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Friday, April 30, 2010

WILL THEY ALLOW IT?


Is there even going to be a small retracement that will be tradeable? We have 16 of the last 20 days now being up closes that has resulted in a megaphone pattern at the top. These expanding patterns have led to major tops and bottoms in the past, will this one?

The one thing that has changed without question in recent times is the level of manipulation by the government in the stock market. As a result, many patterns are not working as well as they once did. If you look back to March of 2000 you will see a 5 point expanding triangle or megaphone type pattern that looked similar to what we have here. That is not to say that I am predicting the same future from this. It is just me pointing out something for your study. As always, patterns are tools that need to be used properly at the right time. If you just blindly trade every megaphone pattern you probably would come out a net winner but the win loss percentage would be marginal. You would catch a few big ones and lose nickel dimers here and there.

Ideally one of these would form around the 200 day moving average for a buy entry into this bull market and that would be a higher probability play than shorting this one. However, we are just incredibly extended and this has been a picasso by the PPT to contain even the slightest retracement from happening. In all the years since learning of their interventions I have never seen them be this active or pull of something of this magnitude. As a result, it is very hard to play against the house.

I will be shorting this where the red arrow is if we trade down that far today which I doubt. It appears that they have already saved this as I type this. If by some fluke this does get away from them and yesterdays lows go, I will also be looking for individual stocks to play. As bullish as this is up here, I just do not have buy signals in the patterns I trade to get long. I guess I just have to be a party pooper until something changes.

Gold Bugs I think must be dancing in the streets right now as we head back up to test the highs. I will be very interested to see if this is Small Spec buying which it was the last time, or big money buying. It appeared last week that the Small fries were the ones doing the buying. If that is true we will setup a potentially great shorting opp at the prior highs. If it does happen to be large players buying then we could have an explosive upward move if the old highs get taken out. I really have no stake either way in this other than ego having to admit it is not a bubble if it keeps going. However, the one thing to keep in mind, the guys most outwardly pushing the marketing campaign for Gold do not have good track records of being good traders. Schiff to name one.

Bubbles can inflate for a long time as we saw with housing and stocks in prior tops. This is still no different to me. The situation in Greece is helping metals prices except Copper in the near term. However, one thing many people should try on for size just to see how it feels is this, "Maybe I am wrong?" I cannot remember the last time I heard an "expert" on something say this. Maybe we are going to $5,000 in Gold? I don't know the future better than any of you.




2 comments:

jg said...

Chris, it looks like Friday's close took out Thursday's low. Are you short SPX, now?

The move up in gold and silver is nice, and I fully expect much more as the Chinese and Indians move from Treasuries to gold and silver, and speculators try to get in front of that.

I think gold is going to $3,000-5,000 per ounce within two or three years. If every dollar in M1/M2 was backed by gold (as it dwas through '71), that would be the price/exchange rate. And, as the Chinese and Indians move to gold and silver in lieu of Treasuries, the U.S. will have to defacto back the dollar with gold, to increase its attractiveness in terms of safety.

That has been my read since late '04, and events continue to play out along those lines, seems to me.

Chris Johnston said...

Yes I am short the ES now right where I had the order displayed in Friday's post.

As to Gold, these theories you have may in fact be right I have no idea. It is just way too much brain damange for me to try and impose opinions I may or may not have an doomsday outcomes that put money behind it.

You certainly have been correct so far. My main hesitation which I have stated over and over with this is that at age 50 I have seen alot of trades. I have never seen one any where near as crowded with the wrong way crowd as that one.

I am sure if you polled 1 Million random people at least 800,000 would say gold is going up. Rarely if ever in history have the markets accomodated that type of bullish sentiment for too long. The COT report is also showing that is exactly what is happening, so there are numbers to back that. I would just like to see some evidence that big players are buying GOLD not small fries, and there is none right now because they are not at this point they are selling with both hands. This is just as big a red flag for me as there can be.

This is the main reason why I am not so bullish, it has nothing to do with my economic views because I don't trade based on my opinions.

So far so good for you.