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Tuesday, May 2, 2017

PETTING THE FIRE BREATHING DRAGON

“Behind every Stock Index there’s a dragon waiting to be unleashed!”

Trading the stock indices is like having a pet dragon; when you attempt to put it on a “leash”, it gets pissed off and does what it wants anyway. So goes the current state of the U.S. markets, where everybody and there brother is bearish, pumping out articles and posts of “imminent crashes”, doom & gloom reports, fake earnings, fake accounting, and only the “dumbest of the dumb” would be long the indices.

Then you look at the prices and realize that the Dow30, at roughly 20950, is about 1% and change from all time record highs, set on March 1, 2017. “Ok pet dragon, I want you to come over here and go this way … No? … I said go this way … wait, what? … why are you dragging me the other way”? Now, this doesn’t mean prices can’t go down … she’s a fickle pet … it simply means the “big one” isn’t anywhere in sight. “Go ahead, be the next brave soul on “the street” to sell everything, go short, buck the FED planners, take on the corporate buyback schemes so much in vogue in corporate America, and then tackle the “Plunge Protection Team” IF prices start falling; at some point you have to get out, and when you do, your pet dragon will be there to inflict more pain on you than you can imagine. And if you don’t believe me, go ask the “wizards” who sold with abandon on the night of President Trump’s election victory; ask them how that worked out”.

Again today, for the umpteenth billionth time, ZH has got a slew of articles pointing the way to financial Armageddon just around the corner; only problem is the same guys have been saying this for years, decades, most likely before most of you were born. Sure, at some point in the future there will be a wicked bear market in the stock indices … it comes when it comes, and no amount of “economic and/or financial chart porn” is gonna change that. Been there, done that, seen that, heard that … and all it ever does is go up!

So unless something happens that threatens the further ability of the U.S. economy to grow, corporate earnings to grow, and changes the “mindset” of the people investing, those old enough to remember will simply hold through the fundamental rough patches and wait it out … they ain’t gonna sell unless they are convinced the “system” has been threatened. In fact, they will continue to buy dips … “alas, the BTFD folks who are derided every day by “smart” money, but whose track record proves they are right, up & until something proves them wrong.” … add money to their 401(k)’s, buy more ETF’s and index funds, and treat stocks like Apple & Amazon like religions that can’t ever be abandoned. And it will drive many traders to a rubber room, cuz they can’t take the perceived stupidity!

In a normal world, if I was a disinterested party in the stock indices, I’d make my case with facts at my disposal and then rest; but that’s NOT what we see on forums like ZH, where bearish articles have taken on a zeal & righteousness bordering on “hyper inflated paranoia” by those who either are short or have a vested interest in seeing prices go down. “Nothing ever changes; talking heads gotta talk, and analysts got to promote their firm’s recommendations. Nobody at the table brings clean hands.” Keep this in mind next time you hear the sky is falling.

Turning to today’s market … again very quiet overnight in Asia & Europe … very small ranges in everything traded … today starts the FED’s May meeting, which culminates in an interest rate decision tomorrow at 2 P.M. EDST, and then on Friday we get the most important jobs number evahhhh from the Department of Unicorns & Fairy Tales. ADP also reports on private sector employment tomorrow morning @ 8:15 EDST as well, with the last few months’ numbers moving the markets substantially. Maybe we’re on “hold” until then … you know the drill … “Hurry up & wait”… we’ll see, but again, we continue to hang up here in the SP500 between 2385 – 2395, and are within easy striking distance of breaking through 2400 – 2402; if that gives way it’s gonna be a complete clusterfark on the way up.

Here at the New York open, some light buying interest … that gives way to more “loose lips sink ships” talk from President Trump, which promptly sees the Dow30 go down 20 points in under a minute cuz “we need a good gov’t shutdown in September to fix this mess” [meaning the budget]. “May you live in interesting times”!

New low for the day saw a bullish engulfing pattern on the M1; after 9 minutes it’s unchanged, but range for the day is still way to low to pick bottoms this close to the open aqua line. SP500 is stubbornly hanging onto the 2390 handle, but really needs to see sub 2385 to flush out sell stops; that more than likely will be a good long point.

And @ 14:44 it’s one of those, “hey, the Dukes know something … let’s get in on this”! Only the Dukes don’t know squat, cuz that 20 point Dow30 rally in 2 minutes out of nowhere, went exactly nowhere, and 30 minutes later the market is right back from where it started [drip, drip, drip right back down]… I can’t begin to describe how pitiful trading conditions have become … and it ain’t only in the stock indices … everything traded across the board just sitting; doing nothing with ranges for the day you can barely see on a daily chart … I realize we got ADP employment tomorrow morning, the FED in the afternoon at 2 P.M., and NFP on Friday, but this is ridiculous.

Well, about time; somebody somewhere got an opinion and shoved the Dow30 through the New York open, and that produced my first trade of the day. Of course, once it got through there it couldn’t do “Mr. Jack Squat”, so I liquidated on a failure to break to a new high; directly below the trade.
 





Yesterday, I was having problems with my image copy software “Snagit”; it would let me copy my chart screens, but it wouldn’t let me save it to file as a jpeg or png file. So, last night after my tubby, and me and the dog got settled in the study while the Mrs. watched Caribbean soap operas on TV [don’t go there, Ok?], I reinstalled “Snagit” and today it works fine. So, problem solved.

I have said before, “doji’s”, when they start showing up on the daily charts, have a nasty habit of clustering; meaning of course multiple days in a row or something like 3 out of 4. Once again today, we get the “Flying Wedge of Death” with Doji action; open, go down, go up to open, go make a new low, and off of that new low rocket straight up through the open and … do absolutely nothing but drift and then start the slow move lower. In case you were wondering, got caught in this crap yesterday, and seeing the market fail up at the high, I didn’t hesitate in liquidating.

In the last 27 years, going back to 1990, we’ve only seen the VIX close below 10 three times; yesterday it closed at 10.11, and I’m betting if things don’t improve by the close, we’ll see a close with a “9” handle; that’s how bad things have gotten. One other thing caught my eye this morning; if you strip out the French election open on Sunday night and the following Tuesday before the open melt up, and the Easter Monday quasi Holiday melt up, the Dow30 has only been higher 4 times [out of 21 market days] in the New York session from the New York open. And only one of those days … exactly one … was there any gain of significance; the rest of the time it’s been grudgingly lower with very sharp rallies that fizzle out as fast as they start.

Which brings me to my next point; namely, for those of you who haven’t been around this biz very long [less than 10 years], bear markets produce some of the strongest bull market days ever seen in stock indices market history. You’ll have completely insane melt ups that will convince 99.99% of all traders that the “bear” is dead and a new bull market is beginning; not the case, cuz what happens after that blow off day up is the market starts to drift lower and within a week or two completely takes out the range of that melt up day and shreds it to pieces. This produces another wave of selling, and the process rinses & repeats, and starts over until the end.

Bull markets, on the other hand usually don’t melt up; instead it’s a steady climb up the “wall of worry”, until shorts can’t take it anymore and throw in the proverbial towel and the market spurts up. It’s that slower action that gives the shorts “hope” to stay in losing positions that makes it so tough to stick with long positions.

Now, take a look at what’s been happening in the indices lately, and you tell me; “what kind of action are we seeing now”? To me, it looks very much like bear market action in the Dow30 over the last month or so; and yet, here we are sitting with the VIX in single digits and the market within about 1% of its all time high. And if you’re wondering, this is why a substantial proportion of the investors out there are confused as hell and why the action lately has a lot of them dumbfounded. “Speed of light trading … then crickets”! isn’t something anybody figured could happen, and adjusting to this has been rough for many investors; especially hedge funds, who continue to go out of business faster than Pols cash campaign donation checks.

Half hour from the close … well, here we are again … another day of “WTF was that”? imitation version of a trading day. Unless you were watching this in real time, it’s hard for me to explain how pathetic this day was; hopefully with ADP & the FED tomorrow, the market can get a healthy range back, and along with it some trades that matter and produce some good profits. We’ll see what happens tomorrow.

PAMM/MAM spreadsheet directly below.
 




Ok, time to hit the beach … I’m outta here … until tomorrow.

Have a great day everybody!
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