SLV on Deck

Here's the link to last week's coverage of SLV


Time to take another look.

 Here's the bigger picture of SLV going stagnant late last year and forming a top. Obviously the top broke down, but as usual, these patterns are likely to see some sort of manipulation to shake traders out. Recently the bounce has wedged which is bearish even though it is rising and it also appears that there has been a breakout from the wedge to the upside (in technical analysis this would be considered a failed pattern, but it's really just how the introduction of a technology arms race among trading firms and historically low liquidity has played out to take advantage of traders who are stubbornly indoctrinated in the out-dated precepts of technical analysis). This breakout of the wedge could and probably is functioning as the head-fake shakeout which causes shorts to cover, bulls to buy and eventually the pattern plays out and next the longs have to see. Al in all, the HFT firms are making money in several different ways on one false breakout, the snowball effect of traders being shaken out of the trade helps momentum on the reversal.
 

 60 min 3C hasn't kept up with price so there's no confirmation of the strength of this bounce.

 The same is true of this 15 min. chart.

There are a couple of different entries possible here and I like the trade here for the reason of lower risk/higher probabilities. The first way is to jump right in, in that case I'd say use a stop that you see at the red arrow, above $30.44. The next option is to go short now with a tighter stop at the red box around $30.25 or so. The 3rd possibility is to wait for price confirmation, thereby increasing your odds of a winning trade, but giving up a few percentage points. In this case, I'd stick with the stop around $30.25. Last you could phase into the trade with a combination of any of these entries.

Should we see a higher high/higher low tomorrow, then the limit orders/stops change a bit. Feel free to email me with any questions.

SPY update

 Intraday 5 min chart of the SPY showing a Head and Shoulders top pattern. You'll note that price action can be very fractal in nature.

 5 min 3C in the H&S formation

 30 minute 3C

15-minute 3C

It look like there's a small positive divergence suggesting a possible bounce. It can also be seen on the 5 min chart if you look closely.

TRID Speculative Trade Long

I don't expect  a huge trending position here, but I would say the chances of a single day double digit pop are pretty good. Remember because of price/volume/market cap- this IS a SPECULATIVE trade.

 Some local support is in the area.

 30 min 3C has rapidly gone into a positive leading divergence suggesting that accumulation has been heavy in the last few days.

 The 15 minute chart shows the same, the longer the timeframe, the more significant the divergence.

 My moving average screen template set to a 60 minute chart, as you can see we have 3 buy signals and relatively new so you haven't missed out on a move.

ADX in yellow shows  coupe of things, first the downtrend shows ADX turning down from the 40 level which is an indication suggesting that the downtrend has lost the momentum game, while ADX now turns up above 20 indicating a new emerging trend which by all appearances that this will be an uptrend.
All in all, I like the probabilities of this trade.

My upside target is a guess of between $1.60 and $1.90,

The Emotion Cycle Part Two

I've often taught in my classes that a price chart is not about prices, support, resistance, etc as it is in understanding the unchangeable aspect of the market called human nature. When you can look at a chart and put yourself emotionally in the moment, you better understand the market sentiment and valuations are not what drive the market, not alone any way. Sentiment is what drives the market and perceived valuations, etc. This is also part of the reason the market is like a pendulum that swings way too far in one direction and then reverses and swings too far in the other direction. The failure of technicians to understand market sentiment has led to the simplistic thinking like "price crosses the 50-day average means I should buy". The 50 day average and price crossing it are useful and meaningful, but the underlying sentiment that created the move in the first place is the more important aspect to understand. Think back to some of your own emotional experiences and try to put yourself in the "sentiment mentality" when reviewing price charts. Once you do that, you will gain a much more comprehensive view of the market. Even with robots trading the market in record numbers, their algorithms are still a construct of human sentiment.

Once again I present the emotional cycle of the market.

Now we must try to identify where we are in this emotional cycle to better understand where we going next. This applies to a single stock just as much as the S&P-500.

We know that a few things are happening, insiders are selling at record levels. We know that traders are trading on the heaviest margin debt burden we've seen since September of 2008 just as the market began it's 50% bear market plunge. We also see new money finally entering the market after nearly a year of money outflows from the market.  We have many other indications that I have put out there and you can piece them together.

And now just released, we have Merrill Lynch reporting that fund managers are now more bullish then anytime in history since the survey started in April of 2001. 67% of mangers had an overweight on global securities meaning many of them are using a high degree of leverage (debt). This is up around 27% since just December 2010. Those on the other side of the sentiment of the survey accounted for 9% maintaining an underweight position on equities which is the lowest since 2002 when we were still in decline and starting to bottom out after the tech bubble implosion. Clearly sentiment is leaning heavily to the bullish side which is dangerous. Yet many traders will take this as a sign they should "Trade the trend" which to a degree is true, but the gross neglect in such a high level of sentiment plus such a high level of leverage being used is negligent.

As I've said, there's nothing wrong with trying to follow the trend, but you MUST realize where you re in the sentiment cycle, lest you take a massive hit when the music stops playing.

Human nature as it is, takes quite sometime to recognize the music has stopped playing and by that time they have incurred substantial losses and the new thought becomes the new trading principle, "I'll sell when price gets close to my break-even point" and in a bear market decline, that rarely happens. The final event in which the masses of sheep finally admit their mistake is called, "Capitulation" and ironically it is also the point in which the market has pretty much bottomed out.

So if you take anything away from this, I hope it is the following: Learn to look at price chart's action as an indication of emotions-(i.e-Fear or Greed; Fear or Complacency). Also that you realize the markets in the end, are driven by human emotion (even when we get bouts of manipulation like we see with the Fed), when we look back at this period several years from now you will see the emotional cycle play out. Lastly I hope you understand that loyalty is reserved for your friends and family, not for a stock. Even and especially when it's made you a lot of money, when the party is over, it's over and you need to be able to treat an investment as exactly that and do not fall in love with stocks that have treated you well in the past. As the Buddhists say, anything close enough to comfort you is close enough to hurt you.

We are seeing the extremes of sentiment, however as I mentioned, the market is pendulum like and these extremes can carry on quite a bit longer then you might imagine. The simple answer for that is risk management and looser stops (with fewer shares) when we get into a volatile topping/reversal situation.

GLD follow up

Here's the last major GLD analysis from last week. 


In that analysis we used the Trend Channel as a potential upside target and stop around $34 and we haven't seen those prices yet.

 Here's the complex top mentioned and their tendency toward symmetry which this current rally would provide. There's also an ascending wedge into the bounce which is not good for the bounce. Today's gap up may form an evening star reversal, although it's a but too early to say.

The 15 min 3C chart falling apart into the edge as we'd expect to see. There is the possibility of a false breakout , although today could also be considered as such being the majority of technical analysts still haven't caught on to the fact that the market has caught on to technical analysis and knows exactly what all technicians are thinking as they have been taught for nearly a century. Wall Street also has an open boo of orders so they can see when that scenario is unfolding and wreak havoc to the obvious price patter. The thing is, once that volatility of tripping stop and limit orders in an effort to give the reversal a juiced up start, the technical patterns tend to remain useful/meaningful, you just need to be aware that the HFTs will bounce the shares back and forth as much as possible to generate volume x spread which equals their profit not to mention order routing rebates according to volume.

This is the reality of technical analysis and most technicians are entrenched in that thinking, The market changes and since the dawn of the Internet, it's changed radically and for the most part, that isn't good for technicians. Some brokerages offer real time pattern recognition software for free with their accounts, I personally can write a simple PCF/EasyScan to identify multiple technical patterns. On Wall Street where micro-seconds and investment in the best technology available, how much easier is it for them to find these pattern and then to have the ability to see the complete order book, they absolutely know when it's a good time to create a head fake so long as technicians keep acting like sheep.

Ultimately, GLD's chart is on track from the last analysis and it appears we will see downside soon in GLD.

USO

It looks like a possible USO bounce/? too

Mid morning bounce?

Looks that way in the SPY thus far...

BEHIND THE HEADLINES

The headline is about as far as most people will dig when it comes to economics and financial conditions and today's Empire Index gave them a happy headline, but behind the headline we see the trend which has been emerging for some time now and very consistently. RISING INPUT COSTS, yes, once again we see rising input costs for the materials needed to make products. Prices paid hit a new 2.5 year high while the prices received for the products was little changed, this means companies margins are as we have been predicting, shrinking. Another forecast made here at WOWS would be that there would be an effort to streamline before passing prices onto consumers and we see that in the data as well with the employees index which dropped from 8.4 to 3.6 a HUGE change and as predicted, this will lead to higher unemployment, but the New Orders component also shrank so at some point very soon after these companies have done more with less and new orders exacerbate the margin squeeze, there will have to be higher prices, lest the shareholders revolt and the CEO's lose their cushy multi0million dollar jobs.

Bottom line, higher unemployment, higher inflation-a very dangerous mix for the economy.