Tuesday, March 30, 2010

Something to Consider.... Or not.

I came across the following piece from one Jeff Clark of The Growth Stock Wire. It got me to thinking about that old market adage that men lose their wits all together only to slowly regain their sanity one by one.

I tend to disagree with that statement as sell offs tend to become cascading waterfalls rather than orderly sell offs, which argues that men either sober up or panic (take your pick), either way it is done as a group.....which is why Mr. Clark's piece below resonates with me.

Take it away Jeff.

We're Headed Toward Another Bolshevik Revolution

By Jeff Clark

March 30, 2010

In the world of technical analysis, price action is king.

I'm bearish. Everything in my heart, my soul, and my mind tells me I have to be short the stock market. But I've avoided making large downside bets because the price action – the king – has been so persistently positive.

The peasants, however, are not very enamored of his royal highness. Volume is weak. Negative divergences exist on nearly every momentum indicator. Sentiment indicators show remarkable investor complacency. And the world news is highly negative.

Yet, the king continues to reign.

But here's the thing...

When kingdoms are overthrown, it happens overnight. It's an instantaneous transition of power. One day, the king is in charge, the next day it's a religious zealot, a military general, or a drug kingpin.

It always comes off as a surprise. But in hindsight, there are always plenty of warning signs.

Think back to the Bolshevik Revolution. The Russian royal family was slaughtered overnight, but the peasants were unruly for months beforehand.

The CIA was aware of turbulence in the Middle East long before the Shah of Iran was exiled in 1979.

The Berlin Wall collapsed overnight. But the blueprints for its destruction were drawn out months ahead of time.

In hindsight, all of these events were predictable and foreseeable.

The same is true of the stock market crash in 1987... Economic conditions were faltering. Interest rates were rising. The public's appetite for risk was growing. And stocks were rallying on the back of deteriorating technical conditions.

Anyone, with even the simplest understanding of market conditions, could have called the crash in 1987. In fact, many of the brightest analysts did. But they were early and their reputations suffered as stocks continued to climb despite the overwhelming technical divergences.

I remember 1987 well. I was a young trader, and I was on the wrong side of the market for five months before my bearish bets finally paid off. In August 1987, I was so perplexed by the market's action I considered leaving my trading post and pursuing another career. Heck, standing behind the plexiglas booth at the local gas station and putting $10 on pump number 5 was a more attractive career path than what I was doing at the time.

When it finally happened that October, the crash of 1987 took almost everyone by surprise, and it seemed to happen overnight. By now, though, we all know the warning signs were everywhere. So, too, were the warning signs when the Internet craze crashed and burned in 2000.

Today isn't any different.

I know, I've been bearish for months and I've been wrong – even though I haven't bet heavily in that direction. I'll wear the egg on my face for as long as necessary.

Every day, I wake up and I look for reasons to be bullish on the market. There aren't any – except the king remains in power. Meanwhile, the peasants grow more and more restless, and the tension continues to build.

Months from now, we'll all look back at this time – much as we all look back at October 1987 and March 2000 – and we'll remark on how obvious it all was.Yet we'll be surprised that it happened out of nowhere.

Best regards and good trading,

Jeff Clark

Do you remember when your were little and your grandma's or mom would say "if you don't tell a lie you never need remember what you said".

It is always the lie that covering up the original lie that is one's undoing and often ends up being worse than the original offence.

That said, we have a Fed who is the mortgage market. We have a Fed who is quantitative easing in the bond market with foreigners disappearing. Now we now have credible accusations of manipulations in the precious metals markets. Yet given all this, there seems to be an all out black out by the mainstream media of this story.

Eric King of King World News has a must listen interview with one Andrew Maguire and GATA's Adrian Douglass. Believe me, just as the media was humiliated covering balloon boy, they (financial media in this case) will be equally humiliated not covering Preciousmetalsgate.

Listen to some of the facts provided in the interview and see if the hair on your neck does not stand on end. Forget potential price action or curb appeal for a second and focus on the foundation of the house for a change.

I would never say markets are manipulated for that would make me a tin foil hat wearing, black helicopter fearing nut job out of me. A real live kook!

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23

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