Bill Cara’s Blog for Feb 26, 2013
CTA Trading Desk Morning Report
[7:00am ET] Good morning, Geoff here.
The weak US Dollar that I mentioned prior to yesterday’s open ended up reversing, moving strongly to the upside. That strength pressured equities south but gold managed to rally along with bonds.
Last week I showed you the following chart:
Here is that chart updated to yesterday’s close:
As you can see, the shift has begun to take shape, how long it lasts is anyone’s guess.
I want to be clear, I’m not boasting about this call – I want to point out something that’s actually important. Please note what I wrote in the chart last week:
“However, as stocks have been making new highs, talking heads have been really pushing the “Great Rotation” story about selling bonds and buying stocks – which is the opposite of what I am saying to do now. Often, at turning points, financial TV pushes the exact opposite of what people should do…”
I wrote that because I have seen it happen so many times that it is almost money in the bank. When the Four Pillars analysis says to do one thing and Financial TV is saying to do the opposite, Four Pillars is correct 9 out of 10 times (exaggeration, it is probably better odds than that ). This new “reporting” could be a conspiracy or it could simply be recency bias – it doesn’t matter to me, I just know that it works. Has anyone ever made any money listening to CNBC? It is more profitable to fade CNBC.
You may be getting tired of seeing the following chart but it is important to understand how a typical distribution process works in case equities are indeed topping.
This occurred last fall. Please note how when price fails to make new highs, it tries again. In this case, the internals were deteriorating as attempts at new highs failed. The basic features of; distribution, lower peak, weakening internals, breakdown, throwback and markdown occur often and should be studied if you are new to trading.
I did not include “distribution day” volume in the above chart, but in the last week that has occurred. That meant that the market was possibly going to decline, which it did.
The current decline should be supported by the massive liquidity that global central banks are going to provide so I doubt that we witness a crash. It could occur, but in my opinion, it is more likely that equities either move to new highs or consolidate at these levels over the next few months in a pattern like above. That is why I only gave 2 scenarios in my weekend report; 1470 support or new highs – those are the levels that I like to start to buy back stocks.
The gold bull has been marked by periods of unsustainable price rallies followed by consolidation periods before rallying once again. I have shown this in the following chart:
Noting that gold fundamentals are extremely strong, the question is; is gold starting on rally #6?
Here is a close up:
That chart, combined with everything that I have been writing about the last week, says that there is a good chance that it is starting on rally #6. I would like to see price get through the next 2 days of Bernanke testimony and the Italian election issue unscathed, but it definitely looked good for a long trade, albeit a risky one.
Here is the CEF trade updated:
So far so good but please note that this is a high risk trade.
I have said that the mining shares have been trading like they are going to “zero”. I also said that as a sector, the opposite will occur with prices making new highs after it shakes off all the weak hands. I was reminded of this when I was looking through some mining data last night.
The following charts are not meant as trading recommendations. I merely want to show you why I think the odds of these companies going to “zero” are slim and sometimes pictures are better than words. These charts are only estimates, but do these Cara 200 companies look like they are going out of business?
Various inputs including the price of gold and other metals will affect those charts. But, if I am right and we are about to witness another rally, the charts will improve.
(Disclosure: CTA is long CEF, AGI, MUX, NGD, RGLD, SLW)
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|
||45.29 (1.85%)||Components, Chart, More|
||36.30 (1.43%)||Components, Chart, More|
||88.04 (2.37%)||Components, Chart, More|
||143.38 (1.84%)||Components, Chart, More|
||4.51 (1.33%)||Components, Chart, More|
|^OSEAX||OSE All Share||518.95
||3.57 (0.68%)||Components, Chart, More|
||4.72 (1.26%)||Components, Chart, More|
||136.87 (1.80%)||Components, Chart, More|
||83.95 (1.32%)||Components, Chart, More|
||18.77 (1.85%)||Chart, More|
||0.00 (0.00%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||989.28
||6.09 (0.61%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
The above commentary is a shortened version of the February 26 issue of The Wagner Daily, our nightly ETF and stock picking newsletter with a 10-year track record of performance. More information and risk-free 30-day trial subscription available at http://www.morpheustrading.com.
Point and Figure on Canada
Cara on the Metalminers
Cara on the International Markets
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report