Some News Items

• Nikkei closes out the worst year ever!
  

• Time to buy Double Long Crude?

• World markets gain from energy...haven't heard that in a while.

• Tough times for Gazprom

• GMAC gets $$$

• Obesity tax in NY gets support

• FED orders Florida bank to stop paying dividends!

• Potential triple bottom for GBP/USD, or just setting up a trend extension?
  

• Dr. Steenbarger on the market's potential reverse head and shoulders

I hope everyone is still having a good holiday season. As an FYI, I normally will not post links to news items like above because there are plenty of others that do a fantastic job of sorting through and posting links to news items (Charles Kirk, Trader Mike...). I posted these links today because the others are on vacation and not actively posting, so I thought what the heck.

The game plan for today is the same as yesterday...short gold and short the pound. I've seen several articles that speak of the coming strength of the pound, which makes me think that there might be a little more room to short the currency.

Gold is still showing some good signs of falling and it will probably fall pretty quickly if the Israel and Hamas skirmish comes to a halt...although Israel doesn't seem to be in any hurry.

Only two more trading days left in 2008, lets make em' good ones.

TLT

The Set Up Looked Good but...

Just as gold looked like it was setting up for a great trade, Israel and Palestine (or Hamas) broke out in an "all-out war" and gold shot up like a bottle rocket on the 4th of July. This is one of those events that reminds us why stops are very good to have...namely to keep us in check when we're wrong and secondarily to lower losses. Here's an hourly chart of gold...notice the big gap up.

You can also see how gold has formed a flag pattern and any break from this pattern will likely be a significant move...so keep an eye on those levels.

Besides gold, the Pound is on my radar screen right now. The GBP/USD pair has been falling for quite some time and today it has fallen below a support level that has been previously tested 2 other times. The past couple of times prices poked through the support line (the red line), they were rejected rather quickly, as indicated by closes above support.
It will be interesting to see how both Gold and the Pound fair this week...maybe we can catch a good trend to bring in the New Year. Supposedly, currency traders are beginning to bet on the pound instead of against it...see this article. As always, I'll believe it when I see it because all of the significant time frames (monthly - daily) within my system are giving the pound a sell signal.

Good luck out there.

TLT

TLT Trender Signals

Here's the weekly TLT Trender signals update.

Weekly Wisdom Quote

"I am just intelligent enough to understand that I have a predisposition to be fooled by randomness--and to accept the fact that I am rather emotional."

Nassim Nicholas Taleb
Fooled By Randomness

A Little Gold Analysis for X-Mas

Merry Christmas!!!

I hope everyone is having a wonderful holiday season so far. I'm in the office today wrapping up some loose ends and also still keeping an eye out for a good entry on my gold trade. Both gold and the Eur/Usd pair have been flat this week...I guess traders are already taking their Christmas break.

Since there's not too much going on, I thought I would post a little more in depth analysis on gold. You can see from the previous posts on gold that I first got interested in shorting gold after I noticed it bounce off the top of its linear regression trend channel on the daily chart. After I see that kind of reaction to resistance, I pull up some shorter time frame charts to look for a trade. Since the initial signal was on the daily chart, the 4 hour chart will be the next time frame to look at. Here it is:

As you can see from the chart, both trend indicator lines are giving a sell signal (they are both red) and the Fisher Transform is in sell mode because the blue and red lines crossed below the dotted purple line. The only thing lacking is the BB width histogram...I generally like to see the bars break through the purple MA which indicates rising volatility. Only entering when volatility is rising helps filter out some of the false break outs.

Since there is a signal on the 4 hour chart, I'll pull up the hourly chart next to time my entry into the trade. Here's the hourly chart:

As you can see, we've had a lot of sideways trading action for the past couple of days. The chart indicates that a sell signal is close because one trend signal is red and the fisher transform just gave a sell signal. Now I just have to be patient and wait for a sell signal on the other trend indicator and for the BB width to break out. Tight trading action usually leads to a nice breakout once it happens...we'll see if that's the case with gold right now.

It would be nice to get the gold trade on today and to hold it anywhere from 5-10 days with an exit target in the $725-750 range. There's probably going to be a little resistance around the $830 level...have to watch price action closely when it gets to that area.

Good luck out there and have a happy holiday season.

TLT

****Update****

Gold broke down about 2 seconds after I published this post and the sell signal was confirmed. I've got my trade on and my stop in place. Here's a chart that shows the sell signal.
I'll post an update on the trade later.

On the Radar Screen for Today

Today, I'll have two charts up and I'll be looking for a good signal to make some entries. Gold and the Eur/Usd will be on my chart screen for the day. Here's a screen shot:
I'll be looking to go short on both the Eur/Usd pair and gold. Gold looks to be heading down in a linear regression trend channel (see recent post) and the Euro ran out of steam rather quickly last week, which tells me that the pair will likely go down from here. My TLT Trender has given sell signals for both pairs on the four hour time frame and now I'm just going to patiently wait for the sell signals on the hourly charts.

There's always the chance that I'm just biased and that I want the Euro and gold to go down, that's why I will be disciplined and wait for my trading system to give me the sell signals. If I don't get the signals, I won't make a trade. And even if I do get sell signals, I will have hard stops in place to get me out if I'm wrong...which happens quite a bit. It can be hard to look at yourself and try to determine whether you're seeing things objectively or through a biased perspective, which is why it is imperative to have a system with easy to follow rules and to have proper money management techniques (stops) in place for when you're wrong.

We'll see what happens today.

Good luck out there.

TLT

TLT Trender Signals

Here's this weeks readings from the TLT Trender.

Weekly Wisdom Quote

If you can keep your head when all about are losing theirs, perhaps you have misunderstood the situation.

Anonymous (graffiti)

NIce Price Action in Gold

For the past year, gold has been trending downward in a textbook linear regression trend channel. Take a look:

Notice how the price keeps hitting the top of the channel and then quickly falls back down. It might be a good time to short gold given that it recently bounced off the top channel again. I'm tempted to short here and set an exit target around $725...there seems to be a congestion area at that level.

Good luck out there.

TLT

Extremes in the Dollar

The Dollar has been on a big roller coaster ride over the past couple of days. The Eur/Usd pair set an impressive high that was just under 1.48...a level that it has not seen since the summer. Even crazier is the major retracement back down to 1.38...almost a 1000 pip pullback in just over 24 hours. Look at the 3 hour chart below to see the past weeks trading action. These are extreme moves on both ends and I think that it represents major turmoil and uncertainty in the global financial markets. We'll see if this pullback is just a dip in the euro's rally or if the euro's rally was really just a dip in the dollar's rally that has being going since July of this year.

Good luck out there.

TLT

Computer Problems

Yes, my computer crashed this morning which has caused many problems with both work and blogging. Please bear with me...I should be back up and running soon!

Tough Times for the Pound

An article on Bloomberg today notes that times are tough for the Pound and it cites several things that are much more expensive for Brits to do now than they were around a year ago.

The pound has dropped 18 percent against the euro and 24 percent versus the dollar this year as the Bank of England reduced interest rates and the U.K. economy slid into its first recession in 17 years. The pound bought 1.1173 euros today, falling for a sixth day against the euro, and money changers are charging close to one pound for one euro before commission.

“The pound is hopeless, it’s time to dump it,” said Ian Wright, 53, an upholsterer, as he waited to board a train bound for Antwerp in Belgium for a bachelor party. “All this British tradition stuff about keeping the pound is rubbish.”

If I were a fundamental trader I might be inclined to start fading the move based on such a negative sentiment...however, I'm not a fundamental trader and I would only short the pound at this point because it's been dropping pretty hard (don't fight the trend). Check out the weekly Eur/Gbp chart...no wonder the people in the article are so disgruntled with there nation's currency.
As you can see from the chart, this currency pair trends very hard and once it gets going, it keeps going. Although it's been steadily trending, articles like the one above provide hints that we may be getting closer to a top and to be on the look out for a trend reversal. Only time will tell.

Good luck out there.

TLT

Wisdom from Linda Raschke

“Remember that both in short-term trading and mechanical systems, the distribution of winners is skewed. Most of a month’s profits might come from only two or three big trades. Much of the time the individual profits may seem small, but more importantly the losses should be small, too.” Linda Raschke from Street Smarts

Dollar Breakdown

It finally happen, the Eur/Usd pushed through the upper linear regression trend channel and it did it with ease. Also, the TLT Trender system just gave a buy signal for the Eur/Usd on the daily chart. Take a look:
Now we'll have to see whether this is a valid trend reversal or just a false break out. I always go with the trading system and take whatever trade it says to make...which is a buy right now...but its hard to do. It's hard to be confident in the currency market because there are some major forces (central banks) at work that can create and end major moves like this one in a matter of days and even hours.

One thing that I like to do in this situation is to check out the weekly chart to get a feel for the long term trend. As you can see below, the primary trend is still down and the chart is still giving a sell signal (both moving trend lines are red). There is also a long trend line (yellow line) that is still not broken...we'll have to watch the pair as it approaches that potential resistance. For now, I'll be looking to go long the pair on much shorter time frames until a sell signal is established on the daily chart.

As for stocks, it looks like we're set for an ugly open. I'm sure that you've heard no less than 20 times by now that the auto bailout is dead and there is word that GM has hired bankruptcy counsel. Should make for a fun Friday in the stock market.

Good luck out there.

TLT

TLT Trender Currency Signals

Here's a chart of the current currency trends for some of the currency pairs I follow. The trend direction is determined by my own trend following system...thought you might find it interesting.This chart is part of a spreadsheet that I update on a weekly basis. Going through the motions of keeping a checklist of the different trends of the various currency pairs helps me stay tuned in to the flow of the currency market. I highly recommend that all traders keep some sort of daily, weekly, or even monthly checklist that is adapted to their trading strategy and update it on regular basis. Since my trading strategy is based on trend following, it makes sense to come up with ways to determine the trend and monitor the trends on several time frames.

On a different note, I spent some time today updating my trading plan. It's one of those activities that is almost never fun to do but it is very necessary if you want to be and, more importantly, stay profitable. I will probably share some bits and pieces of the trading plan in the next day or two so be on the lookout.

If you don't have your own checklist system, trading plan or both, Mastering the Trade by John Carter is an excellent resource and it's one of the better books that can help you get started in both of those areas. In fact, it is a very well written and informative book that I would recommend to anyone that has at least a little knowledge about trading and is looking to learn more.

Good luck out there.

TLT

Dollar Update

The dollar has been trading in a range bound congestion pattern lately, which is frustrating because that type of action sends out a bunch false signals on my trend following system (like this post). That's just the name of the game when you're attempting to catch and ride trends...a bunch of small losses while waiting for the big gain. Here's an updated 4-hour chart of the Eur/Usd pair.As you can see from the chart, the pair is still approaching the upper regression line. I will be paying close attention over the next couple of days to see how it reacts to that level. There's a little bit of bearish chatter out there about how the dollar is heading lower and it might be completing a head and shoulders pattern and blah, blah, blah. I say that we have to take a wait and see approach and try to hold off on getting too bearish. Remember, the trend has been down and we don't want to go against the prevailing trend until a new trend is established.

One interesting thing that I've noticed is that the dollar has not reacted very negatively to some bearish readings on a couple of indicators. The article that I linked to above states that the Dollar Index looks "sickly" and the author points out a couple of indicator readings to back up the opinion. Here is my own chart of the Dollar Index:As you can see, both the RSI and the MACD are very bearish right now...the RSI is sloping down and the signal line on the MACD is below the red line, which indicates a sell. While these are bearish, the price action has not confirmed the readings...at least not confirming that a new trend is developing. In my experience, it is generally a bullish (or at least neutral) signal when the MACD is falling after a bearish cross (the blue circle) but the price stays bound in a range like it has over the last month. I believe that it's jumping the gun a little to proclaim that the dollar down trend is beginning...it might just be some healthy consolidation and possibly a good opportunity to buy the pullback. Of course, I could be wrong and if the price action signals a new trend by breaking out of the range to the downside, then I'll be looking to short. Like always, only time will tell.

Good luck out there.

TLT

Four Bibles of the Trading Business According to Paul Tudor Jones

“When I meet someone who is interested in learning the trading business, I always refer them to what I consider to be the four Bibles of the business: Reminiscences of a Stock Operator by Edwin Lefevre, the fictionalized biography of the fabled Jesse Livermore; Technical Analysis of Stock Trends by Mcgee and Edwards, which was written in the first half of the twentieth century and whose tenets still hold today; The Elliott Wave Theorist by Robert Prechter and A.J. Frost, a classic, and finally Market Wizards by Jack Schwager, which is a compilation of interviews with great traders.” Paul Tudor Jones from the forward of The Logical Trader

A Couple of Charts for the Doom and Gloomers

Lots of investors are wondering how far the market could go if this slide continues. Although the correct answer is that the market could theoretically go all the way down to zero, we know that this is unlikely. Although zero is unlikely, a much farther fall is certainly a possibility and if you're in the Harry Dent style "Doom and Gloom" camp and believe that our nation is about to slide into one of the worst depressions in history, a huge fall is likely.

For some reason this historical chart of the S&P made me think of the "Doom and Gloomers" because it is a good portrayal of how high the index has climbed since 1960. It also shows a nice double top that started in the Dot.com bubble and finished in 2007. As the above chart shows, we definitely have plenty of room to fall if this market continues its current downtrend. Don't get me wrong, I'm not predicting or claiming that the market will indeed continue falling, I just think that this chart offers an interesting perspective.

While we're looking at historical charts, this next chart is of the Dow Jones Industrial Average from 1920 to 1940. It offers a little insight as to what a major depression looks like on a chart. Notice how sharp the 2 1/2 year decline was and also how severe...topping out at 381.17 and finally bottoming at 41.22, almost as bad as CMGI (now Modus Link: MLNK) after the dot.com burst.It's nice to look at and think about history to put some perspective on current situations. I hope everyone has a good weekend.

Good luck out there.

TLT

Investors Are Still Paying Cash For Timber

There's an article in the Fort Worth Star Telegram this morning claiming that rural land has lost it's luster...except for timber.

'We all worry’

Real estate broker George Galloway, who lives in Aledo but has his office in Palestine, said he has plenty of buyers like Nixon.

Galloway hasn’t seen any slowdown and believes that his niche in timber properties may be part of the reason.

"In East Texas, things are still happening; it’s just not tethered as much to what’s going on elsewhere," Galloway said. "I think the biggest issue is we never went hyper-priced like the rest of the country. I don’t think East Texas ever left earth. It was starting to do that two or three years ago, but it never really did."

Galloway said many buyers find land that has both recreational and timber — an attractive combination. Palestine’s location also lures buyers from the Metroplex and Houston. But few of his customers are getting loans; almost all are cash buyers.

"We all worry," Galloway said. "I have a stock portfolio. I got my statement last weekend. I thank God for every acre I bought that I didn’t put into the market. Land is always a good hedge against inflation. Those trees growing out there are becoming more valuable while I sleep."

For the sake of disclosure (and also because I'm proud of him) the real estate broker in the article is my dad and Nine Frog Real Estate is his brokerage company. Check out his website, he's got some excellent articles that breakdown some practical aspects of investing in timber. Good job Pops.

Good luck out there.

TLT

First Financial Starting To Look Good

First Financial (FFIN) is a regional bank that's located in down in the south western region of America. It's been a pretty strong stock in the last couple of years, especially when you consider the recent market environment.

The stock is starting to print an interesting chart pattern and it's looking like there might be a decent buying opportunity in the near future. Here's the daily chart:As you can see, there's a nice triangle pattern developing on the chart. The daily prices are converging into some major consolidation and there's looks to be some potential support down at the 200 day moving average. These types of consolidation patterns generally appear at pivotal points...points where the stock will sometimes launch like a rocket or drop like a rock. Remember that chart patterns do not guaranty anything, they just present higher odds of some kind of action occurring. The key will be to stay patient and wait for a break out. You can also take a look at a longer time frame chart to get an idea of what the stock has been doing longer term and to see if there are bigger patterns or trends occurring in the higher time frame. For stocks, I like to look at the weekly chart.
As you can see, there is some major consolidation on the weekly chart as well. Also, there is a long term trend that is still intact and prices are pulling right down to the trend line. Although the consolidation and the pullback to the trend line are both great signs, there are still a couple of bearish signals on this chart. First, the MACD is falling and there was a bearish crossing (the blue circle in the MACD window). Also, the BB width is over extended and seems to be declining. These bearish signs are not bad news, they just indicate that it might be a little early to take a position...the stock needs to recharge a bit.

I will be watching the triangle consolidation patterns on both the weekly and daily time frames and I'll also watch to see if prices respect the 200 day moving average on the daily chart and long term trend line on the weekly chart. If these levels hold and the weekly indicators become a little more bullish, I'll take that as a buy signal.

This is certainly not a great environment to be trading stocks on the long side but there are some good long term opportunities if you have cash and a lot of patience. First Financial has been a great company with superior performance on both the fundamentals and technicals and it's my opinion that it will be a good long term investment. This terrible market may provide a good opportunity to add it to an IRA or some other account of that nature.

Good luck out there.

TLT

Maybe time to buy the dollar now...right now?

In a recent post, I outlined a trade idea that had to do with buying the dollar when it touched the upper linear regression trend line. If you haven't/didn't read the post, here it is. Coming up with ideas for trades can be a very helpful exercise but being flexible and nimble in your forecasting is a prerequisite for successful trading. Unfortunately, the Eur/Usd pair has not rallied back to my entry target but that's okay because I can tell when I'm wrong and I was wrong...at least for the time being.

Here's an updated 4 hour chart of the Eur/Usd pair:As you can see from the above chart, the Eur/Usd did not hit it's upper regression trend line. Although that would have been an excellent entry, it's not mandatory for a good short entry into the pair (short being long the dollar). Actually, my trend following system just flashed a sell signal and I've taken a small position with the intention of adding to it if it starts making money.

Below is the same chart as above but, it's zoomed in so that you can easily see the sell signal. Here it is:The red circle outlines the sell signal from my system. Notice that both lines around the price are red (this is the multiple trend following systems signals) and the bottom histogram (BB width) is above it's break out zone (the purple line). These signals tell me that it's probably time to sell the pair (buy the dollar) because it's the path of least resistance. We'll see how it plays out...because nothing is even close to a sure thing and my trend following signals are certainly not an exception.

On a different note, here's my weekly ranking with the CNBC portfolio challenge. Like I said, I'm not actively managing my portfolio anymore, I'm just going to let it play out. As you can see, I finished the week in the top 0.2% of the challenge but I've actually fallen back to the 961st position...apparently lots of participants had huge gains on Friday because I actually had considerable gains but still fell back position wise. Here's a screen shot of my ranking:
Next week should be really interesting, both with currencies and stocks, and I look forward to posting some opinions on the price action. Be careful trading because we seem to be at a potential turning point...especially with stocks.

Good luck out there.

TLT

Strong Close But....

We had a big rally at the end of the day today with the S&P closing up 3.5 % but, it was a rally on low volume...see chart below.It's hard to determine the significance of today's move because it's the day before the Thanksgiving holiday and there was low volume traded. Friday won't be much help either because it will only be a half day for the US markets. With that, I say to take this week with a grain of salt and be ready for anything on Monday.

The are a few things that we can discern from the recent price action. From the daily chart below, we can see that the S&P jumped over some overhead resistance today but it ran smack dab into the downward trend line (the yellow line). Also, there are a couple of significant resistance levels that are not too far above the current price level (higher blue lines). The MACD just gave a great buy signal with the bullish crossover (blue circle on the macd) but the RSI and BB width are both flat...kind of conflicting signals.At this point, we'll just have to wait and see how the market reacts to these various resistance levels. If the price stalls at the yellow line, I'd be looking to short and if it blows through the yellow line without hesitation, it might be time to start buying. Like I always say, only time will tell. I don't try to predict the price moves, I only attempt to properly react to the signals that the market gives.

On a different note, I've climbed up to the top 0.2% in the CNBC portfolio challenge. At this point, I've decided that it's not worth wasting too much of my time with the challenge and I'm just going to hold onto what I have and see how it plays out. Unfortunately the challenge has some rules that are very unfavorable to traders like only 10:1 leverage in currency trading (whereas I usually use 50:1) and only being able to buy and sell stocks at the prices for the day's close, no intraday prices. I hope that you all have a very happy Thanksgiving!!!

TLT

Almost time to buy the dollar again?

Although the dollar has been very strong over the last several months, it has taken a slide recently. A pullback is generally expected when an instrument has run up as much as the dollar has and the inevitable pullback can present an excellent opportunity for a longer time frame trade (like holding a trade for several days and maybe even a week as opposed to several minutes to hours). The trick is finding a good point to start fading the move and to have your "uncle point" designated before the trade. Entering a trade on a big pullback can be nerve racking...that's why you really need to have a detailed game plan that you can follow to the T.

I like to use a linear regression channel when I attempt to enter a trade like this. Below is a good 4-hour chart (as in each bar is 4 hours) of the Eur/Usd pair. The light blue lines are the linear regression lines. Linear regression is a concept that says that prices will eventually revert back to an average (reversion to the mean). I've found that this tends to especially work in a trending market with a trending average. Here's the chart:
The yellow circle is the area that I'll be looking to sell the pair, preferably close to the top line. I'll probably take half the position on the initial touch and then wait for the trend following indicators to confirm the sell for the other half.

One other thing that I like to look at to get a feel for how the dollar is doing is the broad dollar index. This index portrays the dollar against a broad selection of currencies to give you a more complete picture. I like that the index is going down and that there seems to be some potential support at the 50 day moving average. I would not be surprised if the dollar index finds support at about the same time that the Eur/Usd pair hits the top of the linear regression channel. The index provides some insight into the breadth of the dollar, which will help to determine if the move is potentially sustainable. It is always nice to see the dollar rallying against several currencies as opposed to the one currency that you're trading it against.

We'll see how the dollar plays out and I'll be sure to post and update soon.

Good luck out there.

TLT

*****Update*****

Several hours after I made this post I was doing my nightly scan through various blogs and I pulled up Moaxian's site. He could not be more bearish on the dollar and he thinks that it will give up all of its gains and fall below 70 on the dollar index. This view obviously goes against my plan to fade the move or "buy the dip" in the dollar but his reasoning is for fundamental reasons.

I'm not saying that he's right or that I'm right, I just think that our different perceptions are interesting. I will still take the trade because fundamental views tend to work against my bottom line, but it is good to note potential macro shifts of this nature and be alert to new trends that may develop.

Update on USD/CAD Trade

Sure enough, the trade closed out last night while I was asleep...I love it when that happens. The down-trend got a little choppy but it hit the profit target.The horizontal green line is the entry, the red is the stop and the blue is the limit order that was placed. It's not a coincidence that the profit target is about 3 times farther than than the stop...this setup had a favorable risk/reward ratio.

On a different note, there's a lot of chatter on the news wires about Citigroup getting a bailout. Fortunately I added some Citigroup to one of my CNBC portfolios on Friday because it looks like that stock might take off today...only thing that would be better is to have it in my real account but this would never happen because I don't bottom feed for stocks like this when I'm trading my money.

As for the markets in general, they could go either way. If the Citigroup news is big enough we could see a nice rally today but, the path of least resistance still seems to be down.
There are several points of overhead resistance that the market will need to get past and then hold them. The MACD is still bearish but it looks like it could turn up...today will probably be a pivotal day and it will set the tone for the following week. Given what we saw the last three trading days of last week, anything is possible. The only somewhat sure thing about this market is that moves happen very quickly and they tend to be big. Have a good Monday!

Good luck out there.

TLT

LIve Trade: USD/CAD

Tonight I caught a great sell signal with my trend following system on the USD/CAD and entered a trade. The signal was generated in the 5-minute time frame. Here's a shot of the chart. The sell signal is highlighted with the red circle. Notice that both trend lines are red...that's the sell signal. Also, in the top left of the chart, the signals for the different time frames around the 5 minute period all say down or indicate that they're about to say down. The final factor that confirms the sell is the BB width indicator at the bottom of the chart. The BB width line is below the green line and it's turning up, which indicates the currency pair was basing and is beginning to break out.

This is pretty close to an ideal trade for me as all the indicators are working in conjunction with one another. One final thing to note is that the pair is selling off rather quickly and it continues even while I'm writing this post. I've noticed that price moves that immediately follow and confirm a buy/sell signal generally have a better chance of moving further than when the price stalls after a signal. Odds are that this trade will close out while I'm asleep tonight considering that its about 10:30 p.m. right now. I've already entered my stop and limit orders so everything is on auto-pilot now. I'll check the outcome in the morning and post a follow-up chart to show how it plays out.

Good luck out there.

TLT

Opportunity is Nowhere

Markets tanked yesterday and it's finally starting to seem like complete panic has set in. The Dow broke below the 8,000 level and the S&P fell below 800. These were psychologically important levels that were not respected by the price action at all. Here's a chart of the S&P as of yesterday.
(*should read over extended)
Everybody and there mother is expecting some kind of short term rally because of the extreme readings in the indicators. Although we might see a big rally, I can't see it lasting right now. The technicals are looking like we should stay in free fall mode for a little longer if the market doesn't get back over the short term support levels.

As for the CNBC Portfolio Challenge, my bearishness has been paying off. As of the close yesterday, I was in the top 1.1% but this only gets me up to 4,544th place. Probably not going to win this week.
As for the title of this post, I stole that from Bill Williams...author of Trading Chaos (it's on my recommended reading list). This phrase is a little game he plays that shows 2 things: 1) Perception affects us all and 2) Opportunity tends to present itself when it looks like it isn't present. The phrase sounds pretty hopeless with the way it's written "Opportunity is Nowhere." However, if you look closely, there is a different way to look at it--"Opportunity is Now-here." Just a reminder that there's always 2 sides to every coin and our perceptions do get in the way every once in a while. Although the markets are terrible, you always have to remember that they look the worst right before a turn.

Good luck out there.

TLT

Update on the CNBC Challenge

It's been a volatile 3 days to say the least. Normally, I don't trade currency around major economic press releases but I kept positions on for the CNBC Portfolio Challenge and it cleaned my clock. I had a great position in the Usd/Chf currency pair that has been trending up for some time now. Unfortunately, my gains quickly evaporated today and then, just to make it worse, the currency pair turned around and closed the day up quite a bit. Fortunately, I did re-enter the trade and capitalized on some of the turnaround. Here's a chart that shows the massive drop that occurred after the Consumer Price release.Notice the red circle...that's the volatility. Now look at the blue circle...that's volatility but it's what I consider in the realm of understandable volatility. Oh well, that's how markets behave...they go much further than we expect, and at the opposite extreme, they will not go further than we expect. It's a real son of a b****. Fortunately I did re-enter the same trade and it not only regained the losses but it made up for some of them. Here's an up-dated chart of the Usd/Chf.This volatility just re-affirms why I don't trade before and after economic releases in my real accounts. Unfortunately, with the way the CNBC Porfolio Challenge is set up, it seems that you have to take dumb positions in order to have a chance of winning. In fact, if you're not over trading, you don't have a prayer of winning. This has created much turmoil in my trading because I've been really working to overcome the kind of mental handicaps that this challenge forces you to embrace. I guess that's just the nature of these things.

In case you're wondering...I'm in the top 2.1% of all of the contesting portfolios and I had a great return of 9.7% of my portfolio for today alone. Too bad I'm still aways away from being near the top. Oh well, I'll keep it up and see if it all pans out later. Those currency positions can really pay off with just catching one major trend.

Good luck out there.

TLT

Multiple Trend-Following Systems Combined: Attempting to Achieve

Lately I've been exploring the use of a couple of independent trend-following systems used in conjunction with each other. I have finally found something that seems to work like I intended when I undertook this project. It combines 2 separate trend following systems and it waits for confirmation from both systems before an entry is generated.

Basically, it combines a moving average crossover system with a volatility break-out system. This seems to work pretty well, however, there is still room for improvement. The improvement comes with multi-time frame analysis. For this, I've integrated a brilliant indicator that tracks MACD readings for 9 different time frames (look at the upper left-hand text within the chart below). Below is a screen shot.In order to get a signal, there must be both green or red lines on the trend following signals (the band looking lines that surround the price and change color: green=buy, yellow is caution/sell, and red is sell/sell short) and there must be a correlation to the signals with multiple time frames on the MACD for an entry. Just how many and which signals I will leave for you to experiment with...if you're so inclined. I've found that it depends on your time frame and also on your profit target.

Bottom line: combining volatility and moving averages with multiple time frame readings can give you some excellent trend following entry signals. Just remember, the hardest part of trend following is getting out of the trade. Trading is like law in that you always practice it(as in "practicing law") and there is always room for learning...no matter how long you've been doing it. I give you these ideas in hope that they will influence a trader to think a little more or maybe even for someone to turn the corner and become profitable. It's one big challenge that attracts the best of the best...and we all hope that's us.

Good luck out there.

TLT

CNBC Million Dollar Portfolio Challenge

The CNBC Million Dollar Portfolio Challenge begins tomorrow and just for grins, I've entered. In order to participate in the Challenge, I've created a couple of strategies that should cut down the time necessary for trading...still need to be able to work and pay the bills.

First of all, I'll be trading currencies and stocks...with an emphasis on the currencies. The daily and hourly time frames will be used for the currency trades because the slightly longer time frames (I usually use 1-5-30 min) will allow me to enter trades and then not check on them for at least several hours and maybe even a couple of days.

As for the stocks, I'll be using a short screen that I've developed in order to generate a list of potential shorts. I use MSN's Deluxe Screener...the most powerful free screener available on the web (at least that I know of). Here's a screen shot of the screener and the list that it generated for today (Nov. 16). I will most likely create a portfolio of shorts and update it once a week...not even going to try to make long trades right now, it's just not worth the effort. I'll post some routine updates to let you know how the challenge is going and I'll also update the short screener next weekend and post the results for those interested. Good luck to my friends and everyone else that is also in the challenge.

Good luck out there.

TLT

***UPDATE***

The portfolio challenge does not allow short selling! Unbelievable, you can trade currency but you can't short stocks. Never mind my wonderful short screen strategy...instead I loaded up a portfolio with leveraged short ETFs.

ACL Analysis

By request, here is my analysis of Alcon and its magnificent breakdown.
Lets look at the above chart since everything I do is based off the chart. (Fundamentally, I have no clue what is going on at Alcon). First, look at the big yellow arrow. That's the initial sell signal, which occurred at the end of September or the very beginning of October. At that point, I would sell any long positions that I have.

Second, notice the big red arrow and corresponding red circle. That point is the sell any position (which should have already happen but sometimes we're emotional humans) and then if you're a trader/investor that shorts stocks, look to short. In looking for a short, I like some different indicators to confirm that prices are heading lower and that momentum is picking up. At the time of the sell short signal, the MACD was showing a sell by a wide margin (blue circle and arrow) which is good and the BB width was picking up and hitting new highs...showing that volatility is picking up. I really like to see volatility hitting higher levels for both long and short entries. Given this combination of indicator readings, my strategy would have been to go short around the red arrow. The most import of those secondary indicators to me is the BB width hitting new highs. This tends to some what reliably indicate that there's a chance the break out will persist and the chart shows that it has so far.

Just my 2 cents...please keep in mind that it is always easier to look back with a sell bias and look for reasons you should have sold. That's why it's important to have pre-set/pre-tested criteria that follow well defined rules to get in and out of trades when the moves are actually happening and you don't have the benefit of hindsight.
ACL had a great run over the past couple of years, and really ever since it's IPO, but the trend is broken and only serious day traders/scalpers and fools will be trading the counter trends on a major down move like ACLs having right now. Remember: "The Trend is Your Friend"

Good luck out there.

TLT

Sad but True

I've gotta give Charles Kirk credit for finding this one...I think it's both hilarious and incredibly sad.

Citi Hits 12 Year Low

Citi is imposing new initiatives to help at risk borrowers stay in their homes. These new initiatives coincide with a brand new 12 year low for the companies stock. Ouch! Below is a monthly chart of Citi that goes all the way back to the late 80's...you can see how much faster the fall occurs as opposed to the rise.

It will be interesting to see how these new policies work out for Citi in the long run. I've been negotiating with one of the other big banks on a mortgage for an estate that is currently in probate. Without mentioning any names (although it's one of the top 4), I will say that I'm not very impressed with the way the bank has been handling the situation. The bank I'm dealing with is doing everything possible to not work with my clients to keep the property out of foreclosure...a very opposite approach to what Citi is imposing.

Maybe the bank I'm dealing with just needs their stock price to hit a 12 year low and then they'll get more friendly, or maybe their policies work better for them and that's why they are not in the same situation as Citi. Who knows, but it sure makes sense to try to keep people in the homes so that mortgage payments can continue to be made. Only time will tell which method will work.

Make sure to take a moment today and remember all the veterans...we're all very grateful for their services.


Good luck out there.

TLT