I figured I would show some new results since I am really happy with them. These are the results from my new ES Volatility Breakout intra day trading model. It trades 1 to 3 (max) trades per day. The risk process uses a fixed risk and that in this case is 1%. This risk is reduced to .5% generally within 20 minutes after the trade is filled. This means that the max targeted risk is $10,000 per trade and reduces to $5,000 per trade for a $1,000,000 account. The results above are uncompounded and trading on a $1,000,000 account from 1/1/2000. The model produces similar results back for nearly 30 years.
I will post more details about these systems when I can.
Well, Mr, Bernanke and his illustrious companions are at it again. Its apparent that all the brainiac economists over there at the central banks think that inflation at all costs is the answer. This is why I phrased my post regarding the primary down trend line several days ago the way I did. (Please see the previous post "A Dog with Fleas" for the charts and analysis.) If we sell off from fiddling around at that trend line (as posted earlier today), as I still expect we will, that represents the best possible outcome for the markets. It means failure does not get rewarded. It means that pending insolvencies will be recognised as insolvent. It means frauds will be revealed, identified and handled. It means that there will be a point at which stability is possible.
Now the alternative is not so good. If we breakout decisively above these levels, I have no problem with that from a trading perspective as my systems will trade long. However, it means that the chances for the constructive scenario will be slim to none. The death nail will be layed to rest in the carcass of the economy. The brainiac economic team at the Fed will have succeeded in disconnecting reality from reality - and that's a very difficult thing to do. They will have determined that higher prices for inflation assets, lesser currency based buying power and lower wages can coesxist to establish a stable economic foundation. I would like to point out that there is only one way to support sustainable higher prices and that is through high employment, wages and productivity. None of these issues are even being addressed.
Wages are decreasing as they have for the last 10 years for the middle to upper middle class. Jobs and opportunities are decreasing and likely will not stand much chance of rebounding - especially if commodity and raw materials and general asset prices increase. Additionally, if indeed the US thinks that it can repay its debts by drastically devaluing the dollar and crushing the purchasing power of an already weak America, then we will face another problem in a staggering rise in interest rates which will finish the economy off once and for all. No jobs, no purchasing power, no credit and no chance for a reprieve.
The upside is that the Bankers will own your house after you lose your job and all your savings, - they will likely offer to rent it to you. The concept that the market will sustainably store value simply because dollar devaluation is in full swing will not support the unilateral objectives the bankers would like you to believe. Business relies on consumers of services and products in order to generate profits. Demand collapse will force most companies to eat through remaining credit lines, if they are still available, and the cash that they carefully reserved in bonds with collapsed principle value due to raging interest rates. The Fed, by the way, only controls the Fed rates...market rates are quite another matter entirely and they will not nor do they deserve to influence any of them. Any way you cut it corporations will NOT do well - unless of course you are a BANKSTER and would like to own everyone's assets without bringing any value to the table at all.
The setup brings up yet another issue, people with nothing will have no problem losing the nothing that they have left by rising against the Barron thieves that will have been identified as having stolen from them. Our illustrious banking community as led by Bernake and Co. and politicians may have quite a problem on their hands. No wonder we need all those new executive orders that we never really hear about publicly.
The end in this scenario will likely result in the markets falling much further than I have already thought they would, a total loss of confidence in fiat money, total distrust of banks and governments and a near halt to productive business transaction. Much worse than if we wring out the insolvencies and corruption now. However, I would like to point out that it appears that, whether Bernake and Co are successful or not, they have already decided that inflation via dollar collapse is an acceptable risk. It does not matter the risk. If people can not afford gas, eggs or bread - who cares?
This issue alone demonstrates Bernanke's incompetence. In fact, I think that Benanke and Co should face charges for this disastrous handling of our situation. In time I think they may indeed get that wish. However, for now, the market will likely see the scenario painted above fairly clearly and will not allow Bernake's BS to get too far before slamming it back where it belongs. The sad thing is that the Fed is willing to simply throw taxpayer money out the window without even a care for the future, the economy or the people of the United States of America - that alone dramatically increases the risk for the stock market, the economy and the country for market particiapants. I am not the only one who sees that the Fed has NO credibility nor capability...given that, confidence is not inspired by this episode in the least.
This is all very troubling. In fact, I have spent quite a lot of time writing systems precisely for this reason. When dollar devaluation occurs or dramatic deflation bites the violence can not be handled by the human mind. Some people may have good reasons for the trades they do and get one leg right but will get crushed by the one they don't see. It is important to remember that markets can remain solvent much longer than their participants. Benake and the Fed are but participants in our markets and one insolvency I am very much interested in seeing play out.
For now, weekly systems are building shorts at these levels and my current expectation remains for the markets to be down substantially (20%+) by the end of the year.
This market is at an interesting place. We are pushing on a string and have not been able to make headway over the last week. I see a primary trend line that we are bumping up against and very bad odds for us to breakout over it in some substantial way. Additionally, I really like to watch the nasdaq100 and SP500 relationship - that relationship demonstrates that the NASDAQ is no longer leading the market up and most likely will be leading it down if the pattern of related weakness continues. There is still a slightly higher resistance zone that is possible for this bearish wedge if it was not completed on Friday or does not complete on Monday...but it looks quite terminal to me.
Ironically, everyone and their brother were looking for a weak September...I guess that's because September's are supposedly usually weak. Now, however, everyone is looking for a BIG year end rally out of our sloppy inverted head and shoulders pattern courtesy of CNBS and their trusty charts and analysis...I guess that's because "as September goes, so goes the year"... Forgive me if I call a spade a spade: The market did not comply in September and now the very same people who got it wrong think that it should do the expected thing and comply in October and through the end of the year.
From my perspective, the forces that be, and expectations that are, generally try to get the market to rally into elections and then fail miserably a high percentage of the time as we progress into the elections. The elections are around the corner and the question is: "Is there enough commitment..." to deal with nasty technicals and a market that is still int he midst of massive de-leveraging? I am not betting on it.
While it may seem somewhat conspiratorial to think that the forces that be have been driving markets with artificial influence. It seems conspiratorial because it is. If one were to interfere in cooperation with others for no other reason than the objective of manipulating prices to achieve your own ends, you are conspiring. To wit, the conspiring Fed has done a terrible job of using that manipulation to get liquidity infused into the economy. They have done a terrific job of getting that liquidity to be infused into the balance sheets of their co-conspirators and Wall Street in general.
We will see the results of this conspiratorial imbalance in reference to true price discovery play out further with a crash in the MUNI markets, Bond markets in general, Real Estate markets, Commodities markets and the Stock markets. There is precious little liquidity out there looking to find a new home in inflation assets. If liquidity can not look for a bet on a healthy recovery or follow through in inflation assets then bonds will be defaulted and derivative markets will cease to function once again.
I have no doubt that the jig is up and that the piper will be paid. As I said in previous posts, just like Long-Term capital, once people with assets, knowledge and capability discover that a pending insolvency is in play - they seek it out and circle it like sharks rather than petting it like a hamster. This is not a bad thing. If there is a wounded beast, put it out of its misery and lets move on. Failure does not need to get rewarded, it needs to be failed. That is what is going to ultimately happen here.
The Fed gets an F. Fail.
The fed provided liquidity to the wrong group. A bunch of over leveraged, accounting fraud, bailout seeking institutions. It suggested the sky would fall if we did not get immediate TARP...then spent 6 months figuring out what to do with TARP. So much for "immeadate" and "the sky falling" without TARP. It also, encouraged mal-investment and accounting fraud by insisting that IT regulate and control everything it can get its hands on, like the banking institutions and consumer financial protection. The delivery of the Fed has been a disaster.
The impact of its policies will make the depression much more challenging and devastating that it would have been without them since they encouraged incredible mal-investment in an attempt to prop up asset values at any cost. That cost has not been counted - it will be.
Obama gets an F. Fail.
Obama, was supposedly about "change". From what I see he has changed nothing. He has encouraged Cap and Trade and huge bills that no-one who is voting on them is encouraged to read until they have been passed. He has weaved a web of disastrous economic policies and implemented stimulus that actually has, in my analysis, resulted in a cost of $10 at minimum for every dollar that made it into the economy.
Apparently, for both parties the government can not get big enough, spend enough or have enough overpaid employees. There seems to have been a feeling overall that a collapse of an insolvent company is going to create a bigger disaster than spending 10, or many more times the cost of that insolvency, in an attempt to prevent it. Cash for Clunkers is an example. This hair-brained program simply encouraged people to go into debt that they could not afford to buy a car that they really did not need. Additionally, it wasted perfectly good vehicles and resources in the process by destroying them. The amount of damage done to the economy and environment with the destruction of household balance sheets, perfectly good vehicles, pollution from chemicals used in disposal of vehicles and the ultimate cost to the taxpayer was simply irresponsible. Obama and his cohorts have changed one thing, they have brought irresponsibility and cronyism to the highest level I could imagine possible.
Bush gets an F. Fail.
If there was a presidency marred by incompetence, conflict of interest and dishonesty - Bush gets the award. His policies did not create our disaster but they did not prevent it. To look for the causes of our condition we need to look as far back as Bretton Woods and the Federal Reserve Act. However, Clinton's policies left little option but for the economics of the nation to focus on debt creation and expansion, surplus be damned...and Bush delivered on that mandate, just as Obama has.
Bush's Imperialisim has cost us dearly, yet we are still expanding its scope and continuing damaging policies of this failed president.
Congress gets an F. Fail.
Congress seems to side with just about anything that could "out" any individual member for some indiscretion or embarrassing conflict of interest. The most astonishing thing is that they have gone along with wholesale breaches of the constitution by the executive branch for several adinistrations with out even a whisper.
Additionally, they seem to have a certain pride about passing legislation that involves many digits with out the commensurate interest in reading the specifics of what they are passing. Health care, financial reform, consumer protection and many many other governmental efforts have been implemented to reward failure and promote people and institutions that are responsible for those failures. Until this stops the economic situation can not be changed. The only hope is that US constituents get tired enough of amatures and cronies to ultimately replace them or prosecute them.
Most states get an F.Fail.
States have encouraged budget deficits, unemployment compensation and other assistance that they do not have the budgets to afford while simultaneously generally supporting union benefits and pay increases that are a demonstration of how politicians can be bought and paid for. There certainly are exceptions and some good people showing up occasionally, but on the whole, the states and municipalities are broke and are not going to get bailed out by Washington or Wall Street...and they have done barely anything other than raise taxes and hope that things get better so that their revenues can accommodate their irresponsible obligations.
Moreover, the pension system is about the get blown sky high by the defaults that these conditions cause. This pension blowup will cause even more insolvency as states try to print IOU's to placate pension obligations. Ironically, these very issues are going to place a large conflict on the table for states that realize they are not getting assistance from Washington and therefore seek to retain assets and revenue for themselves rather than letting them flow to Washington freely. Not a pretty picture.
Regulators get an F.Fail.
Regulators have tried to skirt just about every issue that came to their attention by creating some sort of misdirection on which the public can focus. The special handling and exceptions granted to fraudsters are just amazing. Goldman Tax and most Wall Street firms who deliberately promoted fraud are allowed to get off with a simple payment and no admission of guilt or wrong doing. What kind of enforcement is that. Meanwhile a little RIAA (Registered Investment Advisor) get's pounded into obliteration for giving what he believes to be good or prudent advice to his clients. We are now left with a system that deliberately constrains peoples ability to make timely investment decisions and encourages complacency among both investors and advisers since there is no other reasonable choice. This type of regulation encourages big institutions get bigger and small ones are encouraged to get smaller...how interesting.
The flash crash, derivatives regulation, financial reform, decimalization and a host of other regulatory lapses have encouraged a general instability within our market structure. The results of many regulatory resolutions achieve the benefit of eliminating smaller players and rewarding the big ones who were the largest offenders and simultaneously can afford useless resources required to comply with regulations which don't improve effectively results for the general public.
FASB rolled right over and allowed totally fraudulent marking of balance sheet assets for an indeterminate period and at the discretion of the institution. All it took was a little peddling from the Fed, the banks and Washington to make it happen. This little tid bit will be a major driver of the pending insolvencies that need to be resolved. And these guys call themselves regulators? Legalized fraud is not good regulation and can not fix previously failed or legalized frauds, as these actions are clearly intended to do.
Banks get an F.Fail.
Banks seek to play nearly every hand, get nearly every bonus and mask nearly every truth. JP Morgan Chase is building branches everywhere while the company is essentially insolvent. They are arbitratily and discretionarily reporting operating profits as reductions in required capital reserves, minimalising obligations with improper marks and withholding asset marks entirely by placing them off-balance-sheet. Any of this would usually be criminal if your regulator did not happen to be the Fed, who is doing the very same thing. Just look at Maiden Land holdings (legacy of the Bear Stearns/JPM deal) which had to be pried loose from off-balance-sheet handling with a lawsuit by Bloomberg.
Banks are bigger, in worse shape and more contrived than at any period in history...and what's more they are flaunting it.
The essential question is: "Why we should expect this to end well?"
I do not think we should...the primary trendline that I will include with this post later is the wall under which all this incompetence and fraud sits. Its the "Ending Well" line if you wish. If we can break that line in a meaningful way with these foundations and terrible technical action supporting us, then things are even worse than I thought!
I use Multicharts Charting and Backtesting Software.
I post high resolution charts made with Multicharts and Adobe Illustrator. Click on chart for a more detailled view.
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