What Bitcoin Is and Is Not & The Ominous Chart of the DOW

There is an excellent explanation on what Bitcoin is and is not in layman's term if you scroll down to the middle of this article on ZerooHedge. The article talks about "How To Steal Bitcoins In Three Easy Steps" 1. Copy the keys 2. Getting Away With it and 3. Get Rich. At my last check, Bitcoin is trading at $658.20, with a low of $615 and a high of $700. The trading band has narrowed considerably, low volume on an up day, and much higher volume on a big move down. Are we about to witness a big break south on big volume?

On another topic, market participants have been talking about the eerie similarity between the DOW in 1928-1928 and now (see chart below). With the Dow, Nasdaq and even S&P hitting record closes even in the face of the first Taper last week, the comparison of the two market indices may seem laughable to many bulls but Black Swan event needs no warning and that is why it is called a Black Swan. Severe market corrections do happen as history tells us unfortunately we will only know when we look back. Irrational exuberance has taken hold, major bears have bailed, some have even turned bullish. Market multiples artificially supported by 4 rounds of QEs and mountain heap of cheap liquidity, the big correction could just be around the corner. You know how sometimes one can smell the rain even though the storm clouds are still forming in the Pacific ocean, that is how I feel now about the state of the market. Buyers beware.

Precious metals have been under pressure since the very first hint of Fed taper this summer. Physical gold in particular is looking very attractive, here or $100 lower from here presents a very good entry point for the next leg up. I bought gold when it was $680 in 2006 (still own it, physical is not something I would sell), and I loaded up on Half Franklin at $9.98/oz of silver that same summer and sold them when silver hit $45. I like silver here, it has a commercial component and if I must be invested at this time, silver etf would be a good place to park some money short term. It also looks to be finding and building support here. I have been trading smaller silver miners as a proxy to the Silver ETF (SLV) and Silver Wheaton (SLW). Have also added to my 1 OZ silver eagle collection, although I rather not to have to pay for the $2-4 spread but coin dealers have to make money so I am cool with that. As for gold coins, supply seems tight at the local shop guess they have all gone overseas to the Chinese and Indians who have been stocking on them.

Buy Low Sell High, Limit Your Downside, Take Profit Often (In normal market I would let my profit ride but not this market right now)

Someone commented on an article posted on ZeroHedge yesterday and I quote "the market is so rigged and non-efficient that no position makes sense, and that taking any position is just gambling with cheaters at the table". Indeed, the market has become a roulette game, a market where its liquidity is powered by HFT's fast churning machines and algorithms. It seems each day the market decides on a fresh start and off she goes up and down (collective greed or fear), fundamentals aside. Dotcom bubbles deja vu. It is news snippet driven, and that 99% of the time is a rehash of someone's else post on twitter. Pre-market volume has dried up as no one dares to make the first move for fear of getting whipsawed once the bell rings. One never knows what is around the corner and which HFT or hedge fund will be calling the shots during the first 10 minutes and every minute after that. It is the biggest casino in the world.

Can a savvy stock picker still manage to come out ahead? perhaps. Traders and hedgies are pushing the envelope ever so slightly until it falls off the table, especially those who are playing catch up compared to their peers (or is it their bonus). There are two sticky notes on my walls staring at me that read "Buy Low, Sell High and Take Profit". I am learning to cut my loss early if I am wrong footed, usually this means within the next hour or close out my trade before the close. Cash is safer with me than parked on a stock in this volatile market environment. Increasingly many are talking of a market tipping over and heading south. For most fund managers, the reality is there is really no other place to park client's money if their mandate is to stay mostly invested (and doing with much trepidation) and as such equities are marching on at relentless pace. However, lately we are beginning to see signs of cracks.

I keep reminding myself that trading is simple, there is no need to over complicate one's trading strategies. Get out of something that is not working, has not worked, and stick with what works and has worked in the past. I have a handful of biotech and drug recovery companies I buy (and Sell) and that is working right now and I thank my lucky stars. I also own individual small miners as proxy to SLW, GDX and their underlying ETFs (SLV, GLD). I have been able to profit from these smaller names trading alongside the bigger names. I am still selling puts and calls to balance the volatility on my portfolio. The last few months, I tried to profit off short term momentum of a stock candidate. I am not buying any blue chips or utilities or any other hot shot that are all sitting at 52 week high. When the market crushes, I will have my pickings there.

If you are looking for a good book on the HFTs, read this book Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market

Good luck trading