to your home for dinner — is that I often find myself jumping at shadows.  I’m not really paranoid, but it sometimes seems that way because I pay particularly close attention to downside risks.2016-06-01 VIX v ES 5If something bad is about to happen to your portfolio, I’ll be among the first to realize it and let you know.  This means that if you have a long-term taxable portfolio with an extremely low cost basis, you should take my intraday rants with a grain of salt.  Sometimes they work out, and sometimes they don’t.  It often depends on whether the MIT grad sitting in a windowless room on Dearborn St. in Chicago mashes the “sell VIX” or “ramp CL” button.

This assertion will rub some of you who do excellent fundamental research the wrong way.  Believe me, I understand.  Like you, I was raised to believe that the secret to forecasting stock prices was in analyzing a company’s cash flow, earnings statement, balance sheet, competitive position, management talent, etc.  I believed it as much as anyone.  And, at times, I believe these things still matter.

But, did it matter last August or January, when stocks were dropping like rocks, whether you owned the highest quality stock in its sector?  Did it matter in the summer of 2010 or 2008? How about the countless times, like today, when a 3% intraday rally in oil futures — on no news — produces a V-shaped rally that spikes up to new highs?2016-06-01 CL v ES 5The reality is that stocks are heavily manipulated.  And, I’m not just talking about the big picture — though that should be obvious.  I’m talking about oil futures, USDJPY, NKD or VIX making sure that SPX gets a little boost when it bumps up against resistance.  It happens multiple times per day, almost every day.

Though once in a while it doesn’t happen, or they try but it doesn’t work.  Maybe the selling volume is too high, or they actually want to flesh out a ridiculously lopsided channel with an occasional pullback.

Lately, we’ve seen what appeared to many to be minor pullbacks turn into 10% corrections.  Love those, as they provide those willing to short stocks an opportunity to pile on positive returns while the indices are dropping.  They almost make up for the days when the algos deliver a melt up that completely ignores resistance.  I still find those days tough to trade — though it’s probably psychological.

present valueSpeaking of trading…I don’t consider myself particularly good at it.  I used to be, back in the days when good news was good and bad news bad, when real live people traded markets, when borrowers paid you interest instead of the other way around (what’s the PV of something using a negative rate!?)

These days, it’s increasingly difficult to trade without thinking to myself “what are they trying to accomplish, here?” or, “what would be the best way for them to screw over traders who are playing an obvious pattern?”  Witness the prevalence of busted Head and Shoulder patterns, not to mention the number of hedge funds that are closing their doors.

Fortunately, I’m pretty decent at charting patterns and forecasting markets. So, that’s what I do every, while also attempting to identify turning points intraday.  You’re welcome to follow along in the instrument of your choice, as I post these turning points.  Or, simply use the information to inform other purchase/sale decisions.

And, if you have a specific stock, currency pair or commodity that you’d like an in-depth or customized look at, just let me know.  I consult by the hour or, if it’s an ongoing need, on a monthly retainer basis.

Lastly, I encourage you to share.  Most of you are professional money managers or traders, and I know you like to keep your secrets to yourself.  But, we all have unique perspectives, and none of us has a lock on good ideas.  Share something that helps another fellow trader today, and tomorrow karma might smile on you.

 

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p.s.  I’m going to try very hard to get May’s results posted on Thursday.  I’ll POST THEM HERE as soon as they’re available.

Comments

Welcome! — 4 Comments

  1. Thank you, PW.

    Regarding the ramp-up of CL to $50 range, there were probably a whole bunch of parties interested in that move (governments of oil-exporting countries, E&P’s/ international oil companies, banks who made loans to the industry, etc.), so that was likely an equally important motive besides just ramping up SPX.

    Anyways, you probably realized that already, and it will be interesting to see how much further they try to goose up CL to keep the industry afloat. At $50 CL, much of this industry is going to go the way of the dinosaur, yet the overall economy cannot support prices much higher than this range…

    Thanks again.

    • I think you’re absolutely right. About the only folks hoping for lower oil prices are consumers and US manufacturers — both of which were thrown under the bus a long time ago. The Fed has a problem when they get too high, though, as inflation starts to creep into the economic picture. And, higher inflation eats away at their “we need low interest rates forever” meme.

  2. Thank you for this post! I apologize if you have already touched on this before (I couldn’t find it) but what do you think is currently the best “vehicle” to trade the SPX? Regular old SPY just doesn’t have enough movement for profitable daily trades for me. I used to trade volatility ETFs quite successfully, but lately the Fed has been tampering with the VIX too much and the contango has been insane. Thanks in advance for your response (when you have the time).

    • Get this question a lot, and it really depends on your trading style, your ability monitor things every minute, your risk tolerance, etc. I like e-minis, but they’re notoriously volatile and subject to a great deal of spoofing and, thus, head fakes. Another option for day traders is in the money options without a lot of time premium.