GLIMPSE OF THE FUTURE?

After the massive power outage yesterday here in San Diego hit, it got me to thinking a little bigger picture. I am sure and would actually bet my life on it, that we will never get the straight story about how both the north to south and east to west power links to this area "mysteriously" were severed at the same time. I am also sure "they" know exactly what happened. It really does not matter, but one thing I heard on the radio as I was stranded in a mess like what is picture above, caught my attention.

People with medical problems were obviously being taken to hospitals, since their home apparatus was not functioning without electricity. The Palomar hospital had back generators as you would expect, but here is what I did not expect. Those generators are only good for 96 hours! This means that if a power failure lasts more than 4 days...........it is lights out literally. I had run out during the afternoon and was coming home when it hit. Once I got stuck and my wife was also stuck, we had to figure out how one of us would get home before dark to feed the animals. Doing it in the dark out at the barn was going to be very challenging. I actually was closer to home, about 5 miles. I decided to just pull my car off the road, park it and get out and walk home. I am a fitness guy but I had work closes and had to carry a computer and a few other things, so running was off the table. I did not want to leave the computer in the car, at that point we did not know how bad this was going to be. In a severe situation, looting would happen, and I did not some dumb ass stealing my computer and having access to what is on it, so I grabbed it and started hoofing.

I live in the hills on a ranch to it took me awhile to get home, I barely made it by dusk. All of this made me realize how unprepared we are for something really big if it hits. I have extra food and water tucked away in one of the structures on my property in the event of something like this going on for a bit, but very few people do. Maybe some people cannot afford to stash some things, but you need to somehow find a way. In the event of something either terror or economic related, that causes a big disruption, we could easily be on our own for months, yet a few days and many people would be toast. Lesson, get prepared, and hope it never happens. I have been procrastinating on backup generators due to the expense, no MAS. Once the frenzy for them dies down that will inevitably ensue here, I am getting that done.

Being in the dark last night I missed the speech fortunately, and as I said before, even though we are imploding here, it is not due to that speech or anything he might have said that he did not. We are in a downtrend, we had a bounce, now we are resuming the trend. I did catch on my Blackberry that Mark Zandi was thrilled with the speech and what a great solution it was. I love to be on the opposite side of a trade from him. That tells me all I need to know, if he owned a funeral parlor nobody would die. It seems to be just more spending, and as I said before as per what we are seeing today, these guys are good for business. As they say in the hood, "you go girl." Just keep spending and I will keep shorting things, fine by me. They may not have triggerred today specifically, but their overall plan is putting us here.

You can see in the above chart where I shorted the S&P 500 last night, this is a trade I have been waiting on for some time as readers know. I had mentioned over and over that I thought this was going to be hard to catch, and it was. This was not an ideal entry, especially with the prospect of no power and no live quotes. Nonetheless, we had a lower short term high, the last signal in the Synthetic COT was a sell, the weekly trend was down, it really could not have been more obvious. I know some others were looking the other way, and for all I knew they could have been right. I just follow my own analysis techniques since I am responsible ( there is a novel concept ) for my results. Some others need to read that memo since they obviously have not.

Here is Copper, one of the other markets I pointed out, and it is crashing today along with other things. This chart might as well be the ES, they are nearly identical. The sell entry point is indicated on the chart.

Net net, it is time to be on the short side in most things other than the DX and potentially Natural Gas next week. There are a few others, but you get the point, it is mostly a short sided trade across the board here.

Have a good weekend.

TIMING IS EVERYTHING

One of the habits I have gotten into just simply from getting burned doing the opposite, is waiting for the short term momentum to turn in my direction before entering a trade. This means when I buy my orders are above the current prices and when I sell, they are below. This way in order to get filled, I have to have the short term momentum going in my desired direction before I get in. I know some of you based on emails, just enter at the market when you think a setup is in place. Let's be clear, there is no "only" way to trade. For those skilled enough to be able to pinpoint the exact turning points, market entries would actually be superior in that you would get far superior trade location. I have experimented enough over the years to know that this is beyond my abilities, so I enter on stops in most instances. The only time I don't is when I miss an entry and try to get in on a retracement.

Here in the above Cotton market, I was looking for a sell signal, and had my orders as indicated on the chart, below yesterdays low. In my mind we were in an uptrend that would have been broken had we traded down to that point which we did not. We got a limit up move today, so anyone in at the market on the short side without a trend change confirmation, got beat up today. This happens more often than not. I like having a defined risk, so I can objectively determine how many contracts to trade. In this case, I had about a $1500 per contract risk, so I can apply that to my account balances and determine how many to trade. I usually choose 2% of my equity per trade or less. In the above example waiting for the break that did not come saved me basically 2%.

As we look forward to the end of the week, it might just work out that President Intern winds up "causing" the next decline. I do not for a second think this idiot has anything to do with what happens other than maybe causing a brief spike here or there when he does something that is more destructive than what he typically does. The markets are lining up in my world for a Friday short if we hold up until then, and if that happens he will be blamed for the new spending he proposes etc.. The real reason for a decline if we get it is apparent on the chart above.

You can see via the purple line, the market is actually undergoing distribution not accumulation on this rally. We are very close to the lows in that indicator to where we were when price was much lower, and on the rebound we have not rallied much in accumulation. You can also see my Synthetic COT not moving at all upward, indicating no big player buying taking place. When I combine these two things they tell me to look south and that has nothing to do with some political speech. As much as it is clear to my readers that I think this guy is the biggest mistake in history, I do not believe he will be to blame for a sell off if it comes at the end of the week. The market is in a downtrend and it is bouncing, sell the rallies and forget the chatter. However, keep in mind the idiot in chief is good for business ( ours anyway ), so he ain't all bad.

Here is the Lean Hogs market, one I have been sitting on looking for a buy entry, which I still do not see. You can clearly see we are at the time of the year for a seasonal rally, but price is not cooperating yet. For my taste we are going to have to at the very least break this down trend before I will be taking any longs unless some type of trap pattern sets up which I do not see on the horizon yet. Nonetheless, this market is on my radar for longs.

The last chart for today is that of Copper. I know Larry Williams in his weekly video was bullish on this market, but I see a sell signal when I look at the chart if yesterdays low gets taken out. If you are long I would imagine that is where your stop is anyway. As with all my setups, they require movement in the desired direction before a fill. This is not a sell at the market situation, mine NEVER are that.

The markets are very quiet pre-open today, so it appears the world waits for the speech we know is going to be a big let down. Let's guess, new spending programs to support Unions? For you wacky liberals who like to run your mouths without thinking, infrastructure spending is just a big union subsidy program. If you disagree, study the words prevailing wage, those are what are required on these projects, in other words union workers. So we overpay to get these infrastructure projects done just to get votes, wonderful. As I have stated in here, and it is becoming abundantly clear now, it is time to pick a side. You are either for personal accountability and responsibility, or you are for entitlements, it is really that simple. Just listening to the rage in people from unions who lash out at those of us who are not when we suggest that we are tired of subsidizing them, says all that is needed to be said. The fact that the thought that they might lose the ability to take our tax dollars to fund their free rides gets them violently angry, should be a wake up call, but sadly for many they are still asleep at the wheel. It is just like trading, you have to pick a side to trade on. I have to give it to this kid, he is great at marketing, but as with all front end guys, the execution is always the problem. As we know in trading, it is all about the execution not the idea.

The short term things I watch are somewhat unclear right at the moment, so I will just need to see what today brings before I will know if the sell signals I am looking for are there for Friday.

Good Trading

I'M A SOFTIE

As we stand on the verge of within a day or two almost every market having a sell entry setup, I want to focus on two markets I have talked about in here recently, Sugar and Cocoa. These were both sell setups as I pointed out. I know there was a comment about the Cocoa setup by someone being a buy setup. This is what makes markets. If we all agreed we could not trade. A day does not a trade make, but certainly if you took the Cocoa short, your stop could now be above today's high with very little risk and a potential large gain in front of you. This is what trading as about, trying to catch a large move and managing risk while doing so. Even if this market stops right here, your loss would be very small with a very large gain being possible.

On the top chart you can see I have indicated with a red arrow where I am short Sugar from. This is a market I have been talking about for a few weeks, and mentioned the other day that for the first time I felt it was ready for a short entry.

I think based on Cycles, that Sugar could be a big move, so I am going to try and ride this one, not having a short term target in the market yet, and a trailing stop where I think it needs to be ( not shown ). As I notice my blog getting more popular I have to be a bit careful about stating exactly where my orders are now in advance. I do not want some people "gaming" me on the entries and exits. There is no magic to where you enter, we all make too much of that. It is getting the direction right, then finding a place to hop on board, that will make you money in this business. Trying to find the exact entry point that is perfect, is a waste of time. Trading is nothing more than a series of probes, trying to catch momentum moves in price. The more I trade, the more convinced of that I become.

This Cocoa trade clearly broke the uptrend today, so it is my view if you trade this market the down side was where to be looking coming into today. If you are bullish, I cannot tell you where possible buy points are, perhaps above today's high, since we took out quite a few lows. If it were to reverse immediately tomorrow, that would be a trap pattern, and a legitimate long entry. I am not bullish here so that is not something I am looking at, but thought I would point it out for kicks.

I hear quite a bit of chatter about President Interns speech this week and what it might do to the markets. Who cares? You have to tune out this nonsense. I have not heard a single person who makes money trading for a living, that bases buy and sell decisions on this crap. A reporter who has never traded a stock other than on a tip from a neighbor, in which he lost 50%, is not worth listening to.

It does appear to me that the following markets appear to be a day or two away from sell signals. In no particular order, Silver, ES, Copper, the Grains, Coffee ( possibly needs more than a few days ), Crude Oil, Cotton ( now ), and several currencies. These are all based on some proprietary short term indicators that I do not who here and are not necessary for you to see anyway. There is no holy grail. We all have our own techniques and for all I know some of my readers have tools as good or better than I do. It is managing your emotions and the trades once you get in them that will separate you. You do have to have a decent base for making decisions, but once you have that focus on execution and staying the course.

It appears that the safe haven Swiss Franc is now off the can't be broken list. I have never seen a day like that in a currency ever, what a move. As has been the case historically, so it will be now, Bonds will be the most reliable safe haven if this whole ponzi scheme implodes.

This is all I have now and what I am looking at, so the next few days could be very busy. If any of these entries setup correctly for me I will show what I am doing more or less, while protecting my interest the best I can while doing so. I think some of my readers are just entering things at the market when me or some other guru calls out setups, and that is very dangerous. You have to have some trigger other than somebody else's views on things. Setups can be in place for weeks before the anticipated moves take place. Anyone reading here or anywhere else has to have their own plan for execution.

Remember even though this is a novel concept in today's world, but you are actually responsible for your own actions. It is your money, be smart about what you are doing.

Good Trading

I GUESS SUMMER IS OVER

One of my golfing buddies reminded me yesterday that summer is now over. This is the first year in my career that I can honestly say I never hit the broad side of a barn one single time on the golf course for the whole summer. I have often thought combining trading with golf was a bad idea, they must be the two most frustrating things to do on the planet. My family is thankful my trading has been better than my golf game this year. I have been playing around with my indicator and although I have not come up with any enhancements, I have determined the best way to use it. The simple view is we go by the most recent signal until we get one in the opposite direction. Keep in mind this is designed to give us daily insight into what the Commercials "might" be doing day to day. It is not a buy or sell tomorrow type of indicator. It is designed to tell us which way the power guys are positioning for the next move to be. In that regard, the above chart shows with the S&P 500, the most recent signal has been a sell, so that is the way we play until we get a buy signal. On the charts that follow you will see how this works. The level of  +15/-15 are the zones for buys and sells.

It is easy to get really bearish after a day like Friday, but we all knew we were in a downtrend, surprises if this was one, come in the direction of the trend. The short side is clearly the side of the market to be working here, how you do it is up to you.

Here is a chart of Natural Gas that shows the concept of the COT Synthetic indicator, and the the most recent signal etc.. You can see that although some were early, moves came in the direction it indicated in every instance except one, not too bad. Our last signal is still a sell here so maybe we just continue down here. However, my short term things are showing a possible buy signal now, so I am looking here. The COT Indicator is not the end all, just a tool. We are at the seasonal low spot, so it is time to look for buys here.

The Bond Market has clearly shown with the COT Indicator, that we have been in the buy zone with the most recent signal. I remarked the other day that this had curiously stayed strong recently indicating strength. For those that are still bearish here, there is a possible trap pattern in place after Friday's close. The stop is a monster, not a trade for me, but the pattern is there if Friday's low were to be taken out. Even my short term things are marginal now, although there is a possible triple divergence in them forming. I am still watching here closely, but not enthusiastically. The top here may not be at hand after all.

The Cocoa market interests me here. The most recent signal in the COT is a sell, and we have a pretty clear trend line for price at hand. On a weekly chart we are in a sell zone, and we are also close to seasonal and cyclical tops. This is one to watch for me going forward.

This chart is Wheat ( Weekly ). This market in my view is setup as a sell now. We have a rally in a downtrend and there are longer term cycles, that call for sideways to down for a couple of months. Sentiment has reached overly bullish levels, and ADX has declined sharply on this recent rally telling us it is not a trend move. I am looking for shorts in this market now.

Overall, it is time to for the most part look for shorts. We live in a risk on risk off world now. With the stock market headed back down now, it is likely most markets will follow. In this scenario, Bonds, Gold and the Swiss are likely to continue to rally. It will be interesting to see what President Intern proposes. Rumor has it there is a $5000 tax credit per new worker hired. Does anyone think it makes sense to pay someone $30,000 or more per year just to get a one time $5000 tax credit? Would you do it? I move back and forth between thinking he is really bright and doing all these things wrong intentionally to weaken us, and him just being an imbecile and having no idea the damage he is doing. One thing we need to be aware of even though we cannot trade off it alone, is that when he does all these dumb things that hurt the country, it creates long opportunities. The reason this is true is because he makes things so bad the FED has to be highly stimulative, which creates rallies. I mention this just to make sure you don't get too overly bearish. In the near term the FED is going to be able to intervene and stop big selloffs when they feel like it. There will come a time if we keep going down this road where we will be so upside down, the FED will not be able to do anything more. I sure hope we don't reach that point but I do think it is a possibility.

We have the pleasure of these goofy electronic sessions for Monday that show as bars on the chart, so Tuesday could have some action for us.

ZILCH

Now that we have the NFP report out, we have a big fat zero to digest. I think if this report did not exist nothing would be different. Anyone knows at this point that we have some serious economic issues in this country, and for that matter in virtually every country. I generally do not day trade until this report has had some time to settle down a bit. I do not even consider it at all in any trade I enter or exit that is done on a daily chart, it is just noise. Unfortunately though it does support the notions that things are not improving and there is no recovery. Anyone with a functioning brain and an IQ over 80 knew there was never a recovery in the first place and that it was BS. Onward.

We are seeing a Bond market rally so far after the release of the number, but not a huge one. We were up for the session by a decent amount before the release of the report, and the gains have extended. This is becoming now a marginal pattern at best to short, which I have not done yet. As I have stated, the seasonal and cyclical patterns are still strongly up, and I do not like going against both of those. I do it at times but do not make a regular habit of it. I need something else to back a trade against a trend this strong. The next two tables show trading around this coming holiday. The first one shows selling on the open the last day before this holiday and exiting at the first profitable opening with a $1500 stop. This tells us that is not much of a strategy and we should not have been going short today. The second table shows the results of shorting the opening the day after this holiday, with the same exit strategy. This strategy is a pretty good one by historical tendencies.

Several years ago I used to trade almost solely off things like this. I moved away from that when the pit sessions were rendered irrelevant in the Bond Market. However, I still like to look at things like this for tendencies. In this case it kept me out of trouble today, although had I been selling it would have been below the prior day's low which was not ever visited today. Nonetheless I might have been looking the wrong way. Of course the other issue is the overall seasonal tendency of stocks to decline here is kicking in, and Gold and the Swiss and Bonds are the flight to safety vehicles right now. As I have discussed here, I do not view Bonds as a bubble simply because they are where they are for fundamental reasons. The Fed, the ultimate Commercial player, is buying them in mass quantities, and it is tough to fight the Fed. That is one old adage that is very true. Governments lowering rates in bad economic times is a trait of the markets that has been in existence for decades. The Gold phenomena is a new age relationship, with no historical precedent, which is why I call that a bubble. Maybe that will be a new fundamental relationship going forward, but it is not in the data consistently over time like the Bond market yet. One simple rule in trading is go with what works until it doesn't work anymore, and that is what you should be doing with GOLD. Even though this is an abberation, it is working so go with it.

Net net, now we know that if one is going to short Bonds here it would be better to wait until the day after the holiday. It is possible we could get a trap pattern up here where we make a new high and quickly reverse, so that is what I am looking for now. If you look at the chart, one quick thing to point out that I have labeled on there, is how my COT Synthetic is showing pretty strong buying even with rising prices. This is unusual and tells me to be careful shorting here. The normal movement of that indicator is down when prices rise. When it is rising, or in this case staying high in the face of rising prices, that tells me insiders are pushing this upward not small investors.

Have a great weekend and good trading.

HE'S BAAACKKK!

After an interesting 3 day trip I am now back at the ranch and ready to get to work again. I did not miss much while I was gone, and I always have the computer by my side whenever I go anywhere anyway so I can keep an eye on things. I will never allow a road trip to cause me to miss a trade I am waiting on. I have been talking about Natural Gas as a possible long, and we are now setup nicely for a move there. You could justify being long already on that trap new low that reversed immediately. I have talked about trap patterns quite a bit here, this was a good one. If you are not long, buying a pullback here could be a good play to catch this. We have followed the seasonal pattern pretty closely here recently.

Here we have the S&P 500 soon to be renamed for the foreseeable future, the Bernanke Stock Trading Index. He is going to take this back over again in a month or two. However, before that hostile takeover, we are going to have another decline. We see now some signs of trouble. The POIV is diverging quite a bit here telling us there is not accumulation going on during this rally, it is short covering. This is no surprise, I read recently that at the lows Hedge funds had very heavy short positions on, why not squeeze them a little? I don't think we can do anything with the information on what positions hedge funds have. It is just too hard to determine what they are doing, they could be arbing all over the place, so heavy one sided situations with them may or may not mean a thing. I do not as of yet have any of my patterns setup here to enter the short side, so I am flat in this market. It is clear that the DAX is the weakest of the indexes, so arguably, that is where shorting should be done. We also are right at a good seasonal spot for a decline, and again we have followed that map pretty closely recently. Net net, look for sells in the indexes now.

Copper is the next market that it is time to look for a sell signal in. I had mentioned a couple of weeks ago I was looking for a long entry here which I played, but I am flat in this market now and looking for a sell signal. You can see that my COT Synthetic shows there was no commercial buying on this recent rally, so that tells me that now that we are approaching the seasonal sell point, that we should take sell signals. Just to restate, the COT Synthetic continues to be a work in progress, but when it is this clear I pay attention to it. There is a big divergence between price and what this is saying, that should matter. This market is very closely correlated to the stock market, so it makes sense that the seasonal and price patterns are pretty similar here.

This is the COTTON market, and one I am looking to short today. You can see I have an alert set under yesterdays low which is where my sell orders are resting. It does not appear at press time here that this one is going to trigger but you never know. This one is against what my indicator is saying, but as you can see the indicator also indicated some buys incorrectly here recently. This is why I still feel this sucker is not ready for prime time quite yet. I show it for reference, but it is obviously not the grail. I am going to spend some time on this over the holiday to try and improve it to get around this problem.

Tomorrow we have the pleasure of dealing with the No Frickin Possible ( NFP ) way this is true report that will likely move the markets sharply intra day. Overall after that I think it will quiet down and be a crappy day to trade. However, that is just an opinion and we never know what will happen. We are about to have another teachable moment where we learn how stealing from the rich will create jobs. I fear that is likely to be the catalyst to drive the markets down hard once again. I hope I have a sell signal and am short before that speech, but I will not get short just because I think that speech will have a bearish effect. Fading his speeches when he first got into office was a fantastic strategy, but it has been erratic since that time. I don't know about  the readers here, but I know that personally, if my taxes get raised I will spend less, PERIOD. I suppose it is true that if you are a billionaire that won't effect your day to day activities much. However, what these thieves overlook is that these people other than those that inherit the money, are actually pretty smart folks. In one way or another they will manage to get ahead when he tries to penalize them and that will not likely benefit the masses.

I have done nothing on the short side of the Bond market, the strong seasonal and cyclical patterns here are the fly in the ointment. I do think if we close positive for the day in Bonds they could be shorted below today's low tomorrow, and I may play there I am not sure yet.

Good Trading to everyone

THIS COMING WEEK

I am traveling for the next 3 days so no promises on posts. I hope to find time to do them but I do not know if I will be able to. Everything is basically the same as the posts for the last few days. I am looking for a Bond decline somewhere here. I feel bad here in that my mentor showed almost this same chart today, but since I have been talking about this for a couple of weeks, I was here first. I would ideally like to see another day or two up, I do not know if we will get them or not. My short term entry stuff needs that for a trade. Also, if we were to rally a little the COT Synthetic Indicator might come down some which would be better than the way it looks here. We can't always have it all so if you are aggressive you could take a shot right here. if we break down.

I am still looking for the next short trade in the indexes, but do not see anything for the next few day here. The short term trend is up, the weekly trend is down, so selling rallies against the higher time frame is generally the way to play ball.

For the most part, markets are currently in short term up trends. The one trade that could be a biggie coming is Sugar.

We have both a cyclical call for a top, not shown, and the seasonal tendency for a decline. We also have huge divergence at the highs here accompanied by a quick price reversal. If we get follow through to the down side, this is one I will be playing. I do not see a trade for Monday, but one appears to be coming.

I am also watching Natural Gas as I have mentioned for a buy, and have been flirting with Hogs on the long side. The Hogs are just one I keep coming back to even though it has some issues and it not perfect. I have had orders to buy this market a couple of times recently that were not filled.

That is all I have today, time is short and I will do my best next week to point out something if it comes up.

PLAY IT AGAIN SAM

At one point I was one of the few publicly talking about the PPT and how they manipulated the stock market. Although those in the know that taught me about this were way ahead of me on this, I was still in a minority a few years ago. Now as I listen to the speculation about Comrade Ben and his speech tomorrow the following shocking consensus is out there. The question is will he decide to raise the stock market again or not. It has become publicly accepted, and it should be the facts are there, that the FED created and maintained this whole rally. How sad is it to listen to a money manager who is going to decide to buy or sell stocks on Friday based on whether Ben says he is going to raise the market again or not?

What the hell ever happened to free markets? Have things deteriorated so badly that we can only rely on the FED printing more money to raise stock prices? Had you put me in a time machine 10 years ago and forwarded me to today I would have just never believed this. One man is going to decide whether the stock market rises or falls. I do believe long term cycles are what really determine direction, but in the short term there is no question this type of manipulation does effect magnitude. I would argue that you turn off the news and study technicals. Here is what they are telling me right here. Overall, we are without question in a down trend on both daily and weekly charts. The larger moves should then be down not up as long as this condition persists. Cycles and Seasonal patterns say it should last into the fall. On a short term basis, the real timing tools I use do not have sell signals right here. It appears the way they move that probably another week or so possibly more will have to go by before they could move into sell positions. They are closer to buys than sells right here.

Since I require the two to be in sync, that leaves me without a trade for the indexes tomorrow other than day trading them which I will do. There is no question when Ben gives his speech we will see some movement intra day. I do find it interesting that I have not really seen one suspicious buy or sell program for quite awhile now. They are trying to make a point, they want us to come begging. I don't think there is quite enough public concern over this yet for the majority to beg the FED to save the stock market yet. If we were to roll down in line with what the cycles and seasonals call for, we could get to a level where the public will cry uncle. This could very well be in the fall, when the cycles will likely generate a rally anyway without going through all the brain damage this analysis causes. That could very well be a great scenario for a big rally, QE3 coming in right at the end of October right when the seasonal low normally occurs. Who is to say? We could have the natural cycles in price pointing up along with government manipulation accelerating it in that direction. This combo could bring a very big rally.

For me I do not have an index trade for tomorrow, so that is that. Hopefully I can get my apples lined up correctly when he starts popping off, and make some money intra day. You can see in the above chart that my COT index is in limbo and it was also in limbo a year ago when QE was announced. It is no help here, onward.

I do not really have much for tomorrow. Lets look at the Dollar Index, and Rice.

The Dollar Index has completely decoupled from the stock market, and what a coincidence, that happened right when QE2 ended. This is how it should be, the stock market moves should not determine where the dollar goes, that is absurd. To be clear, there obviously is a relationship there, but it should not be tick for tick inversely the way it has been. This is a good development, but unfortunately this chart is just a mess to me. We are just consolidating in very choppy range bound action. We will break out of this at some point, and I think the boundaries I have drawn are about where the critical areas are. My strategy is likely to be wait for the break and play the first pullback, but that could change. I just do not see a trade here right at the moment.

The next chart is a thin market, Rice. If you look at the huge divergence in the POIV at the highs, it is very much like what the Aussie Dollar looked like before it plummeted recently. I think this market is a sell here and have indicated about where a break could be shorted. This is one I am watching closely.

I am still looking for a short in Bonds as I mentioned the other day, but have not shorted it yet. The strong seasonal pattern still says up but there are some divergences creeping in telling me we are going down here. The Aussie also appears to be setup for a rally as well.

Enjoy the show tomorrow.

CENTURY MARK

Before we get to today's main topic, the $100 spot that was laid on GOLD yesterday, I want to go through a few setups that are at hand. First, Sugar is now once again in play, and aggressive traders could certainly be short coming into today here. What I like about his now is the new high with the huge divergence in the POIV index, right at a time when both a seasonal decline is indicated along with a longer term cycle high is projected. We also had my COT Index spike sharply down right at the right time here. How you find your way into this trade is up to you, but this is one I have been talking about to short for a downward move. It does appear that now we may have started that move. You would have had to have been pretty sure about this to have gotten short already, but are we ever really sure? Trading is about probabilities and making money, not about being right. The older I get and the more trades I make, the more I realize this.

Here is another setup that I think is in play here, Natural Gas. I have been talked about this market for a couple of weeks saying I was looking for a long. We are still a week or two away from what would be the ideal seasonal low point, but we are close enough where in general history has begun upward moves. We have a nice clear trend line we can draw on the price chart. My COT index is not in the buy zone yet, but again we know this thing is far from perfect. There are a few other things I use that are not shown that support this trade if we were to break out from here, so this is one I am looking at.

The coux de gra was laid on the world's favorite market yesterday, following a prior day where it had also moved down heavily. In my never ending diatribe about this market, about which at times I have been admittedly dead wrong, I mentioned that we would see $100 down days once this market topped. Yesterday we saw one of those, at one point down about $110. Is this the all time high? I do not know.

It certainly could be, all of the elements are perfectly lined up for this to fall 50% or more, but they have been for a couple of years now. As I constantly say, bubbles are very difficult to time and this one has been no different. I do recall talking to a friend who is in real estate who reads here occasionally about the bubble in real estate popping, and how I caught it so perfectly. I had mentioned that in my studies I found a few things that were 4 standard deviations above the mean, which is a statistical certainty or close to it, that a big reversion will take place. If we carry that forward to this market, you may recall the comparative analysis I did with the DX in a chart the other day. It showed that at levels of 30 in a particular way of measuring this, that declines typically occurred. We were at close to 200 in that measure on the chart I showed, so more than a multiple of 6! I do not ever recall ever seeing anything anywhere near that extended in price.

The next chart shows 4 Standard Deviations on a 60 day basis and what has happened historically when we have had these levels of extension. If you look at the second chart you will see the former all time high was made at these levels. In each of these cases we had meaningful declines.

The second occurrence on this chart even though it worked, I do not consider to be valid. The reason for this is when you get extraordinarily large moves like this once the trend changes, there is a reset period required before indicators get back into "normal" mode. We had not fully recycled at that point even though had you referenced this it would have advised you correctly.

Now that I have shown just raw statistical reasons as to why a decline should occur here, lets talk about some other things surrounding this market. This is without question anecdotally, the most over hyped trade I have seen in my lifetime. The biggest issue I have with that hype is that it is based on a false premise. There is simply no consistent history of this store of value concept. It makes sense logically when it is argued, but it is not in the data, PERIOD. Times of crisis have resulted in both rallies and declines in GOLD prices over time, about an even bet.

I am sure people will come out of the woodwork with you have to buy now, this is a great buying opportunity. It strikes me as strange that most people will accept an argument based on statistics until it is applied to their favorite field of interest. When that happens they create reasons as to why it is different this time and the reversion will not apply to their market. The real estate bubble and the stock bubble of 2000 are both perfect examples of this. It was going to be a new world revolutionized by the Internet and that was why companies with no revenue should be valued in the billions. They sure aren't making anymore land is what they cried in real estate. Now it is we have this financial crisis, so Gold is a store of value. Even though we are 4 standard deviations above the mean, that means nothing because of their fundamental argument which is based on an idea and not precedent. The long term cycles still call for a January top, so we could move higher again, or that could be a right shoulder type of situation.

Folks just go look at the charts during prior crisis periods, this relationship is just not consistent. We have had a monster bull market here, and with all commodities, there are reversions. There will be one here and it appears to be under way. I am not short this market yet, I don't try to fade moves like what this one has been it is suicide. If we calm down some and get a valid retracment pattern for a short entry I will be a player here but most likely in Silver, since it has long since put it's top in. Sell the weak and buy the strong.

If you are a GOLD bug don't bother with the comments arguing this, it is a waste of time and I know I cannot convince you until the price drops to $600, so let's just move on. These are my thoughts so let's just agree to disagree. You have been right so far, I did not think price would get this far, the question now is whether or not it is has peaked. For the record, I am not sure at this point. This above discussion is based on a reversion being underway, I do not know if this is going to be the all time high or not at this point and neither does anyone else. I could care less if it is or is not the all time high, that is not what will make me money.

Good Trading

WELL WE'RE WAITING!!

One of my favorite lines out of Caddyshack. As we sit here and wait for Comrade Ben to tell us whether or not he is going to raise the stock market again or not, we have to find other things to do. It is odd that the world's most powerful man is not our President, he is the chairman of the Fed. Since everything revolves around money, with religion coming in second, this one person essentially controls the world. To think that there is not really a regulatory function with them is shocking. I guess on paper the house has some type of authority, but nothing ever happens. When they ask them questions, they get obtuse answers. When lawsuits for disclosure of their activities are filed, they simply ignore the court orders. Sound like an ever par round to me.

The above market, Copper, is giving me fits. I just cannot decide what the hell to do with this market. This market is setup fundamentally on a weekly basis to rally, we have commercials buying in an uptrend, and the small specs heavily short. Here is my problem with this trade, and I hate it when thoughts like this come into my head. This market has a strong down seasonal just about to kick in, and it is also tied very closely to the stock market. I ask myself in dark hours, why would I want to be long in a market that is very closely tied to the stock market, which I think it is going to continue down for a month or two? Also, when I add the seasonal here, this just becomes a debate. I want trades to just be automatic go now types of situations like Coffee was recently. When I start himming and hawing over things, I then have no conviction once I get in them. You have to have conviction in your trades to stay with them through thick and thin. I do not have it here. I would be playing this trade for just a few days pop, and even though that can still be alot of money in this market, I think it is best to pass. Also, yesterday when the Dow exploded higher, this barely moved up. I consider that to be a negative correlation. Copper should have risen more than 10 points yesterday, and it did not manage even half of that. We are also not seeing any real accumulation here, so even though this may move up, it is just not an obvious trade to me now.

This next chart is RB ( Unleaded Gasoline ). This is kind of the same scenario, although you can see with the purple line, we have quite a bit of accumulation going on here. The projection tool does show a small rally here. The stop is big, over $4000 so not for the faint of heart. This one is the strongest of the energies, so if you want to be long that complex this is the market to play. Once again though, we have that really bearish seasonal lurking right around the corner. Seasonals as I have stated many times, are not the gospel, but I think when we have a market that is following the seasonal pattern, we need to pay attention to it until the time it strays off the path. We should look for approximate turns as it indicates, until we see one that does not work. Since the seasonal has been " dead on balls accurate" for months here, I think we have to pass on the long and look for an upcoming short. I am against my mentor in this market, which is never a comfortable place to be given his track record, but I call them like I see them and suffer the embarrassment for being a dumb ass like a man afterwards. I may rethink that, it might be best to be a coward and hide when I make a blunder?

Here we have the worlds market, the Bernanke 500. The projection tool interestingly enough is showing about what I am looking for now, makes me wonder if I should not be looking for it now? Rarely does everything play out perfectly, and it seems when it does, we should pass on those trades because they lose! In all seriousness, we have my COT indicator down into the sell zone here and you can see how good the sells have been recently in this market. They have been "money."  Using the same logic as I just discussed with the seasonals, I heed the words of this tool until it is wrong once, then I tread more cautiously. In this case it has really been in sync with this market, so I want to trade in the direction it is telling me. It is not saying sell yet, but it appears to be setting up to move into the sell zone.

If we happen to trace out the pattern shown in red of up for a few more days here, the indicator should drop back down into the sell zone confirming we want to be short here. Time will tell if this happens, and this indicator does not always drop on rallies and rise on declines. That is my main problem with the Commercials Proxy Index that someone asked about the other day. It seems to just always rise on price declines and drop on rallies. That is not truly emulating commercial activity. Although that is what they do most of the time, they do not always do it and therefore I want something that gauges it a little better which this seems to do.

In summary, although both Copper and RB are setup very nicely fundamentally, I am passing on these longs due to the seasonal influences and what I feel is the risk on risk off nature of the stock indexes. Since I see them as setting up for another decline, I do not want to be long in markets I deem to be heavily correlated with them just to catch a few days up. This may be bad logic and it is always risky publicly stating things like I do in advance, but this is what I am doing. For those who are more aggressive traders, these two markets are setup for advances based on weekly charts.

Good Trading

SOMETIMES MARKETS DON'T LISTEN

We have all written off this market now as DOA, and it may be overall, but markets have a way of throwing us a curve ball here and there. They do not like following scripts, preferring ad libbing most of the time. I think we may have one of those scenarios now. I have been steadfast in stating that I thought the correction to this move down would be complex, and that spotting the next sell signals was going to be tricky. That does seem to be playing out now. If we look at what is going on in the above chart, there are some contradictory things. First, the Commercials are heavy buyers, the red line at the bottom. This is normally bullish, but in the indexes, the COT data has not been very accurate the last few years in spotting market moves. Nonetheless, old habits die hard and I still look at it.

Next we have the seasonal tendency to decline here for the next month and a half. We then have my synthetic COT index, which is in middle ground, not giving us a buy or a sell signal. I have mentioned the achilles heel with this indicator of mine is that it switches too early at times to the other side of the market, I have labeled a few of those situations. However, as you can see for the most part even the early reads turn out to be correct even if we have to wait a few days for them to work. Keep in mind this is a tool for determining direction, it is not an entry technique. As a result, I don't consider the early signals problematic, because there are no entries in those until after a few days anyway. If you just use trend lines for confirmation, these readings have not been wrong much. Here at this moment we are in middle ground telling us nothing at all. What I am looking for here is for the market to creep up here, which should drive this indicator down into the sell zone confirming the next short entry.

I have been reading that the talk of our fearless leader comrade Ben signaling QE3 is increasing, and he has the correct forum this Friday to announce it like he did last year. I don't know or care what news item might be that would coincide with a bounce. If we do bounce, and this indicator gets back down into the sell zone, we will have alot of things going for us on the short side to enter on a breakdown. We will have the seasonals, long term cycles, the trend, and my COT index all in agreement. If that happens it will be must see TV. Maybe it will not and we will just take off. If he does announce QE3 it will be interesting to see after the initial rally from it, if it sticks or not. I have my doubts it will stick, but as we saw last year, fighting the FED when they decide to raise the stock market is a losers game.

Next is every one's favorite market, GOLD. This chart is an example of why I am fascinated with this little creation of mine. If you look at how accurate it has been here, it is amazing. If you look at the COT Commercials at the bottom, it has been heavily into the sell zone the whole move up here, yet my indicator has given several buys, all that were accurate, with one sell that was wrong. This is the main reason I constructed this beast, to try and get around this tendency in big runs, for the hedging nature of the commercials to flash one false sell signal after another. The one signal that interests me the most, is the buy when the market was screaming higher already. If we get insiders buying when price is already that strong, it is time to get aboard with both hands, and look at how the move accelerated from that point forward.

I am going to plow back into the best way to use this indicator, I have not done much recent work with it. I will not reveal in here what it is, but I may decide to give it up to subscribers to my newsletter if I decided to do it again. One thing you learn in this business, is that innovations are hard to come by. The market participants are incredibly sophisticated, and they can arb out any new tool pretty quickly. This is why mechanical techniques only work for short periods of time. Some wise ass from a hedge fund will figure out some way to trade against them, and poof, they overpower it and it becomes ineffective. As a result, this is going to be my secret but I will use it here to show setup trades as I have been.

Before everyone gets worked up about my statement I am not sharing this, look at the above Natural Gas chart. Although the majority of the signals are very good, there are 3 in a row in the middle that were wrong, way off. This is what has kept me from betting the farm on this tool.  The first wrong signal could obviously be ignored since it came after a market sell off, but the next two seem to make sense other than they were incorrect. In any event, it is time for me to start spending more time with this. This is a market I have said I was looking for a long entry in. If you are really aggressive, you could be long now when yesterdays high was taken out. You have a higher short term low than the lowest low. I have not gone long yet, I am waiting for the seasonal period to kick in. Maybe I will miss the trade. Also, the COT Synthetic indicator is in middle ground not signaling in either direction.

Overall, for the next few days, I think it is the long side or risk on trade in most markets. If we rise, we will then have to see if the larger picture seasonal tendency for declines kicks back in or not. The exceptions of longs the next few days are GOLD and SILVER, do not chase these markets right here.

Good Trading

WHY DO THESE PEOPLE GET A PASS?

I am going to spray to many fields this weekend so bear with me. I hope that I give out some useful information for Monday. First, one of my favorite DA's ( Dumb Asses ) is on Fox and whose name I will withhold. He is one of the token liberals they have on almost every night. This poor kid would not know a clue if it stabbed him in the eye. He more or less represents people who will support a liberal no matter what they do, from murder to just being an idiot, he is on board. He was mentioning on Fox recently what a wonderful thing we did saving Gm and what a great success story it represents. Does the above chart look like a success story? Had you bought the IPO you are down over 30%. He mentioned stock holders were making money, really? Which ones would those be? It is not illegal to be an idiot like he is, but it is shameful to just push an agenda when people are actually hurt by it. The bond holders got wiped out and the union was given a mulligan and a half in what they did. I am sure when the IPO took place, the union raked the public over the coals with some type of internal tracking price that is still in the green, while any idiot who bought this IPO is getting rolled. Let's be honest, this business model does not work and you are a dumb ass if you have not figured that out yet. Unions charging exorbitant rates to make average products, is not a successful business model. You can loan them as much as you want, the movie ends the same way every time be it VHS, or CD. This company will just go back into bankruptcy again at some point.

The beauty of being a trader is that you know people like him are either lying or stupid, take your pick, and you can avoid being caught in frauds like GM. This is going to sound like a very harsh statement, but I am not running for office, so here it is. We should be thankful for stupid people like him, they are how we make money. If everyone was brilliant we would have quite a battle on our hands trading. Fading idiots like him is how we make money. We just need him now to get into the funeral parlor business so knowone will die.

The next thing I want to talk about is these supposed market mavens that are paraded out for us in the news. I always wonder as I listen to them whether or not I am listening to a politician who has signed on to the talking points, or whether I am listening to someone who actually is giving us an honest highly researched view on things? On Friday during my workout, I was listening to CNBC roll out these "experts" and ask them whether we should be buying here or not. They rolled out the usual suspects, whose names I will not mention. What a surprise, every single one of them was bullish.

One general rule with the stock market, and one that I hate, is that when you are under the 200 Day Moving Average you sell rallies and when you are above it you buy dips. As you can see above, we are clearly under the 200 day MA, so rallies are sells. Statistically, this gives us about a 75% edge, and that is one heckuva an edge. I am always surprised when I listen to these panels of people on the weekend that discuss the markets, some of whom have good trading records, that none of them ever reference any statistical evidence to back their positions. I guess they want the appearance fees to keep coming. My question is, if you are just wrong one time after another, as a major investment advisor, doesn't that hurt your business more than the appearance fees make up for you? Aah, there is the political aspect of things, silly me. It is better to lie to the public, to have the "administration" look favorably upon you, than it is to shoot straight with your clients. All of these advisers I heard today were bullish of course. This bias is not party biased, it does not matter whether the president is conservative or liberal.

Here is my question to these advisers, how much short selling do you do in your funds? Do any of them trade their own money? If so what are their track records? I know I am really going out on a limb here, but I bet they are long only funds across the board. Is it then surprising that they are bullish? It is no different than the short only funds who are always bearish. One of my favorite quotes was "we look at the market from a different perspective than most." Of course they do, they are getting fees for losing money while risking none of their own capital. I would have a different perspective also if I were in that position. I would walk down the street every day with cowboy boots on and nothing else flipping everyone off if I were making millions in management fees without risking anything at all! You need to listen to the people who have no agenda, who trade in both directions....... like me!

Here is the update on the VIX, we are not quite to the zone to sell the VIX. You can see the last two times we reached this level we sold off heavily. This trade is not based on an absolute value of the VIX, it is based on an oversold level of the stock market. We have not reached that level but we are getting closer. I am not going to reveal what that indicator at the bottom is so no questions or emails on that. Just suffice it so say, that once it reaches a level just a little lower, it is a sell signal for the VIX. Perhaps what we will see is a bounce up into the sell signal I am looking for in the Indexes over the next week to 10 days, then a plunge which will take us into the zone and also stocks into the seasonal buy zone in October. That would be a great buy signal if it were to play out that way.

The next market Cocoa is really setup well for a rally right here, which then should be followed by a pretty good sell signal in September.

You can see we have pretty good commercial buying here at a time when a seasonal trough is due. We also have a seasonal high then to follow in a few weeks, so this should be good two way action here. Sentiment also got pretty bearish recently at the low a week back, so we should move up some here.

Here is an updated Natural Gas chart, showing we are really getting close to a very good buying spot. In particular notice how negative the Small Speculators have gotten, selling heavily into the seasonal low point. The Commercials are also buying. We still are in a huge downtrend, so we can't get too excited just yet but this buy is close.

The Wheat market which has been rallying appears to be setup to continue to move up, although the Sentiment is getting a tad too bullish to be perfect. We do have commercials buying here, and the seasonals call for a continued rally. I am not long this market yet but am looking to get long this coming week.

As for stocks, I still am of the same posture that we bounce or go sideways into early September, and then down again. I may be wrong, but that is what I am sticking to until proven wrong. If we just crash right into September, then maybe that will be the low all the people who "look at things differently than most" are looking for. We certainly have alot going on in the world right now and it seems as though things are at a tipping point, but remember, it is tough to trade when emotion is driving the decisions. You have to set all that crap aside and look at the charts. As for the Gold market, no matter how I view that none of the things I use has been anywhere near accurate in that market, it is breaking all the rules other than the seasonal pattern. Since that has been decent and calls for higher prices now, we might as well go with that for now.

Good Trading