THE WORLD IS NOT ENOUGH
Once again the market correlations that have been so prominent for so long now (a couple of years), are showing themselves again. I think the next stop now that we have everything in this world in sync, is to somehow get it going cosmic so the universe can be the same trade and not limit it to just our planet. Just our planet alone is just such small thinking we need to set our goals higher!
We get the Bernanke's rallying and it causes a Bond decline. I had mentioned recently that both the Bond market was setup for a decline and the Bernanke's an oversold bounce. We are getting both, of course together, today. If you happen to be in both of these trades please realize they are the same trade, and will trade inversely to each other, so you should have half the risk in each position you normally have to make the total risk in line with good money management practices.
There will come a time when these types of relationships loosen up some, but I have no idea when that might be. As long as it is there you need to adjust your risk and not complain about it being in place. There is a very good historical basis for this particular relationship, so it is not one of the new age Bernanke california weddings that will blow up in short order. Money flows to it's highest place of potential return, and that is why this relationship exists between these two markets. It does not explain why Soybeans rise due to a stock rally. That is absurd even though it has been happening along with everything else in this jolly party we have had going on. The next chart just shows the Bernanke 500 and it's rally today.
I mentioned this was a very high probability statistically when prices are above the 200 day moving average, that when we got this weak there would be a reversion to at the least a 2 period rsi reading of over 70 on a closing basis. This data is from the Larry Connors book on trading ETF's and it has index numbers in there. So we are seeing a bounce now the question then becomes will it setup another short, or is this just another buying opportunity in this huge bull market?
This weekly chart makes it pretty clear for the moment, this is a buy. First off you can see how negative sentiment has gone during the recent decline, and what has happened recently when we have reached these types of levels, big rallies. The small specs have also been short, which is bullish. The commercials have been steadily buying, although I do not consider the COT data to mean much in the indexes now. Monitoring what the big boys are doing in the Bernanke's has not been a good way to make prognostications in the last few years. That data is just on this chart and I did not feel like going through the exercise to take it out. We have also had the advance/decline line holding strong (not shown here), but mentioned previously several times in here. We have an abundance of reasons to be long not short today and probably the next few days.
The one thing I do see here which potentially is a negative is we have popped through the moving averages that have contained this price for quiet awhile. If this week passes without us taking out last weeks highs (I think we will), that would tell me the weekly trend is potentially turning down. When you get a power day going like we have today, it will likely zoom and take out those levels but you just never know.
Net net, at this point I think on a short term basis you should be long stocks and the Bernanke's and short Bonds. I do not know how long this will last. This could be the beginning of another big up leg just as easily as the first move down in a larger decline, there is just no way to tell right here. All that is at hand is a severely oversold market that should bounce and is at this moment. If you are a long term player, there is still no need to panic yet. Life is still good.
We will have to see how long it stays that way.
This weekly chart makes it pretty clear for the moment, this is a buy. First off you can see how negative sentiment has gone during the recent decline, and what has happened recently when we have reached these types of levels, big rallies. The small specs have also been short, which is bullish. The commercials have been steadily buying, although I do not consider the COT data to mean much in the indexes now. Monitoring what the big boys are doing in the Bernanke's has not been a good way to make prognostications in the last few years. That data is just on this chart and I did not feel like going through the exercise to take it out. We have also had the advance/decline line holding strong (not shown here), but mentioned previously several times in here. We have an abundance of reasons to be long not short today and probably the next few days.
The one thing I do see here which potentially is a negative is we have popped through the moving averages that have contained this price for quiet awhile. If this week passes without us taking out last weeks highs (I think we will), that would tell me the weekly trend is potentially turning down. When you get a power day going like we have today, it will likely zoom and take out those levels but you just never know.
Net net, at this point I think on a short term basis you should be long stocks and the Bernanke's and short Bonds. I do not know how long this will last. This could be the beginning of another big up leg just as easily as the first move down in a larger decline, there is just no way to tell right here. All that is at hand is a severely oversold market that should bounce and is at this moment. If you are a long term player, there is still no need to panic yet. Life is still good.
We will have to see how long it stays that way.
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