Markets – Macro – Technicals

Blowing Bubbles

bubblesThey will not let this market drop. Full stop. Every time it does appear to break in the slightest it will be righted. All new lows are fake. Yesterday had all the ingredients of a solid flush coming. After 7 times of hitting the 32.8% Fib it finally broke to the downside, banks were below the 200MA, the $DJIA below its trend line, the monthly and weekly $SPX charts showed moves below the key MAs, classic break down material. It lasted all of 35 minutes, then vertical missile #1 was launched followed by chop for a few hours and then vertical missile #2 was launched. It is this repetitive program that keeps shredding shorts to bits:

SPX 15

The result? All is saved.

$DJIA trend line: Saved

INDU

$SPX monthly 5EMA & 8MAs: Saved

SPX M

$XLF 200MA: Saved

XLF

The proximate cause for the saves? It wasn’t economic data or even political. It just was.

There were no real bottom signals.

$NYSI was neutral:

NYSI

And so was $NYMO and $TRIN:

SPX WEEKLY

All these indicators acted like nothing was going.

So the good news for us was we smelled it, we entered long and we got rewarded and we scaled out. Frankly all this action makes me more and more macro bearish while being keenly aware of blow off prices being likely in our futures.

Consider how many 20 and 30 handle up days there have been already this year (this chart is not by me):

up

We’ve already had as many 30 handle up days then we’ve had in all of 2012, 2013 and 2014. And it’s only been one month!

Bull markets tend to be of the steady slow kind. Bubble, topping markets tend to be of the erratic, wild swing move kind. And this is exactly what we are seeing here. Massive moves. The #DAX is the prime poster child here:

None of this is normal, nor healthy or sustainable. It is however perfectly consistent with price action of bubbles past which of course brings me back to my favorite analog here the 2000 event.

The chart shows us perfectly in price range of the roadmap:

SPX A

While we didn’t get a new low we got very close and bounced at the beginning of February just as it projected. The analog now calls for a bounce which seems to point toward the 50MA (makes sense), then a rejection and retrace to a solid new low. This new low points toward roughly the 1920-1930 area which would match the gap fill and 61.8% retrace area. All this lines up well. Then followed by horrific chop in March, and then the blow off top into April which could also make sense as ECB QE is launching in the same time frame. I point these things out not as a prediction, but outlining how the structure, and current events (ECB QE), all seem to line up.

Yesterday’s bounce following January weakness also tracked the 2014 script and so principally  we are faced with a repeat of 2014 or 2000 for February.

2014:

SPX 2014 F

2000:

SPX 2000 F

The deciding line in both cases? The recapture of the 50MA. In 2014 it succeeded, in 2000 it failed. So there ya go, this battle for control seems to be the key event for this month.

Chart wise it makes perfect sense as well. Above the 50MA comes a key trend line and if markets move above it highs are open for a retest:

SPX D

The continued risk here is presented by the #DAX. It is in such beast mode right now that any serious reversal could present a major drag on global markets. It is literally crashing upwards:

DAX weekly

I’ve tried my hand at a short here and I see a sizable pullback in its future, but one has to be very tight and disciplined here as this is dangerous as heck.

My take: Don’t overthink this. Know it’s a liquidity infused mania and it will do what it will do. All we can do is literally play this a day at a time, look for good entries and trade them with as little emotion as possible. Our goal is to extract value from this market, not to right the world.

Trade plan: Today’s battle will be around 2020 $SPX. As long as it holds, bulls have a clear path to test the 50MA and upper trend line. Failure to hold 2020 opens the door to retesting the lows and possibly to break lower. I’m retaining the long position in the $ES and for now a short position in the #DAX with a flat stop on both. Let’s see where the chips fall.

See you on stream.

Open update: Closed remaining $ES longs on this vertical ramp. Nice trade!

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Categorised in: Daily Market Brief, Market Analysis

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