Emini FuturesCast / The Daily Pod 07/08/11

(QQQQ)(DIA)(SPY)(GLD)(SLV)

by DeWayne Reeves

The jobs numbers today were quite shocking. Interestingly enough the market actually behaved the way one would expect on bad news. That in and of itself is unusual since we began this whole stimulus business. What changed? It's more I think about what's about to change -

NEW YORK (Reuters) – The Federal Reserve’s $600 billion Treasury buying spree is over and the bond market is growing nervous now that its biggest bidder has stepped aside.

Does anyone even understand what a billion really is? Try this, 1 billion seconds from now it will be 9:43PM PDT in the year 2043. (roughly) 1 mississippi, 2 mississippi, 3 mississippi, ...

So is there a massive dose of reality about to set in? Unless the QE3 sets sail the answer is YES. On the chart below you will see a 30 minute candle that may well be the poster child of days to come. I'm not going to gloom and doom you, in fact I want you to relax. There is nothing any of us can do to alter the course that our current administration has charted. It is what it is and we have to make the best of it until the next election. In the meantime, focus on what you can do. What you can do is chart your own course each and every day. As traders, we have the unique opportunity not readily available to farmers, shopkeepers, factory workers, and Joe the Plumber. Our ability to earn an income is the same, fair weather or foul. Not every one gets rich in bull markets. Many people bought Yahoo at $4.00. Other people bought it at $400. Not every one gets rich in a bull market. Not every one loses money in a bear market. Some people bought Yahoo at $400 while some people were selling Yahoo at $400. Not every one loses money in a bear market. I can't speak to your 401k, or the price of your home, or the cost of your children's tuition. I can and do speak daily about the chart in front of me. That I can do. That I can learn. That I can trade and so can you.

Last night during the Partner's Workshop we spent 45 minutes discussing our Weekly Trading Zones. Partners have access to the Zones before the market opens every Monday. Last night's blog post is what prompted the question and ensuing discussion in the workshop. You've heard it said on the daily broadcast many times over the years, but let me put it in black and white tonight. Having specific knowledge regarding market behavior does not guarantee success. Knowing something is only one part of the equation. Knowing what to do with it is another thing entirely. When you look at the chart posted last night it all looks quite simple. On the chart below, it again looks quite simple. It's very tempting to say "There's no way to mess that up". I assure you friend, there are many ways.

This chart is a continuation of the chart from last night. If you have not yet reviewed the previous post please do so as it will help to put the information in proper context.

We knew last night to expect resistance at 1352/1353. We've known it all week. It's a bit like this - picture yourself sitting on your favorite stretch of beach. Depending on the time of day, week, month, etc... there is what we call a tide line. That line where the water runs right up to it, then back away. Runs right up to it again, and backs away. Eventually though, depending on the time of day, week, whatever... that tide line will either advance to a higher level and you have to move or get wet. Or it retreats to such a point that your toes are no longer wet and you have to scooch down a bit to keep 'em moist. 

scooch definition

☆ scooch (sko̵̅o̅c̸h)

intransitive verb

1. to hunch or draw oneself up and move (through, down, etc.); scrunch: she scooched through the window and unlocked the door; he scooched down in his chair

See. It really is a word. Come on it's Friday night. Let you hair down a bit.  Now back to the beach. Picture the tide lapping at your toes after you scooch up or down the required distance. Can you smell the salt in air? Then you're ready...

click to enlargeThe tide rolled in around high noon Chicago time Thursday. Those are 30 minute candles on the beach. There is no Weekly Trading Zone Law of the Universe that says price can't or won't close above the tide line. However, if you enjoy the finer things in life like the sound of tinkling glass and a pretty woman's laugh, you have to be moved by the symmetry of this move. It's either a beautiful thing to you... or it's meaningless. That waved lapped the shore all night long and then out came the report.

The 18,000 jobs that U.S. employers added to their payrolls in June was less than a fifth of what economist had expected -- and far below the 125,000 or so jobs needed to keep up with an ever-growing population. The unemployment rate, as a result, rose to 9.2 percent from 9.1 percent.

"This does throw a lot of cold water on the idea that we'll get a quick rebound," said Michael Hanson, a senior economist at Bank of America-Merrill Lynch.

The jobs survey was exceptionally bleak in its details. Job growth in April and May was revised downward by a combined 44,000 positions. Temporary employers, often a leading indicator of future activity in the labor market, cut 12,000 jobs. Roughly 272,000 Americans dropped out of the labor force, perhaps out of frustration. The unemployment rate would have risen even higher had they continued their job hunts.

I don't want to distract from my point but I felt it important to put the news in front of you in case you hadn't read it. Remember this is no doom and gloom sermon, this about how we play the hand the market deals us. Hand after hand, day after day, no flinch, no tell... Hit Me. (or whatever they say)

So out come the numbers and the tide beats feet in a hurry. Always check the tide table before skinny dipping and always trade with a stop. The embarrassment of the former is nothing compared to the potential financial ruin of the latter. Always, always, use a Hard Stop. That's correct, even when you're right. Especially when you're right. You're never more vulnerable than when you're certain you're right and there's no possibility of being wrong.

So where does the tide go? 1343/1344 of course. What happens there? The waves crash right through it. There is no hesitation and no consolidation. Even if you drop down to a 1 minute chart the move is fluid. This type of move is unusual and in most cases will be the result of a news driven event. Now let your eyes drift farther down the chart. In 2 minutes price drops 17 points but it's not done yet. Look lower to the next Weekly Trading Zone 1328/1329. After a small rally attempt, price completes the move to the downside. Low of the day - 1329.25 - just 1 tick above the Weekly Trading Zone. Total decline Zone to Zone 23.75 points. I've said much tonight in a a very wordy nauticul theme (in honor of Michael being at the beach house while I'm stuck here in the desert) not to show you how you might have taken 23 points in one fell swoop. I'm here to point out simply the high tide and the low tide. (oh boy I can't seem to stop now) Dig my drift? High Tide 1352/1353 - Low Tide 1328/1329.

Trading the news is not my thing. Couple that with how fast the decline unfolded and unless you were positioned ahead of the release, I'm not sure how you would have taken advantage of it and still managed your risk. If you were short the 52/53 level based on the discussion last night in the Partner's Workshop with minimal risk of 2-4 points then Excellent on You! If your trading plan dictates that you don't trade ahead of or during a news release, then the 28/29 Zone is where you should tie up. Price falls right in your boat and then makes an almost effortless cruise up to where? That's right... the logical place - the Zone overhead. The one we blew right through on the way down - 1343/1344. Did it actually go there and close the week? No. After a 13.25 point rally off the 1328/1329 Weekly Trading Zone low, the market halted 2 ticks (not 2 points) below the Zone at 1342.50.

At this point you may be worried about my rotator cuff. It must sound as though I'm slapping my own back quite heartily. I'm not. No matter how much I feed my ego it's an insatiable beast. There's never enough to quell the hunger so I gave up the quest and starved him to death. Let me rephrase that, he must die daily. All the atta-boy's in the world will not put a hot meal in my belly or yours. I can't build an orphanage with your admiration and hero worship is just plain silly. What matters in this business is the ability to trade. The proper tools, the ability to use them correctly, plus the discipline, humility and gratitude required to successfully handle the ensuing results is all that really matters.

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FAQ

Q: Can I just trade the Weekly Trading Zones?
 A:  Yes (see chart above)

Q: Can I just trade the Sentiment Indicator?
 A: Yes (see today's chart below - 6 point potential)

Q: Can I just trade the CF_MA1?
 A: Yes (see today's chart below - 15 point potential)

Q: Can I trade the Euro with your method?
 A: You tell me. Here's the last 10 trading days.

click to enlargeQ: Do you optimize your indicators to curve fit the data?
 A: Never!

Q: If what you offer is so great why teach it when you can just trade it?
 A: I learn by teaching. Your success is my driving force.

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Podcast for Fridsy 07/08/11