Is this Armageddon?
Now that we are moving sharply down in many places, the "experts" are panicking. My question is as it always is, where were they before this started? This has been one of the most obvious down moves I have ever seen, I don't know how much credibility someone could possibly have going forward, that has missed it. I am just amazed that some of these high powered networks can't get top traders on to get them better views on things. Maybe the appearance fees are not enough? Maybe they don't want the exposure? It is surprising to me that the people that get paraded out for us to listen to for the most part are not even traders. Often they are columnist's who have no skin in the game at all. Fox had one the other night that was such a cheerleader, even my wife who knows nothing about this thought he was embarrassing. Markets go up and down, it is not a catastrophe when something declines. This is all part of the natural ebb and flow of life.
I think people should embrace declines because it gives them a chance to buy something on sale. The above chart is that of the Dow with the VIX on top of it in green. This is something I touched on a couple of weeks ago. Once we get a bit more oversold here, under 15 in indicator, we will be in an area to sell the VIX which will also be a buy for stocks. When I project a down week this week of 200 Dow points, which is nothing right now, we do reach that zone. Now we have to close the week under 15 for this to be setup. This trade is not based on intrabar readings. I am likely to wait a bit on this because I think we are going to decline for another few weeks. However, I might leg into this trade, something I do not often do. This trade has never lost, so it is a high probability situation. Maybe this will be the first loss, but we can never know that. It is a fundamentally based trade with a perfect track record, there are not many of these. When I find them they are must do trades.
The above chart here is one I often look at, it has all three stock indexes stacked up. I do this to determine relative strength and weakness. It is clear that the NAZ is by far the strongest of these, and from a longer term perspective, that is very bullish. The Naz does tend to lead, so when it is really weak often that can be a harbinger of things to come. The reverse is equally true. This is not perfect in that you can see at the highs this year, the Naz was also the strongest, it did not tip us off to what was coming. Nothing is perfect. The difference to me was that was a non signal, here we have a signal. If we get into the end of October when we should be looking for buys, and this condition is still in place, it can be a confirmation for them.
The above chart is Lean Hogs, a market that is set up for a trade right here if we break that trend line I have drawn in on the chart. Again we find my COT indicator is not in sync with this and it has been decent in this market. Maybe that means the trade is no good, but it is one I am willing to do based on the seasonal down bias here. Not many things are perfect that I know of.
Here again we have the Dollar Index, which is setup still for the same reasons I mentioned the last time I pointed this one out. We have a rally in a long term downtrend, pretty simple. The high percentage plays is always to sell rallies in downtrends and buy dips in up trends. When the trend changes, the last trade will lose, who cares? If you have played all the retracements along the way you will have made a good bit of money, so if you give some back to the house on the way out so be it. I do not have any daily entries set up at the moment, so this is something I am watching. It is possible if we see more equity weakness like I think we will, this will just take off and never give us a sell entry.
Here we have the Russell 2000, a place I am looking for something this week on a bounce. I have it diagrammed out how it will need to develop for me to get a signal with the techniques I use. This is always subject to change, but this is what it appears will need to happen for my indicators to pull me in here. Maybe we will get a month end bump up, which will set up a short entry.
Overall the trends are decidedly down, and if you are short, just trail stops. We have had gargantuan moves in many places, so I do not recommend establishing new shorts anywhere without bounces happening first. Just as it was with stocks a couple of months ago, so it will be here. Trading small bounces after huge moves like this is pretty tricky.