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 November
19, 2006 Commentary (weekend edition)-
I sure have a
lot to cover today. As usual, I'll have to cut it way down just to get it to a
'long' commentary. I was split today between doing another mini Russell series,
and getting to that NYX series, so I compromised. Usually compromising leads to
neither one being all that comprehensive, mostly because as it is, even with
six or seven charts, I feel I can barely get into any decent level of detail. I
so wanted to show the two of these that I just had to do both of them. Once
again, you get a 'bonus' chart with seven total, instead of my usual
six.
I'll cover a few orders of business quickly here first before we
begin. I've recently got a few links to my Free Articles page, and that
motivated me to try to get to my stash of articles I've written or partially
written for that section, but just never found the time to finish up and get
them posted. I got to one today, and posted it. I updated the page listing the
articles, and the What's
New page.
Hopefully, if nothing goes wrong, I can get to some additional
articles over the next month. Given the brutal storms we have had up here
lately, and that another is due tomorrow, I doubt nothing will 'go wrong'. Our
area was hit extremely hard, and that's why many of my e-mail responses have
been delayed. Please be patient, I'll get to them all at some point. Lastly, if
you are new to the site and found me via the Free Articles page, please be sure
to check out the rather extensive Daily Commentary Archive. There are
over two hundred free commentaries posted there for study.
Let's start
out with a Russell mini chart, on the 13-minute timeframe, once again.
The Russell came down, did a near 'double
bottom', and started up strong. It then put in the price action on the right
side of the chart. By now this layout should be quite familiar to you if you
are a regular reader of my commentary. Understand that right now I am just
looking at the setup here, and not assessing the 'context', or anything else at
this point. I have to stick to one aspect per series or it will get to be too
much to follow. I will say, though, that this is not the 'traded timeframe'
here, it is well below that. Those who have Kane Trading on: Multiple Timeframes and
'Context' should have a handle on what I would choose for my traded
timeframe on this one.
I'll add a few things onto the chart, highlighting what
I am seeing here.
The Russell is forming an ABCD pattern here, right at a
1.000 price projection and .564 retracement overlap (the .564 retracement is
another one of my creations, and its derivation and use is in the books). As an aside, I am seeing more
and more use of this number in forums, and now in a book about to be published
overseas (more on that in the near future), crediting me and my books. Now,
getting back on topic, what makes this setup particularly interesting to me is
what the lines were saying about this pattern and area.
I'll add two
large sets onto the chart.
There was a big convergence in the area of
interest with the Fibs (I just showed the basics here), the pattern, and two
key median line lower parallels from sets I had going back quite a ways. Also
note that just about all this work is done once the C point completes, and not
once I see a reaction, as shown here. This work was done a long time before the
chart shown here. I just have to choose a good point to show the work such that
it hasn't already happened, but also such that the point is clear.
I'll add a
set onto the pattern itself, and a 'crazy' trendline, for fun.
I added a modified Schiff median line set
there, and a 'crazy' trendline in gray. I had four lines hitting right there. I
also had some others, but the point is clear. As early as the C point
completion area I had four lines, a pattern, and a tight Fib convergence. I'm
looking for the same thing, over and over.
Let's see what happened from
here.
The Russell came right off the area, shown at
D, and just kept running. The really curious thing, and other than the
incredible line convergence this was a main motivating factor for my wanting to
show this, is the behavior at that upper parallel. You'll notice I am trying to
point out something here, in the next example, and in many previous examples. I
hope this is clear.
Notice the ABCD pattern up to the upper parallel (with
the BC leg around the median line), and then the price action (it's also a
pattern) along the upper parallel, instead of dropping down. I was watching for
this to 'pop', and when it did, the real run started. There are various
trailing stops methods in Kane
Trading on: Trailing Stops that would keep me in during this type of
action. If you go back to the 'traded timeframe' and study the 'context' you
will see why I fully expected this to 'blow out' that small little upper
parallel. The point is in how the price action was dropping hints and clues all
over the place in here. This is really good stuff, in my opinion.
Let's take a
really abbreviated look at that NYX I keep talking about.
The NYX IPO comes out, goes crazy, and then
sells down hard. It follows that up with a nice-looking ABCD pattern, set up to
continue the downtrend, if one feels the downtrend may continue. If you've been
following the mania is exchanges, that's not a conclusion I would come to. I
actually have three sets on this price action (one shown), and all are saying
about the same thing. I want to see what NYX does with this area, and how the
price action unfolds if it does react to this pattern and line area.
Since I have
just one chart left, and a 'bonus' chart at that, I'll just skip right to the
end result, and we'll discuss that.
NYX drops off the ABCD area just a bit, and
heads to the median line. If I'm thinking this ABCD will play out, I don't mind
a bounce here, I'd even prefer it. It's what happens next that I'm most
interested in. Instead of rolling over after the small bounce, it starts to
'test' and track the median line. Although this can lead to a big breakdown (I
have a pattern based on this I show to mentor students), the action here
was clearly not bearish. The NYX was talking to me, and it was saying get ready
for 'up'. It exploded, but now here comes the part that makes this such a great
teaching example.
The 1.272 line there is for the ABCD. I tend to think of anything
over a 1.272 ABCD as most likely not an ABCD, but a 'wave 3'. It gets right to
that area, dead on the upper parallel, highlighted with that last arrow, and it
throws out a pattern. Drop to a lower timeframe and this should be clear. Have
you seen me show this before, many times? See the point? It comes off that
small pattern, set up to take out that parallel, and it just goes crazy. This
was not bearish action at all, in my opinion. It was throwing bullish clues
over and over. It was giving setups for me to get in, if I was reading the
clues and wanted to 'fade' that ABCD. This was a great example of very clear
clues, based on my experience.
As I wrap up, I want to mention a few things.
First, let me discuss a few recent charts of the week. The Aussie dollar chart
had a hint about trying to find out what bothered me about that layout. Did you
work on that? Did you see what it did, and is doing? I picked a great example
there. I'll give you a few hints. Check out the harmonicity. How do you rate
that? Do the line work. A nice line convergence? This one is crystal clear, and
it is screaming about the merits of why I use as many of the factors in my
methodology as I can get.
Next, I chose to update the Canadian dollar for this
week's chart. Recall back when I last showed this on the weekly timeframe, and
said it will be awhile (if it gets there), but I wanted it on the table. It's
moving in the direction, still, and may be getting close to an action spot. Do
more work on this one, and keep an eye on it.
Finally, I want to point something
out that is extremely curious. What would you say the sentiment of the market
is? I'd say 100% bullish. Nothing but blue skies and clear sailing. Nobody is
anything but long, and the exposure I am seeing among those that I use to alert
me to 'overexposure' are so long and so bullish it's nuts. Look at the various
volatility indices. They are about to drop to new multi-year, or decade, lows.
So what, all that's nothing new. Well, here's something new. Understand this is
based on my information, and that is only as reliable as the reporting agencies
and such.
The commercials are now the highest net short in history.
Using both the full and mini equivalents (which I have said many times, I feel
is necessary nowadays), they are now net short over 132,000 contracts. This is
higher than at the top of the bubble bull market, which was the previous
all-time record. My information says that they have a 100% correct track record
when at big extremes. And right now, they are betting more money on a big down
than they bet in March of 2000. I'm not saying run for the hills, sell
everything, panic and/or go short. I'm saying, be aware of this. This is
far too big to not keep in mind. Just letting you know.
The next
commentary will be next weekend's edition, posted by Sunday evening, November
26, 2006.
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