Thursday, January 30, 2014

IPM Trade Matrix - Trade 3 (Part 2)

Market Overview
Today Fed again reduced its quantitative easing by $10B. Although on paper it is a bearish development because lack of free money can spell trouble for global markets, this decision might result in a short term market rally. A rally will be a surprise for majority of market participants. A quick rally will pull-in new money from the sidelines. This will setup a better opportunity to short the market, at IPM trade matrix's target areas. 

From an Elliott Wave perspective, it seems like the market just completed a 5-wave down move (as predicted in yesterday's update). Completed 5-wave declines generally give way to a sharper rally. The only problem in playing this counter-trend rally is that we don't know what shape it will take because of multiple options. 

Since there is a lot of risk in going long and it was mentioned that one should play the counter-trend rally with very small amount of capital, a long trade was initiated today with only ~12% of portfolio. In total, this trade will risk less than 0.5% of portfolio and will be exited in a matter of days (1-3). 

Reasoning for this trade stems from a completed Elliott Wave structure, buy signals from proprietary indicators and potential for the 8/4 Test's second phase. Please note that this is just a small counter-trend trade and the position size is so small that it will not impact the gains gained through IPM trade matrix trades over the past few weeks. 

From the 8/4 Test perspective, the first step is almost complete with the test of 1770 level. Now the second step would be the Test of low 1800s. If the test fails and market break below critical levels, we will enter a downtrend. 

Note: If market does enter the downtrend, we will 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.  

Overall Trade 3 in process (Not related to Trade Matrix) - Wanted to utilize wave structure completion point and extra cash availability in the portfolio with minimum risk

Entry TNA = 70.2 (SP500 = 1780)
Potential Exit SP500 = 1800s

IPM Trade Matrix Trade  on the horizon 

TRADE - 1: Summary of Trade 1 (Long) = +2.6%
TRADE - 2: Summary of Trade 2 (Short) = +9.3%

TRADE - 4: Short

Condition: Outside IPM Turn Window (Re-entry)
Trigger: Test of ~1810 (SP500), ~16120 (DJIA). Decline trigger will be determined based on EW analysis and other proprietary levels once we test these level.
Supporting Indicators:  Next IPM window is a Bottom and is 1-2 weeks away. Clearly impulsive EW pattern

Profit Target 1: N/A
Profit Target 2: N/A 

Stop: N/A
Trailing Stops: N/A
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: 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.

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