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Tuesday, March 27, 2012

IT IS STILL ALL ABOUT THE DOW




Here is a market that I am bearish on currently, Crude Oil. The real question is can anything actually decline in the midst of the monster bull market in stocks? There was a comment about correlations in a prior post. I try to ignore them in all honesty because it is really no way to trade. However, in this wacky world where the FED is just pile driving asset prices upward, it is hard at times not to consider what is going on.

On this chart you can see a great COT sell setup in Crude that is in place right here. Prices stopped right when the big boys starting selling. I think the most likely reason we have traded sideways here instead of breaking is the overall up trend in asset prices that is floating all the boats. I can tell you I had a ton of open equity the other day in a bunch of shorts that evaporated when the 10 point ES decline got reversed. This is a pattern that has played out in movie theatres all across the world since the 09 low. I do not know when or if it will end, but I am not worrying about it anymore. I have to take the trades that meet my rules, and if they don't work due to that so be it. There will come a time when the stock market does not rise every single day, and I don't want to miss a big one by arbitrarily throwing in some dumb rules about correlations.

I have stated this before, but to do it again, the way to use correlations is just to determine percentage of risk in your account, not to filter trades out. Most trades are the same as each other be it soybeans or currencies, so just trade fewer contracts when trading multiple positions. Crude looks good to me here on the short side so I am trying to find a way in here this week.

10 comments:

Anonymous said...

Cheers Mate! When you speak to the FED driving up asset prices, do you mean through posting low interest rates, thus encouraging more investment into "risk" asset classes like free-markets? Or do you mean that the FED is doing something more aggressive and directly driving up certain asset classes?

Cheers Mate!

Michael said...

i agree wholeheartedly on your point about correlations - definitely not a way to trade. something to keep in mind of, but no way to trade. as for the overall market, I honestly thought the move would start to shuffle around now that the fed has made things clear about the supposed qe3, but from the looks of things, this market is still going. it's amazing and humbling at the same time....

Michael Treyder said...

i completely agree on your point about correlations. as for the market itself, i was surprised to see it rise still even after the fed made its point about qe3 but i guess, just judging from the 10/30 moves, there are still people out there that don't want to participate out in the broad indices. it's an amazing move...very humbling as well. i honestly get that weird feeling like all june contracts (on the indices) are geared to go to pluto.

Chris Johnston said...

I think they are directly buying index futures or doing it through their proxies GS and JPM, and also influencing other asset prices with various things they do. If it were not for the really high stock prices a lot of people would be jumping off cliffs right now. They are manipulating public opinion like never before.

Michael Treyder said...

btw, sorry about the dual comments. i thought i signed out of my other account. but that's a great point you made about buying through their proxies.

Vikas said...

Chris, did you enter the long Gold trade? Wondering when an entry point sets up or if there is still one here..Also, when are you launching your trading service?

Squire said...

Absolutely. Government backed Wall Street is pushing up futures pre-opening. When they see a down day they are ready with news stories and speeches. They are expert at this. The whole idea is to get people to capitulate into stocks. I think individuals are still staying out but hedge funds are buying during the day. I think.

I suffered a 10 point S&P 500 loss in a previous attempt to short. This one I am down 9 S&P 500 points today. I am ready to bail out at a loss when my system says to. Like Chris, I just don’t know when the market will correct (hopefully 7 to 10%) so I had to take the short.

Anonymous said...

Speaking of correlations and soybeans, soybeans have been on a monster rally themselves. However corn is somewhat weak. I want to bet on a corn decline but am afraid by the strength in soybeans. Any advice for these markets?

Anonymous said...

Chris as you have pointed out, the guv was busy throwing away 2 trillion during 2008 trying to prop it up--have they fine tuned the art of manipulation so well that we are now headed for the promised land.

I note that the gold:xau ratio has now begun to creep up again after going sideways for about six months. The same thing happened in 2008 and that was a danger signal. Gold stocks are lots of things but they are STOCKS and this is a flashing warning in a sea of complacency, much as it was then. It wouldn't be the first time manipulation has failed :).

Chris Johnston said...

I know I am dragging my feet on the trading service so my apologies on that. I have not decided exactly how I want to do it yet.

I have not gone long Gold yet, looking here the next couple of days now that we are pulling back some.

Corn and Beans can be traded independently of each other. I would not be concerned with Bean strength in terms of shorting Corn.

As far as shorting the ES, I have not had any sell signals yet but if I get them I will take them. However you trade you have to follow your rules and stay true to them. If they do happen to generate a lot of sell signals in a trend this strong upward, you might want to make some adjustments to them. This trend will change at some point but for now it is tough to fight this tape in my opinion.