The Short Strokes Update
posted Jul 27, 2004 at 07:25PM
Well the Nasdaq has bounced off trend-line support. Does that in itself mean the bull is back? Too early to tell. Or at the least too early for me to tell.
Given my overall view that the reflation trade is over, I am not excited over the sustainability of this move up and I don't think this bounce will be as tradable as the past one.
My interpretation is that the Bear just noticed that the bulls were starting to squeal a little too loudly, and decided to ease off the pressure to keep them interested and to keep the shorts on thier toes. I do think the move up to trend-line resistance will be a difficult one.
A lot of short-term traders got in on the basis of trend-line support and bottomed out momentum indicators. If I am right about entering a period where the reflation trade is being unwound, then these momentum indicators will get lots of people in trouble. Just ask those poor souls who insisted on trying to short gold stocks because they were "overbought"
Nasdaq vs Fear
We are not quite at the levels of the Bubble Peak. One more leg up would get us there. Again hardly an optimum entry point. I think from a risk management point of view you need to look at any long position as a temporary dalliance. If the Nas did complete another leg up it would set up an optimum technical situation for going short.
Big spikes in the VXO are reasonably regular events and we are certainly due. You can make more money on one series of trades in such conditions, than 20 skilfull trades nickel and diming the market and making brokers rich.
Looks Nice on the Outside But
It will be tough short-term trading for all but the most skilled trader who also has access to solid real-time data. Not only is timing required, but you have to pick the right trading vehicle.
Speaking of Gold
I must admit that in the short term I had expected bullion to start strong and move up to 395 to back test the trend-line break. So much for short term crystal balling
Although gold was weak through the day, the HUI, in contrast to last week, finished with some buying - most notably some nice reversals in flag ships Nemont and Freeport.
The advance decline line was also reaching levels associated with bullish reversals.
Some stocks like SWG and IVN were really getting done over so some kind of relief was due..
It is of course this kind of bullish divergence that makes short term traders go hmm..
So will this be a tradable bounce?...say back up to 200 resistance?
The truth is I really don't know. Given what I wrote over the weekend update I am of the mind to wait and see if the gold sector can put together some bullish sequences first.
Given that all things equity displayed some strength at the same time, makes me believe that the same forces are still controlling the market, and those forces are not friendly towards things "paper"
I will troll for targets of opportunity. Needless to say I would consider stops to be "de rigeur"
It is not really a breach until it closes a few consecutive days under the moving average or moves at least 3-4% below it. As I write I bullion is sitting right on the average so no one should get too excited.
A back test of trend-line is fairly common..but so far the USD has decided to keep moving up. Breaking moving average resistance is conventionally a bullish omen.
Keep an eye on the 50 dma which is currently undergoing a convergence test with the 200 dma.