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 April
30, 2006 Commentary (weekend edition)-
What a week!
Let me rephrase that: What a week! This time I'm going to wrap up today's
commentary with what I think is the most remarkable mini Russell chart I have
ever seen in my over 20,000 screen hour career. If that chart isn't beyond
comprehension to you, you need to reexamine your grasp of reality. Seriously,
this is a remarkable chart. Just when I thought I'd seen it all, the market
showed me something I had never seen, and would have bet I never would see. If
you're an intraday trader then you surely know that I'm talking about
Thursday.
Let's go to work, and soon enough we'll get to that Russell. I'll
start with last week's Jim's Chart of the Week.
The Euro was headed for a potential ABCD
pattern overhead, right at the area of a key .382 off the top, and at the
intersection of a modified Schiff median line set upper parallel and the upper
parallel of my 'adjusted' set on the recent price action. I mentioned to one of
my mentor students that I felt this was looking a lot more like a 'wave 3' than
a CD leg (c wave for you Elliot people). It would be a real sign of
strength to me if it launched from this area of the median line for the smaller
set, instead of continuing the line ping pong between the parallels.
Let's see
what happened.
The Euro just exploded, blowing out the .382
area like it didn't exist. This makes two points very clear about my
methodology, and why I developed it the way I did. First, if I were inclined to
want to trade this potential ABCD, there was no entry trigger whatsoever, so, as I
frequently say: no trigger, no trade. Second, if I were to close a long trade
at this area because I thought it was 'resistance', in other words, it was a
very logical 'profit target', I would not be actively managing the trade,
reading the clues that were screaming at me that I had a runner. I'd be
watching the rest of this explosion from the sidelines. That's why I don't use
'profit targets' at all, and why I developed my management plan as I have. Now,
where does that leave me with the layout as it sits now?
The last
alternate ABCD I usually consider sits right in the area of the upcoming .447.
The first warning line for that smaller set is right in here. If I think the
ABCD may still be in play (I've analyzed the 'context', and I'll be doing my
intermarket analysis as this unfolds to do my assessment) this is usually the
last area I'd be looking at. Now, if I were thinking 'wave 3' I'm going to be
watching higher areas, and I'd not be looking to fight that trend. I'd use that
more for management, and perhaps to watch for some 'wave 4' type structure to
unfold. I'm not a strict Elliot trader by any stretch, but I do use some
concepts, and I get into detail in the books about what I use, where, when, and
why. Take a look at this week's chart of the week to see two key areas I'm
watching if this keeps moving.
Let's do a quick follow up on gold.
The last two arrows show that crushing
sell-off that scared out a lot of traders. Recall what I said last week: "...if
the traded timeframe is the daily, or slightly higher, this is still trending
nicely, and I would not be signaled out in full by any technique I use." Well,
there's the new high for the move. The trend is still intact, and as I
suspected, the behavior, although quick and violent, was completely within the
boundaries of normal trending action for for the traded timeframe. So, now I
watch to see what happens from here. Curious, isn't it, gold at 660 and looking
strong? Hmmm, in a no inflation environment. Must be all that jewelry demand,
yeah, that's it.
Let's follow up on the 10-year.
The 10-year is still grinding down, bouncing
around in the channel. I could try to make sense of each little bounce, and
with various offsets and such I probably could make sense of a lot of it, but
it isn't necessary at this point. It will grind in here until it stops
grinding. Short off that area shown is in management mode, and it does what it
does. Take a look at the 30-year for a little different perspective. It sure
looks weak to me.
Let's follow up on cotton.
I sure hope everyone looked at this before
the fact when I first said to do some work on it. That way you got to watch
this unfold. Cotton followed through to the downside, taking out that lower
parallel like it wasn't there. Just another example of why I wouldn't want a
'profit target' set there. Cotton went to the first lower warning line and
bounced right up to the lower parallel. Drop to a lower timeframe and look at
that structure. Cotton is 'testing' that parallel from below with an ABCD,
right at a key .382 retracement. Do you think how cotton acts here is going to
tell me something? Recall the longer-term 'context'.
Let's finish
up with that much awaited Russell mini chart.
Nope, I'm not going to show any setups. I
want to show the travel range for the MR, which finished the day about where it
started. It did nine smooth trends with many fantastic entry triggers on the
tick charts. It followed lines and Fibs and gave me a plethora of setups. But
none of that is the point. Here's the point. Just looking at the swings I
highlighted, the movement was 89.70 points. Read that again. 89.70 points.
89.70 points in one session!
Now, I'm not making any claims about how much of this
could be caught by any one trader, using my methodology or any other
methodology. My point is in how much potential opportunity there was. On one
contract, just one contract, this made a dollar movement of just under $9,000
in one session. On 10 contracts, the movement was $90,000. One of my students
trades 150 lots in the ES on a regular basis. I know the Russell is not the ES
from a liquidity standpoint, but the dollar movement on this thing on a 150 lot
was $1.35 million!
Don't get me wrong. I'm not saying anyone could
catch all this. I'm just saying the dollar movement is just sensational, as was
the potential opportunity. This is not 'normal' action, this is phenomenal
action. The opportunities we are being given are just fantastic, and I am
thankful every day we are lucky enough to be able to trade freely and make our
attempts to capitalize on a market accessible to individual traders. That's my
point: be thankful, as this is simply unreal.
As I close,
let me say, again, the action is simply fantastic across the board, pretty much
everywhere I look. Take a look at the BKX, it's on fire. Look at some banking
stocks like WFC, JPM, C, and BAC, to name just a few. They like the steepening
yield curve. There is always something 'in play', and I just don't mess around
with dead tech stocks, or dead anything. I go where the action is, and money is
moving around like crazy, creating hot areas all the time. What a great time to
be a trader.
Finally, I'm still getting compliments by the boatload from recent
set buyers, and the theme is always the same: 'Your work has helped me
immensely, I wish I had found you years ago...' Other than my new struggle with
getting a swelled head (that's a joke for those that just don't understand my
sense of humor), I am just thrilled with how well-received my work is, and how
much I am able to help out.
The next commentary will be next weekend's edition,
posted by Sunday evening, May 7, 2006.
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