Yesterday I made a blunder and I hope others can learn from this. This is not something I have done often since I am in general very disciplined. I ignored a perfect sell signal in everything I look at based on being influenced by something from someone else. This is a tough business and we all go through times when we are on and off our games. It is during the off periods that we need to be particularly on guard to stick to our guns. We are most likely to be vulnerable to questioning what we are doing during these off periods. The above chart is that of the ES, I would have shorted the Russell since it is by far the weakest of the 3 major indexes.
Last week my mentor sent out a video talking about an exceptionally bullish seasonal trade coming right at the end of this month. He is one of the greatest traders who has ever lived, so it was hard for me to take a sell signal in the face of that bullish call. Of course as luck would have it I decided to wait for a couple of days for a "better" setup and of course the market tanked. We had a news event Friday which got things started. The actual seasonal trade is to buy Monday morning so it still could work if we get a bounce. Due to that I would have most likely taken my profits at the close Friday had I been in the trade.
We could really tumble here so Monday is a very important day. The Emperor does have no clothes and has been on the runway for quite some time. At some point some heckler is going to be heard calling him out and everyone else is going to finally notice. Until that time the trend is still decidedly up and one day does not a new trend make. The lack of any real effort by the Fed to reverse that decline was a bit surprising, but perhaps they are waiting for Monday. There was almost 180,000 contracts traded right at 1:00 and 1:05 pm very suspicious, but could have in this case been short covering. The charts I showed the other day with that heavy volume, were not days when people would have been short going into the close. They do have to pick their spots, and this one would have required a very large amount of money. As I have said in the past, they can't stop heavy volume declines for this reason. It is a $100 Billion proposition to reverse a 150 point decline. Monday is must see TV for this reason. Will this start off gangbusters and erase alot of Friday's action, or will we just roll over?
There is a ton of divergence on my intraday tick charts, so I expect this to go up Monday for that reason. In the past we have gotten a quick move down in the Sunday night session, then quick reversals overnight and a big pit up opening. Notice on the chart below the huge amount of divergence in the oscillator I use. This when it has occurred toward the end of the months on big down closes in both bonds and the SP 500, has indicated the move was a fake and the market reversed right back up the next day. Here we have news events involved so that could be a game changer we will just have to wait and see. If this is the break I have been looking for there will be a bounce for us to get involved on.
Here are a few markets I am looking for moves in here. First, Crude Oil. I called for a decline there and was dead on very close to the day of the high. We just free fell there for a couple of weeks. If you look at the differences between the energy markets here it is really surprising to see how much stronger Heating Oil has been than Crude. These two do not usually diverge to the extent they are right now. In looking at prior instances where these two markets have diverged by this much I find a mixed bag in terms of the direction they went. What was consistent though was a big movement in the price. This makes sense especially if we finally get some decline in stock prices. If that begins to happen volatility is going to really pick up in alot of markets. It still looks to me like commodity prices overall are setup for declines more than rallies, and I think this market is no different other than a bounce we may get here first.
The Currencies are an interesting collection of characters here. Often the easy way to play these is just the Dollar Index. This market has gotten clobbered recently but has attracted some commercial buying now. Since we are at a seasonal time when this index has usually rallied, I am looking for buy signals there.
This does not really jump out at me as a guns are a blazin' type of setup. It is only because we are at a pretty reliable time of the year for a rally, that I am more attracted to this. Next is the daily chart which on the surface does not look like much, but I have seen a number of sharp upward moves from these types of looks from my oscillator. It is diverging quite a bit, but does not have distinctive points. If you look across several markets the meats specifically, you will see some big moves coming off these types of situations.
Next week looks to be exciting, and looks to be down in most things except Bonds and the Dollar up.