Yellen said all the right things yesterday to keep the algos on track, taking out the previous highs and seemingly on track toward new all-time highs.

USDJPY continues to inch higher. But, CL has run into resistance once again — in the same manner that delayed new highs last week.  Which to believe?

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Friday was one of the more interesting days we’ve had for a long time.  It wasn’t that we experienced a snapback rally — we’ve had plenty of those.  Rather, the plunge across the board aptly illustrated l the dilemma the Fed and other central banks face with respect to propping up markets.

With an imminent rate increase likely off the table — at least in June — the US dollar will have a hard time maintaining its strength.  If DX continues falling, then the yen carry trade will continue to falter.  Even though oil futures have become more powerful in driving stock algos, USDJPY still matters (as we saw on Friday.)

They can continue to drive CL higher, but that will simply increase inflationary pressures — which will make the continuation of ZIRP/NIRP that much more alarming.  To be clear, I don’t see any way they get out of this conundrum without stocks taking a hit or consumers taking a hit.  I guess we know which way that usually plays out…

This morning, CL is again demonstrating its ability and willingness to prop up stocks.continued for members… (more…)

With such weak employment figures this morning, the odds of a rate increase in June just plunged.  However, that information just killed the US dollar’s rally… …which, of course, killed the USDJPY.  Recall we were looking for a drop to 108.25 or even 107.79.  It’s currently on its way to 106.80.Needless to say, CL will have to rally a lot in order to prevent stocks from giving back this week’s gains.

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For several years, buying the dip was the obvious thing to do. It even had its own YouTube video. But, lately, big meltups into the close have been a trap — at least until the next one comes along.  Yesterday’s action in oil futures (CL) was a classic.

A 4.7% plunge turned on a dime as stocks opened, and rallied 3.1% all the way until the moment they closed.  It was enough to erase a nice loss on the day and drive ES 16 points higher off its morning lows. It’s plunging again this morning.  Rinse and repeat?  Or, are folks waking up to the disastrous Japanese fiscal developments (another downgrade on the way) and the continuing meltdown in OPEC and wondering “why buy this particular dip?”

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We’ve added quite a few new members over the past two weeks.  I thought it would be a good idea to review a few odds and ends.

First, if you signed up for a Charter Annual Membership, congratulations.  Your rate will never increase above $750.  If you signed up for a regular Annual Membership at the sale price of $500, that rate is good for the first year only.

The annual rate will be reverting to $1,800-2,000 after the membership promotion concludes.  If you’d like to upgrade, no problem.  Just PayPal the $250 difference and we’ll adjust your membership type.  You can also use the Consulting button on the sign-up page [CLICK HERE] if that’s easier for you.  I’ll leave the promotion up through Friday night.

If you haven’t already, take a moment to follow @pebblewriter, and, if you’re an active trader, @pebbletrades.  @pebblewriter is a general Twitter account to which I post a random assortment of stuff on a random basis.  @pebbletrades, for members only, will notify you of intraday changes in position.  If it’s not obvious from your Twitter handle who you really are, drop me an email so I can approve your follow request.

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Now, on to investment matters.  For those of you who haven’t figured it out, I am slightly bearish by nature.  I set up this website back on May 2, 2011 because I was concerned that stocks were about to take a big dump.  They did.  May 2 was the high.  The S&P 500 tumbled 22% by October — most of it in a rather nasty 18% plunge over a period of two weeks.In that case, an analog that was replicating the 2007 top was at work.  It predicted the day and exact price at which the decline would begin.  I was over the top ecstatic, and my readers were too.

But, on October 27, a pattern which might have taken stocks well below the 2009 lows was busted by the ECB.  Thus began my quest to figure out just how central banks and their proxies were directly and indirectly moving markets, and more importantly, how to anticipate such activities.The Fed has always had the ability to goose markets via monetary policy.  But, this was something new: deliberately busting bearish patterns via currencies, futures, derivatives, etc.  Five years ago, most folks laughed at the idea.  Since then, it has become common knowledge, and is openly admitted by the BoJ and SNB.  Others, perhaps more shy about it, are no doubt doing the same.

I’m not an insider.  I have no friends at the FOMC, the ECB, the SNB, BoJ or even at Citadel.  I’m just an intensely curious guy, some would say slightly “Aspergery”, who sees patterns everywhere.  It’s no exaggeration to say I even dream about patterns.  I keep a notebook on my bedside table for those times when I wake up at 3am with a particular pattern in mind.

The downside — aside from making me perhaps the world’s least interesting person to invite to your home for dinner — is that I often find myself jumping at shadows.  I’m not really paranoid, but it sometimes seems that way because I pay particularly close attention to downside risks.If something bad is about to happen to your portfolio, I’ll be among the first to realize it and let you know.  This means that if you have a long-term taxable portfolio with an extremely low cost basis, you should take my intraday rants with a grain of salt.  Sometimes they work out, and sometimes they don’t.  It often depends on whether the MIT grad sitting in a windowless room on Dearborn St. in Chicago mashes the “sell VIX” or “ramp CL” button.

This assertion will rub some of you who do excellent fundamental research the wrong way.  Believe me, I understand.  Like you, I was raised to believe that the secret to forecasting stock prices was in analyzing a company’s cash flow, earnings statement, balance sheet, competitive position, management talent, etc.  I believed it as much as anyone.  And, at times, I believe these things still matter.

But, did it matter last August or January, when stocks were dropping like rocks, whether you owned the highest quality stock in its sector?  Did it matter in the summer of 2010 or 2008? How about the countless times, like today, when a 3% intraday rally in oil futures — on no news — produces a V-shaped rally that spikes up to new highs?The reality is that stocks are heavily manipulated.  And, I’m not just talking about the big picture — though that should be obvious.  I’m talking about oil futures, USDJPY, NKD or VIX making sure that SPX gets a little boost when it bumps up against resistance.  It happens multiple times per day, almost every day.

Though once in a while it doesn’t happen, or they try but it doesn’t work.  Maybe the selling volume is too high, or they actually want to flesh out a ridiculously lopsided channel with an occasional pullback.

Lately, we’ve seen what appeared to many to be minor pullbacks turn into 10% corrections.  Love those, as they provide those willing to short stocks an opportunity to pile on positive returns while the indices are dropping.  They almost make up for the days when the algos deliver a melt up that completely ignores resistance.  I still find those days tough to trade — though it’s probably psychological.

Speaking of trading…I don’t consider myself particularly good at it.  I used to be, back in the days when good news was good and bad news bad, when real live people traded markets, when borrowers paid you interest instead of the other way around (what’s the PV of something using a negative rate!?)

These days, it’s increasingly difficult to trade without thinking to myself “what are they trying to accomplish, here?” or, “what would be the best way for them to screw over traders who are playing an obvious pattern?”  Witness the prevalence of busted Head and Shoulder patterns, not to mention the number of hedge funds that are closing their doors.

Fortunately, I’m pretty decent at charting patterns and forecasting markets. So, that’s what I do every, while also attempting to identify turning points intraday.  You’re welcome to follow along in the instrument of your choice, as I post these turning points.  Or, simply use the information to inform other purchase/sale decisions.

And, if you have a specific stock, currency pair or commodity that you’d like an in-depth or customized look at, just let me know.  I consult by the hour or, if it’s an ongoing need, on a monthly retainer basis.

Lastly, I encourage you to share.  Most of you are professional money managers or traders, and I know you like to keep your secrets to yourself.  But, we all have unique perspectives, and none of us has a lock on good ideas.  Share something that helps another fellow trader today, and tomorrow karma might smile on you.

 

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p.s.  I’m going to try very hard to get May’s results posted on Thursday.  I’ll POST THEM HERE as soon as they’re available.

Yesterday was a good start toward our downside target.  Today, I expect the other shoe to drop.

USDJPY had no trouble reaching our first and second downside targets.  And, Abe’s suspension of the sales tax hike last night permitted the pair to finally break the rising red TL and get most of the way to our third target at 108.25.CL was a big help, nailing our downside target and closing below its SMA10 for the first time in weeks.The only thing that spoiled our party yesterday was NKD, which ramped into the close and dragged the algos with it.It didn’t appear sustainable at the time, hence my suggestion to maintain a short position overnight.

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