Of course what I am referring to here is trading the stock index futures. I have to admit that most of the indicators I use have been absolutely worthless in trading this market lately. Even my COT Synthetic never quite got up to the buy zone on the recent decline, and it usually moves up quickly on declines as you can see on this chart. If anything it's tendency is to be early not late in signaling buys when dips occur. This is just another example of how artificial influences in this market are making it tough sledding.
Fortunately for me and my credibility as a prognosticator, I did not rely on my indicators alone to tell readers that I was looking to the long side as we started to move up off the lows recently. I displayed that one forecast that indicated up and that is the exact path we have followed. I also displayed the 1987 chart when the drop began and said I felt it was very similar. I then brought it up again and told you why I thought that we are not following it after all. This is part of trading, reading what is happening. You cannot be so locked into a view that you miss what is happening right in front of you. If you look at the Russell, we are very close to making a new high on the year. Of course since this is a broad measure, that is pretty bullish. For those of you who either had signals to go long at the lows, or for whatever reason did so, GOOD ON YOU as my Canadian friends would say.
I have not gone long, I have pretty much used my view to not go short. I still think if by some miracle today we took out yesterday's low, it is a short entry opportunity. I think the odds of that are almost nil, this seems to be solidly back into buy the first down tick in anything mode again. However, you just never know so I have orders down there just in case we get there. If we do I plan on taking a smaller than normal position, then adding if it bounces. I need to break one of my rules and watch intraday in just the indexes just in case I see us starting to reverse back down so I can catch a few stocks also on the short side. I doubt this will happen. I fully expect new highs for the year on the NFP report this Friday. The only remaining logic at all for a short is just that this has raced up so quickly that it is possible it is overdone from a short term standpoint.
If you look at my COT Synthetic index, the last time we got to this much of an extreme there we did have a sharp pullback for a couple of days which really setup the best buying scenario. I have no idea if this will happen or not but I am just pointing this out as my logic as to why I am watching just in case this happens.
It is interesting to me to hear the talk about how undervalued stocks are here. Of course there are alot of ways of determining this. All of the ones I use they tell me exactly the opposite except for one thing, Sentiment. I did drop down quite a bit on the recent decline, which was bullish. There are so many things you can look at that will bark out different things to you at different times. I suggested the other day not to try and mix together different approaches. I am practicing what I preach. What I use primarily did not give me buys here and tells me today is just about the last possibility of a sell, so that is what I am going with. I missed the move due to how I trade so I am accepting it and moving on. One thing I can tell you that I am sure of, this is the oddest move in the markets ( this last year or so ) that I have ever seen. I doubt the people that traded stock indexes well prior to that time are also trading them well now. None of the tools I know of have been effective with this market. We will never truly likely know exactly what is going on and how if this move is being created as I allege, how they are doing it. There is really no sense in trying to figure that out. The tape is just odd is all I can say, I wish I could put my finger on it more than that. The weekly trend is your friend so just be careful trading against it except for very short spurts.
For now unless we get a big move down today I mention above, the sky appears to be the limit once again.
The mirror image of course of stocks is BONDS and below is how they look now. This is pretty much the same story in reverse. We are on the verge of rolling over and here my indicator shows a buy. You can see the other times it has gone there except for one, we have bounced. Will we here? I doubt it if stocks stay strong but I am watching here. Again the logic here is just a really oversold market that appears to still be in an uptrend, albeit it hanging by a thread to that trend.
In summary, although I recently predicted this was going to happen, I did not trade it due to my tools not giving me entry signals when they needed to. I stuck to my guns and came up empty. Sometimes this happens. I know from my experience that I don't want to tailor my whole approach that I have developed over the years to this market condition. It is a once in a lifetime occurrence. Once the Fed stops doing what they are doing if you have adapted completely to trading this way you are going to have some problems when we return to reality. However, who is to say when that might be? Maybe we will get a dip here which will trigger a long entry for me but it is not on the horizon yet.
Good trading to everyone.