Friday, February 21, 2014

IPM Trade Matrix Update - Trade 5 (Part 6)

Market Overview
Recent market actions has been very constructive. Market did pull back a little and then rocketed higher. This suggests that the breadth strength (shown here) is holding strong. 

One interesting aspect of this rally is that there is a lot of suspicion  in people's mind about this rally and its potential. Some are even going to the extent that this rally has been caused by market manipulation. As a result, this rally will come to an abrupt end. Therefore, one should not be long this market. This is the kind of behavior one would expect towards a rally which is climbing a "Wall of Worry". Hence, there is a high possibility that the market will continue its rally to new all-time highs.

From a structural point of view, it seems like market has completed a wave 2 decline and is starting a wave 3 advance (shown below). Wave 3s are strong advances and therefore, this rally could last for a few weeks (till next IPM Turn Window). The only caveat is that there is a possibility of wave 2 not being complete yet. As a result, we might see one more decline next week before wave 3 starts to new highs.

If this is a wave 3 advance, we should see a sharp rally from current levels. Therefore per IPM Trade Matrix, we will start using a proprietary closer trailing stop once TNA's 1st profit objective is achieved. This trailing stop will allow us to keep long if we are in Wave 3, and will also get us out of the trade if wave 2 is not over yet. So that we can enter long next week. 

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 ==> new TNA basis = 69.94 (added more longs) 
Longs were initiated on 2/11/14 and 2/13/14 based on IPM Trade Matrix Trigger (IPM & 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 did not complete), Next IPM can be either Top or Bottom

Profit Target 1: 1870
Profit Target 2: 1930

Stop: Break below 1750 (valid till we are within IPM Turn Window)
Trailing Stops: Break below 1800 (SP500) and 15820 (DJIA)
Typical IPM Trade Matrix Risk: 1.5%
Actual IPM Trade Matrix Risk: 0.7% (Entry = 1813, Exit = 1800, Risk = 0.7% )
Risk Reason: There were multiple reasons to be worried. Following reasons have now been taken off the table at least for this trade: 1929 stock market parallel, 8/4 Test to the downside and IPM Bottom window.   

Applicable Rule (There are 7 Rules in the IPM Trade Matrix. Following are applicable to the market right now): 
  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 at profit objective 1 if proprietary momentum continuation signals are not present.
  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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