Is FEAR keeping you away from trading the stock indices? Perhaps you feel that trading the indices will be like Superman stopping a runaway train?
Perhaps and perhaps not. Continuing from yesterday..……
We’ll use the GFA’s angle of ascent to identify the current S&P momentum.
The 13-week shows that since August 25, 2017, the quarterly trend in the S&P has started to accelerate. And, since Trump’s election, the rate of acceleration has increased to an R3. If the price structure aligns with the momentum grading, we’ll see corrections only in the second lower time frames, i.e. in 5-day swings.
The 18-day and 5-day swing chart show the momentum acceleration increased on December 29, 2017: from an R2 to an R3. For R3s corrections will be seen only in the intra-day charts, the 290-min or 60-min.
The next chart is the 60-min CFD. I’m showing this timeframe because it’s easier to see the patterns and zones. I am expecting a 290-min 5-period swing correction.
The first chart shows the stats for the 290-min. The current 5-period swing has moved 91.80. A normal swing is around 36 point, and the swing has a standard deviation of about 20.60 points. Statistical theory suggests there is an over 95% probability that the 290-min swing will correct. Because of the probability rating, I am unwilling to add to my S&P positions until the correction occurs.
The next question is: what is the price structure telling us?
We are seeing a decrease in momentum – what I want to see if looking for a corrective move. Notice that the S&P 60-min is now below the 4×1, and last night, was unable to close above it. A bearish-conviction close below the 2×1 will suggest a normal corrective 290-min move is underway. A normal correction in the 290-min is 20.60 with a standard deviation of 8.80. This gives us a range for the correction of 16.4 to 29.60, (2741.2 to 2728.0 basis the S&P CFDs)
Finally, two services:
suggest that we’ll see a top around January 10 and a low around January 22.
A correction of more than 50 points will sound an amber warning that the momentum has shifted and we may be on the way to seeing a larger correction. In that case, I’ll review my current strategy of buying the dips.
Why 50 points? Fifty points is greater than the 290-min, 5-period swing corrective mean + 3 stdev!
So to summarise:
- I manage my stock indices by relying on three indicators, Libor Rate, AMB, and Advance-Decline Line, to warn me of a top.
- I also rely on time and the price structures to provide warnings.
- So far, no amber signs have been thrown up. Until these appear, I’ll continue to buy dips.
- I’ll use trade size to manage the risk. I’ll also use my trade management rules to protect my capital, e.g. I’ll add to my existing longs only when the risk to the existing positions is as close to ‘0’ as I can get it. Trailing stops assume a large slippage on fills.
So, what do you think? Would you trade the indices? Leave a comment and let me know.