I CANNOT TELL A LIE

I realize these Trade Station charts do not show very well, but if you enlarge this you should be able to see what is important. Readers know I bought into the debacle of last week in the SPY's. At the time I think I said it is not that big of a position and if it works out I will make 5 to 10k. Well it is over now, and the tally is 10k almost right on the number. You can see where all the light blue lines go up, where I exited the entire position early in the day when we were right on the highs at the time. They were later exceeded on the explosion up into the close. Why did I do this?

As traders we are in the business of taking profits, not of being right. I do still have some long exposure in some other things so I still stand to benefit some if we keep rolling up. I entered this trade with the idea that I would hold it through the end of the year. However, I also entered it knowing we were in a down trend and I was hoping to catch an oversold bounce in that downtrend. I had no idea we would go to an extremely overbought level this quickly. Extreme overbought conditions in a down trend are not a place I want to be long on average. I want to be flat at those junctures, or short. My expectation was that this would just gradually creep up for the next month. When we got this huge move up, and got this overbought, and I also looked at some intra day things to see if at least for the moment, we were due for a pullback. Once I looked I did see a few things that told me we might pull back a little so I decided to pull the plug. This does not mean that I think the year end seasonal rally is over, it likely is not. This is just too far too fast for my taste especially keeping in mind that it is against the trend. I wish this move had not happened so quickly but it is what it is and I made a judgement call.

I will wait and see now if we back and fill, and if we do whether or not my short term indicators are indicating a buy at that time. If they are I will go long again. For the time being I am into the consideration of what to short into this strength mode. If we just keep going and I miss the move, I do not care. I just made a decent enough amount for just 4 days of work, and these overnight moves are so treacherous. It is an odd world and time we live in, when an announcement that if you think about it just confirms that the banking system in Europe is on the verge of collapse, launches a rally this big. My question is who will bail out the central banks? Who will bail out the FED. Can they own the whole world?

That of course is a bigger picture question and irrelevant for short term trading. For short term moves you don't want to fight central banking moves, they are going to be bullish. I think it is likely that until the very end when the bubble is re inflated to an equivalent level to what it was a couple of years ago or likely beyond that point, we can hang in there at these price levels. However, make no mistake about it, kicking the can continually down the road is going to lead to a market condition that is going to be worse than the 2008-2009 decline. You just can't keep stacking leverage on top of leverage. At some point there actually has to be those who pay back loans. I do not understand the logic of those who think the rich people can just have their wealth confiscated and re distributed, to solve all these problems. What happens once you have done all that? Since the pattern is obviously to continue to spend and leverage things to the hilt, you are betting on another generation of rich people to be hatched, so that later on you steal from them to pay for what you are doing today. How is that generation going to be hatched exactly in a climate like this?

For those of you struggling in this environment, do not get down on yourself. This is the toughest trading environment I have ever seen. One thing you always have to be as a trader is flexible. If you fight the changes that have obviously taken place, you are just going to lose money.  I spent the weekend going through my stock trading list. This list is 150 or so just random stocks that I think have the best patterns in them, the most like futures in terms of how smooth bars form and don't have gaps all over the place like some of these penny type stocks. These typically have less chop and better trends in them. I compared the best retracement entries in all of them to the best retracement entries in the stock indexes. I  found that of the 150 of them, taking multiple turning points for each one, getting a combination of over 1000 turns, there were only 5 instances of good trades that did not occur directly in concert with the SP 500 turns. This is mind boggling, but it tells you the degree of correlation and more than raises an eyebrow or two.

This makes me think that the central banks are actually already in the stock trading business. The only other explanation I can come up with is that the whiz kids out of MIT etc, that the Hedgies hire to write algorithms for them, are just keying off the indexes for all of their signals. Maybe it is because they have observed the tight correlations. Does the dog wag the tail or vice versa? It hardly matters. What matters now is that almost every market trades incredibly tightly in sync with the US Stock Indexes. This makes for incredibly difficult trading conditions. 

However, keep in mind that governments don't really want you trading because that gives you independence from them. You hear the liberals from Douchfett ( Buffett ) on down to Democratic Congressional members, they want to outlaw trading. It would not shock me to see that they were somehow behind all of this. However, I think it is more of a just general, "Don't let this thing go south" direction from the people at the top to the central banks. The rest is just a consequence of all of that manipulation.

Ironically, it has been months since I have seen evidence of intra day PPT action. There may have been a day here and there that I missed, but they have been noticeably absent. It could very well be that they have changed their tactics to the overnight sessions since it was becoming blatantly obvious to almost anyone, what they were doing. This might be a more efficient way of moving markets. Light volume makes moving markets much easier and less costly. For now, it seems the day trading by them is gone. Today's late rally was not likely a PPT move since we were already up big when it happened.

Looking forward to the next few days, I am looking to try and short an ETF or two into this strength and as of press time I have not decided which ones. I also think Natural Gas is starting to look interesting on the long side. Hogs seem to be a day or two away from a sell setup and Heating Oil is showing it's relative weakness in the energy complex, so there might be something there coming along.

Remember even trading ETF's the correlation game is still in play.

Good Trading

NOT MUCH TO ADD OTHER THAN TO TALK ABOUT ANOTHER BLUNDER

Overall after that huge explosive day up Monday what I expect to happen now is back and filling for a day or two. My short term indicators could flash a buy signal in a few days if this happens. Also, I had been discussing Cattle as a sell, but it looks like to me based on my short term stuff, that it is more bullish than bearish on a daily chart. As a result, that trade is off the board for me for the moment. However, wait a day and the world can change so you just never know. Like they say in Ireland, if you don't like the weather, hang on a minute.

Now to the point of the post, a blunder by yours truly, probably because I was trying to force a trade. Bad things always happen when I do this. The chart above is of the Swiss Franc, which did one of the those trap patterns I love, where it broke to a new low then immediately reversed the very next day. I saw that and based on all the currencies being more in buy mode than sell mode, I went long when I saw this. I did buy it on a pullback fortunately, about 60 points under what the real entry point should have been. As I watched it trade the first day and kind of stall, I went and started looking at the other currencies, which were soaring. I noticed this struggle to stay up with the pace of the others and it was then I realized what a dumb ass I was.

You can see very clearly from the second chart how much stronger just the Pound and the Aussie are. The Swiss made a multi month low taking out it's prior low point, where as the other two did not even get close to taking their corresponding lows points out. Of course the Swiss was struggling to keep up on Monday, it had been the weakest market of all. I could have argued it had the best bar pattern which it did, but comparative strength is way more important than some silly bar pattern I happen to like. Once I realized the mistake I made, I got out of this trade and did a Larry from the Three Stooges move on my head! 

The good news is that I got out with a 60 tick profit per contract in a terrible trade. However, I got very lucky. I did exactly the opposite of what I preach and should have been burned by it. I think the real reason I did this was that I was not long enough on the Monday rally only being in the SPY's from the end of last week, and I was trying to catch a little taste somewhere else when the horse had already left the barn. All I can say is don't ever do what I just did, buy the strongest, sell the weak. The weak don't catch up.

I just don't have much new to say other than this, which is why I took the time to humble myself once again and prove I truly tell you what I do, good, bad or otherwise. I do think if by chance, Crude happens to break down tomorrow it could be a short, and I am also watching Natural Gas for a possible long entry along with Cotton. The latter two are going to need a day or two more minimum to setup an entry for me if they do at all. They are on the radar at the moment. Also Hogs could be moving into a sell position in a few days depending on what happens.

I happened to check my blog stats and saw that I had a pretty big Monday readership, so maybe I have picked up some new people along the way. Thanks for reading, and my apologies if my first couple of days with you are relatively light. The markets don't always give great opportunities every day and I just try to point out the ones that are possibly good sized moves. I don't look for wiggles.

POOF!!!!!!!!!!!!

I DID NOT GET THE MEMO

I have been talking recently about the EURO being setup for a rally, apparently I did not get the memo. The memo of course is the water cooler economist talk again about the European Union and how it is fractured, they have to print money, blah blah blah. I simply cannot imagine having the confidence to commit hard earned money "investing" in arbitrary opinions like that. There is one popular service that recommends trades with 25% trailing stops. Are you kidding me with that? You do all kinds of research, formulate an opinion albeit it arbitrary or otherwise, then you need a stop that big? That is actually worse than what a random walk theorist would predict prices to fluctuate in a short period of time. What in the world do you need with an opinion carrying a stop that big?

From the chart above you can see why I am bullish for this market.  We have a seasonal low due. We have a very large short position with the small speculators, which is bullish. We also have Sentiment very low at 18, also very bullish. We have steady commercial buying into the decline, again bullish. There is also pretty good divergence showing up with POIV on the daily chart. This is a buy setup. I could care less about what may or may not be happening with the EURO debt crisis. We never know how the ebbs and flows of situations like that will play out. Even if the worst happens, that does not mean it will decline every day. The technical and fundamental things I use say buy, so it is a buy. If the armchair QB's are right, and it goes down every day for eternity, that is what stops are for. Remember that macroeconomic conditions are just that Grande. They are the big picture. If you are a short to medium term trader they do not mean nearly as much.

This chart is something I find interesting. It is Natural Gas on a long term basis. Obviously we have had a precipitous fall, almost the inverse of what the precious metals have done. Using the same logic I use with GOLD, this market will revert to the mean, that is a given. When of course is the question. The answer could be soon. I have marked off each time when we have had bearish sentiment and also a large small spec short position in place at the same time. You can see we had very good rallies each time that happened. We might be moving into that type of situation here in a month or two. This is a quarterly chart, so it will take that long for the levels to move that far if indeed that is where we are going. There certainly should not be any rush from a long term perspective to buy this market, but we may have one reasonably soon.

On a daily basis as a short term trade, there is potential depending on how the next few days play out, for a buy signal to be here for this market. That is a different scenario entirely from a big picture setup like what I have above. Sometimes I like to have an idea of what is going on from a larger perspective.

Today was certainly interesting, but we cannot make too much of one day in this environment. It does however look to me like more upside could be coming in several markets overall. News driven markets can be very volatile but what is interesting to me is that the VIX did not rise that much during last weeks huge decline. I am not sure if that means anything or not, but generally when you get a move that severe down, the VIX really rallies sharply.

Good Trading

A FORCE OF ONE

I am posting this Sunday night as there is a huge upward move in the futures happening. It remains to be seen if this move is sold overnight or tomorrow. We are extremely oversold, so even if we are going lower, a bounce is certainly overdue. Readers know I have legged into a long position in the SPY's, and that position was full as of Fridays opening, so now it is just a matter of sitting on the position and waiting to see what happens.

What I have displayed on the chart above is what Larry Williams named many years ago as the Jaws of Life. What that means is simply a formation that looks like Jaws, where you have sharply rising Bond prices along with sharply declining stock prices. This means lower interest rates happening with lower stock prices. The logic here is that money will flow to where the highest returns can be had, and in this case that would be stocks when rates get this low. A scenario like this happening at a time during the year when there is a seasonal up bias, as well as an election bias, should be about as good of a scenario for a stock rally as we could ever get. Will one happen,  who knows. I like to bet on the favorites, and this would qualify, so I have to bet on the long side. 

We are in such a news driven environment that anything can happen on a moments notice, but overall we should be in an environment where stock prices rise.

I did bail out of my Gold short position on Friday, I have to admit I just did not like the lack of follow through going down, and I also blew this not being short Silver instead, so I just lost my patience with it.  I am now flat there having taken a decent profit out of that market. I hate logic like this but this is the world we live in now. If the stock market rallies, Gold is likely to rally and vice versa. When this did not fall out of bed when stocks did, that was not a good market reaction. All these are correlated together, so one being stronger than the mentor is not a good sign for continued declines in it.

I am still looking at Cattle for a sell signal.

I am still looking at Cattle for a sell signal. The chart below does not show anything that is a can't miss setup, but it is one I am watching for a short entry any day now.

I would love to tell you I have a ton of other setups for this week, but there are not that many. The reason for this is the title of the post. Everything is so oversold, with just an exception or two, so there are not a lot of trade setups. Since the whole world is keying off the stock market, I would expect in general to see a rally in most markets this coming week. Specifically RB looks good on the long side due to a ton of divergence in POIV.

Good Trading

THE NEW THANKSGIVING MEAL.....CROW!

I have no idea why this chart looks so lousy, I captured it just like the Genesis charts. It is a Tradestation chart, but I don't know why that would be any different. This shows my legging into the long SPY trade on this decline, looking to catch a year end rally. I also had shown the stats indicating the typical up bias of this week. I would have to say that based on that, CROW was the appropriate main course for me yesterday. I know some new readers will say, "well what a dumb ass doesn't he know about the crisis in Europe" etcc? For those of you that are new to reading my blog, I do not trade based on my opinions on economic situations. Yes of course I am aware of what is happening in Europe. Yes I am aware of what is happening in the US. However, for every person you show me that brags at cocktail parties about their prowess as an economist, I will show you 10 that lost all their money betting on that prowess.

I trade based on mechanical techniques that have stood the test of time. They will not always lead me to the right conclusions or the right trades. However, they do lead me to trading profitably, and that is all I care about. Furthermore, going out on a limb publicly every day with your views only guarantees you one thing, you will be wrong and look like a fool at times. This does not bother me because I know that in trading as it is with anything else in life, there is no holy grail. I am going to be wrong at times it just is what it is. I will openly admit when I am and not gloss over it like so many others do. I am real, not Joe Isuzu. 

One thing to keep in mind as you can see from the chart if you can see it, is that I have been buying in as we declined, adding to the position on weakness. This is not a typical trade for me at all, I rarely do this. My normal trades are like the ones I show here where I am in for a short time of 3 or 4 days to a couple of weeks, and I go with the shorter term momentum of the market not against it like this. This is not a large position for me, just in the thousands of shares, not tens of thousands. As I type this about 15 minutes into the trading day, the position is about even overall since I have bought larger chunks as we have dropped. This trade serves to show people something even if it means me taking one on the chin. If you are looking for a longer hold period, you need to buy when things look the worst. You need to buy weakness. This is something so few people seem to be able to do. They get scared when they listen to all the bad news, and think the sky is falling. It may be, and I have no doubt that overall this manipulation by governments around the world to stave off what is inevitable, will fail. However, that does not mean we will not have periods where markets rise. They will not just go straight down every single day for the rest of eternity. You cannot wait for it to be "safe" to buy when you are looking to hold something for a period of time. You need to buy when it is not safe, otherwise you will be buying highs and selling lows.

The one benefit from what the Fed has been doing with interest rates, is that many companies are making record profits. If you just look at moving averages of the last 12 months earnings on most companies, they are on a nice positive slope. This is in general a condition to buy into. It does not mean you just blindly buy, but when you can buy stocks on good sized declines with decent valuations, against a back drop of steadily rising earnings, you have a pretty good trading system there.

I was in a bar in Del Mar with a buddy a few of months ago, and we ran into a couple of Realtors who were out on the prowl. Once we started talking to them and they found out I was a trader, they asked me what I thought about interest rates. When I told them I thought they would decline, they could not believe it. They said I was the only one they had heard making such a prediction, and that their experts were telling them the opposite. Of course my question was, do these experts make money by being right or make money for giving you an opinion right or wrong? They gave me kind of a funny look, then got it. I trade, I don't predict. I get paid when I am right and pay when I am wrong. I would be willing to bet after having predicted that huge Bond rally that happened dead on, and in contradiction to their experts, that they are trying to find me and get my next call. The whole point is not to be a braggart, but just that I put real money in that trade just as I have in this SPY trade, and we will have to see what happens. I am risking about 5% on this one and that is that. The full position is on now as of today's opening.

Here is the worlds favorite market, Gold. I had mentioned sell setups in here a couple of weeks ago and I am short in this market. I have drawn in a couple of small trend lines, either one of which could have been used to enter a short position. I mentioned a couple of weeks ago when I pointed this one out that the sweet spot could be about now, where the seasonal shows a good downward bias for a couple of weeks. Once again my synthetic COT indicator is not in agreement with the short side here, it is bullish. By and large, this indicator has been okay in this market, picking most of the swings, but has missed a few. One of these days I will try to dial this in better, but not today. For now it just gets displayed because it is on my charts already and I don't feel like taking it off just to upload them to the blog. Please do not get too hung up on this.

I still am of the view as long time readers know, that we are close to the point where the game is going to be over for PM's. However, as long as we hold above the lows of a couple of months ago, the longer term trend is still intact. If we happen to break those levels, the game is over for many many years here. You are going to see the world exit one trade at the same time at some point, and those newer to trading are going to be shocked at how far and how fast this goes down. I am not sure when it is going to happen, and I doubt right here. I still am thinking the beginning of next year is the point from which this crash will happen from. Whether or not it will begin from higher or lower levels than current ones, I do not know. I am more focusing on the time frame, not the price. As it is with everything else, this view is based on historical data, not an opinion about fiat currencies and all that other garbage that is out there telling up all why GOLD has to go to 25000. This is not a site for an economics discussion anyway. Maybe it will go up forever and I will be wrong? Just think about the term reversion. This is a term people always love to quote as long as it suits their argument. The minute it does not the idea of a reversion happening gets quickly discarded. Just keep in mind, historically in commodities reversions has "always" happened. That is not one instance of it not happening, ever! Maybe this will be the first but it is a long shot to say the least.

This is something I am watching closely as per my comments the other day about the EURO, which is essentially the inverse of this trade. The Dollar Index here has quite a bit of divergence building in the POIV indicator. You can see how much lower it is than it was at the high, while price is getting very close to that high point. This is one of the reasons why I have been watching here for a potential sell and the Euro for a potential buy. So far the setups are not there but I am lurking here.

I better sign off I feel the crochety old man coming out again!

Good Trading

I WILL RAISE A FEW EYEBROWS WITH THIS ONE

As I prepare this early Wednesday morning it certainly appears the seasonal tendency for a rally this week has been dead wrong. This is why I tell people seasonals are not the end all of trading. They are tendencies not absolutes. I will buy a bit more of the SPY today on weakness, I still have less than half the position on. For the purposes of that trade, this is exactly what I was hoping for. I want to scale into buys on weakness not strength. As to whether the trade is any good, that is another matter. The trends are down on all time frames, so it appears to not be a good trade. I will honor the parameters on it and see what happens. The goal is to hold it until Mid January or thereabouts.

The chart above is sure to make a few people think I am a whack job. It appears to me that the EURO is setting up for a nice rally. The seasonal tendency is for a rally about now. We also have some heavy divergences in some of my proprietary things not shown here. On top of that we have a possible trap pattern setting up here. This could very well just be a break down and this things just gets crushed. I am fairly sure that is what most people are expecting. However, if it were to close right here, then immediately reverse back upward, I think it would be a dynamite buy. It is hard to find a market that the world is more bearish on than the EURO. With all that has gone in this market has held up remarkably well overall. You would have thought this would have been way lower than where it is with what appears to be a part of the world that could basically vanish financially. I like these trap situations, and if this one reverses it is likely a trade I will be in.

Cattle Update

I had mentioned that I passed on the short entry in Cattle and would be looking for it again if we bounce a couple of days and that is exactly what has happened.

So it goes when you do a blog like this. You get some things like this dead on correct and other things like projecting a rally this week in stocks, dead wrong. In Cattle we are now lined up more in sync with the seasonal tendency, so this is more to my liking now and I am looking for sell signals here now going forward. Look at how well the swings in price have lined up with the very short term seasonal data. This does not happen that often, but my feeling is when it does you have to pay close attention to it until the train gets derailed. Maybe it will derail right here but maybe it will stick to it for a while longer, it is impossible to know.

All we have is tendencies to follow, there are no guarantees of anything. I am still looking for the energy markets to bounce setting up sell entries. The equity weakness has brought everything down, so these have not bounced at all yet. Since we are on a weekly basis now, right at about where the low in stocks should be, I am sticking to my call for a rally into the end of the year. I guess when I see the manipulation level of the government at such an extreme level, that they can trade on insider information and basically not even address the public on it, I think they will also manipulate stocks up for political gain. The corruption is at such a level now that anything is fair game. However, here is one thought. What if it has always been this bad and we just did not have the discovery power we have now?

I think it is both to some degree. If you think about it, most criminals escalate their crimes until they ultimately get caught. Most of the things that are making the news with government officials are crimes and they seem to be getting more and more outrageous. What if we knew it all? It does seem hard to imagine we could have a stock rally in the face of all of this with the European crisis also at hand, but I do not trade based on things like this. We have certainly seen very clearly in the last two years how disparate economics and stock prices can be. One last thought, I am looking at Gold and Silver for shorts within the next few days, no chart included today.

To my US readers, have a great Thanksgiving. Maybe you can toast to the pinhead calling for a stock rally and have a laugh at me over a glass of bubbly!

Good Trading

NON STORY

As I size up this roster the first thought that comes to mind is whether any of them got short Friday knowing they would not come to an agreement before today. At least one of these people is among those rumored to have done quite well trading off insider information. Of course as we have learned insider trading rules don't apply to government officials apparently. It is likely that this lack of a deal did drive the market down today as much as I hate to admit that. However, you really have to be a fool to think that they were ever going to make a deal. This was setup from the beginning to fail, so I really don't see it as a surprise. The trend in the market is still down on all time frames the way I see it, and again surprises generally come in the direction of the trend.

I really have no idea what will come of the political situation that is at hand, but from the recent things that have happened my current thought is I might be done as a voter in this country. The insider trading allegations disgust me so thoroughly, that I feel like if I vote now I am just condoning it all. What if the whole electorate just refused to even participate? As much as I am conservative, I am not sure one side is much better than the other will all the crap that goes on. I do think as they bring the house down, they are going to ultimately provide us with more great shorting opportunities so part of me wants them to just keep doing what they are doing. The other strategy which I have considered is getting everyone to vote democrat, then just short everything as they turn us into Greece and make everything crash. Mixed emotions I guess in summary.

I was also told by a friend that Buffett had a tax battle going on with the IRS, and I was surprised to find out that is actually true. It is amazing how this has been kept out of the media isn't it? I can't tell you how much I want to make a big killing shorting his stock at some point. I will have to choose that time wisely. He may be a huge hypocrite, but he is also an incredible businessman. It is on my bucket list to make a million shorting Berkshire at some point because of this ....... who runs it.

As we saw today, there was a late rally in the stock market which pared some of the damage. This is what I predicted in my last post. I think the PPT will be able to lift the market during the next several weeks due to light volume. I did start buying some SPY's today trying to leg into a position to hold through the end of the year. I will add some more tomorrow if we go down again. I do not have any short term buy signals, so this is a different type of trade and might require me to take some heat in the process.

Here is another market that I think is setup nicely, Coffee.

I am not sure this is a bet the farm trade, but there is a nice seasonal low due, and a pretty clean trend line containing prices coming in just above the current action. Once again, the COT indicator is not on board here actually with the last indication being a sell. As I have said I really have no idea if that indicator is worth anything at all. I rarely trade using it, but it is on the chart so I thought I would mention it to head off the questions about that up front. This appears to be a trade worth doing if we do get going on the upside out of this formation.

As far as the rest of the week goes, here is a table that shows buying the SP 500 x number of days before the holiday and selling the day after. As you can see all days from 1 to 5 days before the holiday show a net profit, so the bias is upward pretty clearly here. The percentages are not super high, but the average trades are very good. What that tells us is in general we move up and when we do it is a lot more than when we move down. I would never trade off just this alone, but it does show a pretty decent bias. You are going to have to click on this to enlarge it, this capture did not come out too well.

I am looking up as you know this week, so 0 for 1 so far since today obviously closed lower.

I don't see any other imminent setups for tomorrow other than a marginal short in the ten year notes which is not one I am going to play.

Good Trading

LIP OUTS

I have been watching the Presidents Club golf matches over the last few days, and an interesting analogy to trading jumped out at me. As I watch Tiger Woods hit the ball as well as he ever has, yet lip out more putts than I have ever seen anyone do, it came to me. Sometimes in life you do all the right things and still do not get good results. It must be incredibly frustrating for him to literally have a putt seemingly perfectly struck miss the hole by an inch on literally every single hole. Of course this could be Karma for his past transgressions. He has been a terrible human being for a long time, so it is hard to feel sorry for him. However, I have recently kind of been in this mode the last couple of weeks. I have lipped out several trades.

If have seemingly done mostly the right things, made pretty good market calls, and have nothing to show for it at all. It is very frustrating and on top of it all my wife told me last night we are getting another horse! Now more overhead, terrific. Times like this are when you have to be a bit careful about losing your confidence. I have always felt that all you can do in life is do your best, and if you do that over and over, good things will eventually come to you. The tricky part is making sure that when you think you are doing your best, you really are, and also that your are focusing your best effort in the correct direction. After all, I can focus all I want on winning the NBA slam dunk contest, but guess what, I won't succeed. During times where you are not getting the results you would like you need to make sure you are focused on the right things. Losses and break even trades do happen in this business, so you have to accept them. I just like to make sure they are legit trades by my rules, and as long as they are it is business as usual.

Discretionary trading presents real challenges when bad periods show up because the second guessing can drive you up a wall. I am going to give you a specific example of Live Cattle, a market I wrote about telling readers that sells were to be done.

Here is the chart of Cattle, and I have marked where a legitimate entry spot was at hand. At this point this trade certainly appears to be off and running and potentially a home run trade. I have often discussed seasonal tendencies and that they are not the holy grail, they are just something to be aware of. It is uncanny how at times I have seen perfect setups like this fail in a situation like this because the seasonal had a few days more up before it's peak. In those situations a perfect entry wound up setting up at the seasonal point. Since I am aware of this, I nit picked this trade way too much and wound up missing it. Now of course we don't know whether or not this might bounce and setup another sell in a week or so, which would be that scenario. However, the bottom line is I should be in this trade and I just got too greedy on this one.

I am not sure if there is anything really to learn from this, it was just a bad judgement call. There is really nothing else to say about it. When you trade in a discretionary fashion sometimes you just make mistakes. It really is that simple. For those of you who are in this trade, congrats it looks like a could be a big one. I will join you if we bounce a few days.

I know I am beating a dead horse on this next market, but it is still set up very well, and perhaps we will finally get a short entry pattern this week.

This is Crude Oil on a daily basis. Here you can see why you have to be careful with seasonal patterns. We are going completely opposite of what should be happening seasonally here. We may well be running into one of these seasonal inversions where the projected low will actually be the high. However, there are some proprietary things I use that show this market is due for a fall now and should be shorted on a bounce. Since Crude is the strongest of the energies, RB or HO are the places I am looking. The one fly in the ointment for a sell here is of course stocks. It appears to me now we are going to get a move up now, and with the correlations we are all aware of it remains to be seen if Crude could decline while stocks rise. I have my doubts, but I will take the trade nonetheless if it presents itself.

Here is the chart of the SP 500. As I watch some of my shorter term tools which were telling me we could fall off a cliff last week, I also noticed one that was contradicting that, ADX. ADX should in general be moving up confirming price moves, since it measures the strength of trends. You can see where I have marked this off, moves where price was going down, but ADX was declining. This was telling us the trend was not getting stronger, it was weakening. We certainly have that going on now. The other thing which is just anecdotal, and nothing more than arbitrary opinion. The price just does not want to seem to go down. Every time it is on the precipice of a nose dive, it holds.

When I put all this together with what we know is a strong seasonal and cyclical tendency for a rally, I conclude we are likely to move up here. I do not have short term buy signals yet, so I am not long on a short term basis. However, I have moved some longer term money onto the long side here for what I think might be a hold through the end of the year. I am hoping to scale in on a decline from here with more of it. We always have the Europe event risk, so you never know when we might get a 400 point down day. However, overall, I think it is time to be long for the rest of the year give or take a few days.

MF Global and Friends

I have exchanged some emails with some of you on this subject, and the following are my current thoughts on this. First, no matter what regulations are in place, they only give us a way of disciplining people who don't follow the rules after they break them. They cannot physically prevent someone from doing what allegedly took place at MF Global. As a result, it is impossible to know with 100% confidence, that whatever firm you are using, is following all the rules. There was a public statement from MF right before this crashed, stating all was well. Of course it was just a lie. People lie, see OJ Simpson if you have any doubts on that. It is my understanding that there was some advance warning in the financials of this firm for those who were diligent, but I do not know that for sure since I had no funds there. I use the Weiss rating service to track my banks and PFG where I have a good chunk of my money. It is free, just make sure to dodge all the gloom and doom emails they send on the world. They are very negative on things, and I just have no interest in that type of crap in my email inbox every day.

Once you have done what you think is the proper diligence on your firm, I suggest you also do the following. I don't think if you can help it, that you should keep too large of an amount at one firm. Once you get into the hundreds of thousands or more, split it in half at two places that you have researched the finances of. This way if something were to happen, you are not all in with just one place. If we were to get into some type of systemic failure situation, where all the firms failed, there is really nothing you can do about that. If you think that will happen you should not be trading. I think we have to operate on some basic assumptions in life. If you spend your whole life waiting for the sky to fall, guess what. If you are right and it does fall we are all gone including you even if you predicted it. If we get to a point where the US Government fails, the whole world is going to be gone and most of us won't even be alive to worry about our brokerage accounts.

I operate for the most part on the assumption that our basic way of life is going to remain the same even though we will go through boom and bust cycles. Along with that assumption comes along a financial system that should remain intact. I don't want any comments coming from people trying to convince me we are all doomed and America will disappear, they won't get through. With all this in mind, my view is that you split up your money if you have a large amount. Whether you do or not, make sure where your money is follows the rules and is on good financial footing. Once you have done that, go on with your life and trade and make money. 

I know there are those that think their money should be at a place where it is backed by Gold. On the surface I can't argue with that except in the following way. What if the value of Gold drops by 50%? What would happen in that event? History has told us this will happen with a 100% probability, it just does not tell us when it will happen. I would not be surprised to see another firm or two go down if things get really bad. However, if your firm is not doing much trading the risk should be minimal. The overall suggestion is that you have your money in a place where they their money from brokerage and not trading. MF was trying to move into the trading world and guess what, most traders lose money. Is it any surprise they did?

The point I am trying to make is that it is important not to get too carried away worrying about things you cannot control. If you are so inclined to be influenced by reading, read opposite views of yours and then consider them. Just reading those who already agree with you does nothing to help form a solid opinion on something. I have to admit, that there are a few things from some of these wacky liberals that make quite a bit of sense to me, even though I disagree with the lion share of what they push for. Most of the reading I do when I do it, is the negative stuff. I read it because it is for the most part the opposite of what I think. Even though there are people who are very intelligent arguing for certain things, for the most part they are paper champions. However, they do at times make good points and I consider them instead of just dismissing them blindly.

I think they are right on some level in that we have difficult times ahead, I just don't think Mad Max is coming any time soon.

Good luck this week

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HOW PRECIOUS EXACTLY ARE THEY?

I do not recall which thread it was in, but there was a minor debate over Gold and Silver as to why I was bearish short term because there was a bullish COT picture. I held to my position because of the trend, and have been rewarded for that view this week. This is exactly why using COT data is an art not a science and also at times it will get you looking exactly the wrong way at the worst possible time. Even my attempt at a COT fix, my synthetic indicator, was dead wrong here. This is why I have said repeatedly, that it is a work in progress and I like it when it agrees with where I am looking, but don't care if it does not. In this case it switched to the buy zone right when I was shorting this market.

I have been on record here as saying that I think the Silver market is done and we have seen the highs this market will see in my lifetime. I do have to admit that I did not expect this market to break as hard as it did, but the trend is down and surprises generally come in the direction of the trend. The cycles which have not been very accurate in the metals except Copper, have been calling for a significant decline to begin at the beginning of next year. That does not necessarily mean it will come from a high price, just that it will come at that time. In any event, the lesson learned here is that trend is the most important thing to base trading on. The COT stuff is best when it lines up with the trends, those are must do trades. When it is against the trend like in Gold and Silver here, it is not as reliable, and I ignore it in these situations. Keep in mind I pointed out how bullish the Sentiment was for this and Gold and showed how declines had occurred just like this every time it had reached the levels we were at. It just happened again.

I know I will never convince Gold bugs to ever consider that these might come back down, and I don't care to even try. I will gladly let their panic when this really rolls over just enrich me. I don't even need for them to ever admit anything. If my coffers are full that is all I care about. What they fail to see is commodities markets wrote the book on reversions to the mean, they are not one way streets in either direction. I don't think this is the "big one" but you never know. It will not be posted by the media in advance when it does happen. After all they are part of the conspiracy.

Here we have what to me is just a mess, the SP 500. I just do not have a really good feel for what this is going to do in the next 10 days. I think we are going to have a move down that is a fake, then a good year end rally. However, most of my indicators on a short term basis are showing down, but not really bet the farm down. You can see I have Will Trend in blue on the chart. This is a Larry Williams tool to show where the trend is. We are still holding in an uptrend on this at the moment by a thread. For those who are bullish, you could buy here with a close stop underneath, and get out if we close under this line. That is not a trade I will do, but for aggressive traders it is certainly a possibility.

I just don't have any divine wisdom on this pig right here.

Here is one market I think is once again setting up a selling opportunity, Cattle.

I suppose we could be short already yesterday when the prior day's low got taken out but I did not take that entry. The seasonal still shows a little move up, so I decided to wait a day or day more. This could be one for next week. As with everything else, this is a setup not a trade. One thing about the meat markets is that they seem to be able to defy gravity and trade independent of the stock market. That is a feat worthy of the congressional medal of honor these days.

As to what trades you might have on right here, you just have to trail the shorts down with stops and see where things lead. It is kind of choppy and equities will likely determine the fate of most commodity shorts right here. If stocks happen to hold here, the commodities markets will also. I do think energies are still sells from a weekly perspective.

Have a nice weekend.

WHIPSAWS AND GURUS

Yesterday showed us once again what happens when a little bit of the truth sneaks through the wall of BS Wall Street constructs. It was revealed late in the day that there is some exposure in US banks to the sovereign debt situation. DO YOU THINK SO?

If you don't think that you are out of your mind. When this broke the market dropped 250 points in a flash, just creating another huge whip saw situation. As I have been saying, this is a battle between the truth and BS, and the governments trying to manipulate the truth. I don't sit in their chairs so I have to be careful about standing in judgement about whether or not they should be doing what they are. I don't think anyone can truly stand in someone else's shoes until they actually do it. It seems every time we turn around someone is telling someone else what they should be doing. I love the talk show hosts on the Penn State situation.

My question I would ask these experts is, " With the last team you coached how did you handle tough situations?" Oh you never coached a team? Hmmm, what exactly is it then that makes you qualified to tell someone who is a coach what to do? I am no Penn State fan, in fact I hate Penn State. I have rooted against them for years. However, I don't know what Paterno did or did not know, so I am not qualified at this point to be critical of him. It does appear that he did not handle this correctly, but we are drawing that conclusion through selective releasing of information by the media, who as we know always has an agenda and does not often just report the news any more. The only criticism I have of him is that I can be sure of is that he stayed on too long as the coach just to get his name on the all time wins list, at the expense of his program. The quality of his teams has fallen off dramatically in the last decade. As bad as this story appears to be, we have to wait for the facts to come out.

I also can't believe nobody has ever kicked the crap out of this guy who has allegedly committed these horrible acts. I took a few swings at coaches in my time, and I can guarantee readers, had I played for Bobby Knight and he had pulled the crap he pulled on some of his players, we would have found out if he could have overcome my considerable wrestling skills. These were young kids but they are grown up now and I just would have thought that one or more of them might have been laying in wait for this guy. As they say payback is a bitch. Where am I going with this?

There are a couple of points. First, titles are titles, and I have never been one to give someone respect just because of a title. When I was a senior in college I wound up in a courtroom for a parking ticket of all things and was confronted with a judge who was a jerk. He proceeded to give me this ridiculous dressing down about having forgotten to pay a ticket. I was a college kid who forgot to pay a minor traffic ticket! To me he was just some blow hard being a jerk, and I said as much. We actually got into a big argument and I told him I could care less who he thought he was, his attitude was terrible and he could kiss my ...... As I walked out of the courtroom to the side the bailiff gave me this unbelievable look then told me in the next room I was lucky. I turned to him and told him the judge was lucky someone hadn't kicked his ass. The cashier then when I paid the ticket was kind of laughing and told me he had never seen anyone talk to that judge like that and that I had some nerve. My point was and I told him, since I had calmed down a little at that point, that I did not see any reason that he should be able to treat people like that just because he had the title of judge. I could tell the cashier was glad I told the judge off. We have now seen the judges are probably the single biggest problem with our legal system, and it is their arrogant attitudes and politics that are driving their decisions, not the law.

Here is the point. Just because someone of authority such as an official, or even a trading "expert" says something, it really does not mean anything at all. Trust but verify. There are all sorts of conflicts of interest, and we never know how they might be influencing people's views on things. This can be overt fraud, or it can just be human nature and be innocent. The one question yesterday about who I follow, I think is typical of many beginning traders. They justifiably want to find someone who knows what they are doing, and follow it. This makes sense, it is what I did starting off. However, you ultimately are going to have to think and execute for yourself unless you just turn your money over to someone to manage it for you. I just advise not getting too hung up on every word a guru says. We have plenty of times we are wrong, believe me. I think you should always be respectful of others, but when they earn that respect through good actions. Do not just blindly follow any one's words until first establishing it is the right course for a reason other than their title or who they hold themselves out to be.

The biggest reason I don't follow anyone else is that I want to be responsible for my own money and whether I make more or lose what I have. It is not that I think I know more than the next person. I just know that it is up to me not someone else, to get myself where I want to go. I don't want to be influenced by other people's opinions. As it was with the Penn State analogy above so it is with this stuff about the sovereign debt crisis. I don't need someone telling me anything about that. I can figure out for myself via Braille, that people who have no money lending people money who cannot ever repay it, just to kick the can down the road, is not a plan that is likely to work. I don't care what official comes out and tells me otherwise. Look at the scandal that is now breaking about the insider trading by congressmen and senators. They have re-written the laws to make themselves exempt from prosecution for this. Are those people who really deserve respect? Do not listen to what any of them say, if is just one lie after another.

The stock market is kind of one lie after another right here. We have these 200 up 200 down back and forth action days. It does look like a downside move is at hand, but you better have iron guts to ride out these huge retracements that are taking place, if you are shorting this. I mentioned one better way to play this than the indexes was Copper yesterday, and you can see how this has again broken down more than the indexes. For those who took that play, you are having a more smooth ride thus far. You can see as I have marked up the chart, how much weaker this market has been than the SP 500 which is below it. If the indexes to happen to break, this market is likely to really roll over more. I am not sure about the indexes here just because of all the accumulation that has been happening in them that shows in the A/D line and the POIV indicator. I just don't expect a big break down due to that.

One market that might be in a mode for a rally is the Euro. I do not have anything on the daily chart in terms of an entry setup here, but look at how closely we have followed the seasonal here, and we are right at a seasonal buy point. Perhaps it is time to look for a long entry here?

Unfortunately, the world is taking it's cue's from the US stock market as are most other commodity markets. Just be aware of this as I keep saying, with your risk management. I guess if I happen to have any judges reading I have probably lost them after today! Some times it is hard to day after day, create posts that have earth shattering new information, so I get sidetracked a bit.

Good Trading

"IF YOU STAY IN THIS LONG ENOUGH SOMETHING LIKE THIS HAPPENS"

Of course this is a line from Top Gun after that crash where Goose was killed. It applies to a bad call I just recently made, let's review it.

If you read my Monday post at the end you will see that I thought we were going to bounce in the currencies due to how prominent POIV was diverging in many of them. It still is. However, just as with any other indicator, this one is not always correct. It was wrong here. I did not go back into this market because of the divergence that had showed up on the bullish side, so I have missed this trade now. As I compose this it looks like we could have a big slide tomorrow across the board but of course the overnight reversal possibility is always there. There is certainly never a dull moment sleeping any more.

It remains to be seen if what POIV is showing will result in the market holding here, but it does appear at the moment I might have blown this one. As to my stop being where it was, I stand by that decision. I never allow a profit that big become a loss. The best trades generally just go right away. The ones that have a good move then immediately retrace, are in general not as good even though some do wind up working out. What to do now?

If you have been reading my posts over the last month or so you know I had been looking for a mid month dip this month, I still am. Part of trading is getting knocked down and getting right back up. The Russell chart below shows a decent sell setup with one fly in the ointment, of course it is the same fly that plagues the currencies, POIV.

We have a nice trend line up that will break tomorrow if today's low gets taken out, and it is paired right with a good seasonal tendency for a drop. We technically do not have divergence by the strict rules in POIV since the lows have been higher and so has the indicator. However, it has been leading, and this is bothersome to me. Since the indexes, currencies, and metals are basically the same trade, I think Copper could be a possible answer to this dilemma. 

Copper has been making low highs and lower lows here while the indexes have been doing the opposite. Also, POIV is behaving itself here. The price of Copper has even been lagging to some degree with some exceptions, on the strong up days. This is one possible way of playing an index decline if you are not comfortable shorting stocks. As I stated the other day I list all the possible trades and then start paring them down trying to find the best of the groups that I think are correlated. This does seem to be the weakest to me of this group. Silver looks good to me also, but we are fighting a pretty strong seasonal tendency here, so that is a questionable trade. Copper is much weaker, so if you want to sell the metals, or find a correlated trade to stocks, this is one to consider.

This whole situation could be very tricky, and what we could have with POIV looking like it does in these other markets, is a quick sharp dip that reverses pretty quickly. 

Good Trading

A TYPICAL DAY

A question was asked about how I prepare for and conduct myself during the day. I felt this was such a good question that I would devote a post to it.

As a backdrop to discussing this, let me first make it clear what 3 things I typically am doing in an average day.

1) Trading overnight futures positions

2) Trading overnight stock positions

3) Day trading a couple of markets

Each weekend I write down in my journal what I consider to be the weekly condition of each market. I generally analyze the COT report, along with what my proprietary tools are also telling me. I make a note of these and consult them before making any overnight trade. I may very well trade in the opposite direction of what the weekly tells me, but I want to know a larger perspective on things.

Every night after the close I write down all the possible trades I have for the next day, then I proceed to whittle them down to what I am actually going to do. Once I have done that I place the orders during the night session. I do this for both stocks and futures overnight trades. I also place contingent orders for stops and set alarms to wake me up if they fill, so I can be sure the contingent orders do get in correctly. I have been burned a couple of times by not doing this, so this is a must do. I also make sure to check my account statements to make sure my positions match what they show. Rarely do I find a problem, but remember it is all on you if there is one. There has never been and never will be born, a brokerage firm that will ever admit to having made a mistake, EVER. It will always fall upon you so make sure to catch them right away. I moved almost a million dollars out of Trade Station for them failing to make me whole on a $3000 mistake they made. I told them they needed to make me whole or I would leave, they did not so I left. They have their pride and ego intact, but not my money, so be it. I will never be back. I do have some money there in equities but no futures accounts. The equity money will be leaving as well once I find the right home for it.

Also at night I review the markets I day trade, usually Crude and the ES and the trades from that day. I look at what I did right, what I blew, what I should have done etc.. Then I move on. Day trading is very difficult, there just are not the tools we have for overnight trading, so some fudging has to be done and my accuracy is not nearly as high. This is a constant work in progress. I do make money doing this but not nearly as much as I do in the overnight trades.

I live in San Diego so I am on PST so keep that in mind for timing of things. I generally wake up at 4 am or so without an alarm. I am just used to getting up at that time, so I wake up naturally. Also, little Vinny is usually ready to get up and do some damage by then anyway. One thing about him, he is the only puppy I have ever had who just sleeps through the night in his crate without crying or whining one bit, and he does not pee in his crate. This should be medically impossible but it is what it is. Nonetheless I would be up at the same time anyway. Typically there is not much happening in the markets between 4 am and 5 am. However, since my orders are already in, I get rid of all the daily charts on my screen and symbols in the grid, for anything I might be in. I do not like watching the overnight trades I am in during the day. The only time I do it is when I am looking to enter additional contracts to get to my full size on a pullback. Once those contracts are filled, off the board that chart goes.

This takes a tremendous amount of stress off. Watching tens of thousands of dollars and more come and go all day long everyday is very taxing. I would much rather just have the orders in, have my stops in, and then have a moment of truth at days end where I check in to see what happened.  In the event that I got beat up, there is just a moment of pain, then it is time to move on. In general I usually don't feel much one way or the other, each trade is for the most part just another trade.

During the day I just have my two day trading markets on the screen and focus as much as possible on just those two markets during trading hours. If I get to a period where I see there are not any imminent trades coming up, I often scroll the daily charts in all the markets other than the ones I am in or those closely correlated to them. I do this just to have a good idea of what might be setting up for the next day. I quickly go back to the day trading tick charts and try to stay focused there.

I rarely do research during the trading hours, that is usually done after market hours and on the weekends. This is not work to me, it is what I live to do, so working on the weekends and at night is not work to me.

There is one huge problem that often rears it ugly head during the day and I am sure it hits everyone. When you work out of your home, your family often thinks you are just hanging around and are available for all sorts of things that pull you away from working. You need to make it very clear that you are working and cannot be disturbed. Spouses will always fight this, and I can't tell you how many trades I have missed due to this. However, I like working at home, it is comfortable, and I certainly do not feel like going to an office building every morning at 4 am. You are going to have tough conversations with your family, but they need to understand that you are working when you are in your office and you are not to be disturbed. No trading, no GI Joe with the Kung Fu grip for Xmas.

Overall, it is vitally important to do one thing correctly. You must be completely focused on what you are doing. I like to think of this as compartmentalized thinking. I have no idea if that is even a word but spell check seems to be allowing it. This just refers to keeping your thinking focused to one thing at a time, and not letting your mind wander to other things. When I am day trading I could not have a care in the world what is happening elsewhere. The same is equally true when overnight trading and not day trading. There is no reason to get tied up in an intra day tick chart, when you are thinking about what to do on a trade you want to hold for several days. This is a huge mistake so many people make.

The logic goes something like this. "Well if I can find an entry on a 60 minute chart I can get by on a lot less risk, then I can turn it into a daily trade." The people who do this are missing the point. A 60 minute chart is far less accurate than a daily chart and you can get whipped around at insignificant points and lose money, while the daily trade never took a loss. You are never going to make a $10,000 per contract gain on a 60 minute chart, NEVER. If you do that crap stop it right this second. This is flawed logic. If you are going to day trade, day trade. If you are going to trade on a daily chart, do that. Do not mix these two together, EVER.

Once the market has closed I often get away from the screens. I have other business interests which I am not going to get too deeply into, that I get involved with during non market hours. It serves as a good distraction and then I can get back to the markets with a fresh view after a few hours. There are also times if I am going through a bad trading period, where I just walk away from the markets for a day or day even a week if need be. I just play that by ear, and go with my gut at the times I have done it. I know when I am out of sync, and I do not let my ego get in the way. I know the biggest mistake I can make is to let a losing streak get out of hand. There is always another trade, but there may not always be another dollar if you blow up your account. If you feel you are just out of sync walk away and re group. It is what I do. Every time I have ever done that I have come back strong. Fortunately, I have only had to do this a couple of times. I never lose respect or fear of the markets. They are all powerful, and I know that if I am not diligent and prudent, I can get into trouble.

Stay disciplined, use appropriate risk, stay focused and keep your eye on the ball. I hope this is helpful. There are no magic words in here. This is what I do for the most part every day and every week.

As far as market setups, my overall view is this going into Tuesday. Based on the way POIV looks in many markets, I think this down move is not going far. It seems to be showing strength in the indexes, currencies etc. There is bullish divergence in most of them. The Euro has it and is also into a good seasonal spot for a buy. The Crude market which I have also been talking about has that triple divergence in my proprietary indicator, but is also by far the strongest energy, so I just don't see the logic in shorting it here. As a result of this, I just don't see anything really lined up great for Tuesday.

Good Trading