BATTLE OF WILLS
I have been taking quite a bit of time lately to just try and figure out how to play the stock market right now. As I have stated previously, we are in uncharted waters here in my lifetime. There is clearly a battle going on between the will of the people and the will of the governing in all aspects of our life right now. It is clear the will of the people wants to sell the stock market here. Just about every historically accurate way to time the stock market indicates a correction should be happening. However, we have a government that has decided that no matter what they have to do, stock prices are not going to be allowed to decline.
I really don't care if they go up or down to be honest, all I want is free market flow which we clearly do not have at all. The next chart should add to making this point.
This is a chart of Caterpillar, and old stalwart blue chip stock. Historically this has been a steady solid company whose stock although a good one to trade for holding purposes, has generally just plodded along. I have marked all the gap openings in this stock just in the last few months, many of which have held and not been filled. Trust me folks, this is highly abnormal. A stock like this should not look like a chart of OATS. This tells us a couple of things. First, it shows the tremendous overnight futures moves in the SP 500. Those moves are what cause these openings. Second, it also tells us that trading this stock in the traditional ways will not work anymore. Third, it is confirming the lessening relevance of the pit sessions here in the US.
I personally have had a hell of a time trading stocks the last month. The chart patterns are just weird and it is because of the overnight manipulation of the indexes by the Federal Reserve. The big problem I see with this when I study history, is that prior circumstances of government meddling in pricing of commodities has always resulted in price ultimately going where it wanted to, and often violently. This type of a move will happen out of the blue when it does, and I have no idea when. Study the price of lumber going back to the time when the government had a limit on the price on the upside, and what happened when it broke through that limit.
Listening to CNBC yesterday very early, there was shock that the Ireland bailout was not being perceived as good news. Are you kidding me? Countries that are basically insolvent loaning money to another who is should be viewed as good news? All they are doing is creating a bigger bubble. Bankruptcies need to happen. When an entity cannot pay for things, it needs to go out of business and then re-structure itself into a model that can operate profitably. As I have said recently, I am more worried about the big picture than at any time in my life now. I cannot recommend that the average investor be long stocks here. We have a wonderful trend that has been going on, but just the way this is being manipulated greatly concerns me. For my purposes as a short term trader, I have no problem being long because I can pull the plug and go flat when this wipe out starts, or get short to take advantage of it. The average person with 401k's is not going to be in a position to move that quickly either physically or emotionally.
The VIX index has been speaking loudly recently, that a sharp sell off was coming. It appeared to be here until the Fed got back into the futures business to stop it once again. There is going to be a time when they are not able to do it, and the exits are going to be incredibly crowded when this happens. I wish I knew when this would happen so that I could tell you. Today they are once again reversing a huge overnight down move in the futures, so the battle is on once again. Day trading might well be the answer to some of these issues even though it is a very difficult way to try and make money. It keeps you clear of the overnight games by the Fed.
For now I am just long Bonds and am in a couple of other things but overall not heavily trading today. I am looking for some other action. I have been looking for shorts in the energy markets. RB has a classic trap pattern right here, but since it is the strongest in that sector, I want to short Crude which has been far weaker. I got out of my Dollar long too soon, but I have not done much else right the last month so that is par for the course I suppose. I still think the traditional indicators say down in the stock market, but who knows if they mean anything anymore.