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 February
11, 2007 Commentary (weekend edition)-
What a week.
What a close to the week. The action was just unreal, in my opinion. Now, I'm
using that term in the way it is commonly used nowadays, to mean 'spectacular',
not to mean 'impossible' or extraordinarily unlikely. The movement was there,
as were a slew of setups. I guess there is no point to mention it here (I'll
explain in a minute), but the forum is just a veritable treasure trove of
chartwork and comments by my readers and mentor students.
I am really
impressed with the level of what they show in there, and their creativity. It's
great to see what people can do on their own if you give them some ideas to
experiment with, as I have done with my books. Now, why is there no point to
saying this in here? If you have the books you likely are already following the
forum and know what I am saying, and if you don't, well, then you don't really
care to see what's in the forum. Hence, no point to mention it, I guess. It's
just so cool to see the work in there, I can't help being excitied...
Today I am
going to do what I call 'the anatomy of a trade' instead of my usual mish-mash
of things. I have to forewarn, though, I can only cover a few aspects, and
that's it. My books are like two-thousand pages total, the members' archive has about
fourteen-hundred charts, the mentorships are long and intense;
there is just no way I can come close to all of what I see and do with a
few charts in here. I can show some interesting things, but it just isn't
possible to even scratch the surface with a venue like this. Just keep this in
mind as we look at today's example.
Before I begin, let me mention that everyone
should look at how well the gold play is progressing, and study that in detail.
Look at the Euro, as it is doing something very, very interesting right in
here. Look at rates. Did you hear all that jawboning today? My information says
that when a hiking cycle is in place, historically, they go to 5.50 to 6.00.
I've been saying since just about forever I felt they would go to 6.00. Now
they are all saying how 'up' is likely. But wait, the talking heads on the
television before were all saying that the Fed is going to lower? Hmmm. They
always get it right, don't they?
And watch energy. This week's chart
of the week is the same, since it's still unfolding. Notice that reaction at
the division line I highlighted last week? Make sure you look at the equivalent
setup in crude, though, as that may be much closer than USO. And finally, look
at the things I mentioned last week, and all the rest of the commodities, as
there is a lot going on.
With all that said, let's begin. The series is going to
be on the Russell mini, intraday. I'll start with something I was looking at on
the open on Friday.
Now, keeping in mind full well that I like to
trade with the trend, I am not opposed to 'counter-trend' setups on
lower timeframes, especially intraday. As long as I know what I am doing with
respect to the trend, and I have a premise that works that into the layout, I
can work that way. Here I have two major external retracements from my daily
chart, and although this is at new all-time highs, I am still looking at a
possible 'checkback' that can be played. This chart shows the close as of
Thursday. At this point I want to see what the open brings to see if I have any
possible premises. One premise still may be the long side. I want to read the
action and see what unfolds.
I'll add a few things onto the chart.
The last high rolled right down from an .886
retracement off the recent high. I also added a trendline on, which originally
keyed off the previous swing-low, but I adjusted it when it stabbed a tiny bit
below it. I also have an interesting 'crazy' trendline (not shown) that hit
right at that recent high on the upper left. If I see anything I can work with
here it may be worth a shot for me to look at the short side.
I'll add a
little bit of the opening action onto the chart, and drop to the 1-minute for
better detail.
Ah, the Russell popped up in a show of
strength, right back to that .886 line, in an ABCD that was a 1.000 projection
to the tick (check this on your own). I really want to see what happens
here, how the Russell reacts. Understand, this is a somewhat complex
'counter-trend' setup. I am not getting into 'context' aspects, entry triggers, or much else here.
I am working my way towards some price action reading and some management aspects, and that's our
topic for today.
Let's go back to the 3-minute chart, and move ahead a bit.
Wow, the Russell dropped right off that ABCD,
formed another pattern right around that trendline, and then dropped off
solidly. It than began to bounce up pretty aggressively, so the trade is over,
right? I mean, it has moved over four points, and it's time for me to think
about some profit taking, right? Well, if you've read my books you know that's
not how I look at a situation like this at all.
I'll add a few things onto the
chart, and you can see what I am getting at.
I added a 'standard' median line set onto the
chart, and a key .382 retracement. How do I know I like the set? By the time
the price action hits the last arrow area the division line was 'tested' five
times. I'd say the set has proved itself to me enough for me to want to keep an
eye on it. So, is this an area I want to be thinking about closing a short
trade? No, this is an area I want to be thinking 'add-on', or at the least see
what it does, and then make management decisions.
Now, doesn't this chart look a lot
different than the last one, even though the price data is the same? Keep in
mind, too, what I do in my management is totally dependent on my trade
premise and why I am in the trade, and it varies depending on that premise.
There is no one set thing I do in a given situation. This is yet another way to
look at the concept of 'context'.
Let's see what happened from here.
Wow, the Russell rolled right off that spot
and dropped like a stone. Now, at the area of the last arrow, well, surely I'd
be 'profit taking' like a madman, right? It's a perfect spot for this to go
straight up, right? If you asked that you surely haven't read the books. At
this point I want to see what happens. Recall how many times I've called my
methodology a 'give-back' style. I'm ready to give some back in a situation
like this to see what happens. This is a trend, and I like to ride trends for
all I can. This seems to drive most people insane.
Let's see
what happened from here. It bounced up, didn't it?
Wow, again. The Russell basically collapsed
big-time from there, and the meat of the move was yet to come at that last
arrow. This is a great example of why I simply don't use 'profit targets' at
all in my methodology. I'm not saying 'profit targets' don't have their place
in many 'Trading Plans', I'm just saying they don't have any place in my
trend-trading 'Trading Plan'. I am always amused when asked what my target is,
or what I think will happen. When I say 'I have no clue' I get looked at like
they are thinking I must not really know much about trading. I can only chuckle
to myself, since I can't explain to someone in a few sentences the entirety of
my work and methodology.
I hope at least some of the ideas and concepts I was
trying to show here are clear to the reader. I try to explain this all the
time, and it is a simple concept, but yet a very difficult one to grasp, and
that is that 'support' is not support until it actually produces a
reaction. Until then it is only 'potential support'. The same with resistance.
I get frustrated when I hear someone say 'support is here, and resistance
there'. Then you see price go to that area and just go right through it like a
hot knife through butter, not even hesitating. So much for support and
resistance. Only of it 'sees' it. It baffles me how so many can hype up lines
on their charts so much, and not even care how things act when the area is hit.
They just fade in and it just keeps going... It may work for them, but it just
doesn't work for me.
As I close, let me say that the way gold and crude are
acting, and the way the commercials are holding their shorts, I'm still
thinking something geopolitical is about to happen. I have visions of crude
jumping over $100 in a heartbeat (are you seeing some of those headlines?),
some pretty big conflict breaking out (are you seeing some of those
headlines?), and the Fed caught in a tough spot needing to hike to not
'monetize' crude, and needing to cut because of the negative effects of the
crisis on the economy. It could get ugly. Perhaps nothing happens, and I surely
would only look to trade the trend, and right now that is still 'up', with all
the endless bulls. But I am getting really 'nervous', especially this weekend
(I'm not sure why...).
The next commentary will be next weekend's edition,
posted by Sunday evening, February 18, 2007.
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