Blame It On The Clown

I began writing a blip last night about how the market *could* rebound higher if USD/CAD worked its way through the shares at support and broke its triangle to the downside, thus giving crude a huge boost.  Unfortunately however life intervened as my daughter called suffering from a kidney stone [Mom to the rescue!] so my post sat until I returned in the wee hours of the morning.  Now as the sun rises all bets are off as McDonald’s [MCD] missed almost every estimate possible in their earnings release; then followed by a 3M [MMM] guidance miss and you had immediate shock by investors and causing a new round of risk aversion.  Good thing Bernanke says they recession is over, huh?  Chump.   The USD jumped, and I mean jumped big time as investors sought a safer haven in lower-yielding currencies.  I mean MCD has weathered this entire recession as the champion its known to be so a miss was bound to slap many investors into reality.  Then to make  matters worse, you turn on your TV and see Meredith “The Annihilator” Whitney as guest host on CNBC and you just know it’s going to be a red day. 

ES futures broke down out of its rising wedge and the USD [via DXY] jumped up to $62.11 resistance.  Once the normal trading session opens I expect ES_F to [at some point] rise up and backtest that breakdown resistance [yes, I'll be shorting it further there].  If it does not hold, watch out below, expect a  correction over the next week……………and blame that damn MCD clown.  We could still see a Santa Claud rally but clowns are creepy anyway and this is just gives one another reason to hate ‘em

Random Crude Thoughts

Crude?  Although I’m sure not the most popular opinion but I’m expecting choppy action and NOT for oil to surge higher or the huge selloff move that many are talking about.  Why? 

1. First let’s look at the crude futures chart.  That area highlighted took months to punch through and trade above.  Barring any unforeseen event such as War, embargo or a pipeline explosion, it should take quite sometime to get sell through those shares as well.  Not as long [selling moves faster down than buying moves up] but it still won’t be done in a week.
2. Now a look at USD/CAD.  It broke through 1st support but as you can see, 2nd support is much stronger and again, will take longer to work through shares before CAD brings this currency pair down lower – and this is a WEEKLY chart, not Daily.
3. Then there’s  COT [Commitment of Traders] chart.  You will see that large traders are still net long by a huge margin vs. Commercials.  Now one could argue that large traders are possibly wrong in their position and will lose but……..that typically doesn’t happen.
4. Lastly, remember those tankers filled with crude floating around the Gulf of Mexico?  AH!!!  You forgot!  Well, just check out this article in Bloomberg on the # of tankers in the North Sea and how capacity since 4/09 has expanded five fold.    Now even a simpleton such as myself can understand why would anyone still be storing crude in tankers and expanding their storage if crude prices were going to plummet? 

My guess is that equities [companies themselves] may selloff but crude will chop around as some exit their positions during any news-driven event or USD strength.  Think of it as shaking out “the weak”.  Ultimately I believe large traders will be buying these crude dips and it’ll be held above $65/brl in the weeks, even months to come before heading higher.  It’s that or Santa’s going to deliver the black stuff in large traders stockings this Christmas and I find that highly doubtful.

So What Now? Where’s The Market Headed?

After being away, I prefer to drill down from the longer timeframe to the short, so here goes. 

Coming up to 20month resistance

Here’s what we know:

• Overall short interest (according to the *pundits* on CNBC and Bloomberg) is at the lowest level since January 2009.  How this translates is that most of the shorts have covered their positions and we need shorts to help the Bulls fuel the market higher.  So understand, less shorts means less fuel here.  Doesn’t mean we can’t go higher, sure we can, it’ll just be tougher.  Now the good news….
• Tomorrow is Labor Day.  Tuesday Fund and Money Managers across the nation come back from the Hamptons and many theorize they will unload their longs and take profits.  Hence talk that September is typically a down month.  Unload in Sept/Oct and in Oct
  

  Resistance using fans on the Weekly

  begin loading up for an end of year run up.  At least that’s the theory.  But all of this does mean we’re going to see volume pick back up and that’s a good thing.

• fwiw, poking around shortsqueeze.com I did notice that short interest was down everywhere except the following which I noted.   $SKF +15%  $XLF + 21%  $IYF 92%  $RWR +56% per and  $KRE -21%  $ICF -29%  $RKH -22%  $VNQ -38%.  It would seem the shorts are much less in some financial ETFs but increased in others.  I point out IYF with a 92% increase.  It’s holdings include V (which I am short) GS COF and many more.  Look IYF on your brokers website as those components may be good short candidates in the future.
• 

  Various retracement levels on the Daily

  If you’re Bullish, don’t break out the party hats just yet b/c the shorts are down.  The thing about the market having low short interest is this gives the shorts the ability to pile in whenever and as much as they wish.  In January SPX was down and so were the # of short postitions but then came a whopping 30% drop from January-March so don’t celebrate just yet the shorts are down.  Be cautious.

• In the USD there are numerous Bullish divergences on indicators and the  Commitment of Traders shows that Commerical net positions (usually shorts) are almost totally out of the USD.  That doesn’t prove that the dollar will go higher, but again, they’re warning signs and a reason to be cautious.  A higher buck is going to hurt commodities, including metals and crude.
• AUD/USD (my copper indicator) and USD/CAD (my crude indicator) are both at extreme support/resistance levels that they’ve been unable to break.
• Then there’s good old gold that’s caught a bid partially I believe as a flight to safety in an uncertain market, and partially because its coming into seasonal demand.   Click here to view a seasonal chart on gold.

Bottomline is no one knows for certain that the market will fall off a cliff here.  Those money managers could let us go higher, say to $1121, and then slam us down, or they could play cat-n-mouse going up and down.  No one really knows.  The Contrarian in me shorted an ES mini @ $1016 and will short again at $1037  (I’ll hold em short with a long leash),  I bought a little 100 TZA (whoopee) and am short V which I found funny that somebody couldn’t get shares of V to short last week.  Guess I’m not the only one waiting for that bad boy to fall. *lol*  I am long GFI (gold play) SYNA (yes, bottomfished) and PGF adn will day trade a little if we head higher, but nothing insane.  The big boys are back in town and they have a much deeper pocket than I.

Oil Looks Good 4 Another Short

CAD appears to have weakened against USD in the near term so I thought I’d throw out the idea of a short in crude for tomorrow.  In the best of circumstances, I’d like to see USD/CAD come down and re-test the near term support, giving us the best possible entry but I’d give it a long leash because of overnight news and foreign market swings.   Ultimately I see crude going to $60 here.   One could short an individual company, short USO or DIG or merely get in once of the inverse crude ETFs such as DUG DDG DTO.  I personally like the ETF DUG but as with any inverse ETF – I do not recommend holding overnight unless you’ve got the stomach for it.  Next I’ll take a look at my *fav* Copper & Gold.  Best of luck-

Currency Pairs

AUD/USD and USD/CAD have now clawed back into their prior channels of last week.  If if if if they hold that, we could see a resurgence in copper & crude that I’ve been waiting for.  If you’ve been reading here the last few weeks, I posted that you should start homework looking for copper/gold/metal plays you’d like to be in.  While its too soon to tell, we *might* get our chance soon.   Watching AUD/USD closely.

Is There a Storm Brewing?

Everyone’s been so jubuliant lately; it seems many have forgotten we trade in shark-fested waters and those bad boys are always hungry for our money in the market.  There’s a reason stocks move in waves.  It’s a psychological thing; to reap the most rewards from reversals and traps which is why market tops and bottoms come at the highest points of exhilaration and despair/capitulation.  That’s probably my alltime favorite saying “The market will do everything it possibly can within it’s power to do exactly what you don’t expect“.  Today will be a rorschak test in trading with many economic reports and FOMC minutes being released.   Big money has a plan, I hope you have one as well.  What’s my plan?  Well, here’s my morning plan.  I want to be out of the market b4 the FOMC minutes come out:

1. USD is still strong over AUD CAD so there’ll still be pressure on metals and oil.   I’m staying away from volatility with crude but will trade in/out of SMN and short GDX (miners) but I am only going to daytrade these inbetween their pivot/support points.  In and out - not hold.
2. LIZ posted a wider-than-expected loss and since XRT lead the rally, this should encourage further profit taking in the sector so I’ll short that retail ETF if I can get shares.  If not – pick a weak retailer below a 50d MA to short.
3. China home sales are skyrocketing but here in the US mortgage applications dropped amid higher rates so I’m I’m thinking some volatility there; going to trade in/out of SRS.  This one, again, I’ll daytrade inbetween pivot/support/resistance points.  Won’t let it ride because of its volatility.
4. My *scary play of the day* is to short BIDU and its descending triangle with a $15 stop.  I know, painful, but it’ll  keep my heart pumping.

Again, when the FOMC minutes are released, I want to be out/flat and will not jump into anything for at least 30min or an hour as I monitor the currency pairs for a hint of direction.  Remember the sharks are circling and they’re hungry.

Ringing The Register

Call it profit taking.  Call it apprehension over tomorrows FOMC minutes.  Call it the end of the rally.  Who cares; it’s all conjecture.  We, as traders, just need to put emotion aside and trade the chart.  So what do we know?
1.  USD/CAD broke above what everyone thought was a Bearish flag, putting pressure on crude (now $68.90)  That $70 level was tough resistance and now becomes solid support with more next support at $66 and $63.  (click the tickers above for chart)

2.  AUD/USD did the exact opposite, falling out of bed and its channel.  Again, that prior support is now resistance.  Bad for copper & gold **unless** some fear comes into the market and gold stocks themselves catch a bid.  As long as these two currency pairs hold their breakout/down levels, I believe we will begin to retrace (not reverse) the rally.

3.  The pundits on TV are doing their best to reassure everyone it’s only profit taking.  They need to keep markets calm b/c we’re only now seeing new $ coming in from the sidelines and any market panic will cause them to pull out.

4.  Productivity costs were up and the Redbook #s didn’t surprise but no one paid any attention.  The market had already turned. 

5.  Tomorrow – FOMC minutes.  The treasury market seems to be moving USD higher anticipating that Bernanke will announce a lessening or ending of buying US treasuries as scheduled in Sept. – but that selling of Bonds would continue as usual.  **If** this is the case, I don’t expect a huge plummet in the market b/c a lot of this is being baked in right here with the sell off. 

What I think we need to watch for going forward is #1 where *could* we bounce, are we going to bounce, is the rally truly over and are commodities dead.  fwiw commodities are not dead.  Don’t even worry about that.   The strength in commodities was, to a great extend, b/c of the weakened dollar but what we’ll eventually see (hopefully sooner and not later) is a shift from trading on a maco-economic level to a fundamental level based on true supply and demand.   Remember that?  Supply & demand?  What a concept.  With this, we would return to a stronger USD trading in tandem with a stronger USD – not opposite as it has been lately.  At least that’s my hope but the 800lb Gorilla in the room that remains is unemployment.   Toxic assets will fester further until *that* problem is rectified and I’ve heard zip on that lately.

USD/CAD at Resistance

As I awoke today and stumbled to my desk, the first thing that immediatley caught my eye was USD/CAD trading right along upper resistance. Had to rub my eyes to be certain I was seeing it clearly because that’s almost a full point in less than 24 hours but more importantly, it also means *if if if if* it rolls over once Chicago opens, crude could really catch a bid today. Hmmmm, maybe a few day trades in oil today……and definitely more coffee.  Now the flipside to this is *if* it continues higher above resistance and holds, it could mean the market is baking in the possibility that Bernanke and friends will be lightening up on QE (at least the purchasing of Treasuries and they’ll continue to sell Bonds) .   As always, be aware the currencies and their affect.  They’ll shape the tape.

Crude, Copper & Gold Update

The charts say it all. I personally am out of commodity-related stocks for the time being partially because of the overall markets uncertainty right now, partially waiting for the FOMC minutes and partially (I’ll admit it) because I’d rather bank the profits.  I’m not saying *you* should exit your commodity stocks.  I’m no guru giving buy/sell signs.  My goal here is more to inform on what I’m seeing and you make your own choices.  Both have support/resistance to protect you and only you can decide what your tolerance is.  If you’ve been in the trade for a while, you can probably afford to let price chop around with stops in place.  If you just got in the trade, then its essential to understand we will most likely see some rangebound trading for a few days.  Its all a matter of personal preference.  Tune in on Wed. for FOMC

Copper & Gold

Image via Wikipedia

While still unable to post a chart (hacker fucks die!), thought I’d at least post what I see for your consideration.  AUD/USD formed a nice base and headed upwards but is coming into some pretty tough ‘07-08 resistance.  The factors that *generally* affect copper & gold prices are inflation, USD strength/weakness, investment demand and jewelry demand.  The Fed has re-stated their commitment to QE as long as necessary so I don’t see the USD substantially strengthening here with a major economic event.  Jewelry & investment demand; take a look at the economy.  Don’t see a major shift there and inflation; well that goes hand in hand with the buck right now so barring any major event (war, major corporate or bank failure, etc) I believe gold & copper will be rangebound for a while as those shares at the resistance level are gradually gone through.  If you’re long, you could take profits or just sit tight and hold.  Again, there should be a good base below you but patience is the word of the day here.  Ultimately I believe that AUD/USD will head higher and so will your shares of the shiny stuff :)