Parallels to 1987


Here's an article link to hedge fund manager Christopher Cole who like us, thinks the current situation parallels the summer and fall of 1987.


In ’87, Mr. Cole was only eight years old and so has no trading experience concerning the “feel” of the market; the stretching to extremes, initial decline, new high attempt, failure, then crash. 


In this business unlike any other, being old with a good memory is critical.  The barrier into (discretionary) market analysis of this type is nearly insurmountable.  There’s simply no way to gain experience without having lived it.


Back in the day, as lead engineer on a billion-dollar aircraft project (at a young age of 36), I worked next to professionals who were in their late 50s and 60s, at the top of their game on the most prestigious business jet program in the world. 


The environment was so intense (one of my weekly time-sheets was 105-hours) that I just wanted to cut open my brain and pour in their knowledge.  Aircraft system integration complexity is immense.  It’s impossible to have gained their knowledge without full immersion.


The main difference between system integration and market analysis is that once the market concepts are understood (via Wyckoff analysis), which may take years in itself … once that’s done, it repeats.  Market patterns and set-ups repeat. 


Engineering also repeats in a way, but the technology keeps advancing.  It never ends.  The engineer must continually stay alongside or ahead of the advancements.


In the markets, when the concepts of ‘springs’ and ‘up-thrusts’ are understood and can be recognized, it then becomes a matter of strategy. 


The analyst, speculator can then concentrate on how and where he wants to be positioned and not be bothered with (largely unnecessary) technology advancements.


The analysis on this site could still be done if all one had was a ticker tape, paper and pencil to draw price patterns along with a phone line to the broker.


The Wyckoff method, along with acquired tape reading skills, market acumen and keen memory, results in conclusions (and actions) that mirror a $200-million hedge fund manager with all his support staff and ‘quant’ resources … a testament to the method, indeed.


Dollar Penetrates Support, Then Reverses


Another forecast comes to fruition as the dollar sets up a spring condition.


Two weekly charts of the dollar proxy, UUP are side by side for comparison.  Penetration of support did not go as deep as anticipated … an indication that dollar bears (at this point) are weak.


The expectation is for a continued rise and then some sort of testing action.  Keep in mind, a test always has the potential for failure.  Anything can happen.


Gold What?


Dollar down and gold's not soaring higher?  It’s all so confusing say the traders here and here.


We’ve already given a heads-up the dollar may penetrate support and create a spring condition.  All that’s missing is the move and the media hysteria.


What about gold.  What’s so confusing?


Taking a look at the monthly chart of GLD (gold proxy), it seems obvious to us.  Gold is hitting the upper side of a trend channel that’s been in place for nearly five years.


Even if the metal does break out to the upside, markets typically have patterned movement and a test of the down‑trend would be expected.  If that happens, it would be a good time to assess going long.


In the meantime, expectations are for the professionals to be selling and selling short into the advance with a subsequent reversal and a move lower. 


Not much confusion there.  If this firm (or its founder) is ever interviewed on TV, take the opposite side of the trade.  J



Biotech Spring to Up-thrust


What did we just say about springs and up-thrusts?


Paraphrasing David Weis from our 8/19/17, update:


‘I don’t know how many times I’ve seen a spring go straight into an up‑thrust.’


Well, here’s one example that just played out on Friday.


Biotech (IBB) has done just that:  Spring to Up-thrust


This type of price action behavior has been going on since at least the early 1900’s and most likely, is centuries old. 


It’s fractal in nature and repeats.  It can be spotted setting up in real time once enough market (price action) experience has been obtained.


What to do about this particular set-up and how to capitalize … well, that’s a detailed topic and best suited for one-on-one discussions.

8/19/17:  Dollar To Penetrate Support?


Several years ago in one of his daily updates, David Weis made the following comment (paraphrasing): 


‘I don’t know how many times I’ve seen a spring go straight into an up‑thrust’


Taking his statement as fact (which we should) as he's been active in the markets for about a half‑century, we can posit the opposite might be true as well.


Could we have an up‑thrust go straight into a spring?  We're about to find out.


Strategically, the downward penetration of dollar support may take place the same time that gold's moving into an up‑thrust condition. 


Pundits would be screaming on both sides of the move: 


“Dollar collapses!”

“Gold skyrockets”


The whole thing might even make it to the cover of TIME (an excellent indicator of mass mentality).  


Of course, just about that time we’ll be looking for a post from someone who actually knows what’s going on:  Someone like Andrew Waldock.


Maybe he’ll feel inclined to tell us the real situation and let us know his assessment of what the professionals are doing.  It’s likely they’ll be on the other side of each event:  

Going long the dollar … and short gold.

 Stay tuned.



Preparing For Gold Hysteria


For there to be a lasting blow‑off capitulation up‑thrust (and reversal) in gold, the stage needs to be set.


Reports like the one at this link help to set the stage for investor panic. 


Personally, I appreciate Greg Hunter’s weekly wrap up and have watched it for years.  Mr. Hunter was an investigative reporter, unique in his style and ideas … as is typical of someone with an edge or focused capabilities, he found himself on the receiving end of a corporate pink slip; or as he put it, ‘We have chosen not to renew your contract’.


On the flip side and by definition, Mr. Hunter’s guests are part of the masses; they are in the public eye.  In that case, their ideas are public and mainstream as well.  In the final outcome, the total of all mainstream and public (trading) ideas must result in loss.


Will this time be different?  Will gold and silver see a blow‑out move to the upside and keep on going?  Certainly, it could happen.  Anything can happen.


As has been reported previously, sentiment indicators do not favor a long term sustainable upside move.  There is too much bullishness.


What’s more likely, is some kind of penetration above known resistance with the attendant mass hysteria about “This is it!”


If and when that happens, we’ll be on the sidelines monitoring volume and price action … with an eye on going short.  If so, we’ll be positioned for a potentially dénouement down move in the precious metals and mining shares.



Market Reversal?

Who Was Hit The Hardest


Yesterday, 7/27/17, may have been the all time high and reversal for the overall markets.  Certainly, some of those markets are not waiting around and had significant downside breaks.


In this situation, the difficult part is selecting the market with the most downside potential … essentially to be positioned in the “right” market vehicle.


A list of moderate to heavily traded inverse funds (with index, description in parentheses), are below along with their respective gains or losses for the day. 


The markets that appear most sensitive to downside action (inverse fund gains) are readily apparent:


DXD (Dow 30):        -0.78%

SDS (S&P 500):        0.25%

SMN (Basic Matl.):   0.73%

QID (Nasdaq):          1.21%

FAZ (Financials):     1.39%

TZA (Russell):          1.96%

DUST (Sr. Gold):      3.78%

SOXS (Semicon):     4.70%

JDST (Jr. Gold):       5.02%

LABD (Biotech):       7.76%


Too Much Debt


Does anyone really want to be looking for 'investments' as the whole debt ceiling Kabuki Theater plays out?  Looking to buy the dip ... really?


The S&P continues to sub-divide lower, slowly and almost imperceptibly.


Even the gold bugs seem to be worried that 'retail investors' have just been trapped in the latest gold reversal.


Not that the pros have any sympathy for them (actually, they feed off 'investors' like sharks), it's just that when retail moves in, it's time for a significant, long term reversal.


The Fed speaks tomorrow ... 10:00 a.m. EST ... they're sure to be some investment 'cues' in the psychobabble; Can't wait.  What was that time again?

I already forgot.  :-)




James Grant ... a gem interview


What a gem.  Mr. Grant provides one line zingers nearly every 10-seconds.  For the astute market professional, this interview is absolutely hilarious.

6/16/17:  One Way Investors


There are times when the financial press stumbles into something useful.  It’s not necessarily in what they’re saying but rather in what’s missing or (more likely) unknown to them.


In today’s case we have this report on the amount of inflows into stock funds.  The phrase ‘stock funds’ can be read as a synonym for ‘individual investor’.


Professionals are more likely to be in options, futures contracts, individual stocks, inverse funds or hedge funds as opposed to a stock ETF or mutual fund.


The article in question states that ‘fund inflows’, i.e. the public are all heading in one direction … again!


This time however, with massive amounts of cash flowing into the markets, they’ve gone flat.  Effort (money flow) with no result (sideways action). It’s a dangerous fact that’s lost on those reporting.


Going way back to Livermore’s Reminiscences, he discusses that distribution takes place on the way down.  This nuance is also covered in a much lesser known text:  One Way Pockets.


Is that where we are now?  Are we in distribution?


The market itself will decide and show us with subsequent price action.  However, we already know that we’re at a Fibonacci level (Sector Archive) and there’s potential for a reversal.


The financial media may have unwittingly provided an important data point:  It’s the abstract data point of what’s not there.



Indicating the Top



A contrary indicator can surface form anywhere.  Here’s one that speaks for itself.


If the Dow continues its retreat, this article was an exact indicator of the all time high.


This is not a political statement; Just fact.


I'm on TV.  I must be good!


In Wyckoff’s 1910, Studies, he discusses James R. Keene and his tape reading abilities as follows:


“His scrutiny of the tape was so intense that he appeared to be in a trance while his mental processes were being worked out.  He seemed to analyze prices, volumes, and fluctuations down to the finest imaginable point.  It was then his practice to telephone the floor of the Stock Exchange, ascertain the character of the buying or selling, and with this auxiliary information complete his judgment and make his commitments”.


The question is this:  If you see someone constantly being interviewed on financial television or promoting their self-congratulatory book, how in the world are they able to analyze ‘prices, volumes and fluctuations down to the finest imaginable point’?


If you are on TV, you’re not studying the tape.  If you’re not studying the tape, you’re not in tune with market reality.


Jesse Livermore, James R. Keene, Richard Wyckoff and more recently David Weis (carrying on the Wyckoff method) were and are, for the most part, isolated figures.  If you see a so-called ‘expert’ repeatedly on TV (or radio), that’s one more you can cross off your list of potential data sources. 


Wyckoff quotes used with permission from Cosimo Classics