Headline - Commercials with Seasonal Strength
We have had a great week. All stocks and ETF's in our portfolio are up. I have raised all of the stops on our profittable trades to at or above break even. Adjust accordingly. Let's make sure we take some money off the table.
One thing I noticed is that the Silver options SLW & SLV are down. That is why I have them in the portfolio they are a great leading indicator of directional changes in price movement. Statistically speaking Gold tends to run up to the 2nd of December then it sometimes takes a little dip in mid December before it runs up for the next few months.
This is the reason we have options with a 2013 expiry it means we can weather any temporary corrections in the price. I will not be selling the options right now. However, if we do get a temporary correction I will look at adding to our position.
Next, something I discovered today using a cycle finder tool - cycles are very important. It turns out that the time between the bottom on the 10th August and the bottom on the 4th October was 38 trading days. Interestingly enough it has been 55 calender days or 38 trading days between the 4th October bottom and the 28th November bottom.
In fact if you look at the 6 vertical lines indicating the cycles we have had a correction on the last 5 points of the cycle followed by a rally and a fail. Repeating this cycle it is likely we will have a rally and a subsequent fail. That is why we have our stops in place this week on proffitable positions. On the fails by all means add Apple (AAPL) Puts to your portfolio. I see the big Apple crash coming in March or April. It could be as early January but unlikely.
With regards to the Stock market we have the Santa Claus effect coming up which is bullish for the market. Then the January effect which we will look at later. The SC effect sees retail stocks perform well. Tech stocks do well as Santa buys all the new gadgets. Shoppers tend to take their kids to McDonanlds so we see profits go up there. Marriott and other hotel chains normally do well with all the Christmas parties also.
If we do have another failed rally we will likely see another run up immediately afterwards. If we get good news in Europe and the debt problems get sorted we will get an expolsion in price to the upside.
I talked about the relationship between the hedge funds and the commercials in the past. Fact is that when you and I get the news it's too late. Banks, institutions and their advisors (the commercials) have the information way before anyone else.
One of the best runners at this timne of year is copper. Now while everyone is bearish in copper it actually sees seasonal strength right now. The orange line below is the seasonal average over the last 40 years. The red line at the bottom is the commercials. Now if you look at how the commercials follow the seasonal line they got short when they went below the line just as the seasonal line starts to drop. The price dropped accordingly and is in a consolidation phase.
The orange line is now entering seasonal strength and the commercials are starting to get long. So now we have commercials (red), hedge funds (blue) and small speculators (green) all getting long as we enter seasonal strength.
Statistically speaking the day to get long the copper market is the 14th December holding till February 23rd has had an accuracy rate of 68.4% since 1972. I am therefore looking at getting long copper on a pullback on or before 14th December.
Commercials are also long stocks by the way. We had a rally and a pullback at a seasonal time for a rally and pull back. The commercials remain long and we enter seasonal strength.
Our Short Bond Option TBT with the December expiry is getting close. As I said before bonds act inversely to stocks. A stock rally would be great for our bond option. Let's see I am not adding to it now. We have 2 weeks for this trade to turn proffitable.
Our updated portfolio is below.
May you all have a Golden Season again this year.
Best,
Robert McManus
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