DON'T START WAVING TO THE CROWD JUST YET
We appear to be having a breakout in the Dollar Index this morning, but don't get caught counting your shillings yet. This market is still in a weekly downtrend and we are right into resistance right here. We also have some potential divergences being setup against the high we just broke out past intraday. In my studies of this and the other currencies and the Bernanke's this past weekend, I determined a couple of things. First, in the immediate future meaning today, a breakout in either direction in the DX was a legit trade. Had we gone way down, and we may still you just never know, it was a legitimate short. Had we gone up like we appear to be doing so far, it confirmed the long entry on Friday. This is just based on the indicators I use to confirm trades. We basically had a breakout scenario to go with either way. This also seemed to be the case in many individual currencies as well as the index itself.
What I also found interesting though is that the Bernanke's appear to be setup to have a nice rally after a decline of a day or two. When I run both the pattern mapping software and the software that projects based on how the indicators look, they both tell me the same thing, down for a couple of days, then up. I have mentioned Larry Connors and his book about ETF trading, his approach is saying to buy into the Q's and SPY's right here on this decline. I may or may not dink around with that today, I have not decided yet. Technically the close on Friday in the Q's was the first buy in on that trade, and you buy more as we decline while still in an uptrend. I generally like to trade with momentum and that theory is the opposite, so I struggle with doing it even though it is a very accurate way to trade.
The next chart is that of the dumb ass Bond trade I took last week against the trend. As I indicated on the chart, I had thought that high made last week was a trap pattern, so when it reversed the next day I got short where the red arrow is. After we went straight down and rallied all the way back, I knew I had big trouble and had made a blunder on that trade. It was immediately on the death pool list, so when it continued back up I exited. The arrow on the chart shows the worst exit I did, I got out of most losing 10 ticks, and 12502. I still think this is a sell here and am now looking for a lower short term high to form before going back in. If it forms today and the low goes tomorrow, I will go back in again. I was a bit too aggressive with this first entry.
The last chart here is that of Sugar. We are obviously in a big down trend here, but based on a weekly chart we are seeing some reasons to look for a long side entry down here. The daily trend needs to reverse first, which has not happened yet. I have indicated where I think a possible daily trend reversal might occur tomorrow. This is a trade I am considering.
This long is still against a very strong trend, so the setup has to be perfect to do it and I have not yet decided completely on this one yet.
One comment to make on the overall market here. Many years ago one of my mentors Kevin Haggerty harped on me to constantly watch market internals, he called them market dynamics. These consisted of Trin, Tick, Advance/Decline ratios etc.. He was always getting his quick reads from watching these change dynamically during the day. I had always found that except for Ticks, most changed right with the index direction change, so I was never able to get an advance read on anything with them. However, if you watch the advance/decline line on the daily chart, there are divergences you can find that are meaningful. They do give us a broader read on what is happening, and right now some of these things are telling us that we should be buying this dip.
Every time I listen to that idiot Barry start popping off I want to just short everything across the board because I think he is going to ruin the world eventually, but sometimes you have to tune that stuff out and look at what is in front of you. I think we will get a reasonable advance warning of when what he is doing is presenting the greatest short in history, by watching some of the market internals and indicators we all use. The million dollar trade coming is on the short side, but I still am not sure exactly when it is going to arrive. My best guess is in June some time but we will have to see. Once it arrives and I catch it I will thank the day he was elected, but until then I still dread that day this was not a good time in our history to have such an amateur at the helm.
I hope they keep spending and spending, it will make the shorts that much better.