Thursday, September 10, 2009

Potential Euro Short Term Top ?


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Yesterday, as I was watching the Euro, I started having this urge to sell it. I was looking only at the Euro chart and nothing else, and after staring at it for a while I wanted to sell it. I couldn't explain exactly why I wanted to sell it, only that I wanted to sell it. So I sold one contract @1.4565, just to test the waters. Price went against me shortly after I sold it. Strangely enough, I was reading "Reminiscences of a Stock Operator" at the time, and can compare it to this excerpt from the book:

I was looking-over the quotation board, noting the changes they were mostly advances until I came to Union Pacific. I got a feeling that I ought to sell it. I can't tell you more. I just felt like selling it. I asked myself why I should feel like that, and I couldn't find any reason whatever for going short of UP.

I stared at the last price on the board until I couldn't see any figures or any board or anything else, for that matter. All I knew was that I wanted to sell Union Pacific and I couldn't find out why I wanted to. I must have looked queer, for my friend, who was standing alongside of me, suddenly nudged me and asked, "Hey, what's the matter?"

"I don't know," I answered.

"Going to sleep?" he said.

"No," I said. "I am not going to sleep. What I am going to do is to sell that stock." I had always made money following my hunches. I walked over to a table where there were some blank order pads. My friend followed me. I wrote out an order to sell a thousand Union Pacific at the market and handed it to the manager. He was smiling when I wrote it and when he took it. But when he read the order he stopped smiling and looked at me.

"Is this right?" he asked me. But I just looked at him and he rushed it over to the operator.

"What are you doing?" asked my friend.

"I'm selling it!" I told him.

"Selling what?" he yelled at me. I f he was a bull how could I be a bear? Something was wrong.

"A thousand UP," I said.

"Why?" he asked me in great excitement.

I shook my head, meaning I had no reason. But he must have thought I'd got a tip, because he took me by the arm and led me outside into the hall, where we could be out of sight and hearing of the other customers and rubbering chairwarmers.

"What did you bear?" he asked me.

He was quite excited. UP. was one of his pets and he was bullish on it because of its earnings and its prospects. But he was willing to take a bear tip on it at second hand.

"Nothing!" I said.

"You didn't?" He was skeptical and showed it plainly.

"I didn't hear a thing."

"Then why in blazes are you selling?"

"I don't know," I told him. I spoke gospel truth.

"Oh, come across, Larry," he said.

He knew it was my habit to know why I traded. I had sold a thousand shares of Union Pacific. I must have a very good reason to sell that much stock in the face of the strong market.

"I don't know," I repeated. "I just feel that something is going to happen."

"What's going to happen?"

"I don't know. I can't give you any reason. All I know is that I want to sell that stock. And I'm going to let 'em have another thousand."

I walked back into the office and gave an order to sell a second thousand. If I was right in selling the first thousand I ought to have out a little more.

"What could possibly happen?" persisted my friend, who couldn't make up his mind to follow my lead. If I'd told him that I had heard UP. was going down he'd have sold it without asking me from whom I'd heard it or why.

"What could possibly happen?" he asked again.

"A million things could happen. But I can't promise you that any of them will. I can't give you any reasons and I can't tell fortunes," I told him.

"Then you're crazy," he said. "Stark crazy, selling that stock without rhyme or reason. You don't know why you want to sell it?"

"I don't know why I want to sell it. I only know I do want to," I said. "I want to, like everything."

The urge was so strong that I sold another thousand. That was too much for my friend. He grabbed me by the arm and said, "Here! Let's get out of this place before you sell the entire capital stock." I had sold as much as I needed to satisfy my feeling, so I followed him without waiting for a report on the last two thousand shares. It was a pretty good jag of stock for me to sell even with the best of reasons. It seemed more than enough to be short of without any reason whatever, particularly when the entire market was so strong and there was nothing in sight to make anybody think of the bear side. But I remembered that on previous occasions when I had the same urge to sell and didn't do it I always had reasons to regret it.

I have told some of these stories to friends, and some of them tell me it isn't a hunch but the subconscious mind, which is the creative mind, at work. That is the mind which makes artists do things without their knowing how they came to do them. Perhaps with me it was the cumulative effect of a lot of little things individually insignificant but collectively powerful. Possibly my friend's unintelligent bullishness aroused a spirit of contradiction and I picked on UP. because it had been touted so much. I can't tell you what the cause or motive for hunches may be. All I know is that I went out of the Atlantic City branch office of Harding Brothers short three thousand Union Pacific in a rising market, and I wasn't worried a bit. I wanted to know what price they'd got for my last two thousand shares. So after luncheon we walked up to the office. I had the pleasure of seeing that the general market was strong and Union Pacific higher.

"I see your finish," said my friend. You could see he was glad he hadn't sold any.

The next day the general market went up some more and I heard nothing but cheerful remarks from my friend. But I felt sure I had done right to sell UP, and I never get impatient when I feel I am right. What's the sense? That afternoon Union Pacific stopped climbing, and toward the end of the day it began to go off. Pretty soon it got down to a point below the level of the average of my three thousand shares. I felt more positive than ever that I was on the right side, and since I felt that way I naturally had to sell some more. So, toward the close, I sold an additional two thousand shares.

There I was, short five thousand shares of UP. On a hunch. That was as much as I could sell in Harding's office with the margin I had up. It was too much stock for me to be short of, on a vacation; so I gave up the vacation and returned to New York that very night. There was no telling what might happen and I thought I'd better be John ny-on-the-spot. There I could move quickly if I had to.

The next day we got the news of the San Francisco earthquake. It was an awful disaster. But the market opened down only a couple of points. The bull forces were at work, and the public never is independently responsive to news. You see that all the time. If there is a solid bull foundation, for instance, whether or not what the papers call bull manipulation is going on at the same time, certain news items fail to have the effect they would have if the Street was bearish. It is all in the state of sentiment at the time. In this case the Street did not appraise the extent of the catastrophe because it didn't wish to. Before the day was over prices came back. I was short five thousand shares. The blow had fallen, but my stock hadn't.

My hunch was of the first water, but my bank account wasn't growing; not even on paper. The friend who had been in Atlantic City with me when I put out my short line in UP. Was glad and sad about it.
He told me: "That was some hunch, kid. But, say, when the talent and the money are all on the bull side what's the use of bucking against them? They are bound to win out."

"Give them time," I said. I meant prices. I wouldn't cover because I knew the damage was enormous and the Union Pacific would be one of the worst sufferers. But it was exasperating to see the blindness of the Street.

"Give 'em time and your skin will be where all the other bear hides are stretched out in the sun, drying," he assured me.

"What would you do?" I asked him. "Buy UP. On the strength of the millions of dollars of damage suffered by the Southern Pacific and other lines? Where are the earnings for dividends going to come from after they pay for all they've lost? The best you can say is that the trouble may not be as bad as it is painted. But is that a reason for buying the stocks of the roads chiefly affected? Answer me that."

But all my friend said was: "Yes, that listens fine. But I tell you, the market doesn't agree with you. The tape doesn't lie, does it?"

"It doesn't always tell the truth on the instant," I said.

"Listen. A man was talking to Jim Fisk a little before Black Friday, giving ten good reasons why gold ought to go down for keeps. He got so encouraged by his own words that he ended by telling Fisk that he was going to sell a few million. And Jim Fisk just looked at him and said, "Go ahead! Do! Sell it short and invite me to your funeral."'

"Yes," I said; "and if that chap had sold it short, look at the killing he would have made. l Sell some UP. yourself ?"

"Not I! I'm the kind that thrives best on not rowing against wind and tide."

On the following day, when fuller reports came in, the market began to slide off, but even then not as violently as it should. Knowing that nothing under the sun could stave off a substantial break I doubled up and sold five thousand shares. Oh, by that time it was plain to most people, and my brokers were willing enough. It wasn't reckless of them or of me, not the way I sized up the market. On the day following, the market began to go for fair. There was the dickens to pay. Of course I pushed my luck for all it was worth. I doubled up again and sold ten thousand shares more. It was the only play possible.

I wasn't thinking of anything except that I was right 100 per cent right and that this was a heaven-sent opportunity. It was up to me to take advantage of it. I sold more. Did I think that with such a big line of shorts out, it wouldn't take much of a rally to wipe out my paper profits and possibly my principal? I don't know whether I thought of that or not, but if I did it didn't carry much weight with me. I wasn't plunging recklessly. I was really playing conservatively. There was nothing that anybody could do to undo the earthquake, was there? They couldn't restore the crumpled buildings overnight, free, gratis, for nothing, could they? All the money in the world couldn't help much in the next few hours, could it? I was not betting blindly. I wasn't a crazy bear. I wasn't drunk with success or thinking that because Frisco was pretty well wiped off the map the entire country was headed for the scrap heap. No, indeed! I didn't look for a panic. Well, the next day I cleaned up. I made two hundred and fifty thousand dollars. It was my biggest winnings up to that time. It was all made in a few days. The Street paid no attention to the earthquake the first day or two. They'll tell you that it was because the first dispatches were not so alarm ring, but I think it was because it took so long to change the point of view of the public toward the securities markets. Even the professional traders for the most part were slow and shortsighted. I have no explanation to give you, either scientific or childish. I am telling you what I did, and why, and what came of it. I was much less concerned with the mystery of the hunch than with the fact that I got a quarter of a million out of it.

Ok, so maybe it wasn't as extreme as what Jesse Livermore did. Later, as I was reviewing the charts of the other currencies, I found out something to confirm my bearish hunch on the Euro:

Lower highs on the Loonie:

Broadening mega-phone top pattern in the Aussie:

Potential Triple Top in Cable:

As it turns out, my hunch on the Euro was correct:

Euro made a lower high, and a sustained move below 1.4510 will confirm the short term top in Euro.

UPDATE: covered my Euro short @1.4540, on the sidelines now waiting for new opportunities

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Tuesday, September 08, 2009

US Dollar Devaluation Has Begun

Some charts to show a different perspective on the USD$ breakdown.....

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When gold broke out of its volatility squeeze last week, I thought that was slightly interesting, but not a real significant event especially given that the USD$ stayed within its trading range.


Sunday night was interesting. Gold persisted in staying comfortably above its breakout level, Oil broke back above 70, and Euro broke out to new highs of the year. This confirms that the gold breakout was not just some random coincidence. These 3 markets are accepting higher values because the US dollar is breaking down.
The implications here are that dips in these 3 markets will be bought. There are shorts that are stuck and need to get out of their positions. I cannot see anything to change this fundamental change in trend unless one of the markets experiences a persistent breakdown, much like what we saw with Gold last week.

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Saturday, September 05, 2009

Market Review, Sep 5/09


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Gold rallied and is acting strong. US Dollar has been range bound. Both these factors likely contributed to neutralizing the bearish sentiment.
Unless we see a re-appearance of bearish sentiment in the form of renewed selling interest below 994, then I think the odds are good that the market will trend upwards to re-test prior resistance @1031-1032. If that is the case, then a dip below 1008 should be met with buyers, and that is what I will be looking for on Tuesday's session. If the market doesn't even make it down to 1008, I will interpret that as a bullish sign.
Will also look at the Shanghai Composite ($SSEC) and FDAX on Monday for further clues to market sentiment and bias for Tuesday.

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