BENEATH THE SURFACE
The Dow Jones Average is sailing merrily along here but yesterday some internal damage was done even though at the close we did not have much of a down reading for the day. I will show you that in a minute. We do have something developing that I have mentioned in the past, the 5 point Megaphone pattern. This has been written about by Kevin Haggerty in recent years, but way before that in the Edwards and Magee book whose name escapes me. Essentially it is a broadening pattern that often signals reversal points in the markets.
This pattern is nowhere near accurate enough to just trade by itself. However it has been present at some very notable major tops and bottoms in the markets, march 2000 to name one that most of you might be familiar with. It is also accompanied by some divergence in the Larry Williams Pro Go indicator. There is not so much divergence here that I would give it huge weight where I have the lines drawn. However if you look back several more months just past where I have the 1 on the chart, you will see we are still below those levels in the Pro Go ( Green Line ) with price being a good bit higher now.
I point these things out just to give some justification for the comments I made at the top. This does not mean go out and just sell, but as you will see, some of the shorts I put on the last couple days are doing quite well indicating that underneath the surface things might be weakening a bit. This weekends health care action could cause a big day one way or the other on Monday. I am kind of hoping they do the hidden card trick and pass it without a vote then the Repubs and states file lawsuits, and it gets over turned that way. That would be such a monstrous embarassment that I think we would pretty much be rid of Barry, and things could improve. As long as he is at the helm, the economic state of this country is only going to deteriorate. So that is a precursor to the next trading day, it is literally a historic weekend in so many ways that the market could be dramatically effected for one day on Monday. The following are just some charts on some of the trade I have done in the last couple of days. The Tradestation arrows show where this trade was entered and many stock charts do actually look like this.
If you go back to my comments over last weekend about the Dollar and how I thought it was setting up for a big move up, you can see that it may have begun. I had felt that 79.50 area was a good low support point and we went to 79.73 so close enough. I used this as a supporting tool to short a few other things that I will show in a minute, Silver and Heating Oil. Since I suspected a bounce here I thought I should look to the short side in commodities.
I have been laying in wait for another short side opportunity for the metals, so when I saw the dollar dip into a zone that I felt would provide support I started looking for patterns in the metals for short entries.
Here as I have written on the chart, I shorted below the low of the high day here, being mindful that we had a good trendline right there that was close to breaking and the dollar which moves inversely, was likely to move up. So far so good I guess. Also one of the great innovations for trades in recent years is ETF's. Here we have the ZSL that we can trade in IRA accounts, that is the equivalent of shorting the futures. Since it is an inverse ETF we can buy it and bet on Silver declining. I bought 10,000 shares of this as you can see on the chart.
I did alot of other trades including the VXX trade I mentioned and Heating Oil, and several others as well. The last one I am showing is my Russell short trade. Since I had been saying the 2 days prior to this that I felt we were due for a short term correction, I was actively looking for entries in the indexes. I felt the Russell was the best setup, so that is where I went. I also played the ETF equivalent of the Russell Short, RWM.
I have shown alot more charts than I normally do here and there is a reason for this. Often we go through the grind of trading each day and looking for what we think are the best ways to make money. Many days I find myself forcing the action, and I have learned to catch myself when I am in that mode and not piss away money on a bunch of marginal trades. I still make my share of blunders to be sure, but when I see things setup across the board in a way that I think correlates as well as all of this did, I do try and be aggressive with entries. After all, I do not spend all this time studying, analyzing ad nauseum, just to sit by when things are ready to move. You have to take advantage of the opportunities when they are there and try and not give too much of it back screwing around when they are not.
This day could be what I call a one day wonder, where everything is just gangbusters in your direction. This is what stops are for. This weekend is one of those unusual times, where politics could really effect the markets directly in one day come Monday. I am not counting my chickens yet, nowhere near it. This could all reverse with a huge up day if health care does not pass. If it does I think it will put some downward pressure on things overall. I do not know if it will be in just one day or not.
My parting thought is this, If you actually believe this healthcare bill will reduce the deficit, do not trade stocks or futures or any other financial market. Although you do not have to be a genius to trade well, you have to have some semblance of intelligence to do this.