Lets face it – if you are some kind of “eternal optimist” you’re gonna seriously need to re adjust your thinking in coming months. If the “kool-aid” of global central bank easing, and charts filled with wonderful green candles all sloping to the sky has become your “norm” – then get ready for a good swift kick to the face.
Seriously….you’ve got to be kidding if you honestly think this is for real – and even more so a fool, if you’ve any ideas that it’s going to continue for much longer. The stock market has long and since become a complete and total sham ( as computers make up most of the daily activity – all being that most Americans have already been robbed of their savings) and the entire thing is more or less being held up with phony money coming out of Washington.
Please correct me if I am wrong. If you actually believe the numbers posted on CNBC – you need to have your head examined.
Looking ahead, and making plans for the future is a key element – defining a successful trader. You see you’ve got profits today – so (greedily) you hang on for tomorrow, only to see you are back at zero again. You buy when the T.V suggests all things are well – and you sell when they suggest the opposite. In other words….you continue to do exactly what they say….yet wonder why you keep getting rinsed.
As far as a chart pattern goes – imagine 2013 looking more like a 5 year old sitting at the kitchen table with a set of crayons. At best we are looking at one big wonderful mess.Up one day and down the next….then up two days then down for 4. A bunch of lines / squiggles – near impossible for the untrained eye to navigate.
I continue to caution you – this is a top – not a bottom.
I love commodities.
I love commodities for the simple reason that the “fundamentals” present such a simple story, and an excellent backdrop in forming longer term trading plans. We humans (much like a given species of insect or household pest) are devouring our planet’s resources at breakneck speed and reproducing like flies. We’ve already crunched the numbers on “how much of this is left” and “how much of that” – fully aware that the numbers don’t look good.
Simply put – as we continue to multiply and continue to consume (at ever higher rates) we are going to run out of stuff. Then throw in the extreme changes in weather (likely brought on by our own doing) and you’ve got one hell of an equation for supply and demand. The depleting availability of commodities alone is one thing, coupled with massive population growth and you get the picture.
So…..buy commodities and you will be rich. If only it where that easy. Looking at the $CRB (Commodities Index) we can see the turn has more or less just been confirmed.
The $CRB is now clearly making higher highs and higher lows.
As I trade currency this generally translates into a lower USD (as commods are priced in dollars) and likely advances made in commodity related currencies such as AUD, NZD and CAD. Others may choose to play it through stocks, futures etc
Regardless – looking at this longer term, and considering the fundamentals behind it – its difficult to envision the price of “stuff” to be going anywhere but up. Way up.
Obviously my short-term trade set up is a thing of beauty, and relatively soon – will be made available to the rest of you. But aside from that, I want to pass along a simple little tip – that could provide you an “edge” here in the meantime.
When you drill down to smaller time frames such as a 1H chart (1 hour candle formations) or even a 15 minute, or 5 minute – take out your crayola crayon (and not your laser pointer) and draw a line THROUGH THE MIDDLE OF THE CONGESTION/SQUIGGLES. It will be this “price level” that is currently at play – and not the “highs and lows” of the given time frame.
For the most part anything smaller than a 1 Hour chart is frankly just “noise” so the highs n lows are really not as significant as the middle ground where price is centered. Once these lines have been drawn – a trader can then focus on a “realistic price” to consider for entry or even stops etc, as the volatility short-term will spike/fall and give you all kinds of levels – not exactly relevant to your trading. On a 1 hour Chart 30 – 50 pips on either side of this “central price” is completely normal, and isn’t enough to even get my heart beating – in consideration of dumping a trade.
If you don’t understand the given volatility on the time frame you are viewing – you will get killed.
Take out a crayon and not a laser pointer – and plot the “middle of the squiggle “.
As simple as it seems – this can easily be the difference in catching many, many more pips in any given trade, based on the fact that you have not skewed your lines of S/R to reflect the highs and lows of smaller time frames….but the center – where price is currently fluctuating.
If Uncle Ben’s plan has been to devalue the dollar through QE4 – he’d better get his ass in gear. Thus far since the announcements of “QE forever” – the USD has done little more than trade sideways against most of the majors, and has GAINED considerable value against a number of others.
The USD has traded near parity against the Canadian Dollar for the past 6 months, with only a few cents in fluctuation. Both the Aussie and the Kiwi currently sit at levels seen going back a full year – and for the most part have made little sustained ground on ol Uncle Ben.
The Yen has been devalued recently, to such an extent as to represent a complete reversal of trend going back some 5 years! So absolutely zero reflection of USD devaluation there. And the GBP (Great British Pound) has taken such a beating as of late – as to have LOST 600 pips to the USD.
For the most part the only major making any headway against the USD has been the EUR – and even at that, is still trading at levels we’ve seen many, many times over the past several years – with little or no major effect or concern. In “range” if you will. Gold has been pounded into the ground – and in dollar terms – where’s the printing? where’s the devaluation?
So…short of encouraging investors to continue buying stocks and bonds (with the knowledge that “fed confetti” should keep prices elevated) the current suggestion that the “dollar is being devalued” hasn’t really even taken hold – opening up some fantastic trade opportunities when one considers that…THE USD DEVALUATION HASN’T EVEN STARTED YET.
THE USD DEVALUATION HASN’T EVEN STARTED YET.
As China’s largest trading partner and the world’s second largest producer of gold – I often look to the Australian Dollar (AUD) movement, as an excellent indication of “risk behavior” in general. As well (and more broadly speaking) many consider the “aussie” and excellent proxy for gold.
I don’t see the two assets correlation in an absolute “minute to minute” or even “day-to-day” way (as each comes with its own volatility and characteristics) but when looking at the bigger picture – similarities cannot be denied.
A 5 year weekly chart of AUD/USD – an almost mirror image of a similar long term chart of the gold ETF – “GLD”.
The Australian Dollar and its similarities to long term Gold chart.
Now taking a closer look at the current price in AUD/USD and keeping in mind our fundamentals (currently suggesting a possible “blow off top” in risk, with continued devaluation of USD) things look very much in line for some additional upswing in AUD/USD.
AUD/USD at near term support and clearly still trending upward.
This is another excellent example of how trades develop when one has the combination of “fundamental analysis” as well “technical analysis” firing on all cylinders. The opportunities for considerable profit present themselves only when BOTH ARE ALIGNED.
I see an extremely low risk / high reward set up developing here – if indeed we do get an explosive move upward in risk, as retail investors flock into stocks here near the top. One could certainly keep a relatively tight stop here, as well “buy around the horn” as I’ve suggested earlier – spreading out your risk on entry. There is lots of room to run here – with even 1.08 on a relatively near term horizon.
Monday’s arent the best day for entry as there is alot of jockeying going on. I generally will look to observe price action and see where things end up mid day.
I’m throwing this out there now – more so as a warning to newcomers.
My “risk barometer” being the SP 500 / Dow Jones Industrial Average is cranked about as high as one can imagine – given the current global state of affairs. We are now looking at levels not seen since the highs, prior to the massive crash in late 2007.
One can only assume that right around now, every retail investor on the planet has heard of the “massive upswing in markets” and has just as likely received word from their local shyster (ooops… broker) that now is a fantastic time to buy – as to not “miss out” on the opportunity to make a quick buck.
Looking a few days / week out – one could very well see what I refer to as a “blow off top”. A market phenomenon where large numbers of retail investors chase prices in a frantic scramble to “get in” before the opportunity has passed and the ship has sailed. Unfortunately this is right around the same time that Wall Street is unloading its last few shares (at insane premiums) to the poor unsuspecting newbies – blinded by greed, stumbling over themselves to snap up whatever shares they can.
I’m not suggesting their isn’t money to be made (seeing market leaders such as Apple down 55 bucks looks like a buy opp to me too) but I am putting out a strong reminder that – this is how the markets work. You are the last to buy (at the top) and then will generally hold (until you can’t stand it any longer) only to then sell at the bottom. The big boys will “buy your fear” and “sell your greed” all day long – as retail investors continue to do what humans will do.
Does this at all sound familiar?
Take heed….watch these markets like a hawk here at the highs….thank me later.
I am often a day or two early – but rarely RARELY a day or two late.
When assessing “risk behavior” one needs to look across the board at a number of currency pairs, and evaluate which are indeed exhibiting strength – broadly. A “quick jump” in a single currency pair is absolutely no indication of a change in trend, and a silly little tweet or headline from a newbie blogger – even less.
No single currency trades in a vacuum , and with each and every move in one – there is an equal and opposing move in another. Identifying those currencies associated with “risk” and those associated with “safety” is paramount in formulating a fundamental trading plan.
I never trade a commodity related currency against another – and rarely (if ever) trade a safe haven against another. (Although as of late with the “devaluation war” in full effect – I am actively pitting one against the other – yes.)
Simply put – money flows out of risk related currencies and into the safe havens in times of risk aversion…and the opposite (into risk related currencies and out of safe havens) during times where risk is accepted.
This evening I will leave this with you – to discern which is which, and invite your questions or comments in putting this very important piece of the puzzle in it’s place.
Kong gets loooooong risk.
As a fundamental element of my trading plan – I need to stay active. I rarely leave profits sitting on the table for more than a day, and equally – can’t stand sideways directionless action. My short-term trade technology has proven incredibly reliable once again as I have been 100% cash nearly 10 days now (Permit and Bonefishing in Punta Allen – please google it) and literally haven’t missed a pip. The majority of currency pairs (with a few exceptions) are sitting at nearly the exact levels as a week ago, while equities and PM’s have more or less treaded water.
This soon will change.
Thursday’s, with their barrage of U.S economic data have often provided swing points in markets – and I suspect that this week will be no different. With a bit of news out of Canada tomorrow as well the GBP unemployment rate, my current “tech” should have me on one side of the fence or the other, sometime late tomorrow evening / possibly early Thursday morning.
As difficult as it is to believe at times, and as little sense as it makes (considering the general state of “things”) I still favor further upside in coming weeks, but am a touch more cautious than I may have been prior. Obviously nothing moves in a straight line – so the usual zigs n zags are expected…as we likely “grind” higher.
Some signs of life also being seen in the PM’s and related mining stocks and etf’s.
I will continue to monitor commods vs USD as well JPY, and should the USD continue in another leg down – getting long GBP also looks like a promising trade. The JPY pairs have obviously had their “day in the sun” and I would be reluctant to push much further without seeing a reasonable pullback/correction before continuing (in general) short JPY against the lot. I’ve seen no real change fundamentally as the currency wars continue – with everyone taking their turn at bat. Perhaps Thursday’s U.S data will be the catalyst to push things firmly in one direction or the other.
If you aren’t worries about the markets – you should be. If you think you’ve got it all figured out – you’re dead wrong. If you think you are a professional trader – you won’t be for long.
I took the time over the past few days to peruse the financial blogosphere and get caught up on my reading – after a much-needed (and extremely enjoyable) “holiday from my holiday”. Bonefish put up a pretty good fight, and watching my father reel in the only “Permit” caught in recent weeks was an absolute thrill. For a moment I too imagined – I’ve got this covered.
Passivity and complacency play no part in successful trading. It only makes sense to me, as one feels even the slightest sense of either – markets are gearing up to smash you in the face.
You have to keep in mind (as hard as it is for you to accept) that right around the time you imagine the coast is clear, that all is well, that you can surely do no wrong ( and likely that you’ve just received a call from your broker encouraging you to buy) that you are retail.
You are the life-giving blood of wall street and the “last of the last” to jump on board. The train left the station weeks if not months ago, and right around the time you’ve decided to jump onboard – you guessed it, it’s coming off the tracks.
Until you’ve mastered the psychology, until you’ve flipped this thing completely upside down – you are …and will always be…..retail.
They don’t call it risk for nothing right? – personally I can’t get excited re entering long here, and see more than a couple of reasons to start looking short. Take it for what it’s worth – I’m 100% cash – and would not be buying risk tomorrow….not even close.
I don’t like getting caught in sideways market action. Nothing bothers me more than seeing my hard-earned dollars tied up in the zigs n zags of a given trade – ranging sideways and going nowhere fast. As much as I understand this to be a common (far too common actually) and normal aspect of trading – sideways is a killer psychologically as “dead money” starts to weigh heavy on the brain. Trading capital is tied up as other opportunities present themselves, and a trader is left with his/her hands tied – unable to act.
When I get mixed signals across my intermarket analysis as well my shorter term technical system – I question if perhaps an opportunity has presented itself – or if I am looking at the initial stages of “sideways” and possible reversal. If a trend is still evident on the longer time frames such as a daily chart as well a 4H chart – I will then come down to the smaller time frames to see where we are at.
Kong’s Awesome Tip
On any time frame chart you are viewing – if price starts in the upper left corner of your screen, and ends in the bottom right -YOU ARE IN A DOWNTREND. If price starts in the bottom left corner of your screen and ends in the upper right YOU ARE IN AN UPTREND. Anything else – and you are sideways.
As simple as this may seem, it serves as an excellent exercise when looking to eliminate sideways action. Even if (to start) you only drill down to a 1 hour chart – and run this simple exercise, it should go a long way in helping you to avoid sideways market action, and possibly identifying potencial trade opportunities.