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 March
19, 2006 Commentary (weekend edition)-
Well, another
great trading week went into the books this past week. Now, I know it isn't
just me, I received some feedback from some other traders this week regarding
how nice they felt the action was, too. I guess what surprises me is how little
I hear traders talking about this being an awesome trading market. It seems
like 'retail' is just about gone, and a lot of those left don't seem too
thrilled with the action. It was quite refreshing to get feedback in line with
my own view on this incredible action.
I'll get to that one item of business from
last week real quickly here, and then we'll get to work. I updated the
membership page a day after I posted last weekend's commentary, but it was too
late by then for an inclusion in that commentary. To see what I've done here
you can go directly to the membership page, or to the
What's New page for a
synopsis, and a link to the membership page from there. Since this is all
self-explanatory, and will only appeal to a limited number of very serious
students of my work, I won't discuss it any further here, and just leave it to
those who are potentially interested in access to the members' archive to
follow up on this.
Let's start with last week's Jim's Chart of the Week, as
I have been lately, in the SOX Index.
The SOX formed this great-looking ABCD
pattern, right at a key lower parallel from an 'adjusted' median line set,
right in the area of a key .382 retracement. At the risk of constantly
repeating myself (who am I kidding, we all know I repeat myself constantly in
here...), this is just the framework. This is a critical area for me to watch,
and I fully expect that if the SOX is to remain in a bullish mode, this area
will play a key role.
Let's see what the SOX did from here.
The SOX went right to the area and started to
bounce. It jumped up over 17 points, to the area of the .300 retracement off
the top there, and put in a small 'spinning top' bar for all you candlestick
fans. I'll leave it to those fans to determine what formation we had there. The
SOX then started to roll right off this area. This is a pretty anemic bounce up
to this point, and the rollover was very harsh, as you likely remember from the
intraday action that day.
Now, as this unfolded, was that a clear clue? This is
not the expected behavior off such a significant area if the bullish premise is
valid. I just watch areas I think are key, and let the price action talk to me.
I wait around and 'get in late', using my entry triggers, and I get spared
getting into trades that never were going to go anywhere. That's my style.
Others prefer to just 'fade in' regardless, and that's their style.
There were more things going on, though, than just what I am showing
here.
Let's look at the NYSE Composite Index during this time.
While the SOX was still going down into that
area of interest, the NYA.X was blasting off. It went up to set another new
all-time high while the SOX was rolling over and violating my area of interest.
I was watching this very closely. Many areas were smoking off to new all-time
highs, and the SOX was violating a key area to the downside in a massive
sell-off.
There is zero chance I would be triggered into any SOX longs in a
situation like this. Not only weren't the triggers there, the divergence was
way too blatant. This is why I chose this last week. I could see the divergence
setting up (go back and look for it, it is pretty obvious), and I suspected the
SOX was going to continue its weakness, at least for the time being. As I say,
not all areas of interest are PTA's. The completeness of my 'Trading Plan' and
methodology save me from a lot of trades that haven't shown me enough in the
PTA.
Now, let's drop down to a 60-minute chart and look at some detail
here, and I'll discuss some price action clues.
The SOX heads to that .382 area and starts to
bounce. So far, so good. The key line comes right into this area (not shown).
The .300 retracement off the top is on there, and although that's a weak spot
for this to start to check back already, it's still not a big problem. The SOX
does a beautiful ABCD as it comes in, and starts up. I like the action so far,
and everything looks great. I'm close to a potential trigger here.
The SOX then
can't even get to the overhead trendline for this small ABCD (not shown), when
it starts to roll over hard. The arrow shows what 'should' have happened if the
entire bullish layout premise was valid. 'Wave 3' should have started, and the
SOX should have exploded. Instead it rolled right over. No trigger, no trade,
and a quick bias switch to a potential major failure setup.
I will leave
it to the reader to dig much deeper into this on the lower intraday timeframes,
as there was a lot going on, and a lot of clues, beyond what I can show
in this condensed version here. I do a lot of work with 'expectations', and I
get a lot of clues when things don't follow the expectations. Now, I see if
this was a quick shake out, or is the really serious selling about to ensue.
This is a very critical time for the markets, in my opinion.
Let's wrap up
with a follow up on gold.
When we left off gold was at that line
confluence area, having formed a nice-looking ABCD pattern right down to a .382
area. This is a just a framework (am I repeating myself again?), of course. I
say this again and again because I want it to be crystal clear that I am doing
more than this, and it is the presence of other factors and aspects that make
certain layouts acceptable to me.
Some of those aspects are not always shown,
or these small charts would get too crowded to be educational in here. The
various factors are all laid out in the books. Now, gold does bounce right up
off the area, making a move of over $24. For some, this is more than enough to
work with, and regardless of what happens from here there was enough for a
play.
Let's me add a few things onto the chart.
I added a .618 retracement and the division
lines onto the chart. Notice how gold is struggling with this area, and
'testing' that key trendline from below at this confluence. This is a very
critical spot for gold, from the standpoint of my work. Take a look at a stock
like GLG, for example, and the XAU, and see how they are positioned, and what
the patterns and numbers say there. That confirms just how crucial this area is
for me.
I am always thinking several steps ahead, and each setup or trade
is way more to me than a single trade that I am trying to make some money on.
It's all part of a much greater whole, and I am forever working to integrate
myself with that greater whole. I'm not that concerned, for example, with
whether this specific trade makes more money here or rolls down. I'm concerned
with what gold tells me right here. That factors into this trade, future trades
in gold, and all my intermarket analysis with currencies, treasuries (see Jim's
Chart of the Week to see the positioning of the 10-year as gold hits this
area), energy, the stock market, and on and on. I'm always looking at
everything holistically.
The next commentary will be next weekend's edition,
posted by Sunday evening, March 26, 2006.
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