Yesterday was a good day for us, in terms of reading the stock market futures chart pattern well in the premarket, and laying out the likely direction and targets for the day. Can we do it twice in a row?
Nah, but what the hell.
Why not try again? 😄
On a slightly more macro level, like 2 weeks rather than 2 hours, the Liquidity Trader Swing Trade Chart Pick List is having one of its best weeks ever. Normally when that happens, the market is on the hair trigger of a brutal reversal which obliterates all the profit, so this time I tightened the trailing stops to begin the week on Monday. So far so good. Three of the picks have been stopped out over the past week with gains of 1.1%, 23.3%, and 28.1%. They were all shorts. Nice going!
Here’s how the whole thing looks.
This theoretical performance is based on 100% cash, no margin. No options. It’s not sensational, but it is honest, and easy to follow. I post the opening picks on Monday morning before the open, allow them to trade for a week wherever they will, and then post stop levels or easy to follow trailing stop instructions. This way I don’t burden anyone with having to watch the tape every day all day. It’s a set it and forget it approach that requires about 30 minutes a week on Monday morning before the market opens.
Now back to the current list. Truth be told, all of the remaining picks that are doing pretty well at the moment are oil and gas related. When those signals first popped up two weeks ago, my reaction was WTF! But I honored the screen output, reviewed the charts visually, and picked the ones that had the best looking patterns and risk/reward setup, regardless of my market view. This is a mechanistic system that attempts to recognize short term swing turning points. Trusting that screening algorithm that I wrote in bits and pieces over the past 20 years, with the most recent tweaks in mid January, is the key. This week it paid off.
Will it pay off every time? Of course not. Sometimes there are externalities to the market’s and individual stocks’ wave actions, that act like bombs dropped on the waves. They disrupt or distort underlying wave patterns for days or weeks. The outcomes don’t conform to the algorithmic expected outcome. But this is a game of probabilities. If outcomes come down on the side of probability and the trades are set up accordingly, over time, they pay off.
So the approach must be mechanistic. Our personal opinions about market direction in the big picture shouldn’t play a role. When there are losses, that’s part of the process. The numbers game says that just persisting should result in more gains than losses, assuming that the algo is sound.
That’s for traders, of course. However, long term investors would do well to apply similar principles to long term charts. Which always boils down to following Rule Number One and Rule Number Two.
- Don’t fight the Fed.
- The trend is your friend.
If you pay attention to Rule Number One, you’ll have no problem in recognizing when the major trend is changing direction, when the old trend is no longer your friend, and a new trend will be. As an investor, the major trend is my friend, so if I have no choice, then I want to ride that bucking bronco until the Fed reverses course.
Unfortunately, if you’re limited to long only for example, in your 401k, you’re screwed. If you’re a long-only investment manager, you are well and truly screwed. Then there are years when the only logical choice may be cash. And then inflation eats you. Or you lose all your clients and your spouse divorces you and takes the kids, and you end up living in your elderly parents’ basement waiting for the next bull market. In the meantime, you short BTC and smoke weed.
Of course, if you were a really great money manager, you would have made your millions, and you’re living on a beach in Costa Rica. Smoking weed.
Since I don’t smoke week, I prefer the trading approach. I don’t want to be locked in to an investment view, especially long-only. I want to take what the market gives me in the short run.
In that vein, here’s what I’m looking at for today.
We started out yesterday with the view that it appeared that the wedge pattern that had developed was setting up a trend breakout. I showed the 2 hour bar chart to illustrate that potential. Sure enough, we got the expected more likely outcome.
Now we see the market at another old trendline extension on the 2 hour bar ES chart of the 24 hour S&P fuguetures.
At the end of the day yesterday, the 5 day cycle projection had settled around 4080. It did not get there overnight. Here’s how it looks on the hourly at 5:30 AM New York time. The 5 day cycle projection is now 4100, and if the ES gets to 4076, then it would have a clear path to that 4100 projection.
What are the bears’ chances here? Not great. At the very least I think they would need to be below 4040 at some point this morning. Barring that, the path of least resistance is up.
For the big picture:
- We Hold Our Gold Miners, Add Another May 24, 2022
- Even Steven in This Week’s Swing Trade Screens May 23, 2022
- Stocks Are Ahead of the Curve May 23, 2022
- Market Indicators Show Crash Risk Remains Intact May 22, 2022
- Gold Miners Make Short Term Bottom, But Wait, There’s More! May 17, 2022
- Buys Beat Shorts Again in This Week’s Swing Trade Screens May 16, 2022
- Dealer Positions Show It’s Not Getting Better and It Should Get Worse May 15, 2022
If you’re serious about the underlying forces of supply and demand that drive the markets, join me!
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Edited by DrStool
