Starting On A Good Foot

It's September 1. We have 4 months until year end. Make them your best!

Great Discussion

Hi Everyone,

I noticed there was quite the discussion over the weekend regarding systems, psychology, etc and I'm really proud to see the thought each of you have put into your trading. Definitely keep it up! I want to put together another video (God, I'm turning into a video junkie!) to discuss a number of things that are on your minds.

Stay tuned.

By the way, as we move further into September my bias is to the short side. Rips should be shorted regardless of whether you are trading ES.

Here is the updated intraday ES forecast.

Watch Out! It's (Almost) September

The September effect is by far the most notorious of seasonal factors in the markets with its strong tendency for poor returns. See the charts below for average monthly return distributions:





While the SPX forecast points up into September 3, generally speaking the forecast has a negative bias, so shorting is recommended.



Enjoy your weekend.

Pareto Principle

Here are the videos I promised. They are a bit wordy and possibly a tad 'preachy' but it's only because I feel very strongly that psychology is the 'end-all and be-all' of successful trading. I know I've paid a huge amount of attention to it.

I suggest you take notes to internalize this stuff. Any time I came across market/trading information I wrote notes down profusely, regardless of how insignificant I thought the content was.

HERE is the PowerPoint presentation that I used in the video in case you want it.

Video

Hi Everyone,

I got a great e-mail from someone who is having issues on the psychological aspects of trading, so I recorded a video that I will have hopefully exported by tomorrow. It's about 40min long but I think it's worth waiting for if trading means a lot to you.

Alex

Power of 9....Again

I'm going to keep it short and sweet tonight.

Today's tape doesn't get prettier. TWO Power of 9 trades:

• Impulse wave from 1030 to 1020.25 = 9.75 (green rectangle)
  
• Impulse wave from 1032 to 1023 = 9 (orange rectangle)

ES Intraday Chart - August 26, 2009


This is occurring so often that I may add another page to the blog that is 100% dedicated to this phenomenon.

You can view today's ES trades on the ES Performance page by scrolling down to the bottom.

We are looking very toppy in the indexes but the forecast still says we hold up until September 3. It does point down tomorrow so my bias is to the short side for ES trading.

Government Crack-Up Boom Ahead

Hello Everyone,

I spent a good chunk of my time over the last 2 weeks evaluating everything in my life including trading, finances, relationships and health. My computer problems a few weeks ago were simply a metaphor of all the 'excess baggage' (for lack of a better word!) I tend to carry in different areas of my life. Some of the things I'm going to be focused on going forward are:

1. New exercise regime
2. New spending habits
3. New eating habits
   
4. Better relationship with family/friends/girlfriend
5. Obviously, trading

At the risk of sounding cliche and as a student in the realm of self development, it's important to manage all areas of your life if you want to experience any kind of trading success (at least that is my experience). We all know how often external (to trading) issues can affect our psychology.

Anyways, to the markets...

______________________________________________________________

I spent a good portion of Friday after the close and all Saturday putting together (in quite some detail) an intermediate and long term trading/investing plan that I want to share with you right now. However, it would be disingenuous of me to say that I've included all details of my plan in this post. I have many pages of hand written notes documenting all my investing/trading ideas so it would be impossible to explain all the 'whys' of my conclusions so just bear with me.

To keep things simple my primary aim is to share and discuss the timing of the equity markets based on not only my own work but that of others. All I've done is distilled all the information at my disposal into one neat package that will hopefully assist you in your investing decisions over the coming years.

On Monday, Tim Knight over at SlopeofHope.com posted a Big Picture analysis of what he thinks will occur long term and I invite you check it out. It should not surprise you, however, that his views are quite pessimistic. In short, he's calling for a bottom of the bear market in 2014, or thereabouts. Now let me say something about Mr. Bear Knight.

(Source: Tim Knight - SlopeofHope.com)



Tim has been THE contrarian signal for the whole run up since March 2009 and I find it incredibly disingenuous that he's now bragging about how he called 'this' and 'that' back in '08 yet he didn't trade what he prophesized. Further, calling for a collapse in October 2008 was likely (for anyone who was paying attention) one of the easiest calls a trader/investor can make assuming he/she understands market sentiment. The same can be said for the March '09 low. I hate to sound so trivial but it's very black & white what you should be doing when sentiment moves into the top/bottom percentiles. That is the golden rule of true contrarian investing/trading.

In summary, what I'm trying to say is please be careful listening to someone who has been bearish night and day for the past 2 years. Personally, I try to listen to people who are even keeled. In other words, they know when to establish a bullish/bearish position but more importantly they know when to admit they're wrong! THAT is a true sign of experience.

DISCLAIMER, ECONOMIC BACKDROP AND SENTIMENT

Let's face it: the global economy is STILL in shambles despite what the pundits claim. The US economy has a projected 10-year $9 trillion budget deficit, we've got banks that are still not marking to market and effectively insolvent, and unemployment rates almost hitting double digits (if you believe government statistics). The problem is everyone knows this. So what is an investor to do?

It's a difficult question to answer don't you think? If the market were strictly tied to fundamentals we would probably see the DOW trading much lower. However, anyone who has hung around the block for a while knows how disjointed the fundamentals of a country or economy and its corresponding stock market can be.

To my mind, the larger story continues to be the US dollar and its ultimate demise as the world's reserve currency and in this context you MUST be bullish on stocks over the long term - as counter intuitive as that sounds. (Note: there is a caveat to this statement that I explain in the 'Comparmentalization' section below.)

Also, I consider myself to be a market atheist of sorts. I don't care for the bullish and I don't care for the bearish. And I don't mean that in the cliche sense! I live and breathe that mantra and I think I've clearly displayed my ability to execute this philosophy via this blog.

Lastly, being a bear in this market is veryyyyy easy because everyone is convinced that all hell is going to break loose. At the same, however, you do have a contingency of bulls that think all is dandy, but I must admit that between the two groups things slightly favor the bulls long term and I'll tell you why: bears get excited too quickly.

When this market gets rockin' and rollin' again to the downside, I guarantee you that the down draft will be fast and furious! In other words, it will be short in duration but will be incredibly violent - even more so than 2008. But this is precisely the bears' problem! Sentiment turns so negative, so quickly that you HAVE to be bullish most of the time.

LONG TERM ROAD MAP

The next few years will be challenging for investors whose aim is to 'play it for the long haul'. I guarantee you that people who are not selling into this rally are going to lose a good portion of their 2009 returns in the next year or so. So my advice to each and every one of you is to participate in your finances. No one has a more vested interest in your money than you!!

Now, the entire US economy is a Ponzi scheme of epic proportions. It is built upon a framework of boom and busts and I suspect (after mid-2010) we are headed into the last chapter of the capitalistic system - The Government Crack-Up Boom. By the way, this is not a good thing ;)

In 2008/2009 governments and central banks around the world refused to let market forces due their job and we will all pay for those poor decisions in terms of massively rising prices and interest rates. Now, before all you deflationists pile on me, I do believe in the Kondratieff cycle (though I'm not an expert in it by any means) but within that larger 60-year cycle, I do believe in smaller degree inflationary cycles.

Anyway, in short this is what I see:

Tentative Road Map - US Equities

This little, yet very important, diagram is my best guess to future direction when I combine all the data I have access to. By and large I have not seen anything like this which is a good thing because if this was a mainstream view I would have to 2nd guess everything.

You'll notice I have not included price labels. My point is to convey possible future TURNING POINTS as well as OVERALL DIRECTION. I'm not trying to time the market to the day or even the week but I give this forecast a good +- 1-2 months leeway on each turning point.

COMPARTMENTALIZATION

2009

The bull run from March '09 to today has been nothing short of amazing. In fact, we are up an astonishing 54% from the lows and while many bears are salivating at the thought of another 2008, my feeling is they will have to wait. We're likely to get a top in August/September which should mark THE top for 2009; however, THE top to the overall bull run will likely occur in early 2010.

2010

Bulls beware! If there ever was the potential for another 2008-like downdraft, it will occur in 2010 and could be a lot worse! Even if it isn't it will definitely be a doozy! THIS will be the market that bears have been waiting for, but the bearish trade in typical fashion will get so crowded, so quickly that it will only last about 6 months.

Note: Provided all the technicals, sentiment, etc line up the way I would like them, 2010 will mark a great opportunity to buy the market up for the next 1-3 years. Also, expect the US dollar to rally during this period, but not significantly.

2011

Let the crack-up boom begin! If you manage to buy within 1 month of the low in 2010 and sell within 1 month of the (intermediate) high in 2011, you my friend will be styling! However, the chances of both of those things happening are quite slim so my suggestion (at this point in time) would be to hang on to those positions if you are a passive investor.

2012

This particular year will likely retrace a portion of the 2011 rally but will only provide the astute investor another opportunity to load up on the long side for the 'blow off the top' rally that will ensue in 2013.

2013

The majority of gains in most investments are usually made in the last 6 - 12 months before the top. This year will distinguish itself by not only being the top to the crack-up government boom, but will mark the top in the interest rate cycle and afford buyers of bonds a very attractive investment opportunity to lock in high returns.

IMPLEMENTATION

Whichever way you cut it, economically speaking things look terrible over the coming years. I think you'd be hard pressed to find even the most astute contrarian investor arguing that. However, the big question is which market will be the one to crack? My bet is on the US dollar.

When the time comes to buy up stocks and start investing again, areas such as the precious metals and agriculture will be the best investments in town. You're going to have to prepare yourself psychologically for that moment because it will be very hard to buy the market up when the steamroller shows up in 2010 and the bears are driving it.

OIL TRADE (MAY BE ANOTHER BUBBLE)

Be wary of a top in the oil market in mid/late 2010. There are many powerful cycles (including a 3-year, 10-year and 30-year cycle) that all peak in the 2010/2011 time frame. Here's a great look at the 100-week, 3-year correlation cycle and the 10-year price cycle in Crude Oil.



Note (in blue rectangles) the 10-year cycle tops:

• 1980
• 1990
• 2000
• 2010???

An explanation of the 3-year correlation cycle (green rectangles) can be found HERE. Note the correlation from June has increased from 0.73 to 0.85.

YES, I CAN BE WRONG!

There is no such thing as an investor who is 100% correct. Not even Warren Buffett.

I always allow myself to be open to the possibility that I am wrong. I've said it numerous times but successful investing/trading has NOTHING...I MEAN NOTHING to do with being right! It all comes down to having a plan, having the probabilities in your favor and executing said plan. It's that simple. Don't make things more complicated than they have to be.

Robbin' People With A Six-Gun

Solid....




Overnight ES futures are crumbling (as they should!). If this holds up, forecast is f'n nailing 'em out of the park! Ok, I'll admit I've had a couple of glasses of wine so this is more exciting then it should be.

Intraday Forecast


1938 Fractal


SPX/USD Index Correlation

Self Development

I am a huge junkie in the world of self development and I recently came across this video that is applicable to any area of your life you wish to improve. Enjoy.

http://video.success.com/from-the-magazine/og-mandino-secrets-success/

Are You Ready?

Days like today make themselves available to traders who prepare themselves mentally and are consciously open to the idea that anything can happen in the market.

I still see a lot of comments like 'One day all this is going to end badly' or 'The bulls have it coming to them' and while this may be true over the long term, for the moment the bulls have 100% control.

Remove yourself from the opinion that all hell is going to break loose today/tomorrow/whenever and start TRADING the market.

Here's a quick follow-up video to a pattern I talked about in one of my previous posts - Consolidate, and Streak.

Gorgeous

Even I'm floored at how well this has done...unreal! If this is correct, we've hit the high of the day/week around the ES 998 level. If you're looking to short here's a good place to establish a small position, although I would personally wait until tomorrow.

Intraday ES Forecast

Not In The Mood

I'm in no mood to 'load up the boat' on the short side. Bulls still own this tape and I suspect they will continue to do so for the next month.

I posted my intermediate term outlook - Sugar's Gonna Get Creamed - in last night's post.

Intraday ES Forecast


Long Term SPX Forecast (from last night's post)

Sugar's Gonna Get Creamed

Well, this is the icing on the cake (pun intended!). Now bulls are frantically buying sugar ahead of an economic recovery. When stuff like this starts getting attention, you know we've put in some kind of top (note that I say 'some kind of top' and not 'THE top').

Sugar



INTERMEDIATE TRADING PLAN

I've been asked a number of times over the past few days to cover my intermediate term outlook so without further ado, here it is...

I think we can safely say that an intermediate top was established on August 7, 2009 at an intraday high SPX 1018. Whether this level represents THE high of the bear market rally has yet to be determined but my suspicion is we may have one more rally before the bears truly control the tape again.

To this end, I am pleased to say that the forecast has been performing remarkably well for the past 3.5 months and my expectation is for its continued close correlation to future price action. However, that's not to say that it doesn't have its bad times - it absolutely does! But on average it has performed very, very well for the past couple of years that I've been using it.

Intermediate Term SPX Forecast


One important note about the forecast: Its primary purpose is to TIME the market (not project its value, although it does do that reasonably well every now and then). For this reason, I've decided to eliminate the price (i.e. 'y') axis in the intermediate term forecast shown above.

What can we expect over the coming months?

To answer that question in detail would very difficult, but my experience from having used the forecast for a number of years suggests that we'll see a continued downward (yet choppy) bias from now until the 3rd week of September. Thereafter, we should witness what I think will finally be the last nail in the bulls coffin (God knows how many times I've said that, I know, I know!).

Regardless of what happens, the period around 9/30/09 to 10/7/09 (as shown in the forecast above) will be a huge opportunity for more long term traders to establish short positions. Even if I'm wrong and August 7, 2009 is THE top to the bear market rally, personally I will feel more comfortable shorting in October on a large scale than I do now. However, that's my personal inclination.

HINDENBERG OMEN

I see many people suggesting that once the bear resumes its course that all hell is going to break loose again and while this may be the case, it is precisely this type of behaviour that is preventing the market from going down. I think bears who are looking to load up on very OTM, longer term puts or LEAPS stand a very good chance of being disappointed.

VIX - 1 Year Chart


While there may be some permabulls out there, the market itself remembers 2008 and the action in the VIX is proving this hypothesis correct by having found a very good floor at the 24/25 level. So the ROI some traders are modeling on OTM puts (assuming 'this' and 'that') is a very risky undertaking in my opinion. You're basically buying disaster insurance in an environment where the market has priced in, in part, that very scenario. The only way these way OTM puts will make these ginormous returns is if there were another Hindenberg Omen.

I won't even go into what that is as you can read all the details for yourself.

Let me know if you have any further questions. I felt like I needed to post something worthy. I'm glad I did.

Down, 7am

Hi Everyone,

My girlfriend's family is over so I'm having to play host tonight but I was able to record a video that will hopefully help you all out on days like today (assuming you are looking to get long).

Incidentally, today should mark the low of the week as per my forecast.



It's difficult to gauge exactly whether August 7 was THE top but I am saving my gunpowder to really load up on an intermediate/long term basis in October. I suspect we may have one more rally.

Have a great night.

p.s. The blog has been slow (in terms of my posts) simply due to my busy schedule outside of trading. Lots of family and friends are visiting as of late so I've been caught up with that. However, I'm glad all of you keep checking in. I'll do my best to keep things running smoothly until things die down on my end.

Had A Video

Hello Ladies & Gents,

I had a video all set up to post today but based on this morning's pre-market futures I may have to re-record it.

An intermediate top on August 7, as per the forecast, seems to have been correct. It's too bad I got shaken out of my shorts, but not to fret - there will be many more opportunities going forward.

In short, I still suspect we have one launch higher that will/should top some time in early October. I'll have more on this in my video later on today.

Best of luck to all of you.

Alex

Covered 100% Shorts....Again

Post is self explanatory. I hate to hate an inanimate object, but this market is seriously pissing me off.

Anyways, I covered all my shorts for a -0.74% loss which had the potential to be a lot worse, but I got very lucky with my entry points on Friday.

For those of you interested, I had the following positions:

1.- Short SEP 102/107 SPY Call Spread (75% of total short deltas)
2.- Long BGZ (25% of total short deltas)
3.- Trading ES as hedge

Overall, I had about 40% of my total equity tied up but only a fraction of that was actually at risk.

Current position: CASH!

Playing Devil's Advocate

I'm going to play devil's advocate for a second by putting forward an argument that would suggest we have a lot more upside. Just bear with me.

I can recall as if it was yesterday the widespread optimism in October 2007 and the ever-present pessimism that ensued towards the bottom in March 2009. At both extremes you could literally feel one side of the balance scale was too heavy. However, as much as I'd love to say sentiment is plainly bullish - I can't. The number of bears who are STILL calling for Armageddon is enough to warrant continued strength in the months ahead.

Simply take a look at these headlines:

HoweStreet.com


HoweStreet.com


Like many of you, I am sick to death of this phony, liquidity and debt-based rally but I must separate myself from my opinion in order to stay profitable. Never in my trading career have I seen fundamentals so strong for things to completely collapse but they simply aren't, and I have to respect that until sentiment changes direction.

The only thing favoring bears at the moment, from a sentiment standpoint, are front page headlines suggesting the end of the recession and the ever-low sentiment readings in the US dollar, suggesting a bounce of some sort (i.e. sell off in equities). I suspect, however, we're going to need a bit more bullishness in equities to turn south on a more lasting basis.

In the meantime I will continue to trade off my forecast, which requires little to no opinion. It's my only way of staying completely unbiased.

Buy, Buy, Buy

I don't think I'll be holding overnight short positions again until we finally see some weakness. I'm waiting to exit my shorts until tomorrow but the downside is still very limited.

Here is the updated intraday ES forecast:



Under more 'normal' circumstances I would have said August 7 was an intermediate high, but the market continues to want to move up.

Continuing to trade ES is by far my most profitable venture. You must stick with what works and discontinue what isn't.

Consolidate and Streak

A useful pattern...

PART 1





PART 2


ES FORECAST

Here's a special treat - a more long term view of the forecast.

Reformatting

Hi Everyone, I am still having the mother of all computer/network problems so I'm having to deal with a re formatting of pretty much my entire set up. I can't tell when I'll be posting again but it shouldn't be more than a day or so I hope.

Overall, my bias continues to be to the downside this week, as per my forecast. I expect a bit of a flat line Wednesday/Thursday and then more sell off on Friday. I'll cover my shorts then.

Internet Problems

Hi Folks,

It's been a very busy week and this weekend, to top things off, is providing me with more things to deal with - internet issues. It seems my internet speed completely dropped off a hill and I suspect it's because I ran some computer optimization software that may have screwed things up.

So, I have to bail, yet again, on the video post. I apologize for being so absent in the blog this past week. Once I get things back to normal again, posts (videos and all) will occur on a regular basis.

Regards,
Alex

Updated Forecasts

I'll have the video I promised this weekend, but in the meantime here are the updated forecasts.

Daily SPX Forecast


ES Intraday Forecast

More Patterns

Hello Ladies and Gents,

I want to put together a video post tonight regarding an interesting pattern on the ES futures contract that ALL of you can benefit from (regardless of what instrument you trade!).

You won't hear from me until much later so I ask for your patience.

Regards,
Alex

EDIT: It's been a busy afternoon and it seems it's going to continue that way so my video will have to wait until tomorrow or the weekend. But I assure you it's something quite interesting that many of you will be able to use in your own trading.

ES trading was a bit clumsy this morning (in fact, the video I want to put together has to do with an interesting pattern that can keep you from catching knives on a day like this).

Overall +2 on the day...meh.

See you all tomorrow.

Random Walk - My A$$

For those of you who believe in Random Walk Theory, I provide you with the following chart:

Historical SPX Forecast



I won't quantify how unlikely it is to forecast the stock market with such accuracy but I can assure you it is infinitesimal - that is, based on the random walk theory. Unfortunately, I can't go into details behind the forecast but it is likely the holiest of holy grails I have ever come across in my trading career.

I am by no means bragging, as the details behind the forecast is the work of an incredible trader I came across a few years ago. All the kudos go to him, not me!

Anyways, the point of this post is not to elaborate so much on how well it has done in the past. Effectively what I want to point out is should its forecasting capabilities continue going forward, it will provide great insight with respect to TIMING the market which is utterly important.

I will continue posting the forecast provided people garner some benefit out of it.

EDIT: Someone asked me how well the forecast performed in 2008. I am all about transparency on this blog, so the following periods were not that great when trading in conjunction with the forecast:

1.- First 2 weeks January 2008
2.- First 2 weeks October 2008
3.- First 2 weeks November 2008
4.- First week January 2009
5.- First week April 2009 (that one really hurt me)

Possible Long Setup

If you have not read my Power of 9 post - read it. It may help you with a possible long trade at ES 988.5 which is 18 points (9 x 2) from high of day (1006.5)



EDIT: See updated ES forecast...may give you some good ideas as to when things might fall apart.

ES Forecast

Collapse (Post-Amerika)

Today was one of those days when it pays to Sit On Hands (SOH).

1.- SPX FORECAST



2.- ES TRADES



Remember to check out the updated ES Performance page.

3.- RISE AGAINST

And finally a great song by a great band - Rise Against. Lyrics included (they are fitting in light of the times we live in).

They're also the band that sings Kotov Syndrome.

When our rivers run dry and our crops cease to grow
And when our summers grow longer and winters won’t snow
From the banks of the ocean and the ice in the hills
To the fight in the desert where progress stands still
When we’ve lost our will

That’s how we’ll know
This is not a test, oh no
This is cardiac arrest
Of a world too proud to admit our mistakes
We're crashing into the ground as all fall from grace

When the air that we breathe becomes air that we choke
When the marsh fever spreads from the swamps to our homes
When your home on the range has been torn down and paved and
The buffalo roam to a slaughterhouse grave
What more will it take

For us to know
This is not a test, oh no
This is cardiac arrest
Of a world too proud to admit our mistakes
Kissing the ground as well fall from grace

This is a chance to set things straight
To bend or break the rules back into place
There is no middle ground, no compromise, we’ve drawn the line
With perfect aim, we stand back and throw
Glass windows break and it’s all about to blow
Lights go out as we pass the torch again
In hope that it stays lit

Neutrality means that you don’t really care
Cause the struggle goes on even when you’re not there
Blind and unaware

That’s how we’ll know
This is not a test, oh no
This is cardiac arrest
Of a world too proud to admit our mistakes
We're crashing into the ground as we all, yeah we all, all fall from grace

Video Update

Tonight's post is in video format. I welcome any feedback (good or bad). I apologize for the bad audio quality near the end of the recording - I will be buying a new microphone in due course.

PART 1



PART 2



PART 3


Article on insider selling - HERE

Classic Setup

For those of you following my ES trade this morning on Twitter, here it is. Perfect set up off the EMA(440). Plus, oversold RSI(9) and trend line support.



And here is how I drew the trend line (bold pink).