BAL Trade Stopped Out

The BAL trade was stopped out Thursday at 77.88. Keep this on a watchlist for short potential.

Further Signs of Stocks and Commodities Topping

Click on Chart to Enlarge

The chart above is QQQQ which is the Nasdaq 100 ETF. Yesterday it formed a bearish engulfing pattern. It is overbought in both price and time. Also it is at a harmonic retracement level and projection level, so this is a nice resistance area to see a reversal in the markets. Keep in mind that the 2007 high in QQQQ was 55.08. If QQQQ remains above there, that is bullish, but a failure to hold that level may be longer term bearish.

There are a bunch of other non-confirming intermarket relationships here. Bonds have not made new lows the last couple weeks as stocks have been making highs. The US Dollar index is well off its fall low and is not confirming stocks at these levels. Gold and silver have both begun to break down after not confirming new highs in stocks over the last month. Silver should fall a lot if there is a top forming here. Commodities are overbought across the board.

On a separate note I have noticed some foreign market ETF's setting up bearish Gartley topping patterns (EWH, EWQ).

Both stocks and commodities I believe are likely to see substantial give backs over the intermediate to longer term. This bull market has been unusual in that after a major decline in stocks and commodities there was never a retest of the bear market lows. Each market is unique, but in every other major bear market, stocks did retest the low. So precedent would argue for some significant return to deflationary psychology before a possibly more sustained bull market.

New Trade

New Trade:

Sell short BAL tomorrow 1/14/11 at the open. Place a GTC buy stop at 77.88 immediately after entry.

BAL is a cotton ETF. This looks like a very nice short trade with a defined risk and nice reward potential to below 55.00.

Commodities Topping

The grain complex is overall in a very overbought condition with some classic major technical divergence at the most recent highs. A failed breakout has occurred in corn. Any further weakness in soybeans will be a failed breakout. Wheat is a bit stronger but is is still overbought. Also, sugar has formed a failed breakout. Cotton also.

This screams profit taking or selling time for grain producers (farmers, etc). Also, I think several of these markets will fall enough for shorting here to be a nice trade. Namely cotton, sugar, and soybeans. The DBA ETF would be a vehicle for this.

If this takes place then the US Dollar will likely rise and the Euro fall. Also gold and silver look to be in the last stages of a waning leg up and are ready to correct.

Brief Comment

Just a heads up that yesterday's advance poked the QQQQ/Nasdaq 100 above the Oct 2007 bull market highs by a small amount. I had mentioned that it will probably be taken out before any meaningful decline.

Now with a relatively large gap up yesterday (to start a new year) and at very overbought conditions on many levels, we could see a reversal soon with at least a healthy bull market correction to follow. This morning made a gap up too, so look for a bearish engulfing pattern or other bearish reversal pattern to confirm a possible reversal.