Technical Analysis - S&P 500 9/30/11

The wild choppy ride in the S&P 500 has continued for over one month now.  Is it about to finally resolve to the downside?  The upside?  Let's see what the price charts look like. 

Long term downtrend is in place for the S&P 500.  

The intermediate term trend in the S&P 500 has been pretty choppy lately, but the larger downtrend seems to still be guiding its path for the time being.  

Long term moving average envelope (weekly chart) remains in downtrend mode.  Briefly moving into uptrend mode, the daily envelope is now back in downtrend mode.  If you are position trading by following the price trend, then should you trade in the direction of the next larger degree of trend than you are trading?  I tend to think so.

RSI is in downtrend mode over both time frames.  

The trend following Dynamic Trailing Stop remains in downtrend mode on the weekly chart and daily chart.  Note all the churn on the daily chart.  

ADX / DMI registers trending behavior on the weekly chart, but non-trending action on the daily time frame.  

My basic Elliott Wave interpretation remains long term bearish.  Let's see what happens in the intermediate term for possibly more clues. 

 
Not much meaningful information in the VIX right now. 

Put / Call seems to have some worry built into it right now.  Honestly, that's usually not the best sign for the bear cash.  We will just have to see.  Our main indicator is price action / trend, but this does show that we should not let our guard down.  A rally could certainly develop out of the recent sideways pattern.

Current Stance:

Long Term: Hold Short

Intermediate term: Hold Short (use tight stop, correction might not be complete)

Short term: 
My short term system is currently allowing trades on the short side.  Directional orientation as well as entries and exits in the system occur more frequently than posts to this blog.

Definitions: 
Flat = no position / not long or short the market. 
Sell / Short = positioning to attempt to profit on price declines
Buy / Long = positioning to attempt to profit on price advances
Hold = hold a long position
Hold Short = hold a short position  

Did the Past 7 Weeks of Rally Lull You to Sleep?
Here's why you SHOULDN'T get too comfortable
By Elliott Wave International

Bear markets are cunning beasts. Don't get me wrong -- we are not in the bear market territory yet. At least, not officially. But look at this chart of the DJIA... Read more.

Technical Analysis - EURO 9/29/11

I heard a rumor today that Germany has plans to abandon the EURO.  I don't trade off of rumors, or news for that matter, but this is still interesting.  

Forming the EURO currency was a bad idea from the start in my opinion.  Sure, I'll trade it long from time to time (currently bearish), but the whole system seems screwed up to me.  It doesn't take an economist (I'm not one) to figure out that having money that is backed by nothing is a bad idea long term.  The EURO made it worse by putting a bunch of economies based on fiat systems all under one big fiat system.  This just seems ridiculous to me, but then again, the world is a pretty crazy place.

What does all this rambling have to do with technical analysis and trading of the EURO?  Nothing, but you still read it. 

Long term distribution pattern -that's my story, and I'm sticking to it until proven wrong. 

  Intermediate term down trend registered. 

Moving average envelopes in downtrend mode.  Daily may test soon, which would possibly provide a new selling opportunity.  

RSI is in downtrend mode on both charts, but is positively diverging a bit on the daily chart.  This daily RSI positive divergence further indicates the idea that an upward retrace or test of trend may be in the cards. 

The Dynamic Trailing Stop is in downtrend mode on both long and intermediate term.  Intermediate term stop level is tight. 

ADX / DMI is registering trending behavior on the weekly chart, and has just turned down a little on the daily.  I would not call the daily ADX activity decisively non-trending right now, it is just somewhat non-trending at the moment.  
 

My Elliott Wave interpretation is and has been bearish.


Current Stance

Long Term: Sell

Intermediate Term: Hold Short

Definitions: 
Flat = no position / not long or short the market. 
Sell / Short = positioning to attempt to profit on price declines
Buy / Long = positioning to attempt to profit on price advances
Hold = hold a long position
Hold Short = hold a short position

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Go With The Flow.

As traders, as people, we spend a lot of time on trying to make things objective that just are not so much so.  For example, I have been working a lot on automated trading systems (may publish more of them one day).  Most of them are actually centered mostly around money and risk management tactics combined with trend.  I just think it would be cool to automate all of this.  To automate, you have to make not only your money and risk management objective, but also your measure of trend.  This sounds great, and I certainly intend to continue pursuing it, but some things just can't be automated very well.  

My best friend and I were talking long distance during the trading day today.  We both do short term E-mini S&P trading.  Prior to this, we both owned a different business together.  I asked him for thoughts on a system strategy question, he answered the question, but also added that he prefers discretionary trading.  He said it just fits his personality more.  

This statement, like many things in trading, reminded me of the sports I have been involved in -skiing (water and snow), snowboarding, wakeboarding, motorcycle riding, a little hang gliding, and little surfing.  My friend did (does, but I've been on a break because of other tasks) all of these sports with me over the years.  In these sports, and in life, we often just have to go with the flow and not force things.  That's what I got out of his message today.  It led me to tighten up some exits for a profitable trade I was working.  The tightening was much more than the system called for, but it was pretty obvious that the need was there.  It was obvious because of the market flow.  Kind of like when you get choppy water in a barefoot waterski tournament.  Do you do your most complicated tricks in the chop?  Probably a bad idea -I've got two ACL reconstructions as evidence if you don't believe me.

The trade ended up exiting not far off the lows of the day with a hefty profit (I was short the S&P 500).  In fact, the trade itself harnessed a majority of the day's downside.  By the end of the session, the system's trailing stop had been hit.  If I would have stuck with the systems instead of going with the flow, I would only have a small profit.  

Do I think the systems should be abandoned?  No.  They can be employed to go to the market on  a regular basis and farm for profits.  But what I did come away with is remembering the importance of going with the flow and not forcing things in life.  You can't surf when there are no waves no matter how hard you try.  OK, I know someone is going to prove me wrong on that, but you get the point. 

Go with the flow, and have friends that will remind you to do so.   

Did the Past 7 Weeks of Rally Lull You to Sleep?

Here's why you SHOULDN'T get too comfortable
By Elliott Wave International 

Bear markets are cunning beasts. Don't get me wrong -- we are not in the bear market territory yet. At least, not officially. But look at this chart of the DJIA... Read more.

Technical Analysis - Gold 9/28/11

Last week's post for the gold market started out with the following two sentences:

"I'm on the sidelines with a lot of markets right now.  Gold is one of them."

Boy, did I not know how well that was going to play out.  Gold was at $1,786.50 per ounce at that point.  Right now, gold around $1,600 after having dropped all the way to $1,535.20. 

It just looked toppy to me, and  my outlook for silver (see prior silver posts) also gave me some worry in regards to the metals in general.  But that was then, this is now.  I'm glad we were out of the way, but everybody gets lucky every once in a while, so let's see if the charts can give us some indication of what to do now. 

Long term uptrend -broken for now. 

Intermediate term downtrend on the board.  Will it persist or lead to a return in the larger uptrend?  I know it sounds simple, but one of the main things I will be watching in determining if we should buy gold or not will be the downtrend line that has been drawn above. 

The weekly moving average envelope and signal line still have not given any kind of sell signal.  The daily MA envelope gave a sell signal and has continued to trend down. 

Weekly RSI is in neutral range.  Daily RSI is in downtrend range.  

The Dynamic Trailing Stop is a sensitive creature, making it often good for use as an exit indicator.  DTS is in downtrend mode over both time frames.  

ADX / DMI was previously showing trending behavior on the weekly chart, but has now turned down.  On the daily chart, ADX is starting to perk up after previously being in non-trending mode.  Intermediate term automated trend signals are getting hit.

A lot of you semi-gold bugs are excited to possibly buy gold and / or silver after the recent decline.  So, what will I be looking for before going long gold.  Pretty much the same things mentioned in Monday's post on silver.   

I would prefer to see a couple of more subdivisions to the downside in the intermediate term.  I'll be watching the silver Elliott Wave pattern that has been posted in Monday's post, and on a regular basis before that.  All of this will be combined with watching simple trendlines. 

Current Stance

Long Term: Flat


Intermediate Term: Flat

Definitions: 
Flat = no position / not long or short the market. 
Sell Short = positioned to attempt to make money on price declines
Buy / Long = positioned to make money on price advances
Hold = hold a long position
Hold Short = Hold a short position

It's All the Same Market in a Deflationary Environment

By Elliott Wave International 

Watch this video excerpt from Robert Prechter's special video issue of the August Elliott Wave Theorist where he explains what is causing diverse markets to move together in today's environment. Read more.

Technical Analysis - Swiss Franc 9/27/11

Did you know that there is a law in Switzerland that says you can't flush your toilet after 10pm.  Actually, it may be a local rule or something other than a law, but there is something that regulates this activity at some level.  I read about it recently.  It has to do with noise regulation or something. 

This toilet law has nothing really to do with technical analysis of the Swiss Franc, but I still thought is was interesting.  They also have some specific rules about when you can take your trash out.  I find this interesting too.  

For the most part, it seems the Swiss are very very free, but, just like every place where bureaucrats have gained control (pretty much every place), they do have some weird authoritarian rules.  They even have one about women and school children having to come home for lunch.  I don't know the specifics, but there is some rule about that.  Maybe this bit of authoritarianism is just enough to keep the terrorists from hating them for their freedom.  I doubt it though.  

That's one thing I really like about the Swiss.  Somehow they have been able to keep their authoritarians from going about into other lands to seek monsters to destroy. 

The main thing I like about the Swiss is their banking related property rights and efficiency.  I know that some of the banks are not so private anymore, but that's just because those are the ones that have offices over here in the U.S.  

It's been my pleasure to work indirectly with some Swiss folks from time to time, and I found them to be really clear communicators, very efficient, and not patronizing.  I like all of that.  I also liked the Swiss Franc for savings related funds for some time.  

Regular readers know that we were long the Swiss Franc for an extended time.  We finally had to exit, but with a profit.  It was fun being in the Swiss Franc.  The trend was great, and it was just fun to be in another currency.  But we don't base decisions off of cool and fun.  We respect price action and price trend.  We currently have no interest in the Franc, but we may again at some point.  

Long term trend -broken.

Intermediate term trend -down.  A bounce would not surprise me here, but we are not currently directly involved with CHF.

The trend is down.  Why am I not shorting it?  Well, if you moved from CHF to USD, you are effectively short CHF and other currencies in favor of USD; just not in a leveraged sort of way.

Current Stance 

Long Term: Flat

Intermediate Term: Flat

Definitions: 
Flat = no position / not long or short the market. 
Sell Short = positioning to attempt to profit on price declines
Buy / Long = positioning to attempt to profit on price advances
Hold = hold a long position
Hold Short = hold a short position         

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The Bad News and the Good News

Earlier this year I embarked on a quest to learn how to program my current and future technical analysis based trading strategies into software that could automatically trade these strategies.  Perhaps more important than the automated executions and automated money management (money management through adaptive position sizing is a big part of my current repertoire), would be the ability to rapidly back-test strategies for validity over multiple markets and multiple market periods.  

The bad news first: 
My short-term strategy came back with an equity curve that underperformed a previous manual back test using spreadsheets.  

The good news:  
The trades don't really match up that well.  My coding logic is not written correctly.  

Why is this good news?  I would rather the coding be the problem than the strategy.  I'm glad I've got lots of manual back-test work from the past to compare automated systems to!   

It just means I need to keep on working on learning to write code.  Perhaps I need to do more work with more basic systems and build one step at a time, creating code modules that I can build into more complex systems.  This first attempt at one of my real systems included multiple time frames, adaptive money management, and adaptive exit parameters.  That's probably a little much to swallow all at once.  

Many parts of the code do function correctly; that much is clear.  I think I know the few parts that are causing the problem.  I just don't know enough about the language yet to fix them.  Creating is never easy, but it is often worth all the blood sweat and tears.  So back to the drawing board I go.  

In summary, I guess the bad news is that computers are dumb.  The good news is that they are very trainable once we learn to communicate effectively with them.  

Technical Analysis - Silver 9/26/11

My Grandmother used to get a kick out of reading a Brer Rabbit story to me that had one line she really enjoyed the most.  She probably enjoyed it because I laughed every time she read it.  I don't remember if I was laughing at her laughing, or I was laughing at the story line.   It went something like "what goes up must come down".  That's always stuck with me for some reason. 

I just tried to do a quick Google search, but was unable to find that line from Brer Rabbit in the 30 seconds I allowed for the task.  Who knows; my memory from back then is most likely pretty flawed.  But, that's how I remember it, and it applies to markets, so I like it.  I've always remembered that line.  I wander if it really was a line.  Anyway, on to silver. 

To be completely honest, most things in trading don't work out.  Risk management and tactical trend following are employed for this very reason.  However, a decision that has some discretionary input occasionally works out really well.  These events are the exception, but, like a great wave in surfing or a deep powder day when skiing, that's what traders will keep striving and coming back for.  Silver has become one of those events for us.  

We exited silver trading positions months ago and have been posting to this blog our expectations for an intermediate term downtrend in price.  The downside action started last week, and it started with a bang.  What a move!  It's nice to not have been long.  Yes, even being out of the market at the right time is exciting.  This is a tough business.  We take what we can get, and avoiding a loss is definitely a big deal.  

Now let's see if we can figure out if we should continue to stay out of silver, or if we should look for a buying opportunity now.  Or should we short the next bounce? Remember, we first exited silver when it started breaking down from a previous uptrend.  The discretion was not reentering when it looked like that uptrend might possibly be resuming.  This was primarily based on price action / price patterns, so that is what we continue to watch.  

The long term uptrend in silver is broken for now.  Is this a major trend change or a correction?  We don't really know.  Who does?

A new intermediate term downtrend is now present on the daily bar chart.  We are currently provided with pretty clear definition to.  If we do start looking to buy silver soon, a break above these new downward parallel lines will likely be part of the decision. 

Silver's weekly moving average envelope has not quite given a sell signal.  The envelope itself is trending down, and the signal line is in neutral territory.  At the time of last week's silver post, the daily signal line had just moved into downtrend territory.  Now, it is much further along.  What a big change a week can make!


RSI is now in downtrend range on both time frames.   I would absolutely expect a bounce in here, but lets just see what type of trend forms out of all of this.  

Last week, silver's weekly Dynamic Trailing Stop was still in uptrend mode.  Not anymore.  The daily DTS was already in downtrend mode in last week's post.  It's moved further along with price as of today.  

ADX / RSI still registers non-trending behavior on the weekly chart.  We noted ADX perking up on the daily chart last week.  Now, it is saying that an intermediate term trend is happening. 

If you visit here on a regular basis, then you have seen my previous Elliott Wave counts for silver that pointed right down to the very area silver prices are now at.  Go ahead and look at some of the prior silver posts and you will see what I'm talking about.  

So, what am I looking for before I start buying?  I would like to see a few more subdivisions in the sub-pattern of the decline.  I want to see the decline stay above the wave-1 area labeled on the chart above.  If the downward action gets too deep, I will start considering it an actual change in the broader trend.  I will also combine all of this with the simple trendlines at the top of the page.

Current Stance

Long Term: Flat trading positions

Intermediate Term: Flat

Definitions: 
Flat = no position / not long or short the market. 
Sell Short = positioned to attempt to make money on price declines
Buy / Long = positioned to make money on price advances
Hold = hold a long position
Hold Short = Hold a short position

How to Set Protective Stops Using the Wave Principle
The 3 simple rules of Elliott wave analysis can help traders manage risk, ride market trends and spot price reversals
Elliott Wave International   

New home sales at six month low

According to the Financial Times, new home sales in the US are at a six month low. 

Do you think this is the bottom?  I don't.  

Even with the low interest rates, people don't want to stick their neck out like the used to.  People want to be free of debt these days.  And rightfully so.  When much of the bad debt is liquidated, then I will look for a bottom. 

Homes are simply consumable items that people got excited about during part of the asset bubble that has still not deflated.  I'm sure plenty of smart economist types will disagree with me on this, and that's fine.  I'm not an economist.  I'm a speculator.  This is my speculation for now.  

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Technical Analysis - S&P 500 9/23/11

It's been a wild ride in the S&P lately.  Last week, we were taking profits on short positions because priced failed to break down.  This week, prices are trying to break down again, and have triggered some of our trend systems. 

The long term downtrend in the S&P 500 index has emerged and is still in place. 

Is the intermediate term downtrend reemerging after a short break?  That might be the case.  But we also might be in a larger and more messy correction.  I really don't know the future (do we ever?).  Right now, the intermediate term flag type pattern has been breached, but new lows have not been obtained.  

If you sold short with the breach of the recent uptrend channel, then it seems like a good idea to go with the flow by holding with at stop at the turn high.  If it does not work out, then so what.  If it does work out, the great!

While the weekly moving average envelope has remained in downtrend mode, the daily MA envelope went neutral last week and is not moving back into downtrend mode. 

RSI is in downtrend range on both time frames.

Dynamic Trailing Stop remains in downtrend mode on the weekly chart, but has been whipsawing in and out of uptrend / downtrend on the daily.  That's what sideways consolidations do -churn.  Now the big question is will we get another set of whips on the daily or are we going to see the intermediate term form a real trend here. 

ADX / DMI is trending on the weekly and starting to turn back up on the daily.  

My current Elliott Wave interpretation remains long term bearish. 

VIX

Put / Call

Current Stance:

Long Term: Hold Short


Intermediate term: Hold Short (use tight stop, correction might not be complete)


Short term: 
My short term system is currently allowing trades on the short side.  Directional orientation as well as entries and exits in the system occur more frequently than posts to this blog.

Definitions: 
Flat = no position / not long or short the market. 
Sell / Short = positioning to attempt to profit on price declines
Buy / Long = positioning to attempt to profit on price advances
Hold = hold a long position
Hold Short = hold a short position 

Bob Prechter has just released a FREE report -- with urgent analysis from his August and September 2011 Elliott Wave Theorist market letters. It will help you put these uncertain markets into perspective so that you’ll be better positioned to both protect your investments when needed and prosper when opportunities arise. 

Read your free report now.

Housing Starts

I remember back when I first started saying I was bearish on real estate (before this blog).  People used to laugh at me.  Prediction is not a great game to play, and I am trying to get more and more away from it in trading, but this one worked out. 

My view on housing is a little more refined now.  I simply see personal homes as a consumable.  Obviously an apartment complex or something like that might be revenue and cash-flow generating.  Once upon a time people thought their personal homes were the best investment they could make.  We were getting liquid at that time.  

Technical Analysis - EURO 9/22/11

Many markets have seen a lot of action today.  And that's what these weekly posts of five of those markets is all about - keeping us in tune with the trends as best we can.  For example, we had a flat stance on the EURO for several months before recently going to a sell / sell short stance.   

The thing about trading is that most trades don't workout.  Most have to be kicked out and exited with a loss.  That's why it is always important to mange risk, which has been discussed in other posts.  So far, the EURO has been one we can keep around.  It is moving in our direction at the moment -down.   

As I've been saying week in and week out, the long term pattern looks like a massive distribution pattern.  Do I know that it is with certainty?  Absolutely not.  That's just my interpretation of the probabilities right now.  At the end of the day, I ultimately follow price trend -usually at the beginning of the day to. 

Downtrend registered on intermediate term chart. 

The weekly moving average envelope now has caught up with the daily.  Both have signal lines below down-trending moving average envelopes.  

RSI is also in downtrend range on both time frames.  There is a bullish divergence on the daily RSI right now, so we might get a bounce somewhere near current levels.  If so, it might be an additional selling opportunity. 

The Dynamic Trailing Stop is in downtrend mode on both time frames.

ADX / DMI is showing some trending behavior on both time frames as well. 

My Elliott Wave interpretation is bearish.  

Current Stance

Long Term: Sell

Intermediate Term: Hold Short

Definitions: 
Flat = no position / not long or short the market. 
Sell / Short = positioning to attempt to profit on price declines
Buy / Long = positioning to attempt to profit on price advances
Hold = hold a long position
Hold Short = hold a short position

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Elliott Wave International 

Technical Analysis - Gold 9/21/11

I'm on the sidelines with a lot of markets right now.  Gold is one of them.

I always feel like clarification in the metals markets are required:  Yes, I still believe holding at least a small amount of physical gold and silver is a good idea.  These charts and comments are related to trading price changes.   

No violation of gold's long term trend yet. 

Gold's intermediate term trend is breaking down a bit. 

The weekly moving average envelope is looking fairly healthy.  Although the signal line is slightly trending down, it is still safely above an upwards trending envelope.  The daily MA envelope is trending down with a signal line in the lower portion of the neutral range. 

Weekly RSI is in uptrend range, but looks ready to retest.  Let's see how everything looks if this retest comes.  Daily RSI is in neutral.  

The weekly Dynamic Trailing Stop is in uptrend mode.  Daily DTS is in downtrend mode.  I like the DTS for exits sometimes, but I think it can be improved upon.  Many of you know that I am currently learning (self directed in free-time) to program.  Mostly I have been focusing on systems development, but I worked on my own version of the DTS today.  I can't see the code for this DTS, because it is locked by the third party provider.  Anyways, I made progress, but still have lots of work and learning to do.  Learning new skills is humbling. 

ADX / DMI registers trending behavior on the weekly chart and non-trending behavior on the daily chart. 
  
Current Stance

Long Term: Flat
(this stance is not related to ultra-long-term physical holding)

Intermediate Flat

Definitions: 
Flat = no position / not long or short the market. 
Sell Short = positioned to attempt to make money on price declines
Buy / Long = positioned to make money on price advances
Hold = hold a long position
Hold Short = Hold a short position

Technical Analysis - Swiss Franc 9/20/11

Oh, the memories of that Swiss Franc trend that was.  

No need for many words in this week's Swiss Franc chart set.  Regular readers know we rode the trend for all it had, eventually exiting for profit.  Now we are simply on the sidelines of this market, but will keep watching it and publishing a weekly post in an effort to be ready for any opportunity we might interested in that decides to emerge.   

Current Stance 

Long Term: Flat

Intermediate Term: Flat

Definitions: 
Flat = no position / not long or short the market. 
Sell Short = positioning to attempt to profit on price declines
Buy / Long = positioning to attempt to profit on price advances
Hold = hold a long position
Hold Short = hold a short position         

Understanding the Fed
EWI's free eBook explains the common and misleading myths about the U.S. Federal Reserve Bank
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Evaporation of Wealth on a Vast Scale

How $1-million can disappear

By Elliott Wave International Bursting of the "debt bubble": It's the financial story of our age and it's happening before our eyes. The full scope is hard to keep up with because it's unfolding at various levels, such as... Read more.

Double Dip?

Someone recently asked me if I expected a “double-dip” recession.  To answer, I first made sure we were on the same page by asking if he meant the stock market testing the 2009 lows etc….  He confirmed that to be basically what was meant.  Then I said that I would not use the term “double-dip” for several reasons, primary among them being that I think it is likely to be much worse.

Then he asked what he should do.  I suggested creating an objective decision process, testing it, and then trading it if it is found to be soundly based and profitable.  He said, "yea, but I mean with my 401K etc…."  I told him that we follow price trends and employ risk management, and probably would not be involved in the market in any way if not for that.

Why would someone engage in business or sport without any sort of game plan whatsoever?  If your game plan for investing or trading is not more defined than your plan and ability to control whatever football game you might be interested in watching, then it seems like it might be a good idea for you to watch (an not participate in) the markets from the same recliner.    

Technical Analysis - Silver 9/19/11

Silver's long term uptrend is still intact, but the intermediate term trend shows some signs of deterioration. 

Recently, silver was in an intermediate term uptrend within a broader sideways range, but has now broken down below the intermediate term uptrend's defining lines. 

The weekly moving average envelope is trending down with a signal line currently above the envelope.  The daily MA envelope is also trending down, but with a signal line also in downtrend range. 

Weekly RSI is in neutral range similar to the weekly MA envelope signal.  Daily RSI is slightly in downtrend range. 

 
The Dynamic Trailing Stop is in uptrend mode on the weekly chart and downtrend mode on the daily chart.  

ADX / RSI currently registers non-trending behavior on the weekly chart, but is starting to perk up and show possible emerging trending behavior on the daily chart.  

My Elliott Wave interpretation of this market has been leading me to expect intermediate term selling pressure to be more powerful than intermediate term buying pressure.  That outlook remains unchanged for now.

Current Stance

Long Term: Flat trading positions / Hold (physical positions)

Intermediate Term: Flat

Definitions: 
Flat = no position / not long or short the market. 
Sell Short = positioned to attempt to make money on price declines
Buy / Long = positioned to make money on price advances
Hold = hold a long position
Hold Short = Hold a short position

How to Set Protective Stops Using the Wave Principle
The 3 simple rules of Elliott wave analysis can help traders manage risk, ride market trends and spot price reversals
Elliott Wave International