Monday, November 27, 2006
We finally got what appears to be the first leg of a correction. Is this the beginning of something more or not?
So far it is tough to tell. There has been some heavy insider selling going on toward the end of this up move, which could spell some trouble. However, in the absence of that, this appears to just be the beginning of a long overdue correction. Notice how strong the bond market is underneath, which is what we want to buy into a decline.
We have broken the most aggressive uptrend line so far, and are sitting on the second most aggressive trend line. This is to be expected. Upmoves that just go on and on without meaningful retracements leave themselves vulnerable to these quick air pocket type of declines. Now it is time to start paying attention to see if this decline is an ordinary one or something to be more concerned about. So far, no alarms are going off but stay tuned.
As a follow up to the Nov 17th post, here is the updated GOLD chart. By now traders should be long this market if they played the flag break in the area of where the b is on the chart. I have marked with horizontal red lines, two possible place for stops to be placed.
Partial profits should be taken at this point due to the gap up open. Once the profit equals the risk, it is prudent to take half of the position off and trail a stop on the balance. This gives a chance for a home run on a portion of the trade, but locks in a profit in the event of a reversal.
As you can see from the third chart down, GOLD is not undervalued relative to the dollar here, so an explosive upmove, although possible, is not highly likely. However, the trend is up, and you are long, so stay with the trend and see where it takes you. I would suggest moving the stop up under pivot points that form along the way.
Anyone who does not know what pivots are, shoot me an email.
Friday, November 24, 2006
I exited my short trade on the gap down opening this morning for a small profit. Although disappointing because this signal is normally a big winner, a win is a win.
It is hard to have much expectation of large wins when trading against an uptrend of this magnitude. Even though we know a sharp pullback is coming at some point, timing it is another story.
Month end biases are in general upward so it seems unlikely any drop will occur prior to December, if it even occurs then. Nonetheless, if I get any more sells from my trading system, I will take them and see how they play out.
Wednesday, November 22, 2006
We are working on a 5th weekly close above the 2.0 standard deviation band, hence a tremendously extended market. One development that bears watching is the commercials. They are moving toward that short side of this market.
The purple line is the bond market, which remains strong. When we get into a running market like this with virtually no pullbacks, it is very dangerous to step in front of it. A reversion at the very least will occur, but timing it is impossible. Some traders I know will just probe over and over fighting trends like this until they hit the number. They do not mind taking alot of small losses as long as they ultimately get the big win.
I do not subscribe to this theory. I do have a short trade on right now, but it is very short term, and generated by my system. This in no way means that I am calling for a major top yet. Pullbacks are still buys in this market.
Here is what could change that. First, a break down in bonds, and second, a heavy short position by the commercials.
Monday, November 20, 2006
The big upmove continues, but we have possible flies in the ointment for the first time in quite awhile. You can see the trades I have made in this market recently, which have been few in number. Today's short entry is the first short trade in the last 40 days or so.
Notice the heavy progo divergence in the 3rd panel at the bottom. Also, the vix, in purple on the top chart has really been trending downward sharply. This warns of complacency in the marketplace. Short term timing with the VIX is difficult, but it does support the other potential problems with this rally.
Make no mistake, this uptrend is very powerful, and I do not expect to see a sharp drop. However, at some point we should see a sharp short term retracement to "shake the tree" a little bit. I have no idea if it comes from right here or not, but I am short as I write this in a short term trade.
Friday, November 17, 2006
For all of you gold bugs, we are getting the pullback against the trend that is setting up a long entry opportunity. You can either wait for the pullback to get to the lowest low of the last 10 days and just buy with a pre-designated stop, or buy the breakout of the flag.
I prefer buying the weakness, but that is just me. Sometimes you miss trades by waiting for that weakness that never develops.
Wednesday, November 15, 2006
The mid-term election cycle rally is certainly in full swing. As I stated in my newsletter, I have nowhere near the position on that I would like to have had on this move.
However, it is important to stay away from emotional tendencies when these big moves happen. As you can see from this chart the market has moved straight up with virtually no correction at all for many weeks now.
As tempting as it may be to chase this, at times like this you have to remain disciplined. A pullback will occur at some point, and when it does assuming the rest of the internals of the market are still good, it will be a good buying opportunity.
The bond market has remained strong, which is the type of support we want underneath for a trend like this to continue. I am waiting for an entry spot to load the boat, it has not developed yet. It may not develop, only time will tell. We are very extended on a short term basis, so it could happen at any time.
Friday, November 10, 2006
Percent R is a stock choice for most software packages. If you have it just wait for a reading of 10 or less, and buy the market once it gets to that reading. Use a trailing stop of whatever your risk tolerance allows. It should be itleast $10 due to the volatility of this market, and probably much more.
If you do not have that indicator, all it represents is the close compared to where it is within the range from high to low of the last 10 days. A 10 reading tells you that you are in the lowest 10% of the last 10 days range, hence oversold.
I am back from Italy. Sorry for the lack of posts the last week, I had some technical difficulties with the Hotel and their internet access.
Gold has broken out of its downtrend and should now be traded from the long side. Here is a weekly chart of GOLD as of this morning. The key 574.50 level that I mentioned for closing, did hold.
Next is a daily chart which shows the shorter term uptrend better. Just wait for pullbacks against this trend for entries.
Thursday, November 02, 2006
I will be in Europe for a spell so there will not be daily updates until next week. For subscribers who may be frustrated that the bond trading system has not generated many trades lately, I have displayed this chart.
Keep in mind that my goal is not to get every wiggle, although I would like to. The goal is to be consistently profitable. This means at times we will not be in the market. Yesterdays post addressed the trading range scenario we have at hand. Notice now how what I said in my newsletter, written before this happened by a couple of days, has turned out to be true. This recent leg on the chart has mirrored the prior up leg to within 1 tick of the exact price.
Now we are at the top of the range, so why no short for today? Simple, this opening is the type of opening that on average is not wise to short. Due to the overbought situation of the market, this one may work as an entry. However, it is not high probability in my system and as a result is a no-go.
Sometimes the best thing to do is not trade and wait for the right moments. The system actually had a few potential buy signals up here that were filtered by some of my screens for entries. Until next week ......
Wednesday, November 01, 2006
For those of you who subsribe to my services, I made mention in my monthly newsletter about symmetry in the middle of trading ranges. Here you can see how these uplegs look very similar. Trading in the middle of ranges like this is very dangerous.
Often the price swings all the way back to the other side like this, but not always. Sometimes you get stuck in the middle, with choppy action. You can see a sell 111'29 stop indication, which was filtered out as an order for today due to this range configuration, as well as the gap up bars.
I know that someone mentioned they felt rates were going to rise due to a fundamental reason. Who knows, that may happen, but right now they are dropping. Big picture fundamental things are very hard to dial in to short time frames for trading purposes. We are now approaching the upper range, where sell signals will make more sense. Hopefully, my system will generate some sell signals up here against these highs.If I had to guess I would say that this rally is being generated by weak economic news, but that is just a wild guess.