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 March
25, 2007 Commentary (weekend edition)-
What a week.
So many things to watch, to study, to trade. In many ways, I feel I have chosen
well, for me, to pursue the course I have with the market. I mean this from a
suitability standpoint, the enjoyment I get from my ongoing study as an
ever-evolving student of the market. I have said many times that it seems like
a day doesn't go by, literally, where I don't feel I learn something new that I
consider significant, not just a trivial thing. They may not be as profound
(this isn't my wording choice, but what others have told me) as some of my best
discoveries, but notable enough to make me wonder if it will ever end. I've
come to the conclusion that it never does stop for any serious student of the
market.
Let me cover two areas of business before we get to today's work. I
want to mention once again, as I did last week, that Scott over at Harmonic Trader has just released
his latest book, and it is worth checking out. It is really some fantastic new
work. As I said last week, I get no financial consideration of any kind if you
buy a book from him. I just want to let people know because there is such
limited material available in this field, and the truly great stuff is even
more limited.
Second, I want to mention some ideas I have for the website while
they are in the early stages. As I have said more than a few times since my
family loss awhile back, I keep trying to 'cut back', and to find time to do
something other than the market, to have time for my family, as we all never
know when time is going to 'run out'. Well, so far I've failed miserably at
this, and I am working harder than ever, with less time than ever. Well, it's
time to take the bull by the horns. I'm thinking that starting in May (but very
possibly next month, I'll let everyone know) I will cut back on the free
commentary to once per month, probably on the first weekend of each
month.
One of the main purposes of the commentary is to allow readers to
see my methodology with a fair amount of detail, so they can make an informed
decision if it is for them, and if they want to purchase a book set and study
the work further. I now have 250 free archived commentaries, if my addition is
correct. That's plenty to make a decision. If someone can read all that and
still not know if they want to further pursue this avenue of material, well,
let's say they lack the decisiveness needed to be a trader anyway. I say this
in jest, but you get the point. This is, and shall continue to be, a tremendous
free resource, one that is more than adequate for helping someone judge the
potential usefulness of the material.
When the fall comes around, perhaps in
September or October, I will make another decision. I am thinking I may stop
the commentary completely at that point. This is not a definite yet, as I may
decide to go back to once per week, or stay at once per month. I'm going to see
where I'm at when the time comes. I am also going to 'slow down' on the
mentorships. I never did 'speed up' with them, as I held it to a very small,
reasonable number, as I have explained many times before, to keep the quality
high, to be selective, and to keep my focus on my own trading, as I have always
said I must. I am not stopping the mentoring, I'm just 'not looking for
business' to any great extent.
This will probably have no real material
effect on what I do, only a mental one for me, in the feeling of freeing up
some time. If I have already discussed working with you then I will almost for
sure still follow through with that (keep in mind, though, money talks and BS
walks, and if you keep talking but don't ever lock it down, there may come a
time when I can't do it), but going forward I am going to be even more
discerning.
If you have been right on the edge with doing a mentorship keep
this in mind that if you really want to do it I'd 'get on the stick', because
I'm just not going to be doing this as much as I have, or be as available. Come
the fall I will make further decisions if the change is adequate, or if I need
to do more. If you want to work with me I'm not saying don't contact me, I'm
just saying things are going to get a bit 'tighter' going forward, as far as
getting on 'the list'.
I will keep selling the books, make the members' archive available,
and keep the website up, even adding new free articles from time to time.
Please don't think I am going to stop selling the books, or pull the website
resources, because nothing could be further from my mind. I've put far too much
into this project to do that, and I have no reason to even consider that. I
just need to cut back on the things that take up my time. For instance, last
weekend's commentary, start to finish, took me seven hours (seems like it
should take like two, huh?). That's essentially a full work day. Quality takes
time. I just can't give that kind of time anymore, though, while my family does
their own thing, without me.
At one point I mentioned the possibility of changing the
mentorship program into an internship program, and only selling the books and
members' archive with the entire program. I discussed this briefly in this
FAQ. Right now this is
barely a consideration, but it is one that may eventually come about to save
additional time, if the other changes are not enough. I won't even give this
one any additional thought until later in the fall, and probably only if time
is still an issue.
I hope the upcoming changes make sense to everyone. I
think most people feel I have given of myself tremendously, and this fall will
be four full years of free commentary, so what I have done to contribute should
be clear. This move may slow down books sales a bit, although that wouldn't
really make sense, because current commentary shouldn't be a motivating factor.
Still, sometimes unpredicted effects can come to pass with any change, so it
wouldn't surprise me. But, as has always been obvious, I'm not a 'vendor', I am
not trying to 'talk anyone into' buying my books, and they are here (unless I
do the internship thing), and you can buy them, or not, as you see fit. I can't
take that into account in my decisions when it comes to my time with my
family.
This week I am going to show some work in the OIH. I found this a
particularly striking and amazing example of something I see happen with a
fairly high frequency, and it seems like if it was purely random the frequency
with which I see it would be a lot less. Hey, this isn't 'scientific', I have
no stats to back it up (and will not even consider trying to generate them, I
have much better things to do with my time, like take a walk with my better
half, for example), and I offer it up as just another observation I have made,
one you should 'take with a grain of salt'. My main point for today will be the
line and Fib work anyway, not the 'observation', but it is a very cool part of
why I chose this particular series.
I'll start with a daily chart framework I had
for the OIH, which had guided me in some previous trade premises.
Awhile back I was watching this confluence of
lines at a key .618 retracement. This is just my framework (Gosh, I get tired
of saying that, but I want it to be clear that what you see on this one chart
is not my sole basis for my trade premises), and I had other things pointing to
this area. It was also, coincidentally, a time when a major figure, one whose
opinion I generally think is often pretty good, called for a sell right here.
It was certainly an area I wanted to 'work'. There was some discussion about
this one in the forum.
Let's see what happened from here. Since this is a
prelude to today's work, I'll show the reaction, and subsequent action until
what set up this week on Tuesday.
The OIH rolled dead off that area, right down
to the next line confluence. By this time I had a lot of confidence in the
sets, since they were getting more and more 'proven' to me as time went on. The
OIH hung around a long time at this area, postponing a decision as long as
possible, as often is the case, but finally respecting the area, and bounced
up, albeit in a very choppy manner, to that upper parallel once more (there is
a clear pattern, though, in the 'chop'). There are some things coming in here I
can't show because they are from the group of techniques and numbers from the
books that I don't post publicly, but this area was quite significant for
me.
Now, one thing I need to mention is that the 'context' was changing for me the
second time around at the upper parallel here. Based on the reaction and move
off the median line area, plus the bigger picture 'context', I didn't think
this area was going to hold. I did expect a reaction, but overall, I thought
the area would give out. An area is not just an area, it depends on my overall
assessment. Now on to one of the main topics for the day, since the stage is
now set.
The OIH is at its area, and suddenly HAL announces an earnings
warning unexpectedly during market hours. They do this exactly as the
OIH hits the area. Now, sure, they don't know anything about my areas, and many
announcements happen nowhere near any of my areas, but when something hits at
the same time like this, the reaction can sometimes be pronounced. I have seen
this time and again, and this time was a classic.
I'll drop down to a 3-minute chart,
for detail.
I pulled off the main retracement, as
mentioned above, but I left the key median line upper parallel, and two 1.128
'stop runs'. Now, sure, this may be a coincidence, but just as the area was hit
the announcement comes out. Even if there was nothing to that, at the least the
timing is such that I can expect a potentially violent reaction. Bear in mind
my thinking as this set up was a reaction off the area, and then a push
through. Do some work on the XOI, which although it covers different energy
issues, still frequently sets up at the same time, plus crude, and you should
see why I felt this would likely 'blow out' the line.
Now, as great
as this reaction was, did I have any idea where to watch for a bounce? Where
would I be looking for the move back up to potentially start from? I had one of
the following sets on as this unfolded (it wasn't shown on the daily, but was a
guide in the final ascent to the big parallel), and another one I added on as
soon as the high was in. I will frequently put sets on when I think the swing
point may be in, and then move the anchor a bit if another nominal new swing
point is put in after, so I have things already in place.
Let's see
what I'm talking about, on the 15-minute chart.
The OIH literally plunges right down to a
very key, very obvious line intersection, surrounded by two tight
'sub-groupings'. These sets were not chosen after the fact, hunting around
until a confluence hits the reversal point. These are obvious sets, done in the
same repetitive manner that I do just about all my sets. Sometimes the areas
aren't hit at all, but when they are shot straight for like this, I pay
attention. Now I see how the OIH handles the area.
Let's see
what happened from here.
Oh, boy, look at that. You can't see the
detail on this timeframe, but if you drop down you can see a very clear pattern
of mine right after the initial reaction. I just can't ask for more than this
if I tried. And look at where the OIH ran to. Is that any surprise? When we get
to the last chart, you'll additionally see why this is a more significant area
than just this upper parallel implies. Now, notice how the OIH is reacting
here. Recall I'm thinking break through the big upper area. A pullback here
might be a launchpad in the making.
I'll add a bit more data on, and we'll see
what that shows us.
The OIH reacted a bit, but then just didn't
continue to roll over. Recall ICE on the chart of the week? My little note from
last week on there that said 'Where's the reaction?' If an area doesn't produce
a reaction when I expect it to, that tells me something. If an area is
noticeable, but the 'context' and other factors tell me it may not hold, then a
lack of reaction preps me for a potential trade premise against the area.
Sometimes a break can really create quite a pop.
When an issue follows a line like
this, and like ICE did (see this week's chart of the week, again on ICE), I
call this 'trendline creep'. Although that term can be used any time price
action creeps along any line, I use the term specifically to describe a certain
type of price action after a certain kind of setup fails to produce a specific
reaction. The details of this are usually covered quite thoroughly during a
mentorship. The bottom line is, this looks ready to explode upwards.
Let's see how
this played out from here. I'll add on the daily median line upper parallel,
for the 'context' that gives us.
The black downsloping line is the daily 'big
set' upper parallel. The first arrow shows how once the smaller upper parallel
was breached, it reacted slightly at the next upper parallel, before bursting
through that. It ramped up, well over the only remaining upper parallel, before
dropping down to 'test' that from above, at the second arrow. How many people
bailed there, grabbing their profit, happy to have caught such a nice pop? They
gapped it open the next day, and it is still working its way upward. So, what
does all this tell me?
First, this is just a classic example of things
happening right at critical junctures. Maybe it's not so much that they happen
at such spots as that when they do, the reactions may be more noteworthy, and
hence I tend to notice them. It does seem quite curious, though. Next, the
'context' really guided me, my overall assessment of the layout, as to what I
might be watching for on this one, and it played out in textbook fashion. It
shot right for clear areas, and even though there was panic and 'overreaction',
the areas still had the expected influence.
Does it
always work this way? I won't even make some sarcastic remark like of course
not. I'm trying to gain a small edge in the various areas of my fully
comprehensive 'Trading Plan'. The setup is only 10%-20% of that plan. I collect
edges across the plan, like golden eggs. I try to collect a whole basket of
golden eggs. When I see things hitting areas like this, and it is all in the
'context' of my working trade premise, I think I have a small edge from that.
If the area is ignored, not reached, produces no reaction, and so on, no big
deal. Lines are free. I wait for the next potential setups. Trading is mostly
about waiting around, I feel. Just like my poker analogy. Check, fold, fold,
check, check, raise, BAMM. Waiting until something comes together and the odds
are in my favor.
I really don't care how much I have to wait. Patience is a virtue.
You know what the most common thing I hear from traders I work with is? Yes,
you know. They say they overtrade. Well, no kidding. I sometimes ask if they
have this and that parameter in place for there setup, right out of their
'Trading Plan', when they took the trade, and they say, well, no. And I say
'What?' You get the point. Trading, when done right, at least in my
opinion and by my methodology, can be quite boring most of the time. It's
mostly sitting and waiting. You drift off, and the expression 'You snooze, you
lose' will have new meaning for you. Ah, and you wanted glamour. If so, become
a rock star.
As I close, let me say I'll be back next week, and I'll let
everyone know if that will be my first 'once a month' commentary, or if I'll go
until May. Watch the Iran situation closely this weekend, as I think that is a
potential powder keg. Maybe they diffuse it, again, but there are a lot of
things going on there, and I don't think that mess is done. Far from it. Watch
crude, as it is starting to move up. And watch all these ABCD's that are
shaping up, in the commodities as well as the indices (an unusual alignment, in
my experience).
This move up off the Fed announcement (which I think was
interpreted completely wrong), followed by two days of low volume, narrow range
chop and slop, without the ability to follow through or sell off, right at key
areas across the spectrum of indices, smells of the biggest manipulation I can
recall seeing. It seems like this is going up, period, no matter what anybody
does or says. It would take a 'market shock' event to take it down, in my
opinion. But what do I know?
The next commentary will be next weekend's edition,
posted by Sunday evening, April 3, 2007.
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