KRUGER INSIGHTS THURSDAY OCTOBER 24, 2013

By: Joel Kruger 

TOO OBVIOUS – So yesterday, we finally got a bearish close in the S&P, with the market also ending a sequence of 9 consecutive daily higher lows. On the surface, this is clearly a bearish development. However, more often than not, we need to be careful with glaringly obvious bearish reversal days, as the markets are quite capable of negating such patterns. Still, the price action was bearish, and has potentially set up the next great short trade. The critical level to watch right now is yesterday’s low just ahead of 1740. Should the market take out this level, I would expect this to trigger a more significant bout of profit taking and accelerate declines. Until then, best to stay sidelined and wait for this confirmation, as attempts to sell rallies in this relentless bull market have proven to be nothing short of an exercise in futility. Still, so long as your risk management is sound, there is nothing wrong with taking more shots on the short side.  

KEEP SHOOTING – When I was younger, I was a basketball player and loved to shoot the ball. Some games my shot would be off and wouldn’t feel right. When that happened, I knew that the best thing to do was to try and get the ball in my teammates hands. But most of the time, my shot felt good, and even if the ball wasn’t dropping through the hoop, I would keep on  shooting until eventually the ball did go down. It didn’t matter to me whether the ball went in the hoop or not, all that mattered was that it felt right. I apply the same principles to my trading. I do my analysis and if it feels right and makes sense, I take my shots. Right now there is no clear shot. But if we manage to take out Wednesday’s low, I will let it fly. At this point, most bulls have conceded that it less about the fundamentals and all about the Fed. But these bulls will tell ya…”hey man I hear ya…but ya can’t fight the Fed.” This is certainly true, but at current levels, I also wonder how much fight the Fed has left?  

THE RECOVERY OF 18 – Again, the Fed has exhausted all of its resources, and the only tool left in its bag is time. The markets know this and have been pricing this in over the past few weeks. If markets are truly forward looking, it stands to reason that once the reality of a further out taper is fully priced in, there should be nothing left to support the equity market. Or maybe I am just dead wrong with my vision assessment and the market can see all the way out beyond the Fed exit and is already pricing in the great recovery of 2018!! I guess I need to disclose right not that I am not an Optometrist. As I write this piece ahead of the Thursday European open, I am noticing one rather compelling development with the intraday price action and it will be interesting to see how things play out. Generally speaking, it isn’t until later in the day when the US session gets underway that markets push in one direction or another. I have found this to be the case particularly when markets have extended into untested waters. So I find it a bit precarious to see Asian and early European market participants committing back into risk so easily. But remember, do nothing until Wednesday’s S&P low is taken out. A break of that low will be a defining moment.