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Perishabull

PositiveDev's trading journey

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140212.png

 

Yesterday was a low volume, tight range market with a downside bent, there didn't appear to be many opportunities so I called it a day just into the last hour. Checked it later to see a rather absurd 20+ point stick save rally, massively increased volume in the last half hour, almost like someone flicked a switch. Hmmm....!

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Some comments from Phil Davis of Philstockworld.com;

 

"AAPL is 10% of the Nasdaq.....................…I have long been pointing out to Members that the Tech sector – minus AAPL and AAPL partners – is not having a very good year.  That's why the rally does not make sense – AAPL is strong but many, many other techs are weak yet they have all been moving in lock-step higher and higher and higher – up 450 Nasdaq points (18%) since Thanksgiving – despite 70 out of 100 of the components having lower revenues and lower earnings than they did a year ago.  "

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Currency divergence setup hinted at downside to come;

Tradesetup150212.png

 

Went short at 15:09, filled at 2589.50, market sold off down to 2583.50, moved stop to 2589 however market rallied up taking out my stop for a 0.5 point gain.

ShortNQ150212.png

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Apple parabola not far from vertical

AAPLparabola2.png

 

 

Apple VIX bottomed already several days ago;

VXAPL.png

 

 

I read that Apple makes up around 12.33% of the NASDAQ 100 so when it goes, the NASDAQ and the rest of the equity markets will follow.

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Apple Intraday sold off $24 after it hit the intraday high of $526...

 

AppleIntrdy.png

 

 

Headline of the year award goes to Zerohedge for....

 

"Newton Is Back As Apple Finally Falls"

 

Excerpt

 

"Chatter of a QQQQ rebalance (Apple is up ~50% from the last rebalance compared to 10% for NASDAQ) seems to be stumbling the iEconomy as AAPL goes red. Now, which of the 209 funds will be first out of the door? and which last? Volume is picking up for sure and options (esepcially short-dated) are getting very excited. Of course, broad indices are losing their bid implicitly as ES drops below the pre-China rumor and post-Samaras pop levels. Perhaps it is the recognition that we sold off 7% in a week after the last QQQQ rebalance (April 2011) and the pre-move was nothing compared to this..."

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Today was quite frustrating, I had a fairly clear picture about what I thought would happen. Namely for the parabola in Apple to peak, then for it to sell off, causing a sell-off in NASDAQ futures. I had thought Apple would get up to $530 and I didn't have any clear divergence showing on my currency divergence chart at the time;

Currencydivergence150212.png

 

 

There was clear diverence on my equity market divergence chart however since earlier today I only had it set to show from 14:30 onwards (the open) I didn't see this at the crucial time.

 

EMdivergence150212.png

 

When you think you know what is likely to happen, then it transpires but you don't get a position on due to missing some data that was available to you at the time, that is frustrating.

 

Still this method of trading is relatively new to me, and after all, this is trading, it's not possible to get it right all the time.

 

I'm on the right track though.

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from Dr B's Diary

 

READY TO ROLLOVER - It looks like so to me

 

Contrary, still-bullish are:

 

QQQ is up - : QQQ-chart

 

Why? Here's why:

 

AAPL is up !: AAPL-chart

 

I think there is a high probability that today was the top, I had been looking for a top in Apple's parabola, I think it came today therefore the NASDAQ may also have topped today.

 

 

AAPLparabola2.png

 

 

There is far too much focus on Apple and that is real a source of risk for the equity markets.

 

It would not surprise me in the slightest if the next market crash is precipitated by hedge funds exiting AAPL.

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A further look at;

 

NASDAQ 100 daily chart;

NASDAQdaily.png

 

 

What I have also done is create another chart of NDX (NASDAQ 100) with the AAPL price stripped out of it. I read that AAPL is 12.3% of the NDX, so I adjusted AAPL to 12.3% of the NDX value and then deducted that adjusted AAPL chart from the NDX chart to show how the NDX looks with AAPL taken out.

Daily chart;

NASDAQreweightdaily.png

 

I think this shows that the latter part of the NASDAQ "laser beam" rally has onlybeen maintained by the AAPL parabola posted previously;

 

 

A closer look at the NDX without the AAPL core

NASDAQreweight1hour.png

 

It's closed under the trendline

 

 

I also have a sell signal on my "old faithful" DBDT indicator for the NASDAQ futures;

DBDTNASDAQTOP.png

 

 

 

and....this next chart is another revalued NASDAQ futures chart (a different way to the above), that shows a lower high has already completed and the turn is in;

NASDAQlowerhighactualvaluationwithDstrip.png

 

 

Finally a comparison of various equity markets shows that the Russell failed to get passed it's high of 3rd Feb;

Start of the year onwards

EMdivergence160212.png

 

I think there is a high probability the markets have topped.

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I'm looking to buy puts on IWM (Russell 2000 ETF) today since that looks the weakest, I may see if I can short the futures too if I can find a decent entry point. Puts on QQQ might also be an idea since it looks very overextended.

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Couple of trades today, first one based on what I thought was a top formation on my currency divergence chart;

Currencyconvergence160212.png

ShortNQ160212.png

 

First trade stopped out for a 2 point loss, the second stopped out at breakeven.

 

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Took a long at 15:45 trying to play the range, market rallied up slightly, didn't look like it would work, moved stop to breakeven, then market sold off taking out my stop at breakeven.

 

There was also another trade, shown slightly later, that was an error entry, closed immediately for a 0.5 point hit;

 

LongNQ1702121.png

 

Market seems a bit quiet now what with Op-Ex.

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Anyone watching this thinking you too can be a trader? Do you like to analyse prices, do you find the concept of the relative value of assets interesting? Are you able to come up with your own ideas about what constitutes value? If not then perhaps you are just another voyeur.

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From ZH

Excerpt

 

"The ECB Has Opened Pandora’s Box

 

 

The ECB has Opened Pandora’s Box

 

“I believe that banking institutions are more dangerous to our liberties than standing armies. “

                                -Thomas Jefferson

I am not going to speculate about anything this morning. No guesses about what the Finance Ministers might do on Monday, no simple addition or subtraction that the data used to forecast Greece’s return to a 120% debt to GDP ratio is a falsification of the numbers, no mention that only nineteen cents of any bailout for Greece would actually go to the country; I am not going to discuss anything except what the European Central Bank has actually done and what we now know with a one hundred percent (100%) certainty and the horrifying implications of their actions.

 

 

 

“There are no necessary evils in government. Its evils exist only in its abuses.”

                                -Andrew Jackson

 

The ECB, on its own and without judicial or parliamentary review, has swapped their Greek debt for new Greek debt that is not subject to any “collective action clause.” They did this unilaterally and without the consent of any other sovereign debt bond owners of Greek debt. They did this without objection of any nation in Europe. They have retroactively changed the indenture, the contract made by Greece with all of the buyers of their bonds, when the debt was issued. There is no speculation involved in these statements, there is no longer any guesswork on what might be; the ECB swapped their bonds for new Greek bonds with the assent of the Greek government and it is now a done deal. 

 

Having then done this; the implications must now be considered utilizing the clear light of unadulterated reason. The issue now is no longer a one-off Greek issue but a full on ECB issue. We know now that the ECB can retroactively change the rules, change an indenture, so that if the ECB can do this with Greece then it can certainly do it with any sovereign debt in Europe. If they can exempt themselves from a “collective action clause” then they can exempt themselves from any clause, in any sovereign indenture, for any European country. The fact that they are now clearly senior to any other bond holder, or more aptly put, that any private bond owner is now subordinated to the ECB is one consideration but hardly the most important one. The incredibly grim reality now is that any European and all European sovereign debt can have their indentures changed by the ECB when it is to their advantage. It is the “collective action clause” today but tomorrow it could be the maturity or the coupon or any other terms and conditions in an indenture. It is Greece today but tomorrow it could be France or Portugal or Italy. The “Rule of Law” has been abrogated and tossed aside in the name of political contrivance.

 

“Necessity; the tyrant’s plea.”

                               -John Milton

Since the ECB can now retroactively change any bond contract to whatever it likes and with any nation in its dominion then the valuation of European sovereign debt must be re-examined for what it really is which is no longer what anyone previously thought. Starkly put; the bonds issued by the sovereign nations in Europe are no longer pari passu, on equal footing, with the bonds issued in the United States. We have just passed a clearly defined “break point” where the legal rules were changed to the great disadvantage of all the private debt holders. The risk of ownership of European sovereign debt is now infinitely more dangerous in my estimation than it was last week. We still do not know if the IMF will demand and receive the same special treatment but I assert that it no longer matters. The actions of the European Central Bank are all that was necessary to radically alter the value of European sovereign debt and it is just not me but any number of large financial institutions that are in shock given what has happened with one of the largest and most respected bond investors in the world telling me that “financial repression is the softer word for it.”

 

Leaving anger and hostility aside; European sovereign debt must now be examined with a new set of metrics. How much yield would investors demand if an IBM indenture, as an example, had language that stated “This indenture is subject, at any time during the life of the bond, to any changes mandated by the Federal Reserve Bank.” Stated another way, what yields would be acceptable to bond investors if there was a Federal statute that said “All indentures in the United States may be changed at will by the Federal Reserve Bank upon their sole discretion.” No “Rule of Law,” no judicial appeal and a fait accompli whenever desired. This is, in terrifying fact, exactly what the European Central Bank has done and if we no longer know what we are buying and if the terms and conditions of an investment can be altered retroactively at will without the consent of bond holders and to the advantage of the ECB then either we should not buy these credits, as in Atlas shrugged, or yields should be in the mid-range of junk bonds because European sovereign bond indentures now are worth no more than the paper on which they are printed.

 

The European Central Bank, in a very misguided attempt to protect itself, has now opened Pandora’s Box. I doubt if they even realize what they have done; but they will, most assuredly they will. The consequences of their horrendous mistake will soon be upon them as institutions not coerced or forced into buying European sovereign debt will be leaving the playing field en masse as the realization dawns upon investors of just what has taken place. You cannot fool all of the people all of the time and the people that manage money for a living are not a forgiving group when governments try to supersede their lawful rights."

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Australian Dollar futures (Daily);

6A.png

 

Trendline break

 

 

British Pound futures (Daily);

6B.png

 

Trendline break

 

 

Japanese Yen futures (Weekly)

6J.png

 

No trendline break

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ShortNQ240212.png

 

Short entry at 18:15, filled at 2607.75, the market had spent the day in a range to moved stop so breakeven early on, market sold off a few points before rallying up to my stop taking me out at breakeven...

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PD,

It is your turn to be "spotlighted" on the Main board for at least a few days, if you do not mind.

 

I love the charts !

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PD,

It is your turn to be "spotlighted" on the Main board for at least a few days, if you do not mind.

 

I love the charts !

 

Sure, I'm reading a really interesting book right now, "Predictably Irrational" by Dan Ariely. I'm only just into it but it shows how context can heavily influence decision making behaviour, particularly financial decisions, leading to illogical choices.

 

predictably-irrational.jpg

From Wikpedia;

 

"Predictably Irrational: The Hidden Forces That Shape Our Decisions is a 2008 book by Dan Ariely, in which he challenges readers' assumptions about making decisions based on rational thought. Ariely explains, "My goal, by the end of this book, is to help you fundamentally rethink what makes you and the people around you tick. I hope to lead you there by presenting a wide range of scientific experiments, findings, and anecdotes that are in many cases quite amusing. Once you see how systematic certain mistakes are--how we repeat them again and again--I think you will begin to learn how to avoid some of them".[1] "

 

"Dan Ariely (born April 29, 1968) is an Israeli American professor of psychology and behavioral economics.[1] He teaches at Duke University and is the founder of The Center for Advanced Hindsight.[2]"

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Sure, I'm reading a really interesting book right now, "Predictably Irrational" by Dan Ariely. I'm only just into it but it shows how context can heavily influence decision making behaviour, particularly financial decisions, leading to illogical choices.

I haved heard of that book...

It is meant to be excellent

Why don't you tell us the main points you get from it.

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Sure, I'm reading a really interesting book right now, "Predictably Irrational" by Dan Ariely. I'm only just into it but it shows how context can heavily influence decision making behaviour, particularly financial decisions, leading to illogical choices.

Goes back to the Socratic maxim to "Know yourself", which has to be prior to knowledge of markets, crowds etc.

 

The way i see it, the two typical pitfalls for investors are emotionalism and egoism. The first has not learnt to discipline the emotions and passions with reason. The second makes out of reason itself a passion leading to a blinkered ideology. Santayana's critical writings are good on the egoism of German romantic/ idealist philosophy as an example of this.

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Australian Dollar futures (Daily);

Trendline break

 

British Pound futures (Daily);

Trendline break

 

Japanese Yen futures (Weekly)

No trendline break

 

So you think AUD and GBP are both headed lower v USD?

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Goes back to the Socratic maxim to "Know yourself", which has to be prior to knowledge of markets, crowds etc.

 

The way i see it, the two typical pitfalls for investors are emotionalism and egoism. The first has not learnt to discipline the emotions and passions with reason. The second makes out of reason itself a passion leading to a blinkered ideology. Santayana's critical writings are good on the egoism of German romantic/ idealist philosophy as an example of this.

 

The most interesting thing about this journey is how much you learn. Some time ago I posted that in trading regularly, the markets act as a mirror, reflecting back at you elements of yourself. What is reflected back at you (the results) can be interpreted in many different ways. One way I interpret them is as lessons, so the market is a teacher, and I am the student. I haven't fully developed my thinking on this, but I will do at some point.

 

This is a great book I read some time ago;

 

jewish-wisdom-for-business-success.jpg

 

Of the many insights in this book, one of the points in it is that many two-choice decisions are often split between one being intellect based and one being emotion based. That really resonated with me, and I think is particularly true in trading. The really great traders capitalise on their own intellect, taking advantage of the emotions of other traders.

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Actually I'm not supposed to be trading this week, I'm working on a new business plan for my trading but after I arrived home I spied an opportunity...

 

CurrencydivergenceNQ280212.png

 

Above is my currency divergence chart, you can see here that point A was where EUR/USD confirmed the turn that had already occurred in AUD/USD and AUD/JPY, hence this is where I went short NASDAQ futures. In addition to this...

 

EMdivergenceNQ280212.png

 

This chart above is what I use to compare the NASDAQ to other equity futures markets, so Dow, S&P 500 and Russell 2000. Again at point A you can clearly see all of these markets diverging away from the NASDAQ. In addition to this my own custom indicator (bottom of next chart) was also diverging markedly lower suggesting a high probability for a turn lower in the NASDAQ.

 

ShortNQ280212.png

 

 

This was really the perfect set-up, everything I was looking at suggested a short, I was filled at 2631.75 at 18:26. Market sold off immediately, at a later point 6 points lower within 2 minutes. Rather than close it I just moved the stop very close to the price, so as to allow continuation, if it came, whilst keeping most of the gains, if it didn't. It turned out that that was the end of that move. My stop got taken out at 2621.75 for a 10 point gain.

 

I'm pleased with that today, got in 0.75 points off the high of the day and took most of the meat that was available on the move.

 

There was in fact a further opportunity later for a long, but I allowed myself to be distracted, helping Miss Positive Deviant by taking (attempting to take) some pictures of the Aurora Borealis outside. Many pictures taken, none of them very good (it was quite far away), otherwise I'd have posted it.

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