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 October
20, 2004 Commentary (mid-week edition)-
Today I had
the commentary all worked out, and then I just had to change the topic. I was
going to show a play I found in QLGC that got triggered on Friday. I was
going to show that, until I realized that so much is happening with gold that I
just couldn't continue to not update that. As I proceed, it should become clear
why I had to switch gears.
There is so much to show all the time that I simply
can't do it all. I try to maintain my focus on education in this column, and
not showing 'picks'. There have been some great setups in the ES lately that I
will have to pass on showing. I want to follow up on the management of the GOOG
play, but there isn't time. I have this new play in QLGC, and endless other
things that I have no time to show. I just do the best that I can, utilizing
the limited time and space that we have in here.
I will do a brief update on the
progress of Trade Management,
and then we'll get to the gold play. I am well into the proofing on this, and
all is going well. I have a very optimistic target date to drop this off at the
printers one week from today. They are quite 'backed up' right now, so I won't
be able to get the usual very quick turn around that I have gotten used to, but
the delay should be minimal. As I said, I won't put the updated page up, or
take any orders, until I have actual copies in hand. It is getting close,
though, and I'll update as I have new information.
I just had to
switch to the gold play because so much has happened. I need to go through this
because if I don't, the educational value of what has transpired will be
missed. Not only that, the readers will be so outdated that they will still be
thinking about this based on where I left off in the last update. I have found
that it is almost impossible to update a play like this in a timely manner in a
commentary that comes out twice a week. So much can happen so fast that by the
time I post something, it's almost outdated.
This will all make sense shortly.
Let me go back to my comments on October 10,
2004, where I said:
"I will continue to follow this one closely, and see how
it behaves. I am also watching the behavior for a potential 'blow out' of the
groupings, and any possible trades with regard to that. For me, it's all about
the price action now."
And on October 13,
2004 I said:
"Now I just let the remaining ride, in management mode.
I have my plan laid out, and I'll see how it goes. Regardless, barring a market
shock event I'm in a strong position here, with profits off the table and my
stop moved down. Perhaps we've seen it all with this down move, but I have no
idea if that's the case or not, nor do I need to know. I have a plan, and I
just let it unfold."
Well, gold reversed shortly after this, and as I have
said many times, I just scaled out 'on the way up'. I was thinking about
possible re-entries when the overall price action started to talk to me. It
said up. I was thinking about the fundamentals, such as how the dollar is just
looking like it is going to continue to weaken, and how the CPI core data was
greater than expected. The talk was all about how the Fed may have to move
aggressively with rates now (right, with oil at all-time highs).
The point
wasn't whether this fundamental data had any 'real' meaning, it was about the
changing market perception, and how participants may act on that. As I started
to see this immense strength building up, I wanted to be watching for a long
setup, to play what I was now expecting to be a blowout of the pattern. The
reactions after the initial first thrust down off the pattern struck me as 'all
wrong'. The action was just not what I was expecting. Then I saw something
setting up.
Let's first go back and review what had happened up to that point,
and then I'll show the new setup.
Gold came off my setup very strongly, and as
I said, I was in a great position. I did suspect that we might have been right
at a strong reversal point right in here, though. Go back and look up my
previous plays in LC, wheat, and corn, and you will see why I was thinking
this. It is not uncommon to get a great move right off the pattern, only to see
it reverse and take the pattern out.
I discussed this in detail in my latest book
Kane Trading on: A Totally New
5-Point Pattern, and also in Kane Trading on: Multiple Timeframes and
'Context', and it forms a large basis for how I trade. Although at this
point I was going to let my management plan play out, I was suspicious in
here.
Let's see what gold did from here.
As I suspected, gold did reverse at that
point. I scaled out 'on the way up', as I had planned. The arrow shows the
approximate area where I was totally closed out. All in all it was still a very
nice play. But as I was watching for a possible long entry in here, I spotted
what was clearly shaping up on the right side of the chart. Can you see it? Let
me highlight what I was looking at, and also add a grouping onto the
chart.
Gold formed a great looking ABCD, right at my
favorite area, as outlined in Kane
Trading on: Advanced Fibonacci Trading Concepts. Let's see where gold
went from here. I'll then explain the entry trigger I got for this move. Also
notice how the potential trade area just happened to be right at my final scale
out area.
Gold just blasted off that pattern. I can
only post so many charts, so I suggest the reader pull up a 5-minute chart, and
look at the pullback and swing-high violation entry triggers that are more
easily seen down there. They were clear and textbook perfect for me. The
trigger I was watching signaled me at just under 419.
I am now in
just about the same position as I was before on the short trade. I have scaled
out of some of the trade, and I'm waiting to see what happens in here. Again,
it's all about the price action. My stop is moved up, and I'm in a strong
position here. If it does the same thing it did before and rolls over and stops
me out, that's just fine with me. I'd play that game all day long. And maybe
this time it blows out the remaining grouping and I get a big runner.
Let's take a
look at this on the daily chart, for some perspective.
That's not a lot of respect for that lower
grouping, now, is it? I am immensely curious to see how it acts with the upper
grouping. It seems interesting that I'm long just under a potentially key
grouping. The reason is clear, though: 'context'. The price action changed the
'context' for me.
Before we quit, notice how a possible 5-point pattern may be
shaping up. It would complete just at the top of the upper grouping. That is
also something worth watching. This is a very good educational example, just
filled with nuances.
The next commentary will be the weekend edition, posted
by Sunday evening.
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