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
01-17-12
Major stock market indices in the USA are still overbought!
Last week I assumed that the five candlestick doji bars were indicative of a
market getting ready to correct. It was assumed that the market would start down following the full moon of January 8, but just the opposite occurred as the
market gapped up on Monday and continued higher for the week, but ended the week basically unchanged in most of the indices. The S&P 500 has made the 786
retracement of the last major high in May but the NASDAQ and the Dow Jones industrials have actually gone a bit higher than the 786 retracement, which has
bullish implications. The Dow Jones transportation index has also made the 786 retracement and the utility index, which has been the leader, has been down 11
of the last 12 days after forming the AB=CD pattern we highlighted several weeks
ago.
This overbought condition could stay with us for some time but the odds favor correction into the new moon of January 23. But the market must start down
following the holiday of January 16. The Japanese stock market, which is the third largest economy in the world, is forming a major Gartley buy pattern and should
start to rally very soon.
The Vix Index of volatility is also at the low end of the trading range at the 786
level and was unable to make a new low this week when stocks poked their heads above the 1290 level in the S&P 500 momentarily, closing right near that price on
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Treasury Bonds
We are getting very close to our price objective of 149 to 150 in the March treasury bonds. As you can see from the enclosed chart, there is a nice cycle
forming based on the 24 and 48 day cycles, which should be cresting around the January 23 new moon date. This so far has been a symmetrical cycle but it could
crest even farther to the right. The Cycle analysis is based on symmetry and as we know they can change rather abruptly. This is why we must wait for our price
level to be hit. We are still waiting for the TBT, which is the ETF for the 30 year
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treasury bond, to reach the $16.80 per share level where we would go along and
use a three dollar stop.
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Gold, Silver and Copper
Both gold and silver stopped very near the 61% retracement's of the last high and have now begun to correct. There is strong support in gold at the $1,575 per
ounce level and silver at the $28 per ounce level. Going below the lows of December 29 would negate this analysis and suggest much lower prices in gold
and silver.
Copper futures stopped exactly at the 786 retracement of the October highs,
making it the second time it reached the $3.67 per pound level. Copper needs to close above $3.75 per pound in order to be viewed as a valid breakout to the
upside.
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Crude Oil
Crude oil has reacted violently to the downside from the 103.50 per barrel level that was the 707 retracement from the last major high. 707 is the reciprocal of
the square root of 1.414 and is also part of the Fibonacci summation series, but we don't use it that often because it is not seen nearly as often as the 618 and
1.618 numbers or the 786 and 1.27 numbers. Crude oil has strong support at the 61% level of the last low at $98 per barrel. Going below $98 per barrel would
suggest that crude oil would be going lower as opposed be going higher. Gasoline futures and heating oil futures have corrected a little and have held up stronger
than crude oil for the past week.
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Foreign Exchange
The US dollar index continued to make a higher high on Friday by just a few pips
and closed below the three drive pattern that we've been watching. The euro, which represents over 50% of US dollar index, made lower lows slightly on Friday
and is getting very close to our longer-term price objective of 125.50. The euro is incredibly oversold and is ready to rally. Remember this is only an assumption of
a good rally; any move below 124 in the euro would suggest a real big problem is
coming. The British pound is retesting the 618 level the second time and is also at a critical level, as is the US dollar versus Japanese yen which is also making a
double test at the 786 level. These support levels must hold in order for the dollar index to react to the downside. If the dollar index closes above the 82 level it
would suggest the next larger target on the weekly chart which is the 85 level. This would equate to probably 120 in the euro.
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Trade of the Week
The trade of the week this week will be to buy the ETF for the S&P short position
(SDS) at $18.80 per share on a buy stop. We are buying a buy stop so that the market will be moving in our favor and we can keep our risk at a dollar per share.
If you are filled on this position at $18.80 or better, place a sell stop at $17.80. Last week we were trying to buy the short dollar index ETF (UDN) but
unfortunately it missed our price by a few cents. We would also continue doing
this trade also with a stop of one dollar per share.
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Technical Corner
The Technical Corner this week is going to discuss the US Dollar and how it affects the stock market. The weekly chart for the S&P 500 shown in this letter
goes back several years and shows the inversion (i.e. versus the stock market). As you can see from the chart there are time periods where there is a strong
correlation and other time periods where there is virtually no correlation. The trader must decide which vehicles are going to trade( i.e. the stocks or the dollar
index). This seems to be the best approach as you can protect yourself by looking at just one trading vehicle as opposed to two. This correlation can be valuable
when it is lining up strongly as it has currently been doing over the past several years, but remember, this can change quickly and so you must adapt to the
conditions of the market. I don't use these correlations too much in the analysis
that I do for this letter because I have such a strong belief in the patterns and I know that they will keep you on the right side more often than not.
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Final Thoughts
The week of the new moon starting on January 23 should be a very important turning point for many things in the financial markets. Particularly treasury
bonds, the US stock market and the foreign exchange markets (especially the US dollar). The January effect which usually says that the small caps will gain on the
large caps has not worked so far in January as the large caps have outperformed the small caps by a large percentage. The bias says that the market should be up
in January which is in fact what did happen.
Next week's letter should give us a better idea of the direction that we’re going to
be looking for coming into the January 23 week.
_________________________________________________________________ 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
