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 May 14,
2006 Commentary (weekend edition)-
I'd like to
open up the floor and get some suggestions as to how I might introduce my
commentary each week without saying how incredible I think the trading action
is. It used to be that some weeks were pretty dull, overall, and some were what
I called great. Nowadays they all just seem great, week after week after week.
Hey, I'm not complaining, don't get me wrong, but I just can't break out of the
mold of saying the same thing every weekend. Oh, well, overall the benefits of
having a great market vastly outweigh the downside of a boring introduction
every week.
I wanted to tell a little story of sorts today, but by the time I
finished my charts, including an extra bonus chart beyond my 'usual' six
charts, I realized I just didn't have the time or energy for it. Perhaps next
week, or at some point in the future. I realize my series lately may be a bit
repetitive for some, but I am going to continue to follow up on mostly the same
key issues again this week. I feel this is important for several reasons.
First, these issues are key to the entire market spectrum and economy, and
second, if I stay with the same issues for a period of time you may get a
better idea of how I look at things. Understand that even as detailed as the
work seems in here, with a once a week, one chart per issue venue the overall
view into what I do is cursory, at best.
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 I was watching in crude. In the interest of not cluttering up the
charts too much I showed the two key 'sub-groupings'. I had one more spot
below, which we will soon see. The premise was the corrective ABCD at a key
line area. Look at unleaded and you'll see not only a similar setup, but a
slightly different reaction.
Let's see what happened.
I added my third 'sub-grouping' and an
obvious offset line. I am watching the area, not exact points. Crude
decided to do a little 'stab fake' as I like to call them, and after stalling
in the upper part of my area of interest, it stabbed down, shook some people
out, and then started up nicely, with some great triggers. Notice where crude
started to struggle. Was that expected, or what? Again, look at unleaded to see
something interesting.
Now I watch what we all know I watch in situations like
this, and let price action guide me. Recall I said if crude can move off this
area it would be an incredible sign of strength, as a deeper, more balanced
correction seemed highly probable. I can't recall if I mentioned it here or to
one of my students, but I commented that I felt it may react at this area, but
perhaps not set a new high before a deeper correction took place. I have no
idea what it will do, I just watch the areas of interest and see what sets up.
So far, another setup goes into the record books, though, pointing me right to
an 'action spot'. I love this methodology.
Let's look at the Euro.
The Euro did go straight to my first area of
interest, at that median line upper parallel. It reacted there 'on news', but,
as I suspected, it remained strong, and busted out above the line with a strong
close. Again, another example of why I don't even consider 'profit targets'.
This is not to say that's not it right there. Maybe the high is in on this last
bar. Who knows? But it looks strong, and I haven't even got a hint of a
beginning scale out signal yet.
This is a very, very difficult concept for
most people, but resistance isn't resistance until it proves it can turn
the price around. Until then it is only potential resistance. Show me
any chart and any area, and I can find some reason, across the entire spectrum
of techniques, why a case could be made for support or resistance at that spot.
Until price 'sees' that spot and acts upon that area, it is nothing but
'potential'.
Let's follow up on gold.
Gold is 'on fire', as are all the metals.
Look at copper, zinc, platinum, silver, and so on. I think I can safely say I
have never seen anything quite like this in all my time as a trader. Don't get
me wrong, I love it, but it is nothing short of simply incredible, in my
opinion. Gold isn't even hinting yet at any scaling, so it's in 'ride' mode,
and that's all I need to say about it. There was a lot of talk about how this
last day was the 'blow off' day for commodities, so I tend to think they have a
long ways to go, just based on that hitting the television. We'll see. I don't
make predictions, I just look for areas and setups, and then manage for the
run.
Let's follow up on the 10-year.
Despite the slight basing (or slowdown to the
selling) look of the 10-year, it went on to grind down and set yet another new
low for the move, driving rates up again to new highs for the move. The 30-year
looks very weak. Take a look at the dollar index. Now that looks spooky for
Jim, the everyday citizen. Sure, a weak dollar will help our exporters, but how
long until the lower buying power must be reflected in all that Chinese stuff
we buy every day at you know where? Inflation is rampant, and the
pass-along effect, I feel, is about to really get some traction if things don't
change.
Let's look at something really nice in corn.
I was discussing this one with a student as
it was coming together. In fact, we were examining other areas up higher and I
mentioned that the area of the arrow was where I suspected corn may go, and
that area was where my interest really was. Sure enough corn bounced a little
from the higher area, and rolled right to my key spot in a nice-looking ABCD. It triggered beautifully,
and started up strongly. The move on Friday was magnificent. Look at how it
gapped right up to the median line upper parallel area.
Now, this
trade is off, at my upper parallel 'profit target', right? You know that's not
how I apply my methodology. That's not to say I never scale under any
circumstances. I have a premise and management plan for each trade,
based on what I am trying to accomplish in each case, which is based, to a
great degree, on my 'context' assessment. My point is, I don't take trades off
that are exploding because they check back a tiny bit. If I did that what would
gold have told me to do? It has moved in the area of 190 since the setup,
without any signals at all to exit. Imagine dumping out with a nice profit of
10 or 20 because it rolled over slightly.
I'm a trend trader, and to trade
trends I have to give them time. Look over the higher timeframes on corn and
see what you think my premise might be. Maybe my premise was that corn may
reach this area and that's it. Maybe it is for something else. If you don't
know exactly what you are trying to do, my advice is to stop
trading until you do know.
Let's wrap up with a quick look at the
Russell mini, on the 13-minute timeframe.
The Russell dumped almost 50 points since the
recent high, in a beautiful, smooth trend loaded with my various patterns. This has been among the
best trading action I have ever seen. If it only acted this way all the time,
well, that would be something. Drop down to the 3-minute, and 1-minute charts,
and especially if you have the book set, count up the patterns and setups. It's
just unreal.
The point is, this is the type of action I lie in wait for. I try
to stand aside when it chops around in a tight range, and when I see this start
to unfold I want to be more active. And if you think the action in the upper
left was just range trading, you aren't seeing the pattern that set up the down
move. If you have the books you likely see it plain as day. And once it got
started, there was just pattern after pattern to got on board the trend. As I
have said, I look for trends and try to get on board the trends, on whatever
timeframe I'm watching the price action. This chart, that is what I'm
always looking for, regardless of issue or timeframe.
As I close
let me just say that the action in the commodities is just incredible. The
dollar looks scary, and energy is at a key decision point. Rates are creeping
up, and what they do is going to be a big factor in the economy. The stock
market just started to see that in the last few days. I was discussing it in
the members' area a
year ago. The 'average' fed fund rate at the end of a cycle is 5.50%-6.00%, if
my information is correct. I have been saying for a long time that's where we
are likely headed. Given the dollar and what I am seeing in the metals, I
wonder if we aren't about to see another early 80's unfolding. If so, get ready
to lock down that 18% in the long bond. We are living in interesting times,
that's for sure.
The next commentary will be next weekend's edition, posted by
Sunday evening, May 21, 2006.
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