A General View on Current Markets by a Broke Trader

On my last post, earnings season was just getting ready to begin; I got a little ahead of myself, asking if we would have to wait for the season to start before the rally came. That was about the same time I wiped my stake out being a little over-eager. It really is true what Jesse Livermore said, "There is nothing like losing everything you have in this world to teach you exactly what not to do."

Earnings has been, on the whole, very positive. Some pundits and financial blogs have expressed the idea that its not really difficult to outperform when estimates have been significantly reduced and the income saved from not having to pay all the folks that were laid off. Certainly has to be some truth to that, but it's important to keep in mind how far the economy's come in the past year. The markets just bounced back, there has to be some type of corrective pause. We must also keep in mind China's attempts to take the punch bowl away, which seem to have been relatively successful.

Industrial Metals continue to see increased demand, and prices are hitting new highs. This can only bold well for the miners, but more importantly it bodes well for global expectations of growth. As for tech, the continued appetite for smart phones worldwide will increase the profitability of chip makers, companies like HTC, telecoms, and other well-known companies. Even if the economy goes sideways for some time, it will continue to improve.

Finally, and here is the big one, America's Healthcare industry is going to grow at an incredible rate over the next ten years. Say what you will about the new Health Insurance law, but bringing millions of people into the healthcare system is going to benefit everybody. Of course, insurance companies will benefit simply b/c they have more people to screw over. Hospitals will have a higher likelihood of getting reimbursed, drug companies will have more prescripitons to sell bc the insurance will allow more consumers, pharmacies will gain increased clientele, shippers will be moving more health products, etc. The demand curve has been pushed to the right, and over time supply will catch up. Technicians, nurses, doctors; as the baby boomers age a powerful incentive will provide for higher rates of employment. America will be the biggest exporter of health services in the world; this is a field where we can have a comparative advantage.

Perhaps that's too rosy an outlook, or perhaps I'm too young. But my boss is fond of saying, "America can hold its breath longer than anyone else." We shouldn't underestimate ourselves. Man, I'm ready to get back in.

Waiting for a Rally

The past several weeks have made for an interesting environment to trade in. One week the world is scared and ready to jump every time a tree brushes up against the window. On the other hand, another week we will have a relief rally; in this instance, it wasn't actually a rally as we didn't really go anywhere. But if you paid any attention to the media that week, you'd have thought otherwise.

Mostly it's been very slow going. The metals and mining sectors, while still strong (especially given Alcoa's better-than-expected earnings yesterday) was very volatile and are at, or lower than, their February/March lows. Will China crash, trying to slow down their economy but accidentally lend a hand leading the rest of the World back in to recession? That was the story. What seems to be reality remains the same as it has been for the past decade: China is Hungry for commodities, and eventually they would love to be able to pay for them in their own currency.

While the rest of the market did nothing, or fell a little bit, (on extremely low volume) Gold skyrocketed. It was not just commodities that were held as extremely volatile recently, all stocks, perhaps owing to the increasing correlation of all stocks to move along with the general markets, were considered slightly perilous. It being the end of the quarter, no hedge fund seemed to touch anything with a ten foot pole. Thus, retail investors, the paranoid type, and all the Johnny-Come-Lately's piled in, driving the price of Gold up to around $1275. It then fell abruptly as safety appeared to creep its way back from no man's land.

The heart of the matter, frankly, is that folks are worried about Global Growth and a "double-dip" recession. Not being old enough to have any clue what a "double-dip" is, the idea has piqued my interest. In all markets, pauses follow moves, and it is quite healthy for markets to pull back or correct themselves. But the pundits constantly spout things like: The Health Care Bill will increase taxes and lead to negative output. As if austerity measures aren't the pot calling the kettle black. Other things we constantly hear: government debt in Greece, Europe and the U.S. My opinion? Get growth and the deficit will magically reduce itself! But anyway, the markets are really doing nothing, but mass media and the 24-hour news cycle freak everyone out, and the market won't make up its mind which direction it wants to go.

If, and when it breaks 1080 (the S&P), I think a move to the upside is waiting to happen. The question is, will it be during or after earnings.

Screw Ups are getting smaller

Today was a crazy day in this madness people call the Trading Industry... It's odd how even though every day is different, many are similar and prices almost constantly bounce around or revisit key levels. The end of last week the tape was sideways, meaning there was no real up or down movement, and this week has started to pick up late in the day. What has finally dawned on me, is that the markets must be navigated like a river each and every day. And when the currents start gaining speed, you better not snag the boat and capsize. Let me tell you why this day was crazy and what led up to it.

Let's start with my Aha! moment on Tuesday. Nothing had happened all morning; slowly momentum began to develop to the downside and I started to short. But I was too early; it bounced and i lost a chunk. Got out and entered again ten minutes later and the trade got under way... it faked us out, but I had entered well above and added more shares. The stock moved lower and tested support; it bounced again. Now, at this point the day was getting close to being over (I had been in this trade for almost an hour, waiting patiently), and I decided to take the profits on the table. As Jesse Livermore said, no one can catch all the fluctuations... the real money is made in the big moves. Thus, the goal is to hold until you can't stand it any more when you are getting paid. I covered my short for a $90 profit. The market then sold off for the next 45 minutes. Let's just say that every body got the Christmas bonus but me.

So today I decided to put my new knowledge to work. My ambition/impetuousness got the better of me and i lost a fair amount 7 minutes into the trading day. I say a trade and i entered, just like yesterday afternoon. This time, I was confident. The market was whispering in my ear and by golly I was going to hold. It kept looking like the markets were going to go through that key level, I started to hope, I ignored the slight changes in my indicators (we call the TICK, ratio of rising/declining stocks, and the TRIN or "Trader's Index", a volume measure of institutional buying or selling, our market internals), and i lost a little money when I got stopped out and a reversal occurred.

But I was happy! Never in my life had i been so happy about losing money! I screwed up by having overly optimistic (or on the short side, pessimistic) expectations of follow through! But I finally realized I'm not after nickels and dimes! I need to get PAID! Its crazy because every day is like a battle.

My boss will type into the IM, "BP possible short/ Let's do it/ short it;" He's talking to 30 of us, so of course he's yelling at people who are doing nothing. He continues, "Short it/ Now/ Short it.... it's the battle of Dunkirk at 109 (on the S&P)/ if it breaks get PAID!" All day long, like a good football coach, he's screaming at us. And like football practice, the pressures never off no matter how far behind or how far ahead your team is. Speaking of sports, the boss has been watching the World Cup when there is nothing to do.

What causes more emotional distress than losing an ass-ton of money? What causes more elation than getting handed wheel-barrows of money (unless of course we're talking about Weimar Republic)? This business is unlike anything else... you must be completely calm one moment, a Zen mindset taking in all the markets whisper in to your ear. Then at precisely the right time, you must transform into a Warrior and attack like Lone Wolf and Cub. In this environment, we all have to be careful. Is the economy recovering or is it not? Some days we get good economic news, the next is horrible. The news programs fill our heads with nonsense b/c they don't really have anything of substance to talk about most of the time. Even though sovereign European Debt has been a problem since September... every other day its on the front burner. Will china overheat? Will its bubble burst? When will this damn oil spill stop? Why have we all of a sudden found massive deposits of minerals in Afghanistan? Why was our top commander a complete ignoramus when it comes to politics? Vespasian or Marcus Aurelius would have had his head!

In my following posts I will attempt to focus on analyzing politics, economics, and the markets. While I see this as a journal for myself, I would like to share with the world my thoughts and opinions... in so doing, hopefully I can inspire someone to think.

Back in the Saddle

I had to take a break from my recently started career... I was married and spent two weeks in Costa Rica!!!! The Lord has been very good to me as of late. Anyway, during the honeymoon I read Edwin Lefevre's "Reminiscences of a Stock Operator." It was the best possible choice for my break, allowing me to analyze my mistakes, to learn from a master, and to get a sense of what I needed to do to be successful as a Stock Speculator. And my first day back, trading, in the first week of June, my confidence was at an all-time high.

The next week I kept battling, going from negative $100 or $200 to even or slightly positive. I thought to myself, "When I left I was bleeding money, and now I'm not losing money!" Success around the corner? Not quite yet. I continued to suffer a couple of defeats, one or two successes, but I was beginning to worry that maybe I don't have what it takes to be a Day Trader. Then last Friday, it began to click. Yesterday, i was in a trade, and i decided to take my $30 dollar profit; i thought i might be able to get back in, but i just hadn't wanted to lose. The markets then went into an hour long sell-off which i could not get back in on. But I did not take this as a total loss, it was a lesson that finally got my brain to "click".

So today, not a whole lot going on in the markets. The previous sessions were slow build ups to afternoon sell offs. Now, the week before was more or less a consolidation, meaning they moved sideways with some intermittent moves. According to the Pundits, we've been bouncing around the 200-day moving average of the S&P. In the latter half of May the S&P500 fell below the 200 day average, and in June it has rallied up to the average. In Trading parlance, it is "testing the moving average;" this is important because it is now a major resistance level which must be overcome if a bull market rally is to follow. Of course, on the other hand, if the 50-day average drops below the 200, order flow may shift and its possible we could move lower. No one really knows right now, the incredible uncertainty in the market is making it pause until some of the issues are resolved. What issues are these?

Obviously Euro-Debt in the PIIGS, there is municipal debt and it is a major problem, and of course the massive oil disaster in the gulf. There are political problems the world over including: Iran, Afghanistan, and so on and so on. At home, the Financial Overhaul is certainly weighing on the markets, and it is my opinion that as soon as it is signed, a rally in Financials will follow. This exact same thing happened to healthcare stocks following passage of the Health Reform bill. But I believe there is much more to look forward to. For one commodities, particularly heavy metals, will be needed for growth in the BRIC areas (Brazil, Russia, India, China). Currently there is some debate about possible bubbles in China, such as housing, and there is concern about there efforts to contain that growth. Also recently, China has agreed to gradual strengthening of the Yuan, but it could be some time before that translates to real change. This particular tid-bit may influence the price of commodities, but surely the massive demand that country has for those very metals indicates that there will be substantial growth in a number of markets as China continues to industrialize. The funds for those materials will flow back into producer countries and multi-national corporations, and an influx of cash into the capital markets will mean that the markets may go very high despite looming employment issues.

My boss is a mad man. I was in one bad-ass set up, I finally learned to wait for the main movement, knowing it would take about an hour to fully develop. We were getting high energy, the mkt internals indicated order flow to the downside, i continued to scale in.... and then it was the end of the trading day and my position failed. That's just part of the business. But today was no loss, I learned more today than at any other point in my short career.

Abolish the Senate!!!

How many people know that Thomas Jefferson was opposed to the idea of a Senate. His underlying reasoning was that it is inherently an anti-majoritarian institution. Not only that, but it does not work in the way that it is supposed: it was meant to offset the population discrepancies of larger states over smaller ones. Today, however, some of the most dense population concentrations are in smaller states. But the biggest problem with the Senate, apart from the fact that no ordinary citizen has access to their Senator, but that the power each Senator wields is commensurate with the ability to shut down the entire business of the legislature. An expanded house is a much better and more democratic position.

As i sit, awaiting the markets to find direction, I am listening to Senator Levin of Michigan. He appears to be well-prepared, yet it seems his greatest source of information comes from a recently published book "the Great Short". Moreover, though Goldman deserves no sympathy, as he castigates these executives, he forgets to lay any blame relating to the sub-prime markets with the Government! Both parties are responsible for this nonsense belief that underlying the American Dream is access to ownership of housing to the masses! Let alone the fact that recently banks and Wall Street have been the populist scapegoats of late, but why have they not subpoened the Ratings Agencies complicit in all this mess???

Mr. Levin is assuming he is fully informed and educated on a matter far beyond his understanding. Last night he proposed and end to short sales!!!! Undoubtedly there are bad points to this practice, but as with any sword, there are two edges. Had there been more short sellers on the housing market, such a massive bubble may not have formed. The ignorance of the Senate, and this particular speaker, is disgusting. I am fed up with this petty institution. I am sick of the pork, the bickering, the idiocy... how did these people get elected? They have no right to assume the moral high ground considering their complicity of ignorance in their faith of a dead American Dream.

Dow 11,000: Slightly Anticlimatic

Last Friday the Dow 30 hit 11,000 in the last few trading minutes of the week. At today's closing bell, the Dow closed at 11,005.97 and the S&P 500 was on the cusp of 1200. These levels are by all accounts monumental, given the deep wounds and visible scars that have been left by the Great Recession and the Financial Crisis.

For all of last week, the event kept replaying itself over and over in my mind. Would I be in some kick-ass trade? Riding through Resistance as if I were the soldier dropping the nuke in "Dr. Strangelove"? Each day I kept thinking about the event as the pundits kept reminding me, "Will today be the day we finally break through 11,000?" As it turned out, because my Boss has told us horror stories, and as a rule I do not trade during the last 20 minutes, I completely missed it. Not only did I miss it, but being a Friday afternoon, I turned my trading monitor off and didn't find out about it until my Weekend Copy of the Wall Street Journal arrived in the mail.

Instead of some massive and unlikely rally, the reality is that there are a lot of factors holding the markets back. Some have even dubbed this a "Snail Rally," apparently due to the complete absence of the Retail Investors. Many folks are worried, given the beating these same equity markets doled out a little less than two years ago, but the beginning of Earnings season is also weighing in on the matter. Are investors waiting for Earnings? If a large number of companies report consistently positive earnings, will this cause the rally I so desperately want to participate in?

Undoubtedly this is a difficult environment to learn my craft in: extremely low volume and a very low reading on the "Fear Gauge" (a much cooler name than VIX). In a trading environment like today's, the general goal is to do mostly "Test" trades; even these were difficult to execute today. Given that I am becoming a Technical Analyst, I have no business making predictions, but let's all hope that an even larger rally is right around the corner.

I love Trading Stocks, but I despise Tiger

So there I was, sitting in my recliner, straining my neck to the left (so as to see my dual-monitor set-up), and doing my best to not lose the house. (By chance anyone reads this and wonders why the hell I'm working from a recliner, its because of hip surgery a week and a couple of days ago.) I was doing fairly well today, considering I was up until 2 a.m. trying to get my Internet working.

I have this problem, where I'm tired, and things get moved around, and I just have to go ahead and fix things up exactly right. Well, to my utter chagrin, I screwed up my router and gave up and went to bed when I started getting so upset I was crying. I mean, Come ON! I took a networking class last fall!

I get up four hours later and call the professionals. It gets fixed, but not completely; fixed more like it was done with a shoe string and bubble-gum. So, now its almost 8 o' clock, and I really have to get attuned to the news, review the previous session's key levels, and get it done in time to not quite have it all absorbed in my brain as it needs to be.

The battle begins, I make a few good trades, I screw up a few good trades, and by lunch time I'm half pleased because I've halved my losses. I'm starting to learn it, and even though I'm still behind, the process and the art is starting to sink in. I eat a hot dog, and trade my way back to even in U.S. Steel. This was a stock my boss introduced us to the other week when he spoon-fed me a trade, and I don't think he meant for me to fall in love with it, but anyhow.... I traded myself back to even. Then things got really boring.

The world stopped so Tiger could talk about how sorry he was, and how he screwed up, and blah blah blah. This is CNBC I'm watching for Baruch's sake! Not Headline News! Congratulations CNBC, you have turned yourselves into a tabloid. And, given the complete lack of direction in the markets around that time, it would seem they turned the good folks on the floor of the NYSE into tabloid idiots, as if they were standing in line to pay for groceries.

And the man droned on, and on, and on.... I really don't care! I don't watch golf, or any other conventional sports for that matter. Give me No Holds Barred or Olympic Judo or something, and I'm down. But I'm sick of this, and I hope that one positive thing comes out of this. Tiger, I'm imploring you, please get this stage of your life over so the rest of us can quit hearing about it!

Trading picked up afterwards, and it must be that negative karma I'd just spilled all over myself, because as I was cycling through stocks looking for a trade, I missed a 30 cent run in US Steel. Last time I blamed the Cat, this time I'm blaming Tiger.