Commentaries on the market
Comments as of close Weds, 3/3/10
To add to yesterday’s comments on how certain markets tend to lead in some groups, such as stocks and precious metals. When I look at the four stock indexes (the mini’s) what I do is compare the Russell 2000 to the S & P and the NDX to the Dow. I consider “normal” to be when Russell move is about half the S & P. So if S & P up 10.00 then would expect Russell to be up about 5.00 (plus or minus point or so). Monday AM right from the open and throughout the day the Russell was up more that the S & P and on close was up 1.20 more. This showed definite Russell relative strength and so was solid positive sign from open into close. When comparing NDX to Dow view “normal” as mini NDX should move about half the mini Dow (in dollar terms). As with Russell, on Monday right from open the NDX was up more than Dow and on close was up about $500 a contract while mini Dow was only up about $375. This showed NDX relative strength and so also was a very positive sign, both on open and throughout day and into close.
In the precious metals see it as bullish if Plat is up more than Gold in point terms (Plat up 10.00, Gold up 5.00 is positive). And it’s bullish if (big) silver contract is up more than (big) gold contract in dollar terms. So if Gold up 5.00 (or $500) and Silver up 20.00 (or $1,000) then this bullish sign.
However, these type of considerations are secondary to the line patterns. Believe what should do is when see some clear signs of relative strength/or weakness intramarket then should look at line patterns and if lines confirm relative the strength/weakness signs, this tends to be good indication prices going to move in that direction for at least short term, or as long as lines and relative strength/weakness indications continue.
Once on Monday the relative strength signs were clear in both stocks and precious metals, and then checked line patterns and saw that they were clearly positive in both stocks and metals also, then could be fairly certain would see good strength in these markets throughout day and for at least another day or so.
The most important indicator is the line pattern, then trend, then relative strength weakness and finally, to much lesser extent, things like COT situation. By line pattern I mean the pattern of SL and ML (such as solid ML cycle and SL pattern or higher lows/highs, or vice versa - such as had in all these markets on Monday).
Most of time don’t get relative strength/weakness signs as clear as had in stocks and metals Monday (from open through close), and also don’t have line patterns as clear as had at same time, but sometimes do and important to know how to recognize this when get it.
Hope this is clear since fairly easy to see once aware what to look for, although does require some judgment (but not so easy to write it clearly).
Current overall situation - Mentioned on weekend had line patterns in stocks, metals, currencies, crude that indicated had “window of opportunity” for upside. Did not get much on Monday (except for stocks), but did yesterday and for most of today. However, also mentioned on weekend that this window would begin to close as headed toward end of week and now getting there. Have the big unemployment report Friday AM and this can be big market mover for these markets. With both prices and SL’s now back around recent highs in all these markets might be good idea (safer) to take profits and go to sidelines until after report. Unemployment report always difficult to predict but have found that action of stocks and especially bonds on day before is “fairly” reliable indicator of what report will be. Late today bonds/notes firmed and stocks slipped, if this continues tonight and tomorrow then would be extra indication best to liquidate longs in stocks, metals, currencies and crude (shorts in dollar), at least temporarily.
Just not getting much in way of sustained moves these days and has not paid to overstay welcome on almost any position (cotton has been the one exception) and this another reason to take profits and wait for report.
However, line patterns in bonds/notes, yen and cotton remain quite solidly positive and so on those, basis rules, can justify keeping at least some longs, although never argue if want to take good profits when SL at recent extreme highs (or lows).
Mar S & P - Status - Bullish (to Neutral)/very mildly concurrent. Observations - Pattern remains mildly positive, but action not particularly positive. Continue to view sideways as more negative than positive here since basis pattern “should” be moving up nicely and this not case past two days. Stocks seem to run out of energy quickly on rallies and have that feel at moment. Have unemployment report Friday AM and this can be big market mover. Stocks on big three and half week rally and trend marginally up to sideways feel prudent action is to liquidate any longs and go to sidelines. However, on strict reading of lines can still justify being long, just prefer sidelines for next day or two, at least.
June Bonds/Notes - Status - Bullish/concurrent. Observations - Pattern here remains clearly positive and whenever this case can fully justify being long. These markets have had excellent chances to sell off decently past three days and have not and this tends to be positive sign. SL turned down today and still on high side so still a little vulnerable to some down, but so far unable to get much and basis this and solidly positive line pattern/trend, plus solidly positive COT data, prefer to stick with longs.
Mar Euro - Status - Neutral/crosscurrent. Observations - Nicely positive day for european currencies (euro, swiss, pound) and possible have made major bottom, but when trends this negative odds always against a major bottom and trend change. Rule are when go against trend, especially a solid one, should be quicker to take profits since trends tend to reassert themselves suddenly and sharply. So prefer to be safe than sorry and take profits on any longs, but short term pattern still positive so if long and want to push it can make case to do so.
Mar Yen - Status - Bullish/concurrent. Observations - Pattern and trend remain clearly positive and this means longs continue to be fully justified. SL turned down today and still high and when this case always have some short term downside vulnerability, but rule is when this clearly bullish/concurrent most of time best to stick with longs. Never argue if someone wants to take profits when SL and price on recent highs, but see good upside potential so prefer to try to ride through any short term weakness.
Mar Aus$ - Status - Neutral/Bullish (crosscurrent). Observations - Pattern in Aus$ still marginally positive, with pattern in Cand$ more positive, but action in Aus$ past couple days sluggish since struggling to keep up with other currencies and this never a good sign. Trend indecisive and while line pattern still positive, if should see any weakness, or even sideways, next two three days pattern would turn quite negative (if SL turns down next few days would produce big bearish divergence at same time ML would rollover to clear down cycle. So prefer to take profits on any longs in Au$ and to lesser extent Ca$ and if miss some more up so be it.
Apr Gold - Status - Bullish/mildly concurrent. Observations - Trend now marginally up and price has cleared recent resistance at 1125.00 - 1130.00 area and this positive. Line pattern still decently positive, but as with Au$ if should see some decent down next few days would turn negative since would produce bearish divergence and turn ML down. However, see pattern in gold as more positive than any of the currencies. Plus gold has tended to go up recently even when dollar has been strong. Have long felt that best time for gold is when have general inflation and/or when all currencies out of favor. No general inflation at moment, but definitely have situation where all world currencies out of favor. Almost seems like world currencies are in race to the bottom with just a question of which one has least negative situation at any one moment. Doubt recent strength in dollar due to any affection for it, but more a disaffection with european currencies. So if going to hold any of currencies, stocks, crude or precious metals would go with precious metals, but on good five day rally and with unemployment report coming prefer to be safe and take profits, if have to will get back in on long side later. Plat and Gold up about same today so nothing there in way of relative strength signs, but silver up more than gold today and this positive.
May Silver - Status - Neutral/crosscurrent. Observations - Trend now sideways and price above ten week moving average for first time in month or so, and this positive. Line pattern still decently positive and when this case some longs still fine; however, do have rule that when price and SL on recent highs, as case now, usually best to take profits and go to sidelines, at least temporarily. See enough positives that doubt any down, if do get some, will go far or last long, but market on 1.70 up move in five days and this big move at any time, and especially when trend indecisive. So close call on whether to go to sidelines temporarily in gold/silver or stick with longs, but these days short term moves so big prefer to be safe and go to sidelines, temporarily.
Apr Crude - Status - Bullish/concurrent (but both only marginally) Observations - All three lines marginally up so can make case for longs, but for whatever reason this one market has had difficult time getting clear move above past couple week congestion, might do it tomorrow and if want can give it chance, but since any down next few days would turn pattern quite negative (big bearish divergence and solid down cycle in ML with fairly indecisive trend) prefer to go back to sidelines for moment.
May Corn, Beans, Wheat - Status - Neutral/crosscurrent. Observations - Good up day in corn and wheat, but beans unchanged and closed on lows and since always tend to view beans as leader of this group see relative weakness in beans as overriding strength in corn and wheat. Trends still clearly down and prices have moved up to down trending ten week moving averages, which can often be when resumption of down moves starts. When trend down like here, and have line patterns that have at moment, any failure to move up nicely has to be viewed as negative. Only way this pattern remains positive is if turn SL’s up and sharply and to get this will need solid up days tomorrow. Really want to be/go long these markets due to very bullish COT data, but rule on this indicator and should only give it big weight when trend finally turns with it (up in this case), and fact is so far have not done this. On other hand if should get even moderate weakness next couple days would end up with some very nicely negative patterns (bearish/concurrent in all three). So if ignore COT data, which by rule should do when trend still down, should be alert for any weakness from here to be/go short. So longer hold this area next two, three days, and especially if see any weakness, the better the case to initiate any shorts. And this especially case if beans continue to show relative weakness. Bean Oil still most positive of group and only one can make any kind of legitimate case for longs, but Meal tends to be more important and it has most negative pattern and with turn down in SL can make good case to be/go short - trend is solidly down, ML turning down and in position for sustained down cycle, SL has turned down for third lower highs, COT data here actually bearish, so basis rules can fully justify being/going short Meal.
May Cotton - Status - Bullish/concurrent. Observations - pattern still fully justifies being long, but prefer not to buy anymore since for whatever reason beginning to feel less bullish on this market. If grains should turn weak tomorrow and cotton sluggish would even see no problem with taking profits on any cotton longs and if miss more to upside so be it.
Conclusion - Very difficult markets these days since short term moves so big. When this case feel best to take profits quicker than otherwise would basis lines. Hate to miss moves but in long run better to complain that could have/should have made more, than complain let good profits disappear. As said in one of books, better to be less rich than poor.
Chick Goslin
