Saturday, January 30, 2010


I mentioned in yesterday's commentary that we needed to see what the commercials were doing in the COT report to determine if this dip was a buy or not.

This question has been answered with a resounding yes, it is a BUY. I have highlighted the prior times we have spiked up into buy territory with my Hybrid Commercials indicator here. You can see how well this has worked. The only time it was incorrect was when we were in a well defined downtrend. This always has to be viewed in the context of other things, it does not stand alone.

There is one thing we have to be careful of with this. At times there is a COT pattern that develops where commercials switch their activity very quickly during a trend reversal. This gives very misleading indications. In this case they have switched very aggressively to the long side on a very small retracement. It would be better for a large retracement to feature a more gradual accumulation by them. We never know unfortunately when this misleading pattern is forming. The way to judge it is if the support levels that bounces occur from fail, even in the face of big commercial buying.

I do expect that this is what will happen here, but for the time being we need to be looking for long side action. That does not mean buy at the market, it means look for triggers for long entries with whatever it is that takes you into trades. The GDP number is so laughable that I cannot believe anyone can deliver this type of information without a snyde wink or something. There is almost no positive activity when you move away from the government sector. All these great earnings reports again that we are seeing, are very questionable to me to say the least. It seems to be more of the same on Wall Street. Bogus reports that lead to big bonuses, average Joe left in the lurch.

They are calling the PGA tour square groove controversy Groove Gate, they should call the earnings skit Bonus Gate. Make no mistake about it, I have no axe to grind either way. There is nothing to be gained by just bashing the economy. We are all better off if things are truly improving, I just do not believe anything these guys tell us anymore. If we can have a State of the Union where our own president can just lie repeatedly, why in the world should we believe any of these other statements that come out from lessor people?

As a result, you cannot make your stock judgements based on your assessment of the economy, they are independent of one another. You have to cast that notion aside. This is where technical analysis comes into play.

Once again referring back to the above chart, we also see the vertical dotted blue lines which are cycle dates. We see one approaching here in a few weeks. Generally we look for reversals in price at these lines. Whichever way price is heading coming into them, look for signs of it reversing. You can see the Bradley Model calls for a high in Mid Feb, and the Will Go Long Term also indicates down action to begin about then. These are both directional in nature, they are not reversal indicators, they say specifically down.

Next we have Larry Williams projections for a Mid Feb turning point. It shows to be up, but can be inverse if we are rallying into it. When I put all this together, it tells me to look for a bounce for the next 2 weeks that could form a significant high leading to a large decline. I will not trade as if this is etched in stone, it is simply a possible outcome. What I would want to see is Commercial Selling on the rally to flip my Hybrid indicator to short on a rally in the next few weeks. In the mean time I am looking to the long side for entries but having a hard time finding them in all honesty. Below is a typical chart look in the SP 500.

This is Coca Cola, and typical of the downtrends we have in individual stocks. There are some possibilities I can see for how this could develop into a buy but not right here. So many charts look like this or worse. It is looking at individual stock charts like this that has kept me from buying into this decline so far.

You can see above that the Dollar is off and running. I hope all the amateur economists at the water coolers are enjoying eating their crow over this one. In general this would be supportive of stocks. However, the unwind of the carry trade is likely behind this and that is in reality not good for stocks. We have alot more to go in this market in my opinion, likely going up for the rest of the year here.

Have a great weekend, more next week.

Thursday, January 28, 2010


We are free falling now in the stock market and I am surprised how little press this is getting. Even the smallest rallies are getting sold off hard with volume. We are in downtrends across the board and if you look at my yearly forecast you will see this is what I predicted would happen for the most part. We are in a deflationary environment folks, do not listen to all this hyper-inflation crap, it is poppycock. There may be a future time where that will be true, but we have awhile to delate first, possibly a frightening amount. Just take time to think about it, what things you consume are rising in price right now? Virtually everything I buy is declining in price.

My own personal strategy resulted in exiting all remaining stock shorts today. The short side of the stock market has obviously been very good to me this month.We are extremely oversold on a short term basis. I am now looking for short term long entries in individual stocks. The problem is that the wide majority of them are a mess and have completely broken down. I repeatedly warned that the PPT would not be able to stop heavy volume, and we are seeing that now.

If you look at the above oscillators you can see how they are far outracing the price on the downside. They are at levels equivalent to prices of several months back. This can actually be a buy signal in some situations as an exhaustion type of indication. I do believe that is the case here. To be clear, I think any rally is a sell, but we will soon get a sharp upmove to work off some of this oversold condition. As a short term trader I would like to take advantage of that. We are still in a weekly uptrend even though this daily chart is not indicating that. As a result, it is still prudent to look for long entries on this decline. The problem is oversold can always get more oversold. This whole market had a huge air pocket as I stated. When you have air pockets this is what happens on the corrections, they are sharp and fast.

We will have to see if the commercials are buying this dip when the COT report comes out tomorrow. If they are not, look out below. If they are, this could be presenting a very good "short term" buying opportunity. I hope you are all watching the US Dollar. How many people outside of me were calling for this rally? How many people came out and said the COT data on the DX was misleading because of the light volume?

These type of things are just learned over time and through the school of hard knocks. I wish I could have just read a few books and learned more quickly how to work with the COT data. It is an art not a science unfortunately. However, if you have read here long enough you have seen how helpful it can be.

That's all for tonight

Wednesday, January 27, 2010



I would assume this is also George W Bush's fault, this recent wipeout in the metals? Why not blame him, after all he was in office within 10 years or less of this happening. Hope you got the reference, Barry is a disgrace. I would also put forth that for those who bought coins and paid the 30% premium when Silver was at 19.00 and now have a 43% loss in total, you might want to blame the coin dealers. In reality, this is your own fault, and even though we live in a world where nobody is seemingly responsible for their own actions, this was your fault not theirs.

I have been screaming as loud as someone can that this was at hand. Now that we have had this wipeout here, I am looking for another entry on a bounce into the areas I have marked on the above chart. I do fear a sharper reaction that might mess up the entry, but let's just wait and see. We should have a long long ways to go still here, so there is plenty more opportunity. For Fib people we are nearing an AB=CD spot, which could serve as a low on a short term basis. Selling at these levels right here would be not be wise. We are tracking stocks here in the metals, and they are extremely oversold and due at least for a bounce. if this occurs, these markets are likely to follow.

So far there has been no commercial short covering yet. If in the COT reports I happen to see large buying on dips, I might revisit my projections here. However, we have not seen any at all yet.

Gold has held up better than Silver, so for those who still believe 3k or more is coming, that would be where you should be buying. I will be selling it to you in the near future, so just call if you need someone to trade with!

The Weight of the World on it's Shoulders

I know all of us have felt this way at times, so how do you think the US Stock Market must feel. It has been artificially lifted to the levels it currently occupies by the PPT, now all of the sudden the concept of gravity is lurking. Above I have the SP 500 daily chart with a half assed guess at what might transpire next. It basically just shows a bounce, then another leg down taking out the recent low. It also forecasts a roll over in the first momentum oscillator, and a rally against a down trend in the other two. Will this happen ? Well of course we never know the future. Since the whole basis for this "recovery" is the stock market gains, this index has the weight of the world on it's back. If this rolls over everything else is going to follow, and the fraud of the "recovery" is going to be exposed. It is hard for me to see how borrowing more to artificially continue to prop up things solves the problem of over leveraging. To me we have added to the leverage, not de-leveraged like we need to.

Each weekend I look at every single individual stock in the both the SP 500 and the Nasdaq 100. I do this mostly looking for trades, but also to get an overall feel for how things are under the hood. I trade both sides of the market, so I have no bias short or long. I can tell you from doing this over the past couple of weekends, that the number of individual stocks setup for sells so far outweighs the buy setups it is a very startling contrast to the overal indices and how they look.

We are now seeing some weakness in the indexes, due to heavy volume that let this get away from the PPT in a 2 day span. I warned people this would happen, that if heavy volume showed up they would not be able to stop it. So, now he we are in what could well be a pullback buy zone for those who have missed the rally. The 64,000 question is, is this a buy here?

First of all, if you have missed this entire rally and are a less sophisticated non junky than I am, the answer is flatly no. If you are a short term trader who likes to go in and out, I would say possibly. We have gotten very oversold here, so it is likely at the very least we get a tradeable bounce. Larry Connors has written a book revealing research about buying into declines and legging into the trades in ETF's when the prices are above their 200 day moving averages. Those strategies are flashing buy signals all over the place right now. I have considered doing some of these trades, but I do not like trading with no stops, which his methods suggest.

It is a fact that stops when testing things mechanically always diminish performance. However, if this is a big roll over starting, those strategies are going to wipe you out here. One thing that can be done is to just select an uncle point, and honor it. You buy weakness looking for the reversion to the mean move upward, then just have a spot where if we keep going down you just get out. The problem with all of this is that the numbers make buying more and more weakness, statistically very favorable. So in reality, the more it drops, the more you should buy. If you arbitrarily pick a spot it is possible that you puke out of the trades right before the reversion move happens.

Below is a chart of an ETF that would have you long now and you can see how much heat you would be taking. EWZ  is an emerging markets Brazil ETF that as you can see has had 3 very good buys on weakness during 3 prior pullbacks. I have arrows indicating the entries. There are various techniques for generating these trades, so that is why there are different arrow colors. Clusters in one spot are generally what you want to see here.

Look what has happened recently, you would be getting buried in this trade. With no stops it is very difficult in the heat of the moment to make a good exit decision when you find yourself in a mess like this. You could argue that now that we are right at the 200 day Moving Average in this ETF that it still is a good buy spot. The problem you have is that you got 3 good wins that can be wiped out by one loss, a cardinal sin in money management. I used to trade this way when I first started, buying pullbacks on weakness, not any more. If you are inclined to do this, Connors book is an excellent buy. Maybe you can find a good way to manage the risk in these trades. I do know Larry and he is an excellent trader himself so it is always good to learn from someone who makes money doing this.

Tuesday, January 26, 2010


This used to be boxing until all the money got involved and they started fixing so many of the fights. Now I refer to Sugar.

This is a market that has taken a little bit of my money this month. I have been looking to short this market and have been clobberred obviously thus far. The COT report shows a number of reasons to be looking for a top in this market even though we have not seen one yet. The longer term momentum oscillator is showing a triple divergence with three lower peaks, while the shorter term one is not as bearish looking. We also now have a very good trendline that is formed to short a break of it.

There is also Progo divergence which is the green line overlayed on the price with a dotted line showing the divergence. We are just continuing to make new highs so if we keep going up some of this condition especially the divergences, may work themselves off. For now I guess I am just the idiot who can't see the forest through the trees. The 5 yr old test would clearly reveal that it is just going up so it should continue. Unfortunately for me, I have this false sense of self worth where I think I am smarter than a 5 yr old.

Below is the COT picture, it should at least make me look a little less like an idiot.

Notice the greeen line here which is the Small Speculator long position. It is very close to it's all time high and also the Large Specs, the black line, is also maxing out. Combine this with the Commercials in RED continuing to sell, and we do have a good potential setup for a top. The one problem with this setup is of course that Commercials have been heavily short now for quite awhile and not been able to cap this rally. In situations like this, the Commercials position is not all that useful. The Small Spec long is the aspect of this that is very bearish.

We do appear to be having the bounce in stocks that I had mentioned, so lets see if we can't get a good shorting setup there in the next couple of days.

Monday, January 25, 2010


After last weeks break in stocks, let's look at whether or not this is a buyable dip or a top?

The VIX is a widely used index nowadays in evaluating what the likely next market move will be. I do believe it is perhaps the best single thing to look at when determining if the market overall will rise or fall in the next couple of weeks. I have a chart of it above, and it is my contention that you should analyze this just like any other individual market or stock. You should use technical indicators on it just like you do on a regular chart. My chart above has the usual suspects plotted below the VIX itself.

One thing that should jump right off the chart at you is the very sharp two day upmove in this index. As far as a regression analysis would go, this is a prime reversion to the mean scenario for today and or tomorrow. We have our momentum oscillators spiking sharply upward and when I combine them with the separtion of the VIX and my bands on the screen, I am hard pressed to find another situation quite like this that has occurred previously. There are some proprietary things I use that are not featured here that tell me this is a dip to be bought for a reaction move, but they are not cut and dry. This very sharp move here is somewhat troubling, and I think ominous. Most reversion setups do not look like this at all.

I think we can explain that with this being such a unique historical situation. The market has never been manipulated by the government to this degree since the VIX has been in existence. I believe that is why we cannot find comparable occurrences to this pattern. Since the VIX is a reflection of sentiment at it's core, and the market has not risen in concert with how it normally would in relation to sentiment, it makes sense that this would also be a little out of whack. What to do?

When taking all of this into account, here is what I have decided to do. I am not aggressively playing a bounce here, I am waiting for a day or two up possibly three, then looking to get aggressively short again. I am taking individual stock shorts that meet my rules. I think any bounce here is going to be short lived. For those who trade ETF's there are a ton of sharply oversold symbols that might be good for a day or two up. However, to me this just looks like something that is going to move lower.

Saturday, January 23, 2010



Of course I say this mockingly, can there be any doubt?

For those who have read here regularly, you will be familiar with a situation I had previously talked about where we would need a catalyst to start this decline. I actually thought it would be the health care bill, but it turned out to be my good friend Barry and his bank crackdown. One of the limitations of the PPT is volume. They cannot play their futures buy program games when the volume gets really high on the sell side by large institutions. These institutions often sell at 20 and 40 or 50 day lows. When you get a rush to the exits like we have had here, the PPT cannot stop these types of moves. They have been able to hold this market up for a remarkably long period of time. Quite frankly, I have never seen anything like this in my trading career.

Do not underestimate their desire to support this move now that it has started. We will have to watch carefully as we get into a support area, how the volume is. If volume stays high, they might be in trouble. If it calms back down, they will able to easily move this back up. The problem with these running market airpocket situations is, they always break out of the blue, and really have no support points. This is why if you look back at charts for these types of patterns with very small ranges just moving up at a steady pace with no retracements, that the declines are sharp and quick. Crude Oil comes to memory as a recent example of this in it's move to 140 and subsequent collapse.

Here we have our weekly SP 500 chart with a few things on it. The vertical lines are cycles where we have had consistent action at these turning points as you can see. The next panel is Larry Williams WillGo Index, both short and long term. You can see the Long Term ( red ) is indicating a decline to begin about now. The last graph is the Bradley Model which also calls for a decline to begin about now. The middle panel which is one of my hybrid COT indexes so far is not indicating any buying on this dip. You can see the last two major lows featured a textbook buy spike in this index. If we see that during this decline at a point where we have not broken the weekly uptrend, and we will have a nice buy setup. This is one of the main things I will be watching on this decline to tell me if we are going back up, or just straight down.

I see two scenarios, straight down to take out the March lows, or a bounce to new highs maybe in the 1235 area, then a move down under the march lows. Both feature an eventual large move back down. However, those are just guesses and I will not trade off them. For now we have to be in sell any minor rallies mode.

Of course the metals markets have been clobberred, there was no other way they could go. The setup for a short was the best I had ever seen in my career and I stated as much in here. The worst development that could possibly be happening in GOLD is evident on this chart below, NO COMMERCIAL BUYING ON THIS DECLINE

It will be important to watch to see if this continues. The fact that they have not covered any of their shorts so far is a very ominous sign for this market. If you were holding Gold buying into this nonsense and hype you have nobody to blame but yourself. This was the most obvious sham I have ever seen in my life. It is true, smart people were wrong. How can this be, they have all this education and knowledge, and sound ecnomic views? Simple, what they focus on does not drive market prices. The long term trend is still up but I think in a couple of weeks that is likely not to be the case. Technically it is in a buy zone by one of my approaches, so I am looking initially for a short term buy down here, then longer term, mortgage the ranch on the short side. If we get a move down that turns everything down, then a bounce, this will be the million dollar trade for this year. Also keep in mind the tight correlation between GOLD and stocks, they are moving together. This makes no sense, but it is what it is and needs to be honored until it decouples. If you are not bullish or bearish on both, one of your views is likely wrong.

Thursday, January 21, 2010


It is just going to be impossible for me to behave myself after today. Our fearless leader is just a blockhead plain and simple. Why do I constantly take shots at him? I do it because I don't want to live elsewhere but he is ruining this country, and I am too old to be effected by an interns mistakes that mess up my life. It really only matters just in forming big picture views, we can't really trade off whether we like or do not like a particular political figure. However, forming a longer term view on things does require taking these types of things into consideration.

Every time Barry opens his mouth it seems he says or does something more stupid than what he did previously.I stated in the last post to ignore news stories because they typically are erroneous, but occasionally there is one that will be an accurate driver of a market move. Well sure enough, here is a live example of where the catalyst I have been talking about showed up, another bonehead move by our leader. You can see from the intraday SP chart above, that when he started speaking a huge selloff started. This caught me by suprise, you can see we were just meandering sideways after the PPT yesterday rescue. Then boom, a waterfall. Readers of this blog know I have been sitting short for a few days now and got a windfall today across the board. I exited all my shorts before the close just in case the PPT showed up for the 89th day in a row, they did not.

There used to be a day trade when he first took office, where you just had to wait for him to talk live, and just short the E mini SP 500 at the market, and then put in a limit order for 10 points. This trade worked I recall 15 times in a row. It made no sense but I did it a few times just for fun. It did stop working, so I moved on.

Nothing has worked on the sell side for months now, so it is possible times may be a changing. I do believe we have a top here, whether it is the top or not, who knows. We should move down some here for a few weeks at the very least, so the short side should be the correct side for the near term. Maybe we will fall into a nice buy setup for another run for the roses, we will just have to wait and see about that.

If you look at the above Naz chart, we are rolling over and do have confirmation on the momentum oscillators, but you can see we are in another buy zone for the first panel setup. When trend changes occur this first panel will have this look and the trade will fail, but until that happens these dips are still buys. The problem I see is that so many of the SP 500 stocks are in sell patterns not buys, so there is alot of underlying weakness here that has been brewing. I heard a technical analyst today so he was concerned due to the technical breakdowns he was seeing. I would argue that when a market has been driven completely by manipulation of the futures indexes, that technicals and fundamentals mean nothing. It was not going up based on them so why should it go down based on them?

I was short 9 individual stocks all exited today for a profit, I will show the best and worst of them to conclude this post. Keep in mind that just being short a thousand shares of a stock adds up to alot if you can get a couple dollars per share profit this quickly. For now look to sell short term rallies.

BF Goodrich

I exited this one early due to how much it was lagging the whole market meltdown, just taking a small gain out of it.

Good trading to everyone

Wednesday, January 20, 2010


Here is a quote out of an article from the Associated Press I read this morning in the paper. "Investors moved back into stocks on hopes that the Massachusetts Senate race will weaken Democrats and make it harder for President Barack Obama to make changes to health care."

Well..... which is it genius? Did they rally the day of the election prior to the election actually happening anticipating the result, or did they tank today due to the result. This article makes no sense, he/she credits a rally to an event that either had not happened yet or they were reporting exactly the opposite on the market reaction?

This is why you have to disregard the media's daily explanations about price movement in markets. Now, there are cleary exceptions like 9/11 for example where a world tragedy or some dramatic event can drive stock prices. However, for the most part this is just noise. There is a great deal of random movement in the markets, and we just have to accept that no matter how fancy we get with indicators and predictions, the best we can attain is an edge in our favor. At times this can be substantial, but you do not need anything more than a small consistent edge to prosper.

I consistently present things in here that are edges that can be used to make profits. How anyone may or may not use any of these things is unknown. At times I even do a lousy job of using them even though many of them I created myself, go figure.


Below is a Weekly chart of Treasury Bonds, a very good bellwhether market. It is my feeling that we are approaching a sell zone for this market, although things are bullish at the moment. Notice how well this market reacted to the commercial buying, and bearish sentiment readings with an instant rally. The red declining line about a point ( 32 32's above where we are now ), is a pretty good resistance zone. You can see just perusing this chart how well these things tend to contain price. We have a flight to quality move going there due to the 2 almost breakdowns saved by the PPT, in stocks in the last week.

What this tells us I think is that we might get some very short term weakness in stocks that will drive this up into the sell zone. Then we will likely find support in stocks. The ensuing stock rally will create selling in Bonds. We saw once again today, that selloffs are going to be very hard pressed to move down very much in this environment. Whoever is in control of this market on this light volume, is having an easy time containing these brief decline threats. As a result, short selling which I have been doing has been treacherous. Every time you think you have something brewing, a "mystery" rally occurs.

The only advice I can give is to stick to your guns. You cannot tailor your trading to this artificial market. It is the most one sided action I have ever seen including the 90's. At least then you could still trade the short side. I will let you be the judge of what is different here I have spoken enough about it. At some point the market will return to a normal state of being and traders will be able to trade both sides once again. In the mean time you just have to keep a shorter leash on shorts, they are very likely to be very brief spurts. There will be one day when a big break will occur, but you cannot tailor what you do to a 1 out of 30 occurence.

I am tempted not to short at all, but just cannot get myself to ignore what are normally good signals. That is an individual call just like most things in this business.


For those just waking up, we are having an upside explosion in the Dollar today as per what I had stated yesterday. We need to see now if these highs go to get a bigger guage on what this means. If we take out the highs nearby here we are likely off and running in the Dollar for the balance of the year. At the very least we have a 70% probability of that which is pretty good in this business. This does tie in nicely with my bigger picture view of a double dip recession. If we get that we will see Dollar strengh, and deflation everywhere else.

Two of my main indicators I use are lagging this move at this point, so this needs to be watched if we take out the recent highs. We may see a divergence there which could tie in to the COT data which is still bearish. Trading off COT data is very difficult because it is big picture fundamental stuff and very rarely does it transfer just directly to a trade on a daily chart. I like to see them both tie in together, which could happen here depending on how this upmove progresses/falters. What I had hoped for was a slightly deeper bounce for a buy than what we had, which could indicate this is very strong underneath. For now, things are looking rosy for the Dollar.

Below is a trade I have on that is benefitting from this Dollar move, the Canadian Dollar.

Sometimes these Trade Station charts do not come out so well when I do the screen captures. That goofy looking anvil on top of where the entry was it displays cracks me up. I rarely trade the Dollar Index directly, I prefer the other currencies due to the volume they trade. This market had a good sell setup yesterday so I got short here. It was clear to me this would benefit from what appeared to be a Dollar breakout.

I heard Jim Kramer on a radio show yesterday predicting a big stock rally if the Republican won in the Massachusetts senate race, yet we have the SP 500 futures plummeting pre US market open today. Although I will believe a sell off when I see it, it does not look good at the moment for today. Maybe the PPT will come to the rescue again. This may be an interpretation by traders that the DEMS are now going to pursue all these other unsavory routes to shove this albatross down our throats, which of course is a major negative for financial markets big picture.

I still maintain that this bill in one way or another, is going to be the catalyst that sets off the next down leg in stocks, but that is just an opinion which really means nothing at all.

Tuesday, January 19, 2010


It seems to me from listening to the experts the future value of the dollar is headed towards a penny. Readers of this blog know that I do not agree with this. The last time I spoke about the dollar I reviewed what was and still is a bearish setup on the weekly chart with the COT data. That is just that, a setup not a trade entry. When we look at the daily chart above, we may have a buy signal here. Notice the three consecutive green arrows, they are short term buy indicators. Rarely if ever do we see 3 consecutive arrows with this tool on a daily chart.

Also notice the momentum oscillator far out raced the price on the downside, and now is threatening to cross the momentum line on the upside. If it fails here it is a sell signal, if it continues through here it is an indication we are likely heading upwards. Much has been written about currencies breaking out of the first two weeks of the years range as indicative of direction for the entire year. These stats show a high 60's % accuracy. I have not done this research myself, so I do not know if they are accurate or not. However, it is something to monitor now. In drawing that range you also have to go back in some cases to the end of the prior year to accurately determine the range. In the case of the dollar index, it would be 74.54 and 78.77.

These studies say we have a close to 70% probability of the year closing on the side of this breakout. You might want to do your own research on this to verify/reject the notion of it.

Monday, January 18, 2010


Time now to check back in on the GOLD market to see what is developing. Notice the 2 large gaps between open interest and the commercials on the chart. You can see from the first one a huge rally followed. In that case we had open interest declining and commercials expanding. This told us a very high percentage of open interest was commercials, a very bullish situation. Here we now have the opposite, open interest expanding, while commercials comprise a very small percentage, a very bearish situation. Also notice the low small speculator long position at the first gap, they were short of course at the low. Now we have made another new historic high last week in the small speculator longs in this market.

As I have stated in here previously, this is a textbook sell setup. The fact that it is also occuring right when the typical seasonal high occurs coupled with this also being where Larry Williams road map for this market this year calls for a turn, makes this one for the ages. I just cannot remember a market being setup better than this one is right now. As I always state, but will do so again for new readers, a setup is not an entry. A setup means that everything is in place on a weekly chart for a large move to occur in the direction of the setup. Daily entries are always another matter.

You can see here that the COPPER market has almost the identical setup, with the exception being the seasonals are a bit different in this market. A fundamental setup like this does trump the seasonals just as an FYI, but it is always nice to have them all which rarely happens.

So how to enter this trade?

First, depending on your time horizon, you could wait for a weekly close under the trendline I have drawn on the chart and just go with that. This week that would be about 1095. Obviously that will change as time moves on.

Second, you could wait for a similar type of trend break on a daily chart shown below.

The short term trend is up, so no reason to short until that breaks.

Third, you could use whatever oscillator patterns in say a MACD or moving averages, or whatever else it is that you use to enter and exit trades.

The bottom line here is that we have a market setup very well for a major move, how you actually trade it is up to you. I will put my entries in here when I do them. Actually I am contemplating a long in Silver at the moment due to a very short term pattern I use. I have not as yet decided whether or not I will do that trade or not. I do not like these holiday electronic sessions, they often have something screwy happen. This trade if I did it would be a very short term entry and exit.

Saturday, January 16, 2010


I hate to keep harping on this subject but now that some prominent people are calling out the PPT for what they are doing, let's look at the last couple of weeks and discuss exactly what they have done. Above is a intraday chart of the SP 500 futures with green arrows displayed in the last hour every time a significant upward move has occurred. It is tough to see without enlarging the chart, but in every one of the last 9 days there has been a significant upward move in the last hour of trading. I am sure there are plenty of statisticians out there that could give us odds on this happening in a world of randomness. You do not need to be a brain surgeon to conclude that something odd is happening here.

It is frustrating for me, they have cost me probably 100k last year alone in profits they took away from me by doing this. You could argue that if you know the government will buy futures in the last hour to manipulate the stock market why not just go with it and quit complaining? Certainly seeing it the last 9 consecutive days, it is hard to argue that. However, I follow strict rules when in trades for exits. I do deviate from them occasionally, but try not to.When we have setups on daily charts that should be good for a 3 to 7 day run, it is not a good idea to exit trades that are working correctly after just a few hours just because I think the government is going to do this. I ensure that when the first move gets away from them, I will miss a big win. Make no mistake about it, a huge win on the short side is out there this year, and I do not want to miss it. The other thing that is unknown is exactly what triggers their trading programs and what their real objective is. As a result, even though we see this happen 9 days in a row, they could very easily pull the plug on this to make a political statement. I do expect them to do this soon in relation to the health care debate, especially if for some reason it does not pass.

They are jawboning about the stock market strength as evidence of this great recovery in the economy. Think about this. Would you still feel we have a great recovery going if everything else were exactly the same except the DOW was at 6000 instead of 10700? I doubt it.

I was discussing yesterday with a fellow trader who was also short the indexes like I am what to do when noon came around. We both knew a PPT upward move was coming, and the debate was should we take our money now in front of it. Below is the chart and the way it looked at that time.

You can see a clear sell signal was there for another move down to new lows. It was 10:57 PST when I did the image capture of this chart. In a free market world this would have been a high probability short trade, we do not live in a free market anymore. Typically these trend days just go right to the close with very little reaction to the trends. All the retracements are typically winning trades. Yes there are some divergences on the chart, but they often occur against trends and are usually to be ignored in a situation like this. My feeling at this point was that even though I had quite a bit of profit on this trade here in multiple accounts, it was a trade that should last several days so I was not going to get too cute with it just because the PPT was likely to elevate the market into the close. Of course in the back of my mind I was hoping they would finally let one go.

What a dumb idea that last hope was.

As you can see in the last hour they once again struck and this is where in my opinion they are being very smart about what they are doing. Only for the discerning observer is this obvious market manipulation. They took the DOW from - 150 to - 100 so they still "allowed" a down close. Had they completely reversed this whole day in the face of now congressman calling this out, it would have been way too obvious. They kept this day in check relatively speaking, mission accomplished. Note the 2 inverse head and shoulders patterns here and of course there is one big difference between what appear to be 2 similar patterns. One sparked a rally and the other did not. The difference is the time of day. When the first one occurred there was still plenty of time for the market to work things out on it's own, the second time was running out and the PPT did not want a 200 point down day on a Friday especially with the Holiday coming.

For those who might argue this is consipiracy theory, I would like you to provide me with the statistical odds of this happening 9 consecutive days in a market that is essentially historically close to a 50/50 distribution of up vs down closes. It will be very interesting to see when the truth ultimately comes out about this, how the public reacts. After all the average person has benefitted greatly in their 401k accounts by this manipulation so is there really any harm in this? My argument is in the long run artificially manipulating anything is ultimately very harmful. Just look at real estate and what has happened there. The same thing will happen here it is just a question of when not if.

I think had we had some pullbacks to provide support points on retracements, the structure of this market would be much more natural and stronger. We just have a huge air pocket that is likely to keep going for now, I do not know what the trigger will be to reverse this or when it will happen. Now it appears the one cycle I was looking at which is Mid Feb and was indicated as a low is inverting and it will be a possible high point. That date ties in to Astrological models like Bradley so maybe that is when we might see a reversal.

Thursday, January 14, 2010


Just for fun I will do this post expressing my inner monologue about things for tomorrow and this week in general. Before I get to that, there is one point I want to make. I have mentioned at some point an extraneous catalyst would need to occur to create any meaningful correction in the market at this point. Tonight there is a story out about another back door deal with unions to exempt them from taxes in the new health care bill. It is possible that at some point there is going to be some backlash that gets to the point of violence. I really think they are going that far, and it very well could create this catalyst. I don't think this is really legal under the constitution, but Barry owns the courts now, so they can muscle them to shut down the lawsuits I would imagine.

However, they are doing all this manipulating with stock prices, it would be ironic that over manipulation of something created what they are trying to prevent. What this catalyst could or might be if it ever occurs is anyones guess, but this one story tonight struck me as one that will likely enrage the public more than any other. Unions have killed this countries manufacturing and the socialists now are trying to bring them back. The very first thing I would do if I ran a manufacturing operation would be to move it out of the US due to unions, and of course that is what people are doing. This move to try and bring back unions is beyond belief, he is far from this great genius he is proclaimed to be.

Now to the inner monologue.

Here is am shorting the strongest market I have ever seen in my lifetime, what the hell am I doing? Well you are just following your rules, you should feel good that even if this batch of trades fails, you will still have a gain during a stretch when 15 of 18 days have been up closes, and every stock trade you have done has been a short. I don't want to feel good, I want to have better trades than this. Well you have looked for long side trades that meet your rules and have not found any. Of course you haven't, there have not been any pullbacks at all and the markets are outrageously over extended, there has to be pullbacks before you can do longs. Won't you feel like a damn fool if you went against your rules and a decline happened and you missed it?

Dammit I want to compete with the government, at this point they are clearly our enemy. Don't be a wise guy, they can set the rules, and are really tough to beat, they have alot more money than you do. Besides you are not competing with the government you are following your rules and that is how you will win in the end. I want to win now. Watch that emotion that has been the end of many of your friends who have been too aggressive. Stick to what you know and follow your rules.

Well here we are with another joke, a down move in the night session. At what point does the PPT reverse this. It is on light volume and a marginal news story, so when you wake up you know if will be big green in the indexes just like it is every day. Well if today's lows go, we would be looking at an outside bar going on the downside and the oscillators are diverging isn't that an entry. Well of course it is so place the orders but make sure to adjust the size. You already have that crappy Russel short on and this is essentially a highly correlated trade. Make sure your total risk between the two does not exceed 2%, ok orders placed accordingly. You will probably get stopped out due to the normal overnight upmove but just in case you don't make sure you know what stocks and etf's you want to play along with the NAZ if that triggers.

So there you have it, a synopsis of the thoughts of someone actually trading and evaluating what is going on. Of course the key is to stay centered. This is a difficult business and there are periods that do not go well, this week being one of them for me. You have to keep an even keel, and stay focused on doing what you do.

Wednesday, January 13, 2010


Ironically while working out in my gym last night I caught an interview on Fox with Biderman from Trim Tabs, he was calling out the PPT!!! It does seem apparent now that some others must be publicly calling them out, so I am not alone on this. The one point he made which is entirely valid is that the Fed will not disclose what comprises the securities on their balance sheets. I guarantee that a similar probe into Goldman Sachs futures trading accounts would also lead to a dead end. GS is rumored to be one of the firms that has the PPT trading accounts. Doesn't it seem odd the favoritism they constantly get from former cronies who are now in government?

My guess is the bonuses will be allowed to fly, they do not want someone so discontented that they throw caution to the wind and rat them out. However, in reality, there is nothing illegal about this. The only thing I could possibly see that might fall along the lines of legality would be how this trading is classified in the COT report. That report has been increasingly difficult to deal with in just one market specifically, the SP 500. This is obviously another interesting coincidence. Might it be they change from one reporting period to another, how they classify the PPT transactions? Of course we will not likely ever know the truth on this. One fact we do know, 62% of the days since the July low have been up closes in the DOW, this is very unusual.

There has been something all along about this rally that has just not sat right with me right from the beginning, and to be honest I still cannot put my finger on it. The usual suspects of course, are all the divergences along with light volume that have failed to produce even a close under the 50 day moving average. Also the wierd intermarket relationships that have been in place between markets that should have no trading correlation. All of these things I have written about in here. Also the record high reading in the ADX that never even caused 2 consecutive down closes, that is unheard of.

The one comment Biderman made that makes alot of sense to me, is that being a fund flow tracker, he cannot find any influx of money of any amount that would anywhere near correlate to the 6 trillion increase in equity values. For me as someone who has been aware of the PPT for quite some time, they seem to now be in the same mode as the administration as a whole. As much as I am against it, the "F.. you we won" take on almost everything they do, it is kinda funny. It is like winning a hoop game by 20 points and when someone starts talking smack on the other team, you just point at the scoreboard. The PPT seems alot less concerned about hiding their activities now than they used to be. We are seeing that across the board in politics, and there have been comments by politicians supporting the idea of buying futures. They are just paving the way slowly for possibly revealing it at some point, but we will have to see.

For the time being as I have repeatedly stated in here, we have a rip roaring bull market here so be very careful shorting. I am still shorting just because I am following my models, but I am getting slapped around a little this week after a big week last week. After all 9 of the last 11 closes have been up in the overall market, so shorting is really going against the tide. At times these running markets like this build up a crescendo and spike upward, so do not be shocked if that happens. 1235 seems to be a lay up to me but who is to say we do not go way beyond that. The trend is up so unless you are really experienced and have very tight money management rules, I would not suggest shorting. My Russel short is still on but appears to be a likely stop out tomorrow. I have very small size in this trade due to the low confidence level in it that I had as well as small profit target. I am glad I made that choice to go small.

Size does matter at least in trading!!!!!

Tuesday, January 12, 2010


I had stated recently a couple of weeks ago that the PPT had been noticeably absent in the market. It is good to see our old friends back in the game. Maybe they were watching Dan Marino in the weight loss commercials telling all of us to get back in the game so they took his advice. Above is a 5000 bar tick chart of the emini SP 500. You can see that it was drifting along at the lows of the day until 10 minutes before the close. When you see this type of "mystery" lift at the end of the day like this that is the PPT buying futures. We have all made their job so easy by having virtually no heavy selling days so they have not had to do any late day saves like this. We were not down that much at the time they showed up but the program traders rarely play at this time, so when you take them out of the picture, viola who is left?

This was very heavy volume in the last 10 minutes, tick bars are based on volume so more form in shorter periods of time when volume is heavy. Fewer form per hour when the volume is light. This was just a quick little How's your father to the market to stop it from being down any appreciable amount today. It did have the feel of a late day rollover, and they sensed this I suppose and propped it up. As I have stated before and will again, there is no reason to get up in arms about this. It is part of the game. They set the rules for us to play by and this is one of the things they are doing whether we like it or not. There will not be a large decline without some extraneous event that just gets away from them before they can do anything about it.

I think it is funny to be honest with you. You just have to accept that if you are short and the market is down a decent amount, the government is likely to come in and improve the close, it is what it is. All the market manipulation that is going on is alot of work to try and force something somewhere that it may or may not want to go. I guess we just never learn. We all I think have to agree that deleveraging is needed to get things back to a ground level to build on. However, in the face of this our government is dramatically increasing leverage to try and stop deleveraging from happening. This is just creating bubbles again that will pop and cause large declines that will hurt people severely when they finally happen.

I did hear Bill Miller on CNBC today talking about the tremendous values that are out there to be had in stocks. Each weekend I look at every single SP 500 and NAZ 100 stock chart. I guess I am missing something because these tremendous values to me are nowhere to be found. A very high percentage of the stocks have moved up so rapidly, I fail to see how they are values at this level. However, his track record prior to the last few years was incredible so I have to give him the benefit of the doubt.

My short I put on this am in the Russell is still on and slightly ahead as of today's close. I am also short 7 individual stocks 6 of which are ahead and one is basically a scratch. We will see what tomorrow brings. I have my stops in and will just let the action play out. We will see if they late day PPT buy program carries over or not. I do not expect a large decline as I stated in the last post, so I have short term targets on all of these trades. I never know which trades will work well and which will not in spite of trying desperately to figure out a way of determining that in advance. I will post the charts of some of these trades once they are completed win or lose.

For Those Thrill Seekers

Here we have the Russell 2000 Index and a short term selling opportunity for those willing to join the morons assocation of america chaired by yours truly. It does feel that way at times when you are a contrarian trader. In fact it feels that way often. After waking up early this am and turning on CNBC just for kicks, I realized once again that being short term bearish in any way is obviously just the wrong thing to ever be feeling. Apparently there is a rip roaring recovery going on economically. That is really here nor there and has nothing at all to do with what trades I make. Just really an observation. We do without question have a rip roaring bull market in stocks going on right at the moment. I warned people a few days ago to be careful shorting stocks.

That was prudent advice as we have started off the year with 6 straight up closes. So why am I shorting this market right here? Pretty simple. My momentum indicators that I use are showing a downward trend with price showing an upward trend. This is a divergence. As I have stated many times, in strong market divergences often do show up and carry on for quite some time. There are certain things I look for to try and filter alot of these trades. Without getting too involved, some of those are here now in other indexes, namely the NAZ and I felt the pattern in my oscillators was better here, so this is where I chose to play. This is a short term trade, I do not expect a major break from this.

It is always very easy to use the 5 year old rule and determine we have an uptrend and just do long side trades. That rule is basically if you put a chart in front of a 5 yr old, what would they tell you? Obviously they would say, it is going up you dummy. It is incredible how simple it can be, and as traders we often get so tied up in trying to create the holy grail for timing. In doing so we lose sight of the obvious that is right in front of us. I am often guilty of this. However, that guilt does bring in income with it so I live with it. In trading you have to indulge sometimes in your vices to keep them at bay. Since I like to tinker and create indicators and models, I indulge that by continuing to do it. I often do not trade live the things I come up with for quite awhile if at all. It is too easy to get caught up changing approaches from one day to the next, and you just never get anywhere doing that. Once I find something that I think is really meaningful and adds to what I am doing, I go with it.

That is the case with my bottom graph here which also confirms that we should see some downward movement here. It is just another trade, so stops are in and we will see what happens.

Monday, January 11, 2010


When I post Weekly charts talking about setup markets, they are just that setup for a large move. This does not mean they are entries at the market at the time I post these. Often markets that are setup on weekly charts can continue moving in their current direction for awhile before the fundamentals take charge. This is why you cannot trade fundamentals on a short term basis. It is and has always been true.

My weekend post covered Gold and the Dollar. I mentioned a gap technique which I was somewhat vague about. This was intentional, I will not give up all my trade secrets that have taken years to develop for free over the internet. Readers of this will just have to accept that. I give up quite a bit of very valuable information for free already, way more than I should. That Gap technique is simply a trend indentification technique which gives us a side of the market to trade. In the case of the Dollar Index, I labeled 3 spots where by that technique the trend had changed. This did not mean it was a daily buy signal and point #1 and #3. It is actually quite the opposite. Once that gap shows up we are looking then for a retracement. As a result we actually want the market to move against the new trend to setup an entry.

Point #2 on that chart is a perfect example of that. Once we got the gap on the downside we got a large runup that actually made a new high. Most people were fooled there thinking a new high confirmed the bull move and were looking at the long side. We knew from this technique that was likely to be a false breakout and it should be shorted. I did short this market up there and made some nice money on that downmove. I did not divulge how the lines were created and will not. I am sure there are plenty of ways of doing this same technique with other line formulations, so I will leave that up to you to create your own.

By the same logic we are looking to buy a dip now in the dollar, not at the market. We need a high probability daily pattern now to tie in to the weekly setup. Maybe we won't get it. This is not a perfect world, and trading is impossible to do perfectly. However, combining weekly fundamentals with daily setups is the highest probability way to trade that I know of, and it is what I do for the most part. I do take some other trades for different reasons, but the biggest wins almost always come off this combination. Gold also is setup fundamentally now, but is nowhere near a daily sell signal. I don't want any emails telling me I was wrong on these unless I put up daily trades that show entries that fail. Of course at that point it would be obvious I was wrong. I did not say to sell GOLD at the market, I merely stated my reasons for asserting that it is setup for a large decline. It may not happen, nobody knows the future including me. If we just sail along upward with no sell setups that just tells us that the fundamentals have yet to take hold. If they happen to change I will cover that but it will take months for this type of situation to change if not longer.

One last thing to keep in mind about GOLD specifically. The individual investor and not large money, has been driving this market for awhile now. Maybe that can continue in perpetuity. It would be a historic anamoly, but we have seen a few of those in the last 12 months so we cannot discount the possibility of it happening. However, I will never in my life base trading or investment decision on requiring a once in a lifetime anamoly to persist for the trade to be profitable. As in horse racing, the favorite does not always win, but that is the way to bet over a large sample size.

Also, I did just make quite a bit of money on the long side of GOLD so I am not just someone who gets glued to one side of the market. I trade where I think the best odds for success are, and that is in both directions and will continue to be.

Next is a trade that ties in to what I have been explaining above. This is one where I missed the boat. I had a weekly setup for a sell in Natural Gas via that Gap strategy, I was then looking for a daily entry. I do not like selling below the lows of reversal bars as the entry on this chart requires. I do it in some instances, but in this case the stop was just too big to make it make sense. Unfortunately, the trade became a huge win, but that is the way it goes sometimes. If I have a greater than 4k stop per contract in a trade I generally do not play those. Sometimes we get a weekly setup and just don't get the right daily setup, it is not a perfect world.

Saturday, January 09, 2010


We have had a nice bounce in the worlds favorite market which was nice to my bank account balances via the trade I posted in here. As you can see above we are now setting up the bigger picture shorting opportunity for what I believe will be a significant move down.

First, in the top graph we see Sentiment has quickly reversed back to bullish after a brief time in the bearish zone. This of course is bearish for prices. Even more disconcerting for bulls is the GREEN line in the second graph. This is the total net long of small speculators and you can see it has now made another all time new high yet price is well below the peak. This by itself it nothing else were going on would be enough to look at shorting this market.

Next we have the BLUE line which is hard to see but it represents Total Open Interest and you can see it is also very high. When you look at the RED line in the same graph which represents the commercials, you see that they are still very close to their record net short position. This tells us that all the buying is being done by groups other than COMMERCIAL traders.

Last but not least, is the last graph which shows the typcial seasonal pattern which shows we are right in the decline time zone. Larry Williams annual forecast also identifies this area as a significant top probability.


Looking at Copper in the next chart we see basically the same story.

The only differences here are that we are not in sync here with the seasonal but also it shows a more bullish sentiment situation. The other thing that is different here is the Large Speculators have a larger net long position by far than at the all time high. This basically means they are out of fuel to keep driving this much further. This market is much stronger than GOLD anyway and you should always short the weak one. I just wanted to display it for a fuller big picture on this complex.

Now we have to look in the mirror at the Dollar Index, after all it should be bullish with this being this bearish to make this perfect.

I have alot of things market here so lets go through this one at a time. First, there is without question significant commercial selling during this rally, and the large speculators heavily long with price way below where it was the last time they had this position. This is without question bearish, However....

If you look at the 1, 2 and 3 areas labeled on this chart you will see something that indicates a trend change. I will not divulge what these lines are but basically in simplistic terms, once the gaps between price and the lines show up, the trend has changed and you enter on retracements. You can see the first one the retracement was an excellent buy. The second one was an excellent sell that got you the top, and now we have a buy on a dip setup. If we couple this with the seasonal low which typically is right at the first of the year, we have something big in the making.

There is no doubt that the heavy commercial selling is the fly in the ointment here. If you research commercial activity they often are opposite of the trend so this can in fact be bullish at times because it actually confirms a market turn by them turning on their hedging function. This will be confirmed to be the case if the recent highs get taken out.

Since the dollar index is a lightly traded contract this overall has less importance than looking at other markets. It is always important to get a context for bigger picture views so that is why I provided it. You can also see where I have indicated how the Dow ( black line on price chart ) has been trading opposite of the Dollar but might be coming back into sync with it. This relationship has varied enough recently that I think it is worthless because it is not doing what it fundamentally should be doing. I think it is basically noise to consider that now.

I mentioned that there would not be a public service announcement as to when the stock market might be topping, the opposite of this is true here. This is a rare opportunity to make a market killing that does not come up too often. In my 25 years of trading I have only seen a couple of setups that were as good as this for a major move. People willing to listen to what the market is saying and tune out all this insulting crap from all the celebrity pitchmen about Gold, are going to be able to make a market killing on this decline.

Are you going to be one of them, or be part of the herd being rounded up in the slaughterhouse?