What is Wrong

Now, just read this and tell me what's wrong?
TEL AVIV (MarketWatch) -- General Motors (GM 17.15, -0.27, -1.5%) is planning more cost cuts as U.S. truck sales slump, people familiar with the matter told The Wall Street Journal.
The move would follow reports on Wednesday that Ford Motor (F:6.78, -0.02, -0.3%) plans to cut 2,000, or 12%, of it salaried jobs because U.S. consumers are shifting to smaller vehicles. GM management and the board have discussed the planned cuts, and Chief Executive Rick Wagoner will disclose them at the annual meeting June 3, the Journal reported.

And some good lessons from subscribers:

Does the risk increase the higher in support/resistance you go ? Like the risk is higher as it approaches R3 and S3 and it would be good to lock profits before these ? I just sold all my 630calls which I bought 3 days ago, so theoretically tomorrow is the 2nd last day. I sold at $15.50, $15.80, and $16.00 at the OEX R2 which was 639. The R3 was 641, was this a good decision ? Thanks Floyd =).


Just wondering the 630calls do they have to be sold by tomorrow 30 May as in your stop loss date or is it ok to keep them abit longer until next Monday or Tuesday, reason being I don't feel comfortable when the stop loss date being so close, didn't we just make new 630call buys today so the stop loss date would be next Wednesday ? I'm just scared if tomorrow is the top loss date then I might sell in a rush and I don't like making decisions in a rush. Just like your opinion on this. Thanks Floyd.

Regards,
D


Floyd-the right answer: risk always increases with a higher count, and as resistance or support lines are violated.

You used the phrase again today "classic fight between bulls and bears". If the fight between them were just random price battle, sellers wanting to charge more, buyers wanting to pay less no pattern or cycles would particularly show.

Sure, supply and demand tracking through PnF would show overbought/oversold but not particularly cyclically. I am much happier with the notion of cycles - because they clearly do exist, repeat cycles of approx equal periods of 21 days - if I know that the market is actually steered, consciously manipulated by companies which build their business plans around being certain of the position of the market at specific times and by knowing that their buying and selling and power can take the market to those points. i.e. they are the supply and demand.

Supply and demand is the institutional traders first, NOT the companies selling the stock. Fund and institutional traders play the cycles, the news, and the earnings/quarterly reports.


You never use throw away words so when you say something even casually I tune in

"What's next? We think yesterday's crash may slow the euphoric upsurge. The bears are now "fully in charge". Thusly we think upside may be near :)"

For you a simple line and perhaps almost a subconscious thought. The lead musician at an orchestra-concert doesn't read the music, he's done that so often he now just looks at it and hears the music through his eyes and it flows out from his fingers.

You will read charts in a similar way.

By your comment above do you mean that now prices have been driven down sufficiently its time to start ramping them back up?


Yes, and I also mean that the sentiment is waning to the upside, thusly more likely upside will continue.

Steve Nison writes very emotively and especially about the "battle" between the Bulls and Bears - until I read Dorsey and Hutson I had always struggled with the concept of "who" wants prices to go down. "Who" would choose to be a bear.

"Bears in charge or in control" simply means "buyer's market" - right? A Bear is not soemone who wants prices to go down, he is someone who just won't or can't pay higher prices at the moment and with that attitude across the market prices fall because there must always be sellers to keep the market liquid?

Exactly

The more I learned about accumulation techniques the more I understood that large corporations can stockpile shares obtained at relatively low prices and then sell them at ever increasing prices to Joe Average (JA) who buys them intending initially to hold onto them forever thinking they'll be worth gold bars in a few years in the same way he thinks about his house being his retirement plan - not realising that it only provides him with a nest egg if he sells it and forgetting that having done so he will need to live somewhere - groan.

Exactly, again

So, after a sideways move in the market, accumulation, such as throughout the first half of May, why would there be a sell off? The bursts up to 13100 were these corporations selling to JA - doctors, dentists and lawyers in the 6 figure salary directories which the boiler-room brokers find their victims, err, clients in?

It is the institutions doing this, not the corporations...the mutual funds and floor traders. They are also influenced by news, oil pricing, and their own set of fear and greed.

The sell off took place only after this burst up - right? This is corporations pushing prices up ? I did not miss the sequence of events if I say this?
Institutional traders
The sell off is from private investors - and probably idiot pension companies (I hear of daily) gambling the working stiff's hard-earned on the market and blowing it - being advised by his broker who got him into it to get out quick before the crash comes, which then actually prompt and ensures the crash. The same large corporations sell up to profit and then scare JA's brokers by bidding really low. The broker can panic his dentist clients into selling so the broker keeps trades moving to get his commission?

The individual client is only a small % of the game. The retail broker who sells to the individual also a small game. It's the floor and institutional traders selling for insurance companies, mutual funds, and investment brokers that run the show.

Either these brokers don't know what they're involved in as the film Wall Street portrays them or they do know and don't care because their job is commission not client care as the film Wall Street portrays them - except Dorsey who clearly does know but plays the game in such a way as to make money for his client while he plays it.

Dorsey sells to brokers very well. A large part of our subscriber base are also these brokers, most just "joes' trying to make a living, and no more skilled than you or most other subscribers. If investors read my emails from brokers they would be shocked at how stupid these people can be.

I can make that work in my mind except for the way the prices actually fall. Between a seller's market and a buyer's market I expect a stagnation while people dither. I know we went through a tight trading range late last week´, so was that still accumulation or dithering stagnation?...............but price then rocketed to a peak on Monday and then reversed the same day.

Floor traders again not buying or selling, but beginning to try to boost the price up. Much of stock prices are traders manipulating the price up to get others to buy their shares. They sell partials ( in large blocks) to boost market price, to sell off their remaining issues.

In most commercial markets there would be stagnation and dithering at peaks and troughs but the stock market can be kick started in either direction so rise and fall can be pretty much instantaneous?

Yes

The reversal down is probably so sudden because perhaps the manipulators begin work on JA's brokers as soon as they've emptied their portfolios to the upside? Why wait to make money? They immediately put mass buy orders in for much lower prices than they just sold for? The broker calls JA to tell him to take this slight dip now with perhaps still some profit or cut his losses before they grow. At which point strong willed JA checks with his brother-in-law and says, no it's a good stock, it'll come back, I'll hold, so he has to be scared some more....


they actually move the sales and profits to new issues that have been beaten down, by them, to repeat the same action

I can place logical triggers for falls in my mind, large corporations now with empty portfolios sold out for profit, the price manipulation for downturn is timed with the news, tell a journalist what you want him to know and he'll cause the panic for you as it sells better than calm, own your own subsidiary of market analysts and feed them the triggers to give to journalsist.....

Tell the journalist, or more importantly, the "analyst", the Wall Street kids that play this information for floor traders, inadvertently and not

What I don't see is who buys at the start of the crash? At that point the shares are in weak hands, JA owns them. The more he paid for them the less of a dip in the market he can stand so he can be scared into selling quickly. I could identify with him up until very recently so I'm not cocking-a-snoot at him. I can see the coroprations buying, selling, rebuying, reselling to push the market up - but buy lower, rebuy lower, resell lower to get prices down, they sustain losses in order to drive the market down, reducing profits they made on the way up.

Ah!! as I ramble, do I answer my own question? Yes, this is how price is driven down and this is what the OEX index is for, to sell Puts (to the same gullibles) to hedge the manipulators' losses on stock while they are sustaining them in driving down prices. Calls on the index cover in case they don't achieve the prices on the way up.

If that is anywhere near the mark......... who buys Calls and Puts on the day before expiry if they just evaporate?


Floor traders moving in and out for pennies


Also, if that is anywhere near the mark............. in there somewhere is your 21 day cycle. It is a cycle I describe above even if you need to tweek it and modify it for me then - beautiful!! and I will find the duration of the cycle. If I managed a cycle which was my bread and butter I wouldn't want it to be too long because I need to pay my costs, buildings, salaries etc while I'm working it. If I write business running costs into my cycle I will need to draw down profit from it and not reduce my trading capital when I do it. I only want to pay my costs out of profits and still leave headroom. I pay my costs monthly so I want my profit cycle not start and be complete inside a month.- I'll check later but, average 21 days between expiry Fridays, 3rd Friday of a month? Because the Fridays are different positions in a month it breaks up a regular pattern which even JA could see from his daily paper. If the cycle were complete on the last Friday of every month JA would see price rise and falls on dates he readily associates with such as his pay day at month ends. A scattered pattern is more difficult to spot casually. The start and end date doesn't matter but having the cash generating cycle complete inside the paying out cycle is the sort of business which would make a shipbuilder or powerstation constructor candescent green with envy huh?


Mostly correct. The patterns will change by the market, not the trading days, except around expiry and FOMC and ends of quarters.


Bookmakers operate on the principle that you can't fool everybody all the time, you just have to be able to fool most people most of the time. Bookmakers know that they will always have to pay out on winners, someone will have backed it. Bookmakers could not care less which competitor wins, they just want enough gullible gamblers to pay for the winners by luck or by professional attitude. He wants every competitor in the competition to be backed, there will only be one winner so he wants all other competitors to contribute to what he will have to pay out, and leave him some headroom to run his Rolls Royce with. In fact bookmakers really love a good relationship with a regular repeat big investor winner. This is regular income to his book and he can have perhaps one competitor now frozen in odds on his book. It is one less competitor he needs to sell to the gamblers. If he ends up taking too much on one competitor to the extent that if it wins he does not have enough income from the other competitors he will sustain a loss, what does he do? He lays it off. He himself backs that competitor with another bookmaker to hedge his exposure.

Bookmaking is identical to stock trading. They are really the same thing, as you are describing above.

So, from the same motives, smart money will never object to smart individual traders reading their actions, we're not going to dent it. They have no choice anyway, they're not allowed to cheat and they can't hide it from intelligent observation.

I might not be quite accurate with the description of the cycle, until you tweek it for me, but the buying and selling of a limited, well, actually fixed quantity of items - company shares - must move into and out of the same hands because the number of "hands" on that playing field, in that game, are also, more or less fixed. It must be fluid, liquid even. otherwise there are periods when large corporations are not generating income. For them to generate income, it has to be daily, all other conditions force the matter into a cycle. Because the OEX is an index created for the purpose of hedging it guarantees its own liquidity and this is the sageguard for covering losses in the move to drive prices down. Market Makers don't need to keep funding their own campaigns, they can get JA to fund it while they prepare to fleece him again.

Yes, and corporations do it through institutional traders, covertly and overtly. Institutional traders do the same thing, playing the move for their benefit, with no real care of the EPS or value, only the perceived value.

I like Dorsey's basketball game analogies (from his videos you can picture him gracefully striding the court huh?). There are many variations of tactics for the game but the conditions, size of court, number players etc, force a limit to the amount of variations. The trick for the opposing team is to spot very quickly which tactic the other is playing today and counter it. Ours as traders is to spot today's tactic of smart money and piggy back?

Exactly