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Thursday, May 11, 2017

THE GREAT BEAR MARKET OF 2017! [SO FAR]


“When every market is manipulated, how do you dance?”

It shouldn’t come as a surprise to any of my readers, especially the ones that have been here a while, that the advice “Minnesota Fats” [Jackie Gleason] gave “Fast Eddie Felson” [Paul Newman] in the 1960’s classic movie “The Hustler”, after he crushed him in a marathon session of straight pool, is equally applicable here in the trading realm. I’m paraphrasing cuz I can’t remember the exact words “Fats” says to “Fast Eddie”, but if it isn’t exactly a direct quote it’s darn close; “Fats” looks up at “Eddie” and says, “Some day kid, you’ll realize there’s a whole lot more to shootin’ pool than shootin’ pool”. He then reaches down and picks up the money he won and departs, leaving “Eddie” to stand there and contemplate the wisdom of “Fats” and the game of pool.


And, so here we are trading stock indices, and to the uninitiated, nothing makes any sense, especially any economic news that you would rationally expect to loosely correlate with stock prices; “ummm, good luck with that cuz one set of stats one week has prices going up, the same news a month later has prices going down. Why”? And that’s my point; all trading is about getting the smaller customers along with the occasional big ones, to do and act in a way they don’t want to. To get you long on “hope” and then force you to your pain threshold where you sell into a falling market price; exactly where you don’t want to be. Or conversely, to get you short on “fear” in the marketplace and then again force you to your pain threshold when prices don’t drop and cooperate on “bad” news and where you will now buy into a rising market price; exactly where you don’t want to be. So when you strip away all the bullshit you read in trading books, or hear from “gurus”, none of it is real; the purpose of trading is for “big money” to get “small money” to do shit they don’t want to do, thereby transferring money from said party “B” to the very deep and getting deeper pockets of party “A”; “that’s the purpose of trading; that’s the reason the big banks allow you to open a small, insignificant account and play; your money is their money, you’re just borrowin’ it for a while”!

Why then should it be a surprise that every market to some degree is manipulated? Some more than others to be sure, but to sit there and say, “this market “A” on the MT4 is a free market with no stop hunts and/or dealer manipulation, but a reflection of supply/demand from buyers and sellers around the globe where everybody is equal in the marketplace” is a complete fiction. There is no such animal.

The problem with “normal”, is that it’s very hard to define, but what I’m focusing on is “trade flow”, the up/down intraday volatility that reflects healthy buy and sell opinions out there in the marketplace; lately, we haven’t seen this, as it’s been a “one way” street up in the stock indices, especially from the New York open, no matter the economic, political, or geo-political news hitting every morning.

Other markets are subject to what I call the “50/50 trap”; namely, from day-to-day it’s very difficult if not impossible to know from which side of the market [buy or sell] the manipulation is going to come from; cuz when it “hits”, it’s “speed of light … crickets” before you can catch your breath and figure out what happened. And if you happen to get caught on the wrong side of one of these with a stop, there’s no way to get the money back after the move when it moves into hibernation for the rest of the day. Pretty much all of “FX” fits into this category, with gold [XAUUSD] & GBPUSD lately leading the pack with vicious moves out of nowhere; you simply have no idea from which side they are coming.

Stock indices are very different; make no mistake, they have their collective moments of complete stupidity, but we know from which side 99.99% of all manipulative efforts come, and of course it’s the “buy side” of the equation. I estimate that roughly 80% of the time stock indices go higher and 20% of the time they are either flat or go down; this has always given long traders in the Dow30 & SP500 an advantage, if they’re smart enough to recognize it, which most aren’t unfortunately for them. However, just because you don’t want to believe it or recognize it, doesn’t mean it isn’t true.

As I said yesterday, trading the stock indices effectively has nothing to do with earnings, news, or other distractions; it’s about “setup”, who’s long and who’s short … who is not comfortable in their collective positions … how did the market open? … how did it react mid-day? … where are the stops? … where are the manipulators bids in key stocks? [hello SNB!] … and finally, who is “trapped” going into the close.

Turning to today’s market … finally, what looks to be a “lower” opening [meaning, more than just a couple of Dow30 points to the downside; as I write, it looks like about 30 – 40 points lower] … we haven’t seen but one of anything like this in over a month, that’s how “skewed” things have been … if it stays down here, it should portend something of a good rally later in the day, but hopefully the market can open lower than attempt to move lower and clean out some sell stops that I know are down below.

Ok, we get exactly what I want, which is a market that opens lower, goes lower, then cleans out some stops. First trade of the day gets me stopped out with more sell stops, but the second trade [with bigger volume] makes up for it and gives us a profit and now we’re up for the day here in early action. Now this is trading and this is what I want to see! The trades directly below, both first [arrows 1]and second [arrows 2].
 





The action down here at the bottom, after the 20 minute -100 point down draft, the last half of which came on sell stops [which is what you want], is exactly what we should be seeing on a day-to-day basis. Hopefully, this type of action stays here and decides to keep 100+ point moves within minutes as a regular activity.


Well, did everybody enjoy the great “bear” market of 2017? You know, the one that lasted about 90 minutes and saw the Dow30 go down about 130 points top to bottom? Now, rather unexpectedly, we’re back at the New York open, which I’m sure has left many traders dumbfounded; especially since it’s just been a drift higher since the third bottom attempt. I’m somewhat disappointed the 2nd and/or 3rd low attempts didn’t at least produce lows below 20800 before reversing; it would have made the bottom signals more convincing. I know the trading platform says the low is 20797, but I never saw the ticks … mystery fills [see my shocked face] I’m sure to get the house [LP] long. “Couldn’t you guys have waited at least until afternoon sometime to squeeze the shorts”?

And once again today, what looks like certain money in the bank isn’t for very long … if you make your living feeding off the short side this is the kind of action you have to deal with and be perfect when the waterfalls come … it’s exceedingly tough to be good at it and have any money left to take advantage of days like today, when we’ve gone through many weeks of the shallowest dips imaginable before rallying.

Here in the early P.M. in New York, the probability of us going down and making new lows is exceedingly low; it’s simply too far to travel given the technical landscape the market finds itself in, and unless there is some kind of news that will catapult prices lower, the remainder of this day most likely will be chop with a light bias slightly higher in price. Fact is, we could use a lot more days like today before the next big leg up in price, but the way this stuff is acting, I wouldn’t bet on that happening. Of course, the day wouldn’t be complete without hitting a new high for the day, which we just did … no stops up here to propel it higher still, and the utter insanity of “stocks at any price is too low for me” shows no signs of abating; simply put, even with overt market manipulation by the lovable Swiss over at the SNB, this is getting ridiculous. When you can’t even keep it down for longer than about 90 minutes … “ohh, the force is strong in this one it is”!

Remember 4 hours ago and 130 or so Dow30 points? Yes, remember how it looked and felt like the end of the world as prices were going down on sell stops, which everybody who’s traded for 5 minutes knows retail specs put them at the obvious places, and now more than likely the same people who couldn’t wait to sell this morning can’t wait to buy now. EXIT QUESTION: “What’s changed in 4 hours to account for this up move this afternoon to a new high”? SHORT ANSWER: “Absolutely nothing, which should convince you that when I tell you it’s all about “setup” & “market technicals” and other factors like time of day, that it is indeed factors at play that have nothing fundamentally to do with individual stocks or company earnings, or the U.S. economy; it’s people getting squeezed and being forced to do shit they don’t want to do. This is trading; this is what trading is about; and this is what you need to know so you don’t constantly end up on the wrong side of the trade”.

Half hour before the close, and I’m calling it a day; some very good action early in the day, but it quickly turned to crap and it’s too bad this type of early action couldn’t continue the rest of the day. I really thought early on this could be a breakout day in terms of daily range and a pickup in intraday volatility. While we did see better action, it’s still pretty sick. I would have liked to have made more profit than I did today, but it is what it is, and tomorrow’s another day.

PAMM/MAMM Spreadsheet directly below.
 




Literally, it’s time to “hit” the beach … the dog and I are outta here … until tomorrow.

Have a great day everybody!
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