Monday, April 6, 2009

Decision Point

Looks like I didn't miss much while I was gone. By the time I got home Sunday night I was too tired to put up a post. So after looking over the charts plus today's action, unfortunately the market is keeping the next move close to the vest. One thing is for certain, we are near a turning point where the bullishness that we've experienced will turn back to bearishness (for a time). Tomorrow morning should be key.

Scenario #1: We push to a new marginal high. I'm looking at the 850 area on the SPX as the point of exhaustion. This can be seen in the above chart. Why am I not totally confident? Well, the up action today was very very choppy. It's hard to instill confidence when you just don't see a lot of impulsive action. We ended the day right near the top of the channel. If we don't blow through it by the first hour of the US session tomorrow, then that increases the odds that the bulls are exhausted and scenario #2 comes into play.

Scenario #2: We immediately drop and drop hard. In this scenario we have completed our first minor wave a and b and begin wave c tomorrow (see chart below).


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  2. I happened to stumble onto your blog via other sites. I lost big $$ doing the traditional buy hold stocks & average down mentality. I have been studying other forms of trading. EW & Options. I am interested in what you mean by front month optons trading. I am really limited to trading options now since I don't have the capital for anything else. Any guidance will be much appreciated.

  3. jfk, when I'm talking about front month options those are the options that expire the following month. The current front month option would be April (expires on the 3rd friday). Generally, when I am anticipating a big move, I will start to scale into my option contracts. As it is impossible (at least for me) to pinpoint the exact day that the market will begin a big move, I usually will take my total desired position and divide it by 5, so I have 5 different purchases at different targets. For the current move, I was actually using 4 at these levels: 830, 840, 850, and 860. Because we are so close to April, and I wanted to be more conservative I purchased May puts. Depending on how big the move and how aggressive I want to be I will purchase out of the money (OTM) puts. For the current move, I bought IWM 38 puts as I expect the move to the downside to be more forceful for the Russel than the S&P. Unfortunately, I have only been filled on half my position, but it should still work out nicely. The key to remember as that you can lose 100% of your trade when doing options, so you need to be sure enough and conservative enough to leave you with something if you get it wrong. 10% of your capital would be a very aggressive trade.

  4. Rich..I've noticed that you and Tony use moving averages as follows:
    60 minute charts 89/34
    Daily Charts 8/34
    Weekly 13/89
    Is there any particular reason for these?

  5. Well, they are both Fibonacci numbers, and since we believe that the Fibonacci numbers play into market psychology, I think we have tried them out to see how they do and found that they actually work really well. I think I have said it before that I use the 8 SMA to track minor moves and the 34 SMA to track larger moves. You'll notice that once a bigger wave structure starts it will generally stay on one side of the 34 until it is finished.

  6. Rich,

    Thank you for figuring out the W X Y waves. That's where I get lost. I'm going study those rules again so I will be able to spot it next time. You really are a pro!

    JFK, If you really want to learn a system, open a practice account on the FOREX. It moves 30 times faster than the stock market and really makes you work at reading the waves minute by minute. A couple weeks of FOREX and you will know if you've got it or not.
    Stochastics and the Williams Accumulation/Distribution are my favorite moving averages on the FOREX. Fibonacci ratios and the wave are essential too on the FOREX. By the way if you want to use real money but don't want to risk thousands of dollars, the AUX is only a $10 position per contract.

    Rich, I've also been using the Ichimoku Cloud. I have not been able to find it on line so I plot it with a spread sheet along with the Williams A/D which is different than the Williams %R. Do you know of a source for either of these charts?

    The Ichimoku Cloud is best for long term trades, but it adds a lot of insight to short term trading too.

    If you would like to see a demo go to
    on YouTube and watch the Ichimoku video by Chris Capre.

    Thanks again

  7. Bob, very interesting. I after watching the video I did a quick look and I found a custom script written for amibroker (the charting program I use) for the Ichimoku Cloud. As for the w-x-y (3-3-3) patterns, just think of them as a double zigzag (abc-x-abc or 3(or5)-3-5-3-3(or5)-3-5). Since a normal abc is either 3-3-5 or 5-3-5 a double zigzag is the only pattern where you can get a larger 3-3-3 pattern.

  8. Rich,
    Here's a link to the spread sheet I made. I just created this so it's a little raw.

    I hope you can get that code to in QuoteTracker to work. Even though the Ichimoku Cloud is best for long term trading I still find it very useful.

    I previously mentioned the Williams Accumulation/Distribution. I wrote a spreadsheet for that too but it needs to have one minute updates to work. I use it with my FOREX account and find it very valuable for over bought/ over sold and momentum.

    By the way thanks for the wave count from 2007!

  9. Bob, I don't have open office. Can you save it as an xls file? As for the code, did you mean amibroker? That is what I have and it does work. Here's a screenshot:

    The black line is price.

  10. Sorry, Amibroker also offers QuoteTracker so I thought that was what you meant since I found a Ichimoku code for QuoteTracker.

    I use TD-AmeriTrade. I'll see if they have AmiBroker.

    Your chart is a lot better than mine because I only enter the data daily.

    Here is my SPX chart in xls, which goes back to 1950. You will be able to see how well it works. One thing I've noticed is the importance of the cloud as it tells you how strong the trend is.

    There is information how to interpret the chart in the first tab. It offers more information than the video.


  11. I'm glad you have access to this chart. I checked, and it's available at TD Ameritrade but it's more than I want to spend.

    I found it for the NASDAQ at^MSFT&redir=1&period=0&freq=0&java_vm=sun&fp=10.0.12

    It's not as nice but it's free.

    It seems to work well for short term trades as well when it's updated with a streaming feed.

    My spread sheet is no longer of use.