Friday, May 1, 2009

Calling Tops and Bottoms and such

There is no "extra" bonus profit for entering a trade at the "perfect" bottom or top.

It's sometimes difficult to not "not do"

As the bearish trader, is always looking for a "top" to enter short
As the bullish trader, is always looking for a "bottom" to enter long.

You can go back and read a couple of my very first posts, where i called 725spx, when we were at 690. (yea i know, big deal huh?) Then I said we rally all the way up to April 2nd, but that was it. (ooops...i called a top....MISTAKE! lol)

Yes, we rallied from April 2nd, very hard (sure thing, correct)
Did we "top" on April 2nd...NOPE! (heck no...wrong!)

Heck i LOVE trading spy options more than anything else myself, b/c it's the entire index, and you don't have the risk exposure to 1 specific stock or sector. But once we rallied higher AFTER April 2nd...i stopped looking for a "top" and switched to looking at individual stocks/sectors and playing those (hedge trades, etc)

Do i think the market is over-valued here? Yes i do.
Do i know where the "top" is" Not a clue!

I was long LCC and short SPG on Friday (50/50) i had a GREAT DAY! the market direction did not even matter to much to me, don't care.

Long term i am bearish, b/c mainly I believe that DEFLATION has alot more legs left to it.

Debt is deflationary, and Debt is what he have and LOTS of it.

We gave away tomorrows growth, to obtain yesterday's gain. We maxed out our National Credit card basically, to achieve the last cycle market high. Now we have to pay it back, well we don't HAVE TO....but i don't believe we will be able to use our "credit card" again for a long time.
Pull up a 10 yr SPX chart, and put $USD behind it, or above it. You will see that the 2000 peak is worth MUCH more than the 2007 in actual dollar value. (ie adjusted for inflation)

Interest rates have only one way to go now...UP (can't go lower than zero, last time i checked)

China wont lend to us forever. All bubbles get popped. etc etc

If one is long the stock market, and the market goes up 20%, but the dollar goes down 30%. Do you gain 20%? .....NO, you lose 10%! (yes sure that is better than not being in the stock market, and being in cash and losing all 30%, but it's still a loss)

It's all relative. We have actually been in a bear market since 2000, when accounting for actual dollar value of the market. (again, the dollar was devalued by 40% from 2000 to 2007).

Some people think "hyper-inflation" is coming very soon. "gold to 2000/oz, etc etc"
I think they are from another planet, called Planet INSANO.

Yes, for debt to be truly deflationary, some argue it has to be paid back.
(this is also the reason for why during the 2000 .com super bull market, where we had un-employment of 2%, that the dollar was going UP with the stock market. No, we were not in deflation at that point, .... however we were PAYING off the DEBT, almost all of it remember?-- that's why the dollar AND the market went up together)

Deflation - the contraction of money supply (paying off debt, reducing leverage, etc)
Inflation - the expansion of money supply (accruing debt, adding leverage, adding "fake money")
So the hyper-inflationist will argue that there is "well since there is no way in heck we pay back the debt", hence there is no way we get deflation.

Wrong. This entire bubble, or "false" bull market leading up to 2007 was built from over leverage.

I would not argue and say "yes, we will pay back the debt". I don't think that's something worth betting on EITHER way. But I would bet pretty heavily on "NO ONE WILL LEND US ANY MORE". So we don't have the "pay back" our USA credit card to get deflation. Because I think we already have maxed it out, and the credit card people are reducing our limit little by little every minimum payment we make.

Brokers and Banks that were levered up 40:1, and many have/are imploding.

Fed Rates are now ZERO (can't go any lower than that last time I checked)

China and other's are going to cut off our "credit cards", if they have not already.

Some people say "oh well there just mash that printing press button and crush the dollar"
...heck im sure they ALREADY ARE! Last time i checked the USD was still UP YTD, so if they are mashing that button fast NOW, what's gonna happen when they take a break from mashing it for a bit? Remember it not how much the "printing press button" is is how much it's pressed COMPARED to the other currencies/nations. It's all relative.

On to the market.
Anyone confidently saying we rally more here right now asap, is insane.
Anyone confidently saying we fall off a cliff here right now asap, is insane.

For now, I think there is better return in stock/sector picking, and short term trading here, than to try and pick a swing intermediate direction. Every one and their mother is "looking" for this "pullback" then the "FREE money ride to spx 1000."
Which is why it's very likely NOT going to happen like that. I don't know when this current rally will end, maybe it was 888, maybe 900, maybe 943? maybe more????(gasp) Yes the neg divergance is flashing loud and clear on the daily charts, but the same was being flashed positive during the crash too. Indicators on charts are all lagging indictors, derived from past data.
But when it pulls back, and "everyone" and their "momma" thinks "oh oh that's it, buy buy buy buy"...that we do NOT go back to what it was before the pullback, and they just missed it, and yet again the market causes maximum pain for investor's and max gain for "some" traders.


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