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 September 3, 2006 Commentary (weekend
edition)-
The market was just as exciting (and great
for trading, in my opinion) as it has been lately. I can't imagine they won't
shoot for, and get, that new all-time high on the DOW, with it so close again.
The great action was across the board, from stocks to many of the futures. Take
a look at grains, and especially wheat. Wheat has something really interesting
going on. Although there are a lot of things to point out in the Russell mini
(look at that same double line zone I showed, and how it reacted there, and how
it set up beautifully to take it out), I want to go back today to some of the
futures we have been looking at.
Due to time constraints and my
holiday obligations, I will postpone the start of my stories and such for
another week. For those (with too much time on their hands) who like to play
mystery games, I left one clue somewhere on the site. If you find it, you'll
know the punch line to my main story. Or you can wait, and hopefully I'll write
this up for next week. I need to do this soon, because I need to get the
mentorship sub-page update posted, and the two go together. And speaking of
mentorships, that's a part of why I'm so short of time right now. I have a slew
of students coming in in rapid succession, since I'm 'backed up'. And why is
that?
I have had to postpone the meetings for several months now due to
this lifestyle change thing I have been talking about (not talking about?). Now
I'm trying to get everyone 'caught up' in short order. But I'm also struggling
with a change in the place where I do the mentoring. Ah, the clues are flowing
like a river. What kind of river? Where do you find rivers like that? Just like
I say about price action, the clues are all over the place, if you just look
for them. Next week this will all make sense. If I have time... Boy, do I have
a flair for the overly dramatic.
Let's look at crude. So much has
happened with that I feel I must look at it in here. This was the topic of
Jim's Chart of the Week for the last two weeks. Let's go back to the chart from
two weeks ago.
I first pointed out this nice setup with a
big line and Fib convergence, as well as multiple patterns. Let's look back at
a few things I mentioned in the last two commentaries: "This has also dropped
below a big, obvious trendline. Will it 'test' that from below?", "I must
admit, crude is painting a picture of a big drop from here.", and " Last week's
chart of the week on crude is also this week's chart of the week, since it is
still in the area, and still of critical importance. Those that have the full
set will clearly see the pattern this has done right at the critical area. It
doesn't get any more interesting that this. Watch this like a hawk." So, what
did crude do?
Let's go to a 60-minute all sessions chart. This can be done,
probably even better, with a tick chart. I'd show that, but the platform I use
and the data source I have for in here doesn't give me that option, so we'll do
the next best thing.
The arrow shows the area of interest from the
chart of the week. Keep in mind this is down quite a bit in timeframe from the
traded timeframe, which would be, perhaps, two days per bar. Notice what crude
did here. This is the pattern I was alluding to in the last comment. Please
understand, at best I will show a few of the key lines and patterns and such on
this. If you understand the principles I work with and you do a full workup you
will see some incredible things on this one. It truly is a classic case study
example.
Let me add some things to the chart, and we'll dig into this
one.
Crude rolls below the trendline, approximated
as best as I could with the red line. It then does exactly what I don't want it
to do if this is going to respect the long setup. It forms an ABCD that comes
up to 'test' the line from below, not once, but twice. It does not have
to touch the line for it to be a 'test'. I added a 'standard' median line set
and a modified Schiff median line set onto the pattern. Do the work here and
put a set or two on the higher timeframe price action (especially using tick
charts). Take a look at what else hits right here. Notice, too, the time
symmetry.
At this point all is not lost from the perspective of a long setup.
This is what I mean by price action and behavior, and reading the price action.
What I want to see is a 'blow-out' of this area right here. That would tell me
'wave 3' and not a CD leg and down it goes. A roll here is to be expected, it's
just that I want to see it get picked up at a 'trend continuation' retracement
area (see that line intersection area below?). If that doesn't happen, my
commitment to the long side will wane, and I may 'flip' to the short
side.
I have to see the bigger picture, and see if I have any other
premises to work with. In this case I do, and I was very interested in the
short side, for the time being, if this rolled hard. Take a look at this week's
chart of the week to see what was waiting below, potentially acting as a
magnet. And now I see what it does here, at yet another big pattern. I just
watch the price action at various key areas, and take my shots, based on my
assessment of the probabilities. That's all I realistically think can be done,
despite what anyone tells you.
Let's see what happened.
Crude did roll hard, and it did trigger me on
the short side shortly after it started to roll. The long goes in the books
under the 'small loss' category, and the short is now in management mode, and
is progressing nicely. But take a look at the chart of the week and you'll see
why I'm more alert and anxious here than if I just drank fifty cups of coffee.
That doesn't mean I jump out here at a 'profit target'. I want to see what
happens. If this area here goes, this may flush. If you've read Kane Trading on: Trade Management
you know what my reasoning is here.
There are also some other sets here (do the
work!), and some other price action considerations, so I want to see what it
does. Notice, too, the price action on this timeframe from right past where I
captured this chart. See the pattern? Am I watching that for clues? You bet I
am. This has all been particularly interesting to me because my big hedge fund
student has been 'all over' this one, and we have been exchanging ideas on it
since it all started to come together. That's been a blast for me. And people
ask me why I mentor...
Let's revisit that gold chart.
Recall that the area of the arrow was an area
of interest because of the smaller and smaller .618 wedge this was forming. I
thought it was curious how it broke from that pattern, but instead of
exploding, as many expected, it has been bound by the two .618 retracement
lines. This is the third solid 'test' of that lower .618 area. As I said
before, the second 'test' completed a pattern there, and it 'tested'
that.
Now, what does all that mean? Maybe nothing. But look at crude, at
a big decision point. What about treasuries, and the currencies? This may
really be coiling here. One strategy for a coil that I feel is about to explode
is a straddle. I would look at this when I don't have a strong indication of
the potential direction. Or I can wait for the price action to tip me, and look
for a lower timeframe pattern and setup to get in. Keep a close eye on this
one.
I'll wrap up with a look at rates.
Here's that 10-year index. It is still
rolling down off my area. That's why I ride until the price action tells
me not to ride anymore. I have no idea when it may stop. Do the workup on the
ZN and you see how nice this setup was. The lines, the Fibs, it was just a
beauty. Keep in mind the 'context' that had me looking
short here as a prelude to seeing how the area shown here would be reacted
to.
Let's finish with the monthly chart, to get that 'context'
refresher for this.
I didn't show the 'new' bar with just
Friday's half-day data, for clarity. It did drop a slight bit lower. The key
thing for me here is to do the weekly chart work to see where the areas come in
for this to stay in the uptrend, and to prepare for a 'blow-out' of the upper
line area. That's the action I want to watch for. Recall crude.
You should be
able to see how I am applying the same concepts to every setup, for the most
part. I see areas of interest, I see how the issue reacts, I then watch areas
where I would expect reactions if the initial move of the area of interest is
to hold, and I watch areas where I expect things to happen if that initial
premise isn't to hold. This gives me clues as the action unfolds. It's a
fractal approach that I apply to all issues on all timeframes, as long as it's
liquid on that timeframe. I think of myself more like a detective than anything
else. The clues are right there. I just play Sherlock Holmes with the price
action.
Well, that's all I can do for today. I hope you were able to see
the point of what I showed here. I didn't just review the charts and say 'Here
is what happened last week.' There is some solid educational material here. If
that doesn't jump out at you, read the commentary over again, until it does. I
tend not to waste time and space. I have points I try to get across, without
always just telling everything straight out. If I do that, I feel the teaching
of the lesson to be learned will not be as effective.
As I close,
did you set up WY? Did you see it follow the same course as many of my
examples? Right off the area, price action right to an area that says it may
blow the area out, and then the move off that area. Now back to 'test' the
initial area. Hmm, I wonder why Jim chooses a lot of these kinds of examples?
Hmm, indeed.
The next commentary will be next weekend's edition, posted by
Sunday evening, September 10, 2006.
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