Saturday, January 5, 2008

U.S. Jobs -- was it even worse than reported?

I am an eager weekly subscriber to John Mauldin's free newsletter. He has over 1,000,000 weekly subscribers! It is always insightful, often educational, and profoundly helpful in my trading. This week's (released this morning) was also startling. I strongly recommend reading it, especially to stock and stock index traders.

Mauldin explains in detail how the U.S. government arrives at its figures for both the NFP jobs report and for the household survey. He explains why the former is somewhat flawed because it largely ignores small and new businesses, the primary engines for job growth.

What is so startling is that during the month of December, the household survey registered a monumental decline in employment of 436,000 jobs! In one month! I hope I have incited enough interest in my blog readers that you will read the entire article. Find it at this link:

Forecast 2008: Recession and Recovery

Klinger + ATR indicator

I have confirmed with its creator that the Klinger + ATR indicator trigger is not only a Moving Average, but a Simple Moving Average. On my charts, the trigger appears as a yellow line, but in the screen captures, it appears as white, for some unknown reason.

Friday, January 4, 2008

Commodity Super Cycle reignited by Fed

I have placed a link below in this post to a fantastic article written by Gary Dorsch, a brilliant analyst and writer in the financial markets. The chart at right is one of several in his article that powerfully communicates the compelling and robust inverse relationship between the US Dollar weakness and global commodities prices. He writes the Global Money Trends newsletter, and authored this lengthy but cogent article on Seeking Alpha. The main thrust of his article is also underscored by this very powerful chart (above right) that I copied from his article. This is one of the finest articles I've read for some time. It is a must read article to be found here:

Commodity Super Cycle: Ready to Rumble in 2008

Enjoy all, and make sure you let Gary know how much you appreciate the effort to write such a superb article with so many charts, facts, figures, etc. Excellent stuff!

Stocks sell off as expected

As I had expected, stocks continued to sell off toward the end of the day. This is the S&P500 futures 15 minute chart.

You may note, however, that the Klinger volume indicator showed renewed and enthusiastic buying activity. As the buyers soak up all the selling activity, we may eventually expect that the market will reverse if/when the buyers gain the upper hand again.

A fresh wave of selling, perhaps if buyers capitulated and then changed into sellers, would cause another strong price push downward. At that point, the Klinger indicator would indicate more selling as the color turned red and crossed beneath the yellow trigger line (which is apparently an MA of the red and green line). I would use this as a signal to create a new short position, or add to an existing one (I don't have one at this writing). In this chart, it appears that the Klinger indicator might be hinting at just such approaching buyer exhaustion.

Needless to say, while the Klinger volume indicator shows us that heavy buying activity is occurring as an undercurrent, it, by itself, can't tell us with precision when to buy. It is still an extremely valuable indicator because it is leading in nature, and therefore alerts us to the strong probability of a reversal soon. However, since the Klinger indicator isn't precise as to when this will occur, that's why I have combined it with the Hull Moving Average or the Exponential Moving Average to advise me when the reversal takes place. I also use the Guassian filter, another form of Moving Average, and (obvious from the charts) Bollinger Bands as well.

Corn a great buy today

Corn would have been a great buy today, too.

Better to trade wheat today

I haven't traded today, but wheat, after hitting lock limit up two days in a row, nearly went lock limit down today. This is much better to make money, when prices are fluctuating with better order. If soybeans are erratic, as they are today, I look for another financial instrument to trade. If I had placed trades today, it may have been wheat. Note, by the way, that the Klinger volume indicator is showing net purchasing of wheat, even as prices continue their decline, which presages a price reversal coming.

Gold is another favorite of mine, as are the 10-year U.S. government treasuries. I look for anything that shows strong momentum without signs of that momentum waning.

I use the Klinger + ATR volume indicator, developed by a very astute MD and trader here in Utah, as well as the Bollinger Squeeze indicator, and the Bollinger Bands themselves, to help me judge when momentum -- volatility -- dissipates. Here is the Tradestation forum where the developer explains the Klinger + ATR indicator in great detail and with many fantastic charts:

Klinger + ATR indicator forum

I would not be at all surprised if, toward the end of the stock markets trading session, a significant stock market sell-off occurs. Smart traders will not want to go into the weekend long on stocks after such melancholy economic news (the U.S. government reported that unemployment rose to 5% this morning), so a last minute sell-off was suggested by Art Cashin. Cashin is one of Wall Street's veterans, and he frequently is asked to comment prior to market open on CNBC. He is always insightful and shows good wisdom through many years of experience. If such a sell-off occurs, I will probably go short the S&P or Russell 2K in the last hour or so of trading.

Soybean helter skelter

Trading for soybeans has been unusually erratic this morning, so I took the time off. I haven't taken a single trade today.

Thursday, January 3, 2008

Many erratic movements today

Here is the 30 tick chart for the same period as the chart in my last post. Please open the chart in a separate window to see it better.

I have marked the turning points in the day according to the Klinger volume indicator. It remains an incredible phenomena to me that these turn signals appear nearly each time shortly before prices change directions. Could I ask for a more effective indicator? Look also at the blue and magenta line in the subgraph, called the Hull Moving Average. It changes direction shortly after the Klinger indicator. The Hull (or other) Moving Average is a confirmation signal for entry into a position. But with healthy profits early in the day, and difficult trading conditions, I chose to sit out the market through the remainder of the day. Even with repeated new highs, I'm glad I did.

Some of these signals would be winners, but many would also be losers. This kind of day can eat up a trader's equity very quickly. I gave up trying to trade this market today because it became so erratic. Ironically, new soybean price highs were reached two or three times. Timing is critical!

How ironic that my most profitable trade by far was a short trade on a day when soybeans closed up 19 cents for the day! Figure that out, will you!

Very difficult trading day

This has been the most difficult trading day in several weeks. If not for the first few trades this morning, it would have been a loser. I'm glad this one is over!

Good cop, bad cop

...or should I say, "good trade, bad trade". I went long when BBands were flat and prices breached them (BBands are purple in this chart) at the left side of this chart. I got out for 3 tick loss when prices rebounded back within the bands.

I should have shorted at that point. In the Cahen book mentioned later in this post, Cahen sites a statistic that when the bands are breached, but prices rebound back within them, there is an 80+% probability prices will move to touch the opposite band, which they did in this case.

I made money on the second long; I went long went prices hit the previous high as the BBands widened. These phenomenon are explained in great detail in Philippe Cahen's book, "Analyse Technique et Volatilite", which is still only published in French. He also has an older book published in English as well, but the French one is updated and more accurate. The major difference is the addition by Cahen of a 7-period and a 21-period SMA, resulting in fewer bad trades.

Cahen teaches to pay close attention to the Bollinger Band on the opposite side from where the prices are. In this case, the more important band is the lower one, not the upper one. Note that a precisely the point that prices reversed, so did the opposite Bollinger Band.

Gold moves higher with funds trading

Prices of metals are moving higher due to funds buying. The all-time high was hit in January around $875/oz. This is a regular January metals-related phenomena. So far, this January high has been $871.70, but it's only Jan 3!

Wheat touches lock limit 2nd day

Wheat touched its lock limit price during overnight trading. This is the second day in a row that this has happened. Prices are backing off this morning, however.

But I missed this smaller long trade

I would have taken the second leg up, but missed it. I wouldn't have taken the first one, because coming off a strong move down at open, I would have wanted to see a slight move up first. However, the longer MA was already moving upward.

A thing of soybean beauty

First trade already complete. Lo here! 9 cents! What a great way to start the morning!

Wednesday, January 2, 2008

When volatility falls, we wait

Note that the Bollinger Squeeze indicator has turned from blue to green and then red. This is shown by the circle above the green arrow (the arrow is only to help you find it; it is not an indicator in itself) in the 2nd subgraph. This indicates that volatility has fallen too low to trade, so I will wait until trading conditions improve.

Mixed signals = congestion

Many mixed signals on multiple time frames usually lead to congestion, as the bulls and bear battle for ground. After such strong bullish trading today, I will not take short positions until the bullishness fades on longer-term charts.

Signals on the 1 hour, 15 minute, and 3 minute charts are all contradictory, and this usually leads to consolidation. It is time to wait it out. However, as the session end approaches, many will liquidate their positions, and this is a time of opportunity for astute traders.

Soybean bullish divergence

At 11:05 local time, the soybean retracement hit bottom, as signaled by a bullish divergence on the tick chart Klinger volume indicator (right chart, subgraph, red/green indicator passed below its yellow MA). It shows signs of upward price exhaustion by 11:20, however. I made a few ticks of profits.

When I see these volume-based divergences, I tighten my stops to beneath the last two candles. If price move lower and take out those stops, so be it. If prices continue moving higher, then I will move out my stop loss once the Klinger volume indicator starts to move up through its MA once again.

Other grains, softs, oil, gold and inflation also up sharply today

Corn and wheat are also up sharply today. So were cotton and cocoa. In fact, wheat went lock limit UP just 10 minutes into the trading day, as this lower chart indicates. The flat line represents closed trading after the limit price was reached. Corn is also up significantly, as shown in the top chart in this post.

Inflation Grows in 2008

There is no reason or indicator evidence to suggest that the bull market in grains or other commodities is nearing exhaustion, with gold reaching multi-decade highs today, and oil nearing its all-time high of $99+ per barrel. I just feel sorry for U.S. consumers, who must still eat and fuel their homes and cars while their government continues to claim inflation is contained. The inflation monster is not only alive and well, it is lifting weights and ready to beat the Fed to a pulp, as the Fed continues to amplify the credit market problems.

Another new high as soybeans move higher still

Soybean prices have hit another new high as soybean prices and fresh buying move higher in the new year. The soybean bull is healthy and vigorous!

As can be observed in this chart, soybeans prices have risen so much today that they are nearing lock limit up, as shown by the gray-colored line just above the candlesticks in the chart.

Tuesday, January 1, 2008

New Year's buying in soybeans

Renewed vigor in buying soybeans has catapulted the soybeans futures higher in the New Year. This appears to be reflective of great confidence that soybeans prices will surge to even higher prices during 2008. May it be a prosperous New Year for all!

In the first 30 minutes of trading during the evening session, soybeans prices have already climbed more than 20 cents.

I am extremely gratified that my long trade that I was unable to close before the end of the Monday session was reinforced by buying this evening. If the market had sold off, I might have lost significant money. I will close out that trade when prices start to retrace. Often, this will occur during the evening when momentum wanes, as prices typically retrace during the overnight hours on the East Coast of the United States and in Europe. If prices are still rising, I will use a trailing stop to achieve this, or if prices start to retrace before I go to bed, I'll just close the trade. Fortunately, I don't have to worry much because the trade is very profitable at this point. I got lucky, something I do NOT count on -- ever -- in the trading business. I made a mistake and benefited handsomely from it. Still, I would have been better off not making the mistake at all.

Monday, December 31, 2007

Soybean uptrend intact

The soybean uptrend on the daily chart is still intact. Prices closed today above the Exponential Moving Average, after closing below it on Friday in electronic trading. However, look at the massive selling, as indicated by the Klinger volume indicator in the subgraph (the red line). If this continues through the week, we are likely to see even stronger selling pressure emerge soon.

Trade still open -- I forgot about early close today

Trade #7 lost money (3 ticks), and trade #8 made only 5 ticks.

Trade #9 is still open! Oops! I may not sleep tonight, so it's a good thing its New Year's Eve. I forgot that the market closed early today, and left my trade open. After 5 minutes, I called the broker to ask what was happening, and he told me the market was closed. Fortunately, the trade is profitable so far. I may not sleep until the market opens tomorrow evening, but I made enough money today that even if the last long trade loses money, I'm not worried. Lesson learned!

Note in this chart how beautifully the Klinger volume indicator hints at a change in direction BEFORE prices change and cross the EMA. Could I ask for a better indicator? I only use the Klinger volume indicator for entry, however. Once I reach break-even, I use the MAs, Bollinger Bands, and MACD for exit signals.

Trade #5

I haven't had this many trades in one trade for about 2 weeks.
Great trade, but rapid reversal! On the left side of the screen, we had already seen a higher high and a higher low, so I entered when the second low reversed, just as the second green candle crossed the yellow dotted line. I exited when the third red candle hit the EMA and turned red.

Soybeans #4

Great volatility today. This was a fairly small trade, but it made money.

Soybeans #3

Amazing! Trades are very active, but indecisive today.

I nearly got out on the long green candle that straddled the yellow dotted line at the top left, but by rule is that I won't exit with a loss unless prices reverse to cross back over the EMA and/or close above the candle where I entered the trade, which it didn't do in either case. This was a nail-biter, as many/most of them air, for the first few minutes until the trade becomes profitable and I can set a stop loss at break-even. That is always a relief when I place that break-even stop loss order.

I was reassured, however, throughout this trade that the Klinger volume indicator continued moving solidly down the entire time (see the red line in the subgraph).

2nd trade of soybeans - continued consolidation

Superb trade - looks like the bulls are coming back!

Soybeans off to good start

I had two trade prior to this one. The first one lost 6 ticks, and the second one broke even. This one was a very good one.