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Caveat Emptor

Caveat Emptor

by The MoleFebruary 19, 2013

President’s weekend is in the bag and it’s time to start thinking about where spring may lead us on the equities side. Obviously we’ve had a good run here in the past few weeks, courtesy of simply following this rally higher and not attempting to step in front of what was clearly a speeding train. Successful trading doesn’t have to be complicated – more often than you think it’s best to turn off your brain and simply follow the trend. However, all that said – we are now heading into low oxygen altitudes and the odds are starting to learn toward at least a short term reversal.

If you are a long term subscriber then you may recall my CPCE Deluxe chart which has served us well over the years. A few weeks ago I pulled this one out of my bag and suggested that a meaningful reversal would probably not be anywhere near unless we got a touch of that diagonal support line. Well, depending on how you draw it we’re getting pretty close – and that suggests a medium term reversal is on the horizon – perhaps a week or two out.

From a purely statistical perspective it’s also worthwhile remembering that the E-Mini is now painting its 8th consecutive week higher (assuming it holds until Friday). To give you an idea of how rare this is statistically speaking: Since 1950 we only count nine instances in which we painted 7 consecutive weeks higher, and only seven instances of 8 consecutive higher weekly closes. The odds for a weekly reversal are currently near the 99 percentile, but that doesn’t mean it’s impossible we see a higher close. To put things into perspective – last week the odds for a reversal were ~ 98% but here we are!

Earlier this month I warned you about the Fed’s POMO auctions scheduled throughout February. We knew the odds of continuation higher were rather high but even given all that easy Fed cash I would be very cautious about the long side here until we see a little correction. It’s just too tempting to shake out some Johnny-come-latelies. Caveat Emptor!

Quick update on natgas – we grabbed a contract at the ST SMA breach this morning and it’s been chugging higher like a champ. I’d start scaling out a little at this point but am ready to keep a few contracts running into 3.32.

Bonds – the 30-year may be breaking off that diagonal resistance. If you are in this trade then be prepared for a test of that 25-day SMA.

USD/JPY – I’d like to put this one our map. It’s not a bonafide setup just yet but it’s worthwhile noting that it breached a daily NLBL for the first time in weeks. Maybe it’ll jump higher tomorrow – let’s see.

We’ve got nice setups today – let’s jump right in:
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USD/CHF currently sitting on its 100-hour but I’m actually hoping for a touch of that 100-day SMA, which would be a nice inflection point. Obviously it’s passable to take a 100-hour SMA breach here if it happens – always possible we won’t touch that Maginot Line on the daily.

GBP/JPY looking weak – below both ST SMAs and also below its 25-day right now. Use that daily SMA for getting positioned – I think the bulls still have home turf advantage but it’s looking interesting right now.

EUR/CAD is a bit shot out on a very short term basis, and that daily NLBL should be good for some resistance.

EUR/AUD – it’s been a big tease but that 25-day is rising rapidly and it’ll have to make up its mind soon. Watch that 100-hour – actually we are currently below both ST SMAs.

CAD/JPY – another Yen pair which has been dropping. Support below at the 25-day SMA.

And the greenback is back from whence we came – I guess we’ll have to do this one more time. That diagonal should provide support but I won’t be married to my longs if I start seeing it slide lower. Good spot to add or get positioned either way.

Soybeans looking strong! I think the chart is self explanatory.

Finally copper which has been selling off hard and is now back at its 100-day SMA. We want to see some support here although based on prior observations we may drop through a little. I would play this only with a small position – and wait until you see signs of a floor (or a drop below that lower 25-day BB).



About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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