Rich Trend Trader's Blog

September 13, 2010

Looking to Take Risk Off of the Table – BUY Signal Still Valid

Filed under: Trend Timing Model — Rich Trend Trader @ 10:07 pm

Given the tendancy of the market to extract capital from the trend model since the May 6th drop, I am looking to take risk off of the table in my personal accounts over the next few days.  This is based upon several things, given below, that I have been looking at and does not strictly coorespond to trading the trend model.

1. All three Elliott Wave blogs that I read are indicating the current rally top will be in the range of 1120-1150 on the S&P500.  Two of these blogs have been very good at projecting ranges and directions of the market over the past several months.

2. All three trend model indices (S&P600, S&P400, and S&P500) have put in a ‘close above the previous 20-Day high’ buy signal.

3. The 5-Day RSI on all three trend model indices have moved above 75.

4. Simple cycle analysis using the ‘cycle line tool’ in indicate a 9/13-9/15 turn date should the maket pull back from the current rally.

The trigger point will most likely be a move on one or more of the trend model indices above the upper Bollinger band limit (20,2). The S&P600 trade slightly above this line today (9/13) but am expecting a larger breakout.  A trend model SELL signal will not neceassarily be issued if there is a correction down in the market and therefore I will be monitoring the intrenal data to determine the potential for a long entry point or an actual SELL issued.  I do not specifically advise going short should the market move substantially above the upper Bollinger band limit but several Elliott Wave analysts are suggesting that they are going to take short positions on S&P500 levels above 1120.  Should 2 of the 3 Elliott Wave blog pullback targets levels end up being correct it would be a 4-6% correction from current levels and obviously bigger should the market continue to rally.


September 8, 2010

Market Pushing the Limits Every Step of the Way – BUY Signal Still Valid

Filed under: Trend Timing Model — Rich Trend Trader @ 5:58 am

The battle continues and the trend model is stuck in the middle.  Some convergence is taking place with respect to near term levels from both bullish and bearish EW blogs.  Should the market move higher from here the target on the S&P500 is over 1110 and most likely below 1130 before a ‘correction’ according to bullish EW counts or a ‘continuation’ of the market drop looking at bearish EW blogs.  A convergence of target levels from dramatically different counts or not very common and maybe they are to be taken seriously with respect to personal investment accounts.

Note that although the market triggered the previous SELL signal I indicated that I personally was not going to trade it based upon the trend timing and market valuation signal relationships and historical market movements.  We have now cleared the 1080 range that I was looking for and are near another SELL signal should the market continue down from here.  Although not a linear relationship, I would suspect that the S&P500 could not close more than ~1% (low 1080’s) down from current levels without triggering another SELL signal.  This would deviate from the observations of previous SELL signals indicating that at least the S&P600 and S&P400 would clear their previous local highs before a significant correction in the market take place should that be the desire of the market.

The danger that I see on the long side is that the US dollar index is once again attempting to rally above the 50-day moving averages.  It seems that the current state of the US economy, strong dollar rallies are real killers to the small and mid-cap indices and therefore tend to pull the rest of the market down with it.  Historical data suggests that it is very rare for markets to diverge that is, for the small and mid-cap indices to trade down with the large cap indices flat or up.  One instance of this occurrence is early 1999 and the trend model was in a SELL but produced essentially no return until the next BUY signal.  Therefore, I would suspect that what ever direction the market goes from here, all indices will trade in the same manner.


September 2, 2010

Trend Model BUY Signal Issued End of Day on 9/2/10 due to SELL Signal Failure

Filed under: Trend Timing Model — Rich Trend Trader @ 10:22 pm

As suspected, the market has again issued another sell failure (the third in a row) with the end of day close on the S&P600, S&P400, and S&P500.  In every instance of previous sell failures, this being the 5th such failure going back to 1996, the market rallied to new local highs on at least the S&P600 and S&P400  before another SELL signal is issued.  I would therefore expect the S&P600 and S&P400 to clear 356.57 and 779.45 respectively.  I would still caution that with the amont of market whipsaw and consecutive signal losses, the market has every right to reverse course and hammer the new trend model BUY signal.


One Step Closer to SELL Signal Failure

Filed under: Trend Timing Model — Rich Trend Trader @ 6:43 am

As I cautioned in a previous post the market is attempting to produce a SELL failure.  The S&P600, S&P400, and S&P500 all closed above their respective previous 5-day highs the end of day on 9/1/10.  Next stop to create a SELL failure will be for both the S&P600 and S&P400 to close above the highest 50-day moving average (simple or exponential) and for either the S&P600, S&P400, or S&P500 register a close above the previous 10-day high.  Note the previous SELL failures in Nov/09 and Jan/10 produce substantial market rallies.  There is risk of a reversal even after a SELL failure which occurred for back tested data in Mar/04.


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