Is there a Wow Factor? Chart, $ES

wowfactorThe answer to the title question is an unequivocal “Yes.”  It could be the widening of your eyes in amazement as the $ES trades in a 20 to 30  point range both to the downside and upside in 30 to 75-minute increments for a good five hours straight.  Using the right tools, (signal generator and a good auto trader) gives you a strong probability of pulling many, many ticks as the hoards of dollars get tossed about.  Wow is actually the word most often heard when this type of volatility is at your finger tips to take advantage of.

wile_e_coyoteThen why is that so many of us “gnats” are getting caught up in an old habit of “anticipate.”  That level of frustration you feel is when you realize it has happened again.  There was that moment of hesitation or disbelief in the signal change.  That nagging voice of doubt saying you are buying/selling too soon or too late.  When this happens I don’t know about you but I always feel like Wile. E. Coyote trying to stop himself before heading over the cliff.

I suggested yesterday that as “gnats” we need to participate and not anticipate.  To do the latter first literally never gets the sequence of events rolling.  The cause of not participating is similar but most often generated by different emotional memories within each of us.

Trading without emotions is of course, dependent on getting to the root, making some adjustments, and moving forward towards participating with comfort and ease.  Remember your competition, for the most part, doesn’t have emotions – at least on a participating basis.  There are hundreds if not thousands of algorithms calculating in just about all markets and firing off thousands of orders to buy and sell thousands of different forex, treasuries, equities, commodities, precious metals in cash, options, futures and other forms of derivatives.  The nominal value boggles the mind but it is safe to say that talented firms and traders have the ability to step in and facilitate buyers and sellers in exchanging their dollars and keep a tidy sum for themselves in the process.

wile_e_coyote_2The ongoing discussion remains to give up the old habits of having to know the who, what, where, when and why of every move before you’ll commit to participating.  Doing this allows doubt and fear into the equation and trying to work back to “participate” gets delayed even more.  There’s always trying to cover your procrastination by attempting to “play it safe” and put a bid or offer in the market that just “doesn’t” get filled – oh well!  Breaking a habit takes 28 days or so they say.  If we consider how many days, weeks and years we have given up to our “bad habits” taking 28 days to break them doesn’t seem like such a huge price to pay.

Dictionary.com defines “probability/statistics” as:

Probability / Statistics.

  1. the relative possibility that an event will occur, as expressed by the ratio of the number of actual occurrences to the total number of possible occurrences.
  2. the relative frequency with which an event occurs or is likely to occur.

It then becomes logical to conclude that when we anticipate more than participate we dramatically reduce the probability of success and that can be statistically shown.  Learning to move beyond our “bad habits” can be acheived.  The conversation is ongoing.

 

Check out the $ES chart which covers trading from 6:30 AM to 8:00 AM PST

2016-02-09_19-24-20_S&P_$ES

 

Markets In Transition..Continues – Part III

FATCAT_WALLSTI’m not sure what the BofA analyst is saying regarding China’s FX reserve numbers.  They reported a drop of $99.5 billion and that ‘kicked the can’ down the road for the US dollar for the time being.   There was a major shift of capital back into treasuries and out of equities and some commodities.  However, it would appear that while the Chinese Central Bank is attempting to pass the hot potato back to the dollar by defending the Yuan.  At the same time though with so many moving parts it is difficult to tell how severe the burns are.  The chain from the Yuan to the U.S. dollar and back can get tossed between several markets and sectors before it ends up back at the central banks.

2030capitalaztionchartglobalWithout a doubt, we are seeing some very high stakes being played out on an international monetary scale.  It would seem that to shift out of U.S. dollar positions has taken precedence and is more important than extending the stability of the global economy’s leader or number two is bound and determined to push itself into the number one position.   How that then transcends from one market to the next should always lead back to the currencies of the two major players, the U.S. and China.  At the moment, the pecking order remains fairly in line with the chart from last week, although I would lean more towards the top three being the U.S., China, and the EU.

Back to the markets responses to the China FX reserve number. While we wait for the interested parties to figure out how to prop up their economies without upsetting the proverbial “apple cart” there are more opportunities to trade than this mere human can keep track of — it has become essential to have a solid ‘auto-trader’ that performs for the better part – flawlessly.  Without it, I remain committed to the discussion of trading without emotions and operating with a tested and trusted signal generator. And without a less than expected number from China, the equity markets, of course, continued on their current trajectory with sudden and in some cases “Sid Vicious” turns.  It remains to be seen as to whether China will be able to reel in the mass exodus of reserve currencies.  At the moment the harder they attempt to prop up the yuan through the front door, by selling U.S. dollar reserves that are leaving out the back door and being moved back into the U.S. markets hand over fist!  The illusion remains that the U.S. has the best promise of a return.  The game remains afoot.

Check out the charts on the $ES for trades and discussion.

2016-02-08_15-49-38S&P_630_730

2016-02-08_18-40-34_S&P830_1250

 

 

Happy New Year…Are We There Yet?

The first trading day of 2016 produced an awesome volatile day with many “decoupling’s” taking place.  The finish of one year and the start of the new year often produce numerous “decouplings” as money begins to shift strategy.  China got things going coming into Monday morning with the major equity exchanges shutting down after dropping 7% in 7 minutes.  Being a trader, I live for volatile days. I also freely admit that I need to be careful of what I ask for.  Monday’s markets were a solid case in point.  Major moves across the board complete with “decouplings.”  It became important to not “multi-task” and attempt to trade too many markets.  Even with a large pile of “fun chips”,  it can become frustrating and costly.

fainting_trader_China_2016Word to the wise: please accept and embrace that we used to have the capacity to trade from morning till night, on little or no sleep and trade 100’s of contracts in multiple markets and classes. — Accept that in a given trading today,  there are many strategies firing orders in and out of the markets. News travels at the speed of light as do most trading platforms and as is often the case, there are way too many opportunities to trade.  The added caveat is that all are not going in the same direction at the same time and support/resistance is being reduced to liquid magma flowing  up and downhill as volatility ramps everything up a notch.  The swings can be both joyful and frustrating when “normal” highly correlated  markets “decouple” as the fear factor is thrown into the ring.  This was the case on Sunday afternoon into Monday morning as new years trading started with China kicking a huge, huge can down the Great Wall that rolled around the globe in seconds.

In the world of algorithmic trading, attempting to electronically trade in most of the futures markets using different algorithms will become a daunting task that will sour your spirit if you’re not careful.  Narrowing your focus to two maybe three of your favored futures will allow you to keep tabs on the ability of your trading strategy to actually fire actionable signals properly.

High-resolution 3d rendered binary tunnel for technology backgrounds

Being that, there are numerous strategies trading everything under the sun and that, the desire to trade everything tends to suffer greatly from the ability to actually monitor multiple markets and adjust strategy in line with the larger move(s).  Periods of indecision often produce “choppy” or range bound trading.  Algorithms fire constantly and when a large group either pauses or stops within a particular strategy it creates a vacuum of sorts.  The market will trade in a much tighter range but continue to fire buy and sell signals that meet the strategy guidelines but end up being stopped and reversed for a quick string of losses.  Adjusting strategy to smooth out signals is important and I personally find it much easier to keep that control in line when I apply it to a maximum of three markets on extreme volatile days.

Monday was such a day.

Are We There Yet?

To get back to the question asked in the title of today’s post, the simple answer is no – not likely.  More importantly, though, I believe it remains important to trade each day without an opinion as to what the “fair value” is or should be.  I leave that up to someone else to figure out and trade on.  I do, though, keep track of the weekly and monthly charts and keep an ongoing Elliott Wave count for the S&P 500, the DJIA, the NASDAQ, the Dollar/Euro, Crude Oil, Gold, and Silver.  Over the next week or so I will be updating the “counts” and how that relates all the way down to tick charts.

In the coming week I’ll take a look at Crude Oil.

crude_CL

S&P 500 ($ES) October 21, 2015

S&P500The ES started the session with some quick chop as traders paired off to decide direction.  The first 30 minutes easily gave way to stronger trends for the balance of the session.  Learning to trade without emotions seems to be the best methodology when stepping into the world of algorithmic trading.  You can’t care as to the who, what, where or when of any rally or decline. Nor can you pre-decide the strength of the buying or selling taking the market up or down 8 ticks or 48 ticks.

Trading is controlled by a myriad of computer programs on steroids.  The sheer volume of algorithms running complex equations and trading at the speed of light, (fiber optics) should not come as a surprise.  Understanding this makes it vividly clear that the old saying, “If you can’t beat ’em, join ’em.” remains valid for day trading in 2015.

Check out the chart below for today’s trades.  Again, I trade using the Diversified Trading Systems and DTS Trade Manager as an execution platform.

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Black Monday, October 19, 1987

economicsGetting Back in the Habit

I believe the best way to induct myself back into the creative habit of writing my market thoughts in a somewhat narrative format is to actually put down what I experienced during the day and how I dealt with it – trading wise. While I have experience trading many different futures markets I have been focused on Crude Oil, (CL), the 30-year bond future, (ZB), and the S&P 500, (ES). Each of the three markets presents its own set of trading quirks, but all tend to be controlled by algorithmic duck and cover at break neck speed programs running against a myriad of trade combinations to include but not be limited to; options, (greeks hedging), arbitrage hedging, futures spreads, component trading in the case of the NQ, FOMC and anything interest rate related in the case of the ZB, and EIA and OPEC announcements along with EUR/US $ gyrations as well as options hedging in the CL. And we can’t discount or forget the huge commercial users that move in and out of the market to adjust supply and demand needs.

 

Remembering_Black_Monday

Monday, October 19, 1987

 

Today is the anniversary of the Black Monday Crash of 1987. It’s hard to believe that it was 28 years ago occurring on Monday, October 19, 1987. The “crash” began in Hong Kong, moved west to the European markets and then jumped across the Atlantic to smash the U.S. markets. I was in London preparing to sign an employment contract with a major U.S. options trading firm that was expanding their European trading to include the European Options Exchange in Amsterdam, the Netherlands. I was going to sign my contract, go out for a celebratory dinner and spend the night in a swanky corporate apartment in Sloan Square and then head back to San Francisco the following day.   The sudden reversal of fortune(s) wasn’t apparent until I was watching the BBC Nightly News, which opened with a huge red arrow pointing down next to the DJIA and the number 508.

 

The probable primary causes for the declines were: program trading, overvaluation, illiquidity and market psychology. The selling by program traders was likely due to the avalanche effect tossed into play by the computerized selling which was kicked into gear as the required selling by portfolio insurance hedges attempting to engage their arbitrage and portfolio insurance strategies. This is turn produced a heavier reaction by program traders as the avalanches took hold triggering additional sell orders. Volume thinned as buyers scattered and the sellers hit the markets with wave after wave of market sell orders.

 

In 1987,  this was a massive and very destructive move down – a crash. In percentage terms, the largest one-day decline in the DJIA remains October 19, 1987. By the end of October of that year the Hong Kong market lost 45.5% the U.K market was down 26.45%, the U.S. market dropped 22.68% with Canadian markets slipping 22.5%. New Zealand markets were hit the hardest losing nearly 60% and taking several years to recover.

 

After the Crash of ’87, regulators overhauled trade clearing protocols, which brought some uniformity to most prominent market products. This was also the time when “circuit breakers” were developed and implemented. Giving exchanges the authority to halt trading in instances of extreme price declines in the major equity indexes, such as the DJIA, and S&P.

gdpdropsThe largest intraday point swing occurred on August 24, 2015, when the DJIA hit an intraday  high at 16,459.75 and an intraday low at 15,370.33 producing an intraday swing of 1089.42 points and a net change on the day of -588.40 points.  On a percentage basis October 19, 1987,  remains the leader for largest daily percentage losses at 22.6%.  The percentage change of October 28 and October 29, 1929, is 12.82% and 11.73% respectively.  The crash of 1929 kicked off a multi-year global depression with a two-day total percentage drop of 24.55%.  Although the DJIA suffered larger net change losses in 2008 with October drops of 733 points on the 15th, and 680 points on the 9th.  The DJIA also experienced a 777 point drop on September 29, 2008, and a 680 point drop on December 1, 2008.

The damage inflicted on the U.S. economy during the October 2007 to March 2009 financial crisis was hardest felt in the S&P which lost 57% of its value, with the NASDAQ losing 55% and the DJIA shedding 54%.  The recovery has been selective with many in the middle half of the income spectrum dropping off the “spectrum” altogether.  This trend is likely to continue for a bit longer, but the light at the end of the tunnel in terms of the “you know what” hitting the fan.  The longer term pictures continue to point to a major top in the equity markets being reached very within the next 12 to 18 months. Interest rates remain the larger caveat as to when rates will actually begin to rise  and then of course the $64 trillion question is how quick a quarter point rise turns into a half point rise to a full point rise as the global Central Banks attempt to stay in tandem with one another.

crude_CL

Crude Oil – (CL) December 2015 contract

I trade using the Diversified Trading Systems platform through Ninjatrader.  Within DTS, I primarily use the Eagle with UniRenko bars and Trade Manager as an execution platform. I run two algorithms that produce buy and sell signals.  I trade using an ATR trailing stop that is risk adjusted for each product.  Additional indicators include an ADXVMA alert, Price Action Swing oscillator, and Stochastics.

I continue to enjoy and recommend day trading over position trading.  I do not carry any futures positions overnight.  Currently,  my primary focus remains crude oil, (CL), the 30-year bond, (ZB), and the S&P, (ES).

Below is today’s chart for crude, (CL).  Future posts will include a trade by trade tracking.  On the chart below trades can be followed by longs being marked by the blue dots below the “green” bars and shorts marked by blue dots above the “red” bars.  I track trades from signal to signal and include all signals that are generated from the 9 AM EST opening to 2 PM EST.

2015-10-19_19-15-24

 

 

New Highs Arrive – Where is all the Fanfare? Wednesday’s Chart – Updated Elliott Wave Count -Monthly $DJIA

bull-market-teshia-artDid I miss something? I don’t remember hearing any shouts of joy or any applause when the S&P moved to new all times. Nor did I hear any shouts or applause when the NASDAQ-100 pushed to new 15 year highs or when the Russell 2000 finally and I mean finally moved up to a new all time high after languishing in the doldrums as the balance of the broader indexes pushed higher. I wonder if the S&P sent the buyer of the top a certificate designating them as that lucky buyer. Probably not though, since the market continues to push to new highs. In fact, it almost feels like there are a group of traders who are begging to be the lucky winner of buying the absolute top. Well, maybe that is just how I feel because I’m usually the one who is trying to sell the top tick – an impossible feat these days – but that is the contrarian trader in me that just won’t quit.

arewethereyetThe markets finally made it though, and while I can’t say the highs are in just yet, everything is happening according to plan. What I mean by that is that as a student of Elliott Wave one learns the mechanics of the wave structures and also the personalities of the different waves in progress. For example, within a 5-wave structure the third wave is normally the longest and the strongest within the sequence. We can now apply that same statement to the various degrees within the larger pattern in progress. Now the next piece of the puzzle is that within a 5-wave structure wave 5 will ultimately move higher or lower (depending on the direction of the trend), but without the same power or strength seen in the 3rd wave. Those that have been reading my analysis over the past year or so know that I have been consistent in calling for new highs while also calling for a correction to take place first. This has remained the case for months now and progress towards the ultimate high continues to unfold without any hiccups yet. However, I have been also repeating myself that the broader indexes will likely move to new highs on “negative input”. Has that been the case – you bet!

geopoliticalSo where are we within the larger picture? The DJIA has now joined the new all time high club and while the volumes have been all but present I believe there are still additional new highs to come. We haven’t really seen any strong capitulation nor have we seen a flood of new money coming in believing the markets are “breaking out” from new highs. This leaves me with the same opinion in that the markets continue to “chug” along in fulfilling their destiny. At the moment I continue to favor the May to July window for the penultimate top to be registered, which is likely to coincide with the FED actually raising rates, (maybe at a faster clip than what is currently expected). Or perhaps one of the several geopolitical situations swirling around the globe will crack open leaving a swath of destruction similar to an F-5 tornado moving through the Midwest. I also need to add that I don’t expect the markets to “crash” immediately off of the high tick. Can that occur, of course, but the reality of it occurring is not as strong. Having an understanding of Elliott Wave will allow you to put some context around what and how the next leg down will look like. Since the pattern in progress is a bull market of Grand Super Cycle degree the expected correction or bear market will be signaled by an initial 5- wave decline of at least Cycle degree. However, I suspect it will go unnoticed by the majority of analysts and traders due to the failure to recognize the “writing on the wall.” It is likely to go unnoticed until the “point of recognition” which is normally within a third wave within a third wave. This is a point where the masses begin to have the “oh crap” moments and to be honest we are several months if not a year or more away from that.

elliottwaveThe idealized Elliott Wave progression of a five-wave sequence could be viewed as follows, bear in mind the large the degree the greater the psychological impact as well as a greater financial impact:

  • Bottom (start of wave 1):
    • Large degrees: questions of existence, survival: depression; war.
    • Intermediate degrees: recession: “panic”; limited wars.
    • Minor degrees: often accompanied by “bad news.”
  • Rebound (within wave 1): From undervalued levels, recognition of survival.
  • Test of Lows (start to bottom of wave 2): Fundamental conditions often as bas as or worse than those at the previous bottom. Underlying trend considered down. Does not carry to new low.
  • Powerful Wave (start and formation of wave 3): Strength. Breadth. Best fundamentals. Increasing real prosperity. By the end of wave 3, the underlying trend is considered up. Wave often subdivides. Is never shortest wave.
  • Surprising Disappointment (start to end of wave 4): Signals the best part of growth phase has ended. Does not enter price territory of wave 1
  • Final Advance (start to finish of wave 5): Market performance and fundamentals improve, but not to the levels of wave 3. Psychology creates overvaluation.

Now let’s update the current market position. The surprising disappointment, which marked the completion of Grand Super cycle wave IV, was the financial collapse of 2008 – 2009. Unfortunately, the majority failed to realize that the best part of the global growth phase had ended. Off of that low, the final advance began. True to form while the market performance and fundamentals have improved they have not and are not likely to equal the levels of wave 3. However, the psychology has certainly created a severe overvaluation as the broader indexes continue to push to new highs. With all of the aforementioned in mind let’s take a look at the current chart, (included below) for the DJIA.

2015-02-18-TOS_CHARTSDJIA_Monthly

The current Elliott Wave count reveals that the DJIA began Grand Supercycle wave V off of the 2009 low. Within wave V, four waves of SuperCycle degree are complete as labeled on the chart below in gold (I, II, III, IV). Therefore the market began the final Supercycle wave V off of the late 2014 low. Within wave V it appears that Cycle waves 1 and 2 are complete with wave 3 in the beginning stages. A common relationship within 5- wave structures is that wave 5 is equal in length to wave 1. If this proves to be the case within the current structure we can begin to formulate a possible zone in which the entire sequence will complete – wave V would be equal in length to wave I at 20,643, approximately 2600 points away. The market does not however, need to reach that level to complete the larger structure in progress. The internal count will take precedence to price level and may well come in below the level mentioned above or above it. As the sequence progress we’ll be able to refine the target(s). More importantly though is the reality that the market is completing a bull market that has been unfolding since the beginning of the 20th century. That makes it over 115 years old. Is it any wonder that most analysts can’t envision anything but a continuous climb higher?

keyinsandRemember the key is being able to reduce and separate the “noise” from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them. Opportunity continues to knock on our doors. While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

tradersThe Logical Signals Trade Room is up and running. We have an outstanding group of members that have already begun contributing across the board from trading indicators, patterns and products, to computer software and hardware. Thus we are ready to move on to phase two of membership/subscriptions. Now that a core group has been established we have a few additional spots for other traders that may have an interest. Phase two, though will be somewhat more involved in that prospective members will get a chance to talk in more detail on their trading goals, experiences and expectations with me and possibly other members before deciding to join. At this early stage it is important to continue to steer the room in a direction that favors all of the members. Should you have an interest please contact me at Michael@logicalsignals.com I should have the updated “Invitation to My Trade Room” under the Trade Room tab back in place soon. Presently we have 10 to 15 additional spots open before closing this room until next year.

Steer the course and don’t compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don’t be swallowed up by the chaos and false emotions swirling around. Remember it’s just a number.