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" First we form habits, then they form us. Conquer your bad
habits, or they will eventually conquer you." Rob Gilbert
The Point of No Return
One of my most memorable trading days occurred in 1991. Bryce Gilmore, author of "Geometry of Markets," was on one of his frequent visits to my California trading room overlooking the Pacific Ocean. We were watching Treasury Bonds most intently on that day. Bryce was an Australian citizen and did not have a commodity account in the USA so he used my account to place orders. On this particular day he told me to sell 10 US Treasury Bonds at $102.00. He then told me to place a buy stop at $102.01. This one tick represented $32.50. I laughed and told Bryce that that was a ridiculous place to put a stop because the bid and ask can be one tick and sometimes more. He stood up and as I was setting in my chair he pointed his finger at the monitor and said "if Treasury Bonds go to $102.01 everything I've ever studied about market geometry was worthless and I will take these f...king books out to the pier and throw them into the ocean." Being quite startled I said I think that's kind of extreme and he reiterated his same statement. About 2 hours after the open which was 8:00 am California time Treasury Bonds hit $102.00. Our order to sell took over 1 hour to fill which meant there was seemingly a lot of supply at $102.00. After 1 hour the total order was filled and I placed the stop on Bryce's order at $102.01 as instructed. Bryce was playing golf that day and was preparing to leave for the golf course and had just placed his clubs in the back seat of his red convertible when bonds quickly dropped 8 ticks which was a profit of $312.50 per contract. I walked out on the balcony and yelled down to Bryce that bonds had dropped 8 ticks and he looked up and said, book the $3,000. I said are you sure, "he said yes, I want to play golf." The reason I remember this all so vividly is because of what happen next. Bryce was driving away from the house and was down at the corner ready to make a left hand turn when I looked at the monitor and TB had just dropped $2,000 per contract. Later that night at dinner Bryce asked me where Bonds closed and my only comment was they were lower than where you got out and I left it at that.
The reason for this trip down memory lane is that we are at that same point in time in the markets. Seldom do we ever see so many patterns coming together with so many ratios at a critical astro harmonic timing point. For example, the Banking Index, the NASDAQ, the S&P cash and futures, the Dow Jones Industrial Average, the Dow Jones Transportation, the Dow Jones Utilities, etc., etc., etc. All of these are at major fib points and pattern completion's. There are a few positive signs; One is that the NASDAQ is at the . 786 and has not made new lows. The Sox Semiconductor Index is still bullish and we are making 600 new lows daily as compared to 1400 new lows daily at our November low.
Frankly, I can never remember seeing so many patterns come together at the same time. The only other time that even comes close to this is in March of 2000 when the NASDAQ was approaching 5,000. The cover of Time Magazine, US News and World Reports and Business Week, all had the same cover. A picture of a Bull with the caption, "NASDAQ 5,000." It never reached 5,000 before dropping 85%.
THIS IS PROBABLY THE EASIEST DECISION A TRADER CAN MAKE IF HE BELIEVES IN PATTERN RECOGNITION! EVERYTHING IS THERE.... PRICE, TIME AND PATTERN. THIS IS WHAT I HAVE SPENT 45 YEARS WORKING TOWARDS. THERE SHOULD BE A GOOD RALLY IN THIS VERY LONG-TERM BEAR MARKET THAT WILL NOT END FOR AT LEAST SEVERAL MORE YEARS. HOWEVER, ( PLEASE READ THIS CAREFULLY) THERE IS STILL A PROBABILITY THAT THESE PATTERNS AND RATIOS WILL FAIL AND WE COULD STILL LITERALLY MELT DOWN IN THE STOCK MARKET. THE DOW RALLIED 200 POINTS NEAR THE CLOSE AND SHOULD NOT TAKE OUT FRIDAYS LOW AT 6460.
Believe me when I tell you that I am extremely nervous which may be good or bad because of the condition of the stock market. My fondest wish is that we get a strong rally lasting from several weeks to several months which would setup a great shorting opportunity. Should the analysis be correct that a rally is ready to occur we should expect the Dow to have one of it's 10 best trading days in it's 200 year history.
I LEAVE YOU WITH THIS FINAL THOUGHT. IF YOU DO NOT PLACE YOUR STOPS BELOW FRIDAYS LOW YOU ARE NOT ONLY RISKING A GREAT DEAL OF CAPITAL YOU ARE VIOLATING ONE OF THE STRONGEST RULES OF MONEY MANAGEMENT, WHICH IS TO PROTECT CAPITOL.
ANALYSIS
