The purpose of this site is to share results of a trading system that I use for identifying both long-term and short-term trading opportunities. I take the time to do this because of my passion for investing and helping others succeed. The system helped me avoid the "Crash of 2007/2008" and every major correction since then. The cornerstone of my trading system are analyses of futures and equity and index options.

If you are an investor, there's no need to concern yourself with the short-term trades that I discuss. The notes in the left-hand pane will provide you with my high-level outlook for the calendar year and for the next 12 months. The left pane will also contain alerts about possible intermediate-term reversals to help you make timely decisions for rebalancing your portolio, taking profits, or putting new money to work.

If you are a short-term trader, I will detail in my blog posts ideas for going long and short the S&P indices to capitalize on the aforementioned reversals.

This site is for information purposes only. Past performance of the trading system is not a guarantee of its future success. Please consider consulting a qualified investment adviser before making investment decisions.

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Thursday, August 27, 2015

How fast can the market draw a "V"

Boy, do I have a lot to say......

I thought I would have at least a week before writing another post about possible entry points.  So why am I writing today?  We'll, in a matter of a couple of days the market has breached to the upside a level that I had noted in the back of my mind as a possible entry point -- the trailing ATR3 stop at 1970.  Am I a buyer?  NO.

First, some facts.  The market on an intra-day basis reached a low of 1867 this week -- pretty close to the 1877 level that I had mentioned (predicted) in my last post.  This represented a 12.5% correction from peak to trough.  So was this the correction that everyone was waiting for?  Or was it just high frequency traders playing with our emotions and using China as an excuse.  Who knows!

When the market started to falter last Thursday, I found it amusing that MarketWatch cited a prediction by Tom McClellan that the market was about to get ugly.  He also said that "we" needed to be prepared for a correction lasting several months.  As readers of this blog might recall, I mentioned Tom in a prior post when I commented that he and I use the same macro indicator to gauge market liquidity.  I also said that I didn't share the same level of pessimism because liquidity hadn't dried up that much.    Despite this, this guy looked like a genius for about two days.  I still disagree with Tom, but now what?  Even though I don't share his longer-term pessimism, I am approaching the market cautiously.

Going back to the trailing ATR3 stop at 1970, I usually use this type of stop as a trigger as a last resort to get me back into the market because it's generally pretty good at identifying changes of trend.  However, the speed at which the market broke the ATR3 stop on the downside and upside causes me to be reluctant to use this trailing stop.  After all, I wouldn't described what's happened this week as a (bearish or bullish) change of trend.  What the market did over the last week resembled more like a flash crash.

Given the fact that I went to a 50% cash position at S&P 2058, I have a little bit of breathing (thinking) room to see what happens.  Specifically, will the market hold above 1970.  Technically, 1970 is a significant level for other reasons.  It just so happens that the market "gapped" down at this level.  Historically, markets tend to revisit areas of prior gaps before resuming short-term trends -- in this case, downward.  (It's revisiting this level as I am writing this post) This gives the smart money another opportunity to sell to unknowing buyers who think the market will continue onwards and upwards.  I hope that I'm right because I would love to buy some stocks on the cheap.

Talking about cheap, the other reason why I'm not anxious to go head over heals into this market now, is because even at sub-1900 levels, I couldn't find any dividend growth stocks to buy.  Sure, I could have bought some beaten down tech names, but those stocks aren't on my radar and not a key part of my long-term plans.

So in closing, the S&P is now up 46 to 1987 -- I just have one word, "Wow."

Friday, August 21, 2015

Focus on buying opportunities ahead

As planned, I reduced my equity exposure to 50% on an intra-day break of S&P 2058 on August 12.  This has helped me weather the storm over the last week.  Currently, my long-term portfolio consists of 50% cash, 40% dividend growth stocks, 5% Apple, and 5% SPY (S&P 500).

Despite the turmoil in the market, the liquidity contraction exhibited by the macro indicator that I follow isn't that pronounced (in my opinion).  Historically, there's a pretty good correlation between levels of contraction and the extent of market corrections.  Based on this correlation, I don't see a correction of more than 10-12% which is pretty customary and not a sign of a bear market.  I'm not expecting any protracted moves lower than S&P 1875.

For re-entry into this market, I will be looking for a reversal that penetrates the trailing ATR3 stop and/or a bullish RSI divergence.  I'll be posting specific levels in upcoming posts.

Although, the short-term is on most people's mind, I'm looking for the possibility of a more ominous correction sometime in the fall of 2016.  It's still way too early to draw conclusions, however.

Friday, August 7, 2015

Positive Macro View

I just updated my macro indicator and learned that there isn't any indication that a bear market is upon us.  Bear in mind however (pardon the pun), that even in bull markets, there's always a chance of a 10% pullback.  As I mentioned in my prior post, I will take some off the table if the market breaks 2057 to the downside, but since the macro is still positive, I would be anxiously looking for buying opportunities.  At this point, I'm about 65% in equities with the remainder in cash.

Thursday, August 6, 2015

Is there an escape hatch? -- Yes

I just wanted to share with my readers that there is a plan to mitigate the risks of this market.  Given, that the macro condition as of today is still positive, I would be reluctant to sell too much.  However, if the S&P were to close below 2057, I would go to a 50% equity position.  I will be updating my macro indicator with the weekly data that gets published tomorrow (after the close) to see if there's any other reasons to worry about this market.

Sunday, July 12, 2015

It's a tough call, but someone's gotta do it

Believe it or not, with as much fear in the market, the facts before me don't support a bear case . Here are the technical factors that support a bullish stance:

1. Macro Indicator: My macro indicator that gauges market liquidity isn't showing a continued deteriorating condition. It's sorta interesting though that a notable technician, Tom McClellan, recently spoke on the Financial Sense Newshour podcast and cited the same macro indicator I use but shared an interpretation that differs from mine. He's calling for an August top, but in my opinion, the indicator hasn't deteriorated enough to warrant the pessimistic call -- at least not yet.

2. Relative Strength: The S&P successfully tested it's 200 day moving average and has since bounced. Furthermore, a key component of the market -- financial stocks -- has showed a lot of resilience from a relative strength perspective. Lastly, the market closed out the week by forming a (minor) positive RSI divergence.

3. Short-term Options Activity: My short-term model appears as though it will generate a buy signal by Thursday, July 16.

As I indicated in a prior post, my "system" would call for a fully invested stance if the market penetrated the trailing ATR3 stop. That level currently stands at 2106. Given the positive divergence and the impending short-term buy signal, my plan is to deploy 50% of sidelined cash by Thursday and then deploy any remaining funds when 2106 is breached to the upside. Please note that the actual amount deployed will depending on finding attractive stocks for my dividend growth portfolio, which represents a sizable portion of my allocation. By attractive, I mean from both fundamental and technical perspectives.

So there you have it.