System Stock Trading Strategy

About this blog: 
The canaries provided early warnings of a cataclysmic change in a mining environment.  My technical indicators can show early warnings of changes and enable risk reduction from a probabilistic standpoint.  However, their success is not guaranteed as the world is not linear - just because something has not happened before does not mean it cannot happen now.  Likewise, just because something rare did happen recently doesn't mean we should constantly look for that to happen again in the near future.

What type of cycle we are in:
Paper investments (bonds, equities) or hard assets (commodities).  These typically alternate due to alternating supply and demand and the corresponding investment trends.  No one wants to supply goods at low prices.  When raw materials prices are high, a lot of people want to provide those goods, increasing supply.  High raw material prices cut into primary consumer / reseller profits.  As investment goes one way, say into bonds, needed investment in commodity production disappears, cutting supply over time.  However, as prices begin rising in commodities, a switch cannot be flipped to increase supply because it requires capital investment, exploration, setting up factories - all of which require time and money.

Essentially gains in anything are the result of more "capital" chasing a fixed amount of goods.  Modern "capital" isn't really hard dollars, it is credit.  Bert Dohmen's book is really what converted me into believing that this is more important than anything.  I saw it first hand in 2010 - when QE1 ended and QE2 began.  So, it is important to watch credit markets to see when it is becoming scarce.  I like to watch $LIBOR, the US Yield Curve, $TED, commercial paper, municipal bonds, and monitor what all central banks are doing.

Technical indicators:
Liquidity can override these, but they useful for gauging how irrational the market becomes to either side.  Breadth indicators, such as the two McClellan indexes are the basis of most of my decision making.  My homemade indicators can also help tell us how much "chasing" is going on in a certain direction.  I typically fade chasing.  Overall, technical indicators can reveal underlying trends that mainstream indexes don't show.

Political policy:
Although I do have opinions in this area, a lot of it is useless for making money as the above three trump it.  A few exceptions include stimulus type programs such as cash for clunkers or the home-buyers credit.  I won't comment very much on politics within my blog unless I can see some of the unintended consequences of the actions.

Fundamental background:
I have unfortunately discovered that most stocks do not trade on macro fundamentals, such as unemployment, at all.  I do pay attention to individual corporation based fundamentals like EPS, book value, revenue growth, profit growth, and what they do in relation to the paper/real cycle etc.  I don't post very much on individual companies.  I prefer getting the macro view right so don't expect "tips" very often.

Cut losses.  Minimize active trading.