Saturday, February 25, 2012


I will be traveling for the first 3 days of next week so there will not likely be any posts that are new during that time. I have appointed Robert to host the "Gold Show" while I am gone so I hope he entertains everyone. Here are a few markets worth commenting on.

There are a few things that literally jumped off the charts as being very unusual this week. First, the GOLD market. You can see that this whole recent rally has been completely driven by Small Specs. The Commercials have been heavy sellers. This is all happening at the perfect time for a seasonal decline, and also right about when the 4 year cycle is due for a top. This is really a good fundamental setup to short a market. I know there are some people who don't like the COT report. What can I say? I use it and I talk about what I do here. For those who don't like it, don't read this blog, there is certainly nothing forcing you to. Some think it is a bogus government report, yet those same people reference other government reports that support their views when arguing over who is right. You can't have it both ways. I guess the report is bogus if you don't like what it says because it conflicts with your view, yet other reports that support ones views are legitimate? It is the best thing we have, and nothing is perfect, so I will continue to use it. I do think it has some flaws in it as far as how they compile certain things, but it has continued to be pretty accurate the last few years for trading. If it is doctored it certainly is not doctored to the degree that the NFP report is where they change the formula constantly to get the results they want. I make money using it and that is what is important to me. If you think a 4 week moving average crossing over a 12 is a better tool, use that.

This is a fundamental tool that gives us general views of where the next large move should come from. It is not a great timing tool, although at times it winds up being spot on. It is mostly an alert for those of us who want to trade in the same direction as the big money, what side they are on. I do not have any setups on the daily chart unfortunately, so there is nothing for me to do here. As much as readers know how bearish on this market I am, I also am not in any hurry to throw money away fighting the short term up trend. The trend there is up, and what I look for is the daily trend to sync up with fundamentals. In this case they are disjointed, but I would go long here if I had a strong enough signal knowing these setups can be early. However, by the way I trade, I don't have any buy signals here. As a result, I will wait for this to clear up, but the big move is coming here now soon, just look back at situations like this in the past and you will see what has typically happened.

Certainly the price of Gas is a big topic right now and I can just feel the liberals lining up now wanting to outlaw trading because the speculators are causing all these price spikes. The next chart is Unleaded Gasoline, and this is Small Specs gone wild. However, it is also a situation to be careful with what this is telling us.

You can see the dramatic difference between the Commercials and the Small Specs. One is heavily selling, the other along with Large Specs, is heavily buying. In this market we have a different situation at hand than Gold which is similar to what we had with Oil a few years ago. We are in new high ground, which does not change the fundamentals, but it does change how to use this. This basically tells us that the large funds and the individual investors are driving this move. The Large Specs are the accelerators of trends. They buy on a scale in basis, the higher it goes, the more they buy. They do eventually reach a limit, and that is when huge spike tops get made. However, when we are in new high ground you almost have to ignore this type of thing. 

The last go around what happened was some large funds were given by mistake by our brilliant government, a Commercial status of unlimited position sizes. As a result they just drove and drove the price causing Commercials to capitulate and throw in the towel right at the top. We don't know if that will happen yet, so there is not a good play fading this move yet in my view. As to the charge that the Speculators are driving this, yes I would agree that is true. The question is, did the government make the same blunder it made last time to cause this? My guess is they did but I have no proof at all of that.

Net net here, in situations like this the COT report is useless. COT selling in blow off moves should be ignored.

Here is the Canadian Dollar which is one of the weakest currencies on a weekly basis. You can see we have a rally in a down trend with the Commercials selling the rally. This is generally a good setup for a decline. This currency definitely lagged the others this past week, telling us it is the weak link. I will be looking for sell signals here.

As far as other markets go, I have my MFG ( Mission From God ) on B of A, so it will be redundant. I will always be looking for sells and will take none of the buy signals there since that defeats the purpose of the mission. Also, even though I don't have sells for the indexes yet, some of the underlying things I have mentioned over the last week that bother me, are telling me to get ready for a sell signal here. I have been bullish for a long time now ( several months ), and I think time is running out here. The mystery chart has said a sell should be right about here, so lets see what happens. For this week I Just don't see any good long setups at the moment.

I did exit my Natural Gas trade for a small loss, that was a dumb trade, the trend has not turned back up there yet. That was sloppy trading on my part.

Good Trading this week

Friday, February 24, 2012


When the housing crisis first started I never wanted to blame the banks. I thought it was outrageous that people making $40,000 a year were buying million dollar homes knowing they could not afford them. I still don't think it was the banks fault in most cases with this type of thing. However, this is where I am furious with the banks, and why I am announcing publicly what I intend to do about it. If a bank does not resell your loan, and keeps it in house, and rates decline by the amount they have, there is no reason why they should not refinance people with good credit and good pay histories. My current rate is 6% and I have never been late on a single mortgage payment my whole life, nada.

Think about the profit B of A has on my loan with what their cost of money is right now, it is astronomical. Since I am a good citizen and paying on time, they give me a valuation on my home that is so low, there is absolutely no way it can be refinanced. This is their way of sticking it to me because of how much money they are making keeping the servicing of this loan. They can claim they are being fair, and that since I am making my payments everything is fine. It is interesting how they tell me a 5,000 square foot house on almost 6 acres with an ocean view and full horse facilities for 5 horses, is only worth $500k. Are you frickin kidding me? Just do the math on the replacement cost of a custom home with that footage on no acreage at all. You could not build just the main house alone for anywhere near that price level. Obviously it is just a fuck you from B of A, so here is my fuck you back to them.

I am going to make 1 Million dollars shorting their stock, then I am going to send a copy of the balance in that account to the CEO telling him to fuck off, close all my accounts, and that I will never do business with them ever again. Further, once I have done that I will go on a mission from Gold #2 to get the story out. This is going to take some time, but I will update the progress periodically in here. I may damn well lose money trying it who knows. However, if I can pull it off, I think this story will make national news some day as how someone showed these assholes a thing or two.

I have always maintained like Patrick Swayze said to the bouncers in Road House, be nice until it is time not to be nice. I reached that point yesterday after getting off the phone with someone at B of A. It is now time not to be nice. The mission begins today if we break yesterdays low in the chart at the top. For those of you who may not like the language here, it is left in here to make a point. I am as mad as someone can be about this whole situation, and it is time to get nasty. If one more dead beat gets relief from the banks before a good citizen does, we should all cry bloody murder. The nice period has expired. Fortunately I have a little bit of a forum here, so hopefully this can help some people out there that need help, by bringing this to the attention of someone somewhere. All I have ever wanted to do is get a refi at a market rate. I don't want a principal reduction or anything special. I would turn down a principal reduction if it were offered. That is a burden that falls on someone else from a decision I made. I knew what I was doing when I bought this place, and I knew the value would decline since the housing bust was only about half over when I bought the place. That is not a problem at all. It is the bogus valuation they give it to use as an excuse not to help me that infuriates me. If they would tell me sorry dude you are just screwed and we don't want to help you, I would be far less angry. They get money for .25% or so and charge me 6% and tell me I am mas fina.

They gave me comps of houses of 2500 square feet and 10,000 square foot lots to justify the value. I have no false illusion about what my ranch may or may not be worth. However, does that sound like a comp to anyone reading this? Having the value be that far under just the cost to build it which would be at least $750,000 even if you valued the property and the horse barn at zero, is dishonest. This is a very nice custom home, even in this climate it would hard to find someone to build it that had any reputation, for $150 per foot. So the mission begins..... I can only hope that I might be the one who got the process started to take this monster down, alas that is way more than a long shot. However, it is time to get started. This is somewhat off topic, but it is a trade that I am doing solely for the reasons I have just detailed. Obviously the stock trades have to have some basis in technical analysis, you can't just trade out of anger.

You can see we reached the sell zone in my Kitchen Sink COT proxy indicator. I am just looking for a simple break of the up trend line to get in sync with the indicator. It may not happen, I don't expect it to today. I will spend time every single day trying to squeeze some money out of the short side of this, and will do no long side trades. It defeats the purpose of the mission. As long as I have sell signals I will take the all, none of the buys, and hope this company falls apart even though it does not appear that it will right now. I guess I am just an optimist!

Thursday, February 23, 2012


We are experiencing an extended period of low volatility and it is very easy to get frustrated. I can tell you I am having a hard time finding many good trades to go after. I am placing a lot of orders but none of them are getting filled. I tried to go after Gold recently and it just went the opposite way. I had one trade that was a small loss, and none of the other orders have filled. I have a Natural Gas trade on that is going nowhere. I have been trying to short the Euro, and those orders are not getting filled. If you look at the above chart of Crude Oil, normally a great swinger on intra day charts, you see an EKG. That to me is not tradeable. As my dad would say would he did not like something, "That's Horseshit." When I met with my accountant yesterday to start of my tax return, we were also talking about something he obviously thought was annoying. He said "That's Horseshit!" Maybe it is just me but I think that just sounds funny. Maybe it is a generational comedy type of thing, but it makes me laugh just to think it especially since on my ranch I am knee dip in it at times.

One of the basic premises I have discussed before here is that markets go down when the buying stops not when the selling starts. Selling accelerates moves once they start, but short sellers can't stop an up trend on their own. We have reached such a high level in such a short time in stocks, even grandma knows we are extremely overbought. This does not really mean much. It certainly does not mean we have to come crashing down. During very strong runs, markets can remain overbought for months at a time. An overbought condition in an down trend is bearish, but in an up trend it is not. It might very well be that the big houses are afraid to commit new money to this move without some type of pull back. It is just eerily quiet. This will not last.

It is easy to lose focus during times like this, but you cannot. Go through your daily routine whatever it might be. If you log potential trades like I do, then go back and look at each one to see if it makes the cut, keep doing it. Look at each chart. I have made the mistake of thinking "I know what that chart looks like I don't need to go look at it again" and wound up missing good trades. Do not get lulled into being lazy. I show a tendency for Bonds to move up here, so I am trying to find ways into day trades on the long side of that market. I am keeping my focus on that to stay in the game. I do have orders placed to short the Euro today, but those orders do not appear to be anywhere near where price is going to trade today.

One other thing I suggest is do research studying either the way you trade, or other potential new ideas. Keep your head in the game. We will likely have some good sized moves coming soon and you don't want to miss them. I do not anticipate a big move down in stocks at this point, but I did lay out a few big picture concerns that I have that are at some point going to matter. It is likely at some point this year we are going to have a pretty good sized decline. The FED is doing their part being good political citizens keeping rates low during an election year, which should help keep stocks relatively strong.

I have traded some emails with readers about some trading systems some of you are using/developing. Some of them seem to be doing quite well and that is fantastic. New readers may not know my history with trading systems, but in brief I used to be a huge proponent of them. USED TO BE. The one thing I finally came to grips with was that they all blow up eventually. This is too long of a discussion as to why this happens, it will probably be something I write about if I ever publish a book. The best way to use them is to have them give you a bias, then assuming the method is not overly curve fit to past data, you can reliably take trades in the direction it indicates. I would if I were using one, try to make it as simple as possible. The more variables it has the less likely it is to work over time.

Here is a good example of what is so typical of trading systems. This is just one old pattern that worked for years in Bonds. You can see that it had no losses then all of the sudden it not only had one, but it was a whopper. This does not necessarily mean that this is no good anymore, but it is an early warning sign that things have changed. If you start seeing more losses and those losses are larger than normal, it is time to be very careful with your system. I have saved myself countless dollars by seeing this early and pulling the plug on things over the years.

This is a very basic example and has a low number of trades, but you should be able to get the point. Something this good should not take a loss like that. It could take a loss and be fine, but not one of that size. It certainly appears that I missed a good long opportunity in GOLD and SILVER by trying to short those markets. Here is a point that ties into what I was just talking about. My methods did not have buy signals, they only had sells. Had they only had buys and not sells, I would have gone long. My method did not catch this trade unfortunately. Nothing is going to be correct all the time that I know of, so I accept that albeit it grudgingly, and move on.

That is all for today.

Wednesday, February 22, 2012



Yesterday I hit a milestone, the traffic in the blog passed 100,000 visitors. This was just in total not one day like I am sure many of the other blogs routinely bypass. I am a small town Midwestern boy with humble beginnings, so I guess I am easily thrilled. However since it does appear that the number of returning visitors is increasing steadily, the content must not be too bad in spite of all the Gold bugs wondering when I am finally going to get it. Speaking of that, the Gold orders I placed yesterday to short were never filled since the market took off to the up side. It appears to me now that once again Silver has taken over the weaker position from Gold, so I will try and short that market tomorrow if we break down. Today the range from yesterday is just too big to sell below in my opinion, even if it were to be breached. I am sure the people who think Gold is a buy every time a blade of grass grows are just rolling their eyes again at me trying to short this sucker. So be it. I follow my rules and they say to sell. When they say to buy, I will buy.

I am currently reading the book AMERICAN SNIPER the incredible autobiography of Navy Seal Chris Kyle. I always felt that was one potential alternate road for me that I never went down. I have no idea whether I would have made it or not, but the level of discipline required is something I definitely have in spades. This is an amazing book, I suggest reading it. This guy is what America is all about and he makes me proud to be an American.

You can see the Commercials have been steady sellers of this market recently, and Sentiment also got too bullish at the recent high. What can I say, this is a sell setup whether it works or not. One thing people can learn from this is that I stick to my guns, to my rules. They do not always work, but my track record proves they work well enough over time. I don't start jumping around every time I take a loss or miss a move. That will insure you will chase your tail your whole life. Yes minor adjustments are constantly made, that is part of adapting. However, when I see this type of thing going on it does tell me that on average, the next large move should be down. Therefore, I want to look to the short side.


The next chart looks pretty similar, and it is of the Copper trade I got stopped out of for a small gain of only $1312 per contract. You can see the setup looks very similar to that of Silver. This one looked for a while like it was going to be a big fish, but as often is the case, there is a first retracement of the new down trend. We have had so many V tops and bottoms recently, that I took this thinking that we might get another one but it was not to be. This is still a sell setup on this bounce, so I am looking for another way in here.

The last chart shows something unusual that happened in the currencies. The three strongest ones broke down and the two weakest ones the Swiss and Euro held up. I don't recall ever seeing this happen before like this and I do not have an explanation. The markets are full of random activity so perhaps this is just more of that. 

We do appear to be putting in a short term top in stocks here right on schedule with the mystery forecast chart. That thing never ceases to amaze me with it's accuracy. I did mention I am looking for a way into the short side here but have not taken the plunge yet.

Good Trading

Monday, February 20, 2012


In a world where nothing is ever perfect, I found something here far from perfect that is troubling. The pace of new highs to new lows is not keeping up with the up trend in the NAZ as indicated by the red arrow on the right side of the chart. It was doing so nicely until recently. I have also marked off the last two times recently we saw this develop on the high side, and on the far left there is a bullish divergence. You can see in all these instances, moves in the indicated direction follow. When we see things like this what they tell us is that the underlying foundation of the move is weakening. It does not take a genius to look at this chart with it's angle of ascent, to conclude this is unusual. It does take a little smarts to determine when this means we should get short.

The next chart shows a few other divergences that did not result in price moving down much. However, in all of the instances, price did move down some or sideways. There is no way to know in advance, whether or not we will get a sideways move or something bigger to the down side. If I take a short position up here I will simply establish targets and stops and see where it leads me. One thing I hope many people have learned is the danger of shorting rallies where the market just creeps higher every day. These can just drain the life right out of you along with your money. The trend is the basis of all profits, and we all have seen that recently. I would suggest studying this on your own to see what you might be able to learn from this type of situation. I could write about it all day long if I felt inclined to. At the very least this is an early warning sign to tighten up stops on longs.

Here is the makings of try #2 for me in GOLD. For the Gold bugs who read here that constantly question why I want to short this market, a picture paints a thousand words. My COT indicator is in the sell zone, and we have a pretty clear up trend in place. If we break that up trend we will have price lining up with fundamentals, that is a trade for me. It really does not get any more complicated than that. I don't care at all about any of this other arcane nonsense about why it should never decline ever again for all eternity. I also don't care about the same crap from those who tell us why it should never rise. It is just a trade no different than any other. It is setup by my tools and I will take it if it breaks down from here.

I did go back through the archives and it was at the end of December that I mentioned I was looking more long than short, so again more evidence that I trade this market just like any other in both directions. I did wind up getting long early in the year and got a nice bump up as a result. Now it is time to look the other way. My commentary of why it is a bubble is based on all the reasons I have stated previously which I will not constantly keep restating. If you want to argue with them you are going to have to go back and find them. I don't recall what days I have detailed them, but I have done it a few times. My mission here is to tell readers what I do, not to try and convert people into my views. Traders should always trade by what their tools tell them to do, not what someone else says they are doing. I have reached a point where I have finally learned the hard way, the when the masses think something, you are an absolute pariah to run against that tide. I will always state what I think but beyond that what people do with that information is beyond my control.

If you are a perpetual bull, just buy it every time I sell it. I have losing trades every month, maybe this upcoming trade will be one of those. One piece of advice that should be worth something. When you are studying things that you think will have a cause and effect on the price of something, make sure those concepts have both a logical reason why they should work, and also a history you can study. This idea that a few people have mentioned about the percentages of people that own gold etc.., is an example that has no history at all to study. Statistics are not even available today that are accurate, much less over the last 50 years. For all we know if 3% own it now that is a 50 fold increase over how many people did 10 years ago ( my bet ). That would then be incredibly bearish. It is relative levels of things not absolutes that steer many people wrong. Many people made that mistake with the VIX. This is an example of an idea that could make sense, but has no data to study. I cannot tell readers how many "great" ideas I have had over the years that should have influenced price direction, that were complete busts once I studied past history. I never fall in love with an idea, but I do at times fall in love with things such as my COT indicator above, which has a history of telling me what is going to happen next.

I just had what I thought at the time was an incredible innovation with a technical indicator I use. It was a completely different way of using it. I looked at some recent examples and found it would have kept me out of a few bad trades. I got even more excited. However, once I went back through many more examples, I found the idea was worthless. This type of thing happens all the time with me, but occasionally I find an acorn ( blind sow etc.. ). 

Good Trading

Sunday, February 19, 2012


Maybe this is a Christmas present, hence the topic of the day? Actually it is Heating Oil, symbol HO. Unfortunately my mentor LW has beat me to the punch on this one. Any readers who subscribe to Larry TV are already aware of this setup. I could prove I captured the image prior to the release of that video, but it hardly matters. As a student of his this setup just leaped off the page at me Friday night. Why?

This is pretty obvious, there is a record net long position by the Small Speculators in this weeks COT report. We also have Open Interest rising sharply, and the Commercials shorting pretty aggressively. A setup like this does not come around too often on the weekly charts, so I have to be looking for a way to short this market. Keep in mind that this is on a weekly chart, and it is a fundamental setup. That does not mean you go out and find the closest 3 minute chart and click the mouse. It means you look for some way within how you enter your trades, to get in sync with what should be a pretty good down move coming.

The next chart is a daily view of this situation and you can see how well fading the small fries has worked. I have arrows indicating when they were at extremes, and you can see they were spot on in being dead wrong. This is typical. Fading these guys is essentially like fading that annoying neighbor who has a stock tip for you about some Guatemalan fruit fly breeder.

You can also see that Sentiment was also at an extreme in most of these instances which made them even better. The only thing I don't like about this is the price pattern, we are kind of moving sideways right at the double top level. What would be great would be Monday closing above all these highs, then reversing and take out it's low on Tuesday. I would be a player at that level if that were to happen.

The next chart shows a few things that are really starting to bother me about the moonshot going on with stocks right now.

I think anyone can look at this chart and realize this is building into a big problem. I have never seen anything go up like this that did not come crashing back down eventually. I have told people that I think what we are seeing now is the greatest stock rally of all time, and what I am referring to is the NAZ. This comment is just based on the price action, and the record high reading of ADX. Keep in mind most tops are made when ADX clears 60, it hit 82 here recently.

I have another stat that is good fodder for conspiracy theorists. In a normal year you have give or take a few, about 15 days that 90% of the SP 500 rise in one day at the same time the index itself does. Last year I believe there were 52 such days. That means that one out of every 5 trading days basically, everything went together. I really do not have an explanation for this other than a couple of guesses, which are as follows.

It is becoming a self fulfilling prophecy of whiz kids. The big funds hire these eggheads out of top schools to design algorithms by which they will trade from. It takes no great genius to see that there are pretty strong correlations in effect. As a result, they design biases into the buys and sells to sync up with the market as a whole. This is not a bad idea, even prior to recent times. Unfortunately what happens now is that you can just see when the futures get going that virtually every stock on the board goes with it no matter the chart patterns.

Another possibility is that the FED is actually buying stocks through it's "handlers." I highly doubt this but you never know. As out of control as government has gotten, it would not be shocking to me if this were to be true. Just the utter lack of any normal pullbacks of any kind make the NAZ chart look very scary to me. There are absolutely no support points in that market anywhere to hold up a knife down once it begins. I have not seen too much evidence of PPT action here other than a couple of late day buy programs at 12:30 that seemed a little "convenient."

The moral of the story is that it does not matter what is actually causing this, price action like this is not sustainable. The next chart is the mystery chart which shows we are here finally. This indicates a short term top lasting a couple of months. However, it does show then a long lasting rally to follow. If this were to be accurate, we have a dip at hand, then a rally we must be long for that will follow it. I know that I long to be the cat that ate the Tweety Bird, that guy who made a killing during market crashes. However, we have to accept that the big money in stocks in made on the long side of the market, not the short side. We do get down trends to play, but the overall mega trend is ever upward in spite of all the chicken little's we come across. Commodities are a different game in they are more mean reverting than stocks are.

It is time for me to start looking to see if I can find a way into the short side of the indexes here for a short term trade. All of this water cooler talk about Greece and the debit situation is just noise to me, I could give a rats ..... about any of that. I was listening to Kevin Trudeau on the radio yesterday while I was driving around, he is quite a character. He made one point that I thought summarized our problems here. He said to just look around your office and count how many things that are there that were made in the USA. There are not very many. Of course not, why would you pay someone double or triple the price for the same thing just so that you could support a union worker being able to have 4 jet skis, a lake house, and a guaranteed pension of six figures for the rest of their lives? What do you get out of that? The current move toward protecting and enhancing this type of thing while trying to force people to move production back to the USA is not going to work. I wish I owned a manufacturing company just so I would have the pleasure of telling some suit who was threatening me if I did not move things back here into a unionized plant, to do you know what.......to himself.

Manufacturing will return to the USA if and when we become competitive again, and not before that. If we don't, it won't. 

Good Trading

Friday, February 17, 2012


One of my favorite phrases that is going around right now is "don't be that guy." Some loudmouth in a local bar kept saying that to a buddy of mine recently, who was an ex linebacker. He just kept repeating it over and over. This buddy of mine is a pretty calm happy go luck sort, but everyone has their limits. He is also a great looking guy the girls always love. This moron had obviously singled him out for some unknown reason, who would pick on the biggest guy in the place? When I looked at Vinny laying on one of the dog beds in my foyer the other day, I noticed he almost matched the color of my Travertine stone floors. For some reason the thought of "don't be that guy" came to me. Obviously it was a different context than the first scenario. In this case it was a mesh I had to clean up and believe me he was much dirtier than he looked like here.

In the first tale above, things ultimately ended badly for the local loudmouth, and I suspect he won't use that phrase much in the future. In the second instance, it ended ok for Vinny but not for me. He made a huge mess that took hours to clean up. The point is generally the phrase does ring true to some degree. You don't want to be that guy doing the wrong thing constantly. It is easy to become that guy when money is involved. It is so important in our lives that it makes us do the damndest things.

This above graph shows the days of the week, and what happens just selling the open every day in the ES. You can clearly see that Friday is the best day to be a seller in this market. It is really the only one that really makes any money to speak of. I know from personal experience, that some of the largest market declines have occurred on Friday's, so this gives me some graphic proof of this. This certainly does not mean you just blindly go out and short all Friday's, I would never do that. What it does tell me though is that if I get something going to the downside on Friday, I have a better chance of it becoming something big, than the other days of the week. If I pair that with today, also being one of the two best sell days of the month for the ES, it tells me if I get a trend change to down on the intra day charts, that I need to look for an entry on the short side. Will this happen? I doubt it, but you have to be prepared in advance for when something that does have some bias, might be developing. At press time here before the open, it does not appear to be in the works, but who knows what will happen.

Don't be that guy who is not prepared!

I mentioned Natural Gas, and here is the trade I made yesterday. I said I was looking to buy it and I did. Do not get hung up with the Bollinger Bands, I don't use them they were just on this chart setting I put this on. This is an extremely over sold market, the biggest down trend on the board. It has meandered around here for a few week down at the lows and appears to be making a breakout upward. We will just have to see how far it goes. It could be another false breakout that turns right back down. I am on for the ride now one way or another. I am off the ride on the next chart.

Here is the chart of Gold and my attempt #1 to short it. I took a small loss as indicated. I will look for another entry in the next few days. If we were to close up today and Monday, that could make this prime for another shot. 0 for 1 so far trying to catch a down move.

I read trading books just like everyone else, and I found the following quote out of Elder's "THE NEW SELL AND SELL SHORT."

You can hear the market bell when you recognize and event or a series of events so far outside of the norm that it may seem as if the laws of the market have been repealed. In fact the laws of the market cannot go away, no more than the law of gravity can. They can be only temporarily suspended during a bubble, creating an illusion that normal rules no longer apply. The markets do not exist to put money in the pockets of amateurs.

You tell me where this phrase most correctly applies to the futures markets? Where are most amateurs making their bets right now?............


Have a nice weekend

Wednesday, February 15, 2012


If only in trading it was as easy to know what to do as it is when your 5 month old Saint Bernard puppy gets into the mud, then runs into your office! It does not rain much here so even the dogs don't know how to handle it, but I can promise you he had some fun in the process. I know he does not look much like a puppy, he already weighs about 100 lbs.

Here is a question that came in from another post, that is one of the best questions that has ever been asked of me. Why, instead of missing this entire move would you not use the trend and market strength (adjusting to market conditions) and enter on a new high but with only, say, 20% of your normal position size with a stop below a recent low (as you said the dips are shallow) and then build a position as new highs are made? Don in Virginia

The answer for me is simple, yet complicated. Let me explain.

I have gone through several generations of trading approaches since I have been trading. When you do this you become aware of what your strengths and weaknesses are, or at least you should. I would say that by far the most frustrating period was the late 90's when I was trying to learn Kevin Haggerties approach. He is one of the two best traders I know, with Larry Williams of course being the other and Larry Connors also being thrown in there as a third. Kevin's approach involves looking at about 30 or more things at once and making discretionary calls on when to buy and sell. When you are on with it the money just flies in the door, it is wonderful. However, it is just so random because it involves Gann, cycles, Fib numbers,  moving averages, market internals, just so many things. For me it became impossible to be consistent at it. I am sure for others the approach is very comfortable, you just basically wing it.

During this time I stopped trading for about a month to determine what to do next. I needed to hone in on exactly what my strengths and weaknesses were, and how I could best use them to my advantage. It is clear that the one advantage I have over virtually anyone other than a Navy Seal, is an incredible level of discipline. Those old commercials about Lays potato chips that said nobody can eat just one, they should have had a disclaimer about me. I could love them and eat just one a day, no problem. My workout regimens at age 52 would be tough for a 25 year old to keep up with, even on days I don't feel like it. As a result, I know that my edge is developing an approach and executing it. I can follow rules better than anyone I have ever met.

That leaves me with knowing that the key for me to succeed is developing an approach that has an edge. Once I do that, all that is left is the execution, which I know that I can pull off over and over. For most people this is not the case. However, you still have to have an approach. You cannot chase one idea after another, hoping to find the grail. All approaches no matter what they are, have limitations. They all have losing periods. They all miss moves. What has to be focused on is knowing when you have an edge, then trying to take advantage of it as best you can. This will be different for everyone. One thing I can promise you, if you change your approach every 60 days you will lose all of your money. You have to grind it out, there are no shortcuts.

My general approach, is that I use short term timing tools that are a mix of my own creations as well as some of those taught by Larry Williams. When I mention adjustments, in my world that means position sizing and potentially doing more day trading during certain market periods. I do not change my approach when a once every 10 years type of run like what is in the chart above takes place. You can test it until you are blue in the face, there is no statistical edge in buying a market like the NAZ right here on strength. That is a money losing proposition by a wide margin. That does not mean we will not keep rallying. We may well do so especially if the volume stays so light. The FED can completely control this when there is no volume. They can just a launch a buy program in the ES, which will force the funds that have automatic stock buys that key off futures to trigger. Viola a rally at the end of the day. This is a consistent theme that we have seen since the 09 lows. The notion that light volume rallies are sells that has been put forward for years, has finally been exposed for what those who studied that idea have known for a long time, it is hogwash.

My approach for better or worse, does not buy new highs in moves and sell new lows. I will not tailor a method around runs like what we have now when I know that statistically they happen a very low percentage of the time. I also know that buying them on average loses quite a bit of money. Less than 10% of all market activity is runs like this. I am content to not lose during these periods versus throwing all caution to the wind and winging it trying to catch a bigger acceleration. I am content just to not short it and feel good that I have finally learned after many years, not to fight moves like this. If you are able to ferret out when a run that begins, will become this versus those that do not which is the majority of them, you are wasting your time reading here. You are already well beyond my pay grade.

Day trading is where I go during periods like this. Even that has been a challenge due to the light volume. It is very tedious to sit in front of a screen hour after hour, looking for one or two trades in a market. However, this is what you have to do in order to survive during periods like this. Also, look to other markets, the bulk of my profits come from things other than the stock indexes.

Speaking of that, here is another market I have been trading in, COPPER. Just so that I am not branded the village idiot since I have showed a few bad trades lately, here is one that is working out ok so far. You can see the trap pattern that I mention so often in here. I waited for it to trigger then entered on a bounce the next day since the range of the entry bar was so large. This is a slippery slope, sometimes you miss em trying to do this. The best way is to put part of your position on at the correct price, then round it out on the retracement so you don't miss the move. I have labeled where I would like to get out, but I have absolutely no idea if we will go anywhere near that area at this point. For now it is just a trailing stop and I see where it leads.

Natural Gas looks good to me on the long side tomorrow, so I am looking to buy that one. Stick to your guns and know your strengths and weaknesses. Stay in your own lane, don't start swerving or if you do get in the crash position.

Good Trading, time for me to get the hose out and clean up Vinny! 

Tuesday, February 14, 2012


Just when I had totally forgotten about them for probably the first time in 10 years, they make a dynamic return to the playing field. Welcome back PPT! Here we were again at 12:30 looking at a dismal close, making new lows and a month overdue for some type of just normal correction. It did seem it was likely we might drift down a little for a day or two, but NOOOOOOOO! Ben did not want that obviously. This is about as obvious as it can get for a government sponsored buy program to save the day.

I did love the news that reported that this was due to news out of Greece. Are you frickin kidding me? How do these "journalists" get a license? All the worlds investors are trading a 5 minute ES chart based on what they think the news out of Greece will be in the next 45 seconds? This is beyond insulting and definitively proves there is no reason to ever listen to a word they save ever again. I have a good amount of readers, did any of you buy the futures today in the last hour because you were optimistic about Greece? Of course you didn't and neither did anyone else except the FED. Then they run their little minions, the media, out there to run interference for them.

This is a microcosm of what they are doing across the board. Did anyone hear the story of the teacher that forced a young child to go home because the turkey and cheese sandwich, with some fruit and apple juice, did not meet the schools requirements for lunches. Instead they said fried chicken nuggets were better for them! I would love to see the pear bodied slob who made that declaration. They are trying to control all of our lives at such a low level, it is very worrisome I have to admit. I have stated before that I think the Dems are likely to make a serious run at trying to stop trading. Douchefett is out there barking about it and he basically along with a few others, runs the Democratic party. This is a tough proposition because of Senator Tumor ( No typo he is a cancer on society). He is a big player and Wall Street provides quite a few jobs, and there are also huge campaign donations that come from these folks. There must be a ton of push back from these people which is why that has not gone anywhere.

By and large one late buy program by the FED is not the end of the world. However, when I look at the chart of the NAZ it looks like Silver did at it's peak. This is not sustainable. The government is building another bubble I fear, but I have no idea how far they can inflate it before it pops. Timing bubbles is very tricky as we have learned in the last 10 years. I am sure there is some reason behind the scenes why they are doing this, but I do not know what it is. I understand why they want an uptrend, but to not let even a 10 point decline in the ES happen for this long is a little extreme. For now the trend is up, and there is nothing I can see as I have been saying, that tells me to short the stock market. If you are inclined to day trade on the short side, be ready at 12:30 to run for the hills. This seems to be about when they show up, if the past is any indication. You just have to buy all the dips, and shorts are scalps basically.

Adjusting to market conditions is a very important part of trading. The trend is up, and the retracements are very shallow. Until this changes keep it in mind. It has been going this way for a couple of months, but who is to say when it will stop. The Russell is the laggard, so if you are inclined to try and short this monster, do it there.

For those "hoping" for a decline, the POIV is diverging a good bit here, so that is something to consider. However, the Advance/Decline line is still going strongly upward. This does not always speak, so lack of confirmation is not necessarily a deal breaker. This one bears watching, but I am certainly not looking for anything substantial down at this very moment. If tomorrow were to close up like it is as I type this, yet not make a new high, I would have a potential sell on a decline below recent lows. We will just have to see if that develops.

I am still short Gold at least for the time being, the trade does not look very good at the moment. As I mentioned, I felt this was going to require a few tries to catch, and it is starting to look like attempt #1 will be a loss. You never know though, that is why they turn the machines on every day, so we can see what happens. It has been in the money by about $10 an ounce for a few days, but really going nowhere, and I doubt it can stand up to this stock blast off without following it. My tools still tell me to be short, if that changes and they become a buy, I will then be bullish. Pretty simple for a small town dude.

I do have some things telling me if the currency rally that is going on tonight does not get out of hand, they could be sells for Thursday.

Good Trading

Monday, February 13, 2012


This topic came to mind after I watched another chapter in what has to be the biggest sports tragedy of all time. There was never an athlete who dominated his sport like Tiger did golf in his day. When the story broke about what he was really up to in his life off the course, I told people I thought he would never make it back. The reason I felt that way was not that he could never get the physical part of his golf swing fixed. I thought he would be able to do that and he has for the most part. He does drift back into the old dropping of his head and getting stuck position now when the pressure is on, and hits bad shots. I think he will eventually get out of that also, but only if he mentally gets back. This is where I don't think he will be able to pull it off.

You hear people talk about "the zone." That is that magical spot that people get in where they have every single thing in their body completely in harmony and performing perfectly, mental and physical. It is impossible to maintain it and there has been much study about how to get there. You really can't "get there." It is a confluence of events that if any of us are lucky enough, we get a period here or there of it. The best you can do to get there is to work hard at your craft whatever it might be, and through repetitions you will have periods where you obtain this magical zen moment.

If I had to choose a mental edge or a physical edge in anything, I would always choose the mental. Tiger had a mental edge like no athlete ever had and he cannot simply will that back. When I watched him putt yesterday you could just see he has no confidence in his putting at all. He seems to do things well now until it really matters, that is when it all falls apart, Sunday's. Ironically, that is when in his prime he just ran everybody over. I used to be a big fan of his, and I have become less of one because of his insolent attitudes in interviews, and his general lack of even attempting to conceal that he is a jerk. It is like watching an episode of House and hoping that one "human" moment comes out of him, but it never does. I still find myself somewhat rooting for him, because I think it makes golf more interesting to watch when he is in contention. Ironically my friends in the golf business all tell me Mickelson is a complete phony and one of the biggest jerks out there. You would never know that from watching him and how he conducts himself.

My friends work for the club making companies, so they are in the right place to know who is really a good guy and who is not. Where am I going with all of this? It is a lead in to talking about psychology and how it plays into trading. The one thing that is a complete waste of money is buying a book on the psychology of trading. The one exception would be if there were a new one written by an actual trader who has made consistent money trading. In that case it would be a must buy. However, most of the books are written by people who don't trade. This is what I refer to as someone who has never hit a ball out of the infield. In other words, don't let someone who has never done something teach you how to do it. Why in the world would you listen to them? Studying how to do something and actually doing it are completely different.

How would someone who does not trade know what it really feels like to have recovered from a 20% draw down in their account. Chances if they are writing about it they had a 20% draw down that turned to 40, 60, 80, then a 100%. That is why they are writing about it and not doing it. Most traders lose because their techniques are lousy. I am sure there are some that lose with good techniques and bad emotions. Do you really need a book to tell you not to make decisions based on emotions when you trade? Do you really need someone like me telling you the same thing? If you do then seek out something else to do with your money. We all fall victim to the same pressures at one time or another. It is those that handle them the best over time that come out ahead.

The two best traders I know Kevin Haggerty and Larry Williams both feel the same way about these books, they are hogwash. Kevin is an ex-marine so I am sure you can imagine how he feels about mamby pamby things like this. He says "take the trade." It really is that simple. If you have a valid setup and by your rules a trade is indicated, TAKE THE DAMN TRADE. It does not matter if you have been winning or losing, the markets don't know or care about our individual situations. Do not listen to CNBC, do not listen to me, do not listen to anyone else. Why would you spend days, weeks, months, years, developing something, and then not follow what it told you to do? What is the point?

I know it is hard at times and it is for me also after a bad trade streak has hit. As long as you are using sound money management techniques, no individual trade should cost you more than at the very most, 5% of your account. What is the big deal with that? When you buy a car the minute you drive it off the lot you are down more than 5%.

Here is what I am doing now in my trading and I hope this will benefit those who read here. I have identified specific conditions by which I will take a trade. When those conditions arise the mouse gets clicked. It is really that simple. I know when I agonize over a setup or a chart pattern for too long, I make a bad decision. It might be that I take one I should not or I pass on one that I should not have. Here is an example of a trade in the EURO I agonized over recently, that turned out lousy and I did take it.

You can see there was a break of a trend line and my COT stuff was telling me to look to the short side, so I took the trade. These quickies where I could not have been more wrong always piss me off. However, this is a legitimate trade by the way I go about this, so it is what it is. For every 10 of these I do, 7 will work, but there are 3 that don't. I cannot be shocked when one does not work.

Moral of the story today is suck it up, you don't need complex psychology books to trade and over analyze every waking thought and emotion you have. This is about grinding it out. If anyone tells you otherwise, short them.

As reader Don calls me, "Curmudgeon" out!

Sunday, February 12, 2012


Just look at all the crap that is on this chart. I can draw arrows and call upon experience with all of these indicators and when to do what with them. However, at the end of the day, simplifying things always helps me make better decisions. Being a perfectionist in trading is not a good road to go down. Trading is very imperfect, we cannot impose perfection on something that is inherently otherwise. It is hard to just let it roll sometimes, and this is something that I fight at times. When I run into a patch of bad trades, I always study them to see if I can find common ground as to why they did not work.

I will confess that every time I find something that seems to explain them, and study it against other trades, the results are always the same. It becomes too restrictive, and results in making less money over time if followed. It might just be inherent in the tools I use, but I tend to think that it is something we just have to accept. Some trades just suck. They are lousy from the get go, and make you feel like a fool. This is a numbers game, we have to accept that.

Lets look at the chart above as an example of this concept. You can see several instances of where the Commercials were heavily long during this long downtrend in Natural Gas. By and large, buying when they are long is profitable, yet in situations like this it can be the absolute worst thing to do. You can craft all kinds of fancy rules to curve fit when to buy when the Commercials are long, and get a great system put together. What will then happen is that you will trade it in real life, miss a great trade, then take a bad one, and wonder what in the world happened? You can even make rules like just taking sells when commercials go to the bearish position when the market is in a down trend. This is the best way to use the COT data. However, you will still have trades that are lousy with this setup in place. You may have a few. Do not get tempted to start adding all sorts of filters to the setup. Overall you will catch big moves using this basic setup, and along the way some trades will lose. It is a numbers game.

I got into this mode recently as a confession, and just did not trade enough. In the midst of it I missed a few nice moves I normally would have caught. I hope everyone can learn from me. You just have to let go to succeed in this business. The tighter the reins are the less likely you are to do well. This does not mean you don't use sound principles and money management. It is a given that this must always be done. Once you have that employed, and your rules tell you a trade is there, take the trade.

Speaking of that, by my rules Natural Gas is setup for a buy right here if it rallies up some. There are not additional comments. If it rallies a little here I will be a buyer. The Gold market at the end of last week was setup as a sell, so I sold it. The outcome of either of these trades is irrelevant. I know by my rules, that over a sample size of X number of occurrences, these types of setups will produce quite a bit more wins than losses. It is up to me to get out of my own way.

There are also a good number of long setups that are a day or two away depending on the price action Monday and Tuesday. I don't see anything that jumps out at me yet, telling me to look at shorting the indexes. At the same time, there is not good probability buying something this extended. There just not great immediate opportunity in the stock market other than riding longs, trailing them with stops, and enjoying the ride. I do not know whether or not markets like the metals can separate enough from stocks to actually decline, but that is a mental exercise not worth undertaking. I have setups there for sells so I will take them and whatever comes of them so be it.

I know there was a comment in one of the threads about the indexes setting up as sells. I do not see that at this moment. The VIX which is the best indicator for stocks, does not have a signal yet the way I use it. My short term indicators do not have sells either, so time to move on to other markets.

Hopefully this week we will get some more action.

Good Trading

Friday, February 10, 2012


I have embarked on my mission to try and catch this Gold trade I have been telling everyone I was looking for. The first attempt is labeled on the chart above. I shorted this last night when the prior day's low broke, just pretty simple. You can see a basic trend line I drew in which has no magic to it. All those do is narrow focus. Due to my larger view on where this market is headed, I am being aggressive trying to catch this. This entry right here is far from ideal, it would have been much better had the low of a few days ago taken out some prior pivot. It may well be that we will bounce and I will have to take another shot at this or two.

The next chart shows something we rarely see in the COT report, the last time was the high in the energies when oil hit $140 before dropping to the low $30's. This is another reason I am so bearish on this market right now. The concept is called Commercial Capitulation. I suspect that what the data shows hides the real story just like it did back with Oil.

What we see here that is very unusual, is the rapid climactic buying by the Commercials as we accelerated into the top. The Large Specs were rapidly exiting the market at the same time. This is highly unusual. The basic idea behind the concept is that the Commercials who generally try and keep limits on trends in each direction, finally just gave in and went long to stop from losing money hand over first in their hedging operations. At the same time the Large Funds were taking profits. On the surface this is capitulation by the Commercials. However, here is what I suspect is really going on just as it was with Oil in 2008. In that prior instance, the CFTC in all it's wisdom had granted certain Large Funds hedging status which allowed unlimited position sizes, which allowed them to drive the price of Oil into the stratosphere. They drove it to the point where the Commercials had to say uncle and gave in and bought finally right at the top. Of course the CFTC later came out and said they had no idea how this happened and had to investigate. The speculators were blamed of course.

This is essentially manipulating the market. As we see them playing with the employment numbers so blatantly right in front of us, it certainly is not much of a stretch to think they did the same thing they did in 2008 with Gold here. We know they want bubbles, and it has been my argument that if there was price control attempts here, it was on the upside. You now see the real reason I think that occurred. If this market does come crashing down, they will of course announce an investigation and express their horror that so many people have lost all their money. New regulations will be drafted to make sure it never happens again. Sound familiar? Talk about patterns to trade from, how about that one? Unfortunately, this is a tough pattern to trade from because it is such a large picture view.

At this point we have to operate on what we know which is that on the surface regardless of what caused it, the commercials threw in the towel at the high, a very very bearish sign for a market. On the recent moves up you see the Commercials have been selling, what I want to see on rallies against a down trend. Obviously the key levels are in the 1500's which is a long ways below, so nothing major has happened yet. I am just probing short term opportunities to try and get in sync with what I think the larger picture map is going to look like.

For perma bulls, which is almost everyone alive, this is not enough of a dip to add to longs yet, that 1526 low would be one to buy against. Since in that view the price can only go to $5000 or more, there is no need for any stops you just buy in on dips and hope you are right. I cannot and never have been able to trade like that. The one thing about the short side I don't like, but it is not bullish like taking the opposite view of T Boone Pickens on oil, is Douchefett has recently said he thinks Gold will under perform stocks. Since I can't stand him as per my name for him, I don't like agreeing with him. However, he is right most of the time on the big picture whereas Pickens invariably is wrong just about every single time.

So there you have it, attempt number one is underway, and it is no coincidence that stock futures are declining at the same time. It will be interesting to see if these two can separate or not. They have been joined at the hip for a while now. I suppose I will get in trouble if Gold does crash and I was the first one to point this out from the COT stats. I bet Briese who went before Congress and told them what happened last time, mentioned it in his newsletter before I have today. I don't get his letter so I do not know that is just a guess on my part.

Good Trading