"SIR HOW WOULD YOU LIKE YOUR CROW TONIGHT?"
This is a scene about to play out at a local restaurant starring yours truly. I have been looking for a mid January short term top in the stock indexes due to cyclical, seasonal, and a few other things I have mentioned. I have starred in this musical before unfortunately, most recently last year. The trade setup I mentioned yesterday for a sell did not trigger, since the prior days low was not taken out. There were some sells on my list that did trigger and I took a couple of them, which are both about even right now. The hardest part about trading the short side at this time of the year is that the market is pretty quiet and just creeps higher day after day on light volume. This pattern has played out over and over since the 2009 low. It should put to rest the idea that rising prices on low volume is bearish. It is my contention that rising prices on low volume make it very easy for the PPT to save the market when short term declines develop. They just don't need to commit nearly as much money into the futures buy programs to reverse the drop.
They have no way of determining when the market will have high or low volume. I am sure that they like light volume conditions when they develop, they are much easier to control. For today I do not see anything I would consider a sell signal in the indexes, so I have no orders in there. Last year at this time I was also looking for a short term decline while we had this slow creeping price action, and if you look at the charts you can see I was dead wrong about that. There are some people that I really respect predicting a huge bull market this year, perhaps they are right. I don't trade on predictions, so this is just engaging in speculation. The next chart of the VIX shows what we probably need to get a sell signal going.
The purple line below on the chart is the SP 500 price. You can see that we were creeping higher with the VIX in a down trend, and it was not until the VIX got below the bands that we began a short term decline. These bands are just 10 percent above and below, and Bollinger Bands, there is no magic science in them. It is possible that we need a quick drop in the VIX to trigger a complacency sell signal. This just like anything else is just one possible event that could trigger something. I do know that when I review trades against the trends that I make that become losses, they often have this creeping look to them. As a result, I trade light or not at all against trends that look like this. I take a taste here and there just so I don't miss something, but rarely if ever would I have full size on during periods like this. The trades I have on now are less than full size.
The next market that is also telling me stocks should come down is bonds. I have been looking for sell signals here, but now we appear to be heading back up again.
We are right into the down trend line off the top here so if we are going to have a decline here it needs to begin pretty soon. My short term tools are going to turn up in a few more days if this does not start down by then. We know the FED is likely to keep rates low for several years by what they are saying, so it is hard to look at the short side knowing this. However, it is impossible to trade off what they say or do, and my tools that I use have been telling me to look to the short side. I think something has to give here because even though in the old days Bonds and Stocks could move together, in the modern era that rarely happens. One is going to decline.
I am looking at possibly shorting Cattle in a day or two and I am trying to short Wheat today. The Wheat trade seems unlikely since we have to travel a ways to get to my order entry spot, but you never know.
The CTAS disaster trade has an exit today at a close of 37.25 or less. If we close there or below I will get out and take the loss in this one. I am in at 36.52 so it is a virtual lock this will wind up being the first losing trade with my new stock trading approach. I do have some other sells indicated for stocks, but I am passing on those due to the strength of the overall market here. It is a miracle that all of the short term stock trades which have been shorts have made money considering how strong the up trend in the overall market has been. I think it lends credence to this new method to be able to perform that well in the face of what should be an environment where it would not work at all.