Intermarket

JC Parets put out a great tweet this morning.

studying intermarket relationships is great. I do it religiously. But at end of day, u can't over think it, just trade whats in front of u

— J.C. Parets (@allstarcharts) June 12, 2015

My favorite example of the relative uselessness of inter-market ratios on a macro level was in the rates trade groups at the start of 2015.

Utilities relative strength broke a three year downtrend line just as we reached a climactic top in Long Term Treasury ETF TLT.

If you made a trade off this breakout you'd have a quick gain.  If you considered the long term nature of the breakout to be a sign of further out-performance and held your utilities positions, you would've lost your gains.

If you would've interpreted the breakout as the start of the 'next leg' of the yield chase(I did), your reputation would be wrecked in a month.

It's also worth noting these relationships are always changing over time and adding layers of complexity to market analysis.  If you read John Murphy's inter-market books, you'll see relationships changing all the time due to different circumstances.

This is probably just a function of the market's inability to forecast these unknowable evolving factors.  That said, it's not like inter-market analysis is completely useless.  It just has notable limits.

Thanks for reading!

A lesson from Twitter

Who knows if Costello being the problem at Twitter was just a dogma or whatever, but no doubt Twitter's price action today is disappointing many.

The thing that's worth noting here is the lesson from price action that can be applied time and again in the future.

When there's a stock that's going to have a strong upside move on news, opportunity doesn't just slap you in the face all morning.  What the chart doesn't show is the open was over 3 points below the after hours high.  That was as much of a warning as anything.

In the best opportunities you get a quick chance or two to get in while many are waiting for a pullback.  These opportunities are often found during short sharp drops that are quickly bid up or via sideways price action where folks just wait too long for a pullback.

While FOLD isn't the greatest example of this, it saw morning price continuation after pricing it's secondary offering.   It simply based in the gap early in the session before taking off.

Looking at the last two day's of very strong trading in Shopify (SHOP), there have been no pullbacks to buy, just fast dips.

Making this key distinction will save you and subsequently make you a lot of money trading!

As for twitter, if it closes red today, (it looks that way as of this writing), shares are very vulnerable to further selling.

Trade 'em well!

SOX

It's been a relatively weak bounce in SOX the last couple of days after a VERY sharp drop.

Some sellers have appeared at the 38 fib retrace.  This also is a prior pivot level.  I've no idea how far SOX could drop, maybe not at all.  That said, I think it's worth taking a shot here via 3x short semi ETF SOXS.  I bought some to trade against the day's high.

For you single stock players, Micron (MU) looks the worst of the group.

Trade 'em well!

Crunch time for Cyber Ark

Monday morning's action looked to be the breakout of all breakouts in Cyber Ark (CYBR).  It failed quickly.

It's found no buyers while the market has ripped mid-week.  This support confluence including the 50 and 20D MA's has stopped the bleeding temporarily.

We've seen many apparent false breakouts in stocks shake traders out and then resume higher.  Will that happen again?

That's tough to judge, but at this point you don't even have to risk 1% to play for a 4% pop back up to the resistance line.

China

China is being so aggressive with investment and economic policy.  After years of giving the world the finger, they are desperate for foreign buyers of their largely state owned zero-substance corporations.  Apparently, this is a pretty good strategy as it forces outside pressures upon asset managers to partake in the gains.  

If China has massive success doing this, and assuming they have good intentions (that's a reach), this is a smart way to de-lever some of their massive debt by issuing equity.  

The question is 'who outside of China ignorant enough to up their China exposure?'  Apparently FTSE.

The benchmark for the Vanguard FTSE Emerging Markets ETF otherwise known as VWO 

has decided to up their china exposure, making it roughly 50% of the index.  

Todd Shriber from @etftrends

“The initial weighting of China A Shares in the FTSE Emerging inclusion indexes will be approximately 5%. This is expected to increase to 32% (at 31-March 2015 market values) when China A Shares are fully available to international investors, and hence resulting in Chinese stocks (including B-Share, H-Share, P Chips and Red Chips) to make up 50% of FTSE Emerging Index,” said FTSE Russell in a statement."


More Reads

6 Charts showing the massive divergence between China's market and the economy. 

Soros on World War III 


MSCI via @FT



Thanks for reading!