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 December
31, 2006 Commentary (weekend edition)-
One thing I
can say for sure, and that is I have never had so much fun writing the
commentary as I have lately, or looked forward to it so much. This has a lot to
do with how well the chart of the week has played out according to what I was
suspecting, giving me a tremendous amount of material to work with, based on an
idea laid out in advance. I know, I could focus on simple setups that I really
felt would play out as I suspect they might, but that's not what I have been
doing. I've been specifically picking out things that I felt really had a lot
of educational potential, and they have been obliging me quite well. This has
really allowed me to show some of the various aspects of the methodology, and
it has given the readers the opportunity to study this before the fact, and
follow along as it unfolds. To me, this is invaluable.
Before we get
on to last week's chart of the week, and how that played out, plus some very
interesting follow up on rates, I want to mention something from last week. I
got a pretty fair amount of feedback on my comments about spending time with
family, and trying to avoid the type A personality trap we all seem to fall
into more often than not. I was afraid I might get some feedback saying that
was all too sappy for a market commentary venue, but I didn't get one single
comment along those lines. Everything was along the lines of following what I
was suggesting. Sometimes we just need a fresh perspective...
Let's start
out, as we have been lately, with last week's chart of the week. I know I
belabor the point, but this chart was posted when I put up the commentary last
weekend, as I have just now posted the chart of the week for this upcoming week
when I put up this current commentary. They are posted in advance, on the
weekend, with rare exception, which I generally note. You can find the chart of
the week by going to the home page, and clicking on chart of the week in the
upper left of the side-bar margin.
This is a continuation of the work from last week, so perhaps you should reread
that to see how we got to this point. The first arrow is a major line and
pattern that came together at that point. The second arrow is a 'retest' of
that key line, and the third arrow is yet another 'test'. This last spot was of
particular interest because it did the test in the form of an ABCD pattern, which also formed a
nice-looking 5-Point pattern. I hope everyone did all the work with this before
the action started for the week, since it goes without saying that this is just
my 'framework'. So, I suspected the Russell may move strongly off this area,
and I also was watching to see if it failed, since that would have told me a
lot, too.
Let's zoom in a bit on the area, and see what happened off the spot
that I highlighted last weekend.
Talk about nailing it dead on, right time,
right spot. I'm not bragging at all, I'm just saying wow, did I find an
'action spot' right there. It was so much more than a 5-Point pattern, or a
simple ABCD, which, to be honest, I find essentially useless without anything
else from the entire comprehensive 'Trading Plan' to support it. This action
spot had a myriad of things coming together that really made me pay close
attention. And how's that for follow through?
Before I move on to discuss more
aspects of this, let me briefly touch on entry triggers. Some might say, well,
this was great if you bought the close last week, but once it gapped open, I'm
not going to chase it. What I saw was a completely different picture. First, do
a lower timeframe tick chart and you'll see some very interesting and useful
things, right before the market open. I discussed this in the forum, since the
possible entry triggers were a very 'hot' topic. Not only was the tick work
showing me very clear and obvious triggers right out of Kane Trading on: Entry Techniques,
it was also a near classic case of a variation on A Pattern Trade Entry Technique
that I call 'A Pattern Trade Gap Entry Technique'.
This
technique has specific parameters, and I find it very useful in cases like
this. I discussed it a bit in the now archived members'
commentary, but I never did 'write it up'. I can only write so much,
and my pen is on the shelf right now. Point being, there were many clear entry
signals on this one, and given the traded timeframe this was anything but a
chase it in. Do the work and that should become clear. It was just a classic
Kane Trading methodology setup all the way.
Let's go up
to the 60-minute chart that we were looking at previously in last weekend's
commentary. I will add on a trendline that I was watching very closely.
The black trendline across the top is a very
obvious one. Zoom out on your own chart and see which one this is. It couldn't
be more obvious. I wanted to watch that area and see if the 'stab' above that
red median line was more like a 'stop run' of sorts, or a real move with more
to go. The trendline would tell me a lot, as would the price action as the area
was 'tested'. You should see something very obvious in the price action
as it started to react and 'test' that line in those two spots? Do you see
it?
Let's drop back down to the 13-minute chart and I'll attempt to put
what really could use three or four charts in sequence into one, so I can save
some chart space for those incredible rates.
Oh, Boy, is that something, or what? I have
to use my favorite term in here: amazing. The Russell drops off the trendline
area and starts to play line ping pong between the median line and the
trendline. Keep in mind, I love when a line reverses something to the tick, but
I also know to just let certain lines bounce the action around, and not write a
line off if the reversal isn't dead on. Get real, or should I say realistic. I
also look at the timeframes that the lines come from, and when I'm zoomed in
close I know it will move all around the line.
Now, the Russell moves up for that
second 'test' in an ABCD pattern, at that first arrow. I showed the 1.0000
price projection for reference, but as always, this is just a framework. Notice
how my 'adjusted' median line set, right out of Kane Trading on: Median Line and
Fibonacci Synergy, came right in with the pattern and trendline. What a
spot for me to be looking to 'go to work'. The Russell dumps nicely off the
area, and after they gap it down, starts right up strong off an offset area
(not shown) for the same set. The lower timeframes were loaded with
clues for this.
As soon as the move starts up I throw on that second 'adjusted' set
(sorry I had to put it all on one chart), and the area of the second arrow,
which has an outrageous overlap of Fib numbers that were uniquely derived by
me, was my next spot for 'action'. The Russell comes right off the spot, and
really goes into the dumper, not reacting to any degree at all until it hits
the lower parallel for that set. And on and on it goes...
Phew, I'm out
of breath. I hope everyone saw most, or all, of this as it unfolded. Let's move
on to rates before I get too excited. I'll start with follow up on the weekly
10-year index.
The arrow was the area I had been pointing
out for a long, long time, as we all recall. Rates hit that key 4.40 area, and
have been moving up steadily since. Recall there is a monthly, and even yearly
(going back over twenty years) 'context' on this one. I'm still
amazed how I had been watching this spot for so long, and rates went right
there, 'saw' the spot, and went right up off of it. Just look at that strong
weekly close. I guess it is 'gone' now as they say, right?
Let's drop
down and see how the action looks on the daily.
Recall when I showed this chart recently I
put just the .382 retracement on there for reference. Some of the action has
been a bit 'volatile' (we'll judge later on the 10-year treasury if it was
seemingly 'chaotic' or 'organized'). Anyway, it's been going up steadily right
off the area. But something here is literally jumping off the chart at me. Hang
on a second... One sec...
Okay, I'm back, it was coming off the chart at me so
hard I had to swat it away a few times so I could see the screen and finish my
typing here. Do you see it? Please tell me you see it. Well, it's the chart of
the week, so go there if you don't see it. Keep in mind, though, the entire
'context' when you make your own assessment of this. What clues does it give if
it plays out, and if it doesn't? Ah, yes, the clues.
I'll finish
with a chart on that 10-year treasury. This is the instrument, essentially,
that the index is charting the rates of. It will move inverse to the index, so
when this is going down, the index is going up.
This is the very same chart I have been
showing in here on and off. The last arrow was the area we last looked at. Just
look at how rates continued up on that last daily chart as the 10-year sold
off, dropping right to that lower parallel. Look at this chart and tell me if
you think the move up in the index, the one I said was a bit 'volatile', was
'chaotic', or to some extent 'organized'. I know what my viewpoint is. Just
look at that set, and recall how far back I had put that set on the action.
Hmmm.
As I wrap up I might want to mention that the year end is over, and
given the massive short position held by the commercials and the overly ripe
nature of this cyclical bull market, well, I want to be on my toes. For what?
Well, do you remember what happened when Y2K turned out to be nothing? Look at
an intraday chart of the start of the new year, if you forgot. Maybe a lot of
phony manipulation for bonuses, window dressing, and such was done, and now
it's time to jump ship. Maybe not, but I'm ready for anything. I still can't
find a single bear anywhere. I think it will be exciting trading
regardless, but be wary until things 'shake out'. Happy New Year!
The next
commentary will be next weekend's edition, posted by Sunday evening, January 7,
2007.
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