Markets – Macro – Technicals

The Day After Tomorrow

the_day_after_tomorrowWe tackled the beast and we got the big bounce. 3rd largest one day point gain for the $DJIA as a matter of fact. I do have to say this past week did stretch us to the max on the trading front. Crashes are brutal, and peoples’ psychology was shaken to their cores. People were shell shocked. Even yesterday there was gloom everywhere and ever lower targets were thrown out on twitter and even so called pros got very shaky and were worried about the close. I get it. It was rough.

Today I want to spend a few minutes on recapping the last 36 hours and then focus on the path forward.

Since the big dump and bottom on Monday we have had now 3 opportunities to buy back in and we did, including yesterday with the $TF. We’ve been very clear on our strategy:

rally

Asides from the technicals we had a strategic consideration:

JH

Yet it was during this context we saw doom and gloom and just pitiful drip action yet I kept pushing the buy button on $TF:

Buys

And let’s be clear there never was a glorious ring the bell bottom signal. Neither was there one the night before when we bought $ES and $NQ. Here’s the minute chart on $NQ moving toward the bottom:

NQ 1m

Just drip and the context was tough as the $NKD was dumping 200 points in a couple of minutes:

NKD

And yet we stuck to strategy as crappy as the action was:

`NQ

These were the trades at I think around 1:30am in the morning. It did indeed represent a higher low, they did it in overnight and they shook everyone out and ran all the stops. Evil, but that’s how it was done. What kept us in the game here was the oversold signals, the larger technical picture and a strategic sense that this was the plan: Shake folks out. It was exhausting, it was hard, it was draining. Trading shouldn’t be like this, and usually isn’t, but this was an unusual situation.

The reason I’m pointing all this out: Sometimes you have to fight the beast and fight for your positions, and that last 36 hour stretch was a fight.

Some of you caught these trades with us and I’m happy for you, others couldn’t for a number for reasons. I know some people got gun shy and I understand that. This was hard and very unpleasant. But for now the worst is over and now we need to get back to our regular rhythm.

Overnight we saw another massive bounce and we scaled out some more. The question of course now is: Was this THE bottom, are markets sailing back to highs and how are we trading all this?

First off let me say that strategically we remain on a buy the weakness mode, however some fade opportunities may present themselves as well. A retest or new lows cannot yet be fully excluded, especially as we are heading toward September/October.

As this week was a shock markets may take some time to find their footing. I showed the 1987 case as an example on stream, massive back and forth for 2 months. 1998 and 2011 were similar. It took time. Whether this case will play out like this is much too early to tell, but let’s look at where we are.

Yesterday we finally saw some serious buying:

SPX

Note of course the still vastly disconnected conditions on all the key MAs. We have tons of open gaps, but also resistance everywhere and look at the MACD:

SPX T

This will take some time to repair the charts. However we are also living in a world of agendas and in October 2014 we saw an insane effort to save the key MAs. We have week ending on Friday and month end on Monday. Hedge funds got HAMMERED and are risking major redemptions into September. The Fed is on the hook and so are funds. So frankly nothing would surprise me here.

The weekly chart gives us also a possible clue as to key targets for the weekly close:

SPX W

Yea these distances are huge, but they were created by the big dump. A close above the weekly 100MA seems a minimum goal, the connects to the Bollinger band and the 5EMA are potential next level targets. I repeat: Agendas.

We have fib levels and gaps to guide us along the way:

DAX

ES

I’m not interested in shorting anything here until some of these key targets are met. I’ve taken a few more scales on strength, but I’m aiming to keep swings running until we get to some sort of point of buying exhaustion. But I will aim to take the occasional $ES TRADING short when we hit key levels and fibs.

Remember we remain vastly short term oversold:

NYSI

And the $BPSPX hasn’t even begun to move higher:

BPSPX

So there’s a lot of room to move hence I want to remain patient here.

Also note credit finally upticked:

credit

And $VIX has gaps below as well:

VIX

But the principle challenges also remain, and that is: We have broken trend lines and a hapless Fed that claims it wants to raise rates into market carnage and a slowing global economy.

Mella and I watched UK news last night, not business news, but national news and it was all about global markets and central bank action. This is front page news now and I maintain: No markets have ever sustained new highs without central bank stimulus:

$DJIA W

I think I may have been the only one to point out on twitter that the $DJIA went back to Janet Yellen’s inaugural price this week. For a person in charge of managing asset prices (yes that’s the business they are in), that’s an embarrassing record. So will we see QE4? No idea, but what are they going to do? What can they do?

And this will be the journey we have to assess as things progress.

Note on these charts a move back to test the trend lines would be vast and could set up for the real short. We see it on the monthly $SPX chart as well:

SPX M

Here’s what we know for certain: These markets have changed, the tight range has been busted and we are now seeing wild price ranges we can trade. And we are and we will.

Buckle in, it will be a wild fall trading season.

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Categorised in: Daily Market Brief, Market Analysis

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