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The morning sun rises to greet him. And in its low, warm light he stands like… like some sort of pagan god or deposed tyrant, staring out over the city he’s sworn to… to stare out over. And it’s evident just by looking at him that he’s got some pretty heavy things on his mind.
(The Tick, 1994)

Ah, we can never just run through a big level and keep going, can we? The Market poked its head up to yesterday’s high, then sold off through the end of the day.

This selling is not a failure on a daily-bar time frame. For instance, if we were trailing a stop on a swing trade, it would not have been hit today. So this is not a short signal.

There’s an old traders’ axiom that goes something like, “Sell by Rosh HaShana, Buy Back by Yom Kippur.” Since Rosh HaShana starts day after tomorrow, well…

Basically, we sit on our big piles of cash and wait patiently for a signal. “Need more chart,” I sometimes say.

The current Cisco Systems trade had a new high today, so we bumped the stop. Check it out.

Oh, and how about the “surprise” announcement by the Philidelphia Fed? Is it news that the economy is too weak?? WTF have I been moaning about even as recently as my post two days ago?

The Market Today was an interesting one, indeed. After weeks of teasing and tiptoeing upward, the S&P crossed the important 1326 level today, before closing just below it. How big of a deal is that level? How about a 67-month high? Here’s the current chart:

I’ve just checked Google Business and Yahoo Finance headlines again, and nope, not a peep about the break. That’s good.

The Qs gapped up 35 cents this morning after that nice high-volume washout yesterday, and closed solidly above the important 40 level. (By the way, yesterday was the biggest volume day since back in July– if you follow this site you know how much importance I place on high-volume days).

If Spidey storms higher tomorrow (Thursday), many armchair traders will be caught with their pants down, trying to play catch-up on Friday after all the breathless headlines finally show up. Fee, Fi, Fo, Fum… I smell some fresh money chasing the market. Let’s look for good clean setups and get on the train first.

Here’s the chart from today’s update on the current Cisco trade:

To read up on the entire evolution of the trade, click here.

Today’s economic news saw the PPI rising 0.1%, with the core rate falling by 0.4%. Estimates were for up 0.3% and 0.2%, respectively.

Discussion currently seems to revolve around whether the Fed will definitely stay “on pause” now, or perhaps whether they “went too far” with the string of rate increases.

I want to use this opportunity to bring out an OLD soapbox of mine: the increase in the money supply in the early years of this century was waaay overdone and credit was loosened waaay too much. The resulting spending binge we Americans went on, which was multiplied as we re-financed and re-re-financed our golden geese rapidly-appreciating homes, should have sent the economy into a hypertensive crisis. The Fed should have had to raise by leaps and bounds to get things under control, and should have had to overshoot “normal” to cool off the economy, “normal” being a 6+% Funds Rate.

Instead, we’re sitting at 5.25%. The Fed has not “hit the brakes,” it has only let off the accelerator somewhat. For the economy to be slowing, or even threatening to slow at this point, is ominous. Spooky. Dark clouds on the horizon.

I was encouraged by the recent reports of healthy economic growth, the little blip in bond yields, and the slight strengthening of the US Dollar, which is skating on the thinnest of ice.

Now we’re placed squarely back in a position where we could be faced with waning economic growth, unmanageable debt, a falling dollar, and rising interest rates all at the same time. Yes, rising. If… no, make that when, the Chinese and Japanese slow the rate at which they are accumulating US Treasury debt, the price of that debt (i.e. those bonds) will fall with the slowing demand, and the yield will of course rise, causing the rates on virtually all credit products to rise as well.

These are ingredients for a terribly nasty-tasting economic cake. Let’s hope today’s PPI is subject to some significant revision, and that the economy continues to grow at least at a simmering pace for a number of months.

We are due a recession- overdue if you count the one the flood of new money a few years ago postponed. I think the inverted yield curve is telegraphing that fact. But remember, we need something to recede from.

Note: I’m turning off comments on this post– for some strange reason, it seems to be the target for a flood of comment spam.

And the story of the day on CNBC this morning? A new study shows that drinking causes you to make more money.

Yah. They even had the genius who came to this conclusion on for his free 2 minutes of national exposure.

Now here’s what the study actually showed: people who drink regularly are also people who, on average, make more money than people who don’t drink. That’s correlation. Not causation!!!

Michelle Caruso-Cabrera, in an astute question, asked the guy whether perhaps the folks who went out and drank more had a better opportunity to network, and therefore increase their chances of success. Now that’s warmer, but still a little off target. Nevertheless, it seemed to catch him off guard. He came prepared to tell you just how much you need to drink so that you can be 14% richer. Drink this much, but not more than this. Dufus.

To draw the conclusion that drinking caused them to make more money would be like concluding that having a nice car causes someone to be richer. At best, it’s the opposite. Maybe having money causes people to drink more and get nicer cars. But more likely, it’s that these things just “go together.” Drinking doesn’t make you richer… but damned I wish it did.

The larger lesson? Remember how quick people (and especially the media) are to declare that this caused that. Be especially suspicious when they attribute a market move to some news. Don’t fall for it. As often as not, the move is a fakeout. Trade the chart, grasshoppa, trade the chart.

First a quick look at The Market Today:

The S&P is just a big tease, easing so close to the all-important 1326 level. C’mon, sweetie. We need a conclusive break on high volume.

The Qs are likewise farting around. For them it’s at the 40 level, of course. Remember, I said in my Caution: Resistance at Hand post (last week) to expect some turbulence. Keep your stops fresh. Make sure they’re exactly where you want ‘em in case of a failure.

While we’re talking about stops, the stop on the most recently published CSCO trade stays the same, as today printed an inside bar.

Ah, and how about the unpublished trades? Well, I waded into the river and took a couple of day trades this morning, as I was lucky enough to work 12-8:30pm at my keep-the-kids-fed job. I managed to get short on Broadcom above 29.00, as the extended run “up” reversed at noon (EST).

Since I was due at work at noon (CST), I had to put in a stop limit cover order and leave it alone. It took me out on the 1240 EST bar, with a whopping 2 cent gain, before commissions. If I’d had the entire day off, I would have been able to get short again on the next (profitable) drop on the 1320 EST bar, for a gain of 30 or 40 cents. But then life’s just a big set of compromises, no?

This is a beautiful chart anyway. It’s not often you get those nice smooth upswings and downswings, higher lows then lower highs, etc. I’m sure lots of folks paid their rent with this one today.

Oh yeah. Before I go to bed: Oil’s down. Down lots. Everybody is happy. Gas is cheap. Oil stocks? All sucking wind, of course. Major breakdown from long-term uptrend. Or is it?

Monday, 9/11/06 was the highest volume day for Exxon since 10/18/05. In case you’re new to this site, I see high-volume days as extremely important. Often they serve as support/resistance all by themselves. This huge day followed by a few noodling sideways days spells trade entry to me. Since the entire world seems to be declaring oil a short, I’m inclined to watch for a long entry. Let’s keep an eye on this one.

Here’s a line from a post I wrote about Wal-Mart last December:

However, I’m a firm believer that your own eyes can often be your best source of inside information, no matter what the “experts” say.

At the time, the “analysis” of Wal-mart was full-on positive, but my own observation was telling me a different story. When I wrote that, Wal-Mart was around $48. Today it closed at 48.37, over nine months later. Wow, watch that P/E drop, Bob. What a value.

Now I’m gonna tell you a little story of fundamental analysis I’ve done on AAPL over the last few days. The majority of the young, hip world was on pins and needles waiting for Apple to announce their new cell phone-iPod combo doodad. I know this, not because I’m young or hip, but because I have three daughters. The oldest was already negotiating on this being a Christmas present (pretty please, Daddy, you know how much I love you, etc).

When the “news” came out, and Apple’s big announcement turned out to be… overpriced video downloads, the only people shivering with delight were the True Believers.

My daughter was so disappointed she nearly cried, but the next morning at work, the talk was how Apple was going to the moon with this Disney download thing. Ah, but work is filled with OLD people. In their 30’s, some in their 50’s! Not one iPod owner for every 20 of ‘em.

I would have been spending hundreds of dollars on the cell phone thingy, but I won’t be spending one penny on any $12.99 movie to spend two hours squinting at a 2-inch screen, for myself or my daughters. We’ll stop by the video section at Wal-Mart and buy the DVD instead, and just watch it on the plasma. DUH!

Here’s the current chart of AAPL:

My actual trades are based on the CHART, of course, of course, of course. Nothing on this chart that shows a setup for a long OR short entry right at this moment.

(A long entry was definitely warranted on the break of 70.00000 on 9/5/06. I pointed out this level as a long breakout in my failed short trade on AAPL from last month. That long trade would be deep in the money, and would not be stopped out yet.)

What I do see on this chart is decreasing volume on increasing price. A pullback, except the pullback is up.

I’ll be watching for some sort of setup and break to get short. My little girl doesn’t know TA from BS, but she knows what the cool teenyboppers like. And I happen to think she’s the coolest.

First, a couple of notes-

Remember how we saw yesterday that Google had broken above its sideways range of the last few weeks? Guess what happened:

Better than a mustard, egg and jelly sandwich! Also made for a beautiful daytrade setup:

That 1045 EST 15-minute bar is SO close to being a pure Dummy Spot. Its low is one penny below the previous one, so by a strict definition, it’s not a DS. It’s still plenty close to take a trade off of, though, with the low volume and resumption of upward action.

Now on to business. Please check in on the current CSCO (Cisco Systems) trade-following post. Going well.

As for The Market Today: Very positive action in everything, everywhere. Feeling giddy? Not so fast there, lightnin’.

Remember that 40 is a major level for the Qs. Support that broke, then resistance that held. Now we’re up against it again. Right up against it. Ever heard this old rule:

Yeah, times like this we don’t want to hear that. But it’s a cliche’ for a reason. If you’re long the Qs, congrats. Now watch your stops and be prepared for some turbulence.

The run in the overall market has stretched the proverbial rubber band pretty tight to the upside. Run some oscillators if you like, stochastics or what-not, they’ll all show overbought. To which I’d say… DUH.

I like the VIX. I wrote last Spring about the “VIX Fade Trade” where traders watch for a reversal anytime the VIX gets more than 10% away from its 10-day moving average. Here’s a chart from today:

Now, stockcharts shows the 10MA as 12.60. Ameritrade’s Advanced Analyzer shows it as 12.50. I “did the math,” and I got 12.704. Go figure. Anyway, today’s close of 11.18 is more than 10% below the 10MA no matter how you slice it.

What’s that mean? Everybody’s feeling too warm and fuzzy. I know I am. Aren’t you? Had an extra glass of wine at dinner tonight to celebrate your good fortune and brilliant trading acumen? Yeah, me too, but just between you and me, make it a cold beer.

So don’t try to anticipate and randomly jump out of the plane. Never anticipate. That’s one of my rules, although I’ve not published it at this point. Anyway, just make sure you’ve trailed your stops to exactly where you’re comfortable being taken out, and expect some action.

P.S. If you like to live on the ragged edge, remember options expiry is day after tomorrow. Tomorrow is a prime day for a pullback to normalize the run for the last few days and ensure the inside guys the biggest gain on your expiring contracts in both directions.

Many successful individual traders trade very little or none that last 2-3 days of expiry week. It’s usually boring as hell. But when it does move, it can make you sing and puke all in the same day. Anyone remember last January’s expiry??