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 July 14,
2004 Commentary (mid-week edition)-
For today's
commentary I am going to look at two things. First, I am going to show
something I noticed on the recent potential ABCD patterns that we have been
watching. I'll then show something absolutely fascinating about the ES. The
latter is amazing beyond belief, to me.
I'll start with the NG. Nat gas has exceeded
the 1.000 ABCD and is almost at the area of the 1.128 alternate ABCD. Let's
look at the chart.
Now, here's what I'm seeing. Look at the area
by the arrow. The potential CD leg has a large pullback in it. One way of
saying this is that the CD leg has an ABCD pattern in it. Some traders like
this. I don't. It makes little common sense from what I call a Pseudo-Elliot
wave perspective (I say 'Pseudo' because I'm not applying Elliot in a strict
sense here).
Yes, you might say that this CD leg has a 5-wave structure, but the
wave 4 is way out of balance in my opinion. I lay this all out in very clear
detail in my latest book Kane
Trading on: Multiple Timeframes and 'Context'. Those of you that have
this book can see clearly what I am talking about here. Suffice it to say for
those that don't have the book: I don't like how this looks. It may not
preclude me from taking a trade, but it sure has me on red alert.
Let's move on
to the LC.
Cattle haven't hit the 1.000 ABCD area yet.
Notice how the arrow points to a very similar pattern in a completely unrelated
issue. Again, I don't like the look of this. And let me continue. Pull up your
own chart of gold. We have been watching that one, too. It has hit the first
potential trade area I am watching. Notice anything interesting? Why do all
three of these supposedly unrelated issues have this same pattern? Are
they totally unrelated?
Now, let's look at this incredible thing that I noticed
in the ES. No, it's not some observation that will make you enough to retire
tomorrow. It's just something to help you understand why the ES might be tough
to trade right now. Let's look at a chart from just about two years ago to the
day. I wanted to do exactly two years, but the thirteenth fell on a Saturday,
so I did Monday, the fifteenth.
The most obvious observation to me is just
how tradable this looks. This is a perfect example of the type of chart I
showed a while back, to demonstrate the kind of action that I am looking
for.
Now, here's the interesting part. I calculated the range for the
day, and determined what that was as a percentage of the opening price. It was
just about exactly 5%. I then took Tuesday's ES chart, and set the scale on the
right to approximately 5%, to see what the action for the day looked like, in
terms of what it 'should' look like, if the ES was trading as it used to when
we didn't feel like this thing was so 'challenging' to trade. Get
ready.
This is what the ES looks like, 'normed' to
the action from two years ago. This is what we are trying to trade. This is why
many have moved to FX and other venues. Don't beat yourself up if you are
finding trading the above chart difficult. This is what we have, and until it
changes, we have to accept that. But don't expect any plan to extract tons of
cash from the above.
Look for areas where the trading is more realistic. My
answer is to only consider the most cherry of the setups in the ES. In the
meantime I am focusing on FX very heavily, and futures. I think it is very
important to be adaptable in this post-bubble era.
The next
commentary will be the weekend edition, posted on Sunday (or maybe Saturday, if
I can keep staying ahead!).
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