When markets are propped up for an extended period of time, the risk doesn’t go away.  In fact, the postponement increases the tension such that the unwinding — the eventual return to stasis — is often more violent than would otherwise have been the case.

With the US elections only a week away, we have to wonder what the unwinding will look like this time.  Combined with a changing of the guard in carry trade leadership, the next week should be quite interesting.

We got a taste on Friday, when SPX nailed each of our downside targets — just, with a 14-pt rally thrown in the mix.

SPX appears to have broken down.  The obvious levels to watch are the red .618 at 2130, the white midline at 2126, and then the red .786 and .886 at 2123 and 2119.

Kudos to anyone who had the nerve to hang on to our initial short position.  We remain short from 2139.23 on Oct 27 [see: Distress Call.]

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The economy is either growing rapidly or slowly.  Inflation is either spiking or disappointingly low.  Earnings are just great — except when they’re not.  Today’s “market” is like one of those carnival fun houses, complete with the curvy mirrors that distort reality — just, without the giggles.

Futures sold off sharply after the close yesterday, and have since rebounded to a small gain that, at this moment in time, represents a backtest of the stubborn TL that served as support for two long weeks.continued for members… (more…)

Yesterday started off well, with great calls early on (off a downside target of 2132.91, we went long at 2132.66 and took profits at 2145.65; the top was 2145.73.) The rest of the day was an aimless mess, as traders couldn’t make up their minds whether oil’s collapse or the barrage of bad DB news was more important than USDJPY’s incessant rise.

Today, we have more of the same.  USDJPY is making new highs on no particular news other than the usual: SPX needs help. continued for members… (more…)

Oil broke down as expected yesterday, leading stocks lower after a week of trying to retrace losses from earlier this month.  It occurred despite an impressive spike in USDJPY, which should be concerning to central planners.

Since oil first peaked on Oct 10, equities have had a tough time of it.  As we discussed in Welcome to Peak Oil, it will continue to be a problem.

We’ll take a look at why, and what it might portend for equities over the coming weeks.

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This is an excerpt of the intraday comments and trade advices from The Big Picture posted on Oct 26, 2016.  I’m posting it here for those interested in how the site works and the types of information offered each day. 

It was a good day — not the best, but not the worst.  We capitalized on a short opened the previous session at 2145.54, covering at 2132.66 for 12.88 points.  We rode the subsequent long position 12.99 points higher to 2145.65.

Next came two attempts to play bounces at support that didn’t hold.  These cost us 0.91 points.  And, we closed out the session with a gain of 5.26.  All together: 30.22 points or 1.41% in our theoretical, unleveraged portfolio mirroring the S&P 500 index.

Read on for details…

 

Oil broke down as expected yesterday, leading stocks lower after a week of trying to retrace losses from earlier this month. It occurred despite an impressive spike in USDJPY, which should be concerning to central planners.

Since oil first peaked on Oct 10, equities have had a tough time of it. As we discussed in Welcome to Peak Oil, it will continue to be a problem.

We’ll take a look at why, and what it might portend for equities over the coming weeks.

continued for members…

Today’s initial target: look for SPX to sell off to the purple .886 at 2132.91 this morning. Though, the channel bottom at 2131ish looks like a slightly better fit.CL is backtesting the falling white channel top, but has an EIA inventory report coming out at 10:30. And, USDJPY is trying to transition from the falling red channel into the rising white channel.

UPDATE: 9:37 AM

SPX reached the .886, but could have a little further to go. I’d go long here with relatively loose stops. Targets: SMA10 at 2139.21, SMA100 at 2143.89, the white .786 at 2157.86, and the SMA50 at 2158.70.USDJPY has reacted off the rising purple TL — also the rising white channel midline. If it slips, the SMA10 is just below at 103.94.Note that CL isn’t reacting much here at the channel top. If the EIA report echoes yesterday’s API, we can expect to see it break down, taking stocks with.UPDATE: 10:33 AM

Pretty positive report, as enough to get CL up to backtest its neckline. If it can pop through, even for a little while, this would help stocks greatly. USDJPY is also ramping…just because.

UPDATE: 11:07 AM

SPX just shot up to our second upside target — the SMA100 — and is approaching the two midlines and the SMA5 200 and the red .618. I’d take profits here and wait for the short term SMAs to catch up.

UPDATE: 12:09 PM

Back to long here at 2142.39, as SPX is sort of backtesting the falling white channel. More importantly, it has support from the SMA5 20 now. Obviously, the lack of a full backtest means it might not take off at this very point. I can imagine it dithering around and backtesting the SMA10 at 2139.21, as the upward trajectory if it rises from here gets SPX to 2157-2160 a little too soon.

UPDATE: 12:29 PM

Losing ground here. Back to cash at 2142.54, as it appears we need more of a backtest.USDJPY is ramping like crazy, but just ran into its .618. Together with CL’s continuing weakness, it’s not enough to turn SPX right now.UPDATE: 1:15 PM

Backtest and SMA10 in one. Long here at 2139.19. The bulls really need this to hold.Note that VIX has reached its SMA100 — should see a sharp reversal.I’d say we should see DB pop up to 15.04 on a backtest of the broken white channel while tagging the red channel top again. But, the news hasn’t been very positive today, and Q3 earnings are due out tomorrow…

UPDATE: 1:42 PM

It’s not holding. Back to cash here at 2138.13. 2138.04 should be support. But, if it were, 2132 would have held on ES and VIX wouldn’t have just made a new high, and USDJPY wouldn’t be swooning. Now, I’m wondering if we’ll get the white channel bottom tag we should have made this morning. It didn’t miss by much, but maybe it was enough to require another leg down. If SPX can hold 2138, I’ll get bullish again (at least, for 2157.) Otherwise, the sidelines seems like a very reasonable place to be.

UPDATE: 2:10 PM

I’ll take another shot at a bounce here off the 2134.72 2015 high. Back to long at 2135.36 with tight stops.DB is testing its SMA5 200 on a TL from Monday night’s lows. Perhaps it’ll get a bounce here.If SPX doesn’t hold, ES suggests a sell off of another 14-17 points to ES 2117 or 2112, about 2119-2122 on SPX.UPDATE: 3:50 PM

Back to cash here at 2140.62.

Maybe there’s more upside ahead, but momentum looks really lousy here. So, this is either a real good head fake, or some amazingly positive news will come out in the next few hours, or VIX is about to get hammered…or, there’s more downside to come. We’re still up handsomely, so I’d rather bank that and not have to worry about it overnight.

As CL continues to tread water, USDJPY is doing its best to pick up the slack.  But, investors know the yen carry trade is a mere shadow of its former self.

Kuroda’s most recent comments reveal the BoJ, like the ECB, has lost the ability to make us believe.  It is reduced, instead, to blatant currency manipulation.  Now, even that manipulation has become suspect.

Here’s the breakout which is supposed to have bulls jumping for joy.  Futures have responded by giving up 7 points from their overnight highs.  Why?

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In our last update on the US Dollar [see: Sep 18 Update on DX] I theorized that the euro would play an important role in balancing the yen/oil/US dollar/stocks equation — a role that would see it break down soon.

EURUSD’s rising purple channel broke down after Brexit, backtested for the next two months, and has broken down again.  If the channels and harmonics have anything to say about it, it has a long way to go.

EURUSD has dropped only 3% since that call (yellow arrow, below.)  But, the pattern it’s establishing says a lot about what to expect from both currencies and stocks going forward.  continued for members… (more…)

Depressed over the state of American politics?  Still feeling the Bern?  Secretly hoping that the giant meteor “takes all” on Nov 8?  Enjoy the timeless wisdom of George Carlin who, in his own salty, inimitable style, offers a different slant on voting.

…I believe if you vote, you have no right to complain. People like to twist that around, I know. They say: “Well, if you don’t vote, you have no right to complain;” but, where’s the logic in that?

If you vote and you elect dishonest, incompetent people and they get into office and screw everything up… well, you are responsible for what they have done. You caused the problem; you voted them in; you have no right to complain!

 

Nothing fancy this morning…just a plain old ramp job.  It hasn’t yet been supported by USDJPY or CL, but VIX continues to work its way lower — with multiple targets besides our 12.46.

It should be enough to break SPX out of its malaise.  Though, there are a few bearish leaning indicators.

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I spent the weekend thinking about the current state and the future of our website, and wanted to share my thoughts.

Trade Advices

Our members include day traders, individual investors, family offices, brokers, investment advisors and hedge funds — each with different objectives, time horizons, risk tolerances, etc.  But, all are keenly aware that it’s a confusing and dangerous world out there.  So, it’s nice to be able to make money regardless of whether stocks are rising or falling.

One thing I’ve been working on this past couple of months is trying to get back to swing trading as much as possible.  I started out swing trading, and much prefer it to shorter-term transactions.  But, it has become very difficult over the past year or two.

For starters, central banks and their minions are incredibly active in the markets.  So, it’s not unusual for declines to be abruptly interrupted [HOW?] before they have a chance to become significant.  Likewise, it’s become quite common for the market to close at the high for the day, only to gap down overnight — and vice versa.

It can, thus, be quite uncomfortable holding any position overnight or over a weekend, regardless of how strong the current trend appears.  This past month, however, I’m finding more and more opportunities to do so.

In October’s fourteen sessions so far, I issued 20 trade alerts.  I pulled the plug on 7 of them as they started to move against us, resulting in an aggregate 7.80 point (0.3%) loss.  The others were all gains and added up to 176.30 points (+8.14%.)
The six biggest trade alerts produced 141 points (6.53%.) Of course, if I knew in advance which six trades would be allowed to play out, I’d obviously post only those and spend the rest of the day at the beach.  Needless to say, I will continue to work towards that end.

I realize there’s another week to go in October, but the results are promising so far.  We might not reach our average monthly gain of 16.45% (since Jan 2015), but if we can produce something close to that with less trading, I think it would be a net positive.  And, given the degree to which volatility has been suppressed these last few weeks, I’d be very happy with 8-10%.

Results

I get a lot of questions about trading technique and return objectives.  It goes without saying that your mileage will vary from what I post on the site [see: Results.]

First, there’s an unavoidable lag between the time I recognize an opportunity, chart it, and post it.  I try to keep it to a minimum; but, in very volatile markets, it can be a factor.  In order to mitigate it, I try to lay out my expectations for significant turning points at the start of each session.  It’s not always possible, but it can be helpful.

Also, some of you have jobs or other activities that prevent you from executing trades within minutes after I post an alert.  At times, this might help your numbers.  Other times, it won’t.  Again, it’s difficult to know in advance which alerts will pan out.

Then there’s the question of how you trade.  My numbers are based on the SPX index, on an unleveraged basis, ignoring trading costs and dividends.  If you trade e-minis or options, as I know many of you do, you’ll get vastly different numbers.

There is no one best approach.  The important thing is to recognize when the market is about to rally or drop and position yourself accordingly and in keeping with your objectives and risk tolerance.

I think there’s greater value in consistently hitting singles than going for the big score.  Our biggest day so far this month was 3.53%. An investor who earned only that much every month, would earn over 50% per year compounded.  In my book, this beats hitting for the fences any day.

Trading Strategies

First, let me stress that my expertise is in forecasting markets, not trading.  Having said that, I’ll offer some general observations.

For those who can’t sit in front of their computers all day, I recommend focusing on the first 2 1/2 hours and the last hour of each session. We often get big moves on the open, followed by a retracement by 10AM, most of the rest of the initial move by 11AM and a rally into the euro close at 11:30AM.

The next several hours are often a series of head fakes.  And, the session typically wraps up with a rally (or, more rarely, a sell off) in the last hour.  Even though I post thoughts throughout the day, you needn’t play along on everything I post — particularly if you’re dividing your attention between trading and, say, skydiving or performing brain surgery.

As far as instruments, this should be dictated by your objectives, liquidity and risk tolerance.  There’s nothing wrong with ETFs, particularly if you stick to liquid issues and can keep your trading costs down.  E-minis are very liquid and cheap to trade, but they can also be quite volatile and are often manipulated in order to achieve particular objectives in cash markets.

Another alternative is options.  Like e-minis, these are for experienced traders only.  If someone wants to play short-medium term directional moves using options, I think very liquid, in-the-money contracts with relatively short expirations (2-3 weeks) are a good choice.  In general, I would stay as deep in the money as possible without sacrificing liquidity and a tight bid-ask spread.  The leverage won’t be as high, meaning you can more comfortably ride out the inevitable intraday volatility.

One last recommendation, and I struggle with this myself, is to pay attention to your state of mind.  If you’re tired, sick, upset or otherwise not at your best, take the day off.  Sure, you could get lucky, but the odds are stacked even more against you.

I’m also making more of an effort to step away when things aren’t going well.  It’s normal to make the occasional mistake or two.  But, after three or more hiccups in one session, it’s time to gather up your marbles and try again tomorrow.  Hit the beach, play some golf, take your significant other out to lunch… Some of my worst mistakes have been the result of stubbornness.

Memberships

I’ve been blessed these past five years to be able to do something that’s fun, challenging and pays the bills — which, in my experience, is pretty rare.  The only part I’m not really crazy about is trying to trade well, provide research and do all the admin work that goes with operating the site at the same time.  One or more invariably suffers.

I’m going to try a different approach going forward and see if it doesn’t provide a better balance.  Starting next month, I’ll no longer offer longer-term memberships.  Those of you with current annual or charter annual membership can keep renewing them for as long as you like.  And, of course, current and future consulting clients can continue at the posted rates.

But, beginning next month, I’ll only offer Monthly Subscriptions to new members, initially at the rate of $150 each month (recurring billing through PayPal, cancellable at any time.)

My hope is that this will simplify the administrative side of things and allow me to focus more on research and trading.  If it works, great.  If it presents problems, we can always revisit it down the road.

Annual Subscriptions will offer significant discounts versus Monthly Subscriptions for this, the last week they’re being offered.  Like Charter Annual Subscriptions, the price will be locked in as long as you continue to subscribe.

My goal is simply to streamline operations and offer nice incentives to those who are interested. If you have a question about your specific circumstances, please don’t hesitate to ask.  [Contact Me.]

To sign up now, CLICK HERE.

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