Monthly Archives: June 2018

Stocks

I’ll cover this in the weekend report. I think I had the weekly cycle count wrong. I’m not convinced the Nasdaq is ready to test 8000 just yet. In fact I would just give the stock market a rest for a few weeks. It’s time to focus on the metals. The weekly charts on stocks are overbought. The weekly charts in the metals are oversold.

If one is going to follow a logical strategy of buy low and sell high then it’s time to exit stocks and buy metals.

Deep into the bloodbath phase

It’s time to be a contrarian on gold. We should be in the final few days of the yearly cycle low. I call it the bloodbath phase. They tend to last on average 5-7 days. This is where price breaks lower and just keeps going down and down into deeply oversold territory. Longs that were hoping the first down day (Friday) would be quickly reversed finally panic and sell right before the final bottom. Sentiment reaches bearish extremes. These are the conditions that generate the fuel for the next intermediate rally.

So here we are again. Everyone has turned 180 degrees from their bullish posture back on April 11 when gold tagged $1370. At that point all traders could see was blue sky ahead. Now there’s nothing but doom and gloom. We sold our metal positions on April 12th when everyone else was bullish. Now I’m ready to buy buy buy when everyone else can see nothing but lower prices ahead.

We probably won’t time it perfectly. Contrarian trades are almost impossible to time perfectly but you really don’t need to time perfect entries to make money being a contrarian. You just have to get “close enough”.  Sometime over the next 3-4 months the black pessimism we are seeing now will reverse and we’ll see that “nothing but blue skies ahead” sentiment return.

Note the extreme oversold condition of the TSI and RSI. RSI is at 9. Sentiment should be well under 20% bulls today. We are on day 5 of the bloodbath phase. One couldn’t get a better buying opportunity, but I guarantee there will be lots and lots of dumb money selling into an RSI reading of 9 instead of buying like they should.

That was quick

The buying opportunity in the stock market that I alluded to several days ago came and went quick. That was one of the mildest DCL’s I’ve seen in a while. I’ve got to think the next stop is 8000 on the Nasdaq, probably by the time we get to earnings season.

A deeper correction should come in August or early September. But first we need to create some real complacency in the markets. Complacency triggers corrections. Corrections clear sentiment and are the fuel for rallies.

A contrarian understands this. This is why at turning points I’m always doing the opposite of the crowd. I would even go so far as to say the only real way to make sustainable long term gains is by being a contrarian. It’s why the SMT portfolios are consistently growing over time even though we certainly don’t win on every trade we make.

Classic dumb money

I just got an email from someone calling me an idiot for saying gold was a buy and now it’s crashing. Seriously why some of you are trading is beyond me. Clearly many of you have no ability to think logically. What I said was that one can buy at any place in here and by the time the weekly stochastics cycle back up to overbought you will have made some nice gains. Man if you can’t understand the concept of buying when something is oversold and selling when it becomes overbought then you need to get the hell out of this business. You have absolutely no hope of ever making any money. You clearly can’t think logically …. or follow directions. Apparently this trader can’t understand the part about holding until the weekly charts become overbought.

Now if he had been a subscriber he would have gotten the signal to get back on the sidelines Friday when I saw the premarket attack on gold signalling that the banks were going to try and push gold a little bit further down before the next intermediate rally begins. We are sitting on the sidelines. The SMT metal portfolio is less than 2% from it’s all time high and we’re in good shape to make some serious money once the intermediate rally starts (which should be soon as we are now 3 days into the bloodbath phase).

DCL?

At the close today it looked like the breakout in the NDX might hold. After the market closed though talk started again about more tariffs and as I’m typing it looks like stocks are going to try to drop down into a daily cycle low.

Remember the news is always bearish during corrections. But these are profit taking events, and ultimately buying opportunities. So don’t let the news scare you. Once the correction has run it’s course the S&P will be making new all time highs in the not too distant future.

Breakout?

We’ve got a breakout on the NASDAQ. It remains to be seen if it will be sustained. It’s getting late in the daily cycle, but a case can be made that this cycle should run long based on the short cycle that came before. The breakout is being tested this morning. If it holds stocks will probably rally into the start of earnings season. If not then we have a dip down into a DCL coming over the next 5-10 days.

Challenge coming down to the wire

1st and 2nd place in the challenge are pretty much set as there is almost no chance anyone can over take either spot. Third, fourth, and fifth place however are still up for grabs. The SMT metal portfolio is currently in fifth place with +98% for the year. The other three challengers have the luxury of taking a big risky trade in the last two weeks to see if they can improve their standings. Unfortunately that’s not an option for me as the SMT metal portfolio is real money for many subscribers. I can’t take a big risky bet to try and move up in the standings. I’m going to have to wait and see if anyone else makes a mistake.

Either way though I don’t think anyone would be disappointed with a 98% gain in 12 months.

I started the challenge to level the playing field. I got tired of the trolls taking shots at every short term wiggle that went against us. Now everyone has to play by the same rules. Make your trades in real time, no more of this hindsight trading BS that the trolls are so fond of. That crap no longer flies. If you want to criticize someone else’s trades then you better be prepared to make your own real time trades. What I’ve found most amusing as the challenge has progressed is that the most vocal and antagonistic traders on the blog have for the most part turned out to be the worst traders when they actually had to compete by the same rules as the rest of us that live in the real world.  The best traders rarely ever posted on the blog. They just calmly went about the business of trying to make money.

The winning percentages for the top 5 traders were between about 65% and 70%, dispelling this myth of magical winning percentages in the 90% range. Seriously folks when someone tries to claim they win 80-90% of the time run as fast in the other direction as you can. They are trying to sucker you into buying a subscription to a bogus newsletter. Probably one with “multiple scenarios” like most of the Elliot wave letters, or the vague maybe this, maybe that type of analysis you get with just about all other services. As long as one covers all bases they can always claim they “called it” when in fact they called both sides and then chose the correct one after the result became known.

The next challenge will start on July 1. There will be one change in the rules. I’m not going to allow penny stocks this year. There’s too much risk of pump and dump scams in these kind of stocks. So no stocks under $5.

Other than that the same rules will apply.

You must email me ([email protected]) your trade entry or exit within one minute of taking it so I can verify.

I will respond back a confirmation by the end of the day. If I don’t you need to resend me the trade in case it got lost in cyberspace.

You must include the percentage of your portfolio for each trade. I will only accept percentage not # of shares. I will calculate the number of shares from the percentage. 

No day trading. You can stop out for a loss on the same day but you can’t exit for a gain on the same day. I simply don’t have time to try and keep up with frantic day traders and realistically no day trader has any real chance of winning the challenge anyway. 

The prize will be the same as this year. $500.00 to the winner, and a possible consolation price one year complimentary subscription to the SMT for the next 4 runners up (depending on whether I retire next year). 

It will be interesting to see if the winners this year can make it back to the winners circle next year. Consistent winning years are extremely hard to reproduce as what worked one year often doesn’t work the next. Strategies that performed well during one environment often fail miserably during a different environment. The traders that can adapt rapidly to changing markets are the ones most likely to continue making long term, sustainable gains. Those that fail to recognize when the market environment changes and can’t adapt are doomed to failure in the long run.

Since the bear market bottom in 2016 the SMT metal portfolio has adapted and stayed ahead of the market and in the process racked up consistent profits. Starting with $100,000 in January of 2016 the metal portfolio is now worth $562,000.

The SMT stock portfolio starting with $100,00 in 2016 is now worth $244,000.

We don’t win every month. Sometimes we even go multiple months without making a dime, but over time we are consistently growing both portfolio’s. And in the end that’s all that matter’s: Is the portfolio growing over time, stagnate over time, or losing over time.

For the vast majority of traders it’s the second or third. Most traders win big, then lose big, over and over and over. Ultimately they make no long term gains. Or they win big and then lose it all.

So let’s see if anyone can repeat next year.

Bitcoin

6 or 7 months ago I was chastised by some of the usual trolls for missing the huge move in bitcoin. I warned these people over and over that bitcoin was not only a complete ponzi scheme but also the biggest bubble the world had ever seen. I had no problem missing that run because I can’t buy into a mature bubble. The risk is too great that one gets caught when the bubble pops, and then you lose everything. I couldn’t understand why these people couldn’t see the bubble. If ever there was a parabolic move that needed to be sold this was it. Bitcoin at it’s top was stretched 240% above its 200 day moving average.

I tried and tried to get people to control greed and sell on the way up. As far as I know only one person listened to me. That person walked away with some decent profits. All the rest are now stuck on the back side of a bursting bubble. And considering this was the largest bubble the world has ever seen this should be the largest bust the world will ever see by the time it’s done. Bitcoin is on it’s way to losing at least 95% or more of its value. Its already down almost 70%.

The trolls that criticized me for not buying should have listened to me. They could have gotten out with some profits. But logic never comes into play during a bubble…only greed.

Takedown

I warned that there could be another takedown after the FOMC meeting before a final bottom. We recognized the premarket attack this morning and exited with a modest profit. The SMT metal portfolio is within a couple percentage points of it’s all-time high, +375% over the last 2 1/2 years.

Now we’ll wait for the next setup to try again. Nothing has changed. Intermediate cycle lows are the best buying opportunities of the year. If you can catch one just right you can make a ton of money in a short period of time.

Just like clockwork

Folks there are times to make money in the market and there are times when nothing happens. Sometimes one has to wait months for a proper setup. That’s what we’ve been doing in the metals. I’ve tried everything I can think of to impress this on people, but unfortunately many will just never learn this lesson. They have an emotional need to do something every day. This has nothing to do with investing. It’s purely a gambling addiction. These kind of traders make a little money then lose a little money over and over throughout their entire career. So in the long run they never make any sustainable gains. It’s not my goal to satisfy your gambling addiction. My goal is to teach you how to make long term gains. Sustainable gains that gradually increase over the years. You are never going to do that by constantly worrying over missed opportunities, or by frantic short term trading. One has to focus their efforts on waiting for potential low risk high reward setups. That means waiting for daily, and even better, intermediate cycle lows before you pull the trigger.

That’s not going to always be easy though as we’ve seen. ICL’s can take time to develop and during the period another sector may still be rising (as we’ve seen with the stock market). The temptation is to assume that the ICL will never form and the rising sector will never come down. So many traders get suckered into buying at the top because they didn’t have the patience to wait for the ICL in the proper sector. But this isn’t how you make long term gains. Stop thinking emotionally, logically we all know that rallies eventually end. And by now I would think that most of you understand that ICL’s always eventually form and that the best rallies occur coming out of ICL’s. So if one can turn off their emotions it makes sense that it’s worth waiting for the ICL even if it takes longer than you would like, rather than following the herd and chasing a sector that has been rising for 18 weeks. 18 weeks is too late to go chasing any sector. We want to be looking for something that is potentially on week 1 or 2 of an intermediate rally.

At every ICL we lose people to this emotional need to stick with the herd and keep pressing the rising sector. They end up getting caught at the top and missing the rally in the sector that’s ready to take off. No matter how many times we go through this it’s always the same story. Maybe there are some magic words to break people out of this behavior but I’ve not been able to find them and at every ICL there are a few people more worried about trying to catch the last few points of the current momentum trade than trying to get in at the start of the next big move.

In this business there is always another opportunity just around the corner. It just doesn’t make sense to worry about missing one. I guarantee you are going to miss lots of them during your life. When you do, forget about it, and start looking for the next opportunity so you don’t miss another one.

Just like clockwork the group of perpetual losers sold or cancelled their subscription right at the bottom of golds correction. We will continue to grow the metal portfolio as the years go on. But these people never seem to learn no matter how many times we go through this. They will always miss these bottoms because they don’t form instantly like they want so they get seduced to where the momentum is instead of focusing on where the potential is.