Bill Cara’s Blog for Apr 9, 2012
CTA Trading Desk Morning Report
[9:00am ET] Good morning, Geoff here.
From my notes on April 5th:
“The US markets are closed on Friday and Europe has a holiday on Monday. That makes for a VERY long weekend for those who continue to worry about Europe.
I think it was a mistake for the jobs number to be released on Friday when the market is closed.
Many traders, including us, are doing more selling than buying following the Fed announcement. Not because of what they said (we believe that liquidity to infinity is in the cards) but how the market reacted. Various sell signals were generated as traders took gains. The S&P 500 has pretty good support at around the 1370 level which is a few percent lower than here.
As I have been saying for weeks, this rally is long in the tooth and some risk control is warranted. Our actions in the All-Weather and Growth strategies have been to take some gains, buy some hedges and lower the overall volatility by lowering the overall portfolio beta. With the upcoming long weekend, we may continue to take some other risk mitigating actions today.
With regards to gold, the dollar is lower this morning and gold is up a little.
A friend of mine recently said that good positions are built, not taken. With that in mind, building a good position in the metals complex over the next few weeks is important. Determine which securities you want to own at what price, both in the metals and in the miners, and build that position.”
Then on Friday, April 6th;
“Employment data was disappointing this morning as 120,000 jobs were added for the month of March. That is the lowest in 5 months and missed the expectations of 205,000.
This will probably bring new talk of a new QE program on the heels of the Fed suggesting that one is not needed.
Immediately, S&P futures were hit, dropping over 1% in 15 minues. Bonds and gold rallied.
Like I said yesterday, releasing this number on a holiday was the wrong thing to do. Event risk was the reason why risk mitigation was necessary and why we took that route this week.
Hope you are not sitting super long this weekend with no access to the markets.”
Today, it looks like the S&P 500 will be trading around the 1370 level that I mentioned last week. This level is an overlap of the 50 dma and the 2011 highs, not to the penny, but close enough. The question is; last week we took risk off, do we add that risk back to the portfolio at these levels?
One thing that I think is important to watch is AAPL. Until that bubble stock is broken, there will be strength in the market. In today’s RSI App, we see that AAPL is in the distribution zone, but hasn’t triggered a sell signal yet.
I also saw in the Stockcharts Technical Pattern data that Bill posted in the Week In Review that New 52-week highs were at 106 compared to last week’s 234. That number needs to drop some more before the market will top, but it is trending in that direction.
So, there are 2 things that we are watching that haven’t quite triggered a sell signal. What we need to see is how the market reacts today and if the 1370 level holds as support.
Bill noted in the Week in Review that unless traders think that plans are being made for more QE, that market strength will be hard to come by and I agree. Lets face it, expectations of future liquidity is what extended this recent run-up and when those expectations are removed, where will buyers in future weeks come from? With China talking about signs of inflation this morning (which is not new, btw), how will that affect traders views on future QE?
Bonds are rallying today and that is helping All-Weather.
From March 20th:
“Financial TV has made it abundantly clear that, and I quote; “there is no riskier place to be than in the 30 year Treasury Bond”. With all the bond bears around, it sounds to me like we may get a tradable bounce as the long bond approaches the 135 support level.
In the short run, it seems to me that the higher probability trade is to look for a long entry in bonds and an exit in stocks.”
The long bond ETF, TLT, is up over 4% since the talking heads were screaming for you to sell. We faded those shills and achieved a nice return for clients in just a few weeks in a security that many don’t trade at all.
As far as gold is concerned, don’t forget that the window for a higher probability buy is the last 2 weeks of April. If the stock market pulls the yellow metal down until then, look for that buying opportunity should it arise.
Overall, the recent portfolio changes are looking great in All-Weather and Growth and we hope you are not worried about selling stocks today. Watch how traders react to prices at these key levels.
Have a great trading day!
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||19.00 (0.93%)||Components, Chart, More|
||19.00 (0.84%)||Components, Chart, More|
||6.34 (0.19%)||Chart, More|
||8.80 (0.13%)||Components, Chart, More|
||1.62 (0.52%)||Chart, More|
|^OSEAX||OSE All Share||476.62
||5.16 (1.07%)||Components, Chart, More|
||0.00 (0.00%)||Components, Chart, More|
||3.30 (0.05%)||Components, Chart, More|
||19.90 (0.35%)||Components, Chart, More|
||7.60 (0.81%)||Chart, More|
||11.51 (0.77%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||707.60
||3.66 (0.52%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara on Trends & Cycles
Vad’s Catch of the Day
Kaimu’s Sound Money
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report