CRUDE OIL

Here is a weekly chart of Crude Oil. It is clear that we are in a strong down ward trend. The commercials got long during the decline, which is more than likely just normal hedging operations, but has resulted in a small rally against the trend.

If there were to be a move up toward the 67 area and an accompanying shift to the short side with the commercials, this would be a very nice short sale setup. It may not move up that far, but choosing ones spots carefully is a very important component of a successful trading strategy.

Sometimes moves are missed by waiting for things to line up properly. There are fellow traders of mine that have the mental makeup to trade at a very low win to loss ratio, knowing the big wins will overcome all the small losses. These folks just fire away at marginal opportunities all day long, not being able to afford to miss any move that comes along. This is a very dangerous game to play. I prefer to pick and choose my spots, and am willing to see moves go by if they are not setup properly.

S&P 500

Will this ever end? It is never wise to fight a trend like this, and I have not been doing it. We do have a little divergence happening now with weak bonds, market by the down trending red line. This is not enough yet to be a big problem, but may result in itleast a buyable pullback soon.

This market has carried on for a very long time without even a 10% pullback, which is rare. With the commercials now short, it is not advisable to put on any new long term long positions here. Still, shorting this market is still very risky. The insiders have a lot at stake in keeping this move intact through the end of the year.

I will be watching the pullback closely in January to see if it has more dire hints, than just a pause to move higher again. If the commercials do not get long during that pullback, neither will I.

GOLD

Anyone who has either read this blog or is a client of mine, knows that I am not in agreement with the long term GOLD to the moon scenario. However, I trade shorter term than that anyway, so here is what we see as of today.

We have clearly broken the small uptrend off the lows from under $600. The declining line now indicates what the trend is, and it is down. RSI is also under 50, confirming this downward trend.

What to do next? Wait for a 3 or 4 bar retracement up against the downtrend to go short. If the market were to hold here and rocket upward changing the trend back to up, then buy the pullbacks. For now, however, it is short the upward flags against the downtrend.

If you take a broader view, we are really in a sideways market in general for the last several months here. As a result, you can always fade the range when we get to one side of it. We are basically in the middle now, in a short term down trend.

On the 9th I posted a thread about broadening formations drawn in here to the left. I mentioned that these patterns are very "noisy." What this means is that they are not very accurate % wise, but do create big wins when they are correct.

Here we have a typical scenario with them, the first trade, marked with a small red line, would have been a loss. How did I know not to take this trade?

There are a few reasons. First and foremost, the exact pattern at hand within the broadening pattern was not near accurate enough to make my system for the S&P. Second, the bond market has been very strong. Third, it is unlikely that the insiders pushing this rally are going to let much of it get away before year end bonus time. As traders we have to think about what we are doing at times, and if something flies in the face of several reasons why it should not be done that have a fundamental basis, that trades needs to be passed on.

This market "may" crack at some point, but it is still on firm ground, and anyone's guess as to when this rally will stop. The commercials are short now, so that tells us a pullback is probably coming in January. There has also been a seasonal tendency in recent years for declines in January.

I would suggest studying broadening patterns and coming up with your own ways of using them. This is an ongoing project for me. If I ever crack the code on how to use this well, I can assure you I will keep it to myself!!!!!!!!!!!! For now, it is a discretionary tool.

Bonds

The bond market is experiencing a decline here for the first time in awhile. Every time the PIMCO guys make a bullish comment, in the short term this seems to happen. Maybe it is just a coincidence, or maybe there are a few wise guys who trade size that fade them?

The uptrend is still intact, but we would not want to see alot more of this type of action or it may be in jeopardy. There is no magic to this, we just have to buy retracements in sync with the underlying trend until it changes. I have not gotten any buy signals in my short term trading system on this pullback so far.

It is important to note, that the commercials have gotten short in the S&P, so the bond market holding it's uptrend becomes very important. If it were to break it, the stock rally would be in jeopardy.

S&P 500

Here is a chart that displays the short term entry point, for anyone trading the broadening pattern in the S&P 500 I mentioned this past week. Once the pattern is formed, you short at the first break of a prior days low, with a stop above the high.

This is a noisy pattern, but the wins when they come are often very big. The win/loss percentage is low on this pattern, probably about 50%. When they occur at an extreme like this, in theory they should be a little more reliable, but I am not sure if that is true or not. I have not as yet been able to program this pattern, to fully test it. This is due to the almost countless variations that could be in place, that would qualify for the setup. It is much easier to visually identify it.

In any event, you will often be fighting big trends when entering these trades. Just study them on your own to see if they are of any use to you. They can be traded on all time frames, from a 5 minute chart up.

GOLD UPDATE

For those of you who are long the gold market, the inevitable pullback is happening. I have marked two possible stop placement areas with horizontal red lines. If you recall, I had recommended taking partial profits on the long previously due to the overbought condition in relation to the dollar. This is marked by a horitzontal red lone in the third window.

The first red line would be the most aggressive stop point. This represents the most recent pivot point. The other red line represents, the pivot point prior to the recent one.

Really strong trends, do not take out these pivot points, so this one does not look so good right here. We do not always follow the textbook with market moves, which is why taking partial profits helps you make money on a trade like this that did not work out all that well. It rose more than $20 from the entry point, which is $2000/contract. You never want to let a profit that big become a loss.

Megaphone

This is the S&P 500 as of the close of today. I have drawn in containment lines that resemble a megaphone or broadening type of pattern. There are certain ways of trading these types of patterns that are profitable.

I have drawn in a s below the horizontal red line which represents a possible short entry for Tuesday. This is just below todays low. If this low were to be taken on Tuesday, it would represent a false breakout to new highs today.

This is a discretionary pattern that is hit and miss, but if you go back and look at March of 2000 in the NAZ, you will see this pattern right at the highs. I have traded this pattern on all time frames and had some big hits, and also periods of losses. I point this out to beginners just as a field of study. I also continue to study this to see if there is any way of making it mechanical. I have not as yet found a way of doing that.

As a result, this is just a feel type of pattern. There is no doubt that there is major manipulation going on holding this market up this high, so we are really fighting the house shorting this market. However, this pattern does seem to conveniently show up at major turning points often. It bears watching.

Correction?

We finally got what appears to be the first leg of a correction. Is this the beginning of something more or not?

So far it is tough to tell. There has been some heavy insider selling going on toward the end of this up move, which could spell some trouble. However, in the absence of that, this appears to just be the beginning of a long overdue correction. Notice how strong the bond market is underneath, which is what we want to buy into a decline.

We have broken the most aggressive uptrend line so far, and are sitting on the second most aggressive trend line. This is to be expected. Upmoves that just go on and on without meaningful retracements leave themselves vulnerable to these quick air pocket type of declines. Now it is time to start paying attention to see if this decline is an ordinary one or something to be more concerned about. So far, no alarms are going off but stay tuned.

GOLD

As a follow up to the Nov 17th post, here is the updated GOLD chart. By now traders should be long this market if they played the flag break in the area of where the b is on the chart. I have marked with horizontal red lines, two possible place for stops to be placed.

Partial profits should be taken at this point due to the gap up open. Once the profit equals the risk, it is prudent to take half of the position off and trail a stop on the balance. This gives a chance for a home run on a portion of the trade, but locks in a profit in the event of a reversal.

As you can see from the third chart down, GOLD is not undervalued relative to the dollar here, so an explosive upmove, although possible, is not highly likely. However, the trend is up, and you are long, so stay with the trend and see where it takes you. I would suggest moving the stop up under pivot points that form along the way.

Anyone who does not know what pivots are, shoot me an email.

S&P 500

I exited my short trade on the gap down opening this morning for a small profit. Although disappointing because this signal is normally a big winner, a win is a win.

It is hard to have much expectation of large wins when trading against an uptrend of this magnitude. Even though we know a sharp pullback is coming at some point, timing it is another story.

Month end biases are in general upward so it seems unlikely any drop will occur prior to December, if it even occurs then. Nonetheless, if I get any more sells from my trading system, I will take them and see how they play out.

Here is an update S&P 500 Weekly chart

We are working on a 5th weekly close above the 2.0 standard deviation band, hence a tremendously extended market. One development that bears watching is the commercials. They are moving toward that short side of this market.

The purple line is the bond market, which remains strong. When we get into a running market like this with virtually no pullbacks, it is very dangerous to step in front of it. A reversion at the very least will occur, but timing it is impossible. Some traders I know will just probe over and over fighting trends like this until they hit the number. They do not mind taking alot of small losses as long as they ultimately get the big win.

I do not subscribe to this theory. I do have a short trade on right now, but it is very short term, and generated by my system. This in no way means that I am calling for a major top yet. Pullbacks are still buys in this market.

Here is what could change that. First, a break down in bonds, and second, a heavy short position by the commercials.

S&P 500

The big upmove continues, but we have possible flies in the ointment for the first time in quite awhile. You can see the trades I have made in this market recently, which have been few in number. Today's short entry is the first short trade in the last 40 days or so.

Notice the heavy progo divergence in the 3rd panel at the bottom. Also, the vix, in purple on the top chart has really been trending downward sharply. This warns of complacency in the marketplace. Short term timing with the VIX is difficult, but it does support the other potential problems with this rally.

Make no mistake, this uptrend is very powerful, and I do not expect to see a sharp drop. However, at some point we should see a sharp short term retracement to "shake the tree" a little bit. I have no idea if it comes from right here or not, but I am short as I write this in a short term trade.

GOLD BUGS ALERT

For all of you gold bugs, we are getting the pullback against the trend that is setting up a long entry opportunity. You can either wait for the pullback to get to the lowest low of the last 10 days and just buy with a pre-designated stop, or buy the breakout of the flag.

I prefer buying the weakness, but that is just me. Sometimes you miss trades by waiting for that weakness that never develops.

DOW JONES

The mid-term election cycle rally is certainly in full swing. As I stated in my newsletter, I have nowhere near the position on that I would like to have had on this move.

However, it is important to stay away from emotional tendencies when these big moves happen. As you can see from this chart the market has moved straight up with virtually no correction at all for many weeks now.

As tempting as it may be to chase this, at times like this you have to remain disciplined. A pullback will occur at some point, and when it does assuming the rest of the internals of the market are still good, it will be a good buying opportunity.

The bond market has remained strong, which is the type of support we want underneath for a trend like this to continue. I am waiting for an entry spot to load the boat, it has not developed yet. It may not develop, only time will tell. We are very extended on a short term basis, so it could happen at any time.

Here is the daily chart of Gold that I refer to in the second post. Now we have an uptrend, so buying the dips is the prudent play.

Percent R is a stock choice for most software packages. If you have it just wait for a reading of 10 or less, and buy the market once it gets to that reading. Use a trailing stop of whatever your risk tolerance allows. It should be itleast $10 due to the volatility of this market, and probably much more.

If you do not have that indicator, all it represents is the close compared to where it is within the range from high to low of the last 10 days. A 10 reading tells you that you are in the lowest 10% of the last 10 days range, hence oversold.

GOLD

I am back from Italy. Sorry for the lack of posts the last week, I had some technical difficulties with the Hotel and their internet access.

Gold has broken out of its downtrend and should now be traded from the long side. Here is a weekly chart of GOLD as of this morning. The key 574.50 level that I mentioned for closing, did hold.

Next is a daily chart which shows the shorter term uptrend better. Just wait for pullbacks against this trend for entries.

VACATION

I will be in Europe for a spell so there will not be daily updates until next week. For subscribers who may be frustrated that the bond trading system has not generated many trades lately, I have displayed this chart.

Keep in mind that my goal is not to get every wiggle, although I would like to. The goal is to be consistently profitable. This means at times we will not be in the market. Yesterdays post addressed the trading range scenario we have at hand. Notice now how what I said in my newsletter, written before this happened by a couple of days, has turned out to be true. This recent leg on the chart has mirrored the prior up leg to within 1 tick of the exact price.

Now we are at the top of the range, so why no short for today? Simple, this opening is the type of opening that on average is not wise to short. Due to the overbought situation of the market, this one may work as an entry. However, it is not high probability in my system and as a result is a no-go.

Sometimes the best thing to do is not trade and wait for the right moments. The system actually had a few potential buy signals up here that were filtered by some of my screens for entries. Until next week ......

BONDS

For those of you who subsribe to my services, I made mention in my monthly newsletter about symmetry in the middle of trading ranges. Here you can see how these uplegs look very similar. Trading in the middle of ranges like this is very dangerous.

Often the price swings all the way back to the other side like this, but not always. Sometimes you get stuck in the middle, with choppy action. You can see a sell 111'29 stop indication, which was filtered out as an order for today due to this range configuration, as well as the gap up bars.

I know that someone mentioned they felt rates were going to rise due to a fundamental reason. Who knows, that may happen, but right now they are dropping. Big picture fundamental things are very hard to dial in to short time frames for trading purposes. We are now approaching the upper range, where sell signals will make more sense. Hopefully, my system will generate some sell signals up here against these highs.

If I had to guess I would say that this rally is being generated by weak economic news, but that is just a wild guess.

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.