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Wednesday, January 31, 2018

Market Update 1/31/2018 - Advanced Trading Techniques

We're still looking for a major top, but Friday was not it. I could go deeply into it, and have several toppy looking charts I could share, and a lot of charting to get caught up on, but that wasn't my prediction last Friday, and my outlook has not changed. Maybe this is the beginning of a correction, but probably not.    

Reviewing the recent market action, and the technical charts: 

The pullback -

Being the contrarian I am, I suggested traders sell into strength on "Short Covering Friday", even though selling on a Friday is usually a bad idea, because money is typically put to work on Mutual Fund Monday. Countless times, I've seen traders get short on a Friday, only to see the market continue to rally higher on Monday, but this was one of those rare times where I didn't "see much upside risk" in selling into the weekend. All I can say is, "how do you like me now"?!!

There's a good chance I may have gotten this one wrong, and I can show you (on the chart) exactly why most traders did get it wrong, using the NASDAQ chart (below).

1. They believed the trend - in blue - was their friend.
The biggest reason most traders (who happen to be perma-bulls) got it wrong, is because they trusted the trend on a very short term chart. I'll explain more about this bellow.

2. Sentiment. These bulls weren't looking for a pullback. They were on a sugar high, and even if you had shown them the chart below, their judgment is hopelessly clouded.

3. Most traders don't know chart patterns. First we have to go back to the action on the 25th, to recognize the pattern developing, because that pullback doesn't look like a normal pullback into a wave 2. 

While most traders were watching a simple channel, the market breaking out to new highs, and expecting another breakout on Monday, I was watching what looked like a broadening triangle pattern develop, and what looked like a head-fake rally to a slightly higher highs, and unless you're familiar with certain patterns you're not going to see this coming.

So, after identifying the chart pattern, and selling into Friday's close, and remaining bearish into the predictable dead cat bounce we saw on Monday, the broader market plunged 400 DOW points (roughly 1.4%) on technical Tuesday. There's a reason they call is technical Tuesday, and some pro traders even came on CNBC, very early Tuesday morning, to brag about what they had done, after already taking futures down...   

This was a little bear-raid, build on the back of some (end of the month) profit taking. That's all.

The short term charts are a mess, and this is where the longer term (60 min) chart view comes into play. If you don't chart every timeline, as I do, then you're not going to have a clue, when the short term chart breaks. Too many traders are short sighted, and miss the big moves, because they're only focused on the very short term. Those people are still the dark.

In order to see the big picture you need big charts, and the more volatility increases, the more this comes into play. Back in '08 during the height of the crash, we had to turn to daily candlestick, and even weekly charts to find the trend, and missing a 10% point move,  or ending up on the wrong side of a 10 - 15% move in either direction, became the new normal. Once the $VIX got above 30, it was not uncommon to see 1200 point short squeezes, followed by 3000 point declines, the next day. This is the environment in which I learned to trade. Once volatility came down, the short term charts started working again, but it took some time before I become proficient in charting a bull market, on 15 min charts, let alone 3 min. charts. If you had told me years ago, that I'd be relying on 1 min chart views... I would've laughed in your face.      


Friday, January 26, 2018

Best Trade Of The Year! Market Update 1/26/2018

Best Trade Of The Year:

The market continues to rally into the end of January, as I predicted in the previous update, but I wouldn't call that the best trade of the year. Best call of the year? Maybe... 

Second to calling the recent top in BitCoin, the best trade of the year - drum roll please - is

And without further ado - yesterday's reversal in the $GBP, and the $USD! And even if you don't trade currencies (and I can start a sentence with the word "and", because this is my blog) there is a lot to be gained by reviewing the most recent market action in the GBP/ DXY ($USD). After all, all markets respond the same way. Certain markets, or trading vehicles (levered/ futures/ options/ currency trading) may provide more risk, or more volatility, than others, but they all trade the same way. The charts work; no matter the market! Those who claim technicals don't perform, or predict markets, aren't watching the right technical indicators. More likely, they're basing their technical analysis on their own personal bias (emotion), or following others, who do the same. This is the main reason most traders lose money consistently.    

Here's the inside scoop: I confirmed with one of my trusted trading buddies, yesterday morning, that the #DXY was a buy. I should say we both confirmed it individually, and in my mind, that confirmed that what I was seeing in my charts, was correct. This is a pretty rare occurrence, as I tend to be the contrarian. I chart in a vacuum, and view most of what I see on twitter, as a contrarian indicator... but we had already confirmed the reversal on the British Pound earlier in the week, and were tracking the bearish trend in the $GBP, after calling that top. If you've been following me on Twitter, you should know I'm talking about.

The catalyst for the $GBP currency trade was President Trump's statement - from Davos - that, "the US Dollar is going higher", and once again the charts predicted the future.

That may sound hokey, but this happens on a regular basis, and you'll often see the news confirm a reversal. I suppose certain news is manufactured, in order to move markets, but more often than not, the news will confirm the trade. For example: You may see a market trying to build a base, or perhaps you're seeing a washout to an oversold condition, and the market looks like it's ready to build a base, and next thing you know, breaking news (good or bad) provides the catalyst for short covering.

To document:

1. The top on Bitcoin - which we saw coming a mile away. The larger pattern is a megaphone top, with a little throw-over beyond the top of the triangle - typical. This chart from Dec. show me already looking for the top, using candlestick analysis. I even provided the stop hunt, showing were Bitcoin would break, and it did, just like I said it would. Some negative Nancys' would say I was early, and wrong, but waiting 1 month for a major reversal is nothing. Maybe this was the best trade of 2018 after all, but I think few were equipped to trade it. Now every "Johnny Come Lately" wants to short it, of course.

2. The topping pattern on the $GBP - looks familiar.. like the action on the Dow. 

3. The bearish trend which was confirmed on the $GBP, yesterday, and the subsequent snap-back rally, which turned out to be a good swing trade. This is what great - real time - trading looking like!

I put a lot of charts out there, but folks see what they want to see... For example I provided my short term bullish outlook earlier in the month, and even provide the $VIX chart on a regular basis, and this has kept us on the right side of the trade, but it seems like all that gets retweeted is the occasional bearish tweet, or a call for a possible pullback, and most these folks - who frankly just don't get it - don't even speak English. Maybe these contrarians are being drawn from my public stock charts page, which is entitled "Charts of Doom", and which I haven't updated in months - by the way - but then they ignore my short term outlook, the $VIX and the 1000 charts I publish on twitter every month. 

Ignore the contrarians. Mute them, and if that doesn't work, block them as I do.

As far as the broader market - you hear a lot of people calling it overbought, but I'd only call it a little over heated, and a bit overly bullish. Some would say it's "too hot to touch". You've heard Jim Cramer make this ridiculous assertion, because he's guessing. The momentum scared him. Traders don't guess, we follow the trend, we trust trustworthy indicators, and we like momentum, and none of my indicators are flashing "overbought". As long as traders are focused on the short term charts, and as long as those charts continue to work, and the $VIX says fear is contained, then the market is not too hot to touch. I would stay nimble as always, and if you feel that you have to remain fully invested, then I would also be hedged. My favorite hedge at the moment is short the $STOXX600 

Very short term the $SPX is trading (consolidating) in a tight range, with a good possibility of another breakout, and my short term outlook - provided in the previous blog - still stands.

The stock to watch is $AAPL - as a breakout back above the 175 level will bring buyers in.


Thursday, January 11, 2018

Market Update 1/11/2018 - The Market Top

Got a nice little pullback on Wed, after identifying the top on on the NASDAQ on Wednesday.

Those who were watching my Twitter feed, know I called the market top in real time, and watched it break down going into Wednesdays close. Not an easy call!

And here are tweets to Document that "Market Top":

The only reason I timed this reversal, is because I happened to be watching the NASDAQ (15 min chart). If I was only watching the #SPX, & the DOW, I don't know that it would've been so easy... 

"Stall" is an aeronautic term I remember from flight training. A plane in a steep climb can "stall" out in the same way, if there isn't enough momentum to overcome gravity.

This is what the pullback looked like at yesterday's close. Simple A-B-C correction.

And after yesterday's bullish close it look like we're off to the races again.

Maybe we get another pullback into the close - setting another bear-trap for Friday - but I wouldn't count on it.

Yesterday's bullish SPX chart:

The fake financial news at Bloomberg was trying to say the Japanese bond market was to blame for the pullback, and CNBC is blaming Canada, and China... but this is how they make their money, manufacturing stories. I make my money being right. 

Of course I haven't been right on everything:
I saw the pullback in Silver coming, and the recent top in Nat gas, but oil? 

Oil continues to rally higher...

$WTI crude target raised to $65. I'm expecting Oil to reverse, within weeks, and this may be the catalyst for a big market correction, since many folks are heavily leveraged in their oil trades, and "the baby is thrown out with the bath water", when margin calls start coming in. Forced selling...

This is how I would trade the top in Oil. Sell the target, and then add when the stop-hunt is taken out, and then sit back and enjoy the show... it's going to take plenty of time for these oil trades to unwind.

There's a possibility oil consolidates into a bullish wave 4 (of C of (Y), and before a retest of the top of the channel, later in the year, or maybe it trades into a little topping pattern, but we'll worry about that road when we cross it. Even if wave C doesn't complete on the first test... wave A of 4 is a good trade.

That's all the time I have this morning. It's 50 degrees in Chicago, and I'm going to take advantage of the weather, and install a pass-thought on an exterior wall, so I have easy access, for generator cords, and propane hoses, just in case the SHTF in the middle of winter. We've already seen power outages on the East coast, and another ice storm coming, and the Las Vegas technology even experienced a black out.... Don't be caught in the dark!

I'll be away from my desk most the morning...
Take care,

Thursday, January 4, 2018

Market Update 1/4/2018

Yesterday, I touched on a lot of technical stuff, and how to confirm a sentiment change (by using the fake news as a contrarian indicator), as well as how to let the trade work, once you confirm a major reversal. Even the most seasoned veteran traders should find that interesting, and I suggest you bookmark it for future reference.

Today we're going to take a close look at:

1. The SPX 2. The rigged $VIX 3. Market complacency, and sentiment, indicators (very important).  

Looking at the SPX - I'm not sure if sub-minuette wave (((iv))) (marked iv) completed yesterday (Wednesday), or not, but I'm seeing futures up this morning.

SPX - Target at the top of the smaller pattern looks like 2717. Short term support 2710. This rally is beginning to look very tired, and I remain bearish. 

$VIX looks like it's trying to build a base around $9 (8.85) again, although we could see 8.60 by the weekend - on a capitulation Friday.

$VIX chart:

The monthly $VIX chart below shows how the powers that be are able to rig the market by hammering this fear gauge down every month, or is this simply complacency on a grande scale, with the $VIX currently trading below the 2006 - 2007 lows. Either way, a day of reckoning is coming - I believe - some time in 2018. That vague of a timeline is going to upset some bears, but until fear returns to markets, you got nothing. Be patient, the bears will have their day, soon enough.

Regardless of the short term $VIX targets (above) we could see $VIX 7.85 by summer, and key $VIX resistance is a pathetic 10.95 (the 50 week ma on the VIX). I'm holding that long term $VIX chart close to my chest, but I can assure you, that is the number to watch!

You're probably asking what does this all mean? It means complacent, overbought, markets, tend to stay that way for quite a long time, and roll over very slowly. I also means that until the $VIX breaks out above that magic number, the bears are going to remain frustrated...

Market sentiment is off the chart!

Firstly - There are only a few sentiment indicators I trust, and the $BPSPX is one of them. I don't need a chart to tell you it's in my red zone (above) 80. Hasn't been this high since 2014. May press a couple points higher still, but this is a big red flag, that points to way too much bullishness.     

You've seen people I follow, or who follow me (on twitter), talking about how, "sentiment was off the chart", months ago, and me shooting holes in their narrative... because most folks are using lousy indicators, or using someone Else's lousy indicators, and haven't a clue, what the hell they're talking about, most the time. This is what you find on the information freeway, a lot of road kill. That is to say, most investors would rather hear what their itching ears want to hear, rather than do their own home work. It irritates me to see disinformation, re-tweeted, even once! 
One final note on sentiment extremes: Once everyone is fully invested, there's only one thing to do, and that's take profits. In other words, once everyone it bullish, there are no more buyers. Same thing goes for bearish sentiment, like we saw in 2008. Everyone (speaking of herd mentality) is wrong, most the time. The good news is once you're able to recognize extremes in sentiment, it helps you identify the capitulation points, that coincide with major reversals.

Other trades to look at:

$Oil - very bearish

Keep selling the top of the channel in Oil, until you hit pay-dirt, and I'm talking like 7 - 10% on your short bet. Support on the WTI is $55.

Sell Emerging markets:

 Continue to sell the top of the pattern on the $RUT, as long as it's continues to struggle... This doesn't point to a "risk off" market! If the Russell happens to open above the 1555 level, that's going to become your stop hunt. I'll update this chart on my twitter @3Xtraders

If you have a higher risk tolerance, continue to sell silver, and or NatGas.

And one more thing about the rigged markets: There's a ton of money sitting on the sidelines. See the money flow out, while this thinly traded market was rigged higher, on the chart below. Once we see a correction; "beware the short squeeze".

 Take care, Traders



Wednesday, January 3, 2018

The Bottom In Natural Gas - Market Update 1/3/2018 - advanced charting, and trading, techniques

 Tweet from Dec 12th, 2017, where I called for a final shakeout (bottom) in Nat Gas - Elliott Wave Chart included.

 This isn't the first time I've been right on NatGas; I remember calling the bearish reversal years ago, and I've remained bearish ever since, but this seemed way too easy. Typically you'll be early, or wrong, several times before finding a tradable bottom in something as volatile as Natural Gas, and getting it wrong a couple times, doesn't make you a bad technician. It's just part of the process of finding a tradable bottom.... Most technician are early, and that's because sentiment takes time to reach an extreme, and most traders don't have the patients to wait for the "final washout", or worse, they turn bearish when they finally see it. I made this mistake in 2008, even after calling the bottom target on the $SPX, I was unable to get bullish enough, stay bullish, once the market reversed, into one of the most massive short squeezes in history. This is where the rubber meets the road, because even after charting it correctly, and making an accurate prediction, you need to be able to trade it correctly, and that requires a tottally different skill set... but now I'm getting way off topic. 

My mantra is "Chart Everything", so you don't miss a thing, but that also means charting several timelines - long term, short term, intermediate term - and analyzing those charts with an unbiased view. Some times I'll even create 2 separate folders - per sector - to compare the bullish view to the bearish view, when charts conflict with each-other, as they often do. For example I'll label one set of charts, "Bullsh Dow", and the other "Bearish Dow". This is a tall order, and something I've written little about, because I know it's confusing to most people, but this is one of the best things you can do to help you become a better annalist. Comparing the $VIX action to the market action is another... Just yesterday, I saw a possible outcome in the charts I didn't like, and had to check the $VIX chart in order to confirm the bullish trade. I was afraid we may see another washout like the one we saw going into Friday's close, but that was quickly ruled out because of the weak $VIX. I could've devoted this entire blog to what the weak $VIX means, because it doesn't always mean the same thing, but like I said, this is confusing for most people. Most people decide they like a trade, before they chart it, or they don't even bother to chart, and this is called "gambling", or "guessing...", and that doesn't work out too well for most traders.      

 Getting back on point

Major reversals tend to happen when few expect it, so it's important to continue to watch unloved sectors, and keep your charts up to date. While everyone else was hooked on Oil, I was eyeing Natural Gas, and Silver. The bottom in Silver/ and Gold, was also not that difficult to find, but I didn't get bullish enough at the reversal. At least I haven't fought the trend all the way up, but there are lessons to be learned from all this, and there's always room for improvement. That challenge is what peaks my interest, rather than become bored with it all.

This rally in Nat Gas was not about "Frozen America", as you see every fake (manufactured) news outlet reporting, or even supply and demand.... It's about looking for a trade that's going to work on light holiday volume, and realizing short positions take time to unwind - weeks in most cases. Keep that in mind the next time you find a market reversal, and you'll have a better chance sticking with the trade that's working. I'll be revealing more advances charting, and trading, techniques in my upcoming book, but now let's get back to the charts....   

The rally in NatGas looks like it stalled out yesterday, and it's no surprise, since the fake Financial News is just now reporting "Natural Gas up 17%". That Bloomberg headline is the kiss of death for this rally, because it marks a sentiment change, and everyone who missed this big move in NatGas is about to start buying the dips - all the way down.

If you were following my twitter yesterday, you watched me block one of these fools... trying to tell me that there's demand.... Look, opinions are like a-holes, and especially when the charts are working. Where was this know-it-all - chiming in on my twitter feed - when I was calling for a rally? Now he's blocked... and placed in the contrarian camp. Yeah, I can be harsh sometimes, but this is for the good of the entire community.

If you follow my twitter you saw the updated NatGas, and $UNG, charts - looks like wave A in a snap-back rally, or was that silver? One thing is for sure, I'm watching too many sectors right now, and now I'm more interesting in catching a bigger reversal in Oil.

$WTI crude has traded into a key Fibonacci target, and the top of bearish parallel channel.

 If you're still hooked on NatGas, there's resistance right here (at yesterday's high), and again at 3.25. If it can breakout above there, I think it could go as high as 3.85, with 6.48 being key resistance on the $UNG. 

The UNG isn't as accurate of a chart, as the pure NatGas charts, but both are showing a breakout above the 50 day ma, ending with that looks like a bearish Hanging Man (possible reversal candle). The 50 day is the level to watch....

The market is poised to rally higher, after yesterday's little pullback. Seems like these happen late in the afternoon, when I'm not watching.

Watch for the $RUT to lead this time... as the market continues to be pumped, one sector at a time.

 Take Care, and have a healthy, happy, and profitable New Year!


Tuesday, January 2, 2018

Market Wrap Up 2017 - Outlook for 2018

2017 was no doubt a great year for investors, and very predictable for traders. Stocks rallied into the end of the year as expected, and I expect this rally to continue into early 2018, as money managers return from holiday, and are forced to chase performance. 

And what a great way to end the year, on a little panic wave "e", to complete wave 4 consolidation, as seen on the chart below. 

Market seen selling off into Friday's close; as predicted, earlier in the week. I didn't even have to update the chart this morning.

Here's what it looked like on the SPX - on a 1 min chart:

Next comes wave 5, and that should wrap up by the end of the month, I think. From there, I'd expect to see some profit taking, ahead of earnings season, followed by another rally on "better than expected earnings", and a dovish (new) Fed (chair)... The soonest I see a major correction is March, but now we're getting ahead of ourselves.

I'm not too keen on chasing the broader market rally into Wave 5, ahead of a reversal, and I'm already looking to commodities for some better trades in 2018, in Energy, Oil, NatGas, Gold, and even Silver.  Of course trading commodities, carries with it, greater risk, and you should decide - ahead of time - if you can tolerate that or not. 10% moves are not uncommon, and if you're leveraged, you can get into serious trouble, in a hurry...  One way to lower your risk would be trading in and out of the $SLV (silver fund), or $GLD, buying and selling the $UNG (NatGas fund), or $USO, rather than trading leveraged funds, or contracts.

Of course if you like leverage as much as I do, you'll probably be trading $NUGT, and $DUST, and such.
I don't like miners here, based on the candle-stick analysis alone, so try jumping into $DUST first thing this morning - after the open.

$GLD is also coming up against resistance (@ $124.76 - 126.25), but typically the miners lead the way. 

Don't like Oil up here:
 $Brent - trading at the top of the channel.

 Looks like we're seen on the bottom on NATGAS, after a years worth of consolidation, but it's hard to get on board right here.

 You see lots of bearish money managers coming on the financial new networks, talking about a "correction in 2018". That's bullish a contrarian indicator. Make them chase this market!

Happy New Year!