Sunday, January 22, 2012

Week Ending on 1/20/2012

Both of my trading ideas from last week worked out quite well.  Man I should really start my own newsletter although a part of me wants to George Costanza this and leave on a high note.

Most important chart for next week is TLT or 20+ year Treasuries.  Most bears are pointing to the divergence between equity and credit as proof of the stock rally's fragile nature.  TLT had a huge red candle last week and any more weakness might just start a lot of capitulation by the equity bears.  Maybe that's where the volume been hiding.

Assuming all markets work as a max pain inflicter, don't be surprised if TLT crumbles, sending stocks to new highs as the last bears hobble back to ZH.  But as soon as that happens, some more shit comes out of Europe or China (or maybe Japan!) that sends us to our annual "Markets in Turmoil" special on CNBC. 

The last decade has been smooth for intermediate trend followers.  Because of this, there has been a proliferation of them.  (I don't recall a mean reversion book on Amazon, but there's a shitload of trend following books).  I thus expect 2011-2020 to be the decade of clusterfuckery, where trend followers will be endlessly whiplashed as punishment for committing the LTCM sin (thinking that they figured it out).

Meanwhile I will sit here with my 38.5% equity allocation (which has grown to a mighty 40% in the past few weeks.  A few more months of this and I'm gonna have to rebalance!)

I lastly want to thank Tony of for continuing to teach the finer points of credit vs equities.

Trade Idea Updates

I would probably sell FXE now.  Can it go higher?  Yes.  Can it go lower?  Yes.  Can it stay the same?  Yes.  Should I quit my day job?  No.

I would also cover half of the USO short.  Put the other half with a b/e stop.  Watch out though!  You know those pits are gunning for your 100 share stops!

Trade Ideas

Short DIA (or any other index etf) if for no other reason than because the volume is so shitty and it's right up to old resistance.  This would be a scalp by my standards, especially if it busts though next week.  Make sure to set a mental stop right above resistance.

FXI (China) is a very interesting long.  Decent volume and now has prior resistance/now support right below it.  Should have quite a bit to run especially with China's central bank more accommodating than in the past.

GDX (Gold Miners) can go either way.  It's testing support for the umpteenth time.  If it doesn't hold, watch out below.  Play it accordingly.  I would see if GDX continues to be weak.  If it starts to break down support with good volume, shorting it would be a relatively low risk play.

Is it a breakout retest?  I give it the benefit of the doubt unless it proves me wrong.  Buy, but if it breaks 22.18, close and reverse.  Or just give up and go home, whatever.

Jam of the week: