Tuesday, February 11, 2014

IPM Trade Matrix Update - Trade 5 (Part 1)

Trade Reasoning;
IPM Trade Matrix entered long today. Although we knew that next trade will be a long trade, there were several reasons why the long trade was not entered earlier: 
  1. Over the past several years, it has never happened that the market did not either Top or Bottom within the IPM turn window. Only in 10% of all turn windows, market did put in a higher low or a lower high during the turn window. Therefore, our assumption was that the market will most-likely decline to lower levels and provide us with a better entry point. Also, Feb 5 bottom was outside of the major IPM turn window (as measured on Jan 31, 2014). As a result, IPM Trade Matrix did not go long immediately.
  2. IPM Trade Matrix has certain toll-gates built into the system to prevent/minimize losses. These toll-gates define proprietary trade trigger levels. Once a trigger is hit, trade is entered. Triggers vary with market conditions. Since we were in early part of the IPM Turn Window, market had to prove its direction before a trade was entered. Therefore, we had to wait to enter the trade. 
  3. Till yesterday, Elliott Wave structural analysis was suggesting that market might experience a pull-back. Therefore, it was deemed prudent to wait for a better entry point to go long. Today's market rally has evolved the Elliott Wave structure into a possible sequence of 1s and 2s. As a result, we might see a sharp rally for the next few days, followed by a pull-back from higher levels
  4. We were looking at a potential inverted Head and Shoulders formation but that has not materialized. As a result, it seems like the H&S pattern will form at a much higher price level.
Two critical developments today allowed us to enter the trade: 
  1. In order to better understand the market turn point, IPM model was re-run today with the data till Jan 31, 2014. This re-run highlighted that there was another minor turn window on Feb 4 (+/- 4 days). Therefore, market's bottom on Feb 5 was within the turn window, which confirmed the point 1 mentioned above that market always top/bottoms within IPM Turn Window. As a result, first requirement of the IPM Trade Matrix was met.
  2. Conservative long triggers were generated within IPM turn window, and conservative long signal on all 4 indices were triggered today. 
Consequently, IPM Trade Matrix LONG trade was triggered. Please keep in mind that there is a lot of risk on the horizon. Although we will discuss these risks tomorrow, one of the biggest risks is the possibility of a deeper pull-back over the next week or so. But if the market manages to shrug-off these risks, we could see SP500 in the mid 1900s. 

Note: Latest Daily and Weekly IPM Turn Windows will be emailed to subscribers over the coming weekend.

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
Long TNA at 70  
Longs were initiated on 2/11/14 based on IPM Trade Matrix Trigger and Elliott Wave structure 

Condition: Bottom within IPM Turn Window 
Trigger: Rally above SP500 = 1789, DJIA = 15790, Russell 2000 = 111.5, Global Dow = 2401
Supporting Indicators: Up trend (8/4 Test has not been completed)

Profit Target 1: 1870
Profit Target 2: 1930

Stop: Break below 1750
Trailing Stops: Will be identified in 1 week
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: 3.5% (Entry = 1813 , Exit = 1750 , Risk = 3.5% )
Risk Reason: There are multiple reasons to be worried: 1929 stock market parallel, 8/4 Test to the downside is in process.

Applicable Rule: 
  1. Do not go long or short without trigger to prevent losses by market moving against you.  
  2. Exit half at profit objective 1. Exit full based on IPM Trade Matrix Rule #3
  3. Observe stop-losses to minimize draw-downs

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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