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Divergence Galore
Submitted by Nic Lenoir of ICAP
Every time frame you look at in US or European equities below weekly is showing quite a bit of divergence. Short term support on S&P futures is 1,089.80. A break there and we should retest 1,075/1,076. There is an minor intermediate support at 1,082 which corresponds to the support of the short-term bullish channel, but given the amount of divergence pent up in the market a retracement to 1,075 seems more likely. This will be a key level to determine whether we at least test 1,036 which is the support of the open triangle on the daily chart.
Ever since we failed to break 1,012 I had recommended to close shorts that were initiated at the 88-week moving average around 1,080 the first time we tested it. Even though we broke the 88-wma to the upside, we recommend starting building shorts here again, at least tactically. This can be done either on a push up to 1,004/1,008 or on a break at 1,089. A break of 1,075 would also be a good trigger to add on to those positions.
Shorting this tape requires caution and discipline, but we have levels around here offering a good risk reward to initiate positions. Picking a good entry allows to hold on to positions and potentially catch the next big leg down which is certainly going to come in the next 3 or 4 months. At worst we will make the best of a modest short-term pull-back and stack more chips to play the next move.
Follow the Dax where a break of 5,750 would confirm a more significant down move.
Good luck trading,
Nic
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This market is destroying many people who are applying logic and common sense to understanding what's going on.
Jeff Cooper, who is one of the professors writing for Minyanville.com, has a mantra that I've only now begun to feel in my soul as opposed to understanding in my mind.
He says that when it comes to the market, stop trying to apply logic or reason. It only gets in the way and actually makes things worse. Thinking gets in the way.
My thought is to try to see the market as a wave and you as the surfer. Your job is to feel the fluctuations of the wave as you surf so that you can compensate for changes and adjust your stance, not understand the physics of how the wave works and then project where it's going using that knowledge.
There are too many unseen and unknown variables. Or unseen hands, as Jeff Cooper likes to say.
Feel the wave. Don't think the wave. Thinking gets in the way.
Step 1. Buy a dart board.
Step 3 = Profit!
ie don't fight the Fed and don't fight the tape. Unfortunately I seem to have to relearn that lesson a couple of times a year. My last spanking was in TBT. Absolutely no reason for 30 year rates down close to 4.15%. Completely boggles my mind. Who in the world is insane enough to buy one of those things? Maybe the US government to support low interest rate home mortgages?
While this analogy sounds nice, I think it is missing some points. For instance, the wave is not an entity in and of itself, but it consists of all other surfers. In order for you to be riding the crest, someone has to be the that crest. Analogy not really accurate or meaningful.
Further more, ignoring fundementals and logic will prove devastating in the long term, even if it doesn't play out in the short term. It's like skating on a frozen pond, without taking heed of whether or not it is the beginning or end of winter, the temperature outside, etc. You may not every know all the risks, but you can minimize risks with knowledge, period. You may not fall in, or you may fall in, but in either instance, understanding the fundamentals is crucial in managing risk.
"ridign the wave" analogy works until it doesn't: You see 10 people skate across the pond, so you conclude that the pond can support you. But what you're actually doing is playing musical chairs. Consider October 16, 1987.
Perhaps I didn't expand enough or explain myself clearly. I agree with what you are saying.
What I was trying to infer is that instead of applying rigid thinking as to fundamentals or technicals, it's more a feel thing and much less a science and logic thing.
When I read comments such as "this is crazy" or "the market shouldn't be doing this or that" the writer is fighting with themselves and not allowing the "feel" to register.
Thanks for your comment and feedback.
Nicely said.
Let me recast this in my words :-) : Never get in the way of a stampede. Use the stampede's power for your business.
Afghan government more or less suspended
Taliban forces retake town from Pakistani army
Dollar sitting down hard
Gold popping with oil
Let's stay frosty today, shall we?
Pip pip
"This market is destroying many people who are applying logic and common sense to understanding what's going on."
The market doesn't destroy anybody. They destroy themselves if they do not manage their trades properly.
Not going up on good earnings news.
DOW / SP500
Daily trend - neutral / bearish
Weekly trend - bullish / neutral
Monthly trend - bearish (since early 2008)
USD INDEX
Daily trend - neutral / bullish
Weekly trend - bearish
Monthly trend - still giving *bullish* signals
MORE www.zerohedge.com/forum/market-outlook-0
Monthly trend is bearish? Yeah, keep shorting. Worked out well for you for the past 7 months, eh?
Im a keep it simple kinda guy. I understand that there are guys with stacks of degrees dissecting this market 9 ways to Sunday but its the simple truths that stick with me without any special education in market science and this is what I heard that stuck because it made sense.
==The money managers are running up the market to get their year end bonus.== Every other well thought out theory pales in comparison to this simple truth.
Market goes down hard at the end or beginning of the year then they start the process all over again. Only next time some of the wheels will have noticeably fallen off the old playbook.
Bah, buy long dated put options and sit back and relax. Grab them out of the money, but within historical forward P/E multiple range of where we should be and you are golden. Risk a little to make a lot and keep your real money safe for your real short position in the near future.
Not a bad way of positioning thins, demsco...
The issue with technicals right now, is that by continually moving the bar up and recommending short positions, you may not be getting the message.
The message is that you can lose money as long as the Fed continues intervening in the markets. For those who say it cannot last forever-- you're right-- but it can last long enough to destroy your wealth.
The long-dated put strategy is a good one, as long as you aren't dumping your life savings into the strategy, as demsco implies. We might be some time away from getting into real short positions, though...
Safe to assume that GS+JPM are still selling VIX, as part of the understanding?
Another good report Nic. Thanks...
An ungodly amount of manipulation is going on in this market. That's all anyone needs to know.
Ever since the Fed/Treasury/Goldman - take your pick - jammed the futures up to negate the inverse head and shoulders back in July, it's been a constant process of manipulating futures and currency around the world to push the markets up. It will all eventually come crashing down
Red flags everywhere.
yes and everyone can see them, thats the point - if u feel you are seeing something special that the market isn't don't delude yourself