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 October
7, 2007 Commentary (weekend edition)-
It's getting
harder and harder for me not to start out my commentaries with 'Wow'. Now,
that's some trading action, huh? Same old story talking about it, but as far as
action, I couldn't ask for more. If I did, I'd feel guilty. What movement, what
setups. Just incredible, if you ask me. The Hang Seng popped about 10,000
points on (you read that right) in just over a month after the 'correction',
about a 50% pop, give or take. For a major worldwide index! Then it shaved off
about 2,000 in two days, and bounced about 1,000 from that low by the next day.
Hmmm, now that's action.
There is just so much to say I think the only thing I
can do is not say anything. I'm not going to discuss that insane gold, the 'I
want to go to zero' U.S. dollar, wheat pushing on 1,000 (wheat near 1,000!!!),
or those 'make '99 NASDAQ look low-priced' Chinese stocks trading on our
exchanges (look at JRJC, CDS, CBAK, CHNR, CPSL, CSUN, and KONG, to mention a
few, as well as FXI and BIDU, of course). Now, is that nuts, or what? If it has
China in the name, it has no issue with going up 400% in the blink of an eye.
Who is buying this stuff? Probably the same as '99, just major pension funds,
mutual funds, and other conservative buyers. Too funny.
The one thing
I do find curious, as we set new all-time highs again in our markets, is how
bullish the sentiment is. I thought I couldn't find a bear before. Now it feels
infinitely more bullish then just last month. The talk is: everything bad is
out, and it's nothing but blue sky. Sure, earnings may come down, but they are
so spectacular, the market is way undervalued here. And that's just the
warm up. That's what I am hearing out there. Got to say, amid this total mania
in Chinese and other stocks, it scares the pants off me. But, I sure wouldn't
short any stocks if you gave me the money free to do it and begged and pleaded
with me. No, thanks, pass. I'll wait until I see a change of character, like in
my 'joke chart'. Until then, I go with the flow, white knuckles and sweaty
palms notwithstanding.
Before we start I wanted to mention that I just wrapped
up a mentorship, and boy, was
it fun. I always return to my screens fully recharged and enthusiastic after I
do one. I was pondering why this might be, and I think it is because it gives
me a chance to really step back during the work and 'look over' just what I
have created, and the contributions to the field that I have made. I really do
feel that my 27,000 hours (my best estimate) of 'screen time' has contributed
to the discovery of some simply amazing things, and I really do enjoy and
appreciate what I've been able to learn. I may be a mentor and teacher, but I
'go to class' every day still, and learn just like everyone else. I really like
the base I am working with now, but the joy is in using that to reach even
further, and keeping learning more and more. It's incredible how much there is
to learn...
This month I am not going to go over the chart of the month like I
usually do. Instead, I updated the same chart with some nice, new work, and
interesting things to watch. Take a look at that and see what you can come up
with. Do some work on the weekly and daily and you should see just how those
rates are moving closer and closer to the key decision they must make. This is
still the most critical chart out there, in my opinion, so keep watching
it.
I
decided to do a single series on the S&P index for this commentary, showing
just a few of the things that unfolded since the last commentary. It's been an
incredible bounce right off the ABCD's that formed across the
board, and the new all-time highs did come. What matters to me, though, is not
what the market did so much as, did it give me potential setups, according to
my methodology, that I could frame out some decent trade premises around? This
series should give some clues to my thoughts on that question.
Let's start
with last month's 'context'
chart on the S&P weekly. I suggest everyone go back to the last commentary
and get refreshed on where we left off and what I said before continuing
on.
The arrow shows where the daily ABCD came
together on the S&P, as discussed last time. The S&P continued to move
off that pattern, and is now at new all-time highs. Not really a big surprise
to me. Take a look at the NASDAQ 100, for example, and although far from new
all-time highs, look at how much further along this index is than the S&P,
looking at the high before the correction. Techs are back 'in'.
Regardless of
the index, the trend above is clearly still strongly 'up' right now. We'll see
if it stays that way if the Fed doesn't cut any more (personally, I think they
should be raising ala Paul Volcker, but that's another commentary), or if they
do cut and the dollar really starts dropping. Probably that will bring in a lot
of foreign buying, plus a 'repricing' of stocks higher for the lower dollars,
plus a boost as the big multinationals get more sales. Makes no sense to me,
but it seems to be the case.
Let's look one more time at my 'joke chart' in the
S&P, and I'll highlight some areas of interest.
I'll start with a quote from the last
commentary: "And will this ultimately be the bull market top at my arrow, or
just a nice correction? Only history will tell, and it has zero bearing on my
trading if it is or isn't. Even if we are at all-time new highs when the next
commentary is posted, I still think I read this one pretty good, don't you
think?" My point was how I was able to see a change of character at the arrow,
not that that character change had to be more than this steep correction. I
follow the setups, and as I discussed, everything was hitting at key areas with
noticeable patterns. I don't fight that, I look for that.
So, were
there any potential setups after the big ABCD? I saw three key spots that I
highlighted on the chart with the three additional arrows. There were some
smaller timeframe things, but these were the key spots here. Do you see
anything by those arrows? I can only get into so much detail in this
commentary, but I'm going to show some of the aspects I was looking at as those
areas unfolded.
I'll drop down to a 60-minute chart and add a few things. I like to
chart not only the cash index, but the ES, of course, and the SPY if I were
thinking about trading there. The S&P index is chosen here to stay
consistent with the longer-term charts that I've shown.
Here is where we were just after the last
commentary. The S&P had bounced very nicely off a .447 retracement area
(the specifics of my use of this retracement is explained in the books), right at a division line of a
key set I was watching. This was the area of the first arrow from the previous
chart. As usual, this is just a framework. Shortly you'll see one of the
reasons why I always say this. After it started to drop, I noted a very key
area coming together. This area not only had some very key Fibs in there, but a
big confluence of lines, and multiple patterns.
I'll add some things onto the
chart, and then we'll discuss what I did.
I added another .447 retracement, and an .886
retracement. I also added two more sets on there. This is the area of the
second arrow from the previous chart. There was a 5-wave move down into the
area, and both 'wave 2' and 'wave 4' had patterns in them. These were useful
for shorter-term potential setups on the short side as this bigger setup came
together. Although this, too, is just a framework, with limited Fib work and
nothing about the main pattern, you can see it's getting cluttered. Although my
charts are clear to me, if I put everything on all the charts in here, you can
see they could easily get overwhelming, or at the very least, too difficult to
follow.
Let's see what happened from here. I want to note that as this
setup came together just about all the indices had similar pattern setups at
the same time, and I discussed this with a few students as it was coming
together.
Wow, the S&P took right off from there,
and when it hit that triple line area above, it pulled back in a smaller ABCD,
and then it just exploded. I wonder why it exploded like that? Well, most say
it was that surprise 50 beepers cut from the Fed, but I think the die was
already cast for any bullish news. The market just went along the line of least
resistance on the news, in my opinion. I, for one, wasn't even a little bit
surprised at that point by the direction of the move.
Let's see
what happened from here.
Can you see it? The S&P pulls back from here in a nice-looking
ABCD, set up for a further run. Looking at the higher timeframe charts we
already saw earlier, I had little reason to believe this thing was going to
turn down. This was yet another signal, to me, of what the market was
intending. I wanted to see how it would react, but it was speaking pretty loud
and clear, as far as I was concerned, up to this point.
Let me fill
this out a bit with some details.
I put on some key Fibs, including a .300
retracement, another .447, and a 1.000 price projection. There's a set I put on
ABCD's (not shown) that hit just about dead on here, too, but I can only show
so much. I noticed a nice time symmetry on this one, too, and I chose to show
that instead. I also had a key median line set lower parallel hitting right in
the area. I was reluctant to show the last set for reasons that will be clear
shortly, but it was such a key part of my premise on this setup. Now, is this a
lot of factors in here, or what? And I left off quite a bit, too. The market is
just endlessly fascinating to me...
Let's see what happened from here.
The S&P came right off the area and went
up over 50 points so far, to new all-time highs. Not only that, if you are
familiar with my methodology you can see the patterns it formed along the way
if you look down on the lower timeframes. Now, the reason I was reluctant to
show this set is because I wasn't planning to use this set as a price guide
necessarily, just as a guide to point to my setup area. This completely freaks
out some experienced median line users, who only use sets as price
guides.
I use sets for many things, at many different times. On the
previous charts I had sets all over, but they were there for very specific
purposes, and after that, I may or may not care about them any longer. I though
in this case if the price didn't follow the set very well people would think it
wasn't a useful set for me, yet it pointed right to the key area, and that was
its purpose for me here. I added on a few division lines to help everyone out a
bit, but once this started up, I wasn't too concerned with the set at that
point, I would then move to 'management mode'. I cover my
various uses of sets quite a bit in Kane Trading on: Median Line and
Fibonacci Synergy, and to a much greater extent in the
mentorships.
I hope this series was interesting. I wanted to show some of the
reasoning I was using as I formed various potential trade premises as this
moved off the area we looked at last time. The clear areas really jumped right
out on this run, in my opinion. I can only do so much, as far as detail, in a
limited commentary like this, and many aspects are not able to be even touched
upon in such a short writing as this. Nonetheless, I think this run through
does show a lot of the salient factors in how I view price action like we have
just seen. And as I have said many times, I believe the methodology is 'fractal' in
nature, applying to any liquid timeframe, so this is essentially the
same type of work I do when looking at mini tick charts, or intraday currency
charts, or whatever.
As I close, I'll repeat last weeks comment: "...get
ready for some potentially superb action. I have never seen better action, or
been happier than I have been lately that I do what I do with my time. I truly
enjoy this market. The flow and price action are just so artistic and beautiful
to me I can't put it into words. It just moves with such a grace and ease I've
not seen for some time. Maybe I'm waxing too poetic, and maybe I'm just 'in the
zone' with my reading of the price action, but whatever it is, it's like a
magnificent ocean sunset to my eyes. And you all know I'm not the sappy type in
here with my commentary. It's just that good, in my opinion..." I just can't
say it better than that, except maybe it got even sweeter to watch this last
month?
The next commentary will be next month's edition, posted by Sunday
evening, November 4, 2007.
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