Quick Market Check

This is a live image of the One Stop Chart for today:

One Stop Market Check live chart

SPY  - S&P 500 - the Benchmark for all other tickers
GLD  - Gold ETF - Fear and Inflation index
RUT  - Russel 2000 index ETF - Broad market and small caps
EEM  - Emerging Markets ETF basket
JJC  - Copper ETN -  Broad manufacturing indicator
TIP  - Treasury Inflation Protected bonds - Benchmark safe haven.
USO  - US Oil ETN - energy sector AND broad economic indicator
QQQQ - NASDAQ 100 - Tech indicator - more consumer sensitive less financials
JJG  - Grain ETN - Ag proxy and weather sensitive
TLT  - US Treasuries long duration - "Flight to safety" indicator and moves more than TIP

The analysis will look at this chart. There is a static version at the end for comparison later in a historical context.

So what do we see in this chart? First off, look at JJG, the grains ETF. Big rocket up on the US Midwest Drought. One time news driven event. If you watch that market closely (and live on the weather news) you can make that kind of trade. Right now the move is mostly over (but could have more overshoot on folks getting in late) and entirely dependent on future news. Will it rain “just in time”? Will it not rain and the crop gets ploughed under? Will some other country have a drought / flood / freeze / whatever that makes grains even less available? Will Brazil have a bumper crop?

That has to be answered to pick a direction. Right now global weather has returned to the patterns of the 1950s with less reliable monsoons in India, crop failures in China (often cold drought) and a dry US Midwest with a cold wet United Kingdom. Looking at the weather / crop history of the early / mid 1950’s would likely be helpful for placing grain bets.

For now, it is just an incredibly volatile market and I’m less interested in that kind of activity.

Next notice TLT the USA long duration bond fund. It had started a ‘failure to advance’ with a downturn from that last high blip that matched the height of the prior high at about June 1. Now it has turned up (on crappy European news and bad economic outlook) and it is slightly higher than that prior high. Not enough to be definitive. Could just be a little news driven reactionary trade.

Given how low interest rates are, and given how little they can be cut more; there just isn’t much room for The Fed Monetary Policy to cut rates and cause higher bond values. It is remotely possible, but very unlikely. (They are presently at “0% to 0.25%” so they can do what? Go to “0% to 0%”?) So I’d fade this bond rally (if I were in bonds right now) and be building plain old cash. ( Likely a mix of 2 or 3 currencies). Load the cannon for use “soon”… Holding cash is not costing much in ‘forgone interest’ from bonds right now.

TIP continues to be a stable very slightly rising line, so if you want to stick money somewhere that is inflation protected, it looks like the more stable place to be. Largely just cash with an inflation hedge on it a this point as the yield is a bit low. Still, better than high risk with no return at all in other asset classes during times of low yields and high risks.

Equities?

Looking at SPY QQQQ and even EEM we had a long term rise, a rollover and drop, and then recently a ‘go flat and wobble’. This is a ‘traders market’. Buy when near one of those periodic bottoms; and sell near one of the tops. Just draw a trend line along the peaks and that’s your target zone.

Look at RSI. Just doing a wobble around 50. Typical sideways market. A bit above the 50 line, so generally a slight positive, but nothing spectacular. Using Slow Stochastic to trade is likely the best indicator. Next look at ADX / DMI. Black ADX line is about 15. Below 25 or so it means “low trend, use Slow Stochastic and range trade”. The Red and Blue DMI- and DMI+ lines are more or less in a crossover, but in a trendless market this tends to be a trailing indicator of the status of any given wobble, not a longer term trend indication. MACD is above zero (so generally a positive trend) but only by a little bit. We’re about to have a negative crossover on it, but those are not lasting long anyway.

What does copper say about future economic activity? That JJC line is low and rolled over. Demand has fallen off from a few months ago, and the shorts covered in the Dead Cat Bounce, yet now it is headed down again. Watch for a ‘re-test’ of that recent prior low in June as a long term accumulation point. If price punches through that, we’re likely in a new recession. (Did the old one every really leave?…) Copper is saying not much demand from China, which means we’re not buying much stuff, which means China will start having “issues” with their first real slowdown in decades and the idea of a China driven recovery from internal growth becomes much less likely. Copper is predicting more slowdown.

All in all, no reason to invest in equities, but a nice “swing trade” market trading the wobbles. NASDAQ, S&P 500, and Russel 2000 generally leading (as Europe is “having issues”…) and with the UK and Australia right behind them (having more exposure to European “issues” and China trade slowdown). Eurozone in the dumper… And Emerging Markets doing what they typically do of ranging further in either direction, right now way down.

Oil had spiked up briefly, and now has taken a bit of a dip. ( I’d expect a ‘retest’ as a buying opportunity). Copper too.

Here is an Equities focused chart that shows Slow Stochastic. Buy at the bottom and sell at the top. That’s a ‘trading range’ trendless market method.

Equities 6 month chart with oil and copper

The same chart at BigCharts.com where you can change the settings and tickers.

The added tickers on this chart are:
EWU - U.K. ETF
EZU - EU zone ETF
EWA - Australia ETF

Here we can see that the global stock markets are mostly moving in synchronized ripples.

You can also see how the ‘shape’ of the William %R indicator can match the Slow Stochastic. Harder to read as there isn’t a ‘crossover’ to hang onto, but similar information. It is sort of a hybrid of the information in MACD and Slow Stochastic. Watching for reversals and zero crossings for action calls. During trending phases (see the start of this chart for an up trend) you ‘buy the dips’ when W%R drops to or below midline (or in down trends, sell the blips above and short); and use trailing stop loss orders to exit.

During trendless periods, the rule is to buy low excursions and sell high excursions. So start with DMI to tell you ‘degree of trend’ then use the right ‘rule’ for the chosen indicator.

For now, it is “trendless” and “trade the ripples” with Slow Stochastic or W%R ranges.

Now look at Momentum. It was clearly positive (above the line) during the early run up, then below the line during the drop. Now it is more nearly ‘wobble each side’. (with a bit of positive bias in the last month or so) In this way, Momentum can help define trend similar to DMI, but it also generally makes a ‘be in’ or ‘be out’ confirmation. Be in when above the line, otherwise be out (and ready to buy in swing trade markets…) The “hard bit” with momentum is that it will be below zero when the ‘wobble’ reverses to the upside. That is where Slow Stochastic is more comfortable as it gives a clear crossover and takes less ‘interpretation’. (It is helpful to imagine a line connecting the tops of the bars and watch for inflections of that line.) Frankly, once you know it is a ‘swing trade’ market, just using trailing “stop loss” orders to exit and “buy if touched” orders to buy seems to get the timing right faster than looking at charts, especially on days with large machine driven trade spikes like that down bar at the top of about 2/3 into June.

At any rate, this chart indicates why I’ve been ‘lax’ about the money postings. Just not much there-there for investors. Swing trading, sure…

Heck, even the GLD Gold line has gone nearly dead flat. We had a run up, drop, Dead Cat Bounce as the shorts covered, and now the ‘wedging down’ to trendless. Didn’t even react to news flow much.

Overall, it looks to me like folks have mostly scrambled into “risk off” assets (like cash, $US Treasuries, and gold) and are mostly just sitting on it waiting for our collective Idiot Governments to stop screwing around with things (like the banks, the currencies, the rules, the taxes, the regulatory burden, the…) IMHO, likely to remain a range bound swing trade market through November (but could start a trend ahead of the election if a probable outcome becomes clear. Or if the EU decides it really doesn’t have any net wealth so rearranging the deck chairs isn’t doing anything…)

What am I doing?

Mostly cash, a few ‘deep value’ investments, and some small swing trades. “Watchful waiting” mostly, but I need to start being more active if I’m to keep up with bills. ( I did get a couple of small contracts that let me cover things, for which I’m very thankful; and that they arrived during a ‘challenging’ market time was extra special, even if they did let me ignore markets a bit too much ;-)

Looking at the equities chart, it looks like a ‘buy’ is ‘soon’ for trading the ripples, so I’m likely to swap to a 10 day hourly chart (with MACD) that is about the same as Slow Stochastic on a daily interval chart, but makes crossovers (or ‘calls the market’) on hourly intervals so makes decisions mid day.

Static version of the One Stop Chart:

One Stop Market Check 23 July 2012

Static Version of the Equities Chart (so those comments above can make sense in a future historical context:

Equities Chart 23 July 2012 6 month daily with Gold, Copper, and Oil

Remember that both of these are very large charts so you can click on them to make a much larger more readable version.

Subscribe to feed