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Friday the 13th’s Follow-Through Failure Forecast
Friday the 13th’s Follow-Through Failure Forecast

Happy Friday the 13th!
Will the market's luck change today or will we break through the mirror at 1,297 on the S&P which could spell 7 years of bad luck for the bears (or maybe 7 weeks).
Surly Trader has a chart (see Phil's Favorites) that says only 9% of the S&Ps sales come from Europe, which means we really shouldn't care so much what they do but he also has a frightening chart of the Baltic Dry Index, which has fallen off a cliff since mid December and that matches up with this terrifying collapse in Rail Traffic (Pragcap's chart) that started earlier and also isn't finished.
The last time intermodal traffic dipped to this level, we were in denial that we were in a Recession and indeed the Dow continued to march from 11,500 in January of 2008 all the way to just above 13,000 in May before it began the long march to 6,600.
Of course, a pessimist may say that by the time traffic had dropped this badly, it was December and the Dow ars already at 8,000 or an even bigger pessimist may point out that, since these are year over year comparisons, that we've never even recovered the original 20% drop and now we're down again and worst than we were at the time.
But I don't like to be a pessimist so I'll just quote David Fry, who titled yesterday's post: "Bulls Blind to Bad Data Once Again," noting:
"In the eurozone today ECB president Draghi decided the best defense is a good offense and cleverly spun a yarn that his policies are working. Draghi further states that “interest rates will remain low for an extended period”…where have we heard this before? This statement caused the euro to rally about 1% on the day perhaps squeezing some shorts.
"Stocks just don’t seem to care about much and are hopeful future earnings reports will justify their enthusiasm. As noted yesterday the trailing PE is around 13X for the S&P 500 which is low but not historically so. Forward earnings are what bulls should care about if the current rally is to have legs. Below is a chart indicating forward looking earnings are flattening out.
"From the WSJ’s analysis of FOMC Minutes Thursday is this nugget suggesting both Bernanke and Geithner were incompetent regarding the housing market decline beginning in 2006: “Bernanke, who took over from Alan Greenspan as Fed chairman in February 2006, is cautious in making forecasts about housing and the wider economy. But, together with then New York Fed chief Timothy Geithner, he believes the slowdown in housing is healthy and likely to end well.” On this kind of ineffectiveness he gets reappointed and Geithner is promoted."
It was Memorial Day of 2008, when I began a week of articles exposing the blatant manipulation that had driven the price to $130 and, at the time, I said oil should be trading at $42. The next day, I said "Oil is certainly the new housing so good luck to all the speculators playing hot potato with those front-month contracts, it will be fun to see who gets burned…" but what's interesting from that post and the reason I got deja vu this morning was this comment:
The Asian markets burned through another 5% drop on the Hang Seng while we were closed although the Nikkei bounced back 203 points today after yesterday’s 350-point drop. As is often the case with Nikkei "rallies" the gains all came in just 2 hours, the opening gap up and a big run from 1:30 to 2:30 so it remains to be seen whether it sticks... Very little happened over the weekend other than the usual attack from Rent-A-Rebel over in Nigeria attempting to support $130 crude.
This week, we have a series of late-day saves in the Asian markets as well as Rent-A-Union action over in Nigeria. Hey, you fell for the fake rebels as an excuse to drive oil higher, why not fake labor disputes. It's Nigeria - who's going to check?
Oil continued to rally through June in 2008, topping out at $145 and we learned the very valuable lesson that Keynes learned 100 years ago - the markets can remain irrational longer than you can remain solvent. That's why I hate to hammer on my bearish outlook because, like 2008, I can be too far ahead. That's why we have plenty of bullish trade ideas (see Wednesday's review) to go with our bearish ones as BALANCE is the key (see our Education and Virtual Portfolio sections to hear this again) to riding out the market waves.
That's also why we practice and practice rolling in our virtual portfolios. You can be right about a stock but wrong about your timing and knowing how to salvage a position is a much more important skill than knowing how to enter and exit one yet most traders only have those two tools in their belt.
Cramer does not teach his sheeple to scale in or scale out because it doesn't fit into a sound-byte. He has somehow turned stampeding people in and out of positions into a badge of honor - I suppose along the logic that America loves a "decider" - whether or not the decision is a wise one.
Other than our aggressive, short-term Portfolios, where we "go with our gut," we are never all bullish or all bearish - usually 60/40 one way or another with 70/30 being extreme and not usually long-lasting.
Our Income Portfolio couldn't possibly be any duller and, if you are sick of riding the stock market roller coaster and want to set up and account that has an excellent chance of making a consistent 10% a year, without all the drama - I would suggest taking this long weekend to read 9 months' worth of posts outlining how we built and adjusted a virtual portfolio that we now only adjust about once a month. The market has had a 30% range during that time.
You can't always time your entries and even a great stock will go down sometimes. As a Fundamental trader, you have to have conviction in your positions but you also have to know when to fold 'em - and that's very difficult.
In short-term trading, we can't afford to care about anything too much but, when we initiate a short-term Porfolio from cash, we can afford to pick positions we have long-term faith in and, if our timing appears to be off, then we follow our Rawhide Strategy and go "rollin', rollin', rollin'."
Have a great weekend!
- Phil
Check out Free Trial to PSW Stock World Weekly (click here). Read about the Buy-Write Strategy Phil often uses for long-term positions here >.
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As a Fundamental trader, you have to have conviction in your positions but you also have to know when to fold 'em - and that's very difficult.
"Your fate is dictated by your convictions (said the Warden to the inmate!)"
So,, if some idiot can press a button and unleash algo trading (backed up by the Fed and Treasury with 0% "loans") to drive the market any way they want, why are we still wasting our time trying to rationalize/predict market moves? Your best hope is to get lucky and be on the same side of a manipulated trade.
This game will continue until there is a loss of confidence in the $US. As we have seen this loss of confidence can take a while since the $US is the building block of every contractual arrangement on this planet (including wages).
We are living in an abusive relationship with the banking cartel....hoping he will change his ways and making feeble excuses for our bruises.
Did someone say Baltic Dry Freight index?
http://is.gd/9YE7ma
Totally weak volume on the rally from 12-20 till now and still can't get thru the double top from the end of October. Watch out for horseshit overnight futures pumping to get over this barrier which has been the basis for sometime now. If we close above the double top for more than one day in a row it's almost a given we're heading to the August highs. I don't like it in either direction.
Other than that it should be noted that the precious market is used to condition the masses and apparently it works because even my own sisterinlaw declared that she knows everything is ok because "I watch the stock market and stuff" came out of her mouth the last time we discussed this. If I hadn't been drunk I wouldn't had wasted my time. I suppose you could take a short here and if closes above the high in October for more than 1 day in a row that would be your stop out.
Second guessing these clowns is a futile effort.
While I like a lot of what you say, I still think the world doesn't want to think/ process the effect of the algo's and what it does to the markets. You said bull ignore the data, but it isn't bulls or bears. It's f'ing algos.
why is our market bottom for the day almost always at 10:30 to 11;00 can almost always say close your shorts here. Why is there always some ramp at 14:00 all the time. so if you actually want to keep your shorts
you schould close at 11;00 and rebuy 3:58. except when we calose on a full daown day, then you almost alwways buy long at the close.
why does the crap almost always trade a perfect channel. been working with tlt. each up day, followed by a down day, wtf.
why do the algo's trade the maarket up in places we all know it has to drop down to to get support. for example each weekly high is almost always follwed by a sell off much closer to the weekly low. but we spent the past three days attempting to support a price and we all knew it had to go down and close the gap.
why does the us market ramp up so the europeans can take profits, instead of closing the openiong gap in the qm. when I have a huge gap I want to take profits on the easy side. wh6y doesn't thyat gap close in the morning. heck if I can make 5% overnoght from yesterdays low I want to sell.
the algo's have destroyed the market place. today, was a perfect example. we have been switting a a new weekly high without covering the gap up, on which I sold on. we spent three days here, only today to get back to where one could make the trade.
why is it always that when you put a good stop loss there the algo's trigger your selling only so they can then buy and push it up?
why aren't the people who are in fact in charge of the markets doing a god damn thing about this.
This is the kind of manipulation of life that cvauses people to revolt
Those are good points, thx. Don't know the answers but I don't see how anyone can trade these ups and downs without being at the computer all the time watching the charts, or as you suggest, the clock.