THERE ARE FREE LUNCHES

I did find a free screen capture program to use for today, but alas it kinda sucks, but is better than nothing. I cannot draw any arrows or put any text on the charts. Basically what we see here is the Dollar Index above with a few momentum oscillators on it. Then at the bottom, a longer term trend measuring line. The first two which are LarryWilliams creations indicate that we are in a downtrend in terms of momentum, yet the third panel indicates a strong flat lining uptrend. It could also be argued that in the top two panels the momentum line has gone down much further than price, which is an exhaustion and therefore is a buy signal. That is a judgement call.

I have colleagues who are looking at this as bullish and they may be right. If we all agreed prices would never move. I am short this market now with stops above. I will get stopped out for a loss or hit a profit target for a win. I lean to the short side of the debate here due to the accumulation/distribution indicators, the Green and Purple lines. You can see they are heading down ahead of price. This is just another trade. I want them all to work but really don't care one way or the other about any individual trade. Trading is too stressful to get too hung up on individual outcomes. All your hair would fall out if you did that. The EURO of course is the mirror opposite of this being setup bullishly.

You can see here in the EURO the dramatic increase in COT longs ( RED ), and more importantly, the huge short position in Small Speculators ( GREEN ). I always look for opposite moves when the Small Specs start leaning this heavily in one direction. Also, this is a trade the "World" is short. I am for the world, but when it comes to trading, I want to be against it for the most part. I tend to like to play the EURO due to it moving more, but the DX you can dial in the risk better due to the smaller movement per tick. If I know I want to risk X dollars, it is easier to get it close with the DX. I always wind up too far under my 2% risk factor due to rounding down numbers of contracts, when trading the EURO.

Next we have a similar situation going on in the BOND market. You can see below the heavy Small Speculator long position that was evident right at the recent high. This is a market I have mentioned recently as something I was looking to short. I am hoping we get an early bounce next week there for a shorting opportunity.

If the stock market happens to collapse again obviously this market will rally. For this trade to work we will likely need to have sideways moves in stocks for a few days, then a rally in them. Will that happen? You got me!

Have a nice weekend

ON VACATION BUT NOT ON DRUGS

As a trader there really is no such thing as a vacation. I am constantly watching the markets and trading them regardless of where I am or what I am doing. I never want to miss a large move because I was not paying attention. I do miss moves for other reasons, but will never allow myself the excuse of being mentally checked out.

Of the things I called out yesterday, every one happened except the Gold and Silver, and my orders were not filled there anyway. Now it appears to me that the Metals shorts are marginal, and the Copper market is actually setup for a rally.

The one trade I am really laying in wait for is a short in the Bond Market here if we get a bounce of 2 or 3 days. My momentum indicators that I use have turned decidedly down now in this market, so I just need an entry pattern now.

It does also appear we are putting in a low here for stocks, so I am looking to get long there. I am long the inverse dollar ETF ( UDN ) which had huge volume yesterday. I am not sure I am thrilled with that, all the amateurs piled into that trade yesterday. The volume was up 15 fold in that ETF from the prior day. I guess I have to hope John Q Public has that one right. I took it because of the short I took in the Dollar Index in attempt to mirror that trade in my equity accounts.

From a bigger picture perspective, it does look like quite a few things are going to rally here, Grains, Energies, Currenices, Stocks.  I am not sure about the Metals. Copper looks like a near term buy to me then a longer term sell on a rally on the Weekly Chart. Gold and Silver I do not have a clear view on, but the Weekly trends are up, so I guess that is the path of least resistance now that the short term sell patterns have not fully developed.

I was trying to buy Sugar today, but that market is down alot, so I think after today this Buy pattern is going to probably be nullified. It may not be I will just have to wait and see how it looks after today. The Sugar long I mentioned in here last week did work out for a profit, but less of one than I had hoped. I cannot show charts from where I am now, so I will catch up with the charts when the trip is over.

As for today, often days like yesterday are followed by narrow range sideways days too consolidate the prior days action. I am hoping we go across for a few days to setup a long entry in the indexes. Also, we are heading into a holiday, so the volume will probably fall off making the PPT the deciders on what happens today. This will likely mean that if we happen to be down going into the last hour, look for a late day save by them. These guys are good as we have seen over and over during the last year. If you are a day trader, look for longs during the last hour if we happen to be down going into it.

Good Trading to all

I JUST READ IT FOR THE ARTICLES NOT THE PICTURES

That is what everyone always says about  Playboy, will it be true for this blog?

I am traveling and do not have my good screen capture software on this computer, so no pretty pictures until I get back home. Below is what I am looking for in the near term:

-Dollar Decline, I shorted this overnight

-Rallies in most other currencies, this would logically follow a Dollar Decline

-Gold and Silver shorts, these orders are not filled yet but are in the market below where we are  currently trading

-Stock Rally, I do not have buy signals yet but it just looks to me like we are going to bounce here. All the rallies are being sold so far, but if we get one that breaks through that selling pressure it could be a big short squeeze up day

-Crude Oil rally, it appears to have started already. This market got extremely oversold during the recent decline

-Grains Rally, a few heavy Small Spec short positions have developed in a couple of these. In general when we see that we want to trade in the opposite direction.

STOCKS

For those who buy into my expectation here, the Naz has been the strongest of the three indexes, having not taken out the crash low like the Russell and SP 500 did. As a result, focus your longs in that area. I do have buy signals in individual stocks, but not yet in the indexes themselves, so I am hesitant to fully commit on this. However, the setups I look for do not develop at every single turn. As a result, this could easily go from here due to us being in the weekly support zones. What I need to have happen is a bounce and a pullback for me to get heavily long. Will we get it? I have no idea, but I always have a plan for what I am looking for and what I will do if it develops. Until that time, I focus elsewhere in my trading. For the time being all the pivots are down, so I will not commit fully to the long side until that changes.

DOLLAR

This trade is setup very well in my world, with most of my trend indicators indicating down even though price is still strong. These types of divergences are what I look for most often, and they are in place here. As a result the mouse gets clicked. It is really that simple in my world. When the setup is there, I calculate how many contracts based on the risk per contract and enter the orders. I do not call my friends to ask them what they think, nor do I read anyone else's opinion. It is my money at stake, so it is my rules that matter to me.

I do talk with others traders often, amd we exchange views and trade setups etc.. Some of these traders are better at this than I am. However, I have never in my whole career taken a single trade just because it was recommended by someone else. I have missed some very good trades by not doing so. I do not care. I review all the trades I make by printing out the charts and keeping them in a binder. Typically after the end of each month I go back and look at what I have done, why I did it, and look for things that need improvement. I never want to be in a position where I review a trade and my notes show that I did it only because someone else told me to. There are not many breakable objects in my house that would survive that review.

I do look at markets that fellow traders point out to see if where they are looking is supported by what I do. I have at times found things I missed by this process, and gone on to take the trades because it turned out my rules were met. You never want to be too much of a know it all in anything because it will block your ability to grow and improve at your trade. There is a balance that needs to be met, between being your own person, doing what you know is right, and also being open to new ideas. There is rarely a week that goes by where I do not look at a different way of doing trades. This week might be the exception to that as I head off to the golf course.

Good trading to everyone

NO NEED FOR A MORNING JOE

Overnight action continues to pummel the markets, if you need a morning cup of Coffee to wake up now something is wrong. The above chart with the Dow Futures shows that we have now traded below the "flash" crash lows. I said at the time that was the sign of coming attractions, only the media was hyping that as the actual low. We may have had liquidity issues due to trading platforms, but the reasons for this decline are real and there was no reason why that would have been the absolute low. However, I am a short term trader, so I move to where the opportunities are and for the moment I think they are for a long side entries in some places. I mentioned I would be looking for a fakeout once this low was taken out, so I am now looking for buy entries.

However, the main indicators I use to measure things are not giving them here even though we are in a price zone I want to look long. As a result I am just not doing much trading right now. I do remember recently a reader of my blog who I respect a great deal sending me an email about a buy signal that was generated for stocks very close to the top, by a well known market guru. It was based on a certain number of issues trading above certain levels, and it was at a very high percentage. Of course being the contrarian that I am, my remark was it sounds more like a sell signal and I was right. This gentleman ( the investment manager who issued the buy signal not the friend who told me about it ) has a good record with this particular signal, but sometimes you really have to think about what you are doing instead of just blindly following mechanical rules.

It certainly made no sense to me to all of the sudden go long after we have had a rally the magnitude of what we have had, and were into obvious resistance areas. I had been mentioning for months in the 1229 - 1235 area in the SP 500 as a problem area. Maybe he gets bailed out by the rally returning to the market, that would not shock me. However, at the very least you could have bought in 10% or more cheaper now. I warned repeatedly in here that this market could fall 2000 points in a flash, due to how it was arficially raised to valuation levels that were not sustainable. You may recall the charts I posted with individual stocks, one being a blue chip Dow stock, where it looked like a Pork Belly chart. I had commented this was not sustainable, so this is what you get when you get these types of price extensions.

Ironically, now we are getting some interesting market cross currents that make me wonder if we are not going to reverse from here. Normally with an overnight wipeout like this you would also see more downside movement in many other markets. I would have thought the Dollar would be up alot more as well. The weekly trend in the indexes is still up, so we are into support levels in this area. We also have some divergences in some of my proprietary things I use to spot reversals. One of these is shown below in the Euro and there are many others. I do think the next move is going to be up from here and hope to get long in the next few days.

These divergences have been present at many major turning points, and I have learned to set my opinion aside and trade them when they show up. I am looking for a long entry in the Euro due to this right now and hope it develops this week.

TOOLS FOR TRADING

I am constantly displaying different things that attempt to measure and quantify market action. We calls these "tools of the trade." Regardless of your occupation, there are certain techniques you use to determine how you will go about your business, trading is no different. One of the newer ideas that is out there is projecting price movements by computer matching of bar patterns. The techniques use algorithms that go back and measure or match the recent activity to other occurences that have high correlations to that action. They then project what will happen going forward, based on what has happened during the prior occurences that have a high probability match.

Above you can see one I have run for the SP500. What this match is telling us is that based on an 80 percent correlation, there are 13 prior matches in the history of this contract to recent action. On average what you see is what has transpired after those prior occurences. This shows a small rally, then a small dip, then a steady rally for a couple of weeks beyond that. I have played around a great deal with this and have found it to be useful, but more as a tie breaker if I am undecided on something. When this tool was first released by Genesis last year, I thought it was just great. I do think it is accurate more than 60% of the time. As a result I used it on a weekly basis to confirm every trade. Alas, I missed a few very big ones where this was wrong and everything else I use said to do them, so I put it in storage.

Recently though, I have taken it out of the moth balls based on a comment friend a fellow trader about it, just to use as a general projector of what might happen. If it is against what I am considering doing I do not care if everything else says to go. However, if I am really torn on something, I am using this to push me into a trade. There are now versions coming out soon that will do this same thing not just on price, but on the indicators themselves. For example if you use stochastics you will be able to have your computer tell you what happened with price the last time the stochastics "looked" like they do right now. I have mixed emotions about this for a few reasons.

First, the more mechanical you get the more subject your approach is to being over optimized. The biggest nemesis to developing trading systems is "data mining." This is basically where you tailor your rules so precisely to prior outcomes that it is virtually impossible for them to work in the future. However, your test results look gangbusters. Second, for the most part indicators tell us what has already happened. They are generally not inherently predictive even though we try to make them so. Third, we are getting into a situation where we are trying to compete with the brain trusts of wall street. Large funds can hire alot of brainpower to develop and use tools like this in way most of us neither have the time or the skill to do. If we get too reliant on this we are at best using something in an inferior way to someone else.

It certainly is an interesting prospect to think about the computer being able to tell us when our favorite indicator is telling us something and to know exactly what that something is. Are the patterns we use as good as we think they are? This will tell us that. However, there is one thing that can get lost in all of this technology, the human element. As full of flaws as we all are, we do have moments of brilliance that can lead to very good successes. Making judgements at critical times is part of life. Trying to get around making those decisions so we can blame the bad outcomes on a "system" or tool is just a cop out. I am willing to live with the ramifications of my decisons, knowing at times the decisions will be lousy. I also know at times the decisions will be great and better than any machine can make.

When I made my transition away from systematic trading to discretionary trading it was painful. The first few months were very up and down, not at all what I was used to in my old mechanical days. However at this point I now make more money that I ever have trading with discretion, and I would not have it any other way. Tools of the trade are mandatory, just don't become slaves of them. Use them in a way that best suits your personality. I can assure you that if you have a conflict between the two, eventually it will really bite you. The worst part is that it will most likley bite you at a time you can least afford it.

Is that above forecast likely to be what happens? I have no idea. It is in conflict with some of the cycles I displayed over the weekend. It does represent what would be the bullish case here that we will find support at these levels and move back up again. Some of my cyclical work indicates a bounce here, then a larger dip than this shows, so we will have to see what transpires. That is what keeps this fun, not knowing.

Consistency Matters

For those of you who question the PPT and whether or not they exist or what they do, it is time to take your head out of the sand. Yesterdays "mysterious" recovery in prices in the last 20 minutes was a news story reported. You get me on a news station and my market recap for yesterday would have been as follows.

"Stocks opened sharply lower this morning on follow through from Thursdays weakness. This was a logical place to trap short sellers below the low of the Panic selloff day from the prior week. Professionals bought in at these levels triggering a rally that went up sharply. This move was in the midst of a downtrend, which led to profit taking driving prices back down. The US Government decided it did not want a weak close on this day, so with 20 minutes to go they launched futures buy programs. These buy programs in term triggerred stock buy programs driving the Dow average up triple digits by the close 20 minutes later. Our calls to the treasury department for a comment were not returned."

I guarantee that would be a ratings hit for whatever network I was on. Ironically it is exactly what happened and not just smart ass commentary. News outlets are more interested in ratings than the truth which is at this point indisputable. Where does the PPT's late save yesterday leave us? Unfortunately, this is the truth the left biased media does not want out, so alas this will never happen. It would be fun though wouldn't it?

The first thing that jumps off this chart is how consistent these 17 week lows have been. Every single one of them has had a good sized rally beginning at the dates the cycle has indicated. It next comes due 7/2/10. By this logic it would follow that we would drift down into that date for a buy spot. I do not use cycles much for actual trades, but they are helpful in trying to develop a general idea of what might unfold moving forward. There does appear to be some confluence for a big rally beginning in mid October, but I will cover that more as we get closer to that date. That also coincides with what would be the next cycle time zone after the one that is displayed.

Moving away from the cycles, the other thing that really stands out here is the huge bearish divergence that has been building during this rally. Since the Pro Go indicator is designed to tell us what the professionals are doing, we can see more evidence that they are not the ones that have been driving this higher. Hmmmmm... anyone have any thoughts on who has been? In any event, divergences like this are typical in strong trends, but at some point they matter and price retraces often sharply like what we have seen. It is impossible to get the exact highs in these situations because in this case the divergence has been in place for months, and has just now kick started a retracement. This is one of the reasons I have been hesitant to be aggressively bullish throughout the "Government Rally." The PPT buying does not bother me that much other than I just don't like market manipulation in anything. I think if we were flies on the wall in a high level government meeting, we would be shocked at the manipulation that goes on everywhere in all aspects of our life. There is nothing we can do about it, so it is what it is.

The Green line on the chart is one of my price containment bands, and the rule is basically as long as we do not have gaps between the price bars and the bands, the trend is intact. As a result, the weekly uptrend is still in place for now. Overall this tells me a couple of things. First, taking buy signals here is ok because the weekly trend is still up. Second, cycles are saying we should decline, so once these bounces take place they are shorting opportunities for bigger moves down. We are also in the neighborhood of the 200 Day Moving Average for many stocks, this should be a support area. Hence we have a two way trade area here.

Friday's last reversal bar means nothing, so move back down this coming week would be no surprise. However, from a short term perspective, I am looking for longs in individual stocks down here now.

Gold got whacked big time this week so let's take a look at that chart.

I have a 12 week cycle on this chart and you can see how well that has done in picking buy spots. It projects another one in 2 weeks. The big problem I see here is that we have a big picture 3 point divergence in the Pro Go Oscillator that has triggerred a downward move. I generally do not like trading against these types of things, it is a good way to get your account value reduced. The Green Line shows my weekly support band that as you can see has contained price nicely recently. It is about $30 below where we currently are. My plan for this market is to short any rallies that happen here next week if we get them. If we do not and continue to tank, I will look to see if any buy signals show up in the support zone. I have my doubts that they will but we will just have to see.

I would not initiate a new short at this price, primarily because we have had 5 consecutive down closes on the daily chart in an uptrend. Has the back been broken here? It is way too early to tell, it appears to be a normal pullback at this point. However, the red flag is the big time divergence staring at us here. This makes me a bit more cautious on the long side from a weekly perspective than I otherwise would be.

Good trading to everyone this week. I will be traveling for a week starting Wednesday, so I may miss a few days with posts. I will try to put something in each day but no promises.

HONORING RISK

Now that we have opened today and have another freefall beginning, I wanted to talk about honoring risk. Remember I did say I was looking for a false breakout of the lows of the wipeout day to get long. Since we have taken out those lows it is time to be looking now. One of the age old debates is how to manage your risk. Should you use stops or not? How do you determine how many of something you will buy or sell? Now that we are in a high risk environment, this should be a good time to cover this. I would argue that we are in a high opportunity environment right now. Volatility and price movement is what we need to make money.

It is my feeling that I always want to know exactly what my risk is so that I can plan to leverage my money correctly. If I know I will only lose 2% on any given trade plus possibly a tad of slippage on fills, it is very easy for me to build my account balances and sleep at night. The only way to do this is to use stops. Those orders are in for me the second a trade is executed, then I just walk away and watch. I then know come hell or high water, the worst thing that can happen is I will lose my 2%. As readers see here, I try and tighten stops as quickly as I can, and in so doing keep my average losses well under 2%.

Now that I know what my downside is, it becomes clear that the upside does not have requirements on it that are so tough, that I cannot move ahead. When you manage your losses well, the rest tends to take care of itself, unless your approach generates too many bad trades. In that case you need to change your techniques for entries. A faulty trading technique cannot be saved by good money management.

THE CATCH 22

When testing trading systems the one truism that is inescapable is that stops hinder performance results. You did read that correctly. Stops diminish returns in every single system I have ever created or tested. How can this be?

The main reason for it is that stops attempt to contain random price activity with artificially inserted levels and as we are now seeing with the stock selloff, artificially trying to contain things does not work. I know that I have been able to design some dynamite systems to trade major reversals in the SP 500, but in doing so had to eliminate stops or make them so big that they are not tradeable. The reason for this is that at reversal points we generally are operating at expanded volatility levels, hence any "normal" stops get blown out right before the reversal happens. The problem is when you take them out you make yourself vulnerable to the "wipeout" trade. It is hard to recover from a trade that takes 30% of your capital in one fell swoop. I have a friend who lost 300k on wipeout Thursday, now his whole life has changed. He had way too much risk in his trades, but had gotten away with it since we have had such a long period of low volatility. However, now in just one day his whole career is now in jeopardy.

The very best book on trading ETF's I know of is one recently written by Larry Connors where he promotes buying into weakness above the 200 day moving average, by legging into the trade in sections. Once you get to a certain oversold level above the 200 day moving average, you start averaging into your trades. The results of the testing are awesome and they have also done well in actual trading. Here is the problem, the approach does not use stops. As a result you are now heavily long stock ETF's with this approach and just getting clobberred. You have to wait for bounces to certain levels in the RSI to exit. This is the biggest problem with this approach, your losses can be wipeouts, so managing your size is impossible.

I am still trying to figure out how to use his approach, because it trades at better than 80% accuracy. However, just like any other high % win to loss method, the losses are generally larger than the wins. I do not like to trade that way anymore even though I had many good years doing exactly that. I make more money now with a lower % accuracy and a much higher $won/$lost ratio. I can only accomplish that by using stops. Alot of what makes someone ultra successful in any endeavor is making good sound judgements not based on emotion. This is certainly no different in trading. It is my judgement that although testing says otherwise, I best protect myself against the downside by using stops. As a trader it is up to you how to best use them but I strongly urge you to do so.

Yesterday I was just dinking around and saw a nice setup for a day trade which I took in the E Mini SP 500. Below is a depiction of it. I show this because it is a micro version of what I am hoping for in the indexes to get long down here.

You can see the triple divergence in an oscillator accompanied by a false breakout to a new low that immediately reversed. I went long right when I saw that and exited pretty quickly. The exit was a judgement call just based on this moving up very quickly in the midst of a big down day. I reasoned we were going back down at least for another test of the low and I had good money in the trade pretty fast. You can see although I did get out a smidge early, ultimately we went way down again, so my logic was sound. Mission accomplished, onward. I do not do much day trading, I did this just for kicks in all honesty. I did not have many contracts so it was really just to entertain myself.

Let's hope we get a similar daily look to this during this decline. Also, for any readers who may have thought I was nuts talking about a Euro bounce, glance at that chart. I picked the exact low so far. I am not long there, but am hoping for a buy pattern to show up down here. The short squeeze in this sucker could be one for the ages.

I HAVE NOT STEERED YOU WRONG

Trading is a very solitary business and for the most part your satisfaction has to be with your own knowledge of your results. You very rarely get kudos from anyone on good calls on things, but detractors quickly show up on the bad ones. With that in mind, let's review some of what I have recently thrown out in here to see how good or bad I have been just from a prognostication standpoint.

RECENT CALLS

A Rally in the Yen

A decline in the metals

A rally in Sugar

A decline in Bonds

A decline in Stock

A decline in Crude Oil

The Yen is exploding today, up almost another 200 points from yesterday. The day I mentioned it the Yen closed at 10786 it is currently at 11096, a $3700 per contract move.

Here is a Silver chart which shows the big decline. This is just beginning here and I just mentioned this yesterday specifically, we have already fallen over $5000 per contract since I posted that commentary.

The Sugar trade I posted Monday and with the exception of the DX and the Yen, is literally the only other market that is up today from yesterday as this wipeout is playing out.

Crude Oil unless you have been living in a cave the last two weeks would already be known by you to have cratered. I mentioned this a few weeks ago.

The Bond market is the one market I have had wrong, but there has not been an entry since we have not had a prior bars low break. It is still setup by my indicators to decline, and it probably will if we just have a day where the stock market does not get clobberred, which is a daily occurence at the moment.

The stock market I had mentioned I was looking for a sharp 2 day rally, we got 4, then a big rollover. It is hard to be much more accurate than that in this business.

What is the point of all of this? First, you have to be accountable for what you say right or wrong. In this case I have had very accurate market calls. I cannot stand people who throw things out and then become turtles when they are wrong. You have to face the music. I still will never forget an old subscriber in my trading service that quit after I had a string of 22 consecutive wins over a 4 month period, then quit on the first loss that occurred. You can lead a horse to water but can't make them drink. He told me he lost money over that stretch. I took all the same trades and almost tripled my trading account. Here I was after an incredible streak and I still had someone complaining. I had never figured even in my most optimistic moments, that my service would ever have a streak that good and yet apparently it was not good enough for that person.

So, since I do this everyday here to try and help people, make not a single penny doing it, I need to pat myself on the back occasionally for offering something worth reading. Also rest assured, I will be here to admit when I am wrong.

GOOD THINGS COME TO THOSE WHO WAIT

Here we have the Silver market in what appears to be setting up for a decline. If you look at my indicator at the bottom, you will notice how when we hit the standard deviation bands on it, peaks and troughs occur. You can see the last 3 times on the down side we hit the band, a significant low was at hand. Now you can see we just hit it or very close on the high side, which should mean a significant high is here. Yesterday a prominent Hedge Fund manager advised everyone to exit the Gold market claiming a top is here. Well I guess that now means there are 3 of us who think that, Soros being the third member of the trio.

What I would hope for now is a move back up and a false breakout to a new high that fails. This would also create a divergence in the indicator below on top of the price extension that we already have had. That would make this a sell with both hands situation. Typically I never get my exact wishes, so I doubt that will happen. Nonetheless, this is a market along with Gold and Copper that I am watching closely here. They are just crashing today, so this market could just rollover big and not look back. Nowadays we get V tops and bottoms everywhere, where it used to be more of an exception than the rule. This is why you need to learn how to trade reversals, often you are not given a test once markets turn. We also saw that at the stock low last March. Everyone said that would not be a V bottom, so of course that is what it turned out to be.

This is a chart of the Sentiment Index and you can also see we are up into the sell zone. Anything over 80 is a sell, under 20 a buy. You can see how nicely fading Sentiment works here. You can pull up any chart of anything you can think of and it will look just like this. Once everyone gets leaning one way, the market will go the other it is just a matter of time. Why is that? Very simple with everyone bullish there is nobody left to buy to continue to propel price upward. When everyone is bearish, there is nobody left to sell and prices rise. Anecdotally there has never been a bigger wave of bullish sentiment on anything I have seen in my lifetime that comes close to what is in place with Gold. Real Estate is the only thing that comes to mind as being a close second and we all know what happened there.

There is also a very strange relationship between equities and the metals right now. As I type this Gold is down $26 and Silver 65 Cents, and the Dow is down 50. During the past year they have correlated so closely and now finally they are separating. There never was a flight to quality nature in this market in spite of the marketing campaigns by the Coin dealers. The Flight to quality relationship has always been to Bonds from Stocks. Just look at a Bond chart recently and it is right there in front of you. It always has been there. There is not a consistent relationship in either direction between metals prices and financial crises. This is a theory that is manufactured to play on the emotions of people who are scared. Just do your own research and look at charts. You will see in 5 minutes this is bogus.

SWEET SCIENCE PART DEUX

A few weeks ago I mentioned the Sugar market and showed a very nice long side trade I made, where I was lucky enough to do the Bill Murray Caddyshack exit, and duck out right before the fireworks went off. This market had a bounce, then resumed it's downtrend and I was thankful to have taken about 15k on the long side of a trade that turned out to just be a counter trend scalp. I did not intend for it to be that when I entered it, it just worked out that way. You have to read what is happening on a daily basis, there is no way around it if you are serious about trading. Once it was clear to me that the small upmove I was riding was not a trend reversal, I looked for the exit sign. When trading reversal patterns, you will never know upon entering when a trend reversal is at hand. You just have to honor your risk parameters and let the trade develop. It usually becomes clear quickly if it is just a retracement move or something more.

This market is now setup again for a possible trend reversal and move to the upside. You can see where I have my orders placed to go long here. Will I get filled? Who knows. Price is trading up today but not far enough yet to drag me in. I like the way the trend/momentum indicators here are leading the price. Larry Williams forecast still has a low to be occuring about now give or take for a move up, so there is a longer term cyclical influence that could exert itself here as well.

The Bond trade I mentioned yesterday was not triggerred and is now giving us a potential inside day with an up close, which does set up nicely for a sell tommorrow if we hold where we are. The cross currents in the markets are very choppy right here and I have to admit to not having a steady read on where things are going this week. I usually have a good feel or expectation even when incorrect, of what I think will happen. I just cannot get a consistent handle on the reads my momentum indicators are giving me here. This is why I do not have the number of trades I normally would have going right now. You are never sure in this business, but you damn well better have conviction in your trades, or you are sure to mess them up.

I have how the indicators will look if we close where we are currently trading right now in Bonds. You can see this up move does not change the trend to up. This tells me I can short a rally against a downtrend in momentum. I am not in love with this trade per se because I would prefer there to be some accumulation/distribution divergence ( Green Line ), to also be present. However, we cannot always have everything, and this has enough without that to be worth taking a swing at. If equities fly up and out of here which is what I am leaning towards now, this market will likely move down. I do not make trades based on that observation, it is just that, an observation about market correlations.

BONDAGE

I have not talked alot about Bonds recently but we do have a potential trade setting up there for Tuesday. Above is a chart of 30 yr Bonds showing what I believe to be a good shorting opportunity. We have had the flight to quality in this market that is typical during times of stock market duress, which has driven this market up considerably. For those looking for higher inflation and higher rates, we continue to get the opposite as predicted here many times. We are in a deflationary environment overall.

What we see here is the trend indicators having turned down a little ahead of the price, with price potentially making a lower short term high. The trick with this trade of course is going to be the stock market. If we continue down, this market is going to continue to rally. However, if the PPT can save the stock market here, this could be a nice opportunity. We have no way of knowing what will happen, so we just have to place the orders when the setups develop. This setup is here if we close higher today. If we close lower there will be a few other things for me to look at to see if this still qualifies for tommorrow.

Since the Euro is the talk of the town, let's take a look at it to see what is likely to be next there.

This is a busy chart so let me break it down one thing at a time. First, the obvious huge rollover in price is cleary apparent. Certainly the Euro ranks as one of the all time terrible ideas to begin with. ADX has now gone over 60, a reading typical of market extremes and also big reversals in price. This tells us to have this on our radar now but does not say to just go in and buy right here. It is more of an awareness that we now have really gotten to an extreme.

The next panel shows a valuation between the Euro and the Dollar Index. It is low but not quite to a level that I would say is undervalued. It is rapidly approaching it though and any week now it could get there. The next thing we see is the dramatic massive commercial buying, far and away now the highest net long position ever for the commercials in this market. I have bashed that COT report recently and this is really a good example of why. They have been steady big buyers all the way down here. Knowing they were buying was certainly of no use at all. However, we have now gotten to such an extreme that it bears watching.

Also on the last pane is the Small Speculator position which is a record short at this point. Also, you can see in Green the Sentiment Index, which is also at a record bearish level. When we measure this all together, we have to be looking for at the very least a sharp short squeeze if not an outright trend reversal. There is nothing in the price action or any of my short term indicators telling me to get long yet. However, with all this in place, I am now looking for an excuse here to get long.

Good Trading To Everyone

PTPer's

As Dick Vitale labeled Prime Time Performers many years ago, I of course thought of the greatest of all time, and the PPT is certainly in the conversation. The above is a 5 minute chart of the SP 500 yesterday with another "coincidence" rally in the last 30 minutes. You just have to admit that they are really good at what they do. Friday's late the volume drops off, and they pounce. When they have been doing this it has been too late in the day to get prices all the way back to unchanged, but they certainly mitigated the damage here big time yesterday. I do not know if they are so good that this was the only buy program they executed, and it happened to be at the perfect time, or they tried a few during the day and this one finally worked. I suspect the former just because this is the time zone they have been typically the most active.

These "coincidences" are tradeable if you are inclined to do so. I would suggest just waiting for the first higher short term low to form in the last hour of each day, and just trading the breakout of the high of it. This would have worked probably for an 80% win rate in the last year. Rarely do intraday strategies work with that high a level of accuracy. I remember my fade Barry trade when he was first elected working at an even higher clip for awhile. Unfortunately alot of people eventually figured that trade out, so it stopped working. That trade was just to fade the market every time that idiot made a live speech. It worked so well it was funny. This one is based on a little more history, so I think it will continue to work due to it being an insider deal with a couple huge institutions. They won't stop doing it for a variety of reasons, and you are also going in the direction of the fix.

WHERE DO WE GO NEXT?

Here is a chart that shows a proprietary indicator that I use for divergences at standard deviations. It is no surprise we hit the 3.0 standard deviation band on that meltdown Thursday. What I look for here is a new low which in this case would be under 1050 where this indicator makes a higher low. When that also occurs at a 3.0 standard deviation band, we have a good recipe for a big reversal. Will we get down there or will it diverge when we do? I have no idea. However, if it does, it will be both hands on the long side for me. This is just something to watch, and could be a good re-entry point for the long side for those who want to hold for awhile. If it does trigger at the time, I will post it here.

The next chart shows where we are right now, and a possible case for why we won't go back down there.

This is a weekly chart of the SP 500 with my bands that contain price. Without divulging all the rules, you basically look for entries in the direction of the trend when the red line is hit ( sells ) and the green line is hit ( buys ). The way the trend is defined is a secret which I will not give up because it is very unique. However, it is up at the moment, so that says we are in a buy zone right here. Some of the very best trades come when these lines get penetrated by a large amount, yet the trend stays intact. This might be happening right here since we have penetrated the lines by alot and the trend has remained up. This gives you huge snapback moves. The markets are difficult reads right here, alot of cross currents. Bigger picture, we went into a very important price area in the 1235 zone, and we have already seen a huge reaction down from that. It then went right to the 200 day average, which also happened to be in the above buy zone, and now we have bounced quite a bit.

I am planning on playing this in the following fashion. If we get a lower short term high than the high of this past week, or a false breakout of it that quickly reverses, I will looking to short aggressively. If we go down and take out 1050 I will be looking for longs initially down there. If we break through there decisively, I will then shift to the short side because the weekly trend will have changed. As a result, the next couple of days do not likely have a trade for me here. I do think there is more weighing on the side of this rolling over and the trend changing to down, but not enough to just take a one sided stand on this right now. Trading is about reading what is happening and adjusting accordingly. At this juncture, I do not have consistent enough readings in everything to take a trade Monday.

I did mention the only way I would short Friday was on a mid day bounce. I did do that trade for chump change on a tick chart. I had some technical problems with Genesis which happens every day and it happened right when I entered the trade of course. There is nothing like entering a day trade then having your data go offline the second you enter! As a result, I had to bail out of it after about 10 minutes. This was lucky, I wound up getting almost the exact low on my exit. The trade was a profit, but not worth posting here. Make no mistake, I love Genesis, but the live data feeds suck with them. The people are fantastic and the overnight analysis abilities are second to none with them. Trading with live data is not at the same level. I also have lousy internet speeds due to where I live, so it is challenging along those lines as well.

Tradestation is the best if you have slow internet. It is by far the most stable at slow speeds. I never have a date issue intraday with them. If you have Satellite internet like I do I would suggest Tradestation. They are the only data feed I have found that is stable at these slow speeds.

Alot of other markets are kind of messed up due to the huge stock move, so it may take another week or two to get good reads on everything. I hope not.

Good Trading to Everyone

CASH IS A POSITION

For those of us who were bullish on the dollar at the end of last year, we have been proven correct. I have maintained for quite some time that there would be strength coming here, and that holding cash would actually be a position that would gain in value not lose. Ironically, doing nothing is doing something. Since I try and use my funds aggressively on a daily basis, making a decision to be flat during periods where I am uncertain is actually a position. I do know that when my regular patterns show up and I trade them, I consistently make money. Every trade does not profit, but over almost any group of 6 or 7 trades collectively, I wind up with net gains. Often, I require even a much smaller set of trades than that to guarantee a net gain. When I stray from my basic core principles trying to force things, I do not get the consistent results I desire.

It is for this reason that I am flat in all the markets, not having one single position in anything. The Yen order I had placed yesterday did not get filled and left me with a reversal bar in that market coming into today. There were also reversal bars in the indexes in the reverse direction on the downside. I personally hate reversal bars other than trading in the opposite direction of what they indicate. This dates back to a way of trading I tried to learn many years ago, that was based on looking for reversal bar entries at Fib levels. It was one of the most frustrating periods of my career and left scars. I do know from researching them mechanically that in general they do not work. However, some of them do, so I do not always pass just because one shows up. I will take them if everything else is perfect.

Coming into today in the indexes with the down reversal bars from yesterday, I was very tempted to short the market today. As I type this the market does have the look of a possible crash today. Friday's can be big down days, and if you study history you will see that there have been alot of them on Friday's. The problem I had coming into today is that some of the short term momentum indicators have now gone back into up trends, even though the longer term ones still show down trends. It is the correct view to more heavily weight the longer term than the shorter term, so as a result I was still looking for shorts. Then a reversal bar had to show up..... Great!!!! Since I often like the wait for a 2 day low to go when trading reversal bars, the stops wind up getting really big, and hence size on the trade small.

This is not a huge problem, because it keeps the risk in reality the same as anything else, but the reward is not as large. This is why I am so demanding on these setups. What I have learned the hard way is to accept that I am not going to catch all the moves, even all the ones that are in the direction I am looking. I would rather miss a move being too picky, than piss away 10 or 20k chasing a marginal trade. One rule I always follow:

WHEN I LOOK BACK AT A PRINTOUT OF ALL MY TRADES I ALWAYS WANT THEM TO BE OBVIOUS NO BRAINER TRADES BY MY RULES AT A QUICK GLANCE

If this cannot be said when reviewing a setup I pass on the trade. I would be in violation of this rule at the moment with the indexes, so I will not short this market today except in one circumstance. If we take out the two day low and bounce, and I get an intraday setup on the tick charts, I might go in that way. I still feel what I have stated recently to be true, this could rollover big at any moment. We have built a house of cards here and the legs are not that sturdy. I am rooting for the PPT today who I am sure is going to make an appearance to try and stablize this. The question is will they be successful? The market is taking on a different tone right now, and there is volume on this selling, so I have my doubts if the PPT can save this. Heavy volume as I have repeatedly stated, cannot generally be stopped by them as we have seen recently.