Through much of 2011 I spent a lot of time showing you why the market was broken and that something bad was coming.
Starting in Early August, while this move down seemed like it would never end (at the time), I spent some time showing you it would end and soon and we called the bottom of that move within a few days. We successfully traded a VERY choppy market from August of of 2011 and predicted that we'd see a new low and that the choppy market we had been trading was accumulating a lot more than distributing, therefore the analysis was for a new low to be made and then a strong rally from there that would eventually turn the market. The rally was a lot stronger than I had expected and I expected a very strong move.
Through 2012, I spent a lot of time showing you the proof (not subjective data) like market wide breadth charts, outflows from domestic equity funds, hedge fund redemptions, a huge trend of insider selling, and many other indications that this 2012 rally was a dangerous house of cards that was being pumped up by bogus economic reports that used seasonal adjustments to create a stronger looking economy then what was really there, the sub-indicies of the economic reports were the "Devil in the details".
By the time the seasonal adjustments stopped , this is what the market morphed in to.
If you don't believe the economic reports moving out of the seasonal adjustment period had a lot to do with this, just take a look at Citigroup's Economic Surprise Index.
I firmly believe 100% that the 2012 rally was set up specifically so smart money would be able to make a quick profit on the move up, but more importantly be able to use that strength to sell their positions and sell short the market. So to be clear, I do not believe for a minute that the market went up and Wall Street followed it, I believe this was an engineered rally and I think it goes much deeper than just Wall Street.
It was not just the "Devil in the details" of the positive economic reports that showed this rally to be hollow and dangerous, I spent a lot of time showing you the data that proved it. Take for example the trends in insider transactions, people who own the companies we trade. If you recall some of the key dates in trends mentioned above, then you may find this next chart to be a little sinister as to a level playing field and as to just how badly this market is manipulated.
If you caught the extra digit in sales, you'd see that the insider sales, which happened to be right before the market turned sideways (remember they need market strength to sell in to with the size of their orders) was over 500% more in insider sales than what they purchased for the run up. In other words, they did buy shares for an anticipated move up, they sold them at a healthy profit and then continued dumping another $2.9 BILLION in company shares, very roughly off the top of my head, about 400% more than they accumulated for the rally and we are to believe this is coincidental? This is just insider transactions, imagine institutional transactions! This is why 3C has ben showing an almost (and for some people truly) unbelievable amount of distribution.
Or how about some more hard numbers in market breadth?
This wasn't all, there were numerous indicators that only we use that showed this trend of rotting in the market. Hedge Funds were losing clients left and right, Domestic Equity funds were seeing one of the largest consecutive weekly streaks of funds pouring out or their AUM.
The point is, I spent a lot of time making the case that this market was not what it appeared to be. When looking at the market moving higher every day for months, it was very hard for some people to accept 3C charts that looked like this...
As you can see from just a few bits of hard data above, the selling was way more intense than the buying; insider transactions alone show this, now throw in the real money from huge Wall Street funds, of course this rally was engineered to allow them to sell massive amounts of stock without the price dropping like a rock and what we are now left with is a cliff that is about to break or has broken already with a completely hollow shell of a market at prices that are way higher than at any point in the past in which they had some market support.
The point is, I think I made that case, but for newer members you haven't seen it as once the case was made and our strategic view complete, we have been focussed on the tactical view and using any market strength to get in to position for what is coming. I think lately I've done what I warn you not to do, "get lost in the lines" which means to micro-manage and lose sight of the big picture. Of course I want you to have the best entry with the least risk and highest probability trades, but I think it's time to show a little of why we have been building our position.
The next post will cover a few stocks and some various other items, if for nothing else, just to give newer members a sense of the bigger picture.
I will also cover the market this weekend as to the near term, what I call the tactical timeframes because it is market bounces and market strength that allow us to enter positions at lower risk, better prices and higher probabilities. I have 6 positions (all short) in the equities model portfolio (this is what I use for the longer term trades). Not one position is red, every short position is in the green and the market hasn't even really broken down yet. These positions include: 1) BIDU (the biggest winner at a 10.5% gain with no leverage)- I have room to add to BIDU and look forward to doing so on some price strength. 2) CAT is at about 1/2 full position size and the second biggest winner at a 9% gain. 3) AAPL which is nearly an 8% gain and is about 80% of a full position. 4) PCLN which believe it or not, is in the green and about 80% of intended size. 5) XOM which is at about 75% of intended position and 6) BEAV which is at a full position size.
I only have one long term option position, XOM July $85 puts which I took on because of XOM's low BETA of .61, this position is just meant to add some kick to XOM.
In any case, you can see I'm heavy Tech, more so than I'd like to be (at least compared to the other positions). I want some exposure to energy, but not a lot as there are too many wild cards that could effect energy, such as the Middle East, currency wars as manufacturing world wide declines, everyone will seek to debase their currency to make exports look more attractive. I have no exposure to Financial which was a big mistake, there were several positions I wanted to add, but simply didn't have the time. I also want some exposure to volatility (VXX/VIX), but these need to be timed just right.
In any case, I've been showing a lot of near term charts in looking for that one last blow-off move that I'd love to see and sell short in to to add the Financial positions and some others and fill out the rest of the technology positions. I'll cover the near term this weekend, but I'll just remind you for now that volatility was expected to increase, it has increased; what may seem unlikely or not possible is very possible with volatility the way it is. For instance...
The next post will cover some of the longer term charts that I haven't posted for a while.
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