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 May 7,
2006 Commentary (weekend edition)-
That was yet
another great week for trading. I just couldn't ask for more, as far as market
behavior. Just hope that our congress doesn't decide to increase margin
requirements, as they mentioned they are considering 'to curb oil speculation'.
They might figure it's good to curb all speculation, and raise them for
everything. That's the kind of talk that literally keeps me up at night. I'm
getting a bit of that impending doom feeling I sometimes get when I feel things
are 'too good to be true'. Let's hope those with sense rule the day, but when
has that ever been the case?
Before we start let me mention that I just updated the
testimonials page with
some additional new testimonials. Scroll down to the bottom for the more recent
additions, if you have been keeping up with that page. A lot of the
testimonials are simply comments I get in the e-mails I get from various
buyers, and they are, of course, 'unsolicited'. I just wanted to add some of
the things I hear from my readers on an almost daily basis. This way you can
see I wasn't exaggerating when I made my joke about getting a swelled head.
Thanks once again to all those that find my work so invaluable.
Now, on to
the market. Simply put, it's on fire. I can't imagine they won't manipulate the
Industrials to a new all-time high here. The Transports are just smoking,
financials are exploding, and many areas are setting new all-time highs again,
like the Russell. The trends are strong, and the trading is as good as I could
imagine. It's curious how weak the techs are, including the semi's, isn't it?
Notice how no one is saying anymore that this bull market can't keep going
without tech leading? They tend to say whatever supports their case, and their
case is always 'full bull'.
Without further ado, let's get to work. I'll start with
last week's Jim's Chart of the Week.
Here's last week's chart of the week, showing
the areas overhead that I was watching. Did you do the work? Did you assess the
'context'? Although the
Euro has risen quite a long ways on that weekly trend, it did a solid
correction to that trend, and started back up. (Note the 5-wave structure to
this correction, which although uncommon, does happen.) Then an ABCD formed,
and if the higher timeframe 'context' played out, that CD leg should actually
be a 'wave 3' and not a CD leg, hence resuming the uptrend. When I have
multiple possible scenarios, as I most often do, I favor the higher 'context',
and use copious intermarket analysis to balance that. A case could have been
made that the latest potential ABCD was a BC leg of a larger ABCD.
Let's see
what happened.
The Euro is just working its way up to my
areas of interest. Those that have Kane Trading on: Trade Management
understand why a long trade off that lower parallel hasn't given me any
indications to scale any of the position yet, based on my traded timeframe.
Keep in mind, too, that there is more than one way I might be playing this,
with different traded timeframes, and that would greatly alter the management
plan. All I can do now is wait and watch to see how the Euro behaves if it gets
to my areas. Since I am looking at this as an impulsive move, not an ABCD
correction, I am not looking to short off the area of a rising set, unless I
have a strong reason to do that, such as a line coming in from above from a
bigger set. Do I have that?
Let's do a quick follow up on gold.
Gold is just going up in a nice smooth trend.
This is what I play for. Take different shots, and when I catch one, I let it
run, based on the traded timeframe. The first arrow shows the setup, the next
two arrows the big shakeout, right off the lines, which didn't give me any
signals for exiting at all, and now the smooth follow through. I put a
10-period exponential moving average on the chart just to show how the action
is smooth and trending, and calls for me to let it run. Understand that I put
this average on here just to guide the reader's eye, not to particularly
describe any specific management technique that I use. Also, look at copper.
Talk about exploding, it's just getting out of hand. What a move.
Let's follow
up on the 10-year.
Last week's comment still applies today: "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." It sure seems to be losing some
steam, though, and I'm readying for a possible bounce any second. As it stands,
they don't seem to have much of a stomach for taking on more of our debt right
now.
Let's follow up on cotton, on the 15-minute chart.
I'll quote from last week to start here:
"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?"
Cotton went up a bit more and formed a 1.000 ABCD right at the .447
retracement, with an interesting time factor.
Notice the bounce off the warning
line, and the 'test' of that key lower parallel from below. Keep in mind this
is a very fine timeframe for this very large 'context', so I can't look for it
to 'test' a line on this timeframe to the tick (actually that first 'test'
right at the line and .382 was a continuation pattern of mine, taking it to the
bigger ABCD area). In my experience, this is an outstanding 'test'. Cotton
rolls right off the area I was watching, and 'tests' the line again. But, it
was far more interesting than this.
Let me add another set onto the
chart.
I simply added an 'adjusted' median line set
with two lower warning lines onto my chart. Those that have Kane Trading on: Median Line and
Fibonacci Synergy should know exactly how and why I created this set,
and how I had this for the entire price drop off the area. Just look at how
cotton 'sees' the lines, over and over. I didn't even highlight all the
reactions. Notice how it crept up the line after the last arrow. I just can't
work without this type of information on my charts.
So, as I
mentioned, did this area tell me something, besides showing me a great
potential short-term trade? You know the answer to that. The really great
thing, in my opinion, about my methodology is not the potential trade areas
(PTA's) I find, but the areas of interest that I find, all over the place, that
tell me where to watch for clues. These clues, once I accumulate a group of
them, help me make my assessments and form my trade premises. They give me yet
another way to view 'context' outside of simply studying what I see on the
higher timeframes.
This week's chart of the week is going to be a real
interesting one. This is surely a key area, one also reflected in unleaded
gasoline. A larger correction may be due, though, based on previous
corrections. If it does launch from here, it would imply some serious strength
to me, and that would have serious implications for the entire market, and
would add some things to the intermarket analysis picture. It's all about the
price action now, and you know I'll be watching this one extremely
closely.
The next commentary will be next weekend's edition, posted by
Sunday evening, May 14, 2006.
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