Cocoon Rage Or Shelter In Place

We have all seen the horrific news ad nauseam regarding mass shootings, mass suicides, mass hysteria, mass political gridlock, mass bailouts, mass fraud, amid mass human stupidity, ignorance and intolerance.

Because of the seeming lack of control, lack of moral leadership, lack of ethical leadership, lack of tolerance, lack of action, lack of common sense, lack of truly shared values, we the sheeple are left to cocoon ourselves at our favorite media device, plug in, and hope nothing happens to ourselves, our money, our property, our own moral compass.

As for me, I've listened for an adulthood of fifty years having been preached to, scolded, warned, cajoled, threatened about the evils of communism, greed, molesters, shysters, liberals, conservatives, tyrants, strangers, homosexuality, hell, heaven, money, poverty, drugs, bigotry, racism, ignorance, intolerance... all that is the human experience in the western world.

Now after those fifty years comes the opposite of all I've heard. We have a Marxist in the white house. Churches are protecting molesters. Religions are killing for their god. Liberals are now socialists. Conservatives are now considered uber-right wing. Some tyrants are better than others. Hell does not exist and neither does heaven. Poverty still exists after trillions of dollars spent to stop it. Drugs are in control of countries, governments, and cultures. Bigotry and racism are alive and well since legislation cannot control human passions molded by ignorance and intolerance. Lawyers control everything as they divide cultures, races, and beliefs.

At my plugged-in device, I search for data, information, lies, truth, and myths... anything that will help me formulate my own conclusions on any matter. And so, I approach the great Tower of Babel, the Internet, I find only the madness in print and video that I witness in the tightly controlled sound bites that pass for news.

I'm afraid to go out for fear of being a victim of senseless crime. I'm afraid to watch biased entertainment that passes as news. I'm afraid to socialize since I don't know who's about to go off due to someone's controlled demons now losing control due to a discussion in politics, religion, or government policies.

I cocoon myself more and more the older I get for fear of being a victim of a low life street predator or an overzealous police force. I trust less and less.

The problem is this: as I cocoon without settlement of any issue mentioned, without resolve, without peace of mind, without answers, I just build on the building blocks of angst, frustration, and anger until I realize that I am a quivering mass of stress, as I think we all are.

As a result, I am surrounded by people who are all capable of rage due to that last straw, that proverbial broken shoelace trigger. 

I certainly don't condone rage lunacy, but I understand it.

Dr. Ed's Blog: Long Recovery, Long Expansion in US (excerpt)

Dr. Ed's Blog: Long Recovery, Long Expansion in US (excerpt): Despite the steady improvement in the Index of Coincident Economic Indicators (CEI) since the end of the last recession, there continue t...

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.

What is that picture?

There are many things a trader can do wrong in the markets. Still, there are a few things a trader can do right. All the market acumen in the world is useless for a trader who ignores his own rules, or who changes systems as often as he changes socks. Yet, many of these folk seek a better system, a holy grail in their trading.

The battle in the market is not just bulls vs. bears, it's educated (about trading and the market) vs. non-educated money. Richard Pryor used to tell a story of a tourist coming upon a lion in the bush. The lion is laying down lazily watching the tourist. Camera in hand, the tourist diligently snaps pic after pic, encroaching on the lion's space. The lion raises his head just a tad to get a better look and says, "That's right, come on... yea, that's it... and bring your camera too."

It isn't your system, or any system, that brings success. It's the discipline and understanding of trader behavior within the trading environment. This is specifically why I continually point out the difference between investing, where price is the driver, and trading, where behavior is the driver.

If you're unsure of which way you're involved in the markets, you've got to stop, back up and review everything... your motivation, your goals, your approach, your "system," and your attitude.

No one likes it when I say you have to "not care"-- that you must be detached from your trade. Bringing human emotional baggage into a trade will make you sell/buy at precisely the wrong time.

The discussion above is why you see the following on my site, www.wallstwise.com, "everything you need to trade is on this site, but you will still need a coach to sort it all out." Why? Because trading is about behavior, attitude, knowledge, timing, and other esoteric skills, it just is not enough to have a "feeling about that one."

Moving right along:

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names. Markets also tend to return to the mean over time. The quality of Wednesday's rally was not as strong as the quality of Tuesday's decline. It came on lower volume and narrower participation. This suggests that no matter what path stock prices choose over the short-run, stocks are topping.

Based on the empty data calendar and a light earnings calendar, Friday looks to be a quiet session. Nonetheless, the dollar action certainly will be the focus.
•Geithner Push for Trade-Gap Targets Is Opposed Before G-20 Meeting Starts

We are all focused on the dollar because it has been the primary driver of this market. Knowing that, what will you do when the dollar stabilizes and the dollar is no longer the reliable driver? Knowing how to play in a stable market environment would be a good skill, wouldn't you say? Or do you just like taking pictures with your camera?

3 Bears Left and Counting.

Neither the Fed minutes, rising interest rates, or anything else is going to stop the bulls from SPX 1,200 and INDU 11,000. Some gurus are suggesting even 1225 on SPX is not out of the question. I don’t chase price, but I do setup for reversals. It’s all a matter of following the herding instinct or going down that path less traveled… and right now that path is cluttered with overgrowth since there are probably only 3 bears left on the planet.

The Dow may be 31 points away from 11,000, but it is also 3,225 points away from its all-time high. No one can deny that the Dow, indeed all the indices, have made a hell of a run off the lows of March 2009, but be real, there is also no denying that there is still a long, long way to go before one we can feel good about crossing these round number thresholds.

Day trading the long side is one thing, positioning for extended long swings is something else… for that I need a correction. At these heights going long means smaller size no matter what I see in the charts. Look at volume on the SPY today, half what it’s been the last 3 months. Where’s the conviction of bullishness? It’s there, but only for a few… so far.

Every major index has developed a rising wedge pattern and nearing a channel line which are the next patterns it has to destroy… spx, dji, iwm, spy, below is the SPX example:

Tomorrow before the open FDO, GBX, MON, and MSM are scheduled to report. Watch closely how these stocks react to the announcements, especially MON, for clues as to how the market will handle earnings starting next week with AA. If they sell off on reasonably good reports then they were overpriced to begin with.

Trading After The Jobs Report

One year ago today, March 6th, 2009, if you were in the market or just a casual observer you would have been convinced the end of Western civilization(?) was at hand. The stock market had been in an aggressive accelerating downward spiral and by March 6th value in the S&P500 had been cut by ~57%. And it did it in frightening high record setting single day drops as the credit markets froze up.

Buying into those drops on the way to Mar. 6, 2009, specifically during the period between Sep 29 and Mar 6, was as deadly as shorting into the rallies since. The relentless rally started on March 6th and has rallied ~67% with only one ~8% correction.

I mentioned at the beginning of last week that I sensed a paradigm shift in sentiment mainly due to ever improving price action and improving, but spotty, economic reports. These favorable reports were topped off by Friday’s jobs report and rally.

All of a sudden, as shown by the drop in the VIX in recent weeks, the bullish reading in the $TRIN, the bulls have made their move. Things are so bullish… that they’re now bearish technically speaking. We’ll have to wait and see if the fundamentals really have improved and only time will tell us that story.

The market always overreacts up or down, always overplays its hand, and always reverses when least expected. The bullish readings are so high that the trade has to be a short play but (there’s always an infuriating ’but’) we can squeeze higher still… 1150 SPX looks like a target but it’s too obvious.

My best bearish scenario would be a small push higher on Monday that fades quickly and, more importantly, a pullback across all sectors with a sharp pullback. Developments in Europe and Asia over the weekend will influence Monday’s trade as usual. If the market really wants to show bullishness it will have to correct (headline unknown at this point) and bounce back sharply. Any correction in this environment will be short lived and that’s okay with me as long as it’s sharp… say down to SPX 1109 which would make price sit right on the Feb low uptrend line. Probably more realistically for any pullback next week would be to target closing the gaps down to 1116… roughly a ~2% pullback and certainly not a correction.

A correction is meant to shakeout the excess usually by violating a trend line… a pullback still maintains it’s uptrend. My last comment of the day on Friday in Trader 2010 on Finviz was, “Lack of volume throughout the last 5 days will take it’s toll on today’s rally.”