01-18-11 - day trading and · pdf filein the words of w.d. gann: "the bigger ... while...

Patterns – Profits & Peace of Mind - - 01/18/11

Published by TFNN, Corp. ~ 601 Cleveland Street, Ste 618 Clearwater, FL 33755 ~ 1-877-518-9190 ~ http://www.tfnn.com ~ Copyright © 2010 ~ All Rights Reserved

This is our introductory issue of the new newsletter "Patterns - Profits & Peace of Mind". It is

based on patterns, cycles, and the numbers from the Fibonacci summation series. No

fundamental information of any kind will ever be used in making a decision to place a trade. Our

belief is that price is the ultimate indicator of the value of anything at any particular time. The

peace of mind will come by using stops and not over trading. Each week we will try to list several

trading opportunities with exact buy and sell points using both futures and options. In addition,

there may be several daily updates each week depending on market conditions and trading

opportunities. This letter will focus on the most active speculative vehicles in the market such as

stock index futures, gold, crude oil, cross rates currency pairs, treasury bonds and ETF's.

Stock market

The stock market continued its rally from the low of March 6 making it the strongest rallies since

1938. This was not unexpected as the low on March 6 was a very significant low that released the

bearishness that has held the market hostage since mid-August. Now we have completely

reversed the bearish sentiment and the financial press is talking about the new bull market. It is

very difficult to be bullish after a six-week run! In fact it is looking as though we have reached an

intermediate term top. There are several trading opportunities at this particular time. First, in the

S&P 500 there is strong resistance in the 870 area and the market should not exceed 882 if we

are correct. Close examination of the daily and hourly S&P charts will show that there is

considerable evidence to be short at this time. The time up in the last two rallies as shown by the

yellow triangles is highly suggestive of a top occurring April 17 or April 20. Patterns on the hourly

chart (i.e. three drives to a top) are also present. These patterns tend to fail but they also have a

high probability of working (better than 70%). Stop protection of $500-$1000 is always

suggested. Stops are placed for your protection so you must use them to protect capital. Second,

FAZ is a triple weighted ETF for the financial index. We would suggest either buying the ETF

outright with a two dollar stop or buying a May $15 call. This call strategy has a great risk reward

ratio as the call is trading under one dollar, which would be your total amount of risk and you

have 20 days to see if it'll work. This is tremendous leverage because a slight move in a low-

priced stock can easily bring multiple returns because the stock once sold for $200 a share.

*You'll see a chart of the Bradley stock market model included in the newsletter. The Bradley

stock market model is based on the Astro harmonic movement of planets and is a numbers based

cycle program. The Bradley model will track the stock market better than 70% of the time and it

can do that years in advance. It is most useful for the timing dates, and also the secondary use

to determine trends for up to several months. Bradley should not be used alone, pattern

recognition and money management will make it more efficient

Gold

01-18-11

In last week's letter, I mentioned how I thought it would be a relatively simple case of pattern recognition with nearly all markets poised to move lower.

Unfortunately, the people at the New York Stock Exchange and the Nasdaq did not appear to receive my memo. Instead prices have moved higher, surpassing

the 8060 level in the Dow Jones industrials. The only way that this scenario could

turn bullish is if prices reversed below the 8000 level again. In other words it would amount to a bull trap. In the words of W.D. Gann: "the bigger the bull, the

bigger the bear." Neither Isaac Newton's law of gravity or law of action and reaction have been repealed, as yet. At the top in the stock market back on

October 11, 2007, we had a new moon. The next full moon is due shortly on Wednesday, January 19 and whether this will be enough of an event to spark a

correction remains to be seen.

As for our Trade of the Year which we announced for the New Year, our long position in SH (short ETF for the S&P 500) should have a stop operating at 42.10.

Recall that this year’s Trade is not related to either cycles or astroharmonics, but fully based on pattern recognition. These long term trades have worked out very

well in the past, but that is no guarantee for the future.

Enclosed is the chart for the Shanghai composite, which is used as a comparison

to the S&P 500. Typically, there is a high degree of correlation between the two but as you can clearly see, for the past few months or so the S&P 500 has risen

dramatically while Shanghai has dropped. Both the divergence and the spread (i.e. the difference) are rather unusual. On Monday, January 17 this trend

continued and the Shanghai market was down over 4%, before rallying back to finish down 3% for the day. This would be the equivalent of about 400 Dow

points.

The news of Steve Job’s temporary absence from Apple due to health reasons caused the Nasdaq futures to drop 30 points in Monday Globex trading. While

Apple likely has the sufficient talent to navigate without an icon known the world over (I consider him the Alexander Graham Bell of 21st century), this could be a

potential precipitating factor for a further correction this week.

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Precious metals

As is illustrated by the enclosed chart, gold has passed the $1,350 per ounce level once again. This is a very important price level as it marks the 0.786 retracement

off of the previous lows. In my opinion, any significant move below 1,350 would start off a longer term bear market because of the AB=CD pattern target leading

at $1,425 per ounce. Meanwhile, silver touched $28 per ounce in Sunday night trading, which also represents a key level of support.

Treasury bonds and notes

Treasury bonds held the major 0.786 retracement at 119 while Treasury notes also held at the 0.618 (118.25) on the daily charts. Both have jumped slightly off

of these levels this past week. However, the key development in the interest markets this week was the continued collapse in municipal bonds again. As

reflected in the ETF for muni-bonds, there has been a literal meltdown as municipalities struggle to raise money at lower interest rates. Tax revenues

continue to be depressed as the overall economy remains anemic. Not only are

US cities and states under extreme cost pressures, they are also increasingly unable to borrow money at reasonable rates. This will in turn ultimately lead to

the US government itself having to pay higher interest rates and may be the tipping point that determines whether Ben Bernanke’s QE1 and QE2 programs will

be a success or a flop.

Foreign Currencies The big surprise this week in the Forex arena was the 600 basis-point rally in the

Euro that occurred over a matter of just a few days. Several weeks ago, we talked about this level as the completion of an AB=CD pattern and I have

enclosed the hourly chart showing the culmination of this pattern exactly at the low at 1.2890. As of Monday morning here in the US, the British pound has

completed a 0.618 retracement of the last swing down at 1.5920. This should offer good resistance. However above 1.6000 would signal a potential major trend

change.

The Australian dollar still has a double top in place on the long term weekly charts

while the Canadian dollar is retesting the 0.786 retracement levels on its weekly chart. The USD/Japanese yen also reached the same retracement at 83.50 before

bouncing back, but we believe there will be strong support near 81.50.

Crude Oil Heating oil has completed a major butterfly pattern whereas gasoline and crude

futures have missed targets by a small amount. This means we are sitting at very important resistance levels from the 2007 highs. In order to increase bullish

enthusiasm for this market, crude oil must get above $94 per barrel.


Technical Corner

This week’s Technical Corner concerns “island reversal” patterns. These patterns

are characterized by a peak or trough that is surrounded by two unfilled gaps. They are exceedingly rare, occurring only at major tops and bottoms. This week’s

example comes from the cotton market. Cotton has more than tripled in price in the past 18 months, which should at least make clothing much more expensive

and put a mark on the inflation index. An island reversal occurred in cotton back in 2008 and now in 2011, we are looking at a very similar pattern. What is

interesting about the pattern this time is that it formed a 0.618 retracement but was unable to fill the gap. This should mean sharply lower prices in cotton and

probably very quickly.

Final Thoughts Over the weekend, I watched CNBC economist Steve Liesman as he interviewed

Fed chairman Ben Bernanke. As expected, he questioned Bernanke on the ability (or rather inability) of quantitative easing (of which we are enduring a second

major round of) to improve the economy, and in particular the employment

situation. Bernanke’s comment startled me. His answer was that we have witnessed tremendous moves in the stock market, and especially the small caps.

Moreover, he explained that this essentially created a wealth effect and that the resulting increased expenditure would eventually lead to an increase in

employment. This of course, opens up a few disturbing possibilities, namely what might happen if it does not achieve this? Would we have simply increased

inflation risk without helping employment, and debasing the dollar all in one stroke? With interest rates creeping up, it may be a sign that the market thinks

otherwise.


___________________________________________________________________________________ Disclaimer: Trading in securities such as stocks, options, indices, currencies and futures involve risk and should not be undertaken without due diligence and serious independent study. Subscribers may carry out their own trading based on what they learn from Patterns – Profits & “Peace of Mind”, but all

risks of potential financial losses are the subscribers responsibility. TFNN will be in no way liable for financial losses resulting from trading decisions

based on this newsletter. Past performance is no guarantee of future results. Reproduction in whole or in part is not permitted without prior written consent. All rights reserved.

01-18-11 - day trading and · pdf filein the words of w.d. gann: "the bigger ... while...

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