Metal crash

It's a bad day for metals and all other commodities. In my previous chart I said if gold breaks 1534, I don't know where it can go. Actually there is another level on the chart, 1337. At that time I don't think it is feasible. 

Well, anyway, for those who followed me to exit Gold in March, congrats. For those still holding gold, I think there will be chance to average down. YES, average down. I usually never do that, but for Gold, I can make exceptions.

Here are some links to read:

What Happened The Last Time We Saw Gold Drop Like This?

Gold, Silver Hammered; End of the Precious Metals Bull Market? What's Next?

 Special thanks to Zero Hedge for putting all things together.

Why Is Gold Crashing?

Me is always in conspiracy theory. Read the last line of the last link.

As Congressman Grayson pointed out in a recent letter, right after the Federal Reserve’s Open Market Committee leaked valuable inside information to big banks, Goldman told its clients:

We recommend initiating a short COMEX gold position ….

4/10 spike is just so artificial. Is it inside trading? I'm really eager to find out.
Here is another article from BP.

Quick Charts on Gold

LMP April 2013

Me is back in town.
The financial media celebrated the new high of SPX, everywhere, all over the place. Even I thought the divergence between DJI and SPX is solved for a while. BUT hold on a minute, when I check the charts, it tells a totally different story. SPX did record the highest close price, but it did not close above the October 11, 2007 high at 1576.09.

 
From a technical perspective, it is easy to understand the celebration was a bit premature since there is a difference. Some selling at the old high could be expected so now the challenge is to close above that old high. My reading is SPX has to close higher than 1576 this month, or the correction will come in no time. If SPX cannot hold 1530 area, you need to think of hedge your long position.

Daily price momentum oscillators have been diverging bearishly in recent weeks while price indexes rose to higher highs. Momentum oscillators have remained below their 2011-2012 highs and below their highs of late January. Bearishly diverging momentum is a problem because momentum is a leading indicator of price. This is still a fact worth noting, even though the bullish majority has been ignoring it in the first quarter just ended.

From an Elliott perspective, this is the third momentum wave with a well-defined upward sloping trendline confirmed by public attention from news media reports about the new highs. It is during third waves that everybody wishes they were long the market much like last year. The fourth wave, called profit taking, is the counter trend correction so be prepared with a hedging plan since today is the first day of April.

Monthly LMP update:
As disclosed in the previous post, I exit the market on 3/13. I don’t plan to get back in this month, even though all sectors except commodity are showing hold signal. This is not the time to bet anything.
Also I think the impulsive movement is over. Now is a better time to think of individual stocks or ETFs to catch alpha. Starting from this month I am going to post some of my picks.

Annual letter from Warren Buffett

Here is the link to:

Berkshire Hathaway Annual Report 2012

In the letter, Warren provided a list of books. Below is the list with Amazon link:

Warren Buffett’s recommendations

The Outsiders by William Thorndike Jr.

- Publication Date: October 23, 2012 (Capital Allocation)

”It is impossible to produce superior performance unless you do something different.” — John Templeton

Tap Dancing to Work: Warren Buffett on Practically Everything by Carol Loomis

- Release date: November 21, 2012 (on WB)

Warren Buffett built Berkshire Hathaway into something remarkable— and Fortune journalist Carol Loomis had a front-row seat for it all.

The Clash of Cultures: Investment vs Speculation by Jack Bogle

- Publication Date: August 7, 2012 (how certain things have altered the concept of long-term investing)

How speculation has come to dominate investment—a hard-hitting look from the creator of the first index fund.

Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications by Laura Rittenhouse

 - Publication Date: December 18, 2012 (read between lines)

The essential guide to making smarter decisions by decoding CEO Communications

Recommended reading in Warren Buffet’s 2013 Shareholder Letter

trade decision

I decide to close all my long position and park everything in bond. I will take the trade tomorrow.
There are lots of reasons I am doing that. Among everything else, the most direct one is I will not be able to access the market from Thursday for a while. I believe it's time to cash out and wait for the next opportunity. I cannot see anything big. Maybe a small correction to 1530 area. Me is going to check back when I get chance.

some readings.

Yes, We’re Confident, but Who Knows Why

by Dr Shiller, of Shiller and Case Index.

Collective Intelligence! From MLCO: "As of close on 8 Mar 2013, the S&P 500 front-month (15 Mar 2013) option contracts have a$211.0 billion delta (exercise probability) weighted open interest towards calls. This is the largest call imbalance we have seen one week prior to a triple witching option expiration since our data began in September 1997. Large call imbalances have historically produced positive returns for the S&P 500 over the option expiry week."

An account just bought to close the Mar 1500 calls to sell the May 1550 calls 8k times. This created approx $600m notional deltas to buy, helping to push us higher here. Recall that 11 of the past 14 expiration weeks have finished the week higher, mainly attributed to overwriting flow providing a bid to the market - posted at (12:42CT) 1249.50 high in the SPM.

“Market Wizards” Marty Schwartz aka Pit Bull: Trading rule, look for a low the Thursday/Friday the week before the expiration. This week's scheduled economic/events calendar should be the quietest week in 2013 so far. However, we do have the mid-month asset reallocation and the March expiration on tap.

Economy Outlook for 2013

I am a little bit absent, I know I know. Well I guess I need to put on my economist hat and do some analysis.
Warning: This is a long series from a huge plan. (The catch, I may not be able to finish the entire thing.)

Economy Updates (based on readings from q4 2012):

1. Real GDP Expanding for 3 straight years, but at sub-par rate
1. 3% historical average; usually 4% to 6% after recession; but grew at 2% in recent expansion

2. Total nonfarm payroll improving but will not fully recover all the jobs lost till at least 2014
1. 8 million job losses during the downturn vs. 5 million job creation during expansion

3. Real personal consumption expenditures rising at roughly 2%
1. Housing wealth recovery helping consumer spending expansion

4. Private nonresidential fixed investment is larger than corporate profits because of borrowing
1. Now companies have more profit and well exceeding spending

5. Real private residential investment increased 27% in value and 9% in volume in 2012
1. Housing recovery helping GDP growth

6. Owner-occupied real estate values rising over the past two years
1. results in $1.5 trillion housing equity accumulation 

7. Nonresidential fixed investment - turned negative because of uncertainty

8. Mixed bag Real state and local government consumption expenditures and gross investment
1. GDP drag coming from downsizing of state and local governments is coming to an end
2. Federal government downsizing via sequestration in March

9. Average hourly earnings
1. No cost-push inflationary pressure from wages
2. But low wage growth can mean persistent low retail sales growth

10. Core inflation rate: All items less food and energy
1. Contained for now at Fed‘s preferred rate of 2%
2.  But rising apartment rents will push up inflation rate in 2014 and beyond

End of Feb

NO CHANGE to my portfolio holding.


The Exit criteria didn't meet. It doesn't matter how uncomfortable I am as a holder at this moment, I am still holding all my investments, to follow the investment rules I created.

How bad it is? I have no idea. Again I see a break between econ news and market reaction. I hear tons of craps from capitol hill. I, as an average investor seeking early retirement, am clueless. So far I think the time of index dash is over. I will be more focus on assets allocation. I am going to post my research later this week.