2005 Commentary (weekend edition)-
great to be back, and back in the swing of things. As I suspected, the action
was going to be great. Looking across the spectrum of all the futures, FOREX,
and stocks, there is more going on than I could even begin to trade. Today I am
going to show a few things from members' area from this past
"Over the weekend as I was assessing the market position I spotted
a possible scenario that might come together a bit lower. Given the futures
started trading down, I felt it was even more likely I might see it all come
together. The point for today is that this is one that might easily be missed
due to the type of time distribution. With that as the only hint, let's look at
this as it was over the weekend, and we'll see if you can spot
Don't be discouraged if you don't spot this
right off, as it is a very tricky one to see. Other than seeing that a
trendline or lower trend channel line is violated, or just about to be
violated, there seems to be nothing obvious here. Let me add one thing in, and
then I'll discuss my comment about the time distribution.
Amazing how just sketching that out really
opens up one's thinking process, huh? This was what I was watching very
closely, as one of my main scenarios for this morning. The time factor that
makes this hard to see is that the potential BC leg, the 'correction' to the AB
leg, is significantly longer than the AB leg (almost twice as long). The
correction took longer than the move it was correcting. This directs the eye
away from seeing the potential ABCD structure.
As soon as I started to look at it
this way, I noticed a few key things. Let me add one to the chart.
I added the .382 and .447 retracements to the
chart, as I frequently do in a trend situation like this. I like that area
between the .382 and .447 the most, as I explained in Kane Trading on: Advanced Fibonacci
Trading Concepts. That's my preferred area, although I trade other
areas, too. Traders have to discover for themselves what areas they like best
for their own 'Trading Plan'. Although I won't show it here, I put together my
numbers for the ABCD, and some retracements from the noticeable swing-lows, and
saw where they fell.
I really was the most interested in the area by the
.447, though, in this case. Now, why might that be? Look at the gap and the
close from the previous trading day. It fell right at that .447. I would be
reluctant to take a trade at the .382 area just above the gap. In this case I
might wait for the .447, even at the risk of missing the trade. This is not a
hard and fast rule, but my evaluation of this particular layout.
Let me add in
one other thing I noticed. It's not a critical factor, but just an observation
I wanted to factor in.
The .618 time retracement of the run up was
coming in right after the open, and this made sense because of the futures
trading just above the area premarket. And speaking of the overnight and
premarket data, is there anything there I could use to help me focus in on the
.447 area? Yes, the .382 retracement had been violated multiple times already
in the premarket. I was watching my .447 grouping, and I suspected that it may
be coming together pretty soon after the open.
Let's see how it played
The ES followed the script quite well. It
came right down to the .447 area and closed the gap by one tick before making
its move. Although it would have taken some patience to hold it through the
day, it clearly didn't violate any swing-lows or trigger an exit playing the
move on this timeframe using the techniques I outlined in Kane Trading on: Trade
Looking at this one here as I have shown it on the last
chart, it seems pretty clear and pretty obvious. It was obvious to me on Sunday
only after several looks at it, but I didn't see it immediately, and that's my
point. I ramble on and on about how I have 18,000 screens hours, most of it on
the very methodology I discuss in here. I say that not to say look at how cool
I am, but to show that those hours are my experience base that allow me to find
the setups I do, and I didn't see this one instantaneously. I saw it, but not
like I usually do, within about half of a millisecond.
If I have to
look at it a bit to see it, it's not an easy thing to see, for sure. Maybe you
saw it right off. If you didn't, I'm trying to say that you should improve over
time as you practice, and that the trickier ones don't jump out at you. Maybe
this one you saw right as it was coming together. You have less prep time, but
you can learn from it anyway. The key thing to see now is that there was a
really nice setup for today that many didn't even know was a setup (who uses
the .447 like I do?). And if I felt the S&P was headed higher on the higher
timeframes (we'll talk about that later), this was a cherry entry point for
Before I wrap up for today, let me include one more chart that
addresses a little bit of what I referred to in the last paragraph, as far as
'talking about that later'. Here's a chart of the INDU, as it sits this
weekend. This is one I posted well in advance of the INDU hitting the area. I
had been watching this from way back. Understand that this is only the
framework here, without the full groupings work.
I deleted one very significant retracement
off the chart that is from Kane
Trading on: A Totally New 5-Point Pattern because, as I have mentioned
in the past, this number is not 'public' yet, and is only available in the
book, which is only available to full book set buyers. This is what I was
watching for on the higher timeframe. I also did some work on the NDX in the
members' area based on the same concepts.
Not only was the trade setup itself
superb for me, it gave me 'context' for the lower timeframe
mini trades. It was amazing to me how few seemed to be looking short in this
area and the corresponding areas in the other indices and sectors. I heard a
lot of bullish talk and utter amazement and surprise as this sold off. Take a
look at the RLX and see if you can figure out the crystal clear setup I had
that it sold right off of.
Now I am in management mode with some scaling out done,
and the stops moved. This puts me in that highly desired spot I always try to
get to, of 'theoretical' no lose plays. And take a look at that line
intersection and .786 retracement on the INDU just below. Although I don't have
any more time here to fully discuss what I am watching for on this one, I did
highlight that because it really jumped out at me. Now I let it play out, and I
just follow my 'Trading Plan'.
The next commentary will be next weekend's
edition, likely posted by Sunday evening, July 3, 2005. I will be working with
a mentor student next weekend, and given that Monday is the July 4 holiday, I
may not get it posted until sometime Monday. Ah, you know I'll be working the
entire weekend and on Monday, too, it's just the way I am.
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