Friday, October 07, 2011


Here I have mapped out two possible scenarios of what might unfold in the SP 500. There was a question in a thread about whether I think the low is in or not. First I want to apologize, these charts appear on my end to be fuzzy. I am having a heck of a time trying to upload charts to Blogger the last 2 days. Today I emailed them to myself in a different format, then went to my notebook and uploaded them from there, then logged back in on the main computer to finish this off. I seem to get past the Blogger block doing that, but what a pain in the ass. Also, the image quality appears to have degraded. I am putting this in the Geek Squads hand amongst a few other things over the weekend. I paid for a one year software support when I bought my new machine, so I guess that is going to wind up being money well spent after all. I am sure I could figure this out but it is not a good use of time.

I think we have to keep in mind that we are in a trading range, and we had a false breakout to one side of it, and now we are back in the middle of the range. In a trading range you want to trade on the edges not in the middle, sell at the top and buy at the bottom. The main reason I am bullish about a low being near is that there have been so many times I have tried to outsmart big picture cycles only to have them prove to be correct, that I am done with that exercise.

We know that the government manipulates price around this time of the year with interest rates for political reasons, and this has been going on for a very long time. The only thing I could see that is possibly different this year, is that rates are so low already, that it seems that lowering them further may or may not have any effect. However, I don't like to get caught up in all that second guessing. The cycle is here and I am honoring it. Perhaps I am wrong, but I have a plan now to look for buy signals in the next couple of weeks. Also my shorter term indicators are now no longer in the sell zones, they are neutral. They need to rise some, then pull back for an entry to be confirmed. Although I will not always show all of what I look at, I will post in a timely fashion when I think the buy signal is here. It appears to be at least a week away right now.

It certainly is possible that the trap reversal at the low of a few days ago is the low and we will test that only and not violate it as our buy entry. Of course we could also take it out. I really have no idea, I just am going based on the cycles, that we should make a low in a couple of weeks. I think I would prefer it to be a higher low because that would indicate more strength, but it really does not matter. I guess that is a lousy answer but it is an honest one. I think on average the low occurs between the 20th and the end of the month, so that gives a general time window.

Recently someone mentioned they wanted mistakes covered, which I do discuss in here. The above trade was a really stupid move by yours truly that I got away with. It is almost unfortunate to get away with mistakes because it can reinforce a bad habit. This is the Wheat market, one that I was looking for a buy signal in. The reasons for the buy were mostly based on my short term indicators so let's not get too tied up in that aspect of this. You can see where I went long, right above the high of the inside bar with a down close. I know that these are good setup bars to enter trades, and I let that cloud the rest of my judgement.

Markets typically bottom making higher short term lows to the right of the actual low. At times like March of 2009, they make V bottoms and just take off. You will notice that low was an inside bar with a down close the day following the actual low itself. I have seen enough of these over the years to be aware that big moves can launch from them. However, here is the mistake that I made. If we look at this market, it is in a very pronounced down trend, along with the whole complex it is in as well as all of the commodities markets in general. You could have argued that as well in March of 2009 in the stock market. But life is a judgement call, and at that time the market was so incredibly over sold that to me that was a different situation.

As I was looking at a profitable trade after the first day and during the night session following that day where it rose more, I realized that I really needed to see more bottoming action that what had taken place and that I was being too aggressive with this entry. The minute I realized that I went to the market and exited the trade. I made 6 cents per contract, so $300 per. Now we see the wisdom in that decision as the market has moved back down. This was really a stupid trade that I never should have done. Fortunately for me I realized the error in time and got out without getting whacked. Now I am looking again for a long entry if we start moving back up.

This was the same logic I used for the Sugar trade in not going in lower earlier in the week. Although we can never find anything that works every time, in general I want to see some time of confirmation that a trend has changed, as opposed to just buying something as it plummets trying to pick a low because some oscillator tells me I should be buying. The stops are more well defined doing this also which allows me to clearly identify risk.

The moral of the story here, be patient, then when things are right, be impatient. I was impatient before things were right. Also, when you realize you have made a mistake, get out immediately. You can always get back in. Once you are flat you can re group and determine what to do next. Holding on hoping that a mistake will pay off is not a good strategy in my opinion.

Here is the Dollar Index, which I had been mentioning I was looking for a decline in. You can see it is moving down slowly. I have not shorted this market yet. What I am looking for now is a high test of some type to give me a pattern to quantify risk and move ahead. This is moving inversely to stocks, so the stock market will determine the fate of this trade, as well as just about everything else.

Have a nice weekend


Anonymous said...

DXY needs a shake down and often the shake downs are brutal. Look back in 2008 after the intial move up. The dollar gave up a good portion of the intial up move and the stock market fell apart propelling the dollar up on margin unwinds. So you are absolutely correct that it is running strictly on stock performance.

2011 dollar vs. SPY


2008 dollar shake down followed by dollar mooonshot in stock panic:


Chris Johnston said...

To me it is obvious stocks move first then the dollar follows, I have seen it time and time again on intra day charts. The dollar is not leading stocks, it is reacting to them. I don't know why some very smart people don't see this, so many are claiming the opposite is happening.

It is not in the data