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.
There’s been a change in direction; a sentiment shift.
Not in any particular order:
The Fed will not, or does not want to control the long end of the curve (long bond).
Interest rates (mortgage rates) are now rising and have been there long enough to start affecting the real estate market.
As reported by Uneducated Economist, there’s been a shift in behavior of his lumber customers.
Instead of furiously attempting to secure lumber (as prices continue to rise), now, there’re backing off; Not wanting to be holding overpriced inventory if/when there’s a reversal.
Remember:
Sentiment first. Then volume. Then direction
From way across the pond, Bjorn Andreas Bull-Hansen gives his input that ‘Things are changing … the entire structure of society’.
He also sates, as this site has done many times … ‘it’s not coming back’.
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.
‘The Market Makers don’t know you are there; they’re not interested in your tiny little stop order.
If your order does get taken out, it’s because too many small traders put their stops at the same location.
There’s an order imbalance. The market’s response is essentially automatic … take out the stops.’
While the original LABD 18.96, stop may not have been a popular location for the small (and maybe big) traders, price action throughout the day could have ‘pumped’ the stops to that location.
Case in point is the huge block trade just at the 1:00 p.m. EST, mark.
At that point, 31,500 shares went by (on the tape) at price 19.10 … which equates to over $600,000 in one transaction.
So, where are you going to put your stop for that position. Below the market, right? Maybe at 18.95 let’s say? Especially so ,when price action instantly rallies away from that entry; all the way to 19.78, intra-session.
The stop would appear to be tight but well positioned.
However, if there was a stop for that huge block and it was too close to the market (with other stops accumulating), it would act as a magnet for price action; drawing it back to that level to get the transaction (hit the stop).
Of course, it’s all conjecture and we won’t ever know for sure.
If the LABD market opens significantly higher (IBB lower) on Monday, then our assessment looks correct.
A lower or unchanged open, signals us to get out. If that happens, then IBB is likely to be heading higher.
As you may have guessed by now, the response to all this kabuki was to re-position the stopped-out order.
The table below has the summary:
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.
The first objective on the newly announced ‘Project Stimulus’, is protect the position.
As yesterday’s announcement stated, we’re taking the stimulus payment and trading a separate account.
The trading techniques to be used are presented on this site.
The magenta bar shows the entry at LABD 18.835 (not advice, not a recommendation) opened during the Fed speech this past Wednesday.
The reason for the entry at that time was two-fold.
First:
Biotech IBB was already at 50% retrace and had rejected that level once.
Monthly and weekly momentum MACD, indicators were (and are) pointing down; giving extra weight to a potential reversal.
Second:
Empirical data (i.e. experience) gathered over a thirty year period had shown, whatever direction the market took during a Fed speech, was quickly reversed in the coming days:
I’ve labeled such events as “Fed-Fake”.
At this point, the position is well in the green, closing at $1,552, yesterday. We’ll be putting in a hard stop at 18.96, shown above.
If we’re in a sustained reversal, it’s not unreasonable to expect price action to get back to previous near-term highs (lows for IBB).
Using highly leveraged LABD (not advice, not a recommendation) that would equate to about a 50% gain.
Stay Tuned
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.
Price action pushed past yesterday’s analysis to fill a price gap from February.
What’s next is the question.
The answer may be in the pre-market, where AMGN is down -1.25% and inverse fund LABD is up +4.7%
If biotech IBB pushes below yesterday’s low of 154.45, we’ve got tentative confirmation the reversal (which tested its highs yesterday) is going to continue.
We remain short this sector via LABD (not advice, not a recommendation) with a hard stop @ 17.80
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.
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.
The 15-minute chart of inverse fund LABD shows how successive moves lower (higher for IBB) have covered less distance.
It’s very early in the session and price action at this moment is fighting it out at LABD 18.00, area.
We’ve maintained our short position (not advice, not a recommendation) but have the sense, if there’s not a reversal at this point, IBB could be working up for new all time highs.
This is the danger point.
Current LABD low for the early session is 17.91 … a good place for a stop.
LABD pushed down to 17.80, early in the session before reversing.
It has just passed 18.28, a new hourly high. AMGN to be covered later, at important inflection point (down).
Short position via LABD maintained (not advice, not a recommendation), hard stop at 17.80
With markets at record prices, Fed announcement tomorrow, no more stimulus (likely), forbearance to end, possibility of the ‘speck’ blowing wide open, one gets the sense this may be an important reversal.
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.
A quick review of longer term momentum indicators on the major indices (or ETFs), below:
Technology based indices all have significant downside momentum.
The financial press may have pawned this off as ‘rotation’. Of course, that remains to be seen.
Our view, high yield tells us something much larger than a sector rotation’s occurring.
It’s possible, the most debt (interest rate) sensitive indices are reversing first which could be a sustained, long term reversal.
The HYG weekly chart pattern is similar to the prior reversal (magenta ovals). This time however, MACD has spent over nine-months in a divergence and has crossed to the downside.
There could be a new high … low probability but it could happen (after all, it’s at support). If it does, weekly MACD may post an even larger divergence.
In response to the HYG reversal, we’re watching (and are short) the biotech sector, IBB (not advice, not a recommendation)
Of the three noted above with negative momentum, IBB is the weakest. Last Friday’s action has tentatively confirmed the resistance areas and trading channel reviewed in this update.
Friday’s IBB lower action was nearly imperceptible but it was there. Major reversals can happen this way … a little at first.
Wyckoff said it in 1910, ‘It’s as if the weight of a feather can determine the next direction’.
We’ll see if there’s follow-through to the downside on Monday.
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.
On a closing basis, biotech’s hit three areas of resistance.
We’ll put all the lines up at one time (chart above) and then break it down.
First, there’s the underside of the trend break that’s already been discussed in prior updates.
Second, the resistance formed by the underside of the head and shoulders pattern identified in a prior update as well.
Last, we could have a trading channel in effect. If so, price action contacted and closed at the right side in yesterday’s session.
The following charts get a closer look at two resistance areas:
Using a ‘reverse trendline’ technique outlined by Weis in his DVD, we take contact on the left side and move it to the right.
The chart below shows the H&S resistance area (underside) contact:
Putting all lines together gets us the chart at the top of this post.
Long term MACD indicators are down; both monthly and weekly. Momentum is to the downside.
Probabilities favor a reversal
The potential downside is enormous. The markets are extended the most in history. Margin debt the most in history.
We’ve got kids running around with trading apps designed to make it look like a game. It’s no different from the Shoe Shine Boy at the steps of Wall St., giving out tips.
Positioning:
We’re short biotech via LABD (not advice, not a recommendation).
The highly leveraged inverse ETF, performs best when the direction of IBB is down in a steady and decisive move.
Otherwise as we saw near the close yesterday, IBB could be reversing to the downside while LABD is still eroding lower in value.
Inverse fund BIS does much better in this area but is not nearly as liquid. That makes pre and post market trades impossible.
We’ll be looking for IBB to post a new daily low as confirmation a reversal is underway.
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.
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.
The Danger Point® 