Bearish Divergence

So I decided to post; which I haven't done in a long time...The chart below of the S&P500 is where we are as of today (4/28/09). Personally, I'm expecting a pull back. And to be honest I've been expecting one for several days. The reason being is because of the divergence between price action and MACD (the middle technical indicator below - it's a measure of momentum). Well, for a long while now, the price of the SPX has been going higher but momentum has been getting weaker and weaker and weaker. Look at the black lines I drew (price goes up, MACD going down)....Also, we're up against resistance at the 875 level and I don't see us busting through that level any time soon. Too much over head supply/congestion....and speaking of congestion, sorry if you can't read my chart because of all the other crap I've got drawn.



To show my observation/thought again....take a look at the 2 year/daily chart below (without all my crap drawn). It might be hard to see it but the same story has happened a few times in the past. Again, the chart below has price action moving up (gray arrow) with divergence on the MACD (black circle(s))...following this kind of divergence pattern, you can see how the price action followed (Maroon arrow - IT WENT DOWN!). Some of the divergences are harder to see than others but the same principle applies. So the questions that pops into my mind is, "Are we seeing this same pattern and should we expect a pullback?". My answer is yes...

All in all, just be careful if your trading to the upside. I feel like there's less risk playing it to the downside but nonetheless, I could be wrong...I frequently am.

-Matt J

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!