Friday, April 10, 2009

Weekly Analytics

First up is the Market Club Trade Triangle chart for the S&P 500 for the past twelve months:

Weekly Trade Signals:

BUY 3/24/08.......1344........+39
SELL 5/23/08.......1383........+62
BUY 8/6/08.......1321...........-60
SELL 9/4/08 .......1261........+365
BUY 12/8/08.......896............-39
SELL 1/14/09.......857...........+77
BUY 3/18/09.......780..........+76

Cumulative gains = 520 pts. = $26,000 per single e-mini S&P contract = 520% per $5K margin.

This is a very basic, objective, inexpensive (Market Club is a bargain for what you get) way to follow trends across a wide array of tradables. If you have been with me for awhile, you know that I use Market Club along with other more sophisticated (read: expensive, i.e. Advanced GET and Blue Wave) analytic tools, as well as subscriptions to Glenn Neely and Robert Prechter, the two preeminent pattern recognition analysts of our time.

Rather then go into a litany of why all of the above works for me, the trades posted above are derived from a simple weekly breakout pattern embedded in Market Club's chart trading package. My point is you don't need rocket science to compete in the markets. So let's distinguish from the outset that winning trades and profitability are distinct from intellectual and more subjective forecasts based on theory and crowd psychology. The former is a necessity, you must make money to remain in this arena. The latter is a luxury, we want to understand why the markets are making directional moves, but understanding the why is not essential in order to profit from those directional moves.

Below is a 30-year chart of the S&P 500:

The only indicator appearing on this Monthly chart is a 30-year False Bar Stochastic. The this entire period the FBS has been on the correct directional side of the market. The black horizontal lines indicate that a trend is in place. After being correctly long from 1981 through 2000, the FBS is currently only in it's second Sell trend of the entire period. This is a partial explanation as to why my bias has been to the short side. But it doesn't tell all.

Below is a Weekly chart, again with only the FBS attached:

Where to from here? A close up of the right side of this chart:

There is only one conclusion: This pattern is only a few bars (weeks) away from a major Sell signal, as per the Sell generated in the 2nd quarter of 2008, resulting in a 35% decline in the index.

What sayeth Elliott Wave (as per Advanced GET, my EW software)?

The trend line coming down off of the Wave 2 top, about one year ago and signalled by the FBS, is at about 1000 for this coming week and dropping about 25 points per week. In a perfect world, these indicators a suggesting that in about one month and about 25-50 points higher in the S&P, this rally will end and dramatic market decline will begin.

Perfection aside, where does that leave trading direction for market open next Monday? Let's add Blue Wave's trend following indicator to the above chart:

Buy 3/31/08..............1370....... -24
Sell 6/16/08..............1346....... +428
Buy 12/29/08............918......... -108
Sell 2/16/09...............810........ +1
Buy 3/23/09..............809........ +47

Weekly trade signals for Blue Wave netted 344 points for the same market and same time period as Market Club's trade triangles above. Not as much, but still a very respectable return.
(Blue Wave works on all time frames, but my work uses it on intraday trading, unlike MC's Triangles which is a longer term trading tool.)

Finally, my most complicated chart of the day. It's a 60-minute EW chart with BW's trend along with a Advanced GET's "Make or Break" indicator. This is the blue horizontal lines that appear at what Advanced GET has computed to be Fiboancci-based resistance areas. The theory here is that these areas are natural resisitance areas where prices will either reverse or break through and accelerate.

The first MOB stopped the rally dead in its tracks during the first week in April. The second MOB is appearing now, at this time and at these levels. The stop-reverse Short level for BW as of the first hour of trading Monday is at 848.06. You can see it highlighted on the right side of the chart. That's the level where BW would flip Short, closing out it's Long position taken April 8th at 823.82. Even if that occurs, BW will have locked in a 25 point win on this trade.

That's about it for this Weekly Analytics post. Trading can be as easy or as complicated as you care to make it. Some tools and analysts are better then others and I hope to have highlighted my ideas and preferences for what works for me in the studies above. There is no perma-Bear or perma-Bull or perma-Anything about the way I look at the markets. Labelling me or anyone on the basis of any particular set of posts or blogs or charts is a shallow and deceptive practice. As I have tried to set out in this blog, there is an analytical reason and purpose behind all that I write and opine about.

The market is dynamic, as should be anyone who chooses to bet on it's path. There is no one right or wrong way to approach market timing and direction. But there is only one model that makes any sense:

Find something that works....................then use it.



Anonymous said...

Allan...I can't say I agree or disagree because my head is still spinning, but your analysis and report of it are excellent.


Allan said...

Take another look at the last chart, a close up of the 60-minute SPX chart with FBS. Now look what happens when the black horizontal trend lines terminate. Those are great short-term trades, if only for a few bars (hours). Also notice how well BW trend signals work with the FBS. Two completely independent algorithms coming together. I've already made my pitch to Market Club to put their Triangles on intraday charts. That would be a very affordable way to take these very short term trade opportunities for those so inclined.

Anonymous said...


Thanks for the great info, for those of us in the 401-k trade limited to 4x trading a year, at this juuncture in the mkt, and I am out of the mkt, would you suggest waiting to the next upswing, and then buying in?

I can buy and hold for a month, and sell at that time, I havent exceeded my number of yearly trades in mutual funds that my company offers.

Unfortunately for me and lots of others in company 401k's they have put the lid on with frequent trades, so I have to be carefull on how often I trade any one of the Mutual funds.

Have a blessed Easter, thanks.


Allan said...

Steve, If a 401K can invest in a bear market fund, one that goes up as market goes down, that trade should occur next. As I stated in the blog, maybe a few more weeks and a significant turn lower will be upon us.

Absent flipping into the bear market fund, staying in cash or a 30-90 day T-bill account would be my next choice. I am applying my analysis to interest rates and gold with some stellar results. Although gold still looks down, it appears that interest rates are presenting a long trade opportunity, i.e. rates are looking to move up, bonds down. If so, that would help returns on cash and shorter-term T-bills.

Finally, please pay close attention to the custodians of your retirement accounts. If they take a turn toward insolvency in the next round of financial armageddon, you may have to move those funds to save them, notwithstanding tax consequences.

Anonymous said...


Your generosity in sharing your trader knowledge is unparalleled. Us small guys would have to pay thousands to get the kind of information you are sharing here. Thank you very, very much.

I notice that you have not been referencing Taylor in your recent analyzes. Has he become too unreliable in this volatile market? Or are you still using him for multi-monthly market trend direction?


Allan said...

Paul: Taylor does some engaging work and Paradigm is an excellent read. Just couldn't integrate those tide dates into my trading.

Mike said...

another great post Allan....

for anyone wanting to take control of their own finances....I can't think of a simpler, more cost effective means, (MarketClub).


Anonymous said...

what bear market funds do you recommend...are you referring to something like FAZ of SKF?

thanks for an interesting blog.

brian said...

FAZ will kill you with price decay over a couple of days. Intraday it would be fine but anything more than that is just giving money away. For longer term something like QID is what I use in my 401k.