So it's been a while

So I haven't posted in a while....my bad. A lot of things have come up since my last post...including the development of a new trading system. This will basically make trades for me while I'm off at work or doing whatever. A "Black Box" if you will...

I'll be back and I'll keep you posted as it develops.

In the meantime, the markets (in my opinion) are over extended and showing signs of divergence. I'm expecting for "it" to go lower from here...

With the FED and their announcement this past week, people (even other countries) are starting to worry about inflation. When these worries start to take presedence, then one can anticipate what kind of moves are to be expected amongst different avenues of investing (or where money can be put to work).

John Jagerson explained this pretty well and I'm just gonna try and repeat what I heard in simpler terms (assuming "simpler" is a word):

With the FED's announcement this week, they said that they were going to "increase their balance sheet". More money is gonna be pumped into the system. When the 'pumping of money' is announced then one can expect a few things to happen.

1. The USD (U.S. Dollar) will go down in value, this is a simple concept to understand ("When inflation sets in, the Dollar doesn't win").

2. Gold goes up in value. Gold and other commodities are an inflation hedge.

3. Bonds go down in value when you anticipate inflation.

4. Equities, typically move inversely to Bonds when inflation 'comes about'.

Again, that's a typical/simple understanding of the relationships. However, this happens in a NORMAL market environment, but for those of you who haven't noticed, we're not in a 'normal' market. Not even close.

That being said, look at the chart below. This shows the 4 points above. I used the EUR/USD currency pair to show what happened to the US Dollar (top-left); the SPX for the equities (top-right); GLD for gold (bottom-left); TLT for the Bonds (bottom-right)...This chart is an intraday chart and shows how the market reacted to the Fed's news that they were going to "increase their balance sheet"...

Notice anything different? Or notice any relationship difference than what I explained above? Everything freak'n shot higher!!! Bonds especially and their yields all made BIG moves. As John Jagerson said, 'when this relationship breaks, you CAN expect volatility'.

That's exactly what I'll be looking for.

Happy Trading!

-Matt J

Honest Abe: What a Genius

Blah Blah Blah

So I decided to watch the ES future markets while Obama gave his speech...Just look at the attached image and you'll get an idea of how it went and/or what I thought about it...BLAH!


By the way, we got a pretty good pop up in the markets today. It didn't close above this past Friday's open/high so that's what I'll be looking for...but today's action could just be a dead-cat bounce as well. Wait for confirmation before picking a side...

Line in the Sand

So yesterday I posted that I thought we were going higher in US markets but that I could be wrong...well I was wrong...or was I early? The thing to look for is a close above this past Friday's open or high (775/778 respectively)...But also pay attention to the 741 level on the SPX. That's the 'line in the sand' for me and represents a significant support level (from a technical perspective as well as a psychological perspective); chart below.

Hmm...

You know, I have no idea where we're gonna go. But what I do know is that if we crack these levels and go lower, we're in for another roller coaster drop off (in my opinion). Below is a chart of the S&P 500 and the light green highlighted area represents support.

Personally, I think we get a bounce from here:

1. The trading day on Friday (2/20/08) generated what's called a "bottoming tail hammer". It's a signal that a possible reversal is coming. Look for a close above Friday's opening price for further confirmation.

2. The MACD indicator barely shows some divergence. Meaning, the SPX (S&P 500) has gone lower on less momentum. 1/20/09 the MACD delta was at -9.15 and SPX closed at 805. 2/20/09 the MACD delta was at -6.34 and closed at 770.05.

3. The Stochastic indicator is WAY WAY WAY oversold indicating that a pull-up in the markets could be soon (I don't personally put a lot of weight on this indicator).

But here's what's important...I could be dead wrong! And I'm ok with that; the point is that I believe there's a low risk entry here to go 'long', because if I'm wrong, I'll lose very little.

Never FOCUS on how much you can make with a trade; FOCUS first on how much you could lose!

Happy Trading,

-Matt J

Fractal Dimensions

For those of you looking for something to fill in some time...

http://www.fractalfinance.com/ fracdimin.html

That's an interesting read.

Ichimoku Kinko Hyo

To further show my nerdiness; below is a chart of a successful trade if you were to follow the Ichimoku Kinko Hyo trading system...Jarred sent me this screen shot and it's a textbook example. His chart is below...This would have been ~120 pip gain...which again, on 10 full contracts; that would be $12K in about.....2 hours. Any takers?

2 Things

#1. We've slowly started to lift higher this week as I was saying last week that we should. We broke the down trend line from the past several trading sessions, so things are looking good. We still have a few economic indicators left to get through and that could really determine whether we stay up or go back down to last week's levels...Personally, I think net/net we'll stay up for the week.
#2. I've revisited a trading strategy and I'm going to focus a lot of my time on learning this system for currency trades. It's called "Ichimoku Kinko Hyo". The picture of the system is below and don't ask me how to read it or what it even stands for because I have no idea. The 'expectancy rate' is high for this so I'm hopeful it'll produce good results. I'll keep you posted and yes, I'm a nerd; an ambitious one at that!

The Coming Week

Take a look at the below charts...In my opinion, I'm looking for a bullish move (upward move) to be coming...I don't know when but based off of the charts below here's why I came to this conclusion (it might be elementary...but nonetheless here it is)....

Below, the S&P 500 chart...I should have listed the DJI but we've following this one so I'll stay with this for a little bit longer. This is/has been sitting on a longer term support with stochastics looking to turn to the upside...This, along with the rest of the markets, kind of consolidated for about 4 days...It has to pick a direction soon.

The EUR/JPY (pictured below) is a currency pair that follows the US Markets. If the US Markets go up, then this goes up...and vice-versa. That being said, from a technical perspective, the "hammer's" that have been forming for the last 3-4 trading sessions is an indication that a reversal could be in order...so if the EUR/JPY goes up; then we could anticipate that the US Markets will too (The EUR/JPY follows the $DJI better than the $SPX)...

Lastly, we have TLT (pictured below). Which is basically Bonds. And as you can see the bond market has been on fire! But, from another technical perspective, the "head and shoulder's" pattern formed up and the trading broke the 'neck-line' (the black line you see). As a general rule of thumb, if the neckline is broke then the movement of that security should fall the same amount as it rose from neckline (black-line) to the top of the head (122'ish). Assuming that is true, we could GUESS that TLT could move to 100'ish.

The thing about TLT and the bonds is that...Apparently, money is coming out of those 'avenue's' or means of investing. Usually, when stock markets get really crappy, institutions will put there money into Bonds (hence why TLT has had such a great run). Conversely, with TLT coming down and the prospect of it going down further, Money is flowing out of bonds and more than likely back into stocks...That being said, stocks haven't really moved all that much which is why I'm expecting a move higher from where we now sit...

But again, just an opinion and I'm often dead wrong.