Sunday, October 4, 2015

Market Analysis for Week of 10/5/15

There are 3 things I wish for this world: the end of poverty; world peace; and a VIX permanently in the 20s.  Probably in that order.

I love more active trading because I prefer to take half off as we go and reload, and the higher VIX makes for lots of bounces.  If I try to hold the same position from the beginning to the target, I end up making stupid decisions, so it's really just a way to protect me from myself.  Otherwise I end up bailing out when I should be reloading.

ES daily.  The SPX double bottom was an easy decision to bail entirely on the short side.  I even considered going long but didn't, except for a quick trade on Friday.  While the "bad news is good news because the Fed can't raise rates" idea is enough to scare the shorts, I don't see the long side having the conviction to change the overall sentiment, which is "uh-oh QE doesn't work - the doomers are right."  Meaning, the entire bull market since the 09' bottom was fueled by massive injections of liquidity and driven by the idea that the central banks have a clue of what they're doing.  But they don't.  And more people are starting to figure that out.   If you want to make the argument that the market will rally in anticipation of more easing, at least that makes sense.  But I think it's too early.

Those are massive reversal sticks on the weekly charts, but you have to factor in the context that it was mostly a short squeeze and not natural buying.  Which means it will likely fizzle out.  The big buyers never chase so usually what happens after a short squeeze is the market comes back a little the next day (even if Sunday night goes higher).  I'm thinking around 1930-ish on the ES.  Besides short-term trades, I will likely be waiting to see if the buyers can take it up to test the 50-day around 1978 in the ES, 1985 in SPX.  That's where I'd like to take a shot at the short side for a longer play (if we make it that high).  Hopefully, they give me an easy spot to get back in.  At the moment we're in the middle, and I don't play middles, so it either has to come up to me, or I need to see the sellers step back in and push it right back down where I'd be looking to play the breakdown of the trend line off the August lows, or find another way in.

A break above the top of that flag at 1992 would make me stop shorting and question my view of the sellers in control, but technically a bounce could go all the way to the downtrend line off the highs and still be bearish.

SPX monthly.  Ultimately, I think we're headed for this monthly uptrend line in the mid-to-upper 1700s. but it's a matter of how hard the bulls are going to fight.

 Bonds daily hit the 160 trend line target and then some, but pulled back.  I'm likely not interested anymore.  I do think if equities resume the selling, hopefully after a continued bounce, that there could be a breakout trade above this trend line in bonds.  But I'm probably just going to focus on the ES or NQ instead.  It's kinda the same trade.

Gold daily reacted how you would think to the idea that the Fed is screwed and will eventually be forced back into easing.  It stopped just shy of $1140, which is a very well-defined trend line that turned into a fake-out last week.  I think this is a playable breakout and if it holds, I'm looking for gold to make it to the lower $1200s, possibly all the way to the next trend line at $1230-ish, although I'd be taking some off around $1180 because that's how I trade.  I'm not a believer that the metals have bottomed, but a close above $1230 would go a long way to convince me, so until then I'm thinking of this as a counter trend bounce play, if it breaks out.

Oil daily is still going sideways and approaching the big weekly downtrend line off the highs from last year.  A breakthrough that holds should run quite a bit.  I'd expect a fight though.  Check out the smaller inner triangle fake-out on Thursday.  You always have to be aware of those fake-outs.  Like gold, this will be very influenced by the dollar.  Clearly, the ideal scenario is for the dollar to breakout or breakdown at the same time oil and gold break significant areas but chances are it won't happen together so you just have to be aware that things could reverse or amplify later this month when the ECB and Fed meet next.

Nothing to see with the dollar daily.  It did recapture the 50-day on the last 3 pokes to the downside.  And you have to wonder why it recovered so much on Friday.  That is a sign of strength that shouldn't have happened.  I'm expecting the dollar and the Euro to stay in these ranges until the central bank meetings, but I'm watching closely.  If they break these patterns on fundamental news it should lead to a trending move for many months.  

     EUR/USD weekly.