FIND YOUR COMFORT ZONE

All traders have different styles and different comfort zones within those styles. There are some who are momentum players and only feel comfortable buying on 20 day highs and selling on 20 days lows. I am not one of those people. Obviously we have a tremendous up trend in the market, and in most markets for that matter. It is clear the correct side to be on is the long side. However, for me, initiating new longs at a stage like this in a trend is not where I find my best trades. There is a big difference from having been long 2 weeks or 2 months ago and feeling fat and happy, and being long from today. As we see these markets continuing to extend, this is just not a safe zone to be a buyer. This does not mean I think a huge decline is coming, I seriously doubt that.

Most of my strategies are based on trading patterns that repeat with high levels of reliability. It is rare that any of those patterns form up during blow off phases of trends like we are in now. I generally trade 2 ways. I look for pullbacks in momentum that turn back in the direction of the trend, and secondly, I trade reversal patterns where there are very prominent divergences against the trend in the indicators I use. When we get into an area like this, neither of those are present for the most part. I have a couple of charts that follow where I think there may be something developing.

This is the Dollar Index daily chart. I have noted the recent rally is in the larger context of a weekly chart, a retracement in a downtrend. It is for that reason that I am looking to get short here as prices come back into line with the larger time frame trend. Yesterday was a tiny little "doji" bar for you candlestick fans. I do not like selling below lows of these bars in spite of what the textbooks say. I have not had good luck with those types of entries, so I am waiting for something a bit more clear. However, we are in a spot where I think it bears watching for a short entry any day now in this market. Of course the opposite of this is to look for longs in individual currencies, that is a personal choice. Those trades would be highly correlated with a short in the Dollar, so keep overall risk in mind when deciding what to do here.

This is Unleaded Gasoline, by far the strongest commodity in the energy complex. This is pulling back in a very strong trend, also has that little crappy Doji bar yesterday. If you are bullish in energies, this is the one to get long in, it is leading the way. There is one thing that really bothers me about a couple of longs here and it is barking loudly in a couple of places, Crude and the NAZ.

This huge divergence in the Larry Williams POIV indicator you see above is normally an automatic pass on the trade for me. This is also present in the NAZ and bullishly in the 30 Year Bonds. All of these are saying the same thing, be careful. Since Crude trades lock and stock with the Stock Market right now and Bonds lock and step inversely, we have confirming divergences telling us to be careful of new longs up here. Then we throw in the NAZ which also has the same thing, and we see that these are warning signals.

I find myself very uncomfortable with all of this when I reconcile it with the actual price action on the charts. I really want everything to be consistent, and that is why I am having a hard time finding good trades right at the moment. Trading against things like this divergence in strong trends can and does work at times. However, it seems to me that when I do it, the trades lose, so I don't. Maybe what will happen is we will just meander here and this will catch up, but it is going to take alot for that to happen.

In the meantime, I scalped a little money out of the long side of the Aussie overnight, and am just sitting flat again now waiting for some resolution to this.