Sunday

The Inflationist Weekend Summary: 22112009

Post a Comment November 22, 2009 – 3:03 am |   | Permalink |  Print This Post |

We constantly comb the web for both fundamental and technical analyses, formulate our own hypothesis based on our indicators, and then trade based on our Rules of Trading. We are fundamentalist at heart, inspired by Jim Rogers and Warren Buffett, but time our fundamentally aligned trades based on technical analyses. We are currently working on a widget to aggregate all posts from the sites we follow, so that our readers can access these sites conveniently. So if you are an IT guru, please contact us. This will be a quick weekend summary as we will be away for the weekend.

Our week was rather uneventful. Markets (DJIA) showed some weakness towards the end of the week but continues to play with its cards held close to its chest. Bulls see things the way they want to see it, whilst bears continue the “this time it is different” shorting strategy. A 1% pull back made every bear (including us) excited, but the reality is this rally is a long long way from the bottom, whilst not as far from the top. The question we ask ourselves is: Is it possible for us to be completely wrong and for markets to pull a V-shape recovery and make higher highs? Based on our indicators (which is completely independent of all known technical analysis), we are far off the lows. The “problem” is many technical traders are also expecting the same cataclysmic crash (wave C). Ideally we would like everyone else to expect the worst is over.

Most players just ride it up and/or down and trade short term. We just do not have the time for day trading. Instead we hold our positions and try our best to hedge. Our hedging strategy (as a bear having short positions) is to have positions which will be profitable in a rally - for example having USD shorts (fundamentally aligned), long commodities and agriculture, and long positions in the weakest index (eg ASX or Nikkei). So far, some of our hedging positions (esp long Nikkei) are also down - so we are feeling the pain on both sides. The Nikkei peaked earlier at 10550 whilst the Dow recently at ~ 10480. At the March lows the Nikkei bottomed at 7000 whilst the Dow at 6480. Right now the Nikkei is 880 points below the DJIA. We expect this to correct soon. We will be slightly Nikkei heavy Monday especially if it take another big fall with the DJIA remaining where it is.

Objectively, DJIA looks bullish and talk of a break down is speculation until proven otherwise. The Dow is doing its usual 21 day rally, as shown nicely by the chart below (thanks to Fujisan in Slopeofhope).

Chart by Fujisan from Slopeofhope

More updates later on upcoming plays this week. Portfolio will be updated later.