.

Stock Trading in

Three Dimensions


.

A Warning


  • Yesterday in the comments section I issued a warming to traders essentially saying-that there may be a big shark out there. Many stock market analysts will just look at one dimension and look at the technical aspects of a market, usually the benchmark S&P 500 and make a call. That’s using one dimension.
  • Fundamentals are the second dimension. Two weeks ago the Fed and other Central banks essentially told Europe we have your back. There was a huge rally on this news. Yesterday Fed chair Bernanke said he was very worried about Europe but the Fed would NOT bail out Europe. The Fed often works in mysterious ways, but the statement seems opposed to the promised help a couple weeks back.
  • John Murphy is the father of inter market analysis – the third dimension. Different markets are strongly correlated. If commodities fall so will stocks. Yesterday oil prices fell 5.05% (One ugly chart) Industrial Metals fell 2.79% (Another ugly chart) Sugar fell 2.61% (Another Ugly chart) compared to the benchmark S&P 500. It fell 1.13%.  A whole lot less.

The cutting edge of the knife is in the inverse relationship (inter market analysis) between Italian bond yields and stocks.

Virtually all investment eyes are focused on Europe.  The breaking point here is  a 7% yield on the 10 year Italian bond. Reaching 7% would be considered unsustainable for the 3rd largest economy in Europe and force a “controlled bankruptcy.”


Therefore the most important technical tool is

10 year Italian bond rate


Using the linked chart above change the setting to the daily rate. You will see a chart that shot up to 6.89% twice and has been beaten back. At 7:40 EST the Italian bond rate stands at 6.69%. A huge fall.

Some financial entity(s) has intervened through a proxy. Was it a Fed (and/or one of their allies) backed bank/entity?  Who knows?


Bottom Line

Trading in 3D is critical, especially for shorter term traders. We are in a danger zone with the Italian bond yield close to 7.00%. There’s a big SHARK out there.

However, for today it looks like the bulls will rally European markets, which will rally our somewhat oversold stocks. At least that’s how stocks look at 7:40 EST.

AS ALWAYS, DO YOUR OWN RESEARCH BEFORE INVESTING

ALL TRADING INVOLVES RISK AND POTENTIAL LOSS OF PRINCIPLE

CHECK ALL DATA, I MAKE MORE THAN GRAMMAR  ERRORS.




  • Share/Save/Bookmark