Article by Chris Johnston
The Peso is a market I have been talking about each week in the COT videos saying it was setup for a decline, you can see one has begun. This chart shows that this decline started right on time as per the seasonal and there were some other reasons I pointed out this was a setup.
Newsletter readers will recognize the pattern once again in the indicators here I have written about, this is a text book example. The trick with COT and higher time frame analysis is putting it all together. I could write a book and I might some day on how I use all of this together. It becomes a matter of taking in everything and evaluating it. In this instance the COT data alone was not really a sell setup and I explained in the videos why in spite of that this market was still a sell. In any event here it is a market I have been talking about looking for a decline that has taken place.
We have continued down in the Bernanke’s and are potentially starting a bounce now. From a higher time frame stand point we are not anywhere near breaking the up trend but from a short term stand point the trend is down. I have been talking about my view that I was expecting a decline but not a huge blow up type of one, so far we are getting just that. I expect it to continue. In regard to what the PPT might do about it the answer is alwasy clear in that regard. What is not always completely clear is whether they can pull it off. Volume will determine that. Even the FED does not have the money to reverse a huge decline on big volume. I will show an instance of this in the next chart which is one I have shown before which illustrates them trying to stop a high volume decline and failing.
This is the stock crash from 2008 which has a very unusual COT pattern in it, Large Specs buying heavily into a huge decline. Large funds are scale in scale out traders so thier position size typically mirrors the trend in price. “Someone” with incredibly deep pockets carried a massive paper loss for quite a while trying to stop this sell off. They were eventually successful after months of buying in turning this trend around, but had billions of dollars of losses in the process to deal with. We never heard a single story about any large funds buying this decline and blowing up or after the fact doing so and making a killing I wonder why?
It is my contention that the reason for this is that this was the FED buying this contract either directly or more likley through it’s bed fellows which are well known at this point. What it does show is the difficulty for whomever that was of trying to stop a big decline that happens on heavy volume. You have to outspend a whole group by yourself to pull it off. There is only one set of books that is untouchable as far as reveiws go, the FED. When asked by a court they have ignored the courts requests and just refused to comply just like the rest of the F You administration. It is their policy to hide every single thing they are doing. As a result we will never have the proof we need to pin this strategy on them but at some point things become pretty clear and proof is not needed. This is one of those instances.
I shows this just to point out that they can’t reverse every decline on a dime if it gets going with volume. Generally volume is worthless for trading strategies but it is of value in larger scale analysis like this. Net net I think we are going to drift down more in the stock market. The Bond market decline is continuing which means higher rates. If rates move up significantly the world will change in a way most are not going to like. The free market does have a way of prevailing in the long run in spite of manuipulation efforts.
It has been a strange month. We have narrowly missed a few entries in the Swings that had they triggerred would all have been great trades, the Yen yesterday on the short side is another example of one. I do not ever remember a time in my career that this has happened like this. There is nothing really to say other than point it out. The good news is that my analysis of the markets has been spot on and have been stalking the right opportunities overall, we just have not gotten the trades. I won’t change what I do because this has happened because most of the trades had they been filled would have been good so it does not indicate wrong doing. It is just the rub of the green. We do have a trade going now that looks OK and is in line with the COT setup I pointed out in the video as the best setup in a market right now, so we will so where that one leads us.
I made a mistake in reporting that trade initially which I apologize for. I had taken a glance at a 30 minute chart of it just after the close and knowing we had to hit a price then retrace a little to get filled, I thought it had not retraced enough before moving in our direction and did not have my trading platforms open so did not know I was filled. I guess this is a proof of what I say about how I don’t watch the markets most of the time during the day live, I don’t find it adds anything, if anything it makes me trade worse so I don’t do it.
On a humorous side note I had the following experience I thought was funny. I was surfing for Bond Trading jobs a couple of months ago just out of curiousity and stumbled upon one at PIMCO on the short term trading desk. I read about it and thought it sure sounded like it fit me awfully well. I have stated that due to PFG I need supplemental income to get through the recovery so I decided just for kicks to submit my resume. I don’t see that place as a fit for me but thought it might be interesting to go in and talk with them. After all my Bond System is doing awfully well and they are the Bond kings. I heard nothing for a couple of months and just yesterday got a canned response that I was not qualified but thanks for the interest etc.. I laughed for a good bit. If my results trading Bonds over the last year are not good enough for them what would be? I am fairly sure that there is not a Bond system anywhere in the world that has made what mine has in the last year, there is probably not one even close. I suspect what happened is that they checked me out and saw the return and felt it was way too high and I must be too aggressive to have gotten a return like that. In their world a 6 or 7% return annually is dynamite.
I ran into something like this once before back in 2007. I was a CTA at the time having just passed the test and was going to start raising money to trade when I came across someone who was fairly wealthy and wanted to setup a fund that I would run and he would raise money for. When he went to all of his friends with my track record he could not raise any money and came back to me with the following: You make too much money you need to make less! He told me nobody believed a return of that amount could be made withouth excessive risk or draw down even though the account statements showed the largest draw down was 15%. I told him I was the trader and he was the equity guy so I was not going to change anything. Can you imagine I had to change to making less money to raise money! The whole thing fell apart on it’s own weight after that unfortunately and that is what led to my exit from the public back then I have alluded to. Here I am again 6 years later with a de facto response that I think if I had to guess is the same thing, they think I make too much money trading bonds and must be taking risks that are too large! This should be funny to subs with Bonds since we have only done 2 trades this month heading into today, some big risk that is!
Summary, I think we drift a bit in the indexes but don’t fall sharply and it has been a weird trading month.
I have been a futures trader since the mid 1980’s and have accumulated a very good track record over that period of time. I have entered the Robbins Trading Company World Cup of Trading Championship on two occasions, and placed in the top 3 both times. I have also had a trading service in 2007 and 2008 that had stellar returns for customers. The purpose of this blog is for me to share how I go about trading the futures markets. I also share my general thoughts and views on topics that are relevant to trading. The comments in here should not in any way be construed as advice or recommendations to do anything at all. Readers of this blog are responsible for their own actions.