Not Alot To Do

This is the SUGAR market and it shows the only trade I have going right now. I went long this market a few days ago where indicated. Today it is also having a nice up day along with everything else across the board so far. During these major bull markets there are often times when there is just nothing to do if you are a short term trader. When we get on runs like we are now where just every single day keeps creeping higher, you have to be very careful of counter trend signals. Many oscillators will diverge when these types of things happen. Trust me, you don't want to act on these divergences unless they are really prominent. I can talk all I want about what is driving this, and I have. It does not really matter, the charts show it all. This is a bull market PERIOD.

This bull market does have nefarious roots without question, but the tape tells it all. With the strong year end seasonal tendency, combined with the FED interventions, it appears likely we will soar into the year end. I think everyone has pretty much realized that all of this is an insiders game and the wall street boys are not going to let the bonuses slip away at the end of the year. If we happen to get any pullbacks, they are buying opportunities.

One of the negatives of being a short term trader is that we trade both sides of markets. When we have these major trend moves that just go one way perpetually, it becomes hard to find trades. We don't get big enough pullbacks for entries, and we can get run over trying to fade the trend. You have to learn to push away from the keyboard and be patient. I always try and keep the thought that all I really need each month is 3 or 4 really good trades, and I make the money I need to make. They can happen at any time, so I try not to force the action. At times in the recent past I have forced the action just to dig myself deep holes to climb out of and that just wears you down over time.

We do have the VIX making another new low here today which has wiped out the divergence in my momentum indicator there. That does make sense since I had said I had never seen a formation of 5 higher lows in it, and now we still don't have that. This is still a short term sell signal, but it has to have actionable price action to go with it to consider shorts, and there is not any of that.

This expanding price action to me in the VIX is interesting, it would not normally support a blow off move like what is occurring here. Of course, alot of things that were formally normal, are not now. I know as long as I trade I will never forget this bull market, it has changed many of the rules forever it appears. I would suggest being very careful about using any trading techniques you have used in the past. Most of the traditional approaches to trading have become worthless in this environment. If you change your approach to just buying anything you look at every time it just makes an hourly low only, you will make money in this market. If you did only that during the prior 200 years, you would be wiped out quickly.

The current move is also getting extended once again, normally reason for pause, but not in this market. It might make sense to look at short setups as traps, and research the times in the past when your sell signals have failed. If you find a sell signal being triggered now and some of the elements from failed signals in the past are there, you might want to use it as a buy signal. We always have to adapt, and that is an example of doing so. You always have to be monitoring how to best trade in each environment that presents itself.

I am still watching the Bond Market closely here for a buy signal due to the massive divergence I showed in the last post. There is still nothing there yet. It will probably be a few days at the soonest before something could develop there. I have drawn in where today's price is, and you can see it has made another new low. I suppose this could be a trap and reverse, but today's range is pretty big so far, so trading above it's high tomorrow is not too likely without an equity crash to trigger that. I think it is likely that I am going to have to wait for a bit longer here for a trade.

"Make Sure to Have Your A Game", you may not have it when you think you do

This year as regular readers of my blog know, I suffered a terrible loss of my favorite dog of all time, BOOMER. Here is a picture of my majestic 200lb dog I nicknamed "Shaq." Please forgive the cord on the porch here, we did not have the wiring complete for our fountain out front when this picture was taken, it looks a little "tacky." To think that all me and my wife do is rescue dogs, that were able to share the life of this incredible dog, was and will probably always be my most unique pleasure of my life. He was capable of running down coyotes on a full sprint at this size, and could jump out of the building. He also slept on our bed with us. He was the most unique combination of ferocity and loving qualities that I am sure I will ever experience in my life be it man or canine. We fought our battle together valiantly, until he finally succumbed to cancer. Readers may of know of the minor miracle I pulled off extending a good quality of life for an extended period of time by giving him some of the nutritional products I take every day. It will haunt me forever, that the miracle did not last. The doctors still are baffled by how I was able to do for him what I did.

Why do I bring this up in a trading blog? It is very important to have a good handle on emotional influences in one's life before going about trading the financial markets. You may think you have a good grip on something bothering you, but I can assure you that the most raw nerves get exposed quickly in this business. I have been without Boomer now for a couple of months, and the loss still weighs very heavily on me. It is not a coincidence that my trading has been sub par tracking it back literally to the day I lost him. I really thought I had a handle on this emotionally, and am now finding that I do not even now. I do not believe it is effecting my trading at this point, but on some subconscious level, it still might be.

There is no textbook for anyone to read as to how to handle difficult emotional influences. You could get involved in a divorce, have an illness, or have trouble with children. There are so many things that confront us all on a daily basis, that there is not one simple solution for how to deal with them. What I would suggest, and I take this just from my own experiences, I am not a believer in psychology books, is the following. I think it is correct to confront and acknowledge what is bothering you, do not suppress it. It may not help in the near term because it does makes things hurt a bit more. However, life is full of challenges like this and you cannot let them ruin you. Focus on the positives, and how enjoyable they are, and accept that there will be low points. Try and learn from the low points. At times of stress it seems you will never get through the bad times, but they do pass, and brighter times will come along.

Part of this post is just me doing exactly this, acknowledging the loss and the pain, and paying tribute to a truly unique being that I was lucky enough to have been able to spend time with before him leaving us. I try to honor his life in how I live mine and continuing to give back to the world by rescuing other dogs who need help. I am the guy who helps elderly people in parking lots, I look for ways to help others, please do the same. Just the look in people's eyes when you have helped them when they did not expect it is so rewarding I cannot tell you. Try it once and I am sure you will agree. I will never forget Boomer, I know it is very unlikely I will ever in the rescue world come across another dog like him. He will forever be my champion. I owe it to him to live my life fearlessly and passionately like he did for as long as I live and will do so.

I apologize to those who check in here to always see a chart on the latest market move. However, this is my personal trading blog and at times I do feel like posting things that may be personal, yet also do lend themselves to this main topic. The real heart of this blog is really a running inner monolgue of my thoughts anyway. I you find yourself in the middle of something trying, do not hesitate to push away from the computer for a time, there is always another trade. I wish I had done so, it would have saved me quite a bit of money I threw into bad trades when my head was in the wrong place.

As for the markets and where we are now, we have a couple of interesting things going on here. First, we made a new low in the VIX on Friday, which of course is logical with the launch in the indexes on another upward leg. Ironically now though, at least in the very short term, if the VIX were to reverse back up here in the next day or two, that is a sell signal for stocks. I am tempted to just ignore every single sell signal due to the FED's complete control of the stock market, but the signal is there. I do not have anything else that I watch supporting this sell yet, so I am not sure there is any actionable stuff to do in line with it.

What is truly unique about this chart is that I cannot find one single historical occurrence for 5 higher lows in my indicator, if this were to curl up now at a level higher that the #4 point. Since I have maintained for quite some time that this is the most unique rally in stock market history, this only adds to that view. In a normal world this would be a red caution flag 30 feet big. It is truly amazing that the FED is able to continue to control this so tightly, just beyond belief. It does also tell me though, that this is a time for caution not outright bullishness. This is a powder keg of trouble here at some point.

We also have something else very unique and also something I cannot find another example of which is on the following chart.

This is the 30 year Bond Market. The purple line is Larry Williams POIV indicator, and I have never seen this amount of divergence in this indicator. This generally has very subtle divergences which work very well. For it to be diverging this much is very interesting. Since there is generally a inverse relationship to stocks and bonds right now, this bullish setup is very negative for stocks. So we have the VIX giving us a stock sell signal, and bonds diverging historically bullishly,  hmmmm......

Again, with the artificial nature of what is going on, I am not sure how to view this. However, as I stated before, the signal is here. The Dollar appears to be rolling back over again just like the FED wants, so that is one inconsistency here. We would expect a stronger pattern in the Dollar to bring all this into sync. However, historically the dollar and stocks have positively correlated not negatively like they are now. I can't put 100% of my confidence in the Dollar Index, what if we are potentially falling back in line with what the normal relationship has been between stocks and the dollar? Since this is not perfectly clear, I think patience is required here, this is not a perfect storm, just one with some dark clouds off in the distance. Time to tighten stops and longs and see what happens, we may be setting up some type of reversal here, but it is not here yet.

YOU JUST CAN'T BEAT HOME COOKIN'

9.8

Must see TV is without a doubt the CNBC panel discussing/reviewing the Non Farm Payrolls data. Today the liberals of course were in shock at the headline number being so weak, and were hinting something was wrong with that number. Might they have been insinuating the number was doctored? Of course they were citing numerous other obviously doctored numbers from other economic reports as to why something was wrong with this number.

You can't have it both ways, they are not doctoring some and not others. All of these numbers are bogus, it is what it is. All you have to do is poke your head into the real world of life other than the Federal Reserve Market ( Previously for years known as the US Stock Market ). Life outside of the monster bull market rally is not good right now. It is pointless to cite any economic reports as reasons why the stock market rises and falls. It is doing so now at the sole discretion of the Federal Reserve.

PERIOD

This is a good scenario in the near term for most people

Rising stock prices make everyone feel a little better about how things are in their life and the Fed is fully aware of this. I wonder if they have an annual awards banquet where they give awards for league leader in saves ( the down days they reverse in the last hour ). They could also give one for highest clocked fastball, to the person who launched the largest futures buy program. Also lowest ERA ( which could be the person overseeing the lowest number of down days in the Dow average. This could really be fun to think about all the awards to give out.

As much as I think Barry and his minions are going to get alot of us killed and make us broke, we cannot solely blame these activities on him. If the other party were in control, the same thing would be happening. There is an arrogance from government that assumes we can't handle the truth, so they do not give it to us. None of these reports are accurate portrayals of reality. As an investor you have to completely ignore all this economic chatter, it has literally nothing at all to do with where stock prices will go. That is being completely determined by the Fed and that direction is up. The only general comment I would make is that more than ever you need to have an exit strategy. When this does end it is not going to be pretty, so a buy and look 5 years from now strategy is probably not going to be a good one. Establish your uncle points, and honor them if we get there. Until that time, enjoy the most unique stock market run in history.

The next thing I want to discuss is the 30 Year Bond Market. There is something very interesting developing in this market right now. I have never seen anything quite like this.

What is unique about this is the incredible amount of POIV divergence that is present in this market. This is an indicator that rarely diverges, and when it does the amounts are subtle. I have never seen an instance where this indicator has been this disparate from the price. This tells me to be very bullish in this market in the near term. Of course the Fed is in the way of this being a really big up move with what they are doing with equities, but this is what it is. I talked about when divergences get really prominent it is correct to trade against trends, and this is surely an example of one of these instances.

Since I am on the topic of divergences, Silver is possibly setting up a big one here, but I cannot tell quite yet whether this third point will form at a lower level yet or not. I just bears watching over the next few days to see if this actually happens.

The trend is strongly up here and Gold may be setting up a buy in the next few days if it pulls back, so I am not overly optimistic this will form up. However, I am watching because these triple divergences often happen at major tops and bottoms. We may just head higher and not form the third lower peak negating this setup, time will tell.

For now until further notice which will be next year, there is no reason to do anything but buy dips in equities and index futures, the Fed is not going to allow this to go down.

AMATEUR HOUR

I did something I rarely do but needed to yesterday, I walked away. I have told readers that I have been trying to change my trading style and it has been a complete disaster. My last 30 days were the single worst of my career. I was long the Russell and at the time long bonds later to be stopped out of bonds. I decided to puke out of the Russell trade even though it was profitable, turn off my computer and walk away for awhile. I have been so completely out of sync trying to become something I am not, and I am completely done trying to do that. It feels like actors who do action adventures trying out a comedy role and I always wonder why they don't just stay with what they do well.

At times like this the trading business can be incredibly emotionally trying, and I am far from immune from that. The last 2 weeks in particular have been the most stressful of my 20 + year trading career. I even went to one of my close friends who is also a trader and asked him how he handles periods like this. I have to be honest and I guess I am lucky, I had never really had a meltdown like this. Yes I have had drawdowns but this one got close to 15% a huge amount for me. I decided to go back through the last 3 months of trades, print out every single one, and study what I had been doing both good and bad. Fortunately, or unfortunately, depending on how you look at it, I only had to go through about 30 trades before I discovered an incredibly consistent theme of one mistake specifically. There were others that I found, which is the theme behind today's post, but one thing in particular jumped out at me. Almost all of my bad trades were against the trend. That should hardly be a news bulletin, but I did not realize it just going along like I was. I was aware some of them were, but had no idea how many were against very strong trends. We have had a very strong trending year in the markets this year, so obviously a strategy like that is not going to fare to well. It is amazing I have net made what I have.

Let me show an example, so the point I want to make is clear. I was not just trading against trends to be a wise guy. I was doing so based on indicator patterns. I have warned of the tendency for any indicator to give false divergence signals against strong trends, so I guess I should have taken my own advice. Below is an example that will make my point.

You may have to blow up the chart or pull up your own to look more closely at this. I have indicated a trade on the short side I did in Crude in October, that actually made a small profit, but is typical of the mistake I have been making. Most trades with this error did not wind up as profits. My indicator was under the trend line so to me that said downtrend in momentum so look for shorts. However, we still need price to come in line, and it was clear at the time to me, not now, that when we made a lower short term high than the early October high, I could go short on a break of the next bars low. WHAT A MORON. There is certainly nothing wrong on the surface with that logic. However, what I would ask anyone who trades is, does that lower short term high just barely at a lower level than the prior one in a strong uptrend really indicate a trend change? Of course the answer is no. We did meander sideways here for another 2 weeks after I exited, but the trend never changed to down.

Here is the main point, make sure your trades are clearly in sync with a clear trend change if you are trading a market reversal pattern. Little wiggles do not qualify. Now there may be times when you have such huge divergences in your indicators that it dictates action. Those trades should be done and I will show one of those. However, just little wiggles like this are not enough. There are always exceptions, but this is the general theme I saw over and over again. I was interpreting little wiggles as supportive of fading a big trend and that is amateur hour on steroids on my part. Learn from my mistakes and do not do this. It is way too easy to fall in love with oscillator patterns. It is how they are applied to price that separates the men from the boys.

I hope some of you readers can learn from my blunders here. At times when you are trading well you feel you can do no wrong, and you get very sloppy. This was what I did. Do not ever take your eye off the ball no matter how much success you have. If you do that success can be fleeting. I will close with a chart of the type of oscillator divergence that dictates a trend change to be more aggressive with, that as you can see if much more than just a "wiggle." This market is one where I did trade properly and the good trades here were obvious, not anything like that disaster in Crude above.

BATTLE OF WILLS

I have been taking quite a bit of time lately to just try and figure out how to play the stock market right now. As I have stated previously, we are in uncharted waters here in my lifetime. There is clearly a battle going on between the will of the people and the will of the governing in all aspects of our life right now. It is clear the will of the people wants to sell the stock market here. Just about every historically accurate way to time the stock market indicates a correction should be happening. However, we have a government that has decided that no matter what they have to do, stock prices are not going to be allowed to decline.

I really don't care if they go up or down to be honest, all I want is free market flow which we clearly do not have at all. The next chart should add to making this point.

This is a chart of Caterpillar, and old stalwart blue chip stock. Historically this has been a steady solid company whose stock although a good one to trade for holding purposes, has generally just plodded along. I have marked all the gap openings in this stock just in the last few months, many of which have held and not been filled. Trust me folks, this is highly abnormal. A stock like this should not look like a chart of OATS. This tells us a couple of things. First, it shows the tremendous overnight futures moves in the SP 500. Those moves are what cause these openings. Second, it also tells us that trading this stock in the traditional ways will not work anymore. Third, it is confirming the lessening relevance of the pit sessions here in the US.

I personally have had a hell of a time trading stocks the last month. The chart patterns are just weird and it is because of the overnight manipulation of the indexes by the Federal Reserve. The big problem I see with this when I study history, is that prior circumstances of government meddling in pricing of commodities has always resulted in price ultimately going where it wanted to, and often violently. This type of a move will happen out of the blue when it does, and I have no idea when. Study the price of lumber going back to the time when the government had a limit on the price on the upside, and what happened when it broke through that limit.

Listening to CNBC yesterday very early, there was shock that the Ireland bailout was not being perceived as good news. Are you kidding me? Countries that are basically insolvent loaning money to another who is should be viewed as good news? All they are doing is creating a bigger bubble. Bankruptcies need to happen. When an entity cannot pay for things, it needs to go out of business and then re-structure itself into a model that can operate profitably. As I have said recently, I am more worried about the big picture than at any time in my life now. I cannot recommend that the average investor be long stocks here. We have a wonderful trend that has been going on, but just the way this is being manipulated greatly concerns me. For my purposes as a short term trader, I have no problem being long because I can pull the plug and go flat when this wipe out starts, or get short to take advantage of it. The average person with 401k's is not going to be in a position to move that quickly either physically or emotionally.

The VIX index has been speaking loudly recently, that a sharp sell off was coming. It appeared to be here until the Fed got back into the futures business to stop it once again. There is going to be a time when they are not able to do it, and the exits are going to be incredibly crowded when this happens. I wish I knew when this would happen so that I could tell you. Today they are once again reversing a huge overnight down move in the futures, so the battle is on once again. Day trading might well be the answer to some of these issues even though it is a very difficult way to try and make money. It keeps you clear of the overnight games by the Fed.

For now I am just long Bonds and am in a couple of other things but overall not heavily trading today. I am looking for some other action. I have been looking for shorts in the energy markets. RB has a classic trap pattern right here, but since it is the strongest in that sector, I want to short Crude which has been far weaker. I got out of my Dollar long too soon, but I have not done much else right the last month so that is par for the course I suppose. I still think the traditional indicators say down in the stock market, but who knows if they mean anything anymore.



WILL HISTORY REPEAT ITSELF?

I would like to have someone tell me what the difference between these two graphs is? The one hint I will give is that the first one has more data so it shows what happened after the fact of the pattern development I have indicated. You can see they both have 4 higher lows in the blue line. In the first chart you can see that the price ultimately zoomed higher, whereas in the second one the price direction after the pattern formation is not displayed. I would challenge anyone to tell me there is any difference at all in these two "looks."

Now I will reveal what this is

You can see now that this is a chart of the VIX with the SP 500 overlayed in Green on it from 2004. This is the last time we had a 4 point divergence in my indicator and as you can see the VIX zoomed upward and stock prices came down hard. If we now go to the next chart, you will see why I named today's post what I did.

We don't know what will happen next but the similarity between these two charts is uncanny to me. In the 2004 example the decline was sharp, lasted about 3 weeks, then reversed back up again. This would allow us if it were to play out the same way, to buy stocks at lower prices for a continued bull run. Of course we have no way of knowing whether or not this will happen, but volatility has generally been a good way to track stock price direction. I do not as of this moment have a sell signal in the SP 500. I had one this week I took that I got stopped out on. I am leery of shorting this market, I have been burned doing so recently. However, I have to honor my signals, and my general tools tell me to look for short term sells in my indicators, so that is what I am doing.

Here is one trade I made this week that more than made up for alot of my dumb ass moves in the stock market, just so that readers don't think I am a complete imbecile.

I had 10 contracts on this long trade in the Dollar Index that made about 12k, so it made me whole and then some over the losing ES trade. I suppose I should still be long but sometimes when I have a couple of bad trades and get a good one that more than covers them, I like to ring the register and re-group. Also, these holiday trading days in the currencies get very strange sometimes. They have often had big one day moves that completely reverse the very next day.

Let's see what next week brings, but as per what I have shown here, I am looking for weakness in stocks. I am also looking for a long side entry in bonds which I will cover if I wind up finding my way into that trade.

NOT FOR THE FAINT OF HEART

Here is an intraday chart yesterday of the ES, and you can see the vintage PPT move once again. These guys are just the best there is, no question about it. Of course yours truly was short when they showed up. My entry was an overnight trade so I did not exit on the PPT move, but they did come reasonably close to stopping me out. This morning we have come back down so I suppose it is time for them to prop this back up again, and they probably will in the last hour if we are still down at that time. As I stated in the title, shorting this market is not for the faint of heart, it is groundhog day over and over. There is almost always an initial move that makes the market appear to break down, then the "mysterious" rallies that always happen.

It is very interesting to me, and I am surprised it does not get more press, that the Trim Tabs folks "cannot identify" where the moves are coming from. They track all sorts of categories as the premier tracker of various funds and their volume. They cannot explain in any of the categories, who is driving this. I think we all know who that is, and that is more anecdotal evidence about what I rail about in here constantly.

What is very interesting to me is the insider trading investigation that is now ongoing. Apparently this guy leading this did not get the memo, and he is dancing on dangerous ground here. Let's watch this and see if it fizzles. The ultimate insider trading has to be the investment banks that house the PPT trading accounts who execute their trades. Might they be front running the futures buy orders in individual stocks knowing the push is coming? I would certainly think they are, I would be if I were sitting in their shoes. They know huge volume is about to come into the market at certain times in futures, which will move all the premiums to areas that will generate institutional stock buy programs. Wouldn't it be a reasonable risk to take as a trader to buy across the board with a close stop, when the futures programs are just about to kick off? It is hard for the rat not the eat the cheese, as much as he may innately fear it is a risk. Somehow I doubt the insider trading investigation will ever get to this part of all of this scheme, TOO BAD.

I have no proof of any of this, but I think people can see the way things are happening, that something very irregular is going on here. The story is going to break some day, and Clouseau may have stumbled his way onto this. The damage control will be bellisimo if this story breaks. It probably won't, but if a very detailed investigation were truly undertaken, I think what is under the hood on the feds books would be must see TV. It might be like the CIA and be such that it is better if we don't really know.

Meanwhile back at the ranch, shorting this market has been an incredible challenge. I have been doing it only because my techniques say to do so, not because I am some wise guy or doomsayer. I just take the signals as they come up with some discretion of course. However, I cannot just ignore valid signals because I think the PPT is controlling the stock market. That is an opinion, not an objective filter. However, it is very difficult to make any money on the short side which should tell us something about the strength of this trend overall. I hope buy signals show up because shorting this market is impossible. We do have some seasonal up biases that should be kicking in here shortly. They have been pretty consistent over time. The individual days however that usually have been bullish in the SP 500 this month have not been accurate, nor have they been in the Bond Market. I used to rely very heavy on seasonals and do not use them much anymore. It does appear to me though just by watching every single dip of any kind get quickly bought, that dips in general are buys in this market not reasons to get overly excited about a big drop.

The fly in the ointment is the US Dollar which has been showing some strength. If that were to continue upward, we could have some bigger trouble with stocks. I have been long in the DX but do not have any real expectations either way in that, it is just another trade. In general I think this dip whether it lasts just a few hours or a few days is likely a buying opportunity and not a huge rollover.

THEY MAY PULL OFF ANOTHER DRAMATIC SAVE

As we ended the week for another intraday rally to save a down close, this is how things look overall. First we have the big picture 3 point divergence labeled above. In general this picks much larger moves than what we have gotten so far, but there have been occurrences when this is all we have gotten. It certainly should not be a shock to anyone if we just rocket back up again here. There is a strong tendency for a rally going into Thanksgiving in both bonds and stocks. Unfortunately, both of those trades indicated being long at the beginning of the week, so if taken would both have been stopped out for losses, before the rebound here. This is the scenario #2 I discussed the other day, one big day blowing out of the low point.

We are now at a critical spot for this to turn back to the down side if it is going to. If by Tuesdays close we have not rolled back over, I think we will take off again upward. I have indicated on the far right part of the screen, where the momentum oscillator is still under it's trend line, but it is curling up sharply here and in a couple of day might be back above it. Ironically if it gets there and then makes a lower peak than point #3 and turns back down, we would have a very powerful sell signal. At this point we have no idea whether or not that will happen, it is just thinking out loud about possibilities.

We have by price action intraday the most powerful rally I have ever seen in my 20+ years of trading. You can find other spots on charts where the market has gone up more, late 90's certainly to name one. However, there has never been anything that I have seen with so very few even intraday corrections. The government has such a tight handle on this that they get futures buy programs going so quickly even on the slightest declines, it really makes even trading on the short side on a 5 minute chart almost impossible. In the late 90's this was not the case, there were plenty of pullbacks to play for day traders. We are in uncharted waters. I would not be surprised to see a push to outlaw shorting, Buffett has been running his mouth a little about that. What a jerk he is. The more he talks the more sick to my stomach I get. He is brilliant, but one of the great hypocrites of all time.

I still maintain that the longer this artificial manipulation of prices goes on, the more likely another terrible wipe out is to happen. Timing that wipe out is likely to be impossible because it is going to come out of the blue. Looking at a few other things to confirm or not confirm what the SP 500 above is telling us makes things a bit more clear to me.

Generally speaking Gold the chart above is the same trade as stocks, and as you can see it looks about the same. The oscillator is a little weaker here than in the SP 500 so I would argue that this is a tad weaker overall. This market does appear from a short term basis to be a sell the rally here. However, if the blue line rallies enough to get back above the trend line, long is the side to be on. Silver is much stronger, so longs should be done there not in Gold in the metals. This is the weakest of the metals markets at the moment.

The next chart is Crude Oil which again is similar to stocks in general they trade very closely in sync nowadays. Look at how comparatively weak this has become.

I would say between Gold and Crude we have a nod to the short side in general. The next chart is that of the Dollar Index, this muddies things up considerably.

You can see this is clearly a buy the dip, and the dollar stock relationship is an almost inverse tick by tick situation at this point. So if I look at that I have to feel that it forces me to lean to the short side also. However as with stocks, the momentum in the last couple of days is going toward the trend line. If it just keeps going that would negate a buy setup. This among many other reasons, is why I always want price to trade back in my direction to get into a trade. If I were just to blindly buy a dip here at the market, who is to say it won't just go straight down? I want at least a burst of short term movement in my desired direction to pull me into trades.

The last chart to look at is the VIX. We have broken back down in this index, and other than a possible 4 point divergence that could develop on new lows, there are no buy signals here ( sell for stocks ) that I can see. This would support the long side of stocks case. The next couple days are again going to be the key in this index also. I have drawn in a textbook megaphone pattern here. I have talked about this before in here, if you study charts you will often see this megaphone pattern at major high and low points in the past. It is not a very accurate pattern percentage wise, I would say less than half of them work. However, the ones that do are dynamite. I have inserted a chart of the NAZ in 2000 to show one example of one of these that worked pretty well. When they appear at market extremes they are better, and this is certainly that.

This has very good symmetry and it is at a multi-month low. The trades with this pattern are generally much better in a situation like this than just in the middle of other price action. The last chart is the Nazdaq at the all time high. Notice the nice 5 point megaphone pattern that formed, pretty much the inverse of what we have here.

Here you clearly had a trap pattern where new highs were made, then price quickly reversed. It is not always that easy unfortunately. However, I am just pointing these things out for your own decision making. It seems no two tops or two bottoms are ever exactly the same. For all I know I am forcing this here because I am leaning to the short side.

In summary, here is what my take on all of this is collectively.

First, and foremost, we have the government completely controlling the markets, which can trump almost any technical development unless heavy volume comes in. As a result, any shorting needs to be on smaller size risk wise until a new downtrend is clearly defined. They want prices to rise not fall, so the house is on the side of the longs. I am a bit surprised they allowed this recent decline to happen.

Second, we do still have a strong trend, and not much technical damage has been done yet. If we just move up out of here in the next two days everything is fine and look for new highs going into the end of the year.

Third, we do have a few things now from the dollar index, to weakening Gold and Crude Oil markets, that might be telling us to be a little careful here.

Fourth, the dollar index is potentially reversing it's downtrend, which would be very bearish for stocks if that were to happen.

The Vix is potentially giving us a major buy signal, but it has not yet setup correctly, and may not if we just keep falling there.

All in all I would say to watch the markets the next 2 days, if we stay stable then break out upward, we are off and running. If this is going to reverse down it will happen in the next couple of days. Many of these potential flies in the ointment would be negated with a few strong up days at the beginning of next week.

THE GAME'S A FOOT!

I am not sure if I even spelled that cliche correctly but don't care. Net net, here we go on the pullback, and pre-market today, it looks very powerful. This is what I was referring to yesterday about what might happen. For my own work, today will setup shorts in some places, but I probably need one more day of either sideways to up, to make it really what I am looking for. Here we have a juncture where you just have to pick a side, kinda like politics nowadays. You are either bullish or bearish here. If you are bullish you should have been buying yesterday. I did one long side trade which I will show in a second that I am exiting on today's opening gap up. If you are bearish, this is the beginning of what you should have been waiting for.

Unfortunately since the world is one trade, we have the dollar pullback long, es pullback short, currency pullback shorts etc. all setting up together. If you take them all, be mindful of your risk, they are all going to move together. You will win or lose on all of them, it is unlikely that some will move independent of each other. I am bearish, so I am going to be playing the short side here for all of the reasons I will not go back into today. I have detailed them over the last few days, you can read those posts if you are interested in the reasoning. If this day opens and becomes a 300 point up day, it is likely that some of the short setups will not be there, but I will just have to wait and see what happens.

The majority of the public and investment community is not even considering that there might be a deeper pullback than what we have had, so maybe they are right. I don't compete with them. I trade my own money and put it behind my own studies. If this just lifts off, I will be wrong, just that simple. I will then move on to the next opportunity. I quit trying to be right all the time a very long time ago, it is impossible. Trading is like a round of golf, you don't birdie every hole. You can still have a good score with a few bad holes, you just can't have all bad holes. Sometimes it is hard to accept, especially after having a good run in the markets, that you are going to have a bad streak. However, as you rebound time and time again from them to make new equity highs in your accounts, you will be more accepting of them.

I have chosen to play the short side on this bounce, so in the next couple of days I will place some short bets and hope I don't have too many bad holes and make a few birdies.

Below is the SMH long trade I did enter on the close of Tuesday's session. It was based on a combination of one of my trading patterns, and an ETF strategy out of Larry Connor's latest release. I just took 1000 shares just messing around with this. It is going to make about $500 so slush fund for today's golf game I suppose. These strategies by Larry are terrific and have been about 80% accurate in real time, so I suggest reading his book. I don't like one aspect of them, no stops. You can empirically prove over and over that mechanical methods work better without stops, that is true. However, in real time you can get wiped out without them. Further, it is tough to choose position size when you don't know what your stops are. I just randomly chose 1000 shares thinking I might have to give it $2 worth of room, a $2000 risk.

I guess it is tough to see this chart, I have better charts with genesis but their real time data feed is not real good, and I have it on my notebook computer with has better internet speed with my aircard than what my home satellite gets me. As a result, I don't have charts updated to today on this computer. I doubt I will do many of these types of trades due to the lack of risk control, but I wanted to do one live just for fun, since I "knew" we were going to get a bounce I wanted to have something on the long side.

AGAINST THE WIND

It is tough to go against the grain on things, you always run the risk of being the village idiot. The only person I can think of who has been bearish on stocks has been Bob Prechtor, and he has been dead wrong. Of course his approach is so long term, that 1000 Dow points don't really matter. You have to take positions if you trade with Elliot Waves and hold them through hell and high water constantly. I suppose it remains to be seen if he is right or wrong on his big picture calls for DOW sub 4000. If you remove him from the mix, and then possibly Glen Ring, another long time newsletter publisher, it is hard to find a bear out there.

It does you or nobody else any good to be bearish just to be a smart ass. That will make you the village idiot and poor, a bad combination. You need to base you views on the techniques you use to determine how you should position yourselves in the market. The unprecedented government takeover of the stock market has caused alot of problems. First, it has created these annoying correlations where everything trades one way and the dollar the other. Of course we have our crazy uncle Natural Gas that never got the memo, that goes it's own way regardless of all this other nonsense. For the most part everything trades in the same direction which make diversifying trading impossible.

Many techniques that have worked for a very long time have given several false directional calls due to the takeover of the stock market. Judgement is required more than ever, and that is a slippery slope. How and when to weigh what artificial interventions might occur and what they will do to prices, is such an arbitrary call that it is not recommended. So what to do?

First, I think we have to mostly focus on the Dollar/Stock relationship. It is impossible to know which wags which, and I don't really care. It certainly appears to me, that stocks move first, then the currencies follow just by watching tick charts. However, many argue the other causal relationship. It really does not matter, all you need to know is that they trade opposite. If you are bearish on the dollar you should be bullish on stocks, and vice versa. There will come a time when this ludicrous relationship will revert back to it's old ways, but it does not appear to be on the near time horizon. We have to accept what is currently happening, not what should be happening.

With all that in mind, the chart above is the daily chart of the Dollar Index. This is a clear break out to me of the downtrend, and all dips are buys. The momentum oscillator is climbing far ahead of price, which in general with a few exceptions is what we want to see. We have had 9 consecutive days of higher lows, a very strong occurrence that has not happened often here. This is my view is this is a .....you to Bernanke by the rest of the world saying not so fast brother. They are seemingly not going to allow him to devalue all the debt of ours they hold. If we accept that the dollar is a buy on dips now, then we also have to conclude stocks are a sell on rallies. Many of the things I watch to tell me if a dip like this in stocks is a buy are saying it is not, which is why I have changed my stance completely here. I have also detailed over the last few days, the other reasons why I think the market is setup for a decline.

In the NEW COMMERCIALS attempt to create artificial inflation, they just created short term blow offs in many markets, that are now reversing sharply. It is my feeling that we are very short term oversold now after yesterday, so a bounce should happen here. This bounce should setup short opportunities across the board. That is the next logical play to me, and one I am sitting on. The one scenario that could happen, and I would not put it past them at all, is the following. If we get a couple of small range days, they could go all in with futures buy programs to try and ignite a lift off. They would likely do this in the premarket to try and ignite all the stock buy algorithms on the opening that play off futures. This would be one of those 250 point plus up days that just opens strong and never looks back. If this were to happen, the scenario I just discussed could be negated. If you look back to July of 09, that is an example of what I just mentioned.

The plan for me going forward is to look to go all in on the short side after a bounce, things look very top heavy to me here. I know this is completely against what almost everyone else is thinking, so I guess I open myself up to be the village idiot. I always sell weakness and buy strength, so that protects me in these lift off situations. The orders don't get filled on those days because price does not trade down enough to trigger the entries.

THE DEVIL IS IN THE DETAILS

To those loyal readers of my blog, I owe all of you an apology. I have completely missed something critical in my recent analysis of the World Market ( Previously known as the US Stock Market ). Before I get to that, lets look at the above chart which shows valuations and more importantly Sentiment readings. I have marked off all the times where Sentiment reached excessively bullish levels. You can see that in every instance we got decent declines, and in a couple of them, big ones.

We have been maxed out in Sentiment now for a few weeks, and we are now starting to see what happens when everyone in the world is leaning one way. The markets go the other way. There is nary a bear to be found right now. It is certainly understandable as I think most people have realized now that the PPT is determining where stock prices are going, and they are certainly not going to choose down. The whole basis for their core function is to inflate things that are declining.

The one hail mary that the world always has against this manipulation is collective strength. As I have written about over and over, volume can overpower the government manipulations of prices. We have seen that a couple of times in recent years. They cannot buy enough futures to generate the price pushes they want if there happens to be mass selling by institutions at the same time. It seems the tact has been to get the futures programs going overnight when volume is a lot lighter. This way they can reverse overnight moves pretty easily. There will come a time when collectively large institutions will sell, and that will overpower the PPT. It is almost impossible to know when this will happen, I am must speaking conceptually here. Generally 20 and 40 or 50 day lows are good spots to look for this to happen. We are not there yet, so this decline is still containable.

The next chart is the one I just completely missed. I too got caught up watching the magnificent rally and stopped paying attention to what else was going on.

I have told readers often that I think the single best tool for timing the SP 500 is the VIX. Above is a chart of the Vix with my indicator below. Notice the incredible divergence we have between price and momentum. This is the biggest one of these I have ever seen. There are 4 distinct higher lows here with lower lows in price. The last time I even found 3 was in 2004 and we had a big rally in the VIX and decline in stocks. If you pair this with the dollar basing I have been talking about, we have the makings of big problems here. Of course the VIX is highly correlated to stock prices, but not 100%. An increase in the Vix does not always mean a decrease in the SP 500, but the odds heavily favor that cause and effect relationship.

I have to admit that I also have a hard time accepting this, but it is what it is. There was also prominent divergence in the NQ index the other day which I showed in here. What this all tells me is to forget buying this dip, and to lay in wait to short the bounce. I am just hoping we get one.

GOOD THINGS HAPPEN TO THOSE WHO WAIT

Things have cleared up a little bit in the last week or so, for those waiting patiently and experienced enough not to chase the markets. We always have to remember, and I constantly have to remind myself, there is always another trade, so don't get too jumpy. The above chart of the World Market otherwise known as the SP 500, shows just how incredibly powerful this move has been. Since every market in the world with just a couple of exceptions looks almost just like this, you really just have to follow this one to trade anything else. Gold, Soybeans, Sugar, Crude Oil, Aussie Dollar. The charts in all of those markets look almost just like this. As I have been saying for quite some time, the world is one trade. This correlation I think now is obvious to everyone, and I also think it is obvious to most now that it is not a coincidence. The NEW COMMERCIALS are orchestrating this via their various methods, the most recent being QE2.

Since we know this correlation is here, and not likely to go away anytime soon, just keep it in mind when determining position sizes. There are other markets, like the softs, meats, and Natural Gas, that seem to be able to defy this gravity, so those can be used to diversify.

I have outlined what I see to be the two scenarios that could unfold here. First, we are now short term oversold, so longs are probably the play here for the next few days. After that, I have drawn out another possible scenario, which roughly shows the trends rolling over which would dictate shorts. I am fairly sure of the first one, but not so sure on the second one. Since this is being so manipulated by the government, it is hard to imagine them allowing a rollover here. It has become clear that they believe that everyone feels a lot better about the economy when the stock market is over 11,000 than they would if it were at 7,000, even if everything else is basically the same. This false sense of security due to 401k balances increasing is dangerous in my mind, but so be it. I always tell people that the collective psyche of the American public is much better with stocks being higher than lower, and it gives the controllers some room to maneuver that they would not have if stocks were tumbling. What is surprising and unprecedented, is the degree to which they have been able to control this. In my lifetime I have never seen anything like this before.

For the long entry, Friday's highs have to get taken out today, which could happen, but it is a long ways up, still 10 more SP points from where we are trading as I compose this post. Interestingly enough, when I went through the whole SP 500 this weekend, stock by stock, I did not see a preponderance of buy signals. It was really mixed. This tells me that we are not likely to lift off again right from here. However, it also is not screaming top either. Maybe we will trade sideways?

In any event, we do have a pretty clear trading direction here, up in the next few days, then look to see if the shorts are setup.

SIDETRACKED

I have been distracted the last couple of days by outside business interests, my apologies to regular readers for missing a day. Obviously there is alot going on right here which I will get to in a moment. First, I thought it might be interesting to post the market everyone raves about in the liberal media, Shanghai. Of course China is the world's savior and is just going gangbusters, or is it?

If you look at their composite stock market you might have expected to see a different picture than what CNBC leads us to believe is happening there. We have seen some recent strength, remember the world is one trade now, so everything has gone up the last 2 months for the most part. However, look at how far off the highs we are in this market, does this really look like something so strong it will lead us out of this mess? Not to me.

This week we have had some "topping" action in quite a few markets, will this lead to declines? Of course we never know that. It is possible the "NEW COMMERCIALS" the Fed, has pushed things as far as they can with the little games they are playing. They cannot click every single persons mouse even though I think they would like to be able too. At some point some corrections or more than that are going to occur. I have said in previous commentaries that the minute they stop what they are doing we are going to have a huge air pocket burst. Since we can never know when this will happen due to the secrecy of what they are doing, we have to look to price action for our clues.

Here is the Dollar Index and as you can see we have had a bounce, but nothing earth shattering that changes even the short term trend yet. We did have a fair amount of POIV divergence at the low, but now POIV appears to be lagging on the upside. Of course if we were to blast off out of here, that divergence could be eliminated, and likely would be. Watching the overnight action, I would assume the Fed has conducted POMO again, since the ES has once again been brought back "mysteriously" for the brink of a crash. Those who study this everyday can check to see if that is the case or not.

I think the next trade is buy the indexes on this dip, then look to reverse to the short side up against the highs. I do not have signals either way at this point yet, but they are looking like next week should bring this action to a theatre near us. Today, I think we just sit back and marvel and what we are not likely to see again in our lifetime, the US government trading the stock market basically, and staging another late fourth quarter comeback. Once this economic cycle passes, I think changes will occur which will outlaw this type of thing in the future. Once the public gets completely in the know on this, I doubt they are going to be able to continue to do it. I read yesterday that Roubini is supportive of the PPT and what they are doing. He has been right about several things, but been consistently dead wrong about the stock market. I am not sure his opinion means anything at all.

The last chart is one trade I made this week in Natural Gas that worked out well. I was just in it for 3 days, but a good 3 days it was. You can see it made over $3000 per contract. This market seems to trade independent of most other markets, the crazy uncle so to speak.

Have a great weekend, and get ready for next week, it should provide us with a lot of action.

THE DAY THE WORLD FOUGHT BACK

As those of us who have traded for awhile watched the metals markets the last few days, we knew with pretty good certainty, this was coming. This bar may not look like much on this chart, but this range from high to low was almost $15000 per contract. Folks that is so insane, I have no idea who in the world is actually trading this market here? I suspect it is individual small investors just chasing the momentum, then fleeing in fear when that monster reversal happened. Is this a top, who knows? What it is typical of though is a big picture top. When you start getting this type of volatility, the market is speaking. What it is telling us is that the general equilibrium it has had during this run, has been disturbed.

We know just from reading the papers, that foreign nations are not pleased with the NEW COMMERCIALS and the market manipulation they are conducting. If we look at the Dollar Index and also the individual currencies, we are seeing the signs of a potential huge reversal setting up. As I stated the other day, we may be on the verge of a worldwide currency war here. Here is something I just noticed yesterday, just when things have been sailing along so gloriously.

In the NAZ we all of the sudden  have a 3 point divergence in the momentum indicator. I shorted a few stocks on Monday that had good individual sell patterns just because it is all I know to do. I have to take the trades when they are there, and let's face it, shorting into this 20 foot swell has not been a very good idea in recent weeks. I had no hopes for those trades, I just did them because I am a trader and the patterns were there. The market manipulation has made the market very unbalanced, but that does not mean I don't take sell patterns when they occur. My feeling had been to just look for a correction this week as I stated on Monday. Now that the above reversal pattern is here, it might be time to look for shorts when we bounce here, especially in the NAZ. I think this is especially meaningful because this index has been leading things for a couple of months now, clearly it has been the strongest. We now have a fly in the ointment.

In summary here is what we have currently going on. First, the world is trying to prop up the dollar, the NEW COMMERCIALS are trying to depress it. We have blow off conditions in the metals markets that could lead to a shocking decline there. The individual currencies are showing signs of weakness. Finally, we have a big divergent reversal pattern in the Nasdaq 100. This cumulatively, tells me we got some trouble here. If you are long, it might be time to ring the register and pat yourself on the back for a job well done. This is not a time to be greedy. If this were to get away from the NEW COMMERCIALS, the rate things could decline could be shocking to many people. This is the air pocket of all time they have inflated here. Maybe they can save it here, but alot of taxpayers dollars might need to be used if this gets going on the down side.

HOMEWORK ASSIGNMENT

I think now that even CNBC is talking about how Bernanke is controlling the stock market, it makes sense for someone to study the days over a larger time frame, where POMO was conducted. It is my theory that they are the new commercials for stock trading. The COT report has been completely worthless in the stock indexes for a couple of years now for a variety of reasons. I think that we have a much better indicator of stock prices with the POMO. The problem might be a small sample size. However, the correlation is so incredibly high, that even a smaller data set might provide reliable cues. My thinking would be that only buys be done on the days they are active, and on the non active days, take trades in both directions. If we know that virtually all the gains will come on the days when they are active, it stands to reason we would not want to be shorting on those days.

This is almost like insider trading, you really know which way the market will go before it ever goes there. The "NEW COMMERCIALS," the Fed, might very well be a key to riches. I sure want to be short once this PONZI scheme ends, but that may be next to impossible to determine in advance.

The above chart is of the Dollar Index, which does appear to be making a base here. We have had 3 probes at lower lows, yet the POIV indicator is diverging bullishly. This indicator does not diverge very often, which is also why it is more accurate when it does. It remains to be seen if the extreme market manipulation by the Fed to drive the dollar down will overcome this, it might. The momentum oscillator is in an interesting spot. It does appear to be diverging against price as well yet is also still under it's trend line, so it could go either way. I am leaning to the long side here due to the POIV divergence. It looked like the DX was breaking out last night, then of course it got reversed overnight once again.

The next chart which is of the EURO also makes me lean to the strong dollar weak currencies side as my next trades.

This is pretty much the inverse of the DX except that we did have a close above the prior highs that was quickly reversed the very next day and then was followed by a good down day yesterday. These trap patterns are amongst my favorites. It is my feeling that we need to hold right here in the EURO, or this could be a short term top of some type. The COT report shows monstrous short positions in commercials in currencies. As we have learned this is far from a panacea, but it does give us at least a reason to be a little careful about the long side until this chart conflict here gets resolved.

It also appears to me that the Bond market is potentially setting up another long entry, which all else being equal, might tell us the DX would rally with it. Of course as I have written ad nauseum recently, the world is basically one trade right now, long everything and short the dollar. With the "NEW COMMERCIALS" at the helm, it remains to be seen if they will allow any of this to happen right now.

I DECIDED TO THROW OUT MY CHALLENGE FLAG ON THIS PLAY

After watching the market action for the last 2 months I decided to throw out my one challenge flag and risk losing the time out. This play had to be reviewed by the people in the booth for a ruling. Here is what they looked at. I found this at Trading Markets.com, a great trading website, and home of one of my original mentors Kevin Haggerty. He posted this chart in his most recent commentary. I first learned of the PPT from Kevin, he knows exactly what they do and how they conduct their little "activities." The Feds Permanent Open Market Operations ( POMO ) is shown above and low and behold you can see on the days where nothing was done the market has been completely flat. The whole recent rally has happened on days of POMO.

You can draw your own conclusions about this, but of course the answer to the quiz question is obvious. I was not charged a timeout and it was agreed something was wrong. There are a number of ways of how this money that gets injected drives stock prices, and I will leave that up to you to decide which one of them best explains this. I have an idea of how this is happening but am not going to get into it further. The chart above says more than I could possibly say if I talked for an hour.

This does not change anything I said in the last post at all. I just found it compelling enough when I stumbled upon this to post this here. For those wanting what I consider to be one of the best prognosticators of stock price direction, check in for Kevin Haggerty and his comments at Trading Markets. He is one of the best.

The interesting thing that has developed over the weekend is the bashing of the Fed by foreign governments. I believe that is the beginning of what will wind up being a currency devaluation battle that will ultimately drive the dollar way up and everything else down. These other countries are losing a bundle on the debt of ours they own with the deliberate devaluation of the dollar the Fed is conducting. I think at some point they will start buying dollars to prop it back up. What we could have then is other countries intentionally trying to drive our dollar up and the Fed trying to drive it down. This could get very interesting, it is must see TV coming soon. However, it might be best to tune out before watching the ending, it is not going to be pretty.

As I looked through the commodity markets I found one market that is in an interesting position right here, Soybean Oil. The weekly chart for this is below.

I have marked off the instances where the Small Speculators have gotten excessively bullish in the past, at the same level they are now. You can see that what happened in almost every instance was a pretty good decline. The one exception was a time when we were not overvalued by the Will Val indicator. We are overvalued there at this time along with the huge Small Speculator long position. This is a market to look for sell signals in. It is much weaker on a weekly basis than most of the other grains, and has this fundamental condition to go along with that. The daily chart does not have a sell pattern yet, but I am watching for one closely.

I do expect a pullback this week in stocks, but again if the Fed does not want one we won't get one. It is all up to them unfortunately. In scrolling through the SP 500 stock charts one at a time this weekend I found a bigger dichotomy than I expected. This rally is more narrow than I thought. Normally this would be a red flag, but things aren't normal.