Tuesday, November 13, 2012


I have been talking about a bounce in the stock market and thus far we have not gotten one we have mostly gone sideways for the last few days. Now we are drifting down into the area where the VIX is saying sell if we go much lower. It is said that sometimes the best signals are failed signals in the opposite direction. In this case a failed buy signal marked on the chart could be construed to make the sell signal coming better. I do not have any idea if that old axiom has any validity. To me a failed signal is just that a failed signal. I don't think it has anything to do with the next signal that comes along. Often a failed signal can be a sign that market conditions have changed but we never know that until quite some time down the road from here.

What would make a sell signal really interesting to me now would be for us to rally a little or even sharply but for a brief time. After that the Vix should drift down into the bands for a sell signal. At that point we would likely be toward the end of the month and right into the EURO chart sell zone time frame. The sell bands are a ways above now so I would like to see us get up to them to enter a position type of trade. If we fail short of that level the short trade for me will be a short term trade.


What to do with the Bond Market?

So many people are eager to short the Bond Market due to the general consensus that inflation has to be coming with all the money printing the government is doing. As per my usual stance I am not in agreement with this argument. The general problem that I see and have been stating this over and over in here, is we are battling deflationary pressures. The FED is doing what they are doing to prop things up not to try to stop them from going up. If you took out all the stimulus they have injected into the economy we would have a massive deflation wave going on right now. We would also have stocks dancing around 5000 - 6000 basis the Dow. Now that the FED stated today that they are going to keep rates low into 2016 it is hard to imagine how we could have a huge rise in interest rates while they are buying so much of our bond supply.

However, with all of that opinion aside I will simply just watch the trend. If I see it change I will get short regardless of any economic view I might have. For now the trend is still solidly up and at the moment there is no sign of that changing any time soon. I do not see any imminent trades in Bonds right here.

Most markets are in the mode where they need to bounce to set things up. I did blow a trade in Soybeans recently. I wish I had a good reason why I missed it but I don't other than I just blew it. I wish I had at least called it out in here and I did not even do that. Hang on a minute... uh.. umm, no I sold the exact high and bought the exact low on a 30 tick chart 41 times in a row come to my seminar!


Good Trading


Anonymous said...

The Fed may ease up on the t-bond buying scheme to bump up the risk market and allow for an interest rate relief card to be played in the next recession.

Long bond rates fell dramatically in the second half of 2011. They could easily rise just as dramatically without moving outside of normal historical bounds. In a way this would be nothing more than a QE fueled gift to those already positioned in risk as the hot money would flow there, for a while.

Chris Johnston said...

Anything can happen and now that the election has been won which was their main goal for doing this in the first place it would not be a shock to let things slide a little since there is no price to pay for it now. However, a bond market crash will crash the stock market also and I still doubt they want that even though the game has been already won.

Vikas said...

LOL! Love the ending :)

You did recommend a soybean short trade a couple weeks ago, but it never bounced enough to fill us, and now its down 100 pts since.

Anonymous said...


A move to 4% would not be a crash and would allow the Fed to more aggressively QE in the next recession.

Chris Johnston said...

that would represent a huge move in price and would crash the stock market if it were to happen. I am not the wizard of oz so you may be right but I don't think we are going to see that any time soon

Vikas, thanks yes I think I said that somewhere but we missed the trade in the service and that is what I am mad at myself for

Marcus said...

I agree that the Fed's buying will keep rates low. It has unlimited buying power. And if rates rise, not only the stock market but the USG could blow up. Not saying it won't happen, but it appears that the trend should stay up. Ultimately, though, we just have to follow the tape.

But if this analysis is correct, we might also look for a long entry in gold, as it's another zero interest asset in competition with government paper.

Anonymous said...

I am not the wizard of oz<<

I know, you've got more hair than him :)

Chris Johnston said...

The hair comment is funny

I am not sold yet on the future of Gold I think it will follow stocks as it has been doing. However, as I always say I could be wrong and that is what stops are for.

Anonymous said...

I agree that the Fed's buying will keep rates low. It has unlimited buying power.<<

Since the Fed ALWAYS has unlimited buying power, what accounts for wide swings in interest rates since the 2008 crisis?


Has the bald wizard of OZ suddenly outlawed rising rates? And was the rate rise in early 2009, a bond crash? I don't remember reading about it in my history books. I guess I'll have to get later editions.

Chris Johnston said...

since there seems to be a lot of sarcasm in that response and you apparently know much more about trading than I do please submit a guest post and I will gladly post it. I would like to open things up to guest posting. Just submit it to cj@wearefuturestraders.com and assuming there are no swear words or other offensive remarks, I will post it.

Don't be a paper champion and go hide now send me that post

Anonymous said...

CJ, you are the best trader around--my point is that investors are being lulled into the same complacency about the bond market as they were in stocks long about 2007 or so.

Good luck to everyone--see PMF.

Chris Johnston said...

I agree completely on that complacency comment. I am also serious about guest posting I think it could enhance this blog quite a bit so please send me something it you want to. I think it would be great to broaden this out some.

I am just getting spammed to death now for some reason with comments so I hope I did not delete anyone's by mistake.

Marcus said...

>> Since the Fed ALWAYS has unlimited buying power, what accounts for wide swings in interest rates since the 2008 crisis?

Investor demand? For the Fed to put a floor on prices, or a ceiling on rates, doesn't mean that swings or fluctuations are impossible. It just means that they can't exceed some threshold.

>> Has the bald wizard of OZ suddenly outlawed rising rates? And was the rate rise in early 2009, a bond crash?

The rate rise in early 2009 corresponded with an equity rally. In any case, if bonds crashed, they didn't take out 2008 lows.

Has Bernanke outlawed rate rises? I don't know. But he's soaking up, what, 80% of long bond demand?

This is all speculation, and I'm not going to argue with the market anyway. Like I said, follow the tape. But for now, it looks to me like bonds will stay up for a while.