Its all about the debt.

The S&P500 failed to follow through and confirm the possible Cup and Handle pattern (though the handle could still be forming). However recent developments are not favourable, I guess any of the scenarios I mentioned a couple of weeks ago remains possible... The Cup and Handle break-up (Which I feel will be the final hoorah of this 2+ year rally, or a triple top (Or Head and Shoulders) break-down, or more sideways in a large range eventually leading to lower levels.

Much depends on what happens with the debt-ceiling short-term and with regard to the outlook for US debt longer term. --- I just wonder how world and economic history will judge this current time in decades to come.- Longer-term, and to 'state the bleedin' obvious', debt has to come down if the US does not want to undergo some incredibly painful problems in future years. Taking the medicine now will be painful (but ultimately less so) than not taking it at all. This huge and major problem, has the potential to in my opinion undermine US hegemony more than any other external force of the past 100 years, and I include Germany, Japan, China and Russia, plus smaller players such as Al Queda, Cuba, et al. 

UPDATE to SP500 comment

Further to the weekend comment on the SP500. Yesterday the futures rebounded exactly off the 61.8% retrace. - If it turns out that the Cup and Handle pattern I have identified is valid, then often the handle sees a retrace of  1/2 - 2/3rds the height of the handle, with 61.8% being the ideal stopping point. Of course given the volatility and the fact that 61.8% is often a support zone, this does not confirm anything yet, but it does keep the bullish idea alive.

Thoughts on the S&P500.

Trading the SP500 has largely been frustrating this year, unless you've playing a strategy of selling rallies to 1340-1370, and buying dips to 1250-1260 (well done if yo have , you will be in a tiny minority). - This week has seen frustrating price action and the index closing pretty much mid-range.

The following is my views and thoughts based of some technical analysis of mine, some opinions I have formed in recent years, and reading some of my favourite blogs and commentators.

First I want to start with a couple of patterns I see forming on the chart. - I sense two opposing patterns may be forming. I have no idea whether they will become completed patterns or not, and must accept there is a risk that I am extrapolating completed patterns from partially formed patterns, which is always a risky practice.

The two patterns I am seeing are a Bearish Triple Top, and a Bullish Cup and Handle. - Whislt I appreciate that until neither is fully formed, there are risks in labeling these. However I have done so for now...- Though I am tempted to favour the bearish pattern, because of my underlying longer-term bearish view, I actually feel that the Bullish Cup & Handle pattern may take precedence for now.  - There is a strong risk too, that these cancel eachother out, and we continue in a meandering sideways pattern for some time.

Before I bring help from the respected bloggers and commentators I follow, a quick look back at something I have been following for a couple of years. I call it the 1970s 'redux' (An earlier version of it can be seen on a posting from last October here_).

The top chart of the three is SP500 weekly 2007 - 2011. - The second chart is SP500 1972-1977.  I hope it is apparent how similar these are on the face of it. - The third chart shows the position of the 1972-1977 market within the slightly wider context.

On a micro level, I am not really keen to overly compare price action, and there are risks in that at some point the similarities will end, but overall I think the likeness is uncanny. - If the similarities do however continue, we are likely to remain in an extended sideways pattern, with some possible moves higher, which are quickly rejected, before eventually moving lower through 2012 or 2013.

Now for the cavalry. - Or at least the opinions of a few other parties that I respect. 

First Doug Kass. - Not so much a blog, as a serious of predictions and comments... - This guy has been incredibly brilliant and perceptive over the years.... This year he has been mostly predicting sideways action with this being neither good for Bulls or Bears -  so far pretty spot-on..Going forward he expects this may  carry on through the year.....  I also hold this recent comment as a good predictor of what lies ahead in coming years: "Investors will soon recognize that correcting our structural issues requires time and patience. When they finally do, share prices and valuations will be lower than they are today"    - So markets perhaps not running one way or another anytime soon. --- But continuing to range... - Which does not suggest my bearish scenario is on track - at least yet,, but is something for the future....(Sounds a lot like the late 1970s).

Second. - From an excellent blog I read called 'The Trend'. The guy behind this manages a system, which only he knows and understands, he incorporates the signals in with his bigger picture views. It is worth however looking at his bigger picture macro calls... Having read him for a number of years, I have gained a lot of respect for his macro calls, which he tends to offer as probabilities rather than certainties. --- His view for sometime has been of market decline eventually after a continued bull run,,, with the decline probably over  2012-2013.   (Perhaps in-line with Kass's comment above). Near-term, he is seeing all this action as part of the topping pattern ahead of that, and he has just started building into a long-term short position,, but ideally would like to get more of it on from higher levels..Shorter-term he favours a possibility of a new market high,, perhaps above 1370 sometime in next couple of months and maybe into the 1400s,,, Though I think he is prepared for it to take a few months, he does also consider a low possibility that May's high was it.

Third - 'Trade Your Way Out'. I have been watching this site,, since well before it was a subscription service. (The views are based on Elliot Wave)..., I have been really impressed with the calls over the past couple of years, and the ability to change track and opinion.  - Though I currently disagree with his view of a possible bull market to 1600+ over next few years, who knows perhaps he'll be right... (We are currently 1320 and this time last year we were in the 1000-1100 zone). - In the shorter-term he is currently looking for a run up to the high 1400s, perhaps 1480  before major corrective action. (My Cup and Handle would target close to that level).  

For your interest, last year TYWO turned Bearish in Q2 2010,, then when the Flash crash occurred, he revised his view to bullish looking for 1300/1400 - So was spot on there. In late 2010 he predicted a bear market for 2011 (back down to 666) after an early rally through March 2011. In April podcast (Which can be seen) he said this is a final rally with a target from 1350-1450, which will end the run from Mar 2009... -  However, his latest podcasts have usurped this and calls for the higher levels to 1600+ over the next couple of years ahead... So he has since had a change of thought, It will be interesting to see if he keeps this or revises this again. - .

Fourth - Price action from my somewhat speculative AUD pattern,which I highlighted on my blog in May. I was looking at a top in place, or the start of a topping process, with a new high still to come... I think price action since now favours new highs still ahead,, possibly above 1.12. (If however 1.0400 breaks and holds the break , then I may have to revise this), I still fear an eventual break back down to well below par,, but that may be well ahead in 2012 sometime. - AUDUSD and US Stocks have of course been highly correlated in past few years.,

Fifth.... I was witness to an excellent presentation last week from my old friend Dave Sneddon - Head of Technical Analysis at Credit Suisse. ---- A very quick snapshot : He charts 'global risk appetite.' .. -Currently it is as expected well in oversold territory... and whilst it may stay here, they are seeing a possible buy signal...It is not always as simple to translate this direct to US stock, it may be bullish for stocks,,, though they can not confirm this yet,, and it may be that it means bullish for emerging v G7. - Remember , its only an indicator,, and it is a probabilty call. - But it is something to watch out for.


-- I put this all together

• My current chart on SP500, sees both Bullish and Bearish patterns forming. For numbe rof reasons I favour the bullish resumption short-term, though there is risk of further sideways range.
• My 1970s redux, supports the idea of either further sideways, or upside but quickly rejected and back into fruther sideways, before eventually moving lower.
• Doug Kass - We continue to range wildly - Eventually when it hits home -Stocks will be much lower.
• The Trend - Starting to build into a major short position for ugly 2012/13, though thinks and hopes may get much of the short on over next few months at better levels. (So short-term bullish , long-term bearish) 
• Trade Your Way Out - Was bearish, now Bullish for move over 1400, maybe to 1480.   Bigger picture turned from bear to bull.
• My AUD - I hold out a (highly speculative) longer term bearish view, but think there is good possibility of new highs ahead in coming months...AUD and SP500 well correlated.
• CS Techs - Possibly signalling Bullish for risk in next few months, this may favour a bullish resumption for stocks in next few months, but is open to interpretation.

If I try and put this together,,, It suggest that we may have some upside surprise over the summer on risk,,, but will probably not last through 2nd half of the year...  before turning bearish into 2012,,,

Finally , no fundamental viewpoints here, these are way to complex... If I was to sum it up, I see high risk of deflation and depression still, but Fed efforts to overwhelm this by reflating could mitigate this, as it has done so far.....- the big question is whether sovereign debt issues can be inflated away on the long-term or not, or will completely undermine all reflation efforts eventually... - Who knows... --- And could that merely be the seeds of the next crisis??? - Far too complex for me !!!

Trader, Trading & Risk Linkedin Group July Newsletter.

'Trader, Trading & Risk Psychology' Linkedin Group July Newsletter.

EURUSD Triangle update.

The breakdwon fromt he triangle, which I highlighted a couple of days ago has occurred. BUT I am not at this stage convinced that it will be maintained. Re-tests of breakouts of patterns are not unusual, however such sharp breaks, then quick rebounds in my experience are. I will not draw too many conclusions at this stage, but I am watching for a heightened risk that this is a false break. - False triangle breaks can be great trading opportunities: A move over the apex could be a sign that this is a false break. The approx apex of this Triangle is 1.4330, a clean and sustained break through there, which would also mean the closing of the Friday/Monday Gap 1.4274/1.4230 would strongly favour that we have a false break. False triangle breaks often see strong moves in the other direction, suggesting a reasonable chance of a sharp move towards the high 1.4000s, perhaps 1.4800.

It is also interesting to get a perspective on exactly how much damage the Greek debacle has done to the EUR v the USD. Below is a chart of the 10 year Greek Government Bond yield over the past 3 years versus the EURUSD.  Whilst the Greek debacle has no doubt affected the EUR , its actual values versus a range of major currencies (with the exception of the CHF) has not been significantly adversely affected over the course of this year.

EURUSD TRIANGLE PATTERN.

I know this blog is now about the psychology of trading, however I can never really tear myself away from trading views full-stop. And today I will be posting my Technical Analysis view of the current EURUSD market in relation to the triangle pattern forming on the EURUSD. (I could of course talk about this from a psychological perspective, but I'm not I'm merely going to try and point out what I think is happening and may happen. : Please see comments below charts:-

Inspirational quotes for traders:

On my linkedin group 'Trader, Trading & Risk Psychology', I have been asking members to submit inspirational quotes. Over the past 2 months I have received a veritable mudslide of quotes from group members. - The list below is a collated list of all quotes received thus far:

(Please note: Where a quote has not been credited to a person or anonymous, I have credited it as 'Courtesy of the the group member who submitted it'.) 

Thank you to all those who have contributed so far.

Planning, Discipline & Patience.

• ‘Predicting rain does n't count; building arks does': Warren Buffett’s Noah Rule.
• "To know and not to do, is not yet to know" – Courtesy of Tom Witters.
• ‘It's easy to have faith in yourself and have discipline when you're a winner, when you're number one. What you got to have is faith and discipline when you're not a winner.’ – Vince Lombardi
• ‘After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!’ – Jesse Livermore

Fear

• 'Never let fear of striking out, get in your way': Babe Ruth.

Perspectives

• 'It’s tough to make predictions, especially about the future,' - Lawrence Peter 'Yoggi' Berra.
• “go as far as you can see, and when you get there , you will see further." -
• anonymous
• ‘Don't worry what others think... They don't do it very often’ – Courtesy of Mark Carstens.
• "A little learning is a dangerous thing, but we must take that risk because a little is as much as our biggest heads can hold." - George Bernard Shaw.
• "Those who cannot remember the past are condemned to repeat it" - George Santayana.
• “Glory is fleeting but obscurity is eternal” – Napoleon
• ‘A long term investment is when I break even.’ – Courtesy of David Wong.
• "There are many truths, but only one reality" – Courtesy of Robin Farrell.
• ‘It's not whether you get knocked down, it's whether you get up.’ – Vince Lombardi.
• 'We would accomplish many more things if we did not think of them as impossible.’ – Vince Lombardi
• "Vision - It reaches beyond the thing that is, into the conception of what can be. Imagination gives you the picture. Vision gives you the impulse to make the picture your own." – Robert Collier.
• "If you're 30 minutes into the game and you don't know who the patsy is, you're the patsy." – Courtesy of Saranjot Dosanjh.
• ‘Price is observable and objective while value is perceived and subjective’. – John Murphy.
• ‘In theory, there is no difference between theory and practice. In practice there is.’ – Yogi Berra.
• “As a rule, Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works…. The Failure of great banks… and mercantile firms…are the symptoms incident to the disease, not the disease itself.” – John Stuart Mill (1867).
• ‘You need three bear markets to know what to do. The first nearly wipes you out, the second you learn how to survive and the third you take by the scruff of the neck and enjoy it.’ – Crispin Odey of Odey Asset Management.
• “Never in recorded history, has the supply of capital not overwhelmed the supply of opportunity.” – Joseph Lassiter .
• 'You only live once but if you work it right, once is enough'. – Joe E. Lewis.
• "If you really know whats going on, you don't even have to know whats going on to know whats going on... You can ignore the headlines because you anticipated them months ago" - Michael Steinhardt.
• ‘Another lesson I learned early is that there is nothing new in Wall Street. There can't be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.’ - Jesse Livermore.
• "Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited." – Soros.

On Losses (and Profits).

• ‘Tradings only real secret is... The best loser is the long-term winner’ - Phantom
• “Trading is a losing game, the best loser is the long-term winner” – Anonymous.
• ‘Losses can either be lost money, or tuition in the school of trading’ - Courtesy of Mark Moskowitz.
• ‘The worst advice I use to get was. - 'No one went broke taking a profit'’. - Courtesy of John Berra.
• "It seems that the necessary thing to do is not to fear mistakes, to plunge in, to do the best that one can, hoping to learn enough from blunders to correct them eventually." - Abraham Maslow
• ‘“Learn to like your losses". Why? Because they are small!’ – Courtesy of Stuart A.Brown.
• "One common adage...that is completely wrongheaded is: You can't go broke taking profits. That's precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits." - William Eckhardt.
• “Its not about being right or wrong, rather, its about how much money you make when you’re right and how much you don’t lose when you’re wrong.” – George Soros.
• "The first loss is the best loss." - Jim Rogers.
• "Losers average Losers"...Paul Tudor Jones.
• “You learn nothing from your winners and everything from your losers.” – Courtesy of Jeff Horn.
• ·“To become a Master Trader, you must first be a successful loser.” – Jeff Horn.

Ego

• "Don't be a hero. Don't have an ego. Always question yourself and your ability. Don't ever feel that you are very good. The second you do, you are dead." - Paul Tudor Jones

Personal Responsibility and Self-awarenss

• ‘……you get the results you want. You produce your own success" – Gene Agatstein.
• "I know from experience that nobody can give me a tip or series of tips that will make more money for me than my own judgement." - Jesse Livermore.
• 'There is no holy grail, and there is no magical system. You have to win the battle within you first before you can win with the markets'' – Courtesy of Maria Psarra.
• "If you are distressed by anything external, the pain is not due to the thing itself, but to your estimate of it; and this you have the power to revoke at any moment." - Marcus Aurelius.
• “If you don't know who you are, this is an expensive place to find out" - Adam Smith, The Money Game.

Personal and Trading advice

• 'Successful trading comes down to this: overcoming your personal psychological barriers and conditioning yourself to produce feelings of self-trust , high self-esteem, unshakable conviction, and confidence which will naturally lead to good judgement and winning trades based on a proven methodology’ – Courtesy of James Buzzard.
• "If everything feels under control, you are not going fast enough" -Mario Andretti, 1978 Formula One World Champion.
• "If you sit by the river long enough, a dead body will sooner or later float down there" – Japanese Proverb.
• 'Buy High, sell Higher AND Sell low, buy back lower', - Anonymous.
• 'The most important rule of trading is to play good defence, not great offence.’ -
• Paul Tudor Jones.
• "When the facts change, I change my mind. What do you do, sir?" - John Maynard Keynes.
• “Holding cash is uncomfortable, but not as uncomfortable as doing something stupid.” – Warren Buffet
• "Trade the market, not the money...if you exercise your strategy with discipline, the money will follow." – Courtesy of Umar Ali.
• “If you ACCEPT the risk of the trade and SHARE SIZE appropriately then you should be able to trade in a relaxed and optimum state of mind.” – Courtesy of Tom Willard.
• "The trend is your friend" - – Courtesy of Umar Ali.
• ttitude; Success, Failure, working hard.
• "Mentally write off the work you do, as soon as you have done it" – Courtesy of Robin Farrell.
• "There are old traders and there are bold traders, but there are very few old, bold traders." - Ed Seykota
• “Falling knives have to land somewhere.....” – Courtesy of Aidan Philipson.
• ‘The dictionary is the only place where success comes before work!’- Vince Lombardi.
• “Luck is what you have left over after you give 100 percent” - Langston Coleman.
• ‘Traders (Leaders) are made, they are not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worthwhile.
• It's easy to have faith in yourself and have discipline when you're a winner, when you're number one. What you got to have is faith and discipline when you're not a winner.’ – Vince Lombardi.
• “I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times, I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.” - Michael Jordan
• ‘What sets successful traders apart?......Most people think that winning in the markets has something to do with finding the secret formula. The truth is that any common denominator among the traders I interviewed had more to do with attitude than approach’. – Jack Schwager.
• "There is little difference in people, but that little difference makes a big difference. That little difference is attitude. The big difference is whether it is positive or negative." – Robert Collier.‘Ours is not to reason why, ours is but to sell and buy.’ - Courtesy of Mark Moskowitz.
• "Success is the sum of small efforts - repeated day in and day out." – Robert Collier.
• "A professional writer is an amateur who didn't quit." - Richard Bach
• “Golf is a game played on a 5 inch Course- the distance between your ears.” – Bobby Jones.
• "...It's all to do with the training: you can do a lot if you're properly trained..." - Queen Elizabeth II.
• "The person who goes farthest is generally the one who is willing to do and dare. The sure-thing boat never gets far from shore." - Dale Carnegie.
• "You are - face it - a bunch of emotions, prejudices, and twitches, and this is all very well as long as you know it. Successful speculators do not necessarily have a complete portrait of themselves, warts and all, in their own minds, but they do have the ability to stop abruptly when their own intuiition and what is happening Out There are suddenly out of kilter. - Adam Smith, The Money Game.
• ‘“Everyday my trading skills are getting better and better". I repeat it like a daily mantra’ – Purportedly attributed to Emile Coue.

Strategy

• "Only movement brings victory" - German Colonel General Heinz Guderian, father of modern armoured warfare.

On Models:

• “Fashion models and financial models bear a similar relationship to the everyday world. Fashion models are idealised concepts of male and female beauty. Financial models are idealised representations of the real world. Neither is real. Models don’t quite work in the way that the real world works. There is celebrity in both worlds. In the end, there is the same inevitable disappointment.” Satyayit Das, author of Traders, Guns & Money
• “All models are wrong, but some are useful” - George Box.

Risk, Money, Liquidity Management.

• "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” – Chuck Prince, former CEO at Citibank just before the credit crunch.

On Perfectionism.

• ‘Something that fails to live up to perfection is more despised than something that was never idealized in the first place.’ – Aaron Brown, former risk manager at Morgan Stanley.

Poems:

• 'IF' by Rudyard Kipling.

If you can keep your head when all about you
Are losing theirs and blaming it on you;
If you can trust yourself when all men doubt you,
But make allowance for their doubting too:
If you can wait and not be tired by waiting,
Or, being lied about, don't deal in lies,
Or being hated don't give way to hating,
And yet don't look too good, nor talk too wise;

If you can dream---and not make dreams your master;
If you can think---and not make thoughts your aim,
If you can meet with Triumph and Disaster
And treat those two impostors just the same:.
If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build'em up with worn-out tools;

If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings,
And never breathe a word about your loss:
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: "Hold on!"

If you can talk with crowds and keep your virtue,
Or walk with Kings---nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much:
If you can fill the unforgiving minute
With sixty seconds' worth of distance run,
Yours is the Earth and everything that's in it,
And---which is more---you'll be a Man, my son!