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What happens in the market in the coming days can be defined by one simple line:
Above the line is what I consider to be a marvelous topping pattern; below the line is the madness that took place last Thursday as well as the recovery since then.
If we fall away from this line – – and, more importantly, take out the lows from this week – – it's Tumble Time. If we push above that red line, well, it's going to be a big, fat, mushy mess, because there's all kinds of overhead supply.
I received this interesting email earlier today, which I am publishing with the author's permission:
I benefit tremendously from your work and don't want to see you get screwed by the system. Holding FAZ last Thursday was a disturbing experience. The NASDAQ canceled all sell orders during the crash and into the close. I was lucky to exit in the after hours market, having been cheated out of 15% unrealized profits. This was a warning to all ETF holders.
Exposure to ETFs have serious hidden risks right now. The system wide lockout was almost entirely on ETFs. The cancels went to every retail broker, per TDAmeritrade's operations desk. There's nothing they can do when the exchange fails.
Anyone holding ETFs (particularly ultra shorts) won't be able to take profits on the next crash. These "stocks" are wholly based on derivatives products. They're unregulated instruments moonlighting on regulated exchanges. Instead of mortgage backed securities causing havoc, the next blow up will be interest rate and currency swaps. Same game, but on a different street corner. When these markets seize the underlying contracts won't get marked-to-market. Remember, they simply mimic an index. Imagine pricing SPY in reverse. If it was based on no-bid call options how would you price the index. When this happens exits on ETFs will be slammed shut.
Is anyone talking about this right now? Everyone trading ETFs needs to understand their true underlying market. Hopefully my research will be of use. Unfortunately, it's incomplete and disjointed as I decode the complex derivatives market, which I do not trade.
More background on the subject:
http://www.gamingthemarket.com/financial-armageddon- zombies.html
Below is my current list of stocks that I am using to short from. The
stocks below are either those that I have found to have ideal setups,
close to becoming ideal setups, or stocks (like Goldman Sachs – GS) that
have a level of intrigue that warrants inclusion on my list.
Nonetheless, you have my ideal stop-loss for each of the stocks listed
below.
A few of them became my pet short yesterday, in the likes of Balder
Electric (BEZ), ENI SPA (E), and Stryker (SYK). Should the market
provide me further opportunity, I will take a few more names off of this
list and add them to the portfolio as well.
Hope you all have a great day!
Universal Travel Group (UTA) – 9.58
Mastec (MTZ) – 13.36
United
Therapeutics (UTHR) – 59.55
ENI SPA (E) – 43.65
Eaton Vance (ETW)
– 13.66
Superior Well Services (SWSI) – 16.17
Willbros Group (WG)
– 13.55
Asml Holdings (ASML) – 34.05
Alcoa (AA) – 14.05
Allied
World Assurance (AWH) – 44.85
Jabil Circuit (JBL) – 17.35
Scholastic (SCHL) – 29.15
Netease.com
(NTES) – 37.45
Teletech Holdings (TTEC) – 17.87
Goldman Sachs (GS)
– 164.00
Zep Inc (ZEP) – 19.66
Autoliv (ALV) – 56.40
Baldor
Electric (BEZ) – 40.15
Emerson Electric (EMR) – 54.35
Eaton Vance
(EV) – 36.71
Edwards Life Sciences (EW) – 110.50
Live Nation
Entertainment (LYV) – 16.89
National Cinemedia (NCMI) – 21.06
Nu
Skin Enterprises (NUS) – 32.55
Stryker (SYK) – 60.50
Torchmark
(TMK) – 56.90
Unum (UNM) – 26.05
I don't think my nerves could handle movement like this (this is an IWM option over just the past couple of weeks):
My pattern work shows that gold and silver are in powerful uptrends, while crude oil and copper could be in the latter stages of completing a multi-month top. Indicative of a problem, perhaps due to China market weakness, for the industrial commodities? For whatever reasons, these commodities are no longer part of a homogenous group, and instead either are attracting or repelling capital inflows based on their own perceived fundamentals. Technically, let's notice that the angle of the 50-day EMA's warns us that the near-term oil and copper trend is in the process of rolling over.
Originally published on MPTrader.com.
