The Inter-Market (by Faces In Cabs)

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I began visiting Slope of Hope back in 2007.  I opened my first trading account in 1999, began trading my own money, and started learning about fundamental investing by subscribing to IBD (Investor’s Business Daily) and the Motley Fool.  By 2002, I began learning about technical analysis through Stockcharts.  For years now, I have maintained a folder of 115 to 120 market charts that I review daily.  I am sharing some of them here.  Feel free to make your own charts from them.  I agree with Alexander Elder that to develop as a trader, you must make the tools that you use, your own.

For those not familiar with my trading style, I focus frequently on inter-market relationships to find arbitrage-like trading opportunities in the markets.  My charting has been greatly influenced by John Murphy.  I like to short-term trade (many times) the context created when inter-market forces line up for a directional move, as it helps me grab a higher percentage of the channel once a directional move emerges.  I grade my own trades upon the percentage that I take out of the channel.

Current Inter-Market Observations

  • For several weeks, the Bond Yields have continued to pull back to 14 month lows (indicating deflation) as POMO resources are lowered by the Fed, while equities have proceeded to higher highs on ever lowering market volume and dwindling summer time participation.  These two processes have created a STRONGLY diverging relationship between equities and yields.
  • Despite its lowered $15B to $20B in monthly POMO, the Fed’s intervention process is still influencing the markets.  This is primarily due to the light market volume (e.g., it does not take a lot of Fed juice and bond activity to influence the markets).
  • The Euro has finally eased back and the US Dollar has maintained a trend up (pressuring gold to a flat range).  Because of this (and other factors), I do not see a high probability for a gold or silver directional move at present.  I have left the PM’s alone.
  • Overall, US equities appear to be lingering into a topping or basing process with the NASDAQ 100 remaining inches away from newer 13 year highs.  Tech remains the clear price leader on nearly a daily basis.  It’s parabolic trend remains up and unbroken, but I would strongly hold forth that many tech charts (including the $NDX itself) are looking similar to 1999.  In contrast, the semi’s ($SOX) have presented a downward shock event over the last week.  Something is brewing in tech finally (and this is worth watching).
  • Finally, many areas of the world are teetering into (or are already in) turmoil – including Argentina, Turkey, Russia, Israel, and Iraq.  Some of these economic challenges are reflected in currency trades, but for the most part, the US equities have ignored these news events.  HOWEVER, this morning Argentina is finally having to face the realities of its debt dilemma with multiple US creditors after the S&P rating agency made the country’s default ‘official’.  Dow market futures are down nearly 100, as I write this.

A Short Trade I (Still) Like

Most recently, I have been aggressively shorting the small cap’s, as they continue to display relative weakness to other areas.  In the last week, I have noticed IWM selling days coming on much higher volume (than up days) in this sector.  Here are some charts supporting my comments.

http://tinyurl.com/l9gq34r (a recent small cap short set up)

http://tinyurl.com/ke5wfjy (weekly picture shows relative weakness)

http://tinyurl.com/n66znuw (an important ratio for small cap direction)

In closing, I have been away from blogging for 2 years now (and I have not posted on Slope in nearly 3 years).  I have committed to Iggy to provide some blog posts while Tim is away.  This is my first post.  So, until next time, with my bearish paws together and a slight bow of my head, I now bid you “Namaste” and wish you “Good Luck” with your own trading (Luck equals Preparation plus Opportunity plus a little Risk).

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