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Tuesday, April 11, 2017


“Col. Hogan & Sgt. Schultz pour over their Dow30 charts!”

Like I said yesterday, things are slowing down for the traditional Easter week 12 day trader “vacation-athon”, whereby traders of all stripes and markets will take 12 days off while only missing 2 days of “action” [Action? Where?]; yesterday and today being the 2 days in question. This is the only time during the calendar year traders have this opportunity; everything else is 3 or 4 day weekends wrapped around a Holiday, but not Easter and many times back-in-the-day I spent on vacation not caring if the world ended during this 12 day stretch. The hardest part was coming back and commuting back into the kitty litter box known as Chicago; talk about a wake up call from 12 days of bliss!

So, here we are on day 2, about an hour from the New York open in stocks, and markets across the board are mostly dead; nothing on the economic report ledger to look for today; ChairSatan Yellen’s Twitter “chat” last night a complete joke, with more softballs since Chalky held his last WH press conference. The fact she blatantly lied answering question after question didn’t seem to bother anybody, her soothing grandmotherly words of “everything is F-ing awesome Baby”! enough to put everybody asleep. Market reaction to her was predictably … zero.

Since the markets are in “Holiday” mode for the next several days, I want to cover some important ground regarding the PAMM; today I want to go over “perspective” with regards the stock indices. Tomorrow, Thursday, and Friday I will go over other important areas.

I have said it before and I will say it again; “stocks [meaning the indices] go up about 80% of the time, and are flat to down the other 20% of the time”. And up and until this dynamic changes, my bias will remain “BTFD”!, simply because it gives us [me] the best shot at making consistent money. Of course there are times to be short, that should be obvious, but if you tried to make a living trading these instruments over the last 20 years by being consistently short day-after-day, week-after-week, you’ve had a very rough 20 years. Directly below, the Dow 30 over the last 20 years shows the story.

Now, it doesn’t matter much what I or you think; “oh, it’s grossly over valued”, “oh, the earnings of these companies is a scam”, or “the economy is going to crash”!; blah blah yada yada I’ve heard this my whole life, and yet it keeps going up. “You wanna make consistent money over time? Then your bias here has to be to the long side; history tells us this”.

Since the advent of online trading [very late 1990’s], and trading of stock indices futures contracts moved from the physical “pits” of Chicago onto the CME’s Globex platform by almost 100% from 2004 – 2005, the last approximate 20 years have seen dramatic changes; 24/5 trading, “flash crashes”, the rise of HFT’s, to name just a few. The proliferation of financial derivatives has exploded, and you can’t simply compare charts from 30 years ago and say they have the same meaning; markets will trade and react the same; the mechanisms for trading are the same, but markets today move much faster than they ever did in the past.

Simply put, the Dow30 via the Turnkey MT4 platform, offers us tremendous advantages; the spread and RT commission is very good. Not the very best in the world, as there are some European brokerage houses that are a “hair” lower in terms of the spread [maybe 0.4 – 0.6 index points], but their RT commissions are substantially higher. Add it all up and maybe they come in a half a Dow 30 point lower; however, there are 2 points that need to be made, 1) it’s for individual accounts not PAMM’s, and 2) none of them accept U.S. clients. For our purposes, it simply is the best in the world, and the way the Dow30 trades, a half a Dow point isn’t going to be the difference between your “escaping to success” and remaining in the Pudding Business.

At present, the Dow 30 1) has the best “bang for the buck” in terms of trading ranges & HVALUES, 2) has the lowest “net” cost to trade, and 3) is the easiest of the stock indices to “get out of the spread” during the trading day. And although the other indices have their moments, on slow days, the Dow 30 is the easiest to move; remember, of the 30 large stocks in the Dow 30, all it takes is a ± $1 cumulative move in the entirety of the 30 stocks to = approximately a ± 7 index point move, and if you watch the index trade for longer than about 10 minutes, you can see it’s pretty easy for the Dow 30 to move.

Turning to today’s trade … “well, that escalated quickly”. After an early open rally attempt abruptly fizzled, the sellers took over, and with the impending long Holiday on the horizon [4 market days this stuff is closed], looks like some folks want out.

First trade of the day, and while I didn’t take much heat on it, the double hammer signal off the first bottom produced a very good buy signal, and the ensuing spike up saw me liquidate on the first M1 that showed up after; chart directly below.

After that, and subsequent trips down, we are now entering “danger” territory from sell stops beneath 20550 [see HR1, HR4, & daily candlesticks and you tell me where the public has their stops.]; we simply don’t know how big and how deep this stuff can go if they get triggered; going into a 4 day weekend it could be a bloodbath or it could be very mild, with nobody knowing for sure. One thing I do know for sure? I ain’t getting caught in a waterfall spike downward as my stop gets lumped in with the rest of the public and gets literally slaughtered 50-100 points lower. If I get a signal, the risk here is simply too great for any possible reward.

On the other hand, the markets feeble attempt off the first couple of lows to sustain anything on the upside tells me that unless you are willing to sell the Dow 30 “in the hole’ [meaning, as it’s going down], it isn’t going to give you much of a chance to get short at advantageous pricing higher. So, I’m not really see anything to “ugly” here as 20550 gets taken out … mild rallies off the bottom and market looks likes it’s congesting some … wouldn’t be surprised to see mild rally back up to the 20570 area again, and if they ever got it back above 20610 it has the potential to be a “rip your face off” late afternoon short squeeze. Not predictin’, just sayin’.

Once the low at 20514 was in, no buy signals off the bottom; no reversals, hammers, or bullish engulfing patterns … nice 100 point rally in 90 minutes, huh? And this goes to the heart of what I said earlier about making a living selling stock indices short; “you better be damned good, have perfect timing, and be willing to be early in getting out; in other words a perfect trader all the time, cuz if you’re not the up spikes will kill you”. Directly below, the rally off the bottom today.

And once again, for like the 20 billionth time, shorts get burned at the stake and are forced back into covering, thus driving prices higher. What seemed so “easy” a few minutes earlier by “selling it in the hole” now has quickly turned into a nightmare. Welcome to the short side.

And while once again the Dow30, SP500 & NDX100 “magically” seem to come back from the brink of a cliff, there isn’t anything magical about it; “if you sell it down, you’re gonna pay the price getting it back. If not from the ‘Plunge Protection Team’, which lurks ever present once the selling is over to inflict as much pain as possible on those “selling America”, to those [institutional & retail] who are merely buying dips in their favorite big ticket stocks at cheaper prices. In the end, it doesn’t matter, cuz the evidence is clear; stocks spend 80% of the time going up”!

On average over many years, only about 10% of the time, will you see stocks get “monkey hammered” into the close, and really there has to be a “story” that’s propelling the negative action; not something small and meaningless like something a Pol said, but something major like an impending bankruptcy nobody foresaw coming in a big name stock, or a surprise shift among Fed Pie Holes RE interest rates [“Gee, they never do that do they”?]. My point is, that it doesn’t happen that often, and if you hang around in short positions in the stock indices too long, you get the kind of “sharp stick somewhere shady” that hurts. In other words, don’t overstay a short position unless it keeps going down!
As for today, it’s all over but the crying for most … another turnaround from the bottom day, and very much looking like another doji on the daily candlestick chart … I will admit, I’m a little surprised at the power of the Dow this afternoon in getting back up to the opening level of the 20650 area, especially given the minor news flow and the impending Holiday, where I’m sure people aren’t thrilled at the market being closed for 4 days; but what you have to accept and realize is that not only is this a “trading” instrument, it’s a bell weather investment index as well, and there are a great many institutions and individuals who will “BTFD” until the cows come home or it stops working. Until that time comes, and please you can be the first one to sell, things are going to stay that way. The trading folks who simply BTFD and hold until profitable are laughing all the way to the bank; the short sellers convinced the end is near are almost bankrupt.

And in case you somehow think this phenomena is “new”, I stood back in the SP500 futures pit for years and heard every single day about how the index was going to 50; when the crash came, not a one of them was there to trade it or see it cuz they were broke! Nothing new under the sun!

Again today, like the last 15 days, the market drops or comes back and then there isn’t anything left in the tank for a double reversal with some power; it’s simply our old friend the “Flying Wedge of Death” paying a visit and inflicting the maximum punishment possible to those that flip from long to short to long and catch the wrong side of all 3 moves. Welcome to “Dojiville”!

PAMM spreadsheet is finally done, and is directly below; I finally figured out the bugs.

With about 2 hours to go to the close, we’ve drifted back off near the recovery high [and almost new high for the day] … market appears to be done moving for the day and we’re sitting about -20  from the open … good time to leave it alone … beach beckons … I’m outta here … until tomorrow.

Have a great day everybody!

Update at the close: “Basically, just another unchanged day; 3rd day in a row”!

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