Big Guys Make Big Mistakes

Small traders are always envious of big traders. They say that if they had the money, information, and resources that are available at big trading houses - they would succeed for sure. "This is not a level playing field", "the game is rigged", "it is a loosing proposition to trade against the big guys" - are some of the small traders' remarks about this business.

I have a saying - big guys make big mistakes. Other than that, they are no different than us, small traders. They have stops, targets, make stupid mistakes and brilliant trades as well.

Read this article to understand and realize what I just said is very true. http://www.bloomberg.com/news/2011-11-09/goldman-sachs-traders-lost-money-21-days-in-third-quarter-most-since-08.html

SPX Update

I would like to reiterate my view that this upside symmetrical triangle breakout in SPX is yet another head fake. With so many this year, why should this be any different? I am not sure on the timing, perhaps tomorrow, or on Thursday, but I think that reversal - possibly due to ES failure to take out WR1 - is coming. No reason to fight this though, as this thing can just rip higher like nuts. Just waiting for my pullback to 50 dsma. 

This said, I still think that market is in bullish mode into the end of 2011, just needs to come back for more big longs to join. My intention is to reload with them at lower levels: at 50 dsma and just below that on the stop scoop. Lets see what happens...

Update on Nov 9 @ 11:50 am
So head fake it was. Price sliced through triangle apex, and is backtesting from below as I type. It will take some time to sink the decline in, but it is bound to continue should the close below SPX 1250 occur. Next level of support is 1230, followed by 1215. Helmets on!

Market Update on Nov 7

1. In never-ending EZ saga, we went from Greek govt collapse to Italy's possible govt collapse in a matter of days. This is just another one of many gifts for those who will be buying every SPX pullback on the way to 1320 - 1350 (in my view). Simple fact is that more monopoly money, which gets printed to reverse EZ political imbeciles' mistakes, will make stocks go up in the end. Even a slight hint of EZ debt crisis resolution will give the final push to the upside break out of the trading range on all risky assets.

2. Speaking of which, there are quite a few ranges in FX to discuss. Practically sideways box (for the last 4 sessions) has developed.

EUR/USD - 260 pips
AUD/USD - 240 pips
USD/CAD - 175 pips
GBP/USD - 200 pips

Box is one of my favorite plays, which extends by the same (inside the box) amount on breakout. Wait for confirmation of the breakout though, fakes are aplenty in this case.

3. Speaking of fakes, stock index futures are in symmetrical triangle. This chart formation creates the most confusion on breakouts. It is a sure nail-biter to the very apex, resulting in powerful move, but one to really wait for and not anticipate. Absolutely no idea where this thing goes yet. If I were to be guessing, whichever way we will break out of the triangle will not be the way we go, it will be a fake. There, you got an educated guess out of me :)

4. Gold is breaking above 1775 (my target from Oct 25th). Germany said that it will not touch its gold reserves for any bailouts in foreseeable future. I guess we are to believe them, GC is up 36 as I type. You want to trail this baby, because it can crater back to 1775 overnight, as it often does on "treasure stop hunt", as I call it.

5. And the last interesting topic for this post...
I am getting some ridiculous comments, probably from those who disagree with my view on markets. I respect everyone's opinion, and will publish comments from those who disagree with mine. This said, angry, idiotic, incoherent, unconstructive, abusive, non-market-related, and personally-directed comments WILL NOT GET PUBLISHED. It is that simple and I hope very understandable. Lets remember that this is my blog, in which I express my view on markets that I trade, and it is my duty to keep this place sane and clean. This means that I have to moderate and, unfortunately (or maybe fortunately), censor all of the comments. I would love to hear from other traders who would like to interact with me, even if they disagree with my view. But this is not a venue for fights between bears and bulls, not a place of hate, and definitely not a bashing wall for utter nonsensical remarks by those who perhaps lost their money and have nothing else to do but complain. We all trade at our own risk. This profession is not for everyone. Taking a stab at me will not help anyone's pain. Study and trade smart, or find something else to do!
I hope this clears up any misunderstanding.


Update on Nov 8 @ 10:05 am
We have an upside break out of symmetrical triangle on stock index futures. It is not a surprise for many, I guess, since symmetrical triangle is supposed to be a trend continuation pattern. But somehow I think in this uncertain environment it will be a fake. I think we see a failure and a turnaround in the 1270 - 75 area on ES, followed by a plunge below 1250, 1230, 1215, and eventually 1200. Just another one of my wild educated guess outlooks :) 
I will be buying with both hands below 1200.

Oh Canada! What happened??

NHL season began in October, so many Canadians are glued to their TVs until the wee hours of the night, and are not coming to work next morning. Jokes aside, what a crappy Canadian employment report this morning!

Manufacturing and construction employment took the biggest hit. It is not going to get any better, judging by -4.9% drop in building permits, and lower-than-expected Ivey PMI, both reported this morning as well.

This very poor data explains why Carney is on the wires on daily basis chastising EU for the world economic mess they created. Look for some dovish comments from him in the next few days. Canada's GDP is gonna take a hit I bet.

Lets also remember that RBA cut rates earlier in the week. Australian economy, commodity-driven just like Canadian, was revised downward in the latest RBA's growth outlook (released last night).

I say USD/CAD is to be watched closely for possible trip to 1.0335 on this bad economic data. But first it will need to get though 1.0220 though.

Update on Nov 9 @ 4:20 pm
It is very interesting that with today's sell-off in risk, with EUR and AUD breaking below their established boxes (ranges), USD/CAD is still in the box, and refuses to break above 1.0220
Of course just as I say this, sucker will rip higher :)
Still looking for USD/CAD 1.0335 or so before the end of this week.

Gold Trade Update

On October 25th I wrote about why and where Gold is going.
http://viewonmarkets.blogspot.com/2011/10/gold-has-its-magical-powers-back.html

This week's central bank meetings added more conviction for precious.
Today ECB started its easing campaign (just as I predicted).
RBA also joined the central bank feud earlier in the week with its own rate cut.
At FOMC meeting Bernanke has done his part to ground the hawks and let the doves fly high. In the statement and at his presser he hinted more on QE3.

It looks like my 1775 target will be reached tomorrow.

Mid-day Thoughts on November 3

Do not know where to begin.

I am amazed at what mess EU is in. Just when you think they have everything under control, they collapse in a matter of days. I think the biggest problem (which I am still not hearing many people talk about) is that it is inter-country dispute between parties in Greece which can derail the whole EU. Can you folks imagine what would happen in Italy if Berlusconi is gone? The most interesting thing is that PASOK was the party for bailout and steeper austerity, and opposition party was against. Now the opposition party leader is for austerity and bailout. This is so convoluted, to say the least. One can go absolutely insane following this saga.

I welcome Mario Draghi's decision to cut the rates. I know that he is taking a bit of a gamble, since EU inflation is at 3% or so. He did say that it will subside and will average about 2% in 2012. And the most important comment in his presser was the R word. Mr. Draghi said that EU is heading into a mild recession. Brave man!
Gold is now in heaven due to ECB rate cut.

In US the Chain Same-Store Sales for October were up 3.9%, which was a bit lower than 4.5% expected. We do need to monitor and see if usual October and weather-related weakness is to be blamed for the miss by more than half of the stores reporting. One of the reasons for the miss in October could be the fact that real personal income has fallen for the past 3 months. FOMC did not even mention this in the statement yesterday. Why? 

Speaking of FOMC, I wanted to express my view on yesterday's decision. I strongly think that the fact of a single dissenter on the dovish side tells us QE3 is near. There were 3 hawk dissenters at previous meeting - and 0 now. Bernanke all but hailed the notion at his presser, going out of his way to explain why he would buy more MBS. We get it sir, we know, all we have to do is look around us and see empty and abandoned homes.
Once again, gold has a bid underneath due to QE3 in the air.

And my last thought of the day is what I already said in the last few days (including last night) - be greedy when everyone is fearful. The European debacle is far from over, but it has reached a controlled state again. Last night Merkozy told Greek leaders to clean up or leave the EU. So bulls got the gift again. Market wants to go up.

Be Greedy When Everyone Is Fearful - Part II

We are going to get some seriously bearish headlines in the next 24 - 48 hours. I am already reading some commentaries on how we are going to hell in a hand basket due to Greek default. Folks, we survived 2008, we will survive 2011.

This said, we can't dive in blindly. Know your levels and place some silly bids beneath. Market will sniff the bottom when all bears are in.  Remain calm, do not let those, who's business it is to scare you out, take full control of your actions. But again, do not just place a market order, thinking G-20 will bail you out. If they had a solution, they would have presented it already. I think that members just want to defend their own turf, and special self-interests are precluding them from acting together.

I am remaining in bullish camp into the end of 2011. October 4th was the bottom, now we go down to wipe out easy 20% in 18 sessions money. Listen to yourself and find your comfort level. Do not overreact, be patient, wait for market to come to you, it will.
I am ready for this. Are you??

S&P 500 Revised Outlook

Previously I have outlined why I went from bearish to neutral on intermediate-term outlook, but now I am becoming increasingly bullish on SPX in the short-term.

Prior to today my short-term (end of 2011) target for SPX was 1250 - 1300. Since 1292 was reached last Thursday, I have to say that I may have underestimated the resolve and strength of bulls and weakness of bears. Most importantly, chart formation in short-term looks more favorable to slightly more bullish bias. Many resistance levels and moving averages were pierced, with multiple closes above them.
So I have a feeling that rising 50 dsma (1192 currently) is going to be very supportive for price and may become a floor on this decline (in progress), which will be roughly 50% fib retracement of bull run from Oct 4 low.
Obviously, there are risks to my assessment, some of which are Greek Referendum and US Debt Super Committee. If those event fears push SPX below 50 dsma, remaining unfilled gap at 1156 should provide further support. I think that exogenous event-driven pullbacks will be gifts to US stock market bulls.

My year-end target goes up to 1320 - 1350, based on my fib extension projection and confluence of trend lines.

American Consumer Put

So what is the most important piece of data and/or event this week? It is not central banks' rate cuts, not Chinese PMI, not Italian bonds' yield, not EUR/USD quote, not G20 meeting, not even NFP, it is US Chain Store Sales.

Traders around the world got spooked by European debacle on Halloween. Today they are continuing to sell hard. But there is one large group of people who still do not care about what is going on in Europe - American Consumers. Like drunken sailors, they are spending their way out of emotionally and financially depressed state. Sentiment and Confidence numbers are at their lowest levels since the end of last recession in 2009. But retail sales are rising and showing no signs of abating. This morning weekly chain store sales are showing a healthy gain. On Thursday we will get October monthly figures for chain store sales. I bet they will show a respectable gain as well.

So I ask why is this happening? The multitude of answers could apply:

1. 91% of folks (or more correctly 84% looking at U6) are still employed.
2. Housing has absolutely no affect lately, as people are defaulting on their mortgages and moving into rental properties, if anything, they have more spare cash to spend due to that.
3. Prices on goods and services are not rising, no inflation anywhere, as the matter of fact the discounts are increasing towards the holiday season, as retailers want to blow out the inventory they have.
4. And the most important reason (in my opinion) is there is still no major systemic crisis event to keep the consumer away from the stores, like Lehman bankruptcy in September of 2008.

Lets remember that it was Lehman bankruptcy and financial debacle that ensued which sent retail sales into the negative column on consecutive YoY monthly basis for about a year. Retail sales have been rising since Fall of 2009 on relentless 2-year shopping spree to satisfy the insatiable demand of tireless American Consumers.

So it is with the above notion I would like to conclude my thesis: unless there will be another Lehman-like event, which will cause US retail sales to go down and continue on the downward trend, US stock market will have American Consumer Put underneath it, because consumer spending represents 70% of US GDP.

Be Greedy When Everyone Is Fearful

Market is finally pulling back. It is giving the patient ones the opportunity to buy the pullback they were waiting for. The rally of last two weeks was very painful for shorts, they (those who are still in) will cover to reduce their pain or to break even. Those longs who were out early (yours truly included) will get back in. Levels of support are quickly being sliced through in volatile futures session. This is the time to watch the market like a hawk. Traders will use the time of highest fear to reload the longs. Use all of your indicators for gauging the entries wisely.

Update Nov 1 @ 9:45 am
ES 1238 and 1209 gaps have been filled. Power of charts!