Thursday, September 30, 2010


I know this chart is hard to see, it is of December Cocoa and a very wild day there today. This is a trade I had been long for awhile, I think I posted that chart with the entry within the last day or two. Ironically this morning when I took a few losses on some other trades I decided just to take the profits in this market to offset some of my other clunkers. You can see where I just went to the market to exit this trade at the top. Little could I have known that a few minutes later a death spike would occur. I call them that because they are caused by the electronic systems and are death to anyone who might be trading at the time they occur. In this case it was an over $2000 per contract move on that single one minute bar on the chart. In reality it was probably seconds when this occurred and any stops would have been filled at the extremes most likely.

This is why I generally stay clear of markets like this, I was very lucky to have exited before this happened. My exit was actually against my rules. However, one over riding rule I do have is that at times I exit everything across the board so I can step back and get a new perspective on things with no money at stake. I had decided to do that at about 6:45 this morning, so I was like Bill Murray in Caddyshack at the end, just slipping out before all the explosions took place.

The moral of the story here, DON'T TRADE THIS DAMN MARKET, or any other illiquid markets. One instance like this could cost you 20 or 30k if you trade any size at all. That is what this would have cost me had I not been so lucky. Today has been a wild day in the markets, particularly the stock market. Below is a chart showing a trade I put on yesterday based on what I deemed to be a buy signal in the VIX, and the stock equivalent is the VXX.

I apologize that the trade station charts are a little hard to read, my genesis stock data is delayed so it does not show the correct current price for this symbol. You can see where I bought yesterday. This implies an increase in volatility is beginning. In general this also means stocks will decline, but that is hardly etched in stone. I do however think the best way to time stock swings is with the VIX even though nothing is perfect.

I shorted the SP 500 yesterday and got stopped out today, and was fit to be tied. It was just a terribly executed trade on my part. I was too eager to get short and was too aggressive on the entry. So be it I doubt it will be the last time I make that mistake. However, I noticed the following and decided to take action based upon it.

The SP 500 which had been decidedly weaker coming into today, zoomed up way above the high of 3 days ago, stopping me out of my short. However, the NAZ failed to get above that high. As a result, when they started to move back down, the NAZ was now decidedly weaker. As a result, I judged that in the event that today's early move up was a trap, I wanted to short the one that was moving down ahead of the other one. You can see where I got short, I waited for yesterdays low to go, then when a bounced a couple of ticks I went in. Who knows this could be another fakeout, this market is incredibly strong here. However, it would be a bigger surprise to see this reverse for most than to continue higher, so maybe a few weak hands will pitch their positions if we start to move down a little. Both of the momentum oscillators are in downtrends now, and this was a legit entry, so I am in the trade and we will see what happens.

I am looking to short individual stocks as well if we get going down here. We may not. I picked a few including the Q's when I entered this futures trade. I had someone ask the other day if I ever give recommendations and my reply was that I do not in this forum. This is the way I choose to post here. Just discussing what I am doing and why. That to me is more valuable. I can go in and out on short notice on many things, and there would be no way to keep up with recommendations on anything. There would have been no way for me to have posted this logic in a timely fashion, it developed in minutes literally. There may be a time in the future where I will get back into that business, but I have no current plans for doing so.

As always, I hope this is helpful.

Wednesday, September 29, 2010


One of the beautiful yet frustrating aspects of trading and for life in general is that we never know what will happen in the future. We spend our whole lives trying to figure it out in advance, and just when we think we "know" a few things, they are proven to be no better than any other predictive theory. The above is a trade in Coffee I got into recently, that turned into a ONE DAY WONDER. These are trades I have written about often in here, they have these monster one day moves, and that is it. You can see via the arrow where I entered this trade and after yesterday appeared to be gangbusters. I had my profit target orders in above and stops below. I had the plan, then unfortunately the market had to open. It virtually fully reversed the huge one day gain today, and I have to admit that I bailed out of this for basically a scratch.

We have not taken out yesterday's low yet so this could still turn back around again and go back up. However, my experience with these types of trades is that when they reverse this much the very next day, I just want to be out and move on to something else. Some of them will turn back around and go back up, but the majority of them do not. If this does that I don't care. I don't mind sitting through choppy periods right when I get in, but I am not willing to do it once a trade has taken off, then fully retraces the gains. This is a personal preference, there really is no right or wrong answer to whether or not you sit through this type of thing or not. I don't like the emotional effect it has on me, so I just like to move on. Sometimes that is the correct move and sometimes it is not.

I did get short some things this morning knowing I was front running again a little and it appears at this point they were traps. This just dovetails on what I stated the other day about doing this. I have valid sells now so I take then trades, if they don't work so be it.

Below is a trade I have been sitting in for awhile along with some of my fellow LW students, COCOA.

This is a market I do not trade that often due to the wild spikes that show up out of the blue sometimes. This market is just creeping higher very slowly, but today "appears" to be gaining some steam. Of course Coffee appeared to be doing that also until today. I have one possible target displayed above. I have not decided exactly what target to go for here yet, so I am just trailing a stop up below as you can see with the red arrow. It was under Mondays low coming into today. We did have alot of divergence in the momentum oscillators at the low, but I waited for it to rally and come back a little before going in. Sometimes you miss trades waiting like that but there was a reversal bar at the very low and I don't like just buying above the highs of those bars when trading against a trend that was as strong as this was at that time.

I am also still long treasuries, and if we do happen to get any type of decline here in the SP 500 I think that will pop those prices up a little. I am surprised treasuries have been this strong in the face of the incredible stock rally we have had in the last few weeks.

Tuesday, September 28, 2010


The recent declarations by some previously unheard of "expert" group that the recession ended a long time ago drove me over the edge. What the hell good does some group of retrocats ( my word for after the fact bureaucrats ) like this do anyone by coming out so after the fact? I don't know what it is about the human psyche and this need for confirmation. If we could somehow rid ourselves of that need, we could rid ourselves of these clowns. Can you imagine that on top of the idiocy of this, they get paid to tell us this! By the way I will be announcing in December of next year that we had record high temperatures in Southern California yesterday, that will be about as useful as this recent declaration by these "academics." I have no idea if this proclamation is correct or not but I am 100% sure it is entirely worthless to know it now even if it is.

There are so many opinions out there about everything, it really serves us no good to seek them out or listen to them when we find them. I do understand the credibility that some people have who are successful in their lines of work, that their opinions in those areas would have some importance. However, I am so tired of all of these people who have never hit a ball out of the infield telling us all how to become .300 hitters. I think that anytime prior to issuing any opinion it should be required that they tell us how much money they have previously made through the use of their opinions.

I was watching CNBC the other morning and they had 2 "traders" on the floor they were interviewing. One had his badge on, his hair tussled, tie loosened, he was the real deal. He offered his current views on things. The second guy was dressed like an IBM salesman. Blue suit, red "power" tie. I have always wondered why an ugly tie is powerful? He was like Winthorp in Trading places. This guy I would bet my life has never risked a dollar of his own money, and likely possibly never made a single trade out of his own account. I am sure he has an impressive degree from somewhere. He of course took an opposite position of the trader and got into all this ridiculous jibberish about why he felt the way he did.

I really wish the trader would have just done a double leg takedown and flattened this pinhead. I would have rather lost money following someone's guidance who actually makes money doing his trade, than some punk academic who probably had a manicure appointment right after the interview. This is so typical of what we all run into every day, myself included. So what to do?

First if it is your need to have sounding boards, then find a limited number of them, make sure they have been successful with their own money not others only, then assimilate whatever you can learn from them into your arsenal. Aside from that you need to tune out the rest of the garbage. I can assure you that your own opinion on virtually anything other than nuclear fission, is likely to be just as accurate as anyone else's. It becomes way to difficult to make decisions when all these voices are in your head tugging you every which way. I constantly have to remind myself of this.

Now that we are on that subject, I mentioned yesterday that it is my judgement that there is an overly bullish sentiment pervading the investment community right now. This should lead us to a decline of some sort here. I was hoping for an upclose today to setup a sell for tomorrow. I don't know if we will get it. We had an early move down that was quickly reversed, and as I type this we are only slightly down on the day. We are still holding the trend line I have drawn on the chart, so I don't think anything bad happens until we close below that short term line. For today I do not have any new sell signals in the SP 500 but am hoping for something tomorrow.

That is my plan, and I do not have a red tie on or a manicure appointment scheduled later today.

Monday, September 27, 2010


We are in the sell zone right here in the stock indexes. After Friday's monster rally that took out the recent highs, we are stalled so far today. Whether or not this will remain the case is unknown, but if we were for some reason to take out Friday's low today, that would be a greenlight special to get short. I doubt this will happen, it would take a huge move down today to get to that point, but you just never know. We have virtually everything I look at from seasonals, to oscillators, to accumulation indicators all telling us to look for a short entry now.

There is one other thing that I think might even be more important as an indication we are going to have a decline here, sentiment. I always watch CNBC at times when I think a market turn is imminent. I want to get a good gauge of the advisor sentiment just anecdotally. I have my precise measurements which already indicate an excess of bullishness. Watching CNBC this morning, virtually every single guest is bullish on stocks here. That should be the final piece to having everyone leaning one way. In the NBA they call it "pulling the chair" when a post player is leaning really heavily into the defender trying to get position, and the defender just steps away letting the offensive player fall forward to the floor. This is the equivalent of what we have here, a very heavy lean in one direction.

I have been nibbling on the short side in a few stocks with mixed results, about half wins and half losses last week. Unfortunately the way the markets move mostly overnight, you kind of have to front run stock trades a little otherwise you wind up chasing big gap opens. What I mean by that is that if you think a buy or sell is coming you have to position yourself ahead of time in anticipation of the stock indexes taking off overnight in your desired direction. This makes things a bit tricky when we get into a ramp up like this that moves into a sell zone. You have to be willing a take a few hits to be positioned correctly. It is likely that if we do change direction, it will happen overnight, and the next day will have a big down opening and alot of individual stocks will have gaps down. I don't like chasing gaps, so I need to be in prior to this happening.

At this point we do not yet have a sell signal, we are just setup for one if we get a breakdown. As a result I am trying to find a few things to get short now anticipating the overnight move which may or may not happen. This market is very very strong right now and this could go on upward negating all the things I have displayed on the chart. However, I am willing to risk a little to try and position myself here. I am also looking at re-entering the long side of treasuries today and have orders in there above the market. If stocks ever decline here, that will likely provide a boost to bond prices.

Friday, September 24, 2010


I grew up a few blocks from Bob Seger and this song came to mind this morning when I woke up and saw another huge overnight move in the EMini SP futures. I do not have the stats handy, but a very large percentage of the total gain in the stock markets since the 6500 low has been from overnight action. In other words the net up moves during the day session have been very close to nil during this period. What does this mean?

It is my contention that the market manipulation being done is happening for the most part in the overnight sessions. It is easier to move things with less size because the volume is so much lighter, so this has been a brilliant move in my opinion. Do I have proof of this, no. However, if you just look you will see that in general, the big spike up moves in the ES have happened when bad economic reports have come out. I am not one to claim that the economy drives stocks on a short term basis, it does not directly. However, there certainly is not a complete inverse relationship either. It is my feeling that the FED's statement recently is the first step in them gradually at some point in the future admitting they have been buying stock index futures. If you look at how they have gradually been a little more open over the last year about what they are doing and why, I think this is leading at some point to a statement that might include a comment about they would consider supporting equity markets if need be.

Once they do that then they could gradually work into an after the fact admittance to having done so and be relatively clean. There has been enough increasing talk of this, and even that loudmouth Alan Grayson asking about it, well screaming about that since that is the only tone of voice he seems to have. They sidestepped his inquiry, but you can bet once it got that far, the PPT realized they needed to somehow begin to set the stage for coming clean on this at some point. What does this mean for all of us?

A couple of things. First, I think it means for the most part, we should be free of extended selloffs. Yes we will have declines, but massive amounts of money are going to come in when they start getting to the 5 to 10% level to make sure they don't go any further. As a result, I think we can be aggressive buyers on dips. There might very well be a situation where we get such a large selling panic like we did in 08 where even the PPT could not stop it, but that will take some extraneous event that will be apparent at the time and tell us to not so aggressively buy dips. Below is a graph showing the PPT trying to stop the 08 decline, they were not able too as we all now. However, look at the volume they threw at the markets to try and stop it. It was only the extraneous event of the housing bubble that overpowered them. We don't get many of those so it is doubtful another one will show up any time soon.

This is a weekly chart of the E Mini SP 500 with the COT net positions underneath. What you see here is the normal fund activity of the Large Traders in black is that they are momentum players. They buy when things go up and sell when things go down. I have marked the typical activity of these people with arrows. You can see for the most part they are in sync with the direction of the market. However, you see one atypical period where the Large Traders bought massive amounts of contracts into a major decline. Large funds sell on moves like this as you can see over and over again, yet in this case they bought record amounts, hmmm.... They continued to buy as prices plummeted. It is my contention that the only "group" large enough to lose this type of money and still be alive and kicking is the PPT. This was an attempt to stop this decline. Unfortunately for them ( US ) since it was our money that was lost, the total panic in the market and the volume it brought overpowered their efforts. This was a rare circumstance that is not likely to be repeated any time soon.

Once the market did finally stabilize, they eventually got back into their normal pattern. Since in the COT report, the PPT cannot be a commercial hedger, and certainly has larger positions than Small speculators, it is my opinion that they are classified in the Large Trader category since all open positions have to be accounted for in some manner. It would be impossible for anybody to convince me otherwise. Therefore it is pretty conclusive to me that this large increase was futures contract purchases by the US government though various entities. There is not a large or group of large commodity funds that could have lost that much money and still been in business.

The second thing that my prior assertion means is that we need to be looking to play mostly the long side from a longer term perspective. I am currently looking for a short entry from the above chart at the top, but is it a short term trade. If we get a decline, I am going to look to get more aggressively long looking for a big move up. You can see that the last 2 divergences in the momentum indicators did create reversals in the market, one down and one up. We are now getting a third one, so that is why I am looking for a short entry here. I do not suggest blindly buying or selling anything on divergences in indicators, they just get me looking in one direction. The entries into the trades are another matter and up to one's own trading techniques.

Thursday, September 23, 2010


Here we have the VIX index with a very well defined pattern in it suggesting it could be making a low here. Anyone reading this blog certainly knows what a head and shoulders pattern is, and it could not be more clear that we have one here. If we accompany this with the momentum oscillator moving higher, it is telling us that a low could be in the making here. Of course in general this trades opposite of the stock market, but not completely. We are staging at this moment one of these dramatic intraday reversals of a sharp down opening in the SP 500 which is what happens in strong trends. You can see here that we gapped up and are moving down pretty quickly in the VIX, opposite of what stocks are doing.

It is my contention that watching for patterns in the VIX is the best way to catch short term swings in the stock market. As in anything else, there are a million ways to trade, so it just depends on what your individual approach is as to how you use this. One thing you should not do is use absolute levels in this index. At one time there was a school of thought that every day we went beyond certain levels, the market had to reverse, and that turned out to be a poor use of this index. I think just looking for trends in it, and reversal patterns, are the best use. I like to try and trade the VXX in concert with this but they are shockingly dissimilar alot of the time, so the patterns are often not the same. When they are not the same, I don't take the trades. In this case the VXX was on it's multi-week low while this was making a higher low, so I did not do that trade. I don't like to buy things just going straight down making lower lows every day (chart below).

Overall I think we are very close to a short term sell signal in stocks within the next day or two. However, with the FED pretty much stating indirectly they are not going to let stocks decline, we really have to be looking to buy the dip aggressively when it comes. This does not mean just blindly, but when the next buy signal shows up it is likely time to put more chips than normal on the table.

Wednesday, September 22, 2010


After the major component of the PPT showed up yesterday with it's comments, it is clear they have no intention of letting things decline much if at all in equities, or bonds for that matter. We can argue all we want about the merits of what they are doing, but it is what it is. They have essentially publicly stated in not so many words that they are going to make stock prices rise. You could interpret the metals market action is viewing this stance as a confirmation of their doomsday scenario. In really have no idea on that front one way or the other and I don't put money at risk based on arbitrary opinions of things such as this. What I have noticed here is that Copper is lagging Gold and Silver considerably, and has now formed what "could be" a trap on today's breakout.

You can see there is considerable divergence now in the momentum indicators, and we have formed a pretty clear trend line that has contained price quite nicely. It is my view that if we were to take out today's low tomorrow, this could be a very nice shorting opportunity and likely one that I will play. We may just sail up and out of here into blue sky, but if we don't and immediately reverse here, that would be confirmation to me that today was a trap. Clearly of the metals markets this one is the weakest, so any shorting of them should be done here. For those inclined to want to short GOLD, and I know some of my readers have that view, I would not suggest doing it here. That market along with Silver is in a clear blow off move, no telling how far it might go. There is no reason to short either of those two markets.

Below is a trade I was in this week that I just exited today for a nice gain, 10 Year Notes.

You might have gathered by my recent comments, that I was looking to go long in the Interest rate markets. Here is the result of the trade I just did. It appears my exit target which was exceeded by only 1 tick last night may have been a lucky stroke, although if we get equity weakness this market will move higher. For the moment, I am satisfied with my profit here. This is a big move for this market in just 2 1/2 days in the trade. Although it appears I just exited against the prior highs, that was not in the calculation for putting the limit order to exit where I did. However, once I figured the price out and saw it was right against the prior highs I have to admit that made me feel more sure it was the right place to have it.

I also did the TLT along with this in my stock trading accounts, so all in all a good trade.

The tricky part of pairing up ETF trades with futures trades is that often in futures the big moves happen overnight. More often than not I get filled on both entries and exits during night sessions when the equity markets are not open. This leads then to exiting the ETF that went along with in on the next days open. Rarely will the market just stay still during that lag period. As a result, the ETF trades typically make either more or less than the futures trade. As a result I typically lower my risk % some just to keep from taking a bit hit in case we get a huge overnight move adverse to the ETF position. In this case the opposite happened, I got a windfall.

I am still looking for a possible short term sell in the SP 500 this week, rooting for an up close today which could set something up for tomorrow.

Tuesday, September 21, 2010


Although it is not a completely consistent pattern, there have certainly been some notable selloffs that have taken place in September both in stock and commodities.

Here is the EMINI SP 500 weekly chart. As you can see as we have moved up off the lows sharply here for the last 4 weeks, ADX has declined sharply. Generally speaking this is not a good thing, confirmation of a move like this should be at least starting. Often ADX can lag a bit due to how it is calculated, but this is too long of a lag in my view. We do know we have a very strong seasonal tendency for rallies to start in October as you can see with the blue line above. Our best scenario would be for a sharp decline down starting pretty soon, setting up what could be a great buying spot for stocks, and most likely commodities as well in OCTOBER.

The momentum oscillators do not have any sell signals in sight here so I think that will mean that if we do get a decline it will setup a buying spot. However, if we get one we will just have to watch it to see what transpires. Typically during an election cycle like this we would have a rally, and you can bet your sweet ... that Barry and his boys are pulling every string they can to drive this higher. If they could sell the story that what they are doing making us into Sweden is working as evidenced by a big stock rally, they might be able to con a few more dumb asses into voting them in. Normally interest rates declines are what prop these mid term rallies, and for the most part all fall rallies. However, they are so low already, how much lower can they move. I think the bullets that are available are more along the lines of manipulating the EMINI futures markets with buy programs. They have just been great at doing that, coming in just at the right time when volume is light and nobody else is buying. If I had to bet I would say those "mysterious" night session moves have in reality no mystery to them at all.

What I find interesting in the last couple of days can be seen on the next chart.

You can see that the 10 Year Notes tradee for the most part completely opposite of what the stock market does. However, notice when the relationship gets out of whack, the 10 year seems to lead the next stock market move. You can see in the first instance I have marked that while stocks were going up we got 3 good sized bars up, which then led to a quick drop in the stock market which is the purple line below the 10 year price. Then at the top you can see a couple of sharp down bars in the notes showed up while stocks were plunging and viola, a big stock rally. Now what we have currently is 3 consecutive up bars going in notes with stocks rising sharply. Might this mean we have a stock decline coming our way? I did find it odd while watching prices yesterday during the big stock rally, that the 10 Year stayed strong the whole day. That is a bit of an anamoly. Typically these two markets don't stay real strong together for too long.

Let's see what happens!

Friday, September 17, 2010


This is intentionally in red as a warning, don't try and do this

Above is the NASCRACK Index so named for it's wild and crazy actions. It is obvious for anyone to see we are just ramping straight up here. Many people are always tempted to try and pick tops in moves like this. I would recommend not doing this. I do think we are close to at least a corrective point just because of the blow off nature and angle of ascension in place here. However, do not ever underestimate momentum in situations like this. It can go on for surprisingly long periods of time. Typically but not always, a big gap up will end these types of things. Last night we had a big run up that has reversed, so I suppose this could be it, but keep in mind there are major market manipulations going on here so this is treacherous trying to short these moves. The balance of power in DC this fall could very well hinge on the stock market staying strong, so you can be sure the PPT will be very active. These elections are possibly the most important of my lifetime, so there is alot at stake here. These fat cats are not going down easily.

There are some cyclical elements coming in next week, so a top of some type in this general area from a time standpoint, makes sense. I see nothing in the indicators above that tell me this is a sell here. As I have written about extensively in here, this is an across the board move, many commodities have risen lock in step with stock prices, the metals, the softs, energies, grains etc.. Does this mean that the big inflation wave is here? Possibly. The Dollar is getting clobberred here and is in a down trend on the weekly charts. The only way to call it anything else is if you are an elliot waver, and even that is a stretch in my mind. They never let stretching get in the way of presentations of their ideas. They have been nothing but gloom and doom and just are wrong for so many months at a time, that it is difficult to make money off their views even when they are correct in the end.

It does appear to me that if we have a correction of a few days or more, that the indicators are going to turn down enough so that the dip will not be a buy signal. It might be that the indicators will have to fully cycle down and back to generate the next buy signal. Time will tell, but it appears to me now that it will be a couple of weeks or more before the next buy signal will trigger here. It is more likely that a sell will develop first.

I am watching the bond market closely here for a bigger picture sell signal. There are many things from the hacks at the water coolers predicting it, to cycles, to COT stuff, that are calling for a large top to be formed in bonds here. When looking at what I look at, I am in that camp as well. I hate being there with everyone else, but as we have seen, hundreds of millions of people can be right about the same thing and the idea can still work. Buy Gold is an example of that.

It is possible there could be a sell signal monday for Bonds, the chart above. However, it is close to the indicators starting to bullishly diverge here, so this is not an obvious bet the farm setup. I will have to look at this over the weekend. We have had 3 consecutive small sell signals here. I have done two of them, not the last one. I am not sure exactly how I am going to play this at the moment. However, over all, we should head down from these levels and I am looking to get in sync with that.

Thursday, September 16, 2010


I have decided to use my tricepts to push me away from the trading desk in the wake of my colossal mistakes this week that now have cost me to miss over $100,000 in profits in trades I should be in. It is what it is, the single biggest blunder of my trading career. The more I stay in front of my computer, the more my anger just boils up again wondering how in the world with my level of experience I could have ever made these blunders. The problem with what I have done is not just that I missed a few trades, that will always happen. The real problem is that these trades were in markets in blow off phases where they could run for weeks. The will not be a second chance to get on these moves, they are gone without me. The metals markets now have just open space above, who knows how far they might go.

It is perplexing in that there has never been a trade in my lifetime where the huge public majority has been so right for so long. All the rules of engagement are out the window in the GOLD market and nothing matters but price action. That says to be long as clear as it could say it. I have been wrong and my 25 years of learning what drives markets has steered me completely wrong in the metals.

Above is the Sugar market, which is an example of a possible preview for the metals. One thing that is in place now in this market is a Tom Demark Sequential sell signal. I will not go into the details of what that is, you can read his books if you don't know what it is. He has a pretty good way of mechanically measuring moves like this as to when they will end. We just within the last couple of days hit the sell count here. We also hit it in the Yen this week, the Aussie dollar, and interestingly enough, GOLD. Gold however does not have a super high ADX reading, so I am not sure it means much there, these other markets do have high ADX readings. I have marked the high ADX reading with a red arrow on the chart also. We have gotten over 60, a typical level for a top to form.

We are in a blow off condition in alot of places now so for me I know better than to chase these types of things. When you do inevitably you buy the high or sell the low. I missed the moves so I will just go play golf for a few days and come back to the markets and see if there is anything there for me. I was trying to short Copper today, but it has gone up along with everything else so that trade is not going to trigger now. It is probably the most closely linked to stocks of all the metals historically. One of the things other than money management that I would suggest people do going forward is just throw out everything that has historically had an intermarket relationship with something else. None of these mean a damn thing anymore. This climate is ignoring every fundmental that has ever meant anything. In my own personal trading I will no longer pay any attention whatsoever to any of those things.

The reason for this is most likely the extreme market manipulations by governments that is going on, but it does not really matter why. What matters is the what, and it is time to throw most conventional relationships away. If they ever do come back again, we can begin to pay attention again. Looking at them has cost me money this last 2 years without a doubt.

As to the stock market, although we are now back up at the top end of the recent range, I do not really see any clear sell signals here, so we may just power higher. I would not let any big picture economic views con you into getting heavily short in stocks. We should get a dip here at some point into October, which as far as I can tell might set up a major rally. Maybe it makes no sense, but neither does most of what is going on right now for that matter. Stocks are completely divorced from the economy now, so just accept it even if it makes no sense. It is what it is.

Wednesday, September 15, 2010


Sometimes it is very difficult to get up and go to work. If I were being interviewed today I would tell the reporter to go jump in a lake. I have made so many mistakes this week already that I have already left over 50k on the table that I should have had. It is in reality probably closer to 100k, I don't even want to know the real total. I was so mad at myself yesterday the last thing in the world I was ever going to do was post something in here. I have to admit that a couple of decisions not to take trades completely debilitated me. I don't remember the last time this happened, but it has been many years. For me my biggest pain is not losing on a trade, it is seeing a big one I did not do for some stupid reason sail away from me.

It was all I could do not to go jump in a lake. Fortunately for me my pond on my property tends to dry up at this time of the year, so it stopped me from jumping in it. The above trade is an example of one I would have done and was going to do until, THE EVENT happened. Once it happened it just exited everything I was in and went flat. I was just too emotional to even deal with any trades at the time. I should not have done that because one of the trades I exited has gone on to be a big winner. I have to admit to still not having a clear head, so I don't know how much trading I am going to do this week.

I really don't have any advice as to how to handle this, it is part of this business, and there is no magic answer other than to deal with it. This one will stick with me, and I am going to make some changes as a result of this colossal blunder on my part. Maybe that is the good that will come out of this. As to the trade above in the Yen, this was a tough one. I noticed yesterday that we were breaking out to new highs after having gone sideways for a few days, and thought if it failed it could be a nice short. The momentum oscillators were really kind of just going sideways, although it could be argued that they were under their trend lines and as a result sells could have been done. However, you can see that has been the case for the last month and nothing has happened. What did make this a little different was that we made a new high last night, then broke the prior bars low making it an outside bar. This could have been the justification for doing the trade. This was driven by a news event, but the pattern was there.

Had the oscillator been a little more definitively down I would have done this one, but in reality I was so tuned out to doing any trades due to THE EVENT, that I could have cared less if the markets ever reopened again. I do not for one second represent my reaction to my blunders being the correct action, it is just the action I took. You have to have a clear head to trade, and if you don't you should push away from the desk and that is what I did and am probably going to do today also. I may be slacking on the blog the next few days, I am not sure. I have a very poor attitude right at the moment and it might be best for me to go do something else for a few days.

Good trading to everyone

Monday, September 13, 2010


Above is a chart of the EURO which is having a big up day so far today. I am not in this trade after pulling my hair out for an hour debating whether to go long or not. In the end, I passed because I want my trades to jump off the chart as obvious and I just felt I was forcing this one. Too bad, it has already gone far enough to guarantee at the very least a very small loss or breakeven, with plenty of upside potential. I felt my middle oscillator was giving me mixed signals on this, although there is a pattern that is a long entry that is there. The fact that this currency is one of the weaker ones of the bunch is the main reason I passed on this trade. There is another though in the next chart.

This is the SP 500 above and there a few things about this rally that are starting to bother me. ADX, the red line at the bottom is declining sharply on this rally, in most good trend moves it increases. Also, we are right into a good resistance point, and the main momentum oscillator is not in new high ground here. When I also add in the seasonal tendency, the blue line, this makes me very skeptical of how much further this will go. Since all markets relate to stocks for the most part now, I did factor in that if this were to stall here the EURO would likely decline. When I added that into the mix, it just became a No Go.

Was it a bad decision? It appears so. I might have overthought this one, but it was all driven by a mixed setup in my main indicators. Once I feel I am forcing something, I generally do not take the trade. It tends to work out over time even if it did not in this instance. I have repeatedly stated that the stock market is driving everything, and I think in time, and that could be a decade or more, it will come out what the PPT did here. This is no coincidence in my humble opinion the way this is all being orchestrated. However, there is not a single thing anyone can do about it, so just be aware of the relationships and act accordingly. It is not known by me or anyone else, whether this manipulation is really going to hurt or help in the long run. I fear it is just prolonging the bubble from inevitably bursting, but I do also admit if I were in a position to control things like this it would be hard to not do it, knowing voters would blow me out immediately if I did not, and also knowing that at the very least alot of short term pain would take place. The question of course is whether or not taking the medicine now would be better than taking it later.

What I am afraid of is that when this inflated bubble does burst, we will have no bullets left in the gun, and things might get shockingly ugly for a few years. I hope not and hope I am wrong. As you can see from the above, I am wrong my fair share, so I am not an expert in prognostication any more than anyone else is. So far the play is being acted out perfectly, all the actors deserve academy awards.

Here is the T Notes short I entered last week. You can see I exited during the night session last night taking profits. I thought I should show a chart with a profit since I spent the whole post talking about what a dumb ass I am. It is interesting that as I type this we are on new highs in stocks and Bonds and Notes. These markets typically have traded opposite intraday. Might this Bond rally be telling us stocks are running out of steam?

I am looking for the stock rally to stall here, so we will see if it does.

Friday, September 10, 2010


Anyone who has played golf with me in recent months who might be reading this would surely think this topic was about my golf game. It is in such an utter state of collapse it is shocking. The more I try and fix it the worse it seems to get. However, this topic is in reference to my elbowing my way into the water cooler crowd at work where all the hack amateur economists along with G Gordon Liddy and various other "experts" are calling for the demise of the dollar. I do have to say though, that my bearish view of this market is very short term. My plan is to run in and agree with all these clowns, for a quick move down, then take all of their money when a larger scale rally happens. Will either happen who knows, although you would think by the commercials that "everyone" knows.

Above is the Dollar Index, and you can see my orders of where I plan on entering a short position if we decline to these levels today. I thought for awhile this was definitely going to fill, now I have my doubts. It will take a big stock rally to push this down most likely. However, we are in rally mode in stocks so you just never know. It does strike me as odd, that the gloom and doomers all think stocks and the dollar are both going to tank, yet it could not be more clear that these two markets are trading opposite of one another. Sometimes you have to think about what you are doing, but let's not let common logic get in the way of a good story.

I am still trying to get long Natural Gas as you can see on the chart below. This has a fair chance of triggerring today. You can see the orders on the screen. I like the seasonal strength in this market, so I am really looking to try and get on board with that if possible.

There is not much more really to say here, the momentum oscillators are saying this should lift off but so far no ignition. Next a brief look at everyone's favorite market.

The above chart of the GOLD market shows a huge amount of divergence in the momentum indicators. This can at times be the case when major trends are happening, so that by itself is not a reason to run out and get short. However, if you look at ADX at the bottom, you will see it has really been declining. This tells us the trend is not gaining strength as price rises like it was previously. I believe this means this market should be shorted on any bounce that occurs here. You can also see we have for the first time in awhile, broken the uptrend in price alone. This is a market I will be watching closely next week.

Good Trading to Everyone and remember, it's George W's fault if anything goes wrong so swing away.

Thursday, September 09, 2010


Here is a chart of Natural Gas that displays orders I have in for this market today. As you can see we have a valid long setup in place. First, the seasonal shows we are at the time of year where prices typically rise, BLUE LINE. Next we have both of the momentum indicators rising indicating an uptrend that price has not quite caught onto yet. Then we have what would be a higher low than the lowest low on the chart forming if we were to move up from here. We do not know if in fact this is a higher low yet. A rally needs to occur, so that is why I have buy orders above.

I was talking with a good friend again yesterday who loves to trade, yet constantly loses money doing so. I constantly harp on him to get away from the inraday charts, and wait for daily highs and lows to go before entering trades. He is just so impulsive he can't do it. I even constructed a custom indicator for him that gives him very specific patterns to trade with. ( Not what I use but in the same general spirit of it ) I then showed him what they were and he was very excited. Now that he is trading them, he is trading against those patterns, and on top of that anticipating intraday high and low penetrations that wind up never happening. As a result, the ultimate outcome is the same. He is a highly intelligent person and very successful in other walks of life. However, and I have told him this, the swashbuckler approach to things may work in other industries but it is does not work in trading. You really have to stay disciplined or you will get your butt kicked!

I am staying disciplined here in a market I want to get long in, by waiting for my pattern to trigger. Maybe it won't, I have no idea. I do know that if I just blindly buy here that I would have no idea what my odds on success would be. If for some reason it turns out that discipline is a negative in trading, I will walk away and dig ditches. It is what I know and how I am wired. I know of no other way to approach life. The caddyshack trading approach does not work for me and for that matter, not for anyone else either.

I have mentioned before that Natural Gas is like that crazy uncle that some people have. This market beats to it's own drum and is very volatile. It can be asleep like this then all of the sudden fly $3000 per contract in 5 minutes. I am not assuming this order will not be filled even though this market is not moving much at all so far today. You just never know with this one. As they say, the force is strong with this one.

I have been mentioning for a month or so maybe more, that I was bearish on BONDS. Below is the trade I just entered this morning in that market.

Of course I always take the chance of being made to look like an idiot posting trades live in here but what the hell, it is what I do. In all honesty I placed the orders last night and did not expect them to be filled so just discovered I was in this trade a few minutes ago. Pretty much the standard MO here. Downtrends in the momentum and a bounce in price against it. There was a dreaded reversal bar as you can see yesterday. These damn things just give me so much trouble. My logic as to why I took this trade was as follows. I know I have a reversal bar here which means this entry could very well be a trap. However, if it took yesterdays low then reversed back up and closed positive, it would be a reversal bar back in the opposite direction. If that were to occur which is the worst case scenario, I would then have a valid sell below todays low which would be a lower entry than I already had, so I just went ahead with it. As per the usual, I have no idea if this is any good or not, but I am stuck with it now.

I traded Notes instead of Bonds because the accumulation/distribution indicators were a little weaker there than for the 30 year, but it is basically the same trade. I got more contracts on with the Notes than I would of with the Bonds due to the stop difference by a 3 to 1 margin and the markets normally have about a 2 to 1 ratio. As a result, if the trade works in theory I should get a little better bang for my buck.

Just remember, what we have all learned in the "teachable moment" the last year and a half is this, if the trade does not work don't worry, just blame it on George W Bush!

Wednesday, September 08, 2010


Just for kicks I decided to try and load the new editior again to see if it would work and it did. As a result I can now make the posts look respectable again without having to spend an hour to do one. I am free of the pain finally!!!!!

This is a market I had mentioned recently that had a bullish setup and I was looking for a way into but had not yet taken one. I have marked on the chart where an entry could have been taken. I did not go in there because the stop was larger than I would have liked, and now although having moved up, this chart is pretty sloppy. I know that my best trades come when a market triggers an entry and just goes. I do not ever expect this, but when I review trades which I do every week, I find this to be consistently the case. We have had so many chances to enter on a pullback that to me it is just too many and the market is in somewhat of an equilibrium state. For all I know we could just blast off here without me, but I do not care. I don't have gray hair and don't want it, this would have given me some.

That being said, this market is primed to take off, and only the late selloff in stocks brought this back in some today. If stocks resume their climb, this will no doubt come along for the ride.

Here is a chart of the 30 yr Bonds. I am looking to get short this market on a bounce here, to try and get in sync with what the oscillators show is a down trend. It will take a stock bounce to trigger this, and that does not appear to be in the making for at least one more day if not two. As a result, I will be looking here but do not expect an entry until the end of the week at the soonest. However, as we know things change quickly in the markets so be on guard here. One point to make here, if we go up too far, this short can be negated. I will not blindly short a bounce here, the pattern is going to have to be there. The point in showing this is that it appears there is a potential for a short pattern to develop in a couple of days. If stocks just plunge here, it is doubtful this trade will set up.

Remember, it is all about the stock market now, it drives almost every market in the world except the soft commodities, Natural Gas and to some degree the grains and meats. The other markets trade basically lock and sync with the SP 500 so be aware of that as you select your trades. Some are with it direction wise and others are opposite, but the correlations are just uncanny right now.

Tuesday, September 07, 2010


There has been alot of talk recently about the Hindenburg Sell signal. Cramer apparently mentioned it on his show recently, and the Elliot Wave people have also been discussing it. I have overlayed in RED on the chart above a couple of the recent sells indicated by this strategy/signal. You can see that the first one was not bad but for the most part here, you were selling right into a significant low. Here are some other charts displaying some of the others going back in time a bit.

You can see from looking at all of these charts that some very nice signals have in fact come from this concept over the years. There are also others that are not so good. However, the majority of them are good enough where it does make sense to take notice of them when they show up. I intentionally showed one of the bad ones in the first chart for the following reason. When you research ideas on how to trade going forward, this is exactly what seems to always happen. You stumble upon something that you think it the holy grail, you test it over and over, then when it comes time for the first trade with it you lose money. Most commodities traders are convinced that Murphy was in fact a trader himself. How else could he have made up his primary rule!

This is just reality. The goal is to establish edges in the marketplace and then try and exploit them knowing that often those edges will not play out favorably. As long as they play out favorably more than they do not, the edge is valid and is a good tool to make money. I hate losing just like the next guy, but I have learned to accept it as part of this business. In any other job say for example a sales position, you lose alot of sales you think you might get so this is no different. You just have to have good techniques and try and implement them the best way you see fit.

I will not get into the exact formula for this indicator, but it is basically a ratio that looks at new highs and new lows on the NYSE and qualifies that with a couple of other things. I am sure you can find it on the internet if you do a search

Friday, September 03, 2010


I am just kicking myself for missing a couple of huge winning trades this week, here is one of them. I have indicated where I considered going long in the Russell 2000. The reason I did not was the reversal bar. These damn things always cause me trouble. In all honestly I was waiting for one down close to come, and just got too picky. It happens. I wish there was some magic solution to missing trades but there really is not. I have alot of mental baggage with reversal bars due to a period many moons ago where someone taught me to trade off them and I got my ass kicked trying. I developed a sub conscious aversion to them probably just from a self preservation standpoint. This is an irrational position to have on my part that I just have to get past.

I am particularly irritated with the way Blogger displays my posts nowadays. It puts spaces where I don't put them while composing, and takes them out where I do have them. I then go into the HTML code and put them in and sometimes they still don't display properly. I do apologize for the lack of consistency in spacing between paragraphs. I spent close to an hour yesterday on that post, just to still have the spacing wrong. I just do not have more time than that, but I hate putting out any product that is not up to snuff. All I can do is apologize for it and move on.

I would suggest studying reversal bars yourself to see if there is a way you can find to trade them consistently. This specific bar was almost closer to a doji type of bar from the candlestick world, so really was not a traditional reversal bar. I should have treated it as such and went long but I did not so what can I say, I blew a big win here. I would take profits at todays close had I been in the trade due to the 3 consecutive big bars in favor of the trade. For those of you who got this one, you might want to consider flattening at the end of the day if it stays strong.

It is fascinating to me to listen to the debates on CNBC after the NFP reports. I heard over and over that tax cuts for the rich caused the budget deficit. Aside from this being physically impossible, it is just shocking to me that people can actually believe that.

The head of the UAW, or should I say head of extortion for the UAW, kept repeating that. It is so strange to hear someone like this who makes a living from extorting money from rich people always criticizing them. I still challenge these people to produce one poor person who will hire someone and pay them a 6 figure income for sleeping in the rafters during work hours and coming to work drunk. This is a typical MO of an auto worker where I grew up. Many of my high school friends did exactly that year after year. When they bragged about doing it arguments always followed. Will the poor people be able to pay for someone to do that?

There has never been a time when this country has been so divided in my lifetime, it is just a shame. I do not have the answers, only ideas of what I think they are. I do know for sure that attacking rich people is not it. It you get rid of all the rich people, we are Mexico. When they raise my taxes next year I will cut back on discretionary spending by the amount they go up, did you hear that Mark Zandi. Isn't this just obvious? He said today takes hikes don't effect discretionary spending with rich people. He is of course a socialist also, so I guess that is par for the course.

When you look at a stock market rally on a day when the NFP report was so bad, you really have to wonder how all of this is happening. I have gone over and over how I think it is happening, and I have certainly seen no evidence to disprove my theory. However, in the end price rules and the trend is up now.

Thursday, September 02, 2010


As I sit hear flat waiting for a few things to develop, I thought I would lay three of them out in here. The first one is Natural Gas, above. This market has been in a strong down trend for quite some time. We are now seeing a potential light at the end of the tunnel. Our oscillators are on the verge of turning up, and price is now moving sideways. Of course this could be just a little ledge and we will fall of another cliff. However, if we were to start trading above the trend line I have drawn on the chart I might be willing to take a swing at the long side. I am drawn to this by the seasonal pattern which as you can see is indicating a typical low about now.

I am not a big fan of buying into downward moves that are this strong so I need a bit more than what we have at this very moment, but this is one that I am watching. Next we have Heating Oil. Like many other markets, the chart patterns in this are remarkably similar to that of the stock indexes, so this market will not likely rally without a stock rally. However, we are getting that now, so this market has my attention.

I have the seasonal pattern displayed so that you can see how closely this market has followed that pattern this year. This is typical for the energy markets, they are amongst those that are heavily influenced by seasonal supply and demand. We are heading into a bullish period, and have made a higher low now, so this one has my interest here. There are so many different ways to get into trades that I will leave it up to you to determine if something you use is present for an entry. As I type this I have not gone long yet but am close to doing so. The third market I am watching is the British Pound, the chart is below.

Once again you can see how well we have followed the seasonal pattern here. We are a bit early for the low, but these are general patterns, you cannot nit pick the exact days on them. They are average prices. What interests me here is the false break to a new low after a 4 day sideways move, that reversed the next day. These trap patterns I just love. The one big problem this trade has is that it is amongst the weaker of the currencies, and I always want to buy the strong. I may play elsewhere, I am not sure at this point.

Those are 3 markets to keep an eye on, and one's I will likely play in the near future. The exception being the Pound where I may buy a different currency.

One final point to make. There was a comment posted by someone about how to make money on a blog. I make no money on this. I think the total ad sense dollars since this blogs inception is under $50, so I am the wrong person to ask about that. I could not find where the comment got published once I approved it so I thought I would just respond here. It might have been an attempt to get me to the link it showed, which is fine. However, in case it was a legitimate question, I wanted to address it.

Good Trading to Everyone

Wednesday, September 01, 2010


Here is the US Dollar Index, which has made a break out of a tight congestion area overnight. I know some very good traders that were long this who must have been stopped out by this move. To me when I look at this I see negative divergence in the momentum oscillator and a declining ADX. As a result this was not a trade on the long side I was looking at. Had we risen today, there is actually a pattern that would be bullish, but I felt the better trade was to wait for a short entry. That judgement call obviously saved me some money. I have always maintained in trading that CASH is actually a position. At times if the opportunities are not optimum, I prefer to stay flat and wait for what I judge to be the best trades. I really like to be in cash after taking a loss or two, which is the opposite of what most people do. The majority of people want to "get that money back." For some reason fortunately, I have never even as a beginning had that mentality.

I have a fear of the markets, and probably alot of others after the last few years now share that fear. That fear is more borne out of respect than the traditional sense of fear. I make my living from the markets, but I also know that there are not always great opportunities to do so. During periods like this I have quite a bit of money that is just sitting in cash, and that is fine with me. In the old days we would always have it in 90 day T-bills, but the rates are so low now they don't even cover the commissions, so it is not worth doing it anymore. I had the chart of the Dollar above also kind of as a play on the topic of the day.

We are having breakouts in the currencies today, most notably the EURO and the Aussie. Of course since it is the same trade, the ES is also trading up sharply today. I mentioned yesterday that I was looking at the long side but I thought we would trade sideways for a couple of days. It looks like I was half right and half wrong. However, one thing I am constantly reminded of is the following. When I trade my opinions and not my patterns, I do not do well overall. I may have runs where I hit some but in the end I ultimately get myself into trouble. This market has launched as I thought it was going to but the pattern was just not what I look for so I missed it.


I am never going to catch every move and do not even try to. I just try and focus on being correct at the times when I do trade. I have missed a big move here and also in Bonds where I was waiting one more day to go back in, and POOF the market left town without me. I will sit tight and wait for something that meets my rules and work on my train wreck of a golf swing in the meantime.