Doug's log

[Doug Coulter]

Here's what I think the next trade setup might be. This is a quote from something I just posted over at Seeking Alpha. While I don't trade options and futures, I do read what those guys are up to, and to some extent you can play this stuff either way. I don't like the extra risks in the more leveraged instruments, so I just play the underlying. This is one that looks like it could be the trade of the year if it plays out as expected. But...I'm on the sidelines till it looks like this is the good call, and ready to trade it or not, depending.

I think Matt's correct here on gold and silver, and so are the people calling a drop a buying opportunity.

The scenario is that we get a debt deal. It will probably stink, but enough people have enough interest in calling it good, that they'll squint till it looks good - for a short time. Market gets a relief rally and overshoots high. Gold and silver lose their current "fear premium" - that's when you buy them. Market loses steam after the spike, when people look at the details of the deal and realize just how messed up we really are, but you sold the market to buy the PMs already.

The thing is, and I suspect it's why Matt is saying "I don't want to guess" is that there are all those other slow motion train wrecks out there, and having one of them insert itself in the middle of this scenario could mess it up quite a bit. In that case, we might not get a big pop on the market, or a decent drop on the PM's or it may not go down "in order".

Since I don't want to guess on this one either, my plan is to be watching every second with dry powder at hand to play it. Could be one of the better trades this year if things go "as above".
I can be content with "the middle of the move" even if I miss a juicy gap this time, as the risk of something else taking the news oxygen and skewing this pattern is too high for my taste, so I'll wait for confirmation from the tickers.

I think US debt is so crucial in T-1 capital and collateral that even if it's downgraded (which it should be) that they'll just change the rules to read more like "has to be AAA unless it's US bonds" -- there is nothing out there to replace them in that function, no choice -- and the country wouldn't survive instant massive selling of them at ever lower prices to pick up something else to use as "reserves" -- and there's not enough of "something else" for that job anyway.

Here is another trade I'm in at the moment, maybe I will scale in further, depending. I'm of the opinion that there's no set and forget investing anymore (that makes money) but this is closer than most to that. While not a world beater, there are some things to like here. MCHP pays a ~ 4% dividend, and is a pretty solid company, one I've worked for. A little inward looking (insular?), they are the only ones who've actually ever made me sign a contract to get work, but they did accept my balanced 2 way NDA in a surprising fit of reasonableness -- after all, I was creating IP for them, not the other way around and they accepted the idea of with a bit of surprise (after all, they did call me after reading my book), but they did go for it. Background aside, they just took a big fall for "guiding lower" on earnings for the next quarter, even though the current numbers are pretty good. Here's a year chart on them.

Microchip

I don't play tech much, it's a case of "knowing too much" and "too easily falling in love with an idea" which is sometimes fatal in this game. But this one looks like a buying opportunity to me (not as sure about netflix, which just did something similar). The advantage to sitting here watching markets trade by trade is I got in here with a very low cost basis, right at the bottom. I would expect that over this quarter, as people forget about the guidance, it will return to levels near where it was before the drop, and that would be a nice percentage gain vs time for something normally fairly boring. I also note that unlike most stocks, this one's not being so driven by the markets as a whole -- it's on its own path for now. That could be a cue for a rant about how the rise of sector ETFs unfairly smears out best in sector with the rest, but that's life.
I may scale in further here - now that this move looks confirmed. This is a trade for my IRA account which trades more "patiently" and actually mostly does better doing things that way.
Here's their balance sheet, decent and nicely boring. Google finance is your friend and the price is right. They are showing real good returns on equity, and way qualify for O'Neill's CANSLIM criteria, a good sign at least in "normal markets" which ain't what we've got here, but still, most companies don't return anywhere near what MCHP does.

[Doug Coulter]

I've been saying this for many months now on finance forums and usually get a poo-poo response. Nice to be validated by the horse's mouth.
http://www.bloomberg.com/news/2011-07-2 ... banks.html

The U.S. central bank’s policy of holding interest rates near zero is a subsidy for large banks and redistributes wealth from savers to debtors, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City.

Banks can borrow at 0.25 percent and buy Treasury bonds that yield 3 percent, keeping the difference. “It provides them a means to generate earnings and restore capital, but it also reflects a subsidy to their operations,” he said to the House Subcommittee on Domestic Monetary Policy and Technology today in Washington.

And then they can use the bonds as collateral, borrow more, and speculate in commodities. Everyone clear on this? Even without QE, we have a long standing program in place to steal from the taxpayers and bail these jerks with the money...and they're sill all insolvent, because they stink at trading. I think they could use the type of haircut one delivers with a guillotine.

[Doug Coulter]

What exciting times! Everything down together today, sort of. Even gold and silver. I do NOT think this is the "back up the truck" dip, yet, but it's interesting. Crude's down too. Phil Davis (an opinionated trader who posts on seeking alpha - I don't agree with his politics, but he makes money) has been shorting oil every time it gets up around 100 and covering on the turns and doing real well with it, maybe I should too, next time. I see all this as bullish, actually, for the near term anyway. My original scenario seems pretty intact still, despite the surprising drops in gold and oil today.

But I must say, it sure is a nice day to be out and just watching. I did miss some possible trades, but...that's life and this is lower stress. Buying FAZ yesterday and selling it now would have been a nice little trade (about 4.5% in one day), but kind of dangerous -- again, those politics can strike at any instant -- and this one is a wild swinger - not usually wise to hold either this or it's opposite number FAS, overnight.

Interestingly, while it lost, MCHP made an up move today after dropping at the open. I didn't jump on it to buy more, but a counter-market move is always interesting. And now it's dropping again too, so I'm glad I waited. This action looks like the old batch of players at the poker table have moved on, and the new batch are "true believers", which is very bullish for that one.

We are finally getting a drop to good buy in prices on BTE and FCX, that is if and only if you think the world is going to basically recover from here. I'm not sure enough yet, but if we get that relief rally on a debt deal, it *could* have been a good time to buy those right now for a short trade (not investment). My style will be to wait and see on these, as they still have a way to go to get to what I'd call "support" -- and I try not to buy something still going down, I like to see a nice, solid bounce off the bottom when possible -- and buy things going up.

NOK and RIMM would have been great shorts, but again - a relief rally is in the cards here, and that would be a better time to open those trades if they bounce a little on that. Sell high!
BAC too, its legal troubles are just gaining steam now. New York's AG is on them bigtime for more fraud and they're not really in the wall street club....just like Lehman...they might be allowed to fail.

Todd Harrsion sees a big relief rally -- like 5-7% coming, if we get a reasonable debt deal. As he says however, the question is from where? Too soon to buy in anticipation of that unless you're more of a cowboy than I am.

[Doug Coulter]

Didn't do much today. I keep a few shares of my bank, STEL, around to just be keeping an eye on, and I'd earlier tried to repeat a trade that had been really successful in the past. Basically, this one is only traded by me, and about 50 other people (or so it seems) and I know half of those. No volume to speak of. It tend(ed) to bounce around between say 11 and maybe 14, and I'd managed to scalp that one right a few times in years past. So this time when it went down into that range, I picked up a few hundred for the IRA. Well, it just kept going down - bad move, and I "cheated" a basic rule of holding it even below an 8% loss. Yesterday, it really tanked into the close, so for grins I bought more (doubling down is breaking another rule). Today it went up 17% at one point, in about 10 trades. I sold it in the green...whew. Don't try this at home, it was a dumb move and only dumb luck saved it. Yes, I made enough on the overnight additional shares to come out green, but not on the original buy, and that had that money tied up for a long time in the red, so the real cost is that it wasn't deployed elsewhere...

I happened on an interesting chart the other day:

Gold vs debt ceiling

Maybe we should all print these out and hang them up around so people catch a clue....

[Doug Coulter]

Well, this AM is certainly a good definition of "tizzy". From over 100 up to 64 down on the dow in under an hour. I did manage to pick up a few PM stocks in the nice little dip, but I don't think this is "the one" by any means. Looks like what happened is the markets in Asia bid stocks up on the debt deal news, so we gapped up at open. But then we started trading and here we're well aware of our governments ability to snatch defeat from the jaws of victory, so down we go again (and the PM's back up, nice little catch there, but I didn't use both hands or the truck, just a little more).
More after lunch -- this is more like a circus you watch than a game you play in (unless you're the sucker).

Edit:
Well, that was one crazy day, and according to the pundits, quite a rare occurrence, or in fact several. This won prized for total swing, and total swing ending near flat both -- only a few of these in the last few decades. I did avail myself of the dips in gold and silver to pick up a little more, but only a little - I think the big dip is yet to come on these, and if I already have too much money in them, it'll be harder to average in to a better effective cost basis, so I kept it small -- but increased my potential winnings if we don't get the dip I'm predicting. Balance is the trick, we'll see if I pull it off.

[Doug Coulter]

Yee Ha, this AM the market opened down, but going up, while silver and gold opened up, but going straight down. Mornings are tricky (always) and I waited a bit, and they went right on back up. Gold up over 1% and silver flirting with 2%. Decision time, do I hold sliver, or sell some? Certainly buying a bit more the other day, just in case, wasn't a dumb move. Risky, but some risk is TO THE UPSIDE.

Should be an interesting day today. We'll see some whipping around as the debt vote stuff happens, no telling which way we go first. I suspect we go up if a deal is done -- market as a whole, which might make for a dip in the PMs. I also suspect we go back down once people find out what a load of crap any deal language really contains, with PM's going back up, but in these markets, which have the retail traders mostly out it's hard to say. Could just be battling robots for awhile, and some of the institutions have rules that keep them "in" or "in certain things". So it could turn into them vs robots, with us along for any nice rides that generates. This morning, things look like this:

Illustrating the good and bad of morning trading

Gold and silver are acting like high beta stocks today (which is why I'm in them now - the high beta ones are currently certifiably insane, and my favorite longs look too risky). But this is why trailing stops can be troublesome sometimes -- can't set them tight or they'd trip, and too loose and they're useless to do the stop-loss function. It's also why you shouldn't trade in the first half hour or hour till you get good at calling this -- once you get good, you could have bought in the scary dip and see where you'd be right this instant....or covered a short (but I don't short these).

What I have been thinking about shorting are NOK, RIMM, X, MT, in no particular order. Been looking at those for awhile both because I think there's going to be some further downside in the markets as a whole, but the first two are also in their own self-created troubles. Steel -- well, when things slow down, steel gets hurt and it was already sickly. I notice PALL is at the top of it's last bunch of trading range, and when steel goes down due to low car manufacturing, so does the palladium used in the catalytic converters. PALL you can trade both sides of nicely -- it's all timing. Note that shorting an ADR might mean added currency risk if we get those printing presses fired up again.

On that note, I see that TMV is at a 52 week low (meaning long term us bonds are at an all time high price, low interest). I sorta expect that situation to change suddenly if we get a downgrade, which I think is likely. This is not one to hold for more than a few days at most. 3x leverage and a lot of decay in it, but when it zooms, it really zooms. Watch this one for now, but if we get a good bounce, you can get in for a nice ride...

[Doug Coulter]

Still the same day, but this is kind of interesting for talking points. Someone pointed out that one of the flights to safety is into the swissie. Well, without futures we don't trade that, except there's this ETF that does it, FXF. See the screenshot in market club's plotter with their timing indicators and chart tools. Those are interesting, but of course you can time better then they do (in this market, when things are normal, market club rocks and is way worth what they charge - also their trader training is darn good). What I see here is a blow-off top, it's a good example on how to recognize one in progress and get worried -- we'll see what eventuates, of course. The Swiss can't be liking their currency getting so strong, and might try to weaken it. They could succeed or fail at that, or external events override anything they do - so this isn't one I'd necessarily trade as a blowoff, but since it has the perfect classic shape -- concave up -- it's what you look for in things that are zooming now but you know you'll have to get out of someday. To see another classic one, look at a year chart for SLV...parabolic up means down real soon now, as nothing can grow without limit - that's the bubble shape if you want a mnemonic.

Screen shot at lunchtime

On the left, see the little charts for GLD, SLV, CEF. Note that scary looking dip in the first hour is now in context. I could say almost the whole grit in this game would be knowing whether to have bought in that dip or not. And it's darn hard to know from the ticker alone. Just as often as you see this (maybe more often) you see a rise off the initial dip, think it's time to buy, but another 10 or 20 minutes later, the fall has resumed (don't have a good example of that to show, but I'll think about it next time I have one on the screen). And today isn't over yet. Gold and silver were dropping vertically on these charts between a couple minutes ago when the shot was taken and right this instant....maybe that debt vote happened? We'll know soon enough. I am mostly in cash at this point, but do have some hundreds of shares each of those as core holdings.

Edit:
Wow, what a day. Maybe my best day since the crash, due to gold, silver primarily. MCHP took a dive, but I may buy more. I think we may have overshot this time, but we're on a cusp here and things could go either way from here. If SPY breaks 1250 - look out below. If we get a decent bounce, well, then this was the little correction everyone was looking for.
I pulled the trigger on a PALL short in the last couple minutes, and was slightly green on that at the close -- we'll see. It's at the top of it's 6 month trading range now (look at a one year chart), and if history repeats, will trade down from the low 80's into the low 70s again. The chart is genrally bullish - higher highs and lows, but you should also plot it against TRW for the last year or so and look what leads it and how to bet. PALL is mainly used in catalytic converters and auto sales aren't great now -- look at F and GM for example. I think the bullish tint on this is its recent inclusion in some precious metals ETFs that are buying as money flows into them -- it's a crap shoot, that trade, but I doubt I lose much if any money on it this time.

End of day shot on PMs

Turning to the PMs, wow, what a day. GLD up 2.41%, SLV up 4.0, CEF up 3.59 (it's a mix of physical gold and silver, about 50% each by Canadian buck). Looks like that little dip this morning was the buy signal - and I didn't do it, as the bottom of that dip still had them up way more than I expected. But the little dip at about 12:30 was really the last chance on these (for today) as the debt deal happened. I don't see much in the way of clouds on that horizon anymore, unless for some reason every ratings agency on earth suddenly declares US is for sure triple A for ever. Don't laugh, stupider things have happened -- buy that dip. On the other hand, TMV tanked most excitingly -- people have driven US bonds high as a kite. Nowhere to go but the other way from here, which isn't saying buy TMV now -- but is saying "watch this sucker close". Its leverage decay is too bad to buy in anticipation, just catch it on a rise and maybe even sell it the same day if you get a good green.

Now today is what I meant about upside risk -- I missed out because I didn't aggressively buy PMs more when I had the chance. I have what most advisors would consider a "sane" amount of them, to be sure -- much less than a gold bug, but more than mr average too. In fact, other than a little MCHP (slightly red at the moment) they are all I have other than cash and that PALL short that's only minutes old at this point (and getting greener aftermarket). Missing an up is just as much risk as failing to sell ahead of a down....just the other side of the coin. This is why I made the correct call the other day that when my expected dip didn't materialize, I bought some more anyway...and this time, it was the right thing to do.

Tomorrow, we turn around, or we don't. I don't see a flat day as in the cards tomorrow. There's euro trouble again, some flash crashes due to HFT quote stuffing in the wings around the world, and we live the Chinese curse right now - exciting times! I won't try to predict which way we go, but when the market is sitting right on the support it's hit now for the 3rd time and so much room on either side - it's going to either turn or not, but not stand still for long.

Be nimble, happy trading!
Miller time!

[Doug Coulter]

Ah, nice open today. Looks like I got lucky on my call to short PALL - 100 shares is showing me almost 200 profit. It's bouncing around that point, and while I do expect it at some point to trade down to 75 or or less, I may just take my $200 and run - I'll watch it close. TRW, which was one of yesterdays worst losers, is one of today's biggest gainers at the open - and is very auto related, so it's a flag that I may not have been on time. And I've noticed this a lot on my daytrader watchlist -- often the top one day is the bottom the next, and vice versa....things are just like that, and some overshoot more than others. GLD and SLV are going like rockets now, but look like dragging PALL with them, hold on a sec...PALL covered at about $180 gain. I'll take that - it will be around to do again later. Things are moving fast today -- while the markets as a whole are bouncing + and - only a little, individual stocks are screaming around (headless chickens?). I've had to sort my watch list 3 times in the first 15 min. So things haven't decided which way they're going yet. Could be fun, definitely not a time to walk away from the table if you've got money on it.

Edit - a mere 7 min later, PALL resumed its fall -- premature close on that trade -- which is one reason I tend to advise beginners not to look at the market this early. But! Money back in the mattress to do something else with never got anybody broke.

Silver is flashing "watch me!" right now. Classic blowoff top forming it looks like -- but remember, that can go on awhile before the almost inevitable crash. I note on the chart that there's a lot of retail volume in SLV. That's interesing. Most of silver and gold volume by money is in futures and doesn't show on these charts, which makes some of the reading of indicators tricky. But here we have mr average buying into this, obviously. In other words, not the smart money (or them too, but the dumb money can often be the kiss of death). First time I've ever seen one go off screen on one of these plots...

Silver, wow!

TD's servers almost locked up for a couple of hours this AM - even my wife noticed. The market is in flail mode. The S&P etc dropping below support triggers a lot of more staid large institutions to sell, and evidently, most of them decided to all at once...Huge drop, huge recovery, now dropping again. I wish I could add these two to the smilies (maybe I can, haven't tried yet). The flail and the judge -

flail.gif (3.88 KiB) Viewed 12387 times

judge.gif (973 Bytes) Viewed 12387 times

But of course the one that applies to the last couple weeks is:

saupload_cliff1.jpg (25.87 KiB) Viewed 12387 times

This could be hitting China soon. FXI is a stand in for about 25 of their larger stocks -- mostly the banks making all those crazy real estate loans. I've shorted this for good money a couple times, and I will again on the next bounce. Marketclub has it as a sell too - but it's better to short a top than a dip usually.

Oils way down, and maybe I can get long in BTE again in a couple more bucks worth of drop - I'd like to see 50 or so on that first. It fell off a cliff today, but hasn't reached the ground yet.
Copper is holding up unusually well, which is very strange. We call it Dr Copper for a reason, it's usually a very good measure of economic health worldwide. It's still in the 4.20-4.30 range, which is "high". Hmmm. That could signal either things are not really so bad, or it could simply be subject to some manipulation at the moment -- China's famous for that one depending on their stocks in hand.
More later, watching the show -- gotta pop some popcorn. I'm looking to add some GLD,SLV,CEF on dips - might not be the greatest move, but I'm a cowboy. I'm doing that in a different account, so I track "from here" on any new stuff.

2:30 edit
I see gold and silver selling off in volume -- profit taking? I don't know. I am probably going to stand pat unless we have a brutal whip down, simply declare more of my holdings as "core" at this point. I'm hearing two interesting things this afternoon. For one thing, volume on the markets has ben really low for the last couple years compared to history, which throws off a lot of indicators. Lately, volume has been higher on down than up, usually a signal that we're still trending down. However, this mid day, we had huge volume (compared to the new normal) going up. This often happens when a trend is reversing. Also, this many down days in a row is quite rare, and one more down day would be in the "extremely rare" range, going back to 1941 or so. Historical tracking of what has happened after long down streaks indicates a high probability of at least a reflex rally here. While I remain bearish on the markets and bullish on gold longer term, the short term is beginning to look opposite of that. Were I holding equities right now, well, it's kinda on the late side to sell them, I'd wait a little. No question there is blood in the streets at this point, and historically, that's when the smart guys buy -- and we're seeing volume which might indicate that's exactly what's going on now. We might see S&P close above 1250, and if we break that convincingly, it's very likely time to buy, though the chances of it being "convincing" rather than an anomaly aren't big -- things often toy with key levels before finally doing what they are really going to do.

This is, however a bunch of strong indicators for the technical analysts among us, many of whom control large amounts of money. I don't believe TA is the holy grail. What I believe is that human emotion is -- but that the emotions of a TA are driven by what he's seeing on the charts, and therefore it's self fulfilling.

On the other side of that one, an internal memo from Walmart says 2.6% drop in traffic YOY. This either means people are truly out of money (spent their savings, maxed out credit) or suddenly got rich and are going elsewhere -- except from what I can find, the luxury outfits are doing even worse, which leads us to the first conclusion. There's your longer term bear...
And since most of what goes out of Walmart came in from China -- not good for them either.

Edit, end of day:

Well, we had another day with a lot of swing, but closed close to the open -- market is unsure of itself. It seems that the close at 1260 on the S&P, above the 200 day MA, means that maybe we don't tank from here. Key will be the official jobs number Friday, kind of "do nothing till you hear from me". Jobs could be worse or better than expected -- usually are. But how the markets react will be a key tell. If they're a little worse than average, but the market rises, that means we turned today and will trend up. If they're near expectations - the direction the market moves will "tell" what the psychology is. All the old, slow guys are saying buy right now, because historically, times like this have been "opportunities". They could be right, on the other hand, at no time in my memory have the underlying fundamentals been so crappy either. The markets don't pay all that much attention to the fundamentals (don't confuse me with facts) most of the time, but every now and then, some forcing event makes that happen - and the market, even after a week of dropping, is still overpriced in a thorough fundamental analysis. The question is, what's the psychology, because the fundamentals weren't that great during the last boom either (but now they are far worse). More profit taking in volume in PMs at the close. Probably they dip a little from here or hold flat and "rest". We'll just have to wait for the right hand side of the chart to appear I guess.

[Doug Coulter]

TODAY'S MESSAGE: DON'T PANIC. Let everyone else be stupid. This might be the buyable dip I've been predicting. Just wait...

Well, that didn't last long. Dow down 267 as I type. Dollar actually UP -- some bizarre side effect of a serious flight to safety. Italy is on fire, closing early limit down daily, with some weird thrashing about and finger pointing going on.

Sure am glad I loaded up further on gold and silver, even though I didn't get much of a dip to buy on -- They are whipping back and forth wildly today as a result of some selling going on from margin calls and the like. They are fighting the dollar today, and it's a see saw at the moment. Edit: Dollar wins for the moment.

My small (200) MCHP holdings, that were up as much as 2.5% are down about that much now. Today maybe I either dump, double down, or do nothing, expecting to double down later when this has bounced off whatever bottom we're looking at. It'd take a couple more days like today to get back to anything I can see as "support" on the S&P, and frankly, that's not a very convincing support level back in Nov, Dec of last year.

This sounds a lot like Warren Buffet's favorite saying "Buy when there's blood in the streets". I think I'll wait to see a couple of clots before I take that advice, but I note that PJ is at the bottom of it's swing range and actually rising right now. Hmmm. Nice divvie for you longer term people, and might even be a good swing trade if it picks up for real. It's very low beta and you don't get many chances to catch it here -- but! You might be able to get it a lot lower if you wait a little more.

Here's wall street journal's take on the drop in gold -- selling to cover bad bets. Silver may stay down awhile at this point, gold will probably bounce.
http://online.wsj.com/article/BT-CO-201 ... 18767.html


Someone else's take on this that I largely agree with. Humans are not so predictable in ones, but in herds, not so hard.
http://www.minyanville.com/businessmark ... 1/id/36137

[Doug Coulter]

End of day. Dow down 513 points! I missed the good time to sell the PM's which got whacked along with the rest, and silver giving us a reminder that using a risker one to boost returns also works the other way. It looked like panic all day long - I was watching news from the market floor, and the guys were just shaking their heads and calling "stupid human herd behavior" on it. But that of course is obvious, and knowing it doesn't do you much good at times like these. Some banks are now *charging* you to keep large deposits -- actual negative interest rates, which drove the yields of T bonds to zero. So, we sure don't need another QE that takes the form of buying more of our own debt, the herd is taking care of that one for old Ben. Maybe he was smarter than we gave him credit for?

There's a lot of talk of buying, but they're just watching. Sell orders exceeded buy orders 100:1 today, on record volume, which usually means "I mean it". Those who sold at a big loss are going to be feeling burnt for awhile, and we can't expect them to jump right back in even though the "smart" money is rubbing its chin considering buys. Further, mutual funds (most of the money) cash reserves were already at all time lows due to earlier selling by customers, but now with the sell orders they're going to get tonight, will have to sell stocks tomorrow, so I don't expect a great day then either. I was mostly in cash, took a drubbing on what I had in there -- and will stand pat.

Now might be the time to look at what didn't get hammered -- strong hands holding those, which portends safety going forward -- and what did (could bounce nicely). Strangely, MCP only down ~6% today. Heck, for it, that's a normal swing!

Cash was king today, glad that's the bulk of my stake right now...