Tuesday, April 17, 2007

Where is the market headed?

I don't like to make predictions about where the market is headed, because with my style of trading it doesn't matter (my typical trades only lasts 3 minutes). However, I like to do technical analysis of the stock, bond, and currency markets to see the intermarket relationships that are occuring. My main outlook on the markets is viewed through the use of volume by price charts. Yesterday I said that I saw support in ZN, and today, ZN rallied off the CPI number. Last March, we would have seen the stock indices trade inversely to ZN off of this number, however, the housing number came out and the inverse relationship wasn't seen this morning. I'm expecting ZN and JPY to turn bullish and the stock indices to turn bearish in the next week due to the relationship between the two. Last March, the inverse relationship between bonds and the stock indices was useful for spoting reversals during the volatile trading days we experienced. We had a nice run up these last 2 days in the stock indices. Normally you see 1 big up day followed by a second small up day, followed by 1-2 days of consolidation, and then a pullback. I'm expecting a pullback by the end of this week.

Here is a daily, weekly, and monthly view of ES, ZN, and the EURO.

Here's ZN on top and JPY underneath.

I'm also trying to keep track of the options on SPY, IWM and a few others. Today there was an increase in calls relative to puts, which I think means, people are selling calls. Also a large put position has been taken on IWM for May at $82.


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