SQUEEZE ME!!!!!!!!!!!!

The Squeeze trade to make the 400 million economist both professional and amateur sweat, is on. Readers of this blog of course know I have been calling for this recently. It is also at this point a retracement in a downtrend, still well within pullback parameters for a continuation trade back in the direction of the longer term trend which is down.

Which is the way to play this? Short this rally or buy the pullback?

The answer to that is that it depends on what your time frame for trading is. As a short term trader I know that the highest probability trades are pullbacks like this, with commercial selling that accompany them. However, I also know as I have written previously in here over and over, this is the short squeeze of the decade in the making. Since the potential for such a large gain on the upside is there, long side entries also have to be taken.

For a longside entry we need a pullback to test the low. It is possible that like the metals, it is just a V bottom like they appear to be a V top, and that opportunity will not develop. The problem is that we can never know that when it is happening, whether or not it will just blast off, or give us a retest. I can tell you from the experience of learning the hard way over the years, you have to fall back on your entry techniques now and if your setups give you the trades you take them, if they do not you move on. There is always another trade. If you just blindly bought an oversold market on the Dollar all the way down searching for this bottom that appears to have formed, you would have been bankrupt long ago.

I studied for years over-extended conditions and how to fade them, all that happened is my account balances faded! If you can live with a 20% accuracy rate knowing eventually you will hit a homerun that makes up for everything, that approach can work. I personally cannot live like that knowing I am just a few more decisions at any moment from handing over my house keys to the bank. At this very moment I do not have an entry setup in either direction to trade this. The chart below shows why.

You can see the oscillators far outracing the price. There are 2 ways to look at this. One it tells us this is a very strong move which we can obviously see for ourselves on the chart. Second, have they punched themselves out? Larry Williams has taught recently that at times this can be a reversal pattern when the price does not keep up with the momentum oscillators, and a move can fail. For my purposes I either need some type of a momentum divergence now to short this move, or a pullback where the oscillators stay positive and we get a higher short term low. Other than that it is basically watch to see if either develops. If they do not I do not take a trade here. The currencies and Forex pairs offer plenty of action, so if this does not setup exactly like I want, I will just say I told you so on the rally, brag about the call, and move on.

I do not trade well when I force trades, so even though it kind of ticks me off that I am not long here since I predicted this, my entry setups are not there yet either way.

Lets Blow This up!

Following up on the Dollar discussion over the weekend, here is a monthly chart of the Dollar Index. I have indicated with lines and arrows a couple of nice turning points signaled by a three point divergence in the momentum oscillators. The one at the top was a beauty. I sure wish we had one here at this low, and maybe the lack of it does indicate we will not hold here. Technically if we did turn up from here we will have a three point divergence in the lower oscillator, but it is not nearly as clear as the two marked.

After having a friendly debate over the weekend with a friend who has the consensus view and hence opposing view of mine on the dollar and gold, I want to address my thoughts on this. First, I do not argue that in the end an inflation wave is coming here as the result of the government spending. The problem that I see with that is that in the near term, meaning a few years or less, I think we have a big deflation wave upon us. I base this on my reads of the COT reports and what they tell me about likely future market direction. They are as I have written in here indicating to me a large downwave across the board coming. I do not trade on my economic opinions. If that worked economists would be good traders not terrible ones.

I would love this chart to support my COT based view on things with a big obvious divergence at these lows which it does not. However, what I do use to break ties is sentiment numbers. The sentiment numbers have recently gotten off the charts bullish in alot of places, bearish in the Dollar. What this does confirm to me is my anecdotal observation that everyone in the world but me and Bob Prechter thinks the dollar is going way down and Gold way up. I just cannot remember the last time if there ever has been one, that the whole world including every small individual investor, was in agreement on a future outcome, and that outcome became a reality. Ask yourself that question, if everyone is bullish on gold and bearish on the dollar, who is left to buy gold and sell dollars?

This is an opinion I will grant you that, and I would not trade off just that alone. However, trading is a thinking man's business and at times you have to ask yourself common sense questions about things. For the dollar to become severely devalued from here you must also believe the US will become a second rate country. In as much as that appears to be the path the current administration is taking us on, they are going so far they are likely to be one term office holders, and a new group will come in and nuetralize what they have done. Net, net we don't get anywhere, which also means we don't go way down.

Does this chart showing a huge downtrend really indicate a bubble condition to you? It is like GOLD, they both may continue their trends, but is this a place you would want to place a large bet in continued movement in the same direction?

Maybe for the metals bulls and dollar bears, we will get a sharp correction here to both which will flip sentiment, and provide a nice continuation entry in the direction of the current trends. I could see a 40% to 50% Gold decline as setting up a nice buy spot. The following chart is showing something that to me is very bearish for Gold.

If you look at the patterns of the commercials and small speculators you see a consistent pattern. Commercials have been buying on the dips and small speculators have been selling. What is occurring now is not that pattern at all thus far. Commercials are adding to their shorts and small speculators are not selling yet. If the correction continues this needs to be watched to see if it drifts into the normal pattern. If it does we could very well have a nice dip to buy into. If it does not we could have a washout like Crude Oil had once it hit $140. At the moment this is bearish, but it needs to be watched to see if it changes. As you can see when the support levels in small specs have broken in the past we have had sharp down movement. If this recent decline continues enough to shake out some of the small speculators who have been late to the dance, this correction could get very interesting.

WHAT'S IN STORE THE NEXT FEW WEEKS?

Predicting what will happen is a difficult task obviously. I have done it very accurately over the last few weeks, but that is no guarantee I will always be this accurate. The whole point of engaging in this exercise to begin with is to be prepared to act accordingly when certain things happen. We need to be especially ready if and when they play out in line with our expectations.

Above is a weekly Dollar Index chart. One thing I would like to point out here is the achilles heel with oscillators. As you can see at the bottom, the oscillators have been diverging this dollar move most of the way down. Had you just traded off that alone, you would have been cleaned out buying and getting stopped out over and over again. No matter how you construct them, there does not seem to be a way around this, so it just needs to be accepted as a limitation with them.

Notice how we are approaching the typical seasonal low which has historically been around the first of the year. We have rallied quite a bit and are now up against resistance areas on weekly charts. Also, the inverse of this market, the individual currencies and metals are into weekly support levels now. We are seeing commercial selling in the DX on this rally, which is a sell signal due to how strong the downtrend is. We can never know when retracements in trends are happening whether they will become a trend reversal, or just fall back in line and resume the current trend. We have tools we can look at to help. Most of those tools are indicating to me that a short term sell signal is here in the Dollar, and buy signals in currencies and metals. Since the metals are free falling at this point, unless you are a really strong bull, I would not recommend just blindly buying them here. We need to have a shorter term pattern in both the DX and Metals and Currencies to trigger an entry.

Here is what I am forecasting to happen over the next few weeks. A dip in the Dollar and rally in the metals and currencies, which will setup the real big time trade opportunities in January. Those are going to be short basically everything and long the Dollar. There has never been a more obvious trade to me than to short the Stock market next year. Every time I turn on the TV that imbecile in the oval office is behind something else that is bad for the US economy. At some point all of these things are going to cause a meltdown, and I think that time is coming now soon. If he is intelligent than it means he is ruining the US intentionally, so I hope he is just stupid.

There are times in your life where the collective just screams at you that there is an obvious big picture opportunity at hand. 2005 in Real Estate was one of those, when I sold my McMansion and cashed in a seven figure gain. That could not have been a more obvious trade. I believe we are now at a similar point in time. This whole government sponsored rally is not going to last, and I really believe this is another rare opportunity to make a market killing. Timing things is a different matter, but we are in a zone where something is going to give soon.

It seems to me that overall these rallies across the board are traps that are about to be sprung. I am a bit worried that the metals are just going to keep tanking and not give us that second chance, but there is so much bullishness that the real bulls are nowhere near a capitulation point yet. It is the bounce and subsequent failure of it if that occurs, that will trigger a very large selling wave. Once the world realizes they have been sold a bill of goods there I think it is going to be shocking to some how fast that market unwinds. Another thing to consider is that thus far the commercials are not buying this dip in GOLD. I would like to see that before considering a long entry. However, if I do get a short term bullish pattern that sets up in this price zone, I will go long GOLD for a short term trade as well as currencies and short the dollar.

If I see that pattern setup I will post it in here in a timely fashion.

OOPS!!!

I took the Yen Short Sale I mentioned in here last night today. This market just free fell on the bogus retail sales report, down 200 points on the day.  I was waving to the crowd at that point. However, as the market has a way of doing, we got a significant rebound from there closing in the middle of the range making this look a little marginal now. These large range days are always tough, and we have seen so many this year. The market punches itself it in very short spurts nowadays. Trades I go into intending to hold if they work out for 3 to 10 days, move the amount desired at times in hours.

This is the world we are living in now. Information is disseminated faster than ever before, and for the moment until Congress stops it with the trader tax they are contemplating, this is how things are going to be. You either have to keep stops further back, or take quick profits. If they pass the trader tax, the markets will essentially be ruined, and all this will go away.  The brokerage firms will also leave the US taking ungodly amounts of tax revenue for the government with them. As annoyed as Congress has to be with trading because it allows those who can do it to not be dependent upon the government at all, trading performs a vital liquidity function.

These morons do not understand that if they do what that communist Pelosi seems to be endorsing, the markets will be completely illiquid. Average Joe who holds Microsoft stock for months or years like the government says you should, will take a nice hit when they sell. Why? With no market makers filling orders, he will be reliant upon another person like him placing the same order from the opposite side. It could take a couple of dollars of decline in price before that happens, resulting in a nice little loss for Average Joe. As repulsive as traders obviously are to these people, they perform a critical liquidity function. Since you have people at every .01 buying and selling now for small gains, it allows the average people who do not do this, to get good fills on their orders.

They want to eliminate this. If I was not living through these times I would not believe they are happening. Obviously, I and every other trader will leave the US if this gets passed and move to a place where it is not happening.

As to this Yen trade, I have to study this over the weekend, but since we stopped right on weekly support it is likely I will take profits Sunday night in this one. I think this bounce indicates we are not yet ready to go here yet, but I could change my mind after looking at this. I don't like very big short term moves like this getting reversed the day they happen or the day after, it feels like a trap to me at the moment.

Even though I still am of the mindset that the PPT and everyone else involved in this bubble build here will do everything in their power to keep things strong through year end, there is a sell signal for me on Monday in the S&P if we break down below todays low. I will take this trade if it occurs, but will not likely go for a big target, since I think the powers that be will only let it go so far if they let it go at all. We are now churning in a zone where now a break could hit a 20 day low which might attract fund selling. That might be very interesting to see who blinks first if we get there before years end.

Notice the old textbook Head and Shoulders pattern where the red arrows are that is setting up. We also have a good amount of divergence in the Pro Go Oscillator. A short entry could be done at the line drawn on the chart, and I will likely be a player there.

Have a great weekend I will probably post some new things over the weekend!

Lets go to the Far East to see what is brewing with their currency, enough of obsessing with the Dollar already!

Here is a weekly chart of the Japanese Yen, a market setup nicely for a move. We have been in a great uptrend here for awhile, might things be changing? Notice on the last leg up the commercial selling that took place, which happens to take us to the same level of selling that we had there during the last price peak ( Blue horizontal line ). Also, my proprietary Small Fries sentiment recently hit a very high reading, as did the LW sentiment indicator. This is also happening right at a time when we have typically had the seasonal high for this market.

All of this tells us that this market is setup for a decline, will it? I do not trade off weekly charts, I use them to find markets that are setup. Sometimes this bites me because I miss smaller moves only apparent on daily charts. That is ok by me because as I state so often here, this is a difficult business. I want to have as many things in my favor as I can have before entering a trade. The recent Silver move is a perfect example of how powerful trades are where multiple time frames line up together.

Here is a daily chart which also has a setup for an entry.

Once again we have the Large Proxy Index indicating the Large Traders have become sellers in this market. We can tell that from just looking at the chart with that sharp break that occurred. The two momentum oscillators are also both under their trend lines, and we have had a bounce. The red arrow above the recent high is a proprietary indicator of Larry Williams that often does a good job of finding short term peaks and troughs. A breakdown out of this bounce is a definite shorting opportunity.

This market has been an interesting market this year. Early on it was the flight to quality vehicle when our US markets crashed. However as our marked stayed strong, this market also regained it's strength. It appears now that we are setting up a flight to quality in the Dollar now and the Yen will decline. I think we are on the verge of a signifcant decline in US Equities as I have stated here repeatedly. I think the powers that be are going to keep it propped up through years end. However, Barry and Co. and what they are doing with spending is going to matter sooner vs later. If you combine that with what I think is a coming Commercial Real Estate crash, I think we have alot of things lining up for an interesting first quarter of 2010. We have built another bubble here, which is one thing we seem to be able to do very consistently.

COTTON

I have not talked about the Cotton market much lately. As you can see we have been in a nice uptrend, with a beautiful trend line containing the price action for several months. We also have had a good amount of commercial selling during the last leg of this rally upward. As you can see we are below the trends in all the momentum indicators, and had an up close today. A break from this setup the also breaks the trend line should be a very nice short entry.

We appear to have begun the commodities meltdown that I have been talking about in here and first mentioned about a month ago. I pointed out that virtually every major commodity market except Natural Gas had significant commercial selling going on and that I had not seen that before. Now that we have a dollar rally that appears to be underway, it should logically follow that we will have a break down in the commodities markets.

Silver has just been slaughtered this week reinforcing the point I made about it's relative weakness to Gold. I am just hoping the metals bounce here and just don't go straight down 50%, which could easily happen. This is the biggest trap I have ever seen in all my years of trading, and it appears at the moment the trap has been sprung. Gold bulls will not give up easily, but if they can stage a rally and it fails, look out below you will see a fall like most of you probably never have seen. We will see $100 down days in this market soon I think.

Of course I am apparently alone in this opinion as far as I can tell, yet I did make quite a bit of money in that short trade I posted here even though I exited it poorly. My concern is about making money, not being right or wrong. That is for cocktail parties.

The GOLD BULL Market

As I listen to all the waves of commentary every day on why Gold will continue to rise forever, I thought it might be nice to get a broader persective on this market. Above is a Cash Monthly Gold chart going back to 1970. It is very clear the large run up in the late 70's into 1980 and the large fall from there. Then the gradual downward grind. Of course now we have another launch that is actually larger than the first one. It certainly can be argued that it is a long term bull market because over time it has net continued to rise. It is actually rare for a commodity to have a long term trend over many decades in either direction. They generally see saw back and forth and look like an EKG.

I have stated many times how bearish I am on this market and from a bigger picture view now you can see why. The first two sharp spikes up marked with red arrows both resulted in very sharp declines. The third one is yet to be determined. We have had a very sharp downward move in the last few trading days in this market, but at this point it is still a short term move, albeit a big one. Sometimes regardless of people's rhetoric including mine, you have to step back and look at things and see if what you are being told makes any sense. I did that in real estate at the end of 2005 and determined that it was obvious everyone was lying about the future prospects, so I sold my Newport Beach Mc Mansion and rented for 2 years. I then got a pretty good deal and bought another home. Since I have horses, dogs and all sorts of things, renting is a tough prospect. I knew I was early going back in but my life was not manageable renting. I bought back in for about half of what I sold at, mission accomplished.

Why do I mention this, that could be a plan for this market. I really have no idea if we are going to 2500, 3500, 10,000 in this market. The people selling GOLD will have you believe we are at such a unique time in history that prior fundamentals do not matter, "it is different this time." Just step back and look at this chart, is this really a spot when taken into historical context, that you want to put your retirement money, right now? I will say that the next person who tells me about Fiat currency I will shoot immediately. At least get a new talking point!

What might very well happen here is they open the trap door here for a bit, shake the tree, then it presents a wonderful longer term buying point. There are so many armchair quarterbacks in this trade, I just don't think the market will accomodate them forever. I could post 100 charts in blowoff phases like this and they all end the same way, huge declines. Timing them is hard. My Silver trade the other day was right at the exact high day, very lucky even though it was based on a technical pattern that showed up for the first time on that day. However, I was looking for at the very least a significant pullback here. It appears to have begun but we are still holding support, although it broke today in Silver.

TOOK THE MONEY

I exited the Silver trade where indicated here for the profit it shows. The $4200 is a gain, the brackets obviously do not indicate a loss, they just surround the amount. Genesis has a tool that shows dollar amounts from different data points and puts them in parenthesis for viewing. Since we were holding the recent pivot point and had 3 good days down I decided to take the money on this one and lay in wait for a bounce. We can't get really going on the downside until that pivot point goes. It could happen any day, but as I stated previously, as bearish as I am on this market and the metals as a whole, the uptrend is still intact. I would have held this trade more aggressively had that pivot gone today. It did test it repeatedly and quite frankly my exit here was lousy. I had an hour or two to get out $1000 per contract better and got too darn greedy. I am now looking for a bounce to short again. Copper has a extremely bearish COT position with very heavy commercial shorts, so maybe that one will set something up. I do have short term buys here if todays highs go tomorrow which in Gold has already happened as I type this, so maybe that bounce will come right away?

All in all still a good trade, so time to move on. The sell order I had for the SP 500 today did not get filled and we wound up with an inside day with a down close which is not a good sell pattern for me, so I do not have anything there tomorrow. We could still get a short entry in stocks this week depending on what happens the next few days. As I have stated, I do not expect a major dip before years end, but you never know. If the setup shows up I will take the trade. The dollar and what it does the next few days, will determine quite a few other setups for me. First the dollar itself I will be buying on any pullback now. I will also short a currency or two which essentially is the same trade in inverse fashion.

Notice how the downtrend has broken in every way here for the Dollar Index, this puts me in buy the pullback mode. It also puts me in hope mode that this does not just run away from me. I have stated in here many times, this is the short squeeze of all time waiting to happen, and it is not far from triggerring a ton of stops. We are still technically although it is not shown here, in weekly resistance areas so maybe we get a dip here to give me the setup for a long. The currencies are basically mirror images of this. I am not sure which one I will play on the next trade but likely not the Euro. The reason for this is due to the weighting of the Dollar Index, the Euro is essentially the mirror image of it. I want a little less correlation amongst different trades. The Pound as I have highlighted in here is a very weak currency, so that is where I will look first.

SCORECARD TIME

I have thrown out alot of things here recently. In the past it is my format in here to review what I have put out to critique myself and determine if I know what I am talking about or not. I do not see many others in this business ever do this, and it makes me wonder why? Of course we know the answer to that question don't we?

Here are the last 7 market calls I have made in here, and what has been the result afterwards. I will Grade each one, then give a composite Grade for the body of work as a whole at the end.

1. Natural Gas Rally

2. Crude Oil Decline

3. British Pound Decline

4. Dollar Rally

5. Silver/Gold Decline

6. Bean Oil Decline

7. Stocks - Short Term strength, Long Term Trouble

NATURAL GAS

Trade looked like gangbusters for a couple days, but in the end the rally reversed at resistance and made new lows. Since the trade was a profit albeit small, and did go up quickly the day I stated it would I will give myself a C here. I had alot of money in profit here, and most of it went away by exit time, but I was trying for a larger target here due to commercial buying and it did not materialize.

CRUDE

It certainly would be hard to have been more accurate than this. I called and drew in a little zig zag up as a selling opportunity, and that is exactly what happened and the market declined from there. A on this one no doubt.

BRITISH POUND

Called for a decline and short entry at the arrow, again could not have been any better than this. A.

DOLLAR INDEX

I called for a rally in the Dollar Index if the high at the arrow went on that day, it did. We did dip some after but look where we are now. Who else was calling for a DX rally at this time, nobody that I know of? Grade here A.

SILVER/GOLD

In both Silver and Gold I called for declines and indicated a short entry as labeled. I said Silver was the market to short because it had a weaker chart pattern than GOLD. Trades don't get any better than this one has been so far. A. I also mentioned that I was not sure if this was "the top" but that I thought it was. Also that I would manage this as a short term trade and see if it breaks for potentially holding it longer. That may be happening today, but too early to tell yet.

BEAN OIL

I discussed a short entry here where the arrow is, and this has gone nowhere. In my personal trading I shorted Wheat due to it being weaker and a better pattern, which has been a good trade so far but I did not post that in here, so I get no props for that. I guess I get a C here, not right or wrong really, just flat.

STOCKS/SP 500

Short term so far I have been pretty good here. I have called for the trend to continue as long as the prior pivots held on these pullbacks, which they did. The trade for today is yet to be determined. I have also mentioned we are in areas where caution should be used on the long side. I would say since we are going sideways that has been a pretty good call. As far as the longer term comments, we won't know for months whether or not they are accurate. Overall I would say a B here.

OVERALL SUMMARY

1. Natural Gas Rally - C

2. Crude Oil Decline - A


3. British Pound Decline - A


4. Dollar Rally - A


5. Silver/Gold Decline - A


6. Bean Oil Decline - C


7. Stocks - Short Term strength, Long Term Trouble - B

Overall Grade - A-. Not one single trade I have proposed that has been reviewed here would have lost money for anyone who did them. I did all of them and made money in every single one of them.

In summary, I have had a pretty good run of market calls and trades in here. I have made every single one of the trades I have mentioned in here and generally do. The only exception would be if something happened significant in between when I post here and when the markets open that might invalidate a setup. This will happen occasionally but not often. My main attempt here is to just have an open forum discussion about things. I selfishly helps me to lay out thoughts and trades out in the open for public consumption, because it makes me insure that what I am doing is in sync with my approach. When I put it out for public scrutiny I better damn well be sure I am prepared to defend it and live up to it.

I make no guarantees of anything. This recent run has been about as accurate as anyone is going to be for a period of a few weeks. Trading is a very difficult business, there are so many humbling moments, they far outweigh the hot streaks. Even when I have made alot during a run like this, one bad trade can make me feel like the biggest fool in town. All I pledge to do here is call them like I see em, and be my own harshest critic.

Will the Train Derail?

The Major averages all made new intraday highs for the year Friday on the NFP report. At this point the up trend is solidly intact, with no obvious big picture ominous signs yet. As I have written about previously, we are into a price zone that has the potential to mark a significant top. However, that is not enough to just blindly run out and short the market. It is my belief that the next move down when it comes will be very sharp and shocking to market bulls. When and where this will start from is anyone's guess.

My Commercials Hybrid Index is pegged at 0, in the sell zone. The would mean alot more if we were in a downtrend and bouncing up against that trend. It being squarely against the trend does not have nearly the same significance. The Bradley Astrological model seems to be telling us to look in the Feb time zone for a decline to begin. There has been a tendency in recent years for first quarter declines, so that makes sense on some levels. I really do not follow that, it is more a study project for me at this point. It has undeniably been pretty accurate, although you can see one place where I have OOPS written, where it was dead wrong this year.

I will cut it some slack during that period because almost everything else I look at was also indicating this rally might stall there. As I have stated in here previously, this rally has defied alot of logic, not so much the gloom and doom recession talk, but with trading indicators. I cannot remember a move that was so wrongly identified by all the techniques I have learned or developed over the years. Virtually everything I look at was wrong in the middle of this move. So be it, we are never going to get them all. Most of the top traders I know have also been wrong about the length and extent of this move.

At this point the trend is up, so until we see a break of 1026, there is no reason from a big picture standpoint to be short. With all that aside, lets move into the daily charts to look at a current opportunity for a trade. The first chart is depicting a very large current short position by the commercials in the Nazdaq Index. This is a proprietary chart from Insider Capital written by Steve Briese. Steve is one of the COT experts, and I subscribe to his monthly newsletter. For what it is worth, he is predicting new lows under March on the next decline.

This is kind of a messy chart, but just focus on the red arrows. They indicate the last occurences where the level of shorts by Commercials were where they are now. As you can see we had declines in every instance. This at the very least is a wake up call that something could happen here to the downside. Keep in mind the US Government through the PPT activities are out there lurking ready to support any decline that starts and threatens to Derail this. The one problem I see with this is that even though this net position is historically low which triggerred the 2007 top, it is only 20000 contracts. The PPT can certainly play in that size very easily, so they can probably stop anything other than a huge liquidation situation.

This is why from a big picture standpoint until we get under 1026 in the SP 500, short trades need to be played as short term trades. Speaking of that, the next chart shows what I consider to be a shorting opportunity that is there right now.

Notice how the Large Trader Index is actually under it's Momentum line even though the market has been moving higher. Also the other 2 Momentum oscillators below are also displaying the same thing. Combining this with the divergence in the Pro Go Indicator in Green on the price chart, we have a pretty good short term setup to short this market. I have indicated one sell entry possibility on the chart, which is likely the one I am going to play. At this point I view this as a short term opportunity. If it were to trigger and start gaining some steam, I would consider holding it longer for a bigger move.

Fund managers along with the PPT will fight hard to contain any selloff into years end so I do not expect a big one. However, when a setup like this arises I have to play them and just see what the market delivers. If we always knew what would happen there would be no reason to turn on the machines everyday.

Thanks for checking in, I have noticed that I am attracting some readers from all over the world. Our world truly is flat nowadays which is a good thing.

GOLDEN PARACHUTE

After yesterday's Gold Wipeout I thought we should look at how things look right now in this market. Is that the beginning of things to come, or just a one hole double bogey? The chart above is the weekly chart of the Cash Gold Market, with of course the COT and some of my other things as well. First, notice that the Sentiment and Valuation indicators are pegged at the top. Valuation at times can max out like this, but sentiment is more rare to be at this level of extremity. However, this has been one of the biggest moves of my lifetime, so this is no suprise that either of these is here. It is also no indication that the market will immediately decline. What it is though is a warning sign to be careful.

Next, notice how the Large Trader net long position has blown past the prior record levels. In general most markets have theoretical limits here because of the position size limits imposed on big traders, that is not there for commercials. However, we have seen this before where when a major run in the market happens the prior levels get exceeded. Large Traders are generally momentum traders, so they use open profits to pyramid and buy more as trends continue onward like this one has. The flip side to that is that when it is time to exit, the doors get very crowded. In general we want to be one the same side of the market as these guys due to them being the trend accelerators.

Once we get a short term indication that they may be beginning to exit, that is when we need to look for price reversals. As you will see in the next chart, that may be happening here. The last graph is just displaying the normal seasonal pattern, which calls for a January High, so we are also in the ballpark for that to have an influence.

One of the things I mentioned back in October was the rumor that the worlds Largest Commercial in this market was going to unwind their short hedge in this market. This position was supposedly a couple of Billion dollars. At the time I mentioned that the bullish case then would be that we could see what is called commercial capitulation. This occurs rarely, but did with Crude Oil at it's high. This is an instance where they are losing so much money on a hedge that they throw in the towel on that position. At the time I had stated that would result in a huge blowoff upwards, which is what has occurred. So it does appear that is what has happened. The general pattern to expect in that instance is what happened with Crude Oil. If that is mirrored in this market, we could revisit very low price levels here.

There is one problem with this assessment. Although price seems to reflect that has happened, the COT report does not. The COT report shows that the Small Speculators were behind the recent vertical move. This seems very hard to believe to me, the numbers just do not work for that to happen. There is simply not enough buying power between me and you to overcome what these large players who have been selling are doing. Also, what should be reflected in the COT report if that had occurred is a large decrease in the net Commercial Short Position. This has not happened, they continue to show record short levels. I think the answer therefore has to lie in how the government is classifying some of these positions. There just simply has to be a large entity that is being classified as a Small Speculator that is in reality a Commercial. Mistakes like this have happened, but in all honesty they are rare, and this is simply my conjecture as a possible explanation for this.

Why does this matter? In reality it does not. When a market moves into a blowoff phase like this there are very few if any reliable things to look at that can identify a top. I did short the Silver market as you know on Thursday, so that at the moment appears to have been pretty good timing. This was done through a proprietary technique that will not be revealed in here. It has nothing to do with the COT data. I do however like to have an idea when analyzing something like this, what the big players are doing, so in summary everything matters. When you put on a trade though the only thing that matters is following your rules for entry and exit. The research and analysis needs to be done on the front side. I did lay out the general overview as to why I did this trade the day before it was triggerred.

Do we have a potential major top at hand?

You can see with the two instances for the trade setup marked 1 and 2, that this new tool has done a very good job of keeping me out of trouble here. The only two instances it has indicated a trend fighting trade on the short side, it has been accurate. Most indicators like this diverge against trends constantly and have you always fighting them and getting run over. Notice the size of the daily range Friday and also the large range a few days before it. This type of volatility often indicates a change of trend is in the works. You can see that all the way up the range sizes were fairly uniform. This does indicate now some hesitation about all of this.

It is my personal opinion that a top can occur at any time here, but I do not know for sure if this is it. I do think it is, but we still have not broken down enough to say that the up trend has broken yet. So, at the moment this has to be viewed as a retracement in an uptrend. The next chart shows why I think it is more than that.

The US Dollar is on the verge of setting off one of the biggest short squeezes in history here. We have had 3 prior false trend breaks, so it is possible this is another one. What makes me think it is not is that the low occurred right on the exact day that a Larry Williams report predicted it would 6 months ago. My experience with his forecasts are that when a market follows his road maps for several months, they tend to be uncannily accurate in future predictions. When the Markets stray from the Maps I just disregard the turning point predictions. Many markets have strayed from those Maps this year, but this one has turned almost exactly at every spot his map had predicted. I used this knowledge to pass on several long currency setups that have been showing up the last 2 weeks, and it has saved me alot of money.

If this is a major low being made in the Dollar, this will be the top for GOLD. It will be fun to watch either way!!!

TIMES BE A CHANGIN?

Now that the latest Non Farm Payroll report has been released something interesting is potentially developing. First though, I really think the NFP should be renamed the NOW FOOL PEOPLE report. I don't know what industries readers work in, but the ones I have interests in, the real life situation of layoffs and compensation is deteriorating at a rapid rate right now. The big picture everything is getting better spin is hard for me to see in the real world.

What I have in this chart above is a picture of the DJIA with other markets overlayed to illustrate the typical intermarket relationships that have existed historically. There are brief periods where they waver, and we have been in one of those recently which you will see on the next chart. First, though notice that typically the US Dollar and STOCKS have moved in unison, and GOLD and CRUDE have no real relationship that is consistent. During this time period I have here, there appear to be some with GOLD AND CRUDE to STOCKS, but they are not consistent over time. It is the DOLLAR relationship that is important here.

The Bond Market in green has typically been a good harbinger of trend changes as you can see at the top. The Bond Market started a decline ( higher rates ) a few months before the Stock Market peaked. This has been a consistent pattern over time. You can also see at the low in 1993 on the left part of the chart, the Bond Market started a strong rally, then a bit later Stocks followed.

In summary, you can make your own observations by enlarging this chart and looking at it, but there has been no real consistent relationship between GOLD, CRUDE, and Stock prices. Also, there has been one with the DOLLAR and STOCKS moving together. This last one is the one that has come off the rails recently as the next chart shows.

Notice here how during the big rally from the 2002 lows the dollar was moving down. Also during the crash of 2007 - 2008 how it moved up. Lastly, how it has moved down during the 2009 rally. These are the opposite of what has historically happened as the first chart shows. What is interesting today, is that on the NFP report which was much better than expected, both the DOLLAR and STOCKS are moving higher together. This is one of the first significant signs that this relationship is coming back into line with what it fundamentally should be.

We will have to see if the Dollar rally sticks, we have had a few false starts recently where it appeared to be breaking it's downtrend, only to fall back again. The one relationship that I have not discussed here is the Dollar to Gold connection. This relationship is obviously and inverse one and that has remained consistent recently. As a result, if the Dollar is to rally, it is likely commodities will fall. It will be interesting to see how this plays out. Anyone who reads here knows that I think the DOLLAR is a short squeeze waiting to happen.

Reality Show Time

Following my post last night about the setup trade in the Silver Market, it was triggerred today so now I am short. What we can see on the chart is the point of entry at the red arrow, and the other red arrows also indicating we are under the trend of the momentum line which at least in the very short term, is the confirmation I want when entering a trade. Although the price trend is clearly up in this market, the shorter term momentum as measured by what is in this indicator, is trending downward.

This is a trade against the trend that is initially targeted for a short term move. However, since I am very bearish on this market, if we happen to get going on the downside, I will try to ride this for a bit. I think this and the GOLD market could drop by 50% once the trend changes in them. I have no idea at this point if or when this will happen. It is my goal to try and position myself for the next short term move, and then see what happens.

The GOLD market is such a sharp spike upwards, that it is likely when it turns to come down, it will move just as sharply if not more so. As a result, when the turn happens, it may not give an initial decline then retracement for the ideal entry. Silver has been different in that it has progressed upwards in a more orderly fashion.

I was talking to someone on the golf course today about this trade, so Jeff if you are checking in, this is the visual of the trade. You need to look back to yesterdays post to get the fundamental backdrop behind why I did this trade.

Nit picking this a bit, it would be better if the Large Trader Proxy Index had crossed down over it's momentum line indicating that the large traders were actually selling this market here. However, it is not realistic to expect to see that on the exact day of the high, when it reverses like this did. Large Traders are momentum traders, so they typically buy and sell and 20 day highs and lows. It would be rare to see them liquidating at a multi-month high. It should happen if the market were to start moving down some more.

It was a little suprising given the move down in equities today, that this did not move down more. Maybe that is a sign of underlying strength, time will tell. The strength is actually pretty evident right on the surface, we really don't need to look underneath!

Some might argue, what is this idiot doing selling a market that is in this strong of an uptrend? My answer to that is a trade is a trade. When my setups show up I take them, whether they be against or with the trend.  Generally, trading against the trend I shoot for smaller profit targets due to the bias of the trend. However, from most testing and research I have done over time mechanically with entries and exits, there is not as much of a bias in the direction of the trend for entry and exit techniques as most people think.

Equities did have an outside day reversal down today, which might be the sign of more to come. In the midst of this big upmove we have had several short term patterns that seemed to indicate more downward movement that did not lead to it, so we will have to see what happens. The trend in the oscillator has turned down there as of today also, whether we get any follow through who knows. I don't see this as an obvious signal, so maybe it will catch a few by surprise and follow through?

Readers of this blog know my overall bearish bias big picture on equities overall from this point forward. The strong seasonal up bias and the PPT should keep us relatively strong through the end of the year. Next year I think is going to be a different story.

AND IN THIS CORNER ......

Here is our contest for the Heavyweight Champion of the World. In one corner we have the undefeated, untied, unchallenged Gold Market vs the much weaker Silver Market.

You can see from this chart with Silver on top and Gold Underneath, how much Gold has outperformed Silver on the upside during this explosion. This is a graphic example of why I have been saying when I short here I short Silver, and any longs even though regrettably I have not done any recently, would be in the stronger Gold Market.

Notice how far below the prior highs Silver still is where Gold has blown through it's old highs by quite a bit. The reason for this if it were known and it is not, is irrelevant. All we need to know is that Silver is weaker. That does not mean we just go right out and sell and thankfully for me, even though I had a hiccup the other day in the Silver ETF, I have not shorted Silver in quite awhile. This is about to change potentially.

Also please note that the commercial short position is very close to what it was at the last highs with price well below. Even though selling this market would have been and still may be suicide, this has been a setup that historically has indicated a decline is imminent. Also notice the bullish sentiment and the arrows there showing what has happened during prior instances with the sentiment this bullish. We do have to note that the declines during the uptrend have been smaller when sentiment has been bullish than they were when it was bullish during a downtrend. This is to be expected and should be considered on any shorts being done here.

Now that all of this has been graphically shown, next is the daily chart with a possible pattern entry setting up.

At the bottom is a proprietary indicator I have been playing around with. Basically the pattern here is divergence that sets up after we get to a volatility expansion of it. There is a possible false breakout pattern here if we were to reverse the price right away where the arrow indicates. Also notice in the bottom indicator, that the blue line is still below the moving average of that line. This is particulary bearish from my studies of this.

I have no idea if this trade will work if it triggers, but it has what I have studied for 20 years lined up so I have to take this. I may look like the village idiot for doing so afterwards, while all the homemakers make a killing during this moonshot with the coins they bought!

Ground and Pound!!!

Love the MMA contests when they get into the Ground and Pound moments, hence the title here. The British Pound appears to be setup nicely for a decline. Above in the weekly chart we can see the commercials have been selling this rally. Again as we have learned brutally this year, this can mean virtually nothing just on it's own and can actually support a bull trend.

However, it is happening right at a time when the seasonal high is coming due, and also at a time when there is excessive bullishness in sentiment measurements. Also if you look at the daily pattern on a comparative basis, this with the exception of Fity Cent ( my new name for the dollar ), it is the weakest currency by far. I always went to sell the weak and buy the strong in any complex of futures.

One other thing to note here is that the commercials have a similar net postion now to the last level where declines occured from. As a result, this market is very nicely setup to decline. The daily chart below is next.

We also have the shorter term oscillators confirming a downtrend here so on this bounce we need to look for a break of the mini uptrend to enter the short side. I have one possible entry for tomorrow indicated, there are obviously other ways of entering. As long as stocks remain strong this is also being lifted to some degree.

We are likely heading at least for 1122 in the S&P, possibly higher. As a result this is on my list everyday for when the time comes when stocks stop lifting everything. I have no idea when that will happen as quite frankly since I have been trading I have never seen anything quite like what is happening overall now. As a result there is nothing to research to see what occurred last time, this has never happened before as far as I can tell.

I do think we are on borrowed time here but as long as the volume stays light which it likely will during the holidays, it is very easy for the PPT to stop any declines with futures buy programs. So, in line with that I expect stocks to hold up through the end of the year. However, the reason I have warned about new longs here is the huge selling in NAZ futures by commercials is at some point going to matter. I do think soon.

Confession is Good for the Soul

Well it is time to fess up on a major blunder where I let my ego get in the way of good trading practices. Readers here know that I have been bearish metals for a bit and been wrong. I have made a couple of short trades in Silver and made some pretty good money, but missed the big opps on the long side. I suppose I could say I am just an idiot, but I follow strict rules and those rules have told me to look for sells not buys. As a result I just have not traded this market much, none on the long side in the last 2 months.

I had mentioned the other day that I was starting to build a short position in ETF's for Silver, ZSL to be precise. I made the decision this am after actually adding to it, to bail the whole thing right about where my add on was done. Seems strange to be building a position for a long term anticipated large move, then exit literally the next day. Why would anyone do that?

You can see the clear break out on this chart which led me to bail along with something else which I have written about in here at length. Although there is a potential sell signal right here in stocks, it requires a break down to trigger which does not appear likely. Since stocks are controlling the whole world right now it is my judgement that even though I think this market is a textbook sell setup, as long as stocks do not break metals are not going to either.

We have a tight consolidation sideways going on in the indexes, which appears to me to be a continuation pattern more than a reversal pattern. I will be prepared to short on a false break and reversal. However, since metals are tracking stocks dead on, it makes no sense to look for a big break here until stocks break. With this breakout that just happened who knows how far it could go. It could reverse right here and it if does I will re-enter immediately without a second thought.

I made the mistake of not waiting for a sell pattern in the futures market before taking a positon in the ETF's. I should know better by now, but I let my ego get in the way. Once I realized that I puked out immediately and took a small loss on the position. I never take big losses, they are just too hard to recover from both mentally and physically. If I wind up going right back in so be it, but there is still potentially more room to run here and there is no sense getting run over for a 50k loss due to ego.

It tomorrow were to take out todays low which is not likely without a stock market crash, that would be a trap pattern for a short entry and I will be a player there if it happens. Until then I am going to set my ego and what the commercials are doing here aside and wait for a correct entry pattern.

By the way the Bean Oil trade I had mapped out for today never traded down to the fill price, hence the trade was not entered.

SHOW ME THE MONEY

Here is a recent trade I made where I felt like Charlie Brown and Lucy had just pulled the football at the last second once again and I wound up on my ass with nothing to show for the effort.

There has been a massive amount of commercial selling in the AUSSIE DOLLAR during it's recent rally. Of course the problem has been that it has been in a huge uptrend. Heavy commercial selling in these situations is not always a very reliable way of determining future direction. At times the hedging activities of commercials show them fighting trends for months at a time. However, I have seen so many instances where they have just been so dead on picking tops and bottoms, that it is hard for me to totally disregard this type of activity.

Here I waited for the Large Trader Proxy Index to go into the short zone, indicating that at least for the moment, the trend accelerators were beginning to exit their longs. Once I saw this I then went to look for a pattern for an entry, which is displayed above. Pretty simple, just a lower short term high, and a break of a low after that formed.

Then came Dubai!!! This news story messed up alot of markets for a day and this was no different. There was a huge downmove early in the electronic session over the holiday, which is very rare. I mentioned it in here previously. As a result I put my stop orders for entry in thinking they might fill, and boy did they. The market just tanked, leaving me with a huge profit ( I had alot of contracts on this ). As you can see this move also broke an uptrend line drawn in RED. Since I had been looking for a much bigger picture break, I decided to go for a much lower target to exit, thinking I might have a big one on the line here. As a result I simply moved my stop down to a few ticks better than my entry, so if hit I would cover the commission with a few bucks left for a beer.

This stop was so far back I thought there was no way it would be hit. However, whenever I have more than 1.5 times my initial risk in profit, I will never let that become a loss. Trading is just too damn hard, so you cannot allow the ones that you are right on bite you with a loss.

Unfortunately, the market reversed with the Dubai incident simply being a one day wonder, so they showed me the money, but took it away. It is always easy to just post all the trades that do well, but I feel that is disingenous. No matter who you are there are times when you get beat up, and the purpose of this blog is to cover all aspects of trading, the Good , the Bad, and the UGLY.

I am not sure which this falls under exactly.

Below is a weekly chart that shows the commercial selling I referenced above