WORKING THE TRICEPS

I have decided to use my tricepts to push me away from the trading desk in the wake of my colossal mistakes this week that now have cost me to miss over $100,000 in profits in trades I should be in. It is what it is, the single biggest blunder of my trading career. The more I stay in front of my computer, the more my anger just boils up again wondering how in the world with my level of experience I could have ever made these blunders. The problem with what I have done is not just that I missed a few trades, that will always happen. The real problem is that these trades were in markets in blow off phases where they could run for weeks. The will not be a second chance to get on these moves, they are gone without me. The metals markets now have just open space above, who knows how far they might go.

It is perplexing in that there has never been a trade in my lifetime where the huge public majority has been so right for so long. All the rules of engagement are out the window in the GOLD market and nothing matters but price action. That says to be long as clear as it could say it. I have been wrong and my 25 years of learning what drives markets has steered me completely wrong in the metals.

Above is the Sugar market, which is an example of a possible preview for the metals. One thing that is in place now in this market is a Tom Demark Sequential sell signal. I will not go into the details of what that is, you can read his books if you don't know what it is. He has a pretty good way of mechanically measuring moves like this as to when they will end. We just within the last couple of days hit the sell count here. We also hit it in the Yen this week, the Aussie dollar, and interestingly enough, GOLD. Gold however does not have a super high ADX reading, so I am not sure it means much there, these other markets do have high ADX readings. I have marked the high ADX reading with a red arrow on the chart also. We have gotten over 60, a typical level for a top to form.

We are in a blow off condition in alot of places now so for me I know better than to chase these types of things. When you do inevitably you buy the high or sell the low. I missed the moves so I will just go play golf for a few days and come back to the markets and see if there is anything there for me. I was trying to short Copper today, but it has gone up along with everything else so that trade is not going to trigger now. It is probably the most closely linked to stocks of all the metals historically. One of the things other than money management that I would suggest people do going forward is just throw out everything that has historically had an intermarket relationship with something else. None of these mean a damn thing anymore. This climate is ignoring every fundmental that has ever meant anything. In my own personal trading I will no longer pay any attention whatsoever to any of those things.

The reason for this is most likely the extreme market manipulations by governments that is going on, but it does not really matter why. What matters is the what, and it is time to throw most conventional relationships away. If they ever do come back again, we can begin to pay attention again. Looking at them has cost me money this last 2 years without a doubt.

As to the stock market, although we are now back up at the top end of the recent range, I do not really see any clear sell signals here, so we may just power higher. I would not let any big picture economic views con you into getting heavily short in stocks. We should get a dip here at some point into October, which as far as I can tell might set up a major rally. Maybe it makes no sense, but neither does most of what is going on right now for that matter. Stocks are completely divorced from the economy now, so just accept it even if it makes no sense. It is what it is.

TOUGH INTERVIEW

Sometimes it is very difficult to get up and go to work. If I were being interviewed today I would tell the reporter to go jump in a lake. I have made so many mistakes this week already that I have already left over 50k on the table that I should have had. It is in reality probably closer to 100k, I don't even want to know the real total. I was so mad at myself yesterday the last thing in the world I was ever going to do was post something in here. I have to admit that a couple of decisions not to take trades completely debilitated me. I don't remember the last time this happened, but it has been many years. For me my biggest pain is not losing on a trade, it is seeing a big one I did not do for some stupid reason sail away from me.

It was all I could do not to go jump in a lake. Fortunately for me my pond on my property tends to dry up at this time of the year, so it stopped me from jumping in it. The above trade is an example of one I would have done and was going to do until, THE EVENT happened. Once it happened it just exited everything I was in and went flat. I was just too emotional to even deal with any trades at the time. I should not have done that because one of the trades I exited has gone on to be a big winner. I have to admit to still not having a clear head, so I don't know how much trading I am going to do this week.

I really don't have any advice as to how to handle this, it is part of this business, and there is no magic answer other than to deal with it. This one will stick with me, and I am going to make some changes as a result of this colossal blunder on my part. Maybe that is the good that will come out of this. As to the trade above in the Yen, this was a tough one. I noticed yesterday that we were breaking out to new highs after having gone sideways for a few days, and thought if it failed it could be a nice short. The momentum oscillators were really kind of just going sideways, although it could be argued that they were under their trend lines and as a result sells could have been done. However, you can see that has been the case for the last month and nothing has happened. What did make this a little different was that we made a new high last night, then broke the prior bars low making it an outside bar. This could have been the justification for doing the trade. This was driven by a news event, but the pattern was there.

Had the oscillator been a little more definitively down I would have done this one, but in reality I was so tuned out to doing any trades due to THE EVENT, that I could have cared less if the markets ever reopened again. I do not for one second represent my reaction to my blunders being the correct action, it is just the action I took. You have to have a clear head to trade, and if you don't you should push away from the desk and that is what I did and am probably going to do today also. I may be slacking on the blog the next few days, I am not sure. I have a very poor attitude right at the moment and it might be best for me to go do something else for a few days.

Good trading to everyone

JUST NOT SURE

Above is a chart of the EURO which is having a big up day so far today. I am not in this trade after pulling my hair out for an hour debating whether to go long or not. In the end, I passed because I want my trades to jump off the chart as obvious and I just felt I was forcing this one. Too bad, it has already gone far enough to guarantee at the very least a very small loss or breakeven, with plenty of upside potential. I felt my middle oscillator was giving me mixed signals on this, although there is a pattern that is a long entry that is there. The fact that this currency is one of the weaker ones of the bunch is the main reason I passed on this trade. There is another though in the next chart.

This is the SP 500 above and there a few things about this rally that are starting to bother me. ADX, the red line at the bottom is declining sharply on this rally, in most good trend moves it increases. Also, we are right into a good resistance point, and the main momentum oscillator is not in new high ground here. When I also add in the seasonal tendency, the blue line, this makes me very skeptical of how much further this will go. Since all markets relate to stocks for the most part now, I did factor in that if this were to stall here the EURO would likely decline. When I added that into the mix, it just became a No Go.

Was it a bad decision? It appears so. I might have overthought this one, but it was all driven by a mixed setup in my main indicators. Once I feel I am forcing something, I generally do not take the trade. It tends to work out over time even if it did not in this instance. I have repeatedly stated that the stock market is driving everything, and I think in time, and that could be a decade or more, it will come out what the PPT did here. This is no coincidence in my humble opinion the way this is all being orchestrated. However, there is not a single thing anyone can do about it, so just be aware of the relationships and act accordingly. It is not known by me or anyone else, whether this manipulation is really going to hurt or help in the long run. I fear it is just prolonging the bubble from inevitably bursting, but I do also admit if I were in a position to control things like this it would be hard to not do it, knowing voters would blow me out immediately if I did not, and also knowing that at the very least alot of short term pain would take place. The question of course is whether or not taking the medicine now would be better than taking it later.

What I am afraid of is that when this inflated bubble does burst, we will have no bullets left in the gun, and things might get shockingly ugly for a few years. I hope not and hope I am wrong. As you can see from the above, I am wrong my fair share, so I am not an expert in prognostication any more than anyone else is. So far the play is being acted out perfectly, all the actors deserve academy awards.

Here is the T Notes short I entered last week. You can see I exited during the night session last night taking profits. I thought I should show a chart with a profit since I spent the whole post talking about what a dumb ass I am. It is interesting that as I type this we are on new highs in stocks and Bonds and Notes. These markets typically have traded opposite intraday. Might this Bond rally be telling us stocks are running out of steam?

I am looking for the stock rally to stall here, so we will see if it does.

LOOK OUT HACKS HERE I COME!

Anyone who has played golf with me in recent months who might be reading this would surely think this topic was about my golf game. It is in such an utter state of collapse it is shocking. The more I try and fix it the worse it seems to get. However, this topic is in reference to my elbowing my way into the water cooler crowd at work where all the hack amateur economists along with G Gordon Liddy and various other "experts" are calling for the demise of the dollar. I do have to say though, that my bearish view of this market is very short term. My plan is to run in and agree with all these clowns, for a quick move down, then take all of their money when a larger scale rally happens. Will either happen who knows, although you would think by the commercials that "everyone" knows.

Above is the Dollar Index, and you can see my orders of where I plan on entering a short position if we decline to these levels today. I thought for awhile this was definitely going to fill, now I have my doubts. It will take a big stock rally to push this down most likely. However, we are in rally mode in stocks so you just never know. It does strike me as odd, that the gloom and doomers all think stocks and the dollar are both going to tank, yet it could not be more clear that these two markets are trading opposite of one another. Sometimes you have to think about what you are doing, but let's not let common logic get in the way of a good story.

I am still trying to get long Natural Gas as you can see on the chart below. This has a fair chance of triggerring today. You can see the orders on the screen. I like the seasonal strength in this market, so I am really looking to try and get on board with that if possible.

There is not much more really to say here, the momentum oscillators are saying this should lift off but so far no ignition. Next a brief look at everyone's favorite market.

The above chart of the GOLD market shows a huge amount of divergence in the momentum indicators. This can at times be the case when major trends are happening, so that by itself is not a reason to run out and get short. However, if you look at ADX at the bottom, you will see it has really been declining. This tells us the trend is not gaining strength as price rises like it was previously. I believe this means this market should be shorted on any bounce that occurs here. You can also see we have for the first time in awhile, broken the uptrend in price alone. This is a market I will be watching closely next week.

Good Trading to Everyone and remember, it's George W's fault if anything goes wrong so swing away.

GOT GAS?

Here is a chart of Natural Gas that displays orders I have in for this market today. As you can see we have a valid long setup in place. First, the seasonal shows we are at the time of year where prices typically rise, BLUE LINE. Next we have both of the momentum indicators rising indicating an uptrend that price has not quite caught onto yet. Then we have what would be a higher low than the lowest low on the chart forming if we were to move up from here. We do not know if in fact this is a higher low yet. A rally needs to occur, so that is why I have buy orders above.

I was talking with a good friend again yesterday who loves to trade, yet constantly loses money doing so. I constantly harp on him to get away from the inraday charts, and wait for daily highs and lows to go before entering trades. He is just so impulsive he can't do it. I even constructed a custom indicator for him that gives him very specific patterns to trade with. ( Not what I use but in the same general spirit of it ) I then showed him what they were and he was very excited. Now that he is trading them, he is trading against those patterns, and on top of that anticipating intraday high and low penetrations that wind up never happening. As a result, the ultimate outcome is the same. He is a highly intelligent person and very successful in other walks of life. However, and I have told him this, the swashbuckler approach to things may work in other industries but it is does not work in trading. You really have to stay disciplined or you will get your butt kicked!

I am staying disciplined here in a market I want to get long in, by waiting for my pattern to trigger. Maybe it won't, I have no idea. I do know that if I just blindly buy here that I would have no idea what my odds on success would be. If for some reason it turns out that discipline is a negative in trading, I will walk away and dig ditches. It is what I know and how I am wired. I know of no other way to approach life. The caddyshack trading approach does not work for me and for that matter, not for anyone else either.

I have mentioned before that Natural Gas is like that crazy uncle that some people have. This market beats to it's own drum and is very volatile. It can be asleep like this then all of the sudden fly $3000 per contract in 5 minutes. I am not assuming this order will not be filled even though this market is not moving much at all so far today. You just never know with this one. As they say, the force is strong with this one.

I have been mentioning for a month or so maybe more, that I was bearish on BONDS. Below is the trade I just entered this morning in that market.

Of course I always take the chance of being made to look like an idiot posting trades live in here but what the hell, it is what I do. In all honesty I placed the orders last night and did not expect them to be filled so just discovered I was in this trade a few minutes ago. Pretty much the standard MO here. Downtrends in the momentum and a bounce in price against it. There was a dreaded reversal bar as you can see yesterday. These damn things just give me so much trouble. My logic as to why I took this trade was as follows. I know I have a reversal bar here which means this entry could very well be a trap. However, if it took yesterdays low then reversed back up and closed positive, it would be a reversal bar back in the opposite direction. If that were to occur which is the worst case scenario, I would then have a valid sell below todays low which would be a lower entry than I already had, so I just went ahead with it. As per the usual, I have no idea if this is any good or not, but I am stuck with it now.

I traded Notes instead of Bonds because the accumulation/distribution indicators were a little weaker there than for the 30 year, but it is basically the same trade. I got more contracts on with the Notes than I would of with the Bonds due to the stop difference by a 3 to 1 margin and the markets normally have about a 2 to 1 ratio. As a result, if the trade works in theory I should get a little better bang for my buck.

Just remember, what we have all learned in the "teachable moment" the last year and a half is this, if the trade does not work don't worry, just blame it on George W Bush!

FREEEEEEEEEEEEEEEEEEEEE!!!!

Just for kicks I decided to try and load the new editior again to see if it would work and it did. As a result I can now make the posts look respectable again without having to spend an hour to do one. I am free of the pain finally!!!!!

This is a market I had mentioned recently that had a bullish setup and I was looking for a way into but had not yet taken one. I have marked on the chart where an entry could have been taken. I did not go in there because the stop was larger than I would have liked, and now although having moved up, this chart is pretty sloppy. I know that my best trades come when a market triggers an entry and just goes. I do not ever expect this, but when I review trades which I do every week, I find this to be consistently the case. We have had so many chances to enter on a pullback that to me it is just too many and the market is in somewhat of an equilibrium state. For all I know we could just blast off here without me, but I do not care. I don't have gray hair and don't want it, this would have given me some.

That being said, this market is primed to take off, and only the late selloff in stocks brought this back in some today. If stocks resume their climb, this will no doubt come along for the ride.

Here is a chart of the 30 yr Bonds. I am looking to get short this market on a bounce here, to try and get in sync with what the oscillators show is a down trend. It will take a stock bounce to trigger this, and that does not appear to be in the making for at least one more day if not two. As a result, I will be looking here but do not expect an entry until the end of the week at the soonest. However, as we know things change quickly in the markets so be on guard here. One point to make here, if we go up too far, this short can be negated. I will not blindly short a bounce here, the pattern is going to have to be there. The point in showing this is that it appears there is a potential for a short pattern to develop in a couple of days. If stocks just plunge here, it is doubtful this trade will set up.

Remember, it is all about the stock market now, it drives almost every market in the world except the soft commodities, Natural Gas and to some degree the grains and meats. The other markets trade basically lock and sync with the SP 500 so be aware of that as you select your trades. Some are with it direction wise and others are opposite, but the correlations are just uncanny right now.

HINDENBURG SELLS ARE THEY ANY GOOD

There has been alot of talk recently about the Hindenburg Sell signal. Cramer apparently mentioned it on his show recently, and the Elliot Wave people have also been discussing it. I have overlayed in RED on the chart above a couple of the recent sells indicated by this strategy/signal. You can see that the first one was not bad but for the most part here, you were selling right into a significant low. Here are some other charts displaying some of the others going back in time a bit.

You can see from looking at all of these charts that some very nice signals have in fact come from this concept over the years. There are also others that are not so good. However, the majority of them are good enough where it does make sense to take notice of them when they show up. I intentionally showed one of the bad ones in the first chart for the following reason. When you research ideas on how to trade going forward, this is exactly what seems to always happen. You stumble upon something that you think it the holy grail, you test it over and over, then when it comes time for the first trade with it you lose money. Most commodities traders are convinced that Murphy was in fact a trader himself. How else could he have made up his primary rule!

This is just reality. The goal is to establish edges in the marketplace and then try and exploit them knowing that often those edges will not play out favorably. As long as they play out favorably more than they do not, the edge is valid and is a good tool to make money. I hate losing just like the next guy, but I have learned to accept it as part of this business. In any other job say for example a sales position, you lose alot of sales you think you might get so this is no different. You just have to have good techniques and try and implement them the best way you see fit.

I will not get into the exact formula for this indicator, but it is basically a ratio that looks at new highs and new lows on the NYSE and qualifies that with a couple of other things. I am sure you can find it on the internet if you do a search

HERE IS ONE I BLEW

I am just kicking myself for missing a couple of huge winning trades this week, here is one of them. I have indicated where I considered going long in the Russell 2000. The reason I did not was the reversal bar. These damn things always cause me trouble. In all honestly I was waiting for one down close to come, and just got too picky. It happens. I wish there was some magic solution to missing trades but there really is not. I have alot of mental baggage with reversal bars due to a period many moons ago where someone taught me to trade off them and I got my ass kicked trying. I developed a sub conscious aversion to them probably just from a self preservation standpoint. This is an irrational position to have on my part that I just have to get past.

I am particularly irritated with the way Blogger displays my posts nowadays. It puts spaces where I don't put them while composing, and takes them out where I do have them. I then go into the HTML code and put them in and sometimes they still don't display properly. I do apologize for the lack of consistency in spacing between paragraphs. I spent close to an hour yesterday on that post, just to still have the spacing wrong. I just do not have more time than that, but I hate putting out any product that is not up to snuff. All I can do is apologize for it and move on.

I would suggest studying reversal bars yourself to see if there is a way you can find to trade them consistently. This specific bar was almost closer to a doji type of bar from the candlestick world, so really was not a traditional reversal bar. I should have treated it as such and went long but I did not so what can I say, I blew a big win here. I would take profits at todays close had I been in the trade due to the 3 consecutive big bars in favor of the trade. For those of you who got this one, you might want to consider flattening at the end of the day if it stays strong.

It is fascinating to me to listen to the debates on CNBC after the NFP reports. I heard over and over that tax cuts for the rich caused the budget deficit. Aside from this being physically impossible, it is just shocking to me that people can actually believe that.

The head of the UAW, or should I say head of extortion for the UAW, kept repeating that. It is so strange to hear someone like this who makes a living from extorting money from rich people always criticizing them. I still challenge these people to produce one poor person who will hire someone and pay them a 6 figure income for sleeping in the rafters during work hours and coming to work drunk. This is a typical MO of an auto worker where I grew up. Many of my high school friends did exactly that year after year. When they bragged about doing it arguments always followed. Will the poor people be able to pay for someone to do that?

There has never been a time when this country has been so divided in my lifetime, it is just a shame. I do not have the answers, only ideas of what I think they are. I do know for sure that attacking rich people is not it. It you get rid of all the rich people, we are Mexico. When they raise my taxes next year I will cut back on discretionary spending by the amount they go up, did you hear that Mark Zandi. Isn't this just obvious? He said today takes hikes don't effect discretionary spending with rich people. He is of course a socialist also, so I guess that is par for the course.

When you look at a stock market rally on a day when the NFP report was so bad, you really have to wonder how all of this is happening. I have gone over and over how I think it is happening, and I have certainly seen no evidence to disprove my theory. However, in the end price rules and the trend is up now.

TICK TOCK TICK TOCK

As I sit hear flat waiting for a few things to develop, I thought I would lay three of them out in here. The first one is Natural Gas, above. This market has been in a strong down trend for quite some time. We are now seeing a potential light at the end of the tunnel. Our oscillators are on the verge of turning up, and price is now moving sideways. Of course this could be just a little ledge and we will fall of another cliff. However, if we were to start trading above the trend line I have drawn on the chart I might be willing to take a swing at the long side. I am drawn to this by the seasonal pattern which as you can see is indicating a typical low about now.

I am not a big fan of buying into downward moves that are this strong so I need a bit more than what we have at this very moment, but this is one that I am watching. Next we have Heating Oil. Like many other markets, the chart patterns in this are remarkably similar to that of the stock indexes, so this market will not likely rally without a stock rally. However, we are getting that now, so this market has my attention.

I have the seasonal pattern displayed so that you can see how closely this market has followed that pattern this year. This is typical for the energy markets, they are amongst those that are heavily influenced by seasonal supply and demand. We are heading into a bullish period, and have made a higher low now, so this one has my interest here. There are so many different ways to get into trades that I will leave it up to you to determine if something you use is present for an entry. As I type this I have not gone long yet but am close to doing so. The third market I am watching is the British Pound, the chart is below.

Once again you can see how well we have followed the seasonal pattern here. We are a bit early for the low, but these are general patterns, you cannot nit pick the exact days on them. They are average prices. What interests me here is the false break to a new low after a 4 day sideways move, that reversed the next day. These trap patterns I just love. The one big problem this trade has is that it is amongst the weaker of the currencies, and I always want to buy the strong. I may play elsewhere, I am not sure at this point.

Those are 3 markets to keep an eye on, and one's I will likely play in the near future. The exception being the Pound where I may buy a different currency.

One final point to make. There was a comment posted by someone about how to make money on a blog. I make no money on this. I think the total ad sense dollars since this blogs inception is under $50, so I am the wrong person to ask about that. I could not find where the comment got published once I approved it so I thought I would just respond here. It might have been an attempt to get me to the link it showed, which is fine. However, in case it was a legitimate question, I wanted to address it.

Good Trading to Everyone

CASH IS A POSITION

Here is the US Dollar Index, which has made a break out of a tight congestion area overnight. I know some very good traders that were long this who must have been stopped out by this move. To me when I look at this I see negative divergence in the momentum oscillator and a declining ADX. As a result this was not a trade on the long side I was looking at. Had we risen today, there is actually a pattern that would be bullish, but I felt the better trade was to wait for a short entry. That judgement call obviously saved me some money. I have always maintained in trading that CASH is actually a position. At times if the opportunities are not optimum, I prefer to stay flat and wait for what I judge to be the best trades. I really like to be in cash after taking a loss or two, which is the opposite of what most people do. The majority of people want to "get that money back." For some reason fortunately, I have never even as a beginning had that mentality.

I have a fear of the markets, and probably alot of others after the last few years now share that fear. That fear is more borne out of respect than the traditional sense of fear. I make my living from the markets, but I also know that there are not always great opportunities to do so. During periods like this I have quite a bit of money that is just sitting in cash, and that is fine with me. In the old days we would always have it in 90 day T-bills, but the rates are so low now they don't even cover the commissions, so it is not worth doing it anymore. I had the chart of the Dollar above also kind of as a play on the topic of the day.

We are having breakouts in the currencies today, most notably the EURO and the Aussie. Of course since it is the same trade, the ES is also trading up sharply today. I mentioned yesterday that I was looking at the long side but I thought we would trade sideways for a couple of days. It looks like I was half right and half wrong. However, one thing I am constantly reminded of is the following. When I trade my opinions and not my patterns, I do not do well overall. I may have runs where I hit some but in the end I ultimately get myself into trouble. This market has launched as I thought it was going to but the pattern was just not what I look for so I missed it.

SO BE IT

I am never going to catch every move and do not even try to. I just try and focus on being correct at the times when I do trade. I have missed a big move here and also in Bonds where I was waiting one more day to go back in, and POOF the market left town without me. I will sit tight and wait for something that meets my rules and work on my train wreck of a golf swing in the meantime.

TOUGH CALL

The last couple of days have been wild in the markets, and that leaves us at a juncture where we could go either way. The momentum indicators at the bottom seem to indicate that we will rise, but boy have they made this a ride. We had the big Friday, the big up night session on Sunday in futures, that reversed. This sent the Bond market soaring. Then stock continued their collapse. As I stated in yesterday's post, there is about a 60% probability that those reversals continue intraday once they begin, and that did happen yesterday closing right on the lows.

Things of course looked bleak at the close, now of course in the typical way the markets fool us, we are up a good amount today as I post this. Will this last? I don't know. If you look at the chart you can see we have had 4 consecutive reversal bars, so there is obviously indecision in the market right here. My strategy today will be that if we trade through the red arrow on the screen, I will try and buy a pullback in the Russell which has held up the best. I will not chase it blindly since that is such a large move that is required to get up there. I doubt we will get there, I think it is more likely we are going to move sideways for a couple of days but you just never know. Will the markets also go to the United Nations for a resolution to direction? Of all the things the intern has done, this one has to take the cake. Refer a state to the United Nations for review of their policies. Please vote this idiot out. W would bury this guy in an intelligence test.

I have a good friend who called me yesterday asking for my opinion about the thesis of a couple of guys that supposedly predicted some of the meltdowns we have had correctly. They may well have, some people did. I got some of them right, but not all of them. One of the interesting theories they have is that you should put your money into the EURO to avoid the Dollar bubble, and that the EURO is basically the same as GOLD! Now I have heard some good ones, but that has to take the cake. Barry has weakened us considerably be it intentional or not nobody except his inner circle knows. However, we are still the world's financial leader and will always remain so. To suggest that you should run from a currency that has dropped 40% from it's highs already because it is a bubble into one that has risen dramatically and has economies that are in far worse shape than our own makes no sense at all. Where do people come up with this stuff?

To suggest that you put your money into a financial situation far more dire than our own is incredible, but also to liken the EURO to gold is just ludicrous. There is no relationship of any kind between those two asset classes. I have gotten off on a tangent here, but the reason I did it is to tell people to be careful what you read. Trust but verify, I think Reagan coined that phrase. I am not sure in this case trust even applies.

ONE DAY WONDERS

As I stated on Friday, there was no sense waving to the crowd yet on the 10 Year short position, and that it could be a one day wonder. That is exactly what it turned out to be. With the stock futures down reversal overnight, the bond markets were sent soaring. This is one of the most frustrating things that happens in trading, a huge one day profit that completely disappears the very next trading day.

What causes these? Is there anything we can do about them?

As far as what causes these, this one was clearly caused directly by the stock market rally, so once it reversed, it was likely this was going to reverse as well. What we can do about it is make sure that our trades are not too highly correlated. If you were long the ES and short Bonds, you have given back double the profits. I was looking at both, realized they were the same trade, so just chose one. In a world where so many trades are the same, this is one thing we can certainly do. Was there anything else that might have tipped us off that this trade was no good?

First off, the is an incredibly strong trend upward, so this was a counter trend trade. Trends rarely end on spike highs although that does happen from time to time. We could have been conservative and waited for the bounce that is happening now to try and enter on a lower high. Unfortunately in today's world we have no way of knowing if that will happen or not. As a result, if we are looking at doing something like this we need to be prepared to be stopped out once or twice before finally hitting it. That is probably likely to happen here if in fact we top at all. Maybe this is not a top and we just cascade higher.

It was a trade by my rules, so I took it knowing, and I even put it in my notes, that this was a marginal trade. I went slightly lower on my risk due to this. I did not think for a second that Friday meant anything at all, and I stated that in here. It is very hard to stay emotionally detached to money since trading is all about the money. However, we have to be aware that anything can happen at any time, so not to get too carried away either way with ourselves.

I think what causes these is just the nature of how fast money moves nowadays, and how it chases the latest greatest ideas so quickly. Once a move starts, everyone piles on incredibly fast. Of course that money can also leave the party at any time. The markets have gotten choppier. As a result, you have to sit through alot of crap often when trading, even when the trades ultimately go your way. It is rare to get in, get a big move immediately, then be able to take profits and look for the next trade. At times it happens like my recent ES and Soybean Oil trades, but that is not the norm.

As to what can be done about this, nothing. It is just part of trading. Sometimes the trades that look the best turn out the worst and vice versa. It sure keeps things from getting boring if nothing else. The fate of this market will be determined by what stocks do here. Usually, and there are of course exceptions, market intraday reversals like this continue down. That is probably a 60% probability, and 40% it comes back up. As a result, it is probably 60% likely that this trade winds up as a loss now, and 40% that it does not.

One day wonders will continue and there is nothing we can do about them but keep our heads and not let them get us too down.

IT IS ALL ABOUT STOCKS

Here we were yesterday plunging again until Bernanke's speech. Ironically the context of his speech was negative in that it indicated the economy was softer than the spin masters have been telling us it is. However, we got a moon shot rally? There are alot of ways you can look at this, and one of them is certainly that a futures buy program campaign by the PPT might have been launched right there. Based on what normally triggers these programs with institutions it is possible that could also have been at hand here, but the timing of this certain at the very least ought to raise an eyebrow or two.

The FED certainly has figured out what a dumb ass trader like I am has, the whole world is keying off US stock price movements. If they want to avoid deflation, they need to make stocks move up so everything else will. So far they have certainly accomplished a miracle in my opinion. If they can hold this here until the fall, the prospects for a republican takeover of the house and possibly the senate could generate a big stock market rally. They have to contain dips for about another month to get us into the seasonally bullish time zone. It is hard to bet against these guys, they are the house after all.

If for some reason we do get a sharp drop which it does not appear will happen now, I think it is a buying opportunity for a hold of several months for the average stock player. I may even take 100k or so and just do that with a few stocks. I hate tying up any money for that long, but this could be a 20 percenter or more in my view so I may do it.

Here are the other moves that I think are setup for this coming week:

Swiss Franc - continued rally

Gold - selling opportunity

DX - buying opportunity

EURO - selling opportunity

COTTON - shorting opportunity

SUGAR - selling opportunity

All of these are setups, not trades. This means that they are possibly in conditions that a move in those directions will happen. Entering the trades correctly is another matter, and I may not do any of those, but they are what I am primarily watching.

SOMETIMES OPPORTUNITY KNOCKS

I mentioned the other day that I thought the Bond market was ripe for a decline. Little did I know that a trade would come up so quickly. As you can see above, I shorted the Ten Year Notes this morning getting filled when the revision to the GDP report came out. I shorted this market instead of the 30 yr because I felt the chart pattern was weaker. It is essentially the same trade either way.

There is really not anything that jumps off the page with the trend oscillator other than it is showing to be weaker than the price indicates. The main reason I did this trade was as follows. I mentioned the other day that I thought this market was setup for a decline based on COT statistics. I also told everyone in here the other day that the new software anaysis tool was forecasting a sharp rise in stocks and currencies for the next few days. Since the bond market and stock markets have an inverse relationship right now, and the pattern was better for the short in the bonds than a long in the ES, I went with the Bonds. As I have stated in here for the last year, the market correlations make all these trades the same. You have to pick one otherwise you are risking way too much on one market bet. I hate this, but it is what it is.

The main reason I felt the pattern was better is the false breakout that you can see on the chart above, where we closed on new highs, then had no follow through at all the following day. I reasoned that with everything else going on that I just mentioned, if we broke below the last 2 days lows it would be a good shorting opportunity. I actually front ran those lows by a few ticks thinking there might be some slippage at those levels on the report. Either way the price has traded through any logic short entry levels now for short term trading.

We see what I call one day wonder trades often nowadays, so this could very well be one of those. This is what I call those days that move big just for one day and blow their load on that same day, then completely reverse. One thing you learn over and over as a trader, is not to wave to the crowd too soon. Unexpected moves happen all the time, and this market has not moved anywhere near enough to mean anything yet.

I did also want to short the EURO on Monday and or buy the DX. However, depending on how far things go here, those trades could be off the board. Here is the EURO daily chart. At this point although the trend is still down, it is on the verge of having turned sideways. We will have to see how this trades the rest of the day. If the rally in stocks does not stick, which is a distinct possibility since we have had a number of late day selloffs lately, the EURO could come back down enough to set it up for a short on Monday. It is just too soon to tell here.

I am short on time today, so that is all I have. Have a great weekend and good luck trading today.

WHAT NEXT?

First off a clarification, apparently BQ is the person I have to correctly credit for making me aware that it was he/she that made me aware they viewed alot of pages, hence saving the blog. My apologies there I guess I did not read through the posts correctly. Also BQ to clarify, I did not fork out the 10k. LW had another seminar for a select group of prior students before that one where the price was half that. The 10k is the second edition, and it is why he charged more to them. There was no requirement of having attended the prior stuff there, hence a larger fee. They too were given the new tool as part of the fee.

I have used the new tool to check out some COT stuff and am pleased to announce that it does seem to verify my prior conclusions. For the most part conditions such as we see above which I had concluded recently were not immediately bearish, are in fact confirmed to not be. What does chart does show is that we do have a speculative blow off going on right now. I know I have always said that these can go on for quite awhile before making tops. We have certainly seen this in GOLD a couple of times to name one other market. When I ran the new tool on this it shows a continued rise in price in the near term.

I think the reason this happens is that once you get momentum going in something regardless of who is driving it, it becomes a tough task to reverse that move. Eventually what does happen is a shift, then an acceleration in the opposite direction once the weak hands get scared. This takes time and it is why tops normally are rounded and not spikes. This is certainly a market I am watching closely now for a shorting opportunity. In all honesty I have for awhile and missed this last leg up, shame on me it was a beauty.

There are certain COT conditions though that do test out for more immediate moves via this new tool, and I will show those from time to time when they are present and part of a reason I did something.

We now are in a spot where alot of markets are in the course of 2 day rallies against trends, and those rallies come from divergences. These are often tricky, which way to go on them? I know when I have jumped quickly in these situations I have generally been wrong, so I am going to wait for a day or two. Crude, Euro, ES all are bouncing in this fashion right now and since I mentioned the projection tool showed a sharp move, so far we are right on course with that. There is no reason to step in front of it yet. I do not know if it is the beginning of a change in short term momentum to up, or just a hesitation for another leg down in these. The DX as per the market correlations, is the opposite scenario.

I do think the above situation in the BOND market is something to keep a very close eye on. There have been alot of inflation bugs out there who have so far been wrong. I have been in the deflation camp and still am. The above Bond market chart pretty much shows that I have been right and the inflation folks have been wrong. However, with all that is happening, it is inevitable that at some point inflation is going to rear it's ugly head. If a big selloff were to occur in BONDS it would indicate that the inflation wave has begun. I think that could well coincide with a stock market rally in October. All the pieces will fit together then.

SAVED BY THE BELL/KS

First off, thanks KS for telling me it was you that downloaded all those pages, that has taken a load off my mind. Sometimes I can figure out a URL for viewers and sometimes I can't through a tracking system. I did take a peak that day and it was not clear, which was why I became a bit worried. Besides the government is likely to hide behind an individual one anyway when checking up on people so as not to alert them. As a result, even knowing the URL and seeing it is not through a government server etc.. would not help much anyway. I am somewhat of a loose cannon with my off the cuff political remarks, so maybe I should keep them to myself anyway.

I assume from that review and the fact that you are still reading, that enough of my market calls were good to keep you coming back, LOL!

Above is a pictorial of an interesting new software invention by Larry Williams that allows us to go back in time and get future price projections from what certain "looks" to things are. It is not publicly available at this point. I have played around with it for a day now and think it is pretty helpful. However, it is a tool, not the panacea. We are always looking for that one thing that we know is out there to be discovered, that is "the" answer. It does not exist folks, plain and simple. Learning how to combine certain things you find to have value, is the key to trading well, and it is not easy. It is also time consuming and you have to be patient.

I am not a patient person by nature, quite the opposite. However, I am probably one of the most disciplined people ever to walk the face of the earth. As a result I can will myself to be patient when all of my being does not want to be. When I started off this month with that absolute debacle in Soybean Meal, it was not easy to sit and not make a trade for a week, but that is what I did. So many people want to rush back in and "get the money back." That attitude will result most often in you parting with more of your money. I forced myself to wait for very solid setups, and low and behold I found 3 big winners that have resulted in me now having a great month even after having the largest single loss I have ever had.

I achieved this by being patient and disciplined. As to the above example, interesingly enough it shows a sharp short term rally should follow in the SP 500. This is in the midst of a very strong downtrend. Just because this tool shows that it does not mean a thing other than just making me curious. I printed this chart out just to use as reference to see what follows. It also shows a similar path for the EURO. I do not otherwise have any buy signals, so this is not enough for me to take any action against this trend. It does indicate that in the past in these two markets, when the indicators have had these minor divergences like this, on average prices have rallied. I personally like much stronger divergences than this to trade against trends, so it will be very interesting to see how this plays out. I would not have otherwise expected a rally here.

KS thanks to your comments the blog is alive and well minus politics, although I can't promise to keep totally silent of King Dumbkopf makes any colossal blunder.

FAST TIMES AT RIDGEMONT HIGH

Here is an intraday chart of the Euro today just to show an example of the wild day at hand here. Ironically it is trading inverse to the stock market which has not been the usual relationship lately. The DX is also declining with stock prices which although typical of the historical relationship, is contrary to what has been happening the last couple of years. It is almost as if the markets are fighting back again these correlations. Many of them make absolutely no sense at all and are being driven by arbitrage types of programs by large funds. At some point markets do go where they want to go. Maybe this is a sign of that happening, but it is way too soon to tell from just a few hours.

There have been a couple of recent periods where this has happened just to have things come back into line again. The more independence we have between markets the better the trading opportunities will be. For now basically everything is the same trade.

Below is one of the better traders I have made this year, Bean Oil. I exited this trade Friday at my target price after 3 nice large down days in my favor. The whole grain complex is fundamentally setup for a decline, so when one of my short term patterns showed up here I went at it immediately.

I was tempted to short Wheat today, but decided against it when I say the big stock down open and it holding up better than all the other grains. The Yen trade I mentioned yesterday did not trigger, and in fact that market exploded higher today on the stock drop. We do have a potential trap reversal there now if it closes here and then reverses back down tommorrow.

On a separate note, I read this morning about lawsuits that are now being filed against people excercising what should be their right to free speech in blogs. As a result I am debating closing this blog right now. It is clear the trend is to suppress individual freedoms right now and as much as it sickens me to think I would give in to it, it is what it is. Dissenters are being silenced without regard to the laws now that our country is being transformed. I am just a small fry so I guess I am going to have to give in here and just keep my information to myself.

Please for the sake of all of us, vote against the Dems in the next mid term election and the next presidential election as well, unless of course you want to live in the new republic of the US. We have to collectively put a stop to this and all we can do it vote these people out. I have not made a final decision, but the one day the "mystery visitor" visited my site and downloaded all the pages has gotten me very worried.

CONFESSION IS GOOD FOR THE SOUL

I did enter the Robbins World Cup contest for the second time this year. For those of you not familiar with this, it is the premier Trading contest that features real money put into real accounts, and the highest percentage return on the money wins. They charge very high commission rates so that does knock the returns down about 10% from what most people would have trading their own account with the same trades.

I have been hesitant to even tell anyone I entered this simply because I have botched this trading account this year. First of all I have just outright forgotten to place some of my trades in this account. I have alot of different trading accounts and this balance is smaller than all the others, so I just forget about it sometimes. My single largest per contract winning trade this year which was in GOLD was not done here. That alone would have added 30% to my tally. Secondly, I have carried a very low risk ratio, so all the metals trades which are my best YTD profits have not been made here. Had they been I would be running away with this thing.

I am trading this was much too low of a risk for a trading contest. The main reason I am even doing this is just to have something independent of my own trading accounts that I can use to raise money should I ever decide to go back into that business. I don't like showing personal account results, because that can get you into trouble. There is a famous trader who was managing money for someone one year and made them a spectacular return. However, that person found out that in his own accounts he had made even more money than he had for her. After she found this out she sued him for the difference and for god sakes won the case.

I do believe the return for one year that he had made her was triple digits, and yet she sued him for more. Let's face it there are just some horrible human beings on this planet. Fortunately for all of us they are in the minority. However, we do have to try and protect ourselves from the bad people. All I really wanted to do was make 100% in this account for the year so it appears I have a good chance of doing that. I could care less where that puts me in the standings, but I think it will keep me on the leaderboard if I do it. You can see the one person made almost his whole annual return in just one month. He obviously is a plunger, so will likely fade away at some point. Some of the others are fellow Larry Williams students, as well as some past winners, so they will likely continue to do well.

If you wish you can track my progress at the Robbins site. I will not look at this again until the end of the year. I am not a scoreboard watcher, and really don't have a shot at winning so there is really no point in babysitting the numbers.

Here is a trade I am sitting on waiting for the right time to take action, the Japanese Yen.

You can see that the momentum oscillators have been diverging for quite awhile here, so that is why I am looking for a short entry here. I have been spanked on markets that are running like this shorting these things prematurely, so I am waiting for the trend line I have drawn in to break. It appears to me that it that were to happen tommorrow, it would be enough for me to take action. There have been a couple of minor entries that could have been taken already that would have lost, so I am glad I have stayed patient here. This market is kind of the flight to quality vehicle along with Bonds right now.

If this short were to develop, it could be a sign of an equities rally. The fact that the SP 500 is holding right here I think is significant. There was a very minor buy signal that could have been taken in the SP 500 this morning. I did not do it but in this world of heavy inter-market correlations, we need to be aware of what is going on around us.

If that minor buy signal sparks a rally, it could mean the sell signal in the Yen has a better shot at winning.

ALL GOOD THINGS MUST COME TO AN END

I hate that phrase, but unfortunately it is true. Streaks be they good or bad do eventually revert to the mean. I had a friend in a secondary business interest tell me that yesterday when describing an unfortunate turn of events for him with a major client of his. As much as I wanted to spank him for the negative comment, I thought to myself that in the world of trading we certainly see plenty of evidence to support that view. Above is my GOLD long that I have been sitting on for awhile. I just got stopped out this morning on my trailing stop without reaching my profit objective. The profit was $1900 per contract so not a disaster, but not what I was hoping for. I decided to tighten up the stop going into today since we had a small range day after the big outside bar, and POOF they got me.

It is ok, I do not mind being out of this trade. Most of the trades I do never reach my full target objective. Targets are mostly plans in case everything works out great, which does not often happen in trading. It does at times, which is when the big money is made. Other than that you just grind it out hoping to bank a schilling here and there. I had an inkling to take this profit yesterday during the day and should have, it would have been another grand per contract or so. Usually when those gut feelings hit me I should go with them due to how uncannily accurate they have been over the last few years. I try and fight them because they are based on emotion at some level, and I do not like making emotional decisions when it comes to this business. If I can ever figure out how to tap in to the subconscious aspect of where these gut calls comes from, maybe I can quantify them. Until that time though, I will for the most part pass on them. There is one exception.

The exception is when I am out of the money in a trade and see that there is no point in just blindly sitting there and waiting to get stopped out. In these moments I just go to the market and take my medicine. This way I keep my losses smaller. The trick of course is how to know when this is the case and how to know when I am not just being emotional and reacting in a knee jerk fashion. This has mostly to do with reading the entire situation that is going on, and making a reasonable decision. Going back to last week and my post on exiting my Swiss Franc short early was a perfect example of this. You can go back to that post, it was last week but I do not recall the exact day. It was clear to me based on how everything else was moving and it was not, that I had made a mistake being in that market, so I exited. That trade was a profit, whereas most of these types of instances are losses.

I cannot count how much money doing these types of things has saved me over the years but it is immense. However, when I first started out, it cost me dearly. For those who are just starting out trading, I would not suggest doing this. I think you should stick to your rules come hell or high water. Once you get a little bit of a feel for how to do this, then MAYBE you can explore adding this type of option to your repertiore. However, for the most part I do not recommend it and still feel it is a bad habit even though it works for me.

"If this guy owned a funeral parlor knowone would die. He is totally brain dead!"

GORDON GEKKO

I hope Barry goes into the funeral parlor business after his one term is over, just for the sake of all of us, but the above quote is really targeted at that dim wit who runs Congress. It also is just one of my favorite quotes of all time. I spit it out in a group of mixed company recently when they played a clip of her babbling on and doing her little torrets shake she seems to do at times. I brought the house down with the comment. How ironic, that she is bringing the house down by being such a dumb ass. I will get to how this relates to todays topic in a minute.

The above chart shows my current long position on GOLD that I have been holding for several days now. It is getting a little boost today by the stock market selloff. Alot of markets are moving out of sync from what they have been doing recently today, I am not sure what to make of it. The new normal would have had the EURO getting clobberred today and the DX up, and the reverse is happening. Also, on large down days GOLD has tended to decline, but today it is directly inversely moving to the SP 500. Go figure!!!

I had lunch with a good friend yesterday who runs a fairly large nutrition business. He was asking me what I thought of the economy since he is having a tough time getting a handle on how to run his business the next year or so. He is hesitant to invest in it for fear of a larger down turn, a position I think so many people are in. The following is what I told him.

Regardless of what happens this fall, the dems have dug us a hole that it will take a decade to fix, and it will get as deep as they can make it before the elections. As a result, it will not be a panacea even the the repubs take both the house and the senate. All that will do is create a stalemate. That would be better than nothing, because it will stop him from ruining this country for decades or possibly forever. However, it does not mean the economy will turn on a dime, it won't.

From an investment perspective it does not matter if you are a shorter term oriented trader like I am. All this talk is just noise. You cannot trade on news, because you just can't be fast enough nowadays. With the electronic markets, news is dessiminated into pricing in seconds, so chasing that is chasing your own tail. There are some very strong bullish cycles coming for stocks this fall as I have been talking about in here for awhile. They have me thinking about getting long in October, and I really don't care about the political back drop. I do not know a single good trader who trades of news, or off what he considers to be the next 6 months economic outlook. The government is manipulating numbers to such a large degree now anyway that it is almost impossible to get a true handle on what is really happening.

I love to take my shots at these pinheads just because I have a puny little forum here to do it, but I do not ever consider what they are doing when I actually make a trade. I might consider it when developing big picture views of what I think is likely to happen, but I do not put money behind it. I am not long GOLD in the above trade because I buy into the panic theory about the dollar and all that other hogwash put forth by paper champions ( economists ). All you have to do is listen to Mark Zandi on CNBC for 30 seconds to realize listening to economists is a bad idea. I am long because the trend is up, there was a brief pullback which gave an entry, then it resumed. Pretty simple logic.

Apply similar basic logic to the economy. The trend is down, wait for it to turn, then if you are so inclined, go with the new trend. It is not time yet to be long stocks or long the economy regardless of what side of the political fence you might stand on.