Price action in Dollar Index (UUP), shows familiar signs of a trap.
Price action closed yesterday at the low … after a prior lower close.
This morning opened gap-higher and near yesterday’s highs.
Price action then went higher … setting the hook.
Anything can happen and the bears can find some extra muscle somewhere. One gets the sense though, we’re at a pivotal juncture.
Charts by StockCharts
DRV is the 3X inverse tracking fund for real estate, IYR.
Price action is now breaking higher (IYR, lower).
The 2-Hour chart of DRV (above) shows the trend.
There’s always a chance price action at the trading range lows in IYR, is a potential reversal to the upside.
With the overall markets at new highs, and IYR dead-in-the-water, probabilities favor downside action (DRV higher).
Real estate IYR, may be leading the way down
Price action has been at the lows for three days and not retracing higher.
The overall markets are at all time highs … IYR can’t seem to get going to the upside.
Well traded inverse funds for IYR are SRS (2X inverse) and DRV (3X inverse); not advice, not a recommendation
Charts by StockCharts
Bonds closed decisively below support at the last session.
This morning in the pre-market, they are trading near the bottom of yesterday’s range.
The TLT chart has the details. We have the ‘Wyckoff Wedge’ (as we’re calling it) as discussed in a prior update.
We’re at the danger point and in spring position.
That means, if bonds push back above the resistance and test, it’s a strong indication of a huge rally to come.
Think of the wedge as a clock pendulum oscillating down to zero.
To get the clock started again, the pendulum must be pulled to one side and then let go.
Separately, as a result of this price action, Steven Van Metre, is starting to lose some fans. Nothing against him.
It’s just that a vast majority of the investing public, has very little idea of how the markets actually work.
Wyckoff called it the ‘Composite Operator’.
Today’s interpretation could be called the ‘Central Mind’. There is manipulation behind everything … always has been.
A push below support, is doing what the Central Mind wants.
That is, the bond bulls to give up, lose their following, have accounts pulled (withdrawn) and for them to start questioning their own analysis.
Charts by StockCharts
It’s busy in the pre-market and the big story is bonds.
The last update, using Wyckoff as the example, said bonds would break to the upside from the wedge formation.
Sometimes before such a break, there’ll be a momentary push in the opposite direction. Then the real (reversal) move starts. That may be what’s happening now.
Looking at TLT, pre-market is trading below well-established support. If that’s where TLT opens, it may be the last gasp for the bears.
There’s nothing more dramatic and profitable than a failed move.
The controlling party, bulls or bears push the market in their direction; only to find out, there’re out of fuel.
The opposing side has been gathering forces to mount an offensive.
Perhaps the most famous ‘gathering of forces’ was the failure of Long Term Capital Management.
If memory serves correctly, it was Goldman Sachs that found out LTCM was over leveraged and overextended.
They used that data for their benefit.
That’s not to say the failed move in the Oil & Gas Exploration (XOP) market is anywhere near the LTCM level. Just saying, markets are fractal and failed moves occur on all time frames.
The daily chart of XOP shows the failed attempt to break above resistance.
Price action was swift in the early session; then stalled at mid-day and retreated quickly into the close.
That retreat brought price below resistance … indicating significant weakness.
The short position in biotech (via BIS) was profitable but it did not have the potential for swift action like shorting XOP.
Since the firm follows the tenets of Gerald M. Loeb (late Vice Chairman of E.F. Hutton), we do not diversify.
Trades are focused on specific price action; therefore, tend to be concentrated only in one or two markets at any time.
We know from a fundamental standpoint, there’s no (or very little) demand for oil and the by-products. Steven Van Metre has contacts in the field that are feeding him information on what’s really going on.
While some of the minions that watch his updates complain about the colors of his moving averages, we’re more interested in the anecdotal data such as ‘oil inventories are piling up’.
Even better was the comment (a few weeks back) that EIA data is not telling the whole story. There’s even more oil than what’s in the report.
That’s our backdrop for shorting the XOP by using DUG. Not advice, not a recommendation.
Recall that DUG, with regards to the firm’s broker, has stated “not marginable” indicating especially high volatility.
Open positions are below:
Charts by StockCharts
As of 3:19 p.m. EST
Closed BIS
Entered DRV and DUG
Analysis to follow. Not advice, not a recommendation
The real estate index IYR has been struggleing at resistance for months. Yesterday’s action was a swift break lower to the bottom of the range.
Inverse fund DRV (3X inverse IYR) had is largest single day gain since mid-May of last year.
The weekly chart shows the four-month struggle at resistance as well as MACD bearish divergence.
IYR may attempt to test slightly higher (DRV down) during this session.
If so, we’ll be looking to position short via DRV; not advice not a recommendation.
Moving on to biotech. Yesterday’s action was a good example of negative bias in LABD. Even though IBB closed lower, LABD closed lower as well.
The LABD position was closed out as shown (above) and the BIS positions maintained.
Note the R-Exit value.
This represents the gain on the amount risked. If $1,000 was risked on the trade, it returned $8,540.
Update will be forthcoming if/when a DRV position is established.
Charts by StockCharts
So, this is it?
As this juncture (11:06 a.m. EST), both the Dow and S&P have key reversals; and now the QQQs, and Russell 2000, have just joined them.
If they hold and decline from here, reversing from all time highs, we can add that data to our empirical “Holiday Turns”
Holiday turns … markets tend to reverse just before, during, or just after a holiday week.
In the biotech arena, this morning’s gap higher (IBB) closed the distance from price action to the stop for inverse funds BIS and LABD.
That closure opportunity was used to increase the short position (via BIS) in one of the managed accounts. Not advice, not a recommendation.
The IBB bearish divergence is beginning to take shape.
Positions:
Note: “Close” prices as of 11:03 a.m. EST
Charts by StockCharts
About a year after Teddy Roosevelt left office, Wyckoff published his seminal work; Studies in Tape Reading. That year, was 1910.
Wyckoff was the one that defined support, resistance, accumulation and distribution.
He was the one that discovered markets have a power of their own; having nothing to do with any fundamentals.
Wyckoff found that if you can decipher price action, you can determine the most probable direction.
A first edition Wyckoff ‘Tape Reading’ text … if you can find it, goes for about $3,500.
Even lesser known books of Wyckoff such as this one, go for hefty sums.
In his ‘Tape Reading’ text, on page 102, he shows a diagram that represents price action exhaustion.
His discussion (repeated below) is concerning the bull side.
For today’s chart of TLT, we’ll mentally swap every ‘bull’ notation from Wyckoff with ‘bear’ and conversely, every ‘top’ notation with ‘bottom’, every ‘buy’ notation with ‘sell’ and so on.
“ … and you see what the chart of a stock or the market looks like when it reaches a point of dullness.
These dull periods often occur after a season of delirious activity on the bull side. People make money, pyramid on their profits and glut themselves with stocks at the top. As everyone is loaded up, there is comparatively no one left to buy and the break which inevitability follows would happen if there were no bears, no bad news or anything else to force a decline.”
The ‘dull’ period he is discussing is shown below in TLT. It has repeated the diagram on his page 102, in near identical fashion.
We have supplementary evidence from Steven Van Metre during this report, the bond bears have started to back off their historic short positions.
They are trapped and exhausted; all their selling has not collapsed bonds as anticipated.
So, let’s see what happens next. According to a text written 110-years ago, we are expecting a rally in bonds .. a massive rally.
Quotes used with permission
Charts by StockCharts
The Danger Point® 