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About
the 1000 point crash on May 6th. "Investigators are still
tracking the cause of today's sudden 15-minute 700-point Dow
decline at around 2:47 pm. Perhaps some trader pushed a
"B" for billion instead of an "M" for
million. Maybe it was a computerized sell
signal run amok. Whatever the cause, something sent stocks like Procter
& Gamble down from $61 to $39 in an instant." For
me this was a real kick in the rear reminder to follow every
single signal my system creates and not to second guess them as
I have done before. Two times in the past two years I didn't
follow my own signals and both times it cost me dearly.... huge!
I was
trying to avoid a few percent whipsaw losses, but end up losing
big time. Whipsaw is part of trading like taxes are
working, and I will now gladly take
all the whipsaw that comes my way no matter how much they annoy me. I
want to (again) be on the right (short) side of the market when we have
another 1000 + point drop; but if I start second guessing my
signals I might end up being on the wrong side. This drop was a
wake up call for all of us that in today's extremely fast moving
markets you can lose half of your portfolio in 30 minutes. And
even if you happen to be on your computer when it happens there
is no one to take your trade, as happened during the this 1000
point drop. Especially in times like what we are
living through right now we
MUST take every single dip seriously and if it looks like the
markets may dip further we MUST go short even though this may
mean a whipsaw loss if the markets won't end up dipping further after all. The one
time that we will be on the short (right) side when the market
crashes some 1000 + points and won't recover will make up
for all the whipsaw we have suffered before times 10. Also
something to think about hard stops: Many people lost a lot of
money by having hard stops because of course they were stopped
out of their positions. These stops could have been as big as
25%.; as many trading newsletters recommend. Also these hard
stops would ruined many newsletters' performance had they calculated
in the stop losses they would have had in real time trading. But
all the newsletters that I know of ignored this 1000 point drop.
In other words their portfolios don't reflect what would really
happened if someone had followed their advice during this
drop. GOLD During
this same day we had the 1000 point drop gold was up $33, but note that HUI and PM stocks
were not up that much. Stocks are stocks are stocks even PM
stocks. So if the general markets go down they will most likely take PM
stocks with them. This emphasizes the importance of physical PMs
and if you don't like physical PMs you can trade
GLD, DGP, SGOL and GTU because these instruments follow
the price of the actual gold and not the stock market as much. Also
note that previously physical gold went usually down with
the markets, but now it looks like there has been a shift;
markets down - gold up. Before there was a lot of gold buying
when investors had money and were investing in stock markets; so
some of them bought gold as a diversification. But now it seems
that recent gold buying has been as a hedge against possible
inflation and monetary crisis in Europe etc. During times like
this there can easily be mad rush to PMs. There
is a growing group of people who are convinced that USD is
doomed if things keep on going as they are; meaning US
government dept, spending etc. They also say that gold will benefit
from this uncertainty, which I agree on. But there is only so
much gold and people will need another (safe) place to put their
billions. Investors are losing confidence on Euroland and
England. Asia, Russia are still for the most part unknown
quantities especially in the long run, then there are
Switzerland, Norway and some other smaller currencies, but they
also are limited as far as quantity is concern. So what's left?
USD and gold, silver and platinum. If I was a banker with
billions to invest to currencies; I would still trust Americas
ability to deal with hardship and to pull out of the recession
more than any other big nation. US has proven its ability to go
through tough times many times before and it has always end up
on top again. It still is the leader of the world in many ways
and even if China surpasses it on selling junk; who cares. So my
thinking is that if times get rally tough both PMs and USD may
end up going up big time. From time to time they already have
been advancing at the same time.
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