LET'S GET ONE THING STRAIGHT
So many people at this point are just in shock over what is happening. I know that during these times the average person who does not study the financial markets get very scared about what might happen to their retirement accounts. This is understandable, the volatility we are seeing right now is extreme. Even stops on tick charts for day trading are more than $500 per contract which is incredible. However, one just general concept to keep in mind right now is a very basic market tenant, trade with the trend.
Readers of my blog knew back in early July that the trend turned down. It may not have looked like it on the charts, but I did show graphically the rationale behind this conclusion. I did not go into exactly what the bands I used were, and will not divulge that. However, I did show how they told us to sell rallies and that the trend had turned down. Surprises usually come in the direction of the trend. The trend is down, so do not be surprised to see a trend go farther than you think. We just saw that happen on the upside for 2 years. At this time we are seeing it to the down side in the direction of the trend.
What I want to get straight is something very very simple. The cause of this is not the debt fiasco. If you want to look for a cause for the huge up trend ending, look to what created it. The FED moved all these markets up almost on a daily basis, with what they did. It was one of their stated goals, and they accomplished it. I told people over and over for 2 years that if we left everything in the world exactly the same and just changed the first two numbers in the DOW from 12 to one number, 6, everything would be different. We are now seeing the proof of those statements. Now with a Dow dropping like a stone, people are all of the sudden more worried about everything than they were before this started. This does show the wisdom of the FED on one hand, in that they fooled 300 million people for 2 whole years. Now that they stepped away at the end of June, the trend changed just a couple of weeks later. This is so obvious it is hard to believe that someone of note has not stated this on a talk show. The devious nature of the markets gave us that quick rally right at the end of QE2 to fool us into thinking everything was going to be fine without them. Of course some of us knew better.
This does not mean that the debt problems are not real, but they are not a reason why the SP 500 dropped 20% in a flash.
This drop occurred because the primary buyers for the last 2 years stepped away from the table.
We do not need to know that and it is really irrelevant, but I just wanted to be on record as succinctly stating that in here. The trend is now down so even though the seasonal indicates still a brief flat period here of a week or so, we should continue down overall for a bit here. How far and to what level, I have no idea. I did state over and over and over, that when this drop came it was going to be big so I think this would qualify as GRANDE. Net net, look for sells on bounces. If you are really nimble, look for short term longs down here. The sell the VIX play is not quite here yet, we do need to go down more for that still by the rules I use for it. If we close this week down below the current weekly lows, it will be setup for next week.
The next chart is everyone's favorite market, GOLD. We are seeing a flight to quality here there is no doubt about that. Let's just say for a moment, that we were not all brilliant water cooler economists who think the dollar is doomed and we can trade GOLD for water or plant seeds during the coming apocalypse. If you just look at the seasonal pattern, you can see that typically at this time of the year this market rises. Although at times seasonals can stray from their paths, when you see prices following them closely, pay attention to them. They are there for a reason. In this case, had you just followed that alone, you would have done quite well with GOLD, and been on the right side of most of the moves this year so far. As much as I think this is the biggest bubble of all time, and still think that, I see no reason to short this market. The trend is up, so longs are overall the way to be looking there. If you want to try and short it go to Silver which has a much weaker chart pattern. The seasonal is still up there as well, but it is not as pronounced as that of GOLD.
Here are a couple of other trades I am looking at. First, short the Euro and Sugar and Natural Gas, then longs in Coffee and Cotton. Corn is also potentially setting up a sell here. There are setups not entries, so that does not mean go enter these trades at the market. It is always up to individuals how they trade, those are just directions in the next day or two that I am looking. I may not trade any of them, but I am looking at those specifically.