Each of the following charts will attempt to identify and clarify the Double RePo Directional (change) Indicator.

Chart 6-2 shows two Double RePo signals in the S&P, occurring in 1986. I had my proverbial lunch handed to me just before the first signal. The locals in the S&P had their lunch handed to them just after the second signal. We both learned something from the experience. I learned about the Double RePo signal. The locals learned to keep their hands in their pockets when the S&P freight train barreled through.

The second signal (on the sell side) is picture perfect. It was preceded by beautiful thrust, had near equal tops, and the span between the first and second close below the 3X3 was narrow.

The first signal (on the buy side) certainly worked. The down thrust preceding it however, was strong, but not as relentless as the up thrust that preceded the second signal. What we prefer to see in terms of thrust is continued pressure, as in the idealized example, rather than a single big move, consolidation, and another big move. While the levels of the double bottom were acceptably close, they were not as "pretty" as the double tops preceding the sell side signal. The span of days between the first and second closing above the 3X3 was also a bit wide, given the extent and nature of the preceding down thrust.

Chart 6-3 illustrates a perfect Double RePo right at the top of the weather market we experienced in corn in 1988. For those of you who haven't been involved with weather markets, they are among the most vicious of all markets. The dots on this chart do not indicateilliquidity brought about by lack of interest; they are limit moves!

The next Chart, 6-4, shows weekly continuation data of corn, preceding and including the crop shortage period in 1996. Note the clear Double RePo occurring near the $5.00 level. How would you have liked to have been short a ten lot when that happened?

DOUBLE REPO SELL

Realize that if you had a position on, it would have been in September Com, not on the continuation chart. The Double RePo showed up there as well. The continuation chart was necessary, however, because it presented you with a cleaner picture. This thinking is similar to that used in an upcoming soybean meal trade, detailed in CHAPTER 15. In the meal trade, I entered on July meal but the context was taken from the weekly continuation chart.

DOUBLE REPO SELL
LOGICAL PROFIT OBJECTIVE

Microsoft (Chart 6-6) peaked at the introduction of Windows® 95 and made an almost perfect Double RePo. From there, it fell to a precalculated Fibonacci profit objective. Not only was this an opportunity to book weekly-based profits on the sell side, it was also a time to get long on a monthly reaction to an ongoing up trend. It would not serve you to skip ahead now, but some very interesting charts on Microsoft in the monthly time frame are just ahead. For those of you who are still having trouble internalizing the concepts of Time Frame, Trend, and Direction, these upcoming charts should be very helpful.

How about crude oil? Well, it's certainly a liquid market. It's also a volatile market, and that's what we want. Let's see what happened when Saddam did his thing back in the summer of 1990.

DOUBLE REPO SELL

Chart 6-7 shows the 3X3 containing trend all the way up to the $40 level, then a Double RePo and subsequent break through the 25X5. This Double RePo was the first time since the invasion ofKuwait that it was "safe" to go short. The previous breaks ofthe 3X3 (SI & S2) were single penetrations only, primarily due to the vast difference between the two tops (Tl & T2) made prior to each penetration. These dips presented buying opportunities as you will see when we cover our Bread andButter directional signal.

If you had misinterpreted these single penetrations as a Double RePo, you would have shortly reversed and more than made your money back when the '*' Fibonacci level (not shown) was exceeded. This is called a Double RePo Failure. It will be the next directional signal we cover.

The original move up to 875 certainly qualified as thrust. The dissimilar tops were a bit hard to live with but the fact that the second peak was held back by Fibonacci '*' resistance made it more palatable. The sell signal was given at about 625. The subsequent fall was a move down to about 280! I'm certainly not suggesting that anyone trade this monthly chart with what might be a $200 stop. What you need to understand is that the monthly set up can be used for weekly-based mutual fund switching or daily-based commodity trading. Another reason I wanted to show you this chart is so you can see what I'm looking for in the current stock market rally before I get excessively bearish. If we get a monthly Double RePo sell on the Dow or in the S&P, say good-bye to stocks! If the ensuing monthly pullback returns to the .618 retracement from the beginning of this bull market, we could be looking at a loss of over 4000 points!. If we only achieve the .382 retracement, we're still looking at something over 2500 points! For those of you who don't think this is likely or at least possible, gaze at Chart 6-9 again.