Trading the Short to Intermediate Time Frame

By Guest Blogger Jennifer Gorton from ForexIndicators

As an investor or trader, picking a time frame on which you plan to hold your assets is entirely up to you. There are many people out there that wish to close out their positions at the end of each day to avoid the risk of major market news effecting an open position. Recently, markets will move drastically during the overnight period due to new stories from around the world occurring during that time. If other markets like Asia and Europe are selling off there is a good chance that the U.S. stock exchanges will open lower and those who have held positions overnight will lose money. There are other traders who will take this risk because they are buying the asset to be held for longer than a few days.

If you are looking to become a short to intermediate term trader but do not want the risk of a big overnight move, trading commodities and currencies is a better option. The average investor can trade the commodities market, by way of the CME Globex electronic exchange, 23 hours a day 5 days a week. The currency markets are open 24 hours a day 5 days a week, giving you that one extra hour to place trades. Trading of commodities products and currency pairs after normal market hours will allow the trader to monitor his position in real time and close it out if necessary at anytime the market is open. He or she will not have to wait until the next day’s open outcry session when the price of the commodity he is holding might have fallen. This can allow the investor to have an intermediate time horizon for holding his investments with the safety of being able to trade most hours of the day. Many potential trades that people see occurring take time to develop. Sure you can make a few dollars day trading throughout the day but having to always watch the market might not be what you are looking for. The average investor will not want to day trade because of work related issues. They will not want to sacrifice their salary job to become a full time intraday stock trader.

The intermediate and short term investment style is for those who have a good idea but do not want to be at the computers all day. Commodities and currency trading allow you to have that investment mindset with the additional benefit of being able to have orders executed when you are asleep if necessary. Programming your trading software with predetermined buy and sell orders will allow you the ability to stop out a position if it starts to move against you. The same would also be true if hit your profit target at 2AM when you are asleep; letting your computer do all the work is the way to execute orders. Both commodities and currency brokers will allow their clients to submit limit orders at prices they want to buy and sell. This technique for the short to intermediate trader is widely used. Having a stop loss number where you will close your position and a profit target where you will take profit is a must. The various brokers will offer free forex indicators and free commodities indicators that can help you decide at what price these order should be placed. Along with the charting software that your broker will allow you to download, short to intermediate trading is the preferred style of investing. Using commodities and the foreign exchange market as a vehicle to trade is perhaps safer than the equities market because of the hours it is made available for trading to the average investor.

Why the Markets Could All Crash - Soon!

Who in their right mind

Would want to be long right now?

Get out or get short!

Why the Markets Could All Crash - Soon

Investing is a largely probabilistic endeavor. It's nearly impossible to know exactly how the future will unfold, so instead we play the probabilities, in an effort to weigh the risk versus potential reward of a position.

And you ALWAYS have a position, whether you like it or not. All in cash? Well, that's a position too. There's nowhere to run, nowhere to hide.

Today these words hold more meaning than anytime since the Great Depression, as we sit on the precipice of perhaps an even Greater Depression. Will the government be able to inflate away its debt (and your savings) - or, will deflation exact a measure of ironic revenge on the Keynsians once and for all?

Weighing the risk/reward to the market at this point, I don't see much except for downside. I believe the trend turned down a few weeks ago, and that this has merely been a countertrend rally, a correction, within a larger move downwards.

If that hypothesis is correct, then we should see a sharp move down in the next week or two. If we see new highs, then I'm wrong.

But I think that's a low probability, given that we're rallying on low volume days, and dropping on higher volume days. This rally from last March's lows appears to be, finally, running out of steam.

Of course the market is always the final arbiter. But if I were a betting man - wait, I AM a betting man! And I'm betting on a decline real soon.

Bob Prechter: "Quite Sure" March Lows Will Break, Deflation Taking Hold

One guy not impressed by the S&P's resilience is "Mr. Deflation" Bob Prechter, who accurately called the S&P's rally above 1000 when things were looking bleakest last February, just before the markets actually bottomed.

What's Prechter got to say now? Here's a short bit he did with the guys at Yahoo Tech Ticker, where he talks about the latest inflation numbers, or lack thereof, among other cheery things:

More from Prechter: How to Act Contrary to "Market Herding"

Hat tip to good friend and occasional guest author JL for the heads up on the Prechter interview!

Everyone Hates the Euro!

A few months ago, everyone hated the dollar. Now, everyone hates the Euro!

Well, you can't blame either sentiment - both currencies are indeed "circling the bowl", albeit at different rates.

About a month ago I thought the Euro was a good short candidate, citing that there was not much attractive about it. I probably wouldn't initiate a new short position today though - it's been getting absolutely pounded, and everyone is bearish on it.

It could go down further from here, but I think the easy money has been made, at least in the short term. We'll sit back and let it correct up.

I am short the Euro via the EUO ETF, and I'll probably hand onto that, as it's more of a medium term position. But I'm not buying more right now - sentiment is just too negative.

2010 has been a good year to be short the Euro, thus far - chart of EUO, the short Euro ETF.

(Source: Yahoo finance)

Dr. Copper's Looking Green in the Face

Copper could be heading for a catastrophic collapse, writes resource expert Matt Badiali for Growth Stock Wire:

It's not often a major stock or commodity gets set up for "catastrophe," but when it does, I stand up and take note.

Most investors and traders aren't much interested in catastrophe. They won't short a vulnerable asset when a crisis is looming... and they won't buy it just after the crisis... when the asset is very cheap.

This is a shame, but it's why most people lose in the stock and commodity markets. And it's why they're going to miss a big opportunity coming to the copper market soon. Here's the story...

Put simply, speculators, rather than real demand, account for a great deal of the 120% rally in copper prices over the past 12 months. Many of those "hoarders" are in the People's Republic of China.

You can read the rest of Matt's article here.

Matt's colleague, astute trader Brian Hunt, also noticed something amiss with copper's price action - a potential 1-2-3 trend change:

And don't forget to watch copper as a "must hold" asset for the inflationary bullish case. Copper is an essential ingredient in cars, refrigerators, power lines, and electronics. However the economy is performing – good, bad, ugly – you'll see it reflected in copper prices. As you can see from the chart below, copper suffered a major decline in late January/early February (1). It has since made an effort to climb back to its old high, which failed (2).

We now have a situation where copper is set up for a classic Vic Sperandeo 1-2-3 trend change, just like the euro experienced in December. If copper turns lower – and blows through its recent low around $2.85 per pound (3) – the E-Z-Credit stimulus boom is withering.

Vic Sperandeo describes the 1-2-3 trend change in his excellent book Trader Vic - which was actually recommended to me by Brian. It's a great read if you love trading and the markets.

Improvements to the Blog - On the Way!

I've been sick of the Blogger platform for some time, and finally have decided to get things moved over to Wordpress. Blogger hasn't improved one bit since I started using it over 4 years ago - unfortunately, typical for a Google acquisition.

Stay tuned for details. Also, feedback and suggestions are also very welcome (you can email me at brett(at)commoditybullmarket(dot)com).

My Trading Activity - Still Short the S&P (Twice)

Still short baby - I have to admit, I didn't think we'd see the S&P north of 1100 again, nor did I think that second short position would ever be underwater.

It was tempting to cover one with the S&P at 1050, but I still believe the overall trend has changed - so in a bear market, you want to short the rallies, not cover on the drops.

For what it's worth, I think this is an excellent time to get short. I could be wrong - certainly wouldn't be the first time - but the risk/reward of a short position here appears very attractive to me.

Still double short the S&P.

How much longer can the S&P continue to defy gravity?

(Source: Yahoo finance)

Have a great rest of the week in the markets! Comments are always welcome and very much appreciated.

One Last Hurrah For This Bear Market Rally

Not too much new here

Just a bear market rally

On it's last hurrah!

One Last Hurrah for the Bull!

Had family in town this weekend, hence the late post, but there's really not much going on anyway. This current rally feels like a last gasp countertrend rally that's just about out of steam.

Where we go from here should be quite instructive. I anticipate we're about to head down, potentially pretty violently, so I remain unimpressed by the move back over 1100 on the S&P. Markets were oversold, and to me, this bounce did nothing more than relieve some short term oversold conditions.

The markets are now short term overbought, so plan accordingly if you have a short time horizon.

Of course a move up to new highs would invalidate my theory here. I don't think it's likely, but it is possible, and we can't be too stubborn if the march higher does continue.

At the very least, I think it's an appropriate time to get a bit more conservative and careful in your trading and investing, as there appears to be a great deal more risk to the downside currently than potential reward to the upside.

In Case You Missed It - Recent Reading

Should be a fun week in the markets, so stay tuned here, and we'll deliver some mid-week updates and musings.

Here's a neat read courtesy of our boy Bob Prechter, as he explains how to act contrary to "market herding". Because Prechter is always aligned away from the mainstream, you'll generally stay clear of trouble following him, even if you take some things with a grain of salt.

And our friends at The Daily Reckoning put together an amusing slide show entitled The Financial Darwin Awards. Definitely worth a perusing.

Finally for those of you wondering how Valentine's Day worked out using a contrarian approach - quite well!

My Trading Activity - Still Short the S&P (Twice)

Still short baby - and for what it's worth, I think this is a fantastic time to initiate a short position.

I'm fully loaded up right now, so am content to hold tight and see which may the markets turn.

Still double short the S&P.

The S&P remains above it's moving average - but for how long?

Have a great week in the markets! Comments are always welcome and very much appreciated.

The Debt Debacle Rolls On: Socialism's Grand Finale

Sovereign debt - all crap

Who could have expected this?

Socialism's toast!

Contrarian Valentine's Day

While I'm tempted to wish you a Happy Valentine's day, dear reader, I have no doubt that you won't be running with the herd tonight for dinner and a dozen roses.

No sir, not here - when my wife insinuated that I'd "better have something planned", I went and booked dinner reservations for tomorrow (Monday) - got last minute reservations at a top restaurant, no problem.

Somewhere, Humphrey B. Neill is smiling - it indeed pays to be contrary!

The Debt Debacle Rolls On

Given that the markets have rallied with record strength over the last 10 months, isn't it amazing at the level of negativity that persists? Kinda confirms my feelings that we're in the eye of the storm here.

While the buoyancy of the markets has brought some good news with it, it's not really been anything to get all that excited about. More relief that the financial world is not ending, than anything else.

I suspect that relief will ultimately prove to be premature.

Like an attractive, but insane, girlfriend, there appear to be some nasty skeletons left in the closet. The credit crisis was cute - like OK, she smokes a pack of cigarettes a day, two on Sundays. Now we're about to find out that this bitch is a full blown heroin addict...

Sovereign Debt: Socialism's Grand Finale

The next "shoe to drop" appears to be sovereign debt. I guess we should have expected this, as the 20th century's infatuation with socialism comes to a head once and for all.

It turns out that Maggie Thatcher was indeed correct when she famously said "the problem with socialism is that you eventually run out of other people's money." But I wonder if Maggie foresaw her United Kingdom, and our United States, continuing along the trend towards greater socialism, and less capitalism.

Yes, the Thatcher/Reagan revolution, whatever effect it had at the time, appears to be as dead as a door nail today. And granted, the size of the US government continued to grow under Reagan, so I'm not sure if we can or should count that time as a countertrend rally.

In any case, government tax receipts are falling around the world, and there is a lot of sovereign debt that is going to go unpaid. This is highly deflationary, because debt that used to exist will simply float away to "money heaven." Creditors will discover that their assets are now completely worthless.

First Dubai, now Greece - the dominoes are starting to topple. Here in the good old U S of A, the bond markets continue to fund record deficits at the federal level, but our two most socialistic states - The People's Republics of California and New York - are toast. Spreads are rising on CA's credit default swaps - the vultures are starting to circle.

The types of budget cuts that each state needs to make are politically infeasible. So, we'll likely see the states get bailed out, but eventually, they'll default on their debt. Poof - off to money heaven.

I work in Sacramento - and yes, I greatly enjoy the irony of being a libertarian/anarchist in this town. A funny thing happened when the Governator started furloughing workers, telling them to stay home 3 days a month - nothing, really. It's dead downtown on Fridays, sure, but if there's any output being missed, I honestly can't tell.

I suspect you could furlough most of the state government permanently, and nothing would really be missed either. Sure you'd have some short term adjustment, but the private sector would step in and perform any services that were seriously needed or missed. I doubt we'd miss much.

Go Long Responsible Governments, Short Socialism

Our friend Brian Hunt pointed out in his always excellent Market Notes that there's money to be made in shorting socialism:

For a picture of this tailwind, let's look at the past year's trading in the iShares Singapore (EWS), a basket of Singaporean stocks. While the high-debt, high-tax, high-regulation economies and stock markets of Europe have suffered major declines in the past month, Singapore's market has declined just a few points. This trend of "Asia up, Europe not-so-much" is going to last the rest of your life.

Source: DailyWealth

The Onion: US Stages Fake Coup to Wipe Out Debt

This is hysterical...

U.S. Government Stages Fake Coup To Wipe Out National Debt

Shout out to my good friend, and past guest author, Jonathan Lederer for sending this along.

Paging Dr. Copper

Another good tip from Hunt - copper is breaking down. He's got a nice chart at the bottom of the page that clearly shows a break of copper's upward trend.

Yes Dr. Copper, the commodity this is said to have a "PhD in economics", is starting to feel under the weather. An ominous sign?

Well if China was doing OK, you'd expect to see copper humming. So we've got Chinese indices breaking down in tandem with copper - uh oh.

Stratfor's Take on Greece and Europe

For the geopolitical take and implications, you can't beat Stratfor's George Friedman. Here's a video they released earlier in the week, discussing the Greek fiasco:

The Funniest Video of the Week Not From the Onion

It's from CNBC, of course!

Perhaps a contrarian take on the Greece situation, this joker says the solution is an "operational one" - Europe should print money and hand it out!

Hat tip to friend and reader Carson for finding this beauty.

My Trading Activity - Still Short the S&P (Twice)

Still short baby - these positions are keepers! Not a bad time to initiate a short position either, I think. Markets were up last week, a nice little countertrend rally.

Go short, or go home!

The S&P turns down.

Have a great (short) week in the markets! Comments are always welcome and very much appreciated.

Why the "Reflation Trade" is Being Exposed as a Complete Fraud

The "reflation" trade

Just a standard retracement?

The bear may be back!

They Are Still "All the Same Markets"

Like many of our astute readers, I was not impressed by the reflation trade. While the strength of the rally was indeed quite substantial, when you sum it up, it was a mirror image of the rally that occurred in 1930.

We mused on January 3rd of this year that we hadn't yet seen anything to invalidate the "All The Same Markets" hypothesis (which is courtesy of Bob Prechter). And the tailspin that the markets have begun seems to further validate this.

The S&P has dropped nearly 100 points in the last few weeks!

Source: Barchart.com

How about gold, everyone's favorite "safe haven"? Since it's December top (marked by it's celebrated status by the Today Show), it's been a safe trade alright - for gold shorts, that is!

(Source: Barchart.com)

How's oil done? After all, the world's running out of it, and China needs it...

(Source: Barchart.com)

As Mark Twain may say, were he an investment blogger alive today: "These charts may not be exactly the same, but they sure rhyme like hell!"

Their inverse? The dollar, of course! In the January 3rd column, we identified the dollar as the linchpin to this whole equation. Since that time, it's looked quite frisky - proving that these other markets can't do "jack" while the dollar is rallying - just like 2008.

Is that a roll of silver dollars in your pocket...or are you just happy to see me?

(Source: Barchart.com)

In summary, all we've seen in the reflation trade was a typical retracement, in which markets usually retrace 50-62.5% of their previous losses.

Why does this happen? Honestly I don't have a clue - it just seems to be the way of the financial universe (and possibly the universe in general).

So where - and when - will this end? Well, if these were in fact mere retracements we've witnessed, then you'd expect that new lows will be registered by the time this swing down is over. Which would translate to the S&P below 600, Gold below $700, Oil below $30, and so on.

Moral of the story, I think the two best moves right now are to: 1) Get safe, and 2) Get short (with speculative capital).

Near term we could certainly see the bounce that started yesterday afternoon continue up - maybe bringing the S&P around 1100 - who knows.

What would invalidate my cheery outlook? New highs in the S&P and other markets would indicate I'm either early in my downtrend speculation, or wrong. But I do think the most probable direction is now DOWN.

What's "The Man" Robert Prechter Saying Right Now?

Last week, CNBC interviewed Bob Prechter - here's the interview:

As I've mentioned before, some regard Prechter as a bit "out there", which is actually a very desirable quality in an investment guru, I think.

I started following him about a year ago on the recommendation of a fellow colleague/investor, because from what I can tell, Prechter is the only guy who nailed the Crash of 2008 to a tee, when most of the rest of the investment world was blindsided.

Some more recent guest articles by Prechter:

• Avoid Muni Bonds at all Costs
• Why Fundamental Analysis is for Losers

Colts -5.5

vs. Saints - Who Ya Got?

It will probably come as no surprise that my philosophy in sports speculation is similar to that in the financial markets - part technical, part fundamental. And like the finance world, I claim no particular skill at all. I cannot claim I've won more than I've lost in sports betting.

I do, though, enjoy the study of sports handicapping, and hope that one day I can develop a system that can make money consistently.

As I pen this column on Saturday, the Colts sit as 5.5 point favorites over the Saints. A decent sized spread but still under the first major point of traditional resistance, 7.

The betting masses like the Colts - with 57% of public bets falling on Indy's side. That's not too surprising, as the Super Bowl is far and away the largest public betting game of the year, and we've got Mr. Manning, a golden boy for public betting. What average Joe would bet against Peyton?

While that may pique our interest, my inner contrarian has been disappointed with the relative lack of homage to King Peyton in the media. Meanwhile, the stories about New Orleans and how the Saints "can actually win this one" may be contributing to the line staying south of 7.

Turning to the "fundamentals" - like evaluating individual stocks and companies, this is more art than science.

I'll make the case that the Colts are the better team, based on a few factors:

• They have not lost a game they tried to win this year
• New Orleans barely managed to win the NFC Championship game at home, despite gift wrapped fumble after fumble from the Vikings
• If Favre carved up the NO defense, Manning could have a field day

That said, is the spread large enough to bet on New Orleans "keeping it close?" I don't think so.

First, you should only bet an underdog if you believe they can actually win the game. I think that is possible, but not likely, in this case. Blowouts occur more often than people realize.

So, the five and a half is not enough to scare me away from the pick. Hence, your official 2010 Super Bowl gambling pick is:

Colts -5.5 over Saints

How'd we do in previous years?

• Last year, we picked the Steelers -7 over the Cardinals (oops!)
• But two years ago, we had the Giants over the Pats in a contrarian's delight

My Trading Activity - Short the S&P, Times Two!

After watching the markets bounce on Monday and Tuesday, I thought it'd be an interesting time to "punt" on one more short S&P position on Wednesday.

My thinking was that, if this was a near term bounce, which I thought it was, it looked to be about finished.

Pyramid time! Fortunate timing on the 2nd S&P short, at least for now.

Well that turned out to be pretty good timing, at least thus far, as markets plunged on Thursday. And yet again on Friday, despite a late rally back up above the even mark for the day.

I'd say I'm more confident than before that the trend of the markets has indeed reversed. So, I'll look to carefully add more positions here as the downtrend continues.

Caution remains the order of the day, though, until we breach the 200-day moving average on the downside. My overall strategy is to cautiously get short during the first half of the bear move, and then ride things when the markets completely capitulate, with a final target below last March's lows.

And on that upbeat note - have a great week in the markets! Comments are always welcome and very much appreciated.