The following is a review of the past week.
Goes without saying: please do your own due diligence and evaluate your own risk tolerance.
For more up to date information, you can just follow me on stocktwits: runner417. I plan to just use the blog as a "weekly report card" and "pontification session."
Charts to be posted later.
Overall Grade: C-
Past week's calls could have used some improvement. Overall next week, I'm feeling optimistic.
NUGT [F]: First of all, the overweight position in NUGT stopped out twice (because I bought back later). I did flip to DUST for a bit but the point is the call on NUGT didn't pan out at all, not even close.
After reviewing the charts again, I realized that I misinterpreted reading one of the cycle charts for NUGT. Moving forward, I think I have a better grasp of reading the cycle and will evaluate more as we go.
UGAZ (natural gas) [A] is a winner, and I think it will continue to be a winner into first week of December after it corrects Monday.
EDC/EEM [A] are both setting up to be winners heading into first week of December. The correction this week was expected after the rapid rise (and emotional gap up off of cycle high). Emotions are now reset, and should be free to run this week.
UVXY (vol) [C] short term pop was accurate but next time I would rather not even bother posting something so short term. It remains something to stay away from for the time being. Vol WILL catch up...nature finds a way (Jurassic Park flashback). It is nearing the end of a massive cycle and by the looks of it 2014 is going to be one crazy year. 2015 will be crazier (overall a "minor" correction in 2014 to be followed by a massive run up like 2009 into EOY 2015. Don't miss that run up because that could be the bubble of the bubble. I say minor because a 20-30% decline means nothing after a +150% runup). Maybe nature is getting very angry that nothing has been resolved on the debt ceiling, government spending front. Some market volatility can adjust that properly.
YINN (china) [A] works similarly to EEM but not really. YINN is also setting up for a run into December. China did pass notable reforms this past week, ones that stood out to me were abolishing the one child policy and allowing more private investment, less government intervention. The beneficial effects of this should be felt years from now but the market will price this in over time. You should see the baby stocks in China after the reform change. Pricing it in already:
That's the easy result of the reform change, but the underlying current is social. Single children have a very different view of the world versus those that have siblings. This can open up China and be more creative. There is a lot of pressure on single children and having siblings will ease the burden. I see this as being hugely beneficial 20 years out.
Despite what views you may have of China, the way the government is setup picks the strengths of different government types. First, the decisiveness of government and two the strengths of a capitalist economy. The future remains murky for US economics but Chinese economics remains very bright.
SPX [C]: trickiest chart of them all. There was a brief correction that was really a wave 4 and we likely ended wave 5 on Friday. ABC correction next then another buying spree into year end is the call...wave B should coincide with day before and after thanksgiving. Wave C probably be blamed on some "lower than expected Black Friday results." I really don't factor news in my trading because it's really noisy and I find it hard to believe that some reporter can dictate which way the market goes.
DRN (real estate) [C]: DRN is following a similar cycle to NUGT just not as bad so I readjusted the cycle interpretation, and we'll see this week. I think it bottomed and is heading short term higher to the 40s
TLT [B]: The correction midweek is likely an expanded flat (so wave B cut below wave A), so we should overshoot back up in wave C. Re-adjusted short term cycle for this. I did make some intraweek trades on TLT and so far have worked out ok so I will stick with the cycle.
A new one that I will add to the mix is oil (UCO or USO). I really think oil bottomed this past week and is ready to move up for longer term buy. I question how can oil be down so much when stocks are so high?
I will write a separate discussion on cycles and how I use them in my analysis in the future. In summary, I've seen more than my fair share of various indicators and I believe the theory that gives me the best confidence entering a trade is cycle theory.
It is the one theory that eliminates as much as possible the "what if" questions that pop up in my head. "what if the moving average does X or what if this wave is really a 3 legged up wave rather than 5?" These types of questions can easily affect an otherwise sound trading decision.
With cycles, the natural rhythm and flow of waves and how waves amplify when cycles overlap is something i have found to be the most intriguing and oddly, the most serene feeling in trading. I guess once you figure out the cycle and morph with that asset as "one" you see where the price goes beforehand and literally feel what market participants are feeling and it's amazing to see how that can work. Sounds hocus pocus, but I never one believed that analyzing markets needed a PhD.
It makes sense, the problem is interpreting the cycles right. Once you determine the master cycle for a given asset, you can capitalize on short term emotional trading (i.e. stock gets beaten down but cycle is up...what that tells me is at some point once the emotional trading is out of the way, the stock just flat out rips to catch up.) Nature has a funny way of correcting itself. Really really interesting stuff.
I use cycle theory to figure out the time aspect, then use standard TI to figure out the price aspect. I then use Elliott Wave to determine how best the wave will end. All of this stuff is not easy at first but once you become one with nature and the natural rhythm, it is quite eye opening.