1.- TWITTER
For those of you who interested in following my intraday ES trades via Twitter here is the address: http://twitter.com/amgrant78
2.- FIBONACCI
Sometimes simple is better. As the saying goes, "Keep It Simple Stupid".
Below are two charts I am closely following that clearly show my line in the sand when it comes to fading the market short or continuing with my longs.
The first is a picture of the Dow Jones Industrial Average (INDU) and its Fibonacci retracement levels that extend from its all-time lows on July 8, 1932 (40.60) to its all-time highs on October 11, 2007 (14,198.10). As you can see, we are currently sitting at the 38.2% retracement level.
A similar pattern is displayed on the CBOE Volatility Index (VIX) using its all-time low on December 15, 2006 (9.39%) and its all-time high on October 24, 2008 (89.53%) as its reference points. Here, the 78.6% retracement level is acting as support.
Any significant close above/below these levels is my indication that we have finally picked a direction.
My belief is that the longer we stay in this holding pattern the more bearish I get. The onus at the moment is not on the bears to push prices down, but on the bulls to push prices up and prove the 3-month old rally will continue.
My expectation over the next two trading sessions is a continuation of this oscillation around the 940-945 area on the ES contract, with a significant pullback occurring next week down to the 900 level.
I remain with the conviction that we will see 900 before 960, as per my post on June 9, 2009 - Lines In Sandboxes.
3.- TONS TO LOOK AT
The dynamics in all markets - equities, commodities, bonds/interest rates, real estate and foreign exchange - at the moment are absolutely incredible and from a historical perspective, it's quite interesting to study the relationships between them.
Money tends to flow to areas where it is best used and its efficiency maximized, but right now it's having a hard time finding a home.
On one hand we have equity and commodity markets that have run their course (or are close to running their course), a bond market that is in complete disarray, a US dollar that is on the verge of collapse and a plummeting real estate sector (no the bottom is NOT in). So the question is where will capital flow next?
This particular question is so vital which why I think we are at such a perilous moment. If capital has no where to run, the markets' price discovery mechanism will adjust prices to the downside until it finds some kind of floor where buyers are more willing to step in.
Which brings me to my final point tonight.
4.- THE MASSES ARE USUALLY WRONG
There has been many a discussion regarding deflation vs. inflation as of late. Now, I am not claiming to be an economist nor an expert in deflationary/inflationary recessions but a good rule of thumb I have used for god knows how long (even outside of my investing/trading) is one to bear in mind:
"The masses are usually wrong"
Intuitively we all know this, but we also often find ourselves alongside, and agreeing with, the very same people we think we are so different from. To be a true contrarian requires the discipline to step outside of oneself and imagine and rationalize, the absolute opposite of what the crowd is saying.
I'll tell you what the crowd is saying now:
- Put your money in commodities
- The reflation trade is back
- Deflation is history
- Yields are going through the roof - "I remember the days of 15% or higher"
Now, I'm not trying to say that inflation is not a concern - it definitely is. But was it not just a few months ago we are were all scared of deflation?
This is something to keep in the back of your mind.
