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 July 5,
2009 Commentary (monthly edition)-
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. More on this later.
I've come to a decision with
regards to this commentary. Last month's edition took me, give or take, about
twelve hours. That's just far too much time for me to do one commentary. Some
of that time is usually battling data issues, but most of it is just the time
it takes for me to put out a quality, proofed multiple times piece of work. I
decided that I am going to cut out almost all of the introductory comments on
the economy. I get more positive comments, I think, on that part than on all
the chart work, but it serves little purpose as far as short-term trading (I do
find it somewhat useful for trying to make decisions on retirement money, and
for position trading). Plus, there are many sources out there that cover most
of the same things, some of them much better than I can cover it.
I will use
that as a good chance for me to segue into the only thing I will cover today in
this area. If you haven't read the Rolling Stone article on Goldman, I suggest
that you do. I suspect every last one of my readers has read it, because it's
gone totally viral at this point. I see posts for it everywhere I go. One place
you should be able to find it is over at Zero Hedge. I also suspect that all my
readers already follow that site. If not, they are a great source for the type
of things that I constantly spout off about in this commentary. Go over there
and read up and I won't need to do it anymore in here. That's my plan, anyway.
Another good source I follow is John Mauldin and his two blogs over at Investor
Insight. Those two sources will give everyone a good handle on what I'd likely
be ranting about if I were still going to rant.
Now, as a 'treat' for myself I will
point out one curious factoid that I heard just about a week and a half ago, to
ease myself out of the rant and rave mode. I posted this over at the forum:
"Here's a curious little factoid I just heard. The most curious thing is that I
haven't heard it until now. Insiders have been selling for fourteen straight
weeks now, this last week at a ratio of 9 to 1. At the March low the ratio was
1 to 1. But, wait, isn't that the technical definition of distribution? I
thought they were accumulating? Buying the market that is too good to be true.
They've been net selling since the first week of the rally? Are they sure about
that?
The guy I heard the other day, in fact I think it was the day after
the recent peak, he said we must buy with reckless abandon, beg, borrow, and
steal everything we can to buy, don't wait for the dip because it's mythical,
it will never happen, even if you are retired or nearing retirement buy with
all the cash you have and can borrow. Surely he can't be saying that and the
insiders have been distributing this entire rally, and I am just now hearing
that? They can't possibly have been duping the public, can they have been??? No
way." and "And I just saw one more part of this factoid, that this is the
fastest exit from stocks by insiders in over two years. That means that at
these bargain basement prices, the 'buy of the century' that we keep hearing
about every day, the insiders were selling at the fastest pace since before the
bear started, even faster than into the November sell-off. Hmmmm."
Don't you all
find that rather curious? Wouldn't that be one of the most important pieces of
data we have heard? Yet it is hardly discussed anywhere, and few even know it
at all. Shouldn't they be screaming and yelling on financial television that we
are all being duped, the insiders are feeding it all out to us, they aren't
buying their own hype? Why isn't everyone up to and including the President
screaming that this is an outrage? Hey, you read the article I mentioned
earlier, right? You know why no one is screaming. Bull market my eye. This is
just my take, and many may not agree with it, but no matter how much you
manipulate a market up, even if it is 500%, it isn't a bull market, it's just a
manipulation. The trading may be the same, the money one makes still spends the
same, but to be accurate as far as definitions, I think we need a new term,
like bull market, bear market, and now manipulated market. As far as the
factoid, I don't know what has happened with the data since I heard
that.
Okay, I feel better with my last, small fix there, and I'm ready to
do what I really want to do, which is look at charts. I will still point out
curious things like this last factoid, I'm just not going to do long monologues
anymore. At least that is what I say now. You all know me and my vain attempts
to not be overly verbose on everything...
Before we start I have a few items
of business. First, I really do plan this weekend to get the Testimonials page
and the Recommended Reading page updated. Next, I really need to take a 'summer
break' some time soon. I plan to do the same thing I did last year, just take a
week off and play around the house. Work in the yard, go golfing, actually
watch some non-financial television maybe, just take a break from computers. I
will still be around, but if I check e-mails, watch the market, and so on, I'll
just never take a break. I only mention this here because for that week or so I
won't be shipping any book orders out, or even checking for orders. If you want
to make an order please do so let's say in the next week, or wait until after
that. I will post a note on the top of the books page as to when I will be 'out
of the office', so you can just use that to make your ordering
decision.
And speaking of book orders, I am going to try something here that
I did once before with a gentleman from Australia, and it worked. Just over a
week ago I got an order from Poland (if you aren't from Poland and didn't order
a book set last week, just skip this paragraph). The person didn't pay the
international shipping, as outlined on the top of the books page. I have sent
multiple e-mails from two different e-mail addresses in regards to this, and I
have not received any replies at all. I can't ship the books until the
additional shipping is paid, and I am at a loss as to what to do. I can just
keep waiting and waiting, but until some kind of contact is made, the books have to
sit, all packed up, waiting. Since most everyone who orders books from me
likely reads this commentary, hopefully this will work.
Okay, let's
get to work. I'll start with last month's chart of the month, in the daily
S&P cash.
After having reacted a bit at the last key
area, right at the time factor, the S&P went up to new highs for this
'bull' market. As we saw in the last commentary, it was right at another key
area, with a time factor coming in there. It was clear to me that the odds were
beginning to favor this area as an intermediate top, if an intermediate
top was going to be put in. Who knows, with all the manipulation, it's hard to
have any selling when big money is pushing it up. All I can do is go with the
flow, while trying to be ready when key areas are hit. The one thing that
really had me thinking it may top out is that I seemed to be alone in thinking
this area could be an intermediate top. Every last person I heard said higher.
Every last one.
Let's see what has happened so far.
The S&P did major battle with the area,
putting in nine consecutive days with fairly indecisive candles, the last six
with very similar opens and closes (this shows up better on the ES). All this
right at the key area. It finally broke to the downside, and we had a big sell
day. This day, although not the 'top', came right on that key June 15th time
factor shown on the chart. It went right down to nearly the exact area I had on
my 60-min/135-min chart, put in a narrow range day, and exploded up from there.
I discussed this in the forum, as it was highly expected (more on this later).
It then went right up to the most expected area and rolled hard. I discussed
this area in advance with one of my students this past Sunday . Now we get to
see if this is another couple day wonder, or is an intermediate top really in
this time.
Let's look at that area I expected a rollover from. I'll
show this on the 60-min chart.
I had a major set line coming in to an area
where a lot of key Fibs were grouping. Although I can show it here, I had major
areas across the board coming in all at the same time. One of the most prolific
posters at the forum posted a slew of charts showing his layouts, all showing
the same basic idea. I had a five wave count going up into the area, as shown.
I know some may disagree with the count, but it got the job done for me, into
my area. For those of you that like seven-wave counts (I am one of them), you
can easily see a seven count in this one.
The S&P not only goes to the
area, it does it with great strength, which I absolutely love. I feel it tends
to scare potential shorts away from the setup. It then rolls gently over,
giving a great trigger, with a nice low close from the rollover. The next day
we get the gap down and crush day. In my experience it just doesn't get any
better than this. It was so cool to work with an advanced student and create
the above area well in advance, and then just see it rush right up to there and
roll just about dead off it. I really enjoyed sending the student the above
chart, and in jest say something like 'You did see this, right?' Sometimes it
is just amazing to see how things play out. It doesn't always work like this
(of course), but it sure is fun when it does.
Now, let's look at what everyone on
the entire planet sees, and hence have posted on nearly every blog and
discussed on nearly every financial station. The obvious S&P 'head and
shoulders' pattern that is setting up.
So, we all see the 'head and shoulders'. What
the issue is for me is not this pattern, it's how the players are going to game
the setup. How can they trap the 'suckers' and make the most off this golden
opportunity for them? What I am watching is several of the areas I have, as I
feel they may be used in this process. The red line is the obvious 'neckline'.
One trap may be the run-of-the-mill trap. Break it below the 'neckline', get
the shorts in, maybe take out some weak longs, then snap it up and catch them
all. The SOP is to then backtest the line from below. This, though, is such an
obvious outcome. That leads to my blue line.
Recall I mentioned the move up
starting off an area I was watching. I don't have the chart space to show this,
but it was a solid area similar to the last chart. The blue line recreates my
set line lower parallel, which was on the chart as it rolled off the top,
marked by the 'H' (in fact I had a duplicate trendline that was already on my
chart as far back as April). Notice the reaction up to the second 'S' on the
right. This line has a lot of significance to me. Notice how it was broken on
the close? To me this is noteworthy. Perhaps they backtest this line after a
break of the 'neckline'. The break back above the 'neckline' may have many
thinking it was a headfake, and then they reverse positions, only to be trapped
once again.
Who knows, but I'll surely be watching for such games in this
illiquid summer time trading. Or, maybe it just finds support in this area and
up we go, to new highs. Perhaps 'everyone' is right after all. I also have some
key areas based on the price action for the bounces up, so where those line up
as things unfold, and how those line up with the above scenarios, will help me
find more precise areas when the time comes. I wish I could show all this in
here, but it's just not possible.
Let's jump back to that rate index, on a
daily timeframe. I'll start with where we left off last month.
Now, here's the rough sketch of what I
thought might play out. Keep in mind, this was just an approximation of one
scenario that I was going to be watching for. I show the rate index solely
because I can get the data for it in here quite easily (see my concluding
remarks later for more on data). My preferred instrument of choice for actually
trading this would be the ZN futures contract, or the TLT, or options on the
TLT, depending on hold times and such. There are other acceptable instruments
besides these, too. Before we move on, I'll leave it to the reader to go back
to the monthly rate chart and see the 'context', as I will discuss that with
the next chart.
Let's see what happened from here.
Rates fell a little shy of that 1.618 'wave
3' area, but that is just an estimate, and it was a pretty darn good one. It
then pulled back, in a sweet-looking ABCD, right to the area I'd expect it to
pull back to. Overall, did I nail the next moves so far, or what? It was like I
had a chart of the future. No, I can't predict, and I don't need to, and I'm
surely not bragging. My point is, I play the scenario game a lot, and I do this
based on typical price action that I have seen repeated so many times I can't
count them all. The important thing is not that it keeps following this
scenario, it's when it deviates from it that I get really interested.
I
particularly chose to follow up on this one today not only because it followed
my scenario so closely, but also because I think there is a very good chance it
may deviate from it here. And if it does, that tells me something. There may
also be a strong intermarket dynamic in play here. Think about this. As the
market sold off hard on Friday money moved in the 'safe haven' of treasuries,
and as they rose, rates dropped. But rates are at a critical area here, where
I'd be thinking they will rise. Rates up, treasuries down, market up. Market
up? If the market continues down, more money may flow into treasuries, and
rates will go down. Hmmm.
Let's look at this area here in detail, as it is an
incredible one.
I have one of the tightest groupings built
out of significant Fibs that I've seen in a long time. There is the clear ABCD
pattern. There is time symmetry with the last (wave 2?) correction, and a near
perfect set that frames out this correction. This is nearly perfect, almost
too perfect. Could this really turn here? Notice that rollover after the
initial move, as we just discussed. Now, is it possible that it drops down to a
little 1.128 or 1.272 of that last push up, getting deep into the grouping
area, as the market sells a bit more, then the backtest of one of those S&P
lines as this starts up? Sure, that's a nice-sounding scenario, but we still
have a conflict.
Unless we get a decoupling, this should move with the S&P.
Either the S&P is going to bounce in here and up it goes, or this area is
going to fail here. Now, go back to that monthly rates chart. Notice it hit
that key red line (if you don't have you own chart worked up on this, estimate
the level of the red line, and look where this turned back down). That may be
it for rates. Maybe it doesn't complete the 5 waves up in my scenario. Maybe
it's done already. And if it is, then the S&P should be moving on down with
those rates.
So you can see why I feel we are at a critical juncture here, and
why I will be reacting to the areas I put together, as opposed to bothering
with trying to figure out what is going to happen. I have no idea what is going
to happen from here, I only feel I know how to find areas, read price action in
those areas, and look for acceptable triggers. As I am wont to say: 'Now
we see'.
There aren't any updates yet on UNG (but it does look determined to
visit that 1.272...), so I'll finish with 'The Golden Child'. I'm not trying to
promote any specific viewpoint here, but to have a more balanced grasp of this
stock, you need to at least have read the article I mentioned in the intro.
Draw your own conclusions, but at least hear the other side of the
story.
Goldman did break the rising wedge, shown by
the arrow, as I suspected it would. I find Goldman to be an excellent intraday
trader, so I found many setups as this unfolded. It also didn't go far before
they jumped right back in on it with vigor, as, you guessed it, I thought they
would. It ran up to the .886 area, and dumped with the rest of the market. Will
that be it? Up soon, to smokin' new highs? Probably. I could literally see the
S&P at 300 and Goldman at 300 also. Why? 'Earnings.'
You see,
Goldman now has the highest recorded earnings in their history, if my
information is correct. And the highest bonuses ever are about to be paid out.
How much will they be? Decorum here prevents me from saying, it's so obscene.
Now, how can it be that Goldman has the highest earnings ever when we are in
the most serious recession since WW II, and likely in the most serious one
excepting the Great Depression? A time when earnings for most companies are so
bad it defies description? A time when it seems like if banks had to actually
tell the truth and not use all these hokey mumbo-jumbo mark-to-fantasy rules
and be getting all these monster taxpayer handouts, they'd mostly be insolvent
and be shut right down? And yet Goldman is doing the best they have ever done,
and the bonuses are just huge. You all know why this is, I don't have so say.
You all read the article and came to your own conclusions. I'll never forget
one of the best, and harshest, lessons my Dad taught me when I was a little
kid. He simply said, in response to a question I had asked him: "Where did you
get the idea that life was fair, Son?"
Let me make a mention about crude, and data,
as we close. You'll notice in here I am constrained to very few issues
nowadays. I can't get the e-minis in here anymore, none of the futures, and so
on. This has to do with a transition with my data provider. I need to buy a new
software 'bridge' program, and I just haven't wanted to do it, since I will
likely only use that for just doing the monthly commentary charts in here. I
may get to that not too far down the road, and then I can do some ES charts,
crude charts, gold charts, ZN charts, and so on. I may also supplement the
charts with another charting platform so I can show some tick charts, once I
get the details of that hammered out. So, this way I can mix it up and show
some more variety. This may make it a bit more interesting for all of us. We'll
see, but hopefully I can move forward on some of this.
Well, that's
all for today, folks. I hope you've found it informative. There has been so
much action lately that I can't help but say the markets are just incredible as
far as setups. You just need to hunt around for them, in various issues and in
various timeframes, and not just get stuck in ES summer intraday after the
morning chop. Take a look at crude down on the tick charts. I like say 233 and
89-tick charts, but look at some other ones, too. Look at gold, ZN, look at the
grains (beans and meal are going nuts), currencies, and so on. Look at some
stocks that are 'in play'. Be adaptable, flexible. There is action out there,
even in the summer doldrums.
The next commentary will be next month's edition, posted
by Sunday evening, August 2, 2009.
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