Thursday, May 8, 2014

IPM Trade Matrix - Trade 9 (Part 6)

Market Overview

Today's market action was yet another confusing day. However, it brought the ending diagonal pattern to the forefront again. The best part with the ending diagonal pattern is  that it has its limits for prices. As long as the price limits are not violated, pattern remains valid. However, as soon as the price limits are violated, pattern is invalid.

A similar situation arose this morning, market rallied sharply. And around 11:43 AM, following tweet was published. DJIA topped at 12:41 @ 16,622. This is pretty amazing for an Elliott Wave analysis call.

Ending diagonal pattern in DJIA is shown below. One of the characteristics of an ending diagonal pattern is that once it breaks, prices retrace in an impulsive manner to the area of the origin. Earlier this week, market did not breakdown in an impulsive pattern and also did not make a lower low. This market action suggested that the pattern is still not complete. And that is why, a stop level was not published for DJIA in yesterday's update.

In the above chart, one can clearly see an overlapping wave structure, making waves a,b,c,d,e. Furthermore, each sub-wave is divided into 3-waves (a characteristics of the ending diagonal). This level is also occupied by a long-term resistance line, which makes it even more interesting. Finally, one can see an overlapping ending diagonal within wave e. In short, this is a very critical juncture for the market. If the market breaks down from this long-term ending diagonal, we should expect much lower prices. Otherwise, if this pattern is invalidated, we will see higher prices and will position accordingly.

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 on 4/30 and 5/2. 

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

Profit Target 1: 1830
Profit Target 2: 1770

Stop: SP500, DJIA and GDOW = Above early April high ==> A rally above early April highs in all 3 indices will negate 8/4 test to the downside i.e. trend will change to UP again.
Trailing Stops: - 
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: 0.2% (Entry = 1881 , Exit =1885 , Risk = 0.2% )
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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  1. You are saying trend changes to UP in the event of April highs being broken to the upside. Has the *probability* of such an event increased with this week's market action or is the high probability event still an ending diagonal with downside to follow? Thank you for your insight.

  2. IPM trade matrix can only go short under current market conditions based on downtrend confirmation by 8/4. test and IPM turn being a bottom. Before, even if there was a change in probability, system would have stayed short till stops were hit or profit was achieved..

  3. We're higher today than we were yesterday.


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