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March
27, 2005 Commentary (weekend edition)-
I am starting
to sound like a broken record, but, boy, is this market trading well for my
methodology. It just seems to bounce from one harmonic setup to the next. And
when a setup fails, it seems to do so in a predictable manner, like by showing
a reaction, which then turns into an ABCD, and then it rolls over. This way I
can read the action and then play for the failure. No, I can't read every move,
and every setup doesn't 'work' every time, but it's the best action I have ever
seen lately, from a harmonic perspective. Again, this is just my
assessment.
I want to point out one more thing that I just find fascinating
before we move on to some chart action. You know how I have said that it amazes
me the potential opportunities that have come my way because of this website
and the books I have written? Things like offers to be on television, to do
articles for big name magazines and websites, to manage money (especially with
hedge funds, where I just got another serious inquiry recently), and to become
an introducing broker for a very large firm, and on and on.
I find all
that amazing, given that I look at myself as just a small, independent trader
(by choice), who wrote some books. Yes, I do think that I'm a leader in the
field, and what I have come up with is unique, and even revolutionary to some
extent. But I didn't think that would be the case when I started to lay out my
work. So in some ways my mindset is just that I wrote some books laying out
what I try to do myself, to help other traders like myself cut down on their
learning curve. It has turned out to be so much more than that, now. And the
point, Jim?
I am sometimes quite amazed at who is buying my books. I originally
planned to target them for other small, independent traders like myself. I said
in the books that I did feel the techniques would be 'scalable' and likely
would likely apply to other traders besides 'the little guy', but I mostly
talked in the books to those with similar goals as myself.
Now my
'reputation' has grown, the .886 is 'world-famous', and I am selling full book
sets to huge hedge funds, major players in large money center bank type
institutions, and serious floor traders in major pits around the world. I have
done mentorships for people you may have seen on television. They came to
me to study my methodology. I find that amazing.
Hey, I could
keep my 'amazement' to myself on this. Any other 'pro' in the vending world
would say 'Of course I sell to the big boys, after all, I'm the best, I'm so
and so.' And surely they would advise me to act like it's routine for me, too.
But I never set out to discover and lay out things that would be used worldwide
by big name players. It is quite amazing to me that I came up with
things that are being studied and used by 'the big boys'.
The other day
a customer from Singapore told me that he was in the pits over there (somewhere
in southeast Asia, I assume) talking with some pit trading guys, and he said
they were all watching the .886 retracement very closely. He said it was
amazing how often the markets there seemed to react to the number. I almost
fell off my chair. Pit traders in SE Asia are now watching the .886 in the pit,
all day long, like they watch the .618 retracement?
Forgive me;
I'm amazed. And maybe someday they'll be watching the number I came up with
(which I think is every bit as good as the .886) in Kane Trading on: A Totally New 5-Point
Pattern. I wanted to share this because many readers have told me they
like to hear my stories, and enjoy that I go beyond just talking trading, and
allow people to get to know me a bit. I'm willing to 'personalize' it, unlike
most other 'vendors'.
I'll conclude the 'story' with a thought that
hit me the other day. Long after I'm gone, a hundred, or maybe a thousand years
or more from now, some trader somewhere may bang a trade off an .886
retracement like it was an everyday thing, like we use the .618 retracement all
this time after Fibonacci discovered that. I'll be long gone, and the trader
likely won't have any clue who quantified this number, or when. But it will be
out there, being used, maybe forever. Now, that is cool
Let's look at
something from this week's members' section, posted
right after 'Fed day'.
"Let me first make some comments on the market action.
It seems as though all the things I suspected back in December that may start
to unfold are unfolding. From an Elliot standpoint it was clear the sell-off
from January might have another thrust up, but the risk was getting higher for
position longs, for me. After the 'wave 4' ABCD and thrust up to new highs I
again started to think we might be done. I don't try to pick tops, but I sure
wasn't opening new long position trades. Once it rolled over my focus shifted
again to the short side.
The markets have hit area after area where a reversal
back up could have happened, but didn't. We are running out of areas. The
financials are getting crushed. Almost every bounce up forms an ABCD pattern
and rolls over. Bonds, which have been going sideways in a range for days on
end and then thrusting down, only to repeat the pattern, have done it again.
Rates are rising. Chainsaw Al finally said he could see a little inflation now
(with the CRB index having just hit within a few points of the all-time '82
high he now sees a little inflation?).
Does this mean we are going down from here? I
have no idea. I just look at the probabilities, the actual market action, and I
then decide which setups I will take. Right now I'm looking mostly for shorts,
with an eye on a strong bounce that I expect to happen out of the blue. I think
the 'manipulators' will only let it get so scary before they ramp it up and
start the hype machine again. Right now I am watching the very key ML lower
//'s from the weekly charts and other big lines. Even if this thing starts to
ramp it will take a lot before I'm convinced we don't have lower to go,
though.
Let's move on to some charts. I'll show two sectors first, pointing
out how the price action talks to me and guides what I may do and how I
interpret the setups I see. I'll start with the SOX.
Let's start
out with a 60-minute chart, with just a few things I am looking at.


As you'll recall from yesterday, the SOX hit
a key area on the daily timeframe, and reacted strongly. I expect to see some
solid impulsive action from there, not corrective action. If that is a
significant reversal point, it should show. Instead another ABCD formed, was
'tested' while waiting for the Fed announcement, and then it was rollover city.
If this were going to be a key reversal area I would have expected the SOX to
blow out that ABCD before the announcement just to set the tone. Sitting
right under it was a bad sign. I was prepared, to say the least. Let's
look at the BKX.


Same thing here. This is not bullish action;
this is corrective action. When it happens right at a very important
announcement, it was something to note. Look at the daily chart of the BKX, and
of some financials, like C and JPM. There are always some things below to
watch, but lately most everything just keeps taking them out. The financials
are very important, so keep an eye on them. Let's move on to what I saw in the
ES right at the announcement.


The ES had an ABCD forming, and it had an
ABCD in the BC leg. The CD leg just ground right up to the announcement, and it
hit the 1.0 price projection right on the little run-up seconds before the news
hit, at a line I added on. Not only that; let me add another line in from the
60-minute chart. It is one of those lines from two swing points that I add in
from time to time, and mention that it is too much of a coincidence that it
hits here for me to ignore. Same here.


The ES dropped like a rock, and using the
techniques from Trade
Management I didn't get a signal to close out for the rest of the day.
Being a mini trade it was a close right before trading ended for the day play.
If an entry right off the area on the initial reaction wasn't taken, there were
plenty of trend continuation entry signals on the tick and 1-minute charts.
This one was just a 'gimme'."
And I'll finish by showing a setup in WY that
I posted in the members' area, without any comments. Is this just beautiful, or
what?


It just doesn't get any clearer for me than
that. This is the type of thing that motivates me to talk about how harmonic
the market has been behaving. Sure maybe this one is done (I've done some
extensive follow up in the members' area on this one, since it is following a
script of expected behavior to the letter, so far), but my management is fully
under way already.
I had the option to move up the stop, or scale some and
move the stop up, as outlined in Kane
Trading on: Trade Management. Barring a market shock event in WY, the
play is now in a 'no-lose' position, which is where I always try to get to. Now
I see what develops, and go from there.
The next commentary will be next weekend's
edition, posted by Sunday evening April 3, 2005.
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