Monday, January 14, 2013

January OpEx Week.

Here we are, start of the OpEx week which normally has been a red week.
While the indices want to go higher, short term, they are bit over extended and a healthy pullback is needed before the journey can continue higher.
Today we had just a tiny mini less than 2 points correction in SPX while DOW was green. Nasdaq was red mainly because of Apple. The McClellan Oscillator is still high and further immediate upside may be limited although not totally ruled out.

Daily NYSE McClellan Oscillator Chart

On 10th January, Tom Demark predicted in Bloomberg that SPX will peak at around 1500 and will fall 5.5%. demark-sees-s-p-500-falling-5-5-after-peak-near-1-500.html
Now Tom Demark is the guru of the Hedge Funds and he charges a pretty penny from anyone who wants to use his system. And yet his success rate off late has been around 50:50, as good as tossing a coin. Last year, around same time he predicted the market top many times and the top never came. Which goes to show that even the best have to eat a humble pie sometimes.

Today was my day to eat humble pie. My trade on Nat. Gas is not working out the way I would like it and I would most likely close this trade tomorrow. But against that, the long trades in Gold and Silver are doing fine. We are also long on selected commodity stocks and ETFs. That explains why we should not put all our eggs in one basket and why we should diversify and spread out the risk.

I may have mentioned before, I expect the market to correct in the next 5/6 trading sessions and I would love SPX test 1450 before the upmove again. While there is a short term top, the bigger cycle is up and unless SPX closes below 1450, the buy signal remains intact. Here I agree with Mr. Demark that we will see at least an intermediate term top around 1500-1510 but my time line for that is still few weeks away. Therefore I would not short the market at this point. The memory of last year is still very fresh in mind.

Elsewhere, the fight between President Obama and GOP is heating up. Again, folks do remember the last debt ceiling show down and the market sell off after that. It promises to become much more ugly this time round.

And last but not the least, the following Tweets are worth a read:
(H/T Ryan Detrick, CMT. Schaeffer's Research)

 Sunrise Trader – “Don’t trade out of boredom, have a plan and see it first. Days like today are often best spent studying.”
  • Amen.  If there is nothing good to trade, don’t force it.  This is easier said than done, but trading just to trade will do nothing, but churn and burn your account.  Let things line up and come to you, then load up.
Eddy Elfenbein – “Since 1990, the S&P 500 has annualized 14.1% when the VIX is below 13. When it’s 13 or more, the annualized return is 4.9%.”
  • Great point.  We’ve heard so much the past few years how a VIX of 15 is ‘low’ and this means we are due for a pullback.  Yet, looking longer-term this isn’t the case.  This tweet spurred us to do some research and we found similar results.

 Chris Ciovacco- “Our perspective, forecasting brings bias & ego into the decision making process – better to pay attention with open mind & adjust on fly.”
  • Love this quote.  Trading can KILL you if you have an opinion and blindly stick to it.  We are all wrong in this game.  In fact, we are usually wrong a lot.  The key is being able to bounce back, learn from it, and live to fight another day.  Another key component to trading is exactly what Chris said above.  DON’T have a bias and only trade what is in front of you.  Our minds can trick us if we let them.  If you think you know it all or have everything figured out, Mr. Market is about to crush you.

And I completely agree with Chris. That is why I am ready to admit mistake ASAP and change from long to short or from short to long or close a trade based purely on price action  or adjust on fly, as Chris says. Ego or faith in the system has no place in preservation of capital. 

That's all for to-night. As always , trade safe and stay safe.