TOUGH CALL

The last couple of days have been wild in the markets, and that leaves us at a juncture where we could go either way. The momentum indicators at the bottom seem to indicate that we will rise, but boy have they made this a ride. We had the big Friday, the big up night session on Sunday in futures, that reversed. This sent the Bond market soaring. Then stock continued their collapse. As I stated in yesterday's post, there is about a 60% probability that those reversals continue intraday once they begin, and that did happen yesterday closing right on the lows.

Things of course looked bleak at the close, now of course in the typical way the markets fool us, we are up a good amount today as I post this. Will this last? I don't know. If you look at the chart you can see we have had 4 consecutive reversal bars, so there is obviously indecision in the market right here. My strategy today will be that if we trade through the red arrow on the screen, I will try and buy a pullback in the Russell which has held up the best. I will not chase it blindly since that is such a large move that is required to get up there. I doubt we will get there, I think it is more likely we are going to move sideways for a couple of days but you just never know. Will the markets also go to the United Nations for a resolution to direction? Of all the things the intern has done, this one has to take the cake. Refer a state to the United Nations for review of their policies. Please vote this idiot out. W would bury this guy in an intelligence test.

I have a good friend who called me yesterday asking for my opinion about the thesis of a couple of guys that supposedly predicted some of the meltdowns we have had correctly. They may well have, some people did. I got some of them right, but not all of them. One of the interesting theories they have is that you should put your money into the EURO to avoid the Dollar bubble, and that the EURO is basically the same as GOLD! Now I have heard some good ones, but that has to take the cake. Barry has weakened us considerably be it intentional or not nobody except his inner circle knows. However, we are still the world's financial leader and will always remain so. To suggest that you should run from a currency that has dropped 40% from it's highs already because it is a bubble into one that has risen dramatically and has economies that are in far worse shape than our own makes no sense at all. Where do people come up with this stuff?

To suggest that you put your money into a financial situation far more dire than our own is incredible, but also to liken the EURO to gold is just ludicrous. There is no relationship of any kind between those two asset classes. I have gotten off on a tangent here, but the reason I did it is to tell people to be careful what you read. Trust but verify, I think Reagan coined that phrase. I am not sure in this case trust even applies.

ONE DAY WONDERS

As I stated on Friday, there was no sense waving to the crowd yet on the 10 Year short position, and that it could be a one day wonder. That is exactly what it turned out to be. With the stock futures down reversal overnight, the bond markets were sent soaring. This is one of the most frustrating things that happens in trading, a huge one day profit that completely disappears the very next trading day.

What causes these? Is there anything we can do about them?

As far as what causes these, this one was clearly caused directly by the stock market rally, so once it reversed, it was likely this was going to reverse as well. What we can do about it is make sure that our trades are not too highly correlated. If you were long the ES and short Bonds, you have given back double the profits. I was looking at both, realized they were the same trade, so just chose one. In a world where so many trades are the same, this is one thing we can certainly do. Was there anything else that might have tipped us off that this trade was no good?

First off, the is an incredibly strong trend upward, so this was a counter trend trade. Trends rarely end on spike highs although that does happen from time to time. We could have been conservative and waited for the bounce that is happening now to try and enter on a lower high. Unfortunately in today's world we have no way of knowing if that will happen or not. As a result, if we are looking at doing something like this we need to be prepared to be stopped out once or twice before finally hitting it. That is probably likely to happen here if in fact we top at all. Maybe this is not a top and we just cascade higher.

It was a trade by my rules, so I took it knowing, and I even put it in my notes, that this was a marginal trade. I went slightly lower on my risk due to this. I did not think for a second that Friday meant anything at all, and I stated that in here. It is very hard to stay emotionally detached to money since trading is all about the money. However, we have to be aware that anything can happen at any time, so not to get too carried away either way with ourselves.

I think what causes these is just the nature of how fast money moves nowadays, and how it chases the latest greatest ideas so quickly. Once a move starts, everyone piles on incredibly fast. Of course that money can also leave the party at any time. The markets have gotten choppier. As a result, you have to sit through alot of crap often when trading, even when the trades ultimately go your way. It is rare to get in, get a big move immediately, then be able to take profits and look for the next trade. At times it happens like my recent ES and Soybean Oil trades, but that is not the norm.

As to what can be done about this, nothing. It is just part of trading. Sometimes the trades that look the best turn out the worst and vice versa. It sure keeps things from getting boring if nothing else. The fate of this market will be determined by what stocks do here. Usually, and there are of course exceptions, market intraday reversals like this continue down. That is probably a 60% probability, and 40% it comes back up. As a result, it is probably 60% likely that this trade winds up as a loss now, and 40% that it does not.

One day wonders will continue and there is nothing we can do about them but keep our heads and not let them get us too down.

IT IS ALL ABOUT STOCKS

Here we were yesterday plunging again until Bernanke's speech. Ironically the context of his speech was negative in that it indicated the economy was softer than the spin masters have been telling us it is. However, we got a moon shot rally? There are alot of ways you can look at this, and one of them is certainly that a futures buy program campaign by the PPT might have been launched right there. Based on what normally triggers these programs with institutions it is possible that could also have been at hand here, but the timing of this certain at the very least ought to raise an eyebrow or two.

The FED certainly has figured out what a dumb ass trader like I am has, the whole world is keying off US stock price movements. If they want to avoid deflation, they need to make stocks move up so everything else will. So far they have certainly accomplished a miracle in my opinion. If they can hold this here until the fall, the prospects for a republican takeover of the house and possibly the senate could generate a big stock market rally. They have to contain dips for about another month to get us into the seasonally bullish time zone. It is hard to bet against these guys, they are the house after all.

If for some reason we do get a sharp drop which it does not appear will happen now, I think it is a buying opportunity for a hold of several months for the average stock player. I may even take 100k or so and just do that with a few stocks. I hate tying up any money for that long, but this could be a 20 percenter or more in my view so I may do it.

Here are the other moves that I think are setup for this coming week:

Swiss Franc - continued rally

Gold - selling opportunity

DX - buying opportunity

EURO - selling opportunity

COTTON - shorting opportunity

SUGAR - selling opportunity

All of these are setups, not trades. This means that they are possibly in conditions that a move in those directions will happen. Entering the trades correctly is another matter, and I may not do any of those, but they are what I am primarily watching.

SOMETIMES OPPORTUNITY KNOCKS

I mentioned the other day that I thought the Bond market was ripe for a decline. Little did I know that a trade would come up so quickly. As you can see above, I shorted the Ten Year Notes this morning getting filled when the revision to the GDP report came out. I shorted this market instead of the 30 yr because I felt the chart pattern was weaker. It is essentially the same trade either way.

There is really not anything that jumps off the page with the trend oscillator other than it is showing to be weaker than the price indicates. The main reason I did this trade was as follows. I mentioned the other day that I thought this market was setup for a decline based on COT statistics. I also told everyone in here the other day that the new software anaysis tool was forecasting a sharp rise in stocks and currencies for the next few days. Since the bond market and stock markets have an inverse relationship right now, and the pattern was better for the short in the bonds than a long in the ES, I went with the Bonds. As I have stated in here for the last year, the market correlations make all these trades the same. You have to pick one otherwise you are risking way too much on one market bet. I hate this, but it is what it is.

The main reason I felt the pattern was better is the false breakout that you can see on the chart above, where we closed on new highs, then had no follow through at all the following day. I reasoned that with everything else going on that I just mentioned, if we broke below the last 2 days lows it would be a good shorting opportunity. I actually front ran those lows by a few ticks thinking there might be some slippage at those levels on the report. Either way the price has traded through any logic short entry levels now for short term trading.

We see what I call one day wonder trades often nowadays, so this could very well be one of those. This is what I call those days that move big just for one day and blow their load on that same day, then completely reverse. One thing you learn over and over as a trader, is not to wave to the crowd too soon. Unexpected moves happen all the time, and this market has not moved anywhere near enough to mean anything yet.

I did also want to short the EURO on Monday and or buy the DX. However, depending on how far things go here, those trades could be off the board. Here is the EURO daily chart. At this point although the trend is still down, it is on the verge of having turned sideways. We will have to see how this trades the rest of the day. If the rally in stocks does not stick, which is a distinct possibility since we have had a number of late day selloffs lately, the EURO could come back down enough to set it up for a short on Monday. It is just too soon to tell here.

I am short on time today, so that is all I have. Have a great weekend and good luck trading today.

WHAT NEXT?

First off a clarification, apparently BQ is the person I have to correctly credit for making me aware that it was he/she that made me aware they viewed alot of pages, hence saving the blog. My apologies there I guess I did not read through the posts correctly. Also BQ to clarify, I did not fork out the 10k. LW had another seminar for a select group of prior students before that one where the price was half that. The 10k is the second edition, and it is why he charged more to them. There was no requirement of having attended the prior stuff there, hence a larger fee. They too were given the new tool as part of the fee.

I have used the new tool to check out some COT stuff and am pleased to announce that it does seem to verify my prior conclusions. For the most part conditions such as we see above which I had concluded recently were not immediately bearish, are in fact confirmed to not be. What does chart does show is that we do have a speculative blow off going on right now. I know I have always said that these can go on for quite awhile before making tops. We have certainly seen this in GOLD a couple of times to name one other market. When I ran the new tool on this it shows a continued rise in price in the near term.

I think the reason this happens is that once you get momentum going in something regardless of who is driving it, it becomes a tough task to reverse that move. Eventually what does happen is a shift, then an acceleration in the opposite direction once the weak hands get scared. This takes time and it is why tops normally are rounded and not spikes. This is certainly a market I am watching closely now for a shorting opportunity. In all honesty I have for awhile and missed this last leg up, shame on me it was a beauty.

There are certain COT conditions though that do test out for more immediate moves via this new tool, and I will show those from time to time when they are present and part of a reason I did something.

We now are in a spot where alot of markets are in the course of 2 day rallies against trends, and those rallies come from divergences. These are often tricky, which way to go on them? I know when I have jumped quickly in these situations I have generally been wrong, so I am going to wait for a day or two. Crude, Euro, ES all are bouncing in this fashion right now and since I mentioned the projection tool showed a sharp move, so far we are right on course with that. There is no reason to step in front of it yet. I do not know if it is the beginning of a change in short term momentum to up, or just a hesitation for another leg down in these. The DX as per the market correlations, is the opposite scenario.

I do think the above situation in the BOND market is something to keep a very close eye on. There have been alot of inflation bugs out there who have so far been wrong. I have been in the deflation camp and still am. The above Bond market chart pretty much shows that I have been right and the inflation folks have been wrong. However, with all that is happening, it is inevitable that at some point inflation is going to rear it's ugly head. If a big selloff were to occur in BONDS it would indicate that the inflation wave has begun. I think that could well coincide with a stock market rally in October. All the pieces will fit together then.

SAVED BY THE BELL/KS

First off, thanks KS for telling me it was you that downloaded all those pages, that has taken a load off my mind. Sometimes I can figure out a URL for viewers and sometimes I can't through a tracking system. I did take a peak that day and it was not clear, which was why I became a bit worried. Besides the government is likely to hide behind an individual one anyway when checking up on people so as not to alert them. As a result, even knowing the URL and seeing it is not through a government server etc.. would not help much anyway. I am somewhat of a loose cannon with my off the cuff political remarks, so maybe I should keep them to myself anyway.

I assume from that review and the fact that you are still reading, that enough of my market calls were good to keep you coming back, LOL!

Above is a pictorial of an interesting new software invention by Larry Williams that allows us to go back in time and get future price projections from what certain "looks" to things are. It is not publicly available at this point. I have played around with it for a day now and think it is pretty helpful. However, it is a tool, not the panacea. We are always looking for that one thing that we know is out there to be discovered, that is "the" answer. It does not exist folks, plain and simple. Learning how to combine certain things you find to have value, is the key to trading well, and it is not easy. It is also time consuming and you have to be patient.

I am not a patient person by nature, quite the opposite. However, I am probably one of the most disciplined people ever to walk the face of the earth. As a result I can will myself to be patient when all of my being does not want to be. When I started off this month with that absolute debacle in Soybean Meal, it was not easy to sit and not make a trade for a week, but that is what I did. So many people want to rush back in and "get the money back." That attitude will result most often in you parting with more of your money. I forced myself to wait for very solid setups, and low and behold I found 3 big winners that have resulted in me now having a great month even after having the largest single loss I have ever had.

I achieved this by being patient and disciplined. As to the above example, interesingly enough it shows a sharp short term rally should follow in the SP 500. This is in the midst of a very strong downtrend. Just because this tool shows that it does not mean a thing other than just making me curious. I printed this chart out just to use as reference to see what follows. It also shows a similar path for the EURO. I do not otherwise have any buy signals, so this is not enough for me to take any action against this trend. It does indicate that in the past in these two markets, when the indicators have had these minor divergences like this, on average prices have rallied. I personally like much stronger divergences than this to trade against trends, so it will be very interesting to see how this plays out. I would not have otherwise expected a rally here.

KS thanks to your comments the blog is alive and well minus politics, although I can't promise to keep totally silent of King Dumbkopf makes any colossal blunder.

FAST TIMES AT RIDGEMONT HIGH

Here is an intraday chart of the Euro today just to show an example of the wild day at hand here. Ironically it is trading inverse to the stock market which has not been the usual relationship lately. The DX is also declining with stock prices which although typical of the historical relationship, is contrary to what has been happening the last couple of years. It is almost as if the markets are fighting back again these correlations. Many of them make absolutely no sense at all and are being driven by arbitrage types of programs by large funds. At some point markets do go where they want to go. Maybe this is a sign of that happening, but it is way too soon to tell from just a few hours.

There have been a couple of recent periods where this has happened just to have things come back into line again. The more independence we have between markets the better the trading opportunities will be. For now basically everything is the same trade.

Below is one of the better traders I have made this year, Bean Oil. I exited this trade Friday at my target price after 3 nice large down days in my favor. The whole grain complex is fundamentally setup for a decline, so when one of my short term patterns showed up here I went at it immediately.

I was tempted to short Wheat today, but decided against it when I say the big stock down open and it holding up better than all the other grains. The Yen trade I mentioned yesterday did not trigger, and in fact that market exploded higher today on the stock drop. We do have a potential trap reversal there now if it closes here and then reverses back down tommorrow.

On a separate note, I read this morning about lawsuits that are now being filed against people excercising what should be their right to free speech in blogs. As a result I am debating closing this blog right now. It is clear the trend is to suppress individual freedoms right now and as much as it sickens me to think I would give in to it, it is what it is. Dissenters are being silenced without regard to the laws now that our country is being transformed. I am just a small fry so I guess I am going to have to give in here and just keep my information to myself.

Please for the sake of all of us, vote against the Dems in the next mid term election and the next presidential election as well, unless of course you want to live in the new republic of the US. We have to collectively put a stop to this and all we can do it vote these people out. I have not made a final decision, but the one day the "mystery visitor" visited my site and downloaded all the pages has gotten me very worried.

CONFESSION IS GOOD FOR THE SOUL

I did enter the Robbins World Cup contest for the second time this year. For those of you not familiar with this, it is the premier Trading contest that features real money put into real accounts, and the highest percentage return on the money wins. They charge very high commission rates so that does knock the returns down about 10% from what most people would have trading their own account with the same trades.

I have been hesitant to even tell anyone I entered this simply because I have botched this trading account this year. First of all I have just outright forgotten to place some of my trades in this account. I have alot of different trading accounts and this balance is smaller than all the others, so I just forget about it sometimes. My single largest per contract winning trade this year which was in GOLD was not done here. That alone would have added 30% to my tally. Secondly, I have carried a very low risk ratio, so all the metals trades which are my best YTD profits have not been made here. Had they been I would be running away with this thing.

I am trading this was much too low of a risk for a trading contest. The main reason I am even doing this is just to have something independent of my own trading accounts that I can use to raise money should I ever decide to go back into that business. I don't like showing personal account results, because that can get you into trouble. There is a famous trader who was managing money for someone one year and made them a spectacular return. However, that person found out that in his own accounts he had made even more money than he had for her. After she found this out she sued him for the difference and for god sakes won the case.

I do believe the return for one year that he had made her was triple digits, and yet she sued him for more. Let's face it there are just some horrible human beings on this planet. Fortunately for all of us they are in the minority. However, we do have to try and protect ourselves from the bad people. All I really wanted to do was make 100% in this account for the year so it appears I have a good chance of doing that. I could care less where that puts me in the standings, but I think it will keep me on the leaderboard if I do it. You can see the one person made almost his whole annual return in just one month. He obviously is a plunger, so will likely fade away at some point. Some of the others are fellow Larry Williams students, as well as some past winners, so they will likely continue to do well.

If you wish you can track my progress at the Robbins site. I will not look at this again until the end of the year. I am not a scoreboard watcher, and really don't have a shot at winning so there is really no point in babysitting the numbers.

Here is a trade I am sitting on waiting for the right time to take action, the Japanese Yen.

You can see that the momentum oscillators have been diverging for quite awhile here, so that is why I am looking for a short entry here. I have been spanked on markets that are running like this shorting these things prematurely, so I am waiting for the trend line I have drawn in to break. It appears to me that it that were to happen tommorrow, it would be enough for me to take action. There have been a couple of minor entries that could have been taken already that would have lost, so I am glad I have stayed patient here. This market is kind of the flight to quality vehicle along with Bonds right now.

If this short were to develop, it could be a sign of an equities rally. The fact that the SP 500 is holding right here I think is significant. There was a very minor buy signal that could have been taken in the SP 500 this morning. I did not do it but in this world of heavy inter-market correlations, we need to be aware of what is going on around us.

If that minor buy signal sparks a rally, it could mean the sell signal in the Yen has a better shot at winning.

ALL GOOD THINGS MUST COME TO AN END

I hate that phrase, but unfortunately it is true. Streaks be they good or bad do eventually revert to the mean. I had a friend in a secondary business interest tell me that yesterday when describing an unfortunate turn of events for him with a major client of his. As much as I wanted to spank him for the negative comment, I thought to myself that in the world of trading we certainly see plenty of evidence to support that view. Above is my GOLD long that I have been sitting on for awhile. I just got stopped out this morning on my trailing stop without reaching my profit objective. The profit was $1900 per contract so not a disaster, but not what I was hoping for. I decided to tighten up the stop going into today since we had a small range day after the big outside bar, and POOF they got me.

It is ok, I do not mind being out of this trade. Most of the trades I do never reach my full target objective. Targets are mostly plans in case everything works out great, which does not often happen in trading. It does at times, which is when the big money is made. Other than that you just grind it out hoping to bank a schilling here and there. I had an inkling to take this profit yesterday during the day and should have, it would have been another grand per contract or so. Usually when those gut feelings hit me I should go with them due to how uncannily accurate they have been over the last few years. I try and fight them because they are based on emotion at some level, and I do not like making emotional decisions when it comes to this business. If I can ever figure out how to tap in to the subconscious aspect of where these gut calls comes from, maybe I can quantify them. Until that time though, I will for the most part pass on them. There is one exception.

The exception is when I am out of the money in a trade and see that there is no point in just blindly sitting there and waiting to get stopped out. In these moments I just go to the market and take my medicine. This way I keep my losses smaller. The trick of course is how to know when this is the case and how to know when I am not just being emotional and reacting in a knee jerk fashion. This has mostly to do with reading the entire situation that is going on, and making a reasonable decision. Going back to last week and my post on exiting my Swiss Franc short early was a perfect example of this. You can go back to that post, it was last week but I do not recall the exact day. It was clear to me based on how everything else was moving and it was not, that I had made a mistake being in that market, so I exited. That trade was a profit, whereas most of these types of instances are losses.

I cannot count how much money doing these types of things has saved me over the years but it is immense. However, when I first started out, it cost me dearly. For those who are just starting out trading, I would not suggest doing this. I think you should stick to your rules come hell or high water. Once you get a little bit of a feel for how to do this, then MAYBE you can explore adding this type of option to your repertiore. However, for the most part I do not recommend it and still feel it is a bad habit even though it works for me.

"If this guy owned a funeral parlor knowone would die. He is totally brain dead!"

GORDON GEKKO

I hope Barry goes into the funeral parlor business after his one term is over, just for the sake of all of us, but the above quote is really targeted at that dim wit who runs Congress. It also is just one of my favorite quotes of all time. I spit it out in a group of mixed company recently when they played a clip of her babbling on and doing her little torrets shake she seems to do at times. I brought the house down with the comment. How ironic, that she is bringing the house down by being such a dumb ass. I will get to how this relates to todays topic in a minute.

The above chart shows my current long position on GOLD that I have been holding for several days now. It is getting a little boost today by the stock market selloff. Alot of markets are moving out of sync from what they have been doing recently today, I am not sure what to make of it. The new normal would have had the EURO getting clobberred today and the DX up, and the reverse is happening. Also, on large down days GOLD has tended to decline, but today it is directly inversely moving to the SP 500. Go figure!!!

I had lunch with a good friend yesterday who runs a fairly large nutrition business. He was asking me what I thought of the economy since he is having a tough time getting a handle on how to run his business the next year or so. He is hesitant to invest in it for fear of a larger down turn, a position I think so many people are in. The following is what I told him.

Regardless of what happens this fall, the dems have dug us a hole that it will take a decade to fix, and it will get as deep as they can make it before the elections. As a result, it will not be a panacea even the the repubs take both the house and the senate. All that will do is create a stalemate. That would be better than nothing, because it will stop him from ruining this country for decades or possibly forever. However, it does not mean the economy will turn on a dime, it won't.

From an investment perspective it does not matter if you are a shorter term oriented trader like I am. All this talk is just noise. You cannot trade on news, because you just can't be fast enough nowadays. With the electronic markets, news is dessiminated into pricing in seconds, so chasing that is chasing your own tail. There are some very strong bullish cycles coming for stocks this fall as I have been talking about in here for awhile. They have me thinking about getting long in October, and I really don't care about the political back drop. I do not know a single good trader who trades of news, or off what he considers to be the next 6 months economic outlook. The government is manipulating numbers to such a large degree now anyway that it is almost impossible to get a true handle on what is really happening.

I love to take my shots at these pinheads just because I have a puny little forum here to do it, but I do not ever consider what they are doing when I actually make a trade. I might consider it when developing big picture views of what I think is likely to happen, but I do not put money behind it. I am not long GOLD in the above trade because I buy into the panic theory about the dollar and all that other hogwash put forth by paper champions ( economists ). All you have to do is listen to Mark Zandi on CNBC for 30 seconds to realize listening to economists is a bad idea. I am long because the trend is up, there was a brief pullback which gave an entry, then it resumed. Pretty simple logic.

Apply similar basic logic to the economy. The trend is down, wait for it to turn, then if you are so inclined, go with the new trend. It is not time yet to be long stocks or long the economy regardless of what side of the political fence you might stand on.

TAPPING MY FINGERS ON THE TABLE

I am certainly not inherently a patient person but am trying to be right here. I think this market is setting up for another leg down here and want to get short this sucker. However, it is just not quite right yet, so I am hoping we hold up for another day or two. I love Friday selloffs, so maybe we can hold up today or tommorrow and set up a Friday entry. Of course there is no way we can ever know exactly what will happen, I do know that if we move across or up slightly, I will be looking for an entry here. If we explode up or roll over, there will be no trade for me.

So there you have it. I always say we can never know the future, we can only know what we will do if certain things happen. As a result, that is my plan and I will stick by it. We are at a time with a strong seasonal tendency for a decline as you can see on the seasonal average that I have displayed. Seasonals are not perfect. As you can see we have by and large followed the typical seasonal pattern, but there have been periods where we have veered away from it by quite a bit. I have always loved seasonals ,yet I for the most part do not consult them when making trades. I do though like to look for trades at key seasonal times during the year, and this is one of them for stocks just as October is on the bullish side.

The tendency for interest rates to decline from now through the end of the year is most likely the reason why there is that seasonal upward bias in stocks in October. Politicians often want to keep things being stimulated through interest rates especially when elections are on the horizon. It helps keep them in power. This year might be different in that we are probably closer to an overthrow of the government literally by the irate citizens than we are to an endorsement of what they are doing via election results. This fall is going to be very interesting on several fronts.

I have to admit I still have that nagging feeling that there is a very big drop out there somewhere, but I just don't know where or when it is coming. I do know that we are in a downtrend at the moment, so selling rallies is the correct play. Maybe one of the moves down in the direction of the trend will be a big one, I just have no idea. However, I just can't shake this feeling, I wish I could. One thing that I will say though is that I will not trade off it in any way shape or form. It is just a gut feeling at this point, nothing more.

BLUE IN THE FACE

Todays pop quiz is can you name the market in purple that is so closely attached to the GOLD market? In reality I should have displayed this the other way around, because it is GOLD that is following it, but it does not really matter. Look how closely the price swings are tied to one another. I have talked until I am blue in the face about the intermarket correlations that are currently in place. This just shows graphically what I am talking about and why it is so important to be aware of the big picture of what is linked to what.

The answer to the quiz question is..... The SP 500. The purple line is the closing price of the SP 500 overlayed on top of the price of GOLD.

If you look at this chart closely there is something incredibly valuable to be learned. GOLD always comes back into line with the stock market when the two have diverged for short periods. You can see a few example of where stocks started down in late April and GOLD continued to rise, but yet look at the catch up move that ensued. GOLD came down sharply to get back in sync. There is another example in mid June of where stocks had declined and ultimately brought GOLD with it after a bit of a lag. Lastly, stock started back up in early July which should have told us to look for a buy point in GOLD and sure enough a great one showed up a couple of weeks later.

This certainly also dispels the laughable story about GOLD being a safe haven for the coming economic wipeout the GOLD bugs call for. If we get a stock wipeout, GOLD will ultimately go with it as you can see here even if there might be a lag of a week or two. As I stated the other day, there is not really a historical precedent for this linkage. I have no idea how long it will last, but as long as it is as clear as this, we have to honor it. Do I trade GOLD based on what stocks are doing? No. However, I do take it into account if I am looking to short multiple markets at the same time as I have mentioned over and over in here.

It is possible that GOLD could become a flight to quality safe haven in a stock wipeout, but it is also possible I will shoot 59 the next time I play golf. I always want to base what I am doing on what has occured in the past, and therefore is likely to occur in the future. I do not want to base it on a theory of what could concievably happen for the first time. You will be out of shillings by the time your hail mary pass is completed if you repeatedly bet on longshots.

With all that being said there is something interesting to ponder here for the balance of the year. There are long term cycles in play that are bullish on GOLD and guess what, the same thing is true for STOCKS this fall. In as much as I have been bearish on stocks in the near term and still am, I cannot ignore what is coming in terms of cycles in a couple of months. Larry Williams has just released something that lays out why he is bullish on stocks this fall, and it does tie into when these cycles are due. I have no idea right now if I will go long at that time, but I certainly will be looking for some confirmations of these cycles. For now I am bearish on stocks and looking to short this bounce that is underway in another day or two.

Good Trading to Everyone

WASSUPPP!!!!!

Today I will show the current trades I am in, the ones I just exited, and what I see coming.

Here is the SP 500 short trade I entered last week that I exited last night. I had originally been aiming for a target in the 1039 area, but when we just fell straight down for 4 days, I felt that a bounce was going to occur and did not want to sit through it. This is the single largest gain in a trade I have ever made, I had alot of contracts in my various accounts in this trade since the stop was so small. I never feel bad when I get a windfall like this even if it falls short of the target price. Had we been see sawing up and down with a downward bias I would have stayed with this, but there was a very short term buy signal that was there today if we took out Friday's high, so I decided to ring the register.

What I am looking for here is a small bounce for a day or two, then I will be looking for another short entry pattern. I do think we have some trouble brewing here. If you look at the moonshot that is going on in Bonds, that tells me the big players are out in front in flight to safety mode. As per usual, I could be wrong, but that is my current take. If we were to stabilize right here, and start to move up, then I would change my view. We can never know the future, but what we can always be sure of is what we will do when certain things happen. I think the higher probability is we continue down here after a brief pause. I am not going to go long just to try and catch a couple of days up against the trend here.

Here is the GOLD trade again which is creeping upward. There is one potential target in the 1240 area. I have not yet decided if I will exit there if we get there. There is some logic behind that number that I will not disclose here, and the rules are not met for that exit to be done today if we get there. I will need to re-evaluate tonight to determine if I will try to exit there or not on Tuesday. Just for the sake of discussion, it is one potential short term spot to take profits. This market has de-coupled from stocks to some degree recently, so it is hard to say how a up or down stock move might effect this market. Until recently they want almost tick for tick together.

That correlation is an anomaly, history shows no such consistent relationship. However, this has been a strange time, and as I have mentioned many times, you have to be aware of what is correlating nowdays to keep your risk in line.

This is my current trade in SUGAR. You can see we are in an uptrend and had a recent decent sized pullback, so I hopped on board when it started to move back up again. You can see via the red arrow where I waited for a little short term buying before I got on. This is something I have done for years. I do not like buying things when they are declining, that is going against momentum. There may be some people who can do that and make money, but I don't know any personally who do. You can see the target way above. Will we get there? I have no idea. However, I will manage this with a trailing stop along the way and see what happens. I doubt we will get there but you just never know.

Last but not least, below is my ETF trade that I did along side my short SP 500 trade, the SH. I love this because I can trade it in an IRA also, which I did as well as my regular stock account. This decline in individual stocks was tough to catch because of the odd pattern, but it was easy to catch in the SH. Trades on a short term basis don't get much better than this one folks.

That is all I have for today, and all the trades I am currently in. I was contemplating a long in the British Pound and Wheat today. The Pound I decided not to play, Wheat I am going to watch and see if it happens to trade up and pull back. It it does I may enter on a pullback.

AM I A TRAITOR?

I have been consistent in my view that GOLD is the biggest bubble in history, so how in the world could I be long?

First, that big picture view as I have explained repeatedly is just that, BIG PICTURE. Bubbles as we have seen can inflate for quite some time before they crash. Real Estate certainly showed us that. I was convinced there was a bubble there before I actually cashed in on my Newport Coast Mc Mansion. I exited that "trade" in 2005 but was convinced before then that a big bubble was at hand. There was still so much momentum going upward there in 2003 or so that it just seemed to be it would keep going for awhile, but there was not a doubt of what would eventually happen.

I see this as no different here at all, other than more people are sucked into a bogus story in GOLD. However, that does not mean I do not think short term opportunities to make money on the long side are no good. This above trade entered yesterday kind of matches up with the seasonal tendency in this market for a rally at this time of year. As a result once I got a shorter term pattern, I decided to go long. Is this trade any good? Who knows! My patterns that I look for were there so I took a shot. If this works out does it mean my bubble theory is wrong?

No, of course not. These are two completely different time frames. There is no reason at all from a big picture standpoint, to be short this market yet for the penultimate meltdown that is surely coming at some point. That type of trade should be done on a weekly chart on a break of major support levels, which is nowhere near happening right now. It is nothing more than idle chat at the moment. However, I do encourage people to do their own research as to what has caused GOLD to move in the past and what has not. What you will find is the reasons being put forth by the gold hucksters as to why it should continue into the stratosphere have never created a GOLD rally in the past. It may for the first time ever, who knows, but I maintain for that reason it is a bogus premise.

I always want to trade or invest on a valid premise, not an arcane idea of what might happen for the first time ever. Once again I apologize for Blogger, they have jumped the shark apparently. I am just not going to spend hours f.....ing around with HTML code to make this look like it used to.

NOT ALL ARE CREATED EQUAL

I mentioned yesterday that I bailed out of my Swiss Franc short due to it's relative strength against the EURO. You can see today that at least from a very short term perspective it was a good move. This is what I was looking at when making that decision. Going into the trade it was quite obvious the Swiss was the weaker chart pattern of the two, so I will not go into that explanation.

What is clear is that when the big break in the EURO occurred matched of course by a rally in the Dollar, the Swiss barely moved down. This was also accompanied by a big break in the stock index futures. All else being equal, the Swiss should have been down big, it was not. This was the first alarm bell. I was not planning on babysitting this trade intra-day until my first check spotted this condition. I then watched it for awhile live and as the Euro continued to decline, it did not budge. I think it was down about 45 ticks for the day, when the EURO was down 260 or so. It appeared to be there might be a buy the Swiss sell the EURO trade going on. This did not mean that it would not continue to go down, and also that is just complete conjecture on my part, so it was not something I could act on.

Next I went to my trading log and noticed in my notes that I had been really torn about shorting the currencies in general due to already being short the SP 500 and it basically being the same trade in terms of chart patterns. I had picked the Swiss also because it was in my mind the least correlated to the stock market in terms of chart pattern, hence it was a better non-correlated trade. Well I did get that part right, since everything else tumbled but this one. However, it also enabled it to defy gravity which was no good.

Also, you can look at the PROGO indicator in red and see how much more it was going down in the EURO than it was in the Swiss. When I weighed all of this together and also considered that we were still in a very big uptrend, I decided that I did not want to wait around and find out after a loss, that I had made a mistake. Net, I bailed out with a profit where indicated on the chart, and am not looking back. Today prices are much higher than where I got out, but it does not really matter, I am done with this market for a couple of days. Now it appears the other currencies are much better candidates for shorting if we get a bounce.

I always have subscribed to selling the weak and buying the strong. Before I found out that it was the right thing to do, it always made logical sense to me. It works "most" of the time, but in this case it did not. Nothing that I know of works every time in anything in life, this is no different. In trading so many well reasoned decisions turn out to be wrong, it is the ultimate self confidence game. It is often hard to have that constant confidence when a series of decisions turn out to be lousy. This is one of the reasons why so many people do not succeed in this business.

At times I question decisions I make also, especially during losing streaks, but I know that if I keep grinding it out eventually I will make some good ones. I have always managed to do in the past.

CONFESSION IS GOOD FOR THE SOUL

Yesterday was a tough day for me in all honesty. I shorted the two markets I mentioned then sat back and watched huge open profits turn into losses. Such is the life of a trader. It hit me particulary hard yesterday probably because my trading has not been good during the transition I told everyone in here I am making. I have seen this happen so many times. However, we cannot impose our own "conditions" on the markets. They are going to do what they will regardless of what we as individuals want them to do. Watching the very short term swings is difficult emotionally, there is no real answer other than to get over it. However, at times it can be stressful which is why this business is so difficult.

As I listened to CNBC this morning and the dialogue of how to explain how the market was getting hit so hard overnight, I had to laugh once again. The explanation was that it was a reaction to the FOMC minutes. How could that be they were released yesterday and a clear rally followed, messing up my shorts literally! Now we are being told the reaction is today, well which is it? Of course there is an explanation that nobody would dare bring up. Perhaps the Fed released their talk to "come clean" then bought futures right on the news to stop what should have been a decline. If this were true, this could be the real reaction to it and not the governments manipulation of the reaction. Of course if they really were to come clean they would completely open their books to reveal all the futures trades they have made, but that will never happen. I do think some day when history is written about what the government did in this crisis it will come out that they bought futures markets heavily to slow things down. It could be decades though before that comes out, but it will.

Of course we will never know which is correct and it really does not matter. When yesterdays lows went today, after that late reversal yesterday, that was a sign of weakness. Whether or not it was done from the above scenario, or some other one is irrelevant. When you get days like that with the late day saves, where the lows go the next day, it is a sell signal. Now we have had basically 3 short term sell signals in 2 days, so the short side is the right side to play here.

I thought I was in business in my Swiss trade when I saw the EURO collapse overnight, but it barely moved. This to me is a sign of relative strength so I exited that trade with a small profit a few minutes ago. With the EURO down 260 and it down only 45 something was amiss, and I was not going to sit around to find out what. It is a trade against a big uptrend, so hopefully we get a bounce to setup another entry. I do think we are on the verge of a good move down in currencies, up in the DX and down in stocks.

THE WAIT IS OVER

I finally got short the SP500 this morning, along with a couple of stocks. Unfortunately alot of the stocks I wanted to short gapped through the entry points and I don't chase gaps except with rare exceptions in stocks. This is the world we live in, you need to be a vampire basically, everything happens overnight. It is also why it is imperative to have those orders in for the overnight sessions as I reviewed the other day.

I will go on record as saying this is not an optimal trade setup, but it is good enough to take a shot. You can see how the recent trend above was not confirmed by an increasing ADX which is a very good trend measuring indicator. We got a trendline break as indicated on the chart, but I actually shorted above that below the low of yesterdays inside bar. Either way if someone waited for the trendline break to occur, that is still a valid entry.

Will we go down, who knows? The longer I do this the more I come to realize that all you do is throw out probes when you trade anyway. We try and stack the deck for our probes, but in the end each trade is really a 50/50 bet for it's outcome. I played golf with a retired guy at my club the other day who was in shock when I told him I was a trader. His quote was classic. "You win some and you lose some I guess." So true my new friend!

I have mentioned over and over the tight market correlations that are in place particularly in the currencies. I have been wanting to short one of them also, but also realize it is basically the same trade as shorting stocks. As a result I tried to find the weakest one. That is probably the Canadian Dollar overall, but in terms of recent chart patterns, I figured it was the Swiss Franc, so this is where I played. The chart is below.

The EURO is actually down more today, but I just judged that the chart pattern was stronger there in the near term. They should more or less trade together anyway. The one thing I liked about this was again the ADX not confirming the price trend strength. The EURO had the opposite, with the ADX skyrocketing. Time will tell if this was the right call or not.

Gold was also a marginal short setup but I have to admit that I did not take that trade. I have a close friend who avoids trading on days like this due to the report coming out later. I have always believed that you take the trades when they come up and let them play out. We spend some much time researching bar charts, how would we ever know when we look at one in the past that worked out the way we thought, whether or not there was a report on that day or not. I think reports are just part of the market, and you place the trades without regard to them.

Maybe I will get stopped out due to it, but I would argue that would have happened anyway for some other reason if it was not for that. Sometimes we just outsmart ourselves in this business. Maybe it will come out in a way that makes the trade better, we just never know. The one exception to that is non-farm payrolls. I do not avoid them but use stop limits often if entering a trade on those days just in case we get on of those wild reactions which happen a couple of times a year.

That is all for today, good trading to everyone.

WAITING PATIENTLY

Trading more often than not is a waiting game, and that is what I am doing at the moment. As you can see we have divergences galore right now in the SP 500 daily chart. Both the accumulation/distribution indicators have it as well as the Larry Williams proprietary oscillator. The daily bar pattern still shows higher lows and higher highs, so there is no reason to run out and short this for nothing. However we are into weekly resistance up here, so when I combine that with what this shows, I am chomping at the bit to get short here in both the indexes and individual stocks as well.

Often when we get situations like this we get an explosive move. It could also be upward, there is a tightening of the price action going on, and the VIX is just crawling sideways right here. What this all tells me is that a breakout is coming. I am looking downward due to what is above, and will not go long if it breaks out upwardly. I will just move on to something else. In our new world where all markets are the same, we have similar sell setups in alot of places most notably the currencies. They also though are in strong short term uptrends, so no reason to just stand in front of them either.

The following is a weekly chart where you can see how we have rallied into the sell zone. Will we stop here, nobody knows, but I am prepared to take action aggressively if we do.

On a seperate note I noticed something very disturbing that I need to mention. Occasionally I take a cursory glance at who is visiting my blog just to get a general feel for where in the world readers come from, and even it if is worth continuing this. This is especially true now with the demise of blogger, in that I cannot put out the quality of product I wish to. I am hesitant to keep doing it just for the lessor quality aspect of it now without even considering these other issues. Typically the stats are about the same, and there are readers from all over the world which I think is cool.

However, I noticed one day where there was by far the most page loads of any that I have ever had. There is only one explanation for that, big brother is checking in. Readers here are aware that I bash Barry constantly. We also know that his administration is really trying to implement a fascist type of regime, where all dissenting opinions are squelched. As much as it angers me to no end that they are doing this, it will also cause me to stop this if it continues. I do not make a single penny off this, so I am not going to risk getting into a lawsuit from something that is not a money maker.

We know they are just ignoring all the laws and just trying to dramatically change our country permanently. I just hope that someone very wealthy and it would have to be a billionaire who could shield his assets completely from them, decides to finally take them on. Maybe they purposely avoid doing things with a few people that have to firepower to fight them I do not know. I find it interesting that they have not gone after Sean Hannity, but he has millions of fans, millions of dollars and FOX news behind him. I think if that were not the case they would be doing something to try and shut him up.

What I do know is that one reader loaded literally evey single post I have ever done, and that is not what a casual reader would do. If by chance this blog is just gone one day without notice you will know what happened.

LEARN FROM MY PAIN: MY BIGGEST MISTAKE EVER

I debated whether to even post this because it may take away credibility. However, my main credibility is that I tell the truth. The above chart shows the single biggest loss I have ever taken since I began trading, and it just happened. One of the problems I always have is it seemingly takes me forever and alot of pain, when I try to implement something new that I have learned. When I mentioned awhile ago that I was trying to change my trading style somewhat I never drreamed I would put myself through what I have the last couple of months. It has been brutal.

One of the trades that has absolutely killed me over the years, is these two point divergence trades. I learned a new way to do them recently, so I thought I would try one live. I should have known better, but apparently I did not. However, it should have been just one stupid trade that I never should have done, it was not.

I took my normal risk level of 2% on this trade just like I always do. However, what happened is that I was filled overnight on my short, then the market had a monster reversal back up and I had no stop in for the exit. By the time the pit opening occurred, they gapped it up even more and I puked out at the market having doubled my 2% loss, making it 4%. Now most people would not think that is such a tragedy. For me, I have never lost 4% in one trade ever, and don't want to ever do it again. Yes this was an awful trade, one I will never try again no matter who shows me what on how to do these. The mistake I made was not placing stop orders that were linked to the fill of the original.

Most trading platforms allow this to be done nowadays, PFG has a great one, TradeStations is very complicated but still can be done. What I would suggest to everyone trading now with these huge overnight moves that we see on a daily basis is to make sure when you place orders, you also have your exit orders linked to them. I have never had this happen where I was filled overnight and then had the market reverse so sharply that it went through my exit price on the other side. However, all it takes is once. This cost me an extra $12,000 so that is certainly enough to drive the point home with me.

Hopefully those who read these will learn something from this. The other thing I learned is how many breakable items I still have at home. The good news is there are not many left now!! I have never been as pissed off about a trade as I am over this one. The good news is that I will never forget this mistake as long as I live and hopefully this will help someone else avoid the same fate.

Have a nice weekend

YAWN

There is not alot happening right at the moment. I just heard our fearless leader taking more shots at W on TV. This guy is just a disgrace there is no other word for him. He is kinda like the kid who you beat over and over again, yet continues to run his mouth and make excuses about how you did not really beat him. This just shows how bored I am that I would even listen to this dumb ass even for a second.

The above SP 500 chart continues to be in the same spot. We have alot of divergence going against this current move yet the trend is still up. I am itching to short this but don't have anything yet. I do have sell orders under Mondays low in the NAZ in case we get down there. However, until we do I am going to sit and be patient. I am of the opinion that a big down leg is coming here but in case the PPT can keep it propped up longer, I am not just going in at the market. The NAZ is a bit weaker than the ES so that is why my orders are there, but it is basically the same trade.

I have mentioned BONDS in here recently. I am looking for a sell signal there also and have been for awhile. The main reason is the divergence in the accumulation distribution indicators from Larry Williams that I watch. They are displayed on the chart below.

These lines are way underperforming where price is which is telling us of underlying weakness here. I have some orders in today that I doubt will be filled below where we are currently trading. I have had this several times recently and not been filled due to equity strength. This is the safe haven spot, so if we do roll over in stocks this market will likely remain strong. Maybe this is telling up we are going to continue up in stocks?

The Blogger problems have adversely effected the quality of what I put out here but there is just nothing I can do about it until they fix their problems. That is all for now, good trading to everyone.

ONE FOR ALL AND ALL FOR ONE!

This morning we have another across the board liftoff taking place. If it were not simply impossible for the government to be behind these correlations I would swear they were. It is too much for them to undertake even in a F you I won adminstration slogan world. Literally everything in the world is up along with stocks this morning, and until this changes, I suggest all trades be filtered with stock market direction. I have mentioned this in the past, and it amazingly still holds true. There was a recent period a couple of months ago where some decoupling began to occur, but things have fallen back into line again.

I think there are two reasons for this. First, alot of the true problems are being masked by the artificial propping up of the markets by the futures buy programs the US Government is behind. It is keeping stocks high, and optimisim from falling off a cliff. Second, I think the big power in the hedge fund world has their models dialed in to these correlations, so when stocks go buy orders fly in from everywhere in all commodities markets. As a result, when one goes so do all the others. The only thing you can do is take it into account when determining position sizes. Just remember, buying crude is the same as buying stocks, which is also the same as buying soybeans etc.. They are all the same trade. If you are long 4 different markets and risking 2% on each, you are really risking 8% in one trade. They are all the same.

Next I have the seasonal pattern for stocks which shows a rally here for a few more weeks, then sharply down. I do still feel this is a house of cards and as you can see from the chart above, some of the things I use to measure trend strength are not on board with this at this point. They are in fact lagging quite a bit, which is a huge caution flag for me. Notice how the Larry Williams proprietary oscillator has a much lower peak than price and is not even moving up on a day where we are up 175 Dow points as I type this. This is very unusual, but has me looking for shorts not longs.

I think it is interesting to see how closely we have followed the seasonal patterns this year, almost exactly to the day it seems. This would indicate a couple more weeks up, then down into the fall buy zone. Seasonals are not always this accurate, but when we are tracking them the way we are this year, you have to be aware of them. Until we veer off course, I expect we will follow this. I am sure another email about Dow 4000 by the end of the year has arrived from Bob Prechter while I am composing this, but I do not think we are going to see that. Things are looking good for the fall rally I think at this point. We may have a sharp decline into it, which if it occurs will make it that much better.

I am being told that the charts cannot be enlarged anymore and I apologize if that is true. Blogger jumped the shark a few weeks ago, and there is nothing I can do about it until they fix the problems. There is nobody I can call, customer service etc..