Golden Opportunities

I’m seeing some extreme indecision in the market, which makes sense at this point.  The dip buyers failed, they did, and they know it.  The shorts never came in, they decided took keep what was left of their dignity and sit this one out.  Unlike the last few dips there are no short sellers this time to fuel a short squeeze on the way up.  So we churn, downward, slowly.  At some point we’re going to work off these oversold conditions through a bounce or a period of sideways action.  I don’t see us just rolling over into a full on death drop.  But there are too many short term traders here trying to play for a bounce with others smacking the market back down at the 5 day moving average every time.

Something needs to give.  We could see one of two things, a quick jump above that 5 day moving average followed by a week of sideways action, or an ugly open tomorrow or Thrusday to really put the fear of god into the longs.  Frankly I think the latter is more constructive for a longer rally.

Let’s take a look at the action in the US Dollar.

Some weird shit happened last night in the US Dollar futures contract $DX_F.  Some stops were run overnight producing a huge spike as liquidity was nowhere to be found.  Volume confirmed the prints, this was no joke, someone is testing levels on the $USDX.  I think the carry trade can unwind pretty quickly.  We came up to the 50 day moving average which I have been speaking about but were rejected.  This moving average needs time to flatten out and I believe we are going to see some sloppy action over the next few months.  I’ve outlined one possible bearish scenario where the dollar puts in a large reverse head and shoulders bottom.

Let’s sit back and think for a minute about what should be going on if this really is the top in the equity market.  First off, we are going to see retest rallies as latecomers try to buy dips and strong hands attempt to move inventory without tanking the market.  The reaction to these rallies is what you want to be watching.  Are they sold off quickly on high volume or do they consolidate over time and move higher.  Remember also that the real short sellers, the ones with deep pockets and longer time frames, will be buying on the dips if they really believe this is the top.  Why you ask, well because it gives them more ammo to release on the market when the buyers try and rally in vain.  Classic teaching of Jesse Livermore.  The catastrophe that was 2008 didn’t see this kind of action as it was an across the board deleveraging from everyone.  Short sellers didn’t get the chance to reload their ammo, everyone just dumped everything at the same time.  So be aware of how weak stocks react on the rallies now.  I feel like this such thing has happened recently to $MCO.

My last bit of the night comes from gold.  We saw another rip today, in the face of a stronger dollar at that.  Gold is operating completely on technicals now, don’t try and explain the action by saying India is buying up gold for weddings or what not, WTF is that.  Just read the chart people.

You know I’ve made some bonehead moves covering my shorts too early here ($STEC and $LDK), and not taking entries to others ($X), but on the long side I’ve only got one regret.  I took the long entry in $GLD per my 55/20 trend strategy and it has played out beautifully.  But my regret is not taking more than one lot when everything said I should be.  The entry to this trade was perfect with two huge up days right off the bat, I should have added at least 2 more units, if not gotten full with 4 total.

Alas, I’ll live with my one lot and say thank you.

Gold gave a great entry last week when it retested 1027 and held firmly.  If you weren’t in before, that was your shot, don’t chase here.

Oh, watch the long bond tomorrow, it sits at a very precarious position, could see some major damage done in $TLT.

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