Trader's Holy Grail

Ideas come from everywhere

noreply@blogger.com (Klatuu) — Mon, 10 May 2010 04:49:00 +0000

This person is using limited resources for an idea which doesn't have a solution, yet.

Just a thought.

Klatuu

The Greek Riot Line

noreply@blogger.com (Klatuu) — Fri, 07 May 2010 16:16:00 +0000

I'm showing a chart of the Emini-SP500 with a trendline that has not been crossed since the socialist began displaying their lack of productivity and walking around burning and throwing things, killing others in Greece.

A breach of this line will be an event in itself. Otherwise, stay on the short side.

Klatuu

Dollar Down, Market Up?

noreply@blogger.com (Klatuu) — Wed, 17 Mar 2010 13:24:00 +0000

The dollar has been dropping out of it's consolidation, piercing below 80.000 and appears to be headed for 79.500. This morning the dollar has trended below last night's chart.

A break of the 38% fib and fib-fan project it toward the 50% fib-fan line near the 79.500 level. Correspondingly, the SP-500 could follow it's trend and head towards 1180 over the next couple of weeks. Support could slow down this decline in the dollar, however, it would need to get to 79.000 before it begins to see a substantial supply. It may take that before we were to get a reversal.

Good Trading,

Klatuu

Dollar drops, now where from here?

noreply@blogger.com (Klatuu) — Fri, 12 Mar 2010 19:01:00 +0000

Some readers have been asking for an update to my recent post about the dollar. The dollar traded sideways a few more days, staying in the zone of consolidation described earlier. Today, as there are a few more hours left of trading, it has already dropped into support mentioned earlier at the 38% fib-fan line.

I've marked a support area in red on the chart below and you can see how it intersects a 38% fib-fan line there as well, near it's current price of 80.060. Should this breakdown a likely support area would be the 50% fib-fan line near 79.000. However, if it does get some support followed by upward momentum, it's possible we could see a rise to 81.500. Further weakness on the dollar could push the commodities like copper (JJC) up even higher.

May you live in interesting times,

Klatuu

Is the tide going out? Who's not swimming with a suit?

noreply@blogger.com (Klatuu) — Thu, 11 Mar 2010 17:22:00 +0000

Overbought may be the only way to describe the market of the past nine days. Up on every session. It's no wonder we're getting short signals. The Dow Jones Industrials ($DJI) are lagging the SP-500 ($SPX.X) which seems unusual. Yet the Dow Jones Transports ($DJT) are leading both the Indiustrials as well as the SP-500. So, Dow theory is leaning bullish. It is a Bull driven market, and waiting for these usually profitable counter trend pull backs can get old. But I would be remiss if I didn't update you on the current readings of last night's MktDiff indicator.

You can see the recent three signals we've had indicating a short here and how similar this period is to our more recent January 2010 series of days that did pretty much the same thing.

The decline in volatility over the last six months has brought trading back to June 2007 levels (chart of $VIX.X below) and put many traders to sleep. While the decided lack of volume makes one wonder if there's not a better place to put your money? Fear not, someone somewhere will do something to rattle the stability and make the spreads go wider. Make sure you're wearing a suit when the waves go out. I hear those tsunami's can really pull the water out from under you before they hit.

Keep your pants on,

Klatuu

Mouthwash Swing Short Strategy Now All In

noreply@blogger.com (kwheeler) — Thu, 11 Mar 2010 04:07:00 +0000

I was filled today on my last scale-in for the current Short signal based on the Mouthwash Market Breadth Indicator. Psychologically, it has been hard sticking to my pre-defined scale-in levels in the face of a raging bull market. However, as the chart and performance report below show- the indicator rarely gets beyond its present levels without at least a pullback of a day or two.

My gut says I will be stopped out before the pullback. But with the system track record, I trade the signals without hesitation, and let the market do what ever it’s going to do. As the performance report shows this has been a consistent strategy over several years (both long and short).

Anyways, I’m now all in with a calculated risk, my OCO GTC exit orders are in, and my trade is at the mercy of the Randomness God.

Good Trading,
kw

Click Chart for Full Size

Gold Miners GDX may be loosing steam

noreply@blogger.com (Klatuu) — Wed, 10 Mar 2010 17:28:00 +0000

Recently a friend asked me about GDX and I thought you might be interested in it too. First I'll give you a long term look. You can see on this chart, the 76% Fibonacci level from back on January 2008 shows a resistance at $47.18.

Now, let's zoom in to a more recent view of the same chart. Drawing another set of fibonacci retracement lines on last December's peak down to the Feb 2009 low we see a 50% retracement at $47.44, which is very close to the longer term 76% retracement at $47.18, causing a more significant area of resistance.

You can next see the recent pattern of a bearish flag drawn in here. I've drawn in red what I think may be a likely scenario for this stock. If it continues up, a resistance near $44.50 may be a good headwind and then a decline back to the $39.48 low is likely. This is my favored path. Otherwise, should it power through the $44.50 level, $49 is in the cards and possibly up to $52.

Trade happy,

Klatuu

VIX-_SPX Relationship

noreply@blogger.com (kwheeler) — Tue, 09 Mar 2010 16:51:00 +0000

VIX vs. SPY (Click on Charts for Full Size)

Implied Voatility Mean Vs 1 Year Ago (ivolatility.com)

Steady Decline in Inplied Volatility

Mouthwash Strategy Short Currently Has an Antiseptic Sting

noreply@blogger.com (kwheeler) — Sun, 07 Mar 2010 23:54:00 +0000

The SP-500 gapped up Friday with the usual trader overreaction to the Jobs report. (A report that always gets modified later). I got filled right after the open -scale-in entry #2- on the Short position I am building on SPY. The anticipated resistance at previous support
http://tradersholygrail.blogspot.com/2010/03/ideal-area-to-get-shorter-with.html
was blown thru by a combination of eager longs and some probable short covering. Whatever you call it, there was solid buying and my current position is presently underwater.

The beauty of systematic trading is there was no reason for me to panic or watch the day unfold. The system will exit on its own via a Stop, Target, or Exit signal. Presently, I do not have a full position, and with an 80% win rate on this strategy (on the short side), I will take a Signal for the last scale-in with no hesitation. The proprietary Market Breadth indicator shown on the chart below is now at levels it rarely gets too, and jobs report moves have a tendency to reverse (at least pullback or bounce) with in a few days. Regardless of the outcome of this trade, taking proven high probability signals with a defined calculated risk keeps my emotions at bay.
Mouthwash Strategy Performance Reports

The position sizing and scale-in part of the strategy is key in taking the sting out of days like Friday. The algorithm reduces system draw downs and often gives the position a better overall entry then the original signal. The drawback is on the signals that profit quickly you only have a partial position. But for me, the holy grail of trading is a calculated risk to manage the losses. That makes it easy to take strategy signals. Even when the Mouthwash is stinging….
Good Trading,
KW

Click on Chart for Full Size

Ideal Area to Get Shorter with Mouthwash Strategy

noreply@blogger.com (kwheeler) — Fri, 05 Mar 2010 06:01:00 +0000

This Fridays Jobs report usually provides some market fireworks, as Traders typically over-react to government data that is continuously “revised.” Often a big move in the pre-market futures is reversed during the same day or within a few days. My hope is the report sends the pre-market futures into the area highlighted on the first chart below. Previously, this area was major support, and could now act as resistance. We will see.

Click on Charts for Full Size

As posted on Tuesday ( Mouthwash Post ) the Strategy based on the proprietary market breadth indicator (AKA “Mouthwash Indicator”) fired off a Short Signal and I took a partial Short position. I missed getting filled on my second scale-in by .30 cents on Wednesday. (The strategy does up to 3 scale-ins at volatility based levels) A jobs report move tomorrow into those levels would be an even better place to add to my short. When a super reliable indicator and strategy coincide with a key technical level, it is an ideal set up.

Which ever way the market reacts tomorrow, I will exit on either a volatility based target, a volatility based stop, a close below the 8 day moving average or Time Stop. (Thursday the 11th). However, I would like to accumulate a bigger position before one of those happens. The Highlighted area would be ideal.

In a different time frame, I was looking at some monthly charts trying to get a sense of where we might be headed on a longer term perspective. I found some interesting parallels with the 1970’s on the charts below. My hunch is we are in for a stagnant market for a multi year period. Time will tell. In the meantime…

Good Trading,
KW

Market internals indicating another drop

noreply@blogger.com (Klatuu) — Thu, 04 Mar 2010 07:03:00 +0000

Two of our indicators, the MarketMatrix and the MarketUpDownCandles, are showing a possible short term peak, usually followed by a modest drop. A third indicator, MkttDiff, seems to confirm both of these. First let's look at the MktUpDnCandle.

When two or more of the red bars on the bottom indicator in the chart are followed by a small blue bar, it has usually been followed by a drop in the market's price.You can follow the bars on the bottom with the price to see this pattern. Another of our indicators, MktMatrix, also looks at internals of the market to identify patterns of movement. The yellow line (in the chart below) usually peaks on the indicator, and is followed by a higher price, peaking and then falling again. This is then followed by the Orange line coming from the bottom of the indicator and crossing the yellow line. At that cross, the market usually shows a decline in price while it digests this change. Sometimes the crosses can take a couple of days. Finally, as a confirmation, the MktDiff indicator (previously discussed here) is also anticipating a market drop (2 chart down).

MktDiff anticipating a drop in price.

Plan accordingly and good trading,

Klatuu

Mouthwash Strategy Signals Short

noreply@blogger.com (kwheeler) — Tue, 02 Mar 2010 21:56:00 +0000

This Strategy based on the proprietary Mouthwash breadth indicator fired off a short signal today. I have been trading and using this strategy for two years quite profitably, and with the performance statistics shown below, I take the signals with no hesitation.

This system uses a breath indicator to enter positions Long and Short on SPY. Back testing and subsequent trading has shown this orthogonal indicator (it is not derived from the price action on SPY) to be a considerably more reliable Overbought/Oversold indicator then traditional OBOS indicators. The indicator continued to perform brilliantly in the out of sample trading that included the 2008 market meltdown. The chart below shows the indicator and some recent trades.

I took a partial position short at the close, and will use a scale-in strategy to build a full position over the next few days. The system will exit based on either volatility based target, a volatility based stop, or a close below the 8 day moving average (on short trades). There is also a time stop of 7 trading days (on short trades).

The bottom line is there high probability of a large down day in the near future. Historically, many of these signals turn into larger moves. For now the indicator says get positioned short, and why argue with performance...

Good Trading,
KW

MktRSI for March 1, 2010

noreply@blogger.com (Klatuu) — Mon, 01 Mar 2010 06:52:00 +0000

Our trusty MktRSI indicator and it's companion MktDiff indicator both have their own views of the market internals.MktRSI is good at anticipating the extreme highs and lows in the market, anticipating sharp turns, while the MktDiff indicator demonstrates which signals are stronger than the noise.

There are also divergences one can see in the MktRSI and I've pointed out some examples in the chart below. I'll be watching to see if the next couple of days has a setup of a divergence like the examples.

Klatuu

Is the dollar bullish?

noreply@blogger.com (Klatuu) — Fri, 26 Feb 2010 20:31:00 +0000

The run up in the dollar (@DX, $DXY or the DXH10 contract) since December '09 has been a nice change since the long fall from Nov '08. Yet, can it continue? Taking a gander at a longer term chart below shows the run up from July '08 to Nov '09 and then the subsequent fall down to the 80 level in Dec '08, a climb back up to almost the previous high at 91 and then the steep fall to it's more recent low in Dec '09 of 74.27.

Looking at this with Longer term Fibonacci levels we see a 38% retracement line at 80.48 and a 50% retracement at 82.57. There's a bit of congestion (read resistance) acquired during the fall that I've outlined in the blue box between 80.27 and 81.85. We may need to spend some time in this congestion zone before we break out of this box, yet there's still support down near that round number 80.00. People love round numbers, don't they? Ever asked some to pick a random number between 1 and 100? How many times they'll pick those round numbers like 80 rather than the more plentiful decimals numbers like 3.1415 or 61.8 or 76.4? I think it rolls off their tongue better than those messy decimals. You get the idea. But, I digress.

Enhancing this view is the shorter term Fib-fan lines from Dec '09. The dollar's been hugging the 23% fan line a lot lately. While we could see a pullback toward the 38% fan line before we get out of this box, and maybe a small pull back too, it does look like a continuation in the zone. Below is a closer look at more recent activity.

Good trading to you,

Klatuu

History Repeats and Those Trusty Fib Targets

noreply@blogger.com (kwheeler) — Fri, 26 Feb 2010 04:04:00 +0000

On Tuesday I posted an initial target for my short position on the SP-500 based on Fibonacci extensions.
(Anatomy of a Selloff and SP-500 Targets)
I penned concern the area we were in had previously been an area with no real direction or follow thru in either direction. An entire month of a trend less market dominated by alternating opposite direction bars.

Fast forward to today and I woke up to the makings of a really nice short trade. The market gapped through my first target - “ringing the register"- and I had visions of a market meltdown racking up big $$$ on the second half of my short position. I dutifully set my second target, brought my stop down to breakeven, and ran some errands. I came back about a half hour before the close expecting to see some real market ugliness, and instead found a pretty bullish reversal had transpired.

It turned out the Fibonacci first target was pretty much the low. With a nominal follow thru to today’s reversal, I will likely be stopped out on the remainder of my position. I wrestled with reversing my position near the close but decided to stick to my trade plan, and let the market decide where I’m out of my short. (Stop or Target #2).

For now, history is repeating as the bulls and bears battle to a stand still in the same area as their previous stalemate. There is no reason to take a large position in either direction.

Good Trading,
KW

Anatomy of a Sell-Off and SP-500 Targets

noreply@blogger.com (kwheeler) — Wed, 24 Feb 2010 05:46:00 +0000

The first chart is an anatomy of the failed Breakout and subsequent sell off in the SP-500. The market found support on a confluence of Fibonacci Fan Lines and positive Breadth divergences.

The SP-500 has now retraced now to the .618 Level of the sell-off. This area was also smack in the middle of the month long consolidation and base the market broke out of . Technically, since this base (support) has been broken, retracements up into it tend to act as resistance, and with the Fib confluence was a solid technical reason for todays down draft. Did I mention this was also the 50 Day SMA.

This price action also puts a possible head and shoulders pattern in place. However the neck line is still 50 points away and the Fib fan Lines that were previous support are looming well before the neckline. (Would need to break it to complete the pattern)

The second chart shows the basis for my first target on the short position I am presently holding. The Target is set at 1090.83 (3 points in front of the .236 Fibonacci extension drawn from the 1150.45 High down to the 1144.50 Low and hung from the 1112.42 High) If my target is hit I will switch from a hard stop to a trailing stop on the remainder of the position. I am cognizant and concerned that this area spent a month with out any significant follow thru in either direction. History could well repeat and I will take profits as they present themselves.

Good Trading
KW

Market internals expecting a drop

noreply@blogger.com (Klatuu) — Tue, 23 Feb 2010 15:00:00 +0000

MarketRSI is showing a decided drop in it's recent price momentum. This can be seen on the chart below by following the Black line in the lower indicator. Usually when this indicator hits a peak, the price will drop within a couple of days afterward. This drop is followed by a rise in the lows (as you would expect) and can be seen by a rise in the thin red line (noted on the chart below). A good trade is when the redline crosses the blue line of Highs. Although price on the SP-500 has hardly moved over the last few days, it appears the market is getting tired. The SP-500 with MktRSI is on the following chart:

This drop of momentum can be seen in the Dow-30, NASDAQ-100 and Russell 2000. This second chart is the Dow-30.

This chart below is the Russell 2000 index.

And finally you can see the same has occurred in the NASDAQ-100.

Klatuu

Market internals trade complete

noreply@blogger.com (Klatuu) — Fri, 12 Feb 2010 01:38:00 +0000

The bullish upmove today started with a shake out and then gathered steam to bring in a decided bullish move. Our MktMatrixHiLo indicator had seen a possibility of this move coming a couple of days ago, so I alerted the readers of this blog. The chart below gives you a description of when the move was made and how much it moved. This indicator is a reliable identifier of this type of move. You can see in the previous post some of it's other trades.

This is a chart of the SP 500 cash index with a closing trade from the MktMatrixHiLo indicator.

Klatuu

Market internals indicating a bullish stance

noreply@blogger.com (Klatuu) — Wed, 10 Feb 2010 06:43:00 +0000

There are conflicts in this market with the Bears throwing down the Bulls more frequently lately than anytime since last March, however, an indicator that picks out swings in the braoder market has a different opinion. It would appear that our own indicator, the MarketMatrixHiLo indicator, is showing a significant decline in it's lows. You can see this in the yellow line at the bottom of the chart. Correspondingly, the orange line of Highs is coming up from a recent bottom and crossing the yellow line's lows.

Similar to this scenario, I've marked other occurances using the blue vertical lines, showing noted short term bottoms in the market. Those other occurances have seen sharp declines in both price and the MktMatrix's Low line followed by a steady climb up of the High line over the next two to three days, which has been followed by a corresponding climb in price as well.

The highlighted white center box is a blow-up of the indicator on the lower right corner. Here you can see the SP-500 cash index. While this doesn't indicate the market will stay up, it seems to indicate it we'll have an upward move.

Klatuu

MktRSI completed trade

noreply@blogger.com (Klatuu) — Fri, 05 Feb 2010 03:14:00 +0000

We got our exit signal for MktRSI and it played out like the other historical signals, albeit with a bearish bias. Below is an updated chart of the SP-500 showing the exit signal marked with a vertical blue line. While normally in a bullish market, we would have seen much more upside, it appears we are in a trend change.

MktRSI showing follow through

noreply@blogger.com (Klatuu) — Tue, 02 Feb 2010 16:51:00 +0000

Looks like we're seeing a good strong move. I've updated the MktRSI intraday to see where we are and the progression is toward higher prices. See for yourself. This chart is of the SP-500.

Klatuu

Internals are showing a rise is expected

noreply@blogger.com (Klatuu) — Thu, 28 Jan 2010 04:42:00 +0000

Demonstrated in the charts below is an indiactor which has been good at finding significant market moves. It is a market breadth indicator (MktRSI) which has been applied to the SP-500 ($SPX), Russell 2000 ($RUT) and the Nasdaq 100 ($NDX) seperately. When extremes are noticed in it's values either from the lows (red lines) or the highs (blue/black lines), typically a reflexive move can be seen from the opposite line and usually within a few days of the original move or peak. While it's doesn't show exact tops and bottoms, it finds a majority of stocks moving in that direction, hence the breadth.

This first chart is of the S&P 500, where you can see the thin red line of lows circled in yellow hits an extreme reading (different for each index) and is followed by another extreme reading of the highs (black line for SP-500, blue for the other indicies). The highs are circled in blue. I've included my projections with the dotted blue lines followed by a blue circle. This pattern has shown a high degree or repeatability.

Here's the Russell 2000:

Finally, the Nasdaq-100:

Happy Trading,

Klatuu

Things are changing

noreply@blogger.com (Klatuu) — Mon, 25 Jan 2010 16:34:00 +0000

We've been making changes to the parent website and have included trading systems and their signals. These are some 70 plus percentage winners there. You can get the signals free, just for signing up for a password on the site.

Klatuu

NTRI hasn't triggered

noreply@blogger.com (Klatuu) — Tue, 19 Jan 2010 16:57:00 +0000

NTRI hasn't triggered and probably will not for this type of trade. by not getting low enough quick enough it reduces the possibility that it would bounce back. This reduces the risk to reward ratio as well as the likelyhood that it will reach our target as well. Time to look for another trade.

(Originally posted on Jan 8th, 2010)

Klatuu

NTRI ready for a bounce?

noreply@blogger.com (Klatuu) — Wed, 06 Jan 2010 14:36:00 +0000

Let's see if NTRI is ready for a bounce. With such a pull back, we may get a spring back up.

You may give this one a bit of room for your stops though, perhaps down near the 50dMA = 26.20. The support at 26.60 is not strong, and may have to travel a bit lower, which will be better for the risk to reward ratio. It could go as low as $25.80 before it turns around, so be cautious, watch for it to turn, if you can. If it gets that low, then a stop near 25.25 would be a good place for safety.

Klatuu