No man's land is a term for land that is not occupied or more specifically land that is under dispute between countries or areas that will not occupy it because of fear or uncertainty. During war (especially World War I), it is a term used as the area of land between two enemy trenches that neither side wishes to openly move on or take control of due to fear of being attacked by the enemy in the process.
After being an unabashed bear since early September, 2008, the time has come to equivocate.
The chart above is of the Daily S&P 500 and it is showing a clean five waves down from last summer's highs. Yes, it can go lower. But we have captured, for the most part, the gist of this incredible decline. The chart reveals a significant divergence in the bottom indicator, the "Elliott Oscillator," showing an extreme for Wave 3 of 3 (as expected) and lower lows in prices for Wave 5, but higher lows in the oscillator. It is time to be on guard for a significant rally, retracing about half of this entire decline. Maybe 1/3, maybe 2/3, but probably 1/2.
When will we see this rally?
We will see it when it happens. Which brings me to the trend following models described this past weekend. As pure trend following, it cares not about Elliott Waves, Oscillators, Divergences, Cycles or TARP. It looks at only one input: PRICE.
In an earlier blog, I showed how well the Weekly Trend model did over the past 20 months. But like a ship at sea, the Weekly model turns slowly. Below are the results, Year-to Date, of the same model using 120 minute bars:
If I did this right, the numbers in the table should be self-explanatory. Twenty trades over the course of about 10 weeks, all gains based on a single e-mini contract using $5,000 margin. There are some nuances, but we don't need minutia right now, we need direction.
Above is my 120 minute Trend Model. The Buy-stop for going long as of the close of trading Monday is 685.07. The SPX closed at 676.70. So as of Monday night, the model is about 9 points away from flipping from Short to Long.
This Trend Model is found here: Blue Wave Trading
There is much more to Blue Wave then this simple application of its basic trend model to trading a single e-mini futures contract, or ETF, or options, or all of the above. The link above will take you to the web site if you would like to look at all Blue Wave has to offer. In the three months I have owned the software, I have been blown away by it's effectiveness.
A run tomorrow that flips the 120 minute model Long will go a long way finally toward some closure of this amazing five waves down from last summer.
What if it doesn't flip? That says a lot too.
PS: Blue Wave is running a special through March: