Currencies

Maybe This Year

On Jan 2, 2018 I walked into Melanie’s office and told her I had set a goal for myself to see if I could double my small, trading account IRA account in one year (achieve a 100% return).  An ambitious goal but something that is doable with good risk management, some leverage, active trading and of course must include a dash of luck and a cooperative market.

With 2018 now in the rearview mirror and a tally of the results I have to come clean, I did not achieve my goal. In fact, I was far below it. Disappointing no doubt as at one point in the year I was up more than 70% with about 40% of the year left to go I thought it was going to be a slam dunk. I had it all mapped out, I was going to sell everything once I hit that 100% mark and sit in cash and wait for December 31. But, alas, Q4 happened. I didn’t react fast enough to the rapid change in sentiment and so I fell hard with the market. Deal with it big boy, the market is talking and doesn’t care what I want or think. Oh yah, the “Woulda-Shoulda-Coulda” game is a waste of emotional and brain capital too so don’t do it. Its non-productive. If you don’t like the results, change your process.

My return for the year was 25.7%, not bad as I outperformed the SP500 by almost 32%. But those that know me understand “not bad” is not what drives me. So, being the uber competitive individual I am, I will, once again, set another goal to double my account for 2019. The odds are I will fail even worse than I did this year. Why? Because I am human. 2018 provided me the opportunity to fly under the radar with only one person knowing my goal. No external pressure or embarrassment if I failed, just my pride was at stake. You see the sad thing is as humans we have a tendency to act differently the more sets of eyes that are scrutinizing what we do, especially when money is involved. Even though I have the same set of trading rules, because of emotions that drive decisions, I am more than likely going deviate from them even though I know I should not***. Hopefully my genetic stubbornness, adjustments to my process and most importantly my real goal for doing this can keep my emotions in check. I want to make it clear, if I achieve the goal it’s not because I want to gloat or brag, or even because I want a bigger IRA (although I don’t mind this), instead I have something that is way more important to me. I want all clients and readers to know beating the market (and hopefully substantially) is doable in spite of Wall Street’s mantra it’s not possible. If Wall Street is too dumb (and this has nothing to do with intelligence) or lazy, that doesn’t mean it’s not possible. Peter Brandt taught me this and it changed my life. My goal is to do that same for some of you.

Let’s be real. Can beating the market be done every year?  Nope, not going to likely ever happen every year over a long run by anyone let alone me. All of my mentors and people I follow and compare methodologies and processes with do it regularly, but not every year. Each of them has experienced underperforming years, some terribly so. That is going to occur with random markets, it’s inevitable. And what is a common trait is that those individuals become better when they fail. They key-in on and learn from their mistakes/failures, something all of us should do if we want to get better at anything in life. They are also in a continuous loop, never staying idle or complacent but always improving. To be a successful investor all that is required is 1) have a process that provides positive expectancy 2) insure steadfast discipline following the process, 3) access to multiple markets to invest in (more than just stocks and bonds) and 4) an unwavering desire to outperform (a politically correct way of saying being an overly competitive pain-in-the-^%$.

Maybe this year.

Any doubters feel free to email me as I will be more than happy to provide a validation of trades and account values. And no, in case you were going to ask as others already have, I can’t do this for anyone else’s account.  Sorry. On the other hand, if you would like to learn how, please send me an email as I’d love to share with anyone what I have learned (what’s the old Chinese proverb about teaching a man to fish?).

***If you want to learn more about this human trait, there is a really interesting and true investment story you can read, just google the “turtle traders” or email me and I can send you an ebook.

On a Dime

Josh Brown (thereformedbroker.com) is a must follow for those who live and breathe the markets as I do. His post from last Friday says so much, so well I had to repost it. Hopefully it sounds familiar.

 On a Dime

The fundamentals of a company, a sector or an entire country’s economy rarely turn on a dime. They improve or deteriorate slowly, and often imperceptibly, over longer periods of time. And when they turn, even the turn itself can seem interminably long.*

The prices of stocks, however, can and do turn on a dime. They move faster and more aggressively than anything happening with the issuer’s fundamentals. And yes, by extrapolation, entire sectors or country stock markets do the same.

The fact that stocks and stock markets can turn on a dime is one of the most frustrating aspects of investing. Just when most investors have told themselves the same story so convincingly and memorably, the story changes. But not everyone is ready to abandon the story they’ve embraced all at once.

This turning on a dime business also makes technical analysis difficult for people to accept. If everything you thought last week is now the opposite this week, why should I listen to a word of any of it? Smart technicians speak in probabilities and not certainties regarding outcomes. They also describe their opinions in terms of if, then:

If ___ comes to pass, then ___ should be the result. But if ___ doesn’t, then ___ becomes less likely.

If that lack of conviction frustrates you, you probably aren’t cut out for markets, anyway.

2018’s market turned on a dime. The difference between momentum in January versus momentum in December was night and day – there’s no chance the underlying fundamentals of the US economy changes to the degree momentum did during the course of the last year. Here’s Jon Krinsky, looking at Relative Strength (RSI), a widely used measure of momentum – it’s my Chart o’ the Day. Readings above 70 or below 30 are considered to be above or below the thresholds of “extreme” momentum, good or bad…

What a Difference A Year Makes

In January, the SPX’s weekly RSI exceeded 90, its highest on record. In December it hit 31, the lowest since 2011. It’s easy to say that 2019 will settle somewhere in between, but a failure to hold above the 50 level on the next meaningful rally would be a negative tell for the medium-term.

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To have the highest RSI on record to begin a year and then end plumbing the depths of recent history – that’s quite a turn. It didn’t announce itself, it just happened. In January, there wasn’t a single indicator that could have warned you. The only preparation for this sort of thing is to be armed with historical context – and the history of markets suggests that anything can happen, at any time. Hence the need to build strategies that can endure all events, even low probability ones.

Source:

Formidable Resistance
Baycrest Partners – January 1st, 2019

* there are exceptions to this, of course. one-drug biotechs absolutely can see their fundamental outlook stop on a dime and reverse, from something like a partnership announcement, an insurance company approval, an FDA approval, etc. There are others.

The Art of Knife Catching

Was talking to a great friend the other day and they asked if they should buy bitcoin. I said before you do let’s play a game. I will get on the roof, with you on the ground and I will throw some knives to you. Depending upon how many you catch will determine how much you buy. She laughed and got my point. I have nothing against bitcoin, in fact almost any vehicle is on the table as an investment but any purchase comes with a major condition, only buy if its price is rising. Let’s take a look at the bitcoin chart to see why I don’t believe now is the time to be acquiring this cryptocurrency.

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Long-term readers should easily recognize the ominous parabolic arc pattern. Parabolic Arc chart patterns are generated when steep rise in prices are caused by irrational buying and intense speculation. Parabolic Arcs are fairly rare but they are reliable that when they finally end, the result will be a steep and swift decline. The pattern typically terminates its uptrend and reverses direction upon a price break below the arc. If you are lucky enough to get in early, they are a way to immense riches … or devastation if you don’t have an investment plan (buy and hold)

As you can see after bitcoin broke the arc, it continued to fall, making lower highs and in the process forming a descending triangle pattern. These are typically continuation patterns, meaning there is a higher probability the break of the pattern will be in the direction of the prior trend (lower).  In this case, the break of the pattern that occurred 4 weeks ago points to a target in the area of $2900.  If that doesn’t hold, look out below as support doesn’t really show up until you get to $1000.

Because this is a logarithmic chart, it hides the magnitude of the decline. Put into perspective since peaking in December of last year, bitcoin has lost more than 80% of its value. Unfortunately for the millennials, they are the latest to be schooled by the markets and their early retirement dreams put on hold. It happens to everyone at some point which is being able to recognize irrational human behavior (parabolic arcs), confirmed by repeating patterns, helps to keep knowledgeable investors out of big trouble.

At some point BC will find a bottom and will be something worthy of your investment consideration. Until then, be happy you weren’t a part of the delusional crowd falling for the “hype” and “story” as they always precede parabolic arcs.   

August 2018 Charts on the Move Video

August was a barn-burner for stocks, specifically US stocks. The Nasdaq popped almost 6% and the rest of US stocks moved higher while most of the rest of the world equities fell.  Its a great time to be an investor in the current US market strength. As the pro's and big money come back from summer vacation will September follow August's lead and continue higher or will it offer something more challenging?  While we wait for this question to unfold, have a look at this months Charts on the Move video at the link below.....

https://youtu.be/6gf-MD3llM4

 

 

July 2018 Charts on the Move Video

US stock markets are leading the rest of the world higher.  The intermediate term rally in the dollar has either reversed or put the case for over-weighting foreign investments on hold. I think we muddle through the summer/autumn months and then rally into year-end.  Anyone thinking the same? 

July's Charts on the Move video can be viewed at the link below

https://youtu.be/lmdfJ5p16es