2010 Trade of the Year
by Larry Pesavento
Mark Douglas and I were giving a seminar in January 1999 and I was very excited about the possibility of crude oil rallying. OIL had come down from 1991 high of $42 a barrel and was now trading at $11 a barrel. It was a classic butterfly pattern which also included a three drive to bottom pattern on the daily chart. Mark jokingly said I should call this the trade of the year. Crude oil bottomed in January than doubled in price very quickly. The next January Mark called and asked what the Trade of the Year was going to be this year. So in 2000 with the NASDAQ near 5000 we made that the Trade of the Year and also worked. It's been a good run of 13 years and now we are ready for number 14. The trade of the year for 2010 is going to be the ultra-short pro shares SDS with a stop at 32.22. As you can see from the enclosed chart on the cash S&P 500 four major ratios have appeared on the weekly chart. The S&P 500 has now corrected 50% in time of the whole bear move. WD Gann shows this principle as the squaring of time and price. Quite simply it means that the market dropped 100% in time and is now rallied back 50% in time. What is most important to me are the four ratios coming together along with the three drive to a top pattern. The major divergence is in the small-cap index. The Financial Index and the Banking Index give further evidence that this bear market rally is ending.
There is one major caveat! If stocks are sharply higher on Monday, December 7 then you should wait to place the trade of the year when prices close below Fridays low. If the S&P 500 is unable to take out Fridays highs in the first two hours of trading on Monday, December 7 the trade of the year should be entered with appropriate stop protection.
I have added this caveat because of all the harmony and symmetry present and then there is the S&P 500 weekly chart. There is still a possibility that the market could continue higher which makes waiting a few hours on Monday a cautious approach to the short side.
I've enclosed the trade of the year for 2009 which was to shore treasury bonds. In addition, I've enclosed a chart of the trade of the year for 2003 which was buying the Japanese stock market. This was by far the most memorable of any of the trades as there was absolutely no one buying the Japanese stock market. When the trade was entered it was following the weekend of a large financial seminar in Singapore were the finest financial minds in the world have gathered to discuss global economics. There was one common theme that everyone agreed to! That being that the Japanese stock market was going to continue dropping for another few years. Not one person in that group even suggested the short covering rally let alone a major bottom. My advantage was that I know nothing about economics and all those gentlemen were far smarter than this old cowboy. But I do know patterns and I believe in them because they are precursors of what everyone is thinking. This year is quite similar to that year because there are very few people that think we are still in a bear market. Time will tell but the risk reward on this trade is quite good.
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