MOMENT OF TRUTH
As we approach my resistance zone here in the Russell, the red band, we are already at it in the ES and the Naz. This has been a spectacular rally there is no doubt about it. I did not think we were going this far this fast, on that I was wrong. Ironically the one trade I was monitoring, which was to sell the VIX, was based on an oversold condition in the DOW that was never quite reached. This was why I thought we were going down a bit more before the year end rally began. I suppose we still could do so. However, it does appear now that if we do decline, we are looking at a higher low type of situation as opposed to a big washout. Experience has told me that these bands I use have a very good record of spotting places where price moves stop, so until proven otherwise up here, I think we will decline from this zone soon. Whether it is a small or large dip I do not know.
There is a lot at play here from the PPT, which is likely heavily involved here to help get the attention off of several other problems that are going on. I have to admit, this is a job extremely well done and I think it is going to work. I do urge folks not to chase this especially in the zone we have reached now where a retracement should take place. I am trying to take sell signals intra day in the ES up here if they come along. At press time though everything is up, so no sell signals are in sight at the moment.
We also probably have some short covering that has propelled this up so fast. The Hedge Funds were net heavily short at the trap low point. At some point the cry of Uncle calls out when you get worked enough trying to hold a short in the face of a run like this. Just ignore the COT stuff on the chart, it is not worth looking at in the stock indexes anymore for the most part. It was just on that chart when I captured the image. Net net here, get ready to buy the next dip for a hold of several months. The trick might be that it could be a small dip, which is always tougher to buy than a large one. However, it does indicate strength it if is small, so keep that in mind.
Here is a trade setup that I think is pretty good, Coffee. You can see we have POIV divergence down here at a time when a seasonal low typically occurs. We also have COT buying at the same time. I personally want to see a smidge more basing here, but we could very well just take off here without that. As always, it is up to individual trading styles how to get in and out of things, but the basic setup for a rally is here and I am looking at this one.
The meats are also setup for a trade here in a few days, the next chart is that of Hogs, but Cattle is also setting up as well.
I have drawn what I am looking for here, I have no idea if it will happen or not. The setup is here I just now am looking for some type of price confirmation. The way I see it so far, is just a retracement in an up trend. I want a high test or a false breakout that quickly reverses, etc.. Neither of those are here yet in either of the meat markets.
In summary, I think it is likely we have seen the low now, although there is an outside chance we could get one more move down to get to the oversold level for the VIX trade. I am looking for buy signals now on dips once they begin. As far as commodities go, I think we have to sell big rallies if they occur because the trends are so decidedly down. The million dollar question is, will these two blood brothers finally detach. Commodities and stocks have traded lock and step for quite a while now, yet it appears that the bigger picture is saying buy stocks and sell commodities. This is where using short term entries will help us. This is a big picture view, but we still have to trade the setups as they come along and they may not line up with this view. It would be a good situation if they were to detach and we could get a stock rally without a bunch of inflation. I have my doubts about that but we can always hope!