Chicagostock Trading

Chicagostock Trading

Why Stocks are Lagging

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As the NFP rate creeped toward the Fed's 6.5% target, the bond market acted ahead and as it closed 2013 on the lows, it started 2014 on the lows, only to fail in moving lower and squeeze higher during the month of January. This upside reversal caught shorts by surprise as it squeezed the market from 12723 to 13503 to stop against major resistance from October of 2013.  The reversal into this resistance squeezed out the short side, however for the next 3 months the bond market stabilized sideways to consolidate the reversal and in turn develop a base or in technical terms an inverted head/shoulder pattern from February to April. With April's low retesting March lows and holding, this saw a push back to breach the 3 month highs and confirm the inverted h/s pattern. The coiled pattern once again left shorts selling the market trapped and with the breakout above the 3 month high, this gave fuel to expand this inverted h/s target and squeeze out October 2013 highs. This was done in May, confirming the lows of 2014 as a failed breakdown and a reversal in trend. So far since the October highs being taken out, this has led the bond market to further squeeze another 4 handles as late buyers now come in after the confirmation and chase the market up.  Going forward, major resistance is being tested from June of 2013 in the bond market with new buyers chasing prices above last October's highs. A move through 14028 squeezes this resistance level and retraces the bond market 50% from its 2012 high to its 2014 low. A break below 13606 reverses short term upside momentum to shake out longs chasing the market and give way to test downside support at old resistance 134, followed by 129 as major support off the year lows.

 

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The Yen also started the year on the lows and reversed higher during the first month of 2014. This caught the market off guard again, squeezing out the short side with the move from 9486-9926.  Since this January upside squeeze, the Yen, as the bond market, went into a sideways consolidation period as it turned lower, however held above the January lows to keep shorts trapped. The consolidation and coiling led to an inverted head/shoulder pattern just as the bond market, with a squeeze in May to break above the neckline of 9870 and reach its 200day moving average for the first time since November of 2013. In contrast to the bond market, the Yen has had much more difficulty in expanding this range and seeing new buyers chase the market at these levels. For now investors are favoring the hedge of stocks into the bond market. Eventually this should rotate from bonds into yen and gold. Short term, the Yen remains in an uptrend with a target of 10150 to expand its 3 month range. Failure to hold the May low gives way to retest the April lows.

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Summer Capitulation or Summer Bummer

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Notice long term 2013 trend from the breakout gap and go above 1440 to start the year see a setup of higher lows strongly defended.  Early 2014 low held right against this trendline to put in another higher low and see new highs made. Latest higher low comes in at the April lows of 1803.  Uptrend line caught up to the market forcing buyers to defend even as market has gone into sideways distribution. The sideways consolidation has been a fight to hold the uptrend. Latest bounce coming from the April low and break out above recent 3 month range is looking for capitulation of shorts and new longs to be forced above new highs. The April low is now a major pivot level as a breach below breaks reveres the uptrend of higher lows.

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Long Silver

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Stocks Strike Out , Cash Takes Profits

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The SP500 for the 3rd time in the last 3 months sold off on NFP numbers.  The last two, were both peak highs. March 7th the SP hit highs of 188750 before turning down to 182350. The FRB chair gave the markets a push on the 31st of March reassuring stimulus measures. This gave way for new highs going into the April 4th report at 189250, only to see these highs once again rejected after the NFP numbers were released that morning.  This higher high and failure led the market to break March lows and fall down to 1803 in April to shake out the long side and lure in shorts. This has led into a short squeeze leading into today's job number as the market retested the failed April highs to give buy side another chance to push through.  Third time was not the charm, as the NFP failed to breach old highs of 189250 and the cash open saw profit taking to hold the NFP high of 1886, setting up a LOWER high, as opposed to the last 2 NFP peaks. 

This selling on the Jobs report over the last 3 month period comes as the market nears the old 6.5% unemployment target the FRB established in December of 2012.  The SP closed 2012 at 1420, 30 year bonds at 147, gold at 1675, and the Yen at 115.  With the unemployment rate now at 6.3% below the 6.5% target that was pulled, we are seeing the 30 year bonds, gold, and the Yen all reverse their trends and show a strong 2014 in contrast to last year.  This is putting major pressure against the market as the 3 of these instruments all started on the lows of the year and grinded up to show a reversal and underlying bid by short covering.  The consolidation in bonds, gold, and the yen over the last 2 months is the markets way of keeping shorts trapped as the year lows hold and market stabilizes to force them to cover into what is now being seen.  The SP500 in contrast, has not changed its 2013 trend as of yet. The year of 2014 started weak with a move down to 1732 only to shake out longs and attract shorts in what turned into a reversal.  This setup a V bottom as the 2013 highs were taken out, and clearing the cache of shorts. now it was time to find new buyers to stabilize prices, and this is where we have been the last 3 months, in search of these buyers, which has led the market to consolidate sideways. Throughout this period, all peak highs that attempted to break higher were used as opportunities to take profits into by the market.  This shows that the long side is already heavy handed thus finding trouble getting new longs into the boat, giving way for the boat to be tipped for the majority to feel the pain.

 

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Pulling the 6.5% NFP Target

Since the December 2012 FOMC statement adding the 6.5% unemployment target to the fed funds rate:

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Bonds, Gold, and the Yen (BGY), all front ran the FRB NFP target, moving down heavily for the year 2013, while the SP500 moved up 33%.

 

In 2014, just as the NFP target reached 6.7% to near the 6.5% target, it was pulled.

Year to date for 2014:

Bonds, Gold, and the Yen, working against a major downward trend last year falling an average of 20.3%, all started the year of 2014 on the lows and grinded higher. This reversal for 2014 is counter to the 2013 trend, however is the way of the market completing its front run into 6.5% target.  The SP on other hand, coming off a +33% move in 2013, has held flat for 2014, threading on the highs, fighting to hold its trend versus what bonds/gold/yen are doing.  The SP is also needing to take a lot of juicing at these levels as the FRB chair came out on the 31st of March to reassure investors of continued support, WHILE THE MARKET WAS AT ALL TIME HIGHS! Seems to be the last leg of longs are being lured into the market and we did see since March 31st the market ran 20 handles higher into 189250 only to fall 90 lower.

 

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Thus far both of the last 2 NFP reports turned out to be the peak highs of the year and provided great trading opportunities. Join us for next NFP report by subscribing today.

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