Up until recently he was trading on one of Dublin’s larger trading floors. However he has now quit that and is trading for himself, from home.
Roger says his trading is largely technical (i.e. based off the charts) but he keeps a close eye on the news too.
Hammering Out Gold and Selling Drugs
Ahoy there! How’s everyone doing this morning? Roger J. here, doing my bit to keep the boards alive and get our trade discussions going while FT is away. It’s been quite a week so far actually. Markets are still volatile and I have been on the right side of a couple of nice winners. Fingers crossed for today. Let’s see if we can keep the ball rolling!!
Stocks finished lower by the close on Wednesday, as the financial sector did poorly again and oil prices rebounded. Anyone reading my diary from yesterday will know I managed to get on the major short move of the day, taking about 80 ticks out of the Dow. I very nearly nailed the mid-day bounce too, but didn’t have the conviction to hold on long enough. Gold was a market on the move, adding $17 to go to $831 an ounce. This ended an eight-session losing run, partly driven by the recent strong dollar activity.
I have been babbling on over my last few diaries how I believe a bounce in commodities is coming, we are about to see a Euro rally and that the dollar is due a sell off. I am also bearish about the Dow and as I said two days ago, I felt that Crude oil has been oversold recently.
Yesterday’s market action makes me wonder what the next few sessions have in store. Are we going to see a run-up again in gold? Is it time to get cautiously short on the dollar? (That trade has cost me recently). I just about pin-pointed this last bounce in oil, but took the profit. Should I consider getting long again? I think the answer to those three is yes.
As usual, I am using Technical Analysis for an excuse to get involved in the markets. Errr…I mean I look towards the technicals to try and identify the trend, or possible change in trend, and to try and find a solid entry point. Technicals can also give a fair idea of a reasonable price target and a sensible stop loss.
Let’s have a gander at the gold technicals. It’s not a market I trade too regularly, as I feel it often lends itself to slightly longer term strategies than mine. That said, if it’s on the move then it would be rude not to trade it! Also, there could be an interesting situation developing. Consider the daily Gold Rolling bet below. Gold has just had its first up day in nine sessions, the market is oversold and the %K line of our stochastics has just crossed the %D, giving us a buy signal.
Not only that but we have a ‘hammer’ candlestick from Tuesday’s trading. A hammer candle is a major bullish reversal pattern often formed after a sell-off. It sometimes signifies trend reversals, but you can also find it at market bottoms and market support levels. Candlestick charts were actually invented by Japanese rice traders sometime around the 1700s. Repeating patterns gave them a good idea of potential future market movement.
For those of you who think I am talking double-dutch, about rice paddies and candles, Japanese candlestick formations are a fascinating subject and are well worth reading up on. I am sure most of you are fully aware of what they are and agree with me. I will discuss other candlestick formations in another diary.
For those of you not so sure, look at Tuesday’s hammer candle to understand it. At some stage after market open, the sellers pushed the market significantly lower, but couldn’t close it down there (that’s the hanging line). Buyers took control, ending the session on a strong note. This in itself is a positive sign for a market as we know the bulls are in control. However, I would normally like to see this reversal or bottom confirmed the following day by a strong upday (represented by a solid green candle on our charts).
Looking at yesterday’s charts, all the indications are positive and I want to be long gold. By the way they call it a ‘hammer’ formation because it is ‘hammering’ out a bottom. It is worth noting that support below this is about $780 or so, and that we could see some natural resistance at $850. Noticing these levels helps me to set stops and price targets. Timing the entry might be difficult - it could be very easy to quickly be a few bucks offside by being too eager, but I am in this for the long haul and I don’t want to miss the move. I am going to pay up and get long.
So, at 10.15am, I bought Gold Rolling Daily at 833, placed a stop at 808 and have a target of 870.
I’m having a bit of a long-term day today. I think it’s partially because I want to protect the profits of a good week so far. Also it’s nice to have a change of scenery and spend some time analysing different products. I have been checking out equities. In particular, I have spent some time researching AstraZeneca, the pharmaceutical company. They released earnings a couple of weeks ago, with a strong second quarter and profit rising from $1.43billion to $1.62billion . The company said it had benefited from a weak dollar and cost-cutting, and currently has twelve drugs in late stage trials.
It all sounds positive, right? Well, actually I want to short it.
Since the company lifted its annual earnings view on July 31st, the stock has rallied nicely. See the daily chart below. It has rallied too hard for my liking and has recently been struggling with a growing number of patent challenges to some of its more popular drugs. In fact U.S. sales dropped in the second quarter. Most of the gains in sales, a whopping 20%, were made in emerging markets. They recently have managed to delay the release by competitors of a couple of generic versions of their drugs in court.
From a technical point of view, the daily chart is displayed with RSI, Relative Strentgh Index. It is a leading indicator and it works similarly to momentum in that we are considering overbought and oversold levels, divergences and so on. RSI is always measured in values between 0 and 100. Consider that since June 2007, every time RSI has given us a value of just about 70 and above, which is only six times in the year since then, it has predicted a short term high in the market and produced a nice sell signal five of those six times. I have highlighted it on the chart for you.
Well, I am willing to roll the dice on the seventh sell signal. The stock has rallied since its good news two weeks ago. It is at a big resistance level. The rally is so steep it feels unsustainable. The market is overbought. I am going to sell it. I think.
I decided to go and look at a shorter term chart, just in case I am convincing myself that apples are oranges. Consider the hourly chart below, spanning the last eight weeks or so. The most important signal I think we can get from momentum as an indicator is one of divergence. I know I harp on about momentum and divergence, but this stock has continued to rally to higher and higher prices while momentum just isn’t with the move. In fact it is dwindling, leaving a ig question mark over this uptrend.
Right, my mind is made up. The daily chart tells me I want to get short. The hourly chart is giving me a divergence between price and momentum, telling me prices can’t rally forever like this. Not only that, but it’s also meeting resistance on the top of my trend channel, giving a natural sell signal anyway. Everything is lining up.
Sold at 2620 at 10.20 am with a stop at 2705 and a target of 2450.
Right folks, good luck with it today. It will be interesting to see if this gold can get moving over the next couple of sessions. Feel free to comment, start a discussion or just tell me I am crazy and abuse me if the trade goes belly-up. I will still be keeping a watchful eye on the Dow to see if it might be worth playing from the short side. And cable, GBP/USD, is looking like value too I think. Let’s see what happens with that greenback.
Happy hunting. RJ out.
August 14th, 2008 at 11:46 am
Great blog. Blimey! We’re at the opposite ends of the pitch! Will be really interesting to see how this plays out. I’m inclined to agree that gold might bounce up a bit but I think it all depends on the dollar - if the dollar manages to continue to rally then I’d be concerned at being long gold or oil. Especially when all the indicators are pointing to a significant slowdown in output (and thus demand). On the other hand you could say that gold looks cheap at these levels…
August 14th, 2008 at 11:54 am
It is hard to know eh? Gold At least you have locked in some nice profits and can comfortably use trailing stops etc. from a position of strength.
Thanks for the kind words on the blog.
RJ
August 14th, 2008 at 12:30 pm
I just added some more to my gold position a $828. Kinda wished I had a bit more patience with regard to my entry this morning, but I am in this one for the long haul.
August 14th, 2008 at 12:38 pm
And just sold the extra amount out at $831. I do a lot of this trading in and out when the markets are volatile. It helps to improve my position if executed well.
August 14th, 2008 at 12:49 pm
Paid $826.0 for more.
August 14th, 2008 at 1:01 pm
Wow and $821 for a bunch more. This is getting sizeable. I will go manage this for a while and come back to you later. Fingers crossed boys and girls!!!!
August 14th, 2008 at 1:15 pm
could be painful….turbulent markets indeed. Pain on my equity longs being offset by the crude and gold shorts..added another gold short at 228..
good luck RJ…
August 14th, 2008 at 1:16 pm
good stuff.
August 14th, 2008 at 1:22 pm
You’re adding shorts at 828, and I am loading up long $821and $819. If i could get these out at $825 I would be in great shape. This doubling up can be a dangerous game! You are not wrong about the volatility! I am going to take a walk. Have my orders in to get out at $825 and $826 and just leave the core position. Stops at $805 and $808 don’t bear thinking about.
August 14th, 2008 at 1:30 pm
Yeah, take a break roger … rasing the stakes on a falling knife is well dodgy. Hope you get out of it in good health though. Gold and oil scare the shyte out of me, i have won and lost on them equally…i dont think they are worth the stress for long term bets. A quick buck is all. Though fair play to the two of you for sticking to your guns.
August 14th, 2008 at 1:32 pm
personally speaking, i would get out of it now if i was you.
August 14th, 2008 at 1:37 pm
Aaron, I have a core position long $833, with a stop at $808 and a target of $870. That will remain in place, as I have my rules and am happy with them, even if I have to take a loss.
While trading in and out (or mainly in!), I am now long $826 for $2 point, $821 for $2 a point, $819 for $4 a point and just recently $815 for $8 a point.
I am going to hold on for a while. I got the move wrong, no doubt. (good work Rabbit) But this shake out isn’t shaking me out. It may end up being stupid, but I feel I have some breathing room.
August 14th, 2008 at 1:41 pm
You might well be right (and i hope you are) but the hourly charts look horrendous for your position roger … i would be kacking them mate. But you are right, what is the point in trading rules if you are not going to stick to your convictions.
August 14th, 2008 at 1:57 pm
Just sold for $7 a point at $821.
August 14th, 2008 at 2:06 pm
good work, i was following it…seems to have settled a little now. On the hourly chart there is now an MACD crossover, the stochastics are looking vicious and RSI is a sell signal too. I must say, that would have been too hairy for me. I would have stayed in for the wrong reasons probably… it looks like you got a good price though.
August 14th, 2008 at 2:36 pm
Could well go back to 833 - have taken profit on my 828 short at 821 - left the 833 and 977 (!!) shorts in place.
Hairy trading. Still short oil, long dow!!! looking a bit better now. Those inflation figures kicked in with a vengeance…
August 14th, 2008 at 2:55 pm
I have just sold the Dow as well. 11605. Strong open but might get a bit of a retracement. what ya reckon?
August 14th, 2008 at 3:00 pm
I fancied it to test 11641 pivot after it ram-raided through 11546 … i would hold out a little longer for a better price perhaps.
August 14th, 2008 at 3:07 pm
That’s ok Aaron thanks. I sold 11605 and bought 11595. Quick ten ticks at $3 a tick. I do feel it is going to break lower though. But maybe you are right - it is a strong start to the day. I am a bit upset to find myself so quickly offside on my gold position, but I am hanging in there. And my trading in and out, even if it was a bit dangerous has improved the position quite a bit.
So you use pivots huh? Got any trades on at the moment?
August 14th, 2008 at 3:09 pm
out for a walk in the rain to cool off…sweaty palms this afternoon, but I think I’ve played a blinder - added even more long dow from 11487 and 11500. All with stops in place.
August 14th, 2008 at 3:15 pm
Lovely stuff rabbit, lovely stuff. Dow is on a charge. Hopefully it will make up for yesterday and more! This gold ain’t looking too pretty, talk about a volatile market. My in and out trading netted me a few bucks, but on the overall position, I have to admit I’ve been more confident than right now. That’s ok, stops are in place, just keeping an eye for now. Especially if this Dow turns a bit, I am looking to sell some for a quick buck, but seems like you got the jump on this one.
Next time, just out of interest can you tell me AS you are trading instead of telling me when you are 130points onside? Everything you touch seems to be pretty good right now, so it might keep me out of a doozy!!
Cheers mate, have a good one.
RJ
August 14th, 2008 at 3:22 pm
Sold Dow again 11653. This time for $5 a point. fingers crossed.
August 14th, 2008 at 3:22 pm
Every little helps roger!!…i usually only do that jiggery pokery when my trades are in the black. But well played all the same. As for pivots, i plot them along with resistance and support but i dont always use them. Some days there is a lot of action in and around them (wall st is struggling to get past 11546 now for example) and other days they are of no use, but they are valuable on indices contrary to popular belief.
As for trades today, made a good call on that drop in the dax earlier. Only trading dax these days. I figure the stress/volatility/profit/loss ratio is just about right for me.
For now…beer time!!! see you dudes tomorrow, and go easy on the gold!!
August 14th, 2008 at 3:25 pm
Aaron…beer time?? Well for some mate, well for some. Glad that short in the dax paid for a few bevvies for ya. No drinks for me unless this gold decides to bounce a bit, but it is a pretty rough day in there so far. Maybe this Dow will help me out. Enjoy.
August 14th, 2008 at 3:28 pm
ps looks likes 11641 has turned into temporary support…
August 14th, 2008 at 3:32 pm
covered my short from 11655 at 11633. At $5 a point, it’s a quick $100.
August 14th, 2008 at 3:33 pm
covered my short from 11653 at 11633. At $5 a point, it’s a quick $100. Thanks aaron, you might be right. Cab’t bring myself to buy it up here though. Glad I paid for a pint myself.
August 14th, 2008 at 4:10 pm
Careful with that dow…I may go even longer if it gets back down to 11550….I”ve broadened out my long equity position and am now long FTSE from 5565, Nasdaq from 1945 and S and P from 1283 - did that at about 1.45 when the Dow held support around 11480. Took out my hedged short dow from 11800 when it got to 11600, which might prove to be a mistake.
I just wish I had the cash to put some heavy duty positions on - the flip side of my (recent) success is that my stakes are all tiny - £1, £2, that kind of thing. If I’d been going in at £5 or £10 a point I’d have made stacks today. But over a grand up in a day isn’t bad, especially with small stakes. Especially when I saw my screen go all red at 1.30 when I was all long equities and short gold/oil. but I’m just trying to hold my nerve when the market gets noisy - crude back up to 11680ish was a close call but it’s well clear of there for now.
And just look what Crude and Gold are doing - even at £1/point on crude and gold that’s not an insignificant trade…
Little by little….
August 14th, 2008 at 4:14 pm
sorry - I meant to type 2.45pm not 1.45pm. Getting a bit over-excited here. Always a good time to pull back. May take some profit on one of the dow longs fairly soon - seems to be butting up against some resistance at the 11640 mark (on Dec future).
And just look at that euro go - staying short EUR/USD was definitely the right call
It’s the disinflationary macro!
August 14th, 2008 at 4:33 pm
that’s a great day Rabbit, keep up the good work. When I wrote that peice on most of the investment banks calling for renewed dollar weakness and returns to the lows, do we just ignore it? When you gonna take off that fiber trade and reverse it?
August 14th, 2008 at 4:38 pm
Right now I’m doing my best to ignore everything the investment banks are saying. Sold more gold at 911.
August 14th, 2008 at 4:38 pm
sorry…811
August 14th, 2008 at 4:40 pm
I hear you, I try to make up my own mind too. In my opinion, this dollar crisis isn’t over though. Sold at 811 I presume, or else thats a great fill! I have just bought $810 for $5 a point! Altough today’s core position has been a mare, it has actually been a very good week for me, and I am hoping not to end it on an ugly note.
August 14th, 2008 at 4:44 pm
Bought more dow at 11650
August 14th, 2008 at 4:46 pm
I completely agree but what perhaps you’re overlooking is the impending euro crisis. Just wait until all those eastern european countries start defaulting on their euro debts, and euro credit gets even tighter. We ain’t seen nothing yet. In that situation being long the dollar is probably preferable to being long sterling or long euro!
August 14th, 2008 at 4:48 pm
That’s a very nasty downwave in gold…what did I say?
August 14th, 2008 at 4:52 pm
You called that one nicely! The push to $800. what a big day, i couldn’t have called it more wrongly from the start of today. I have found myself catching daggers in this market all day. My god it’s a volatile old beast huh. Part of my problem is that we are in an unusually volatile time and I find myself with the old habit of fading some markets. 70% of the time, markets do nothing, and you learn some bad habits over the years. Today has been a pig for me, no doubt about it. I have given away almost 2/3 of a very good week. Only solace is that there is still a profit, but this gold market is whoooosh.!!
Nice work there Rabbit, keep it up!
August 14th, 2008 at 5:58 pm
Closed out half the dow long and half the gold short from 933. Leaving the rest running. May close crude if it gets back to 115.
August 15th, 2008 at 11:34 pm
Hi there RJ
sorry about your gold trade - I had a nibble at 815 - and another at about 804 - but interesting fact is even the nibbles can be about £100 quid down after about 5 mins at the mo - but i guess the reverse is you could be mega quids in with a good stake in right direction - i am now getting more convinced we are heading for a major crash in the US equity markets - I have been trading for about 25 years and i think the current pos is just about as risky as it can get - i spread bet for a bit of fun I am 97% cash at he momment - however I am looking very carefully at any news about a major US back in trouble - I think the FED may not defend this time round - I reckon 1000+ point DOW drop on the cards - hence my continuing total short on anything financial I can find - also will keep small long pos on gold - howvever i think long term 6/12 monhts it will also go down
cheers
S
August 15th, 2008 at 1:11 am
update… stopped out of gold trade at 800 breach
August 15th, 2008 at 7:17 am
Well - this Bloomberg article pretty well nails my thesis about what is going on - more articulately than I can. A lot of the hot money coming out of commodities. It has to go somewhere so my call is that it’s going into the dollar and into equities….hence being long equities. Especially financials and large cap consumer stocks! Have just bought a load of HBOS, Barclays and Lloyds TSB. May come to regret it, but for now I’m happy to take the risk.
http://www.bloomberg.com/apps/news?pid=20601087&sid=au3jwhluuZdo&refer=home
August 15th, 2008 at 8:11 am
Just sold more oil at 113. All in on the disinflationary trade now…!!
August 15th, 2008 at 8:36 am
Interesting watching the to’ing and fro’ing on the markets and all your particular takes on it. At the moment I’m keeping my powder dry and sitting on the sidelines…off on hols again next week so don’t want to be left holding anything while I’m away.
Like Simon I too believe that there will be a major downturn in the near future. I think the oil price fall hides a much deeper problem and I wouldn’t trust any of the major banks to park my car let alone come out with the truth about their own problems…….which are many and run very deep.
Simon, don’t know if you’ve read any of the articles over at minyanville.com but you’ll find all you need about US banks in trouble. The FED are trying every move in the book, and some that aren’t to prevent the banks from having to bring their off balance sheet activities back onto their balance sheets. The FED will not be able to save all of them, they’ve already exchanged so much crap to help them already.
But, while the trend remains in an upward direction don’t fight it. I gave up trying to find tops or bottoms, it can wipe you out before you know it. Just be tight with those stops and remember capital preservation at all times.
GP
August 15th, 2008 at 9:00 am
Simon,
You want some news about banks in trouble then have a look at this article.
http://www.detnews.com/apps/pbcs.dll/article?AID=/20080813/METRO/808130360/&imw=Y
This will alter the US housing markets for years to come as whole neighborhoods will be revalued downwards affecting even the people who can afford their mortgages.
Banks are getting to the ‘liquidate at any cost’ stage which will be more pressure on their balance sheets. Serves ‘em right I say.
GP
August 15th, 2008 at 12:03 pm
Today’s not been a good day to be long FTSE with all the miners selling off but otherwise I stand by my thesis!
August 15th, 2008 at 12:49 pm
hope you kept all those shorts on gold alive Flash? …how long are you going to hold on to your financials for? DONT GIVE ALL YOUR PROFITS AWAY!!!
August 15th, 2008 at 1:53 pm
Certainly did - added more short oil as well! Bought a load of HBOS at 301. We’ll see where it goes. Sweaty day but I’m heading into a five figure profit
August 15th, 2008 at 1:59 pm
Well, at least no-one reading this blog can say I didn’t warn them.
August 15th, 2008 at 3:39 pm
no sign of RJ today? - maybe had enough after that gold trade! - glad i got out when i did
August 18th, 2008 at 11:51 am
Hi RJ,
I’ve been away on my hols the last week, but thought i’d give a shout to say thanks for the blogs and timeframe blog over the last week. I’ve enjoyed catching up on them. Had a good week of trades also, a short on gold and a short on the GBP/Dollar placed before I left have almost paid for my holiday beers
Hope everyone else doing well!