The Quack Count
Good morning and welcome back to the golden pond. The trading community has been anxiously scanning for birds of a bullish feather but, thus far, they've found only goose eggs. With last weeks fowl performance, the Minxy downside streak stands at four in a row and portfolios have, once again, flown south for the winter. Will this ugly duckling turn into a prince of a market or are these eggs a telling sign that our goose is cooked? It's another week of fricassee fun so fire up those systems and let's get this game started!
We've spent the last month walking through our metric bases in an attempt to assign a method to the madness. What we found was uncertainty in the fundamental outlooks, cracks in the technical foundation and, despite the malaise, a general complacency among investors. To add insult to the widespread injuries, the geopolitical landscape has been uncertain (to put it mildly) and, as you know, the market hates the unknown.
While several of my trusty gauges have piqued my interest on the long side, the bull camp is far from compelling. As such, and as my methodology dictates viewing the big picture as a series of little pictures, I've compiled a list of ducks that I'd like to see line up for Hoofy. This surely isn't a complete list but it's a decent starting point for some bovine bravado.
When decliners trump advancers (as they have been), a red flag is raised regarding the internal health of the market. This has been the single best intra-day trading tell during this latest market lethargy.
No industry has emerged to take a leadership role and we'll need to see this before the market makes a discernable turn.
It's important to differentiate between basing and churning. Two weeks ago, when the market moved sideways under resistance (former support) at S&P 870, it was a bearish flag for traders. Don't confuse an alleviation of the oversold condition (churning) with signs of dryness. It's a subtle but important distinction as we find our way.
My initial read on the Iraqi situation was predicated on field position. If we rallied hard into the event, my sense was that the tape was a compelling sale (for a trade). If, on the other hand, we melted into the initial attack, I was eyeing a Snapper. It's still quite early to be crafting a "war thesis" as the timing of the (potential) catalyst has yet to be identified. Still, the conventional wisdom seems to be shifting towards "buy the war" and, as a zagger, that's got me a bit concerned.
The single most important complex in the market as they're a proxy for so many different crosscurrents. BKX 725 was a fresh "break" on a point & figure chart and has now become resistance. Also watch the brokers (XBD), as they'll also tell the tale. Both of these groups are relatively oversold (remember BKX 800?) but there still seems to be supply. When the financials turn, so turns the market. It's that simple.
Despite double digit declines from the January highs, complacency is still the order of the day. The Investors intelligence poll still shows that bulls are the "it" crowd and the VIX, while significantly higher than during the January lows, is showing no signs of spikage. I'm looking for a VIX "up 5" signal to portend a potential trading rally.
I don't think it's gonna happen anytime soon, but I'm watching for the buzz word.
While my short term stochastics are "coiling" and continue to indicate a sharp move higher, I'd like to see the intermediate stochies confirm. Snoop Tone has done some excellent work in this arena.
Look for slippage in gold and oil and/or a rally in the dollar (four year lows vs. the Euro) as a potential precursor to a trading lift.
If any of our (much discussed) resistance zones "break" to the upside, it'll likely squeeze the technical shorts.
As I said, this is in no way a comprehensive list but, as they're on my trading radar, I wanted to make sure they're on yours too. There's a parade of coming catalysts this week (more on that later) and, as always, we'll have to take our journey one step at a time.
Remember our trading commandments as we find our way and understand that we're all bound to be wrong at times. This remains a difficult time in many ways and the goal is one of consistency. The discipline we employ will differentiate us from our peers and patience will (hopefully) allow us identify advantageous risk/reward. Think positive, trade to "win" (never trade "not to lose") and always keep that right hand up.
Good luck today.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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