Losing on all fronts

Got beat up this week with the Euro rallying back from the lows of 1.260 to over 1.31. I had further pyramided my short position as it broke the 1.30. Besides myself but as a trend trader it comes with the territory. On the sidelines on everything. Sometimes the best trade is no trade at all.

Heuristic “A” doing Fine until key reversals rear their ugly heads

Markets were churning right along to Heuristic A and for a while I was riding that wave, alas today in the middle of the trading day markets have began giving me key reversals giving me pause. I cant ignore them. DAX futures touched 6480 and lows of 6355 encompassing previous days range of  ( 6440-6376 ). A close be low 6376 would confirm it.  E-Nasdaq 100 futures hit 2452.25 and lows of 2420.75.  The moment of truth now is the Dow

Competing heuristics

Dow Futures are Signaling both a rally or a possible market turn.

Heuristic A: (The Bullish Case)

A Market rally, based on fractal between February 14th to May 2011

Fractal Series A - Dow Futures

As can be noticed a measured move occurred after the dip, before markets turned. Likewise fast forward to today’s market and we appear on the second leg of the measured move which could mean markets to have double digit rallies for the next 6 days.  Today’s chat below.

Dow Futures Chart showing repeat bullish fractal

Fractal would indicate movement of Dow is on wavelet 4-5.

A corollary to the above analysis has been the movement of the Bund Futures. On the 2nd of January Bund futures exhibited a key reversal, forcing me to take on a short position on the Bund (Which generally is a harbinger of a rally in Equities). It further shows nascent signs of a completion of the ubiquitous SHS formation.

Bund Futures

These two developments give credence to Heuristic A.

Heuristic B: (The Bearish Case)

This is best observed on the Weekly Dow futures chart.

Heuristic B (Bearish Case)

If this heuristic is valid, markets should conform with wavelet 5-6 completing in next two days and the major wave down 6-7 starting. Key reversals would be a pretty good indication of the latter occurring.  A break past the neckline (line joining 1-4-6) would negate fractal.

“The Past is another Country, they do things different there !”

Trendless Markets

Markets last year failed to produce trends. As a trend trader, each supposedly trending market produced short lived results, forcing me out as the trend reversed. The ontology was for a trendless environment putting my epistemology in the wrong as I kept seeking for nascent trends in Equities.

As the new year starts my major focus remains the EUR/USD cross rates as I continue to bet heavily against the Euro. This coupled with my focus on the Nikkei. (Hopefully soon rather than later, this market will wake up).

Et tu China then fall …

They might not have made headlines but an article today on the FT gave credence to my global short positions:

The reforms come as central bank money data for October showed the first evidence of capital outflows since 2007. Beijing has long been worried about hot money inflows, but companies and investors have moved in the opposite direction over the past two months as concerns have mounted about the country’s weakening property market.

In the words of Caesar, Et tu China ?  MSCI taiwan Index futures hit the 236.60 level, giving me further confidence to remain short global Equities and long the US Dollar.

Pyramiding short Positions

Kept increasing short position throughout the day yesterday and into today as Divergence Iceberg heuristic got a corollary with key reversal signals exhibited by Global Equity futures. Used all profits to pyramid my Equity index futures on Global markets (FTSE, Dow, DAX). Further leveraged my longs on GBP.NZD  and US Dollar Index. Might have caught another down wave.

Iceberg Heuristic, Increasing Short positions on Equities

The Iceberge heuristic shows up again as divergence appears between Dow Futures (Iceberg) and S&P 500 Futures (Sea).  Took on a meaningful short position. (Points C & D on Charts show divergence.) Will pyramid if Markets confirm

Positions

Kept increasing long position on GBP.NZD cross rates, a harbinger for market turns.  Buying US Dollar Index futures again with stops at the 78.000 level.

Equity Futures:

Reason I am still not bullish and remain bearish on markets is the reaction of the MSCI Taiwan Index futures as well as SPI 200 futures to the rally. MSCI Taiwann Index futures are back at the 251.30 having touched 249.00 briefly. So either It was gap close before a rally, or markets were going up to fall further.

Began putting on a small short position on FTSE 100 and Dow futures again. A little timid.

The Spoils

“There is nothing as painful as giving up what you have won and no victory as sweet as getting back what you have lost”.  Those words are etched in my memory from reading “Education of a Speculator” literally at least 50 times .  My Stop positions were placed as far as possible to prevent myself being stopped out prematurely. I consequently gave up 60% of the profits I had earlier accumulated.

I saw the rally coming, knowing markets would rally after the holidays as they majority of the time do, I reduced my short positions, but what I should actually have been doing was reversing and going long for as long as markets would go. Positions I left on wiped 60% of the gains and left just a standard profit of 20% on NAVs. As I kept seeing the alerts go off with stops triggered, I knew it would be a long day.

After such days, I feel so old but remember those words attributed to James R. Keene “I get awful tired sometimes, but I come again”.

Market’s panacea

Who would have thought all that was needed to pull markets away from the precipice was this incredible panacea from global central banks of liquidity. It just so happens Japan tried the same but for some reason it was not packaged right. “A rose by a different name would not smell as sweet”.

What gives me pause was the market reaction. Despite Dow futures soaring to the 12000 level, MSCI taiwan have hardly registered a blip on the screen, Nikkei 225,  show no change in pattern.

Never fight the feds might be a valid axiom however I need a pattern to go long and as hard as I look I cant find one yet.