I am not full of Beans!!

I am not only not full of them, I am about to be short Bean Oil. Here is how things look coming into tomorrow with the night session opening already showing as the last bar. I have been watching this market because there has been a sharp amount of commercial selling recently. We now have a potentially lower short term high forming on the right side of the chart, so a break of that low is enough to get me interested.

Also from a longer term perspective, we are in a weekly downtrend and into an overbought condition against that trend. When this is also combined with commercial selling the result is a pretty good selling opportunity. As always we never know which trades are any good on the front side, so stops have to be used.

An update on the dollar trade setup for tomorrow follows. I am going to be a little picky here and wait on this market for something a little better. The oscillators still have not quite confirmed this the way I would like. Also when I look at the mirror side of this which would be the currencies, they appear to be a day away from the correct setup for me. As a result, I am waiting for a day there to see what tomorrow brings.

My achilles heel this year has been being too aggressive trading against some of these big trends, so with this market which has probably the strongest trend other than Gold of any market, I am going to be a little careful. I do feel this could take off at any time though so I may miss it by doing this. Also today, I did put on the first portion of my ETF short position in Silver. I am going to try and build that quickly since I think a large move down is imminent in the metals.

10 Buck Chuck

I think we are about to elevate the status of the dollar to 10 Buck Chuck from 2 Buck Chuck. It has been trading like that awful $1.99 wine at Trader Joes for quite some time. I have been talking recently about a pattern setup for a long entry, and it is really right here. The pattern is basically a fake out to new highs or lows ( lows in this case ) that is reversed the very next day. We also want some type of divergence to be present.

The red horizontal line shows the most aggressive entry for this trade, which is really just trading around that price still today. We are forming potentially a higher short term low today. A breakout of todays high tomorrow would be another entry that is valid and one I will likely take. I know we all decided that once again no venture no matter how lame, cannot fail so we bailed out a resort in the middle of a desert. Of course, what a great idea, build something that requires a ridiculous amount of water in a place where people can barely get to. On top of that make sure when they can't pay their bills that we keep loaning them more money.

What about the water shortage? Is this a good use for precious water, a bankrupt desert developement in bum f.... Egypt? At some point bad investments have to fail, until we allow that to happen we are nowhere near out of this difficult period. At least it does not appear this was done to bail out and enrich a union, but who knows.

We saw the short term effect on the dollar when this news broke. This market is the short squeeze of the decade waiting to happen. The whole world is short this market. The only people I know going long this market are some of the worlds best traders. Of course up to this point they have been wrong and are losing. Over time though some of the people I know that are buying this are rarely wrong for long periods on things. This trade is worth a short due to the tremendous upside explosion that is possible.

You can also see that the oscillators are also close to all being long, so this is ready for liftoff.

More Big Picture Stuff

Following up on yesterdays daily setup coming for a short entry into the S&P I thought it would be a good follow up to show some more larger picture things. This does all tie together even though at times short term trading can and is done contra to what my big picture views are.

Here we have a weekly SP 500 chart with alot of stuff going on. First as I have mentioned in the past, we are clearly into longer term resistance zones being basically at a 50% retracement to new highs position. This does not mean we will stop here, but it is a place to start looking for other things to support a reversal happening here. If we don't find them then we just move on. The next panel is Larry Williams Will Go indicator which attempts to time market swings with the relationship between stock and bond yields. It is at this point not really giving up any clear read in either direction. This indicator at times can be fantastic, but has been lousy recently. Nothing is perfect all the time, it is a tool nothing more nothing less, albeit it generally a good one.

The next panel is my Hybrid COT index which I have posted here before, although it also has had a recent miss or two, has generally been pretty good. Let's face it, this market move recently has defied alot of logic and some of the best traders in the world have been wrong about how far this has gone. When the government takes it upon itself to intervene to this degree it logically follows that tools based on free market forces are going to go haywire, and they have. Some of my colleagues have mentioned how strange it is that the Fed took a day off the other day and low and behold we had a big market decline. Kind of one of those things off a Seinfeld episode that just makes you say "Hmmm." I have railed enough on this subject to annoy just about everyone, so lets move on.

The last panel is the Bradley astrological model which is used by a few very good traders for stock market swings. It basically involves Planetary relationships which explain the tides and all kinds of other things that occur. I have not studied this a great deal but it is an interest of mine to investigate. As you can see the swings it has picked have been very good. It is now telling us that we are in a flat to down mode with a late summer early fall low predicted. This picks mostly time and not magnitude so keep that in mind when viewing it.

When you put all this together it does give us a reasonable conclusion that the next large move should be to the downside. The key zone is the 1014 - 1026 area where we recently bounced from. If that gets taken out it is our green light to get short with both barrels. As an aggressive shorter term trader, I will be in way before that, but may get smacked around a little bit in the process. We know that powers that be do not want a decline here, so I would suggest tight stops on shorts. As we saw in the preview Friday and actually Thursday in the electronic markets, once this does get away from them it is going down in a hurry. As a result it may not give us the ideal break and retrace and then go pattern that is the best one to wait for.

I am also going to start building my short position with ETF's on Silver tomorrow as long as the market is not down too much on the opening. The following chart shows my justification for that trade.

A new pattern I have been playing around with is shown here. A friend of mine who trades recently showed me an oscillator he was using and I took it upon myself as I always do, to start messing around with it. I found that when we reach an extreme with it as indicated with the first red arrow approaching a 3 standard deviation band, that we need to start watching for a reversal. Once a higher price accompanied by a lower peak occurs as indicated where the 2nd red arrow is, the divergence pattern is complete. Now we have to look for a pattern entry. There are other things supporting this trade I have discussed in here recently. Most notably the largest commercial short position ever in the metals, accompanied by the largest long positon in small specualtors.

This market has lagged GOLD by a tremendous amount, so it is the market to short. Always short the weak and buy the strong in a complex. I know there are readers of this blog that do not agree on my metals views, but I have to go by what I have studied for years. I just cannot get caught up in all the hype. The hype has been correct and I wish I had been long coming into this area. However, that is water under the bridge, and this market is setup to take a tremendous fall. Will it go to the moon or decline?

That is why they turn the machines on everyday so we can find out!!!

A TRADE COMING TO A THEATRE NEAR YOU

Here is a setup of a trade that I hope to make this coming week. Of course I have been harping on the bigger picture significance of this price and time zone. I have also remarked recently that the current trend was still in place so to be careful. Now we have entered into a situation where although the current trend is still in place, some of the entry parameters for a trade against that trend are now in place. I guess I am a reversal trader on some levels, although what I mostly try to do is position myself in the direction of where I think the next large move will go. At times this will be with the current trend, other times against it.

If you look at the momentum oscillators at the bottom of the page, they are now both under their trend lines indicating downtrends in momentum. We also have a pretty good divergence in the PRO GO OSCILLATOR ( the green line on the chart ). Now what I require is an upmove as indicated in red where the sell is written on the chart with the arrow. There is a certain pattern that is not shown here which is one of my main triggers, that should setup correctly on another day or two sideways to up here. Although the ideal would really be a false breakout to new highs and reverse immediately. This would trap alot of people. Time to watch closely each day now for an entry.

It is possible we just had a one day shake out on that extraneous event in Dubai, and if that is the case this will just rocket out of here to new highs and my pattern will not setup. If we start to drift sideways then the short setup should be there.

I am also watching Gold and Silver now for short entries, these markets are setup for historical declines now. The patterns are not quite there yet and may not setup. We saw a brief trailer on the upcoming movie, "The Fabulous Gold Meltdown" yesterday. The ADX reached 74 there the other day and there is also a Tom Demark Sequential sell pattern just completed. This market could not be setup better now for a large decline, I just hope I don't wake up one day having missed it due to a monster overnight move.

Here is a market I have called exactly correctly

Crude Oil has done exactly what I said to look for to enter a short sale and I have also stated it should be shorted due to the huge potential for a big move. We got that move today in a big way. We did retrace some at days end to mitigate the damage which also wreaked some havoc with the Natural Gas trade I mentioned in here the other day as well. I was stopped out for a scratch in that trade after having a huge gain, but the outrageous intraday volatility we saw today picked off my trailing stop which I thought I had well far enough back.

This is the tip of the iceberg folks. We all know this rally in many of these markets has been manipulated and is on fumes. We also know that the smart money is heavily short in most markets. The other thing I think we "know" is that the derivative meltdown is probably not over or the Fed would not be keeping rates so low. As a result, when the Dubai story broke it wreaked havoc on the markets. It reminded us all that the risks for a decline are very real. I have no idea how long "they" can keep this afloat, but when it does correct even a normal amount, many of these commodity markets that have been brought along for the ride are going to decline very quickly and sharply.

I really think you need to be careful playing the long side now even though trends are still up technically in many places. With all the fundamental things I have layed out in here being in place, the next large move should be to the downside. Today made it ever so clear what that might look like if it gets going. Had stocks continued down today we likely would have seen a $100 decline in Gold and $1.50 in Silver. It was only the equity rally that prevented that. Usually when you start getting volatility this sharp a change in trend is coming.

Is the Mustard finally off the Hot Dog?

As the overnight action continues to be very volatile, let's revisit my old friend the Gold Market. The Worlds Trade so to speak. I think if my Saint Bernards could talk they would ask when if I am buying gold and if not why?

I have layed out in great detail repeatedly in here why I think this is perhaps a bigger bubble than Real Estate was in 2005. I have overlayed a regression band for 3 standard deviations with a one year period. As you can see just a few days ago we exceeded this level. We are having a big reaction down so far, at one point this market has been down over $60 per ounce today. I think we will see a week with several hundred dollars an ounce down here at some point. When you have blowoff moves like this driven by speculators, generally they make V tops or bottoms.

That aside, from a trading perspective it is very difficult to guess where these highs will be made. It can take an overt news item like we have today to trigger it. The problem with this whole move has been it is being driven by individual investors and not the big money. As a result, it is a huge air pocket that will likely have crowded exits when small investors realized they have once again been duped. Since this market is alot more liquid than Real Estate, the drop when it occurs is going to be something for the ages to watch.

I have very much the same feeling about most markets right now that I had in late 1999. During that time I recall many people who had absolutely no idea what they were doing making literally millions of dollars buying internet stocks. I felt like a complete idiot because I was supposed to know something about trading and these people were far outdistancing my trading results. They were doing virtually everything wrong, yet getting away with it. I recall throwing up my arms one day in my office in late Dec of 1999, and just going to 100% cash in every account I had including retirement accounts. I just knew something was terribly wrong and was not going to buy into it any more. I told my friends who were trading and doing well to stop and get out. Of course I was laughed out of the room.

Two years later when I had actually made money shorting the crash and they had all been cleaned out, having lost millions in some cases, they came back to me and asked me how I knew. My answer was that I did not "know" but what I did know was the market was not being driven by a legitimate fundamental reason therefore it had to end. I did not know it would drop as far as it did, I just new it was a speculative blowoff being driven by things other than solid fundamentals. This Gold and stock market rally both have this exact same feel to me and I think they will both end the same way.

As you can see from my arrows on the chart, the trends are not yet broken, so it is possible this dip could still be a buy for another move up. Even if that is true, this market is on fumes or less, and it would not be surprising to me to wake up one morning and see it down $100 in one day. If equities are beginning something bigger down, this will follow. For those that have had the guts to stay long this long, at the very least have your stops very close now.

Time to sell the jewelry you don't use much, I have been pricing things this past week.

Talk about a How's

 Your Father!!!!

If Austin Powers had only changed the line to be, "just before Thanksgiving I live to give myself a how's your father" he would have described this perfectly. I have mentioned recently the heavy commercial selling that was in the NAZ futures in particular as being something that was also evident at the 2007 top. This is the Naz 100 futures chart above and you can see that it is crashing during the electronic session on this holiday.

There is of course a news story out about concerns about Dubai debt repayments, so it is possible that was the catalyst for this. However, I have been harping for quite awhile that this market is on fumes bigger picture. Due to the market manipulation by the US Government, it is has been very difficult if not impossible to make money on the short side. I have done it a few times, but really been lucky, maybe a tad of skill.

Certainly a move like this is going to catch the world by surprise. I did notice last night in what would normally be a dead night session that the Aussie dollar and other currencies were getting clobberred. Since the Aussie was my trade for Friday, I put some orders in to short just in case it continued to trade down. These orders were filled. I am also looking at Long the Dollar Index following Friday's post about the trap that is setup. We have not traded through Fridays high there yet.

Above is the Aussie short entry I took. You can see we had a pretty good head and shoulders type of pattern here, and the momentum oscillators were diverging a ton here. Also the Large Trader Proxy index, which is designed by Larry Williams to mimick what the Large Traders are doing has crossed down now to the sell zone. This accompanied by having record short positions with commercials in this market, and we had really as a good a setup as there can be for a short entry. I will take every one of these regardless of what else is going on. I cannot remember this particular session ever moving like this. This situation we have here is very unique.

The PPT is not going to like this one bit. How ironic that is, a situation that will strengthen our currency, and our own government will undoubtedly try and stop it. Go figure!

In any event, Fridays market action even though it will be a shortened session, is going to be very interesting. The world may have just been pantzed. With the dollar soaring here there is one thing that all the amateur economists should take note of. If you expect a stock decline, you should not be long commodities. A huge dollar rally is going to happen when the stock market declines, which is going to decimate commodities. What you are seeing here may be the beginning of something very big, although we cannot ever know that at the time. Short positions are the way to go here for now. I am of the opinion that this huge move up is an air pocket with no support at all underneath. We are about to find out if that is true or not. This breaks the short term trend, but not the long term one yet.

That post on Friday about the dollar sure looks timely right now. Tomorrow should be fascinating to see if the PPT can stop this.

A PENNY FOR YOUR THOUGHTS?

I thought the phrase above might be appropriate because it is about what my comments on the dollar have been worth. At times trading can make you feel like the biggest idiot on the block. Nothing can humble you faster than the markets except maybe a golf course.

Once again the dollar is getting clocked again, the short term trend break did not hold. This has happened many times this year, and is typical when you get a trend this strong. It is also why I do not go long until I see something a little bit more compelling. We do potentially have that here. If you look at the chart, we now have a potential trap and reverse scenario. If today were to close down where we are currently trading, at a new low for the year, that is the first step. Then what would need to happen is for Monday to trade above today's high where you would go long.

This is marked on the chart with a green B. Several people have written about variations of these trap patterns. The net of it is, what you are looking for is a move to a significant new high or low that is immediately reversed the following day or the day after that. Once you get beyond 2 days the concept is not really applicable. There is no telling where this dollar move will stop and it may continue to crater. However, as a trader your goal is to probe when an opportunity is there for a big win. I have written in here repeatedly, that the short dollar long other things, is the most crowded trade I think I have ever seen.

As my friend Kevin Haggerty who writes for Trading Markets.com has recently written, "the markets do not accomodate herds for too long." As much as I would love to be long metals and short the dollar, when the dollar short squeeze happens it is not going to be for the faint of heart in either market.

Just for Housekeeping purposes, the long Natural Gas trade I mentioned yesterday did trigger today when we traded above yesterdays high.

GOT GAS?

Here is a daily chart of Natural Gas, a market that has just been absolutely clobberred this year. I had a fun argument with my gas provider on my ranch who was trying to raise my rates. I faxed him a futures chart of the spot price showing a 30% decline during the time period he was trying to raise the price? Needless to say he was unaware I was a commodities trader until that moment. He still refused to acknowledge that I was right, yet did drop the price. That is probably a good synopsis of why we are in the trouble we are today economically. Here was a liar caught red handed, and refused to admit it. I am sure he got over on several other clients who had no idea he was stealing from them. However, like mortgage folks, I am sure he felt very good about getting away with it when he did.

As you can see from this chart, we have a very well defined downtrend line, drawn in red. We also have a potential higher short term low here if price tomorrow were to trade above today's high, the horizontal green line with a B for buy next to it. Also, you can see in spite of the weakness recently, the price is still above the trend of the momentum osicillator at the bottom, where the two vertical arrows are on the chart. This type of divergence from price during a period like we have here where commercials have also been heavy buyers of this commodity indicates to me this a market to pay attention to.

This is a trade I will do tomorrow if it rallies to the point indicated.

Are we ever going down?

It is time to revisit the stock market to see how things currently look. On this chart I have plotted a few things. First in red over the price are the big picture retracement levels that are commonly followed. We are approaching the 50% level, which is also in the same general area as an AB=CD leg for the two up swings off the March low. I don't think there is magic to fibonacci numbers other than they are so widely followed by fund managers, that at times they can become self fulfilling.

I have plotted also a custom indicator that I am working on that I just call the commercials hybrid. It uses the commercials data in a different way, and also measures them across all indexes, not just the SP 500. As you can see this indicator has been pretty good, with the only reading that was flat out wrong being the sell signal following the beginning of the March rally. There was a buy at the March low with this indicator, so when anything flips that fast it is rarely valid anyway. It was easy to ignore that one but even if we did not the overall accuracy of this has been pretty good.

As you can see it has now moved back into the sell zone, low readings are sells, high readings are buys. Now that we have this we can begin to look at other things to see if this has any merit.

First, the US Dollar. Since there is an incredibly tight inverse relationship between these two markets now, we need to look there to see how things look.

The daily chart of the DX shows we have a ton of divergence as we move lower. This is itself is often typical of strong trends, so not a reason to just run out and get long. Had you done that you would have been run over repeatedly this year. However, when this occurs at a time when something else significant is happening, it is time to pay more attention. Larry Williams releases a forecast each 6 months or so that presents roadmaps for market turns. Anyone seriously interested in trading should definitely buy this report. It is uncanny how accurate at times these reports are for forecasting turns in prices many months in advance. At times they get the exact day right 6 months ahead of time. They do also drift off at times. The key is to following the ones that the market is pacing to, and the DX has been one this year.

This roadmap calls for an 11/20 low, so since that is right now, and we have this divergence, things are starting to come together somewhat.  The dollar index itself is very lightly traded, so the volume in analyzing commercial activity there is not very useful. The best way to do it is to take the inverse, which is actually the individual currencies themselves. Overall we do have a fairly large amount of selling not buying in the currencies. As a result even though the DX just shows a recent net selling bias, I think that has to be ignored due to these other variables.

There is also as I have written recently, quite a bit of commercial selling going on in various commodity markets, also telling us of a possible dollar rally. So we have the hybrid index telling us to look for a decline. We have this confirmed by a possible dollar index rally. It is also further supported by a bias towards a decline in commodities. As a result, when we see all of this going on in a zone in price that is also a large picture 50% price retracement, things begin to tell us we should have a stock decline coming. Also, as I stated last week, many of the individual sector etf's have flashed short term momentum divergences.

I think in summary this tells me we are finally going to have a decline here. Whether or not it will be a buy spot or the beginning of something bigger on the downside is impossible to know at this point. We know the PPT is out there ready to do everything they can to support this market. I think at this point it would be shocking to see the 6500 level get taken out, but at some point if enough fund selling were to happen, even the PPT will not be able to stop it.

Personally, I hope a decline sets up a buy, but we will just have to see when it happens.

Well I would like to Speculate!!!!!!

This has to be what all the small investors that trade in Crude Oil must have decided recently. Look at the huge spike up the the small speculators positions in Crude Oil. I have posted recently that the commercials had their largest short position on record, now we see this to go with it. It just does not get much better than this for a fundamental setup for a decline.

Now, we do not just run out and short just because of this. This is a setup, not an entry. There are a number of ways to get into a trade that will put you in sync with what the big picture fundamentals like this are telling us "should" happen. I would suggest waiting for some type of trend change then either entering on the break of a support, not my first choice. The alternative is to wait for that to happen and short the first bounce.

Here is a snapshot of the last time the small spec long position got this high. In the first instance you can see we went down immediately. In the second instance we carried on for a few weeks before a big decline happened. This is why you cannot enter at the market in these situations. Gold has certainly been a recent example of this.

It is merely an alert to start looking for daily entries. The following is a view of the daily chart, and you can see it is somewhat of a mess, no obvious entry point here. I have drawn on it one ideal future "play out" of this that would give us a good entry. When we are trading in a well defined channel like this you need to honor the boundries until it breaks. However, if some type of lower high structure were to setup in the middle of it like I have drawn in red, it would be an entry worth taking given the potential for a large move here.

GOOD WEEK

Here we have the update chart of the dollar index from earlier this week when I showed the potential break of a downtrend line. When we combine this with the three point divergence in the Oscillator at the bottom, we do have a potential bottom in this market developing. There are also some pattern mapping models that call for a low to be made here, so we might be in business now. As per usual, we can never know if this is a major low or not, but if we combine this with the extreme short positions of commercials of many individual currencies, we begin to see the makings of something.

I have used this setup to filter out longs in other markets, primarily the Euro and Swiss Franc. Some of my short term momentum patterns indicated a potential breakout trade there, but I passed on those trades due to the dollar looking like it was making a low right on schedule with the pattern maps. Why would I want to be long currencies if I thought the dollar was going to rally, just did not make sense.

You may also remember at the beginning of the week I posted that due to negative momentum patterns in ETF's that I thought the breakout to new yearly highs in stocks was false on a short term basis. This also turned out to be correct. Sometimes as much as I personally get very tied up in all these cute little indicators and the like, you just have to step back and see how everything fits together. This business will always be about thinking, you cannot be a complete robot and just click the mouse anymore.

GOLD CAPER ABOUT TO END?

Here is how things currently look in Gold. I have written ad nauseum in here about how fundamentally this speculative blowoff is about to end. I have been wrong so far. However, I have stated that when you get an irrational move driven by small speculators it is very difficult to time fading it. We are at a juncture now where it is time to be looking, here is why.

First, we have a 3 point divergence forming in the Oscillator at the bottom. These are often present at major market tops and bottoms. Second, the ADX has recently gone over 70, another measure of an extremely extended market. Third, we have reached a Sequential Sell signal, which is a method of identifying major tops and bottoms created by Tom Demark.

With all of this in play with a backdrop of record small speculator longs and commercial short positions, this is a spot to look for an entry on the short side. Ironically as wrong as I was about calling a top last month here, I have made money shorting Silver in the trades I have done, one being one of the best of the year for me. I also stated long ago, that all I really care about is how much money I make or lose, predictions are for cocktail parties. You have to learn to be able to accept that no matter how good you are, predicting market turns on exact dates in advance is very difficult.

This is a specific setup now that says look for a short entry with whatever techniques you use to enter and exit. I will show my trades when I do them. I am not shorting yet, even though I am very tempted.

BULLISH?

Here we have a weekly chart of the E Mini SP 500 with a graph of what the small specualtors have been doing recently. Notice last year where the first red arrow is how there was a quick sharp buying frenzy by the small specs right before we fell off the cliff. Then the next arrow indicates a very heavy short position right at the March low.

Now you can see why I harp on what this group is doing and maintain that it does not bode well for Gold right now. It does not always turn right on a dime like we see here, but we should be prepared for the next major move to be opposite of extreme positions in this group. As we move to the most recent arrow on the chart, we can see that they are approaching a very heavy short position once again. What this means is that if we do get a decline it should be a very good buying spot. Whether or not this leads to a short term up move or a larger one we can never know.

If the small specs keep adding to their shorts in the next few weeks, look for a market rally. Do not confuse this with my larger picture wave count from a recent post, we are talking about entirely different time frames of analysis. This is more for a shorter term move. It could well be that we get a dip which triggers a buy for the last run up. Then we get a larger picture downward move.

Almighty Dollar?

Today we appear to have a dollar breakout in the works. You can see from this chart that we have broken a trendline down, after a false break to new lows yesterday. If you read my commentary from yesterday, I said I thought this could be a false breakout in stocks. It would follow that if that plays true, there would be a dollar rally. I have to admit I find myself pulling for a dollar rally for several reasons, many of which are obvious. If it does keep declining we are going to have serious trouble.

I noticed yesterday that in the Euro which is the most tightly correlated currency to the dollar index due to weighting, there was a tremendous amount of bearish divergence in one accumulation indicator I use. We are seeing that was a harbinger of a break down today. The Swiss Franc also had that same divergence, and both of those markets are down big today.

Will this be the sign of things to come, who knows. We can never know when a short term countertrend move like this will become something bigger. You just have to put on the trades and see what happens. I am not long this market yet, I will wait for a pullback after a trend change most likely, and this does not as of yet represent a trend change. It is something to watch especially after yesterdays wild day that really felt like a blowoff top in alot of places to me.

We have price and time cycles pending in equities here, that 1122 level I had mentioned is approaching, so it will be interesting to see what occurs if we reach that level.

SMALL SPECS GOING WILD AGAIN!!

One market I had on my trade list today to short was the Copper market if we broke down below the trendline I have drawn on this chart. You can see the monster up day that is brewing here along with everything else on the board, Silver in particular is booming today. Why was I looking at selling this market, the chart looks very bullish am I an idiot?

Not displayed is the huge commercial selling that  has been going on and as importantly, a big run up once again in the small speculator longs. I wrote about this in Silver and Gold recently, and so far it has not led to a top. However, when bubbles like Gold and Silver build as we have seen with other asset classes, it is impossible to know when they will end. All we know is that they will end, and will clean out the latecomers in the process.

I would love to be long Gold and Silver obviously due to the incredible moves happening there. However, there is absolutely no way I would buy them here. If you are long from a few years back, you have alot of wiggle room. I am a short term trader so I would never hold them this long anyway. Copper has now joined them with the fundamental setup for a substantial decline. However, there is no reason to short yet, at least until that trendline is broken that I have on the chart.

This is a chart of the XLY a sector ETF

I am posting this as just a typical view of what most charts look like coming into today. I am doing this because we are having another large upmove in the night session in the futures markets so the question is do we have another huge up move from here? What is very disturbing about this chart is evident where I have the red arrow on the bottom pane. A cross downward in momentum on Friday's up bar is not what we want to see to support this breakout. When I observe this across so many different sectors it tells me that this breakout on a short term basis is probably not going to stick.

Make no mistake, this is not a big picture sell the farm type of situation, but it is a caution flag for the next few days. I have to admit I did not expect to see this. I was scrolling looking for a list of longs to play today when I came across so many sector charts that all looked like this. The one that did not was the EWJ which was much weaker.

We have across the board strength in most markets from Grains to Metals to Currencies etc.. so this should be interesting today to see if intraday we get any reversal plays.

STOCK MARKET REVIEW TIME

There are several things to cover today, so let's get started.

First, the second graph down is an index created by Larry Williams to mimick what the Large Traders are doing in the market on a daily basis. They are momentum traders, and the general drivers of trends. They tend to pyramid into positions, buying on strength and selling on weakness. In general we want to be in sync with them whenever possible. There are exceptions to this, but that is a topic for another day.

If you notice by looking at all the red arrows I have up, down, up, down, you can see that by this logic, this market has been tough to get a handle on recently. There are alot of cross currents, but even if we did not know that we would be able to tell that just by looking at this. This is why I prefer to not trade on my opinion, and just follow tools like this. The other indicators are purposely un-labeled due to them being proprietary indicators and what they are composed of will not be disclosed. They are from Larry Williams, so anyone who has gone to his recent seminars will recognize them.

These also are see sawing back and forth. You also can look at the COT commercials for this market at the top and see they have 3 signals, 2 of which have been correct, and the 3rd one which is now showing buy is yet to be determined. All of this tells us a couple of different things. First, this market is very tough to trade right now, and has conflicting signals. As a result I just have not been trading it much. I wish I were taking some money out of the long side of this market because overall this rally has just been spectacular. However, I have to trade high probability trades to make money, and they are just not there in this market right now.

Second, all this shows this market should be traded from the long side right here. What I am hoping for is a dip of 2 or 3 days, and that is sets up the proper patterns for a long entry for me. This would be a short term trade only, 2 to 5 days. As per my post from last weekend, I will not make a major commitment to the long side in this market at these levels. It is possible that the government in all they have done has saved the day, and that the worst is behind us. However, until that large picture stuff is resolved one way or the other, and I see all the commercial selling in so many other markets, I still have to lean toward another good leg down being the odds on favorite.

TEXAS TEA FOLLOW UP



Here is a summary of an actual trade I made following up on my post on Crude Oil as being poised to decline. The little blue arrows are where I entered this trade, trade station puts these on the screen when you enter the trades. Although these blue arrows annoy me because I always have to manually remove them from the screen, it does prove an actual trade was made at these prices, so I guess it is okay to have them on the chart.



This is SCO an inverse Oil ETF. Since it is an inverse etf it rises when the price of oil declines. It comes in handy because you can effectively trade a short side trade in an IRA account. I made this trade in both my regular stock trading account as well as my Equity IRA account.



I had posted the heavy commercial short position recently in Crude as a reason to look for a decline in prices. The problem is that is a fundamental condition, trading the market on a short term basis is a different story. The price chart if you look at crude is very choppy right here, as a result I determined that this should be a short term trade and not a long hold. Crude did form a nice pattern with one of my entry techniques, yet the market is moving in a sideways to down in a channel, so I thought the opportunity was basically just a short term one to the bottom of that channel.

When today gapped up above yesterdays high on the open I exited the trade and took profits. At this gap opening Crude was getting close to the bottom of it's trading channel. Since gap reversals can be powerful reversal trades at times, I often exit when I see them especially if I have a good profit in the trade at the time like this.



I do expect Crude to move lower, so I will be looking for another way into this trade when the futures market sets up an entry pattern. Also notice the huge divergence in the Pro Go oscillator ( the red line at the bottom of the screen ). This is a Larry Williams creation that is very good at spotting turning points in markets. It is available on alot of software programs nowadays.

Now that we have rocketed up and out of that critical support area that I pointed out, where do we go next?



Well that is a very good question. The obvious targets remain 1122 and 1154, these are numbers I have mentioned before. One is symmetry on our 3 wave rally off the lows, and the other is a 50% retracement. One thing is clear, it is virtually impossible to make money shorting virtually anything except the dollar right now. I do expect this to change, but for the time being fighting this trend, or any other uptrend in other markets is just suicide.



As long as this recent low at the beginning of October holds, I see no reason to get overly excited about shorting the market. Those big picture wave comments I made this weekend, are just that, big picture. There has to be a short term catalyst or movement in the direction of the big picture view to confirm it. We have not had that yet. If we had some type of failure double top right here, that might be one possible indication that things might be changing. However, we have not had that yet.



Almost every timing technique I know to try and pick short term turning points is failing in every market. This tells us the trends are strong. I have made this comment before in here, but will make it one more time. There is something just not right about what is happening in these markets overall. To see all of these intermarket correlations with no fundamental basis continue to hold up is very troubling to me. It is one of these it is different this time scenarios, which usually turn out not to be.



If I can ever figure out some reasonable explanation for this I will post it. You could say it is the dollar, but yet it's normal relationship with other markets is out of whack also. I have not seen the PPT be obviously involved except on Friday for a bit to prop up things after the NFP report. However, other than that there have been very few obvious PPT appearances recently. We can never know for sure when they are active, but there are certain times when it appears to be obvious based on just looking at discounts and premiums and what normally triggers buy programs. Then you see them when none of these conditions exist. I have not observed much of that lately.

This is probably the most important chart I have ever posted in this blog.

I mostly talk about short term opportunities because that is how I trade. However, at times it is important to get a good general overall viewpoint on what is likely to happen over a longer period of time.



I need to state this very clearly, I do not use Elliot Wave theory to trade. I think the theory is amazing at times, but also often has a bullish and bearish scenario, that cannot be separated for making trading decisions. However, in the years I studied this very heavily, I found it amazing how at critical market junctures this theory picked almost the exact highs or lows of a move. It is just not accurate enough when applied to short term market moves to be usable in my opinion.



With that aside, this chart has about as clear a wave count as you will ever see for a large picture analysis. We had a texbook 5 waves down from the 2007 highs, now we are in a textbook three wave or what they call and A-B-C correction to that 5 wave sequence. In theory these corrections should not go past a .618 correction of the 5 wave impulse move down. The reason you may have heard some say we could go to 1235 and have this still be a bear market rally, is that is the .618 retracement level back to the highs. This is where I have the "line in the sand" level drawn in. For this theory to be correct we should not exceed these price levels.



You may also be able to see the 1154 on the chart, this represents exact symmetry between what would be the A and C waves, and also happens to be slightly above the 50% retracement level. The 50% level is another significant retracment level in this theory. So, we have alot of things coming together here that are saying this peak when it occurs, could be very significant. The chart as you can see in the larger green letters shows 1 or 3 and 2 or 4.

We cannot at this point know which of these is correct for either of these. It does not matter. Either way this calls for another move down that would take out the 6500 level low made earlier this year. If it happens that this is a wave 2 that is being completed here, that would be very ominous. The wave 3's are the largest waves in this sequence, so that would imply that the 6500 level will be taken out by a very large amount, then a bounce, and another move down for the wave 5 which would then represent one of the great buying opportunities of all time.



If the current move is a wave 4 then it just calls for 6500 to be taken out for the ultimate low. It is my belief that this is a wave 3, because there is not another impulse wave down prior to the late 2007 one that we could call a wave 1. However, if what we are seeing overall with the big move off the 2007 high down was the A for and A-B-C and the move up here is the B of this sequence, we should still see a 5 wave down move from here to complete the A-B-C, which should take out the 6500 level. So with all three scenarios, they all call for the 6500 level being taken out.

It has been my contention all along that the ultimate low is going to be made in 2012, so this all ties together nicely for that to be the case. Keep in mind these wave counts play out over long periods of time so that does not mean that we cannot get significant up and down moves within this structure. We have certainly seen that recently. We have had a monster up move that fits perfectly within this longer term downward structure.



From a big picture standpoint, the key levels are these. On the upside, if we go past 1247, this wave count would be invalidated. On the downside, if what we have seen is not an A-B-C and is in fact a 1-2-3 and we are now looking for a wave 4, the retracement cannot go below 948. So, a move below 948 would confirm the bearish count and one past 1247 would confirm the bullish count. As I have often stated in here, when and if we get a retracement, we will have to look at what is going on with some of the tools I have, to determine if in fact it is a buy or not. The post I made yesterday does indicate that in general if we get huge dips into high unemployment, they often mark very good buying opps. That does not mean the minute we get a dip with unemployment high, you just jump in with both barrels loaded. It means you then look at other tools.



This would be a chart to save and consult to periodically as we move along to see which of these is being confirmed. The main reason I am very hesitant to jump in even on a short term basis on the long side here, is what you see here. We are right into a zone in price where a major market reversal could happen. We are also getting heavy commercial selling now not only in stocks but almost every other market. When these two things happen together, it is not time to be aggressively buying.

With Barry claiming to have saved us all and that the stimulus and all the other spending is working, I thought it would be timely to just take a look at the Unemployment rate and how it has related to stock prices over time.

There is a very close correlation between these two interestingly enough, although it will not be what most people would expect. Just in looking back at the times since 1950 when we have been at or around 4% on the low side, and 8% on the high side, we have quite a valuable timing model that shows up. These periods of 8% or thereabouts were 1950, 58/59, 74-75, 82 and 1992. The 4% periods are 1953, 56, 69, 2000, and 2007/08. These have marked in every case a spot for a major price move. Low periods are tops not bottoms, and high periods are bottoms.

In examining this we have yet another anomaly that can be applied to this current move. It started from a very high level around 8% just like it should have. What makes it unusual is that as prices have soared, so has the unemployment rate. This has not been the case historically. Once the rallies have begun, the rate has declined. I admittedly have not been to accurate about this move off the lows. I did call for a rally in late Feb/early March, so I had that correct. However, in late May I said to get out, and that was way off.

I have continually maintained that this market is being manipulated in a way that I have never seen, and this is further proof of this. However, the bottom line here is that if we do happen to get another significant dip into high unemployment, it is a buying opporunity and not a sell. Of all things along the lines of manipulation, last night probably took the cake. I was watching Law and Order on the eve of this potential health care vote this weekend by the commies. The underlying theme in the episode was a shot at the current health care system and the implication that the drug companies are not to be trusted and need to be much more tightly regulated. It also had a public official returning a campaign contribution to a government official.

My wife used to be a pharma rep, I can tell you the one thing they do not need is more regulation. You can't take a pee as a pharma rep with out having to have some type of approval. It is amazing to me how far the socialist agenda on this is being pushed. They won't even let us watch a TV show without trying to push this! All this is inter-linked. I have maintianed all along that this rally was manipulated for political reasons, and the "mystery" buy program that showed up in the SP 500 a little while after the market was reacting negatively to the NFP report was a PPT classic. They did not have to do much more to keep the market stable yesterday.

Big picture lets hope we get a good dip to buy into, this still is a big air pocket right here.

Why I am so bearish on Crude Oil



Once again I am at odds with the public on something, not sure if I should be glad or worn out by bickering with people on things? This has no relation whatsoever to my view on the dollar.



If you look at this chart you can see clearly why I think we could see a large move down in the energy complex. First the commercials have a historic short position, along with that which is usually the case, the large speculators have a historic long position. The one important thing to look at with these, is where these levels relate to where price was the last time levels were close to this.



It is clear, especially with the Large Specs, that they appear to have maxed out their longs at a price level much below where it was the last time they had a position as heavily long as this. This becomes an issue of fuel. They are the trend drivers, and it appears they are on fumes here, yet price has a long ways to go to reach the old highs. Also the commercials big short position is at a level well below the last price level with an equivalent short position. This is exactly what we want to see to set up a sell signal.



Also, the seasonals as you can see have been very accurate in this market, and we are right at the time of the year where they call for a downward move. I am currently short Unleaded Gas, which in my view had the weakest short term chart of this complex, but any of these markets should have sell signals that work. No doubt stocks are effecting everything so if the stock rally continues it may abate this some. However, the fundamentals of this market are clearly telling us where to look.

As another light show of new highs across the board intraday is taking place, I thought it would be a good time to once again review where we are.





We are still holding and now rebounding off these key levels I have talked about, so for now everything is still good. Tomorrow I have decided not to go to the Improv because I will be able to get all the comedy I need from the doctored NFP report. I wonder if they will have the gall to tell us jobs were actually added? The lies are already at a level that I have never seen in my time on this earth, so why not just take it that far?





I came across Blowoutcongress.com recently and once I got over the funny name, I realized it is a great idea. They tell us that one party won one single election out of 7, and it was the one with by far the smallest number of total votes, and that is a ringing endorsement for what the current party running things is doing! I don't for a minute think these people are stupid like some allege, these are just very dishonest.



This is not a political blog, but politics have alot to do with this rally so they need to be considered. Of all the lies I have heard this one by far takes the cake. An election that I don't think had 100,000 total votes, we are to believe that is more representative of the national view than the ones that had millions!

People are not going to sit idly by and stand for what is happening. I have no doubt if the other party was in charge and doing things as outrageous as this, this condition would be the same. Extreme actions in either direction do not work for a country that is fairly evenly split on things.





What does all this have to do with the markets? It is imperative that this uptrend stay intact by any means necessary. Make the numbers be whatever they have to so as to not jeopardize this collective mindset. It is the only footing these traitors can stand on when arguing that what they are doing is helping things improve. If the market were to go south, then all of the sudden a 19% earnings drop by Cisco as just reported, would be viewed as bad news and not good. The collective psychology of things is so important when trading and looking for market moves. As a result, I believe that whatever the real unemployment numbers are, we will see nowhere near the truth. Anyone shocked by this needs only to listen to any standard politician from either party, just lie repeatedly about virtually everything.



So if you have made it this far without tuning out, what to do. If we are going to have any meaningful deeper correction here, the recent low has to be taken out. For those chomping at the bit to short this, I am not one of them at this point, you could choose a spot between here and the high and go in at the market with a stop at the high. The more prudent approach would be to short a break below from 11/2. The indicators I primarily use are turning up enough with this bounce here that my sell signals are going away. I have not gotten any buys, so I am sitting flat for the moment.

Remember not to buy or sell stocks based on your opinion of the economy, these two can diverge for long periods of time like we are currently witnessing. I know some of you think this whole move is bogus, and I do also on some levels. However, the reality is that we have an incredibly strong uptrend so do not fight it until it breaks. There is no telling how far this could ultimately go. Let the trend be your guide so until the 11/2 lows go I would not get too excited about going short. At the same time I would also not buy new highs due to those levels being the 50% retracement to the all time highs.

Time to bow to the Gold Bugs, you were right and I was wrong. Now that we have made a new high here, my mid Oct high call has to be labeled incorrect. I have shown two good short trades I made in Silver during this period, so at the end of the day I have profited handsomely from the call even though it was wrong.

I do still maintain my bigger picture call for this being a bubble, but my timing was incorrect, and that is really what matters. I still urge caution here due to what we know is driving this, the individual investors. However, it is off and running now, so shorts are not appropriate at the moment. It is very interesting that we have the dollar and gold strength together today, not often does this happen.

I bow to the Gold Bugs, they were right. However, from a trading perspective, moves made on small speculator buying do not last typically, so at the very least have your stops under the low of 10/27, the rug is going to be pulled on this at some point and when it is the drop is going to be shocking with the speed it occurs. If we get to the point where we have a decline and the small spec position gets worked off peacefully and the commercials buy it, I will change to a bull here. I am not a perpetual Gold bear, I am just following what I have learned generally drives market moves and it has not worked here.

For those know it alls out there who never admit to being wrong, try it you might find you like it.

Here is an example of one of these infamous "death spike" keypunch errors in electronic markets. The beauty of these is waiting for brokers to confirm they are busting they trades that were executed erronerously due to some clerk making an error. At times this can take hours and have huge dollars no pund intended, at stake.



Most of the time they do bust the trades but every so often they do not. I have been on both the good and bad end of these types of things, they suck!



However, take a careful look at this chart because this is what is likely to happen when we get a rally in this market. It is setup to be one of the greatest short squeezes of all time right now. We are teetering on the verge of a breakout upward, and even though this chart shows a bad price high, the real one is at a breakout level where if it holds, this market could take off. If this does happen, we are going to see a stock downdraft very quickly.



Admittedly I himmed and hawed over shorting some currencies last night, and chose just to stay with my Pound short I already have and wait for a bounce to short some of the others. I am just hoping we do not free fall here, but it is possible we could see a sharp dollar rise and equally sharp foreign currency decline at any moment now.

LETS TALK BIG PICTURE






Here is a weekly chart of the world's favorite market to discuss, the US Dollar. Yesterday as I was doing my weekly setup ritual for the coming week something just jumped out at me. While at the same time this was happening, a weekly COT summary from the only newsletter I subscribe to Bullish Review by Steve Briese, came into my inbox. It normally comes on Monday but for a couple of reasons he sent it out Saturday. I find this coincidence interesting, because he was looking at exactly what I was, and felt it was necessary to get this word out to his clients.





When I went through all the markets I trade and made note of commercial buying or selling which I do every week just as a general fundamental backdrop to work from, something very unique stood out. Commercials are sellers, and in record numbers in many places, in almost every single market I watch! They have been buyers in only 3, the US Dollar, Interest rates and everyone's crazy uncle Natural Gas.





The selling everywhere and buying in the dollar and Bonds is basically the same message as inverse relationships are in place there. Natural Gas is a zaney market that dances to it's own tune regardless of what is happening around it. Kind of like Leslie Nielson's character in the original airplane movie. In reality, every single market except the dollar and Bonds is setup for a decline based on commercial activity. I do not remember this every being the case before, although admittedly this is just based on my memory and not an official log of things.





When I note that, and also read Briese's comments who is one of the foremost experts along with Larry Williams on the COT data, I thought it was worth pointing this out. Here is the trick with this information. Commercials have been sellers in alot of markets during this huge rally we have had, and that is not particularly unusual. They are hedgers and are often positioned opposite of the trend. However, when we look at weekly charts and see that it could still be argued that all of these moves are retracements against larger time frame downtrends, it takes on a little different meaning.





I think this emphasizes the importance of this market juncture we have at hand. As I stated in yesterday's post, if the stock market does not hold these levels right here the party could be over. It will require a stock selloff to ignite these commodity downtrends, and we could be on the verge of that right here. When I see record commercial positions on the short side like that of Oil and Gold specifically which are two strong bell whether markets, I have to conclude that the preponderence of the evidence does suggest that we will not hold here. I posted the Dollar chart just because it is the de facto default for everything right now. Even though the commercial buying is not overwhelming in that market alone, the selling is in many of the individual currencies. This basically translates into a buy signal for the dollar.





From a trading perspective, it is still look for a buy signal here and if one does not develop, look to go all in on the short side across the board on any bounce. The problem with this rally, if there is one because it has been spectacular, is that it is a huge air pocket with no support levels in place to hold a decline. If we were to break down, this could be a very sharp move and happen very quickly. The PPT has not been active in the last couple of weeks for whatever reason. If the gates open here they are not going to be able to contain this.

In listening to the talk radio shows with the finance guys on them, the buy and hold strategy is once again gaining momentum. The theory that you always have to be fully invested but be "diversified" is being pushed. It of course is no coincidence that their fees come from amounts committed to things, so buy and holders make them the most money. What a short memory people have if they buy into this theory. Timing the market can not be done, etc.. they cry!

Quite frankly it is not an easy thing to do, but there are the Bruce Kovners and the Tudor Jones, and Stevie Cohens of the world that prove that these scrubs who claim it can't be done just don't have the skill to do it. As much as I think Soros is a jackass and would rather take him into the octagon than praise him, he certainly has made billions timing markets, have these people never heard of him either?



Great Opportunity is here