FISCAL CLIFF DEBATE DOES ANY OF THIS MATTER......YES AND NO

  

Is there a coming stock market crash as a result of this impasse in DC? One thing that is ironic is that the actions of the people in DC pushing the FED to do things is what has caused the rally in the first place from 6500 all the way up to here. Don't they have the right to knock it back down if they feel like it? What's fair is fair?

Without the Fed we would undoubtedly be well under 8k in the DOW and possibly way lower. One thing to keep in mind with all of this is the effects of no deal are not going to be immediate in terms of the taxes and all of that. The payroll tax portion will be, but after all we are looking to punish people in these "teachable moments" anyway so why not do it?

It is as times like this that you have to rely on your technical indicators and your approach to trading. The reason to use technical analysis in the first place, is to eliminate all of the subjective calls you might be tempted to make guessing at what the news would be and how the markets will react to it. I suspect the Republicans will roll over, Boehner will cry again, BO will get over and smack talk again. This is how all the others have played out so why would this be any different?

What should scare everyone is the real irony behind all of this. We are all afraid of what will happen if things were just let be. Why are we so afraid of letting life take it's natural course? All this manipulation of everything is really getting tiring. It is possible if all this stimulus and all this other crap were pulled we would fall off economically and perhaps dramatically. Shouldn't that tell us that it is what should be done? It is proof that what we have created is not real. I have no desire to see a crash of any kind, but I do think the longer we try to stop them from happening the more we guarantee they will happen. Life has cycles like waves and we have to be willing to accept this and not always try to stop the waves we don't want.

I am still leaning to the down side here but am not completely convinced either way where the stock market is going over the next week. I could make a case for either direction and I did in the weekend commentary. It is at times like this we have to stick to our tools and let the trades happen. We know not all our trades will be good, but I will be darned if I can ever figure out in advance which one's will be good and which ones will not. If I could I would obviously skip the bad ones. I am leaning toward's this being a retracement in a down trend at this moment in the Bernanke's.

There is so much gloom and doom talk and it catches all the headlines and the search engine people, but it really does you no good to think this way. If you are really negative on things put a plan in place to cover yourself, then let it go. Obsessing over which side or the other will win this DC battle is also a waste of time and energy. I am on record as saying I think raising taxes and continuing to spend irresponsibly is going to wind up being a huge mistake, but I cannot do anything about it. I tried during the election and failed. Now it is time to trade and not get tied up in this. If it results in a huge crash it does, our indicators will give us the heads up in advance if we are paying attention like we should be.

I do think overall if the stimulus is so needed to keep us from falling that is the best argument that can be made for removing it and letting us fall. If we fell we would find an equilibrium level where we could begin to build something real again, instead of all of this falsely inflated stuff that is apparently so fragile that we are scared it will fall and break!

Good Trading

Stock Market Rally or Decline Next Week

I decided to take the microphone at the Comedy and Magic Club Friday night because I knew I had a joke that would bring the house down. I started off by thanking everyone for coming and it was a pleasure for me to be here etc.. Next I just said I would like to talk about the Unemployment report and before I could even finish the second word everyone was laughing so uncontrollably loud I was not able to speak another word. I walked off the stage to a standing ovation.

First we heard all the rhetoric about how many people were put out of work due to Sandy and how unfair it would be to judge this report due to the effect that was going to have. All the weekly reports supported this contention. They showed a very large change in filings. However, something funny happened during that day between when the BLS gives the data to the officials, and it gets released. All of the sudden we now have a gangbusters report on our hand, Sandy had no effect and we added a bunch of jobs? HUH!

The best part was listening to all the liberals on CNBC who are always homing for one side of the political arena, one after another exclaiming that the report does not make sense. Of course it does not make sense the numbers are doctored. What is peculiar to me is the strategy behind this. As much as I have now become a political atheist the strategy behind all the lying that goes on is fascinating. One thing that has become very clear is the Democrats are far more skilled and intelligent than the Republicans. They out maneuver them at seemingly every possible juncture. I don't know why people assume politicians don't lie when we see one examples of it every day on both sides of the aisle. Neither side has the franchise on lying. Often the strategy is really clear but this one is escaping me.

They had a chance to let the number go back closer to where it really was and had a built in excuse that everyone would have bought, yet they did not do it. They actually even threw in a couple of footnotes that did not make any sense at all and made it blatantly obvious even to their own homers that the numbers were not correct. I have no idea why they did this, not a clue. The only thing I can come up with here is that they wanted to be able to argue that things are going well in the recovery and use that as leverage in the negotiations on the year end fiscal cliff situation. If the premise is true that BO actually has planned all along to take us over that cliff this would make sense. Once it were to happen they could let the numbers in the ensuing NFP reports go back to where they really are and argue it was caused by the House. I think this is an argument that would work so perhaps that is the strategy. Everything we were doing was great until "you" messed it up by protecting the rich people. The worst part is that a lot of people are dumb enough to believe that. I have to admit I can't even listen to the TV any more when it comes to all the political talk. I am just too disgusted with all of  it.

The take away from all of this is just completely ignore this report in the future. It is now to the point where there are so many doctored numbers in it there is no way to make any sense of it at all. I have no idea what the real numbers are but I would bet my life they are not in the same atmosphere of what is being reported. It is in every one's best interest for things to get better and I hope they do, but I don't want them to lie to us if they are not. Tell us the truth and let us deal with it we can handle it. The problem is going to be if they ever decide to report it correctly having to unwind all the fake numbers in all the subtle places they put them is going to be a mathematical nightmare.

We are at a very interesting juncture right now in the Stock Market. It you look at the weekly chart at the top you can see we have red objects on it which are sell indications, and there are green objects underneath that are buy indications. We have bounced some indicating the buys at the lows were correct and now we are into sell zones. Which is correct? Is the buy at the lows going to continue to work or is the sell now being indicated the way to play this?

That is the big question isn't it? I really wish our Euro chart and the seasonal were not in direct conflict it wold make this a lot easier. If we dial down to the daily chart below you can see where I have outlined a sideways price congestion that has formed. I am not sure which way we will break out of this, but as I have indicated I think the breakout of this in either direction will determine where we are going. Once we get clear of this I think the market will keep going in that same direction. The only possible exception to that would be if we had one bar that cleared it on the upside that was immediately reversed the next day. Those type of trap patterns often form powerful reversals. I don't think a false break down and reverse would mean a buy. There are intricacies to trap patterns and the way to trade them better fits a sell than it does a buy here.

Net net I think the next few days are really important, we are going to have a big move either way when this breaks out of this. We have the accumulation indicator flying higher here as marked. I have not found this to be particularly valuable when it looks like this so I am not giving that any weight either way. As of today I am just not sure which way this breakout is headed I can argue it from either side. One thing I won't do is come back in a few days and brag about how I told you so.

The comment below I thought was hysterical but mostly for the part I cut off. I have been getting a lot of SPAM in the comments area and this one went on to say my site looked just like his kiddie porn site! Seriously, does this really look like a porn site? I just love that! Of course I cut off the link attempt to that other site, I just thought this was a funny one for some reason. Maybe I need to spice things up a bit in this joint?

Incredible! This blog looks exactly like my old one! It's on a totally different topic but it has pretty much the same page layout and design. Great choice of colors! My blog :

Our trades have been lousy the last couple of weeks but that is part of trading. Next week should be a good one for trading, enjoy your weekend.

UNEMPLOYMENT RATE PRIMER FOR FRIDAY

Please do what is indicated above when the NFP report is released

http://www.zerohedge.com/news/2012-12-06/claims-drop-370k-beat-expectations-even-unadjusted-claims-soar-140k-one-week

The above is a link to a Zero Hedge article that explains some of the shenanigans that are going on. I love his articles other than they are often slanted to the negative side of things. There is every reason to have that view at the moment because things are not as they are being portrayed as most of us know.

I tend to be a conservative in most ways with some exceptions but my frustration with all of this is just all the lying. How in the world did we get so far off the reservation where we have to be lied to all day long every day just to attempt to further certain agendas. I have no doubt if the shoe were on the other foot the lies would still be forth coming. I do think the plan to socialize us that is now in over drive is going to wreck this place and I have to be on record now on this topic. Sometimes I just get a terrible gut feeling that just keeps coming back to me over and over and no matter how hard I try to over ride it with logic I cannot do so. This is one of those times.

I see the world through the prism of my own life which of course has it's advantages and disadvantages. Often when trying to determine where I stand on things I try to seek out the opposite viewpoint. I do this to try and see if I think there is any merit to it. Most of us gravitate to those who share our views because it serves to reinforce them. I do not think that is productive. I don't need someone else to tell me what I already believe. I want someone else to tell me why what I believe is wrong. This forces me to really think about what I believe and that is healthy. At times in my life I have changed some of my views by going through this exercise and at other times I have not.

When it comes to politics it is almost impossible to find someone who agrees with everything you do and it seems when you find them they are not candidates. I recall one of the final exam questions during my senior year in college in an economics class was "Why will a really intelligent person never become president?" The correct answer was that someone that bright would see the no win scenario that job brought with it and would be wise enough to avoid getting caught in such a situation. I am not sure being super bright is a good requisite for that job anyway. That premise seems to have held pretty true.

After considering in great detail what is going on now I feel I need to be on the record just one time here on my views on this. The main reason I am doing this is because it does relate to what our opportunities as traders are going to be.

After stating this I will move on and not dwell on this again. I think what is being lost in all of the debate about the fiscal cliff and which side is right or wrong, is something far more important that is incredibly dangerous and ought to scare just about everyone. We are a collection of people with very diverse views on how things as a whole should be handled. The whole spirit of democracy is that the collective will of the people determines a fair and evenly balanced way of going about running things. This should never go so far in one direction where one agenda controls the country. We have seen how wrong things go in other countries when this has happened. We have checks and balances built in so that this does not happen and that was due to the brilliance of the founding fathers. Their insights into basic human psyche were amazing if you think about how long ago they had them and how accurate some of the now chilling quotes are.

If we set aside all the basic little squabbles about class warfare, taxes, social services etc what we have left is a basic philosophy of what should happen. If you think about basic strategy in wars, one of the best tactics is to create a diversion that occupies the enemy while you are executing your real plan to win behind the opponents back. This is what is happening right now which is very worrisome to me. On the surface you have all of this bickering over the fiscal cliff/debt situation while in the back ground a couple of much more important things are going on.

First, the move in the US Senate to eliminate the filibuster and change things to a mere majority vote to pass legislation. Second, the push to usurp from Congress their constitutionally mandated control over expenditures. Both of these are incredibly dangerous and if both take place we will on some level have what is almost a dictatorship in place. Regardless of what side you are on this is incredibly dangerous. It will result in whatever party happens to have control at any given time just doing whatever they want, regardless of what the will of the people is. You may be thrilled right now if you are left leaning because it will result in you getting all of the things you want. How would you feel if it were reversed? It will be at some point in the future and you will not want the other party to be able to completely change everything without any say in it. Be careful what you wish for.

Neither of those situations is going to be any good for this country that is one thing I am absolutely sure of. All the power they are trying to get into just one persons hands is so incredibly dangerous no matter who that one person is. I can assure you that it is not just rhetoric that people are going to cut back on hiring due to Obamacare. In my business I have purposely done a couple of things as a direct result of the tax increases and the health care stuff. First, I formed my company in a state other than where I live and did it legitimately with a partner who was always going to be in my business with me. California lost some revenue due to this, screw them. If they are going to penalize me I won't argue I will just leave and direct the revenue somewhere else. OF COURSE! Any prudent business person would do this and will do this. They are going to lose a lot of the people they are going to try and tax to death and then where are they going to be? Are they going to raise taxes on the DMV workers at that point?

Second, I will always have any additional staff be done in a way that has it out sourced where I don't have to cover these smothering expenses that will jeopardize my business and it's viability. OF COURSE! Any prudent business person would do this. People that run successful businesses did not become successful by allowing others to dictate to them what they will do. They are successful because they know what to do in order to make profits. If costs rise they don't expand they contract. No spin from any arm chair quarterback who is an analyst and has never run a business of any kind will change that. Oh wait lets get another higher ed teacher to come on and explain how all of this will help us. Ughh!

I don't think anyone regardless of political party is really excited about having their taxes go way up and everyone will be scrambling to find write offs to avoid paying more. The question will soon become, who will ultimately pay for all of this? The answer is all of us. There is talk in California of raising the state income tax to 14%. Who will stay here that does not have to? I think what is missed in all of this is that people will just blindly accept poor decisions imposed upon them. I for one do not just blindly accept bad things, I fight with all I have to get through tough times. When PFG stole so much of my money I was determined not to let that ruin my life and found ways to survive, barely. This is what good business people do, find ways to survive. That will rarely wind up being them following what a politician tells them they should do.

There is no way that continuing to spend without any limitations on the increasing debt will have a good outcome. I am sure at this point we are going to have another substantial economic melt down as a result of this and it will provide a huge opportunity to make money if we can position ourselves on the short side at the right time. I wrote about the general environment that I think we are operating in and what it will mean in my newsletter last month, so I am going to leave that out of this post. 

In summary I just wanted to be on the record as predicting that the current over haul of our whole way of life here in the US is going to cause huge problems in the not too distant future, so be on the lookout for things to change and be ready. Raising all of these costs on businesses is not going to result in a booming economy or even one that is going to recover in any meaningful way. Business people are smarter than politicians and in the end will not allow themselves to be forced into bankruptcy just to pander to some political agenda. They will move their businesses to places that are friendly to them and away from places that are not.This will not result in job growth no matter what goofy third rate metric they apply to the data in the NFP report to show how everything is getting so much better. IT IS NOT.

The NFP report Friday will be a completely bogus number adjusted in some insulting way to show something that it is not true. I would suggest completely ignoring it for both trading and economic analysis. It has been rendered meaningless. Regardless of which way it moves it is not worth paying attention to anymore. It may move the markets but there is no way to guess what will happen on these types of things so I don't try.

TRADING SERVICES

I am getting the sense of restlessness right now from emails and phone calls and I need to make a couple of points.

First, I have stated over and over and over and it needs to be understood. The Bond System is going to have periods where it loses money. There is no system that will ever be created that will never take losses. If there is one that never loses whether it be from me or someone else, you will never get access to it. If you happen to either skip some of the trades, miss some due to work, miss some due to waiting for the perfect time to start etc.. you are going to under perform the system. That is on you if you do that. If you happen to choose a time to start after watching for a while you may choose a time when losses take place. That is on you if you do that. If you choose to trade multiple contracts on some trades and not on others and pick the wrong ones to load up on and take a loss, that is on you.

A trading system mechanically indicates trades and some are good and others are not. We are going through a period where we are taking some losses now, but still have not had a month that has lost money. People this is absolutely phenomenal. I know we have a different level of environment in here that is very open and that is the way it will always be. However, I can't help taking losses. I have periods where I lose money trading just like everyone else does. We use a moving average of equity to determine when a system has passed into a period where it needs to be given a time out.This will be what we use to determine if and when the system has had a draw down that is out of the norm. How many services out there can say that? I would wager NONE!

I take these trades also so when you lose so do I and I always feel worse when a client takes a loss than when I do. We have had some learning curve issues on my end with the Swing Trades in what can and cannot be done with them, the most recent being the stop change that not everyone got in time which caused a change in the orders going forward. I think we are now where we need to be with using limit orders to protect bad fills and the modification for outside bars that is now in the orders each day.

The markets are very choppy right now and in spite of that and some of these issues we are still making money so please keep that in mind.

I hope this does not come across as being too defensive it is not meant to be.

If we get an up close tomorrow we could have a good sell setup for next week in the Bernanke's as long as it is not a runaway up close in which case that trade would be off.

PFG

There was an auction yesterday to sell a lot of the things from chairs to computers to cars to you name it from the PFG/Wasendorf estate. There is no tally yet from the sales but by the time they take out all the Corleone's for everyone I doubt much will be left for us. I could not bring myself to try and buy anything from that process, even though there might have been a good deal or two to be had. Hopefully they get some money from his house and condo and that office building but I don't think any of this is going to add up to much if anything for us. Net we are looking at between 50% and 60% back in the end over time and anything beyond that is going to be a miracle. If you are forex I am afraid you are going to have a 100% loss which is what I have felt all along. The judge can always ignore the law and legal precedent, but if she does not that is what is going to happen.

Good Trading and take a deep breath!

BOND TRADING SYSTEM SUMMARY

The chart above shows the trades the system has produced recently. I have left out the last few days just to protect the people who are using this from showing what is currently going on. I have had more questions asked about the Bond system than anything else, so today I am going to address all of them. The track record  for all the trades that have happened is at the end of the post by month since the August roll out.

Could you give me a longer track record so I can see how much money I need during the draw downs?

This is the question I have had asked more than any other and it is a great question that should be asked. There is a long answer to this. First, in general this system is the same as it was 10 years ago, IN GENERAL. The concept of it, the way it selects trades and manages them etc is exactly the same as it has always been. However, there are subtle little changes that I have made over the years as market conditions change that have enabled it to adapt well to the changing world we live in. For example as I explain in the web site, we used to have all sorts of gap openings in this market and there were rules specifically tailored to that situation. Now we have almost no gap openings and the ones we do have are different than the "old days." As a result the logic to trade them needs to be different now and it is.

There are other changes that have taken place that have resulted in some minor adjustments that are done each year. As a result there is no exact version that has been the same for the whole 10 years. In order to get a continuous track record I would have to take snap shots of the periods in between adjustments and that is a ponderous project that would take me a month. I don't have records of the dates I made minor changes. The track record of this system for the purposes of evaluating it as it is should be April 1 of 2012. It was the same on January 1 2012 but it was not offered or discussed at all in here until April.

A live track record means so much more than any other way of measuring a trading approach. I wish I could tell you how many systems I have created that were great in the lab that flopped live. I know prospective clients want a longer record and it is not a matter of me not wanting to give it. I felt it was important to explain this.

Last month we kind of got kicked back and forth a little and wound up with only $656 net for the month so in a sense that was a draw down since there were a couple of losing trades. I always figure draw downs on the basis of 3 consecutive losses even if they have not happened. A good system should not have more than 3 losses in a row.

How large of an account do I need to trade this?

This is an individual question that I can't completely answer but here is my attempt. If you use the 3 consecutive loss idea from the prior question and this system risks $1625 per trade you get to $4875. That is what would be the draw down if 3 straight losses of the full amount were to occur. As those you have been using it know, the losses are not always the full amount of the stop loss. Some trades are reversed before that amount is hit and we have had a few of those where the losses were very small. However, from a money management stand point a full loss should be assumed.

It is up to an individual to determine if they lost $4875 of the account balance what level of comfort they have with what would remain. I hate draw downs and trade very conservatively, so what is going to be comfortable for me may not be the same as what it is for someone else. Only you can determine what amount you need to have to begin with that if the above scenario were to happen, you would still be able to keep going.

In this wacky world we live in now I cannot give advice on this, it is up to you. The markets will be here tomorrow and so will we. If you are not sure take your time and wait until you have more. I guarantee losses will happen.

What market does it trade?

ZB the 30 Year Treasury electronic market

Does it work in the 10 Year or any other market?

No it does not

How should I determine when to add contracts?

This is also a question that is an individual decision. I like to risk no more than 2% of my account on any one trade. Due to the PFG theft of most of my money I  do not currently have the luxury of being that conservative any more. This is up to you and it depends on how much volatility you can stand. Many beginning traders have smaller stakes so this is going to fall upon you to determine your own level of comfort.

When do I place the orders?

The market opens at 5 pm CST that is the opening you will have to monitor. Orders are based on opening prices.

Do I have to be in front of a computer all day long?

No only at the opening. Once you have placed your orders you can go about your business and you are making a mistake if you death watch these trades intra day. They often swing against us or back and forth. If you are watching this you are going to add stress to your life.

What is this based on?

The $64,000 question. This is essentially a compilation of many of the techniques I have developed over the years all blended together. It would be impossible to explain even if I was willing to divulge it which I am not. For those who have been in this since I offered it and have made all the money you have made so far, I think you can understand why I am keeping this to myself.

Why are you limiting the number of subscribers isn't the Bond Market the biggest market in the world?

This is a situation I am monitoring on an ongoing basis. The single most important aspect of all of this is that the system continues to perform. If by having too many people using it the performance suffers that is not acceptable. I currently have a number in mind and that number may not be the correct one. This is a huge market and should be able to handle a lot of volume at all levels. We have had one fill already that was very suspicious so this is something I am monitoring. It is possible that one fill could have been a coincidence.

This may not look that great I am having some computer problems so I just screen captured out of the summary we just sent out. Total profit so far per contract has been $11,409 since I first offered this at the beginning of August.

If someone had told me the system would have made half this amount by now after going public I would have been ecstatic. It is one thing to trade in isolation and have your wins and losses and it is entirely another to do it out in the open like this. I have built up a good bit of credibility by doing this blog for several years and I ran the risk of pissing all that way by doing this. There is pressure on my end. I also do the trades so when they are no good I lose money too on top of taking the PR hit. Net net it is not easy to do this. I also know from my own trading that there are lots of ups and downs with trading and for those who are new to it there is a period of time it takes to get "used" to it.

In any event with all that aside, this is the best overview I can provide on this approach and what it entails. I wish I knew when it was going to have good and bad periods but I do not. Ideally one would catch a sub par period and start using it at that time for a reversion to the mean type of situation. With that type of logic now might be a good time to start since we just had the worst month of the 4 so far. However, it still made a net profit, so it is not really a draw down yet. 

I will be sending out the summary of the Swing Trades from last month. I have had my main computer go down and am working off a lap top that does not have all the correct software to create this PDF easily so it is taking me longer than it should be. I will get it done tomorrow.

Good Trading

GOLD AND SILVER UPDATE

I sent out a Twit the other day about Silver being ready to tip over and it did, and I also recently showed GOLD as being setup for a near term decline based on the COT data. I always talk about comparative strength and weakness and how you should sell the weak and buy the strong.

At this moment it is pretty clear that Gold is the weak and Silver is the strong. You can see on the chart where Silver which is overlayed on top of the Gold bars in black, has been stronger. Gold has taken out it's last pivot by quite a bit where Silver has held way above the low made on that same day. As a result shorts should be done in Gold and longs in Silver.

How you enter the trades is up to you, I am hoping we move sideways here for a few days to set up a leg down to follow. This may not happen. We are at a critical juncture in Stocks, we are either going to roll over here or have a moon shot higher. If stocks roll back up these two will come along for the ride.

This Friday we get the NFP report which probably will be anti-climactic. The numbers being reported are so far from what they really are through all the manipulation for the purposes of the election, that it is really hard to judge what is really happening with them. I think this is by design and these people are incredibly smart in what they have done. As a result I would not plan on trying to make anything at all out of what is released. If I had to lean one way I would guess they would try to move the number up a little and blame it on the hurricane. That storm was an incredible blessing for them within the tragedy that it really was in reality. It would not surprise me to see the FED show up as big ES buyers on Friday to help spin the "negotiations" but that is an opinion that is worth nothing for the purposes of trading. I still see this at the moment as a retracement of the down move that should be shorted, but if that is true we need to stop right in this area. An  upward breakout out from here could put us back in bull mode.

PFG

I was offered .41 to .42 cents on the dollar today by a bad debt buyer in New York. I think that confirms what is the most logical outcome at this moment which is about 55% to 60%. They have to make a profit so obviously they are handicapping things in that zone right now. They did tell me they are not offering anything for FOREX because the thinking on their end now is that money is going to the Seg holders which is what I have speculated would happen all along. There is nothing in the court documents yet on this so that is merely a call made based on the law and prior case precedent. If you are a Forex holder hopefully you sold your claim when there was some money that could have been had. In the end I don't think there is going to be any money coming to you unless one of these lawsuits gets somewhere and that will take years even if they are successful which I doubt. I think most people have already moved on and nobody cares about the PFG victims any more.

Good Trading

COT DATA ANALYSIS

Here is a market that is set up for a decline Lean Hogs. This is not a traditional COT setup but it is a way this can be used to help find trading opportunities. We are basically at a triple top in price or the top of a trading range, while at the same time the commercials as well as all the proxies for them are showing heavy short positions. If that was not enough we are also at a time when the seasonal favors a down move and my sentiment index is also bullish. This is a full house basically. We are against the trend defined by my bands so I guess this does not have everything if you are nit picking this.

We have the big boys defending a price level in this example so this market bears watching for entries on the short side. The seasonal patterns have very short cycles much more so than in other markets so I do not put as much weight into that aspect of this setup as I do in other markets. However, this is a pretty good setup for a short. There is not much more to say than this a picture speaks a thousand words.

We did get some weakness that crept in today in the stock market as I stated I thought we might see today. If you look at the chart we have outside bars all over the place. This is disturbing.

I have labeled the outside bars which are highlighted in green on the chart. There are 14 of these in just this short amount of time. This is an early warning that something is going on with this market. It is very odd to see this and it tells me that for whatever reason there are a lot of stops sitting above and below prior days highs and lows. As a result you should take that into account when determining where to place your stops. Whether this is funds and their cute little algorithms or something else I cannot say for sure. What we can say for sure is that is a change in market behavior and you need to always been watching for things like this.

We taught a technique for trading outside bars in the Newsletter recently and for those who read that you know that 11 of the prior 13 of these before today were profitable by what we taught. As it turned out with the open tonight now 12 of 14 of them were. This type of approach needs to be used with judgement and in conjunction with other things. Even just stand alone it is hard to beat 12 out of 14 wins with something we just taught.

I know a lot of people are enamored with trading the ES but in my view it is the hardest single market to trade just look at this crap above with the outside bars.... Aye Carumba. However, this market does drive the world right now so you need to be aware of what it is doing.

Speaking of that we have reached the infamous 11/30 date with the Eurodollar chart so we need to be looking for a decline now. Here is an interesting post at Zero Hedge on the Fed and the stock market

http://www.zerohedge.com/news/2012-12-03/time-bernanke-reevaluate-his-sworn-testimony-congress

POOF!

GOLD BUBBLE TO BURST?

Gold has not done much net in this year it has basically gone sideways. You can also see that it has strayed on and off the seasonal path along the way but has followed it pretty well the last few months. Those of you who get the Newsletter know what these markers on the screen are, we currently have some green ones and had red ones a couple of months ago.

The main thing to highlight in this chart is where I have the arrows at the bottom. Going back to the middle of this trading range the commercials moved into a heavy short position and bingo we got a big decline. A couple of months ago when we reached back up to the same price level they once again got heavily short and boom we declined. They defended that price level very well. It is clear on this chart that they are defending this price range pretty well and as a result I am looking for prices to move back down into the zone that was last defended very well. If we get buying down there which I expect, I will be looking for long positions. At the moment I see this as being in the middle of the range and not really biased either way. Perhaps it is net biased down since the commercials are maintaining their big short position. It is not as good of a sell position as it was a couple of months ago.

I do find it interesting that Gold is lagging the ES on the recent moonshot by the ES. These two markets have been so closely tied together due to the Fed's actions that this divergence is a bearish omen for Gold. I have been on record in here as calling this market a bubble. I still believe this to be true and let me explain why. It is not so much that I think this market has to come crashing down immediately. I define bubbles as inflation in asset prices that are not based on fundamentals and by that measure this clearly meets that standard. Their is no historical track record of Gold being a store of value, it has at times and others it has not. That's it, sorry to disappoint everyone. My argument is not complicated on this. It has risen as an investment class asset right along side every other asset with the exception of real estate. So far it has been different this time and perhaps it will continue to be. Maybe now it is just like AAPL stock and will just rise way up with the stock market. Maybe it will go to $50,000 and cats and dogs will be sleeping together ( Ghostbusters movie line for those who don't get that ).

The bigger picture is irrelevant to me I am a trader so I won't hold something for years anyway. So far my call on this being a bubble has been wrong, time will tell if in the end I am proven correct or not. I thought it would wind up being the only thing the whole world ever got right if it kept going up and then I stumbled upon the research on Coffee. It has been proven there are tremendous benefits to drinking Coffee every day and caffeinated being a bit better than decaf. That is certainly something a billion people have gotten right for years, so perhaps Gold will be the other one. For the time being I am leaning to the short side until we drop into that support zone. From a big picture perspective which ever way we break out of this big trading range is going to be where the debate of bubble vs no bubble will be decided. The move is going to be big when it breaks out of this range in either direction. At this point I can't handicap the move either way. Just for the record my partner Michael does not agree with my bubble view he is holding Gold for the long haul.

Time to revisit the ES chart. I think chart patterns like this one are the most difficult to trade of any that form. 

The first thing that happens in patterns like this is we get a very over sold market that gets more and more oversold every day and wears out the bottom pickers, then magically bounces. It does so on light volume and all the arm chair quarterbacks tell us it is bouncing on light volume therefore it is a sell. This could not be more wrong, I dispelled that myth in a prior post. If these guys actually traded and lost money they would take the time to study that and learn it is hog wash. As we move up on light volume again the top pickers who bought the BS from the armchair guys keep selling and keep getting run over. It is often just a slow painful drift and you see all sorts of divergences on intra-day charts that tell you it is going to stop. "Hey Joe this is it did you see that divergence in the MACD on the 5 minute chart," etcc.. I have been there and done that trust me it is a losers game trying to trade like that.

What these often work into is what we have at hand now. You can see I have an oscillator on the chart and it can be any one of a number of them, there is no magic to these things. What you see is that it has risen up to it's recent highs in momentum yet price has lagged quite a bit. This is a type of divergence but not in the traditional sense, it is more of an exhaustion pattern. I love this pattern but I will tell you it is not the easiest of patterns to trade. However, what we do have now is a condition that can lead to significant price declines. The way I trade these is I really want the market to prove to me that it is coming back down, so it is going to have to move more than just a little down to get me in. Study this on your own you may be able to find good ways of using this concept. Net net here, I do think this is now a spot to look for a selling spot.

Housekeeping

We had a lousy month last month in the trading services. I just never recovered from those weird fills on two trades that should have been great wins where we got stopped out on some suspicious price action around our stop orders. I also made a mistake that won't be made again. I was a little bit too aggressive in a couple of entries forcing a couple of trades that I should not have. This past month was pretty choppy in the markets and I was concerned we would not have enough trades to make everyone happy. Going forward this will not happen again and it may mean in some months we trade a lot less. We want profits not action.

Bond Results

Wins               3

Losses            2

%                   63%

Total              $656

We still made money here and I am more than thrilled with what this system has done since I went public with it. I am fairly sure there is nothing anywhere that has rivaled this, ANYWHERE. Trading is a tough business. John Henry one of the greatest systems traders of all time just closed his firm due to poor performance. For a trading system to perform this well is just great and if this is the worst month we ever have that would be a dream come true. I doubt that will be the case. We will have months where we take a loss I am fairly sure of that but if you are waiting for that you have had to hold your breath for a long time.

Swing Results

Wins              5

Losses            6

%                  45%

Total             $2770

We gave back about half of what we made the first month this past month which sucks. Michael and I make these trades also in our accounts so we share the pain. The two trades RB and the Swiss and those stop outs doomed us here. Had those not happened we would have had a decent gain, but they did happen. The markets have been choppy and we are trying to catch trend moves in these trades so this is going to happen. We are still ahead by about $2500 from where we started so it is not a disaster.

I will never hide behind results regardless of what they are. Managing services like this is not easy and there has been a learning curve for me on stops and thin markets. There are certain trades that just cannot be done in a service like this with a lot of people doing them along side me and that is something I had to learn the hard way.

Website

We have contracted someone to redesign the web site. When it is done the blog will be incorporated into the site and it will open up so many more things for me to be able to do. I will be able to offer more and better information every day. We will be able to open a chat room if there is interest and also be able to potentially offer some of our really short term strategies that work really well. They cannot be used the way we are doing things currently. I do get a sense from the client base that a lot of people are pretty short term oriented and we have strategies that work like the bond system but trade other markets, that work very well.

This whole thing is taking time to evolve and the PFG theft of my money has put me in a spot where I have to go slowly since I don't have the excess capital I used to have. I thought about putting a Victoria secret model in here for those who might have been looking for that and were redirected here but this post is already a long one.

Good Trading

JAPANESE YEN ANALYSIS

I am down today because I decided to go back to legit titles to the articles and the traffic is falling off a cliff today to the blog. It is hard to accept for someone like me and even impossible to do, to grasp that deceiving headers on the internet is how you build a business. I guess mine were not really deceiving since I did talk about the topic but they were named specifically to target certain searches I thought might be happening. Now that my fun is over, there was a request for an analysis of the Yen yesterday so here we go.

First the obvious, we are in a down trend anyone can see that. We are seeing a lot of commercial buying in the COT report which is the red line on the chart. In blue is my new COT tool I call New Look. It is designed to move faster so that it does not always stay pegged on one side or the other of the grid against a trend. The biggest problem with COT stuff is hedgers and how they position themselves during strong trends. They are often against the trends for months at a time. You don't want to fall in love with trying to follow that as a guide for which side to trade. 

There are several instances where my new tool and the original are at odds with one another. I think the preponderance of the evidence looking at those suggests that my new tool is superior. Most recently both of them were together on the bullish side and we got a bounce of 4 or 5 days. When that bounce happened my new indicator immediately got out of the buy zone and started going toward the sell zone. This is how I want this tool to work and I am sure there are still more enhancements ahead that will make it work even better. However, for now going into today it was in neutral territory whereas the COT data was bullish. For today the COT stuff was wrong but you have to keep in mind this type of analysis is intended to pick larger moves not just a few days. As a result I don't consider either of them right or wrong at this point. The COT stuff is telling us to look for a rally here and that the next big move should be up. My new tool is not saying anything as of today, it is neutral.

If we look at a weekly chart the picture looks a bit better for bulls.

This chart shows we are getting into a price zone that in recent times has been very heavily supported by commercial buying. This is one good way to use COT data, look for major support points and where commercials have supported things in the past. From this standpoint it appears we are approaching a very good buy zone for a large move up. Also you can see in this time frame my indicator and the COT data marry up a bit better. I do like it when they agree which is where they are now and Small Specs are heavily short.

The Yen should be setting up a move coming to the upside.

I don't want people now going to a 75 tick chart and buying the Yen just because I said this was setting up for a buy. This is a fundamental setup and is in the process of developing. A further dip would be better but we don't always get perfection with this stuff.

The Newsletter may be a day late I am having some computer problems and having to email drafts to myself and edit them elsewhere then send back etc.. so it is taking longer than normal to complete.

Our trading services this month are mixed, we have a profit in Bonds and a loss in the Swing Service. I will report the results good bad and ugly, once the month ends.

Good Trading

STOCK RALLY - IS IT OVER?

This is not showing very well for some reason. What this is supposed to show is all the markets I was watching quotes on today. You can see at the time the ES is red and virtually every other market on the board was red except Bonds, Notes, the DX and Hogs. The first 3 are all inversely correlated and are flight to safety vehicles. Hogs are not part of the risk on risk off trade that dominates the markets right now. It was certainly no surprise that when the stock market staged that huge reversal today most of these other markets came along for the ride. There is no point in beating a dead horse any more, this is the world we are living in now so just live with it. Make sure you take into account that shorting the ES and shorting Copper or Gold or Crude or the currencies, is basically the same trade. Do not take a full position in all of them because if you do you are raising your risk per trade immensely. I am sure at some point in the future there will be a time when this will go back to normal, but it is going to be a while before that happens.

This is being caused by the Central Banks and they have already told us they intend to keep doing what they are doing for at least 3 more years or more. Hence, this is going to continue so take it into account in position sizing.

I do find it interesting that with the huge reversal the energies still closed down today. I did mention that I had shifted to more of a bearish stance in the energies a few days ago. The oscillator chart I showed in yesterday's post still looks the same. It is showing down movement even with an up close tomorrow. This still tells me there is some underlying weakness here even though the price is not showing it yet. The way the math works on those types of things cycling them back and forth, a double divergence will set up shortly if price keeps moving up. Does this mean you should short this? I am not short the ES and don't plan on shorting it tomorrow even though my short term momentum measures are telling me we should come down in the near term ( the next day or two ).

I think we are now into PPT land again so this is going to be dangerous. That reversal today was a big suspicious to say the least. Boehner essentially agrees to roll over and just let the dems run up the debt more and raise taxes and that causes a rally? Hmmmmm...... We are certainly seeing investigating things leads to anywhere but the truth so what is the point. When you have a criminal investigate himself how many indictments will come from that process? It is no matter I still don't see a sell pattern for entry here regardless of what was behind today's action. Go find someone who does not trade and they can tell you why it happened!

My take for tomorrow is the same as today, I am looking for some near term weakness. If by some outside chance today's low were to be taken out tomorrow that would be very very bearish. That is a huge long shot but I am just pointing that out.

Here is the Silver market at somewhat of an interesting juncture. We have followed the seasonal to an absolute "t" this year. I cannot recall the last time I saw a market follow a seasonal pattern this closely for this long, amazing. In the opposite corner we have the COT setup that could not be more bearish and we have had a trend shift in my bands to down. As a result we have a battle of the bands going on here. What would be ideal is for a dip to occur over the next couple of weeks and have the commercials buy it and everyone else sell it which would flip the COT picture and line it up with the seasonal. I think the stock market will determine whether or not that happens or not since these markets are tied at the hip now. However, this is one to watch.

I put a bullish post title today just so I would knock down the heavy traffic from the search engines my stock crash titles created. I am unsure what to do with the ES right now so I am doing nothing. Today was the largest traffic day I have ever had and that is sad when it was due to just putting a certain negative title in the post to see what happened. Things do look very dark right now but try and see the positives in life. If you look for trouble it will find you.

Good Trading

STOCK MARKET CRASH PART 3 - HAVING FUN!

The Internet is a funny animal, put a bad story in the head line and jack up your traffic over night. I know I have been burned enough times looking for Victoria Secret models and winding up with an article about the spotted owl and how endangered it is. Just putting crash in the title brings in the people looking for a bad story. Ironically they are getting to a spot that legitimately talks about the markets. I don't know why everyone thinks we always have to have a huge rally or a huge decline based on what they study.

When I talk to people it seems if their indicators or methods are bullish they think the market will explode and if they are bearish they think it will crash. Why can't it just be viewed as it will go up or it will go down? I think extreme thinking is what gets people into trouble in trading. I will admit I am the first guy who wants to catch a crash because when you time them right you get a huge windfall immediately. Rallies tend to stair step and unfold more slowly.

What I have for tomorrow is just some standard oscillator, not even one I use to trade. I have it on the chart just to show something. I have an up close projected in the price tomorrow and as you can see the oscillator is not turning up. This typically means we should have a down side bias for a day or two. There is nothing absolute in trading and neither is this concept. However, it does typically provide some insight into the next day or two when this situation is at hand. There are some indicators that work much better than others and I don't know if this one I just randomly picked is better or worse than the ones I actually use.

If it tells me the edge is to the down side I don't think it means the market will crash, I just think it means it is more likely on average to decline than to rally. If this turns out to be correct it should be a general bias across many markets to the down side due to how heavily correlated everything has become to the stock market. Let's see what happens. My apologies to those who tuned in here to find a gloom and doom forecast and actually got someone who really trades giving an honest appraisal of what he thought might happen.

I have read some non-traders who write about the markets pointing out the lack of volume on this bounce as a big negative. You can always tell when a writer does not actually put his own money at risk in trades when they talk about things like this. There was a time when I bought into the Edwards and Magee stuff about when light volume accompanied a price move it meant it would reverse and when heavy volume accompanied a price move it meant it would continue. It is only when you try to trade these ideas and lose money that you learn that they are not accurate predictors of price moves. I do not claim to be the wizard of oz I am far from that. However, I would much rather listen to someone who actually trades even if he loses than some of these paper champions who just write about doing it.

Here is a chart of the SPY with this supposed volume theory fully exposed as bogus. If you look at all the examples in this chart it is almost rare to see this theory right anywhere! If people who write these things actually traded real money they would know this relationship does not exist. More often than not a rise in price with volume accompanying it was a great selling spot not a buying opportunity. Also declines on lighter volume tended to keep going, again the opposite of what people write about. I read the lightest volume day in some time accompanied the holiday and that was very bearish. I challenge anyone to show me a consistent chart pattern that supports that theory. It can be correct on a one off basis of course, but you can see on the chart above this theory simply is hogwash.

ARGHH this kind of thing frustrates me

Lets look for a decline the next day or two and then see how things look. I have not mentioned PFG much lately because the story has jumped the shark. There seems to be almost nothing happening at all and I guess just now they are contemplating starting a bank investigation. Good grief, what the hell have they been doing for the millions they have made? I will tell you, running the clock. That is what attorneys do and how they get paid. Screw the victims and joke about it at the club over tea at 3 pm. I originally thought the goal was just to get the whole $24 Million that was in PFG's bank account and now I think they are going for a larger target than that. I predict that will hit the over and dip into whatever other money they have found giving us less and less in the process of stalling. Guess what, if one of the attorney's involved happens to read this I could give a ..... It is time someone had the nerve to publicly call you out for what you are. I will take the heat for saying what needs to be said. I am not one to go quietly when I have been wronged and I never will be.

I think it is pretty obvious since that $24 Million has not been mentioned for months that it is either already gone or is in the process of being taken by the attorney's. It should have been ours and it is ours you skunks! I read today in the web site there was a 6th motion filed to stop paying lease payments to Pitney Bowes and a few other vendors because it does not benefit the estate. Why on God's green earth did that require 6 motions to be ruled upon? 

Good Trading

STOCK MARKET CRASH? HAS THE TREND CHANGED?

Stock Crash - is it coming or not? 

Trading is like following a trail, you have to stick to the proper course. If you look at the shadow in this picture you can see my wife who is in front of me making sure I am staying on the trail looking back at me and taking a picture which of course was destined for Facebook! We were on trails in the mountains just off our ranch this past weekend when she took this picture and it reminded me of how you have to stay focused on what is in front of you and not what is behind you. This is what I was doing as I was riding our largest horse who is not generally cooperative even though he looks mellow in this still shot. His cooperation did deteriorate as our trail ride went on.

The key in trading is to know when the trail you are on is leading into a bad place and to get off of it. I think the current trail we have been on for the last several months is leading us into a bad place. I am spending more time this month than I typically will in the Newsletter going over all the things I watch to gauge the overall health of the stock market. I did find it interesting that when I put the words stock crash into the title of a blog post it instantly generated more traffic via search engines. I just wish this were not the case. There is no reason to go through life just looking for the next negative event like so many people do. Yes we will have crashes but we will also have spectacular rallies like we have had the last 3 years. The goal should be to establish a neutral stance and play both sides, which is easier said than done.

Here is the daily chart with the ES and my COT Synthetic indicator. It has been working well recently missing just one trade over on the left where it was quite a bit early. If you turn off price and just look at the indicator this would show a sell signal. We also have the Vix sell signal that I showed in here in yesterday's post. What troubles me is the very sharp nature of the upward move we have had. In general terms we have a down trend with a sharp retracement in the price with the Vix supporting it. This should be a decent sell signal.

The one problem we have is the time of year this is happening. It has been a pretty regular pattern to see sharp rallies going into the end of the year from this time zone. This makes me a bit hesitant to just blindly sell into this amount of strength. Aggressive traders could just have at it here but I am not short in this market yet and I am not shorting it today. I would like to see a break of something significant to confirm we are heading back down and I don't see anything that jumps out at me as a point that would represent that yet.

We do have that November 30th date still lurking out there in front of us where the mystery chart tells us a top should happen so I am watching closely.

Good Trading