Saturday, February 27, 2010

In the eye of the acoustic storm

Another Morning, Days of Future Passed

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:

Deflation is more then just falling prices. Robert Prechter explains why.  February 26, 2010

Mona Lisas and Mad Hatters, Honky Chateau

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 


A

9 comments:

MMarino said...

Mr. Harris,

I was hoping for a weekend blog at least discussing alot of the big investors coming out saying it's the end for the USA (including Charlie Munger). e.g. The financial damage is irreversible.

And if alot of that confidence is swept from the market again (but more importantly their money) I guess one would assume the EWI predictions to be ever more correct? My guess is this coming week will only continue to show low volumes. Oh well I ended up 2 for 4 this past week and chopped up at midfield for a gain of two yards! My girlfriend will have a good date this weekend.

-Marino

Allan said...

Please, don't call me "Mr. Harris."

"Your Majesty" will do just fine.

The only opinion that matters belongs to the market and that opinion is expressed a pretty simple algorithm you see peppered about all of my charts.

Yet it is not perfect, not a holy grail, no nirvana onto itself. What it does is keep on the right side of major trends, which is all that one needs do to be successful here. The only tricky times are when those trends are in flux and about to change. Say, Weekly one way, everything else pointing the other way. We are getting a heads-up, so its time to pay attention.

Something disparate this way comes.

Acoustic said...

Alan,

I stumbled on to your blog, and would like to thank you for tuning in to The Acoustic Storm this morning!

I'm impressed (and honored) that you've included some of your favorite songs from this weekend's show in your blog. I was initially trying to see how the song lyrics may have related to your investment comments (over-analysis on my part, I'm sure).
I always enjoy seeing what listeners like from the playlist (it's also good research for me).

By the way, I'm curious...what station did you hear the show on, since The Storm airs on several stations around the country (some run The AS on Saturday, but most air it on Sundays). Also, was this the first time you heard it?

Thanks again, and I will read your investment advice (I can always use some good tips)!

Best,

Jeff Parets
Acoustic Storm Radio Network, LLC
http://www.acousticstorm.com
http://www.organictracks.com
jp@acousticstorm.com

Allan said...

Jeff,

You have a great, and I mean great, radio program, one I look forward to each week. The Yardbirds acoustic song today was simply amazing and I didn't realize that the group was the starting point for Eric Clapton, Jeff Beck and Jimmy Page. For Your Love, indeed,

Anyway, I listen on KSLX in Phoenix, 100.7, both in the car and then streaming live while I wrote today's piece. Glad you found me and got some feedback from this aging Woodstock generation soul, one who appreciates your work, great music and some very special memories.

Best,

A

Acoustic said...

Allan,

Thanks for the kind words.

Yesterday's Acoustic Storm was only the third show to be broadcast on KSLX on a Saturday morning (the new schedule began 2/14/10). So I'm glad you caught The Storm in its new time slot.

Best,

Jeff

t said...

oh,I cant follow up my stuff now,after these last ....'hall of fame' blog posts.
..........................
ok.lets give it a try.
...........................
ACHIEVING THE TIMING ZONE FOR HIGH PROBABILITY TRADING.
...........................
The goal,as you alluded to is to Find High Probablilty Trade set-ups,trade on the right side of the trend,make alot of money.
.........................
As Ive been evolving my own trading system,I have incorporated the Lunar Cycles as one of my indicators.(the others are MACD,full stochastic,CCI,RSI,EMA's,SMA's,Fibonnacci,Elliott wave counting,an eye upon geopolitical fundamentals,Allan's blog,a cycle newsletter,and the wisdom of a few other newsletters,my own inner vision,...and for me it adds up to a system that works pretty well so far
to provide me with High Probability Trading set ups.
.........................

Looking at the current (march 1) market zone as an example.
Right now,feb 28 to march 1 is the exact full moon. setting up Monday March 1 as a possible important day,for triggering "some sort of reversal" of previous wave action.

From observation of two years ,I have discovered that the Full Moon Energy 'generates' a stronger power for market movement than does the New moon.
(looking at previous full moon power triggering a strong reversal movement ,witness march 3 2009,june3 2009, early july 2009,sept2,2009,oct 1,nov 2,dec 3.....all full moons.
All major reversals.)
..........................
So I use the new and full moon as one 'timing zone' indicator for some sort of reversal energy trigger.

Now, IF upon counting Elliott Waves.... the wave structure arrives at a completion of 5 waves,OR a completion of an 'abc' correction wave....AND coincides with this "full moon reversal zone".... then I start to be on alert for a high probability trading zone .
..........................

Add to that the indications from the other indicators,and the confirmation of similar vision from Allan's blog and the other newsletters I follow,geopolitical 'events' coming to some development ,creating a feel of something in the air,all together starts to "add up" to a High probability Trading zone,for me.
Its entirely possible that I dont need all the indicators I use,all I need is to follow Allan's charts and signals...keeping it simpler.much simpler.
smaller ulcer.better sleep. maybe .
But its just my personal style of mind....drawn to complex instead of simple.
...........................

The combination of sharp Elliott Wave counting alongside the Lunar cycle timing, alongside Fibonnacci levels,and a few good indicators(EMA's,RSI,Stochastics,etc)
can provide very clear Vision.
..........................

Right now, at monday's open,thru monday ,and the early part of the week....has some of these elements in place that make for a High Probability Zone.
But are ALL the elements in place ?

The Full Moon Zone of Influence can last 3 or 4 days ,before making its true push. Last month's full moon was a perfect example. Full moon was january 31 and "Reversed Up"....BUT....Whipsawed 2 days later and made a lower low which completed on feb 5. ...and THEN "Reversed UP"....thats how tricky the indicator can be with whipsaws. and the 'Zone' lasted 5 or 6 days.

So I anticipate the possibility that this week's 'full moon zone' could last all week before the true direction of "Reversal" will show itself.
Last friday,feb 26, was the 1st day of the energy zone,and didnt show much telling.
Monday is the strongest full moon energy day and it wouldnt surprize me to see a major whipsaw movement in some direction.BUT I ALSO anticipate seeing double whipsaws,fake out whipsaws,during this "Full moon zone"

Daily Elliott wave count seems to show 4 waves (subwaves) completed and waiting for wave 5 UP to take place.

....to be continued

t said...

....continued
Its important to get that Elliott wave counting correct. Is it 4 waves finished,looking for one more wave up or is it 3 'abc' waves correction completed and we are now seeing the beginning of the down wave.?

On what time frame do you want to 'see' the elliott count ?
Its tricky.
But what of the other indicators, the overbought on the daily, but still oversold territory on the weekly, ?
What about the Fibonnacci levels? Those have been achieved.
So right now, as we approach the full moon, for "some sort of major reversal"..... the indicators are "Mixed" ,arent they?
like the sideways action from last week, maybe some similar whipsaw action this week, BUT with more intensity and volatility due to the full moon.

Maybe much like what we saw in the first week of february ane the last low bottoms. the january 31 false bottom, sharp push upward, big whipsaw down to lower low at feb 5.

This sort of thing could be in store for this week. is my personal guess.

And IF this is what happens, I anticipate seeing some of these critical s/r points, like those in Allan's signal system, may be broken, retested, broken again, maybe testing all thge different key price points before the True Direction is decided and "reverses" in that direction.
again, just my own personal guess.


What I'm saying here is that For a HIGH Probability trade set up

I would like to see ALL the key indicators line up in sync.
.........................
The weekly signals with the daily. the fibonnacci with the full moon.
the SMA's and the other indicators all in sync.

Some are in sync....like the Fibonnacci and the full moon. but some are not in sync.
like the Elliott waves daily and the full moon.

unless I'm counting the waves wrong.

I should have studyed the elliott waves better before I started blogging this. I need to look at it better.
Is the elliott wave structure waiting to go up in wave 5 to target 1120 on s+p ??
or has it finished the abc (wave 2) and already started the 5 wave down wave..... ?? in which case what do we have for the count so far?

Sorry that my analysis is incomplete here.


IF we see a big push UP to target 1120 area on monday....AND this completes the wave 5 I was talking about.... This Alone....could be the Key Timing Moment for the full moon to trigger the Reversal down from 1120.

It could happen in one day, or it could take a few days .

IF market opens hard down on monday,we could see the opposite, a whipsaw from the bottom and the full moon reversal takes market back UP to the 1120 target.

Tricky Whipsaws in these coming days. maybe.

Could it be , the best approach at this time, would be to watch for Target price areas ? 1120 on top to fail and whipsaw reversal Down from there?
OR target 1070-1062 down.... to HOLD at Support and 'whipsaw' reversal Back UP to target 1120.

It takea a full time day trader watching the market all day to be able to see whats happening in these movements.
Only folks who are at the screen all day would be able to make use of what I'm saying.


Summary conclusion.

Just watch this week price action, wave action, watch for the tricky whipsaws...and expect some sort of big reversal of direction . like what happened january 31 and feb 3 and feb 5.

Steve said...

So, in the future when we have colonized the moon, will traders who live there be affected by the "Earth" cycle?

Just a thought...

Steve K. in L.A.

t said...

lol.