V's are Wild

The above charts are somewhat typical of what has happened this year so far, all the turns are V tops or bottoms. This is somewhat odd. We do always have these types of things from time to time but rarely do I recall so many happening in such a short amount of time. Some of my tools occasionally pick these turns, but they have not thus far this year. January although profitable, was a sub par month for me. I did not make as much as I normally make in a month due to the above phenomena. Aside from being greedy, this does not really bother me too much. I know to stick to what I know, and I am not good at fading extremes. I tried to learn how to do this many years ago under the tutelage of Kevin Hagerty, and although hitting some beauties, never achieved consistent success doing it. As a result, I don't try anymore.

The stock indexes to me do appear now to be a day or two of up closes away from potentially being a sell on a short term basis. However, I have to wait and see how my tools look if and when they roll the days out. We do have the NFP ( No Frickin Possibility ) that it could be accurate, report coming out Friday. That will be good for some laughs. I wonder if Barry and Co. will have the nerve by the end of the year to tell us all through manipulating the numbers in this baby, everything is going gangbusters? I just had a fight recently with one of my sisters, a wacky political science major liberal over politics. I was not willing to take the comment that I was another non thinking dumb republican. I asked her if she wanted to take an IQ test against me if I was such a dumb ass? This shut her down quickly but in hindsight was not the best of ideas!  My mother was exceptionally bright so I got good genetics from her. One point to make about this. There have been numerous studies on this, and being highly intelligent does not equate to being a great trader. I don't know if being a dumb ass does either? I do know that nothing in life can make you feel dumber than a losing trade, but if you happen to have them it does not mean you are stupid. If that were the case my IQ which be sub zero.

As it is with trading so it is with politics and religion. I never stand in judgment of others in these areas. I always frustrate my religious friends who try to "convert" me. I do that because I never disagree with them so they never get a point to clobber me on. I have nothing against them, and I really have no opinion on their beliefs. It is none of my business. I do have my opinions on politics and I am vocal at times with them, but I never think those who don't agree with me are idiots. I do think there are dumb politicians, but I don't think they are dumb because they don't agree with me. I think they are dumb because of what they do which is entirely different. 

You know what they say about politics and religion. I do feel that this coming election is the most important one in a generation, so I decided it was time to make a stand. Hopefully I can patch things up but who knows, it needs to be a two way street etc.. The governments manipulations of the Dollar through lower rates is causing some of these abnormal market patterns I have shown above. I heard my favorite Mortgage guy on the radio again yesterday. His slogan is "it is the biggest no brainer in the history of mankind." I laugh every time I hear it. I think this kid needs to redo the rest of the commercial which says rates won't stay here long. Really? Did he miss the Feds recent comments? He was saying that several years ago, several points higher! Alas another "expert" misleading us.

The constant stimulation by the Fed is keeping a floor under declines in many places, and will likely help contain whatever type of retracement takes place in stocks. I will be looking to get long on the next decline of any significance. It does bother me how bullish the sentiment indexes I watch are getting. If I had to pick just one tool to fade markets with, Sentiment would be it.

You can see the last time the Sentiment indicator reached the levels of last week we had a pretty nice decline around the corner. CNBC is talking about the Golden Cross from what I hear, the 50 day crossing the 200 day Moving Average. I have not studied that to see, but I have been told that has been a very bullish pattern over the years. You may want to study that on your own, I don't care. They have rallied this sucker back from the brink of a short term decline so many times in the last two weeks I can't count them all. I think one of these days it will give and we will finally get a much needed pullback to shake out the weak hands. That will be the buying spot.

The Hogs trade I was watching is now off the board at least for tomorrow. I am still looking at the energies on the short side, but the Crude Oil chart is just a mess now, RB is too strong. so I am left with Heating Oil.

It looks like another day tomorrow for the tick charts. I did catch the Crude decline today on a day trade which was nice. I got out a bit early, but still had a pretty nice win on the move. Hopefully after tomorrow I will have some other setups to discuss. I got a little sidetracked up above, I guess I am bored. I am approaching a milestone in blog traffic, which once hit will be cool. The 100,000 visitor mark is in the near future, and that will be fun when it gets hit. I know that is an hour for some places on the web, but I am just a small town trader with no advertising of any kind. Thanks for reading.

Good Trading

DON'T GIVE IN

The above chart is that of Hogs, a market I am looking for a possible short sale in this week. You can see my COT indicator has been a bit better than 50% but nothing to write home to mother about. In any event it is back into the sell zone at the last trough, and we have a seasonal down bias, so short side it is. As I always say, I don't enter at the market, so we will have to have some type of test and reversal back down here for me to get into this.

As I have state during this month, I have not traded nearly as much as I would prefer. I have received emails suggesting other approaches since so many other traders are supposedly killing it. Do not be folled by this type of stuff. In all honesty, I half assed the Robbins Contest last year only being in it for 6 months. I really traded marginally at best, yet I came in third place. Keep in mind that many top traders enter this contest hoping to make a name for themselves. If everyone was just killing it the results in this contest would be different. In spite of what most people claim, they do not do as well as they say they do. This contest is proof of that.

Do not start chasing your tail. I may have some annoying qualities. Some readers I am sure hate my politics, and other snide remarks I make. However, one thing I do better than most is stay to my discipline. I know there are periods of time when my methods do not generate a lot of trades. Generally they are V tops and bottoms, and running markets like what we have had lately. I am comfortable with this. The one thing I will absolutely never do is chase my tail during a quiet time just to generate trades. I trade to make money, not to trade. I hope everyone can understand this distinction. I don't love the action, in fact most of the time I don't like the action. I don't trade for a thrill. I trade to make money. I stick to what I know because I am not a seat of the pants personality.

I am very diligent and persistent, I am ICE not Maverick from Top Gun. You have to know your personality and what you are comfortable doing. I know the just wing it approach does not work for me. I have proven strategies and I follow them. At times it is boring. I fill in that boredom time with day trading, which is an entirely different animal. I even got so bored with a Crude day trade today, I just placed an OCO bracket order with a stop and a limit order for a target, and walked away for an hour and a half. I came back to see my target had been hit for a nice gain. The price action had been nice in that the trade went my way the whole time I was in it, but it just crawled. There just is no volatility right now. Here is the trade I did in Crude.

This was about as good as a day trade gets for me, so I executed this pretty well. My favorite thing about day trading is that it gives me reps, practice. The big money is always made trading larger moves.

The final point I wanted to make today is that when we are exchanging ideas on trades through emails or I point out something I am doing here, I am looking for moves that last 3 to 15 days. If I think a move will last less time than that I do not do the trades. If I happen to say I don't like something please keep that in mind. I may like it for a few hours, but that is worthless to me. If I don't think something will move for a minimum of 3 days or more, it is not a trade I am interested in. Obviously, many trades do not work out like I plan them to. With that in mind I sure better catch some decent sized moves.

When markets are running like the ES was until the last couple of days, the odds for that continuing for a large move are not great. The odds are also poor for fading it other than scalping. As a result, I know it is best for me to save my capital. Keep in mind just a few good trades a month with the right trade management, and you can make all the money you will ever need. Why push a bunch of marginal trades just to do something?

I don't now, won't tomorrow, won't  next month, won't next year. I also won't panic during slow periods. I know I can't catch my tail, so why chase it? Do not give in to this temptation. I do see a few market potentially setting up something by the end of the week, so stay tuned things may pick up.

CJ Out!

NOW IT IS TIME TO WATCH CAREFULLY

We are now at the key inflection point I was hoping was going to develop in the worlds favorite market. We have learned several things about this precious little gem that have been interesting. First we have learned that it is a store of value and always goes up in times of crisis. Second, it has never been worth zero. I think G Gordon Liddy, Rhodes scholar, was our instructor on this one. Third, we have learned that China will be the new world leader and the Yuan will take the US Dollars place as the worlds reserve currency. Our teachers on that have been single A ball players for the most part. Fourth we have learned that the governments are artificially suppressing the prices of Gold and Silver to stop them from being at $50,000. We have also learned that there are several 7 year olds asking their parents how much Gold they own, and if they don't why? We have also learned that in spite of the meteoric rise in the price of this over the last several years, this is actually the best time to buy it and it is sure to clear $5000 or more. We have also learned above all these other lessons, that "it is different this time."

As to the wisdom of any or all of these teachings stated above, I don't have any idea if any of them are correct or not. My research does not confirm most of them except the 7 year olds buying frenzy. That is something I have experienced directly with friends mine and their children, so I know it too be true. I may have left out a few lessons from this list, since I always tended to tune my instructors out at some point during my years in school.

In my little world, this is very simple, this is a very good sell setup. It is not a sell entry. It is a place now where it has rallied in a down trend above my upper bands, at a time during the year when the seasonal bias is down. Further, there are some multi year cyclical influences that are also kicking in here. This just tells me to look for short entries here. Whether or not they turn out to be big moves, or whether or not the actual entries even setup on the daily charts, I do not know. It is my intention to try and ride short entries if I get in them, for a larger move because of my big picture view. What will be tough to do when the break does happen whether or not it is now or 2 years from now, is going to be the massive daily ranges we are going to see. We got a preview a few months back of what the feature presentation is going to look like once it gets here. If I happen to be short and get two consecutive $100 days in my favor it may be hard not to take that money. I will cross that bridge if and when I get to it. In any event with all sarcasm and kidding aside, this market is setup now on a weekly basis for a sell, so I am looking for something to setup to get short here.

It does seem unlikely that we could get a big move down here without the stock market going down, so we will see if that separation will happen. Maybe both will keep rising.

It does appear to me also, that quite a few other markets are setting up as retracements in down trends.

Here is one of the of those other markets that I am looking at, the British Pound. It is pretty much the same picture as the Gold market. It does also have some bullish sentiment which makes this one attractive to me. The Grains are also mostly into my bands in the sell zone, and Bonds are into the buy bands. I suppose the Indexes are still by COT standards a sell, but my bands have turned up there so those setups are not as good.

The difference to me between the currencies, bonds, Gold, and the stock setups, are that all of them are retracements against the trends except the indexes. The indexes are against the trend.

The one thing that all of them have in common is that none of them have a daily pattern for entry that I would use going into tomorrow. I will be watching these for entries this week.

Good Trading this week

CSI JUST LEFT THE CRIME SCENE

The experiment is painfully over and now there is a crime scene left behind. If only that hot blonde cougar from the show could have been here during the investigation! I had mentioned that over the years I had many ideas that were very promising that turned out to be no good. I would have to now classify the stock trading system in that category. I had been saying that I thought this was the best climate I could have ever had to try it out live. We have a runaway stock market, and it has been issuing sells against that trend in individual issues. One of the things about systems is that you have to just follow the rules. You take the trades as they get spit out. Prior to this week there had not been a closed out trade that lost even though CTAS had been upside down, it was still an open trade. That was closed out earlier this week, and now I just got clobbered on two others. I admit I did not follow the rules on the exits, I just covered the trades at the market and tore up the system. The main reason I did this was simply, the flaw in the logic of this approach had been bothering me from day one. Trying to fade trends when they are really rolling, with fancy with and squiggly lines, is just a losers game. I know this all too well, but apparently not well enough.

The Achilles Heel with this method which I stated right from the get go was no stops. When you get into runaway markets, having no stops is a very dangerous game to play. I wanted to see with real money and the best filters I could develop mechanically, if I could dodge some of these bad trades. The systems showed great results, but the draw downs were big within some trades. Now that I have taken two separate 1% losses, I consider this system to be a bust. I do seem to recall a comment a bit ago about how I never mention the bad trades enough, this should cover that. You could argue that this is not the average market condition and that would be true. However, these conditions develop about 12 to 15% of the time. That is certainly often enough to warrant not trading like this.

I mentioned a few changes I was making to it that showed promise, and one of them is where I am going with this. I will keep plugging away with real money on these changes. If and when it becomes consistently profitable with real money, I will consider offering it as a service for subscription. However, those changes require discretion. The Black Box is toast. At this point that is a long ways off. This is where straight shooters like me set themselves apart from hucksters who take advantage of subscribers. I will always only offer things that I use myself with real money. The trades will always be trades I am in. This is the only true way to be able to look yourself in the mirror during times of draw downs. If you the seller of the signals are actually losing along with the subscribers during draw downs, then you are true to your word. There are not many people that do it that way unfortunately, but I am one of them. I remember one phone call I had with a client in the old days, when my Bond System was being used by subs. She had just lost about $700 on a one lot trade with one of my signals. She was new to trading, and of course was concerned. The best answer I had for her was that I had been in the same trade and lost $7000 since I was trading 10 lots. That seemed to make her feel better. It did not make me feel any better, I was still pissed I lost 7k. However, it did give me peace of mind that I made every trade with my own money that I put into the service even though I did not promise that I would. It was how I slept at night.

The one take away from this is that although my new COT Synthetic tool is great for picking spots to look, it cannot really be used mechanically. This is the case with every single technical tool I have ever used. We just can't get away from making judgments about things, and we should not be trying to do so. Life is a judgment call, so is trading. For those who want to know about mistakes and the results of them, it does not get much better than this. The mistake I made here was the premise of overbought and oversold. Yes those are sound concepts, but you have to be very careful with how you go about using them. I am now going back to using the new COT tool to establish a list of stocks to look at my other tools for entries in. It has spit out several for today, but once I looked at my short term tools, the list is down to 4. I will only enter them on weakness should we dip.

As for the futures markets, I am watching Heating Oil today for a short entry. I have not shorted the energy markets yet and I am glad I have not. I would  have been stopped out yesterday had I done so, although the trade which would have been in Crude, would have been a scratch.

I  have marked on the chart where I am looking to short Heating Oil today. I doubt we are going down there, I am expecting a quiet day on Wall Street today, but you never know. We are still extremely over bought and could fall hard for a day or two at any time. What I do like about this setup is a couple of things. First, we have really followed the seasonal here, almost every single swing has lined up perfectly. When I see this I pay more attention to the seasonal indication. I do know this party will end and it will veer off at some point, but until it does, I will heavily consider it. The other reason is I get a sense the public is really expecting a big move up in Crude Oil right now. Although they may be right, the fact that stocks have rallied this much and Crude has not come along for the ride, tells me there is underlying weakness. Of course Crude and Heating Oil are not exactly the same markets, but they do generally trade in the same direction.

The next chart shows more than what I can type in words. It is a chart of the ES on a daily basis, with one of my short term tools I use. Now you can see why I have no trades to look at, what a mess. This tool does not look this flat too often. In fact, I cannot recall the last time I ever saw this type of look with it.

I try to use this to help me trade swings, when it is flat like this, there is just nothing to do but guess. I am not a good guesser. I can mess around with scale and get this to show my a triple divergence against this move, but I like the scale to be constant. In it's natural state, this is just telling me the trend is strong and not to do anything.

Here is another trade I should have been in that I was not, and it appears I saved myself from watching a good win become a scratch also, just like with Crude.

I have marked the two entries I considered that I did not take. The truth be told, I blew this and should have done both of them. However, had I done so I would have been taken out for a scratch on this huge bounce that as I type this is even above where I have the arrow. The price did not reach down to where my targets would have been, so I would have still been in when this bounce happened with a stop at break even or a little better.

For those of you that have sent emails about how much you are trading this month, and how well you are doing, I applaud you. I mentioned that during these low periods of volatility, I do not trade as much, so kudos to you. This is a tough business, we should always feel good for other traders when they do well. Do not get into the mind set of resenting others for doing well, that is counter productive. I remember a quote from the Market Wizards book that was funny but rang so true. "Why is it that our greatest joy is when another man is getting screwed?" That is a paraphrase but it gets the point across. It is funny, but it is also a sad comment on how the human psyche works. Get outside of that thinking. Celebrate others success, negative thinking will get you nowhere.

It appears my interview I mentioned is going to come together in the near future, last chance to submit topics for discussion. This month I am not sure I could spell my own name properly, but in general I know what I am talking about.

That's it for today, have a good weekend.

THE MORE THINGS CHANGE THE MORE THEY STAY THE SAME

It is time to return to our mystery chart which once again appears to be dead on balls accurate about it's forecast of the price many months in advance. Many of the cycles and seasonals have called for a top in mid January, which is why I was looking for one once we got into this overbought condition. However, at this point I am going to defer to this forecast until it misses a turn in the market. It is calling for a top on Feb 24th, so that is what I am going to look for. As you can see it calls for a decline of a couple of months. After that we should have a rally that lasts several months.

I know there are many talking down the economy telling us how bad things are. However, we are seeing fairly good earnings reports, so it is a bit of a reach to say the world is ending. I really think it is very difficult to determine what is really going on especially in an election year. There is so much manipulation by the government. The bottom line is now that the trend is up in all time frames, and we have somewhat of a runaway market. I have no interest in trying to short the ES under these conditions. I also won't chase it on the long side here. I am damned if I do and damned if I don't, so there is just no trade for me in the stock indexes here. There is not one in sight either. We are likely at some point to get some type of pullback, but by this forecast it should not be much of one. In my younger years runs like this used to kick my ass. I would dig in my heels with my fancy tools, and refuse to admit that I was wrong as the market just plowed forward. I now know that my weakness is that I don't trade runaways very well, so I don't trade them. KISS is my strategy. I keep it simple stupid for myself knowing I can't trade these for a lick.

My call for a Mid January short term top was just DEAD WRONG.

One thing that has been a constant is the way the FED acts to create bubbles. They do it almost exclusively through interest rates. When they announced today rates would be low at least through 2014, they are giving us a heads up not the expect anything really bad to happen in the stock market for quite awhile and too swing away. I have no doubt that by that time in 2014 or thereafter we will have another big bubble on our hands. We have plenty of time to make money and bank it before the next crash it appears. I would suggest not getting too tied up in the gloom and doom talk. Things look good to me for the near term. There will come a time if we sail along like this for months where trouble could show up, but my short term indicators are just flat lining now, which tells me not to even consider fighting this. A flat lining condition with them does not necessarily indicate a decline or a big rally, it just tells me not to fight the move at hand.

This chart to me is very interesting, it shows Bonds in Green going up directly in sync with stock prices. In the good ole days before electricity, this was the norm. Low interest rates are very bullish for stock prices because money chases the higher yields of stocks when rates are low. If rates are going to stay low for at least two more years, any declines in stocks should be pretty well contained. This is what I meant by the topic of this post. It also applies to the politics of the election. It is my contention that regardless of what people say, most people are afraid of change. This is why nothing ever changes in Washington, and it won't this time either. The guy who would truly represent change can't win in my view, and that is not Ron Paul I am referring to. He would get us all killed, so he has no chance at all, zero. Gingrich is who I refer to. I would love to see him win just to watch him belittle the media for 4 years. He has good ideas, but that is why he can't and won't win. People are just too afraid of change, and I think his ideas although good for the most part, represent change to scares people. Barry is much more mainstream and the Repubs are handing this thing to him if Gingrich winds up the nominee. Romney is just a typical politician who blows which ever way the wind blows. so I think for that reason he will wind up the nominee. He does not represent change at all to me, other than being an evil rich person we all are being taught to hate because he is successful. He never got the memo telling him not to donate to charity and to instead give 100k every year to each lifeguard who retired at 50.

The reason I state this is just for the logic, it is not to ignite another political discussion in either direction. Please no political comments I will screen them. I just bring this up to make a market point. It is by the same logic that I state that the US Dollar will not lose it's status as the worlds reserve currency. As much as we want to engage in these long shot discussions, the harsh reality is that change of that magnitude rarely happens in things such as politics and politics are what is going to determine the fate of the buck. It is for political reasons that this won't happen. I can't argue that it shouldn't with what we are doing with our finances here. I am just stating that I don't think it will because it represents too much change.

Also speaking of things not changing, I was in a Sushi restaurant yesterday with a good buddy of mine. As we sat at the bar, of course the bartender was hot. Aren't they all when they are women? I decided to challenge here to do something I thought she would never be able to do. I asked her to just repeat three words. I started with a simple one, "I." I then followed that with "Was" and she repeated them perfectly. The third word was where trouble surfaced. The third word was "Wrong." It was my bet with my buddy that no women could ever say those three words one after another under any circumstances. Here we were with some total stranger having fun, and she could not even say "I was wrong." This again proves my point, some things never change. She later made a mistake on our bill, and I said "say it, say it." She couldn't do it.

The way I see the stock market here, it is just more of the same. We are pushing it higher with low rates, same ole, same ole. Fighting the Fed is a bad idea as we all know.

I do not see one single new trade for tomorrow, and the truth be told, I am trading much less this month than I desire to. The runaway stock market is just zapping volatility across the board. Many of my normal signals are just not there at the moment. I am sure some others out there are frustrated like I am with these market conditions. Stay patient this will pass, don't throw away your money in the mean time.

Good Trading

PRICE IS ALWAYS RIGHT

In spite of what this bonehead who authors this blog as well as a few other well respected traders are thinking right now, the band plays merrily on. Here is the VIX and in spite of it not always being right, I do still think it is the best stand alone tool for picking swings in stock prices. Generally speaking, once it moves into either Bollinger Bands or Standard Deviation bands, stock prices reverse. The reversals are not always big, but they are predictable about 80% of the time. That does leave us holding the bag on the other 20% like now! If you look back in prior posts, I showed the Vix and indicated I thought it would take some type of poke through look, to generate a short term reversion. I don't think I used those exact words, but I referred to a clear penetration of the Bollinger Bands. We did just get that 2 days ago.

Early today it did appear it might finally happen, but there is quite a nice quiet bid under this market, and the price rebounded slowly throughout the day to close higher for the 5th straight day in the ES. If you want an explanation as to why go to CNBC. Some suite will undoubtedly be on there telling us we rose because grandma felt good about the prospects of the Greek debt crisis or some other such nonsense. I have no idea what causes prices to move every single day. The markets are full of random action. When we get a trend going this strong it takes volume to break it and we do not have volume anywhere in sight.

Just remember, The Price is ALWAYS right in our game show here. If we are not in sync with it we are wrong. At the moment it does not appear the VIX action is having any effect at all in the price action. However, we do need to be aware of this because at some point this is going to matter.

I have been tinkering with my stock trading and doing some more of it. I am hesitant to make a strong push to the short side here just due to the pure strength of this trend. Even though using the overall trend of the market has no effect on the stock system results, my gut tells me it should. As a result, I am not fully committed to shorts here. I am doing some day trading and below is a chart of one I did today in Crude Oil that was a perfect trap pattern I love to wait for.

I missed two big swings first, then caught the third one down when that false breakout quickly reversed. Day trading is so tedious I admit I lose my patience with it all the time, especially when the markets are this slow intra day. However, this was a decent one I caught today. After I missed the first two moves and caught the third one I called it a day. My Synthetic does not work worth a crap in this market intra day, I should not even have it on the chart. A few markets that I have mentioned as setups recently moved today, the Yen and Cocoa. Hopefully some of you made some money in them. They did move in the directions I mentioned to look, but as is typical with setups, the moves did not happen right away. They usually don't.

That is all I have for tonight. I am still trying to find my way into the energies but no go so far. In tonight's teachable moment I learned once again it is time for me to share with everyone as directed by President Not. This kid just has one play and he just calls it over and over and over again. Shared sacrifice.......aye carumba! The good news is that the markets seem to be numb to him in either direction now which is a good thing.

Good Trading

TIME TO CHILL OUT

After having read a few recent entries in here I have noticed I have gotten a bit on edge. As that comment that attacked me suggested that I am just trying to draw attention to myself, it got me to thinking. My first thought was, "well of course isn't that what anyone doing a blog is doing?" Clearly you are bringing attention to yourself when you have a web site. You try and provide content that is interesting enough to get people to return. This is pretty obvious. However, the other function of doing something like what I am doing here is that it helps me to organize my thoughts. When I peruse the stats for the blog, I see that at even the busiest days I only get about 500 readers, so the traffic is not very heavy. However, that is still 500 people that I can embarrass myself in front of if I am not careful. Further, there are readers from virtually every country in the world now, which is really cool. I can embarrass myself in countless foreign languages, what an opportunity!

I do try and lay out as clearly as I can what I am doing, with the one asterisk being that I hold back a few of my own proprietary tools to protect myself. It is not easy when I am dead wrong on something knowing that many people are reading my views. So, the question that naturally follows is, why do I do this?

The very first reason I decided to do this was that I thought it would help me. There is a big difference between just trading in remote isolation, where only you know the mistakes you make. You can get over them very quickly and move on. When I make them in this forum now, I field questions about them afterwards, so I wind up being in blunder recovery mode much longer. This is actually a good thing because it has a desensitizing effect. I don't like being wrong or losing more than anyone else does, but I have learned to accept it. I know I am going to make poor market calls at times, but I also know that I will recover and make very good ones. Reaching the point where an individual knows this is a big step. This blog has helped me do that. Anyone who is ever going to manage a large pool of money had better be able to handle this aspect of this business. I have no idea if or whether I even have a desire to do that, but I wanted to do some things to help me prepare for that in case I decided to go down that road. This has helped a great deal in that area. 

Today I noticed I was a bit on edge recently, in what I have written. These types of very low volatility environments like we have had the last few weeks are the toughest markets for me to trade. When markets just creep every day in the same direction either up or down, my tools do not work as well as they do in other environments, so I get a bit edgy. You have to know yourself and what your strengths and weaknesses are. As you get older they become painfully clear. I try to use this knowledge to protect me when I know I am in a situation that does not fit my approach very well. I trade smaller knowing it is likely I will have more losses than normal.

The second reason is that I am not aware of another blog such as this where someone who actually trades, calls out what he is doing pretty much live. I have had to modify this some unfortunately to protect myself, once I found the government URL's spending hours reading my posts. I suppose it could have been just someone who works for Uncle Sam who happens to trade, just reading, but one of them looked at virtually every post I had ever made. This has never happened before, and I think it is unlikely that was a trader. In spite of that I still try to stick close to that mantra, and I openly discuss wins and losses. It is my hope that people can learn from this. I think I am accomplishing that based on comments and emails.

The third reason, was to help drive traffic to my web site once I re-opened it if I decided to do so. I don't know at this point if I am going to do that or not, I am leaning toward not doing it. The thought of the government having to approve every single comment I make about things is not a pleasant prospect to me. We have such a strong trend towards big government now that it is just not the right time for this. Maybe in the future if the politics change, this will be different. I know in the old days when I had my trading service that was very successful, it made me feel so good when I got emails from clients telling me about the money they had made in some of the trades. I had one guy who was just a classic. He had an incredible knack for sleeping in and missing trades, and he always seemed to miss the ones that lost. During the last year of my Bond service, there were only a handful that lost the whole year, yet he was able by sheer luck, to over sleep and miss the entries on every single loss! Of course I then had the guy who managed to lose money during a streak of 22 consecutive winning trades in my service. He of course wanted to cancel and was upset with me. It is still only speculation on my part as to how he lost money during the best streak my service ever had. This guy was the driving force behind me shutting it down, I just did not want to deal with people like him. Obviously, he did not follow the trades correctly and yet it was my fault. Ironically during that same time period, there was a good sized hedge fund in Brazil that had caught on to me and wanted to use my Bond system with their clients. We just could not work out all the legal aspects of that venture unfortunately. It was complicated due to his relationship with a US affiliate and I was not a CTA, etc.. The big guy loved me and the one lotter hated me, go figure!

The fourth reason, is that trading is such a solitary business, I was hoping to meet some other traders in other parts of the world to exchange ideas. That is also happening, so mission accomplished on this one. This is a tough business, and it is nice to know others that pursue it. I only have two local friends that trade, and neither of them is profitable, and they basically do it with a passing interest most of the time. They have good skills in other industries. It is nice to know you are not alone when you have bad trades, or just need someone to bounce something off.

With all this aside, I apologize for my being a little too "chippy" recently. I am still going to poke fun at myself for being an attention whore since I still love that take.

I was watching the America's funniest home videos show last night and saw one that made me laugh so hard I literally was worried about a heart attack. We all have had these times when something is just so funny too us we can't control ourselves. The video was of a high school cheerleader wandering out onto the field where the banner was that the team would ultimately run through when they came charging out of the locker room. It was being held on either side by a couple of groups of people. It was a big banner and was sagging a little in the middle. The gal walked up to check out where it was sagging a little, and right at that moment the whole football team charged through the banner ripping it to shreds and just trampling the cheerleader. It was almost like a cartoon. She wound up being fine by some miracle, but it was just incredibly funny the timing of her curiosity. I have had this same feeling trying to short stocks during this incredible up move.

The CTAS trade was finally exited today for a loss of 1.02 a share, so now I am on the board finally with a loss. Two others were exited with small profits, WY and SHAW. The 1.02 was more than the two wins combined by a little, but basically an overall scratch. I think this does in a way justify this method, but tells me I need to enter the trades a little better. I am finding that once the overbought condition gets to the extremes I am looking for, that I need to place the orders as limits above the prior days close by a certain percentage. Trades will be missed doing it, but it does insure about the max level of overbought something can get before it reverts to the mean. Extremes do not get pushed too much more than what we have now, so this again is an excellent test of the worst case scenario. If that worst case scenario is barely losing any money, that is very very good. We are not that extreme in terms of price but more so in the way of amount of time where we have had no meaningful pull backs at all.

When we look at charts we do see periods like this at times, so this will happen again. This is why I am glad this happened right out of the gate.

This chart shows the entry and exit in the CTAS trade. I believe this is about the worst case scenario from this method. If you just look at the daily chart of the DOW it is a miracle any of these have worked in my opinion. I have two others I am sitting on now, one is a profit and one is a loss at this point.

As for futures, I am still trying to find a way into the short side of the energy markets, but have not gone in yet. I think Heating Oil is the weakest, yet Crude is a better setup from a pattern standpoint. Maybe I will take some of each, I am not sure yet.

This is Heating Oil and it is just meandering down here. My short term indicators are showing we may bounce here, and it that were to happen I think this would be good to go. You can see how low the POIV is here, telling us there is distribution going on here. I would like to get in sync with that if possible. I did get stopped out in the Soybean Oil trade which resulted in a profit of about 1/3 of what I had. I am trying to ride some trades longer this year so this type of thing is going to happen from time to time. I just don't think you can ever get rich scalping, you have to catch some big ones. To catch big ones you have to give trades a little room, and that results in this happening.

Here is the Bean Oil trade, entry and exit. One good thing about exiting on stops is that it takes the second guessing out of things. If I leave myself too much room to second guess sometimes I do that and it is counter productive.

Other than that, as long as the stock market just goes up and up,  most other markets are going to rise. We are so overbought, we could decline sharply for a day or two at any moment, but it is any one's guess when that will happen. The corrections on these types of moves tend to be very sharp first days down that gets everybody out, then they resume going up again. I will be trying to buy into that sharp day or two down when it comes.

Good Trading

SOMETHING INTERESTING HAPPENED ON FRIDAY

In spite of the good sized up close in the Dow Friday, all 5 of my stock shorts closed down for the day. This was really a surprise when I checked in on them. I do not know if that means anything at all other than possibly I have chosen some of the ones that are a bit weaker than the indexes. I do wish my method was not picking all of these sells right now with how strong the indexes are, but when I test this new method adding premises about the market averages, the results deteriorate across the board. As a result, as much as I am not a huge fan of trying to fade strength like this when it is with the trend, I am going with what the method says to do. This is what we all have to do. There is no point in spending countless hours studying and developing methods, just to kick them to the curb the first time you get into some trouble on a trade. All  methods have losses.

When we look at the weekly chart now of the stock market via the ES we see what I consider now to be a changed picture.

Maybe I am late too the dance, it appears so. In any event, now in my world the trend on the weekly is up, so it is buy the dips. Once we get these gaps above my bands, I consider those to be enough to confirm a change of trend. This does not mean we are not still short term oversold, we are by any number of measures especially the VIX. The change for me now is that I will be looking to get aggressively long into the next pullback. As I mentioned in my last post, a few very good traders I know are expecting a huge bull market this year, and it is starting to appear they may be right. Ideally we would dip far enough to get to the lower band to generate the next buy signal. We could be early in this new trend, however that does not matter. My rules say we are in an uptrend now, so I will be watching for short term tools to tell me when to get long.

Now that everything is hunky dory, maybe one of the classic laggards that I have been mentioning I was bullish in, the EURO, will make it's move.

You can see my new indicator went into the buy zone right at the lows. My other tools I use to enter trades have not set up properly yet to buy this, but I am hoping they will if we dip as indicated. This is still a pretty big downtrend, so I am not going to chase this one here, I will wait.

I missed the Bond short I was talking about, what can I say hopefully some of the readers caught it. We just rose too far for my indicators to stay in the sell zone, so I did not have any short term entries. The Stock Market has just gone up farther than what I thought, so it follows that I missed this also since they are inversely correlated.

This has been a really nice move, had I been in this I likely would have taken profits at the close on Friday, after these 3 big down days in a row. However, I cannot say for sure since I did not make the trade. I am still short in the Soy complex, specifically Bean Oil. I showed this one the other day, now I think I will have to get out if Friday's high gets taken out. We did have a continuation entry on Friday when Thursday's low got taken out, so if that were to fail, I will have to exit the original from the higher levels. I did not take the add on entry since I was already short.

There really is not much more to do here other than just place the orders and see what happens. Wheat, Corn, and Meal have gotten much stronger, so we might be putting in lows in the Grain markets down here.

I am still grinding in a few stock trades as I mentioned, the CTAS was the one I officially discussed here live. It looks now like the exit is any close under 37.75. The fact that all my stock shorts declined Friday while the Dow rose, tells me that day was a little weaker internally than what the averages showed. Maybe that means we are approaching the short term correction I have been looking for. I really have no statistics on that it is merely an observation. I continue to work with this stock trading method, and have found a few things that will improve it. At this point there still is not a closed out losing trade, so it is not exactly a disaster. There are a couple current ones though including CTAS, that do appear destined to be losses by the time they are exited.

According to my new friends comment, I am an attention whore, so...........

Attention Whore Out!

HARSH REALITY

The above chart is that of the ES 37500 tick intraday chart. I have an oscillator on it that is not going to be labeled. It is really no grail believe me. It requires an insane amount of discretion to trade using this when I do use it. It shows what should be a pretty good short term sell signal, a Triple Divergence. The point of today is to talk a little about persistence and what it takes to succeed in this business. I have done some catching up with some old friends in the last couple of weeks, all of whom trade. Without exception every one of these people are highly intelligent, and also very successful in other walks of life. However, none of them trade well even though they desire too in the worst way. It just makes me realize how hard this gig is.

As I was speaking to one of them yesterday, I began to wander a bit mentally and just wonder why it was that I am doing so much better trading than they are. I then wandered further to a lunch I had with my infamous friend I mention in here so often. In both of these conversations, my friends were talking about different methods of trading. They are both in the search and destroy mode. What that to me means is they are going from one method to the next, one guru to the next, trying to find the holy grail. In this search process you wind up destroying your account balance, hence the name I gave it. 

My famous old friend last week was talking about some recent trades he made, and he literally had a different reason for every single one of them. In one instance a 60 minute chart said blah blah blah, in another a book written 50 years ago had an adage worth following, it was complete helter skelter. At this point with him I don't bother to try and talk any sense into him anymore, I just roll with it. I have learned that he will never listen, and he is getting what he wants out of trading. Subconsciously he wants to lose so he can be forced into other business ventures to make his money. This is actually perfectly fine, he will never trade profitably and somewhere deep down inside he knows it.

What I realized makes me different is my discipline. I have always known this. I have a rare level of discipline whose origin is unknown. Neither of my parents have it and I never had any close friends who had it either. It helps me in trading because it "allows" me to be patient during very difficult trading periods like we have right now. I have certain patterns I trade, and that is it. I just wait for them to come along. Sometimes they don't. During these periods I don't start chasing some unknown guru or some new "system." What I do during these periods is study my own tools and try and find better ways of using them. I don't want to know what others are doing, I just don't care. I know from experience a couple of very important things. First, I know my patterns work. Second, I know that if I let myself get too carried away outside of my core techniques I will lose money. Guess what, the decision on what to do gets really easy. I stay with what works knowing I will miss trades by doing so. I also know that if I stick to what I know, I will be profitable. I may not make the cover of Fortune magazine, but who cares?

The point for today, is stick to your discipline. The chart at the top today is a good example of this. Just watching the tape with the market moving up seemingly every single day in a slow creeping fashion, it seems crazy to even think about trying to sell this market. The adage of never selling a quiet market is actually pretty accurate. However, when I see these 3 point divergence patterns, they are one of my core techniques. As a result, I will look for a decline to come from it. I am not going to get into chasing my tail and ignoring things that I know on average work. Maybe this one does not, it would almost surprise me to see any down close at this point, but I will stay the course. This is how I keep things simple even though it does not mean every trade works.

This is a tick chart so it certainly does not have any higher time frame significance. All it tells me is that we are in an extremely overbought market, and now also in a divergent position on the intra day charts. This says to me to be careful on the long side, so I will be. I am not going to get caught up in over analyzing this. All trades don't win.

The Harsh reality aspect of this is if you do not approach this business like your whole life depends on succeeding at it, you should go do something else. It is that difficult. Further, you have to be different than most others in how you approach this. Do not let the emotions carry you away, they will if you allow them too. There will be periods of time where you lose money, accept that. Find, develop, create an approach and master it. Then stick to it come hell or high water. You will have the most confidence is something you have developed and studied yourself. This will minimize questioning it during bad periods. Refine it along the way if need be, but just absolutely own it. Tune out all the noise and follow it. I can assure you trading the stocks on the short side right now requires extreme discipline. On the surface it appears to be the dumbest thing I have ever done. It might be but I am following my approach come hell or high water. I spent a ton of time developing this method, it seems to be viable, so it is time to trade it, refine it if need be, and see what happens. It is generating sells at the worst possible time to be selling. I have mentioned that I like that because it is the truest test I could have for this. If it can work in this environment it will work in any.

I am looking for a short term dip because my tools tell me to look for one. It is that simple. If it is wrong, it is just a trade.

Have a great weekend

CINCO?

I have marked on the chart the 4 previous inside bars with up closes that have occurred during this nice run up in the stock indexes, and as I drafted this we were working on a potential 5th one. In general these are sell bars if the lows of the prior days go all else being equal. Since we did not wind up with one it is no Cinco, it is Quattro. Now we just have another higher high and higher low in a daily uptrend. I know it may seem annoying to have me constantly talking about the short side when the market is going up virtually every single day. It annoys me also.  One of the inherent weaknesses in any oscillator is their tendency to diverge against trends prematurely. At this point this market is just too strong for me to short it. I do have a triple divergence on one of my proprietary tools, but this is just not a bar pattern now that I want to short. It is what I call a running market, and timing reversions with these is very very difficult. By a running market I do not mean runaway, I mean just small ranges, light volume, that just keeps on creeping in one direction. Maybe I should call them jogging markets? My next play will now most likely be to buy a dip, but that is just a guess at this point. At the very least I am going to need a lower short term high now to try to short this and we are not near that happening. We do have pretty bullish sentiment which should be bearish, but we also had that last year at this time and off we went.

You just have to know how to work with your tools. I do not just blindly go out and use them every time they diverge, to fight a trend. There was a time I did that, but the tire marks on my back from being run over finally convinced me to stop doing that. I do know that from most of my studies, buying extremely overbought conditions on average loses money. We are extremely overbought here. This does not mean we can't or won't keep going, but it does mean the odds favor a reversion of some type here. Ideally what I like to do is fade overbought or oversold conditions when they occur against a strong trend. This situation is not that scenario. It is questionable whether the trend is up or down at this point on a weekly basis. I am defining it as down due to how I use those bands I show at times, but it is close to producing daylight above them which would switch it to up.

I also know that some times in trading I have to follow where my tools take me knowing I will take losses but that the approach does make money overall, and I just grind it out. This is one of those times, I have taken a few small losses this month so far, and have one decent trade going right now that eclipses them. This is just the way it goes for me sometimes when I am not trading great. I just grind it out, stay patient, and the good wins do come along if I stay the course.

In looking at the indexes and markets that are proxies for them, it appears to me that either the Russell or the Australian Dollar ( US stock market in disguise ), appear to be the weakest. I always want to pick on the weakest. Why take on the toughest kid on the block, when you don't have to? I think for me to short anything it would be one of these two, but I doubt I will do it. This looks very much like January of last year to me, and although we had a pullback, it was very choppy and would have been tough to have made money shorting the indexes during that period of time.

I also am looking at Heating and Crude Oil on the short side here for an entry. I have not entered yet but I am looking for something there.

The strength in the Bond Market has resulted in no sell signals for me there even though I was looking for something to get me in sync with the seasonal down tendency we have at the beginning of the year. That strength is also telling me to be careful pushing longs in equities here. Both the ES and Bonds have been strong together and as we have seen, that does not stay in place for too long. They have a pretty solid inverse relationship in recent years. I think Bonds are telling us stocks are going to dip, but it could also be stocks are telling us Bonds will. Does the dog wag the tail or the tail wag the dog? Basically we are damned if you do and damned if you don't right here. In these situations I save my money and don't press marginal trades. Running markets like this are the hardest ones to trade. They don't dip enough to buy, and don't spike up enough to exhaust and reverse.

The stock trade in CTAS

Here is a chart of one of the marginal stock trades that I just closed out, CYN. There are a number of them that wind up this way, very small gains. What I like the most about this method is that it completely disregards bar patterns which in stocks are so erratic. There are so many false high and low penetrations as compared to the futures markets, that you just cannot reliably trade breaks of them anymore.

As I have stated before, I continue to be amazed that this method is producing wins when the market overall is going up virtually every single day. This made .14 which is nothing, basically a scratch, but I can tell you that trading stocks the way I was doing it last year would have resulted in me getting my ass kicked during this type of environment. I do not believe the same methods can be used to trade stocks and futures, they are just two different animals.

I will talk more about this method in the future if it continues to perform well in real time. I do not have much more to talk about, I am still short the grains with targets below that are probably too far to be hit. I will most likely get taken out on a trailing stop in them. Crude is really the only new trade I can see as a possibility for Thursday in my world. I am likely going to get more sell signals in stocks, but I doubt I will add any more shorts. I have some on now that are about even, and I don't want any more exposure due to the possibility that we have a runaway train on our hands here. I still think we will pullback, but it is anyone's guess when that will happen.

Maybe I should tell jokes on days like this?

Good Trading

DUMB AND DUMBER - THE SUNDAY MONEY

Although at times I am in this crew, or feel like I am, the dumb and dumber, this is the Sunday night shorters in the emini S&P 500. I have seen more people lose more money selling this market in the early night sessions on Sunday night just to have it reversed against them seemingly 80% of the time, it makes me wonder as Seinfeld said "who are these people?" If this is you take a breath and stop doing this until we get into a bear market. When you have a strong short term uptrend like what we currently have, you are just throwing money away shorting the openings on Sunday nights. If I had one trade to make without researching it at all, it would be to buy the ES when it falls 8 to 10 points on a Sunday evening and exit when it hits unchanged. Just anecdotally, I think this would win 8 out of 10 times if not more. Maybe just throw in that we are trading above some moving average, and it might be even better than that.

Since my Gold comments are once again apparently ruffling some feathers,  I will make one last attempt to make my point clear. I have felt this way before about bubbles and I have chronicled those prior instances in here over the last couple of years. Maybe it was my lack of success in 2005 trying to convince people to sell their real estate that keeps me coming back to this topic. One thing I try to do is make things as simple as I can. I do create all kinds of funky indicators to try and give me an edge, and some actually do. However, it is the basic common sense aspect of things that I think often gets lost in our world of high tech trading. In every bubble in history, there have always been arguments about why there is not a bubble and why prices should continue upward. The tech bubble was a new world created by the internet, where all these fabulous ideas would change the rules of business. Then of course we had real estate, with similar arguments about why what we were seeing made sense and would continue on indefinitely. There was T Boone Pickens when Crude was at $140 saying it was a lock for $200. He of course was such a wizard he neglected to tell us it was going to $32 first. Now we are seeing those types of arguments with Gold. All of these things I have never heard of are being bandied about as to why this has to continue.

Who in the world ever studied closely the percentage of people that own gold? People do now because it is low and supports the theory that as more people buy it price will continue to rise. Perhaps even though the percentage is small, it is still much higher than before effectively making it overbought? I have no idea but the point is this is a theory. Who would report they owned it? I sure as hell wouldn't if I did. I would not want the government to know I had it so they could choose to come take it if they felt like it. The idea of fiat currencies. You talk about a Depression, wait til you see the one that is created by limiting the financial world to the supply of Gold. The whole world would instantly collapse. Talk about shrinkage, as a guy I don't have to jump in a cold pool to experience shrinkage, I could get my max dose right in this scenario. It has never been zero. Really, seems to me most things have never been worth zero? It is a store of value. Study the charts, that is just plain not accurate. At times it has been, at times it has been a store of diminishing value. I heard Marc Faber say he would rather own Gold and have it drop 50% than have his money in cash since that might go to zero. Has this guy ever hit a ball out of the infield? I don't recall ever seeing any proof that he had made any money trading? Who the hell would be willing to lose 50% of their money just to prove a point they were being too stubborn on? I would not take investment advice from anyone who was that inflexible.

What we have now is something that is just very simple, a commodity market that has gotten into favor and has had a tremendous rally. It is nothing more than that. We know that from studying the past price movements of commodities, that these types of boom and bust cycles happen quite frequently, and they all end the same way. One thing we do have going on today that may be a bit different, is the hedge funds and how they accelerate price moves. They have been part of this craze, and they will be blamed when it ends in flames. When you get these large funds, they get limited in where they can go to trade just based on pure liquidity considerations. They can trade Bonds, Stocks, Crude, Currencies, and Metals. Many of the other markets just don't have enough volume to handle the large orders they place. This is why you see these huge sharp moves in Gold. You have hedgies piling in and out very quickly. At times when we get stock declines, they have to liquidate other positions like those in Metals, to cover margin calls and redemeptions. This makes for exciting price action to say the least.

As I get into this I need to make something perfectly clear. I am neither a long term bull or bear of this or any other market except stocks. I am a long time bull there. Why? This is a very simple point which leads into my discussion on this topic. Look at the chart below, tell me what is different about it than any other market?

This is pretty simple, you can see it just has a never ending up trend, over 100 years old at this point.The reasons for this is it basically just tracks human evolution, the advancement of our society. As time goes on we figure out new and better ways of doing old things, and we also come up with new things. All along the undercurrent is just perpetually moving us forward. I expect this to continue for as long as I am alive and well beyond. There is every reason to believe human kind will continue to evolve so this will likely in spite of set backs, be a net upward path. We still we have declines and some of them will be large, but this is not a mean reversion market. It has not historically been and I don't expect it to become one.

Now lets look at the next chart, Commodity prices. This chart is quite busy, but I think it is easy to get the point I am trying to make. It has Gold with several other commodities over layed on top of it. The take away here is that Gold is the only one that has had this massive spike up without a significant reversion. The point I am trying to drive home, and it is my sole basis for having the longer term view I have here, is that this market is doing something that has never been done before. Commodities due to the fact that they are a known supply item, tend to go in and out of favor in terms of demand, therefore they see saw up and down. Yes there are new stashes of things found here and there but not enough to materially effect the basic premise. The arguments about limited supply were made with real estate, and we saw where that led us. My favorite was always, "they are not making any more land." One of the few constants in life in the non constants. We can be sure of very few things, but one of them is change. Markets measure collectively human emotions and desires. When something is hot everyone chases it, then they tire of it and chase something else.

Prices decline not because sellers enter, it is because buyers leave. This is an important point to remember. Sellers can always be there to sell, and as long as there are enough buyers, prices of anything will rise. The minute the buyers leave, that is where price declines take place. This is why fading Sentiment works so well. Sentiment basically tells us how many people have bought, once the levels get above 80%, most of the people have already bought and the numbers of buyers is going to decrease. I have nothing against Gold, I could care less if it rises or falls, my life changes not one bit either way. What I do have something against is buying something that has already risen this far, when I know the history of commodities is that they are mean reverting. That is the genesis of my argument. It has nothing to do with this fiat currency discussion, inflation, the US deficit, the European debt crisis, et all. It is purely based on the mean reverting nature of commodities.

One other thing that always bothers me is the lack of common sense that is used in investing. If someone told you God himself would promise that Cattle prices would rise 100% if you bought them tomorrow, I would be willing to bet the majority of people once faced with that gain, would hold on then hoping for another 100% and wind up losing all of the profits as it reverted back down. They would not be willing to take the double and run. They would cry out some reason as to why the Cattle market would be forever in strong demand and there were just not enough cows to go around. I would love to think that at some point I would make one trade that made me $10 Million Dollars. The largest trade I have ever made was buying a house in 1999 and selling it in 2005 for a $1.1 Million profit. That was during the housing bubble. However, when I think about the odds of that versus having a stable approach that I know makes me money year after year, versus trying to catch one thing perfectly that is a home run, I will take the former every time. For those that are in from $400 or $500 I do not understand why you have not taken profits you already have a once in a lifetime gain? Are you really prepared to watch all of that money go poof? I sense most of you have no exit strategy at all, and you will buy it all the way down if it comes down, and wind up with nothing to show for your brilliant investment. You should not blindly exit just because some dude like me is popping off in a blog about it, but at least develop an exit strategy just in case by some minute chance you are wrong.

Now as to why I think now is the time versus some other time for the big decline to occur. If you look at just a basic regression channel, you can see the blow off top we had that extended so far out of this channel it was a mathematical lock that we would come down. These are the types of patterns you see at tops that last for many years, not just pauses in trends. Had we not had that huge blow off, I would not be nearly as bearish. I also have one of the cycles that is pretty decent for this market, the 2 year drawn in with vertical lines. We did hit a top right about when that was calling for one, hmmm.... There are other cycles of longer durations one of which is coming due about now, that call for a top. The next chart shows the Large Traders and Commercials and what they are up to.

There are a few things to make note of here. First, when we made that high, there was a failure of the Large Spec position to make a new high. Since they often pyramid positions, they generally can increase their longs during rallies like this. In this case, their buying was exhausted and we see the net decrease in buyers I mentioned earlier. This was an ominous sign at the time. The other thing to make note of is the Commercials and their critical position sizes. If you look at the last two large rallies the long size was about the same, I have drawn vertical arrows as well as a horizontal line going across those numbers. You can see now on this recent dip, we are far below that net position for them. In other words, this decline has not attracted anywhere near the buying that the last two did from the commercials. This tells me the big guys are unwilling to step in front of this yet. If they were much more bullish here, I would have a different view. They aren't. We can't always stake our whole view on the COT data, but when I see something this significant in the data, it needs to be heeded. Maybe on the next break they will bring their long position up to the prior levels. If they were to do that and price had not broken too much, I would become bullish at least in the near term. The trick with COT positions is where they occur in the price structure. If a big break is accompanied by big buying that does not mean much if the trend is broken. If the trend is intact and it happens, like in the two examples I have the arrows at, you have a great buy setup.

If I take all this together here is what I come up with. An extremely over due mean reversion in markets that always mean revert. On top of that, a blow off top of significant proportions that took place right when the two year cycle called for a top. I then add the seasonal top tendency which is right about now give or take a couple of weeks. This is the basic reason I am bearish on this market from a larger perspective. I also do not see any significant Commercial buying which I would normally have expected on a decline of this amount. We have also broken the weekly uptrend and are bouncing up in a down trend now. If I also add mechanics to this, Steve Briese's study of commodity bubbles objectivity measures this as one and gives it a very high probability for a significant decline if it is to sync up with historical price movements. It has absolutely nothing to do with any opinions I may or may not have about all of these new age arguments being made about why this has to triple from here. I don't invest my money on opinions about such things, they are just too arbitrary. This does not mean they are wrong, they are just not what I use to make trading decisions.

I realize I stand almost alone in this view, and perhaps that makes some people think I am just some moron who does not get it. Maybe I am. I do look at this just like anything else. I use my tools and experience to the best of my ability. I do not always get everything right, and I never will. I do get the majority of things right which is why I am a profitable trader. Perhaps this is one of the markets I will get wrong, but I view at as I would anything else. This is my reasoning, it is just another trade to me. I am not currently long or short this market, and will trade whichever side my short term tools tell me too regardless of what my long term view might be. I don't strive to find that one trade that I will hold for years to make my whole life's fortune in. I do plan on trying to hold shorts when I do them longer than I normally would because I think the potential down side here is enormous. That is about the only influence at all that my larger picture view will have in my actual trading.

I won't dispute other people's arguments on this but what I will ask is this. In discussions on this in here, if you have an argument to put forward they are all welcome with one asterisk. They need to be accompanied by a chart showing in the past where they have caused the price moves you claim they are going to cause in the future. I will upload these to the blog if I get any that meet this criteria. Just saying Fiat currency blah blah blah, is not an argument unless you can show me on a price chart where that caused the price of gold to reliably rise. Without that arguments are theories and are not objective.

I know at this point I have readers from all over the world so if you wish to submit a chart email it to me at mktwzrd1@gmail.com. Please make it plausible and not something like percentage of ownership of Gold. It has to be something that is measurable over time, not some new age graph that was created to support the argument. Those are theories. Maybe we can find something that will change my mind, nary a day goes by that I don't examine some way of looking at things differently. Maybe this is a case of someone just getting through my thick skull.

This will be the last big picture discussion I have about this market, I am burned out and my conscience is now clear. All my future commentary will just be short term trading opportunities that I am trading in both directions.

Capisce?