Indeed. More points than an eight point buck. Point 1. Stop taken out. Point 2. Theoretical question about placement of stop. Usually in a sideways pattern the stop will be set below the bottom of the entire pattern. Using the basing point routine we computed the last stop here. We could do a lot more head scratching here but net net (point) that system is on the sidelines.

We always believe in seasoning algorithmic systems with a little judgement. So we don’t really think the pattern is complete until the August low is solidly taken out. But (or and) Dow Theory is out and the punditry is braying for a bear market — but then they have been for months.

Interesting mood in the media and the punditry. Here’s what it all means: they don’t know anything, and neither does anyone else. They are a whole coop of Chicken Littles. No one knows how much damage will be done over the long term by the subprime mess. And until the market knows trading tactics will dominate. Bank of America has played Texas Hold ’em with Countrywide. A massive gamble. Oh, well, not that big. $6 B. (illion)OIL looks like it’s on the way down. Taking out the horizontal line would complete a double top.

Gold. Counter intuitive, but time to hedge this surge if you are trading. Our secret indicator is also blinking. you didn’t know we had a secret indicator? Actually we think a trading phase has come to an end here and that prices will swing the opposite way for awhile. AND with the stopping out of the Dow our portolios would be tending to weight to the short or protective side.

Note our trendline from 2005 in gold. The best investors and traders know that one market like this can make your decade. If it’s managed correctly. Managed correctly means a long term trend following method. We are also of the position building philosophy, which means we would be adding on the new buy signals.

This letter is full of counter intuitive gambits. If you don’t know chess then you don’t know that a gambit is a risky forecast with possible loss of pawns.

We’re about to make another one. The little wave up has been followed by a downwave taking about half the advance back. We think a bottom is being formed here and the next leg will be up. Do we have anything except basic economics to make us think that? Not much.

But then it’s been a long time since we’ve been wrong so we’re due some foolish forecasts.