Long Term Perspectives

Equities are bubbling higher with the ES futures touching the 2k mark for the very first time (the cash did it yesterday). Since there’s not much to be said on the trading front this is a good time to run through a few long term perspectives. Now that another major milestone is in the bag the question once again returns to how long equities can keep this pace up!

2014-08-26_spoos_update

Let’s start with price and our volume profile on the E-Mini futures. If you ever entertained illusions of possessing any clairvoyance in regards to the market’s direction then think back to early August when we were in the midst of what looked like a correction with legs. Since that time we’ve seen one of the most profitable reversals of this bull market.

2014-08-26_PnF

Actually there was a very similar one earlier this year in February. Looking at the P&F the setup and ensuing resolution looks almost identical to the one last winter. What followed was quite a bit of sideways churn and plenty of guesswork which lasted all through June. It’s possible that we’ll be entering a high volatility sideways period in a few weeks from now, so enjoy the getting while it’s good. However, that said – I don’t think any correction (sideways or down) would drag out for months again as we usually see more directional tape in the last quarter.

2014-08-26_JNK_TLT

If you recall from a few weeks ago – I was getting quite nervous about the discrepancy between the JNK:TLT ratio and what we were seeing on the equities side. We did get our correction but what’s remarkable is that this chart hasn’t moved an inch while equities were driving higher.

2014-08-26_JNK_LQD

So what gives? Well, it’s a complicated story and quite frankly I’m not a bond expert. But part of the answer may lead back to this chart – a cross between JNK and LQD (investment grade corporate bonds). Seems like bond investors are piling back into corporate bonds and unless we see a significant divergence on this chart there is little standing in the way of this raging bull market. Which unfortunately most retail traders have completely missed out on.

More LT perspectives below the fold – please step into my lair:


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Cheers,

Alien Versus Predator

My money is on the aliens every time. And when it comes to finding analogs in the financial markets the Alien is the bond market and Predator is played by equities. Simply speaking – bonds (and forex) are the dog that wags the equities tail. So it makes sense to correlate the two and find out who’s lying. We play this game every once in a while and it’s particular useful when price data on the equities side keeps us guessing.

Let’s look at some ETF correlations first. Why? Because they’re easier to get in/out of for the average retail trader. So they have meaning given the overall message the bonds are telling us, however they may show us short term trends as well. Here’s JNK (guess what it represents) vs. the TLT which has 20-year treasury bonds as its underlying. That was a beautiful divergence near the top – took a while to break equities. As I said above – it’s a dog/tail relationship and bond traders are usually smarter than their equities slinging cousins.

I see a tiny bounce there at the bottom but we’ll have to give it another day or so.

Let’s zoom in a little but this time compare it with corporate bonds, which have been very very popular in the past few years. Better timing on this one on a short term basis – not if you are a fund manager who needs to flip a few Million shares. But to us this one offers better clues regarding direction on the equities side. What’s it doing right now? Bouncing a bit – which confirms our general view that we should see a re-test of the highs. Well, at least an attempt to do so. IF this really is at least a medium term correction then it has to happen anyway. Trends to just fall off the plate – they form a top first.

Now let’s mix it up with a few managed mutual funds – with more long term implications:


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Cheers,

Juicy Setups Galore

Alright – I threw my back out at the gym and am now operating on a mix of illegal pain killers, icepacks, and purified adrenalin soaked adamancy. It’s only Wednesday and it’s been a fun week already. While the hapless schmucks on the other side of our trades are busy applying vaseline we are banking coin and having fun. This tape is literally plastered with excellent setups and the Market Mole will not be denied. So let’s get on with it – but snappy as the drugs may wear off any moment:

I told you that ES 1910 will most likely be a bounce zone and thus far the tape is playing along. There are good reasons for it as well as we got the 100-day SMA, a weekly NLSL, plus a 25-week SNA all looming a few ticks away. However, at least as of this writing price remains lackluster and if that doesn’t change near the EOS we may just fall off the plate this week.

The GBP/JPY correlation is still pointing down – as you can imagine I’m keeping a close eye on that one and so should you. Now this may be all a last attempt to reel in some late hobby bears. Possible yes – but a drop below ES 1900 puts us into the next participation range:

As you can see the volume hole is rather pronounced right at 1900. If the bulls let this level slip it’ll be one hot late summer to be sure. Fair chance we would see some panic selling into 1850 and perhaps even lower. But as of right now let’s assume we are holding 1910 today. In which case we may be long tomorrow on a breach of today’s highs. Stop below – you guessed it – 1900.

Quick update on a gold campaign I threw to the wolves yesterday. I got stopped out once and then entered again as today’s hourly NLSL was breached. So far so good – but it gets better. This thing either falls apart today by pushing below the NLBL or it heads higher and probably starts a squeeze. Which means I’m advancing my stop to b/e and then wait for further instructions. This could turn into a fun one.

Talking about juicy setups – here’s another one – cotton. It’s been a long way into hell and it has been weeks since it even looked at a NLBL. It touched 65.25 today and I just went short with a stop above it. IF it breaches then I will try a long with a stop below yesterday’s lows (or whatever floats your boat).

But we’re just getting warmed up – wait until I see the goodies I have in store for my intrepid subs. I’m all over this like a fat kid in a Mars bar:


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So, did I promise too much? Didn’t think so – now go out and play but don’t talk to strangers or people with strong opinions.

Cheers,





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