As expected we end 2011 on a bonafide doji. All that remains now is to thank you all for a pretty amazing year – I could not have it done without you and your support. We have truly come a long way in the past twelve months. While almost everyone else has been taken to the woodshed, we stainless steel rats had a lot of fun, a lot of laughs, and most importantly we banked some mighty coin. And if you thought 2011 was monkey ass crazy then you ain’t seen nothin’ yet…
Well, I for one intend to be the last man standing. For real – the one clear bull market I see around the corner is in the doomsday prediction racket. So knock yourself out and load up on shotguns, ammo, and MREs Burt Gummer style. I’m thinking Y2K all over again but if a bunch of Nazi Commi Zombies wind up storming the evil lair then they’ll have another thing coming. Whatever happens – as long as there’s the game we rats will continue to manhandle the tape and rub ignominious defeat into the faces of whoever dares to take the other side of our trades.
And let it be said that if any of you remember any details about New Year’s Eve the morning after I would be very disappointed. I expect you all back bright eyed hungover and busy tailed caffeine infused on January 3rd – Monday the 2nd is an NYSE holiday.
In that spirit let me all wish you a very Evil New Year!
It’s pretty much official at this point. Despite having strong seasonal winds in their backs the bulls were unable to stage a proper Santa Rally and got stuck at the diagonal resistance line as shown on the monthly:
Unless we rally like gangbusters tomorrow’s session will end a very volatile year nearly at zero. We started the year at SPX 1257.62 and are currently trading around 1263 – wow, that’s almost four handles in twelve months! Smashing baby, yeah!
In other words we are painting an annual doji, and if you consider inflation then you actually lost money holding it in US Dollar dominated cash or treasuries. Of course that is not what we stainless steel rats were doing and we are better off for it. Despite the fact that it’s been a brutal year we came out swinging the other end. If you were along for the ride and are seeing green in your account then be bloody proud of yourself as you did better than the vast majority of hedge managers and traders out there.
Scott mentioned yesterday that H&S patterns fail quite often and he’s right that they do not always resolve as expected. Now, note the subtle difference here and recall that quite often we saw an H&S fail but then result into an opposite move equally strong. So the concept of failure in my mind depends on your perspective. To me an H&S is nothing but a congestion zone or inflection point – support/resistance area – whatever. It’s where the tape usually switches into fourth gear after driving everyone crazy for a days/weeks/months (given the size of the pattern).
So in a way I’m with the old convict – what should have happened here is a huge bust to the upside. And technically it’s still possible, after all I also told you guys to expect a fake out move preceding the push higher. So far so good – except for seasonality, which is not favoring the bulls in January. After having stricken out several times at the Santa base are the bulls now going to storm the beached in January? I do have my doubts.
Especially with ole’ bucky on the move. You don’t need to be a point & figure aficionado to call this a very bullish chart. Note the BPO of roughly 82.5.
I don’t have too much else to share – very little activity out there that I want to touch with a ten foot pole before New Year’s Eve. But I managed to scape together a few juicy charts for my subs:
More charts and cynical commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
Cable continued downward and hit my stop – how scandalous! I am now waiting for instructions – meaning for a touch of the lower 100-day BB line as suggested by the breach of the daily NLSL.
EUR/JPY better hold here as those support lines are starting to droop down. Watch that hourly support cluster I have highlighted – if that gives Kansas is going bye bye, Dorothy!
Cocoa is now at its NLSL and that’s where I want it. Going to put a stop a few ticks away and forget about it. If this one gets stopped out then I think the entire long setup blows up and we most likely continue lower. Which means that you can of course play the other side as well.
Wheat turned right I thought it would – BUT I’m not sure that it’s done climbing yet. This is one of those setups where you want to pyramid your positions while you’re proven right. If you get stopped out then we have a long setup and there’s nothing but air above. Which almost makes me wish for a stop out 😉
Did anyone notice that copper is bouncing along a diagonal support line while equities are pushing against a diagonal resistance line? What is a megalomaniac market analyst supposed out of that? Either way I am waiting for it to touch that support line again – which of course may resolve to the downside as well. Either way we’ll play this beast in the near year 😉
Among all common cognitive biases my biggest battle as a trader was (and remains to be) the one against recency bias. You will find a great example of just that in Curtis Faith’s book ‘The Way of the Turtle’: Faith finally relents to a friend, who begs him to reveal the secrets of his highly successful turtle trading system. However when things are starting to get dicey his friend quickly decides to ignore the system following a series of losses:
Around February 1999 I (Faith) asked him how he was doing in cocoa since I had noticed that there was a great downward trend. He told me that he did not take the trade because he had lost so much trading cocoa and thought that the trade was too risky’.
Curtis noted that prior to the downtrend starting there was a run of 17 losing trades. Collectively these losing trades added up to a loss of nearly $17,000. The subsequent 11 trades (per the system), which the trader did not take, contained 4 winning trades and 7 losing trades. The net result of these 11 trades was a profit of around $73,000.
Let’s time travel forward about twelve years:
Looks like cocoa is still having fun shaking out weak hands after a big squeeze. If you are a sub then you know that I have been waiting for a decent entry here. I already got stopped out twice – once on each NLBL on that chart. I kept a tight stop so not much is lost but if you guys followed this trade then I can imagine that some of you are probably thinking along the lines of ‘screw that’ – it ain’t gonna happen. Well, it may or it may not. But what I’m seeing are three things:
- As opposed to a few weeks ago we are now seeing signs of either a floor pattern or a correction. The latter will be proven true if the recent lows near 2000 are being breached.
- As long as we don’t breach 2065 we may have ourselves a nice Retest Variation Buy Setup here if we bounce and breach today’s candle, which also would be a NLBL breach.
- We now have a nice Net-Lines box that gives us inflection points to hang our trades on.
As you can see – either way you turn it there is a lot more information present now and that’s something we can use to our advantage. Whether or not copper is going to push higher here – I don’t know! But as long as various systems suggest a setup I am going to continue taking it – that simple.
This has nothing to do with mindlessly chasing a symbol or being fanatic about a particular trade (either out of desperation, greed, revenge, etc.). If we make new lows then I will go back into hibernation and wait for a good setup. In the meantime cocoa is probably going to try to shake us off – obviously she’s got pertinent a track record 😉
Equities today – I don’t have much to say about today’s move. Frankly I’m a surprised that reversal happened so quickly – if you saw yesterday’s update then you recall that I was thinking 1280ish before we’d turn. But here we are and it’s difficult to tell when we’ll see a reversal – if things pick up pace then we may find ourselves at 1230 or 1223 on the spoos (remember that fair value right now is around -5.5, so simply add 5.5 to the spoos to find equivalent values on the SPX – your mileage may vary).
The hourly panel suggests we may hold here as the 100-hour SMA is providing some type of support but if we breach through 1244.25 then watch out below!
Finally I think cable may be a good long here. Good risk/reward ratio by putting a stop right below that lower 25-day 2.0 BB line at 1.5431. I think we may get pretty close as this puppy is on the move! If it continues downward then 1.5312 would be my next best setup.