LET'S RAISE SOME EYEBROWS
After yesterday's comments this may raise a few eyebrows. This changes nothing about my big picture view of this market, but there may be a short term opportunity at hand. I mentioned that what I was hoping for was a sharp rally into January to load up for a short to hold for potentially the big one here. I have no idea if we just get into liquidation mode here or not. One thing that the newbies who have not studied commodities don't realize is, at times they just move like an avalanche in one direction. The long term charts look like EKG's with just one mean reversion move after another. It can be dangerous if you are used to just buying small pullbacks in trends in stocks, to just randomly apply that to the commodities markets. The typical moves are over reactions in both directions.
One tool that I used to use that I do not anymore, and I am not sure why, is a 2 period ADX. You can see on the chart that for timing short term extensions in price, the 90 level in this index does a pretty good job of that. We are at 93 here in Gold. This may be a spot to look for a short term buy. It is not a trade I am going to do, but I just wanted to point this out to those of you who look at every instance in life as bullish for Gold. I used to listen at times to a radio show hosted by Gold Line or something like that I may have the name wrong. The guy had 75,000 buy signals for Gold. If his Uncle Herb 3 putted the 14th green it was a buy. Of course they make fat commissions on the sales so it logically follows they are bullish. There is a time to be bullish or bearish everything. Timing of course is everything. The time to be bullish anything is generally not after it has increased 400% or more already. However, it is during these periods where it all of the sudden feels "safe" for most to buy things. Of course they buy the highs.
This is certainly not a spot to short this market after a monster decline like we have had. If you wish to play this market right at this spot, not for me, I think it is more of a buy than a sell on a very short term basis. If you are a long term bull and think I am dead wrong, you should be buying with both hands here. For long term trades based on "fundamentals" these are the types of declines you should live for to buy into. Of course I have fundamentals in quotes, because the fundamentals do not support this, funnymentals do. An opinion about something that might happen that never has it not a fundamental.
I want to show some proof of buying weakness and selling strength, and why you should consider it.
This may seem hard to believe, but the above system is a very simple non optimized method of buying stocks on weakness when the close is above the 200 day moving average for symbol CWEI. This involves buying one unit of 100 shares, then a second unit any time the price closes lower than the first entry. It then exits MOC on just a basic oscillator being in the overbought zone. There are many ways to determine what weakness is and I am not giving up how I did that here, but it just tells you that when you get an extreme move, you need to play in the opposite direction most of the time.
You have seen me fade ETFs, the SPY specifically recently, and it was due to this basic premise and system. The two trades I did both worked out very well as you saw, and seeing this table above now, you can see why I like doing those types of trades from time to time. This is not for everyone, they carry no stops, so you can go for a ride occasionally. I can also tell you that not every stock has results this good, but many have them solidly in the 80's percentage wise, and with the average win being more than the average loss. Those are numbers not to be ignored.
The whole point of going into this is to show you show buying into weakness or selling into strength, can at times be the right thing to do. It needs to be done in general in concert with the trend not against it. Gold right now is against the trend, so that is what makes playing for an oversold bounce dicey. Had this condition been in place with GLD for example solidly above the 200 day moving average, I would likely be buying it here. The ETF not the futures.
I don't see much in the way of opportunities in other markets here, I wish I did this is boring right now.