|
|
| |
|
 February
7, 2010 Commentary (monthly edition)-
What a month
that was, huh? The market finally stopped setting new highs on an almost daily
basis, the dollar rally has continued, commodities are 'coming off' a bit,
volatility has picked up nicely, and a correction is under way. I have a lot to
say about all this, but it would just take too much energy for me to do justice
to the subject, so at best I'll skim over some of what I think, and let it go
at that. I'll keep the focus on the setups and the methodology. I think, in the
grander scheme of things, i.e. the higher timeframes, that what I think can
contribute to my decision making process, especially with my 'context'
assessment, but it is so 'subjective', so much of the 'art' part of things,
that it is very hard to explain in such a limited venue as this. Hence, I will
try to not get too carried away with that. As I have said more times than I can
count, I think everyone should be keeping up with this stuff via sources like
Zero Hedge, John Mauldin's blog, and so on.
I'll cover
one item of business, and then get right on to today's chartwork. Awhile back I
mentioned the possibility of doing some webinars, and I asked those
interested to let me know. Enough time has passed that I realize if I wanted to
pursue that avenue I'd have to do some kind of promotion, because the interest
level expressed so far isn't enough to make it worth my while. I also did a
little bit of probing around asking, mostly via the forum I have, about some
group mentoring. The reason I even asked about interest in this is simple. I've
been doing more mentoring remotely lately, trying to keep up with the times.
The area I live is so remote and so far from everyone, and many of my clients
are overseas, perhaps more than half, that it is hard for people to get out
here. I thought it would be great, a mentorship with a vacation for people, but
it just isn't working out that way. So, I started doing more remote
work.
Now, perhaps soon I should update the mentorship page, but since I
haven't 'officially' changed my program, I've been holding off on an update. I
also know what will happen when I do, and it's something I want to avoid. That
is the point of this little discussion right now. I've always had enough
students for mentoring to keep me as busy as I'd like to be on that project, as
I've mentioned more than a few times. Once I told some of the people on the
'waiting list' that I might consider doing the program for them remotely, the
interest to start right away was very high. Many expressed surprise and extreme
excitement. I was quickly 'oversubscribed', with additional people put on the
'waiting list'. I started thinking maybe a group mentoring program, done
remotely, might allow me to meet the needs of those interested, and still have
enough time left to have some kind of a life outside of things market
related.
So, although I am still exploring this, it seems, like the webinar
idea, that there is not enough interest in this. Although some did respond,
many said they would prefer to work one-on-one with me, even though it would be
a bit more costly. Also, the logistics of coordinating things, with people from
all over the globe, just seemed too difficult to handle. Once I delved into all
this, I really started to think one-on-one is all I can make work. The problem
is it is not 'scalable', and I'm only one guy, and a guy not wanting to work
all that many hours mentoring. So, it's back to the 'waiting list', and me
working a lot more hours than I want as people very courteously ask me, with
lots of use of phrases like 'Oh, please, please, squeeze me in...', can I take
them on. Keep in mind, if I do perhaps three or four students per year, and I
mention, in passing, doing mentoring fully remotely, and I get, say as an
example, twenty people inquiring, that would be about a five to seven year
list. But it gets worse...
Many, if not most of my students work with me well
beyond one mentorship. Some have done the program the equivalent of like three
or four times. It very common for them to be 'ongoing' students. I try to give
priority to those who have already worked with me. If I account for ongoing
students, I can't take on three or four new students per year. Now what does
the waiting list look like? But this is if, say, twenty people inquired.
Imagine if I really put the word out that I am willing to do entire mentorships
remotely, and that I've done several now and have really ironed them out and
they seem to be going very well, even by my rigorous standards. Now you can see
why I am mentioning 'scalability'. Without that, I simply can't handle the
demand. And I hear stories of some very well regarded mentors (not the
charlatans) who have over a thousand people attend their webinars.
So, what's
the answer? I don't know. I guess it would be to move towards something
scalable, and just figure out the logistics of a worldwide audience, and if
that's all I offered, maybe those that want the one-on-one would have to decide
if it was group or nothing, maybe group was better than nothing. Somehow I
'feel bad' about that, but I am only one person. On the other hand, several
people have suggested that I just raise my rates up until demand balances with
availability. I know of one super-highly respected mentor who raised his
one-on-one rates up to around $400/hr. And done the scalable thing,
too.
I want to stay small, and personal, but look at it from my
standpoint, do I tell someone who wants to work with me real bad that I can get
them on the list for 2017? (This is not meant to scare everyone away, so please
don't give it up as hopeless and not contact me because I haven't sorted this
out yet.) Any thoughts would be welcome, but please understand, it is not
uncommon for me to have over a thousand e-mails in my inbox (not counting any
SPAM), so I won't be able to respond to most feedback e-mails I receive. I can
assure you I will read them, though, and take into account all ideas
presented.
Okay, let's move on to some chartwork. The market has
been selling on some 'bad news' lately. Before this it has been going up on bad
news. The extremes in sentiment and other measures surely implied a correction
was overdue, but it's been overdue for a long time. The last I heard the
bearish sentiment, based on the familiar sentiment surveys, was at a low only
exceeded in modern times right before the '87 crash, and that was only by about
a percentage point. Before that I'm not sure how many decades you have to go
back for a lower reading than that, if it even has been lower. In other words,
bears were, relatively speaking, almost nonexistent. That doesn't bode well for
the bulls. On the other hand, I don't see anything changing whatsoever as far
as government money pumping into the system, so I see no reason why we won't be
right back at new highs for the 'bull market' soon enough.
I can't even
begin to 'guess' what this thing is going to do. There are too many unknowns.
Will any of the PIIGS go into default (I doubt we'll see a full default,
because I think they will mask it with various kinds of bailouts), will they
finally start to demand more on rates, which will start a house of cards
fallout (I think this is inevitable, but probably not quite yet), will there be
a geopolitical event (always on the table, but impossible to predict), a
commercial real estate event (almost inevitable at some point, I feel, and
likely some time this year), and so on.
All I can do, as I have said many times
before, is see which way the trend I want to follow is going, and then look for
setups, and play them, if I so choose, according to my fully comprehensive
'Trading Plan'. It's about probabilities, not predictions. Predictions are
great for fortune tellers, but not so great for traders, in my opinion. They
just aren't needed in a probability game. With that said, let's get
started.
Before we start here, please check out 'Jim's Chart of the Month'.
You'll need to look at that, and specifically at the additional line I added
on, before we can proceed. Once you've seen that S&P weekly chart, we can
move on to this close up daily chart.
Source:
QCharts.com
The lower hash mark is the area I was watching very
closely, the area that has been the topic of many Jim's Chart of the Month
posts. The S&P didn't really care for that line, and in order to fulfill
what many labeled an ending diagonal (this is very clear on an INDU chart), it
wanted one more push. I had another key line up a bit higher that I was also
watching. Keep in mind these lines are coming from weekly and even monthly
charts, so the range of tolerance is pretty wide when viewed this close up. The
new line, from that weekly chart in the chart of the month, is the red one
shown at the upper hash mark.
The S&P finally decided it had had enough
at that upper area, and started to dump with one setup after another after
another on the way down. It easily took out a few early potential support
areas, bouncing each time with spectacular trading moves, in my opinion. Every
bounce it did was at an area I was watching. I'm not making any claims, only
stating that, in my opinion, it really followed a script on the way
down, as well as I have ever seen a market follow one. And then of Friday, it
started to bounce right off the next area I was watching, with the ES jumping
up over twenty points almost straight up (look at the daily candle!) I made a
comment about this area in my forum, and felt pretty good about it after that
bounce. Same old script, it was still following it, to my way of
thinking.
Let me add just two simple things onto the chart.
Source:
QCharts.com
I added a key .382 retracement, and a set I have had on
there for awhile. If you do the workup in the ES you can see some really
incredible lines. There are a lot more things to add to a full workup on
this one. I'll leave it to the readers to do that. So, all I am showing here is
a very basic framework. The curious thing is what people, in general, seem to
think. You tell me, conduct your own informal survey. How many people are
bullish right now? My survey said: absolutely zero.
Now, don't
misunderstand me, we all know the top callers and perma-bears are bearish, but
all those mega-bulls, are they bearish now? No, but I couldn't find any willing
to buy into this weakness yet. They all say it has more to go. That has me
thinking the most likely scenarios are as follows. One, we go right back to new
highs for this 'bull', leaving them scrambling and chasing in as it gets away
from them. Or two, we go up from here, and just when they feel it is safe to
jump back in (and they do), it rolls down for another leg, the CD leg of an
ABCD perhaps.
This would fool, and trap, a lot of people. All I can say is we are
set up for another Sunday night GLOBEX/Monday up session, and if my information
is correct, that would make it 20 out of the last 22 it was up. Let's see what
they do with it. As I said, I just look for setups. If you study the move down
on the lower timeframes (which I suggest you do), you should be finding lots
and lots of setups. If you don't see them, keep studying, it was a truly
spectacular movement, in my opinion.
Let's move on to rates. It would be good for
you to go back to last month's
commentary first to review where we were then, and where we left off in
our work. Here's the weekly chart of the 10-year rates once again.
Source:
QCharts.com
When we left off rates were right at the key area I
mentioned. Here's what I said in the last commentary: "Kind of curious how it
has stopped right at that upper division line and 'crazy' trendline area, at
the .886 from the A point of the pattern. Now, there are two things I want to
take note of here. The first is that this is at a critical area in here, too,
just as the previous issues hit into critical areas. Granted, this is not quite
so significant of an area, technically, as the other issues, but is is just as
critical in a sense, because a break above here has little in front of it until
that upper line, and that's in the 4.50% interest rate area. And if that gives
way, the sky is the limit." Well, rates came right off that area, pretty much
to the basis point. So far, though, the move hasn't been particularly
'strong'.
Let's go down to the daily chart and take a closer look at the move
so far.
Source:
QCharts.com
This close-up view really shows just how nicely rates
came off that area. You can look at say the 10-year futures (I like the ZN for
this), or TLT, for example, to see the detail on this price action, especially
on a lower timeframe. Now, on the daily here the action looks a bit more
impulsive. But, and this is a big 'but', what jumps out at me here? This sure
looks like a 'Wave 4' on the way up off that D point from the weekly ABCD I
highlighted in the last chart. And if it is, it should start up right in
here.
Recall how one of my themes from last time was how so many things
were hitting key higher timeframe areas at about the same time? Well, if the
S&P and broader market wants to bounce here, wouldn't it make sense rates
would bounce at the same time? Curious how they may both be hitting areas at
the same time, even if they are just 'bounce' areas (time will tell on that
one).
I'll add a key set onto the chart, and drop way down to a 40-minute
chart.
Source:
QCharts.com
I chose a 40-minute chart here simply because it gives
ten equal bars per day of data (each day of rates has 400 minutes of data). So,
I added a set and a little sliding parallel there. Notice how this area falls
right in line with what I was saying about this being the possible end of a
'Wave 4' area. So, if they pile money back into stocks it may rotate from the
'safety' of treasuries, and as they fall, rates rise. So far, it all fits. Will
they do it at all, we'll see. I just find areas of potential support and
resistance, and see what happens, whether I am looking for new setups, or
managing existing trades.
Now, let's keep with this theme of things hitting key
areas in sync, and look at what happened with copper, on the weekly
chart.
Source:
QCharts.com
You should be familiar with this from you review of last
month's commentary. Copper overshot the mark, as did crude, although crude
wasn't by as much. If you look at a big weekly/monthly Euro chart you'll see a
similar overshoot before it dumped. The key concept, for me, is how many things
that are now highly correlated (by virtue of the USD being 'everything'
nowadays) are at higher timeframe critical spots at about the same
time.
So, my two questions are: was there anything else on copper in this
area (since I never trade one line, one Fib, a pattern alone, etc.), and is
this just a quick checkback and right back up it goes, or is this something
starting here? The very interesting thing is, whatever the answer to that is, I
think it will apply to the broader market, rates, copper, crude, the Euro,
gold, and so on. I think the correlation is immense right now.
I'll add two
sets onto the chart, and drop down to the daily timeframe for a more close-up
view.
Source:
QCharts.com
The lower hash mark shows where I was originally
looking. Hmmm, sounds a lot like where we started when I covered the S&P,
huh? Two more set lines came in just above, much like the additional line I
added on the S&P. This is why I look at areas, and not precise points, and
at multiple levels, and not just single, specific spots. Price action in the
areas then becomes critical to the process. So, copper likes that upper area,
and really dumps with the market, much more aggressively than even I thought it
would. I strongly suggest everyone drop down (especially on the appropriate
tick chart) and look at the setups in that cluster of price action after it
rolled over.
Now, copper rolls down to the area of a key median line (the
thinner red line there). I also added an interesting trendline onto my charts
(the thicker red line), which also turns out to be a near perfect sliding
parallel for that set line, too. This trendline was anchored off the first two
swing highs there. Notice how it was 'tested' from above and below multiple
times. Now we have copper right at this key area, as the other things hit their
key areas. Must be another coincidence. Even if nothing big happens for
anything at these spots, it is still noteworthy to me that they all seem to be
hitting key spots at the same time. That tells me they are still 'in sync' with
each other, and that the high correlation is likely still present. On copper
here I wouldn't put too much stock in this until I did a full workup, and saw
if I had a good uptrending line, key Fibs, and so on.
You see, most
of what we have looked at lacks key patterns into these areas. That is common,
and leads to some thoughts/observations on my part. I like to have a pattern,
as well as key lines, and key Fibs, all together meeting a combined criteria
that I call my setup, or potential trade area (PTA). If I don't have all I
need, but still feel an area may act as support or resistance, I can use that
area for 'bias', and then drop down to a lower timeframe and look for setups
there, using basically the same criteria, in line with the direction the area
implies. I just wanted to clarify that my basic premise is usually built around
an ABCD of some kind, but many reversals, especially in bear markets, I think,
are not ABCD's, just as many corrections are impulsive looking, even 5-wave
structures. There is more than one way to skin a cat, though, so to speak, so I
use what I have at hand to find what I need.
Let's finish with a look at gold,
on the daily chart. I'm trying something new here, removing all but the salient
set lines, for clarity. Although it may be a bit more difficult to follow along
in some ways, it is also a lot more clear of a chart.
Source:
QCharts.com
Here's what bothers me about gold. Everyone I hear, and
I mean everyone, says gold is done (perma-gold bugs don't count in my
tally). Dead meat. Toast. A major bubble. I hear 600, 800, some 900's. All way
down from here. I just read an article in a major magazine. They spent the
entire article stating endless reasons why gold is a bubble and is way, way
crazy overvalued here. They had zero good to say about it. They did like stocks
at the current valuations, though. Point is, I'm not wholly convinced gold is
toast here. Hey, maybe it is. If so, good for it. I'm all happy for it. But
when everyone is on the same side of the boat, watch out for it to
capsize and drown all those people.
So, gold gets just crushed in the last
few days, and all the gold bubbleheads just eat it up. They are likely shorting
this like crazy. But I have a major area for gold in this vicinity, anywhere
from right here to just below. And guess what? It's hitting right as all the
other things are hitting into their areas. Take a look at silver. Talk about
getting crushed. Silver would have to get blown up and reinflated by a super
compressor just to be back at the level of 'crushed'. But, if you do the work,
silver has a major area where? Right here. Another coincidence. Now,
maybe nothing happens at all here. Maybe things bounce, and then roll down and
get killed. There is one structural thing here in this gold ABCD that isn't
quite right, so I am cautious. But here's what bothers me. It's not whether
these areas will or won't 'play out'. It's that most, if not essentially
everyone I hear or know won't even consider them.
They won't
look at both sides, or any other possibilities. They only see way down for
gold, way down for the market right now. I'm more open-minded. I don't say an
area will play out, I see what happens when the area is hit. I see what price
action tells me. I never say the area won't hold, or the area must play out.
The market does whatever it does. At best we can try to estimate some
probabilities. When someone is close-minded, they are basically saying they
know what is going to happen. To me, that is not a long-term way to success in
a probability game.
So, where does all this leave us? Well, I think the
market is at yet another critical juncture. It will do what it will do. I plan
to just let it unfold and let the action give me clues and guidance as to the
potential opportunities. I don't know right now what those opportunities may
be. As things happen, I will do workups on the action and see what comes up. I
don't know if those will be short setups much lower than here, or long setups
higher than here. I'm open to either. Price action is king, it will be my
guide. I have very little preconceived notions. Of the ones I do have, they are
along the lines of things like 'the market will do its very best to fool the
greatest number of people it can', and 'when everyone is on one side of the
boat, check your life jacket and make sure it's on tight', and so on. I'll
never cease to be amazed at how seasoned traders get sucked into
opinions...
Well, that's it for today, folks, I hope this commentary was
worthwhile for you. I've been getting a lot of positive feedback lately, so I
think I'm showing some good stuff, and trying to cover some good concepts (as
best as one can in such a limited venue). Keep an eye on that commercial real
estate for clues to potential impending doom. As I said last time, 2010 might
be a big year for the history books, so be ready for anything. I think the VIX
might be tired of being a teenager again, and may not want to play that game
again for awhile. If so, the great bear market rally would likely be done. I'm
still thinking this could go up until March/April, or even later in the year,
to that 1,400 area. If so, the VIX is going to be enjoying a nice second
childhood until then. Again, what would fool the greatest number of people?
This way the top callers can get wrong-footed all the rest of the way up, and
the public will finally get in, in time to be crushed. I'm not saying it will
happen, I'm only saying that I am willing to look at it as one
possibility.
The next commentary will be next month's edition, posted by Sunday
evening, March 7, 2010.
|
|
|
| |
|
|
 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
© 2010 Kane Trading. All rights reserved.
|
|
