| KyTrader |
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Gold User, Member, TeleChart
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| Sunday, January 2, 2005 |
| Wednesday, July 12, 2006 7:18:49 AM |
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Consensus at 35.33, then moved to 35.34 to 35.36. Breakout higher after 1:30 EDT and then lower after 3:00EDT did not work. Low volume all day was the key to standing aside.
Yerterday's range was small being 0.31. Now looking for large range day with big volume. Yesterday may be a key day. There is a 3 day consenus at 35.31. Going long above 35.46 and short below 35.15 may be good trades. See 4-5-2005 for a similar situation. This has real good possibilities. Good Luck.
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A weekly review of important averages follow. The worden system only provides traditional weekly charts on the weekends. Anything longer than a day is a running combination of several days.
Dow Utilities +2.72% Utilities outperformed S&P500 since mid 2004. Setup for undeniable sell pattern completed on new weekly low. Breakout above weekly high of 270.92 voids the pattern. Looks like market correction finally got to the strongest index.
Dow Transports +1.69% Setup for undeniable buy pattern. Rise above weekly high of 3,518.44 completes the pattern.
S&P Smallcap 600 Index +1.61% Setup for undeniable buy pattern. Rise above weekly high of 313.01 completes the pattern.
Russell 2000 +1.51% Setup for undeniable buy pattern. Rise above weekly high of 599.14 completes the pattern.
Nasdaq Composite +1.26% Setup for undeniable buy pattern. Rise above weekly high of 1,962.41 completes the pattern.
Nasdaq 100 +0.90% Setup for undeniable buy pattern. Rise above weekly high of 1,448.37 completes the pattern.
S&P500 +0.83% Setup for undeniable buy pattern. Rise above weekly high of 1,159,95 completes the pattern.
Dow Industrials +0.70% Setup for undeniable buy pattern. Rise above weekly high of 10,219.34 completes the pattern.
Keep in mind that undeniable patterns show loss of momentum best and only occassionally indicate a change of trend. Looks like the down move may be losing momentum. That would be confirmed on rise above last weeks highs.
Friday was a above average range lower volume day. Following breakouts from consensus range 35.31 to 35.33 did not work. First it broke lower, then higher, and then a good move lower. Finally in the last half-hour the rally almost erased the entire down move. I am thinking about day trading or at least reducing the size of possible swing trade positions on low volume days. Close below consensus is negative.
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When things go bad for a short trade, the consensus area saved the day. The open gap higher gave no chance at making much profit on the short trade initiated Wednesday. The trader had plenty of time during for several hours to get out with a breakeven. That was certainly acceptable with the price strength that was to come the rest of the day.
A new consensus area formed at 35.06 to 35.14. The immediate breakout higher was the position to enter yesterday. There may be trapped money below yesterday's range. This might result in some follow-through higher.
Another large range day, 0.75 this time resulted. I am watching for the return of the small range day. Small range days make it hard for swing traders to make money.
Volume was above average, but not higher than the day before yesterday.
The S&P500 and QQQQ pair are now classified in uptrends. This is a classification that could not be made during the sideways move of late March and early April.
The expectation for a small range day and the lower volume kept me from taking the long position yesterday. Indicators are not right all the time.
There is the potential for a new consensus area at 35.55 to 35.56.
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Yesterday pointed out the need for swing traders to have real time data and be full time traders. The 34.97 point is a good example. Prices opened higher, plunged to one tick above 34.97, soared then plunged again, then rose. At this point 34.97 looked like a magical point.
By 12:30EDT the market had established a new consensus range at 35.11 to 35.18. Unfortunately the new areas can't be given using overnight updates. Traders need to find these points in real time. A great opportunity for a short sale occurred just after 12:30EDT. The Qs dropped for the rest of the day. Another consensus area formed at 34.90 to 34.91. Selling short on the drop through 34.97 may work out, but shorting at the higher level certainly improves the reward/risk ratio.
I called Tuesday's pattern a non-trend day, when the proper term is a neutral day. Both day types imply the same possible future i.e. big moves. They are day types that traders without real time data may use with some success.
The consensus areas have replaced these day types for the modern trader. The market establishes consensus areas in it's own time. They may be longer than a day, and often overlap across days. Consensus areas are points and ranges of market efficiency. If the market was efficient, it would trade at an area of consensus all the time. It is the move between points of consensus and the time it takes to get there that gives the trader an opportunity to make money. That is the period of inefficiency. The market moves back and forth between these two states. The consensus area is the set-up for the inefficiency.
Yesterday mapped out a large range of 0.70. The cycle calls for a return to a small range day in the near future. When the capital outflow stops the small range day results.
The Qs established a natural rally high reference of 35.29 yesterday. Both the S&P500 and the Qs confirmed the market direction as down again yesterday when they made new lows.
The market certainly moved down easier than it moved up during the last few days. The market was easy to buy going up, but hard to sell going down. Doing the hard trade is usually the right trade. Imagine you are a very large trader, and consider how you would get into and out of trades. Large traders have to use areas of consensus, they can't use stops. Huge numbers of shares exchange hands in areas of consenus.
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You might want to read Profits, Taxes, & LLCs by Holmes F. Crouch. He has also written books on Investor Gains and Losses, and Small C & S Corporations. I am not personally familar with the latter two.
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The six day down move seems to have spent itself. New incentives for capital inflow or outflow are needed.
Two consensus areas formed at 34.96 to 34.97 and 35.00 to 35.03. Looking at the whole day found consensus at 34.97. The market traded at this price every half hour during the day except for one.
Yesterday's move lower then move higher established what use to be called a non-trend day. Good trades often came from these types of days. Unfortunately, lots of traders know this. The Qs had a sharp low volume rally up to 35.29 from this area at 4:15EDT. I don't trade the thin after hour markets, but they may have ruined the opportunity on the upside.
If the market is in a good uptrend, then it should not return to 34.97 for some time. The non-trend day sets up a good move normally, but it can be in either direction. I will be considering going short if the price drops below 34.97. Yesterday was again a small range day of 0.35. A big range day should be in the near future.
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Capital outflow stopped on Monday. The low of the day was established by 9:40EDT. The Qs traded sideways for the rest of the day. The two consensus areas formed Monday will be what I will be watching today. They are 34.85 to 34.88 and 34.77 to 34.78. Yesterday was a small range day of just 0.36. The cycle is to go from large range days to small range days and back to large range days, etc.
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Your insults are unappreciated. Using insults to defend your opinions, sure indicate to me you don't have confidence in your position. I have never used a 1040EZ form in my entire life and if you knew what you are talking about you would realize that anyone with investment proceeds can't file Form 1040EZ.
As to knowledge, when dealing with taxes, opinions are all we have, yours, mine, CPAs the IRS, etc. Only going through a audit will give you the answers for sure, and that might even include tax court. Maybe you will get a chance to be a test case for all of us. If so, let us know how it comes out.
Most traders don't qualify for any significant deductions because of the office requirement, and this has been my experience. The real advantage is being able deduct expenses for computers, trading platforms, and other big office expenses or being able to depreciate them. I went throught an audit a number of years ago when I tried to deduct equipment expense for my trading on Schedule C. It was all denied and resulted in a real mess in refiling all the federal and state tax forms.
I had not read publication 550 recently. The changes there certainly give me a reason to reconsider trying to claim trading as a business again.
All this confusion just points out how corrupt and broken the current tax system is today. Traders and investors should support the Fair Tax system (consumption tax) being proposed by many today. It eliminates taxing investments and trading. You would only be taxed when you spend the money in your daily living. No one would have to fool with limited liability companines, partnerships, S corporations, C corporations, etc. to avoid taxes.
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Vertical moves are the traders best opportunity for making money. I hope everybody has done well the last few days.
Friday saw the market searching for the extreme low. Lots of capital is leaving. The Qs established small consensus levels at 35.18, and 35.04 to 35.05. Price was moving lower during the last hour of trading on big volume.
A daily range of 2.5% to 3.5% would indicate a nervous market. A range greater than 3.5% would be a state of panic.
The strongest index of all, the Dow Utility Average setup an "Undeniable" sell pattern last week. A new weekly low would complete the pattern. The pattern best indicates a loss of momentum and only occassionally indicates a trend reversal.
The sell patterns mention in the March QQQQ Swing Trader five weeks ago have resulted in nice down swings.
The "Undeniable" buy pattern setup for the Dow Jones Industrials failed to complete when the average did not make a new weekly high by several ticks.
Important reference points I will be watching will be 35.05, and 35.18. Other consensus points formed during the day will be important as soon as they are recognized. Good luck and enjoy the opportunity to make money.
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Have you been audited by the IRS and been approved for not paying Social Security Taxes? Has your CPA been through such an audit? If your just relieing on a CPA's advice, and have not checked out the actual forms you might want to do so. It is my understanding that "Trader Status" (the IRS like you said is making up the rules as they go along) is not defined in the income tax code. It is treated just like any other business. Also other people getting this status in the past have been audited and proved they have a separate office, which you do not indicate you have or you could claim the rent, mortgage payments, electric and phone utilities, equipment purchases, etc. An office is not just part of a room in someone's home. Are you just not reporting your trading business on form SE and hope you can get by without doing that?
For the 2004 year, net profits reported on Schedule C go to to Schedule SE Section A line 2. Unless you didn't make $400 last year and then why trade, line 5 indicates you owe 15.3% of your net profit if you make $87,900 or less per year or 2.9% of line 4 + $10,899.50 if you make more than $87,900 per year (I hope you were in the latter category).
Net income from limited liability companies, limited partnerships, and S corporations are also reported on schedule SE. If you form a C corporation and work for a wage you and the corporation will owe the Social Security and Medicare taxes and the corporation will owe corporate taxes. You might get around the personal taxes by only getting dividends from the C corporation but then corporation will have to pay corporate taxes so the dividends will be subject to double taxation. You will have to issue stock, have a board of directors, etc.
Also the 60/40 rule applies to Schedule D not Schedule C. There is no place for capital gains on Schedule C. Business buys, and sells inventory and are always subject to regular income taxes or corporate taxes (if C corporation), not capital gains. You are establishing you are carrying inventory by the frequency of trades and the necessity of marking your positions to market at the end of the year. That is why they don't care about the wash rule.
People that flip real-estate often find they lose the capital gain rates when they get caught because the IRS classifies their activities as a business not passive real estate investment.
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