The last few days all I hear about is this Hindenburg Omen, which is supposed to predict a crash in the market anywhere from a day to several months after it is observed. Apparently one occurred on Thursday and people are talking about it everywhere. It saddens me a little because this top has been obvious the entire year. Distribution set in last October after a large long position was accumulated between November 2008 and April-May of 2009. The rally, while it was a very tradable rally, was destined to fail. I watched as distribution became evident around October. Any reading you will do that I have written about this rally, I never mentioned it without the accompanying words "Bear Market Rally"-a historic one at that. After the crash of 1929 we had probably what could be classified as 5 bear market rallies. Bear market rallies have a specific purpose, they are strong, they are convincing and after they go on for a bit, people believe that they are missing the new bull market so they are designed to pull money into the market, institutions would be the ones selling into the rally while the average guy is buying, then they top and fall, usually to make new lows. In the last few weeks I posted several charts of the 2008 sell-off and the 1929 crash and how similar our recent market was to those markets right before they crashed. We did see the decisive break of the final rally of this top on August 11th. Even if we were to make new highs, that day was the day that this market cracked and sealed its fate. See the charts below...
This is a large base of accumulation, note the 3C positive relative divergence and then a leading divergence. This is where Institutional money "stocked up" so to speak, a rally was inevitable.
During October, as prices were significantly higher, we saw institutional money's first signs of distributing those shares they accumulated into higher prices.
So when I read about this weeks, Hindenburg Omen, I think to myself, "A little late" . IT also saddens me because technical analysis is about hard work, it's about looking for the small things the crowd missed, it's about putting the pieces of the puzzle together, the indicator above 3C's very name embodies this concept as it stands for "compare, compare, compare". However, technical analysis has long received a bad rap because many see the practitioners of TA as purely lazy, always on the quest for the "Holy Grail Indicator" and plainly spoken, there is none. It's about thinking for yourself, thinking outside of the box, being observant and only placing trades when probabilities are greatly in your favor. The closest thing we have to a Holy Grail is the much ignored concept of risk management.
A quick word on risk management....
Society has traders brainwashed to their own detriment. From out first experiences in school, we are taught that we must be right 70% of the time to receive a passing grade. Many traders bring this notion into trading, which is a huge mistake and has given rise the the saying, "Do you want to be right or make money?" I think that I could be right 70% of the time, but to do so, I'd have to take profits very quickly and they'd be small. This is a fast way to losing everything. To put it into perspective, think bout baseball's batting average- 400 batting average means you hit the ball 40% of the time, it's a hugely successful number. Babe Ruth had a batting average of 3.42 meaning every time at bat, he hit the ball a little less the 3.5x out of 10 tries. A batting average above 300 is excellent, a batting average of 400 (still failing more then succeeding is described as nearly unachievable. This is why risk management is the KEY to your success. If you can keep your losses very small on the many "at bats" or trades that will not succeed, you give yourself the opportunity to live to fight another day and eventually, even purely statistically, you will eventually hit that huge home-run that will make up for all the small losses and put your portfolio in the positive.
Back to the Hindenburg Omen, this appears to be the latest search for the Holy Grail and thus saddens me for the things that count the most, hard work, thinking for yourself, excellent risk management are all forgotten about as people rush to understand the Hindenburg Omen, which for many of our members who were able to short at much higher prices and make significant returns on the June decline, it would not have done a thing for them. And the Omen came on Thursday, as you can see by the last chart, we were well aware the market was ready to break the final straw long before Thursday, which hopefully allowed many members to take up profitable positions when the market was still at higher prices.
Now, moving forward. There appears to be enough accumulation in the markets, distribution in the dollar (short term) to suggest a bounce. I have tried to be diligent in giving you some short term trades that will allow you to make some extra cash on the bounce, but understand they are bounce trades only, although there may be a few that have more opportunity to trend against the market. If you happen to be in a long trade that is trending against the market, email me and we will look closely at the prospects. Unfortunately I can not update every single idea I post as I'm already working 14 hours a day or more without that extra burden and why update trades that no one may have taken. This is what email is for and I will give you everything I can that you need if you email me with your trades including stops, trailing stops, targets and any other relevant information. If you do not understand a trade, email me. I'm here not to provide ideas and insight, I am here hopefully to contribute to your success in the markets. I'm tired of seeing the manipulation and corruption that makes it difficult to beat the market. Luckily I've been blessed with tools to do so and I intend to use those tools to help you beat Wall Street at their own game.
I do feel the most probable course is for a bounce, but things are happening so quickly, the economy is deteriorating so rapidly that even smart money reserves the right to change their minds. The charts below show the best evidence for a bounce in the market, they are all in or have been in a positive divergence recently.
A bounce in the market is likely to be fairly extreme, it will likely cause you doubts and to second guess your short positions, that is the intent of a bounce. It is however a blessing for us as it allows many to enter or add to core short-side position trades at better pricing. IF we don't get the bounce, hopefully you have already started taking on the short trades that have triggered. It's not anywhere close to too late to get involved in shorts as this market, in my opinion has a long, long way to go on the downside. In the coming days and weeks I will be teaching you to leverage the shorts you have to be able to make more then 100% on the position, it is possible, although this is one of the many myths about short selling that is inaccurate, "You can't make more then 1005 because a stock can only go to zero", this is a fallacy.
As part of your membership here and as my goal, you will learn how the market truly operates. For instance, the rally that started around March of 2009 did not materialize out of thin air or because of good economic news or any of that. 3C shows you clearly that institutional money stocked up in advance, they had every intention of taking this market higher and we could see that long before it actually happened. The market to some degree, is pre-destined, we are lucky that 3C is effective in seeing that.
So this week, we may see bad news come out and don't be surprised to see the market rally despite it, as it seems that smart money has already committed capital to long positions that they will want to sell at higher prices. It is just difficult to know what their true average cost is and therefore how high they need to take the market to realize a return on their investment. This is an indicator I have great interest in trying to develop, one that estimates their average cost.
Finally, you are my members, you are part of the Wolf Pack. If you'd like access to my indicators yo use yourself, just email me and if you have a compatible charting platform, I'm happy to share them with you.
If you have questions please email me and any interesting trades I find will be updated on the spreadsheet. Thank you for all the get well wishes and thank you for the emails about your successes, I am inspired all the more to hear about them.
Enjoy your weekend. I'm off to bed for a bit...
No comments:
Post a Comment