Well, September is over! For a contrarian trader, this month was a real tough one (I have more colorful words I will not share). The markets steamrolled through the 1100 level and kept on climbing. The Euro, against strong downward winds, scooted higher through the close today (I am short btw and argue that this will be the big trade of October). The shorts in the bond market had their way with things through the first part of the month but the bulls ended up on the winning side as of today. Crude quietly climbed higher but Natty gas refused to do so. And the sugar and wheat complexes took some big drubbings though the former bounced back.
As for my trading antics this month, my long term positions bailed out my short term moves with some steady alpha as they call it in the money management world. My trading on the other hand was not as successful leading to some underperformance and some very stupid looking trades (in hindsight of course). The bond refused to go with my permabearish view of bonds and fall in price. Today's gains though did make up for many of the losses. The trade of the S&P was well blah as I had few good opportunities and some minor profits. Sugar and silver turned out to be good trades but the volatility position turned out to be a problem till today when it broke to the upside (and I in turn closed out the position). The end result I can take from the month of September was this - I just had too much cash on hand!
So let's talk about a few things heading into the new month. First and foremost, I am bullish crude and stocks this month. While I could see the former correcting to the downside late next week, the former I think is seeing demand numbers improve heading into the heating season. A continued drop in distillates should push crude higher and with the money multiplier turning upward at last report, money is now coming into real assets as the CRB confirms. This should help crude break through the high 80s if we get there and into the 90s.
Speaking of commodities, we have seen a bona fide breakout now in the CRB. Sure silver looks extended but it now looks like it will just run over the bears on the way to the 2500 level. Gold looks like it is still targeted for the 1350/1400 level and copper remains explosive set to trade towards 385. Of course, this is all too perfect so I will just say this - I am bullish metals.
As for stocks, in looking through the charts of the globe, things look awfully bullish. A bunch of major indexes broke out of consolidation ranges this past month and some others traded through resistance and affirmed their upward trend (FTSE and CAC40). If you combine the globe's move with what I am seeing in the domestic indexes (my overall model is now fully bullish - supports momentum initially), stocks could be in for one heck of a fall. Further, we will be talking about the fed tightening versus QE whatever come March.
Lastly, I can say anything good about the bond bubble. UBS put out a report indicating that the last one standing, the hedge funds, have thrown in the towel and are now buying bonds. It is now official - I am the only person shorting bonds! My story remains the same. The stock market is very cheap relative to bonds so either we see a massive rally in stocks and a double in the multiple or we see bonds sell off dramatically and still see PE inflation. I am committed to riding this trade to fruition.
So on balance, my thoughts remain much the same as I have posted over the past few months. I think October will be about assets moving up and the fed pushing them up. Either that or everyone is caught on the wrong side of the trade and we have an October crash. I don't see the latter because the price action is strong.
Thursday, September 30, 2010
Wednesday, September 29, 2010
Pigish
The month of September in 2010 is going to be one remembered for the following; the month that both risk assets and risk averse assets both rose while one variable fell; the good old greenback. This was helped in large part to what the Fed had to say at the recent meetings about a potential QE2 and what the market is pricing in. Also, euphoria is alive and well within elements of the stock market - just take a look at NFLX's move since August 1st. While I agree with some of the moves (I believe the stock markets move higher is legit only because some normalization in PE's was inevitable though the index is still cheap), other moves have not been legit - mainly the Euro. IN short, along what I said today about the trade of the month on the short side for October will be the Euro, I believe this because the fundamentals stink. The PIIGS are in trouble and getting worse with each auction. The ECB is remaining too tight for everyone but Germany (because they are the only one's growing). And growth assumptions going forward will have to be taken down as austerity measures spread like wild fire. Oh, did I mention their "stress tests" for the banks wer ea sham?
So while the fundamentals in my opinion stink, lets take a look at the chart, which to the left, does not look entirely that bad - depending on where you look! First, in looking at the price action, we have a higher low and a slight break of a key moving average trend though since there are two more days to this week, the move has not been confirmed as of yet. However, when tied into with the PForce model below, a buy signal for the longer term is developing. Thus there is some good in the chart.
However that is where it ends because the volume measures and the oscillators, not to mention the "split decision" in the momentum indicators argue a different story. Starting with the momentum indicators, momentum1 is bullish and threatening to take out resistance. This is bullish because this is one of my most reliable models that I use for mostly everything I trade. But while this excellent indicator is bullish, momentum 2 is stuck - I will argue though that a double bottom has been put in so if the momentum2 model gets going, then a confirmation signal kicks in sending the Euro to the moon. On the oscillator side though, we are the most overbought in the Euro in several years. Add in money flow levels that are very similar to the last time we were trading in the 150s, one has to wonder if there is enough marginal buyers out there to take the signal currency higher.
I don't believe there is enough marginal buyers out there for the Euro from here. In owning Euro assets at the moment, you carry the risk that the ECB blows things up by being stubborn, credit spreads blow out thanks in large part to the issues in the PIIGS and the banks cannot withstand this compression on their books from bad debt leading to yet another credit crisis. In short, I choose to go with the overbought parts of the model before the trend and argue that the Euro is way overdone to the upside and due for a signifcant move downward in October. i have not put the trade on yet but will do so when the momentum to the upside unwinds and turns for the better (of my shorts).
Tuesday, September 28, 2010
Home on the Range
I last commented on the financials in July and at the time, the index was coming off the lows and looked like a breakout was developing. Since then, what we have seen is major underperformance and an index which is stuck in a range - one that has been in play for more than a year (except for the blip up in the spring). Today a well known bank analyst turned economist turned trader turned...I have no idea said the banks should be sold - or at least that is what she inferred. This gave the sellers a bit more ammo to short a few more shares heading into month end. In addition, I would not be surprised if the quant funds, those who love to play pair trades, are riding technology and short financials. The troubling aspect of this underperformance goes with the old adage, "So goes the financials, so goes the S&P 500). With the underperformance now showing up very clearly, does this mean that the S&P is in trouble?Well, if you were to take a more expanded look at the IYF off the March 2009 lows, the index looks very much like the technology stocks when they came off their lows in 2004. Tech and the semis went nowhere while the energy names exploded higher through 2007. Is it possible that this sector remains in the same mud that those sectors trudged through in the last bull market? Well given the regulation in the sector and the very weak lending environment, one has to wonder how the banks will increase profit margins much. Sure, if the financial conditions continue to loosen and the money multiplier starts to move upward, things might be different but till then, the profit picture here seems murky.
As for the sector, lets look at the P&F model. First momentum is turning negative with the Momentum2 model showing a lower high with the recent movement to the upside. The Trender rolled over in April with a break of the upper band and since then has basically moved downward below major trend support. The PF model actually remains bullish but is leveling off. Lastly, the relative performance by the sector versus the S&P argues that such will be weak going forward. There is some support in this region from late last year in terms of the ratio so we will have to see if it bounces. If not, then the market as a whole could have issues because the financials will be falling to a lower low.
Overall, this picture argues that banks are probably a sell at this point. The indicators are all weak and the profit picture is ugly.
Monday, September 27, 2010
Oil Stocks, Ready to Rise?
I look at stocks in various ways. One way is relative strength versus the S&P 500 or the Nasdaq 100. Another way is its relative position to its average PE ratio going back several years. The last way and probably the most common way I measure an index is against itself - which is what this example is. The example here is the Energy Select Spdr ETF - one that measures the oil stocks well in my opinion. It is a very popular ETF to use to measure the average performance of an energy related stock and as the chart shows, has been going nowhere for several months now. So with the market in a bullish mood heading into the fall, lets take a quick look at the XLE using the P&F Model that I measure the broad market with.First, lets review the index. Not shown here but the Index moved up solidly from 2004 through 2007 before rolling over hard in 2008. It then proceeded to bounce in the spring of 2009 before rolling over yet again in the early part of this year. All along two of the indicators never turned up. First, the momentum 2 model was mildly positive for a few months and then started to fall down late last year. In terms of the Power and force end of things, it barely turned up and then fell flat on its face only to stabilize over the past few months. For the most part, the index as a whole has been range bound since the highs late last year with the support and resistance lines shown on the chart. Supporting this range bound argument is the rather flat 65 week moving average which is basically in the middle of the trading range.
So is there reasons to be bullish or bearish for that matter? Well first, in terms of the index (versus looking at the price of oil or natural gas), a few things are developing for the better here. The Momentum1 model is sitting right at resistance. A push up in this sector and it will breakout. The index itself has climbed over the 65 week already arguing for a move to the top of the range. And the P&F model is marginally crawling back to resistance. However, the fact that the momentum2 model has fallen back below resistance is a problem. It has not made a lower low but the fact that the sellers stopped things right in their tracks argues for caution. As for the oil side of the ledger, not shown here, the "trender" argues for crude to move higher though you would not know of it by the latest action. The weak natural gas market does not help things though which means the index might remain range bound till something is resolved with either rising or falling energy prices on aggregate.
With that said, I am somewhat bullish at this point on the XLE. The valuation argument does not normally hold water because housing stocks traded at 5x trailing earnings in 2006 and look what happened to them. this sector was the "play" of the hedge fund world through the past decade and with technology now the momentum story, the index might have a hard time getting going. That is not to say though that it cannot trade to the top of the range which is my expectation. Thus color me short term bullish and long term neutral.
Constant Policy
Number to say this early Monday morning. I continue to like gold to the upside, silver to the upside and my sugar trade continues to roll breaking to new highs this morning. Meanwhile the gap up in the S&P was met with sellers overnight. Bonds have also creeped up towards the 132 level. Lastly, the is euro bouncing around generally been holding on to 134. Can anything great be taken from this action? Probably not but the few things remain constant.
First the S&P 500 was able to close above 1131. In terms of the monthly chart this is very important because it signifies the new high above June's high. Historically this implies that the bull market has resumed. Further with the S&P 500 closing in on 1150, a break above that level will argue for challenge of the highs from April at 1200. A break above the 1220 level argues that the 1300 level comes in to play. That level by the way is the level that is fair value for the S&P 500.
The second constant in this market is the metals rally. Gold looks like it's still targeting the 1350 to 1400 level. Silver looks like the most promising up the metals with the upside to the 2800 level still my target. I was a bit concerned about copper but it's break away from the 350s last week has relieved those concerns and now the targets look like 38 to 400. This move in copper by the way could be a leading indicator of industrial metals strength. Outperformance by a copper versus the S&P 500 could really send the US dollar downward.
Speaking of the US dollar, the fundamentals remain troubling to me. Growth is too slow. Revenue minus expenses on the governmental side is too negative. Regulation is getting in the way of capitalism. Policy from the White House is confusing. And going back to my industrial metals comment, if the industrial metals continue to outperform stocks, profit margins domestically will get squeezed and earnings will be squeezed because demand is just not strong enough to offset the fall in margins. Bottom-line we need clarity on policy; we need reduced regulation not increased; and we need to show the world that are banking system is the strongest. They should all lead to a stable dollar.
First the S&P 500 was able to close above 1131. In terms of the monthly chart this is very important because it signifies the new high above June's high. Historically this implies that the bull market has resumed. Further with the S&P 500 closing in on 1150, a break above that level will argue for challenge of the highs from April at 1200. A break above the 1220 level argues that the 1300 level comes in to play. That level by the way is the level that is fair value for the S&P 500.
The second constant in this market is the metals rally. Gold looks like it's still targeting the 1350 to 1400 level. Silver looks like the most promising up the metals with the upside to the 2800 level still my target. I was a bit concerned about copper but it's break away from the 350s last week has relieved those concerns and now the targets look like 38 to 400. This move in copper by the way could be a leading indicator of industrial metals strength. Outperformance by a copper versus the S&P 500 could really send the US dollar downward.
Speaking of the US dollar, the fundamentals remain troubling to me. Growth is too slow. Revenue minus expenses on the governmental side is too negative. Regulation is getting in the way of capitalism. Policy from the White House is confusing. And going back to my industrial metals comment, if the industrial metals continue to outperform stocks, profit margins domestically will get squeezed and earnings will be squeezed because demand is just not strong enough to offset the fall in margins. Bottom-line we need clarity on policy; we need reduced regulation not increased; and we need to show the world that are banking system is the strongest. They should all lead to a stable dollar.
Saturday, September 25, 2010
All About 5
This reversal in posture was so powerful that it did two things for my P&F Model. First, momentum broke out on two different levels with the ROC model now at a new recovery high - very bullish in my opinion. Second, the PForce model reversed the negative sell signal from a few weeks back and returned to its bull market posture. The last short period blip we had like this was in 2006 which was followed by a tremendous run to the highs in the S&P around 1500.
With the move upward again in the Pforce model again, my overall market posture is now a 5 (out of 5) which argues that the next upleg in the bull market has now begun.
Thursday, September 23, 2010
Thursday Morning Rant: Position Update
Well, thank god this month is almost over! My portfolio had a fantastic run from June through August but it has been all pain in the month of September. And I can't say I am completely surprised because the two months of the year that I have always struggled with are August and September. Whether the trading is not uniform due to vacations or back to school, I have had issues making money at this time of the year. So with that said, what are my current short term trading thoughts (which you probably can do the opposite and make money!).
In the metals area, I like gold and silver to continue their move higher. This is all about momentum and SI has plenty. Gold has been running into more selling but if 1300 is taken out, I think we'll see a wave of short covering. Silver, as I noted a few days ago, has an extrapolated target around 30 based on this breakout so the momo guys might jump in with both feet if it runs. For copper, the trend is higher but resistance here has been a bit problematic at 350. in terms of the trade, I am long silver and gold. Copper, nothing at the moment.
In the FX arena, I remain bearish the Euro and bullish Yen. For the Euro I am not trading against the current momentum so I am sitting on the sidelines. As for the Yen, I missed my long entry a few days ago so I am flat on this end as well. Even with the BOJ coming in and tattooing the Yen, the trend did not break which argues the rally mode will continue here. Ultimately I think some great shorts come from both of these trades in the months ahead.
In the softs and grains section, I bought the dip in sugar the other day and trailing with a stop. With Wheat, I am waiting for the contract to rollover. It has been range bound of late with major resistance at 745/750. The trend in sugar I believe is still upward. For the wheat market, I believe it is down.
In the equity and vol world, I am flat in the SPs and have been cutting back in my long term money in anticipation of a correction. I remain long VIX futures and the VXX and might add if the VXX breaks over the 18.50 level. In terms of trends for this vol, I believe it is still down over the long term but playing the long side anyways because it is so very oversold. On the equity front, I believe we are in a bull market with a correction possible.
Lastly, in the bond market, I am flat at the moment not choosing to fight the trend. I believe the overall trend is down in price for both 10s and bonds but at the momentum, the very short term momentum is working against that thought. Thus I sit on the sidelines and wait for the turn.
Happy trading.
In the metals area, I like gold and silver to continue their move higher. This is all about momentum and SI has plenty. Gold has been running into more selling but if 1300 is taken out, I think we'll see a wave of short covering. Silver, as I noted a few days ago, has an extrapolated target around 30 based on this breakout so the momo guys might jump in with both feet if it runs. For copper, the trend is higher but resistance here has been a bit problematic at 350. in terms of the trade, I am long silver and gold. Copper, nothing at the moment.
In the FX arena, I remain bearish the Euro and bullish Yen. For the Euro I am not trading against the current momentum so I am sitting on the sidelines. As for the Yen, I missed my long entry a few days ago so I am flat on this end as well. Even with the BOJ coming in and tattooing the Yen, the trend did not break which argues the rally mode will continue here. Ultimately I think some great shorts come from both of these trades in the months ahead.
In the softs and grains section, I bought the dip in sugar the other day and trailing with a stop. With Wheat, I am waiting for the contract to rollover. It has been range bound of late with major resistance at 745/750. The trend in sugar I believe is still upward. For the wheat market, I believe it is down.
In the equity and vol world, I am flat in the SPs and have been cutting back in my long term money in anticipation of a correction. I remain long VIX futures and the VXX and might add if the VXX breaks over the 18.50 level. In terms of trends for this vol, I believe it is still down over the long term but playing the long side anyways because it is so very oversold. On the equity front, I believe we are in a bull market with a correction possible.
Lastly, in the bond market, I am flat at the moment not choosing to fight the trend. I believe the overall trend is down in price for both 10s and bonds but at the momentum, the very short term momentum is working against that thought. Thus I sit on the sidelines and wait for the turn.
Happy trading.
Tuesday, September 21, 2010
Is Silver about to Explode?
Going forward, I am watching the current levels closely because silver has a working or did have a working double top around 2100. As this is written, silver is below the level again as the sellers are taking profits up here and perhaps there is some disbelief that silver can move this high as gold seems to have slowed its gains over the past few weeks. This disbelief should lead to higher silver prices. On the other side of the Leger, if silver fails around this level and drops down, I will be watching 1930 closely - a break of level we have a false breakout. False breakouts do not end well and a 50% retracement of the move could come into play. Also a failure of silver wil most likely weigh on gold as well and hasten coppers move down.
Housing Double Dip?
However, as the chart here shows, perhaps the housing bulls are starting to score points. The HGX which some label as a faulty measure for housing, is stabilizing around the 20 month MA. AS you can see from this chart, when it rolled over in 2006, the housing market following suit broadly and thus the correlation is there between this index and the broad housing market. If you look at the top chart, one that measures relative outperformance by the housing indexes versus the S&P 500, shows the major housing indexes just bouncing along the bottom so from a demand perspective, this does not argue that demand is rising; conversely, this does not argue for a double dip in the housing market either.
So taken together, we have stability with a slight hint that things are about to improve. I am sure now the bears will come out and tell me to "sit in the corner."
P&F Model for the NDX 100
The "market" is not just made up of the S&P 500 but also includes the other major index in my opinion, the NDX 100. The NDX 100 to me is the higher beta view of the market though with AAPL making up almost a quarter of the movement in the Index, it makes me wonder if the "beta" end of things is not as accurate as it once one. In any event, in this weeks' Power and Force update, I look at the Nasdaq 100 Index (for S&P, see previous report). In short, the P&F model for the NDX 100 is actually stronger than that of the S&P 500. The NDX broke out on the close last week (versus hte S&P yesterday) and the index features a "PForce" model that never broke down (like the S&P). If you add in the NDX/VIX model which I have commented about often, the NDX is trading on very strong footing heading into what some ware terming the toughest stretch of September to come. So without much ado, here is the rundown on the P&F model for the Nasdaq 100.
Momentum
Contrary to the caution that is showing up in the momentum end of the S&P PForce Model, the NDX is displaying both strength in the current momentum as well as the leading indicator. In fact, the breakout in the leading indicator end of the model argues for another 10% higher for the index, which is inline with the last move in the NDX 100 from the 1700 level to the 2000 level earlier this year. Adding to this is a breakout signal registering on another end of the model which is more of an oscillator but also operates as a momentum indicator.
Oscillator
The oscillator is threatening to breakout in similar fashion to April of 2009. It is right at the top of the range though which means we are at a key juncture in terms of this indicator. The R Oscillator is also right at resistance but the way it is setting up, I don't expect it to be strong resistance. So net, net, the osicillators are not shouting sell just yet.
P&F
This model wavered a bit during the selling this summer but has since resumed its upward move. In fact, the force end of the model is at its best levels in a few months. In addition, the level of the force end of things looks very strong and not easily reversible. Thus the model is a support.
Summary
So each component displays, the NDX 100 is trading in the "strong category." The bulls hold the ball and when combined with the S&P model, this argues for the bull market to continue with the 1300 level sometime next year possible.
Sunday, September 19, 2010
Inflation is on the Way
Key Juncture for the S&P
Thursday, September 16, 2010
Thursday Morning Rant
I awoke this morning in a lousy mood. Not sure why considering the sun is out and I had a relatively stress free sleep (given my current flat positioning in the trading portfolio - aside from the volatility exposure which has not been profitable....yet). Could it be the dinner I had last night? Nope. Could it be the underperformance of my investing portfolio versus the market? How about the burned english muffins? Nope though that did not help in setting the tone. The reason that I am in a dour mood is simple: I listened to the radio while on the road yesterday and watched the news on the bubblevision last night!
Huh you might ask? Well the sentiment everywhere on the economy is so bad. Ever since the flash crash, the economy has been wavering and the economic stats, at least on the headline basis, have missed or basically inline with the consensus...not big beats for the most part. And when there is a miss, get out of the way if you are a long holder of stocks! If there is a beat, such as the claims figures last week, it is shrugged off as an aberration. And this negative sentiment is not only in the biz world but also on the many other news stations - skeptics are many and believers are thus few!So in watching these news outlets and listening to them on the radio, I can't help but be on edge!
So when the press gets me into a bad mood, I go to the tape - and the tape for me is my many models for the markets. First, my net econ activity model is leveling off after a solid 2yr run (it turned up in late 2008). The CEO index jumped in August leading to an upward bias on the corporate side of things but in terms of small biz, sentiment is stuck in a rut...not really getting worse but a good deal of nothing being the current situation. If you look at the monetary conditions, there is some reason for optimism as loans and leases on bank balance sheets is turning upward. MZM is rising a bit at the moment and the multiplier appears to be stable. All in all, not double dippish but not runaway growth either.
And there lies the problem. We are not growing at the great rates of the last century. And with slowing growth comes less job creation comparatively which means that unemployment rate will take longer to fall than in the past. This will continue to put consumers on edge and spending and growth will remain mediocre. All in all, the speed of the recovery is the problem. If it were faster, then the consumer would be consuming and CEOs would be hiring.
This negativity has moved into the stock market as well. Everyone is a bear because corporate earnings "are supposed to sink" according to ______ (pick any bear which there are many). As a result, "stocks will fall off a cliff once again!" Another popular thought. We have too much debt and not enough fiscal constraint - yet another argument for the bearish argument. And now econofrauds such as Roubini and Rosenberg, both of which have permabearish slants to their arguments, are saying that the stock market is going to fall "x" because of these economic problems. These are the guys getting the headlines these days - and the reason sentiment is so lousy.
This all contributes to the continued bubble in bearishness which has lived with us ever since the bubble in stocks popped in 2000. And as long as the variables remain weak, headline wise, the econofrauds and the permabears will put forward persuasive arguments why we should fall - just as the Blodgets of the world argued way back when that AMZN should trade to $1000 and QCOM to $800. And just as the bubble in bullishness lasted a few extra years last decade with sharpe moves upward followed by "death by a thousand cuts" down, we are now in the opposite environment. Long methodical moves up and quick ones down.
Problem is the sensational is the move that is quickest and till the variables change, the radio and the television will continue to focus on the negative and ignore anything to the contrary. And that will probably lead to more burned english muffins in the morning....at the same time, it should lead to a continued bull market - sell when things get positive!
Huh you might ask? Well the sentiment everywhere on the economy is so bad. Ever since the flash crash, the economy has been wavering and the economic stats, at least on the headline basis, have missed or basically inline with the consensus...not big beats for the most part. And when there is a miss, get out of the way if you are a long holder of stocks! If there is a beat, such as the claims figures last week, it is shrugged off as an aberration. And this negative sentiment is not only in the biz world but also on the many other news stations - skeptics are many and believers are thus few!So in watching these news outlets and listening to them on the radio, I can't help but be on edge!
So when the press gets me into a bad mood, I go to the tape - and the tape for me is my many models for the markets. First, my net econ activity model is leveling off after a solid 2yr run (it turned up in late 2008). The CEO index jumped in August leading to an upward bias on the corporate side of things but in terms of small biz, sentiment is stuck in a rut...not really getting worse but a good deal of nothing being the current situation. If you look at the monetary conditions, there is some reason for optimism as loans and leases on bank balance sheets is turning upward. MZM is rising a bit at the moment and the multiplier appears to be stable. All in all, not double dippish but not runaway growth either.
And there lies the problem. We are not growing at the great rates of the last century. And with slowing growth comes less job creation comparatively which means that unemployment rate will take longer to fall than in the past. This will continue to put consumers on edge and spending and growth will remain mediocre. All in all, the speed of the recovery is the problem. If it were faster, then the consumer would be consuming and CEOs would be hiring.
This negativity has moved into the stock market as well. Everyone is a bear because corporate earnings "are supposed to sink" according to ______ (pick any bear which there are many). As a result, "stocks will fall off a cliff once again!" Another popular thought. We have too much debt and not enough fiscal constraint - yet another argument for the bearish argument. And now econofrauds such as Roubini and Rosenberg, both of which have permabearish slants to their arguments, are saying that the stock market is going to fall "x" because of these economic problems. These are the guys getting the headlines these days - and the reason sentiment is so lousy.
This all contributes to the continued bubble in bearishness which has lived with us ever since the bubble in stocks popped in 2000. And as long as the variables remain weak, headline wise, the econofrauds and the permabears will put forward persuasive arguments why we should fall - just as the Blodgets of the world argued way back when that AMZN should trade to $1000 and QCOM to $800. And just as the bubble in bullishness lasted a few extra years last decade with sharpe moves upward followed by "death by a thousand cuts" down, we are now in the opposite environment. Long methodical moves up and quick ones down.
Problem is the sensational is the move that is quickest and till the variables change, the radio and the television will continue to focus on the negative and ignore anything to the contrary. And that will probably lead to more burned english muffins in the morning....at the same time, it should lead to a continued bull market - sell when things get positive!
Tuesday, September 14, 2010
Looking at Vol
via StockCharts.com
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Gold Breakout?
Interestingly, as I reviewed my new stance on the gold market tonight, I found some troubling things for the bulls. First, as you can seen from the GLD, it has not broke cleanly above the previous double tops that exist from earlier trade in June and July. It has a candle close above those levels but not by much. In the past when I have seen such candle formations, especially if they occur early in the week using a weekly chart, the sellers emerge and all of a sudden you have a momentum reversal!
The other factor, not shown on this chart, is the divergence in my PF Model for gold. For the most part the chart is bullish and has been since roughly 2002. The power never really turned down and buyers have been constant. Sure there have been corrections along the way but nothing to really get excited about. Anyhow, there are two momentum indicators in the PF Model and as of the close tonight, one is breaking to the upside while the other is lagging badly. Given that gold has not broke cleanly past the previous highs, this market is very ripe for shorts to emerge and hammer it downward. Am I one of those shorts? Not at this point but I will be watching closely.
One more thing: On CNBC's fast money, one of the "fast money traders" made a very good point. One could make both a deflation case and an inflation case for gold. That would mean that something else is driving the metal higher and if the dollar is relatively stable and inflation is basically benign (depending on what you are buying these days), then gold is moving up on what? Perhaps the answer does not matter but if the fundamentalists cannot find an answer to own gold, the sellers might emerge sooner than later.
Call me neutral at this juncture with a close over the 1270 level by the end of the week changing my neutral to bullish and setting up a date with the 1400 level.
Monday, September 13, 2010
Stocks Lead Vol
If you tie this model in with the PF model, the Trender, the Renko chart and the PMomentum model, all four argue that the pricing action for the equity markets is higher. Thus I remain of the stance that we are still in a bull market and higher prices will be in store going forward and not an outright collapse. Collapses normally have warnings - Jeff Cooper over at minyanville.com wrote once that markets always give us a chance to get out before the bear market arrives. Thus I don't see enough to ague that the upward trend is over.
Sunday, September 12, 2010
P Momentum Model Update
Another tool in my toolbox is the "P Momentum Indicator." It is holding a bullish profile and starting to perk up a bit. With the breakout in the 24 month ROC (which is similar to what I am seeing in the PF Model), a turn to the upward phase of all four would argue for a major move in stocks. This thought is a bit early though since the 9 and 12 is only turning at this juncture and not "breaking out to the upside." Given the positioning of the longer term ROC's though, I argue that the bulls still control and any improvement in the short term ROC's would argue stocks are surging. The other side of this argument is the ROC 18 which appears to be peaking. Not sure what to make of it at this juncture but sits out there for all to see. I would be very optimistic on things though if the 9 and the 12 both turned strong to the upside taking out their running moving averages.
Power and Force
Momentum
This end of the model is bullish though the leading indicator of the model is actually bearish. So why the bullish stance? Because one end of the momentum model is breaking out to the upside arguing that the bull market is about to have another phase movement to the upside. Since the leading momentum indicator has not made a new low and is holding in for the most part, this argues that the shorter term price action, with the breakout, should push the long term momentum back into an upward trend pushing the overall market higher.
Oscillator
The oscillator broke over the 50 level over the past few weeks and this is bullish for a few reasons. First, if the oscillator remained in sub 50 territory for a longer period of time, that would argue that the downside to the market may still be in play (ie sub 1000 probably). With the bounce above the 50 level, following an extreme signal to the downside, this reversal of sorts argues that higher prices are now in order. Thus the oscillator is arguing for positive things going forward.
PForce Model
This section is holding support though to be honest, it is not super optimistic. At the same time, in the past each market correction has pushed this model to the threshold of a breakdown only to turn back upward. Since it has not broke down for a significant period of time, I would argue that the volume is about to come back in for the bulls. However, if the market bounces as the oscillator and the momentum models are arguing and the PForce does not bounce, that is a major warning of some problems to come. So I will be watching this end closely.
Summary
So all in all the PF model is bullish and arguing that we will have a strong fall trend upward. This is not priced into the current trade at all and could lead to the mother of all short squeezes. The data out of China on Friday was just gangbuster strong (though at times I have to question how much one can trust that data since it is not capitalism and more a controlled version). This could pop the markets higher and that is how I am playing things heading into next week.
Thursday, September 9, 2010
unbalanced
I learned a hard lesson over the past week that I have actually been taught before - if not fully focused on the market, do not jump with both feet into it! Yesterday, sitting on the porch of my friends island house and only a laptop in front of me (versus my setup in my home office) I decided to jump in front of the selling of the long bond following the reversal in stocks during the AM. If I had thought things through more clearly, I would have stayed away for several reasons.
First, I was not locked in and relying on one model (vs the normal 3). Second, I am of the belief that the rate markets are extended and reversing - as I posted YESTERDAY morning. Third, I had no idea of the context of the selling other than the fact that the S&P hit my overnight stop and then bounced following the market open (which is another error by the way). I did not see the Euro move upward or the Yen drop. And oh by the way, I was suppose to re-enter the SPUs order because the market opened above my stopout. So all told, by making the lousy trade in the bonds and missing the move in stocks, I cost myself a good amount of money yesterday.
So heading into the market open this morning, is my head screwed back on right? Yes because I am back in my home office to finish off the week correctly - then I head back to the island on friday to see the wife and kids. Bottomline, don't ever trade blind like I did yesterday and the day before. It will come back to haunt you if you are not prepared to trade. The markets feature tremendous volatility and one must be ready to react if conditions change to one's positions. Otherwise you end up like me, with losses in hand and an unbalanced trading process.
First, I was not locked in and relying on one model (vs the normal 3). Second, I am of the belief that the rate markets are extended and reversing - as I posted YESTERDAY morning. Third, I had no idea of the context of the selling other than the fact that the S&P hit my overnight stop and then bounced following the market open (which is another error by the way). I did not see the Euro move upward or the Yen drop. And oh by the way, I was suppose to re-enter the SPUs order because the market opened above my stopout. So all told, by making the lousy trade in the bonds and missing the move in stocks, I cost myself a good amount of money yesterday.
So heading into the market open this morning, is my head screwed back on right? Yes because I am back in my home office to finish off the week correctly - then I head back to the island on friday to see the wife and kids. Bottomline, don't ever trade blind like I did yesterday and the day before. It will come back to haunt you if you are not prepared to trade. The markets feature tremendous volatility and one must be ready to react if conditions change to one's positions. Otherwise you end up like me, with losses in hand and an unbalanced trading process.
Wednesday, September 8, 2010
For S&P, Trend still up
via StockCharts.com
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Tuesday, September 7, 2010
EuroYen...still Problematic
The trade of late has been constructive in terms of the price action but part of the trend model is worsening again arguing that the cross rate could once again move more in the favor of the Yen. However, as long as the low shown on the chart holds, the bulls should be ok and as a result, stocks should be stable to higher as long as the supports hold - and the trend model reverses course.
via StockCharts.com
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All about "W"
Generally speaking, "W" formations lead to double bottoms and a breakout to the upside or double tops and breakdowns. In this case below, the rolling front month contract of the 10 year note looks like it is failing on the breakout side of this "W" formation. If you combine such with the overvalued state of the market, a move to the bottom of the range looks like it is materializing. I am on record as saying this rate market is overvalued and this chart is evidence that the bullish fever, which has been rampant in this market for months now, is slowing - which one would think would help stocks get off the snide and move higher.
Last night on the "tweet" roll, I have a conversation with another trader about his belief that we are in a "generational" move into fixed income. I don't agree because the bull market in rates has been on for about 30 years now. The time for the generational move was closer to the beginning of the move and not near this end. Also human nature is to take risk in these markets and if stocks start to outperform versus bonds, it will just be a matter of time before those buying fixed income hand over fist will realize that Mcdonalds has appreciation and yield!
via StockCharts.com
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Last night on the "tweet" roll, I have a conversation with another trader about his belief that we are in a "generational" move into fixed income. I don't agree because the bull market in rates has been on for about 30 years now. The time for the generational move was closer to the beginning of the move and not near this end. Also human nature is to take risk in these markets and if stocks start to outperform versus bonds, it will just be a matter of time before those buying fixed income hand over fist will realize that Mcdonalds has appreciation and yield!
via StockCharts.com
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Bulls Control S&P...according to renko
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Saturday, September 4, 2010
Housing Not Collapsing
So if housing getting ready to ramp, what does that do to those who believe the world is coming to an end? A couple of things. first, stocks on balance will be in rally mode and it will not just be housing. Second, the fed is very much on the table but not in terms of "QE2" but rather rate hikes. I believe the Fed's current policy on the rate side is easy by almost 2% while on the money side could be "easier" - they are actually tightening up at the moment it appears based on the growth rates of MZM and the base.
Going forward I will continue to watch this chart closely because if the HGX wakes up and bounces past the midpoint of the channel, chances are the housing market will be following suit soon - and perhaps pending home sales data, combined with the comments out of Toll Bros a few weeks ago are the first clues of much better times ahead.
What say you Gold?
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