WAX ON WAX OFF.. ..RISK ON RISK OFF
The more things change the more they stay the same. Here we have 3 charts in markets that would normally be unrelated to each other in terms of intermarket influences. However, as we have seen for the last couple of years with a few minor breaks, almost all markets are trading in the same direction. Miyagi in the karate kid taught wax on wax off, this is kind of the same thing. The three charts I have are in order, Crude Oil, Gold, and Coffee. Risk has been off for awhile, but I think it is about to be back on.
We can argue here that the incredible influence the Dollar is having on everything is the explanation for all of this. I would argue it is actually something different, although my argument is related to that. It is my feeling that the artificial upward price movements engineered by the FED to ward off the deflation wave that would have otherwise happened, is what has caused all of this. Part of their plan is to deflate the dollar to make our whole we are digging with debt less of a problem. So I guess from that standpoint the common argument is similar to mine. The difference is that I think deflating the dollar is the result of what they are doing and not the primary goal. Either way in the end, it is what they are accomplishing by what they are doing. They are trying to inflate their way out of this mess, while at the same time telling us all there is no inflation. Any idiot who was born yesterday could look at these three charts and see there is inflation. All 3 of these commodities have been going sharply up. However, the report that basically measures inflation in all things that are not inflating, shows no inflation. What a coincidence.
We are really at a very important inflection point right here. You certainly could have justified getting long across the board a couple of days ago when the high of the low day in these retracements was taken out, because we are still in long term up trends in all of these markets. If you have done that you may get a major lift off again and you will once again be rewarded. When I project my oscillators for Monday, they all show the lines continuing to rise even on a down close, so that tells me that we are likely to get another up close Monday. However, that is not a precise prediction, if we start to roll over strongly, I might very well front run the oscillator movement and get short some things, it will be a game time decision. I really want to get short GOLD again.
If you are bullish, stops should be under last weeks lows pretty plain and simple. If those lows get taken out in the SP 500 or any of the above markets, or any others, we got big trouble on our hands. It might not be a bad idea to watch volume. As we have seen and I have stated this many many times, the PPT cannot stop volume. If we happen to get strong volume going on a big down day, look out. If we get light volume on a day that is moving down, look for the PPT to reverse that back up. They certainly know how critical this spot is, they are basically very short term traders with what they are doing. They are well aware of the danger of last weeks lows breaking.
It is imperative that you understand right now that almost all markets are once again the same trade. You have to take this into account when determining what to trade, how much, and when. A short in Crude is the same as a short in the Stock Indexes, which is the same as a short in Gold etc.. These correlations are so high, that if you were to be long all of them or short all of them, you need to expect the moves to go in the same direction. If you risk 2% in trades in each of those markets, you are really risking 6% in one trade.
It is my feeling from looking at the COT data, that the odds favor the next big move being down in several markets, so that is why I am leaning in that direction. The Small Specs have gotten historically heavily long in many markets, and although in recent times thanks to the PPT they have gotten away with it, historically this has been a recipe for downward price movement. The artificial market manipulations have warded that off, but they will not be able to control everything forever. As I have stated in here, there are going to be big consequences for what they have done at some point, and if last weeks low does not hold, we might be close to seeing some of them.
Here is one trade we have on in both our personal accounts and our Robbins contest account, Natural Gas.
You can see that I was within just a few ticks of being stopped out on this trade at one point. We have now started to move up some. This is a crazy market that completely trades to it's own theme song. I am glad I was not watching when this sucker dove down that one day close to where my stop was. If you don't have to watch live ticks, don't. There are alot of people calling for the industrialized countries to start using this for energy, and some of them are saying this little spurt here is proof that is starting to happen. I tend to think not, this market has been beaten to a pulp for years and has had many false starts. It is way too soon to tell if this little move so far is anything or not. I do have an exit target that is well above, and I doubt we will get there but you just never know. Plans may not always work, but you need to have them in case they do. I have my stops above where I am in now, so worst case here is a small profit, with the potential for a big one.
It looks to me like Tuesday is going to be the day to look for shorts in most places, unless we get a monster up day Monday, which could take some of them off the board. As per usual, we have to let them turn the machines on and see what happens. Must see TV coming to be sure. Speaking of TV, there was a great joke I heard last week. Barry's wife was popping off again about fat people ( she apparently gives herself a pass on this categorization excluding herself ), claiming all the out of shape people are a danger to our national security. Our armed forces are diminished by this. There was a comedian that suggested that we then have a fat army and a regular army. The fat army only fights on level fields, and the other one goes into the hills. I kind of like that idea! Could you imagine the sight of the fat army plowing across an open field heading towards an enemy? Classic! Maybe we add a new category to the COT report, fat traders and regular ones? The Fat Golf Tour and the regular one, where does it end? We could have a lot of fun with this idea, kudos to Barry's wife for getting this started.