Resumption Of Public ES System

Hi Folks,

For anyone with a half decent trading methodology and good money management skills, this was a great month to trade the ES futures contract. Particularly, what made this month so special was the relentless bullishness that provided market participants with nothing short of a perfect trending market.

S&P 500 Index (July 1 - July 31, 2009)


Some would argue that this is simply 20/20 hindsight - and they are right to an extent. But, I believe that people may have suffered this month by not only consistently trying to short market, but by consistently letting their opinion get in the way of objective analysis.

My goal is to resume the publication of my ES system trades in August, as previously mentioned. Please check out the updated ES Performance page.

ES System Results - June 2009


ES System Results - July 2009


I would like to add a disclaimer that this month's trading was by no means a 'typical' one. In fact, I would consider it to be above average (approx. 80-90th percentile.)

And lastly a bit of humor before the weekend.



See you on Monday.

Hysteria 101

Climate Change

Forget It

Ok, I give in. The video I made on Tuesday is causing me so much trouble that it's not worth pursuing. I am better off recording a brand new, high density video over the coming days and repeat everything I said. Arg, it was such a good video too!

That's all.

Newsletter Writers

I receive a bunch of e-mails but among them are some 'free' newsletters I receive from a variety of analysts and so-called 'gurus'. I subscribe to these free newsletters to gauge sentiment and as of late I've been getting many "I-told-you-so-type" e-mails.

Here's an example (name and website have been been omitted):

Dear Subscriber,

It has been a while since those of you on our complimentary list have heard from us. Mid June to be exact. However, much has happened since then. I was recently a speaker at Freedom Fest in Las Vegas.

In addition, our market calls have been bang on. We predicted that the market would break its highs of June and not breakdown like so many bears said it would, which what happened.

I put together a Three Part Mini Series on my views on the markets while in Las Vegas. To listen to Part One which deals with Gold Stocks Click HERE.

In addition, in a June XX Interview on Howestreet.com I predicted Gold stocks would rally short term and after a pullback the market would breakout. Please click HERE to listen to these predictions.

On July XX, 2009 I did another interview on Howestreet.com. In it I talk about the outlook for the stock market and gold markets Click HERE to listen.

In addition, I Did a interview on the Financial Tube on July XX, 2009 where I again talk about the gold market and stock market. Click HERE to Listen to It.

I am going to have a special report on the markets next week for your reading pleasure which discusses my current views in more detail.

Please click on these links to listen to these interviews or go to (website url) to view them.

Finally, as promised I am not doing promotions any longer. However, I still have a special offer. I am offering the readers of this free list a subscription for $349 dollars for a 50% discount to my newsletter.

If you are interested please Click HERE to find out more and we hope that you consider (Company) in your investment future.

So let me get this straight.

You just e-mailed me to brag about your calls and now you want me to subscribe to your "I'm not doing any promotions" newsletter. Right, gotcha.

This whole game of newsletter writing is an absolute joke. Yet some of these guys are making 100s of thousands of dollars writing this crap, EVEN IF THEIR CALLS ARE WRONG.

I could probably start ranting about how sick to death I am of the boastful culture we've nurtured in North America but I'll leave that for another day.

My observations from a sentiment standpoint:

• Barney Frank taking credit for the 'recovery'
• President Obama taking credit for the 'recovery'
• Newsletter writers galore expressing how 'right' they were for calling a continued rally
• Bank of Canada declaring recession is over
• Newsweek Magazine declaring recession is over

'Nuff said.

Good Timing Tool?

As many of you know, I am a proponent of the cyclical nature of human behavior and therefore the markets.

The more I study prices of the 1938 Dow Jones Industrial Average, the more excited I am about the prospects of having a great timing tool for the months ahead. Combine this with my forecast and we have an excellent timing tool - even for longer term investors.

Dow Jones Industrial Average - 1938


Dow Jones Industrial Average - Present


To this end, it's my judgment that the top to the rally occurred at SPX 980 which would correspond well - with respect to time - with the top that occurred in late July 1938 (July 25, 1938 to be exact). In fact, this date is so precise that it almost matches a turning point in my forecast (July 24, 2009)!

Further, my forecast is pointing towards some kind of 'dip-and-rally' which also occurred in July/August 1938, followed by a steep drop into the 2nd week of August. Again, the date at which the DOW topped (August 8, 1938) almost matches my own forecast (August 7, 2009)! Interesting isn't it?

Dow Jones Industrial Average - 1938 (Zoomed In)


SPX Forecast



So, my plan is:

1. Continue trading ES intraday with neutral/bullish bias into August 7, 2009.
2. Enter heavy short position on August 7, 2009 for self-directed retirement account.
3. Enter heavy short position on August 7, 2009 for trading account (position trade).

These are not positions that will be held for weeks, as I do expect some buying to come in after the large sell off. The agility of a wild jungle cat and the discipline of a sensei will be required of you. Don't expect the market to go straight down. However, rallies should be shorted after the first week of August.

200-DAY SIMPLE MOVING AVERAGE

For the first time since January 2008 the 200-day SMA (on SPX, INDU) is pointing upwards which in theory does not bode well for bears but it neither dismisses their case. It is, however, a strong signal that should be heeded.



On a longer term basis, my feeling is we are forming a multi-year trading range that will ignite to the upside in 2011 (unless we get another Hindenberg Omen) . Longer term investors will want to enter the market in 2010.

VIDEOS

I'm having the mother of all trouble exporting a 60min video I recorded yesterday and my HOPE is to have it finished by tomorrow. We'll see.

Update

Hi Everyone,

I have a really good video of an ES trade executed this morning but the file size is pretty big and I've been struggling literally all day trying to cut it down into manageable/high quality YouTube videos. I promise to have it up once I figure things out.

EDIT 7:16am PST 7/29/09

I'm still working on uploading my videos to YouTube. However, it's not the uploading that is taking a long time, it's the exporting of the video out of Camtasia into a suitable format that is the problem. I have uploaded 2 out of 6 videos and my hope is to have them all ready over the next 24 hours. I think I've finally figured out how to make this process a bit quicker but this time around you will all have to be patient. Thanks.

First Video

Hello Everyone,

I am not going to comment a whole lot on the market especially after a slow day like today. The only thing I'll mention is that for the 2nd day in a row the McClellan oscillator had a small change suggesting a large price move over the coming day or two.



My suspicion is it will be to the downside.

In the meantime, I put together my first video. I had originally recorded a live trade from this morning but the audio was so bad that it was not worthy of it being posted. The current video is by no means comprehensive but it is a start of a onslaught of videos to come. Please forgive the bad audio for the first 3-4 minutes.



This is my first video so be easy on me. Hope you enjoy it and I welcome any feedback.

Have a great evening.

Analyze Your Trades

Good Morning Everyone,

This will likely be my first and last post today.

I was unable to record a video of my trades this morning. I woke up in a half-dazed state, but I plan on getting some serious recording done next week. Promise!

This week has been a remarkable one for my public ES system. By no stretch of the imagination is this a 'typical' week but when they come I am most prepared to seize on the opportunities the market presents. Here are MTD results for July:

Month-To-Date Results - July 2009


My goal throughout my trading career has never been to hit home runs on every single trade. Being 'consistently consistent' in your methodology is what separates you from your trading success.

I have a meeting at 10am this morning so I am pretty much done for the week, but as a goal I will be reviewing all of my trades in July. I want to understand where I may have exited too soon, where I may have set my stops too tight, etc. Analyze, analyze, analyze! It's the only way you become a better trader.

Here are today's ES trades:



I'll post an updated SPX forecast after the close.

EDIT: Here it is...



I'll be adding a short position, albeit small, at the close this afternoon. I expect a pullback Monday/Tuesday.

Have a good weekend.

Thank The Politicians - Of Course!

11:48 PST: One of your 'trusted' politicians, Barney Frank, is on Bloomberg TV at the moment boasting about how proud he is for somehow being part of this 'recovery'. This is precisely the type of complacency that needs to continue in order to get a final top to this rally.

Anyways, another day goes to the bulls. I don't even want to think about how much money I would have lost had I 'stuck it out' with my large short position in my self-directed RSP account. On a percentage basis, it would have been equivalent to a 20% decline. Ouch.

Can't say much other than:

• Yields up
• Oil up
• Equities up
• USD Index flat/up
• VIX up (well it ended down, but it was up virtually all day)
  

Keep the printing press going there, Ben. You're going to make my vacations to your country that much more affordable. I haven't seen nose dives like this since the Olympics. Get ready for parity.

USD/CAD Currency Pair (60-day/120min chart)


USD/CAD Currency Pair (Weekly)


Hate to sound so redundant but what's working - well, is working. Going to add shorts for the first time in a while at tomorrow's close. Nothing too big, however. ES trades are doing really well as of late.

SPX Forecast


ES Trades


Lastly, I may record my first video tonight. I'm having issues with the audio though so you may to have to contend with that for bit. I'll cover the basics of the system and hopefully begin recording live trades tomorrow.

Reflection

I can't say this day-after-day ramp up is a surprise. However, I am not saying by any means I was very long the market and profited immensely from it (other than through my ES trades). But, the money I WOULD have lost had I not covered my shorts is more than enough gratification.

I want people to understand the significance of protecting your assets and developing the habit of 'switching camps', so to speak, when all your data points in the opposite direction of your own opinion.

I felt extremely comfortable covering 100% of my shorts (in all accounts) - I AM COVERING 100% OF MY SHORT POSITIONS - particularly when this decision was met with such resistance. In fact, this resistance only reinforced my confidence to cover. You've got to develop that mental (and contrarian) fortitude to do the complete opposite of what most traders/investors are doing - at the right time of course.

Now, it's not that I have some magic wand or some special skill. I provided solid reasons why people should have been careful shorting the market.

Marty Zweig's very powerful double 9-to-1 signal (Eat My Shorts)


SPX Daily Forecast


While probabilities suggest the unlikelihood of a day-after-day rally, the forecast was clearly suggesting this. At a very minimum it foreshadowed an overall rise in equity prices. But couple this forecast with a Marty Zweig 9-to-1 signal and what more do you need? In fact, Marty's signal alone is a good enough reason for me to get out.

Whether the bear market is over or not has little to no consequence on my overall investing/trading strategy. I am very comfortable having sold all equities in my retirement accounts (for both myself and my girlfriend) on June 1, 2009. My plan from an investing standpoint is still the same: stay in cash and re-enter in mid-to-late 2010.

Patterns, Patterns, Patterns

Basing action, then 7am PST ramp up. Classic intraday pattern!

Present:



Past:

Lessons

Today was one of those days that start off well and end bad.

I just want to go through a trade I established today on the ES contract.

In particular, it was a short entry (which in and of itself was a risky trade given the bullish tape) from Es 956. My feeling was that the tape had scared shorts to cover, but it was also a system trade so I had two reasons to enter.

A proper cover should have been executed at ES 952 where most of the price action during the day had taken place. Instead, I got greedy trying to cover at ES 950 (round number) while ratcheting down my stop which eventually was triggered at 954.5 (net +1.5 vs. +4).

I'm not going to beat myself up over 2.5 points but my point is that I got cheeky/greedy with the trade and when you start trading multiple contracts these little 'mistakes' start to add up over time. I look at it from the perspective of a lost opportunity cost.

Here are today's ES trades:



Also, I want to give kudos to Ross Aymami over at In The Pink Trading. His ES trading seems to be very in sync with my own trades. You can find him on Twitter HERE.

And here is the SPX forecast:

SPX Daily Forecast


General plan is still the same. Will be adding shorts on Friday's close (no earlier) as I expect a pullback early next week.

I need a beer.

Interesting Ratios

Two interesting ratios I have come across (courtesy of Bob Hoye) are the GOLD/SILVER and JNK/TLT ratios. Both are a very good (synthetic) measures of risk aversion/appetite - they are synthetic credit spreads in essence.

Both seem to be pointing to a correction very soon (how deep that correction, who knows). What I find interesting is that despite the markets being up yesterday, both of these ratios indicated the rally was weaker than the price action would suggest (GOLD/SILVER ratio up and JNK/TLT ratio down).

GOLD/SILVER Ratio



JNK/TLT Ratio


I started entering short positions today when ES hit 953. I expect a pullback into Monday/Tuesday, as per forecast. I'll add a little bit to the position if we manage to push higher into tomorrow. Overall, position is not very large. I'm saving that for August 7.

EDIT: I covered those short call spreads because I'm not sure how high we go between now and tomorrow's close. Just going to sit on hands until tomorrow.

Note: Charts are as of yesterday's close.

Long...In The Tooth

Not much to say on day like this. Long is the way to go, although the rally is getting a bit old.

I expect the market to hold up/rally until Friday followed by a decent pullback Monday/Tuesday. Then, more rally. In the meantime, I'm sticking with the same game plan I've had for the past 1.5 months. I have no overnight exposure/positions at the moment - just trading ES. I don't plan on shorting in a big way until August 7.

As usual, here are the updated forecasts:

SPX Daily Forecast


ES Intraday Forecast


Here are today's ES trades. I'm looking forward to posting the ES system results again in August. If you have any questions regarding the system, by all means ask.



Lastly, I'm contemplating recording (via video of course) some intraday ES trades for the benefit of people who may have a hard time grasping the system by simply reading the blog. Please take the time to vote (top right of the blog) if you think that would be helpful. If there is enough interest I may start doing it.

My Reputation

I characterize myself as someone with very thick skin but a comment made in yesterday's post - A Bit Of Everything - by a so-called CDOTrader bugged me to the extent that it put my reputation at stake. Trading is not only my life, it is literally my business and I will tackle any refutations of my qualifications as a trader head on.

I started this blog for various reasons, including the incessant need to help frustrated traders, but my ventures extend well beyond this goal. Eventually I'd like to open my own practice and if people start questioning my qualifications then it jeopardizes everything I have ever worked for. I absolutely refuse to let that happen.

As per CDOTrader's comments:

"There is a reaosn why TA's are useless for employed multi-million dollar per year making traders, which is the same reason why TA's never get more than hundred grand a year on the street and pick up the desk lunch everyday. Its because they pull up a 1938 chart and tell you "see what's coming down the pike"? Good luck bro."

By 'T.A.' he is referring to Trading Assistant.

Let's be incredibly clear here. I was a fully licensed stock & options trader on the retail desk at Haywood Securities, trading my own proprietary account and executing trades at both the retail and institutional level for a wide variety of clients/brokers. I can provide absolutely anyone with solid references from senior management to this fact.

While my finances are a 100% private matter (and are honestly irrelevant in the context of this post), I consider myself to have been extremely lucky financially. But this has only come after putting in the mother of all work into making trading succeed for me. That being said, I am by no means a millionaire. So if that is something to scoff at, so be it.

What DOES concerns me is that people may read his comments (which I'm going to leave up) and assume I took on a remedial role at the company. I was very likely one of the most knowledgeable traders (on both retail/institutional desk) in the options arena. I was consulted on several, several occasions by brokers and traders alike, on topics including options synthetics, hedging techniques and position management.

I am past the stage in life where I feel the need to prove myself to anyone but in the context of my trading business, I feel his comments are quite literally an attack on my reputation. At a personal level I could less for his comments.

CDOTrader, there's your 15min of fame, 'bro'.

A Bit Of Everything

Never in my trading career have I been so glad to be positioned lightly overnight - regardless of directional bias. It goes without saying that anyone very short the market as of late has had their head handed to in a big way.


CONSISTENTLY CONSISTENT

In a market such as this it's quite easy to be overcome with frustration or anxiety. But the key to successful trading/investing is to have rules! Rules, that once obeyed, promptly get you out of losing positions and into ones that make you money. However, most would-be traders fail to obey rules due to a pre-existing opinion or unconscious belief about where the market should be headed (as if it 'should' be headed anywhere - how preposterous!). This is a very subtle point but one that needs to be acknowledged internally (i.e. at a deeper, unconscious level) before one is able to reach any meaningful level of success.

Trading is a very competitive business and if you aren't working on yourself, I guarantee you will not make it in this business long term. In fact, I can tell you from first hand experience that the best traders (who are usually in the '5% club') are probably some of the best students of market psychology. If your emphasis is on which indicator/ratio/etc you should be using for your next trade, I'm afraid you are walking down the wrong path.

Successful trading/investing requires an unconventional approach so if you find yourself doing what most traders/investors are doing, chances are you are simply part of the herd (or the 95% club).

Let me ask you a simple question: Are you consistently profitable?

The traders that are consistently profitable are the consistent traders. Let me repeat that.

"The traders that are consistently profitable are the consistent traders."

Think about what that means for a second. In fact, write down the ideas/expressions/etc that come to mind after reading that sentence. What does it mean to you to be a 'consistently consistent trader/investor'? Now, compare your notes to what you are currently doing. If you really care about your financial success you'll do this simple exercise.

NEVER MIND THE BOLLOCKS

This weekend prompted many a blog to question whether the bear market has ended, yet others seem to be steadfastly convinced that we are still in a bear market. A confluence of opinions and a great recipe to confuse you even more, I would say.



All this chitter chatter about where others think the market is going should have little to no effect on your methodology. After all, they do call it financial independence for a reason! In other words, you need to develop the fortitude to formulate your own opinions and live with the consequences. If you want to be a peon in this business, then by all means follow the crowd but don't expect the financial rewards.

SPX FORECAST

My forecast seems to be bang on with respect to direction. It had pointed up suggesting a strong day-after-day rally which is precisely what we're seeing so I am in no mood to short at the moment. In fact, I won't be shorting the market too heavily until August 7.

SPX Daily Forecast


I suggested in one my previous posts - Fractals - that we could possibly see a huge ramp up to new highs a-la-1938 (see chart below). The similarities in price structure are very similar to current market conditions as you can tell.

Dow Jones Industrial Average - 1938


Dow Jones Industrial Average - Present


ES TRADES

Consistency in trading is key. My public ES system has been performing well since the last week of June. I will likely begin re-posting my results in the ES Performance page in August.

Here are today's trades.



Lastly, this market does not have to be difficult to trade if you allow yourself to be open to the possibility that anything can happen. The end of the bear market could have been at SPX 666. So what? You can act like an amateur by dwelling on the past or emulate the true professionals in this business and look forward to the bountiful opportunity that the market will provide in the future - to those that are prepared of course!

T.G.I.F.

This was a long week to say the least. Not much to add on top of what I've already said over the last 24-48 hours.

This was a good week for the public ES system (see month-to-date results below). I've had a bunch of other ES trades but I want to keep the transparency on this blog intact so I'm just showing what would strictly be a 'system trade'.

Public ES System MTD Results (July 2009)


Further, it seems the lack-luster performance of June was simply reminiscent of the market at the time (i.e. very dull), so I may start re-posting in the ES Performance page very soon. Will give it to the end of July to see if this action holds up.

I am still slightly long via SPY August 90 calls over the weekend - this is the lightest I have ever traded in my life.

See you Sunday night!

Fractals

EDIT: See bottom of post.

Kudos goes to one of my new readers - Fujisan - for pointing this out.

Below is a chart of the 1938 Dow Jones Industrial Average price action.

Dow Jones Industrial Average - 1938


Now, notice the strong correlation to today's price action:

Dow Jones Industrial Average - Present


The rally that took place in June 1938 (almost 20% in 3 weeks) seems absolutely plausible considering we got Marty Zweig's very powerful 9-to-1 set up.

Also, my daily SPX forecast suggests a rally (day after day) through July 24 as per one of my previous posts - Head and Shoulders Knees and Elliott.

SPX Daily Forecast


I am trading very, very lightly in case the unexpected occurs.

Edit: Here is the updated SPX daily forecast as of yesterday's close. Remember that the forecast is used for timing purposes - not price. It should be used to gauge overall direction (hence its use in my position trading).

Eat My Shorts

I'm getting a lot of heat from my last post stating that I was exiting all of my short positions (in ALL accounts) - I AM COVERING 100% OF MY SHORT POSITIONS.

I really don't care if this is a major top because the momentum to the upside right now is absolutely huge and I have worked way too hard to have the market completely obliterate my account (particularly my retirement account that was very, very short from June 1, 2009).

If this ends up being the top - SO WHAT? The risk here is if it is NOT, I will still live to trade another day - that cannot be said for those that are very short.

It's this type of paranoia that has allowed me to survive in this business.

MARTY ZWEIG

One of THE most powerful set ups on an intermediate or long term basis is one I mentioned in last night's post - Leave Your Opinion At The Door. It's creator, Marty Zweig, discovered that 'Every bull market in history, and many good intermediate advances, have been launched with a buying stampede that included one or more 9-to-1 up days." If two or more of these days occur within a period of 3 months, it is an even stronger signal of a solid advance in the future.



On July 13 and July 16 we saw a up/down volume ratio of 10:1 and 28:1, respectively.

Now, I'm not going to sit here and tell you what's going to happen in the future, because I don't know - but neither does anyone else. I am merely taking precautions in case this rally really picks up steam. If you are short and this market goes to new highs, you are going to feel it big time.

There will be PLENTY of time to short the market (probably on weakness, however) if it starts to rollover from here.

My game plan will continue to be the same: small positions overnight and trading ES intraday. Once the markets get some follow through in one direction, then and only then, will I hold more significant positions overnight.

I am long via a small amount of SPY August 90 calls. If we break to new highs, I will add to this position.

ES trades for today:

I AM COVERING 100% OF MY SHORT POSITIONS

Call this a top if you will but I DO NOT like what is brewing in the markets at the moment, so I have covered 100% of my short positions in ALL accounts. The risk of an explosion to the upside is far too great right now.

What's Working vs. What's Not

You can find my after-the-close post here - Leave Your Opinion At The Door.

_____________________________________________________
I noticed today a lot of frustration among traders during today's session, so I wanted to share with you an exercise I perform at least once a month.

I've repeated numerous times the importance of self development (particularly in the psychology space) towards achieving trading success. One of the more useful exercises I've implemented over the last few years is an itemized list of:

1. Things that are working
2. Things that are not working

Below is a photograph of the list I compiled today just to give you a personal example (this list is by no means comprehensive). Your goal from this point forward is simply to keep doing the things that are working, and immediately stop doing the things that are not.

What's Working


What's Not Working


By developing the habit of WRITING this down on a regular basis, you'll internalize what is required of you to stay profitable, and more importantly, avoid the aspects of your trading that keep haunting you.

Leave Your Opinion At The Door

What could have been a terribly bad day ended up being a pretty decent one. I have the all-too-predictable bulls to thank for that.

If they want to take this debt-laden, fictitious rally up another 1000 DOW points that's fine by me. The truth will eventually come out that this is simply smoke and mirrors all over again. My, my, how short the bulls' memories are.

Today's trades:



Short squeeze or not, this market does not want to go down for now. In fact, today will mark the second of two > 10:1 up/down volume ratio days. This is a CLASSIC set up that Marty Zweig came up with years ago. It has typically signaled a broad rise in equity prices going forward. In fact, near the 3/6 bottom we also saw the same set up.



Keep your wits about you and your money management tight, and you'll do fine in this market. If you lost money today, ask yourself why! Self development as a trader is important to your success. Write it all down!

Head and Shoulders, Knees and Elliott

This is a quick follow-up to my post after the close - Micromanagement 101 - which I suggest you read before proceeding.

In it, I provided my forecast for the SPX cash index and after a refreshing walk this afternoon I had a bit of a revelation that might help all you Elliott Wavers out there.

It seems after my nightly blog reading that many of the EW'ers out there are suggesting this might be the last wave 'C' up (composed of 5 waves) before finally topping. Below I provide the possible scenario, according to my forecast, for a 5-wave move.



If this is correct:

1. Wave 1 topped today, July 14
2. Wave 2 would last July 14 - 16
3. Wave 3 would last July 16 - 24
4. Wave 4 would last July 24 - 28
5. Wave 5 would last July 28 - August 7

Note that the degree to which Wave 4 would extend down must be wrong in the context of EW theory but the forecast's purpose is to TIME the market - not predict its value. As the mantra goes, "I can give you price or time but not both".

Also, this forecast suggests we could possibly see ANOTHER head and shoulders pattern - believe it or not.