The trend is still your friend, because the only truth is price

By Vikram Rangala, Guest Editor

Everybody seems to know that the bubble should burst. And still it just keeps going up. Doesn’t the market read the op-ed pages?

View gallery


Among the news items we’re supposed to consider: Asian and Australian stocks rose overnight, after the USD topped 100 against the yen. So did European indexes. So all the cool kids overseas are rallying.

Some analysts are said to be worried that the Fed will slow its bond buying. Others say the low interest rates will move 401ks and individuals to take money out of non-performing bank and money market accounts and into stocks. But no one giving their opinion is under oath.


Let’s not lose sight of the basic reality. The S&P 500 has closed up 11 of the last 18 Fridays and has had a run of new highs. In the end, the only truth is price: higher highs and higher lows. Even if there are shorter-term downtrends, if you zoom out, the trend is still up. Volatile at times, but up.

Fed Chairman Ben Bernanke will be speaking to the banking conference here in Chicago at 8:30 CST.


Speculation is that he won’t say anything to harm a stock rally or the asset purchase program he seems eager to continue despite the disagreement of some, like Philadelphia Fed President Plosser. With unemployment steady and inflation still below the Fed’s alarm levels, there is little reason to expect a major announcement on monetary policy.


From there proceeds the speculation about what traders will or should do in response (assuming they don’t just yawn and carry on). Add in the supposed bond bubble, or how stocks should stop rallying when gold bounces (if it’s a bounce), or any number of factors that   should   cause the market to top out.

Basing trading decisions on what the market   should   do is like buying clothes based on what you   should   weigh.


Technical purists go too far in the other direction, refusing to watch the news or consider the emotion behind the market’s movement. Despite the rise of the machines, markets are still made up of humans (or algorithms written by them).


The reason most successful traders are trend-followers is that it is based on the only truth the market offers us: price. The price may not be what we think it should be and it may not represent fair value (though this morning the S&P is at fair value). Bottom line, it is the last value someone bought and someone sold.


It is the last real thing that happened.


Floor traders know this by hard experience. Veterans like those at MrTopStep may have started their careers looking for a holy grail, but in the end, they succeed because they keep their focus firmly on price action.


They might know, for example, that an order to buy 100,000 contracts just came through. They might even have reasons why. But mostly they’re concerned with who placed the order, who’s taking the other side, and how the market is responding to it. Not so they can explain it, but so they can blend with the trend.

Behind all the adrenaline and testosterone and caffeine that fuels the sound and fury of the pit and trading desks around the world, there are some calm, focused minds at work. They are detached. They don’t chase markets. Whatever indicators or systems they use, they befriend the trend.


That’s another trading truth to reflect on this Friday: if you can master your own emotions, then the emotionality of others becomes your secret weapon.

View gallery


Do you need more than price to know that this is an uptrend and it has yet to bend? Note the convergence at 1654-55 of a Fibonacci 38% projection and a trendline drawn from way back in February. Does that mean the market will reach there? Nobody knows. Just because a lot of people are repeating those numbers doesn’t mean it’ll go there. But it won’t be a total surprise if it does.


More importantly, there will be a number of places to take profits on longs, scalp to the short side, and buy dips along the way. Whether Bernanke makes a speech or not.

Our view: To say the last 2 weeks has been amazing is an understatement. There has been no letup. Of the 17 Fridays this year, 12 have closed higher and 5 have closed lower. There are no scheduled economic releases this morning, but Ben Bernanke speaks at a banking conference in Chicago at 8:30 CT.  Let’s face it, the money going into stocks has made it impossible to be a seller. If you're lucky and fast you can make money selling rallies, but the real money trade is still the long side. Was yesterday the Pit Bull’s Thursday / Friday low? Is there a new pattern setting up now? Has the early morning selloff been replaced by a new afternoon flunk-a-dunk? In all honesty, we just do not know what to think about how this will play out today, so I want to get to the floor and get a feel for the price action. As always, keep an eye on the 10-handle rule and PLEASE use stops when trading futures.

  • It’s 7 a.m. and the ESM is up 1.5 handles at 1626, crude is down 1.92 at 94.47 and the EC is trading 1.2991, down 28 pips.
  • In Asia, 9 out of 11 markets closed higher (Shanghai Comp. +0.62%, Hang Seng +0.47%, Nikkei +2.93%).
  • In Europe, 9 out of 12 markets are trading higher (CAC +0.41%, DAX +0.29%)
  • Today’s headline: “S&P Futures Point to Higher Open”
  • Total volume: 1.82mil ESM and 10.8k SPM traded
  • Economic calendar: Ben Bernanke speaks at the Chicago banking conference at 8:30 CT, Esther George speaks on the economy in Jackson, Wyo., at 1:00 CT and the Treasury budget.
  • Fair value: S&P +3.08, NASDAQ +5.68
  • MrTopStep Closing Print Video:


View Comments (0)