Following is an excerpt from last nights weekend Report.

Including a bonus chart at the end

Before we look at this weeks charts I would like to explain how I use the three portfolios we have, Kamikaze, PM Stock Trades and the Leveraged Trade Portfolio. These three portfolios each have their separate identity with completely different objects. Depending on market conditions sometimes the Leveraged Trade Portfolio will be the main portfolio I use if it looks like the stock markets may be setting up for an impulse move. Since the PM complex bull market high in 2011 I’ve only been fully invested in the PM Stock Trade Portfolio twice, once in early 2016 and again this year.

There are many different types of traders that each will usually gravitate to one area of the markets to do their trading. There are traders that only trade commodities like the grains, some may just focus on interest rates or currencies while others only the stock markets . Then there are those that will only trade the precious metals sector and nothing else regardless if there is a bull market in some other area of the market. As humans we get set in our ways and it becomes very difficult to see anything else but what we are focused on.

I’m an equal opportunity trader and don’t care what market I trade as long as I can find a big enough pattern that could lead to a decent impulse move either up or down. What that means is that I try to get positioned for an intermediate move that can last from several months to several years. It is the intermediate impulse move that is the easiest and most lucrative if you can get in early enough and exit close to the end of the move. Unlike a consolidation or reversal pattern, that chops up the bulls and the bears alike, a strong impulse move is much less volatile and easier to hang on to your positions.

I’ve explained this before on how the three different portfolios are set up. The PM Stock Trade Portfolio and the Leveraged Trade Portfolio each start with $100,000 with the Kamikaze Portfolio ( 3x Leveraged PM ETFs) using just $50,000. To reduce the risk factor I will generally only use $5000 for each trade which will work out to 20 trades for each portfolio. The most trades I can have at one time in the Kamikaze Portfolio is ten with $5000 each.

It doesn’t make any difference if you have $10,000 or a million dollars to trade with, use only 5% on any given trade. If your trading capital is $10,000 that means each trade will cost you $500. A 10% gain is a 10% gain on either $10,000 or a $100,000.

Years ago when I was learning how to trade the markets I fantasized, like most traders do, that I could take $5000 and turn it into millions, like some traders like to advertise which is probably true in some cases, but they are the rare exception rather than the rule. It didn’t take long for reality to set in which started teaching me lessons that I could only learn from the school of hard knocks. After having a string of good trades it seemed like the stock market gods would say, “that’s enough now it’s time to give it back,” which I did more times than I care to say. Sound familiar?

Luckily I was able to weather the storms and kept enough trading capital intact to continue learning how to trade with each trade teaching me something new. I won’t go into all the lessons I had to learn the hard way because it would take a book two inches thick to explain everything.

After boiling it all down the most important lesson I learned after years of trading was that when I made a decent profit on a trade part of that profit came out of the market. That fantasy of making millions upon millions of dollars gave way to reality in which I would take profits over the starting capital and get it out of the market. For me personally this method has treated me very well though the years and has led to a very comfortable lifestyle. This method also allowed me to basically retire at the end of the tech bubble in 2000. Retirement isn’t the proper word as it is relative to each individual, but I did achieve financial independence which was always my main goal.

Coming back full circle to our 3 different portfolios. When I exited the PM stock portfolios in September everything over $100,000 came out of those two portfolios and into the bank. Also everything above $50,000 in the Kamikaze Portfolio came out and into the bank. An important lesson I learned the hard way years ago was when you take money out of the markets make sure you take out enough to cover the taxes.

I realize that some of you think I made a big mistake when I exited all my PM stocks in September and that’s fine. Even though the potential H&S top on the GDX looks like it is failing I had to respect that possible outcome right or wrong. It’s always much easier to trade when you look back in hindsight. By locking in my profits when I did I’ve had the luxury to see what PM stocks are holding up and which ones are not. What our current rally and correction has shown me is that we are still in the stock picking phase of the bull market. During that strong rally in 2016 you could have thrown a dart at any PM stock and had great results. You may have noticed that wasn’t the case this time around. Yes, some PM stocks have done very well but many others have really underperformed which is one reason you should have a fairly large number of PM stocks in your portfolio.

Last Friday’s price action in the GDX was probably the most important day since the current correction began in September. The GDX closed above the small double bottom trendline and the top rail of what I’m going to start calling a 6 point bullish falling wedge. A backtest to the double bottom trendline would come in at Friday’s low at 27.35 and a backtest to the top rail of the falling wedge would be just a bit lower. The big question still remains, is the blue falling wedge going to be a stand alone pattern and show up as a halfway pattern to the upside with the price action making new highs, or will the GDX stall out at the September high with one more decline toward the bottom of the possible trading range?

Full Report

https://rambus1.com/2019/10/27/weekend-report-191/