Okay, as we’re getting close to kissing 2010 a last goodbye it’s time for ole’ Mole to start switching back into productivity mode. The only new year resolution on my mind is for us stainless steel rats to continue banking coin and to avoid the plethora of traps that are being thrown at us on a daily basis. The past two years have forced me to up my game quite a bit and as such I actually in some ways consider the nastiness we had to endure a positive experience. Of course the biggest change for me was the realization that the long term window is way to elusive to be factored into a reliable trading approach these days – thus I have narrowed my trading window to from originally weeks/months to now days/weeks. Far from being a mere instinctual decision this new short term approach has been heavily influenced by several factors:
My shift from a mainly EWT based approach toward development of a more sophisticated set of momentum and sentiment indicators.
A profound change in the inherent nature of the equity markets, e.g.:
extreme conditions persisting for much longer
retracements becoming more flat
increase in volatility (price/sentiment)
volatility extremes occurring within shorter time frames
A a shift in participant demographics (i.e. an explosion in HFT traffic, the exodus of retail traders, a smaller group of more Fed assisted TBTF primary dealers, etc.)
Increasing evidence of how POMO auctions can and have affected equities inflows and outflows; and an marked increase in the frequency of POMO auctions (i.e. QE and now QE2).
The realization that given these conditions a daily/weekly trading window increases the odds and also insulates a trader from being led astray by sentiment extremes or blatant Fed manipulations.
Looking at the above list one wonders what approach actually works reliably in such challenging market conditions. Long term success in trading was was never easy to begin with and thus was limited to a very small minority of players who were either connected or able to detach themselves from being anchored into a particular way of thinking (i.e. bullish vs. bearish). As such the turbulence experienced in the past two years led many once successful traders to the sidelines – either by choice or by sheer force via Darwin’s principle suggesting survival of the fittest.
I am now convinced more than ever that one of the few survivors of those rapid evolutionary changes in market conditions is the Zero indicator. While many indicators turned to mush in continuously overbought conditions, the Zero has kept us one step ahead. In the past few months I have often praised the daily Zero for keeping us on the right side of the term trend during inflection points that were often interpreted by the usual pundits as being opportunities for taking contrarian positions. However, all the while the hourly and in particular the Zero Lite (ZL) has been kicking ass and taking numbers. I’m posting a simple screen grab of this week’s rather boring tape to elaborate on my thoughts:
I am sure many of you have heard the expression referring the combination of certain things being larger than the sum of their parts. To that end I am quite certain that adding the commonly used VWAP to the ZL chart is a textbook example of just that line of thought. Alright, let’s get a bit technical: Quite simply – having watched the spoos bounce within the VWAP bubble for years now (i.e. VWAP in white as center inside a 2.0 standard deviation bubble) the game has traditionally been in guessing or predicting whether or not prices will either push above or below the VWAP line and of course if a push to the outter StDev bubble was a possibility. Finally, if prices were approaching the StdDev bubble on either the up or down side whether or not a retrace was likely or if prices would cling to that level and perhaps even breach beyond. That’s in essence how one trades VWAP – other approaches may exist, I’m sure, but most traders I know play it according to that simple set of rules.
Now, if you look at the chart above it’s rather easy to correlate various prices moves within that VWAP bubble with the ZL signal. More precisely – the one consideration for a swing trader or scalper now becomes whether or not the ZL signal supports a particular price move in the context of its position in the VWAP bubble. Key considerations before taking a trade now are:
Is the ZL above or below signal? That’s our most basic consideration as the zero mark delineates between an up or down trend.
How long has the signal stayed above/below the zero mark? The longer the more sustained the current short term trend.
Is the signal weakening? Example of that are pushes higher in combination with a positive but diminishing positive ZL signal.
Is there a divergence between signal and price? This kind of ties into the prior point but is considered a more pronounced situation in which prices are for instance painting new daily highs while the signal is clearly dropping off and maybe even dropping below the zero mark.
I believe that the combination of VWAP and ZL signal makes for a very powerful trading framework in which various systems could be developed. In the past year I have mostly been following this approach manually just like the rest of you whenever I was able to actually stare at the ZL chart all day. But many of you have been clamoring for a more automated way to follow the Zero and I believe that the framework presented above warrants a more systematic approach. However, before I sit down and start slinging NinjaTrader code I would very much enjoy some input from my intrepid gang of stainless steel rats. Many of you have been faithful Zero subs for over a year now – so quite obviously this thing is giving you some kind of edge. How about you digest some of the above and then report back right here with propositions, examples, and perhaps even rules for coding into a system. And yes, posting of annotated Zero charts is fair game – knock yourself out
Oh yes, and before I forget:
Go crazy and have a blast within your legal limits – wherever you are. For fuck’s sake – for all we know we only live once, so let’s make 2011 a year to remember.
That’s right – I revel in being politically incorrect. It’s almost Christmas on my calendar and I enjoy responding to ‘Happy Holidays’ wishes with a Clint Eastwood sneer and a stubborn ‘Merry Christmas to you too!’. Anyway, after being pounded by a six day series of rainstorms the heavens suddenly opened up yesterday afternoon to bestow Los Angeles with a beautiful Christmas present:
Contrast that gorgeous view with the nasty weather Europe is having to put up with right now and you understand why I moved my Teutonic butt to California almost two decades ago. As much as I cherish the Christmas season – I can assure you that winters in Europe (as on the U.S. East Coast) are no laughing matter. You just can’t beat the weather down here in Southern California.
Now, just as a friendly reminder – this is my last post for the year as the tape is going to be very quiet until early January. Besides, while you guys are embarking on your ill deserved holiday vacations I’ll be slaving along in some secret Silicon Valley laboratory trying to put together some prototype demos ahead of CES. My next post will be on January 3rd – probably during the session or shortly thereafter.
Alright, since it’s Christmas and all I’ll make this a freebie for everyone. Just don’t tell anyone – after all I have a bad reputation to maintain.
The smoothed version of the daily Zero has breached that lower support line and is now clearly pointing down. A signal like this usually suggests that some kind of reversal is on the horizon, but if we’re objective here the signal has been in the negative for a while now. So, it’ll better happen when it’s supposed to happen – which is usually in the first two weeks of January. Let’s wait for that and then revisit this chart to see if it’s supportive.
You may remember my spiral calendar chart which I pull out of my head every once in a while. If you don’t know what this means then just use the search box on your right with the keyword ‘spiral calendar’.
Another reason why we may be heading into some type of correction are two major cycle intervals – one being a F21 (i.e. 3090 days) and the other one being an F17 (i.e. 1180 days) – shown on my SPY chart above. In terms of sheer seasonality and given the current bullish exuberance exhibited by the longs the overall market conditions do support a drop. Why a drop? Well, we have been melting up forever so a turn date for the longs would not make any sense. Of course we have seen cycle dates come and go before – granted, none of them was above F20 and as far as I understand it the longer term cycle dates do carry a bit more weight. So I’d give this one much higher odds than any of the dates I’ve shown here previously.
Alright – one more before I hit the eggnog. I’m sure many of you are familiar with the concept of average true range (ATR). If not do a google search or just believe me that it’s an important measure of volatility. And while we’ve seen volatility on the (un-smoothed) daily Zero increase it’s been dropping like a rock on the nominal side of things. When the longs get that complacent and everyone expects stocks to keep taking the express elevator up bad things usually happen. Case in point – take a peak at similar readings last January and then again in April. Of course what’s also apparent from these prior readings is how long things can stretch out. So, we may have to wait while equities paint a blow off top before we’ll see a meaningful drop. Given the onslaught of POMO auctions scheduled for the next few weeks I would not be surprised to see exuberance get completely out of hand.
Mmmh – actually that ATR observation got me thinking. How difficult would it be to slap an ATR on the daily Zero?
UPDATE: Well, I decided to get off the eggnog and hack together my first draft of the proposed ZeroATR:
Not so shabby – is it? I can probably fiddle with this a bit more but it looks pretty valuable to me. I’m going to slap it on the hourly and ZL as well and see what happens. Stay tuned on that end
Wishing all of my intrepid stainless steel rats a very merry Christmas and a happy new year!!
Alright, here’s your fucking Christmas card – no go away.
This season Santa got a little help from an intrepid gang of gnomes over at 33 Liberty. No big surprises here for any of us naughty rats – after all the writing has been on the wall for weeks now.
Up, up, and awaaaay!! Oh wait – that’s Superman – never mind.
The VIX buy signals have been spot on as of late – it’s like taking candy from a baby. I for sure am on the extra naughty list this year. Ooops…
See, the bulls are doing this the right way. Whereas VIX painted a panic move to the upside in late November, thus pushing outside the 2.0 BB (and producing a buy signal) the bears are slowly riding this cart down hill. That’s how you do it and that’s how you keep momentum flowing.
Here’s a little charting lesson for you noobs. See single momentum indicators in most cases have little predictive value – the VIX buy signals on the 2.0 BB is the exception. My SPX BB cross over chart shows you what happens when medium and long term momentum start pointing in the same direction. We had a similar situation early this year and it seems like 2010 will yet again paint a year of deprivation for the bears.
What’s even worse here is that both BBs are now pushing up steeply and breaching them would take quite a poke to the upside. Momentum remains to flow to the upside and in such a situation it will have to run out of fuel on its own time. So even if we get a little reversal (inside both BBs) most likely the dip buyers stream in, we get a another push higher, perhaps a third, etc. until we finally paint a high – preferably outside those two. In terms of seasonality this would tie into my thesis (i.e. fancy word for mental masturbation) that we will close the year around the highs and don’t see a meaningful correction until early 2011.
Copper has been painting a teeny weeny divergence but in the context of the minimal participation right now I won’t read too much into it. What’s more important is that it is not painting a major divergence right now, despite the fact that ole’ bucky has been holding around the 80 mark right now.
Since I’m yapping about commodities let me throw in a chart I have never shown to my stainless steel rats. This is my sweet crude crack correlation chart (love the name). Basically you got light sweet crude in blue and the crack spread (please google it if you don’t know what that is) in black. The past two years don’t provide too much insight to the untrained eye but let’s just say that crude usually follows the crack spread, so if you see a divergence (i.e. in April/May) you can expect crude to snap back in whatever direction the crack spread is leading. As you can see the crack spread is on an overdose right now – no signs of a divergence here either.
My NYMO:BPNYA chart continues to point downward – again it’s usually early but if that divergence continues the bulls will probably see a quick shake out in January. IMNSHO this is just too juicy for market makers to pass up.
Best for last. This is my long term SPX vs. SPXA200R chart (the latter being the percent of stocks trading over their 200-day MA). As you can see in the past few years every meaningful top was accompanied by a distinct divergence. The last one took a lot longer to play out but it paid off if you took an entry in April.
Only problem here is that I don’t see us above 90 right now – plus we are probably months away from coming close to a divergence. So, that may also play into my prevailing doubts about a deep retracement in the near term future (e.g. of the P3 variety). Looking at this chart – and given the obvious accuracy in predicting major turning points – I just have a hard time imagining a deep drop into the abyss here.
I have to admit that the contrarian trader in me is quite puzzled. The record bullish readings in the ISEE and other sentiment indicators as of late would have you think that a drop is just around the corner. But then I look at all the charts above and it looks like we may drop and then power higher without any care. Which sucks big time for me as I just can’t justfiy going long here – not because we’re scraping 1250 on the SPX – I just don’t like the setup. So, I’ll probably just have to keep watching this bitch grind higher until I finally get my reversal and a decent entry.
Damn you fucking trend traders – that’s exactly the kind of tape you love, don’t you?
Let me begin this post by ripping your bear suit off after which I’ll hose you down with ice cold water and chase your naked ass around the block a little. There – feeling better now? Yes, I know equities feel like they’re about to tilt over and die. But we have been fooled in the past plenty of times with extreme measures abound. So let me be the broken record that keeps rubbing your dirty nose into this nasty chart:
Yes, there was a tiny drop off in the 20-day rolling total of floating POMO cash, but we remain firmly in record territory. Boy that’s a lot of outstanding cash. And even a fat drop would really matter anyway – as long as we are not approaching the zero mark the tape can either push higher or churn your put positions into a slow and agonizing death. So remember that when you hear the usual suspects suggest an impending and massive drop. Don’t get me wrong – I have little doubt we’ll see some type of correction fairly soon – I mean things are really getting a bit out of hand at this point. I might even dip my toe into a few select short symbols here and there. But if I manage to catch a fast reversal I’ll be sure to take profits and run for the hills. If P3 ever happens there will be time to get positioned after an initial drop and a snap back, and until we see that I don’t care about bullish exuberance. For it can feed on itself for a long time.
Nothing bearish is going to happen anyway until the Dollar seriously gets out of the gate. Thus far we remain stuck in 2nd wave hell. Meaning this could be the beginning of a third wave down – or we just painted yet another a-b-c correction after which it’s the express elevator into the abyss of all currencies.
We won’t know until we either take out 78 or 81 – nothing that happens in between should affect your trading as those FX bastards are teasing the heck out of you. They want you to see what you want to see – and they love these types of setups and will stretch it out all the way. I don’t expect much of a resolution here until after the holidays.
My exotic NYMO:BPYNYA ratio signal turned exactly where I thought it would, thus continuing a divergence that has been unfolding for months now. The one question that remains of course is when equities will finally follow suit. The way I see it is this: At some point we’ll see some wild snap back that we will all miss out on – it’ll happen suddenly out of nowhere and without warning. No, we will not be positioned for it and if you buy puts today you will most likely guarantee that it’ll happen just when they expire. So we are doomed to watch that first red candle in complete exasperation wishing we had been smart enough to get positioned. Sorry rats – trading is not for the faint-hearted.
The only consolation I can offer is actually that very first POMO chart. Chances are our primary bankster POMO sucking friends will take advantage of such a dip to drive the tape higher after having run the stops of legions of retail trading schmucks. Yes, that would be you – well, if you weren’t a stainless steel rat that is of course. Because we’ll watch all that in bemusement because we won’t be ones getting their asses handed to them. NO, instead we’ll be the ones selling the rip that will undoubtedly ensue. Well, that’s the theory at least – it’ll get a lot uglier and will probably take a lot more time to unfold then we all care to imagine.
NYSE volume ratio is telling a similar story. I’m not going to sugar coat it and don’t let my POMO chart fool you – I’m definitely not bullish here. Medium term I see two phenomenon here:
One, we keep painting divergences which refuse to resolve in any red candles on the equities side. Why? Kindly refer to my POMO chart which serves as the ultimate floor painting utility. Back in the days tape like what we have been forced to watch in the past few months would have resulted in a several hundred handle down candle on the SPX. These days we keep racking up those ISEE equities points as if they were frequent flyer miles on a black squid AMEX card. Go figure – but I’m not about to start arguing with ‘the man’ – I eat the crums I’m being handed and live to trade another day.
Anyway, two – those blue lines I painted seem to be some be some momentum coil that at some point will resolve in a fast and dirty move to the downside. Again, my best bet right now is that that moment will occur in January. But again – I don’t think it’ll be anything like a P3 situation – maybe a hundred handles on the SPX, maybe a bit more – but it will be bought either the same day or the next. So, if you catch it – be nimble.
Yes, yes – the smoothed daily Zero is still hovering below the mark and is also suggesting that a reversal may be near. There’s definitely a lot more volatility as of late and the picking is not as easy as it’s been since early summer.
But that’s not why I’m posting this chart this time around. Rather, now with 2010 drawing to a close I want to use this chart as prime example of what a dreadfully horrible trading year this has actually been. Just humor me and take a step to the back wall of your prison cell, squint a little, adjust your package and relax – yes, that’s good – don’t overdo it now. Alright, just look at the smoothed signal and tell me if you see anything bullish here. Look again.
No – not really. I mean quite the opposite, right? It’s actually a miracle that we are where we are and it’s also a testament how long a Fed induced sucker rally can torture those righteous souls who dared to short what should rightfully be an S&P 500 trading somewhere around 400 by now. But it was not meant to be and it may never be thanks to an endless supply of phantom digits in the Fed’s virtual printing machine.
There’s something nasty brewing out there but they will most likely try to paper it over just like they did in 2009 and 2010. So, don’t get your panties in a bunch about P3 again. I think it’s not unreasonable to start thinking about short positions once the holidays are over and done with. But personally I’ll go easy on myself and go after the laggards – then, when a dip occurs I’ll head for the hills as soon as I get the chance.
After that I’ll just watch for a while and then decide what’s in store for 2011. At this point any attempt at plotting a long term path is mental masturbation. Doesn’t matter anyway – the meat is in the daily grind – like it or not. I know – not as sexy as that crash scenario – but waiting for Godot is not a trading strategy
Public Service Announcement:
Quadruple witching tomorrow. It will get ugly. You have been warned.
The tape is now officially set to Santa Rally cruise control – as expected and predicted for several weeks now.
A few charts which I think tell us all we need to know:
My stacked SPX Bollinger chart is not looking good for the shorts. We basically are tracing both upper 100 day and 25 day borders now – comfortably inside on a steep trajectory. Yes, there will be the occasional surprise drop just to shake out a few nervous piggies. This situation can persist almost into perpetuity and top calling, especially in mid/late December, is an exercise in futility. Let it paint a top and then we talk. Or let it push outside both BBs – but that would require quite a blast higher, which we probably won’t get in the final weeks of this month. Either way – no champagne for the bears this New Year’s Eve.
Remember this TNX chart? I posted it a few weeks ago when it was around 2.8% and the stochastic was in the process of pushing above the 20% mark. I expected to see 3.4% then and we are almost there. But based on what I’m seeing here we could easily push to 3.8% or even 4% before we see a correction.
The AUD/JPY has become embedded above the 80% mark on my stochastic. NOT a good situation for the bears as this type of situation can sustain itself for quite a while. Obviously the ES futures (in blue) are along for the ride which ties in nicely into that very first SPX Bollinger chart I posted.
I told you guys we’re going to get a nice Santa Rally and here we are – no surprises for us stainless steel rats. Although we are floating higher amidst extremely overbought conditions on all time frames I don’t expect any significant changes until after the holidays. We may see a fast drop taking us down 20 or 30 handles on the SPX and one seems to be in the process of unfolding as I’m typing this. But make no mistake, there is a lot of POMO buffer cash available to paint floors and to give dip buyers an opportunity to manhandle the pigs.
Just like your grandma’s Christmas cookies a nice 2010 close around the highs is most likely baked in. Any real fun for the bears (if ever) will have to wait until 2011.
I am happy to report that I made it back to Los Angeles in one handsome and obnoxious piece. The last four days in San Jose served as a painful reminder as to why I hated living in the Bay Area so much back in the 1990s: The weather plain simply sucks. Case in point – it was raining every single damn day. Meanwhile four hundred miles down South you couldn’t find a single cloud in the sky and hot looking chicks with enlarged breasts were strolling up and down Melrose Ave barely clad in mini skirts and see-thru tops. So next time you hear me bitch about our roads being littered with potholes just tell me to put a sock in it. Quite frankly I have no idea how T.K. puts up with all this gloom and doom – his annual budget for anti-depressants must be through the roof.
Alright, before we get to some charts:
Yes, good news everyone – indeed! Turns out I won’t have to go to Korea until sometime January. Not sure if the weather down there will be any better then (doubtful) but at least I get to spend a beautiful (and hopefully healthy) December in sunny California. Which means I will continue to post here until Christmas – like it or not. Be aware however that I will take a break from blogging between Christmas Day and January 3rd – I worked like a dog all year and this market megalomaniac (and entrepreneur) needs a break.
Alright, let’s look at some juicy charts – bring a napkin:
I often save my best chart for last but as I’m seeing a renewed wave of doom and gloom out in the bearish blogosphere I would like to set the tone for this post. Since many of you are equipped with marble size rodent brains let me put this clearly:
The Fed is throwing the kitchen sink at keeping equities afloat.
If you want a bit more context and care about useless lamenting and moaning about how it’s all unfair and that the market will become unglued any second now point your browser to this informative ZH article. However, over here on ES we keep it short and simple and constructive. Why worry about all the dirt, the manipulations, the obfuscations, the deflationists vs. the inflationist, the drama, the good, the bad, and the ugly? Especially when nothing is ever being done to change the status quo? How many heads roled after the 2008 disaster? Exactly – zero – and don’t even get me started on Madoff and his ilk.
Don’t get me wrong – I’m as passionate about seeing some fat bankster’s head roll as the next guy. But as two thirds of this nation is passing on out Prozac and Zoloft the odds of any drastic action against the financial ruling class is exactly equal to zero – mark my words. Now, I’m not saying ignorance is bliss – but I am saying that you have to pick your battles. And when the time comes to short this market in a big way I’ll be first in line to back up the truck. But as long as we see the rolling 20-day outstanding climing exponentially please forgive me for being skeptical about any significant downside.
On the other side of the extreme scale we then have an ISEE Equities reading hitting 343 on Monday. Suffice to say that whoever remains on the retail trading side – they are chasing this tape with a vengeance. This usually does not end with smiles and April 15th serves as a stark reminder of just that fact.
If you average out the data via a 10-day SMA you still see a record reading of 261, which is insanely bullish. Now, I would usually jump in here with both feet but consider that the ISEE usually flags early and we could easily see equities climb quite a bit higher or at least burn some of your theta before things take a turn to the crimson side.
The daily Zero has been telling a similar story. We are seeing a very distinct divergence here, one that will punish any pigs tempted to chase whatever may remain of Bernanke’s middle finger to the bears. Of additional interest has been that expanding diagonal channel on the smoothed (center) panel. Last week we thought that a breach had been made but the signal snapped back instantly – all the way to the lower channel line. This plus the vehemence of the snap back tells me that the days of free lunches for the bulls are probably numbered for the near term. And I’m saying that with complete detachment – the longs had a great run and if you traded the tape up since late summer you banked a pretty penny. But a dip is probably on the horizon – so you may be testing your luck here.
Continuing to laugh into the face of any contrarian sentiment charts of course is copper. And it’s another reason why I remain hesitant about entertaining an instant drop to the downside. Let’s face it – Christmas tape is usually one fat bullish love fest – and after what the bears had to endure for the past two years I don’t think this year will be the exception. Ben and his POMO loving friends will make sure of that.
Guys – I could show you dozens of my momentum charts and they all tell the same story – we probably see a little shake out sometime in January. If you insist on getting positioned now I suggest you buy at least four/five months of theta so that the boys don’t take you to the cleaners beforehand.
And if you are wondering why I’m still not discussing a P3 scenario here – well, let me explain. The setup is definitely there – in theory. But I have not seen any indications that the bears are capable of tearing equities apart. You can blame it on POMO or lack of mojo – frankly I don’t give a rat’s rectum. What I do know is that I haven’t seen a bull sweating for two years now and they are drunk with confidence. I’m hearing stories that grocery packers are now chatting about QE2/3/4 and why the stock market can’t possibly go down. It’s the 21st century variant of the stock slinging shoe shine boy of the late 1920s.
And the average contrarian will tell anyone willing to listen that this is exactly where you should take the other side of the trade. Yeah – traditionally I’d agree – but things are a bit different now.
The reason I don’t think we’ll see a repeat of 2008 anymore is the chart above – the SPX measured in Gold. And based on that the SPX never ever recovered. Yes we may see a quick drop to the downside in 2011 – but not at the scope of what I proposed late last year and which never materialized. After what I have seen Ben and friends get away with for over two years now I truly believe that they will throw anything they have at stemming a potential crash.
And that brings me back to the very first chart – the POMO cash influx as of late. What do you think that is? The tape has been going up just fine and we are in Santa Rally territory – why is there practically one POMO auction per trading day now? The boys over running the FOMC are no idiots – they know the inherent risk in equities right now. If schmucks like you and I can figure things out then – believe me – they do as well. IMNSHO the cash flowing into the PMs right now is nothing short of ‘damage control’. They know that volatility is a raving bitch and that once the music stops things could get ugly in a New York minute. So a good strategy is to prepare for that grim eventuality by pumping enough ‘floor painting cash’ into the system. Heck – that’s what I would do if I was flying Ben’s helicopter.
So, don’t get your hopes up, my dear stainless steel rats – 2011 is going to be as much of a bitch as 2010. Don’t expect easier tape – don’t expect justice – don’t expect anything but ‘business as usual’. If you can embrace that sad state of affairs then you should be doing just fine. After all – trading is not about being right – it’s about being on the right side of the trade.
My apologies for not putting up a post last night – the WiFi at my hotel was intermittent as I was surrounded by lonely Silicon Valley nerds who were straining the network by downloading p0rn. After trying several times I eventually had to admit defeat and decided to catch some sleep instead.
Copper continues to shine and as many of you know it has been leading equities without fail.
As it’s been a while let’s take a look at our trusted copper/SPX correlation chart:
As you can see copper has continued to lead equities every step on the way. The snap back in November was no exception and it is now pushing into higher highs. Now, I have made it a point in the past that I am not a correlation trader. But having watched this chart for years now I feel that fading a strong directional move in copper on the equity side is probably pretty bad medicine. What we want to see here is the opposite in the form of a distinct divergence – meaning copper turning down with stocks busting higher. Those are the types of setups to look out for once we come out of the Christmas season and are pushing into early January.
So after sleeping on this my POV is that there is no reason to panic – divergences usually build up slowly on the DZ, meaning if this is for real we’ll see a continued down signal while equities bust higher or trade sideways. The sweet spot of course would be to see divergences on both copper and the DZ.
Until I get a more pronounced divergence on the DZ I intent to continue following copper – it’s yet another reliable medium term chart that has been very consistent in offering us clues as to what the directional bias for stocks will be for the near term future.
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