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 July 2,
2006 Commentary (weekend edition)-
And yet
another great trading week goes into the books. While many talking heads on
television are talking about summer doldrums, or going on vacation, I'm busy
finding what almost seems like an endless number of setups. I just can't
remember seeing more setups than I am now, at any time I can recall. If I can't
find something I like in all this action I'd have to examine my 'Trading Plan'
long and hard. Fortunately, I've already done all that work, and now I just
watch and wait. I'm not having to wait very long most of the time.
I'll start
with last week's Jim's Chart of the Week. Here's what I posted last
weekend.
Let me say that my purpose with the chart of
the week is to try to show some aspect of my methodology, usually an area of
interest, an 'action spot', or a potential trade area (PTA), and not any
kind of 'pick'. My focus is on the educational aspects, hence my leaning a bit
more towards 'action spots' than PTA's. An action spot is an area that will
give me information so I can further assess the situation, usually to help me
dynamically manage an existing trade. This helps me get a handle on the
viability of my ongoing premise.
I feel the price action gives lots
of clues, if one just watches the 'right' spots, and then assesses the behavior
there. This is just my own opinion on the significance of price action. You can
make your own decision if price action can be 'read'. For me, I wouldn't want
to trade without feeling I could 'read' the action. So, that leaves us with
this chart. The play, for me, was the abcde correction. Take one look at
the weekly chart and you'll see why my bias was clearly for the long side at
that abcde. But, the XOI.X formed an ABCD right at a line and .447
retracement area, and that spot, as well as the median line just above that,
became key areas to watch.
This is not the kind of layout I want to see anything
but the tiniest drop off of, if my bigger premise is to hold up. Can you see
why this is a significant area for reading the price action and behavior? I
want to see this area get blown out, and the bigger the blowout, the better for
my premise. If the area produces a strong downward reaction, I need to take
that into consideration in my management plan. You see what I am
trying to show you with these examples?
Let's see what the XOI.X did this
week.
The XOI.X didn't care one bit about the areas
I was watching, and I was as happy as can be about that. The bigger pattern
dominated the action, and the smaller pattern produced no effect at all, not
even a slight drop. Generally I find that the bigger patterns tend to have the
most influence, but if the trend is going to change, I have not found it
uncommon to see the change right off a smaller pattern like this. Hence, I want
to watch the key areas for clues.
Sometimes the clues are very blatant and
obvious. By watching every one I can find I reduce the times I say to myself
after things play out 'Why didn't I see that before?' As I always say, not
every 'action spot' is a PTA. 'Context' is key. On the other
hand, every 'action spot' is important and potentially useful to
me.
Let's look at the S&P. Note that what we are about to look at
is shaping up across the board. This week's chart of the week shows one more
example.
The S&P is still moving up off the bigger
bullish ABCD. Keep in mind the trend on the weekly is still manifestly 'up'.
That .382 area finally gave way. Look at the structure in that area. B points
commonly form at .382's, in my experience. Now the S&P sits right off the
new high for the move up, right at an ABCD, with an ABCD in the BC leg. Look
familiar? See why I am following this theme? Will this area tell me something?
Do all the work here and in the other indices, and see what that tells you.
Hmmm, treasuries at a key, key area, the indices setting up like this, energy
moving, and the currencies, well, look at those. Oh, this is getting
good.
Let's look at one I've been watching in the dollar index.
One of my students, a big hedge fund guy, was
curious why I didn't show this one as last week's Jim's Chart of the Week,
since I shared this with him before the fact. I told him 'Heck, I can't give it
all away for free all the time'. Actually, I really wanted to show that XOI.X
because I strongly suspected it was going to do exactly what it did. I got some
really nice feedback on that one, so I know my point was grasped by those that
sent me e-mails.
So, the dollar hit at a key .382 and line area. This setup is right
out of Kane Trading on: Median Line
and Fibonacci Synergy. This is just the framework, and the full details
of what I look for and do to build the area are in the books. The dollar went
right to the area, rolled down, did a classic 'test' of the area, then dropped
like a rock. I wanted to not only point out what I was watching here, but also
mention to take a close look at the 5-wave structure on the way up.
Look closely at the structure
within wave 2 and 4. If you are a full set reader you likely already see
exactly what I am talking about. As I said, I'm don't use a lot of Elliot in my
work, but I do use some of the concepts that I have found helpful in building
the methodology. My specific use of Elliot concepts is explained in the books.
How interesting is the position of the dollar in all this? Wow.
Let's look at
a weekly chart of the CRB index. Inflation, anyone?
I have been saying inflation is rampant for a
long time. It was a common theme in the members' area when I was
doing that service. I was saying I thought the Fed would go to 5.50%-6.00%, or
more, for a long, long time. There are all sorts of reasons why the CPI doesn't
report inflation accurately at all, one of which is that social security (which
I feel is way beyond completely busted) is indexed to the CPI. Point is, look
at this chart. Nope, I see no inflation at all.
Let's go to a daily chart and see
what I have been watching.
The CRB pulls back after setting a new high.
I have my set 'locked down' at the upper arrow. Now I wait. The CRB forms a
pattern right around the median line. I imagine all my full set buyers known
exactly what this is, and what it tells me. I get a short side ride down off
that pattern, and I am watching the lower parallel for a reaction. An ABCD with
an ABCD in the BC leg, in a powerful uptrend, right at a line.
This is not a
'well-chosen' example, I see things like this all the time. Do your own
work and you'll see them, too. If you don't, well, if you read the books you'll
see how I find them. I can't teach it all in here (as hard as I try!). The CRB
reacts right off the PTA and is now in 'wave 3' ramp mode. I'm watching this
closely, given that median line just overhead, and the critical nature of all
the other intermarket issues. No need to say how critical it all is to the
economy and the market. One look at the move in gold today and you'll see just
how 'jumpy' they are out there.
In the next week or two I may make a few
announcements, as I alluded to in the What's New section awhile back.
Or, I may wait a bit more until after some things shake out, and then lay it
out. None of it will have any significant material effect on the Kane Trading
project. If anything, the few changes I will be making will free up a bit of
time that I can devote to the mentoring project, which, I am happy
to say, is going really well. I am getting some fantastic students, I am
drawing internationally more and more, and some of what I will announce should
greatly improve the 'fun' aspect of a mentorship. I'm known to work so
intensely with my students that it can be tiring. This new thing should
help.
You'll all have to wait, though, until I can lay it out, either in
one shot, or in bits and pieces. Many things are in the works now, and I have
to see if and how they play out. Saying anything now would be premature. If all
continues to go as planned I will likely be taking my own 'summer vacation'
time and I'll not do a commentary in here for a few weeks, as I wrap up the
things I need to do. That could be in a few weeks, but I'll let everyone know
in here first. You know me, I'm always working on one thing or another (no, it
isn't a new book, or anything like that!).
The next commentary will be next
weekend's edition, posted by Sunday evening, July 9, 2006.
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