Saturday, October 27, 2007

LUMBER - Getting Close To A Buy!

There are quite a few commodities that are starting to set up for trades.

Our job is to find the ones with the best risk to reward and not spread our capital to thin trading too many contracts at one time.

Keep an eye on Lumber, as even a counter trend rally at this point will offer some excellent profits.

Sugar - Sell Short At or Near The Open 10/29/07

Time to sell Sugar Short at or near the open on Monday.

Notice the very wide range on Friday.
Then take a look back on the chart and tell me what you see after each and every time
price action behaves like this.

Now add in the fact that all the momentum gauges have struggled higher as price has worked higher and the short term ultra bullishness of the small speculators and you have the makings
for an intermediate term decline.

Friday, October 26, 2007




Pattern Repetition

Below you will find two charts.
The top chart is the action we want to use to give an idea of where we are headed.

The bottom chart is the current most recent market action ending with today's close.

Now take a look at the two charts......... Do they look just slightly similar in their nature?

No question about it!
Not perfect mind you, but enough similarity to catch your attention.

I will post the rest of the chart we are using as the forecast gauge Saturday or Sunday so you can have some type of idea what is just around the corner for prices.

I'll give you a hint right now..... The outcome falls right in line with my daily work.

I don't want you to get the wrong idea here, these patterns do not always work, but when they line up with other technical work then the odds increase more that price will continue to roughly follow the past price patterns.

Here Is One For The Lesson Book

I strongly urge you to print this out and keep it for future reference, as this invested head and shoulders is very close to perfect.

The only real flaw in the pattern is the slight upward slope.
A near perfect pattern would have a horizontal neckline.

The reason I am posting this pattern is because it comes up again and again on 1, 5 and 15 minute S&P 500 charts. When it does, you have a very reliable pattern to trade with a very predictable price target.

Ultra Short Term Update

Exit the long position established earlier and put another portion of the short position into place.

We have some very nice confluence in here and we need to take advantage of it.

12 points on the long side!! Not Bad for a days trading! :)

Ultra Short Term - Maybe a Test Of the Days Highs

Ultra Short Term - Begin to Sell Short

While the market came about 1.5 points short of the lower end rally target, the action since the strong open is starting to look like the high is in.

I am going to start putting together my short and put positions here, but only about 1/3 of the total I want to purchase. The other 2/3 portion will be added as more confirmation comes in that indeed the high is in!

Thursday, October 25, 2007

Stopped Out Of Short Position In Cotton

We were stopped out of the short position today in copper for a $415 loss per contract or a negative 33% ROI.

I will try and get short once again on any strength in cotton.
It looks like it wants to make a 2-3 day move higher and then we can find a spot to go short.


Over the past 3 days, the market has had plenty of opportunities to break the 1490 level on the S&P 500, but has been resilient. Not in a constructive manner mind you, but rather a set up of sorts while all the locals get short.

The probability model because of the late day action and the inability to break the market sharply lower has flipped to a 76% chance of a sharp one day rally, perhaps the entire cycle can be completed intra-day.

This should be a very playable move higher with the potential for 20 S&P 500 points.
Do not get too excited though as equities continue to exhibit all the signs of moving counter to the intermediate term trend, which is down.

For intermediate term traders, continue to sell strength and use this up coming rally as a shorting opportunity as nothing in the daily work has changed to warrant a shift in the intermediate term focus.

Wednesday, October 24, 2007


All I really have to say tonight about this 3 day pattern is for you to print it out and keep it in your files.

I will go more in depth on it tomorrow.

By The Way, this is the last three days!

Equity Market Comment 10/24/07

While I would simply love to express the opinion that the recovery rally today was a bullish event, that scenario just simply does not fit into the current scope of things.

The move back up, while impressive, was simply the final leg of a complex corrective pattern on the Ultra Short Term time frame. While there is still a chance for further rally tomorrow, odds favor that the end of this complex correction pattern occurred today and that means that lower prices are right around the corner.

The market at one point today was down better than 188 points and still there was NO PUT BUYING. The longer this continues, then the longer the equity markets will be held hostage from starting a new intermediate term leg higher.

As I was watching the action today, I really thought that we could break down to the 1478-1480 area on the S&P 500 cash index, but the late short covering rally stopped and reversed the decline. This in turn gave the probability model something else to ponder as it had called for the market to finish at the lows, not the highs. However, being the versatile model it is, the model adapted and now calls for a sharp drop to 1472-1474 perhaps lower than that, with next support at 1469 and 1460.

Continue to sell strength and remain defensive.


The intermediate term model gave a sell signal today after a 10 day stretch of lingering in the Neutral zone.

Typically a sell signal that is generated from such a series of points in the Cotton Model leads to very good sell signals. The move lower however should begin or continue in this case straight away if this is a good signal.

This type of set up is great as it leaves nothing to chance. We know that a tight stop can be used because of the fact that cotton needs to move sharply lower now.

The Commercial Traders are very heavily short cotton and the chart looks like it wants to fall out of bed.

We are Short Dec. Cotton at 63.82, with a Buy Stop at 64.65

Tuesday, October 23, 2007

British Pound Secular Shift Into Decline?

The jury is still out on this one, but the evidence continues to mount in favor of all the major currencies putting in major secular tops and the U.S. Dollar putting in a major secular bottom.

Nowhere is this theory more visible then in the British Pound, which is my favorite to trade anyway. The past 2 days especially have seen volatility increase dramatically, first to the upside, gather quickly to the downside.

Now certainly there is no guarantee as to which way it is going to break short term, what I am mainly concerned with is the price action on the whole and it really is starting to look like a break down is on the way.

A break of 202.14 would put me into the market on the short side as the pattern looks like if it does break that it will break fast and hard.

Take a look at the attached chart, it really has something to say!

Stopped Out Of December Copper

Stopped out of the Short Dec. Copper position today with a 41% return on investment.
Once again, the stop did the duty it was asked to do.

I am looking for a counter-trend rally here to carry in the 3.62 to 3.66 area on the December contract.

From this counter-trend rally high I will look to sell short again for the potential collapse in prices.

With the stop out in Copper, the commodity account is completely in cash and awaits another high probability position.

Equity Market Comment 10/23/07

The market pretty much followed script until late afternoon.
If you had sold the strength early in the morning, there was over 10 S&P 500 points to capture.

The last 2 hours of trade ended up in 2 stop outs of trying to establish short positions, so all in all there was 7 points on the short side captured.

While equities have held up a bit better than I had expected, they remain in a very vulnerable position and this bounce we have had off the lows looks to be counter trend all the way. Thus the market remains in the sell strength mode.

Take a look at the two charts below as they show where we are now and also where I think the strength will run its course. 1528 on the S&P 500 cash is the most likely target.

One of the major tip-offs that this most recent rally from the lows is counter-trend came today as the market moved sharply higher right out of the gate and then proceeded to give all those gains back and more. While it did recover to the highs of the day, the fact that buyers were unable to keep the market up strongly after the open is the sure tip-off that lower prices are in the offing. If this move had been a rally in the direction of an up-trend then the market would have never given back its gains.

The other tip-off that we currently remain in the sell strength mode is the weakness in the hourly momentum off the lows. The market has really struggled to get where it is and that is not a sign strength.

So, to sum things up...... Continue to sell strength and watch the 1527-1529 area on the S&P 500 cash index for a sell short point. Look for one last push down to new lows below 1490 on the S&P 500 to complete the first leg down of this intermediate term decline. Currently I have a downside target of 1478-1480 for the end of the first leg down. This target may change dependant upon the final level this current rally carries to.

Monday, October 22, 2007

Equity Market Comment 10/22/07

While a more neutral close on the S&P 500 would have completely confirmed the current probability model, the fact that it did not miss by much lends some credence just the same.

The close we saw today is telling us to look for early strength tomorrow, but to use that strength to get short once again. The work remains fully in the sell strength mode.

With Apple's strong earnings announcement this evening after the close the market should follow the pattern of early strength, giving way to lower prices and perhaps sharply lower prices.

As for the action intra-day today, it turned out much the way I had expected with the early weakness followed by closing strength. Tuesday I think will be just the opposite, but we will take it as it comes to us.

Bottom line is to remain defensive!

December Copper Short Position

Copper currently is the only commodity position we have in play and because it has moved in our favor so quickly and such a long ways I am advising the stop moved up to protect at least 1/2 of the profits.

I am moving my stop down to 3.53 even as this was the low 2 days ago.
This stop will lock in about 2/3's of the current profit.

The reason I am moving my stop in such an aggressive manner is that many times and especially in copper, the commodity will try and make up for some of the lost ground it lost so quickly. By placing the stop where I am I effectively protect my profits from a potential run away move to the upside.

Our copper positions are currently showing us almost a 55% return on investment in just about a week.

Sunday, October 21, 2007

Weekend Equity Market Comment 10/21/2007

Those of you who have been following the blog know that I do not embrace this so-called 1987 repeat scenario of a stock market crash.
It is not because I do not think the past repeats into the future, Lord knows I have much of my work devised on just this premise.
The problem I have is that you cannot simply follow price patterns alone all of the time.
In order to confirm those price patterns and especially one of the stock market crash variety, you have to see if other factors are similar.
The most important of these factors are Value and Smart Money Behavior.
While there are other factors you could find to use and trust me, the 1987 crowd will data mine until it says what they want it to, you have to use what is most important to the market and what effects prices and without question it is value and Smart Money Behavior.
Neither of these measures even come close to being similar in nature as to 1987. As a matter of fact, it is quite the opposite that holds more water. Smart Money is completely opposite to Fall of 1987 and Valuations are 1/2 what they were in 1987.
So while I do anticipate this correction to go further and the possibility of the decline getting pretty scary from time to time, I welcome all of the talk of 1987 all over again, it will help to erase the huge complacency we currently have in equities and turn some hardcore bulls over to bearish.
The sentiment at this point is the leading factor we need to see swing back to the bearish side before I can safely give an all clear for stocks. For now, keep your hedge in place and stay tuned, it could get very interesting. Don't forget also that early to mid November is our time frame for a low in stock prices.

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