Buy On Weakness – Sell On Strength

For those of us already “in the trade” – congratulations. One of the most difficult things for a new trader to learn to do ( and also one… essential for success) is to “buy into weakness” – and “sell into strength”. I know it  sounds crazy, if not completely insane to the newcomer but…you gotta get your head wrapped around it in order to succeed. You gotta think like the big boys.

For most (wary of the current market conditions – and perhaps angry, frustrated – or even half clean out by the 2008 crash etc) its is extremely difficult to trade / invest when….for the most part it’s a crap shoot at best. Day to-day news of collapse…or war….or you name it really – has really taken a bit out of the average investors confidence in the market.

So…you see a big “up day” and you think “hey things are turning…I think Im gonna buy” – or the inverse “oooh – red day….I better sit tight and see how this plays out” – then oddly…….get smoked doing either! The buyer on green…..wakes up the following morning to a sea of red…a losing position…. and a broken heart. The “sitter” on red….wakes up the next morning to “Dow up 300!” – stocks through the roof, and an angry wife saying “well  then!  – why didn’t you buy? – damn!”.

In general, lets look at it this way. On “green days” wallstreet fat  cats with more money and stock than god are SELLING YOU STOCK ( as grandma and grandpa hear of the euphoria..and assume the time is right ). The wallstreet gang already owns the stock – at much lower prices – and sees this opportunity to SELL – as new participants enter the market with dreams of their own private island.On “red days” wallstreet fat cat with more money than god are BUYING YOUR STOCK – as newbies completely freak out – sell like there’s no tomorrow, and again turn to face the wrath of their “oh so loving wives” with a loss….. from the trade they “so confidently” placed days earlier.

Anyway….I could go on.Point being – in order to play with the big boys – you gotta flip this thing upside down -you gotta buy on weakness….and in turn….sell on strength.

Short of that – I can only imagine – there’s whole lot of pissed off wives out there – continually hearing of “trades gone wrong” from  “mr. know it all” sitting ‘cross the kitchen table. Thankfully – Im still single.

Why Is The $CRB Important?

The Thomson Reuters/Jefferies CRB Index (TR/J CRB) (thank you wikipedia) –  is a commodity price index. It was first calculated by Commodity Research Bureau, Inc. in 1957 and made its inaugural appearance in the 1958 CRB Commodity Year Book.

The Index was originally composed of 28 commodities, however there has been a continuous adjustment of the individual components used in calculating the Index since the original 28 were chosen in 1957. All of these changes have been part of the continuing effort of Thomson Reuters to ensure that its value provides accurate representation of broad commodity price trends.

The index comprises 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat.

Generally commodity prices move opposite to bond prices. This is because inflation causes commodities to increase in price while devaluating the price of bonds. This is one of the reasons that the CRB is so closely watched by both bond and commodity traders. – AND BY KONG.

When you step back from the day to day “mindfield” of the SP 500 – it gets much easier to see what is “really going on” and you can trade with a greater sense of confidence. If somone asked me today “Hey Kong – do you think the price of things (commodities) on this planet are getting cheaper here moving forward? or more expensive?”

I’d have to be careful not to punch them in the face.

Watch the $CRB – It “IS” Important.

Cliff Spliff – Give Me a Break

As out of character as this is…..I just couldn’t stop myself this morning. A funny thing really – watching news on spanish TV. Regardless of most of the small talk generally all “melting together” – you get these funny little english outbursts of words and phrases that can’t be translated into spanish.

“Y en otras noticias.. .el Estados Unidos avanza hacia la FISCAL CLIFF……y los peligros de caída de la FISCAL CLIFF crean problemas significativos para la economía”. Its too funny.

Listen – If anyone reading here honestly thinks for a minute, that Obama and ol Uncle Ben – after pumping billions and billions and billions into markets over the past 4 years – are going to just quit/give up /get hung up on something as ridiculous as this – perhaps you’re sittin up in Colorado right now – kicking back and enjoying the new marijuana laws.

The big wheels of “easing” are now more than set in motion –  and nothing ..NOTHING can stop it now – NOTHING. This administration is in far to deep at this point…. to even “consider” slowing down – in fact… its much more likely things will even start to move faster – as the easing continues and continues.

Its bye bye dollar boys…….and the markets gonna fly.

An Inside Day – What Are The Implications?

An “Inside Day” ( thank you Investopedia ) – Is a trading day wherein the entire day’s price range for a given security,  falls within the price range of the previous day. An “Inside Day” can be very useful for spotting changes in the direction of a trend.

An inside day is often used to signal indecision because neither the bulls nor the bears are able to send the price beyond the range of the previous day. If an inside day is found at the end of a prolonged downtrend and is located near a level of support, it can be used to signal a bullish shift in trend. Conversely, an inside day found near the end of a prolonged uptrend may suggest that the rally is getting exhausted and is likely to reverse.

Ill be looking for this kind of thing tomorrow ( actually I was thinking moreso today but….. ) as the selling pressure appears to have petered out. I think it’s pretty safe to say – the last of those bulls still clinging to their shares, will have most likely thrown in the towel here today – as seen by action in Apple (APPL) and tech in general.

“Capitulation” as we’ve come to know it in the trading world.

The “big boys” will most certainly be buying…as most of you (if not already)  – panic, and readily hand over your shares…. at significantly reduced prices.

Kong stands strong……..kong…long.

Mining – Could it Be In Our Genes?

Could the ancient astronaut theory hold true?

That thousands of years ago celestial vistors came to our planet in search of materials needed for their very survival – and in realizing the difficulties in extracting these materials from the ground, developed modern man to essentially do the hard work for them? When you really think about it…..it’s really not that far off.

As a young boy I remember a hoax that played out at my elementary school. A group of the older kids had painted a bunch of small rocks with gold model paint and hid them out in the sand of the school’s playground. Once the word got out….I recall the excitement and anticipation sitting there in my tiny desk, staring at the clock, squirming in my chair, waiting for the bell to ring. “Gold! Gold! – they’ve found gold in the playground!”.

We’d trip over ourselves racing out the door – eager to be the first to lay our hands on even the smallest spec of the glorious stuff. We spent hours on our hands and knees sifting, searching for our fortunes.

In the end…….I never found a single piece.

A silly young boy indeed –  but is it really any different now as adults?

Maybe mining is in our genes.

 

Relative Strength – And a Sea of Red

Relative strength is a term used to describe a given assets performance “against” a market in general – or within its given area or sector. When a given asset exibits  “relative strength” it can clearly be seen as outperforming a market in general and/or others similar to it. This in itself should afford an investor “some solace” or perhaps a “rock in the stormy seas” as others are seen sinking around you.

Do your current investments show relative strength on a day when “seemingly” everything under the sun is being sold like there’s  no tomorrow?

If you currently hold gold, silver and mining related stocks they do. In fact, several of which are actually “up” on the day, while the Dow dives -240 so…….ask yourself – why on earth are these things “holding their own” in a complete and total sea of red?

Kong Be Nimble – Kong Be Quick!

It’s not for everyone…I understand.

I assume that some (if not most) of you…… likely have a number of other responsibilities that far outweigh your interest here…….your interest in trading and investing. Interest in the flow of money ’round this silly little planet……interest in gold, china, space exploration, nano technology, conotoxins, robotics, ancient cultures, nitrifying bacteria, the particle zoo etc…..

I do understand….and I digress.

The volatility circling ´round this “historic eve” has provided opportunity for the nimble – those of us with little responsibility……other than the occasional glance at our computer screens, on the way to the fridge to grab another cold beer.

I will look to re enter the exact same trades I went to cash with earlier today in that….fundamentally…nothin has changed. Just the usual “zigs n zags” – for those willing and able – to keep things nimble.

Winship is Wonderful – Or is It?

As of 6:03 a.m this morning, I am sitting here listening to the jungle come to life. The sounds of insects buzzing, and birds chirping away – coupled with the occasional hoot/yip from my girlfriend – apparently quite thrilled with what she sees here on the computer screen. 600+ pips and 4% additional profit –  is nothing to shake a stick at – and indeed does warrant some excitement.

Now… this provides a fairly substancial “pillow” if a trader was to consider “letting it ride” and let’s say….spend the day snorkling with the sea turtles… or perhaps a long  hike out along the beach. Keeping in mind of course, that within minutes this entire “paper profit” could be cut in half or even completely erased/vanish considering the current volatility and market environment ( I read last night that perhaps because of Florida – the election results may not be completed/counted for several weeks should some “discrepancy” arise…..what?..are you kidding me?) leaving one feeling….lets just say  “not so happy”  about taking that chance.

Or….responsibly…one could choose to “move your stops” into profit and allow the trades to keep working – understanding that you may arrive home later with “less” than you see  now – but all in all still a good trade.

Or lastly – one could choose to “BANK EVERY FREAKIN PENNY” – and go about his business with a much larger smile than the day before, an extra 4% in the bank , and every opportunity to “jump back in” knowing full well – the usual “zigs n zags” will always provide another shot.

Subsequently a new pack of street dogs has taken up residence across the street…..perhaps I’ll wander over and buy them breakfast.

6:37 Kong takes profits.

A Euro Buy – Not For The Weakhearted

I’ve been going on and on about the continued weakness in Europe, and how I feel that it will most certainly come to “bite us in the ass” again, and again in the coming year. Spain’s issues are much more serious than the current market action reflects – and the ECB has been doing a lot of talking with very little action. Yes bond yields are down across the board and for the time being it “appears” that things have steadied / leveled off however – bubbling there underneath the surface is a complete and total financial disaster. I guess….. for those who believe that now ” endless printing” (so far yet to be seen) by the ECB will magically paper over the holes – fair enough, as this seems to be the current “accepted course of action”.

But make no mistake  – the problems in Europe are far from over. Now…that being said ” lets go buy some Euro’s”!

In currency markets  – there are many instances when the “fundamentals” do not come close to lining up with the “technicals” – but short term trade set ups do ideed exist. I generally approach these trades with smaller position size, and pre-determined stops – in order to set my emotions aside, and just allow the trade to work. Another small suggestion would be to place orders “well above” the current price action, and let the trade come to you.

A Traders Edge – Look To The Bigger Picture

This came up in the comments area and I wanted to post this for everyone – as I believe  it to be an important point.

I see “risk on” for commodities from a couple different angles – and yes…..at times it is difficult (especially these days) to discern which direction things are headed with so much information, and so much of it conflicting.

  • From a purely fundamental view – world populations are growing, and resources are diminishing (things we all need/use are getting harder to find) = commodities up
  • The simple fact that as the world’s current reserve currency (the U.S dollar) is firmly being targeted for devaluation, the cost of these “things we need” should rise – as they are priced in U.S dollars. Dollar worth less = commodities up
  • From a currency point of view – long term trends in AUD and NZD (like..a weekly chart at least) are clearly in very well defined up trends despite recent volatility and the daily action. Commod currencies up = commodities up

Zooming out to a larger picture often helps frame shorter term trade decisions (or at least provides a solid background) when the day to day volatility gets difficult to handle. The “edge” can be found here – in having the confidence in your decisions, knowing you are trading in the right direction from a larger point of view – and not letting the “daily squiggles” bump you out of your trade.

A quick chart of the  “$CRB Commodities Index”  and the likely direction of “all things commodity” coming soon to a theatre near you.

The Commodities Index  - $CRB

Commodities set to move higher