One More

Someone asked me earlier today whether the forecast may have inverted. While at the time I didn't think so, upon review it's quite possible it did at yesterday's low. Posted below is the 'regular' (i.e. untouched) and modified forecast, respectively.

Intraday ES Forecast


Transposed Intraday ES Forecast (everything right of the green line is transposed)

Red Ink

Overall, this was a good week and I seem to have been bang on with respect to direction up until Thursday. Today's sell off absolutely surprised me. I'll admit when I'm wrong and this is one of those occasions.

People seem to think we sell off into November 9/10 (Bradley date) and it's hard to argue against that notion, but as usual I must obey my forecast that clearly suggests we rally into November. Trade carefully.

Have a great weekend.

Lazy Man's Update

It was a lot easier tonight to put everything in video format. Talk to you all tomorrow.

E-mailing Of Forecast

It had occurred to me to create a mailing list whereby one would receive periodic updates with respect to the intraday ES forecast.

The e-mail would go out 3 times per day as per the following schedule (subject to revision, if necessary):

• 8:00am PST
• 10:00am PST
• 12:00pm PST

If you are interested in receiving these updates please contact me at a.grant@ambgtrading.com. The first installment will be sent out tomorrow morning.

Intraday ES Forecast

Don't Be So Negative

Bulls 101; Bears 1 (for now)

Today marked a very important day in terms of breadth - 9:1 negative NYSE up/down volume. However, this does not fully describe how negative the tape was. The monthly McClellan oscillator clearly shows breadth hit a multi year low (albeit October is not complete).

McClellan Oscillator (Monthly)


Whether you use this as a contrarian indicator or as a means of foreshadowing what may lie ahead is up to you. I'm reserving judgment on this (for now) but I'm keeping it in the back of my mind.

CREDIT SPREADS

Measures of credit risk are mixed with only 1 of 3 indicators confirming the latest breakdown in equity prices.

The often-cited GOLD/SILVER ratio has clearly broken out of its small basing pattern.

GOLD/SILVER Ratio


The JNK/TLT ratio - a synthetic measure of credit spreads - has also broken down but relatively speaking is still perched near its highs (good for stocks).

JNK/TLT Ratio


Finally, the TED spread has barely moved.

TED Spread


But don't let all this confuse you. The GOLD/SILVER ratio broke out of its own basing pattern in 2008 prior to the JNK/TLT and TED spread indicators showing any kind of panic. This is precisely the action we are seeing now so intermediate term things looks very, very bearish.

LESSONS FROM 2008

The salient lessons I learned from the 2008 sell off are:

1. Do NOT try to time bottoms (regardless of time frame)
   
2. Always have a short position on, particularly during Wave 3
   

In reference to #1:

I made a lot of money during the 2008 sell off but the reason I did not make more was due to my compulsive nature (I am human after all!). I continuously tried to 'buy the bottom' (using futures of all things) by significantly underestimating how far a (downwards) move can go. I will not make that mistake again, especially when Wave 3 of the move down begins.

In reference to #2:

This a simple rule I will implement during Wave 3 because even the smallest of positions will make you a lot of money.

FORECAST

My forecast is 'you-know-what' and taking names.

Intraday ES Forecast


MY TRADING

I exited my shorts from Monday around ES 1055/56 - far too early...obviously. I'm now long SPY shares to trade the bounce up. I don't want to press my luck with the overnight futures exposure in a very bearish tape.

SYSTEM UPDATE

FACT: The biggest money in the markets has and will always be in the larger trend (imagine shorting the market in August '08 and exiting in November '08 - nevermind March '09).

So one of my goals for the last few months has been to move away from the incessant need to analyze every tick and devise a close-to-close trading system (based on the forecast) that others can benefit from.

This system is utterly simple (really, it is) and will hopefully be released in the next few months. I've constructed it so that anyone with at least $10,000 in their account can trade it either via ES futures, SPY shares or anything for that matter that correlates well with the SPX cash index.

I'll keep you all updated.

Update

I am positioned long as we've both reached my target and the scaling of the forecast seems to match up well.

I am trading SPY shares instead of the ES futures contract since the tape is so bearish. I don't like the leverage for position trades right now, especially overnight. Average price on SPY is 105.51. I'll be trading ES around this position as a hedge.

Intraday ES Forecast

Bottoms Up

To truly consider your trading a business even logistical what-if scenarios must be played out. In my instance, the loss of an internet connection completely hampers my ability to do anything - let alone trade. So I have list of various WiFi cafes in my town that I can use as a temporary hook-up until things are restored. I also have contingency plans for fires, floods, etc in my house. When your business is everything you make the effort to cover all plausible scenarios.

_______________________________

FORECAST

By and large the forecast I publish on the site is easy to interpret, but I can understand when 'inversions' take place it can seem rather confusing what I expect, say, over the ensuing week.

In Friday's missive - Story Of My Life - KumoBob (author of Fibonacci Financial) posed a question I suspect some of you may have had at some point. For ease of use here is his comment and question:

"Alexander please help me out again. I don't get the forecast chart at all. There has been a great deal of volatility that does not appear on your forecast. I just don't see the resemblance, and are we still supposed to be looking at this upside down? I really am interested, and I wonder if you would please try to be more clear. Rather than saying you say you imagine your forecast will continue to perform well into next week; would you be willing to just say the market will be Up or Down. It's probably just my lack of understanding, but that would really help because I don't relate to your graphics and don't have a clue about what the chart is forecasting or where we are on the chart."

The forecast chart he was referring to at the time can be found HERE.

What I suspect is confusing is the manner in which the data (inverted and non) is presented, so let me begin by clearing up a few things.

1. The forecast data (blue line) is never modified. So what you see is what you get.
2. From time to time, the forecast vs. actual price data (pink line) don't match up. Clearly, the forecast is wrong (i.e. the forecast pointed up/down but price actually went down/up, respectively). Pretty straight forward.
3. In light of #2 above, I discovered the transposed/inverted actual price data will often (but not always!) closely match the forecast data. So what exactly do I mean by transposed/inverted data? All it means is I modify the actual price data to show prices going in the opposite direction. Effectively, I 'force' the actual price data to fit the forecast.

Hopefully that's clear.

So how do I identify the tranposed/inverted data in my charts?

I've grown accustomed to bracketing the inverted/transposed price data between solid vertical green lines. In the most up-to-date chart this is what things look like:

Intraday ES Forecast (Note: transposed data between solid green lines)


I eliminate the price axis because it is meaningless when you have the modified data.

For purposes of comparing, here is a the raw chart (i.e. no tranposed/inverted data whatsoever).

Intraday ES Forecast


BOTTOMS UP

Sometimes I feel the blog can become a bit redundant but I'm a big proponent of keeping your trading very simple, and so I constantly use the same indicators until they stop working. The key is to continue using them in a similar fashion.

The McClellan oscillator has for a number months provided additional confidence calling bottoms and I suspect we are - once again - close to one. As you can see, any time we hit sub -60 it's time to be weary of the short side.

McClellan Oscillator


I am still short from Monday but on any weakness tomorrow I will be covering and possibly going long.

On an intermediate term basis, an oversold McClellan Oscillator fits well within both my assumption that we oscillate around DOW 10,000 and my forecast pointing up into the end of year.

Dow Jones Industrial Average (Intraday chart)


SPX Forecast (Daily)

Internet Outage

Hi Everyone,

I'm trading from the local Starbucks this morning due to an internet failure over the weekend. My ISP is sending out a technician to fix the problem but it will likely be resolved on Tuesday so postings will be infrequent. As soon as I am up and running again I will reply to all e-mails, comments, etc.

Hope everyone had a relaxing weekend.

Regards,

Alex

Story Of My Life

Let's keep it short and sweet - this was a great week to be a trader. The intraday volatility is fabulous and here's to more down the road!

I can't say the weakness this morning surprised me, but I would be lying if I said I was short going into the open - in fact, I wasn't short at all! I managed to scalp a few handles here and there but that's about it. I traded very lightly.

Overall, this week was very good not only in terms of P/L but in the execution of my trading plan. I'm very proud of the way I handled my trading. I felt very composed.

SPX Intraday


The dynamics of the tape this week is a trader's dream (see chart above). Using last week's close at SPX 1087 as a point of reference and the forecast as a timing tool, helped me considerably determine when I should be exiting/entering positions.

Having now dipped below DOW 10,000 for the 3rd time in six sessions, I imagine my forecast will continue to perform well into next week. DOW 10K is a HUGE psychological barrier as you can appreciate.

ES PUBLIC SYSTEM

My public ES system continues to perform reasonably well and I imagine with increased volatility it will perform exceedingly well. Below are the to-date results:

Cumulative Statistics - Public ES System


As always, if any of you have questions relating to this system and/or its executions by all means contact me.

I hope each of you has a phenomenal weekend. Take care.



Oh, here's the forecast!

ES Intraday Forecast

When 'Luck' Meets Preparation

Every now and then I miss the excitement of the trading desk, particularly on days when there is so much happening (price wise). Today was such a day.

I came into the morning tape 110% focused and energized to kick some ES 'you-know-what'. The previous night I had performed my trading visualizations of how I was going to execute my trades, I had written down my daily goals and had a good night's rest. All this preparation came to fruit almost instantaneously on the open.

Now, my point here is not to boast (God knows there's enough of that in the financial blogosphere!), but to emphasize that your methodology is not what is important. It is your psychology to implement your methodology that is of utmost significance. Please note the difference.

Anyway, here is a video for your viewing pleasure.

Remember, write down your goals!

Have a great night,

Alex

Wowwy Wow Wow

Wowwy-wow-wow!! What a GORGEOUS sell off!

Today was one of those days when I felt very in tune with the market but somehow traded it poorly. From the morning get-go my expectation - as per my Twitter post - had been a strong rally into 8-8:30am PST followed by a sharp reversal. I had exited my remaining longs at ES 1095 and gone short at 1094.25. The slowness of the tape, however, really messed with me - as it usually does - so I was 'forced' to cover for a petite gain. Goes to show you once again that you should plan your trade and trade your plan!

Without a doubt the bearish blogs in town had a field day. Whether this continues to downside or we continue with the bullish drill higher is frankly anyone's guess. My inclination for the remainder of the week continues to be neutral-to-bullish. We should end the week around the ES 1090 area. I will be shorting as per my forecast on Friday as I expect further weakness.

As previously mentioned in last night's post - Bear Market = Short Weakness - the VIX/VXV ratio continues to perform extremely well as a bullish contrarian indicator. In fact, its intraday dip below 0.875 (which, incidentally, was previous support) was a clear indication the bulls were pushing their luck.

Intraday VIX/VXV Ratio


It would not surprise me in the least if we have printed THE top at SPX 1101.36 simply based on this indicator. However, we still have non-conformations in the GOLD/SILVER and JNK/TLT ratios. So I am still waiting for those ratios to make their move before I'm happy declaring the resumption of the bear party.

FORECAST

It's difficult to gauge whether the forecast is correctly forecasting price, particularly after today's sell off, but I treat my forecast like any other system. That is, I obey it until either stopped out or feel there is a logical reason to exit a position sooner.

Intraday ES Forecast


Some of the intraday cycle work I look at suggests we dip tomorrow morning and rally into the afternoon. Friday should be lackluster.

Bear Market = Short Weakness

From an intellectual standpoint I feel stuck between a rock and a hard place.

On one hand, Elliott Wave says we are approaching the tail end of the bull run having nearly completed the last 5 waves. A move below SPX 1082 seems to be the line in the sand according to the Elliott Wave lives on.

SPX Elliott Wave Count


However, all this completely contradicts my forecast which clearly suggests that we rally from the end of October into 'mid-January-ish'.

SPX Forecast


Needless to say, on an intermediate term basis things are not so clear cut.

SENTIMENT

Without a shadow of doubt there is a rejuvenation of market speculation taking place on all fronts, and it will end similar to all previous speculative bubbles with the retail investor getting shafted.

From a trading perspective, what is going to make things a bit tricky is the ability and conviction to short weakness. I don't think people's memories are that far off to extent that they forget what happened a mere 6 months ago. So, when the 'shiza' hits the fan....take cover.

My point is that we are once again faced with bullish sentiment levels that should be heeded to as evidenced by the VIX:VXV ratio.

VIX:VXV Ratio


This not-so-well-known, and yet, subtle indicator has timed market tops surprisingly well so pay attention.

DENT

Oh and one more thing. Many of you are familiar with Harry Dent (who uses demographics to forecast stock prices). He has a new update out...

Back And Forth

On Friday's close I got scared out of a long position in light of the weak close, so my inclination (until today's open) had been to the short side.

After some clear thought just prior to today's open, I decided I have a neutral/long bias this week as per my forecast.

Everything in between the green lines is transposed. The rest is untouched.

Intraday ES Forecast

I am long from ES 1083.25 and holding. We should hit ES 1105 by end of week.

Ch-ch-ch-eck It Out

Take a look at how well the inverse forecast is tracking price. I mean, seriously, I am flabbergasted!!

Intraday ES Forecast

I happened to have (luckily) exited my long hedges yesterday around ES 1090-91 but despite this morning's sell off I suspect we may have a bit more upside left.

I've mentioned on numerous occasions that I myself am not an Elliott Wave expert but I do follow a gentleman that is one (or at least seems to be!). According to his charts we have completed the first two-of-five final legs of the bull run.

Elliott Wave Count (Courtesy: the ELLIOTT WAVE lives on)


A SPECIAL THANK YOU

Lastly, I want to sincerely apologize to my viewership for being a bit slow on the blogging front. I am working diligently to provide you all with the best trading material I can for the months and years ahead. I have many, many great ideas - it's simply a question of putting it all together.

Since June 2009 the blog has had upwards of 100,000 views which is far more than I EVER expected. I am truly grateful to those who are finding some use and good out of the material I provide. Many, many, many thanks!

Timing IS Everything

The inversion process that unfolds every now and then in my forecast is something to be in awe of, and while the transposition is amazingly accurate, it's difficult to gauge exactly when one should start trading off the inversion. In fact, in several cases the forecast has been off by one day but did not invert. You almost have to wait until it is obvious that the transposition has taken place but by then the move may have already started.

Check out how well the inverted data fits the forecast. Everything to the left of the solid green line is untouched.

Transposed ES Forecast


As an ongoing exercise I will be keep track of when and for how long the inversion takes place and try to study them in more detail so I can capitalize on the subsequent moves.

If current scaling is correct we should see an extended move to ES 1100 by Friday, October 16.

Death and Taxing

Hello Friends,

Well, the bulls continue to rule the tape - big time. But like most good things in life it will eventually come to an abrupt end.

I cannot begin to emphasize how confident I feel that we are within spitting distance of the end of the bullish madness (because it truly is madness at this point.) I have a plethora of anecdotal evidence that we are reaching the pinnacle of optimism. Whether it be stocks, real estate or plain old widgets - people are buying it....on credit. The masses have been utterly fooled once again. In some cases, history does repeat itself.

Now, I won't even contemplate giving you a date at which I think THE top will be in, but mark my words we are damn close.

CREDIT SPREADS

The most prolific of signs that significant equity weakness is soon approaching are widening credit spreads. Credit is what fueled the bubble, and its lack thereof will be its demise.

TED Spread


FOREIGN EXCHANGE

Want more evidence - check out the forex market and its massive positive/negative divergences, respectively.

USD/CAD Currency Pair


EUR/USD Currency Pair


COMMENTARY

Let me put it bluntly.

I have worked diligently over many years to become the trader I am and at the risk of portraying myself as too honest, I would objectively grade myself in the following areas as such:

1. Intraday tape reading (<1 grade =" A-
2. Short term tape reading (1-2 weeks); Grade = B+
3. Medium term tape reading (3 - 8 weeks); Grade = C
4. Long Term tape reading (> 8 weeks); Grade B+

I am a very good intraday tape reader and will acknowledge that without hesitation. However, my weakness for as long as I can remember has typically been over the medium term.

Now, where am I going with this?

My point is we all - as human beings - have our strengths and weaknesses. Some of us are programmed to notice the details in things while others are more adept at diagnosing the larger/longer term picture. Trading is no different.

To that end, I have been working on both intraday and short term automated trading systems. Check out the preliminary results of the intraday system:

Net Daily Profit (Based on 1 ES contract)


Weekly Net Profit (Based on 1 ES contract)


Monthly Net Profit (Based on 1 ES contract)


FORECAST

As usual, here are both the original and transposed ES forecast, respectively. Pick your poison.

Intraday ES Forecast


Transposed Intraday ES Forecast


Have a great evening.

Ciao Bella

In the bulls defense, I think we have one more day of this slow grind up before we get any kind of 'correction'.

SPX Forecast

Intraday ES Forecast

I'm still short by a whisker but will likely get stopped out of at least one position with any remote signs of bullishness on Monday. My other position may survive. Famous last words, I know, I know.

Have a good one.

What Is Going On????

I wake up this morning - excited and all for the trading day - and what do I see in my inbox????

ARE YOU FREAKING KIDDING ME?!! So now the world is handing out Nobel Peace Prizes to U.S. Presidents who have been in office for mere weeks? I am all for peace and love - brother - but the world has simply gone nuts. Wilson and Roosevelt are turning in their graves as we speak. Unbelievable!

Bears = Poor

Disappointment does not begin to describe how I feel. I truly hate this tape and am done trading today. While I have not been stopped out, I have a strong feeling DOW 10K is on the horizon and I will likely be taken out of my short positions in short order. I am long from ES 1058 out of precaution and riding it as long as I can.

An astute individual in the comments section pointed out the TED spread. For those of you unfamiliar with it, it is a measure of credit risk in the overall economy. The chart absolutely speaks for itself - complacency reins supreme.

TED Spread

And one of the most confusing charts of all time is the A/D line. From the March lows to mid-September we have seen nothing but huge negative divergences in breadth. However, breadth is expanding since September 22 (i.e. near the former highs). Someone explain that!

NYSE Advance/Decline Ratio

Chasing Rainbows...and Trades

C'mon. Ask me if I'm short. Seriously, ask me. F'n yes I am! Ahem.

This post will be subtle but direct in every way.

Exhibit A - Nasty Bullish Temperament Gets Feverish (SlopeofHope.com)

Exhibit B - Jon 'OptionMonster' Najarian Tweeting on Economy 'Recovery' (Twitter)

Exhibit C - Xtrender Boys Long (XTrenders)

Exhibit D - Correlation 1938 (See green dot)



Exhibit E - SPX Forecast


Seriously though. The tape today simply felt like everyone and their mother was chasing it. I honestly could not find a single bear today. We'll see if my prognosis is correct. I may end up getting blown out of the water first thing tomorrow.

My only fear at this stage is getting stopped out near the top of the fakeout that I think will ensue.

Word Of Caution

I want to quickly mention that despite my bearish tendencies over the next month - Goodbye - Nice To Know You!!! - I do have a threshold as to when I'll admit I'm wrong. If between today and tomorrow we don't get some weakness I'll be quick to cut that position loose.

If you were to put a gun to my head I would say the market will likely perform a magnificent fakeout to the upside and then reverse. It's not going to be easy to trade this market intraday so I'm establishing the position and setting my stop.

Goodbye - Nice To Know You!!!

Say goodbye to Mr. Market. I heavily shorted the SPX index at today's close and will add the other half of my position tomorrow regardless of how high we go. There's a lot of talk this evening among Elliotticians that we go to new highs but in my opinion the buck (i.e. the USD) literally stops here. Pun intended!

The SPX forecast says it all...

SPX Forecast



POSITION TRADING SYSTEM

On a more serious note, one of the many projects I have been working on is a position trading system that is for the simplest of traders - that is, virtually anyone can trade it regardless of account size. I have been forward testing it in a simulation account since the beginning of July using the ES contract. Here are the results thus far:

ES Position Trading System Results (SPX cash index data used)


The system is a 'close-to-close' system that allows participants who cannot afford to hang around their computer all day to set their entry/exit orders for the close. Effectively, this is a swing trading system that uses the forecast as the guiding tool for timing the market. As you can plainly see, the earnings potential is quite significant considering how little effort it requires.

At some point I will have to pull the forecast from the blog (I think that is pretty obvious) but I'm working on a way so that those who are seriously interested in the forecast can still take advantage of it.

I have other plans for the blog (e.g. mentorship program, etc) but that is a ways off.

Oh, here is the intraday ES forecast...

Intraday ES Forecast


Take care and I'll see you all tomorrow.