Kane Trading - Education for Serious Traders

					March 17, 2004 Commentary (mid-week edition)- Today I want to start out with a play that it seems everyone on earth is watching. I have heard things about this from many different sites and forums. I was watching this before anyone else made any mention of it, and it was a bit disappointing as more and more people started to talk about. I rarely see trades work when my non-trading neighbor calls to tell me about them. You get the point. The talk is all about cattle. After the huge sell off from the mad cow scare, the contract started to rebound. It set up a nice 5-point pattern. Let's look at the daily chart of the April contract. Now the first thing I did was look at the retracement for the B point. I have always used the B point very heavily to give me an idea where my preferred completion point is. Until Scott Carney clearly laid out this concept of the critical aspects of the B point retracement in his latest book (which by the way is now available at his website Harmonic Trader, and soon here on the Kane Trading website in a package deal), this topic was 'unknown' and never discussed among the rest of the Fibonacci crowd. On the other hand, Scott and I have been doing this for years. Let's look at where the B point fell in the LC. As soon as I saw the B point fall short of the .618, I stopped thinking .786 retracement completion point, 1.000 ABCD and the pattern that everyone was calling this. I went to my .886 retracement and alternate ABCD for my potential trade area. The B point tipped me off. Let's take a look at the chart, showing my grouping. I keyed the completion point around the .886 retracement. That pointed out to me that I wanted a 1.272 alternate ABCD calculation and a 1.902 external BC retracement. A .618 expansion also complemented the area perfectly. You can see how the LC reacted to the area. Let's take a quick look at the 15-minute chart, to see close up how the reaction looked. I've highlighted the approximate bounds of the grouping with horizontal lines. The LC gapped up right into the tight area and quickly reversed. Understand that the group only looks wide because we are so close up on this much lower timeframe chart. There was a multiplicity of choices for an entry trigger. Alas, though, I'm still bothered by this trade. The setup is clear for me, a real classic. But even though I have a different grouping than the masses, based on the .886 area and not the .786 area, I don't know if all the fade the entry .786 traders got stopped out. If not, they are short and ready to make money. And I doubt the masses will make money. Normally, I pass trades that the masses are all over. My thoughts might be that although there is a lot of talk, how many actually followed through and traded this? Cattle are not a big time trading issue for most traders. Lastly, there is this, which showed up by day's end. This is not a good formation to see after a short trade is initiated. It's not a guaranteed problem, especially since this is a 15-minute chart, but it's a heads up for me. We shall see what happens here. It sure is a very interesting play. On another note, let me update some of the plays we are watching. I stayed with the SCH and it is starting to go quite nicely now. We'll see if it can get some legs at this point. The NDX is holding that critical second grouping low and bouncing, again. It bounced off that one .886 within three hundredths of a point! AMZN came within less than fifty cents of the top of my grouping and I finally couldn't help it, I took an entry. I was watching down on the 15-minute, and when it started showing a positive price divergence with the NASDAQ I took a shot. Take a look at the magnificent 5-point pattern it set up on Tuesday on a 5-minute chart, to see what finally told me I had to take a shot. So far it's playing out well, but I fully expect it could roll over and test the entire grouping. That's just fine with me. I'll take some off and sell the rest on the way down (like I usually do), and if it goes as planned, make a small profit. Then I'll look to get back in. If that reversal was it, I'm in my position now, and I didn't miss out after all that waiting and watching. I played it this way based on the NDX grouping just below, the positive divergence, and the insane 'gimme' setup. Normally, I don't just randomly jump in early. CI hasn't broken significantly below that lower medianline and tested it from below, and hence there was no entry signal. I'm looking at this one, and looking at the previous test of that line, and wondering, given the potential market bounce at that point, if it wasn't a good long opportunity. SUNW is very interesting. It dropped below the area, but it is now above. Is this a test of the area from below, or is it going up? I am watching this very closely. It is looking good after this bounce, but the market is strong. I am going to watch for some kind of a clue. SUNW needs to tip its hand here for me to consider a trade. Right now it's at the point where it could go either way. I need to see how it handles this test area. Lastly, I have been watching the area just under 8.00 on DAL. It hit the area, in fact went just below the area, and bounced. There is a lot going on at this spot, going back a long ways on the chart. Just draw a trendline on the weekly chart for one obvious thing. I have a second grouping just above 7.00 that I am also watching if this rolls over. But the classic earnings warning, gap and drop right into the potential trade area, and then bounce, is more than noteworthy. The books are still coming along great, and I hope to have then both out before the start of summer. I know that's very ambitious, but it helps motivate me. I want to thank all the readers that have sent e-mails with positive encouragement to help me get through these. I'm glad that there is a dedicated group of people who truly appreciate all my hard work, are anticipating the release of these new books, and feel that it is a worthwhile project. Thanks! The next commentary will be the weekend edition, posted on Sunday.


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