Tutorials

If Papa Bear has indeed come out hibernation, we’ll need to be particularly cautious identifying trading opportunities. Under the circumstances, many of our favorite vehicles, particularly gold and the E-Mini S&Ps, could start to behave in new and unaccustomed ways. This lesson focused on schizoid price action at ‘p’ midpoints – something that will take some getting used to if stocks, bonds and commodities are in fact in the throes of 180-degree turns.

It’s still speculative at this point, but evidence is growing that U.S. stocks may have entered a bear market. If so, it will have begun with the powerful impulse leg from early May’s highs. This occurred not only in the broad averages, but in such key bellwethers as Apple and IBM. As the bear develops, our trading strategy will need to evolve to exploit the violent rallies and unexpected dives that lie ahead. In this lesson, we consider some specific strategies that are applicable now, as well as others that will likely come into play over time.

The Dow was on its way to a 160-point loss as traders flocked to the dollar and “riskless” Treasuries, and so we took a leisurely and look at some charts that might otherwise have induced vertigo. Bellwether Apple was in state of ambivalence after having rallied from its deepest hole in years, affording us an opportunity to handicap the odds of its being in a bear market. Finally, we found new assurance that T-Bond futures are (still) on their way to the moon.

Stocks were getting hit hard when we looked in on them during this session, giving us an opportunity to pore over tradable subtleties in the charts of vehicles that were tracing out big swings. Gold and the E-Mini S&Ps were about to rebound sharply that day – see if you can spot the telltale signs -- but T-Bond futures never even swooned and looked strong enough to forge higher in the weeks ahead.

The markets were in the throes of tedium when we looked in on them this morning, affording us an opportunity to ponder a bigger picture than usual in some key vehicles that we track. T-Bond futures, for one. The Rick’s Picks forecast has been extremely bullish, for reasons that leap from the weekly chart to the eye. Yields on 30-year Treasurys could go below 2.5% if the futures contract fulfills its technical destiny. Gold, on the other hand, could fall all the way to $1400 on completion of a clear ABCD correction pattern from last summer’s high. This session is an eye-opener and a must-see for traders and investors concerned about the long-term trend.

Gold and Silver were getting trounced when we looked in on them during this action-packed session. A washout low? Probably not, if one reads the technical evidence dispassionately. We identified some new targets and made a short list of things we’d need to see happen before the turnaround would become credible. There was also a discussion of some very subtle distinctions between internal and external lows on charts of larger degree.

Positioning trades was challenging on this particular morning, since the broad averages were only moderately lower on appalling economic news. Europe was sinking further into recession, U.S. factory orders had taken their steepest dive in three years, and the private economy had created only 119,000 new jobs in April. Our approach was cautiously bullish nonetheless, and we considered a strategy for bottom-fishing in the E-Mini S&Ps on the assumption they would recover later in the day. An actual trade was signaled in Silver Wheaton as we watched, although the signal turned out to have been based on inattentiveness to the ‘Rodney Dangerfield’ of our short list of rules.

On an funereally slow Friday, we found interesting things to observe, including ‘technicals’ for Treasurys and a way to trade them that morning from the long side. The timely set-up we looked at did not trigger during the session, but we observed it in sufficient detail that it will be worth your while to ponder the camouflage aspects of the trade. The E-Mini S&Ps were up the equivalent of nearly 90 Dow points, but there were sound technical reasons for inferring they would make little further headway that day.

Gold and Silver had rallied a day earlier, but we found good technical reasons to avoid having this color our usually grey objectivity. Weakness was in fact evident, mainly in the narrow failure of June Gold to reach a clear and compelling rally target. A similar observation obtained for the E-Mini S&P, which was rebounding after the previous day’s selloff, the biggest so far in 2012. This vehicle ,too, had fallen just shy of a clear rally target, giving us reason to infer that weakness would soon return. Finally, we talked about preparing psychologically to trade in a bear market. Because the camouflage technique was developed in the context of a market that has been trending upward for more than three years, we will need to adapt our thinking before we are comfortable shorting tops rather than fishing bottoms.