GOING FORWARD

I am debating exactly how to go forward with the blog. I have a few ideas of changes I am contemplating making. Please make comments about what you like and do not like about what I do here, but keep them professional. If you are a homer for something and I have posted things in the opposite direction, I don't want comments about that. I trade in two directions, so at times I will be bullish or bearish in individual markets. Please do not comment on why I am bearish on something at one point in time if you are just always bullish that market no matter what happens. What I am looking for is in general what is liked and disliked.

The above chart show something that has just come up regarding the COT data. I have learned to read this data from the two best analysts of it that exist, Larry Williams and Steve Briese. My analysis will not always be correct at times the markets move contrary to the way I analyze these reports. That is life folks, I know nothing in trading that is 100% and if I did you can damn well be sure it will never be mentioned here :).

As it is with anything else you need to look at this report objectively, what is it saying? Is it saying anything? It is typical that it does not give direction. If you look at every report with an agenda, it is worthless. If you are a perpetual bull like reader Robert, you ignore all the bearish setups and find any little wiggle to support a bullish stance. If you are a perpetual bear like others, you ignore all the bullish setups and just find one weak when sellers out numbered buyers, and proclaim it is a big sell signal. I prefer to let the report tell me what the players are doing instead of funneling them into my own view. Last week is a perfect example of this in the metals. You had some buying by the commercials in Gold, but not anywhere near enough to generate a buy signal. The buying in Silver was so small it barley moved my line yet some people proclaimed it was a huge bullish signal.

If we look at the overall trend in the above chart what do you see? What I see is the commercials generally selling and the small specs and large traders buying. I also see Open Interest rising steadily. This is a bearish setup. Yes it is true the positions of these folks did go back in the other direction this last week. If you are bullish you would say hey look at that huge buying... Please!!!!! Look at what the overall trend is and don't be a pinhead. What we want to see is significant trends in the activity of the players, not one week action. Robert who like so many drank the cool aid that millions have drank, and no matter what any report says, is bullish on Gold and thinks it will rise the next 20 years. These folks cite the recent amount of commercial buying which is not even half of the selling that has taken place. If you were watching a sporting event and one team had a 30 point lead and the other team narrowed the spread to 17, would you be convinced the team trailing was going to win? I wouldn't. 

My dad is a good person to pick on to make this point. I was talking to him the other day and he was down that Michigan had lost the first round game in the Big Ten basketball tourney. I had read the paper and saw that they won that game, so I asked him what he was talking about? Of course they were trailing apparently with 3 minutes to go so he turned off the game and missed the comeback win. He was in a negative way just looking for signs that they would lose and ignored everything else. This type of bias can really rob you of many of life's great experiences. Look at things for what they are, do not assume something is going to happen. It may happen like you think most of the time, but there are going to be times when it does not. Just because you are convinced Gold will always rise no matter what happens in life, have a plan just in the 1 in a million chance that you are wrong. I can assure you from personal experience, that I am never sure what will happen, and neither should you be.

If you are T Boone Pickens, I am sure you are so bullish on Oil now that the COT report showing there could be some trouble with that position means nothing. I my humble world I prefer to not have agendas and to lean where the data leads me. Even though I am very bearish on Gold in general for the reasons I have stated over and over in here, if we get COT data where the commercials turn into strong buyers on the next dip, I will be bullish. That will be where the data takes me. For now it takes me to the short side of Crude and Gold.

If you are a long term trader or investor, you should not be reading this blog. I am a short term trader and I play both sides of the market. There is no point at all if you are locked into one side in anything to be reading here, this is just a bunch of noise.

Good Trading

FOOLS GOLD

The topic title today was prompted by the pending legislation attempt going on in Congress to force the administration to stop lying about the unemployment numbers. Isn't it amazing now that we need legislation to enforce laws that are already in place because they ignore them? Should they be lying to us in the first place? This report is fools gold as most people know by now. Does anyone really believe that jobs are being created at this rate from their own life experiences? Are there local companies where you live in a hiring binge mode? Of course not.

I was working on my golf swing with my swing coach at Aviara Golf Academy yesterday afternoon and things were going quite well. We have reached a breakthrough point. In any relationship between teacher and student, the challenge is always how to get the points as the teacher to sink into the students noggen. It is easy when you teach someone a craft to know what it is they need to do in order to improve. It is another matter finding the right words to get the thoughts to sink in. I have always had the same problem as Tiger woods, I don't stay level on my downswing with my shoulders. I tend to drop my right shoulder back and to the right. I have pretty significant swing speed ( about 115) even for a 52 yr old, so when I come down too far on the inside with my right shoulder dropping, all sorts of wild shots happen.

Finally after we had worked on one particular idea it hit, and one pure shot after another just flew off the clubs. This is the same with our little profession here of trading. Most approaches require you to make some judgments on when to do what. After all, it is pretty easy to trade if you know which way to look. There is no sure fire way to know this that I have found, but having a bias then looking for a place to play it takes a lot of pressure off the decision making process. The chart above to me now is pretty clearly in a sell the bounce mode. We have the COT stuff clearly telling us the wrong people are bullish up here, and we also have a clear break under the most recent short term pivot point.

It is true that COT "looks" like this when the markets are in strong trends sometimes are way early. It is also true that in strong trends at times you get bear traps where there are false breaks below trend lines or support points that trick people into looking the wrong way at the worst possible time. As my golf  instructor said to me after I hit a drive that we figured flew in the air a bit over 300 yards, take 9 of those a round and 5 misses that are in play, and you are in business. The point being, take the play that is good most of the time and realize that not all of them will work out. I know that even though setups like what we have here can just be continuation patterns where the market just flies right back up, the odds favor that not happening here.

What I would really like to see is the market just stay right here and give us this small range that we can sell below on Monday. If we were to start going on the down side today and form an outside bar today, I will have to take at least a partial position and then try to add to it next week. In our world where everything looks the same, we have the next chart, GOLD.

We are in the sell zone here, so it is just a question of how to enter the trades. Ideally we would bounce a bit more than this, but at times we don't always get what we want. I am not going to show exactly how I enter trades here until after I get in them because that is something I should charge for. I think situations like this are tough. You are damned if you do and damned if you don't. We have a very good setup for a sell so I don't want to miss it. At the same time I don't want to piss away a bunch of money foolishly just swinging at this. I tend to take a smaller than normal initial position in situations like this, then try and add to it. In any event, this is a very well setup market fundamentally for a decline. The COT picture speaks for itself.

When you see a dramatic rise in Open Interest like this and it is almost completely driven by small speculator buying, that is a textbook Larry Williams sell situation. What you do with that is up to you.

As I sign off it is looking like next Monday is going to be a great day to short some things. Have a nice weekend. Thanks for reading, this week was my biggest week ever for traffic here according to the stats.

FIRST MESSENGER IN THE ROOM

Depending on what your trading techniques are you may at times have potential buy and sell signals at basically the same time. From a COT analysis perspective, this will never be the case, but at times I trade daily trades that go completely against the COT setups. COT setups are bigger picture fundamental situations that often take time to develop into shorter term trading opportunities. In the case of the above chart, we can see that based on COT analysis, this is a pretty darn good sell setup. This does not mean that I won't take buy signals, if my short term tools which have nothing to do with the COT data setup nicely for a buy.

One of the techniques that Larry Williams taught at a seminar a couple of years ago presented the possibility of buy one day sell the next then buy the next after that. Rarely would it ever happen but the way the technique worked it was certainly possible this type of action could follow. When asked how to determine whether to buy or sell he simply said you listen to the first messenger that comes into the room. In other words, let's not choose sides, just play the signals as they come along without prejudice. In actual practice, this is easier said than done, and I am guilty of not being able to consistently do that. At times I am glad I am this way and at other times I wish I could just relax and do that.

I do know that for the most part when I inject arbitrary opinions on things into trade biases I trade worse than when I don't do it. Here is an example. Many years ago I was sold on the merits of reversal bars, so I really sought them out when entering trades without doing as much research on my own as I should have on how effective they actually are. I had a very bad experience with this type of trading. I did not lose much money, but it was just awfully inconsistent. I would make good money then constantly give it back. I developed an absolute hatred for reversal bars from that. To this day I still find myself hesitant at times to take trades on days following reversal bars. I have emotional baggage there. In reality, I don't think the type of bar means much at all. I have studied entering above and below outside bars, inside bars, reversal bars, doji bars, you name it. I have not found any of them to really have an advantage over the others. There are some intricacies that I have found, but I am going to keep those to myself.

If you find yourself having an aversion to doing something, research it to see if in fact that aversion is based on facts or is just some phobia or misnomer. You may find it is justified and you may not. Act accordingly depending on what you find. As this discussion pertains to the above situation, I am looking for sell signals next. They have not yet setup correctly. If in the process of that setup we rally if significantly, I might well find the next messenger in the room is a buy signal. If that happens, that is how I will play it, I will take the buys.

In spite of the COT sell setup here, I know I have to keep in mind that in strong trends we often get COT setups against the direction of the trend like this that are invalid. This is why I require shorter term patterns to pull me into the trades. There are several sell setups including Gold, Energy, and stock indexes here. I think Sugar might even be working into a selling situation but it is too soon to tell there. I also think the currencies are sells, so basically bounces across the board are potentially working into sell signals for me. Most of these are also supported by COT setups on the weekly charts which is always a nice bonus.

Here is a market I am just unsure about, the 10 Year Notes.

Overall the trend is still up but this market has just been a chop fest for several months in a row now. The 30 Year looks much worse. I don't like the divergence in POIV here in terms of potential longs, that is a pretty significant negative divergence. At the same time, I see nothing at all in the COT data that waters my lawn, so I am just not sure which way to play this, so I won't play it at all.

Net net looking for mostly sells and laying in wait for them. I want to "let the game come to me." I hate that phrase but just wanted to coin it once in public to mock those who use it constantly. What exactly are you supposed to do, stand outside the 3 point line and wait for the ball to roll right to you so you can chuck one up?

On a more somber note, I just found out recently that another one of my wonderful Saint Bernard's has a terminal disease. Any good karma that any readers can send upward would be appreciated. This poor guy has been through so much, just got into good health with our help, then he receives this terrible blow. He is not even 4 years old and this has just been devastating to me. I deserve to go before he does, he is the sweetest dog of all the ones that we have ever rescued, and deserves a longer life than what he is going to have. I will make sure to give him all the love I have to give for as long as he hangs in there, and I would ask that all of you try and do the same to someone who matters to you. I have decided that I am going to write a book about our experiences rescuing animals. I know the moment I heard the news I had never felt worse, and I know others have moments in their lives like that. I am hoping that writing about it will help others realize they are not alone in their darkest moments.

Sorry to bring the mood down, but I inject a part of me into doing this every day and this is very much a part of who I am.

WHICH GEORGE ARE YOU?

According to readers comments, the story is out on this so lets dissect this a bit now. The one thing I don't like about the blog if I had to pick one is that everyone has the same name when they post comments, Anonymous! It is like dealing with George Foreman's kids, they all are called George. One of my George's has assured me this is loose on the web now, so I will talk about it.

What this chart shows is the net position of the Commercials in the Eurodollar market offset 52 bars. In other words the last bar has the net commercial position just in gross contracts, from one year ago. What this is telling us is that the net position in a different market will tell us what will happen in one year in the US stock market. This is why I have said all along that this makes no sense at all. However, you certainly cannot argue with how accurate this has been.

Here is the real problem when you stumble onto things like this. It is my view that something you find that helps you predict something else, has to make conceptual sense in it's relationship. For example if you see the Lakers lost to the Celtics, and Live Cattle declined the next day every time that happened, that makes no conceptual sense. No matter how long it has worked, it should not be predictive and therefore will stop working at some point since it is basically a highly improbable random intersection of data points. We could certainly argue that there is a relationship between the US stock market and the Eurodollar at the moment. We could even argue that it is a very tight relationship due to the instability of the economic situation over there and how it is effecting things here. However, what is hard to argue is why the net commercial activity in the futures market today would determine almost to the day what happens in the US stock market one year from now.

This is why I have been hesitant to put much weight in this forecast in spite of how incredibly accurate it has been. This is going to derail here at some point just because it makes no conceptual sense. Perhaps there is a better way of studying the Euro and how it relates to us here that would work better. I am not bothering with that but some of you may want to. For the time being we have what we have with this, a decline into a June low, with a rally to last through the end of the year to follow. It will be very interesting to see if that takes place.

Yesterday was certainly interesting in that many of the near term pivot points in many different markets gave way. Here is one market the Aussie that looks like many others. You can see the good COT setup, and now we have price breaking the last significant pivot. In my world this is a sell the bounce, so that is what I am looking to do in the next few days.

You can see that right about when we made the first high in the trading range at the top, the COT stuff went into sell mode, yet we are not just breaking. How you use this is up to you, I like to use it just as a directional bias.

POOF!

A QUANDRY IS DEVELOPING

As we sit on what appears to be another incredible call by the mystery forecast for a high on 3/2, we face a big problem going forward. I have to admit in all my years of trading I have never come across anything like this. This has been dead on balls accurate for so long now, there is absolutely no way to not put it at the forefront of my trading. As I have mentioned earlier, this forecast measures things about the Eurodollar, although in a very unconventional way. I will at some point reveal exactly what this is once the word gets out. It is not my creation as I have stated, so once the creator goes public with it, I will explain what this is. It really does not matter, it makes no sense at all to me. Once readers know what it is they will also reject it as being ludicrous.

However, as we see it peg almost to the day one market turn after another, I face a big dilemma in June. This calls for a significant low to form and a rally that will last through the end of the year to begin. This is in almost direct opposition to Larry Williams forecast, which is a big problem for me. I have seen his forecast work so well at times that it is hard for me to go against it. However, this suckers track record so far is blowing away the forecast in terms of how accurately it has picked the turns. At times his forecast just picks turns, so there could be an inversion meaning that a high can be a low if we decline into it, so maybe that is how this will be resolved. For now that is 3 months off so there is plenty of time to armchair quarterback that play call.

I would love to tell you I am short the indexes, but I am not. I have had my ass handed to me over the years trying to short breakdowns in running markets like this has been, so I have not done it yet. I do think now in many markets, that the bounces from here are shorting opportunities since we have broken below the most recent pivots in most places now. The way markets have traded recently, they may just roll over here with no bounce. We have seen one V top or bottom after another. I recently went through many of my bad trades last year, and found one thing after another that they had in common, they were against the trends. That is not a surprise since I do try and get a bit cute at times doing this, but I was surprised at how the charts looked at the times I did the trades. Had these trades been done by a student of mine, I would have scolded him to no end, so I get no hall pass either.

No matter how fancy anything you use is, there is one thing I always find in common to any trading style when I go back and see where it bought and sold. The best trades and biggest wins are always with the trend of the market. Yes there are exceptions here and there, but the question is do you want to be consistent, of just swing for the fence over and over and hope you finally connect on one? That answer is an easy one for me, and it is why I am not short the indexes yet. The next chart just shows something very basic that I am sure most people already get, but I can tell you this is very valuable to keep in mind.

If you just keep an eye on the most recent pivots that precede that last new high or new low, you will stay on the right side of the trend most of the time. You can see here now for the first time, we have penetrated the last pivot low that was formed prior to the highest high. This is a short term trend change, and now I will be looking to short rallies. It is true that when markets get choppy, these levels can get violated and not mean as much, but there is no holy grail. If you keep this type of thing in mind, you will have the wind at your back most of the time. It is for this reason that I have not shorted this market yet, but now I am looking.

Good Trading

IT JUST DOESN'T GET ANY BETTER THAN THIS

I can scroll charts going back as many years as I want to and I will never find a better setup than what we have going on here in Gold. We have a double top, with the Commercials strongly defending that level by heavy selling. We have the Small Specs incredibly bullish. We have Open Interest skyrocketing and all due to small fry buying not big boy buying. We are at a seasonal period where a decline typically occurs. We have a 4 year cycle due right about here. We had a trend break last week and now we are forming a short term retracement.

Folks, they don't cook em any better than this for a good sized decline. Will it be the bubble bursting decline, or just a tradeable move down? I have no idea, and do not care. If it does get going on the down side, we know that this long trade is full of uneducated individual investors who have been sold a bill of goods. The exits will be incredibly crowded at some point in this market when it crashes, and I just hope that I am short when that happens. I do not know where that point is where the people who are trapped in a bad trade will realize it and run for cover. I suspect it is quite a bit below current levels, so it is not really an issue to worry about at this point. Gold bugs, don't bother with the attacks on this, the comments won't get posted. I am tired of the skit of going back and forth with you folks, and won't engage in it anymore. If you don't like my views, don't read them. Go get a room with G Gordon Liddy, I hear he is a good kisser.

I was amazed how long the people in Real Estate were able to keep it from falling off a cliff before it finally did. If you recall it kind of stalled for about a year and a half, then fell off a cliff. This situation is identical to that except I think it is even more over done on the up side. I am looking for sell signals here obviously.

The above chart is the ES. In situations like this where the Commercials are pegged in the sell zone all the way up, this is not considered to be a bearish situation. Here we have the Large Specs driving the trend, with a big long position. This is normal. Commercials by their nature are hedgers, so when you see their first attempt at selling fails, and they maintain shorts, the ensuing sell signals are to be ignored. It is true the Russell is far weaker than this, but when I see two of the three major indexes sailing along like this, I ignore the sells in the one that is weaker. I did learn from a friend who is never right, that you should always play the laggards because they "catch up." I would suggest doing the research yourself, but to give you a hint, that could not be more wrong.

No sells for me here at this point even though I have mentioned my concerns about these markets at these levels. There is a pretty good sell in terms of COT stuff for Sugar right here but the daily price action is still in a bull phase, so I don't see anything immediate there it is just something to watch this week.

Good Trading

A TIME TO SELL?

Here is a prior example of a top that somewhat came out of the blue to many and does resemble fairly closely what we have going on now. I will fast forward to today on the next chart to show where we are in a minute. Larry Williams created the Large Trader Proxy Index, which is designed to show us on a daily basis what the Large Specs are doing at any given moment. The COT report comes out once a week, so there is a lag effect to that. This is a work around for that problem. We know that the large traders are the trend accelerators since they buy and sell based on momentum. The commercials being hedgers are most often opposite the trend at hand. They help us with reversals, where Large Traders help us with timing the entries on reversals. Once they shift their activity, we know the momentum in the markets is likely to change.

In the above example, you can see where they broke down on the long side before price made it's big drop. This is unusual, and in this case was a particularly bearish situation. This is rare, and I do not expect to see it now. However, surprisingly, we are on the verge of it happening again. It has not happened yet but you can see the lines are right together now. If we were to get a short move down of a couple of days, then a high retest, it could resemble what happened in 2010.

As I watch this run continue to unfold several thoughts enter my mind. Some of these have nothing to do with trading or how I will trade this market, but I feel like mentioning them so I will. First, at this point we have nothing at all that says to sell. As I have stated and I will repeat it, this move in the Naz is the single greatest bull move in history in that market in my view. This is not based on magnitude where it clearly is not, but based on the internals and the ADX specifically. It reached it's highest reading ever a couple of weeks ago, and we have not even slowed down one bit. The recovery talk is interesting. Are we really recovering, or not? I really do not know. When you look at the light volume of these moves in the last few years, and how they have just continued ever upward, it seems very unnatural to me.

The stock indexes trade light pork bellies and other low volume thin commodities markets. This makes no sense to me at all. I think there is no doubt that government intervention is going on and explains some of this. However, I have not seen the obvious PPT buy programs recently that we saw a few years back when we were climbing like this. As a result, if they are manipulating this, I do not know exactly how they are doing it. We certainly know the FED is basically running the world right now, and just continually printing money to solve every little problem, will eventually create a problem so big it cannot be solved. The when of that event is unknown. We will all know it when we see it begin, it will look like Gold did the other day when it starts. I think it will be bigger than the last one because of the bubble that is being built once again. We have not solved any of the core problems, and many such as government spending and debt are soaring out of control.

All of this leads me to this. No matter what techniques you use, there must be a trend component to them. One of the main tools I use has been diverging in subtle fashion for quite some time now in the stock indexes. In many market situations, all of those sells would have worked like a charm on the short side. I have not taken any sells just because I can see how strong the trend in price is. I don't care what squiggly line tells me what, when I see bar patterns like this, it is just all higher highs and higher lows. That is not a sell. If the top is made like Gold the other day, where just out of the blue we get a huge meltdown, I will miss it. Trades are so easy to see when we look at the left side of a chart, they are much harder on the right side. In other words, the left side shows us what happened afterward, whereas the right side shows the current bar only.

I have no magic answer as to how to incorporate trend into what you do, but the one tool I have shown here is one such way of doing so. It is "late" most of the time. Trying to be early has generally been expensive for me in my trading career. The further right you can trade, the better you will do. I would like to trade the short side of this market from a lower price level, more to the right than where we currently are. That means that the market structure needs to turn down indicating a trend shift first. I am tempted to leg into a short position up here, and build it for a bit, but I am worried that we could just blast off from here again. Fighting trends is a losing battle for me, so I prefer not to engage in it.

I mentioned yesterday that I would discuss the Aussie today as well. Since the stock indexes and the Aussie are so closely intertwined, I think they are the same trade basically. The one difference is that the Aussie has crossed below it's line with the Large Traders, so it could be argued to be weaker.

Have a nice weekend

SCOREBOARD

Alas my sidekick Roberts Gold Show was pulled off the air quickly for being too grossly inaccurate. When you make bold predictions publicly you have to be prepared to eat crow. I have done so on many occasions, but this is not going to be one of them. He had proclaimed Gold would be much higher when I returned and the Gold market absolutely crashed while I was gone. If anyone who read my post Sunday before I left does not think the COT report has any value, I would suggest you stop trading and go find something else to do. For those who know how to read it like I do, it obviously as per the above chart and that of the next one I will show, is of great value in determining where to look. His mistake should be a lesson for us all. He was so blinded by an idealistic view that he ignored the facts. All of us have done this before in our lives, and it is something as traders we have to be constantly aware of. Just because I think Barry is the worst thing that has ever happened to the world, does not mean I just run out and short the stock market.

Readers know that I did not mention the Small Specs and what they were doing until Sunday. Lessons like this with anything would normally carry a huge price as a trading course, I charged nothing. Now that we likely have a top that is in, we need to aggressively short any bounces here. This has happened right at the right time, with the right fundamentals. Setups for a big move do not get any better than this one. Could the market still rise, of course, nothing is 100% guaranteed. However, with the tools I use, I have rarely seen a combination of things better than this hitting all at the same time. For those who are COT detractors, go read somewhere else I have had my fill of comments opposing it, and they will be blocked going forward in the comments portions of the blog. I offer these remarks to help people learn how to use this to make money. I you want to be a dumb ass with your head in the sand, there are plenty of other beautiful beaches to go to.

The single biggest lesson we need to all learn, is that when the wrong people are looking in a certain direction in mass, and the right people are looking the opposite way, we go with the right not the wrong.

Here is the chart of RB where I said even though the Small Specs were ludicrously long, it was not a sell. I will not rehash the dialogue, but you can see I was spot on here as well. I do think Heating Oil is a sell here and I did mention that recently. It has begun to come down. This is the art of using the COT stuff and incorporating it with the price action on a chart. It takes some time to get this correct, but it is obviously worth the effort.

The stock market is starting to look very interesting to me on the short side now. I will have more on that in my post tonight for Friday's action. Along with that will be the Aussie which is also a sell to me here.

Sorry to pick on you Robert but when you make comments like that you have to man up sometimes just like they show in the lite beer commercials. 

Until Tomorrow, Good Trading

THIS NEEDS TO LAST 3 DAYS

I will be traveling for the first 3 days of next week so there will not likely be any posts that are new during that time. I have appointed Robert to host the "Gold Show" while I am gone so I hope he entertains everyone. Here are a few markets worth commenting on.

There are a few things that literally jumped off the charts as being very unusual this week. First, the GOLD market. You can see that this whole recent rally has been completely driven by Small Specs. The Commercials have been heavy sellers. This is all happening at the perfect time for a seasonal decline, and also right about when the 4 year cycle is due for a top. This is really a good fundamental setup to short a market. I know there are some people who don't like the COT report. What can I say? I use it and I talk about what I do here. For those who don't like it, don't read this blog, there is certainly nothing forcing you to. Some think it is a bogus government report, yet those same people reference other government reports that support their views when arguing over who is right. You can't have it both ways. I guess the report is bogus if you don't like what it says because it conflicts with your view, yet other reports that support ones views are legitimate? It is the best thing we have, and nothing is perfect, so I will continue to use it. I do think it has some flaws in it as far as how they compile certain things, but it has continued to be pretty accurate the last few years for trading. If it is doctored it certainly is not doctored to the degree that the NFP report is where they change the formula constantly to get the results they want. I make money using it and that is what is important to me. If you think a 4 week moving average crossing over a 12 is a better tool, use that.

This is a fundamental tool that gives us general views of where the next large move should come from. It is not a great timing tool, although at times it winds up being spot on. It is mostly an alert for those of us who want to trade in the same direction as the big money, what side they are on. I do not have any setups on the daily chart unfortunately, so there is nothing for me to do here. As much as readers know how bearish on this market I am, I also am not in any hurry to throw money away fighting the short term up trend. The trend there is up, and what I look for is the daily trend to sync up with fundamentals. In this case they are disjointed, but I would go long here if I had a strong enough signal knowing these setups can be early. However, by the way I trade, I don't have any buy signals here. As a result, I will wait for this to clear up, but the big move is coming here now soon, just look back at situations like this in the past and you will see what has typically happened.

Certainly the price of Gas is a big topic right now and I can just feel the liberals lining up now wanting to outlaw trading because the speculators are causing all these price spikes. The next chart is Unleaded Gasoline, and this is Small Specs gone wild. However, it is also a situation to be careful with what this is telling us.

You can see the dramatic difference between the Commercials and the Small Specs. One is heavily selling, the other along with Large Specs, is heavily buying. In this market we have a different situation at hand than Gold which is similar to what we had with Oil a few years ago. We are in new high ground, which does not change the fundamentals, but it does change how to use this. This basically tells us that the large funds and the individual investors are driving this move. The Large Specs are the accelerators of trends. They buy on a scale in basis, the higher it goes, the more they buy. They do eventually reach a limit, and that is when huge spike tops get made. However, when we are in new high ground you almost have to ignore this type of thing. 

The last go around what happened was some large funds were given by mistake by our brilliant government, a Commercial status of unlimited position sizes. As a result they just drove and drove the price causing Commercials to capitulate and throw in the towel right at the top. We don't know if that will happen yet, so there is not a good play fading this move yet in my view. As to the charge that the Speculators are driving this, yes I would agree that is true. The question is, did the government make the same blunder it made last time to cause this? My guess is they did but I have no proof at all of that.

Net net here, in situations like this the COT report is useless. COT selling in blow off moves should be ignored.

Here is the Canadian Dollar which is one of the weakest currencies on a weekly basis. You can see we have a rally in a down trend with the Commercials selling the rally. This is generally a good setup for a decline. This currency definitely lagged the others this past week, telling us it is the weak link. I will be looking for sell signals here.

As far as other markets go, I have my MFG ( Mission From God ) on B of A, so it will be redundant. I will always be looking for sells and will take none of the buy signals there since that defeats the purpose of the mission. Also, even though I don't have sells for the indexes yet, some of the underlying things I have mentioned over the last week that bother me, are telling me to get ready for a sell signal here. I have been bullish for a long time now ( several months ), and I think time is running out here. The mystery chart has said a sell should be right about here, so lets see what happens. For this week I Just don't see any good long setups at the moment.

I did exit my Natural Gas trade for a small loss, that was a dumb trade, the trend has not turned back up there yet. That was sloppy trading on my part.

Good Trading this week

MISSION FROM GOD

When the housing crisis first started I never wanted to blame the banks. I thought it was outrageous that people making $40,000 a year were buying million dollar homes knowing they could not afford them. I still don't think it was the banks fault in most cases with this type of thing. However, this is where I am furious with the banks, and why I am announcing publicly what I intend to do about it. If a bank does not resell your loan, and keeps it in house, and rates decline by the amount they have, there is no reason why they should not refinance people with good credit and good pay histories. My current rate is 6% and I have never been late on a single mortgage payment my whole life, nada.

Think about the profit B of A has on my loan with what their cost of money is right now, it is astronomical. Since I am a good citizen and paying on time, they give me a valuation on my home that is so low, there is absolutely no way it can be refinanced. This is their way of sticking it to me because of how much money they are making keeping the servicing of this loan. They can claim they are being fair, and that since I am making my payments everything is fine. It is interesting how they tell me a 5,000 square foot house on almost 6 acres with an ocean view and full horse facilities for 5 horses, is only worth $500k. Are you frickin kidding me? Just do the math on the replacement cost of a custom home with that footage on no acreage at all. You could not build just the main house alone for anywhere near that price level. Obviously it is just a fuck you from B of A, so here is my fuck you back to them.

I am going to make 1 Million dollars shorting their stock, then I am going to send a copy of the balance in that account to the CEO telling him to fuck off, close all my accounts, and that I will never do business with them ever again. Further, once I have done that I will go on a mission from Gold #2 to get the story out. This is going to take some time, but I will update the progress periodically in here. I may damn well lose money trying it who knows. However, if I can pull it off, I think this story will make national news some day as how someone showed these assholes a thing or two.

I have always maintained like Patrick Swayze said to the bouncers in Road House, be nice until it is time not to be nice. I reached that point yesterday after getting off the phone with someone at B of A. It is now time not to be nice. The mission begins today if we break yesterdays low in the chart at the top. For those of you who may not like the language here, it is left in here to make a point. I am as mad as someone can be about this whole situation, and it is time to get nasty. If one more dead beat gets relief from the banks before a good citizen does, we should all cry bloody murder. The nice period has expired. Fortunately I have a little bit of a forum here, so hopefully this can help some people out there that need help, by bringing this to the attention of someone somewhere. All I have ever wanted to do is get a refi at a market rate. I don't want a principal reduction or anything special. I would turn down a principal reduction if it were offered. That is a burden that falls on someone else from a decision I made. I knew what I was doing when I bought this place, and I knew the value would decline since the housing bust was only about half over when I bought the place. That is not a problem at all. It is the bogus valuation they give it to use as an excuse not to help me that infuriates me. If they would tell me sorry dude you are just screwed and we don't want to help you, I would be far less angry. They get money for .25% or so and charge me 6% and tell me I am mas fina.

They gave me comps of houses of 2500 square feet and 10,000 square foot lots to justify the value. I have no false illusion about what my ranch may or may not be worth. However, does that sound like a comp to anyone reading this? Having the value be that far under just the cost to build it which would be at least $750,000 even if you valued the property and the horse barn at zero, is dishonest. This is a very nice custom home, even in this climate it would hard to find someone to build it that had any reputation, for $150 per foot. So the mission begins..... I can only hope that I might be the one who got the process started to take this monster down, alas that is way more than a long shot. However, it is time to get started. This is somewhat off topic, but it is a trade that I am doing solely for the reasons I have just detailed. Obviously the stock trades have to have some basis in technical analysis, you can't just trade out of anger.

You can see we reached the sell zone in my Kitchen Sink COT proxy indicator. I am just looking for a simple break of the up trend line to get in sync with the indicator. It may not happen, I don't expect it to today. I will spend time every single day trying to squeeze some money out of the short side of this, and will do no long side trades. It defeats the purpose of the mission. As long as I have sell signals I will take the all, none of the buys, and hope this company falls apart even though it does not appear that it will right now. I guess I am just an optimist!

DON'T GET LULLED TO SLEEP

We are experiencing an extended period of low volatility and it is very easy to get frustrated. I can tell you I am having a hard time finding many good trades to go after. I am placing a lot of orders but none of them are getting filled. I tried to go after Gold recently and it just went the opposite way. I had one trade that was a small loss, and none of the other orders have filled. I have a Natural Gas trade on that is going nowhere. I have been trying to short the Euro, and those orders are not getting filled. If you look at the above chart of Crude Oil, normally a great swinger on intra day charts, you see an EKG. That to me is not tradeable. As my dad would say would he did not like something, "That's Horseshit." When I met with my accountant yesterday to start of my tax return, we were also talking about something he obviously thought was annoying. He said "That's Horseshit!" Maybe it is just me but I think that just sounds funny. Maybe it is a generational comedy type of thing, but it makes me laugh just to think it especially since on my ranch I am knee dip in it at times.

One of the basic premises I have discussed before here is that markets go down when the buying stops not when the selling starts. Selling accelerates moves once they start, but short sellers can't stop an up trend on their own. We have reached such a high level in such a short time in stocks, even grandma knows we are extremely overbought. This does not really mean much. It certainly does not mean we have to come crashing down. During very strong runs, markets can remain overbought for months at a time. An overbought condition in an down trend is bearish, but in an up trend it is not. It might very well be that the big houses are afraid to commit new money to this move without some type of pull back. It is just eerily quiet. This will not last.

It is easy to lose focus during times like this, but you cannot. Go through your daily routine whatever it might be. If you log potential trades like I do, then go back and look at each one to see if it makes the cut, keep doing it. Look at each chart. I have made the mistake of thinking "I know what that chart looks like I don't need to go look at it again" and wound up missing good trades. Do not get lulled into being lazy. I show a tendency for Bonds to move up here, so I am trying to find ways into day trades on the long side of that market. I am keeping my focus on that to stay in the game. I do have orders placed to short the Euro today, but those orders do not appear to be anywhere near where price is going to trade today.

One other thing I suggest is do research studying either the way you trade, or other potential new ideas. Keep your head in the game. We will likely have some good sized moves coming soon and you don't want to miss them. I do not anticipate a big move down in stocks at this point, but I did lay out a few big picture concerns that I have that are at some point going to matter. It is likely at some point this year we are going to have a pretty good sized decline. The FED is doing their part being good political citizens keeping rates low during an election year, which should help keep stocks relatively strong.

I have traded some emails with readers about some trading systems some of you are using/developing. Some of them seem to be doing quite well and that is fantastic. New readers may not know my history with trading systems, but in brief I used to be a huge proponent of them. USED TO BE. The one thing I finally came to grips with was that they all blow up eventually. This is too long of a discussion as to why this happens, it will probably be something I write about if I ever publish a book. The best way to use them is to have them give you a bias, then assuming the method is not overly curve fit to past data, you can reliably take trades in the direction it indicates. I would if I were using one, try to make it as simple as possible. The more variables it has the less likely it is to work over time.

Here is a good example of what is so typical of trading systems. This is just one old pattern that worked for years in Bonds. You can see that it had no losses then all of the sudden it not only had one, but it was a whopper. This does not necessarily mean that this is no good anymore, but it is an early warning sign that things have changed. If you start seeing more losses and those losses are larger than normal, it is time to be very careful with your system. I have saved myself countless dollars by seeing this early and pulling the plug on things over the years.

This is a very basic example and has a low number of trades, but you should be able to get the point. Something this good should not take a loss like that. It could take a loss and be fine, but not one of that size. It certainly appears that I missed a good long opportunity in GOLD and SILVER by trying to short those markets. Here is a point that ties into what I was just talking about. My methods did not have buy signals, they only had sells. Had they only had buys and not sells, I would have gone long. My method did not catch this trade unfortunately. Nothing is going to be correct all the time that I know of, so I accept that albeit it grudgingly, and move on.

That is all for today.

CENTURY MARK

100,000

Yesterday I hit a milestone, the traffic in the blog passed 100,000 visitors. This was just in total not one day like I am sure many of the other blogs routinely bypass. I am a small town Midwestern boy with humble beginnings, so I guess I am easily thrilled. However since it does appear that the number of returning visitors is increasing steadily, the content must not be too bad in spite of all the Gold bugs wondering when I am finally going to get it. Speaking of that, the Gold orders I placed yesterday to short were never filled since the market took off to the up side. It appears to me now that once again Silver has taken over the weaker position from Gold, so I will try and short that market tomorrow if we break down. Today the range from yesterday is just too big to sell below in my opinion, even if it were to be breached. I am sure the people who think Gold is a buy every time a blade of grass grows are just rolling their eyes again at me trying to short this sucker. So be it. I follow my rules and they say to sell. When they say to buy, I will buy.

I am currently reading the book AMERICAN SNIPER the incredible autobiography of Navy Seal Chris Kyle. I always felt that was one potential alternate road for me that I never went down. I have no idea whether I would have made it or not, but the level of discipline required is something I definitely have in spades. This is an amazing book, I suggest reading it. This guy is what America is all about and he makes me proud to be an American.

You can see the Commercials have been steady sellers of this market recently, and Sentiment also got too bullish at the recent high. What can I say, this is a sell setup whether it works or not. One thing people can learn from this is that I stick to my guns, to my rules. They do not always work, but my track record proves they work well enough over time. I don't start jumping around every time I take a loss or miss a move. That will insure you will chase your tail your whole life. Yes minor adjustments are constantly made, that is part of adapting. However, when I see this type of thing going on it does tell me that on average, the next large move should be down. Therefore, I want to look to the short side.

PRETTY SIMPLE

The next chart looks pretty similar, and it is of the Copper trade I got stopped out of for a small gain of only $1312 per contract. You can see the setup looks very similar to that of Silver. This one looked for a while like it was going to be a big fish, but as often is the case, there is a first retracement of the new down trend. We have had so many V tops and bottoms recently, that I took this thinking that we might get another one but it was not to be. This is still a sell setup on this bounce, so I am looking for another way in here.

The last chart shows something unusual that happened in the currencies. The three strongest ones broke down and the two weakest ones the Swiss and Euro held up. I don't recall ever seeing this happen before like this and I do not have an explanation. The markets are full of random activity so perhaps this is just more of that. 

We do appear to be putting in a short term top in stocks here right on schedule with the mystery forecast chart. That thing never ceases to amaze me with it's accuracy. I did mention I am looking for a way into the short side here but have not taken the plunge yet.

Good Trading

TROUBLING SIGNALS

In a world where nothing is ever perfect, I found something here far from perfect that is troubling. The pace of new highs to new lows is not keeping up with the up trend in the NAZ as indicated by the red arrow on the right side of the chart. It was doing so nicely until recently. I have also marked off the last two times recently we saw this develop on the high side, and on the far left there is a bullish divergence. You can see in all these instances, moves in the indicated direction follow. When we see things like this what they tell us is that the underlying foundation of the move is weakening. It does not take a genius to look at this chart with it's angle of ascent, to conclude this is unusual. It does take a little smarts to determine when this means we should get short.

The next chart shows a few other divergences that did not result in price moving down much. However, in all of the instances, price did move down some or sideways. There is no way to know in advance, whether or not we will get a sideways move or something bigger to the down side. If I take a short position up here I will simply establish targets and stops and see where it leads me. One thing I hope many people have learned is the danger of shorting rallies where the market just creeps higher every day. These can just drain the life right out of you along with your money. The trend is the basis of all profits, and we all have seen that recently. I would suggest studying this on your own to see what you might be able to learn from this type of situation. I could write about it all day long if I felt inclined to. At the very least this is an early warning sign to tighten up stops on longs.

Here is the makings of try #2 for me in GOLD. For the Gold bugs who read here that constantly question why I want to short this market, a picture paints a thousand words. My COT indicator is in the sell zone, and we have a pretty clear up trend in place. If we break that up trend we will have price lining up with fundamentals, that is a trade for me. It really does not get any more complicated than that. I don't care at all about any of this other arcane nonsense about why it should never decline ever again for all eternity. I also don't care about the same crap from those who tell us why it should never rise. It is just a trade no different than any other. It is setup by my tools and I will take it if it breaks down from here.

I did go back through the archives and it was at the end of December that I mentioned I was looking more long than short, so again more evidence that I trade this market just like any other in both directions. I did wind up getting long early in the year and got a nice bump up as a result. Now it is time to look the other way. My commentary of why it is a bubble is based on all the reasons I have stated previously which I will not constantly keep restating. If you want to argue with them you are going to have to go back and find them. I don't recall what days I have detailed them, but I have done it a few times. My mission here is to tell readers what I do, not to try and convert people into my views. Traders should always trade by what their tools tell them to do, not what someone else says they are doing. I have reached a point where I have finally learned the hard way, the when the masses think something, you are an absolute pariah to run against that tide. I will always state what I think but beyond that what people do with that information is beyond my control.

If you are a perpetual bull, just buy it every time I sell it. I have losing trades every month, maybe this upcoming trade will be one of those. One piece of advice that should be worth something. When you are studying things that you think will have a cause and effect on the price of something, make sure those concepts have both a logical reason why they should work, and also a history you can study. This idea that a few people have mentioned about the percentages of people that own gold etc.., is an example that has no history at all to study. Statistics are not even available today that are accurate, much less over the last 50 years. For all we know if 3% own it now that is a 50 fold increase over how many people did 10 years ago ( my bet ). That would then be incredibly bearish. It is relative levels of things not absolutes that steer many people wrong. Many people made that mistake with the VIX. This is an example of an idea that could make sense, but has no data to study. I cannot tell readers how many "great" ideas I have had over the years that should have influenced price direction, that were complete busts once I studied past history. I never fall in love with an idea, but I do at times fall in love with things such as my COT indicator above, which has a history of telling me what is going to happen next.

I just had what I thought at the time was an incredible innovation with a technical indicator I use. It was a completely different way of using it. I looked at some recent examples and found it would have kept me out of a few bad trades. I got even more excited. However, once I went back through many more examples, I found the idea was worthless. This type of thing happens all the time with me, but occasionally I find an acorn ( blind sow etc.. ). 

Good Trading