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May 29, 2009

Shakeout Galore

Since about May 11, the market gods have flagellated any trader who dared take a firm stance, either bullish or bearish. The S&P 500 has seen four whipsaws of 30-50 handles a piece and has consistently turned bullish or bearish price patterns the other way. Most recently, today's hourly chart at around 1:00ET was looking like the bears would finally have their cake (not my birthday cake, though) and break the market lower. Instead, price turned and went directly 2% higher. Sheesh. What's a technician to do?

s&p 500 chart

We certainly have a difficult read now. The action off the May 10 high can be read as topping action (because of the descending triangle on the hourly chart) or consolidative action (because the market has managed to work off overbought conditions while moving sideways). I'm sticking with my shorts for the moment, but I'm out if the triangle gets cracked to the upside:

s&p 500 chart

I'll be the first to admit that if the market wants to really shake the bears before going down, it will produce a false break higher. However, I am not the type that has a problem re-establishing positions at a worse price if I see the game change. What I do have a problem with is ignoring capital preservation rules.

Thankfully, my precious metals and other commodity-related positions have far outweighed my index positions. Silver is in full breakout mode with a robust move above $15 today, and gold is flirting with its last pivot at $960:

gold chart

It seems the Fed's efforts to throw money at our economic problems are having all the unintended consequences. Foreigners are losing faith in our government bonds. The housing market is still crumbling. People and institutions are hoarding cash. And most dire of all: commodity prices are rising in a depression. I'm ready and willing to defend the argument that China has accelerated its program of using excess reserves to buy resources rather than prop up our nation's malfeasant policies.

By the way, congratulations to anyone who took the natural gas trade on the bullish hammer two days ago. NG popped a whopping 10% today, and I'll bet a few more of these moves are ahead of us. Along those lines, copper seems poised for a move of its own:

copper chart

We close the books on May tomorrow. See you this weekend.

 

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