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Trade efficiency analysis for trade targeting is important to improve profits over time with any trading model. This series of posts discusses the methodology of maximizing effective profit targets when wanting to INCREASE the number of winning trades any trading plan or trading model can produce.

Some basic facts before I begin:

1) I WILL NOT show you my model. It is proprietary between myself and Bruce Linker, who coded and made some adjustments to it. I can even tell you that the basis of the model is not even really mine, though the refinements MOST DEFINITELY ARE, and the original coder knows nothing about how I achieved what I did.

2) The good news is that you DO NOT HAVE TO SEE MY MODEL TO GET SIMILAR RESULTS, as long as you have refined the model to produce winners of this magnitude in terms of percentage of winners and can minimize the losses with stops that are built into the model. What you should do is to write down your rules for trading entries and exits, both long and short, and then have someone code the trading model into a platform like TradeStation or NinjaTrader. You should be able to produce the chart on the right, which is a scatter plot of trades, calculated in terms of trade efficiency (% of target reached or maximum loss reached), and then begin the analysis. What you will find if you continuously work on tweaking the model is that you can identify places where your odds of success can approach 80 to 90%, and the worst that you can do is only to lose what you made the day before if you manage the analysis properly. The goal in this is to create an automated income generating machine that will produce consistent profits to the point that it can be readily scaled to hit mutliple units or contracts. Everytime you double your number of contracts, you double your income each day.

3) The other thing this analysis will do is show you some losers that can and indeed WILL LIKELY be WINNERS if targets are adjusted. It will also allow you to trade two units initially if you have the capital, one for an initial target, and the second for a long range target with a BREAKEVEN STOP.

4) To dispell rumors and hyperbole, lets get one thing clear. Will this model win every time? NO. If anyone tells you their’s will, let them show you the performance with statistics that I will show you. If they cannot, then you need to RUN and NOT WALK away from someone who is selling you such things. There is no fast highway to Happy Land in trading. All you can do is improve your consistency and accuracy, and then manage your account to maximize growth. All else is BS. This took the better part of 3 years to create, but I wanted it to work, and did not quit.

What I will do in the next post is show you the raw statistics of this model, with no filtration, and then add into the mix a discussion of what efficiency is, and what it is important. I can tell you this, these models were optimized with $200 stops and $200 targets, both long and short. The real moment of zen comes when one realizes that the most probable target is NOT $200, and that is the good news.

The even better news is that if you allow the scaling to run continuously per instrument (in this case E-mini NASDAQ futures) in roughly 200 trading days with little capital, you could easily earn $750/day for about 30 minutes work. Is that worth optimizing targets for?

You ain’t wrong there coach.

More will be coming in a couple of days or so.

As always, even as infrequently as I write now, THANK YOU FOR SUPPORTING THIS BLOG!

 

 

 

 

 

 

 

 

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Cartoon by Glenn Foden at Townhall.com

 

I am sure many of you are thinking that the Federal Reserve policy of raising interest rates might be Plan E (for excrement). With declining commodity prices and more pressure on interest rates, we get a de facto “recreation” of the actions which lead to the last Great Depression. Even Societe Generale agrees with you, if you have that opinion. That is rare among happy-talking investment bankers. Dire consequences could be the result of an extended global slowdown, seemingly heralded by the precipitous drop in the Baltic Dry Index. What traders and investors may now have to deal with panic among fund investors. That panic forces the sale of stocks ( and even bonds in many cases). The selling then fuels a manic correction, which we have currently.

 Even the Barclays Junk Bond Index signaled trouble beginning in May of 2015. Pretty much every antecedent indicator of a bear market had begun to appear since late spring and summer of 2015. Valuations according to the Shiller Inflation Adjusted Price/Earnings Ratio for the $SPX has been on the high side of historical measurement too. That ratio has cooled a little in this selloff but remains extremely high by long measures of time. At one time, that index matched the ratio at the peak of the market before the 1929 U.S. stock market crash. Manic corrections not only happen, but they are typical in most market cycles. In this particular one, it has been somewhat long overdue.

Instead of going all “Mises” on you, I am going to look at one index this evening, and that one will be the Russell 2000 Stock Index.  It may give a potential pause to this virulent worldwide cascade of selling. It could lead later to more selling, but it seems to be leading the other indexes to a major area of support. As time goes on, I will cover other indexes. The other indexes do not yet show this level of Fibonacci pattern completion, but may very soon.

Why does the Russell 2000 look like it is nearing support?

1) Look at the weekly chart to see the break of the initial trend line. Its inability to remain above the primary trend line before rolling over is referred to as a failure swing by old school technicians like Welles Wilder, the inventor of the Relative Swing Index.

2) That cascade below the primary up-sloping trendline became the A-B leg of the decline on the weekly chart. Note that the rally and following C-D decline is virtually equal to the A-B decline. That kind of a pattern is incredibly bullish.

3) Note also on that same chart, that there is a golden ratio (61.8% retracement) of that final upleg that is retraced by the A-B=C-D lightning bolt pattern. The low represented by the low of the week of January 15  (983.98) and a support low of 942.79 will likely be a support low that could create an environment for a counter-trend rally.  The only concern there is that if the rally does not extend to the resistance found at the previous low of 1078.83, there is potentially another symmetrical price move lower, and that would put the Russell 2000 index into the 860s.

The world is facing uncharted waters and is playing economic chess on a multidimensional chess board. It seems like the US Federal Reserve still has the utter hubris to think it can control its and the world’s monetary environment.  Internally, however, the voices of discord are probably large. Even the statists who meet in Davos, Switzerland haven’t a clue as to what could happen. As interest rates and falling commodity prices impact the development of African countries and other emerging nations, no perfect outcome can be guaranteed.

Sadly, the world’s citizens have bought into the notion of government-led economic feudalism. This group includes Americans too. They are addicted to entitlement. They, for the time being, are rejecting free market activity. Hopefully, people will awaken from this nightmare, be responsible for their outcomes in life, and throw of the caviar-sucking masters who fence in their existence. I am optimistic that this will happen again, but it may take a very long time for the final outcome to be realized. Commodity collapse and currency fluctuations are largely the making of governments who use incompetence and arrogance as their primary modes of analysis. Saner minds need to take hold than are in control of things at the present.

As you know, I have pulled back from this blog, as the budget estimated to fully revive it would mount into the 6-figure territory. I love to write, but if it cannot make money, it is not worth my time, even though I enjoy writing. From what I read from your comments, I know you like it as well. The radio broadcast days are long gone now, though.  The hedge fund world is tough out there. I read in post somewhere in my email file that a rather well-stationed chartered market technician had landed a new job as a massage therapist.  For that reason, I will post as I see important things to post, and as time goes on, I will produce videos as well. Another business I am starting (in addition to my trading) may provide a budget for which I can return this blog to its former glory, but for now that will have to wait.

As always, thank you for supporting this blog!

 

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Assessing The Damage With $SPX Potential Targets

$SPX Daily With Targets 09282015

This is a supposedly duty free image from photobucket.com that was also inserted in madhedgefundtrader.com. It looks starving and punch-drunk to me, not happy.

 

No long dialog will be given today. I decided to look at the daily charts to see what price symmetry might tell us about $SPX potential targets (The Standard And Poors 500 Stock Index).

This bull market looks punch drunk and starving to me, as represented by this rather silly looking male bovine specimen. I wouldn’t buy that bull at auction if it were showing me those ribs. That dude needs to eat something, and fast. Let’s figure out the basis of the $SPX potential targets.

Here are the key points:

1) We closed very near the lows of the day. Given the reticence of buyers to dive in late in the session today, the abolute maximum target low would be that old low at 1867.01.

2) If we fail that, then the odds (which I am running currently) would tend to be about 70% likely (though I will have to confirm it) that we will retest the October 15,2014 low of 1821.61.

3) Perfect price/time symmetry (which is almost impossible to predict) would suggest we would have perhaps a 50% shot at hitting 1753.16 by the end of December 2015. It likely slides in somewhere between there and 1737.50,  but no one knows for sure at the moment.

You can pick the “fear du jour” of the moment. It could be China’s faltering economy. It could the Janet Yellen Federal Reserve’s hubris and “translucent transparency” which drives investors and hedgers nuts as they watch the bond market bounce around and currencies flail in the breeze. Energy prices tanking, the slump in Deutsche Bank’s stock price, Glencore’s commodity empire melting down amid what might be a “20-year bear supercycle in commodities”, could all be factors. It is getting hard to see the world economic show without a program. That program is written in everything from English to Mandarin too, so bring a translator with you.

The undeniable thing for the moment to do if you are a long only investor (as I tried to tell you folks in June) is so pare out of things that look really overvalued, keep cash on the ready, and begin to look for stocks that make sense as this market re-calibrates.  The nuttiness of statist hubris and the attempt to “control” free markets and haul them into the safety of the great “plastic bubble universe” is a never ending addiction.  I would bet against success for that happening, so the pain of this correction could extend for a bit longer.

What might end up being a 17.9% correction should not shock anyone who has been around equity markets for any time. I think what everyone should be concerned about, regardless of your age or financial circumstance, is where terminal interest rate levels will be and how the U.S. Dollar will ultimately fit into the world’s reserve currency system. All of these factors are not free-market-driven. Many are state-controlled. Others are strongly politically motivated by individuals and nations that have axes to grind. Issues over commodity pricing, currency conversion and import prices, and fluctuations in the standard of living caused by such fluctuations have to be settled. Sometimes they are settled peacefully. Other times they are settled by conflict.

For now, the international “nice meter” is sitting on “nice”, but the needle is beginning to shake and move toward the red “angry” side. That will be the big issue as we swing into 2016 and beyond.

That is all I have for now. Thanks again for supporting this blog!

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CL #F Monthly Chart With Support And Resistance Levels

This is from the Kansas Geological Survey. This is a diagram of a waste oil de-emulsifier. The oil trough is at the TOP, not the bottom, because oil is lighter than water.

I know everyone is worried about bearishness in $SPX, and I will get into more of that issue in a later post, but I want to deal with what is the most confusing thing for most traders, investors, institutions, and followers of energy markets. I have read a ton of things, some of which forecast doom for oil markets, some (from even OPEC itself), that claim the “new and improved” oil supercycle has begun. Mr. Belski, who happens to be reticent on all the sanguine oil price forecasts, looks like a ball of stress in the video associated with the linked article. He is one more reason I am glad I am not in corporate America any more :) ).

The above image is something I dealt with a lot in my first 7 years as a professional.  What many do not understand about oil in many cases is that in a waste emulsion (mixture), the oil trough it at the TOP because the cleaned oil is lighter than the water, solids, and salt. If you think that is confusing, then get a load of the WTI Crude oil futures market.

To cut to the chase, everyone has an idea about where WTI Crude Futures (CL #F) are going, but no one knows with any degree of certainty. What do the markets say about it? Again, lets get a MONTHLY chart and see the big picture. After that, I will drill down.

Points to study:

1) Look at the monthly chart. You will see that there are basically two support levels (  $40.49 and $37.00) and one primary resistance level ($52.00). That is very straightforward.

2) Look at the weekly chart. Note the seasonality of volume in almost every year. We do see some buying at the end of the gasoline peak, when crude oil prices soften. The difference this time ( at least in 2014 and 2015) is that buying accelerated in August as the Fed decided not to move to raise interest rates and that rig counts had plummeted based on monthly numbers compared to a year ago. What has yet to happen though is that prices have not yet moved above 49.33 ( as I mentioned in an earlier post as a forecast resistance level). Does that mean that it won’t go above it. NO. I think it is important to watch trading next week to see if the upward price momentum that is seems nascent in development follows through after traders and institutions study all of the recent supply data published by the EIA, which you can find here monthly.  Demand could be picking up slightly, but supplies are still plentiful despite drops in inventory.

3) Look at the daily chart, otherwise known as the WTF (West Texas Fundamental :) ) Price Chart. Notice any solid trend to volume in price? I would say no, particularly as we got toward the end of last week. Friday we did see a little bit of reversal, but CFGMO (which I will attempt to reinstall on this chart package soon) is still not really showing a solid bullish reversal.

4) What is most interesting, however, is this table, which shows that crude oil forward months in futures contacts are showing forwardation, or an increase in crude oil prices in coming month via the futures prices. Note, however, that the increase is pretty slight going forward. In the current market, even traders willing to hedge currently will only take crude oil prices out until December 2023 at a price of $61.04/barrel for WTI Crude Oil. That can obviously change as events change, but for now, that is likely a reliable short term cap.  This report on the same website provides the general reasoning for this, and it makes sense. With the dollar relatively strong amid our threats to increase interest rates and the relative (and I mean RELATIVE) strength of the US economy versus other world economies, there is continued pressure on oil prices via the U.S. Dollar which is the currency that crude oil is priced with. Other nations, Iran, Russia, and China, all are beginning to price their shipments in Euros, to break this monopoly, partly as a political hammer against our economy, and partly because they think over time that they can get fairer pricing for their exported energy. China in the future will consume much more energy than the rest of the world as its population modernizes. It would like to make the Yuan a world reserve currency to help support its consumer economy. Depending on how well, or how poorly, the United States manages to reduce and contain its massive government debt, the end results will at least be interesting to watch. If Russia succeeds in crushing ISIS (and it could), then Iran could pump oil at will (as could Iraq), supplies would increase and prices would FALL. If not, and disruptions from war occur, its anybody’s game.

What can you do now?

Let’s look one more time at the daily chart for targets.

As that article and this video tend to imply, the break-even price for oil shale development is somewhere around $60 a barrel. Until we see that, all one might expect is a rally to that resistance point (shown on the daily chart around 55.20) and it likely begins to drift until supply numbers and inventories adjust. If CL #F can remain above 43.71, then one might expect a slight rally to 55.20. If it breaks that level, then it is likely that we will retest the lows at 38.51. Until we see American foreign policy become coherent (if not at least sane), the Federal Reserve allow interest rates to seek some kind of normalized market price, and we figure out what OPEC thinks the window of pain for rebuilding rigs will be to allow them to raise prices, oil prices will CONTINUE to drift. That is what the futures traders think through forward charts, and that is what I think.

If it were me (and right now, it is NOT me):

If you want to guess that we have hit a bottom, you can take small positions in long WTI crude oil related instruments, but keep a tight rein on the stops below support. If you are right, you can add to them later. If you are wrong, GET OUT or make sure the position is hedged with options to ease the pain of the drop.

World events could create either a crushing rally or a crushing collapse, but the status quo sees a dull pain just below break-even in WTI Crude Oil prices and the cost of break-even drilling in places like the Bakken. A decent discussion of this situation can be found here.

If it were me, I would begin to watch US oil exploration stocks for improved earnings forecasts, but more importantly to watch for institutional buying volume in publications like Investors Business Daily. The same would go for U.S. integrated oil company stocks. It may be awhile before pricing and inventories favor new production and refining, and it is now possible, unless the world gets thrown into world war, that peak oil could no longer be the big worry we once thought it might be. There is still supply growth forecast though, and it will eventually make it into the pipeline and into refining. I would simply play the stocks where I could get some kind of indication that institutions were backing my long position after I had some some research about future prospects. I would also NOT buy huge initial positions. You would then cross into the realm of investing into the realm of “going to Vegas”. Do NOT go to Vegas, OK? 

The true final analysis is simply this. Oil prices are operating in a 3-dimensional universe now where United States influence is and will be challenged in the future. Currency and interest rate issues are now up in the air (as the US Federal Reserve is backed against the wall with its zero-interest-rate policy). The United States is being openly challenged by China and Russia (if you haven’t figured out why Putin is now actively participating in eliminating ISIS, you should, and the same goes for China). If our interest rates rise, the dollar likely strengthens, and that puts pressure on these two major antagonists to get oil priced in something other than U.S. dollars. OPEC’s timeline for decreasing production is likely tied to the length of time it takes to completely disrupt drilling in the US. It has done a nice job of it, but it might be trying  to extend the time for a US rebuild for three years or more. They know that demand is still building around the world, even under sub-optimal conditions of world GDP growth. All OPEC wants is the biggest share at the best price.

It would appear that the forward contracts reflect that reality for now, and the pricing is slightly BULLISH. Is it bullish enough to bet your house on a big rally? Probably not NOW, but one should begin to research the producers and watch the oil market demand side, and then watch institutional participation before making any large bets. You have to realize that this “oil super-cycle” is going to be a bit crazier than past ones. Its hard to steer a super-cycle when four entities are trying to pedal it. Its hard enough just to hold onto the handlebars, if you catch my drift.

As always, thanks for supporting this blog! I will shortly be adding widgets to this blog so you can share it. The ad spend to bring this thing is way too much at present to make it become a viable income producer in the short run, but I will build it slowly. When that time comes, I will do the survey, and build the infrastructure to bring the full power back to this blog with regard to equities, futures, and forex. I will even suffer the indignity of paying three times for data I only use once, once again.

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VOYA Daily with ABCD Pattern
Bunker op Loodsmansduin

Bunker op Loodsmansduin

Well, the invasion of those fat furry clawed critters was pretty tough. The bunker is fill of bullet holes but was not attacked by grenades of frag weapons (we were part of the bearish invasion, being largely short ES and NQ on most of those days, but that is only on a need to know basis!).  At any rate, last week ended with the first real rally since the end of July for most of the US stock indexes and index futures contacts. Regardless of that, though the momentum on the weekly basis way be turning slightly bullish, we are still in a bit of “no mans land” still with regard to a bullish momentum. Take a look at the daily charts this time for each index (QQQ, $INDU, $SPX) and you will see the same recurring pattern.

If we see a break above the intermediate highs shown on each chart, the there is a chance that the rally can be sustainable. If not, and we test and take out the previous lows, we are likely going still lower. The jury is still out on that trend. It should be noted from a pattern perspective if that current highs that do not exceed the recent August daily gap are not exceeded, the QQQ could have another leg down, but still, it is a little hard to determine if that will happen currently. The potential low target on QQQ would be 77.88 approximately.

As the weekly charts begin to seek a bottom (and hopefully monthly chart follows), we should begin to see market breadth improve in terms or rising stocks versus falling stocks. While that has not totally been the case recently, one can still look inside of sectors to see some perhaps interesting sectors.

What I did was to scan my 20000 stock universe for a few items:

1) Daily volume greater than 1,000,000 shares.

2) Close greater than open

3) Volume at 150% of 50 day MA of volume

4)Price greater than $10/share

5) Daily price momentum ( as measured by Andrew Cardwell’s CFGMO ) positive and the CFGMO also greater than the 3 period moving average of CFGMO.

6) For the purposes of this discussion, I added a screen which included the requirement that the 50-day simple moving average of price had to be greater than the 200-day simple moving average of price.  Many people look at that for reassurance of an uptrend, but often times it will not quite pass the reliable standard. The reason for that is that as ALL moving averages LAG price. The only possible exception to that are special mathemtical formulas that are used to reduce it or shift it.

I did not look for a bullish engulfing candle this time, though I could have just to make it a little tougher to pass.

7) I did a fundamental screen for stocks that had a free after tax cash flow enterprise value greater than or equal to its current price.

After finding 60 of those names, I attempted to put as many as possible through the neural net screens to find potential C to D leg rally of the AB=CD pattern. I really only found one stock that got close, but it was not close enough, and that was VOTA (ING US Inc.). It is a financial services and asset management company. It had a ratio of free after tax cash flow enterprise value to price of 1.54. Based on its close of 42.56, it would have a  ESTIMATED value of roughly 65.51 if it were to continue to meet its earnings expectations over the next 2 years. Remember, that is ONLY an ESTIMATE. Lots could happen in between now and 2 years from now.

Take a look at the daily chart of VOYA. It looks just like many of the index charts. It had a brutal sell-off rallied, waffled a bit to the downside, and then rallied last week. The neural nets DID NOT like the statistics provided by the model, but it did indicate the possibility of a buy point very near the close (something I am NOT advising, based on statistics, and one other reason). Why would I not trade this?

1) The statistics did not meet the bare minimum of a profit ratio of 1.6/1 and a win percentage of 60%. The model did produce 66% winners, but, as many models so, the losers lost more than winners, given the limited restriction to stop loss these models operate under.

2) Next weeks economic data is likely to affect interest rate sensitive stocks, of which this is one! On Tuesday, U.S. retail sales, U.S. Industrial Production,  and U.S. Consumer Price Index will be announced. Jobless claims, housing starts,  U.S. Current Accounts Balance, and Leading Economic Indicators will be out at the end of the week, along with a lot of U.S. Treasury auction data for bonds and notes. You can find that information daily right here.

If it were to work, it is possible that VOYA could break above 45.15 to fill the gap at 46.50 or possibly, if price symmetry is met, go to roughly the 49.30.  Because you selected a stock that is relatively fairly valued or undervalued, it can have all the more of a technical reason to rally after a large sell-off. It is by NO MEANS guaranteed,  but the odds of recovery are more in your favor if that happens.

Stock sectors that still see strength include some financial services, biotechnology, and even a few home builders (though that sector is interest-rate-sensitive too).  If I do see other set-ups similar to this, assuming we can sustain a longer-than-one-week rally, I will do my best to post them here. Seasonality is beginning to favor the bulls again, but we will have to see what the U.S. Federal Reserve does to manage interest rates. One thing is for certain, the risk-free rate of money interest is NOT zero, and that very fact can shake the value foundations of riskier assets like stocks. We are going to have to get used to this going forward.

If you are patient and prudent with your value analysis, you can make some good buying decisions as the equity markets begin to find their footing again, in the landmine-laced field of investing in times of rising interest rates.

 

Thanks again for supporting this blog!

 

 

 

 

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$SPX – Holding Onto The Hard Right Edge

$SPX Weekly 09042015

Stock photo with a nun holding a ruler in a threatening manner from The Labyrinth Library thelablib.org

 

This post will be short and instructional and deal only with the Standard and Poors 500 Stock Index for now. Many commodities face similar conditions of uncertainty, but I will deal with them as they come (and I will attempt to get one done this week again on WTI Crude Oil ($CL_F).

I put the image of the Catholic nun threatening a hypothetical Catholic school student with her the wooden ruler to remind you of the importance of trend and why having discipline in measuring that trend is essential to ANY trading for investment plan. What I am about to discuss is one of the basic (yet often forgotten) principles of technical analysis of financial instruments. That principle is as follows: If you want to know what the current overall trend in a market is, the most imporant tool to measure it is WITH A RULER.

As a side note, I never went to Catholic school. I was a victim of the Greenville County (South Carolina) School System.  No nuns were used, but in my junior high school Geometry class there was a gentleman by the name of Mr. Ledford who was deadly with a piece of chalk from anywhere inside of 30 feet, and was known (before I got to his class) for beaning sleeping students with a half-deflated tennis ball, if that were available. He would have been convicted of some form of child abuse in this generation, I would imagine, but we never seemed to have problems in our classroom. He was a big guy and he wouldn’t put up with anyone’s (using polite English) defecation, if you know what I mean. Now, back to the discussion. 

After hearing all of the noise about the the $SPX (Standard and Poors 500 Stock Index), one would think the entire universe had just collapsed and that death and destruction would soon follow. You probably feel that way if your local “safe money” advisor/broker just got through explaining the horrors of the past week. That person has to eat too, so the ad budget had to increase over the last three weeks. As you can see from this monthly chart, however, we really did not crack a long standing trend, but actually made a higher low in a two-point trendline.

To emphasize the monthly chart a little more, take a look at the green and blue trendlines. Notice that the evidence of the high price acceleration trendline ( in green with two points) bounced of a current trendline for now when the higher low was not breached during the first week of September. In the very short run, that higher sloping (and higher price acceleration) trend line is still intact. The last two points (that include higher lows) runs along the blue line.

There is a worrisome element in that chart though. The last candle (ending the week of 09/04/2015) is red or bearish. Momentum on the weekly chart is STILL NEGATIVE. The lowest near-term low has held so far, but on for the week, price momentum is negative, just like it as in the previous couple of weeks. There is still at least a CHANCE that prices will continue lower. It also stands to reason that in a worst case scenario that the market could at some point reteat that higher high on the far left side of the chart. The reason for that is that previous price resistance (which occured in 2008) could act as price support when prices fall (as they inevitably will over the course of time an market cycles). Is that really what is about to happen?

I think the best thing we can do is to reduce the time frame to weekly to see the full effect of the price decline’s damage to bullish (upward) price momentum. You can see from this chart that two bullish trend lines have been broken to the downside, and that the first lower low established at the end of August is still holding on. The candles, which have wicks, are still red, meaning price movement continues to be bearish.

What is left to do from there is to look at the daily chart to see if there are developing patterns that give way to what could be predictable price action. If you click on each of the following links, you will see the bullish case (which is not quite all that bullish at present), and the bearish case.

Bullish case: In the very near term, if the low created mid-week last week at 1903.07 holds, symmetry suggests that we could end up with a high in perhaps 7 days at approximately (1993.48 -1867.02)+1903.07, or 2029.53. Note that such a high would all but close the price gap at 2035.73 that occured at the end of session on 8/20/2015. For that reason, one might expect the gap to close at 2035.73. If we do not exceed that price and we begin to see another rollover, we would again be likely to retest at least the 1903.07. After that, the sellers and buyers will have to drive the action. We could go higher, but not until we see 2029.53 blown out to the upside. The pattern is in effect a BEARISH XABCD Fibonacci pattern that COULD fill a price gap.

Bearish case: The bearish case could be a lot uglier. If we break below the 1867.02 price support, it sets up a minimum retest of the previous 1821.61 low of October 15, 2014 and the potential for a low of  1993.48 – (2130.36 – 1867.02) = 1730.14. (There is a slight inaccuracy in the down trend line shown in this chart, but the math is good :) ).

If all this holds up, and you are a long-term investor, not so much worried about value, but time, this would appear, if the rally continues to be a mere bump in the road. John Hussman, who is known for calculating present and future values of stocks on a forward basis, however, continues to echo concern about longer-term value, as stated in this piece. Note in particular this chart. The upshot of that chart is that on a value basis, there is little statistical evidence of any positive return in total return of the $SPX in the next 10 years. If you are a long-term investor and have 20-40 years to continue investing, then you can probably ride out a bump that could extend perhaps to 38 to 50% price drop that one might expect over that period, assuming you were diversified and were adding money over time, allowing the dividend yield to buy more over that same time period. If you are at or near retirement, you might want to reconsider exposing yourself to such a correction if it were to occur (and odds are, they will at some point in the future). By the way, this is in no way any endorsement of Hussman Funds or John Hussman personally, it is just that his track record of analyzing such trends has been really good.

That perspective and choice is yours to make (and you should be fully aware of your age and your risk tolerance in making such decisions).

Futures seem to indicate a strong rally for Tuesday morning, so we will have to watch.

CL_F seems to have held $49 and change, and is trending lower once again. More on that later.

Once again, thank you for supporting this blog! More will be coming soon!

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$SPY NEURAL NET CHARTS

From Hedgeye (app.hedgeye.com) 9/14/2014

SPY (SPDR S&P 500 Stock Index ETF):

As promised I took at look at how the neural nets would consider the stength of the $SPX rally using the Spider ETF $SPY.

Here are the basic statistics. The thing you should note is that the model, which looks for Bullish Gartley like patterns on a daily basis and allows the neural nets to optimize for small deviations in price pattern symmetry, show that the gross profit ratio (or profit factor) was at the minimum acceptable barrier around 1.6/1 and the win percentage was above the 60% minimum I would accept (at 67.8%).  10 years of market data from 2003 to 2013 were used with close attention paid to “price low to price low” cycles and 2 years of real-time walk forward data was used to test the model so that it would trade on data the model had not seen before. This is A LONG ONLY MODEL, so the model will not snap back or stop and reverse under any set of rules based instruction.

Results of the model trained by neural nets:

A look at the prediction chart for SPY daily data shows that IT TOO (like many traders) tried to by the dip in mid-August and would have gotten flushed. (I would have traded a stop underneath it if I had actually traded it, and I can explain how that works should signals be generated on a daily basis again). One notable item is that this model in its current configuration still wants to be long on Monday August 31, 2015. Though I typically will not buy any non-momentum low reversal in this model, it does indicate based on the buy that it could indeed rally to the resistance points I mentioned in the previous post (the equivalent of 202 to 204 on $SPY. For that reason, I would not necessarily go long this model but rather wait until we see a momentum reversal at resistance. If it fails there, then odds increase dramatically for a reversal to the downside that I mentioned in the previous post. AGAIN, no guarantees that this will happen, but all I can do is interpret what I have seen from these models over the last decade or so. That seems to be what is in store next. We will very soon see.

CL #F:

I will post this daily chart but wait until I see a test of price resistance before I comment further. Beacuse of a difficulty with a data vendor I have used for years, I could not apply the same amont of analysis on WTI Crude Oil Futures as I could with SPY, but I can at least make a short comment. Last week, deep short covering became the order of the daily sessions, and it quickly rallied above the previous support I used to measure the 33.78 target low. Before establishing any new target, I want to see where the reversal point lies. I do believe that inventories are still excessive on any rational basis for at least another 9 months to a year. What the great question will be is the desperation for cash that OPEC, Saudi Arabia and other Middle Eastern and African countries to generate profits. That will drive the continued stockpiling of oil, or it could lead to balance in pricing and inventory reduction. World leaders are generally a bit nuts, so all we can do for now is watch for key support and resistance in the charts.

The chart basically shows the daily cascade of the 38.2% bullish counter-trend swings in the weekly CL #F Charts. The chart time line is obscured by both 1) my mistake of sliding the chart editor underneath the toolbar. I cannot repeat the chart as present, but when I take one computer off the data crunching for forex, I will the time coordinates to the chart. A closer look at the daily chart shows the clusters of price action that would act as resistance to any rally. If the rally fails around the 38.2% retracement at 49.00, then I think the next move favors a correction close to the one I had estimated in the previous post.

The point is, we seem destined once again to be rendezvousing with that same trend line is a few days. I will reset the new target lows at that time. I still think the ultimate destination could be in the low $30s/bbl.

That is it for now. As always, that you for supporting this blog!

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Daily Chart with Pattern Analysis if a gap fill ends up with a reversal at resistence.

Steve Sack Cartoon From 2008 from SteveSack.com

It will be later this evening before I get to look at some harder data (some via neural net). If I see something even more interesting that I present here, I will cover it. Let’s quickly review what has happened with $SPX, the Standard and Poors 500 Stock Index.

The simple daily chart shows in blue the uptrend line from 2011 which has now been broken. The rally this week has tried to come back to it, but it has failed as yet to do so. The daily reversal pivot based on momentum is in, but further inspection shows that there is a lot of overhead resistance.

For details on this, lets look at a close up of the last month’s price action on the daily chart. The two large breakaway gaps are quite bearish, and this week’s price action only closed ONE of them. A simple Fibonacci retracement patterns from the most recent swing low to the previous all time high shows that a 61.8% retracement lies just below the second gap fill, and that there is considerable price resistance just above it at the 2040 level on the $SPX. That would tend to provide a window from around 2015 to 2040 to provide significant resistance to get through if that rally is to continue. If it does not, it sets up another potential shorting opportunity.  In that bearish scenario shown on this chart, one could see a target low (if complete price symmetry holds up) at anywhere from 1825 to roughly 1760. The 1825 represents previous price support, and the 1760 would by a symmetrical price swing from the area near the second gap fill that is equal to the price swing from the all time high to the 1867.30 low.

That target of 1825 to 1760 ASSUMES that the resistance holds. I will work on a neural net model to see if I can find meaningful statistics in that swing model that might lend some credence to the probability of that happening.  A couple of things are certain however:

1) NO ONE knows exactly what will happen. If we get the pattern completions I describe, the odds could be in the realm of 70% that it will happen, but there are NO guarantees. This bull market for now on a daily chart basis HAS lost momentum though, and price must surpass its resistance to achieve new highs, or it will likely correct further if it does not.

2) The kind of “toilet flush” corrections and “toilet tank fill” rallies are going to become MORE likely and not LESS likely in U.S. equity (and bond) markets in the future. The reason for that is that our currency, the U.S. Dollar, is no longer the only king on the hill, as long as China is the influence that is is on commodity consumption and pricing. It is now attempting (and so far, successfully) to control the value of its currency to control its own export markets and to create an internal consumer economy. The stronger the yuan gets, the tougher it will be for the U.S. Dollar to influence world prices on commodities and shipping rates. Unless the U.S. gets control of its monetary, fiscal, and tax policy, it can expect to become more of a whipping boy than the ship’s captain on the S.S. World Economy If the US does not do so, it will see consumer prices rise and fall insanely like is being seen in places like Australia, where their currency has literally almost inverted against the U.S. Dollar in the last two years. That will also pressure the U.S. Treasury and Federal Reserve to raise our interest rates to get buyers for our massive debt. That will make doing business here extemely expensive, and it will eventually cut drastically into our standard of living.

As the weekend draws closer, I will re-evaluate crude oil and other commodities, and see if there are other interesting tidbits to look at.

Thanks again for supporting this blog!

 

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Simple SPX Weekly Price Structure Chart 08232015 Analysis of Previous Swing

This is a public domain cartoon from Latuff of Creative Commons http://creativecommons.org/licenses/publicdomain/ I don’t own the rights to this stuff, but I want to show off their work. $SPX

Its classroom time folks, using the $SPX as the major object for discussion. If you don’t like a lot of words in a post, today, you just might have to get over it. This would have been a video, and next time, likely will be. I have a boom mike whose software driver does not like my network. I will be on the phone with the manufacturer in the morning. At any rate, I am going to help you to understand what is coming next for the $SPX, the QQQ, and other markets in the midst of all the panic, fear, loathing, financial show horse manure, and other miscellaneous bovine scat you hear or read in the media.  What I want you to understand is what previous price action tells us about what is about to happen and WHY. I will use word economy to do this, but presenting a series of charts for the $SPX. I will not do so for QQQ or CL #F, but you will get the gist of it if you follow the example of the $SPX.  I have read everything this weekend from the $SPX trading at 500 to the $INDU begin in a holding pattern before collapsing to 5000. What I am going to show you is that from a weekly persective, it IS LIKELY that we could have entered a short-term bear market (down trend) phase. What has yet to be seen is how far it will go. I will try to add some perspective to that. John Murphy, one of the fathers of modern technical analysis, said that one of the key goals of technical analysis was to be able to set accurate price objectives. That is what I intend to do. So take Mr. Leghorn’s advice.

Basic Structure Analysis:

Let’s start with a simple chart of the $SPX (Standard and Poor’s 500 Stock Index). The dashed light black lines are higher lows from each successive upswing in the rally from early 2009, and the orange lines are higher highs from that same rally period. The blue line is the first lower low we have seen on a weekly basis, as we closed below a previous higher low in the upswing. We have, for all intents and purposes, BROKEN the nearly uninterrupted uptrend line that has existed from the momentum lows of the last large scale correction in 2011. Its not a huge piercing of that low, but that low WAS broken.

Let’s add a slight increase in the complexity level on the chart. I added the Pesavento Patterns chart which shows the higher highs and lower lows as well as completed Fibonacci retracements to the minimum of 4 retracement confluence points per low or high.  What you can see from that last 0.5 figure is that as of Friday we retraced 50% of that last swing from lowest low to the most recent high. What is most interesting though is that we closed AT the lows on Friday. A close look at the daily chart will also show a gap DOWN open and a close at the low. That is a five alarm fire sort of bearish bar. When you see things like that happen, you should expect further selling on the next trading day. If that is the case, which, based on my neural net analysis over many years (and what history basically dictates, we should see a correction all the way down to at least the 61.8% retracement of that least swing to  roughly 1947, shown at the light black line . If the selling continues, odds are better than 50/50 (based on numerous neural net model tests) that it will attempt to retest support (actual PRICE SUPPORT) very near the 78.6% retracement of that same up move at roughly 1893. If you get a retracement very cloes to REAL price support (0.382, 0.500,0.618, 0.786, and even 0.886), you will likely find the terminus point of any rally or correction. If the selling continues (for reasons stated above), I think the odds are pretty good (70-75%) that we will see the 1947 low, and a coin flip as to whether we see the 1893 low.

Given that analysis, however, 2 things are known. They are 1) We have not YET firmly established what the momentum low is. We do have a decent idea about where it will stop at least in the short to intermediate term.

For that reason, anywhere from here on, I am estimating what the low would be and where the ultimate target low will be.   I am going to do that, though, so that when we see the turn, you will understand the means by which I make such an estimate.

Assumptions regarding counter-trend rallies:

Take a look at this weekly chart using the following set up. I am for purposes of instruction going to ASSUME that the low will be 1947  (the 61.8% retracement of the last low to high rally). IF that is true, the first very key form of price resistance is just above the previous lowest lows in that 2000 to 2016 area. If we cannot get above those levels, it would trigger the possibility for a second leg down of roughly equal magnitude. That condition would end up providing an approximate 1820 low in the $SPX. Note, I could put pen and pencil together and calculate precise values, but for now, I want to demonstrate the BASIC principle of the price objective. If we drop to 1893, the objective would be a bit lower, but for now, we have NOT confirmed the new low, so we will have to wait to see that low put in.

Meltdowns and REAL Meltdowns:

What about a real meltdown? Well, I would prefer at this point to go to the monthly charts for that analysis, so I will. The monthly chart shows that a major support level matches up with the 1820 low, so if we do get flushed out on Monday and the 1893 level is  hit, I think that 1820 low could indeed be the extent of this move. However, as I stated before from above, one must be somewhat concerned that the major retracement zones are a lot lower (roughly 1580 in one case, and as low as approximately 1270 in another one. 2008 gave us all pause that such levels could be reached in a short period of time if a financial crisis unfolds. We already know that commodity prices have collapsed, and that China is worried about its own economic growth (which is the front end of our own consumer economy). It is not exactly news that the Eurozone is not exactly in fine shape either. We have wars in the Middle East, crises in Russia, the North Koreans complaining about loud propaganda behind hurled at their southern border. None of this exactly speaks to “peace in our time”. The Fed is out of bullets on interest rates too, and we now know that another contender for special drawing rights (China) is willing to play the currency manipulation game that we mastered (if you really want to call it that) since FDR really weakened the backing of the U.S. Dollar and Nixon finished the job.  The USA is no longer the economic sheriff of the Deadwood planet Earth any more. For that reason alone, the US Federal Reserve will have to tread lightly before raising rates. It has no way to ease now short of taking money out of bank accounts. It could do some sort of magic with Federal debt paper, but in the end, it has no room to ease. It has to find a way to manage debt before the imputed rate of interest to make them palatable would also make them worthless. China has made the first of several tiny moves to help insure that, whether willful or not.

All that I said above was again, SPECULATION. The only thing we have solid evidence of is price action, and until we can confirm a bottom, I think the best assumption is that a low somewhere between 1947 to 1820 will be the extent of this first down move. After that, we will have to MONITOR THE NEXT RALLY CLOSELY.

For the last two items, here are charts with forecasts for CL #F (Crude Oil) at a 33.78 first target low. QQQ could hit 99.84 before bouncing, assuming it breaks any current support which I think it might early in the week, depending upon the strength of selling.

Once again all. Thanks for supporting my blog!

 

 

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Who is REALLY winning the currency war?

Uncredited (yet brilliant) cartoon from Women and Finance blog from w-t-w.org

I got no requests for charts (and I will ask again at the end of this post) so I decided today to comment about the potential longer-term reasons that the Peoples’ Bank of China executed a Yuan devaluation versus the United States Dollar. This action might actually be the beginning of a decoupling move to secure the future of the currency, and not a desperate attempt to shore up what recently has been a sputtering Chinese economy.  Many of you may add me to the ‘wingnut’ classification of bloggers on this topic, but I think some careful consideration should be made about this topic. This attention is cogent given how the world seems destined to follow that old 1980s IMF model of “devalue and export” it used to rescue the then emerging and third-world markets from their mounting debt. That debt and fiscal deficit in many cases  caused crushing currency inflation problems. I have commented in the past about the race to zero currency value in this  post as well as others in the past.

Take a look at this chart. It is a trade weighted valuation of the Yuan versus the dollar over the last 10 years. That 3.6% devaluation in the context of the chart really doesn’t look that severe does it? The truth is, it isn’t really. The Yuan has quietly (and under the stepwise “market maker” adjustment of value the the  Peoples’ Bank of China (PBOC) has administered) INCREASED in value steadily against the U.S. Dollar in that time frame. That strategy is described in this article from The Economist.

Why then, did the PBOC decide to make such an adjustment? The author of this article states:

“Instead, another event seems the main trigger for the central bank’s actions. Later this year the IMF will decide whether to include the yuan in the select group of currencies it uses to calculate the SDR, its unit of account. Inclusion would amount to declaring the yuan a global reserve currency. Just last week the fund hinted that the yuan is still too heavily controlled. For the PBOC, getting into the special drawing rights (SDR)  has never been just about prestige. Rather, it has been using this objective as a means to push for reforms that remove some of the policy distortions still hobbling the economy. Introducing a truly floating exchange rate is an essential part of its programme.”

Taken in its longer term context, China is attempting in the best way it knows how to prepare to become one of the world’s reserve currencies. The PBOC at some point would want its currency to freely float as other major currencies. That condition would require a sterner test of China’s financial reserves (including gold). That situation would likely also require increased transparency in the reporting of economic growth. China’s economic data has come into question many times, particularly in the last 3 years.

I don’t think there is much question that China DOES face a slowdown, as car sales are slumping (Ford is predicting the first slowdown in Chinese sales since 1990), and that industrial production seems to be flattening, so there is a real chance that a Chinese (and perhaps even world) economic slowdown is at hand, given the declines oil, copper, and other key commodity prices of late.

However, I think Peter Schiff may actually have a point about the U.S. Federal Reserve’s dilemma with zero interest rates. To keep equity and real estate prices afloat, it has no choice but to stand pat (watch the video associated with this article). This past week, gold rose both in U.S. Dollar terms AND Yuan terms, as other currencies turned down.

What we could be witnessing, given in relative terms a small devaluation in the Yuan, a first attempt for PBOC and China to decouple itself slowly from a U.S. Dollar peg. When still working a slower growing economy ( at or just below 6% GDP growth of late), why not devalue to some degree to gain and edge in exports to other countries AND to the US? If the Yuan can gain reserves through SDR and by expanding their gold reserves, China will eventually be in a better position over time to float the currency freely.  What the US has to be worried about longer term is that a decoupling from the dollar would mean a lack of interest in buying our debt, which is priced at unrealistically low levels of interest for other nations to be interested in. Our mortgage market and stock market valuations are dependent upon low rates as our GDP continues to grind at growth rates that are lower than the 3 to 3.5% rates  of the last 3 centuries. If we cannot finance the burgeoning welfare state we continuously create, then our currency will become worth much less than other currencies on a value-to-economic-growth basis. That situation would put our financing costs over the edge. When one realizes that we have 200 trillion U.S. dollars worth of unfunded liabilities to cover, the financing costs would indeed cripple our economy. The American standard of living would dramatically decrease, and decrease rapidly.

The United States Federal government needs to fully assess these issues and not let world market events dictate our policies. A 30-year vacuum of leadership, statesmanship, and over-regulation of market forces have led us to this point. Americans can still take control of this situation if they choose to learn the economic lessons of history. Our leaders need to steer a path of fiscal restraint and fiscal responsibility. If we don’t reduce debt and dependency, then will become the willing victims of change that will sweep away what was once the economic juggernaut of the earth. The future is right here and right now, as this 1 year old video suggests. Fiscal responsibility and economic freedom are the tickets for the bus. Trust me, it is better to take a ride on the bus, than to be hit by the bus.

The United States can still be the economic leader, but without fiscal responsibility and economic independence, it and not China, will end up being the emperor with no clothes.

OK folks, no requests for charts? Then there are no charts ( at least not this week). As I get the survey together, I will begin to fully understand what you want. In the meantime, however, if you want me to take a look at something, leave a comment in the post and I will dig into it.

Once again, thank you for supporting this blog!

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Cartoon by Mark Anderson at Andertoons.com

 

I will NEVER be a video producer, editor, or director. With all the problems I have had over the last two weeks with Adobe Creative Cloud’s insistence on perfect codec, I had to rely on Camtasia to finish the final edit and render. That is why there is an imbalance in sound level. I will get with Adobe this week to see what tweak needs to be made to resolve the sound errors. I was so hoping to have titles and fade-away cuts without having to rely on the green screen. Well, perfection is the enemy of completion. I will improve. Please watch the video at the bottom, as it outlines my future plans to improve content here to where it was back in the glory days.

This post is designed to re-familiarize you with my trading work and my background, and to ask a question regarding the product that I may create soon for this blog and hopefully soon to be authority site.

To hear an interview regarding my basic style of trading, click here.

Other things I have done include

I participated in what is now tradingmarkets. com for a number of years in the late 1990s. In 2004, I began to write for MrSwing.com when it was a very popular trader website and bulletin board forum. That is where my neural net trade set-ups were featured before appearing on this blog in 2008. I was actively involved in the foundational days of Stocktwits and wrote their personal finance blog for two years. In the early days, I was also one of the most followed traders on Stocktwits.  I was also featured on Vince Rowe’s radio show on BizRadioNetwork for five years from 2005 until early 2011. Though I was not totally responsible, the podcasts (for which I was featured once to twice a week) were rated #2 on iTunes during that period. I was probably the first trader to ever have been featured on a Webex simulcast with AM radio to demonstrate trade set-ups on my computer screens to listeners around the world who heard the simulcast of the internet. From the responses I got from listeners, and participation in my blog, I know I made a positive impact.

Though I am not a Chartered Market Technician, I am an associate member of the Market Technicians Association. I have well over 30 years of experience looking at and analyzing charts.

To read my short bio, go here:

Here is the video:

On that comment at the end regarding trading models, at the moment, I am the only one trading the models in real time. Bruce and I have considered marketing these models once we are totally satisfied with their stability and the stability of the trading platform is operated within.  It will take coordination, testing, and probably legal review as well, before we can market them, but we are still considering it. Given the improvements and bug fixes with the current platform we use, I am proceeding with further live tasts. The statistics below are not final, but they are indications of what future statistics could be like if we are satisfied with model stability and robustness.

The stats are here and the equity curve is here.

Thanks again for supporting the blog. The marketing funnel is coming soon!

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That cartoon was created by cartoonist Rob Tornoe after a game in which Eagles quarterback Michael Vick was hurt. From www.philly.com

I do not own the rights to the above photo, other than to prove a contention posed later in this post. All impugning ( editorial or sardonic) of Michael Vick, Andy Reid, or the Philadephia Eagles (and I know of at least two of their fans who read this blog regularly) are the responsibility of the cartoonist, Rob Tornoe. I am a strong believer in parity, particularly when discussing ANYTHING about NFL football teams.

Now, back to the main attraction. I was absolutely waiting with bated breath for this article, whose title is “Oil Warning: The Crash Could Be The Worst In More Than 45 Years”. I think this almost qualifies for the Sports Illustrated Cover Jinx award.  If you know what that is, then one would think that we could indeed be at a bottom. We might, and again, we might not. Why? Because another notable analyst has looked at forward demand picture and still sees oil at or above $100, certainly in the next 5 years, if not before.

Who is right? I am not going to go there just yet. If you recall, I was going to track the set up of crude oil futures back in the spring, and then all the nuttiest began to erupt in the Middle East, and short-term panic-mongers pressed oil prices higher. I left that article hanging (and a lot of readers wondering if I had just given up). I had not. I was looking for a little more evidence. Now, I think I have some. It is not, as one might imagine, from some short-term swing chart of price ticks on futures data, but on a WEEKLY chart of continuous crude oil futures prices. Sometimes, you need long-term data to make short to medium range forecasts.

I will attempt to demonstrate that now.

I just downloaded the latest upgrade of Ensign 10, and for some reason, the Pesavento Pattern application seems permanently set at ‘Def-con 98′. It is everything that Vince Rowe used to cross his eyes at when I demonstrated this stuff on Webex simulcasts. Please do not be alarmed. This chart is marked for what is important among all those insanely jumbled convergence points. It does make great eyesight training though.

Here is what is most important about this chart:

1) That weekly low of January 16. 2015 has 13 different Fibonacci points of confluence that converge at that point. You really only need 4 to make that a very significant low.

2) On a weekly basis, that low has yet to be exceeded, so it is safe for now.

3) It should worry longs that there is a succession of bearish candles that continues to close at or near the lows of the week. If that continues, item 1 above will not hold, and we will see some new lows in crude oil.

4) Here is where the stuff gets weird (and why I cut the chart off before showing the full price symmetry low).  At the cycle high of 107.68 and a lowest low of 44.20, the new displacement to a price symmetry low would be the difference of $107.68 and $44.20 or $63.46. At the previous swing high of $64.45, the symmetrical momentum low of that A-B=C-D swing pattern would be…wait for it…$0.97 cents a barrel. Yep, that is, though rather unbelievable, exactly 97 cents a barrel.

That is situation is absolutely nuts, but the symmetry is there. We really only saw crude oil prices (and particularly futures prices) flirt with the teens in the late 1990s. It is certainly possible, with Iran going online without sanctions to sell their oil, OPEC attempting to destroy U.S. domestic oil prices, and new world oil producers running their drilling rigs again, that we could see prices fall dramatically.

What we have are two countervailing forces (and if this sounds like an oversimplification, it might be, but history has proven that the crazies can always win out in the short run.) The countervailing forces are:

1) Surging demand for oil in every place but China. Since last year, demand has increased by 1.6 million barrels a day over last years average. That ultimately means that the stocks of many integrated oil companies can (and in many cases ARE) trading at three decade lows and are relatively cheap, assuming the economic cost of exploration can remain reasonable and that the sales price and cover the cost of recovery, refining, and marketing of end products.

2) The overwhelming number of stupid, greedy, power-hungry leaders around the world.  OPEC actually increaed production of crude oil by 1.5 million barrels a day from February to May 2015, much more than eclipsing world demand increase. Libya may come on line with oil under some kind of new leadership. Iran, with sanctions lifted, will likely also pour oil onto the world markets. Would you trust oil market economics to a person like Ayatollah Khamensi who posted this mature tweet? If you remember the late 1990s the way I do, you remember the Saudi princes having to sell real estate and bail out of their lavish lifestyles because the oil revenues would no longer support them. 

If the world economy slumps into recession, as it could, the worse case scenario is a possibility. I very seriously doubt you will be able to buy a barrel of crude oil for what you once could pay for a McDonald’s cheeseburger, but there is likely no historical precedent other that the mid-1980s and late 1990s that could ever compare to it. If, by agreement, oil production were managed by agreement, there might be a chance for it to stabilize, but that would take real leadership and not the elitist form of world fascism we seem so carelessly to be gliding into at the moment. “My way or the highway” is the watch phrase of the day.

The factors that could cause prices to rise is a potential interruption of supply should ISIS or Iran decide to create some kind of a blockade or interdiction of oil movement of some kind. If you watch the video associated with the case for $100 a barrel oil, the case is fairly solidly made for the lack of stored supplies at the moment, even in the US. With little inventory, prices could indeed spike, and capital expenditure could once again be justified to bring drilling online, and that process is NOT instantaneousThere are way too many mitigating factors to make a collapse in oil prices a certainty, but in order to see this football game, you WILL need a program, because the players change constantly and the rules are fluid (much like NFL refereeing :) ).

Conclusion?:

Before we descend upon gloom and doom associated with an oil bust, just remember the chart. The only significant thing to be watching now is that price of $44.20. If it holds, and we get some traction, then we could be in for at least some kind of rebound. That rebound of course will take time. I think I tweeted about 11 months ago that we could see the breakdown above $78 a barrel in Stocktwits, but I will have to dig that up. If you are going to short, then, from a practical perspective, it is likely only to do well if it breaks that $44.20 price level. Whatever happens, it is going to be interesting, and I would assume not without a bit of volatility as oil bulls and bears put on the riot gear and go after each other. That is the nature of market liquidity. Everyone gets a good clubbing before the winner is decided.

To have a better discussion of what the real price lows are, I will wait for that to happen, and post as I see things happen. We live in a crazy world at the moment. Charts help you to see benchmarks and targets, but you have to use your brain and manage your risk as well. Once again, thank you for supporting this blog!

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From March 1998 Saturday Evening Post

There was no weekly reversal report on the weekend of 7/12/2015, as I traveled to an internet marketing seminar to get a better grasp on reviving this blog as a business, and in particular how to rebuild the audience that this blog once had via survey.  That was accomplished, and that survey construction is under way. I also got the video camera operating, though I will have to learn a way to run video editing through a separate computer to manage the editing, but that is on its way as well. As I think many of you know now, this blog has gone from a very large audience via measurement in alexa.com to being a virtual non-entity. Part of it is the fact that it is no longer a daily blog, but most importantly, I have stalled any expansion of product until I fully understood a way to really know that my old audience wants. That will be forthcoming, as Juan Morales (an internet marketing expert from Panama I met for the first time last weekend), showed me a way to do this. There will be a bit of a social media blitz associated with the survey, but it will NOT initially even require you to identify yourself. It will, in a short but well directed series of questions, tell me kind of trading and investing information I should provide for you. If I were to revert to the daily 4 hour grind of producing pattern signals as I once did, and no one wants them, I would then be wasting my time, and more importantly YOURS. I will continue to use neural nets provided by Ward Systems NeuroShell Day Trader Professional to do it, but I want to do that in a relevant way. If I do that, I think I can reduce the construction time for far UNDER the 57 years it seems like it has taken to revive this thing. I am a trader first, and I am a one-man shop, but this blog can also help me to fund research if I can provide something you need. More on that is coming, and I hope it can get going by the end of August. Stay tuned!

GLD AND XAU

Much has been written about gold (and for purposes of clearer charting, I am going to use the ETF proxy for gold, GLD) and the XAU stock index. With the July 16, 2015 bounce at a previous low on the XAU, many were predicting a modest rally in the shares of gold miners and perhaps, even of the metal itself. When viewed from a larger time frame however, one sees a bit of a different story. Take a look at the monthly chart for XAU and for GLD.

So that you don’t think Ihave completely whacked out on the data, I fully realize that July 2015 is only half over, but in both cases with these indexes, new lows beyond previous solid support have been broken this month. If rates increase, at least in the short run (4 to 6 months), we could indeed see a correction in the XAU to extremes near 32.70 if symmetry holds. If support holds, it needs to hold at the level it is at now near that 1.272 extension of the previous major support, which is 54.20. The price of gold will be influenced by U.S. Federal Reserve rate increases as, when all other things remain the same, the currency will be considered stronger because of that high rate of return on short-term U.S. government securities. The important thing to take away from this is that we are at a very critical inflection point in the price of gold itself. If you look at the GLD monthly chart, there is support at around 99.50, but if that breaks, price symmetry would suggest that 78.30 (equivalent to approximately $783.00/oz) would be the ultimate target low.

Those lows might not hit for 6 months or so, but the point is, there is a very distinct possibility that if these indexes close below the support lows they have just now broken that those targets can be hit. As the days and weeks move forward, I will run the models on GLD and XAU. I will also take a look at individual names in that index as they arise.

We are operating in a more complex world economy than 40 years ago when the USA was almost the only real game in town. With US debt skyrocketing, economic slowdown appearing more evident on a global basis, and China and the Eurozone in their own separate monetary policy and political quandaries, we are likely to see volatility and even a few things we might not have contemplated as being possible before. The important thing to take away is that if key supports do not hold, the Fibonacci price patterns in that same 3 to 6 month period ahead favor the bears.  I will do my best to put some statistics around that in the near future.

In any event, I am hoping to learn enough about video production and editing this week, as this afternoon I did get the camera charged, the lights all coordinated with uninterruptible power supplies and surge protection put into place. Now the real work begins.

I will now accept the full challenge of bringing this blog back to its once former glory to the best of my ability. It will be a difficult climb, but I think it will be worth the effort, and I am confident that you will be too. Thanks once again for supporting my blog.

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David Simonds Cartoon for Guardian Article referenced in this blog post.

 

Once again, the Friday screens once again revealed more slop, but moreover, the Greek referendum apparently goes strongly against accepting a bailout and more austerity to reduce their debts. To make things even more exciting, the EURUSD opened down around 100 pips (about a penny),  NQU15 (E-mini Nasdaq 100 futures September contract) dropped 39 points, and ESU15 opened about 21 points lower, just to name a few. Instead of trying to pick a bottom that might not yet be one, I think I am gong to continue the discussion that I began last week on ASHR (which you can see here). I am not going to make brownie points trying to be the blind squirrel finding the nut in the whiteout blizzard. There will be plenty of time to find set ups soon enough. Its time for me to do some more”educatin’ ” on pattern analysis.

One thing I think most new traders should do is to stand down unless you see set ups that you are both used to and that fit your trading plan. This overnight shakedown could be the beginning of something larger, or just another overreaction. Your principle goal as a trader or investor is to protect your capital as much as you can. You pay for stupid moves. You GET paid by dong research and testing your ideas before implementing them in the financial markets. You can be successful, but you have to work at it and remain persistent.

We did, as typical Fibonacci pattern theory would dictate, see a short-term rally into mid-week on ASHR. However, as the week progressed, we began to see news out of the Peoples Republic of China (PRC) about the government there trying to put a floor under prices as novice investors began to put more money (and margin money) into the Shanghai Stock Exchange. Even though this seems at first blush an overreaction to an overheated market, one would have to think that the Communist Party there is worried about further damage to consumer confidence and spending if savings are blown up in a market meltdown.  Add to that noise the rumor of both domestic (Chinese) and international short selling  and you have the recipe for a rumbling casino (something we have seen several times in this stock index over the last 20 to 25 years). Then the cherry on top of the market panic sundae was the IPO freeze announced Saturday. When governments start talking up “market stabilization funds”, you know some powerful politicians are worried about the outcome, and short selles, like sharks, smell the blood in the water.

What does the daily chart seem to indicate?  Take a look at this chart. Well, at first glance, it now shows 3 Fibonacci confluence points at the new low that was set on Friday July 2, 2015, seeming to want to more strongly confirm a near term bottom. If that is true, with some minor adjustments, you get something very similar to what I posted last week.

So I should go right out and plow everything I have in it, right? Let Darth Vader answer that question. NO!

Why would I say that? First, the news items I quoted seem to indicate that the sellers are lining up in greater numbers as the government leadership hits the panic button. The other issue is the confidence factor that my neural net model created using Ward Systems NeuroShell Day Trader Professional software. The confidence level of a buy has a profit factor of only 1.3/1 and a win percentage of 75%, which is slightly lower than is normally acceptable. The reason for that is that average losses in that model are nearly twice as large as the average wins despite the win percentages.  Unless we can see a countertrend reversal to the levels in that chart I generated last week, the optimal time to short has passed for now. The June 25 lower high (marked LH) was the best place to have shorted. 

I will continue to track the model and report on it for ASHR as the days move ahead. There is a lot of uncertainty and hubris being tossed around in world financial markets at present. I would prefer to wait for the best set-ups, manage my risk, and be prepared for the next opportunity. There will always be one out there.  We are probably overdue for some kind of correction in equity prices in the USA and China, but we will simply have to wait our turn. It always comes around.

The basic lighting in the studio works, and I will be testing the camera beginning tomorrow. The e-mail newsletter will be revving up again shortly, so if you want to sign up, head up the box on the right hand column of this blog post and join.  The survey will be coming soon also, which will determine the future direction of this blog.

Thank you again for supporting this blog folks! It is much appreciated.

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Ethan Hanson

Ethan Hanson Cartoon

Nothing interesting his the screens this past week, as markets in the US continued their summertime roil. Tonight, I will take a look at the ASHR (Shanghai Composite Index A-Shares)

Its a lovely summer Sunday evening in the US before Asian and European markets open. First we find out that Greek banks will be closed on Monday as millions of Greeks hard fist their ATMs to empty their accounts before the Greek government does prior to leaving the Euro, which seems to be ever more likely by mid-week. And what did the Shanghai Composite Stock Index dropped 6% on Friday June 26, 2015. The A-share ETF for that index (ASHR), representing the highest quality Chinese stocks, dropped 10%. The Euro opened this evening down over 170 pips (about 1.7 cents on the EURUSD pair) from Friday’s close.

While you were watching woman’s soccer or reading some hot novel at the pool, I was enjoying myself reading my latest copy of the AAII Journal of the American Association of Individual Investors (once again proving that I have no life at all). What was the lead article this month? You guessed it! It was “Understanding Market Bubbles and How to React to Them”. It is an interview in which Robert Shiller discusses the origins of market bubbles around the world for the last century, and how, despite the expensiveness of current inflation-adjusted valuations, that there is no way to predict interest rate spikes or peaks, or even to really tell when a bubble has begun. What he does mention, which I think makes the article worth reading if you get a copy of it, is that often external forces and world events can change sentiment, regardless of the state of the economy. Those changes can create panics in equity prices that are difficult to predict or even see in chart prices prior to any market price bubble bursting.

Take a look at three charts of ASHR that I have set up: 1) the basic candle stick chart 2) The dreaded (though much enjoyed, at least on the radio simulcast I used to do). air traffic control screen for ASHR daily chart, showing the Fibonacci retracement levels and 3) The same daily chart showing the potential AB=CD patterns with targets. Without getting too verbose, ASHR (as did the Shanghai Index on Friday) was rocked by selling, and the gap represented by the drop was wide. You can see that in chart 1. In chart 2, the air traffic control screen caught the momentum low on February 8, 2015. Because you would have gone blind looking at fan lines, I did not increase the sensitivity of that screen for momentum lows, but another one hit on March 8, 2015, and that became the X point of reference. It showed that the low we hit on Friday June 26 produced a B point that aligned with Friday’s momentum low and the 61.8% (o.618) retracement of the distance from the June 14, 2015 high (the highest high in that swing) from that March 8, 2015 low. As ASHR did NOT close on its low and that you did see a 127.2 extension of a previous swing low that lined up with it, odds are now greater than 50% that the low is a solid near-term low and that a rally will occur to protect that low for awhile. On chart 3, I looked at the two major price resistance areas, one at a 38.2% retracement and one near the 50% retracement (the 0.50 line is obscured a bit). It is possible that it could rally all the way back to a 61.8% retracement, but since there is considerable price resistance at those two levels, I decided to work on what would be the two worse case scenario of a stalled out rally, which typically happens with these kinds of patterns. They are NOT perfect Gartley patterns, but they still show up a lot. If there is price symmetry  (A to B equaling C to D) in the decline after the stall out, the 0.382 retrace would lead to a target low (D1) of roughly 35.40 and the 0.50 retracement would produce a target low  (D2) of roughly 38.25.  Those would be drops from the momentum high of 55.19 of 35.9%(D1) and 30.7% (D2) respectively. That is not nearly as extreme as some of the Hang Seng Index drops of the mid-1990s (which I shorted via put warrants), but it would be severe if it happened. Is it going to happen? Who knows, but if that scenario of resistance followed by correction is symmetrical, then it is decently likely at this point.

In China and in the US, margin debt in equities is at extreme levels, as shown in this chart I received from Larry Pesavento while writing this post. There are other antecedent conditions that could lead to sell offs brewing, but, as Mr. Shiller stated, until something substantially moves the risk free rate of money above zero basically, the asset value of equities can and will increase.

At any rate, we need to be clear about what we are holding long and why, and not just holding on for the sheer fun of it. Fun can turn nasty pretty quickly when the combination of margin and fear mix.

More is coming! Thank you once again for supporting this blog!

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Cartoon from Article In New York Times Regarding The Coming “Robot Apocalypse” To Be Referenced In This Post

Out of the 20000 stocks sorted, only HUM (Humana, Inc.) made the list and with better than acceptable statistics. There are 2 reasons that I will not trade it as a swing trade, nor should you:

1) Humana’s price: Friday, June 19, 2015 close was 202.31. The vast majority of you out there cannot buy a large enough chunk of that to make a tremendous amount of money in that trade.

2) I would avoid Humana and most health care providers and health insurance companies as swing trades (despite recent merger activity) until we see the results of rulings by the United States Supreme Court on subsidies for state exchanges under the Patient Protection And Affordable Care Act are passed down. I personally think there is a bit too much news speculation in the very short run to make a long swing trade the smart thing to do. There will be other opportunities to do so once all this news settles out.

I will continue to track what we have as I figure out how to transition this blog into an authority format (which is ongoing). Despite the delays, the video will be going up soon along with the survey.

Lets spend just a moment looking at a monthly chart of the $SPX. While studying the financial news and financial social media, I have seen the $SPX (Standard and Poor’s 500 Stock Index) referred to as the “mildly bullish roller coaster of death” (there’s a visual) to a most undervalued index with tons of growth potential. I decided to create a Fib reatracement model (again without the “air traffic control screens” to show the interaction of Fibonacci level confluence). I will get to that later as we go down the road. Take a look at this chart, basically unedited. Notice how at the top right of the chart, you can see the near record or new record levels we are at now, and the fact that there is a triple confluence of Fibonacci levels converging there. Typically, you need four closing in at very tight points, which we do not have yet. We do though have a 161.8% extension level of the last upswing from the 2009 lows being put in. That is, at least, cause to be worried that we might be in for some kind of significant correction. It will likely not be the death knell that I saw in Bitcoin awhile back, but it does give pause to at least think about the possibility that a key inflection point is nearing.

I am going to stop beating the drum about extended historical valuation levels (as you can search this blog and others to find my warnings on that topic). There are also others who consider the market to be in clear sailing mode, as you can see from Greg Harmon’s blog. I began to exit many equity markets in 2012, and by the end of 2013, I had exited all of my energy stocks, as I felt they too were extended beyond what could be seen as a healthy value, even with the dividend yield. I did similarly with bond and bond funds that remained, as I felt that the tightening cycle would one day appear, and that I did not want to ride that train into the gulch once the dynamite of higher interest rates, mandated by U.S. Federal Reserve action, blew up the bond bridge, sending my train into the depths below. I made alternative investments going forward, as well as income producing real estate with a large potential for gain over time, as well as land.

Was I completely right? No, but I feel I have done decently well. Should you ride out the equity roller coaster and be long only come hell or high water until the end of time? Probably not. I think the answer that would determine these things are held in your age, your income circumstances, and your tolerance for risk. I will be 60 years old this year, so I have to begin to think about balancing out risk. I think for someone like me, doing that is important, because we are at an extreme in the interest rate progression (with low or basically zero interest rates) and the fact that in the future, at least until we can get through another 15 year cycle, there will likely be more net redemptions in U.S. equities than purchases, as retirees take their money and collect income, by various means. If you are under 40, you certainly have more time and you can afford to put money in places that will provide good return. Even for you of that age, however, I think it is important to understand real equity value relative to earnings growth, sales, and cash flow. We are likely not that far away from another bubble, created by some sort of exogenous event, likely regional or world war in my opinion. It could come from any number of economic dislocations, however, as even now China is worried about its own debt problems, and may join the world in one way or another in its own version of quantitative easing. Their move would be one of the largest participations in the “race to zero” for world currency valuations, and that ultimately creates another source of bubbles whose final outcomes are the unintended consequences of ignorance of free market action. Young investors are likely going to have to be more open-minded, world-focused, and flexible. It may also mean that they might have to risk further exposure to private capital markets as world governments begin to potentially overegulate public capital markets and destroy their competitiveness.

There’s a lot of dystopian fear-mongering going on in the U.S. and world press as well. Some think that we are close to another mass species extinction. While I think that forecast is bordering on psychotic, there is a real fear that the speed of technological change will ultimately replace humans with robots. While I do worry that the forces of fascism and technology are converging rather rapidly to quell human freedom and ease of innovation, I think there are some reasons not to be worried. In fact for young people, now is the time to prepare to be on the rising tide of technology. That is the subject of these two articles ( here and here). I think that investing will begin to take on a more hybrid structure as we go into the future. Even Warren Buffett is beginning to explore the private equity markets, as he is beginning to find it hard to see true value in equities.

Young people will have to explore entrepreneurial ventures in much the same way as their great-grandparents did during and after the Great Depression. College will not just become a dirty word for many, it will become an overpriced word for many more, and these young people will rely on their own intellect and their guts to find projects that will lead to greater long-term opportunity. Just buying a mutual fund and waiting may not enough for millennials to survive until just past mid-century (2050). Those vehicles might not even exist, or may be so convoluted by regulation that they might not be viable. That grouping might also include exchange traded funds (ETFS) in the future too.

What those articles did not discuss is the very fact that I believe that private industry can and MUST take the lead in space exploration. Governments are too interested in buying votes for power and bloating Byzantine bureaucracies to get us where we need to go. If we do see some kind of Malthusian disaster, some people may want to go into space eventually to terraform distant planets and start new lives. I think that is a very real possibility as we move closer to 2050. If we don’t blow each other to bits on this planet, I think that is going to be the greatest opportunity for the next three or four generations. We will figure out how to travel great distances, handle harsh environments,  and make new opportunities that did not exist previously. Private industry and individual effort will make that possible.

My turn and our generations’ turn at the wheel is about over. The next generational wave will inevitably have to lead the way out of the mess that exists worldwide today. There is one thing for certain, however. One cannot sit on one’s ass playing video games and make that happen. Some of the coming stresses of change will bring forth another group of people who will take those problems head-on. As bad as things seem to be at the moment, you have no choice really. If you are alive, you have to persevere and participate in the growth. Be awake, be aware, and be ready to get into the action as activity and growth changes direction. We have had these dystopian nightmares in every century. We need to put down the nightmares, and begin to dream again. Some of that will require putting the digital device down, and turning on the brain. It will happen when the time is right, I think.

I will get more into other indexes and markets as time goes on. Check your portfolios to make certain you are not holding something that is not past its shelf-life in terms of value while markets move sideways. Its not time to panic yet, but it is probably time to prune.

As always, thanks one and all for supporting this blog!

 

 

 

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Apple Pay Cartoon from News Cloud Productions for Amazon News

 FULL DISCLOSURE: I am NOT currently a shareholder of PAY, but I do have a private investment that relates to patentable aspects of Apple Pay that is NOT a public company, and which could ultimately NOT benefit from that patentable aspect. PAY’s earnings will not benefit me directly one way or the other. I do want to make sure I point that out. The selections made here are based on computer models and not my personal whims. I just call them as my computers and I see them.

There was a cartoon showing a member of ISIS accepting Apple Pay, but I REALLY didn’t want to go there. At least I got a late jab at Halloween 2014 (or early jab, if an uninitiated reader is early for Halloween 2015). I would do my own cartoons, but then you would have to use Apple Pay before READING this blog. After all, we bloggers are all starving artists, you know.

As I am in the midst of a couple of projects (including one home improvement project), I will make this post short and sweet. I will summarize what has gone on in this blog since the end of March, good bad or indifferent, later in the week, including the stop out on JBLU, which did bounce back, but, if one is rules based, one was nonetheless stopped out. Wishful thinking only leads to larger losses, which is why stops should ALWAYS be used in swing trading.

Here is a list of Friday’s survivors:

L G Display,         LPL,   xN, Electronic (Misc Products)
Micron Tech,       MU,    xO, Electronic (Semicndtr Mfg)
Arris Grp,            ARRS, xO, Telecomm (Equipment)
New Residential, NRZ    xN, REIT (Mortgage)
Delta Air Lines,   DAL,   xN,  Transportation (Airlines)

Amer Axle,           AXL,   xN,  Auto & Truck (OEM)
Verifone Hldgs,    PAY,   xN,  Business Svc (Misc)
NXP Semi,            NXPI, xO,  Electronic (Semicndtr Mfg)
Chicago B&I,CBI,xN,Building (Heavy Constr)
Ross Stores,ROST,xO,Retail (Apparel)
Vodafone GpADR,VOD,xO,Telecomm (Cellular)
Coach Inc,COH,xN,Retail (Apparel)
Luby’s Inc,LUB,xN,Food (Restaurant)
JP MoganAlerian,AMJ,xN,ETFs (Sector\Energy)
Alerian MLP,AMLP,xN,ETFs (Sector\Energy)
Ares Capital,ARCC,xO,Market (ClsdEndFndsDom)
Spdr BarCap,SCPB,xN,ETFs (FixedInc\Treasury)
iShr Silver,SLV,xA,ETFs (Commdty)\Futures)
Boardwalk Pipe,BWP,xN,Petroleum (Prod\Pipeline)
Mead Johnson,MJN,xN,Food (Prepared)
GoPro Inc,GPRO,xO,Electronic (Misc Products)
Plains AllAmer,PAA,xN,Petroleum (Prod\Pipeline)
Duke Energy,DUK,xN,Utility (Electric)
Senior Housing,SNH,xN,REIT (Equity)
GrubHub Inc,GRUB,xN,Internet (Svc Provider)
Momo Inc,MOMO,xO,Business Svc (Misc)
Gen’l GrthPpty,GGP,xN,REIT (Equity)
On Deck Captl,ONDK,xN,Financial (Savings&Loan)
Pandora,P,xN,Internet (Software),Internet
Kinder Morgan,KMI,xN,Petroleum (Prod\Pipeline)
Range Res,RRC,xN,Petroleum (U S Explr\Prod)
Yelp Inc,YELP,xN,Business Svc (Printing)

CBI almost made it, but was lacking volume. After value, momentum, volume, and price pattern screens were finished, the neural nets only liked one name, and it is somewhat of a wounded duck with a lot of future potential. Verifone Holding, Inc. made the final cut.  The profit factor was 3.83/1 for swing longs, with 83.3% of the trades being winners. The one slightly lacking factor was that average wins were 0.63 the size of average losses. The Beta (as compared to the $SPX) is 1.82 (meaning it is 82% MORE volatile that the S&P 500 index), so the ride could be a bronco ride.

The negatives ( basically 5+ months of money losing quarters) are summarized in a Wall Street Journal article. The good to positive news was that Verifone Holdings Inc. (PAY) made a little money and beat street estimates in Q2 2015. Verifone Holdings is indeed a play on the retail expansion of Apple Pay, a collaboration with Visa Holdings to expand Apply Pay and Android Pay into China and other overseas markets, as well as to expand store rewards via the Apple Pay app. There are a lot of moving parts to this story, but the stock reacted by swinging higher on a truly rotten trading day for bulls on Friday, June 12, 2015 on volume that exceeded 150% of its 50 -day simple moving average of shares traded. That tends to ring a bell with the neural net models, and in this case, it seems to like the set up. For a summary of potential growth (and yes, I know it comes from Seeking Alpha, but at least the data is summarized nicely), read this article. There is considerable controversy over what gets published there ( as many contributors are paid), but if I can find relatively generic content that does not amount to total fan-boy (or fan-girl) bloviation, I will reference it.

If (and I think, despite performance and prospects), $PAY can hit the numbers in that most recent article above, there is considerable chance that it could tag out somewhere between $39/share and $43/share. If $PAY screws up, it could get nasty, but with all the balls in the air seeming to bounce its way for the moment, (and price patterns tending to agree with that bounce). It does seem feasible. Lets look at this chart to see if we can get a bead on an immediate price target in that 5 to 15 trading day trading window.

To summarize the targets (and I can elaborate later in another post)

Target 1: 38.08 roughly, but I would accept a penny below the round $38.00 level at $37.99 to get a fill.

Target 2: $39.25

Target 3: $40.15

Can PAY go higher? It could, but remember everything has to work perfectly for that to happen. In the current world trade environment (and market environment), anything can happen. If you look at this IBD chart, you can see that the volume did pick up on June 12.2015, and that the price is attempting to hit support on a rising set of price moving averages.

With the general U.S. market in a bit of a sloppy mode between banging against old highs and then slumping listlessly into the summer season, we might see more volatility that could shake long positions like the one we recently saw with JBLU. That is one reason why so few positions pass the screens, and why I personally will remain cautious until liquidity and volume return to U.S. equities. A purchase at or below 36.64 is likely the best entry point, with a stop a penny below the low at 35.20 (35.19, which is not a round figure, probably works best). That makes this trade a slightly riskier than normal entry, but it is consistent with price structure.There are no guarantees of a winner, but the conditions seem right on any general market uptick.

That is all for this week’s reversal report. As I see things, I will make some brief postings. We are still running sideways in a rather confused but slightly bullish-biased market. This is NOT the time to be going to Vegas. It is time to look for the best set ups you can find and to manage the risks of any position, whether it is a swing trade or a long-term position trade. Make sure that if you have long-term profits, that you either find a way to protect them, or to take those profits in as tax-efficient manner as possible. U. S. equities in general are not cheap by longer-term historical methods, but there are places where those equities are cheaper or more expensive by sector than other stocks. Be mindful of that as you progress into the fall. In cases of extreme valuation, it is never a bad idea to sell too soon. You can always wait for the next bargain to come along, if you do your homework.

Thank you one and all for continuing to support this blog!

 

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A piece of sculpted Steuben glass from Post Online Media

 

Note: For full disclosure, I am an former Corning employee, but I am neither a hapless fan boy nor am I a current shareholder of Corning stock. My stock screens (fundamental, technical, and neural net) found this name and a few others that hit the top of my lists this past Friday evening.  As you know, I am not a purveyor of crap (commonly repeated attributions of profit), most of which are not profitable because they are based on random tips. This research, good or bad, is based on a consistent application of screens that I have used for nearly 15 years now, combined with about 30 years of overall experience. There is NO guarantee of profitability implied, only a relentless effort to find good technical, fundamental, and momentum values for stocks to hold long for at least 5 to 15 trading days. Though these are bullish set-ups, I am neither bull nor bear, I am just a Buffalo.

Here is a list of this weeks screening survivors:

Raytheon         RTN    xN 2619318 Aerospace & Defense (Mfrs) Aerospace & Defense
Fidelity NatInf FIS    xN 1599317 Business Svc (Misc) Business Svc
Paychex Inc     PAYX xO 2454385 Business Svc (Misc) Business Svc
Biomarin Phr  BMRN xO 1013159 Drug (Biomedical\Genetic) Drug
Catalent Inc    CTLT  xN 1443668 Drug (Biomedical\Genetic) Drug
Medivation     MDVN xO 1305460 Drug (Biomedical\Genetic) Drug
Corning Inc     GLW    xN 8753586 Electronic (Misc Products) Electronic
Fairchild Semi FCS     xO 1097018 Electronic (Semicndtr Mfg) Electronic
iShr GSInvst    LQD    xA 5547971 ETFs (FixedInc\Other) ETFs
JP MoganAler  AMJ    xN 1776758 ETFs (Sector\Energy) ETFs
Sony Corp.        SNE    xN 1389931 Home (Audio\Video Prods) Home
Bitauto Hldg     BITA   xN 2835045 Internet (E:Commerce) Internet
Joy Global Inc  JOY     xN 1469355 Machinery (Const\Mining) Machinery
Terex Corp       TEX     xN 1169341 Machinery (Const\Mining) Machinery
Pitney Bowes    PBI      xN 1347774 Office (Equip\Automation) Office
MeadWestvaco  MWV xN 1246130 Paper Paper
Rock-Tenn ClA  RKT   xN 1538994 Paper Paper
Lorillard Inc       LO      xN 4730512 Personal (Tobacco) Personal
Chevron Corp     CVX    xN 6023877 Petroleum (Intl Integrted) Petroleum
Enterprise Ptr    EPD    xN 2858695 Petroleum (Prod\Pipeline) Petroleum
Kinder Morgan   KMI   xN 12092161 Petroleum (Prod\Pipeline) Petroleum
HollyFrontier      HFC   xN 2563829 Petroleum (Refining\Mktg) Petroleum
Marathon Oil      MRO   xN 5321674 Petroleum (Refining\Mktg) Petroleum
Tesoro Petrol      TSO    xN 1612504 Petroleum (Refining\Mktg) Petroleum
Valero Energy     VLO   xN 5262965 Petroleum (Refining\Mktg) Petroleum
Western Rfng     WNR   xN 1008221 Petroleum (Refining\Mktg) Petroleum
Devon Energy     DVN   xN 2740467 Petroleum (U S Explr\Prod) Petroleum
Cheniere Engy    LNG    xA 3974166 Petroleum (U S Explr\Prod) Petroleum
Computer Assoc  CA       xO 2739483 Software (Business) Software
O G E Energy    OGE      xN 1152285 Utility (Electric) Utility
ONEOK Inc        OKE     xN 4608627 Utility (Gas) Utility

Volume is recorded in shares traded on Friday June 5, 2015

x means the stock is optionable

Trading in U.S. equities and stock index futures has been as treacherous as trying to row a kayak in the vortex implied by that Steuben glass piece shown at the top of this post in the last month. As you can see, we still have a lot of petroleum exploration and production names appearing on the list. This week however, biotech drugs and electronic components have made a rumbling. When value and fundamental screens were applied to the technical screens, we had three final qualifiers, WNR, GLW, and CTLT.

The value play among these three happens to be CTLT.   Because the stock has such a short trading history, there are not enough trades to apply against the trading statistics, and for the purposes of swing trading this model, CTLT has to be put aside. I WOULD keep this one on a watch list. Catalent is a developer and marketer of drug delivery systems. The stock has a projected earnings/share growth over the next year that should approach 40%. No guarantees that this could happen, but the company finishes a secondary offering on June 8, 2015 priced at $29, and that has not harmed the current stock price, which closed at $29.61 on Friday, June 5, 2015.

WNR does not quite possess the statistics required by the neural net based Fibonacci pattern model to be traded either. As oil prices continue to struggle with the $60/barrel level, I think there will be time for this name to provide additional swing trade opportunities as time goes on. Many of the names in that list above will also, which is why the screens will continue to look for them over time.

So what about GLW (Corning Glass Works)? Statistics fall just below the acceptable level, (1.62/1 Profit Factor, 58% winners, versus the minimum standard 1.60/1 60% winners standard, though average win/average loss ratio is 1.42, which is strong).  Corning appears poised to see improved earnings from their involvement in 4K high definition TV screens and optical fiber to the home sales. With 2 billion in net cash, GLW could buy back shares. When  one considers that near term (next 12 -18 month) earnings growth could approach 16% per annum, given its current price to earnings ratio of approximately 12.11 and a share price at 20.71, its not impossible to see a price on GLW approach 27.30 to perhaps 30.oo a share. That is not too shabby a return. Read this week’s Barron’s article for data on the prospects for GLW.

Why does the model not like the swing trade? Look at the daily chart and the corresponding weekly chart. Typically, you would like to see a bullish engulfing candle for a price bar on the momentum reversal somwhere around the 61.8% retracement of that last up-move (it stalled around the 50% retracement, and did not show a large price reversal). In my experience, it is best to wait for that to show up before initiating a trade.

Also, you would typically see a reversal very near that blue trend line you see on the weekly chart at a key retracement line that intersects the blue trend line. That would happen somewhere between 18.48 and 19.80 per share. Yes, that is a WIDE range, but it is important to understand that the statistics on the model will likely improve dramatically when support is tested, and that if a volume reversal hits with a bullish engulfing candle AND at an important retracement level, the criteria for a trade with 70%+ likelihood of success will have been met. I am willing to WAIT for that to happen.

Once again this week, we have stocks that are close but not yet ready. I will continue to monitor them and keep looking for better entries. At least the companies pass the test on a multitude of fronts for a long trade, and those that do generally work. That reminds me!

Progress of CFG:

The neural net swing model fired a sell signal after Friday’s trade. It closed at 28.32. When that stock was recommended on March 30, 2015 at or below 24.50. If you still hold it, not adjusted for commission, you have about a 15.5% gain over that time. Now, it look a LOT LONGER than 5 to 15 trading days to get through the targets, but in this market, it is taking longer to get to target levels. The US equity markets seem to be pretty much in stall mode, even though in aggregate they continue to press to slightly higher highs on relatively light volume. Because screening out the nasty names in the list helps to reduce (though not TOTALLY ELIMINATE) risk, these kind of shorter term returns are possible.

Progress on JBLU:

20.49 was the close on Friday, only slightly higher than the 20.44 entry. The model still likes the position, but for now, momentum is a bit slack and little progress has been made since May 26 when this position was mentioned. I will continue to follow it and comment.

For the kind of method I use, the trades are a bit slow in coming at the moment. I am fine with that, as I will protect capital while waiting for the positions to arrive. I am eager to trade when conditions are right, but I am not eager to lose money otherwise :).

More is coming. Thank you for supporting this blog!

 

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The Three Stooges Via Boston Globe

Isn’t this cycle getting a little monotonous? Once again this week, a large plurality or majority of stocks in energy production and exploration showed up( 3 of the 6 that survived this week), and NOT ONE passed the neural net screening process. This reminds me a lot of the end of 2007 and beginning of 2008, when it seemed like we could not make new headway and the markets were topping out a bit. Regardless of that, the U.S. equity markets defy all gravity and continue to press to new highs even with some dramatic pullbacks after hitting them.

I cannot (and will not) publish names that will not pass the minimum screens, so there is nothing to trade this week. Of the 20000 stocks surveyed, only 6 made the first cut:

VNET  Internet Service Provider

WNR Petroleum Refining

ECA  Petroleum Exploration and Production

EC    International Energy Production

VIV  Telecom Services

TDC Computer Memory Devices

CCJ Uranium Mining

I would probably keep WNR ECA VIV and TDC on the watch list. WNR and ECA are dependent on the price of crude oil ( as NFX is). Until we get a line on what crude oil will really do in the next 6 to 12 months, I think these names are still toss-ups.

I really apologize for the dearth of names meeting the fundamental, technical, and neural net screens, but that is the nature of this market at present. I will continue to search and dig out the good stuff as it becomes available.

WHAT DO THE DOW TRANSPORTS AND THE DOW JONES INDUSTRIAL INDEX SEEM TO INDICATE ABOUT THE U.S. EQUITY MARKETS? An internet marketing expert chided me this past week for writing like an academic, but if you want to learn something, you need to READ IT AND STUDY IT. Here is a good discussion of Dow Theory . STUDY IT. What I am going to do is to pull back to a monthly chart basis, and then quickly discuss how what I see varies from typical Dow Theory. I will also try to explain WHY and WHY we might want to be a little more worried than we might be otherwise.  If I get more votes, I can go further into detail about it. You should AT LEAST be aware of it, as even though it is an often discredited “theory” created over a century ago, you would be absolutely amazed at the number of institutions that track this concept.

I had a couple of problems with data sources again this week, but being the intrepid redneck that I am, I pulled up ETF surrogate for the Dow Jones Industrial Index (DIA)  and an ETF surrogate for the Dow Jones Transportation Index (IYT). Both are monthly charts.  Notice that even though DIA is making new highs, IYT is NOT! Transports are not confirming new highs, and that should make perma-bulls at least a little nervous about the continuation of this multi-year rally from the quantitative easing (QE) instigated low of 2011.

Note that the gray dotted line only connects the two major lows in this last rally. For reasons I will not go into here (even though for full understanding, you need the Fibonacci retracements to understand why), we are likely to see that underlying trend line TESTED by a correction before we would begin to “soil our shorts” over a potential major break in the rally. That would give a potential correction in the Dow Jones Industrial Index ($INDU) below 16,000. That is not such a big deal in context, but, what IS different is that the Federal Reserve is out of bullets with short-term interest rates effectively at zero. There are other ways to shift assets on the Federal Reserves balance sheet, but it likely will not be all that effective.  We will have to observe what happens to GDP and consumer spending as this year progresses. Economic growth at below historical norms and wages stuck in neutral in the US for nearly two decades are not exactly belweather pre-conditions for a consumer led economic boom. There are lots of questions both domestically and internationally that have to be answered. The Eurozone is still in crisis over currency, solvency and austerity in public spending. Russia is rattling its sabers in Ukraine and the Baltics (not to mention Poland), and China is threatening military action. The Middle East is also not exactly vacation-land at the moment either. It is no longer easy to make logic-based forecasts when so much is up in the air. All one can do at the moment is to watch the precursor market actions that would signal change. What I demonstrated above is certainly one to watch, but maybe not quite yet time to panic over. Still, keep your eyes OPEN!

I got that discussion finished without too many words. Remember folks, even Moe Howard, the organizer of The Three Stooges, used the word “monotonous”. (Of course, he was purported to have an effective IQ of around 200 and had a perfect photographic memory, which is why Columbia Pictures president Harry Cohen was literally afraid to negotiate contracts with him.). Being stupid can be smart :). More is coming, and I will do additional scans over this week to see if anything else pops up in this messy market.

As always, thank you for supporting this blog!

 

 

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A brief note: I decided to save time today by attaching the charts to links like the old days. If you do not like that set up and want me to go back to posting the charts directly on the blog, please let me know at buffalotrader100@gmail.com. I am trying different ways to produce high quality with increased speed. I found a way to consolidate the list of survivors (which is why you see them all in a nice pretty column today).

Here is the quick look at the original list of screen survivors for Friday 5/22/2015. All these stocks trade at greater than 1 million shares/day, prices at or above $10/share, have positive momentum reversal characteristics on higher than its 50 day simple moving average of volume (reported as greater than or equal to 150% of that value, though there are a few reporting anomalies which might slightly be in disagreement with that). The close of that day is greater than the open, and there is a decent statistical expectancy that a variation of a 61.8% retracement of the previous swing from low to high on a daily chart has been met, followed by a reversal. The neural net models do a complete optimization of the swing pattern model it is based on, and it looks for highly probable statistical fits for the next run up. It is a proprietary model that I built using Ward Systems Inc. NeuroShell Day Trader Professional.

WNC Transportation/Equipment Mfg.
JBLU Transportation/Airline
TRMB Electronics/Telecom
KSS Retail Store
ANF Retail Apparel Maker/Marketer
URBN Retail Apparel Maker/Marketer
RYN Equity REIT
LINE Petroleum Exploration and Production
LNCO Petroleum Exploration and Production
NBL  Petroleum Exploration and Production
RICE Petroleum Exploration and Production
RRC Petroleum Exploration and Production
SN  Petroleum Exploration and Production
UPL Petroleum Exploration and Production
POST Food Processing (Grain/Sugar/Flour)
CME Brokers
VXX Specialty ETF
QLD Specialty Dividend ETF
XME Natural Resources ETF
FAS  Financial ETF
INVN Electronic Components
KEYS Electrical Equipment
HMC Auto/Truck Manufacturing

Note once again that US petroleum exploration and production names continue to pop up on this list. Today, non met the combined screen pass for value and for pattern statistics, so none get on that list. Some names are close and should be watched, in my opinion. Among them are UPL, WNC, POST, HMC, SN, KSS, URBN, and KEYS. Probably the best value on this list might well be UPL, but it probably bears watching as the price of oil stabilizes. It might take some time, but if that does happen, there are a lot of names including that one that may begin to present stronger and perhaps longer-term buying opportunities.

Let’s look at a chart of JBLU (JetBlue). A few things are noticeable:

1) Look at the consistent trend line that has existed since January  2015.

2) It just hit a new all-time high on May 19 ,2015.

When you see conditions like this with increasing volume at swing points, you tend to see extensions of new highs made. This stock for the balance of the year has been a real “buy the dips” kind of stock. The neural net statistics (Profit factor 2.56/1 and 66.7% with an average win/average loss ratio of 1.28/1, tends to verify that analysis. Does that mean that the next swing is a guaranteed winner? NO! What it does mean though is that we might expect this trend to continue given what we know about the company’s current earnings activity. That is:

1) The after tax cash flow enterprise value of this company is roughly $37 dollars. Its earning growth estimates for the coming year are anywhere from 20% to 29% per annum, given the fact that air travel is expected to improve for the balance of the summer, as apparently, according to industry estimates, lower gasoline taxes have put some additional money (for now) in the pockets of consumers, and those consumers are chosing to spend it rather than to save it.

2) If you accept 13.61 as the current price earnings ratio for JBLU and the 2015 earnings going forward would be 1.75/share versus 1.36/share from 2014, you get an earnings growth of 28.7%. If you divide that by the trailing PE currently (which is 13.39), you can use that reliable Peter Lynch price target mechanism and estimate that the stock could have a terminal price of $33.96/share sometime by the end of the year. What makes this a little dicey is that JBLU currently estimates zero real earnings growth in 2016, so the numbers need to be pretty solid going into the second half of the year, which seems at the moment to be the case. This could indeed change.

Compare this price target chart to the price target my model would provide. As you can see, we are well within those terminal price targets with the outside target being 23.56, which is a 17.6% potential gain over Friday’s closing price, EXCLUDING COMMISSIONS FOR THE TRADES TO BUY AND TO SELL.

I still believe this market does have risk to world events, goofy Euroland issues roiling institutions, ETFs,  and mutual funds, and a real question of whether we see a recession sometime in 2016, but for now, it would appear that buyers are going to chase certain transports. As long as the earnings seem predictable (as predictable as one can ever figure in the current US market envrionment), JBLU should be among those that will continue to be bought into that range I discussed above. I have a hard time seeing it getting that much above 33.96 (even by the end of the year), but at least there is some realistic potential that it could happen. If you were to try to position this, you would attempt to buy at or below the open price on Tuesday, with a stop just below 18.97. At the first target of 21.49, that creates a 1.37/1 reward to risk ratio, and if the second target is the goal, it ends up being a 2.23/1 reward to risk ratio. If you get the first target and decide to take partial profits, you would then move your stop to breakeven and allow the rest of the position to take a chance at the second target, and even the third target.

I am going to cut this post a bit short. The pickings with this methodology on a once a week basis have been slim of late, but I will do everything I can to squeeze out what I can find until we get strong established trends again. Remember that trading involves risk and you must take consideration of this before determining position size or even taking the trade at all. Thank you one and all for supporting this blog!

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Anadarko Petroleum Company Logo from Anadarko Petroleum Website

 

 

I was getting panicky for an image for this blog post, so I just decided to go the corporate route, given there was nothing particularly funny or snarky that I could say. Sad part is, despite the interesting nature of the chart, and the decent statistics, the statistics do not meet my criteria, so once again, we get to scratch the last standing soldier on the reversal list this week.

Let us cut to the chase. Of the 19 survivors of the 20,000 stock screen, 9 were petroleum related (either exploration and production, or pipeline and machine equipment). These were APA, APC, CJES, NBL, NFX, OXY, CMLP, EXH, and HES.The rest were transportation related names (NMM, CNI, UNP) and the rest a hodgepodge of utility (SO), media (CBS,SNI), and diversified company names (BAM).

When one strips away value as a criteria (that is, dumping names on an enterprise cash flow value basis), UNP, CMLP, SNI, CNI, NMM,CBS, SO, and NFX survive, with APA right on the edge (and I will discuss that in a moment). NFX, last weeks candidate, did slide as I thought it might, and I will also briefly cover that one.

When I ran the neural net patterns against the price charts, APA was the only close one, but it just missed. As market and even sector volume (for energy stocks in particular lately) has gotten a bit spotty and in some cases erratic, the confidence levels of these models deteriorate. I think what is important however is that time after time, US energy names are appearing on this list, whether they are independent producers or multinational conglomerate producers and refiners.

Why is APA on the fence? Well, a lot has to do with earnings performance and the price of oil itself. I am not always a fan of Zack’s, but that article summaries Anadarko’s (APC’s) difficulties. If prices stabilize and rise, they make more money and can meet their optimistic earnings estimates. If not, they will miss. The one thing APC has done correctly is shut down non-performing wells and removed rigs in non-performing areas. For some reason at the time of this writing the link to the CEO’s comments about oil prices cannot be accessed, but the balancing point for APC is at roughly $60/bbl of oil, which is roughly where crude oil is priced now. If prices rise to $75, the company has the leverage and the right cost structure to profit nicely from their best producing oil and natural gas properties. If not, then there will be a longer waiting game for price increases. This closely related article from TheStreet.com describes the move that APC and other companies have made to increase operating efficiencies so that they can profit from much lower oil prices. If that indeed happened and APC were to rally from that reversal point on Friday, the price symmetry target would be roughly 102.70, as shown in the chart below.

APC Chart with AB=CD pattern

There is only one problem with that theory and that is that the neural net statistics don’t quite support doing that with APC. I will keep it on the watch list.

What about NFX?  It basically did as I said it might and drop a bit before reversing again. What do I think now? Take a look at this chart of NFX, marked up for potential price symmetry.

NFX 5172015

As you can see, we have both a bullish engulfing candle on Friday, which adds credence to the reversal theory at the lower price that I mentioned last week, yet the statistics are still pretty neural about it all. If I had to guess, I would imagine that we might see the price symmetry shown here and a reversal around 31.20, but at this point, it is anyone’s guess.

Much will depend on what oil prices do over the next couple of weeks.  With geopolitical forces playing games with oil for regional self-interest and economic power, all the smart exploration and production companies can do is improve operating efficiencies, shut down the marginally producing wells and rigs, and wait patiently at much lower outputs. Oil prices are now settling toward some kind of nervous equilibrium, but it will take time to shake out. I think one thing is clear though, institutional investors and individual investors are now beginning to buy the oil producers again, albeit very slowly and methodically. I will continue to look for these and other sector names as they show up on the screens.

I do apologize for the lack of great patterns, but this market of late has not yielded many. Those of you who have followed me over the years know that I will not produce crap to gather eyeballs to this page. I do the very best I can with my research, and let it hit when it hits. Summer is coming too, which can lead to additional trader lethargy. That same period of time can allow us to do some good research as things slacken up a bit, and we can be ready to find some really decent candidates for trading. As an aside, I have had to make adjustments to my futures and forex trading to accept a little less profit to increase my total win percentages, win/loss ratios, and profit factors. I do that to continue to gradually INCREASE position size as profits grow. Even at a slower pace, if I can reduce time in market and increase percentage profits, I will make even more money down the road as trends resume (in either direction).

Patience is all one can have when conditions are not favorable for your trading style or general trends are flat. Keep your patience and your discipline in place, and you will win in the long run.

Thanks again for supporting this blog! More is coming.

 

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I am going to cut to the chase here. Based on Friday’s data, out of the 42 survivors of 20000 stocks and ETFs in my universe of screening, 8 of them were stocks involved in petroleum refining, exploration, pipeline development or field services (CLR, GPOR,NFX,PBF,SE,BHI,SU, and HAL), 9 were in emerging market ETFs, largely China based, (EEM, IEMG,EDC,AAXI,ASHR,EWS,FXI,MCHI, and PCY), and the rest were in a smatterng of mortage and real estate REITs.

One of the better recognized Chinese software firms (QIHU) also hit the list. KLIC was the only semiconductor name of note that made the screens.

When the value analysis was done, only two remained, NFX and KLIC. KLIC got booted from the neural net screens because it gapped down on Tuesday, May 4,2014. The nets typically don’t care for gaps on the downside, because of the high potential for a “gap and go” sort of reversal to lower prices. The momentum indicator AND volume did seem to provide some confidence of a reversal, but the trading statistics were less than impressive on a profit factor basis, even though 70% of the trades were profitable. What could be the problem with that, you might ask? The losing trades tended to be steep losses, and many came one after the other. KLIC does have some issues with consistent profitability over the last few years, so even with some accretive investmens in semiconductor technology and burning of cash for same (something they did in the past quarter), diluted growth in income is a bit flat to down from previous years.

The nets did indeed like NFX, and it is growing on an earnings basis at roughly 20 to 25% annually at the current time with a Price earnings ratio of roughly 15.1. The net cash flow enterprise value would be, at the close of Friday (36.44/share) could be (notice I did not say guaranteed to be or will be) in the high 50s per share in 2 years if these trends in earnings performance can continue.  The nets show a profit factor of 1.6 and a win ratio of 61% (right on the border of accetptability), with an average win/loss ratio of 1.08 to 1, which is also acceptible. Volume was just over the threshold in terms of the 50-day simple moving average of volume.

Check out these charts for targets and supports. Note that principle support is based both on price lows and very near Fibonacci retracement support. Initial price resistance is based on previous support. That resistance is based on the line above Friday’s upward reversal swing.

NFX Swing Outcome 1

 

 

 

 

 

NFX Swing Support Levels

What you have as of now is a chart that has reversed on decent (but not overwhelmingly great volume) which is very close to target at the 0.382 retracement level of the previous downswing at roughly 36.90. The statistics are passable to take a position here. But lets look at what might happen as that 0.382 retracement or the 0.618 retracement which is at approximately 38.22. What could happen from those two levels? Check this chart out:

NFX Swing Outcome 2 and 3

 

Note that price support on this chart is only congruent with one major Fibonacci level on this chart (at the 0.786 retracement). It also happens that there is price symmetry between the blood red line (which is the C to D leg of that AB = CD zigzag pattern), and the bright red segment ( the A to B leg) which occurred after the momentum high. Statistically, based on research I have run over the years on these patterns, it is at least 50% (meaning more likely than not), that there will be price support found there, and that this pattern will become an AB=CD bullish buy point at some time in the future.

If I were conservative, I would wait for that pattern (the AB=CD) pattern, to complete, and the take a position long taking a price perhaps 2 cents lower than the momentum low that is the X point (which culminates with the “A” high that precedes that projected AB=CD style rally correction. If I were aggressive, I would start a very small position, take profit at the 0.382 retracement level, and then allow the 32.12 level to be tested for a future entry (which I will be able to monitor :) ).

 

What are the potential risks to this long trade set up? If anything, it is likely going to be the price of natural gas. Since it appears that the United States is locked in a low natural gas pricing environment (and a minor glut of shorts in term sf available supply), it may be more difficult for Newfield Exploration (NFX) to get the easiest extractable gas, as this company does not have exposure to the plentiful reserves in the Bakken fields. The company, for that reason, is wisely ( at least so far) shifting its emphasis on petroleum liquids, where it has ample places to explore and produce. That transition can be fraught with bottlenecks, some of which were indicated in this quarters (Fiscal Q1 2015’s) quarterly loss. It was anticipated that the company would earn $0.10/share. Instead, this past quarter, NFX only earned $0.03/share, which was a major disappointment. NFX has a decent track record of success in development and production over time, however. The stock though, could be highly volatile (as to some degree or another petroleum prices have been in the last 10 years). The swing trade long is only meant for 5 to 15 trading days, so it is not a long-term or intermediate-term set up by any means.

PAST SWING TRADE: Remember CFG?  Well, as you can see, it has hit is outer target now. 26.40 was effectively taken out. It did take a little longer than 5 to 15 trading days, but that is an estimate. With volatile, toppy markets like we have at the moment, it could take longer to happen than this.

CFG 05082015

Is what I suggest that a new boom in gas related production stocks is at hand. NO. I do think that consolidation in this industry is possible, and that the growers can outperform the non-growers. NFX has inherent risk of lack of performance on a price basis, but we will simply have to watch it and find out what happens.

That is all for now, to get this to the presses on time. Thanks for supporting this blog!

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John Belushi as Bluto in “National Lampoon’s Animal House”

 

 

My partner and I are still struggling in certain aspects of our automated trading models (something that is, sadly, out of our control at the moment). I am reorganizing the marketing effort, and I will find a way to get targeted traffic back.

  I think I heard someone out there say “Whud’the hell we sp’osed to do y’moron?” I decided to watch a favorite motivational speech.  Did you think that would stop ME from continuing?

The one favorite that the neural nets liked today was Hartford Financial Services (HIG). The way I have the net cash flow from operations estimated for the company, it’s value 2 years from now should (NOT WILL) be about 47% higher than it is now (1.47/1). The trail of long signals created by this model has an aggregate profit factors of $2.86/$1 ($2.86 made for every dollar lost in a trade, and the average win/average loss in this same signal progression is $1.72/$1 (the average winning trade wins $1.72 for every dollar lost in a losing trade).

Here is the problem, and why there is a WARNING with this particular stock. 1) Earnings will be announced after the close tomorrow. Estimated earnings per share is supposed to be $0.97/share. Whispers SEEM to indicate that it could beat those estimates by 2 cents/share, and there are analysts out there like Goldman Sachs recommending purchase. The company is trying to shore up its operations by offering specialized insurance products, but it is moving into areas of catastrophic protection that can be quite risky. Some of those risks may be discussed by management tomorrow and might have some impact on earnings tomorrow as well.

Let’s take a brief look at a daily and monthly chart of HIG.

HIG Monthly with Fibonacci ConfluenceHIG Daily with Gartley Pattern

On the bottom chart, you can see the almost perfectly symmetrical bullish Gartley pattern on the HIG daily chart, with the proper volume, price reversal and reversal of momentum. If you look at the top (monthly) chart, you can see that the stock has had one heck of a nice rally since March 2009, and is running into a little bit of bearish confluence with the 0.681 retracement levels of the large bear downswing from 2008 to 2009. Though Goldman Sachs forecast a price target of $49 in the stock, it is nearing once major confluence level this very week, and would meet another significant one at the $53 area (roughly. I could calculate it exactly, but I think there is enough concern about the earnings that the additional pattern evidence builds another case against being long for now).

If it were me, I would place HIG on a watch list and stand down until earnings hit. I can discuss this later in the week. What is interesting is that since that bottom in 2009, about 3/4 of the dips on the daily charts that meet Fibonacci criteria and the neural net pattern identification criteria were winners for HIG, but we could be nearing headwinds. I remember commenting on IBB late in the fall on StockTwits that it might also hit some headwinds, and it did for awhile, and then suddenly broke through. With all the new product developments and merger talk, these stocks hit rarefied air. 

There are still rumblings in the natural gas drilling sectors, but none that look that fantastic yet. CFG continues to remain firm despite the crazy volatility we have had recently. If you have a breakeven stop and are riding it, I would continue to hold it until it tags the 25.84, and then decide to take additional partial profits or leave the position altogether, depending upon the size of your position. I will find other swing candidates as time goes on.

Remember three things:

1) If you want the newsletter that will be coming in the future and you want to see the posts as they are published. Go to the top right of the blog page and add your email address.

2) If you need help with a TradeStation EasyLanguage trading model, you can get programming help from Bruce Linker at www.linkertrader.com. Bruce appreciates your business!

3) I am in the midst of getting training on how to market this blog and any redesign of it. I will very shortly post a video and a survey to get your ideas as to what YOU want to see. If you have ideas, send them along to buffalotrader100@gmail.com .

4) Thanks to everyone for supporting this blog! I especially want to thank the 12 of you still receiving my posts via feedly.com. I used to have a flood of RSS users back in the day. Its good to know that the hardcore never leave their stations!

More is coming, thanks again for your patience.

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CFG TargetCFG First Target Hit

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Well, it has been 11 days (as of this writing) that this post was written, which yielded the chart on the above left. Since that time, on Friday, April 10, 2015 target 1 was reached. At this point, at a minimum, I would move my stop to breakeven.  Why? Here is the reason:

Click on the link for the weekly chart of CFG. It is possible that we have reached the C point of a bullish XABCD pattern (that could resemble the Bullish Gartley Pattern, BELOW that current black trend line). Historically, the odds of that happening are about 30%, but with the market jitters for bulls of late, protecting equity should be job one. The odds are roughly 70% (given the value on this stock AND the rally that met the neural net criteria, it can still hit the retest of highs around 25.85, and perhaps go even higher.  

What would you do in this case?

If on March 30, you were able to buy CFG at 24.50, and you were using a direct access discount broker that could offer you a penny a share to execute the trade, and you sold it at or just above 25.11 Monday, you would be left with roughly a 2% profit. If you were to hold and take a shot at the 25.85, which is not altogether unreasonable, that return would be roughly 5%. If you can wait, given the dynamics of the market, you might want to stay for the test of that level. 

If you have a small account, you can just take the small profit and wait patiently for the next set up too. You definitely have that option.

I will continue to monitor this one.

QVOR Just Missed The Cut:

One more stock showed up on the list this weekend, but the nets were less than impressed with the pattern, and passed on it. The stock is Qorvo, Inc. (QVRO). Here are the particulars on it. Investor’s Business Daily likes the growth prospects of it (not that this fact is particularly relevant or perhaps even accurate). It is a high growth company that provides integrated circuits and components for major mobile device makers. That sector, along with all the names in it, are still in rapid growth phases and widely purchased by small-cap to mid-cap mutual funds and private institutions.

Why did this stock not quite pass the test? Check out the busy chart here. One criticism I hear often about this blog is that it is too long and too complex at times, but (and this is the part where I go redneck), “If don’t git you to read and understand what I’ma doin’, you won’t learn nothin’!” I would go for shame by adding “Life is tough. It’s even tougher when you’re stupid!”. If I had taken that tact, you would have left the blog, and I would have been sued by the estate of John Wayne for plagiarism. Now…where was I?

Oh, the key problems are these:

1) A lack of proper symmetry on that A to B leg of that A to B to C to D pattern. The lack of symmetry was caused by a very vicious sell off at the end of March.

2)The B point and the D point basically tested (and in the case of the D point violated momentarily the same 61.8% retracement level of that last up move from X to A). When that happens, the odds increase that the real symmetry level is below that original touch point, and could follow that dotted orange line down to right around $68/share. Remember when you bought the last high tech growth stock that looked like a rocket shot to the moon, and it fell to a second support level lower than where you bought it? Did you sell it, only to watch it later go to the moon? I know I had in previous attempts. If you said no, odds are, you are lying, and your pants are on fire. Admit it! That is essentially the possible outcome of this current set up, and as such the next walked away, as would I. Could I be wrong? ABSOLUTELY. But do I still have all my capital and the patience to wait for a better entry or another equally good or better opportunity? ABSOLUTELY! Patience to wait for the set up you want is one of the skills required for good trading and for good position investing and long-term investing as well. Ultimately, this could end up being a “three-drives-to-a-bottom” pattern. I will wait for that to occur before explaining it. If I don’t wait, this post will get EVEN LONGER.

Shameless Plug for Bruce Linker:

I will park it right there for now. I am working on tax items, the studio (and learning camera work and editing), and working with Bruce Linker to trade 5 markets with the improvements he has made in our trading models using TradeStation EasyLanguage. Do you need help coding your model from a programmer who is also a skilled trader who understands what you want when you discuss your ideas with him or her? If so, you need to contact Bruce Linker at www.linkertrader.com.

 

 

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Image Credit: CBSNews.com

IF YOU ARE ENJOYING THESE POSTS, PLEASE SIGN UP FOR THE E-MAIL NEWSLETTERS that will announce new posts and provide other useful information to traders! I think you will like it. Just sign up on the top right hand side of this blog in the sidebar (the blue box).

 

These articles describe the statistical probabilities of long positions on equities mentioned, based on neural net projections, for the next 5-15 trading days. These are not holy grail methodologies, the road to easy street, or anything else. These projections are the result of screening for technically significant retracement and momentum patterns that have been further screened for value and bullish sector performance. In other words, the projections are for long positions. REMEMBER, TRADING AND INVESTING ALWAYS (NOT SOMETIMES, BUT ALWAYS) INVOLVES A RISK OF LOSS! This information is provided for educational purposes only!

 

As I mentioned last week, this will be a gradual transition to weekly and hopefully soon daily reporting. I will have to add a few features in the new screens to make the overall market reviews the way they were, but that is coming soon. I am still working on the studio items (and learning a new video editing software package). That will take some time, but hang in there with me, its coming.

Review of last week’s selection:

CFG (Citizen’s Financial Group, Inc.) is moving toward its first target around 25.10. RBS’s sale of stock was well received by the investors and traders public last week, and despite the nastiness of latter week action, the stock moved forward Thursday. Futures sold off strongly based on reaction to the weak U.S. employment data, and that could put a damper on things, but at least there was strength in that stock and in parts of the regional bank equity sector at this time. I would watch my stops in case there is a bit of craziness in the early morning Monday. The stock maintains the characteristics it had when the neural net model picked up on it, so one now much monitor the position.

What was seen in the screens over the weekend?

I think the most interesting thing was that computer memory devices and semiconductor equipment stocks began to register on the reversal screens, as well as cellular telecom, a few equity REITS, Petroleum Explorers like LINE, and CJES, and other regional brokers (sort of following the trend of CFG). Foreign ETFs were also being purchased on Thursday. The sad part is, none of them were quite passing the final screens for selection. Here are the charts for both:

The two stocks that were closest though were LRCX (Lam Research) and STX (Seagate Technology). Charts below are courtesy of Stockcharts.com

http://stockcharts.com/h-sc/ui?s=LRCX

http://stockcharts.com/h-sc/ui?s=STX

The thing that is interesting about these particular names are dividend yield and competitive products (in the case of LRCX products) as prices for chips and devices begin falling.

I do not like the fact that there was a gap fill on LRCX that has reversed and fallen back, but it does seem to be finding buyers at those double bottom lows. Credit Suisse is attempting to promote business prospects in the coming quarter for its 3D NAND chips . The fact that brokers promote this is not really a reliable indicator of strength, but there was buying in the stock over Thursday, and should price symmetry and volume improve, the nets might like it better. I think it is a stock that one should at least keep on the radar.

STX is undergoing a share buy back program, and pays a nice dividend as well (roughly 4.1%). Again, it seems to be holding support at the moment, so it is best, at least from my perspective, to keep it on a watch list and see if the nets will give it greater love as time goes forward.

As we get a clearer picture on oil prices and energy consumption, there are names out that that will begin to pop up on a value basis that institutional and individual investors will begin to accumulate again. I will be on the lookout for those as well.

That is all for now. Let me know what you think about this and other posts in the comment section and at thebuffalotrader@gmail.com. More helpful information is coming in the future! Thanks again for suporting this blog!

 

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Furious 7 – Is It Worth Seeing?

Credit: Forbes Magazine for large image of Furious 7 billboard frame.

Before reading, as always, take a look at my rules and perspective on reviews!

Movie: FURIOUS 7 (2015)  Rating: PG-13 (for mild sexuality and graphic violence). Length: 2 hrs, 17 minutes. IMAX (?): Yes. Any additional enjoyment added by IMAX?: No. It will just be bigger and louder. Family-Friendly: No. It is violent and the sexuality is probably more than young kids should see. Your discretion is most important in making such a decision to take your children.

Ok, lets get started here. I have been absent in writing the Buffalo Trader Movie Corner largely because most of what I have seen has been garbage. Forgive the pun, but Chappie was crappy, and the Academy of Motion Picture Arts and Sciences should demand that Colin Firth return the Oscar he won for The Kings Speech for his depiction of a repeated mad stabbing of a woman in the stomach in Kingsman:The Secret Service. (I personally would also recommend that Lynyrd Skynyrd be removed from the Rock and Roll Hall of Fame for allowing the song “Freebird” to be used in this scene of random mass murder (though I am sure someone in the Van Zant family needed retirement money). Basically, the quality of movies this season has been so bad that I decided to stop writing for a bit.  The lone exception to that might be McFarland USA, which is a great film about community (based on a true story).

So, should you see Furious 7?

Here is my answer:

1) If you are a movie series completest, without a doubt. ( I have only seen 3 of them and two via Redbox). I am not exactly a big fan of the series, but this movie covers all the ground of the previous 6 movies in the series, and deals with virtually every overhanging issue of the other films.

2) Do you like crazy action with cars, buildings, planes, drones, tanks, armored vehicles, and airborne cars taking out helicopters? THEN THIS IS YOUR MOVIE! Every known law of physics is brutally and in some cases with malice violated routinely. There are more violations of the laws of physics in one minute of Furious 7  than there are in the entire length of the movie adaptation of the TV show “The A Team” . People get hit with tire irons, and only receive minor scratches, cars fly out of skyscrapers into other skyscrapers and then into somehow empty parking lots, people fall from collapsing bridges, hit trees (either bodily or with cars flying down Azerbaijan mountainsides, and only have to crack their necks to be fresh as a daisy again).

James Wan directed this film, and he cares as little about the condition of his characters as Michael Bay cares about the condition of the robots in Transformer. He just has to keep them alive throughout the shooting of the film. He gets Michael Bay’s flair for the absurd though. You will think that Vin Diesel and Dwayne Johnson are superhuman after you see this film. If the character (good guy or bad guy) is significant, they can handle any form of physical damange, and like the original Star Trek TV series, if you are in a military outfit or don’t count in the plot (?), you are hamburger. What else would you expect from a film like this?

3) Do you care about the plot of an action picture? If you said NO, then you are watching the right movie! All I will say is this. Owen Shaw dies in the beginning of Furious 7 ( as a result of the whoopin’ he was receiving in Fast and Furious 6 by Dominic Turretto ) and his brother Deckard Shaw (who now miraculously looks like Owen ( as he was played by Jason Statham in Fast and Furious 6)), seeks revenge. He has international terrorist buddies, and they have mad hacking skills. If you are interested in seeing this (and I know you action junkies are), all I will say is that Kurt Russell ( as old as he is now) has a part in the anti-terrorist counterintelligence, and decides to help Torretto get Deckard Shaw before Shaw gets him. He has been taking out all of Torretto’s com padres one by one, and so the game is on. The late Paul Walker , the good guy cop, turned bad guy, turned back to domestic family man (you need a program to get the progression) decides to join in. The rest of the gang, including Ludicris, is back. Ludicris doesn’t have a ho in every area code, but he and the rest of the gang go to London, Los Angeles, Azerbaijan, Abu Dhabi, and everywhere else to find Deckard Shaw. They could have been going on an Easter Egg hunt or something else. It doesn’t matter. Stuff is going to explode, cars go fast, bullets fly, and streets and buildings collapse. You get the basic idea.

4) If you care about none of this, then don’t go, or rent this movie if you are bored :).

There is a brief tribute at the end to Paul Walker, who had been with Vin Diesel since the first film in 2001.

Apparently, there is enough bad blood between a couple of the characters to justify an eighth installment, but I will probably not see that one (unless the trailer is good).

I think we all would like to see Dwayne “The Rock” Johnson portray a Disney character in an adult revenge film. Only time will tell if this is ever done, but don’t hold your breath in the meantime.

For direction and cinematography only, I would rate this film about 2 stars by my rather skewed rating system out of 10 stars. It ain’t a classic, but what movie is these days? This is not an Academy Award winner, but a film for action junkies who want to eat popcorn, suspend their disbelief in all things real (seriously), and wanting to see stuff get decimated, fast cars crash, and crazy characters be crazy. If you like THAT kind of film, then you will probably like Furious 7. If you want to save some money, and see the action shots (with tethering), you can always watch this.

That’s my story, and I am sticking to it! Thanks for supporting The Buffalo Trader Movie Corner!

 

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Credit Tim O Elliot at timoelliott.com

 

When the survey comes out, this can be one of the ways I can provide helpful information to traders and investors. What information, you ask? How to position long swing trades! I use these databases in conjunction with NeuroShell Day Trader Professional (Office Network)  from Ward Systems Group to find swing trading signals. They are based off of Fibonacci patterns first described by H.M. Gartley’s book “Profits In The Stock Market” which have been popularized by one of my mentors Larry Pesavento and many others who trade such patterns.

To cut to the chase, I can scan the US equity and ETF markets for set-ups that are based on DAILY INFORMATION that I gather from my own database and from a couple I collect data from. To reduce the time (and to help traders who want LIQUID names, something that can be an issue in today’s markets), I have set up a few criteria:

1) The price, in virtually every case, will be HIGHER than $10. I really don’t care for pink sheet and lower value stocks, save in the case of a real value that could be held longer term. I may find a few of those over time, but I tend to avoid them in most cases.

2) I tend to favor swing trading stocks that have more than 1,000,000 shares in daily volume. Liquidity is the main reason for doing so.

3) I like to see price close above the open on a day for which the volume is 150% of the 50 day moving average of  volume. Typically, there can be institutional interest in some of these names, and this can aid (BUT NOT GUARANTEE BY ANY MEANS) the movement of the stock to a higher price.

3) Though, in the current environment, it can be tough to do so, I also like to be long only stocks that are trading at a discount of their after tax profitability or enterprise cash flow. The reason for that is simple. You will, over time, see buyers, particularly institutional buyers drift to market sectors or industry segments (I dislike the term “space” adopted in the dot-bomb era to describe industry segments, but the cool kids have warped the language, so I run with it). When you see volume activity in such names, something can be going on. Over the last couple of days, one of those names showed up, and I will demonstrate that in a minute.

4) I also use a proprietary momentum indicator, designed by Andrew Cardwell of Cardwell Financial Group in Atlanta, to identify short term reversals. I do not use it exactly the way he uses it, but I do use it in the spirit in which is was designed, to capture signficant turns in price momentum. What I have found over the years is that when combined with price patterns, this indicator can do an incredible job, when used in context with neural net analysis of price patterns to find decent momentum lows that can be used to make buying decisions with stocks.

What I will do today is show you a stock that appeared over the weekend (CFG) and one that appeared Monday night (ADBE). Remember, NOT EVERY ONE OF THESE NAMES WILL BE SUCCESSFUL, but the odds of them being successful are typically higher than 60% (in some cases, a lot higher), and they are based on a CONSISTENT framework of analysis. General George Patton was once quoted as saying “A good plan violently executed now is better than a perfect plan executed next week.” Lets replace “violently” with “consistently”, but you get my point. Consistency can do violence to unprofitability if it is honed and used over and over again. That is why I devised this plan, and why I have stuck with it over the years. This was originally designed in 2001 (not exactly a bullish time in the market) and it has held up decently well over time.

Quickly, lets get to one example, the first being the one that showed up for Monday, March 30, 2015 (CFG) Citizens Financial Group, Inc.

 

CFG 4012015Notice the nice spike in volume that was at least 150% of the 50 day moving average.

It has an after tax cash flow value of approximately (as it IS an estimate) of $38.98/share, which is approximately 160% of the current price, so it is a realistic bullish prospect longer term, and SHOULD BE RELATIVELY CHEAP (assuming everything goes according to the earnings forecast and business plan).

On Friday, the close was slightly above the open.

The momentum was positive based on the proprietary indicator.

The neural nets fired a buy order for Monday, and provided a general $2.42 of profit for every $1.00 loss on other predicted trades and with a win rate of 66.7%. This is not fool proof, but the odds are pretty nicely enhanced. A screen I used to accept any one model is $1.60/$1 (dollars won to dollars lost).

Typically, when I see these set ups, you will see news like this (see the video). It is a Northeastern US regional financial services and mortgage banking entity (and that could be subject to concern, even with its growth prospects in following year, should the economy sour).

The key thing here to remember is that these trades should be best operable (and tradable) in a 5 to 15 day window.

What would the targets be? Take a look (I will cover this in more detail later).

The basic set up is an asymmetrical ABCD pattern that has A-B a little shorter than C-D, but the neural net’s most-liked parameter is met, the 61.8% retracement, where the price drop stopped.

What would the targets be? Take a look (I will cover this in more detail later).

The stop on this one is a bit wider than usual (about 10% below entry). You can also use a tighter stop below the lowest swing low less 200% of the 7 day average true range, but that too is pretty wide. If that width bothers you from the standpoint of equity risk, then you can by-pass that trade and wait for the next one.

That is just one stock. Others will come along. AAPL and ADBE just recently hit and passed the screens as well.

Here is the dilemma currently though. I am fully engaged in trading during the week, and my trading begins with forex around 7 AM on Mondays and continues through the morning with equity index futures. For me to prepare all of this as a one person shop, it could take me up to 3 hours daily to prepare these trades every day, and currently, as I am a staff (and army) of one, and I have other business things to attend to, the timing would be extremely tight.

I could prepare this once per week on Monday, and provide most of the sector set up that leads up to it, with the top 3 or so stocks that pass the screens on the list.

If I can get some momentum via memberships, I may be able to get an assistant to help me with production of this data, which people have truly liked over the years (since 2004, when I first published it on the now defunct trading site, mrswing.com. It was the most popular thing there at the time, and that, at one time was often a top 10,000 website, back in the days of the internet when that used to mean something :).

At any rate, that is something I can begin to provide if THAT is what you want. Once I get the video up and running, I will hit you with a survey to see what drives your needs, and how I might service them!

In the meantime, I will continue  to get the studio up and going and will return with more information. Thank you for supporting this blog!

Remember, go up to the top right and sign up for email alerts about posts and a coming newsletter! If you need assistance with an automated trading routine in EasyLanguage for TradeStation, contact Bruce Linker at www.linkertrader.com ! He appreciates your business!

 

 

 

 

 

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Credit Gary Markstein U.S. News .com

Before I begin this stim-winding commentary, look to your right at the top of the page. If you would, enter your email into that box.  In the near future, I will inform you of new posts hitting this blog and other useful content for traders and investors. I have one more mea culpa too. I have one very minor software glitch related to output and NOT related to neural net software that prevents my posts with the familliar Daily Reversal Report format. It should be ready by Wednesday. I will keep the sole survivor that met the screening criteria perhaps for commentary tomorrow once I get the little problem fixed, but this one is simple. Now, lets get back to the subject of valuations!

 

I have heard all the commentary from every talking head of every persuasion (political, long/short, bearish,if those really exist in the current environment, and bullish.  I have for at least 2 years been skeptical of U.S. equity valuations, and I am not ashamed to say so. I was fortunate, though I had some hunches about forward economic activity, to have gotten rid of all of my energy names before the beginning on 2013. I was a little early, of course, but I had held those positions since 1987 (yep, bought some after the crash of 1987). I was concerned not so much by the Saudis trying to crash America’s oil shale development party. I was really worried about the pace of economic growth in the USA.

I understand that my critics (and I have had many comment to be about it in emails) get made at me when I reference the Shiller P/E index,  which stands as of this writing at 27.2, near the peak of the last market rally (into early 2008). The reason I like this measure is that is is inflation adjusted and is compared to nearly 130 years of U.S. market data. It is not just a short-term measure. It does bother me that, as it approaches 30, it gets close to the extreme values not seen since the 1929 crash and the 2000 dot-com bubble. I have written about this countless times on this blog, so I will not beat this horse to death.

What I want to add to this discussion, however, is the following chart from dshort.com, which is the Advisors Perspective website. Take a look at this chart, which is an average of vour common valuation indicators (including the popular Q Ratio, and the S&P Composite Index distance from its regression line. The average of all four is at 92% above their median or regression line values. The most conservative one (and one I think that is highly accurate) the Crestmont P/E is out 110% and the Cyclical P/E 10 is at 77% above its mean. It as room, if one believes it can eclipse the dot-com bubble levels (and some out there think it can), but as one can see, the S&P 500 is stretched dramatically beyond its mean values over history).

What should also concern investors (particularly long only investors), is that consumer and business spending is slowing.      U.S. GDP and corporate earnings are also slowing more than expected. If the Bureau of Economic Analysis data is correct, people are spending whatever they are saving on lower energy prices ( beacuse of the oil glut and slowing economic activity around the world ) are either attempting to save the money, buy other insurance,  or spending it on medical expenses, including the Affordable Heathcare Act insurance premiums.    Since insurance and financial services are a form or forced or disciplined saving (and who knows what it is if it is drawn into the Federal spending vortex), a vast majority of that money is NOT being used for discretionary spending, and that too can be a drag on the US economy. Add to that the U.S. dollar index near multi-year highs, and multinational US corporations have a hard time exporting for more profits abroad, and that is a drag on earnings. While Eurozone currency weakness (the weak Euro) will aid their economy , the rest of the world, including China, is cooling off.

So you must be asking yourself, what is David Buffalo’s payoff in writing all of this?

Here it is: If you are a long-term long only investor, and you want to follow Warren Buffett’s mentality in this, you must follow his first rule; “DON’T LOSE MONEY!”

What in the world does THAT mean?

If you have a diversified portfolio, you should look at each holding, particularly if you have held something for longer than a year-and-a-day (so as to trigger long term capital gains and not short-term capital gains) and decdied on an future earnings estimate to value basis if the stock is too expensive. If it is, and you are not collecting dividends, you should likely sell that position and raise cash. If not, you might want to consider hedging the position with options to ride out a potential correction (something that happens during or just before a major economic slowdown) and protect your equity position. When the market corrects, and ultimately IT WILL, you will have a cash position avaialbe to purchase equities at bargain basement prices. CASH IS A POSITION. It should be held when things get a little squishy on the trend side and crazy on the valuation side (when it comes to stocks).

Am I telling you to go buy your canned goods, ammo, water, and to go dig your bunker, never to come out again until nuclear winter ends? NO. I am telling you to use your head and not let profits get away that can be redeployed, and to get rid of assets that are failing badly (another way to reduce the tax bite from your winning investments).

We are in a period of world instability (and not just with currencies, but with all kinds of crazy world events from Russia to the Middle East and hundreds of other places. When interest rates are at zero, fixed income investments look like cow patties and virtually everything else shines like a diamond, even though that alternative investment may eventually be a warm cowpie itself. THINK BEFORE YOU STINK (at holding onto overpriced or failed investments). Be level-headed and proactive, and you will ultimately win the investment game.’

 

 

 

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After going through a dry run with AAPL (Apple Inc.) with NeuroShell Trader, on Friday afternoon, I thought all was ready to go for a Monday test run for one day’s worth of stock selections, just like in the old days ( is 2004 to 2010 considered the old days?). Well, as it turns out, when I got ready to initiate some new neural net charts tonight (needing statistical verification), I began to receive error messages from the math engine in the software that there were multiple calculation problems, and that the software HAD to shut down (as if it would really know it had to). I have sent the technical reports to Ward Systems as the software directs, but I am almost certain it is a network problem on this end (which will be found via the error message, as it has in the past).

Looks like it is another mea culpa for me this time. Lets see how the analysis goes and give me at least a day to run tests on the problem, and I will return ASAP to finish the situation.

I am currently dragging video equipment into my makeshift studio and I will shoot a short video asking readers specific questions about what you want out of this blog. I can create a multitude of products, but unless I know precisely what you want, I will be wasting my time, and I refuse to do that, not just for my sake, but for yours. I want to provide you a useful and valuable service. When I was cranking out trades left and right on StockTwits 7 years ago, I focused only on swing trading stocks. I know some of you want short blurbs with charts (like my content partner). I have had hedge fund managers and independent traders want more in-depth technical analysis like my long-form analyses. I can do a broad range short-term, intermediate term (6 months to 2 years) and even a long-term portfolio too, but again, that will depend upon you and your needs.

I will be back ASAP with a healed software package and network difficulties resolved. Thanks for your patience, and THANK YOU FOR CONTINUING TO SUPPORT THIS BLOG!

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If you missed the first post, here is your second chance to read it. Let’s continue the discussion of convergence lines in context to the trend (since I am still fiddling around with getting the scans going at the moment). Take a look at this chart, which includes the two most recent lower highs prior to the last one on February 2, 2015 for CL #F (the continuous contract of NYMEX crude oil futures prices). That technique is something discussed in an old book (which is quite a good and foundational one about trend lines called “Techniques of a Professional Commodity Chart Analyst, by Arthur Sklarew” . Get it at Amazon, it will be one of the best pennies you have ever spent, particularly if you are a beginner at technical charting.) Mr. Sklarew died 20 years ago, but I think the book is a classic, particularly if you want to understand simple key charting concepts.

There are a few important things I want to point out here, as it looks like we still haven’t quite gotten the bullish case I described in the original post.

1) According to Skarlew’s book, to really get confirmation on a trend line (in this case, the orange line is a downtrend line), you need confirmation by having that line touch a high (and no more than that) 3 times. A good start toward finding one is to connect the previous two higher highs (in a downtrend line) or higher lows (in an uptrend line). If you do that, the odds can increase (based on experience I have had and not on a count provided by a neural net) that your odds of being right on the trend become roughly 7 out of 10, as long as the volume does not reverse on the original trend (which for now is down). The odds of a downtrend go even higher if there is an  bearish engulfing candle just before or after a touch of that trend line. We did get close to a touch on the Friday, February 6 rally, but we did not get it. We also got a very modestly bullish candle. If that fails, then we might anticipate a coming bearish candle on volume that might confirm it. We don’t have confirmation as yet.

2) One thing you need to realize also is that if a trend line crosses and touches a Fibonacci retracement or extension level, if that bar does not cross that previous high or that Fibonacci level or trendline, you also have a very high likelihood of a reversal if selling volume confirms the bearish engulfing candle. That too is missing thus far.

The bottom line is this:

If we do not cross that trend line and we get a bearish engulfing pattern on strong selling volume, the odds are getting close to unity for at least a retest of the previous low around that 43.40 level, and that the price of NYMEX crude oil could fall into the $30s/barrel in the near future. It will require some watching, and I will try to keep this discussion going until there isn’t much to discuss.

In other news:

Still working on data issues. I have also noticed that you people stopped emailing me about suggestions for content. Make sure you send me an email to buffalotrader100@gmail.com and give me your suggestions. I am all ears.

Remember too, that my partner Bruce Linker can help you write your automation code for TradeStation in Easy Language. Get in touch with him here to find out how!

As always, that you for supporting this blog!

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Crude Oil Barrel

 

 

 

 

Here is the latest update on progress of The Buffalo Trader blog redesign:

1) I now have real-time data for looking at intraday patterns using Ensign for calculating Fibonacci Patterns and price retracement and confluence work. The server is delaying some of that data, so I will have to wait to have up-to-date real time data, but it will be coming. At least now I can do analysis on weekends of the markets you want to see (forex, futures, and stocks). As this thing expands, more will be added to that.

2) I have the real-time end of day quotes running, and I am in the process of rebuilding the scans. Right after that, I will have the neural net platform (NeuroShell Professional Day Trader Power User, from Ward Systems Group.) up and running.

3) After that, I will begin the complete redesign of the blog as a magazine-style authority site. It will look empty at first, but I will be in the active process of finding guest content providers, adding my own content, including scans (though I may only do them on a once weekly basis to reveal the most interesting sectors and stocks I find within them), and building out the information infrastructure (which will include an e-mail pop-up page from which I want to obtain emails from interested readers who want a good e-mail newsletter (on a monthly basis at first, but eventually, a bi-weekly one) that covers information about trading that they want to see. Now, I have noticed over the last few days that you folks are slacking up on giving me suggestions on the kind of things you want to see in my blog. I promise you, I am not psychic, so I need your input to make this the best trader resource site you can find anywhere. Give me your suggestions by sending me an email to buffalotrader100@gmail.com. At some point in the future, I will have dedicated email servers, but this will have to do for now.  I am massively busy trading, running other business, and basically getting life going while building this new site. If I can write, then YOU can write me about what you want. You ARE after all, the customer, right?

LETS GET DOWN TO BUSINESS NOW. One of the things I think The Buffalo Trader can do is reinforce some basics of price analysis and technical analysis that you NEED to have in your tool box to make better decisions. You will NOT always make PERFECT decisions when it comes to price, but you will know what to do if you are not, as long as you understand how to figure out price objectives. Since we are trying to be current and cogent to real market events. I have selected NYMEX Crude Oil Futures (CL #F, the continuous contract for NYMEX Crude Oil). I am using the DAILY CHART though February 3. 2015 (yeah, I know its not current as of today, but there is a method to my madness).  Many out there are wondering where the ultimiate low is on a daily basis (as well as a weekly and monthly basis, but I will stop short at daily for purposes of demonstration).

Note that on that chart above, you will see clusters of line that intersect with the 0.618, 0.786, or 0.50 retracement areas and other 1.272 and 1.618 extensions of other price action above the varoius momentum highs. If you see two of those lines in close proximity, there is considered loose configuration in those prices. Price action may rest there after a rally from those lows shown in red. If you see 3, you are looking at probably higher than a 50% chance of at least minor price resistance after a rally, and if you see 3 or more (typically 4 is quite strong) you will likely find major price resistance should a rally from those lows gather momentum. Take a look at this marked up chart around those price levels. Given that criteria, there are minor price confluence areas around $53.70,$84.00, and $95.20/barrel, and major price confluence areas at $63.60, $69.30, and $75.60/barrel. That also tends to make sense, as those various major confluence zones surround the significant 0.618 retracement level of the entire down move.

What that chart represents is the previous price action of the down trend being revisited frequently at major retracement points and extensions of previous countertrend rallies. To use a hunting analogy (and don’t go bonkers animal rights folks), it is like finding dear tracks in a baited field where salt lick has been laid down in previous days and months. The deer (traders in this case) tend to congregate and recongregate along those similar hunting areas (price levels). I have a friend who teaches that trading is equivalent to air war and that your hand should be on the trigger of your howitzer as you fire your bullets that the opposing plane. If you understand the symmetry of markets (even in short rapid time frames), I think trading IS indeed a lot like deer hunting. You set up your stand, you await your target (depending upon whether you are looking for support to go long or resistance to go short), and you strike it when the time and the price are right. Trading doesn’t have to be a random event, as long are you are prepared for the scenarios that will reveal themselves over time to you. If you are prepared, then you can act decisively, like that expert deer hunter, and not fire at anything that moves (like certain ex-Vice Presidents of the US have done lol). If you have a written or properly automated trade plan in place, you can do exactly what you have to do, and no more, to achieve a profit.

If you want to have an idea of the general area that could be the bottom you have a couple of initial choices 1) the “double bottom” low on CL #F that occured at $44.35 to $44.31 and 2) an even lower low should that $44.31 low be taken out. How would you begin to know or be concerned about a lower low occuring (particularly if you had just gotten long at or very near the 44.35 to 44.31 “double bottom” low)? Well, there IS one small exception one could take to the confluence chart I created shown here. Since that low was put in, CL #F has rallied to within (but not yet crossing above) the 61.8% retracement of that second momentum high prior to a major one. IF that 61.8% (o.618) retracement level is NOT taken out, then the odds are greater than 50/50 that a retest of the previous low is at least possible. Had it not retraced above the 38.2% retracement of the last swing prior to the momentum low price, the odds would  become greater than 50% that there will be ANOTHER MOMENTUM LOW equal in price to the high of that bounce swing less the difference between that momentum high price and the momentum low price in the sequence, (the one circled in green in the original chart). If the time up were equally symmetrical to the time down, the odds of that new low would be roughly 75%. In this case, that new low price would be 54.24 (the Feb. 3 high) less (69.54 (Dec 1 high) -44.31) or   $29.01! (That assumes that complete price symmetry holds as it did on the initial down move). It is NOT an absolute, but it is a very distinct possibility).  (How do I know about those probability figures? Over the years using the neural net models, those statistics kept popping up on patterns like those. Similar set-ups, as repeatable as the are across the sequances of market action across history, have amazingly similar results).

Now, its not a bad idea to accept the resonableness of an assumption that prices could vary in the near to intermediate term from $29.01/barrel to as high as $95.20 a barrel in the future? Can such markets like crude oil really be THAT nuts? If you look back at the oil collapses of 1986, 1990 (after Gulf War I), 1999 after the last real oil glut struck the world (and led to $10/barrel crude oil and gas prices under $1.00/gallon), and the oil price collapse of 2008, one can conclude that indeed, this kind of crap almost seems NORMAL! With a narcissistic statist as President and a neo-fascist dual-major-party-led Senate and House of Representatives bent on holding power for its own sense of self-preservation against public pressure (and wanting such “free market” concepts as higher gasoline taxes and the considerence of a trace gas (carbon dioxide) as a pollutant, one should expect both demand and price to fluctuate wildly. As power demands (restricted by fuel source) and supply fluctuate wildly under regulation, it is natural to assume that prices will become unpredictable.  Where Saudi kings and princes wish to slash prices to destroy competition in Russia and the United States (even against their own budget deficits, which are growing), the environment for wild price swings is fertile and will likely get no calmer. Those coal and gas fired electric cars along with the lack of realistic power demand supplied by wind and solar power will virtually guarantee that we will at some point see crude oil and gasoline prices begin to spike as supplies shift and change under central planning.

Traders need to be prepared for those events so even, as the Billy Currington song relates, God is not good (particularly if the God being worshiped agrees with burning military pilots and killing innocent hostages, and the beer is not good (for any reason), the one thing that destinguishes all financial and commodity markets is that PEOPLE ARE CRAZY! They seek irrational means to obtain what look like rational profits, and the majority fail to do that. You, on the other hand, do not have to be like Bill O’Reilly, complaining about evil spculators in markets, as long as you understand the basics of price structure. You would understand that when those evil speculators allow prices to fall as demand parameters wither, they can adjust to those conditions to be short a commodity like crude oil. Suddenly, all that evil speculation pays you AND the financially destitute American family. Lets at least hope the out-of-control political class will at least allow some free market activity. It may be the consumer’s only chance for relief!

Hopefully in the future, we will have a government and an industrial infrastructure and banking system that will support and not thwart the liberties and economic prosperity of the American people. One can only hope. Be ready for the market craziness that is ahead though. Understanding price levels and price confluence will help you do that. Always BE PREPARED!

Here is a little postscript….take a look at this chart, showing the February 4. 2015 bar. Turns out that as of writing this, CL #F had rallied to 50.80, meaning that the low at the 0.618 retracement of that little up move from the end of January HELD! That would set up a potentially symmetrical move back to that lose area of confluence around 56.70. It will be interesting to see how far this rally will take the price of NYMEX Crude Oil. From that low, we have rallied almost 14.7%, and could rally back to almost 27.9% (56.70/44.31 – 1 *100%). That is quite a price fluctuation, and easily explains why the Lundburg Letter is calling for higher gasoline prices very soon.

As always, ladies and gentlemen, thank you for supporting this blog! More good information and research is coming soon.

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I am finally cleaning up the mess that was once one of the most popular blogs for pattern trading, and it is being resorted.

Among the initial things going on:

1) For now, the old ads are gone. They may return, but they should be more conveniently placed.

2) The cobwebs are being swept from the blogroll. More items will be added, and a few more my disappear.

3) I may decide to blow out some of the old content, though there will be some essential things left that are core to understanding what I do.

MORE IMPORTANTLY THOUGH….

1) There should soon be an e-mail list being developed, not to bombard you with spam, but to provide you with valuable trading and investing content. I personally would like to know from those of you who are still around

a) how often you would like to see it.

b) other than references to my content or to my set-ups, what other information on either neural nets, technical analysis, or sector analysis you would like to see in it.

c) any other suggestions you might have to useful trading and investing information you would like to see. I know there is a ton of crap out there, but I have done my best in the past to provide high quality content, and I will  gladly do it again once I get my feet on the ground with this blog once more.

2) There is also going to be a membership site associated with my set-ups and, initially offered free, until there is a sufficient track record re-established, a portfolio listing of longer-term stock positions I will build. I am not yet certain how I will roll that out, but I think it is a worthwhile exercise, as I can show you my basic philosophy in regard to making and holding a portfolio.

I appreciate your patience during this transition. I have a lot of learning and re-design to do here, but I think, in the end, it will be worth it for you folks. I will not be as active in StockTwits as I was at the peak 4 or 5 years ago, as I do not have the time to devote that that, but, I can be a good provider or solid information, some of which will show up in the Twitterverse and other galaxies in the social media universe. Hopefully, this site will not be a drifting black hole in that universe, but a source of light :). Only time will tell!

Oh, most importantly, if you look at my blog roll, you will see a new addition, www.linkertrader.com. Bruce Linker, my partner, is a certified EasyLanguage Specialist. He will gladly offer this very thorough, fair, and affordable programming assistence if you have a strategy you would like to program into the TradeStation platform and automate. It is possible from time to time that I will be featuring a limited discussion of this topic, as well as a discussion of NeuroShell Day Trader Professional, in upcoming posts. The key thing is, if you need programming assistance, Bruce Linker will help you!

I will now be getting back to rebuilding the database, re-establishing the neural net infrastructure, and gearing up the charting over the next few weeks. I am pretty confident this will succeed, because I am good at this (as many of you have told me, and that I know myself, having done this, when you begin to count this year, over 30 years). Back to the grind. No bulls, no bears, only BUFFALO! I wish all of you the healthiest, happiest, and most prosperous year in 2015! You all deserve it. I cannot wait to make this a blog you will anticipate and enjoy learning (and hopefully making money from)!

Once again, thank you for supporting this blog!

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