Rubber, Meet Road
5/21/2014 7:13:08 AM
Good morning traders,
The consolidation continues as the market momentum aligns for a potential move lower as it appears. Let's take a look at what I'm talking about with two of our basic indicators:
And given the divergence in the NYSE, let's take a look at the SPY:
This is usually where it sits right before a large move lower. So as divergence exists, the Nasdaq is gaining relative strength, so the real sell off may be in the NYSE.
As for the barometer:
Consolidations are a part of trading. You could look at this price action as a head and shoulder pattern, or a rising wedge. Either way, we have some pretty significant downside targets. If we do get bearish, I think we move aggressively towards the neck line, the consolidate again into July.
On the correction, there are not many calling for one, which is also a bearish sign:
As part of this service, we monitor hundreds of indicators daily for extremes or correlations with the market. This one is worth noting.
On the commodity front, our OIL Call Options are doing well in our oil options trader newsletter. Our PUTs for the move lower gained over 100% and our Calls should be on their way with yesterday's push higher.
As for gold, we've been waiting for this consolidation to end, and we believe it could get ugly for gold pretty soon:
We'll likely start issuing GOLD PUT recommendations when this indicator breaks lower. It's not quite done yet. I think gold will try to suck in some more bulls before taking them deep...
That's it for today. We get fed minutes which will give the markets something to digest. Remember, it's not so much as to how the market acts on the day of the release as hedgies push around the intra day trade, but on the days following, as larger institutions meet to consider their reactions. If they initiate sell programs, we'll be able to see it in our data and a bear market will commence. But I'm getting way ahead of myself - the market has been handling the recent action well.