Are You Bleeding With Passion?

"To everything there is a season and a time for every purpose under the heavens..."
-- Ecclesiastes 3:1-8
Got this from reading some of the Gann books once.

Seasons come and go, markets change and evolve, but human behavior hardwired into the brain hasn't really changed much since the time of the Neanderthal.

Every one of you reading this wants to make money in the markets. The principles are simple, but not easy: Take personal responsibility for your trades, execute ruthlessly, cut losses quickly, stay healthy in body, mind and spirit, practice good risk management, plan your trade and trade your plan, master your emotions, practice patience, do more of what's working, and take profits on a regular basis.

This sounds easy, but the majority of you struggle daily to do these things. You search continually for something or someone -- an indicator, a method, a newsletter, a guru, Grand Pine. You're looking for answers in all the wrong places.

There is one immutable fact that underlies all successful trading: The answer is within you. It's not out there somewhere. It's about your brain and how, not what you think. Traders, with few exceptions, are made not born. Anyone, given the passion, determination, and willingness to work hard, lose, fall down, and keep getting up, can learn to trade successfully.

How? You must believe totally that you are called to trading, that it is the one thing about which you are completely passionate and that you are willing to forego everything else in order to succeed.

I have stopped counting the number of times people laughed and ridiculed me when I talk about commitment to trading - this includes my mom. You know you're committed when something epiphanous happens to you. One of the definitions of epiphany is a sudden, intuitive perception or insight into the reality or essential meaning of something.

I have had several people tell me that their trading epiphany came in the form of actually feeling the earth move. A Carole King moment for those of you old enough to remember! Are you laughing yet?

Okay. Now that the earth is moving, the real work begins. You must learn to think in probabilities and entrain the qualities of being counterintuitive and peripatetic. You must become a chameleon, a great actor and acrobat on the largest and most intimidating stage in the world. Most of all, you must be absolutely determined and passionate about it. If you can take these steps -- slowly and one at a time -- you have a chance to make it.

Is 2010 the year you'll find the courage to follow your passion and do what it takes to become a successful trader? If so, then see yourself as the most brilliant firework lighting up the sky. Settle for nothing less than your personal best. Let 2010 be your year to shine like the brightest star in the universe. Is this your time? If now not, then when? After all, we are living in the greatest time of all times!

"Courage is more exhilarating than fear, and in the long run it is easier. We do not have to become heroes overnight... just one step at a time, meeting each new thing that comes up, seeing it not as dreadful as it appeared, and discovering we have the strength to stare it down..."
- Eleanor Roosevelt

Will The Market Rollover Again?

I’ve been in the markets for 25 years and I’ve never seen anything like this. And there’s a reason: there’s never been anything quite like this.

The price action both up and down has been astonishing.

Market is doing a good job at getting traders used to the idea that 30 handles on the S&P is the “New Normal” -- that a 30-handlebar bike can be ridden. You don’t ride this kind of risk any more than a frog fantasizes he's "adapting" in a pot of water where the heat gets turned up and up until it’s too late.

On the other end of the spectrum, hope and holder investors who haven’t been driven out of the market by a decade of financial schizophrenia convince themselves they're in it for the long term. The truth is, if you lose your money in the short term, there is no long term.

On Wednesday the market reversed to sell off 25 S&P points on a rumor that China was "reconsidering" its eurozone debt. Reconsidering may be the mother of all euphemisms in this particular case. Then on Thursday the S&P gapped up 30 handles on plausible deniability of that rumor. China certainly figures in lately, doesn’t it? Seems like China carries a big stick, but isn't speaking especially softly.

This is because the two biggest currencies in the world are dependent on the kindness of strangers. Money makes power. When you depend on the kindness of strangers to keep the wolves of debt from your door, it's at the peril of becoming ineffectual. Is this the case currently with the US in our talks with China regarding North Korea and Iran? Does America risk becoming a paper eagle at a time when former paper tigers have sharpened their geopolitical teeth and are threatening more than just paper cuts? My, what big teeth you have, China.

When a nation is indebted beyond the scope of its own control, it loses manifest destiny. This is currently the spectacle in Europe. When multiple sovereigns lose the right to rule, there's systemic risk. Particularly since fiat finance is faith-based.

Volatility precedes price and volatility has begun to cast a long and ragged shadow over the land.

The market may mask risk with the phantom of opportunity, but when the market trades "in the air" and gaps to where it's going from one day to the next, there's more danger than opportunity. The notion that the Chinese word for crisis represents danger and opportunity is fallacious. Even in the land where communism has co-opted capitalism, crisis is crisis. Sometimes risk is just risk. As the financial markets presumably learned over the last few years of crisis, sometimes risk is just risk and can’t be hedged away. Danger is as danger does.

I say financial markets presumably learned that risk can’t always be hedged away because going into the April top, once again, the VIX was priced as if stocks were discounting the hereafter. It was as if Mr. Market looked risk straight in the eye, saying, “We don’t need no stinkin’ insurance.”

So what was so good about Wednesday morning? What happened that the market should explode up 30 S&P points overnight? Nothing fundamentally bullish happened. The issues haven’t changed. The only "good" thing is that China intentionally or otherwise showed how they can move world markets, and that’s a bad thing.

Going into the down draft on Wednesday, I sent out an alert wherein I reckoned that 1066 should be a bullish inflection point. Why? The pattern suggested that the S&P bounce had an agenda with higher prices over to perhaps a gap near 1115 on a backtest of the 200-day moving average. Since the S&P was rejected on Wednesday from a test of 1090 and the first move up was 50 S&P points, then from what level would an ABC or two-step measured move play out? A symmetrical 50-point rally from 1065 to 1066 would satisfy such a pattern. To wit, the S&P stopped in its tracks at 1065/1066on the sharp sell-off into Wednesday’s close.

Thursday’s 30-point gap up mirrored the 30-point gap down on Monday. What a week. Shorts were on the hook, bulls were left at the station as the train took off. The shorts had already taken the heat on the open and there was little to do other than observe the behavior of the first little morning pullback which proved to be meager. Some shorts likely even faded the open. When the market held up, the stage was set for a trajectory into the close as the full moon yesterday magnetized the market to a close at the high of the day. The S&P was drawn to a test of its 200-day moving average right on the bell. The notion of alternation suggested an ABC-type pattern if a multi-day rally was going to play out with a stab at 1115ish in contrast to the line drive, straight up move off the flash dance May 6 crash lows.

With the futures closing on their high without the "arbs" getting out, it suggests an up open before they cut and run, or at least hedging in front of the long weekend. Short-side scalps today set up better than long-side tries with the S&P up a quick 180 degrees from the 1040 low and down 180 degrees from the last swing high at 1174. The day may just go flat and choppy in a narrow range after yesterday’s thrust.

Basically, the market did as predicted, turning down the Quarterly Swing Chart on a break of the February low and then snapping back powerfully in keeping with the Principle of Reflexivity when a big wheel of time turns.

While the market is closed on Monday, foreign markets are open and you never know if the mice could play while the cat's away and the "rally is raided." Be that as it may, the Weekly Swing Chart should turn up early next week on trade above whatever this week’s high proves to be. There are a tight cluster of turning points due in the first week of June that are reminiscent of the cluster of time/price harmonics that called the April turn.

For example, one of those harmonics is that June 4 is 666 trading days from the all-time high on October 11, 2007; 666, of course, was the price of the S&P at the March ’09 low. Moreover, 666 vibrates or aligns with the date of June 6. In addition, the 2007 to 2009 bear market decline was 512 days. The "center" of the decline or the 50% point is level of the January 6, 2009 high near 940/950; 512 days from this "center" gives June 6, 2010.

With a consensus in place that the market will extend on the heels of a double bottom that's been carved out in the S&P, will the SPY backtest its 50-period moving average near 109 before a stab higher leaving a third step up between 1107 and 1120? Why do I say 1107? The range of the last swing from 1174 to 1040 is 134 points. One-half that range is 67 points, giving 1107. It's interesting that this vibration ties to the 666/667 low.

Conclusion: I don’t think I can ever remember a time where so many traders have pointed to a particular pattern, an inverse head & shoulders (bullish) pattern in the S&P which presumably projects to 1140. It may, of course, play out that way, but typically what's obvious in the markets is obviously not worth knowing. At the same time, I hear few voices suggesting that this current move up could be a "droop" right shoulder, shy of 1121, which is the mid-point of the prior bear market. I've been focusing on the first week of June since the top was confirmed as a possible low. Now it appears a three-step pattern will play out to the upside into next week. The bottom line is another lower high on the S&P will trace out a potentially ominous third lower high. Often times waterfall moves come from third lower highs.

As it happens, analogue from the waterfalls in 1929 and 1987 saw the market make lower highs around 40 calendar days from their peaks just before crashing. If the "double bottom" or neck line at 1040 breaks, the projection is to 860ish S&P. If may not play out this way of course, but given the cyclical, financial, political, and geopolitical backdrop, extreme caution is warranted at least until this period passes to see what we’re dealing with.

Strategy: As offered in mid-May, if the S&P is above 1100 and especially 1120 by the end of May it may compel a squeeze by money managers forced to chase stocks toward quarter end. However, if the market rolls over again, it's just as likely that these same money managers panic in front of quarter end, rather than lose all their gains from March ’09.

Capital Markets, Are The Enemy of the State.

Governments have tried to hold back the forces of a primary bear market.

The powers that be planned to do “whatever it took” to prevent the analogue from the five to six month bounce into April 1930 playing out to prevent an absolute loss of confidence.

But absolute power corrupts absolutely free markets.

In so doing, the market was stretched and the spring and elasticity has snapped.

It’s not nice to fool Mother Nature.

The bear has been made angry and is exacting his revenge.

Consequently, downside may be more swift and quicker that one could contemplate.

While the 2008 crisis unfolded like a slow-motion train wreck, the rule of alternation implies that this decline may start out like a train wreck, with a crescendo and climatic decline at the beginning of the leg down rather than a capitulation at the end.

A waterfall from the top rather than a climatic catharsis at the tail end.

And, you're correct: Crashes don’t occur off highs. But April wasn't a high, but a lower high in the larger scheme of things.

Below the "flash crash" lows, it won’t be a flash in the pan, and panic would prevail.

Note that the New York Composite Index has just violated its May 6 low.

Capitalism is fine until you run out of other people's debt.

Enemy of the sated? Enema of the state?

North Korea, Thailand,the tenfold heavier Icelandic sister volcano rumbling.

Mood makes the market.

S&P To Hit 956 - Near June 6th, 2010.

I begain to believe that on the heels of Monday’s upside reversal from near 1111 Gapfill on the S&P, that Tuesday should have some kick. Monday’s "tail" to the upside suggested a trend day up.

And, Monday left a potentially bullish Plus One, Minus Two Buy setup on the daily S&P/SPY. Why?

The 3-Day Chart had turned up with the rally of three consecutive higher daily highs into last week scoring the Plus One part of the setup while Monday’s lows traced out two consecutive lower daily lows for the Minus Two part of the equation. As you know the decidedly bullish set up at the February lows was a Monthly Plus One, Minus Two buy set up, the first such setup since the March ’09 low.

Monday’s 10-minute chart had traced out a short-term Inverse Head & Shoulders which projected to 1049/1050. Tuesday started out like gangbusters but the bulls squandered the promise of that momentum as the S&P scored a first hour high of 1148.65. A normal pullback from the strong open should have held green, and held the level of the gap up. However, after a first snapback after filling the gap, the market accelerated into the red. It was all downhill from there with the S&P settling on the important 1121 bull/bear pivot, the mid-point of the 2007/2009 bear market.

With the failure yesterday from near our old friend 1150, the January high, the bulls snatched defeat from the jaws of the bear.

Checking back to the pattern of the 1987 chart reveals that after a sigh of relief from what looked like a successful test, the first turn up in the Daily Swing Chart defined a high which marked the beginning of a crash.

I don’t know if history is going to repeat of course; however, yesterday the Daily Swing Chart turned up on trade over Monday’s high and bearishly that turn up defined a high at a key level. Moreover, instead of capitalizing on the potential of a bullish Plus One, minus two set up, and what looked like a successful test of Friday’s close at 1111 S&P (1110.90), the market collapsed.

Fast moves are often times derived from failed setups. Crashes often times come from false moves. I don’t know if the market is going to crash right here right now but the pattern leaves it in a very vulnerable position, while we know the cycles are exerting downside pressure. If the market is going to crash, again, the SET UP IS THERE. The psychology is fragile with hysteria flying from a Pandora’s Box of problems pried open in the eurozone

For the Gann fans, the decline from the April 26 high of 1220 to the May 6 1065 low is a range of 155 points. The low close for the move occurred on May 7 at 1111 S&P. A measured move of 155 points from 1111 gives 956. 956 was the June 2009 high of the first advance up from the June ’09 low. Is the S&P poised to return to the scene at/near the one year anniversary? It's interesting that counting from the April 26 high, the Gann Death Zone or Panic Zone of 49 to 55 days begins on June 6. It’s hard to make this stuff up.

June 6 is also 120 degrees from the February 5low this year!

June 6 is also a “master date” in the current market as it aligns with 666 the price of the low. 666 ties to 6/6. 950 (which ties to the June ’09 high) is opposite the date of June 6.

360 degrees in price down from 1220 gives 1084. With the bears in control and running the gap at 1111, will the S&P test 1084 this week? 720 degrees in price (or two full revolutions of 360 degrees) down from the 1220 high gives 956!

Isn’t it interesting that the closing high of the first rally up in June ’09 (which coincided as the high of the pivot high in January 2009, the high prior to the last leg down, the high before the low) was 943/944 and is 50% of the range from the March ’09 low to the April 2010 high? Even in a bullish scenario would it be so unusual for the market to pullback to test the "fulcrum" and decline to 50% of the range? Would it be an unreasonable premise considering the lack of volatility throughout the advance, considering that the advance occurred without the benefit of a base or a test, considering that the majority of market participants at the end of April and up until recently thought there “was no vulnerability in the market as far as the eye could see” and that the perception was seemingly universally embraced that the market would not give anything more than another "normal" 10% correction IF one should occur?

Conclusion: We'll be following the harmonics of time and price closely going forward to determine their trend and significance.

While it's possible a big seller on Monday lifted a leg late in the day allowing for a snapback and that the same big seller came back in to hit bids early Tuesday and might be "done," providing a first-hour low that holds 1111, I'd be cautious about intraday long tries unless the S&P can recapture 1132. It's interesting that May 17/18 is 180 degrees or opposite the 1220 S&P price high in April for a possible square out but below 1111 the market remains suspect while below 1142 and 1150 the bigger picture trend remains down.

As it happens May 17 is the anniversary of the beginning of the NYSE from 1792.

That was 218 years ago. It's interesting to me that 218 and 23 (23 years ago was the crash in 1987) are numbers that are due north/south on the Square of 9 Chart. They fall on what's referred to as the Cardinal Cross.

Now, It's Time to Worry...!

The European Union's $1 trillion emergency fund established to "defend" the euro has primarily served to remove any doubt that the currency's viability is in serious jeopardy. And despite an immediate pop in equity markets around the world, the move is much more a dark omen than a shot of much needed confidence.

According to Bloomberg (along with every other news source on the planet) European policy makers convened over the weekend to noodle how best to bolster their battered currency. The meeting took place after a week of rolling crisis roiled global financial markets and served as an eerie reminder of a crisis not nearly far enough in the rearview mirror.

The announcement, for all its jargon and superficial complexities, is pretty simple: The EU is going to solve a problem of too much debt by issuing more debt.

In order to protect member nations that are seeing yields on their sovereign debt soar, the European Central Bank will aggressively purchase both sovereign and private debt. The program aims to prop up markets where investors have been shunning credit issued by the so-called PIIGS (Portugal, Italy, Ireland, Greece, and Spain). European governments are pitching in as well, offering up to 440 billion euros in loans or guarantees alongside the International Monetary Fund, which is contributing up to 250 billion euros.

French Finance Minister Christine Lagarde nicely summed up the weekend's actions: "The euro zone will defend its money."

Not one to sit idly by when a crisis caused by too much debt is being fixed by creating more debt out of thin air, the US Federal Reserve announced plans to reopen a currency swapping program set up during the financial crisis in 2008. The scheme allows the Fed to funnel dollars into other coffers of other central banks to ensure that markets remain liquid.

So let's recap: Certain European nations got a little too wild and crazy during the good times, spending too much, saving too little, and relying on cheap debt to fund bloated domestic programs. Then, when the global economy spun out of control, mounting debt service obligations began to overwhelm shrinking tax receipts. Governments started to run out of money, investors got worried they wouldn't be able to make good on obligations, then all hell broke loose. Sound familiar?

I have seen this staged out before, traded through many European crisis in the 90's. It's nothing new, but a perfect opportunity to SHORT on a technical-recoil!

Cyclical Bull On Its Last Legs?

Even though one might blame it on a "keyboard malfunction," the charts are now reflecting yesterday’s reality. The oversold conditions have become quite pronounced. That might offer nimble traders opportunities, but the combination of global uncertainties after a significant decline might not bode well for intermediate-term longs.

If I were allowed to voice only one concern, it would be the sudden appearance of four 90% downside days so close to new highs! The last time that occurred in a bull market was in July and August 2007. Even though the markets managed to climb back over the course of the next few weeks (key indexes even made their highs in Oct 2007), the market internals were never really able to recover from that onslaught.

That begs the question: Is the cyclical bull on its last legs?

The clues to look for in the intermediate term: The quality of the bounce becomes very important to monitor. If weakened internals fail to get back in sync with the market, that would give us something to worry about.

The takeaway in the short term: After a major negative event, it's usually very hard for markets (and people) to carry on as if nothing has happened. That can lead to more emotional meltdowns along the way (nothing like yesterday, though). I'd stay away from the most popular individual names. The market indexes usually fare better in choppy declines compared to stocks. If one is looking for an upside edge, then individual names help; if looking for protection and safety, indexes usually provide that. Right after small position size.