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 December
10, 2006 Commentary (weekend edition)-
The market
continues to trade in what I think is just an extraordinary manner. I really
could not ask it to behave much better than it has been, from a trading
perspective. There are more than enough potential opportunities to 'go to
work', and that's all I ever ask for. This week I will follow up on rates, as
they did pretty much exactly as I suspected they might, right off the area I
showed in last week's chart of the week. I will then finish with some work on
cocoa, as I really had some sweet things unfold on that one (okay, pun
intended), and there are some of the concepts with it that we have been
covering in here lately.
Before I start I wanted to point out what you all surely
know, and that was how crazy the currencies, precious metals, and rates went on
the jobs report and subsequent mouthpiece jawboning that followed. Even though
I personally saw little in anything that came out or was said, the swings were
wild. If you haven't seen this, take a look back at that time period on a low
timeframe chart. Especially notice the high correlation between all the issues.
From a trading perspective we live in very exciting times, indeed.
Let's start
out with last week's chart of the week on the 10-year index, monthly
timeframe.
I hope I can make clear how this all is
unfolding, and how I am interpreting it, as well as how it has been following
what I have been expecting, and posting in here in advance. There are so many
overlapping ideas, so to speak, from the various timeframes, that it is
difficult at best for me to explain via this medium. Let me quote again from
two weeks ago: "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."
Rates did reach the area as we saw in the above chart,
and as we waited last weekend to see what they did, I continued my work. Keep
in mind this is a monthly chart, and it is way too early to see much on this
timeframe. I am using this for 'context' and layout, as I am the higher
quarterly and yearly charts. If you want to see something amazing, go up in
timeframe from here and see just how long this downward 'channel' has been
used. I'll give you a hint: you need to go back at least twenty years.
Assuming you just went and did this, are you amazed now? Now you see
what is driving my various trading premises.
Let's drop down to the weekly for a
first look at what happened with the area I posted last weekend in the Jim's
Chart of the Week shown above.
The index, and hence the 10-year also,
reacted right off the area. Recall that arrow was the spot from the previous
week's chart of the week, where I thought the area shown there would be
violated, create a 'pop' to this spot, and then a potential reaction in this
critical spot. So far it is following my script just about exactly. Now, what
did this look like down on the daily chart?
I'll drop
down to the daily timeframe. I'll just show the .382 retracement on this chart
to show the area, as I can't retain my lines across timeframes on the charts I
use for this commentary.
The index 'sees' the area as plain as day,
bounces a bit, 'tests' it and then takes off like a shot, closing strongly on
Friday. Now, given the yearly, monthly, and weekly charts this is far from a
reversal. It is nothing but a reaction right now. It's just that it is a
reaction from an area I pointed out a long, long time ago, and started to post
again recently as the index got closer, and lo and behold it sure did 'see' it.
Let me quote again from two weeks ago what I already put above: "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."
In other
words, it is now truly 'showtime' (see this week's chart of the week for the
first area of interest). I can't recall when I have seen such a critical point
for all markets worldwide. Notice as a decision is made about the area, albeit
just an initial decision, that we get wild currency and metal swings? Notice,
too, how the commercials are still insanely short? This is as important of an
event unfolding now as I have witnessed in my career. I will conclude below
with an observation that ties into this a bit, so keep all this in mind as we
shift gears for our final series here, so you can put it all together
later.
Let's look at cocoa.
It is beyond the scope of what I can do in
here to discuss the 'context' for this one right now,
but let's assume that I felt cocoa may have some room on the downside, but
perhaps a new low was not the most probable scenario. Look at your own higher
timeframe chart and see what the layout looks like. I can still form a trading
premise on another timeframe for a short trade, though, if I get a setup. I see
this double line and key .382 confluence come together, so I move to entry
trigger phase. Same old, same old. As usual, this is just the
framework, not the full workup.
Let's move ahead a bit, to another key area I
want to watch.
Cocoa rolls right off the area, not
surprising me one bit. I won't even get into the pattern that also formed at the
area, or anything of that nature. Suffice it to say I had an 'area of interest'
to possibly do some work on, and cocoa obliged me nicely. Now I have another
area where two lines are coming together. Even if I felt that cocoa may be
headed for a new low here, I would still watch this area the same. It is
how the price action unfolds that I am most interested in.
I find, in
general, whether an issue has the intention of going up or down, it many
times reacts off the very same areas as it plays out. Why is that, at least in
my opinion? By doing so it can fool the greatest number of people by postponing
the decision until the very last moment. I get into this in detail in the mentorships, and I now have a term
for it, and some layouts and such I am working on. It's yet another fascinating
area that I am making brand new discoveries in, just like my Fib, pattern, and
median line work. You didn't think I was done looking for totally new and
unique things, did you?
I'll move up to today in the price data. I wanted to
break this into two charts, but I also wanted to show a lower timeframe, to
keep with the type of work we have done in here lately, so I had to save one
chart space for that.
Cocoa did what I suspected, and decided it
was going to react to the first area, but then make the more significant move
off the second area. Again, go to the higher timeframe to study the 'context'
and see why I may have suspected this. And if I hadn't had this suspicion, the
price action spoke loud and clear off the second area. Now, what is the point
of this series, as far as an educational perspective? Glad you
asked.
Notice the area by the second arrow? Look like a familiar area?
Recall areas like this from previous examples? That's the point cocoa tells me
how serious it really is. This area could be used for a long trade itself, as
an add-on spot, or more likely based on my viewpoint, as an assessment point
for an existing long trade. I want to take a closer look at that area and see
what clues there were.
Let's drop down to the 15-minute chart. Keep in mind
cocoa has limited trading hours and this timeframe is reaching the limits of
liquidity for me, from a charting perspective.
Cocoa breaks through the line, 'tests' the
line from above with the B point of an ABCD, and rolls below. How many short
triggers do you think that hit for the average traders? It pulls back to within
just about one tick of a .382 retracement, and starts up. Sure looks like it is
ready for another short on the bigger set, huh? But this unfolds with another
bullish ABCD (which is also part of a bigger pattern that my full set buyers
will likely spot right off), again 'testing' the line from above. This triggers
with one of my favorite, 'classic' entry triggers, and starts up, closing
strong after setting a new high for the move. You can see the follow through
from there.
The price action was indicating to me repeatedly what the
intentions were. This was not bearish price action at the key spot, in my
experience. Hey, I can't prove that there is anything to reading price
action, or technical analysis, or Fibs, or anything for that matter. I can only
state my own opinion, and if you can find some value in it, that's great. I
sure do feel that I am seeing different things happen in many cases when the
intentions are different. In other words, I feel 'reading' the price action
gives me an edge, and that's why I work so hard at it.
I'll close
with a curious thing I have been hearing about lately. I once heard how the
tops of bull markets are marked by a new world's tallest building somewhere in
the world. Why might this be? When money is flowing like wine, well, that's
when outdoing everybody else in the world is at its peak, and the cash is there
to do it. Now, I just heard that mergers and acquisitions are at a new record
high, greater than in 2000 when the bubble was in full swing.
See, I feel
there is always a bubble, sometimes more than one. They ran the stock market
with the excess liquidity from the printing presses that run non-stop worldwide
in the competitive devaluation game. When that ended they had to have something
else to pump up, so they went into real estate. As that slowed, they went into
commodities. I was saying to myself, I wonder what else they will run to keep
the game going? Well, I found out. Art.
Art has broken so many records lately I can't
count them. You should see the prices! It boggles my mind. We are not that far
away from the first billion dollar art piece. Sales with over a billion
in works are now happening. And the talk? Exactly like for the NASDAQ
and recent real estate. All the reasons why the prices are justified, and the
value is actually quite a bit higher than the prices being paid. And on and on
the game goes... The game never changes, only the faces and names.
I want to tie
this all in with rates, metals, currencies, and the knowledge that the
commercials are choosing right now to be the greatest net short the S&P,
based on my information, that they have ever been, including March 2000. Why is
this? What will be the next bubble? How is the game being played right now as
we speak? How can this help us in the business of trading? These are all clues.
I guess my newest saying is 'It's all about the clues'.
The next
commentary will be next weekend's edition, posted by Sunday evening, December
17, 2006.
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