Power trend

Just a quick update. We had a big up day as i posted yesterday. My trendicator has entered a power trending mode now.

Here' some quick details on what a power trending mode means. Power or strongly trending markets are those, where the odds of sucessfully executing a countertrend swing trade becomes extremely low. It does not preclude one from intraday countertrend trades or quick scalps, but is unforgiving when it comes to trying to swing against the trend. Power trend does not measure the size or duration of the move. The move could run for months or end even after a day. It just attempts to charaterize a trend which is in a high momentum zone. So it pays to wait for a potential CIT or actual CIT before any countertrend swing is attempted from this mode.

No change

The action on the hourly charts today was ugly, but my trendicator failed to produce either a sell signal or a CIT warning. I would have at least expected a CIT with this kind of action. But surprisingly, i did not get one. So the trendicator remains on Green. If the trendicator is right, we should get a huge up day tommorow. If not.... :-)

Daily buy signal

The signal changed today from strongly downtrending to uptrending, without a CIT warning. Not surprising, given that we had a key reversal day on the daily charts. The next upleg has begun....

NAV trendicator

Here's a visual look at my system. My system uses no cycles, e-wave, astro, magic numbers, support, resistanace, Fibonacci or for that matter even interanls (breadth, vol, high/lows), Put/Call, VIX, fundamentals, news, earnings, bull market, bear market, cyclical/secular trends et al. It is based on purely price action, price trending rules and price based momentum. Price trending rules and momentum rules are used to charaterize the trend into different phases as

1) Trending
2) Strongly trending (power phase - no countertrend trading should done in this phase)
3) Downtrending
4) Strongly downtrending (power phase - no countertrend trading should be done in this
phase)
5) Potential CIT (Change in trend) => At this point, trend traders should take profits or tighten their stops and swing traders start probing positions against the trend.


Last but not least, this is not a curve fitted system (which are dime a dozen in this industry), with optimized parameters to make the past look good. The system only attempts to characterize the trend and not optimize the buy/sell points. No it won't pick the exact bottom and top tick, if that's your obsession. You would miss one or two candles at the top/bottom. The system also does not have a vision for the future . Consequently, it does not attempt to guess the amplitude of the move or the duration of the move.

Taking a break.

I will be a taking a break from blogging for a while. Good luck trading !

IT and ST thoughts

We are in a ST rally in a IT downtrend. The IT trend turned down after we broke the Feb 2010 weekly pivot at 1044 on 5/25/10. The action is reverse of what happened when we broke the 943 pivot in June 09. Once a weekly pivot is broken, the market cannot repair itself in days and rally to new highs. When the weekly pivots were intact, there were bold statements calling for the TOP of the bull market on the message boards. Now that the weekly pivot is gone, there are bold statements about possible new highs on SPX in the coming weeks. Broken trends don't turn on a dime. If it did, there would be no trend traders around. I hear comparisons of this decline to that of July 07 decline and subsequent rally to another high in Oct 07. Well, the July 07 decline did not break the prior weekly pivot at 1363. So the weekly uptrend was intact then. What we have now is a broken weekly trend which needs to be fixed.


I see two ways this can be done:

1) Complex bottom on the NYSE MCO.

or

2) We establish a weekly pivot in the SPX 1130-1150 area, go down and make new lows and then rally back up and break that pivot.

Until one of these happens, all ST rallies are bound to fail and the IT downtrend will continue. We are in the sweet spot of SPX 1130-1150 where this rally could fail. Currently the ST is on a buy, but keep an eye for a rally failure from this area.

Complex bottoming action required

Needless to sat that the buy signal from 1085 failed on friday and we are back to sell mode. The NYSE breadth MCO will have to put in a complex bottom, with positive divergence with price, before we see any sustained IT rallies. Until then, all these ST buy signals will produce minor pops and fail. Will update if anything of significance happens.

Hourly buy signal - June 2, 2010

For the first time, since this decline started in April, SPX has generated a Short term buy signal on my system. The short term buy got triggered at SPX 1085 today. Technical objective for this buy is about SPX 1140. Will reassess the technical picture if and when we get there.

Reading the price

Last week i posted that we are in a sell the rallies mode and the status quo remains. However, i personally have not sold any rallies so far, given the way the decline started - with a huge gap-down and no decent rallies to position short.

Although the exchange has busted all the trades below a certain treshold, what remains on the chart is a big wide range bar (100 points wide) on the daily charts. We should continue to see many inside bars within this wide bar range, for the next few days or perhaps weeks. The resolution out of this wide range bar will determine the price direction and targets for weeks to come. If we get a daily close above 1167, then we have seen a bottom today and we should head up to SPX 1270. If we get a daily close below 1065, then SPX 950 becomes the downside target. It is very easy to say the trend is down here, as easy as it was to say the trend is up, just 3 days back. The reality is we are in a highly unstable trading zone. I guess it will be lot's of fun as we whip around in this 1065-1167 area the next few days, before the market makes up it's mind. Trade safe !

Sell the rallies mode

Lots of yo-yo action in the last two weeks. With the break of the 1190 pivot, we are back to sell the rallies mode on the hourly charts. So far there is no evidence of any bottom to go long. If there's any, i will update here.

Preliminary sell again

I had said i would update if there's any change in the trend resumption scenario. As i said in my last post, we resumed the trend upwards, but today we had a momentum failure near the highs. Momentum failure in itself is not a sell signal. It can just cause a high level consolidation before the move up. But when some key EMAs crossover along with momentum sell, it suggests that the correction can be something more than just high level consolidation.

For instance, today we not only had a momentum failure but the 3/13 ema pair on 30-min crossed over as well. That suggested that the downmove was going to be something more than just a high level consolidation. Even that EMA crossover is not an indicator of trend change until we make lower lows on the price. So if one is shorting against the trend, as i said in one of my posts 2 days back, either the DTL or the pivot has to be honored. In this case the pivot is at 1211 and any move above that is a signal to reverse long. If one is a miser on the stops, they could even get out on DTL break on a closing basis or a 3/13 crossover back above. I use pivots to reverse my position though. At the close the 3/13 was in a backkiss configuration on the 30-min charts. Now the big money folks can easily perform a crossover with a gap-up. But will they ?

Bottomline, aggresive traders can go short with the above mentioned precautions, using the preliminary sell. Others can close longs and stay in cash until SPX 1211 is recaptured.

Correction over ?

Odds are about 70% that the correction is over and a slingshot recovery is in progress. One of the cardinal sins of countertrend trading is remaining short when a downtrend line is broken. Yes sometimes, false trendline breaks happen. Those happen once in 3-4 months. If you are betting on such outcome, it's your money We made a divergent bottom on the hourly and broke the DTL. That should be sufficient indication to hop on the long side in a bull trend. Too many are expecting SPX 1225. So odds are we will overshoot it this time. If anything changes in the trend resumption scenario, i will update here.

The trend is still up....

But the warning shots have been fired. This is the 4th VST sell signal fired by my system since the Feb 2010 bottom. This selloff has been the largest fastest decline since the Feb bottom, which means it is likely that this is more than a one day wonder. If the market were to maintain the current trend structure, then it has to perform a slingshot recovery to the uspide. If it's a slingshot recovery, we should see big volume coming at the open with green candles. Barring that, the slower moving averages on the hourly charts will start curling over, leading to a more deeper selloff. If the volume is anemic on any bounce from here, i will start scaling into shorts between the SPX 1195-1205 area. A move above 1214 is required to invlaidate the sell setup.

IT and VST sell signals

The IT run which begun in Feb has produced three VST sell signals on my system. The first sell produced a max profit of 20 points from the sell trigger point. The second sell was good for 8 points and the third sell was even worse. Well, it only goes to reinforce the lows odds nature of countertrend trading.

Low volatility gives a false security of limited upside risk and hence draws the short sellers. And then divergences are too juicy for the countertrend cowboys to ignore. It's not a crime to short an uptrend, provide one follows some simple trend rules.

1) Don't short a divergence unless, it's accompanied by a trendline break or a pivot break.

2) Don't short a momentum crossover like MACD or Stoch, unless accompanied by a trendline break or pivot break.

3) To take it one step further, don't short any kind of sell signal, unless accompanied by price confirmation in the form of a trendline break or pivot break for the given timeframe traded.

4) Even, if the above rules are followed, strong trends can create pseudo trendline/pivot breaks and reverse. So after shorting, draw a downtrendline and get the hell out of your shorts, if the down trendline is broken, and reverse long.

5) Trendline and pivot breaks should be on candle closing basis, to avoid false breaks.

These are simple TA rules that everyone knows, but ignored, carried away with esoteric TA or personal ego. Then they foolishly state that divergences do not work or Oscillators do not work or TA does not work.

As i posted on March 26, a break of SPX 1181 put us back on a buy signal. The IT picture is not showing the necessary loss of momentum to call any sort of top here. But then the market always looks strong at tops. It's this contradiction that "market does not show any signs of top" and "market rarely shows any weakness right at the top" makes it a futile endeavour to pick tops. When a top of any significance occurs, it will be written in BOLD letters. Yes, you may miss the top 1%and the GURU title, by not picking the top. I will update here, when i see either signs or confirmation of an IT top. Until then, enjoy the trend...

SPX sell again ! - 3/26/2010

SPX flipped back to a sell at the close today. This whipsaw between sell-buy-sell typically occurs at key reversal areas. That leads me to beleive that this sell signal will run deeper than most think. My strategy here would be to start scaling into shorts from this level and add on any bounces, with a stop at SPX 1181. A move above 1181 will put us back on a buy signal.

SPX - March 24, 2010

SPX taking out 1170 invalidated the sell signal and puts us back in a buy mode again. This is probably one of the crummiest sell signal in terms of number of points gained, in the recent months. The sell signal was triggerred at 1161 and the best price the signal could attain was 1152.89, which is about 8 points. Typically these hourly signals generate anywhere between 15-50 points. Again just to be clear, i am not talking about the potential trading profits of this signal, but the maximum points acheived by the signal from the point where it was triggered. In fact, this would have been a losing trade, had one played it for a swing trade. The shallow correction that the signal produced says a lot about the strength of the market, from a pure price perspective. So we are back in buy-the-dips mode, until the next hourly sell gets triggered, which i will post here.

$WTIC (OIL) remains on a daily sell signal.

SPX enters a ST sell

Sorry, i was busy with some business matters and could not update the blog for nearly a month. Finally i have some time on my hands and will actively start updating my blog. I will continue to post the hourly buy/sell signals on SPX and Daily buy/sell signals (instead of weekly) on Gold/OIL/Dollar etc. Sorry, the weekly stuff takes too long to generate signals and is not working out for me.


The last time SPX generated a buy signal was at 1056, which i posted here on the blog on Feb 12. On Friday my system generated a hourly sell on SPX at 1161, which i posted on TT at

http://www.traders-talk.com/mb2/index.php?showtopic=117286

Stop for the SPX sell is 1170.


Along with SPX, $WTIC (OIL) also entered a sell at friday close, at 80.97. Stop 83.36


I will try to post updates on signals at the EOD each day, if there's any change to the signal.

Weekly signals - 1/19/2010

Weekly trends

OIL (neutral)
Buy 12/24/2009 USO 38.20 stop 35.22 - Stopped out.


Dollar Index (neutral)
Sell 1/15/2010 USD 77.36 stop 78.78 - Stopped out.

Gold (Buy) - Gold issued a buy signal this week.
Buy 1/19/2010 GLD 109.47 stop 102.28
Buy 1/8/2010 GLD 111.37 stop 105.30 - Stopped out

Bonds (buy)
10 year yields on a buy signal since 11/30

Disclaimer: All signals are experimental and for entertainment purposes only.

SPX - Remains on a buy signal

Weekly signals - 2/12/2010

Weekly trends

My system remains neutral on all the assets. Stay tuned for a fresh signals next week.

OIL (neutral)
Buy 12/24/2009 USO 38.20 stop 35.22 - Stopped out.


Dollar Index (neutral)
Sell 1/15/2010 USD 77.36 stop 78.78 - Stopped out.

Gold (neutral)
Buy 1/8/2010 GLD 111.37 stop 105.30 - Stopped out

Bonds (buy)
10 year yields on a buy signal since 11/30
It's now in a retracement in an uptrend

Disclaimer: All signals are experimental and for entertainment purposes only.


SPX

SPX issued a buy signal this week, with SPX 1056 as the key pivot. Above 1056, the market will remain in a bullish configuration. A break below 1056 will reverse the bias to bearish. Whether this is a countertrend rally or the beginning of a new upleg is unclear at this point. No projections for the rally yet. Enjoy it while it lasts...

Weekly Signals - 2/5/2009

Weekly trends

With that surge in dollar, all of those assets inversely correlated with dollar got stopped out. OIL was the last one to get stopped out this week. My system remains neutral on all these assets until the next buy signal gets generated (or a continuation sell as the case maybe).

OIL
Buy 12/24/2009 USO 38.20 stop 35.22 - Stopped out.


Dollar Index
Sell 1/15/2010 USD 77.36 stop 78.78 - Stopped out.

Gold
Buy 1/8/2010 GLD 111.37 stop 105.30 - Stopped out

Bonds
10 year yields on a buy signal since 11/30
It's now in a retracement in an uptrend

Disclaimer: All signals are experimental and for entertainment purposes only.


SPX

SPX remains in an intermediate term sell. Given the speed at which it came close to the SPX 1030 pivot, there are two possibilities for this 9 month cycle bottom due in March. Either we are going substantially lower than SPX 1030 or we are going to see some volatile bottoming action beween the SPX 1030 - 1105 area over the next 3 weeks. I guess it all depends on how the debt situation in the third world countries of Europe pans out. Trade the volatility until a bottom is carved out. Good luck !