A Interesting year behind and risk ahead!

This year really had some interesting moments! Made lot of loot on some sitters and lost plenty (luckly not all!) on what can only be described as a white knuckle ride.

What lies ahead for us is a mistery. I can't help but feel we are in a bubble here. But that is 12 years of experiance talking, this is a new world order we find ourselves in. No time has ever been like the present, money being thrown around by the central banks like its tissue paper. I guess what I am trying to say is that I am long, very long this market. The trend is your friend, ...except the bend at the end. And that is what I spend my days trying to figure out, where and when is the bend coming for me.

Goo luck trading and stay in the black!

Gold Shares

Long time no see. Sorry for the absence although when things don't make sense or are pure bullshit I sit out and wait....

Have a look at this Gold Fields(GFI) chart and notice that a bullish breakout is imminent.

Gold Fields (GFI) is reaching a very interesting juncture - it has been in a downtrend since July 2006 where it peaked circa 172 and closed Fri at 102 very close to the resistance line. What is interesting is the pullbacks from the downwards sloping resistance line are getting ever tighter and GFI seems to be at the cusp of breaking free from its grasp. Gold shares are known for performing phenomenally in tough times and were a stand out during the Great Depression of the 1930's  - the Dow lost 73% vs some gold shares rising by over 400%

The sloping down trend could continue for a while longer although once the break occurs (which you could wait for) it should have significant bullish implications. This bullish downward sloping wedge has been in the making for 4 years plus, so expect a lengthy climb once the breakout occurs.


Anglogold(ANG) has been building a giant reverse head-and-shoulders formation and is also looking incredibly bullish. The upside potential is massive - easily in the R500's over the next few years.

The range since 2006 has been a R100 tight range from R260 to R360 with a brief sojourn lower to form the head in Oct 2008. The right shoulder has been forming beautifully and typically are shorter. Either wait for the breakout of R36/70 before buying or buy now in the midst of the shoulder formation and sit back and wait as I have been doing.

My punt for the next few tough years :)

Note: no-one is finding it easy and some legendary traders are packing it in (maybe before the ponzi nature is uncovered? Who knows.... lets see)

Good Trading

SomeTechnicals

The old rehashed post of the ALSH which I have been showing (updated, mind you) over the past few months is still relevant. Where it did have a brief peek above the resistance bank it has quickly fallen back again - thus rendering it a false break and taking quite a few peoples money as a result.

The ALSH is balanced fairly precariously - and if you consider, it is currently trading at levels made back in April 2007. You cannot possibly feel satisfied being square after 3 years of fairly gut wrenching ups and downs. That is, if you had the nerve to stay in the market through 2008 (which I doubt). The "band of [french] resistance" should contain any further advances and "ondertoe is ons voorland" (Afrikaans for any international readers...)

Edit: Mind you if we had to get some perfect symmetry to the previous "making of a high"  in 2008 - we could advance to slightly higher than  the 15 April 2010 high of 29565 and briefly peek into the 30k's - then perform a "U-turn" or should I say a "n -turn" and head much lower. This would quite beautifully mirror the triple top formation of 2008 AND would prove conclusively that trading is an art form...

A look at ABSA which is is a share I am negative on  - including other banking shares - but simply picked on for the sake of this post with no prejudice to other banking shares intended.

ASA is descending in 5 waves down indicating a trend change. We could have a counter trend rally soon once if breaks out of the descending wedge which typically occurs in ABC fashion. This could coincide with the EUR making a strong comeback against the USD short term to relieve its heavily oversold status.

By the way I am personally in the process of switching to Capitec Bank - what an absolute pleasure!!!! Being paid enough interest to cover banking fees (which are ridiculously low) is quite a novel concept. Check out these interest rates.... and you are not switching? ---- WHY?

Capitec Daily Savings Account

R0 – R10 000	7.00%
R10 000 – R25 000	5.75%
R25 000 – R100 000	5.75%
R100 000 +	5.75%
Monthly administration fee	4.50

Read this.....

A brilliant article on where we are and what lies ahead - change is definitely a coming.

Dangerous Times...

Things are starting to heat up and the Year of the Tiger is living up to its reputation. Hold onto your horse this is going to be a rough ride.

Since I have posted last quite a bit has been happening:

- The PIIGS are heading for a roasting - don't think they are the only ones in this precarious situation - most of the developed world is including the UK and USA. Have a look at who is the next domino to fall

- Greek debt has been downgraded to Junk levels... other PIIGS not that far behind.

- The Greek populace is rioting and airing their discontent with regards to the austerity measures imposed. Think the money loaned to Greece will ever be repaid...?

- EU provides a $1 Trillion dollar package to help alleviate stresses in the EU financial market and save the Euro - what are they thinking.... will it be 2 trillion next month - why not just round it up to a cool 10 trillion, Then the world will know how SERIOUS the EU is... does any of this smack of desperation. These guys don't actually know how to solve this - they have one bazooka to fire and of late it has been misfiring... Albert Einstein once said "The definition of insanity is doing the same thing over and over again and expecting different results" Think throwing more debt after bad is going to solve a problem causes by over-indebtedness?

- Last week we saw an incredulous drop on the DOW of 9% intra-day. This 1000 point slide was terrifying to even the market- makers on the open-outcry market. Think this is a warning of things to come? You better believe it. Think a 20%/30% drop in one day is impossible? Think again. When a market should be sliding but is constantly propped back up the stability is compromised and even though it is successfully held up temporarily, the situation gets ever more precarious. Think of this as a volcano that has been suppressed for years, pressure has been building inexorably as sure as the progression of time - artificially it has been suppressed but the inevitability lies ahead. When this market drops limit down - exchanges will be flooded with orders, servers will crash and pandemonium will break out. People will want to get out at ANY price. Do you feel confident putting your hard earned cash in an environment where you could loose 9% in 20 minutes?

- Trading bots or High Frequency Traders have stirred the ire of the Big Eye in the sky. These guys which provide 73% of liquidity in the US market have been fingered as one of the causes of the dramatic 9% slide. Anyone out there care what fair value is or where a share should be....? Who cares when you can trade in and out of the market sub-second and fleece the unsuspecting public by pushing prices ever so slightly higher/lower and making minuscule amounts although a couple of million times over sub-second.

- Goldman Sach's which does, I quote "...Gods work ..." seems to be the fall guy for the financial crisis. Remember the witch hunts of the 15th century - sure Goldman's is no saint but who really is? If Morgan Stanley, JP Morgan, Citibank etc had to be investigated - they would be found wanting too.

- Gold has made a new high. This is the once place that has shown remarkable stability together with Gold shares. Gold has not yet gone parabolic - when this happens you know it is in its final bull phase - till the spike higher comes - rest easy in your gold investment. Just know that things don't go up or down in a straight line and a correction could be due at any time.

- China is over-heating and its property market is on the brink of a collapse. China imploding could have some dire-consequence for SA short to medium term. China is the main importer of our heavily resource based economy and this could damage our economy and job prospects.


My take on things now with regards to investments and equities: Stay vested in Gold Shares, physical Gold and cash. Agricultural shares and base metals should also hold value although less so. Precious metals and cash are the place to be. I'm happy with cash as long as inflation does not start rearing out of control. I ultimately still believe we are heading for a deflationary crash of epic proportions.

A Bear? But the market is going up?

That is right, its still going up. The S&P500 is breaking records on the technical scales with the longest relative strength index reading since the 1990s. But if you watch carefully, we have a SECOND rising wedge formation, not only on the S&P500, but the FTSE100 and our TOP40!

Stay long but BE CAREFUL!!

All is calm on the western frontier...

So lets get an update of the long term picture - a rehash of a post of the ALSH chart which previously showed where technically some pretty heave resistance lies.

 As one can see a second test of the resistance is underway. Will it break - possibly although short term probably not. The market as it stands has been climbing relentlessly and it is in need of a breather. It it does break it could be an aggressive climb higher although lets not bank on it. The resistance (which previously was support) managed to buoy the market four times, while building a kings crown of a top.

With Marcus cutting rates to everyone's surprise, I'm expecting even more cuts as inflation will be muted and the economy IS going to struggle. Pressure from unions and from horrible growth figures will force her hand. Another surprise is looming  just around the corner - shares are heading for a hiding. I know I sound like a broken record but even though markets can blissfully ignore fundamentals these will EVENTUALLY come home to roost.

Gerald Celente an eccentric forecaster is predicting a crash of 2010 and really has a gift of putting across complex scenarios in a very clear and concise manner. Have a look at this clip and you will see a pretty ugly picture. China which is now SA's largest trading partner is really not such a goldilocks story and if they experience pain down the road we will experience it doubly so.





Good Trading

Charts for previous post....

Still a big bear on track!

It has been I while since I wrote but I have been following the market closely during this time! The break of huge rising wedge turned out to be bearish for a bit and the market turned again to test the wedge (this is my thinking at this time). I am so glad I caught the down and recently caught the reversal thanks to the inverted head and shoulders that I spotted quite early. The only reason I found this formation in our market is because the S&P500 and the FTSE100 were leading here, both with inverted head and shoulders with good breaks to the upside.

Even having had made money recently, I found myself making schoolboy errors in my trading which I would like to share with you.

1. Haste makes waste - I saw the rising wedge for ages but did not take a major long position for fear of loosing cash. If I had traded the channel and waited for the break out I could easily have double or even tripled the money I made now.

2. Wait for the break then trade - I can really could more than 3 times where I was convinced the wedge was at an end and shorted the crap out of everything. Need I say more.

3. Big downs have big corrections - After the market's tanking I shoulkd have known there was going to be a retracement to at least 50%. Once 38% was passed I should have gone long.

4. Ten minutes spend on economics is 9.5 too much - Watching Bloomberg and the Fed's statements all day will cripple your trading. Watch if you investing for the long term!

Finally, where to from here? The market broke through 61.8% retracement of the recent bear move, which was also the head and shoulder neckline, and today the 71.4%. This market is going one direction in my opinion and that is up, up, up to test the rising wedge. I believe it will fail there, but lets ride the up for now.

Good trading.

Whitey Broke Me (Pun Intended)

Foolish me - thinking the Bear market would sort out even the strongest. I did not count on Shoprite going parabolic and parabolic it did. If you went long and have been long for the last few months you have profited handsomely. Shoprite does seems to have just completed the last phase of "parabolicness" (a Kickism) that is - the vertical shoot for the stars. Parabolic shapes on charts are interesting in that they are doomed to fail. If you are brave and have any capital left now is the time to short :) No wait .....................  ........ ................... ....... ................................................................now. Seriously, jokes aside this run up has been of epic proportions and the last spike has cleaned out any shorts that were still hanging around. Will I short again - my confidence has taken a knock and I have learnt a tough lesson from the hard school of trading. Have a stop and stick to it - break this rule and you will break the bank. Yes I believe I will double my current minuscule short (minuscule in comparison to the monster of a short I had) When everyone thinks you are mad to take on a position and your common sense cries against your actions - then you know you are truly contrary.

mmmm - hint of concaveness there - no?

Have fun out there. The volatility is back and money can be made quickly or lost quickly so take a view, trade it, but don't forget to decide on a stop BEFORE you put the position on and write it down in blood.

Good Trading
Kick

Fini, she's broken

 

The FINI appears to have broken and back tested its break. What is also noticeable is the gradual decline in the steepness of this ascent as momentum to the upside subsided over time. FINI seems like a good short for the intermediate term. 

Banks in particular are ripe for a good pullback. With banks raising charges significantly over the past year or two Mr Consumer is looking for alternatives and Capitec Bank(CPI) is benefiting greatly and rightly so. Check out this link for comparisons of bank fees and you will see why in this time of prudence opening a Capitec bank account makes sense.

 

Good Trading (and changing of  banks)

A useful read

Here Bill Gross of Pimco gives some words of wisdom: Definitely a worthy read. Where does RSA stand relative to its peers - a very prudent debt-to-GDP ratio of 25% of GDP. That makes us an investment destination of choice once the dust settles.

Good Trading

Look to short

Sell into strength would be my mantra from now on. The rolling over process is beginning - could we make new highs? Possibly but much higher? - NO. Possibly much lower? - YES. That in plain and simple English means risk is to the downside.

Bear markets end and only end when the general populace experience revulsion towards shares. We are still a long way off from this measure of sentiment - look for unconstrained fear and negativity towards stocks to mark the end of the Bear.

NPN (Naspers) was mentioned in a previous post as being stretched and has come off nicely. Expect a short term bounce back to retrace this initial drop then short the guy for the long drop back to its cluster of support in the 160 range

Good Trading

Change is a coming

Well I never figured that Obama would be the catalyst for things to turn a lot less rosy. The "Yes We Can!" man is applying this motivational phrase to changing the banking industry. Paul Volker seems to have gotten the ear of the US President and based on Volker's uncompromising stature and previous actions to save the USA from a high inflation, the banking industry must be getting a tad nervous.

Volcker chaired the Federal Reserve from August 1979 through August 1987, during which period the U.S. inflation rate was brought down from 13% to 4%. He managed to do this by hiking interest rates aggressively and showed he was not afraid to take unpopular decisions. The current decision to drop prop trading and hedge funds at banks and possibly break up these "To big to fail" financial behemoths might actually make him very POPULAR! There is a growing tone of resentment taking hold in the general populace as the average tax payer reads stories of Goldman Sachs paying out record bonuses after being bailed out by their Sugar Daddy the FED (aka the tax payer). The Banks seem to have a wonderfully loaded coin to play with - heads you win, tails you get bailed out... Therefore with Obama's ratings dropping and more and more people turning against banks and there unsavoury practices, Obama's has turned to a man not afraid of stepping on any toes.

This was the fist salvo fired over the Banks bows and mark my words - this is the beginning of a financial storm. Banks have exposure in derivatives running in the trillions. JP Morgan alone has notional exposure of 80 Trillion! Banks are so interconnected nowadays that if one folds they all go down.

Banks have evolved from being vehicles for simply allowing depositors easy access to their funds and providing loans to purchase large assets such as homes to incredible complex entities which are increasingly difficult to regulate. Entering the financial industry in the past few years was the place to be, the place where the moneys at, the place where innovation in all sorts of financial products happened. Products which have become increasingly difficult to understand or measure risk. The brightest of the bright streamed to this industry in hope of earning millions rand bonuses, where fortunes can be made (or lost) in a matter of minutes. When you are trading 50 or 100 million rand positions it all seems quite surreal - kind of like the "de-association" effect converting hard earned cash for casino chips. For me the stand out(or let down) of this industry is it has added nothing to the production of physical goods, tangibles so to speak. No physical plants have been built, no manufacturing of goods, nothing but financial engineering and leveraging up real money to 100-200-X times its value.Taking on increasingly large risks, all to chase the almighty buck. Forgetting their ultimate role as the custodian of peoples hard earned money.

Jim Rodgers, the legendary investor which used to (still does?) run the Quantum Fund with George Soros remarked a while ago - "I see young bankers in there twenties driving Lamborghini's - something is not right with this picture...." Do you agree? I sure do. He sees farming as the next industry of the future and farmers will be the ones driving the Lambo's. I for one would agree - tilling land, producing food and making a success in this uncompromising industry seems to me a lot more beneficial to us as human beings.

If your teenager/student is aiming for the banking industry be warned this industry is heading for alot of pain and is about to be dumbed down to it true purpose. Financial products are about to be simplified to levels that most can understand, obfuscated exotic financial products will be heading for the dust heap and the mathematical geniuses of our time which spend their time engineering financial products will rather move to more productive pursuits.

Good Trading

And you thought I was bearish....

Prechter's long term count from Elliot Wave International. (I hope they don't take offense me posting this)

His long term projection is for the Dow to bottom out at 400 in 2014. Dow is currently sitting at..............10,609. Pretty hefty drop. Please take note Prechter is no monkey and is a member of the Triple Nine Society - people that have tested at or above the 99.9th percentile for IQ tests. Phew!

With markets always doing the unexpected and Prechter probably being seen as belonging to the lunatic fringe - there might be some substance to his doomsday forecast. My long term forecast for the ALSI is probably not too way off Prechters. The ALSI is en route to its long term support line in the next couple of years and that is still a fair way down.

Good Trading

Year of the Tiger

I would like to rename this to the year that all hell breaks loose. The market is so disconnected with reality that it must be smoking some real A grade Durban poison. Here are some good trading lessons - I think I need to recite these every night to myself as markets are not rational beings and I'm trying to find a vestige of rationality and just not succeeding.................

Richard Bernstein’s lessons

1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.

2. Most stock market indicators have never actually been tested. Most don’t work.

3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.

4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.

5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.

6. Balance sheets are generally more important than income or cash-flow statements.

7. Investors should focus strongly on GAAP accounting, and should pay little attention to “pro forma” or “unaudited” financial statements.

8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.

9. Investors should research financial history as much as possible.

10. Leverage gives the illusion of wealth. Saving is wealth.



David Rosenberg’s lessons

1. In order for an economic forecast to be relevant, it must be combined with a market call.

2. Never be a slave to the data - they are no substitutes for astute observation of the big picture.

3. The consensus rarely gets it right and almost always errs on the side of optimism - except at the bottom.

4. Fall in love with your partner, not your forecast.

5. No two cycles are ever the same.

6. Never hide behind your model.

7. Always seek out corroborating evidence.

8. Have respect for what the markets are telling you.



Bob Farrell’s lessons

1. Markets tend to return to the mean over time.

2. Excesses in one direction will lead to an excess in the other direction. (Kick, repeat and write out two trillion times - never realizing the extremes govt's will go to)

3. There are no new eras - excesses are never permanent.

4. Exponential rising and falling markets usually go further than you think.

5. The public buys the most at the top and the least at the bottom.

6. Fear and greed are stronger than long-term resolve.

7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chips.

8. Bear markets have three stages.

9. When all the experts and forecasts agree, something else is going to happen.

10. Bull markets are more fun than bear markets.

Do you also sometimes feel that you should put blinkers and ear muffs on and ONLY look at price action. Knowing the fundamentals can sometimes be a distinct disadvantage as Markets are NOT rational, yes repeat NOT rational. Why not you may ask ? Quite simple - markets are driven by human beings. Where 99% of investors in stock markets are totally oblivious to economics and what drives share prices. If this is the case one should not rationalise share prices as they make no logical sense. Instead one should rather study human behaviour. If human beings are the ultimate drivers of shares prices and not a companies balance sheet or P/E or whatever other shyte investment advisors can come up with then focus instead on psychology. Yes - if you want to be a successful Investor study psychology, not economics, not how to analyze a companies balance sheet, no, .............psychology.

Lets contemplate the psychological state of the average investor (fondly referred to from here as AI) including portfolio managers. After having the BeJEEZus scared out of them late 2008 and early last year (no-one saw this ten ton track coming) all seems to be calm on the western frontier. The AI is now patting themselves on the back for hanging in there and murmuring to themselves the oft quoted phrase - "invest for the long run, Rome was not built in a day....." Now if only those poor Japanese investors which kinda seem to be leading the world today down the same path - did NOT take this to heart..... the Nikkei peeked 20 years ago on 29 December 1989

You bought the Nikkei index 20 years ago you would be give or take 70% down rounding to the closest 10%. Lets not squabble over 10% now.....Funnily the developed world did not take a page out of the Japanese book of mistakes. Yes they have been fighting deflation for 20+ years now with interest rates at 0.1% percent. Free money anyone? Funny thing is this did not save their property market, did not save their stock market  nor ignite hyper-inflation as the hyper inflationists are postulating currently with the USA sitting at a merry 0-0.25%. Even when governments are literally stuffing money down Consumer's throat's - the Consumer is not going AAAAAAH When you are bloated and stuffed to the hilt with debt, then you just cannot squeeze in anymore - even if that last bite of tiramisu  just seems so bloody tempting. The thing is we actually have two unwilling parties - the Banks are scared to lend money out as they are at risk of not recovering their monies - business are folding at an increasing rate, property is tanking and unemployment is climbing. The Consumer is literally choking on tiramisu (debt) - in SA 79 to 80% of disposable income is used to service debt. Yes that is a frightening statistic. Back in 1969 this was 46% - what happened to circumspection, thriftiness and SAVING. Yes actually putting a down a deposit when buying a house - not a 110% loan where you can still furnish the house without saving a dime!

AI is patting themselves on the back blinded by mountain of shining fiat money and debt. Indigestion is the next stage of over-indulgence and we have only experienced a few hiccups to date. Sever heart-burn is about to set in. Get those Rennies ready you are going to need them.

Finding a Bear out there now would be quite a feat (have they been added to the endangered list?)- specially one with any capital left. (Yes I'm still standing - in case you are wondering) Optimism has returned, the VIX has dropped, the market has rallied and all is going swimmingly. Now as a Zimbabwean recently discovered the sea looks placid from above but below dangers are lurking...

Interesting chart on zero years - they typically are .............downers....

Good Trading

PS - I will look at SHP again soon - a pet favourite. Seems to have gone nowhere since listing it a a possible short. Naspers (NPN) is also looking awfully stretched - keep an eye on this one.