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 January
7, 2007 Commentary (weekend edition)-
What a week.
Even though it was a shortened week, it was still spectacular, in my opinion,
from a trading standpoint. I commented in a few places that I thought Wednesday
was one of the top three or so trading days I had ever seen in the Russell, and
Thursday was just about as good. Just about all the other futures that I follow
were moving great. I'm not exaggerating when I say I think this is the best
trading action I've ever seen. If it's not the best, it's right in there with
the best. So, what kicked all this off?
Let me quote from last week's commentary: "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'."
I hope you
looked back at the start of 2000. So far they started it strong early and then
killed it, just as they did in 2000, as I suspected they would this year. They
are dumping energy, gold and metals, grains, currencies are moving, treasuries
are just nuts, and on and on. The movement is just incredible. Look at the
setups recently in the Euro and the Pound, especially how the Euro is playing
line ping pong. Look at the Euro pattern coming together now, and gold. Is that
nuts in gold, or what? Look at cotton recently. I could go on, as the setups
are just all over the place. It's just my opinion, but I simply couldn't ask
for more from the market, as far as cooperation.
I will keep with the recent theme
of rates and Russell, since I want to keep pointing out concepts and ideas, and
not do a thorough market analysis, since that's not my 'job' with this
commentary. I'll start with last week's chart of the week.
I'll start with a quote from last week: "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." What I was hoping everyone saw was the line
convergence at a key .382 retracement area. I showed one major set, and left
the other one to the readers. I was a bit disappointed in that I fully expected
to get at least a few e-mails pointing this other set out to me, but not a one.
I hope it was because everyone was so busy, and not because you didn't see
it...
I'll add that set onto the chart so we can start from that
point.
I added a 'standard' median line set onto the
chart, to go along with my 'adjusted' set. Now you see why I
made such a big joke about this jumping off the screen at me. Give me a break;
look at that confluence. But, before I get too wild about it, what is the
'context'? You see, this is
a daily chart, but there is a strong weekly, monthly, and even quarterly chart
'context' that goes back over twenty years.
I gave
everyone plenty of time to do the work on this, and if you didn't and you are
going to listen to my comments now, you have done your educational process a
disservice, in my opinion. The 10-year rates have been following a trend
channel for in the neighborhood of twenty years now. Go back to my higher
timeframe work from previous commentaries and you'll see the roll off the line,
which is essentially the top of the downward-sloping trend channel. Rates
recently bounced up off the area I was watching, right at that lower .382. Are
rates going to roll back to that channel bottom again?
If the same
time symmetry was to take place that would bring the 10-year rates to about 1%.
Do you think that is going to happen? Will this 20-year channel hold for
additional years? If you thought it wasn't going to, and the bottom is in for
rates, what would that imply, as far as areas to watch? The outlook will affect
the potential premises. This spot here is really the first 'test' for that .382
area on the bottom of the chart.
If that weekly chart area doesn't
hold, then the monthly/quarterly 'context' is still prevailing. But how far
down will that go before it 'bounces', even if it is to continue down? My
suspicion is that this area here won't hold for long, and this week's chart of
the week was chosen to emphasize how important I feel the action in this area
is. See if you can assimilate all of what I have just said, and study your
charts. This is good stuff.
Let's move on and see what happened from here.
As I suspected, rates rolled right off the
area. I'll refrain from my usual comments about how I pointed out the area,
again, in advance. I was watching that .382 and division line area next, and
they overshot it almost to the .447, but understand these are really small
amounts in the 'context' of the bigger picture. The jobs report came out and in
the panic it rocketed off this area in a twist of logic befitting of the market
('Uh-oh, the economy is great, so the Fed will raise rates, and we better sell
stocks like crazy.') As rates approached the line they backed off. Take a wild
guess at the chart of the week.
I'll show the 10-year on the 60-minute
all-sessions chart. As I frequently say, do this with a tick chart to see a
much better picture.
The first arrow shows where we left off with
last week's chart of the week. Recall that the 10-year trades inverse to the
rate index. So, the arrow is where I felt the 10-year may start going up, as
per the chart of the week, posted in advance. Okay, I can't resist, but I'm
not bragging, I'm enjoying what the methodology shows me, that's all.
No, it's not a panacea or a sure way to millions of dollars, but my own
opinion is that it sure gives me an edge.
Now, the second arrow is the
division line and .382/.447 confluence area. A tick chart shows this better, so
you should do one. Amazing action, right off spots that I was watching. Notice
the bounce, too, as the line (on the rates chart) is approached again. Keep an
eye on this, as it is critical.
I'll finish up with some follow up on the
Russell, which was simply stunning this week.
Here's where we left off last weekend. I was
showing how that black overhead trendline really turned down the action, and
how that key median line lower parallel was bouncing the action up repeatedly.
This was forming a 'wedge' of sorts, and the Russell was going to have to make
a decision at some point.
Let's see how the year started, with respect to this
chart.
They gap the Russel up and run it up strong.
To where? Right back to the line, by the arrow at the upper right. Now, was I
as bullish as 'Joe Average' right there? You know what I was thinking, and I
was waiting to see what the price action told me. Drop down to some lower
timeframes and you'll see just what the price action said. They killed it, on
another report, since the news was the 'real' cause, of course. And to where
did they drop it? Right to the same line I was watching for so long, where they
bounced it up strongly.
I'll finish with the rest of the action from this
point.
Wow, right back down to the line, back up
really strong (do some work and see what you can find for this high right
here), down to the line again (where it bounced, better seen on a lower
timeframe), and then down through the line. When I see a line 'tested' this
many times without anything substantial coming from it, especially with another
opposing line, I start to work that into my premises. Notice where the Russell
bounced and went right back to? The old upper parallel. If you do line work for
these various moves you should see some very interesting things. I just can't
ask for more than this, from an action standpoint.
I suggest
that everyone really dig into some intermarket analysis. The currencies are
just incredible in here. I was going to show something in the Canadian for the
chart of the week, but I wanted to continue the theme, and I also didn't want
to show a 'setup', preferring to show an 'area of interest' instead (you do
understand the difference now, I hope?). I also wanted to show gold, and a pile
of other things. But I have to leave the work for you, or you won't learn in
the manner I want you all to learn, and that is by doing your own work. If
there was ever a time to study all the other markets, even if you only trade
the stock market, this is the time. I think we are going to have a real
exciting year for trading.
The next commentary will be next weekend's edition,
posted by Sunday evening, January 14, 2007.
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