SPY, end of quarter.

                                                    The trend is still up, no hedges on.

State of the Market.

                                 What will happen on Monday ?

The trend is still up, no hedges on.

Speculation is what makes the world go around.

Have a select memory; which means:
You have to have an ability to forget the "ones that got away."
You as a trader/investor must have a capacity to overcome mistakes, learn from them and then go on as if they had never happened.
In trading/investing as in almost everything, steady persistence in the right direction, invariably beats erratic brilliance. Be selective. Be steady. Be persistent. And don't forget to enjoy the ride, eventually it ends.

All is well, but for the market to make a new leg up we first need to clear the resistance area.

                                               The trend is still up, no hedges on.

SPY today

                                                The trend is still up, no hedges on.

The process of preparing for different scenarios will allow you to have an actionable plan in place to minimize risks and maximaze opportunities when they come to pass.

Something like this.

"Isolate an event - Assume a specific downside event. For example, what happens if there is an escalation of a trade war with China?

Walk through the implications of the event. What markets will be affected? What will happen to the correlations across these markets? Are the market effects expected consistent with cross-market relationships? What will be the reaction of other investors?

Portfolio review - Can the current portfolio take advantage or mitigate the event? What are the risks from this event?

Analyze the restructuring alternatives that will be effective for hedging against this downside event. Be specific on what you will buy and sell? 

Analyze whether your hedging will meet your return expectations.

Walk through other possible solutions."

From 2018 Berkshire Hathaway annual letter.

The American Tailwind.

On March 11th, it will be 77 years since I first invested in an American business. The year was 1942, I was 11, and I went all in, investing $114.75 I had begun accumulating at age six. What I bought was three shares of Cities Service preferred stock. I had become a capitalist, and it felt good. 

Let’s now travel back through the two 77-year periods that preceded my purchase. That leaves us starting in 1788, a year prior to George Washington’s installation as our first president. Could anyone then have imagined what their new country would accomplish in only three 77-year lifetimes? 

During the two 77-year periods prior to 1942, the United States had grown from four million people – about 1⁄2 of 1% of the world’s population – into the most powerful country on earth. In that spring of 1942, though, it faced a crisis: The U.S. and its allies were suffering heavy losses in a war that we had entered only three months earlier. Bad news arrived daily. 

Despite the alarming headlines, almost all Americans believed on that March 11th that the war would be won. Nor was their optimism limited to that victory. Leaving aside congenital pessimists, Americans believed that their children and generations beyond would live far better lives than they themselves had led. 

The nation’s citizens understood, of course, that the road ahead would not be a smooth ride. It never had been. Early in its history our country was tested by a Civil War that killed 4% of all American males and led President Lincoln to openly ponder whether “a nation so conceived and so dedicated could long endure.” In the 1930s, America suffered through the Great Depression, a punishing period of massive unemployment. 

Nevertheless, in 1942, when I made my purchase, the nation expected post-war growth, a belief that proved to be well-founded. In fact, the nation’s achievements can best be described as breathtaking.

Let’s put numbers to that claim: If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. Meanwhile, a $1 million investment by a tax-free institution of that time – say, a pension fund or college endowment – would have grown to about $5.3 billion. 

Let me add one additional calculation that I believe will shock you: If that hypothetical institution had paid only 1% of assets annually to various “helpers,” such as investment managers and consultants, its gain would have been cut in half, to $2.65 billion. That’s what happens over 77 years when the 11.8% annual return actually achieved by the S&P 500 is recalculated at a 10.8% rate. 

Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 31⁄4 ounces of gold with your $114.75. 

And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business. The magical metal was no match for the American mettle.

Our country’s almost unbelievable prosperity has been gained in a bipartisan manner. Since 1942, we have had seven Republican presidents and seven Democrats. In the years they served, the country contended at various times with a long period of viral inflation, a 21% prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, a paralyzing financial panic and a host of other problems. All engendered scary headlines; all are now history. 

Christopher Wren, architect of St. Paul’s Cathedral, lies buried within that London church. Near his tomb are posted these words of description (translated from Latin): “If you would seek my monument, look around you.” Those skeptical of America’s economic playbook should heed his message. 

In 1788 – to go back to our starting point – there really wasn’t much here except for a small band of ambitious people and an embryonic governing framework aimed at turning their dreams into reality. Today, the Federal Reserve estimates our household wealth at $108 trillion, an amount almost impossible to comprehend. 

Remember, earlier in this letter, how I described retained earnings as having been the key to Berkshire’s prosperity? So it has been with America. In the nation’s accounting, the comparable item is labeled “savings.” And save we have. If our forefathers had instead consumed all they produced, there would have been no investment, no productivity gains and no leap in living standards.

Watch an actual long-only stock portfolios hedging system.

 The trend is up, no hedges on.

The market changed behaviour at the start of the day on Tuesday as volume and price action dried up suggesting there are no buyers at this level right now. Maybe China negotiations that are due to be completed March 1st or the possibility the President Trump will add another tariff to imported Chinese goods could be holding back the market. That or just resistance at a prior high area on the S&P-500

CME Fed Futures Rate Hike Odds

'The CME Fed Futures puts the greatest odds all the way out to January 2020 that interest rates will remain the same, though there are also odds that when rates do move, they will move lower, as futures puts 22.6% odds this will happen by January 2020, vs 0.8% odds of a hike by the same month. Odds prior to Thursday’s retail sales data were about even between a hike and a drop in rates.' 

SPY now

The trend is up, no hedges.

Look at things as they are...

Look at things as they are, not as your emotions color them. In strategy, you must see your emotional responses to events as a kind of disease that must be remedied. Fear will make you overestimate the enemy and act too defensively. Anger and impatience will draw you into rash actions that will cut off your options. Overconfidence, particularly as a result of success, will make you go too far. Love and affection will blind you to the treacherous maneuvers of those apparently on your side. Even the subtlest gradations of these emotions can color the way you look at events. The only remedy is to be aware that the pull of emotion is inevitable, to notice it when it is happening, and to compensate for it. When you have success, be extra wary. When you are angry, take no action. When you are fearful, know you are going to exaggerate the dangers you face. War demands the utmost in realism, seeing things as they are. The more you can limit or compensate for your emotional responses, the closer you will come to this ideal. ~ The 33 Strategies of War by Robert Greene

Markets.

The world economy is deflating, and the S&P is rallying, these two things don't go well together. When the economy deflates the stock market dives.
 
Investors hope the US and China will agree on a trade deal. Any rally caused by government stimulus and trade deals will fade away and the stock market will decline to new lows. The difficult bit is knowing when the decline will resume. Government interventions can support the market for longer than we can expect.  
 
Inflation is falling which is in line with the start of deflation, I expect goods, services and asset prices to fall in the months ahead. Right now some people are talking about a possible recession in the US. It will take a long time, months before the recession starts and then some time before the depression starts.
 
At the end of the depression a new crisis will emerge, the dollar will collapse. The economic crisis will have taken its toll on the dollar, this will probably cause a run on the dollar and this will trigger a collapse in bond prices. The result will be inflation. The dollar will lose purchasing power, the stock market will be considerably lower and it could take a long time, a decade or more before the stock market reaches the bottom.
 
This will not happen in a straight line, governments will intervene along the way and in the process they'll create some huge rallies like the one we are having now.

Vanguard founder Jack Bogle, who passed away last week, began his book Enough with the following paragraph.

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds,“Yes, but I have something he will never have . . . enough.”

Enjoy your day !!

Good example, LFVN mentioned yesterday.

There are still stocks that are working, like LFVN's break-out today, but got to be fast and nimble in this environment, as lots of them reverse and reverse hard after they break out.

Looks like the machines can't handle VIX above 20 for a long time !

It’s a good idea to keep your eyes on the VIX relative to its 200-day moving average.

Briefly stated, the VIX is the “implied” volatility of the S&P 500. It's where market participants believe market volatility will be over the next 30 days. The VIX doesn’t look backward (historical volatility does), it looks forward. 

The VIX has been above its 200-day moving average since early December,  For long-only traders, it’s been treacherous since early December. For the short side traders, and long volatility traders, the past month and the first few days of January have been a bonanza.

The VIX will eventually move back under its 200-day moving average again and as it does, market behaviour will likely change back again. 

For now, expect heightened daily volatility. And please be careful here because as you’ve seen over the past month, there are a lot of smart people out there, and none have been able to pick a bottom. 

Good luck.

THE SELF-CONFIDENCE FORMULA

This formula is from Napoleon Hill’s classic book, ‘Think and Grow Rich’.  If you haven’t read the book yet, then I highly recommend you read it. Of course, you don’t have to have read the book before putting this effective confidence formula to work for you.

The formula is essentially a declaration that you read to yourself.  It is suggested that you read it aloud, with an open mind, and with faith that it can help fortify your confidence.

It will require some faith on your part, but I can assure you, if you believe in it, it will work.

So without further ado, below is your new highly effective confidence tool that you will be sure to benefit from.

Here you go:

1. I know that I have the ability to achieve the object of my Definite Purpose in life. Therefore, I demand of myself persistent, continuous action towards its attainment, and I here and now promise to take such action.
2. I realise the dominating thoughts of my mind will eventually reproduce themselves in outward, physical action and gradually transform themselves into physical reality. Therefore, I will concentrate my thoughts for 30 minutes daily upon the task of thinking of the person I intend to become, thereby creating in my mind a clear mental picture of that person.
3. I know through the principle of autosuggestion that any desire I persistently hold in my mind will eventually seek expression through some practical means of attaining the object. Therefore, I will devote 10 minutes daily to demanding of myself the development of self-confidence.
4. I have clearly written down a description of my Definite Chief Aim in life. I will never stop trying until I have developed sufficient self-confidence for its attainment.
5. I fully realise that no wealth or position can long endure unless built upon truth and justice. Therefore, I will engage in no transaction that does not benefit all whom it affects. I will succeed by attracting to myself the forces I wish to use, and the cooperation of other people. I will induce others to serve me because of my willingness to serve others.  I will eliminate hatred, envy, jealousy, selfishness and cynicism by developing love for all humanity because I know that a negative attitude towards others can never bring me success.  I will cause others to believe in me, because I will believe in them, and in myself.  I will sign my name to this formula, commit it to memory and repeat it aloud once a day, with full faith that it will gradually influence my thoughts and actions so that I will become a self-reliant and successful person

Do or Don't trust first snap back after a big decline ?

There were a bunch of 5% up days in 2008 and way back in the 1930s.

A 5% up day also marked the bottom in 1970, 1987, 1997, 1998 and 2009.

I never trust first snap back after a big decline.

The American Dream

“In 1923, seven men who had made it to the top of the financial success pyramid met together at the Edgewater Hotel in Chicago. Collectively, they controlled more wealth than the entire United States Treasury, and for years the media had held them up as examples of success. The American Dream

Who were they? Charles M. Schwab, president of the world’s largest steel company; Arthur Cutten, the greatest wheat speculator of his day; Richard Whitney, president of the New York Stock Exchange; Albert Fall, a member of the President’s Cabinet; Jesse Livermore, the greatest bear on Wall Street; Leon Fraser, president of the International Bank of Settlement; and Ivar Kreuger, the head of the world’s largest monopoly.

What happened to them? Schwab and Cutten both died broke; Whitney spent years of his life in Sing Sing penitentiary; Fall also spent years in prison, but was released so he could die at home; and the others? Livermore, Fraser, and Kreuger, committed suicide.”

—Donald McCullogh, Waking From The American Dream

I received this passage from a friend as a friendly reminder that there is more to life than money. Always keep in mind that family, health, spirituality, and many other things should come first before wealth accumulation. Make sure to spend time with your family and loved ones during this holiday season because that is where true wealth and happiness exists.

An even greater happiness comes from giving. Think of something that you can do during the holidays to help others, such as charity or volunteer work, and then go out and do it! 

Wishing you all a Happy Holiday Season!