AGAINST THE WIND
It is tough to go against the grain on things, you always run the risk of being the village idiot. The only person I can think of who has been bearish on stocks has been Bob Prechtor, and he has been dead wrong. Of course his approach is so long term, that 1000 Dow points don't really matter. You have to take positions if you trade with Elliot Waves and hold them through hell and high water constantly. I suppose it remains to be seen if he is right or wrong on his big picture calls for DOW sub 4000. If you remove him from the mix, and then possibly Glen Ring, another long time newsletter publisher, it is hard to find a bear out there.
It does you or nobody else any good to be bearish just to be a smart ass. That will make you the village idiot and poor, a bad combination. You need to base you views on the techniques you use to determine how you should position yourselves in the market. The unprecedented government takeover of the stock market has caused alot of problems. First, it has created these annoying correlations where everything trades one way and the dollar the other. Of course we have our crazy uncle Natural Gas that never got the memo, that goes it's own way regardless of all this other nonsense. For the most part everything trades in the same direction which make diversifying trading impossible.
Many techniques that have worked for a very long time have given several false directional calls due to the takeover of the stock market. Judgement is required more than ever, and that is a slippery slope. How and when to weigh what artificial interventions might occur and what they will do to prices, is such an arbitrary call that it is not recommended. So what to do?
First, I think we have to mostly focus on the Dollar/Stock relationship. It is impossible to know which wags which, and I don't really care. It certainly appears to me, that stocks move first, then the currencies follow just by watching tick charts. However, many argue the other causal relationship. It really does not matter, all you need to know is that they trade opposite. If you are bearish on the dollar you should be bullish on stocks, and vice versa. There will come a time when this ludicrous relationship will revert back to it's old ways, but it does not appear to be on the near time horizon. We have to accept what is currently happening, not what should be happening.
With all that in mind, the chart above is the daily chart of the Dollar Index. This is a clear break out to me of the downtrend, and all dips are buys. The momentum oscillator is climbing far ahead of price, which in general with a few exceptions is what we want to see. We have had 9 consecutive days of higher lows, a very strong occurrence that has not happened often here. This is my view is this is a .....you to Bernanke by the rest of the world saying not so fast brother. They are seemingly not going to allow him to devalue all the debt of ours they hold. If we accept that the dollar is a buy on dips now, then we also have to conclude stocks are a sell on rallies. Many of the things I watch to tell me if a dip like this in stocks is a buy are saying it is not, which is why I have changed my stance completely here. I have also detailed over the last few days, the other reasons why I think the market is setup for a decline.
In the NEW COMMERCIALS attempt to create artificial inflation, they just created short term blow offs in many markets, that are now reversing sharply. It is my feeling that we are very short term oversold now after yesterday, so a bounce should happen here. This bounce should setup short opportunities across the board. That is the next logical play to me, and one I am sitting on. The one scenario that could happen, and I would not put it past them at all, is the following. If we get a couple of small range days, they could go all in with futures buy programs to try and ignite a lift off. They would likely do this in the premarket to try and ignite all the stock buy algorithms on the opening that play off futures. This would be one of those 250 point plus up days that just opens strong and never looks back. If this were to happen, the scenario I just discussed could be negated. If you look back to July of 09, that is an example of what I just mentioned.
The plan for me going forward is to look to go all in on the short side after a bounce, things look very top heavy to me here. I know this is completely against what almost everyone else is thinking, so I guess I open myself up to be the village idiot. I always sell weakness and buy strength, so that protects me in these lift off situations. The orders don't get filled on those days because price does not trade down enough to trigger the entries.