Patience...

Richard Russell is about a million years old and he says over and over again that great bull markets start when valuations reach extreme levels. That bit of knowledge along with your own research into historical valuations will make it crystal clear when great value is upon us in the stock market. We are still far from it...patience...it won't come in a day or a week or even a year, great value will build and build and build and from the period of overvaluation that we have seen for some three decades now it will take at least a decade of the stock market being undervalued before it is ready to take off in a new secular bull market.

--Fred

Annualized Stock Market Returns Based on PE Ratios

An excellent post by Mish with some fantastic data on annualized stock market returns based on Price/Earnings ratios.

http://globaleconomicanalysis.blogspot.com/2011/02/negative-annualized-stock-market.html

What's really scary is that pe ratios have yet to drop below the historic average of 15 since 1987, at least not for an entire year. If I combine that bit of knowledge with the incredible debt of our nation and an ever worsening demographic I can only come to the conclusion that bad times are ahead and they will either be REAL bad or they will last for a long, long time. Likely it's a bit of both.

We have and continue to live beyond our means. I not only see this in the data but in the people that I speak to on a daily basis. I believe we have hard times ahead as a nation, but as Mish points out, when it happens is impossible to predict. I will continue to take stabs at shorting the market but mainly I think the prudent position is to save for the proverbial rainy day and be prepared to invest heavily on the long side in about 15 years. I base that time frame on demographics and my knowledge of Generational Dynamics and the Fourth Turning.

--Fred

The Top or Just a Stop?

The time is here to tell whether or not the DJIA will hold at 11,782 or take off for higher levels.

I added to my short position - SDS - today and will add more if the market falls from here and will sell half if the stock market looks like it's going to close higher tomorrow. I'll also be looking to take a position in VXX if the fall looks to be at all violent.

The extreme bullish sentiment and possibility that we may close above 11,782 and then turn south will keep me from taking a long position.

The market knows....

--Fred

Bought SDS

I took about a 35% stake in SDS just before the close today. While I had expected an up market today and possibly Monday this market simply appears too weak to rally. I expect to be in at a 100% level soon as I expect the next 2 weeks to see the stock market drop well under the 11,000 level.

--Fred

Patience No More

I will be all in on the short side here within the next few days...just looking for the best entry point(s).

--Fred

Waiting...

It is looking like Friday or even Monday will provide the strike I've been waiting for as the stock market seems to have set up this little counter trend rally perfectly.

I expect sentiment to rise once again with the holiday cheer and stock market bounce and we will then have a perfect two week window in which to pull off the real counter trend retreat back below 11,000 on the Dow.

Whatever position I take I will likely keep a fairly tight stop on it; more on that when the trade is actually made.

--Fred

The Week Ahead

I expect to take a position in SDS if and when the S&P hits 1,218, with a two percent stop.

--Fred

http://www.acclaiminvesting.com

Staying Focused & Solvent

At this time I am out of the stock market and simply waiting...

I believe that to become a good stock trader one must hone their skills just as an athlete or salesman would. One of the most important traits on the road to success is being focused and when dealing with the stock market it is easy to become distracted by those who truly believe in a particular stance and those who simply have been trained to keep you bullish on whatever they are selling.

A year and a half ago I stated several times publicly that I believed the stock market would likely "close the gap" up to the July 2008 lows around 11,000 on the Dow. At the same time I continued to trade with a bearish bias; why did I do so? There are a number of reasons but the main one is that I knew that our troubles are long-term and when someone would state a bullish stance I felt the need to correct them...BIG MISTAKE because this got my ego involved and got me distracted from the trade.

Another reason is that I listened to too many smart people who make a living out of voicing their opinions. I don't mean Jim Cramer, I mean Richard Rusell and Gene Inger, both people I respect but I have found out that neither are good for me as a trader because they are selling a service and that service really has little to do with stock trading.

To make a long story short I now make every effort to look at the stock market with total objectivity and I always keep in mind that, "the market can remain irrational longer than I can remain solvent."

--Fred

Quantifiable Edges?

I've been getting a free subscription to the Quantifiable Edges newsletter for at least a week now and I really like it. Right now they are suggesting a very strong upside potential and I have to say that, along with some other seasonal evidence I've been exposed to, I do believe there is a chance we see a continuation of the rally up until Thanksgiving, and possibly a strong rally as volume lightens.

While my trade from earlier today turned positive quickly I will be looking at the stock market closely tomorrow and may exit this position and wait for a better entry just before or after thanksgiving.

I would also like to add that another leg up her would be the icing on the cake and would create an almost perfect short setup.

NY Fed Manufacturing Index Takes a Dive

http://globaleconomicanalysis.blogspot.com/2010/11/ny-fed-manufacturing-survey-new-orders.html

The above report on the NY Fed Manufacturing Report came to me from Mish's blog, always an excellent source of information.

But how does this factor in to the trade? For a long time now it seems that the stock market has been levitating way above where it should be. Yes, I expected the DJIA to reach the 11,000 level before resuming the secular bear market and it did so right on cue, but since August of this year the stock market has been on a tear that made little sense, except, of course, for the affect of Quantitative Easing.

But now that that has been front ran and all the little guys have been suckered in it seems like all the dominoes are lined up perfectly and even the slowdown warned about by Consumer Metrics seems to be finally showing up in the official economic numbers.

LOOK OUT BELOW!

--Fred

Stopped Out - Flat Trade

I was stopped out of the SDS trade initiated earlier today, resulting in a flat trade, with no loss and no gain to speak of. My sale was a bit higher than the buy but just barely made up the commission.

I'm prefer that as I do not want to be in the market over a weekend unless we are really building to a panic and the price action today suggest we are not quite there.

I will also point out that historically, buying about two weeks prior to Thanksgiving offers a positive bias, so let's see how next week goes.

--Fred

Stock Market Trading: Short Via SDS

I've decided to start fresh on this blog now that I've moved from my hosted site to blogger.com.

Today I took a 50% short position in SDS at $26.40 with a stop loss order at $26.20.

Reasons: Extreme bullish sentiment according to Investors Intelligence and AAII; entering the weekend with a potential panic developing over the European debt issue and currencies wars; over extended stock market; longer term bearish expectations in the macro economy based on Consumer Metrics Institute data.

Adjusted stop loss to $26.45 at 11:26 PST.

--Fred