Yesterday's post could not have been more timely and I am glad that I followed my own advice. You can see on the above chart where I almost went long. The order would have been filled in the last few minutes of yesterdays after market session, then stopped out today. When a market gets into a strong trend like this in general it is prudent to look to buy very minor pullbacks. In this case there was an inside bar with down close. However, upon deeper review, it was one of those bogus holiday bars. I have had trouble trading around these types of bars, so unless the setups are perfecto, it is better to wait. I also did not like the fact that the ADX is coming down alot while we are making new highs, that is a non confirmation that at some point like today matters.
I do try to use the rule that a bar is a bar, and it is data on the chart. However, I have noticed a strong tendency in the last year for these holiday bars in the indexes and currencies to reverse the very next day after a decent sized move. This was yet another example of this happening. Although we have an uptrend that is extreme, I find when I scroll through all the individual stocks for trades, that there is an incredible disconnect between the average stock chart "look" and the indexes. There is no guarantee that an individual stock will trade like the index. There are several variables that can move a companies share price that does not effect others. However, if you have watched the way the whole world has morphed into one market, you would see that over the last year or two the differences have vanished.
There are several reasons why this is happening and I have covered them ad nauseum in here so I won't delve further into them. Here is what I have found each day recently. I have had a list of stock trades every day, and almost all of them were sells! You would think that makes me a complete idiot and that thought has crossed my mind many times. However, my signals are mechanical, so there is not judgement as far as what is a signal. The judgement is in which ones I play and how I do it but a sell is a sell and a buy is a buy. The buy setups I have come across all have ADX just spiking higher and at an extreme reading, an automatic red flag for me. As a result, here is the only stock trade I currently have going.
You can see where I got short here. Unfortunately, many of the stock sells I had setup for today were very marginal after yesterday. They moved up enough to mess up the setups, and most of the buys have the adx spikes, so again being patient. If this is a normal garden variety pullback, some things will setup for long side entries. If not hopefully we will get a bounce after the first decline to get short.
I still like Crude Oil on the short side, but just don't have an entry on the horizon. I was sitting in someones office yesterday in a another business interest I have, and they were remarking how due to China Crude Oil is going to skyrocket. I also learned in the paper yesterday they are going to sink our aircraft carriers. So basically they are going to kick our ass, and save us from our economic woes, then cause this huge inflation scare in the process. NOT!
This is as good a fundamental setup for a decline as we can have. I know I have bashed the COT report and it is true that there have been a few other setups like this that have not led to declines like they normally do. However, at some point the basic fundamentals are going to matter. This arcane idea that every person in China is dying to buy Gold and Crude Oil and can barely sleep at night because of how anxious they are to wake up the next day and buy more, is so tiring. Can you really risk your hard earned money on that type of assumption? There is not a daily chart sell signal, so again I am waiting patiently here.
The last chart I want to show today is yet another example of how the world revolves around stock prices.
You can see in the above chart the incredibly tight correlation between stocks and metals. Here we have an intraday chart of Silver and overlayed in GREEN the E Mini SP 500. These could be the same market. However, what you can notice looking closer is that the SP 500 led it. It broke down first and brought this with it. This has been consistent for quite some time now even though historically this would still have to be considered unusual. However, it is why I say that the only reason the metals have not turned down is that stock prices have not. They will go together.
I would sure love to see this correlation disappear but I doubt it will anytime soon.