Here is the cash SP 500. I have gotten several emails about how far will we go? My answer is more about time than price. The two dates that keep coming up are 5/22 and 6/12. I have no idea if these dates are any good, they do not have as much going for them as what I posted when I called this low previously. However, there is a seasonal tendency for highs to be made in that zone so maybe they will be decent targets time wise. As for price, that would be a guess. My short term targets are about 20 SP500 points away in the 838 area but that is more for an exit of a trade than a call for the high.

We are very short term overbought now after today so a decline would not be a surprise at all. I am looking for sell signals as we move up but am currently on the long side of the market.

As we approach May I will give more current posts about when the short term top might occur, for now it is play the long side until we see something that represents a short term reversal, which could come any time but I think the major top will be in May.

It is time to expose these morons that are telling everyone that Gold has always been a place to go with their money during a financial crisis. It is one thing to just be ignorant, maybe some of these people are, but I suspect many are just lying to try and make money off of this farse. Above, in a terrible graphic display, I have two charts with the Dow Jones average on top and Gold cash underneath. I just can't get this formatted better so this will have to do.

The periods marked with vertical lines are 1974, 1980, 1982, 1987, 2000, 9/11/2001, and July of 2008 when the current crises became pretty well known. As you can see during the first five periods the price of Gold declined. The 2001 period marked the first rise, and the current one is flat so the jury is still out on that one.

This comes as no surprise to someone who trades with real money and is not a paper champion spouting off all this advice to people with no real idea what they are talking about. I cannot afford to as Roger Clemens would say "misremember" relationships like this.

There is a very close relationship between the price of Gold and inflation, so that is where you need to go to base your investment decisions on gold. We have not always had inflation during prior crisis periods which is why there is no relationship here. I implore you to do your own research before investing money into Gold. One of the strangest things I have ever seen is going on with Gold. When it drops 20% it does not seem to count as a drop whereas a 20% drop in stocks prices does count as a 20% loss. How people use this logic is beyond me, if you buy gold at 1000 and it drops to 900 I hate to tell you but you have lost 10%, it does count.

I am not running for election and could care less who I offend with this. If you are offended, you must be one of these people lying to the public to try and make money, I want to offend you.

They don't make day's like yesterday more than once every several hundred years. This is an intraday chart of 30 Yr Bonds. The large spike represents from high to low about 8 full points, 4 times what was for years the daily trading limit. This occurred in about 15 minutes thanks to the PPT. For those who do not believe in the PPT you should have your head examined after a move like this.

This is going to support this rally for a bit, but bigger picture most of us know this is a very bad development. Bonds have historically been very supportive of stock prices so this move to drive down long term rates should provide support for a time. However, once this steam runs out look out below, a sharp drop is going to occur. Time cycles suggest May but there is no way of knowing for sure. I suggest for those who have not gone to cash to consider doing so in May specifically if prices are higher than today. In my view we are going to take out the years lows again, so we have a nice opportunity to correct a mistake for those who did not go to cash from way above in the 13000 range like some of us did.

There will be a fantastic buying opportunity to buy stocks when this is all over, but it is not here yet.

BARRY... BARRY



Here is an example of what has to be one of the darndest things I have ever seen in my 23 yr trading career, the Barack Short Sale Trade.



Here are the rules, wait for him to speak publicly on any topic during the morning hours of trading, and short the SP 500 immediately at the market. Use a 10 point stop, which has never been hit yet doing this, then trail down or stop to take profits. Posted here is todays trade, it is amazing to me how negative he is for the stock market. Regardless of your political leanings, this is a trade that just has to be done. Alternatively, you can look for short entries in other methods you use once he starts talking, but it is does not need to be that complicated.



For a trading system to be viable it has to be based on fundamentals, in other words, it has to make conceptual sense to expect a good repeating of the results out of sample. In this case, his policies are obviously negative for capitalism, and the market speaks loudly endorsing that. So you have a fundamental, that also winds up being supported by price action, which is what you need to have a technique like this work.



The only danger I see in this is that eventually everyone will figure this out and then it may stop working, but until then, it has never yet had a loss. I have tracked 12 of these so far, with 12 wins and no losses.

Missed it by that much! "Maxwell Smart"

Well I called for the 13th or the end of this week or close to it, and it appears it was Tuesday so I was off by a few days. However, in this business calls do not get much better than that if this upward move continues. Will it?

Although I base most of my trading on looking at relationships that have proven themselves over time as predictive, sometimes you have to use good judgement. I had posted previously that many of the other things I would normally require to make a call for a major upmove were missing, I thought this bounce would occur. I do think it will continue, to shake the tree a bit. The world is short except for some buy and hopers still out there. It has been remarkably easy to make big money on the short side, so a squeeze is likely.

After just one day nobody really knows if it will stick or not, but with the seasonal supporting it, I think it will for awhile. For the record, I am not long this market at this point, I am waiting for a sharp continued move to short, or a more sustained move that pulls back and gives me a buy entry. Too early to tell which will occur at this point.

However, for the buy and hopers, a nice move up could give you a chance to switch to cash in your accounts and get back some of your losses before the next move down which could be significant once it starts.

I thought it would make sense to do a report card on how I have done here recently. As a trader there is no bs your results are measured in dollars and cents, there is no try, make money or lose it.



Here are my recent market calls and then a review of how good or bad they were:



Bonds - I posted selling time on the exact day of the retracement high the market fell from 135 to 123 a $12,000 a contract move, A for that class.



Natural Gas - I stated it was set up for a sell but thought it would drift a bit higher first. It drifted higher for 3 more days then tanked. This was a tad over $9,000 per contract to the low, A as well here.



Gold - I posted that this was good for $100 on the short side on the day the market made a high of 1007.7, the recent low is 900.4, over $10,000 per contract, another A+.



Dollar - I posted that I thought we had a short sale setup that might look marginal after the fact, this was a lousy call as the market has basically chopped around and gone nowhere, up slightly. I also said that if we break out to new highs the market could really take off, jury still out on that one. Overall I would rate this as a D.



Stocks - I have said that I thought we would have a bounce in March, then the next day fine tuned that to March 13th being the low. Obviously we do not know if that is any good or not yet. If I am right here the low should either occur at the end of this week or close to it.



Report Card shows 3 A or A +'s if the plus is allowed, one D and one incomplete. Hard to be better than that overall, if you can win 3 out of 4 times and get moves that large, you can make more money than you can imagine. Let's hope my views continue to be this good!

My last post that covered Gold could not have been better. I called for itleast $100 down on the day of the high and we have dropped $107 as of yesterdays low. Now what?



I have drawn a horizontal line where I feel there is support in this market, and it is in the 870 area. I do think we will bounce from there. If we don't the huge fraud of this market might finally be revealed. Regardless of what you might read, there is no correlation AT ALL between dropping stock prices and gold prices. Some of the biggest stock drops in history have been followed by huge price drops in GOLD.



I will say this though, it is a cute little fairy tale that has gotten some legs from, I know this will be hard to believe, the people who benefit the most from having it rise! It is the coin dealers and others selling GOLD that are perpetuating this fraud. It is no different from the Real Estate people who kept hyping Real Estate as it rose into the strosphere. Buy now or be priced out forever, etc..



Go ahead and buy it for whatever reasons you might have, just make sure it is not because you think the stock market will continue to decline. If you don't believe me just pull up a chart with the SP 500 at the top and the Continous Gold chart below, and look at all of the extreme decline periods. 9/11 is the only recent period where Gold happened to rise when stocks went down. There is not a consistent relationship here so do not be hoodwinked by these crooks. The best recent line I heard was there is no reason not to pay a $200 premium from the spot price when buying gold coins because we are going top $3000 anyway! I would like to walk in the studio of that dude's radio show and ........ for that discussion he had. Joe Batalia should be called Joe I will Tell you a Tale...ia. Seriously folks is anyone really that stupid that they would pay a premium of that amount on anything in the world right at this point?



Oh wait, I know, IT IS DIFFERENT THIS TIME!

Traveling for a few days so no posts until late in the week. I have revised my call for the March rally to start mid month. I do not expect a big bounce as I stated before, but if we get weakness into that time period, approx the 14th, I will be looking to buy for a short term rally. I expect that rally to be followed by a huge downmove if we even get a rally. When I scroll the S&P 500 I find only one stock that could possibly be a pullback buy, so that tells me that every sector across the board is very weak.

As some of you know that I trade emails with, I have been saying that I think we will get a bounce at the beginning of March. Here you can see the seasonal pattern that has been pretty reliable in recent years.



It is accompanied by a huge amount of divergence in the Pro Go oscillator, which is one of the best accumulation/distribution indicators out there. Ideally we would be undervalued and sentiment would be bearish, neither of those two conditions exist. In fact sentiment is actually pretty bullish the way I measure it, which is bearish for the market. As a result this is far from a perfect setup.



One of my mentors Larry Williams has called for a sharp rally to start about now due to a valuation model that he has that measure bond yields against stock yields. I do not use that but it is a nice tool. When I take all of this into account what I come up with is that I think we will get a rally here possibly into May which if we do could set up a tremendous shorting opportunity. For those of you that have not bailed out of retirement equity positions, this could provide a chance to switch into cash in those accounts.

I will post at some point in the future, where I think we are going bigger picture, which is much lower. However, there is plenty of time for that for now I think we are close to a decent bounce.

Golden Opportunity?

Here is a gold chart of the cash market without prices on it. Sometimes it is nice to take the clutter out and just look at the price to see what it is saying.

As indicated by the line below on the COT data, you can see commercials are selling this rally. That by itself it is not necessarily bearish and can in fact be bullish. However, what we see here is a selling action right at prior highs. When I couple this with a friend telling me the other day that her 9 and 11 year old daughters asked her if she was buying gold, and why not when she said no, I have to conclude this is a top in price. Also, noted famous traders Glenn Beck and Sean Hannity are hawking it on their radio shows. It makes me wonder who else is left to buy?

Tops are made when the market runs out of buyers not when heavy sellers show up. We also have the seasonal tendency for a top right here. At the very least this is a shorting opportunity for a fall of $100 or more. After that whether the buy on the dip is the right play will not be known until it happens and we see how the commercials act on the dip.

Here again we have the US Dollar Index. I have shown up at studios of radio shows and thrown pies in the faces of the hosts at this point for their gloom and doom views of the dollar. I knew when it was under 80 and I was calling for a big move up I was right when I listened to virtually every single other person being bearish.

The short term trading opportunity to short never fully developed properly from my earlier post. Now we are up against last years highs, which is going to provide some short term resistance. I may even short it up here for a short term trade. However, big picture if we take those highs out we could see a moonshot to the upside. This will likely coincide with the stock market taking out last years lows which will further trigger the flight to quality into the dollar which we have seen repeatedly for the last year.

As frustrating as all the things the government is doing is to me with all the bailouts, it is providing great trading opportunities. It is now obvious to me that we just have to bet against the US in virtually everything economically for awhile, so all rallies except the dollar need to be shorted. I am very worried about where all of this nonsense is going to lead us, but I might as well make money from it.

Today provided a wonderful example of Americas finest the PPT at work. We were once again on the verge of a major rollover of the market. We had a gap down open, then rally to partially fill that gap only to fall to new lows. This is about as bearish a situation as you can have intraday.



By "coincidence" this was happening while all the negative feedback about this fiasco called a stimulus/porkulus package is being kicked around. However, the calvary came magically to the rescue once again. If it was not so blatant it would almost be funny. Magically this 5 minute chart demonstrates how in the last 50 minutes a late day save happened driven by some "mysterious" buy program.



This is how the us government manipulates markets and it is never more clear than on a day like this. That is not to say late day rallies cannot occur, but this is not how they look when they are not unduly influenced from the outside. This looks more like a pork belly chart after a government report than it does a normal stock rally at days end.

Enjoy this viewing and feel good about the fact that for a day, your tax dollars were used wisely and had a positive return unlike the returns we are getting over the last year, with their calamatous buying program all the way down which has lost untold millions.

Here we have the US Dollar Index Daily chart with the classic triangle pattern being displayed. The textbooks tell you to play the longside breakout here, and that may be correct. However, if you notice the last time we consolidated at this level we broke to the downside about two months ago, I think if we break below the lower line this is a good low risk short sale opportunity. In trading there are never any guarantees and many trades look silly after the fact when they don't work, this could be one of those. However, I like the fact that the pivots are lower during the last two weeks and that the one oscillator is leading downward as supporting this entry.



I have been bullish on the dollar for awhile and bigger picture think it will rise, but if we break down from here on a short term basis I will be short this market. A break upward just would further confirm the uptrend. I am expecting a bit of a bounce in stocks here this week so this should move opposite of that, which would be down.

Here we have natural Gas, I can't wait for my next bill to come so I can once again argue with the Gas company about how high the price they charge is relative to the spot price which is plummeting.

This is just a basic retracement in a trend setup. It is the simplest way to trade, just wait for trend to establish and enter trades on pullbacks. Based on a few things I watch, I think this pullback is going a bit further so I am not going to short yet, but this market is definitely on my radar. Commercials also have heavy shorts on a relative basis which supports this from a fundamental standpoint.

Same Ol Same Ol





The votes have been cast and the results are in, Obama's PPT is carrying on the same plan to try and stop the drop as W's team did. If you look at the panel at the bottom, the dark black line is the heavy buying of the Large Speculators in the E Mini S&P 500. Keep in mind that this group is generally the accelerator of trends, momentum scale up buyers and scale down sellers. This is the opposite pattern of what is normal as there is huge buying into a significant downtrend, and enormous losses for those doing it.





If you keep in mind the above normal activity what this tells us is that "someone" very large with virtually unlimited buying resources is attempting to stop this downward move in prices. There is only one entity on earth with this type of buying power that can afford to lose this much money and keep buying, our good old friends the US Government. These trades are done through large investment houses like Sachs etc and what better time to do it than now. They have a better scenario for tight lips than ever before due to putting money directly into them. Who the hell would spill the beans in that situation? Nobody!



This does not bother me in the least as I know it exists and if you know how to spot it, you can use it to reinforce your evaluation of the trend. This is a confirmation of the downtrend in this market. Maybe they can pull it off and hold this market here, but I do not believe so. If these levels at the lows do break it is likely we have a large move down coming. I have seen several forecasts from better traders than me calling for choppy action until the fall, which should feature a big drop. I have no idea if they can hold it up this long, but I would be surprised. The latest reports have shown a small amount of commercial buying in the indices, but not enough to warrant a trend change. I am short this market from a few days back and will continue to short bounces when they occur, taking profits along the way.

GOOD AS GOLD

Gold and Silver continue to climb and at this moment there is no strong reason to be shorting Gold, Silver is weaker and is a tad different.

Notice on this chart that one momentum oscillator is diverging and one is not. This is typical in trend moves, oscillators constantly telling you to fade the trend. They are merely tools and need to be used selectively. The 930 - 937 area is a significant resistance zone that if cleared could have this market really off and running.

I have to admit I am rooting against this market due to the ridiculous stream of people telling you on the radio that you have to put your money into GOLD. They cannot find a single world event that in their opinion will lead to anything other than a rapid rise in GOLD. It is no small coincidence that these same people happen to sell gold coins. However, they have been right recently.

British Pound

This chart image is fuzzy, sorry. It is a Daily chart of the Pound. You can see we are in a downtrend with a little bounce happening. A rally up to the 1.4500 area should represent a good short sale opportunity here. I have some propietary indicators not shown, that are lagging this bounce showing underlying weakness not reflected in the price. As a result this market appears due for another drop if we rally another 300 points or so first.

BONDS

My post on bonds was very timely as you can see what happened after my "Sellin Time" comments on this market. We are following the seasonal pattern to a T right now. We are into Weekly support at this point so it would not be a surprise to see a rally here. Some oscillators are diverging at this low so this is a possible long entry area. Bigger picture I think we go down but a bounce should happen in this area give or take a smidge.

GOLD

Instead of me bragging about how great I am as in the last post, in this market although I have traded it profitably, my views of where it was going have been lousy. The red S followed by the dotted line down show the last trade I made which was a short with a nice profitable exit which is the bottom line. However, I have been expecting lower prices in this market and we have not gotten them.

The Weekly chart still shows lower highs so until that is broken we are in a downtrend, but a very choppy one that is hard to trade. There is not alot of commercial selling going on yet so that is one bearish factor that is not in place. If we look at the whole metals sector however, there is an overall bearish position by the commercials.

Ideally for me here I want a push up that serves up a false breakout that reverses down to get short or I will just sit and wait for this to clear up somewhat. There are always opportunities elsewhere. I want to shoot fish in a barrel not in the ocean, and this market is just sloppy right now.

Strong Dollar



Indicated on the chart to the left was my call for a rally in this market, I happened to get the low exactly which I was not trying to do, just lucky. However, I know there is a longer term upcycle in this market that should last several years, and we were in an uptrend that had a pullback, so it was not really that lucky.



This is where actually being a trader vs an economist or some big picture theorist trying to sell you Gold coins on the radio comes in handy. I cannot afford to have some macro economic view that may or may not be correct, I need to be able to determine when and where the moves are going to occur, so I can position real money in the markets and benefit from it. This is a prime example of watching what is actually happening and getting past being hung up on what should happen. The fact of the matter is that the Yen and the dollar have become the flight to quality vehicles in this stock market wipeout, so why would anyone believe that stocks and the dollar will decline together? That is not what is happening, they are moving inversely from one another. Until that changes don't make investment decisions based on a dollar decline if you also think stocks will decline, they are moving in opposite directions.

Today we are having a huge breakout to the upside in this market not shown on this chart, further extending this rally.

SELLIN' TIME



This is a follow up to the post I had on 30 Yr Bonds. We have gotten this rally up I had indicated I thought would take place. If you notice the oscillator at the bottom is severely lagging this price action, a bearish indication. However, even without that we have had the bounce that has set up this short opportunity. It also coincides almost perfectly with the seasonal pattern. As a result it is time to look for whatever entry patterns you might use to get into this trade.



I will not disclose all of my proprietary entry patterns in this venue, but I will say that I have not shorted this yet, but will be looking depending on how today closes, for a short entry tomorrow. I do not believe in just entering on strength when looking to sell so most of my entries require some short term move in the direction I am looking to enter, but the patterns vary depending on the situation. The stock market crash that is happening right now is supporting this market for the time being but if we got one day of stable stock prices that could quickly change.

How do you like me now?

Obviously my post on the Stock Market was pretty timely. I did say to wait for a break which came the next day indicated by the yellow line at the top and confirmed by almost any oscillator one could have looked at.

I have maintained all along that we are nowhere near done on this decline overall and there is certainly nothing here that indicates anything different to me. I hate having that position because it is the common view unfortunately, but it is what I study tells me.

I see no reason to buy this index or stocks at this juncture even though we are now clearly short term oversold.

WHAT THE BUCK?

Here is a weekly chart of the US Dollar Index. It is clear the uptrend that we have been in and also equally clear why I have been bullish on this market. Notice the blue line indicating the commercials buying the market during the recent pullback in price. This is exactly what we want to see the go long a market.

There are alot of geniuses out there citing one reason after another as to why the dollar is going to take a mighty fall. They may be right, but for trading purposes all that hyperbole is worthless. It comes down to having a way of knowing what your signals are and tuning out the noise. This was a buy signal at the recent low, and I was outspoken about this in many forums including the piggington blog where I post occasionally. This chart shows why. At times I may trade short term against these types of setups, but big picture, these are what you want for large moves in the markets.

First off, Joshua thanks for the nice comments!

Today I have a daily chart of 30 Year Bonds displayed. The historic upward move is clear to see, just for some perspective, 112 to 142 is $30k per futures contract in a market where in the past a good trade was $2k per contract or thereabouts.

We have had a sharp break down from an odd flat ledge at the top. If we couple this with the strong seasonal bearish tendency in January, we should be looking for a rally as indicated by the arrow to setup a shorting opportunity. I do not know if we will get it but I think we will. As far as translating this into actual borrowing rates, that is a waste of time. There has never been the degree of disconnect between Mortgage rates and the underlying longer term bond yields than there is right now. There is so much gamemanship going on with banks pricing in outrageous margins on loans, which I suppose they justify with an anticipated increased default rate. Mortgages should be 4% right now or less based on the underlying.

Following up on yesterdays commentary, the rally has continued. One of the things I have learned the hard way over the years is not to fight trends. The short term trend is decidedly up so even though there are reasons to look for a short sale, until we get some type of breakdown I am staying out of the way of this.

Some of the shorter term timing things I use have already failed to pick this top and we are working on 7 consecutive up days in the SP 500 pit contract. Contrary to popular belief that does not indicate a good short sale entry. We are having extended bounces in most markets right here, energy, grains, currencies, softs, metals. I think most of these are shorting opportunities the challenge is timing them properly.

I have been away for a long time working on several different things. With all that is happening I thought it might be a good time to resurrect this blog.

As we head into 2009 this is how things look in the S&P 500 Index. The most important thing to note is how the commercials in the bottom graph have been on the short side of this market for quite some time. This has been typical during long bear markets in this Index. There is no reason to look for big rallies as long as this condition exists. If I had displayed the other indexes, they are much more bearish with the commercials than this chart shows with the SP 500. What this means is that rallies are shorting opportunities. January has had a recent tendency to have early upward moves which started Friday. The Vix is indicating low relative levels now which is bearish, so this rally on a short term basis could rollover at any time. I would suggest using whatever short term timing techniques you use individually to time shorting this market, it is time to be looking.

I will post some things on other markets soon. I am looking to short Gold on rallies this month, it is not setup quite right yet. Also, although a short term sell is setting up in the Dollar, longer term I am bullish on the Dollar going forward.

GETTING CLOSE

I have not posted here in awhile for a few reasons. First and most important lack of feedback. I have stated often here that I would prefer comments vs emails to encourage discussion. Since that has not happened I do not feel compelled to tackle the technical challenges of making these entries. Satellite internet and it's slow speed make this very difficult.

Secondly, in this day and age where so many people read one article from someone they don't know, and then they are the expert on every subject on earth. I am seriously contemplating retreating back away from the public and just trading like I always have. At times it is just not worth the stupid comments that are made towards you. The most recent was the accusation of me getting killed because I am a long term investor. An average hold time in trades of less than 2 days and I am a long term investor being killed by this decline? Just read the last post and several before if you view me as that.

Now with all that aside, and referencing my last post where I thought the low would come in March, we can see that a potential low is in fact setting up here. The strong seasonal tendency for the decennial pattern to have March Lows, combined with the commercials stepping up their buying here, and interest rates tanking, is the perfect storm. This is setting up very nicely for a major rally. We will see how we look at month's end which is the ideal cycle spot, but it is sure looking good right now.

One more dip would be ideal, but we do not always get what we want. FYI, this particular setup is actually a buy and hold for about 6 months when it goes unlike most of what I do.

Without having posted anything for awhile, there is some catching up to do.

First, the year end rally at the end of 2007 did not materialize which led me to exit the long side on the last trading day of 07. I felt that the weakness during that very strong seasonal period was a warning of things to come. There are times when you have to make judgements regardless of what your systems are telling you.

As we are now in free fall, with the commercials heavily short, and in a seasonal down time period, is there any reason to look at buying this dip? As I type this the globex S&P session is down a staggering 52 points during this holiday. Whether or not this is a buy is up to an individuals trading or investing view. As an investor, stocks are clearly on sale here being undervalued by a number of measures, in particular, vs bond yields. It is at these times that you simply must put money to work, but also not to expect immediate gains. Investing and trading are two different approaches. As I have stated all along, the end of the first quarter is where I was looking for a low to be formed, so we are a ways from that as traders but not as investors.

From a short term trading perspective, the market is severely oversold and these types of declines have to be bought into, but timing them is difficult. First, your stops need to be much wider than normal to adjust to the volatility, and second, your size needs to be smaller for the same reason. I do not look to make a killing during these periods because that is how you get blown out. I want my risk to be the same during all market periods for consistency. That means trading smaller size with wider stops.

If the market does gap down to the degree that globex is indicating on Tuesdays action, that is an opening so extreme that it is a buy in my view for a short term trade. It is completely counter trend, but it would represent a several standard deviation move, that statistically is probable to reverse. However, overall I think we will trade down for the next week or two, then find a meaningful short term low, work into a more significant one in March, then head upward into the end of summer.

Going Nowhere



If you look at the bigger picture here in the S&P 500, we are essentially just trading sideways in a trading range. You can see the commercials have shifted to the short side of the market on a relative basis. However, if you look at the green line drawn across horizontally, they are still at a high level compared to where they have been over the last several years. Short term, they are at lower levels compared to 6 months ago.



I have researched the number of times that the WillVal indicator with these parameters has gone into an oversold condition as it was recently, with the market moving sideways in an uptrend, and there is not one single instance of a large decline that followed.



I also researched how often the market declined when the commercials were in this type of position in December, and there were no instances of a decline in the last week of the year when this happened. What this means is simply that the seasonal year end bias has been stronger than many of the other fundamentals at this time of the year.



As a result, I am holding my longs into the first week of January, where I will lighten up or completely exit. I do think we will have a January short term top, possibly the first week. I am looking for a March re-entry, for a big rally up from there. Oh wait, I read on another blog the other day that we all should "be very scared." I love that type of thing because that is just another person for us to take money from, the more the merrier especially during the holiday season!

COME TO PAPPA

The year end rally is solidly underway and I would like to point out something here. Notice how the market is pretty short term overbought here. Even the bottom indicator, which is inverse to the others, with low readings being sell signals, is pegged at the sell point.

One of the most painful things to learn about trading is that overbought can get more overbought, with the reverse being true for oversold conditions. I have found that once an indicator gets into these zones, if the reversal does not occur immediately, the move generally continues. As a result, prolonged readings of overbought and oversold need to be ignored.

Eventually a correction will occur once this condition is established, but I have never found anything that is a stalwart indicator to tell me when this will happen. If I ever do I can promise that I will keep it to myself! For now just ride your longs for the year end markup.

MAKE UP YOUR MIND





Cnbc reported as we were approaching $100 per barrel in Oil, that the fundamentals were strong and therefore we should continue upward. Some guests called for $150!

Now this morning they are reporting that the fundamentals are weak therefore prices should continue lower. PLEASE ignore these morons! They have some very qualified traders they interview, and paying attention to them might help you, but the commentators themselves just have no clue. It is shocking to me that these people can be in the pits, and talk to top traders daily, yet have absolutely no idea what is going on. What the hell are they doing down there every day.

My favorite one is the gal in the energy pits, I would wager my Saint Bernards could out trade here! How in the world could the fundamentals change this dramatically in two weeks? The answer is they haven't. They never supported that momentum driven move above $99. You can see the commercials did move up their long positions compared to a few months ago, but did reduce them over the last couple of weeks. They have tailored off somewhat here below a level that justifies long positions. However, if we were to get an increase there during this decline, we would have a very good buy signal.

We can only hope that knucklehead who reports on this market will be bearish at the time a buy signal shows up. That would guarantee a win.

Going back a couple of days you can see where I had stated that I thought there was a high probability of a short term low being formed. Obviously now that we are 600 points higher on the Dow, that call was correct.

I went "ALL IN" at the close of Monday in most of my accounts. One in particular is a retirement account that does not like market timing. I can't wait for the conversation scolding me for this move. It was "lucky" to have bought the low close, but sometimes you get lucky when you know what to look at.

It is too early to tell if this will be a major low, but what appears to be happening is that what began as short covering is picking up some new buying which could propel this sharply upward. That is conjecture, but this is the time of the year in general when you want to be long stocks to take advantage of the seasonal bias to the long side. The bottom line is that lower rates are good for stocks, and that is the environment we have. As a result, when you get dips during low rate periods, you need to be looking at buying stocks.

What is this mess?

I realize that this chart has a ton of clutter on it. Rarely a day goes by that I do not have another idea for finding the Grail for timing short term lows. Alas, none of the ideas ever pan out as anything other than another tool. I have several things displayed here which are all telling us the same thing, there is a good probability that a short term low is being formed here.

Notice the very large difference between new lows and new highs. This is extended to an extreme level, similar to what has often been the case at major lows in the past. The Advances vs Declines is also at a very low level. If we couple this with the seasonal tendency for a low point, we have the makings of a possible starting point for a good move upward. The pundits would have us believe these readings are very bearish and indicate further weakness and perhaps a crash. I like to fade the market at these times. Not every trade will be a win, but the majority of them will be in these instances. We are already long the S&P from Fridays open, so we have already placed our bets on this.

Here is the summary of the Gold trade we just exited in the trading service. The initial entry, and an add on entry above it are marked with horizontal red lines and an S for each of them. Our exit was a bit lucky in that we exited on a limit right before the market zoomed up today. The add on entry was not in the service, that was something I did in my own trading only. Was this luck?



Keep in mind that although the fundamentals the way I look at them are bearish, but we had reached a short term oversold area, in what is still a long term uptrend, so it was prudent to take some profits. It may not look like much due to the scaling of this chart, but this was a profit of $3270/contract on the initial, and $4270 on the add on, so a substantial gain overall.



The big picture plan here is to wait for a pullback and re-enter the short side if the fundamentals are still bearish at the time it occurs, then try and ride down what could be a very big move. It is possible that pullback does not occur, but based on the relative valuation compared to the dollar at the moment, I think it will.

Is this the low?



That is impossible to know. As I had stated previously, I was legging into the stocks I wanted to own on this dip, and bought fully into 2 of the 5 yesterday when they were down on the session. Both exploded upwards, and would have been incredible day trades. However, I plan on holding these longs for awhile.



I had been of the opinion that had we had one more significant down day, this could have been the low, as many of the oversold indicators were about one day away from being in a perfect zone for buying. The market rarely accomodates our plans perfectly, which is both the beauty and the frustration of trading.



As you can see on this chart, the S&P short term timing system has been on a fantastic run, getting us long very early yesterday and enabling us to cash in on the big up day. Since those signals are also now on my trading service, they will not be posted live here.



I do think it is too early to call this the low and celebrate, but I do have a substantial long side position that I will look to lighten up into years end if we rally, and add it back on during what I think might be a first quarter decline. The cycles still favor a December low point, and the announcements this am that the worst of the subprime fallouts are behind us, seem difficult to believe. All it will take is another scare there, and poof, 500 points can come off the Dow instantly.

When you build the perfect storm, there can be no surprise when it hits, the phrase on the chart is from FIELD OF DREAMS.

I had been telling people a huge drop would come out of the blue in this GOLD market, and it has happened. How did I know this? The commercials have been heavily short, the most in history. This huge run up has been driven by speculators and not insiders. When this happens, often the rug is pulled out of the blue like this. In a situation like this we could see $100 drop or more in a very short period, because of panic selling by the small individuals who now realize they have once again been sold a bill of goods.

I have no idea if we will get a drop of that magnitude, just that it could very easily happen because the fundamentals favor it. You do not have real insiders buying at this point to help prop up a drop. The ideal seasonal high is due in January, but when you get conditions like this, you have to act when they develop. Things do not always line up perfectly with the seasonals.

Is this sideways move a bottom in progress, and time to hop aboard?

I have currently been legging in to partial positions in the stocks I have identified as undervalued/bargain material. I still think we will work along the red line sideways to down for a month or two more, then launch upwards.

However, I did not want to get caught at the station in case the train left early, so I put some money to work. You never can be sure what will happen, so I put about 40% in. Hopefully, I can average down into full positions in the next 30 to 60 days at lower prices.

Of course if I happen to get a sell signal in the mean time, I will exit everything. There does not appear to be a sell in sight at this point with my timing system.

COLD WINTER COMING?

One of the megatrends going on right now is energy costs rising. Here is a daily chart of Heating Oil, with a blue line just stating the obvious up trend. The fundamentals are actually bearish at this moment, and it is a time of the year where the seasonal high is typically made.

I am actively looking for a short entry in this market, although I am in no hurry to stand in front of this freight train. You can see the small speculators are the ones that are pushing this market higher. All else being equal, we want to fade them in a situation like this. However, we need to see a break in the uptrend in price before anything will happen on the downside.

I have learned the hard way over the years not to fight a moonshot like this, so look for sell signals, but only on price action that represents a break down of the trend.

As I sit here hoping the fire doesn't reach me I realized I had not posted yesterday in the midst of all of the turmoil.



As expected, we did not get a crash at the beginning of this week. It amazes me how after a big down day, how many people come out calling for another day just like it. The odds are so heavily against that, you just have to take the emotions out of investment decisions. It is hard to do, but it is what you need to do. If you run the tests on buying a gap down open after a day like Friday, there is a very strong up bias to that, not down.



I still expect us to meander sideways to lower for a bit, and it would be awfully nice to see the WillVal indicator at the bottom here drift into an under 20 reading for a buy spot. I do think this will happen. Next year should have a heavy upward bias, so the question just becomes where to best enter to take advantage of it? The end of this week has been the ideal seasonal low buy point. I am more than likely going to wait to see what the commercials have done in this Fridays report, and then make my decision. I think I will wait for an oversold reading in the WillVal at the very least, before going back in. I am not satisfied with the list of under valued stocks my methods are cranking out because among them are C and HD which are subject to further weakness due to housing. They may just languish, which is not what I am looking for.

I do have an alternate list of undervalued stocks that I got from a friend who uses a different approach than I do, which also has a few selections that I am not too pleased with. Sometimes you just have to go with the numbers, but I am digging deeply to find a numeric way a discrediting a few of these stocks. Until I get that resolved, I am going to stay flat.

The problem with C in particular, is there seems to be some funny accounting going on there, which may in reality make it over valued and not under valued.

CAN I SAY I TOLD YOU SO?

It is worthless in reality to make predictions, all we can do is observe what we see as we go along and try and make prudent bets on what will happen next. I did not outright predict a sharp drop like this, but I did predict a sideways to down move for a month or two. We obviously are getting that now, so what to do next?

The ideal seasonal low would be at the end of next week. Seasonals rarely repeat exactly, they just give us ball park views on what to look for and at what time. The market is getting very short term oversold here, so that does seem to be matching up well with the seasonal low point at the end of next week.

I am currently evaluating which stocks I want to get long when the buy signal pops up. I would suggest waiting for some short term strength just to avoid catching the falling knife. Nobody can consistently predict when these sharp drops will turn on a dime. The subprime effect is seemingly re-asserting itself today with some of the comments being made publicly. This is impossible to quantify, and is not even a consideration in my analysis of when to buy and sell.

The big rally in bonds is good news for stocks over the longer term, and those of you in my trading service got a very nice long side trade there this week, our biggest win in the last 4 years on an individual trade. Lower rates are good for stock prices. Maybe we get lucky and get a huge waterfall here to buy into, but I doubt that. Maybe a little bit more weakness, and then a short term low could be made which would be a buy point.

GOLDEN OPPORTUNITY

My apologies for having missed a few days, blogger was not allowing chart uploads. It is my intent to post something each day, so keep checking in.

Gold has had a very nice upward move that is continuing today as I post this. The trend is your friend, so if you are currently long there is no reason to change anything. However, notice below that the commercials have their largest net short position that I can find in the history of the data that I have. What this means is that if we were to get a break in the trend here, it would be a green light special for a short sale.

This is a trade I am lurking on with my trading service on a daily basis, looking for an entry. You cannot just go out and blindly short a market that is this strong because that just becomes a guessing game against random luck. However, at the very least do not commit to any new longs here, and tighten your stops on any long positions.

The one fly in the ointment is that the ideal seasonal high is in January, so it would be best if a sell set up at that time. With the commercials this short, I will overlook the seasonal if the pattern sets up properly.

FLY IN THE OINTMENT?

With the markets sailing along wonderfully, how could anything be wrong? For the most part we have the perfect storm going, lower rates and insiders bullish, right at the seasonal rally point. There are a couple of things that are a bit troubling. First, the A/D line has not made new highs yet while the DOW has. This divergence is pretty small, so not a huge worry yet, but it is something to keep an eye on.

Second, notice the large negative divergence in the Pro Go indicator at the bottom. I have explained what this is in the past, so scan the archives if you do not know. This quite frankly, is very troubling. I am looking very closely for a spot to buy back in, but this makes me think we may have a bit of a rough patch of a month or two. Rarely does the market continue upward, when this diverges by this amount.

One thing to keep in mind about divergences in indicators, they often occur against the trend and are not anything but profit taking indications. This is not ever a green light on it's own to short a market. However, this is occuring right at a point where we have a broadening formation at all times highs, so this is not a point to initiate new longs.

My guess is that we will go sideways to lower for a month or two, then launch a pretty good upward move again. I will be looking during this period for the stocks I want to buy, and when to enter. It is frustrating to have been out the last couple of weeks, I have missed a nice move, and my timing model still indicates a long position is appropriate. This tells me that just a blip for a short period, then off to the races again.

COTTON

This is another market that is setup for a decline. The short entry was at the red line with a stop above the highest high point by 1 tick. Again notice the heavy short position by the commercials and heavy long by the small specs. This by itself is not a lead pipe cinch, but it is a good starting point for an entry.

Some of the internals have not diverged yet which would make this a better setup, but it is good enough without them to take a shot. This is not a mechanical approach like many that I use, but the reality is that some discretion or judgement has to be used to trade profitably. If you can establish a basic structure that is somewhat mechanical, you can then use your experience to fine tune how you get in and out.

I do want to stress though, that it is imperative to establish how you will exit a trade before you enter it. This will help eliminate the emotional tugs on you that will develop as the trade progresses.

Heating Oil





For subscribers, here is a visual of the Heating Oil trade we currently have on, with the red line indicating our short entry at 2.2205. I have to delay posting this by a couple of days to be fair to clients. It would not be right to put it out in the public for everyone to see right at the time paying subscribers are getting into it. As a result posts like this about actual trades are going to be a few days after the fact. I will also put up some trades that lose to be fair and not paint an unbalanced picture of my trading. I have always done this in the past as readers know.

This market has been in a substantial uptrend along with the entire oil complex. Why in the world would you want to short something like this?



First, this market has weaker fundamentals than the other markets in the complex. Second, the commercials not pictured, are heavily short. Third, we have had some divergences in some underlying indicators telling us the time may be now. Also, we had a very low volatility reading, indicating a breakout one way or the other.



We have already taken profits on half our position with $1839/contract and are trailing down a stop to see if we can catch a larger move on the balance. Often you get picked off on the second half for a scratch on that portion. That is ok, because occasionally we will get a windfall on it, and we are risking nothing. We have already rung the register for some $$, so anything more is gravy. It is still possible that this is only a retracement in the uptrend, so it is prudent to keep the trailing stop at break even on the rest just in case we get going again on the upside.

Up Up and Away?

If you look at the sharp upward shift in long side positions by the commercials, and my Magic Potion indicator solidly in the green, things look very bullish. At this point the seasonal seems to have been met by the sharp decline at the end of July.

I am in a flat position due to the horrible mistake I made of exiting due to someone else's model that I respect. As a result, I now need to look for a way back in, or wait for the short signal. The problem is, we are nowhere near a short signal now. Also notice the very bearish positions by both the Small Specs and Large Specs, this is very bullish. At this point I will wait for the typical seasonal low point in October, and just buy strength if we have not had any meaningful decline into that time period.

It is important when you make a big mistake like I just did, to not get emotional and chase a market. If I miss out on an opprotunity, so be it, but chasing what could very easily be a runaway move here upcoming, is not something I am going to do. If you are long, definitely stay long, it could not be much more bullish than it is right here.

Do Not Fight The Fed

Quite frankly I could not have been more wrong when I exited my stocks on Monday. This is where discretionary decisions can come back to haunt you. When trading with systems, which I do, there are still times when some judgements have to be made. This year I have been off by just 10 days in one spot, and here probably about a week, and the result has been a horribly managed trade.

With the bond market breaking down sharply, and the commercials starting to go to the short side, my model will probably give the sell signal next week. However, it would not be surprising to see new highs by then. I do have to confess that in my research I looked at a new timing model developed by someone else, that indicated an exit early this week. This did influence my thinking because he is one of my mentors. I will not make a mistake like this again, it is clear that my system is far superior to his.

When we make new highs, we will once again have one of those broadening patterns I have posted previously. If this occurs while a heavy commercial short position is on, it will be an excellent shorting opportunity. I apologize for steering people wrong on this recent movement, it is one of the biggest blunders I have ever made.

WHAT TO DO?

I have been debating this for the last month or so, after we had the severe decline in stock prices. My plan as I had posted earlier, was to sell on a rally off that low point. It is always easy to say that, but defining the exact point is never an easy task. The COT report is released after the close today, so I do not know what that will show. I had planned to wait for the commercials to get heavily short before exiting, however on this screen, there are a few reasons why I am front running that plan.

First, I have a proprietary indicator which I just call the Long and Short indicator ( L&S). As you can see, it does a pretty good job of calling short term highs and lows, and it is in the sell zone here. Also, the commercials started moving off their heavy long positions two weeks ago. The other thing that I have displayed here which concerns me is the Small Specs increasing Long position. It is back up to a level similar to where it was in July. This is an indicator that I want to fade.

The last, and most important reason why I have exited today is that the value stocks I had purchased, which led the market rise significantly, have lagged it considerably, on the bounce off the lows. I view this as a sign of underlying weakness of the overall market. Last, the heavy seasonal down bias is here. It is possible that the big decline we have already seen is all that there will be, and the seasonal would still be accurate if that were to be the case. However, the seasonal calls for fall buys, so that is where I am focused.

I still have a profitable trade, so it is time to take the profits and wait for a better entry point.

What in the world is this?

I have diagrammed out a broadening formation which is taught by a famous trader by the name of Kevin Haggerty. The rules as to how these points are derived is proprietary to him, but not necessary for this discussion. The basic concept is that once these form at key points, often large market moves happen.

There was also one at the high, just for the record, which did predict this downward move. This one happens to be occuring in the zone of the 200 day moving average, which is a widely watched level by institutions. I for one have not found it significant in my studies, but many other very good traders swear by it. Please also notice that the commercials have increased their long positions over the prior week. When you combine these two things, this is a pretty good buy signal. I realize I will get booed out of town for saying anything other than the world is ending, but this is how I see it.

Whether or not we have another huge downdraft or not nobody can know, but the fundamentals are in place for a bounce from here. If you combine this with what was in my last post with the Vix, there is a reasonable basis for an upward move. If it happens, I will be watching my model closely to see if the commercials jump off the ship. If they do, I will jump with them.

NOW WHAT?



It is impossible not to concede that the trend has now turned down. Oddly, the commercials are still heavily long, if we go into a full crash, it would be the first time in history that it has happened when the commercials were positioned like they are. Below, I have a custom indicator based on the VIX index. As you can see, whenever it has hit 100, a major low has been made.



Although this chart only goes back to 2006, all the prior major lows have had this reading. It is at 100 now. As a result, the likelihood of at the very least a good bounce is very high right here. I am waiting for that bounce to then see how things look. If they still look the same with the other things, I will stay long, if they do not, I will sell all my stocks on the bounce. The VIX measures fear, which is why it has historically been a good predictor of lows. The fear is clearly everywhere right now, and rightfully so. It is possible that we have an unprecedented economic event that will spill over into everything.



I do not get involved in investing based on guesses about such things. The above types of things are how I make my decisions. This tells me not to short the market here or sell out here, so I will not. Could we just continue to waterfall, absolutely. Do I think we will, no and the above is why.

No Change

In spite of all of the emotion surrounding the volatile gyrations in stock prices, fundamentally nothing has changed. As you can see, the commercials continue to be heavily on the long side of this market, which is preventing any sell signal in my world from developing.

Keep in mind that this is news driven trading, and we could easily see a 500 pt up day if there were one good news item that came out. Historically, there has not been one single market crash, with the commercials this heavily long. That does not mean that it cannot happen, but it does mean that the odds are against it. As much as I do not like watching my stocks get hit any more than the next person does, I will not get tied up in an emotional exit. On a short term basis, this is a buying opportunity for a bounce out of this decline. I do think there are big picture issues that may take stocks down more. However, I would expect to see a move to the short side by the commercials before it happens.

I have short term buy signals for Friday depending on the opening, which as I type this appears to be setting up to be a weak one. Bonds did not decline much today, which shows a lack of belief on the part of institutions in todays selloff. A flight to quality would normally occur on a day like this in bonds if insiders were really scared. It is curious that it did not to me.

I do not profess to have all the answers, all I am doing is spelling this out as I see it and as I am trading it.

NOW WHAT?

Here we are in the midst of a pretty sharp decline in stock prices. Alot of gloom and doom is out there. I have to admit that the price action does in fact look like a top.. However..... my timing model is not telling me that yet. The commercials are still heavily long, which is significant. If the real insiders are not selling this decline, why should I?



It does need to be stated that I do have a long term upward bias for stocks, and there is a reason for this. No matter how I research timing models over mid term time horizons, all the short signals are very inconsistent. The reason for that is obvious, the long term huge stock uptrend that exists.



As a result, I look more to dodge big declines and buy dips, than I do to short big rallies. That is a suckers game, and I have learned that lesson the hard way over the years. What I have displayed here is what my guess is as to what will happen in the near term. If my system is to generate an exit, it would most likely be with a rally up from here that probably fails to make new highs. If the commercials were to move over to the short side during such an attempt, the system will most likely give the exit signal. Most of the exits ( sell signals ) with my system, have occurred that way in the past, so that is why that is what I expect now. I was on the record as many know that a sharp decline should occur this year beginning in about the beginning of August, I was off by one week unfortunately. I do wish I was out of my trade at this point just off the cuff, but I always follow my systems, unless I find something that is so important that it cannot be ignored. I have not found anything like that at this point.



Just for the record, that buy trade in the last post was stopped out for a loss. I did it with small size due to the volatility expansion. I always trade small when that type of thing happens, so it was a 1% loss, who cares about that.