Sunday, January 15, 2012


I have been talking ad nauseam about a mid January peak in the stock market, and it appears we now finally have a potential trade for me to make in sync with that view. I do not have any idea if this will happen or not, but if we were to take out Friday's low on Tuesday, that would be a sell signal for me. Since it is such a large travel range, I will probably try to short a bounce after the penetration of the low, but that will be a game time decision. We may not get down there since it is a ways to go, but days like Friday that have the huge reversals but fail to close up for the day, are good sell bars the following day.

You can see the divergence in the POIV is still there, and the seasonal supports this one, so it is about as good as they get. Maybe we will just sail higher, the market is quite strong right here. If that happens there will not be a fill. It does look to me though like we have some other sells setting up also, so things may be lining up a bit. The Aussie, which has become a proxy for the stock market, is pretty much showing us the same thing.

This is a similar picture except this has been weaker, the highs of a couple months ago have not gone here, and POIV is also lagging. I mentioned Grain shorts I had on and the dreaded jinx of my friend. Something must have happened funny on this because the jinx might be off. The explanation could be that they bailed out at the highs on Friday for a loss, allowing the market to resume it's downward path. He does have a tendency to enter on a daily chart, then watch a 5 minute chart and bail out for losses on little wiggles that mean nothing. I could find out but don't want to know. I love him but he is just a terrible trader and can be a distraction at times. I cannot tell readers how many times I have tried to get him out of this emotional crap he does, and it just does not work. Ed Seykota has a quote in the Market Wizards interview that was one of the best ever. "People get out of the market what they want to get out of them." That is a paraphrase, but it rings true. This essentially means that people that lose subconsciously really want to lose. I think in the case of my experience this is dead on. My friend is very intelligent and highly successful in other business endeavors, he is a multi- millionaire. I think he really wants to be no good at this so he can keep doing the other things that really suit him better.

This is Bean Oil, and it is one of the trades I am in. I did mention I took smaller than normal size, but what I did do to give me some bang on this is I took most of the position on the bounce where I show added. This gave me an average risk of about only $200 a contract. Based on that my size was small, but the number of contracts are still between 10 and 20 so it is enough for this to add up to something. We did see the stock market influence even in this market, which provided me the add on opportunity. When stocks have their bounces off lows intraday, virtually every other market goes up with them. This is truly an amazing phenomenon that I just never thought I would ever see. It has been going on for so long now that it is the "new normal." I would assume that at some point it will stop happening but not anytime soon. The grains are much weaker on a relative basis than stock indexes, which is why I did my shorts there. I have a target well below, so this trade could still wind up as a scratch or very small win if it starts going up again. We just never know what will happen.

The Bond market has now rallied enough that at the moment my short term entries are off the board on the short side. I suppose if Friday's low were to go Tuesday that could be a trade, but most of my indicators have moved up too much, so that is not a trade I will do if it happens.

The trade of the decade might be beginning to set up here. I have been talking about Gold bouncing off the oversold condition, which it has now. It is in a downtrend and now the seasonal peak time frame is fast approaching. I know there are many readers here who think this will never go down, so you will throw up your arms once again as I point out a trade on the down side. I called for the rally almost to the day at the lows, I am not a one sided trader in this market. Thus far all we have is a bounce in a down trend. If we were to continue upward from here we could re-establish an up trend in which case dips would be buys. I am dealing with what is here now, not what may or may not happen later. This is a rally in a downtrend about as straight forward as they can be. My indicators on the daily chart are not indicating a sell yet, but I am hoping they do in a week or so. They appear to be in the process of rolling over now but have not done it yet. I do think this is the trade of the year when it sets up. It will be the story on every news channel when the fraud behind all of this action in Gold comes to the surface. The fraud is in the marketing of the idea that it never  goes down, it is not in the price itself. Price rises or falls based on buying and selling. Millions of people have been hoodwinked here, and it will be sad to see them lose so much money. It will give me no satisfaction at all to see it happen, I almost hope it doesn't. I don't like seeing uneducated investors get taken to the cleaners. It is sad to say, but it has almost become the american way to take advantage of your fellow man. You sell someone a bill of goods just so that you can make money regardless of what happens to them. Keep in mind that many of these transactions in Gold feature 30% commissions for the coin sellers.

My new tool is neutral here, maybe if we are really lucky, it will move up into the sell zone before the waterfall happens here. If it does, it will be a bet the farm type of situation. Silver has been weaker, so I will trade the weaker of the two when I do the trade. That is likely to be Silver.

In summary, we do have a short term sell signal now if Friday's low gets taken out, that I will act on.  Bonds do not appear to be a sell anymore, and Gold is nearing the time frame to look for shorts but it is not there quite yet. I guess I was a week early on my Tebow mania call, but I think everyone knew New England was going to slaughter them. He is a nice guy so I hope he winds up doing well. I am not a big fan of players giving God credit for wins in sporting events. By that logic he then would have to be looking dis favorably on the competing teams, and forcing them to lose. I just don't think he is doing that. He might just be a bit more busy with other things? Speaking of sports, numbers do not lie. When the turnover margin reached +4 in the Saints vs 49ers game, the stats showed a 71-1 win/loss record in those situations. That told us that as we watched the end of that game regardless of how it looked at times, the 49ers were going to win. 

I had guests at the house that said I was crazy, especially when New Orleans went ahead late in the game. People get so tied up in momentum, they are always the most convinced on something at the very worst times. This is so similar to trading, when the crowd is heavily leaning one way and the numbers tell you this, you need to get used to doing the opposite. This is why I  am taking these stock trades, my numbers say they should work at an 80% clip. As a result I place my bets as surely as I would have bet on the 49ers scoring at the end, had I been able to call a book and done it with a minute to go. 

The Robbins people want me to fly to Chicago to accept my trophy in a presentation on the floor of the Merc. I do not know if I feel like doing this but if I do I will let readers know. It might be viewable either on CNBC or some other forum. I do not know all the details, only that they are aiming for mid February to do it. They also have me being set up to trade a house account for them for a split of the profits. I am not sure it is a large enough amount to be worth bothering with, only 50k. Those results will not be publicly posted since it will be their money, so I don't know if there will be disclaimers about what I can or cannot say about how it is doing if I decide to do it. I already have several trading accounts with far far larger balances than that so it might be more of a pain in the ass than it is worth. I have to think about this one. I certainly have the option of becoming much more publicly visable, I just am not sure if I want that or not. There is no doubt if it happens, their will be a crackdown on this blog at some point. This is why you may have noticed a change in how I am wording things,  more to what I am doing not what is setup. This way they cannot critique me for recommending trades even though I specifically state in the disclaimer that I am not doing that.

Lets hope this week brings some more action, it has been kind of slow.

Good Trading


Robert said...


Gold has now been up 10 years in a row I believe.You see it really tanking this year at some point.I guess anything is possible but it seems to me at least from a fundamental view gold has never been stronger--I can see it correcting but not as much you believe it will.
possible pulling back to the mid 1400's but that would only be a couple hundred dollar drop ,something gold has seen many times in the last ten years

Chris Johnston said...

Time for a comprehensive post on this one I guess

Yves said...


I share your view on gold in a sell zone, however no signal for me at this moment. Would wait for GC to near 1670 if possible. Silver doesn't fit completely in the picture as the downtrend from Aug highs has been broken, which would suggest some at least, in the short term .

Chris Johnston said...

They both have broken their trends but no question Silver is by far the weaker. I have to contain myself because I think this short is going to be a generational trade, not many of these come along in a lifetime. However, I am not going to throw away money at an opinion and I have no objective sells yet. My post tomorrow about Gold is sure to ruffle some more feathers.

Robert said...


Can't wait for that gold article.Although at this point do not agree with you I will keep an open mind --like you I just want to make money--but will wait and see what you have to say.

Anonymous said...


In looking at the imbalances in commercial traders large long Euro position and short US dollar position, don't you think the "safety trade" in things like the US dollar and the long bond needs to be knocked out before we can have a real drop in risk--ie. gold, stocks, etc.??

If you look at the Euro long commercial position in August 2010, about the time of announced QE2, we have a higher commercial long there now. It makes me think the market surge then may have been more of a short Euro covering thing than a QE thing.


Chris Johnston said...

I am not looking for a large drop in stocks here just a short term top. We are close to the trend being back up in the ES the way I measure it weekly, so maybe we won't get a dip. I know Larry Connors, who is a trader I greatly respect, thinks a big bull market is at hand here so maybe he is right.

I am bullish in the Euro and looking for a long there as I stated a couple of weeks ago. I love the huge Small Spec short that is going on there.

It is difficult to determine with any certainty exactly what the Fed is doing with the money in the QE stuff since there is no transparency at all. All we can do is watch price and use our technical tools.

Robert, I have drafted my post on Gold and it just explains my reasoning for why I am bearish on the bigger picture as much as I can explain it. It is for different reasons than why most people are so bullish, so maybe I just am the village idiot and don't see why it is different this time. I have been wrong before and will be again.