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 January
21, 2007 Commentary (weekend edition)-
I get so
tired of starting with how great the trading action was, as far as I was
concerned. What can I say? I like the trading action. I like to put together an
area of interest, see the issue go right to it, and then react. If it does this
with lots of price action clues, that's all the better. If the market was just
all over the place with no seeming rhyme or reason, well, then I'd probably be
complaining every week. Right now, though, it's remaining as good as I could
realistically ask for. Money keeps moving from area to area, and that creates
chart movement. It never ceases to amaze me how they so frequently, in my
opinion, choose my areas of interest to do a big asset allocation swap. Very
interesting how they do that.
The chart of the week in cotton hasn't
progressed enough for me to show anything, so we'll keep that on the back
burner. Rates have continued up off the area, albeit rather slowly, so there
isn't anything worth showing there yet. There was some interesting things in
the corn and gold I showed last week, so I will follow up on those, and then
show something with the Russell from Friday. Before I start I want to mention
once again that the commercials are still holding that huge net short position,
and I'm keeping that in mind as I do my longer timeframe analysis.
I will start
with gold.
Gold has continued up, making a big jump on
the 'inflation news'. This is well into management mode now, and I'm
looking at overhead areas to help guide any management decisions I might want
to make. So far this one is just classic. I hope you can see from the chart
what I am most concerned with in here. If not, you know where to go: the chart
of the week.
Let's drop down in timeframe before we move on, and look at one
thing.
Here's a 120-minute chart of the regular
session. You can do a much better chart using a higher tick 'timeframe', and
doing this, obviously, for the 24-hour session. What I wanted to show here was
how nice and smooth this actually has been going up off the potential trade
area (PTA) at the D point. Given how volatile gold has been, this is actually
rather orderly.
Let's move on and see what happened with corn, one of the the new
grain 'Internet stocks' of the 2000's.
Recall we left off at that smaller median
line upper parallel there, on the big limit move day. They drilled it up for
another limit move day, and they've been stuck up there since. I wanted to show
this for a few reasons. I added an upper warning line for that smaller set, and
a 1.618 external retracement of the ABCD on there. That has defined the upper
limit so far. If you want to do something fun, add an .886 division line on
there, and you'll see it hits right in here. If you can't do those, look for a
sliding parallel. So, is this it for corn? I don't know. I apply the management
mode concepts, and let things unfold as they may.
Let's look at the Russell mini from
Friday, on the 3-minute timeframe.
As the Russell unfolds it starts to form an
ABCD pattern. Not only that, the run up to this ABCD was right off a key median
line there from a 60-minute set I've had for quite some time. I find it amazing
how price action frequently goes back to 'old' lines. So, it's time to go to
work and add some things on here. As usual, I have a point, and it's not to
show how cool of a setup I can show from some previous action.
I'll add on
my key median line set, and a nice, tight grouping.
The pattern is obvious, so I didn't highlight
it. I have my key set, and my grouping. I'm ready to go. My area is clear, and
this is what I spend my time 'stalking', on every liquid issue, on every
timeframe there is liquidity. So, what's the problem? What is the lesson for
today? Recall how I many times say that I only add one grouping on to the
charts I show in here for clarity? If you've read the books, and looked at the
charts where I do show more than one you know that I almost always have
multiple areas I watch.
I'll add one more grouping on, and a sliding
parallel.
Now, why did I do this? Well, if you've read
Kane Trading on: Trading ABCD
Patterns you know why. If not, look at the 1.000 ABCD and that will
give you a clue. Although this grouping (it's actually a 'sub-grouping' by my
book terminology) doesn't look as tight as the lower one, it's actually just a
hair over three-tenths of a point wide, and that's actually very tight. It's
just that the other grouping is almost a perfect overlap. And how about another
grouping right below, if one comes together? Yep, got that one too, I just
didn't show it.
Let's see what happened.
The Russell liked the upper grouping, and
reacted right off it, ramping up solidly from there. Notice the reaction at the
1.618 external retracement of the ABCD, as we just saw in corn, and how it
followed the lower channel of the median line set. The overhead line is the
upper parallel for that 60-minute set we were just discussing. Notice the point
this ended the week at, too, at the lower parallel and the previous swing-high
point horizontal line. You'll need to do your higher timeframe 'context' work to get an idea how
I am looking at this.
Now, one of the questions I get is if I am
using more than one area (actually, multiple 'sub-areas'), what good does that
do me if I don't know which one it will react off if? That's easy. Entry triggers and price action.
That's why I don't 'fade' entries, and why I like to enter 'late'. I like
confirmation. I get this from not only my entry trigger, but from the price
action, and reading how it behaves compared to how I've seen it behave in
similar situations when it 'played out' as I suspected it might. I see which
grouping, if any, gives me a trigger. The better it 'sees' a grouping, the more
I like the setup.
As I close, keep a close eye on this market. I'm seeing some
'cracks in the armor'. One look at the industrials or the NYSE Composite and
it's nothing but straight up, but underlying I'm seeing some things falling
apart. Given how old this bull is, how everyone is on one side of the boat, and
how short the commercials are, well, it would only take one world event to
capsize the boat and drown everyone on board. Just something to watch closely
for. I play with the trend, but I also have the option of how much exposure I
have at any given time, and what type of exposure that is. Remember, if you
heard it on financial television then it's for the masses, and when have the
masses ever been on the 'right' side for very long?
The next
commentary will be next weekend's edition, posted by Sunday evening, January
28, 2007.
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