Prepping For The Downside

The more sophisticated market participants work the downside.  That’s where the biggest (and fastest) money is made.

shutterstock_242289160Trading books and specifically Reminisces of a Stock Operator, (first published in 1923) detail how the wealthiest traders in the world prefer downside action.

The markets are now stretched to obscene levels and could go higher, still.

Just this past week, we have interest rates breaking out to the up-side, a-la August, 1987.

Being long anything other than corn or wheat and the occasional down-trodden coal miner,  seems to be a high risk plan (not a recommendation).

Positioning for the downside in the appropriate market, might be a lower risk option than riding the insanity to the top … wherever that is.

Which brings us to inverse biotech fund, BIS.  The daily chart shows the well-heeled know something’s up.

2020-08-30_9-32-52-IBB-Daily-5-bar-lanscape-notesSpeculative volume for potential downside in biotech is increasing.  Last Friday’s volume in BIS was the highest in nearly four years.

BIS was trading higher throughout the entire session until the last few minutes.  It closed slightly lower for the day and thus colored the volume bar red.

That minor BIS downturn (up turn in IBB) can be traced directly to Amgen (AMGN) which is now part of the Dow 30, effective Monday the 31st.

It’s important to note that for the past four months, volume activity in IBB has remained relatively unchanged.  Not so with BIS.

We’re nearing the Labor Day Weekend during the next sessions.  The market will be closed on Monday, September 7th.

Back in the day of 1929, the market made its all time high on September 3rd, the Tuesday after the Labor Day Weekend.

 

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Peabody Energy (BTU) Reversal

Way below the media radar, coal prices are reversing off a four-year low.  Peabody Energy (BTU) is reversing as well.

iStock-166215263-CoalWhy would coal, a supposed dead product be reversing now?

The list could be endless depending on one’s level of awareness.

Here are a couple of potential reasons.

No. 1

Were entering a 400-year solar minimum with decreased sun-spot activity and colder (much colder) earth temperatures.

The natural result of such activity is a decreased earth magnetosphere and increased cosmic ray activity.

Go outside during a sunny day … the sun’s rays are not warm anymore, there hot!  They feel like burning, searing energy on the skin.  The magnetosphere is weak, letting more radiation come in.

Under such conditions (more cosmic rays) volcanic activity picks up big time.  Scientists (those still honest) have not been able to figure this one out.  It just is.

So, we’re one major eruption away from the entire earth being covered with an ash cloud.  Bye, bye solar … instantly.

No. 2

Natural gas prices are rising dramatically.  Remember the Winter of Discontent update?  That update was spot-on.  It also included the level UNG could retrace (which it did) as a test, before moving higher.

UNG is up over 44%, from those levels.  One of many (now false) ideas for natural gas, was that it’s cheap.  Not any more.

Just two potential reasons for a coal reversal at this point.  Those with advance knowledge may be taking positions.  We see it in the price action.

As always, anything can happen and coal could resume a downward trajectory.  However, if BTU is able to hold above the 2.50-level, it may have already seen its all-time lows.

Keep in mind with BTU, we’re dealing with an equity in serious trouble.  It’s not hyperbole to say, the only thing that could save this company is a major reversal in coal prices.

2020-08-28_12-05-35-BTU-Daily-4-bar-landscape-notes

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

 

Hulking Shell

That’s what the average investor’s portfolio could be a scant two months from now if the analysis is correct.

Fotosearch_k7478570-BW-border

That is; markets are stretched to obscene levels, bonds breaking down, rates rising; the nearest corollary is August, 1987.

From a timing standpoint, it could be important.  That August was a Fibonacci 34 (-1) years ago.  Well within the margin of error.

Yesterday’s trade set-up (not a recommendation) was timed perfectly.

Today, that trade (if entered) would be up by about 2.8% at current levels.  The stop now gets moved to 15.54, today’s low.  Of course, this is for illustration purposes only.

For a bond trade, 2.8% is significant for a single day.  It looks like much higher rates are ahead.

Meanwhile, biotech (IBB) has given yet another sell, sell-short signal.  IBB briefly penetrated yesterday’s high of 133.39, and is reversing.

If price action continues lower, it’s a bull trap; a false breakout.

We’re actively short the sector via BIS (not a recommendation).

2020-08-27_11-53-45-TBT-Daily-5-bar-notes

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Bonds: Back To Breakout

shutterstock_1713590722The bond market is key.

If interest rates breakout from this point, we’ve got a set-up that mimics August 1987, on steroids.

The chart below shows ten-year interest (rates up, bonds down) is back at the trend-line.

It’s before the open and pre-market (as of this post) also has the ten-year (and the TLT) trading lower.

Two well known and liquid inverse funds for bonds are TBT (2X-inverse) and TMV (3X-inverse).

A price action insert of TBT, is shown on the TNX chart.

There’s a potential for today’s price action to make a new daily high.

If so, a possible trade (not a recommendation) would be an entry at the last session high, 15.74, with the stop at the last session low, 15.50.

If such a position could be opened, the risk therefore is 0.24-pts, barring any catastrophic adverse move.

2020-08-25_23-03-54-TNX-Daily-3-bar-notes

 

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Character Change: CORN

Fotosearch_k5736206Changes in character; price action, volume or both, tells us something’s gong on behind the scenes.

For the Teucrium CORN fund, it’s obvious.

Trading volume has increased dramatically.

CORN has the highest level of sustained daily volume in the fund’s history.

Price action has confirmed the 400%, trend line … at least for now.

2020-08-25_21-11-28-CORN-Daily-4-bar-notes

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

 

Biotech Breakdown

Biotech is breaking down, now.

For this firm, going short has been an on-again, off-again, back on-again affair.

Fotosearch_k16630038-borderThose with engineering degrees (including this author) or some other science degree, would have decided long ago, since the original entry’s not perfect (being stopped out), the idea must be wrong.

Others easily distracted (those with i-phones) would have given up as well … only to see their (short) premise come to fruition without them.

So, here we are.  Biotech (IBB) is breaking down with inverse BIS moving higher while the overall market continues to rise.  As of this post, the S&P 500, is up 25-points or about +0.75%.

The chart and the expanded insert, show trading activity over the past two weeks.

2020-08-24_10-04-52-BIS-Daily-5-bar-notes-insert-notesPrior to the ‘exit’ point shown, we’re positioned long BIS (short biotech).  Then, price action broke down through the prior day’s low.  BIS was exited entirely.

Almost immediately after the break, the down-side price bar was challenged with up-side action.

After that, next day saw even more upside.  When new daily highs were posted, BIS was re-entered.

Two days later, last Friday, the trade was increased by 7%.  Just topping it all off for what amounts to a full position.

Since we’re using trading techniques from early masters, the last two months or so, mimic actions that may have been taken by Livermore or Wyckoff.

Not saying we’re in the same league as them.  Just saying based on their writings, the approach mimics documented trading behavior in the markets of their time.

At this point and being fully positioned, we wait.  Livermore put it as:  “Get right, and sit tight”.

An obvious stop level is anything below today’s BIS low of:  33.01.

 

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Silver Top?

The silver bulls may have been sufficiently trapped.  If so, they’re subject to a beating via reversal.

2017-02-10_6-36-21-borderThe markets aren’t friendly and silver’s one of those that never takes prisoners.

As mentioned in an earlier post, even trading genius Ed Seykota (of Market Wizards fame), early in his career, was impaled mercilessly by silver spikes.

As always, anything can happen and some new demand come in to lift SLV higher.

However, when you look at the typical form of a silver topping pattern, it looks like we’re there.

If there’s a caveat, the chart pattern insert is on a weekly basis and the current chart is daily.

Markets are fractal.  Patterns can (and do) repeat at all time-frames.

Barring any additional upside, the expectation is for price action to retrace and test the wide, high volume chart areas.

2020-08-21_15-42-55-SLV-Daily-Close-3-bar-notes

 

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Is Corn The Catalyst?

Bonds, biotech, the banks; or is it corn that’s the catalyst?

Everyone’s focused on the markets, the S&P 500.

Fotosearch_k8956751Meanwhile, back at the farm (literally), the food supply is undergoing controlled demolition.

If the supply chain continues to be restricted with prices rising ever higher, the silver and gold ‘stackers’, may have to liquidate their hoard just to survive.

Getting back to corn; the technical position of the ETF, CORN was highlighted yesterday in this post.

Now, with about an hour before market close, CORN has posted a 38% retrace and reversal ( if close is at or above current levels).

On top of that, it may be too early but maybe not.  CORN is now trending upward at over 400%, annualized.

One day, does not a trend make.  Then again, wouldn’t it be nice to know early on of the possibility?

2020-08-20_13-42-53-CORN-Daily-4-bar-notes

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Corn Flattened

Ten percent of the U.S corn crop was instantly wiped out last week during what’s described as an inland hurricane.

The video here goes into more detail about correlating events.

iStock-1019396932To limit the food supply even further, driving prices higher under the guise of inflation, the ‘speck’ (time stamp 6:00) has invaded 100% of tested agriculture workers in California.

The corn ETF mentioned at Time Stamp, 4:16, in the linked video is shown below:  CORN is the ticker symbol.

The ‘drecheo’ breakout is clear.  Currently, CORN price action has retraced slightly and is testing support levels.

2020-08-19_9-20-04-CORN-Daily-4-bar-notes

In separate markets, biotech (IBB) has posted another sell, sell-short signal with this session’s new daily low (not financial advice).

Silver is reversing as expected.

Whether or not this is just the beginning of a long down move to form new lows (for SLV), is unknown.  Of course, such a position or thought is, completely opposite the consensus view.

 

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Shorting The Bond Market

Who goes first?  Do bonds break to the downside, rates up, market reverses lower into a potential crash; a-la October 1987?

Or, does the market (S&P 500) peak and reverse with a flight to safety (bonds) that mitigates or negates a sharp rise in rates.

Fotosearch_k6354877Maybe it’s stocks and bonds going lower together.  No safe havens.  Is it possible?

Early this session, the ten-year rate (inverse of bonds), is hovering just below the trend-line shown in the last post.

The bond bull market has lasted forty years.  Since 1980.  Obviously, at some point, it’s over.

With long bonds (10-yr, 20-yr) hovering near a breakout to lower levels, all it would take is some kind of ‘event’ to tip the scales.

Remember that Prechter  (no matter what you think of him) said years ago, the market leads the news … not the other way around.  It’s a complete mind-shift to understand that market position, price action, actually set the conditions for news events.

The market does not ‘react’ to the news, it ‘creates’ the news itself.  So, the bond market may be about to create an event.

With that in mind, inverse fund TBT attempts to give exposure to twice the downside of the 20-year bond.

In a nutshell, if the long bond moves lower, TBT moves higher at approximately twice the percentage amount.

The chart of TBT is below and it looks very similar to the $TNX chart in the prior update.  Looking closely, one can see the downward bias errors.  With each move lower in the $TNX, the TBT moves lower still.

It’s common with all inverse funds.

2020-08-17_9-07-32-TBT-Daily-3-bar-notesEffectively trading TBT requires a sustained down move in the corresponding market (to mitigate the down-bias).  The latest example shows bonds ready to break lower with rates ($TNX) moving higher.

TBT could be in a position for trade entry (not advice).

Additionally, if bonds break decisively lower, they have potential to stop dead what’s left of the economy:  Housing market, lumber market, building construction, and on.

Remember ‘the speck‘.  It’s all about the speck floating through the air.

On a separate topic and as a courtesy (not financial advice), the short position in biotech via BIS, was closed early this session as price action hit the pre-determined 8.15, stop.

Gain on the overall short position was about 5%.

 

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Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.