S & P 500 RALLY - OOPS THERE IT IS

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

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

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

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

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

This is all I have for tonight - Good Trading

FISCAL CLIFF

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

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

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

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

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

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

PFG/VISION

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

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

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

Good Trading this week

ANOTHER RECESSION COMING?

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

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

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

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

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

DO NOT PAY ATTENTION TO THIS GARBAGE!

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

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

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

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

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

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

Have a great weekend

GOLD FUTURES HEADED FOR A TUMBLE?

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

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

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

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

What does all of this mean?

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

Good Trading

S & P FUTURES UPCOMING SELL SIGNAL

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

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

BONDS

What to do with the Bond Market?

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

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

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

JUST KIDDING!

Good Trading

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

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

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

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

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

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

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

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

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

PFG Update

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

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

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

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

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

AYE CARUMBA!

S & P Futures.... The Future?

Buy or Sell?

The chart above is of the Bernanke 500 formerly known as the S & P 500. For those not familiar with my work, I have renamed this index after it's new controller since it is no longer controlled by the 500 companies in it's index. We do have some conflicting signals here. First we have the Commercials clearly staying heavily on the sell side even as we decline. In a normal world this would be very bearish. The problem is that we don't know now where the Fed's transactions are being classified and that has led to the commercials net position not being nearly as meaningful as it used to be with this market. As I have pointed out this market stands out as the one where the COT data has gone completely off the reservation in it's predictive value in the last several years. It is my suspicion that there is incorrect recordings of the players positions whether it be intentional or an honest mistake I have no idea.

If you look at all the dishonestly that is going on in the last month with the government I don't think it is much of a stretch to lean to the non-accidental side on this one. Net net, we cannot rely on the COT data for the stock indexes anymore. The Larry Williams commercial proxy and large trader indexes are the best surrogates that are widely available to work with. Readers of the newsletter know of the proprietary tool I am using which is a little different than any of these. If we look at the proxy index it is quite bullish here and we are still in an uptrend via my bands. As a result, I am looking for a rally here that will allow me to establish a short in the Nasdaq. I say the Naz because that market has turned into a down trend via my bands now and it is much weaker than the ES at this point. I always want to sell the weak and buy the strong.

The large trader index in the chart above always looks great when you have these large swings but can be a bit choppy when we get into non-trending markets. It is really just fancy moving averages so it is not great invention anyway. If you look it pretty much just tells us what we can plainly see in the price action itself. It does show we have crossed down now into a down trend. When we see the proxy as a buy and the large trader index as a sell what do we do? For me it is pretty simple, wait for them to come in line with each other. From a larger time frame standpoint even the post election sell off has not changed this long standing up trend to be broken..... YET.

I do not suggest getting tied up in the fiscal cliff dialogue. Even if you were to be able to figure out exactly what is going to come of all of that there is no guarantee the market reaction you would pick would be correct anyway. It would just be a guess. I don't guess when trading. I would rather rely on the tools I use to make the calls and live with the fact that they are going to be wrong at times. I know over the long run they work. I am about as sure as I have been about anything I have ever predicted in life that the election results are devastating economically for the future of the whole world. However, that has nothing to do at all with how I will trade the markets. My technical tools will guide me to where I click the mouse. Even though we all know the end of the movie we do not know how long it will be and timing is everything.

It is my feeling that the tax and spend binge that will now go on completely unabated will create some huge economic swings that we can take advantage of in each direction. 

Here is the bond market and just like you would expect it seems to be the opposite picture. We have the proxy index just creeping into the sell zone. We have the seasonal still telling us to look up. I have marked where the typical selling point for this market is in January. It looks to me like we will still move up here for a bit but we may get some different feedback if we get up and test the highs. If we are to get a failure there and turn down, in January, and the proxy gets deeper into the sell zone, we could have a good selling opportunity on our hands.

There are many who think this market is a bubble and for all I know they are right. However the biggest challenge with bubbles as we have seen with real estate, stocks, and Gold, is timing them is very tough to do. There are many smart people who were a few years early in real estate and stocks, and Gold still has not popped. When manipulations of pricing are going on to the degree they are now timing bubbles is very challenging. It is easier to just wait for the trends to change and play the first pullback. That is what I am doing with both stocks and bonds. Short term trading is another matter, these are comments about bigger picture moves.

Enjoy your weekend

STOCK MARKET CRASH COMPARISONS

Stock Market crashes are not easy to predict correctly. One thing we all have learned over the years is that negative sells. If you can scare someone enough you can get them to take action, presumably to buy what you are peddling. I don't know what it is about human nature that makes us more willing to accept an argument that is negative than it is to be optimistic. Perhaps it is just the natural fear of the unknown and if that unknown is a good outcome we don't need to worry. If for some reason it is a bad one we better be ready. There are certain writers that always predict declines then eventually when one happens they run to the media telling everyone how they called it.

I have been reading a few things about comparisons to prior crashes in particular 1987. Let's take a look at that now and see just how similar our current pattern is to that.

I think the problem sometimes with analysis from people who do not trade is that they are too quick to jump to conclusions. There are no dollars lost considerations to the analysis so they tend too not look deep enough. This is not to say that every trader is always right and every analyst or blogger is always wrong.

Here are where I see similarities and where I see differences. We had significant rallies in both cases. We are at a similar time of the year albeit about a month later in the current case. That is about all the similarities I see. Here are the differences.

First, the 1987 top was after a monstrous rally featuring a several standard deviation move upward. It looks like a chart of Gold from last year. During that run ADX which is about the best measure of trend strength soared. We have not had anywhere near the readings in ADX this year, and the market is essentially a double top. Typically huge moves like what took place in 1987 are reversions to the mean that really overshoot their targets. We have not had anywhere near the blow off type of action this year.

Second, the Bond market had weakened considerably in 1987 a couple of months before the top was made. That has not happened this year. Interest rates are the main drivers of stock prices. I do think the trend is in the process of shifting to down from up and that rallies should be sold, but I do not think we are going to have a market crash. The short term trend is down now so the larger moves should be in that direction, down. I am looking for some type of decent rally where we can get a good entry price on a short position. Crash articles sell magazines but for every one you get right you get 15 wrong. One of the articles I read was written by someone who is notorious for always thinking things will go down sharply. He might be right who knows, but I don't think this person actually trades. As a result I am going with my own analysis.

What we have so far is a reaction to the election so let's not panic yet. I still do not see a lot in the way of trading opportunities for tomorrow. We exited a nice long trade in our Swing Service today in the bond market at our price target, taking advantage of the big market sell off.

Everyone can chill, we have tough times ahead I am sure but I don't think a crash is going to happen just yet. Notice I said YET, it will ultimately come from what the government is doing to try and avoid it. For now the short term trend is down with the weekly on the verge of turning down, so we have to pay attention.

Good Trading

TREASURY BOND FUTURES TRADING AT IT'S VERY BEST

ZB was bought on Wednesday's opening and exited at Thursday's open for a huge one day profit of close to $2000 per contract. Our system told us to buy the market on the opening so we did so. I had speculated that the market would decline based on the election so I was glad to see a long side trade in Bonds indicated for Wednesday. I would have taken the trade even if it had been a short but was much happier that the system matched my gut expectations. I was pretty sure we were going to decline Wednesday but did not have any idea we would crash like we did. Our system did have two losses recently which you can see that were followed by a win then this monster trade. In short term trading it does not get much better than this especially with a mechanical system. 

I am showing this trade just to indicate that you can do well short term trading you just have to have the correct approach. I have not indicated how this works and I am not going to. Would you if it worked this well? I do offer plenty of free content in here as far as technical trading goes but this one is going to remain with me. We are going to be creating several different new things over time to compliment what we already have. A website overhaul is being done within the next couple of weeks. Once that is done we are going to be able to expand into all sorts of things including videos, webinars, and some other free tools. It is hard to trade and run a business at the same time. This is especially true when you are running trading services. I am a trader not a marketing wizard or web developer. I have had to wear all of those hats for a bit now.

We will be incorporating the blog into the new web site so it will be a one stop destination which will make everything work so much better. The general design has already been selected and it is going to be a big improvement. If you are lucky you will be able to avoid my mug shot! The goal with all of that is to integrate everything into one place so we can have more contact and have it be much more organized. I am not going to become a used car salesman don't worry.

Today was one of those outlier days where we had huge ranges in just about everything from Hogs to Crude Oil to the ES. I have never been a big fan of trading days following days like this for a few reasons.

1) Most indicators are completely skewed and need time to "reset."

2) Stops are so big that money management goes out the window

3) They can often be traps

Here is an example of an extreme move in the ES and the MACD readings when it happened. I do not use the MACD so I do not know if the settings I have for it are the best ones, I just used the stock settings Genesis has for it. In a case like this I think the indicator has to completely recycle before you can use the overbought and oversold functions of it. When the values are skewed this much in one direction even a big rally will not get them to the other side. Once a full cycle of up and down takes place you can begin to use levels the way you normally do. I will cover the other two topics at a later time.

I had a request for an updated Euro mystery chart so here it is. The dates are still the same.

You can see the key date is 11/30 and you have to keep in mind one very important point about cycles. They do not necessarily say a top or bottom comes right at the peaks or troughs. What they indicate is price should go in the direction of the cycle at that time. In this case that would indicate we are headed for a tough year next year in the stock market. I have covered this as well as other things I watch when planning for stock market moves in the Newsletter each month. I did cover how I think this plays into other things that are going on right now and what it should mean. We have been a little spoiled by this cycle indicator in that it has picked almost to the day significant highs and lows. I can tell you from experience nothing will be this good at picking every single swing. If we have already made the top and go down significantly from here, I would consider this still awfully good at picking this turn.

There is nothing much new for tomorrow I am letting the dust settle for a day.

Good Trading

FUTURES TRADING - DOES THIS MATTER?

Futures trading on a day like this  is not a lead pipe cinch. I am sure readers might be expecting a big political post but I am done after tonight. There will be no more political comments in here going forward. I may mention the PPT but they are not biased to a specific party. They are used by both sides equally. 

I don't know of any consistent statistics to trade election nights and I see this as a short term mid range price action affair. I think the Naz has changed trend to down but the ES and Russell have not in terms of the big picture. That has nothing to do with short term trading for Wednesday. I do not see an edge here in either direction. Further, I don't see much in the way of high probability setups anywhere for tomorrow. I do think if the Bond market could break out on the upside from here it might get loose. 

Other than that I don't have much. We had some large ranges today which messed up some things I was looking at for Wednesday.

I have shown something that some of you might want to study on your own. When you get volatility contractions you can trade the break outs of those situations. You can see where I have marked these instances on the chart and for the most part we got moves that followed in short order. Study this on your own and see what you can find. There are patterns here that do work.

We will pick it up again tomorrow

SCORECARD

Thanks to PFG I don't have my country club membership anymore so I am left with our Scorecard of the trading services to sit down and have a beer over. One thing I am going to do once I get back the club membership is my password will be a defamatory comment about Wasendorf. I just find this works best for me. I have one going with my trading accounts now in regard to the CFTC and it does make me feel good every time I log in I have to admit. I am sure the back office guys at the brokerage houses who see those things got a kick out of it when they saw it get established. Everyone deals with things like this differently. I am kind of fiesty as readers know so I like to tell someone to piss off every once in a while when it is appropriate.

October represented the first full month in our Swing Trading Service and the third in our Bond Trading Service. The results are below.

BOND TRADING SYSTEM

SWING TRADING SYSTEM

SUMMARY

These results are exactly as advertised in my web site. The Swing trades are less accurate but make more money on average. The Bond trades are very accurate and less total dollars. This was a very high month in profit for the Bonds and not typical of what it will generally produce. However, it did happen. Those are the trades the system cranked out that were in the services for both methods. Needless to say with a combined profit of over $10,200 just trading one contract of each, we are pleased with the results.

We did have a problem with the one trade in Hogs which caused a wild opening few minutes in that trade when it was entered. Since there was no report of any type that day I am suspicious that someone shared that trade with a brokerage firm. Please do not do that you will hurt yourself as well as all of the rest of us.  If we are able to determine this happened and who did so they will be cut off from all services going forward. It specifically states right in our terms and conditions that you are not allowed to do that. I cannot understand the logic in this. Why would you want to jeopardize something that can make you this type of profit? I can't imagine being able to sell this to someone for the amount of money you can make by just taking the trades. I have never seen the Hog market act like that other than on a report day so something is amiss here.

We are going to have to change how we are doing the trades in the thinner markets due to this. If you are using the one brokerage firm that is famous for terrible fills be careful on these trades. You all seemed to get about 60 to 70 ticks of slippage which is insane. Why anyone would want to put up with that is beyond me. You are also going to get burned on exits. I know of one reader who is so thankful of some orders that have not been filled that should have been by this brokerage firm, because the trades were bad and it saved him some money. This is faulty logic. What if they were stops protecting a trade and they were not filled? In that case you would be exposed to huge losses. I can tell you that is exactly what happened to me at this firm many years ago and why I left and won't ever go back. If they become the only firm left I will move to Mars and trade with the Martians.

One thing we have learned painfully in the last year is that brokerage firms are not to be trusted and you have to stay on top of things like never before. Do not sit idly by and put up with inferior service.

Here we sit on the verge of a very important election, what to do?

NOTHING DIFFERENTLY THAN YOU NORMALLY DO

If your trading approach is to guess based on your opinions than have at it and place your bets. I don't trade on my opinions and never will. Although I may think based on having experience, I can guess better than the next guy, in reality that is not true. When we look at the Naz above it appears to be in a pullback against the downtrend and in a continuation pattern to the short side. We do not have much accumulation going on so it is not an obvious reversal spot. Whether or not there is a coming bias to either side due to the election is anyone's guess. I see nothing that tells me definitively which way the election might drive the markets. I really have no idea and don't really care. I do care a lot about the outcome of the election but not in regards to how I will trade it. I have voted and if the US collectively wants a complete conversion to socialism there is not anything I can do about it. It speaks volumes about how this country has changed that this is even close and it is very sad. I am less of a liberal target since PFG stole so much of my money so I am under the radar for a while.

PFG/VISION

The money is still not free to use so I am moving on and if and when it is ever available I will begin trading there. I am not doing a thing until I can get my equity account set up there to get the sweep protection going. There is nobody who can convince me money is safe in FCM's so I will only trade where it is swept into insured equity accounts. Those who don't have that option will never get any of my money ever again. We know Baldsler is doing nothing to help us with his new "regulations." I guess the next scandal he will just say again "we blew it" just like he did with PFG and move one without a care in the world for the victims. It would be nice to be able to start a series of exchanges unrelated to the US markets in another country and make these guys irrelevant. Aah what fun it is to dream of such great things!

Once bitten twice shy.

I am hoping for the best in the election but preparing for the worst. Either way lets hope this does not wind up in a court room again.

Good Trading

MIXED REVIEWS

I got some things right and some things wrong in my bold predictions in the last week. This is a good lesson to people not to be too much in a hurry to tell everyone how smart you are blah blah blah. Let's look at the predictions and grade them.

First I mentioned the Vix was giving us a buy signal and to wait for two things: first a close < open of the Vix itself; second a penetration of a prior day's high. There are a couple of ways of exiting a trade like this and it depends on your time frame. You can either hold it or can look for a quick short term overbought exit. I also mentioned that I was not thrilled about this signal because my second filter for it was not saying it was a go. Without the second filter this pattern is 60% winners and 40% losers. It does have an edge but not a big one.

I mentioned that the trade I was really looking for was a sell on a small bounce due to the larger picture of the trend in the Vix being down. Overall I would say that I got this about right. We are not at a sell spot quite yet another day or two is needed. Also we have had a very small bounce. The one way to exit short term trades like this is to get out MOC when the 2 day RSI is closing > 65. That condition was met Thursday so a small profit could have been made.

Second, I predicted that NFP report would be at 7.7% and it came in at 7.9% so I was dead wrong on that and my theory as to why was also dead wrong. The narrative became the gross jobs added which does not add up at all if you look at the ADP report. Perhaps making it 7.7% would have been so obvious that even the F You I Won team decided against that. It might well be that the sales job I have had to have while being hung out to dry with the PFG theft has biased me somewhat. I live in southern California and the business climate is just absolutely dreadful. It is possible I am imposing that view on the national economy in a disproportionate fashion. Maybe the national economy is better than I think it is.

The net here is that my market prediction which is what I get paid for was pretty good and my political opinion was wrong. If I had to miss one of those two I missed the correct one.

Here is a trade we have been in with the Swing Service that is working out pretty well, Natural Gas.

You can see the basic setup of a good sized short position in the COT data and where our short entry was initiated. We sat through some chop the first few days and now we have broken down some. There are the types of trades we try to catch with this service. I showed the one in the DX the other day where we sat in for a few days and wound up getting stopped out for a $70 loss so this is the fair and balanced side of the equation.This one is ahead about $2200 at the moment. That is a good trade off a 50% win rate and a more than 20 to 1 ratio. This is why I told people the Swing trades would make more money but not be as accurate as the Bond trades. That was proven out in the first month we offered both. They both made good profits for subscribers Bonds were more accurate and the Swing trades made more profit. So far so good.

Next week is going to be interesting. The polls are showing the race so close that anything can happen. I do think that regardless of who wins they are going to be facing a stock market decline at the beginning of the year. I fear if BO wins the market could fall hard sooner. I think most people have realized how bad he is for the economy. However, there are a lot of people who will vote for him for the socialism part of his agenda. What those people are not thinking through completely is what they will do when that agenda bankrupts the US and has to be discontinued like we are seeing in Greece. Be careful what you ask for you may get it.

I don't know if Romney is the savior or not but I do think it is time to give a businessman the job to see if anything changes. We gave an intern the job with BO and we saw what happened there. We might as well give the gig to someone who has actually accomplished something in life and see if it makes any difference.

The media's complicity in the Benghazi cover up may well get BO another 4 years. It is really shocking to me that these people would rather have Americans killed than lose an election. I still can't figure out why almost all of them should be for one side regardless of the side. It would make no sense to me if they were trying to manufacture a Republican win either. There is just something I don't know apparently.

I am about as sure as I can be about one thing in regards to the election. If BO wins it will be devastating for our economy. At age 53 I think it will not to able to be saved in my lifetime if he runs the debt up at the same rate he has been doing without any regard to it's long term consequences. We are seeing in NY that you cannot rely on the government to do everything for you. Bloomberg was going to use those generators that could have been used to help victims of the storm to keep the media comfortable for a marathon! He was doing it for money. It was only public outrage that forced him to reconsider. In other words left on his own to make a decision, a supposed champion of the middle class liberal, was willing to let that same middle class die to further his own agenda. If this does not wake you up I don't know what will. Perhaps the Benghazi cover up which might be the worst of it's kind in history? Big Government is not the answer.

Look at what Baldsler ( Gensler of the CFTC ) is doing with the new regulations on the segregated funds.

NOTHING AT ALL TO HELP

It has now been made abundantly clear, if you want to trade you are on your own in protecting your money. Please have your accounts at places that have equity account sweep options or in Canada. If you don't have either you are going to get burned at some point. The saying that it is only when the tide goes out that you see who is swimming nude, is going to be applicable. The next market down turn is going to generate the exposing of another one of these customer segregated fund thefts that is probably already going on.

It is interesting to read about MF Global and Corzine's strategy for using the customer money. They actually had internal proposals about illegally using the money that were discussed in meetings and reviewed. There was an executive who was fired that objected to the proposals. Just think about that for a minute. It is illegal PERIOD to use customer money yet they actually gave people the assignment of proposing how to go about using that money for company business! So managers made proposals to use the money and now Baldsler proposes as the solution to have procedures for managers having to sign off on segregated funds transactions. The very people who drafted proposals to break the law are going to be required to approve breaking the law. If this were not so dangerous it would be funny. Baldsler is either stupid or complicit you make the call.

They need to just do only one thing and one thing only. Make it impossible for them to do this. The segregated money needs to be in accounts that are not controlled by the FCM's. This way even when they plan on how to steal the money they won't be able to because they will not have access to it. The problem is they don't want to solve the problem or this is what they would do.

PFG

The storm messed things up a bit due to the back office staff of Vision being in the storm plagued areas. I think some of my accounts should be available any day now for trading. If you have money there you should be able to take it out or trade it next week.

I have seen nothing at all on the Forex accounts and cannot for the life of me understand why nothing has been decided on that yet. I think the system is just setup to enrich the attorneys and fleece the victims. Shaw Gussis is getting about a 100k a month by my calculations so what incentive to they have to hurry?

I think in the end seg holders are going to wind up between 50% and 60% of their money and the rest will not be seen ever again. The one thing that could effect that some is how the Forex money is handled. Even now the story is almost an after thought that nobody cares about. I wonder how it will be handled when the next one happens?

Next week I am looking for a sideways to up for the first couple of days then sell signals should be in play.

Good Trading

TIME TO GO OUT ON A LIMB

7.7%

Since the benchmark for the narrative is 7.8% and so much is at stake, I predict the above will be what they report tomorrow. I think the report tomorrow was determined many months ago no matter what the facts were the report will show this number or lower. After all how can you claim what you are doing is working if you don't have the numbers to back it up?

I expect a mild reaction in the market unless they have the nerve to go way over board and report 7.5% or less. That would take incredible nerve since the ADP stuff came out today and showed a downward revision of last months data. However, I have seen one thing that has been consistent, they have done what ever they felt like doing regardless of the facts or what the American public has wanted for almost 4 years now. Why stop now with the finish line so close in sight?

I have been talking about a rally in the stock indexes based on a signal in the Vix and said the trigger was first a close below the open in the Vix itself and then a penetration of a prior day's high. We have gotten both of those and the market has risen nicely. I did also say that I was not looking for a big bounce, so that means that for that portion to be correct we need to have a mild reaction to the fake number that is going to be released tomorrow. I do not expect anything big on the upside on Friday no matter how the report is released.

You can see where I have it marked on the chart at the point where the first high was taken out, which would be the long entry on this trade by the Vix rules that I use. I did say I did not think this was a great trade because my second filter did not approve it. This made it about a 60% probability to be a winner. I guess we will see tomorrow what happens.

I have to keep it brief tonight so I think we will see a day with some upside tomorrow or if down a "contained" move. I guess I am the village idiot if they present a number over 7.8% that would really be an October surprise.