2/3 Cash right now

my current 12 trends to follow are

Precious MetalAgricultureEnergy CrisisLong term InterestChina Bubble info TechBiotechWaterBank RobberyHealthcareCurrency CrisisDebt Deflation



Trend 1 now looks like intermediate top has been in we will go through ABC correction which may last months. Strong support at 1000 area, if that is given back it will be miserable for gold bugs. I remain basic long term longs in my portforlio for about 25% with cutting to 15% if a reflex rally take place in next week or so.

Trend 2, intermediate trend remain intact as $GKX holding 20 week MA. strong support just 3 points below. I am not surprised it will stage another potential huge rally in spring, which is a few weeks away.

Trend 3, Energy price is resilient so far like trend 2 but have yet proven any relative strength. Energy's strong season is upcoming so it is worthy to hold DBC as 2-3 just pull back so hard but not violate intermediate ascending trend line.

Trend 4, long bonds showing some strength near the support. the 5 wave decline from beginning of last year may come into an long pause while reflation trade fade away one by one.

Trend 5 is interesting right now. China is leading the weakness as ^HSI puts an big rounding top and ^SSEC 's sequential lower high. 1398 and 3988 just complete multi month head shoulders and breach the neckline. But so far it does not look like a crash and if an intermediate higher low is in a reflation cycle will extend. so I will keep eyes on these piggies.

Trend 6 I think significant top has been made. with some trends may take years to unfold I would like to take position in higher lows.

trend 7 the biotech stocks may be the trade of the year I would keep close watch to take position on etfs.

Trend 8 is part of reflation trade.

Trend 9 banks may get hit very hard as administration take a lip service to fight TBTF. But, as long as FED is in its power and running back door support, they will keep robbing people to death. I will look for shorting them in short term but swing to long once an low is put in.

Trend 10 is neutral to negative.

Trend 11 so far not making too much progress.

Trend 12, the debt deflation will move into sight again once these juice are not going in. The consumer sector in retailer and commercial real estate had a spectacular runs in last year, now it starts to break down. It will be the most ludicrous trade to play downside.

So far we have reduced position to 1/3 long most in precious metals. I am looking for a reflex rally as dollar test 200 day MA and pull back. I will cut more position in trend 1 and 2 and adding short position and anticipating down trend established for several months. I will swing short and going net short in next a few days.

Resume Blogging

I will use this blog as primary journal in this year to document my trading experience. Document is my weakness since I was a kid. But to excel in this profession, I will have to do it everyday.

I will write 1. the trends I am following 2. my position in these trends, and 3. my risk control measures.

The goal for this year is to achieve 25% growth and more important is to complete my model in detail. So far I am embarrassed for achieving zero in 2 and half weeks by giving up all the gains early.

The Jobs is simple but not easy. I have to monitoring all the trends and prepare to hit when right set up emerges.

From tomorrow I will post my positions and broad watch list.

Random Thoughts

> As a trader, our job is identifying trend and exploiting it. Our job is never to PREDICT a trend or trend change. As a trend is in place, we must not bet against it. Price action in trend is most important thing to analyze in technical analysis, other elements like volume, divergence, pattern, sentiment etc. are secondary to price. always remember that.

> Mankind after so many years evolution still can get rid of emotion. You talked about successful trader relies on 70% on a successful mindset, which means at least 70% of decisions people made are irrational. Trading on chart is simple but people always have difficulty to look it right.

> In order to be right most of times, you must be willing to be wrong some times. Don't balk on a decision looked wrong when technical analysis called you to act. You may well be wrong but odds are you are right more often than wrong. It will be stupid to buy at top and sell at bottom but in order to be smart for most trades you have to be stupid in some trades.

> Trading, it is not a game you are more right than market, it is a game that you trade with market more often that you trade against.

> Today's action is more important than yesterday's action. Tomorrow's action is more important than today's action. A reversal of a significant signal is a more significant signal.

The Flaws of Elliott Wave Theory

It is almost embarrassing to see markets trend against Bob Prechter and his Elliott Wave International for so long, but they don't even consider the alternative. Gold/Silver, for example, have put them on wrong side of market for so many years. Not to mention the deflation call comes earlier than reality for decades. That brought up my thought, as the most popular market model, EWT has some serious flaws and limitations.

The first flaw is, EWT is generally correct as a behavioral technique, but the price movement in any financial market is multivariate function. besides sentiment, other variables like fundamental, technical, and structure is also as important in influencing the price. So it is basically wrong to use sentimental extreme to identify pivot high/low, that leads to more mistakes that correct calls. Of cause at the important juncture of market extreme reading in sentiment is apparent, but it is necessary not guaranteed.

The second flaw, which is directly associated with first one, is that EWT is tied up with Fibonacci sequence. A lot of studies argue that fibi is ineffective to provide retracement level. In a market that is only driven by sentiment, fibi might be a lot more effective but in real world, you better rely on other method to speculate where market is turning.

The third flaw, is that EWT can't distinguish degree of wave ahead of time. Because it is heavily relying on sentiment, it is difficult to define if a pivot is long term or short term bottom /top. You may not know immediately so you have to leave s lot of options open. Then a single chart can be interpreted in many different ways.

There are lot of invaluable points in EWT including patterns, contrary opinions, and personality of waves, etc. You can learn a lot by practicing EWT, but when comes to trading, it is difficult to apply and the user is easily trapping himself by labeling the wave from his own opinion, while not violating any wave principles. I know a lot of people made good money by only using this method, but it is not for everyone. especially for those who can't stand many many small losses in order to hit a big one. It is always a good weapon in trader's arsenal, but is not bread and butter for majority.

SPX Rollover

Finally we got today's action, a large range reversal with heavy volume under overbought condition and extreme bullish sentiment. Not sure if it is game over for the entire rally since March, there are cluster of supports at 950-970 level. we will definitely have some sort of rebound at these levels, But subsequential downside breakout from there will also probably trigger Dow theory sell signal which will confirm that primary trend changed again.

My Strategy is to buy into these support and monitor quality of the rally. A lower high in this incoming rebound will be a good entry point to short.

In Search for Divergence

Since March 9th the tide of risk appetite is the primary driver of stock rally. Use ratio between high yield bond and investment grade to characterize, it goes neck to neck with many markets, euro, Hengsheng, commodity et al. Now for the first time in last 5 months, you see clear divergence.

One More Loop UP

With dollar weakened for 2nd day almost reversed turtle soap buy set up, equity rallied with good news (late) of Paulson Co. took massive position in BAC. You would expect a 3% rip at least, right? Nope. only a peanut gain but new closing high for S&P anyway. Volume is still unimpressive, and this small "breakout" is another sign of fatigue. You can't push forward when wind is on your side, which means we are at important juncture for market to change direction.

Nonetheless, I expect commodity will make a new recovery high in 1-2 weeks before dollar bulls fight back.With stocks also go to making a final push and roll over.