Current Thinking

by Mike Endres, Market Trend Trader | February 8, 2010

The past week ended on a humbling note as your's truly endured one of those rare two day whiplash moves in the market that make traders gnash their teeth!

The MRO provided a quite valid BUY signal using VTI as the proxy for the general market on 2/2/10. This, in turn prompted me to extend a series of preliminary long positions in a few of my favorite strong relative strength stocks.

The following day, 2/3/10 showed a nice gain and initial profit from every position I had taken. At close of market on 2/3/10, the MRO continued to drop, thereby signaling a continuing strength in the general market. What should have happened the next day was more of the same and that most certainly did not happen. The MRO did drop from 1.67 to 1.65 but believe me, this does not show heavy strength in the move and the market moved decisively lower (giving yours truly a shave!) . The following day, 2/4/10, I exited all long positions and the MRO gave us a lovely (gag!) whipsaw SELL.

TWM, the Ultra-Short ETF for the Russell 2000 also provided a neck jarring whiplash SELL and even though the MRO reversed again downward and TWM bounded upward, at the moment (as of Friday 2/5/10) we don't have a valid buy on the short side because the %R is going down.

Now for the PM's.

GDX, our goldbug ETF just hung in there doing much of nothing while the general markets flipped and flopped this past week and on Friday, 2/5/10, managed to squeeze out a valid buy but one that is very unimpressive. The MRO flattened out a bit and between the MRO reversal on 2/1/10 and the Buy signal on 2/5/10 is a long time twixt reversal and valid signal. These tend to be suspect and do not make me want to leap back into the PM's quite yet. (Subject to change in a flash!)

The main message delivered herein is that confusion reigned most everywhere last week and there were very few places to hide. The week also provided a really good example of how the MRO is 100% accurate in predicting trend changes and absolutely unable to tell us how long a trend will stay in force! After all, the MRO is a mathematical model and not a crystal ball. Too bad, for if it could tell us how long and how far a trend would go, I'd be writing this under a canvas shade in the rear cockpit of a 150 foot motor sailer docked stern to along the breakwater in Monaco! As it is, I'll just settle for Big Lake Harris, Northwest of Orlando.

What to do, what to do? Of all the confused bouncing around, the cave in of VTI and the vigorous bounce by TWM and a number of other reverse-ETF's makes me growlingly bearish and I'll watch the opening of Monday's market with that in mind.
I suspect that fear is going to dominate things for a while until someone shoots the PIIGS in Europe and puts them out of their misery. If the IMF does what the US Gov. did and become the lender of last resort with the EU shoveling more fiat currency on the fire, the dollar is likely to continue its rally (yes, the MRO whiplashed the dollar chart too - but nothing else confirmed it so I didn't donate funds to the big waste basket in the sky over the dollar!).

It appears that no matter what stupidity the U.S. Government does in regards to the dollar, even if it ceases its' roll as reserve currency of the world's choice, the U.S.A. is still and is likely to be for some time yet, the printer of the fiat currency for the rest of the world. One third of the EU is way too far in debt or getting there rapidly; the Chinese can read the fortune cookie and they want no part of the restrictions that go along with reserve currency status (although, truly, we are ignoring those restrictions to our peril in this country). That's leaves Zimbabwe to save us all if only the word itself didn't come from the meaning "walled grave" which is not a confidence builder in any sense.

Be cautious out there this week - lean toward weak to falling general markets, strong dollar, weak precious metals and fear in the currency pits.

Notes on the MRO: The MRO is a mathematical formula the generates both buy and sell signals for any tradable security, commodity or future returning a high, low and close at the end of the trading day. A rising MRO signals weakness. I falling MRO indicates strength. The reversal of the MRO along with the reversal of the simple 5 DMA of the tradable item and the %R (lower part of the the chart) signals a change in direction of whatever is being plotted. Generally when the MRO becomes locked below or passes through zero into negative territory, a bullish move is in progress. When the MRO is going up or locked in above zero, a bearish situation exists.

Contact Information

Mike Endres | Market Trend Trader | Tavares, Florida | Email