"Diplomacy, if it's going to be effective,
has to be accompanied by
the threat of violence.

--Paul Bremmer, Wednesday, 20060802, 02:49
Jim Bohanan Show, AM 0740, Tulsa, Oklahoma

UPDATED 20060811

COMMENT #287

CHART #582

1. CHART #582 of daily prices for the cash index shows how such momentum oscillators as RSI and Slow Stochastics have failed to confirm the new highs in price over the last week or two as marked in the CHART by the short red sloping trendlines (see pages 171-84 of "The $upertrader's Reference Manual").

2. We can see how the break above the pink horizontal trendline at the bottom of the CHART at the June low and at the upper portion of the CHART at the July high seem to indicate two false breakouts.

3. The green and red diagonals continue the notations of accumulation and distribution days.

4. Of particular interest is the increase in volume over the last few days on the selloffs and lower volume on yesterday's price increase.

5. At the top of the CHART in the black boxes are marked two important events from a year or so ago as explained in the boxes.

6. What is of especial interest is how, last year, the bombing event marked an important low as the Plunge Protection Team entered the markets and prevented further price declines.

7. These events are shown, for example(s), in the CHARTS that follow.

8. The first shows how the stout decline from the spring high appeared to have unfolded in the 5 wave impulsive sequence shown by the blue numbers, thereby forming the blue Wave 1 low (see pages 283-92 of "The $upertrader's Reference Manual").

9. From this low, which is the low shown in the CHART, the market appeared, a couple of months later, to have grudgingly rallied to the blue Wave 2 high in the blue a-b-c-x-a-b-c complex movement shown.

10. From that high, the market then declined sharply into the London Bombing low of 20050707 in the manner shown in the following CHART of hourly prices:

11. Price rallied from the 707 low to such an extent that a new high occurred as shown here:

12. Another blue a-b-c segment was added thereby resulting in an a-b-c-x-a-b-c-x-a-b-c movement.

13. The anniversary sequence of these events and volume pickup since thus seems timely, especially when considered with the timeline from page 180 of "The 2006 $upertrader's Almanac - 2nd Half Edition".

UPDATED 20060811

COMMENT #288

CHART #s 583-586

1. As presented in "The 2006 $upertrader's Almanac - 2nd Half Edition", this market was believed to be making an important and typical high late last year:

2. We can see that price had moved up into the MIC (Monthly Inversion Cycle Index) projected turn and formed the PHI-related head-and-shoulders chart top along with the expanding triangle top accompanied by the price / momentum oscillator divergence shown.

3. The market was set up to provide a sell-short entry signal a couple of days later as seen here by simply breaking the two lower ascending pitchfork lines shown.

4. A couple of weeks later, however, the market had meandered into new high ground followed by the gap to the upside.

5. An artificial short position out of China began to be bantered about.

6. The grey box was identified as key to continuation of the movement and was further identified as key to the rest of the complex.

7. A few days later, a retest of the up gap occurred.

8. Price held on the 23rd, was repulsed by the gap and lower up pitchfork line, and continued higher.

9. A couple of months later, price was still moving higher carrying the rest of the complex along.

10. The advance in this market spilled over into other markets in the complex and caused massive speculative interest for reasons unrelated to the exposed short position exposed by the up gap.

11. All of this was nothing but another of those derivative experiences where the uninitiated are initiated.

12. In 1980, the situation was reversed as Bunker Hunt was initiated.

13. The end of the spectacular price advance occurred here on the weekly CHART:

14. And here on the daily CHART:

15. From that high, price declined to the blue and green boxes shown in the following CHART:

16. Thereafter, a rally ensued as shown.

17. This brings us up to date.

18. CHART #583 shows daily prices for the futures contracts shown.

19. We can see, in the upper left corner, that price has rallied back up to the down trendline shown.

20. Normally, trendlines, though interesting, are not determinative.

21. However, they become of the utmost of importance when they are coupled with other information of importance.

22. Normally, one indicator of such importance is not sufficient to cause determination/action.

23. We usually want to see a whole bunch of such indicators suggesting a particular course of action, and the more the better.

24. Even when many such indicators are present, however, we cannot be assured of a hugely successful outcome if the indicated course of action is followed.

25. When we look at the contract in the lower left corner, we see that this market has advanced beyond the red horizontal trendline.

26. Looking at the charts in the right column, we see that these contracts have not broken the equivalent high.

27. Hence, we can see that the market in the lower left corner of CHART #583 is diverging with the others in the complex in that the others have failed to confirm the new high over the last few weeks that the chart in the lower left corner has experienced (see pages 171-84 of "The $upertrader's Reference Manual").

28. As a consequence, the yellow up trendlines shown in the top row should become of great importance.

29. Not only to the markets shown, but also to the rest of the complex.

30. Now let's go to CHART #584 of daily prices for an analog year.

31. This is a really interesting example.

32. As can be seen, although a sharp price decline did occur to the March low, the decline appears to have unfolded in a 3 legged sequence from the high identified in the upper left corner by the red stuff.

33. From the March low, a very typical corrective, counter-trend advance occurred over the next 4 months to the July high.

34. This July high would have been a typical and normal point for the correction to end.

35. However, the market experienced the blue-box correction and, thereafter, a new advance to the September high shown.

36. When we inspect the decline from the July high (the blue Wave A high shown in the CHART), we can see that the decline to the blue Wave a of B low of 8 trading days (not labeled in the CHART) not only did appear, but did unfold, in a 5 wave impulsive sequence, thereby signaling a new downtrend from the 708 high.

37. This example should be extremely instructive as to how the movement unfolded thereafter and "morphed" into the blue A-B-C movement shown.

38. What we want to do, of course, is to apply what happened at this most important historical event in this market to the current situation.

39. The blue box in the above CHART shows that the market unfolded, in calendar days, in a 66 day decline followed by a 180 day advance, 246 total.

40. This placed the up / down days in relation of 2.638 : 1.000 (SQ PHI = 2.618).

41. Now let's take a look at today's CHART #586 of daily prices for the December contract.

42. The question is whether the blue shaded box has created a mid-term corrective movement in the #586 CHART as it did several years ago.

43. The blue corrective period is identified in both CHARTS.

44. We can see that the green boxes at the bottom of the #586 CHART and red boxes in the upper right corner seem to suggest a high correlation of actual price with projected price, to date.

45. The decline to the green box lasted 33 calendar days (FIBONACCI #=34).

46. The reason this measurement is of interest is because the decline in the #584 CHART from the high lasted 66 calendar days.

47. Hence, 66 / 33 = 2.000.

48. We know from the #584 CHART that the ensuing corrective sequence, which encompassed the blue box shown, lasted 180 calendar days (see the blue box at the bottom in the #584 CHART).

49. We thus know that the down / up legs were in a ratio of 2.586 (see the green arrows and numbers in the bottom right corner).

50. When we inspect today's #586 CHART, we see a corrective advance of 57 calendar days (FIBONACCI #=55).

51. When compared to the 33 calendar day decline, we can see that the down / up movements are in approximate PHI proportions since the up and down legs, and total of the two, are approximate FIBONACCI #s (34, 55 & 89).

52. The difference in the analog year and the current situation is thus that the first is in approximate SQ PHI proportions whereas the current is in approximate PHI proportions.

53. When we further inspect the #586 CHART, we see that the green boxes tell us that the two uplegs are approximately equal in terms of price.

54. In the analog year, we can see that the two were in an approximate PHI relationship.

55. Now let's take a look at CHART #585 of daily prices for the December contract.

56. Here we again see that the decline to the June low and rally thereafter place this contract in approximate PHI proportions as the market declined 34 calendar days and then rallied 56, 90 total (FIBONACCI #s=34, 55 & 89).

57. In the lower right corner, we can see that a large increase in volume was required for the market to break the pink horizontal trendline shown in the CHART.

58. The two short red sloping trendlines show that the new breakout high was not confirmed by such momentum oscillators as RSI and Slow Stochastics (see pages 171-84 of "The $upertrader's Reference Manual").

59. The assumption is that the advance from the June low has completed the A-B-C corrective (counter-trend) advance from the June low shown in the CHART.

60. However, in this CHART of December prices, the May-June decline is not a clear 5 wave impulsive movement, but seems to be more of a 3-legged affair.

61. Going back to the analog year, we see that the initial decline also seemed to be a 3-legged affair.

62. The conclusion is that the markets in this complex appear to be forming, or to have formed, in accordance with recent discussion, important highs.

63. However, just as in the analog year, the initial down thrust did not unfold in a clear impulsive descending sequence.

64. We will thus have to monitor the nature of how the decline unfolds much more than might otherwise be the case.

65. A break of this week's high negates.