Fundamental Analysis and Sabbath, Bloody, Sabbath

We think it has been a ridiculous debate for some time, The Fundamentalist spend countless hours scouring economic news, earnings estimates, calculations, headlines, etc.....

In today's market, the computer trading programs control 70% of the daily volume. You must understand patterns, resistance, support, moving averages, etc...

The Markets formed a "double bottom" between mid January and mid February. Despite the unbelievable negative "fundamentals" that continue to play out, the markets continue to go higher and higher. Everything you know as a "Fundamentalist" has been turned upside down. You can "Blame it on The Fed or Central Bankers" if you want to cry and try desperately to explain why your entire life you have spent learning fundamental analysis is causing a short circuit in your brain and  the continued loss of your capital. "Dreams turn to nightmares and heaven turns to hell"

It is getting to be comical how the financial experts in the media are completely lost when it comes to explaining how the markets work. Nobody wants to identify " The Elephant in The Room" - technical analysis and algo trading programs. You know, the voodoo that is constantly ignored. I hate to tell you that it is the only thing that has mattered in the markets the last 5 years.  All those late nights studying fundamentals and reading books about the great investors - throw them out. You can now spend 5 minutes looking at "the charts" and throw hundreds of millions of dollars into trades without reading any reports or a deep understanding of the company fundamentals or financial concepts.You can make happy hour by 6:00pm and collect a huge bonus for "your hard work" and outstanding performance! Simply do a "cut and paste" from some egg-head about why the markets are doing what they do. Make it as complicated and counter-intuitive as possible....and Poof! You are a genius.

The best performance has been by those who spend less than 5-minutes looking at a chart, turn off all the news, ignore all the fundamental financial analysis that has been put forth by some of the greatest minds in the last 100 years, and believe unequivocally that the markets will always go up because that's what is now expected and supported at all cost by....

Now that you know the scoop.....enjoy the ride!

"Fearless" by Pink Floyd...Trading Rythms

The past couple weeks we have been trading without updating our blog. Stockspeare started a new job on February 1st and has had no time to update the blog. Time has been very limited; yet, the need to trade has been overwhelming. With limited time to read the news and relying solely on his technical trading programs, it has been his best two- week run in awhile. Kind of like golf, when you are not thinking too much and are just enjoy it, you score your best. Here is what happened:

Played Oil:

UWTI $1.28 to $1.80 sold

Played Volatility:

TVIX $8.50 to $12.35 sold. ( back in at $9.26)

Played Twitter:

TWTR $ 14.25 to $18.25 ( still holding)

Played Gold

NUGT from $23.50 to $62.60  sold. (Long)

Played DUST $5.28 to $6.02 sold. (short)

Played Under Armour multiple times:

UA $ 71 to $82 sold
UA $73 to $83 sold



Every single move was a score. The rhythm was just flowing. I think the difference was just playing the odds and tapping into the market's Algo programs. Sick! Not much thinking involved, just playing the programmed supports and sells. Our computer programs predicted every single move with 100% accuracy- even  100's of stocks and etf's we did not place bets on. The best part was the fact that everybody else failed miserably and were totally confused. We were right on "The Money" with 100% confidence every single move.

The Epiphany:

During the last 20 years; the greatest strengths and  profits we have experienced, are during the most uncertain and volatile periods. We excel during the highest volatility periods. When all is lost for others and confusion is at it's highest, our clarity is the most acute. What does it mean? Our guess is "Rhythmic Trading Patterns". During these periods, something just clicks in our brain pattern and we " just know" how things are going to move. It has never failed. The next step is to "monetize" this awareness. Developing.........

It's like the cadence in Pink Floyd's "Fearless"...next time you are trading, try putting this song on. It just could make you a lot of money.:)

Fianl scans complete: No bets

We really wanted to gamble tonight. Locked out. None of our scans are smart enough to say which way we go with any certainty  IDLE..

The Perfect line of Demarcation

All  Algo's and HFT' programs are perfectly aligned. What this means is that the odds of up or down are 50-50. It's really amazing how often this happens before big events. We were looking for a long or short trade at the end of the day. Everything is perfectly aligned for only a 50-50 bet. The buy/sell programs are "undecided". They really have gotten very good at correctly setting the odds of market uncertainty. Very difficult to beat. Oil and The Market faded and recovered on cue the last two days,

We ran multiple scans looking for a clue today. To no avail yet. The correlations on almost all asset scans are aligned perfectly. The traditional technical analysis odds favor an "up-move' ; however, it's not guaranteed this time. Heavy resistance at S&P500 at 1900. Heavy resistance at oil $32.50. Possible "double tops" across the board, coupled with " double bottom" formations. A perfect set-up for major moves either way. We are going to run some more scans and adjust the parameters. We have 50 minutes left in after market trading and we feel like gambling. Stay tuned.

Trade update

We should have kept our oil trade a little longer ( at least 2 days). When the oil futures crossed over $30 overnight, we had to cut our long volatility trade with a slight loss because of the 96% correlation with oil. We got a little too cute with oil and missed an additional 25% pop today. The market did a nice double bottom bounce from the august lows. Let's see where this ends up. We are currently idle. There is pretty large resistance at S&P 1900. The key will be where the price of oil goes for the foreseeable . Up 18% in 2 days is a very large move. Let's see where this settles out. Enjoy the weekend.

Here is the problem..

The correlation between the stock market and the price of oil is now 96% ( quoted on CNBC earlier today). This is a problem. As we discussed mid last year, the correlation of almost all asset classes have been 90% plus on a global basis for over 5 years now. The markets have not always been this way. Portfolio managers used to be able to properly hedge themselves with asset allocation. The only "asset allocation" left are three categories: long, short, or cash. The reasons for this probably include: ETF proliferation, algo trading, high frequency trading, QE, and the declining average age of portfolio managers in today's markets. Technology and youth are good in a lot of ways; however, there is too much reliance on it. The vast majority of the trading and investment blogs I subscribe to; do not have any experience relying on "gut instinct", they place their faith almost entirely on formulas and technology. Everybody looks smart in a bull market. It worked wonders for a former " Bond King" ( no need to name). If I were a Wall Street CEO, I would make it mandatory that all traders, portfolio managers, quants, and high frequency traders learn game theory. At least poker,that way they learn "gut instinct" and become a "Market Artist". I digress.....

The problem is that their is A LOT of money that has been invested in China, Technology, and The Oil Patch over the last 4 years.

Targets until further notice are:

1600 on S&P500
$22.50 on Oil

Odds of recession are currently 65%

Trade Update

We sold our leveraged  long oil ETF a few minutes ago for a nice 12.5% gain. Oil jumped to $30.00 despite negative news. The pop was not big enough for us to think it bottomed. If oil starts to break 30 or gets close to $25.00, we will reposition. We used some of our profits to reposition in the leveraged long volatility trade. The market bounce was not impressive at all and we think traders will sell going into the weekend as the public reconsiders their 401k losses and call their advisors.

Trade and Market Alert

We sold our short oil and long volatility leveraged ETF's this morning. The Major Indexes have touched the August 2015 low and should find some support or at least a major bounce here. Crude Oil WTI futures touched its March 2002 "Gap-up" low at  around $27.50. Most of the Algo's and HTF's have to at least dip in here.

We bought some oil leveraged ETF.s here. We may be a little early because the load up is around $20.00 for oil. We normally wait for some mass capitulation; however, this was our initial target and we have to follow the plan.

The S&P target still remains around 1600 if there is no hold here.

Where we stand...

The markets are back to normal- for now. The technical indicators are functioning as they should be. The central banks are out of the picture and have exhausted their dominance. Although this has been the worst start of the year ever (if you are long) for the indexes, it is a welcome event. The markets are behaving in a rational manner. Price discovery is now " free floating". There is no going back ( we hope). What this means:

1. The global stock markets are now free to trade on "true value and price discovery".
2. The correlations will revert back to the mean for each asset class.
3. Although initially painful, the reversion back to normal operations is fantastic news to all of those traders and investors who had to deal with "rigged markets" since the QE experiment.
4. The "non-skilled" on Wall Street will be wiped out and the asset managers can get back to the business of hiring "the best and the brightest" instead of poorly skilled and trained sheep.
5. Hopefully; as Ayn Rand wrote about may years ago, mediocrity  is dead. The Wesley Mouch Syndrome in the markets has run it's course.

Happy Trading! 2016 truly is a "watershed event" thus far! It is also the very best thing to happen to Capitalism in a very long time! How the U.S. markets ever hinged our success to communist markets in the first place is a mystery. Time to decouple.

Happy New Year!

We went "underground" for a few months. Our loyal followers enjoyed the personal emails and reports. We are back on-line. The reason, as explained in the email, is that we really did not have time to update the blog as we were concentrating on finishing the electric car tax- credit sales cycle and did not have time to devote to the public blog as a free service. Our trading basically stopped as we focused on our "real jobs".

Easter Weekend

Good Friday and Easter. Thank you Jesus.

Not just a theory any more - Markets rigged, broken, or whatever you want to call it

As we have been saying for 2 years now, the markets have not been functioning in any resemblance of normality. The list of high profile and exceptionally bright investors and traders who have broken their silence on market functions is growing very rapidly ( Yardeni and Gross to name the latest). We can identify a few reasons for this:

1. The invention of Quantitative Easing.
2. Global Central Bankers interference in the markets by directly purchasing of bonds and stock futures.
3. High Frequency Trading and Algorithmic Program Trading utilizing "quote stuffing"
4. ETF distortion and manipulation programs
5. Extremely large trading volumes concentrated into a few market participants
6. Advances in trading technology and lagging monitoring and governance tools
7. Risk distortion and index gaming
8. The total transference of economic power from governmental agencies to trading and investment firms


Welcome to "The New Market Order".

You have 4 choices:

1. Choose not to participate and watch your purchasing power erode
2. Throw out 150 years of investment books and teachings and jump in
3. Change the system
4. Move on and find other ways to enrich you life and your wealth

In my 22 years in the investment and trading business, I have never seen such a total lack of interest in the markets by such a large majority of the American  public while the global stock markets are hitting new highs. I guess most people on the planet have more important things to think about than what the global stock markets are doing. This is not a good sign. No new fodder for the machine. A small amount of participants for an ever decreasing expected  return.

A major correction is coming.

The Prisoner of Wall Street: The Federal Reserve

There has always been a revolving door between Wall Street and The Federal Reserve. Not a big deal in the past because we all know that elected officials in government are not that smart when it comes to finance. If you ever watched the Senate hearings during the financial crisis or any other hearings concerning Wall Street you can easily see that they are completely ignorant on financial matters. It's almost comical. This makes them lemmings. The QE project has now made them prisoners. They have not raised rates since 2004! They can't. Someone should have bought them a calculator many years ago. It's simple math. After all the bonds they have bought since this "Experiment"  began, any increase in interest payments would have a devastating effect on our national budget. Now all central bankers on a global basis have joined the party. The only thing they know is QE makes your stock market go up. It makes those that own stocks richer and everybody knows that those that own stocks contribute the most to helping them get re-elected. A no-brainer. If Wall Street doesn't like what you are saying? No problem, send stocks down 5% and they get scared. Prisoners indeed! The book "A Random Walk Down Wall Street" is out. Nothing that happened the last 3 years is random. The markets are broken. Put all your savings into the stock market and trust that Wall Street and The Federal Reserve will take good care of you. Forget about CD's. God Bless Wall Street and The Fed.

BTW... What percent of the American population own stocks? What percent of Americans are benefiting from " The trickle-down theory"? What percent of corporate profits, jobs, and cash are held outside of the USA?

The American people are indebted to you - literally!

CNBC just said it will take $&2.5 million dollars for you to retire comfortably - we all got that covered.....right?

Update: Crushed in oil

Trade Alert! Large Oil Trade Initiated Today

Details later....we jumped in.

Volatility Trade Closed!

It was a great move! We had to be patient and buy all the way down ; however, it paid well in the end.

Standard Deviations

We certainly are not mathematicians; however, The level of standard deviations above historical variances are visually off the charts. Our trade was just a hunch this morning and now our trading programs are confirming our speculation is at least logical. Do we add more?

We couldn't resist!

Although the technical charts continue to indicate Bullish moves higher, we still sense everything is wrong. Technical Analysis is not 100% accurate.  There is an almost comical artificial support for the stock markets. If everything is going so well, why do the large bankers keep propping and talking it up? It's good to know that they care about keeping the markets going and helping the millions of investors and their 401k's. Never seen them so nice.

Strange.

This morning, we initiated a decent size position on the expectation of significant profit taking in the markets soon. We are betting that this is an artificial liquidity bump so large investors can liquidate some stock holdings. We will have tight stops. We also see a potential doji star formation which may signal a short-term trend change is coming. We don't like to jump the gun; however, we are speculators and we just don't think the bankers always have the best interest of their  minions in mind;)

We couldn't resist!

Market Update: The Slow Grind and Strange Action..RED ALERT!

The market continues to grind higher in a fashion we have not experienced in 21 years. It is a strange action as there is very little churning and a complete lack of normal fundamental or logical moves in the majority of stocks. The markets are being manipulated. Not that this is anything new (as this a normal part of markets). The problem is that there is NOBODY left on the other side of the upward grind. The complete lack of normalized differences of opinion are absent. The true volatility is being held in artificial check by the enormous proliferation of ETF's over the last couple years. We cannot overstate the impact this is having on the global markets across all asset classes. This is not rocket science. They are very easy to use, asset specific, and excellent trading vehicles. The ideal instrument for Algo trading platforms and HFT computer programs. It's easy and effective. The problem is this can make it very easy for indiscriminate moves in markets and individual stocks. The fundamentals and price actions are skewed. This also makes it extremely easy to manipulate trends and an excellent choice for "tape painting". We would love to run a few billion dollars in this environment - you can literally print profits. The thing is - if we did - we would be "painting a bull tape" in the midst of deteriorating global fundamentals while we accumulate bearish bets. When the spark that eventually reveals itself hits, we can pile on our bearish bets and "paint a bearish tape". This is legal and the tools are available. The financial IQ of the older generation of regulators are not accustomed to the new generation of traders who are running high-tech trading programs with a huge amount of assets under their control. This leaves The Fed and ECB way behind the 8 ball. When the U.S. markets turn, it will be fast, furious, and explosive.

We are not participating in the upward move at this point.  We are not aggressively betting on a negative move either. We are slowly accumulating bearish bets at a slow and deliberate fashion as to let the bubble continue to inflate while limiting our downside. It is boring. We are playing for a huge pay-off on a vicious trend reversal. We are not confident; however, we have to play it this way.

Our strategy remains the same. We continue to buy volatility at record low prices. A slow and methodical process. We may miss the potential rise of the S&P500 to 2200; however, we don't really care. We may cut and run along the way. Eventually - without a doubt - this façade will end.

Paul Tudor Jones once said (paraphrase): He will attempt a trade;if he believes he is right, multiple times until the markets confirm his analysis or he recognizes he is wrong.

Of course, risk management and auto shut-downs are an integral part of capital preservation. We are convinced that we are right; however, we recognize the fact that we may be completely wrong;)

The bids and volatiity are not right...

In our observations: The bids for stocks do not seem natural. The volatility bids do not seem right. If you have been watching the tape, there has not been any churning. The markets are not acting under normal circumstances. There is a significant erosion of strength that is not accurately being reflected in stock quotes and volatility prints. It almost seems as if there are two markets. The public quotes and unseen dark pools off the radar. There has been multiple exchange breaks and bugs at convenient times. Humans do not act this way. It almost seems as if "The Tape" is being painted. Any reversal would cause multiple support breaks as the "painted bids" would evaporate into thin air. The printed volatility is between 14 and 15; however, the observed volatility we estimate to be in the lower single digits. This is an extremely over-crowded trade given the current uncertainty and un-resolved Black Swan events that are present. This is not good. Not good at all. We expect an explosion of volatility that has not been seen since the summer of 2011.

VIX target: 45+

The training wheels are off....

QE is over. Let's see how things do without it.

S&P500 1400 to 2000 in Two Years and The Fed Decision

If your investment condo went from $140,000 to $200,000 in 24 months, would you sell?

Housing top? Market top?

There is not a sole left on Wall Street who does not believe The Fed will be extremely dovish and a fairly decent amount believe they will continue their QE. The markets are all on one side of the trade.

Did the public and media not get the internal memo? It is priced as if everybody on Wall Street knows 100% for sure that this will happen. It certainly is not corporate revenue growth or earnings.

There is 0 volatility. It's all just a formality now.

The is no room left in The Bulls Bar

Talk about crowded trade!

Don't really remember when a trade was as crowded as this one.

A couple thoughts on The Markets

Whether you are long or short, the powerful moves in the markets (all assets) the last few weeks have been impressive. What is most impressive has been the resilience of Wall Street Bulls and The Fed to hold this market up. I have never seen this kind of resilience in the face of so many negative factors in my entire 20 years of trading. There are forces that are very strong that do not want the party to end. The entire system of normalized volatility and standardized market reactions are not functioning normally as predicted by 100+ plus years of expected market reactions and standardized standard deviations. The Algo systems running about 70% of money flows (purely an educated guess) only " see " past patterns and parameters set by historical trading variances imbedded in the systems. This makes for extremely easy "manipulation" of market subsets that domino across all markets. All you need is concentrated money flows into key market subsets to trigger mass program directional changes across different asset classes as asset and market correlations are set in the 98th percentile. Yes, The S&P500can hit 2200 quickly and Yes, The S&P500 can hit 1600 quickly. The potential volatility is not priced in. This is an excellent time to train your skills against the machines. If you do not have the stomach, speed, or ability to withstand losses - do not trade long or short.

We love the challenge! It is crucial for those who aspire to become elite traders to participate in this environment if one is to ever obtain the tools to necessary to continue in the business of speculation. It is very easy to lose money in this environment (Long or Short). Win or lose - this is a wonderful time to test your skills (in moderation) against some of the most determined and skilled competitors in the world. There are 100's of billions of dollars at stake in this Bull/Bear Battle.

Stockspeare 10-27-2014

Only The Pigs , Ostriches, and Sheep left now

You know the old Wall Street words of wisdom. These people left now are probably going to get SLAUGHTERED in our opinion.

Pigs: How much more do you think you are going to get off this pump?
Ostriches: Sticking your head in the sand is not an excuse.
Sheep: Afraid to miss your performance bonus? The next big bounce up? Following the market up even though it doesn't feel right?

Very strange market technical alerts occurring all over the place. There are powerful and concentrated cross-currents. Money-flows are very deliberate and targeted. Liquidity has to be force-fed into the system. Volatility is extremely low for current headlines, news, and the actual facts. Not sustainable.

The Tail Wagging The Dog

Threaten to pull stimulus and "The Street " sends her down just far enough until they get what they want and then send her back up to confirm their approval. This leads to another great opportunity to digest this market dynamic. Whether it is right or wrong is not for discussion here - know your market and profit from it.

To the point:  We see mixed signals from The Fed. We think it is time to really consider going long volatility and shorting the markets again. The Fed and ECB provided this mini "Verbal Bail-Out" the last 4 days. It cost them nothing ( except credibility to some or maybe even a lot -who knows).

The path of least resistance is now DOWN

Our Previous trades are BACK ON. It only took a few days and we originally thought we sold early. We were spot on. We are going to do it again with the profits from the previous trade.

Is it your last time to buy or Sell? We are betting it is time to sell Mortimer. Sell Mortimer, Sell!

Let's watch and see if the profits roll in;) Again!  We need to collect our Christmas bonus now...you can bet "The Street" will be doing the same thing;)