July 28, 2014

Technically, the Broader Indexes were Picture Perfect!

I caught an article titled “Why technical analysis just does not work either in forex trading or any market”.  Now, as a technical analyst I often find my daily helping of amusing writing via articles written by folks.  This one was actually published by Fisic Fiancical Research and here is the lead in for the article:

Technical analysis or canned indicators or statistical models or indeed any trading method that is well know do not work long term in the market because fundamentally trading is a ‘metagame’. In this video I explain what a metagame is and give some examples. It is essential to understand this concept to achieve long term success in the markets.”

Let me add to the conversation the Wikipedia definition of Metagaming:

Metagaming is any strategy, action or method used in a game which transcends a prescribed ruleset, uses external factors to affect the game, or goes beyond the supposed limits or environment set by the game. Another definition refers to the game universe outside of the game itself.

In simple terms, it is the use of out-of-game information or resources to affect one’s in-game decisions.”


wallstreetSo, the premise is that the author of said work (a poorly made video) basically falls back on the old “it’s all rigged anyway – claim” – one that to be frank is way overused and to be even franker has always been a part of any market’s history.  At this stage of the game folks – who gives a blessed – care .  When haven’t the markets be tilted towards the larger players or the TBTF players.  Do we honestly believe that the fathers of Wall Street –morgancarngiemellon J. P. Morgan, the Guggenheims, the Mellon’s, the Rockefellers, the Astor’s, or any of the great industrialists that produced tremendous wealth off of the backs and efforts of others.  This is the way it has always been and I believe will remain so.  There will be plenty sacrificial lambs slaughtered to appease the masses of asses.  There will be mega fines levied against the huge too big to fail banks – which in case you haven’t caught that act – have been totally shrugged off as having little to no consequence to existing “C” level crooks – oh sorry I mean executives.  The TBTF boys have infiltrated and control much of politics from the local to state to national level.  Is it right?  Who am I to say – I’m just a gnat on the elephants ass.  I don’t want to stir the pot nor do I want to be swatted off.  But it sure does make good copy and it sure does make us all feel better to think that some form of retribution will befall the great and mighty leaders of Wall Street.  Just don’t count on it coming from outside – trust me – they will implode on themselves without any help from us little guys.



Back to the original premise being made by Fisic Financial Research – to this I say – bull – technical analysis does work and is applicable to just about any market that generates historical data whether that be on a tick basis or a monthly basis.  To go one step further – Monday, July 28, 2014 was a perfect example of how proper use and interpretation of Elliott Wave not only indicated the mid morning lows completed 5- waves down (on the hourly chart) in the DJIA, SPX, NDX and within its current decline off the all time highs – the RUT also completed 5-waves down from last Thursday’s highs.


Ok, back to the DJIA – the 5-waves down completed at this mornings lows finished what is best labeled as a larger A-B-C decline off of the all time highs above 17100 or in other words a picture perfect corrective decline.  The SPX and NDX look to have finished 5- waves down off their respective new highs from last Thursday.  Which suggest and did get underway promptly off the morning lows – a likely developing A-B-C bounce higher.  It all fits – and it fits so neatly that trading at least on a hourly basis becomes a bit easier when you can begin to add support and resistance to a move in progress.  It’s not some weird magic folks – it’s mathematics and using the “law of nature” – the Fibonacci number sequence.

tradersAdd to this that I’m a numbers trader – I have adopted a strict strategy of not allowing any of my personal opinions as to whether the markets are bullish or bearish come into play during the trading session.  That would be an exercise in futility and you don’t need to trust me on this one.  The amount of time spent on trying to figure out why on God’s green earth the buyers moved back in large numbers mid morning on Monday were likely varied and many – the bottom line is though the early shorts were caught and made a mad dash scramble to cover if not reverse positions, which in turn likely brought about a few solid rounds of index arbitrage players into the fray looking to adjust positions against the movement in fair value and that likely gave good reason for the thousands of options traders out there to begin to either buy volatility or crush it depending on what was in play at the time.  Taking the time to figure any or any part of this out cut you out of numerous and I mean numerous opportunities on a day when those opportunities were limited due to the “summer doldrums” still hovering over Wall Street.

magicpotionThere isn’t any magic potion or kool aid around trading rooms to get traders to jump – it is all interactive – one leads to the other and so on and so forth.  I for one am grateful it happens – that traders continued to flock into Amazon to trade against what has been interpreted as a bad earnings report – bad or good it has added a huge amount of volatility to prices and that gives folks like me opportunities.  Have I given up on Amazon – not on your life – I’ll continue to order and use Amazon until Bezos decides to call it quits.  Now, Chipotle Grill is another story – the stock remains very thin and under light volume as it again pushed to new all time highs close to $700 – now that is a lot of burritos and I see “a bad moon arising” for CMG – in the mean time – steer clear unless you have deep pockets and an iron will to snatch an option spread or two when they become available.

So what do I think for the broader indexes – well take a look at the charts I’ve included today – they are all hourly and show the 5-wave declines I spoke about above.  Being that they came right off of the top in the NDX and SPX I would be looking for an additional leg down as a minimum before a mad dash for new highs were attempted again.  In the DJIA, it appears the market may have completed an A-B-C decline off of last weeks all time highs – setting the stage for a bounce.  It is too early to tell as to whether the DJIA will again push to new all time highs before doing another leg down.  The RUT remains in a corrective phase and will continue to be held as the weak link until the slightly larger correction is complete, so look for a limited bounce there followed by additional weakness over and above what will be seen in the DJIA, SPX, and NDX. (Click on the charts to enlarge)





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.

Three-keysTrading the number remains key to 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.