Christopher Teggatz

The vice president of the Company expressed a desire for paperwork and “real work,” and I pointed out that she has a business degree and might turn her eye to our corporate taxes. We’ll see. I’d put a fire under her ass about job performance but she’s my wife so I let it slide.

A friend of mine remarked that he thought the market was at a low, I believe he meant this before trading Friday, and remarked about Chinese stocks.

Don’t know anything about Chinese stocks but there has been a lot of speculation about China’s economic situation and a lot of talk about a “hard landing” from excess liquidity and a housing bubble like in the US. The US market is a strong performer worldwide and I would be inclined to think this trend will continue. America is lean and mean and ready for action. Further, I’ve heard it remarked that the easy money was made in China several years ago, and what I do know about China inclines me to agree. So I’d stick with US stocks or the German DAX.

I don’t think we’re at any low. I think the market is going to have a small correction. We might get a small pop here and there but the seasonal pattern at this time of year is sideways or downward.

I would anticipate a sideways or downward US market for the next 3 months roughly, and then a very strong bull market starting around June 4 through November. This assessment is based partly on market patterns during election years. For some reason the market has patterns that correspond to the presidential cycle.

Personally, I’m in cash and waiting for the June 4 bull run. At this point I will probably buy value blue chips, for example AA, BAC, GE, etc., any blue chip that has a low price. Part of my reason to do this rather than buy options is to minimize transaction costs with thinkorswim (Ameritrade).

We can reasonably time this bull market to correspond with the presidential cycle, so I might as a speculative play sell out of the money verticals. I’d make them expensive verticals, like on NDX for example, again to minimize transaction costs. The risk/reward would have to be pretty good. A good part about verticals is that a strong bull market would mean reduced volatility, and verticals are short volatility.

I might buy naked options on the SPX or NDX or RUT if the risk/reward is appealing. These could be the big money plays.

I might consider a triple weigted ETF like TNA but with a bull market, volatility might drop considerably, which means the daily readjustment of the ETF would be against holding long-term.

I will return to McClellan’s eurodollar fractal. It has had very strong predictive power recently, amid a financial environment of great uncertainty. His fractal predicts a very strong bull around June 4. The fractal is not so accurate about strength as it is with timing. Value blue chips would have the advantage of resale value if the necessary strength of the bull market is not sufficient for profitable options trading. This would be to suppose the possibility of a tepid bull, in which case the value of options can deteriorate through time decay, resulting in an unprofitable position even though the market is performing as anticipated.

I anticipate that for the short term the market will enter a holding period for the next 2-3 months with a downward bias. I am inclined to think there will be a downward retracement. My assessment here is based on seasonal patterns, presidential year patterns, and McClellan’s eurodollar fractal, which has proved to be somewhat prescient for the last year or so.

Based on McClellan’s eurodollar fractal, I anticipate a strong bull market starting probably early June. I will of course look for confirmation in the financial news. A primary catalyst will be, I anticipate, an exit of Greece from the Eurozone. This will cause short term panic and then a roaring bull market. I anticipate this because in March Greece has a debt payment due which it has no way to pay. Greece is a bit of a spoiler and the situation is difficult to predict because of the Europeans’ apparent inability to take decisive measures. Other news events might develop. The actual news itself is irrelevant except insofar as it confirms the Company’s timing predictions.

Our timing predictions are also based on contrarianism. There needs to be a bit of a retracement and enough retail investors getting really frustrated with their returns before the market can really move higher. A downward bias would cause institutions to sell, which could see strong selling and test of support. This would be healthy for a bull market. In the long term see a strong bull market Jun-Nov, and we are actually waiting to catch this. At the moment the Company is cash. We are considering placing iron condors on the market, but we see some possibility of a strong downward retest, so we judge volatility risk with iron condors to be high. Iron condors are short volatility.

The Company is aggressively cutting expenses this Jan, which marks the start of our fiscal year. We’ve closed a London phone line (we still have our main London phone lines however), cancelled the WSJ and Morpheus, and switched IBD and FT subscriptions to Kindle which are much cheaper.

What we really need to do is switch brokers, because thinkorswim being bought out by Ameritrade has resulted in much higher commissions, which really hurts the bottom line. We plan to switch to Interactive Brokers. This involves a lot of paperwork with a company which is why we didn’t do it a long time ago. And we need to pay attention to filing corporate taxes in March. Our vice president has a degree in business and should be doing these things and let me, the CFO, concentrate on trading. However she is content to sit and collect her $1/year salary without lifting her pinky finger so it falls to me, and I have enough work to do, so I suspect we may be running with thinkorswim for a while longer. Also a problem here is that our corporate seal is in a safety deposit box in HSBC in Manila and so we can’t do anything until we return to Manila, which won’t be until June at least. So my problem for the last year has been making trades which minimize commissions, and this limits opportunities.

The Hang Seng and Shanghai Composite are 2 of my leading indicators and they are a bit down early this morning. My other leading indicators are GE, GS, FDX, and /LBS (lumber). Lumber is down this morning. With the Hang Seng and Shanghai, being down is not good, because traditionally the Chinese markets perform well after the Chinese new year.

The European summit today presents some event risk but I think the market is growing deaf to European issues. Also despite German complaining I strongly suspect some restructuring deal will be arranged quickly.

Based on McClellan’s eurodollar fractal, which has been my primary trading tool for some time now, I expect an important top between Feb 2-24.

With COT commercial traders are betting strongly against the dollar and long euros. This is bullish for the SPX.

While US economic data was not as strong as we would have liked, it was still good. This should sink in.

Based on McClellan’s eurodollar fractal, what I really want to catch is a very strong uptrend starting around June 4.

I have some concerns about my GE options position, which is starting to suffer from time decay, and I want to liquidate as soon as possible. I’m looking for a profitable rise around the end of this week or the start of next week, upon which I’ll liquidate. Earlier this month my position was holding a good 20% profit but I didn’t sell and I’m kind of kicking myself for this, though hindsight is always wisest and what can you do… I believe my thinking at the time was to wait for the GE earnings report, which turned out to not be as stellar as everybody including me expected. However as I commented at the time, GE is actually lean and mean and doing well, and still maintains an almost 100% correlation with the SPX. I’ve been sitting on GE for way too long and want to get this endeavor finished. But bottom line, time decay is starting to work against me, so if by early next week the market is not behaving as I anticipate, I suppose I will be forced to swallow a loss and liquidate. That would be sad indeed.

My general plan for 2012 is to buy SPX or RUT calls around Jun 4th.

Until Jun 4th, once I have liquidated GE, I am inclined to place iron condors on the SPX with a downward bias (a long downward wing), as I believe it will be a somewhat volatile. So I will probably wait for a high volatility downward day to get higher premiums and then sell iron condors.

If you look the daily /ES, /YM, and /TF, they have been consolidating for about a week. I expect one good parabolic thrust up.

The January Indicator, which is very strongly predictive (I believe about 80% reliability though don’t quote me on that, but the figure is something in that neighborhood) gives us every reason to be bullish for 2012. This reinforces my confidence in McClellan’s eurodollar fractal which predicts a very strong uptrend starting around June 4.

So the immediate project is liquidating GE ASAP at hopefully a profitable point, or else swallowing a loss and living to trade another day. We’ll see how it goes, got to stay cool and take what comes, it’s go time now.

1. Examining the excellent Bespoke 2012 Report, seasonal and technical factors all overwhelmingly suggest a bullish 2012. I highly recommend the report.

2. Gold, silver, and platinum are in downtrends. Platinum is significantly undervalued. Platinum as an industrial metal would benefit from economic expansion, which we have every reason to expect.

3. The dollar and the SPX have decoupled from their strong inverse relationship. The dollar appears to be in a long term uptrend and a primary beneficiary of this would be financials (US financials–I don’t trade internationally). I have mentioned several times in this blog that I have FAS on  my radar. Might be a bit late to jump on the FAS train though.

As you can imagine I was a bit disappointed with GE’s earning results, despite the fact that if you read between the lines, they’re doing great. Indeed I think it’s the “read between the lines” part which caused GE to recover all its premarket losses and set a new short term high. I had really wanted to liquidate Friday but GE should hit 19.5-20 in a week or two. There is an interesting article on Pragmatic Capitalism about why this rally won’t quit http://pragcap.com/10-reasons-equities-cant-seem-to-go-down and I agree with it, and while GE has underperformed the broader market a bit, nevertheless, there is almost a 100% correlation between GE and the SPX. I have mentioned many times, GE is my cheap proxy for the SPX. I want to liquidate my options as soon as possible however because time decay is starting to accelerate.

I would anticipate a bit of a pullback, as I think I said last week, and my reasons for this are seasonal patterns, and also the geometric formation of waves. We might have a bit of a rogue wave going on at the moment however.

I have returned to to work and even read Investor’s Business Daily yesterday for the first time in a month. It was a nice rest, though of course, I was still continuously watching the markets throughout. Sometimes I think you don’t really need to know the news to invest; I rely mostly on chart patterns and seasonal patterns. I have very rarely bought or sold because of news. Anyway part of streamlining the Company’s expenses, I’m not renewing my Wall Street Journal subscription. I find I only read IBD and the FT. The Company also subscribes to Barron’s, Sentiment, McClellan, Morpheus, and Bespoke. In total along with miscellaneous expenses such as phone, mail service, Bank of America’s propensity to suck you dry with fees, etc, the Company has about $350 of overhead a month, and this is without paying myself a salary. I have earned $1 a year from the Company for several years now. (Steve Jobs style).

If you’re superstitious then today is going to be a down day, eh?

Took profit on my GE Mar 18 position for 120% profit, however this was a small position and it’s only a small degree of scaling out. I’m a firm believer in scaling out, even though, for example, if I hadn’t scaled out of my Jan GE options I would be a couple grand richer right now.

Still hold major position in Mar GE 21 options.

The action is down today but I am not alarmed by this at all. Frankly what’s really going on, in my opinion, is that people are liquidating because they don’t want to be exposed to the time risk of the 3 day weekend. If you study the hour charts of the last few days (the hour charts of the index futures) you will note that dips have resulted in heavy buying. Various factors, most principally McClellan’s eurodollar fractal, lead me to expect a top in the first week or two of Feb. The market’s action lately gives me no reason to doubt this.

McClellan’s timing models see a bottom around 17th. Out of respect for him and his subscription service (which I wholeheartedly endorse if you’re a market timing trader like me) I will not discuss the details. But I anticipate a small drop now and perhaps 17th. I think the drop is today. Then we should have full sails ahead, indeed I would not be at all surprised if the 17th saw very heavy buying.

The question then becomes, what can we expect out of GE? I hold Mar options and because the final month of an option starts to see rapidly accelerating time decay, I want to liquidate as quickly as possible. So I would be inclined to liquidate after the first week of Feb. This is a big change of plan for me. You will recall when I bought this position Nov 1st, the plan was Dec 27 or Jan 2nd. And actually I could liquidate now but my profit would not be what I would wish. There is resistance at ~20 and major resistance at ~20.85. This makes 20-20.85 into a high volatility resistance zone.

Next week is op-ex and op-ex is almost always bullish, for various reasons which options traders are well familiar with I’m sure. I could easily see a push to 19.5 next week, where I would seriously consider taking profits and the buying longer-term GE options.

Here’s the bottom line. I have not once thought about hitting the sell button yet.

There are so many reasons not to like this rally. Which is why I like it. The Dow is going to surprise us all and rock in the new year.

The after hours futures are shooting up, and I’m not sure why.

The market internals are bullish and I suspect we may have an up January.

Both the Russell and Dow futures are butting their heads against strong resistance. A big breakout day on high volume would really confirm the uptrend, and that’s what it looks like on the futures.

Fear and panic over the European problem created great value in many blue chips, such as GE, AA, BAC, etc. This fear is now dissipating and money is starting to flow more.

A positive is the move in the Russell. The RUT has to lead a good rally.

Now we may encounter here a parabolic push and then selling, ie a fake breakout. This is why I would probably scale out about 50% of my GE position if we have a big up day.

I am still not back at my desk and have no idea what is happening in the world. This is all chart analysis.