Enjoy last week’s report, the profits are almost in the bank. I’ll have the final results at market close tomorrow.

“Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny”.
Thomas Jefferson

The COT index number this week is +14.8%. It would seem that some buying support has come into the market. That means this week we will be buyers of the dip.

The short term technical trend rolled over last week, so there is no agreement between the technicals and the COT number. This poses an immediate problem. The technical chart suggests that in the early part of the week, likely Monday, we will see a continuation of Friday’s rally off of the lows. This will encounter a short term downtrend, which with a buy signal from the COT, we don’t want to sell short – but, waiting to buy a dip, we may run out of days in the week as we are interested in the weekly Option series.

This means that in all likelihood, the short term system won’t take a trade this week either. That is trading. It is far better to miss taking poor trades than to snatch at marginal trades and take losses. This distinguishes the professional trader from the rank amateur.

It is also in part why I am developing the COT numbers for Gold and Copper, where there may not be stock trades, there may well be commodity trades.

The long term duCati Methodology remains in the market. Having made some sales, is now a fair distance from either further sales or purchases. This methodology is ideal for the investor who does not want to watch the market day-to-day.

The market action, attributed to the Fed minutes, released mid-week, suggested that QE is either near conclusion, or subject to variation, viz, purchasing a variable dollar value of risk assets rather than the fixed $85 Billion/month that we currently have.

Personally, QE will not end anytime soon. The Federal Reserve and Bernanke are one trick ponies. They have nothing else except monetary expansion [inflation] and will continue until 6.5% unemployment, which is years off.

That they might vary the dollar value…that is something that may happen, less as the market rises, more on dips. If that is the pattern that develops, dips will be aggressively bought, and just avoiding the dips will be the value add.

I will be keeping a very close eye on developments in this area, as will, I’m sure, the rest of the market.

The trade, if it happens is this: we look for the market to decline to circa $148.50. I want very near to a $0.50 spread [maybe less as it will likely be late in the week] and at least 1 trading day remaining, or no later than the close on Thursday.

Buy $148.50
Sell $149.50

Current Price:
Price Profit / Loss ROI %
111.38 ($50.00) -100.00%
126.44 ($50.00) -100.00%
142.29 ($50.00) -100.00%
148.50 ($50.00) -100.00%
149.00 $0.00 0.00%
149.50 $50.00 100.00%
158.15 $50.00 100.00%
174.01 $50.00 100.00%
189.86 $50.00 100.00%

It provides a 1:1 trade with a 100% return on invested capital, with the B/E point at current statistical support. This is remember in a short-term declining market, which, if for some reason we sell-off early in the week, will likely be lower. If that should occur, lower the spread by a $1.

Buy $147.50
Sell $148.50

Use the same baseline $0.50 spread.

Until next week,
jog on