RAINING ON THE PARADE
Here is something that has just recently developed that is a big problem. If you look at the ADX on this chart it is going down dramatically during the last few weeks during which we made new highs. This is a very surprising divergence. It you study ADX historically, this type of look has told us the trend is losing it's steam and due to reverse. Of course there is always the one wild card here in that this trend of course is by government intervention and not natural market forces. I do not know if that makes this invalid or not. I try not to factor that into my decision making but I have to admit it is very difficult. As I have said time and time again, what we are seeing now has never happened before, and I have seen across all markets thousands of sell signals ( includes individual stocks ), that have historically been good that have all failed. It does make me think that all sell signals should be ignored until Bernanke announces the end of QE. At the very least, sells better have perfect patterns, and have tight leashes and probably managed on a day trading basis until we get some type of break.
However, that announcement would guarantee a multi-thousand point DOW decline almost immediately, so I doubt it is coming any time soon. For my purposes fortunately, there are no signals in either direction here at this juncture, so I do not have to make that decision. Today of course was NFP day, and what a dud. It is amazing to think about how this report used to move the market compared to what it has done lately. It is of course because the FED is controlling everything, so other reports are meaningless. There seem to be more and more inconsistencies in this report every month. This leads me to believe that someone is artificially playing with the numbers and is not doing enough homework to make sure the fake numbers jive with the real ones. This is so painfully obvious. It was interesting to listen to the CNBC all star panel try and debate these inconsistencies. I think they all would like to have said what I just did. If you are going to cheat, get it right for god sakes! For now I would just completely ignore anything that comes out of the government, the mustard is way off the hot dog now. If they say it is going to be sunny, take your umbrella, etc..
What to do about what I have shown above? This may sound ridiculous with all the moonshot rallies going on in stocks right now, but I would tighten my stops up alot here. This type of prominent divergence in the past has marked reversals, especially when it has come from a very high level in ADX preceding the divergence. In this case the peak was 56, pretty high. I would not jump right into a short trade here yet, that is really pushing a string right now. I would not put on any new longs here if my life depended on it in stocks.
I mentioned we were bullish on the dollar the other day, and here is a trade we did in our Robbins contest account. My partner Mike did this trade, and caught it perfectly.
We were bullish on the daily pattern I showed in this blog, so he went into the intraday tick charts to see if he could find a way to front run a long entry. Please no questions about why we entered where we did. There are certain things we are not going to divulge here. The point of this is that we found a setup, then found a way into a trade in that direction. There are alot of different entries you could have used to catch this trade depending on what your individual style is. I guess once our fund is launched, that is what people will pay us to do, be the ones who catch these. So far the trade is moving along nicely still up about $1000 per contract. It is still my view that we are looking at further dollar strength, and individual currency tops in the near term.