Again there is a toolkit... for the multi-faceted trader there are different types of trades: Trend trades, swing trades, income trades. With a trend trade we would explicitly avoid profit targets (as is the nature of following trends). This is especially appropriate for potential large moves, as the best equity moves can ultimately result in 300% upside, 50% downside etc before basic trend parameters are violated. With swing trades it can make sense to have targets. Say, for example, you have a high probability long or short entry at the top or bottom of a range. With this type of trade your objective is to capture a chunk of the range. So once you get it, you are out. And then there are income / carry trades -- buying something for yield, limited risk credit spreads to take advantage of time decay etc... Point being we take advantage of multiple approaches (while trying to stick with what we're good at). As far as prediction goes, that's another in-depth discussion in itself. We use prediction the way poker players use imperfect information at the table: To exploit favorable reward / risk situations. There are too many shades of gray, and too many undefined areas, to say flat out whether prediction "works" or not. It's deep water but fun to swim in for certain demented folks (like yours truly).
Gold looks absolutely terrible There are three mentalities for those with an interest in gold: * the trading view * the long-term investment view * the religious view Traders see gold (and all precious metals) as vehicles to go long or short depending on the opportunity set, nothing more. Long term investors are a bit more emotionally committed -- they have a thesis involving runaway inflation, government corruption and Central Bank themed moral decay (though admittedly some of the value-minded just like the intrinsic value of gold stocks). Those in the third category -- what we're tongue in cheek calling the religious category -- see gold as not just a trading vehicle, or even a long-term investment, but a form of capitalist religion. For true believers, gold ownership is a sort of transcendental societal salve: A form of redemption and shelter and cure for all our accumulated ills. For these folks, gold is something to hoard and never let go - or at least, not until the armageddon smoke has cleared and an ounce of gold is worth more than the Dow (perhaps crossing around 7,000 or so)... Read full notes here
Gold Looks Terrible Part II: Clarifying Thoughts Saying yesterday that gold looks terrible led to some thoughtful comments and emails (which are always appreciated). Given that, it makes sense to provide some clarification: * This was more of a trading view than an investment view. * From an investment perspective, gold may still be ââ¬Åokââ¬Â -- but the rationale looks shaky. * Bullish arguments based on past conditions are suspect -- because conditions are changing (with the charts reflecting that change). * Gold may have witnessed a blow-off acceleration in second half 2011 (see chart below). So ok - let's roll up our sleeves on this again... Read full notes here
Market Levitation, China Rollover and Staple Strength At 12.6% to-date, Q1 2012 is merely the 9th best Q1 in S&P 500 history. Best? 1987, which was 24% ytd. - Paul Kedrosky, 03-27-12 As the stock market corrects into quarter's end, bulls are starting to get nervous. Is the levitating act of equities in doubt? Here's a quick point of perspective: The QQQ, powered as it is by Apple, has only touched its 20 day exponential moving average ONCE in 2012 -- and that for but a single day. Maybe the techs should be discounted, though, because of the Apple phenomenon. After all, AAPL has become its own asset class, with a bigger cash hoard than the GDP of small countries and the most successful product line in the history of mankind. But what about the S&P? Thatââ¬â¢s been levitating too... Read full commentary here
The Return of Ugly Goldilocks So in the past few weeks, we've been beating the drum as to why gold is in the danger zone. In today's carnage we added to our precious metals-related shorts -- FCX, silver, and a few other selected plays -- as the bearish metals thesis plays out. While we are not long-term bearish gold (in the long term we are neutral for now), the near term price action has been fairly compelling. Regarding our "Gold looks terrible: clarifying thoughts" piece, Mercenary community member Luke writes in: I am an "open minded" gold investor, so I loved the article; however, my concern is that the US Government cannot AFFORD to let interest rates rise at all or the government debt servicing will eat up all of their revenue. I agree with most of your points, and it would make sense that interest rates SHOULD rise shortly -- but if that means unsustainable debt servicing, then don't you think the Fed will do everything to fight an interest rate rise? First off, good on you for being open-minded Luke. As we like to say, "Love your family -- not your positions. Be loyal to your friends -- not your trades." Your concerns about debt service issues are valid. The problem has to do with timeframes! Read full commentary here
Wild West JOBS Act and Musical Chairs First, a quick comment on the JOBS act. Here's an excerpt of President Obama's signing ceremony remarks: "Here's what's going to happen because of this bill. For business owners who want to take their companies to the next level, this bill will make it easier for you to go public. And that's a big deal because going public is a major step towards expanding and hiring more workers. It's a big deal for investors as well, because public companies operate with greater oversight and greater transparency. "And for start-ups and small businesses, this bill is a potential game changer. Right now, you can only turn to a limited group of investors -- including banks and wealthy individuals -- to get funding. Laws that are nearly eight decades old make it impossible for others to invest. But a lot has changed in 80 years, and it's time our laws did as well. Because of this bill, start-ups and small business will now have access to a big, new pool of potential investors -- namely, the American people. For the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in..." There are some pretty big Wall Street changes coming as a result of this -- and some folks are having a hissy fit,as the following article sampling shows: Read full commentary here
Concerning Gray Swans: Europe, China, Profit Margins & The Fed What are the roots that clutch, what branches grow Out of this stony rubbish? Son of man, You cannot say, or guess, for you know only A heap of broken images where the sun beats, And the dead tree gives no shelter, the cricket no relief And the dry stone no sound of water... - T.S. Eliot, The Waste Land Tuesday (April 10th) was a remarkably red day. Bullish uptrends snapping like dry twigs underfoot. Downside range expansions everywhere you look, on heavy volume with closes at the lows. So many sectors got crushed, it's hard to distinguish between those showing internal weakness and those simply decimated by the broader market action. Homebuilders are an easy example. Take a look at XHB, LEN, TOL, PHM. Nothing special there -- just a microcosm of what's happening all over the place. A good old fashioned "risk off" bloodbath, with the tiny but notable exception of gold. The major indices were crushed too. Small caps were already weak, and the Nasdaq is hopped up on Apple juice. But as for yon Dow and S&P? Uptrends no more... Read full commentary here
Euro Zone Crisis: Back on the Front Burner Welcome back, Your dreams were your ticket out Welcome back, To that same old place you laughed about... - "Welcome Back Kotter" This week kicked off with more political crisis in Europe. I know, we've heard all we can stand on Europe... but now things are getting serious again (hence the market's non-trivial reaction on Monday). It's a good time to revisit the basics of the situation. In France, Nicolas Sarkozy lost the first election round to a socialist, even as the far-right party saw a historic showing; in the Netherlands, a budget crisis led to resignation. Both these items are directly related to the eurozone crisis, and a growing disgust on the part of the populace in respect to current policies. Some quick recaps: Read full commentary here
A Dangerous Market Full of Crosscurrents Danger Will Robinson! 1:41 am - May 4, 2012 This is a dangerous market with lots of crosscurrents. The major indices (Dow, S&P, Trannies etc) are right in their most precarious spot -- threatening a breakout to new highs, but also threatening to break down and fall back into the wide-swinging range that's been in place since mid-March. Bulls look at the charts and see healthy "backing and filling" action. Problem is, the fundamental backdrop to this market is scary too. Lots of potential hand grenades out there -- like European elections this weekend, for example, or various econ data points with the ability to spook markets one way or the other... Read full commentary here