Rich Trend Trader's Blog

June 29, 2010

Trend Model Data Update Later This Evening – Updated

Filed under: Trend Timing Model — Rich Trend Trader @ 10:03 pm

As suspected the trend model valuation indicators have moved back to levels generally below the 6/7/10 low and now are near the 3/2-3/6/09 values.  Although the trend model signal is a BUY and will not issue a SELL signal at these depressed valuation levels caution is obviously advised.  The valuation indicators and the RSI levels on all trend model indices (S&P600, S&P400, and S&P500) are at levels sufficient to give an intraday BUY signal should the indices (or any one of the indices) trade down 3% or more and then retrace 61.8% of the drop from today’s closing levels.  The 61.8% retracement must occur on all those indices that fall 3% or more.

Alternatively, a violent up day could also occur on any day when the trend model valuation indicators are at these depressed levels.  As stated below, the market action on a few of the major indices are very similar to the Apr-Jun months of 1994.  At the end of June low in 1994 a intraday BUY signal would not have occurred as the market indices rallied hard off of the 6/24/1994 low and did not experience a 3% fall and then 61.8% retrace.  Note that the Russell 2000, S&P400, S&P500, and NASDAQ all retraced back above the equivalent 5/12/10 high into Aug/Sept 1994 before retracing most or all of the rise into Dec 1994.  Even if the market was to trade down some more from here, the ‘3 Sigma Day’ on 5/6/10 indicator that suggest that the market will at least attempt to rally back toward if not higher then the end of April, 2010 highs.  An equivalent June-August 1994 rally would most likely put the S&P500 back to ~1150 area.

Trend model data is not assembled until late in the evening Pacific Coast time given that my 2 daughters are my priority when I get off of work.  Recall that a BUY failure signal was officially off of the table the week of June 11th and only an official SELL signal will change the investment recommendations from long to short.  Maximum draw down (highest index value on day after 5/27 BUY signal to the lowest index value as of 6/29) on the S&P500 is -6.11%.  Have on occasion seen draw downs as high as low to mid teens without a trend signal change.  Still, lost too much money trading against the trend model over the past year or more to start jumping ship just because the market dropping like a rock over the past week.  However, will probably need a hair transplant.  Hopefully will be able to use the money made should the market trade back to at least make a 61.8% retracement as in the early summer of 1994.  See https://richtrendtrader.files.wordpress.com/2010/06/1994-equivalent-using-the-sp400.jpg

https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 26, 2010

Non-Standard BUY Signals on the S&P600, S&P400, and S&P500 EOD on 6/25

Filed under: Trend Timing Model — Rich Trend Trader @ 9:30 am

The market produced another non-standard BUY signal the end of day on 6/25.  The previous confirmed BUY signals were all preceded by a day or two with a non-standard BUY signal.  Market valuation indicators are still sufficiently low to produce another BUY signal.

Should another trend model BUY signal be issued in the next few days, I propose that BUY signals are being produced after the market makes higher highs and lows using the Wilshire 5000 index.  I am looking at this index given that it is the broadest view of the market using a large number of completely unrelated stocks.  It is therefore the least likely index that would be susceptible to targeting trading if such activities exist in the market :).

The trend model produced the first confirmed BUY signal at EOD on 5/27 after the market made a low on 5/25.  The market indices used in the trend model made a local high on either 5/27 or 6/3 (new local high for the Wilshire 5000 was on 6/3) where the trend model indicators surpassed levels required to produce another BUY signal.  However, the market proceeded to trade back down to test the 5/25 low on 6/8.

The S&P600 and S&P400 indeed made a new intraday low on 6/8 but this was not confirmed by the S&P500.  All indices made relatively healthy rallies to close higher on 6/8.  However, using the Wilshire 5000 for a clue concerning the low on 6/8, the market did not make a new intraday low on 6/8.

The market then rallied to produce another trend model BUY signal at the EOD on 6/10.  In this instance, all trend model indices made new local intraday highs on 6/21, where trend model indicators again surpassed the levels required for another BUY signal, but again proceeded to trade back down and then produce a non-standard BUY signal on 6/25.  Should the market continue to rally and produce another BUY signal, I would then propose that 6/25 is a higher low for the market.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 25, 2010

Market Valuation Indicators Now Oversold on all Indices Except the NDX 100

Filed under: Trend Timing Model — Rich Trend Trader @ 6:30 am

The valuation indicators on all market indices are now oversold at a level sufficient to generate an intraday BUY signal as on 3/6/09.  However, the RSI level is too high so the risk right now is that the market can continue to decline significantly creating an even more oversold market similar to that seen on 5/25 or 6/7.  Using the valuation indicators as they are there is also an equally possible chance that the market makes a significant rally over the next day or two.

Although I do not actively use sentiment in my trend model (only on a personal basis historically by selling when I should be buying or vice versa) looking at the financial news, reading financial blogs posts and trading sites, and simply having a gut feeling that I should dump my longs before the draw down becomes a bigger loss I get the sense that a significant shift has taken place toward the bearish side.  As Mark Hulbert once indicated in an article and I am paraphrasing: so you think that you are a contrarian trader, now is the time to prove it.  Therefore, sticking with my longs in line with the trend model BUY signal.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 23, 2010

Valuation Indicators Back To Being Slightly Oversold Again

Filed under: Trend Timing Model — Rich Trend Trader @ 6:41 am

Trend model valuation indicators for 2 of 5 indices used for market BUY signals are now back to being slightly oversold.  They are at levels sufficient to create another trend model BUY signal should the market rally and trend model indicators increase in value on the same day.  As mentioned in https://richtrendtrader.wordpress.com/2010/06/13/trend-model-buy-signal-eod-61110-wary-of-buy-signal-failure/ the markets had to pullback in order to achieve levels sufficient to produce another BUY signal.  As stated before, multiple BUY signals off of a local low is common for the trend model as the market attempts to shake out whether it wants to trend higher or continue to sell off.

There are several EW blogs with counts showing a market rally back toward the April highs.  Of course there are other EW blogs indicating exactly the opposite.  At this point I only consider EW counts that align with the trend model indicator.  There are many different counts that are either bearish or bullish at any given moment and supposedly do not violate any EW rules.  Learned this lesson when I read the fine print from an EW blog that I previously subscribed too indicating that their software produced 49 different counts and the ‘best’ one or two was chosen as ‘the count’ of the market.  I am still sticking with the bullish EW blogs given the 5/6/10 ‘3 Sigma Day’ and the current trend model BUY signal.  I do not believe that the rally up that completed on 5/13/10 satisfied the historical trend of a market rally back toward or above the previous local high.

I am unable to find hardly any good economic news.  A contrarian indicator?  Maybe the market has pulled in enough bears to eviscerate their portfolios with a big rally.  On the other hand, the market may have been waiting for enough trend traders to get back long to hammer them on the way down.  Don’t know but I am not trading on gut feelings because for me it is almost always the wrong thing to do.  Still learning to deal with taking my profits and losses based upon the trend model signals and not trading at the drop of a hat.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 19, 2010

Blog Comments Will Be Sparse Until Trend Model SELL Signal

Filed under: Trend Timing Model — Rich Trend Trader @ 5:42 am

There will not be too much with respect to comment on during trend model BUY or SELL signals.  Still looking at the 5/6/10 ‘3 Sigma Day’ to produce a market rally back toward or above the April high.  Should this play out as it has during previous ‘3 Sigma Day’ events, then the comments will focus back upon the trend model signals specifically and indications of up/down trend data such at the close above/below the previous 10-day closing high/low.

Several Elliott Wave blogs are showing market counts that satisfy the ‘3 Sigma Day’ expectation.  However, many more EW and technical analysis blogs are calling for a sharp drop in the market to occur.  I will just stick to my trend model signal and focus on the EW counts that are in line with the model data.  Much of the market commentary however seems to be bearish which may be a contrarian indicator of the direction of the market.  As I have commented to various friends of mine who have traded this latest trend model signal only to see the market proceed to retest the 5/25/10 low, you will be much less satisfied if you should obtain a gain in your account than the draw drown that may have occurred.  The major focus seems to always be on the negative but the current BUY signal will be respected even if in the long run this negative focus manifests itself in market prices which will also be manifested in the trend model signal.

In addition to the close above the previous 10-day high for the S&P400 and S&P500, the Dow Jones closed above its previous 10-day high EOD on 6/15/10 and the NDX 100 closed above its previous 10-day high on 6/16/10.  Waiting for the S&P600 and NASDAQ to also close above its previous 10-day high.  Again, this is not specifically used in the trend model but is validation of the current up trend in the market.

A SELL signal can come at any time.  Based upon previous BUY-SELL trend model changes the 50-Day moving averages (both simple and exponential) will be the target level for, at a minimum, the S&P600 and S&P400 to close above prior to the next SELL signal.  The is no guarantee that these levels will be achieved prior to a SELL signal but is the most likely initial market position to prepare for a possible SELL signal.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 16, 2010

BUY Failure Signal Officially Off of the Table

Filed under: Trend Timing Model — Rich Trend Trader @ 3:07 am

Trend model BUY signal from 5/27/10 will officially be changed with a conventional SELL signal rather than the possibility of the BUY signal failure.  Gain from current signal however is still not guaranteed but some risk from today’s action has been taken off of the table.  The S&P400 and S&P500 gave a buy/up signal using the close above the previous 10-day high parameter.  Although this type of signal is not specifically used off local low BUY signals like that given on 5/27, it does provide some confirmation of the uptrend in the market.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 13, 2010

Trend Model BUY Signal EOD 6/11/10, Wary of BUY Signal Failure

Filed under: Trend Timing Model — Rich Trend Trader @ 2:59 am

The 4th confirmed BUY signal was issued EOD on 6/11/10.  The valuation indicators have moved above the required level to issue another BUY signal and therefore should the market continue to rally, another BUY signal will not be issued.

Looking at historical signals I am a little wary of a BUY signal failure and the bullish EW counts on many EW blogs turning out to be wrong.  The market action around the current BUY signals are very similar to those issued during the market drop to the middle of Oct 08.  An intraday BUY signal was issued on 10/10/08 and confirmed EOD BUY signal on 10/13/08.  The market then corrected back toward the 10/10/08 low and a formal BUY failure signal was issued on 10/15/08.  The market action on 5/25/10 was not officially at the model indicator levels to issue an intraday BUY signal but was VERY close.  IF 5/25/10 was an intraday BUY then an official BUY failure signal would have been issued EOD on 6/4/10.  Although there is no trend model rule to deal with this scenario until the S&P600, S&P400, and S&P500 close below the 5/25/10 low, I would be very suspicious of the current rally until the market closes above the 5/27/10 high and especially if the market as defined by the above indices closes below the 5/26/10 low (S&P500 1065.59).

The one indicator that somewhat alleviates the concern is the ‘3 Sigma Day’ on 5/6/10.  Only 2 of the previous 17 ‘3 Sigma Day’ events going back to the Oct 87 crash did the market subsequently trade to substantially lower values.  Also, the valuation indicators during this current market decline achieved extremely oversold levels (although historically lower levels could have been seen) beyond that which is required to produce BUY signals.  Looking at next weeks action to calm the nerves if the S&P500 should clear the 1103-1105 level.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 11, 2010

Another Trend Model BUY Signal EOD 6/10/10

Filed under: Trend Timing Model — Rich Trend Trader @ 4:38 am

The trend model gave the third BUY signal EOD on 6/10/10 in addition to the BUY signal on 5/27/10 and 6/3/10.  Multiple BUY signals off of a local low are fairly common especially when the trend model valuation indicators have been as low as they were over the past couple of weeks.  Trend model valuation indicator is still at a level sufficient to give another BUY signal.  BUY failure signal is still an option if the S&P600, S&P400, and S&P500 all closing lower then the 5/25/10 low.

On a personal note, the human in me talking and not the trend trader, I would be more comfortable regardless of whether the current signal produces a gain or loss if the market was to climb above the 5/27/10 high.  Has nothing to do with trend model historical data rather, it will more than likely put the trend model back into a situation of producing a conventional SELL signal and not a BUY failure signal.  Being long when the failure point is 5-10% below is like watching water boil when you forgot to turn on the stove.  Is this, along with the negative news lately and the many EW counts indicating the big drop is right around the corner, the wall of worry that this market will climb?  Lets wait and see and yes, I still have not turned on the stove.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 10, 2010

Market Rally or Market Crash?

Filed under: Trend Timing Model — Rich Trend Trader @ 5:56 am

Since 5/21/10 the S&P600 has given 4 BUY signals, the S&P400 5 BUY signals, and the S&P500 4 BUY signals.  There has been 2 confirmed BUY signals since the first issued on 5/27/10 and a non-standard BUY signal issued on 5/26/10.  Yet the markets (as defined by the trend model indices above) hover at or near the BUY failure low on 5/25/10.

Although the S&P600 sits just below the 5/25/10 low the Russell 2000, another index representative of small cap equities yet not explicitly used in the trend model, has not closed below the 5/25/10 low.  Trend model valuation indicator on all indices are as low as they have been over the past 3 weeks.  They are still at levels capable of producing an intra-day BUY signal as on 3/6/09 but the RSI values are higher then allowed and diverging.

The ‘3 Sigma Day’ event on 5/6/10 during a trend model BUY signal historically suggests that the markets should move back toward, if not above, the April highs.  In only 2 instances, of the 16 ‘3 Sigma Day’ events going back to 4/14/88 regardless of trend model signal, did the markets move lower without retracing a portion of the previous high.  These occurred in a short time frame in July/August of 1990.  Even the severe ‘3 Sigma Day’ events during the Oct 1987 crash saw the markets move higher even after a retest in Dec 1987.

With many expecting a market crash, comparisons with 1929-1930, and very little good news over the previous month I will stick to the mostly contrarian trade (and the trend model signal) and stick with my long trade until a BUY failure signal or a trend model SELL signal.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

June 8, 2010

EOD June 7th Market Commentary

Filed under: Trend Timing Model — Rich Trend Trader @ 4:28 am

BUY signal from EOD on 5/27/10 still in effect.  BUY signal failure will trigger if the S&P600, S&P400, and S&P500 ALL close below the 5/25/10 respective lows.  BUY signal failure of this type has occurred only 1 out of 30+ BUY signals going back to Jan 1996 and triggered within 2 days of the BUY signal.

Market (S&P600, S&P400, and S&P500) valuation indicator are now back to lows last seen on 3/9/09 and sufficient to give a 61.8% reversal intraday BUY signal as on 3/6/09 although the RSI requirements have not been met.  Therefore, I do not expect a big down day (~3% or more) in the markets unless the BUY signal failure is triggered and the RSI indicator aligns to the proper level.  Composite valuation indicator is nearly as low as on 3/9/09.

Violent up days are usually seen when the market retraces most of the BUY signal closing low levels (a common occurrence) and the valuation indicators are sufficient to trigger a 61.8% reversal intraday BUY signal.

DISCLAIMER: https://richtrendtrader.wordpress.com/disclaimer-on-information-presented-in-this-blog/

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