Rich Trend Trader's Blog

July 26, 2010

Uptrend Confirmation – Trend Model SELL Signal Now Possible Anytime

Filed under: Trend Timing Model — Rich Trend Trader @ 7:06 am

The S&P600, S&P400, and S&P500 closed above their respective 20-Day highs.  Trend model SELL signal is now possible at anytime depending upon market action.

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July 23, 2010

Another Trend Model BUY Signal or Last

Filed under: Trend Timing Model — Rich Trend Trader @ 7:46 am

Trend model produced another BUY signal end of day on 7/22.  This is sounding like a broken record over the last couple of months but it is what it is and I just have to go with it until the next SELL signal.  A couple of EW blogs (http://pugsma.wordpress.com http://www.tradeyourwayout.com) that I view daily are showing Elliott Wave counts indicating a new high above S&P500 1220.  The ‘3 Sigma Day’ on 5/6/10 also suggests that at least one of the trend model indices (S&P600, S&P400, S&P500, NDX) should touch a new high before the market trades substantially lower then the 7/1 low.  There are obviously opportunities for the market to produce a SELL signal between now and a new high should it occur given that medium/long term EW counts are not straight line projections.  Current BUY signal from the end of day on 5/27/10 is sitting on a worst case draw down of -0.81% using the S&P500 and -4.33 using the S&P600.  The maximum worst case draw down into the early July low was -8.31 for the S&P500 and -11.41 for the S&P600.  These draw down values are not out of line with historical trend model data going back to 1996.

I have added a trade performance page showing the signal data from the intraday BUY on 3/6/09 until the end of day for the current signal.  Performance has been mundane but an overall gain since 3/6/09 is still nothing to complain about given that lost opportunities are never known until after the fact.

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

July 17, 2010

Perspective on Pullbacks after Intraday BUY Signals

Filed under: Trend Timing Model — Rich Trend Trader @ 8:42 am

Of all trend model historical BUY signals dating back to Jan/1996, 9 have been associated with intraday BUY signals such as that given on 7/1/10 and 3/6/09.

– 1 of these intraday BUY signals subsequently had a BUY failure that was produced within 3 days of the intraday BUY signal.

– 2 instances saw the markets move much higher (clearing the 50-day moving averages for at least the small and mid cap indices) off of the intraday BUY and BUY signals without a significant pullback.

– 2 instances saw a significant retrace after the initial rally on the S&P500 on the order of 61.8%.  This would correspond to an additional pullback to ~1044.

– 3 instances saw a more modest retrace after the initial rally on the S&P500 on the order of 50%.  This would correspond to an additional pullback to ~1055.

– 1 instance saw a minor retrace after the initial rally on the S&P500 on the order of 38.2%.  This would correspond to the price level in which the S&P500 dropped to on 7/16/10.

Therefore, using historical data, it is statistically unlikely that the current pullback is done and the S&P500 is likely to move down into the 1050 range before continuation of the rally off of the 7/1/10 local low.  The market action lately looks similar to the summer of 94 and 02 especially when considering the Russell 2000 and S&P400 mid cap indices.  Should these patterns play out, the market should rally up to or above 1150 into Aug/Sept and then fall back to retest the 7/1/10 low going into Oct/Nov/Dec.  Obviously, the current market action is typical of the most difficult markets to trade being a trend timer and unfortunately happened just as I started this blog.  That being said, historical data for the trend model has seen these types of market behavior where the nagging feeling to just exit your long (or short) positions can be overwhelming.  However, I am just sitting on my long positions anticipating a move to at least the 50-day moving averages before the possibility of a trend model SELL signal.

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

July 8, 2010

7/1/10 Intraday BUY signal confirmed with 7/7/10 EOD BUY signal

Filed under: Trend Timing Model — Rich Trend Trader @ 7:55 am

The trend model issued a BUY signal EOD on 7/7/10 to to confirm the 7/1/10 intraday BUY signal.  However, given that the initial BUY signal from EOD on 5/27/10 is still in effect, the trend model maximum drawdown (maximum index value on 5/28 to closing index value on 7/7) using the S&P500 is -3.84%.

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

July 7, 2010

BUY Signal, Market Drops, Rinse, Repeat

Filed under: Trend Timing Model — Rich Trend Trader @ 7:22 am

Trend model BUY signal on a few model indices issued EOD on 7/6/10.  The master data sheet is littered with model index BUY signals, non-standard BUY signals, unconfirmed BUY signals, BUY signals, and an intraday BUY signal yet the market behaves as if a local low may not be in sight and neither a SELL nor BUY failure signal has been issued.  Using the S&P500, the trend model BUY signal from 5/27/10 has now seen a maximum drawdown (highest index value on 5/28 to lowest index value on 7/1) of -8.31%.  On an average basis (average index value on 5/28 to average index value on 7/1) this drawdown is -6.53%.  This value is right in line with other drawdowns for the trend model back test to 1996 and is seen in nearly every year.  Higher drawdowns have also occurred on multiple occasions.  There seems to be every effort to shake out every last long trader before a rally of significance occurs should it actually happen.  However, I have made the mistake of exiting positions on a 5/6/7% drawdown only to subsequently have the market reverse such that a decent gain (or smaller loss) would have been achieved if I just sat on the signal.

The market needs to rise such that a trend model BUY signal is issued at the EOD on 7/7/10 to confirm the intraday BUY signal from 7/1/10.  However, as with most every other market turn over the past 2 months, the S&P400 and S&P500 are above their respective market lows on 7/1/10 which has not been seen in other non-confirmed intraday BUY signals should a non-confirmation happen.  Given that I do not use a stop loss (historical market returns suffer for most any choice of a standard percentage stop loss) it can seem unreasonable that the trend model is giving a BUY signal as the market continues to drop.  I have been working on other types of data to limit these drawdowns and tighten up the returns around potential market tops and bottoms.  However, nothing is close to being implemented so I have no choice but to watch and not so happily sit on my current drawdown.  The trend model valuation indicators are still as low as the 3/6-3/9/08 market low and a SELL signal is exceptionally unlikely unless the market makes a effort to trade higher and relieve the oversold valuations.

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

July 1, 2010

Intraday BUY Signal Issued During the Day on 7/1/10 – UPDATED

Filed under: Trend Timing Model — Rich Trend Trader @ 8:43 pm

10:15 am PST: As I mentioned last night the market can trade down on 7/2 and 7/6 but must create a BUY signal by the EOD on 7/7.  This would be similar to the intraday BUY signal on 3/6/09 with the market trading down on 3/9/09 but produced a BUY signal with the rally on 3/10/09.  Also, the trend model intraday BUY signal on 9/19/01 was followed by 2 days of selling before issuing a BUY signal on 9/24/01.

However, the market action is very similar to that of Oct-Nov/08 where the trend model intraday BUY signal on 10/10/08 was followed by a BUY signal on 10/13/08.  A BUY failure signal EOD 10/15/08 was issued.  The 10/10/08 – 10/15/08 look very similar to the action on 5/25/10 – 5/27/10 where the trend model valuation indicator on 5/24/10 was very close to allowing 5/25/10 to be an intraday BUY signal with the subsequent BUY signal EOD on 5/27/10.  If 5/25/10 was an intraday BUY then a BUY failure would have occurred on 6/4/10 and the recommendation to exit all long at first touch of the lower 50-Day moving average (SMA or EMA) would have been issued.  Just as in the current action, the market continued to trade lower then the intraday BUY low (10/10/08 being similar to 5/25/10) and another intraday BUY signal was issued on 11/21/08.  The market however only traded back up to just above the 50-Day moving averages only to fall back down again.  A trend model SELL signal was issued on 11/22/08.  The similarities of the current market action and data indicates to me that in order to limit the loss from the current BUY signal from 5/27/10, I am going to exit 50% of long positions should the S&P600 and S&P400 rally above the highest 50-Day moving average and sit in cash should a retrace back down occur.  Also, looking at the summer of 1994 using the Russell 2000 shows the market also rallying after the end of June bottom only to retrace back near or below the low by the end of Dec/94.

I have not much looked at gap trading but see that the NASDAQ has what I would call an open gap between 2375.53 and 2387.59.  Also, I believe that there is an open gap between 2465.55 and 2472.32.  This seems interesting given that many commercially available trend trading systems use the NASDAQ to create trading signals.  I do not know if there is a requirement to close these gaps before trading back down or not but know that open gaps are points of interest for many market traders.  Also, there are many comments concerning the 50/200 ‘death cross’ on the S&P500 but I can look back at many historical market charts and have determined that is not necessarily a consistent indicator of, at a minimum, a short term indication of continued market decline.  Also, the NASDAQ 50-Day SMA is currently above the 200 by better then 40 points.  In any event, the current market action is testing every bit of the trend model rules pushing to the limit every ounce of personal patience available.  The wall of worry from where I sit is almost insurmountable.

As I mentioned in previous posts, the trend model valuation indicator and the indices RSI values were at the proper levels to produce an intraday BUY signal.  Should clarify that the intraday BUY signal requires that the index or indices in question close higher than the 61.8% retrace value.  If I was to trade the market on these days I would put a buy order in at the close with the requirement that the index is above the 61.8% retrace level.

The S&P600 missed the 3% required fall by 0.27 points this morning so I looked at the Russell 2000 (another small cap index) as well.  The Russell 2000 did make the 3% drop required so I quickly coded up the intraday formulas in my master spreadsheet and ran the data back to Oct/98 (full trend model data) and found that there were no contradictions for the previous intraday BUY signals.  Therefore, I am going to call an intraday BUY signal for the market on 7/1/10.  As with the 3/6/09 intraday BUY signal, the market could still end down tomorrow and also eventually give a BUY signal failure as seen after the trend model intraday BUY signal on 10/10/08 and BUY signal on 10/13/08.  May provide more updates later this evening.

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

Valuation Indicators Making Lower Lows

Filed under: Trend Timing Model — Rich Trend Trader @ 7:49 am

Not much has changed since the EOD 6/29/10 post.  Market action in the morning indicated to me that another down day was going to take place.  When the trend model valuation indicators are as low as they are, the reversal day back up is usually very quick suggesting that a short squeeze is taking place and the day usually finishes fairly strong.  Again, caution is advised in that the market is still in the position to produce a 3% down day with a subsequent 61.8% rally for an intraday BUY signal.  In addition, there is again a even chance that the market makes a substantial rally or another day down.

Trend model valuation indicators on 2 of 3 trend model indices (S&P600, S&P400, and S&P500) are now at or below those seen at the 3/9/09 market low.  Composite valuation indicator has only been lower during the Oct-Nov/08 market low in which the rally carried the market above the 50-Day moving averages, end of July/02 where again the market rally went back above the 50-Day moving averages, middle of Sept/01 for obvious reasons, and middle of Oct/98 in which there was a substantial rally back near the Apr/98 highs.

Partial valuation data prior to Oct/98 is available and shows composite valuation indicators lower in Sept/98 where the rally to the end of Sept/98 subsequently produced a SELL signal prior to the Oct/98 bottom.  It is possible that the composite valuation indicator was as low at the market low in Apr/97 and the end of Jul/96.

The point of illustrating the above is that the valuation indicator at these levels are indicative of at least a near term market low with most rallies achieving at least a move for the indices back above the 50-Day moving averages if not much higher.

Given that I missed the 5/17/10 SELL signal in my personal accounts and am long the market higher then the 5/27/10 BUY signal, I will go to CASH in my personal accounts should both the S&P600 and S&P400 rally above the highest 50-Day moving average (SMA or EMA).  The 50-Day moving average level in addition to a trend model indicator are a part of the trend model signals coming off of a trend model BUY signal.  Therefore, it seems reasonable to take some risk off of the table at this point on any rally to the 50-Day moving average level which is ~9% above today’s market level.

Maximum draw down (index low on 6/30 divided by the index high on 5/28) using the S&P500 from the 5/27/10 EOD BUY signal is -6.74%.  Do not specifically know how this draw down compares to expectations or other trading systems but is generally inline with what has been seen with the trend model historical data.  I have looked at using a fixed stop loss in the trend model but the historical market returns actually decrease when doing so.  For sometime I have been looking at using market close below the previous ?-days lows along with some technical indicators for both a CASH signal off of a potential market top and for those instances in which the market trades lower after a trend model BUY signal.  Have not gotten far enough to determine whether this would be useful or just increase the churn in the portfolio that does not increase the overall return.

I am still looking at the summer of 1994 as an example to the current market action.  It generally makes since that a similar movement into the end of the year may take place.  1994 was the second year for President Clinton and if I recall correctly, there was a tax increase from the Democrat congress that was either implemented in 94 or going to be implemented in 95.  Also, the house change from Democrat control to Republican control.  It is somewhat similar in that there are going to be some automatic tax increases in 2011 due to the phasing out of the tax cuts implemented during the first term of President Bush.  Although the momentum seems to suggest that their will be an increase in Republican congressional seats in both the house and senate, it is a far stretch to suggest that the Republicans can take the house back.  I would like to stress that this is a trend model blog and not political but am just pointing out some similarities between 2010 and 1994.  I would however say that I am neither a Democrat nor Republican and have very little interest in any candidate from either party.

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