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 March
11, 2007 Commentary (weekend edition)-
Well, they
followed up last week with another spectacular week, from a movement
standpoint. From a trading perspective I am just as happy as can be. I want and
need movement, and preferably relatively smooth movement off areas I come up
with. In my opinion, they are continuing to provide this kind of action, given
the way they are shifting capital all around, and just overall increasing the
volatility. Most investors see 'volatility' as a bad thing, and even traders
tend to look at volatility as a reading on the VIX index, or, if you are an
options trader, as an increase in premiums. For me, when I say volatility, I
just mean 'movement'. A day that goes nowhere and closes close to even on the
day is usually considered a low volatility day, yet when you look at the last
chart today, for me, that is just incredible action. That's what I mean:
movement.
Today I will do a bit of a mish-mash. I will look at last week's
chart of the week, which did just about exactly as I had hoped, and should be a
nice teaching example, and then I'll get on to what I will call my
'perspectives' part of the commentary. It should be interesting, and fit well
with my concepts on how I create multiple potential scenarios, and then watch
as things unfold. As I've said in the past, perhaps none of them unfold. My job
is to find areas where I might be interested in a trade, and if I get an
opportunity in one of those areas I can get involved. If none unfold, then I
keep looking. The worst case scenario for me, or any trader, is to trade when
you don't have the parameters that are laid out in your fully comprehensive
'Trading Plan' all coming together. This is so important that I am sketching
out a fun free article on this.
I'll start out with last week's chart of the
week.
Lean hogs had been bouncing from area to
area, as they frequently do, in my experience. After the last two bounces,
shown here as my two areas of interest, it did two more bounces right off one
of my key sets, and was on its way to a bigger setup, right off that last area
at the fourth arrow. I even had to leave off a lower outer division line
because it went right through my little note there. I was hoping everyone would
do the work here, and find the bigger pattern shaping up, in case it unfolded
as I suspected it might. And it did.
Let's move ahead to what I was looking at,
right as it came together.
Hopefully by now everyone is starting to see
the same repetitive process in what I tend to do in my work. As hogs rolled off
my second area of interest I started to think it may be forming an ABCD pattern. Once I see a
potential C point forming I start to sketch out various ABCD possibilities.
Maybe they never happen, but I don't care. As I frequently say, lines are
free.
The last arrow, the general area where we left off, seemed like a
good place to suspect the final push down. I had two line intersections I was
focusing on, and it plunged through the first one (just to the right of the
thrid arrow). Since that would barely be a nominal new low from the previous
swing-low, I had more focus on the next area. I put some numbers on there, and
found some great harmonicity right in the area of my lines.
If you do the
work and look at the actually prices here this is an extremely tight area. Now
I wait and see if I get an entry
trigger, since you know I essentially never 'fade' an entry. (Wow, this
guy pretty much never 'fades' an entry, he says the phrase 'profit target' is
not even in his fully comprehensive 'Trading Plan', and that the 'setup'
is only 10-20% of his plan. Why does he look at things this way???)
Let's move ahead a bit, and see
what the hogs did from here.
Hogs triggered nicely off the area, and then
went crazy. They blasted up and then started to back off a bit. Notice they did
that from an upper outer division line from my set, at the area of the previous
high from the C point of the pattern. They started to bounce just under
eighteen cents from the .382 of the run up (not shown), at another division
line. But it gets better. Did I have anything else I was watching at this spot
here where it started to fade a bit? You know I did.
I will strip
the chart and leave the main downsloping set, and add on another set (one that
all my full set readers likely will know exactly why I would put on) as soon as
this started to move up.
The first and second arrows point to the set
that I added on. The third arrow shows the pattern completion area. The fourth
arrow shows a line convergence I wanted to watch Note that this gives me not
only a price area, but a potential time area to watch. Hogs shot straight for
it, hit it just about dead on, and backed off.
At this point the 'context' and my premise, which I
had way before this point, and which consists of a lot more than 'I am
looking at an ABCD here', guides if I think this is it (if that was my premise
I still would not take this off at the 'target' (since it isn't a
'target'), I'd have a trailing
stop or other management
plan in effect to guide the management), or if I think this is a
launchpad for another thrust. This type of work is greatly detailed in Kane Trading on: Median Line and
Fibonacci Synergy. I don't know about you, but I find this type of work
pretty cool.
Let's move on to the 'perspectives' part of today's work.
I wanted to focus for the rest of our time on
the concept of gaining perspective. It's funny to watch financial television
because they flip flop from we are done, this is a bear market, to everything
is great, and even though this has been the longest running bull market in
history, and the general path the market follows is to follow a bull with a
bear, once this corrects a little, like it now has, the bull will resume, hence
going on every single day to extend the record, probably infinitely. Let's just
look at some charts, and some scenarios. I am not even hinting at prediction
here. I'm looking at areas that would greatly interest me for trading, if
things developed along the way in a manner that I liked.
Here is a
weekly chart of the Russell index. The first thing I wonder is 'Where's the
monster drop?' It hardly looks like it has done anything unusual. And this is
not the big part of the ramp since the lows. Recall the Russell bottomed out
after the 'big bear' at 324.90. This chart starts well over the 500's. Notice
this is way above even the median line lower parallel for my key weekly set,
and that it is way above even a .186 retracement off the 'bottom'. Look at
where a simple .382 puts it. I call the .300, .382, and .447 the 'trend
retracements', implying this is where strong trends usually retrace to. We may
be in a bear market, but this chart sure isn't even close to showing that.
Anyone for calling a top on this timeframe? Not me.
One more
thing before we zoom in a bit. I really wanted to show this on the monthly
timeframe, as I have a fantastic set there. Although it is an easy to spot set
for me, and it should be for full set buyers and mentor students, it might not
be as obvious to those who haven't studied all my work. This set has a key line
that comes in right at the solid lower warning line on the weekly chart, in the
area of the .382, in the low to mid-600's. The time factor is later in the
year. I'm not saying this will even unfold at all. I don't predict. I'm only
saying that if it got to that area, and it did so in a manner that didn't give
me clues saying other things, I will be watching that closely.
It could go
all the way back to that area, and still maintain the uptrend, without it being
anything unusual, in my opinion. And you'd have your greater than 20% drop that
they use (for no technical reason at all) to call it a bear market. It even
would be long enough to meet the time criteria. Everyone would be real
negative, and up it goes, right from an area of great interest. I only point
all this out to give you perspective. Maybe this is it, and up it goes to a new
all-time high. Don't thing so? Well, recall the talking heads predicted a
greater than 10% drop, just about right to the day it started. And recall I
said these people are rarely right, in my opinion. Boy, a new high sure would
fool them...
Let's look at the daily.
Here's a key daily set I have on my charts.
The arrow shows where I was watching for a possible bounce. Look at that close
on the low. How pessimistic were people there? And what was I looking right at?
This is not an after the fact set that just was chosen to show this bounce. Do
the work, look at the charts, it was not only the most clear and obvious choice
to me, it was about the only choice for a move in this area.
I feel
markets make a lot of repetitive moves, and I look at recent behavior for clues
as to things it may do now. It's no guarantee, as we all know 'past performance
is not indicative of future results', and heck, maybe it's all random, as they
say. I just feel this work gives me an edge, so I try to utilize that perceived
edge. Everyone has to make up their own minds and create their own 'Trading
Plan' that suits them.
Notice how this bounced right up to a key .382. This is
one of many areas I will be watching for clues. If this were to roll right off
this .382 and take out that key lower parallel, well, that would be quite a
clue for me. And what about that median line, at a .618 retracement, am I
watching that? Keep in mind this is just a framework, and that I have a lot
more detail on my lower timeframes as I study the upward movement. Just
remember this set, and come back to it after whatever is to be unfolds, and
maybe you won't be quite as surprised.
Let's finish by dropping way down to a
3-minute chart, and looking at perspective from a different angle.
Here's Friday's intraday action on the
Russell mini. Recall how I said in the intro I just want movement, preferably
smooth movement. Look at the open and the close. A 'nothing' day. Sure, it
gapped up a bit, but if you looked at the opening price, then looked at the
closing price, you'd wonder if anything happened. But just look at that
movement, and the smooth beauty of it. But that's not my point. What are those
lines on there? Forget the methodology and all the work I normally show, let's
look at some traditional things, but from the perspective of integrating them
with the methodology.
The two black lines are Thursday's high and
low. Notice not only how the range for the day was similar, but also how the
lines were reasonable guides to Friday's action. The late day ramp started
right off an obvious .886 retracement. And the red line in the middle, the one
that seems to be a 'balance point' for the day's action? That's the daily
pivot. These are lines I pretty much always have on my charts.
I like to
keep an eye on what many are watching, not because I would use them in any of
the manners that they are traditionally used (because I wouldn't, in fact, if I
think that way it likely would mess up my use of the methodology), but because
I want to see how they fit into my work (frequently it is quite well), and how
they are reacted to, to gain some additional clues as to what 'they' are
thinking. The point is, don't forget the obvious. You don't want to overload
yourself, especially when working hard to assimilate a lot of new techniques,
but at some point, keep in mind it is good to know what everyone else is
thinking.
I want to make a few quick comments on the chart of the week. I did
this one on perhaps my favorite intraday trading stock at this time, in the
exchange arena. Take a look at CME, ISE, NYX, NMX, NDAQ, to name some others to
watch. BOT tracks CME, so it is just about the same. This is a critical area
for the chart of the week stock, and if this fails it will tell me a lot.
Notice the late day run in the exchanges, especially NMX. Look at that one on a
1-minute timeframe. Almost 6% in about an hour. Sounds like the speculators are
back in charge, or ready to act like they are. Maybe some takeover/merger
rumors on the floor? This is an area I want to watch, and on the chart of the
week if that area doesn't hold, I'm watching for a possible 'air gap'.
As we close,
watch that crude and USO area, where the line has been breached by time, but
the area, from the standpoint of the numbers, is still holding. This is coiling
tighter and tighter without a decision being made. It may go off like a jack in
the box, and that should have an effect on the market. Do some intermarket
analysis to see where rates, currencies, and the metals sit. And in my humble
opinion, don't just buy into this idea that the sub-prime meltdown is a tiny
fraction of everything, and has no real significance or consequences. Don't
ignore the potential 'trickle down' effect of this, or the actual depth of the
problem. 'They' are good at sweeping things under the rug to keep the game
going, in my opinion, but as far as I'm concerned, just about everything they
are saying now is just rhetoric. Sweep, sweep, sweep.
The next
commentary will be next weekend's edition, posted by Sunday evening, March 18,
2007.
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