In my weekend analysis I wrote that I was bearish stock indices. I based that opinion on a method I have developed over the years. I have used it to forecast many tops and lows over the last 15 years. The forecast is based on weekly charts, so I am not too concerned what happens intra-day. This method is used to trade the big moves.
So going into the trading day Monday (yesterday) I knew that this week could be the beginning of a very substantial move down. I immediately started shorting indices yesterday morning, and I thought I was going to get rewarded for my boldness. That was not to be. Someone somewhere said something. Who know what they said, but the effect was obvious. The market reversed on a dime, and the DAX was strong all day.
The Dow took its cue from the DAX and it too rallied most of the afternoon. It is during times like that you begin to question your forecast. It is also during times like that – that you have to remind yourself that the forecast is based on weekly charts, so it should not matter what happens from minute to minute intra-day.
This leads me to the point of this story: who is buying? Who is it that is buying? How many times over the last week of trading have I seen a very strong open in the Dow, and then it all just fizzles. The Dow probably should be stronger. The dollar is strong, albeit a little weaker over the last 10 days. Oil is recovering well. Yet whoever it is that is pushing the Dow up during the first hour hasn’t got the ability to keep it there.
Monday’s trading session was bad news for the optimists. There are no buyers above 17,700. Now we are 150 points lower again, and my forecast is looking better. I digress. Let us trade the market, and not the forecast. Anyone can forecast, even me, by flipping a coin, and calling heads bullish and tails bearish.
Instead let us understand what is going on underneath “the bonnet of the car”, so to speak. Stocks got what they want, didn’t they?
- Central banks are behind them – supporting them
- Oil is recovering well – another $10 and it has doubled since the low of $25
- There is so much worry about earnings, yet the Dow is sat just a few hundred points from an all-time high.
And yet we keep failing at the most critical times, like today. AND why is Gold so strong? WHY is YEN so popular (safe heaven).
Conversely, we keep “failing” – or not failing, as it is – just as the markets look like they are about to free-fall. Something is still supporting the market. It is turning out to be quite the tug-of-war, and I think the earnings season will force a solution.
Here is my position: I have put on long-term short positions in stock indices. I have a sell signal, and I have executed the plan. In between I will trade in and out of the market day trading style, like a good student of the markets.
I will talk to you again tomorrow.