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Messages - Bevan

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16
Shares / Re: Trader's Journal
« on: July 29, 2020, 08:48:15 pm »
So, it looks as though stocks are going to keep pushing higher for now. We are about to end July and the monthly chart shows momentum breaking upwards into positive terrain. It may not be a dramatic move higher but I feel it's a fairly safe one now. See monthly chart... This is about to be confirmed by the daily chart also breaking upwards in terms of momentum. So we "should" see some strong moves upward shortly... Of course nothing is ever guaranteed and that's where trading discipline, stop losses, allocation of capital etc. all come in.

On the daily chart we can see the typical sideways movement in stocks, that always happens when you get short term momentum moving "cross-current" to medium term signal / trend line.  As I posted a week ago (23rd June), we have seen a short term correction / sideways movement now when daily momentum broke down over the signal line last week. This allowed us to reallocate capital to other more useful trades such as gold. Now, it appears that stocks want to break up again... Out of interest, this cross-current momentum shifting to an upside breakout is what technical chartists will refer to as a "bull flag". But the bull flag pattern never really tells you when the breakout is coming - you need momentum for that.

- Look to start taking profits on gold, although the theory of big numbers means that traders will be pushing for the $2,000 level - maybe hang on until then...
- Start entering long positions on Dow and/or other stock indices
- Short vol (VIX) index, earning a nice interest carry as well, although tight stops please.... By being long stocks and short vol you're actually highly leveraged to stocks going up - not delta hedged at all...
- ZAR should also strengthen as "risk on" mode kicks in again
- Bitcoin has shot its load now and is over-extended to the upside. As stocks rally I expect Bitcoin to lose its allure, although the $10,000 level should hold as floor support now...

P.S. Now that I've posted this publicly, I've probably completely jinxed everything... Oh well, let's see....

17
Shares / Re: Trader's Journal
« on: July 23, 2020, 04:06:29 pm »
Out of interest, something similar to today's monthly Dow pattern happened in 2008 before the financial crash really got going. In fact, the signal line (red line in bottom graph hasn't been negative since the 2008 crash. But in March 2008 the rally was not nearly so strong as it is today. Then again, those were the days just before QE became a thing.

I for one am generally happy to follow the crowds in this current market euphoria. However, I know in my bones that no nation can ever outrun its debt problems, from the fall of Rome to France and more modern countries. The US is wholly dependent on the USD being the currency that can buy the entire world's production, hence they don't have an inflation problem, even while running the monster of all deficits ever known. However, China is doing everything in its power to ensure that the USD is toppled. Then there is US social security which goes bust in a little under 10 years.

When, not if, the USD collapses and/or defaults on its bondholders, that will usher in the biggest financial crisis the world has ever seen. It's not going to happen tomorrow, or even in the next fear or two. There are still a few options allowing policymakers to kick the can down the road, although they are almost out of options now. In 5 years time the world is going to be a vastly different place.

18
Shares / Re: Trader's Journal
« on: July 23, 2020, 02:17:31 pm »
Unlike many other markets, the stock market hardly ever gives you a chance to short it. Aside from the famed Plunge Prevention Team, we also now have Robin Hood traders, day traders, swing traders, bots, funds and of course the monthly splurge from the FIRE crowd, pension funds etc. This is all unprecedented stuff - nowhere in the history of markets has so much firepower been thrown at the market to make it go up. But of course when everyone is long, the speed and depth of the panic when crashes come will only get wilder and wilder.

The market rallied itself out of a fall the other day, and we are now pretty extended to the upside. We only have a week or so to go before printing a nicely positive upside breakout for the stock market on a monthly chart. It's pretty wild to think that by the end of August the market could be back at the level it started the year at, as if Covid never even happened. And yet, the US has thrown trillions of firepower into the market. Of course, with the red signal line now having reached zero, we could see a positive July, Aug and Sep, with a subsequent turn down in momentum come end of year.

Meanwhile, my favourite trade remains gold, although that is quite extended to the upside now as well. It's fascinating how gold and stocks have rallied at the same time - that hardly ever happens as they normally have quite strong inverse correlation.

Although we are due for a short term stocks correction, in the medium term it looks like we should see a good run towards Jan-20 levels on the Dow, at which point the market might get the wobbles again, depending on how Main Street is faring relative to Wall Street.

19
Shares / Re: Trader's Journal
« on: July 20, 2020, 10:40:18 am »
Yes thank you have confirmed what I have always suspected about Tesla investors....

It's not just Tesla investors although Tesla is of course a well loved brand amongst millennials. Hey, if one can't own the car then at least own the stock...  :D  There's plenty of US companies that one is not sure will ever make profits, Netflix being another. Their spend per Oscar earned is mind boggling, and with competitors fast emerging they may already have reached "peak eyeballs". 

At least we can easily see what most of these young, "Robin Hood", uninformed investors are buying. Do they even know that Robin Hood sells their trading intentions to the pros, who get to front-run them? Do the millenialls even care? I suspect not, at least whilst prices are being ramped. Of the FANG crowd, it would seem that only Amazon has substance, although they too are probably hitting peak limits to growth and anti-competitive regulators are circling it seems.

20
Shares / Re: Trader's Journal
« on: July 20, 2020, 10:31:07 am »
Momentum has now broken downwards on the Dow. But before the bears get too excited we need to note that the signal line is still nicely in positive territory. This typically means a period of choppy, sideways price action i.e. as the wind blows against the current we get crosscurrent, choppy conditions in the sea.

The best strategy here is to sit on your hands, although short-term longs should probably be exiting their positions and taking profits. Note that we had a similar push downwards starting on 9th June, but that was under much more convincing bearish price action, with the steepness of the momentum fall much sharper. This one is more gentle although we need to see what today actually brings to the table.

We are still in this vital period before month end, which determines if we break upwards on a monthly chart, or shift back down again. That is the medium term trend that we want to be able to get on.

21
Shares / Re: Trader's Journal
« on: July 14, 2020, 02:53:04 pm »
Following with interest. Not because I want to try, but because I find it fascinating!

Great. Glad to hear. So here's one for the stock market which I think is at a pivotal moment right now....

On a monthly chart the Dow looks like it could be breaking up, with MACD moving in line with a barely positive signal line... However, we are mid-way through forming this month's price action. The end of 2007, after the initial CDO collapses, saw very similar stock market price action wanting to break up, before events overcame markets and we headed back down into the crash of 2008. We are also at a around the key psychological 50% retracement mark after the year's earlier price crash, and the rule suggests a return to the downside in this case.

The weekly chart sees the bulls firmly in the driving seat since early April, with both MACD and signal in positive territory, although this move is getting a little tired by now. So again, the next break should be to the downside but would not want to pre-emptively short the market here.

The daily chart is due for a downside correction any day now, although again, it's very very tough to short the stock market when it is continually being fed by stimulus cash, company buybacks and crazy Tesla investors etc.

Having said all that, it is earnings / reporting season now and this should bring some sense of where markets really are, aside from the hype. If we start to see negative readings then the market is wide open to the downside, possibly leading to a greater collapse. However,  we would need to see this fall happen by end July otherwise the monthly chart indicates that it's full steam ahead for the bulls again.

The best trade here would probably be an end of month straddle (options), as we are likely to see big price moves either way. But I will leave the more complex options trades for a later time.

The next two weeks is thus vital for the stock market, to determine if we crash and burn for a bit, or rise and thrive again.

22
Shares / Re: Trader's Journal
« on: July 14, 2020, 11:48:59 am »
Let's now check out a daily chart, for a more granular interpretation....

Here we see MACD breaking down over a rising signal line, although the signal line is nominally in negative territory still. As a scalper one might be tempted to short BTC at this point, but for me this is tricky. This is a situation where the wind is now blowing across the swell, creating choppy sideways price action.

Judging from the last few weeks of price action, I don't like the downside potential here anyway and the daily Bollingers are really close as well.

As one should always be looking to trade less, thus saving you precious brokerage costs, going short now is not great risk:reward trade. Capital and margin is probably best employed elsewhere for now. However, BTC looks to be setting itself up for a great short trade in a little while. One to keep on the watch list for now....


23
Shares / Re: Trader's Journal
« on: July 14, 2020, 11:38:57 am »
Now let's look at Bitcoin ("BTC") to start with.... We start with a monthly chart to get an overall helicopter view.

We can see that we are easily within the Bollinger Bands, indicating that monthly volatility is way down from previous levels. This therefore gives us no indication of price.

However, in the MACD chart, we can see that both the MACD line itself (blue) and the signal line (red) are in positive territory, and have been for the last 3 months i.e. 3 green bars of late. When the current (signal line) and the wind (blue line) are moving in the same direction, and especially when moving in same direction as the long term 200-day MA, then we expect strong moves in that direction i.e. similar to strong, rolling swell in an ocean. When current and wind are opposite to each other then we should expect choppy, sideways price action.

Even though the bulls are clearly in charge in this monthly view, we see that price action has been weak and has failed to break above the 10,000 level again. We also note that an average run above or below the signal line is about 6 months, and we are in the 3rd month now. To me this indicates that BTC is quite a tired market, with many participants having given up on it.

It's inevitable that momentum will break down once more and when it does, we could see major capitulation from buyers finally throwing in the towel. However, for now the monthly chart is telling us to probably hold onto any long position, if already long. For any new position, it's too early to short and probably not wise to go long this late in the cycle.

24
Shares / Re: Trader's Journal
« on: July 14, 2020, 11:24:43 am »

In any market we need to understand that there are different timelines operating...
a) The long term, passive investment funds (like Patrick  ;) ) who have no option but to religiously invest their cash in the market every month. Consider this as akin to a 200 day moving average line.
b) The medium term professional investors (investment funds, hedge funds, professional traders), who rebalance investment portfolios quarterly or monthly. Consider this as the current flowing in an ocean. We model this using the signal line (red line) of the MACD indicator i.e. Moving Average Convergence Divergence.
c) The short term traders (including bots, scalpers, option delta traders, amateur day traders etc) who are in and out of the market regularly. Consider this as the wind blowing across the ocean. We model this using the MACD (blue line) of the MACD indicator.

We also need to understand that any market has an inherent stretchiness to it. Think of an elastic band being tight or loose. This stretchiness is a measure of the daily volatility that any market can bear and is nicely illustrated by Bollinger Bands, approximated as the standard deviation. Of course markets will often stretch beyond their band, but its usually only temporary.

25
Shares / Trader's Journal
« on: July 14, 2020, 11:11:03 am »
Having some time on my hands again, being winter and all, I thought I would do a weekly (or thereabouts) post on some trading advice. Hope some people might find it useful.

First, some background... I co-founded the global coal market around 1998 in London, UK, becoming essentially an online coal (commodities) broker at the time. Later I moved into trading commodities with a couple of investment banks, returning to South Africa in 2008 post the credit crunch. I now run Thrive Centre in Hogsback where we make compost, grow awesome organic food and teach people how to become self-sufficient. I also run African Source Markets which is commoditising strategic African commodities in much the same way that globalCOAL did. For reference I've traded FX, commodities, stocks, swaps, futures, options and several other private variants as part of corporate finance deals.

I find financial markets (alongside religion) one of the most amazing concepts invented by Homo Sapiens to date. However, I just wish that we could all get our egos in check and learn to live in harmony with Nature, instead of raping her for profit, without accounting for any externalities, although I think that movie is still playing out as climate change starts to make itself felt. Anyway, on with the journal...


26
Off topic / Re: Question re FIRE future returns
« on: July 14, 2020, 10:32:36 am »
Thank you for these food for thought replies Bevan. Its interesting how things are developing.
Check out a spot for me in Hogsback so, i too can become a homesteader  ;)

It's quite amazing how things are developing. Stock markets have become the new casinos. Everyone in the US has received well over $1,000 of stimulus with many businesses receiving much more than that. Combined with the new Robin Hood investors, where they front run you as a client, we can see that much of this easy money has gone into the popular FANG and Tesla stocks. This is the dumb money personified, that always fuels the final blow-off top before a collapse. Not to say a collapse is coming tomorrow, or even this year. The US has showed its ability to kick the bankruptcy can down the road many times before. But I reckon within 2-3 years the stresses in the system will be overwhelming.

Now is a great time to look out for decent homesteader properties. Many people relying on tourism in popular tourist spots such as Hogsback are having to sell up. If you can earn an income sans tourism, which is going to be decimated for a few years to come still, then there are some decent properties to snap up.

One could sell their Sandton pile for circa R2-3m and buy 10 acres of awesome land, with fruit trees, great water etc., and have around R1.5m left over. It's a tougher life, but so much more rewarding as well. We have satellite internet, awesome coffee spots and restaurants, never mind the forest walks, waterfalls and mountain biking. Almost got the skiis out too as we narrowly missed some more snow this week. And the beach is just over an hour away.

If anyone is interested in sustainability tips and homesteading, plus trading advice from time to time, you can subscribe to our free weekly newsletter at www.thrivecentre.co.za

27
Shares / Re: How to watch a Youtube technical analysis
« on: June 30, 2020, 11:48:02 am »
I know you're just here for the SPAM but I enjoyed some of the funny memes that cropped up in the video. Lost complete interest after a few minutes though...

TA is just one tool that any trader of course needs to understand. And then ignore most of it, except for a few things like momentum and bollinger bands, which are so obviously programmed into most scalping and swing trading bots that you've got to understand it. Just like you need to understand how an elastic band works, and that different investors, traders etc. have different time horizons that they all trade....

But hey, the whole market, together with the whole house of cards (ETFs, ETNs, indices, options, futures, swaps, structured notes, private structured finance deals etc.) has become one big casino. It's awesome in one aspect, and quite sickening in another. The market is completely unhinged from the reality of main street, and the reality of what most businesses are dealing with. When the Fed steps in to stop banks buying back their own stock the market has a little hissy fit. It's hilarious.

I can't be sure when, but it's approaching rapidly now. All that Robin Hood cash will disappear in an instant, and the Fed will just conjure up some more cash, and buy some more distressed zombie companies and bonds. Until at some point it becomes so obvious that they just can't anymore.... Then things will get interesting. The great USD collapse will make the Covid 2020 crash look like a walk in the park.

28
Off topic / Re: Live chat
« on: June 08, 2020, 10:29:24 pm »
Thanks, watching now. I still can't get how the market has recovered when the world economies are in such a state. It makes no sense at all.

It makes perfect sense when you consider how much cash has been minted and flooded into the system. Ride the Fed man, everyone else is doing it!!! Just sleep with one eye open and one foot on the floor, to make sure you can be one of the first out of the exit door when Wall Street finally realises that Main Street is on its knees.

29
Off topic / Re: Live chat
« on: May 20, 2020, 11:39:05 am »
Great interview with Druckenmiller... Never seen risk:reward for stocks this bad in this career... Fed has spunked all its firepower due to front running nature of stimulus, and market only rallied to just over half the crash in March... https://www.youtube.com/watch?v=wKwoMuB2Tck&feature=youtu.be

30
Off topic / Re: Question re FIRE future returns
« on: April 21, 2020, 03:35:22 pm »
If I'm right about the above stagflationary scenario, then you really want to own REAL things:

- Property, especially property with decent water that can feed your family (OK, I'm biased as a homesteader already)

- Commodities such as gold. Hey, it's boring but it has generally held its value with inflation since the time of the Egyptians. You especially want to own commodities priced in USD, until such time as the USD collapse of course - still a few years away at least...

- Stocks that will increase in value as the real economy increases in value. Stocks will be a mixed bag though because generally higher inflation results in higher rates, meaning that investors generally bail out of stocks and into safer money market returns.

If at all possible, you also want to load up on FIXED rate debt. If you can secure a fixed rate then inflation will erode the quantum of your debt very quickly, allowing you to pay it off easily. However, this ONLY applies to fixed rate debt. Floating rate debt will KILL you in an inflationary environment. Floating rate debt has of course been exceptionally kind to wealthy investors over the last 10 years. But that leveraged debt trade is not going to be possible any longer.


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