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Thursday, May 11, 2017

Market update 5/11/2017

Picking up where we left off 

Trend and Trend Reversals 

To review where we left off, before I ran out of time: Once a trend is established it's likely to continue, and until it reverses, a trend reversal can't be confirmed. It can take some time, to confirm a major market reversal, but it usually starts with the short term trend breaking - in a big way - and this is why it's important to know where support, and resistance is. If you know where support is you know where to get out, and even get short when it breaks. Most traders will miss a big market move, and then wait for a bounce that never comes, and at that point, you've already missed the boat, and you should probably be looking to bet counter-trend, once a bottom forms, and that process takes some time. Don't let your emotions control your trade. If you miss the boat, accept it, move on, and live to trade another day. 

I remember telling folks to buy gold miners at the end of 2016, ahead of the reversals I saw coming, in many of the gold miner charts, and on the $JDST (3X bear jr gold miners) chart. From there we saw the trend on $JDST break, and lose nearly 60% of it's value, in only a couple weeks. 

In hindsight there's a lot to be learned from the recent action in gold miners, and I'm using these charts, because they are the most extreme example of a leveraged ETF, and the best example of a major trend reversal in recent memory. You aren't nearly as likely to lose 60% of your nest egg, in a leveraged small cap fund, but Jr miners are super volatile, and easily manipulated. 

 Lesson we can learn from the chart below.
  1. Don't trade 3X leveraged funds, if you lack the ability to spot a trend reversal.
  2. Don't trade real money if you lack the discipline to cut your losses. Trade a practice (virtual) account. These virtual accounts are free at CBOE. Link 
  3. Don't continue to sell already beaten up, and heavily shorted stocks into light holiday volume
  4. Those who claim leveraged ETFs should only be held for a day, don't know what they're talking about. If you have the discipline to stick with the trend, that trend may continue for some time.
  5. Trend lines work, even on volatile leveraged ETF charts, the latest of which we saw break yesterday. 

We'll get more into trading leveraged ETFs in the future, but let's take a look at today's market action. 

$VIX remains pinned in the bottom of the range. Yeah, the market is complacent, but that can continue for some time. The fact is there's no fear in this market. That can turn on a dime, but probably won't, because this is short covering season, and the bulls know it. 

I recommended Energy/Oil and Biotech, in my interview on Monday. 

Oil is on a tear, and we'll be watching for a bullish trend (channel) to develop there. 

Biotech: Looks like a pullback into a bullish wave 2 (of 5) to me. 

Russell 2000: Made a break though on this chart after yesterday's close. If this is what you like to trade, see my tweets, around 4:30 PM CST. 

I'm a virtual (CBOE practice account) seller of the $SOX. Will it continue to break out above resistance? I don't know.  

The S&P continues to stall at resistance: Sell in May, and go away, is still a possibility. 
Watch the $VIX as always. Don't base your intermediate term outlook, on a silly 1 min chart, because that can break faster than you can even open your sell window. Key short term support can be found on the 1 min $SPX min chart, which I tweeted out many time yesterday. 2397.50 & 2393.50. 

If we see a reversal, I believe financials will lead the decline, not only based in insurance co's pulling out of ObamaCare, but the updated $BKX chart located in my public, "Charts of Doom", linked in the left hand menu. Maybe financials decouple? 

That's all the time I got. Excuse the typos, ans thanks for the recent donations. 

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