Sunday

TheInflationist Weekend Summary: 170409

We cashed out another $5608 of our long positions, bringing our portfolio return just above 90% since 1.1.09:

• Total portfolio value: $76157
• Cash in Bank: $47463
• Return since 1.1.09:  90.39%

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Trading Plan

We have been watching the markets closely in the last few weeks - gradually  reeling in our long positions profitably as markets continue its rally. Markets have rallied for 6 weeks so far, with very small pullbacks in its entire way up.

So far, the SPX is up 31% from its bottom, the Dow about 26%. As tempting as it is to short the markets, be mindful that it has taken 1.5 years for this 7800 point decline to transpire from October 2007 highs. 6 weeks is disproportionately short, and typically rallies retrace by 33-67%. From a big picture, we have only regained 1670 points of the 7800 decline: ie 21%.  This suggests more upside is likely. That said, markets never move up or down in one straight line - we call it the “Roller Coaster Theory”. Market makers need volatility to profit. Technical Traders know this as they count the sub-waves within a move up or down.

Our indicators suggest that markets have topped or is topping. We are reluctant to increase our shorts just yet. Ideally, markets rally hard (2-3%/day) early in the coming week without any pullback.  The February decline started at about 8350 (at least for the purpose of our calculations), so the current rally has now retraced about 88% of the February decline. Those who just joined us should take the time to read our previous post on “The Anatomy of a Rally” - our target for the primary wave is about 8134 (about here) and the subsequent pullbacks are typically at least 50% - which puts a pullback target for the DJIA at about 7350.

Those who wish to short, please refer to our Survival tips listed here:

• short light
• wait for another step up for additional buffer (2-3% ~ DJIA 8300) as indicators are never precise (take our silver trades for example: we took a loss in our initial position, but made some decent profits on our second attempt - now silver is crashing as per our indicators)
• Short the Dax (instead of the DJIA since the Dax have moved the most)
• long something that has not moved up proportionately during this rally which is fundamentally intact (eg Natural Gas)

Speaking of which, remind us to open more Natural Gas positions this coming week.

Our portfolio table will be up later.

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