Pretty obvious at this point eh?  The jobs number was bad, far worse than expected at -85K.  I’m not surprised, then again, I don’t think you can even trust the number anyway, they always get revised down after the fact.  I continue to believe there aren’t any jobs out there, and there won’t be any time soon.  This country’s economy is going through a radical shift, we don’t produce anything anymore, and we haven’t embarked found the next growth industry.  Will dumb manufacturing jobs ever come back to this country, I doubt it, we’ve moved on, up the ladder of production, we are a service and ideas economy now.  We were screwed in the 80′s before the computer changed our economy and gave us all jobs.  We will once again find a spark to ignite a new industry to do the same, hopefully it doesn’t take a decade.

Due to the lousy jobs number, and what will continue to be lousy jobs numbers, the $FED isn’t raising rates any time soon.  Here’s what will happen.  Food and energy prices will begin to creep up, and then explode to the upside.  At that point the fed will have no choice but to raise rates, and they will do it quickly by more than a full point to start, sending the dollar screaming.  Until then the Dollar is going to wash around as equities churn higher yet.  In the short term, here’s what I see for the $DX_F.

That 50 day moving average in blue is going to be tested.  This is a very bullish flag pattern which should resolve itself to the upside after that test.  I’ll be looking to take a short position in the $EURUSD as it comes back up to test significant resistance levels.

As for the equity markets.  We continue to see healthy sector rotation taking place.  Financials are running into earnings season, no surprise.  Materials are hot as hell but are set to take a break following a crazy run to the upside.  A few healthcare names I’m watching are breaking out of long term bases, I would be looking there for exposure.  Look to buy the tech leaders on any weakness, I highly doubt they are going to let $AMZN dump before earnings.  As well, I believe they are going to blow the numbers out of the park, hell they better after this run, or it’s a long way down from here.

Each one of these failures represents more trapped longs.  It seems though that the longs are not panicking in the afternoon as the market hasn’t really caused them too much pain.  I sense complacency.

The 5 day moving average in red has been the key all week, we finally lost it today and saw two attempts to retake it from below fail.  The market was supported by the 20 day moving average as we bounced rather hard off it twice today.  We also broke down through a broadening triangle formation above the 5 day moving average.

I’ve been saying for a few days that we were set to move back towards the top of the range in the $USDX, well we got it today.  The dollar moved straight up most of the day on high $DX_F volume, stopping its ascent at the 50 day moving average.  Remember, futures volume means nothing in the forex market, but it does give us a taste of sentiment as to what professional traders are thinking.  Today’s move was powerful, unlike other runs up to the 50 day.  We have also based out pretty well at my first support level of 74.31 going back to 2008.  We won’t know for a few more days whether or not the dollar rally is really on, but if it’s going to happen before a full 100% retracement of the 2008 move, this is the time.  If the $USDX fails here, the $SPX is destined for 1220.

I’m not in the business of guessing, I’m in the business of trading, but if you put a gun to my head I would say we’ve seen an intermediate term bottom in the dollar and the 50 day moving average will be broken next week sending equities down.

Something interesting happened this morning that we haven’t seen in a while, both equities and the dollar climbed following a better than expected jobs number.  I’ll hold my tongue on the jobs number for now to make another point.  If investors perceive that the American economy really is picking up, they will most likely also be of the belief that the fed will raise rates sooner than later.  If and when the fed raises rates, the liquidity party is over.  This is quite a paradox as the market will keep going up as long as the dollar keeps falling and investors perceive the fed is a ways off from raising rates.

The only other way around this logic is if the correlation between equities and the dollar goes away.  I feel this is possible, in both directions.  At some point a falling dollar becomes detrimental to US equities as panic regarding our ability to cover our debt sets in.  We are a ways off from this occurrence, but the market looks forward, who knows how soon a falling dollar may be negative for the market.

The key now is to be small, preserve capital, and wait for more clues.

]]> http://www.leighdrogen.com/the-open-is-for-amateurs-the-close-is-for-pros/feed/ 6 http://www.leighdrogen.com/does-it-really-matter-why/ http://www.leighdrogen.com/does-it-really-matter-why/#comments Thu, 03 Dec 2009 22:42:18 +0000 Leigh Drogen http://leighdrogen.com/?p=1190 Was it the $BAC secondary announcement, how about the trader tax, or maybe even the jobs number tomorrow?  Who gives a crap.  All I know is that breakouts in either direction are being mean reverted, and quickly.  This is not my type of trading, which is why I’ve been mostly silent now for about a month.  I took a stab at a short day trade in $PNC yesterday and covered at the close even as it didn’t fail as I was expecting.  Well, just take a look at the chart.

Such is life.

This market is all about selling the rips and buying the dips, and sitting on your hands the rest of the time.  I was really only watching two things today.  the 5 day moving average on the $SPY in red at 111 was your bogey.  Once the market broke through it was lights out.  We closed the day right at support, the middle of the range, the high from Dubai Friday.  Is this the start of a, from failed moves come fast moves top?  Maybe, but the only person qualified to call tops and bottoms is Hue Hefner.

The only other thing I was really watching today was the US Dollar $DX.  Amazing how these patterns play out, we saw the dollar base out in the early morning, rip higher, put in a large symmetrical triangle, hit the moving average, and take off.  It was really a thing of beauty.  I’m expecting the $USDX to move back towards the top of its downtrend channel, for a chart check out my Chart.ly page.

Make sure that you are following my Twitter account, or at least reading through the Twitter stream on the sidebar of the blog, I try not to repeat commentary in the blog posts that I tweet, as well, most of my charts are posted to Chart.ly and not the blog.

By the way, my condolences to @The_Real_Fly for his failed melt up call.  As you know I’ve made a few here, all failed.  The funny thing is that both times I made them I added the caveat that I had not gone all in long equities and put my money where my mouth was, probably a sign that I didn’t really believe myself or was just talking out of my ass.  Either way, if I had really had the conviction that we were going to melt up I would have put the chips on the table, so take that for what it’s worth.  The Fly is one of my favorite follows in the investment blogging world, his insight is very valuable and his alter ego act is just plain hilarious.  If you aren’t reading his blog you’re missing out.

Last note of the night, my Rangers officially blow.  Sather put together a great team in the off season, and Torts came into the season with a plan to skate these guys to death.  The team has speed, youth, talent, and size.  But with the condensed schedule I worried from the start that Torts’ strategy of pedal to the metal hockey was going to wear them down way too fast.  And so it was, they came out of the gate on fire going 8-1 or something like that, they are now 13-13.  A few guys have gone down with injuries and Sather is now scrounging around the waiver wires for center ice men.  WTF!  Call up the kids from Hartford and let them play, the season is young and fresh legs is the key.

Have a good night.

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.