I DID NOT GET THE MEMO
I have been talking recently about the EURO being setup for a rally, apparently I did not get the memo. The memo of course is the water cooler economist talk again about the European Union and how it is fractured, they have to print money, blah blah blah. I simply cannot imagine having the confidence to commit hard earned money "investing" in arbitrary opinions like that. There is one popular service that recommends trades with 25% trailing stops. Are you kidding me with that? You do all kinds of research, formulate an opinion albeit it arbitrary or otherwise, then you need a stop that big? That is actually worse than what a random walk theorist would predict prices to fluctuate in a short period of time. What in the world do you need with an opinion carrying a stop that big?
From the chart above you can see why I am bullish for this market. We have a seasonal low due. We have a very large short position with the small speculators, which is bullish. We also have Sentiment very low at 18, also very bullish. We have steady commercial buying into the decline, again bullish. There is also pretty good divergence showing up with POIV on the daily chart. This is a buy setup. I could care less about what may or may not be happening with the EURO debt crisis. We never know how the ebbs and flows of situations like that will play out. Even if the worst happens, that does not mean it will decline every day. The technical and fundamental things I use say buy, so it is a buy. If the armchair QB's are right, and it goes down every day for eternity, that is what stops are for. Remember that macroeconomic conditions are just that Grande. They are the big picture. If you are a short to medium term trader they do not mean nearly as much.
This chart is something I find interesting. It is Natural Gas on a long term basis. Obviously we have had a precipitous fall, almost the inverse of what the precious metals have done. Using the same logic I use with GOLD, this market will revert to the mean, that is a given. When of course is the question. The answer could be soon. I have marked off each time when we have had bearish sentiment and also a large small spec short position in place at the same time. You can see we had very good rallies each time that happened. We might be moving into that type of situation here in a month or two. This is a quarterly chart, so it will take that long for the levels to move that far if indeed that is where we are going. There certainly should not be any rush from a long term perspective to buy this market, but we may have one reasonably soon.
On a daily basis as a short term trade, there is potential depending on how the next few days play out, for a buy signal to be here for this market. That is a different scenario entirely from a big picture setup like what I have above. Sometimes I like to have an idea of what is going on from a larger perspective.
Today was certainly interesting, but we cannot make too much of one day in this environment. It does however look to me like more upside could be coming in several markets overall. News driven markets can be very volatile but what is interesting to me is that the VIX did not rise that much during last weeks huge decline. I am not sure if that means anything or not, but generally when you get a move that severe down, the VIX really rallies sharply.