A Reliabe Indicator For Major Market Moves

One indicator that I watch rarely gives signals, but it is worth listening to when it does give a signal. It is the regular MACD applied to the monthly chart of the S&P 500. This indicator alone has called some major market turns. Also, I think that it works as a good filter for telling you when to be long and when to be short (or out of the market if you don't short).

As a rule of thumb, you should be long when the signal line (aqua blue line) is above the exponential moving average (gray line). This rule will keep you in the same direction as the long term trend, which is generally a good place to be. Here's the monthly chart from an excellent website, freestockcharts.com:Through experience, I have noticed that MACD crossover signals tend to be more reliable when they are sharply made and there is a wide margin between the lines just before and after the cross. That looks to be the case right now. Obviously this signal is not 100% because NOTHING is a sure thing...but this signal is worth keeping an eye on and it might give me the confindence to stick with my long positions when I am hearing all of the chatter about how the market is about to crash. The fact is that we are currently in an uptrend, and I believe in staying long until the trend is over. From the looks of the above chart, we've still got some room to move up in the S&P.

TLT

Weekly Wisdom Quote

"Most successful traders at some stage have a breakthrough, an Aha! experience. Often this is not new information, or a new approach, but the time was just right, they had matured and were ready to ‘see’ in a new way, to apprehend things clearly on a conceptual level, rather than a technical level."

Dirk Du Toit
Bird Watching In Lion Country

Copper

I like the look of Copper right now. The commodity has already had quite a move, but I think there's more left in it. Why do I think that? The Commitment of Traders (C.O.T.) data. The commitment of traders is the data that is required to be reported by large traders and commercial speculators and it can help with timing trades. Here's a great site were you can see commodity charts with COT data.

So how does the COT data work? Well, traders and commercial hedgers that hold large enough positions must disclose there positions to the Commodities Futures Trading Commission (CFTC) and then the CFTC releases this data every Friday. Traders look at this data to get an idea of what commodities capital is flowing into and out of.

As a rule of thumb, prices will go in the direction of the large traders because they are taking large directional positions in the commodity and prices will go the opposite way of the commercials because commercials are hedging. This rule of thumb works for a while, but eventually extreme readings will occur and this is often a sign that the trend will be ending. I like to look for a cross of the Large Traders and Commercials (see the chart below). When the Large Traders line crosses the Commercials, usually around the zero line, the commodity will continue in the general direction of the already present trend. That is what's going on with Copper right now. Here's a chart:Note the extreme readings in the COT data that were registered right after Copper hit its bottom. So we like the trend in copper and we believe that it will continue for a little while because of the COT readings...what now? Well, we either take direct positions in copper via futures contracts, options, or an etf, or we buy stocks.

Here are a couple of copper stocks that are worth looking into. The first is FCX. I took a position in this stock on Thursday. Here's the chart:Another good copper stock is PCU. Here's its chart:Both of these look like great trades right now. I have not put on a position in PCU but I do have both stocks on my watchlist. I encourage you to check out the COT data for various commodities and currencies if you do not already. It does not necessarily provide pinpoint entries and exits (that's what technical analysis is for) but it can help in spotting major pivot points and also provide a confirmation of trends that are already present.

Have a great weekend.

TLT

Keep An Eye On Regional Banking (KRE)

This one is definitely worth keeping on your radar screen. Here's the chart:I love trading breakouts from a bull flag pattern. I don't follow too many chart patterns, but I consider flags to be worth paying attention to. When stocks run up in price, like what just occurred with KRE, the stock sometimes enters a tight congestion pattern as it recharges its batteries. This congestion is the "flag" pattern and breakouts after the flag pattern tend to have a higher chance of being a true breakout that is worth trading. It's like a coiled spring that is suddenly released.

Be ready to jump in if this stock breaks out above that upper line of the flag pattern.

TLT

More AAPL

After my last look at Apple, which was not very long ago, I concluded that I wanted to buy around the 138-140 range. Well, that ship might have sailed, or at least it seems that way. One thing that you have to do when trading is be open to changing plans. I'm not saying that I will not buy in the previously mentioned range, but the current chart seems to indicate that a short term (and very tradeable) bottom my form above my target entry range. Here's the daily chart: I may have drawn the current price box a little too tight and I would not be that surprised to see the price fall back to the 145-150 level. The key is to let the market make the bottom. How will we know if the market makes a short term bottom? Watch the support levels and the BB Width. If AAPL bounces off a support level, lets say 155, and the BB Width hits a new low and levels off, then we know that a bottom is likely occuring.

I will look to buy while the BB Width is low, before it breaks out to new short term highs. This helps you get in the trade while the stock is still consolidating which allows a better risk to reward trade because you're getting into the stock prior to the next big advance in the stock. And what if the stock fails to advance to new highs? Dump it if it falls below the prior bottom.

It's impossible to say how much is left in this stock because it seems to be a very crowded trade, but don't underestimate a market leader like Apple in a short term bull market (which we are currently in).

Have a good day.

TLT

The Weekly S&P 500 Chart

I hope everyone is off to a good start this week. I had to take a little hiatus last week, hence the lack of posting, because I had to prepare for a criminal jury trial that was supposed to start this morning. After spending most of last week preparing, I found out just yesterday that the government's key and also necessary, witness was not going to testify and hence, the charges were dropped against my client. This is great because now I get to get back in touch with the market.

I thought that looking at a weekly chart of the S&P 500 would be in order because the longer time frame chart helps us stay in touch with where the market is within the grander scheme of things. Personally, I think the equities markets will continue to rally for 3-6 months, with a few dips along the way and then they will hit some resistance and fall hard...very hard. Here's the weekly chart of the S&P with my TLT Trender v2, a stochastics and the fisher ma indicators. As you can see, the S&P is in buy mode according to the TLT Trender, but it is overbought according to the stochastics. Overbought readings on the stochastics are not uncommon during rallies, especially when the rallies are achieving new short term highs. I would not allow the stochastics alone to keep me out of the market, I would just take it as a word of caution. Now, if the stoch pulls back into neutral and maybe even into slightly oversold territory, then I will use it to determine when to buy the dip.

Also, I drew a box around some of the price action and posed the question of whether this area will be the new range. I would not be surprised if it does indeed turn out to be the range. The market will likely test the upper end of that range within the next 4-6 months, and the reaction to that test will be what is important to watch.

One other observation right now is that the Pound has pulled back a little from it's massive rally and this pullback may provide a good opporntunity to jump on board this trade if you're not alreay in it. Just make sure to set a hard stop and stick with it!

Have a great day.

TLT

Weekly Wisdom Quote

"Every man takes the limits of his own field of vision for the limits of the world."

Arthur Schopenhauer