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Tuesday, April 18, 2017


“Whether you like it or not, you ALWAYS start here!”

It’s hard for a “western mind” to come to grips with the fact that Japan, before the U.S. was even a country or had a thought of even rebelling against Great Britain, had a futures market [as we know it] in Tokyo trading rice coupons [receipts for rice stored at government (meaning the Emperor) warehouses] in the early to mid 18th century; but they did, and it was there that Sokyu Honma made his mark, becoming so good at trading the Emperor made him a “samurai”, the highest honor in the Bushido code.

And while candlesticks didn’t come until over a hundred years later, everything Honma wrote about “begged” for the creation and invention of candlesticks; in other words, the candle [or group of candles in combination] needs to contain “the code” so that it can interpret the philosophy and trading practices that Honma used so successfully. This is why he is generally considered the “father” of candlesticks, even though he was nowhere around to see them come to fruition.

Two points to make here; 1) the need for discipline and patience, so that the forces at work, both macro & micro, are working for you and not against you [meaning of course “probability theory”, which the world wouldn’t discover for another 100 years or so], and 2) the absolute and certain need for perspective [a/k/a “pattern recognition”]. We all start life as traders like the guy in the header photo; wandering about with our collective heads in the clouds, not knowing where we are going, what we will bump into, or what cliff we step off and meet our end; both Honma & Gann tapped into the same thing. While eerily similar in many forms, they also traveled down different paths in different markets, but they ultimately came to the same general conclusions; 1) markets are cyclical and endlessly repeat the flow of human emotion, and 2) the same trading patterns repeat endlessly as well because of #1 [fractal in nature and scope over all time periods]. And so, when you boil it all down to its “essence”, what we do as traders is “trade the past”; because it is in the past that the future lies.

Turning to today’s Dow30 trading … Goldman earnings and news out of Korea weighing on sentiment for whatever it’s worth [usually not much], but with the market struggling overnight it’s something to keep in mind. First trade of the day on a decent bullish engulfing pattern off of a corrective low from the early rally directly below.

If I had been a tenth of second quicker I would have gotten a better fill, but it was still a good fill from the LP … it wasn’t off the market, just slightly higher is all … not crazy about being long inside the spike up, and the next M1 I liquidated for that very reason … large spikes up, when they start backing off from the high are the reason you sell, not stay long … still, a scalp trade for profit.

A little up, a little down, news flow buffeting the market around I think … so far here in the early PM trade in New York, a rather subdued range with no buy signals to speak of after that first trade … some came close, but even if I had taken the “iffy” signals and claimed they were signals, I would either have scratched or not made but a tick or two before they turned around. Market acts like it wants to go down, and the reason I say that is because the moves up have nothing behind them … no sustained momentum to get people to buy and then buy some more … after the short bursts, price falters, telling you loud and clear it was simply short covering to begin with and nothing more.

Outside of that opening half hour burst up, it’s been a slow train wreck lower. We’ve seen a pretty decent range so far in New York trading [about 135 points top to bottom], which is positive, but only one signal so far which given the range and action is somewhat disappointing. Meh, it is what it is … some days have 10 – 15 signals, some days have very few; we take what the market tells us and we move forward.

When I used to trade on the floor, many of the other floor traders who were predominately bearish 99.9% of the time and hated to be long the SP500 futures, would ask me why I spend so much time being long; “simple; I want to make consistent money every day. You, on the other hand, have to be absolutely perfect with your short positions because the short covering rallies simply kill you day-in, day-out; any other questions”?

And just like now, people would tell me there aren’t any earnings, the accounting tricks companies use to beat estimates are a scam, biz everywhere sucks, people are unhappy and unemployed, etc., etc. “You do realize it’s always been like this, right? And still, 80% of the time the indices go up! Why on earth would you spend all your time and efforts at trying to pick tops, when the market spends all this time going up? For me, it’s never made any sense”.

Which brings me to my point: “unless there’s a reason or group of reasons that are dominating the news cycle and are overwhelmingly bearish for stock prices, and makes every working person in the country want to dump before “it’s too late”, selling the indices is asking [begging really] for trouble because the short covering rallies are vicious and quick and force you out”. And until the bullets, bombs, and/or mushroom clouds start appearing in the Korean peninsula or Marine LePen wins in France in a couple of weeks, neither the Dow30 or the SP500 is gonna get whacked and be good for a down move; that’s not to say it can’t go down, but read again what I said above.

Here in the late afternoon trade, equities being moved around with huge moves in GBPUSD, manipulations in gold earlier as somebody [guess who?] sold approximately 22,000 futures contracts at the market, and a general feeling of unease with the “hard & soft” economic data being released that hasn’t been this bad since about 2010; in other words, “indecision”.

At 17:06 Turnkey server time, we do get a bullish engulfing pattern, however, there are 2 problems with this; 1) we’re below the New York open, and 2) it’s not coming off of a new low. Granted, it came off of that somewhat double bottom and would have been a good trade, but this is nothing more than a “coin flip” that worked. Off the bottom earlier, it wasn’t an engulfing pattern, simply a reversal pattern; again a “coin flip” that worked [“Gimme that coin”!]. Over the last hour, what we’ve seen is an excruciatingly slow climb up the mountain of about 50 points; not fast enough to make shorts panic [until they do], and not any real buying interest either; we’re still below the open and lower for the day. If the market closed right now, only Friday’s close would be lower than anything in the last 2 months; not much for the market to “hang its hat on” for support. And if during the rest of the week, the market gets down to the 20450 area and starts heading lower on spikes down, it could be a very nasty sell off coming to a computer screen near you.

All-in-all, a disappointing day both in terms of trend [6 to 1 up, half a dozen down, and with 90 minutes to go before the close we are 18 -25 Dow30 index points from the opening bid] and trade signals via the algorithm [we had 1, a scalp good for a couple of bucks]; I was expecting more from today.

An hour from the close, and all I see from trading the last 60 minutes is trouble; even if we got a signal, I’m not sure how valid it would be or if there was anything behind it to push it, so I’ll call it a day. Nothing on the econ docket tomorrow early; only the Fed “Beige Book” out at 3 P.M. New York time, so not really a factor until late afternoon. Looks like geo-political events [N. Korea & French elections] will continue driving market indices tomorrow with whatever news breaks overnight.

PAMM/MAM spreadsheet directly below.

Time for a walk on the beach … I’m outta here … until tomorrow.

Have a great day everybody!


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