YouBoob

YouTube is undergoing maintenance tonight so I can't upload the videos I put together describing my plan for tomorrow.

I'm looking for breaks above/below 1095/1080 to go long/short, respectively. I am long from ES 1089 and will add to the position like a mad piper if we bust open above ES 1100 tomorrow.

Sorry for the lame post - blame YouBoob.

Here's the forecast!

Intraday ES Forecast (right of green line is transposed forecast data)

Finally Interesting

Note: I revised the transposed forecast as at 7:00pm PST on 11/29/09.

What the Dubai news is providing is nothing short of some badly-needed action. With volatility having come in substantially over the past few weeks (see chart below), the timing of the news couldn't be more perfect. Get ready for some fireworks!

Weekly Realized Volatility


BULL OR BEAR?

The big question, of course, is whether we are forming a top at these levels. And, the more and more I think about it the more objective I become. So let's take a look at what's happening and what's not:

The Dubai news...

The news surrounding Dubai World and its agreement with creditors to temporarily halt debt payments should have caused a larger and more pronounced reaction in future/equity prices. Some might attribute the lack-luster sell off as a result of the US Thanksgiving holiday but had this been a news event that truly mattered, the reaction would have absolutely been more vivid. The reaction itself - pay attention - is something to keep in mind!

Technicals...

For the more long term investor/trader, one of the easiest tools to gauge whether a top is forming is the slope/direction of the 150-day simple moving average (SMA). Now, let me say something before you heckle me about moving averages.

They - in and of themselves - are poor indicators for long term systems. However, they are excellent tools that can be used to confirm whether we are in a bull/bear market. Things such as breadth and sentiment in conjunction with moving averages are more useful.

If we are supposed to be near a long term top one would expect to see long term moving averages to be curling over. At a minimum we would have to see a flattening of those SMAs. The reality is we are seeing neither!

SPX (Daily)



Divergences...

There are clear warning signs, however, that suggest a top may be forming such as the proportion of stocks making new 52-week highs. But for the time being this is simply a warning and nothing else! These warning signs can persist for months (does the saying 'The market can stay irrational longer than you can stay solvent' ring a bell?)

Proportion of New 52-week Highs


So my intermediate outlook remains bullish until we see clear evidence that proves otherwise.

FORECAST

One of the most important questions you can ask yourself as a professional trader/investor is:

What if I'm wrong?

Asking yourself this single question can literally make the difference between success and failure in the markets. In fact, I have this mantra so ingrained in me that it's almost ridiculous - to the extent of pure paranoia.

If my unedited forecast is correct we should see a large sell off next week.

Intraday ES Forecast


However, should this invert - yet again - the rally will be massive. So I'm keeping a close eye on the transposed forecast:

Transposed ES Forecast


POSITIONS

I assume most of us consider ourselves a contrarian but the reality of the matter, however, is that there are very few consistently profitable contrarians.

As of Friday's close I am long - yes, long. And I plan on holding on to that position for as long (no pun intended!) as I can because I continue to see two things (a) too much negativity in stocks and (b) bears becoming too negative, too quick on negative news.

Importance Of Following Your Plan

With the Dubai news lingering in people's minds, it was evident there was some fear of a crash but the memories of 2008 still remain and have numbed many traders/investors. 'Fear' these days is quite relative.

FOLLOW YOUR PLAN

I harp endlessly about how important your psychology to implement your methodology is. In my opinion, it is THE determining factor in your trading, and so I want to point out something truly extraordinary with respect to the last 36-48 hours.

Firstly, I mentioned either via e-mail, Twitter or message boards that it was prudent to let the market figure itself out before entering a new trade. There were too many newbies trying to be a 'contrarian' and buying the opening on the ES contract yesterday afternoon. There is a fine line between being contrarian and going with the trend. This simply comes with experience and cannot be taught.

So lesson #1: In panic situations, you must let the market establish itself before entering a new trade.

Secondly, the hard thing to do on the open was to buy it. Had we opened anywhere near the ES 1070 area this is what the forecast would have looked like:

Intraday ES Forecast (assuming opening print ES 1070)


However, this is what it actually looked like on the open:

Intraday ES Forecast (actual opening print ES 1080)


This was my indication to both cover shorts and go long. This is what it looks like at the moment:

Intraday ES Forecast (last trade ES 1097)


There was no fear, no panic, no nothing! Just simple rules I follow day-in and day-out, to the tee and every time!

Now, I don't say this to boast! I'm saying all this because I truly want to see people succeed in their trading and my hope is that this example convinces frustrated traders that if they could only get passed their psychological barriers, then an entirely new way of thinking about the markets opens itself up.

The big 'project' I am working is to precisely address this issue.

Circuit Breaker

The big news, of course, out of Dubai is rattling market sentiment during the US Thanksgiving holiday. With the ES futures down significantly it is prudent to post the circuit breaker levels in case things get really ugly.

You can find these levels HERE and HERE.



There is a relative lack of press coverage this story is getting which (to me) indicates a continued sense of complacency, so I would be careful trying to be too much of a contrarian and buying the open on Friday.

IF YOU ARE LONG

The easy thing to do is to brag that I'm short (albeit with a very small position) but there are enough blogs out there who are already doing that. Plus I have no interest in boasting.

If for some reason you are long my best advice is to stay cool and collected before making any decisions. If you come to your desk all frazzled you're likely to make mistakes and execute bad judgment.

Other than setting my stop down to break even, I plan on staying out of the market with respect to my intraday trading. We'll likely get some huge volume and volatility on the open. Let the big boys fight it out on their own terms. There's little room for retail traders to get involved.

Thanks For Giving

Although I'm not celebrating Thanksgiving, I do want to give thanks to everyone who has made it a daily routine to visit the blog. I mean that from the bottom of my heart!

I am honored to have communicated either via e-mail or phone with some of you, and I am extremely impressed with the level of dedication and perseverance you exhibit in your trading. That is precisely the type of person that (a) will 'make it' and (b) I want to attract to the blog.

So once again thank you!

Here is the forecast although it will likely serve little until Monday. Friday should be a snoozer.

Once the markets pick up again I will have more intelligent things to say!

Intraday ES Forecast

Trading For Peanuts

Take a look at my ES public system trades for this week. Pitiful - but what can you do?

November Trades

No Volume = No Participation = No Fun

Alright, whose having fun? Not me. This is 110% pure boredom.

This no-volume, no-participation and no-fun tape is a waste of time to a large extent. I'm focusing on finishing my intraday trading by 10:30am PST and working on the various projects I have on the go for the last half of the day. Unless things pick up I suspect this will be my schedule until year-end.

The McClellan oscillator had a small change today so expect a big move tomorrow. Up or down? Your guess is as good as mine although I am positioned short with a VERY tiny position. No room for big bets nowadays.

McClellan Oscillator


GOLD

The big hype with respect to the price of gold these days is getting feverish to say the least. I've mentioned previously that the only retirement funds I have invested are in the precious metals sector (25%). I plan on banking those gains sometime next year as I think both gold and gold stocks will get hit hard along with the rest of the equity markets.

The two primary reasons for exiting these positions are (a) the increased correlation of gold vs equities that we've seen since the March lows and (b) the cycle work as per Charles Nenner.

With respect to the correlation, I feel very confident the markets will correct viciously to the downside next year. It doesn't matter what stock you hold - everything will go down.

Correlation SPX vs. Spot Gold (Daily timeframe)


Note the parabolic move we're seeing is a classic 'pile on' in a market that is relatively small. When things start to accelerate downwards, get ready! Long term, however, gold is a phenomenal investment.

With respect to cycles, well, I'll let Mr. Nenner explain it in his own words.



FORECAST

As usual, here is the updated forecast. Regardless of whether it is a good fit, we should see an increase in volatility heading into mid-December. Giddee up!

Intraday ES Forecast


Here is a great look at how realized volatility has come in on both a daily and weekly basis.

Daily Volatility


Weekly Volatility

The Disciplined Trader

One of the obstacles I had the most difficulty with during my earlier years was trading a particular methodology or system and having to continue trading it through thick and thin.

Most traders are conditioned into F.E.A.R. after a losing streak (or losing trade for that matter!), whereas more experienced traders who have committed to finding ways (mentors, etc) to conquer those fears have no problem executing on all fronts. They know fully well that systems move in and out of profitability, but that over a long enough period the expectancy of their system will take its course.

The forecast I use is no different. It can go through weeks that are absolutely breath taking (correlation > 0.85) and then mediocre the next (correlation < 0.6). Generally, I would say the forecast - if used correctly - keeps you on the right side of the market at least 60% of the time.

This is what the forecast looked like last Friday:

Intraday ES Forecast (as at November 20, 2009) - right of green line is transposed forecast


The correlation on this fit was an astounding 0.89!! I tell you, I have been using this forecast for a while but I never get tired of seeing it perform this well. Like all things in the market, however, nothing is perfect.

This is what the forecast looks like today:

Intraday ES Forecast


Not exactly pretty, is it?

In all honesty, we could go up or down from here but as a very disciplined trader I obey the forecast (or transposed forecast) to the tee every time, every day, every month and every year. No questions asked. In case you're wondering - I'm short.

RATIOS

The VIX/VXV ratio continues to be on a sell alert so if you are long I suggest you be very careful.

VIX/VXV Ratio


The more and more we undercut the 0.875 level, the higher the risk to the downside.

POSITION TRADING

As many of you know, I have been diligently working on a project I hope to release sometime next year. Among the various sub-projects is my position trading system. It went long at the close on October 29, 2009 and has an exit date of November 30, 2009 (or when stopped out, whichever comes first). This is also a giant signal that a top if coming, if not already in. I thought I would pass this along as anecdotal evidence to support the short side.

BOB HOYE

This needs no introduction of course! You can find the audio HERE.

Mark Fisher

If you are interested in seeing a true professional trader you MUST check out this live trading session:

Link HERE

Willis

The last two weeks have been particularly difficult to trade although I'm having more success this week versus last. What's making it difficult is the fine selection of good-looking opportunities. Once the main move of the day (green rectangle) is obvious the rest of the day seems to be consolidation/chop (orange rectangle).

SPX Intraday


I imagine the closer and closer we get into the Christmas season the more and more one will have to be picky with entries.

My long SPY position that got blown out of the water today is a prime example of a trade that - in retrospect - should not have been placed. My reasons are two-fold:

1. For the first time in a long while, I was unsure of the best fitting for my forecast (transposed vs. non)
   
2. The VIX/VXV ratio was clearly on a sell alert
   

VIX/VXV Ratio


At a very minimum I should have stayed in cash (which is a position). On the aggressive side I should have shorted. Live and learn!

ES Intraday Forecast (transposed)


BIG DIVERGENCE

For the first time since the March lows we are beginning to see serious and lasting negative divergences. The NYSE New-52-Week Highs count (in absolute and relative terms) confirmed the new highs all the way up - until now. This divergence confirms the VIX/VXV ratio and the general thesis that we are putting in a top.

NYSE New 52-Week Highs


INTERESTING

I'm not an avid reader of Xtrenders.com but I have the utmost respect for someone who over many years has been able to trade the markets full time - irrespective of how big his account is. In his recent post Atilla mentioned the new FX margin requirements as per the NFA and how it could be foreshadowing something very serious down the road. I happen to agree wholeheartedly that the timing is unusually suspicious. Something to keep in mind!

VIDEO

I put together a video to talk about a few extra things. Enjoy.

Tuesday Media

One of the most gifted and talented investors of all time - Jim Rogers - never ceases to amaze me with his candor and utter brilliance. The following videos had me smirking the whole way through especially the last one.








Also, I think you will the following audio recording from David Skarica over at HoweStreet.com very interesting. While he does come off as a bit of know-it-all, my feelings are quite similar with respect to gold, equity prices, etc.

You can find the audio HERE and the corresponding charts HERE.

Same Old

Until we begin experiencing something different (i.e. start going down) trying to comment on the markets is going to be tough.

I kept my eye closely fixed on the NYSE up/down ratio as we came quite close (that is putting it mildly!) to triggering a Marty Zweig double 9-to-1 breadth bullish signal today. If it hadn't been for the late-day profit taking, this would have been the mother of all nails in the bears' coffin.

NYSE Up/Down Ratio


Believe it or not, more upside is coming as predicted by both (1) my forecast and (b) the pounding the GOLD/SILVER ratio took today. Complacency and/or confidence reins supreme.

Gold/Silver Ratio


VOLATILITY

Without a doubt there has been volatility within volatility and I my strong suspicion is we have much, much more of it to come particularly heading into 2010.

Daily SPX Volatility


Do not underestimate the sell off - despite the current USD carry trade - that will ensue in 2010. If you thought 2008 was fun wait until next year. The only difference between both sell offs will be their respective durations. The panic in 2008 that started as far back as May 2008 lasted more than 9 months before we saw the March '09 lows. The sell off that will take place next year will likely start January/February and last approximately 6 months. Needless to say, I can't wait.

FORECAST

Despite the current inversion taking place in the forecast, I expect the 'normal' one to take charge - for lack of a better word - fairly soon. In the short term I expect a 30-point pullback followed by a strong 40-point rally to 1120. We should hit this latter figure by sometime later this week or early next.

Intraday ES Forecast


Transposed Intraday ES Forecast

Tough Market

This week proved remarkably difficult to trade in light of the almost-anemic volume and increasing choppiness. Overall I had a losing week when combining all my systems, intraday trading, etc.

My bias is to the upside going into Monday/Tuesday provided we hold 1084.90. A tick below that and I will be stopped out of my SPY longs. As always, I am hedging via ES.

The question is whether we are forming a top and to my mind it's pretty obvious we are, so one must be very careful holding overnight long positions (hence holding SPY vs. ES).

Has bullishness gone to extreme levels again? By the VIX/VXV ratio the answer is 'no' but I'm not wagering the farm on that thesis.

VIX/VXV Ratio


FORECAST

Send me an e-mail at a.grant@ambgtrading.com if you are interested in receiving regular intraday forecast updates.

Here are the latest charts (transposed and non). To tell you the truth, both of them look good. I'd love to hear which one you favor.

Intraday ES Forecast


Intraday ES Forecast (transposed)

Frustration

More And More

It seems the closer to we get to the end of 2009 the busier I get after the close. I have so many projects on the go that I want to have completed by Q1 of 2009 (yes, they take that long) that I have little time to do comprehensive posts.

The one thing that is most evident at the moment are the ever present low-volume rallies and high-volume sell offs we've seen as of late. This pattern is more pronounced than ever. The following chart says it all.

Intraday SPY Chart


Here is the forecast as usual. Hope ya'll had a great trading day.

Intraday ES Forecast

The Long And Short Of It

Am I long or short? Yes.

I've been beating the table about this massive range-bound market for a while but I'm not sure what to expect for the rest of this week especially with a holiday in between. My inclination is a move to ES 1100 followed by a sharp move down, then a sharp move up - effectively going nowhere.

While I am both long and short various ETF's and the ES contract (intraday), my bias as a risk manager is to the downside (i.e. my overall deltas are short albeit only slightly). The last thing I want is to be caught in a gap down.

FORECAST

My forecast points down into tomorrow but the 1100 level is huge and psychologically important. No strong opinion either way.

Intraday ES Forecast

1938 FRACTAL

Our old friend from 1938, however, is a warning sign that we could see significant downside - assuming the correlation continues of course! The precise top in 1938 (green circle) would have corresponded to yesterday's close. Keep this in mind! This is one of the reasons my overnight bias is to the short side.

1938 Fractal

MISCELLANEOUS

Generally speaking I continue to expect the overall markets to hold up until late-November or even mid-December. It seems redundant to say this but until we see sustained weakness the bulls (sort of) own the tape. It's a trader's market but prepare for contingent events (i.e. large gap down).

Going Nowhere Fast With Chuck

So here we are quite literally parked at DOW 10,000 and I expect us to fool around this area for the foreseeable future.

I don't have much to say other than if you are looking for some major downside between now and year-end I think you can completely forget about it. Until we see sustained weakness this is an up-and-down market. In fact, everything I look at continues to suggest a neutral or even bullish tape....yes, I said bullish.

The 'mother' move down will occur in 2010.

ROCK 'N ROLL

By now most of you are familiar with my musical tastes but I'm also a huge fan of the music that is the foundation of almost everything we listen to nowadays - the very old school rock.

If this doesn't give you goosebumps I don't know what planet you live on.

Have a great weekend....and be good!!

Trader's Market

This is a market that requires careful judgment of risk vs. reward. The wrong move here or there can wipe out hard earned gains in a matter of minutes or hours. You've got to be able to change your mind quickly but stick to that opinion until proven otherwise.

In the current case of being short, I'm cognizant of how bullish the tape is so instead of shorting the futures I am short SPY shares. I'm looking to exit this position tomorrow around SPX 1052 or when stopped out. My overall bias continues to be up with a target around ES 1070/75 by Monday/Tuesday of next week. All my intraday trades will likely be on the long side.

Just so it's clear, at any given time I am both long and short. There's no room to be opinionated in this market.

Intraday ES Forecast

X

Well here we are at DOW 10K...again. I spoke previously how this was likely going to happen for the next month - a giant 500-600 point oscillation around this pivot.

Dow Jones Industrial Average (Intraday)


At the moment things clearly favor the bulls. If there was anything I was closely paying attention to - aside from the forecast - it was the McClellan oscillator.



Anything below -60 is a warning side to the bears. Going forward this will be an enormously useful tool to gauge oversold/overbought conditions.

Re the forecast...

Although it sounds 'wishy-washy', I'm bullish until I'm not.

Note the oscillation that is forecasted until the end of November. I suspect this will be the giant oscillation around DOW 10K that I've spoken about.

Intraday ES Forecast


Going forward I expect a move down to ES 1050-ish followed by a rally. I am currently short the ES from just above 1061. It's going to be a trader's market.

Booooooooooring

I'm going to make this one quick since I'm busy with what feels like a million projects.

Today's 'rally' took a while to develop but eventually did. I exited my position longs around ES 1039 and am flat going into the Fed announcement. I typically trade through economic reports (as I think the news is irrelevant) but Fed days are the exception.

Intraday-wise, I got caught up in some of the chop later in the day so my intraday trading was a losing case....more than I'd like actually. 'Tis the way it goes sometimes.

I don't have a strong opinion either way going into the latter half of the week, particularly in the context of a Fed day. But, put a gun to my head I say we rally to ES 1050-ish tomorrow, pullback 10-15 handles and continue up to close on the high of the week. I outlined some of this in last night's missive - Good Times.

Intraday ES Forecast (everything right of green line is inverted forecast data)

Intraday ES Forecast (unedited)


Have a great evening.

Good Times

I tell you, this is the kind of tape where fortunes can be both made and lost in the same day. The volatility we're seeing is phenomenal and by the time the meat of the next leg down is over I plan to have fully taken advantage of the intraday movements.

Although I spent a good chunk of the lunch hour calculating my bearings (i.e. messing around with my forecast), today was a fantastic day.

A few key points....

1. The low print at ES 1026 is likely the low of the week.
2. Breadth, as measured the McClellan oscillator, is significantly bearish
3. I'm really not sure how long my forecast will stay inverted

FORECAST

If you are on my mail list to receive intraday updates with respect to the forecast you will recognize the following chart:

Intraday ES Forecast


In light of the some of the confusion that may have arisen when the forecast inverts, I decided to construct a chart whereby I transpose the forecast data, rather than the actual ES price data. This provides a more 'fluent' way of looking at things. This way I can also show the price axis.

For comparison purposes here is the intouched and unedited version:

Intraday ES Forecast


So where do we go from here? Let me explain it point form...

• I'm pretty confident we hit ES 1050/55 area either tomorrow or the day after.
• Once we hit that level, we'll likely see a pullback of about 15 handles (i.e. to ES 1035)
• From that latter level we either tumble or rocket higher. Either way, it's going to be a big move.
  

If you believe my first ES chart above, it means we go down to ES 1010-1020. Otherwise, we'll rally to ES 1055 (2nd chart). Based on sentiment/breadth alone I would say we rally. There are simply too many bears over the short term. Check out the the aforementioned McClellan oscillator:

McClellan Oscillator (Monthly)


BOB HOYE

I haven't mentioned Bob Hoye in a while so I wanted to treat you all to his latest audio commentary. You can find the audio link HERE.

I'm currently long from ES 1030 and holding until we hit my target area:

Intraday ES Chart (5min)

'The Why' In Your Trading

"Why do I want to trade?"

- The Successful Trader

The most important question you can ask yourself as you walk down your path is 'The Why' behind the goal you pursue. And, it is the precise response to this question that enables the frustrated trader to continue persevering in the face of adversity.

Think of 'The Why' as the fire on your butt that keeps you motivated in times of peril. Every time you get complacent or lack discipline in executing your trading strategy your 'Why' not only reminds you to not get complacent or deviate from your strategy, but it also keeps you moving forward, away from those counterproductive habits.

WHY ASK WHY?

Why do you want to trade?

Think about that for a second. In fact, take more than a second! Take a few minutes or even hours to contemplate what it is that motivates you to want to trade successfully. Don't just make this a mental exercise either. Write it down! Get some feeling and emotion down on paper so when you screw up you are easily reminded of those feelings.

The rookiest of rookie mistakes typically occur (as one would imagine) at the beginning of one's trading career. It's only after a bit of pain and struggling that we start to smarten up and focus on the things that previously successful traders had mentioned and advised to us over and over again.

How many times have you heard the following:

1. Have a trading journal to keep track of your trades and/or emotions
2. Have trading goals
3. Have a trading plan
4. Analyze your results

Now, are you doing this? What a powerful question!

DON'T COMPARE YOURSELF TO OTHER TRADERS

In an industry where several egos seem to be bloated, it's easy to want to compare yourself to other traders - particularly in terms of trading results.

Some of us are familiar with bloggers who love to mention they are establishing 7-figure positions, or who boast about how they are the only ones making money in this market, or have their 'actual' trading results publicized to garner popularity. All this fluff about showing how big their position size is or how well they are doing comes from one place, and one place only: the ego.

The ego is a powerful force and will work for and against you. This is not an opinion. This is a fact that has been studied and analyzed to death for a very long time, and it is in a weird sort of way part of the human condition that has been developed in modern times.

To want to compare yourself to other traders is to show a lack of confidence in yourself. By comparing yourself you accentuate what others have that you don't. It is a form of focusing on the negative aspects of your trading and then subconsciously reinforcing them.

LIFESTYLE

There are several reasons why I trade but the two biggest are:

1. Live the lifestyle I want to live
2. Help others achieve their trading goals

I am truly grateful to live in an area that has some of the most scenic coastline and this weekend I got to experience it again on what is most likely the nicest day the Vancouver area has had since the end of the summer. Below are some of the pictures we took.

This is 'The Why' behind my trading.