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Tuesday, June 6, 2017

WHAT “SPOOKS” INVESTORS IN STOCKS?

“If only the SNB knew back then what they can get away with now!”

Over the course of “modern day trading”, which began in the late 70’s to early 80’s, and then came of age at the turn of the century with the availability of cheap, dependable high speed internet, we have witnessed a complete paradigm shift in the way people view investing and trading of either stocks in general or stock indices in particular.

That change can be most seen at the institutional level, where complex financial derivatives strategies are “par for the course” these days and were pretty much non-existent 2 decades ago. Today we have anything and everything from hedge funds that specialize in options “skew” [the “smile” and the “frown” of option volatilities] and gamma scalping [the most recent responsible for the Feb. 2017 melt up in U.S. indices], to risk parity funds that seek to spread risk over multiple asset classes based on implied volatility. Problem is, when SHTF, nobody knows what the fallout is gonna be cuz it hasn’t happened before, and all you got is a bunch of math Ph.D.’s who are the only ones with the slightest clue of the potential danger; that danger is multiplied, cuz the math Ph.D.’s aren’t traders and haven’t the slightest clue how markets work, especially when SHTF.

Add to this backdrop the U.S. Federal Reserve, which has somehow seen fit to make themselves the “financial nanny” to all investors over the last couple of decades with financial ‘activism” that we see manifest today with their idiotic policies. Problem here is that at some point, investor confidence and people “hitting the exit gate” at the same time are going to be a huge unsolvable problem created by them with no observable solution. And so the mantra, “stocks must never be allowed to go down more than a little, tiny bit ever again cuz the ramifications are so horrible we can’t let the financial system go under to trader types who only want to profit from stock price changes”. That mantra is now fully ingrained into the financial system, so that everybody from “Ma & Pa” out in Iowa buying Walmart for their 401(k)’s, to the gamma scalpers who have billions and betting the market can’t go up 5% per quarter; and so, we’ve morphed rapidly into the FED has “everybody’s back” I hardly noticed the seismic shifts under my feet.

I have alluded to this before, but the FED [and the world’s other central banks as well] got caught completely “off guard” with the crude oil collapse from approximately $105 per bbl. in January 2014 to $25 per bbl. in February 2016; everybody and their brother first thought $70, then $50, then for sure $40, and I “swear to God” it can’t possibly go below $30 per bbl. was the low. The ramifications for the world economy were devastating to say the least, not to mention the impact on U.S. state budgets and the energy industry as a whole; mass layoffs, bankruptcies, and corporate downsizing's were all the rage by Feb. 2016.

And then came the “Plunge Protection Team” to save the oil industry; now, for the first time, it was being used not just in stocks but commodities also. What’s a few hundred thousand oil futures contracts gonna do to the government manipulators if things don’t work out? They gonna lose a few billion dollars? Hell, to government a few billion dollars is a rounding error! The far greater impact is if they let an entire industry go sliding into oblivion and affecting politicians re-election chances cuz the folks back home are “hurting”.

And from this has sprung what we see now, cuz the most precious thing holding the U.S. together at this moment is positive investor psychology regarding stocks; and that mantra must be maintained at all costs come hell or high water. No longer are you going to ever see a “laissez faire” FED sit back and let the “chips fall where they may” when it comes to stocks, cuz they know if stocks are hurting people are not happy at all. So, what can “spook” investors?

The only thing that will cause a long, sustained assault on prices and see a really painful bear market is if investors [both retail & institutional] sense a “shift” on the part of the political elite regarding capitalism, where corporate profits are threatened over an indeterminate period of time that can’t be calculated easily, AND a shift on the part of central banks that all of a sudden, “you’re on your own Skippy”. Until then, it’s clear sailing, and it’s why I have maintained for a while now that stocks go up 80% of the time and go flat to down 20% of the time; and unless there is a clear MSM storyline that manifests itself for more than a day or two, corrections are simply that and nothing more … and BOOM! … within hours the mantra is back and you sit there wondering why you got all “spooked” to begin with.

Turning to today’s market … OMG! A lower open … Is this legal? … Question for today is, will the first leg down be the bottom or do we get a 2nd or 3rd leg down to hit sell stops? Lately, it’s been 100% for the first leg as that’s “it”, and it’s off to the races after that to the upside … with a NDX100 market rolling over and cleaning some folks out with sell stops most definitely underneath, that first leg winning streak is very much in doubt … but, we’ll see.

Here a half hour after the open, central bank bids have been placed, the overnight losses contained, and after the quick blast 20 up, it’s situation normal in the stock indices … where the new “normal” is that they will absolutely not be allowed to go lower unless bids are pulled … if they don’t pull the bids and let this stuff correct like it should, they are only asking for more volatility trouble later on … sooner or later, the central banks are gonna find out they are impotent in the face of a true tsunami of selling … I hope it doesn’t come to this, but elite Twits got to be elite Twits after all, and since they know everything, it escapes them that somehow they could be wrong.

And once again, bids get raised, the shorts scramble for the umpteenth millionth time, the NDX100 continues to go up, the SP500 refuses to go down, and now we start the slow, grinding glacial drift higher on “vapors”. WTF else is new?

Today marks the first day of a somewhat adjusted trading style for the PAMM; to be sure nothing major changes here, but what I’m simply looking to do is try and make thousands and if I must lose, it’s in the hundreds or less. I’ll give the market slightly more room to maneuver, while at the same time keeping risk to a minimum consistent with potential gain. It simply doesn’t make any sense to shorten my trading horizon given the fact the market goes through intraday periods with little up/down movement. If the M1 signals are there, I’ll surely take them, but as we have seen over the last couple of months, a substantial portion of the time they go into hibernation and good moves are missed, with many times that being the only good move for the entire day; this is entirely due to the fact that the central bank bidders really don’t care about the M1 candlesticks. They care more about “order flow” and raising the bids in key stocks to get the market higher on the least amount of money to buy, while at the same time burning shorts a new one.

I’ll be trading bigger volumes, and on market breaks, you’ll see the PAMM do larger volume numbers. Up and until they take out the first leg of a down move after the open, I’m going to try and give the market more room on the upside, and scalp only as absolutely necessary. Simply put, this implosion of intraday volatility means we need a slightly longer intraday time horizon to maximize profit; it doesn’t do anybody any good to scalp the market for a point, only to see it rocket higher minutes later. It’s one thing to protect a profit on the upside from turning into a loss, which is something I almost never, ever do; it’s quite another to simply take the scalp and not give the market room to move higher in the face of what we know regards “buy side” manipulation by the central banks and the “Plunge Protection Team”.

I am very perceptive as to how the stock indices behave; I know action when I see it, and if by chance we go back to the Dow30 trading like EURAUD [which pre 2016 it most definitely did], I can always adjust some of these newer parameters to the action and trade accordingly.

So, today saw both good and bad with regards me giving the market just a tad more room; one the one hand it cost me [a losing trade], and on the other it made it back [a winning trade that got it all back]. I’m not sure if the results would have been the same or slightly different, but what I can say for sure is it certainly gave us more opportunity for profit … and that’s what I’m looking for. It was one of those days, where but for the grace of shorts who get to panic as sure as the sun comes up in the East, I’m happy to be down commissions for the effort and let’s do it again tomorrow. Not every day is Christmas, of course, when it comes to picking money up off the floor, but by the same token it doesn’t matter anything losing a few pennies to the house now and then. It is what it is, and I’m back at it tomorrow, with Thursday penciled in as either a day to yawn or a day to get the fire engines ready cuz it’s gonna be smokin’ hot … so tomorrow might even be slower than today given the “trifecta fireworks” [Comey, ECB, & UK election] that are sure to be here the following day.

And really, today highlights in spades the need for my adjusting slightly the PAMM trading parameters; trading conditions are utterly horrible in pretty much all MT4 markets, but the stock indices specifically simply will not be allowed to fluctuate up/down more than some random points. And as I have pointed out in the past, the problem with markets like this is that if you make a trade early and lose money, will the market give you enough the rest of the day to make it back? Increasingly, that answer might be NO. What we are witnessing simply was unthinkable a few short years ago … a few years ago, could any of you have figured the SP500 in a 2 index point range for hour-after-hour during the busiest time of day? And yet, that’s exactly what we see almost on a daily occurrence … ditto for the Dow30 at about 20 – 25 index points or less.

Without warning, the central banks adjust their bids higher and in seconds the Dow30 leaps 20-40 points, when a minute earlier it couldn’t move 4 points in an hour … or, simply pull the bids without warning and in 2 seconds the Dow30 is down 20-40 points, when a minute earlier it couldn’t drop 2 points in 30 minutes. So, they suck everybody in on the spike, and then … nothing … no follow through … no nada … and the cycle repeats again throughout the day.

The PAMM is, most of the time, buying on trade initiation simply because 80% of the time the indices rally, and 20% of the time they are flat to down, over many years and decades … this isn’t just my opinion, it’s a fact; take a look at a 20 or 30 year SP500 chart and it tells the story quite well. I’m not averse to being short, except that there needs to be a “bear” story driving the selling, and so far this year we aren’t anywhere near that scenario.

The PAMM spreadsheet below is as of today’s balance; from my calculations, it’s about $38 dollars over-valued; the balance is what my master account shows as the current balance, but I’m wondering if they forgot to take out commissions or what? There is no $38 dollar deposit or add on from this month, and everything is accurate to the penny through the end of MAY 2017. I’ll email Turnkey and see what the discrepancy is about, and if they tell me it’s OK the balance is “good”, then we’ll take it!

PAMM spreadsheet directly below.


Time for the beach! … I’m so outta here … until tomorrow.

Have a great day everybody!

-vegas

OUR TURNKEY FOREX  “PAMM/MAM”  IS NOW OPEN AND OPERATIONAL; SEE “PAMM/MAM MANAGED MONEY PROGRAM” IN “DOWNLOAD LINKS” SECTION IN RIGHT HAND COLUMN FOR DETAILS [VIEW ONLINE AND/OR DOWNLOAD] AND START YOUR JOURNEY FROM WHERE YOU ARE AT TO “ESCAPE TO SUCCESS”!

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