Monday, October 28, 2013

FREECharts.com Markets Eerily Quiet Up Here At The Top

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Markets Eerily Quiet Up Here At The Top

October 28, 2013
In This Issue
Details of Next Market Collapse
December E Mini vs December Bonds
December Gold
December Soymeal
December Suisse

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Dear Friend,

 

Today I was scouring through a number of articles from a variety of sources. While doing so, I saw an article regarding what all of us really already know and most of us will actually admit. 

 

The current economic policies are not working now and it does not look like things are going to experience a great deal of improvement in the next few years until the damage can be undone.

 

With more people on some form of "means tested" benefit from the government than there are full time year round employees in America, can anyone really say the economic policies are working and the decisions this politicians and bankers are making have no impact on our portfolios? 

 

Then I read another article indicating the stock market is completely being supported by the QE program and when that ends, the stock market will pancake. For many of us, this comes as no surprise but for a more mainstream outlet to admit the obvious was a bit of surprise.

 

It was reported that virtually 100% of the increase in the stock market since the QE's began, came during the times the QE was actually taking place in terms of auctions and sales of treasuries.

 

The reason we should be keeping ourselves aware of these kinds of things is so we can position ourselves accordingly in the event we do suffer an economic downturn. 

 

Clearly the debt America has is going to impact us in one way or another. The interest is approaching 1/2 of $1trillion per year. If interest rates double as they did in a 60 day period earlier this year when the Japanese and the Chinese allegedly sold $42billion of treasuries, we could see interest rates well over 7%. If that were to happen, interest on our current debt would be over $1trillion per year or roughly 42% of tax revenues. 

 

Several problems with that formula. The government continues to accumulate additional debt, and tax revenues are not increasing. Many tax payers of the past have moved over the the debit column as they are no longer contributors due to retirement or lack of employment in which case they are now receiving from the government rather than paying into it.

 

As we look at various markets, we may want to use a variety of indicators or studies. These are the ones I use in addition to the normal 9 and 18 day moving average (dma). 

 

I use the Relative Strength Index (RSI) as I believe it tells me if bulls or bears are controlling the market and are more bulls or are more bears getting into the market. If the RSI is 70 or above, this would be an indication that market may be overbought. Conversely, should the RSI read 30 or below, this would be an indication the market may be oversold and the market may be turning around and heading up.

 

I also use stochastics as a trend indicator. This can indicate a trend is beginning, in the heart of the trend, or if the trend has run out of steam and is about to turn around in that particular market.

 

The Average Directional Indicator Index (ADX) tells me about the strength of the trend but not the direction. A number of say 28 in the ADX could very well mean an upward or a downward trend is strong. Below 16 and a trend is suspect and looking weak.

 

As far as moving averages, they can be various lengths and used for a variety of indications. I like seeing the trend lines cross over. Trendlines moving fairly close together and parallel do not inspire me. Looking for a break and a turning of the longer trend line to match the shorter trend line, not that can be significant.

 

When you find some indicators you find helpful, write them down and all the rules that go with that indicator or set of indicators. If that is neglected, you very well may suffer what more than a few professional traders have experienced. Style drift. Our mind remembers the trading parameters one way and the original ideas are quite different. 

 

This generally does not happen overnight but is rather a longer-term gradual process. The incrementally small changes don't seem like much until 6 months down the road one realizes what they are doing now is quite different than what they had been doing when their system tested out and performed well.

 

Keeping good records and limiting losses is critical. Each trade should be scripted with everything written down. I know you have heard this little axiom before, fail to plan and plan to fail. 

 

We have to have a well thought out and tested trading plan as well as a money management system in place. Money management may be the most important part of trading. Don't let those losses run away with you. If they get a chance, they will. 

 

It is almost as if the market is a living breathing adversary who has a mind and will with an agenda to take your money. Match wits with this guy and we better have a defenseable plan as to why we got into this market and how we are going to protect ourselves and our money.

 

This may be one of the more overlooked aspects of trading but it will help you hold yourself accountable. Trading discipline is also automatic when you do this. Stops and profit objectives are usually placed as contingents and are placed as soon as the opening position is filled. If your system can't do that, let me know and we can get you hooked up on a platform that will do it for you once you tell it what you expect. You can email me RBiggs@FREECharts.com and I will do what I can for you. 

 

 

 

 

 

 


 

 

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December E Mini 

 

With the government showing no signs of discontinuing the QE programs, it looks like the market may be continuing up, as I mentioned several times in the past few weeks. 

 

They know what all this means and what it means to the economy and the currency. It seems to bother them very little. For those of us who do not have a treasury secretary or a Fed chairman in our pocket, it looks like it is on us. 

 

Take a look at this chart and we can see if it does look like we could be turning down anytime soon.

 

 The trend is continuing so it would appear the QE will continue at least until Ms. Yellin is installed. The RSI is up slightly, the ADX is well over 16 and stochastics look like they are up slightly as well.

 

 

 Another indication the stock market may be traveling higher for the moment is the lack of strength to the upside with the treasuries. Look at the past 4 days. Very narrow range of trading. The indicators are going to catch up with this market before long and they will suffer more likely that not.

 

 

 

 

 

 

 

 

 

 

December Gold

 

We were trying to get long since last night with the December gold. No joy there. And probably a good thing. Gold did go up slightly but spent much of the day in negative or neutral territory. 

 

I wanted to get long if the contract went above 135900 because I wanted to see if the trend would be continuing. If the market has the energy to get up there, I felt like it could make a pretty good run up to perhaps the 137100 area. 

 

 Everything still looks up but the trends are showing more downside to me than upside so whether I look at gold again soon or not, I am just not sure.

 

We will see what happens but it seems if the currency experiences any ripples, gold could skyrocket.

 

On the other hand, if things are like 2008, then a slow gradual grinding will cause the fund managers to cover positions they have taken using margin accounts. To raise money, they will sell tangibles and then the prices will initially come down.

 

As the supplies are depleted from these wholesalers, then expect the prices to jump assuming there is someone out there to trade with and there is some way of communicating prices. If not, then everything is worth pretty much what it was worth on the fateful day.

 

The RSI is up but not too high. The stochastics looks like the trend has been up and now is beginning to show a bending and perhaps a new price direction coming very soon. 

 

I would be looking for either a consolidation soon or perhaps a pullback to the 1330 area until gold can get strong enough to break through to the 1425 area again.

 

It appears to me as if the retracement has been done so I would suggest trading accordingly. 

  


December Soymeal

 

Soymeal is another market we tried to get into last night if the market would cooperate. It did not. We were looking for the upward trend to continue and for me to put any money at risk, a market has to deserve it by moving along it's current trend. We were going to buy in if the market got up to 428.50 but as you can see in the chart, that did not happen. 

 

I do that because it makes the trend confirm itself and then I am buying on strength when my indicators are telling me to go long and we are selling on weakness when the market is telling me to go short.

 

 

 Now some folks like to jump right in when the market opens because they don't want to miss a tick. I like to see how she opens if I can and clearly the soymeal did not earn our respect last night or today. 

 

Good thing our trading rules are what they are as this could have been an ugly trade but making the market come up for us prevented us from getting in a falling market.

 

We will look at it again tonight but it seems now the soymeal is going to have an even further distance to be a worthy trade set up. 

 

The indicators are not being too friendly to this market either. The RSI is down, stochastics down, the ADX is down. Not much here to encourage me to get into this on the longside but the short side just has not kicked in yet.

 

Sometimes the indicators are just a little behind. If you find yourself in that position, don't get anxious. Just wait for the market to give you what you want. 

 

Remember, it is better to wish you were in a trade than to wish you were out of a trade. That is the voice of experience saying that with the battle scars to prove it.

December Suisse

We looked at getting into the Suisse last night as well but same as soymeal. The market looked like it may be going up only to fall back. I like to make the market work for our money and to prove it is going to continue. Our buy was at 11255 and never reached that point. So...no trade for us last night or today in the Suisse. 

Now things look a little negative so this market is of no interest at the moment.


I mention these last few because at times we are beneficiaries of missed trades because the rules preclude a market from being eligible to have my clients risk any money in them. 

As much as I would like to get in trades and make them money, I have to remember success is like eating an elephant. One bite at a time. There will be a number of smaller winners and occasionally you may have a big winner. 

Good money management will keep you going until the right trades show up so don't get over anxious or too eager. Winners will come and so will losers. Just stick to your plan and with solid money management, I believe things will turn out good.   

If there is a stock or commodity you have a question about, let me know. I will try to get back to you as quickly as possible and perhaps include your question in the next newsletter.

Hope you have a nice Halloween. Be careful and eat way too much candy. If you have some interesting costume pictures, send them in and I will put them into a future newsletter. 

Email me RBiggs@FREECharts.com with any questions or suggestions you have and I will get back to you as soon as possible.  
Sincerely,

 

Robert Biggs
Robert Biggs
FREECharts.com
Disclaimer: There is substantial risk in trading futures and options on futures. Past performance is not necessarily indicative of future results. You may make money or you may lose money regardless of whether you or an industry professional manages your account.
  

 

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