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 January
6, 2008 Commentary (weekend edition)-
Wow, is this
market something, or what? If the bear isn't upon us now, this is one heck of a
fake out. It is shaping up like the obvious head and shoulders is going to play
out, just as it set up the end of the last bear. The chickens are coming home
to roost. You can't create bubble after bubble and not have someone pay the
price. They can't create something out of nothing, they can only 'steal' from
those that can't stop them. And the ones who have been stolen from are you and
I. The housing bubble was the biggest joke I have ever seen, and that's from
someone who lived in one of the biggest areas for this in the country.
I used to
comment that every time I drove to 'town' I saw another new development
started, hundreds or even thousands of houses. It was so unsustainable it was
just plain crazy. Add on the 'no doc, no qualifying' creative loans, and it's
bubble city. And just like in '00 with the NASDAQ, it's time to pay the
fiddler. Unless they find some way to bubble us out of this and just postpone
the inevitable, we may see '73-'74 again now, or just another nice bear. Again,
this is all just my opinion, so take it with a grain of salt and form your own
opinion. And regardless of my opinion, I only consider nice-looking setups no
matter what I 'think' might be unfolding. My bias is just down over the
intermediate term, and may soon be down longer-term.
One bit of
business, and then we'll get to some charts. I am still working on the website
transition, which is fraught with many issues and problems. This is an ongoing
process, and so far nothing has happened that may affect the site, but that may
change. There may be down times and pages that don't work fully (like the
contact form, or whatever). I will be working on this probably for the next few
months, so bear with me, and if you have any problems getting on, keep trying,
or if you don't get a reply back, resend your communication. And speaking about
replies back, my trick worked with the gentleman from Australia, but there is
still some problem. I have answered every e-mail received, but it still seems
like you are not getting them, so please try again, and check your spam filter
in case that's the problem.
Let's get to work. I'm going to quickly look at that
rates chart, and then we are going to focus on the INDU and some line work. I
will also show the S&P chart, and the critical position it is in. I am
taking a little bit different approach today, so this should be
interesting.
Let's start with last month's 'Jim's Chart of the Month', updated
to today. This may be the chart of the month 'forever', or until something
makes it less relevant.
So, rates rolled right to that offset line
area, and bounced nicely. The reader should look at this area on the daily
chart, or even lower, for the detail. It then went right up, just about dead
on, to a key line I had, and then rolled right over, as they piled into
treasuries as the market started to weaken. Now it's right back at the key
line, acting very weak. That median line (lower arrow) is calling to the rates.
So much for rate inflation at this point, as the multi-decade channel remains
intact. But, alas, I wouldn't write that scenario off just yet, as things take
time to play out, and this one is far from over. Just look at the price of
gold, oil, grains, and that CRB index at all-time new highs... This is, again,
the chart of the month. I know it's boring, but it is soooo important.
Let's move on
to the INDU, on a daily chart. Get ready for lines.
Although what I am about to show is in 'context' of pattern after
pattern, with Fibs and all the rest of my work, I want to just focus on the
line 'framework' that has guided the action lately. I discussed this heavily
with multiple students, and this type of work was the main focus lately in the
free forum. This was the main set I had on the INDU, and the arrow points to
the area I was watching for a bounce as the potential 'head and shoulders'
pattern started shaping up.
Let's see what happened from here. I will add on another
set, and explain.
After the bounce started I added on the
second set, and started watching at the area of the upper arrow. I also threw
on an offset line, but understand, I'm looking for areas, not exact
spots. This could very well be the place where the second shoulder forms if
this does do the obvious, and puts in the head and shoulders, like it did at
the bear market low way back. Regardless of that potential pattern, this is
where I want to watch for my own work.
Let's move on, and see what happened from
here. I'll add on another set.
The INDU rolled right off the area, and as
you can see, headed for the next spot I was watching. Notice the three line
intersection above, highlighted by the arrow, just calling out to the price
action. Now, does this always play out? Of course not. Many times an area
doesn't 'attract' price at all. I just watch the areas, see what happens, and
plan potential trade premises.
In keeping with this theme, let's move on and
see what happened from here.
The INDU shot right for the area. I was now
watching that key median line lower parallel from the bigger set. Was I
watching the smaller set lower parallel right below? Of course I was, as that
may have been a launch pad for a move up and over this critical upper parallel
right here. And judging by the closes right here now, it looks like it is about
to burst over anyway. (As an aside, I considered that spot at the smaller set
lower parallel the key deciding point for the bull market, as the giant coiled
tightened. I also told many students I was watching for a possible 'double stop
sweep', too.)
Let's see what happened from here, once more.
The INDU rolled hard off the area, and if you
look at say a 15-minute chart, bounced a little bit off that smaller lower
parallel (my bull market deciding point I just mentioned), and then utterly
gave way. It dropped like a rock right to that lower parallel, and closed
essentially on the low right there. Now, is that not only something, but also a
critical spot? I'd say so, but that's just my opinion. Much of this I discussed
in advance with my main mentor students as each step unfolded.
Let's look at
that INDU chart from a little bit back to see more of the overall picture. Keep
in mind, too, this is all in the 'context' of a big weekly set I have had on
the chart for years (not shown).
Now, how critical does this spot and line
look? Given it is also an obvious trendline, do you think a lot of people are
watching this? Might this be a big bounce spot? If it doesn't bounce, what does
that say? And look at that median line right below, if both swing-low stops are
gunned. This is just such a fantastic framework, in my opinion.
Let's look at
that same old S&P chart as we close, the one I have showed in here several
times before.
The S&P bounced right off that trendline
to form the second shoulder here, and now look at it. Do you think a zillion
people are watching this? I do. Do you think if this line really goes a lot of
stops will be hit? To me, this is classic bull market topping action. Only time
will tell, but talk about a critical spot! With crude and gold and grains at
all-time highs! Boy, do we live in exciting times for being a trader. You just
can't ask for more than we are seeing, as far as I'm concerned. Bull, bear, up,
down, who cares, as long as there is movement and we feel we can get a small
edge with hard work. That's my two cents, for what it's worth.
As I close,
let me say that although I am expecting a strong bounce at some point soon, I
am hard pressed to imagine this setting new all-time highs again. But, I just
go with what the charts and setups lay out for me. It is a rough start to the
year, and if the old saying 'so goes the first trading day of January goes the
first week, and so goes the first week goes the month, and so goes the month
goes the year' is true, the bear is upon us. Just don't be too wedded to any
one side, and be wary of the cheerleaders on TV.
And one more thing: be ready for a
surprise 50 beepers cut from the Fed, as I strongly suspect one is coming soon,
and if you are one of those maniacs that trades 75 or 100 (or 1,000) mini
contracts on minimal margin, you could get destroyed beyond comprehension with
such an event if you are short. Make sure you are following good leverage and
exposure rules, especially when such an event is more likely than
usual.
Finally, we are about to get hammered again by another series of
massive windstorms up here, so if you order books this weekend or e-mail me, I
may be 'off line', as the services may be interrupted up here. Be patient, as I
will get to everything as soon as I am back on line.
The next
commentary will be next month's edition, posted by Sunday evening, February 3,
2008.
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