Hope you all had a glorious Memorial Day and had a chance to get RRR’d (rested, relaxed and ready to go) for this week. Borrowing that from Ben at TradersAudio, just FYI.
As you can see, the bull flag that’s been building on the SPY has now resolved itself higher. I wish I could spell out a list of reasons why the markets keep getting stronger, but I can’t. I play the charts and the price action and don’t get caught up in the “why?” too much anymore.
As I see it, bailouts and oil prices will help drive us to new highs soon. The red line is monthly R2, which also has a nice round number of 140 (or 1,400 on the ES). It is here where we should go in fairly short order. After that, get protection (more in a minute).
One thing’s for sure – the dollar is helping as it resumes it’s weakness after a pop out of the 3-year cycle lows. Will it make new lows now? Doubtful. In fact, I think we could see support here very soon around the 74.25 area that was the breaking point in April and the catalyst for metals to make the parabolic move they did.
By the way, notice how weak the metals have acted lately with the dollar move. Silver, in fact, is setting up a nice bear flag of its own – and this could get ugly. Anyone see $25 in the near future? Keep a close eye on this.
And gold too. It just can’t seem to make it to that 1,600 mark that so many have called for.
Conclusion for Now:
Folks, I get a ton of info, as I am sure you do too. I continue to find the most comfort in two sources – 1) Chart action and the Person’s Pivots that you see on the charts above, and 2) Gary Savage’s cycle work. These two sources often filter out the guesswork and point out where we are more in the big picture and where a turn may come.
So here’s the deal – everyone’s blabbing about the impending inflation but we may be heading for a turn in that theory. Deflation is about to take center stage, with Commodities down, dollar up and equities down.
If/when this takes place (likely throughout the summer), Big Ben may yet again start the QE program in order to “save” the markets. Each version of QE will subsequently do less for us than the prior one, until the merry go round stops and true healing can take place.
I worry about the dollar’s position if we in fact see QE’s 3, 4, 5, etc. but will continue to play price action only. It’s the best protection out there.
So the plan right now is to ride the bull on this final shot up to 1,400’ish. A 3-year cycle low is due this summer (August/September) in both the stock market and the commodities (CRB). It’ll be swift and may take us back to test the 1,000-1,050 levels of 2010.
From there, commodities and equities will have “reset” and we’ll be looking for opportunities on the long side again, maybe in metals or in high-fliers who got a severe beating.
Right now I’m trading the futures and using some shorter-term options strategies. At 1,400, protection will come in the form of cash, some shorts and some put strategies. As we learned with Silver recently, that perfect target may not be reached before the turn is made…..so stay on your toes.
Trade ’em well and trade the extremes always!