System 12 2-2014

 ------------------Internals Update--------------------
Its safe to assume that T12/2013 from this post (link) was blown out by new low on T-Theory Volume Oscillator. It went below -80, way lower than T12/2013 low, and recovered sharply - classic bottoming behavior. There was no positive divergence at bottom, so retest within 2 months is possible.
Interesting that new VOT2/2014 points to mid June 2014, just like VOT6/2013 I plotted back in December!
Spooky...

VO T 2/2014

System 12 BCM:
http://stockcharts.com/freecharts/candleglance.html?WFC,RDS/B,NVS,MSFT,GOOG,PFE,JPM,JNJ,brk/b,ibm,ge|B|P5,3,3
MD Control dipped almost 6% from beginning of year, and still under-water as of 2/15/2014.
S12BCM started 1/28/2014, was down negligibly. Presently positive and accumulating.
(UPDATE: added JNJ on 2/20; BRK/B on 2/25; IBM on 2/27; GE on 3/6; BHP stopped out)

BHP, VOD, BAC, T

This is MD:
http://stockcharts.com/freecharts/candleglance.html?AAPL,XOM,GOOG,MSFT,PTR,BRK/B,GE,JNJ,WMT,WFC,RDS/B,PG|B|P5,3,3

MD Control: CVX replaced with PG
I have:  GOOG, MSFT, WFC, RDS/B
PTR still disqualified.
RDS  not sure when earnings. Year end in Dec., results published in March?
BRK annual report in Feb-March?
WMT 2/20b

This is SD:
http://stockcharts.com/freecharts/candleglance.html?JPM,CVX,HSBC,PFE,NVS,IBM,CHL,TM,BHP,VOD,BAC,T|B|P5,3,3
I have: JPM, NVS, PFE
HSBC annual report in Feb?

Shopping list:
http://stockcharts.com/freecharts/candleglance.html?AAPL,XOM,BRK/B,GE,JNJ,WMT,PG,hsbc,ibm,bhp,vod,bac|B|P5,3,3

UPDATE  2/22/2014
For  research purposes, I wanted to see optimized Daily MA's for System12 stocks. If 50/200 don't fit well, then 25, 80 and 100 seem to provide better signals. 100ma work for major multi-months trend continuation. 25ma work for early exit after multi-weeks uninterrupted advance. These results are preliminary, and require further testing. Still I don't have an answer on how to sidestep multi-month sideways chop. I guess it all depends on market conditions and what is available from MD and SD - meaning : if no better opportunities are offered, then its better to sit sideways and collect a dividend. I painted myself in a corner here...
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=2&mn=0&dy=0&id=p82691261269

-------------------------------IN THE NEWS---------------------------
I already heard several times about companies that shoot new, smaller and faster satellites into space to provide photo and video images of Earth. Skybox and Planet Lab are all the talk, took 100mil of investments, but not public. There is DGI (+400% in 2 years), Orbital Sciences ORB (+200%) and bunch of others, not forgetting about Elon Musk's space rockets.
 "Starship Enterprise" (lol) will be the name of this theme.
http://www.spacenews.com/

Coffee is diseased with 'rust' - OMG!  TV says rust to blame for high coffee prices... Am I mad?...wasn't coffee in bear market for few years? I can't explain, but was looking at the situation for a while.

Peace talk with Syria broke down again... what are they negotiating...?

More Real Stuff - Agriculture

...developing...

Continue my research of commodity theme, aka Real Stuff.

Some observations:
- Investing in commodities, as a group, via index and corresponding etf may not be practical. Detailed review in this post (link). The biggest and most liquid etf is DBC, which is a pure gambling (rebalanced in November), and been stuck in 24-29 range for 3 years.
- I will be using $CCI (corresponding etf is GCC) and RJI as base line broad commodity index. RJI seems more liquid. Both are volatile like hell, but really don't move enough to make up for aggravation. Both seems to be painting some kind of sideways base on weekly chart, but I don't want to get involved with long term investment in these, because costs are very high.
- There is no sensible way to short commodity index via inverse etf's. Some inverse leveraged etf's (like SCO) are usable tradable instruments for short term only (days, not weeks). Decay and costs are very real and brutal. There is no practical way to sell short these commodity inverse leveraged etf's either (see update in this post link)
- Need to dig deeper into sub-themes, and possibly find some long-term trends. Commodities are not like stocks, they are not an asset class. Rather they are input costs, that can be forecasted and stored for future use. Here I go again with forecasting, but really - manufacturer need to plan ahead what to order from producer, who needs to let miner/grower know how much stuff they will need, because mining/growing takes time, and doesn't always work out. THEY need a forecast. Still, they are only human (hopefully) and do make mistakes. Error in forecasting creates rapid repricing, aka market turns, more often than trends

Right off the bat, I am familiar with Agricultural Commodities.

Following and trading grains via etf's since 2012, I wrote Food Riot post (link) with definite bullish bias, because "I think we will never pay low prices for food again". That assertion was correct, as our food shopping is more expensive than before, however trading on this opinion costed me some last year. To wit, all grain etf JJG is much lower now. My stops and position sizing served as excellent protection, my losses in grains are trivial, as I continuously trying to pick a bottom. Corn is not going to zero.

http://stockcharts.com/freecharts/candleglance.html?GCC,RJI,RJA,DBA,DAG,JJA,JJG,COW,moo|B|P5,3,3
http://stockcharts.com/freecharts/candleglance.html?DBA,JJG,$SOYB,SOYB,$CORN,CORN,$WHEAT,weat,BAL,NIB,JO,SGG|B|P5,3,3


I entered JJG again on 2/4/2014 and wrote here (link):

Now there seems to be a legit double-bottom setting up. I marked it on a chart. 43.level has to hold, if there is an immediate back test. Measured move takes us to 100day ma.
I got 1/2 position on
If anybody heard any rumors, fundamentals, planting intention etc - PLEASE DON"T TELL ME!  I don't want to know

(People replied with funny pictures, and I made some general comments anyway) 

 

 I have half size BAL (cotton), half JJG, full size NIB (cocoa) and want more.

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DBA 

 PowerShares DB Agriculture Fund tracks DBIQ Diversified Agriculture Excess Return Index, rebalanced in November to base weights and then just rolls active contracts.

Allocation makes sense, except I think coffee is too much and cotton too little, but what do i know...?

Corn           12.50

Live Cattle  12.50
Soybeans    12.50
Sugar         12.50
Cocoa        11.11
Coffee        11.11
Lean Hogs        8.33
Kansas Wheat  6.25
Wheat              6.25
Feeder Cattle   4.17
Cotton              2.78

http://www.invescopowershares.com/products/overview.aspx?ticker=DBA

There is a very clear possibility of double bottom on DBA, with implications for extended rally in Ag Commodities and Lifestock.

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RJA - another Mr Bow-Tie's monstrosity, with 21 components, covering not just the usual Ag's and Cows, but also lumber, rubber, rice, OJ, and even milk (0.2%). Largest allocation (over 10%) are Corn, Wheat, Cotton, Soy; followed by Coffee, Cattle and Cocoa. Makes sense to me.

Rogers Agriculture Index is 35% of RJI, and is second largest component of Rogers International Commodities Index, after Energy. RJA is also rebalanced at the start of every month back to initial weights.

 http://beelandinterests.com/PDF/RICI%20Handbook_Jan%2027.2014.pdf

http://www.rogersrawmaterials.com/weight.asp

Although, RJA doesn't have a well pronounced double-bottom (like DBA), its weekly chart also shows positive divergence on oscillators, best 3-weeks rally in many months. $8 level must hold any reaction, or there is no bottom

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DAG is a note (etn) on corn, soy, sugar and wheat at 25% each

http://powersharesetns.com/portal/site/etns/agriculture

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JJA is a note (etn), sector weights make no sense whatsoever, usual 0.75% fee

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JJG - another iPath note - all grain etn

Soy   42%

Corn 35%

Wheat 22%

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 Water - PIO, PHO

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 DBB - PowerShares Base Metals is equal thirds aluminum, zinc and copper. Rebalanced in November and roll.

Frequently goes premium/discount to NAV by as much as 1%.

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The Map is Not the Territory

Following is from Wiki http://en.wikipedia.org/wiki/Map%E2%80%93territory_relation:

Alfred Korzybski remarked that "the map is not the territory", encapsulating his view that an abstraction derived from something, or a reaction to it, is not the thing itself. Korzybski held that many people do confuse maps with territories, that is, confuse models of reality with reality itself. ...  individual people in fact do not in general have access to absolute knowledge of reality, but in fact only have access to a set of beliefs they have built up over time, about reality.

This is a very eloquent depiction of the reason why I stopped forecasting index trends.

Forecasting of market trends is a bad approach any way you slice it. It makes one to have an opinion, a bias, that has to be expressed  in terms of long or short position. Every next bar brings new information, supporting prediction or not, until some time in a future trader can look back and realize whether his forecast was right or wrong originally. I've been working this way for years, and this is the best explanation why my index trades have never been a steady source of profits. Quite the opposite.

This tuition, paid to "S&P500 Futures University", was not wasted (hopefully) and resulted in System11 - a simple and robust approach to short term index trading. On the other extreme end is System1 - a long term stock/bond index system, that never had a losing year, but also sidestepped most of 2013. System1 was designed in a way to avoid major bear market (and it did), but relies heavily on my own opinion and vague concept of "Enough", which needs to be discarded. I am in a process of modifying System1 rules. It will take awhile, as long term system testing takes a long time (no shit).

Financial speculation is a process of making an aggressive monetary bet, based on incomplete information, for uncertain period of time. The Technical Analysis of price chart can't tell the future. It could tell  where we have been, where we are now, and what may happen next (based on interpretation of conditional probability). Never 100%, not even close. 50/50 is the best I can wish for, yet it still requires forecasting, albeit to a lesser degree. A "SET-UP" is what investment community came up with, to fool themselves into thinking that they don't have a bias. A certain quantifiable set of conditions, that lead to recognizable outcome most of the time. Isn't this an 'opinion' again? What is it based upon? Squiggly-wiggly lines on price/time plot of some financial scam?
Give me a fucking break...

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 "The financial markets generally are unpredictable. So that one has to have different scenarios. The idea that you can actually predict what's going to happen contradicts my way of looking at the market." [Soros]
 http://socialleverage50.com/2013/09/22/stanley-druckenmiller-greatest-moneymaking-machine-history/
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Shopping list:
http://stockcharts.com/freecharts/candleglance.html?sea,kex,tk,nm,nmm,cmre,dsx,sb,dba,bal,nib,mon|B|P5,3,3
http://stockcharts.com/freecharts/candleglance.html?FSPHX,IBB,DVA,MHFI,BX,GEO,SCCO,DOW,CVV,FCSMF,adsk,ddd|B|P5,3,3
http://stockcharts.com/freecharts/candleglance.html?xhb,itb,iyr,socl,yelp,angi,cmcsa,twc,ebay,|B|P5,3,3
http://stockcharts.com/freecharts/candleglance.html?eem,tur,fxi,pgj,hao,rsx,afk,nge|B|P5,3,3

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Positions:
http://stockcharts.com/freecharts/candleglance.html?HEMP,PHOT,MJNA,MDBX,AG,CEF,FNV,GDX,PPP,RGLD,SLV,SPPP|B|P5,3,3
http://stockcharts.com/freecharts/candleglance.html?CVV,MHFI,GEO,JJC,JJG,LNN,NM,SCCO,TK,TUR,VNM,FXI|B|P5,3,3
http://stockcharts.com/freecharts/candleglance.html?AMLP,XLU,FIUIX,LYSDY,NIB,BAL,TAN,SCTY,ccj|B|P5,3,3
UPDATE 2/14/2014
As soon as finished taking stops on many common stocks, I saw many new set-ups. With broad rally accommodating, I am now 70%+ invested and want more on some kind of reaction.
1800SPX has to hold for few days. then we will see...
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As i was writing this musing, I realized that there is a philosophical problem with what I do, and got stuck. So I published it at Molecool's site, hoping that some replies will get me 'unstuck'. Below are some excerpts of  discussion we had here: http://evilspeculator.com/?p=40387#disqus_thread

My A/D Indicator and Internals Update

Over past few days I stopped out of almost all common stock holdings, except gold, silver, miners, pot (in LB account), utilities and couple of other things. I don't have any shorts on. System 9 is over 50% cash, account continuously pushing new equity highs. System11 had  a streak of winning trades, even thou I trade it sporadically and missed most of good opportunities. System12 stalled (as it should in correction) with only 4 positions so far.
I am crazy busy at work, as my departure nears. Already started to train my replacement - she is very bright - hope she doesn't quit before I leave...lol

I will be cashing out most of marijuana stocks from Z account, in order to pay for Boichik trip to Italy next year. Only a few months ago it seemed absolutely impossible. This is a great news, and a major achievement for me - to make and withdraw a significant amount of money from the market!
I feel very proud. Remember Ibiza - The Impossible Dream... Will happen someday too...

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I started to get ideas about how to use My A/D Indicator (MADI) about a year ago in this Internals Study (link). Since then I added and changed  few things. First of all, I now mostly use NYSE Advace/Decline issues (NYAD), because it seems to produce cleaner signals, but still look to Nasdaq (NAAD) for confirmation. Sometimes they diverge - I don't know what it means.

This is what now are MADI Rules for Bull Market ( I suspect that bear market will produce different levels, but don't have data to test):

- When 20ema is under 0 - market is consolidating or falling. Bottom will be made before 20ema recovers above 0.
- When NYAD 20ema goes below -200, and doesn't recover quickly, - it will go lower and produce at-least a tradable bottom at much lower levels. Most common next level is -400 to -600. Note that August 2011 bottom was -900 on 20ema! This spike lower will get a retest most of the time.
- When NYAD 50ema goes to or below -200, then its a Just Buy The Fucking Dip (JBTFD). This seems to be the most reliable use of MADI.  Buyable dip happens couple of times every year, usually followed by second dip of indicator 2 weeks to 2 months after extreme reading of -200 (or less) on 50ema of Advance/Decline issues. Failure of this bottom may lead to mini-crash (this is what happened in 2011)
- In order for bottom to be complete 20ema has to rally fast and recover above 0.
- In a bull market, MADI will spend more time above 0, allowing to keep positions longer and add on dips.
- "Sell The Rip" is generally at NYAD 20ema +400, but can go to +600/+700. As it is, its not a good signal to short the market - several of these high readings where just run over in early 2013. I'd say - when indicator is that high, probably too late to buy.

MADI 2/2014

3 year study of MADI is here (link)
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T-Theory Volume Oscillator checked at -80, the reading usually associated with tradable bottom. It may be already double bottomed. Unfortunately it may have destroyed T12/2013 (from this post link). I will wait for a rally, to see if market really bottomed, and revisit T-Theory then.

Confidence Indicator dumped, treasuries are a place to be since the beginning of the year, investment grade corporate bonds are better than high yield junk (no shit).
Golden Indicator warning that shocks are weak, although S&P and developed markets are stronger than Emerging.

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http://www.zerohedge.com/news/2014-02-04/marc-faber-fears-vicious-circle-downside-just-beginning
Mark Faber warning again. Treasuries are the place to be for next 3-6 months. I already have VUSTX in System 1 account, not looking to add for now.
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 Nadeem_Walayat see ..."No sign whatsoever that this  bull market is anywhere near being over!"
 "THIS stocks stealth bull market is one of the GREATEST bull markets in HISTORY!"
"The current stock market correction looks set to attempt to revisit 15,000. How close it gets to 15,000 I can't tell, perhaps half way, just that the correction is not done to the downside."
His favorite sector is Biotech, and has been forawhile.
http://www.marketoracle.co.uk/Article44238.html
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http://www.zerohedge.com/contributed/2014-01-23/roubini-many-davos-speakers-think-it%E2%80%99s-1914-%E2%80%A6-right-ww1-broke-out
Classic ZeroHedge. The world is ending...again...any day now...
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Weekly Nasdaq A/D Cumulative
http://stockcharts.com/h-sc/ui?s=$NAAD&p=W&yr=3&mn=0&dy=0&id=p03531550066
My A/D Indicator (NYSE) with BPSPX and SPXA50R
http://stockcharts.com/h-sc/ui?s=$NYAD&p=D&yr=2&mn=0&dy=0&id=p24055471029
McClellan Suite: NYMO; NYSI; NAMO
http://stockcharts.com/h-sc/ui?s=$NYMO&p=D&yr=1&mn=0&dy=0&id=p04197492070
T-Theory Volume Oscillator
http://stockcharts.com/h-sc/ui?s=$NYUD&p=D&yr=1&mn=0&dy=0&id=p81565637438
Risk-on /Risk-off ratios, aka Confidence indicator (FAGIX:VUSTX;  HYG:LQD;  $SPX:$USB)
http://stockcharts.com/h-sc/ui?s=FAGIX:VUSTX&p=D&yr=1&mn=0&dy=0&id=p43022938657
Golden Indicator with World Ratios
http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=D&yr=1&mn=0&dy=0&id=p51708175586
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http://ibergamot.blogspot.com/2013/12/new-t-and-internals-update.html
http://ibergamot.blogspot.com/2013/09/internal-indicators.html
http://ibergamot.blogspot.com/2013/04/internals-study.html

------------------------------ In The News ----------------------------
Solar activity is productive with M-class flares every day. "Solar activity is expected to be at moderate levels with a chance for high levels through 09 February", sais NOAA.

Now we have a new Fed Chairman(woman). Bermonkey is no more. Good riddance.

Emerging markets are submerging again. Turkey, Argentine, Brasil, South Africa, bunch in Asia, etc are in some kind of currency crisis. China got banking problems. I am looking to buy the blood.
Here is very smart India central bank Governor Raghuram Rajan talks  about interest rates, fund outflows, the rupee and global monetary policy coordination on Jan 30.

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