|
|
| |
|
 August
2, 2009 Commentary (monthly edition)-
I'll start
this month's commentary by quoting the first paragraph of last month's
commentary: "And another strong month goes into the record books in the great
'bull' market. The action has been typical summer grind, with the first hour to
hour and a half containing most of the move, then the rest of the day it puts
one to sleep chopping in a narrow range. But all is not lost, because other
things have been moving very nicely indeed intraday, with the 'new' daytrader's
vehicle being crude, and then gold and the 10-year. Almost everyone I know that
is an avid mini trader is now trading crude or looking at trading crude. I am
really doing a lot of work on it once the initial ES move settles down. Until
that changes, crude is my new best friend."
All I can add
since then is 'Yep, Yes, Yesiree.' I think I just about nailed it with
last month's intro. The ES, as we will see, finished its correction right
at the area I was most interested in, and although there has been some
great intraday movement in it, it still is in that 'grindy' space once the
initial move, or even the GLOBEX move, is done. It still trades great, in my
opinion, but you'd have to sit through a lot of nothing a lot of the day,
waiting. On the other hand crude is just unreal. Look, as I suggested
everyone do last time, at crude's movement on say a 13-tick chart (I'm not
saying use the 13-tick chart for trading, just use it to look at the movement
right now), in premarket and all day on Friday, July 31st. Those swings are
about $1,000 each, in minutes. Reminds me of the ES during the crash
times.
So, overall, between crude, treasuries, gold, the Euro, the
intraday action has just been sensational. I just look to see what has been
moving lately, and crude is almost always at the top of the list, and follow
that for the day. I still try to watch every tick of the ES, but while I'm
struggling to stay awake once it goes into grind mode, I just pour myself into
crude, and the other issues. No sense getting married to something when the
action is elsewhere. The really worrisome thing is all the talk about changing
the rules for crude trading to 'curb speculation'. You and I both know that
means we won't be able to trade it anything like it is now, but the ones who
should be restricted/banned/jailed, there will be essentially no change for
them, we all know that. So, I'm looking at this as a 'make hay while the sun
shines' kind of a time. If you do make your own decision and decide to dabble
in crude, just know that it is a big contract, and it moves real
fast. It is not for beginners.
Before we move on to the chartwork,
let me mention two items of business. I updated the links page, adding some new links on
there that I have found worthwhile. I added the links for Zero Hedge and
Mauldin's blogs, since, as I discussed last time, I won't be spouting off in
every commentary about the ridiculous, pathetic shenanigans that are going on
out there. These two sources are loaded with all sorts of interesting
information, so you can do the research on your own. I also added on a blog
link for a guy I know, called VO's Market Views. If you like Elliott counts and
Fibs, you should love this. In my opinion, VO is one of a small handful of
really great traders out there putting out a lot work, for free, trying to help
other traders out. I added a link, too, for the Kane Trading free public forum
over at MyPivots.
Second, I recently noticed something on the commentary, and in all
this time, I have not gotten one e-mail mentioning it. Usually if there are any
errors or unusual things, I get e-mails about it. Take a look at the title for
recent commentary in the archive. They read 'Daily Commentary'. So, what, Jim?
Well, that's a throw-back to when I used to do a commentary every day (yes,
look back in the archive, I used to do one every day, but they were a lot
shorter). When I went to biweekly, then weekly, then monthly, I never really
thought about the title. Since I just noticed this, I'll get to work, maybe
this weekend, on working up a new title image. I know it's trivial, but you
know how I am. Like I said, curious how no one mentioned it should say 'Monthly
Commentary'.
Okay, let's get away from trivialities, and get to some chartwork.
I think I did a nice series for today, but, as always, I am disappointed in how
little of what I wanted to cover I could get into the charts, and how much I
had to leave out. It just goes to show how much information is packed on a full
screen-sized chart, and how many details can be explained visually and verbally
working one-on-one. As soon as I get restricted to a few small charts and no
verbal or 'live' explanation as I put things on the chart, it gets tough to
show the level of work I'd really like to. I keep doing the best I can, but I
want to point out how restrictive the medium really is.
I will skip
last month's chart of the month, since it didn't do enough to make the grade
for using chart space. This month's chart of the month is an update on that,
and I will comment a bit on that later, so you can see there what has happened
since then. I will start, instead, with that head and shoulder S&P chart
from last month.
Here's that infamous head and shoulders chart
that every last person on earth was talking about. The idea was that it would
not play out as expected, given how widely it was discussed, but that it would
do some type of fake-out. I highlighted two of the most common ways I thought
they might run it. They might take out the 'neckline' in red, backtest it, then
down to the area of the question mark, and having trapped all the suckers that
way, up it goes. Or I thought they might just come right off the 'neckline',
backtest my key line, and then down to the question mark area. Either way, they
trap all the suckers, and then they just kill them, while all those that are in
wait for 'the objective' down lower.
Let's see what happened. I'll remove the
arrows for the lower scenario, and zoom in, for clarity.
The S&P even tried to fool me, with all
my scenario work in place, by doing a hybrid, almost, between my two scenarios.
It was closer to the upper scenario, my second scenario, though. It went just a
bit through the 'neckline', and took a shot at backtesting my key line, in
blue. Then they dropped it down, as expected, and after a nice-looking higher
low, just gunned it up. The strength and duration of the move implies to me
they trapped a lot of suckers. Just like the rising wedge I showed
before in the ES, and in GS, all the obvious classical patterns are just
perfect sucker traps. My play is to assume they will be sucker traps, watch how
they unfold, and look to jump on just as I see the last sucker go in the trap
as they start to spring it.
Before we move on, take a good look at this move here
for 'context', as we will zoom in now to a 60-minute chart, and won't have
quite as nice of a perspective as this 130-minute chart shows. If you lose
perspective, just refer back to this chart, or look at your own daily
chart.
Let's go back to last month's 60-minute S&P chart, and that
incredible shorting area we discussed.
Recall this area on the S&P, and how much
of a reaction it had produced at the time of the last commentary. Once in this
kind of situation, I'm using the very same methodology to look for the next key
area, to make not only management decisions on current positions, but also to
decide if I may want to be looking at a setup in the other direction at the
next area.
A lot of this decision making process comes from the
'context' and my read on
what I think is unfolding. In this case, I was bullish in the
intermediate-term, thinking this wanted up once a correction was done. And in
many cases, we all know what kind of corrections I like (more on this shortly).
So, before we even get to that, where is one obvious place I will be looking?
Look at the chart, and take a guess. It should be obvious in this case.
Let's move
ahead, and I'll stop the action at that obvious spot I mentioned. Do you see it
already?
The next spot of interest for me may be that
lower line. You can see it would get to, even exceed, a 1.272 external
retracement (not shown) of those '5 waves up' to hit that lower line. But, that
line, sloping with this correction, wouldn't be enough, not even close, for me
to think about a trade premise off of. What I really want is a key (key to me
meaning 'major' and obvious, not 'curve-fitted') upsloping line coming into
this same area. An intersection of lines there. That isn't all I need, but it's
one more step on the way to 'synergy'.
I'll add on my main, key set.
Understand, I'm showing this here step by
step. In real-time I'm not adding the set on at this point, I've had this
upsloping set on my working charts for about a month at this point. So, notice
how this set line comes in with the other line. This area draws my attention
right away. And I had both sets together on my working charts for over two
weeks at this point. I was looking out ahead, hoping the action may be drawn
there.
I'll add some Fibs onto the chart.
This was also a key Fib grouping area. There
is a major .300 retracement in there, and a slew of other key numbers off
important swings. So far the pieces are falling into place in this area. If I
am short on the way down, I have to give this area serious consideration as far
as management, and for
potentially looking at the long side. Keep in mind, the setups I am showing
here are, for me, best suited for option plays, such as calls and puts on the
SPY, or using one of the leveraged ETF's or options on one of those. For ES
intraday trading I use all this for my 'context' and bias, looking for the
exact same kinds of setups on lower timeframes, within this framework.
Now, is this
all I need here? No, actually my starting point many, if not most times, is an
ABCD pattern. I look for the
ABCD's, then build around those. In this case, I showed the sequence a bit out
of the order I tend to follow, mostly because in here I show a lot of line work
outside the 'context' of ABCD's, so I thought I'd just flow with the line work
first. So, is there an ABCD pattern in all this? You know there is.
I'll zoom out a bit, and we'll take
a look.
This area of interest is also the completion
spot for an ABCD. If this pattern, which is filling out the entire chart here,
is not clear, or you want to see more of the 'context', go back to the first
chart from today's commentary, for the head and shoulders, and you can see how
this looks with more previous data on the chart. Now I have the corrective ABCD
pattern, a dual line convergence, and a slew of Fibs tightly grouping together.
There was more, but this is all I need to show. Not to mention, at this point,
I know all those head and shoulders traders are trapped.
Let's see
what happened from here.
After coming back in and putting in a
beautiful lower high there, it took off like a rocket, and never looked back.
And, why did I say the lower high was beautiful? Well, it was an ABCD (and not
only that, a special case of an ABCD that my students will recognize) that came
back and tested the key line. It then came back in again and tested it once
more. This is best seen on like a 5-minute ES chart, but you can see it here if
you look closely. Now, once it took off, I wanted to watch a few things that
stood out to me, to see how it acted.
First off, that old downsloping median lines
set upper parallel, in blue, near the gap. That line might be a place where
this could struggle. I do my work on the ES, and if you look at that, it was a
clear gap above the line. That told me it was strong. The next area was
at the upsloping median line, in red, which came in at the previous highs,
shown as the 1.000 retracement. The S&P came into this area with a
'3-drives' pattern, and checked back a little, and then up it went. Another
clue for serious strength. After this I wanted to watch the area of the 1.272
off the entire ABCD. That stopped it dead in its tracks, where it started
forming pattern after pattern.
There is no space or time in here to cover
this, but the line action in this 'congestion' was just extraordinary, and the
clues for more upside were getting more and more obvious to me as this
developed. That created the launchpad that sent it up and over that 1.272, to
the next spot I was watching (not shown). Notice the backtest of that median
line as that 'congestion' and complex combination correction finished. Now we
sit in a curious place.
I wanted to use this for the chart of the month, but
right now I can't get ES data in here yet (I am working on that, as I mentioned
last time), and it doesn't show up on the cash chart. The ES is a two-day
potential island reversal, if we gapped down on Monday (or a multi-day island
reversal if it stayed up, then gapped down later). It really sold hard into the
close, and is just a classic potential formation. But, that would require a gap
down, and you know how those manipulators love to run the futures on Sunday
nights. Take a look for yourself, though.
Imagine if this thing was done
here, and ready to fall of its own weight, and a classic two-day island
reversal was the end, Instead, here's what I think. If this could manage to gap
down (good luck on that one), it would be just a fantastic pattern. And you
know what they do lately to fantastic patterns, yes, they suck them in, and
crush them like bugs. So, maybe they will gap it down, get some airplay on
television and on all the blogs, and do what they did with the rising wedge,
the head and shoulders, and so on. Just kill all the suckers. Anyway, it's
something very interesting to watch.
As I close, let me mention the rates chart
that I used for the chart of the month. I labeled the last area, which didn't
hold. I expected this was a 'wave 4' area, as shown in previous commentary, and
up it would go. It wanted a bit lower, and then it started up. It then rolled
over hard. We are in an area of a sliding parallel here, but there may also be
a bigger ABCD forming. That ABCD completes right on the top of what I have as
'wave 1'. I didn't show the horizontal line for that because it cluttered the
chart up too much, but draw it on your charts. There is also a key trendline
between these two spots, which I showed on the chart. So, this is some of the
framework I am looking at. Rates are 'in play' right now (I like the ZN and the
ZF), as is crude, gold, and the Euro. Do some work on those rates and beef up
what I have shown, as well as on all these other issues, and you'll have plenty
to follow until next month.
I can't wait to see if all the pundits are going to be
right and the S&P is headed for 1,100, 1,200, on its way soon to new
all-time highs, if not this year! I also heard that even though Asia is up
about 100% off the lows it is a big bargain, and waiting for a pullback
is too risky. You may miss some of that upside if you wait around! I don't need
to do any of my anecdotes or witty, sarcastic comments to make my point, you
all know what it is. I'll leave you with this final thought. The dollar index
broke down today to a new low for the entire move off the March highs. I had
heard the bullish sentiment at the highs was 93%. At the recent low it was
6%.
I
don't know if that sentiment changed a lot on the little bounce and roll, but
these are extremes. Notice the currency correlation with the market. So, the
dollar is going to go way down with 6% bulls? I also heard that at this very
same time over 80% of all stocks are over there 50-day moving average, and over
70% almost always marks an intermediate top. But in this case we'll just go to
100% over their 50-day moving average, and with 0% bulls the dollar will
continue to drop, right? Things like this almost never happen, but they will
this time. See you next month at 1,100? Or 1,200?
The next commentary will be next
month's edition, posted by Sunday evening, September 6, 2009.
|
|
|
| |
|
|
 NOTE: Reading this page or
any page on the Kane Trading website, or utilizing this website and any
material
contained herein in any way, shall constitute an
acknowledgment that you have read, understood and agreed
to all
the disclaimers,
terms & conditions, and
policies of this site.
|
|
|
This
website is best viewed with MSIE 6.0, text size set to medium, and screen
resolution set to 1024 by 768.
Copyright
© 2009 Kane Trading. All rights reserved.
|
|
