Sunday

TheInflationist Weekend Summary: 260409

Post a Comment April 26, 2009 – 4:56 pm |   | Permalink |  Print This Post |

A fairly quiet week for us this week as volatility returns to the market and the rally struggles (hopefully not consolidating to make higher highs). Technical traders are unanimously calling for a pullback - from experience when these “experts” ALL see a “clear” signal, it is time to be extra cautious. If only one knew the proportion of people who think the markets are coming down versus those who think the market is going up - we would take the side of the minority as the majority of traders lose money. Whilst taking the contrarion approach may result in pain and require significant holding power, it generally is the way to make money. Never buy when markets are all time high and sell when things are all time low.

Our indicators suggest markets are topping and turning too, but we are being extra careful as it concurs with all reputable technical traders on the internet. We are slightly net short, and may add to our positions as markets go higher. We prefer to long after another pullback rather than short at these levels. Our stocks are doing well with Giralia and Cooper Energy finally moving up. Our short Dax positions were stopped out this week (for the purpose of the Challenge, in our personal portfolio we netted about $1800 this week from shorting the Dax alone); we apologize for not posting when we closed out these positions (screenshots available on our posts here and here). We excluded these profits from the official portfolio as we were not able to posts our trades live (busy day at work) - for future trades, be sure to take at least some profit; and lower your stops at least to your entry point.

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Trading plan:

Whilst our indicators suggests markets will pull back before advancing further with a target of 9000-10000, we have been rather cautious in our shorts. Our post in March when Dow was making new lows at 6480 suggests that markets will recover to 8137 (around here) before a pullback to at least 7400. We rather participate in the long plays than the short plays at these levels. Hence our relatively light short positions.

We are however sticking our necks out for our most recent long position in Natural Gas May contract. Looking at the chart, it is due for a recovery - but we do agree that with an expiry on the 28th April (Tuesday), we are cutting this one abit thin! We have two types of exposure to Natural Gas - one the ETF (safe) whilst the other is the May contract (very small position). The loss of correlation between Crude Oil and Natural Gas is an aberration and regardless of the state of the economy, the utility of Natural Gas cannot be dismissed overnight. From the heights of $15 to $3.25 in one continuous decline with no bounce is ridiculous and definitely worth taking a position. We will be holding on to our ETFs long term, aiming to ride the secular trend change - whilst our May contract is (really) abit of a gamble. We see ourselves in the driver seat of a car (with the few other Long passengers) going at 150 km/h going head on with an oncoming bus (Packed with shorters) at 150 km/h: we call this the Chicken game - lets see who bails first! If we fail to survive this crash, we can always count on our ETFs. For those who are risk adverse, if the May contract continue its spiral taking the ETFs along with it, make sure you load up (we will). But make sure you budget for a rock bottom price of $2 ! We see Gas recovering to at least $5 (in accordance with the 1:10 historical ratio between Gas:Crude).

Gold and silver appear to have bottomed and turned. Gold and Silver rallied hard end of last week despite a rally in the market (another divergence from the traditional correlation). We need to find a Gold play fast. Readers who are aware of a solid cash-backed profitable gold producer (we are only interested in producers), please feel free to share your picks in the comments section. We will thoroughly assess all suggestions. We have a few in our sight, some are already in our personal portfolio but we were hoping for them to pull back before buying them here.

Our sights are also on General Electric and more Agriculture exposure via Agriculture ETC DJ AIGCSM.

For those who are new to our site, we started TheInflationist Trading Challenge in January 2009 with $40000. Unlike any other stock trading website, we trade publicly LIVE, track our performance transparently, and make actual trades in our personal portfolio (yes, we own every stock and trading position in our portfolio). We stick our necks out on the public chopping board and feel actual pain when our positions are in the red (No, this is not virtual trading for us!)

This phenomenal 93% result is reproducible for all readers as trades are published live at prices available to readers. Applying our own fundamental and technical analyses with our conservative risk management strategies, combined with the views of some of our favourite investment analysts (Jim Rogers, Mr Magik, Tony Caldaro, Brian Shannon, Guy Lerner, Marc Faber and Philip Manduca), we formulate trading plans both short and long term. We do not rely on any one source, and not uncommonly trade contrarion to these technical experts (with all due respect).

Feel free to join us - the first website on the web where you can take a position in anything, long or short! Trading is as easy as writing an email.

1. Register

2. Go to “My Portfolio” (top column of links)

3. Add stocks (search for stock codes using Yahoo here) - for Australian stocks, add (.AX ie dot AX) as an extension (eg: BHP.AX for BHP; WPL.AX for Woodside); enter the purchase price and quantity.

4. For trading indices or commodities, simply click on “Add New” under the “Posts” section in your Author Dashboard (www.theinflationist.com/wp-admin).