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This Week’s Commentary – From a 30 Year Veteran

Site Administrator | December 19, 2011

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We received excellent feedback on our special guest post from last week and Tony was kind enough to agree to post his commentary for this week as well as a few of the key charts he is watching.  Enjoy the below courtesy of Tony LaPorta and the TradingPub!

12-19-11
Ladies and Gents:

The currencies roll to March. Crude Oil rolls to February. The Power Points reflect the change. What I know about the next two weeks of trading…these are historically low volume weeks. And when I say low volume, I mean half the volume of a normal trading day. Taking into consideration how the MF Global debacle hurt volumes already, the next two weeks could be diabolical. Due to issues abroad, we could see some nasty moves. This is no time to be shooting from the hip.

This concludes my tenth year of writing daily market commentaries. For pit-traders like me, the 90’s were anxious years. We always worried about what would happen when open out-cry ceased to exist. I am entering my 33rd year in the business. I still have a passion for the markets. Trading is still the best buzz money can buy. Writing on a daily basis and getting it right is a very close 2nd. As my good mate MRF said, “A trader cannot be made into a trader. A trader is born that way. A trader will pace the floor all night…and love it…and would not change a thing.”

After the planes hit the Twin Towers on 9/11/01 the market reaction was identical to the Crash of 1987. I traded bonds during the Crash of 87. On the Tuesday after Black Monday, I blew out and had my biggest day ever all in a matter of about two hours. FYI…the Tuesday after Black Monday was when the term “Flight to Quality” was coined. At one point the bonds traded 11 full points (352 ticks) higher on LIFFE. The CBOT was locked limit up at 3 full points higher. The CBOT lost a lot of business that day to LIFFE.

For weeks/months after 9/11/01 traders at the CME picked my brain/asked my advice on a daily basis. In early 2002, I decided to sell my advice. Over the years I learned a lot about myself and my client base. My readers don’t want any bull…no excuses. They want to know higher/lower and WHY. I put it out there daily and I back up my views with well documented charts. When I get it wrong, I announce it and we move on.

Ten years later my commentary and chart work are better than ever. I have one client, an order-filler from the CME who has been with me since inception. There are two Italian cousins reading this morning. They have been with me since the early days in 2002. They still own physical Gold @ $450 an ounce, thank you TLP. Did you hear that? Did someone say BUY GOLD? LOL This is an inside joke for my long-term readers…to be explained later.

The definition of gratitude is; the quality of being thankful; readiness to show appreciation for and to return kindness. To all my readers, thank you very much for supporting me over the past ten years. You have kept me in the game I so love. The game so many colleagues were forced to walk away from. I am forever grateful to have you all and I wish you the happiest of holidays. God Bless.

As we all know, last weekend I put out a weekly TLP “Gut Trade” to buy the treasuries. It was the 10-yr chart which gave me the impetus to take a shot. As good as the trade was, if you only bought the 10-yr and not the 30-yr, your reward was minimized. The 10-yr chart still appears to be in a steep ascent. What concerns me; it lagged behind the 30-yr this week. This is giving me a divergence of sorts.

My Friday market call to sell rallies was wrong. May I reiterate? I cannot be held liable for anyone losing their ass on a Friday. And I am also thinking, the rally we saw on Friday was what I was looking for on Thursday, that being a capitulate style rally. I am not backing away from my call for corrective style trade over the next two week…sell rallies…sell rallies…sell rallies.

Average volume with a rise in open interest tells me some longs came into the market. With two weeks to go before years end, I am not going to try to decipher the data. I remain in sell rallies camp in the treasuries…buy breaks in the short-end.

I added a category…DECEMBER… to this table of data below. The month of December is historically a good month for the DJX finishing higher 80% of the time. As you can see, this month the DJX is 179 points lower. The last time the DJX had a losing month in December was 2007. We all know what happened in 2008-2009.

I also at this time want you to have a good think about TLP and what he knows about markets. THEY SAY VOLATILITY IS ALWAYS FOUND AT THE HIGHS AND LOWS OF MOVES. Now close your eyes; sit back in your chair and have a good think about this. How many times did the Dow Jones Industrial Average have 100-point, 200-point, 300-point or 400-point moves up or down this year? If I had the time I could give you an answer. You and I both know the answer is; more times than we have ever seen in any given year.

I did go back and count the all the gaps on the YMH and ESH charts. Since January 1, YMH and ESH have 40 and 42 gaps respectively. Under normal market conditions, we may see 3-4 gaps a year…NOT 40. Look at the year-to-date numbers. DJX is +2.49% and SPX is -3.01%. What are those numbers telling us? WE ARE SEEING EXTREME VOLATILITY AT THE HIGH OF A 33-MONTH BULLISH MOVE. It is my job to have a view. I am not backing off of my call for a disastrous 2012.

One day at a time…one trade at a time. In the indices, I feel we are starting to build a small bottom. This process may take a couple more days. Over the next two weeks I want to be a buyer looking to initiate long positions only. Use the levels above to take profits. After profits have been taken, be patient and look to buy a break only. I do not want to be short again until next year…and then we sell it with both hands. Timing is everything. Stay close. I’m on it.
As for the treasuries, I want to do the exact opposite. Sell rallies…sell rallies…sell rallies. GEZ2…buy breaks…buy breaks…buy breaks.

As much as I would like to feature the TYH chart again this weekend, it is hard to believe the Japanese Tsunami versus European Tsunami chart did not make anyone a bundle of money. I feel this chart will keep us in the game too next week making us even more money.

1. ESH Daily Tsunami Chart and ESH Daily Chart…you know the story here. The Tsunami chart set us up for a great week right down to covering shorts on Thursday and going long on Friday. Moving forward, I want to buy breaks all week. Use your ESH Power Points in conjunction with the Fibonacci levels I will be providing. I fancy a little Santa Claus rally to finish out the year. In ESH, look for good support on Sunday Night at 1203.00-1208.00. If you get a chance to buy them down there. Keep it small, but do take a shot.

2. NQH Daily Chart…this market outperformed on Friday and was the only indices to finish higher. After leading this sector lower, I think Friday’s strength was an indicator of things to come. A close above 2264-2266 will have me eyeing a 23 handle.

3. SPX Weekly Chart…the technicians sold the return to the neckline at 1271.00. This is a long-term trade. It is time to sit short with your stop in above the resistance line at 1318.00 and walk away. For those who fancy a long-term trade, the neckline this time comes in at 1276.00.

5. ZBH Daily Chart…this market rallied four full points in a week. The capitulate style rally I was looking for on Thursday came on Friday. Due to the fact volumes were average and shorts were forced to cover ahead of the weekend I feel this market has now gotten overdone to the upside. I continue to favor a two-week corrective style sell off in conjunction with a two-week bounce on Wall Street.

6. British Pound Monthly Chart…this chart is a must look. There is a Symmetrical Triangle on this chart. I don’t think it is time to break out yet, but maybe in another couple of months. When it goes the objective is 3200 points. And remember; if it goes higher…i.e…against the odds, it will go quick. The chart is self-explanatory.

7. Gold Monthly Chart…the Gold market lost $120 this week to finish at $1597.90. I have been talking about volatility. How volatility is always found at the highs and lows of the move. We saw extreme volatility in August and September. We received a sell signal in September. This market came off big time this week. If the market breaks look for initial support at $1510.00. There is a buy it with both hands kind of support level at $1116.00. You never know. I like the $1116.00 level a lot more than I like the $1510.00 level.

8. Gold Daily Chart…last week’s sell signal at $1713.40 was SPOT ON. I have some new clients who were long of Gold and exited their position thanks to the sell signal. One trade…i.e…money saved paid for a whole year’s subscription.
I started in the industry at the CME in January 1979. By June 1979, I was an arbitrage pit-clerk in the Gold Pit. As a clerk I witnessed $280 Gold (June 1979) up to $850 (January 1980) and back down to $500 (January 1982). I learned more in three years about markets than a person could learn in ten years. The point of my story; for the past 32 years I knew every day where the price of Gold and Silver settled. Sometimes history repeats itself and when it does, there is money to be made…i.e…Japanese Tsunami versus European Tsunami.

In February 2002, the Gold market broke out of a Descending Right Triangle (refer to monthly chart provided…the breakout occurred against the odds). When the correction came that summer, I put out the buy recommendation at $309.00. I know there are a handful of people reading this who will vouch for this trade recommendation. I even know a few of my Chicago Italian gumbas who finally succumbed to me writing EVERY DAY…Did you hear that? Did someone say BUY GOLD? Did you hear that? Did someone say BUY GOLD? They actually bought physical gold at $450, $550 and $750. These gents believed in TLP and still have ALL their Gold.

Fast forward nine years, everyone is talking about buying gold. Guess what sports fans? They missed it by about 7-8 years. What we saw in August and September…extreme volatility at the highs told me one thing and one thing only. VOLATILITY IS ALWAYS FOUND AT THE HIGHS AND LOWS OF MOVES. I have been touting the bearish side of the trading card for two months. We got the significant move lower this week. It has been three years since the trend line at $1116.00 has been tested. I think that is where we are going.

BEARISH FOOD FOR THOUGHT…you have to figure below $1250.00 is where Paulson will start getting out. Then we can get back in. LOL…Paulson…the bigger they are the harder they fall. You are only as good as your last trade buddy. He may never recover from this year and next. Never lose sight of the fact; making money is the easy part…KEEPING IT IS THE GAME…KEEPING IT IS THE GAME…KEEPING IT IS THE BLOODY GAME.

By the way…my Trading System monthly sell signal in September was a damn good indicator, not to mention the sell signal on the daily chart we received two weeks ago at $1713.40.

Cheers - TLP

This Thursday, the TradingPub is going to learn from Carolyn Boroden!

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Risk Disclaimer: Past performance is not indicative of future results. Futures trading involves substantial financial risk. Views of guest commentators do not represent those of TradingPub.com.  Article intended for educational purposes only and not meant in anyway as a solicitation to buy or sell certain securities.  Please consult your personal financial advisor before using this information for your own trading purposes.