TO BE OR NOT TO BE?

I mentioned in yesterday's commentary that we needed to see what the commercials were doing in the COT report to determine if this dip was a buy or not.

This question has been answered with a resounding yes, it is a BUY. I have highlighted the prior times we have spiked up into buy territory with my Hybrid Commercials indicator here. You can see how well this has worked. The only time it was incorrect was when we were in a well defined downtrend. This always has to be viewed in the context of other things, it does not stand alone.

There is one thing we have to be careful of with this. At times there is a COT pattern that develops where commercials switch their activity very quickly during a trend reversal. This gives very misleading indications. In this case they have switched very aggressively to the long side on a very small retracement. It would be better for a large retracement to feature a more gradual accumulation by them. We never know unfortunately when this misleading pattern is forming. The way to judge it is if the support levels that bounces occur from fail, even in the face of big commercial buying.

I do expect that this is what will happen here, but for the time being we need to be looking for long side action. That does not mean buy at the market, it means look for triggers for long entries with whatever it is that takes you into trades. The GDP number is so laughable that I cannot believe anyone can deliver this type of information without a snyde wink or something. There is almost no positive activity when you move away from the government sector. All these great earnings reports again that we are seeing, are very questionable to me to say the least. It seems to be more of the same on Wall Street. Bogus reports that lead to big bonuses, average Joe left in the lurch.

They are calling the PGA tour square groove controversy Groove Gate, they should call the earnings skit Bonus Gate. Make no mistake about it, I have no axe to grind either way. There is nothing to be gained by just bashing the economy. We are all better off if things are truly improving, I just do not believe anything these guys tell us anymore. If we can have a State of the Union where our own president can just lie repeatedly, why in the world should we believe any of these other statements that come out from lessor people?

As a result, you cannot make your stock judgements based on your assessment of the economy, they are independent of one another. You have to cast that notion aside. This is where technical analysis comes into play.

Once again referring back to the above chart, we also see the vertical dotted blue lines which are cycle dates. We see one approaching here in a few weeks. Generally we look for reversals in price at these lines. Whichever way price is heading coming into them, look for signs of it reversing. You can see the Bradley Model calls for a high in Mid Feb, and the Will Go Long Term also indicates down action to begin about then. These are both directional in nature, they are not reversal indicators, they say specifically down.

Next we have Larry Williams projections for a Mid Feb turning point. It shows to be up, but can be inverse if we are rallying into it. When I put all this together, it tells me to look for a bounce for the next 2 weeks that could form a significant high leading to a large decline. I will not trade as if this is etched in stone, it is simply a possible outcome. What I would want to see is Commercial Selling on the rally to flip my Hybrid indicator to short on a rally in the next few weeks. In the mean time I am looking to the long side for entries but having a hard time finding them in all honesty. Below is a typical chart look in the SP 500.

This is Coca Cola, and typical of the downtrends we have in individual stocks. There are some possibilities I can see for how this could develop into a buy but not right here. So many charts look like this or worse. It is looking at individual stock charts like this that has kept me from buying into this decline so far.

You can see above that the Dollar is off and running. I hope all the amateur economists at the water coolers are enjoying eating their crow over this one. In general this would be supportive of stocks. However, the unwind of the carry trade is likely behind this and that is in reality not good for stocks. We have alot more to go in this market in my opinion, likely going up for the rest of the year here.

Have a great weekend, more next week.