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.

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

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)

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.

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