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.

continued for members...

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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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Please see our Disclosures and Use Agreement for additional information regarding the site and its use and information presented on this and other pages.

 

 

 

 

 

 

 

 

 

Our advice yesterday was to ignore Draghi and focus instead on oil.  It was headed for an important support level which would determine whether or not stocks could bounce.

Oil did, in fact, reach our 50.63 target, at which point it tried, but failed, to rally.Fortunately for bulls (or market makers positioning for OPEX), VIX came to the rescue – repeatedly tumbling just enough to prevent the backtest I had anticipated. It was just Wednesday [see: True Colors] that we discussed how effective it’s been, lately, at propping up stocks.This morning, investors are correct to focus on Kuroda’s comments which are, in a word, absurd.  Saying that the BoJ is open to 3-4% inflation is like me saying I’m open to adding a 360 to my slam dunk.

USDJPY has given up on the ramp it started yesterday.  Along with CL and VIX, it is positioned to allow our next downside target to be hit — probably in the opening hour.  From yesterday’s Ignore Draghi, Watch Oil:

If ES’ channel breaks, SPX should at least get a backtest of the broken white channel at 2130ish.

Of course, by delaying the decline for a day, SPX’s backtest could be even lower.  We remain short from 2143. (more…)

So Draghi and the ECB didn’t discuss tapering or extending QE.  Hmmm… a little hard to imagine.  What’d they talk about, the weather?

Futures, which know where their bread is buttered, ignored Draghi and followed oil’s lead instead.  CL nailed our 52.21 target yesterday, and has been reversing ever since.  It’s now closing in on the red channel bottom again — which will determine whether stocks can maintain the latest bounce.  The key level to watch is right around 50.63 — the SMA10 and red channel bottom.continued for members… (more…)

Yesterday’s rally was so lackadaisical that it was hard to see it as having much staying power.  Today we’ll find out, as USDJPY has already broken down and CL has reached another potential turning point.

In fact, the only thing reliably driving the futures higher at the moment is our old friend VIX.

A Bloomberg article published yesterday talked about how unreliable VIX has become as a measure of risk.  True, but I look at it differently.  I see VIX as a very good indicator of where central planners are trying to push the market.

Formerly an indicator, it has become yet one more tool with which they can goose stocks — often in contradiction to the news flow.  One of our astute readers pointed out yesterday that a red candle in VIX matched up with a red candle in SPX.  Unfortunately, this has become a common occurrence.

But, rather than bemoan the market’s brokenness (busted…I still do a lot of that), I see it as a tool with which to discern TPTB’s intentions.  Deny it if you like, but there is very obviously a script that central bankers and their lackeys tinker with on a daily basis.  Their one imperative: a happy ending.

If we can sneak a peek ahead at the next few pages, we’ll continue to do well even as fundamentals and formerly reliable indicators fail us.

continued for members… (more…)

The quandary central banks have been facing can be summarized as follows:

1. stocks can’t move higher without the support of higher oil prices; and,
2. oil prices can’t move higher without triggering inflation; and,
3. central banks must tighten if inflation surpasses their target thresholds; and,
4. the mere mention of tightening sends stock prices lower.

As CL neared critical support (after having reached our upside target last week) stocks were looking decidedly nervous.  Clearly, something needed to give.  Hence, Janet Yellen’s suggestion that inflation would be allowed to run a little hotter.

Yellen laid out the deepening concern at the Fed that U.S. economic potential is slipping [ed. note: this means lower stock prices] and aggressive steps may be needed to rebuild it.

Yellen, in a lunch address to a conference of policymakers and top academics in Boston, said the question was whether that damage can be undone “by temporarily running a ‘high-pressure economy,’ with robust aggregate demand and a tight labor market.”

In fact, the BoE’s Mark Carney said the same thing on the very same day.  From the Telegraph:

Mr Carney told an audience in Nottingham that the current environment of low inflation was “going to change”, with the drop in the value of the pound likely to push up prices across the economy.

He said food prices were likely to be affected first, signaling that the situation was “going to get difficult” for those on the lowest incomes as the UK moves “from no inflation to some inflation”.

Fed followers will find this pivot familiar.  Remember when reaching 5% unemployment was the bogie for discontinuing accommodative measures?

continued for members…  (more…)

It was an interesting weekend.  Futures sold off as much as 8 points yesterday, but were right back to green on this morning’s open.  It remains to be seen whether they can remain in positive territory as CL sells off again.

We remain short from Friday at 2146, but there are plenty of trip wires ahead.

continued for members… (more…)

Yesterday’s decision to go long at SPX 2115.74 paid off in spades, even more so if you held on through the close.  CL, which backtested the white channel top as expected, verified the falling purple channel on the bearish EIA data dump and then proceeded to break out of that same channel overnight.

Likewise, USDJPY — which had broken down through a rising TL from Sep 26 — magically recovered overnight.

The eminis are ecstatic over these developments and have now bounced 30 points from yesterday’s lows.  There’s a dark cloud on the horizon, though, which could spoil the party.

continued for members… (more…)