THE 4 CURRENT ISSUES OF THE MARKET THAT SHOULD BE KEEPING TRADERS UP AT NIGHT
Here are a few items that traders need to keep in mind as we move through December: - Yes, it's a bullish month. However, keep in mind that is the back end of the month that is bullish. The front end (up to the 20th roughly) isn't all that spectacular. With that said, it should become a glaring problem that we are now sitting at such lofty levels during a time period that has typically led to mediocre results. How will the market prepare itself for the buying frenzy that is the final two weeks of the year? A month long run, with an acceleration into month end seems a little too overenthusiastic given current circumstances. - Why were the metals so weak today? Gold especially has become a leading indicator of sorts for the market. While the S&P 500 kept moving down through November 28th, gold was basing from the 22nd, indicating that the equity world was overreacting. While everybody was running for their lives in fear of the S&P breaking 1000 in early October, gold has already been basing since the 26th of September and didn't seem the least bit worried. Now gold is rolling over, well ahead of equities and well below its October/November highs. A firm negative. - Treasuries remain much stronger than I expected. If we are about to get a year end rally, why isn't the big money moving away from their fixed income exposure? If Europe is on the verge of a real solution, why aren't large institutions willing to put risk back on? - If Europe is about to find a solution through this most recent summit/agreement, why isn't the Euro front running the news in anticipation? Are you telling me that one of the most liquid markets, with some of the most deep pocketed participants aren't interested in profiting from such an event? Instead the Euro is sitting near its yearly low at 1.32 just inviting buyers in and keeping away sellers that think a solution will cause a pop up to 1.36. Markets pin themselves to the ground for a reason. It's typically to avoid the bus they see...
SHORTED FINANCIALS TODAY: HERE’S WHY
I took a mid-sized position in FAZ today. I have explained the trade from a price action perspective below. There are also reasons that go beyond price action, including current sentiment, potential news flow and seasonal cycles that are at issue here. I focus on price action because that is where I look first and foremost. click chart to...
DECEMBER 5th: PORTFOLIO POSITIONING
During the trading today I tweeted the following: I now have a large amount of short exposure via SQQQ taken on Friday and FAZ taken today. I will explain the reasons behind the FAZ trade in my next post. These are trades that I plan on holding through the end of this week and possibly into next week depending on how the market...
THOUGHTS ON A SHORT-TERM PULLBACK AND DECIPERING THE MARKETS TRUE CHARACTER
There were a number of factors that were of short-term concern during Friday's trading session: 1. I have pointed to the S&P chart showing the reaction to the intended trajectory point of the market being similar currently to the October time period. The correlation did have us experiencing a higher close on Friday. What the market did instead was put in a fairly significant gap reversal. I have found that when correlation patterns deviate in this manner then the potential for a failure of the pattern is great. Of course, it's not guaranteed to happen. Nevertheless, it is a warning sign that odds are in favor of a breakdown in the correlation and your guard should be up. 2. The behavior in bonds while not being the perfect leading indicator for the equity market is a fairly reliable one. The move back into the ultimate safety asset of long-term US Treasuries on Friday was significant. It caused me to exit my long yields position in TMV. The move seems to be a precursor towards downside volatility in the coming week. 3. Commodities joined along in the reversal, with the CRB Index bouncing off of a significant resistance level on Friday. Weakness in commodities is another indicator I like to look at to confirm market strength or weakness. It is following along here. A short-term negative. 4. This falls under the commodity category but is worthy enough to mention on its own: gold and silver. The metals seem to be in the mood to turn around or at best consolidate sideways for sometime. This also confirms a short-term top for the equities, as the metals have been tagging along with the equity market since the October bottom. 5. The rally in the Euro has been suspect the entire week. On Friday it confirmed the fact that it is, in fact, an imposter. The reversal that took place ahead of another important week of European economic policy tangling is the biggest problem of all for the market here. If the Euro couldn't retake 1.35 on global central bank, coordinated, economic intervention week, what is it waiting for exactly? If it knew the answer I would think it would be front running the solution. The king of the European savior trade is equally as confused to the result of the Euro mess as everybody else it seems. 6. The European indices look like they are ready for a breather. The extent of their respite is entirely dependent on what the Euro does or does not do in the coming week. At best, the markets are due for a consolidation here, with a...
DECEMBER 2nd: PORTFOLIO POSITIONING
During the trading day Friday, I tweeted the following: I took a decent profit in TMV after the reversal back up in bonds went up much more than expected on Friday. This isn't an environment to become complacent with profits since they tend to disappear overnight. Towards the end of the trading day, I opened a mid-sized position in SQQQ. I'll be providing the chart analysis behind this trade tomorrow. It's a short-term trade that will, in all likelihood, be closed out before the end of next...
ON THE SUBJECT OF GAPS AND TRAPS
Traders are gap happy. By that I mean that every trader out there sees the enormous gaps down below in the major averages and figures that they have to be retraced here. That means that as soon as we start selling off, everyone will jump on the gap retracement bandwagon and the gap retracement simply won't happen. Those gaps below the market are a liability to the bears here as they are a glaringly obvious technical gravitation point that will inevitably destroy those who try to take advantage of it before it actually retraces. Of course, next week the Europeans could drop the ball again and we simply gap down right through the gaps before anyone can take advantage. If we do retrace those gaps quickly, as almost everyone expects, then that will probably how we do it. Do not, however, expect a clean retracement of both gaps, followed by a rally back up. That's ABC market behavior from years ago. Throw away your old textbooks about the market. None of them apply any...
AN UPDATED S&P CHART SHOWING THE SIMPLICITY OF THE MARKET HERE
The first chart is the S&P chart from last night's review, in case you missed it. You need to understand last night's chart in order to understand what I have posted tonight. click chart to enlarge