Friday, February 05, 2010

Box update

Here is an hourly chart of day session e-mini trading. I have drawn boxes of about 25 points in height which I believe have been controlling recent trading. The bottom of the current box is near 1048. From there I expect the market to move up into the 1075-1100 box. This in turn would be the first stage of a sustained rally to 1200.

35 comments:

Tippy said...

So you just censor the comments that don't agree with your position or logic? I had been impressed with your site over the last couple of weeks, but not so much anymore.

I thought this was a place for open discussion? I certainly hope you weren't offended with my questioning of you intermarket logic. I was simply trying to point out that your analysis has some flaws.

You are predicting a down market in commodities, increased rates and a stronger dollar (Euro especially). If this situation occurs, you are probably looking at a negative equity environment.

The factors that would cause such a predicted scenario would likely be a (1) quality flight to the dollar, which is an equity negative. (2) a bond market selloff, which would cut government funding, which is definitely a harm to equities (3) Depressed commodity prices which is a definite signal of stagnant or negative growth in the economy which will be equity negative (4) Crude crashing to $50 which you predict would signal a SHARP decrease in economic activity, which is equity negative (5) a turn in the FED's rate stance that would cause your predicted rate scenario, that would however be a negative for equities.

Your dollar up, commodity down, rates up logic/scenario WILL NOT produce equity strength. Somewhere in your analysis you are missing something and one of your assumptions is CLEARLY incorrect.

Carl, I'm certainly not criticizing, I simply would like to hear your explanation behind your reasoning. There are inexperienced people here, and I'd hate to see them misled.

Tippy

TA.Stockman said...

Tippy,

From the looks of Carl's chart, he is showing his contrarian side. There is an obvious downtrend as evidenced by his down channel, BUT Carl believes that the upper trendline will be broken...if so we could retest highs or go higher.

But until that happens, the trend is still down (on the short-term). On a weekly, it's still up.

TA.Stockman said...

@ Daniel (from previous comments thread):

Wishing and hoping are not trading strategies...well, not good ones at least.

Somehow, I don't think Jeff caters to them. I think he is like Carl in offering his opinion.

Bill said...

What's going on in people's heads?
Carl's logic is sound.

Since when cheap oil is bad for the economy and the stock market? OIl $50 should fuel an economic boom and a bull market in stocks, not the other way around as the opening comment mentions.

And since when a stronger US dollar is supposed to be bad for the S&P 500? This is crazy thinking. Basic logic dictates that as the american economy strengthens both the US dollar and the US stock market will go up.

Nothing wrong with Carl's logic. Cheaper commodities (oil and metals), a stronger US dollar, a stronger stock market. This is basic economics.

Aarpenn said...

Tippy,

Your questions are valid. I am more of a fundamental trader than a technical trader, so I used to think exactly in the same lines as you are thinking about a few weeks ago. I am not sure but Carl seems to be a technical trader, though he does pay attention to fundamentals. Just like you I have posted a couple of questions few weeks ago on Carl's blog asking about why Carl would think S&P would continue to go up while the dollar goes up. But recently what I have been observing is fundamentals that applied to the markets are not working any more. We are in an extraordinary "changing" time with the deleveraging that is happening now. The price of commodities, especially oil, mostly went up last few years out of speculation. I agree, there was additional demand from China and India but still that demand cannot be justified for the oil to be at $150. With all the talk about regulations on commodity trading coming from co-ordinated talks of all Govts, it's only natural that the Oil and Commodity charts are looking weaker for technical traders. And regarding your question on Dollar and Equities inverse relationship, this is not always true. SOmetimes stronger dolar is good for equities. It could be temporary, but when there is global uncertainity, investors tend to come back to both US$ and US equities.

Again, as much as I am baffled by the abnormal patterns in markets, I tend to agree with Carl short term that S&P does have one more leg to go up.

Cheers

Aarpenn

Tippy said...

Bill,

You have the cart in front of the horse. Oil is driven by supply/demand. $50 oil means there is NO demand. No demand for energy is a solid signal that the economy isn't moving forward.

As for a stronger dollar, did you listen to Obama's SOTU speech? He is banking on the US selling more and more goods overseas to get us out of this recession. A strong dollar is a huge impediment to this scenario. Weak dollar helps the US and our large multinationals with foreign trade, a strong dollar hurts it. If you didn't notice, the DOW is mostly large multinationals. Carl's prediction of a stronger dollar is equity negative. Not to mention the dollar strength which is already occurring as we crash down from 1150.

The only reason that the dollar is increasing is that every other currency is decreasing. While you may think a strong dollar is good for the US, it is all relevant and a strong dollar is really nothing more than a signal that the rest of the worlds economies are declining. The dollar is the one-eyed king in the land of the blind.

kcounty said...

tippy,

i have been confused about carls oil prediction, which he made in August 2009. but carls ES perspective is short-term, and his oil price is long-term.

i suspect he will reiterate his down-oil scenario when the ES become weak, but then again, WHY did he claim a top 5 months ago?

tippy-what is your fav blog?

jeff said...

Carl's thoughts on oil:

Oil is going down $50, which I think it will ultimately go down $20 over the next couple years.

Since oil is dollar denominated, this translates to a strong dollar, and a weaker Euro(which Carl also suscribes to).

And finally, a strong dollar translates into a flight to safety, which means, by default, equities go down.

Don't let me convice you. Go take a look at the UUP, SPX, and USO and see these trends for yourself over the past few years.

I will stick with my contention that this Wave I down is almost done and will expect a little bounce over the next couple days. However, I intend to use any bounce into the 1065-1085 range to significantly add to my short as wave (iii) down within Wave III will be the strongest market movement down we've seen since the January highs.

Still looking for 975 or so get hit in the next few weeks.

Last, I recognize this is Carl's site and although he doesn't express it, I gotta believe he appreciates folks' perspectives and analysis to either help confirm his beliefs or enable him to think of other potential scenarios.

In the end, I think a free site like this can differenciate it from others by the expression of folks' opinions. In the end, isn't the ultimate goal to make money?

janet said...

The thesis a weak dollar is good for equities is BS! Got tooooo many traders over-thinking into a massive HERD mentality. That inturn causes much undo volatilty in the market and boom or bust trends which hurt the economy.

Kishore said...

If we break today's low for ES at 1050.75, will we stop at 1048?

Tippy said...

kcounty,

I'm not saying his oil prediction is wrong. He may very well be correct about it. He may also be correct about metals. What I'm saying is, IF his oil prediction is correct, and if his metals predictions are correct, then odds are that his equity prediction is likely incorrect.

Two things: (1) either there is no demand and oil drops, which is a signal that the economy is bad or (2) Oil, and other commodities, crash due to a deflationary condition, which may or may not be exported overseas or (3) the dollar appreciates to an extreme which completely destroys commodity prices, which would also be accompanied by other problems for equities exacerated by the strong dollar. None of those scenarios provides a positive environment for equities.

I'm not sure if Carl allows mentions of other blogs, but I like Zerohedge, Mish's blog, CalculatedRisk. Actually, I'd just like to find a place where there were some good traders who liked to talk trading, which is why I decided to give Carl's blog a try for a week or two. I like the discussion so far.

TA.Stockman said...

From what I have read, the increase in oil to $150 was not only due to demand, but a run towards profits in 2008 when equities were declining. So, speculation pumped the price of oil up probably more than demand.

Dollar:equity relationships are fake. Sometimes they are inverse. Sometimes they are congruent.
There is NO logic behind why one occurs at any particular time. Trying to play the "dollar bounce" in shorting equities is dumb. Look at December2009. The dollar came off the bottom with momentum and volume, yet the equities did not reciprocate with a strong move down. Likewise with March2009.

While the fundamentals look promising, the weekly charts and the momentum at the top (1150) was awfully light. Unless the bulls come out in force to negate the negative momentum, this market has stalled. I would suspect that buried in Carl's projections is a suggestion of this action...that bulls need to create a Demand Shock. For me, until that happens, I will not second guess what is currently happening on my charts.

Tippy said...

Janet,

Fine, you think it's BS. Back up your opinion and tell me why. I explained my position as to why the strong dollar hurts exports, so explain yours.

Here's another thought for you: If the US had to pay back HUGE debts, would we like to do it with a weak dollar or strong one?

Please explain your position and why mine is wrong.

Kishore said...

Tippy, good traders focus on trading!

pimaCanyon said...

Tippy,

I can't speak for Carl, but what if Carl sticks to his technical analysis for each market independent of what other markets are doing (except currencies of course, like the EUR/DX)? If that's his mode of doing his analysis, then intermarket relationships would not enter into the picture (for him).

How long have the dollar and equities had an inverse relationship? Has it always been true? Could we have a de-coupling of this relationship now, such that BOTH the dollar and equities go up in price?

Kishore said...

The current leg of the drop should be at least as long as the last leg and that will take us a lot lower than 1048, more like 1020 on ES.

TAE said...

Tippy, no matter how you slice and dice the markets and how they move in relation to each other, and, if you back up an opinion or not, using the term "misled" with regard to that discussion/non discussion is wrong. No one has a gun to their head to act on Carl's or anyone else's information. It is the responsibility of the trader to be responsible for their trades. And if they factor in advice and it results in a loss, that is on the trader - not the "advisor". In fact, Carl's blog has commentary from others who differ in outlook and methodology. And he has the post about speculation which he encourages readers to heed. No one is accountable for inexperienced traders' use of information.

catherine said...

The strength of the usd is supply and demand driven. It is not simply a flight to safety. This is simple newpaper analysis.
The dollar is going up because people are short of dollars. Why? Because all this debt is denominated in dollars. The bond market is something like 10 x as big as the equity market.
When debt needs to be paid off, people need dollars to make the payment.
When debt defaults, dollars disappear with the default (the opposite of quantitative easing).
That is why there is a negative correlation with equity markets at the momment and a positive relationship to credit default swaps and the spread over treasuries that bonds are trading at.

Tippy said...

TAStockman, I disagree with your assertion that there is "no logic" behind intermarket linkages. Markets are driven by underlying fundamentals and reasons. Just because they are not readily apparent doesn't mean the are 'fake' as you say. Am I somehow misunderstanding your assertion?

pimaCanyon, Intermarket linkages provide valuable clues to the overall picture. I'm sure Carl didn't ignore the clues presented by the linkages. Ignore the signals at your own risk. As for your assertion that we could have a 'decoupling', maybe we could, but I'd stick with the current trend due to the problems being experienced by other countries.

TAE, Sorry if the 'misled' term offended you, but you'd be surprised how many sheep there are in this world. I saw a flaw in the market assessment and I felt like pointing it out to generate discussion so we could all get our ideas out there. Who knows who is right. Maybe I'm right, maybe Carl's right. Sometimes people latch on to one theory without the opportunity to see the other side.

Love the discussion guys. I can't find a trade right now. Market just seems to be grinding around. Wish we would get a break higher, but I'm not sure anyone wants to go long into the weekend...

jeff said...

Folks,

No need to do a ton of analysis on the dollar, S&P,and oil. Unless you're living under a rock, there is an obvious direct reverse relationship between the dollar to that of the S&P and oil.

Just look at the charts:

$USD
July 2008: ~$72
March 2009: ~$90
December 2009: ~$74

S&P
July 2008: ~1,225
March 2009: ~666
December 2009: ~1,100

Oil(price/barrel)
July 2008: ~$147
March 2009: ~$38
December 2009: ~$84

Enough said

dcatlowpj said...

Very interesting discussion. There have been many issues related to the dollar here...how relationships to Oil, monetary supply and so on. I have one answer and it is in the form of a question:

if ANYTHING in the market can be predicted with accuracy, such as the relationship of the dollar to oil and this prediction, or thesis/algorithm/rule (choose your terms) was again absolute, then one could use those rules to drive every trade without losses...in other words, THERE ARE NO HARD AND FAST RULES. The only thing we traders can count on is PRICE ACTION. And by traders, I mean scalpers and swing traders, who are short-term rotating types of players and the charts will tell you all you need to know. All of the rest of the rules, and even Carl's boxes, can be BROKEN in a big way.

Kishore said...

There are umpteen correlations. But they all get reflected in the Price-Volume, as Carl would probbaly say. Carl does not even care about the breadth of the market. Market BREATH is all that counts. Just watch how the market breathes!

Darn! I just missed a god short trade!

Nick said...

I think we are starting to see this market take an emotional toll on it's traders.

I want to take a medium sso position over the weekend for a possible little bounce on Monday but I'm afraid of the current trend and the Monday Effect. I remember someone here or on another site stating that 80% of the gains last year took place on Mondays... still on the fence.

cheers!
Nick

Kishore said...

The rebounds from the support at 1050.75 for ES are getting lower and lower. Preparation for the break! Then, watch out below.

jeff said...

yep.

80% of the market gains between the march 2009 and January 2010 high occurred on Monday. And of those Mondays, 90% of the time is was up. That means you would have only need to trade one day a week and take the rest of the week off.

on a very short-term basis, i agree with carl that the 1060 level will end this wave. wave V is ending in a bullish wedge right down to his expected level before we bounce. however, it will only be a bounce for a day or two as wave III down is coming to take under 1000 in the next week or two.

jeff said...

I bet Carl will be going long any minute here.

TA.Stockman said...

Tippy,
What I am saying is that no one can reliably bank on the relationship between the dollar and equities, dollar and oil, gold and the dollar, etc, etc. to understand the underlying moves in the market.

There are MANY times when there is a strict correlation and there are MANY times when there is a strict inverse relationship. How can one say with 100% certainty that if the dollar goes UP, the market will go DOWN. Cannot be done without additional data.

Granted, the past year or so, 90% of the time there was an inverse relationship, but by no means 100% of the time. That is what I mean by fake. People get lulled into believing falsities.

Likewise with the VIX.
Do a longterm chart comparison on YAHOO! with the VIX and S&P. Does it inversely correlate all the time. I say no.

khoekz said...

I just went long UPRO and FAS when the cash SP hit the 1050ish mark.

It might drop a bit more from here, but I am expecting a very green Monday to reverse the short term trend and a very green 6-8 weeks coming up. Today will end the bleeding.

GLA

Dave Narby said...

Carl's logic is sound, *except that he refuses to address where the money to drive the market higher is going to come from.*.

Carl, I'm frankly frustrated that you haven't given your argument for this. Without QE purchases of MBS, there's no cash freed up for the banks to gun the futures and ETFs.

BTW, my comment on the previous post, calling for at least 1035 for the S&P was for the cash index.

Next stop would be ~985 ish.

Kishore said...

Lot of BS here! Maybe, the real traders are too busy trading!

Tippy said...

Wow, this market is really sick.

Good call Jeff and good post catherine.

Why a long here? This trend is clearly down. Maybe on a Thursday it would be a good shot, but on a Friday afternoon? Nobody wants to go long over the weekend, so a bounce play is a low odds trade.

The box on Feb 2 that was supposed to bounce and begin the big run to "1200" was broken, the box on February 4 that was supposed to begin the big run to "1200" was broken and today's box that was supposed to begin the big run to "1200" was also broken. Why try to catch a very sharp falling knife here?

Maybe it's time to re-evaluate the equity stance?

I keep trying to point out where the analysis is broken, but nobody seems to be listening....

TA.Stockman said...

"khoekz said...
It might drop a bit more from here, but I am expecting a very green Monday to reverse the short term trend and a very green 6-8 weeks coming up."

How do you know? You better have your stops in place. Next level of major support 1030 or so.

Good luck.

dcatlowpj said...

Oh, Kishore..that's just wrong in itself...many "traders" catch those moves early and then do some reading. That is what I am doing right now.

Real Traders don't spend THAT much at the screen...there are too many PA moves in a single session to make money at turning points...if you are so glued, then why are YOU HERE? HA!

Anyone, here is some interesting BS: I am watching OBV on a 5 minute ES March chart and it is nearing (roughly) 850 Contracts SHORT...this is a big number....and it keeps ticking on and on. Carl's long today was RIGHT after (5 min chart) the 1048 price level was breached...with a nice long candle...I was at lunch...I am short the SPY with my trading part with a Call Spread (113/117 Credit Spread Feb)...it is behaving nicely. It appears we have a nice little plus trade with less two weeks to go...

Anyway, people will log in from time to time on breaks in the action...we went sideways a bit today and it was channeling, so I checked out and enjoyed some Key Largo sun.

Kishore said...

dcatlowpj, you are absolutely right. It is not a good idea to be glued to the charts. In fact, I just place a bracket order and walk away from the trading workstation. Incidentally, that's why I have time to come here.

But the point I was making that if I were to listen to the "fundamental" talk, I could tune in to CNBS, which I don't.

Carl's appraoch is purely techincal and we should not waste everyone's time on this site talking about things that do not relate directly to the TA approach.

Smarty Pants said...

Odd place to stop going down: Does it 'mean' something?

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=8&dy=14&id=p58094963604&a=190739643