Thursday, December 31, 2009


In the post the other day where I forecast a few things for next year, I am going to revise one of those just before the New Year starts. The above chart is a weekly chart of Unleaded Gas. As you can see there have been consistent upward moves that have occured every time the commercials bought dips in this market. This is recently occuring once again, so the near term outlook here and for the other energy markets except Natural Gas, is upward.

I had stated that I though Crude might retreat back down to the 30's, so I am revising that to project upward prices for the beginning of the year, and taking back that $30 call. I do admit to being unduly influenced in some views this year from one of the COT experts whose newsletter I get. He has had a sub par year but I would argue through no fault of his own. The way to use COT data effectively has changed dramatically this year. Many patterns in it that have been reliable historically have not worked this year. The way that I have displayed above of using it has continued to work consistently. It is an art not a science using this information.

The following displays what I consider to be an unreliable way of using this data.

If you look at the bottom of this you can see the COT report showed consistent commercial selling during this huge blow off top we had in GOLD. I have 5 arrows marking areas in theory that would indicate selling opportunities, all 5 failed. I have marked marginal on the first arrow on the chart, which was actually a legitimate signal that had mixed results. Then you can see the second arrow, which had a great result, buying that dip with the insiders. The last one on the chart indicates a buy, and is why I am looking for a bounce in GOLD now.

It is very easy to be influenced by this report because it has picked so many tops and bottoms almost right on the day and number.  For someone like me who follows this closely, it is hard to ignore this massive selling that went on here., but it has to be ignored. It did eventually "pick" the top, but we can hardly say it was useful for that. You would have run out of money long before this market topped, selling just based on this alone. Their activity needs to be considered in the context of the trend until it gets to a historical extreme, which is when this market topped.


Tuesday, December 29, 2009


There is a nice inverted Head and Shoulders pattern that is setup in the Live Cattle market right now. A breakout from this congestion pattern here should provide for a nice run in this market. Notice also the divergence in the custom indicator at the bottom when the low was made. Holiday trading is quiet so who knows if there will be enough action here to trigger this, but it is a market I have been watching due to that divergence at the lows.

The Momentum oscillators are also both indicating an uptrend so that also supports this trade entry. This is a market that seems to be able to walk independently of the stock and dollar markets, so what is going on there right now should not have any effect on this market.

That is all for tonight, a very short and to the point post.

Monday, December 28, 2009


Here is an updated version of a chart I have had in here previously where I predicted that we would at the very least hit 1122 which was the 50% retracement to the all time highs. No great shakes there, anyone who has ever studied retracements probably got this one right. I predicted this recently, not several months ago. For the record, several months ago I did not think we would get this far. It was after several failed sell signals that I fortunately did not take, that I realized this trend had some real power. Ironically I have made some money on the short side during this rise, which as I look at this chart seems impossible, but more importantly, ignorant on my part. I have not been good with this market this year, but I call them like I see them.

Commercials did sell this recent week on this breakout, but that means nothing really, they have been a worthless indicator in this market. My Hybrid above has been much better, although still missing once big time. The reality of it is, you want to watch them on retracements in trends, like Gold is having now, to see what they are doing. Gold the commercials are not buying into this retracement, so that tells me we could go down alot more there. In this case above, the sell indications in most cases have been good, but the ones that have been with the main trend have been the best. This is a lesson I learned the hard way, ignore commercials when they are against a trend unless they are at an extreme, like GOLD where that extreme ultimately indicated what will probably be a high that will hold for a decade or more. Even with the GOLD market you had to ignore commercial selling for months before the high was ultimately made. Watching them was not a good indicator of where the next move would be because of how early they were. They were right, but very early.

My Hybrid indicator is in middle ground and also Larry Williams Will Go short term is also in neutral ground. However, the Will Go Long Term is indicating a top right where the Bradley model does. This also ties into a recent seasonal down tendency in the first quarter of next year. When we combine all this with the politics that are going on, we do have a recipe for a significant decline. One added factor, is the meltdown in the Bond Market that is happening. There is a lag factor, but ultimately weak Bonds usually means weak stocks are coming.

No reason to get aggressively short yet, but this is setting up a big trade for next year to the downside. I doubt we get any major break the balance of this week, but some of these things are going to matter eventually. It is hard to know what the catalyst might be that will knock this off it's horse. The way I trade I use technical patterns, so it leaves that guesswork out of it. However, if I were to venture a guess, the monstrosity in the Congress that will probably pass about the time these cycles just discussed are due, could be that catalyst. If I see a short term pattern for entry that lines up with these time frames, I will post it here at that time.

I am dinking around with a couple of trades right now in the currencies and one in the meats, but for the most part I am trading lightly during this holiday period.


Here is the Australian Dollar chart, which appears to be setup for a short entry. Both of the primary momentum indicators show a downtrend with the third being borderline. We are also at a seasonal peak period.

You can see from this above Seasonal pattern that we started this decline right on schedule. Seasonals are a tool not an absolute, when we see turns that happen according to what they have shown to be the typical pattern in the past, we need to pay attention. Now let's look at what the commercials have been doing here recently.

The net commercials position was recently at the same level as it was when the last major peak was made. This is somewhat typical, they tend to defend certain levels of price. One other typical pattern unfortunately is for them to be selling into strength prematurely as you can see here. They have been getting increasingly short as we have moved higher in price. This is where the art of reading what they do comes into play. You cannot just blindly buy or sell a market just because of commercials buying or selling alone. There are certain patterns to their behavoir that mean more than others. We know here the big players are trying to cap this rally with about all they have, this matters.

Of course one of the inverse markets to this is the Dollar Index. I have written that we are in a short term sell zone there but I was longer term bullish. This is not a direct correlation to the Aussie Dollar, but obviously is correlated to it to a degree.

This is a textbook sell the retracement pattern in a downtrend when commercials are selling. We are seeing a decline in the dollar index off this pattern. Since the commercials are also at the same short levels as they were when the highs were made, we need to pay close attention to see what happens here. From a price perspective we have broken the downtrend line, but fundamentally we have head winds here. If we do make a higher low on the dip then start moving back up we will be off to the races here. I especially like this trade setup because I am one of the few people who have called for this rally. It ties into the GOLD trap that is being sprung right now on people.

This chart does not support the Aussie trade at this point, but you do not always have everything. I added this just for perspective. You have to look at alot of things, get the full picture, then make your decisions. To me the odds favor an Aussie decline here after this bounce, and I am looking for an entry pattern.

Saturday, December 26, 2009


The Strong vs the Weak

Here is something I rarely see anybody cover publicly. Maybe they do and I just do not come across it. This is a basic tenent of trading. You always want to buy what is strong and sell what is weak. So many people want to do the opposite. They think buying things weak makes it a "better deal." It might be at Walmart, but not in trading. If you are a precious metals bull, you need to be buying Copper not Gold right here, and if you are a bear, you need to be shorting Gold. This is the reason my recent short trade here worked so well, I shorted the weakest of the three main metals. I had someone recently tell me that you always want to sell the strong during a breakdown, because it will catch up on the down side during a decline. I just gave them a spock type raised eyebrow reaction and moved on. Obviously that person had done no research on this idea whatsoever, and went on to lose (OF COURSE) on the trade he did with that theory while the rest of the complex that market was in went down. Dumb ideas like the Pet Rock work in some industries, but dumb ideas will get you cleaned out in this business.

You can see from the chart above that Copper has now broken out to new highs way ahead of all the others. Copper is an industrial metal, so it does tend to correlate with stocks more closely because of this. With the rip roaring stock bull market, it makes conceptual sense that this would be stronger than the others. I have to admit to having been within seconds of taking that Copper long trade, but ultimately passed on it due to nitpicking one of my indicators. Oh well I make bad decisions sometimes also. I know I will never get them all right, so I just move on after a blunder. Also, as everyone knows who reads here, I am very bearish on this sector as a whole, although really more on Gold and Silver, not so much on Copper.


The following are forecasts of what I expect to see overall, fine tuning needs to be done

1) Stocks to continue to rally until we reach possibly as high as 1235 on the SP 500, then a downward move of some significance. It is impossible to know at this point if it will be a buying opportunity or not, I doubt it. The recent tendency has been for a first quarter decline, but this bull move has ignored alot of things that in the past have indicated turns, so I cannot just blindly call for that here. I have never seen a move like this since I have been trading.

2) Big deflationary wave across the board in commodities. Gold should drop about 50% from the highs, Grains should take out the lows of this year, Crude revisiting the 30's. The Gold decline will be fun to watch, and one for the ages. I think we will see one or more days where it will be down over $100.

3) Big US Dollar rally. It is interesting now how I am reading people now getting bullish in the Dollar. I don't like that personally, I would prefer to be the opposite of them, but you can't always have it all.

4) Bonds continue to decline until the Equity selloff starts. Once that begins, there should be some flight to quality into Bonds. We know this market typically bottoms in June - July, so that could line up once again.

5) Softs - we are seeing a potential sign of a major top forming in Sugar, I expect that market to make a major top and have a large decline. Cotton also, although I am really mixed on that market right here. It may be topping right now and rolling over.

I will update these as we go along from a timing perspective. Who knows if they are accurate or not. I trade off actual pattterns, but still like to have an overall view or basis to work from. Also, part of trading is adapting. If I see evidence that I am dead wrong on a market I will change my view. This is what you have to do, stand fast and follow your principles, yet admit when you are wrong and adapt.

Thursday, December 24, 2009

Merry Christmas!!!!!!!!!!!!

I realize there are many readers who are not american here and do not celebrate this holiday, so no offense intended, but tomorrow is a big day here in the states.

As we watch the Barry Group run out scrubs now talking about how the stock market indicates how well they have done, it would be hard to dispute that based on the stock market performance recently. The Naz chart above shows a clear breakout to new highs, and there is no mistake about it we are and have been in one heck of a bull market now for several months. I have been skeptical during some of this. If you read back far enough you will see at the end of Feb I was bullish on the stock market, but I did not think we would go anywhere near this far. I have been in cash except for short term trading since the beginning of June, in my stock accounts. I am not a long term holder anyway, but no matter how I measure it this has gone far beyond what I thought we would see.

Ironically I did make money this past week on the short side of this market, nothing to be proud of, I missed the big move which was up. Keep in mind though that I trade my patterns when they are there and do not when they are not. I did not have a long side entry or I would have taken it. I chose to keep a very tight leash on my short, and that was a good judgement because I took several thousand dollars out of what was quite frankly a terrible trade. I see no reason yet at all to be shorting this market other than very short term trading like I did. Now we are nowhere near a sell pattern for me, so I will either buy a pullback here, or play somewhere else. I do find it more than a coincidence, that some of Barry's scrubs are out touting the stock market run now. Do you ever remember a president doing that?

As much as I hate to admit it, I see no evidence of any PPT activity in the markets now at all. The volume is so light that just the institutions alone can keep this humming right along. As they highjack our economy, I do think a day of awful reckoning is still coming, but do not think it will be before mid January at the earliest. It may not happen at all, we never know that. Looking at that trendline on the above chart, until that goes we are good to go upward. Notice how we retraced right to it where I have it extended with the blue line, then took off again upward. This is how bull markets act.

I mentioned yesterday that if Hogs broke back down again I would re-enter that short trade, and that did happen today, so I did go back in. This had very unusual intraday action today, so I have to look at this over the weekend to decide how I want to play it going forward. The chart is below.

As I indicate with the arrow on this chart, I am not thrilled with how the one accumulation/distribution indicator did not confirm this large down day today. They can lag by a day but I do not want another day if we were to go down again below the TRAP low, to show a higher reading on this.

Happy Holidays to everyone!

Wednesday, December 23, 2009


We are now winding down the year with the markets typically quiet for the balance of the year. However, at times a sharp move happens so I am still staying on top of things. I do not currently have any trades on, this month has been a very good one for me, so I will not force anything. If a fish wants to jump right into my boat I will oblige, but will not be doing much casting.

Here is a trade I was recently in that got stopped out today for a very small gain, basically a scratch, Lean Hogs. You can see where I have labeled the break below the trend line and quick reversal TRAP. This is a common pattern that we often see in trending markets. The price breaks enough just to get all the suckers short, then they reverse it back in the direction of the main trend quickly. When I saw yesterday that after one close under that trendline, we had a reversal bar right back up, I tightened my stop just in case it was one of these traps, and sure enough it was. Now the question becomes, what if we break back down again quickly? There is an awful lot of divergence in the momentum oscillators and a ton of commerical selling going on here, so I am still on the lookout for another entry here. This was just basically money management today. I like to move stops to breakeven once I have X amount of gain on a trade. If they come back and stop me out for a scratch, so be it. The good trades just typically go right away like the Bean Oil and metals trades I posted in here. When they don't I am content to scratch them and look for the next opportunity.

Let's take another peek at the Dollar Index.

As I have mentioned, I am short term bearish here in the Dollar and long term bullish. I would love to see a sell signal show up for a quickie down toward the lows. We do have some divergence beginning to show up here. It is not enough to take action on at this point, but it may be soon. We have the one accumulation oscillator just racing ahead ( the green line ) and one kind of lagging, the purple line. We are into heavy weekly resistance and commercials are selling this up move so far, so it is setup very well for a decline, we just need a pattern for entry.

Tuesday, December 22, 2009


I decided to take profits on this short term GOLD short today here as shown at 1079. I had this and 1056 as possible targets for this trade. Just to re-state, this in no way indicates a shift in my view here. Trading is another matter. Regardless of opinions I have to enter and exit with short term rules. It is better if those entries coincide with bigger picture views, but that is not always the case. I had a $2000 risk here so anytime you can double that in profit, it is a decent trade in my book. Readers here have now seen me take substantial money out of the metals on the short side in the last few months, the other 3 trades in Silver. We are nowhere near done on the downside here so I will wait for another entry pattern to setup. We could free fall here there is no doubt about it, but I have taken a good piece and am content to sit on the sidelines and wait for another setup to develop.

With the Dollar short squeeze trade on and in full effect, it is impossible to guess where the turns in price will happen exactly, and we do not need to.  We can just rely on our patterns to trigger the entries. We do have some divergence in the following chart, which has made me leery of this price level. We are also into buy retracement zones on the weekly chart, which is displayed on the third chart. I am looking for a short term long to play a bounce here. I have no idea if that will happen. This is why they turn on the machines every day, so all of us know it all's can be proven right or wrong.

This chart has a possible long entry for Wednesday being triggerred by one of my proprietary divergence patterns. I rarely take action on these alone, and will not this time. However, you can also see a divergence in the first momentum oscillator, which will also occur and be confirmed if that projected bar for Wednesday occurs. That is not an actual bar, but one drawn in to see how the indicators would look if we were to close above today's high. I personally do not like how much the second momentum oscillator is lagging so much, it does not confirm this trade to me so it is a no go in this corner. However, there is also another short term Fibonacci timing indicator telling us a very short term low could be here, and to buy if today's high goes. We are also weekly in a good buy zone.

This just shows some basic moving averages that as you can see have supported price consistently on the way up and may do so again here. We can never know when dropping into them if they will hold or not, they do until the trend changes, then obviously that last move does not hold. I believe the top is in here but they still could bounce it up from here for one last try at saving this pig.

Monday, December 21, 2009


You can see the GOLD trade that I posted the other day is still on but it is purely luck. My stop loss order was .20 above where today's high wound up being. To say that is lucky is an understatement. Maxwell Smart would have been proud of me here. Who knows what happens next, we are kind of moving sideways overall here now and particularly in Silver. I am leaving my stop in the same place and we will see what happens. I am still not convinced that we are going lower now before bouncing, but am trailing this just in case we do. I have stated many times where I think we are ultimately going in this market, and I am hoping that I happen to be aboard when the exits get crowded. Who knows maybe all the experts are right and we are going straight to $3000 here, and I am just a buffoon.

The next chart which relates directly to this for obvious reasons, is the US Dollar Index. For those who want to know what a Short Squeeze looks like, this is it. There are 14 consecutive days of higher lows here. As I stated in here just a few days before this began, this was the short squeeze of a generation waiting to happen, and now it is happening. There are literally millions of people on the wrong side of this trade if this continues. I do not know if it will without a correction or not. Big picture I think we are going way up here, but I do hope we dip back towards the low for a test. This would convince the experts this was a bogus rally, and trap more people making the subsequent move up more powerful. We could just keep spiking here since we broke out of a Larry Williams blast off bar today. This usually means a continuation of the current move itleast for a few days and sometimes much more.

I would love to take a quick short on this rally if my patterns were to setup, but we are a long ways from that happening. We are in weekly resistance zones, but so far we have seen no signs of this stopping. The one thing about our markets that has definitely changed is that often stair stepping moves make V tops and bottoms now. In the good ole days markets usually came out of moves how they came into them. That rule of thumb is worth diddily nowadays. This market is a perfect example, we just stair step down for months at a time, then spike right out of the lows. This used to be rare, but seems to be happening all the time now.

Is there really a Santa Claus Rally?

Above is a daily S & P 500 chart with the seasonal tendency displayed at the bottom. As you can see there is a definite seasonal up tendency from Mid October through the end of the year. We have followed this road map remarkably closely this year. Keep in mind that seasonals are just averages of values on these days, so they show us direction but not magnitude. Notice the one large red bar down. This indicates on the 23rd a high probability of a down day just for that day. It does not mean a large magnitude decline, just a high probability of a down close that day. Other than that there is really nothing on the radar here until January.

You can see via the red arrows the very short term trade I made shorting this market last week that I posted here live when I did it. My judgement going in was this was a quickie but would give it a chance just in case we caught "them" asleep at the wheel and it got away from them. Once Friday started rallying off the lows I judged the brief decline was over, so I took profits quickly. This morning has certainly verified that was a wise decision. I trade mostly mechanically but sometimes you have to think about what you are doing. This has been a very strong market, so shorts need to be on a very short leash.

You can see in January that from a seasonal perspective, we could have some trouble. We know from history that major highs have had a tendency to be made in years ending in 9 or 0, and next year is 2010. Does this mean we just go out and sell the minute January comes along? Not exactly. We have to view what is going on within the context of where we find ourselves here. We have had a major rally this year, and many fund managers are here at bonus time. We also have Uncle Sam both through just massive injections of liquidity into the economy in general, and selective futures buy programs, moving this thing along. There are major political events going on so make no mistake about it, the herd has every incentive to keep this propped up here.

There is going to have to be some type of catalyst to throw this off stride. I had suspected the dollar rally might do it, but it has not. Historically that would be good for stocks anyway, but in this bass ackwards world we live in now, the dollar and stocks had been trading in reverse fashion from one another. Even a commodities selloff which appears to have begun has not had much impact. We have banks vanishing like a Star Trek red crew member, that seems to be no problem. Of course, that is being kept under the radar as much as possible. What it is going to require is something like that Dubai situation, a very large default of some type. We know there are literally countless scenarios where this "could" happen. However, the government interventions are preventing them. It will have to be something too big for that, and the one albatross I see out there that could cause this is the collapse of CMBS. This is not a new story, it has been out there for a long time. However, it does seem that they cannot kick this can down the road forever. We are talking large enough dollars there, that the FED cannot handle that all at once, or even over a period of time.

Another outside chance of a catalyst is a collapse of the GOLD market. Once again this in a normal world would not have this type of impact. However, this is one place people have been able to go to and make alot of money, another bubble that has been inflated. If for some reason this were to deflate, and people collectively would feel they have once again been fleeced, it could change sentiment enough to have a broader negative effect. If this were the event, it would be accompanied by a rising US Dollar which in reality at this point would cause alot of problems for our governments plans to inflate their way out of the spending spree they are on. They are likely already concerned about this recent dollar strength behind closed doors.

The last and most obvious one is the passage of this massive socialization of medicine. Following this story is almost like watching a movie that you are thankful you are not in. The financial impact of this is going to be devastating eventually. Maybe once the the groups get together and the public realizes it is actually going to happen, it will cause some problems for the markets.

These are just broad thoughts of some possibilities, I really have no idea which if any of these will happen. I think the CMBS scenario is the most likely, and I think we will start seeing some type of change in things as soon as mid January. Until then it should be smooth quiet sailing flat to up for the balance of the year in stocks.

Saturday, December 19, 2009


As we wind down 2009, I have decided to post one broader review on the weekends, instead of the one or two subject posts each day. I will be giving overviews of more markets this way and what to expect the coming week.

S & P 500

We are still sailing merrily along here in spite of my warnings that I think we are in dicey ground now. We really have not gone anywhere for a month and a half at this point. The Will Go indicator is showing a downward move starting in the first quarter of next year which also ties in to the Bradley Model. The middle graph show commercials being net buyers over the last two weeks. There will have to be a big catalyst of some type to knock this over, and I have no idea what that might be. To say this is a house of cards, is the best understatement of the year. However, houses can be built very high as we have seen in many asset classes. You simply cannot fight trends like this if you want to survive financially. The 1020 area which is where I have the horitzontal line on the chart is the key price level. As long as we stay above this level, the long term trend is still intact.

I exited the short position yesterday for a small gain of 10 S & P points, $500 per contract. I suspected the powers that be whether they are the PPT or large institutions, or both, would not allow this to fall at the end of this year. Once we started to bounce after making new lows, that was my cue that it was business as usual saving another decline, and I took profits. You just have to realize where we are. In big uptrends you have to take profits on shorts quickly.


My favorite market as of late, along with Silver. We are now in weekly support areas here in an uptrend. A couple things are a bit unusual here. First notice how quickly the sentiment has shifted to bearish from bullish on this decline, this is a bullish development. However, the commercials have not been buying this dip as you can see their short position continues to grow. My small fries with sentiment indicator has not reached the buy zone yet. Lastly, we are approaching the seasonal down bias period. Next I will show something I have shown previously which also says to look for a potential buy signal to develop.

This is a proprietary indicator I have displayed in here before when I shorted up at the highs. What we are looking for here is a divergence in it that shows up once we get to a extension in it to the black bands. We had one right at the high, and now we have one here on this new low this past week. We really want the blue line to be above the orange, so it is not perfect, but it is a signal to start watching the daily chart to see if a pattern shows up. We are not close to one on the daily yet, so I am still short there. However, the big late equity bounce brought Gold with it so my breakeven stop could very well be hit on Monday. The daily chart shows Silver having held it's recent low and that market has been weaker. This is also potentially bullish. I am still very bearish overall and expect $500 or $600 dollar Gold before this is over, but we may be getting a bounce here.


Bonds are setup as a sell on this pullback here. The only thing that will drive Bonds higher at this point is going to be the flight to quality scenario if we were to get an equity selloff. Since I feel that is unlikely until next year, this should be a shorting opportunity on this pullback.


The dollar has made it's low as I have been talking about in here. We have had a quick shift to excessively bullish sentiment as well as alot of commercial selling on this bounce. As I have stated, when in a downtrend on a weekly basis like this, we have a sell setup here. This could be a major trend change but if we get a sell pattern on the daily charts that ties in to this setup, it has to be taken. There is not one by the patterns I use at this point. This probably is a major low in this market, so what I am hoping is the get long a dip. Even though we have spiked sharply higher here, the world is unaware of this. Once the amateur economists at the water cooler start realizing their GOLD to $500 based on a plummeting dollar is going south, watching the race to the exits is going to provide great opportunity for trading gains. It will acclerate this market like few expect, and knock down the metals.

I have stated repeatedly in here, this is the most crowded trade I have ever seen and by the time this is over, it will be a ghost town.

Thursday, December 17, 2009


Surprisingly the PPT let the market fall today, and the rest of the world of US Futures Markets went with it. Another trade I made today in addition to the 2 I posted when I did them in my last post, was to short Soybean Oil. Above is a basic chart showing divergence in the PRO GO INDICATOR against the price at the highs. If you look at a weekly chart, you will see that this also occurred in weekly resistance zones, so it was time to look for a short entry in this market. I debated heavily between Soybeans and this market and determined that this was the weaker of the two, so I went to work here. Soybeans did fall more which was a surprise, but also had a bigger stop. If you risked the same amount between the two markets, the move was about the same.

Since many commodities markets are setup weekly to decline quite a bit, I am keeping my stop back to attempt to ride a larger move here. Will it happen, who knows? Consolidation within a large range bar like this is typical, so even though this looks ominious on the chart, we will probably get at the very least backing and filling here or more.  I will attempt to tighten stops on this and all my other trades if they continue to move down. This could still have been a one day wonder day, we have had a ton of those this year. In these the markets has just punched itself out down and then resumed the uptrend immediately. With uncle Sam looking to buy futures every time we get a minor dip like this, it certainly would be no surprise to see everything go right back up again.

If we approach a 20 day low in the ES which is a long ways away, look for the PPT to show up with aggressive buy programs to hold those levels where fund managers could potentially have their stops. It is impossible to know exactly when they are in the markets and when they are not, although there obviously are a few people that are privy to that. However, we can trace their activities anecdotally through timely " coincidences" that do not correspond to normal market order flow.


Well I guess the luck of the irish is needed now, and they have not been too lucky in recent years. As we look at the Gold chart above, one achillees heel of short term trading comes up quickly. When we have a market in potential free fall territory we often get these very small bounces which setup possible continuation entries in the direction of the most recent leg. Typically when they occur it is also a potential large time frame trend change. In these instances I find myself always waiting and hoping for a larger bounce as a rection to the first impulse down, to enter another trade.

Often as we can see here it does not always happen. Ironically Gold has now on a short term basis become weaker than Silver and took out yesterdays low here overnight. Since you have to be a night owl nowadays, I was here at the computer when this happened.  Since we took out the prior bars high first, and a takeout of the low afterwards would represent an outside bar to the down side, it triggerred a potential continuation trade downwards. When I saw this and the momentum oscillators were still showing it as a pullback against a down trend, I entered a short position. It is very likely in my view this could be a fake, but if this is to be a larger move like I have been harping at constantly in here, sometimes they do not pullback much more than this.

Since again I view this as a potential for several hundred dollars an ounce, I have to take a shot at this even though I do not think the odds are great on this one. The dollar short squeeze I have talked about in here is on now, so it is really hard to say how far anything can go now. If the dollar move which appears to be picking up steam, accelerates to the upside, most commodities are going to drop. It is very difficult for me to believe that the PPT is going to allow a big move down here at the end of what has been a great year for equities, but you just never know. A sell signal in the SP 500 has also been triggerred here overnight as you can see next.

Here you can see the momentum oscillators lagging the price during this sideways to up move, and we broke down overnight. I do not view this as a large trade due to the PPT being likely to stop any large downward move. However, I have to take these when they come up in case one gets away from them. You just never know in this whacky world we live in now where the government is controlling everything we do. Maybe their eye will be off the ball for a moment. I do not think anything major happens unless we can get to a 20 day low, which could generate some fund selling. That price is 1062.25 which is still a long ways away from where we are now. As long as we stay above that, I think any dip will be easily contained by the bulls whether they be the government or the large institutions.

The dollar strength is potentially the fly in the oinment that they did not want. They want a weak dollar, and the dollar may be getting away from them here. A weak dollar is certainly the governements way out of what they are doing right now, so with it soaring like this, they have some potential trouble with the scenario they have been manipulating. This should be fun to watch what they do here.

Tuesday, December 15, 2009

If one more 7 year old...............................

To complete that phrase, "asks my how much Silver or Gold I am buying..." I literally have been asked recently by very young children when I am buying more Gold and Silver, and when I tell them I am not they ask why and grill me!!!!

I know I keep harping on this, but I am just trying to point out a market that is crying in every possible way it can be, TOPPPPPPPPP!! In the past you have always heard people say that once you saw the Wall Street Journal call for a 10k Naz, the game was over. They go on to say that is what you need to look for to pick major tops and bottoms. Well we have blown through that phase and gotten to the point that young children are even wanting to buy metals. I know "it is different this time." I know because we are all economists we know the devaluation of the dollar is inevitable, or do we?

When I look at the chart I displayed earlier in my last two posts, I see a dollar that already has been severely devalued. It is down to the point where it is incredibly oversold on the weekly charts. As we know oversold can get more oversold etc.. I think soon we will be wondering when the metals are oversold enough that they can stage a rally. Above is the daily chart of Silver and it's recent breakdown is apparent. However, notice how similar it looks to the last time it broke down, then staged a large rally. I have this marked with a red arrow. Notice how similar the momentum indicators look. However there is one major difference and it is a subtle one but very important.

The bottom panel shows a longer term momentum measurement that is beginning to roll over. It was not in this same condition during that low earlier this year. I have written sell in red on the chart to the right and a bit above the current price. If we reach that area, I think what we will see is a rollover in this momentum line combined with a short term overbought condition. These are prime selling areas when they occur which unfortunately is not that often. This is a setup taught by Larry Williams which is why I am being somewhat vague on it. It is his teaching and therefore a concept that he owns. I am not at liberty to disclose it other than to just point out it may be developing here in this and a few other markets. Basically it is a sell signal that is pretty reliable as long as short term momentum indicators support it. We will not know that until we get there, but at this point it appears they will if this pattern develops in the next few days.

I am waiting for this setup to re-enter the short side of this market, and I hope it completes in a day or two.
SQUEEZE ME!!!!!!!!!!!!

The Squeeze trade to make the 400 million economist both professional and amateur sweat, is on. Readers of this blog of course know I have been calling for this recently. It is also at this point a retracement in a downtrend, still well within pullback parameters for a continuation trade back in the direction of the longer term trend which is down.

Which is the way to play this? Short this rally or buy the pullback?

The answer to that is that it depends on what your time frame for trading is. As a short term trader I know that the highest probability trades are pullbacks like this, with commercial selling that accompany them. However, I also know as I have written previously in here over and over, this is the short squeeze of the decade in the making. Since the potential for such a large gain on the upside is there, long side entries also have to be taken.

For a longside entry we need a pullback to test the low. It is possible that like the metals, it is just a V bottom like they appear to be a V top, and that opportunity will not develop. The problem is that we can never know that when it is happening, whether or not it will just blast off, or give us a retest. I can tell you from the experience of learning the hard way over the years, you have to fall back on your entry techniques now and if your setups give you the trades you take them, if they do not you move on. There is always another trade. If you just blindly bought an oversold market on the Dollar all the way down searching for this bottom that appears to have formed, you would have been bankrupt long ago.

I studied for years over-extended conditions and how to fade them, all that happened is my account balances faded! If you can live with a 20% accuracy rate knowing eventually you will hit a homerun that makes up for everything, that approach can work. I personally cannot live like that knowing I am just a few more decisions at any moment from handing over my house keys to the bank. At this very moment I do not have an entry setup in either direction to trade this. The chart below shows why.

You can see the oscillators far outracing the price. There are 2 ways to look at this. One it tells us this is a very strong move which we can obviously see for ourselves on the chart. Second, have they punched themselves out? Larry Williams has taught recently that at times this can be a reversal pattern when the price does not keep up with the momentum oscillators, and a move can fail. For my purposes I either need some type of a momentum divergence now to short this move, or a pullback where the oscillators stay positive and we get a higher short term low. Other than that it is basically watch to see if either develops. If they do not I do not take a trade here. The currencies and Forex pairs offer plenty of action, so if this does not setup exactly like I want, I will just say I told you so on the rally, brag about the call, and move on.

I do not trade well when I force trades, so even though it kind of ticks me off that I am not long here since I predicted this, my entry setups are not there yet either way.

Monday, December 14, 2009

Lets Blow This up!

Following up on the Dollar discussion over the weekend, here is a monthly chart of the Dollar Index. I have indicated with lines and arrows a couple of nice turning points signaled by a three point divergence in the momentum oscillators. The one at the top was a beauty. I sure wish we had one here at this low, and maybe the lack of it does indicate we will not hold here. Technically if we did turn up from here we will have a three point divergence in the lower oscillator, but it is not nearly as clear as the two marked.

After having a friendly debate over the weekend with a friend who has the consensus view and hence opposing view of mine on the dollar and gold, I want to address my thoughts on this. First, I do not argue that in the end an inflation wave is coming here as the result of the government spending. The problem that I see with that is that in the near term, meaning a few years or less, I think we have a big deflation wave upon us. I base this on my reads of the COT reports and what they tell me about likely future market direction. They are as I have written in here indicating to me a large downwave across the board coming. I do not trade on my economic opinions. If that worked economists would be good traders not terrible ones.

I would love this chart to support my COT based view on things with a big obvious divergence at these lows which it does not. However, what I do use to break ties is sentiment numbers. The sentiment numbers have recently gotten off the charts bullish in alot of places, bearish in the Dollar. What this does confirm to me is my anecdotal observation that everyone in the world but me and Bob Prechter thinks the dollar is going way down and Gold way up. I just cannot remember the last time if there ever has been one, that the whole world including every small individual investor, was in agreement on a future outcome, and that outcome became a reality. Ask yourself that question, if everyone is bullish on gold and bearish on the dollar, who is left to buy gold and sell dollars?

This is an opinion I will grant you that, and I would not trade off just that alone. However, trading is a thinking man's business and at times you have to ask yourself common sense questions about things. For the dollar to become severely devalued from here you must also believe the US will become a second rate country. In as much as that appears to be the path the current administration is taking us on, they are going so far they are likely to be one term office holders, and a new group will come in and nuetralize what they have done. Net, net we don't get anywhere, which also means we don't go way down.

Does this chart showing a huge downtrend really indicate a bubble condition to you? It is like GOLD, they both may continue their trends, but is this a place you would want to place a large bet in continued movement in the same direction?

Maybe for the metals bulls and dollar bears, we will get a sharp correction here to both which will flip sentiment, and provide a nice continuation entry in the direction of the current trends. I could see a 40% to 50% Gold decline as setting up a nice buy spot. The following chart is showing something that to me is very bearish for Gold.

If you look at the patterns of the commercials and small speculators you see a consistent pattern. Commercials have been buying on the dips and small speculators have been selling. What is occurring now is not that pattern at all thus far. Commercials are adding to their shorts and small speculators are not selling yet. If the correction continues this needs to be watched to see if it drifts into the normal pattern. If it does we could very well have a nice dip to buy into. If it does not we could have a washout like Crude Oil had once it hit $140. At the moment this is bearish, but it needs to be watched to see if it changes. As you can see when the support levels in small specs have broken in the past we have had sharp down movement. If this recent decline continues enough to shake out some of the small speculators who have been late to the dance, this correction could get very interesting.

Saturday, December 12, 2009


Predicting what will happen is a difficult task obviously. I have done it very accurately over the last few weeks, but that is no guarantee I will always be this accurate. The whole point of engaging in this exercise to begin with is to be prepared to act accordingly when certain things happen. We need to be especially ready if and when they play out in line with our expectations.

Above is a weekly Dollar Index chart. One thing I would like to point out here is the achilles heel with oscillators. As you can see at the bottom, the oscillators have been diverging this dollar move most of the way down. Had you just traded off that alone, you would have been cleaned out buying and getting stopped out over and over again. No matter how you construct them, there does not seem to be a way around this, so it just needs to be accepted as a limitation with them.

Notice how we are approaching the typical seasonal low which has historically been around the first of the year. We have rallied quite a bit and are now up against resistance areas on weekly charts. Also, the inverse of this market, the individual currencies and metals are into weekly support levels now. We are seeing commercial selling in the DX on this rally, which is a sell signal due to how strong the downtrend is. We can never know when retracements in trends are happening whether they will become a trend reversal, or just fall back in line and resume the current trend. We have tools we can look at to help. Most of those tools are indicating to me that a short term sell signal is here in the Dollar, and buy signals in currencies and metals. Since the metals are free falling at this point, unless you are a really strong bull, I would not recommend just blindly buying them here. We need to have a shorter term pattern in both the DX and Metals and Currencies to trigger an entry.

Here is what I am forecasting to happen over the next few weeks. A dip in the Dollar and rally in the metals and currencies, which will setup the real big time trade opportunities in January. Those are going to be short basically everything and long the Dollar. There has never been a more obvious trade to me than to short the Stock market next year. Every time I turn on the TV that imbecile in the oval office is behind something else that is bad for the US economy. At some point all of these things are going to cause a meltdown, and I think that time is coming now soon. If he is intelligent than it means he is ruining the US intentionally, so I hope he is just stupid.

There are times in your life where the collective just screams at you that there is an obvious big picture opportunity at hand. 2005 in Real Estate was one of those, when I sold my McMansion and cashed in a seven figure gain. That could not have been a more obvious trade. I believe we are now at a similar point in time. This whole government sponsored rally is not going to last, and I really believe this is another rare opportunity to make a market killing. Timing things is a different matter, but we are in a zone where something is going to give soon.

It seems to me that overall these rallies across the board are traps that are about to be sprung. I am a bit worried that the metals are just going to keep tanking and not give us that second chance, but there is so much bullishness that the real bulls are nowhere near a capitulation point yet. It is the bounce and subsequent failure of it if that occurs, that will trigger a very large selling wave. Once the world realizes they have been sold a bill of goods there I think it is going to be shocking to some how fast that market unwinds. Another thing to consider is that thus far the commercials are not buying this dip in GOLD. I would like to see that before considering a long entry. However, if I do get a short term bullish pattern that sets up in this price zone, I will go long GOLD for a short term trade as well as currencies and short the dollar.

If I see that pattern setup I will post it in here in a timely fashion.

Friday, December 11, 2009


I took the Yen Short Sale I mentioned in here last night today. This market just free fell on the bogus retail sales report, down 200 points on the day.  I was waving to the crowd at that point. However, as the market has a way of doing, we got a significant rebound from there closing in the middle of the range making this look a little marginal now. These large range days are always tough, and we have seen so many this year. The market punches itself it in very short spurts nowadays. Trades I go into intending to hold if they work out for 3 to 10 days, move the amount desired at times in hours.

This is the world we are living in now. Information is disseminated faster than ever before, and for the moment until Congress stops it with the trader tax they are contemplating, this is how things are going to be. You either have to keep stops further back, or take quick profits. If they pass the trader tax, the markets will essentially be ruined, and all this will go away.  The brokerage firms will also leave the US taking ungodly amounts of tax revenue for the government with them. As annoyed as Congress has to be with trading because it allows those who can do it to not be dependent upon the government at all, trading performs a vital liquidity function.

These morons do not understand that if they do what that communist Pelosi seems to be endorsing, the markets will be completely illiquid. Average Joe who holds Microsoft stock for months or years like the government says you should, will take a nice hit when they sell. Why? With no market makers filling orders, he will be reliant upon another person like him placing the same order from the opposite side. It could take a couple of dollars of decline in price before that happens, resulting in a nice little loss for Average Joe. As repulsive as traders obviously are to these people, they perform a critical liquidity function. Since you have people at every .01 buying and selling now for small gains, it allows the average people who do not do this, to get good fills on their orders.

They want to eliminate this. If I was not living through these times I would not believe they are happening. Obviously, I and every other trader will leave the US if this gets passed and move to a place where it is not happening.

As to this Yen trade, I have to study this over the weekend, but since we stopped right on weekly support it is likely I will take profits Sunday night in this one. I think this bounce indicates we are not yet ready to go here yet, but I could change my mind after looking at this. I don't like very big short term moves like this getting reversed the day they happen or the day after, it feels like a trap to me at the moment.

Even though I still am of the mindset that the PPT and everyone else involved in this bubble build here will do everything in their power to keep things strong through year end, there is a sell signal for me on Monday in the S&P if we break down below todays low. I will take this trade if it occurs, but will not likely go for a big target, since I think the powers that be will only let it go so far if they let it go at all. We are now churning in a zone where now a break could hit a 20 day low which might attract fund selling. That might be very interesting to see who blinks first if we get there before years end.

Notice the old textbook Head and Shoulders pattern where the red arrows are that is setting up. We also have a good amount of divergence in the Pro Go Oscillator. A short entry could be done at the line drawn on the chart, and I will likely be a player there.

Have a great weekend I will probably post some new things over the weekend!

Thursday, December 10, 2009

Lets go to the Far East to see what is brewing with their currency, enough of obsessing with the Dollar already!

Here is a weekly chart of the Japanese Yen, a market setup nicely for a move. We have been in a great uptrend here for awhile, might things be changing? Notice on the last leg up the commercial selling that took place, which happens to take us to the same level of selling that we had there during the last price peak ( Blue horizontal line ). Also, my proprietary Small Fries sentiment recently hit a very high reading, as did the LW sentiment indicator. This is also happening right at a time when we have typically had the seasonal high for this market.

All of this tells us that this market is setup for a decline, will it? I do not trade off weekly charts, I use them to find markets that are setup. Sometimes this bites me because I miss smaller moves only apparent on daily charts. That is ok by me because as I state so often here, this is a difficult business. I want to have as many things in my favor as I can have before entering a trade. The recent Silver move is a perfect example of how powerful trades are where multiple time frames line up together.

Here is a daily chart which also has a setup for an entry.

Once again we have the Large Proxy Index indicating the Large Traders have become sellers in this market. We can tell that from just looking at the chart with that sharp break that occurred. The two momentum oscillators are also both under their trend lines, and we have had a bounce. The red arrow above the recent high is a proprietary indicator of Larry Williams that often does a good job of finding short term peaks and troughs. A breakdown out of this bounce is a definite shorting opportunity.

This market has been an interesting market this year. Early on it was the flight to quality vehicle when our US markets crashed. However as our marked stayed strong, this market also regained it's strength. It appears now that we are setting up a flight to quality in the Dollar now and the Yen will decline. I think we are on the verge of a signifcant decline in US Equities as I have stated here repeatedly. I think the powers that be are going to keep it propped up through years end. However, Barry and Co. and what they are doing with spending is going to matter sooner vs later. If you combine that with what I think is a coming Commercial Real Estate crash, I think we have alot of things lining up for an interesting first quarter of 2010. We have built another bubble here, which is one thing we seem to be able to do very consistently.

Wednesday, December 09, 2009


I have not talked about the Cotton market much lately. As you can see we have been in a nice uptrend, with a beautiful trend line containing the price action for several months. We also have had a good amount of commercial selling during the last leg of this rally upward. As you can see we are below the trends in all the momentum indicators, and had an up close today. A break from this setup the also breaks the trend line should be a very nice short entry.

We appear to have begun the commodities meltdown that I have been talking about in here and first mentioned about a month ago. I pointed out that virtually every major commodity market except Natural Gas had significant commercial selling going on and that I had not seen that before. Now that we have a dollar rally that appears to be underway, it should logically follow that we will have a break down in the commodities markets.

Silver has just been slaughtered this week reinforcing the point I made about it's relative weakness to Gold. I am just hoping the metals bounce here and just don't go straight down 50%, which could easily happen. This is the biggest trap I have ever seen in all my years of trading, and it appears at the moment the trap has been sprung. Gold bulls will not give up easily, but if they can stage a rally and it fails, look out below you will see a fall like most of you probably never have seen. We will see $100 down days in this market soon I think.

Of course I am apparently alone in this opinion as far as I can tell, yet I did make quite a bit of money in that short trade I posted here even though I exited it poorly. My concern is about making money, not being right or wrong. That is for cocktail parties.