Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_12

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Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading_12 I shorted the market on April 7. I was nervous with thistrade from the onset. While the major weekly chart top wasstill the dominant classical chart structure, the daily charthad completed a seven-week H&S bottom on March 31.The market was caught between a boulder (the weeklychart top) and a hard place (the minor head and shouldersbottom). April 8 was a one-day reversal. I jammed my stopand exited the trade on April 9 for a loss of two-tenths of 1percent. Looking Back This market had a massive overhead rounding top on the weekly chart and an underlying head and shoulders bottom on the daily chart. As a general rule I rely on the most recent pattern. There are times of conflict on a chart. During these times, it is often best to wait for a clear resolution. November Soybeans: Textbook Ascending Triangle is Completed Signal Type: Minor Reversal Signal One good sign of a bear trap is when a market spikesthrough a boundary line, closes back above the boundaryline the same day and then spends the entire next dayabove the boundary line, closing higher. This scenario isexactly what happened in November soybeans on March31 and April 1. I could have fully justified a long purchase onthe April 1 close. The subsequent advance on April 15 completed a 10-week ascending triangle, as shown in Figure 12.6. Iestablished a long position of 2,500 bushels per tradingunit of $100,000.FIGURE 12.6 Symmetrical Triangle Completed inNovember Soybeans. Figure 12.7 shows that as of the date of this writing theNovember soybean chart is building a 17-month ascendingtriangle on the weekly chart. This is the type of pattern thatshould lead to a magnificent trend and will be a chart towatch as 2010 progresses.FIGURE 12.7 Massive Symmetrical Triangle Base Shownon the Weekly November Soybean Chart. Outlook for the FutureSeveral markets stand out to me as “markets to watch” astime rolls forward. These are markets with extremelysignificant big-picture weekly chart structures underdevelopment. I have mentioned several of these marketsthroughout the book as part of trading events. Dow Jones Industrials: A Historic Head and Shoulders in the Making?Something truly amazing is taking place in this market—and if it comes to fruition, it will go down as one of history’smost significant chart developments. The monthly andquarterly charts of the Dow Jones Industrial Average (DJIA)display a possible H&S top with a down-slanting neckline(see Figure 12.8). Down-sloping necklines are normally asign of greater potential weakness than flat or up-slantingnecklines.FIGURE 12.8 100-Year Dow Chart Shows Potential Top ofHistoric Magnitude. It is often the case that a line drawn off the highs of theright and left shoulders will be parallel to the neckline.Figure 12.9 is a blow-up of the H&S top. The current rallyfrom the March 2009 low has reached this parallel line. It ispossible for the rally to penetrate the parallel line andextend to the height of the left shoulder (Dow 11,750).FIGURE 12.9 14-Year Dow Monthly Graph ConfirmsPossible H&S Top. There is a tendency toward symmetry in H&S patterns,although symmetry is not a requirement. The right shouldercould extend several more years to reach symmetry withthe left shoulder in duration. However, the most powerfulH&S patterns originate from abbreviated right shoulders.30-Year T-Bonds: Sovereign Default for the United States?As I have noted previously in this book, the U.S. 30-year T-bond chart predicts some form of sovereign default. Theproblem is that higher rates are conventional wisdom. Asshown in Figure 12.10, the quarterly T-bond chart hasformed a channel from the early 1980s low.FIGURE 12.10 29-Year Channel on the Quarterly T-BondGraph. F igure 12.11 displays an H&S pattern on the weeklychart dating back to late 2007. Further, the right shoulder ofthis larger H&S pattern is an H&S formation itself. Thissmaller H&S pattern dating back to June 2009 appears tobe quite mature. This means that the market needs to startdown soon, or the entire weekly chart will be subject toredefinition.FIGURE 12.11 Weekly T-Bond Chart Displays PossibleH&S Top. Looking Back In mid-May 2010, the T-bond market exploded to the upside, decisively penetrating both the left and right shoulder highs of what had been a possible H&S top on the weekly chart (see Figure 12.12). This is exactly the type of redefinition alluded to throughout the book. The price target now becomes a test of the early 2009 high around 141-00. FIGURE 12.12 H&S Failure on the Weekly T-Bond Chart. Sugar: Still Hope for the ...