BACK TO WORK
I am back from my trip and now it is time to get back down to business.
There is something very interesting going on here that I think is quite bullish overall just for trading in general not necessarily in a directional sense. These ludicrous intermarket correlations appear to be finally decoupling. Since these were all an outgrowth of the financial crisis it may mean that things are actually firming up on that front but I really don't care about that in all honesty. It certainly will make trading easier if markets just return to their own fundamentals and not have everything key off stock prices. This development would just open up the potential to be able to trade with more diversity.
It one sense it has been easy because all you have really had to do is trade everything in the direction of the stock market, but it is has messed up leverage. It made every trade basically the same, so managing risk was difficult. I like to trade 4 or 5 things at once risking 2% in each one. This way 5 different markets all have to go against my position at once to have a drawdown of 10%. In the last 2 years you could not do that. If you put on 5 trades you were basically risking 10% in one trade because all the markets were so highly correlated. I will never risk 10% of my account in one trade, EVER!!!
This chart has the SP 500 with Gold, Oil, and the Euro overlayed in respectively different colors as per how I have labeled them. You can see that oil is still sporting a very tight correlation to stock prices, but the Euro and Gold are now diverging significantly. Just in general this tells me the "worry" is coming out of the market. In normal times we would look for selloffs in stocks to occur when the worry is gone, and the VIX generally tells us when that is happening. Let's look there to see.
You can see this still looks basically the same as it did when I posted this a few days back, although it is actually a little better. All of these indicate a sell setup for the stock market, remember buys in the VIX are sells for stocks, they generally move inversely. The buy signals have moved along a bit more in confirming an uptrend, which is a sell for stocks. This is a short term signal, there is no way of knowing if it will work, or if it does will a big or small move happen. You just trail with stops and see where it takes you. One thing to note, failed sell signals can be very bullish and we are at this point on the verge of this signal failing. We seem to have returned to the light volume creep upward days again, so I would look for other confirmations for any sell signals. The uptrend has clearly resasserted itself in stocks.
I still have not taken any short stock or stock index positions during this recent move.