What to do…

So, I’m currently using four different Expert Advisers (EAs) that are trading 15 (!) different currency pairs. They are FAP Turbo, Forex MegaDroid, Forex GridBot and Forex Derivative 2.0. The last one is the latest (and greatest?) addition to the line-up. As of this writing it hasn’t done any actual trading yet, but it does very very well in backtests so I am hopeful. FAP Turbo is still the only one that have been profitable over my 5 days of trade, but I will keep MegaDroid and GridBot for a while to see how things turn out. FAP Turbo uses DonnaForex settings for the pairs she trade, and my own for USDCAD.

As for GridBot I’ve analyzed last weeks trades and made some changes to virtually every currency pair. I was considering dropping a few, but resorted to constrict their trading hours instead. This way I can still get more data on them, if last week perhaps just run bad for some pairs. So what settings will I be running this week? Here’s the Line-up:

GBPJPY and USDJPY:  LotSize 0.1, SafetyNet -50, trading between 18 and 3 GMT (Alpari UK offset)

USDCHF: LotSize 0.01, SafetyNet -13, trading between 9 and 18 GMT

GBPUSD: LotSize 0.05, SafetyNet -50, trading between 9 and 3 GMT

EURUSD: LotSize 0.01, SafetyNet -14, trading betweeen 9 and 15 GMT

USDCAD: LotSize 0.01, SafetyNet -20, trading between 11 and 19 GMT

EURGBP: LotSize 0.01, SafetyNet -20, trading between 9 and 14 GMT

EURCHF: LotSize 0.01, SafetyNet -20, trading between 9 and 3 GMT

EURCAD: LotSize 0.05, SafetyNet -80, trading between 9 and 3 GMT

CHFJPY: LotSize 0.01, SafetyNet -20, trading between 12 and 3 GMT

AUDUSD: LotSize 0.01, SafetyNet -14, trading between 10 and 18 GMT

AUDNZD: LotSize 0.1, SafetyNet -60, trading between 9 and 3 GMT

NZDUSD: LotSize 0.01, SafetyNet -14, trading between 11 and 19 GMT

EURJPY: LotSize 0.01, SafetyNet -15, trading between 18 and 3 GMT

GBPCHF: LotSize 0.01, SafetyNet -20, trading between 9 and 15 GMT

So, hopefully it will work out with these settings, and I get more good trades than bad. I’ve tried to stop lingering trades by settings a little tighter working hours and lower safety net on some pairs as you can see. Some I’ve also started trading at bigger lotsizes since they’ve been performing very well. AUDNZD has hit rate of 100% as of now for example, so I’m trading it at 0.1 lotsize. This pair is characterized by often trading in a range, perfect for grid trading. Unfortunately the spreads are somewhat unfavorable, but as long as GridBot keeps getting winners here I’m satisfied.

I’ve been quite inactive this week, I think it’s been hard to see a clear trend at the exchanges, I still think we are going to be trending downwards from here until the autumn, but it is not shown in the prices decisively as of yet.  So I turned my head to the commodities and bought gold, silver and oil, as I saw a trend there still.  I used the 2X certificates by SHB offered at OMX, but any vehicle is good I think. As of earlier I have the GLD ETF at NYSE in the portfolio for example (that when considering this weeks weakening of the SEK against the USD has done very well). So far I’ve been right on the money, with BULL GULD up 5.6%, BULL OLJA up 15.86% and BULL SILVER up 12.98% (as of this writing).

I’ve written about silver before and still my analysis is the same, it is in for higher prices this year. The reasons are mainly two, the weakening of the dollar and increased demand versus availability (stores and production is down). The Gold market is driven more by the uncertainty in the worlds currencies, but should not be underestimated. Lastly oil is going up from a very very historically low level this winter. OPEC has cut it’s production in order for it to go up, so why not play along?

As for the broader commodity ETF’s some are getting close to their 200-SMA’s. DBA (Agriculture) has already crossed it. DBB (Base Metals) is just shy of it, but has been trending in range for a month. DBC (General commodities Index) looks better, it is closing in on the 200-SMA with a upwards trend. DBE (Energy) is still quite a bit from the 200 day moving average, but it is in a strong upwards move (most certanly because of the Oil price of course). All in all I think that there will be buy signals in these ETF’s in a month or two.

Bought another Expert Advisor (EA) to the MetaTrader 4 platform this morning, before going to work. Read some very interesting reports on a forum about the Forex GridBot, where people where running it in broad daylight (most successful EAs run only at night, during the Asian trading session) with remarkable results. So I just had to test it. It is a ClickBank product so they offer 60 day money back guarantee, so if it doesn’t perform I just give it back (just as with my previous EAs, MegaDroid and FAP Turbo).

I put it to work immediately on all (!) 14 major currency pairs. I’m letting it trade 8am - 3am GMT, which is extreme of course, but since it’s a demo I’m pushing it. The GridBot started trading straight away and is racking up orders as crazy. I obviously used a too large lot size (default 0. 2) since I’m hitting my margin all the time today, but when there isn’t margin calls the bot really does well. I will reduce the lot size to 0.05 on the Demo account. I’m tempted to run it live as soon as I get back from work. Of course I’ll start with micro lots live (0.01) if I do that and I will probably only trade 2-4 pairs.

You can watch my demo account at Alpari here, but be warned I run four different EAs now with extreme settings and working hours, this is really a playground: http://patrickbateman.mt4stats.com/

Since today is Memorial Day I’m laying low, even in the open markets. Last week continued the decline after the move upwards in the beginning of the week (when it hit my stop-loss limits) and I stayed out for most part of the rest of the week after that. The OMX was closed half of Wednesday and whole of Thursday.

The USD weakened against all other currencies last week hitting a low of 7.44 USD/SEK. It will be very interesting to see if this trend continues, since it is remarkable that the both the S&P 500 and the USD declined simultaneously.  Gold is rising at about the same rate as the USD decline.

PA Resources went up again Friday, and really proving to be my #1 moneymaker. I liked the 11% interest in the convertible from start and now, when it’s up 60% since January, I love it. Hopefully it will continue trend upwards with the increasing oil price and then make a jump when the results from GITA is released, sometime this summer/autumn. A rumor going around is that it is a candidate for being bought out by some larger entity in the Oil industry. If this happens we are probably looking at a tremendous payday.

As for my ventures into the FOREX trade it didn’t start great last Thursday with a hit of -6.6%. I think it was a fluke, but I admit that it was really bad timing… But I am still intrigued with the possibilities of automated trading, and I really enjoy tinkering with the robots and their settings.

The only EA I run live is MegaDroid for the moment. I am testing FAP Turbo and Robominer in a demo account also, and considering starting the GridBot in demo also. I probably will start FAP Turbo live tomorrow night (don’t trade FOREX around holidays). You can follow my (or my EAs that is) trades at: http://tylerdurden.mt4stats.com

The Market is clearly moving against me. My stop-loss orders have been triggered for SKF, SDS and Xact Bear yesterday or today. I lost some, but not too much. I still think this is a premature rally and that the fundamentals just isn’t there yet, but there’s no arguing with the Market, since only price pays. I’m mostly in cash right now, trying to figure out the direction of the markets for the rest of the week. The OMX Exchange closes midday tomorrow and is closed on Thursday, so I probably will not enter anymore positions at the OMX. The American markets are open as regular and I am tempted to ride this upwards push for the week, perhaps with Direxion Daily Financial Bull 3X (FAS) because of the huge leverage (of course this is risky). But I will for sure get out before the weekend in that case.

On a note of some trades that actually gone my way yesterday and today is PA Resources. I have, for quite some months, had a huge exposure in their convertible KV1 (which I sold of 75% of last week only to buy back at a lower price yesterday). Yesterday the company was mentioned very favorably in the Swedish stock-picking magazine Börsveckan. The stock jumped some 8% yesterday and is up 8% today also. The Convertible is not far behind, but still the favorable lag in its price is a bankable reality. For traders the stock is preferred because of the larger movements in price, but the convertible is far better for long-time investments (the last date to convert is september 2013).

So, last week was negative (positive for us who where short…) on basically all exchanges over the world, with the American markets in the lead. The US financial sector is severely overbought, and I was anticipating a correction to take place. The downturn last week was only a fraction of the needed adjustment thou, and I am expecting the financial sector to lead the way downwards this week as well. I am therefore keeping my SKF and SDS positions and will probably take up some FAZ sometime over the week also.

In the Swedish market I now almost solemnly hold XACT Bear ( a 1.5X inverse ETF based on the OMXS30), lets hope the OMX follows the general trend down…

The USD has strengthened a little against the SEK, according to my predictions, and I think it will keep this trend (as long as the markets fall investors will inadvertently buy more dollars).

Tyler Durden has written an interesting piece on the future valuation of the greenback over the weekend. It is sufficient to say that this dollar squeeze has been a reality for quite some years, and It will be in effect again when the markets stabilize after the next low (I don’t believe that the low in march was the end of the crisis, there will be no V-shaped recovery, but more likely a W-shaped).

http://seekingalpha.com/article/138085-dollar-euro-short-squeeze-race

Personally I’ve gotten more interested in the FOREX market over the weekend after a friend gave me a link to some very interesting automated trading possibilities. After spending several hours reading about the market and trade in general and trading platforms and technical aspects in specific I am very excited about these possibilities. Expect me to start writing about these investment opportunities as soon as I’ve taken some of the first steps. Just to clarify I don’t think that the FOREX market is the holy grail to investments, I see it as a way to further diversify a portfolio, and probably will allocate no more that 5% of my portfolio to this market.

Read up on the basics of the FOREX market at: http://www.babypips.com/school/

Since I’m in short positions all over the board today’s markets is a bit worrisome. The OMXS30 closed up 1.21% after trending around opening price most of the day. The move upwards came when the NYSE/NASDAQ opened and started trading with small movement (now they’re both up at about 1%). I took a large position in XACT Bear early in the morning that I decided to have over night. I’ve put quite tight stop-loss orders in place at 4% down.

The US Financial sector is recovering today, I am sorry to say. My position in SKF is taking some damages, but I will stick with it for the time being. The Short term trend is still down. SDS is doing better for now and I am definitely staying for the week. I’m putting a stop-loss at 10% on both SKF and SDS. Early in the trading today I sold of the FAZ I bought yesterday at a small loss of 1%. The 3X is just to agressive to have when the markets are going the other way (even if it’s just for the day).

Since I’m travelling from Bremen, Germany to my home in Skövde, Sweden tomorrow I am a little bit worried about my positions, but I am trying to convince myself that the stop-loss’es will save me some of it if the upwards movement continues.

As of today I am almost completely out of equities. Even sold 75% of my convertibles in PA Resources, hoping to be able to buy them back in a few weeks at a lower price (I still believe in the company). I’ve also sold EWM, EWZ and FXI since I think the emerging markets are going to crash along with the financial sector in the US and Europe.

I also switched investing vehicle for gold (I am still long) from futures to the SPDR Gold Shares ETF (GLD). Much easier management of investment and low costs.

So what have I bought? Well more inverse ETF’s actually, took (large) positions in Direxion Finacial Bear 3X (FAZ) and ProShares UltraShort S&P 500 2X(SDS). So far this looks to be the right move, but even if the market stops falling this week I very strongly feel that the bear market rally now is dead and that we are going to see a real drop all over the board. I expect the S&P 500 to drop at minimum 30%, but more likely more that 40%. The Financial sector is going to lead the way.

Last fall, when the markets crashed, the USD and EUR strengthen against the smaller currencies (I care mostly about the SEK and NOK) and I expect this this time also. Since the Fed started pressing new dollars I’ve been short in the USD, but I will now step out of this position. I will not intentionally long the USD, but most of my investments now are in ETF’s at the American exchanges so I will ride the USD upwards in those positions. The Fed will continue issuing more and more dollars to cover the programs it has started to recover the markets (TARP, PPIP and so on), but the mighty greenback will still be able to hold it’s position since basically all other currencies are in for the same deal (ECD are just starting).

So, basically I’m now a complete bear, and I’ve took the most bearish of positions possible, and I’m just shy of All-in. If I’m wrong I will lose alot of money. Let’s keep our thumbs.

The risks I see that could stop the crash is the US governments tampering with the markets. But I really don’t think they can do much. People are starting to realize that the crowd is moving towards the door, and some of them are already running. Soon the stamped is a fact.

So, do other bloggers agree with me? Some do:

http://seekingalpha.com/article/137355-stock-markets-reversal-time

http://seekingalpha.com/article/137401-how-low-can-global-economies-go

http://seekingalpha.com/article/137234-credit-card-receivables-even-moody-s-thinks-the-fed-s-adverse-case-is-a-joke (Tyler Durden is very productive and always offer great insights)

Also there’s a interesting graph at dshort.com. Nothing new perhaps, just a new presentation:

http://dshort.com/charts/total-return-bear-comparisons.html?total-bear-comps-2007-1929

So, I finally got around yesterday to do as I say (and have written about) and started shortening the US financial sector. My vehicle of choice is ProShares Ultrashort Financials (SKF), a 2X inverse ETF. I was pondering the Direxion 3X inverse (FAZ), and in retrospect it would have been better, because the banks started gliding yesterday and continued today (so I would have made approx. 50% more with FAZ). I wanted a ETF that I’m comfortable holding for the week thou, and a 3X is terrible if the markets whipsaw a bit (2X isn’t good either thou). I might switch if the trend is sustained during the week.

Results so far is 10.4% up on Monday and 8.0% Tuesday as of this writing (thou the day isn’t over yet).

Just found a blog from J.S Kim (very sound opinions in the past) that makes my move feel even better, although I did it some 30 hours before reading this. Lets hope we’re both right: http://seekingalpha.com/article/137132-u-s-bank-shares-pump-almost-over-get-ready-for-the-dump

I’ve also sold of all Swedish equities short of PA Resources convertibles and a small post in Malka Oil (quite the lottery). Still holding Avanza Zero (OMXS30) but if the trend continues another day it is gone (OMX closed down 1.79% today). I want to have cash when the serious blowback starts.

Okay, I know that I’ve made posts before about the imminent crash, but this blogpost is just so excellent in showing how the banks made the Q1 “profits”.

http://seekingalpha.com/article/136769-a-summary-of-q1-bank-earnings-world-you-just-got-hustled

Again, if I were an american taxpayer I would be enraged at the current government. Luckily I’m not. But the ramifications will of course be severe wherever you live, since the greenback is basically every nations second currency (and many even the first).

So, what am I doing now? In short, I’m starting to sell equites on all markets. I have some ETF:s left in emerging markets (FXI, EWZ and EWM), but I think even those will have to go this week, and a long position in OMXS30 that I will reduce. I’ve also today taken up short positions in the S&P500 and EuroStoxx 50. Since before I’m short the USD and EUR and long gold, silver, platinum and palladium, that will not change.

So how about gold? I think it will be considered the “safe heaven” it historically often have been when there’s storms abruin.  So I’m staying long in gold. Some bloggers agree with me: http://seekingalpha.com/article/136849-how-will-gold-perform-in-the-coming-equity-crash

Silver then? Not so sure anymore. One of the arguments for a bullish outlook on silver is gone if there is another wave of crisis and that’s the increase in industrial use. But for now I am staying long in silver too, just not as much as gold.

Platinum and palladium is even more dependant on the industrial use buyers, so I will keep them on a short leach for now. Signs of declining prices and I’m gone.

Oil then? I think we will se a stagnant oil price now around $55 for Brent. The summer usually means higher oil price, but not this one I think.  Despite this I will keep my convertibles in PA Resources (on the OMX), because I think they will announce news about the finds in GITA soon (Noreco has given some estimates in their Q1 report). But I might short the Oil just in case, we’ll see.