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Showing posts with label Stock Market timing. Show all posts
Showing posts with label Stock Market timing. Show all posts

Friday, August 25, 2017

Market at Crossroad & Potential Catalysts

Over the past few weeks, we are seeing several consolidation patterns popping-up in different markets. Consolidation usually signals in-decision or brief pause before resumption of the underlying trend. However, markets also consolidate in a sequence of 1s and 2s before a significant move in a new direction.

It appears like we are experiencing both the cases in different areas, where market is tracing out a sequence of 1s and 2s, and is waiting for a catalyst to break out of this consolidation. Following charts show this pattern:

Bonds: Since July Bond prices have been increasing but in an overlapping manner. This suggests that either this is a corrective move and we will see a move down soon, or we will soon see above June highs.


Gold: Over the past 4 days, Gold has placed in 4 inside days above the downtrend line and near the resistance. Inside days show indecision - a point where buyers and sellers are not comfortable making the move. Although most of sideways consolidations result in a move in the direction of the trends, next few days will be telling in terms of the move.


Stocks: SP500 is stair stepping down. Like other instruments, this stair-step pattern would either give way to a substantial decline in the near future or would turn out to be a correction in the broader up trend.

Even though stock market sentiment has come down recently, it remains elevated. On the other hand sentiment for Bonds and Gold is rising but not very optimistic yet. Proprietary timing indicators suggest that next turn date is few weeks away in the stock market. Therefore, if the market declines, other assets could rally but they need a catalyst to move away from current sideways indecision.

Need for Catalyst
Today's Jackson Hole speeches by Janet Yellen (Fed Chair) and Mario Draghi (Chair ECB) could be the catalyst that the market is waiting for.

If it is the trigger and if the markets start moving in 3rd wave out of this consolidation, logical move would be a rally in Gold and Bonds, while decline in Stock Market. Stock market is over-valued and has been rising for over a year, so this move is very possible. A decline in the stocks will be attributed to debt-ceiling debate and numerous other distractions from Washington by fundamental analysis but essentially it will be a natural part of the market rhythm.

We have underscored this observation multiple times that financial news media distracts investors. It can lead to early exit and pre-mature entry into investment positions. As a result, one of the lessons that we learned through 2016 is (Investing Lessons)

Lesson 1: There are no guarantees but being persistent is the key to long-term success

Long-term investing is regarded as the secret ingredient for many successful investors. Time is a very powerful commodity. If you give time to a successful business model or investing strategy, and combine it with dedicated and passionate management team, it will give you amazing long-term results.

Another reason why long-term returns are much more important than short-term returns is because when a portfolio achieve critical mass, one’s personal savings will not have that big an impact on the growth of portfolio. For example: $100K invested today will grow to 1M @ 20% return in ~13 years. At that point 100K will not have as much value because @20% / year an investor will experience a $200K increase without adding any more funds.

Thirdly, investing is a game of nerves and patience, whether in the stock market or any other endeavor like small business, start-ups through Angel/Venture investing, or Private Equity. The only difference with stock market based investing is that you have the opportunity to exit early because the market provides excessive liquidity, which provides peace of mind for many investors.

Long-term investment positioning and persistence provides investor with the focus needed to successfully withstand periods of draw-down because major moves take place after big draw-down periods. We will discuss additional lessons in the next post.

How to Position? 
Most of the readers would agree that the markets are at a critical juncture. However, knowing this is one thing and acting on this information is totally different. So far in 2017, we have mentioned several big moves on this blog and on twitter but doubt if effective trading was performed around this analysis by the readers.

Effective, long-term and consistent trading requires discipline and an edge in the market to adjust findings as market situations change. At this critical time, we are using proprietary models to expose clients to positions that have the highest success probability.  Performance - H1 2017 

Contact
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Thursday, July 13, 2017

Stocks Approaching Dangerous Levels

Yesterday's rally in all of the major indices $DJIA, $SPX, $EEM, was very well received and triggered many tweets regarding Dow being at all time highs. Even President tweeted that stock markets are doing Great! I would recommend against such tweets because:
  1. What happens when the market goes down? If one owns a rising market, they would have to own the declining market as well, which could be much more negative.
  2. Market risks are increasing and we are close to a turn in the markets, which will correct post-election rally. Hence, a deeper correction can be expected. 
Following analysis supports the correction hypothesis (not a Bear market for now). Please note that below analysis is predictive and unlike mainstream finance, which is reactive, this analysis helps in understanding potential market move before time. This analysis also plays a pivotal role in our client portfolios (H1 2017 Performance has been shared). There are four key components:
  1. Structure
  2. Technical/Divergence
  3. Market Timing
  4. Sentiment
This correction could last for few weeks/months before resumption of the trend because we don't see a Bear market right away. But do you want to be part of a market when its going down and the headlines are negative? Some investment suggestions are included at the end.

Structure
Firstly, the Elliott Wave structure is nearing completion. Once this 5-wave rally completes, we will see a decline. Next decline could bring DJIA back to ~20,500. As for the upside, if current structure (As shown below) holds, Dow Jones Industrial Average cannot exceed 22,000, which is less than 500 points from yesterday's close.


One of the lesson that we have learned over past several years of market analysis is that one cannot and should not blindly believe on Elliott Wave structure without considering the market backdrop.

Divergences
Inter-market divergences highlight discrepancies between markets. These discrepancies typically take place in 5th wave where markets start diverging. We can currently seeing a divergence between SP500, DJIA and Nasdaq (shown below).

  


Please note that these divergences don't mean that long-term trend has reversed. On the contrary, there are no signals (structural or momentum) that this decline could lead to a new bear market.

Timing
Our proprietary market timing model has a key market turn date scheduled for July 14 (+/- 4 business days). Therefore, we can expect a top by next week.
This model has worked very well in the past and also serves as a key component of our proprietary strategies. We are working on developing a unique trading system around IPM, with potential go-live in 2018.

Sentiment
Following charts show that sentiment is very elevated. 

Long positions in DJIA are at all time highs, which does not bode well for a sustained rally.

Investor Intelligence survey respondents are mired in the bullish region for quite some time, and same is the case with Naaim survey results (charts courtesy of Babak).

 

Lastly, these two are very interesting.

TD Ameritrade users are very Bullish and are showing it with their trades. Since these are real retail investors, them being so bullish doesn't bode well for the markets.
More than half of E-trade users are also optimistic regarding the prospects of the market, which is another warning signal (Courtesy Noon Six Cap)

Positioning
Markets are at a critical juncture. Preparing for such a decline will depend on personal risk tolerance and tax considerations. Everyone should evaluate their investments through following key investing questions:
  1. Am I ready for a stock market trend change?  
  2. Will I have the mental strength to go against the herd?  
  3. Can I take advantage of new opportunities?
If you think you have too much exposure to stocks, you can reduce some exposure to be able to buy again. If your comfortable taking a hit to the portfolio knowing that you might not be able to enter back in time, it's better to ignore the news and remain invested. Worst thing a person can do is not reduce exposure at top and then get stressed with market/news, ad get out at the bottom, only to see a resumption of the rally.

Alternative Solution: We are helping clients answer above questions every day. And have developed our proprietary strategies to generate consistent returns, while taking advantage of new market opportunities and minimizing existing risk. We aim to provide Absolute Return Hedge Fund like strategies for individual investors through Managed Account model.

Feel free to contact us with any investment questions or if you would like to invest with us (Performance - H1 2017):

  • Twitter: @survive_thrive
  • E-mail: subscription.ust@gmail.com 
  • Comment below
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Wednesday, November 2, 2016

Market Trend Remains Up

Sideways consolidation continued over the last week. The blog wasn't updated because of registration paperwork. We will discuss Investment Advisory registration in one of the upcoming posts.

Markets' sideways action remains intact. Even though in the last couple of days SP500 and US indices saw a relatively sharp decline, it did not impact the overall shape and form of the market.

Market Structure
SP500 is tracing out a diagonal pattern (shown below). One of the criteria of this pattern was to decline below C level, which it did yesterday. Now, the market needs to hold above yesterday's bottom to confirm that this pattern has been completed.


The overall market structure remains very choppy. This choppy action now spans over 4 months, which is a good enough time to correct the market through time. At weekly level this sideways action looks nothing more than a bull flag or pennant formation. And both of these are bullish in nature.


In terms of next market move, there are couple of options and will be determined by how the market participants react to the next rally phase. In either case, the minimum rally requirements would be above July 2016 high or around that level (SP500 = 2190).

Sentiment
Recent decline has also improve sentiment measures to suggest that a more sustainable rally is possible.

Fear/Greed indicator is at levels where it typically signifies a market bottom.

Similar another indicator just generated a buy signal and could mean that the trend is about to turn to the upside.


Market Classification Model:
MCM for stocks continues to be in a bull market. Therefore, the trend remains up and we will soon see a sharp rally. Even with yesterday's sharp decline, our strategy performed well. While SP500 was down 0.72%, we were up 0.20%. Another proprietary model is suggesting a sharp rally in our strategic allocation portfolio. We will see. So far by the grace of almighty, our proprietary portfolio is up ~20% YTD (after 10 months), which SP500 is up ~6%.

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Tuesday, October 25, 2016

Inflection Point Model - Performance Recap

Inflection Point Model predicted a market turn date on Oct 21, 2016. Market declined on the 21st and then rallied. The rally continued today and futures are up now. With new catalyst along the way in the form of earnings from Apple and Google, we can expect more gains. Good thing is that even with today's very powerful rally, there was no sell signal. This suggests that the trend remains intact and is strong.

IPM Output - Turn date 10/21/16
Following chart shows the IPM model's output, as shared on Oct 17th (link)
Market Structure
Analyzing IPM model in conjunction with the market structure showed us that the trend had been sideways to down since mid July. Hence, the likely scenario was for market to put in a bottom during the IPM turn window and rally.

Following chart shows the latest structure shared on the blog along with a blue box, highlighting potential market turn window.


Following chart shows performance of SP500 as of today i.e. after bottoming within IPM turn window on Oct 21, one can observe the green bar with a gap up. Today's performance shows that the market gaped-up but did not cover the gap, hence, hinting towards a strong move. At the same time, confusing so many market participants, who have been taking failure of rallies as the new norm. 


Next Steps
We will continue to evaluate the market with respect to its structure and Inflection Point Model. One of the biggest benefits of the IPM model is to forecast potential market turn dates. And when IPM turn dates are combined with Market Classification Modal, it paints a much clearer picture. 

Market Classification Model is bullish. Next run of the model will be in next few days. Once the model is processed, it will tell us whether the internal strength of the market justifies a continued bullish posture or should one be wary of market trend changes. This information will be shared with subscribers immediately, so that they may evaluate their long investment positions.

Tomorrow's market Action
So far the futures are up and we could see a  continuation of the rally. This rally has a lot going for it but there are some signs of tiredness appearing in the market. We will evaluate the market structure and next IPM turn window in upcoming posts.

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Friday, April 29, 2016

Model's Performance - Apr 29, 2016


As of right now, April has been a net neutral month. The rally that we saw in the early part of April fizzled out in the last week or so. And now the market is on the verge of closing the month in the negative territory.

However, at the same time, the Portfolio Enhancement Algorithm performed very well in April. Since the beginning of 2016, we are closely tracking the performance of this model. Following chart shows the performance since Jan 2016.

As one can see the model rallied sharply in Jan/Feb, while market declined. Then it consolidated while market rallied sharply in Feb/March. Interesting aspect of this consolidation was that it was not impacted by the sharp rally of the stock market i.e. it was just a consolidation of the gains versus wiping out all the gains.

Soon after the consolidation was complete, the model rallied again. And this time, the rally was followed by a mini consolidation in April. This brings us to today, where the model is breaking out to new highs. So far in 2016, the model is up 12.9% vs SP500 gain of 1.5% (including dividends).

Although the performance of this model is very impressive and its more impressive in the leverage world, which we continue to monitor (we share the results of leveraged model's performance in May/Jun time frame), there are numerous other benefits of this model based portfolio which we have discussed in following posts over the past few weeks:

One another benefit of this model is the ability to implement Buy and Hold Strategy, which we will discuss in the next post along with analyzing the portfolio performance quantitative perspective. 


Monday, January 25, 2016

Portfolio Performance & Market Overview

Market remains in a bear market. Sharp rally of last weak as the feel of a bear market rally. Today's decline might be the start of next leg down. However, this leg might not be as long as what we saw in early January. In fact, once this phase is over, we could see a sharper rally, lasting for 2-3 weeks.

Although the above analysis is based on Elliott Wave theory, overall trend remains down. And till the time this trend turns up, we should remain cautious. Our portfolio allocation model exited long positions in August. And shorted the market at the start of 2016.

So far the portfolio is up ~5% (YTD) in comparison with ~8% (YTD) decline in the SP500. Another interesting aspect of this portfolio is that its "Beta - measure of risk when compared to SP500" is -0.56. 

Therefore, it is not correlated to the market. In a bear market, this portfolio mix not only allows us to gain from the market decline, but also enables us to protect ourselves in case of a sharp rally (like the one we saw last week).




This portfolio is an auto-allocation portfolio with diversity considerations to ensure protection against systematic risks. Asset class risk is managed by employing proprietary Bull/Bear identification mechanisms. We will keep tracking this portfolio on an on-going basis to see how it performs over the long-term. This portfolio can also be considered as the next step in our effort since March 2015 to automate portfolio management through advanced analytical and statistical tools.

As for the overall market, their is no change in the outlook. Stocks remain in a bear, while bonds remain in Bull market. There are some asset classes which have just entered a Bull market or are trying to carve not a base before entering the next phase (Oil is not one of them).


Tuesday, January 19, 2016

Stock Market Trend and Russell 2000

We have been discussing market and its down trend for quite some time at Understand, Survive and Thrive. It seems like this relentless downtrend doesn't want to end any time soon. Oil keeps on falling and keeps dragging the stock market with it. At some point market will rally but in a downtrend one cannot trust the rallies. In fact, hoping for a rally in a bear market is akin to hoping for a correction in a bull market.

Rallies will come but will be short and sweet. By the time people embrace them, they will be over and the primary trend will resume. One of the biggest red flag in current market is the significant under performance of Russell 2000. Russell 2000 is a small caps index and small caps are most impacted by changes in economic conditions because they are most sensitive to credit availability.

These business depend on economic growth and easy credit for their survival. Therefore, whenever you see small caps declining, its a major red flag.

In December, we highlighted that Russell 2000 ($IWM) was forming a head and shoulders topping pattern (link). The pattern looked like:


Now a completed pattern looks like following. This pattern still has another 7% decline left before it reaches its measured target level.


Small caps are already in official bear market, another 7% decline will bring the Russell 2K index in low 900s.

This analysis shows the importance of objectivity in investing and why trend following is critical. An up-trending market will find excuses to go up and a down-trending market will find fundamental and technical excuses to go down.

At this time, long-term trend in stocks is down. So every rally attempt should be treated with caution. Downtrends implication are very severe on the economy. We might be headed for a recession. Junk bonds and oil related bonds are doing poorly. This could be another area of serious concern. We will continue to evaluate the situation. But the bottom line is the best portfolio right now will be a portfolio who beta is lower than the SP500. Lower beta would reduce your risk in a down market and will allow you to preserve capital.

In the next few blog posts, I will share our portfolio which is a -0.56 beta and is beating the market since the start of the year.

Wednesday, January 13, 2016

Nasdaq Head and Shoulders Completed

Market is declining and Head and Shoulders have played out exactly in Nasdaq. We are in a #bear and we have been discussing this scenario since August 2015. 
 
Following chart was presented on January 4, 2016 (link).

 
 


Market so far has played out Head and Shoulders pattern to the target, as shown below.



Head and Shoulders patterns are forming in many other asset classes. We will review these in the next few blog posts.

Wednesday, January 6, 2016

Long Term View of Dow Jones Industrial - $DJIA

Markets continued their decline and are again poised for a down day with China closing early due to circuit breakers being activated for the day.

We have been talking about the stock market trend change since September 2015 in the following blog posts:
  1. New Year and the Stock Market
  2. Bonds Rally Analysis and Stocks
  3. Importance of objectivity in trend following
  4. Current Market - Bear Case Evaluation
  5. Investment Optimization Model (IOM) Performance - August 2015

At the same time we have been discussing markets via twitter on a more frequent basis. In this post, I would like to analyze the market from a long-term perspective. Chart below shows the performance of Dow Jones Industrial Average over the past 2 decades. 


Following are the key highlights evident from the above chart:

  1. US stock market remained in a sideways phase for over a decade
  2. US stock market broke above the resistance level in 2012. This break was more pronounced in SP500
  3. Rounding top/Head and Shoulders top formations took place at the two prior tops. And currently, it seems like a similar pattern is being formed
  4. There is a longer-term trend line which the market failed to break to the upside, and might have capped this bull-market
  5. Since the economy lags the stock market by ~6 months, we can start seeing the impact of lower oil prices through energy sector decline in the economy, starting in Q3'16
  6. If the market has really topped, we can expect ~7+ months of decline to correct last ~7 years of rally (if we are not in a secular bear market)
  7. Decline in earnings will result in higher P/E ratio. As a result, stock prices might come down to bring the P/E ratio to normal or lower valuations
  8. Many of the individuals components of $DJIA are tracing out individual Head and Shoulder patterns, which could mean that the market's components are broken
  9. Best case scenario for this correction would be to end before breaching below 2011 lows
  10. Worst case scenario would be a break below 2009 lows and formation of an expanded traingle pattern, similar to 1970s bear market but a larger scale
In short, current market decline should be looked at with caution. Until and unless the model confirms a bull market, we will not enter long. Algorithm has been long bonds for a while and went short on stocks on Jan 1st. Aggressive portfolio is long other assets based on proprietary asset allocation mechanism.

At UST we have now dealt with short-term trading based on IPM trading model and longer-term investment based on Investment Optimization Model. We will continue to share our insights with readers. For now be careful. We will go long, as soon as the model goes long.




Wednesday, February 5, 2014

Markets Overview and Further Decline Possible

Yesterday's sideways action flows very nicely with the wave 4 argument. Wave 4s give way to wave 5. Therefore, we should expect another down draft in the very near future. Following chart shows the updated market structure.



In order for this structure to remain valid, market should stay below 1770. Once we break below recent lows and enter the 1730 area, we will near the end of Wave 3 of a higher degree. SP500 target levels is between 1722 and 1730.

This 5-wave completion could have two possibilities:

  1. Immediate sharp rally
  2. Immediate rally but more of a sideways market action, followed by another low
  • Scenario 1 would mean that markets will likely rally to new all-time highs.
  • Scenario 2 would mean that markets have entered a downtrend and one should be careful of rallies. 
From a Market Matrix perspective, it seems like market wants to decline to lower levels and this decline is not over yet. Sentiment is also not showing pessimistic extremes. Above all, one should wait for the IPM Turn Window to pick the bottom. Therefore, we will keep on analyzing the market for further clues and see how things evolve. This analysis will help us in next IPM Trade Matrix trade.

Please note that latest IPM Trade Matrix trades have been updated on the blog at: 

IPM Trade Matrix - Trade 4 (Part 3)



Tuesday, February 4, 2014

IPM Trade Matrix - Trade 4 (Part 3)

IPM Trade Matrix Trades

TRADE - 1: (Long) = +2.6%
TRADE - 2: (Short) = +9.3%
TRADE - 3: (Long) - Non IPM Trade Matrix trade = -0.2%

TRADE - 4: Short - Still holding short since 1/31/14
Long TZA (short ETF) at 18.23 ==> 18.57 (shorts added) 
Short positions were added on 1/31/14, 2/3/14 and 2/4/14 based on Elliott Wave structure and break below critical levels. 

TRADE CONDITIONS
Condition: Outside IPM Turn Window (Re-entry)
Trigger: Test of ~1785 (SP500) and decline below 1769 (SP500). Decline trigger was based on EW analysis and other proprietary levels. 
Supporting Indicators:  Initial decline was impulsive (5-wave). Next IPM window is a Bottom and is 1-2 weeks away. Details of IPM turn window e-mailed to subscribers. 

PROFIT TARGETS
Profit Target 1: 1725 - 1730
Profit Target 2: 1670 

RISK
Stop: Above 1770
Trailing Stops: 1770 - Based on Elliott Wave analysis (will be updated on a regular basis)
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: 0% (Entry = 1785, Exit = 1770, Risk = No Risk)
Risk Reason: No significant risk because upcoming turn date is a bottom.

Applicable Rule: Do not go long or short without trigger to prevent losses by market moving against you.  


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.

Monday, January 27, 2014

IPM Trade Matrix - Trade 2 (Part 3)

Market Overview
Recent market action has not only validated the accuracy of the Inflection Point Model (by the grace of God), it is also supporting the argument that the IPM Trade Matrix is a robust trading mechanism because it can adapt to different market conditions in advance (like it did recently). The goal of IPM Trade Matrix is to make trading a system with out emotions and generate consistent results. Consistency is the key to success in the world of investing.

By every passing day, market action gives the feeling that this correction could be a start of something big. Market has initiated the 8/4 Test. First step is almost complete with the test of 1770 level. Now the second step would be the Test. If the test fails and market break below critical levels, we will enter a downtrend. By the ways things are going right now, we might enter a downtrend in February. 

If market does enter the downtrend, we would have to switch to the Downtrend section in the IPM Trade Matrix. This would mean that we will enter one more trade by the next IPM Bottom window.  

For the time being, market's structure is nearing completion before rallying for few days. Near term structure looks very impulsive. Whereas, in SP500 it is missing only one more down move before the rally can start, wave structure looks complete for Nasdaq and Russell. 




It is possible that the rally might start on the Fed's news and might till the end of January. We will continuously evaluate the market structure to identify critical levels for counter-trend rally completion. But if January ends negative, there is a very high probability that it will be bad for the entire year. 


Trade 2 Complete 

TRADE - 1: Summary of Trade 1 (Long) = +2.6%

TRADE - 2: Summary of Trade 2 (Short) = +9.3%
Long TZA (short ETF) at 16.85 ==> Exit at 18.41 ==> +9.3%
Short positions were added on 1/23/14 and 1/24/14 based on IPM Top window expiration and subsequent break below critical level (Trade 1 - risk realized)

TRADE CONDITIONS
Condition: High within IPM turn window - Top. Next IPM window is a Bottom and is 3+ weeks away.  
Trigger: Decline below 1835 (SP500), below 16400 (DJIA) and below 2473 (Global Dow)
Supporting Indicators: Lack of proprietary momentum thrust in upwards direction, Influence of weekly IPM and High within IPM turn window
PROFIT TARGETS
Profit Target 1: 1770
Profit Target 2: 1724

Note: Exited all positions at Profit Target 1 because of Rule # 3: Exit all shorts at Target 1 if decline continuation signal is not present from proprietary momentum indicator and buy signals generated by key indicators. Moreover, Elliott Wave count is close to near-term completion. Re-evaluate situation in next 2-3 days to be ready for another short entry. 

RISK
Stop: Rally above SP500 = 1849, DJIA = 16498, Comp = 4246, Rut = 1181 (3 of 4)
Trailing Stops: SP500 = 1836, DJIA = 16310, GDOW = 2470 (Trailing stops will be updated next week - 1/31/14) 
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: N/A 

Risk Reason: No significant risk because upcoming turn date is a bottom.

Applicable Rule: If short with last IPM ~2 weeks ago & next IPM a bottom, review proprietary momentum indicator (combination of 5 indicators). If momentum = 1, stay till Profit 2, else exit all at profit 1 and re-enter later. 


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.

Friday, January 24, 2014

IPM Trade Matrix - Trade 2 (Part 1)

Overview

Market realized the risk that we were highlighting on this blog for over a week now. Markets topped within IPM top window and then failed to rally above that level again. Since yesterday was the last day of the IPM top window, it gave way to a sharp decline today. This decline changed all the initial bullish estimates. Now we will adapt to the situation as it arises.

One good thing that this experience has taught us is that the IPM Turn window really works and IPM Trade Matrix is a very robust trading strategy. It can adapt to different market conditions rather quickly and therefore, can generate results in any market. We will see how it performs over the next few months.


Trade 1 Ends and Trade 2 Starts

Markets
SP500 (1/22/14) = 1828
DJIA (1/22/14) = 16197

TRADE - 1
Long TNA at 76.25 (original) ==> 76.6 (new) ==> Exit at: 78.6 ==> +2.6%
Long FAS at 92.30 (original) ==> 91.6 (new) ==> Exit at: 88.4 ==> -3.5%
Long TSLA at 171.2 ==> Exit at: 177.2 ==> +3.5%
Long positions were added on 1/14/14 & 1/16/14 based on IPM Bottom window expiration and low risk scenario

Summary of Trade 1 = +2.6%


TRADE - 2
Long TZA (short ETF) at 16.55
Short positions were added on 1/23/14 based on IPM Top window expiration and subsequent break below critical leve (risk realized)

Condition: Next IPM Window is a Bottom and is 3+ weeks away. High within IPM turn window and no new high.
Trigger (Updated at End of Day on 1/9/14): Decline below 1835 (SP500), below 16400 (DJIA) and below 2473 (Global Dow)
Note: Although Nasdaq and Russell 2000 did not break below, 3 indices confirmed the trend
Profit Target: 1770

RISK
Stop: Rally above SP500 = 1849, DJIA = 16498, Comp = 4246, Rut = 1181 (3 of 4)
Trailing Stops: EW & Trailing stops will be determined by 1/31/14 
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: 0.7% (Entry = 1835, Exit = 1849, Risk = 0.7%)
Risk Reason: No significant risk because upcoming turn date is a bottom.

Applicable Rule: If next minor IPM turn window is within 2 weeks then wait for a confirmation break before exiting longs - Rule number 2 triggered. Exited longs and added shorts.


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.

Thursday, January 23, 2014

IPM Trade Matrix - Trade 1 (Part 7)

Market Overview:
Market is still going sideways. This kind of market action suggests that the market is getting ready for a blast higher. Although yesterday's Chinese PMI data will be brought forward as a reason of concern and the sell-off, there is nothing wrong with the market structure suggesting that this news will also be bought. 

An interesting development is in the Dow's Elliott Wave structure. Its recent sideways action has kind-of traced out a triangle. Triangles usually break in the direction of the trend. This triangle could also result in a sharp rally, as long as Dow can hold above: 16237  


On a closer analysis, triangle's sub-waves are also divided into 3s and are overlapping. This is a classic example of a corrective wave. And suggests that the bigger trend has not turned down yet.


Overall, it seems like market wants to give Chairman Bernanke a standing ovation before his departure from the Fed towards the end of this month.

First Trade of 2014 is in process:

Trade Observations

  1. IPM Top date did its job, as market went sideways after topping on that date. IPM Top date was scheduled for Jan 15 and the latest market top did occur on Jan 15. We will see if market can break above this top to mitigate all the risks!
  2. Although DJIA did close below its trailing stop, other indices did not close below their respective levels. As a result, we are still long and have not been stopped out. 
  3. As we come closer to the next IPM turn date, we will take profits even if the market did not reach our target. But that time is few weeks away. So market has ample time to show its real character.


Markets
SP500 (1/22/14) = 1845
DJIA (1/22/14) = 16375

TRADE
Long TNA at 76.25 (original) ==> 76.6 (new)
Long FAS at 92.30 (original) ==> 91.6 (new)
Long TSLA at 171.2
Long positions were added on 1/14/14 & 1/16/14 based on IPM Bottom window expiration and low risk scenario

Condition: Next IPM Window is Top or Bottom
No. of Trades between turn windows: 1
Triggered (Updated at End of Day on 1/9/14): Rally above 1837 (SP500) and above 16450 (DJIA)
Profit Target: 1885-1890 (Will be evaluated as Elliott Wave structure matures)

RISK
Stop: Below SP500 = 1816, DJIA = 16217, Comp = 4090, Rut = 1141 (3 of 4)
Trailing Stops (updated on 1/23): Close Below SP500 = 1835, DJIA = 16442, Comp = 4170, Rut = 1160 (3 of 4) 
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk (1/15/14): 0% (Entry = 1837, Exit = 1835, Risk = 0%)
Risk Reason: IPM Top is approaching. Market needs to hold during this top window, otherwise we can see a serious correction. Rise above 1850 will neutralize this risk

Applicable Rule: If next minor IPM turn window is within 2 weeks then wait for a confirmation break before exiting longs. 

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.