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Friday, May 28, 2010
ON VACATION BUT NOT ON DRUGS
As a trader there really is no such thing as a vacation. I am constantly watching the markets and trading them regardless of where I am or what I am doing. I never want to miss a large move because I was not paying attention. I do miss moves for other reasons, but will never allow myself the excuse of being mentally checked out.
Of the things I called out yesterday, every one happened except the Gold and Silver, and my orders were not filled there anyway. Now it appears to me that the Metals shorts are marginal, and the Copper market is actually setup for a rally.
The one trade I am really laying in wait for is a short in the Bond Market here if we get a bounce of 2 or 3 days. My momentum indicators that I use have turned decidedly down now in this market, so I just need an entry pattern now.
It does also appear we are putting in a low here for stocks, so I am looking to get long there. I am long the inverse dollar ETF ( UDN ) which had huge volume yesterday. I am not sure I am thrilled with that, all the amateurs piled into that trade yesterday. The volume was up 15 fold in that ETF from the prior day. I guess I have to hope John Q Public has that one right. I took it because of the short I took in the Dollar Index in attempt to mirror that trade in my equity accounts.
From a bigger picture perspective, it does look like quite a few things are going to rally here, Grains, Energies, Currenices, Stocks. I am not sure about the Metals. Copper looks like a near term buy to me then a longer term sell on a rally on the Weekly Chart. Gold and Silver I do not have a clear view on, but the Weekly trends are up, so I guess that is the path of least resistance now that the short term sell patterns have not fully developed.
I was trying to buy Sugar today, but that market is down alot, so I think after today this Buy pattern is going to probably be nullified. It may not be I will just have to wait and see how it looks after today. The Sugar long I mentioned in here last week did work out for a profit, but less of one than I had hoped. I cannot show charts from where I am now, so I will catch up with the charts when the trip is over.
As for today, often days like yesterday are followed by narrow range sideways days too consolidate the prior days action. I am hoping we go across for a few days to setup a long entry in the indexes. Also, we are heading into a holiday, so the volume will probably fall off making the PPT the deciders on what happens today. This will likely mean that if we happen to be down going into the last hour, look for a late day save by them. These guys are good as we have seen over and over during the last year. If you are a day trader, look for longs during the last hour if we happen to be down going into it.
Good Trading to all
Thursday, May 27, 2010
I JUST READ IT FOR THE ARTICLES NOT THE PICTURES
That is what everyone always says about Playboy, will it be true for this blog?
I am traveling and do not have my good screen capture software on this computer, so no pretty pictures until I get back home. Below is what I am looking for in the near term:
-Dollar Decline, I shorted this overnight
-Rallies in most other currencies, this would logically follow a Dollar Decline
-Gold and Silver shorts, these orders are not filled yet but are in the market below where we are currently trading
-Stock Rally, I do not have buy signals yet but it just looks to me like we are going to bounce here. All the rallies are being sold so far, but if we get one that breaks through that selling pressure it could be a big short squeeze up day
-Crude Oil rally, it appears to have started already. This market got extremely oversold during the recent decline
-Grains Rally, a few heavy Small Spec short positions have developed in a couple of these. In general when we see that we want to trade in the opposite direction.
For those who buy into my expectation here, the Naz has been the strongest of the three indexes, having not taken out the crash low like the Russell and SP 500 did. As a result, focus your longs in that area. I do have buy signals in individual stocks, but not yet in the indexes themselves, so I am hesitant to fully commit on this. However, the setups I look for do not develop at every single turn. As a result, this could easily go from here due to us being in the weekly support zones. What I need to have happen is a bounce and a pullback for me to get heavily long. Will we get it? I have no idea, but I always have a plan for what I am looking for and what I will do if it develops. Until that time, I focus elsewhere in my trading. For the time being all the pivots are down, so I will not commit fully to the long side until that changes.
This trade is setup very well in my world, with most of my trend indicators indicating down even though price is still strong. These types of divergences are what I look for most often, and they are in place here. As a result the mouse gets clicked. It is really that simple in my world. When the setup is there, I calculate how many contracts based on the risk per contract and enter the orders. I do not call my friends to ask them what they think, nor do I read anyone else's opinion. It is my money at stake, so it is my rules that matter to me.
I do talk with others traders often, amd we exchange views and trade setups etc.. Some of these traders are better at this than I am. However, I have never in my whole career taken a single trade just because it was recommended by someone else. I have missed some very good trades by not doing so. I do not care. I review all the trades I make by printing out the charts and keeping them in a binder. Typically after the end of each month I go back and look at what I have done, why I did it, and look for things that need improvement. I never want to be in a position where I review a trade and my notes show that I did it only because someone else told me to. There are not many breakable objects in my house that would survive that review.
I do look at markets that fellow traders point out to see if where they are looking is supported by what I do. I have at times found things I missed by this process, and gone on to take the trades because it turned out my rules were met. You never want to be too much of a know it all in anything because it will block your ability to grow and improve at your trade. There is a balance that needs to be met, between being your own person, doing what you know is right, and also being open to new ideas. There is rarely a week that goes by where I do not look at a different way of doing trades. This week might be the exception to that as I head off to the golf course.
Good trading to everyone
Tuesday, May 25, 2010
Monday, May 24, 2010
I am constantly displaying different things that attempt to measure and quantify market action. We calls these "tools of the trade." Regardless of your occupation, there are certain techniques you use to determine how you will go about your business, trading is no different. One of the newer ideas that is out there is projecting price movements by computer matching of bar patterns. The techniques use algorithms that go back and measure or match the recent activity to other occurences that have high correlations to that action. They then project what will happen going forward, based on what has happened during the prior occurences that have a high probability match.
Above you can see one I have run for the SP500. What this match is telling us is that based on an 80 percent correlation, there are 13 prior matches in the history of this contract to recent action. On average what you see is what has transpired after those prior occurences. This shows a small rally, then a small dip, then a steady rally for a couple of weeks beyond that. I have played around a great deal with this and have found it to be useful, but more as a tie breaker if I am undecided on something. When this tool was first released by Genesis last year, I thought it was just great. I do think it is accurate more than 60% of the time. As a result I used it on a weekly basis to confirm every trade. Alas, I missed a few very big ones where this was wrong and everything else I use said to do them, so I put it in storage.
Recently though, I have taken it out of the moth balls based on a comment friend a fellow trader about it, just to use as a general projector of what might happen. If it is against what I am considering doing I do not care if everything else says to go. However, if I am really torn on something, I am using this to push me into a trade. There are now versions coming out soon that will do this same thing not just on price, but on the indicators themselves. For example if you use stochastics you will be able to have your computer tell you what happened with price the last time the stochastics "looked" like they do right now. I have mixed emotions about this for a few reasons.
First, the more mechanical you get the more subject your approach is to being over optimized. The biggest nemesis to developing trading systems is "data mining." This is basically where you tailor your rules so precisely to prior outcomes that it is virtually impossible for them to work in the future. However, your test results look gangbusters. Second, for the most part indicators tell us what has already happened. They are generally not inherently predictive even though we try to make them so. Third, we are getting into a situation where we are trying to compete with the brain trusts of wall street. Large funds can hire alot of brainpower to develop and use tools like this in way most of us neither have the time or the skill to do. If we get too reliant on this we are at best using something in an inferior way to someone else.
It certainly is an interesting prospect to think about the computer being able to tell us when our favorite indicator is telling us something and to know exactly what that something is. Are the patterns we use as good as we think they are? This will tell us that. However, there is one thing that can get lost in all of this technology, the human element. As full of flaws as we all are, we do have moments of brilliance that can lead to very good successes. Making judgements at critical times is part of life. Trying to get around making those decisions so we can blame the bad outcomes on a "system" or tool is just a cop out. I am willing to live with the ramifications of my decisons, knowing at times the decisions will be lousy. I also know at times the decisions will be great and better than any machine can make.
When I made my transition away from systematic trading to discretionary trading it was painful. The first few months were very up and down, not at all what I was used to in my old mechanical days. However at this point I now make more money that I ever have trading with discretion, and I would not have it any other way. Tools of the trade are mandatory, just don't become slaves of them. Use them in a way that best suits your personality. I can assure you that if you have a conflict between the two, eventually it will really bite you. The worst part is that it will most likley bite you at a time you can least afford it.
Is that above forecast likely to be what happens? I have no idea. It is in conflict with some of the cycles I displayed over the weekend. It does represent what would be the bullish case here that we will find support at these levels and move back up again. Some of my cyclical work indicates a bounce here, then a larger dip than this shows, so we will have to see what transpires. That is what keeps this fun, not knowing.
Friday, May 21, 2010
You can see the triple divergence in an oscillator accompanied by a false breakout to a new low that immediately reversed. I went long right when I saw that and exited pretty quickly. The exit was a judgement call just based on this moving up very quickly in the midst of a big down day. I reasoned we were going back down at least for another test of the low and I had good money in the trade pretty fast. You can see although I did get out a smidge early, ultimately we went way down again, so my logic was sound. Mission accomplished, onward. I do not do much day trading, I did this just for kicks in all honesty. I did not have many contracts so it was really just to entertain myself.
Let's hope we get a similar daily look to this during this decline. Also, for any readers who may have thought I was nuts talking about a Euro bounce, glance at that chart. I picked the exact low so far. I am not long there, but am hoping for a buy pattern to show up down here. The short squeeze in this sucker could be one for the ages.
Thursday, May 20, 2010
I HAVE NOT STEERED YOU WRONG
Trading is a very solitary business and for the most part your satisfaction has to be with your own knowledge of your results. You very rarely get kudos from anyone on good calls on things, but detractors quickly show up on the bad ones. With that in mind, let's review some of what I have recently thrown out in here to see how good or bad I have been just from a prognostication standpoint.
A Rally in the Yen
A decline in the metals
A rally in Sugar
A decline in Bonds
A decline in Stock
A decline in Crude Oil
The Yen is exploding today, up almost another 200 points from yesterday. The day I mentioned it the Yen closed at 10786 it is currently at 11096, a $3700 per contract move.
Here is a Silver chart which shows the big decline. This is just beginning here and I just mentioned this yesterday specifically, we have already fallen over $5000 per contract since I posted that commentary.
The Sugar trade I posted Monday and with the exception of the DX and the Yen, is literally the only other market that is up today from yesterday as this wipeout is playing out.
Crude Oil unless you have been living in a cave the last two weeks would already be known by you to have cratered. I mentioned this a few weeks ago.
The Bond market is the one market I have had wrong, but there has not been an entry since we have not had a prior bars low break. It is still setup by my indicators to decline, and it probably will if we just have a day where the stock market does not get clobberred, which is a daily occurence at the moment.
The stock market I had mentioned I was looking for a sharp 2 day rally, we got 4, then a big rollover. It is hard to be much more accurate than that in this business.
What is the point of all of this? First, you have to be accountable for what you say right or wrong. In this case I have had very accurate market calls. I cannot stand people who throw things out and then become turtles when they are wrong. You have to face the music. I still will never forget an old subscriber in my trading service that quit after I had a string of 22 consecutive wins over a 4 month period, then quit on the first loss that occurred. You can lead a horse to water but can't make them drink. He told me he lost money over that stretch. I took all the same trades and almost tripled my trading account. Here I was after an incredible streak and I still had someone complaining. I had never figured even in my most optimistic moments, that my service would ever have a streak that good and yet apparently it was not good enough for that person.
So, since I do this everyday here to try and help people, make not a single penny doing it, I need to pat myself on the back occasionally for offering something worth reading. Also rest assured, I will be here to admit when I am wrong.
Wednesday, May 19, 2010
Here we have the Silver market in what appears to be setting up for a decline. If you look at my indicator at the bottom, you will notice how when we hit the standard deviation bands on it, peaks and troughs occur. You can see the last 3 times on the down side we hit the band, a significant low was at hand. Now you can see we just hit it or very close on the high side, which should mean a significant high is here. Yesterday a prominent Hedge Fund manager advised everyone to exit the Gold market claiming a top is here. Well I guess that now means there are 3 of us who think that, Soros being the third member of the trio.
What I would hope for now is a move back up and a false breakout to a new high that fails. This would also create a divergence in the indicator below on top of the price extension that we already have had. That would make this a sell with both hands situation. Typically I never get my exact wishes, so I doubt that will happen. Nonetheless, this is a market along with Gold and Copper that I am watching closely here. They are just crashing today, so this market could just rollover big and not look back. Nowadays we get V tops and bottoms everywhere, where it used to be more of an exception than the rule. This is why you need to learn how to trade reversals, often you are not given a test once markets turn. We also saw that at the stock low last March. Everyone said that would not be a V bottom, so of course that is what it turned out to be.
Monday, May 17, 2010
This is a busy chart so let me break it down one thing at a time. First, the obvious huge rollover in price is cleary apparent. Certainly the Euro ranks as one of the all time terrible ideas to begin with. ADX has now gone over 60, a reading typical of market extremes and also big reversals in price. This tells us to have this on our radar now but does not say to just go in and buy right here. It is more of an awareness that we now have really gotten to an extreme.
The next panel shows a valuation between the Euro and the Dollar Index. It is low but not quite to a level that I would say is undervalued. It is rapidly approaching it though and any week now it could get there. The next thing we see is the dramatic massive commercial buying, far and away now the highest net long position ever for the commercials in this market. I have bashed that COT report recently and this is really a good example of why. They have been steady big buyers all the way down here. Knowing they were buying was certainly of no use at all. However, we have now gotten to such an extreme that it bears watching.
Also on the last pane is the Small Speculator position which is a record short at this point. Also, you can see in Green the Sentiment Index, which is also at a record bearish level. When we measure this all together, we have to be looking for at the very least a sharp short squeeze if not an outright trend reversal. There is nothing in the price action or any of my short term indicators telling me to get long yet. However, with all this in place, I am now looking for an excuse here to get long.
Good Trading To Everyone
Saturday, May 15, 2010
As Dick Vitale labeled Prime Time Performers many years ago, I of course thought of the greatest of all time, and the PPT is certainly in the conversation. The above is a 5 minute chart of the SP 500 yesterday with another "coincidence" rally in the last 30 minutes. You just have to admit that they are really good at what they do. Friday's late the volume drops off, and they pounce. When they have been doing this it has been too late in the day to get prices all the way back to unchanged, but they certainly mitigated the damage here big time yesterday. I do not know if they are so good that this was the only buy program they executed, and it happened to be at the perfect time, or they tried a few during the day and this one finally worked. I suspect the former just because this is the time zone they have been typically the most active.
This is a weekly chart of the SP 500 with my bands that contain price. Without divulging all the rules, you basically look for entries in the direction of the trend when the red line is hit ( sells ) and the green line is hit ( buys ). The way the trend is defined is a secret which I will not give up because it is very unique. However, it is up at the moment, so that says we are in a buy zone right here. Some of the very best trades come when these lines get penetrated by a large amount, yet the trend stays intact. This might be happening right here since we have penetrated the lines by alot and the trend has remained up. This gives you huge snapback moves. The markets are difficult reads right here, alot of cross currents. Bigger picture, we went into a very important price area in the 1235 zone, and we have already seen a huge reaction down from that. It then went right to the 200 day average, which also happened to be in the above buy zone, and now we have bounced quite a bit.
I am planning on playing this in the following fashion. If we get a lower short term high than the high of this past week, or a false breakout of it that quickly reverses, I will looking to short aggressively. If we go down and take out 1050 I will be looking for longs initially down there. If we break through there decisively, I will then shift to the short side because the weekly trend will have changed. As a result, the next couple of days do not likely have a trade for me here. I do think there is more weighing on the side of this rolling over and the trend changing to down, but not enough to just take a one sided stand on this right now. Trading is about reading what is happening and adjusting accordingly. At this juncture, I do not have consistent enough readings in everything to take a trade Monday.
I did mention the only way I would short Friday was on a mid day bounce. I did do that trade for chump change on a tick chart. I had some technical problems with Genesis which happens every day and it happened right when I entered the trade of course. There is nothing like entering a day trade then having your data go offline the second you enter! As a result, I had to bail out of it after about 10 minutes. This was lucky, I wound up getting almost the exact low on my exit. The trade was a profit, but not worth posting here. Make no mistake, I love Genesis, but the live data feeds suck with them. The people are fantastic and the overnight analysis abilities are second to none with them. Trading with live data is not at the same level. I also have lousy internet speeds due to where I live, so it is challenging along those lines as well.
Tradestation is the best if you have slow internet. It is by far the most stable at slow speeds. I never have a date issue intraday with them. If you have Satellite internet like I do I would suggest Tradestation. They are the only data feed I have found that is stable at these slow speeds.
Alot of other markets are kind of messed up due to the huge stock move, so it may take another week or two to get good reads on everything. I hope not.
Good Trading to Everyone