TEFLON DON

It appears now that we are back again to buying the first 5 minute bar that closes lower and the market has successfully held the critical levels I mentioned. First a couple of housekeeping items. Going forward some of the oscillators I used to show on the charts are not going to be there anymore. Why?

First and foremost, they don't work in runaway trending markets like we have across the board. I had them on there mostly just as a reference, decisions were rarely made based on them. I don't care how good you construct any oscillator, when you get these monster trend moves they give you just a ton of bad signals. At times like these you don't need indicators, just buy every little dip. Just a basic %R type of approach from the Larry Williams school of trading is all you need. I should not have had those on my charts in here as long as I have. Yes there are way of using them just like there are ways of using the COT data that are effective, but don't get married to them. I don't want new traders to get the false impression that oscillators are the key to success, they are not.

You can see why I have not referenced the COT stuff for the stock market much in recent times, it is just worthless. If anything the commercials in this market act like Large Speculators, scale up buying and scale down selling ( indicated by the arrows). However, there are also times when they are just in the middle doing nothing, a function of all the cross market hedging that goes on. It is what it is, no sense in crying over it, the COT stuff jumped the shark here, done. I will say this just in general, this stock market run is so peculiar on so many fronts, I just have never seen anything like it. It does not show up so much in the daily and weekly charts as it just does in the "action." I can't put numbers to it but it is just the way prices move intraday. I have quite a bit of experience watching intraday charts and there is just something very weird about this. I feel like I am watching some other foreign market with less volume.

What you really have to do is what I have done in the recent commentary, look at the bigger picture trend and don't get caught up in opinions about why prices "should" go up or down. I have been a bit too bearish on stocks overall just because of how extended the prices are, but I did say the other day that we were at a critical spot and should see a good sized move right from there. Of course I guess it was up, and that is where I was leaning as I indicated. The projection I have did not indicate straight up like we have seen, but it was decidedly up. That is about as good as things like that are going to get. It stopped me from trying to short the indexes which would have been a losing proposition. I always love it when extra analysis saves me money, it is time well spent.

So with the up trend now having re-asserted itself, what next? I think the 1987 analogy is off the table now. Here are the charts that I still think are eerily similar but there is one dramatically different item here that is the deal breaker for this being a repeat of that now, the advance decline line. Larry Williams reminded his students the other day about watching this, and once again it was a great piece of advice.

The advance decline line on the bounce in 1987 was showing a ton of weakness diverging with price on that bounce before the big rollover. In our recent scenario, it is showing strength. Also you can kind of see it in the price with this rapid rise in the last week, that prices are much stronger in this current instance. Even though overall the formation is very similar, I think this tells us the internals are entirely different and that matters. So it is likely up up and away again here. The only red herring is the recent low. As I said the other day when discussing this being a critical juncture, that low needs to hold. It is a long ways below now. In the event we happen to dip, we need to hold that price level or there are bigger problems. Until then let er rip.

Here is a trade I have orders in for that is unlikely to fill today, Heating Oil.

You can see when one of my quasi COT synthetic indicators declines, it has led to either declines or sideways action at worst on this chart. I will grant you some of these sideways moves were not worth trading and would have resulted in losing trades. No indicator is perfect, and this is something I am playing around with now, so not going to bet the farm on it. However, it is based on trying to dial in on what the commercials are most likely doing on a daily basis. This seems to mimic it pretty well. We sort of have a right shoulder type of situation going here, and if we were to break the low of yesterday's reversal bar up, to me this is worth a shot on the down side. You can see where my orders are resting, but they are not likely to be filled.

I am looking to short the energy sector here, and this has been the weakest daily chart pattern in my opinion in the energy sector.

Just one housekeeping item. I did exit my evil empire short in Goldman Sachs for a $5 per share profit yesterday. Big deal, kind of a marginal trade, but I just don't want to be short anything now that we appear to be lifting off again.

Everyone have a great weekend and thanks for checking in.