Buck You!

This is a market that in all honesty I have been wrong about recently. If you look at the green arrows on the weekly chart of the Dollar Index, they represent buy signals or buy areas based on fundamentals.

Recently many of these have failed, which could be argued is actually a sell signal. In watching the price action of the markets, I have a completely different view than most people, be it right or wrong. When I watch the intraday ticks, I see the dollar reacting to stock prices, not the other way around. Some experts are claiming the dollar is driving everything, I say stocks are, in other words the opposite of that view.

I was recently in a Heating Oil short that wound up being my best trade of the year, just exited it. During the trade it was evident that every time the stock market rallied 50 points, Heating Oil also rallied. There is absolutely no historical relationship between these two markets. However, recently since the economic downturn, really the only ray of light has been the stock market rally. It has carried many markets with it.

In 23 years of trading I have never seen the almost tick for tick relationship between so many commodity markets, and stock prices. It makes absolutely no sense fundamentally. My theory is that some whiz kids at the funds have zeroed in on this recent phenomenon and created mechanical buy and sell programs for all markets based on this relationship. This is an overly optimized trade, which will eventually result in these funds getting clocked.

I have been guilty of over optimizing trading systems, so I speak from experience here. Getting back to the subject here, if I am right about this stock market top, it is likely the dollar will get a big lift off here as it seems to be trading almost directly opposite tick for tick, the DOW. It also appears that many currencies are topping here, so that makes for more reason to believe we have a dollar low.

However, my favorite reason for this call is that every wize guy in the world thinks the dollar is going to crash, and I love being opposite the herd even if at times I am wrong.

Looking at the arrows you can see the commercials have recently been heavy buyers, and sentiment was recently very low, the small fries with sentiment graph. Also, Valuation vs Gold was very low. These are all reasons to look for a rally not a decline.

GOLD BUGS - I wish I could call Orkin on them

I heard on a popular radio show recently "once Gold gets to 955 it will go right to 1000." Actually once it hit that number it went right to 900. So just to define that, with commissions and transaction fees that are charged, if you bought at 955 for that free ride to 1000, and paid the close to 40% added fees to get the coins your adjusted basis is 1337. When the price went immediately down to 900 you had a brilliant loss of 46% on your "investment." This took place in about 4 weeks, at least the stock market took a year to take half your money.

I guess they have the right to decieve you, it is after all the american way. Figure out how to take someone else's money in a dishonest way. Ironically these people cite the same experts at the big brokerage firms and their expertise in making these calls. These are the same experts who did not foresee the housing or stock market crashes, yet they are now to be relied upon? A free information packet? If I hear that again I may just start shooting. They offer something free that will lead you to lose 45% in two weeks!

As you can see from the chart at the 3 points marked, every time the commercials have gone into the sell zone we have had declines. This is what really drives market action, not these god damn phonies trying to squeeze commissions out of you. Now we are in that sell zone again, so I would expect we will see another decline. I am looking for a short entry in the metals right now.

LET IT BE, LET IT BE, LET IT BIE oh LET IT BIE.......



This is a great old Beatles song and also a message to the PPT. Why in the world won't you let the market just have a natural correction?



Here is a 5 minute chart showing the PPT at it's finest in the last few minutes of yesterdays market action. Of course I have harped on this repeatedly, and here is the real reason why I don't like this. This type of action is going to cause a V top and a huge downmove when at some point a fund liquidation area gets reached, and even their volume will not be able to stop it. I think had they just let a natural corrective move happen, this trend could have really had some additional legs.



It still could have, but if you go back in history and look at times when the government has tried to artificially control prices on things, eventually market forces take over and big moves in the unintended direction occur. It would be normal and healthy to let the market correct some here, but just artificially improving closing levels to stop it is just postponing the inevitable, and I think making it worse.



All that aside, this may allow for legging into more of a short position for me up here which will be nice. I was kicking myself mid day yesterday having not put my full position on, thinking I might have missed the opportunity. They really fooled me yesterday, I told many of my colleagues that I did not think the PPT was going to show yesterday.

As Howard Stern's father used to say to him when he was young, "Don't be stupid you moron!" I found myself with that thought at yesterday's close. What an idiot I was to state I thought they would not show up.

The next post will be on the dollar, we might be on the verge of a major rally there.

Time to get short



I rarely do this, post a trade right when I do it, but will take a shot at it today. I just put a position on with the SH etf to short this market on today's opening. I think with all the things I mentioned recently, along with the seasonal, and this tremendous divergence in this oscillator, it is time to look for the decline to begin.



I have no idea if it starts exactly today, but the only thing missing from making this a perfect setup is a heavier commercial short position. However, what has been happening recently is the commercials doing scale down selling and scale up buying. As a result, they are not giving us the advance notice they used to.



The negative in this trade of course is the PPT along with several funds that have every interest in keeping this up for as long as possible. The PPT for political reasons, and the funds just to keep their bonuses alive. However, at some point natural market forces are going to push this down. The public is just way too bullish right now as well as the advisors which is even more meaningful.



Valuations are very high also along with some trend measures reaching historical levels. You did read that right, on some levels this could be argued to be the greatest rally in history. One trend indicator I use has only reached this level one time ever, so by that measure this could be argued to be the biggest or tied for it, rally of all time. Keep in mind we have moved 50% or so in just a few months.



When all of these things get put together, it tells me this is the time to not only be out, but to be short. There are those last hour buy programs that have shown up every day like clockwork, and there is no reason to believe that will not continue. It might be the PPT, and most of the time it is, but it is also institutions as well. No matter, this trade is a hold not a short term play.

The challenge with this is going to be once the correction begins, how to guage if it is a pullback or a big picture trend reversal. I will tackle that when it happens. If we continue to creep up I am going to scale in more to this trade.

Here is a chart for those who doubt the PPT exists. This is the last thing of this nature I will post here. After this for those who still feel it is not true, just go elsewhere. I am only going so far to talk about this. With the communist regime we have now, there is no doubt they will come after me if I push this too far.



What I have here is a chart of the SP 500 weekly and below the position size of the large traders from the COT report. Large traders are fund managers and as a result are momentum traders. The typical pattern is for them to be heavy long at peaks and heavily short at lows. They typically buy at 20 day highs and sell at 20 day lows or thereabouts. They then pyramid positions with profits adding more longs as prices rise with the profits they have made, etc.. This is due to how they invest their money. However, what you notice on this chart time and time again, is actually heavy long positions on big pushes down. Since we know that large funds liquidate on these moves that leaves only one group left that can afford to lose this type of money to try and stop a move, the US Government.



Any fund would have been wiped out by riding a move of this size down, and none of them were in this market. Notice also how the positions lighten on upmoves, again the opposite of what fund managers do. This tells you that it is mission accomplished when the bounces occur and time to get out. It also tells you that since the overall size of the position in this category is going in this direction, the party doing this also has more money than anyone else in the game so they can overcome the total of what all the other players in this category are doing just by themselves.



This mystery component in the Large Trader category, acts completely the opposite of every else in the category. They also apparently have unlimited capital. They are not allowed to be classified as hedgers and get into the commercials category, so who could this possibly be?



This group has unlimited capital, and buys when prices go down and exits when they go up a little but still at lower prices than where they entered, taking tremendous losses time and time again.



There really is no mystery folks, it is the PPT. I do not see why anyone would be surprised by this with all the political nonsense that goes on every day. I really do not think this is anything to be concerned about in the least. Just get used to anticipating where they will show up and profit from it. They showed up right on cue last week right after I posted that chart. The argument is always that intervention just delays the inevitable, maybe so, but it makes the rides down a little smoother and I do not believe there is anything wrong with that.

The other interventions that are going on right now are far more disconcerting to me than this is.

Crunch Time

Here is a 5 min intraday chart setting up a prime PPT appearance opportunity. We know they are doing everything they can to hold this up until they get all the socialist programs passed if at all possible. There are several reasons why at the very least a correction would have under normal circumstances, already happened.

Interestingly enough, I do have a potential short term sell signal finally today if yesterdays low gets taken out. This chart shows us basically two ticks away from doing so. This time zone of 11:35 as I type this is prime time for these guys. Let's see what they do.

It has been easy for them to support this due to the light volume in that they have not had to commit alot of money in their buy programs to accomplish these end of the day lifts they have been performing. It more or less is proof that they are the buyers. However, at some point I think they are going to let one of these sell attempts through then try and support it after it drops a little.

They are under the spotlight right here so let's see what they do!

ARE WE HEADING FOR TROUBLE?

I know these charts are hard to see with all the lines on them. Most of you won't know what all the lines are anyway. Just focus on where the two red arrows are and the olive green line heading down in the second graph.

The first red arrow indicates an extreme overvalued reading with stocks vs bonds. Big declines have occurred in the past when this condition has been present.

Second, the red arrow in the third graph indicates an overly bullish reading between small traders and advisors, also a bearish condition.

Third, the olive line in the second graph shows commercial selling beginning to come into the market place. Also a bearish sign when in a downtrend.

The short term trend is still up, but I am looking every day for my short term indicators to give me a sell signal. It will be all in on the short side when one shows up, and I am hoping for that this week. I am looking for a sharp decline here to start any day now.

ES Weekly Chart

Here is a chart of the E Mini SP 500 Index. A couple of posts ago I displayed a 5 point Megaphone type of pattern which is a reversal pattern. It required a close below the prior days low for entry on the short side. This has not happened yet. It does appear to be smooth sailing here as the bottom graph shows the Commercials occupying a comfortable long position and the trend being up.

One of my mentors Larry Williams has called for a top to be made here in the next couple of weeks. His market turn calls are beyond incredible so I have to take a look to see what could support that. There are two things that jump out here as being supportive of a decline. First, the middle graph shows stocks valued vs bonds, and it shows stocks extremely over valued. Second, the bottom graph shows in Green a sentiment measure, which is reading a very bullish number. Both of these things generally lead to declines in the market. However, that does not mean you just run out and sell when you see these readings.

What might be the best thing to look at to time this is the ADX indicator. It is a measure of trend, and generally when it gets to a very extreme level it indicates the end of a trend. It is approaching that level but is not there yet. Also, the Vix is indicating a turn is imminent.

When all of these things are put together, it tells me we have to look for a decline to begin within the next two weeks. It is frustrating sometimes not getting the highs and lows right all the time. This is impossible and a fruitless excercise. All we can do is put the odds in our favor and make the trades on the side of the probabilities. There is more market manipulation than at any time in history by the PPT so that is making short side opportunities harder to time. We just have to accept this for what it is because it is not going away any time soon.

Can I frame this?

This move yesterday late by the PPT was an all time classic. They do not want this rally to stop until they get all their spending back doored behind the american public. The sell signal that is out there now could be a nasty one and they know it. I posted that pattern yesterday showing one possible way of playing it. However, a false breakout to new highs that reverses is a well known pattern in all circles. When we combine that with the economic reports which for the most part are quite dismal other than the ones they are manipulating, and we have a potential for a nice move down if it were to get started.

Will it happen, who knows. What is clear though on a day like yesterday where alot of markets were teetering on breaking, was the end of the day save by the PPT buying futures to stop it. It is really difficult to predict when they will show up, but generally it is during periods where there are big picture reasons why a large down move would not be good politically.

Keep in mind as much as I think Barry the Intern is the worst thing that has ever happened to the world, this is not exclusive to him. The PPT has been operating for a while prior to his arrival.

Just sit back and observe the beauty of it on a day like yesterday this 5 min chart of the SP 500 should be framed.

Here is a pattern taught by Kevin Haggerty although he stole it from someone else and gave it his own name. He calls it the RST, but it is basically a megaphone pattern. Just to keep myself out of any trouble, I will not explain the rules other than just to display this here.



It is an expanding pattern of pivot points that resembles a megaphone, and it is a reversal pattern. There is another modified version of this called a Wolfe Wave. I did have that sell signal based on the Vix that showed up a few days ago that so far is terrible. Although it is just designed to identify a zone not a enter at the market when it shows up. However, the best ones do move price within a day or two which that clearly has not done, so it has to be labeled a losing signal.



Generally these megaphone patterns work best when they have symmetry like this has, legs of similar lengths in price and time. Also some oscillator divergence of some sort should accompany it and there is some of that here. It should work pretty quickly on a close below the prior bars low if it is valid. This is the first day it is valid, so look for a close below the low of a previous day for an entry here.



The cycles now are calling for further upward movement for a couple of weeks or so. I have blown the short term buy that I put on down at the low of this swing, exiting way too soon. I have not shorted this move yet fortunately as I use these signals to alert me to look for something not just to blindly jump in. It saves me from getting run over when they are early or wrong.

Mission Accomplished

As you can see from the chart, there is now an exit signal displayed coming into today. As I had stated, this signal was a short term signal that works over a few days period of time. I exited most of my stock trades on the close yesterday with a couple left to exit today at the close.

It does appear a potential short term sell signal will generate at the end of today, but we need a strong close for that to happen. Bigger picture there is a mixed bag here. Some of the indices are showing commercial buying and some are not. It is certainly possible we could have an upmove here. However, the trend remains down overall so I am just looking to sell strength when it shows up into that downward trend.

Keep in mind that there is a general bias to the upside above the 200 day moving average and to the downside below it for individual stocks. As a result try to trade in that direction in general. This is true basically because many fund managers really watch that average so it almost becomes a self fullfilling prophecy for it to work.

The 200 day has no edge in futures trading at all, it is a stock market phenomena.

We have a short term buy signal here as displayed for the Stock Market with the green arrow on todays bar. You can see from just looking at some of these signals that they generally give us a move over the next 2 to 5 days after triggering.



I think this sets up a bounce here that will set up a great sell setup in many markets mid month or so. Bigger picture I think this next down move could be significant but we will just have to see how it sets up after this bounce. This particular signal without getting into too complex of an explanation is based on the VIX.



I do also expect Bonds to decline as this rally occurs, setting up a bigger picture buy in that market. Many of the commodity markets have been absolutely obliterated in the last week, Energies and Grains in particular and Metals. This confirms the resumption of their downtrends, so rallies in all of them are selling opportunities.

After a day like yesterday it is usually important to not get so tied up in one day and to view things in a higher time frame. I know these charts are hard to see detail in, so just focus on the bigger picture. As nice as this rally from the March lows which I did call has been, it is still a rally in a longer term downward trend.





The red arrows indicate a proprietary combination of several things that tell me when to short the market. I also have them for buys but as you can see none of them show up on the chart which speaks loudly just by itself. You can see that on the way down they worked well, were a bit early on the way up. This is typical, they are not designed to pick exact spots, they are alerts to look for entries. We have been flashing these for awhile now, so once we find ourselves in July and in a known seasonal down period, have sell signals in a long term downtrend, that means we need to be looking to short individual stocks and the indices. This is what I have been doing and will continue to do until this picture changes.





If we combine this with what appears to be a top in commodities and currencies, and low in bonds, everything speaks in the same direction, lower prices for stocks. I posted about a month ago that it was time to get out of stocks, and we did rise a bit more from there. That was a general comment and not a day trading comment. It was made based on what is displayed here. It would be better to have the bottom pane more bullish which is actually a bearish signal. Fading sentiment is what we want to do, not go with it. The shift toward the emini's with commercials is underway and that weekly chart shows a more bullish reading with sentiment, which is bearish for stock prices. The preponderence of the evidence suggests down. It is possible that if during this decline the sentiment gets really negative it would support a test of the low and another leg up. That is something I will be watching as we move lower.



Big picture I think 2012 is when the ultimate low will be made and it will represent one of the greatest buying opportunities of all time. Between now and then we will have good swings both ways but I expect the big picture trend to remain down. If things develop in a way to change this view I will post something here to indicate my change in posture.





One of the very interesting developments is the very tight link between stocks and virtually everything else that is traded. You can watch intraday and when the dow rises literally everything on the board rises, and vice versa for declines. I have never seen anything like this and what it tells me is that the only thing that has really improved in the economic picture is that we have had a stock rally. As a result, when that appears to falter, everthing else that has been artificially lifted by it also falters.





Intermarket relationships tend to come and go making it impossible to model a trading approach after them, but I find this particular link very interesting. I just think it foretells of trouble not prosperity. There is really no fundamental reason for this link to be this tight.

What the Buck!

Here is a market that has confounded me this year so far. You can see the green arrows on the screen of the weekly chart of the Dollar Index. These are proprietary combinations of factors that dictate buying a pullback in an uptrend, some have been good, some have not.

There is very good reason to believe that we have another big leg up in this market coming by historical cyclical analysis. However, we are still in a shorter term downtrend. There is alot of jawboning about economic reasons as to why the dollar should decline. There are many that make sense conceptually, however I do not trade off such things. They are way to hard to quantify risk with and often can take years to play out. Also, I am of the belief that we have entered a long term deflation cycle that started last year and should continue for some time, so the inflation skit does not mesh with that view. I think the inflationary things the government is doing will just slow the rate of deflation, which behind closed doors is their real goal.

If we look at this chart we do see the commercials in the second pane green line at the top, being heavy buyers on these dips. This is bullish. In a perfect world my small fries with sentiment would be more bearish. You can see rallies have occurred when the readings on the bottom pane have been low. It might well be that we need to blow out these recent lows to get that sentiment more bearish to form this low, I am not sure. I am looking for buy patterns to get long here and have just not seen any yet.

I said in my last post that I thought the bond market has a ways to run and as you can see it is doing so. Pullbacks are a buy in this market now likely through October. I had stated that we needed a higher low to confirm the trend change and as you can see we have gotten that now, so the trend is up, buy the dips. Do not get tied up in this bullshit from the gold bugs about how interest rates have to sky rocket based on all the money we are printing, blah , blah, blah. I would bet I make more money on one good trade than these clowns do in a year. Although they do charge a 30% commission, so I guess they are not that dumb. They can snooker the public better than most people.

Regardless of any fundamental analysis we might do the price action needs to confirm that or it is all bunk. The trend is up now so until it breaks back down, buy the dips and tune out the noise.

Also most currencies look like they are topping here which means the dollar is likely to have an upleg here which would be consistent with the long term cycles.

After finishing my last post I scrolled and saw than in the first week of June I did mention that long setup in Bonds. Here is the trade I made just exited this morning. I do think that this market has a long ways to run on the upside. This trade was exited simply because it hit a profit target objective and was against the trend.

We still do not have a higher low or retest point yet which would confirm a trend change. All we have so far is a sharp counter-trend move. When you trade aggressively against the trend like this you need to take profits sooner to stay alive. I am looking for a dip now that forms a higher low than the one on this chart, and will look for a buy spot if that happens.

I mentioned in my last post that a minor sell signal showed up for the SP 500 and was worth taking. Displayed over to the left is the result of that trade. I used a smidge of discretion exiting as it technically fell 1 point shy of where my limit order to take profits was, then started to bounce. No time to be greedy when something like that happens, so I just quickly went to the market to exit. It may not look like much on that chart, but that trade made quite a bit of money.

However, the bigger portion of the last post was on the dollar and it's potential long setup. That was also triggerred and the dollar has moved up somewhat, but not as quickly as I thought it would with the stock drop that occurred. There is some international jaw boning about world reserve currency etc.. Maybe that is why the dollar which appeared to be going gangbusters, has stalled. I have no idea, I do not trade on that kind of nonsense anyway. However, it does appear that we have a major top at hand in many commodity markets, probably for the rest of the year. As a result, I expect the dollar to continue to move up overall.

I heard an intersting comment about all the money the government is printing now and how inflationary it is. The comment basically said it is the velocity of the money that causes inflation, not just the supply of it. If it is being horded, it will not be inflationary. I think in general that is what is happening and why we are still in a deflationary environment that should continue for awhile.

I have also been bullish on bonds and made a nice longside trade there that I just exited today. I am not sure if I ever posted anything on bonds here or not, but traded some emails with some readers of this telling them I was bullish. I continue to be and will be hoping for a pullback to enter on the long side again. Also hoping to sell a rally in stocks if we are lucky enough to get it, this could waterfall here.

Well right on cue, a minor sell signal showed up for stocks, and we got a bounce here in the Dollar. I had stated previously that there was not a sell signal in sight for stocks, then all of the sudden it showed up quickly. Is this a really strong sell signal ? No. However, we are in an area where it is worth taking.

This bounce in the dollar is a good enough bounce, when tied into the larger picture cycles and major support, to signal a buy now here if we move back down as indicated by the line on the chart. All this means is that we need to form a higher short term low now, then we can buy a break out above it.



Will it happen? you never know. If for some reason we get a sharp stock decline this could just shoot right up out of here without a pause, but odds favor somewhat of a retest of the low, which will be our buying spot. If the cycle is ready to kick in again, this market could really move up quickly from here. If these lows do not hold, you can probably kiss the dollar goodbye for awhile. This makes it worth a shot on the long side due to the possible big move that could happen, good risk/reward ratio.

Here we have Bonds, a market that is setup to make a low. We have the seasonal low time period at hand, commercial buying, and very negative sentiment.

This does not mean just run out and go long this market, but what it does tell us is that we need to be looking for signs of a trend change to get long here. Seasonals are simply a guideline for us to look for something, they are far from a holy grail for trading. However, this is one of the most consistent seasonal patterns that exists in the futures markets.

There is no question that there is more government manipulation of markets going on now than what we have seen in the past, but there is always this type of thing going on somewhere. One thing we have certainly had proven to us without a shadow of a doubt, is in alot of industries the last honest man has left town quite some time ago. We cannot believe virtually anything that comes out of a CEO or Senators mouth nowadays. Just accept this, it is what it is. This should not preclude us from making money trading.

Here is the battered US Dollar Index. This is a market that I have been wrong about. I have mentioned the long term bullish cycle that kicked in last year and seemed to support price right on almost the exact day it should have to be valid. After that prices did rise nicely for quite awhile. However, we have gotten into quite a steep downtrend here. The commercials have been buying, but not an a super aggressive rate, and not enough to support the price yet.

We are now in a zone where if the long term up cycle is going to be valid, the price needs to be supported somewhere in the area of where we are right now. Since alot of the dollar strength has come from stock market weakness and a flight to quality situation, it is doubtful that this market will find support unless we have a stock market decline.

I have stated in here that we are due for a stock decline, and I still feel that way, however, there are no immediate sell signals apparent. So, until that changes, I do not expect much to change here. There are alot of people who focus on economics who say this move is caused by all of the deficit spending, the fallacy with that is that none of it has been done yet, it has just been approved. Be that as it may, you cannot trade based on large macro-economic views due to how inefficiently those views translate into daily market bias. Even when you are right, timing a view of the next several years into daily activity is impossible.