Ok so you know the age old debate of "technical analysis is voodoo, it doesn't work, this and that..." vs. "fundamentals don't work because they look at supply and demand on paper and talk about what things should be, instead of what is?"
Well this is one of those times where the market seems to be defying all logic. Fundamentals in everything is just horrible, companies facing bankruptcy because of just being overburdened with so much debt. S&P handing out credit downgrades like they were chinese food menus, and oil is still in a glut, a worse glut...
but the S&P is running up toward 2000? And oil to $35?!
What the hell, right?
Well...not as much what the hell as it is just a mechanic of trading and risk management. When people have bought something that has risen to a price and it has stalled, they will sell out. And of course when the price falls the second chance buyers who missed the first one will buy again... this is that. Everyone has seen an SPX bounce twice off the 1800's, which is of course a product of selling because of these bad fundamentals. And this is the second time people will have tried to buy there. Each iteration of the wave there can be fewer and fewer buyers trying to get in, and this puts weakness on the bull side. However... things don't just fall from that low. People who want to short, and short hard, like just about every hedge fund out there... will be unloading their stakes and shorting like you won't believe at this upper resistance, and I personally am joining in on that bet very heavily.
Why does this happen? Because it can... simply put. People don't want to be the person not doing it, so they do it, which creates the need to do it in the first place. So if fundamentals say the market should go down, then it will. But fundamentals knows no timing to trading. It will go down after it goes up first, and as we have been saying for a solid month as the SPX was plunging to 1800 the second time, things will be 2020 by March, and well... things are just about 2020 by March. March 2 that is.
SPX The infamous "scribble chart" we joke about. It was something we made a month ago. This comes from knowledge of three things: one of which is the fundamentals. The other is options and the third is the VIX. The VIX was the dead giveaway that the market wasn't going to outright tank from 1800 as most of the bets for southward direction were viciously pulled off the table at that support. It was then that at least I knew it would trend up again before falling, and that major technical resistance was the spot to trend up to. 2020. It's a number to repeat over and over in your head because it's going to happen. It almost happened today!
Here is the same chart zoomed in with one "topping out" scenario drawn up. As you can see there is a good possibility this is the top, but a top isn't a swift reversal either. A V-shaped reversal rarely happens. But what you will likely see there is another battleground like we just saw at the 1920's level for a week... and since that technical resistance is so strong and the fundamentals are bad, that is the recipe for the entire market to trade down. Technicals and Fundamentals... you can't have one without the other. It took both to predict a reversal and a rally to what might in fact be 2020 on the dot. As we roll out more content, we'll also be teaching people how to just trade better around here. Please by all means post questions you have about trading in general, I'd be glad to help. There are a million ways to trade, and this is the one that works for me...so if you'd like to learn please let me know. Teaching what I do, free of charge.
Oil
It's the same thing as the SPX, except the fundamentals aren't really getting worse. Yes there is a glut, but it's the same glut, and so fundamentals also include supply in demand, that despite the glut demand is going up as it always does in Jan-Feb. You see oil trade up until about late June to July, just about every year. It gets flat, and then it falls. This year will be no different, except that if the SPX does decide to plummet from these 2020 levels (which we are sort of eyeballing the Fed day for this) you will see oil trade down just because that's what happens when the market fails major resistances, everything falls.
Also today we had an EIA report that showed a crude build, and a distillate build, but a gasoline draw. Every amateur trader in the world would have shorted that, however an oil trader knows that in March distillates (heating oil) should build because people aren't heating their homes anymore, and the demand for gasoline has gone up because summer is approaching and that's seasonal. So this is reflected in the draw in distillate inventories (bullish signalling demand, and crude builds are only bearish when there is no demand for it, like in August. In the spring, builds can signal anticipation for future demand. With the contract in contango, all the more reason to not full bear on this combination on the report. A gasoline draw is a win for the bulls in March.
So on the TA note, it's so powerful I have to keep repeating this... because we used these same TA and fundamental mechanics to predict a) the oil bottom b) and oil every step of the way up here and here calling out each price target along the way in these posts.
Now here is what I think the near term top is
This last chart shows the targets that I am looking at for tomorrow and the Friday, and within a few weeks I am growing more and more confident the market will trade down. Because of fundamentals, yes. Technicals...also yes. But mostly I think it will go down because it's trading do predictably. Which scares me, because if I can see it, then I'm certain Trillions of dollars of other money sees it too.
Be cautiously bullish from here my friends... and stay thirsty. Oh wait, wrong commercial.
Happy Trading.
Submitted March 02, 2016 at 07:22PM by gabriel87120 http://ift.tt/1p05lZp
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