JAPANESE YEN ANALYSIS

I am down today because I decided to go back to legit titles to the articles and the traffic is falling off a cliff today to the blog. It is hard to accept for someone like me and even impossible to do, to grasp that deceiving headers on the internet is how you build a business. I guess mine were not really deceiving since I did talk about the topic but they were named specifically to target certain searches I thought might be happening. Now that my fun is over, there was a request for an analysis of the Yen yesterday so here we go.

First the obvious, we are in a down trend anyone can see that. We are seeing a lot of commercial buying in the COT report which is the red line on the chart. In blue is my new COT tool I call New Look. It is designed to move faster so that it does not always stay pegged on one side or the other of the grid against a trend. The biggest problem with COT stuff is hedgers and how they position themselves during strong trends. They are often against the trends for months at a time. You don't want to fall in love with trying to follow that as a guide for which side to trade. 

There are several instances where my new tool and the original are at odds with one another. I think the preponderance of the evidence looking at those suggests that my new tool is superior. Most recently both of them were together on the bullish side and we got a bounce of 4 or 5 days. When that bounce happened my new indicator immediately got out of the buy zone and started going toward the sell zone. This is how I want this tool to work and I am sure there are still more enhancements ahead that will make it work even better. However, for now going into today it was in neutral territory whereas the COT data was bullish. For today the COT stuff was wrong but you have to keep in mind this type of analysis is intended to pick larger moves not just a few days. As a result I don't consider either of them right or wrong at this point. The COT stuff is telling us to look for a rally here and that the next big move should be up. My new tool is not saying anything as of today, it is neutral.

If we look at a weekly chart the picture looks a bit better for bulls.

This chart shows we are getting into a price zone that in recent times has been very heavily supported by commercial buying. This is one good way to use COT data, look for major support points and where commercials have supported things in the past. From this standpoint it appears we are approaching a very good buy zone for a large move up. Also you can see in this time frame my indicator and the COT data marry up a bit better. I do like it when they agree which is where they are now and Small Specs are heavily short.

The Yen should be setting up a move coming to the upside.

I don't want people now going to a 75 tick chart and buying the Yen just because I said this was setting up for a buy. This is a fundamental setup and is in the process of developing. A further dip would be better but we don't always get perfection with this stuff.

The Newsletter may be a day late I am having some computer problems and having to email drafts to myself and edit them elsewhere then send back etc.. so it is taking longer than normal to complete.

Our trading services this month are mixed, we have a profit in Bonds and a loss in the Swing Service. I will report the results good bad and ugly, once the month ends.

Good Trading

STOCK RALLY - IS IT OVER?

This is not showing very well for some reason. What this is supposed to show is all the markets I was watching quotes on today. You can see at the time the ES is red and virtually every other market on the board was red except Bonds, Notes, the DX and Hogs. The first 3 are all inversely correlated and are flight to safety vehicles. Hogs are not part of the risk on risk off trade that dominates the markets right now. It was certainly no surprise that when the stock market staged that huge reversal today most of these other markets came along for the ride. There is no point in beating a dead horse any more, this is the world we are living in now so just live with it. Make sure you take into account that shorting the ES and shorting Copper or Gold or Crude or the currencies, is basically the same trade. Do not take a full position in all of them because if you do you are raising your risk per trade immensely. I am sure at some point in the future there will be a time when this will go back to normal, but it is going to be a while before that happens.

This is being caused by the Central Banks and they have already told us they intend to keep doing what they are doing for at least 3 more years or more. Hence, this is going to continue so take it into account in position sizing.

I do find it interesting that with the huge reversal the energies still closed down today. I did mention that I had shifted to more of a bearish stance in the energies a few days ago. The oscillator chart I showed in yesterday's post still looks the same. It is showing down movement even with an up close tomorrow. This still tells me there is some underlying weakness here even though the price is not showing it yet. The way the math works on those types of things cycling them back and forth, a double divergence will set up shortly if price keeps moving up. Does this mean you should short this? I am not short the ES and don't plan on shorting it tomorrow even though my short term momentum measures are telling me we should come down in the near term ( the next day or two ).

I think we are now into PPT land again so this is going to be dangerous. That reversal today was a big suspicious to say the least. Boehner essentially agrees to roll over and just let the dems run up the debt more and raise taxes and that causes a rally? Hmmmmm...... We are certainly seeing investigating things leads to anywhere but the truth so what is the point. When you have a criminal investigate himself how many indictments will come from that process? It is no matter I still don't see a sell pattern for entry here regardless of what was behind today's action. Go find someone who does not trade and they can tell you why it happened!

My take for tomorrow is the same as today, I am looking for some near term weakness. If by some outside chance today's low were to be taken out tomorrow that would be very very bearish. That is a huge long shot but I am just pointing that out.

Here is the Silver market at somewhat of an interesting juncture. We have followed the seasonal to an absolute "t" this year. I cannot recall the last time I saw a market follow a seasonal pattern this closely for this long, amazing. In the opposite corner we have the COT setup that could not be more bearish and we have had a trend shift in my bands to down. As a result we have a battle of the bands going on here. What would be ideal is for a dip to occur over the next couple of weeks and have the commercials buy it and everyone else sell it which would flip the COT picture and line it up with the seasonal. I think the stock market will determine whether or not that happens or not since these markets are tied at the hip now. However, this is one to watch.

I put a bullish post title today just so I would knock down the heavy traffic from the search engines my stock crash titles created. I am unsure what to do with the ES right now so I am doing nothing. Today was the largest traffic day I have ever had and that is sad when it was due to just putting a certain negative title in the post to see what happened. Things do look very dark right now but try and see the positives in life. If you look for trouble it will find you.

Good Trading

STOCK MARKET CRASH PART 3 - HAVING FUN!

The Internet is a funny animal, put a bad story in the head line and jack up your traffic over night. I know I have been burned enough times looking for Victoria Secret models and winding up with an article about the spotted owl and how endangered it is. Just putting crash in the title brings in the people looking for a bad story. Ironically they are getting to a spot that legitimately talks about the markets. I don't know why everyone thinks we always have to have a huge rally or a huge decline based on what they study.

When I talk to people it seems if their indicators or methods are bullish they think the market will explode and if they are bearish they think it will crash. Why can't it just be viewed as it will go up or it will go down? I think extreme thinking is what gets people into trouble in trading. I will admit I am the first guy who wants to catch a crash because when you time them right you get a huge windfall immediately. Rallies tend to stair step and unfold more slowly.

What I have for tomorrow is just some standard oscillator, not even one I use to trade. I have it on the chart just to show something. I have an up close projected in the price tomorrow and as you can see the oscillator is not turning up. This typically means we should have a down side bias for a day or two. There is nothing absolute in trading and neither is this concept. However, it does typically provide some insight into the next day or two when this situation is at hand. There are some indicators that work much better than others and I don't know if this one I just randomly picked is better or worse than the ones I actually use.

If it tells me the edge is to the down side I don't think it means the market will crash, I just think it means it is more likely on average to decline than to rally. If this turns out to be correct it should be a general bias across many markets to the down side due to how heavily correlated everything has become to the stock market. Let's see what happens. My apologies to those who tuned in here to find a gloom and doom forecast and actually got someone who really trades giving an honest appraisal of what he thought might happen.

I have read some non-traders who write about the markets pointing out the lack of volume on this bounce as a big negative. You can always tell when a writer does not actually put his own money at risk in trades when they talk about things like this. There was a time when I bought into the Edwards and Magee stuff about when light volume accompanied a price move it meant it would reverse and when heavy volume accompanied a price move it meant it would continue. It is only when you try to trade these ideas and lose money that you learn that they are not accurate predictors of price moves. I do not claim to be the wizard of oz I am far from that. However, I would much rather listen to someone who actually trades even if he loses than some of these paper champions who just write about doing it.

Here is a chart of the SPY with this supposed volume theory fully exposed as bogus. If you look at all the examples in this chart it is almost rare to see this theory right anywhere! If people who write these things actually traded real money they would know this relationship does not exist. More often than not a rise in price with volume accompanying it was a great selling spot not a buying opportunity. Also declines on lighter volume tended to keep going, again the opposite of what people write about. I read the lightest volume day in some time accompanied the holiday and that was very bearish. I challenge anyone to show me a consistent chart pattern that supports that theory. It can be correct on a one off basis of course, but you can see on the chart above this theory simply is hogwash.

ARGHH this kind of thing frustrates me

Lets look for a decline the next day or two and then see how things look. I have not mentioned PFG much lately because the story has jumped the shark. There seems to be almost nothing happening at all and I guess just now they are contemplating starting a bank investigation. Good grief, what the hell have they been doing for the millions they have made? I will tell you, running the clock. That is what attorneys do and how they get paid. Screw the victims and joke about it at the club over tea at 3 pm. I originally thought the goal was just to get the whole $24 Million that was in PFG's bank account and now I think they are going for a larger target than that. I predict that will hit the over and dip into whatever other money they have found giving us less and less in the process of stalling. Guess what, if one of the attorney's involved happens to read this I could give a ..... It is time someone had the nerve to publicly call you out for what you are. I will take the heat for saying what needs to be said. I am not one to go quietly when I have been wronged and I never will be.

I think it is pretty obvious since that $24 Million has not been mentioned for months that it is either already gone or is in the process of being taken by the attorney's. It should have been ours and it is ours you skunks! I read today in the web site there was a 6th motion filed to stop paying lease payments to Pitney Bowes and a few other vendors because it does not benefit the estate. Why on God's green earth did that require 6 motions to be ruled upon? 

Good Trading

STOCK MARKET CRASH? HAS THE TREND CHANGED?

Stock Crash - is it coming or not? 

Trading is like following a trail, you have to stick to the proper course. If you look at the shadow in this picture you can see my wife who is in front of me making sure I am staying on the trail looking back at me and taking a picture which of course was destined for Facebook! We were on trails in the mountains just off our ranch this past weekend when she took this picture and it reminded me of how you have to stay focused on what is in front of you and not what is behind you. This is what I was doing as I was riding our largest horse who is not generally cooperative even though he looks mellow in this still shot. His cooperation did deteriorate as our trail ride went on.

The key in trading is to know when the trail you are on is leading into a bad place and to get off of it. I think the current trail we have been on for the last several months is leading us into a bad place. I am spending more time this month than I typically will in the Newsletter going over all the things I watch to gauge the overall health of the stock market. I did find it interesting that when I put the words stock crash into the title of a blog post it instantly generated more traffic via search engines. I just wish this were not the case. There is no reason to go through life just looking for the next negative event like so many people do. Yes we will have crashes but we will also have spectacular rallies like we have had the last 3 years. The goal should be to establish a neutral stance and play both sides, which is easier said than done.

Here is the daily chart with the ES and my COT Synthetic indicator. It has been working well recently missing just one trade over on the left where it was quite a bit early. If you turn off price and just look at the indicator this would show a sell signal. We also have the Vix sell signal that I showed in here in yesterday's post. What troubles me is the very sharp nature of the upward move we have had. In general terms we have a down trend with a sharp retracement in the price with the Vix supporting it. This should be a decent sell signal.

The one problem we have is the time of year this is happening. It has been a pretty regular pattern to see sharp rallies going into the end of the year from this time zone. This makes me a bit hesitant to just blindly sell into this amount of strength. Aggressive traders could just have at it here but I am not short in this market yet and I am not shorting it today. I would like to see a break of something significant to confirm we are heading back down and I don't see anything that jumps out at me as a point that would represent that yet.

We do have that November 30th date still lurking out there in front of us where the mystery chart tells us a top should happen so I am watching closely.

Good Trading

STOCK MARKET DECLINE, WHEN AND WHERE?

The Stock Market is going to crash they say head for the hills! Negative sells as we all know and I am sure the Google searches for stock crash outnumber the searches for stock rallies by a huge margin. If I just wrote about a crash every day I probably could quadruple my traffic to my site. After being wrong most of the time I could run out and say see I told you so when one finally happened.

The chart above has a couple of different Presidential cycles on it and they show completely different forecasts. The top one which is a shorter term cycle has been pretty good until going off the reservation recently. One of the hardest things about cycles is grasping the concept that although they are designed to predict highs and lows what they really predict is turning points. When we look at one like this we see that for the most part it has picked highs and lows in sync with how the cycle shows it. However, when we get into a phase like this recent situation where price was going straight up while the forecast was predicting straight down, we cannot expect it to pick a low where the forecast shows it. This would be illogical. How could you expect it to pick a significant low after price had gone up that much. As a result in this case I would argue that it picked that high pretty accurately.

As much as we want to program everything so tightly so we will know exactly what to do, when to do it and will never be wrong, that is not the nature of the markets and not the nature of life either. We have to develop the best tools we can and then use them the best way we know how. I do think Cycles have value but they are not the end all. When we get something like that EURO chart I have showed in here so often, that picks dead on one turn after another, we do need to give it more credence until it gets out of sync.

Here is the Vix with the Bollinger Bands and also another band that is my own concoction that requires a larger move to reach. There is one thing to zero in on here, the 50 Period Moving Average. You can see 3 bad sell signals on the left but notice that we were clearly in a strong up trend with prices above the 50 day Moving Average. In the current situation we are below the 50 day Moving Average where the sell signal is occurring. This makes this a better signal.

I don't think for one minute that anyone should just run out and short this market yet. We are in the sweet spot for year end rallies and have seen some humdingers when we have sold off hard into this time of the year like this. However, we do have our November 30 date looming here. It is time to start looking for a way into the short side.

CRUDE OIL CHECKUP TIME

Crude Oil has been rallying since I made that call for it to do so, albeit it a small rally. If we look at the weekly chart here the COT stuff continues to be bullish. However, most of the rest of the stuff is not. Here is what is really bothering me about the tepid rally in this market, it is really lagging the ES. These two markets have been very closely correlated for a long time now so this rally in the ES should be sparking more strength in Crude. You can also see the seasonal is very strongly down at this time of the year. It has been off this year at several points that I have marked. However, now we are following it pretty closely once again. The Oscillator I have in the middle is not telling us a thing at this point. The price trend is still decidedly down here. In summary, I am leaning now back to the short side if and only if these last few weeks lows are taken out. They may hold and we may fly higher, but if they go I think we could fall pretty sharply here.

Our November 30 date is looming here. If the ES happens to start to head back down at that time lookout below in Crude.

Segregated Funds

Here is a link to another Seg funds mishap:

http://www.reuters.com/article/2012/11/21/cantor-cftc-idUSL1E8ML3FJ20121121

Let's just be honest folks there is no such thing as Segregated Funds. At some point you just have to call BS on things. If you are not willing to have more than a passing interest in the safety of your money at a commodities firm you should pull it out now and stop trading. The segregation supposedly being this magical sacrosanct feature of commodities firms is a sham. It is up to you to segregate your money. You either need to take your balances way down and move money in and out constantly, or have it at a place where they sweep it into an equity account that is covered by FDIC or SPIC insurance. If you are not doing either one of these you are at risk.

I guess if you have so much money that you don't care if someone steals it you are in a different position than most of us. PFG was a life changing event for me that will take years to recover from and it is something I will never forget even for a single day. When I see a story like this one above, it just serves to remind me that firms are playing with this money on a daily basis breaking laws. Here is the biggest problem with the system.

FCM's have some of their money in the "segregated account."  This is required by the regulations! In other words they are ordered to mix money by the government. The reason for that is that they are responsible for meeting margin calls of the seg holders so if a big loss happens they have to cover it. As a result they have to keep some of their money in the segregated account. Let me ask readers this, is the money really segregated with this being a requisite of operation? 

HELL NO!

Furthermore, this requirement gives them access to the client money since they have free access to the account. How many drug addicts do you know that if they were allowed access to a heroin bank would walk into it each day and not leave with some of the heroine? The point is if you give criminals access to money and just tell them well we are really going to be mad if you take the money, and then tighten the regulation to say we are really really going to be mad if you take the money, do you think that is going to have any impact? This story is from the beginning of the year so in all fairness it is not after they stepped up to we will really really really be mad if you take the money rule.

What about this as a law. If you are caught misappropriating segregated funds you will within 30 days be put into an Octagon against a seasoned MMA professional where there will be no referee and a full presidential pardon in place for anything that might happen? Or perhaps like China, your hands will be cut off in public?

I just keep going back to the MF Global situation where upper upper management went to their staff and solicited proposals on how to use the segregated money for company use. Remember this was just one year ago and there are no new rules that have been officially adopted. They are supposedly monitoring electronically bank account balances for seg money but understand one thing readers.

In the case of MF Global, this would have done nothing to prevent that exact same thing from happening again. Let's say a company like that has a big margin call and they use seg money to meet it and the trade goes south in a day. Ladies and Gentleman that money is GONE. There is someone on the other side of the trade who is not going to be subject to a clawback in a situation like that. The electronic monitoring would potentially discover this right away but it would not matter one bit. That money will already be gone never to be seen again and you are going to be out of luck. This is not a matter of FCM's adopting policies internally to better police things. That will not stop someone from ignoring them like we have seen happen repeatedly. There are regulations in place, but they do not get to the very heart of what needs to be done to put an end to this.

The money has to be in a place where they physically cannot get to it no matter what they do. There should be no mixing company money with seg money. The money the FCM is required to have to cover the margin should be in a different account. There should be no company money in a segregated account, not one single penny. If there is a margin call they can meet it from a company account. This is just so stupid it is mind boggling. It is as if this is setup this way to deliberately provide a way to steal money. I am sure they would argue that to change the whole structure would cause huge problems. Oh really? Would it cause bigger problems than having regular people having their lives ruined by these thefts?

Just put an insurance vehicle in place and quit ........ing us off. Until they do this buyer beware. You have had more than ample warnings, the next theft is on you if you fail to take the correct precautions. I apologize for ranting on this subject but this is so very important and I just don't sense the average person is as worried about this as they should be. I think we have a difficult period coming economically and if I am right about that other FCM's will do down. If other FCM's go down I can promise you they are going to take clients with them in the process. I am more sure of this than I am that I will have a losing trade next year somewhere. There is one decent sized FCM I saw recently that had only 2 Million dollars of cash and hundreds of millions of Segregated money. That is razor thin. One huge incorrect bet in the S&P if we get a sharp sell off and they are going to be insolvent on the spot. Where to you think they will go to get money to stay afloat? Hmm, that is a tough one isn't it? Is there a 3 year old who could not answer that question?

Take this holiday to spent some time developing a plan of how you plan to best protect your money in your trading accounts. When Monday comes implement it. If I am wrong and everything is just fine going forward you have lost nothing doing this. If I am right I may have saved your financial life by suggesting this. That above article should tell you, in that case half the money was gone at one point, HALF! I think most people would consider that firm to be pretty safe but is it? That money was obviously being used to do something when it was taken out of the segregated account, most likely to run the company business as we have seen in these other cases. If that firm had happened to go down during that period and your money was there half of it would never been seen again. You would have a 50% loss on your hands like what happened to us at PFG. We are going to likely wind up at about that amount.

I am sorry to keep bringing this up but my conscience is telling me to keep being a champion of this cause. The one last thing I suggest is to have your money at a place that is a public company, has decent financial reports, and decent ratings. If they go down there should at least be some assets to be sold to help make you whole on shortfalls. This was the case with MF, they had a lot of assets. The sale of those assets brought in a lot of money to be distributed and that is why MF clients are getting pretty close to all of their money back. PFG was a smaller private company that had almost no assets.

We are flat at this point sitting this one out today. I had the stop too close in the Swiss trade but the good news is my methods still picked a nice move I just messed it up with the management of the trade.

Have a nice weekend

THANKSGIVING WEEK TRADING AND A PROBLEM NOW TO DEAL WITH

Holiday trading should you do it?

Before I get to that I want to go through a recent trade in the Swing Service that is going to change how we are placing the stops and why it is going to change. This is RB and you can see where we went long and exited. I am going to go through the logic of this trade and why we put the stop where we did and what we are going to have to do going forward.

I mentioned in here recently that I was bullish on the energies and as a result I was looking to get long in one of them. I showed Crude at the time as an example of something I thought was setting up for a rally potentially. Since I judged Crude to be weaker on a comparative basis than RB was I decided to go long in RB instead. You can see where we got filled and things were looking great right from the get go in this trade, WERE! I typically trail stops back a few bars, under pivots, or under/over what I consider to be break out bars. The logic being that price should not come back to these points if the trade is correct. I still believe that is the correct way to place stops. However, there has been a bit of a learning curve in the service regarding stops.

One of the things that is clearly stated in the web site is as follows:

These rates are for individual investors only. The services are solely for your own use. You are legally prohibited under any circumstances, from sharing the signals with anyone else. We have made the fees very reasonable in price, so that they represent very good value. Any business wishing to subscribe, must contact us to discuss a rate. 

The reason we stated this is that we want to limit the number of contracts being traded by our group at the prices we state so we do not create fills just by having large blocks of orders sitting in certain places. We have now seen on 4 different occasions in just a month and a half of this service being offered, very suspicious stop fills. We have seen them in Bonds, Hogs, RB and now the Swiss. In all of these cases the market has run quickly to where our orders were and immediately reversed. In the case of Bonds we were filled on the exact low tick a couple of weeks ago.

I did send out a message after our Hogs trade asking that if someone is violating the agreement to please stop doing so because they were hurting not only themselves but the rest of us. I am making these trades also. Alas, that has not worked. Until I determine who is doing this we are going to have to modify where we are placing the stops to really make the market prove us wrong to get us out of a trade. I hope this does not come across as being a cry baby but in my personal trading I cannot ever recall a time of having 4 trades do this is such close proximity to one another. I suppose there is always the outside chance of a change in the markets but I don't think so. This is just way too much of a coincidence in my judgement.

If you look at the above trade it was close to a break even trade. I personally lost a couple hundred bucks due to the roll of December into January so this is not a huge loss but as I type this the trade is about $2400 above in terms of equity were we still in the trade from we were taken out. If by chance you are a broker trading these or someone who is giving the trades away to someone else please consider what you are doing and whether or not this is worth it. Subscribers to the service have seen as of this morning how we are going to make some changes in how we enter trades with the one we are chasing after today. I am not going to sit by and let this happen any more. Also, you can see in the above chart where we are going to have to keep the stops now. They are going to have to be further back for a while longer than I like to hold them, to try and prevent this stop hunting from happening. I wanted to keep this small so this did not happen and this is also why there is a limit to how many people we are going to take into this program.

I am a bit ticked off now but mostly at myself. I suspected this might happen and I should have been keeping the stops further back knowing the possibility of this existed so this is my fault.

The reason in the above example the stop was moved up to where it was is the bar prior was judged by me to be a breakout bar and we should not have looked back at that point. As I look at that now I think I made a mistake in judgement there. This really was not a huge break out thrust bar and we should have held the stop further back in and still been in. Oh trading....... it can be difficult and frustrating at times. I can tell you knowing others have lost in a trade bothers me a lot more than I loss I personally take and I was in this trade as well. This is why I do the trades in the services. I think if someone offers something like this and they do not do the trades themselves it is not ethical. I got burned too. We also took a loss in the Bond System yesterday so it was not a good day for us overall. Losses do happen though that is one thing I am 100% sure of.

THANKSGIVING TRADING

The results above show buying the ES on the open the day before Thanksgiving and exiting the first profitable open. You can see the results for this are terrible only 2 of the last 10 have been winners and there was one disproportionately large win that skewed the total into a net gain. Overall this is not a strategy that has a seasonal bias. That does not mean we can't or won't rally for other reasons. It just means there is not a holiday bias to the long side. The next summary is buying 2 days after the Thanksgiving holiday. I ran buying day 1 through day 5 following the holiday and this was the best of them. I still don't consider this to be a tradeable edge. Net net, there is not a seasonal edge in either direction at Thanksgiving during the last 10 years.

I do expect us to move up over the near term in the stock indexes and we have to keep in mind that date of November 30. That is the Euro mystery chart date established for a significant high to be put in. It does not mean that will be the highest high of the year it just tells us prices should come down starting around that date. I for one am very interested to see if that turning point works because it ties in to other things I am looking at that tell me to short this bounce at some point for a trade to hold for a little bit.

Good trading and sorry for the lousy trades this week. We had the right trades I think but the stops were in the wrong place.

S & P 500 RALLY - OOPS THERE IT IS

Stock Market Rally - read all about it. I am sure some people will come in and say see we called it, a bottom. I will not be among those. I had been calling for a bounce as readers know but I was early, so as far as I am concerned I was wrong. We are getting the bounce now but I see it as a setup for an upcoming sell signal. The sharper and further this market rallies the better I like the sell signal. We got extremely over sold here and although timing a long down here is very tough, you can use oscillators effectively to exit shorts after moves like this. You can see the significant divergence in the one oscillator I have displayed above. I would not use this to buy but would use it to exit a short.

It is so enticing to study and try to find ways of buying these types of spike lows, please don't bother doing that. I can tell you as someone who has spent years trying to find a way of consistently buying these types of moves that it is impossible to time them precisely time and time again. IMPOSSIBLE. If anyone tells you they are doing it ask to see their account statements that prove they are doing it.

The way I trade once I get really sharp bars like this going, I prefer not to fade them until the momentum of them slows down some. I do miss some sharp abrupt trend resumption entries due to this but I have not been able to find a consistent way of trading these without seeing the momentum of them slow down first. We are nowhere near a slow down after today so there is nothing for me in the indexes for tomorrow.

Here is the SMH and how it has done during this huge two day turn around.

You can see that clearly this had been holding up much better than the ES above. We had barely made a new low in price compared to the ES having that huge drop. We then had much more divergence in this oscillator as well. We need to break out above this channel that we are in the middle of to signal that all is fine. I am looking for a sell signal up against that channel. Whether that will materialize or not it is too soon to tell. For now I think the long side is where to be on a short term basis and then we will see if we slow down after a bounce or just keep rolling.

This is all I have for tonight - Good Trading

FISCAL CLIFF

As we enter the new era of Socialism we are faced with what the negotiations here over the Fiscal Cliff really mean. There is so much talk about who will do what if certain things happen. You have to set aside all the rhetoric both from the controlling party and the others. I said others because now I think there is only one political party in this country. Competing with them are factions of groups with opposing views that collectively comprise too small of an amount of the electorate to do anything as we just saw. The dissenters claim raising taxes will hurt job growth and the controlling party says we can just spend spend spend with no budget and just take the money from the wealthy people to pay for it all. The latter is an European model and what the forecast above tells us is that the fabulous model they have used has led to us being able to predict our ebbs and flows from what the big players in the Euro are doing.

I don't see how this endless spending and redistribution strategy can work but we are without question now going to find out since it is here. I know once I get back on my feet I won't be willing to live somewhere where they take 70% of my money in taxes. This is without a doubt where California is headed and why I did not form my company in this state. I will move out of places that have that feature to places that do not even if it means leaving the US. If we look at the chart above I think we are seeing a somewhat similar pattern developing in the two different spots marked.

In the first instance we had a top and the forecast called for us to go down a little bit before we did. There was an initial dip and then a rally while the forecast was continuing down. That led to a high test and a big rollover. I think we are seeing the first of that 3 leg sequence now. We have the forecast showing down and now if we rally back up against that declining forecast and test the high, we could have a Jim dandy of a sell signal. One of the things about the forecast that has to jump out at you is that overall it shows we are doing down for quite some time going forward. Ironically this is one of the main reasons I knew BO was going to win the election. I could not see how the market would go down for this long with Romney in the white house. Therefore I knew the news event triggering this would have to be a BO victory. One of the things about news items is that they do cause market moves. However, it is just impossible to predict in advance what they will be. We are better off with technical models and just letting the news events be anticipated by them as we did here.

We are at a time of the year where a rally should happen and I am hoping it will to set up this sell entry better. At this very moment the trend is still up from a long term stand point but as I have mentioned, my band trend determination method has turned down for the Nasdaq now which normally leads the other stock indexes. More specific than the Naz is the SMH which is the semiconductor proxy. Chips are the core of everything in life now and the SMH has for years now been a very good leading indicator of where the market as a whole is going. Look at the next two charts and you will see some great examples including the recent one.

Here are two great examples of where just watching the SMH alone gave us a great advance notice of a large move in the markets as a whole. The 2009 low had the SMH not making a new low while the ES did. Even if we did not know how to guess how much futures buying the Fed was going to do there to move the market up, it did not matter. We would have known to look to the long side.

Here in the above example we had the top the was just recently formed and you can see the huge negative divergence with the SMH. There also was a bullish divergence at the low over on the left side of the chart that I did not mark. I think at this point this is pretty clear. We need to look to sell rallies now.

PFG/VISION

I have had a few email exchanges with people about the equity sweep option. You can open an equity account at Vision they are licensed for both equities and futures. Once that is set up you can move money back and forth between a futures and equities account. However, there is an asterisk to this. They are not setup to automatically move the money back and forth. You will have to determine an amount to keep in futures and an amount in equities to start. Let's take an example of a $50,000 account. Let's say you leave $20,000 for margin in your futures account and $30,000 in your equities account. If you get into a margin call situation you can meet it by moving money out of equities into your futures account. Once you get out of the trade you can move it back. You do this via emails with customer service. You will have to keep track of the margin you are using.

They do not really want people moving money back and forth all the time due to the cost of administering this. Offering this is an accommodation and not a general practice with them. I do not know if in the future if there is enough demand if they will offer it for a charge of some kind. TD Ameritrade has an automatic function where they calculate the requirements and automatically do this for you every day. This is a superior option for safety. Net net from a insurance against theft basis, TD is the best of anyone. There is another firm whose name I won't mention who also has this same option but the fills are so bad with them I don't even consider them. I do believe from a safety stand point they may be as safe as TD Ameritrade. I will never use them so I will not go any further into discussing them.

Did you hear that? Just listen closely, there is a cash register ringing in the law firms involved in PFG, they just made another million.

Good Trading this week

ANOTHER RECESSION COMING?

I wondered both to myself and out loud how the government was going to walk back into the real employment numbers after the election was over, NOW WE KNOW. It has been the posture of this disadminstration to lie and when they can't lie blame everything on something or someone else.... enter SANDY. They have a long ways to go in order to let the data show the real numbers so they have to walk the numbers up. I did not expect them to just let it fly just in one report. However we know key players have said never let a crisis go to waste. Isn't that great, hope for crisis periods and use them to your advantage. Folks this is what you voted for MORE OF THIS so enjoy it. There are consequences to voting and the phrase of be careful what you wish for has never rang more true than it is right at this very moment.

So many people stick their heads in the sand and just assume everything will be okay in the end and usually that turns out to be the case. However, usually is not always. Does anyone reading this really think it is a coincidence that the largest change in a very long time, many years, in this report at this date is merely a coincidence? It is my view now, and has been for a few years, that the recession never ended. The government can doctor all the numbers they want, it cannot take the place of what you experience just day in day out in your every day lives. I know in the other business interests I have outside of trading I have never seen the activity as poor as it is right now, NEVER. This could be California since our economy has absolutely no chance of any kind at all of ever recovering with what is going on here politically. That is where my interests are so I could be unduly influenced by local things. However, I don't see when I start reading about national trends that there is anything gang busters going on anywhere.

I will be fun to watch the charade unfold as to how they get the real numbers on unemployment back up to where they really are just like the Libya fiasco is. Hiring investigators to investigate yourself is always one of my favorite ploys. If I go through a bad trading period I am going to try that and see what happens. Will my subs buy my lies and give me more time while the investigation of myself unfolds over several months? ( LOL - I am laughing right now just typing this ).

The FISCAL CLIFF and stocks.........

There is so much talk about what will happen with the stock market as a result of this stuff being bandied about over the tax rates and spending cuts etc.. 

DO NOT PAY ATTENTION TO THIS GARBAGE!

The whole point of using technical analysis to trade is to get you away from this type of thinking. When you use technical analysis and study patterns in things over time, what you are getting in the results is news events already being taken into account. If you run a strategy for example that tests what happens when Bonds spike up over the last 20 years, those spikes already include news events and all sorts of other extraneous variables. You cannot in the moment then when using a historically proven strategy, over ride the signals because you think "it is different this time." You don't know how many of the prior times in your data that it felt "different this time" at the moment of the entries. Do not study one thing then throw it all away for some arbitrary in the moment opinion.

I am very opinionated but I do not trade with those opinions. Does the Fiscal Cliff have real economic consequences? Yes it does but we never know how markets will react to news so let the charts tell you what to do. If I had my way I would let the whole house of cards come tumbling down just to teach people what a mistake they just made. It will only be through that much pain that behaviors will be changed. Alas, that won't happen and it will likely be more of the same.

The markets are telling us now a couple of things. First, they don't like the prospects of BO for 4 more years. That could not be more obvious. However, this does not mean we can't or won't have big rallies, we will. Second, the trend is on the verge of changing and already has in some of the indexes, the why does not matter. Third, Bonds are staying very strong which should keep a floor under any decline for the time being.

This is a monthly chart of the DOW. I labeled something on here that I have not covered here in quite some time, Megaphone patterns. I have labeled one that was in play at the low of 2009. When we get these expansion types of things of both highs and lows they can lead to huge market reversals. If we were able to get above point 4 it would be a dynamite sell setup for a big decline. For the time being we are still in a pretty clearly defined channel going upward and are heading down into the support zone. If you are a long term player there is not any reason to panic and this dip is a buying opportunity. For us shorter term players who like to maneuver in and out constantly, we wind up surfing the channels like this. Typically we are short going into the bottom of them and long going into the tops. We then look for reversals at the channels.

We are not down to the channel and I don't see any short term buy signals yet so I am not bottom picking. Trying to buy into these declines can be quite lucrative if you catch them right, but trying to pick the low print when we are moving down like this is very difficult to do and I advise against it. Wait for a turn and buy the first pullback.

The megaphone pattern does work on all time frames so study it I think it will be worth your time. However, forget the 75 tick charts, nothing less than 5 minute charts are worth trading no matter what the method you use, the activity is just too random.

Have a great weekend

GOLD FUTURES HEADED FOR A TUMBLE?

This is actually a chart of the Silver Market but it looks basically the same as Gold. It also looks basically the same as the ES or DJIA. At the bottom I have the COT data which as far as I can tell is not being tampered with like the stock futures data so it should be reliable. We have several bearish things going on here and also one unusual development.

First, we have the Commercials still heavily short even after this decline. A normal pattern would have buying starting at this point. We also have my COT New Look proxy of the COT which has now reached the sell zone. We also have the Larry Williams commercial proxy having reached the sell zone. The gang is all here. On top of all of that we now have the Sentiment index up into overbought zone which is also a sell signal.

What is going on that is somewhat unusual is that the Large Specs are still heavily long. They typically trade on a scale in scale out basis so normally when a market goes down like this for a few months you see their position start to go down with it. They are typically the trend drivers or accelerators of trends. What is not unusual is for them to be an almost mirror image of the Commercials, that is the normal pattern. Here is a more normal pattern in the Large Specs positions.

You can see here the Large Spec long rose in conjunction with the price, then fell accordingly when price declined. Often 20 and 40 day highs or lows are critical points for them to pile in or pile out of something. Keep in mind these are large position traders so they don't care if the ES drops .75 on a one minute chart like a scalper does. They are like submarines they move slowly and try to capture large moves. You just can't go in and out running a large fund all at once and even if you could you would not want to. It is a different trading approach than short term trading. However, watching them can give us a heads up that can be helpful in short term trading. In general we don't want to fight what these players are doing.

What does all of this mean?

When I look back at prior occurrences of this pattern the market has tended to go down and the Large Specs have tended to "catch up." The above chart is just one such prior instance that to me is similar to what we are looking at here. The market had been coming down with the Large Specs still being long and they finally capitulated and when they did they drove price down sharply. What I think is going on here is funds hanging onto longs a bit too long and they will start exiting them soon if price does not hold here. As a result, my interpretation of this is that we are going down here and Gold as well.

Good Trading

S & P FUTURES UPCOMING SELL SIGNAL

I have been talking about a bounce in the stock market and thus far we have not gotten one we have mostly gone sideways for the last few days. Now we are drifting down into the area where the VIX is saying sell if we go much lower. It is said that sometimes the best signals are failed signals in the opposite direction. In this case a failed buy signal marked on the chart could be construed to make the sell signal coming better. I do not have any idea if that old axiom has any validity. To me a failed signal is just that a failed signal. I don't think it has anything to do with the next signal that comes along. Often a failed signal can be a sign that market conditions have changed but we never know that until quite some time down the road from here.

What would make a sell signal really interesting to me now would be for us to rally a little or even sharply but for a brief time. After that the Vix should drift down into the bands for a sell signal. At that point we would likely be toward the end of the month and right into the EURO chart sell zone time frame. The sell bands are a ways above now so I would like to see us get up to them to enter a position type of trade. If we fail short of that level the short trade for me will be a short term trade.

BONDS

What to do with the Bond Market?

So many people are eager to short the Bond Market due to the general consensus that inflation has to be coming with all the money printing the government is doing. As per my usual stance I am not in agreement with this argument. The general problem that I see and have been stating this over and over in here, is we are battling deflationary pressures. The FED is doing what they are doing to prop things up not to try to stop them from going up. If you took out all the stimulus they have injected into the economy we would have a massive deflation wave going on right now. We would also have stocks dancing around 5000 - 6000 basis the Dow. Now that the FED stated today that they are going to keep rates low into 2016 it is hard to imagine how we could have a huge rise in interest rates while they are buying so much of our bond supply.

However, with all of that opinion aside I will simply just watch the trend. If I see it change I will get short regardless of any economic view I might have. For now the trend is still solidly up and at the moment there is no sign of that changing any time soon. I do not see any imminent trades in Bonds right here.

Most markets are in the mode where they need to bounce to set things up. I did blow a trade in Soybeans recently. I wish I had a good reason why I missed it but I don't other than I just blew it. I wish I had at least called it out in here and I did not even do that. Hang on a minute... uh.. umm, no I sold the exact high and bought the exact low on a 30 tick chart 41 times in a row come to my seminar!

JUST KIDDING!

Good Trading

STOCK CRASH.... ARE WE ON THE VERGE?

Stock Market crash so many are calling, are they right? I don't think so. We do have a down trend on the daily chart there is no doubt about that. Also we are into the weekly support zone for a buy, there is no doubt about that. It is never an easy call to make no matter what various "experts" may tell you. I have checked out some of my competition on the web just to see what they are doing and came across one place where I am familiar with the people who run it. I think they are good traders so I wanted to see what they were up to. After digging into it there is an indicator they sell for a pretty stiff price and it supposedly is 55% accurate in the markets that it works well in.

The purpose of this is not to slam anyone else I do not believe in that. Trading is a tough business and we all need to help pick each other up when we go through bad periods. I have no doubt that the minute our trading services go through a tough period people will leave, it is the nature of the beast. I find most people are looking for the quick buck and no matter what I tell anyone, when losses occur exits will happen The reason I go into this is that here are these other folks who are good traders and the most precious indicator only works a little over half the time in the markets it works best in. Is this bad? NO.

That is plenty of an edge to make money trading as long as your money management is good. As to whether that is good enough to pay for that is another matter. I would not get too hung up on the percentage accuracy that is more ego than anything else. Getting back to the matter at hand here, COT analysis is probably only about that accurate or possibly even less until you get the hang of it. It will get you looking the wrong way often until you get the art of working with it. It has led me astray more than once believe me. When we get into declines like this often the pattern will be for the commercials and proxies for them to move into the buy zone. This does not mean we instantly go in and buy. We need to see some type of trend change action to support what is a somewhat bullish COT picture here. I don't see anything that could serve as this for Tuesday since we are just stair stepping down. We have not made a higher short term low yet.

As I pointed out the other day the commercials have not actually bought this market at all only the proxies have. It is impossible to know how the Fed shenanigans are classified in this market so that is where the proxies become more valuable. Since they are designed to give us a daily read of what we think the commercials are doing, it should help when the numbers are likely being gamed here. As a result I pay little attention to the straight COT data in this market.

Net net here, we are in a down trend but have some fundamental stuff that tells us to look for potential longs. We have had the BO sell off now so we could stabilize here. There is less of a sense of urgency for the FED to stop this slide since the election is over and they won. They still will perform the PPT function but it is not going to be as much on a day trading basis as what we have seen in recent years. If we do happen to start falling hard we will likely see them surface. I don't have anything in the way of divergences here in any of my proprietary tools so we could keep drifting down but I don't think we are going to see a crash. I am hoping for a rally to get short at the end of this month to the end of December. I want to be short come the new year but want a retracement entry.

Here is a market that I think has a shot at rallying, Crude Oil.

There are a couple of problems here. First this market is tied at the hip to the stock market and has been for a long time now. You can tell from looking at the charts they are almost identical. Since we don't have an imminent stock rally we don't have the obvious catalyst we need here. We also have the seasonal pattern being followed very closely here which is another impediment to a rally here. I think seasonals are much more important when the markets are moving in sync with them then when they are not and a magical date suddenly arrives where we are supposed to turn.

What we do have here is the COT data showing some buying with the big boys and bearish sentiment. We have the makings of a bottom here. If for some reason this starts to rise in advance of the stock market it will likely get a big kick up from any stock market stabilization.  This is one to put on the watch list.

PFG Update

There was a conference call with the CCC that I sat in on today and here is the summary of it. The matter of Forex from a legal stand point is as I represented in here. The law is fairly clear here and the CCC guys stated as much. Due to this clarity they have not filed any suits as a result thinking there is not much point to it. The law for bankruptcy and the paperwork that was filled out and signed when accounts were opened, clearly state the money is not segregated. As a result it is not provided the protection in bankruptcy that segregated accounts are. Forex holders as a result are general creditors and not preferred creditors. An argument can be made that they should be at the front of the general creditors line and one is being made. It seems that is the likely outcome. The problem with that is that there are not enough assets to satisfy the preferred creditors. This would mean that until the segregated account holders and any other preferred creditors are fully satisfied, general creditors will not see any money. This is a bad prognosis but it is what the law provides. Again there is always the chance a judge will ignore the law since we see that all the time.

Time lines seem to be quite a bit out in the future. I cannot for the life of me understand why in the world this is taking so long. The whole system is so corrupt I suppose that is the answer. There also does not seem to be any time line on when decisions on Forex will be made or when any other distribution of the money we know is there now will be made. It also appears they have not even begun to investigate any possible culpability on behalf of the banks. I also cannot for the life of me understand why nothing has been done in that regard. What in the world have they been doing this whole time? I hope their golf games are good they must be working on them and not this case. So it appears no more money for anyone until next year. In the end it appears the end game for segregated holders is probably in the 50 - 60% range. Anything beyond that will be dependent on law suits against the banks and or any other entity that has some assets that might be tied to this mess. Proceeds from that if they come will be years from now so don't hold your breath on that. 

Plan on a 50% hit net and move on. Take your fraud tax loss write off this year if it is appropriate for your individual situation.

Here is one other point I have to make. It turns out in all of the accounts transferred to Vision that I am the only one who has insisted on an equity account sweep, THE ONLY ONE IN 14,000. This is insane. Has everyone lost their mind? Does anyone remember PFG or MF Global? Has anyone ever heard of either of them?

How in the world could you have an account at an FCM and not insist on some type of insurance? It is now officially on you if your money gets stolen. You have seen one atrocious theft then one that followed that was worse, yet you do nothing to safeguard your money in the wake of them?

AYE CARUMBA!