ES TRADING SYSTEM

Here are the trades thus far this year in the ES Trading system I have mentioned. In terms of full disclosure I missed two of the trades when I was back in Michigan moving my father into the retirement home and dealing with all of that. As a result my account trading this only is down a few hundred bucks so far where the system itself is ahead having generated 7 trades with 6 being winners. I always say that when trading a system you have to take all the trades or this can happen. Unfortunately for me with my situation with my Dad I was too distracted to deal with this while I was there.

Interestingly enough it generated 4 sells and 3 worked in the midst of this monster rally, go figure. However, you can see that trying to sell something like this is futile. Like in the Star Trek movies with the Borg, resistance is futile. I noticed today some Johnny come lately trading experts are pointing out what I did 2 years ago in this very blog, trading the short side on POMO days is a bad idea. I don't know if you can search my blog by key words or not, but if you can you can find the old posts where I discussed this.

POMO stands for planned open market operations ( I think ). In any event it is the days they inject the money to move the stock market higher as we have learned and they have basically admitted to. It stands to reason that you would not want to short the market on days where this is happening. It might be worth studying all of these days going back a few years and drawing your own conclusions. I suspect they would be along the same lines, the FED is not giving the money to the banks for them to take short positions. I don't know whether or not you can blindly buy on these days and make money or not, but I doubt you can make money on the short side.

Tomorrow we get the NFP ( No Frickin Probability it is true report ). If you want to watch it and try and guess your way through the reaction and how to trade it be my guest, that is too much brain damage for me. The shocker this week is that they allowed a report to show negative GDP in the fourth quarter to come out. How in the world did that happen? Of course the response is we are recovering and it is W's fault of course, LOL! These kids are funny at this point.

I would love to point out a bunch of things for tomorrow, but I don't see much to be honest. I do have some signals in the mechanical ES system but not much else. Once there are enough live trades in the ES system to evaluate, I will begin discussing that more in here. For now it is just getting started. There is one new trade possibility in the trading service for those getting those signals so I will refrain from discussing that one in here.

Wasendorf got a 50 year sentence today, who cares. I would prefer he be let go so I could go have a nice "visit" with him. Alas, I won't get that chance but it does not hurt to fantasize sometimes. Someone else would get to him before me anyway, jail is the safest place for him and too bad he gets that safety. He should be thankful it saved him a lot of pain.

The Newsletter will be out tomorrow.

Have a great weekend

CHINA THE SAVIOR

As my cousin Vinny said, let me ax you dis, does this really look like the stock market of the new world leader, the one who is going to take over the US? The one with GDP expanding supposedly at 8 - 10%? Perhaps the stock traders know of all the fraud that is present and how potentially bogus this whole charade over there is?

I can assure you if the US were experiencing 8 - 10% GDP growth our stock market would sure not look like this one does. Here in the US it is big news when there is an accounting scandal at a billion dollar corporation, in China it is so accepted that it is a yawn when they take place. I found this story below at Yahoo Finance the other day about Caterpillar and it is just another one of a ton of stories just like it.

http://finance.yahoo.com/news/caterpillar-earnings-fall-big-china-125903258.html

So many pundits claim that China is the new world leader and also is the reason Gold will soar because of their demand for it. However, this is a place that could poof like the road runner in the cartoons tomorrow. It is my recommendation that before anyone gets too carried away with the bullish China stories that you study what is going on over there. If after doing so you still buy the hype then buyer beware. I have drawn out what would happen if we were to play out the last scenario at the prior seasonal peak the same way. We have followed the seasonal pattern incredibly closely recently. Readers know my feeling on this, stay with it until it comes off the rails.

WHAT IF THEY ARE WRONG?

As the world writes off the Bond Market as being finished, look at what is going on there currently. There is a huge divergence in the POIV accumulation distribution indicator. Look at how much higher the purple line is than where the price is. This is also coming at a time when price is in a crucial support area. This is similar to what I stated about Gold back in July and August of last year when it approached critical support. It needed to hold or look out below, it held. We did not have this level of divergence at that time but the price situation is somewhat similar. What if they are wrong?

Good Trading

FUNDAMENTALS DON'T MATTER RIGHT NOW

There was a comment in yesterday's thread about the divergence between the stock market and this statistic. You could put almost any stat on the board and the discussion would be the same, they don't matter. There was a time in our history where financial markets were actually linked to some degree to the general economic picture, then slowly the "They can't handle the truth" generation developed. It was a subtle development and took place over a couple of decades.

It started with the formation of the PPT which was done basically by Ronald Reagan. I have no problem with the basic concept of the PPT but like so many things absolute power corrupts absolutely and this is no different. The idea that the government should step in during a crisis period to stabilize the economy is not a bad idea. However, once Alan "Hall Pass" Greenspan took over, he decided it was best to inflate bubbles so that people would constantly have a booming sector to put their money into to increase their wealth. Of course I call him Hall Pass because nobody has ever gotten a bigger hall pass in this whole mess than this guy who started it all.

What was lost in the idea of manipulating things to rotate bubbles, is the long term consequences of doing it. The PPT has gotten way too much into micro-managing the stock market now in an attempt to once again create a bubble where people can make money back to make up for being out of a job or having an upside down mortgage. It is a shame that we don't have an objective media any more and the only place you can go to get the truth is onto the internet in the blog world. It is pretty clear based on how the Benghazi situation has played out that no semblance of truth is likely to come from our big brother on anything they don't feel like talking about. As a result, the FED activities will never be opened completely to the public. Just the fact that there are traders at the FED should tell you all you need to know.

What does this have to do with anything?

As a result of all of these shenanigans, the traditional barometers for things are not of any use in trying to determine where the stock market will go. The NFP report, GDP, Business Inventories, Retail Sales, kick it all to the curb. It has been decided in a back room that we have no access to, that we can't take care of ourselves so someone needs to do it for us. The plan is apparently to make everyone think life is good solely through a high DOW price. The problem with this for most people is that they are not participating in this spectacular rally from 6500 because many have pulled money out of retirement accounts to stop from losing their homes due to job losses.

In an attempt to further the process, the doctoring of the NFP report has gotten so complex, that even people homing for both sides of the political process are scratching their heads at the numbers. All of these things are an attempt to obscure reality with a hope that reality will magically get better and then gradually the false numbers can be unwound by letting the real numbers catch up to the fake ones. So far it is not happening which is why these large divergences such as with the report above are not having any effect on the stock market.

One of the things we have to do as traders is adapt to what is happening at the moment, this is no different. The FED is essentially the commercial element in the stock market, so monitoring what they are doing is going to be the best way of determining what is likely coming. They will not be able to stop every decline, volume is their enemy. Since the volume has been light for the most part for the whole rally starting in 2009, they have been able to contain most of the declines pretty easily. If we ever got to a huge hedge fund liquidation point like in 2008, it would be too much volume for them to overcome. I do think we will have something like that take place, but the timing of it is not clear to me at the moment.

For now forget the government reports, they don't mean much.

Good Trading

CRUDE OIL TO TUMBLE?

Crude Oil is interesting to me right now and you can see why in the chart above. The net COT Commercial position is drifting down toward the level it reached right before the last two big declines. What I find even more bearish than that is that it is taking place at a much lower level in price that the last two times.

Typically you see the commercials defend certain price levels at similar levels in their net positions. What we have happening here is a willingness on their part to take up large positions at lower and lower prices. This should be a bearish situation. It is also quite surprising to see how weak Crude has become in relation to the Bernanke 500 ( formerly known as the S&P 500 before he took over trading it ). 

We are likely heading to new all time highs in the DOW yet Crude is languishing far far behind, SURPRISING. The decoupling is finally happening after several years of incredibly tight inter market movements. We are also seeing the dollar decouple from the stock market which is also refreshing. If we stay decoupled it will provide far more trading opportunities that are not so tightly tied to the stock market directly and every 5 minute bar on an ES chart.

Here is a trade we just completed in the trading service in Gold. I may have exited this one too early but there were 3 nice days in a row down and we had a nice gain, so using some discretion I decided to exit the trade. There is something about 3 day bursts that although it does not test out mechanically, seems to be a good spot to exit short term trades.

Not all the trades work out this well but the point in showing this one is that if you take small losses then catch a few of these, that is really all you need to do to move ahead nicely. I think the markets are quite choppy right now so I am exiting trades more quickly than normal. Once I perceive we are in more of a trending environment, I will look to hold things longer. For now there is no sense letting a nice profit like this get away. We do have another trade going right now that is lousy at the moment and a third that is a small gain. Such is the life of a trader.

PFG

There was a particularly offensive item in the court docket today for the PFG case, a suit against the former Mrs.Wasendorf. The suit against here is just and seemingly a slam dunk. She was paid almost $3 Million out of the customer account as part of a divorce settlement and refuses to give the money back. How could you possibly sit there knowing some people's lives have been wrecked and the money you have is part of that and was given to you illegally, and refuse to return it. She is disgusting and I hope the worst things possible happen to her. I don't blame her for the PFG collapse she likely had no idea, but I do blame her for refusing to return money she knows is client money. They have found a direct paper trail on the withdrawal, it is not even a matter of opinion.

I probably offend some people with comments like this but I could care less. I am still incredibly angry over this and it is a good thing for Wasendorf he is in the protection of a jail. As I build my accounts back up now I realize what a steep long road I have to make back what was stolen. I am making nice progress but the starting amount I have is so small compared to what I had. When I look at the authorities doing nothing to prevent another occurrence like this from happening I cannot tell you how angry it makes me.

I think it is inevitable now that we are heading to new all time highs so don't get too in live with shorting the ES. That time will come but it is not here yet.

Sorry about the spacing in the one paragraph sometimes Blogger does this where it just won't cooperate with the justification of some paragraphs. I will be glad to be rid of it once my new site is up ( probably another month they are going very slow ).

Good Trading

APPLE DEBACLE, WHAT CAN BE LEARNED FROM IT?

It is always easy after the fact to say "see I told you so." The people that are doing that with Apple are probably those that missed the huge run up and feel this is their redemption. How could we have reasonably seen this coming? The best big picture tools for determining when something is completely unsustainable in my opinion are Standard Deviations. There are all sorts of way of concocting them to display on your screen. I don't believe there is any magic setting to use, it is a judgement call.

In this case you can see we cleared the band on the high side and stayed above for about a month, then wham the reversion started. One thing to keep in mind with this is that this company is not broken, they have $137 Billion in cash ( no typo ). They have revolutionized a segment of tech and are still the leader. There are competitors closing in on them, which always happens when you are the leader of anything. There are "experts" talking about the valuation still being cheap. I always want to see account statements or some proof that these experts are profitable traders, which never seems to be available. I think using earnings valuations is dangerous, you can engineer them to fit your bias.

This is an example of why trading the story is a big mistake to make. How do you determine with any reasonable degree of accuracy, when the story is no longer any good? It is impossible unless you just want to rely on being lucky or always being the smartest guy in the room. If that is your approach you had better be the one, since only one person can be right or lucky. I prefer more mechanical approaches. I thought the Apple story was tired long before the top so I would have been way early on this one had I approached things on that basis.

One thing I was obsessed with when I began studying the markets 30 years ago was picking tops and bottoms. Your eye gets drawn to them when looking back in time. When you look at this chart the top just jumps out at you now that we know what happened. Even after 30 years if I tried to pick tops and bottoms with all that I have learned, I would not be successful. The best approach is to monitor when something gets extended, then once it turns play the first retracement. In this case it took place mid October. It is true chicks at cocktail parties may not remember you called the exact high, but your bank account will be more attractive to them which is really the point anyway of being a braggert.

The reverse logic now is in place. The price is over done to the down side now as per the bands, so a possible turn back up could be in the works. There is no hint of it yet, but once it breaks back upward a first retracement pull back entry will likely develop. What is disconcerting about this is that it has occurred in the midst of a monster overall stock market rally. I don't like trading against the big picture tide in general, so I am not sure about the long that should be coming in the next few months. It could occur during an overall market decline, but there is plenty of time to worry about that.

What can be learned from this is that once a price gets this over extended in either direction, the story is irrelevant, mathematics will take over. This is how I timed the Real Estate and Stock Market tops in the past, using these types of tools. Real Estate is less liquid so I did try to pick the high and was the smartest guy in the room at that time, and also lucky I got it so precisely. However, I don't want to depend on that combination always being the case, it won't be.

You could say Natural Gas is in this type of situation after years of being beaten to death is far over due for a price rally. The Stock Market could also be in danger of setting up something like this the way it is rallying.

COMEDY

The best comedic analysis of the Apple decline cited it as the reason to blame for Gold going down the last few days. We have been short Gold in the Swing Service for the last couple of days and it is funny, it had nothing to do with Apple. Lets examine this for a second. First, the 200 day Moving Average is what most large funds focus on. This stock has been under that for quite some time now, yet it was just the last two days that caused the selling? Of all the other days during this huge decline where this alleged relationship should have shown itself it did no such thing. Now all of the sudden someone who is a gold bull and refuses to see the clear down trend in Gold, blames the drop of the last 2 days on a stock. How people come up with this garbage is beyond me but it also should make it easier for us since we can do the opposite of what they write and generally prosper. I say keep it coming!

Enjoy your weekend

NATURAL GAS: THE DILEMMA

Here is Natural Gas in somewhat of a pickle with both Buy and Sell indications, which way to go?

There is not a perfect answer for situations like this. In this instance I am leaning to the long side, here is why. First we are seeing some commercial buying as we moved down to test the low of the last few years. This tells us the big boys are trying to defend this price level. This is also occurring at a time when the Seasonal low is typically made. We do have Sentiment being a bit too bullish but you can't always have everything. The bullish sentiment is what is generating the sell signals.

Since I typically enter trades off Daily charts this dilemma is not a big problem. I need to have a signal on a daily chart to support what I think the big picture setup is. In a case like this I will take the signals in both directions but I will look to try and catch a bigger move to the up side here. I think too many people get overly critical of people who call out setups saying they were wrong etc.. A setup is just that a SETUP. It is not an entry signal. If means that the conditions are right for a move to take place. This does not mean you blindly buy or sell at the market.

In this case I feel the preponderance of the evidence suggests a rally but that does not mean I will not short this market. It does mean I am looking for buy signals first. I have neither buy or sell daily signals for tomorrow, so nothing to do here other than point out this market as once that is SETUP.

The overall market continues to stay strong and until proven otherwise the trend is decidedly up.

Have a nice weekend

COMING CORRECTION OR TO THE MOON?

I am back in beautiful bankrupt Southern California after having moved my father into a retirement home in Michigan where it was 7 degrees below zero the last night I was there. It was a blizzard the day of the move and I had one of my sisters who is a well acclaimed orthopaedic surgeon barking at me all day about how I should not be picking up the furniture the way I was. The truck driver threw out his back so it fell upon me to get it done. I am not a whiner so I just went at it and had a blast. It was a classic barely being able to see the truck as I carried pieces of furniture out of his house to it, my sis served as the tour guide making sure I did not bang into anything. I was a blast doing it in the snow I have to admit. Overall however the trip was a difficult one mentally and emotionally. I always thought we would keep the house in the family forever but now it gets sold and going through 40 years of memories has its ups and downs. My apologies for not posting, I had no time to do so. Some of you have found my elephant man video on You Tube which was recorded when I was back in Chicago last year. Have at it if you want but I can tell you from sitting in the chair with a huge stanchion of lights blinding me and not even being able the see the interviewer, it makes me look 80 years old and I still look like my picture on this blog which was just an Iphone camera shot from a few months ago. I can't explain why I look so strange is this video.

As I mentioned in a prior post the ES short got stopped out for a loss and the question becomes just how far can this go? Whenever I want a negative story I shop at Zero Hedge and found the below article which is great in terms of its detail on the FED and what it has been doing. I have to tip my cap to him, he does incredible research and cranks out one detailed story after another. 

http://www.zerohedge.com/news/2013-01-22/what-1230-days-explicit-market-support-federal-reserve-looks

The mistake most people make and I made it myself when I was younger, is getting tied up in arguing with a trend. If you look at the chart below, there is absolutely no reason of any kind to be short this market from a position stand point.

We are just creeping up day after day after day, there is no trigger that I can see saying to be short. We do have a big divergence forming now between Bonds and Stocks which will at some point create a problem, but it is not severe enough yet. I can promise you if you get in a habit of just trying to fade moves like this you are going to find some trouble. 

The most important thing to keep in mind about this market environment is the following:

It is being solely driven by the US Federal Reserve not fundamentals

As a result, stories like Apple do not really matter because that is a market fundamental. These do not apply at the moment. That is why you saw this huge reversal. Even if fundamentals were driving the market you have to wait for the price to confirm the story which has not happened yet. I have told Newsletter readers to stay long through all of this and given specific exit points if we hit them, so I have guided them correctly. There are a couple of very widely respected traders calling for a sharp down move to begin at any moment. Far be it for me to question this, and it would not shock me if it did, but I don't see it at the moment.

Tom Demark who is most known for his Sequential price reversal concept, is one of these guys calling for a top. I have at times used his Sequential indicator and I do think it is a good tool so seek it out and study it if you wish. He is a very bright guy and he has made several tweaks to the original concept over the years. I do not know all of the enhancements. However, I do know that any tool has to be adapted over time to changing market conditions and this is no different. I watched a video that seemed to state he wanted to see a new high first before calling the top, but I don't want to put words in his mouth.

This January steady creep up is something I have seen before, so I am not stepping in front of it other than if my mechanical system spits out a trade. With those I just follow the rules like a drone and it just steered me wrong on one as I stated earlier.

For now I am not too eager to short this.

PFG Update

There is a conference call with the CCC on this tomorrow where PFG will be covered along with MF and also the recent board appointments of the CCC guys to the NFA.

I will not be listening in any more. I am moving on as if I will not see another penny and the loss will be 70%. It appears now the judge is rejecting motions for rulings on things so it just feeds our money to the attorneys, which is the point of the whole process anyway. It is not and will never be about the victims. The only way it will change is if we get enough money leaving the country that it has a financial impact, but most people will just take it on the chin and move on mumbling under their breath. I am not one of those people and I will get my money out of here as soon as I build it back up.

It is a good thing to have these guys on the board but the reality for me is that it does not matter. My money has already been stolen, my life has already been changed. All this bullshit after the fact PR crap to make us feel "sure" that it won't ever happen again is just that, BULLSHIT. Many of the victims don't have any money now so what the hell good is an insurance plan to them? What is always lost in these situations is the victims in most cases lives have been ruined forever and any future legislation means jack diddly squat. I have survived it but many have not. Part of my plan at getting back if it is successful, would entail getting what I can back to some of these people who have not survived this. Unfortunately I am not in a position to even launch the plan yet. I may never be able to launch it, I am going to need really deep pockets when I do it for legal fees.

For those victims still following this closely I would recommend listening in, these guys do have the best information on the case.

I am back to regular posting again, thanks for reading.

ONE MORE DAY OFF

I am in the process of moving my father into a retirement home and have not had a moments free time. It has been tough just getting out the daily signals in the emails. I have one more day then things will be back to normal with regular posts. If you are new to my blog hopefully you have found some value in old posts. This has been a gargantuan task trying to move him and get the house ready for sale. I thought I was going to have free time at night but that has not been the case. The moving day in a blizzard was a classic, I would not have had it any other way.

My ES short in my mechanical system was stopped out for a loss of 16 points, so it is YTD now 3/4 but has net lost about $200 I think. More on that when I come back.

Good Trading to everyone

Bull Market Rages On

I know I can hear the boos and browsers moving on to the next site that will tell them a crash is imminent. I trade I can't afford to come out every day and publish all these negative stories while a bull market rages on, it won't pay my bills. I can't be wrong for months at a time then come out and tell everyone I got it right once the inevitable decline takes place.

This does not mean I am super bullish but it does mean I am smart enough to acknowledge what should be so plain to see, this is a bull market. It is not a runaway type of situation but it is typical of a bull market, the price just crawls along in spite of all the negative stuff being thrown out explaining why every up day is bogus for some reason. I don't care about all those opinions, unless I can send my bills to those people that have them so they can them for me if they are wrong and I follow their guidance.

We are at the seasonal period of time right here where the average occurrence has been a decline so I suppose there is something for the end of the world guys to hang onto. I have been mentioning that I do think there is a big decline out there somewhere and that has not changed, but I don't see it happening right at the moment. I want to see more weakness in the Bond market before getting too excited about a huge move down. The Fed is having it's way and fighting it is just foolish. I do still have my mechanical system short on and it is upside down about 5 points right now, I have no idea whether the trade will wind up working or not. If I had to guess I would say no but you never know. When trading system signals I do not let my opinion get involved.

Some of the other markets that were setup as sells that were leading me to be more bearish than I should have been, have rallied enough to take away some of the sell setups. As a result overall I am somewhat neutral. The Nasdaq is still lagging the ES by a large amount which is bothersome but as I have said before the Fed seems to have focused on the ES exclusively and have let other markets go. I don't know why they have taken this tact, only they know for sure.

Here is the chart of the SMH and you can see it is showing divergence still when compared to the ES. For the bulls it would be nice to see the SMH take out it's recent highs. This is diverging some but even with that the price action in the ES has not yet shown a break of anything significant. Once it breaks some type of near term support, it will then be time to look at some of these other things. I don't try to pick exact highs or low that is a losers game and I don't like losing.

Good trading this week

STOCK MARKET RALLY

I decided to kill my search engine traffic by posting a positive title. For those of you who constantly are looking for the world to end and surf the web for negative stories, take a look at the huge rally you have once again missed and will always miss until you get more balanced. Regardless of what you think of our move to socialism or any of the other things that are going on, the market is not confirming your pessimistic views yet.

I too think this will end roughly at some point but for those of you who read the Newsletter, I have kept you on the correct side of things thus far. The reason for that is that the models I use for big picture trends are not based on some short term emotional opinion I might have from time to time. They are based on what I consider to be fundamental things that determine trends. At this point they have not changed. Will they in the future, perhaps, but we don't know that yet.

Stop surfing all these negative web sites, they will cost you money even if they make you feel good by supporting your fears.

For those who do see every day as a sell, the next chart gives you some hope for tomorrow if we happen to break today's low.

The classic trap pattern is at hand here if we happen to take out today's low tomorrow. It may be long shot but you never know. I personally don't think these patterns are very good when you have a trend this strong and especially in the ES. I am short in my mechanical system as I stated last night that I had signals for today. The position is currently a couple of points upside down so we will see where it goes. It is a system trade so I don't have an opinion on it one way or another. I mentioned patterns like this normally get resolved to the up side and that is what has taken place thus far.

For now the trend is up on all time frames so I am not going to fight it with any discretionary trades. If my systems tell me to sell I sell and vice versa.

Have a good weekend

STOCK MARKET SELL OFF PREDICTORS 

Here is the VIX and the monster decline we have had in it the last couple of weeks. The Vix has been used to call 5000 of the last 10 tops dead on. I hope you get what that means. Like so many other tools there is an art to using them correctly and it is ever evolving. I am pretty sure the best way to use it now will not be the best way 5 years into the future. We have to always be aware that things change and the way people approach things changes as well. This also forces us to change to stay in SYNC, stay CURRENT.

Originally when the VIX gained popularity it was determined that you automatically bought or sold at predetermined static levels. That quickly jumped the shark, it worked for a trade or two. The current thinking is to look at it relative to where it has been and without regard to absolute levels. This can be done a number of ways. I am not going to delve too deeply into how I use it here, that will be done in the Newsletter. However, I want to make one point of what not to do with it. When you see a sharp move in it like we see in the chart above, that is not necessarily a signal to fade the current market direction. What you can never know in a price chart when a retracement begins against a trend, is whether or not it is a continuation buy or the market is reversing. 

When you test out buying pullbacks mechanically you can often get really high win loss ratios if you use no stops, in the 90% range, but..... those 10% losers are doozies! If you were you just blindly short the ES when the bands are broken on the down side like this over time you net lose money even though the winning percentage will be close to 60% the way I trade them. As a result, it is not good enough to use in trading. I suggest people study the relationship of the VIX to the ES, there are things to be found that will be helpful in timing the stock market.

I have sell signals in my mechanical system for tomorrow although it remains to be seen if they will be filled since it trades during the pit hours so those orders are not in yet and overnight action can be substantial. I still am somewhat neutral here. If you look at the chart above there are mixed signals all over the place. I tend to think price patterns like this normally get resolved to the up side but nothing is 100%. We are also at about the time where the seasonal tendency to decline starts so perhaps that could be a tie breaker.

PFG

The following was taken out of a few articles today that discussed the recent bills submitted to the court in the PFG case. I went into the motions and read them and it was nice to see that of the extra $180,000 on top of these bills that PWC submitted mostly featured conversations by ridiculously valued pinheads talking to people who might buy some of the assets, essentially used car salesman in my mind billing for their time to try and potentially sell things? How many sales people get paid an hourly rate of hundreds an hour to try and sell something? Of course the judge can't strike that down, after all they have raised $1 Million out of the$200 Million that is missing, so they obviously are invaluable!

Meanwhile, bills from lawyers and accountants working to help a court-appointed bankruptcy trustee figure out what remains at the failed brokerage are rolling in.

Price Waterhouse Coopers, one of the world's largest accounting firms, submitted a bill for $1.6 million for about 4,239 hours of work between July 22 and Oct. 31, according to a filing in Peregrine's bankruptcy case on Monday.

PWC continues to provide financial advisory services in the case, documents said.

On Friday, Shaw Fishman Glantz & Towbin, the law firm representing Trustee Ira Bodenstein, submitted a bill for $671,417 for 1,508 hours of work between July 10 and Oct. 31, according to court documents.

Good Trading

CRUDE OIL OVER VALUED IS IT A TOP?

I mentioned recently that I was bearish in the energy sector and missed the move down in RB that followed unfortunately. Please see the memo about how I don't catch every move. The above chart is Crude Oil with a valuation measure against the US Dollar. If you look at the recent times where we got over valued we either got a pause or a decline. We have not as of yet seen that happen. Is it coming?

What bothers me about this current situation is that the valuation has stayed pegged in the over valued zone for a while now. If you look at the prior occurrences you can quickly notice they got into the zone and quickly exited that zone. This is similar to the situations where the commercials hedge a huge trend move and stay on the wrong side of it for months and the price keeps going. In general it would be best for an exit of the zone and re-entry or a divergence of some type to occur. Just being in a over valued zone is not an automatic sell the farm and take a position situation. It is more of an awareness that we have reached a stage where a reversal could happen. Timing the entries is entirely different.

When a market is running like this or for that matter the ES right here, stepping in front of these moves can be dangerous. I do not make it a habit of trying to pick a top in price moves like this. I am getting fundamental warnings like this valuation condition as well as Sentiment, which tell me to be on the lookout for a trend change. There has not been one yet.

The buy every intra-day dip trade appears to be back on the table, welcome back Kotter!

This is a 5 minute chart of the ES today and don't jump to any conclusions about the valuation tool, it is worthless for day trading. You can see it stayed buried in the zones 3 times in a row and was only right after several stops and starts except the very last time, where a nice buy took place. The point of showing the chart is just to show how what once again appeared to be a good down day setting up was quickly reversed and turned green. This is how bull markets act. I am not announcing anything that most people don't already know. This also does not mean we can't go down. What it means is the probabilities favor buying the dips until we get a significant break.

We had a couple of trades on today that were doing very well until this happened but everything keys of the ES now so when these big reversals happen often markets will react to them. We wound up making some money but less than half of what we had, oh well that is trading. This is why watching intra-day swings is too stressful and I don't do it. It may be tempting to stare down a 5 minute chart all day, but until you can find someone who shows you his account statements showing how much money he is making trading 5 minute charts, don't believe a word of it.

My short term indicators are becoming a bit more neutral now so the bias I had to the down side on the short term has become more neutral.

I am flat at the moment and don't see anything jumping out at me for tomorrow for the moment.

Good Trading

TRADING RANGE MARKETS

In looking at the world's favorite market that is on it's way to $25,000 or thereabouts within the next few months, I see what is typical of most of the markets so far this year. We are just chopping sideways in difficult trading ranges. For my taste I don't like trading in ranges like this because I think it is very difficult to catch the exact right time when the breakouts will occur. I am not the one with the magic indicator I can sell you for thousands of dollars that will pinpoint every single move on a chart. Of course we know nobody else is that guy either in spite of all the advertising to the contrary.

I was talking with the guys at Robbins trading recently who asked if my blog was balanced? LOL! I wonder if the words " I blew this one" or "terrible" count as balanced verbiage? People can always cut and paste things to skew what you have said and I cannot control that. However, I think I do a pretty fair job of pointing out mistakes I make as well as good decisions I make. I do make more good than bad ones, so objective reporting will feature more positives than negatives.

I do find myself wanting to lean to the long side in the Gold market due to the COT buying but this is not an ideal setup, nowhere near one. We are in a big down trend and that is always something that needs to be considered. We are also surprisingly under performing the ES by quite a bit in this market which is a new development. I am sure readers have found themselves doing what I am doing with this market. I just keep coming back to this chart and looking at it over and over so something in me is pushing me to try and justify a trade and I don't know why. It does appear to me that Silver could be a sell if it were to break down from this current location. The weekly chart positioning is also not completely clear to me. In summary, I am just not quite sure what to do with Gold and Silver here so I do nothing for the time being. If I miss a trade so be it, I would miss the money more if I pissed it away on a dumb trade trying to force something.

I continue to think we are going to have a stock pullback, but the PPT is lurking so that is a difficult task. I don't know what it is but it seems to me like when we get these crawling up moves in January they seem to keep going even though the seasonal says otherwise. The closing action on Friday told us the PPT does not want down closes right now especially for a Friday or a week. This does not mean we can't get one, but it requires volume to over power them. This light volume environment we have been in for so long is sauce for the goose for the PPT. It makes it very easy for them to control things.

My short term proprietary indicators are pointing down in this market ( ES ) so I expect this to move down from here. This is a mid morning snap shot so by the end of the day this could look different. However, the indicators are still going to be down biased regardless of the close. What I have mentioned recently seems to be the case, it is a push up for stocks and everything else is being "left" to fend for itself. It does seem to me that everything should be left alone but I am old fashioned apparently. I did not get the memo about manipulating the public being the main goal and if I had I would not have read it anyway.

My ES short I had on was exited this morning for a small gain of only 2 points, it is a first profitable open system and the open was a profit. Alas, mechanical systems are what they are. I would have held it had it been a discretionary trade, but I don't mess with the rules in systems because it defeats the whole purpose of having them in the first place.

The summary is I am looking for some downward action in the indexes and many of the other markets are trading on their own again and in trading ranges. This makes for tricky trading.

PFG

I would love for someone more internet savvy than me to find out the total of the legal and accounting fees that have been paid out by the court in this case. Someone from the trustees office said this information is in the court docket on the web site but I can't find it. It will make us all cringe, but it will be good ammo for a future attack on what is happening here. It is my contention they are gunning to get most of the money and stiff us, but the big secret is the whole case and it's lack of transparency.  We just have to focus on trading because if I am right we are not going to see much more of this money and if we do it is going to be a long time coming. It is too bad because if you removed the corruption, the way this has played out we probably should have been able to get close to 70% but that is not in the attorney's best interests as we all know. The last time I checked Mortgage companies could care less if your money to pay them is tied up by a bunch of crooks. I mean that, all the parties involved in this are crooks. Fleecing victims is a crime to me regardless of what your title is that you use to go about doing so. You have to ask yourself if being a bankruptcy attorney which is a very lucrative field and preys upon victims, is really a moral way to live your life?

Good Trading

STOCK AND ETF TRADING

Now that we have started another new year and the PPT is back at it again with the magical final minute rallies to make the closes green, I thought it was time to revisit an old theme that could well be in play once again. One of the problems funds have is that they are bench marked against the indexes in terms of return percentages. Why would you want to put your money in a fund and pay them their Corleone off the top, if they can't make you more money than you would make putting your money into the SPY on your own?

The chart above is just one stock I randomly picked, I have never made a trade in this ETF. It happens to be a mining stock ETF but it could be anything, the point would remain the same. With few exceptions, the direction of most ETF's and individual stocks is being determined by what the S&P 500 is doing. I have the ES plotted on top of the XME symbol and you can see they trade in direct concert with one another. There is one point at the lowest low where the ETF did not get the memo for a while and went down while the boss was rallying. This setup a great divergence buy point in the ETF.

If we do get back into the government controlled slow crawl rally mode again the strategy should be to look for bad employees that don't read the memos ( stocks or ETFs that have been lagging the ES ). There are not easy to find and it is time consuming, but a rising tide will lift most of the boats so there is no reason not to take advantage of this.

We are seeing the commodity markets diverge against big brother now for the first time in quite a while. I think as I have stated in other posts, the FED effect is wearing a little thin. At some point the message just gets old and has no impact anymore. Perhaps they have achieved about as much inflation as they can for the time being?

Newsletter readers know my big view of the stock market, so I am not going to delve into that here since they have paid for it. In the very short term I do have a short position in the ES that was put on at Friday's open and is basically a scratch at the moment. It is a trade out of my mechanical system so it does not reflect any bearish pattern I see. I think too many beginning traders make the mistake of trying to always short moves like this, I did when I started. The old adage of never sell a dull market has generally held true. They will crawl you to death just creeping up the market day after day until you say uncle, then the decline hits and you miss it. I don't really think this market is a sell at this point even short term when I look at my technical tools, they are pretty neutral. The ES is about the hardest market there is to trade so beginners should not be so hell bent on mastering it. It is a million one lotters and that makes it awfully choppy and also easy to control for the PPT as we are seeing towards the closes once again. For now I will just follow the rules on my system trades in the ES until a time when something larger develops. After my system runs for a few months we will revisit how it has done. So far this year it has had only one trade prior to this one which was a small win.

Random Musings

One topic I visit mentally every day is trying to determine what the big picture monetary incentive is for this plan to ruin the US that is being acted on politically. At the end of the day motivations are always Religious, Power or Money. Weakening the US intentionally does not fit the first two categories, so lurking behind door #3 is money. I hate to get into conspiracy theories but this whole situation is just so odd that it does make me wonder if there might be something behind all of this beyond just pure ideology. There was a story in the paper in San Diego today about how the vote that was done in the recent election that resulted in state workers except police officers being switched to 401k plans from pensions and that caused a huge additional payment of $40 Million! HUH? How in the hell could that be? Now the city faces a bigger deficit because of that? It is stories like this that make me think this is something much bigger going on here than I have been able to figure out. This story cannot possibly be explained with anything other than a cover story that is 100% BS.

If the true goal was to completely redistribute money the first place to do that would be to reform the legal system. During the last several years there is one case after another where the big money people always get put in front of the small fries in the order of creditors. Of course the lawyers get paid even before any of them. This fleeces little people. Taking a few thousand dollars from wealthier people through taxes that just go into more pension payoffs does not help the little guy at all. It gets votes from those who resent people who are more successful than they are, but it does not really accomplish anything. We see all the deals in Washington that get made via lobbying, again a big money payoff arrangement. I point this out because I think the redistribution rhetoric is BS and it is not the true goal. It has been an effective way for one party to get control to execute the real plan which I am fairly sure is something entirely different, even though I have not determined what it is. Here is where I am stuck. I think these people are too smart to be just blindly following idealogy without understanding the outgrowth of doing so. I am of the opinion they know exactly what they are doing.

Generally a collapse of a country would be reflected in their currency. If you thought Europe was going to implode you would short the EURO etc.. The problem I see is that if you are of the mind set that Europe will collapse that is likely to mean a huge Dollar rally. The Dollar Index is about 67% of the EURO FX so by definition these are going to trade opposite. It is hard to imagine if the US were to collapse that Europe could thrive at the same time. As a result, I am just not sure how to play all of this. I am of the opinion that Europe is a house of cards, but I think we are as well. I also don't think there is an immediate risk of collapse because the central banks have not run completely out of fuel quite yet. This gives me time to figure this out. The easy answer is to short the EURO but I do not know if that is the correct answer.

Net net, I am not sure how to play this apparent plan to dramatically weaken the US both militarily and financially, but I am sure there is a play in here somewhere with a big payoff if timed correctly. I think the play is a currency short, I am just not sure which one yet. Once I figure out how I am going to play all this and what I think the end game is I will post it in here. Maybe I am just as smart as I think I am but hopefully my determination will overcome that.

This last chart shows the seasonal for the ES and it indicates a tendency for a decline to begin right now, marked with arrows on the chart. We also have some of my COT knock offs showing the same. The commercials show in the buy zone but when you look at the net positions they are still decidedly short, so not sure this is a legit buy signal the way that appears in the graph. My sentiment indicator can be ignored, it has been terrible in this market as you can see. There have been countless numbers of overly bullish readings that did not result in any type of decline at all happening.

The conclusion here still is that we should get some type of pull back here. The Nasdaq is by far the weakest index so if you are going to short the indexes that might be a good place to do so. I am in the ES because that is where my trading system plays, I do not have one for the Naz at this point.

Good Luck next week

TRADING PSYCHOLOGY

LUNCH WITH A FRIEND

" I am not sure I have the right personality to trade."

This is a quote from one of my very favorite people I have been fortunate to be close friends with. He was assessing his own trading results over lunch with me yesterday. He is a person who has had tremendous success in his life time making millions of dollars in all sorts of different endeavors. He is one of those people who lives for the action and just can't wait for difficulties to develop in negotiating deals. This is where he thrives. However, this is also why his trading is not very good.

In the life of deal making and constantly moving, reassessing, shifting strategies, one might think this is good training to be a trader, I don't think so. The very instincts that tell you to completely change course out of the blue to save a "deal" are the same instincts that are going to drive you into exiting and entering trades right at the wrong time. His single biggest problem is that he has a new strategy to trade with about every 30 days, I have one about every several years as a contrast. He is always recommending new books to me to read that teach different approaches on top of all the different newspapers and newsletters he reads. He has so much clutter in his mind that he winds up trading with no plan at all.

He also has unrealistic goals expecting to make hundreds of percent per year in all his accounts. There is nobody not one single person on record, who has made 100% a year or more every year for 10 years in a row, KNOW ONE! Does this mean that is not someone who in the confines of some obscure place in hiding has not done it? NO. The point is that there are not all sorts of people doubling their accounts every single year. There are plenty that do it during any given year and I have certainly done that but not every single year. Do not set unrealistic expectations or you will wind up falling so short of them you will wind up chasing your tail like me friend does.

If you have a $50,000 trading account and were to increase it 50% per year each year for 10 years you have about $5.5 Million in your account. As a result do not get too carried away with all these stories of great riches. They have been made but you can get there just staying consistent.

I did tell me friend I thought he should not be trading because he was never going to be able to follow any rules for any period of time. I told him that he should not worry about developing rules or asking me what mine are because he won't follow them anyway. This is part of assessing your own personality as I discussed in my Newsletter a couple of months ago. My friend should either be a floor trader or not trade.

As for short term trading, my mechanical system has signaled a short for today in the Bernanke's so I am short as I type this. It is a short term trade. This does not mean I am really bearish on stocks, it means I have a signal in a system so I took the trade like I always do with them. There is no opinion, no assessment, no commentary, no anything. When I trade mechanical systems I just take the trades as they are spit out. What would be the logic in spending months developing things to then not follow them once they are implemented? If the system winds up doing poorly I will try to adjust it as I go along. If it does really poorly I will shut it down by the rules I use to determine this. It really is that simple. 

I don't care what a 3 period RSI or a MACD or a Wave Count says we should be doing unless the system I am using is based on any of these in which case I would care a lot. I get people at times asking me about the trades if once in them what I do if some indicator reading gets to a certain level? The answer is nothing unless the trade was entered based on that indicator. If it was then I follow the rules for acting at certain readings in it. If not why would I care? How would I know for example if a trade entered based on one variable would acted based on another variable that was not considered?

Trading is not easy as we all know and it is also not simple. However, in your execution things need to be simple. You can have all the fancy reasoning you want behind how your signals get generated, but once it comes to executing the trades keep it simple. This will enable you to trade in a disciplined fashion.

Here is a chart showing some of the recent trades the Emini System has made and the indication to short today at the market on the opening which is what I did. You will notice something interesting that is NOT stated on this chart because it is something you should NEVER do:

The rules do not say "Once in the trade death watch every tick on a 75 tick chart, look at every oscillator you can find along with reading 15 different opinions on the market on the internet. Also, get excited about every tick in your favor and discouraged by each one against you."

I think everyone gets the point. This trade will succeed or fail based on it's own merits, I am not going to interfere with it. I like to get out of the way not in the way.

I have had a lousy week, I was looking the wrong way in a few things and just missed some good moves and did not trade much. I talked about the energy shorts but my rules were not met to short today, so I missed that move. Sometimes this is the way it is for me. I don't nail every move or trade every day. Sometimes there is not much to do when you stay disciplined like I am.

Have a nice weekend

BOND MARKET RALLY?

We have an interesting scenario going on in the Bond market right here. On one hand we have one of the strongest seasonal tendencies in all the markets which calls for a decline at the beginning of the year. This has been pretty reliable over the years but nothing is perfect. In the other corner we have a very bearish Small Spec position from the COT Data which should be a very bullish indication. We also have that COT bullish data coming at a time when we are at a crucial support level for this market. The commercials have been buying this market but not at very strong clip.

WHICH WAY TO LOOK?

For me if it is not completely clear I do not do anything. In this case the fundamental setup would all else being equal trump the seasonal. I think the way to play it is to look for the rally first, then short a break down if one takes place and the support levels get taken out. In this case this means this can be played in either direction. On a short term basis I don't see an entry here at the moment either way. Weekly setups are much different than daily. They are more along the lines of a general expectation for a move. Since so many people are looking for a bond decline it makes me want to look for a rally. However, if this ledge I have drawn on the chart breaks, down we go.

VIX FOLLOW UP

We still have the VIX trending steadily down which is not a sell. I am still looking for a selling place but just because the VIX is low and going down that is not necessarily a sell signal. You have to keep in mind in spite of all the negative sentiment, the world is ending, blah blah blah, there is an upside bias to the stock market overall. Most sell setups do not work as well over time as buy signals do. This is because there is an upward bias of only about 112 years or so. You may not like it but it is what it is. The VIX measures volatility. Complacency which creates low readings in the VIX does not necessarily mean a big decline is coming. We have seen low VIX readings often during big up trends that just keep sailing merrily along. Do not be too much of a wise guy when using this.

Slow crawls are the hardest markets to trade for me, so when I see them I don't mind keeping my powder dry. I don't feel I have to trade every day and I don't want to trade every day. I want to trade when my rules are met which may or may not be every day.

I am looking for shorts in the energies right now as well as the EURO.

Good Trading