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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 Maudlin 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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