Thursday, January 25, 2018

It's do-or-die time for the 3K parabola



Have the last two days of sideways tape built up enough tension to launch us north into the January FOMC meeting?  We will need to put in a blistering 140 pts in 4 sessions to hit the 3,000 target, a truly vertical move.

SPX parabola

This is how it ends?

44 comments:

Kevin Wilde said...

I'm expecting a brutal prolonged period of high volatility sideways churn, where selling the rips and buying the scary dips will deliver fantastic returns. How the overall pattern plays out will determine whether 2018 ends in new highs for the bulls, or outright misery for them. Worry more about the trading plan to play the coming volatile swings, than which side will eventually wins.

T.Berry, let me explain how the ADX (of the DMI indicator) works, and how to use it. A rising ADX indicates strong momentum with what ever trend is in play, where one would expect contrarian indicators - like WMS%R and stochastics - fail to work, due to overbought stays overbought. A falling ADX indicates weak momentum with the trend, thus expect contrarian indicators - like WMS%R and stochastics - to work very well, where the stock market swings back and forth from overbought to oversold back to oversold and so on, while the ADX is falling. History shows that the ADX can only go so high before it reverts back to the starting line. Currently, the weekly ADX is nearing the super high level we saw going into 2009, when the hard bear trend back then - rising ADX - peaked and started to turn down to signal the bear was ending. But the point is, hard trend moves always end, and the ADX is a great way to forecast and track that ending. I use both the weekly and daily ADX on the NASDAQ for my trading. I remain 1/2 in QLD (thus 100% long QQQ) and will sell another 1/2 if the NAZ hits 7621. I continue to hold TZA and UVXY/TVIX hedges. Last year was a great year for trend following - which my strategy primarily is - while 2018 should be a year where the hedging side of the strategy performs fantastically, while trend following struggles. Following the trend, while adjusting exposure at extremes around the trend, is the optimal trading approach. While the trend remains up, risk is extremely high, with NAZ 7621 akin to the March 2000 high just above NAZ 5300, and we all know what happened after that, right?

Hugh Jazole said...

Otoya sure knew how to butcher a hog.

Bicycle said...

it's going to be extremely close

but if complete it puts the e-wave in on the big rally channel

e-wave on inflation-adjusted DJIA gigantic rising wedge is preserved by dollar currency movements recently

Feb gonna be a big red candle. maybe the biggest monthly red candle, ever.

that is at least until the c-wave hits

Christian Gustafson said...

$IRX 13 week Treasury at 138 bps today is below its recent high of 143.5.

If it keeps getting bought, then no Fed hike next week, right?

Bicycle said...

i still think powell will surprise hike at Jan FOMC

infrastructure bill --> lots of new borrowing of dollars --> they will want to hike for dollar strength at the time of borrowing, this is why Trump talked down Mnuchin's weak dollar comments

if you're going to borrow a dollar, you want it to be strong at the time you're going to put that borrowing to use

and weak when you have to go pay it off

they should never be doing this infra bill with new borrowing, it is a huge mistake that will set bonds on a gigantic bear market and it will get out of their control. At the top here if they want to do this to help the inequality they should be heavily taxing capital gains (ill-gotten gains with no labor effort) and raising the top marginal rate to pay for it

but Trump's a billionaire and so are his buddies, and that goes against their ethos

it will be their undoing

Bicycle said...

most extreme deviation outside the monthly top bollinger since 1987

T.Berry said...

15 record highs ytd

no plans to sell anytime soon still no reason to especially with the effects of the tax cuts coming and the infrastructure bill around the corner

2018 shaping up to be an epic year of stock market gains don't be under invested

T.Berry said...

no hurry to get to 3000 it's coming his year after all it's just a stop on our trek to 4000 and then some



Bicycle said...

i'll pray for you next week T. Berry

i need to dig out my old rosary for what's coming anyways

T.Berry said...
This comment has been removed by the author.
T.Berry said...

oh don't forget

FREE BEER TOMORROW LOL

T.Berry said...

and see we had huge volume today just another good sign this bull is firing on a cylinders

Just need to get past next week I guess lol

Kevin Wilde said...

A rare week when my hedges make more than double the return on my QLD position. Take that every week! (though the divergence of the VIX tis a warning to the bulls, me thinks)

Hugh Jazole said...

Gee, who's mentioned this before!?

http://www.mcoscillator.com/learning_center/weekly_chart/finally_an_actual_use_for_bitcoin/

"The DJIA’s movements are matching those of Bitcoin 8 weeks prior."

Hugh Jazole said...

What’s the Fed’s strategy now, and how do you think it will turn out?

"They’re not only raising interest rates but starting to sell off their huge portfolio. They’ve had this lack of success with just raising interest rates for over a century. Selling off the portfolio is newer and exotic, and they’ve never had anything the size of $4.5 trillion. So I think the odds of their pulling [all of] it off successfully are zilch."

Gary Shilling

T.Berry said...

gary SHILLing. can't admit the fed got it spot-on this time. the stock market is 1% off all time record high and the SHILL's come crawling out. lol

Hugh Jazole said...

Look out T. Berry, the VIX always comes back! LOL

T.Berry said...

good luck with that hugh---the vix hit 89 back in oct 2008 about the time the dow jones hit the lows 8000. the dow jones just closed 1.5% from record all time high 26,150. keep waiting lol.

januar in the books and....

the dow jones is already up 5.8% ytd


as january goes so goes the year....maybe bicycle will redirect his prayers lol

Kevin Wilde said...

The trading environment is one where doing the opposite of everyone else at extremes, thus buy when the markets crack and the VIX soars to the 20-30 range and everyone thinks the markets are about to crash, then sell when the markets recover for a few weeks and everyone thinks we're off to new highs. The pattern should look something like this: January high, March low, June lower high, September lower low. Where the indexes sit in October will dictate whether we head to new highs to end the year, or head to new lows for the year. The FED no longer buying bonds while the US issues more and more treasuries is a game-changer, and yields may very well soar due to a lack of buyers. Politics could also get nasty this year as a build up to the mid-term elections, so look for that to deliver some major vol too.

T.Berry said...

but what about the 50-90% crash that was supposed to happen last fall ? maybe next year?

or maybe after the dow jones hits 40,000?

Kevin Wilde said...

We remain on top watch, and the markets will remain in blow off bull mode till it sucks in all money possible then like a rocket flaming out it will fall back to earth.

There's the trend - up all of last year - then there's extreme movement way above the trend (high risk for bulls), and movement reversion to mean back to trend (low risk for bulls,) where risk is defined as if the degree of losses buyers at that point would suffer if markets slide into a trend sell condition.

1st high risk sell last year was NAZ 6205 and I sold 1/2 of my QLD (home run #1.)
Then I reentered full QLD position on low risk reversion at NAZ 6089
2nd high risk sell landed at NAZ 6862 and I sold 1/2 QLD
Then reversion to low risk entry at NAZ 6774.
3rd high risk sell target is 7621, which we came within 100 points of last week.

Over the past century, there has only been three times we saw 3 back to back home runs, and two of them triggered a sell right after. Thus, only once in the history of the modern stock market has there been a fourth home run for the bulls, and that was March of 2000.

Sooooo, odds are very strong we see a change in trend from up to down for the NAZ before we see NAZ 7621 hit, and if 7621 is hit, that should see a trend sell very soon after. If we blow through that number, then we B in March of 2000.

My plan remains the same: sell 1/2 at NAZ 7621, sell all at 8574, go short on trend sell, whenever that occurs. History puts odds of trend sell before NAZ 7621 is hit at 85%, with a 10% chance we see trend sell immediately after 7621 is kissed, and 5% chance we repeat the mega blow-off into 8574 (and crash afterwards.)

Let's see how comfortable to bulls feel when the trend turns negative, and the amount of losses they allow their portfolios to suffer before they panic and sell to complete the buy high sell low round trip again.

T.Berry said...

nas will be well over 10k (probably closer to 12,000)by the time the dow jones is 40,000

no reason to sell if you're in for the long haul. the us economy hasn't been this strong in decades and the effects of the tax cuts haven't been seen yet nor the effects of a 1.5 TRILLION dollar infrastructure bill.


the odds of a 80% sell off is about as close to zero as you can get. pretty much the same as in 2012.

we start year 10 of the bull in about a month. think 5th inning :)

there is no better time to be invested in america!

T.Berry said...

6850? was thee top?

T.Berry said...

bicycle,

you might want to say some prayers for the perma-bears. they've been getting pounded pretty hard since the final high in 2012. the next 4-5 year isn't going to be much better.

Kevin Wilde said...

"6850? was thee top?"

That was home run #2 last year, and I took leverage off at that time by selling 1/2 my QLD at 6862 (the close the day the NAZ crossed above the 6850 target. Re-entry was the pullback to 6774, with the next home run target NAZ 7621. If we get that, then I sell all my QLD and go 50% long QQQ (so going +200 exposure to +50%, plus increase hedges.)

Yes, one could bet big on a prolonged bull market, though why someone would want to take such a risk is beyond me. People who took such risk last year made a nice 20% gain, while I made a 66% profit, while taking way less risk than betting on a secular bull.

Economic data at extremes is a proven approach, though only a contrarian one, where when should be very conservative and looking for an exit when the economy is doing well and expected to do well, while investing very aggressively and looking to buy when the economy sucks and is expected to get worse.

Do not confuse what has happened, to what happens next.

T.Berry said...

risk? in a secular bull? LOL. not everyone can hit homers like you kevin. i'm just a joe six pack and happy with 28+% last year which likely doesn't compare with all you ta'ers. i just invest based on fundamentals, price average and stay in for the long haul. works 100% of the time thanks.

keep buying those tvix's and uvxy's someones got to :)

T.Berry said...

Blogger Kevin Wilde said...
"6850? was thee top?"

That was home run #2 last year,


lol. how so? the top but not the real one? lol

Kevin Wilde said...

T.Berry, at the time NAZ 6850 represented a high risk area because there was a 95% prob the markets would pullback 3 to 5%, and a 80% prob that such a pullback would lead to a change in trend AFTER a 5% drop. Anyone long QLD at that time would give back 10 to 15% if a change in trend happens, and give back 10% even if the dip held and we headed to new highs. Selling 1/2 on high risk, then rebuying on the dip once it hit the low risk entry zone makes more money than buy and hold, and makes sense from a risk management point of view. Loading up on QLD on a dip, then selling on a major rip that delivers a quick 25% to 35% profit is what is deemed a home run. They do happen often as single events, so too doubles - where one sells at the home run #1 hits the high risk zone and rebuying on a pullback to low risk zone loaded for hopefully home run #2 - though three back to back home runs are very rare, and four only happened once (going into the March 2000 bubble peak.) If you are not interested in making and keeping money once made, then fine with me, just buy and hold and watch it rise and fall and rise and fall and fall and rise and fall. Good luck, as you will need it when this bubble blows up, like it is sure to do.

Kevin Wilde said...

Mart'n A just out with a "A close below 25975 confirms correction on, targeting a March low near Dow 22K."

If we get that, buy with both fists in March, though it is critical that we don't see a blow through below Dow 22K prior to March.

Hugh Jazole said...

Imho, the real buying opportunity will be in the later summer/fall. I seriously doubt we'll see 22K next month.

Bicycle said...

DJIA now down a thousand points, T. Berry, I am still praying for you, are you a buyer here?

Bicycle said...

4 of 5 now in a rising broadening wedge on the DJIA/SPX, might see a pretty good E wave bounce here to new highs

Bicycle said...

...or not...

praying, still praying

Hugh Jazole said...

Just bagged a 56% gain on UVXY T. Berry!

T.Berry said...

thanks bicycle but we'll be just fine. no works here.

hugh, we'll add you to the home run hitter list. we sure will. btw when did you get in uvxy?????

T.Berry said...

meant no worries here lol.


Christian Gustafson said...

IMO bullish case for equities is that $TNX now needs to back-test its breakout over the long-term resistance it punctured.

When it successfully retests, at maybe 2.485 next week, then we are off to the races on interest rates, and equities will finally begin the "A" leg of the 2018 crash.

T.Berry said...

just shorted some vxx @ 33.50.

Hugh Jazole said...

"when did you get in uvxy" January 9th.

Hugh Jazole said...

The market is likely to come roaring back in the short term. It needs to mindfuck as many people as possible before the real correction later this year.

T.Berry said...

must have missed that post hugh . great move buying at the 52 week lows. are you holding till it gets back to 35,304? i know you said the vix ALWAYS comes back . LOL hey its the internet everyone makes great trades LOL

Hugh Jazole said...

"must have missed that post hugh" That's because I didn't post it! I wouldn't want to give anyone the schadenfreude satisfaction if it had gone south. I might actually get back in a few weeks from now, maybe I'll post that one! UVXY is headed MUCH higher later in the year.

John said...

http://money.cnn.com/quote/quote.html?symb=TNX

January 31 – Wall Street Journal (Kate Davidson and Daniel Kruger): “For decades, the U.S. government could issue as much debt as it needed to finance deficits without worrying about how it affected financial markets or the economy. That might be changing. Treasury yields are rising, some investors think, in part because the supply of government bonds hitting financial markets is on the rise as budget deficits rise as a result of the Trump administration’s recent $1.5 trillion tax cut. The Treasury said… that the size of its regular auctions of bills, notes and bonds were going up in the coming months. A group of private banks that advise the Treasury—known as Treasury Borrowing Advisory Committee, or TBAC—estimated the Treasury would need to borrow on net $955 billion in the fiscal year that ends Sep. 30, up substantially from $519 billion the previous fiscal year… The TBAC group estimated that would rise further to $1.083 trillion in fiscal 2019 and $1.128 trillion in fiscal 2020.”

"The reason that an increase in government debt always matters, regardless of whether the debt ever gets repaid in full or even in part, is that unless the debt investors have access to a virtual printing press then every additional dollar invested in government debt implies a dollar less invested in the private sector. It must be this way because the dollars that are invested in government debt have to come from somewhere. If they aren’t being created out of nothing by the central bank or a commercial bank* then they must be drawn away from alternative investments."

TSI blog

Bicycle said...

bonds also under pressure because of repatriation of corporate cash held in treasuries. also due to tax bill. get out at the top and the exit door is very narrow