BOND MARKET RALLY?
We have an interesting scenario going on in the Bond market right here. On one hand we have one of the strongest seasonal tendencies in all the markets which calls for a decline at the beginning of the year. This has been pretty reliable over the years but nothing is perfect. In the other corner we have a very bearish Small Spec position from the COT Data which should be a very bullish indication. We also have that COT bullish data coming at a time when we are at a crucial support level for this market. The commercials have been buying this market but not at very strong clip.
WHICH WAY TO LOOK?
For me if it is not completely clear I do not do anything. In this case the fundamental setup would all else being equal trump the seasonal. I think the way to play it is to look for the rally first, then short a break down if one takes place and the support levels get taken out. In this case this means this can be played in either direction. On a short term basis I don't see an entry here at the moment either way. Weekly setups are much different than daily. They are more along the lines of a general expectation for a move. Since so many people are looking for a bond decline it makes me want to look for a rally. However, if this ledge I have drawn on the chart breaks, down we go.
VIX FOLLOW UP
We still have the VIX trending steadily down which is not a sell. I am still looking for a selling place but just because the VIX is low and going down that is not necessarily a sell signal. You have to keep in mind in spite of all the negative sentiment, the world is ending, blah blah blah, there is an upside bias to the stock market overall. Most sell setups do not work as well over time as buy signals do. This is because there is an upward bias of only about 112 years or so. You may not like it but it is what it is. The VIX measures volatility. Complacency which creates low readings in the VIX does not necessarily mean a big decline is coming. We have seen low VIX readings often during big up trends that just keep sailing merrily along. Do not be too much of a wise guy when using this.
Slow crawls are the hardest markets to trade for me, so when I see them I don't mind keeping my powder dry. I don't feel I have to trade every day and I don't want to trade every day. I want to trade when my rules are met which may or may not be every day.
I am looking for shorts in the energies right now as well as the EURO.