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 July 1,
2007 Commentary (weekend edition)-
The months
are just going past, aren't they? I can't believe it's been another month
already. This is the best summer action I can recall seeing for a long, long
time. I haven't heard about the summer doldrums too much lately. In my own
personal opinion, I thought Friday was one of the very best days in the Russell
mini that I have ever seen, as far as smooth action and my methodology. Boy, if
it only traded like that every day. Well, I can dream, can't I? And speaking of
the Russell mini, I sure hope this transfer of the contract isn't going to
wreck it. I think there are very few things as nice as the Russell, from a
trading standpoint. I'd sure hate to see that change. Time will tell, but my
fingers are crossed on that one.
Today I am going to focus on rates
again. I know this may be boring, especially to you very short-term mini
scalper types, but understand what I show on these charts is essentially
identical to my own mini chartwork, and all my chartwork. If you took the
labels off I'd be hard pressed to tell one chart from another. It's the
principals and the thinking process I am trying to cover here, not the
specifics of a particular market (although I do feel the rates are of critical
importance right now to the bigger picture).
Before I begin, let me quickly
mention a few items of business. I have done some FAQ updating, so you might want to
look that page over, and I still have several new free articles on the back
burner. I might not get to those until the winter time here, since I just can't
see wasting this beautiful weather writing after the market closes. But keep
watching because you never know with me. I also have some updated testimonials
to put up, but like the free articles, I just haven't gotten around to them
yet. Lastly, I have come to realize that the 'season' around here wraps up by
probably the end of October. Then there are storms (we had perhaps the worst
windstorm up here in history last winter, actually two of them), lots of rain,
power outages, and so on.
Point? If one wanted to enjoy this area during a
mentorship, it would be better to come before the end of the season. It's tough
to mentor if the power is out. Now, I am just about fully committed at this
point, but I have a few people that are really close, and I want to let
everyone know, the season is progressing, and as I mention on the mentorship page, I like to split it
up into two sessions.
If you are serious, you better make a
decision very soon, as the window for this is getting close to closed. I am
spending more time with family and getting more selective with doing
mentorships, so I can't promise what I may have available next year. This is
not a sales pressure tactic at all, I just want it to be 100% clear that if you
have your heart set on this, the opportunity may not exist at some point, and
you might want to weigh that in.
With all that said, let's get on to
rates. I'll start with the monthly chart. This is the same chart I have been
showing for a long, long time now.
I'll start with a quote from the last
commentary: "If so, the bigger ABCD could come together, set up to blow out the
key overhead upper parallel area on the monthly chart. Why does this seem like
a potentially feasible scenario to me? Because it would catch a lot of people
by surprise, and it would play perfectly into the hands of the talking heads.
It would allow them to draw in even more money, only to see it vaporized.
That's what happens in a blow-off top. Or maybe it blows out this ABCD here and
just takes out the big area straight away. I don't see that as a
high-probability scenario, not without a springboard (watch for a small ABCD
pullback) to get through there, but it may."
Well, the ABCD did not complete, as
I laid out in one potential scenario, instead rates rushed right up to the key
area, and did exactly as I would have thought they would in that case: they
backed right off. Before we drop down in timeframe and dig into this, let me
point something out that is very interesting on this chart. Notice the key
dates from the ABCD time projection on the chart, from over a year ago?
These are not
all the possible notable highs or lows, they are just the key points from the
ABCD. Look at the dates. June '03, May '04 (followed by a 'retest' in June
within 3 basis points), June '05, May '06 (but the high actually hit in June),
and we are at a critical area now, and it hit in June '07. It seems like rates
frequently put in key points in June. Just something to look at.
Let's go back
to last month's chart of the month.
Here's where we left off last month. Recall
the 'context' from the
weekly chart for this, as well as the monthly. If you don't have the last
commentary fresh in your mind (you should go back and reread it), we will get
to the weekly momentarily. This area was going to tell me a lot about my
various scenarios. If the ABCD down was going to unfold, of which this might be
an ABCD in the BC leg here, this was the spot I was most interested in.
At this
point, all the 'faders' who like to take a trade as soon as an area is hit,
without an entry trigger,
would be piling in. Sometimes this works fine, and it can yield a great entry
price. It just doesn't work for me, as I have discussed many times. (We'll look
at this next.) Everyone has to find their own style and develop their own
'Trading Plan' that works for them. Myself, I like confirmation.
Let's jump
ahead one price bar.
Boink. Again, this is why I like to wait for
an entry trigger. I may also come into a situation like this already long.
Everyone knows I don't use 'profit targets' at all. This is an example for
that, too. Imagine if I got out of a long here and went short, based on a setup
and no use whatsoever of the information in the unfolding price action. This
may work for some, in fact, I have been told by many how great this works for
them, but it doesn't work for me. As I said, we each need to find our own
path.
Let's move ahead a bit more.
We all remember when rates jumped, and the
talking heads on television went crazy. And now look back at the monthly chart
and my previous comments. I thought a roll down off the ABCD we are looking at
here was the most likely scenario, but most likely doesn't mean 100%. Instead,
rates chose the rush up that I discussed. I also mentioned I didn't think the
big area would go with a pullback launchpad. From here I want to see what
happens to assess if that may be setting up, or if there are other possible
scenarios. I play setups, but I use various scenarios to assess probabilities,
based on my experience, to decide what setups to play, and how to play
them.
Let's jump up to the weekly chart before we take one last look back
here on the daily.
This is a closer view of the same weekly
chart we have been looking at. Notice it didn't turn at that potential BC leg
ABCD, as the bigger arrow laid out as one possible scenario. It just kept going
up, like a 'wave 3' and not a CD leg. I added the 1.618 price projection on
there. Notice the reaction. Using the 1.618 price projection for a potential
'wave 3' is a very common Elliott wave technique.
Now, is this going to do a 'wave 4'
and break up again, and then do a bigger ABCD launchpad? Or will it just launch
off the 'wave 4', and do one of my multi-wave deals? Who knows, those are just
some possible scenarios. And although it seems unlikely at this point, this
could still do the bigger ABCD I have highlighted. Full set buyers should know
what pattern(s) and
setup(s) make sense of that possible scenario.
Let's drop back to the
daily.
Well, this may be pulling back in an ABCD. It
also seems to be setting up right about at the key area it took out (previous
resistance, once broken, becomes support, as they say). Do the .382 retracement
from the C point on the lower left hand side of this chart. Hmmm, interesting,
huh? But it's all about the price action here. No matter which scenario
unfolds, I will be watching key areas of interest, and assessing price action
as always, trying to choose potential trade spots. Same as always. I hope
everyone does their own work from here, so the action can be studied as it
unfolds.
I'll wrap up with a follow up on KKD, which turned out to be a lot
better, from an educational standpoint, than I expected when I discussed it
last time. I'll start with a weekly chart.
I'll quote from the last commentary, and then
explain what I had here: "I was asked in the free forum if I had any areas
lower that I was watching. I will leave this as an exercise for the readers,
but I will say, there is another set line just under this price action here,
and also notice the potential ABCD structure to this entire downmove. All in
all, though, if you look at the entire layout you should see why the area we
have been following was of serious interest to me, and why I am less interested
in the lower areas, at least for now. This was a case of if KKD could 'pick it
up' in the key area I felt that was significant, and if it didn't, it may not
have enough to keep me interested. Do some work and see for yourself what you
think of the areas below, including the one just about right here."
Let's review
where we were at this point. I suggest you review all the recent commentaries
on KKD, and especially last month's
commentary. I had this beautiful weekly set, with a .618 (among other
things that we will see shortly) at the lower parallel, and an ABCD pattern, as
I alluded to. We left off last time at that small congestion before it hit the
lower line and reacted. I hope everyone did the work and had this area to watch
in advance. Honestly, I really wanted to see KKD choose the area we were
watching before (I left the two key lines from that area on the chart, partly
to show where we came from, and partly to show where we are now), and not this
lower area. The area we are studying now on this chart is a great-looking
setup, for sure, but I do have a few concerns.
To get to this area KKD had to
'take out' a pattern setup of sorts, and that bothers me. It makes me wonder if
this isn't most likely going to be just a bounce. If one is familiar with my
methodology, the next chart will have some things about a bounce, and where it
may roll over if that is the case, just jumping off the chart at you. I also am
bothered by a setup that has an area like this right below, calling to it like
a siren calls to ships. I also didn't like where that previous bounce took
place (the one I discussed as a potential short signal), since it beckoned for
an ABCD to form at the lower area, which is what happened. This one was
fascinating, for sure.
Let's look at this on a daily chart.
KKD dropped down to the area, even throwing
in a small ABCD as a 'wave 4' to set up the final 'wave 5' into the area. I
added on an alternate ABCD price projection, and a key .886 retracement. KKD
just went straight there and reacted beautifully. I don't like how shallow the
C point retracement was here, and as I mentioned above, those who are advanced
students of my work likely see a clear potential scenario here for a rollover
(I suggest everyone try to set this up with lines, Fibs, pattern, etc.).
Nonetheless, KKD decided this was the area, and the line set was extremely
clear, and has been on my weekly chart for over a year now (and readjusted ever
so slightly about half way along since then).
I probably should have given this
area more credence, but my experience and judgment said the other area had a
lot, too, and it was a tough call between them. This is a great example of why
I might be riding a short down, and then I watch the areas I am interested in,
and see what happens. When nothing happens, I keep riding. Maybe nothing
happens anywhere, and that is just fine with me. When something does happen I
can begin the process of getting out of the one side and getting into the other
side. This may be a difficult concept to grasp for some, and a difficult way to
think, especially for 'scalpers', but as a trend trader, even an 'intraday
trend trader', that's how I think. I hope this example has given everyone a lot
to think about, and work on.
Well, my closing comments are about the same as last
month's, so you can basically just go back and read those again. Rates are key,
and no one seems to care that crude is over 70, and this time with a 'breakout'
look to it. The dollar worries me as a consumer and an American, and it is at a
critical test point for its recent little ABCD. It looks ready to collapse. The
movements in some of the currencies are really something, in my opinion. Gold
is at a critical area. I make no predictions, but this is giving me the feel
that there is about to be a sea change soon, and some big-time shaking up is
about to unfold. This, as the bull talk is incessant, and totally
rampant.
Every dip should be aggressively bought, they say. The sub-prime
and related hedge fund meltdown is way overblown, and will have no effect on
the economy whatsoever (or the tiniest effect), they say. Rates are fine here,
and will likely go down, they say. Energy is not as big of a factor in the
economy as it used to be, so over 70 is no issue on crude (and this price, with
no crisis or supply disruption of any kind right now), they say. And,
unlike Jim, who has been saying for a long time that the Fed funds target will
likely hit 5.50%-6.00% (the historical average when hikes stop), the Fed may
not be ready to lower rates just yet, but no way will they hike, they say.
Well, you know what I say? Beware when everyone is on one side of the boat, and
no one, but no one, seems to be watching out for trouble.
The next
commentary will be next month's edition, posted by Sunday evening, August 5,
2007.
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