Friday, October 15, 2010

Sizing up the Situation and My Trades for the Day

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This first daily chart is of the SP-500 and uses data from Investor's Intelligence to plot the percent of investment advisors that are BULLISH along the trail of the past 7 months price performance.  
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Of particular interest to me is the uncanny ability of sentiment data to identify both tops and bottoms in the stock market.  Our current situation reveals that sentiment is 47.2% bullish - the highest it has been in the past 7 months.  At some point the teeter totter gets so skewed, as it is now, that the stock market begins to run out of buyers who can overpower the sellers and thereby keep prices rising.  I believe we are at that point right now.
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Click on any chart to ENLARGE
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This second chart is a look at today's closing US Dollar with the graphic data of the S&P, gold and silver price performance in lower panels.  A couple of interesting things can be observed.  
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First, todays US Dollar price action has all the characteristics of a true bottom.  Big spike lower that reversed and price ended the day positive and higher than the high achieved in the previous day.  
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And second, while the behavior of US Dollar has performed perfectly inversely with the stock market for several months now, that inverse relationship is no where near as 'certain' with either gold or silver.  It is true that the precious metals have a mind of their own and this chart makes that thought easy to see.
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I certainly hope that with a US Dollar counter rally now, we will see the stock market, gold and silver go into a small correction.  I hope because I have unloaded all mining positions that were profitable in anticipation of this setup.  And I would, of course, like to reenter the mining space at a somewhat predictable event, such as the topping of the US Dollar counter rally, as opposed to just getting left in the dust by a continuation of a gold/silver parabolic.
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My remaining profitable miner today was Cardero Resource Corp (CDY) and I liquidated all remaining shares at $1.21.
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I made two purchases today.  First, Proshares Ultrashort Silver (ZSL) at $17.77.  My thinking is that silver has had an incredible near parabolic rise and if for some reason it should get shaky with everything else changing direction, it could be a very profitable trade.
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My other purchase was a further accumulation of Direxion Small Cap Bear 3X (TZA) at $22.89.  I expect the stock market to top and begin to decline as the US Dollar launches its counter rally.  I do not have a specific target for TZA other than it will discontinue an advance higher when the US Dollar counter rally has concluded (tops).  
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My TSI Trading record has been updated.  
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My cumulative trading record for the past 4 months is now 374.8%
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Due to some good futures trades (not recorded at my website) my 
trading account has now regained a cash value which is 70% higher
than 4 months ago.

4 comments:

  1. John,

    I have some difficulty to understand tza and zsl. When you buy these ETF, does it actually mean that you are trying to short small cap and silver?

    Thanks,
    BJ

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  2. Yes! TZA shorts the stock market with 3X leverage. ZSL shorts silver with 2X leverage.

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  3. Nice analysis.
    Firstly, can I reproduce the SPX chart on my blog (with link to your site of course) and secondly, where do you get the % bullish figure from?
    Thanks

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  4. J -- sure, I approve of sharing this information with who ever will listen!

    The link to this data, which comes out each Wednesday is:

    http://schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx

    ReplyDelete