OVERBOUGHT IN A DOWN TREND
Today at the close I added some more shares to my short position in the SPY's. One thing that is developing is some significant divergence in the accumulation indicators in both the ETF's and the futures indexes. I have On Balance Volume in Red on the chart above and it looks very similar to what the POIV looks like in the ES. You can see price is very close to the recent highs, yet OBV is quite a bit lower. This could of course catch up, but I am just talking about what is at hand now. I showed the reasons why I still say we are in a downtrend over the weekend. In this chart you can also see we are also below the 200 day moving average, albeit it by a smidge here. Net net we are significantly overbought in a downtrend, so that is why I am shorting this move.
As with any other trade, there is no way of knowing if it will work or not. The probabilities of fading overbought conditions under the 200 day are favorable, so that is why I am in this trade. It really is not any more complicated than that. Once we get a reversion, if we get one, I will exit the trade. If we continue up, I will not add any more due to how perilously close we are to the 200 day. There is not necessarily magic to the 200 day other than many large institutions follow it very closely, so it becomes a self fulfilling prophecy to some degree. Over bought conditions north of the 200 day do not have the same edge as they do underneath it.
I do think some markets are setting up potential buy signals, here is one I have not mentioned recently. The GOLD market is close to a pretty good launching point. However, I think this move is going to be the last hurrah before a significant down turn here. At this point we are in a tight triangle type of pattern. The seasonal points upward, so if we break in that direction I will likely go with that. The one thing we cannot ignore of course is the inter market correlations. Everything trades of the ES right now, so if it does happen to roll down, this will come along with it. I also still consider the weekly trend in Gold to be down now, so that is one reason why I think if we get a rally here it is not going far. I do think the correlation between Gold and the stock market is a bit looser than many of the others, but it is still there. I do not see a trade for tomorrow yet, but as we all know the overnight session can change a lot of things very quickly. We currently have some index weakness which is influencing this market down as well at press time. If that index weakness reverses, this may also.
Silver still appears to be the weaker of the two, longs should be done in Gold and shorts in Silver. The Euro/DX trade looks setup to me now, with the DX being down and the Euro up. Of course it is likely that will not trigger unless stocks keep moving up since there is a direct inverse relationship. This is just the PPTs dream. They can control virtually all the markets by just launching buy programs in the ES.
I was reading the details about a new bill Gensler from the CFTC is pushing, that would outlaw the use of segregated funds for use in trading. Apparently according to a quote attributed to Gensler, Corzine was the main guy who blocked the bill from being voted on this past summer. If that is true, nobody can tell me why Corzine should not be in pinstripes. If he was blocking the bill, while at the same time engaging in activity that was essentially looting clients accounts that he knew would be outlawed, there has to be some grounds here somewhere. It is shocking to me that they are allowed to do this in the first place. As we know most people lose money trading. Those who do well either run their own funds, or just trade their own money. They don't work at firms like MF Global. What that leaves us with us people trading our good faith money in our accounts, who are losing traders, and it is legal for them to do it. I have some guy trading my money who is not good enough to trade on his own? I would like some Octagon time with some of these guys, lets do a pay per view! I am sure the authorities who check up on me from time to time will not appreciate these comments and I could give a ....
The world should be outraged over this.
The last tip of the day is turn off the TV it will only hurt your trading.