DON'T GET CAUGHT WATCHING THE PAINT DRY
As spectacular as what is going on is right now, don't get caught asleep at the wheel or as Gene Hackman said above in Hoosiers, watching the paint dry. Every day is followed by another incredible ramp up in prices and it seems like it will never end. I spent the whole weekend working on a variation to my trading approach, that more closely conforms to what has been happening since Bernanke took over the world financial markets. I do have to admit it is tempting to change everything you have always done to try and cater to this insanity. I think it is the right thing to do provided you have an exit strategy for when things get back to normal. This is no easy task, we have no idea when that might be. For all we know he carries on with this for a few more years and by then you will have made millions just buying every 5 minute decline in virtually any market. However, it is likely to change out of the blue and you had better be on your toes for when it does.
There is going to come a day when $1.00 in Silver actually means something again and is not a 15 minute bar. What history does tell us emphatically with all commodities, is that these huge runs in price in either direction to get reversed to an equally large one in the other direction. What this means in the current context is that there is a deflation wave waiting out there somewhere over the rainbow, that will match this inflation wave. I am not sure which is worse quite frankly. I think it bears watching closely in the obvious time frame of June for reasons I have stated before in here.
The above chart is that of Crude Oil, which has been on a gargantuan roll. We now have reached a zero reading in my modified COT index, which in the past has signaled declines most of the time. However, this is a fundamental setup, and is not a reason to run out and short something. It is a reason to look for a sell signal to develop telling us the most likely large move is down. This is frighteningly similar to the last run up of Crude to $140 from a COT perspective. What we don't know is whether the CFTC has blown a categorization like they did last time. We had what we call commercial capitulation where they ran the price so far by allowing non commercial players unlimited position sizes and the commercials were forced to capitulate and cover their shorts right at the highs. This is rare indeed, and there is no sign of that yet. If they do start buying look for this to accelerate upward into a crescendo, then come catipulting down at light speed. That type of thing is so rare that I doubt we are going to see the same thing in the same market that soon after the last occurence. The take from this should just be that this is not a green light at this point for new longs here. We exited our long position at the end of last week in this market.
Here is a trade I did just dinking around with smaller than my usual size experimenting with my new indicator with live money. We did not do this one in our contest account.
I am not bearish on the Nazdaq right now, this is just a trade based on a methodology trying to trade off my synthetic indicator. Those who have been watching this on the charts recently have seen how well it has been doing at picking peaks and valleys. I thought I would take a shot and see what happens here. I do know this is the weakest index of the 3 Bernanke stock indexes, so that is why I shorted here.
As for overall expectations this week. I expect to see the ascents of these markets take a pause here. When you watch markets for as long as I have, I get worried not tempted to buy when I see these boat race moves. Yes they can continue, but buying up here requires massive stops, and the air is getting awfully thin. The one asterisk though is that we know our government is in the air manufacturing business right now so maybe it is not as thin as I think.