New week, new month...

From Money Honey to WSJ, they're pounding away at the same theme: equities are usually weak in September. Well, can't argue with that and so I won't. My trading template remains the same: more turmoil is coming but once again we're in need of a trigger. Could be weeks before we see a big move again and I'd like vols to back off a bit more.

I believe we're on the verge of a whole new regime in capital markets, one that'll provide enormous profit opportunities for those who stick to their game plan and utilize discipline.

At all times, you should be aware of the "long trend of the market". Whether you like current economics, some industries to others or think China/Bush will relieve US homeowners, if prices climb don't argue with that. Right "now", prices are climbing, infact, they have been climbing since 2002. How do I know? Look at a monthly chart and apply a simple MA. Then go back 30+ years and you can quickly develop a trending system.

On top of this principal, you should be aware of mean reversion. Prices, like most things, don't climb forever and eventually, the financial system needs to reboot. Again, how can we know when prices will revert to the long-term mean? Go back to your monthly chart and look at the distance between the MA plotted and the price index. Is it at or near an extreme? Add to this observation that bull markets seldom last more than 4-5 years. The rule of thumb is useless in swing trading decisions but it should at all times be remembered by those who trade in order to increase their principal.

Where does this leave me?
  • The long trend of the market could very well be coming to and end.
  • All the so-called (bullish) themes pushed by Wall Street should be ignored. Whenever somebody says "this time it's different", tell them "I will completely ignore your advise".
  • My principal is 100% in cash. Going forward, I'd only consider securities that are inflation prone.
  • Own JPY and energy.

Hope you have a great week.

"There are two kinds of people in the financial district: those who are trying to help themselves by helping others, and those who are helping themselves to what others possess."

-Richard D. Wyckoff

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