Gap down in energy prices reminds me of my WORST trade ever

November 28, 2014/by Peter Brandt

The 6.2% gap down decline from Wednesday to Friday is NOTHING compared to the beating I took in the Iraq War bombing down gap in 1991

The longs came back from their Thanksgiving Holiday with quite a surprise today, as Crude Oil opened on Friday 6.2% lower than Wednesday’s close.

As the saying goes … “You ain’t seen nothing.”

This price collapse reminds me of my absolute worst trade ever.

On 16 January 1991 I went home long Crude Oil. The price closed at $32.00. Remember, this is pre-24-hour trading. The U.S. started bombing Baghdad that evening — all of us “old guys” will never forget the footage from CNN.

I called London in the middle of the night — Crude Oil was trading up $2 on the Curb (us old guys will never forget Curb trading — it was an unofficial version of 24-hour trading). So I went back to bed and slept wonderfully well, fully expecting a big profit in the morning.

But, the morning came with a shock in what might be the most classic “buy the rumor, sell the fact” in history.

Rather than opening higher, Crude Oil at the NY Merc opened a full $7.50 lower — or $7,500 per contract. That was a 23.5% decline from one trade to the next. Ouch!!!! This was my worst trade ever.

You “newbies” to trading worry about overnight gaps. You do not know what overnight gaps are.

$CL_F, $OIL

###

Hasta La Vista, Mexican Peso!

November 28, 2014/by Peter Brandt

The following is an actual example of the type of analysis provided to members of the Factor Service.

This email, sent Wednesday morning, was a continuation of a number of previous email messages forecasting a bear market in the Mexican Peso.

Posted Wednesday, November 26, 2014, 8:26 AM

*******

Before I even begin this correspondence, allow me to define terms.

Being bullish on the USD/MXN (spot) is the exact same thing as being bearish on the Peso (which is actually expressed as MXN/USD in futures trading).

USD/MXN expresses the number of Pesos per USD. MXN/USD is the value of the Peso in dollar terms.

As I write this, the USD/MXN is trading at 13.750X, or 13.75 Pesos per one USD. The MXN/USD trades at a reciprocal of USD/MXN. Thus, 100 divided by 13.750 equals $.07273, meaning that a Peso is worth just over 7 cents.

When I stared trading currencies at the IMM in the 1970s the Peso was worth about $.8006. Thus, in just shy of 40 years the Peso has declined in value against the USD by 90%. The chart below reflects MXN/USD.

I believe the Peso is due for another decline against the USD. The weekly graph of MXN/USD displays a possible 56-month symmetrical triangle.

My weekly graph of the USD/MXN goes back further, so the symmetrical triangle can be seen in better perspective.

Remember, a bear move in the Peso (MXN/USD) is the equivalent of a bull move in Dollar/Peso.

I have commented frequently on the potential for a much stronger USD/MXN (same thing as a weak Peso) in recent months. My thought was that the Peso will have another decisive leg down (this means bullish on USD/MXN) in 2015.

Well, 2015 may be upon us. The lower boundary of the massive triangle is being challenged.

The daily chart shows the position of the price and the boundary line. Note the small 6-week descending triangle.

I am monitoring this market for a shorting opportunity. My target for the Peso is toward $.0510

$USDMXN, $6M_F

###

Chart of the Month — Japan poised for 25% advance in next six months

November 19, 2014/by Peter Brandt

Major congestion zone in Japanese stock indexes are being completed — path of least resistance is sharply higher

The advance during November in the Japanese stock market completed major consolidation zones on the charts for the Topix and Nikkei Dow indexes.

The weekly and daily charts of the Nikkei Dow (U.S. Dollar-denominated) completed a 12-month ascending triangle configuration with the huge thrust advance on Oct 31. Massive advances such as this display urgency on the part of buyers. That this thrust completed the year-long consolidation and little correction has occurred show that the market has powerful underlying forces.

The target of the ascending triangle on the Nikkei weekly graph is 1898, a mere 8.7% above current levels. However, my view is that the period since the May 2013 represents a “half-way” pause in the bull trend that began in Nov 2012. As such, the advance from the Oct 2014 low to the eventual high should equal the advance from the Jun 2012 low to the May 2013 high. This establishes a target of 2170, a 24.7% advance from current levels. If the “angle of attack” of the current advance equals the “angle of attack” of the first bull phase, the target should be reached by mid-2015.

Is there any collaborating evidence for a 25% advance from current levels? YES INDEED!!!!

The quarterly chart below is the Japan Topix Index. As this chart displays, the Topix has been in a broad trading range dating back to the 1993 high. This high has been repeatedly tested. Viewing the May 2013 through Oct 2014 ascending triangle on the weekly Topix chart as a “half-mast” consolidation, the target becomes 1750, a price in line with the broad 21-year trading range.

I am always hesitant to comment on shorter-term patterns such as those found on daily or intraday charts because they are much more likely to morph. Yet, I will make a passing comment on the daily chart of the Japanese stock market because it might provide timing for the next leg up in this bull move. The daily Topix chart (Dec futures and spot) is forming a tight 12-day pennant. The following quotes are from the book, “Technical Analysis of Stock Trends,” John Magee and Robert Edwards, 1948. TAST is [incorrectly] considered to be the bible of classical charting principles.

“It [Pennant] forms as a rule after a rapid advance”

“There are rarer minor variations of the Pennant … in which the slope is actually slightly in the same direction as the preceding trend.”

“They [pennants] are ‘half mast’ patterns which ordinarily form after a fairly steady and rapid (steep) price movement. In applying the measuring rule, go back to the beginning of that immediately preceding move, to the point where it broke away from a previous Consolidation, a point recognizable as a rule by a quick spurt in activity, and measure from there to the Minor reversal level at which the Pennant started to form. Then measure the same distance from the point where prices break out of the Pennant, and in the same direction.”

Based on the last bullet point, if the Topix is forming a pennant, the target will be 1650 as shown below.

Disclosure: Long Nikkei Dow (Osaka), long Topix (Osaka)

plb

$DXJ, $TOPIX, $EWJ

###

[Note to first time readers of this blog: This analysis represents the type of thinking that members of the Factor receive on a regular basis via email.]

Note to you macro economic gurus who consider charting to be a form of voodoo: I am glad you think this way. Keep thinking this way. You probably still believe in random walk theory. If so, you are wanted on the telephone. The last century is calling.

I’m new to trading (beginner) is this service for me?

November 14, 2014/by Peter Brandt

Q: I’m new to trading (beginner) is this service for me?

A: Actually, there is nothing better for a new trader than the Factor service for several reasons.

1. New traders have very inaccurate and grossly distorted expectations. The Factor Service addresses the harsh realities of trading — something most novice traders do not want to hear and something most other services fail to provide. New traders need to constantly be bathed in reality. And this is something the Factor Service does.

2. New traders do not know understand the entire process of market speculation. Peter focuses on the nuts and bolts of trading, not just the glamorous aspects.

3. One of the challenges of a new trader is how to think like a trader — how to adopt a correct philosophy of market speculation. The Factor Service relies on 40+ years of Peter’s market experience to provide insight on this topic. It does not matter if a trader engages equities or forex or futures, all successful traders have a mindset that took years to develop. I can share these insights — something most of the fast talk promoters cannot do.

4. Trade identification is the one thing most novice traders are seeking — they are seeking the wrong answer. Trade identification, or signaling, is far down the list of important aspects of market speculation. Peter emphasizes the process of market speculation, the importance of winning the inner battle against human emotions, and, most importantly, risk and money management.

Peter has reached his level of professionalism by making every mistake in the book — and this is something every new trader must do unless they heed the warning of someone who has made mistakes and is willing to put a spotlight on the traps laying ahead for novice speculators. Who better to do this than a 40+ year renounced trader willing to share his experiences.

The Factor Service is only incidentally about identifying major market moves — which it does better than any other service we know. Peter, as much as a great trader, should be considered as a market philosopher.

Charts of the Day for November 13, 2014 — Some excitement ahead

November 13, 2014/by Peter Brandt

Gold, Palladium, Platinum, CATO, Crude Oil

Keep your eyes on the precious metals. Gold and Palladium could be bottoming. A decisive close by Gold above 1180 and then above 1202 would be strong indications that the 3+ year bear market has run its course.

Palladium is forming a 9-week H&S bottom pattern. The key levels to watch for the next direction are the Nov high at 809 and the Nov low at 746.25. More bearish is the Platinum chart. A new low under 1186 would not be constructive.

The weekly Crude Oil chart explains the current weakness. The 3-1/2 symmetrical triangle on the weekly chart has a target of $50. Look for real estate deals in North Dakota.

Kuddos to Factor member Paul S. for alerting me to CATO. On Tuesday he correctly interpreted the continuation H&S pattern in this stock and is profiting accordingly. Way to go, Paul.

###

Chart of the Day — Copper

November 5, 2014/by Peter Brandt

Red Kite Hedge Fund Group about to get hit by lightening

According to Reuters, the London-based Red Kite Hedge Fund Group owns more than half of the 160,000 tonne LME inventory. If this is correct, there is a good possibility that the Red Kite could get struck by lightening.

The weekly and monthly charts of Copper display a possible 3-year descending triangle pattern. The descending triangle configuration has a bearish bias because the lower boundary is horizontal. Support has been uncovered at and just below the $3.00 level repeatedly since 2011. However, each successive price recovery has been weaker and weaker.

A decisive close below 2.92 and then 2.87 would complete this chart pattern and establish a price target of 2.22. Only well funded traders should engage this market. The Copper market is known for high volatility.

There is one more potentially bearish factor for Copper. China has been the world’s biggest buyer of Copper in the past decade. Banks in China consider physical Copper as collateral for loans. A sharp decline below $3.00 would result in a number of these load being called in. The result could be a flood of physical Copper hitting the market to drive prices lower. There is no doubt that a large part of the support at $3 has come from Chinese efforts to prop prices at or above $3. Copper is a manipulated market.

$HG_F, #COPPER

###