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Monday, July 30, 2012

The Big Picture: July 30, 2012

We've been blessed with a great trader's market the past few months.  Had we simply held our April 2 shorts (at 1422), then covered and gone long on May 23 (at 1298, I was early), we'd be up a respectable 215 points (15%) as of Friday's close.

There's certainly nothing wrong with a 15% return in 4 months. It beats the heck out of a buy and hold strategy which would have left us down 33 points (-0.49%)

By paying attention to harmonics and chart patterns, however, we registered 685 points over the same period for a 49.25% return.

Looking back, our forecast was crazy accurate.  Here's the chart I posted on June 11, a slightly revised version of the June 1 forecast [see: Mixed Signals.]

The forecast line is the solid purple line rising diagonally across the chart in the middle of the red channel.  I was expecting a quick decline from 1335 to 1308, then a rise by July 25 to 1389.  I punted on the likely wave shape, drawing a straight line down the channel midline from June 22 on.

We got the decline the next day (to 1307)... and followed that with a rise to 1389 by July 27 -- only two days later than expected.  Here is the exact same forecast, superimposed on the actual market results.

I'm not aware of anyone who correctly anticipated the wave moves.  Fortunately, I didn't embarrass myself by taking a wild guess.  But, the channel worked very well -- until the July 12 dip necessitated a slightly tamer slope.

Earlier today, a friend recounted his attempts to capitalize on the rise since early June using options.  He had the right direction, the right target and nearly the right timing.  Yet, profits had been elusive.

I attribute the difficulty to the crazy wave structure we've seen since the bottom.  It's been very challenging staying ahead of the daily swings.  Only 3 of the past 38 sessions since June 4 featured daily swings of less than 10 points.  Fourteen had daily swings of 19 points or greater.

So, what's next?

...continued on

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NOTICE: recently wrapped 2Q2012 at the top of its class.  Investors who simply bought SPX at called bottoms and sold at called tops would have earned over 37% (about 49% to date since inception on March 22.)  For details and disclosures, click here.

Last week, to celebrate these results, I announced a 37% discount off our new annual rates to the first 37 annual members.  That's an $800 membership for only $500 -- about what you'd pay in 12(b)1 fees for a $10,000 mutual fund investment. 

Looking at it another way, it's about $2 for every day the markets are open -- less than the cost of a latte.  Honestly, how much did the barista's stock tips make you last year?

As of this posting, there are only 4 of these suckers left. Tempus fugit, ya know?  Just enter the discount code SAVE37 when you sign up.  Thanks!