scottvanv on November 25th, 2013

“Keep stops tight on your stocks as when this market pulls back even 1-2%, the better names often sell off much harder, giving back in one or two days what it took one or two weeks to achieve. QE forgives the general averages while higher octane stocks can get pummeled.”  — MLR, Premarket Pulse 11/25/13,  (a trading newsletter I follow)

It’s been a while since I’ve posted, so a little pre-amble / refresher:  I stopped trading because I wasn’t doing very well relative to the market (I was flat, market up nicely), and I realized something was wrong.  I had studied this too much to not be be able to get a better return than just “holding and forgetting”.  And since I cannot and will not buy and hold — an extremely dangerous investment strategy — I had no alternative but to just take a break and re-evaluate.  A lot of other famous traders have been doing quite poorly in this market, all with a somewhat similar system based in trend following and / or technical analysis of leading growth stocks.  And they’re the ones I had latched on to as the best strategy (they’re all quite rich) that best fit my trading / investing mentality.  Unfortunately, in an environment where the Fed is pumping bazillions (sic) into the economy to provide us with “nose above the water” growth, this strategy does not work.  This is not a ‘normal’ economy, and the market reflects this.

I believe that we are at the dawn of a new historical era…either on the cusp of a massive crash, or a massively robust decades-to-centuries long…what shall I call this…”Savvy Economy.”   (If this happens and the name sticks, remember you heard it here first.  🙂 )  I give the edge to the latter, and I’ll make the case for this in a subsequent post.

scottvanv on October 9th, 2013

Here’s a very good article on the limitation of QE that I found by Googling “Limitations of QE” written a year ago.  He’s a Brit, and there’s very little information on who he is or what his credentials are.  Having said that, his article made a lot of sense to me — it was good analysis.  Paraphrasing: QE can work in the short term to re-ignite an economy, but eventually it will cause hyper-inflation unless the government eventually reduces its structural deficit to be able to handle repatriating the bonds it’s been purchasing during a deflationary environment that we *would have* been experiencing without QE.  At the end of the article, he showed his bias by stating that the U.S. economy would implode, by his best estimate by 2020, and that our deficits are unfixable because they’re baked into our political system via the structural checks and balances that we have via our separation-of-powers-based government.  But since his article was written, via a clearly horrible process called sequestration and a whole lot of arguing over higher taxes, we have done a pretty good job of fixing our short term deficit problem, down to 2.1% of GDP, or one-fifth of what it was at the peak of the recession.  Unfortunately, the deficit will begin to rise again starting in 2016, due to aging baby boomers drawing their entitlements. (From a NY Time article.)  Net, net, the Brit is a doom-and-gloomer, that, so far, has once again been proven wrong in predicting the future.

To my Opining:  The biggest problem this country faces, one that threatens its very existence via a potentially imploding economy, is our debt and deficit.  By hook or crook, we found a short term buy-some-time solution.  What remains is a long term unsustainable taxes-too-low / too-many-entitlements problem.  As I’ve written before, I couldn’t care less which side you choose to err on to fix this problem, it just needs to be fixed.  And if it is, I think you’ll see a HUGE confidence boost in the economy.  Instead, we get supreme stupidity from both sides of the aisle.  And I will take a couple shots here:  The Republicans have not yet faced the reality that the country has become more liberal, and act like children every time they get a chance to bring up this subject.  (By tying Obamacare to the argument this time around, I think the Republicans made a huge tactical political mistake…they’re gonna lose this battle, and are in danger of putting Pelosi back in the Speakership in 2014).  But, I hear very little to nothing from Obama on this unless the House Republicans are throwing said temper tantrum.  Obama is clearly not leading on this subject, and because he is the President, HE owns this, as do the Democrats.

So what do I believe will happen?  I believe in the USA.  I believe in its institutions, and I believe that the system will eventually fix this problem and that QE combined with lowering our structural deficits will get us out of this mess.  Whether that means that the Republicans are booted out of the House in 2014 and the Democrats, in full power, finally face the reality that even with massive tax increases on the rich that the entitlement programs are unsustainable, that they’ll fix the problem?  I don’t know.  I just think it will get fixed…like Warren Buffet said the other day, “We’ll go to the very edge of complete idiocy, but we won’t go over it.”

scottvanv on August 27th, 2013

Below is a weekly chart of the Dow.  Look how beautifully it’s cornering itself into the intersection of the red and yellow lines, which were drawn months ago.  Just two days ago I almost wrote a post stating that the recent 2 day rally would be followed by at least a few down days, into the yellow line.  This was BEFORE the Syria news came out.  (I only didn’t write it because I’ve just been too busy.)  Right now, I suspect that the market will continue to corner itself until it breaks into the clear above the Big Red Line.  I give this a 70% chance.  If it doesn’t, and it falls below, watch out.  The market could tumble precipitously.  But, in a way, this is good news.  Months and months ago, I was predicting another major crash as soon as the charts hit this latest line, thinking that we had another wave to get through in this multi-decade sideways correction.  I was hoping that the flash point for the crash would be a war panic, similar to the panic that ensued during the gulf war, and not some financial calamity.  (An aside: None of my guesses were Syria — that I recall.  But still, Elliot Waves predicted something like this months ago?!  So much for voodoo science.) Why is this good?  Because I believe that what the Fed is doing by printing money to fight deflation will separate our very negative current social mood from balance sheet bankruptcies.  Which generally run hand-in-hand, causing massive unemployment as in the Great Depression.  Net, net, I believe that we are truly learning how to smooth out our economy, and that we’ll never have to go through another Great Depression, as all the doom and gloomers are still predicting.  I believe that we learn as a society.   I can see this in the charts…unfortunately, most Ellioticians are true doom and gloomers…it’s actually hard for me to read their analysis…it just depresses me.  So, if a war panic causes a major stock market slide, it most likely means that we’ve avoided financial calamity, and that we’ll quash a few more crazy dictators along the way for the next decade or so, and we’ll just go along with our happy lives in the good ol’ US of A — without a major impact to our relatively very wealthy lifestyles.

A Beautiful Picture

A Beautiful Picture

scottvanv on August 10th, 2013

I haven’t posted for a while because nothing has really happened.  The Dow dropped a bit and then came right back up to the big red line from my last post.  And stayed there.  And then today I read this: an article about Advance Decline (A/D) lines and how they can help to predict long term tops.  Sigh…   (The author, Kevin Marder, writes one of the newsletters I read.)  His article is titled the same as mine, but without the question mark.  Again, sigh…

Combine this with my Big-Red-line-different-type-of-technical-analysis and this might just be a big ol’ top.  And I thought the economy was supposed to be getting better.  Now, he does note in his article that that his A/D trigger occurred in ’98, just before the big runup to 2000, so it’s possible that the market will break through the red line and then begin a new pattern, outside of the Big-Red-Line pattern.  It’s also possible that there’s a really major trend line flowing underneath the pattern we’re currently in, which would mean that we might not crash to Dow 6000 if we were to top right now.

My best guess…stocks are not really overvalued at the moment like they were massively in 2007.  With interest rates as low as they are, one could almost argue they’re undervalued.  So we’re not really in a bubble…I think people are pretty wary of our last two bubbles so PE ratios aren’t inflating like mad.  I also don’t think that we’re going to return to boom times anytime soon, because our demographics simply won’t allow for it (see previous posts).  The Fed is fighting  deflation with everything they’ve got…so instead of a massive depression, we got a major recession…and now I think we’re likely to economically just muddle along for some time with, perhaps, a medium depth crash somewhere in the near future.

I’m 100% cash at the moment…and frankly I’ve done very poorly this year relative to the market as a whole.  I’ve been re-evaluating my strategy (read: sucking on my thumb) and have stepped away for a bit to attempt to understand why.

scottvanv on June 18th, 2013

The next Big Red Line is here…this time on the Dow, not the S&P.  This is a multi-generational tipping point for the market.  And it still amazes me just how well the market hews to these lines.  There is nothing fundamental that I see that would be likely to take us down precipitously, and a service I follow just moved back to a buy signal, so it looks like the market will break through this line shortly.  However, it’s also possible that the market might stay sideways for some time to come as it works through this. For reference, below please find a monthly Dow chart, and then I zoom into the Daily.  If it breaks through the top big red line (and stays there), it’s likely that we’re going to have a multi-decade bull market.  The implications of this possibility are enormous, as it will “prove” (so long as you believe in this type of voodoo analysis)  the doomsayers completely wrong, and Keynesianism completely right.  I’ve long argued that the Fed is doing the right thing here…and if the politicians will finally settle down and fix our longer term structural problems, I think we’ll be just fine.  As always, I could be wrong.  Time will tell.

DJ-061813-Monthly DJ-061813-Daily

scottvanv on May 8th, 2013


An interesting side note:  I do not look at fundamentals as I let others services filter that for me as I simply do not have the time.  Generally, these are high growth stocks with strong fundamentals that institutional investors have shown a strong proclivity to be purchasing.  I then further filter based on simply looking at each chart, with a “buy high, sell higher” mentality.   So, it’s always interesting to see the industries I’ve chosen…after I’ve purchased.  In this case…

Cosntruction, Internet, Mortgage, Financial Tech, Construction, Oil & Gas, High end consumer

Diversified…but not on purpose.  I think diversification is a fool’s game.  If the market’s going down, the whole thing is going down…

scottvanv on May 6th, 2013

It’s getting more and more likely that we’re in for a multi-decade bull market.  The S&P cleared my “Scooby Doo” hurdle…next one is the Dow at around 16,000.   But I’m getting more and more confident that we’ve made it through this mess.   I’ve heard multiple people saying that Europe has bottomed (Jim Cramer for one, and he truly knows what he’s talking about in spite of all his antics), and that our oil and gas boom is going to have enough oomph to pay off our debt in and by itself.  I’ll be in the market beginning tomorrow…stay tuned for pics.

scottvanv on April 19th, 2013

As I’ve mentioned before, trading is a lot like poker.  Poker has “tells”, or small things that can clue you to someone’s hand, such as facial expressions.  A common stock market Tell is when the Dow is moving against the broader indices.  Since there are only 30 stocks on the Dow, it’s relatively easy for big money to influence the Dow.  Today, the Dow is down, while the Nasdaq is up.  Which means it’s a possibility that big money is selling Dow stocks while buying broader Nasdaq stocks — they do this to fool the average investor, who pays more attention to the Dow.  Which might mean the market could soon resume its uptrend.   This is no guarantee, however (just as a poker Tell is no guarantee).

Also, I subscribe to a newsletter from, one of only two paid services I use.  Here’s a quote from them today, “The MDM is staying on buy for now for the reason we wrote in this morning’s PMP: When comparing the current sell-off to prior sell-offs in 2013, the market is at a point that has previously been the juncture at which the market finds its footing due to effects from quantitative easing, thus the Market Direction Model has remained on a buy. That said, should selling pressure increase in the days ahead, the MDM will account for this and act accordingly.” Their MDM (Market Development Model) is basically a service that tells you, pun intended, when to get in and out of the market.  Aggressive traders might want to get in now…I prefer to wait a bit to see how this plays out.

scottvanv on April 17th, 2013

Well…I guess these past few days weren’t too unexpected by me…I’ve been eyeing a much larger Big Red Line on the S&P 500, that goes back to the beginning of the 2001 crash.  I haven’t posted on this because I’ve been analyzing the Dow (whose similar line is at a much higher price point), and wanted to keep this blog relatively simple.  My previous Extremely Bullish post was based on the fact that I thought the market was going to power right through this line given its recent trajectory and fractal ‘count’.  Clearly not the case.  With gold crashing hard…this does bring into play the specter of Deflation and that this is potentially the beginning of the third major crash that I had predicted some time ago.  Even Larry Kudlow capitulated just yesterday that maybe the money printing was going to work.  Sigh.  (Capitulation by hard core believers is usually when they’re proven correct — but you can game theory yourself to death on that one.)  Also, with leading stocks simply not acting correctly, my bullish post was likely, at best, premature.  The positive interpretation of the below two charts, is that the market has simply hit a massive trend line that it needs to work through and that it will travel along it for some time, just as it traveled just below it for some time in my ‘Random Walk My Ass’ post.  I am and have been 100% cash.  I haven’t had the time to look into trading the Dow yet…and something’s been bugging me…perhaps this was it.  No matter what this is a MAJOR market inflection point, I recommend cash until this plays out.

S&P 500 Monthly - Note the upper red line I've drawn back to 2001. Also note the big hump in volume. Declining volume is...not good.



Zooming into the hourly...note how it drives above the longer term red line then falls sharply until it hits its more recent trend line shown in white. There's still a possibility that it will continue to follow the more recent trend. But caution is the order of the day.



scottvanv on April 9th, 2013

First, let me say this…all of my positions have sold off recently.  I am 100% cash at the moment.  I haven’t posted recently because, frankly, I’ve been befuddled.  Leading stocks are treading water.  Or they’re shortable.  And yet my fractal analysis of the Dow tells me that it’s going to go up…for quite some time…even to Dow 20,000+.  And if this occurs, we’re likely out of danger of a massive crash for decades.  QE infinity might just work.  Bernanke could well be known as a hero who saved us from our own stupidity by separating out balance sheet bankruptcies (read: massive unemployment) from a social mood that prevents us from fixing clearly identifiable problems.  Concurrently, something is happening, a change occurring.   Society is changing.  We’re becoming more liberal.  Getting rich is getting less important than taking care of everyone — e.g. Obamacare.  This is cyclical, and we’ll revert back after too much liberal excess (with lots of  “I told you so’s.” from Conservatives).  So traditional growth stocks, e.g. tech, are not where the big money is playing at the moment.  But I’ve yet to do the research to find out where it is playing (stay tuned for a post on this).  So in the meantime, since I seem to be doing awful well at predicting even daily moves of the Dow I’m going to start trading Dow futures.  Don’t get me wrong…it’s quite possible the gloom and doomers are correct, that all this money printing will cause massive inflation (which could be one reason why my Dow analysis only points up).  But, their arguments are always, “NEVER BEFORE IN HISTORY HAVE WE BEEN ABLE TO PRINT MONEY TO GET OUT OF THESE MESSES. IT’S ALWAYS LED TO DISASTER!!!!”  And they’re always preaching at the top of their lungs, which makes me doubt them all the more.  They assume we don’t learn.  And yet, the amount of goods and services we produce today is on order of 500 fold what it was just a hundred years ago.  Phenomenal.  Clearly, we learn.  So if Bernanke can simply replace the monetary base that was and has been wiped out by the crashes and stimulate a bit to counter the recent lack of demand by now saving baby boomers, a delicate balancing act for sure…we might just muddle our way through this mess without a financial disaster.  We’ll end up on the other side more wary, with hopefully, less destructive bubbles, and a fruitful, generally happier, healthier society.  Time will tell.