Friday, December 4, 2009

What A Day!

Today's action was about as exciting as it gets with stock indexes closing well off the highs and failing to close above breakout levels, but managing to hold above critical support. The action off of the lows appears to be an upward correction that may have a little more to go on Monday before more selling follows.

It has been my intent since I started this blog to share with you my insights and views on the markets as well as my market positions within reason. I make no claim of trading omniscience. I just call it like I see it within the framework of my trend following and pattern methodologies. If anyone got whipsawed because of my commentary, I apologize, but I must remind readers that the decision to take a position or exit one is your responsibility and yours alone. Please do your own homework and make your own decisions. I hope that my comments will aid you in that process.

In case you are wondering whether I am just blowing a lot of hot air, my total return since I started this blog in January 2008 is approximately 272% using an average of 50% margin. I am disappointed with my results for this year as I have fallen a little short of my goal relative to the market swings that have occurred. Most of this has been caused by attempting to take short positions at potential tops so this is an area I have to work on.

The action for the last few months has been particularly difficult, and I don't think I am alone in that view. However, just as has occurred with the gold market since late August, I expect the stock indexes will begin to trend strongly one way or the other before long. This change of character between strongly trending and choppy markets is just the nature of market behavior. While I have heard many claims of those who are able to alter their strategies to suit the market behavior I have yet to see any evidence of that ability in practice. For the most part traders would do well to stick with one or two approaches.

That said, my intent for the coming year is to better integrate intermediate term strategies with short term strategies to increase return and reduce volatility. As I work on my trading plan for the coming year, I will do my best to share this work with you. Unfortunately, I have a great many things to accomplish by December 31 with my other businesses, and it will be a challenge.

Today I suffered my largest drawdown in the last 3 months, but not because of the index short positions, but because of gold. I had a position in the DGP as well as two mining stock positions. It was evident by 10:30am as gold moved strongly below its 12dema and the dollar was rallying that a substantial selloff was in the making. I exited all of the gold positions with a nice profit but with some drawdown. This is the nature of trading. We can only exit before or after the top (take your pick), but rarely at the top. I don't think I could have traded it any differently so I am satisfied with the result. I don't believe the rally in gold is over, but the runup had gotten to an extreme and a correction is in order.

While oil may retest the November low I still think we will see new highs with a move to around 100. Please see Adam Hewison's Marketclub video on oil which closely matches my own view: Crude Oil.

Tomorrow I will revisit a chart I posted recently on the FXY and look at the potential ramifications of a falling YEN.

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