Five Reasons To Be Cautious
First of all, I would like to apologize
for my brief articles recently. My schedule has been hectic and with
little to say, I figured I was not going to try to BS the readers, you guys
would smell it a mile away. Thanks for being patient.
So on that note let’s summarize not only where we stand presently in the
market but also how we may be able to capitalize on it. As you know the
recent action has been sluggish at best. Yesterday afternoon follow
through was non-existent. There is no reason to go on a quest for answers
as to why the tape is acting so strangely, it only helps to know to stand aside
until a clearer picture develops. I believe that picture is beginning to
come into view.
Nonetheless, we must not forget that we are in a unique environment
presently. Opinions are strong in both the bull and bear camps and right
now it is a slugfest. The buyers however, are very calculated, the moves
higher intraday are far more orderly and painful, while the sell-offs are quick
and decisive, exactly the action us HVT’ers
desire.
So, naturally with price action to the downside being more conducive to
HVT, I am rooting for the bears to take charge for a few days.Â
Based on my cursory glance at the charts, I may get my wish.
This chart puts everything in perspective, however, a solid case can be made
by both bull and bear. Last weeks close above 50-week moving average was
the first in nearly three years. It will be critical for it to follow up
this week with a similar performance. The bearish tone would be seen in
the stochastics. Presently they are reaching overbought. Naturally,
the stochastics only offer us a decision point, not an absolute signal.
Other measures of the market continue to send out a cautionary message:
1. Chartcraft.com’s
Investor Intelligence survey showed bullish sentiment rising to
55.8% vs. 48.3% a week ago. Bearish sentiment fell to 24.4% from 29.2% the prior
week. Meanwhile, bullish sentiment among the American Association of Individual
Investors’ survey of its members fell to 48.6% on May 1 from 63% on April 24.
2. The VIX
continues to languish near the lows for the year, although still just a bit shy
of the lows touched back a few times in 2000-2002.
3. The dollar continues to weaken, flirting with
four year lows.
4. The bond market has rebounded. Not
exactly a sign that the economy is improving and inflation will be rearing its
ugly head.
5. Based on the daily chart of the S&P 500
futures, I project May 10th to be a Fibonacci time date. To review, it
simply is an estimate of when, based on Fib extensions between 2 time points, a
trend may reverse itself. Given that the trend is clearly up right now, a
reversal may be imminent. This indicator has been quite reliable over the
last several months at picking key turning points in each of the bear market
rallies. The March 21 call was the one that did not work.
But so what? These indicators have been flashing
red for weeks now. Yep, and they probably will for a few more too.Â
My point is simple, I do not care, nor I am I trying to predict what will happen
next, it makes no difference in my trading, since forecasting trends adds
NOTHING to my edge as a trader. However, I am waiting for some sort of
“break” in order to fully capitalize on some dynamite trading
opportunities. The risk right now is to be long the market, if we do
sell-off and gain some steam, you better damn well be ready to trade until your
fingers are bleeding. We are truly in a market where there are brief
pockets of extreme opportunity. Last July comes to mind. In the
meantime, keep your head down and be selective. In fact, despite the
relatively narrow range for the last 10 days, myself and several subscribers to
my new Trading Room posted only 1 losing
day. We are focused and disciplined, exactly what the market demands right
now.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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My new trading service, “Dave Floyd’s Trading Room,”
through which I offer live real-time audio commentary, analysis and alerts is
now available. I encourage you to check it out.
Click here for more information.
As always, feel free to send me your comments and
questions.
P.S. I also have a new trading module available which teaches how to trade my HVT
style through bar-by-bar chart simulations.
Click here for information about the module.