Stop me if you’ve already heard this one…  Ugly economic reports, US dollar shooting higher, euro and yen breaking down, equity markets selling off after huge uninterrupted gains…

What could go wrong?  I’ll play along on the downside… again…  but can’t help wonder if this merely proves I’m the most stupid person alive.

 

 

Bad news is good news, right?  There’s plenty here.  With the EURUSD continuing to slide…

…and the dollar soars, testing the July 2012 highs…

…in the midst of a downturn in US manufacturing as evidenced by falling Empire State Manufacturing numbers (big miss), declining PPI, declining industrial production, declining capacity utilization (smaller misses)…

Needless to say, a rising dollar won’t do much to help US manufacturing.  Simply put, our stuff will be more expensive to foreign buyers, and their stuff will be less expensive to US buyers.

It’s great if you have your eye on a new Prius or HD TV.  Not so great if you’ve recently hired a bunch of factory workers for the economic rebound everyone’s talking about.

On the off chance that it matters, this chart sums up the May Empire State manufacturing survey.

There are few bright spots in the entire report.  Pretty much every category shows weakness.

The stock market, however, thinks this is just fine.  As long as truckloads of cash continue to be injected into the markets, no problem.  The lack of inflationary pressures, continued weakness in manufacturing and employment… these factors play nicely into the doves’ hands.

UPDATE:  10:20 AM

SPX sold off almost 4 points, but has since retraced almost .786 of the losses since yesterday’s high.

SPX has obviously traded above the latest 2.24 extension (small purple), the 2.24 extension of the 1474-1343 correction last fall (yellow), the TL from the 1994 & 2002 lows (dashed purple) and the red channel midline.

We should see a reversal at the .786 at 1650.15.  If that’s the full extent of the retracement, we could get some momentum on the downside.  Otherwise, SPX would be pointing to 1652.52 and higher.

UPDATE:  10:59 AM

It’s pretty obvious we’re heading to 1652.52 or higher.  Switching to a long position here at 1650, stops at 1649.

If anyone’s wondering, that whooshing sound is my foot striking…nothing; the football was yanked away once again.

It makes sense to take stock at this point and figure out the rules of this “new normal” — if that’s indeed what it is.  Some thoughts on trading this market…

continued for members…

It’s getting tougher and tougher to find natural turning points in the market.  Many have theorized that we’ve experienced another mid-90’s style market where prices leak higher every week, with few downturns of more than 1-2%.  Based on the past couple of weeks, I would say that’s fairly likely.

It makes sense to stay long, but keep an eye on potential turning points in terms of setting stops and/or playing interim downturns.  Eventually, one of them will turn into a nice correction.  And, we’ll be there to capitalize.

We’ll also use stops, though, in the event those downturns — like this morning’s — go nowhere.

SPX just reached one natural turning point, so I’ll take an interim short position here at 1654.50 and use it as an example.  Stops at 1654.55.

It’s the 2.618 of a small pattern, the downturn from 1635.01 on May 9.  And, it’s fairly close to the next line higher on the red channel.

Also, I recently placed the top of a new harmonic grid (in red, above) at 1654.50 for the purpose of looking for attractive targets that would be generated as a result.

UPDATE:  11:37 AM

Just got stopped out for a .05 loss + commissions.  Not a problem, as I covered my downside and had a shot at picking up 7-8 points.  Next potential stop 1655.34 – the white 2.24 and the red .75 line.  Beyond that, the top of the purple channel comes into view again.

UPDATE:  11:44 AM

Will try again here at 1655.66 — catchy number, on the red .75 line, white 2.24, etc.

The retracements off this price are interesting.  The red .236 at 1638 would fit with a decline to the bottom of the red channel tomorrow morning.  And, the .500 is right at the purple channel midline.  A .786 pullback would land SPX back at the 1597 high from Apr 11 (note: these are all based on 1581.28 from May 1 as the starting point.)

Oops… stopped out again as I was typing that.

My point isn’t to take a stab at every little Fib level that comes along on a 15-min chart.  But, to demonstrate a style of trading where we anticipate the potential turning points and evaluate whether they’re worthy of a trade.

A reversal just past a channel line, for instance, might produce a back test and nothing more.   We’re coming up on the white 2.618 at 1657.06.  If the red channel is drawn correctly, a back-test would produce only a 1.5 point gain.

If prices push down through the channel  line, we can always jump on board. I like the fact that this intersects with a steep little acceleration channel I’ve drawn (in white.)  A drop to the bottom of the white channel could produce a drop to 1650 or so.  Arguing against it, however, is the presence of the purple channel top at 1661ish.

A reversal at a channel line or a more significant Fib level, on the other hand, has a better chance of producing a decent short opportunity from the start.

We have such a level coming up at the top of the purple channel (redrawn yesterday) and the yellow TL from the 1994/2002 bottoms.  The proper placement of the purple channel is subject to additional evolution and interpretation.

But, the TL is absolute.  It currently stands at 1661.55 and is increasing at only about half a point per day.

As things are currently drawn, we can’t get to the yellow TL without passing through the purple channel top.  And, the red channel top has already crossed over the purple. This means: (1) I should take yet another look at the channels to make sure I’ve drawn them as accurately as I can; and, (2) if the channels are right, the upside is accelerating.

UPDATE:  12:15 PM

SPX just tagged the top of the purple channel at 1659.59 (another catchy number, SPX likes those.)  I’ll try a full short here, with tight stops.

I’ll take an interim long position on any move past 1660.  And, while I’m waiting for my position to start to suck, I’ll take a fresh look at the channels.

UPDATE:  12:55 PM

Just tagged the yellow TL at 1661.49.  I’ll lift the interim long and let the short run.  Updated chart in a few minutes…

The channels look like a decent fit here, so we’ll go with these for the moment.  Resetting the top of the red grid to 1661.49 puts its .786 just under 1600 on May 29, which is my time target for the bottom of the next wave down (if there is one…now or ever.)

I’m a little disappointed that RUT is still 5 points away from its price target of 996.  This raises the possibility that this is another small blip — albeit one that’s closer to the real thing.  I’ll update the RUT chart shortly.

Stay tuned.

UPDATE: 2:40 PM

SPX is off about 9 points so far — 0.56%.  It just tagged the bottom of the white channel and got a bounce.  A drop back through 1653 will break that channel and open up the purple TL from 1994/2002 at 1647.5.

I show that TL and the red midline intersecting there at the end of the day or first thing tomorrow morning.

A drop through 1647.50 would open up 1635-1637 — a bunch of Fib lines that could use back-testing.

Looks like we’re getting a little channel going to the downside. We’ll use that to watch for any stalls or reversals.

UPDATE: 3:08 PM

SPX is popping up out of the little falling channel.  I’ll take an interim long position here at 1652 and see if it develops into anything more than a back-test of the broken red channel line (1655ish.)

UPDATE:  3:28 PM

SPX is testing the intersection of the tentative falling white channel top and red .75 line.  A breakout looks likely.  The .618 is at 1657.44 and the .786 is at 1659.22.

UPDATE:  3:40 PM

Just tagged the .618.  I’m closing the interim long here at 1657.50 and will let the short ride.  Stops at 1660ish near the midline.

UPDATE:  EOD

Riding the short into the close because: (1) SPX is essentially at the white midline and the .786, usually worth a reversal on general principles; (2) several other indices are at potential turning points; (3) DX is pretty clearly setting up for 84.527+; (4) EURUSD still has potential to 1.28; (5) VIX woke up today; (6) AAPL’s not done yet.

Plus, the RSI charts don’t suggest a bottom has arrived yet — if that means anything any more.   I have to dart into a meeting, but will post more later.

BTW, hat tip to Colin for pointing out an interesting chart on gold.  I’ll update the charts this afternoon.