Saturday, October 15, 2011


This past week or so has been very tough. The market environment that has always given me the most trouble is those times where the market just goes in one direction every single day with no pullbacks, no wiggles, no nada. It is just a plunge or a zoom. It does seem to me that we are seeing more and more of this in recent times, however that is an observation and not based on any facts or research. Overall, we are living in a time of tremendous opportunity, yes you read that right. For us traders, this is boom time, not gloom and doom like everyone else is talking about. Volatility is our life blood and we are sure getting plenty of that.

I think we are going to work ourselves into some fantastic selling situations here for short term trades fairly soon. One such situation that I think is here right now is Cattle. The above weekly chart shows the COT picture here. I went back and searched for situations like what we have now, where we had a price run up, a decline, then a potential lower high. I also required that on the right shoulder portion of this, we had large commercial selling like what we have had here. I found several that were kind of close, but I felt this one was really very similar.

You can see what happened here, a pretty good decline. One of the things to keep in mind when looking at weekly setups and COT data, is that these types of things setup right when the shorter term daily charts are in a strong trend in the opposite direction. Commercials generally sell strength not weakness, so this will typically be the case. The Hog market is somewhat of the same picture, so you can take your pick. I think Cattle is better due to the accumulation picture which shows declining buying over the last week, where Hogs show new highs in those indicators that matches price. Often when we have a COT based setup, the markets just continue in the direction they have been, so this is why I always emphasize, they are not market entry types of situations. You need to wait for the daily price action to come in line with the larger time frame. Be patient on these.

It is my feeling that we should be looking for sell signals in these two markets this coming week.

Here we are with the indexes, and I am conflicted here. The sell zone via the red band is one of my very best indicators and you can see just looking back at this chart, how well those lines serve as support and resistance. As a result, I have to look for sells right here. However, we are also right at the ideal seasonal low and have had an explosive rally that has started. I know from my experience that on a short term basis, buying these spikes is not a good idea, but the question really becomes, once we get the retracement, what do we do?

The answer to that is that we look to our short term indicators once it happens, to see if they are supporting a buy. I think they are going to the way it looks now, but we will just have to see. Do not let your view of the economy enter into this, that is irrelevant to stock market pricing. You may get some all star to come in here with a starched shit and give us some insulting discourse on how there is this 6 month advance read for the economy from stock prices, and that is just a joke. I think most people are slowly figuring out that all the BS that comes from wall street is just that.

I heard some "expert" on CNBC yesterday while I was working out say that the energy prices are driven each day by Sentiment? Huh? What the hell does that mean? It is amazing to me that a reporter can cover a sector for years, and have absolutely no idea at all what they are talking about. My Saint Bernard's literally know as much as most of the commentators on CNBC, there are a couple of exceptions. The older I get the less I want to hear an opinion on anything from anyone. There is just too much BS out there.

Stick to your indicators and leave your opinions out of it.

The next market to cover is Bonds, and what appears to be a decent buy signal setting up.

Here we are into the buy zone of the bands, and this is a good time to get long Bonds typically due to seasonality. This is interesting in that it comes at a time when it appears the stock market is about to take off. These appear to be opposing scenarios, since these markets trade inversely. Here is the difference to me. Bonds are in a well established up trend, so the buy is in line with the longer term trend. Stocks are in a down trend, so any buy there is a counter trend trade. This is why I say the first look for stocks needs to be the sell, the trend is down.

Many commodities markets are rallying in down trends right now, one thing that seems to be the theme is that there is not any commercial selling on these rallies yet. For my taste, I always want that accompanying retracement entries if I can get it. It just loads the trade up better to me. To use a football term, it gets us running down hill. What I am hoping for is diagrammed on the next chart. I would like to see some commercial selling come in as we move up here into the sell zones.

This is Crude Oil and it looks like many commodities markets right here. It is rallying against the down trend. In this case one thing we do have supporting a sell is the strong sentiment reading of 83. You can see how well these bullish readings have led to declines pretty regularly, so this rally is looking like a sell even though the commercials have not been selling yet. It would be best if they did but it is not mandatory.

In summary, the first look here needs to be to sell these rallies. Then if we get a downward move, we can assess whether the bigger picture bullish cycles in stocks will drive a long side entry there.

Just a passing thought. There is a commercial running about the Chevy Volt where some little fat kid drinking a soda is busting the balls of some guy who drives up to a gas station in the Volt asking him why he is there? No kid better ask me that question if I ever buy one, I would tell him it is none of his ...... business what I am doing! I would ask him why he is taking in all that Sugar when he is already 20 lbs overweight? I know commercial is intended to be funny, but in an odd way it confirms how acceptable it is becoming in our society to meddle in everyone else's life. I am sure the writers of that commercial did not have this in mind at all, but I would be willing to bet that the way the table has been set by the government had some subconscious effect on what they wrote. It is just a subtle cross current that is a trend being set by the governments of the world. They want to control everything we do. So the dude can't even take a pee in peace without some little fat smart ass kid busting on him.

After hearing an unbelievable story from one of my best friends last night about how socialized medicine almost killed his mother when she had a simple infection and a doctor lied to him saying that he excised a piece of hard matter from the "tumor", it just makes me wonder how this is all going to end. Had my friend not flown to Canada and stayed with her everyday, she would have died from a common infection.

He forcefully took her to another hospital and it cost him 6 figures out of his own pocket, and he saved her in spite of the attempt by the first hospital to basically kill here. The fact that the doctor lied about removing part of a tumor is just beyond what most of us can imagine here. Yet our government wants to bring that to us. I don't think by the time the countries problems are worked out, the end is going to be very pretty. I think in general, this is likely to make the up cycles in stocks, shorter than they might otherwise be, but time will tell. We have one at hand, so we need to get on it before month's end. All of these manipulations are going to come to an end at some point and free market forces are going to take things eventually to where they should have been allowed to go to in the first place.

Best of luck trading this coming week. Sorry for the tangent but it makes a point hopefully.


The Sound Center said...

Truly remarkable, Chris. Thank you.

Still net short the /es, no margin calls (yet).

The Sound Center said...

Truly remarkable, Chris. Thank you.

Still net short the /es. No margin calls (yet).

Chris Johnston said...

Remember folks, I don't allow political comments to come through, this is a forum on trading where at times I mention politics when I think it is relevant to points I am making. I am not going to debate politics in here so don't bother trying to get the comments through, they will be blocked like todays attempt was.

I not going to stop making these comments occasionally, so if they bother you this is probably not a good spot for you to read commentary.