Cloud Trading

What’s that you say? You don’t have your automated trading strategies running in the cloud? WTF?

The SPX had its final-hurrah today up at 1060 just as my “cloud computing” indicator went purple (click to enlarge):

White bars indicate a neutral condition; yellow means caution, red means the rally is toast, and purple is a brick wall. If all four bars go red/purple, then the bulls are about to get tossed on the barbie.

The cloud indicator gives mean-reversion signals. So, I only use it during the middle of the trading day. The first and last hours of trading exhibit positive feedback more often than not, so trend-following strategies usually work better than mean-reversion strategies. However, the color of the cloud often gives a clue about the next morning. Here is how the octo-cloud looked at Friday’s close:

The market was poised to roll down from a stretched condition, and it was indeed weak first thing this morning.

Here it is at today’s close:

Light blue is a bullish signal; green is a buy signal, and navy blue means the market can’t really drop any more without some consolidation first. Even though the market was in a positive-feedback plunge into the close, notice that it flattened out after the cluster of navy blue bars at 15:20pm. It spent 25 minutes consolidating before beginning the next leg down.

If you went short at the close, chances are good that you are in for a bit of squeezing tomorrow morning. But this is a very short-term scalping indicator, and it only predicts the very near future.

I could tell you how this works, but then I’d have to kill you.

Say a Prayer for James Toney

Why is boxing called “The Sweet Science”? Because it’s just slap-fighting with big fluffy mittens. Tonight we will see a demonstration about how boxing doesn’t prepare you for real-world fighting at UFC 118 when champion boxer James Toney gets a beating from a guy who knows how to fight for real, Randy Couture.

Normally, the UFC does not put on this kind of circus act. And that’s a good thing. But since boxing is a competitor to MMA for pay-per-view dollars, I think Dana White probably sees this as a great way to embarrass boxing and take market share.

Update: Well, I was right. Toney didn’t land a single punch, and was instantly taken-down, mounted, pummeled, and choked out.

The Real Gold Catalyst

Why has gold soared during this deflationary depression? Maybe it is forecasting that inflation is right around the corner, or that the USA will default and the dollar will lose its status as the world’s reserve currency.

But what if it’s something completely different? What if gold is really forecasting a military confrontation between the USA and China? The Chinese have been buying quite a lot of gold after all, and are challenging the USA in the South China Sea.

At the bottom of this BBC story, you can see a map showing China’s ridiculously aggressive claims of waters all the way down to Malaysia. And there have been reports of Chinese naval vessels exchanging fire with the locals.

Chinese officials have told the USA that the South China Sea is a “core interest”, which means an area they plan on conquering in the future, like Taiwan.

Further reading: Chess on the High Seas: Dangerous Times for U.S.-China Relations.

Note: As far as I can tell, Marc Faber is rooting for the Chinese. Since he lives in Thailand and has an office in Hong Kong, I suppose that he needs to kowtow to the regional power.

Cramer Short Raid

At the 1:46 mark of this video, you can see Jim Cramer trying to knock the market down when he says:

“I’m predicting mass panic tomorrow morning.”

That was while the market was open. Cramer was trying to cover his motives by pretending to be mocking weak-kneed bulls. But that was obviously a thin veneer over a blatant attempt at market manipulation. Can this be legal?

CNBC also published a story titled: “SEC on Attack, Vows More Action on Crisis.

Note to SEC: While you are “on the attack”, isn’t it time for a anther look at this guy? Is it really a good idea to have the top financial network inciting panic?

Thursday’s Trading – 8/26/2010

The intra-day low on Wednesday came at 10am when the horrific new-homes sales report was released. You would think that would have been a sell signal, but the market rallied for the rest of the day – including the home-builders; the XHB was up 3.15% on the day.

That, of course, was a classic example of the trading maxim: “how the market reacts to news is more important than the news itself.” When the market shrugs-off bad news, then you know it is in rally mode.

So, now we want to know if the market can keep it up as the week ends with a lot of economic data. The market plunged after last Thursday’s unemployment report, so that will be the first test this morning.

IWM Long-Term Trendline

On September 1, 2009, I posted this chart showing the giant inverse head-and-shoulders reversal pattern on the IWM daily chart (click to enlarge):

Then, on September 17, 2009, I posted an update showing the pattern’s target and overhead gaps:

Here is what it looks like now:

Not only did IWM top-out just above the projection of the pattern, but the neckline has served as support for over a year. Not bad, huh?

But on Tuesday, IWM pierced the neckline, though it was able to bounce back above before the close. Will the IWM be able to rally off of this line like it has done several times over the past year? The market is pretty oversold now, so we should get some sort of bounce soon, but how high will it be?

Another potential bullish sign was that the IWM was able to briefly rally up into positive territory around 11:45am on Tuesday. It wasn’t able to close up there of course, but that type of surprising move is what I call a “shot across the bow.” It happens during the bottoming, and topping processes. Initially, it looks like a defeat, but later proves to have shown that the losing team was getting spunky.