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Thursday Fever – Draghi Speaks but Markets Will Weep

That's right, we're still short

Now, in addition to S&P (/ES) 2,100, we're short oil (/CL) at $44 – as noted yesterday in our Live Trading Webinar (replay available later today on our site).  If there were DAX Futures, we'd short them at 10,500, as that the top of a 5% pop off the 10,000 line (so we expected and got a 100-point pullback per our 5% Rule™) and only halfway to the Dax's Must Hold Line at 11,000, which is the same Must Hold as the NYSE, which also isn't holding.

Why is it that these broad-market indexes (and the Russell) are 5% below their value lines while the S&P and Nasdaq are 12.5% above?  Because this "rally" is

with very narrow participation and not even anemic volume.  Yesterday, in fact, just 71M shares were traded on the S&P 500 ETF (SPY), which is about half of a normal day's volume although "normal" days are now 50% lower than they were before the crash anyway.  

In any good survey, you need a proper sample size or the results of the survey are meaningless, right?  Well, the stock market is not much different – the less volume there is, the less "votes" are cast and the less reliable the price action is in predicting the future. 

Unfortunately, TA people tend not to take this into account and treat each move as if it's just as valid as any other.  They don't even consider fairly drastic changes in the Dollar, which the exchanges are priced in and that's just STUPID.  That's why TA is stupid – you can't pretend to measure something with the goal of extrapolating a trend when you ignore major factors that drive the very thing you measure!  

That is the "inconvenient truth" about TA – it's generally not much more reliable than tea leaves in the short-term.  You look at the above SPY chart and I bet you think it's bottoming around $209.50 but that's a 5-minute chart and you are like an ant on a football field trying to predict the movement of individual players based on your observations of feet as they pass you by!  

Now how do you feel about that 2,095 prediction?  And that's only the hourly chart!  If we switch to the daily view, this chart becomes a speck as well:

The main reason TA works is because so many people follow it (over 80% of all traders base their timing on TA) that it's a self-fulfilling prophesy and that's fine with us because we (crazy Fundamentalists) use TA as ONE factor in determining our entries and exits but not THE factor.  Hell, if 80% of the people bought SPY on Tuesday when teams with bird names won Monday Night Football – we'd factor that in too – and it would be just as stupid!  

The real money is made in observing the moves that are simply wrong and betting against the "trend."  It's what Buffett calls "being greedy when others are fearful an being fearful when others are greedy."

By paying attention to the Macro Picture, we KNOW when the TA is wrong and we are able to position ourselves to take advantage of it.  This is not knee-jerk contrarian investing – sometimes the TA is right and sometimes it's wrong – the same can be said for coin flips.   The real excitement for us is when things go way too high or way too low and we get to bet against those.  

Yesterday, oil went flying up from $41.50 to $44.50 (7.2%) based on rumors that were floated that there will now be another OPEC meeting next month to attempt to stabilize production.  First there was "news" that Russia had called for talks but then Russia said there was no truth to it and then that rumor was quickly replaced with gossip that Iraq was calling for the meeting and people confuse Iraq with Iran, who have refused to discuss it and PRESTO!!! – oil rallies.  

Even sillier, the Kuwait oil strike ended yesterday after just 3 suspiciously-timed days and STILL oil went higher.  That's Fundamentally unsustainable but, when it breaks back down is hard to say and over $45 we'll give up and wait to see where it tops out but, below $45 ($44.40 now) we're looking to accumulate shorts ahead of a nice, cold slap in the fact that oil is likely to get into next week as it becomes clear that the Global Economy is slowing and production is not.  

Thanks to yesterday's gyrations, our Webinar Trade now stands at 5 short oil contracts (/CL) at an average price of $44.224 and they are down $176 per contract at the moment (8:20) and we'll track this one as the purpose is to teach our Members how to scale in and out of Futures positions to improve our basis. 

Now, back to Draghi.  The ECB has officially left rates on hold and that's sending EU stocks down about 1% as we wait for Draghi's 8:30 speech where he will certainly say he is ready to do whatever it takes to boost the economy – which is what he always says before and after he actually does nothing.  Nonetheless, the S&P is back at our 2,100 shorting line and it's a fantastic place to short since the stop-out line (over 2,100) is right there – so your losses are strictly limited but your gains are not.  

Keep in mind the benchmark rate at the ECB is ZERO and the Deposit Rate has already gone negative (-0.4%) so they are already in a state of DRASTIC monetary easing AND they have just boosted asset purchases from $67.5Bn a month to $90Bn a month – it's only been 3 weeks – it does make sense they wait one meeting before hitting the panic button again.  

Given that monetary policy takes time to transmit to the real economy, the full effects of these measures on macroeconomic conditions have yet to fully materialize,” said ECB vice-President, Vito Constancio.  Germany’s vice chancellor, Sigmar Gabriel, said on Wednesday that the ECB has “reached its limit” with stimulus measures. Similar sentiment on global monetary policies has been voiced by the central-bank heads of Australia and Canada, and former Bank of England Governor Mervyn King.

Update:  Well, Draghi is still speaking (9:20) and he's essentially said nothing at all except this one that made me fall off my chair laughing:

Every time the

's credibility is questioned, it slows down the effect of our monetary policy, and therefore we need to do more

That pretty much sums up my Fundamental bearishness – these Central Banksters are IDIOTS!  

Be careful out there.

 

 

Provided courtesy of Phil's Stock World.

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