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 December
3, 2006 Commentary (weekend edition)-
There was
never any doubt today's focus was going to be on follow up. Every so often an
issue will really take off from a potential trade area, and given there is a
lot of correlation between various futures I follow, it isn't all that uncommon
to see multiple sustained moves at the about the same time. This has led to my
'intermarket analysis' that I discuss in here from time to time. Well, the
market fell into that type of a situation in the last few weeks, leading to
many spectacular moves in the issues we looked at last week.
Before I
start let me mention that I am trying to find the time to get a few more free
articles done and posted, but I have to be honest, I'm overwhelmed at this
point, and my time is in really short supply. I'll do the best that I can, and
I'll make a note in the What's
New section when I do add anything, so stayed tuned and keep watching.
I have been getting a lot of positive comments on the articles from all my new
readers. I must have got a few more links because as soon as my traffic started
to settle down a bit I got another huge bump up. It's great to be more
'popular', but it also adds more work for me.
Let's start out with a weekly look
at that 10-year index.
First let me say that I 'fixed' my .382
retracement on this, as I had it anchored slightly off on previous chart(s).
The difference is trivial, but in case you noticed it, that's what happened.
I'll start with a quote from last week, as I hope this will help the reader
understand the greater point I am trying to make with rates: "I put a
daily/weekly set on there, with a key .382 retracement. This is in the 4.40%
area. I want to see how rates act in this area, if it is reached. I might
expect a bounce there, but what happens after that is critical."
The arrow
shows where I was watching on the daily chart of the week. The bigger picture
had me watching and expecting rates to get to the area shown on this chart. If
you do the rest of the work on the monthly chart you'll see there are other
areas below I want to watch if this critical spot doesn't prove to be the
ultimate reversal area.
Let's drop down to the daily chart, taken from last
week's chart of the week (for the new readers, go to the home page, and click
on Jim's Chart of the Week in the upper left), on the 10-year. Keep in mind
that rates and the 10-year are inverse, obviously.
I'll quote once again from last week's
commentary: "If you look at this week's chart of the week now you can see how
the break there might be the push to this area on the above chart. It hasn't
set a new high for the move, though, and did 'snap back' after testing that
trendline (but keep in mind the holiday trading). I showed candles to give that
perspective. Look at the 30-year for some contrast, too. This surely seems to
be a critical area to watch." I have this week's data added on, and I zoomed in
a bit. Count out the last five bars to see where we were when I posted this
last weekend. The 10-year did exactly what I expected it would, as mentioned in
the quote. Let's look at this in more detail.
I'll drop down to a 60-minute all
sessions chart. As I keep saying, redo this with a tick chart, as that is a
better way to look at this. I'm constrained by my tools for posting in here to
have to use all sessions data to do the charts.
Are you seeing the same pattern emerging as I
have been showing? The first arrow shows where this was last weekend at the
close. So, it pops through, 'tests' the line from above, rolls down to a key
.382 (do the work and see where it was anchored from) for a typical shake, goes
back up through the line (do a sliding parallel here for something nice to look
at), drops down to 'test' the line again, pops, 'tests' it one final time, and
then it runs.
Here's the point. Although this could have been a potential trade
unto itself, if you have been following my rates work for any time at all you
know what I have been looking at, and the higher timeframe bias I have had.
This was an area for clues, to see how rates handled the area. Now I watch, in
a similar manner, at what rates do at this next area, which is a big time,
critical area. And so on, and so on...
Let's follow up on some currencies. I'll
start with the Pound.
The arrow shows where the potential trade
area (PTA) was from a bit back. We left off with the Pound at that upper
parallel. What is my thinking when it gaps open, 'tests' the parallel from
above and starts to run? It sure isn't to be thinking about 'profit taking' or
scaling, I'll tell you that. In cases like this I only have one thought in my
mind: 'Showtime!' As I laid out in Kane Trading on: Trailing Stops,
and also in Kane Trading on: Trade
Management, when I catch a runner, I want to ride it, not close it and
watch it keep running. The market tells me when it's over, not some 'profit
target' that may not be respected at all.
Let's look at the Euro. You know it
will be the same story.
You should be able to tell very easily
exactly where we left off, and where this opened. The Euro is following the
same path as the Pound. There has been some tremendous correlations lately in
not only the currencies but in all my usually intermarket issues. Do some
long-term work on this one and look at the two most obvious 1.272 areas when
you do.
Let's look at the dollar index. It's the same old story, same old
song and dance...
Do the same inverse correlation look at this
and the Euro I suggested from last week. Still looks like a mirror to me.
Funny, all the talking heads today were focusing on how to make money on the
'collapsing' dollar. I also heard a lot of chatter about how the economy is in
trouble, and the pessimistic talk is getting huge. Funny, they are always 110%
positive. Is this useful information?
I planned to finish with gold, which is
'still going', but I am having some data issues for the chart, so I'll leave it
to the reader to follow up on that one. Instead, I'll do a one chart shot
showing the Aussie dollar, which I've wanted to show for some time.
I'll do the best I can to do what could be a
big series in just one chart. Awhile back I showed the ABCD in the Aussie,
commenting that there were some issues I had with the setup I was showing. I
wanted to show one that I thought might be a bit tricky. It turned out that it
was indeed. It did something I see with some frequency in certain situations,
and I wanted to show it.
The first D point is at a double line intersection and
the 1.272 external retracement of the BC leg of the ABCD. It bounces there, but
rolls right back down, just about dead off a .447 (not shown). It then does an
extended ABCD to the next double line intersection, at the 1.618 external
retracement of the BC leg. This time it takes off, and really runs. Notice how
it throws an ABCD as it takes off (with an ABCD in the BC leg), reacts to it,
and then takes it out strongly. Is that something I was watching, and trying to
get clues from? C'mon. The Aussie was talking, and it was talking
loudly.
The point here is that many times if I have an idea from the higher
timeframe about what I think may be unfolding, but the first area doesn't have
as many synergistic factors
as I would like, I look for a reaction, and then a move to the next area, then
the bigger move starts there. It's just one more thing I keep an eye out for.
Sometimes I take the first shot, stop out, and then go right back in on a trigger at the second area.
Sometimes the stop placement has me riding the move to the second area, and
sometimes I pass the first area and wait on the second. That may lead to a
missed move, but I trade with discretion based on experience, and like any
'Trading Plan', it will miss some moves, and be almost dead perfect at other
times. That's trading. All that matters is that the plan is 'net positive'
overall.
I hope the gist of what I'm trying to show in this last example is
clear. I have various potential trade premises, and I study the price action
for clues, based on a core group of behaviors that I have seen many, many
times, and I make decisions based on what I think is the most probable
scenario. It takes adaptability, and is anything but rigid, programmable,
codable, or stagnant. It's dynamic and discretionary, but based on a
well-defined 'Trading Plan'.
As I close, those commercials are still wildly short,
and I am watching that closely. There has been what I consider the best trading
action I have arguably ever seen lately, and it's time to not get too cocky.
Some major shake-ups may be in the offing, and although that may lead to some
tremendous potential opportunities, it can also become quite volatile. I'm just
getting a feeling something 'big' might be right around the corner, so keep
your wits about you, and fully understand your 'risk exposure' at all
times.
The next commentary will be next weekend's edition,
posted by Sunday evening, December 10, 2006.
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