|
|
| |
|
 November
28, 2004 Commentary (weekend edition)-
Today I'm
going to discuss a few orders of business, some curious observations, and then
I'll get to a very interesting setup that came together on Friday's holiday
trading day. First off, I want to mention again how amazed I am at the great
response I am getting to Kane Trading
on: Trade Management. I will be adding some of these responses to the
testimonials page over the next week or two they are so good.
I am
mentioning this so frequently not to try to promote the book, but because I am
surprised at how much positive feedback I have been getting. I knew this one
turned out really good (after over a one year wait for my readers!), but I
didn't fully realize just how different my approach is, and how much desire
there was for this type of information. I have been told over and over since
the release just how unique, different, and valuable what I laid out actually
is.
Next, I want to mention that Scott Carney over at Harmonic Trader is going to
release a new pattern he has been developing on January 1, as a free download
for anyone who wants it. No obligations, no sign up, just go and download it.
(I think he's quite crazy to give it away, but that's his decision. And after
all, if he didn't 'talk me into' releasing a lot of my material, you wouldn't
be here reading this right now!) We have been discussing the pattern and using
it in the chat room for some time now, and I can say it is quite interesting
and unlike anything out there.
I want to give an early warning, too, that I
am thinking about a little time off from the website and book sales for the
holidays. I need to treat myself and take a rest. Like the past summer, I doubt
I will go anywhere, since our Arizona weather is so nice in the winter (golfing
at its best), but I will take a break from the commentary, e-mails, and book
shipping. I think I will start right after the mid-week commentary on December
15, and resume after New Year's.
As I mentioned before, at that
point the commentary will go to once per week, on the weekend. During this
break you can still order books and articles, but I will not be checking my
e-mail or shipping until after my break (or it isn't much if a break for me).
If it bothers you to order and not have me ship right out, please wait until
after the first of the year. Or better yet, order in the next few weeks. I
suggest everyone take this two weeks to dig into the over one hundred and
thirty free archived commentaries. I will keep everyone posted as the time
approaches.
Another thing I wanted to briefly discuss are some market
'fundamentals'. This will likely have almost no consequence on very short term
trading, but I feel it surely will play into the overall market action at some
point. It's hard to say when, but I think it is something to be aware of. And
just what am I talking about? Well, the dollar is still getting hammered, the
Euro is blasting off to multi-decade highs, gold is at multi-decade highs, and
some of our key debt holders are starting to 'repatriate'.
Okay, so what
does all that add up to? Well, let me add in something about the commercial
traders and the commitment of traders report. Keep in mind this 'analysis' is
based on the information I have, that I believe to be accurate. It is possible
that my 'statistics' are not correct, as I rely on multiple other sources for
this information. The commercials are net short (taking into account the mini
open interest, which I now believe is critical) the second highest position in
history, well over one hundred thousand contracts.
The only time
they have been more net short was at the peak in March 2000, right before the
bubble popped. Not only that (and again, if my information is correct), when
they have extreme positions they have a track record to date of 100%. They have
never been 'wrong' when they 'lay it on the line' this big. And all this is
happening as the dollar is getting pounded and gold is rising. Oh, and how
about crude? It's rising again.
I'll throw in one more thought here. I'm
seeing a little 'inflation' in my daily life. I was just at the grocer. Let's
see. Red peppers were up 53% since last week. Mushrooms were up 51%. They
stopped carrying two products I use, and I asked the manager why. He said, and
I quote: "Massive price increases. I refuse to carry them any more at those
prices." My health insurance just went up 20% (again), and my property taxes
took a massive leap (again). I won't even talk about my auto or homeowners
insurance, or the still astronomic gasoline prices (check out a natural gas
chart for fun!). This is just a very small list of what I am seeing.
I won't go
any further explaining why I think the CPI is 'doctored', and why we aren't
being told the real inflation numbers (social security, for one thing, is
indexed to the CPI). I don't need any numbers anyways; I have my own real life
inflation gauge. Every day I have to pay lots and lots more for just about
everything I use. So, why bring this up here? I have had some traders tell me
it is silly to even look at this stuff, and especially to possibly 'scare' new
traders away.
Well, those that follow me know that I don't use this venue to
discuss much that I don't find useful for actual trading. I am seeing a set of
factors lining up here. I want to be aware of that, and I want to pass that on
to my readers. Maybe the market goes straight up for the next year. Who knows?
I sure don't. I respond to the price action. But I am also getting very, very
wary in here. Something may be brewing, and I am not willing to be as exposed
as I otherwise might be. I want to be 'getting ready' for possible shorts.
There are times when the 'fundamentals' jump right out at me, and this is one
of those times.
The only thing that bothers me here is that everyone on planet
earth is watching the '5 wave' unfold in the indices. Everyone has his or her
wave 5 target, and I am seeing this in every newsletter and source I have
looked at. Most targets are in the same general area. That has me suspicious
that either this thing may roll sooner, or later, than the expected time and
place. The least likely scenario, in my opinion, is that it does exactly as the
masses expect, and then rolls over, right on cue. Given how everyone is focused
on the same area and same wave structure allows me to come up with my own plan,
and it won't be the 'newsletter' plan. Just another thing to think
about.
Let's look at something I had been watching develop in the ES that
set up on Friday. I like to keep it light on holiday trading days because the
liquidity can be very poor. This can, though, lead to some sharp moves, and I
am not opposed to taking trades with outstanding setups. I'll start with what I
saw on the 30-minute chart.
The ES was forming a 5-point pattern, and I
had several other things pointing me to this area. (As I explained in Kane Trading on: Multiple Timeframes and
'Context', this 30-minute timeframe would be more like the entry
timeframe, based on the chart layout, than the traded timeframe.) Let me first
start with just a basic grouping.
The basic numbers fell in a tight area less
than a point and a half wide. Given that the traded timeframe would be perhaps
in the 90 to 120-minute range, that is a remarkably tight grouping. I also
noticed some time factors in this area. I will highlight two of them.
I not only had a pattern and a grouping based
on an .886 retracement, I now had some time factors lining up at just about the
point the ES looked to reach the area. Then I added in something else, to see
what that showed me. I put a median line and parallels on the chart.
Isn't that interesting? The median line hit
right in the potential trade area. I now had a pattern, grouping, median line,
and time factors/symmetry pointing to this area. Now I wait for a reaction. As
I explained in Kane Trading on: Entry
Techniques, I need to see how the issue behaves in the area. It simply
doesn't work for me to fade in if the area is reached. In this book I explain
why I feel it is key for me to watch the price action for clues.
I'm starting
to think that this is the most misunderstood aspect of my entire methodology.
It surely is the area that experienced traders opt not to use the most, or so
I'm told. And no matter what I seem to say, they want to hear nothing of it.
Maybe I'll write up a free article on that someday. All I can say about that is
if you think fading in is the best way, I don't think you understand a key
concept about why I don't fade in.
Let's see what happened from
here.
The ES came right off the area and dropped
like a rock, closing on the low tick of the day. This is surely a much larger
scope trade for me than just the intraday trade. Sometimes I see more than one
opportunity in an area, and I play it in two different ways, with two different
approaches (and even two different trading instruments). Now, could this thing
open up Monday and blow out that pattern? Absolutely. I can only manage a trade
according to my plan, and let it unfold. It does what it does from
here.
Let's finish with a look at how this looked on a 3-minute
timeframe, my preferred timeframe for 'intraday swing trades' in the
ES.
I don't need to say much here. I put the .886
and the median line on the chart for reference. This is about as nice as it
gets for me.
The next commentary will be the mid-week edition, posted by
Wednesday evening.
|
|
|
| |
|
|
 NOTE: Reading this page or
any page on the Kane Trading website, or utilizing this website and any
material
contained herein in any way, shall constitute an
acknowledgement that you have read, understood and agreed
to
all the disclaimers,
terms & conditions, and
policies of this site.
|
|
|
This
website is best viewed with MSIE 6.0, text size set to medium, and screen
resolution set to 1024 by 768.
Copyright
© 2004 Kane Trading. All rights reserved.
|
|
