Fianl scans complete: No bets

We really wanted to gamble tonight. Locked out. None of our scans are smart enough to say which way we go with any certainty  IDLE..

The Perfect line of Demarcation

All  Algo's and HFT' programs are perfectly aligned. What this means is that the odds of up or down are 50-50. It's really amazing how often this happens before big events. We were looking for a long or short trade at the end of the day. Everything is perfectly aligned for only a 50-50 bet. The buy/sell programs are "undecided". They really have gotten very good at correctly setting the odds of market uncertainty. Very difficult to beat. Oil and The Market faded and recovered on cue the last two days,

We ran multiple scans looking for a clue today. To no avail yet. The correlations on almost all asset scans are aligned perfectly. The traditional technical analysis odds favor an "up-move' ; however, it's not guaranteed this time. Heavy resistance at S&P500 at 1900. Heavy resistance at oil $32.50. Possible "double tops" across the board, coupled with " double bottom" formations. A perfect set-up for major moves either way. We are going to run some more scans and adjust the parameters. We have 50 minutes left in after market trading and we feel like gambling. Stay tuned.

Trade update

We should have kept our oil trade a little longer ( at least 2 days). When the oil futures crossed over $30 overnight, we had to cut our long volatility trade with a slight loss because of the 96% correlation with oil. We got a little too cute with oil and missed an additional 25% pop today. The market did a nice double bottom bounce from the august lows. Let's see where this ends up. We are currently idle. There is pretty large resistance at S&P 1900. The key will be where the price of oil goes for the foreseeable . Up 18% in 2 days is a very large move. Let's see where this settles out. Enjoy the weekend.

Here is the problem..

The correlation between the stock market and the price of oil is now 96% ( quoted on CNBC earlier today). This is a problem. As we discussed mid last year, the correlation of almost all asset classes have been 90% plus on a global basis for over 5 years now. The markets have not always been this way. Portfolio managers used to be able to properly hedge themselves with asset allocation. The only "asset allocation" left are three categories: long, short, or cash. The reasons for this probably include: ETF proliferation, algo trading, high frequency trading, QE, and the declining average age of portfolio managers in today's markets. Technology and youth are good in a lot of ways; however, there is too much reliance on it. The vast majority of the trading and investment blogs I subscribe to; do not have any experience relying on "gut instinct", they place their faith almost entirely on formulas and technology. Everybody looks smart in a bull market. It worked wonders for a former " Bond King" ( no need to name). If I were a Wall Street CEO, I would make it mandatory that all traders, portfolio managers, quants, and high frequency traders learn game theory. At least poker,that way they learn "gut instinct" and become a "Market Artist". I digress.....

The problem is that their is A LOT of money that has been invested in China, Technology, and The Oil Patch over the last 4 years.

Targets until further notice are:

1600 on S&P500
$22.50 on Oil

Odds of recession are currently 65%

Trade Update

We sold our leveraged  long oil ETF a few minutes ago for a nice 12.5% gain. Oil jumped to $30.00 despite negative news. The pop was not big enough for us to think it bottomed. If oil starts to break 30 or gets close to $25.00, we will reposition. We used some of our profits to reposition in the leveraged long volatility trade. The market bounce was not impressive at all and we think traders will sell going into the weekend as the public reconsiders their 401k losses and call their advisors.

Trade and Market Alert

We sold our short oil and long volatility leveraged ETF's this morning. The Major Indexes have touched the August 2015 low and should find some support or at least a major bounce here. Crude Oil WTI futures touched its March 2002 "Gap-up" low at  around $27.50. Most of the Algo's and HTF's have to at least dip in here.

We bought some oil leveraged ETF.s here. We may be a little early because the load up is around $20.00 for oil. We normally wait for some mass capitulation; however, this was our initial target and we have to follow the plan.

The S&P target still remains around 1600 if there is no hold here.

Where we stand...

The markets are back to normal- for now. The technical indicators are functioning as they should be. The central banks are out of the picture and have exhausted their dominance. Although this has been the worst start of the year ever (if you are long) for the indexes, it is a welcome event. The markets are behaving in a rational manner. Price discovery is now " free floating". There is no going back ( we hope). What this means:

1. The global stock markets are now free to trade on "true value and price discovery".
2. The correlations will revert back to the mean for each asset class.
3. Although initially painful, the reversion back to normal operations is fantastic news to all of those traders and investors who had to deal with "rigged markets" since the QE experiment.
4. The "non-skilled" on Wall Street will be wiped out and the asset managers can get back to the business of hiring "the best and the brightest" instead of poorly skilled and trained sheep.
5. Hopefully; as Ayn Rand wrote about may years ago, mediocrity  is dead. The Wesley Mouch Syndrome in the markets has run it's course.

Happy Trading! 2016 truly is a "watershed event" thus far! It is also the very best thing to happen to Capitalism in a very long time! How the U.S. markets ever hinged our success to communist markets in the first place is a mystery. Time to decouple.

Happy New Year!

We went "underground" for a few months. Our loyal followers enjoyed the personal emails and reports. We are back on-line. The reason, as explained in the email, is that we really did not have time to update the blog as we were concentrating on finishing the electric car tax- credit sales cycle and did not have time to devote to the public blog as a free service. Our trading basically stopped as we focused on our "real jobs".