Between Silver and Gold

"Requiring the United States to beat favored Canada two times in eight days was a monumental task; under Olympic formats used until the 1990s, when there wasn't a true gold-medal game, the earlier victory and the Americans' unbeaten record would have been enough for gold.

So there you have it,  over the rules in place since the inception of ice hockey in the winter Olympics, in the true spirit of international sports competition without the crass commercial big dollar interference of ego-capitalism, the US Hockey team did indeed deserve and did win the Gold Medal in one of the most stunning upsets in 30 years.  Only instead, we will throw a bone to the under-achiever goons of Oh Canada, who barely beat three of the seven teams it faced, including the Swiss and Slovakia, who were outscored by one goal in the two games played against the Americans  and who should have waltzed to a Gold Medal without the drama or flick of anyone's wrist. 

Sigh, what else is there to write about on a Sunday night?  Bitter?  No I am not bitter at all. The Americans winning Silver and taking the big, bad burly Canadians to overtime, where they took a skater off of each team, letting them play four on four, just to get the damn thing over with, well, kudos to those boys, the most inexperienced team in the tournament with only three players having played in any prior Olympics.

If ever there was victory in coming in second, honor in losing, a reason to celebrate the short end of a 3-2 score, this was it.  Say what you will about how wonderful it is for Canada to bring home the Gold, it was America bringing home the Silver that is the story of this day, of this Olympics, of International Hockey at its best.

That's what there is write about on a Sunday night.

Now on to Big Love.

A

(I Want To) Come Home

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

Trade System Tutorial

Last weekend I started a new feature in the subscription email service, "Trade of the Week."  This is where I find a highly probable trade for the coming week, either from the trend model list or more likely, from the entire universe of stocks, etf's and indexes.  Below is a copy & paste of what I sent out last Saturday.

II. Trade of the Week

On Friday morning I posted the Daily chart of DELL, pointing out how effective the Trend Model was catching tradable moves up and down with this stock. [http://allallan.blogspot.com/2010/02/dell.htmlhttp://allallan.blogspot.com/2010/02/dell.html]  On Thursday night Dell announced earnings, which means nothing to our algorithm.  The mindless volatility surrounding this fundamental news caused Dell to drop far enough on Friday to trigger a fresh SELL SIGNAL on its Daily Model (chart attached). The Weekly Model has been SHORT since January 25th, so now with the Dell Daily in sync with the Dell Weekly, this represents a high probability SHORT for the week ahead. (The new Daily Reversal-Long for Dell is at 14.22.)

On Monday morning, DELL opened at 13.48.  Assuming that was the entry price on the trade, with Dell currently (Friday morning) at 13.16, the trade is +2.37%.  Sounds meager at first blush, but that equates to 10.1% per month and 0ver 120% annually.  

Dell Daily Trend Model - Feb 26th mid-morning

You can see from the above chart, DELL has drifted lower all week, but no great price collapse or crash.  Exactly!  These Trend Models are designed to be on the right side of the price trend and on whatever path and velocity that takes.  Do enough of these and you will get your share of those wonderful price collapses, as well as price explosions (see BIDU below).

BIDU +18% since February 3rd Buy Signal

So what's Allan's point?

I am getting a lot of questions from subscribers about providing a tutorial for how to trade these trend models.  My best answer is also crassly self-serving, so I have tried to dance around it with some simple basic rules, hoping that would be sufficient to get everyone on board with what we are doing here. 

All you need to be successful with this system are the Weekend Updates.  It also helps to glance at the Evening Updates, after the market closes.  The intra-day stuff is for glued to the screen traders like myself, but do not let these short-term plays intimidate, nor confuse, nor dissuade you from using this service to completely turn your trading and results around in a very positive way.  

Here are some guidelines, done in true minimalist mode:

  I.   Read and study these Weekend Updates each weekend, 20 minutes should do it, no less then 10 minutes, no more then about an hour, its not that complicated!

 II.  Take each Trade of the Week.

III.  Read the Evening Updates, pay attention to any Pending or Reversals noted, we're talking five minutes here, if that.

IV.  Pick three to five stocks or etf's using Weekly, Daily (or soon to come, 240 minute time frames) and enter on their very next Trend Reversals.

 V.  Monitor and manage your picks in accordance with their respective Trends.

That's it and it will work, although don't expect perfection.  And yes, I know Dell has recovered about 10c since I first wrote its results above, but I am not about to re-write and re-compute everything now, which would change again by the time I get the new numbers posted.  

Anyway, I have some hourly models to monitor.

A

AIG

AIG is in the news this morning, the nature of which is inconsequential for our trading.  Here is a Daily chart of AIG with its Trend Model:

  AIG Daily Trend Model

Today's price action will likely generate a fresh Sell on the chart. The question presented is whether it will be too late to Short AIG today, i.e. is this signal the beginning of a tradable decline?  

The whole reason to use an objective, rule-based trading system is not to ask such questions.  Any one signal can be the exception to the rule, but over the longer term and across a diverse set of tradables, the trend will always win out.  This is part of the discipline of trend following, identifying a trend and then following it.  All other issues are moot*.  

*Of little or no practical value or meaning; purely academic; Simon Cowell

DJIA 240

Just how bad does this look?

 Trend Signal

Resistance

Vortex

NNVC 240 minute chart

NNVC 240 minute

I really like these 240 minute charts as they are acting like sturdy and reliable bridges to Daily Trend Model reversals.  An ancillary bonus is another Elliott Wave count giving perspective between intra-day and Daily counts. 

In the case of NNVC, the 240 minute is suggesting a target range of 1.55-1.75, which supports the Daily target of 1.60-1.80. 

A

DJIA 240 minute chart

 DJIA 240 minute trend model

This the 240 minute chart of the DJIA.  The horizontal blue line is an auto-resistance line generated by Advanced GET.  It works well for both Short-Intermediate-Major resistance levels and it already has worked to some extent this time.

From an aching heart

I wish you would write back to me.  So much time has gone by, so many of our memories now faded, blurred by the years that passed.  We were stick figures along a southeastern shore  and then travelers across the great plains, Mt Rushmore, Yellowstone and the long open expanses of Montana.  We laughed, held and loved each other as the old was left behind and the new discovered.

Then we passed through the upheaval....but in the end, didn't survive.

Three years have passed and we both had moved on. Others took our places, the ones we had promised, bonded and sealed forever for you and me.  And when I thought those feelings were gone, that maybe they weren't ever real at all,  one day a voice with your name came through my iPhone and in an awkward panic, I was a stranger onto you.

A month has now passed and I wanted to say I'm sorry.  Those special feelings never ended and my love for what we had will stay with me as a treasure of my life.  As my end comes closer, a certain clarity shines through, the times and souls that touched us, touched me, changed me, loved me; they will forever be with me.

Yes, you are there.  Please don't take that distance last month as anything but a tired old soul hiding from his heart.

After all the loves of my life, after all the loves of my life, I'll be thinking of you......
and wondering, why?


A

MRNA

This story begins back in the fall of 2006, when Merck paid $1.1B for Sirna Therapeutics,  a little  RNA interference technology, a/k/a  RNAi, In 2001, Merck bought another biotech, Rosetta Inpharmatics, which specializes in this "targeted" type of RNAi technology.

We've had some success in prior blogs isolating and speculating on RNAi stocks.  Let's dip our toes back in again with MRNA.  Here is my executive summary (read: quick and capsuled analysis):
 

(1) Both MRNA's  CEO and Chief Scientific Officer are from Sirna, so not just one guy,  but two guys, in a real sense, the two most important guys;

(2) The company is focused on Liver and Bladder cancer, two areas without much effective treatment as best I can tell, again, this bodes well for their business model; 

(3) Existing licensing agreements with Hoffman-LaRoche and Novartis; 

(4) Something happened in early 2010 causing them to bring bladder cancer to the forefront and say that an IND would be filed THIS YEAR, by the fourth quarter; 

(5) At same time, they upped forecast from one to two deals with big pharma by year end.

All of this is good, very, very, good, but so what? Lots of $100-300 million dollar market cap companies have characteristics like these, well, not lots, but some do.  Except for this fact:  MRNA current market cap is only $39M.  THIRTY-NINE MILLION!   
So my take on MRNA just going this far is that they should be valued at between 3X and 8X current market valuation.  Sirna, which arguably had less going for it in 2006 then MRNA does now, was bought out by Merck for $1.1B in cash.  What was that all about?

From the press at the time of Sirna's buy out:

"So why exactly did Merck buy Sirna? Because the biotech specializes in RNA interference technology, also known as RNAi, which could conceivably be used to control gene activity to destroy cancer cells without harming healthy cells. In 2001, Merck bought another biotech, Rosetta Inpharmatics, which specializes in this "targeted" type of RNAi technology.

"Sirna has no products on the market. The most advanced experimental product in the biotech's pipeline, a potential treatment for a type of eye disease that can cause blindness, is years away from market approval, assuming its tests are successful. But that experimental product, called Sirna-072, is not the big draw for Merck, according to Ding Ding, analyst for Maxim Group.

"I think Merck paid $1.1 billion in cash really to buy the technology platform," said Ding. "I'm not convinced that Merck is going to continue the current pipeline that Sirna has. The key pipeline that interests Merck is oncology."

Source:   http://money.cnn.com/2006/10/31/news/companies/merck/index.htm

Admittedly, things are different now then they were in October, 2006. But only in macroeconomic matters, not so different in the pharmaceutical industry and its biotechnology incubators.  Not that I think someone is going to pay $1.1B for MRNA (all though they might), but based on all of the above, the management, the platforms, the progress, the targeted diseases, I think the upper range of $100-$300M is more likely then the lower range and that the lower range is almost a lock.  That's a lot of appreciation potential a year or two ahead.

MRNA Daily Trend Model - BUY PENDING

A

Disclaimer:  This stock might go down instead of up, down precipitously, you can lose everything leaving the door open for Tiger Woods, looking for your wife, or worse yet....you.

Claus von Bülow

Will today be the day that the Daily Trend Models signal a reversal of fortune for the equity markets?  We will know if and when the Daily Models breach thresholds at the close.  Before the Daily Models fall, the 240 minute models must go first, in the case of these models, by mid-day.

Below a graphical portrait of just how close some 240 minute models are to turning:

SDS 240 minute

SPX 240 minute

EDZ 240 minute

TZA 240 minute

DJIA 240 minute

At the trial in Newport, von Bülow was found guilty and sentenced to thirty years in prison; he appealed, hiring Harvard Law Professor Alan Dershowitz to represent him. Dershowitz's campaign to acquit von Bülow was assisted by the then Harvard Law School student and later television personality Jim Cramer; Cramer privately and later publicly considered von Bülow to be "supremely guilty".[3] Professor Dershowitz and associates rendered doubtful the first trial's most damning evidence and testimony; in 1984 the conviction was reversed; in 1985, after a second trial, von Bülow was found not guilty on all charges.   

Professor Dershowitz wrote the book Reversal of Fortune: Inside the von Bülow case (1985) that was cinematically adapted as Reversal of Fortune (1990). Jeremy Irons starred as Claus von Bülow (a performance which won him both the Academy Award and Golden Globe for Best Actor), and Glenn Close as Sunny von Bülow.

NNVC Charts

NNVC Daily

NNVC Weekly

NNVC Monthly

Global Market Perspective

EWI is offering the latest edition of Global Market Perspective for free, which can be had by hitting the following link: Global Market Perspective. 

 Below is the opening chart and a short excerpt from this issue of GMP:

"The Dow's break of the its 10-month trendline from the March low indicates that the next major decline is underway.  This break aligns U.S. equities with a decline in foreign currencies, precious metals, commodities and oil, all of which turned down previously.  There should be no place to diversify from the intensifying bear market."

Is this chart a road map for the rest of 2010?  We don't know yet, but if it is there will be a tremendous amount of profitable trades to be had, which is one of the reasons I initiated the Trend Models and subscription service on January 1st.  Best case, we ride the third wave down in trend mode, through indexes, ETF's and individual stocks.  Worst case, this analysis is wrong, but we still ride the trend models on a daily basis for whatever opportunities, up, down, or both, which may be presented through our rule-based trading system.  This is a high probability strategy and we are at the cusp of what should be an outstanding pay-off, looking back in about 12 months.

For now, back to the  EWI's description of the content included in Global Market Perspective:

EWI is giving away one month of its most popular global analysis publication, a 100+ page "little black book" of investment insights called Global Market Perspective, which includes EWI's three regional publications:

The U.S. Elliott Wave Financial Forecast ($19/month value)
The European Elliott Wave Financial Forecast ($29/month value)
The Asian-Pacific Elliott Wave Financial Forecast ($31/month value)
PLUS, the 100+ page book includes analysis culled straight from EWI's professional-grade Specialty Services, each of which is valued at $199/month. This means you also get analysis and forecasts for the following global markets:

World stock markets (China, Japan, Korea, U.S, France, Britain, Australia, Singapore and more)
Global interest rates (Australia, Europe, Japan, U.S.)
International currency relationships (U.S. Dollar, Euro rates, Swiss Francs, Australian Dollar, Japanese Yen and more)
Metals and Energy (Crude Oil, Gold, Silver, Natural Gas)

Occasionally I put up an offer from EWI because I think its a good deal.  The chart above, lifted from GMP without permission, is explained in more detail in over 50 pages of analysis of world stock markets. Although I think the Trend Models are sufficient for our trading needs, I also like having a big picture backdrop for what could be a historic period of financial turmoil, or not.

Meanwhile the first 90 minutes of trading this Monday morning have been uneventful.  Ergo, a plug for EWI and a lifted chart well worth the time to consider its implications.

A

CSIQ

 "Allan,
   I notice csiq had some bad news. I wonder if you think it a good contender for the short list....Jeff"

Feb 19 (Reuters) - Chinese solar-cell maker Canadian Solar Inc (CSIQ.O) cut its fourth-quarter gross margin view citing faulty equipment and a dip in prices, sending its shares down as much as 17 percent.

First of all, thanks Jeff for your email this morning and the idea for this post.

Below is my CSIQ 240 minute Trend Model chart, revealing a SELL SIGNAL generated on Thursday, February 18th when CSIQ broke and closed below 23.98, a pivot that was identified ahead of time as the reversal threshold from the previous LONG (generated Fen 11th @ 21.68).

CSIQ 240 minute Trend Model

But note how the Daily Model didn't flip SHORT until after the news hit:

In full disclosure, I don't follow CSIQ  in my nightly stock tables (although maybe I should), but here is a prime example of how the trend changed before the news hit.  Speaking of which, here is a close-up view of the CSIQ Weekly Model:

CSIQ Weekly Trend Model

An expanded Weekly Model below reveals the following Weekly Trend Signals going back about two years:

Buy week of 3/31/08 @ 21.50

Sell week of 6/30/08 @ 31.98

Buy week of 3/23/09 @  5.76

Sell week of 7/6/09   @  9.82

Buy week of 7/13/09 @ 13.90

Sell week of 1/11/10 @ 25.93

My new idea is to scan charts just before or just after the daily/weekly close for opportunities like CSIQ, including time frames like 240 minutes (about 1/2 day) and send out a list of these trade opportunities to subscribers.  This would be in addition to the usual trade suspects I follow each day.  This would also be a lot more work, but, Do what you love, or love what you do, both of which apply here (as if you didn't already suspect that was true for me).  

A

Weekends-Only, Stock Trading System

As its name implies, this trade system is run on weekends, trades at the Open on Monday and then does nothing until the following weekend.  It follows my Weekly Trend Following Models insofar as if a new Weekly Signal is generated by prices closing above or below the Reversal Threshold on Friday's Close, then a fresh trade is initiated the following Monday at the Open.

The table below includes twenty stocks that either I already follow in the email subscription service or that I have highlighted in a post over the course of the past few months.  I had the list up to 15 and they were all winners, so I had to search some other charts to come up with a few losers, just to prove losses do happen.  The table is limited to the most recent signal in each stock and there are 7 Buys and 13 Sells with time frames spanning from a few weeks to almost an entire year since the most recent signal.

The prices used for Entries are all at the Open on the Monday following a Weekly Signal, i.e, this system can be run entirely on weekends with all orders placed for the Open on Monday. 

A

VXX Major Bottom

Below is my Elliott Wave chart on VXX, discussed before in various posts.  In summary, the VXX is an ETF that follows VIX, the measure of market volatility which inversely follows the market up and down.  VXX is making new lows today, but as the chart below shows, by doing so it has created a major divergence with the Elliott Oscillator, indicating an impending reversal of the downtrend.  Adding to the evidence, my Advanced GET EW software is labeling this latest drop as an ending Wave 5.  Only the support level (blue horizontal line) allows for marginal lower prices before a major bottom is seen.

VXX Daily

Note how the peak in downward momentum occurred right where orthodox Elliott suggests it should, at the bottom of Wave 3 of 3 down, around the third week of October.   

Note also how well the VXX Daily Trend Model caught most of the entire shown decline.

Is it time to be long the VXX and start heavily shorting the stock market?  No, that's not how we trade.  We can anticipate the reversals but not act upon them until they occur.  That said, email subscribers know where the SPX Daily Model reverses Short, as well as where the SPX Weekly Model reverses Long.  Upon either of those events, everything will change.

A

UUP follow-up

I wrote up the US Dollar and UUP on February 3rd, pointing out that UUP had been on a Weekly BUY Signal since last December. Here is a follow-up chart on the Daily Trend Model which reflects last night's Fed news, no big surprise to the Trend Model.

UUP Daily Trend Model

The UUP March 23 calls are up about 20% this morning, on less then a 1% move in UUP.  Imagine that kind of leverage on the above trend signals.

DELL

Here is a another stock that trades well under the auspices of Trend Following.  Also note how well the Vortex Indicator tracks along side the Trend Model.

Dell Daily with Vortex Indicator

I can't follow the entire universe of stocks for trades like these, but I can cherry-pick the best ones and pass them along, probably on my weekend email updates, or during the week if something especially attractive appears on my screen.  These trade ideas will be based entirely on the rule-based trend following algorithm with an absence of personal market or stock-specific bias.  The more I think this new feature through, the more I like it.

A

GS Weekly Trend Model

We have been following the GS Weekly Trend Model since the inception of this entire project, including the real time beta testing done right here last November and December.  Instead of posting yet another new stock or index that appears to trade well under the algorithm, here is GS Weekly chart, which says it all in a very graphic way:

GS Weekly:  February 2009 - February, 2010

Closer up views:

GS Weekly: January - October, 2009

GS Weekly: July, 2009 - February, 2010

FAS/FAZ

FAS Daily Trend Model

I've added FAS/FAZ to the Daily/Weekly Models covered in the email service.  Below are the details for  the FAS Daily Model, another imperfect but highly profitable trading system.

Signals below taken at end-of-day of Signal:

9/9/09        BUY      75.98      +4.10
9/24/09      SELL     80.08       -3.34
10/7/09      BUY      83.42       +2.46
10/16/09    SELL     85.88      +7.32
11/9/09       BUY     78.56      -8.46
11/27/09     SELL    70.10      -3.90
12/21/09      BUY    74.00      +7.13
1/15/10       SELL    81.13     +11.13
2/16/10       BUY     70.00      +0.92

17.36 total points won in about 5 months
or about a 23% unleveraged gain.
Not enough?  Not breaking the bank?  
Try roulette or blackjack.
(Or options, more on that later).
Otherwise, this is damn good trading.

A

SPX Hourly

Here is the SPX Hourly chart that goes along with the email I sent out this morning:

SPX Hourly

PCLN

Priceline.com is a good example of how a Trend Model can be imperfect, but very profitable.  Below is the PCLN Weekly Trend Model with five signals.  To avoid entry/exit nuances, the following prices are from the OPEN on the Monday after the Weekly signals were generated.

Sell   7/7/08    @ 119.78

Buy  1/5/09    @   76.07

Sell 11/2/09    @ 157.51

Buy 11/16/09  @ 203.54

Sell  1/25/10   @  205.41

Current Price =   210.12

PCLN Weekly Trend Model

Trading the Vortex Indicator - Stand Alone

Sell 7/7/08 @ 106.30

Buy 1/12/09 @ 74.00

Current = 210.12

Using Vortex Indicator to Filter Trend Model Signals

You're kidding, right?

GFRE

Gulf Resources is an old favorite.  Here is the GFRE Daily Model, which went Long on December 2, 2009 at 9.45, followed by a Short on January 13, 2010 at 13.40.  With the stock currently at 10.36, it is up against resistance and it will take a close above 10.65 to turn the model bullish again.

 GFRE Daily Trend Model

T

AT&T  is a stock that is trading well in a Daily Model.  The Short was on the Open January at 27.95 and is still in effect at 25.40 today.

 T - Daily Trend Model

SSO Hourly

SSO is one of the ETF's that I follow in Daily and Weekly Models. Below is an SSO Hourly Model.  Note the Buy at 35.44 on February 12th which has just now been exited at 37.04. 

SSO Hourly

Short-term support

SPX 30 minute trend model at support

SPX 15 minute trend model broke support

NNVC & GNVC

NNVC 120 minute

 GNVC 240 minute

The blockbuster news from these two stocks is still out in the future, how far out is almost impossible to theorize.  Maybe the blue trend bars are suggesting that news is coming sooner rather then later.  Or maybe they suggest nothing of a substantive nature and are just random occurrences in an arbitrary universe.  It does seem that these trend models will cover whichever of the two foregoing explanations is operative.

A

Lie to me

SPX 240 minute with Fibonacci retracement levels

My take on this chart:  A corrective uptrend has asserted itself and it is approaching the 50-61.8% retracement levels that typically reverse prices and allow the dominant trend to re-assert itself.  As my email subscribers know, we respect the trend, whichever way it is headed.  For now, it is headed higher, but there are reasons to suspect that will change before too many more points are put behind this market.   We know where the Weekly Trend turns up, that will change everything.  But we also know where the Daily Trend will turn down and that too will change everything.  Thus, we wait.  Waiting for everything to change.  And it will......


A

SPY Daily & Weekly Models

 On Sunday I published a 5 year study of the SPY Weekly Model.  If you look closely, that Weekly Model generated a little over 20 SPY points over the course of the past 12 months, a return (without leverage) of about 26%.

Below is a table of SPY Daily Model signals for the same 12 months, only instead of taking all signals, this model only trades when both the Daily and Weekly SPY Models are in agreement. 

These results address the advantage of trading only on the side of the dominant trend, in this case, the Weekly Model.  This is admittedly a small sample, but my historical testing supports these kinds of results in all indexes, stocks and ETF's for which I've run this simulation.  Not all of this backtesting is ready for publication, but this one is and I wanted to get it out tonight, since both the SPY Daily & Weekly Models are in sync going into this week's trading.

SPY Weekly Trend Model

This represents another way to use the Trend Models, combining multiple time periods to filter out lower probability trades.  You can do your own math on using the double (or triple) beta funds to trade these signals.  There are many more ideas along these lines which I will be sharing as we go forward into 2010.


A

Five years of trend trading in SPY

Below a table of back-tested trades from my SPY Trend Model

Below a chart of the SPY with the above signals embedded roughly in time

The first notable observation should be an average annual return of 17.85%.   Of the 18 trades, there are 11 wins and 7 losses, for just over 60% winning percentage.  This is consistent, uncannily consistent, with all of my test models across varied time frames and across a diversified set of tradables.  This is and of itself generates a lot of confidence in this kind of approach to trading.

Below a current weekly chart of the SPY Trend Model

 

Notable on this chart is the answer to my one of the most frequently asked questions about these models.  In the 86 weekly bars shown on this chart, count how many bars touched the trend line and did not trigger a new signal.   By my own count, that would be eight false alarms, 8 touches of the trigger line that went on to close the week without triggering a new position.  We can extrapolate that about 90% of the touches mid-week will trigger switches.  That says to me that I can take on those new positions as the trigger line is broken and not wait until the end of the week, although about 10% of the times I will need to flip back to the original position at the end of the week, commensurate with prices retreating back to the initial position.  

It's hard to figure the negative effect of those whipsaws on total returns, but I am guessing it will reduce overall returns  by about 10%, or instead of an annual return of 17.85%, maybe 16% is more realistic.  Speaking of being more realistic, trading the SSO (Longs) and SDS (Shorts) as surrogates for the SPY, would reduce a hypothetical annual return of 35.7% (2 X 17.85%)  to about 32%.

Drawing some conclusions from the above discussion, trading this Trend Model using a leveraged ETF has shown an average annual return of about 32% over the course of the past 5 years. 

That doesn't mean that this model will continue to make these kinds of returns, nor is it a warranty nor guarantee of any kind or nature. Let's be real here.  I think that this trading technique is about as good as any available to the average in investor or trader.  The five years above covers a lot of different markets, hard up, hard down, sideways and choppy.  Still, in the long term, returns are excellent.  

Like any good trend following system this technique follows the simple concept of letting profits run and cutting losses short.  It does so through a few simple rules for identifying a trend, then entering the trend,  then exiting and/or reversing with the trend. Please review the elegance of the trades above in the light of rule-based trading and the following descriptive observation of why we are here:

"Profit-seeking speculation is the driving force of the market."  ---Ludwig von Mises, Human Action: A Treatise on Economics, 1949 (Year of Allan's birth)

A

Trade long and prosper

Tired of the trend model blogs?  Me too, but it was necessary to bring everyone up to speed on this methodology, to serve as a background for navigating the debacle that is emerging in the charts, albeit at this early stage of the suck-them-in-it-won't-go-down criminal manipulation. 

Below some Weekly charts of a basket of ETF's that will serve well in the coming financial debacle.  But only for a time.  At some point, you will need to cash out of these instruments and get your money into some non-paper-statement form.  Yes, it will be that bad.  But until further notice, these will be fine, safe and profitable vehicles.

There is only a slither of a chance I am early here, if so, the Trend Models will let us know soon enough.  If not, its time to get involved heavily on the downside of the market.  Notwithstanding the SPX Hourly flip to LONG on the close Friday, I expect hard down next week.  We are in take-all-Sells mode until further notice.  If you are on top the markets all day long, you can play these short-term Buys, but we wary, it wreaks of deception and manipulation.

FXP

EDZ

 SRS

FAZ

TZA

DZZ

ERY

My expectations are for these all to triple by my birthday later this year.  After that, they accelerate up in a parabolic fashion.

If you are a subscriber to my private email list, I have some special fun reserved for you.  So excuse my placing this particular basket up for all, it will pale in comparison to what we will be doing with the Trend Models already being followed and the ones that will be added in the next few weeks.  Diversification will be the direction and fine tuning will be our focus.  By the time this market debacle is in full and unmistakable force, we will be thoroughly entrenched in some very exciting and lucrative positions.

As for the skeptical, "What if Allan is wrong" contingent, that is the wrong question to be asking.  We are trading in sync with some very astute longer-term Trend Models which by their very definition and creation are the markets.  They are our navigators through the markets this year, so it is not what Allan thinks, it is what the markets are doing and they are showing their hands in our charts, every day, every week, every month.  All we have to do is go along for the ride.

The time and trend are now. 

Trade long and prosper.

A