Trading the Stock Market in a Mad, Mad, Mad, Mad World

Trading the stock market during the best of times can be challenging enough.

What does one do when the global equity markets along with global central banks and global governments are participating to manipulate outcome?

The apparent simple answer is to trade what you see. Markets have been and are trending higher, why would you want to step in the way of that choo choo?

At this point in time there are reasons you may want to be mindful of the choo choo's speed and looking very closely for any cracks in the tracks.

We know, among other things, that Feb. 28th is around the corner. We know that the U.S. congress has yet to agree on the sequestration argument. We'll just note that as crack number one on a fundamental basis.

We know that right or wrong Wall Street is in full believe in the Great Rotation story, i.e., money leaving the bond market for higher return supposedly only seen in the stock market. Well, we also know that none other than Goldman Sach's sees that theory as suspect since they recommended cutting exposure to stocks this morning and put a sell recommendation on the Euro over a week ago. We'll note that as crack number two.

We know that technically we can see smaller cracks on our daily stock charts, to wit:

• the weekly and daily RSI has been slipping since Jan. 25, 2013
• as has the MACD, the DMI, and Full Stochastics

We'll call the technicals crack number three, if you're keeping count.

We know that the volume has been punk at these rarefied air levels. That will be crack number four.

BUT, we also know governments in collusion with central banks are doing what they must to keep the show going. The U.S. government in particular wants and needs to keep things percolating upward.

We can call that one big repair, weld spot in any crack of your choice since big money moves at the direction of central banks and many a bear in this market has been gored severely by the central bank horns.

To say that this market is at a crossroads is an understatement. One only needs to visit www.zerohedge.com to realize that there is indeed an opposing view to all this rosy governmental economic outlook.

We've been told over and over to not fight the Fed. Some of us listened, some did not.

Still, when it comes to what the market will do and when it will do it... in this case, when will it roll over... it will do it at a time (like now) where everything and everyone is suggesting to get into the market.

Why? I'm not sure other than Wall Street must want mom and pop to come in so they can sell them the very stocks that they bought all along the way climbing the Wall of Worry. Now that the proverbial wall supposedly has footholds built into it what better time then to sell off?

If staying bullish I'd take smaller trades and simultaneously set up a game plan to take advantage of the first big enough drop to scare the market enough to drive the VIX in the fearful category, say 17 to 20 area. Above that and even big money starts to be fearful.

Trading is as simple or as complicated as you make it. Learn to develop a skill set that you can use with confidence and put the odds in your favor... or you can wait and see what ignorance in the market will cost. Shameless plug for my site at www.wallstwise.com.

Selloffs Don't Stop Earnings. Even socialists buy food and iPhones.

Regular readers of Trader Thoughts, my daily market commentary, should not be surprised at this morning’s reaction to developments since Thursday through the weekend. If you read TT, or followed Twitter and even Facebook you knew this result was inevitable. So Greece and France go from socialist to near communist/socialist. We wish them well. The Euro breached 1.30 going to 1.295 overnight. SPX futures are off their lows of 1342 by 1.0% at this moment (6:36 a.m.. ET). The 1340 level of the SPX is a 100% retracement off the March low of 1340. It is also a significant support level, which if broken brings 1328 into play and as usual not necessarily in a straight line. The 1340 level is also at a 3d deviation Bollinger band while the VIX will open at its top Bollinger. This week may well be pretty volatile as markets try to get a grip on the ramifications of these elections. Clearly the only thing that the market cares about is whether agreements now in place in Euroland will hold or will they have to be renegotiated. What does the market hate? Uncertainty... thus the longer the market is kept in the dark the weaker the market should be. Here’s the twist as headlines make their way across computer screens this week... does it all mean Greece will be thrown our or leave voluntarily from the EU? Who knows? But we do know this, if that were to happen the fact is that after the shock of it all an EU without Greece would be strengthened meaning a reversal of current sentiment. I’m watching gold in particular this morning as it should be dropping with a rising dollar but perhaps if the leftist governments lean on the ECB hard enough they, the ECB, could crank up the printing presses. The initial action today won’t be resolved today and maybe not even this week as headlines, both true and rumored, will move markets into the safety camp. .. another reason I’m watching gold’s reaction. Reaction market action such as this morning can be dangerous as computer generated buy and sell programs tend to be in control, so let’s be careful out there. Remember one thing as the market shakes out, try to separate those headlines and the market’s reaction vs. those headlines that affect earnings. A selloff on political news is one thing, a selloff on a currency shakeup does affect earnings, at least of international companies. Market moving headlines not immediately affecting earnings tend to bounce back quicker. Even socialists use iPhones and iPads. In the end, as always, it’s all about earnings and future earnings as I point out at Wall Street Pirate.