This 1838th edition of Short-term Trading with Oscar Carboni is for the trading Friday, Rocktober 5th 2018. Why do I call October Rocktober? It’s going to be a rocky month so it can be a little slippery as the price of crude is going to change this market’s mood. Also, bonds are making new lows which makes interest rates make new highs. This ultimately makes it difficult for companies that have to pay more money for dividends sell their corporate bonds.
Repricing and not a Topping Pattern
What you are seeing here (refer to the graph above) is not a topping pattern but this is the repricing of the stock market. Why? Because we just had an interest rate spike. Not only did the Federal raise rates, but that’s also normalized, and the traders came out and sold bonds like crazy. So, the rates went up quickly, literally spiked up on the graphs.
If you don’t know how it works, corporations have to offer more interest for you to buy their bonds instead of buying US bonds which are backed by the US and insured.
If you are willing to buy JP Morgan’s bonds or Goldman Morgan Goldman Sachs’s bonds they certainly have to pay you more interest than the government will pay you. The government just raised the rates plus rates also spiked after traders sold bonds. Now companies have to pay more money. There is a linear calculation between how much money corporations have to pay out in corporate bonds, how much yield they have to pay and the value of their stock. Therefore, this is repricing and not a topping pattern.
The heavy price of crude is putting a little weight on the market and a spike in interest rates. We’ve been going too long for this market to top out without any sort of capitulation at all whatsoever. It’s not going to end that way.
The risk is high in trading
The risk and volatility in trading are extremely high right now. Like I always say, please do not delve into this game if you do not have risk capital you can afford to lose. Make sure you put your stops in first and never ever trade without them. Just know there is a big risk involved in the trading and this is no easy game.
Lock in those mortgages while you still can
Recently I showed you new prices in 10-year notes and 30-year bonds. 30-year bonds that came out with the target 133^15, I think it can go much lower. That’s my near-term target. But since I made that target, the market has dumped. Interest rates are spiking right now.
When the Fed is raising rates the interest rates or yields go down and when the traders raise rates they go up. That is one of the main reasons why you had a pullback in your stock market. Maybe you’ll get more, maybe unemployment tomorrow will be enough to send it back up.
We see another bear flag has been formed. We finally broke out of it and are heading towards that 133^15 on the target.
So, lock in those mortgages while you still can.
10-year Notes
Same sort of action on 10-year notes. I gave you a new projection that is 115^17 whereas, an old projection was 118^15. We see the bear flag is working. Bond notes dropping, interest rates are rising, putting a little bit of pressure on the stock market.
Why do I say this is absolutely not going to be a crash?
Nasdaq and S&P
Because I see zero topping pattern. If you take a look at the Nasdaq daily, you slip a simple average that the entire street follows. 50 bar moving average, simple. Everytime you get near it, you hold and rally. Although it doesn’t mean it has to hold and rally, there is reasoning to think that this is repricing more so than a topping pattern. That’s what you see in your daily Nasdaq.
If you flip to a weekly Nasdaq, you won’t find a single person who looks at this and calls this bearish. Find somebody for me because this is not a bears market and I see no topping pattern.
Your Nasdaq weekly chart looks reliable. When it gets down the channel actually used to be a little skinnier but it doesn’t go anywhere you remain in that channel whatsoever. So, for the whole thing, there is one big monster channel (the red one on the graph) that you have been in. So we have a subchannel inside another major channel. This is certainly not a topping channel either.
Same goes for E-mini and S&P. You won’t find any topping pattern. We were in the green channel (ref the graph) for years. We broke out of that channel but if you look at the 50-day moving average towards the end of it, it holds the bottom anytime you get to it.
So, we have lots of reasoning to think longer term nothing more than repricing short term. We can absolutely go down lower but not too far. Unemployment report tomorrow might pull you right back out of the doldrums and straight back up we go. Be careful out there if you are going to trade. Be very nimble. Remember for now there is no topping pattern just a repricing.
Don’t forget to join me in my trading room at Live With Oscar. I’ll keep your poise calm and teach you how these markets operate. Remember to keep your emotions out of trading.
Try this:
Say this to yourself every morning, every afternoon, every evening, STOPS ARE IN… EMOTIONS ARE OUT…
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