Monday, March 09, 2009

No Mans Land

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.
---Source Wikipedia

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.

A

PS: Blue Wave is running a special through March:


21 comments:

Mike said...

Hi Allan,

Thanks for the post...

In tying this entry in with what you wrote previously this past weekend about your mea culpa...

With this 1:1 non-leveraged SPX....did you find through some testing that your choice of a 120 minute time interval kept you out of a good many knee jerks...while at the same time not opening up the door to further time exposure risk?

Any thoughts?

-Mike

Anonymous said...

I curious as to how two other charts correlate that you've talked about before: gold and oil. I assume that the charts for gold would tend to now be a stronger down and for oil a stronger up. If so, would this mean that we're approaching a more stable (whatever that means today) bottom, or would this just be an SPX bounce?

BTW, I've done pretty well lately reading this blog. Thx.

Edwardo said...

That count is wrong. We have, or are, finishing 3 of 5.
4 is on tap and 5 of 5 will take the market to new lows. All of this will play out in the next three to five weeks. approximately. 5 of 5 will take the market to 600 or slightly lower. The big rally that follows will be a 2 and then we will have wave 3. everything that has occurred from the beginning of the bear in '07 has been part of wave 1 or A.

The market is likely going below 300 this year.

Allan said...

Edwardo: Your count may be right, but, mine has done an excellent job of keeping me short for the past six months. We shall see, together.

Allan said...

Re: Gold and Oil

I'll try to update them this week, OIl is still looking long, Gold is looking toppy if not already into a corrective mode.

David said...

For what it's worth this is the count I've been working with, which coincides with Eduardo's take on it that we have a 4 of 5 coming any time before a 5 of 5 takes us to the final lows.

http://i41.tinypic.com/53nv3p.jpg

In any case it appears we're due some upside. But it's nagging at me that my count is differing from GET's count, considering how accurate GET has been. I guess that's just my ego hoping my count will be right.

Allan, could you let us know where GET says we are in the big picture? I see the completed 5 wave decline from last summer but where does it put us in terms of the 5 wave decline from Oct 07?

Allan said...

David: My Weekly S&P chart shows the market solidly in a sub-dividing Wave 3 down, but with a Wave 4 retracement imminent that could retrace all the way back to the mid-900's or higher. The Blue Wave Trend software will catch the rally, although there may be a few false positives before the right one carries through.

Anonymous said...

Caesar:
Who is it in the press that calls on me?
I hear a tongue shriller than all the music
Cry "Caesar!" Speak, Caesar is turn'd to hear.

Soothsayer:
Beware the ides of March.

Caesar:
What man is that?

Brutus:
A soothsayer bids you beware the ides of March.
Julius Caesar Act 1, scene 2, 15–19

I'm feeling anxious, and I know other people also are. Feels like we're moving into real uncharted territory. Makes irrational trades come to life. Maybe there is something to the interaction of the Ides of March and human psychology and radical changes. People in uncharted territory tend to look around as to what to do, to find a leader to follow. A herd of cattle, selling or buying. Hopefully the charts will take this into account, and offer some guidance as the world might swing wildly this week.

These are just some of my superstitious ramblings and feelings that are starting to pop out, from someone who's actually quite analytical and a hard-ass about the economic indicators.

We can make money on this one, but I just have a bad feeling - purely superstitious. Beware the Ides of March.

-VJ-

Anonymous said...

"Allan said...

Edwardo: Your count may be right, but, mine has done an excellent job of keeping me short for the past six months. We shall see, together."

Allan, are you two using 2 different tools?? If yes, can you/Edwardo name them? TIA.

Edwardo said...

I am not using any tools (such as AGET) for the count I discussed.

Wayne said...

Anyone know a symbol for a 1x long SP500 ETF? With some sites I couldn't tell if they were ETF's or other fund types.

Thanks,
Wayne

met61 said...

SPY

Anonymous said...

Alan, great call. I do agree it makes no sense to play this market from the short side any more.

I have a different count than your program. It looks like we are just starting 4 of 5 of primary 1.

Resistance starts at the 38.2% retacement of 3 of 5, which is 7176. The 4th wave of 3 of 5 looks like about 7400. From there, it would not surprise me if the market made one more low to end primary 1.

Alex

Anonymous said...

I just read the comments above. I agree with Ed and Dave's count.

Alan, also has a good point.

When you look at the 5 = 1 target, it was 6558, so that has been hit. The market also surpassed my 6800 to 7187 targets.

When you look at the bigger picture, the alternative counts are splitting hairs.

At this point, the move is either over or very very much near its end, and the next big move will be up.

I'm looking for places to buy in with my 401k, and I hope we get one more decline that bottoms around late March or early April.

Alex

Mike said...

re: Barney

gotta admit...

was a pretty good dribble.

-Mike

Anonymous said...

How many fund managers follow your blog? Its frigging ridiculous.

David said...

I know how the triangles generate signals but do we know how BW generates its signals? I always like to understand how/why things work, as opposed to blindly following what the black box tells me.

Anonymous said...

how does the triangles generate its signals ?

Anonymous said...

Three period highs. Any price that breaks above the previous three periods (daily or weekly etc) or below gives a signal.

Anonymous said...

that is all the triangle does ???

Wayne said...

well it has to break previous 3-period high/low AND be the opposite of the last triangle. So e.g. you'll get a red triangle if making a new 3p low AND the last triangle was green.

The simple explanation above works 99.99% of the time, but there are also unanswered questions, like what if a new 3p high AND 3p low occur on the same period, and in the right order to cause two triggers (e.g. for daily bars the previous signal was green, then in a single day we first make a 3d low followed by a 3d high). Does MC report 2 triggers? Guess only current subscribers can figure that out :)

Wayne