Monday, May 5, 2014

IPM Trade Matrix - Trade 9 (Part 3)

Market Overview

A very confusing market. Market opens triple digit lower and then rallies into the positive area. Under normal circumstances, one would consider this behavior very positive. However, at this point in time, with markets near all-time highs and bumping against long-term trend lines, one should be very wary.

Recent market action is very confusing to say the least. It feels like something big is about to happen in the markets, in the next few days. Several markets are at very critical junctures as evident from the Elliott Wave structure.  

SP500: SP500 completed a 8/4 test to the downside. Since then it has rallied in a choppy format. The best count which supports a bearish outlook in shown below. It suggests that the SP500 is tracing out an ending diagonal pattern, which is a part of an expanding falt ABC. Once this pattern is complete, with a minor high above Friday's high, we should expect a sharp reversal. 

In order to keep the 8/4 test and above mentioned pattern valid, market should not make a new high above early April top at 1897. 

Nasdaq: Nasdaq's decline out of mid April intermediate-term top has been clear 5-wave affair. Nasdaq has rallied impressively over the last few days and has come very close to breaking the mid-April high. As long as mid-April high is not broken, we remain in a downtrend and look forward to a decline into the IPM turn window.

Similarly, DJIA is also showing an ending diagonal pattern. The maximum level for DJIA is 16680. 

All of the above developments suggest that we are approaching a turning point. If market manages to decline soon, we will be looking forward to sharper decline. If market does not decline and takes out the highs in various indices, it would suggest that we have to be careful and market could rally sharply. In other words, one can also regard this area as a low risk short entry area.

IPM Trade Matrix 2014 Trades

TRADE - 1: (Long) = +2.6%
TRADE - 2: (Short) = +9.3%
TRADE - 3: (Long) - Non IPM Trade Matrix trade -0.2%
TRADE - 4: (Short - 1/31/14 to 2/5/14) +7.25% 
TRADE - 5: (Long - 2/11/14 to 2/22/14) = +9.8%
TRADE - 6: (Long - 2/22/14 to 3/07/14) = +11.7%
TRADE - 7: (Long - 3/18/14 to 4/11/14) = -18.1%
TRADE - 8: (Short - 4/23/14 to 4/28/14) +11%

TRADE - 9:
Bought TZA at 17.35. This is an aggressive short position. Shorts were added today. 

When: Outside of IPM turn window in a downtrend - Date info e-mailed to subscribers
Next IPM Turn Window: Bottom 
Trigger: SP500 = 1864 (Conservative), 1881 (Aggressive), DJIA = 16420 (Conservative), 16520 (Aggressive), GDOW = 2505 (Conservative), 2519 (Aggressive)
Supporting Indicators: 8/4 Test completed to the downside. Downtrend in effect.  

Profit Target 1: 1830
Profit Target 2: 1770

RISK - Defined above in the commentary
Stop: SP500 = 1898 , DJIA = 16682 , GDOW = 2536
Trailing Stops: - 
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: - (Entry = - , Exit = - , Risk = - )
Risk Reason: Risk is high because we are outside of the IPM turn window. This makes it difficult to time the turn exactly.

Applicable Rule: 
  1. Sell (1/2) at profit objective 1 to minimize draw-down
  2. No Trade in opposite direction
  3. Do not go long or short without trigger to prevent losses by market moving against you.  
  4. Observe stop-losses to minimize draw-downs
  5. If stops are hit ==> Wait on the sidelines for new opportunity near IPM Turn window

Note: IPM Trade Matrix Trades will be posted in the first half of 2014. This is an experiment to understand and enhance the capabilities of this Matrix.

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