Next week marks the one year anniversary of the end of a bear market and the beginning a following bull market. Some would say it's been a Wave 1 and Wave 2, with a devastating Wave 3 ahead. Others discount such notions, merely going with the flow, in whichever direction the current is moving at any one time.
Old Man, Harvest
As for your humble author, my sentiments are notwithstanding. I am firmly in both camps and on this Saturday morning in February, listening nostalgically to The Acoustic Storm on a local FM station, it occurred to me on the way home with bagels from Einstein's that today's blog would best serve as an explanation of my actions, or inaction's and strategy from this past week, as though it might be instructive in some 12th Dimensional way.
Hey Jude, Anthology III
This past week was my slowest trading week in a year, maybe longer. I saw nothing to be made on the long side and when the early week's decline carried no follow-through, it was apparent that there wasn't much money to be made on the downside either. So most of the week I worked on my taxes and tried to give my subscribers their dollars' worth with some advanced strategies, a Trade of the Week (worked modestly) and an emphasis on patience, i.e. Our Time Will Come.
Horse With No Name, America
Yet the puzzle does seem to be coming together, with eighteen months hard down which was followed by twelve months of a sometimes robust rally that retraced about half of the prior bear market's decline.
Here is a similar chart from Elliott Wave International with their analysis:
For letting me post this chart (actually, they don't allow it, don't even know I'm posting it, or if they do know, they are tolerating it only because they like me, or maybe they don't like me, or maybe they don't even know me, or if they do know me, maybe they respect me because I generate a lot of interest in their work, or maybe they don't respect me at all, maybe they know about that incident in Chilmark in 1978 and just won't let go......)
Lest I get distracted, here is a link to one of their better new articles, well worth your time to access and read:Mona Lisas and Mad Hatters, Honky Chateau
Deflation is more then just falling prices. Robert Prechter explains why. February 26, 2010
To oversimplify, which is always a good idea in trading, perhaps the very best idea in trading, I look at those DJIA charts and realize that the next trend of any consequence will be down. The problem this year and in particular this month has been determining whether the year long rally has ended and that next wave down has begun. Looking at the top chart, you can see that the DJIA Weekly Trend Model has issued a Sell Signal, circa the week of January 18, 2010 (Signal confirmed on close of trading, Friday, January 22nd).
Now let's under-simplify:
We find strong lunar cycle effects in stock returns. Specifically, returns in the 15 days around new moon dates are about double the returns in the 15 days around full moon dates. This pattern of returns is pervasive; we find it for all major U.S. stock indexes over the last 100 years and for nearly all major stock indexes of 24 other countries over the last 30 years. Taken as a whole, this evidence is consistent with popular beliefs that lunar cycles affect human behavior."
---DICHEV, Ilia D. and Troy D. JANES, 2003. Lunar Cycle Effects in Stock Returns, The Journal of Private Equity, Fall 2003.
In case you're wondering where I am going with this, the next Full Moon is this weekend. Already, the news is in creepy and in deadly alignment with this lunar cycle:
TALCA, Chile – A devastating earthquake struck Chile early Saturday, toppling homes, collapsing bridges and plunging trucks into the fractured earth. A tsunami set off by the magnitude-8.8 quake threatened every nation around the Pacific Ocean — roughly a quarter of the globe.
I'll leave it to "T" and others to comment on this and the effects, if any, we can expect in global financial markets next week. Like a warm security blanket, I am trusting the Trend Models to navigate through whatever is being thrown down upon us at this time.
Come Monday, Live at Fenway Park
After finishing and publishing this blog entry, I will move on to a new Weekend Update for the private email list of subscribers. I have a lot more information, strategies and ideas saved for that publication later today, so I hope you who are subscribers don't mind if I share the following SPX thresholds here, kind of as a reward for everyone having read this far in this strange and rambling essay:
SPX = 1104.49
Hourly: LONG--->SHORT @ 1099.96
240min: LONG--->SHORT @ 1093.23
Daily: LONG--->SHORT @ 1086.88
Weekly: SHORT--->LONG @ 1120.78
Back in simplification mode, the SPX Trend Model is LONG in the Hourly, 240 minute and Daily time frames, but still SHORT in the Weekly time frame, the period I consider to be and so define as the Dominant Trend.
I Won't Back Down, Live Tom Petty Anthology
SPX Daily Trend Model
This chart above is why this past week was so slow on the trading front. With the Dominant Trend pointing lower, but with the shorter-term trends pointing higher, there are few high probability strategies available, save for a few individual stocks and sectors. Sometimes the best thing to do is to sit on your hands and do nothing because all trading involves risk and unless there is a compelling reason to trade, i.e. assume risk, what the hell do you think you are doing?
As I wrote earlier, I'll go into some stock-specific ideas that do rise to the level of high-probability trading in the Trend Models Weekend Update going out later today. There is also the issue of trend exhaustion and some tells that the next big cycle wave down has already begun, all things to consider for next week. Whether it takes a few more hours, or days, or even weeks to ignite something irresistibly engaging for our trading accounts, it just won't matter a year from now. All that will matter is how much further ahead we are in our quest to get rich, filthy, greedy rich.
That is why we are here, isn't it?
Rainy Day Women #12 and #35, Blonde on Blonde