RECOVERY MODE

I think the charade that I have been pointing out all along about the "Recovery" has been exposed. We all knew that was BS by Barry and Co along with the liberal media so desperate to move socialism forward that they just blatantly ignore all the facts. What I never understand about ideologues is that they never see how their own views hose them. It is one thing to be dedicated to a cause, but when it ruins your life doesn't at some point it become clear you need to go down a different road? Apparently not. First it was a recovery, now that has been exposed as a lie, so they fall back on blaming W for the recession being worse than they thought. It really is insulting and also shocking that about 50 Million people are dumb enough to believe this crap. That is how many voted for this clown. There are always going to be dumb asses but 50 million of them? It is just a shocking number to me.

However, I am in Recovery mode after my single largest blunder of my career last week. The one thing that you have to do is learn from your mistakes. You have to man up and identify your weaknesses and address them. My weakness in trading is that at times I make arbitrary calls on bar patterns. Even though I know I do it, at times it still gets away from me like last week. I do admit that last weeks mistake will likely stick with me forever, it was that big of a blunder and one I will never forget. I hope it leads me on to better trading going forward. For those who think I am making a big deal out of nothing, consider this. How many times a year do you think you have the opportunity to make 50 to 100k in just a few days, not many I would venture too guess. I know there are only 3 or 4 a year in the indexes, and I just missed one. It is over now, and had I been short, I would have covered by now anyway, most likely on the large expansion bar down the other day.

I mentioned I was bullish on Bonds, and that call also proved to be correct. Now where do we go from here. Bonds are in an interesting spot in that they just closed above the whole recent range for the first time. That would be a possible trap sell pattern if it were not for the monster size of the range on Friday. It is more likely that the next trade if you are not long now, is to buy the pullback if we get one. I think we will. The above chart is that of a 90000 tick chart in the Bernanke 500. You can see there is a good bit of divergence in the Stochastic at the bottom, and this tells me we will likely bounce this week. It will probably be in sync with a resolution of the debt crisis to give in the the socialists and continue to borrow more than we spend, raises taxes, do no spending cuts ( none of what is being discussed is anything other than slowing the rate of increase there is not one single net cut out there ) and so forth. I for one am glad the Repubs are rolling over, this is going to provide short opportunities of a lifetime when the liberals ruin this country for 50 years in the next year and a half. It will be unfortunate for many, but many of those will have themselves to blame for voting these people in. You reap what you sew.

I do think the deal will lead to a short term rally, and I think it will be short if it happens at all. We now know that what I have been saying all along is true. The only real profits companies have made are the result of the low interest rates. These rates will likely stay very low for quite some time so that means corporate profits will still continue to be fine.

Readers here know I said the trend turned down in the indexes before anyone else said it did, and we are clearly now in sell any rallies that we get mode. I think we will get a bounce this week.

Here are the trades I am looking for this week

Corn shorts, or possibly other grains
Copper shorts and possibly Silver although that is not as good of a setup
Dollar longs
Energy shorts
Index shorts
Cattle longs, Hog shorts

As these trades setup more specifically, I will call them out in here the day before or possibly two days.

FOLLOW THE DAMN RULES YOU PINHEAD

Sometimes I debate not even doing this blog so I can avoid the embarrassment of being publicly exposed to bad decisions, and now is one of those times. I mentioned the Bernanke 2000 was the place to get short since it was by far the weakest, and I talked myself out of following my own rules, and missed a huge winner. This is how I pay my bills, and missing trades like this just bothers me to no end. So, why in the hell did I not do this trade?

Here are the reasons in no particular order:

First, the Bernanke 100 below was making new highs for the year, and I like to have some consistency in a sector. I ideally I would have had sell setups in all 3 and just taken the weakest one.

Second, the very unusual bar where the close was kind of in the middle, not really a reversal bar, not really a smash bar, not really a doji bar. It is rare that bars like this are good entry bars. I studied them the prior night and found that the majority of the time the market went sideways or bounced from these.

Third, I got distracted by Washington DC, an inexcusable mistake. I had reasoned that there was no way the Repubs would do the right thing, which they are.

Lastly, the Bond Market read on a daily chart was unclear to me, and although this should not matter one bit, I considered it.

Let's analyze these dumb ass reasons so I can suffer the full pain of this blunder that cost me to miss about 25k of profits.

The first reason on the surface seems legitimate, and I am still not sure that it is not. Rarely do you see this type of disparate action between the stock indexes. This is the main thing that led me to believe in my theory that the Repubs would eventually give in and we would bounce. I just did not see a sell signal of any kind in the Naz other than some divergence at the highs. In my world I would have needed to get a bounce here to setup the sell entry, or a close above the highs that reversed the very next day. Neither of those have developed yet and they still may you never know. However, I was considering shorting the Russell so I should not have been looking at this. Such is the life of using some discretion, sometimes you just blow it.

The second reason is the one that is haunting me the most. The bar pattern stuff is always my Achilles heel. I always want to throw in some arbitrary opinions about what bars are best for entry and what are not. When you test them mechanically you find that although there are some edges, they are small and really should not be that heavily considered. I injected an amateur view on that mid close bar, and that is quite frankly inexcusable. This is what stops are for, some trades don't work. You have to take them and move on. I was way too busy trying to make an excuse for why I did not want to do this trade with the politics that were going on, that I threw good trading practices out the window. There is really no excuse at all for someone of my experience to make this mistake, but I made it.

Third, the politics are not something you should ever consider. I hate politics and for the exact reason that we are seeing play out right now. Every single one of these guys is lying. They are all talking about negotiating over how much spending will increase and calling it cuts. If it increases less than 7% they are calling it a cut. This is just infuriating and if I had my say I would say shut the whole thing down indefinitely. My wife has Fox news on constantly in our main viewing room, and I just can't escape it, so I get dragged into watching it from time to time, only to get pissed off and go back to my office. This has effected my thinking on this and it is never going to happen again. For those of you newer to trading, please learn from my mistake here. Read the sports page, but ignore the business page.

Net net, overall I made several amateur mistakes that I have shared openly that makes me look like a fool, and I feel like one. However, one of the things I do too distinguish myself from others, is talk honestly about what I do, and along with that comes discussing the bad with the good. This is probably the single worst decision I have made in 10 years, so there it is.

The moral of the story, follow your rules like I always preach even though I did not do it myself here and paid a big price. It is time to be short the stock market, if you are not already, sell any bounces, down we go now, how far I do not know. We will probably see a continued flight to Gold and the Swiss and Yen, so if you are looking at safe haven places, those are probably them although the premise of the Gold safe haven as readers know is bogus historically, it is what is working now and that is all that matters.

HARD TO BELIEVE

I guess I am too "young" to remember times like this. When I listen to speeches tonight from Barry and Boehner, it just amazes me along a couple of fronts. First, why in the world doesn't someone come right out and say why Barry is lying about the Social Security Fund. Doesn't anyone remember the lock box skits on Saturday night live when W and Gore were fighting it out. That money is separate for god's sake. How in the world can this cat just come out and lie right to the public over and over about this and not take any heat?

Then I heard several wackos like Katie Couric comparing him to Reagan today on the radio. This is not even aggravating because I just could not stop laughing. Even with all the referees and writers fixing the game for him he still can't do the right thing. President crybaby like Hannity calls him is just too perfect of a nickname. How in the world can a president oppose balancing the budget? I still think the best strategy is like what Green Bay did in the Super Bowl once, where you just let the other team score a touchdown on the next play to preserve time on the clock to try and score at the end yourself. Roll over, let em win, spend us off the planet. Then we can all get short and make millions as they take the Dow down to 2000. Then we can rebuild this thing on a sustainable model, and the world in the long run would be much better off. Aah what it is like to dream sometimes. We will call it the "I told you so campaign, and by the way F U we won this time." Even if I had to pay 60% tax, I would pay it take my millions I had left and leave.

"It is time everyone paid their fair share," does that mean that the 50% of the people who pay nothing are now going to pay some income tax? Or how about the ones who pay nothing and also get money back in a subsidy for a net plus, that is one of my favorite plays of all time. Talk about an "and one" as they call it in the NBA when you get fouled, get the hoop and a free throw. That is an and one on steroids.

With all this going on I still have not shorted the Bernanke 2000, but I should be short. There is just something really nagging at me about this short, and rarely does this happen. This trade could very well leave the station without me, but a few of the nit picking things I use to stay out of trouble are telling me to wait on this one. At times they leave me holding the bag while a train leaves the station. I just do not trust a random market spike with all of this nonsense in Washington going on. I also do not like how strong the Bernanke 100 formerly knows as the Naz is. In general I would want that to be leading to the downside as techs often lead big moves. Also, even though the Bond market is bullish fundamentally, the price action is crappy there. It is beginning to look now like a bounce there could be a short on a daily chart. Net net I have conflicting things that are just bothering me here. We can see on the chart above that we are not quite into the sell zone on my COT Synthetic. There is a line where we have had some good selling points recently, and we are a day or two away from that. I would still take the trade if it was perfect and not worry about the political BS, but it is not perfectly setup and I am not going to force a marginal trade here.

It does still appear to me as I write this Monday night for Tuesday, the both Crude and the ES are intraday sells on rallies. Copper also appears to be a day away from being a good sell setup. Gold has a potential trap sell pattern in it, but it is not confirmed by what I use to do that, also it is the strongest metal. I never short the strongest member of a sector, ever. Cotton also is beginning to interest me on the long side here even though it is going straight down at the moment. There are some divergences now starting to develop there.

Sorry I don't have more, when you post every day sometimes there is just not anything that compelling to talk about for market setups. They are basically the same as they were the day before.

CJ OUT

IT APPEARS TO BE HANGING IN THE BALANCE OR IS IT?

As our fearless leaders muck it up over this ridiculous debt debate, I think we are now setup for a decline right now. This view is just based on technical stuff I use. I am sure if we go down it will be blamed on the debt talks, but that will not be the real reason. The news reports are never accurate on true causes of things other than when a tornado blows a house over. We know that is correct only because we can see the film footage. However, this does not mean a whip saw cannot happen. I think the Bernanke 2000 is where shorting should be done, and tonight we had a huge down gap due to debt talk rumors. Although Sunday night opens at times can be screwy, rarely are they this big. On a daily chart basis I am not crazy about Fridays bar, followed by a gap down opening. We do not see many big down moves that start with a pattern like this. Most from what I have found bounce a day or two or move sideways, then break, if they break at all. What I am looking for is a reversal of this back up but not too far, then a sell below the lows of the days that bounce. Will it happen? That is anyone's guess, but I have a plan and that is better than what most people have.

We do now based on this opening have a confirmed lower swing point high as per the exchange I have been having with Don on this. Trading by the strict rules of swing points on a short term basis, one would be short tonight stopped above Friday's high. That might very well be a huge winning trade. However, I am dead convinced that the Republicans will give in on this just like they did last time, and when they do, that will be when we will bounce. That is merely an opinion and not something I am trading off, I just find it ridiculous that anyone thinks otherwise. Barry has the media locked up so he cannot lose the PR campaign over this. It is still surprising to me that liberals think spending more than you make and then maintaining a ponzi scheme to pay the bills by stealing money from people with high net worth, is a viable long term plan. I don't know when the time will come, but I do know it is coming, when the million dollar trade will be to bet against these idiots. We have to be careful though because they do control the FED right now, and as we have seen the FED can rally the DOW 6000 points if it wants to. QE3 will get launched the minute trouble starts, so it will be very interesting to see if they can stop a big decline if one starts to shape up.

For now we still have mostly up trends in most commodities which means dips are buys on the weekly charts. Whether or not we will have trend changes or not is yet to be seen. If we do get a downward move in the stock market, we are going to see commodities change trends also. The world is still one trade basically.

Someone who got my email from somewhere was touting a buy signal last week in China. The above chart is the daily stock index of that country. Do you see a buy signal there? The short term market structure is up but barely. If the low of about a week and a half ago gets taken out I think you can turn out the lights there for a bit. I think sometimes people get so tied up in hyping something to make money off the monthly newsletter fees, that they throw out one thing after another to see if anything sticks. His premise is that he is a commodities bull, and China is going to drive the whole world demand higher. Of course he has to find buy signals, because if that country is going where the index appears to be, there is not a strong likelihood that huge demand will come from there in the near term. If we were to take out the recent high things look good in the near term, so we need to watch here. However, I certainly do not see a buy signal confirmed yet since we basically closed on the weekly lows last week. Trust but verify, remember that including anything I spit out.


I am still bullish on Bonds here, the next chart will show why. I feel a bit guilty in that Larry Williams just earlier today put out a video on this, but I was talking about this before today as readers know. Also, since I am a student of his and use many of his tools, my views on market setups tend to be pretty close to what his are most of the time. That is the way I like it.

You can see on this daily chart my COT Synthetic indicator is showing insider buying at a pretty high level here. This does not happen too often, normally a larger dip is required for this to happen. This is bullish. The next chart, which is the weekly, also shows COT Commercials buying steadily here on this small dip, again somewhat unusual and very bullish. Also on the weekly chart you can see where we are basically at the seasonal low. One of the most consistent seasonal patterns in all the markets, is for Bonds to make a low in July, and rally for the rest of the year. As with anything else, this does not always happen. Do your own studies of Bonds in July and you will see how often nice lows form during that month. We have not retraced much, so maybe we will dip a little more I am not sure. I do know that the next good sized move should be up here.

Weekly setups are just setups, they are not necessarily immediately actionable spots. They are zones where I look for daily entries. The daily chart does not show an entry for me Monday, so I an waiting to see how my daily indicators line up in the next couple of days here. The daily chart actually shows that if we were to break for a few days and rally, it could be a pretty good daily sell setup. Since the two are not in sync at the moment, I do not have a trade.

I also think Copper if it were to close higher on Monday could be setting up a sell for Tuesday, as could Cattle.

That is it for now, good trading to everyone.

GETTING INTO THE SWING OF THINGS

Don asked about Swing points yesterday and whether or not I use these types of things. The answer to that is yes. The above chart has 3 different time frames of Swing points, and this is the best way of getting a quick overall view of what the structure of a market really is. In this case, the Blue points are the shortest time frame swings. You can see in this case with the Gold market, all three time frames show the trend up, so that is in general the direction that should be traded. It is always clear after the fact just like anything else, but I do find it helpful if I get a short term swing point in my direction on an entry bar.

I have researched these just straight up buying and selling whenever a new higher low or lower high was made. This results in a about a 50% win percentage in most markets, so it is not the holy grail. It is a very noisy way to trade, but there is one thing it does accomplish. You will catch most of the big moves in the markets if you do it. I tried it with real money in the Bernanke 100 about 6 months ago with just one contract playing around, and of course it lost 5 straight times getting whip sawed back and forth during a trading range. It was just bad luck that I happened to start right when that happened, but it was ok because I wanted to get a true reality of what it would be like to trade like that to see if I could do it. At the time I was using this as a primary entry technique with just one other thing and the test results were very good. I wanted to see if I could actually execute what would be a ton of trades since often the short term swings change daily. I just could not do it, and I left with a mixed impression of how important this was.

However, that does not mean there is not an edge to swing points. That was one specific way I chose to trade them mechanically, it is not the end all. I think they are important particularly in assessing longer term trends. Also, just in looking at charts over and over it is clear they matter. I do want the swing points in the direction I am looking to trade whenever possible, and most of the trades I make that do well do have this going for them. Trap trades, which are those that make new highs or lows and immediately reverse, obviously do not have Swing points in sync with the entries.

I would welcome any research that anyone has done on these, because I find I just do not have the time to research them the way I would like to. Don, if you have done any please let me know.

Here is the current Swing Picture in the Bernanke 500, as you can see if today's low gets taken out Monday, that would confirm today as a lower short term high than the highest Swing Point. This is interesting to me in that my weekly trend stuff is still showing the trend has turned down, so I really am looking for a short up here but don't have enough to go with it yet.

This is certainly not the ideal swing point formation, but you can nit pick anything. Technically it will be one if today's low is taken out on Monday. That is still not going to be enough for me it appears at this moment but as we know things can change quite a bit in a few hours.

One thing I am incredibly tired of now is this proclamation of this end of the world disaster if the debt ceiling is not raised. Can you remember the last time everyone told us about a disaster in the making and they were correct? None of these guys told us in 2000 or 2007 about the stock crash coming. None of them told us about the Real Estate Collapse in advance. Remember Y2k anyone? What a joke that was. Yes there were a few people here and there that were right about these things in advance but certainly the majority of "experts" were not. Medicare payments would not be withheld unless Barry decided to do that even in a shut down. I am so sick of these liars telling us about this incorrectly to further a political agenda. Some otherwise credible people have fallen into this trap which is disappointing. You believe the Treasury secretary who is a tax cheat?

Ignore all that crap because that is what it is, crap. It appears the Sugar sell setup is now messed up with today's large up move, although a trap pattern could now be at hand.

Have a nice weekend

THE WORLD IS TRULY UPSIDE DOWN

Only in a world like we have today could a another bailout of a country after a failed first one, spark a rally in the currencies of the countries loaning more money to a junky. I know liberals think this is always the way it should be as long as there are people with more money ( as long as it is not them ), to take from to give to people to piss it away. As frustrating as all of this is to many people, and as sure as we know in the end this will be a disaster, we cannot get too carried away with the macro issue here. The bottom line is that we have to go with the flow. There is no sense in fighting a rally that you think is on a false pretense, who cares? A rally is a rally and you need to trade in sync with what is happening not what "should be." After all maybe we are wrong about our opinions about what should be?

One of the things that has become pretty clear with the little exchange I had here with a couple of Gold Bugs, is that many people are so fixed in their opinions that they have no alternate plan if they happen to be wrong. In as much as I think Gold is a bubble, I have been trading the long side of it because I accept that price is not in agreement with my view, and I am not going to fight a bubble just to try and win a cocktail party argument. Bubble's are where fortunes are made. I made quite a bit of money from the Real Estate Bubble, well into 7 figures. I love bubbles, you just have to know when to get out. People who have inflexible views often are right but don't get out in time. A Microsoft example was cited as to why I was wrong, lets look at that chart compared to GOLD and see if in fact that supports my side or the opposing view.

If you look back at the Internet bubble you can see that at the end we had a 2 year almost vertical rise, this is what I call a pattern. It is a distinctive occurrence that we can visually clearly see. Price had been rising steadily, then it went vertical. In the next chart you see the exact same duration, both markets were rising steadily then entered a 2 year almost vertical rise that we are in the midst of right now. These two patterns are nearly identical. It is yet to be seen if GOLD will suffer the same fate, but if history is any guide like this or any other pattern like this you can find, these movies all have the same ending. This is where people who get so tied up and married to a view of one side only, miss the boat. Everyone alive was bullish at the top in 2000 ( yours truly exempted I went flat at the end of December 1999). Getting into a percentage argument is missing the point here, that is irrelevant. You have to look at the pattern in price when it becomes irregular ( distinctive). It is the pattern which mirrors collective human emotions, that leads me to my conclusion.

There are people really bearish in the EURO thinking it ultimately has to crash, but the fact of the matter is that it is not "cooperating" at the moment. I don't really have an opinion on that either way, but that view is generally shared by those who also think the Dollar is doomed. The may be right, I have no idea and don't care. I do not need to know that to make money trading, and a fixed view on something is not going to do me any good. All of this leads to today's discussion of the Bernanke's.

This is a daily chart of the Bernanke 500, and the way I see it we are at a crucial spot now. Some of the custom things I use not shown, will turn back down on the daily chart tomorrow if today's range were to stay about the same, then it's low gets taken out. We may just take off here, my gut is telling me a lift off is happening, but I don't trade on gut ever. The next chart shows we are still in the weekly sell zone with my bands. If I get a daily sell indication where the weekly is also indicating a sell, that is a green light special. ironically when I look through individual stocks I see all different sorts of looks, not a consistent overall direction collectively. As a result, I am flat other than day trading today, as this is unclear. If we do close up where we are at press time here, up 12 Bernanke's in the 500, I will be looking to short weakness Friday if it develops. As I have said before, if we keep rallying and make new highs, I will be looking at longs on pullbacks most likely.

Following up on a couple of other things I have mentioned recently, the Sugar trade on the short side also appears to be setup nicely now if we get a downward break. The Bond market I had orders to buy above the current prices today, but I just cancelled them because it is too far of a travel range to get filled now and a retracement if we went that far would be likely. Rice is still developing, I do not see anything immediate there at the moment.

For now it "feels" like a cowabunga rally is at hand.

Good Trading

OFF THE BEATEN PATH

We are getting the bounce in the Bernanke's now I have been looking for and so far it is not a sell yet and may not be. I will have to see over the next few days if this backs it's way into my parameters or just takes off again. I still consider the trend to have turned down which is why I am leaning to shorting the bounce, but price speaks the loudest. At this moment I am unsure the way this looks now if it will be a sell in a day or two or not. While all that is going on, I thought it might be fun to stray off the talk of the town, and look at a few other things that appear to be in the process of setting up something.

The first chart is a Weekly chart of Rice, which by my rules is in a downtrend. It may not appear so by looking at the chart, but it is the way I look at it. Now that I know I am in a weekly selling zone, the next chart is the daily chart and look at what is brewing there.

We have had a very sharp rally and POIV is really lagging here. Some of the short term things I use have turned down, so now it is a matter of seeing if we get some type of a sell pattern to develop on a little bounce. As per the usual, I do not know if this will take place or not. If it does not I will move on. I keep my discipline, look for very specific patterns in things, then take action if they show up. I cannot say I do not force trades here and there, I just did it in the 10 Year, but in general with very rare exceptions, I am pretty good about sticking to things. I do miss many trades, but I focus on how the one's I do take work out not the ones I miss. Forcing trades will lead you to trouble, it is just a question of when not if. Let's see how this Rice trade in the making works out.

The next chart is that of Sugar, again another very strong up move, that is potentially setting up a sell for me on some of my shorter term things. It will take a few days for this to be where I need it to be, and what I am hoping for is the COT Synthetic to move down during that period like it did in the previous examples I have marked with red arrows. This would tell me there is insider selling on a bounce, and would help confirm the trade on the short side.

I had mentioned for Tuesday that if the high of Monday went in the Bond Complex, I thought it was bullish. I also mentioned the 10 Year was the stronger of the 2 Bond contracts. In that market the high did not get taken Tuesday, but it did in the Bonds. I have to admit, I see this bar pattern as erratic and am unsure about this market at the moment. If we were to get a down close on Wednesday, there may be a buy on Thursday, but I am not chasing them right here. Maybe they will take off Wednesday and if they do I will not be aboard. When looking at the 10 Year I see three consecutive reversal bars in opposite directions, and I do not want to guess here.

I am also looking at shorting Copper, and also it appears a Gold short might be in the making a week or so from now, but it is too soon to tell on that one. I do like the prospect of that due to the buying climax we just saw with 11 straight up closes. However, I would never just blindly sell into that kind of strength stand alone, so I am going to need a bit more here that what we have so far.

Good Trading to all

INSTRUCTION MANUAL

We had a couple of good posts in reaction to my weekend commentary as well as a few emails directly to me. First of all, we will never all agree, and if we do I can promise you I won't act on whatever that view is. I don't like crowded trades even if that means missing some. I think most readers know I am a short term trader, I generally hold trades from 3 to 15 days unless I get stopped out quickly on something. My larger picture comments are more based on my experience having watched and traded financial markets for 25 years. My view of the metals bubble which I know most do not share, a reason I like it, is based on price action alone. It is not based on any opinion about the fate of our dollar or any other arbitrary assessment I might have at any given time on some economic development. I trade short term and generally with what the trend is while occasionally going against them in the conditions I have discussed in here in the past.

My basic point about the metals can be summarized by just looking at the monthly chart of Gold above. Does this really look sustainable? How many other instances in any market in history can you show me where a move like this continued on for years and tripled in price from here? I will save you the trouble, there are none, ANYWHERE.

This does not mean that this cannot be the first, it has already defied the odds for awhile. However, readers need to understand the basis for my evaluations and how I arrive at them, hence the Instruction Manual title. I study price patterns and ferret out the ones that have the highest probability of repeating. Once I have found them, I tailor an entry technique that also has a statistical edge to that setup, and away I go. This pattern here no matter how I study it be it a 5 minute chart, daily, weekly, or yearly, is a climax pattern. What does that mean?

It means that we have a runaway frenzy that is accelerating into the equivalent of a jet burning all of it's fuel. It is very difficult to determine when gravity will kick in. I will promise you this, if you just looked for every pattern that looked like this and bought it you would lose everything you owned in 30 days. This does not mean that you would not be in a profitable position at any point, you very well could be by a large amount like with Silver. However, once you get this type of action the odds do not favor it continuing. Is is not any more complicated than that. I trade in what my studies show are high probability situations, and this is not one. It is not a short sale, trying to short these types of moves is crazy. ADX is now at 51 with the last 11 consecutive days being up closes, again another danger zone. ADX can and does go higher than this no doubt, but it is a warning signal that at least a pullback is coming. This is my reason for calling this a bubble, it is a climax pattern in the price, pretty simple.

If your view is that you are sure the fiat currencies are going away, then you obviously will have the opposite view. My opinions are based on price pattern history and COT data. Opinions mean nothing, it is how much money you make off trading that matters. If you are long and making millions, good for you. I wish everyone success in trading and it is why I do this blog everyday, to try and help with that. Please just keep in mind, there is trading, and there is expressing opinions, they are not the same. I do not and never will trade on my opinions. If you are able to formulate opinions and trade off them and have success, you are far more skilled than I am. I tried that in my younger days and failed.

Net net, maybe I am wrong about this, but my reasoning is simply based on the data, not an opinion on economics. Thank god I am not an economist! For those who don't think it is a bubble take out a second on your house and double your bet. If I was as sure as so many we were going straight to $5000 that is what I would do. Maybe I just don't get it. I would sponsor a pullback buy, like the one marked on the chart, but not one right here.

I know the one comment was also about the bubble in interest rates. Ironically I think if we take out today's high on Tuesday, the 10 year notes are a buy. I really don't know if this market is a bubble or not, there are certainly good arguments for it being one. However, the price pattern does not indicate that yet, so I don't view it as one. If the price pattern winds up looking like GOLD above, I will also view it as a bubble at that time. My studies show that patterns like this if the high goes the next day are good buy signals, so that is what I am looking at. The COT report also shows good buying in this market right now, which supports this trade as well.

I am sure the one reader who has the opposite view of these would say I am being inconsistent here. My views on these are both on the price patterns, not the economics so they are consistent. My studies show that 11 days up in a row is not a buy, very clearly as we have with Gold. On the other hand they show these reversal bars like this when they reverse back the next day are good buy signals. It is that simple for me. Maybe I am wrong on both of them. If I am no be it, I am a trader and I will move on to the next decision knowing I will get some things wrong.

I have had a few spectacular winning streaks in my career, and they are not easy to handle. Once they start carrying on the second guessing hits hard. I had one with 39 wins in a row, and one with 22 in a row in my old trading service. Once you get that many you just want to have some losses to get back more in balance. I recently had another pretty good winning streak and knew I wanted to get a loss in there to level the field. This might seem like negative thinking but it is reality. Perfection is not necessary to trade profitably, and if you strive for it you will not have success trading.

I am still hoping for some type of bounce in stocks to get good sell signals in the Bernanke's. I passed on a sell for Monday because some of my filters said no, so I am hoping we get a bounce for a day or two to set up a sell.

I hope I have made the basis for my commentary clear, and also hope it was done in a way that was not offensive. I just want to make sure readers understand where I am coming from. I know new people come in all the time, so I never know how long or how far back people might be reading, to get a feel for what my approach is. I am constantly studying conflicting views, I don't learn anything from talking to a bunch of Ed McMahons.

Good Trading

FEAR SELLS

SOMETHING THAT BOTHERS ME

TRADING RULES

One of the problems all of us have is fear of difficult situations. It is this fear that causes us to always try and predict the future so we can avoid those difficult periods. It is very easy to feed into those fears and there are certainly alot of people doing that nowadays. Maybe it is just what I get hit with, but it seems like every time I turn around I am getting something sent to me with Apocalypse, Armageddon, collapse etc.. I do think some of these people truly believe what they are writing about, and others probably do it just to make money. The ones to watch out for are the ones with no track record of ever making any money that tell you to do one thing or another.

I have to admit that I do have some worries over how all of the big picture problems are going to eventually work themselves out. It does seem to me that continuing to add leverage to things, when leverage created the problems in the first place, cannot possibly work. What also bothers me more than newsletter writers foretelling in the end of the world, is public officials who are lying about it. Since I am of the opinion that people don't change, I think this type of thing has always been going on. We are just more aware of it now because of all of the electronic advancements that have created lightning speed in news dissemination. It is particularly bothersome when the head of the Federal Reserve is clearly lying to the people, and also engaging himself in politic fear mongering.

There are times when you have to putt out, make a triple bogey, and go on to the next hole. How long do you want to prolong the inevitable? Continuing to leverage is just inflating another bubble, and we know all too well how things always end with bubbles.

Here are the bubbles I see that are inflated right now, some more so than others, but all extended too far artificially for varying reasons. History has told us if we just keep it simple and base our decisions on what has happened in the past, reversions to the mean will happen.

Bubble #1

Obviously the biggest bubble is the metals. If you look back in history, there is no time when price has ever moved this much for this long. Is it different this time? History always tells us no on this question. In as much as the Armageddon people have predicted this rise correctly, they will also be trapped in an inflexible view at the wrong time. Whenever we get the types of arguments as to why something that has gone this far will keep going even when it has not historically, we do get the reversal in price. We all remember the "they are not making any more land" argument here in California during the Real Estate Bubble. I do equate this with the prediction for the end of the US currency system. These arguments are the same, they predict something that has never happened before continuing. Make no mistake about it I trade the trends, so I see no reason to be short here, these are big picture points.

Bubble #2

The US stock  market would have to also fall into this category. Although the profits in the companies are real, they have been created by an artificial move by the US Federal Reserve, so it is likely a reversion is coming here. It could well be as it is with the metals, that the trend here is so well established, that any sharp reversions are long term buys. They also may well continue to carry on. We have had hints now that the FED seems to be intent on continuing on adding debt and stimulating stock and commodity prices. Comrade Ben seems to have his finger on the trigger as I speak, for QE3. However, the time for a big stock market decline is coming.

Bubble #3

China. One of the things that seems to be the most over looked in all of what is going on is that China is more over leveraged in construction and real estate than the US was at it's peak by a considerable margin. One of the things that bothers me the most about the arguments for continued commodity surges is that the one reason the people who argue for his cite as the reason for it is China.

SOMETHING THAT BOTHERS ME

If China is a collapse in training, would not demand from there decline during a collapse? I just don't see how the people who argue for the collapse of everything, rioting, runaway inflation, starvation etc.. can expect with such conditions that demand would increase? If everyone is fighting to stay alive and find food, there is not going to be an increase in demand during such a period. Further, I just don't see how metals will be that valuable as barter. I would want food and water, not a chunk of metal if we are going to Mad Max types of conditions. Here is something else people have not considered. If things get that bad the places storing your life savings will either be out of business and raided by desperate people. Your assets will not be secure.

This is what is bothering me, the reconciliation of tough times coming with it's effect on demand. I fail to see when I just think about the basic premise, how really tough times will increase demand. If I got into self survival mode I would not be driving my car much, hence I would consume less gas ( Oil ). The basic premise of pricing is prices rise on increased demand and decline on decreasing demand. This is completely lost in these arguments. Other than raw essentials such as food, people will consume less as prices rise, so the inflation argument gets lost with me. I do know from the other business interests I have, the economy is much weaker than what we are hearing in the media and from the government. I don't really think all this political crap that is going on matters that much. The problems that are out there can't be fixed by that debate.

Another problem that I see with the disaster argument and what you should do, is that you need to get your  money out of the US. At this point if Barry gets another 4 there is a good  chance I will  consider leaving the US because I don't want to live in a socialist country and be attacked constantly if I have success. However, putting our money outside of the US to get it out of the dollar puts it at more risk. Many other countries do not provide the safety and guarantees to make you whole during bank failures, and the government debt problems in many other countries are worse than they are here. You could have all your money somewhere you think is safe and it could completely disappear when the bank goes down. Be careful with that one. I am not sure that living in California the land of the now mandated gay history education is any better. I can't wait to see how these characters create revisionist history to claim that all the great heroes were gay. Christopher Columbus, Thomas Edison. Albert Einstein was kind of hot with that wild hair wasn't he? How about Robinhood with the tights, that must have meant he was gay?

Aye Carumba, these whacked out liberals are great for comedy.

TRADING RULES

There was a question in another thread here about what are the trading rules?

I do not divulge here exactly how I do every trade, that is something I will never do even for a fee. These techniques I have developed have taken 20 years, and it would take $10 million dollars or more for someone to get me to sell them because I know once I do that they will no longer be effective. However, there is another reason why they may or may not be effective. Trading rules have to fit your individual personality. What works for me may or may not work for someone else.

I like to sell below daily lows and buy above daily highs. Some people think that is "too late." They want to front run things and have smaller stops. That in general is a bad way to trade, but I am sure some people can pull it off. Those I know that try it lose money. What is important is that you develop an approach that has some structure to it. You need to know how you will enter a trade and where your exit points are. This could mean you will buy when a moving average crosses another and exit when it crosses back in the other direction. This is overly simplistic, but is is an example of a strategy that could be easily adhered to. When I mention follow the rules this is what I am talking about. In this case no matter what else was going on in the world you would just buy when the averages crossed and exit when they crossed  in the other direction.

You also must decided if you want any discretion in your exits. I try to go for profit targets and that leaves a little wiggle room in determining what they will be. They also could change as a trade progresses. Some people may not do well with that type of discretion, there is no one size fits all answer. It is up to you as an individual trader to determine what your rules will be, I just suggest that you develop some so you are not winging it.

As for this week, my view has not changed, I am looking for a bounce to get short in several places. I do not have any buy signals anywhere at this point. If we launch back upward negating what I see as potential sell signals in waiting, I will look to buy pullbacks. It is that simple for me, and it is part of my rules. I display trades here the way I do them for educational purposes, I do not recommend trades. There may be a time  when I get back into that business and if I do there will be a link to it from here.

Good luck trading this coming week

HINDSIGHT IS SOMETIMES 20/20

I harp constantly about buying the strong and selling the weak. I have fellow traders who do not agree with me on this, but I just got tired of arguing with them, so I just let them make the errors on their own. I have seen this play out over and over and over again. In the above example we see a prime time real money version of my point. The first chart is the trade I made, and the second one is the one I should have made.

I debated this decision for about an hour and made the wrong one. What I missed was how much stronger the accumulation was in the Soybeans than Soybean Oil. I got too hung up on the actual bar patterns and the fact that the Bean Oil was much higher above the recent major lows than the Soybeans were. In reality they were about the same it was a minor difference, and the accumulation was alot different, I blew this one. The Soybeans were setup more strongly, and I went long in the Soybean Oil instead and it cost me a ton of profits. If you look at where I have indicated my stop would have been had I not exited above it before it went down there, it is misleading. The actual price never went to where my stop would have been, so I could reason I would have never been stopped out. However, in the thin overnight electronic markets, I would have had an order for over 20 contracts sitting there 2 ticks below where the actual low was made, and it clearly would have been picked off. As a result, I know the actual low would have been lower than what the price shows had I placed that order. Hence this trade would have been a scratch had I not exited at the above price, so that was a good decision. The bad decision was not having gone long the Soybeans instead of Bean Oil where the trade was never threatened and would have been a home run. Hopefully readers can learn from this blunder I made. If there is any good news, I made 5k on a blunder. Small money, but better than a loss.

Hindsight is not always 20/20 like it was in the above example as we are also seeing with Comrade Ben right now. He is already on the verge of QE3 when it is clear to see that all QE2 did was raise the stock market. His hindsight is clearly not too good...... unless......

What if the sole purpose of QE was to raise the stock market only for political gain? We see the virulent comments he is making about the default discussions and how adamant he is what damage it will cause. Does this mean that things are not as rosy as they have been leading us to believe all along? If you do your homework you can find out that the social security fund is actually separate from the general fund, and that money is already there to make the payments, at least for now.There would be a small shortfall most likely which would require dipping into the general fund, but a very small portion of the $200 billion of monthly income the government takes in would be needed to get these checks out. Net net, we are now getting lies from both the executive branch and the Fed on this topic. This makes me even more sure that they have been doctoring the numbers they are releasing to us each month. Can anyone really doubt that at this point?

Excess liquidity caused this whole problem, free money. I find it hard to believe the answer to that is then more free money like Comrade Ben is pushing. We are seeing in Greece that this solution does not work. It is like loaning money to a junkie and hoping he will buy real estate instead of drugs with it and become Donald Trump II. Unfortunately these guys are going to bring us down, but that is very good news for traders. The shorts if we can catch them correctly, are going to be incredible moves. The lies about how good things are will also give us big rallies for short periods, which will also be big trade opportunities like we saw recently.

The current price projections are still showing the same thing, up for stocks which is not pictured, and down for Bonds. They should move opposite so this makes sense. My short term indicators are still telling me for the moment to look to buy Bonds on this dip, but if this projection is correct, that buy will never set up. As I have said many times in here, don't get too hung up on these projections, overall they are pretty good, but at times can be absolutely dead wrong.

In summary, I am still looking for a stock bounce, and a bond decline in the very near term. After that I am looking for shorts in stocks and longs in Bonds. I do not know at this point if those trades will set up since I do not have actionable buy signals for stocks yet, or sells for Bonds. The debt debate is chopping the markets right now, but we cannot trade on speculation of how that will work out, that is gambling. Stick to your rules which is what you should ALWAYS DO. Also, make sure when buying to buy the strong and to sell the weak when selling, it will pay off.

Good trading

WELL THAT SURE DID NOT TAKE LONG DID IT?

Here is a picture of the greatest stock trader who has ever lived. Stevie Cohen cannot shine this guys shoes. Of course he is only a long side trader, but after all aren't short sellers the cause of all of life's problems? Here we are just 4 days off the highest close of the year in some of the indexes, and they have fallen now that QE2 is gone. Now this guy in just that brief stint is already talking about QE3!

If I had not read this with my own eyes there is no way I would have believed it. We have circled the drain ever since he became a stock trader, yet he thinks his trading helped all of us? It is true the manipulation that has occurred by what they have done has made most people whole in the 401k accounts, but it has also kick started a firestorm that is going to bring us all down. If one more person lies about no inflation I am going postal. It is ok to be wrong it is not ok to lie to us. It is time this guy is removed as the Fed chairman before he does any more harm.,

Bernanke needs to be fired immediately

He did not even give us a brief period of pain so that he could say I told you so, he waited for only 4 bad stock days, just beyond words. Assuming he goes through with this at some point, there will be no question that we have to play the long side regardless of what else might be going on. Although we have no proof as to whether they actually make any trades themselves, they might as well by what they do anyway. The difference is really semantics. What we are going to have to decide is whether he allows a bad period to occur before he pulls the trigger again. If he does to prove a point, which he might well do, we still could have our gangbusters sell setup. The difference will be that it will provide a fantastic buy signal afterwards, once he gets to the point where everyone says ok you were right go ahead.

That will likely be a March of 09 type of buying spot. He has layed the groundwork for the move now so he can later come back and say I told you so and launch QE3. I think the probability of that is very high, what I am unsure about is how bad he will allow it to get before he does it. Only he knows the answer to that. We should get some good volatility either way so opportunities abound for short term traders. It is going to be a stomach turner for buy and holders.

What he is doing with this cheap money policy is creating essentially a free carry trade, so the profits companies are making are real, but I just do not see how they have taken it upon themselves to have in their mandate, ensuring high stock prices. How do they ever in the future now back out of that role without causing a huge implosion? They can't! We know how the movie ends it is just a question of when and from what level, and that is unknown. I think the poker game will be resolved in the direction of just piling on debt indefinitely, as the conservatives roll over, so this bubble can keep inflating. Timing bubble's popping is very very difficult as we have seen in recent years in so many places.

Enough on this, how do we trade now? No differently other than just being aware that if we do get into free fall mode, be aware the Fed will be lurking at all times and ready to come in and reverse it quickly when they deem they need to. This will make being short tough sledding at times so just have your plan in place so you don't get caught in an emotional quandary when a 50 point SP 500 up open follows a huge down day due to their intervention. It will happen I can guarantee it. For now they are going to stay out at least for a couple of weeks it appears, so we should have free markets for a bit. That is kind of a strange statement isn't it? An expectation that here in the US we might have free markets for a couple of weeks! Isn't this the land of the free? Oh how things have changed under Barry and Co.

Here you can see with the Bernanke 500 above, that we are now again in a buy zone with my hybrid COT indicator. All of the recent visits except one into this zone resulted in rallies, so I am looking for a bounce here. Once we get that bounce then we will see whether or not it sets up a sell, I think it will.

The next market is one that could be a trade in either direction the way I see it, Copper. It tends to track the stock market more closely than the other metals.

I was looking a buying strength today but it was just not right on some of the things I watch, yet also not right for the short. I am going to be watching this one closely over the next few days to see if some clarification for me shows up.

I am also still watching Natural Gas for a long entry. We are getting a pullback today so maybe one is finally setting up.

In Ben we believe should be emblazoned on the new currency.

LETS PLAY ONE HAND FOR EVERYTHING

The above picture of the Executive Branch and Congress at the poker table I think about sums it up when it comes to what is going on right now. I have to admit I do find this whole thing fascinating. I am surprised the Repubs have not rolled over like they did last time, maybe they finally get it? In the end we will find out. It has been my prediction that they would roll over again and still might, when faced with the fall out of what they could be blamed for. It is ironic that they potentially face down side for doing the right thing, while the abusers of what has got us here are heroes for hocking us more into debt. I once again listened to a liberal tell someone after they told her they paid 55% in total taxes living in New York, that it was his obligation to pay more to help us all out. Who in the hell would be motivated to work if they got to keep less than half of what they made? As I have said it is time to quit listening to the dumb asses. Being stupid is just not cute anymore, it is just being stupid. If she and Buffet feel so obligated to pay more, I will email them the address for the IRS if they need it, they can just mail in the checks.

As I have stated I have mixed emotions on this. The trading opportunities on the down side are going to be just tremendous if Barry wins this hand. If he loses it there will be a more muted effect. Betting against ourselves in this case will be the way to go if the ceiling gets raised. A friend of mine told me to watch a movie called the Road if I wanted to get a true depiction of Armageddon. I watched it last night and boy was he right, a very sobering movie with an all star cast. At times it is hard to have the conviction to act on what you believe, both in trading and as we are seeing in politics. This movie features an unclear definition of how Armageddon came about since it starts there. It is doubtful that these financial things could lead us to that type of outcome, but the doom and gloomers predicting runaway inflation are missing something very important in their analysis. I we are all pushing around shopping carts full of whatever we can scrounge up to try and survive, nobody is going to give a damn about a Gold bar, it is food that is going to be the prime asset. Riots will break out over food as people try to stay alive in many of these scenarios people talk about. Storage places for Gold will be destroyed and raided by people. Law and order will cease to exist. These types of things are hard to imagine but these people are convinced they are coming, so who knows maybe they are right? To be clear, this problem of debt plaguing the world is a BIG PROBLEM.

The one overall thing to keep in mind which I still cannot believe nobody is talking about, is that the spending cuts they are talking about are not cuts at all. They are reductions in the rate of growth of spending and hence it's decline against the percentage of GDP, so they call them cuts. On Bill O'Reillys talk show he had a guest who made this point, and he shouted her down. He does not even understand this and he is about as on top of things as anyone could be. This is why I have to tip my cap to the Dems, they have been able to mask this somehow, but having the media on your side always helps when you want to hide the truth about something.

I can't wait to hear the latest turn in this story, because it probably is the biggest single moment in our history. If these folks don't get this right the game is over for us here. I have no idea which way this will go, even though I am sticking with my prediction that the Repubs will be cowards and roll over in the end wanting to preserve their jobs. We will just keep spending and pay the piper ultimately in a few years.The other thing that I always found ironic about politics is that the guys who decide things are of the age where for the most  they would be jettisoned by the private work force as being too old and not as competent as younger people.

The first chart is that of the Dollar Index, the first place where people think we will see a large decline if we defaulted on our debt. As per usual, I tend to disagree with that thesis.

We do have a possible indication of some trouble here in the DX. On the recent break above recent highs, the POIV indicator was lagging quite a bit forming a negative divergence. You can see we went right back down as a result. If you believe the Stock Markets of the world will plummet on a default, then it is likely the dollar would soar. On the surface you may say that makes no sense in that a default would mean the credit of the US is now no good. However, here is another way to look at it. The credit of other countries is still worse, and has been no good on paper for awhile now. I think we would have a huge flight to quality into the DX as everything else rolled over. The markets have a perverse way as we have seen of proving the majority wrong at the most inopportune times. We just saw this with the end of QE2 and the huge rally that followed which is completely the opposite of what most people thought would happen. At this point it is all just speculation and as I have said repeatedly, you need to follow your trading rules and not get caught up in this debate no matter how fascinating it is.

If you have sells take them, if you have buys take them. Trying to anticipate which ones will work and which will not due to some arbitrary political influence is a losers game. The next two charts are first, what I am looking for at this moment, and second what the software projection shows. This is an example of why I say this projecting stuff is a guideline not the grail. It this case it gives a very bullish projection where the first chart shows what I am looking for. Keep in mind just because I show what I am looking for that does not mean it is a trade that will happen. You need to have a plan so you are prepared to act when certain things play out in the future.

The reality is we are stuck in a big trading range at the moment and are basically in the center of it so this is not an ideal spot to trade in either direction. I am looking for what I have drawn because most of the things I watch have turned down so it tells me to look to sell rallies. If the next chart is correct, and we just zoom back up again, it is likely things will turn back up and I will buy dips. Pretty simple, I don't push it just to make a trade, that is a good way to part with your money.

 

 

 

Be careful getting too emotionally involved in what is happening, stick to your guns. The talking heads on TV for the most part do not trade, so don't listen to what they are saying.

 

 

 

PROFILE AIRLINES

I have decided to start a new company, I am going to call it Profile Airlines. My main theme is going to be I am going to profile all passengers in the screening process to make sure no terrorists get on any of the flights. I guess since liberals want terrorists on planes with them, I will be mostly serving conservative leaning people. Even though this above picture is funny, these will not really be my pilots, I will run the airline cleanly paying top money for the best people. There will not be a union. I will pay my employees well because of merit not because of some pre-arranged extortion agreement with a union ( a collective bargaining agreement )designed by them to milk all the money out of the company so they can come to work drunk and not be fired. My bet is this will be the safest most profitable airline on earth within a decade, and will also have the happiest employees.

How do you like them apples?

Sometimes you have call people on stupidity, and we just are not doing enough of that in this world which is why we have gotten into such a bad spot. The inmates are running the asylum at this point. I hear these people complain about profiling on airlines, when was the last time someone who looked like me blew up something? NEVVVER, Hello.... I wish I could have a choice of screening procedures with airlines and let these chumps who want to take the risk so we don't make people feel bad, go on planes without diligent screening like we have now, while I go on an airline that is doing the right thing. They can fly on the feel good planes that blow up, I will fly on the others that are safe. It is the same way with the financial markets. My post on Sunday saying that trouble was brewing had to have been laughed at by some who read it. How in the world could you say that we were right at multi year highs?

I say what I feel needs to be said just like in the above example about airport screening, I don't care if it is popular, I am not running for office. It was clear to me we were going down yesterday based on what I said. I did not know that also overnight we were going to drop as far as we did, but we never know that in advance. I also put real money behind my calls unlike these "economists" who can miss a NFP payroll pre-call by 100k and not lose a cent. From what I am looking at now, it appears to me a bounce now is a very good shorting opportunity. We will have to see if one takes place how it is playing out to determine if we should short it, but it appears now the way my indicators look, it should be a good opportunity. Be prepared as always to be against the grain when it comes.

I mentioned I was long the Grains, I bailed out of those trades last night taking some money, but not as much as I hoped. Soybean Oil is where I had my biggest long position.

I really thought I was in business after the first day in this thing, but it became what I call a one day wonder. That is a huge range the first day then fizzles out. Just like Tom Skerritt said in top gun, "if you stay in this long enough things like this happen." Obviously since I have a term for this type of thing it has happened before. What was unusual about this trade was that I scrolled the grains to determine which one I thought was the strongest and this was the one I chose, and was rewarded with the big day right off the bat. The other bean complex markets did not move as much the first day. However, after that there must have been some spreading activity where people were buying meal and beans and selling bean oil, since it because the relative weakling right after this day. Once I saw that happen I just put some limit orders in last night and got out pretty good, above where it is. All told the trade only made about 5k, I gave back alot of what was in it the first day when it was up about 12k. However, there was no way to know this was going to start chopping, and you can't just get out the first good day you have every time, you will be cutting off too many big wins that way. It is a judgement call on the exit in the end and the above judgement is what I did so onward. For all I know it keeps going up but it has already retraced enough where my trailing stop would have been hit and I would have been out at a lower price, so no regrets. Maybe the grains will setup buys again you just never know.



The next chart is Natural Gas, a market I have been looking for a long in the last 2 days and it may have left the station without me. It just has not met all my rules yet which is why I am not long.

There is nothing fancy here it is just into some support and a few other things I watch have turned up. I am flat now but looking for a bounce for a few days to get short the Bernanke's. In the mean time I will work on my new airline and hope we get a shortable bounce in the indexes!

Good Trading