Gold has possibly bottomed for now

Was at a local gold dealer recently and they didn't actually want to sell me any gold bullion. I think this might be a sign. Price of gold has gone down so much dealers don't want to sell.

Temporary move

I have temporarily moved and merged this blog to:

http://alfietrade.wordpress.com

Reason for move is Blogger's lack of a Blackberry app and Wordpress's availability of a clean and functional Blackberry app. This new blog will be more than only stock trading but a wider range of topics. Non random thoughts.

Also follow me on twitter at www.twitter.com/alfietrade
or at
stocktwits

I still have my photo blog at:

http://spinshock.blogspot.com

Commodities are back incase you haven't noticed already

Oil, gas, gold. Everything that has actual value as opposed to currencies.

The devaluing of the US dollar and massive injections of credit of the Obama administration to curb the downturn means the commodities trade is back on with a vengence.

Further, China is stockpiling oil and coal and other raw materials at current depressed prices.

With these two tail winds, I am long on oil and natural gas. I am playing oil with AET.un and USO. Gas, I am playing with UNG and KWK. 

Two stocks on China

The two stocks I want to focus on today is FXI and OCNF

FXI, a play on H-shares Chinese stocks listed in Hong Kong. The Hang Seng index has broken out past 16000 two days ago in a beautiful cup and handle chart formation. The 20dma is above the 50dma. All this on the back of strong economic data coming out of China. I am adding to my FXI holdings on pullbacks.

OCNF is a dry shipping company with a fleet of ships. This is a play on the China recovery story. Yesterday saw heavy volume over 20M shares traded on average volume under 2M. This is a $1.85 stock at the moment and extremely risky. 

Messrs. Buffett and Munger on Math and Theories

Excerpt from the Wallstreet Journal:

Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.

"There is so much that's false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that's a goal you should reasonably hope for," Mr. Buffett said. Regarding complex calculations used to value purchases, he said: "If you need to use a computer or a calculator to make the calculation, you shouldn't buy it."

Said Mr. Munger: "Some of the worst business decisions I've ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn't. They teach that in business schools because, well, they've got to do something."

Mr. Buffett said: "If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won't get tenure....Higher mathematics my be dangerous and lead you down pathways that are better left untrod."

Trading is like Farming

An analogy I just thought about is farming. Being a trader and investor is very much like a farmer.

We only have so many seeds to sow (capital). We need to constantly decide where to sow our seeds.

Trader - Invest in short term or long term securities (short swing trade or longterm investment)

Farmer - Plant crops that grow quickly or slowly

Trader - Buy and sell at what price based on information and speculation

Farmer - Buy and sell seeds at what price, will the seed prices rise or fall? Sell your crops now because you think prices will fall, or sell later because you think prices will rise?

Trader - Take a percentage of annual gains away from trading account into savings account. For spending and for a rainy day

Farmer - Take a percentage of crops and keep it stored. Wheat, rice can be eaten should you expect a draught to feed the family.

Trader - Mr Market forces are strong. Many things you cannot control and can get wrong. The markets can be brutal and trades can always go against you

Farmer - Always at the mercy of Mother nature. The climate, floods, droughts, pests. All can destroy your hard work and leave you devastated.

Adding to shorts

I have added a number of short yesterday. I am now net short. My biggest short positions is skf (long the bear financial) and tna (short the bull 3x etf). TNA is my favorite because it has been in a one month upward channel where it has been bouncing off a beautiful ascending channel. Further, it also hit a resistance of about $28 set 2.5months ago. The bottom of this channel is at $23.5.

Two Hedge fund managers I have the greatest respect for Doug Kass and Eric Bolling have also been selling into this strength in the markets and adding to shorts. This in addition to what I see in chart formations of what looks to be a temporary top on the markets (SPX 890) gives me additional confidence with my decision to go short.

The next leg down to 860 on the SPX is the near term target. Ideally, I would like to see the SPX start to form a downtrend. I don't expect the fall to be quick but also don't expect 760 to be breached.

For currencies, the EURUSD would be a great short should it fall below 1.3212 the 20dma line.

Getting a little short

I haven't been making major trades and also have been staying low in trading.

The markets have been meandering back and forth. A terrible environment to trade except for scalping small hourly gains. Without any real trending in the broad markets, this environment has been very unfriendly for gains.

I am however getting a little short putting on small positions in skf and sds. The SPX rallied past resistance at 876 today after the FED announcement but the rally quickly faded. The risk/reward is now pointing slightly more to the down side.

I would caution however that the markets are churning back and forth. Put tight stops on positions and don't be worried about small losses if they are triggered.

Big money is made on the big moves and they will more than cover the small losses.

Stress test results are coming up on May 4. And I expect a sell off on the banks before the news from fear that some of them will required more funding.

Backing and filling

I am not trading this market.

I am holding my core positions in oil and ag. aet.un and VT.

I also hold a trading position in gold. In kgc and au. Gold has taken a bit of a beating the last 3 days but I believe it is oversold and any meaningful pullback in the markets will see a big rebound in gold.

Otherwise trading in this market has been difficult. I have been trying to play the short side with SKF but the market has refused to go down so far. Last hour of trading has also seen much program trading pull the markets up. I've been taking small losses on SKF daily as I don't want to hold it overnight, but I am ready to pull the trigger and long SKF whenever there is indication that the market is ready for a fall.