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 June 25,
2006 Commentary (weekend edition)-
I always find
it very interesting how the various markets frequently tend to line up at
critical areas at the same time. I also find it rather curious how sometimes
that leads to explosive moves, and sometimes it leads to indecision. When we
wrap up here I'll show the S&P, which is a textbook case of the latter. As
I say week in and week out, this was another interesting week, with some
fantastic trading. There have just been a slew of classic Kane Trading
methodology setups across the board. Given the critical nature of rates in here
I am going to make that the focus of today's commentary once again.
Last week's Jim's Chart of the Week
was on the 30-year, but I found the 10-year a bit better for educational
purposes. Since we already have the longer-term 10-year rate charts all ready
to go, I'll start there. You can go back to last week's chart (if you saved it,
which I assume you did) and do the follow up on that one, and you will find it
was very similar to what I will show in the 10-year.
The 10-year is still moving straight off my
pattern and setup area. It dropped right through the obvious trendline off the
ABCD, and has set a new low for the entire move. The 30-year, which was last
week's chart of the week, had a similar area at its own line, right as the
10-year was 'testing' its line. Based on the higher timeframe work and the
pattern itself I didn't expect the area to do anything but perhaps produce a
small bounce, but if that was not to be the case, the line areas were my focus
for watching the price action. The ZN is now approaching the 1.272 area off the
ABCD. This has rates at a new 4-year high.
Let's look at one of my sets on the
10-year index. I showed this set in a previous commentary.
Rates came off the ABCD, as we just saw, and
are now looking at that overhead division line and/or sliding parallel area
(not shown). That has rates up over 5.30. This does not say I have an area here
for a short, only that this is an area I want to watch. On this timeframe it's
'nothing but up'. If I have a setup for a short it must come from a higher
timeframe. We will look at that momentarily.
Let's look at that other daily set
I showed awhile back.
This nice-looking set had the ABCD completing
right at the median line area. Notice the rate level at the upper parallel,
accounting a bit for time? Just over 5.30, the same as the last set.
Superimpose both these sets on your own chart and you'll see why. I like to see
that kind of confirmation. But, again, this only shows me an area where I want
to watch the action and see if it stalls, rolls, or accelerates. I need my
'context', and I need to know what my potential premise(s) may be.
Let's jump up
to that monthly setup I showed before.
Recall I suspected this may pop over the
sliding parallel off the daily ABCD, and make it to the key upper parallel
there, at that .618. This is in the prime, key area now, and it means
everything, and I mean everything, to the economy. Since I don't 'fade'
entries, and this is a monthly chart, it may be awhile before I have an entry trigger (if I get
one), or before it blows out the area and I know it's a 'blowout' of the
setup. I can still get a lot of work done on the lower timeframe(s), but as for
this huge, critical setup, I can only watch the price action for clues, and
play what sets up. One more time: this is crucial for the economy and
the markets in here, so watch this.
Let's look at the pound that I mentioned a
few times to keep an eye on.
The pound sets up an ABCD at a key median
line, right at a .382. It bounced up a bit, and where is one key area I am
watching? Look at the overlapping lines above the potential trade area (PTA).
Yes, that's two lines, the .300 and .382 retracements off the A and C points. I
don't have to see too many of these to start to believe in my concepts of
'harmonicity', as explained in Kane
Trading on: A Totally New 5-Point Pattern, or in the harmonic nature of
the Fibonacci-derived .300 retracement, the derivation of which is in the
book.
The point here is, the pound hits this area and does exactly what I
don't want to see if I feel the ABCD is playing out. If I want to 'fade' (this
is a different use of 'fade' here, meaning 'do the opposite') the ABCD, the
action and behavior at this spot is what I am looking for. If I'm long, this is
factored into my adaptive initial management plan. As far as one of
the key price reading aspects of my methodology, it doesn't get any better than
this.
Let's finish with the S&P.
We left off last week as the S&P
struggled at that key .300 retracement area, 'testing' that lower parallel from
below. It went on to sell off a bit more, then bounce up, then sell off, then
sit there. How key is this area, as the 10-year breaks to new lows as it
approaches a 1.272 external retracement off its pattern? That's a rhetorical
question, of course. The S&P 'sees' this area I pointed out as clear as a
bell. I have to see what it plans to do with it, just as I am watching all the
various issues at their key areas or the 'tests' of these areas. If I've ever
seen 'showtime', this is it. No way I could ask for more from a trading
standpoint. If this rolls over, I will be watching the 'full' ABCD area next,
not only here but in all the indices, and many sectors.
As I close
let me make a brief comment on this week's chart of the week, which, I hope
everyone now understands, you can access from the home page by clicking on the
'Jim's Chart of the Week' link in the upper left area of the page. Put a
horizontal line on your chart from the March low. Also add the key .382
retracement from the Jan '05 low, and the .447 retracement from the May '05
low. Look for the .300, .618, and other retracements off other key swing
points. Talk about harmonicity. The point is, notice the area this bounced
from. I labeled the chart with the standard Elliot labelling for the
abcde (I tend to avoid the use of ABCDEF), and the 'pattern trading'
ABCD for the last bounce up. This is a fascinating chart, and a very critical
one, too, for the economy. Pay close attention here.
The next
commentary will be next weekend's edition, posted by Sunday evening, July 2,
2006.
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