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Fed QT Stocks, Gold Impact

 

Fed QT Stocks, Gold Impact

By: Adam Hamilton | Fri, Sep 22, 2017


This week’s landmark Federal Open Market Committee decision to launch quantitative tightening is one of the most-important and most-consequential actions in the Federal Reserve’s entire 104-year history. QT changes everything for world financial markets levitated by years of quantitative easing. The advent of the QT era has enormous implications for stock markets and gold that all investors need to understand.

This week’s FOMC decision to birth QT in early October certainly wasn’t a surprise. To the Fed’s credit, this unprecedented paradigm shift had been well-telegraphed. Back at its mid-June meeting, the FOMC warned “The Committee currently expects to begin implementing a balance sheet normalization program this year”. Its usual FOMC statement was accompanied by an addendum explaining how QT would likely unfold.

That mid-June trial balloon didn’t tank stock markets, so this week the FOMC decided to implement it with no changes. The FOMC’s new statement from Wednesday declared, “In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.” And thus the long-feared QT era is now upon us.

The Fed is well aware of how extraordinarily risky quantitative tightening is for QE-inflated stock markets, so it is starting slow. QT is necessary to unwind the vast quantities of bonds purchased since late 2008 via QE. Back in October 2008, the US stock markets experienced their first panic in 101 years. Ironically it was that earlier 1907 panic that led to the Federal Reserve’s creation in 1913 to help prevent future panics.

Technically a stock panic is a 20%+ stock-market plunge within two weeks. The flagship S&P 500 stock index plummeted 25.9% in just 10 trading days leading into early October 2008, which was certainly a panic-grade plunge! The extreme fear generated by that rare anomaly led the Fed itself to panic, fearing a new depression driven by the wealth effect. When stocks plummet, people get scared and slash their spending.

That’s a big problem for the US economy over 2/3rds driven by consumer spending, and could become self-reinforcing and snowball. The more stocks plunge, the more fearful people become for their own financial futures. They extrapolate the stock carnage continuing indefinitely and pull in their horns. The less they spend, the more corporate profits fall. So corporations lay off people exacerbating the slowdown.

The Fed slashed its benchmark federal-funds interest rate like mad, hammering it to zero in December 2008. That totally exhausted the conventional monetary policy used to boost the economy, rate cuts. So the Fed moved into dangerous new territory of debt monetization. It conjured new money out of thin air to buy bonds, injecting that new cash into the real economy. That was euphemistically called quantitative easing.

The Fed vehemently insisted it wasn’t monetizing bonds because QE would only be a temporary crisis measure. That proved one of the biggest central-bank lies ever, which is saying a lot. When the Fed buys bonds, they accumulate on its balance sheet. Over the next 6.7 years, that rocketed a staggering 427% higher from $849b before the stock panic to a $4474b peak in February 2015! That was $3625b of QE.

While the new QE bond buying formally ended in October 2014 when the Fed fully tapered QE3, that $3.6t of monetized bonds remained on the Fed’s balance sheet. As of the latest-available data from last week, the Fed’s BS was still $4417b. That means 98.4% of all the Fed’s entire colossal QE binge from late 2008 to late 2014 remains intact! That vast deluge of new money created remains out in the economy.

Don’t let the complacent stock-market reaction this week fool you, quantitative tightening is a huge deal. It’s the biggest market game-changer by far since QE’s dawn! Starting to reverse QE via QT radically alters market dynamics going forward. Like a freight train just starting to move, it doesn’t look scary to traders yet. But once that QT train gets barreling at full speed, it’s going to be a havoc-wreaking juggernaut.

QT will start small in the imminent Q4’17, with the Fed allowing $10b per month of maturing bonds to roll off its books. The reason the Fed’s QE-bloated balance sheet has remained so large is the Fed is reinvesting proceeds from maturing bonds into new bonds to keep that QE-conjured cash deployed in the real economy. QT will slowly taper that reinvestment, effectively destroying some of the QE-injected money.

These monthly bond rolloffs will start at $6b in Treasuries and $4b in mortgage-backed securities. Then the Fed will raise those monthly caps by these same amounts once a quarter for a year. Thus over the next year, QT’s pace will gradually mount to its full-steam speed of $30b and $20b of monthly rolloffs in Treasuries and MBS bonds. The FOMC just unleashed a QT juggernaut that’s going to run at $50b per month!

When this idea was initially floated back in mid-June, it was far more aggressive than anyone thought the Yellen Fed would ever risk. $50b per month yields a jaw-dropping quantitative-tightening pace of $600b per year! These complacent stock markets’ beliefs that such massive monetary destruction won’t affect them materially is ludicrously foolish. QT will naturally unwind and reverse the market impact of QE

This hyper-easy Fed is only hiking interest rates and undertaking QT for one critical reason. It knows the next financial-market crisis is inevitable at some point in the future, so it wants to reload rate-cutting and bond-buying ammunition to be ready for it. The higher the Fed can raise its federal-funds rate, and the lower it can shrink its bloated balance sheet, the more easing firepower it will have available in the future.

But QT has never before been attempted and is extremely risky for these QE-levitated stock markets. So the Fed is attempting to thread the needle between preparing for the next market crisis and triggering it. Yellen and top Fed officials have been crystal-clear that they have no intention of fully unwinding all the QE since late 2008. Wall Street expectations are running for a half unwind of the $3.6t, or $1.8t of total QT.

At the full-speed $600b-per-year QT pace coming in late 2018, that would take 3 years to execute. The coming-year ramp-up will make it take longer. So these markets are likely in for fierce QT headwinds for several years or so. At this week’s post-FOMC-decision press conference, Janet Yellen took great pains to explain the FOMC has no intentions of altering this QT-pacing plan unless there is some market calamity.

Yellen was also more certain than I’ve ever heard her on any policy decisions that this terminal $50b-per-month QT won’t need to be adjusted. With QT now officially started, the FOMC is fully committed. If it decides to slow QT at some future meeting in response to a stock selloff, it risks sending a big signal of no confidence in the economy and exacerbating that very selloff! Like a freight train, QT is hard to stop.

With stock markets at all-time record highs this week, QT’s advent seems like no big deal to euphoric stock traders. They are dreadfully wrong. CNBC’s inimitable Rick Santelli had a great analogy of this. Just hearing a hurricane is coming is radically different than actually living through one. QT isn’t feared because it isn’t here and hasn’t affected markets yet. But once it arrives and does, psychology will really change.

Make no mistake, quantitative tightening is extremely bearish for these QE-inflated stock markets. Back in late July I argued this bearish case in depth. QT is every bit as bearish for stocks as QE was bullish! This first chart updated from that earlier essay shows why. This is the scariest and most-damning chart in all the stock markets. It simply superimposes that S&P 500 benchmark stock index over the Fed’s balance sheet.

Between March 2009 and this week’s Fed Day, the S&P 500 has powered an epic 270.8% higher in 8.5 years! That makes it the third-largest and second-longest stock bull in US history. Why did that happen? The underlying US economy sure hasn’t been great, plodding along at 2%ish growth ever since the stock panic. That sluggish economic growth has constrained corporate-earnings growth too, it’s been modest at best.

Stocks are exceedingly expensive too, with their highest valuations ever witnessed outside of the extreme bull-market toppings in 1929 and 2000. The elite S&P 500 component companies exited August with an average trailing-twelve-month price-to-earnings ratio of 28.1x! That’s literally in formal bubble territory at 28x, which is double the 14x century-and-a-quarter fair value. Cheap stocks didn’t drive most of this bull.

And if this bull’s gargantuan gains weren’t the product of normal bull-market fundamentals, that leaves quantitative easing. A large fraction of that $3.6t of money conjured out of thin air by the Fed to inject into the economy found its way into the US stock markets. Note above how closely this entire stock bull mirrored the growth in the Fed’s total balance sheet. The blue and orange lines above are closely intertwined.

Those vast QE money injections levitated stock markets through two simple mechanisms. The massive and wildly-unprecedented Fed bond buying forced interest rates to extreme artificial lows. That bullied traditional bond investors seeking income from yields into far-riskier dividend-paying stocks. Super-low interest rates also served as a rationalization for historically-expensive P/E ratios rampant across the stock markets.

While QE directly lifted stocks by sucking investment capital out of bonds newly saddled with record-low yields, a secondary indirect QE impact proved more important. US corporations took advantage of the Fed-manipulated extreme interest-rate lows to borrow aggressively. But instead of investing all this easy cheap capital into growing their businesses and creating jobs, they squandered most of it on stock buybacks.

QE’s super-low borrowing costs fueled a stock-buyback binge vastly greater than anything seen before in world history. Literally trillions of dollars were borrowed by elite S&P 500 US corporations to repurchase their own shares! This was naked financial manipulation, boosting stock prices through higher demand while reducing shares outstanding. That made corporate earnings look much more favorable on a per-share basis.

Incredibly QE-fueled corporate stock buybacks have proven the only net source of stock-market capital inflows in this entire bull market since March 2009! Elite Wall Street banks have published many studies on this. Without that debt-funded stock-buyback frenzy only possible through QE’s record-low borrowing rates, this massive near-record bull wouldn’t even exist. Corporations were the only buyers of their stocks.

QE’s dominating influence on stock prices is unassailable. The S&P 500 surged in its early bull years until QE1 ended in mid-2010, when it suffered its first major correction. The Fed panicked again, fearing another plunge. So it birthed and soon expanded QE2 in late 2010. Again the stock markets surged on a trajectory perfectly paralleling the Fed’s balance-sheet growth. But stocks plunged when QE2 ended in mid-2011.

The S&P 500 fell 19.4% over the next 5.2 months, a major correction that neared bear-market territory. The Fed again feared a cascading negative wealth effect, so it launched Operation Twist in late 2011 to turn stock markets around. That converted short-term Treasuries to long-term Treasuries, forcing long rates even lower. As the stock markets started topping again in late 2012, the Fed went all out with QE3.

QE3 was radically different from QE1 and QE2 in that it was totally open-ended. Unlike its predecessors, QE3 had no predetermined size or duration! So stock traders couldn’t anticipate when QE3 would end or how big it would get. Stock markets surged on QE3’s announcement and subsequent expansion a few months later. Fed officials started to deftly use QE3’s inherent ambiguity to herd stock traders’ psychology.

Whenever the stock markets started to sell off, Fed officials would rush to their soapboxes to reassure traders that QE3 could be expanded anytime if necessary. Those implicit promises of central-bank intervention quickly truncated all nascent selloffs before they could reach correction territory. Traders realized that the Fed was effectively backstopping the stock markets! So greed flourished unchecked by corrections.

This stock bull went from normal between 2009 to 2012 to literally central-bank conjured from 2013 on. The Fed’s QE3-expansion promises so enthralled traders that the S&P 500 went an astounding 3.6 years without a correction between late 2011 to mid-2015, one of the longest-such spans ever! With the Fed jawboning negating healthy sentiment-rebalancing corrections, psychology grew ever more greedy and complacent.

QE3 was finally wound down in late 2014, leading to this Fed-conjured stock bull stalling out. Without central-bank money printing behind it, the stock-market levitation between 2013 to 2015 never would have happened! Without more QE to keep inflating stocks, the S&P 500 ground sideways and started topping. Corrections resumed in mid-2015 and early 2016 without the promise of more Fed QE to avert them.

In mid-2016 the stock markets were able to break out to new highs, but only because the UK’s surprise pro-Brexit vote fueled hopes of more global central-bank easing. The subsequent extreme Trumphoria rally since the election was an incredible anomaly driven by euphoric hopes for big tax cuts soon from the newly-Republican-controlled government. But Republican infighting is making that look increasingly unlikely.

The critical takeaway of the entire QE era since late 2008 is that stock-market action closely mirrored whatever the Fed was doing. Ex-Trumphoria, all this bull’s massive stock-market gains happened when the Fed was actively injecting trillions of dollars of QE. When the Fed paused its balance-sheet growth, the stock markets either corrected hard or stalled out. These stock markets are extraordinarily QE-dependent.

The Fed’s balance sheet has never materially shrunk since QE was born out of that 2008 stock panic. Now quantitative tightening will start ramping up in just a couple weeks for the first time ever. If QE is responsible for much of this stock bull, and certainly all of the extreme levitation from 2013 to 2015 due to the open-ended QE3, can QT possibly be benign? No freaking way friends! Unwinding QE is this bull’s death knell.

QE was like monetary steroids for stocks, artificially ballooning this bull market to monstrous proportions. Letting bonds run off the Fed’s balance sheet instead of reinvesting effectively destroys that QE-spawned money. QE made this bull the grotesque beast it is, so QT is going to hammer a stake right through its heart. This unprecedented QT is even more dangerous given today’s bubble valuations and rampant euphoria.

Investors and speculators alike should be terrified of $600b per year of quantitative tightening! The way to play it is to pare down overweight stock positions and build cash to prepare for the long-overdue Fed-delayed bear market. Speculators can also buy puts in the leading SPY SPDR S&P 500 ETF. Investors can go long gold via its own flagship GLD SPDR Gold Shares ETF, which tends to move counter to stock markets.

Gold was hit fairly hard after this week’s FOMC decision announcing QT, which makes it look like QT is bearish for gold. Nothing could be farther from the truth. Gold’s post-Fed selloff had nothing at all to do with QT! At every other FOMC meeting, the Fed also releases a summary of top Fed officials’ outlooks for future federal-funds-rate levels. This so-called dot plot was widely expected to be more dovish than June’s.

Yellen herself had given speeches in the quarter since that implied this Fed-rate-hike cycle was closer to its end than beginning. She had said the neutral federal-funds rate was lower than in the past, so gold-futures speculators expected this week’s dot plot to be revised lower. It wasn’t, coming in unchanged from June’s with 3/4ths of FOMC members still expecting another rate hike at the FOMC’s mid-December meeting.

This dot-plot hawkish surprise totally unrelated to QT led to big US-dollar buying. Futures-implied rate-hike odds in December surged from 58% the day before to 73% in the wake of the FOMC’s decision. So gold-futures speculators aggressively dumped contracts, forcing gold lower. That reaction is irrational, as gold has surged dramatically on average in past Fed-rate-hike cycles! QT didn’t play into this week’s gold selloff.

This last chart superimposes gold over that same Fed balance sheet of the QE era. Gold skyrocketed during QE1 and QE2, which makes sense since debt monetizations are pure inflation. But once the open-ended QE3 started miraculously levitating stock markets in early 2013, investors abandoned gold to chase those Fed-conjured stock-market gains. That blasted gold into a massive record-setting bear market.

In a normal world, quantitative easing would always be bullish for gold as more money is injected into the economy. Gold’s monetary value largely derives from the fact its supply grows slowly, under 1% a year. That’s far slower than money supplies grow normally, let alone during QE inflation. Gold’s price rallies as relatively more money is available to compete for relatively less physical gold. QE3 broke that historical relationship.

With the Fed hellbent on ensuring the US stock markets did nothing but rally indefinitely, investors felt no need for prudently diversifying their portfolios with alternative investments. Gold is the anti-stock trade, it tends to move counter to stock markets. So why bother with gold when QE3 was magically levitating the stock markets from 2013 to 2015? That QE3-stock-levitation-driven gold bear finally bottomed in late 2015.

Today’s gold bull was born the very next day after the Fed’s first rate hike in 9.5 years in mid-December 2015. If Fed rate hikes are as bearish for gold as futures speculators assume, why has gold’s 23.7% bull as of this week exceeded the S&P 500’s 22.8% gain over that same span? Not even the Trumphoria rally has enabled stock markets to catch up with gold’s young bull! Fed rate hikes are actually bullish for gold.

The reason is hiking cycles weigh on stock markets, which gets investors interested in owning counter-moving gold to re-diversity their portfolios. That’s also why this new QT era is actually super-bullish for gold despite the coming monetary destruction. As QT gradually crushes these fake QE-inflated stock markets in coming years, gold investment demand is going to soar again. We’ll see a reversal of 2013’s action.

That year alone gold plunged a colossal 27.9% on the extreme 29.6% S&P 500 rally driven by $1107b of fresh quantitative easing from the massive new QE3 campaign! That 2013 gold catastrophe courtesy of the Fed bred the bearish psychology that’s plagued this leading alternative asset ever since. At QT’s $600b planned annual pace, it will take almost a couple years to unwind that epic $1.1t QE seen in 2013 alone.

Interestingly the Wall-Street-expected $1.8t of total QT coming would take the Fed’s balance sheet back down to $2.6t. That’s back to mid-2011 levels, below the $2.8t in late 2012 when QE3 was announced. Gold averaged $1573 per ounce in 2011, and it ought to head much higher if QT indeed spawns the next stock bear. That’s the core bullish-gold thesis of QT, that falling stock prices far outweigh monetary destruction.

Stock bears are normal and necessary to bleed off excessive valuations, but they are devastating to the unprepared. The last two ending in October 2002 and March 2009 ultimately hammered the S&P 500 49.1% and 56.8% lower over 2.6 and 1.4 years! If these lofty QE-levitated stock markets suffer another typical 50% bear during QT, huge gold investment demand will almost certainly catapult it to new record highs.

These QE-inflated stock markets are doomed under QT, there’s no doubt. The Fed giveth and the Fed taketh away. Stock bears gradually unfold over a couple years or so, slowly boiling the bullish frogs. So without a panic-type plunge, the tightening Fed is going to be hard-pressed to throttle back QT without igniting a crisis of confidence. As QT slowly strangles this monstrous stock bull, gold will really return to vogue.

The key to thriving and multiplying your fortune in bull and bear markets alike is staying informed, about broader markets and individual stocks. That’s long been our specialty at Zeal. My decades of experience both intensely studying the markets and actively trading them as a contrarian is priceless and impossible to replicate. I share my vast experience, knowledge, wisdom, and ongoing research in our popular newsletters.

Published weekly and monthly, they explain what’s going on in the markets, why, and how to trade them with specific stocks. They are a great way to stay abreast, easy to read and affordable. Walking the contrarian walk is very profitable. As of the end of Q2, we’ve recommended and realized 951 newsletter stock trades since 2001. Their average annualized realized gain including all losers is +21.2%! That’s hard to beat over such a long span. Subscribe today and get invested before QT’s market impacts are felt!

The bottom line is the coming quantitative tightening is incredibly bearish for these stock markets that have been artificially levitated by quantitative easing. QT has never before been attempted, let alone in artificial QE-inflated stock markets trading at bubble valuations and drenched in euphoria. All the stock-bullish tailwinds from years of QE will reverse into fierce headwinds under QT. It truly changes everything.

The main beneficiary of stock-market weakness is gold, as the leading alternative investment that tends to move counter to stock markets. The coming QT-driven overdue stock bear will fuel a big renaissance in gold investment to diversify stock-heavy portfolios. And the Fed can’t risk slowing or stopping QT now that it’s officially triggered. The resulting crisis of confidence would likely exacerbate a major stock-market selloff.

By Adam Hamilton


Adam Hamilton

Adam Hamilton, CPA
Zeal LLC.com

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Published at Fri, 22 Sep 2017 09:26:41 +0000

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Bed Bath & Beyond shares plunge after disappointing earnings report

Bed Bath & Beyond shares plunge after disappointing earnings report

  @dwbronner

Bed Bath & Beyond shares plunged nearly 15% in early trading Wednesday following a disappointing earnings report.

The retailer said after the closing bell Tuesday that earnings for the second quarter were $94.2 million, a significant drop from the $167.3 million it reported in the same period last year. Same-store sales fell by about 2.6% from a year ago.

 The company said that while online sales grew by more than 20%, in-store sales have dipped.

The “unfavorable impacts” of restructuring costs and the damage sustained by Hurricane Harvey contributed to the results, Bed Bath & Beyond (BBBY) said in a news release.

The home goods provider is not the only traditional retailer struggling to keep up with online competitors.

Toys ‘R’ Us just filed for bankruptcy, succumbing to mountains of debt it accrued when trying to fight off Amazon (AMZNTech30) and Walmart (WMT). The news is troubling or toy makers Hasbro (HAS) and Mattel(MAT), who saw their stocks dip when the bankruptcy was just a rumor.

Across the board, stores are closing at an alarming rate as shoppers lose interest in brick-and-mortar locations. And as bad as things are now, Wall Street thinks things are only going to get worse.

According to analysis by Bespoke Investment Group, investors are more pessimistic about the retail industry now than they have been since September 2008.

But Bed Bath & Beyond may also be facing tougher competition from traditional rivals. Williams-Sonoma (WSM), which also owns Pottery Barn and West Elm, reported earnings last month that topped forecasts.

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Hedge funds want to kill $20 billion chemicals deal

Hedge funds want to kill $20 billion chemicals deal

  @MarkThompsonCNN

An activist investor has built up a 15% stake in Swiss chemicals group Clariant and is vowing to fight its planned $20 billion merger with Huntsman.

White Tale Holdings, an investment partnership created by hedge funds Corvex and 40 North, has written to Clariant’s (CLZNY) board, urging them to rethink the deal.

“It both significantly destroys existing Clariant shareholder value and prevents Clariant from pursuing multiple alternative and immediate opportunities to unlock value for its shareholders,” the investor wrote in a letter published on Tuesday.

“The proposed transaction has no strategic merit and is a complete reversal of your own publicly-stated strategy of becoming a pure-play specialty chemicals company.”

White Tale Holdings said it had become Clariant’s biggest shareholder with a stake over just over 50 million shares and would vote against the merger unless the company explored “all strategic alternatives” to the deal.

Clariant and U.S.-based Huntsman (HUN) unveiled plans to create a global specialty chemical company in May, saying they expected the transaction to close by the end of 2017.

They said HuntsmanClariant would deliver annual costs savings worth more than $400 million, and enjoy a stronger market position in the U.S. and China.

In a statement late Tuesday, Clariant rejected White Tale’s criticisms and described the deal as the best option for creating value for all stakeholders.

“Since announcement the vast majority of Clariant’s shareholders have expressed their support for the deal,” it said, adding that it would not deviate from the agreement with Huntsman.

The deal has been billed as a “merger of equals” but Clariant shareholders would end up owning 52% of the combined company.

“The Board plans to cede operational control of one of the industry’s most prized specialty chemicals companies for no control premium to Huntsman’s management,” White Tale Holdings wrote, adding that it believed about 75% of the targeted cost savings could be delivered by Clariant on its own.

Clariant denied that it would be ceding operational control, saying its CEO Hariolf Kottmann would become chairman, while Huntsman President and CEO Peter Huntsman would become CEO, of the new company.

— Correction: An earlier version of this article incorrectly stated that Huntsman shareholders would own most shares in the new company.

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Ethereum Co-Founder Envisions ‘Visa-Scale’ Capacity

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Ethereum Co-Founder Envisions ‘Visa-Scale’ Capacity

By Nathan Reiff | September 19, 2017 — 6:46 PM EDT

Vitalik Buterin, the enigmatic co-founder of the ethereum network, has a penchant for quotable sound bites that rivals his abilities as a developer of cryptocurrency systems. (See also: Ethereum Founder on ICOs: ‘We Are in a Bubble, A Lot of Projects Will Fail.’) Whenever Buterin speaks, people take notice.

Oftentimes, however, it seems that his words get mistakenly twisted. And even when he doesn’t speak, he seems to be involved in news stories which are somehow misrepresented. (See also: Does Ethereum’s Price Depend On the Life of This One Person?) Buterin’s latest eyebrow-raising quote involves Visa Inc. (V), the multinational financial services juggernaut.

According to a report by Tech Crunch, Buterin believes that the cryptocurrency he helped create will rival Visa within the span of a few years, at least by certain metrics.

Scaling Is the Issue

“There’s the average person who’s already heard of bitcoin and the average person who hasn’t,” Buterin said at Tech Crunch Disrupt SF 2017. He said the Ethereum Foundation, his project working in support of the token’s network, aims to develop additional utility in the blockchain, thus creating something that every person will want to be involved in. The idea is that if there is a benefit to everyone, then everyone will want to be involved.

“Where ethereum comes from is basically, you take the idea of crypto economics and the kinds of economic incentives that keeps things like bitcoin going to create decentralized network with memory for a whole bunch of applications,” Buterin explained. “A good blockchain application is something that needs decentralization and some kind of shared memory.”

Ethereum Needs To Be Faster

Part of the reason that ethereum has not yet been able to achieve these goals seems to be the slowness of the network, stemming from its scaling concerns. “Bitcoin is processing a bit less than 3 transactions per second,” Buterin commented. “Ethereum is doing five a second. Uber gives 12 rides a second. It will take a couple of years for the blockchain to replace Visa.”

Buterin later clarified his comment via Twitter to suggest that ethereum and its related projects will have “Visa-scale TX capacity” within a couple of years. He made the clarification after being misquoted as having said his cryptocurrency network will “replace Visa.”

The ethereum co-founder believes that many different types of applications can run on the blockchain, and that as technology continues to expand, the blockchain will be able to replace many services requiring parallelization, when programs are required to run at the same time. “Crypto is all about incentives on various levels,” he explained. “You cannot reason about the security of blockchain consensus protocols without incentives.”

 

Published at Tue, 19 Sep 2017 22:46:00 +0000

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Herbalife Stock Setting Off Multiple Sell Signals

Herbalife Stock Setting Off Multiple Sell Signals

By Alan Farley | September 19, 2017 — 11:53 AM EDT

Multi-level marketer Herbalife Ltd. (HLF) may finally be ready to reward long-suffering short sellers following several years of brutal squeezes triggered by hedge fund manager Bill Ackman’s notorious short position. His endless table pounding attracted a huge population of weak hands, augmented by 2016’s “Betting on Zero,” an anti-Herbalife documentary funded by another hedge fund with a record of shorting the stock.

The price chart has held up remarkably well through all this drama and comic relief, with media outlets routinely documenting the estimated $1 billion loss incurred by Ackman’s still active short position. As it turns out, the technical outlook is now deteriorating at a rapid pace, raising the odds that the stock will finally roll over and enter a major decline that bails out the controversial fund manager while gaining considerable traction. (See also: Herbalife Sinks as FTC Regulation Stands to Thwart Growth.)

HLF Long-Term Chart (2004 – 2017)

The stock came public at $7.00 in December 2004 and ground sideways into a May 2005 breakout that generated a momentum-fueled uptrend into $20.60 in June 2006. It posted a series of nominal new highs into the April 2008 top at $25.55 and turned sharply lower during the economic collapse, dropping to an all-time low at $6.06. The subsequent bounce gained ground at the same pace as the prior decline, completing a round trip into the 2008 high in May 2010.

A breakout into mid-year caught fire, generating healthy gains into the 2012 high at $73.00, ahead of a brutal decline that relinquished nearly 50 points in just eight months. The stock then recovered in another V-shaped pattern, returning to the prior high in January 2014 and breaking out in a buying spike that posted an all-time high at $83.51 just three weeks later. It then failed the breakout, spiraling into a downtrend that tested the 2012 low in the first quarter of 2015. (For more, see: Herbalife Scrambles, Hires New Lawyer as Short Interest Booms.)

The stock spent nearly a year and a half working its way back to the 2014 high but stalled and reversed in June 2017 at the .786 Fibonacci sell-off retracement level. Price action during the recovery wave ground out three marginally higher highs in a shallow uptick that has tested the will and patience of the company’s nervous shareholder base. Meanwhile, the stock remains firmly entrenched in a trading range between the 2012 low and 2013 high.

HLF Short-Term Chart (2014 – 2017)

The stock eased into a rising channel after bouncing into 2015, with that price structure still in force more than two years later. It spent more than two months testing channel resistance into August 2017 and rolled over in a failure swing that could print a lower high within the 3.5-year trading range. The sell swing filled the May 5 gap before settling at the 200-day exponential moving average (EMA), ahead of a bounce that ended on Monday with a breakdown at the 50-day EMA in the upper $60s. (See also: Herbalife, Other MLMs, Crash on Chinese Crackdown.)

This price action sets the stage for a test at the summer low, with a breakdown opening the door to additional losses into channel support in the low $50s. Aggressive short sellers can now consider opening positions while maintaining stop-losses above the September high at $69.76. A breakdown at the 200-day EMA in the lower $60s will issue the second sell signal, allowing sellers to increase position size while bringing more conservative players off the sidelines.

A channel breakdown would complete the positive feedback loop, signaling a long-term downtrend that has the power to generate healthy long-term profits. Of course, the stock could recover at any point between now and then, forcing short sellers to maintain aggressive risk management techniques that respect this security’s endless capacity to punish that side of the market. (For more, see: Herbalife Q2 Earnings Top, New FTC Rules Raise Concern.)

The Bottom Line

Herbalife has set off warning signals after topping out at a key Fibonacci retracement level and rising channel resistance, raising the odds that the long-term recovery wave is coming to an end ahead of a new downtrend. (For additional reading, check out: Herbalife Initiates Tender Offer, Indicates Going Private.)

 

Published at Tue, 19 Sep 2017 15:53:00 +0000

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Turning Our Goals Into Commitments

 

Turning Our Goals Into Commitments

One of our great vulnerabilities is that our intentions tend to be mood dependent.  When we’ve just lost money and are in a remorseful state of mind, we vow to correct our errors and stick to our best practices.  Then, the remorse gives way to curiosity and excitement and we forget our resolution.  We allow our new moods to create different intentions–and different action patterns.  True discipline means acting in a consistent manner regardless of mind state.  That requires commitment.  If we are truly committed to losing weight and getting in shape, we get to the gym no matter what time of day it is or what the weather is like.  When we are committed to self-improvement, we don’t rest on our laurels when things are going well.  As Mike Bellafiore recently pointed out, we use positive performance the same way we use negative performance:  as a source of learning and development.

Commitment is something we do, not something we have.  The religious person starts each day in prayer; the basketball team meets each day for practice and conditioning; the world-class trader searches for opportunities and re-searches sources of new opportunities.  These are routines sustained by a sense of urgency and importance.  They are not mood-dependent because the sense of urgency transcends the moods of the moment.  I might not feel like going to the gym and eating a healthy meal, but if I know the health of my heart depends on those actions after I’ve just had a heart attack, my feeling state of the moment becomes irrelevant.  

Traders focus on setting goals to further their development, but goals by themselves lack power unless they are backed by urgency and are fueled by commitment.  If I deeply love my wife and am filled with gratitude for the many things she has brought to my life, I can be in a funk and yet still want to do things for her and with her.  If I urgently desire to win the next game, I’ll shrug off my tiredness and push myself and my teammates in practice to take us to the next level.  Show me your daily routine, and I’ll show you your commitments.  If it’s in your heart, it will be in your calendar; if it’s in your calendar, it will become an intrinsic part of you.  Our activities express our character and shape it.

 

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Published at Sun, 17 Sep 2017 11:17:00 +0000

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A Cryptocurrency Miner is Going Public…and it’s Huge

 

A Cryptocurrency Miner is Going Public…and it’s Huge

By: Ross Pilot | Mon, Sep 18, 2017


HIVE Blockchain Technologies Ltd. will list on the TSX Venture Exchange Monday, September 18th, under the symbol TSX.V: HIVE.

The company is backed by Genesis Mining, the largest cloud Bitcoin miner in the world with 700,000 customers. Genesis owns 30% of HIVE.

HIVE’s launch transaction involves the acquisition of an initial state-of-the-art blockchain infrastructure facility in Iceland from Genesis.

The facility produces mined cryptocurrency around the clock like RIGHT NOW.

This is one of the first (I think it is the first, but I could have missed something) real and legitimate pure play in the public markets for investors.

So I expect it to be a big deal and get lots of attention.  If you’re an investor that doesn’t buy Bitcoin or Ethereum directly, this could be a simple proxy—as I’ll explain below, while this company does have growing revenue and positive cash flow, I would expect the stock to trade closely with Ethereum.

HIVE also has an option to acquire at least four additional data centres from Genesis in Iceland and/or Sweden. (This could be very important very quickly if these options get exercised; the growth rate in the public company would increase dramatically.)

HIVE has an exclusive arrangement with Genesis to operate its data centres covered by a master service agreement. That’s a fancy way of saying that’s it baked in the cake that Genesis will hand off more data centres in the future to HIVE.

“The time has come for the blockchain and cryptocurrency sector to come together with public equity markets. HIVE will become a leading infrastructure company for the blockchain era, and introduce this exciting sector to a new audience of investors. This is a strategic opportunity for Genesis to access capital and build a bigger business publicly than we ever imagined building our first home-based bitcoin mining machines five years ago.”
 
– Marco Streng, Co-founder and CEO of Genesis Group

So what is the business model? Well it looks to me like:

1.     Genesis buys the gear and builds a Crypto-mining data centre.

2.     The moment the servers are flipped on, the centre is mining crypto-coin.

3.     The crytocoin is exchanged for US dollars (or stored).

4.     The data centre can then be transferred to HIVE where the public markets will give the data centre a valuation X times cash flow proven by the number of coins it mines.

5.     Genesis uses the money from public markets to buy more gear and builds more centres.

6.     Repeat.

To me this looks like the closest thing to a legal money-printing machine outside of the US Bureau of Engraving and Printing.

Using the news release from SEDAR (the Canadian equivalent of EDGAR, where public companies have to post their news releases and quarterly financials), I am able to make some pie-in-the-sky guesses about revenue:

“Based on the computational capacity of the first Data Centre, the historical prices, and required hash rates, and using a mine and immediately sell strategy, the trailing 12 month EBITDA would have been approximately US$7 million.”

EBITDA is an acronym—Earnings Before Interest, Taxes, Depreciation and Amortization—that basically means cash flow.  EBITDA=cash flow, which is what most business valuations are based on now.

The mining facility will probably (I’m guessing) be mining mostly Ethereum.

That news release was issued in June so the $7 million shows what the centre would have mined hypothetically from June 2016 to June 2017.

Earnings for the following twelve months will be much, much higher but take a guess as revenue from this company will be strongly correlated to the price of Ethereum.

The Genesis Mining Group were much the original pioneers in mining Ethereum. Their first large-scale Bitcoin mining facility was built in 2014 using custom hardware.

This was followed up in 2016 with the construction of the world’s largest Ether mining facility — specifically built to support the Ethereum Project at an early stage of its development.

So they figured out a way to mine Ethereum for profit back in 2016 when it was under $15. Who knows how much money they have made this year.

Here’s how the share structure looks like:

Genesis Mining (the private company) received $9,000,000 and 30% of HIVE stock for the data center, which was 67,975,428 shares. The shares are subject to escrow with a hold period of four months and one from September 13th.

There was 100 million shares in the public shell, which is held almost entirely by management (see names below).  These shares are released quarterly—25% will be free trading immediately, then another 25% in November, then Feb 2018 and May 2018.

There was 55 million shares issued at 30 cents, which went to mostly Canadian institutions/fund managers.  There was very strong demand here, as there is no real legitimate way to play crypto currency.

They had to increase this financing to meet the Street’s strong demand. I think that bodes well for the stock trading tomorrow morning.

This stock is not free trading until December.  So the initial free trading amount of stock (called the “float”) that the public can buy is fairly small at 20 million or so.

There will be 226,584,760 shares out total, and once  you add in 22.6 million stock options and 700,000 warrants, there is a fully diluted 249,917,759 shares.

I expect the stock to open between 60 cents – $1 on the first day.  I will probably buy some more if that happens (I’m already long from when it was Leeta Gold Corp: TSXV:LTA. the original shell company).

I will say again it’s the first cryptocurrency miner to trade in the public markets (that I see) meaning there will be HUGE interest in the stock and not just from buyers.

As I wrote in an earlier post the cryptocurrency mining industry is currently a $7 billion a year industry and growing 100% year-over-year.

Until now, all the miners have been private, meaning NOBODY outside the owners have known just how the financial end of the business operates. You can bet that every quarterly filing that HIVE puts out, every North America analyst study it like it’s the Bible.

One confident prediction I will make is that you won’t see positive net revenue anytime, every little bit of cryptocurrency mined will be plowed right back into the business. HIVE will be adding more hash power (think computing power; CPU power) as soon as they can find room for new servers.

The management team and directors that is running HIVE is impressive (almost a complete opposite of some ICOs that I have looked at). HIVE is the result of a partnership between Hong Kong-based Genesis Mining and Vancouver-based Fiore Group, which is headed by Frank Giustra aka the founder of Lionsgate Entertainment, NYSE: LGF.A.

Other members on the board include Harry Pokrandt, Frank Holmes (CEO of US Global out of Texas), and Olivier Roussy Newton. All of these guys pass the Google and LInkedin test with flying colours (I particularly recommend Olivier’s twitter feed).

THIS IS GOING TO BE INTERESTING IN SO MANY WAYS. There has been no way for investors to get exposure to crypto directly other than through initial coin offerings (ICOs), which have had poor disclosure and vague use of proceeds.

ICOs may not be shady, but they’re not transparent like they were being closely watched by the SEC…which HIVE will be, being a public company in cryptocurrency.

In conclusion, HIVE has been gifted a solid business with revenue flowing from day one from a market leader in an industry that has seen hyper-growth in 2017 and looks set for the next decade. Even Jamie Dimon would like this deal.

So I think the business is going to do well, given the management team’s intimate knowledge of the business partnering up with one of the top junior finance teams in North America.  And you can be sure I’ll be keeping everybody updated on how they’re doing.

If it opens up under 80 cents, I am probably a buyer. There are very few quality ways for investors to play the crypto space in the public markets, and I think this company will attract a lot of attention in its first few months.  It will have a honeymoon for at least a couple quarters.

Please note I own shares in HIVE.


Ross Pilot is not his real name.

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Published at Mon, 18 Sep 2017 08:13:21 +0000

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Pullback in Base Metals Suggests It Is Time to Buy

Pullback in Base Metals Suggests It Is Time to Buy

By Casey Murphy | September 18, 2017 — 8:51 AM EDT

During times of heightened volatility, it is a natural reaction of most investors to turn to hard assets such as precious metals and base metals. That has been the case since the North Korean missile tests earlier this month. Much has been written over the past several weeks about rising gold and silver prices, but an interesting trend we will investigate in this article is that attention has turned away from industrial metals such as copper, aluminum and zinc. The recent retracement in the prices of key funds related to base metals suggests that now could be the time to buy. (For related reading, check out: Breakouts in Base Metals Suggest It Is Time to Buy,)

PowerShares DB Base Metals Fund (DBB)

Investors who bought into base metals at any point over the past couple of years have been handsomely rewarded with one of the strongest uptrends found anywhere in the public markets. Taking a look at the chart of DBB, you can see that the combined support of the upward-sloping trendline and the 200-day moving average (red line) have consistently acted as guides for the placement of buy and stop orders. The recent pullback has sent the price of the fund toward another key level of support, the 50-day moving average, which is a level that bullish traders could use as a signal for timing their entry. Most of the bulls will also likely look to place their stop-losses below $16.25. (For more, check out: 4 ETFs for Trading the Surge in Commodities.)

Technical chart showing the performance of the PowerShares DB Base Metals Fund (DBB​)

iPath Bloomberg Copper Total Return ETN (JJC)

Copper is the most commonly traded industrial metal and is a key beneficiary of the global movement toward increased spending on infrastructure. Taking a look at the chart of JJC, which is one of the most popular investment vehicles used by retail investors for gaining exposure to copper prices, you’ll notice that the recent pullback from its summer high has triggered buying interest near a key level of support. Like the case of DBB discussed above, active traders will expect the combined support of the 50-day moving average and dotted trendline to hold over the coming weeks, and many traders will use it as a guide for determining the placement of their buy orders. From a risk management perspective, many traders will likely want to give their position some room to move and as a result will likely set their stops below the 200-day moving average and ascending trendline. (See also: Top 5 Copper Stocks for 2017.)

Technical chart showing the performance of the iPath Bloomberg Copper Total Return ETN (JJC​)

iPath Bloomberg Aluminum Total Return ETN (JJU)

Aluminum has been on the rise in recent months and is one of the metals that has completely flown under the radar. The upward trend is worth noting and considering for a diversified portfolio because the recent retracement is putting the risk/reward clearly in the favor of the bulls, and traders will likely maintain a bullish outlook until the price of JJU drops below the support near $17.56 or $16.71, depending on risk tolerance. (For related reading, see: Soft Commodities Could Bounce Higher This Week.)

Technical chart showing the performance of the iPath Bloomberg Aluminum Total Return ETN (JJU)

The Bottom Line

Hard commodities have been moving in favor of the bulls since the rise in geopolitical tensions earlier in the month. One group that has fallen off the radar for many of those who are looking for quicker returns is base metals. Based on the recent pullback toward key support levels shown on the charts of the funds above, it appears as though now could be a great time to buy base metals due to clearly defined risk/reward setups. (For more, see: 3 Base Metal Charts to Watch.)

Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

 

Published at Mon, 18 Sep 2017 12:51:00 +0000

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Amazon’s Cloud Service Just Got Cheaper

Amazon’s Cloud Service Just Got Cheaper

By Daniel Liberto | Updated September 19, 2017 — 7:03 AM EDT

Amazon.com Inc.’s (AMZN) cloud computing subsidiary, Amazon Web Services (AWS), is set to start charging users of its virtual servers and storage by the second.

The move to a more flexible billing model forms part of its parent company’s long-term strategy to cut prices in order to squeeze competitors. Charging by the second means that customers will only be required to pay for the computing resources they need, providing Amazon, already a market leader in the cloud space, with a significant advantage over peers.

At present, the Seattle, Washington-based company’s two biggest competitors in the cloud space, Alphabet Inc.’s (GOOGL) Google Cloud Platform and Microsoft Corp.’s (MSFT) Azure, charge by the minute. Before its latest changes, Amazon offered more expensive per-hour metering. (See also: Microsoft Could Surpass Amazon in Cloud Computing This Year.)

In a blog post, penned by AWS’ chief evangelist Jeff Barr, Amazon confirmed that its new billing model will be available from October 2 and applied to on-demand, reserved and spot instances, together with provisioned storage for Elastic Block Store (EBS) volumes. The company’s Elastic MapReduce, a service offering managed big data frameworks on scalable EC2 clusters, and AWS Batch, which covers large processing jobs, also both qualify for per-second billing.

“Today, services like AWS Lambda prove that we can do a lot of useful work in a short time. Many of our customers are dreaming up applications for EC2 that can make good use of a large number of instances for shorter amounts of time, sometimes just a few minutes,” Barr wrote in the blog.

“One of the many advantages of cloud computing is the elastic nature of provisioning or deprovisioning resources as you need them,” Barr added. “By billing usage down to the second we will enable customers to level up their elasticity, save money, and customers will be positioned to take advantage of continuing advances in computing.”

The new billing model is only available for Linux virtual machines and comes with a one-minute minimum charge. The post also confirmed that AWS prices will continue to be listed by the hour, but that customer bills will show precise durations of usage. (See also: Why Amazon’s Shares Could Rise 12% to $1,100.)

 

Published at Tue, 19 Sep 2017 11:03:00 +0000

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Pullback

 

Pullback

What is a ‘Pullback’

A pullback is the falling back of a security’s price from its peak. These price movements might be seen as a brief reversal of the prevailing trend higher, signaling a temporary pause in upward momentum. Also referred to as a retracement​ or consolidation.

BREAKING DOWN ‘Pullback’

Pullbacks are widely seen as buying opportunities after a security has experienced a large upward price movement. For example, a stock may experience a significant rise following a positive earnings announcement and then experience a pullback as traders take profit off the table. The positive earnings, however, suggests that the stock will resume its uptrend.

Most pullbacks involve a security’s price moving to an area of technical support, such as a moving average or pivot point, before resuming their uptrend. Traders should carefully watch these key areas of support since a breakdown from them could signal a reversal rather than a pullback.

Some traders refer to pullbacks as retracements​ or consolidations, which have largely the same meaning.

Pullbacks vs. Reversals

Pullback and reversals both involve a security moving off of its highs, but pullbacks are temporary and reversals are longer term.

How do you distinguish the two?

Most reversals involve some change in a security’s underlying fundamentals that force the market to reevaluate its value. For example, a company may report disastrous earnings that make investors recalculate a stock’s net present value. In the futures market, a downturn in automotive demand could lead to lower demand for steel and other commodities, which would be expected to continue over a long period of time.

In contrast, pullbacks typically don’t change the underlying fundamental narrative. They are usually profit-taking opportunities following a strong run-up in a security’s price. For example, a company may report blow-out earnings and see shares jump 50%. The stock may experience a pullback the next day as short-term traders lock in profits. But the strong earnings report suggests that the stock is still headed higher over the long-term.

Examples of Pullbacks

Every stock chart has examples of pullbacks within the context of a prolonged uptrend. While these pullbacks are easy to spot in retrospect, they can be harder to assess for investors holding a security that’s losing value.

In the example above, the SPDR S&P 500 ETF (SPY) experiences four pullbacks within the context of a prolonged trend higher. These pullbacks typically involved a move to near the 50-day moving average where there was technical support before a rebound higher. Traders should be sure to use several different technical indicators when assessing pullbacks to ensure that they don’t turn into longer-term reversals.

The Bottom Line

Pullbacks are widely seen as buying opportunities after a security has experienced a large upward price movement. They shouldn’t be confused with reversals, which tend to be longer term downtrends where there has been a change in fundamentals. Traders should be sure to use technical analysis to verify that a pullback remains above key support levels to avoid possible longer term reversals that could result in losses.

 

Published at Thu, 14 Sep 2017 20:59:00 +0000

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Nordstrom buyout; Apple aftermath; Toshiba’s sale

 

Nordstrom buyout; Apple aftermath; Toshiba’s sale

  @AlannaPetroff

premarket stocks trading futures
Click chart for in-depth premarket data.

1. Nordstrom sale: Shares in Nordstrom(JWN) were surging by about 10% premarket following reports that the company could soon be taken private.

CNBC, citing unnamed sources, said that private equity firm Leonard Green & Partners could partner with the Nordstrom family on a buyout.

The Nordstrom family owns more than 30% of the retailer’s shares. Leonard Green & Partners would reportedly provide roughly $1 billion in equity to help finance the deal.

This comes as the retailer experiments with smaller stores and specialized customer services in an effort to compete with online outlets, including Amazon(AMZN, Tech30).

2. Apple aftermath: Investors will continue to focus on Apple(AAPL, Tech30) after the company unveiled its new iPhone X, iPhone 8 and iPhone 8 Plus on Tuesday.

Shares dipped a tad following the announcement. Futures suggested the stock could drop further when trading starts Wednesday.

The big question: Will consumers pay nearly $1,000 for a phone?

3. Toshiba deals with Bain: Beleaguered tech giant Toshiba(TOSYY) has signed a memorandum of understanding to negotiate a deal to sell its business unit — Toshiba Memory Corporation — to Bain Capital.

Bain Capital is working with a larger consortium on the deal.

Toshiba is trying to recover from billions of dollars in losses stemming from the collapse of Westinghouse Electric, its now bankrupt U.S. nuclear unit.

Before the Bell newsletter: Key market news. In your inbox. Subscribe now!

4. Global market overview: Global stock markets are looking soft following two days of strong gains.

U.S. stock futures were dipping a bit, alongside many European markets.

Asian markets ended the day with mixed results.

The Dow Jones industrial average, S&P 500 and Nasdaq all gained 0.3% on Tuesday.

5. Earnings and economics:Cracker Barrel(CBRL) will announce earnings before the open on Wednesday.

New data shows the U.K. unemployment rate dropped to 4.3% in the second quarter, its lowest level in more than 40 years.

It’s not all good news: Prices are rising at a faster rate than British wages, meaning workers are feeling poorer.

Download CNN MoneyStream for up-to-the-minute market data and news

6. Coming this week:

Thursday — Bank of England rate decision
Friday — Samsung(SSNLF) releases Galaxy Note 8

 

Published at Wed, 13 Sep 2017 09:25:12 +0000

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Four Important Trading Insights

 

Four Important Trading Insights

Here are a few valuable insights I’ve gathered from my recent work with skilled, successful traders:

1)  What you trade is as important as how you trade:  The successful traders are trading instruments that move in meaningful ways and that capture their best ideas.  That means trading instruments that show the right kind of movement, and it means expressing your ideas through positions that offer the best risk/reward.  The successful traders have many ways to capture ideas:  many time frames, many instruments (stocks, futures, options), many markets.

2)  Balance matters:  When trading gets difficult, it’s often the traders most passionate about trading–who devote most of their waking hours to trading–that are most vulnerable.  It’s easiest to see markets clearly when trading fits into your life, not when you are frantically fitting your life into trading.  The goal is to have a happy, fulfilling life no matter what markets or P/L are doing.

3)  The best trading ideas come to you:  So much of trading boils down to real time pattern recognition.  You see many things, and you see them line up, and the idea comes to you that the market is making a top or bottom, that the momentum move will continue, etc.  Finding the good trade means shutting down the ego, emptying the mind, and becoming receptive to insight.  If you are actively *trying* to make money and thinking about how much you’re making or losing, you fill your mind with outcome-thinking, which crowds out the process focus.

4)  Develop a higher cause:  I hear traders fretting over losing trades, getting frustrated and losing discipline and focus because of missed opportunities.  Chill.  There are people with real problems in the world: their homes flooding, their lives in jeopardy, their futures uncertain–in Houston, in Florida.  I’ve been impressed with traders who are strongly grounded in their religion.  Of course they don’t like making trading mistakes, but they don’t let the most recent trades dictate their moods or perspectives.  Perspective is the most powerful psychological tool of all.

When we develop relationships with other dedicated, successful traders, we build role models.  We learn from their experience, accelerate our development, and contribute meaningfully to the growth of others.  Trading goes best when it is yoked to rewards (intellectual fulfillment and challenge; committed teamwork) that are independent of the most recent trading results.

Further Reading:  The Power of Doing Nothing
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Published at Sat, 09 Sep 2017 14:07:00 +0000

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Goldman: Hurricane and Economic Data

 

Goldman: Hurricane and Economic Data

by Bill McBride on 9/10/2017 09:32:00 AM

A few excerpts from a research note by Goldman Sachs economist Spencer Hill: Hurricane Handbook: Natural Disasters and Economic Data

• We find that major natural disasters are associated with a temporary slowdown in most major growth indicators. … Modeling these effects, we estimate that hurricane-related disruptions could reduce 3Q GDP growth by as much as 1 percentage point. We believe the main channels for these GDP effects are consumption, inventories, housing, and the energy sector.

• We expect a meaningful drag on key growth indicators over the next two months, including a temporary drag on September payrolls growth of 20k—or as much as 100k if severe storm effects persist into next week (the payrolls reference period). We also expect a near-term boost to headline inflation (around 0.2pp on the yoy rate) due to higher gasoline prices …

• Given potentially sizeable growth effects from Harvey—and with Irma risks now moving to center stage—we are lowering our Q3 GDP tracking estimate by 0.8pp to +2.0%. However, we expect this weakness to reverse over the subsequent three quarters, more than recouping the lost output.
emphasis added

CR Note: We’ve already seen a sharp increase in unemployment claims (as expected), and a drop in auto sales. Harvey and Irma will probably negatively impact other indicators for August and September. As Hill notes, we should see a sharp rebound later this year in many indicators.

Published at Sun, 10 Sep 2017 13:32:00 +0000

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Schedule for Week of Sept 10, 2017

Photo
tags
By geralt from Pixabay

Schedule for Week of Sept 10, 2017

by Bill McBride on 9/09/2017 08:11:00 AM

The key economic reports this week are August retail sales and the Consumer Price Index (CPI).

For manufacturing, August industrial production, and the September New York Fed manufacturing survey, will be released this week.

—– Monday, Sept 11th —–

No major economic releases scheduled.
—– Tuesday, Sept 12th —–

6:00 AM ET: NFIB Small Business Optimism Index for August.Job Openings and Labor Turnover Survey10:00 AM: Job Openings and Labor Turnover Survey for July from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in June to 6.163 million from 5.702 in May.  This was the highest number of job openings since this series started in December 2000.

The number of job openings (yellow) were up 11% year-over-year, and Quits were up 5% year-over-year.

—– Wednesday, Sept 13th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.8:30 AM: The Producer Price Index for August from the BLS. The consensus is a 0.13% increase in PPI, and a 0.2% increase in core PPI.

—– Thursday, Sept 14th —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 300 thousand initial claims, up from 298 thousand the previous week.8:30 AM: The Consumer Price Index for August from the BLS. The consensus is for a 0.4% increase in CPI, and a 0.2% increase in core CPI.

—– Friday, Sept 15th —–

Retail Sales 8:30 AM ET: Retail sales for August be released.  The consensus is for a 0.1% increase in retail sales.This graph shows retail sales since 1992 through July 2017.

8:30 AM: The New York Fed Empire State manufacturing survey for September. The consensus is for a reading of 19.0, down from 25.2.

Industrial Production9:15 AM: The Fed will release Industrial Production and Capacity Utilization for August.

This graph shows industrial production since 1967.

The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to increase to 76.8%.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for July.  The consensus is for a 0.2% increase in inventories.

10:00 AM: University of Michigan’s Consumer sentiment index (preliminary for September). The consensus is for a reading of 96.0, down from 96.8 in August.

10:00 AM: Regional and State Employment and Unemployment (Monthly) for August 2017

 

Published at Sat, 09 Sep 2017 12:11:00 +0000

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3 Ways to Trade Strong Performance in Healthcare

by DarkoStojanovic from Pixabay

 

3 Ways to Trade Strong Performance in Healthcare

Over the past month, healthcare has been one of the top performing sectors. Healthcare is a big sector, and most of the industries within it can be traded via exchange-traded fund (ETF). With the strong recent performance, let’s look at potential buy locations in one well-known ETF and two that are not as well known.

The SPDR S&P Biotech ETF (XBI) is a popular healthcare ETF, with average volume of more than 4 million shares per day. In June, the price broke above an ascending channel, and it then came back to test that channel in August. After a major breakout, when the price comes back to test the prior pattern, it can often be a good entry point. That occurred near $76, and with the Sept. 6 close at $84.22, that buying opportunity has long passed.

However, another opportunity to buy on a pullback may not be far off. Going back to early 2016, rallies for XBI have typically advanced 14% to 24% before seeing a pullback. This rally off the August low is now within that range, meaning that the price could move a bit higher, but then a pullback of 6% to 10% is likely. The potential buy area on the pullback aligns with the trendline​ in play since the start of the year. If this trade setup develops, traders could place a target 5% above the most recent high (which is subject to change). (See also: Why the Biotech Rally Has More Room to Run.)

Technical chart showing the SPDR S&P Biotech ETF (XBI) in an uptrend but likely to pull back

The iShares U.S. Healthcare Providers ETF (IHF) is a less well-known ETF, trading only about 25,000 shares per day. It reached a new high in late July. The advance since late 2016 is composed of extended runs to the upside, interspersed with minor pullbacks. One of those minor pullbacks occurred in late July through mid-August, with the price dropping a bit more than 5% off the $150.75 high. The ETF consolidated through the end of August and then broke to the upside.

Near the breakout point of the consolidation – $145.50 to $146 – could be a good buy point. A stop-loss can be placed below $142 (or below $140 to give the trade a bit more room in case of a deeper pullback), with a target up near $162. The risk here is a deeper pullback of between 12% and 15%, like the one that occurred in late 2016. If that occurs, the above trade would be stopped out, but another buying opportunity would potentially occur between $132 and $128. (For more, see: The Vanguard Effect: Lower Prices, Higher Returns.)

Daily technical chart for the iShares U.S. Healthcare Providers ETF (IHF) in an uptrend

The iShares U.S. Medical Devices ETF (IHI) trades more than 130,000 shares per day and is in a long-term uptrend. After hitting a high of $169.80 in July, the price pulled back a touch more than 5%. While that is a relatively small pullback, it is the largest of 2017.

With the strength of the trend, trying to enter between $165 and $164 is warranted, as the price could run to $172 or $173 in the short term. That said, a pullback of 10% or more, like the one that occurred in late 2016, is inevitable at some point. Waiting for the deeper pullback could mean missing out on another run to the upside (in the short term), but entering here could mean being out of the money if the price does correct further. Those that prefer to wait could look to buy 10% to 12% off the high, which could align with the rising trendline extending back to 2016. (See also: Why This Healthcare ETF Is Surging.)

Technical chart showing the iShares U.S. Medical Devices ETF (IHI) in an uptrend with a trade opoortunity

The Bottom Line

These healthcare ETFs have been in strong uptrends, but that does not necessarily mean right now is the time to buy. Traders should consider where the ETF is trading within its trends and how much upside or downside there is based on tendencies.

The future won’t always align with historical tendencies, but those tendencies do provide a good context for the risk/reward of a trade. Traders should utilize stop-losses to help control risk in the event that the price keeps dropping after entry and risk only a small portion of account capital on any single trade. (For additional reading, check out: Why Healthcare Has Some of the Best Sector ETFs.)

Charts courtesy of StockCharts.com. Disclosure: The author does not have positions in the ETFs mentioned.

 

Published at Thu, 07 Sep 2017 17:00:00 +0000

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3 Reasons Apple Will Keep Beating the Market: Bernstein

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3 Reasons Apple Will Keep Beating the Market: Bernstein

By Shoshanna Delventhal | September 6, 2017 — 6:06 PM EDT

As shares of tech behemoth Apple Inc. (AAPL) surge nearly 40% in 2017 versus the S&P 500’s 10% gain over the same period, one team of analysts foresees further upside in shares ahead of the tech giant’s anticipated new product releases slated for mid-September.

“We continue to believe that Apple offers attractive risk reward,” wrote Bernstein’s Toni Sacconaghi in a research note this week. The analyst, reiterating an outperform rating on AAPL, notes that the stock multiple is still less than it was at the time of the iPhone 6 unveiling in 2015. Bernstein foresees a $999 priced iPhone 8 adding $0.70 to his fiscal 2018 earnings per share (EPS) estimate, now at $11.05. (See also: Apple iPhone 8: Leak ‘Confirms’ a Price of $999.)

What About Samsung?

“As Apple’s stock sits at all-time highs and as the highly anticipated iPhone 8 launch approaches, many investors have asked how to play AAPL from here,” wrote the analyst, highlighting three main reasons the stock could surge higher.

First, Sacconaghi suggests that the consensus’ view on average selling prices (ASPs) and units of the iPhone 8 “may still be too conservative,” while Apple’s stock has “continued to outperform in iPhone cycles that have exceeded investor expectations.” The analyst also noted that AAPL is trading “comfortably below its peak relative multiple during its last iPhone super-cycle,” in which it would trade at $186 versus $161.91 at Wednesday close. Further, Bernstein suggests that, “the potential contribution from currency and other products (HomePod, LTE Watch) may be material.”

In response to fears that consumers will shy away from the iPhone 8 in turn for cheaper options, Sacconaghi notes, “such pricing is not entirely outlandish, given Samsung’s recent launch of the Galaxy Note 8 pricing that has a starting price tag of $960.” (See also: Apple iPhone 8 Won’t Stop Market Share Loss: IDC.)

 

Published at Wed, 06 Sep 2017 22:06:00 +0000

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End Of Summer MOMO Update

 

End Of Summer MOMO Update

by THE MOLE

Labor Day is behind us which pretty much marks the end of the summer season and, fortunately for us, the time when many traders and investors return from hibernation. Even here at the evil lair I’m seeing a distinct uptick in new subscriptions after Labor Day and fortunately many of them happen to be familiar faces. Welcome back!

If you haven’t been here for a few months then you may be happy to learn that the Mole has been working his butt off all summer and will be introducing new exciting additions to Evil Speculator over the coming weeks and months. But now, as promised yesterday, it is again time to take another gander at the market momo and volatility front.

2017-09-06_NYA50R_NYA200R

Let’s kick things off with market breadth expressed here by the ratio between NYSE stocks trading > their 50 SMA vs the ones trading > their 200 SMA. I’m sure you’re getting the general idea here which revolves around the underlying health of a market. Are indices mainly advancing courtesy of a small number of strong leaders or does the entire market exhibit strength (or weakness)?

As you can see the signal gyrates around quite a bit and it actually took me a while to figure out the proper thresholds which seemed to have meaning. What I settled on in the end were the 1.0 and 0.7 threshold – the rules are explained on the chart so I won’t be regurgitating them again.

What’s a bit puzzling to me right now is that the signal did actually not drop below the 0.7 threshold during last month’s lows. Which means that we didn’t get a true buy signal here on the recovery higher and that in turn leaves a small chance that we are still actually in a larger long term correction. The only thing that disqualifies that scenario would be a) a push to new all time highs or b) a push > the 1.0 threshold on the chart above.

2017-09-06_SPXA50_SPXA200

The SPXA50:SPXA200 ratio is obviously related to the previous chart but only factors in S&P 500 stocks. Frankly this is the most bearish momo chart I came across and as it’s not confirmed by any others just yet I’m going to withhold judgment. However should the SPX experience renewed weakness then this is may be a chart to watch, especially if the signal drops through the 0.65 mark again, which could lead us lower. But for now I’m taking it with a few grains of salt.

There’s another aspect to the current formation. Some of you may remember this chart from before and I have often used it as a handy prop when trying to show how ruthlessly efficient the relentless bull market between 2013 and 2014 advanced higher without ever triggering the upper threshold. So this bodes the question as to whether we may be inside yet another effervescent phase of this never ending generational bull market. Hey, if the bulls make it to 15 years then it’s officially one generation if I’m not mistaken.

2017-09-06_CPCE_deluxe2

The CPCE is issued by the CBOE and refers to the ratio of put and call options in their exchange. The way I’m using it is a bit unorthodox but it has worked pretty well for us over the years, especially when it comes to long reversals. Once again I’ve got a bit of a head scratcher here as it recently pushed > the upper 1.0 (bearish) threshold (by a mere hair) and then dropped back down immediately. I guess technically speaking that is a bearish reversal signal but let’s keep in mind that even the real confirmed ones have not worked that well in recent history.

2017-09-06_CPCE

On the long side however we seem to have ourselves a pretty nifty long signal here. That push > the lower Bollinger was the right moment to be long. Which of course is what we did if you recall.

Well, I’d love to give it all away but those servers and lap dances don’t pay for themselves. If you’re not a member then sign up right now as you definitely don’t want to miss out on my volatility charts!

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Published at Wed, 06 Sep 2017 14:46:43 +0000

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Fed’s Beige Book: “Modest to moderate”expansion, Labor markets “Tight”

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Fed’s Beige Book: “Modest to moderate”expansion, Labor markets “Tight”

by Bill McBride on 9/06/2017 02:57:00 PM

Fed’s Beige Book “This report was prepared at the Federal Reserve Bank of Chicago based on information collected on or before August 28, 2017. The information included in the District reports was primarily collected before Hurricane Harvey made landfall on the Gulf Coast. However, some Districts received preliminary information from business contacts regarding the impact of the storm, which is compiled in a special paragraph in the national summary. ”

Economic activity expanded at a modest to moderate pace across all twelve Federal Reserve Districts in July and August. Consumer spending increased in most Districts, with gains reported for nonauto retail sales and tourism, but mixed results for vehicle sales. Capital spending also increased in several Districts. Manufacturing activity expanded modestly on balance. That said, reports were mixed regarding auto production, and contacts in many Districts expressed concerns about a prolonged slowdown in the auto industry. Both residential and commercial construction increased slightly overall. Low inventories of homes for sale continued to weigh on residential real estate activity across the country, while commercial real estate activity increased slightly. Activity in the energy and natural resources sector was generally positive prior to shutdowns arising from Hurricane Harvey. Agricultural conditions were mixed overall, with drought conditions reported in multiple Districts. Business and consumer loan demand grew at a modest pace in most Districts, with a number of banks reporting rising competition from both other banks and non-bank lenders.

Employment growth slowed some on balance, ranging from a slight to a modest rate in most Districts. Labor markets were widely characterized as tight. There were reports of worker shortages in numerous industries, most notably in manufacturing and construction. Firms in the Atlanta, St. Louis, and Minneapolis Districts said that they had turned down business because they could not find the necessary workers. Many Districts indicated that businesses were having difficulty filling openings at all skill levels. In spite of the tight labor market, the majority of Districts reported limited wage pressures and modest to moderate wage growth. That said, there were reports from firms in the Dallas and San Francisco Districts that labor shortages were pushing up wages.
emphasis added

And on Hurricane Harvey:

Hurricane Harvey created broad disruptions to economic activity along the Gulf Coast in the Dallas and Atlanta Districts, although it was too soon to gauge the full extent of the impact. Many firms and organizations in the affected areas closed due to flooding. A fifth of the oil and natural gas production in the Gulf of Mexico was offline, and many onshore producers in the Eagle Ford region temporarily stopped production. Harvey also affected fuel and petrochemical production, forcing fifteen refineries in the region to shut down temporarily and several others to operate at reduced capacity. Some areas experienced gasoline shortages, and supply was expected to remain tight in the Southeastern United States because of pipeline disruptions. Contacts in the Richmond District indicated that spot freight prices jumped after the storm, as freight was being redirected around the country. The Port of Charleston expected increased volumes in coming weeks as freight traffic is routed away from the Port of Houston.

Published at Wed, 06 Sep 2017 18:57:00 +0000

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3 Gold Miners With Low-Risk Buy Patterns

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3 Gold Miners With Low-Risk Buy Patterns

By Alan Farley | September 5, 2017 — 11:25 AM EDT

Gold and gold miners are gaining ground in reaction to the North Korean crisis as well as the continued failure of world economies to generate significant inflation, despite U.S. interest rate hikes. These tailwinds are likely to continue into 2018, underpinning recovery rallies that could eventually reach two- or three-year highs. Fortunately, the upside is developing at a relatively slow pace, giving late-to-the-party bulls plenty of time to get on board.

The gold mining sector has carved dozens of low-risk buy patterns in recent weeks, offering a broad array of short-term trading choices. At the same time, the Vaneck Vectors Junior Gold Miners ETF (GDXJ) has lifted above the 200-day exponential moving average (EMA) for the first time since April, highlighting rapid improvement at the low end of the capitalization spectrum. As a result, buying the fund or a basket of low-priced components with room to run could offer the strongest returns. (See also: GDXJ: Market Vectors Junior Gold Miners ETF.)

Eldorado Gold Corporation (EGO) stock topped out just above $20 in 2010 and tested that level one year later, ahead of a steep decline that ended in the first quarter of 2016 when it found support at a 13-year low under $2.00. It rallied above $5.00 in the second quarter and stalled out, building a small double top and breaking down in a decline that undercut the 2016 low in August. Committed buyers then emerged, triggering a 2B buying signal that denotes the failure of bears to defend a new resistance level.

The stock has been grinding higher in the past five weeks, while the monthly stochastics oscillator remains stuck at the most extreme oversold level since 2013. It will take little additional upside to flip the indicator into a buying cycle that supports continued gains into the $3.00 to $3.50 resistance zone. Market players may wish to withhold long exposure until the bounce clears the top of the unfilled July 31 gap at $2.23. (For more, see: Do Gold Miners Need to Look to Emerging Markets for Growth?)

Yamana Gold Inc. (AUY) shares topped out at $19.93 in 2008 and sold off to $3.31 during the economic collapse. The stock returned to resistance in 2012 and completed a double top, ahead of a severe decline that continued into the January 2016 13-year low at $1.38. The subsequent recovery wave stalled at a 21-month high in the third quarter, giving way to a slow-motion pullback that may have ended at the .786 Fibonacci sell-off retracement level in July 2017.

A bounce into September broke a six-month trendline​ of lower highs, improving the bearish technical tone while generating a test at the 200-day EMA. A breakout above that level would mark important progress that generates the next wave of buying signals, in turn favoring upside into the 2017 high at $3.65. Meanwhile, the monthly stochastics oscillator has now lifted into its first buying cycle since September 2016, predicting another six to nine months of relative strength. (See also: Yamana Gold to Spin Off Brio Gold Subsidiary.)

B2 Gold Corp. (BTG)came public on the U.S. exchanges at $1.25 in 2010 and lifted in a steady uptrend that ran out of gas near $4.50 in 2011. It built a two-year triple top at that level and broke down, entering a volatile downtrend that posted an all-time low at 60 cents in January 2016. The subsequent bounce displayed excellent relative strength into the third quarter, lifting the stock within one point of the 2012 high.

It then eased into a symmetrical triangle pattern that is still in force nearly 13 months later. A rally above $3.65 is needed to clear resistance, while selling waves need to hold range support near $2.20. The stock is now trading 60 cents or so above that level, offering a low-risk entry that could generate a sizable profit before a breakout that tests 2012 resistance. On-balance volume (OBV) has held close to the multi-year high throughout the consolidation, offering a stiff tailwind for an eventual uptrend. (For more, see: B2Gold Stock Upgraded at Dundee Capital.)

The Bottom Line

Junior gold miner stocks are ticking higher, with geopolitical tensions and weak inflation underpinning strong buy bids. These lower-priced issues may offer superior returns in this scenario, posting the next rally legs in long-term recovery waves. (For additional reading, check out: Strike Gold With Junior Mining.)

 

Published at Tue, 05 Sep 2017 15:25:00 +0000

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Overcoming Perfectionism in Trading

 

Overcoming Perfectionism in Trading

A reader recently asked the question of how to overcome perfectionism in trading.  Like many traders, the reader recognized that the quest for perfection was actually demoralizing him and leading him to trade worse and worse. Trying to buy the bottom tick and sell the top, he was missing trades. Losing money, he became his own worse critic.  Even when he made money, he found himself focusing on how he could have made even more by holding a little longer, sizing a little larger, etc. Slowly, perfectionism was stressing him out and interfering with his trading.

Sound familiar?  It’s a fine line between being success-driven and achievement oriented and being perfectionistic.  We want to keep pushing forward, but at some point the push becomes part of a problem, not a solution.

There are two keys to understanding perfectionism:

1)  It is a way of talking to ourselves;
2)  It is a way of channeling anger and frustration.

The perfectionist is channeling anger inwardly, looking at the gap between the real (actual performance) and ideal (possible performance) and becoming frustrated at that gap.  That is why so much perfectionistic thinking is of the “should” variety:  you *should* have held the trade longer; you *should* have been sized larger; you *should have taken the trade; you *shouldn’t* have taken the trade.  It’s all frustrated self-talk.

As I discuss in my books, we generally possess enough social sensitivity that we would *never* consider talking to a friend or colleague in the tone we use with perfectionistic self-talk.  We would never get in some one else’s face and tell them all the things they *should* and *could* have done better.  We would recognize right away that there is no constructive value in such talk.  It doesn’t help anyone move forward.

That is the key point to recognize:  there is nothing constructive about perfectionism.  It’s self-abusive; it doesn’t move us forward.  It’s a dumping of anger, not an effort to learn from mistakes.

Once the trader recognizes that the problem is not their trading, but their way of thinking about their trading, then they can begin the work of recognizing the frustration in real time, interrupting the perfectionistic thoughts, and introduce self-talk that is more similar to talk one would do with valued friends and colleagues.  

In practice, the sequence looks like:  “OK, I just lost money and I’m feeling frustrated.  I can feel myself getting caught up in *should* thinking.  That is the same perfectionism that has stressed me out and hurt my decisions.  I might have made a mistake, but I don’t deserve having anger dumped on me.  Before I take my next trade, I’m going to review what might have gone wrong with the last trade and see if I can learn anything from it that will help the next trade.  I refuse to keep talking to myself in a harmful way!”

Many times, keeping a cognitive journal is a great way of structuring this process and developing new, constructive habit patterns.  The Daily Trading Coach book describes this journaling in detail; see also the reading below.  Once we become aware of the *consequences* of negative thought patterns, we can truly *regret* them, and build a determination to not repeat them.  It is very healthy to focus on self-improvement:  we move ourselves forward when we try to become better.  We shut ourselves down when we demand more.

Published at Sat, 02 Sep 2017 13:04:00 +0000

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