Tuesday, October 18, 2011


Just like the Karate Kid, the markets move along. The ES rises, every other market except the dx and bonds rise. The ES falls, all the markets fall. They have been joined at the hip for so long now, there is just no period in history to compare this to. This has never happened before. Yes inter market relationships have come and gone, but I cannot find any period where almost tick for tick, this has happened for this long. I was just watching Coffee this morning, and it was ticking down almost directly in sync with the ES 5 minute bars.

What must be happening is that the large funds that trade have locked in their models to buy and sell everything in concert with stocks. Since everything is electronic, when one goes so do the others. Obviously it makes no sense that Coffee should be that sensitive to small movements in the SP 500, but yet it is what it is.

It appears to me we are retracing to set up a great buy signal in the indexes, and it could form within the next couple of days. Time to watch the short term stuff to see if it begins to turn back up. Once it does we could be off to the races.

I know I rail on politics here and there, and we all know the economy is sliding down not improving. However, you have to separate these things from the markets. I have gone through all of the reasons for this ad nauseum in here, so I will not cover it again today. I did some research a couple of years ago when it became clear to me that the new government was trying to convert us into a more socialist system, to see what effect that had on stock prices when it had happened in other countries. What I found, was that it did not have much of an effect in either direction. The one asterisk though was that I found the other countries when this happened tended to just follow the path of our stock market prices.

The one thing that we have no precedent for is the US who leads, making such a move, and what that might do. It seems that we would follow whomever wound up being the new world leader, if one were to emerge. I don't believe this will happen. There is enough push back on the movement now, to essentially stalemate it for the time being. As a result, the net is that I don't think we can consider it either way any more. If they do manage to get over on the wealthy and raise taxes, that is going to bring the markets down, but it seems Congress is going to block any such attempt at least for now. So, forget about that crap, and watch the cycles. They are bullish, so we need to be.

The next chart will thrill Gold Bugs. I know there has never been a single thing that has ever happened that they did not think would make the price of GOLD rally. If Notre Dame won, gold should rise, if you dog peed twice on the lawn, it should make gold rise. Aah the fiat currency skit, one of my favorite ruses of all time. Nonetheless, it has been on an incredible upward path and I think we are setting up another upward move. It appears to me now that just about everything I watch is lined up for this market to have a big rally.

First, we have that critical support that I pointed out when we went there, did hold and we saw Sentiment very low at the recent low point. We have huge commercial buying into this dip. We have open interest low. We also have a good seasonal influence for a rise, and the cycles not shown are also very bullish.

Setups do not get much better than this. However, it is a setup not an entry. You have to figure out if you are so inclined to go long, where to get in. I do not see any of the setups I look for in play yet to buy this market on the daily charts. I am looking every day, so hopefully something will develop. If we do happen to go down under the recent low point and close a week down there, this setup will be invalidated and that would likely confirm a top that will probably hold for decades. My bet is we do hold and have a nice year end rally, which setups up the sell of a lifetime in January.

Maybe this will appease some who think I just bash GOLD all the time. I have made good money trading GOLD and SILVER over the last few years in both directions. The whole point of my railing on this topic at times, is more to try and save some novice people who are getting suckered into thinking this can never decline. Without any further discussion, I will leave you with this thought on the big big picture. 

Lets say you are an alien and came down to this planet, and someone showed you monthly charts of commodity prices and you saw how they go up and down, always reverting back to the center. You know nothing about any human spin or BS marketing stories, fiat currencies, or any other explanations of anything for that matter. All you have is historical data on commodity prices. Since you are an alien and have been smart enough to build a spacecraft to get here, you can look at data intelligently.

Then our soldiers tell you to decide whether or not one of these markets can do something that none of them have ever done from the data you have studied, go up for 20 straight years, or whether it is likely to do what it always done historically. Your life depends on it. They pick GOLD a market that has risen for 10 years. With your life in the balance would you guess it would go up for 10 more years or down?

I don't want any emails about this and why I am wrong. Maybe I am, and if you think so bet the farm on the long side, it does not matter to me. This is just a simple analogy with all BS taken out of it. This is the main reason I have the position on this that I do. All of you brainiacs who are probably smarter than I am, have these detailed thesis explanations of why it will go up forever. You may well be right, but this is my core reasoning as to why I do not agree. I just look at the historical data. I trade based on history and technical indicators, not on my economic opinions.

Peace Out


Alain said...


The most famous COT newsletter stated Monday Gold's commercials being net short while they where net long in 2001. This are no news it has been like this for years for last 8 years or so. But still think prices can resolve to 1500's. But it's not necessarily a 'sell'.

HG may be different: recent Oops & Fake Out sell, weekly blast off; volume spikes on down days and declining on up days. Looking for close < last low.

Similar observations can be made in energy, and stock market. Volume drying up (also in gold, grains) and blast off weekly to the down side. See a bit potential in crude, gasoline may have seen its top - but just my opinion, not evidence based.

DX, ZB had volume spikes the other day. It happens sometimes at end of strong moves. ADX setup somewhat close.

Long in coffee since 10/13. Applied the same entry technic of 'broken trend- / resistance' as in August but got beat hard on 10/17. Now, may start having evidence that 221 was the low: higher highs, lower lows, (slowly) increasing momentum. If we manage to close >236 the outside bar should be an up one leading to 250's.

Shorted soyb. evtl. just a breath from the upmove or it will resume the decline, will see.

1 QUESTION: are you using the WILLCO formula for the open interest stochastic?


Chris Johnston said...

Who is the most famous COT newsletter, Briese? Upperman? For my money LW is the king of the COT report so I don't pay any attention to anyone else and their comments on it.

Copper is setting up a sell to me, as are most commodities that are being dragged up by the stock moonshot.

Open Interest Stoch is not willco, it is just open interest alone, but I look at both.

Did you attend one of the art of trading seminars or just previous ones? You seen to know LW's material very well

Alain said...


Briese, true; not sure if he is a trader. He uses i.e. P&F charts for futures... Took LW course 1-3 as Briese's information seemed to confusing for use within context of a trading system.

I am just using the pretty simple PP daily & weekly analyse. Build some entry/exit techniques around. It cuts time in front of the screen SUBSTANTIALLY and I can concentrate on the essential. Cancelled all my newsletter subscriptions (except Briese & Larry TV).

Thanks for the OI stoch info. My understanding is that Larry suggested staying with this one too.


PS: [For readers which 're beginners or want to start small, I suggest the book "trade stocks and commodities with insiders" of Larrry Williams first. It's really worth the money!]