Consistency Matters

For those of you who question the PPT and whether or not they exist or what they do, it is time to take your head out of the sand. Yesterdays "mysterious" recovery in prices in the last 20 minutes was a news story reported. You get me on a news station and my market recap for yesterday would have been as follows.

"Stocks opened sharply lower this morning on follow through from Thursdays weakness. This was a logical place to trap short sellers below the low of the Panic selloff day from the prior week. Professionals bought in at these levels triggering a rally that went up sharply. This move was in the midst of a downtrend, which led to profit taking driving prices back down. The US Government decided it did not want a weak close on this day, so with 20 minutes to go they launched futures buy programs. These buy programs in term triggerred stock buy programs driving the Dow average up triple digits by the close 20 minutes later. Our calls to the treasury department for a comment were not returned."

I guarantee that would be a ratings hit for whatever network I was on. Ironically it is exactly what happened and not just smart ass commentary. News outlets are more interested in ratings than the truth which is at this point indisputable. Where does the PPT's late save yesterday leave us? Unfortunately, this is the truth the left biased media does not want out, so alas this will never happen. It would be fun though wouldn't it?

The first thing that jumps off this chart is how consistent these 17 week lows have been. Every single one of them has had a good sized rally beginning at the dates the cycle has indicated. It next comes due 7/2/10. By this logic it would follow that we would drift down into that date for a buy spot. I do not use cycles much for actual trades, but they are helpful in trying to develop a general idea of what might unfold moving forward. There does appear to be some confluence for a big rally beginning in mid October, but I will cover that more as we get closer to that date. That also coincides with what would be the next cycle time zone after the one that is displayed.

Moving away from the cycles, the other thing that really stands out here is the huge bearish divergence that has been building during this rally. Since the Pro Go indicator is designed to tell us what the professionals are doing, we can see more evidence that they are not the ones that have been driving this higher. Hmmmmm... anyone have any thoughts on who has been? In any event, divergences like this are typical in strong trends, but at some point they matter and price retraces often sharply like what we have seen. It is impossible to get the exact highs in these situations because in this case the divergence has been in place for months, and has just now kick started a retracement. This is one of the reasons I have been hesitant to be aggressively bullish throughout the "Government Rally." The PPT buying does not bother me that much other than I just don't like market manipulation in anything. I think if we were flies on the wall in a high level government meeting, we would be shocked at the manipulation that goes on everywhere in all aspects of our life. There is nothing we can do about it, so it is what it is.

The Green line on the chart is one of my price containment bands, and the rule is basically as long as we do not have gaps between the price bars and the bands, the trend is intact. As a result, the weekly uptrend is still in place for now. Overall this tells me a couple of things. First, taking buy signals here is ok because the weekly trend is still up. Second, cycles are saying we should decline, so once these bounces take place they are shorting opportunities for bigger moves down. We are also in the neighborhood of the 200 Day Moving Average for many stocks, this should be a support area. Hence we have a two way trade area here.

Friday's last reversal bar means nothing, so move back down this coming week would be no surprise. However, from a short term perspective, I am looking for longs in individual stocks down here now.

Gold got whacked big time this week so let's take a look at that chart.

I have a 12 week cycle on this chart and you can see how well that has done in picking buy spots. It projects another one in 2 weeks. The big problem I see here is that we have a big picture 3 point divergence in the Pro Go Oscillator that has triggerred a downward move. I generally do not like trading against these types of things, it is a good way to get your account value reduced. The Green Line shows my weekly support band that as you can see has contained price nicely recently. It is about $30 below where we currently are. My plan for this market is to short any rallies that happen here next week if we get them. If we do not and continue to tank, I will look to see if any buy signals show up in the support zone. I have my doubts that they will but we will just have to see.

I would not initiate a new short at this price, primarily because we have had 5 consecutive down closes on the daily chart in an uptrend. Has the back been broken here? It is way too early to tell, it appears to be a normal pullback at this point. However, the red flag is the big time divergence staring at us here. This makes me a bit more cautious on the long side from a weekly perspective than I otherwise would be.

Good trading to everyone this week. I will be traveling for a week starting Wednesday, so I may miss a few days with posts. I will try to put something in each day but no promises.