CRUDE OIL

Here is a weekly chart of Crude Oil. It is clear that we are in a strong down ward trend. The commercials got long during the decline, which is more than likely just normal hedging operations, but has resulted in a small rally against the trend.

If there were to be a move up toward the 67 area and an accompanying shift to the short side with the commercials, this would be a very nice short sale setup. It may not move up that far, but choosing ones spots carefully is a very important component of a successful trading strategy.

Sometimes moves are missed by waiting for things to line up properly. There are fellow traders of mine that have the mental makeup to trade at a very low win to loss ratio, knowing the big wins will overcome all the small losses. These folks just fire away at marginal opportunities all day long, not being able to afford to miss any move that comes along. This is a very dangerous game to play. I prefer to pick and choose my spots, and am willing to see moves go by if they are not setup properly.

S&P 500

Will this ever end? It is never wise to fight a trend like this, and I have not been doing it. We do have a little divergence happening now with weak bonds, market by the down trending red line. This is not enough yet to be a big problem, but may result in itleast a buyable pullback soon.

This market has carried on for a very long time without even a 10% pullback, which is rare. With the commercials now short, it is not advisable to put on any new long term long positions here. Still, shorting this market is still very risky. The insiders have a lot at stake in keeping this move intact through the end of the year.

I will be watching the pullback closely in January to see if it has more dire hints, than just a pause to move higher again. If the commercials do not get long during that pullback, neither will I.

GOLD

Anyone who has either read this blog or is a client of mine, knows that I am not in agreement with the long term GOLD to the moon scenario. However, I trade shorter term than that anyway, so here is what we see as of today.

We have clearly broken the small uptrend off the lows from under $600. The declining line now indicates what the trend is, and it is down. RSI is also under 50, confirming this downward trend.

What to do next? Wait for a 3 or 4 bar retracement up against the downtrend to go short. If the market were to hold here and rocket upward changing the trend back to up, then buy the pullbacks. For now, however, it is short the upward flags against the downtrend.

If you take a broader view, we are really in a sideways market in general for the last several months here. As a result, you can always fade the range when we get to one side of it. We are basically in the middle now, in a short term down trend.

On the 9th I posted a thread about broadening formations drawn in here to the left. I mentioned that these patterns are very "noisy." What this means is that they are not very accurate % wise, but do create big wins when they are correct.

Here we have a typical scenario with them, the first trade, marked with a small red line, would have been a loss. How did I know not to take this trade?

There are a few reasons. First and foremost, the exact pattern at hand within the broadening pattern was not near accurate enough to make my system for the S&P. Second, the bond market has been very strong. Third, it is unlikely that the insiders pushing this rally are going to let much of it get away before year end bonus time. As traders we have to think about what we are doing at times, and if something flies in the face of several reasons why it should not be done that have a fundamental basis, that trades needs to be passed on.

This market "may" crack at some point, but it is still on firm ground, and anyone's guess as to when this rally will stop. The commercials are short now, so that tells us a pullback is probably coming in January. There has also been a seasonal tendency in recent years for declines in January.

I would suggest studying broadening patterns and coming up with your own ways of using them. This is an ongoing project for me. If I ever crack the code on how to use this well, I can assure you I will keep it to myself!!!!!!!!!!!! For now, it is a discretionary tool.

Bonds

The bond market is experiencing a decline here for the first time in awhile. Every time the PIMCO guys make a bullish comment, in the short term this seems to happen. Maybe it is just a coincidence, or maybe there are a few wise guys who trade size that fade them?

The uptrend is still intact, but we would not want to see alot more of this type of action or it may be in jeopardy. There is no magic to this, we just have to buy retracements in sync with the underlying trend until it changes. I have not gotten any buy signals in my short term trading system on this pullback so far.

It is important to note, that the commercials have gotten short in the S&P, so the bond market holding it's uptrend becomes very important. If it were to break it, the stock rally would be in jeopardy.

S&P 500

Here is a chart that displays the short term entry point, for anyone trading the broadening pattern in the S&P 500 I mentioned this past week. Once the pattern is formed, you short at the first break of a prior days low, with a stop above the high.

This is a noisy pattern, but the wins when they come are often very big. The win/loss percentage is low on this pattern, probably about 50%. When they occur at an extreme like this, in theory they should be a little more reliable, but I am not sure if that is true or not. I have not as yet been able to program this pattern, to fully test it. This is due to the almost countless variations that could be in place, that would qualify for the setup. It is much easier to visually identify it.

In any event, you will often be fighting big trends when entering these trades. Just study them on your own to see if they are of any use to you. They can be traded on all time frames, from a 5 minute chart up.

GOLD UPDATE

For those of you who are long the gold market, the inevitable pullback is happening. I have marked two possible stop placement areas with horizontal red lines. If you recall, I had recommended taking partial profits on the long previously due to the overbought condition in relation to the dollar. This is marked by a horitzontal red lone in the third window.

The first red line would be the most aggressive stop point. This represents the most recent pivot point. The other red line represents, the pivot point prior to the recent one.

Really strong trends, do not take out these pivot points, so this one does not look so good right here. We do not always follow the textbook with market moves, which is why taking partial profits helps you make money on a trade like this that did not work out all that well. It rose more than $20 from the entry point, which is $2000/contract. You never want to let a profit that big become a loss.

Megaphone

This is the S&P 500 as of the close of today. I have drawn in containment lines that resemble a megaphone or broadening type of pattern. There are certain ways of trading these types of patterns that are profitable.

I have drawn in a s below the horizontal red line which represents a possible short entry for Tuesday. This is just below todays low. If this low were to be taken on Tuesday, it would represent a false breakout to new highs today.

This is a discretionary pattern that is hit and miss, but if you go back and look at March of 2000 in the NAZ, you will see this pattern right at the highs. I have traded this pattern on all time frames and had some big hits, and also periods of losses. I point this out to beginners just as a field of study. I also continue to study this to see if there is any way of making it mechanical. I have not as yet found a way of doing that.

As a result, this is just a feel type of pattern. There is no doubt that there is major manipulation going on holding this market up this high, so we are really fighting the house shorting this market. However, this pattern does seem to conveniently show up at major turning points often. It bears watching.

Correction?

We finally got what appears to be the first leg of a correction. Is this the beginning of something more or not?

So far it is tough to tell. There has been some heavy insider selling going on toward the end of this up move, which could spell some trouble. However, in the absence of that, this appears to just be the beginning of a long overdue correction. Notice how strong the bond market is underneath, which is what we want to buy into a decline.

We have broken the most aggressive uptrend line so far, and are sitting on the second most aggressive trend line. This is to be expected. Upmoves that just go on and on without meaningful retracements leave themselves vulnerable to these quick air pocket type of declines. Now it is time to start paying attention to see if this decline is an ordinary one or something to be more concerned about. So far, no alarms are going off but stay tuned.

GOLD

As a follow up to the Nov 17th post, here is the updated GOLD chart. By now traders should be long this market if they played the flag break in the area of where the b is on the chart. I have marked with horizontal red lines, two possible place for stops to be placed.

Partial profits should be taken at this point due to the gap up open. Once the profit equals the risk, it is prudent to take half of the position off and trail a stop on the balance. This gives a chance for a home run on a portion of the trade, but locks in a profit in the event of a reversal.

As you can see from the third chart down, GOLD is not undervalued relative to the dollar here, so an explosive upmove, although possible, is not highly likely. However, the trend is up, and you are long, so stay with the trend and see where it takes you. I would suggest moving the stop up under pivot points that form along the way.

Anyone who does not know what pivots are, shoot me an email.

S&P 500

I exited my short trade on the gap down opening this morning for a small profit. Although disappointing because this signal is normally a big winner, a win is a win.

It is hard to have much expectation of large wins when trading against an uptrend of this magnitude. Even though we know a sharp pullback is coming at some point, timing it is another story.

Month end biases are in general upward so it seems unlikely any drop will occur prior to December, if it even occurs then. Nonetheless, if I get any more sells from my trading system, I will take them and see how they play out.

Here is an update S&P 500 Weekly chart

We are working on a 5th weekly close above the 2.0 standard deviation band, hence a tremendously extended market. One development that bears watching is the commercials. They are moving toward that short side of this market.

The purple line is the bond market, which remains strong. When we get into a running market like this with virtually no pullbacks, it is very dangerous to step in front of it. A reversion at the very least will occur, but timing it is impossible. Some traders I know will just probe over and over fighting trends like this until they hit the number. They do not mind taking alot of small losses as long as they ultimately get the big win.

I do not subscribe to this theory. I do have a short trade on right now, but it is very short term, and generated by my system. This in no way means that I am calling for a major top yet. Pullbacks are still buys in this market.

Here is what could change that. First, a break down in bonds, and second, a heavy short position by the commercials.

S&P 500

The big upmove continues, but we have possible flies in the ointment for the first time in quite awhile. You can see the trades I have made in this market recently, which have been few in number. Today's short entry is the first short trade in the last 40 days or so.

Notice the heavy progo divergence in the 3rd panel at the bottom. Also, the vix, in purple on the top chart has really been trending downward sharply. This warns of complacency in the marketplace. Short term timing with the VIX is difficult, but it does support the other potential problems with this rally.

Make no mistake, this uptrend is very powerful, and I do not expect to see a sharp drop. However, at some point we should see a sharp short term retracement to "shake the tree" a little bit. I have no idea if it comes from right here or not, but I am short as I write this in a short term trade.

GOLD BUGS ALERT

For all of you gold bugs, we are getting the pullback against the trend that is setting up a long entry opportunity. You can either wait for the pullback to get to the lowest low of the last 10 days and just buy with a pre-designated stop, or buy the breakout of the flag.

I prefer buying the weakness, but that is just me. Sometimes you miss trades by waiting for that weakness that never develops.

DOW JONES

The mid-term election cycle rally is certainly in full swing. As I stated in my newsletter, I have nowhere near the position on that I would like to have had on this move.

However, it is important to stay away from emotional tendencies when these big moves happen. As you can see from this chart the market has moved straight up with virtually no correction at all for many weeks now.

As tempting as it may be to chase this, at times like this you have to remain disciplined. A pullback will occur at some point, and when it does assuming the rest of the internals of the market are still good, it will be a good buying opportunity.

The bond market has remained strong, which is the type of support we want underneath for a trend like this to continue. I am waiting for an entry spot to load the boat, it has not developed yet. It may not develop, only time will tell. We are very extended on a short term basis, so it could happen at any time.

Here is the daily chart of Gold that I refer to in the second post. Now we have an uptrend, so buying the dips is the prudent play.

Percent R is a stock choice for most software packages. If you have it just wait for a reading of 10 or less, and buy the market once it gets to that reading. Use a trailing stop of whatever your risk tolerance allows. It should be itleast $10 due to the volatility of this market, and probably much more.

If you do not have that indicator, all it represents is the close compared to where it is within the range from high to low of the last 10 days. A 10 reading tells you that you are in the lowest 10% of the last 10 days range, hence oversold.

GOLD

I am back from Italy. Sorry for the lack of posts the last week, I had some technical difficulties with the Hotel and their internet access.

Gold has broken out of its downtrend and should now be traded from the long side. Here is a weekly chart of GOLD as of this morning. The key 574.50 level that I mentioned for closing, did hold.

Next is a daily chart which shows the shorter term uptrend better. Just wait for pullbacks against this trend for entries.

VACATION

I will be in Europe for a spell so there will not be daily updates until next week. For subscribers who may be frustrated that the bond trading system has not generated many trades lately, I have displayed this chart.

Keep in mind that my goal is not to get every wiggle, although I would like to. The goal is to be consistently profitable. This means at times we will not be in the market. Yesterdays post addressed the trading range scenario we have at hand. Notice now how what I said in my newsletter, written before this happened by a couple of days, has turned out to be true. This recent leg on the chart has mirrored the prior up leg to within 1 tick of the exact price.

Now we are at the top of the range, so why no short for today? Simple, this opening is the type of opening that on average is not wise to short. Due to the overbought situation of the market, this one may work as an entry. However, it is not high probability in my system and as a result is a no-go.

Sometimes the best thing to do is not trade and wait for the right moments. The system actually had a few potential buy signals up here that were filtered by some of my screens for entries. Until next week ......

BONDS

For those of you who subsribe to my services, I made mention in my monthly newsletter about symmetry in the middle of trading ranges. Here you can see how these uplegs look very similar. Trading in the middle of ranges like this is very dangerous.

Often the price swings all the way back to the other side like this, but not always. Sometimes you get stuck in the middle, with choppy action. You can see a sell 111'29 stop indication, which was filtered out as an order for today due to this range configuration, as well as the gap up bars.

I know that someone mentioned they felt rates were going to rise due to a fundamental reason. Who knows, that may happen, but right now they are dropping. Big picture fundamental things are very hard to dial in to short time frames for trading purposes. We are now approaching the upper range, where sell signals will make more sense. Hopefully, my system will generate some sell signals up here against these highs.

If I had to guess I would say that this rally is being generated by weak economic news, but that is just a wild guess.

GOLD

Here we now have a clearly defined triangle on a weekly GOLD chart. I have mentioned for a long time that 574.50 was a key level, and that any close below it would signal the end of the GOLD bull market. We have held that level so far and have bounced up right into the declining top of an obvious triangle formation.

Some gloom and doomers are calling for 35,000 or some such nonsense as the ultimate top of this market. (Just kidding about that number, but the predictions are ludicrous) It is also still undervalued against the dollar on a short term basis (the 3rd graph). If we get a breakout of this triangle on the upside on a CLOSING basis, this market can be traded from the long side on pullbacks.

Do not get tied into this inflated adjusted skit that people talk about who do not trade, as a basis for comparing these levels to historical levels. This is then used to extrapolate prices well into the thousands for target prices. Traders trade on the prices that are here, absolute levels. Economists talk about these other things, while being wrong time and time again in their predictions. Although you might want to keep that rap in your repertoire for cocktail parties and the beautiful women you might want to impress.

GOLD

Here is the completion of the gold trade. The remaining contracts were stopped out today at 598 for a .50/ounce gain, essentially just covering the commissions. Remember that more than 1/2 of the contracts were taken of at 597 for a large gain on that portion of the trade.

This is part of money management. When confronted with a large quick gain on a postion, I suggest taking 1/2 or more or your position off for a profit, and stopping the rest at breakeven. This way you have the potential for a windfall on the rest, but are protected in case something like this happens.

NEVER allow a huge gain to become a loss EVER!!!!!!

Gold

I pointed out a few days ago when Gold was at 598.50 that it was a short setup. As you can see that trade has a $21/ounce or slightly over $2,000 per contract gain. For anyone who took this trade the stops can be placed at the red lines depending on your level of aggressiveness.

Taking partial profits here would also be prudent if you have multiple contracts. For me the stop is at break even on remaining contracts at this point, $598.

Time for a little patting on the back - my own

Over to the left is the last update on the Robbins World Cup trading contest which features my bond trading system from the daily trading service offered on my web site.

As you can see, the account being traded there, which features these signals alone, has a nice 46% YTD return. It needs to be stated that the commissions and fees charged in these accounts are much higher than what is normally charged for self directed trading, and represent a drag on the return which brings it down to this level. Most of my other accounts with lower fees have returns in the 55% range due to this differential.

The main reason I have done this was to simply demonstrate out in the open for anyone in the public who wishes to see it, that my trading service does produce profitable trades consistently. I have not traded this to "win" which some of the contestants clearly have. There have been some wild swings in account balances as people have come and gone from this leaderboard. That is too stressful of a way to trade for my taste.

I have used consistent conservative money management to closely mirror what an individual just using prudent risk paramaters could have achieved using this service. There are some of you out there who have traded my service this year that have benefitted nicely from this. I have no idea how any individual might have managed his or her own trades within the signals given. YTD the signals have been 26/34 for 76.4% accuracy and a $5,118 per contract gain.

Golden Short Setup

This is not truly Golden it is just a play on words. Here we have a typical retracement against the trend setup. One trend measure that has written about by a few people over the years is just using the RSI and it's absolute value to determine trend.

I discovered this about 10 years ago just playing around with concepts and did use if for short term trading. More recently, Larry Williams has referenced this in his writings. Great minds think alike? Just kidding about that, but he suggests the 44 period setting so we will use that for this discussion.

Above 50 indicates an uptrend and below 50 indicates a down trend. The PercentR is a short term measure of over bought and over sold taught originally by Larry Williams. This tool is part of most software packages for trading. As you can see it indicates an overbought condition in a downtrend, hence a sell opportunity.

Displayed today is the S&P 500 and the bonds. Notice how all the way up during this big rally, the bonds have supported the S&P in both directions as indicated by the lines on the chart, until recently.

Now that the bonds have broken their uptrend, they are diverging from the S&P. It is early in the game for this to be a big problem, but it bears watching. Sometimes these divergences can carry on for months before anything happens like in May when it finally mattered.

However, in July the bonds started bullishly diverging from the S&P and almost immediately the stock market rallied. So, this is something that at the very least should tell folks to cut back their long exposure to stocks and be prepared to get out if we get a break down in S&P 500 prices.

At this point it is just a caution warning, but this rally is so extended that even the election bias is not going to save it from at the very least a pullback. Figure out your own ways of using this tool, it is worth the research time.

BONDS

Well things have certainly changed. No matter how we draw the trendline upward it has broken at this point. I had mentioned that I was suspicious of this uptrend but until the trend broke pullbacks were long entries. The reason for that suspiciousness on my part was that we had reached the 2.0 std deviation point at the highs, so we were very extended. This along with the commercials being heavily short were reasons for caution. These influences negated long entries that "might" have generated on the initial drop.

The trend has now broken. It still could be what we call a bear trap meaning this is a sucker move to lure bears in before moving higher, but it certainly does not feel that way. No matter how I test this pattern right here it is bearish. We are getting oversold, so we may get a buy signal here shortly in the trading service.

We do have a strong seasonal bias up for Friday so maybe that will bring a bounce upward, but this market appears to be in some trouble overall at this point. If we continue down, this is going to cause some problems for the stock market. So far we are only at 15 day lows, but if we get to 30 day lows it will be trouble in river city.

BONDS

We are precariously close to the uptrend line in the bond market. So far today, we have a gap down that has not been filled. Over time gap down bars are not good setup bars for buys the next day, so I will probably be on the sidelines again tommorrow in this market watching.

I feel it is very important for this market to hold right here. This market has helped propel equites as well as keeping a reasonable floor under the housing market. This certainly appears at this point to be more than just a pullback especially with the commercials heavily short, but technically it is still holding on but by a thread.

Bonds Living Dangerously?

Here is a daily chart of Bonds and the retracement that is taking place. The blue line marks the uptrend, which is still intact. This could just be a normal pullback and my system will probably have buy signals for Monday after today if we close here. I really wanted to short this market today last night, but the pattern just did not line up well enough. When in doubt, I stand aside.

However, for the gloom and doomers out there, if we break this uptrend that will be trouble for the stock market. Lower rates have driven this rally recently, and if that underpinning is removed I think stock prices will drop off.

You can see that seasonally we are due for a little drop here at the beg of October. This could very easily just setup a nice bull flag for a long entry. Let's hope this uptrend holds. The heavy commercial short position is a fly in the ointment here as you can see at the bottom of the chart. They have been early to the party. It will be interesting to see if the commercials have lightened up their longs in the SP 500 on today's report, I bet they have.

Is there trouble brewing in Paradise?

There is a trememdous lag developing between the DOW index and the S&P 500. Notice how we are at new highs on the DOW, yet are quite a ways behind the old highs in the S&P 500.

This is a bearish sign for the indexes. I have been looking for a rally all year and we have finally seen one. I had been expecting it to happen later in the year. Maybe this big divergence means we will see a drop off into the fall setting up the real buy point. Notice how closely correlated all the way up to the 2000 high these two indexes were, which is the relationship that should be in place.

However, with the bond market as strong as it has been, a large selloff is not likely. Hopefully this divergence sets up enough of a drop to give us a good long entry for the rally into the first quarter of next year.

GOLD

September 29th I mentioned that strictly from a trading standpoint this was a short sale setup and here would have been the entry this morning. I still feel that the fundamentals are a bit mixed in this market so I did not enter this trade.

I do not trade markets like Gold alot, so I want the perfect setup. For those wishing to trade in and out of this market alot, study this setup because it is a textbook flag/retracement against the trend trade.

You just look for established trends, which we have here and wait for a retracement against it up to a 20 or 30 period moving average. Once that setup is in place, just trade the breaks of the lines of the retracments like this one today. You can add a bunch of other "noise" to help qualify these, but over the years I never found any increased accuracy by doing that. This techinique just keeps you in sync with the overall trend in the market and over time is a profitable way to trade.

The only filter you might want to try is only taking the first 3 retracments. Once you get to 4 or more sometimes the trend is getting a bit tired and is due for a change. Just to reiterate, I do not trade like this, but this is a technique I used successfully earlier in my career. There are many traders that are quite famous that trade in this fashion alone.

The Buck

Here is a weekly chart of the US Dollar Index. I read so many articles talking about the doom of the dollar, yet we look at the chart and we are 6% above the low of 2005. Maybe the forecasters are correct, but we are certainly not in a huge freefall at this point.

Admittedly, I am not a gloom and doomer because I just do not buy into these extreme theories in either direction. There are seasonal decline tendencies in this market here, but until we break out of the downside of this triangle, the short term trend is up. Longer term, we are still underneath the trend down off the highs of November, so essentially in a holding pattern right now.

Sometimes when I am confronted with extreme predicitions I try and imagine what the world would be like if they are true. If I can imagine it then I give them some credence. If I cannot then I just brush such theories aside. The huge dollar decline theories are hard for me to imagine in this way for some reason. This does not mean we will not go down, but some of these huge % drops I read that are forecasted seem a bit out of whack to me. The Fed so far seems to be managing the housing slowdown pretty well, so I do not see why they cannot do the same if the dollar begins to drop quickly. In any event, the chart above does not show any immediate danger unless we break down below the recent up trend line.

GOLD

America's favorite commodity recently. It is strange how knowone cared at all about gold until the last few years. This is what a big rally will bring, lot's of hype and discussion.

Notice the chart on the left. The 3 fundamentally related indicators, the commercials, the seasonal trend, and it's relative valuation to the dollar all have bullish setups. However, the price is in a bearish flag pattern. We also have calming inflation, which is related to the dollar, and is bearish for GOLD. This valuation indicator on the bottom which measures pure relative valuation of the dollar to gold is an oversold/overbought indicator. So you can see that we can have both a relative oversold reading here indicating a bullish stance, yet along with that declining inflation which is bearish. You can see from the chart that the declining inflation which from my research is the most important driving force for prices in this market, has won this battle so far. No surprise the favorites usually win in life.

From a pure trading perspective this would be a short sale setup just based on the pattern. With all of the fundamentals lined up on the bullish side, I will not short this flag. I am looking either for a breakout above the downtrend line to get long, or the commercials and other fundamentals to shift to the short side during any bounce for a short entry. Once these things line up either way I will be looking for a bar pattern entry to enter this market. The chart pattern here mirrors the fundamental picture here in that it has been indecisive over the last few months.

Japanese Yen

Here is a market that is setup to rally but continues downward. The seasonal tendency is for a rally at this point, and the commercials are heavily long. However, as you can see by the red line drawn on the screen, we are in a strong downtrend.

I have marked a B for buy on the chart above that downtrend line. Any weekly close above this line at this point would be a signal to go long this market. Then if the trend does change to upward we can trade pattern setups along the way.

Until this trendline break, NADA. To quote Tom Petty, "the waiting is the hardest part."

Fighting the Trend

It is a natural human tendency to try and sell high and buy low and in general that is what we want to do as traders. However, we must balance that with not stepping in front of trends.

I have been run over enough times fighting trends in my life to itleast understand the danger in doing so. Here we have the bonds is a big uptrend, almost in breakaway mode at this point. I was out with a friend on Saturday who had no idea rates were going down because he has been listening to the media talk about higher rates.

There are a couple of reasons including the heavy short position the commercials have, to look at possibly shorting this market. However, this is a very strong uptrend, so the conditions are really going to have to be ideal for me to do it. I did find a good short pattern for today that had been great except when it occurred after 4 consecutive up closes which is what he had going in. As a result, the trade got nixed. Maybe something will set up for tomorrow, but this trend is very strong.

The mighty S&P

Have we started down yet? Possibly what we are seeing now is the beginning of the downmove so many yours truly included, have been looking for.

Plotted at the bottom is a ratio of the S&P to the Nasdaq Composite. There are pundits out there that will tell you the Naz leads. I think I might argue the opposite, but have not really found a relationship of any consequence either way. I am continuing to study this so maybe I will find something. What this shows at the moment is that the Naz is leading. Yet the Naz is only about half of it's all time reading where the S&P is very close to it's all time high. So, it is hard for me to see how that shows that the NAZ leads.

The red trend line is the key here. We have a very strong bond market which is supportive of stock prices, but these two markets have been known to diverge for periods of time. I was short yesterday and caught a nice short term downmove. However, until we break the red trend line this has to be viewed as just a pullback in an uptrend. My gut tells me otherwise, but the trend is up so that has to be the guide for now. If we get a break of this trendline on a closing basis then more downside should be expected.

Crude is getting crunched

If you go back to the archives and read my post from 8/16 you will see the bearish comments I made about Crude. It was trading at 73.19 at that point.

This is the type of thing that can happen when fundamentals change, the trend changes. I did not predict a major top even though that is what we had, but I pointed out several bearish signs that had developed. You have to stay with the fundamentals and the trend to stay ahead of the game in futures.

The commercials are shifting back in the direction of the long side of the market, but are not yet in a bullish enough position to signal a bottom. Besides the trend is down, so how far we go is anyone's guess. For me it is sell the rallies at this point. Hopefully on any rally against the downtrend we will get a shift in the commercials down back to the short side. It will be pedal to the medal if that setup occurs.

Here is the Booming Bond Market

We exited our short term long trade from the service today on the opening for a decent profit, marked on the chart. Just a brief word about systems trading. Today's bar pattern had a very bullish slant to it, and yet we had a profit taking order for the opening. Why exit if the odds are strong on another good up day?

Certainly someone can use this type of discretion in trading and in this case it would have payed off. However, I choose to follow my rules strictly which is of immense help during down periods. There is so much emotion tied to trading that removing as much of it as I can is very helpful to me. This stops all of the second guessing.

We have broken above the red line indicating the larger picture last remaining downtrend line. I still remain skeptical of this rally from a larger view, but for now the short term trend is up and that is all that matters. The trading system has done nicely navigating this market over the last few weeks, so for those of you taking all of the trades you should have been nicely rewarded.

Heavy Lumber

The Lumber Market has been under heavy pressure for quite awhile. The steady downtrend is obvious when looking at this chart. However, this market is setup for a possible trend change. POSSIBLE.

The commercials have become heavy buyers of this market for quite awhile. This is an example of what I have mentioned many times about how they are early at times. The typical seasonal low is in October, so if this downtrend line can be broken in that month it is a breakout that should be taken.

Also notice the strong divergence in the ProGo oscillator at the bottom. I am watching this closely and plan on taking this trade when it comes along.

Here we are in the midst of this rally in the S&P in the face of a seemingly questionable economic climate. How can this be? If we keep things simple which is of paramount importance in trading, look at the chart on the left.

Bond prices are rising (rates dropping), and the commercials are increasing their long positions on the rally in price. This does come at a time when typically we see lower stock prices.

Both of the above mentioned conditions are conducive to rallies, and we have the cyclical election rally bias at hand as well. It is yet to be seen whether or not a decline will happen into the OCT/NOV time frame. As long as the bond rally holds, I do not think a big drop will occur. If one does and bonds hold up well, we will have a very good buy setup to take advantage of.

I have not as of yet established a long stock position, so I have missed the boat so far. However, I am content to follow my rules for entry and wait for them to line up properly. I am more concerned about being correct when I enter, than catching every single move in the markets. I do not have any good short term sell patterns at hand, so nada here for the moment.

Golds Moment of Truth

In May I posted current charts of Silver and also the Silver chart from the all time high and asked if anyone thought they looked familiar? They were identical (the correct answer).

Following up with this at a later date, I described a pattern with a large run up followed by a sharp drop, then a rally attempt that fails to make new highs. As "luck" would have it this is exactly what we have gotten. This is a GOLD chart not Silver, but the formation and concepts are the same. In this formation, the low of the sharp drop 574.50 becomes the key support point. This is marked by the red line on the chart.

When these support points get taken out generally a large drop follows. We are very close to that low being taken out here, and if it does get penetrated the game is over in this market. Keep in mind there are no absolutes in trading just tendencies that we need to be aware of to more effectively manage our risk.

For those of us who have watched these types of things painfully punish the chasers over the years, it is clear when people start talking about outlandish price levels like $1300, $1800, $2800 that the top is in. This has not been easy to short by any means and I have not done it. However, I have completely stayed away from the long side mostly due to this big picture pattern that has been forming. Had a strong short term buy pattern setup while the trend was still up, I would have taken it, but nothing did.

SP 500 Up Up And Away?

Here we have a SP 500 chart with the uptrend line marked. In spite of what "should" be happening, this shows what is actually taking place. A very solid rally backed by dropping interest rates.

As many of you know I have been looking for a decline into the fall setting up a major buy spot. Will we get it? There is no reason at all to be short this market other than short term trading, until that uptrend line breaks. It comes in today at about 1310.

Before we can get any exictement going about a selloff, we have to break that uptrend line. Until we do the trend is up so be careful about shorting. One of these days we will probably get one of those "shake the tree" days where they break the market hard and the trend changes. However, it is very difficult to fight a trend day after day looking for that one home run. I do not suggest doing it.

S&P 500

Once again yesterday the seasonal effect failed to have an effect. The fact of the matter at this point is that the seasonal pattern is just not playing out this year. I was aware of it, so I only had 2 contracts on yesterdays day trade compared to the 30 I normally trade. As a result the 5 point loss is barely a normal commission.

This is where some judgement has to come into play with trading. I did it yesterday not by screening a trade completely but through the modificiation of my risk. I know that the day trades to begin with are the least reliable, so already they get half the risk allocated to it that overnight trades do. Next, if we have something so obviously amiss, I reduce the risk further.

The seasonal being completely opposite this year represents that "obviously amiss" category. Maybe we will still get a dip into the fall, but at this point unless that occurs we have to disregard the seasonal pattern, it is out of sync this year so far. I "think" the reason for this is the strong rally in the bond market.

S&P 500

Here is a market that is not "behaving." There is a very strong seasonal tendency for this market to be going down but it has a strong rally happening. Further, today is one of the most bearish single days of the year, the 7th trading day of September.

I do have a short position in a day trade that was entered at 1317, which is right about where the price is as I post this. There are a couple of other bearish patterns in place here. An outside bar following and inside bar where the outside bar has a positive close is also a short term bearish pattern.

As a result, my trading system has generated a sell signal to be exited at days end. This is a counter trend trade, so it is not lined up anywhere near perfectly. However, when your method says to sell you sell, when it says to buy you buy. It really needs to be that simple. You take the trades when they favor you and just accept what happens.

Still Waiting

The yen is a market set up for a buy signal, yet nothing has happened yet that justifies being long. Having worked on this pattern for awhile, it actually shows as a sell signal for tommorrow as long as the open is not less than 8611.

Since the fundamentals indicate a long, and the pattern is a short, I will stand aside. This is part of not fighting the trend, because it is still down. Aggressive traders could still short this based on this pattern, but this trend is a little long in the tooth so the odds of success are diminished.

I will stay on top of this one, and post any long side opportunities that develop in the bar pattern.

Trade Location

I had a few people recently ask about Silver and Gold. Here is a chart of Silver with two possible buy entries marked. As you can see the lower one was clearly the better entry than the higher one. In fact after the second one, the 5th bar after the breakout is actually a very good sell signal, trading back through the gap of the false breakout upwards.

How can we ever know this in advance? The answer is that you cannot. A great trader and friend by the name of Kevin Haggerty once told me that you should always buy at the lowest common denominator, translated, the lowest price setup. He feels that minimizes your risk.

So many people have fallen in love with the concept of diversifying into precious metals, which I feel is due to the media coverage these areas have gotten. One of my replies to someone recently was that Gold is setup better fundamentally to rally, but Silver has a more bullish chart pattern. These are both still true, but there is not a solid entry setup on a short term basis for these markets. Neither one of these markets has a pattern that I would buy here, especially Gold, which has been hit very hard the last couple of days. Silver, short term traders should have been short yesterday about halfway through the day.

Trade Location is of the utmost importance in making profits. Great ideas and bad timing will equal losing money. Make sure and try and take your bigger picture fundamental views and tie them into short term patterns that have the same bias. There are never any guarantees, but this will enhance your odds of success. Just because you think metals prices are going up, do not just run in and buy the futures or stocks blindly. Beware of "Location."

BONDS

For those who subscribe to my service you are already aware of the selling opportunity I pointed out for BONDS. In this chart you can see that right on cue this market has started to head down. Before patting myself on the back too much I have to admit that I also had mentioned this sell setup the month before. I was early on that call, but timely in this one.

The Trendline drawn in red served as an ideal entry point into this market. I do not believe in drawing a bunch of lines on charts and then claiming that "see I was right it stopped right on this line......etc." However, if there is a clear trend line that can be drawn between two points like this one, it has to be taken into consideration for larger picture views on things.

Also notice down below that the commercials went heavily to the short side recently right as we were kissing this trend line. Our service did get a short trade marked on the chart that made 19 ticks profit. That is a short term trading method that does not ride larger moves. This setup has the potential for a larger move than that, so anyone short from above should just have trailing stops to try and ride this for a bit.

Normally taking half of your position off at an equal point to the intial risk, and then trailing the balance at a break even from your entry price, is a good way of both catching large moves and minimizing risk.

Yen and ledge patterns

Currency markets are challenging markets to trade due to all of the gaps due to overnight action. One effective technique that can be used is defining these small ledges drawn in on the left and taking breakouts from them.

What we are looking for is matching highs or within a tick or two, and also matching lows within a tick or two. Each of these must be separated by itleast one bar or more. Once the ledge is defined just trades the breakouts. In this market I would suggest not taking the breakouts with big gaps up like today's. Also, trading them in the direction of the trend is preferred.

Some of these work, but the risk increases quite a bit. Also, today's gap is not from a ledge, I just showed it to have a real life look at a large gap as it occurred. This market is poised for a rally so this gap could hold, but a better entry is likely. Ledges work in all markets, but like any technique cannot just be traded blindly.

Crude Oil

Lewis, here is a current chart of crude in response to our exchange on this market. We are in a downtrend in price and the commercials who had gotten heavily short as marked by the downtrending red line, have moved back to neutral ground.

Open interest is not declining which is what we would want to consider long positions. That is somewhat simplistic and has exceptions, but is the general rule.

So we have a downtrend in price, and really nothing fundamental telling us to buy it, so short the pullbacks until this changes. If you go back to the post from mid August on this market, you can see how we have fallen further from the spot where I pointed out that the commercials were short.

Things do not always follow the script this perfectly, but it is suprising how often they do when you are keyed in on the right fundamentals.

Here is the latest on GOLD

It has formed the infamous triangle on a weekly chart. High level triangles the technicians will tell us are generally a bearish formation, and breaks below the downside of them should be shorted.

At the same time the commercials have been moving to the long side and open interest has been dropping. What this tells us that a larger and larger % of the positions on the long side are commercials.
This is bullish, yet we have a bearish chart pattern.

What to do? At this point I do not see a high probability entry into this market, so for me I will just stand aside and let the economists tell us what will happen here.

Profitable Trade

Here is the exit this am in the S&P trade I mentioned in the previous post. The market felt weak this am early so I exited just before the open for 5 point profit/$1250 per contract. This was not a great trade but still was a profit.

This market looks a little heavy to me here, so I am expecting a drop to begin any day now. However, this trade was with the trend so the odds are always in your favor when you are in sync with the larger time frame trend.