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Welcome to 2013 and the start of what is shaping up to be an exciting trading year. The much-discussed Christmas Rally has delivered, as it has over many a year, offering a strong move from the December seasonal date into the January time frame of approximately 7th January. I still get excited about this seasonal trade that Gann wrote in his seasonal changes on stocks lesson from decades ago. This laid a great foundation from which David created his Time by Degrees theory.
As I write, the market is making fresh highs in the US with the SP- 500 taking out its highs from Jan 4th and approaching the 2012 levels of 1474.5 on the 14 Sep 2012, we are approaching 120 Degrees from that top and the market’s ability to take out that top or be resisted could be a key to traders getting a sense of what direction we are likely to take in the first quarter.
So much can be said about fiscal cliffs, Government management of economies and so on, but as the new calendar year dawns I feel renewed again at the concept of ignoring the nonsense, bias and plain stupidity published in the media on a daily basis. I am sure many “outsiders” would say that this article would fall into that category too, but for me there is so much merit in reading data in a chart and trading what you see, not what you heard, believe or hope will happen. The current trend is strong and has caught many out trying to short into strength. I do think we are due for a pullback of sorts and from there we can see how it may develop into a major top or not.
Psychology is such a powerful thing for traders, as we know it’s an art form and a lifetime of study in its own right. Let me suggest that if you have not been long since the lows in November (see chart 1 of the SPI 200) then your psychological capital is likely to be running low rather than high.
Chart 1 – Daily Bar Chart SPI 200
click chart to enlarge
There have been many type 1 trades with the trend i.e. ABC long trades on 1, 2, 3 and weekly time frames. Overall the success has been high as we have had a trending market. For those who have avoided the long side as they have set-up for a top, or a type 2 against the trend trade, will have either lost money or be yet to enter.
Now the psychology kicks in. If you have made money you are less concerned about getting the top that will eventually come. If you have not been long you are probably so anxious to play catch-up that you will start shorting shadows. Gann said markets can go further than most expect, and this run is a classic example of that. I encourage you, in 2013, to look at ensuring you have a balance of type 1 and type 2 trades to ensure that when trends are in play you capture them.
To more analysis. Until we see the 7 Jan high broken clearly ( I think there could be a case for a false break here as it just breaks the 7 Jan high then runs hard the other way), a higher bottom above the 7 Jan high could signal some opportunity. That being said I am looking closely at March and what it may bring, the long term charts, especially on the Dow Jones, show this month could be a spring-board to higher prices if we get a pullback into that area.
On the front of commodities a simple check shows some further upside potential especially of the US dollar continues to struggle. The Euro had a great up move last night as the DX (dollar index) was whacked. Chart 2 shows the sell-off and a first lower swing-top entry.
Chart 2 – US Dollar Index Daily Bar Chart
click chart to enlarge
Finally to the crude market. We are now nearing a good Time and Price area with $95 being a price target I had established last year. If you are keen for crude oil analysis you should join my weekly blog at www.tradingtutors.com.
Chart 3 – Crude Oil Daily Bar Chart
click chart to enlarge
The run in the last month or so has potentially awoken crude in 2013. As I mentioned we are facing some Time and Price pressure at the current levels. A pullback from here could fuel some more up-side, holding above $90 will be an important level.
I wish all the best in 2013 with your development as a trader; I am excited by what this year will bring its time to get serious and tune your skills to meet the coming opportunities.
Good Trading
Aaron Lynch |