GOLD

Here we now have a clearly defined triangle on a weekly GOLD chart. I have mentioned for a long time that 574.50 was a key level, and that any close below it would signal the end of the GOLD bull market. We have held that level so far and have bounced up right into the declining top of an obvious triangle formation.

Some gloom and doomers are calling for 35,000 or some such nonsense as the ultimate top of this market. (Just kidding about that number, but the predictions are ludicrous) It is also still undervalued against the dollar on a short term basis (the 3rd graph). If we get a breakout of this triangle on the upside on a CLOSING basis, this market can be traded from the long side on pullbacks.

Do not get tied into this inflated adjusted skit that people talk about who do not trade, as a basis for comparing these levels to historical levels. This is then used to extrapolate prices well into the thousands for target prices. Traders trade on the prices that are here, absolute levels. Economists talk about these other things, while being wrong time and time again in their predictions. Although you might want to keep that rap in your repertoire for cocktail parties and the beautiful women you might want to impress.

GOLD

Here is the completion of the gold trade. The remaining contracts were stopped out today at 598 for a .50/ounce gain, essentially just covering the commissions. Remember that more than 1/2 of the contracts were taken of at 597 for a large gain on that portion of the trade.

This is part of money management. When confronted with a large quick gain on a postion, I suggest taking 1/2 or more or your position off for a profit, and stopping the rest at breakeven. This way you have the potential for a windfall on the rest, but are protected in case something like this happens.

NEVER allow a huge gain to become a loss EVER!!!!!!

Gold

I pointed out a few days ago when Gold was at 598.50 that it was a short setup. As you can see that trade has a $21/ounce or slightly over $2,000 per contract gain. For anyone who took this trade the stops can be placed at the red lines depending on your level of aggressiveness.

Taking partial profits here would also be prudent if you have multiple contracts. For me the stop is at break even on remaining contracts at this point, $598.

Time for a little patting on the back - my own

Over to the left is the last update on the Robbins World Cup trading contest which features my bond trading system from the daily trading service offered on my web site.

As you can see, the account being traded there, which features these signals alone, has a nice 46% YTD return. It needs to be stated that the commissions and fees charged in these accounts are much higher than what is normally charged for self directed trading, and represent a drag on the return which brings it down to this level. Most of my other accounts with lower fees have returns in the 55% range due to this differential.

The main reason I have done this was to simply demonstrate out in the open for anyone in the public who wishes to see it, that my trading service does produce profitable trades consistently. I have not traded this to "win" which some of the contestants clearly have. There have been some wild swings in account balances as people have come and gone from this leaderboard. That is too stressful of a way to trade for my taste.

I have used consistent conservative money management to closely mirror what an individual just using prudent risk paramaters could have achieved using this service. There are some of you out there who have traded my service this year that have benefitted nicely from this. I have no idea how any individual might have managed his or her own trades within the signals given. YTD the signals have been 26/34 for 76.4% accuracy and a $5,118 per contract gain.

Golden Short Setup

This is not truly Golden it is just a play on words. Here we have a typical retracement against the trend setup. One trend measure that has written about by a few people over the years is just using the RSI and it's absolute value to determine trend.

I discovered this about 10 years ago just playing around with concepts and did use if for short term trading. More recently, Larry Williams has referenced this in his writings. Great minds think alike? Just kidding about that, but he suggests the 44 period setting so we will use that for this discussion.

Above 50 indicates an uptrend and below 50 indicates a down trend. The PercentR is a short term measure of over bought and over sold taught originally by Larry Williams. This tool is part of most software packages for trading. As you can see it indicates an overbought condition in a downtrend, hence a sell opportunity.

Displayed today is the S&P 500 and the bonds. Notice how all the way up during this big rally, the bonds have supported the S&P in both directions as indicated by the lines on the chart, until recently.

Now that the bonds have broken their uptrend, they are diverging from the S&P. It is early in the game for this to be a big problem, but it bears watching. Sometimes these divergences can carry on for months before anything happens like in May when it finally mattered.

However, in July the bonds started bullishly diverging from the S&P and almost immediately the stock market rallied. So, this is something that at the very least should tell folks to cut back their long exposure to stocks and be prepared to get out if we get a break down in S&P 500 prices.

At this point it is just a caution warning, but this rally is so extended that even the election bias is not going to save it from at the very least a pullback. Figure out your own ways of using this tool, it is worth the research time.

BONDS

Well things have certainly changed. No matter how we draw the trendline upward it has broken at this point. I had mentioned that I was suspicious of this uptrend but until the trend broke pullbacks were long entries. The reason for that suspiciousness on my part was that we had reached the 2.0 std deviation point at the highs, so we were very extended. This along with the commercials being heavily short were reasons for caution. These influences negated long entries that "might" have generated on the initial drop.

The trend has now broken. It still could be what we call a bear trap meaning this is a sucker move to lure bears in before moving higher, but it certainly does not feel that way. No matter how I test this pattern right here it is bearish. We are getting oversold, so we may get a buy signal here shortly in the trading service.

We do have a strong seasonal bias up for Friday so maybe that will bring a bounce upward, but this market appears to be in some trouble overall at this point. If we continue down, this is going to cause some problems for the stock market. So far we are only at 15 day lows, but if we get to 30 day lows it will be trouble in river city.

BONDS

We are precariously close to the uptrend line in the bond market. So far today, we have a gap down that has not been filled. Over time gap down bars are not good setup bars for buys the next day, so I will probably be on the sidelines again tommorrow in this market watching.

I feel it is very important for this market to hold right here. This market has helped propel equites as well as keeping a reasonable floor under the housing market. This certainly appears at this point to be more than just a pullback especially with the commercials heavily short, but technically it is still holding on but by a thread.

Bonds Living Dangerously?

Here is a daily chart of Bonds and the retracement that is taking place. The blue line marks the uptrend, which is still intact. This could just be a normal pullback and my system will probably have buy signals for Monday after today if we close here. I really wanted to short this market today last night, but the pattern just did not line up well enough. When in doubt, I stand aside.

However, for the gloom and doomers out there, if we break this uptrend that will be trouble for the stock market. Lower rates have driven this rally recently, and if that underpinning is removed I think stock prices will drop off.

You can see that seasonally we are due for a little drop here at the beg of October. This could very easily just setup a nice bull flag for a long entry. Let's hope this uptrend holds. The heavy commercial short position is a fly in the ointment here as you can see at the bottom of the chart. They have been early to the party. It will be interesting to see if the commercials have lightened up their longs in the SP 500 on today's report, I bet they have.

Is there trouble brewing in Paradise?

There is a trememdous lag developing between the DOW index and the S&P 500. Notice how we are at new highs on the DOW, yet are quite a ways behind the old highs in the S&P 500.

This is a bearish sign for the indexes. I have been looking for a rally all year and we have finally seen one. I had been expecting it to happen later in the year. Maybe this big divergence means we will see a drop off into the fall setting up the real buy point. Notice how closely correlated all the way up to the 2000 high these two indexes were, which is the relationship that should be in place.

However, with the bond market as strong as it has been, a large selloff is not likely. Hopefully this divergence sets up enough of a drop to give us a good long entry for the rally into the first quarter of next year.

GOLD

September 29th I mentioned that strictly from a trading standpoint this was a short sale setup and here would have been the entry this morning. I still feel that the fundamentals are a bit mixed in this market so I did not enter this trade.

I do not trade markets like Gold alot, so I want the perfect setup. For those wishing to trade in and out of this market alot, study this setup because it is a textbook flag/retracement against the trend trade.

You just look for established trends, which we have here and wait for a retracement against it up to a 20 or 30 period moving average. Once that setup is in place, just trade the breaks of the lines of the retracments like this one today. You can add a bunch of other "noise" to help qualify these, but over the years I never found any increased accuracy by doing that. This techinique just keeps you in sync with the overall trend in the market and over time is a profitable way to trade.

The only filter you might want to try is only taking the first 3 retracments. Once you get to 4 or more sometimes the trend is getting a bit tired and is due for a change. Just to reiterate, I do not trade like this, but this is a technique I used successfully earlier in my career. There are many traders that are quite famous that trade in this fashion alone.

The Buck

Here is a weekly chart of the US Dollar Index. I read so many articles talking about the doom of the dollar, yet we look at the chart and we are 6% above the low of 2005. Maybe the forecasters are correct, but we are certainly not in a huge freefall at this point.

Admittedly, I am not a gloom and doomer because I just do not buy into these extreme theories in either direction. There are seasonal decline tendencies in this market here, but until we break out of the downside of this triangle, the short term trend is up. Longer term, we are still underneath the trend down off the highs of November, so essentially in a holding pattern right now.

Sometimes when I am confronted with extreme predicitions I try and imagine what the world would be like if they are true. If I can imagine it then I give them some credence. If I cannot then I just brush such theories aside. The huge dollar decline theories are hard for me to imagine in this way for some reason. This does not mean we will not go down, but some of these huge % drops I read that are forecasted seem a bit out of whack to me. The Fed so far seems to be managing the housing slowdown pretty well, so I do not see why they cannot do the same if the dollar begins to drop quickly. In any event, the chart above does not show any immediate danger unless we break down below the recent up trend line.

GOLD

America's favorite commodity recently. It is strange how knowone cared at all about gold until the last few years. This is what a big rally will bring, lot's of hype and discussion.

Notice the chart on the left. The 3 fundamentally related indicators, the commercials, the seasonal trend, and it's relative valuation to the dollar all have bullish setups. However, the price is in a bearish flag pattern. We also have calming inflation, which is related to the dollar, and is bearish for GOLD. This valuation indicator on the bottom which measures pure relative valuation of the dollar to gold is an oversold/overbought indicator. So you can see that we can have both a relative oversold reading here indicating a bullish stance, yet along with that declining inflation which is bearish. You can see from the chart that the declining inflation which from my research is the most important driving force for prices in this market, has won this battle so far. No surprise the favorites usually win in life.

From a pure trading perspective this would be a short sale setup just based on the pattern. With all of the fundamentals lined up on the bullish side, I will not short this flag. I am looking either for a breakout above the downtrend line to get long, or the commercials and other fundamentals to shift to the short side during any bounce for a short entry. Once these things line up either way I will be looking for a bar pattern entry to enter this market. The chart pattern here mirrors the fundamental picture here in that it has been indecisive over the last few months.

Japanese Yen

Here is a market that is setup to rally but continues downward. The seasonal tendency is for a rally at this point, and the commercials are heavily long. However, as you can see by the red line drawn on the screen, we are in a strong downtrend.

I have marked a B for buy on the chart above that downtrend line. Any weekly close above this line at this point would be a signal to go long this market. Then if the trend does change to upward we can trade pattern setups along the way.

Until this trendline break, NADA. To quote Tom Petty, "the waiting is the hardest part."

Fighting the Trend

It is a natural human tendency to try and sell high and buy low and in general that is what we want to do as traders. However, we must balance that with not stepping in front of trends.

I have been run over enough times fighting trends in my life to itleast understand the danger in doing so. Here we have the bonds is a big uptrend, almost in breakaway mode at this point. I was out with a friend on Saturday who had no idea rates were going down because he has been listening to the media talk about higher rates.

There are a couple of reasons including the heavy short position the commercials have, to look at possibly shorting this market. However, this is a very strong uptrend, so the conditions are really going to have to be ideal for me to do it. I did find a good short pattern for today that had been great except when it occurred after 4 consecutive up closes which is what he had going in. As a result, the trade got nixed. Maybe something will set up for tomorrow, but this trend is very strong.

The mighty S&P

Have we started down yet? Possibly what we are seeing now is the beginning of the downmove so many yours truly included, have been looking for.

Plotted at the bottom is a ratio of the S&P to the Nasdaq Composite. There are pundits out there that will tell you the Naz leads. I think I might argue the opposite, but have not really found a relationship of any consequence either way. I am continuing to study this so maybe I will find something. What this shows at the moment is that the Naz is leading. Yet the Naz is only about half of it's all time reading where the S&P is very close to it's all time high. So, it is hard for me to see how that shows that the NAZ leads.

The red trend line is the key here. We have a very strong bond market which is supportive of stock prices, but these two markets have been known to diverge for periods of time. I was short yesterday and caught a nice short term downmove. However, until we break the red trend line this has to be viewed as just a pullback in an uptrend. My gut tells me otherwise, but the trend is up so that has to be the guide for now. If we get a break of this trendline on a closing basis then more downside should be expected.

Crude is getting crunched

If you go back to the archives and read my post from 8/16 you will see the bearish comments I made about Crude. It was trading at 73.19 at that point.

This is the type of thing that can happen when fundamentals change, the trend changes. I did not predict a major top even though that is what we had, but I pointed out several bearish signs that had developed. You have to stay with the fundamentals and the trend to stay ahead of the game in futures.

The commercials are shifting back in the direction of the long side of the market, but are not yet in a bullish enough position to signal a bottom. Besides the trend is down, so how far we go is anyone's guess. For me it is sell the rallies at this point. Hopefully on any rally against the downtrend we will get a shift in the commercials down back to the short side. It will be pedal to the medal if that setup occurs.

Here is the Booming Bond Market

We exited our short term long trade from the service today on the opening for a decent profit, marked on the chart. Just a brief word about systems trading. Today's bar pattern had a very bullish slant to it, and yet we had a profit taking order for the opening. Why exit if the odds are strong on another good up day?

Certainly someone can use this type of discretion in trading and in this case it would have payed off. However, I choose to follow my rules strictly which is of immense help during down periods. There is so much emotion tied to trading that removing as much of it as I can is very helpful to me. This stops all of the second guessing.

We have broken above the red line indicating the larger picture last remaining downtrend line. I still remain skeptical of this rally from a larger view, but for now the short term trend is up and that is all that matters. The trading system has done nicely navigating this market over the last few weeks, so for those of you taking all of the trades you should have been nicely rewarded.

Heavy Lumber

The Lumber Market has been under heavy pressure for quite awhile. The steady downtrend is obvious when looking at this chart. However, this market is setup for a possible trend change. POSSIBLE.

The commercials have become heavy buyers of this market for quite awhile. This is an example of what I have mentioned many times about how they are early at times. The typical seasonal low is in October, so if this downtrend line can be broken in that month it is a breakout that should be taken.

Also notice the strong divergence in the ProGo oscillator at the bottom. I am watching this closely and plan on taking this trade when it comes along.

Here we are in the midst of this rally in the S&P in the face of a seemingly questionable economic climate. How can this be? If we keep things simple which is of paramount importance in trading, look at the chart on the left.

Bond prices are rising (rates dropping), and the commercials are increasing their long positions on the rally in price. This does come at a time when typically we see lower stock prices.

Both of the above mentioned conditions are conducive to rallies, and we have the cyclical election rally bias at hand as well. It is yet to be seen whether or not a decline will happen into the OCT/NOV time frame. As long as the bond rally holds, I do not think a big drop will occur. If one does and bonds hold up well, we will have a very good buy setup to take advantage of.

I have not as of yet established a long stock position, so I have missed the boat so far. However, I am content to follow my rules for entry and wait for them to line up properly. I am more concerned about being correct when I enter, than catching every single move in the markets. I do not have any good short term sell patterns at hand, so nada here for the moment.