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Friday, June 17, 2011


HERE COMES THE JUDGE




It looks to me now that we are setup for this rally I have been looking for. I am not long yet, but some of the things I watch not shown here above, are telling me now that we are going to move up some. I have no idea if the bounce will just be shorting opportunity or a bigger picture long that should be held. What makes me lean against the longer term hold is that so many wall street people are out there telling us not to worry, the bull market is still intact, this is just a routine correction. I would have to agree in general with that. So far we are holding the 200 day moving average and the advance/decline line is still bullish. However, we also have the unknown of QE2 expiring. Normally I would not even consider any outside item like that but we are not in normal times.

There has never been a time in history where the government has so overtly manipulated the stock market like they have in the last 2 years. I did not think they could ever pull off something like this to be honest even if they tried. The beauty of it has been that they have made no bones about it openly stating the purpose of QE2 is to raise asset prices. Mission accomplished. The Dems are now using that as a talking point since everything else they have done has been a train wreck. It also allows us to get a peek into what the strategy has likely been all along. This market manipulation was done out of political expediency. I have no doubt had the other party been in control the same thing would have happened. They claim the economy can't be that bad look how much the stock market has gone up under Barry's watch. I just have this lingering feeling the economy is a bigger house of cards now than it was a couple of years ago, and I cannot shake it. The reason I think that is that none of the excesses have been allowed to be worked off. The debt issue is more than an elephant in the room at this point. I am referring to both the government and private debt. All the bad mortgages do matter.

So we know the market rally has been engineered, now the question is how do they continue to do so after QE ends? There is no question if they completely pull all the stimulus the Bernanke's are going to implode almost immediately. This is why in some way I think they are going to continue to do something I just do not know what. If we just watch the tape now we are seeing all the moves to the downside. All the rallies even intra day are being sold. It will always look that way during declines whether they are just pullbacks, or the start of a bear market. We do see a somewhat familiar pattern in my indicator above here, that mirrors what we saw recently. The initial buying that was indicated by my synthetic did not jump start a rally, but now that we are starting to see a drop off in the commercials positions, a rally appears to be starting. One explanation for this whether it is in the actual COT data, or my own morphed one above, is arbitrage. Especially with the Bernanke's there is a lot of cross trading in these so I think that distorts things somewhat. Also, I have noticed at times with the COT data that the actual rallies don't start when they are buying in down trends, until they start to lighten their positions some. Of course it could just be this indicator just is not this good as well.

In any event, we are into weekly support and extremely over sold so I am looking for a long entry in the Bernanke's down here.

Since the world is one trade as we have learned, this also means a dollar decline, currency rally and a few other things. We are already seeing that today with the Euro flying and DX declining. I think they are setting up pullback trades which is what makes me think the Bernanke bounce will just be a bounce only.




You can see here that my indicator was right on target in forecasting a decline. We are at key levels in many places now, so keep your powder dry, big moves are coming our way very soon and I think they are going to be down.

I think the big short is upon us after this bounce plays out. I am flat right now across the board. There is just nothing that is meeting my criteria for a trade at the moment. I have made good money this month so far, so I am not going to chase anything marginal.

1 comment:

John M said...

"I just have this lingering feeling the economy is a bigger house of cards now than it was a couple of years ago, and I cannot shake it."

Amen, brother.