Tim Knight: Idiot Savant

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I am a genius. And I am a moron.

How's that for a lead-in? OK, "genius" is an exaggeration. But let me explain myself.

As regular Slopers know, I've been tying myself in knots lately. But this weekend made a huge difference. I feel like a whole new trader. And I feel chagrined by something I discovered.

During my duo of deep-thinking days, I watched the entire "Trader" video. At one point, Peter Borish and Paul Tudor Jones are examining the charts providing a correlation between the 1920s and the 1980s. (Their insight that the market, then 1900, would climb in about a year to "between 2600 and 3100" and then crash was a brilliant projection that would make the firm a fortune).

A light bulb went on over my head. I swiveled my chair around and grabbed a white binder labeled Tim's Trading Tome, which is where I keep notes and research that I consider important. I flipped to the section labeled Custom Charts, and pulled out a chart I had done last year.

This is the chart I hand-drew on October 18, 2008. It is, I believe, the only chart I've ever done like this, and I did it for myself, not even sharing it on the blog. Note that, with the exception of the ending date, I made no projections as to when the various highs and lows would happen; it was strictly a price projection.

My jaw just about dropped. I had perfectly captured every major move that had taken place from October 18th until the present. My projection of the market's low in the autumn was off by only 6%. And I had predicted that, from that point, the market would climb relentlessly, pushing all the way to 1152 on the S&P 500.

I remember drawing that chart. At the time, I felt more inspired as a chartist than I ever had been before, as if a beam of light was hitting me. And, like a fool, I decided that instead of taping this chart on top of my screen and staring at it every day, it would be better shoved into a binder where I wouldn't think about it until the huge move up was 60% done.

This is a chart that has earned my respect. If it plays out, what it means is:

  • The market's move higher has a long way to go – we're only about 60% done;
  • It should end sometime late this autumn (again, my time projections are very loose);
  • Instead of having a monstrous crash, we're in for more of a grind-it-out, multi-year slog downward, bottoming not much lower than we did last March.

You cannot imagine the weight that was lifted from my shoulders. Everything made sense now. I even did some /ES trading last night, just about nailing the bottom and top for a good profit on 30 contracts. My mojo had returned!

I am loaded to the teeth with short positions right now, and frankly I intend to dump virtually every one of them once we get the modest little pullback that I think is in store. At that point, I intend to finally heed my own projection and focus on the long side until we are wildly stretched to the upside. People will be shocked at how high things seem, and people will be uber-optimistic.

And, at this point, Tim the Bear shall return. Until then, I am saddled with short positions that I feel don't have a good long-term future, and I am going to head for the exit door at an opportune time.

And for those who plan to guffaw, "Hyunh! He's done ca-pi-tu-la-ted!", let me save you the trouble: I haven't capitulated at all. I've been right the entire time. I was just too stupid to listen to my own advice. Because charting is my talent – just about the only one I've got – and I need to listen to myself during those occasions when I have true lucidity about what the future holds.

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