2012 Year To Date: +21% (Version 6.0)

2012 S&P Year To Date: 3%
BladeTrader 6.0 Performance Against S&P: +18%

2011: +7%

2010: +42%

2009: +49%

2008: +5%

2007: +20%

Looking at our last commentary:

"The Commitment of Traders broke down a few weeks ago, but this is such an early indicator it may take months for it to setup.  The electronic trading of the index is 100% long, with a COT long, but the market has been breaking down for a little over a week now.

Our target of 1350 for the S&P seemed to be a little low on the expectations as it marched to nearly 1420, but with the recent pullback we are testing 1370 at the moment. 

Let the market tell you when to get out, but we have been neutral since 3/27 looking to get back in when the time is right."

The market broke below 1370, tested 1350, and then broke down to close recently below 1300 at roughly 1290.  From a high of roughly 1420 to 1290 we have retraced 130 points.  This is a 9% retracement and though we may be nearing a bottom, some capitulation may result in a little more downside. 

We remain neutral at this point, and though a short was fired on May 9th, we are moving away from shorting.  This is causing way too much confusion during presentations and have moved to being long bond futures which typically are inverse of stocks.  This will take a few weeks to complete since bonds are priced in 32nds and the S&P is priced in .25 increments.

We expect 1280 to hold, though on the way down many have stepped in looking for cheap prices only to capitulate and send the markets lower.  This is the only problem with try to catch cheap prices, they tend to continue lower and the selling to get out of the long pushes prices lower. 

As has been the case for years, let the tape tell you when to get back in, you may miss the bottom, and you may miss the top, but in the end you just want a big piece of the middle.  Tip your hat to those that got it perfect, because these are rare. Our call for 1350 for 2012 stands.

We're up 20% for the year, but here comes the summer and here comes the EU, and Greece, and earnings season, and IPOs for facebook, and bad employment.  All this negative news and the market has only moved 10% from its highs?  This is a healthy pull back in my opinion, but it can always get worse, that is why you wait for the tape to tell you when to get back in.  If you're like use you started shorting, got out, or rolled into treasuries.

So lets talk about JP for a second.  What the heck happened there?  JP Morgan was selling insurance against default possibilities on a basket of commercial mortgages also known as the dreaded Credit Default Swap.  They sold a massive amount, driving the price down considerably.  Hedge funds were buying them up, and when JP stopped selling protection and was basically the only seller, they would eventually need to buy them back.  But the hedge funds were not selling, they knew there was a big fish on the hook and they were setting the hook deep.  Prices starting rising, and they continue to rise since there is no large selling, only buying by JP morgan.  In other words, they got squeezed and are paying (literally) the price.

This doesn't mean that JP Morgan was doing the same thing it did in 2008, in fact, another part of JP Morgan was buying this insurance from JP Morgan.  In effect, it was JP Morgan's size that did it in on this trade, but the bank still managed to make 5BB regardless! 

These trades happen, but they did way too much and was the big fish in an illiquid market and they got caught.  Its that simple, they got sloppy, just as their CEO stated. 

Banks like JP Morgan like to also place their own bets in the market since retail is apparently so boring and useless, which gives credence to Too Big to Fail so break them up. 

I would expect, at some point, for banks to spin off their proprietary trading and take these private.  This is bad for consumers since Main Street is again getting screwed over because no one will be able to buy into these "privitized investment firms" and you will be left out. 

Our government doesn't really understand that the little guy gets the shaft with all these rules, it makes it hard for anyone to have a decent 401(k), IRA, or other plan when rules force banks to do dumb things to make a dime. 

I am for the notion that selling insurance on something you have no interest in is a bad thing.  Its like buying insurance on everyone in a retirement community, eventually you are going to be 100% correct that a lot will pass away and you can collect a payout, but what interest did you have in that person's life?  None, and this practice of naked selling of insurance should be outlawed.  Did JP Morgan have any interest in the commercial loans defaulting (125 loans make up the insurance basket they were selling)?  I don't know, but you should be buying insurance on this, not selling.

So what is going on the market?  Well, there are a lot of folks, commercial and professional that are short, and when this happens, bad things happen.  The COT shows that only the small guy is long, and everyone else is short, sticking it to the little guy once again.

In case you can't tell, we obviously don't like what happens to the little guy, but its just a matter of education.  Would you go into a bet where someone is an expert on the subject, holding a Ph.D and decades of experience where you are just entering 1st grade?  No, but this is what happens.  Individual traders have to go through a 4 year education, and typically pay the same amount in education expenses in the form of losses before they graduate with their Ph.D in investing.

If you're thinking of investing, even with our system, understand the risks, the rewards, and what we do.  Email me anytime if you have questions on the market and though we aren't allowed to tailor a portfolio specific to your needs, there is no reason why it can't be disclosed what we're doing.  I look forward to your questions.

 For those that have wanted to participate in the system, its just not going to happen with a managed account for some time.  There are simply too many hurdles and conflicts of interest to get through.  But joint accounts can be made available.  Since we are a small group, we can join our accounts and make trading decisions together.  I won't be able to manage the fund electronically for some time, but we can enter into a Join with Tenntents In Common, and we can all have some control over the account.  Withdrawals are agreed upon as well as percentages put into the account and we all agree to the rules for the trading.  The rules have been made public here, its just a matter of following them.

I guess some might have thought that I wasn't offering the software for free to anyone of stock record, but I am.  You may use the software in your own TradeStation account, but I do not recommend this since it takes a lot of effort in many ways, mostly psychological to handle.  But if you're a seasoned veteran at TradeStation, email me and i will train you on using the software in your own S&P futures account.

I want to apologize for this massive delay, but I was truly disappointed with the enormity of the requirements for me to manage 50 accounts.  It is physically impossible not to mention paperwork impossible, but a joint account offers a best alternative. 

There are some other things I have been looking into, specifically fractional mobile investing.  I will talk about that later, but I think this is really neat and I want to expose it if I can.

Overall, I am disatisfied with Wall Street and 401(k), IRA, and other rules that individuals are forced into.  Its like everyone said, we are no longer going to manage money for you, we are going to take your money, use it to charge big fees, give you little return, and then leave it up to you to make the investment decisions.  WHO ARE THESE PEOPLE RUNNING OUR GOVERNMENT that have forced us all into managing our own money to get a good return.  This is horrible, and that is why I created this software, so you, me, and my kids could benefit.

If you prefer, I will set up what other places do which is a "buy" or "sell" email whenever we are getting into the market.  If you would like to do that, I can send that out whenever signals are fired from the system.

I just want everyone to know, I am on your side, I did this for us, for my children, and to let Wall Street know they aren't the only game in town.  Let me know, and I can even personally train you on the system, get you the software we use, and get you managing your own money without too much overhead...it really is simple once you know how the game works.

Please find attached the secret investing strategy, its so secret I am sharing it here.  Why, because any good investment is worth disclosing, because its not about the idea, its about sticking with it, following its rules.  That is the hard part.  Please find below the screen that should demonstrate what should have been done around the first part of May.  Notice that the Treasuries are on the top screen and were signaling a potential exit from stocks as early as April 9th and the lower screen (the S&P) signaled a short around May 7th.  We have been out since 3/27 because the electronic system intraday requires some other inputs, but you get a sense of the big picture on a daily basis which beats the S&P handily every year.

S&P and 10yr Treasury Set Up in TradeStation