LOOKING FOR ACTION
One of the things we know about trading and life in general, is the rule of alternation. Bad periods beget good periods, calm begets wild etc.. In other words there is a cyclical nature to most things from one extreme to another. In this case we have had very low volatility for an extended period of time which is typical of bull markets. The ETF for the Vix is the VXX. Although this has it's limitations, it is the best thing I know of to play volatility. I am betting on volatility picking up some, so I went long in this ETF yesterday. I was asleep at the wheel and did not know my orders were even filled until late last night. Of course the odds on even one single down close in stocks are not good right now due to the incredible run we are on, but this was a valid setup for me so I pulled the trigger. The odds are even lower with the PPT manipulating prices around Barry's legislation pushes on things.
One thing to also note here is the Flat Lining of the blue line in the first pane. This confirms what price obviously does, a very strong down trend. Until this trend breaks, stocks will not break. We got a gap up open here this am which all else being equal I would have exited due to the downtrend, but it did not meet my ratio requirements of $won to $risked, so I decided to just stop below the low and let it play out. As I listened to Barrys 9 millionth script read this am, it became very clear to me he is laying the ground work for the VAT. That will be an economy killer when he pushes that through after the mid term elections. If they can get the economy humming enough by then for it to be able to take the hit this will bring is anyone's guess.
Bigger picture though, it will definitely be time to look to allocate most of your money outside the US if this happens. I do not believe there is any way even the PPT can keep this up in that circumstance. However, we have plenty of time before we reach that juncture. I continue to believe that although the trend up in stocks is very strong here, this is not a place to allocate new money on the long side. It is a time to reduce long side exposure. We are starting to see the list of stocks with ADX > 60 grow. Along with that, many individual stocks are now exhibiting blowoff patterns. This is not sustainable and will not hold. I do not know how much farther we push before it all comes down.
After listening to a conversation on CNBC this morning with Bill Ackerman, and at the same time thinking about Paulson and the money both these guys made, the plan is obvious. Determine where the bubbles are, and position yourself. There will be some big money to be made when the stock bubble and Metals bubbles burst. I do not know exactly when this will happen, but here is a quote from legendary trader Bruce Kovner. "You need to avoid crowd judgement." Just think about where everyone is leaning one way, and that will be where the opportunities for a big move the other way will be. I am not sure stocks are quite there yet, the sentiment indicators are not extremely bullish. However, when you see individual stock charts like the AAPL chart I posted previously we are getting near. Also here is one that to me is even more telling.
This is Whirlpool and not a stock that trades like a tech stock typically. This is a top not a buying opportunity when you see old style boring companies start to trade like this.