Thursday, June 7, 2007

Those Who Don't Learn from History.....

Boy o boy could I write a novel on that subject. But rather than get on my soapbox and pontificate about why you should vote for Ron Paul, which you should by the way or at least give him a token consideration first rather than let the mainstream or editorial page choose your candidate for you. They say that the market doesn't repeat history exactly but sometimes it rhymes so today I want to talk about the repetitions we see in chart patterns. If we compare the real estate i-shares (IYR) with a daily chart of Continental (CAL). In the matter of full disclosure I was stopped out of a short in CAL back in April and am currently long the ultrashort real estate (SRS). If we examine the chart of CAL we can see a nice H&S formation break in late February, rally to test the neckline from underneath fail and head down again. April 3 had heavy volume and broke a descending trendline from the old high of $52.40. The subsequent rally in April broke the neckline and for most (I'm included) invalidated the pattern. This is where some would say technical analysis is part art part science. This invalidation would be what I call the art part in that a line in the sand has been crossed and you now have to listen to the market which never lies, but I would argue doesn't always tell the truth immediately. It takes some cajoling and prodding to get it to show it's hand. For me the action April 3 was strike 1 and the neckline break was strike two, time to protect the plate so to speak. Time has gone on to show us that that invalidation was just another complex H&S formation and the bear in continental still reigns. Move over to a current position, short IYR or long the SRS. Here we see a nice H&S neckline on the daily IYR broken to the downside a rally up, failure and head back down. The rally of late May to the 86 area broke the neckline of the original H&S, an invalidation for some, but the downward trendline for the high of $95 acted as resistance and contained the rally. The rally also lacked the volume I try to watch for to indicate a change in the type of buying. May 21 and May 24 volume occurred in the downtrend and we not eclipsed on the rally. I tried to learn from the action on CAL and as of today am still long SRS. Hope this shows that by examining past pattern progression we can look for clues so we can anticipate what may unfold and make sure we wait for the action to occur and not predict. Yes I know the whipping becomes almost intolerable at times but is part of the process and as I was told long ago, if you can't take the whipping, get the hell out the market, its not for you.

Crude - I continue to watch crude closely. The daily chart above ($wtic) consolidation since early April is building and building compression and makes the $67 area key. We could get some real action once we punch thru this level. The news will conform to the tape. I know the wires are talking about the Turks in northern Iraq with the Kurds. The news is your bull market ally and may be the trigger to push it thru. Personally I would like to see crude push thru on its own and then have the news come out to confirm and push it further. Yes Goldilocks so to speak! Remember the fundamentals support the bull in energy, and the technicals and still in bull mode. The Saudi's won't let anyone verify reserves and on that topic why aren't the spigots wide open with prices at these levels. Is the water cut so high they are maxed out on production. A lot of people much smarter than myself (not hard) think so. Cantarell in Mexico is in decline, Bergin in Kuwait is in decline, Daquing in China is in decline, and Iran in the same boat as Saudia on reserves. The Canadian oil sands are great along with the North Slope in Alaska but Ghawar or Bergin they are not. Govern yourself accordingly. That's it for today, good luck and good trading

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