Friday August 3 2012
The markets exploded to the upside in confirmation of our suggestion of a shift in social mood. That shift occurred Wednesday August 25 2012 before the markets opened in the USA.
Let's sum up what we told you this past week.
The sentiment switched from negative to positive this week lifting all indexes Wednesday through Friday. Short sellers had to buy back and their quantitative programs forced them into long positions. That gave the market a double buy which rocketed the Dow to back to back 200 point days. That is the first time this has happened in 3.5 years. That is a clue to what lies ahead but most 'experts' looking backwards are still overly cautious looking to short again. They will be disappointed.Monday - See the two year ratio chart of GDXJ to TLT indicating a five wave extreme had been reached on the weekly charts.
Wednesday We speculated that the SPX was breaking out of its upwards channel - to the upside. We also noted the recovery in the refiners. And how I missed mentioning VLO instead of GM, well we ain't perfect that's for sure. We noted the series of higher lows in gold and that it needed a weekly close over 1650 to really get things going. Finally we noted that investors were beginning to exit the Safe Harbor of TLT'
We concluded that report categorically stating that if we were right about the sentiment shift, no matter what the employment report stated Friday, the markets would be up after the announcement.
Later that day we demonstrated the importance of placing a succession of orders below the market. I mentioned I had been buying Sept 22 puts on TLT with strikes of 122 and 125. Only one order got executed that day but the rest were filled on the stock market drop thursday.
Finally we featured Bill Gross comment, Stocks are Dead, noting he has become a contrary indicator.
Thursday - direct quote below concerning the SPX
The odds get better than we will finally see a break out to higher prices rather than a move all the way down again. Stockcharts' analysts recently featured a chart showing that the stock market dropped on the last five employment reports, suggesting of course that will happen again tomorrow.
it will not happen tomorrow if we are right that the social mood changed a week ago Wednesday. On the other hand, it will be Friday, a news day and we are at the top of the channel.
We suggested a break of 128 would quickly take TLT to 123. One reader did note that we had a bit of a weird view of a reverse H & S which is usually a bullish formation but it did work out as we suggested.
Today Friday August3, 2012
Anchors Aweigh, the Exit From the Safe TLT Harbor gather steam
SPX is at top an inverse correlation to TLT in the main panel. The movement out of TLT will provide the funds to propel SPX much higher than most think, apparently including a few TMP readers. Apparently TLT is beginning a third wave down the most powerful of the five. You might re read our description of the mood associated with each wave in the last weekend update. Today is a specific example of why we made that description.
Looking over my positions, the value of the account jumped nicely since yesterday but really most of the positions have still not taken off. Stand by, all surprises will be to the upside. June July doldrums have given way to an August rally.
I have not made a big deal of this but
For the Risk Portion of Your Investment Triangle - Conservative Investors Please Stop Reading Here
When I worked for Ross Perot, duPont Glore Forgan suggested that one's investments should form a risk pyramid. The most conservative would be at the bottom scaling up to the most risky at the top. The most risky should necessarily comprise the smallest percentage of assets but constructed to provide the highest percentage returns.
The rule among those of us who have been in this business regarding options is simple-sell them don't buy them. This is because options contain premium prices compared to intrinsic value and continually undergo time decay. So a winning strategy has to be right on the market direction as well as time and pricing.
I concluded we were at that rare time regarding TLT. This past week I purchased
18 TLT 122 Sept 22 2012 Puts avg in one account .88
18 TLT 125 Sept 25 2012 Puts avg in the other, 1.50
This morning the 122s are 1.03, the 125s are 1.97
I will update the results. The idea is that if a projected five wave pattern in TLT falls to 114 in early September, this will work out pretty well. This will also be an opportunity to demonstrate how to handle risk. If you don't like this idea, well don't do it, recall if you are a conservative investor you weren't supposed to read this far anyway...I mention this as I think it is necessary to demonstrate a potnentially spectacular trade to gain more readers, and options are never boring.
Thanks for reading TMP, we should have some fun during August.