As I said last week, it's not the news but how the market reacts to the news. One of the most truthful things ever to come out of Cramer's mouth is that the market has nothing to do with fundamental valuations, it's all about sentiment. NFLX may be a good recent example of that and another stock that will be on my radar.
This December is set up to be an unusual month. Usually we have the Santa Claus rally as funds try to get in that last bit of juice for their yearly returns. However we do have some wildcards in the mix. For example if the Bush tax cuts are not renewed or do not address issues like Capital gains, there could be a lot of selling before options expiration this month to lock in profits at a lower tax bracket.
We also have a distinctive turn in the recent economic flow which has been better then expected for the last month or so. This week however we saw the November Employment report come in at a huge miss with October revised. The unemployment rate rose to 9.82, the day before (Thursday) saw higher jobless claims, and Wednesday a disappointing ISM survey.
While I find th timing of the leaked CBS/Bernanke interview very questionable in a market that was close to closing totally flat, it is what it is and now the cats out of the bag, but is this really something unexpected? To say the option is on the table is just common sense. Whether or not the Fed will be in any position to carry on more QE or even finish this QE, is what is not common knowledge as the political backlash is growing beyond just open letters and interviews, they'll be action soon in Congress, why do you think Bernanke was out there on 60 minutes?
The Eurozone faces it's next hurdle on Tuesday when we find out if the Irish parliament will pass their 4 year budget plan, a failure to do so will put Europe back in the news like it was a few weeks back.
As for last week and the possible bounce "Kiss the Channel Goodbye", here's what we are looking at.
I'm not making a call of a successful "Kiss" goodbye, that's up to price action to confirm that, but from what I see above, the range prices ran in with the channel is not abnormal. We saw a little upside bounce out of the channel in the first red box, and a little upside in the second box, as I try to get across, support and resistance are not exact numbers but rather an area. The other thing in those tow boxes to note is that reversals usually lose momentum and then fall, you see it in the first box with the last candle before the reversal being an up day but significantly less then the previous days, then the reversal, Friday's gains, even with the late day meltup were significantly less then the two preceding days.
Here's what 3C looked like in a few timeframes and tends to confirm what I said above, at least to this point,
QQQQ 10 min
This chart above is basically the same as all of the other timeframes, we see a trend here pretty much in confirmation of the bounce until 12/02 when an end of day negative divergence gaps the market down on 12/03-the negative divergence gets worse into the EOD on 12/03. That's pretty much the theme of all the charts above.
On another front, I've been talking about trading systems I've been backtesting, it's kind of a hobby. Here are the results of a 3C-Volatility based system with another indicator thrown in there and it trades two leveraged ETFs on a short term basis, either long or short. Here are the results and I can tell you from years of backtesting, it's difficult to find a system that does substantially better then buy and hold in a decent market.
Buy and hold comes in at $91.91 whereas the trading system comes in at $161.58 -so a 61% gain placing 22 trades in a year.
If anyone would be interested n the signals or the system, let me know and I may make it part of the daily updates after a little more tweaking. Remember, it's 2 stocks only that are traded.
Have a great week.
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