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.