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 March
26, 2006 Commentary (weekend edition)-
I seem to be
running out of ways to be creative in my commentary introductions. Given that,
I won't bother this week to say that yet another great trading week went into
the books. I won't mention that I felt Tuesday was, arguably, the best Russell
mini trading day I have ever seen, with not one single scale out trigger given
for that entire run down, or for that matter, for the entire run up leading to
it, until it was done. I won't mention gold, treasuries, the various
currencies, or the stocks and indices.
I won't mention how PD came right off a key
median line lower parallel I had the week before, went dead to the median line
and .618 retracement area and rolled right down to the division line at a .486
retracement, and bounced straight up. I know you all saw that one. I don't need
to mention any of this because you all saw it this week, just as I did. Hence,
I don't need to do an introduction this week stating how incredible I think
this market is, I can just get right to work...
Before we begin, let me mention one
item if business. Sometimes I have my various premises, be it in trading or
otherwise, and they play out exactly as expected, and sometimes they don't. I'm
forever saying, as you well know, this tells me something, one way or the
other, and I feel that information is valuable to me. That brings us to today's
item of business. I strongly felt the book reduction collection I put up for
sale would sell in five minutes or less. This is a great assortment of reading
material for a very low price, in my opinion. People buy my books with no
problem, but even though I list many of these books on my Recommended Reading page, which
is one of my most popular pages, they not only didn't sell, I didn't even get a
single inquiry about them. I find this rather strange.
It tells me
something, and unless I am reading this wrong, it tells me just how dead
'retail' really is. There just aren't that many people out there taking trading
seriously. This is supposed to be a smoking new bull market, Hey, the Russell
just blasted off to new all-time highs again, joined by many other things, yet
retail is nowhere to be found, and the commercials added still more to their
massive short position. This is information I can use in my assessments. In
light of this, I decided to slash the price way down, and see if that brings in
a buyer.
My guess, which was not correct last time, is that they will sell
in five minutes this time around. I'm selling them because I need the space.
I'm trying to create a fair deal for someone, but apparently the price I chose
was not of any interest to anyone. The $200 I slashed off the price is nothing
to me compared with the value of the information I got when they didn't sell.
That's how my mind works, as far as economics and trading problems. I feel
(this is an opinion, not a claim) I will more than make up for that $200
drop just from the value of the information gained when they didn't
sell.
I will not be doing any further price drops after this. They either
are of interest at this new price, which I think is ridiculously low for what
is in there, or they aren't. I have lined up a 'financial library' where I will
donate them if they don't sell at this price. I am not all that concerned if
they sell or not, I just want to use the space for something else, and thought
I could do someone a good turn at the same time. I can't wait to see what
happens this time around. If it's nothing, that will be the most valuable piece
of information I will have gotten in a long time.
Let's start with last week's Jim's
Chart of the Week, as I have been lately, in the 10-year.
This chart does not show any of the potential
'context' issues here, only
a line, pattern, and key .382 area I wanted to watch. My possible 'bias' here
cannot be discerned from this chart alone. I will leave it to the reader to
look at more data on higher timeframes to see what the layout looks like. If
you don't have continuous futures contract data you can get a good estimate
from the 10-year treasury index, which shows the rates, and will look like a
flipped over version of this chart, for the most part. The issue is, does the
10-year keep rolling down here off this area, or does it bust out, and rates
stay 'low'. The area of the low is a notable spot, as you can see from the
higher 'context' work.
Let's see what the ZN did from here.
The ZN rolled right off the spot I showed in
advance, in the chart of the week. But here's where it gets interesting Still
staying in the 'framework' type style I usually use, where am I watching now?
Sure, at that median line, but does anything else jump out? Look at that spike
below the lower parallel, and those very prominent swing-highs above the median
line. I'm just looking for areas of interest to help me in my management
decisions. My management is very pro-active and dynamic, as I explained in
Kane Trading on: Trade
Management.
I'll add a few lines onto the chart.
I added some offset lines and a sliding
parallel. The ZN bounced dead off that sliding parallel, which was no surprise
(go to a lower timeframe and look at the structure and numbers as this area was
hit). Now, based on that parallel, and the offset line I have there, you can
see why I am now watching the area coming up.
What about the short off the
previous area? That totally depends on the premise. Did I start a new short
there? If so, what was my premise for that? Was I expecting it to reach a 1.272
external retracement of this last pullback, or was the premise based on
something from the higher 'context' layout? Or was I still riding the much
bigger short play we discussed awhile back? Or was this an add-on spot for that
play? Or simply a management tool for that older play? Can you see how it is
impossible for me to show an area, like it is this generic area that always
elicits one and only one response from me, and that's that? I have trading
premises for all potential trades.
I outline in the books how I come up with my
trade premises. The are somewhat complex, in the sense that there is more to it
that I just trade an area because it is an area, then I ride to a target, and
that's all there is to it. This is how I came to show 'areas of interest' as
opposed to 'potential trade areas'. For some the move off the area I showed
would be more than enough for their plan to have made a nice profit and be long
since out of the trade. For a longer-term player it may have helped them gather
useful information they may have otherwise overlooked. It all depends on the
premise. One thing is for sure, the area I pointed out sure was 'seen'.
Let's finish
up with some follow up on gold.
Recall on gold how I showed the area above
with the line convergence and the .618 retracement area. Gold rolled right off
the area after a long struggle with it. It rolled right down to where? The
median line. Now, my initial premise here was that larger ABCD pattern at the
last arrow. How I manage this depends, though, on my premise off that
setup.
I explain a lot about how I do this in Kane Trading on: Trade Management,
and in Kane Trading on: Trailing
Stops. How much heat I may be willing to take here totally depends on
my premise and my management plan, which is laid out way in advance of this
point. If I'm following what I laid out in Trade Management my stop is
going to be lower than this area, I can say that right now.
Let me add a
retracement onto the chart.
The .564 retracement hit right in the area of
the median line. Of course I don't trade off just one number or one line, as I
have said many times, but it shows me where the line is coming in here. The
derivation of the .564 is in the Kane Trading on: Four 'New' ABCD Pattern
Variations, or should I say one of the derivations. This is yet another
new number I exclusively came up with, and I showed the 'basic' derivation in
FNAP.
I also have a much more fascinating derivation that I haven't
revealed to anyone at this point, showing how this number is fully related to
the harmonicities I have been developing and studying up to this point. I have
found it very curious, as time has went on, how many of the numbers I have
found that others now claim 'Oh, I was working with that years ago...' When
someone tells you they were working with the .564 years ago, ask them how they
came up with that one. As a funny little aside (yes, I know, some will take all
this as some kind of arrogant or egotistical attitude on my part, but those
that know me know I don't have an egotistical bone in my body, not even the
little bone in my pinky finger, and those are the people I try to write for),
let me tell a little story about the .886 retracement.
This is a
story I have never told before, and didn't intend to tell it now, except it
popped into my head and seemed salient at this point. Go do the work on your
own calculator to derive the now 'world-famous' .886 retracement. Take the
square root of phi, .6180339 (or just start with .618), and then do it again.
You get .8866517, which would be rounded up to .887. It would be mathematically
'incorrect' to round down when the digit to the right of the third place we
want to end with is greater than 5(000), in this case 6(517). The actual number
is .887. It should have been 'the 887'. When I derived this and opted to
release it I decided to truncate it to .886 (a mathematically incorrect thing
to do, but one that had no practical significance), because it rhymed with
.786. I thought people would not only remember it better, but also accept it
better that way. I explained all this in Kane Trading on: Advanced Fibonacci
Trading Concepts.
Isn't it curious how all these people, and I have
personally been told by at least ten that I can recall, how they had the '886'
long before I did, yet they call it the .886? If they said they had the .887
before me, and that I incorrectly truncated it instead of properly rounding it,
well, then I might think they did have it. I just find this funny, don't you?
Now, I'm not on a 'I'm always getting ripped off' kick here, and I only told
this story because I frequently get told by people that they enjoy my stories.
Let me mention one observation I have made, though, and that is that it is
interesting that of all these people that discovered the .886 before me, none
have went on to discover another number, and I have quantified in the area of
fifteen more, which I have published, with derivations and usage, in my books.
I guess maybe that's why I wanted to go into a little detail on the .564, as I
introduce it more and more to the 'mainstream'.
Let's wrap up (Phew!) with what
gold did from here.
Gold exploded right off the area, reasserting
itself in the direction of the bullish influence from the larger pattern. The
line directly overhead is my next area of interest to watch. Given the layouts
of the treasuries, currencies, other metals, and now energy (seriously, look
this group over in here for big-time clues), some potentially big things may be
unfolding. I feel these things may be major drivers in the stock market, and
I'm doing a lot of intermarket analysis in here. As I said before, if there
ever was a time for intermarket analysis, this is it. The current Jim's Chart
of the Week, on the housing sector, shows just how critically placed that
sector is, as all these other areas are getting to critical areas. This is
going to be very interesting.
The next commentary will be next weekend's
edition, hopefully posted by Sunday evening, April 2, 2006. This may be delayed
because I am doing a mentorship, but as always, I'll do my best to have
something for everyone as soon as I reasonably can.
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