Thursday Thoughts – Holding Nasdaq 7,000 is up to Apple (AAPL)


Well, we got our weak bounces – now what?

October ended with a bang with the indexes rushing up to the weak bounce levels which, for the sake of an update from yesterday's (and last week and the week before's) predictions are:

  • Dow 24,300 with a weak bounce at 24,800 and a strong bounce at 25,300
  • S&P 2,640 with a weak bounce at 2,710 and a strong bounce at 2,780
  • Nasdaq 6,870 with a weak bounce at 7,080 and a strong bounce at 7,230
  • Russell 1,485 with a weak bounce at 1,530 and a strong bounce at 1,575
  • NYSE 11,880 with a weak bounce at 12,150 and a strong bounce at 12,400

So the only change from yesterday, despite the "massive" rally, is that we have now turned the S&P and NYSE weak bounce lines green with /ES at 2,723 (still the low end of the bounce range) and the NYSE right in the middle this morning at 12,250.  Until the Nasdaq and the Russell confirm their lines – it would be crazy to buy into this bounce and anything less than strong bounce lines is still a very dangerous market to go long into.

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This is the worst part of my job because I have to be like the parents telling the kids not too eat too much candy as there are so many good stocks finally in a good position to buy but it's a little too early to jump in.  Not that we're avoiding everything.  In Yesterday's Live Trading Webinar, we picked up longs on GE at $10 and IBM at $115 – as I think they have suffered enough and, of course we can still have some day-trading fun and, yesterday morning,we made a couple of calls in the Futures with me saying:

> So we expect to see 96.1 again and a pullback in the Dollar is a boost for the indexes as well as commodities.  Silver (/SI) is getting interesting again at $14.30, having never really had the same rally as gold in October.  You can play the Futures bullish over the $14.30 line with very tight stops below ($50 per penny per contract!)

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As you can see, we're already up $900 per contract and, hopefully, we can do a bit better with a $14.57 goal, but that one was a gift so – you're welcome!  Our Gasoline longs, on the other hand, did not work out at $1.79 failed but TIGHT STOPS BELOW saved us from damage in the morning  but, in our Live Trading Webinar, we added /RB back at $1.76 (4 contracts) and they are down about $250 each this morning as it's more of a conviction play but we'll take our $1,500 on /SI at $14.57 and that gives us cushion hold onto /RB for the longer haul.

During the Webinar, we also went long on Coffee (/KCN19) with a long-term play on 2 July contracts at $121.65 but, as I noted to the attendees, that's one I have conviction in so I almost hope it goes lower before it goes higher so we can double down and bring our average down closer to $115 but no such luck as we're already up over $1,500 this morning and now it would be irresponsible not to lock in those gains with a stop below $123 but hopefully we get closer to $125 before taking a profit.

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I'd be more enthusiasic about our gains (and the indexes) but they are Dollar-driven and not due to a proper change in sentiment as the Dollar falls 0.7% this morning and the indexes are up just 0.4%, so they are actually losing ground in steady-dollar terms and theBOE just held their rates steady, which is Dollar-bullish (as we are still raising) so we're going to lose that catalyst and that means shorting the Nasdaq (/NQ) at the 7,000 line with TIGHT STOPS ABOVE is the best-looking play of the morning.

The lines that count on the Dollar are 89, 93.5 and 97 per our fabulous 5% Rule™ and that's how we're able to accurately call the top but it doesn't end there since we can see we had good consolidation at 93.5 (we also called the move up when the Dollar was 89 back in the spring) then the move to 97 was expected as was/is the pullback of that 3.5 run and surprise, surprise a weak pullback is 0.7 (20% of the run) to 96.3 and a strong pullback is another 0.7 to 92.6 and, if 92.6 holds, then it's a signal that we're consolidating for a move higher – but then we'll be looking for short-term bounce lines there.  

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See how easy it is to call the markets when you know exactly what's going to happen?  Of course the 5% Rule™ is just another factor we take into account in our overall analysis but, in absense of market-moving news or data – those lines serve us well to give us good entry and exit indicators.  I've been "showing off" a bit with our predictions this week and last to impress upon you the strength of our predictive ability and, HOPEFULLY, get you to take our continued warnings of market caution a bit more seriously.  

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Futures trading is fun, making $1,000 here and $1,000 there while you wait but the real money is made in our portfolios and those need to be balanced according to the longer-term trends we're monitoring.  The last big market wild-cards are tonight's Apple (AAPL) earnings and tomorrow's Non-Farm Payroll number, which take on additional importance as only 134,000 jobs were filled in September and, if we're trending down from there – all the consumer sentiment in the world isn't going to save us from a stagnating wage pool.

Consider that you have to give 25 people 4% raises to make up for 1 missing job but wages are only rising 2% so that's 50 raises lost per job so 100,000 missing jobs need 5M raises just to keep the economy static.  But then those 5M raises impact the margins of the companies handing them out and then that's not good for the indexes and wage pressure has been climbing and it's beginning to become a concern to reporting companies — and the Fed!  

So, given that premise and since the BOE did not hike rates this morning, we don't think the Dollar will fall that far so it won't be that much help to the indexes which means it's going to be all about Apple earnings and the data so we'll sit and wait for another day and poke at the Futures a little more so we can have some fun while we wait.

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> We're certainly not going to hit our strong bounce lines by tomorrow unless AAPL gains about 5% and that means we're likely to lean a little bearish into the weekend and certainly we're not going to want to be less hedged into the elections on Tuesday so it's going to be a pretty dull week until next Wednesday – when we see which way the country has decided to go for the next two years.

Until then – please be careful out there!