WHERE DO WE GO FROM HERE?

Yesterday big up, today big down, and more explanations for both than I know what to do with. My favorite is that we went down based on concerns about Europe..... Poppycock! Why do uninformed people always feel they need to tell the rest of us idiots why something happened, when they have absolutely not a clue in the world? Where is the credit that is due the evil speculators that drove oil prices up now that they are tanking? If they drove them up they certainly must have driven them down too didn't they? Oh wait it was some politicians policy that saved us all from $200 Oil. I think the savior was T Boone going public as being bullish again. He must short the max position when he makes these remarks, otherwise he would be broke. He has to be the worst prognosticator of price in the history of man walking upright, yet he is incredibly wealthy.

The trend has switched to down where I indicated on the chart above, so ideally we would get a rally all the way up to the top band for sells. I doubt we will get that, but there is always hope of the perfect trade setup. I am not going to chase this right at this juncture, so if we just roll over from here I will miss it. Many of my short term tools are transitioning into marginally bullish positions. If you look at the top chart, the one thing that bothers me a great deal is the huge buying by the small specs, at a time when the trend has changed on a weekly basis. I will admit I am very skeptical of COT tools in the stock indexes because of all the manipulation that is going on. I don't think the government is giving us the real data in this sector. I can't imagine why?.......... ( Tongue in Cheek, eyes rolling ). The COT data stopped being effective in stock indexes a few years ago, seem like a coincidence?

In any event in the idiots school of trading, I just follow the lines. They tell me we broke the uptrend and now are in a down trend. As a result I want to sell bounces. I never did find a  5 year old so I am guessing as to his interpretation of what I would have shown him. We certainly did see an across the board meltdown again today, so as Coleman would say, short sales for everyone! I noticed some of the grain markets showed some relative strength today, so they might be in store for some up movement here. I was looking at shorting the bean complex until I found a big divergence in soybeans that told me not to short. We will see if that was a good decision or not. I think it was regardless of the outcome. About 80% of the similar patterns I found in Beans to today's featured the price not falling over the next couple of weeks, even though a few did. I play the odds even if I miss a few.

Gold and Silver also had nice reversals today, but are really stuck in sideways trading ranges in down trends. I am not too excited about buying in that type of situation. Many ETF's are in the buy zones on the weekly charts, so that has to be my first look in them at the moment. If we bounce then I will be looking for sells in them. There does appear to be some big player buying in them during this dip.

I will like to short Nat Gas on a bounce, just to name one specific trade I am waiting for. I don't see much else for tomorrow. I am also tempted to start looking at the short side of Bonds now.

Good Trading

HOLIDAY BARS

Today we are faced with what I call a Holiday bar. This is just a bar where all we have is the electronic session only, with the pits all closed. The odd thing about this now is that not all markets have a bar on these days, so we wind up with different numbers of bars for each market for a full year.

The question is how to handle these? There is not a simple answer to this. First, one of the biggest mistakes people make, and my infamous friend makes this one, is that they fail to take into account small bars with light volume that adversely effect their indicators values. If you are using a 60 minute chart to trade with, all the bars carry the same weight in any indicators you are using. This includes the bars that look like dots that occur overnight, when there is no volume. Do you really want to be counting Elliott Waves on bars that have 3 trades the same as those that have hundreds? Of course not. I tell people this all the time, they ignore me and just keep losing money as a result of this. At this point I just don't care any more. They want to lose. Ed Seykota's most famous quote in my opinion is "people get what they want out of the markets." What he meant by that is that those who lose subconsciously want to lose, which is why they keep doing things that don't work.

There are two answers to the above dilemma, use tick charts when day trading, or just trade the day session only. I don't know how many times I have told my friend this and yet there I was last week again looking at 60 minute charts with those little dot bars being counted the same. Of course the problem with tick charts is that you don't know when they are going to end, so you have to death stare the screen all day long. That is a sure fire way to lose money. The problem with just trading the day session only is that often very large moves happen over night that you will miss. It is not a perfect world is it?

However, the daily electronic bars are different. These need to be taken as regular bars. In the chart above I was looking to buy Heating Oil based on a pattern in any indicator I use that was set up by the small range bar. You can see the breakout of it was powerful and who cares whether or not it was an electronic bar or not. Most importantly, the market does not know that. One thing I do even as long as I have been doing this, is once I see a setup certain wierd thoughts creep into my head. At times it is almost like I am trying to talk myself out of something. "Well it is a holiday bar so....." "Yesterday the DOW did ..... so ......" "We are down big and the PPT should show up soon so ...." Those voices never ever lead to good decisions. The fact is when you get a setup that meets your criteria, go. If it is a holiday bar or not, it does not matter.

The Bond long from Friday was exited on the opening for 4/32's profit. This was another clunker but again a system is what it is. Here is the summary of the trades that have been done since I went public with this here.

The 5/21 long you will recall is a trade I filtered out due to the Regression Channel, so that one does not count. Net we have 5 out of 6 wins so far, a good percentage. This table just shows every one the problem spits out. The net profit is not much thus far, $533. I suppose it could be worse it is a green number. After watching someone have that terrible streak I mentioned, I am still not sure I ever want to offer this as a service, but I will keep posting the trades in here and we will see how we do. I do know there is a revenue stream for me here if this works, so that may be enough. The Bond Market is so big that the number of users on this would not likely effect the net results.

By the way I measure trends the trend turned down in the ES at Friday's close, so it is now sell the rallies.

There is no precise price, just that zone marked with the word Sell. Any rallies stall up here are sells now.

Good luck this week

GETTING ACTIVE

After a period of no action, the Bond System is triggering a lot of trades right now. The short entered at 147'27 exited at 147'05 for a gain of 22/32's and now it is long at 147'17. This long being more in the middle of the channel, would not be one I would filter, so it is a go and we will see how it does. For those who like action it is providing some now.

A fellow trader forwarded something to me this morning that is worth commenting on. It was an analysis of the crisis, what stage we are in, and some possible outcomes. I am not an economist and have no desire to ever become one. I cannot afford to be that inaccurate. Even for the good ones, larger picture economic calls are just not suitable for short term trading. However, I do find myself thinking about how all of this is going to resolve itself in the end.

Here are a few thoughts some of which are in the main stream and a few that are not.

First, it is pretty clear to me the core of the problem is over leveraging. I think most people agree on this point. There is finger pointing about what caused it and that really does not matter now. The fact is we are where we are. In my life generally solving problems that are big problems, requires some type of sacrifice or trade off. I can't think of any that haven't. This usually means I have to change my behavior. Maybe it means buying less new golf clubs, maybe it means driving an old car an extra year. It could mean anything. I don't recall any significant problem in my life I ever solved by continuing to do the same thing, not one. In fact I would never even consider that as a course of action to solve a problem. 

However, it seems to me that is exactly what politicians are doing to solve the problem. They are continuing to spend more, continuing to support unions that extort from the masses, they continue money printing, just to kick the can down the road. I certainly understand the politicians on both sides of the aisle, not wanting to be the guy who presided over the brutal period that we have to go through, to get this moving in the right direction. They surely will be one termers, because the corrective period is likely to be a big down, then flat, then back up in a correct fashion, which will take time. It may not be apparent things are moving in the right direction within a 4 year window of time. This will be one of those situations where history will view this person much more kindly many years later, than they are viewed at the time these events happen.

It is my belief that there is no such person on the horizon out there willing to be "that guy." As a result, here is what I think is going to happen for whatever it is worth. We are going to go through a long period of deflation, as they try to print money to keep it from happening, and the economic forces slowly overcome that artificial manipulation attempt. We are starting to see the signs of this now. In other words, a Japan type of situation. I would love to be wrong on this, but the political landscape being what it is, I see no other likely outcome.

Here is the view that I don't see voiced much other than by one person, Dick Morris. I don't really have any opinion on him one way or the other, but I have heard him express the same view I have on the subject of currencies.

If we were to peg all currencies to Gold, the whole world is going to come to a halt. There is a finite supply of Gold so essentially the world's GDP would have a ceiling if this was done. All countries would then be fighting for market share. Growth could not occur without new discoveries of stores of Gold. This would once again require the manipulation of something, our favorite past time. We would have to devalue everything that is existing to allow for new things. This is just completely impractical and why it won't ever and should never happen. Everyone argues that currencies have no real value they way they are currently structured. Says who? To me the measure of value is what you can get in exchange for something. Currencies are exchangeable for many things, so they obviously do have value. Why do they have to be tied to something physical? Our whole world is built on the system being the way that it is. Everyone has gotten so carried away with the fixes. This is really simple to fix, and it does not require the whole currency system to be overhauled. It requires less government who artificially pay off all the groups that keep them in power, that creates too much debt which is incurred to pay them off. Second, don't issue too much debt to those who can't pay it back. This means don't loan someone who makes 40k a year a million dollars to buy a house. It really is that simple.

It is interesting to me that all these eggheads who are brilliant always miss the practical ramifications of these laboratory theories. I have a sister with an IQ close to 170, and it is amazing how she at times is out of touch with the real world and has no common sense. This all reminds me of her at times. Also, and I have stated this before in here many times, if we are headed to a Mad Max Thunderdome type of situation like some predict, Gold may test that theory in the ads that it has never been worth zero. It might get very close to it. Food and Water are going to be what has value.

Anyway, as it pertains to the markets, I foresee the following. We are going to have another very sharp scary wash out period in the stock markets, and I wish I knew when it was coming. I see no way around it, but I don't think we will see it until the tough love stage is initiated. As a result, not coming any time soon. As long as the Fed can buy into these dips either by actually buying futures and stocks or by de facto doing so by injecting liquidity at certain times, they will be able to contain the declines.

Of course these are all my opinions and all of them could be dead wrong. Here is one thing I am 100% sure about, I don't want to know what the FED is really doing in secret. I am 100% sure it would make me sick.

Gold Bugs don't bother with the comments I will just block them.

Have a good holiday

IF YOU CAN'T BEAT EM THREATEN EM

Yesterday marked yet another landmark event in HOPE AND CHANGE. How many people thought change meant threatening Supreme Court Justices? Please if you are a liberal wake up and vote this catastrophe out. I have no idea if Romney is our savior, but for god sakes any of my dogs would be better than what we have now. Yesterday marked the second attempt to threaten a supreme court justice, and enough is enough. Everyone knows how the world works, they went to someone who is politically in such a strong position that no matter what he says, he will not lose his seat in the next election. They had him serve up another threat. It is mind boggling to me that a sitting president would do half the stuff this guy does.

HE IS JUST A DISGRACE

The above chart is that of the Blind Man's Bonds, and you can see it reversed the long to a short last night on the opening. The long from 148'02 was closed out at 147'27 for a 7/32 loss. As I had mentioned that was clearly not a trade I ever would have done regardless of what any system told me. This one makes a lot more sense, and would be one I would do, but I am not in it with real money. The PPT showed up yesterday right on schedule just when it looked like we had real trouble. As has become customary, all markets reversed when the ES buy programs came in. I got stopped out of my Beans last night at Wednesday's high, still make a decent profit, but half of what I had. I also exited Cocoa early in the morning on some minor weakness. I don't want to be short anything when the PPT is this active. What a strange world it is when you are trading Soybeans and Cocoa and worried about a rally because the stock market is rallying. There should be no correlation at all, but there is. It is what it is.

There are a few ETF's that I will be looking to buy if by chance we dip hard today which seems unlikely. Other than that I am now flat. I am thinking we bounce across the board here but I do not have buy signals anywhere.

Good Trading

ABOUT FACE

I am not sure who it was that I traded emails with on this, but one of my readers asked me if I was going to buy Facebook when it went public for quick money. My response was I would short it before I would buy it. Of course now that we see what has happened it is easy to brag. However, the reason I said that is that I know that IPO's are basically a 50/50 bet as to whether they rise or fall, so they are not trades I will ever do. Also, the stock market is in a down trend, which is also another reason not to be long anything. We know that for the most part, almost all stocks are following the overall market very closely now, so there is no reason to get overly bullish about any stock right now. Further, this company's financials do not support anywhere near the valuation this stock has even where it is now. This was a sucker bet from the get go.

This case is no different than anything else, do your research before putting money at risk. For those who are smitten by this company, you could look for some type of divergence in an oscillator now to buy it. That is not a play for me, I am sick of Facebook, and if it just went away I might throw a party. I have people come to my ranch, and they spend the whole time uploading photos right to their facebook pages, it is really annoying. I just want to say what Howard Stern's father said on America's got talent last night to this one dude who got booed off the stage. "I told you not to be stupid you moron." Even though it won't happen, I hope GM and Facebook both go to zero. Remember GM that wonderful turn around story that still owes the government 50 large?

With IPO's the best strategy is to get yourself in position with a broker to get some of the shares before they go public and sell them on the opening day. Unfortunately that is an insiders game and small investors can't ever get into that position typically.

I have not been showing as many of my trades lately as I used to, so here is another one in addition to the Cocoa trade I showed yesterday, Soybeans. I have not mentioned this one in advance for no particular reason. You can see where I got short, the Genesis program shows where the entries and stops are resting on the screen. Although there is more to the trade than this, in essence this was just a break down, then sell the bounce when I thought the up momentum of the bounce had exhausted itself. I use specific rules for these types of things, but I am not going to get into all of them today. You can see where my target for this trade is resting. Will we get there? Who knows, and perhaps I will be stopped out or take profits in some other fashion before we reach that. At the moment the plan is to hold for that target.

The Bond system trade is starting to look like it might wind up working out after all, but I still stand by my view that it is a trade I would have filtered for the reasons I stated yesterday. You had to ride this down close to where the stop was, so it has been a lousy trade up to this point. One thing to keep in mind with systems is all trades are the same. You really should not view this as a lousy trade or a good trade, it is just another trade that it spit out. My editorial comments really should be ignored. Just because I am the creator, does not mean I should get emotional over my son. The entry was 148'02 so any open greater than that is an exit.

One thing to keep in mind here is that trading a run like this is difficult, so the fact that the system has not done very well here is not really a problem. I don't know of any approach other than a moving average crossover, that would have caught a big part of this.

The equity markets are in a tough spot here, my short term things are just not quite at the sell again mode, but they are close. I have seen some big picture Elliot Wave counts that seem to be of the type that are pretty clear as opposed to those that have two possibilities. If they are correct and I have no idea if they are, the stock market over the next couple of years is going to absolutely crumble. If you have any interest in that surf the web, I am sure you can find them.

Good Trading

USING YOUR NOGGEN

This current trade with the Bond System is an example of why I don't like trading systems anymore. I have drawn in just a basic regression channel here. You can see the long entry was indicated well outside of the channel on the high side. The best and worst thing about trading systems is the same, they are dumb. When we lose confidence in making good decisions it is an easy thing to want to run to something that makes the decisions for you. This takes us off the hook for being wrong. It does take off pressure, trading mechanically. However, I still maintain that the best traders trade using discretion, and I will never return to completely mechanical trading. I am trying to find ways right now to make certain things more mechanical but the final arbiter is always going to be me deciding when to click the mouse.

In this case I saw this when the trade was indicated and knew I would never take a buy at a spot like that no matter what anyone or anything told me. Had it been a sell, I would have done this trade. This does not mean it can't be a win, it is just very low odds that a buy at that level of price extension, requires a very unusual market condition to make it successful. I want to focus on low hanging fruit, this ain't it!

Since this trade appears headed for a loss, the net performance of the system is terrible so far. This is exactly why I was so cautious with this. I have seen so many systems crash, I wish I had a dollar for every one of them. Assuming this trade does turn out to be a loss, it is still within normal drawdown parameters so it is not time to write it off yet. Had I been doing this as a service, I would have filtered this trade for the above reasons anyway. Some times you have to use your head a little bit and make certain decisions. I would never allow a system trade to push me into a trade like this where I "know" that it is likely to be a loss.

One trade I mentioned yesterday that filled today, was Cocoa.

This is a crazy market so it could fly up or down a huge amount at any time. You can see the entry on the screen and the initial target. You never know if you will reach targets and most of the time you don't, but you still have to have a plan.

It appears to me now that the ES and Copper are sells tomorrow if they break down and Silver and Gold are sells in a couple of days potentially.

That is all for now.

BUILD AROUND THE CANCER?

Sports always present great analogies for life for some reason and yesterday was no different. As I watched the last Lakers game I will ever watch as long as Kobe Bryant plays for them, one thing became painfully clear. They are going to be sub par for a very long time going forward now. Once again he single handedly threw away a game in the last two minutes. He not only is not the best closer, I would argue he might on some levels actually be the worst player to have on the floor in the league in the last two minutes unless you are way behind and hoping for some miracle. I watched one possession after another where he waved off the pick and roll leaving the team mate setting the pick standing out of the play and went 1 on 2 throwing up a horrible shot and missing, as his team mates all stood by watching.

This guy is a cancer at this point

Here is the problem. All the rumors are that they will make a trade to build around him. They need to get rid of him. No matter who they bring in, he will do the same stuff at the end of the games, and the results will be the same. I just cannot understand why people are not talking about this, it could not be more obvious? People wonder why the big men disappear at the end of the games? He won't pass them the frickin ball that is why. Why would you build around the person who is causing you to lose in the end?

Here is what we can learn from this

I am in the process of changing how I do my stock trading. I have been for awhile now and have shared some of the things I have been doing here that have not been any good. The key to any strategy is that at it's core it has to have an edge, an advantage in the game. Once you have identified an advantage, you can best determine how to exploit it. In the above case of the Lakers, opponents have a clear edge in close games against the Lakers, because they know what Kobe will do. All they have to do is double team him because they know he will not pass the ball. As a result, they have a very good advantage to work from. As it pertains to the stock market, we have a similar condition in place now. We know there is a historically high correlation among asset groups. As a result we know if the ES is rallying, we don't want to be shorting stocks, we need to be buying them. Of course there are exceptions, there are companies that can and do implode irrespective of the overall market. However, the number of situations like this is decreasing steadily. I cannot tell you how many good looking stock shorts I have had over the last few years that went to hell just because the overall market was so incredibly strong.

The edge is now simply trading individual stocks in the overall direction of the market. You might ask why not just trade the indexes? The answer is you should, but you need to trade both. At times the indexes are completely controlled by the FED and they just go and go and go, giving no pullbacks for entries. They cannot control all the individual stocks, so there are opportunities there as individual stocks pullback while the FED is buying ES futures day after day. The rising tide lifts all the boats, and we have seen that more and more and more. They have alluded in speeches that at some point they would consider buying stocks if need be, but have not done so yet as far as we know. The challenge then becomes, how to best do this?

From my studies I have found a couple of things I will share here. First, do not buy or sell breakouts of highs or lows in individual stocks. There are so many games being played at these points. I have never believed in stop running, but there is something going on now I can't explain. You can watch a stock with a narrow bid ask spread and good volume trading, then place a stop a long ways away, and the market moves right to it for a trade them moves back into that narrow spread again. This has happened to me many times, and should be illegal. When I go to the brokerage firms for help I get shined on every time. You need to pick your spots and enter at the market when your conditions are met. This way the markets cannot game your entries. You may even want to buy or sell on limits. If it comes to exiting and the price moves to where you want to get out and take a loss, wait a few minutes to make sure the stock is not being gamed just to fill one stop. Once it trades multiple times in the zone, you can get out.

The second thing I have found is that there is such a large percentage of gap opens now due to the overnight futures moves, that you have to be very careful about chasing these openings. Generally I want the price to trade through the area I want to enter. Some gaps just take off and never look back, it is not a perfect world. Third, do not have resting stops in place when the market opens. I wait a few minutes to make sure volume is there and only then if I feel I have to have a stop in I place it. In general, I do not use stops anymore for exits with stocks.

The third thing I will share is that I have established a Trading List. This is a list of stocks that have smooth enough bar patterns, so they don't look like a pork belly chart. ETF's in general do not make this list, they are just gap havens for the most part. They require a different trading approach than regular stocks. There are some that are not as prone to gaps and I do trade some of those. There are so many ETF's that feature huge volume yet the majority of the net moves are on gaps, so you really need to handle that differently. I have mentioned that Larry Connors books put forth good strategies for this. They do have one big problem, the losses can be huge on these strategies, which is why I do not use them. They hit at a very high percentage, but when you get a market decline like this you get absolutely smoked.

I scroll through the trading list to look for trades. I do miss some that are good, but at some point you can only look at so many things each day. You can of course setup custom screens to filter for certain setups and I do have many of those. Those are the only thoughts I have on stock trading at the moment. I am still working on a few ideas and how to best implement them. I need a 5 year old now to look at the ideas to make them simpler, any one have one handy?

The only new trade I am looking at today is Cocoa on the short side if it breaks. It does not appear that it will at the moment, but you never know. There also was a Bond buy at the open with the trading system, which based on how extended that market is appears to be lousy. However, systems are systems, so all the trades are the same. Opinions are not programmed into them. For disclosure purposes, I am not in that trade I am just monitoring them as they are spit out. I am not 100% convinced that any system will hold up nowadays, so I want to watch this one for awhile before I commit any money to it.

I know the spacing in the first sentence is messed up but blogger won't let me fix it so it gets posted as it is. Sometimes there are gremlins with this.

Good luck this week

ONE SCHOOL OF THOUGHT

Here is the chart I posted the other day updated to how it looks now. You can see how extremely over sold we have gotten and are deeply into a buy zone. By the numbers if you test buying into declines above the 200 day moving average in the stock market, the results are very good if you take quick short term over bought exits. The problem with those approaches are times just like this where we just fall off a cliff, but are still above the 200 day. If you are buying into this you take it in the shorts big time. By the numbers with these approaches you should be long looking for the bounce.

You can see how similar we look now to the last big decline we had, and how far the blue line went into the buy zone before we finally rallied. I have tried trading like this and it is not for me because even though you hit trades at a very high rate, the losses when they come can be staggering and wipe out many wins all at once. I prefer to look to other triggers when I see us get this deep into a buy zone, for ways to get in where I am not catching a falling knife. Unfortunately, the way the markets have traded in recent times, we get one V top or bottom after another, and the price just reverses on a dime. It is very difficult to catch these lows.

The one big difference between the current state of things and the last time we had this many consecutive bars outside of the green band, is that we are above the 200 day moving average shown in red. At least by the numbers, that should make this a decent probability buying zone. You could say we should wait for the line to curl back down before going in and that is correct. However, for those who trade intra-day charts, you might be able to find a good pattern for a reversal and front run the daily turn around. I will not be doing that. I do think we will see the 200 day be defended by the PPT if we approach it. As I have said before, the only thing that has happened positively in the last 3 years with Barry is the stock market has risen. If they let that erode, he has no chance of re-election. It is hard to believe he is not down by 30 points in the polls to me. He is clearly the biggest mistake in the history of the world, and it is surprising most people don't seem to realize that. Maybe his opponent is just weak?

Net net here, I am looking for a bounce due to how oversold we are here in this model. Gold has risen nicely after that false break of the major support. This is why I said a close below that low was needed. It was an obvious short term trap spot. The powers that be know how critical that low is, and they are defending it with all they have right now. It remains to be seen if it will hold or not. If it does life is still good in Gold Bug land. If it does not the ruse is going to be exposed. Must see TV I guess at this juncture.

I did get a copy of the video of my interview in Chicago. For some unknown reason it looks very strange and I am debating linking it here. Here is the problem. I am not vain, I am beyond that point in life. You can see my mug shot in the blog, that is what I look like for better or worse. For some reason the video makes it appear that I have bad skin, and my skin is pretty much perfect. I guess it is lighting, but there are all kinds of ruts in my face that I don't have in real life. It almost makes me look like I had severe acne when I was younger, and I had none. I can't quite figure out why it looks like this other than there were lights that were so bright I couldn't even see anyone in the background, and maybe somehow that has caused this. I am just unsure that I want strangers whom I have never met to see this and have a false impression of my appearance. My first thought when I saw it was thank god I am smart because I am ugly now. I guess on some level it is vanity since I had many a door opened for me in my life due to my appearance, from modeling to other sorts of things. Based on this video, it is a face for radio now apparently. It is like a twilight zone episode basically. I went to sleep attractive and woke up a monster!

I am going to have a few friends look at it who know I have good skin and tell me what they think. If they say it is ok I will post it here. I have told them about it and they all have said that makes no sense because you have smooth skin, so maybe I am overreacting.

Good Trading

WHY CAN'T WE HANDLE THE TRUTH?

This thought occurred to me as I was watching yet another Ball Hog Episode from Kobe Bryant that cost his team a game they had to win. I am not much of a Lakers fan anymore due to him. I used to love the Lakers, but I am so tired of this guy and I don't know why people don't have the nerve to call him what he is? He must have been 0 for 80 in the last few minutes of that game, never getting a shot even close to going while his big men were dominating the game. He refused to feed them the ball in the paint, and as a result, their season went down the tubes. I hope they lose the next two at home get and get swept now which is a good probability. The reason I bring this up is that as traders letting our ego get in the way of doing the right thing is a big problem.

Most of the time trading is a great profession, but at times when you hit bad stretches often ego is in the way and the cause of the problem. At times for me I just don't see what is so plain to see for anyone else who does not have my bias, what I am doing is just wrong. It is so easy to see watching a basketball game, yet even the commentators were talking about how great the one shot Kobe made was, instead of how bad the numerous ones he missed were.

At times when we get on winning streaks we get sloppy since it seems so easy with the money just flowing in the door like a river. You think you have some wiggle room to try something you normally would not do. The recent example is obviously me with that trading service. I just thought no matter how it turned out I could at the worst overcome it's losses with my own wins. What an ego based decision that was. Trading is a tough profession, you cannot ever get that lax, EVER. We know we can't stay in the zone for extended periods of time, but what we can do is stay disciplined enough to minimize the damage. Here is an example of an actual market where I have not let me ego get in the way, and have at times been wrong in my views on it, GOLD.

I was premature in my calls for the top by quite a bit, far more than would qualify for even horse shoes or hand grenades. I knew it was a bubble, it could not have been more obvious and we are seeing the bubble pop now finally. I looked like an idiot for being at least a year off on the top. I did not let me ego get in the way. I took buy signals when they came along and made some money. Had I let my ego make the calls I never would have done that. It is one thing to have an opinion but what you do with that opinion is another matter. I also knew China was a bubble and I pointed that out here getting that one almost dead on in terms of the top. Now we are seeing stories come out about the implosion that is beginning to happen there. I did not let my ego steer me wrong there, I traded according to what the charts said, not what I thought. In that case they happened to line up so it was ok.

You just have to admit when you are wrong, it is not a big deal. I am wrong all the time on things, how can I allow that to hang me up? You just need to be right more than your are wrong on average to succeed doing this. Do not hang on to one idea too long waiting to be proven correct. I heard a GOLD bug the other day say the correction is 12%, he is just lying to support his view that nothing has really happened. There is no chart you can show me where the correction is not way more than that. His ego is getting in the way of his vision of what should be right in front of him and plain to see. However, the critical level I have pointed out still has held on a closing basis, so he is hanging on by a thread. I am neutral on GOLD in the short term here, we are really over sold here, yet the trend is down. The only thing to do is wait for a bounce to see if a short sets up. I will not let my ego get in the way here.

I don't have any really clear big picture views on the stock market as a whole here. I think we are in a down phase which is pretty obvious. I am not foreseeing any huge crash, but what we have to keep in mind is that surprises happen in the direction of the trends typically, so I can't rule that out. There are so many bad things happening economically that anything can happen. It does seem that the emperor ( Barry ) is gradually getting exposed. As much as that pleases me, it is something that also worries me. I am not sure we really want to know the truth behind his ascension and all of the things in his background that are not good. It might cause a bigger problem than we already have. We do not need instability at the top right now, but we do need him ousted in November without a doubt. The payoff attempt to Reverend Wright etc.. I almost don't want to know what other crap he has pulled, they all do this stuff. I already know he is a clown, do I really need to know how much of a clown he is?

No trade in the Bond System again today. When we move like this just one way every day, this system does not generate many signals. You are damned if you do and damned if you don't on runs like this. My chart I showed the other day indicating a short term buy zone for the ES has gone further into the zone, so that tells me we are getting pretty over sold here. I wish I could dial that in to say buy on a exact day, but it just does not work like that.

Good Trading and kick your ego to the curb

SAW SOMETHING INTERESTING YESTERDAY

I admit to being fascinated by Elliot Wave Theory, always have been. What has turned me off to it has been how subjective it is when it comes to knowing what wave structure you are in at any given moment. This makes trading it very difficult. There is a program called advanced GET that automatically labels wave counts for you on the screen. This program has been out for a very long time, since the 90's from what I recall. My good friend I have mentioned at times in here, that jumps from one method to the next, showed me what he is currently studying yesterday, and it was interesting to me. There is some smart guy from India who has figured out a way to trade the wave mechanically. Of course it seems like everyone from India is smart doesn't it? As it turns out this approach is far from mechanical which I suspected, but it is decent from what I can gather.

First, here is the wave count that program applies to Gold, and I think it is hard to dispute that based on Elliot Waves, that this is the correct wave count. It currently shows we are in wave 3 down of what could well be a larger wave one. This count if correct, would call for a monstrous move down in GOLD. We did violate that crucial low last night, but are currently trading above that point now. In this theory wave 3's are longer than wave 1's so that means that this leg should go lower before completing the wave 3. It would then say we go sideways or bounce forming a wave 4, which then sets up the third down leg in the five leg sequence, which be definition has to exceed the low of wave 3. This tells us we are going lower here which ties in to my theory that once we exceed that key low on a closing basis, we could see a wipeout.

Elliot Wave theory does present a dilemma once that happens. Once the 5th wave is complete which could be as high as perhaps 1400, we then have to determine if that is 5 waves down completing something larger, or is just the beginning of a bigger down wave pattern. For the purposes of trading, that next determination is not relevant at this point. We would be looking down overall while at the same time looking for the 4th wave bounce to get short again. The next chart shows what appears to be the larger picture wave count, which does show we are in the 5th wave of wave 3. This is calling for dramatically lower prices, which does coincide with my observation that once that low went, we were headed for trouble.

It is amazing to me at this point that Silver has dropped 38% from the high and Gold 21%, yet we have barely heard a peep in the media about this.  It appears the media is in on this conspiracy also. For Bubbles to last this long, you have to have a lot of things going on to perpetuate the fraud. By definition everyone has to be looking one way. How would you like to have bought Silver at the high, paid the dealer markup which in some places is in excess of 30%, and now be down 38% on the spot price on top of the commission? There are some people who have lost almost 70% of their money in this and close to 50% on GOLD. Why isn't there a question about that or an investigation into that?

You can bet your sweet ....... there is going to be when Gold goes under $1000. The government seems to want to be involved in judging how much money people should make. How in the world can they justify the markups in this industry? The reality of it is that you as an investor are responsible. If you paid that much of a commission it is on you, it is not Barry's fault. This leads me to the next topic I want to touch on briefly, JPM. They have revealed that they took a 2B trading loss, and now apparently we have to regulate more?

Why can't it be that sometimes you just lose? Where is it written that every trade or investment needs to be guaranteed a positive return? They just made bad trades, it is what it is. Sometimes you lose! Why in the world does the government need to be involved at all with a corporations transactions as long as they are following the law? If they were trading cocaine I could see an interest being legitimate. If they just made bad bets and lost money, that is what capitalism used to look like.

Moral of the story, sometimes you just lose money. The second moral of the story is, the bubble appears to be on the verge of popping here if this low right here does not hold. By Wave theory, that low is not relevant at all, it is a well defined structure to move down now. That low is not pertinent to the wave count.

Good Trading

To QE3 or not to QE3 that is the question?

It is that time again, we are getting a stock market decline and the worlds largest long only hedge fund the FED, has it's finger on the trigger.

QE is designed to do just one thing and one thing only

Raise stock market prices so the President will get re-elected

Whatever long term ramifications these actions might have are not even considered. The main focus is power and control, plain and simple. Manipulating public opinion is all politics is at it's core. They want to get you to go along with the changes they want to make, so they throw you a bone here and there along the way.

The above chart shows the ES and we are drifting down here slowly, not doing too much damage. Underneath the price is a model I have created for buy and sell signals in the stock market. I have the black arrows marking the buy zones, the sell zones which are not marked are when the blue line is under the red line. There have not been many of those as you can see but there was a timely one at the high. If you think about it, the FED does not want to boost prices when they are already rallying, there is no political gain to be had there. They will launch this when prices are heading down and close to getting into some trouble. I think this will be soon, but not immediate. We need more of a crisis for them to save us from it. Yesterday I did not detail the California budget situation, and I will not get into more detail on this either. The bottom line is what I stated above in red, and we are in the zone where I expect this to happen again. It is just too good to be true to see Romney leading the polls, some be good sized margins. They know what there tools are to change that, and they will use them at the right times. They need to "save us" on last time to "prove" that what they are doing is the right path to go down.

I am not going to explain what the components of that graph are, it has taken me way too long to figure it out. I can assure you this, you will not figure it out so don't bother trying, it is very different from what anyone would think it might be. It does not matter, there is no magic elixir to any of this stuff. All you can do is try and find some things that give you an edge, and then try to take advantage of that edge as best you can. This model is a little rough in that at times it pinpoints things to the day and others it takes a week or two for the turns to come about. It is really nothing more than a "we have entered an area where a rally should take place soon."

There was no trade in the Blind Man's Bonds System for today.

Good Trading

ALWAYS BET ON BLACK

One of my favorite lines out of the movie Passenger 57

This will be the most humbling post I have ever done, but I hope people can learn something from the single biggest mistake I have ever made. I have been a decent trader for a while but I always am looking to improve, ALWAYS. You can't sit on your hands in anything that you do any more. Complacency breeds bad future results. I have had two mentors in my trading career, and I decided to sign up for a trading service from one of them thinking I might be able to fill a couple of holes I have in my techniques. Little did I know at the time that this would be the most costly mistake I ever made in my life. The lesson to be learned and hence the title of today's post, is bet on yourself not someone else.

I did mention that I had signed up for a trading service, and the results were very poor. What I was hoping to do was to learn through watching some trades for a few months, how one of my mentors was using one indicator that I at times struggle with. The trades started off poorly but I was still willing to stay with the trades for a while, but they just kept getting worse and worse. I mentioned the other day that you always have to have an uncle point in something and I was just not quite sure where mine was going to be. Once the trades started to overpower mine and lose more than I was making on mine, I was really struggling with my gut telling me to run for the hills, and my analytical side telling me to stay calm it will turn around.

I finally decided to bounce this whole thing off my wife the other day who knows nothing at all about trading, zero. Her response was, "you just went to Chicago and won an award for being one of the best traders in the world, why do you need someone else?" This was a question I could not answer. It did make me realize that I needed to get clear from this mess as quickly as I could, and get back to my own game again. The losses were having a very negative effect on my psyche because even though they were not my trades, they were from one of my teachers, and made me question what I was doing since I use the same tools. Even using some of the same tools, I have never had a streak anywhere near as bad as what he has had. I do not know what went wrong, but I bailed out finally and reset my head. Those trades did cost me quite a bit of money, and I am still in disbelief at how bad they were. I am fairly sure for those that stay with it if they have deep enough pockets, ultimately he will claw back. For me, I just can't stand the thought of losing money by anyone else's decisions other than my own.

I know I can trade profitably, I have for quite some time, and I am now relieved that terrible episode is over.

The reason I wanted to confess this is that I don't think if you are reading you should place blind faith in anyone when it comes to trading. Take your time, develop your approach and stick with it. Modify it as you go along if need be. After this terrible experience I have decided not to offer my Bond Trading System no matter how well it does, as a subscription service. If I ever came anywhere near doing the damage to people who trusted me that I just had done to me I could never forgive myself, and I won't allow it to even be a possibility. I will continue to show the trades live and readers can do what they will about it. This also does not mean you should not go to seminars. The challenge for anyone who excels at something is to teach someone else to do it as well. You need to take the material and make it your own.

I still have a lot of respect for this person, he is a better trader than I will ever be, he has just hit a rough period. Unfortunately it was very costly and untimely for subscribers.

As to the markets, lets look at a couple here.

Here is a chart that is now becoming very interesting. There are the largest group of trapped weak hands in this market that there has ever been in history. I have talked about this for quite some time in here, and we are now approaching the game changing price level. If the low marked on the chart to the left gets taken out on a closing basis, we will have the confirmation I have been talking about that the wipeout is on. We see Europe's troubles spilling over to the US markets, but my question is are they really Europe's troubles? There was a story in the paper here in San Diego the other day about the days deficit now up to $16 Billion, the solution? Tax hikes. The threat is that if the tax hikes are not approved by voters more cuts to schools have to happen. I say shut the damn schools. Why the hell is it that every time we are confronted with out of control spending we are threatened by things like this.

There comes a time in life where it becomes the right decision to stop being nice when the bully just won't respond to pleasant gestures. These jerkoffs will bring us all down to protect their entitlements, so we need to bring them down now. They refuse to cut anything, it is just absolutely beyond belief. If I were reading about this in a book I would not believe it could ever happen in the real world, yet it is happening. I remember as a teen ager I was playing golf with a friend of mine and a couple of big guys stepped on the tee right in front of us on the 6th hole and cut in front of us. At first I asked them if they would mind just waiting for us and playing behind us. The one guy made a snide remark. I then tool my driver that was in my hand, grabbed it like a baseball bat and went after him. He thought I was nuts and backed off and they drove off in their cart. Once we got to the 9th hole I went in to the pro shop and told them about what happened, they went and threw these two guys off the course. This was a private country club, not just some Muni course, so I was surprised I did not know them. It turned out the one guy I went after was a fairly well known guy. He was one of the starting linebackers for the Detroit Lions at the time.

The point is, I was nice first, then it was time not to be. Who knows he most likely would have kicked my ass since at that point I was thirteen years old, but my action had the desired effect even though it was not really thought through. I was a hockey player and a wrestler, I was not one to put up with much I did not like, and I was good a doing something about it. We all can do something about this right now, vote these psychos out of office.

The solution to our world financial crisis was to put all your money in Gold. That advice is still out there every time you turn around. The unfortunate aspect of this trade is that you always get weaker hands in as a trend goes on. People wait until something has gone up enough that it is "safe" to wade in. What inevitably happens is that once the price retreat begins, the late comers find themselves upside down by a good bit very quickly. Then comes the uncle point like what I described above with that trading service, where you just have to get out and protect what you have left. When we reach that point in Gold, which I think will be under that low, you could see a meltdown like nothing you have ever seen. This whole trade is a false premise, and once the BS stories get exposed, a vacuum normally follows. At some point someone of prominence will get a spot on a news show and show the charts that prove that Gold is not a reliable safe haven during a crisis, it has been a 50/50 bet in that regard.

In our world of bubbles, this one has been created by the powers that be, and it is about to pop. It is no different from any other bubble other than it has inflated further and longer than most. What is incredible shocking to me is how many people have bought into this BS story without so much as at least checking it out to see if there is an merit to it.

Are Bonds a bubble?

It could certainly be argued that Bonds are also a bubble. I did hear talk the other day of Bond Auctions with negative rates. It is hard to imagine being in a spot where you would tie up your money for years in something that guarantees you would lose money, but you did it to protect against losing more. Unfortunately as things are unraveling again here ( they never stopped unraveling other than the BS from the government ) people are beginning to see that there is no way out of this mess without pain.

The one thing that makes me unsure if this is a bubble is that this market is doing what it should do fundamentally in times of strife. It has been a consistent relationship unlike that of Gold, for Bonds to rally during economic crisis periods. It is fundamentally consistent whereas the Gold move is not. This is how I spot manipulations, are they inconsistent with fundamentals. Governments lower rates during crisis periods to stimulate, right or wrong. I suppose you could argue that this is a manipulation by governments, and perhaps it is. However, be that as it may, the relationship is consistent over time. Crisis periods, low rates. As a result, this is more a fundamentally driven move than a manipulation. Certainly from a pure appreciation stand point it has expanded a tremendous amount in percentage terms. Commodities are different, they tend to move up and down in cycles and look like and EKG. They rise or fall sharply, then revert to the mean sharply. Interest rates are a bit different than that.

I don't think we will see a big selloff in Bonds until the world economy improves legitimately. I am not talking about Barry's peeps manually changing the numbers to create the BS we see reported. I am talking about a real improvement.

For now it is must see TV in Gold to see if it holds down here. Life could still be ok for the Bugs if these levels hold. If they don't they are going to be like Benny Hill at the end of one his episodes running from the crowd.

The Bond trade from Friday was exited on last nights opening for 12/32's profit.

Good Trading

QUICKIE

Time is short today, but there was a Bond System buy as you can see triggered last night at 144'26 with the stop resting where it is shown on the screen. The exit on Sunday's opening would be any opening > 114'26. We will watch this live as it progresses and see what happens.

One other thing, My advisor Dr. Evil as advised me to answer the question asked about how much money I have made trading since I started?

ONE HUNDRED BILLION DOLLARS!!!!!!!!

AMERICAN IDOL

Here is the video of the awards ceremony at the CBOT. It is edited quite a bit and is not too great, the best shot of me is at the very end. It is funny when they refer to us as the American Idols of trading, very cheesy. It is better than nothing I guess is the summary remark to make.

There was a comment in a post yesterday by someone trying to dial in exact dollar amounts I make trading. I am just not comfortable revealing those types of things in an open forum like this. If I ever got back into having services and newsletters, I would be more forthcoming in these areas. However, I do have a couple of things that were publicly audited and they are referenced in my profile. I doubt there are any other free blogs that have even that proof that the publishers have had some success. If that is not sufficient I guess you should not read this. This above video one would think, showing me winning an award where real dollars were traded, would be sufficient.

I would love to have a bunch of markets to show trades in but I am in limbo here. I don't typically chase markets down to these levels, I wait for pullbacks which we appear to be getting today thus far, albeit small ones.

Michael made a comment about a possible stair step move down as opposed to the sharp ones we are used to seeing. This could happen, I just have nothing that I use that tells me in advance whether or not that will happen or not. In general, moves upward tend to stair step and downward moves tend to fall more sharply. If you look back at charts you constantly see that type of action.

This Sugar charts shows what is very typical in the way markets on average rise and fall. The rallies creep, the declines often fall sharply. Of course there are exceptions, Silver is creeping lower just like a fat man is standing on it right now. However, most of us are aware of these tendencies and it is probably why so many people like the short side more than the long side. You can make the money a lot faster when you catch the moves correctly.

I hope the video plays I have not tested it out to see if it works.

OVERDUE

16/18

GOLD

STOCKS

ETC

The topic of today applies to all of the items listed underneath it and I will cover them in order.

First, 16/18. This is something I have really been having trouble with and since this is essentially an expression of my inner monologue, it is time to get this one out in the open. I have been showing Bond trades live in here, even though there have not been many, from a system I use to trade them. The purpose of doing it was to give it a spin live before potentially offering it as a subscription service. It has been crappy so far, only generating 3 trades, two small wins and one loss that was larger than the two wins combined. It once again today had no trades. With any system there are periods like this so there is no point for concern about it yet. 

One of my mentors recently offered a service for trading that I signed up for. I was mostly hoping to see how he was using one tool of his I use that at times I struggle with interpreting, it is very subjective. This tool has made me a lot of money at times, so I did not want to walk away from it even though at other times it has given me fits. I thought I would be able to tell, since I think he uses it to trade, how he was resolving the dilemma's with it I was having. Incredibly at this point the service has lost on 16 of the last 18 trades, with another open trade about to get stopped out for a loss. This is mind boggling and something I have really struggled with. On one had you have one of the greatest traders of all time, who has made millions of dollars almost every year trading, on an incredible losing streak. All else being equal, you would think this would be the time to bet on him not walk away. However, with anything from a marriage to an illness, to many other things in life, you have to have an uncle point. There always has to be a point where the pain gets so severe you have to walk away and move on.

Generally using a moving average of equity is a good way of doing this. You wait for it to break then once it gets back above the average, you go back in. With systems at times when they break it they just completely go south and never come back. At other times you wind up exiting at the worst possible time on a draw down, and miss the good trades that bring it back in line. There is no perfect solution to this dilemma. In my case what I have done here is initially I only took these trades in one of my accounts, and with very small size, just one contract a piece. This has been a life saver. I was able to make more money in my own trades than what these were losing, so I was able to over come them. After this streak got to about 9 out of 10 losses, I started trading them in a second account looking for the reversion, still just one contract just in case it continued to go south like it has. Another good decision from the standpoint of the low risk. However, now it has gotten twice as bad, and I am unsure what to do with it. It is having a huge negative effect now, and it might be time to just admit it was a bad decision and get on with things kicking it to the curb. The only reason I have not done this is that I know over the course of a year this person rarely if ever has had a trading loss, and these are trades I think they are actually doing. The thinking was it will turn around at some point. At this point it has gotten so bad I am just not sure now.

Because all the markets move together, there are no trades separate from these setting up for me, so I find myself in a spot where I can't overcome them at the moment by trading separately. Net net I am not quite sure what to do on this, but thought I needed to get this out since it has really been troubling me now for a few weeks. It makes me very hesitant to offer this trading service live with Bonds even if the trades wind up working out. I am someone who really cares about others and I can't imagine how bad I would feel if something like this happened with something people were paying me for. I am sure I would change it to free until it became profitable, but at the same time as a system, I would never allow a streak to get this bad before the circuit breaker would hit and it would be stopped. Pretty much anything along the lines of 4 losses in a row is pull the plug time on a system like this.

Here is the worlds favorite market, GOLD. Once again everyone is saying put your money here for the impending disaster. That same video calling for something huge to happen in the next month or two is out there. Of course it has been out there for two years so at some point chicken little has sailed there one would think. What I have drawn in is what would be the bullish argument for this market. There is a nice inverse head and shoulders pattern forming here, with the right shoulder not yet established. We do have the COT picture looking the way we would want it to here, big buying by the commercials and big selling by the small specs. The problem is that price is not cooperating and it is free falling at the moment.

Most readers know that I think this market is doing to decline more than 50% bigger picture, and we may well have begun that move. One trick to using COT stuff is that at times when a trend changes, the commercials shift to the opposite side too soon and give false signals for a resumption of the old trend. I have never figured out a sure fire way of determining when that is happening and when it is not. Here we have to let price guide us. If we penetrate the low where I have the arrow, the game is over here for probably a decade or more, or at least a huge decline. If we hold above that level, then make higher short term lows, we can buy break outs from there and life could still be good here. We have to let price be our guide now. Fundamentally we appear to have a good setup for a buy. It remains to be seen if price will cooperate or not. I have this in the Overdue category more because of the big decline that I think is overdue than for the shorter term buy that appears to be setting up.

Here is basically the same chart I showed previously. The ES is setup for a decline and is months overdue for one. We know the FED and Barry don't want one and here is one thing I rarely hear mentioned but it very relevant. Earnings on Wall Street have been very good so bulls can point to that as to why the market is actually undervalued here. Just on the surface that is correct. However, if you were to strip out the effect that low interest rates have had on the balance sheets of companies, and put rates at a 10 year average, I would wager earnings would be terrible. The whole world is window dressed at this point, it is what it is.

At this point this pullback is just that, we have not broken any major support points. The problem with this move and with all manipulation moves, is they leave no logical support levels to buy against. This is what leads to these huge air pockets down we see time and time again. Look how far we have to fall to hit any meaningful support levels. It is 200 points down in the ES to where any real support should be lurking. I am hoping for a bounce here to short just about everything since most trends are declining now.

Once again, no trade in the Bond System today.

Good Trading