Sunday, November 1, 2015

Market Analysis for Week of 11/1/15

This week has even bigger news to get through.  ISM on Monday, NFP on Friday, Draghi speaks at 2pm Eastern on Tuesday, Yellen speaks at 10am on Wed.  There's no point in having too firm of an idea until all this is over, but it's still shaping up dollar positive/Euro negative until data or central bankers prove otherwise.

Dollar daily broke out but came back and closed right on the key trendline.  I'm expecting quite the volatility this week, so I reduced my exposure on Friday, or rather the market knocked me out on Friday.  I figure if the dollar closes this week higher, meaning above this trendline, it will run until the meetings in Dec when they have to actually do something to back up all the talking, so why force it?   I will only trade the dollar long and hope it gets sold early in the week and rallies later in the week.  I find the vast majority of time in trading is spent playing spot to spot with shorter time frame trades, but most of the money is made on the much rarer occasions when everything lines up and you can let it run because it has so much potential.  This week could shift the recent spot to spot trading toward more of a long term potential.  But there's 4 different things that have to go just right.  Hopefully, breakout part two will be the trick.      

EUR/USD.   Note how it came back to the trendline breakdown, tagged it and reversed.  That shows big sellers are defending it - for now.  If everything goes well this week and the breakdown holds on the close this could run.  Meaning, solid ISM and NFP along with dovish Draghi and hawk-lite Yellen.  You can't predict single data points, so you can only have a plan and react if it cooperates and cut it if it doesn't.

Gold and silver are shaping up to get crushed soon.  I would like to emphasize crushed.  Do not be long the metals if the trendline is lost.  Maybe the wrong numbers this week causes a temporary bounce.  But it would take a sea change in Yellen and Draghi's comments along with a 49 ISM print and 1 job created on Friday to change my mind that the metals are going to get crushed very soon.  I hear a waterfall ahead.

The positioning is crazy Spec long and they're in trouble.  The wrong set of news this week and that little door is awfully small for all those longs to fit through.   One possible trade location is a breakdown through the trend line from the lows with the idea that you bail if it reverses and needs one more bounce.  If gold goes through that trend line based on news this week, it will likely make a fast move to new lows and all the way to $1034. Do not be long gold.  Even if it needs more time before breaking down, it's not worth the risk.

Silver daily.  Reversal on the Fed with two follow through days.  It's sitting above the 50-day.  When that trendline off the bottom is lost, silver will be at $13 before you can blink.  If the worst case scenario plays out for the metals this week, beware of the thin volume Asian sessions, especially Sundays and Thursdays.  Again, maybe we need one more bounce and it happens in December, but these things are setting up to be smoked.

Bonds daily tested the downtrend line, backed off and closed just below the 50-day.  Since I'm only interested in the long side of bonds, I'd play a breakout of that downtrend line, or possibly a bounce from the uptrend line near the 200-day.  But I'm not all that interested unless the stock market started falling apart.  For now, bonds are coiling...

As for the ES and NQ...bull markets based on nothing are overrated.

Look at the RSI divergence on the monthly for the ES during the past two major tops. It's something to note, but in the 90s the market continued higher for years (based on real economic growth, though).  In 2007 it was a more timely warning signal but there was also serious threats to the financial system emerging.  Currently, all the negatives about the economy have been that way for a long time, so what is going to sustain fear?   The Fed?  If the markets hang in there and eventually make new highs, I'm back to where I was a year ago saying a sovereign debt bubble will require the threat of sovereign defaults to create sustainable fear.  But it has to prove itself as strong on the next pullback.

ES daily.  Maybe the reaction to ISM and NFP will be helpful.  I think the next pullback will reveal how strong this market actually is without all the short covering.  If it clearly starts rolling over, sure, I'd be interested in shorting.  But as of now, it hasn't.  But I'm definitely not buying it.  I feel no compulsion to be in this when there are trades that make sense to me.  I'll just wait for a pullback, or at least more info after this week as to what the market's intentions are.  This is a pretty difficult spot.  Sometimes the most profitable trade is not losing.  If you know what it's doing, best of luck to ya.

I'm not even going to post the oil chart.  It's right in the middle of a recent range.  I have no idea.  If I had a gun to my head and had to pick a direction of where it will be in three months, I'd say lower, but where's my stop if I'm wrong?  Nowhere near the current price.  I haven't been this uninterested in oil in a long time.

Oh one more.  AAPL tested the neckline and backed off but just a little.  I'm definitely watching this closely.  When you have such a defined chart pattern it is not wise to ignore it.  At the moment, it is still a clear head and shoulders top.  If the stock markets start to fall apart, then all is well on the short side.  But if Apple consolidates below this neckline and hangs in there, maybe tests it a few times and looks like it's in accumulation mode, a breakout means the short side is not only going to be wrong, but wrong in a big way.  Ignore that at your own peril.  For now there is hope.  But if this pattern breaks and closes to the upside, and it will likely be very obvious if it happens, I would bet my life it will not only test the highs, but extend those highs.  There is no reason to be short on a breakout.  For now, good.  Breakout, bad.  And it will likely take the markets with it, or it will happen along with the overall market.  Ideally, a market wide pullback and a couple weeks of consolidation under this neckline would make it a lot easier to trade.