I’m not a doomsday person but I’ve also been through two major bubbles and all one has to do is look themselves and see how historic this past 10 yrs has been. Not only the length coming out of the Financial Crisis but the gains as well. 

This is were relatively new traders or investors may get thrown off guard.  By new I mean since the 2009 bottom because the reality is it’s been REAL easy to be a trader the past decade compared to history. Just take a look at the massive move in the graphic from 2009 until now. The same trading methodology in a runaway (Asian Finc Crisis aside) won’t work the same in a more ‘normalized’ market. 

To put things in perspective, running the fibonacci retracement from the 09′ lows to the near recent highs we can see that even what is considered a normal and healthy pullback to the 38.2% Fib would put the $SPY at $202.84. Now this is just what is considered a normal and healthy pullback for any asset class when Fib levels are applied to. But now take into account that ‘we’ the U.S. and the whole world is leveraged 2X the levels of 2008. If the markets begin to really roll over the next major Fib level that has the equal strength and attraction to if the 38% should not hold as support is the 61.8% at $151.7. To my amazement, that level lines up almost perfectly with the highs of 2008. The 2008 high and 2009 lows are circled in the graphic which also includes the Fibonacci Retracement levels. 

If you weren’t paying attention to the markets in 2008/09 the fear on the street was something most traders have never experienced and in told we dropped 90 basis points. Now that is arithmetic and not logarithmic but the reality still stands that most are not, and in my mind always should be, prepared for the possibility of a real, meaningful correction; not a little 10% correction which is about the extent of the drop in February of this year. 

So, just throwing it out there to put a little fear in some who have never been trading or investing at the time of a series correction. I’m not saying it’s going to happen but it doesn’t hurt to be aware of what is in the realm of possibilities. 

 

 

Estee Lauder is looking like an ideal short candidate. Broken and retest channel support and looking at the financials, there has been a 61% in selling by insiders. Their cash on hand is 1.3 with a pretty heavy debt load to equity at .73$%.

A stop above the recent high with a first target of the top of the open gap at $120 offers a decent trade setup. 

If we take a look at the weekly SPY chart we see to appossing reversal doji candles converging on just about where we closed Friday. So besides intra week moves, we really haven’t gone anywhere. Just squeezing tighter between now two pennants.

 

Because of this and falling to achieve a lower low, I have to move my bias to more neutral. Although we are technically in an intermediate trend down, the amount o

f attention on the downward trend line ‘could’ cause a massive squeeze through as shorts stops get trigger. In short, the “short” trade is becoming crowded with many expecting to take out thelows. Crowded trades always make me uneasy because of the stop loss squeeze potential. 

Another variable we need to consider though is the new month, May. The dreaded “sell in May and go away” is more than the numerous catch phrases and superstitions on Wall Street, its actually quantifiably proven that May has produced more negative returns following than any other months. 

Given all this I will be not beholden to any direction and look for the early signals of a direction. 

 

I’ve been sifting through the Consumer Staples sector as it has lagged every other sector yr to date and is considered a defensive sector against an economic downturn which I believe will happen sooner than later. Let’s face it, in a recession, we still eat cereal but don’t need to upgrade to the latest iphone. 

$GIS has tested support and broken out of a downtrend channel ever so slightly. Since General Mills has gotten pulled along with the rest of the sector it has a P/B ratio of 5.13 now making it an attractive Value Investment. A safe stop loss of just below $30 and a first target profit in the mid $50s offers an attractive Value Risk to Reward trade. 

Also, the time seems to be right now to add a long position as there is a series of RSI bullish divergences on the daily chart. 

 

Earnings Season…it’s the most wonderful time of the year. 

Well shit.  FB, AMZN, NFLX, GOOGL.  All have reported along with others and with AMZN beating the shit out of estimates, we got rotation coming back into tech.  As I’ve mentioned earlier, commodities were leading a rally…that never works.  Today we saw buying.  It was so fucking boring today…it’s just the way I like it. Why? Because I was long from last night (with the exception of FB). I don’t play earnings, because that’s gambling.  I don’t like to gamble.  The odds are never with you.  The house always fucks you.  I lighten up before earnings.  I lightened up a lot on FB and gambled a few.  I lost.  

 It doesn’t happen often, and when I do lose, I like to keep those small. 

The only other stock I held through earnings was AMD.  I lightened up, as usual and I bought back more this morning.  

We’re still above support on the monthly level.  My price target is ~$20. 

Earnings are here and we’re in the meat of it all.  Today’s rally was led by tech and we should keep the momentum going into tomorrow after Amazon’s stellar report.  Up 10% in one day is just a damn sexy sight to see.  

So how boring was today?  So fucking boring we were arguing where the market was going and if we’re biased.  There is some concern as to where the market is going and I see where that concern can come from.  We’re about to converge on trendlines on the daily.  The two purple lines…they’re inching closer and closer and then the market breaks one of those, that is where we’re going to go.  

That is the case to be in cash.  

The case to be bullish, like me is to count ’em.  1. 2. 3.  Three times we hit a bottom (200 day moving average) and 3 times we came back up.  We hit that shit a 4th time, and bye bye. 

 

Market if we hit the 200 dma a 4th time. 

We are making lower lows, but we’re at the point now where we have to make a higher high and hold it.  We made a higher high before but the market got smoked.  Today is 26-Apr and the Fed meets 1-2 May.  We have 3 more trading days left and we’ll see if we can break out of a trendline before then.  Even though, I’m bullish, I have so much room I can easily exit and switch short to go where the market does.  I’m bullish, but I don’t mind admitting I’m wrong and switching sides to the short side.  For now, just keep buying the dip and selling the rip. 

In the meantime, I’m extra bullish on crude oil.  I want to see $75.  We’re at $68.  It’s a failure of a trade if it goes down to $64. 

-RM

I posted yesterday about my doubts setting in for the market.  The macro analyst in me kicked in and I was a little hesitant about buying the dip.  I had my stops in place. 

The market was forming a handle and it still looks okay…but something didn’t smell right.  Google posted good earnings.  Had a pop and fail very quickly in after market hours.  I woke up this morning and scanned the market. 

 

Obviously, NVDA looks like it can’t make a new high on the weekly, so I then look at the daily and then intraday.  I rarely make trades during the first 15 minutes.  On NVDA, where it opened, I expected a pop to resistance and then a nice drop.  That’s what happened. 

This was followed by, 

This is where we open on NFLX

The positions were getting started. 

 Getting comfortable. 

 Things start to move. 

The last bit before closing out for the day.  I may have gotten a little too excited about this market going to shit. 

    

I have closed out a lot of my positions. It was a nice day with a lot of momentum.  The selling actually came in on the market.  Volume picked up.  Market trolled some people.  Gotta be ready to take the other side.  Read the charts and do your homework.   

Note for earnings:

I am long AMD, but will take some off tomorrow going into earnings.  I rarely invest, but this will be my “long term” stock play that I look forward to holding for as long as I need to.  I don’t hold through earnings, but as a position trader I hold some and buy and sell around earnings.  

I am short FB. #DeleteFacebook should be #DelistFacebook.  I am so bearish on FB.  I got short on FB and haven’t looked back.  I rode the thing from 180 to 160 and am short again from 170.  I rarely ride things through earnings again, but I’m long some puts for FB and hope to see $135 and below.  

Earnings have been good.  Outlooks have been questionable…just like the market has.  Join in the chat to be part of the live market calls, analysis, and action.  

-RM

Doubt is setting in as earnings are coming out.  Some are good, but when you listen to the calls and read the reports, the reasons leave doubt.  

GOOGL reported a beat on EPS and Revenue.  Top line, bottom lines looked good.  Their other businesses had a jump of over 30% of revenue, but the market DGAF.  The 10 year treasury is inching towards 3% and people are starting to worry about inflation, more than before.  The Fed’s next meeting is May 2, and do we see another rate hike? 

So I said that the market that was range bound is waiting for earnings.  Well earnings are out and the market hasn’t moved much.  If anything, it shows signs of giant weakness.  The GOOGL earnings should have gotten a pop and kept us there, but instead it takes a pop for less than a second and then drops.  NFLX did the same thing, but it took longer for them to drop.  

It took less than a second for GOOGL to go from way in the green +$50 to-$7.  

Moves like this smell of a bearish market.  I am still bullish on Crude.  Gold has failed its breakout.  Silver seems to be the metal of choice.  The market can turn this around still, but the volume isn’t there and nobody is buying this dip.  Where did they go?  Maybe they went to BTC, because this shit ain’t moving.  

SP500 futures as of late are choppy and I’m having my doubts about this bounce. 

-RM

As everyone should, I have a portfolio and part of that portfolio consists of my active trading portfolio set aside for short term trades via options, futures and currencies. Since these asset classes are some of the riskiest I have another portfolio set aside that consists of more long term investments. Typically stocks and fixed income or high yielding assets whose purpose is to be held more than a year if not longer. 

For me, once, hopefully, gains in my active trading account reach 75-100% gains I take the majority of gains and transfer to the longer term portfolio. Well that time has come and I want to make sure I make a transfer incase what I think the market is going to do happens (Read: Latest Post).

One sector that has my attention because it hasn’t had the advance that the broader market or tech has in Consumer Staples. One ETF that represents this sector is the $XLP. There are rumblings on the Street that because of its underperformance and repetition to me a defensive play during market downturns it may be time for the XLP to play catch up and outperform in the short term other sectors that get more attention in bull markets like technology (represented by the tech ETF $XLK).

Now being over Forty (but just barely) I have to be a little more prudent as can’t afford a drawdown in my account nor have as much time to recover as I did when I was Twenty. Regardless, even from a trading perspective the performance of these two sectors can also give us trading clues as to over and undervalued sectors at the moment. 

Of all the trading patterns, rising and falling wedges are my favorite. I’ll cover rising wedges and you can reverse the ‘things’ for falling wedge patterns. I like wedges because they are essentially squeezes so the reaction when they break can be dramatic and fast as traders scramble to unwind positions. Just when traders believe they have a new solid trend, the wedge breaks and those whom just committed to the so called new trend are left scrambling for the door. 

For this example I’ll use the S&P 500 futures contract, ES, since we just had a good example of a rising wedge downward break. 

First, The Rising Wedge is a bearish pattern that begins wide at the bottom and contracts as prices move higher and the trading range narrows.*  In order to qualify as a reversal pattern, there must be a prior trend to reverse. We can see the Rising wedge here on the 1 hour chart. 

It is not advisable to trade against a Rising wedge prematurely in anticipation of a break as by its nature it can squeeze higher aggressively. Instead, wait for the break (that’s entry point for a trade number one) and wait for a retest (entry point number two) if it happens. It doesn’t always happen but markets do like to retest broken trends supports. 

Now the expected or measured move of a rising, or falling, wedge is the distance on the height of high and low points of the beginning of the wedge applied to the break of the wedge. More often than not this works out to be a 100% retrace of the entire wedge so many traders just expect a full retrace for simplicity. 

I’ve added text notes on the chart so won’t repeat here but really I was looking for a 1, 2, 3. 

  1. Break of support
  2. Retest of broken support
  3. Continuation of downtrend

I like to keep things as simple as possible but so that’s it in a nut shell. 

 

*Investopedia

 

 

I feel 75% confident we have a new direction signal after a couple weeks of a lot of chop and mixed signals in the markets. Looking at the $SPY weekly it is pretty clear; a gravestone doji candle which is a reversal candle pattern. It should be important to note that any pattern, whether a candlestick or larger pattern, has a PROBABILITY of a potential signal. Nothing is 100%. The market keeps us on our toes like that. We need to take multiple factors into consideration to develop a best guess on the direction of the next move. 

Variable 1. Gravestone Weekly Candle. 

Variable 2. Lower Highs and Lower Lows.

 

Zooming in on the Daily we had a break of a rising wedge. A powerful reversal pattern in both directions. Powerful from the standpoint it reverses a prior trend pretty aggressively as traders scramble to unwind previous directional positions and powerful because just when those traders have unwound and repositioned themselves in the new direction a break of a Rising Wedge causes those same traders very quickly finding themselves once again quickly unwinding positions as stops get triggered. 

Now the measured move for the Rising Wedge pattern in the distance on the high and low of the beginning of the wedge applied down from the break of. In this scenario the measured move would put the SPY very close to the 200day SMA depending upon how one calculates the beginning of the wedge. 

Variable 3. Break of Rising Wedge.

Now I want to look at Fed Rates; notably the 10-Yr Note. The 10-YR note has been in a steady down trend since the Federal Reserve started raising rates. Because on the inverse relationship of bonds and their yields we’ve seen the 10YR rate rise to its highest level since 2014. Friday we saw the 10Yr, illustrated here by its futures contract, break what many were hoping to hold as a low and the momentum shows no sign of exhaustion and actually in the early stages of picking up speed. 

Variable 4. Rates

1 + 2 + 3 + 4 = a bearish tone to the market. 

Trades is all about taking multiple variables into consideration. Given these variable and softer ones such as the old “sell in May and go away” and uncertainty about upcoming elections and geopolitical tensions I have to take a bearish stance on the outlook of the market right now.  Unless the SPY can push above the previous swing high and through the downward trend line, we are still in a multiple month downtrend channel. We already broke support of a 1 year uptrend channel and then reclaimed but as traders know, once broken that support trend lines strength in severely diminished.  

So if I had to place my bets on where the markets are heading, from my current vantage point I believe there is a higher probability of the SPY taking out the previous swing lows that moving above the previous swing high. 

Anything can happen in the markets and in the end price has the final say so stay flexible and accepting to changes in signals. 

Happy trading, 

Wags