Losing Steam

Two days in a row the market has closed at essentially the same point unable to make it to new highs. Month end brought on shenanigans normally seen around options expiration. Everything seemed like a back to back bear or bull trap sucking as many people offside as possible before reversing. Daytrading was likely a frustrating affair unless you were contrarian at the extremes each time. Most price action hovered around VWAP. I partially feel like there is an understanding for month end not to make any huge waves and screw up people's performance but again there is no way you can get so many independent people to collude with one another. Of course if 2% do 70% of the trading then I guess it becomes much easier.

I do feel like this should be a temporary top. Technicals support a pullback, as well as bullish percent figures. Let's take a look at some individual charts courtesy of stockcharts.com.



Here we have the NYSE bullish percent chart. Currently it is in "bull confirmed" status. As we can see we are very near historic highs, but also have come from historic lows. The down trend line was broken at the beginning of 2009. Generally if you have a bearish view it is a low risk entry point to enter at the "X" that is even with the previous high column of X's. The reason for this is because if it makes a new high that should signal that the trend will continue.






Let's look at the Nasdaq 100. Tech has obviously been on a tear recently and this shows a divergence between tech and the NYSE. We can see that on this chart there is a new high that was established today for the bullish percent figures. This would generally signal a continuation but we have to be aware of where it is occuring. It is literally at an all time high meaning tech is very overbought. As always things can become even more overbought but this should support at least a short term pullback.

Energy came from even more extreme oversold conditions, it actually reached "0" on the PnF chart. We can see the status is "bull alert" meaning it could move into bull confirmed. This could be a good place to go long because it is not extremely overbought by bullish percent figures so there is more risk to the upside as compared to the NYSE and NDX.

In regards to today my positions basically performed how I expected. I am currently skewed to the downside but do have my longs in DSX and CHK and ACH which were mostly positive. With the help of my /ZC position I ended up squeaking out a gain today. I ended up exiting my position in corn because it reached my short term target. I wanted 350 but got out at 347 since I didn't know if it would reverse early and didn't want to be greedy. I ended up catching 25 points in the trade so I can't complain. I will likely look to get back in on a pull back.


I entered near 320 because it has been long term support for 5 years so it seemed like a very low risk entry point. We did dip below it initially but I held strong because it wasn't at my loss limit and I figured there would likely be a shake out. Now that it has broken the 3 month down trend 330 should be the next support level. If we have a sell off in equities we will likely test that level again, but if things remain bullish it may only get down to 340. I may take a slightly larger position the second time around but I'll see how the market conditions are before doing so and what I think the outlook is. If it happens to break above 350 I will get long again as there is not much resistance until 400. The appealing thing about getting into trading more commodities futures is the fact that the commissions are a lot lower than options but still offer leverage.

Another divergence that is bearish for the market is some of the action in FOREX and futures. The EUR/USD did not continue over the 1.43 level. Here is a screen shot of a 1 month daily chart of 10 year treasury futures, crude oil futures, S&P futures and EUR/USD.


We can see the level of resistance in the Euro has diverged as the S&P has continued higher. Oil has also lagged the S&P making a lower high. One of the bigger tells in my opinion is the action in the 10 year treasury. Notice how it has broken it's wedge to the upside which means higher bond prices and lower yields generally signaling a flight to safety. One could argue individual supply and demand factors for each chart which is obviously true but generally they are correlated in some way.

As of now I am still looking for a pullback to at least 960. Now that we don't have earnings as a catalyst the economic numbers coming out will have to be constantly above expectations to warrant the latest move and a continuation which I think again skews risk to the downside. GDP was -1%, with consumption worse than expected. If GDP is 70% consumer spending then that definitely doesn't help things going forward. However if we do come out with a positive number in Q3 which is possible, I think that changes psychology again to proof of a recovery even if it is weak. This makes people think things are getting better so then they spend and again self fulfilling prophecy! We are surrounded by them!

Total Return for 2009: 149%