Kane Trading - Education for Serious Traders

					April 28, 2004 Commentary (mid-week edition)- Today I'm going to review the status of the XOI index and crude oil that I brought up back in the April 7, 2004 commentary. Then I'll move on to something that I am looking at right now. I felt that the XOI was going to break to new highs. It had formed a bullish ABCD pattern just under the all-time highs for the index. Crude had formed an ABCD pattern just a bit before that and was taking off. Although I point out in the new book Kane Trading on: Multiple Timeframes and 'Context' that I normally avoid such setups, there are times when enough factors come together to overcome the reasons for my normal avoidance of such layouts. This was one of those times. Let's look at the XOI since I pointed out that ABCD pattern. The XOI came right off the pattern and has moved up strongly, setting multiple new all-time highs. The horizontal line shows the previous all-time high level from '01. Now, will it keep going up from here, setting new all-time highs on a daily basis? I have no idea. All I can do is manage open trades that I got into using this index as my guide, based on whatever price action develops from here. Let's look at what crude has been doing. I'll show the June contract. We have the same story here. Crude blasted off that ABCD pattern and is setting new contract highs. Where will it go from here? I don't know, and it doesn't matter to any trades that I am currently working. I just manage them, and let whatever unfolds play out. It's hard for many traders to accept that it isn't necessary to 'know' what is going to happen in the unknowable future to be a successful trader. I especially want to keep on top of this situation and the next series that I am going to show, because of the overall relationship I feel that they have to the broader economic picture. I'm also watching bonds very closely. There is a lot of money shifting around very aggressively, and it has important implications. Let's look at a weekly chart of the Gold and Silver index. Gold and silver have been getting hammered lately. The XAU is setting up in an ABCD pattern, set up to continue the uptrend. I put the major price projections on the chart, and a single .618 retracement. I'll leave it as an exercise for the reader to form his or her own full groupings. Now a few things stand out here. This thing is dropping like a rock. Look at those last three bars. The 1.000 ABCD didn't stop this at all. We are fast approaching the last potentially tradable areas, for my trading. This thing has redefined 'oversold'. But alas 'oversold' can get way more 'oversold'. Notice the nice ABCD type structure in the BC leg of this large ABCD pattern. At this point I went to some individual stocks to see what they looked like. Let's start with NEM, on a weekly. I just put on some of the key numbers to highlight where I'm watching. The same type of setup is emerging, and the same vicious plunge. Also notice the beautiful ABCD in the BC leg of the larger ABCD pattern. Now let's try PDG. Again, we have the same layout, and again, a nice ABCD in the BC leg. Not all the gold stocks look this way, but some are mirroring the index. We are getting right into the areas where something would have to happen for me to be looking at a trade. My 'gut feel' is that these areas are going to get blown out big time. Many of the ABCD's are getting towards the extended end of the range, and still no reactions. The gold stocks are getting pile-driven into the turf. This is not an uncommon thing to see right at a large pattern completion area, though. I'm showing this here not because I am convinced that this is necessarily going to be a good trade area, but because I feel it is an area that will tell me some useful things about various market dynamics that I can use for my trading. If a turn around and resumption of the bull trend were going to take place, I would want to trade it from these areas. If it starts elsewhere, I wouldn't have the nice pattern structure to use for my setups. I'm also watching to see what happens if these areas get blown out and then it turns. Recall the SOX index. I have seen more of this kind of behavior lately than I've ever seen before. I'm actually working out a method to trade this. Wait for the blow out, and then see if it turns and gives a pullback entry. I'm not sure why this might be happening, but it is getting consistent enough for me to actually trade it under certain conditions. If the 1.272 ABCD's get blown out, watch the 1.618/1.902 areas very carefully. Just a thought. Lastly, I have been watching a single stock future, symbol DJMSPM, for trading these gold and silver plays. The chart is similar, but the ABCD is getting very extended there, and that is worrisome for the whole layout. The next commentary will be the weekend edition, posted Sunday.


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