Friday, July 03, 2009

Black Day in July

"....and the blood begins to spill."

Prechter sees another up wave before the big decline decline sets in, while Neely is pretty sure it's straight down from here, with the decline increasingly more violent as support levels crumble along the way down.

My strategy remains to trade my trend models in whichever direction they suggest, regardless of big picture considerations. Forecasts are just not practical short term trading models, nonetheless, where my trend models and big picture forecasting agree, I am all in.

Here is an updated Market Club chart of the SPX:

This model is still on a Sell from June 22 @ 903.78. Thursday generated a Daily Sell Triangle.

Below is what I consider to be my most important big picture chart, maybe my most important chart of the year:

Weekly prices are on the verge of confirming the launch of the next major move down. The software suggests it is a Wave 5, while Prechter is suggesting the next big leg down will be a Wave 3 and Neely sees a multi-month bear market dropping 50% or more.

The above chart is a close-up of what Advanced GET sees as the extent of it's labeled Wave 5 decline. I've included the False Bar Stochastic because it appears to be on the brink of slicing through it's Sell trigger.

Shorter term, VIX appears to have bottomed and is turning up:

A rising VIX is normally coincident with a falling market. The chart above is suggesting about another 50% rise in VIX to complete this particular five wave sequence up.

Finally, a 30-minute SPX chart using a 3-line point break format:

Updating my work with Renko and 3-Line Point Break charting and in particular in conjunction with Blue Wave's Trend Algorithms, I'm finding consistently profitable strategies and am using a 30-minute time frame for intraday trading. As some have pointed out, you cannot rely on the chart alone, but can easily set your trading by stop/reversal levels defined in data windows.

Summary below, courtesy of Gordon Lightfoot.



Sandy said...

Black day in July....haunting, despairing, sorrowful, surreal, shocking and never again one hopes....

Michael Lomker said...

Allan, I'm definitely coming around to your philosophy of trading trends, using reversal systems (rather than stops), and using Elliot wave for forecasting.

I think I would have gotten there on my own, but I do appreciate your time on the blog.

Mike said...


what exactly do you mean by reversal opposed to stops?


Allan said...

Mike - a "stop" is an exit. A "stop/reverse" is as it implies, a new trade in the other direction.

Mike said...


some add'l food for thought....

the strong conical shape of BW Tick Volume Oscillator on ^SPX Daily dated 3/13/09, (in addition to further confirmation from BBand and CCI), is akin to the following analogy....

The Weather late August....showing the formation of a spinning Hurricane development off Cuba....and THEN they proceed to show the vastness of the storm by giving a visual of the conical path...what lies in it's path.

Wide conical formation from Tic Vol oscillator...another nice tool to go along with CCI.


sara said...

I remember the Detroit Riots very well, nobody went down to Woodward to drag race from Ted's towards Detroit. Having grown up in a sleepy little town way out in the suburbs, everyone hung out at the local Dairy Queen talking about what was happening. It is actually hard to believe that was the only time Detroit burned as there were so may problems there over the years.

Gordon Lightfoot huh? Amazing..


Michael Lomker said...

>a "stop" is an exit

Yeah, either the stop takes you out when you move it up with the trade at a profit or a profit target takes you out (entering on a bracket order).

BWT can be traded without a bracket (you could always put in a 'disaster' stop on entry). The reason for this is that it'll reverse directions if the market goes against you. On a 5min chart it is usually a 2-3 point loss on ES.

BWT recommends cherry picking trades rather than just trading signal to signal. Looking at my charts, though, I don't really see a good reason to not trade signal to signal.

I've experimented with taking contracts off along the way (say at 2,3,5 points) but the math never works out. On a really bad trade you're going to take the stop on all contracts so why would you want the 5+ point trades to only be on a partial position? I don't see how that can work long-term but if someone wants to school me... :D

Sandy said...

Mike and Allan,

Does the marking of trends by BWT or other trend following algorithms necessary end in reversal to the "other" side. End of trends statistically rarely mark beginning of new trends, inter sped with periods of consolidation during which 100% of trend following software get chopped to pieces.

Not to say that end of trends always mean consolidation but in most markets (even in trending ones) periods of consolidation are the norm rather than the exception. Take all multi-million dollar automated strategies that operate on trend following non discretionary algos "normally" operate at 30 - 60% win ratios. A further edge is gained only by sustained and competent discretionary trader intervention.

I doubt if reversal techniques will succeed on BWT. They haven't so far on my own testing on ES intra day but maybe different on either different markets or time frames.

Michael Lomker said...

>End of trends statistically rarely mark beginning of new trends

No, but you can make money on corrections if they are deep enough.

Winning 30% of the time is fine if your wins are much larger than the losses. Most people don't have the stomach for the equity curve, that's all. I trade some automated systems and it can be scary at times.

My BWT chart only had one bad trade in the last three trading days. I intend to post a chart at the end of each day, so feel free to check my blog if you're curious.

Sandy said...

Thanks Mike, I recognize your handle now from the MTP references.

I rarely trade either BWT or MTP intra day, concur with your impressions of BWT, it's a lot of hype - the do indeed co-incide with MA crossovers and the Precision trend paint me bars are Heiken Ashi with changeable logic....needless to say that was one 3500 purchase that I wish I did not make.

I do however use the %r Stoch myself because it clarifies other supporting signals.

The others are pretty much redundant manipulations of price....but Allan's use of GET with BWT is very good and promising...I think he has found a possibly sustainable way of making good pseudo-mechanical trading decisions.

On automated systems, I can see (via your use of MiniAnalyst) why one needs to be vary of algos.

That type of trading IMO an accident waiting to happen....

But a lot of conservative compounding strategies do exist that offer 20-35% yearly gains with very low draw downs (15-23%) with very large gains to be had over time and compounding.

I personally trade an account that has a history of 27% annual gain compounded to have very large ROI over it's 4year history with compounding, it's not very flashy or exciting but relentlessly plugs away everyday makes small singles and compounds it's leverage once it doubles. After year 3and 4 the returns have started making "stupid" money while maintaining the same risk profile. Obviously the catch here is time and added capital needed to make th compounding possible but naturally there are several ways to go about it.

Although my discretionary account still outperforms pretty much all 4 of the other automated accounts.

Perhaps we shall make more contact when MTP 6.5 real time comes out....I am really interested in that logic.


Michael Lomker said...

>That type of trading IMO an accident waiting to happen

I've had a lot of people tell me that and there's no way to reply. It won't blow up unless/until it does.

I've been with them for 18 months now. The draw downs are too substantial for my tastes (60% twice and 35% or so twice), the 2008 return was 300%. 2009 is still down but not enough to take back last year's profits. The good news is that the $5k portfolio is the best performing so dipping in a toe isn't too big of a deal.

Michael Lomker said...

>Although my discretionary account still outperforms

That's the primary reason that I may drop automation in the not-too-distant future. Not because I'm worried about the long-term results but simply because I trade better than it does.

It was quite a boon my first year, though, because my discretionary trading was horrendous. :D

Anonymous said...

allan, thanks for the all the updates. any thoughts on news for nnvc anytime soon?