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Sunday, April 26, 2015

Weekend US market comment


Here's a chart of SPY, and after it I'll give you my thoughts:


Now, I guess those two lines make some sort of TA pattern, but only because they describe price action that gives us insight into market psychology.

The top line says that nobody's been excited enough to buy SPY into a breakout. Until Friday, when it broke out.

But the bottom line means the market has been more and more interested in buying the dips, so that SPY has been printing higher and higher lows. Culminating in Friday's breakout to the upside.

I haven't been posting many links to the gutter press because I don't like wasting your time and generating unneeded FUD; but you probably already know that Wall Street Whitey was freaked out over the past few months because

1. A vicious winter meant the Q1 data would be bad;
2. The LA port strike and the collapse in the oil patch would make a bad Q1 worse;
3. The continued USD price upmove and oil price collapse were generating fear, which encouraged selling instead of buying;
4. The Oil and USD moves also probably screwed up a lot of portfolios, meaning Whitey has been rebalancing for a few months, which also means selling instead of buying;
5. Anyone who still follows Dow Theory saw $TRAN topping and failing, which wouldn't encourage you to buy;
6. Market Republicans think the Fed is going to sabotage the US economy by raising rates with absolutely no regard to data, even despite the Fed's explicit explanations to the contrary.
7. Etc.

All those contributed to a shifting landscape which isn't conducive to buying.

Anyway, Q1 is well out of the way, and the data will improve going forward; oil and USD seem to have completed their moves; $TRAN is flying back up; and Rosengren gave Whitey a clear explanation of what's going to happen at the next few Fed meetings.

So the things that were happening all winter have stopped happening, and thus we've moved to solid ground now. And that should mean that price can move up from here, as selling pressure eases and all the panty-piddlers start buying again.

So I'd buy SPY or QQQ (in fact I've already bought QQQ-based ETFs exclusively). But I'd stay away from IWM, cos I have the impression that people were overbuying it recently in response to the USD move thinking that small-caps perform better in a rising-USD environment.

So maybe we can see another 5-10% advance in SPY or QQQ by June, and if we do I wouldn't be surprised if it came very fast. The panty-piddlers will be in a rush to stop being wrong-footed again.

And then maybe we'll get more churning consolidation in late May and June, because by then Whitey will have completely forgotten what Rosengren has told him, and we'll have gotten our first peeks at spring economic data, and we'll be back to piddling our panties about a looming 0.25% rate hike ooh scary.

But I don't think there's much need to keep eyes open for topping for a week or two.

I can appreciate the argument against being very long US right now, though, cos $VIX finished Friday at 12.29. But $VIX is only an index of demand for downside protection, nothing more; so I guess I should expect it to be low at a breakout, because nobody buys downside protection at a breakout.

As for gold?

Gold got monkey-hammered at 10:00:00.000 AM again, which was probably a setup for options expiry. So I'm not too concerned; the people who own the gold miners aren't puking, so they're probably seeing through this. I wouldn't expect an upward pop in gold in the next month, but I'm also not expecting a "final washout" either.

By the way:

A basic idea of information theory is that the less random a signal is, the more likely it is that it is information. So a hammerblow downward at a precise time, regularly over several days, is entirely intentional and has to be interpreted as information.

So I figure if gold regularly pukes at 10:00:00.000 AM, that means someone is trying to signal to the entire rest of the gold market that they want to puke the price of gold over the next few days, and please step aside til they're done.

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