Aloha

Even El Presidente returning early from his Christmas break did nothing to convince the market a deal can be struck in the final hours before the 'Cliff' comes into effect 31 Dec. We duly took profits as this realisation dawned on the market, comfortably sitting in a 'cash' position as the deadline passes. We will know much better next week, after the month, quarter and year end, how things will shape in the New Year. In our first year we have quadrupled monies that we started with, with all trades being shown in our sister blog Portfolio We shall do a full review and projection on the 'Performance' tab once the year has fully completed. Meanwhile, we would like to wish all our followers healthy, wealthy and intuitive New Year !!   

The Cliff

Despite no agreement on the fiscal cliff talks, the market seems totally unperturbed, apart from a brief wobble in the early hours of Friday morning. With this total lack of progress we fail to see how a 'grand bargain' can be struck, in all likelihood the best outcome will be another fudge and the worst a total collapse. Either way we see profit-taking into the year end and will hold our small short position. We will  short another 2 contracts on a rally above 1450, and set the stop for all 5 contracts at 1463. We will also take profits on any fall below 1410.

Fed Impotence

As we predicted the Fed printed another bucket load of dollars, the market rallied, but ultimately ended down on the week. Cruelly, our stop was breached during this move, crystallising a loss for the portfolio. With the end of the year approaching, there is unlikely to be another opportunity. We will short the market with a small position of 3 contracts on any rally above 1335, with a tight stop at 1351. 

Running on Empty

The market by and large made no progress this last week, together with other western markets. The Nasdaq, due in no small part to Apple,  fared worse registering a fall. This is characteristic of a topping process, where high flyers exhibit weakness first, to then be followed by the broader markets. We have a Fed meeting this upcoming week, where there will no doubt be more money printing, and may give the market another short-term lift. However, this is nothing new that the market has not factored in already. We will continue to hold our short position, and will add a further £1 per point  contract if the market rallies above 1428. Our stop loss this week is adjusted to 1439, and we will take profits at any price below 1390.

Fiscal Cliff

Despite continued wrangles and obvious disagreements over the 'Fiscal Cliff' negotiations, the market rallied for a second week, to finish the month in positive territory once again, making 8 up months this year. We continue to think the market is overly optimistic, but can not rule out an end of year rally to 1460, as market participants seem to be ambivalent to rising debt levels and downgrades of such. Before any rally however, we expect at least one negative week, and with a raft of economic reports disrupted by storm 'Sandy' out this week, we expect weakness.  We are increasing our short position, selling a further 2 contracts at 1417.5 at the market open, and a final one if the market hits 1423. We will revise our stop loss limit to 1434 and set a target of 1383 where we will take profits on 5 contracts, leaving any remainder to run for the week.   

Snap Back

As we expected the market rebounded sharply from an oversold position this last week. With such a sharp rebound from the recent low of 1343, we feel a revisit to test this low is a distinct possibility. The news from Europe was less than encouraging last week, and a disappointment from the Greek situation could well be the catalyst for such a reversal this coming week. This week we will increase our short position by 2 contracts at any price above 1405, placing a stop for the full 5 contracts at 1423. Our target price is the first daily close below 1360 where we will cash in the full position. Should the market continue down to the recent low of 1343, we will buy 3 contracts at this level.

Market Extremes

We were stopped out again this week, in a not dis-similar fashion to the second week in September. Both these events were due to a misinterpretation of the market's extremes, overbought in September and oversold here in November. Adjustments have been made to accommodate such extremes in future, where by the markets very nature, moves can be more volatile. Speculating on the these extreme pivots accurately is where the opportunity lies for dramatically increased profitability. We are maintaining our oversold interpretation this week and will place an order to buy 5 contracts at the market open of 1364. Should the market fall we would buy a further 3 contracts at 1345 (or the full 8 if our initial order is not filled) We will set a stop at 1333 and a target price of 1393 where we will sell all contracts and short (sell) 3 contracts at a price above that level, reversing a portion of our position.

4 More Years of Same

With Obama re-elected, the market began to grasp the concept that nothing is going to change. There will be more fence sitting, more dis-agreements and in all likelihood more downgrades that are inevitable with unsustainable debt limits. The market swooned accordingly and entered into oversold territory on Thursday with a drop below the 1380 level. Friday bounced off an intra-day low of  1367 partially confirming our thoughts, with Apple being the main protagonist. We expect a knee-jerk bounce this week, as many market commentators are turning bearish. We bought 3 contracts this week at 1387, and will place an order to buy a further 5 contracts on the market open at 1380. We will set a stop-loss at 1363 and a target price of above 1410 where we will take profits.

Election Week

Events this last week did indeed swing the market up and down, however the resulting net effect was a barely changed week, that yet again does not present any clear trading signal for this week. With the presidential election taking place on Tuesday, this is not an unhappy position to be in. We may be tempted to buy a small position of 3 contracts on a fall below 1390, similarly to sell 3 contracts on a rally above 1440. Ideally we need the forthcoming week to finish at either of the above scale before we would commit a full position.The presidential result could indeed provide such impetus.

Storm Watch

Further falls ensued this last week as we expected. Unfortunately, with the release of a good US GDP number on Friday, the market rallied off the lows moving the market out of the 'oversold' territory that would have provided a full buying opportunity. As it appears this may be a blessing in disguise as a number of factors come into play this week with the potential for sharp swings one way or another. The huge storm off the east coast may turn out to be of the teacup variety, alternatively, if it combines with other weather fronts, large scale damage could follow. We also have the month end on Wednesday, which may influence movements in the latter part of the week. Company results continue to show weakness and election jitters will also be restraining factors. Levels where we would initiate a small trade are below 1396 where we would buy 3 contracts and above 1445, where we would sell 3 contracts.  

The Top Line

Volatility returned to the market this last week, and with a bang ! The catalyst was a premature release of earnings results from Google on Thursday, the real story of course is the severely slowing top-line growth in line with a global economic slowdown. This, despite the huge QE undertaken by central banks demonstrating the ultimate futility of such efforts. Fortunately, the market rallied to just above 1460 on Wednesday and allowed us to initiate a small short position as reported on the Portfolio blog. Much of the indexes damage on Friday was done after the other world markets had closed and so we expect a degree of follow through first thing on Monday. Although not oversold on any particular time frame, we will take profits as soon as possible this coming week, with resistance seen at 1420 and 1413. 

China Update

With this last weeks falls, our initial price target was hit and profits duly taken. We will take profits first thing this upcoming week on the remaining 3 contracts. There is a raft of economic figures this week, notably from China, where they will be closely watched to see any effects of recent stimulus measures. Also this week the earnings season will be in full effect coupled with a European Central Bank meeting for good measure. With so much going on and the potential for surprises up or down we will watch from the sidelines, unless the market rallies above 1460 where will re-enter our short position as per last week, again with a stop 3 pts above previous top set within the last 4 years. 

Earnings Watch

It took an average unemployment report at the end of last week, to push the market above our sell target. We duly took advantage of these prices to sell the market between 1460 - 1470. As we stated last week we do not expect any great shakes from company earnings starting this week, and indeed to set a weak tone for the month as a whole. To counter this we are aware that with an election shortly, the powers that be will not want a weak market, evidenced by a convenient employment rate of 7.8% that even brought comment from Jack Welch. With this in mind we are revising our target price to 1435 where we will take profits on 4 contracts. 

Quarter End

Despite impressive gains for the quarter, the market ended on somewhat of a whimper. Despite promises of unlimited money, and the initial market spike, it may be that the realities are starting to hit home. Productivity around the globe is slowing sharply almost as an inverse to the global debt that is rising sharply. This month will see weak company earnings and we suspect very guarded guidance going forward. However, with plenty of shiny new money available and an impending election, volatility could well be on the cards. We will be looking to short at or above 1460, with a maximum of 7 contracts and a stop loss 3 pts above the previous top. We see resistance at the 1415 level, so would set that as a target should we have the chance to enter the market.

QE v Earnings Headwinds

With the end of the month and quarter occurring this week, we will wait for the final print of the market's number, which will then shape our thinking into the year end. Although a down week from overbought conditions this last week, it was hardly worth mentioning. Indeed, very sideways conditions may exist until the market fully digests the full consequences of QE, intended (One-off dividend payments) or UN-intended (One-off dividend payments) !! We are also on the cusp of a reputedly dire earnings season, with numerous companies issuing profits warnings. We feel a titanic battle will ensue as the powers that be would not want the market to fall when staring an election in the face, however technicals (the charts) and fundamentals (the earnings) both crying out for a pull-back. Short-term we feel a top could be in the market at the 1475 level and will be monitoring this level closely.

Game Changer

After last Thursdays announcement from the US Federal Reserve of  'unlimited' QE (or QE infinity, as some people are calling it), the game has truly changed. Some commentators and optimistic fund managers are hoping this will provide a permanent floor under the markets and the index will grow to the sky !! Unfortunately, things do not work quite this way. While it is perfectly feasible that earnings multiples may expand and valuations increase, it is also true that the market will anticipate this and also begin to factor in that the central bankers have indeed used their last silver bullet, re-modelling on that very basis. Unfortunately, the shock news on Thursday did cause the market to 'pop' once more and trigger our stop, frustrating to say the least, but acceptable in the context of QE becoming a known 'known'. Our model obviously still shows the market as severely overbought, but with the month and quarter end just around the corner we will let discretion trump valour while the market digests this truly shocking news.  

Down, But Not Out

A topping out process, by it's very nature, can always take longer than expected especially if central bankers are determined to throw good money after bad. Disappointing though this last weeks rally was, and our corresponding stop order being filled, it has created a strong overbought condition by fulfilling a stage 4 weekly break which has in the past created a ceiling price before a multi-stage correction. We are therefore suggesting this week to re-enter our short position with a max of 12 contracts at any price above 1437.0. We will put a stop in @ 1456, and a partial target price of 1395 where will take profits on half our position. 

Transparency

Welcome to the new world of Fed transparency ! Yet more talk and no action, but this time two opposing views from Fed Heads !! Such is the noise we are subjected to. Perhaps the most telling market action is that on the release of comments advocating more Fed QE later in the week, the market did not reach it's previous days highs. We feel this is a drawn out topping process, especially in light of yet more deteriorating economic numbers and a spike in the vix as predicted. We do have to be aware of a possible co-ordinated  central bank 'shock and awe' move, but until this weeks level of 1427 is broken we will continue to hold our short position.

VIx Fix

The market's rally continued this week, although with reducing volatility. In fact the volatility is reaching multi-year lows and we feel bottoming out, preparing for a move to the upside. After a 11% + rally over the summer months, the markets moves to the upside are becoming more limited especially without any natural 'healthy' correction. With this in mind we increased our down position, as stated, by an extra 3 contracts at 1413. Our target has to be re-adjusted to 1380 and a stop-loss of 1429 for this week.

Fundamentals

At the risk of sounding like a stuck record, the markets are completely ignoring economic news on the hope of more monetary stimulus. However, whether it be last week's UK industrial production or China's trade position the numbers are pointing to a severe slowdown that we feel has to be factored in when the only stimulus being offered thus far is that of rhetoric. We are continuing to hold our short position and this week will add 3 more short contracts should the market rally up to 1413. Our target for the week is 1370, where we will take profits.

All Talk

Expectations were running high this week, that the central bankers would produce the big bazooka's promised in various preceding speeches. In actuality it was just more empty promises, that the market was not convinced about until an abrupt turn of sentiment on Friday, leading to a very unexpected gain for the week. We suspect there may be an unreported story here concerning the Knight trading software fiasco and an effort to flood the market with short term liquidity to avert any panic.  However, events last week have effectively changed nothing and we continue to hold our short position and strategy from last week, excepting that we will not add to our short position above 1400 and our target price this week is 1342.

Tug of War

As expected, volatility was the name of the game last week. Fortunately Apples' weaker than expected numbers on Tuesday gave us the opportunity to realise our profits at our target price of 1330. The market is currently being pulled between the two conflicting forces of slower economic growth on one hand and the injection of new liquidity by the world's central bankers on the other. Thursday and Friday's rally has left the market still in an unresolved state to the downside, so for the forthcoming week we will re-enter our short position, recommending an immediate sale £6 per point first thing Monday, we will sell a further £4 per point at 1397 and a final £6 per point should the market rally up to 1413. A stop loss should be set at 1427. Our target price this week is 1334.

Viva La Espana ?

Despite the majority of economic data being poor, the market continued to focus on expectations of yet more QE. What was surprising was how the market held up after Chairman Bernanke's testimony, when no new money was added, just more vague promises. Could it be that the Federal Reserve now realises the   debt outstanding is now so large that the effects of printing more will be minimal, and so talking about it is one of the few tools left ?
This leaves the market in a continued vulnerable state, that was aptly demonstrated on Friday, when the Spanish region of Valencia made it known they were running out of money. Over this week-end we hear that another region, Catalonia, is also in trouble. We therefore expect weakness this week and our current short position still stands with a target price of 1330. We will of course be watching Apple's results on Tuesday, and with a raft of other technology companies reporting, it could be a volatile week.

Unresolved

Over the last couple of weeks, the market did indeed fall close to our target price of 1320. Unfortunately and in spite of weak Chinese GDP data, Friday saw a rally in the market that managed to turn the index positive for the week. We feel this has left the market in an unresolved state to the downside, however following Friday's rally we are adjusting our target price upwards to 1330 or below where we will take profits.

Economic Reality

Up until Friday this week, the market was showing the signs of a 'wait and see' stance as predicted, awaiting the month and quarter end.  Was Friday's blow out rise a demonstration of the market's vain hope that the promise of ever-lasting central bank liquidity will trump the economic fundamentals ? We are of the view that Friday was nothing more than an engineered bout of short-covering, as the large market players sat it out on the sidelines. This has NOT left the market, on a quarterly basis, oversold and so we expect medium term pressure still to be on the downside, as it dawns on everyone that a severely slowing world economy can not be solved by adding yet more debt.
This forthcoming week we advocate a maximum position of £12 per point on the short side. We recommend selling an initial 5 contracts above 1361, selling a further 3 above 1368 and finally selling a further 4 contracts above 1383. We will set a stop-loss at 1395, and a target of any price below 1320 where we will take profits. For actual trades visit : Portfolio
   

Economic Slowdown

Despite weak economic news all week, the market rallied on Monday and Tuesday, allowing us to fill the majority of our short position. Finally on Thursday the S&P 500 succumbed to selling pressure, allowing us to pass the 'quintuple' level on the portfolio.
Due to this weeks early strength, it has technically raised our short-term target and so we take profits as soon as possible on Monday, between 1325-1335. With this week being the final one of the month and quarter, we will take a flat watching stance awaiting the final print. Once we have this number we will then be able to formulate a view going forward.

Crank The Presses

Another week, another round of promises to print more money ! After an initial jump last Monday morning, the market then collapsed all in the same trading day that effectively gave the range for the whole week. As we predicted not a week to trade. We expect this week to be just as volatile, but with a down bias as whatever the Greek result is, it can only highlight Europe's problems further. The market could move sharply again Monday morning, so we propose placing a sell order for 3 contracts at Friday's close of 1342.5, we will then sell a further 3 contracts at approx 1357 and a final 3 if the market jumps above 1364. We suggest a stop loss of 1377. Should the market fall, after we have opened our position, we will be taking profits in the 1290 -1300 area.

Grexit ?

The market rallied strongly this week, shaking off the fears from last week, on expectations of more central bank stimulation. Although there was no specifics given at the various central bank meetings and testimonies, the market continued to stay surprisingly strong into the end of the week. This week-end a resolution to the Spanish banking crisis appears at hand and may provide a fillip for the markets first thing on Monday. However, the problem for the markets this week is the up-coming Greek elections which are essentially a referendum for continued membership of the EU. We can not see new money being committed to the market ahead of this key event and so are advocating a flat position. We will take profits early this week, in light of the bigger than expected gains and watch developments from the sidelines.

June Volatility

In terms of economic news Friday's unemployment figures probably did more to shatter the illusion of economic growth than any others. Coupled with the dire European situation, we feel this will be the catalyst for the next round of Quantative Easing, possibly as early as this week from the Bank of England. The US will very probably follow, citing their dual mandate responsibilities, but in reality due to political pressure before this years presidential election. The severity of Friday's drop, pushed the market once again into oversold territory to create a buying opportunity. Any price below 1287 is acceptable with a small position, adding more at or below 1275, with a last entry point at 1257. A maximum position of 6 contracts is recommended, running a stop-loss in the 1240 area. For actual trades view the portfolio blog.

May Performance Statistics

S&P500 fund Monthly gain = 89.6%


S&P500 fund Year to date gain = 175%
S&P500        Year to date gain = 1.6%


To view trade breakdown of prices and dates, visit the trading blog at Speculation Strategy Portfolio

Month End

The market did indeed snap back from it's oversold position, with the early part of the week accounting for the majority of the gains. Volatility ensued mid-week, with a rally into the end of the week. Unfortunately, this rally was rudely interupted by news late on Friday of another banking crisis, this time in Europe where the confidence is that much more fragile. With last weeks price action and this week encompassing a month end, we will take profits in the 1330 area, whilst still running a stop loss of 1270.

Oversold

There was no shortage of culprits for this weeks selling carnage. From funds being raised for the Facebook IPO to rumours that JP Morgan had been desperately unwinding numerous derivative positions before the regulators arrived ! Not to even mention Europe, that was probably the biggest reason for bids to dry up, so that at certain levels the market hit 'air pockets' and selling became a reason in itself for more selling. A European break-up has unquantifiable consequences. This has left the market short-term, in a technically oversold position, where any short-covering should create a bounce to the 1350 level. On reflection, we were too early with our speculative buy mid-week. We will be averaging down at any price below 1300 this week. However, a stop-loss should be put in place in the region of 1270, to protect some of the monthly gains made.

Price Alert

As mentioned at the week-end, we did not think the market was oversold enough at the 1350 level. With the further sharp sell-off of the last two days we are now much closer and we will be looking for a price of 1325 or lower to open a small 'up' position, before the end of the week.

Summer Time Sadness

The weekly follow through was as dramatic as we thought, with the outside hours low first thing Monday, proving to be a near low for the whole week. In fact the finish on Friday was also not too dis-similar, making the week basically unchanged. This could suggest a base being formed around this level, however, the JP Morgan news on Friday is worrying. In an apparent breach of both Volcker and Dodd-Frank rules, it appears yet again that the  'too big to fail' financial institutions are speculating and hiding behind the story of a 'hedging strategies' position. After only three years since the world faced financial Armageddon, it seems they have still not grasped the basic principle of risk. With Europe turmoil now looking ever more current, how many other similar speculations are being held by the financial industry, that could bring some summertime sadness in the following few months. We feel the market at the 1350 level, is in mid-month mid-point position, between a 1387/90 high and a 1313/28 low. This is backed up by the volatile price action this week that ended roughly where it began. With last weeks gains banked, we are holding a watching brief at present until a more oversold / overbought position presents itself. 

Uncertainty

With a major unemployment report and multiple European elections taking place, the market had a lot to think about this week. As usual, when great uncertainty exists, markets exhibit weakness and the S&P wobbled to finish the week at near term resistance. However, with the majority of events happening after the Asian closes on Friday, we expect a degree of follow through on Monday down to about 1355, and so will use this opportunity to take profits. There is potential for the market to nudge further down over the course of the week to 1335, but this would be a strong pivot level where we would prefer to be flat especially after a 5% +  fall in as many days.

Month End

As we thought the market did indeed rally this week, to set up the possibility of the month ending where it began. In technical candlestick terms this would be a 'doji' event and portend a trend reversal from the last six months. The market always has the capacity to surprise however, and so moving into a new month we have to be ready for a 'firebreak' up to a level of 1455, on the hints of more quantitative easing. On balance though, we maintain a bearish stance with an initial target of 1310. We dipped a toe in the water with a short @ 1402, and will be adding to this position @ or above levels of 1405, 1410, 1420 and finally 1455. For exact prices keep tabs on the Portfolio blog.

Breakdown

The last two weeks have seen a preliminary breakdown of the last six month's up-trend. Not surprising considering the overbought nature of last quarters close (Jan - Mar). For perfection, we should now see a weak rally, that tops out below last quarters high of 1425. We shall be looking for opportunities at the 1400 level to short into. The catalyst for which could be Apple's results this Tues 24th.

Strategy

A blog to identify definitive tradable opportunities, based on the movements of the S & P 500 index.