Futures Market - Energy Highlight #5

Market entry trading technique presented in "The $upertrader's Reference Manual" is used to reverse long and enter short positions.

(COMMENT #s 720, 742)

UPDATED 19981001

COMMENT 1998-720

1. As repeated throughout these COMMENTS this year, the process we've been using is incredibly simple:

A. Turn the pages of the books,

B. Identify ALIGNMENTS, and

C. Make the market FORCE us into a position through use of PATTERN RECOGNITION.

2. One of the PATTERNS we've repeatedly used is shown on pages 205-9 of "The $upertrader's Reference Manual".

3. There are, of course, many others.

4. As examples:

A. The trading technique presented on pages 94-101 of "The $upertrader's Reference Manual",

B. The techniques presented on pages 236-7 of "The $upertrader's Reference Manual",

C. The "Thrust" techniques presented on pages 115-6 of "The $upertrader's Reference Manual", and

D. The techniques presented in "The 10-N-1 S&P Daytrading System" discussed in COMMENT #s 384 on 980509 and 587 on 980818.

5. The ALMANAC I through VI trading systems presented in the last 6 "Almanacs" would also qualify, of course, were only the pure PATTERN RECOGNITION entry component to be applied.

6. And we've still only scratched the surface.

7. Such a PATTERN RECOGNITION technique as that presented on pages 205-9 can be incredibly productive.

8. It's used in four primary situations, as seen in the following examples;

A. To provide low risk entry into a market as we've highlighted in these COMMENTS recently in such markets as stock indexes DJI, DJT, SPZ, VLZ, NYZ, RTZ, and DJZ early this week and just prior to the current break,

B. To provide liquidation and reversal of a current market position as has been experienced in the wheat complex as highlighted in COMMENT # 713 of 980929, the CRB Index, soybeans or the energy complex as seen in COMMENT # 712 of 980929 just prior to the current break this week in these markets,

C. To provide protection from entry in a market which is believed to be primed for a turn but which expectation simply does not work out as was seen in the bond market earlier this week in COMMENT # 704 of 980927, or

D. To maintain a position in a market which is believed to be primed for a turn which simply does not occur as was seen the last couple of days in such markets as the SFZ and DMZ this week as discussed in COMMENT # 710 of 980929.

9. One should further note the switch from the PATTERN on pages 205-9 in "The $upertrader's Reference Manual" to the PATTERNS on pages 236-7 in the bonds on 980930 in COMMENT # 718.

10. This latter entry technique, although SET UP, also did not provide short sale entry, just like the PATTERN on pages 205-9 in "The $upertrader's Reference Manual" did not.

11. Hence, although the upside move was missed in the bonds, the short position was prevented by use of these techniques.

12. This in spite of the SET UP in COMMENT # 704 of 980927 being, in my opinion, CLASSICAL and one of the top ten of all time.

UPDATED 19981012

COMMENT 1998-742

1. Let's look and see how truly easy this process of turning the pages of the books and applying the information contained therein to current markets can be.

2. As you know, we've repeatedly discussed the importance the principles of CONFIRMATION and DIVERGENCE play in the markets (see pages 171-84 of "The $upertrader's Reference Manual).

3. One of the most important DIVERGENCES the trader should always be aware of is that which occurs between the SPOT FUTURES and the deferred, or individual, contracts.

4. Such an example was last seen in COMMENT # 623 of 980831 in the crude oil.

5. 21 days after that COMMENT was posted, crude oil was over $ 3.00 per barrel ($ 3,000 per contract) off its lows and we were talking about using the "Inversion Indexes" and "Linear Cycle Indexes" as reasons to reverse the long positions and sell short
this complex in COMMENT # 720 of 981001.

6. This COMMENT was released just prior to the over $ 2.00 current decline which should pay for more than a few "Almanacs" for the next several years or so.

7. To see how easy it is to apply these exact same principles to a situation which appears timely NOW, let's turn to page 184.

8. Note the "ALMANAC VI" trading system (if you're not using the "ALMANAC VI" trading system, it's presented on pages 369-71 of "The 1998 $upertrader's Almanac - 2nd Half Edition" and is easy-as-pie to use once you grasp the basic concept).

9. Look at trade # 23 on pages 371 and 184.

10. Now let's turn to page 182 where this week's "GOLDEN NUGGET" seasonal tendencies are listed.

11. These are seasonal tendencies which have been correct for each of the last 10 years AND which meet our minimum criteria of PROFITABILITY, RELIABILITY and CONSISTENCY.

12. We could also turn to page 168 and note seasonal tendency # 131 and see similiar information for the shorter 5 year seasonal tendency for this market.

13. Or we could turn to page 326 where we see the "hollow arrow" ABOVE the chart which shows the long term seasonal average in the middle of the page and further see that the "black solid arrow" ALIGNS WITH the long term seasonal AND the "hollow arrow".

14. As can be seen in the margin on the left, the "hollow arrow" shows the powerful 10 year, perfect seasonal tendency in this market while the 5 "solid black arrow" shows the 5 year, perfect seasonal tendency. Can you see the ALIGNMENT?

15. Now turn to page 395 in "The 1998-99 $upertrader's Book of Linear Time Cycles".

16. Note the chart at the bottom of the page which contains the monthly "Inversion Cycle Index" and "Linear Cycle Index".

17. Can you see the dotted line?

18. Do you understand that this line is the "Inversion Cycle Index" (see the "key" at the very bottom of the page)?

19. This "dotted line" (the "Inversion Cycle Index") only projects major market TURNS.

20. Further, the turns are only projected when the dotted line (the "Inversion Cycle Index") PEAKS.

21. Can you see that the monthly "Inversion Cycle Index" is PEAKING this month (October)?

22. Has this market just made not only a new low for the year, but also a new low for the last DECADE??!!!

23. Now look at the inside front cover.

24. Can you see that this is the 42nd week of the year?

25. Now turn to page 397 of "The Cycles" book.

26. Note the "Cyclic Trends" box in the middle of the page.

27. This box reports when the weekly and monthly cyclical influences are in ALIGNMENT.

28. Can you see that we are in ALIGNMENT to the upside NOW?

29. Other than repeatedly in these COMMENTS this year, have you ever bought a market just a few days after a decade low?

30. Can you understand how most of the public sell stops have been taken out and positions reversed?

31. Now let's go back to what triggered this COMMENT.

32. Get a daily chart of spot prices.

33. Now look at the March contract.

34. Can you see how the new recent lows in the March contract were not CONFIRMED by the spot contract?

35. I know I threw in a few additional details to help you put together relevant information for this market at this point in TIME.

36. The point of this whole COMMENT, however, is that this DIVERGENCE was sufficient, in and of itself, to justify further analysis in this market IF you had not already observed some of the other information listed in the pages of the books.

37. Astute traders will also note that momentum oscillators such as RSI and Slow Stochastics have failed to CONFIRM the recent spot contract new lows (again, see pages 171-184 of "The $upertrader's Reference Manual").

38. Traders should be particularly sensitive to market reversals to the upside in this market and should employ approaches that provide long entry with tight stops against recent lows in the March contract.

39. The reader should observe that trading is simply the process of identifying a number of situations such as this one which have a chance of working out quite well if the analysis is correct but which involve very little risk to capital if wrong.

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