Riding the Storm

[KCScott]

2.3. Market Internals

You know I've been, at most, a reluctant bull. I was just getting bearish in September and October when I noticed that Commercial Hedgers were starting to cover their shorts. At that time that was a strong enough signal to let go of all my bearish considerations and quickly go to full invested.

The 3 Stocks on Fire Portfolio performance rose from about 150% in 2005 to the actual 184% because of that wise decision. But, at this moment and suddenly, commercials are going short again with a vengeance, with speculators staying long:

2.3.1. Commitment of Traders Report



You can see they started covering shorts by mid year and briefly went long in November. But this last week they initiated a very strong short position as you can see on the last red candle on the chart above. Open interest has been declining but the mood is set for it to rise as the market goes down, with commercial hedgers shorting more and more S&P500 contracts and speculators buying more and more on the dips, until they capitulate at a much lower point (because commercial hedgers always have the deeper pockets, they win over the long run at the futures markets)

The majority of analysts is bullish now, and the market certainly has to adapt to new economic conditions. Who is or was recently factoring in a consumer recession in 2006? Almost nobody, and yet, evidence shows that is a quite possible outcome.

As more and more analysts and traders see this the market will go down and we will probably come to a situation where we have more bear analysts than bull analysts. That's where I'll be looking for a trend reversal, from bearish, to bullish.

But for now, the picture remains like this:



Bulls are 55% where as bears are 21%.

David,

I'm not sure this isn't a bit of a head fake (false breakout) - and your notes on the commercial hedgies still grab my attention.

Is this bull market being powered by the small investor with the funds and MMs sitting on the sidelines? If so that's how the big boys make their money.

In the meantime I've closed my short on QQQQ and am sitting cash heavy.

BTW, the run on Gold is still going as well.

[willey]

Hi David,

You are doing a splendid job under stressfull "whipsaw" market conditions that have humbled many a fine & experienced trader!  Many of your picks are great & your "chart reads" are superb!

Enough of the compliments...

GOLD... my read is parabolic moves are coming now!  Unbelievable strength!  $680 soon!  The little golds stocks ( various ) should be beneficiaries!  The catalysts are DEMAND growing, limited supply, & good old speculation.  I personally expect $750 gold this year.

Keep up the great work!

willey

[willey]

Hi again, David,

Perhaps you are unaware that the Dow posted a"bullish engulfing candlestick" on the weekly charts!  This candlestick engulfed multiple prior weeks & all in ONE WEEK!  Quite rare!  Implies, to me, much more upsides to come....

So, the Dow's gaining fantastic strength, is my read...

Suggest all be aware to not get in front of this BULL!

willey

[Lucas Scott]

I posted this as a response to a question on another thread, but it took me a little while to put it together and that thread (GZFX) will probably get buried since there are a couple other more active threads about the stock. I don't want this piece of brilliance to be buried! It's a better fit here anyway. I put together an anthology of the 3SoF strategic orientation going back to the start of the year. It gave me a big chuckle . btw what I was saying on the other thread was it is good that David is flexible with his trading and is willing to alter his trading plan in response to what a stock or the market is telling him! But it can also be pretty funny

"I think the general market is entering into Bear mode, something that can take it down more than 40% over the next two years." - Jan 3

"I really feel there isn't much upside on this market and the smart money is distributing shares to the general public. We are on a distribution phase, making a top for a steep decline after all the seasonal buys are out of the way." - Jan 5

"Basically, I was wrong and Metro, willey, and other folks, were right. The market took off to the upside and never looked back, closing Friday at new highs." - Jan 8

"After Friday's big sell off, I'm starting to think that maybe I wasn't wrong on my end of the year article (Riding the Storm)" - Jan 23

"We're definetely in a bull market" - Feb 9

I will update this thread when the orientation shifts!

[tokyopua]

Wow, between Tuesday February 7th, and today February 13th, I had two really horrible days. I havent had days so bad with a diversified portfolio, only back when I was heavily weighted in bird flu sotcks. 

I lost about 8% of my total investment on those two days.  My portfolio has a lot of 3SOF stocks, and some metals companies like BHP and ATI which *were* up big.  I got broadsided by the commodities selloff admittedly, but Tuesday still didnt make sense to me. 

Guess I just wondered if anyone else got hit overly bad on those two days?  Tuesday wasnt a particularly bad day for the market, but I lost about 5% of total investment that day. 

Sure has felt like "riding a storm" this last week...  still hoping David was wrong in this thread, but I havent been seeing much encouraging data recently and am starting to wonder.  The Fed wants to keep raising rates, earnings have been mixed, the yield curve is inverted, the only seemingly positive is that there appears to be a lot of money on the sidelines.