ARMAGEDDON OR A BUY?

After a day like this it is very easy to get carried away with things, get tied up in the moment and the fear, and run for the hills. This overall situation might well dictate that is the right move. However.......we do have alot of short term indications that a bounce is coming. On the top chart I have Larry Williams POIV indicator which is bullishly diverging not confirming this new low. Also when you look to the first panel underneath, you also see that trend indicator is still above it's trenline. The bottom graph, which is a proprietary contraption of mine, is also diverging after having hit a 3 standard deviation band, this is a bullish pattern.

I always buy above highs and sell below lows, so there will not be any buy signal for me tomorrow. I am looking for one and do expect that the COT report will show more commercial buying going on which could still give us a bigger bounce. Big picture I still think we have got some big problems here. I was listening to a talk show today here in San Diego called Invest Talk. The host is a money manager, and he completely dismissed any possibility of this being anything more than a correction that is close to ending. He might very well be right, but this is very indicative of the complacency that often is present at market tops. Most of these guys never see the big tops until the market has moved a large amount in the other direction. This is why most of them, and I do not know this guys track record so he may be an exception, do not beat the S&P. They stated that all that matters is earnings, well I will address that in due time, it is incorrect.

Based on what I have stated above, along with Larry Williams forecast calling for a turning point mid month, I conclude that a nice tradeable longside move is coming. I do not know if it will make new highs or not, I suspect it will not, but it should still for the short term, provide a good upmove. The VIX today did give a buy signal, which is a sell for stocks that should be good for a few days with the pattern that triggered it. As a result, we probably will go a bit lower in the next few days. That is a guess, divergences like what is shown above can trigger a reversal at any time.

HOUSEKEEPING TIME

First of all let me summarize where I stand on several things that have been posted here recently. I just got a comment on my current position on Gold. Bigger picture as I have stated over and over again, I think this fall when it is done, will be bigger than the real estate fall. I have maintained that positon now for a few months and still see no reason why we will not go down to $600 or so, maybe lower. This was the greatest hype job of all time, and I have layed out graphically over and over in here for regular readers the reasons for that view point. This will be looked back upon historically as something to study as another bubble bursting.

On a shorter term basis I was looking for a possible bounce due to recent small commercial short covering, and we were in a possible weekly chart support point. Today appears to have blown that out, but it still could be a short term buying spot. Remember, Gold is trading with stocks, so if you think stocks will decline, do not be long Gold. The next leg in the deflation wave is underway and I think it has quite a ways to go.

Don't get cute with that, this market is just beginning it's large decline. If you have been a long term holder and did not get out, look in the mirror and you will see a greedy person looking back at you. You had tremendous once in a lifetime gains, for you to think they would double again was foolish, or at the very least, a low probability play. I guess if you refuse to believe what you see and still think 3k, buy into the decline. I would not touch the long side other than for a very short term trade, and that is not setup yet.

STOCKS

Today's wipeout tells us that the trend is down for now and in front of tomorrow's non-farm payrolls report, was a surpise. The weekly claims showed a higher number than expected, it will be very interesting to see what they tell us tomorrow, and what the revision to the prior one will be. I am mixed here, I expect a lie, but it may be tough for them to get too carried away after this weekly number today. Should be good for comedy. I am sure the one liberal CNBC always has on will tell us again how well all their plans are working, the in Barry we trust skit. He will do this regardless of the number. I wrote I was looking for 2 or 3 days up then another leg down, so that was what we have gotten. No reason yet too buy into this decline even though we do have commercials buying it so far. There have been no patterns that I use saying to buy yet, even though the big boys are showing increasing bullishness. I did state and it is in the archives, that I thought this was going to be a time when the commercials quick flip to bullishness was going to be incorrect and that it is a troubling pattern when that happens.

Now that those lows they bought into have gone, that can be argued to be a failure and a sell signal. Lets go to two markets I recently posted trades coming for, Bonds and Sugar. First, Bonds. I had a nice one day gain yesterday on my short, but when the stock decline showed up today that trade had no chance. I tightened my stop to above yesterdays high, and got hit for a 10/32 loss, no big deal that is peanuts. I love losing small!!!

Next is the Sugar trade which is working out well so far.

This chart is black so sorry, I have several different data feeds for redundancy and have them formatted differently in each one. If you click on it you can enlarge it and see it better. You can see this trade has a nice current profit in it, with a target well below. Will it hit it, who knows.

I do have a few other things cooking but do not always post every trade I make here. Tomorrow could be very interesting. We have alot of divergence, so a reversal of today could happen. Might be best to stand aside at least until the dust settles after the report.

LET'S WORK THIS OVER THOROUGHLY

Now that we have had that 2 day bounce I was talking about, let's review whether or not this has presented the shorting opportunity I had been waiting for. First, both accumulation/distribution indicators are heading down sharply leading price, that is bearish. The short term momentum indicator is still under it's trendline, but is heading up sharply, this is not very bearish at all the way it appears right here. The next panel is the longer term momentum indicator, which is still nicely below it's downtrend line, which is also bearish.

The final panel shows a much longer term momentum measurement created by Larry Williams. This does show a rollover happening here and a reaction back up against the new down trend. This is also bearish, except we are not quite into the sell zone yet. We do need a little more upward movement to get there. One more up day would do it.

In summary, for the most part the sell setup is here but it is not perfect. At times like this I try and look at individual stocks and the VIX to help be a tie breaker. Most individual stocks are not into good sell spots yet. The VIX below is also not really giving us any actionable signal at the moment.

Remember buys in the VIX are sells in stocks. We do have a possible buy signal here as well as a few developing. The VIX itself needs to travel quite a ways down to penetrate the bands at the bottom and go into the buy zone. The second panel also shows us not quite into the buy area. The last panel shows us basically there right now if we turn back up.

In summary, when weighing everything, it appears to me that we are not quite into the sell area yet. However, the market does not always tip us off perfectly, so I will be selling breaks starting now and trailing upward. I do not want to miss this move even if it means getting picked off on a fake. I think the upcoming move if we start going back down could be a good sized one. It is possible we just lift up some more. The last 2 days are more refective of most of last year, just slow drifts up all day. As long as that is happening there is no need to fight it. Be prepared for Lucy to pull the football away from Charlie Brown here at any moment. You don't want to fall on your ass like he has over and over, when this rolls over. There is a shot for us to hold here based on the commercial buying into this low, but this low just made needs to hold. If it does not we could go down sharply.

The BOND trade I mentioned for Tuesday was not elected, so I have orders in again for tomorrow on the short side again below the market for entry.

WHAT'S UP WITH BONDS?

My good old friend Treasury Bonds. I used the trade this market almost exclusively as I have chronicled in here in the past. This was before the electronic markets essentially invalidated the pit sessions. Many of my models were based on pit only data, and were ruined by the advent of the electronic sessions overnight. All of the sudden we just had a preponderence of gap opens that did not follow the old road maps of how gap opens typically acted.

As you can see this market is somewhat of a mirror image of the stock market, and has had a flight to quality move here in tandem with the stock market decline. As you can see the strength in the market has not been confirmed by the oscillators here. We are also into a weekly sell spot which I will show below. As a result, it is time to look for a short entry here right now. I have also highlighted a divergence in one of the accumulation oscillators. This particular measure does not diverge too often, so I always listen when it does.

If we couple this with what appears to be a very short term rally in stocks beginning now, that should create a downward move here if it happens. There are a couple of flies in the ointment, in particular the commercials have been buying this market recently. I wish that were not in place, but we rarely have everything perfect. This is not a perfect world and trading rarely delivers perfection. There is enough here to take this trade. If it loses, guess what, some trades lose!

Here is the weekly chart showing the retracement to the lines I have discussed previously. Again, I will not reveal exactly what they are, but you can tell from a cursory glance that reactions to them are generally good entry spots.

One other thing to note is the strong seasonal tendency for a decline at this time which I have highlighted at the bottom with an arrow.

Good trading to everyone on Tuesday

BACK TO THE FUTURE

Of course I could have made that really obnoxious if I had made it Futures

One of the really cool features of software nowadays is the ability to project a bar into the future to see how things will look if a certain outcome takes place. I have done that above to see how my indicators will look if this little rally I called for happens. We are getting a nice rally today and unlike the other day when we had one that faded, there does not seem to be any intra-day divergences telling us this will fade. Watching how intraday moves hold or do not is one short term way of getting a larger picture guage of what the real underlying trend is.

I have labeled what would be a very nice sell setup for the SP 500 and also individual stocks above if we get the nice day today to stick and have another one up tomorrow. Will this happen, who knows this market is very weak internally right now. However, at the same time it is very oversold on a short term basis.

What this setup basically involves is a longer term momentum rollover combined with the first reaction against it. Many of us call this the lowest common denominator entry. This just means the first retracement against a new trend. They are the best and most profitable entries to try. You generally have close stops, and larger than normal gains on the wins. You have seen this in the metals trades I have done.

I was not able to find many individual buy setups in stocks so I only have one stock I am long unfortunately for today. So be it, I think the big money is going to be made on the next down leg anyway so that is what I am laying in wait for. It is entirely possible that we just rocket right back up out of this due to the commercial buying we have seen. I did go into detail as to why I thought this might be misleading a few posts back. If you have any interest in that logic, go back and read those posts.

TO BE OR NOT TO BE?

I mentioned in yesterday's commentary that we needed to see what the commercials were doing in the COT report to determine if this dip was a buy or not.

This question has been answered with a resounding yes, it is a BUY. I have highlighted the prior times we have spiked up into buy territory with my Hybrid Commercials indicator here. You can see how well this has worked. The only time it was incorrect was when we were in a well defined downtrend. This always has to be viewed in the context of other things, it does not stand alone.

There is one thing we have to be careful of with this. At times there is a COT pattern that develops where commercials switch their activity very quickly during a trend reversal. This gives very misleading indications. In this case they have switched very aggressively to the long side on a very small retracement. It would be better for a large retracement to feature a more gradual accumulation by them. We never know unfortunately when this misleading pattern is forming. The way to judge it is if the support levels that bounces occur from fail, even in the face of big commercial buying.

I do expect that this is what will happen here, but for the time being we need to be looking for long side action. That does not mean buy at the market, it means look for triggers for long entries with whatever it is that takes you into trades. The GDP number is so laughable that I cannot believe anyone can deliver this type of information without a snyde wink or something. There is almost no positive activity when you move away from the government sector. All these great earnings reports again that we are seeing, are very questionable to me to say the least. It seems to be more of the same on Wall Street. Bogus reports that lead to big bonuses, average Joe left in the lurch.

They are calling the PGA tour square groove controversy Groove Gate, they should call the earnings skit Bonus Gate. Make no mistake about it, I have no axe to grind either way. There is nothing to be gained by just bashing the economy. We are all better off if things are truly improving, I just do not believe anything these guys tell us anymore. If we can have a State of the Union where our own president can just lie repeatedly, why in the world should we believe any of these other statements that come out from lessor people?

As a result, you cannot make your stock judgements based on your assessment of the economy, they are independent of one another. You have to cast that notion aside. This is where technical analysis comes into play.

Once again referring back to the above chart, we also see the vertical dotted blue lines which are cycle dates. We see one approaching here in a few weeks. Generally we look for reversals in price at these lines. Whichever way price is heading coming into them, look for signs of it reversing. You can see the Bradley Model calls for a high in Mid Feb, and the Will Go Long Term also indicates down action to begin about then. These are both directional in nature, they are not reversal indicators, they say specifically down.

Next we have Larry Williams projections for a Mid Feb turning point. It shows to be up, but can be inverse if we are rallying into it. When I put all this together, it tells me to look for a bounce for the next 2 weeks that could form a significant high leading to a large decline. I will not trade as if this is etched in stone, it is simply a possible outcome. What I would want to see is Commercial Selling on the rally to flip my Hybrid indicator to short on a rally in the next few weeks. In the mean time I am looking to the long side for entries but having a hard time finding them in all honesty. Below is a typical chart look in the SP 500.

This is Coca Cola, and typical of the downtrends we have in individual stocks. There are some possibilities I can see for how this could develop into a buy but not right here. So many charts look like this or worse. It is looking at individual stock charts like this that has kept me from buying into this decline so far.

You can see above that the Dollar is off and running. I hope all the amateur economists at the water coolers are enjoying eating their crow over this one. In general this would be supportive of stocks. However, the unwind of the carry trade is likely behind this and that is in reality not good for stocks. We have alot more to go in this market in my opinion, likely going up for the rest of the year here.

Have a great weekend, more next week.

WELL NOW WHAT?????

We are free falling now in the stock market and I am surprised how little press this is getting. Even the smallest rallies are getting sold off hard with volume. We are in downtrends across the board and if you look at my yearly forecast you will see this is what I predicted would happen for the most part. We are in a deflationary environment folks, do not listen to all this hyper-inflation crap, it is poppycock. There may be a future time where that will be true, but we have awhile to delate first, possibly a frightening amount. Just take time to think about it, what things you consume are rising in price right now? Virtually everything I buy is declining in price.

My own personal strategy resulted in exiting all remaining stock shorts today. The short side of the stock market has obviously been very good to me this month.We are extremely oversold on a short term basis. I am now looking for short term long entries in individual stocks. The problem is that the wide majority of them are a mess and have completely broken down. I repeatedly warned that the PPT would not be able to stop heavy volume, and we are seeing that now.

If you look at the above oscillators you can see how they are far outracing the price on the downside. They are at levels equivalent to prices of several months back. This can actually be a buy signal in some situations as an exhaustion type of indication. I do believe that is the case here. To be clear, I think any rally is a sell, but we will soon get a sharp upmove to work off some of this oversold condition. As a short term trader I would like to take advantage of that. We are still in a weekly uptrend even though this daily chart is not indicating that. As a result, it is still prudent to look for long entries on this decline. The problem is oversold can always get more oversold. This whole market had a huge air pocket as I stated. When you have air pockets this is what happens on the corrections, they are sharp and fast.

We will have to see if the commercials are buying this dip when the COT report comes out tomorrow. If they are not, look out below. If they are, this could be presenting a very good "short term" buying opportunity. I hope you are all watching the US Dollar. How many people outside of me were calling for this rally? How many people came out and said the COT data on the DX was misleading because of the light volume?

These type of things are just learned over time and through the school of hard knocks. I wish I could have just read a few books and learned more quickly how to work with the COT data. It is an art not a science unfortunately. However, if you have read here long enough you have seen how helpful it can be.

That's all for tonight

CAN METALS BULLS WHO HAVE BEEN CLOBBERRED

ALSO BLAME BUSH?

I would assume this is also George W Bush's fault, this recent wipeout in the metals? Why not blame him, after all he was in office within 10 years or less of this happening. Hope you got the reference, Barry is a disgrace. I would also put forth that for those who bought coins and paid the 30% premium when Silver was at 19.00 and now have a 43% loss in total, you might want to blame the coin dealers. In reality, this is your own fault, and even though we live in a world where nobody is seemingly responsible for their own actions, this was your fault not theirs.

I have been screaming as loud as someone can that this was at hand. Now that we have had this wipeout here, I am looking for another entry on a bounce into the areas I have marked on the above chart. I do fear a sharper reaction that might mess up the entry, but let's just wait and see. We should have a long long ways to go still here, so there is plenty more opportunity. For Fib people we are nearing an AB=CD spot, which could serve as a low on a short term basis. Selling at these levels right here would be not be wise. We are tracking stocks here in the metals, and they are extremely oversold and due at least for a bounce. if this occurs, these markets are likely to follow.

So far there has been no commercial short covering yet. If in the COT reports I happen to see large buying on dips, I might revisit my projections here. However, we have not seen any at all yet.

Gold has held up better than Silver, so for those who still believe 3k or more is coming, that would be where you should be buying. I will be selling it to you in the near future, so just call if you need someone to trade with!

The Weight of the World on it's Shoulders

I know all of us have felt this way at times, so how do you think the US Stock Market must feel. It has been artificially lifted to the levels it currently occupies by the PPT, now all of the sudden the concept of gravity is lurking. Above I have the SP 500 daily chart with a half assed guess at what might transpire next. It basically just shows a bounce, then another leg down taking out the recent low. It also forecasts a roll over in the first momentum oscillator, and a rally against a down trend in the other two. Will this happen ? Well of course we never know the future. Since the whole basis for this "recovery" is the stock market gains, this index has the weight of the world on it's back. If this rolls over everything else is going to follow, and the fraud of the "recovery" is going to be exposed. It is hard for me to see how borrowing more to artificially continue to prop up things solves the problem of over leveraging. To me we have added to the leverage, not de-leveraged like we need to.

Each weekend I look at every single individual stock in the both the SP 500 and the Nasdaq 100. I do this mostly looking for trades, but also to get an overall feel for how things are under the hood. I trade both sides of the market, so I have no bias short or long. I can tell you from doing this over the past couple of weekends, that the number of individual stocks setup for sells so far outweighs the buy setups it is a very startling contrast to the overal indices and how they look.

We are now seeing some weakness in the indexes, due to heavy volume that let this get away from the PPT in a 2 day span. I warned people this would happen, that if heavy volume showed up they would not be able to stop it. So, now he we are in what could well be a pullback buy zone for those who have missed the rally. The 64,000 question is, is this a buy here?

First of all, if you have missed this entire rally and are a less sophisticated non junky than I am, the answer is flatly no. If you are a short term trader who likes to go in and out, I would say possibly. We have gotten very oversold here, so it is likely at the very least we get a tradeable bounce. Larry Connors has written a book revealing research about buying into declines and legging into the trades in ETF's when the prices are above their 200 day moving averages. Those strategies are flashing buy signals all over the place right now. I have considered doing some of these trades, but I do not like trading with no stops, which his methods suggest.

It is a fact that stops when testing things mechanically always diminish performance. However, if this is a big roll over starting, those strategies are going to wipe you out here. One thing that can be done is to just select an uncle point, and honor it. You buy weakness looking for the reversion to the mean move upward, then just have a spot where if we keep going down you just get out. The problem with all of this is that the numbers make buying more and more weakness, statistically very favorable. So in reality, the more it drops, the more you should buy. If you arbitrarily pick a spot it is possible that you puke out of the trades right before the reversion move happens.

Below is a chart of an ETF that would have you long now and you can see how much heat you would be taking. EWZ  is an emerging markets Brazil ETF that as you can see has had 3 very good buys on weakness during 3 prior pullbacks. I have arrows indicating the entries. There are various techniques for generating these trades, so that is why there are different arrow colors. Clusters in one spot are generally what you want to see here.

Look what has happened recently, you would be getting buried in this trade. With no stops it is very difficult in the heat of the moment to make a good exit decision when you find yourself in a mess like this. You could argue that now that we are right at the 200 day Moving Average in this ETF that it still is a good buy spot. The problem you have is that you got 3 good wins that can be wiped out by one loss, a cardinal sin in money management. I used to trade this way when I first started, buying pullbacks on weakness, not any more. If you are inclined to do this, Connors book is an excellent buy. Maybe you can find a good way to manage the risk in these trades. I do know Larry and he is an excellent trader himself so it is always good to learn from someone who makes money doing this.

SWEET SCIENCE

This used to be boxing until all the money got involved and they started fixing so many of the fights. Now I refer to Sugar.

This is a market that has taken a little bit of my money this month. I have been looking to short this market and have been clobberred obviously thus far. The COT report shows a number of reasons to be looking for a top in this market even though we have not seen one yet. The longer term momentum oscillator is showing a triple divergence with three lower peaks, while the shorter term one is not as bearish looking. We also now have a very good trendline that is formed to short a break of it.

There is also Progo divergence which is the green line overlayed on the price with a dotted line showing the divergence. We are just continuing to make new highs so if we keep going up some of this condition especially the divergences, may work themselves off. For now I guess I am just the idiot who can't see the forest through the trees. The 5 yr old test would clearly reveal that it is just going up so it should continue. Unfortunately for me, I have this false sense of self worth where I think I am smarter than a 5 yr old.

Below is the COT picture, it should at least make me look a little less like an idiot.

Notice the greeen line here which is the Small Speculator long position. It is very close to it's all time high and also the Large Specs, the black line, is also maxing out. Combine this with the Commercials in RED continuing to sell, and we do have a good potential setup for a top. The one problem with this setup is of course that Commercials have been heavily short now for quite awhile and not been able to cap this rally. In situations like this, the Commercials position is not all that useful. The Small Spec long is the aspect of this that is very bearish.

We do appear to be having the bounce in stocks that I had mentioned, so lets see if we can't get a good shorting setup there in the next couple of days.

IF IT'S BROKE VIX IT

After last weeks break in stocks, let's look at whether or not this is a buyable dip or a top?

The VIX is a widely used index nowadays in evaluating what the likely next market move will be. I do believe it is perhaps the best single thing to look at when determining if the market overall will rise or fall in the next couple of weeks. I have a chart of it above, and it is my contention that you should analyze this just like any other individual market or stock. You should use technical indicators on it just like you do on a regular chart. My chart above has the usual suspects plotted below the VIX itself.

One thing that should jump right off the chart at you is the very sharp two day upmove in this index. As far as a regression analysis would go, this is a prime reversion to the mean scenario for today and or tomorrow. We have our momentum oscillators spiking sharply upward and when I combine them with the separtion of the VIX and my bands on the screen, I am hard pressed to find another situation quite like this that has occurred previously. There are some proprietary things I use that are not featured here that tell me this is a dip to be bought for a reaction move, but they are not cut and dry. This very sharp move here is somewhat troubling, and I think ominous. Most reversion setups do not look like this at all.

I think we can explain that with this being such a unique historical situation. The market has never been manipulated by the government to this degree since the VIX has been in existence. I believe that is why we cannot find comparable occurrences to this pattern. Since the VIX is a reflection of sentiment at it's core, and the market has not risen in concert with how it normally would in relation to sentiment, it makes sense that this would also be a little out of whack. What to do?

When taking all of this into account, here is what I have decided to do. I am not aggressively playing a bounce here, I am waiting for a day or two up possibly three, then looking to get aggressively short again. I am taking individual stock shorts that meet my rules. I think any bounce here is going to be short lived. For those who trade ETF's there are a ton of sharply oversold symbols that might be good for a day or two up. However, to me this just looks like something that is going to move lower.

THE AFTERMATH

"A TEACHABLE MOMENT"

Of course I say this mockingly, can there be any doubt?

For those who have read here regularly, you will be familiar with a situation I had previously talked about where we would need a catalyst to start this decline. I actually thought it would be the health care bill, but it turned out to be my good friend Barry and his bank crackdown. One of the limitations of the PPT is volume. They cannot play their futures buy program games when the volume gets really high on the sell side by large institutions. These institutions often sell at 20 and 40 or 50 day lows. When you get a rush to the exits like we have had here, the PPT cannot stop these types of moves. They have been able to hold this market up for a remarkably long period of time. Quite frankly, I have never seen anything like this in my trading career.

Do not underestimate their desire to support this move now that it has started. We will have to watch carefully as we get into a support area, how the volume is. If volume stays high, they might be in trouble. If it calms back down, they will able to easily move this back up. The problem with these running market airpocket situations is, they always break out of the blue, and really have no support points. This is why if you look back at charts for these types of patterns with very small ranges just moving up at a steady pace with no retracements, that the declines are sharp and quick. Crude Oil comes to memory as a recent example of this in it's move to 140 and subsequent collapse.

Here we have our weekly SP 500 chart with a few things on it. The vertical lines are cycles where we have had consistent action at these turning points as you can see. The next panel is Larry Williams WillGo Index, both short and long term. You can see the Long Term ( red ) is indicating a decline to begin about now. The last graph is the Bradley Model which also calls for a decline to begin about now. The middle panel which is one of my hybrid COT indexes so far is not indicating any buying on this dip. You can see the last two major lows featured a textbook buy spike in this index. If we see that during this decline at a point where we have not broken the weekly uptrend, and we will have a nice buy setup. This is one of the main things I will be watching on this decline to tell me if we are going back up, or just straight down.

I see two scenarios, straight down to take out the March lows, or a bounce to new highs maybe in the 1235 area, then a move down under the march lows. Both feature an eventual large move back down. However, those are just guesses and I will not trade off them. For now we have to be in sell any minor rallies mode.

Of course the metals markets have been clobberred, there was no other way they could go. The setup for a short was the best I had ever seen in my career and I stated as much in here. The worst development that could possibly be happening in GOLD is evident on this chart below, NO COMMERCIAL BUYING ON THIS DECLINE

It will be important to watch to see if this continues. The fact that they have not covered any of their shorts so far is a very ominous sign for this market. If you were holding Gold buying into this nonsense and hype you have nobody to blame but yourself. This was the most obvious sham I have ever seen in my life. It is true, smart people were wrong. How can this be, they have all this education and knowledge, and sound ecnomic views? Simple, what they focus on does not drive market prices. The long term trend is still up but I think in a couple of weeks that is likely not to be the case. Technically it is in a buy zone by one of my approaches, so I am looking initially for a short term buy down here, then longer term, mortgage the ranch on the short side. If we get a move down that turns everything down, then a bounce, this will be the million dollar trade for this year. Also keep in mind the tight correlation between GOLD and stocks, they are moving together. This makes no sense, but it is what it is and needs to be honored until it decouples. If you are not bullish or bearish on both, one of your views is likely wrong.

DUMB and DUMBER

It is just going to be impossible for me to behave myself after today. Our fearless leader is just a blockhead plain and simple. Why do I constantly take shots at him? I do it because I don't want to live elsewhere but he is ruining this country, and I am too old to be effected by an interns mistakes that mess up my life. It really only matters just in forming big picture views, we can't really trade off whether we like or do not like a particular political figure. However, forming a longer term view on things does require taking these types of things into consideration.

Every time Barry opens his mouth it seems he says or does something more stupid than what he did previously.I stated in the last post to ignore news stories because they typically are erroneous, but occasionally there is one that will be an accurate driver of a market move. Well sure enough, here is a live example of where the catalyst I have been talking about showed up, another bonehead move by our leader. You can see from the intraday SP chart above, that when he started speaking a huge selloff started. This caught me by suprise, you can see we were just meandering sideways after the PPT yesterday rescue. Then boom, a waterfall. Readers of this blog know I have been sitting short for a few days now and got a windfall today across the board. I exited all my shorts before the close just in case the PPT showed up for the 89th day in a row, they did not.

There used to be a day trade when he first took office, where you just had to wait for him to talk live, and just short the E mini SP 500 at the market, and then put in a limit order for 10 points. This trade worked I recall 15 times in a row. It made no sense but I did it a few times just for fun. It did stop working, so I moved on.

Nothing has worked on the sell side for months now, so it is possible times may be a changing. I do believe we have a top here, whether it is the top or not, who knows. We should move down some here for a few weeks at the very least, so the short side should be the correct side for the near term. Maybe we will fall into a nice buy setup for another run for the roses, we will just have to wait and see about that.

If you look at the above Naz chart, we are rolling over and do have confirmation on the momentum oscillators, but you can see we are in another buy zone for the first panel setup. When trend changes occur this first panel will have this look and the trade will fail, but until that happens these dips are still buys. The problem I see is that so many of the SP 500 stocks are in sell patterns not buys, so there is alot of underlying weakness here that has been brewing. I heard a technical analyst today so he was concerned due to the technical breakdowns he was seeing. I would argue that when a market has been driven completely by manipulation of the futures indexes, that technicals and fundamentals mean nothing. It was not going up based on them so why should it go down based on them?

I was short 9 individual stocks all exited today for a profit, I will show the best and worst of them to conclude this post. Keep in mind that just being short a thousand shares of a stock adds up to alot if you can get a couple dollars per share profit this quickly. For now look to sell short term rallies.

BF Goodrich

I exited this one early due to how much it was lagging the whole market meltdown, just taking a small gain out of it.

Good trading to everyone

WRONGWAY FELDMAN A WRITER OR AN AVIATOR?

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

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

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

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

THIS IS NOT AN EASY BUSINESS

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

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

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

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

WISH I TRADED YESTERDAY AS WELL AS I CALLED THE DOLLAR

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

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

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

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

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

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

A PENNY FOR YOUR THOUGHTS

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

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

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

ONE FOR THE GAPPER

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

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

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

So how to enter this trade?

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

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

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

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

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

DEJA VU

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

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

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

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

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

What a dumb idea that last hope was.

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

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

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

INNER MONOLOGUE

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

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

Now to the inner monologue.

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

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

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

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