World is Burning; Stocks are Up; Film at 11 (QQQ,KOL)

There are times for holding fast to what you believe and … times for buying insurance.

 

Now, we haven’t given up on our bullish story.  We frankly believe that the major market indexes have a ways to go before they top out, and that the all-time high number they ultimately post will surprise everyone.

 

That said, there’s a place in the game for caution, too, and we believe that moment may be upon us.  Not a moment to pack up the woodie and head off to bug-out island.  That day will come, to be sure.  No need to rush it.

 

What we’re talking about is a simple matter of insurance.  If we’re on the cusp of a drag lower, then let it be a profitable one.  And if it ends up being just a dip before we continue on our way toward Shangri-La, then we’ve lost nothing by preparing for a possible worst case scenario.

Car

No, no, Mandy.  We’re not perma-bulls.  We’re right.  And we’ve been right since the beginning, in the face of all the naysayers and doomsayers, haymakers and muckrakers.  And we’re not finished yet, dearie!

 

As our fellow Normandy scribbler, Hugh L. O’Haynew, opined earlier this week (HERE), we’re going to begin a program of offering short term trades on the NASDAQ 100 via the QUBES (QQQ), as we believe they’re the best way to play this final, super-vector highway to the sky.

 

Now remember, Hugh is one of the finest hammer-toed writers in the business.  And while we’re at it, his bunions and corns are an equally awesome sight.  But podiatry aside, we have to concur with our trans-pedaled friend that the opening cruise on that trading-interstate will likely be a bearish one, as you’ll shortly see.

 

Before we get to it, however, let’s just run down an open trade that requires your attention.

 

It was the 17th of March when we opened a trade on coal – yes, the long-burnt dinosaur bones, coal.

 

The letter was called Organ Meat Fest, and there we urged you to take advantage of an unlikely commodity on the move via the Van Eck Vectors Coal ETF (NYSE:KOL).

 

The trade was straightforward.  We suggested you purchase the KOL October 8 CALL for $0.90 and sell the KOL October 8 PUT for $0.80.  Total debit on the trade was $0.10 per pair.

 

And today?

 

Have a look –

kol technical

To begin, the rise in KOL since the New Year has been blast-furnace hot, a full 80% gain that no one expected.

 

When we initiated, KOL had retaken its 137 day moving average (deep red line).  It has now moved on to conquer the orange 274 day marker.

 

And that’s where we believe it will end – for now.

 

Why?

 

Several factors.  First, both RSI and MACD have been trending lower for three full months (in blue), indicating the rise is losing momentum, even though prices have managed to climb over the period.

 

Moreover, we appear to have hit significant resistance at nine dollars (black line).  KOL has attempted to breach that level three times in the last six weeks without success.  And because of the intensity of the latest move higher – some 20% in just the last three weeks – we believe a pause is in order here, and for that reason we’re going to take our profits.

 

The CALL trades for $1.19 and the PUT for $0.39.  Sell the former and buy back the latter and you net out $0.70 per pair.

 

And good on ya if you went in big!

cartoon

We’re going to start this week’s trade with a brief glance at some less than savory news from the world of finance.

 

If it’s not bad enough that George Soros decided this week to leave the world of philanthropy and political meddling to return to the trading desk (word is he personally wants to oversee a massive bearish bet on global financial markets), we also saw the wunderkinder over at Deutsche Bank issue a gruesome report on the state of Europe and the likely economic and civil malaise it portends.

 

That’s right.  A major ‘respectable’ bank is now calling for widespread civil unrest, extreme politics and a devastating global depression if current policies aren’t changed.

 

Not a bunch of preppers holed up in a mountain hideaway in Appalachia, friends.  Deutsche Bank.

 

Without getting into their arguments (read the report yourself via the link above), or Mr. Soros’s belief that nothing but turmoil and mayhem lie in store for the Chinese and most of Europe, the negativity has been coming fast and furious in the last week.  Two more investment icons, Carl Icahn and Stanley Druckenmiller also threw their respective hats into the bearish camp, with Icahn going unequivocal full toilet, like this –

icahn graph

Nothing screams ‘bear market’ like this.

 

Our worry is that a critical mass is building that will send the market spinning for a spell, and it looks to be coming sooner rather than later.

 

Nearly all of our short term indicators have signaled a decline is now in the offing.

 

Have a look –

last chart

What you’re looking at is a series of moving averages on short-term time scales that follow the NASDAQ 100 (NDX).  What they depict is a price rollover that we estimate will shortly gather steam.

 

We have a number of other technical indicators that contribute to our analysis that we cannot reveal for proprietary reasons.  Suffice to say, however, that they’re all longer term indications and that they’re equally bearish for NDX for between the next three to ten trading sessions.

 

We would encourage one and all to join us in this, our inaugural short term ‘swing’ trade.  Watch closely and pay heed to all stop loss instructions.

 

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Many happy returns,

 

Matt McAbby

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