Tuesday, April 18, 2006

Extreme to Extreme to Extreme...

This market is simply not playable from a swing trading perspective. The only way to play this market is either daytrade of if one is swing trading, blindly pick the extremes with the hope of getting it right. If one waits for a technical confirmation of any sort, then the move is over by then. To illustrate a case in point, the momentum flipped to a sell on 4/11 and that was the day the daily CCI(20) hit -255. Do you go short then ? I think one would have been obliterated if they played leverage and went went short on that day. That's one of the reasons i turned neutral on that day. Every momentum buy on my indicators is not a buy signal or every momentum sell is not a sell signal on my system. I have rules to determine what is a valid buy/sell signal.

As i said on April 11 on this blog
In any case, this is the land of quick or dead. Long and shorts are equally dangerous. With this kind of CCI configuration, we could easily see a 20 point short squeeze or a 30-40 drop kind of moves in a day.

While in hindsight, it always looks easy and one could say, "i could have gone long yesterday with tight stops and caught this move". The cycle folks have been expecting this 5 week bottom since the last week. So one could have gone long a few times in the last week and got stopped out multiple time, unless one does not use stops. Two of my indicators flipped to long today, while one more indicator did not. In other words, i still don't have a buy signal despite the obsence move today. By the time i get confirmation, this move could be over.

The daily CCI has moved from +226 (Extreme) on 3/16 to -255 (Super Extreme) on 4/11 on now is gunning for another extreme, perhaps. If this market corrects back and puts in a constructive bottom, that would be the time to go long for a swing trading long. On the other hand if we blowoff here and put another CCI extreme, that would be a constructive top to go short from. Right now we are technically still in the land of "Quick or dead". So my system remains neutral with no signal at this point as we are stuck in this zone of high risk.

The reason for the market rally as the media potrayed was the FED minutes which hinted at the rate hike campaign nearing an end. That's pure garbage. The economy is operating at full capacity at full employment levels and the liquidty is still sloshing around the globe at unprecedented levels. When the FED met the last time GOLD was not at 620 nor was silver or copper or OIL, which are all at crazy heights. The commodity markets are just going nuts. The situation has clearly changed, dramatically so from the last Fed meeting. So to assign any value to the last FED meeting minutes is meaningless. The FED rate hike campaign has been eerily simlar to 1999-2000. After a series of 25 bp hikes from 1999 to March 2000 Fed meeting, we got that 50 basis points hike in May 2000. My feeling is history is about to repeat itself and we could see a 50 basis points in the May 2006 Fed meeting, which i think now becomes necessary, if the Fed were to contain the commodity markets melt-up here. Time will tell.

So will i lie by the poolside and sip Pina Coladas while i don't have a signal ? Heck no. I will continue to daytrade this market in the directional of the hourly trend. When my system issues the next buy or sell signal, i will post on this blog.

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