BUSINESS AS USUAL
Our light volume government sponsored rally has resumed, all is good again. I will lay out the case for a peak occuring right about now but until there is confirmation of a trend change, THERE IS ABSOLUTELY NO REASON AT ALL TO SHORT THIS MARKET JUST BLINDLY HERE. Lets look at some charts and delve into why it is possible for this to come to an end here. I want to first make it perfectly clear that I have not done a short trade in stocks in the last few weeks, and won't likely do so until I see some of the patterns I use show up tying into some of these other things I will discuss below. You have to be careful with these low volume creeping markets, they can just grind you to a pulp if you try and fade them blindly.
Here once again is the weekly SP 500 chart with the Bradley Model and Larry Williams Will Go as well as the net cot positions. I also have the cycles that have been the most dominant in price marked with vertical blue lines. You can see we are right at one of these, with the Will Go indicating down, right at a time when the Bradley model also is indicating a peak. The mid panel which shows commercials does indicate selling but not an overly bearish amount. As I have discussed in here recently, the COT data has been essentially worthless in recent years with this market. As a result that has very little meaning to me, it is just on this chart already and I did not feel like deleting it just to post it here.
As a result, we do have some things going on here that indicate we could see a possible peak here. Let's go now to the VIX to see what this adds to this.
This is about as good of a buy setup as we can have for the Vix which would be a sell for stocks. We have the momentum oscillators all indicating an uptrend with price falling, so a divergence. We have a potential higher short term low in the Vix itself and RSI approaching the buy zone. Buys in the Vix are sells for stocks.
This is a short term setup good for 3 - 10 days generally. I will be looking to play this on Monday in some form via futures, stocks or a few other things. Next is what I consider the payoff pitch here. Look at what a beautiful buy setup we have for the US Dollar right here on the weekly chart. As I have mentioned in here, stocks and the dollar are trading inversely mostly due to the carry trade. However, historically the DX has generally positively correlated with US stock prices. It would not be normal to look for a Dollar buy signal to confirm as stock sell signal. I think most of you must have noticed, things are not normal right now. We need to be mindful of what is currently happening, not what should. All you Gold buffs know I repeat this over and over. Theories about what should happen are one thing, but life is not always predictable. We have to be aware of what is currently correlating and be mindful of it until it no longer is happening.
As much as I want all these ridiculous correlations that are in place to get lost, they are still here and although have shown some signs at times of decoupling, the trend is still for them to remain in place. Following that logic, a Dollar buy signal at this moment would be bearish for stocks even though historically that would not have been the case.
So if you look at everything collectively, we do seem to have several things lined up for a stock market decline. We have a big uptrend, so it all depends on your style and time frames you work within, as to what you will do to take advantage of this. I trade short term, so it is time for me to look aggressively for something here. It is also why I took profits in my EURO long yesterday. If I am bullish on the dollar I sure do not want to be long the EURO due to the inverse relationship those two markets have.
Here is the other trade I made this week, due to travel I was not able to post this setup in Coffee, but I am sure you will be able to see how similar it looks to alot of my trades. I don't get creative, I look for the high probability setups I have and trade when they show up. Alot of my trades look the same, so be it. I am not a painter trying to be creative and have each work of art look different. I want them to all look the same and make me money, pretty simple. You can see the momentum oscillators indicating the trend had turned up before price, then we had a huge divergence in the accumulation indicator ( purple line ). Once that setup is in place anywhere, I start working my bar pattern setups for an entry. I exited this trade due to it being the 5th day in it and the market really still being in a downtrend. I did not want to overstay my welcome. It may not look like much, but it did make me a little over $12,000 so not too bad for a few days work. You can see the market did reverse later in the day after I exited, so it appears my exit here was a good one.