THERE IS ALWAYS ONE SMART ASS
I am sure everyone has a friend who always fights the tide. You have situations which appear to be clear cut yet this one smart ass always disagrees. Everyone thinks of them as a doubting Thomas and pawns him off as just being negative. However, occasionally this dissenter gets one right. Nobody ever gives him credit when this does happen and he does not care, he keeps the contrary stance come hell or high water.
Above we have the Nasdaq, which in the face of essentially a global lift off in prices across the board, has not confirmed the breakouts. All the other indexes have, and bonds as well. Gold, Silver, the currencies, and other commodities markets are in blow off phases right now. Too late to buy them but nuts to short them. Yet here we have one that has not come along for the ride.
Is this significant?
One of the things I learned from Kevin Haggerty many years ago, is that techs lead. He is a seat of the pants type of trader who watches so many different things to formulate his view, I could never come close to mastering his approach. He is one of the best traders I have ever met. However, the one thing that has stuck with me was his insistence that techs lead. If we go back to 2007 we did see at the top that the sell signals were in the Nasdaq market first. It was the shift in the COT data on the part of the commercials to a heavily short position that tipped us off to the imminent decline that followed. We have just had that happen again, while it has not happened in the other indexes. There was a recent quick move to the short side in the Nasdaq futures in the most recent report.
I have been outspoken about how I do not believe the COT report has anywhere near the effectiveness that it used to have in predicting market turns. I do still believe this in general, but I have also said there are still a few things in it that are worth paying attention to when they develop. In this case we can almost see this on the chart, less buying in this index than the others, hence why it is lagging. It is difficult to attempt to try and weight professionals selling vs government interventions to push prices upward. Supposedly by law, the hedgers should be able to have unlimited positions whereas the PPT actions which should be in the large speculator category, should have limits. This would lead one to believe that the power of hedgers to move markets should be greater. However, we have seen one bogus number after another out of the government, so who is to say the COT data is even accurate. It would certainly not be a shock to find out the government relaxed it's own rules on position limits for it's own activities in the interest of the public good, and by an "oversight" forgot to report this. I really put nothing past them at this point, and I don't think many others do either. There also might be other ways that they are operating, I honestly have no idea. I do know that I have seen enough inconsistencies to at the very least question some of the data that is being released.
The point of all of this is that we do have one potentially meaningful divergence that is staring us straight in the face here. Tomorrow we have the big NFP report, so who knows maybe that will give us the lift off in the NAZ also, and resolve this problem. However, until these recent highs in the Nasdaq get taken out, I am going to remain less than fully convinced on this rally. It does look good in almost every other way. What I will be looking to do is as follows. If today we get an up close in the Naz that does not take out these recent highs, I will be looking to short it on a breakdown tomorrow. If we blow up and out of here, I will be trying to buy the first pullback, but I will do that in the SP 500 since that is a far stronger market.
We do have very strong seasonals and historical cycles coming up that are very bullish for the stock market. If I take my every day life and other business interests, and look at what they tell me about the economy as a whole, this makes no sense. This is why I always tell people not to make stock market decisions based on this. They have never been more separated from each other than they are now.