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US large caps are a rocket running on empty


Mercury

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So I didn't get the wave 4 retrace I was hoping for and maybe that is better because it fits the surely inescapable observation that the current rally phase on S&P500 and Dow is running out of fuel.  Just look at the steep nature on the post Brexit rally on the Dow Daily chart below (same on S&P).  Check the volumes, you would expect a strong bear to be pumped up on high volume driving this sharp move but the opposite is true, the volume is diminishing.  For me it is not a coincidence that this move forms a triangle and that this triangle converges in my top out zone around 19,000 also with convergence of the longer term trend lines from the daily (green) and weekly (purple) charts.

 

I am not seeking to trade the top here but to identify a likely top and seek an entry Short once this is confirmed.  Either way this move should be resolved soon and the fact that it is all happening around Q2 results in intriguing.  The last 6 quarters have shown declining EPS and topline revenues/volumes yet analysts keep calling for full year growth and keep missing.  This is classic "hockey stick" forecasting, I know, I used to do it for a living...  If we get poor Q2 results the level of back loading onto the second half of the year is simply not deliverable...  How long can markets rise on central bank stimulus in the face of deteriorating fundamentals?  At some point another round of Fed stimulus for the US will emerge and that will mean all the stimulus since 2009 has not worked.  Then the game will truly be up...

 



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Hi Mercury - I've also been thinking that this rally is starting to look weak and am watching out for any bearish signals (divergence etc) that may develop. But I've also been wondering about the volume data you mention. Is it possible to get volume data for indices? Or is there some method for inferring it?

 

Can I also say that being fairly new to trading I consider myself very much on the learning curve at the moment. But I read community posts with interest, finding many of them both informative and educational, so I'll take this opportunity to say a big thanks to you and the other regular contributors for taking the time and effort to put your trading thoughts into print :-)

Cheers

Mac

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You are welcome . I don't seek to be a teacher or anything and certainly do not feel I am yet fully experienced enough to even call myself successful, unless you count success as survival, which after a fashion it is.  I post on the forum to share interesting articles and see what people think of them and post also my analysis and projections to see if anyone disagrees.  Alas there is a dearth of discussion just now, whether because it is the Summer, everyone is jaded waiting for the big reversal, or everyone is just focused on their own day trading I can't say.  Perhaps some of the original regulars have stopped trading...  If things are not going well then taking a break is a good thing by the way.

 

There are plenty of old threads there people have offered their tips on trading approaches, of which there are many, so a spending some time trawling the forum could be time well spent.  My to piece of advice over and above other points I have raised previously is not to follow anyone else nor seek trading tips but to find a method that works for you, do your own analysis and make your own trades then learn from them.  That said a good discussion, especially with opposing views is very enlightening, I always like to hear forecasts opposed to my own and look at alternative scenarios.

 

Here is a short article with a set of trading tips included that you may also find helpful

 

https://realinvestmentadvice.com/tftb-howard-marks-investing-rules/

 

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Thanks for the link Mercury. Interesting reading. Some of which I'm already weaving into my trading philosophy, having recently read some of Alex Elder's books.

Particularly his advice on "risk management" - A concept I have come to  appreciate greatly after almost burning my account in the first couple of months (Does everyone go through this? Lol)

Since then I have traded much more prudently. When I enter a position now I set my stop loss rigidly. If I get it wrong and set it too close and get stopped by noise, or too far and consequently take a larger loss than necessary, I simply accept the consequences, try to learn a little bit, and move on. It seems to help, and I've gradually brought my account back to its starting position.

My current focus is trying to determine how to enter and exit positions at optimal points - much harder than I had first imagined (Buy low, sell high seems such a ridiculously easy concept!)

 

(BTW I've recently read "Mr Nice" by Howard Marks, the international drug dealer, so was intrigued at the reference to him in your link -  'til I  did a bit of googling to find there is another (completely unrelated) Howard Marks!)

 

Mac

 

PS You didn't say where your index volume data was coming from :-)

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Yes Alex Elder's book is a good primer and yes everyone burns their first account.  It is astonishing how many people just start trading with no research or study on the subject.  Even if you know what you are doing it will take time to learn how the markets really work and the only way to do that is to trade live and lose...  I was told once that you need 3 banks (that by a professional gambler).  In fact the podcast interview with Anthony Crudele showed that you need 4...

 

Re volume I would love to get access to detailed volume data for main markets, I have raised this with IG.  In the meantime I rely on the website link below and commentary from professional analysts via their articles.  In the end it is clear that the current rally is on low volume and there are several credible sources pointing to this fact.  Alas that doesn't tell us when things will fall, just that it is setting up to.  In addition the Vix is low (Bear markets on Stocks always start with ultra low Vix), last time it was this low was in 2014 and the time before that 2006.

 

http://www.marketwatch.com/investing/index/spx/charts?symb=SPX&countrycode=US&time=6&startdate=1%2F4%2F1999&enddate=7%2F9%2F2016&freq=1&compidx=none&compind=none&comptemptext=Enter+Symbol%28s%29&comp=none&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=2&style=1013

 

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Thanks again for the link Mercury. Looks a good website, have bookmarked it :)

 

Re volume: The S&P 500 does indeed look low but conversely yesterdays volume on the DJIA looked to be about the 3 monthly average. But with my limited experience I can't determine if this tells us anything of significance :/

Nevertheless, the price looks to be drifting at the moment, buoyed only by earnings beats of (low) expectations and the general consensus seems to suggest there is a pull-back in the wind, possibly to around 2130(S&P) and 18200(Dow), although I can't see anything in the charts to suggest it is imminent. Perhaps a lot of bears are just waiting for a trigger; a news shock or perhaps unexpected central bank interference. Time will tell.

Meanwhile I remain just another bear in the shadows :-)

Mac

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