A FATHER-SON BULL SESSION: YOU’VE GOT TO GIVE IT TIME

MrTopStep.com

By Marlin Cobb
My son was home for the holidays and we don’t talk much about my work or the markets or trading, but he has some IRA money that he wants to speculate with in some small cap arena.  He is in love with 3D printing and DDD and some other 3D stocks that I can’t remember.  We talked about risk management and diversification and bubbles.   I don’t do stocks much anymore, at one time it was my living but now I just focus on futures and social trading technology that fosters group-think and trading.  I want to find the strong and follow along, and perhaps even contribute a thought or two.
He asked me yesterday if I was bullish or bearish and I confessed to being very bullish, all based on my reading of market breadth and index price action.  If this is not your first time reading me, then you and I have talked about that a couple of times before.
Well, the boy was very happy at my bullishness as he was long in the 3D market.  The market opened up strong but then weaker than expected retail numbers, the fiscal woes, and a major storm teamed up and the prices slid off into the buy area we established at 1411, yesterday’s low was 1410.75.  The boy then checked his stocks at that low of the day and remarked to me, “So much for your bullish call!” ... you have to love your children, right?

I replied – “What do you mean? The title for my piece yesterday was something about the U.S. dollar driving higher and driving the ES e-mini to 1411.” Unbeknownst to me, he had placed some orders after the open with the great bullish optimism I had imparted to him having not read my morning missive.  He will be fine.

I write this to illustrate that a person’s call MUST BE analyzed in a timeframe.  I am a trend trader, and the way that I trade trends and calculate the trends and changes is with breadth and price action.   Currently for me, the trend remains fairly strong and on the side of the bull.  We are currently in an area where we would expect a bounce which we will  analyze for strength, looking for divergence and a signal of an early trend shift.   That does not mean that we don’t expect some backward movement on the dance to higher highs.  It does mean that when presented with selling, we are a bit more comfortable taking long positions.

We are seeing some stretch here or, as some would say, oversoldness on the breadth, which will either break and signal a trend change to the downside or snap back up like a trampoline and take the markets higher.  We are still in the camp of the latter.
Bullish concern No. 1:

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Our McClellan Summation Index, one of our long-term trend indicators, is beginning to roll over.  The time torture of this water drip has taken effect and we are watching the delta between the 15DMA and the signal line very, very closely.  A cross would have us as full-on bear.

Bullish concern No. 2: The Zweig Breadth Thrust chart is one of the major concerns with the lower highs in place and now a reach for the 40’s. We still think that is signaling a buy.

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Our view: For the most part this is game over. Including today, there are 2-1/2 trading days left in 2012. Yesterday you could clearly see that three-quarters of the floor did not show up to trade. Plain and simple, people are taking time off. For those that are going to play, we lean to selling the early rally and buying weakness.

  • It’s 7:15 a.m. and the ESH is trading 1416.50, up 3 handles; crude is down 2 cents at 90.96; and the euro is up 61 pips at 1.3293.
  • In Asia, 9 out of 11 markets closed higher (Shanghai Comp. -0.60%, Hang Seng +0.35%).
  • In Europe, 7 out of 12 markets are trading higher (CAC +0.29%, DAX -0.15%)
  • Today’s headline: “S&P Futures Seen Modestly Higher”
  • Economic calendar: Today: Jobless claims, new home sales, consumer confidence, API, Fed balance sheet, Monday supply. Friday: Chicago PMI, pending home sales, EIA nat gas report. Monday : Dallas Fed mfg survey, early close and farm prices.
  • Globex volume: 578k  ESH and 9k SPH traded
  • Fair value: S&P +3, NASDAQ +4.75

MrTopStep Closing Print Video:  http://www.mrtopstep.com/closing-print-12-26-2012/

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DISCLAIMER: The information and data in the following report(s) were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities. MrTopStep, its officers, directors and its contributors may, in the normal course of business, have position(s) which may or may not agree with the opinions expressed in this report.

 

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