No Mans Land

No man's land is a term for land that is not occupied or more specifically land that is under dispute between countries or areas that will not occupy it because of fear or uncertainty. During war (especially World War I), it is a term used as the area of land between two enemy trenches that neither side wishes to openly move on or take control of due to fear of being attacked by the enemy in the process.
---Source Wikipedia

After being an unabashed bear since early September, 2008, the time has come to equivocate.


The chart above is of the Daily S&P 500 and it is showing a clean five waves down from last summer's highs. Yes, it can go lower. But we have captured, for the most part, the gist of this incredible decline. The chart reveals a significant divergence in the bottom indicator, the "Elliott Oscillator," showing an extreme for Wave 3 of 3 (as expected) and lower lows in prices for Wave 5, but higher lows in the oscillator. It is time to be on guard for a significant rally, retracing about half of this entire decline. Maybe 1/3, maybe 2/3, but probably 1/2.

When will we see this rally?

We will see it when it happens. Which brings me to the trend following models described this past weekend. As pure trend following, it cares not about Elliott Waves, Oscillators, Divergences, Cycles or TARP. It looks at only one input: PRICE.

In an earlier blog, I showed how well the Weekly Trend model did over the past 20 months. But like a ship at sea, the Weekly model turns slowly. Below are the results, Year-to Date, of the same model using 120 minute bars:


If I did this right, the numbers in the table should be self-explanatory. Twenty trades over the course of about 10 weeks, all gains based on a single e-mini contract using $5,000 margin. There are some nuances, but we don't need minutia right now, we need direction.


Above is my 120 minute Trend Model. The Buy-stop for going long as of the close of trading Monday is 685.07. The SPX closed at 676.70. So as of Monday night, the model is about 9 points away from flipping from Short to Long.

This Trend Model is found here: Blue Wave Trading

There is much more to Blue Wave then this simple application of its basic trend model to trading a single e-mini futures contract, or ETF, or options, or all of the above. The link above will take you to the web site if you would like to look at all Blue Wave has to offer. In the three months I have owned the software, I have been blown away by it's effectiveness.

A run tomorrow that flips the 120 minute model Long will go a long way finally toward some closure of this amazing five waves down from last summer.

What if it doesn't flip? That says a lot too.

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PS: Blue Wave is running a special through March:

My biggest mistake

My biggest mistake: TRADING


I turned ferociously bearish on the stock market in my September 10, 2008 blog, Crash Warning.

Since then, here are the results:

S&P 500 - Fell from 1228 to 683 = 545 points = (44%)
DJIA - Fell from 11,234 to 6,627 = 4,607 points = (41%)
Nasdaq - Fell from 2,232 to 1,294 = 938 points = (42%)

Non-leveraged ETF, an average gain of 42%;
Double beta ETF, an average gain of 84%;
Index options, assume 10X leverage factor an average gain of 440%;
Conservative pyramiding of option wins, a gain of 1,332%;
E-mini futures on S&P, $5,000 margin per contract, a gain of 545%;
Conservative pyramiding of e-mini wins, a gain of 1,635%;

An average return on all of the above strategies comes to +680%.

The benchmark then, for could have, would have, should have = 680%

Yet how many of us, present company included, have even achieved a third of that return, which would be about 227% in the past six months?


Here is my mea cupla: Over-trading.

Mea culpa is a Latin phrase that translates into English as "my fault", or "my own fault". To emphasize the message, the adjective "maxima" may be inserted, resulting in "mea maxima culpa," which would translate as "my most [grievous] fault." The origin of the expression is from a traditional prayer in the Mass of the Roman Catholic Church known as Confiteor (Latin for "I confess"), in which the individual recognizes his or her flaws before God. In the popular vernacular, the expression "mea culpa" has acquired a more direct meaning, in which, by doing or performing a "mea culpa", someone admits to having made a mistake by one's own fault (meaning that it could have been avoided if that person had been more diligent). Source: Wikipedia

Is it realistic to have held short during the entire six months, enduring some painful drawdowns, albeit temporary, along the way?

Here is a link to Michael Covel's blog, he is the author of Trend Following, which I highly recommended in a previous blog. This particular post by Covel is directly on point with what I am trying to describe today, Trend Following Fund Performance Compared To Stock Indexes. It covers performance of numerous Trend Following funds against benchmarks of US and Global indexes.

Below is one example from that article. Starting in December, 1987, it compares just one trend following fund to U.S. Indexes. This period covers bull and bear alike, including the great bubble of the 1990's and all trading from the mid-2007 beginning of this devastating bear market, through December, 2008:



The math says it all: Trend Following achieved about 15X the benchmark performance of U.S. Indexes.

Covel, on page 232 of Trend Following, makes this most salient observation:

When you mechanize a system for your personal use, you take all your discretionary judgments and build them into the rules......With your trading rules established in advance and put into your system, you can avoid constant discretionary decision making.

Truer words have never been spoken. Discretionary decision making in the heat of the battle is the Anti-Christ to successful trading. You just can't catch every blip up or down, nor can your trading rules anticipate every news story, economic report or Barney Frank dribble. It is the trader with the fewest whip-saws who will win......everytime.

In the years of this blog, I have introduced my readers to many different trading models, from scalping day-trade systems (I-Buys) to swing-trading pattern recognition (Triangles from Market Club, Elliott Wave, Cycles) and now to what I consider to be the very best Trend Following System for stocks and equity indexes that I have ever seen, now trade, bar none.

Despite under-performing what we could-have, should-have, would-have done these past highly volatile six months, there is always more-to-come in the stock market. What I will introduce in coming blogs will show how cruise-control and auto-navigation can be modeled into our trading to achieve returns mirroring the trend following performance of the above chart.

Finally and as always, what the markets are likely to do short-term will remain a primary focus of future blogs, which if you haven't figured out yet, has also gone hand in hand with the basic tenants of trend following. Elliott Wave, Trade Triangles, and even Cycles all have a rightful stance in identifying trends and pointing the way ahead.

But we shall soon digress a bit, into a "none of the above" mode and take a look a something special, that very few others are doing, because herding is in our nature, but it is the outliers who lead the pack.

Get ready to lead.

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Deja two

That was easy.



Above is a continuation of last night's 30 minute DJIA chart. Note two "tells." First, a break-down of the shorter trend lines running across the longer trend lines. Next, look at the position of the False Bar Stochastic. As with the previous breakdown a few days ago, the FBS was again overbought and crossing over just as price broke down. A powerful 1-2 punch.

What next?

How about Deja two?




Above is a one minute DJIA chart going into Thursday's close. A familiar pattern, dueling trend channels and an overbought FBS.

This time, I know it can't be this easy.

Can it?

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Deja vu?

Seems like we were here just a few days ago. Long down channel, ascending wave 4 channel within long down channel and then a breakdown of that wave 4 channel that was good for 500 DJIA points. No way it can be this easy.

Thirty minute DJIA

Or can it?


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Fractals

A fractal is generally "a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole," a property called self-similarity.


Here is a chart of the SPY on a Weekly scale taken as a snapshot during November-December, 2008:

SPY Weekly

Below is an almost identical pattern of the SPY, only on a 30 minute scale taken at the close today:

SPY 30 min

Here is the outcome of the first chart, Weekly SPY through today:

SPY - Weekly outcome

Tomorrow we will see the outcome of the 30 minute fractal. The bet here is that it will look about the same as the Weekly Outcome chart.


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Chart updates

I first introduced this chart last Wednesday, the night that the Detroit Red Wings walloped the San Jose Sharks 4-1 at Joe Louis Arena in Detroit. It is a chart of the DJIA with channels representing the big trend (Down) and a then sideways trend that looked like a wave 4. Here is the chart, updated with today's prices:


My point is that waiting for that ascending wave 4 channel to be broken in the direction of the longer downward channel left plenty of DJIA points left to pocket.

Onto some cool charts from today's action in the S&P. First up is a 30-minute chart in both Elliott Wave and Trend Bias formats. Both are saying that there is more to go on the downside.


Next is the Weekly chart that has anchored my bearish outlook from all the way back to September, 2008. Also included is a screen shot of the Trend-Bias chart that forms the basis of the Simple Weekly Trading System I posted on Sunday:


Finally a word about NNVC. Big news today, much bigger then reflected in the modest appreciation in share price today. When this big bad bear market began in July, 2007, NNVC was trading at about $0.80. Today it closed at $0.77. That is a loss of 3.75%. During the same time period, the S&P, DJIA and Nasdaq all have dropped about 50%. While this stock, still my Number 1 stock pick for 2009, has yet to make us all rich, it has been a heck of a better investment then just about any stock on the three major exchanges. Not a bad performance while waiting for the volcano of recognition to erupt.


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NanoViricides - Big News!

This is huge news for NanoViricides. Those of us familiar with the Company should know just how huge this news is as it confirms the viability of the underlying science by a major pharmaceutical company. It is that confirmation which should ignite these shares toward a significant and unbelievable market capitalization.

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NanoViricides, Inc. Signs Agreement with a Major Pharma
Monday March 2, 7:00 am ET

Material Transfer Agreement is First Step Towards Licensing Agreement

WEST HAVEN, Conn.--(BUSINESS WIRE)--NanoViricides, Inc. (OTC BB: NNVC.OB) (the "Company"), reported today that it has signed a Material Transfer Agreement with a major pharmaceutical company (“Party”). The Agreement initially entails evaluation of one of the Company’s nanoviricide drug candidates by an independent consultant chosen by the Party. This drug candidate has been designed to eradicate viral infections of the external eye, including those caused by adenovirus and herpes virus (“HSV”). It is the understanding of the Parties that, should the testing results be favorable, they will enter into good faith negotiations for a potential long-term, exclusive, worldwide licensing agreement for the development and commercialization of the drug.

“This agreement is the first step towards a potential licensing agreement,” said Eugene Seymour, MD, MPH, CEO of Nanoviricides, Inc, adding, “It clearly signals that our technology is now attracting serious attention from major Pharma companies.”

The terms of the Agreement do not allow the disclosure of the identity of the Party or the exact terms of the Agreement.

HSV and some adenoviruses cause most of the cases of keratitis, a serious infection of the cornea. Importantly, HSV infection can lead to corneal scarring that may necessitate corneal transplantation. In addition, some adenoviruses cause a majority of conjunctivitis cases (“pink eye”). The remaining cases of conjunctivitis, caused by bacteria, are treatable with topical antibiotics. Currently, there are no effective treatments for viral diseases of the exterior portion of the eye.

The Company has already demonstrated strong efficacy against an adenovirus-caused external eye disease called epidemic kerato-conjunctivitis (EKC). Rapid clinical improvement in the treated animals was reported by independent researchers who tested the effects of the nanoviricides drug candidate against adenoviral EKC. Based on computer modeling, the Company believes that the broad-spectrum nature of the ligand used in this nanoviricide should enable it to be effective against HSV.

The total market for viral conjunctivitis is estimated to be in the billions of dollars. The incidence of severe herpes keratitis is estimated to be 250,000 cases per year in the USA. In Japan, where EKC is a reportable disease, it is estimated that there are at least one million cases per year. The number of cases of non-specific conjunctivitis (pink eye) is considered to be far greater, possibly into tens of millions in the US, and into hundreds of millions worldwide.

About NanoViricides:

NanoViricides, Inc. (www.nanoviricides.com) is a development stage company that is creating special purpose nanomaterials for viral therapy. The Company's novel nanoviricide™ class of drug candidates are designed to specifically attack enveloped virus particles and to dismantle them. The Company is developing drugs against a number of viral diseases including H5N1 bird flu, seasonal Influenza, HIV, EKC, Hepatitis C, Rabies, Dengue fever, and Ebola virus, among others.

Simple weekly trading system

At 4:00pm on July 17, 2007, Robert R. Prechter, Jr. sent out a special Interim Report telling his subscribers to, "....Return to a fully leveraged short position now."

At 3:25pm on February 23, 2009, Prechter sent out his monthly Elliott Wave Theorist, saying in relevant part, "I recommend covering our short position at today's close."

This trade lasted about 20 months and earned 800 S&P points over the course of the trade. Based on a single S&P mini futures contract, those 800 points earned $40,000. Depending on your brokerage rules, about every $4,000 placed in this trade earned $40,000, or about 1,000%.

A once in a lifetime call, or something you can do at home on your own?

Below is a screen shot of my trend following system based on Weekly trading bars. All of the automated trades made from these weekly bars are printed on the chart. You can always click on the chart to enlarge it.


There were seven trades between July, 2007 and February, 2009. Five of the trades were winners and two were losers. Adding up all the points gained by the five winners and subtracting from that sum all of the points lost in the two losers, for the same period that Prechter earned his 800 points on a single short trade, this trend following system gained 766 points.

Unlike Prechter, this system is still Short.

Also unlike Prechter, this system runs on my MacBook Pro.


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DJIA adjusted for inflation

This fascinating chart was published by Chart of the Day on Friday morning. Note lower channel levels, an area that seems inevitable before this bear market is finally over.

Here is their commentary:

Chart of the Day

For some long-term perspective, today's chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, the inflation-adjusted Dow has gained a mere 55% since its 1929 peak and gained only 10% since its 1966 peak – not that impressive considering it took many decades to achieve those gains. It is also interesting to note that based on an inflation-adjusted Dow, the current bear market actually began in 1999 only to be interrupted briefly by a multi-trillion dollar credit bubble. That bubble has burst, of course, and the Dow now trades at a level not seen since 1995.


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Four for Four

Here is an update on my chart set-ups from yesterday:

DOWN - Stocks, Gold & Bonds

UP - Oil

S&P 500

Gold - GLD

Bonds (TBT - Short ETF)

Oil - USO

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