Amazing what can happen to our economy in a week right? We went from fearing the taper to embracing it with chests out in less than 5 days. Obviously that is a great example of Wall Street not understanding anything about our economy. The assumption is that our economy can stand on it’s own two legs now that the data is starting to perk up which has a high probability of being a fallacy. An economy that lives by QE dies by QE as Peter Schiff said.
Dec. 6 at 4:09 PM
Well once again the market rallied back all of the losses that incurred during the week. I still don’t believe that those distribution bars mean nothing, even if they are broken next week. I also don’t believe people are wanting to buy at the all time highs at year end, people WANT a correction. Ultimately the market is people. Also take note of the weekly RSI, extremely overbought. I know things can stay overbought for a while, but that usually isn't the case for weekly charts to the upside and that is part of the reason I was getting my hopes up for further downside. There is still some hope though. Look how often we stay this overbought over the past 15 years in this weekly chart, not very long. Just understand where we are and think about the long term probabilities of buying at these RSI levels. Watch for more daily distribution bars next week or initial weakness to start the week especially in the distribution zone.
E-mini NASDAQ 100:
The only thing I have to say about this is good Lord! Look at that weekly RSI, we haven’t been this overbought since the end of the tech bubble. You know, you gotta be kinda worried about that! I don’t have enough data to see that but look at it right here. A pullback would be beneficial and unless we are really going to go pure parabolic, you should expect one. At the absolute minimum just understand where we are and be cautious. We are traders, not bubble participants. What I mean by that is we are looking for long term success by taking high probability trades, if you find a high probability trade in a bubble then that is acceptable. In combination with the S&P analysis, I would say that it is time to hold off until a pullback or consolidation occurs.. just something to work off those exuberant weekly RSI readings.
10 Year Notes:
I don’t like the bonds/notes here due to the bearish price structure, fed taper speculations, and the fact that weekly RSI is below 50 with plenty of room before it gets oversold. There is a key level that was just approached at 125’0 and caught a slight bid, so pay attention to that level for a breakdown. Looking out a bit longer term I could easily see bonds reaching 120’0 area as rates rise. This is also going to be a real stress test on the economy if it happens.
Euro catching a great bid just as I was looking for when I wrote the piece on Euros and Francs. Of course that was looking out longer term. Anyway, Euro has a key level right there at 1.3700 so I will be watching the reaction to that. If it gets above it I want to see it hold at a minimum. Weekly chart still looking good and there are no overbought signals. I really like that weekly chart, I mean that thing is beautiful. I easily think this will be a major trade of 2014 just as I think Apple will be.
VIX got killed on that job number report, which is something I didn’t want to see but it is what it is. The fact remains that equity indices are at insane levels on an overbought basis and the VIX squeeze is still firing, so I will be watching to see any reversal headed back towards the top of the BB and/or holding the midpoint of the BB’s. S&P stocks above 200 SMA broke to the downside and it is really looking like it wants to dump hard back down to the 75% area. I wanted to talk about that area as well. Look at this long term chart, just want you to be aware of the possibilities if we were to break down below that 75% area. Pretty much like jumping off a cliff with no parachute. Either way as of now we are still heading lower on the longer term internal.
Looks like a pretty dead week aside from retail sales and PPI. That usually means we are going to be trading off of whatever is the current event or ‘theme’ at the time and right now that is ‘taper’ and ‘economic strengthening’.
I am not painting some extreme bearish scenario in a bull market (I hate that) but I am just looking at where we are and putting that in relation with indicators, market internals, bonds, and dollars (euros) all based on technical analysis. Sure I have my views but they don’t influence my trading and this is just what I am seeing right now.