WAITING ON THE DOLLAR AND OIL

A while back (I can’t remember when, and I’m too lazy to find and link to it) I mentioned that the daily cycle in oil runs about 50-70 days.
The energy sector is one thing weighing on the stock market right now. Oil needs to turn the corner and join stocks in a new uptrend. As soon as oil puts in the cycle bottom it should provide a big boost to the general stock market.

Today’s intra-day reversal comes right in the middle of the timing band for a cycle low. If we get a swing low tomorrow there’s a good chance the energy markets may be ready to join the party.
Another requirement for rising stocks, in my opinion, is a falling dollar. Bernanke probably realizes by now he isn’t going to be able to print prosperity (I’ve said all along that simply printing money won’t heal the economy or create jobs). However I don’t expect that to deter him from further debasement of the dollar. He knows that asset inflation is the next best thing, and I have no doubt he will do everything in his power to keep asset markets inflated.

Ultimately this is going to lead to a currency crisis either late this year or early next as the dollar works its way down into the three year cycle low. But I’m confident unintended consequences are the last thing on the Fed’s mind at this point. As is invariably the case politicians are only interested in the short term, which is a big reason why we have such huge long term problems right now.

I think we need to see the dollar break back below 82 in order to push the S&P through the 1100 resistance level.

Once we do that then its just a question of when the dollar breaks through long term support at 80. When it does it will fulfill my last two requirements and signal that the 3 year cycle decline now has its hooks in the dollar.

The other signal besides a break of 80 is a left translated intermediate cycle. A break to lower lows anytime in the next 9 weeks will meet that qualification.

If the dollar happens to do that in the next week or two it will form an extreme left translated cycle. And those tend to turn out extremely bad.

109 thoughts on “WAITING ON THE DOLLAR AND OIL

  1. Gary

    The spread will be smaller in GLD and SLV but you won’t be tempted to sell on every little wiggle if you own physical.

    People that tend to have trouble with drawdowns are probably better off in physical.

  2. robertkudla

    I can’t help but wonder how far they can push the dollar down, when it will significantly affect oil and food prices. I am long oil and gold, but I have a hard time thinking they are simply going to be able to run this to SPY 1125. The population is far more sensitive to a parabolic move in these items than in 2007/2008.

  3. Gary

    Robert,
    I’m not really sure what you mean by “they will push the dollar down”.

    If the fundamentals initiate a down trend (and I think they will). Eventually everyone starts to jump on the trend. We are seeing that in spades right now in the treasury market. There is absolutely no fundamental or commonsense reason to get long bonds this late in a secular bull market but people are doing so simply because price is rising.

    The same will happen with the dollar. We will see the fundamentals and the 3 year cycle start to take hold of the dollar and as we all know selling begets selling. The combination of all three will push the dollar far below where commonsense would normally take it.

    Then we will run out of sellers and lo and behold the dollar will put in a major three year cycle low.

  4. Gary

    Unfortunately there is no free lunch in this world. There is a steep price that will have to be paid for Bernanke’s printing spree in 08 and 09.

  5. Anonymous

    As for Tim you play by his rules or he or one of his mods will ban you quick. There’s not much leeway there. It’s funny how he is able reenter a position ‘100% short’ without having to sell an earlier position at a loss. I wish my brokerage account had that feature lol

    And let’s not forget his infamous 401K following the march 2009 breakout that came to the rescue after every rally yet was unscathed during the 2008 rout. Eventually he shuttered the 401K because everyone knew it was a joke.

  6. Anonymous

    Robertkudla,

    Why ask for other people’s avatar? Everybody wants to be anonymous nowadays because TK isn’t really that nice of a guy. There was a reader who recently emailed him about him being wrong. TK posted the entire email on his site, along with the person’s full name (Mark Everett) and email address. That’s not such a nice thing to do to your readers, just because you’re offended by the email.

  7. robertkudla

    No doubt your real name,,;-) Sunlight disinfects, no need to hide who you are, if you stick to the purpose of the blog(s),. Did Tim hurt your family or something?

  8. Anonymous

    “Stick to the purpose of the blog?”

    Or else?

    That sounds like a form of communism, doesn’t it?

  9. Anonymous

    I guess Star Trek is “sticking to the purpose” of his blog?

    TK simply has to censor because anybody with a brain realizes he presents an illusion of profitability rather than results. How many time does one have to witness not only atrocious directional calls but zero risk control to understand TK is DOA?

  10. Anonymous

    ” Did Tim hurt your family or something?”

    Not directly, but I can no longer pay for my kids’ college. πŸ™‚

  11. Anonymous

    Gary,

    Do you pay much attention to the stochastics? For those unfamiliar with the term, Embedded Stochastics occur when both the red “K” line and yellow “D” line stay over an 80 reading for 3-days in a row. The theory behind the indicator is that when an Embedded Stochastic develops, it means the trend is getting stronger in the direction the market has been going. So, for example, a market that was reading as “overbought” kicks into hyperdrive and locks-in the current trend and just continues higher. Most people just think it is overbought but those that believe in this indicator would say it has moved from overbought into hyperdrive. Then all dips are thought to be bought (and bear traps).

    Some technicians put alot of weight behind this indicator and it is one that happens infrequently.

    Of course the embedded nature can also happen on the downside as well so an oversold indicator that spends 3 days under 20 for both lines locks in the trend and just keeps going down. All rallies are then to be sold and bull traps.

    Right now the Dec. futures and many of the miners (GDXJ, for example) have just embedded. Theoretically this would mean that they have moved from overbought into a trend-locking pattern and will just continue higher. And weakness should be bought until is unembeds.

    I’m asking what you think about this indicator. I have watched it over the past few years with gold and a few other commodities and it does have an unusual way of differentiating between overbought and something that is just going to continue higher but I am not a very keen student of this indicator and would like to know what you or anyone else thought about it.

    As for gold and those miners that have embedded, the theory I guess is that any pullbacks are just bear traps and buying opportunities and we will continue higher until we unembed.

    One final point is that Ira Epstein is the only one I know that consistently discusses embedded stochs. He is interesting but he is much more geared towards swing trading than buying and holding.

    http://iraepstein.linngroup.com/videos.html

    Steven

  12. Anonymous

    Gary – Where do you expect the DXY will end up at the 3 year low next spring? Do you think we will break below 70?

  13. Justin

    Gary,

    Is the left translated cycle the only technical evidence you have for a falling dollar? Seems pretty weak to me, as a dollar bull I have multiple currencies making topping patterns against the dollar, including the most important currency against the dollar, the euro in a confirmed downtrend. Plus bonds are breaking out to new highs on high volume, and concurrently the market is still potentially topping here too. Seems to me most dollar bears won’t smell the coffee until the dollar breaks 88.

  14. Gary

    Steve,
    That’s a new one on me. Gold should be due a daily cycle correction soon but if what you say comes to pass it could very mild.

    Anon,
    The extreme left translated nature of the current 3 year cycle does suggest the dollar will break below 70.

  15. Gary

    Justin,
    These very long term cycles just don’t fail so I wouldn’t be willing to bet against it, and I’m afraid you are going to regret that you did.

    By the way how does one spot a topping pattern before it happens?

    Is it the same as how so many technicians were telling us that gold was looking terrible right before it bottomed or how the head and shoulders pattern in stocks was forecasting a move to 950?

    If anything I would think we would have learned by now that thesae technical patterns tend to be worthless at the times you most need them to work.

    All in all cycles theory has done a much better job of timing market moves than technical chart patterns and current price action.

    That is one of the big problems with trying to use price action as ones sole guide. Basically you are projecting the past into the future, and as we all know eventually that always fails.

  16. Gary

    Just as an example the recent price action in gold would suggest it will just continue higher and higher. Emotions also come into play once a strong trend develops.

    But the reality is that gold is approaching the timing band for a short term top. So rather than becoming euphoric now is the time to prepare for a short term pullback. If one expects it they won’t freak out when it happens and they can be prepared to take advantage of it to add to positions.

    Your bias caused you to pass up the best buying opportunity in gold since Feb. If you also passed up the Feb. opportunity you might want to reconsider your strategy and remember in bull markets one buys dips.

  17. Justin

    Notice how I said potentially and not “for sure”. You seem to be certain about things that just haven’t happened yet, including the dollar collapsing. If cycles theory was so useful it would be used by more people and actually have a track record but in reality it is no more useful than other forms of technical analysis. You can try to make it sound more important all you want but all technical analysis is just a guide and nothing works all the time.

    Simply put only time will tell if the dollar trend has changed but I think I have more evidence of that than you do.

  18. Gary

    Actually cycles theory always “works” for the simple reason that human emotions don’t change.

    Sometimes a cycle will stretch really long or contract and throw off one’s timing but there is always a cycle.

    A great example was the extremely long intermediate cycle for stocks and gold into the Feb. low.

    That cycle stretched about 5 weeks beyond the outer boundary of a “typical” timing band. But it still didn’t stop the cycle from completing.

  19. DG

    Gary, there is no question that human emotions are at work in the markets. Contrarianism works by definition. Once “everyone” is bullish the item they are bullish about must go down. It is measuring the sentiment and knowing how much is too much bullishness that is the art of it. Why isn’t the same true of cycles? Human emotions run from greed to fear and so the cycle repeats, but how do you know something cycles every 20-35 days? And why can’t it take 50 days for people to get too bullish one time and 92 days the next? A cycle running between 20 and 180 days would of course be worthless. Why should the range be small and consistent? (as in the oil cycle is 50-70- days).

  20. Gary

    My guess is that a particular asset has an emotional cycle that tends to run a certain period of time. But you make a good point I do like to confirm that a cycle is due to bottom ir top by also looking at sentiment. If both are telling me the same thing then I “expect” the cycle to bottom in the timing band.

    Does that mean it always works? Of course not. Occasionally sentiment just keeps getting more and more extreme, like the Feb. example.

    But all in all the vast majority of the time a cycle, be it daily, intermediate or long term does bottom in the timing band. certainly often enough for me to consider cycles dependable enough to keep in my tool box.

    Actually I rank them in the same catagory as sentiment. After that comes money flows and a very distant fourth place is reserved for chart patterns.

  21. Anonymous1

    Justin –

    Potential Head and shoulders forming now on the daily EUR.

    Fundamentally – the EUR makes the USD look as good as gold…. πŸ™‚

    Gary hates the the USD – which means he loves the EUR.

    He should buy gold and the USD – most diversified way to play the confusing deflation/inflation battle going on at the moment without going all in betting one way.

    It breaks 1.27 – could get a swoosh down.

  22. Anonymous1

    POMO day tomorrow. Expect a spike in stocks after 11 EST that looks like stocks took viagra.

    UST should have a down day. No guarantee – but the probabilities are there.

  23. Gary

    I would argue the opposite. Europe is trying to delverage so they don’t have to debase their currency.

    The US has thrown caution to the winds and is racking up more and more debt at an astronomical pace. The printing presses are in overdrive trying to hold long term rates below market values and to fund an ever larger bailout program.

    I really don’t think the law of supply and demand has been suspended for the dollar. If the government prints too many dollars eventually when sanity returns to the market value will suffer.

    I think sanity started to return two months ago.

  24. Anonymous1

    You need to quit thinking like most Americans whose economic analysis like everything else American sticks within the borders…….

    what do you think the rest of the world is doing with their paper money?

    You speak like the US is full bore printing while the rest of the world sits idly by and waits for their economy to collapse from a large increase in the value of their currency.

    One mans inflations is another mans deflation in the global economy.

    A crashing USD means inflation here = a ripping EUR which means deflation there.

  25. Anonymous1

    Bottom line is its a world wide race to debase the currency.

    Gold will win over all fiat.

    USD will win over all other fiats as the world still works on USD

  26. Anonymous

    Gary, any thoughts on what will happen to natural gas? Have patiently been waiting for this to break the long-term downtrend. It’s about the only commodity that is still depressed, and it’s still 70% off its highs.

    It just can’t seem to get any traction, although the COT reports show speculators are heavily short the NG market.

    Interested in your thoughts and perhaps you could add a small summary on NG cycle in one of your blog updates

  27. Gary

    I haven’t really looked at nat gas in a while. I have no intention of buying it anytime in the near future.

    The long term bull is in gold and I see no reason to divert capital to an asset thay may have an oversupply problem.

  28. Anonymous

    Hi Gary,
    The last post says gold is prob. reaching a (temp.) high, and this post says the dollar is prob. headed lower. Seems like a recipe for a very minor gold correction, if any, and maybe a big upward move by years end. What say you?

    Also, do you have an opinion on using currency etf’s like fxf and fxc to store savings? I use them now as I can’t commit to putting all of my money into gold, and don’t want to leave all of my savings in dollars either.
    Thanks for your blog and work.
    Another Steve.

  29. Gary

    I don’t expect any correctin to be very severe (I’m guessing $1200 will act as support)

    No opinion on the currency ETF’s

  30. dollardemise

    Gary, with a dollar crisis, will it mimick what happened to euro? Or worse since we are the reserve and trade currency of the world. Buy gld, silver. How about other commodities such as copper, iron, grains? I would think with a debasement, anything would be better than holding dollar based fixed income assets. Hope it will not be disorderly that investors foreign and domestic just sell all us dollar assets irregardless. What is your 2 cents? Thanks!

  31. Gary

    I’m expecting just a marginal move below the 08 lows, maybe to 65-68.

    But to answer your question yes commodities in general should benefit.

    I would say we are already seeing problems with the currency. Despite a rally by the dollar almost to the levels seen at the 09 bottom oil which has a severe oversupply and under demand problem is still trading over $70.

  32. Keys

    You could try fxa too; it gives a little bit of an interest return. If you go the currency route, for what you are doing, I would diversify amongst several strong fundemental currencies. My first look would be to any country currency that believes in balanced budgets and is raising or has raised rates. Doesn’t mean the currency won’t fall. I like FXC and FXA because they are tied to resources anyways, but like always each currency has its own set of unique problems. I still prefer gold over a longer period of time.

  33. Anonymous

    Time to go cliff diving boys! Gary we know you love climbing cliffs, but can you dive off them?

    Bottom line: financials are going to break down, and oil is severely broken.

    950 S&P coming

    g

  34. Gary

    Anon1,
    I’m not sure what the possible rationale could be for the dollar being the best currency.

    We are the largest debtor nation in the history of the world. How that equates to having the strongest currency is beyond me.

  35. Anonymous

    I swear, you can give some people the answer and they still can’t get it right! Get long the G-train.

  36. Anonymous

    Troll boy suffering yet another thorough “rogering” this morning. πŸ™‚

    One day long after he’s busted out, the S&P will hit 950.

  37. Anonymous

    Here’s the best oppty for shorts to cover before they get steamrolled the rest of the day.

  38. thedocument

    Ranger:

    The best way to trade PM are actually through a futures account. You get 60/40 tax treatment versus a flat 28% for the physical ETFs. You gain access to 23-hour liquidity so if your evening analysis tells you it’s time to make a change, you don’t have to wait until 9:30a. And commissions are much, much cheaper for futures than stocks. You also don’t pay margin interest if you choose to use leverage.

  39. Gary

    Well let me put it this way if the market does break back below the recent low I think the odds are much greater that the market is just bottoming a little later in the timing cycle than this is a new cycle that has already rolled over.

    Today is only the 34th day and the average tends to be about 38/39 days. I was assuming that at somepoint we would see a shorter cycle to balance out the really long cycle into the May flash crash bottom.

    So the bottom line if the market breaks to a lower low then I will start looking for another swing low to mark the next bottom attempt.

  40. Anonymous1

    “We are the largest debtor nation in the history of the world. How that equates to having the strongest currency is beyond me.”

    Largest debt but the largest economy. During the 2008 crash – our economy shrank by about the size of China at the time.

    Debt to GDP is more telling than total debt outstanding.

    I would imagine Warren Buffet has more total debt than I do, does that mean you would rather invest with me?

  41. Gary

    Our debt to GDP is now quickly approaching 90%. History has shown that once that level is reached it has always been game over.

    If we were to enter another recession debt to GDP would rocket past the 90% level in the blink of an eye.

    The only thing that could save us would be for the next big technlogical breakthrough to revolutionalize the businness environment. Something along the lines of what the personal computer and internet did in the 80’s and 90’s.

    Unfortunately we are wasting money on bailouts instead of research.

  42. bb

    how about some gaming theory to explain why your cycles are about to be blown out? OPEC countries moving to nuclear plants not for arms build up so much but as a tool to destroy the west economically by dumping massive crude onto the markets when time comes making it unfeasable to refine and crush teh s&p 100- might explain bond bubble and gold replacing oil as currency standard

  43. Gary

    Hey if we have one more push down into the cycle low, so be it. That’s why traders should have a stop below 1070.

    Just don’t let a stop out prevent you from taking the next buy signal which will come with the next swing low.

    I’m guessing stocks and gold will both put in a daily cycle low together.

  44. Anonymous

    You’ve mentions lots of cycle swing lows for some time now. When is the real low is what I want to know.

  45. Anonymous1

    Debt to GDP of 90% IS game over….. but in relation to most of the rest of the world who is over 90% – we are still looking good. The average of the advanced G-20 countries is 106.4

    So on a relative basis – we are doing better than most – which means on a relative basis – we should have a stronger currency. Total debt outstanding argument doesn’t make sense.

  46. Gary

    Obviously without a crystal ball there is no way to determine if a swing low will be THE swing low. All one can do is take their best shot and place their stops.

    If one took the last long trade as soon as the swing was formed they would have risked 1.1% if stopped out. Potentially they could make 11% or more with a move up to or above the old highs.

    As a trader it doesn’t get much better than that.

    Now if it turns out there is one more push down. Then let your stop do it’s job and look for the next entry (which will come at the next swing low).

    All that being said I will remind everyone again for the umpteenth time that I think trading the stock market is probably going to be a losing proposition for most people. I expect we are going to continue to see very volatile conditions for quite some time.

    Again my thoughts are clearly spelled out in the June 28th report which is free on the premium website.

  47. Anonymous1

    11 EST marked the low of the day so far. Not getting a big bounce yet because the reality of the depression is hitting the market.

  48. Anonymous

    when in doubt, just think 950 S&P.

    Bears to sleep like babies again this weekend. Bulls will be slamming 25 cent cheap glasses of keg beer.

  49. Anonymous1

    Overwhelming POMO –

    No beuno. Maybe things are hitting the fan…..

    That gold/bond gold/cash trade looking pretty good today.

  50. Gary

    No the odds of that happening are probably very slim. We’ve only had three real market crashes in the last 100 years. The odds of another one following so closely on the heels of the last is pretty low.

    Just a clue we always start hearing talk of a crash at every cycle low especially intermediate cycle lows and they almost never happen.

    We should be heading down into an intermediate cycle low in Otc. or November but I don’t think it will be any differeent than any other intermediate cycle low.

    If another bear is starting because the economy is rolling over then the market will grind down in fits and starts. That’s what a recession does to the market. In order to get a crash you need some kind of dislocation.

    The powers that be have learned their lesson I think, and will not let the credit marks unravel twice. They will print like crazy to avoid that …which ironically will sow the seeds for the next crisis.

  51. pimaCanyon

    Gary, you’re correct that the US has a larger debt than any other country. However, if you measure debt as a percentage of GDP, then the US is not even close to Japan yet. And I believe there are several European nations whose debt to GDP ratio is larger than the US.

    However, that does not negate the dire problem that the US is facing. Someone on this blog (I believe) recently posted an excellent article written by the father of Reaganomincs. Bottom line for this author is that the only solution out of this mess is the following: 1) stop the foreign wars and huge military spending. This will reduce federal spending by hundreds of billions of dollar annually. And 2) bring jobs back to US by appropriately taxing corporations that off-shore jobs.

    Chances of both of these things happening? Essentially zero because the powers that be (the multi-national corporations and their henchmen in Washington DC) have a vested interest in keeping things the way they are, even if it results in relegating the US “to the trash bin of history”.

    I have to agree with him that the multi-national corporations and their pimps in our nations capitol are our country’s greatest enemies. They are traitors in the truest sense of the word.

  52. Anonymous

    I prefer to think of the multi-national corporations as the pimps, and the politicians are their bitchez.

  53. Anonymous

    Guess who said “I covered day trades on GLD, SLV, and GDX at handsome profits earlier today,”?

    I’ve been in gold, and at no time in the last 8 days has there been a “handsome profit” on the short side. And notice how they were only day trades, even though a few posts ago (maybe on Tuesday?) he was shorting GLD when we were all making money. No mention of that disaster!

    The lesson is that just because somebody pretends to make money, doesn’t make them profitable in reality.

  54. Anonymous

    Try to stay on-topic. If you think you’re going to change somebody’s politics by trading zingers on an anonymous board, you’re kidding yourself.

  55. Anonymous

    Good question on slavery. Who knows?

    One thing I find interesting is that 95% of all American families had absolutely nothing to do with slavery when it occurred, yet all white people get brainwashed into thinking they’re responsible even today.

  56. Anonymous

    Gary

    When is silver going to move? I mean it is sooooo incredibly frustrating watching it flatline for over a year when gold has been moving higher- And for that matter, watching stocks move higher as well.
    I’ve been loaded in SLV the entire time, weathered some drawdowns, but the POS just can’t move higher. What is the problem with this damned metal?

  57. pimaCanyon

    unfortunately politics and economics are inexorably linked. Would be nice if we could say it ain’t so, as politics is a messy topic indeed.

    Our economy is very much dependent on what happens to the dollar. What happens to our dollar is directly related to what we do with our federal budget, what happens to the federal budget is entirely political. As go the politics, so goes the dollar, so goes the US economy.

  58. pimaCanyon

    yeah, I had some TLT and sold it at small profit last week. Was concerned we were near a top. bleh…. Looks like I left at least a grand on the table. So far.

  59. Anonymous

    There’s a difference between market-relevant political observations and commentary on the one hand, and birthers and Daily Kos readers calling each other names. Hopefully the difference is clear to those who want to add value to the discussion here.

  60. Natanarchist

    Birthers are folks who can produce their birth certificate within 24 hrs when required and don’t believe the Obamanation was born in the USA. Daily kos readers are Statists who think they deserve other peoples productive wealth ..because well their owed it.

    best to ignore both because they live in the fake left/right paradigm created for them by their masters…hope this helps.

  61. Anonymous

    “best to ignore both because they live in the fake left/right paradigm created for them by their masters.”
    -Natanarchist

    I suppose we all do. The only thing left is the sheep in the middle!

  62. Natanarchist

    Actually I don’t agree with that anon. Most folks take a Rep/Dem side or left/Right side without realizing that it is two party’s, one policy and their isn’t really a dimes difference between them. But it sure keeps them debating/fighting and completely distracted while the masters plunder these folks wealth. The sheeple as you say, care about neither. They are focused on whether Lindsay Lohan is getting out of jail in 9 days or not and whether Brett Favre will retire or not.

  63. Anonymous

    ANV … Doc had been singling this one out for a while. Nice day, and a solidly outperforming name.

  64. Natanarchist

    BTW..most of us are guilty of getting sucked into these things, including myself, even when I know better. Usually I just give myself a whack upside the head when I stumble into this crap.

  65. Anonymous

    I agree as you explained it, natanarchist, about the sheeple and also two different political parties=same result.

    However, something must explain the 2 parties acting identically while pretending to differ greatly. I still remember Obama promising the nation to take the troops home immediately if he was elected. Then he sent more to the Middle East!

  66. Wes

    Gary,

    Guess what is #1 on the “buying on weakness” list today. SPY at $56 mil so far.

    I’m not sure this is enough to be significant, but thought I’d bring it up.

  67. Wes

    I think it’s a bit odd that the S&P hasn’t traded at a new low for the week so far, particularly since this is options expiration week and the round number of 1050 should attract.

    Usually they will break below any low established for a few days just to run the stops.

  68. Anonymous

    DG: congrats, your call of gold topping after one more leg higher looks correct. I’m still out waiting for pullback. We look to have started today.

    I anticipate a drop to 1200+/- bottoming on tues or wed of next week for the buy in.

    -TZguy

  69. Wes

    Gary,

    Thanks for the $100 mil answer. Is this even big enough to qualify as one of a possible string of BOW days, or just noise ?

  70. pimaCanyon

    Wes,

    Can you explain to me who “they” is?

    Also, why is it beneficial for “them” to run stops? How do “they” benefit from that financially?

    I’m not saying this doesn’t happen, but I wonder how can a market this big with an average volume of a quarter BILLION shares traded daily (SPY), how can this market be manipulated? And if so, if “they” do somehow manage to pull it off, what do “they” get out of running stops?

  71. Natanarchist

    hey anon…if you get a chance follow this link and you can read this book online. It is not very long 100+ pages but it should really help to understand the big picture of American politics. And it was written 100 years ago. Google the author to see who he worked for and his credentials. The author wasn’t trying to expose anything as much as he was speaking to the elites, like Caroll Quigley did. The plan as outlined in the book has been followed to a T. Enjoy

    http://www.gutenberg.org/etext/6711

  72. Wes

    pimaCanyon,

    It’s been my experience that below “obvious” stop prices are the best locations for buy orders. So, to answer your last question first, I am among those who profit when lows are violated. Many, many traders have figured this out.

    Back in the day, I always attributed this action to the market makers, but I couldn’t prove it. Not knowing for sure what causes it doesn’t detract one bit from it’s utility.

    These days, I’m guessing it’s caused by the high frequency traders, but I still don’t know for sure.

  73. Gary

    PC,
    Often big money will run stops so they can enter positions in a very liquid environment.

    By running an obvious stop level big players can trigger a tom of sell stops allowing them to accumulate large positions without moving the market against themselves.

    We saw this very thing happen at the recent bottom in gold.

  74. DG

    TZ–Thanks, but my gold top call was not the one I needed to make, though it helped a bit. I held my other longs too long and lost back too much profit. Oh well. That’ll teach me to have an opinion and not simply do what the market tells me to do—no it won’t—I’ve been taught that many times and still mess it up—just with smaller and smaller pain πŸ˜‰
    I am now pretty flat and will wait for the next set of extremes which I’ll post when we get ’em. The way this market’s been going it’ll take about three days!

  75. Wes

    There is an alternative view of the market action, today. On July 22, the S&P left a gap on the open from the previous day’s close. Today that gap was addressed, as buyers were attracted.

    And that could be all of the downside for this move.

  76. Wes

    I got the previous post wrong. It’s the S&P futures where the gap didn’t get completely filled, and the gap still exists down to 1063.90.

  77. Gary

    DG,
    Why not just honor your stop. If it gets hit you take a small loss. No big deal. Then you look for the next entry.

    But if one gets in the habit of taking small profits because they are nervous about losing they will never be able to hang on for the big ride.

    It’s basically impossible to let your profits run if one is too nervous to hold on. And of course what happens when that becomes ingrained is the many small losses start to outweigh the few small wins.

    If the market turns tomorrow and heads higher you are going to be diappointed you didn’t just honor your stop.

    Now if your system is giving you a sell signal that’s another story altogether but it doesn’t sound like that’s the case.

  78. DG

    Gary: There is another way to do this. You buy for a reason. When the reason goes away, you get out. I have no idea what the market is going to do over the next few days/weeks. If I do have an opinion I am happy to hang in there (I was short the euro for six months, and China for several, remember?). But to go all in, get a huge day in my direction and then piss most of it away because I was “hoping” we’d go higher is just silly. I would not be the slightest bit disappointed if I got out and the market went higher. And I never exit a trade because I am nervous. There are trades all over the planet I am missing. So? I am not disappointed to have missed buying wheat. I am disappointed I got seduced by you into not following my own style and taking the decent sized profit (not small one) when I had it. (That’s not to say I haven’t gotten value out of reading your stuff—I have—but I cannot let it interfere with what I do) Had I been significantly bullish I’d have been fine with this dip and losing some profit, but just holding because I already was long is just inertia and was stupid. I will not take the profit in Gold I have now, for example. Also, exits are asymmetrical. I have never gotten a sell signal that closes out a previous buy signal because this is a trading system. There is little difference between deciding to buy and deciding to hold: If I had not already been long I sure the heck would not have bought the day after the big rally, so why make the decision to stay long? There’s only a fine line between staying long and adding to what you have. The lesson cost me $3k today—but it won’t cost me again. Worth the tuition!

  79. Gary

    DG,
    Granted I’m not trading but I was under the aasumption you were trying to not only take your setup but hold on for a bounce out of a daily cycle low. How can we know that still isn’t in play unless the lows are broken?

    Remember you had very good reasons for holding this trade. One, the advance decline line had made new highs., Two we were in the timing band for a daily cycle low. Three there still hasn’t been any big selling on strength days.

    Your risk was 1% if I remember correctly. Now if todays 18 points cost you $3000 then your risk from your entry if your stop was hit should only be a little over $1500.

    But the reward if you catch the bottom and the market just goes back to the old highs would be roughly $23,000. If I remember right you said you sold half so possibly we should double these numbers.

    It would seem that it’s worth a couple of misfires for that kind of potential reward.

    Now if your intuition from years of experience is telling you that you are wrong then I understand that, but on a purely mechanical basis it would seem that in order to make the big bucks one would have to be willing to miss a few times in order to catch a big move.

    Just as an example the Bollinger band crash trade has a positive expectancy if traded strictly by the rules. But here’s the thing if one tries to second guess the system and takes profits too early the system will fail.

    Seems counter intuitive to think one would make the system fail by taking profits but that is exactly what happens.

    The reason is that taking profits early will eliminate some of the big winners and the system must have those few big winners to maintain a positive expectancy.

    Now if like I said you saw something that convinced you the trade wouldn’t work that I understand and that would fall under that catagory of experience and not quantifable in a mechanical system.

    But to just take profits after a small rally when the odds are in your favor doesn’t seem like a very good strategy for letting profits run.

  80. Anonymous

    DG,
    Are you seriously going to blame Gary for making you hold your trade too long?

    Let me remind you that you took half of your profits yesterday just in case the trade reversed.

    Trying to blame the G-man for costing you a little bit of profit on a winning trade is about the most pissant thing I’ve seen on here in quite some time.

    I’m sorry to say I’ve lost all respect for you.

  81. DG

    YOu can lose whatever respect you want (I don’t even know you—what do I care). I wasn’t “blaming” Gary. I said he influenced me, which is simply a fact. I thought about what he said, and it made sense—except it was wrong for me. He did influence, me and it cost me. I am not saying he was responsible for it. I make my own trading decisions. You can;t see the distinction? What a silly point you are making.

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