Uncertainty, Fear and the Whipsaw

Stocks rebounded for their best week last week , since March. It seems hard to believe this, judging from the uncertainty, the fear, and the whipsaw. The market tried to go up.
This week I read a classic example of stupidity in motion in the Wall Street Journal, out in print in the letters to the editors to the world. First, the letter:
“Arthur Laffers’s June 7 op-ed “Tax Hikes and the 2011 Economic Collapse” will be ignored or denigrated by the left. Yet Mr. Laffer uses facts of the past to get glimpse of the future. He implies that the current “low growth” for 2010 may be the high-water mark for our domestic economy given the higher tax rates on the horizon in the coming years.
The Reagan economic program was tinkered with and modified slightly, but it resulted in strong growth with minimal inflation from 1983 through 2007. Reagan was not successful in getting Congress to restrain spending,, but the impasse between Congress and the executive branch created with the election of a Republican Congress in 1994 allowed for a government surplus.
Once again America can grow with low inflation, restrain spending and lead the world out of its economic wilderness. The nation that did it once can do it again, but it will have to throw out the Democrat socialists and the Republican accommodations to do so. I hope this in November that process begins.
John L. Sorg McCordsville, Ind.”
Mr. Sorg sounds great, doesn’t he? It’s patriotic, the “we can do “ attitude”, and makes one bypass four key things:
1. Facts from the past are what we learn about the future from. 2. The Reagan economic program, great actor that he was, allowed for the
largest deficit we had ever had as a country for the following
administration. 3. Low inflation and restraining spending will alone NOT lead the world out of
its economic wilderness. Only when greed is regulated will this stop. 4. Democrats are not socialists.
Sarah Palin should be his President. She can make you feel good too.

Arthur Hill with Stock Charts announces Friday:
-- A POSSIBLE BROADENING FORMATION FOR THE NY COMPOSITE -- NASDAQ HOLDS ABOVE FEBRUARY LOWS WITH VOLATILE RANGE -- NY COMPOSITE UNDERPERFORMS NASDAQ -- NYSE AD VOLUME LINE IS WEAKER THAN THE AD LINE -- VIX AND VXN REACH MEDIUM-TERM EXTREMES
This isn’t the beginning of the end of the U.S. inventory cycle. Rather it is the destocking, the recession induced paring back that has largely come to an end. This is why the GDP is up, because manufacturers are building inventory. People are buying more. Retail sales showed a blip, and no one followed the facts, that in general, wholesale spending is up, and companies are doing well.
*There was a 14% increase in the number of millionaire households in 2009, to 11.2 million.
*There are 111.5 trillion dollars of global assets under management in U.S. dollars in 2009
The CEO slime of BP slime is on top of Capital Hill Thursday to talk about slime, to those that took slime to let slime through.
Whether Kroger is able to match Wal-Marts’ massive influx to retail grocery will reflect entirely on price, sadly. Does Kroger have the ability to buy as well as slimy Wal Mart. As Wal Mart cuts, as will Kroger. Margins may be affected for Kroger shareholders.
SanDisk (SNDK) is one to watch. It's getting huge revenue from Apple's ipad, and is being used in digital memory for cameras, Blackberries, and all smart phones.
We typically steer away from semi-conductor stocks because they are so volatile, and have very bumpy and hard to read cycles, but SanDisk has strength, name, and lots of future.
Hereʼs another stock we will recommend, but not track or put in our portfolio. Buy SNDK under $45.00. Set a tight stop loss of 42.00 or 39.00, and hold the position for at least 6 months.
If buying a call option choose a Sept or later ATM call, and expect two buys.

Use the same stop loss as for the stock, or take greater risk and buy the seconds at 39.00 and average cost.


The Gold Rally is far from over. We sold early on GLD, SSRI, and CEF, recommending sale at 1160 to 1190. The market has since rallied Gold to over 1240, and we’ve seen a recent but slight breakdown.
We recommend building new inventory in GLD, SSRI and CEF in stock positions first, buying on all dips, and returning to a 15% minimum allocation to Gold, Silver and Mining. We continue to hold a large position in AU, the largest mining company.
We have a cheap .23. put out on Gld now, hoping to scalp some fast profits on any day that Gold takes a more serious dip, and it will. When we buy again, we will be buying stocks, and then long‐term call options.
Gold will easily hit $2000.00, and should. Buy it, hold it, and hoard it. For those that have access to safe storage we also recommend the buying of Gold Bullion bars, now available at ATMS in Dubai and Saudi Arabia, a sign of what is to come.
I take you back to two realities:
1. Money is not real. Gold is.
2. The earth did not begin with the birth of Jesus Christ, or any such nonsense. It’s been empirically proven otherwise and the babblers that use a book translated 16,000 times and take things out of context , are no better than any fundamental radical group, including those of Islam.
There is a philosophy I take to heart in trading: *I have no enemies. *The only war in trading is within myself *All facts are false until proven facts
*FEAR is false evidence appearing real
*Question all authority and all rules. Do not trust those in uniforms enforcing laws. Do not trust or be willing to have your rights invaded
*Question all rules and regulations to yourself. Do not follow stupidity. Be good, but be human and test boundaries, not human and confined to boundaries. You’ll find those that set the boundaries quite narrow ‐minded. Stay away from all narrow‐ minded people, and all people that are assholes. Life is much easier.
We see Gold, which is now trading equally to Treasuries, a converse reaction, as mildly correcting to 1199, to as low 1140.

USE FACTS AS CIRCUMSTANCES, AND THE EMOTIONS OF THE MARKET AS FACTS, AND YOU’LL TRADE BETTER

In zero velocity the human brain will scan endlessly, like a computer, in the attempt to impose order on chaos.

The body is just a glass around a light bulb. You’ll hear more on this as I learn about it. I am being taught.

The goal of trading is managing risk. We will have wild swings most possibly continue through all of 2010, and we believe the real profits will be in “holding on to your own”.

We are all aware of May 6^th, and the 1000 point drop, and the “flash crash”.

We suggest this was not the only wild trading day, and May 6^th thru May 25^th, and now ongoing, we have seen enormous opportunities for sales or profits.

Remember, low volatility will always lead to high volatility. For months we have been experiencing no volatility. We were bored. And volatility came back.

During low volume March I wondered if traders were spending or were waiting for volatility. We were.

The 1000 points may not be a “glitch”, but a true Fib retracement.

We experienced true FEAR in the market. And, it will come again. The end of the fear is not over, and the greed will come back.

Many chartists follow a 20-year cycle. This is much like those that follow the 200-day moving average. Using a cycle like this we would go back 20 years to 1990, when prices rallied in January, fell in late February, rallied again, had a higher low in April, a significant high in July, and then collapsed in October.

From a Fib level: The market 3/09 to 4/10 retraced almost exactly 61.8% of the decline of October 2007 to March 2009 (from www.keyturndates.com).

So some might say we have see the high of the year in April.

Key turning dates notes, using Fib, “the low of the 1929 crash to the high of 1930 took a Fibonacci 5 months to complete.

The Fib numbers near 9774 are key to watch, says Key Turning Dates, and they concur with our use of Fib to provide Dow projections for weeks now using what I think are the “scary bottoms” that could occur. Going below this number would not brood well, just as we saw 10,746 as a key resistance area, as the market moved into the 11,000’s.

So Friday last week we see futures negative by 181 points and a market that opens right at 10,050 with in two minutes.

More instant volatility.

There is a mathematical term called fractals. Using 9774, which was the May 25^th low, and near the low of the first and major recessionary drop.

This was not a lower low, so there are positives chartists will see that the 9774 low will hold for a while. If we see more it will be concerning.

An oversold market that cannot rally will often crash. Crashes will occur from very oversold levels.

Subscribers should note that we provide a great number of option recommendations. Our instructions for stop loss and sale of the option are clearly noted within our opening instructions, and we often then stop "discussing" the trade, as it is in process.

Because we have so many options open at this time, here's a quick update on the last few we've picked:

1. GLD Sept 18 2010 90.00 Put

This position we bought in at an average of .23, and continue to hold.

No stop loss, as it’s far OTM, and returns begin watching for sale at 1199 to 1140, where we see strong Gold Support lines

2. GS July 17 2010 160.00 Call

This position we bought in at an average of 2.50 to 3.50. Use a stop loss at 1.00, and look for profits at up to 4.40.

3. AMR Aug 21 7.00 Call

This is a NEW recommendation today. This call closed at 4.00 on Friday.

Best buy at 3.50 to 4.50. Stop loss at 1.75. Sell to 10.50

4. USO July 17 2010 33.00 Call

This position are also newly recommending today for those that think oil will see an upsurge. It’s higher risk. It closed at 1.75 Friday. Best buy at 1.50 to 2.10, sell to 3.90. Stop loss at 1.00

5. AMZN Oct 16 2010 120.00 Call

We think AMZN bottomed and has a long way to go back up and newly recommend this October call. This one closed Friday at 14.90. Best buy at 13.40 to 15.90, sell to 24.90. Stop loss at 9.00

With all options we recommend selling in partials, in 1/3 increments.

That’s why you’ll see “open” options on our website portfolio area to show what could have already been fully sold for profits, but traders may still hold the final third. We have taken no option stop losses with any open positions, and are profitable on all, excepting our new trades listed above.

Any interpretation can change reality. Here's an example.

1. I bought IBM a year ago and have greatly profited.

2. There is gossip that IBM will come out with "great earnings" tomorrow

3. Based on cycles, the stock will either go up or down.

4. If tomorrow is a cycle low, and IBM shows great results, the stock will go up.

All the news services will write: "Results for IBM were good and the market liked it and bought IBM

5. But, if the cycle is high, the stock will go down, even on positive results

The news will then say: Investors took profits with good earnings, as they see IBM waning over the next year.

Again, on cycles:

*The perception of a rate hike will affect the market".

*Cyclists feel that predicting market behavior before economic news comes out-by studying the past effects of the numbers and the reactions to them-is more important than predicting the number itself".

*Cyclists, for example, from historical numbers, don't see a lessening of unemployment numbers until year-end. We believe unemployment has TOPPED, but have at least 6 months before we can begin to really track if unemployment is truly improving.

This is because there are many false facts that begin around unemployment numbers, and the tendency of the news to "rate the numbers".

These are journalists, please remember, not economists that you read and "see" the news on.

We count on this with our OEX Option trading:

OEX trading is around moments to days, following cycles and patterns around support and resistance lines. Within it we utilize the Dow (which runs in correlation to the OEX well) for tops and bottoms to look for.

Cycles in which one trades, however, are much longer as we analyze the series of events that create longer-term triggers. Charles Nenner of Nenner Research states: " A period of 250 years is the minimum for the student of the business cycle. Only detailed historic knowledge can answer most questions. Without it, theoretical analysis is inconclusive. Looking at the facts of the prior quarter or even the half of a century is, in our opinion, quite inadequate."

We use cycles in our Blue Chip Option trading, and the longer historical events to help us see what will trigger movement.

Comparisons, for example, to the 1930's crash, are interesting, but don't take it far enough back, NOR include current events that have changed from the 1930's. As examples:

1. Our greed of oil was just beginning then.

2. China was not a factor then. China is now a factor, because investors concentrate on it.

3. Deflation/Inflation was less, as the world was less, in people, in manufacturing, and in money. We still had a Gold Standard.

Lastly, there was not any form of media that instantized news. We now deal with 1000's of "instant" facts and opinions.

USE FACTS AS CIRCUMSTANCES, AND THE EMOTIONS OF THE MARKET AS FACTS, AND YOU’LL TRADE BETTER.