Cotton - To The Short Side

Cotton continues to trace out the Triangle within a Triangle pattern which typically is a bearish pattern but not always.

The key to getting on the right side of cotton here, is to wait until these triangles are broken through with an increase in activity.

The commercial positions as well as the not so bright money positions are both very bearish, so I do favor the short side.

Be ready on this one as it should prove to be quite an extended move and one that should prove very profitable.

Equity Market Comment - 11/3/2007

The probability study was off on Friday, but we made it a very productive day anyway.

This model is split for Monday, with the emphasis overall on lower prices.
The scenario it is calling for is the possibility of early strength that is followed by a reversal
in prices, and this strength I am talking about may be hard pressed to last through the first hour of trading.

DAY TRADERS SHOULD CONTINUE TO SELL STRENGTH

The intermediate term model has not improved at all and continues to call for a violation of the S&P 500 lows at 1490 at the very least. The 1465 to 1467 number basis the S&P 500 continues to come up on all time frames of my work so we need to watch this very carefully.

INTERMEDIATE TERM TRADERS SHOULD REMAIN 100% HEDGED AND DOUBLE UP PUTS ON STRENGTH

The long term model still is very constructive and confirms the fact that we remain in a bull market. Although on an intermediate term basis we may run through a rough patch, over the long term prices should continue to rally. As a matter of fact, once the intermediate term weakness has run its course the market should be set up for a great run to the upside.

LONG TERM TRADERS SHOULD CONTINUE TO HOLD A 65% HEDGED POSITION IN THEIR CORE EQUITY POSITIONS TO PROTECT AGAINST ANY NASTY SURPRISES TO THE DOWNSIDE THROUGH THIS ROUGH PATCH

I have been working on a couple of new models that show quite a bit of promise.
Both of them are short to intermediate term oriented and once the full testing phase is over I will begin to publish their readings on the blog.

I also am testing a new mechanical trading system based on the 1 minute and 5 minute charts of the S&P 500 that can be used to trade either the futures or options on the spyders. These will be posted through the day on the intermediate term updates, providing that trading is not to hairy in which case I doubt I will have the time to post.

I hope everybody has a great week-end and I look forward to the opening bell on Monday!

Intra-Day Closing Equity Comment

Today is a perfect example of why we use trailing stops on our day trading.

If you recall the previous intra-day post when I wanted to lock in at least 3.5 to 4 points on the short position and as soon as I did they took the market lower still. I then moved my stop to reflect the exact same spread that I had with the original stop I put into place.

I kept this same spread all the way down until I was stopped out.
I did not get the ultimate low, as I was stopped out 8 minutes before the ultimate low, but the stop did what it was supposed to do and along the way we captured 7.5 S&P points.

So, from wanting to lock in 3 1/2 points we almost doubled that goal by using a trailing stop.

There is really no hard and fast rule about stops and many times you may find their placement is based upon what you see going on in the market at the time. There is nothing wrong with this premise, but keep in mind that placing and maintaining stops is one of the hardest things to learn to do. You will find that the longer you study the markets, the easier stop placement becomes. Sure there will be times that they run your stop and you miss a move, but fret not, as there is sure to be another right around the bend.

Anyway enough of the stop placement lesson.

After everything was said and done, the fade of the open and the re-short of the rally, we walked away with 19.75 S&P points today!!

Remember that if you can catch 8-10 points in a day you had a phenomenal day, catch almost 20, especially in a choppy almost directionless market and you are simply kicking ***

It was a good day and hopefully this trend will continue next week.

I will be posting the daily market comment either late tonight or Saturday sometime.
There was alot going on this week and it looks like more to come next week, not only in equities but the futures markets as well.

Intra-Day Update

It is going to be decision time here, very soon, with 2:15 right around the corner this market is going to break one way or the other.

We have a little over 4 points profit in our short position right now, so I am going to move the stop up very close to the market and lock in at least 3 1/2 points.

Something Of Value - Use It When You Can!!

Here is something you should try and keep in your mind at all times and also retain a copy for your trading journal.

This pattern works well on all time frames, but is especially effective on the intra-day time frames.

Intra-Day Update - Add To Short/Puts

We are short from 1508 on the S&P and are going to add to the position with the rebuff from the 50% retrace level.

Keep a close stop just in case they try and run it. Days like these are full of locals trying to pick you and me off, but that is one of the ways they make their money so I really never have a problem with their activities.

Intra-Day Update 11/2

I will be looking to sell the market again at the 1507-1508 level.

This move off the lows is without a doubt counter-trend!

Intra-Day Update - Long Position

I don't like the way the market is acting in here, so lets take our long position off the table at break-even.

Intra-Day Equity Market Update - 11/2/07

With both of the down legs on this 5 minute chart being the same length, it may be time to look for some type of trade able bounce.

If you decide to come along for the ride for a possible short term rally, make certain you keep a very close stop of not more than 1.5 S&P 500 points.

This way if they decide to run to or through today's lows you loss will be minimal.

The market is really acting like it wants to put together some type of bounce here.

Look to 1508 - 1512 for your profit target.

Copper - Might Be Ready For A Bounce!

It looks like we jumped out of the short in Copper a bit to early, but then again, hind sight is 20/20 and we did OK on the position anyway.

Now, it is starting to look like the first leg down is complete and a rally wants to begin.
Of course with how hard it got hit today it probably would not be wise to rush in on the long side. However, keep it on your watch list as there will be quite a bit of money to be made on the reflex/counter trend rally.

Grains May Be About To SLIDE!

The grain complex looks to be on the verge of a collapse, especially the soybeans.
Corn, may hold up a bit better than the beans but corn will get hit hard also.

The Oats remain a scalper trade as I look to hit them up for 20-25% and then I am out.
If the grains do begin to crumble I could stay in the oats longer, but it was set up as a scalp
trade and that is how I am going to trade it. I don't really like having three separate positions in the same complex anyway.

Preliminary Equity Comment 11/1/2007

I thought I would mix it up a bit today and post the chart of the Dow instead of the S&P 500.
This does not change what I trade off of as my priority index, but it has been a while since I made any reference to the Dow and I know a bunch of people follow only this index.

The probability model hit it on the head again today with the strong move to the downside.

The preliminary numbers on this model are calling for much of the same for Friday... Strong downside action that takes no prisoners. As a matter of fact there are 2 components in the model that are signaling a much worse day tomorrow then we saw today.

Now, these are the preliminary numbers on the model. I cannot calculate the entire model until after 7pm when most of the after market trading has completed. I thought I would post a heads up though with these preliminary numbers that most definitely call for a continuation of the decline.

The chart of the Dow gives some reference points to watch for potential stabilization or reversal.
13160 on the Dow has quite a bit of confluence from several time frames so we really want to watch that area.

Keep in mind also that I still don't know if this is just a correction of the rally off the August 16 low or if this is in fact a second leg down of a deeper correction. This will become clearer as the decline continues and sentiment is monitored.

Can you believe the Dow was down 362 points today and the CBOE Put/Call ratio was .97!!
The market is getting hammered and still there is more call buying than put buying. It is precisely this type of mind set in the market that causes me to think that the August lows will be broken. Time will tell.

For now, I continue to sell all rallies and the long term portfolio remains 100% hedged.

Intra-Day Market Comment 11/01/07

The probability model continues to lead us in the correct direction as the market has gotten hammered from the open.

Can you believe that the DOW is down over 200 points and the equity Put/Call ratio is .89!!!

It is exactly this type of complacency that needs to be worked out of the market. If this type of bullish behavior continues in the face of large declines then stocks might have a long hard road ahead of them!

Anyway, we remain in the sell strength mode and should you see some type of rally mustered up in the next hour or so then look to sell the rally at 1535.47 basis the cash S&P 500.

Other area to note are 1531.41 and 1539.53.

Equity Market Comment 10/31/07

I am probably one of the biggest fans of volatility but days like today are not friend to most traders and it is exactly this type of market action that causes me to stand aside on Fed Announcement days.

The volatility is so wild on days like this that it is virtually impossible to make an informed trade one way or the other.

I am posting a 1 minute chart of the S&P 500 cash simply to give a visual of how whacked out it was today.

Now onto the important information!!

The probability model had called for higher prices today although not quite as sharp as they finished. The model is calling for prices to move sharply lower in here, seeing today as only a temporary rally.

In a very high majority of times when stocks rally sharply after a Fed announcement, while the 10 year note gets creamed, the market has moved sharply lower over the next 2-3 days. The contraction in the S&P 500 futures premium over the cash that occurred today is telling us that the smart money realizes this market cannot hold itself up much longer.

Remain in the Sell Strength mode and keep the hedge in place on long term positions.

I thought I would throw in the 1 minute chart to show the whipsaw action today after the Fed Announcement.

What the Probability Model Says About The Strength Today

The strength is equities today should be bet against!

That is what the probability model is telling us.

The Put/Call ratio is sitting at .80, which just begs for lower prices.

As I had said earlier, the only way I am going to get into this market on a day like today would be to set my short sale order away from the market so if the market does get hit I will get filled on the way down.

However, I am not brave enough on a day such as this to go either way, but if you have the
gumption, that is the way to play it. The safest way too.

Let's see what happens.

Intra-Day Update 10/31

If we were not waiting on the Fed Decision today, I would be ready to jump on the short side with a break of the triangle, but with their announcement pending, anything is possible.

CRUDE OIL - Wants To Break Lower

No question that the action today in Crude signals at least an intermediate term move of lower prices ($10-$14).

The Million Dollar Question is whether or not this marked the ultimate high.
Still way to early to tell, but the possibility is there.

There is some good potential on the short side here.
I am not going to take it however as crude has bit me too many times in the past.
I very rarely trade it, but should we get confirmation that indeed a secular top has been put
into place then I will get on board for a position move.

Equity Market Comment 10/30/07

A pretty good day today with 14 S&P points captured.
Anything over 10 points is stellar as far as I am concerned.

The market rolled over today on the daily charts and made a swing 3 day pattern, which usually points to lower prices. Over the last 18 months however, this three day pattern has lost its immediate ability to bring on lower prices. The flow now seems to be a 1 day move higher then the downside move can begin in earnest.

The probability model is calling for a flat to slightly higher close tomorrow, which I am a bit puzzled about seeing as the Fed Decision is tomorrow and I would expect quite a large move one way or the other once their decision is made public. The probability model calls for two possible scenarios both with about the same result at the close.

It Calls for:
1. A sharp move lower early to mid trading day followed by a sharp reversal that brings the market flat to positive.

2. A choppy day that really goes no place in particular and results as an inside day (Lower High, Higher Low) with a positive close.

Seeing as there is the Fed announcement tomorrow I don't really know how much intra-day trading I am going to do. Most of the time I tend to sit these kind of days out and let it play out.
Unless there is a great set-up that simply cannot be passed on I don't think my activity is going to be very heavy.

Nothing has changed on the intermediate term basis.
I continue to sell strength and have kept my portfolio hedge in place.

So far the positive seasonality that was being hyped up everywhere has led to a complete opposite result. In keeping with that trend I would expect to see sharply lower prices Thursday and Friday. Of course the market will let us know what it wants to do, we just have to continue to listen. Remember......... THE MARKET IS ALWAYS RIGHT!!!

Intra-Day Market Update

It just doesn't get any closer than that!!

We had our stop at 1533 even to lock in profits and it rallied to 1532.99 before turning lower yet again.

We are out at the close today.

Good day - 15 points captured!

Intra-Day Market Update - Tighten the Stop

Tighten your stop up on your Puts and/or Futures to 1533 even basis the S&P 500 cash.

Lock in at least 4 3/4 points!

Intra-Day Update 10/30

Add to the short position and/or Puts.

Keep a close stop from here of a buck or so.

Intra-Day Update - Sell Short...Tight Stop

Lets short it here, with a tight one point stop.

Intra-day 10/30/07

Will be looking to get short again in the 1435.75 - 1437.75 area.

Will make the assessment at the time.

This move surely looks counter-trend!

Pay Very Close Attention If The S&P Moves Into These Sell Zones In The 1:30 pm area, plus or minus 3 minutes or so. If everything lines up on the sell side at this time we could be in for a quick 7-10 points down!

Intra-Day Update - 1534.30 Profit Stop

Remain patient with the buy stop at 1534.30 basis the Cash S&P 500.

It is make or break time here!!

INTRA-DAY BOUNCE REFERENCE

INTRA-DAY MARKET COMMENT 10/30/07

Tighten the stop significantly on all ultra short term Puts and Short Futures positions.

We have a handy profit and the market is starting to look like it wants to bounce from here.

We can always sell the bounce.

I am moving my stop to capture 85% of the profit.

EQUITY MARKET COMMENT 10/29/07

Scalpers should look for some early lower prices with the break down from the channel, an attempt back into the channel, a rally failure to reach the top and yet another violation of the lower line.
While today presented very sparse scalping opportunities, the pattern near the end of the day may present us with some good downside movement at or near the open.

Equities being held in check by the invariably strong 62% retracement.

Another listless day, even with the positive bias as market participants wait for the

Federal Reserve decision on interest rates.

It would not surprise me to see continued quiet trade tomorrow and most of the day Wednesdays, all the models continue to advocate selling strength and this is exactly what I will continue to do.

Put/Call ratios continue to run very bullish, so it is fairly evident that the market should be unable to enter a period of sustainable rally.

One more push lower continues to be the intermediate term call and at this point with the wide spread bullishness, I don't know if the August Lows will be violated or not. It will have to be a day by day process, but sentiment is in dire need of an adjustment towards bearish before anything can happen on the upside.

I continue to look for a low to be put into place in the time window of 11/2 through 11/9.

Not very much time really for the amount of price action that needs to be covered.

REMAIN DEFENSIVE AND SELL RALLIES/ KEEP THE HEDGE IN PLACE JUST IN CASE THE HAMMER DECIDES TO FALL.

ONE MORE ITEM TO MENTION....... THE PROBABILITY MODEL DICTATES THAT IF TUESDAY IS AN OUTSIDE DAY (HIGHER HIGH,LOWER LOW) THEN WATCH OUT FOR WEDNESDAY AND THURSDAY, THEY COULD BE BLOODBATHS.

FORD - Buy Puts For Final Seasonal Push Lower

It is time to buy Puts on Ford Stock as it is ready to move lower and put in a very reliable seasonal low.

I remain firmly bullish on the stock long term, but intermediate to short term the stock continues to carve out a base from which to start a secular advance.

I will be adding the puts to the option portfolio on or near the open tomorrow.

Intra-Day Update 10/29

Stochastics (Blue Circle) are telling us that they cannot keep this market propped up much longer.

Look for a sharp sell off into the close.

HNI - Add To The Put Position

Daily pattern is starting to look very bearish.

Add to the existing Put Positions on HNI.

November 45 Puts currently 2.40/2.65

Intra-Day Update 10/29

Here is an opportunity to scalp 5-10 points on the short side.

Using a tight stop, as if it is going to break low it should do so now.

Intra-Day Market Update 10/29

Not much going on today as the market seems to be in a holding pattern awaiting the Fed decision.

I was going to fade the strong opening this morning, but it was simply to quiet and that tends to make me cautious about a position either way.

I will contemplate a short position should the trend lines be violated with a pick up in activity.

Remember, there is never any harm in going through an entire trading session and not making a trade either way. This may just end up being one of those days.

SHORT MARCH 08 SUGAR

We are short March 2008 Sugar from the open at 10.12.

Looking for a quick and fast break to confirm the short.

Keep the stop close as sugar is definitely at a crossroads and if the sell signal is indeed valid,
then the break should begin no later that tomorrows session.

Candadites For Short Sales or Put Buying

For those of you who do not feel comfortable enough trading the Spyders (SPY) because of the volatility, I am going to offer an alternative with a list of stocks that should out pace the markets either to the upside or the downside.

The basis of which ones to look into will be solely based on the current equity market outlook, which at this time is bearish.

Below is a list of stocks that can either be sold short or puts bought on the stock.

Currently, with three weeks until option expiration, going out to November is still a safe play.

There is some homework on your part with these stocks as you will have to bring a chart up and determine which one or ones offer the best risk reward ratio. Personally I trade the entire basket, but as I have stated in the past, I am very aggressive and that simply might not be your cup of tea.

Ryland Group (RYL) 28 3/8

Anworth Asset Management (ANH) 6 7/8

Biovail (BVF) 19 3/4

Commerce Bancshares (CBSH) 47 1/16

Church & Dwight (CHD) 47 5/8 My Personal Favorite!

Innovative Solutions & Support (ISSC) 20 3/8

Equity Market Comment 10/28/2007

Friday, I posted two charts, one current and one from about 2 weeks ago.
With those two charts I emphasised the striking similarities between the price pattern.

I did not post the entire chart from the comparison module, only the structure that currently has completed.

Below you will find the remaining price pattern from the comparison and if you look back to the post on Friday you can plainly see what the next major move should be for the S&P 500.
DOWN.....DOWN.......DOWN

Nothing is ever etched in stone in equity analysis and this is one of the major reasons I am so passionate about analyzing not only equities but commodities as well. There is always something new coming around the corner and your analysis is dynamic not static so you always have to be on your toes.

It is also important to remember that being right is nice, but making money is really what it is all about. If you follow your plan and execute it without a hitch then the $$$$$ will be sure to follow. This means being able to flip sides in an instant should the work dictate such action. This seemingly easy task of flipping sides I will tell you was the hardest thing for me to master and even now at times it can become a struggle, but I have a pretty good handle on it. It also means being able to take losses when they come and not let hope get the best of you. Losses are invariably going to come your way, and at times you may have a string of 5 or 6 of them, but if your plan is solid and you have put forth the necessary effort of study then these losses actually become an asset of sorts.

How did I get on this subject anyway?
I could write and entire book on the psychology of trading and the school of hard knocks, but that should be for another time.

The point of this post is to emphasise that we may be on the verge of some very nasty downside action and there will be some great volatility to capture both on the upside and the downside.

I realize that my current short term analysis of equities puts me in the huge minority of what people are expecting from the markets over the next 5-8 days, but being in this position actually makes me feel a little better. I always want to be in the minority camp if I can. To me, there is just simply way to much talk about the extremely strong seasonal time frame we are entering and while this may be true, there are some serious differences in market conditions from now compared to the last 9 or 10 Novembers.

In short, be careful and stay ready to make some serious coin on the volatility that should be on its way.