DAX - Another Decision To Make

Just like that, DAX is up 350 points in three sessions, a lot more than what I expected. Now the price is testing the right shoulder of head and shoulders I talked about before. If it closes above 7880 for two sessions, then there is a risk of the pattern to be negated, and a run to the high could be next.
One important issue stands to be decided next week. The whole reason for this brisk rally is a hope for ECB to cut rates next week. What if that rate cut does not happen? What if it is all in the price, and traders sell on news? Then I think there is a chance for continuation of the short-term downtrend, and a much lower target to complete the projected move down to 7050, with scaleouts @ 7270 and 7170 on the way there.

click on chart to enlarge 

Push That Sell Button

S&P 500 is filling the gaps on the upside. I expected this and think that there is a bit more to go. I am not sure if one just sells everything or leaves a small portion on, just in case it breaks through the high. In any case, you have to know when to eject. I provide the levels in my charts below. But please, please, do your own research and do not blame me for any losses.

click on charts to enlarge

China Mfg PMI - Down From Here?

HSBC Flash Mfg PMI was just released. It came in weaker than expected. This is nothing new though. I already showed before how both HSBC and CFLP Mfg PMIs usually top around this time of the year. As the matter of fact, CFLP Mfg PMI has topped for the entire year in April (once in March) five out of the last six years. If this year is no different, Chinese economy may be a lot weaker than many think. Here is the reason why (look at the chart below). In all instances when CFLP topped in spring (marked by the vertical yellow line), it was much higher above the 50 (no change) line than now. If we assume that the current level is the highest of this year, it will not take a lot to push the index way below 50 (into contraction territory) very soon.

There are always doubts about the economic numbers coming out of China. But HSBC (privately collected data) keeps the official (govt) numbers in check. CFLP Mfg PMI is due to come out next week. I think that it will be the second most important economic report (with April NFP being the first) for the entire financial market next week, and the most important one for commodities.

click on chart to enlarge

DAX Futures - Decision Time

DAX is stuck between support and resistance. I expect an upward resolution of this 100-point trading range, with 7650 as a target.

click on chart to enlarge

It Is OpEx Week

Making a top is a process
A few weeks ago I said that OpEx week will probably bring the most volatility (read here). We are having enough of it now. I expect somewhat of a fakeout on SPX. It will look like the bottom is in. There are three gaps to fill above. Price may travel up there first. But I think that we will resume the sell-off after those gaps are filled. My SPX target on the downside is 1500. Please note, I am not saying that this is the top, but rather just another one of multiple short-term tops on the way to yet another all-time high in this super bull market.

click on chart to enlarge

Golden Apple
Not to start another Trojan War, I decided to show an interesting comparison chart. Both are in a bear market. Both were in a bubble. Both had (and still do have) a cult. Both may still need a final whoosh to clear out the last believer. Let's call this chart the "Golden Apple". (I love Greek mythology)

click on chart to enlarge

No More Laughs

Sadly, only two days after I said that we can't stay completely serious about this market, tragic event wipes out any hope of laughter from traders. It is impossible to prepare for something like what happened today. I was in the market on 9/11. I remember the shock and disbelief that went through my mind. Trading (or lack of such for many days, because the market was closed) was not the main thing I thought of. At times like these we think about the well-being of our loved ones, and those who perished or were injured in the attacks. Volumes dry up, as traders square off their positions and are reluctant to establish the new ones. Illiquid conditions make for exaggerated moves, as those who have to trade are met by few on the other side. At times like these I usually reduce the size and/or stay out altogether. There are no technical and fundamental approaches to conditions like these, at least none I know or even want to take advantage of.

Today the market was under pressure way before the attack in Boston occurred. The tragic news (around 3 pm) exacerbated what was already a very ugly day. I have to say that I expected gold to take a dive, but it achieving my 1340 target on the first trading day after I mentioned it, was a total shock for me. More importantly, in times like these gold gets bought. It is not so now... This reaffirms the new times for precious, and once again puts all those who are messing with buying it in terms of weak currencies on notice. Just don't do it! As for equities I have my own view on why the sell-off happened (even prior to 3 pm Boston news). If you are long gold and getting a margin call, you are probably not going to sell an asset at a loss in the middle of a free fall. You are going to sell what you can and have a profit in. Stocks would fit the criteria. So equities got pounded on triple whammy of forced liquidation, broad commodity sector sell-off (in sympathy with gold and all metals) due to slower growth concerns in China and the rest of the world, and of course, the attack (at the end of the day). If I was overweighted in equities, I would look to reduce my exposure on all rallies. I expect the risk-off environment to continue for a while. The waves of selling may come out of nowhere, as traders look for more bad news as an excuse. There will be time to buy the equities, just not now...

Weekend Trading Notes On April 13, 2013

Let's have some laughs! For it is impossible to stay completely serious about this market.

What is happening with the retail sector? I expected that payroll tax increase would be slowly absorbed by resilient consumers, who would adjust their other expenses in order to continue shopping like drunken sailors. Not so, according to March retail sales report (released yesterday). This news came after big employment cuts by retailers were reported in March NFP last Friday. And to top all of this off, UoM Consumer Sentiment came in worse than expected yesterday as well (I would not put too much weight on this one though). So why the heck is XRT not responding negatively to all of this news? If you can answer this question without mentioning the Fed in the same sentence, I am ready to listen. I am not a big fan of the Fed, as I have no sympathy for their current policy. This said, it looks like consumers are finally getting rewarded by ZIRP (zero interest rate policy), for a change. To the dismay of all those who claim that consumers have been deleveraging since GFC (Great Financial Crisis), consumer credit expanded by a whopping $18.1B in February, as reported last Friday. It also comes contrary to the belief that credit has been tight. Looks like smaller paycheck was balanced by heavy borrowing at very low interest rates, hence consumers may come back to shopping centers after all. Could this be what the market thinks here? You see, I told you it is all about the Fed... LOL
On a serious note. Even though the MoM drop in retail sales is disconcerting, the YoY growth is still in positive territory, although in low single digits currently. It seems that every year retail sales growth drops off somewhat towards the summer, only to pick up later in the year. So let's zoom out a bit... Currently, retail sales growth rate is oscillating towards the bottom of the well-established long-term range. March employment cuts in the sector look like a blip on the long-term chart. Staying with the theme, one has to zoom out in order to realize how resilient the consumer has been. Consumer spending is at all-time high, despite consumer confidence tracking much lower than pre-recession levels. As the matter of fact, with every recession it seems that consumers are less confident during the rebound. Market is well-aware of the non-correlation at this point. And this is probably why XRT hit an all-time high on Thursday.
So I would like to make another one of my outlandish predictions. XRT will end the year at around $80, a gain of 9.5% from here. I built a fib structure which shows a possible short-term top developing between right here to around 73.80 (cluster resistance), followed by a 6.2% correction (as a part of the summer swoon scenario for the fourth year in a row), and after that a 15.5% rally into the end of the year. It so happens that SPX has been a carbon copy of XRT since the bottom in March of 2009. Do you get my idea?
Let's see how all of the above looks on charts.

click on charts to enlarge 

It was a fun-filled trading week, that is if you were long S&P 500 and short gold. I hear a lot of nonsensical hoopla from some traders who like to brag about buying gold in one or another weak currency, mostly in Yen lately. I am sorry, but this just cracks me up! How about selling gold outright? Yellow metal is in a bear market territory now. Why complicate things and use weak currencies to buy it, when you can just sell all rallies in it in dollar terms? I just don't get it...
Better yet, I have an interesting suggestion. I was waiting for Friday's close to show a chart below. It is a weekly-on-close comparison of continuous gold futures over S&P 500. I call this chart "Solar Eclipse". The last time the two intersected was in April of 2010 - exactly three years ago. You could show my chart to your friends at a cocktail party and say that you are short GC in SPX terms... LOL
On a serious note, there was a laminate support of a horizontal and lower trendline of the channel at 1490ish. After the pit closed yesterday, the price hit an air pocket and blew right through that in Globex trading, dipping down to $1476 (on June contract) in stops-hunting exercise. It is probably not the best idea to short here, maybe one should wait for a bounce to just around $1500. It may sound crazy, but there is another 10% below here to shoot for, all the way down to 1340.
I will get some angry comments from gold bugs now... LOL

Happy trading next week!

click on chart to enlarge

S&P 500 Futures Pattern Repeats

I would like to point out how today's low may be yet another launchpad for higher prices on SPX futures. Below I compare the two patterns which are very similar. It looks like a trip just north of 1600 may be in order next week.

click on chart to enlarge

DAX Futures Update

Dax futures ran into a 3-line resistance earlier today. If this resistance holds, there is a chance for a right shoulder (of the head and shoulders pattern) to be formed. Price has been responding to all trendlines and horizontals with respect so far. Stay tuned...

click on chart to enlarge

Can This Really Happen? - Part II

On March 13th I posted my first part of "Can This Really Happen?", where I projected what Dow Jones Industrials can do over the long term. Today, from the department of outlandish predictions, I am going out on the limb to show my projected path for Dow Jones Transports.

Just like in my Dow Jones Industrials prediction, I compare the Transports' weekly chart to the one from the previous bull market (2003 - 2007). This time I do not want to go too far out in time, and will simply show where the price may possibly be this summer. If things progress in the same manner (charts look very similar at this point), Dow Jones Transportation Average may reach a target of 7368 around the last week of July. It is really mind-boggling to think that DJT may have a 19% advance from here (into what is usually a seasonally weaker time of the year), as it is already 28% above the November low.

click on chart to enlarge

Not Again!

I may just stop pointing the divergences out, since they have not mattered at all. So I will do it this one last time because SPX and DJI hit their new highs without RUT and DJT today. I am going to miss this useless exercise...

click on chart to enlarge

Weekend Trading Notes on April 6

It is funny how Cyprus and North Korea became smaller issues overnight. Slowing growth in U.S. is now squarely in the foreground of investors' worries. NFP served as a culmination of the latest economic reports which all pointed to some sort of pause in U.S. economy. Sequestration and payroll tax increase are being blamed. Obviously, nobody knows if this is just a blip or more weakness is ahead. One thing I am sure about - it is too early to call the end of this bull market. In bull market the price starts in the lower left and ends in the upper right of the intra-day chart. This is exactly what happened on Friday.

On ES there was a plethora of channels and a fib structure to trade (with all targets hit now). Support at mid-March low was held. Traders are going to establish new shorts on fib retracement of 1568 - 34 range. That is going to be a battle which shapes the next week or two of trading. OpEx week will probably bring the most volatility with 1500 ES target to shoot for. However, this is not my only view. I have an alternative which could take the price passed the all-time high, to 1580. I am not confused and not torn apart though, as there are clear signals which will precede those targets. There are two opposing head and shoulders patterns which are still forming. Stay tuned...

click on chart to enlarge

Do Not Overreact - Quick Market Note

I quickly wanted to warn my followers not to get too excited about a one-day sell-off. While it may be the beginning of something bigger (will elaborate in the last paragraph), one has to realize that we are still in a bull market. No portfolio manager is going to sell all of his/her positions here because some young desperate leader is waving his toy gun at America. North Korea will not spook investors until there is a full-fledged war with South (which is very unlikely). I think that at the end Obama will write Kim Jong-un a check to buy a new basketball hoop (which will be delivered by Dennis Rodman), and we will all live happily ever after. Today's sell-off was more about NFP adjustments due to lower-than-expected ADP and weaker employment component in Non-Mfg ISM, and not North Korea.

I have become intolerant to macho traders on TV who call days like today "the top of the bull market". Do they look at charts? Exactly why do they see this bull market topping for good right here? Do not bother asking them this question. They are too busy trading fast and talking out of both sides of their mouth even faster. Just because there is a possible triple top on SPX, does not mean we can't pull back and then take out the high again.

So we have a shorting opportunity and a pullback to buy. How deep can the sell-off be? I think that should the price not see a rebound back to yesterday's high and above (1574 on SPX) in the next few days, we may be looking at 1500 tested next or the following week. But I would rather concentrate on levels than call the timing of these dips and bounces. Please realize, once the price dips 4 to 5% from yesterday's high, there will be a serious bounce. 1574 x 96% = 1511 and 1574 x 95% = 1495. So 1500 will be defended, in my humble opinion. At that time some trendline, moving average, fibonacci retracement, and anything else that bulls decide to use as a support for buying en masse, will stop the decline. Do not get complacent, take what market gives you. Listen to your gut, and turn the stupid TV off...

Is It Time To Worry?

Another day, another high, and even more divergences to show. The following three have been the strongest leaders of the rally, but lately stopped confirming new highs on S&P 500. The most important one is Dow Transports. Today, the price broke below the neckline of head and shoulders pattern I showed in my earlier post.

click on charts to enlarge