Lets review today's action. 1. Our bias is still pointed downwards and the more bearish scenario is in effect. The bias is determined through a variety of factors. I showed you how to look at the S&P through 9 different sectors and 10 different stocks. I showed you how commodities and even the vix can effect our bias. I only trade in the direction of my bias meaning up (long) or down (short). 2. We sold off big at the open. The number one rule is to follow the trend with a trailing stop. The stop is set depending upon your good judgement, basically an educated guess. Ride the trade until the stop is either triggered or cash out at the end of day. If you are a daytrader, then daytrade, cash-out at the end of the day. 3. We have developed a master chart which I will attach again. This is our master trading chart (for now). Price sold through the 874 level with conviction. At about 10am, we went short. Remember that we do not trade the first 30-90 minutes of the trading day. We need to watch the trend. During that 30-90 minutes, you develop a trading plan. 4. We had a volatility event that we established a guideline. In the past, when either Bernanke or Paulson have talked, the market has sold off from the very first word out of their mouths. This guideline proved to be good. Bernanke came out and spoke. The market tanked at some point. I didnt watch the speech, I just knew the times when he spoke. I dont need to know what he said. I just need to know what usually happens when he speaks. 5. When price sold below 840, then if you were not short you should have gotten real short. When price falls below one of the retracement lines on our chart, then you know it will sell off even harder. When price falls below established lines then you know that someone's stop will go off and there will be additional margin calls for the longs. 6. As price fell, I got even shorter throughout the day. You never go all-in with these trades. You want to set a trial position and then add to that position as price falls. Another method is to make several trades and to set several trailing stops with different prices. As price falls, you get even shorter. As price goes up, you cover. Simple formula. Remember, there is no one at Brite or Swift trading looking over your shoulder. You are the risk management department. This is how we manage risk. When these stops cook off, it may prove frustrating, but our goal is to make money everyday and not lose it. As long as you turned a profit, thats not frustrating. 7. Jesse Livermore never made one dollar by either watching CNBC, following Bloomberg or sitting at screens looking at price the entire day. Turn the television off and get up out of your seat during the day to do something else. The trailing-stops will take you out of the trade. Trust the charts. 8. When your stops are triggered, do not jump back in but watch and develop a new strategy. 9. There are two scenarios to every chart. I painted two pictures with the same chart using commonly known chart patterns. Acknowledge the two potential realities, but place odds on each. When you are sitting at the poker table, the odds flow in real time in your head. The poker table, however, is unforgiving. This table allows you to get out of the bet with trailing stops. 10. Here is our chart. I covered my trade at the end of the day as my trading rules dictate. Watch that level at 805. It wont get there all at once, or it might...I have constructed a chart suggesting that the time period to reach lower lows (sub-740) is about 10 days. 11. No matter what I post on this thread, things can change in a matter of seconds from day to day. The charts can change quickly. When the stops get hit, you have to revisit all of your charts and see if there is a different reality folding. Things are never as easy as they sound and the market is dictated by 1000s of factors. 12. Look at the pattern forming on the master chart. Your vision might have caught that line. After looking at charts for years, these things may just jump right out at you. I drew a thick line to demonstrate. This chart is an updating chart and will change depending on what time you look at it.
Lets go back and revisit the NYSE margin chart. I would bet we are right now at the trend line for margin, but am now more willing to bet that the margin will eventually get to 2003 levels. This chart is not updated with November or December data. We will only know the data until the end of December. Im betting that we have 60 billion more to burn off and that would put us square into the mid-600s over the long-term...
Here is an all data chart that I made a rough sketch. This big picture gives you a simple logical overview of how price has traded this year.
Look at this chart. Here are my observations: 1. Look up top at the Bollinger Band Width. Note its relationship to the VIX. The VIX is still pretty high while the Bands are constricting. 2. The 20 day moving average is leveling out. Every time, since mid-September, price has gone over the 20-day there has been a good sized sell-off. We closed over the 20 day on Friday. 3. Volume is still above average when compared to the start of the year. Look at the line I drew across the chart. This chart is one year exactly and you can tell the volume 1 year ago wasnt this high. This tells me that we are in for a volatility event that will either take us much higher or lower. Predicting which way is foolish. However, you know something is in the works fairly soon as the market is waiting for more news. My opinion is that all of the selling might have concluded for the year and new positions are being taken as the volume since October suggests. We might be in for a rally until the end of December which would be technical in nature. Its getting ugly out there economically and more so then just a few months ago. Plenty of guys I know from different sectors have been handed pink slips. If new positions are taken and then price slips, then stop prices get hit and there is the volatility event. If price turns from that mid line, then we will most likely revisit the 741 low if it not deeper. If price turns up, then I can see us reaching 1000.
Im going short this morning with a tight stop. I just shorted at 905. If it moves up much more, then I will go long. This is the chart Im working off of and you can see the logic that I am using.
I got stopped out earlier in the day. I made a few points as price went under 900 and then back up. I then waited for the moment where my bias would change. Price never made it over the line. Although today looks very bullish, its not bullish until price can move above the trend line. This to me is a somewhat bearish sign. The lines on the chart I am working off of have not changed. The price on this chart keeps changing so depending upon what time you look at it a different price will be posted.
The above chart is still holding. Short positions should be considered at or near the downtrending line. There were quite a few opportunities for price to go through the line, but it failed. I would expect new lows in the future unless enough volume can be mustered to break through that line.
Im going to switch sites and work off of another popular blogger's site. This guy is getting famous and known by the name of Atilla Demiray. Previously, I was using Tim Knight's charts, but now will use Atilla's. Look him up on google. Atilla is calling for a crash where as Tim Knight is calling for a 40% up move. Atilla is right now short the ES from 880 and states he wont cover until 550. He also has a portfolio of 3 ETFs SDS, MZZ, and TWM which are all ultrashort. Check out Atilla's charts: There is another guy that Atilla runs with called Sol. Here is a screenshot of Sol's account. As you can see, I have reasons for dumping Tim and going with Atilla/Sol.