CAN YOU SAY 1987?
I know I will probably have record traffic today, so this needs to be a vintage performance by yours truly. Fortunately for me I have been on record in here saying that what is happening here is exactly what was going to happen. Recently, I posted the 1987 chart with the Bond Divergence stating this current pattern was eerily similar to that chart. I posted examples of what has typically happened when we have gotten large divergences between Bond and Stock prices. Bingo, history does repeat itself doesn't it?
I have also harped in here ad infinitum about how when the government gets involved manipulating price, we get massive reversions to the mean. I have repeatedly said the campaign by the PPT to artificially raise stock prices could not fight off volume selling and that it would only continue to be effective in light volume conditions. I said the other day that even though I was not predicting it we did have conditions that could deliver a massive decline. Just yesterday I said that on a POMO day ( yesterday was one ) if the market could not hold there we were being given a powerful message, and not a good one.
I also talked about a Bond market rally, a Gold decline, and a general commodities meltdown.
How do you like me now?
The Bad news is that there was not a great textbook sell setup with the bar patterns to get short the indexes themselves. That is no surprise we have had historical price manipulation with the futures markets by the Fed, and they have made bar patterns very choppy with their late day saves to artificially mark things up to try and kick the can to the next day. Now someone could argue that we only sold off due to the horrible devastation in Japan. That was the trigger for today without a doubt. However, there is always a trigger that is unique, that is the whole point of looking at the markets technically and not with the Kramer type of Caddyshack approach. The Caddyshack approach is trading like the day they get loose at the pool in the movie where everything you can imagine is going on at once. A jail break to the water, skin to win, poop in the pool, booze, you name it. In trading I call it Caddshack when people subjectively analyze all these numerous variables and then apply weight to them. They then randomly come up with a decision to buy or sell. That is Caddyshack.
There is no way anyone could have known such a horrible tragedy would occur, but you did not need to. If you just looked at the PE of the DOW alone, it was enough to tell you this had gone way too far and would not last. You did not need some subjective opinion of what some favorite CEO you might listen to was saying about his companies prospects. What do you expect him to say, sell his stock? These guys have also been doing record stock selling in recent months, another major red flag. However, they won't come on Kramers show and bark out how much of their stock they have cashed in.
If you just kick all that stuff to the curb, and use technical analysis, you can stay ahead of the game. Isn't it alot easier to use basic technical analysis, than having to be the genius who predicts a massive earthquake to make money?
The FED will show up without question today to try and stabilize things, and this what actually what the PPT was formed to do, intervene during times like this. It was not designed for them to be day traders of the SP 500 futures like they have become. Providing stability during times of strife is what they should be doing. If volume stays strong the amount of Billions required by them to stop it will even be beyond what they have available. I do not know how the balance of the day will play out. I have some positions on, and I will not babysit them during the day. I have my stops in and that is that. It is too easy to get carried away with yourself or have emotions get the best of you on a day like this by watching intraday.
I showed yesterday the setup for shorting GOLD. You can see below my entry exactly where I indicated it would be.
This once again plays back to what I have repeatedly said. There is not a direct correlation between times of crisis and rising GOLD prices. That is an idea by precious metals coin dealers manufactured to sell product. There is no historical basis for this claim. It sounds like it makes sense and millions of people have gone for the pitch. They have gotten away with this false claim since so many small speculators have bought into it that they have literally driven the market up by themselves. That rampant speculation by small fries is what has set this market up for a decline. I showed this setup recently in here on a weekly chart highlighting the heavy long position by the Small Speculators. I have no idea if this is the start of something big down or not. At the moment it is just a trade based on a setup market, that had a pattern in momentum and price. Even if this is the $700 fall that I think is in the future, I would never hold it that long anyway. I am a short term trader so even the trades that work great I usually only hold for a couple of weeks, sometimes three.
I am not going to go back through everything in detail I have stated here recently that is playing out the way I have told you it would. For those interested, just browse through the prior entries in the archives. As it is with trading so it is with life. I will not always be as accurate about what will play out as I have been here. However, good solid approaches to market analysis to have a way of coming in handy every now and then.
I would suggest not getting too caught up in the news today. If we happen to continue down it will be a raging story. Stick to what you know to do, honor your rules. Times like this will test you like no other to do the wrong thing, don't give in to it. Do not chase this down if you are not already short and wanted to be. The PPT is lurking and they will make their run at stopping this. It could be a very volatile day. This is just another day, treat it as such. This could very well be a decline to buy into, but it is too soon to tell.
I will turn off the live quotes and the news channels and do research then tune back in to see what happened later.
Good trading and best wishes to anyone in Japan, we all feel for you.