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