WRONGWAY FELDMAN A WRITER OR AN AVIATOR?

Here is a quote out of an article from the Associated Press I read this morning in the paper. "Investors moved back into stocks on hopes that the Massachusetts Senate race will weaken Democrats and make it harder for President Barack Obama to make changes to health care."

Well..... which is it genius? Did they rally the day of the election prior to the election actually happening anticipating the result, or did they tank today due to the result. This article makes no sense, he/she credits a rally to an event that either had not happened yet or they were reporting exactly the opposite on the market reaction?

This is why you have to disregard the media's daily explanations about price movement in markets. Now, there are cleary exceptions like 9/11 for example where a world tragedy or some dramatic event can drive stock prices. However, for the most part this is just noise. There is a great deal of random movement in the markets, and we just have to accept that no matter how fancy we get with indicators and predictions, the best we can attain is an edge in our favor. At times this can be substantial, but you do not need anything more than a small consistent edge to prosper.

I consistently present things in here that are edges that can be used to make profits. How anyone may or may not use any of these things is unknown. At times I even do a lousy job of using them even though many of them I created myself, go figure.

THIS IS NOT AN EASY BUSINESS

Below is a Weekly chart of Treasury Bonds, a very good bellwhether market. It is my feeling that we are approaching a sell zone for this market, although things are bullish at the moment. Notice how well this market reacted to the commercial buying, and bearish sentiment readings with an instant rally. The red declining line about a point ( 32 32's above where we are now ), is a pretty good resistance zone. You can see just perusing this chart how well these things tend to contain price. We have a flight to quality move going there due to the 2 almost breakdowns saved by the PPT, in stocks in the last week.

What this tells us I think is that we might get some very short term weakness in stocks that will drive this up into the sell zone. Then we will likely find support in stocks. The ensuing stock rally will create selling in Bonds. We saw once again today, that selloffs are going to be very hard pressed to move down very much in this environment. Whoever is in control of this market on this light volume, is having an easy time containing these brief decline threats. As a result, short selling which I have been doing has been treacherous. Every time you think you have something brewing, a "mystery" rally occurs.

The only advice I can give is to stick to your guns. You cannot tailor your trading to this artificial market. It is the most one sided action I have ever seen including the 90's. At least then you could still trade the short side. I will let you be the judge of what is different here I have spoken enough about it. At some point the market will return to a normal state of being and traders will be able to trade both sides once again. In the mean time you just have to keep a shorter leash on shorts, they are very likely to be very brief spurts. There will be one day when a big break will occur, but you cannot tailor what you do to a 1 out of 30 occurence.

I am tempted not to short at all, but just cannot get myself to ignore what are normally good signals. That is an individual call just like most things in this business.

WISH I TRADED YESTERDAY AS WELL AS I CALLED THE DOLLAR

For those just waking up, we are having an upside explosion in the Dollar today as per what I had stated yesterday. We need to see now if these highs go to get a bigger guage on what this means. If we take out the highs nearby here we are likely off and running in the Dollar for the balance of the year. At the very least we have a 70% probability of that which is pretty good in this business. This does tie in nicely with my bigger picture view of a double dip recession. If we get that we will see Dollar strengh, and deflation everywhere else.

Two of my main indicators I use are lagging this move at this point, so this needs to be watched if we take out the recent highs. We may see a divergence there which could tie in to the COT data which is still bearish. Trading off COT data is very difficult because it is big picture fundamental stuff and very rarely does it transfer just directly to a trade on a daily chart. I like to see them both tie in together, which could happen here depending on how this upmove progresses/falters. What I had hoped for was a slightly deeper bounce for a buy than what we had, which could indicate this is very strong underneath. For now, things are looking rosy for the Dollar.

Below is a trade I have on that is benefitting from this Dollar move, the Canadian Dollar.

Sometimes these Trade Station charts do not come out so well when I do the screen captures. That goofy looking anvil on top of where the entry was it displays cracks me up. I rarely trade the Dollar Index directly, I prefer the other currencies due to the volume they trade. This market had a good sell setup yesterday so I got short here. It was clear to me this would benefit from what appeared to be a Dollar breakout.

I heard Jim Kramer on a radio show yesterday predicting a big stock rally if the Republican won in the Massachusetts senate race, yet we have the SP 500 futures plummeting pre US market open today. Although I will believe a sell off when I see it, it does not look good at the moment for today. Maybe the PPT will come to the rescue again. This may be an interpretation by traders that the DEMS are now going to pursue all these other unsavory routes to shove this albatross down our throats, which of course is a major negative for financial markets big picture.

I still maintain that this bill in one way or another, is going to be the catalyst that sets off the next down leg in stocks, but that is just an opinion which really means nothing at all.

A PENNY FOR YOUR THOUGHTS

It seems to me from listening to the experts the future value of the dollar is headed towards a penny. Readers of this blog know that I do not agree with this. The last time I spoke about the dollar I reviewed what was and still is a bearish setup on the weekly chart with the COT data. That is just that, a setup not a trade entry. When we look at the daily chart above, we may have a buy signal here. Notice the three consecutive green arrows, they are short term buy indicators. Rarely if ever do we see 3 consecutive arrows with this tool on a daily chart.

Also notice the momentum oscillator far out raced the price on the downside, and now is threatening to cross the momentum line on the upside. If it fails here it is a sell signal, if it continues through here it is an indication we are likely heading upwards. Much has been written about currencies breaking out of the first two weeks of the years range as indicative of direction for the entire year. These stats show a high 60's % accuracy. I have not done this research myself, so I do not know if they are accurate or not. However, it is something to monitor now. In drawing that range you also have to go back in some cases to the end of the prior year to accurately determine the range. In the case of the dollar index, it would be 74.54 and 78.77.

These studies say we have a close to 70% probability of the year closing on the side of this breakout. You might want to do your own research on this to verify/reject the notion of it.

ONE FOR THE GAPPER

Time now to check back in on the GOLD market to see what is developing. Notice the 2 large gaps between open interest and the commercials on the chart. You can see from the first one a huge rally followed. In that case we had open interest declining and commercials expanding. This told us a very high percentage of open interest was commercials, a very bullish situation. Here we now have the opposite, open interest expanding, while commercials comprise a very small percentage, a very bearish situation. Also notice the low small speculator long position at the first gap, they were short of course at the low. Now we have made another new historic high last week in the small speculator longs in this market.

As I have stated in here previously, this is a textbook sell setup. The fact that it is also occuring right when the typical seasonal high occurs coupled with this also being where Larry Williams road map for this market this year calls for a turn, makes this one for the ages. I just cannot remember a market being setup better than this one is right now. As I always state, but will do so again for new readers, a setup is not an entry. A setup means that everything is in place on a weekly chart for a large move to occur in the direction of the setup. Daily entries are always another matter.

You can see here that the COPPER market has almost the identical setup, with the exception being the seasonals are a bit different in this market. A fundamental setup like this does trump the seasonals just as an FYI, but it is always nice to have them all which rarely happens.

So how to enter this trade?

First, depending on your time horizon, you could wait for a weekly close under the trendline I have drawn on the chart and just go with that. This week that would be about 1095. Obviously that will change as time moves on.

Second, you could wait for a similar type of trend break on a daily chart shown below.

The short term trend is up, so no reason to short until that breaks.

Third, you could use whatever oscillator patterns in say a MACD or moving averages, or whatever else it is that you use to enter and exit trades.

The bottom line here is that we have a market setup very well for a major move, how you actually trade it is up to you. I will put my entries in here when I do them. Actually I am contemplating a long in Silver at the moment due to a very short term pattern I use. I have not as yet decided whether or not I will do that trade or not. I do not like these holiday electronic sessions, they often have something screwy happen. This trade if I did it would be a very short term entry and exit.

DEJA VU

I hate to keep harping on this subject but now that some prominent people are calling out the PPT for what they are doing, let's look at the last couple of weeks and discuss exactly what they have done. Above is a intraday chart of the SP 500 futures with green arrows displayed in the last hour every time a significant upward move has occurred. It is tough to see without enlarging the chart, but in every one of the last 9 days there has been a significant upward move in the last hour of trading. I am sure there are plenty of statisticians out there that could give us odds on this happening in a world of randomness. You do not need to be a brain surgeon to conclude that something odd is happening here.

It is frustrating for me, they have cost me probably 100k last year alone in profits they took away from me by doing this. You could argue that if you know the government will buy futures in the last hour to manipulate the stock market why not just go with it and quit complaining? Certainly seeing it the last 9 consecutive days, it is hard to argue that. However, I follow strict rules when in trades for exits. I do deviate from them occasionally, but try not to.When we have setups on daily charts that should be good for a 3 to 7 day run, it is not a good idea to exit trades that are working correctly after just a few hours just because I think the government is going to do this. I ensure that when the first move gets away from them, I will miss a big win. Make no mistake about it, a huge win on the short side is out there this year, and I do not want to miss it. The other thing that is unknown is exactly what triggers their trading programs and what their real objective is. As a result, even though we see this happen 9 days in a row, they could very easily pull the plug on this to make a political statement. I do expect them to do this soon in relation to the health care debate, especially if for some reason it does not pass.

They are jawboning about the stock market strength as evidence of this great recovery in the economy. Think about this. Would you still feel we have a great recovery going if everything else were exactly the same except the DOW was at 6000 instead of 10700? I doubt it.

I was discussing yesterday with a fellow trader who was also short the indexes like I am what to do when noon came around. We both knew a PPT upward move was coming, and the debate was should we take our money now in front of it. Below is the chart and the way it looked at that time.

You can see a clear sell signal was there for another move down to new lows. It was 10:57 PST when I did the image capture of this chart. In a free market world this would have been a high probability short trade, we do not live in a free market anymore. Typically these trend days just go right to the close with very little reaction to the trends. All the retracements are typically winning trades. Yes there are some divergences on the chart, but they often occur against trends and are usually to be ignored in a situation like this. My feeling at this point was that even though I had quite a bit of profit on this trade here in multiple accounts, it was a trade that should last several days so I was not going to get too cute with it just because the PPT was likely to elevate the market into the close. Of course in the back of my mind I was hoping they would finally let one go.

What a dumb idea that last hope was.

As you can see in the last hour they once again struck and this is where in my opinion they are being very smart about what they are doing. Only for the discerning observer is this obvious market manipulation. They took the DOW from - 150 to - 100 so they still "allowed" a down close. Had they completely reversed this whole day in the face of now congressman calling this out, it would have been way too obvious. They kept this day in check relatively speaking, mission accomplished. Note the 2 inverse head and shoulders patterns here and of course there is one big difference between what appear to be 2 similar patterns. One sparked a rally and the other did not. The difference is the time of day. When the first one occurred there was still plenty of time for the market to work things out on it's own, the second time was running out and the PPT did not want a 200 point down day on a Friday especially with the Holiday coming.

For those who might argue this is consipiracy theory, I would like you to provide me with the statistical odds of this happening 9 consecutive days in a market that is essentially historically close to a 50/50 distribution of up vs down closes. It will be very interesting to see when the truth ultimately comes out about this, how the public reacts. After all the average person has benefitted greatly in their 401k accounts by this manipulation so is there really any harm in this? My argument is in the long run artificially manipulating anything is ultimately very harmful. Just look at real estate and what has happened there. The same thing will happen here it is just a question of when not if.

I think had we had some pullbacks to provide support points on retracements, the structure of this market would be much more natural and stronger. We just have a huge air pocket that is likely to keep going for now, I do not know what the trigger will be to reverse this or when it will happen. Now it appears the one cycle I was looking at which is Mid Feb and was indicated as a low is inverting and it will be a possible high point. That date ties in to Astrological models like Bradley so maybe that is when we might see a reversal.

INNER MONOLOGUE

Just for fun I will do this post expressing my inner monologue about things for tomorrow and this week in general. Before I get to that, there is one point I want to make. I have mentioned at some point an extraneous catalyst would need to occur to create any meaningful correction in the market at this point. Tonight there is a story out about another back door deal with unions to exempt them from taxes in the new health care bill. It is possible that at some point there is going to be some backlash that gets to the point of violence. I really think they are going that far, and it very well could create this catalyst. I don't think this is really legal under the constitution, but Barry owns the courts now, so they can muscle them to shut down the lawsuits I would imagine.

However, they are doing all this manipulating with stock prices, it would be ironic that over manipulation of something created what they are trying to prevent. What this catalyst could or might be if it ever occurs is anyones guess, but this one story tonight struck me as one that will likely enrage the public more than any other. Unions have killed this countries manufacturing and the socialists now are trying to bring them back. The very first thing I would do if I ran a manufacturing operation would be to move it out of the US due to unions, and of course that is what people are doing. This move to try and bring back unions is beyond belief, he is far from this great genius he is proclaimed to be.

Now to the inner monologue.

Here is am shorting the strongest market I have ever seen in my lifetime, what the hell am I doing? Well you are just following your rules, you should feel good that even if this batch of trades fails, you will still have a gain during a stretch when 15 of 18 days have been up closes, and every stock trade you have done has been a short. I don't want to feel good, I want to have better trades than this. Well you have looked for long side trades that meet your rules and have not found any. Of course you haven't, there have not been any pullbacks at all and the markets are outrageously over extended, there has to be pullbacks before you can do longs. Won't you feel like a damn fool if you went against your rules and a decline happened and you missed it?

Dammit I want to compete with the government, at this point they are clearly our enemy. Don't be a wise guy, they can set the rules, and are really tough to beat, they have alot more money than you do. Besides you are not competing with the government you are following your rules and that is how you will win in the end. I want to win now. Watch that emotion that has been the end of many of your friends who have been too aggressive. Stick to what you know and follow your rules.

Well here we are with another joke, a down move in the night session. At what point does the PPT reverse this. It is on light volume and a marginal news story, so when you wake up you know if will be big green in the indexes just like it is every day. Well if today's lows go, we would be looking at an outside bar going on the downside and the oscillators are diverging isn't that an entry. Well of course it is so place the orders but make sure to adjust the size. You already have that crappy Russel short on and this is essentially a highly correlated trade. Make sure your total risk between the two does not exceed 2%, ok orders placed accordingly. You will probably get stopped out due to the normal overnight upmove but just in case you don't make sure you know what stocks and etf's you want to play along with the NAZ if that triggers.

So there you have it, a synopsis of the thoughts of someone actually trading and evaluating what is going on. Of course the key is to stay centered. This is a difficult business and there are periods that do not go well, this week being one of them for me. You have to keep an even keel, and stay focused on doing what you do.

CALL THE FED ASK THEM WHERE WE ARE STOPPING

Ironically while working out in my gym last night I caught an interview on Fox with Biderman from Trim Tabs, he was calling out the PPT!!! It does seem apparent now that some others must be publicly calling them out, so I am not alone on this. The one point he made which is entirely valid is that the Fed will not disclose what comprises the securities on their balance sheets. I guarantee that a similar probe into Goldman Sachs futures trading accounts would also lead to a dead end. GS is rumored to be one of the firms that has the PPT trading accounts. Doesn't it seem odd the favoritism they constantly get from former cronies who are now in government?

My guess is the bonuses will be allowed to fly, they do not want someone so discontented that they throw caution to the wind and rat them out. However, in reality, there is nothing illegal about this. The only thing I could possibly see that might fall along the lines of legality would be how this trading is classified in the COT report. That report has been increasingly difficult to deal with in just one market specifically, the SP 500. This is obviously another interesting coincidence. Might it be they change from one reporting period to another, how they classify the PPT transactions? Of course we will not likely ever know the truth on this. One fact we do know, 62% of the days since the July low have been up closes in the DOW, this is very unusual.

There has been something all along about this rally that has just not sat right with me right from the beginning, and to be honest I still cannot put my finger on it. The usual suspects of course, are all the divergences along with light volume that have failed to produce even a close under the 50 day moving average. Also the wierd intermarket relationships that have been in place between markets that should have no trading correlation. All of these things I have written about in here. Also the record high reading in the ADX that never even caused 2 consecutive down closes, that is unheard of.

The one comment Biderman made that makes alot of sense to me, is that being a fund flow tracker, he cannot find any influx of money of any amount that would anywhere near correlate to the 6 trillion increase in equity values. For me as someone who has been aware of the PPT for quite some time, they seem to now be in the same mode as the administration as a whole. As much as I am against it, the "F.. you we won" take on almost everything they do, it is kinda funny. It is like winning a hoop game by 20 points and when someone starts talking smack on the other team, you just point at the scoreboard. The PPT seems alot less concerned about hiding their activities now than they used to be. We are seeing that across the board in politics, and there have been comments by politicians supporting the idea of buying futures. They are just paving the way slowly for possibly revealing it at some point, but we will have to see.

For the time being as I have repeatedly stated in here, we have a rip roaring bull market here so be very careful shorting. I am still shorting just because I am following my models, but I am getting slapped around a little this week after a big week last week. After all 9 of the last 11 closes have been up in the overall market, so shorting is really going against the tide. At times these running markets like this build up a crescendo and spike upward, so do not be shocked if that happens. 1235 seems to be a lay up to me but who is to say we do not go way beyond that. The trend is up so unless you are really experienced and have very tight money management rules, I would not suggest shorting. My Russel short is still on but appears to be a likely stop out tomorrow. I have very small size in this trade due to the low confidence level in it that I had as well as small profit target. I am glad I made that choice to go small.

Size does matter at least in trading!!!!!

WELCOME BACK KOTTER!!!!!!!!!!!!

I had stated recently a couple of weeks ago that the PPT had been noticeably absent in the market. It is good to see our old friends back in the game. Maybe they were watching Dan Marino in the weight loss commercials telling all of us to get back in the game so they took his advice. Above is a 5000 bar tick chart of the emini SP 500. You can see that it was drifting along at the lows of the day until 10 minutes before the close. When you see this type of "mystery" lift at the end of the day like this that is the PPT buying futures. We have all made their job so easy by having virtually no heavy selling days so they have not had to do any late day saves like this. We were not down that much at the time they showed up but the program traders rarely play at this time, so when you take them out of the picture, viola who is left?

This was very heavy volume in the last 10 minutes, tick bars are based on volume so more form in shorter periods of time when volume is heavy. Fewer form per hour when the volume is light. This was just a quick little How's your father to the market to stop it from being down any appreciable amount today. It did have the feel of a late day rollover, and they sensed this I suppose and propped it up. As I have stated before and will again, there is no reason to get up in arms about this. It is part of the game. They set the rules for us to play by and this is one of the things they are doing whether we like it or not. There will not be a large decline without some extraneous event that just gets away from them before they can do anything about it.

I think it is funny to be honest with you. You just have to accept that if you are short and the market is down a decent amount, the government is likely to come in and improve the close, it is what it is. All the market manipulation that is going on is alot of work to try and force something somewhere that it may or may not want to go. I guess we just never learn. We all I think have to agree that deleveraging is needed to get things back to a ground level to build on. However, in the face of this our government is dramatically increasing leverage to try and stop deleveraging from happening. This is just creating bubbles again that will pop and cause large declines that will hurt people severely when they finally happen.

I did hear Bill Miller on CNBC today talking about the tremendous values that are out there to be had in stocks. Each weekend I look at every single SP 500 and NAZ 100 stock chart. I guess I am missing something because these tremendous values to me are nowhere to be found. A very high percentage of the stocks have moved up so rapidly, I fail to see how they are values at this level. However, his track record prior to the last few years was incredible so I have to give him the benefit of the doubt.

My short I put on this am in the Russell is still on and slightly ahead as of today's close. I am also short 7 individual stocks 6 of which are ahead and one is basically a scratch. We will see what tomorrow brings. I have my stops in and will just let the action play out. We will see if they late day PPT buy program carries over or not. I do not expect a large decline as I stated in the last post, so I have short term targets on all of these trades. I never know which trades will work well and which will not in spite of trying desperately to figure out a way of determining that in advance. I will post the charts of some of these trades once they are completed win or lose.

For Those Thrill Seekers

Here we have the Russell 2000 Index and a short term selling opportunity for those willing to join the morons assocation of america chaired by yours truly. It does feel that way at times when you are a contrarian trader. In fact it feels that way often. After waking up early this am and turning on CNBC just for kicks, I realized once again that being short term bearish in any way is obviously just the wrong thing to ever be feeling. Apparently there is a rip roaring recovery going on economically. That is really here nor there and has nothing at all to do with what trades I make. Just really an observation. We do without question have a rip roaring bull market in stocks going on right at the moment. I warned people a few days ago to be careful shorting stocks.

That was prudent advice as we have started off the year with 6 straight up closes. So why am I shorting this market right here? Pretty simple. My momentum indicators that I use are showing a downward trend with price showing an upward trend. This is a divergence. As I have stated many times, in strong market divergences often do show up and carry on for quite some time. There are certain things I look for to try and filter alot of these trades. Without getting too involved, some of those are here now in other indexes, namely the NAZ and I felt the pattern in my oscillators was better here, so this is where I chose to play. This is a short term trade, I do not expect a major break from this.

It is always very easy to use the 5 year old rule and determine we have an uptrend and just do long side trades. That rule is basically if you put a chart in front of a 5 yr old, what would they tell you? Obviously they would say, it is going up you dummy. It is incredible how simple it can be, and as traders we often get so tied up in trying to create the holy grail for timing. In doing so we lose sight of the obvious that is right in front of us. I am often guilty of this. However, that guilt does bring in income with it so I live with it. In trading you have to indulge sometimes in your vices to keep them at bay. Since I like to tinker and create indicators and models, I indulge that by continuing to do it. I often do not trade live the things I come up with for quite awhile if at all. It is too easy to get caught up changing approaches from one day to the next, and you just never get anywhere doing that. Once I find something that I think is really meaningful and adds to what I am doing, I go with it.

That is the case with my bottom graph here which also confirms that we should see some downward movement here. It is just another trade, so stops are in and we will see what happens.

LET'S CLARIFY A FEW THINGS

When I post Weekly charts talking about setup markets, they are just that setup for a large move. This does not mean they are entries at the market at the time I post these. Often markets that are setup on weekly charts can continue moving in their current direction for awhile before the fundamentals take charge. This is why you cannot trade fundamentals on a short term basis. It is and has always been true.

My weekend post covered Gold and the Dollar. I mentioned a gap technique which I was somewhat vague about. This was intentional, I will not give up all my trade secrets that have taken years to develop for free over the internet. Readers of this will just have to accept that. I give up quite a bit of very valuable information for free already, way more than I should. That Gap technique is simply a trend indentification technique which gives us a side of the market to trade. In the case of the Dollar Index, I labeled 3 spots where by that technique the trend had changed. This did not mean it was a daily buy signal and point #1 and #3. It is actually quite the opposite. Once that gap shows up we are looking then for a retracement. As a result we actually want the market to move against the new trend to setup an entry.

Point #2 on that chart is a perfect example of that. Once we got the gap on the downside we got a large runup that actually made a new high. Most people were fooled there thinking a new high confirmed the bull move and were looking at the long side. We knew from this technique that was likely to be a false breakout and it should be shorted. I did short this market up there and made some nice money on that downmove. I did not divulge how the lines were created and will not. I am sure there are plenty of ways of doing this same technique with other line formulations, so I will leave that up to you to create your own.

By the same logic we are looking to buy a dip now in the dollar, not at the market. We need a high probability daily pattern now to tie in to the weekly setup. Maybe we won't get it. This is not a perfect world, and trading is impossible to do perfectly. However, combining weekly fundamentals with daily setups is the highest probability way to trade that I know of, and it is what I do for the most part. I do take some other trades for different reasons, but the biggest wins almost always come off this combination. Gold also is setup fundamentally now, but is nowhere near a daily sell signal. I don't want any emails telling me I was wrong on these unless I put up daily trades that show entries that fail. Of course at that point it would be obvious I was wrong. I did not say to sell GOLD at the market, I merely stated my reasons for asserting that it is setup for a large decline. It may not happen, nobody knows the future including me. If we just sail along upward with no sell setups that just tells us that the fundamentals have yet to take hold. If they happen to change I will cover that but it will take months for this type of situation to change if not longer.

One last thing to keep in mind about GOLD specifically. The individual investor and not large money, has been driving this market for awhile now. Maybe that can continue in perpetuity. It would be a historic anamoly, but we have seen a few of those in the last 12 months so we cannot discount the possibility of it happening. However, I will never in my life base trading or investment decision on requiring a once in a lifetime anamoly to persist for the trade to be profitable. As in horse racing, the favorite does not always win, but that is the way to bet over a large sample size.

Also, I did just make quite a bit of money on the long side of GOLD so I am not just someone who gets glued to one side of the market. I trade where I think the best odds for success are, and that is in both directions and will continue to be.

Next is a trade that ties in to what I have been explaining above. This is one where I missed the boat. I had a weekly setup for a sell in Natural Gas via that Gap strategy, I was then looking for a daily entry. I do not like selling below the lows of reversal bars as the entry on this chart requires. I do it in some instances, but in this case the stop was just too big to make it make sense. Unfortunately, the trade became a huge win, but that is the way it goes sometimes. If I have a greater than 4k stop per contract in a trade I generally do not play those. Sometimes we get a weekly setup and just don't get the right daily setup, it is not a perfect world.

GLITTER ABOUT TO COME OFF

We have had a nice bounce in the worlds favorite market which was nice to my bank account balances via the trade I posted in here. As you can see above we are now setting up the bigger picture shorting opportunity for what I believe will be a significant move down.

First, in the top graph we see Sentiment has quickly reversed back to bullish after a brief time in the bearish zone. This of course is bearish for prices. Even more disconcerting for bulls is the GREEN line in the second graph. This is the total net long of small speculators and you can see it has now made another all time new high yet price is well below the peak. This by itself it nothing else were going on would be enough to look at shorting this market.

Next we have the BLUE line which is hard to see but it represents Total Open Interest and you can see it is also very high. When you look at the RED line in the same graph which represents the commercials, you see that they are still very close to their record net short position. This tells us that all the buying is being done by groups other than COMMERCIAL traders.

Last but not least, is the last graph which shows the typcial seasonal pattern which shows we are right in the decline time zone. Larry Williams annual forecast also identifies this area as a significant top probability.

FOLKS IT JUST DOES NOT GET ANY BETTER THAN THIS FOR A SETUP FOR A MAJOR MOVE TO TAKE PLACE

Looking at Copper in the next chart we see basically the same story.

The only differences here are that we are not in sync here with the seasonal but also it shows a more bullish sentiment situation. The other thing that is different here is the Large Speculators have a larger net long position by far than at the all time high. This basically means they are out of fuel to keep driving this much further. This market is much stronger than GOLD anyway and you should always short the weak one. I just wanted to display it for a fuller big picture on this complex.

Now we have to look in the mirror at the Dollar Index, after all it should be bullish with this being this bearish to make this perfect.

I have alot of things market here so lets go through this one at a time. First, there is without question significant commercial selling during this rally, and the large speculators heavily long with price way below where it was the last time they had this position. This is without question bearish, However....

If you look at the 1, 2 and 3 areas labeled on this chart you will see something that indicates a trend change. I will not divulge what these lines are but basically in simplistic terms, once the gaps between price and the lines show up, the trend has changed and you enter on retracements. You can see the first one the retracement was an excellent buy. The second one was an excellent sell that got you the top, and now we have a buy on a dip setup. If we couple this with the seasonal low which typically is right at the first of the year, we have something big in the making.

There is no doubt that the heavy commercial selling is the fly in the ointment here. If you research commercial activity they often are opposite of the trend so this can in fact be bullish at times because it actually confirms a market turn by them turning on their hedging function. This will be confirmed to be the case if the recent highs get taken out.

Since the dollar index is a lightly traded contract this overall has less importance than looking at other markets. It is always important to get a context for bigger picture views so that is why I provided it. You can also see where I have indicated how the Dow ( black line on price chart ) has been trading opposite of the Dollar but might be coming back into sync with it. This relationship has varied enough recently that I think it is worthless because it is not doing what it fundamentally should be doing. I think it is basically noise to consider that now.

I mentioned that there would not be a public service announcement as to when the stock market might be topping, the opposite of this is true here. This is a rare opportunity to make a market killing that does not come up too often. In my 25 years of trading I have only seen a couple of setups that were as good as this for a major move. People willing to listen to what the market is saying and tune out all this insulting crap from all the celebrity pitchmen about Gold, are going to be able to make a market killing on this decline.

Are you going to be one of them, or be part of the herd being rounded up in the slaughterhouse?

RUNAWAY TRAIN

As much as any wise guy who thinks he knows something because of some fancy oscillator, and some great trading knack can say about how overbought and extended this market is, it keeps on rolling along. This market move is so unique in so many ways some of which I have reviewed in here. It is impossible to guess accurately if and when a correction will begin. This is what I call a running market, because it just keeps creeping ( running ) along without any even minor stumbles.

Oscillators no matter how you construct them, will often diverge often during moves like this and you just have to get that finger off the mouse. There is no sense feeding money into a brokerage accounts hands because you have a momentum divergence. As you can see from the momentum oscillator at the bottom of the chart, every minor dip into oversold has been an instant big win for buyers. There was one trade that would have been a loss that I have marked, so 10 out of 11 wins, not a bad ratio.

Of course it always looks so easy after the fact, and I have not done many of these pullbacks myself. We can argue about how the government is manipulating this market, and they probably are in ways we do not even want to know. That is really irrelevant. What matters is the trend, and it is clearly up with no end in sight. We do have the NFP report tomorrow, but with a market this strong, even if we were to get a dip on it, it will probably be immediately bought. What typically happens with these running markets, is that they eventually have a huge large range bar out of the blue that takes out several days of lows and closes weak, ending the party. This day will come out of the blue, so trying to time it I think personally is a waste of time.

I am continuing to trade stocks from the short side and doing well doing so. There are some underlying weaknesses that can be found if you know what you are looking for. In spite of how easy this uptrend looks, finding the type of short term buy setups that I prefer is not easy in this market. The greater number of setups are on the short side simply because there have been no pullbacks. We have gone through the one area that I thought would present trouble, 1122-1125. The next major resistance is 1235. Will we get there, nobody knows that, but it does seem like we will know.

It is prudent if you have been trading this well enough to diminish your long side exposure up here even if we continue upward. This is a house of cards that will give at some point, and there will be no notice when it happens. What the socialist government is doing now is going to matter at some point, and it will not be a public service announcement telling us when to run. Ironically if you look at other countries where they have changed their government to a socialist one, their stock markets have not crashed. However, they were not world leaders like we are/were. As a result when they changed their markets tended to follow the leaders ( our ) patterns, hence they did not collapse at all. The difference is, that this is a potential change in world financial leadership, so I am not sure the research means anything. There has not been a prior instance I can find where the leader intentionally removed itself from the leading position, which is what it appears we are doing.

It is possible they are intentionally weakening us, but not to the point where we lose the leading position. If this is the case, it is a brilliant plan to gain power over the people. We will never know if that is the case anyway. Alot of other countries actually have larger problems than we do.

Uncharted waters - be careful shorting stocks right now

TO THE SIDELINES

I took profits on my Gold long today as you can see indicated on the chart. I have mentioned I don't like the way Trade Station displays this but it is proof of actual trades being made so I live with it. Ironically today I had established a target of 1141 so I placed a limit order at that price. The exact high of the day was 1141 and I was filled, very unusual for a sell order to be filled on the exact high tick. Generally this means we are going higher. I did not exit because I thought this move was over, I exited because I had over $4200 per contract gain on a risk of $1100 so that is a very good ratio that I always monitor. You can just do the math for yourself, but if you make 4 times your risk, you don't have huge pressure on your win percentage to be comfortably ahead over time. The ratio is not always this high, but when I have a logical price target from my other tools, and it falls into the category of greater than a 2 to 1 gain over risk, I go with that every time. Here we had almost 4 to 1 which is even better.

I think this market will trade higher, but the easy money has been made, thank you!!! You can also see the short entry and exit which was my prior trade in this market which made about the same amount. I will now wait patiently on the sideline for the next move either way here. What I expect to happen is a further rally here and a decline in the dollar over the short term, followed by a big downward move in Gold and big upward move in the Dollar. I think these will start in the next couple of weeks but have no idea what day and won't try and guess. I will let my tools drag me in at the right time.

I have been trading stocks all from the short side this week and most might think, what a moron the market is going straight up. Hard to argue that on the surface, but let me show you a couple of trades I have done and you can evaluate how stupid they were.

I tried to make these the same size just for it to be more visually pleasing and it did not work, oh well. You can see that although the market is going slowly up almost every day, there are some stocks and sectors that are showing some minor weakness. For various reasons but mostly the seasonal down bias and various COT things, I am looking to trade the short side in stocks for the time being. I am only looking for short side trades right now. I am not trying to be a wise guy, or a dumb ....... but just taking the patterns and entries that I feel have a high probability of success. I do feel the big money trades in stocks and the indices are going to be on the downside this year. As a result I am aggressively pursuing short side trades in stocks for the time being.

Once we get to a spot that I think has good upside potential, I will change my posture and trade from the long side, just like I have recently done in GOLD.

EVER LOOK IN THE MIRROR?

The last post featured commentary on the Dollar Index and it's short term bearish setup. To look deeper into the bigger picture with that market we need to look at individual currencies that comprise that index. Due to the weighting of the Dollar Index, the Euro represents almost a mirror image of it and as a result should show a bullish picture to confirm a sell in the Dollar.

It is clear from looking at this chart above, that it is indeed a mirror image of the DX. We see alot of commercial buying, small and large spec selling. We are also seeing an overall open interest decline which in an uptrend is bullish. This does confirm the near term bearish dollar picture. Again, also the problem here the way I see it is the larger picture cycles. They are bearish for this contract for the next couple of months. So what do we do?

For me it is very simple, I wait patiently for my patterns I look for in shorter term tools to pull me into the market. It does seem likely to me that in the near term we are going to have a metals rally and a Dollar decline. As a result, I will be looking for trades in those directions with my short term tools. I already am long Gold, but am not in the Dollar or Euro yet. However, we are at a juncture that if we were to break out above the recent dollar high and below the Euro low, those setups will be nullified. I give these cylces very heavy weighting due to how well they have performed in recent years and they say to look for the dollar to rally and the Euro to decline for a couple more months. It would be best if they both lined up, but we do not always have everything we ask for. At times we have to make judgements based on the weight of the evidence.

The general rule I use is that if I have to look at a chart more than 30 seconds to determine if there is an entry, there is not one. It should jump right off the page at me. I have very specific patterns I look for and if they are not there I am not there, pretty simple. If a market leaves without me I don't care. Neither of these two markets do that right here even though fundamentally they are setup.

In summary, the Euro setup does support the DX setup, but there is also conflicting information that is enough to make me pause and wait for everything to line up better than what we have here.

HOUSEKEEPING NOTE

There have been 3 attempts in the last week to submit comments that had links to blogs that in no way relate to trading at all. They were made under the guise that they liked the topic and had another site that added to it. These were obvious marketing attempts to get traffic to their sites. All of the comments here are moderated for reasons just like that. You are not going to get those comments through, so there is no need to submit them. I just delete them immediately. Unfortunately this creates a lag in posting of comments but it is a necessary procedure. I apologize for any inconvenience this causes.

I AM A FUTURES TRAITOR?

I was going to talk about something different since I have already recently stated my short term bearish dollar view. However, based on a few emails on this topic I decided to beat this old dead horse. The play on words refers to my betrayal of the anti-herd position on the dollar. Those precious few who are bullish on the dollar, some of whom are the greatest traders in the world, may think I am a traitor for breaking rank for just a minute. I state all the time in here that I hate being with the herd, and the dollar bears are the biggest herd I have ever seen in this business. However, you don't want to be too much of a smart ass in being contrarian just to aggravate people and create arguments. The herd is not always wrong, there are moments when they are right. You don't want to make a habit of following them, but that does not mean that at any given moment the sun won't shine on them for a day here and there.

The main reason that recently I had stated that I was looking for a short term sell signal in the Dollar Index is loud and clear on this chart. You can see the large long position the large specs and small specs have, coupled with the large short position by the commercials. This comes in the midst of a well defined weekly downtrend. This is an ideal sell setup in my opinion. It also fits with my short term bullish metals view. However............!!! The one thing to keep in mind when looking at the dollar index, is that it is itself a very lightly traded vehicle. If it were a large volume market, this COT picture would have me jumping at with both hands.

The real way to get a broad view on the Dollar Index is through the individual currencies themselves, then adding that all of them up. This becomes a mathematical quagmire quite frankly. Net net alot of individual currencies are in bearish situations, which makes me view this as a shorter term setup. If it were not for that I would be exceedingly bearish on this market. There is so much more volume in any one individual currency market than the whole Dollar Index has, that they mean alot more in developing an overall currency view.

Also you can see we are at the time of the year where the dollar typically rallies. Also Larry Williams very advanced cycles show a very bullish situation for the dollar. As a result, I have been looking for a sell signal here, but will not expect a big down move as a result of this. I am really looking more for a long entry from a bigger picture standpoint. Since we have such a bearish short term setup, it may mean we go down and give those lows a good test. I have not yet entered a short position so it is possible this trade has left the barn without me today. If it did so be it, the bar pattern was marginal and I don't take marginal trades regardless of how they turn out.

I am rooting for this to decline simply because it will help my Long Gold position I put on Sunday night. My rooting for a trade has never had an effect one way or the other unfortunately, so it is really a waste of energy. Sugar also is beginning to look interesting to me so I will be talking about that shortly.

NOT A ONE WAY STREET

As much as I have bashed the GOLD Bugs here recently, I need to make it clear that my view on this as well as how I trade is not a ONE WAY STREET. We cannot afford to get so locked in to any one view on things in life. Just when we do things change. This is where the doom and gloomers are making their biggest mistake here with the metals, which I believe will be borne out this year.

However, as bearish as I am in this market, if I see things change in a way that indicates my view is wrong, I will change it. Pretty simple Aye?

Above I have the Silver and Gold Daily charts, and you can see I went long GOLD where the arrow indicates last night. As I have stated many times in here before, you always want to buy the strong and sell the weak. In terms of my techinical reasons behind this entry which are not displayed, the Silver market is a much better setup for a long than Gold. However, since as you can see on these charts side by side, Gold has been much stronger recently. As a result, I went in that market to see if there was an entry pattern by my rules, and I did find one.

Notice how Silver has made 3 lower pivot lows consecutively, whereas Gold made a higher short term low last week. This is clearly telling us there is more short term strength in Gold than Silver. This does not change my bigger picture view here at all, and I do expect a major top is forming or already has in this market. On a day to day basis I trade shorter term patterns and this as I had mentioned recently, was in a buy area for a bounce.

This also lines up with my short term view of weakness in the Dollar, that should be followed by a confirmation of a major low there. I think this will sync up with the next selling point for Gold sometime in January. As I always say, I could be wrong and that is what stops are for.

HOPE AND CHANGE

Of course this is a phrase that is being used in a mocking fashion now for that hypocrite in the Oval Office who completely decieved the public to get himself elected. The "How is that Hope and Change Working Out For You" bumper stickers are pretty funny. In this blog it is a lead in to how to approach the new year. It is just basic human nature to be excited about fresh starts and to look forward to things being better in the future.

I hope everyone who trades has taken some time to reflect over the last couple of weeks about how they will go about their business this year with the goals in mind that you have set. The topic for this weekend is going to be an inner monologue of what I am going to do differently that I thought people might learn from. Without going into every little detail, I will review my evolution as a trader, and what that means for 2010.

EVOLUTION

My history as a trader has been for the most part a 3 step process. The initial step was just jumping in and swinging away. During this phase I read as much as I could get my hands on and had the typical ups and downs that many have. I had one period that was amazing, both good and bad. that illustrates how I came to where I am today.

Great Bond Run

I discovered back in the mid 80's a very strong tendency for the Bond Market which began trading in the 70's, to have large gap opens in the same direction as the strong or weak closes. Every time we closed with 2 ticks of the high or low of the day we tended to have a large overnight move in the same direction. As a result I began with a 3K trading account, and just bought and sold the closes, and exited on the following opens, often for very large gains. I ran the 3k into 50K in a flash, due to taking more contracts as the account balance grew. I had some ups and downs, but for the most part it was incredibly easy. I was going to quit my sales job I had at the same time and just trade and make millions............. Here is a chart showing some of these trades, you can see most of them worked quite well with one that I have marked being a loss.

Of course I am building up to the demise of this approach. One day we had a very weak close, limit down for the day and I managed to get a bunch of contracts on right at the close because they were bouncing on and off limit. I was so excited when I got those fills because I was just sure I was going to make a killing the next day. I had called in from a pay phone ( remember those ) and was so happy with myself that I had pulled over and gotten in just under the wire. On the news that night I happened to hear that the German Central Bank had decided to lower their discount rate overnight. Even though I knew very little back then, I knew enough to know I was screwed. Sure enough the next morning the opening call was for a limit up opening. At this point I had been right at that 50K balance and 80% of it was wiped out right on the US opening. Ironically, I exited at the market on the opening which was just below limit up, and of course the market closed unchanged on the day. The market just went straight down from where I got out.

Of course I was absolutely numb at that point, but at your darkest hour insight often comes to you. I realized the potential for this business, and that it was time to really get to work studying this stuff. Ironically I never lost all the gains, but I lost such a high % that it felt like I had been blown out of the game. I did not make any more trades for a couple of weeks or more, I do not remember exactly how long of a hiatus I took but it was substantial. Of course now with the pit session being irrelevant all of this is gone now anyway in this market.

This all led me to what was Step 2. Ultimately I then gravitated into a book by Larry Williams who I had often heard on what is now known as CNBC but was the FNN network back then. As I read more and more of what he taught over the years I realized it was a pretty good fit for what my personality was. My background was as a wrestler and martial arts guy, so discipline was one of my character traits that I had at a level far beyond what most have. It seemed to me that systematic trading was a perfect fit for me. I knew I could follow a regimen better than virtually anyone else, so that should be a good way for me to go. I set out developing trading systems, and left the world of discretionary trading behind.

This led me to have quite a bit of success. Some of the SP 500 and Bond Trading systems I developed did very well. All the while I was still reading about all the other approaches that are out there to see what else might be there. The problem with trading systems is of course over optimizing the results. When you do this of course, the real life performance will always be lousy. It is always a fine line determining when you are and are not doing this. Below is a table of actual results from one of my Bond Systems, there were many but this best illustrates the point I am making here.

You can see the spectactular results I got until 2007 rolled around. It actually returned to profitability last year but by a very small amount. This is typical of trading systems, they have their runs, then ultimately stop working. I do not really know if I was guilty of over optimizing in this case or just my patterns stopped working. However, I have been guilty of the over optimization offense at other times. As I began to encounter this, I realized that I could make more money as a discretionary trader, combining the mechanical techniques with my knowledge and experience. This led me to Step 3 of my career. This step involved using my strength which is discipline in conjunction with my very well rounded background studying so many different approaches to trading. It makes no sense to be disciplined, if that means following the rest of your troops who are just walking off a cliff.

Nowadays my trading features larger picture analysis which is mostly mechanical,  and then combining that with some discretion. For example, my commentary on GOLD is for the most part mechanical. Being bearish is being driven by the huge long small speculator position combined with the historic commercial short position. This is completely mechanical, it is a numeric fact and indisputable. In spite of literally tens of millions of people world wide that have an "opinion" about the "fundamentals" of this market, I stand on the opposite side. This is discipline. All of these possible doomsday scenarios about inflation and the US Dollar could in fact be correct, I really have no idea to be honest and neither does anyone else. However, I do know that basing a trading decision on a numeric fact is a much better approach than basing it on an arbitrary opinion about something that has never happened before taking place. This is where discretionary trading takes people south. They get too emotionally tied up in an opinion on a possible outcome. This is also why most people lose money and buy tops and sell bottoms.

The discretionary aspect of my view on this market pertains more to what I observe on a daily basis. We have G Gordon Liddy telling us to buy GOLD. I have young children asking me how much Gold I have bought. We have the same brokerage firms that missed the stock market top and Real Estate crashes putting out reports predicting Gold of $3,000, $5,000 even $10,000. They are touted as a reason to buy. Why would the opinions of those people so infamous for having been completely wrong about the 2 biggest meltdowns of the last 100 years be a reason to invest in something? So it is my discretionary call that all of this when combined with the mechanical reality of the numbers, says major top at hand. I never ever trade something based on pure discretion alone, it is a small factor in getting me into things. Most people have read that once something makes it to the front page of the newspapers like Real Estate, and we all remember Nazdaq 10,000 predictions, that the top is in. These are really more anecdotal things that are icing on the cake.

So in summary, the way my trading has evolved over the years into a combination of mechanical things and some discretion, has led me to the view on the GOLD market that I have as well as most other things I post here. I just use this as an example because I have posted often about this market recently.

One of my pledges to myself this year is along the lines of not straying too far from markets that are setup for big moves. I tend to get too involved sometimes in the little daily nuances. This can keep you busy but will not make you big money. I posted a trade setup the other day for Cattle. This market in my view on a bigger picture basis is setup to rally, so that is why I posted that daily trade setup. Most of what I post in here will be that. I will post shorter term entries in markets that are setup fundamentally to move a long ways in that direction.

BEST WISHES FOR A GREAT 2010