Thursday, May 30, 2013

Is This The Most Important Chart?

National mortgage interest rates have been rising fast. 30-yr fixed rate is up 50 basis points in the last four weeks, and is mostly the result of rising long-term U.S. Treasury yields. This development could impede the housing recovery, which could in turn slow down the economy, and therefore cause the equities to sell off, as I discussed in my post on May 12th.

click on charts to enlarge

Wednesday, May 22, 2013

Quick Celebration

Bears are jubilant today. S&P 500 finally had a decent down day. Now everyone is talking about the violent intra-day reversal, and a possible meaning of it.
Traders, it does not mean diddly squat yet. On my monthly SPX chart below you can see that it took the price many months to reverse the trend, marked by the moves below the rising 20-month and 50-month SMAs, before we knew that previous two bulls were dead. Celebrate for a few days to a week, but realize that prior broken highs at 1552 and 1576 will now serve as supports, and then hop on the freight train to above 1700 into the end of summer, when a bigger correction may occur. This is probably a short-term top, and not the end of this bull run.

click on chart to enlarge

Wednesday, May 15, 2013

Is This A Short-Term Top? - Part II

I usually do not like to complain about the market. Traders need to play the market they have and not the one they want. I realize that I am a microbe on the whale's back, and could be swept away by the next big wave, so I tend to agree with the market more than disagree. But when for the second day in a row we hear that the last 30 points of the rally on S&P 500 were the result of successful hedge fund manager's bullish view on market, I have to take a pause and say that we knew all about this before he spoke, and this is not news to us at all. So how is it that the entire street celebrates the words of a guru (and I deeply respect the gentleman, as his track record is impeccable) for two days just because he tells us that he is still bullish? Of course he is bullish - the guy has $18B of reasons to be. He is mostly long manager with enormous positions in the market, one of which is AAPL, by the way. So he goes on CNBC, which is being watched by anyone who can sit tight for more than five minutes, and wakes up a sleeping giant, causing a jubilation and probably a sigh of relief. Longs did not want him to say that the rally is done here, and he surely delivered the message they needed (like there was even a remote possibility of the opposite happening). "Shorts are now going to have to shovel themselves out of the grave", so says the highest paid hedge fund manager on the street. Why did he mention the shorts? Is he being purposely bullish on national television? Why mention the traders on the other side? Anyway, so he goes on to enjoy himself (you could see his giddy-up attitude spilling over, as he chuckled at how easy it is to make money with Fed on his side), and he pulls out the chart. An intelligent man, he goes on to tell us what the squiggly line is. "We are in 1982 moment", he says, "as the equity risk premium (shown on the chart) is at the high level like it was back then". Apparently, he says we are at the beginning stages of a bull market.
Sure we are (pardon my sarcasm) - 50 months into it, at 149% off the bottom on SPX, at all-time highs on all major stock indexes (except NASDAQ), at highest NYSE margin debt on record, with the largest Fed balance sheet ever and swelling as I type, and still staring deflation right in the eye, resulting in almost non-existent corporate revenue growth in Q1 of 2013. I guess these are the strong pillars which this nascent bull market is supposed to rest on...

This has been the monthly market rant, brought to you by a vigilant trader. Buyers beware!

Tuesday, May 14, 2013

Is This A Short-Term Top?

When it comes to charts, I do not believe in coincidences. Daily chart of S&P 500 now closely resembles the pattern between November of 2011 and April of 2012. Just like then, it is now up 22.8% from the low in November of 2012. The price also sits at the same spread above 200 dsma - about 12%.
Buyers beware here!

click on chart to enlarge

Sunday, May 12, 2013

What If Treasury Rates Are Going Up Sharply?

In the last two weeks long-term U.S. Treasury rates have been steadily rising. The charts of l-t tsy bonds, rates, and the dollar, are starting to suggest that Fed may be on the way out of the treasury market. If this is the case, the rates may rise rapidly due to the largest buyer sidelined.
So I decided to plot TLT over TNX and DXY to show the latest development. Also, I went back to when the interest rates bottomed in the major way in 1994. The most interesting fact is that back then, when TNX started to skyrocket, SPY went down and did not see the same level for exactly one year. Are we going to see the same scenario now? Only time will show, but we need to monitor this development. TNX chart now looks similar to the beginning of 1994.

click on charts to enlarge

Wednesday, May 8, 2013

ES Geometry

Now if I could just synchronize these circles with Bank of Korea's surprise interest rate cut... :)

click on chart to enlarge

Tuesday, May 7, 2013

ES - Gap Fill Scenario

I wanted to look at how ES may trade after today's close. I expect an intra-day reversal on Wednesday to be followed by five-wave gap fill over the next two to three trading sessions. This will be a very quick and decisive trade. Below is my projected chart.

Warning: this is not a very popular market view, and goes completely against the grain. New traders are advised to use extreme caution and tight stops while executing this setup.

click on chart to enlarge

Sunday, May 5, 2013

S&P 500 - Where To From Here?

Technical analysis does not have to be complicated. I try to share simple setups with my readers, and stay away from intimidating ones.

SPX had a nice bounce in the last two trading sessions. If you are still long, this is the area to start lightening up. If you are an aggressive short and want to establish here, there may be another day or two of upside left. One thing is clear from my chart below - the price is up against resistance trendline. It is also in the vacuum above the upper bollinger band, which usually means that it is gasping for air and will probably suffocate shortly. Similar setup on the chart resulted in a pullback to backtest the breakout. I expect the same outcome here, after another day or two of slight follow-through.

click on chart to enlarge

Thursday, May 2, 2013

ES Target Zones

ES has target zones at 20 - 29 points either way from this 1591 level. Up or down? Decisions, decisions, decisions...

NFP will be out bright and early tomorrow... Be ready!

click on chart to enlarge

Wednesday, May 1, 2013

Trading Dilemma

Now that we are in the month of May, not a single day will pass by without a question about whether traders should sell this month and go away. At the time of this post it seems like a no-brainer, as the economic reports this morning (and really for the past month) are pointing to a slowdown in U.S. juggernaut-like 2% growth. And don't you wish it was so easy? Like an alarm bell, on May 1st the black-box hedges religiously follow their algos to sell everything in sight, and we, mere mortals, just play along and get our measly share of the action. I beg to differ! If it was so easy, we would all retire young and watch CNBC just to entertain ourselves (not that we don't already). I told you previously to turn the TV off, but now I actually want you to watch and listen to every pundit call the top. Like clockwork, they will show you the historical odds and tell you how market always "sells in May and goes away". "It will not be different this time" has not worked for me for a while. Traders, it is somewhat different, at least to me. The market has never seen the unprecedented amount of liquidity thrown at it from all directions of the world, ever. How do you put historical odds on something you can't go back and compare with? All those who think that this rally is not a part of central bank-orchestrated money rain are just kidding themselves. But the fact that we know it does not mean it stops any time soon. Therefore, I say it is too early to sell in May, as the charts tell us otherwise. I do not want to aggressively buy here, but selling this market has been continuously moronic exercise for even the most genius traders out there. Just do not do it, and sit tight, and wait for that signal to go short. Meanwhile, you buy the dips and scale out at former tops, leaving small portions just in case price breaks through and carries higher. This has been the pattern all year long, period. No other strategy worked and had any success whatsoever. Calling tops is a very bad strategy here, as most indexes are in a vacuum of all-time highs. There is no visible resistance, no levels to trade against, no safe spots to place a stop at, no overhead resistance at former support levels which were broken. Pull up your charts and you will see what I mean.
Now, should we get a sell-off that is more than just a pullback, which will break previous supports and create a lower low (which has not happened this year yet), then you got your signal, your green light, your sell in whatever month it happens and go away.
As always, take my advice with a grain of salt and do you own research.