This is chart above is the emini Nasdaq index. This is displayed because it is the weakest of the three major indexes. I am about to show you a different chart than this which will give you a different perspective on this whole rally. However, for the moment we find ourselves at a critical juncture in my world. It may just look like a garden variety flag pattern and I suppose it is. However, my oscillators both displayed and those not displayed, are showing underlying strength greater than that of price. This leaves us in a tight spot. It is my feeling that whichever way we go right from here, will determine a decent sized move in either direction. I say that because the underlying strength could very well be supporting the underlying uptrend. That trend has broken on a daily chart, but not on a weekly chart. It is going to take a pretty good sized move to turn the oscillators back down tomorrow, but a small one to keep them rising.
We could very well be working ourselves into a few different scenarios now, so patience is the key. I will most likely get short again below today's low if it goes on Tuesday. I do not have a buy signal to go long on if we get a break upwards. In that scenario, I will have to wait to see if a buy signal develops on a pullback. As much as this whole rally seems awe inspiring with net change from close to close being very impressive, check out the next chart which shows just the pit session prices.
This is the SP 500 pit session but the Naz pit looks similar. I have marked the recent gaps with arrows. Just notice how many there are and how many of those days actually do not even close past the opening price. What this means is that net during the US session, many of these days actually closed lower than the open. Net net, the move is being driven by the overnight sessions gap openings. This is a very odd situation, and it has been going on for awhile now. It is significant because if you are trading stocks unless you are holding them overnight, trading stocks on the long side has actually been very difficult, they have made very little net progress other than the prior days close to the next day's opening. Most of their progress has been on overnight gaps.
There are several explanations for this. One of course is the PPT, probably the leading candidate for the Oscar. What is not known about how they operate other than by a select few, is exactly how they consummate their transactions. It is suggested by many yours truly included, that they operate at times when the volume is light so that they can get the most bang for the buck. The night sessions are such a time. I can't imagine how I would feel if I had been amongst the group of suckers that has been shorting these brief downward moves that happen during the night sessions. They must have reversed 75 of those by now I would guess.
There is another possibility that needs to be considered and I have also alluded to this in here from time to time. The large hedge funds and their complex algorithms may very well be involved in this. They are very adept at taking advantage of short term imbalances and inter market relationships. With the power of computerization now, their programs designed to do this operate at light speed. They are also automatically triggered based on a wide variety of things that may or may not be the same as what has traditionally triggered these buy and sell programs. These algorithms are also a possibility to consider in analyzing the incredibly tight inter market correlations that we have seen develop and stay in place for so long now. Maybe they saw them developing, theorized that the Fed was behind it so it was likely to continue. They then created trading algorithms to take advantage of it which have just perpetuated it. This could also be an explanation for the metals rally that has defied traditional fundamentals such as the COT data. Never has an idea with no historical basis driven something so far. However, it got wheels from somewhere and it could very well be these funds. The problem with that theory of course is that the COT data would have to be wrong for that to be the explanation.
It could also be these same players being wise to what the PPT is doing and mimicking their trades. There are a ton of possibilities to consider. For trading purposes it does not really matter. The net result is that there is a very strong bid underneath the market that supports prices on even the slightest pullbacks. It has created a tremendous amount of complacency very similar to the late 90's. As nasty as this recent break in price was, there was virtually nothing made of it at all in the media. Since the media thrives on negative energy this has struck me as particularly strange. I don't think there is any conspiracy, I just think most people are not even thinking a larger decline is even a possibility. That worries me in all honesty. However, it is not something to trade with, it is more just discussion.
What all this means is that these patterns are likely to continue and we need to assume they will until they stop, seems simple enough. That means keeping short leashes on shorts until we get a break of a major support point such as last weeks lows. If they hold we could well be off to the races again in short order. I think the way to trade this current setup is to go with the direction we break out from right from this spot.
Here is another market that now may be telling us we are going to move up in stock prices, BONDS. I had been hoping to buy a pullback here but it appears to me now that we have gone too far and my indicators are turning back down. This rally was driven by the flight to quality that always goes on when stock prices decline sharply. I did tell people in advance that this market was ready to rally and showed a projection of upward prices that has been followed almost perfectly. I do not see a similar setup at this point here.
That is all for today.