Thursday Fever – Draghi Speaks but Markets Will Weep

That's right, we're still short

Now, in addition to S&P (/ES) 2,100, we're short oil (/CL) at $44 – as noted yesterday in our Live Trading Webinar (replay available later today on our site).  If there were DAX Futures, we'd short them at 10,500, as that the top of a 5% pop off the 10,000 line (so we expected and got a 100-point pullback per our 5% Rule™) and only halfway to the Dax's Must Hold Line at 11,000, which is the same Must Hold as the NYSE, which also isn't holding.

Why is it that these broad-market indexes (and the Russell) are 5% below their value lines while the S&P and Nasdaq are 12.5% above?  Because this "rally" is fake, Fake, FAKE!!! with very narrow participation and not even anemic volume.  Yesterday, in fact, just 71M shares were traded on the S&P 500 ETF (SPY), which is about half of a normal day's volume although "normal" days are now 50% lower than they were before the crash anyway.  

SPY 5 MINUTEIn any good survey, you need a proper sample size or the results of the survey are meaningless, right?  Well, the stock market is not much different – the less volume there is, the less "votes" are cast and the less reliable the price action is in predicting the future. 

Unfortunately, TA people tend not to take this into account and treat each move as if it's just as valid as any other.  They don't even consider fairly drastic changes in the Dollar, which the exchanges are priced in and that's just STUPID.  That's why TA is stupid – you can't pretend to measure something with the goal of extrapoliting a trend when you ignore major factors that drive the very thing you measure!  

That is the "inconvenient truth" about TA – it's generally not much more reliable than tea leaves in the short-term.  You look at the above SPY chart and I bet you think it's bottoming around $209.50 but that's a 5-minute chart and you are like an ant on a football field trying to predict the movement of individual players based on your observations of feet as they pass you by!  

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