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 July 24,
2005 Commentary (weekend edition)-
That was one
incredible week for trading, in my opinion. It's been a while to try to
remember back to the late 90's, and my trading skills are vastly different now,
but I'm not sure I can recall any better trading action than this past two
weeks, as far as the Russell mini is concerned. But with the Russell hitting
all-time highs on a near daily basis, I guess that makes some sense. Overall,
though, there is a lot of action in the commodities, FOREX, treasuries, grains,
and so on. This is the most across the board action I ever recall seeing. And
it's all happening 'with nobody watching'.
I guess that is how it 'has to be'.
The market must fool the greatest number of people at all times, as they say,
especially the 'suckers' and the small traders. They have almost all the small
traders fooled all right, because they are off doing something else, or at
least I believe so. They sure don't seem to be trading this market. Keep in
mind I'm only laying out my own observations and interpretations here. I never
try to encourage anyone to trade. I'm here to try to help those who have
already made the decision to trade, as I state in my books and all over
this website.
In the meantime I'm just plugging away, doing what I do. I am
almost a bit embarrassed about my behavior in the members' area the past few
weeks because I must have sounded like a little kid gone wild in a candy store.
I don't think I maintained my usual high level of professionalism, in the sense
that I felt I was running around yelling 'oh, my gosh, will you just look at
this' and 'this is unreal, just unreal' and on and on. While those may
have more been comments I kept making in the chat room, they expressed my
sentiment in the write-ups in the members' area, too.
To say I was
'blown away' by the action is the understatement of the year. Look at Thursday,
for example. The Russell mini traveled over 33 points in three reasonably
smooth moves, off predictable areas. 33points!!! I am just not used to trading
action like that lately. And this has been going on for some time now. I was
expecting the summer doldrums, and instead I am getting action I just can't
even believe. As I said, I'm not trying to talk anyone into trading, but I get
so wound up looking at this market I can't contain my enthusiasm. I become the
kid in the candy store with both fists full, my pockets stuffed, my mouth
stuffed, and candy still all over the place.
Maybe some traders will come back
this fall, who knows? Maybe they are all gone for good. And maybe they come
back after the housing bubble bursts. As an addendum to last week's
well-received commentary, it hit me that 'average' real estate brokers are now
making more than many doctors. Funny how it seems to me the skill level,
training, and contribution to society are vastly different, yet the real estate
brokers are being more heavily rewarded. But, look at actors and musicians and
how they are rewarded and we have another entire discussion (don't get me
started). Point is that the 'norm' in our society is not to have 'average' real
estate brokers making more than doctors. This condition is a 'heads up', in my
opinion.
Let's move on to some charts. Today I'm going to show the layouts
in various treasuries. I'll start with the 30-year, electronic version.
The ZB has formed this ABCD pattern, set up
to continue the uptrend. The main issue is one of 'context', which is why I am
showing this series today. Fundamentally rates are now backing up, and the talk
is they are going to keep going up. That's what is 'fundamentally' supported by
the economy, and by Chainsaw Al and his rate raising party. The bonds are in
the stratosphere, and are part of the 'conundrum' of rising short-term rates
and the long end staying low.
I won't get into it here, but I have spent a
lot of time in the members' area discussing the flattening of the yield curve,
the possible implications, the potential inversion of the curve, and so on. The
point is, for things to go as the Fed plans, and as all the economists say it
will, the treasuries have to sell off so rates move up. To do so this, this
ABCD pattern has to give way. It's trying, but it hasn't quit yet.
I put a
modified Schiff median line set on there, as I usually do, and you can see it
is tracking that. I didn't put any groupings on, or do anything more than lay
out the pattern. The point is that this is a critical time here. If the talking
heads are right this is a 'wave 3' and not a CD leg ('wave c' in Elliot
terms). What happens here is going to tell me a lot about what may be coming. I
will be using this for a great deal of intermarket and 'context'
analysis.
Let's look at the 10-year, electronic version.
The same pattern is present in the 10-year.
This increases how seriously I am watching this. This has implications for the
dollar, gold, the economy, stocks, just everything. A big decision has to be
made soon, and this is where that decision is going to be made from. And you
can see by the yo-yo action they don't want to decide.
Let's look at
the 5-year, electronic version.
The earlier data isn't too good here, but the
pattern is clear, and present here, too. That high spike, which you can see in
all three contracts, was a result of the London attacks. I ignore that as an
anomaly in this case, although it is a real data point. This pattern is across
the board, and is very critical. Understand, very clearly, I'm not saying it's
critical that the pattern 'work', I'm saying this is a critical juncture for
all the markets, and this is one way to view the decision.
Take a look
at all the currencies. Each and every one is forming a pattern of some sort
right in here. As the treasuries go, so go the currencies. And so goes gold.
So, speaking of gold, let's look at something I pointed out in the members'
section this week, in advance.
I pointed out this setup in the XAU just as
it was coming together. This is a new pattern I am working with that I haven't
released the details of yet anywhere. Even though the reversal that is starting
here looks a bit above the area, it was within about .10 on an index in the
90's. That is more than close enough for me. The line gave me the tip-off
anyway. The arrow shows where I 'adjusted' my median line set, as is my style,
being ever creative and exploratory with any technique I use. That's another
topic I cover at length in the members' area. Notice how many places the XAU
used that ML.
The XAU came right off that area with a solid move. I mentioned
some stocks I was watching as this came together, notably ABX, NEM, and GLG.
Each one had a pattern of its own completing at the same time this XAU pattern
came together, and all have followed through so far. The XAU has headed for an
intersection of lines just overhead, where it sits right now. And how about a
chart for that? Well, it's in Jim's Chart of the Week. Recall how I mentioned
in last week's commentary that I changed Jim's Quote of the Week? I posted the
current status of the XAU as this week's chart. Go to the home page, look in the upper left and click
on the link that says 'Jim's Chart of the Week'.
Keep in mind my play here is
already long. I am not saying I am ready to 'flip' here. This is an area I am
watching to see what happens. Notice the treasuries. Then look at those
currencies. Now the XAU. See how they fit together? This is an area that will
tell me something, and an area I will use in my current management. View the
chart that way. This is an 'action spot' where I make assessments based on
price action. I use just about all potential setups in one way or another, not
always as a 'straight up' trade setup. They all tell me something
useful.
The next commentary will be next weekend's edition, posted by
Sunday evening, July 31, 2005.
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