WHEN TO HOLD EM' WHEN TO FOLD EM'
From my perspective these last couple of weeks have been very difficult in determining a direction to trade in most of the markets. Obviously as the government insures that the window dressing of the Dow and SP 500 continue to climb, underneath they have been letting a few other things go. As a result it is making it tough to get an overall read on what to do. They for the moment have allowed GOLD and CRUDE to decline. At some point though, even though they have developed a strategy to inflate everything, the markets will eventually go where they want to go. The GOLD and CRUDE declines have been huge here and exemplify what I have been talking about in here ever since I started this blog.
When you have markets that are either manipulated to certain levels, or driven their by small speculators, you have weak hands underneath. In both instances you have prices at levels not are not sustainable, and when they correct they do so very sharply. I told everyone in here about Crude in a very timely basis. I warned of Gold also, but cannot take much credit there since I also warned last year on that at this time and was wrong. Being off by one year hardly counts in this business, neither does being off by even a month.
As we approach month end, there are tendencies for stocks to rally at this time, so even though as I type this we are seeing a selloff in the S&P, I doubt it is going anywhere. As you look at the chart above of the Russell 2000, we first had the break which at the time in my mind told us to sell the rallies. I thought that because as indicated by the first red arrow, price and momentum had both broken support levels. However, on the bounce we went up enough where now momentum got back above it's downtrend. In normal market conditions I would probably still have shorted this today, but as we know this is not normal market conditions. The chart of the SP 500 while this was happening of course made another new high, so it is far stronger than this. We have inconsistencies amongst the indexes now. The small cap which is basically the Russell is showing the most weakness, the SP 500 the most strength, and the Nasdaq is in between. This type of non confirmation makes for tough sledding.
I do not have any positions on in either stocks or futures at this very moment. I am not going to take the bait on this current intraday move on the indexes just to watch the Fed make another phone call at noon and have them reverse the whole thing on me again. I doubt I will do much shorting in the indexes or stocks at all until we have an obvious trend change. There appear to be some decoupling's going on from stocks here in other markets which is a refreshing change. If it continues, it should allow us to trade more freely across all the markets. It is too soon to tell if this is real, so stay tuned.
There is a strong seasonal trade to the long side for GOLD here the next few days I learned from a video Larry Williams just showed us the other day, and we are seeing a bounce there today right on schedule. I think bigger picture now rallies in that market are selling opps but time will tell. For now the mustard is off the hotdog there. For today, don't take the bait on this index decline here, I am fairly sure this will be reversed by the Fed before the day is over.
I will give what I see as the markets setup to move and which way over the weekend.