Mid Week Chart and Thanksgiving

As of this morning, it appears we are climbing up into the day after Thanksgiving high as expected. Though it looks labored at this time, it is to be expected after such a long and steady advance since last March. For that, I am thankful as my portfolio is much improved from a year ago. As much as I feel the need to protect those profits, I also must be cognizant of the strong possibility that this advance is nowhere near complete as evidenced by the continued bearish sentiment which can be found most anywhere in the blogosphere. Let me ask you this, how many purely bull boards can you name versus just the opposite? Lets face the facts, this decade has pounded the bulls and the bears alike....the end result seems to be fear and loathing of the markets in general.

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Enough babble for now. Here's hoping everyone out there enjoys a safe and rewarding Thanksgiving surrounded by the people who really are important ....your family. Enjoy them, for life is indeed short.

Make Me Believe

Bulls have a little work to do next week to turn this trend around. The all too obvious answer is of course a rally into and through Thanksgiving topping out on the day after turkey day, which traditionally I believe is a strong bullish day. But, the boys may have other ideas here just to trip things up a bit. So dont be surprised to see a trend "inversion" where we bottom shortly after Thanksgiving. Sentiment is still in great shape, and we still have overhead targets yet to be reached.

Mid Week Chart

Pre-Turkey 2CS Sentiment

Good time to take a look at sentiment again. Tom Drakes 2cs senticator above on which I've drawn a couple of heavy black lines more or less bisecting the recent sentiment line and the price line. Notice how, as price has maintained a steady upslope since March, sentiment exuberance has actually backed off in the same time period. IOW, as price has remained more or less linearly up, sentiment has gone into a topping pattern and almost looks to be becoming more and more bearish as price marches on upward. We've got a long way to go before this market tops out.

Path of Least Resistance

Certainly feels to be up, doesnt it? Monday we complete a weak downtrend, unless of course for some reason we swoop down to begin the week.....that would be a surprise to me though.

So, what now? Well, I would like to see some weakness on monday to setup the upcoming uptrend into Thanksgiving. The actual turn date from my data falls on Thanksgiving day, but given the propensity for the day after turkey day to be up, I think its safe to pick friday as the turn....besides, we all take the day off and the boys have their way with the market and a full belly of stuffing, correct?

Needless to say, we completed a "seasonal inversion" in the markets whereby the seasonal changes (increase) in tides and gravity have largely been ignored or overtaken by other factors. My interpretation of what that means or can mean is that now with those forces weakening day by day and week by week, we reap their additional boost to the markets. I think we'll see a fairly strong end to November, a decent correction into the beginning of December and then an Xmas surge. All in due time.

Mid Week Update

No comments tonight.....too much else going on right now. Good trading !

Up, Up and Away.....Or...

There are times when this tide stuff just seems to be another smoke screen in the ever daunting task of trying to determine market direction. And then there times like now when it is spot on and like taking candy from the proverbial baby. Guess that's what makes it all interesting and intriguing.

So, we apparently head on up into the 11/11/09 date as a high. Interestingly, the same date coined as WWW by Don Wolanchuk and infamously known for a period of weakness prior to options expirations. So...........will WWW give us a low and the following trend an incorrect tide trend that morphs from a bearish one to a bullish one? Will we instead tag or penetrate the upper trendline as we approach turkey day here in the states? I'm leaning that way, but with some caution. From a personal standpoint, I am probably 75% long throughout all personal accounts and 401k, waiting for a signal to either go further long or take some off the table. I think the next week to two weeks will tell a lot about where we head for the next several months. If I were a betting man, I would say we trend up from here into mid February 2010.

Mid Week.......Yeah, Update

Sometimes words are not needed.

Path Forward

Before off hours futures starts trading this evening, I thought it'd be good to get some thoughts and possibilites down on paper so to speak. Regardless of where I think the markets are eventually heading, I think we're at a critical juncture right here where a couple of different scenarios could play out.

First, given that the market is down right here, the possibility exists that short term they will continue on down into the tide turn date and possibly into the bradley date with some accelerated selling. Call it what you want, a strong correction or a mini-crash, it's a possibility that should not be ignored. It's been a great run and opens up the chance to rape the bulls relatively easily at this point. So, if we get this, that opens the opportunity for a good buying spot into the second or third week in November.

If, on the other hand, we get mild selling or even sideways action into the wednesday tide turn date or the bradley date, followed by a correct tide uptrend, then one might expect at the end of that trend, the following down trend could be one to be very wary of if you are a bull.

To summarize, I think caution is called for in this period to see how the markets want to handle a likely and needed correction.

Trick or Treat, Huh ??

Aha, a little trick for the bulls, huh? Halloween goes to the bears, but ultimately, who cares? With my portfolio up well into mid-double digits, I have little trouble giving some back for the next bull onslaught dead ahead. Oh really, you might say? Well friggit, let's look at some evidence. But first, where we stand currently at the end of October, you know that scary, bad for the market, portfolio eating month of October ?



Where we are is pretty much exactly where we would expect to be....prior to a tide low mid week this week. And, we have a Bradley date shortly thereafter pointing to a turn. And we have bears and even weak handed bulls looking down, down, down. You suppose the markets going to accomodate all this bearish sentiment? Highly doubtful, for as we all the know, the markets will never make everyone rich nor even happy, so forget about that.

Take a look at Don Wolanchuk's clx chart below. Here is plotted the 3dma, 10dma and 30dma of the clx as well as the vaunted aydis all along side the relative movement of the dow.

All indications point to higher prices and in short order. Not shown here is the fact that in a couple days (tuesday or wednesday) there will be negative numbers falling off all these dma's such that the averages will surge upward and so will the market with it. You see, each of these averages mimic the dow in particular and the markets in general. For those not familiar with the clx and wanting a short and sweet primer, here it is. The clx measures the stock inventory that the market makers have on hand at any particular time. See, I told you it would be short and sweet.

On to sentiment. Tom Drake's 2cs in particular is plotted below. With end of week action, sentiment has gone over the top as bear froth abounds. Notice how the 2cs has plunged as the vix and p/c ratios gone out of sight. Great fuel for the upcoming blast.

And last, where are we heading? As it now stands, we've only taken out 2 of 7 targets to the upside! See chart below where the 1,100 has been hit but there remain 4 plum targets in the 1,200 zone and one way up there at 1,400 which will get taken out sooner or later. My guess? 1,200 falls easily by the end of the year....1,400 by February/March timeframe. Who knows what additional targets will develop on the glorious journey up? You know there will be blips and beeps and corrections...just keeping my eye on the most important ball in the game.

Sooooooo....short term look for some weakness early next week before everything gets back into alignment.

Mid Week Chart

Watching closely. Quick to the bottom trendline, lets see if it holds here. If previous "scheduled" turns during this bull run remain true to form, there should be a 1 to 2 day earlier than expected turn, so maybe Nov 3 or Nov 2 (tuesday or monday).

Clx with Some Tide Mixed In

Responding to Joe's question below, this chart is a plot of the actual Eastport tides (lowest tide) each day along with Don Wolanchuk's 3 dma of the clx. I wont get into the clx here and now; it is a subject that requires quite a bit of explanation. However, I will say that it marrys and mirrors the tide stuff pretty well.

Anyway, getting back to the subject....You see the black arrow pointing to todays extreme level of tidal swing....what this particular point represents is the highest elevation of the lowest tide in quite some time. In other words, todays tide level (lowest tide for the day) is higher than at anytime for quite awhile. Taking this a little further, we are at a point where the moons gravitational pull on a seasonal basis is low, low, low......we should coincidentally, if you believe low gravity equals higher market prices, then we should be at or nearing a seasonal top........food for thought and a reason for my caution. I know this was short and sweet, but it's a monday....lol.

Let me add that this hypothesis needs additional thought and work, so dont bet the farm on it!

Weekend Update

Lots of sideways up and down action. Will need a strong monday to make this trend good. Though not shown on this chart, Oct 22, 23 was a Bradley turn date and monday the 26th is one of the strongest tide dates seen in awhile. Turn imminent or another setup to pull more bears back into the market? I moved a little money from small caps into large caps and added a little into bond funds last thursday in my 401k. May make some more adjustments this week depending on monday's action most likely. Still have some unfilled promises in the 1,200 snp range, but may have to wait for those to be hit.

Mid Week Update

Last week's downtrend whimped out into a sideways move and we're now back into a tidal upswing. Projected top of this trend is next monday, 26th of October. This date, by the way, has some tidal significance in my work and will require special attention when it rolls around. I think right now it will form an intermediate high of some significance in this rally, and will likely result in some lightening up of long positions on my part, and potentially taking of some defensive positions. Just an indication from my charts, not a recommendation in any way.

Hoping to get back to the trading aspects of the tides before too long. A project looms in this respect to attempt to prove or disprove the reality of trading the tides with eminis as the trading vehicle. More on that later, probably in a couple weeks as family is beckoning this weekend. Trade well and stay on your toes, particularly in this timeframe.

Weekend Update, Another Look at 2CS

Where are we? Well, it appears the Oct 12 turn date was blown out of the water by this bull market as if it never existed. Or has it? Upcoming turn date is monday the 19th which is supposed to be a low.....very possible it could still happen. Since we had options expiration last week and friday was a down day, I suppose you could make the case that options expiration adjustment began friday and another down day or two would do the trick.

Technically, if the ES prints below about 1,075 on monday, this downtrend would be correct, though just barely. So, can we expect the uptrend to resume on monday or even tuesday? I think the answer is yes. Lets take a look at sentiment. Below is the Tom Drake's 2cs updated through last friday.

Although sentiment is approaching the trendline, a reasonable interpretation would be that if this is the start of a bull market, sentiment has room to grow as evidenced by the behavior of this indicator in 2004 through 2006 bull market. But, maybe it is different this time.

In The Grand Scheme of Things

From Carl Futia's (http://www.carlfutia.blogspot.com/) book, "The Art of Contrarian Trading" comes the plot above which is the SPX monthly with a 4 year or 48 month simple moving average overlay. Carl uses this very simple graph to get a grasp on whether the market is under or over fair value. Price below the moving average indicates below fair value and vice versa. Just another tool for the toolbox. :)

Tide Update

Just a quick look at where we are this sunday afternoon. Expected high tomorrow (monday), but keep in mind we have options expiration on friday.

Trading the Tides, Part 2

Last week I posted a few charts showing equity growth if one were to trade the tide turn dates over the last 3 plus years. If you scroll down to earlier posts, you'll see the two charts, one based on what I have termed a 50% entry/exit and the other labeled nirvana trading where the absolute best entrys and exits are assumed (not possible). The reason for these two charts is to frame what is felt to be the absolute best and possibly worst trading results (although it is entirely possible for a trader to do worse than an average 50% entry/exit).

With the extremes set, we should now take a look at the range in between these two. A little more explanation is in order to understand the following charts a little better. When I refer to a 75% entry, here is what I mean. Lets say that an impending tide turn is imminent (for instance this coming monday) such that the trade called for is to close out a long position and reverse to a short position. Also, lets assume that the snp ES range for monday is a low of 1,060 and a high of 1,073. A 75% exit long and entry short then would be 75% of the difference between the high and low, and since we are looking for a long exit/short entry, we want: (1,073-1,060)x.75 plus 1,060. If I have done the math correctly, this translates to a price of 1,069.75. So this price of 1,069.75 then represents a 75% entry/exit for this day.

Similarly, if monday were instead a tide low date (short going into that day) and the price range were the same, a 75% exit/entry to exit short and enter long would then be: 1,073-((1,073-1,060)x.75) or 1,063.25. Pretty simple concept.

Now, lets look at some equity charts with varying degrees of success with average exits and entrys. Below are 3 charts illustrating the results.

At the top of each chart in the title block the entry/exit assumption is shown. Below is a chart with all the charts combined.

The heavy white line has been drawn to show a 100% return on investment, on in this case, starting with a $25,000 account and have it grow by $25,000 annually. Apparently, to realize this type of account growth, the average entry and exit would need to be in the 65% to 70% range based on backtesting data for nearly a four year span. At some point, I would like to go further in the past with backtesting. Again, this return is based on trading one ES contract and has no consideration for drawdowns, which if you are a trader, you would know how those can affect a trader's ability to stay in a losing trade. More on this later.

Mid Week Update and Nirvana Trading

Above is a chart of where we are on the snp ES as of about 5:35 pm, tuesday 10-6-09, the day after my birthday. :) Clearly the tidal low expected for today actually came in late last week. There seems to be a tendency for a turn date to occur one or two days early in the direction of the predominant trend. In other words, in this bull market, the low and turn upward seems to come in earlier than expected, as if the market can hardly wait to resume it's upward march in a bull market. I will have to check to see if this the opposite occurs in a bear market......In any event, monday the 12th is the next high point of this rally according to the tides.

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Now, back to trading. Last weekend I posted a chart based on trading the tides with a 50% entry and exit. Just for giggles, below is a chart of nirvana trading where the basis is that a trader would get the absolute best prices available on the turn dates. Obviously this is not possible, but I post the chart just to frame the boundaries between what should be bad trading (the previous 50% chart) and what is impossible to do (the 100% chart). Now the limits are set and this weekend I'll put up some charts of equity growth based on what we might theoretically expect a trader, only slightly smarter and more experienced than that caveman mentioned earlier, ought to be able to do. Keep in mind this is based on trading a single ES contract and getting the impossible best prices for entry and exits. Also no consideration for drawdowns is included here.

Trading the Tides ?

Since beginning this blog a little over a month ago, I've touched upon the tides and trends but have said nothing about trading. Let's delve into that area a little bit here. It seems obvious that if the tides are anywhere near consistent pointing to top and bottoms, we ought to be able to trade with this information. So here's what I 've done.
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My tide data goes back a little over 3-1/2 years to the beginning of 2006. I've downloaded the S&P emini daily price data (open, high, low, close) from Tradestation over that time period and laid it up against the tide turn dates I've developed. Since the eminis trade 24 hours a day, understand that the official beginning of a new day is at 4:15 pm est and runs to 4:15 pm the following day.
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An assumption must be made in order to backtest the data. That assumption being at what price on each turn day one would theoretically be able to either buy or sell the emini contract. For this assumption, I've varied the efficiency of the entry and exit points to examine various equity curves based on these entry/exit points. I start first with what I call a 50% entry/exit. What that means is that on any given tide turn date, a trader would only be able to enter or exit a trade halfway (50%) between the high and low of that particular day. In other words, if the tides indicated a turn next tuesday (which they do), and the trading range for eminis on that day was from 1010 to 1030 and the trade required was to go long, then the trader's best low entry price for that long entry on that day would be 1020, or halfway (50%) between the high and the low of that day. As that long trend and trade played out to the next turn date, his exit long and go short price would again be 50% between the high and the low of the turn date range. So, if the trading range on the reversal turn date is between 1040 and 1052, then the exit long and go short price would be 1046.
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Using an excel spreadsheet to tabulate all the entrys and exits for each turn date, I then calculated an equity curve using a theoretical $5 per trade commission cost. Below is a chart of those results dating back to the beginning of 2006 with an assumed starting account of $25,000.


As you can see, nothing special here. Over almost a four year period, a gain of only about $10,000 on an initial investment of $25,000, or roughly 10% annual return. And some fairly wild swings in equity with undoubtedly large drawdowns along the way. Surely, we can do better than this. Well, we can do much better than this...actually much better by improving the entrys and exits on the turn dates. Keep in mind the equity curve above is based on only being able to get average entrys and exits at prices halfway between the highs and lows of each day. Surely, even a caveman could do better. Mid week, I'll put up some more equity curves based on what a trader should be able to do.