Another Momentum Market?

It sort of feels like another one of those classic don't ask just buy markets. Straight up moves with no pullbacks, not much volatility, low volume, and lack of retail participation. I don't think too many people expected this market to be above 1360 this quickly, so its a very strong market, bullish sentiment or not. The price action has to be respected.

Tops Take Longer

There is a reason that I am not in a rush to get short. First, we don't have the price action which speaks to a turn. We only go up. Usually volatility precedes a turn, even at the top. There just hasn't been enough intraday volatility. Second, tops don't happen right away after we just had a washout with the US downgrade by S&P. Especially in a bull market. Tops take time to form. Bottoms are points. We are slowly getting there, but I'd like to see a few down 1% and up 1% days thrown in before I get more confident we've reached a top.

Looking for early weakness and a gap fill in the morning and from there narrow range trading.

Bullishness

In a recent interview, John Roque put it well, bullishness is a mile wide and an inch deep. 

Good News Fed

The biggest cheerleaders for the stock market is Bernank.  That guy is so afraid of causing the S&P to drop a few handles that he denies that there is inflation, says the slowdown in Q1 was transitory, the current food and energy inflation is transitory, but the productivity growth in the US is permanent!  Oh and that strong dollar policy has put $/euro at 1.48.  I haven't looked at the commodity currencies in a while and it shocked me.  AUD/USD is 1.08.  I thought I had the data in inverse but nope, the AUD is stronger than the USD.  USD/CAD is 0.95, so the Canadians are the ones laughing about the USD, not the other way around. 

Of course the speculators will flock to stocks and commodities, especially the PMs.  I am hoping to hear the paper napkin chartists get loud about a inverse head and shoulders pattern and the break above 1350.  That could seal the deal for the final run up to the peak.

Nothing New

Zero rates forever.  Unless we see hyperinflation, we will not see a rate rise.  Those expecting a more hawkish Fed have not been paying attention.  Remember who the Fed chief is.  Bazooka.  Banana.  Boom Boom.  Expecting more chatter of a successful inverse head and shoulders formation with a move above 1350 and a chase for risk.  Next week should be the time to get short in size.  Short crude, short silver, short ES, short all beta names. 

When Bernank decides to raise rates after seeing hyperinflation, he will set a precedent and raise in 1 bp increments to be as gradual as possible to help the economic recovery.  It should take approximate 600 years to get back to 5 % Fed funds.

Ignoring Inflation

The Fed is closing it eyes when it comes to inflation.  They are blind to the realities and use manipulated CPI and government inflation numbers to justify infinite QE.  You think they will suddenly find religion now and admit there is inflation?  Not from the Bernank.  But the game has been going on for so long now that traders have caught on and are bidding up stocks ahead of the meeting.  They know it will be the same excuses for the same policies.  Move on. 

A marginal break of the February highs could set us up for performance chasing by funds and capitulation by shorts.  We hit a new high yesterday.  A few more days of new highs should be enough to get the hesistant on board to fill up the train for the trip to downtown.

No Fear

The market loves Bernanke.  Even though many question his policies, the risk markets love him.  Traders don't want to be short ahead of another dovish spiel from Banana Ben.  But what is a bit strange is the lack of strength in commodities and the strength in stocks.  Usually they move together, especially ahead of the Fed.  This commodity up move looks tired, as does silver, which is symbolic of the whole commodity complex and hatred for paper currencies.

With today's action, I don't think the normal event trading template applies.  We don't have any fear of Bernank.  Instead, it is almost a sense of glee that he will pump up the market even more.  The Fed is now linked to higher prices, so that fear of being long ahead of an event doesn't really apply in this case.  I don't think its a buy the rumor sell the news phenomena, or the normal event trading phenomena.  I can't really game it. But I do think commodities will be lower than here on Thursday.

Resistance Weakens

Each test of this 1335-1337 level on the ES has weakened the resistance.  I can't help but think that the FOMC meeting will be a non event and based on my event trading thesis, we should see a move higher after the relief of the uncertainty.  Not that there is much uncertainty, but traders are chicken littles, and will find any excuse to flatten out positions ahead of an event. 

I don't think this gap up holds ahead of the FOMC meeting, but the next time we get back to 1336 after the FOMC meeting, we should blast through it.  Shorting is not advised quite yet.  The long side is still the safer side for quick trades.  The time for shorting will come, but be patient.

ES is Dead

We must be in a bull market, you never see days like this otherwise.  Europe being on holiday has something to do with it, but the ES intraday trading is just dead.  All our movements happen with the gaps overnight, usually up.

Europe Closed

With Europe on holiday, overnight trading was quiet and I don't expect much today.  All the action is over in the commodities, with silver futures trading more volume than gold futures, which is very rare.  It looks bubbly, but I think silver will go much higher.  So much for Goldman Sach's call of a top in commodities, that was pretty much the bottom.  Oil is back to new highs and everything is back to usual.  I don't believe that the Fed is responsible for this boom in oil and other commodities.  It's real demand.  The fake demand is in stocks and bonds, because they are being directly manipulated. 

Marginal New Highs

This market wants to reach higher ground.  The emerging markets are back in flavor and will support the market overnight.  Europe has one foot off the ledge with a "successful bond auction" so they are off the table for at least a few days.  This market is climbing the wall of worry and also enjoying the plummeting dollar.  But we're at pretty lofty levels so I wouldn't go long but it looks better to wait to short next week. 

Never Say Die Bulls

The bulls have 9 lives.  We are back near the year's highs only 3 days after the S&P downgrade scare.  It can be sickening if you are a bear.  The dips last for only a few hours and the market just lingers around the highs.  I am still bearish on this market, but we cleared out a lot of weak hands from Thursday to Monday so we're not going to go down right away.

And ahead of the 3 day weekend close to a 52 week high, the bulls have the edge intraday. 

What I Suspected

The market couldn't power through and maintain new intraday highs.  The market is showing its true colors.  There is too much speculation in commodities with a lot of dollar bashing.  Equities have been lagging crude oil and gold during this leg up.  That was not the case from November to February.  As I write, silver is plummeting after making a parabolic move.  We may just have seen a bottom in the dollar today.

A short at current levels is probably going to be in the money by the end of the month.  It is just a matter of perfecting entries now on the short side, which is why I'm waiting.  But I don't want to wait too long, because this market looks vulnerable.  I may start shorting tomorrow or Monday.  

Monster Gap Up

The pattern has usually been for big gap ups to have follow through and make higher highs intraday but that pattern has been broken over the past month.  Since we're gapping up where there is a lot of resistance 1325-1328, I don't see us powering through to new intraday highs.  If we do, that will be a big sign of strength.  It is too late to chase, I am just going to wait for a good shorting opportunity, as I believe the next 50 points will be down, not up. 

INTC Blowout Earnings

The crowd is leaning the wrong way heading into today's earnings.  The expectations have been reduced significantly over the past week after the stinkers from AA, GOOG, BAC, etc.  Now you have INTC blowing out the earnings expectations and IBM/VMW coming in strong.  This could have a dramatic shift in risk appetite for the next few days.  Monday's S&P downgrade of the US cleared out the weak hands and the past 2 days' intraday action speaks to underlying strength in the short term.  This could drag out to next week, which could set up an exquisite shorting opportunity.  But I don't want to get ahead of myself and will let the bulls go wild for a bit.

Kicking Cans

There will be no fiscal discipline or monetary discipline in the US until the market demands it.  That is not going to happen under the US dollar being a reserve currency.  Only when the dollar loses that reserve status and you have a currency crisis will you start getting religion on balancing budgets and monetary restraint.  This is all a show.  S&P is a bunch of clowns.  Anybody expecting austerity or rate hikes any time this year are dreaming.  Dreaming.  The US will test the market's limits until there is a crisis.


Expecting midday weakness today, we may test the low 1290s once today but it should hold. 

Are We Downtrending?

Is this just a pullback or are we now in a new downtrend?  It is a fair question because there are two very divergent paths.  We either bottom this week and go back up sharply or we just mill around and keep milling around and then drop again.  I am not sure exactly which way it goes over the next two weeks, I am confused at this juncture.  But in either case, a return trip to 1250 seems inevitable.

Back to the PIIGS

The yields are starting to blow out again among the pigs.  Greece, Portugal, and Ireland don't matter.  They only matter if it infects Spain yields, which are near new highs.  But this market is at a tricky spot here.  We have already pulled back and earnings expectations have come down over the past week.  That is a positive for the bulls.  But in the intermediate term, we've got the end of QE and the sell in May phenomena that will be a psychological headwind in a few weeks.  Also Europe will continue to be a drag and bearish headlines can come at anytime from the PIIGS.  The bears have the edge overall, so gun to head, I would rather be short than long.

Flood of Earnings

Next week will be the main week of earnings this season, with INTC, AMZN, IBM, etc. coming up.  After the selloffs in AA, JPM, GOOG, and BAC, the decreased earnings expectations and skittishness ahead of earnings is palpable.  I don't expect a selloff on big boys' earnings next week.  We should have a relief rally as these earnings come in and don't disappoint.  This week cleared out the weak hands.  Next week will bring back the underinvested who sold ahead of earnings.

Mixed View

In the very short term, this market could bounce back and rally because we are now oversold but in the intermediate term, I believe we have more work to do on the downside and expect a retest of 1250.  So I will tread lightly here.  I have gotten rid of longs and will wait for a good shorting opportunity.  I don't want to go long here trying to pick up dimes in from of the coming bulldozer.

No More Vs

The era of the V bottom is over.  We have gotten to price levels on equities where the demand is being met with supply.  What you saw throughout 2009 and 2010 is a different market.  Stock prices were relatively low and many were underinvested.  But now, at prices which seem overvalued to these eyes, you cannot have faith in stocks bouncing right back and having a V bottom every time we go down.  It is going to be more measured upside and more frequent downturns.  A two-way market. Expecting the bounce from yesterday morning to continue to mid day today as we have options expiration. 

Gap Up Signal

If the market closes around these levels at 1312, I expect a gap up tomorrow.  GOOG earnings are coming out after the close but it shouldn't make much of a difference either way.  The market got quite oversold today and usually you get at least a 1 day bounce back effect which started mid day today.  The liquidation in the commodities complex is over and that is helping equities.

This Selloff

Longer than expected selloff the past few days.  It doesn't mean much in the short term, but it does have negative intermediate term implications.  Intermediate term being 1-2 months out.  The market needed to cool off after going up in a straight line from the bottom on March 16.  But markets usually don't go straight up and then straight down.  There should be some more trading in the 1300-1330 range as earnings come in before we make the next big move, which I believe to be down. 

This week looks to be profit taking based on lower oil and commodities and in front of earnings where many think the bar is set high and will be hard to jump over. 

Europe Outperforming

It looks like Europe is just sold out.  It has gone down very little compared to the US in this latest pullback.   There is so much skepticism about European growth and sovereign debt worries that there is NO hot money there.  Rather, there are probably hedge funds shorting Europe to hedge their long US and EM exposure.  The past few days have shown us the cards which I suspected.  Hedgies overexposed and overweight commodities, especially crude, and other commodities, as well as energy equities.  They are underexposed Europe, the yen and euro, and believe it or not, silver.  Silver has been a stalwart during this pullback, hardly budging. 

The euro should have sold off with crude getting crushed but it didn't, a sign of a very strong market.  We are gapping up healthily today, expecting upside today, the liquidation is over with.

Collateral Damage

What you saw in the crude oil pits was capitulation.  The speculators all tried to squeeze out the door at the same time and today is what you get.  The selling spilled over to the stock market.  Asset classes are related, and when hedgies feel the heat on their crude position, they lighten up the load on their other inventory.  Its collateral damage.  Over 500,000 contracts traded in NYMEX May crude futures, that is way above the normal volume of about 300,000 contracts on the front month.  It looks like a Liquidation Tuesday, expecting a strong rebound tomorrow intraday.

Gapping Down

Alcoa is trading down in premarket as the first to report earnings disappointed.  This market was ready to pullback and it has done so.  Odds favor going long here on this gap down, and I am pulling the trigger and buying the gap down, expecting intraday strength.  We'll probably be going up for the next 2 days from this point.  Some gaps are being filled with this move and we should move higher as the earnings come in.  Expecting a retest of the highs of 1336 later this week. 

Oil Down, Budget Deal

Why are we only up 1 point in the futures, well off the overnight highs?  Oil is down over a $1, no government shutdown, all good news right?  I can't explain it except that this market is exhausted on the upside and wants to pullback here.  Often times the strongest moves are the ones that no one expects.  Expecting weakness today. 

Gap Down Signal

I am getting a gap down notice from my system.  I don't think the government shutdown will matter, this market wants to go lower in the very short term.  We finally broke down below that 1325 level of support and a gap down on Monday will probably be a slam dunk buy opportunity. 

Dollar Downtrend

The dollar has been in a 10 year downtrend, with a deep pullback in 2008.  Obviously there must be a lot of dollars floating around.  A weak dollar is obviously good for the stock market right?  Well it usually is, but sometimes when it gets so extreme and pulls up the price of oil, it's not.  That pullback to 1250 that I forecasted could stem from the weight of higher oil.  Today, it looks like we are just staying in that narrow range from 1325 to 1335.  Overall, it's bullish action because this market is very reluctant to give back those gains over the past 3 weeks. 

First Dip

Remember, when we've had a straight uptrend for 3 weeks, the first signficant dip usually gets bought.  This is the biggest intraday down move we've have since the bottom on March 16.  There are a ton of dip buyers lining up to buy weakness because they haven't had the chance to get in.

I would not try to play it short today, if anything, I'd be an intraday buyer. But since my intermediate term view is down, I will not be playing it long today except for very quick scalps.

ECB Rate Hike

We are rallying in the premarket with the 25 bp rate hike from the ECB.  It was expected, but the European markets are rising on the news.  The overnight rallies just don't stop.  I figured we were due for a gap down but you don't win betting on gap downs in a bull market.  You get crushed that way. 

This gap up probably makes the intraday trading today a snore fest.  So just watching here. 

Inflation is Transitory

Banana Ben has declared that inflation is transitory.  I guess he hasn't looked at a 10 year chart of crude oil, corn, cotton, gold, copper, etc.  Are those uptrends transitory?  The lies coming out of the Fed continue so they can pump up everything in sight.

I wonder what a chart of medical costs or college tuition looks like over the past 10 years.   Looks to me like deflation was transitory, as it lasted all of 6 months from October 08 to March 09. 

But ipad and iphone prices aren't going up, even with added features, so we have to worry about deflation!

Ready To Breakout

We have consolidated for 3 days in this 1325 to 1333 range on the ES and with the way this market trades, that's enough time to springboard to a newer higher price zone.  Fresh new highs look to be on the horizon as we don't have the ebullience and complacency that you see at many tops.  The demand for US stocks is insatiable, it is leaving behind Europe and Japan as the only place to go for developed market stocks. 

Another gap up is going to make the fund managers shake their head for going home flat to "control" risk.  They are only controlling their upside.  The gap ups are endless and happen almost daily, even with a weak Japan and moribund Europe.  What a strong market!

Rate Hikes and Downgrades

Anytime there is a Chinese rate hike, buy stocks.  Anytime there is a ratings downgrade of one of the PIIGS, buy stocks.  I wonder what the profit ratio of that strategy would be looking at 1-day, 1-week, and 1-month forward.  I bet they would be wildly positive. 

Technical Analysis is Not for Me

I am not particularly fond of technical analysis.  I will mention support and resistance levels, because they matter, but you will rarely hear me mention double bottoms, head and shoulders, pennants, wedges, etc.  I don't draw trendlines.  I think trendlines are useless.  I will look at charts to have a quick visual look at historical prices.

There are many ways to make it in this game. To me, TA is mostly noise.  Maybe TA worked well in the long distant past when there weren't so many chartists out there but I don't think you can get much of an edge now.  Everyone looks at the charts now.  When most traders get the same intrepretation from analyzing charts, what makes you better than them?  I've based my method on price action, historical pattern recognition, being contrarian, and long term fundamentals.  If I knew how to program systems, I would do that as well but I am in no rush looking into that.  HFT and quant funds have a big edge on me there.

We finally have a gap down but it is limited.  If the market dips down to 1321 or unlikely, 1315, it is a strong buy down there.  We are not going down in a straight line.

Distrust

Anectdotally, it feels like not many people trust this rally to last and most expect a pullback soon.  It amazes me how many skeptics still abound in this market.  I guess that is what high unemployment will do to the crowd, even if things are improving.

Time for Consolidation

We have another gap up here.  When are the overnight shorts going to learn.  Probably when its time for brown things to hit the fan.  I just can't picture this market going up like a moon shot to new highs unless its a terminal move in the long term trend.  And odds are usually against a move being terminal because it only happens once every few years.  I will play this like its a consolidation before we take another bath down to 1250.  We could get there by May, but not before some tight range trading for the next 2 weeks. 

This week looks to be boring, so I probably won't be posting much this week unless we see some volatility.

Reaching Saturation

I understand why we would selloff yesterday near the close but today was a surprise.  An ideal nonfarm payrolls report and a good ISM, with bears on their heels heading into the weekend facing another potential Monday morning gap up.   And we still sold off in the final 2 hours.  The way stocks trade on a Friday afternoon tell you a lot about intermediate term direction.

As we go higher, each point gained takes more effort by the bulls, as the market lacks the strength that it had earlier in the week. 

It looks like I'll have to get moving on my plan to get short.  Now I don't see much more upside from current levels and I want to get on the train before it leaves the station.  I see at most 20 points of upside from here but 80 points of potential downside to 1250 SPX.

Dip and Run Comes Back

That all familiar intraday pattern from 2009 is making a comeback during the past 2 weeks.  We have had gap ups almost everyday since the bottom on March 16, and the intraday pattern has usually been to dip in the first hour and then squeeze higher into midday running off big chunks of points and killing the bears.  This is a classic pattern from the 2009 days and it bodes to underlying strength as well as a group of investors fleeing at the first sign of weakness only to have seller's remorse.

Things that often get mean reversion traders killed is shorting V bounces thinking stocks are overextended, and overbought when they only end up getting more extended.

We are in a raging bull market, and you have to have perfect short entries to make money on the short side.  And the money made short will only come in flashes and big chunks like flash floods in a desert.  If you aren't completely dedicated to shorting, it is hard to make money on the short side in this kind of market.  The opportunities are too few and last for only a few days. 

Still Constructive

A small beat with the NFP.  We are short term overbought but the price action speaks to super strength and with it being the first day of the month, forced inflows of long money is going to pour in today.  I would not try to fade the strength unless it gets absurd today.  Trying to top tick this rally has been futile.  Areas that I am looking for a possible stalling of the strength is 1335.  I don't want to overanticipate a pullback because we're probably not going to come crashing down anyway.  It will take several days for the longs to get as much as they want buying on any minor dips before we can be set up for the pullback.  Expecting strength in the first half of the day, and then who knows.