Thursday, April 20, 2006

Why i am not too excited about the upside here ?

Some simple intermarket analysis. Daily CCI(14) on DOW is around 199, SPX is 129 and NDX is around 90.

DOW is already at extremes which implies some sort of correction to kick in on the DOW. Now if the NDX and SPX starts moving higher along with the DOW, DOW CCI would reach very extreme territory and will end up as a blowoff move. Not very exciting if one is positioning for a swing move on the long side, cuz the reversals from the blowoffs could be swift. Look at what happened to GOLD and SILVER today !

Now if the DOW starts correcting here, it would push the SPX CCI below 100 and NDX will seem like a rejection from the 100 line. So the implication is that some sort of a short term correction will begin soon. If this scenario were to transpire, it won't be a plain garden variety ST correction. The reason being the daily MACD is already hovering near zero and if we were to get a continuation sell on the MACD, the MACD would dip below the zero line. Selloffs when the MACD is below the zero line are generally brutal.

So my strategy at this point would be to daytrade the hourly until either one of the scenario transpires and then take a swing short position once my system issues a sell.

Wednesday, April 19, 2006

Commodity complex on fire !

The entire commodity complex and the 10-year yields are on fire. If one thinks that the Fed is done, as portrayed by the media, i think they must be smoking something really heavanly. I think a 50bp hike in May is now becoming more of a reality, if this commodity meltup is to be contained. Now if the stock market were to discount that hike before that actaully happens, then we should see a serious drop in the markets before the Fed meeting. At least, that's the conceptual framework from which i am operating. Now whether that drop comes from higher levels or right from here is not clear at this point. The daily momentum indicators are still on a momentum buy. I am still waiting for a sell signal from my system. Until i get that signal, i will avoid swing trading and continue to trade the hourly charts in both directions. In the VST though, i expect a gap-down tommorow morning and a swift selloff. And then the OPEX circus should continue for the next 2 days. Overall i am bearish now and i expect the NYSE summation index to make a trip to the zero line or undershoot it, while the NYSE MCO puts in a divergent bottom, before any meaningful rally resumes.

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.